[Federal Register Volume 69, Number 3 (Tuesday, January 6, 2004)]
[Proposed Rules]
[Pages 565-568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-32330]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 447

[CMS-2188-P]
RIN 0938-AN01


Medicaid Program; Time Limitation on Recordkeeping Requirements 
Under the Drug Rebate Program

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: On August 29, 2003, we published a final rule with comment 
period in the Federal Register that finalized two specific provisions: 
it established new 3-year recordkeeping requirements for drug 
manufacturers under the Medicaid drug rebate program and set a 3-year 
time limitation during which manufacturers must report changes to 
average manufacturer price and best price for purposes of reporting 
data to us. In addition, it announced the pressing need for 
codification of fundamental recordkeeping requirements. On September 
26, 2003, we issued a correction notice to change the effective date of 
the August 29, 2003 rule from October 1, 2003 to January 1, 2004. In 
this proposed rule, we propose removing the 3-year recordkeeping 
requirements and replacing them with 10-year recordkeeping 
requirements. We also propose that manufacturers must retain records 
beyond the 10-year period if the records are the subject of an audit or 
a government investigation.

DATES: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on March 
8, 2004.

ADDRESSES: In commenting, please refer to file code CMS-2188-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission or e-mail.
    Mail written comments (one original and two copies) to the 
following address

[[Page 566]]

ONLY: Centers for Medicare & Medicaid Services, Department of Health 
and Human Services, Attention: CMS-2188-P, P.O. Box 8017, Baltimore, MD 
21244-8017.
    Please allow sufficient time for mailed comments to be timely 
received in the event of delivery delays.
    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and two copies) to one of the following 
addresses:
Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or Room C5-14-03, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.

(Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)

    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and could be considered late.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Marge Watchorn, (410) 786-4361.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: Comments received timely will be 
available for public inspection as they are received, generally 
beginning approximately 3 weeks after publication of a document, at the 
headquarters of the Centers for Medicare & Medicaid Services, 7500 
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of 
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view 
public comments, phone (410) 786-7197.
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I. Background

    In order for a pharmaceutical manufacturer's products to be 
eligible for Medicaid reimbursement under section 1903(a) of the Social 
Security Act (the Act), the manufacturer must sign an agreement with us 
on behalf of the Secretary of Health and Human Services to participate 
in the Medicaid drug rebate program. Among the terms to which the 
manufacturer must agree is the requirement to retain pricing data to 
support the calculation of average manufacturer price and best price as 
defined in section 1927 of the Act. Absent a regulatory or statutory 
requirement, it has been our position that manufacturers must retain 
these records indefinitely.
    On September 19, 1995, we published a proposed rule in the Federal 
Register that proposed numerous provisions related to the Medicaid drug 
rebate program. As relevant to this proposed rule, we proposed new 3-
year recordkeeping requirements for drug manufacturers under the 
Medicaid drug rebate program and proposed a 3-year time limitation 
during which manufacturers must report changes to average manufacturer 
price and best price for purposes of reporting data to us. On August 
29, 2003, we published a final rule with comment period in the Federal 
Register that finalized both provisions. In addition, we announced the 
pressing need for codification of fundamental recordkeeping 
requirements. On September 26, 2003, we issued a correction notice in 
the Federal Register to change the effective date of the August 29, 
2003 rule from October 1, 2003 to January 1, 2004. In a separate 
document published today in the Federal Register (CMS-2175-IFC), we are 
removing the 3-year recordkeeping requirements and replacing them with 
temporary 10-year recordkeeping requirements for the period January 1, 
2004 through December 31, 2004.
    In this proposed rule, we propose removing the 3-year recordkeeping 
requirements and replacing them with 10-year recordkeeping 
requirements. We also propose that manufacturers must retain records 
beyond the 10-year period if the records are the subject of an audit or 
a government investigation of which the manufacturer is aware. We 
propose that the 10-year recordkeeping requirement be effective without 
a sunset date provision.

II. Provisions of the Proposed Regulations

    This proposed rule would establish a 10-year recordkeeping 
requirement for prescription drug manufacturers that participate in the 
Medicaid drug rebate program. This provision would be set forth in 42 
CFR part 447 subpart I. Under the 10-year recordkeeping requirement, a 
drug manufacturer would be required to retain records for 10 years from 
the date the manufacturer reports that rebate period's data to us. In 
addition, a manufacturer would be required to retain data beyond the 
10-year period if the records are the subject of an audit or a 
government investigation of which the manufacturer is aware and if the 
audit findings or investigation related to the manufacturer's average 
manufacturer price and best price have not been resolved.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
    [sbull] The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    [sbull] The accuracy of our estimate of the information collection 
burden.
    [sbull] The quality, utility, and clarity of the information to be 
collected.
    [sbull] Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Therefore, we are soliciting public comment on each of these issues 
for the following section of this document that contains information 
collection requirements:
    Section 447.534(h) of this document contains the information 
collection requirements. We are seeking comment on these requirements 
in CMS-2175-IFC, in conjunction with a request for emergency approval 
for revisions to OMB 0938-0578. We are also seeking

[[Page 567]]

comment through this proposed rule; we are requesting reapproval of 
these requirements.
    There are two recordkeeping requirements in Sec.  447.534(h):
    (1)(i) A manufacturer must retain records (written or electronic) 
for 10 years from the date the manufacturer reports that rebate 
period's data. The records must include these data and any other 
materials from which the calculations of the average manufacturer price 
and best price are derived, including a record of any assumptions made 
in the calculations. The 10-year timeframe applies to a manufacturer's 
quarterly submission of pricing data as well as any revised pricing 
data subsequently submitted to us.
    (ii) A manufacturer must retain records beyond the 10-year period 
if both of the following circumstances exist: (A) The records are the 
subject of an audit or of a government investigation related to pricing 
data that are used in average manufacturer price or best price of which 
the manufacturer is aware, and (B) The audit findings or investigation 
related to the average manufacturer price and best price have not been 
resolved.
    The burden associated with the recordkeeping is minimal, a maximum 
of $1.00 per year for a compact disc per manufacturer. Staffing costs 
are unknown and being researched; we welcome comments.
    As required by section 3504(h) of the Paperwork Reduction Act of 
1995, we have submitted a copy of this document to the Office of 
Management and Budget (OMB) for its review of these information 
collection requirements.
    If you comment on these information collection and recordkeeping 
requirements, please mail copies directly to the following:

Centers for Medicare & Medicaid Services, Office of Strategic 
Operations and Regulatory Affairs, Regulations Development Group, Attn: 
Julie Brown, Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 
21244-1850.
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Brenda Aguilar, CMS Desk Officer.

    Comments submitted to OMB may also be e-mailed to the following 
address: e-mail: [email protected]; or faxed to OMB at (202) 395-
6974.

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, if we proceed with a subsequent document, we will respond to the 
major comments in the preamble to that document.

V. Regulatory Impact

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely assigns responsibility of duties) directs agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
We believe this rule would not have an economically significant effect. 
We believe the rule would result in neither costs nor savings to the 
Medicaid program and that additional costs to drug manufacturers would 
be minimal. We do not consider this rule to be a major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $6 
million to $29 million or less in any 1 year. For purposes of the RFA, 
pharmaceutical manufacturers with 750 or fewer employees are considered 
small businesses according to the Small Business Administration's size 
standards matched to the North American Industry Classification System, 
effective October 1, 2002, http://www.sba.gov/size/sizetable2002.html). 
Use of the Small Business Administration's size standards matched to 
North American Industry Classification System is in compliance with the 
Small Business Administration's regulation that set forth size 
standards for health care industries at 65 FR 69432. Individuals and 
States are not included in the definition of a small entity. Because 
pharmaceutical manufacturers are not required to report their number of 
employees to the Small Business Administration, we are unable to 
determine how many of them are considered small entities. This rule 
would not have a significant impact on small businesses because 
although some pharmaceutical manufacturers may be small businesses, we 
estimated that the cost to manufacturers would be minimal, as described 
in section V.B below.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. This rule would not have 
a significant impact on small rural hospitals because the provisions 
contained in this proposed rule would not pertain to hospitals. Section 
202 of the Unfunded Mandates Reform Act of 1995 also requires that 
agencies assess anticipated costs and benefits before issuing any rule 
that may result in expenditure in any 1 year by State, local, or tribal 
governments, in the aggregate, or by the private sector, of $110 
million. We anticipate this rule would not impact State governments or 
the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We do not anticipate this rule would impose direct 
requirement costs on State governments.

B. Anticipated Effects

1. Effects on Drug Manufacturers
    We do not collect information on the costs associated with 
manufacturer recordkeeping under the Medicaid drug rebate program. 
Therefore, in the absence of such information, we derived an estimate 
based on our annual costs of storing electronic pricing data that we 
receive from approximately 500 drug manufacturers. We store drug 
product data, including pricing information, for

[[Page 568]]

approximately 55,000 drug products. Over the course of the 12 years the 
Medicaid drug rebate program has been in existence, we have gathered 
nearly 250 megabytes of information. This information fits on one 
compact disc. The cost of one blank compact disc is less than $1. We 
did not have a reasonable proxy available to estimate the staffing 
costs associated with maintaining the data, so our estimate does not 
include these costs.
    On the whole, we believe this approach is reasonable because it is 
our understanding that these records are maintained by most 
manufacturers in an electronic format, while smaller companies may 
maintain their pricing records in written format. In order to more 
accurately evaluate the fiscal impact of this provision, we are 
requesting that manufacturers provide us with information on the costs 
they would expect to incur pursuant to retaining records for a 10-year 
period. To the extent possible, we ask that manufacturers make an 
effort to distinguish between the cost of meeting the 10-year 
recordkeeping requirement versus other recordkeeping requirements that 
may apply to the same records.
    We do not anticipate that this rule would adversely affect a drug 
manufacturer's participation in the Medicaid Drug Rebate program or 
impact the current level of access and availability of prescription 
drugs for Medicaid beneficiaries. There would be no impact on 
contractors or providers.
2. Effects on the Medicaid Program
    We are unable to quantitatively address the burden to States with 
respect to recordkeeping. This rule would not adversely affect a 
State's ability to obtain manufacturers' rebates or impact the current 
level of access and availability of prescription drugs for Medicaid 
beneficiaries. There would be no impact on Medicaid providers or 
contractors.

C. Alternatives Considered

Retain the 3-Year Recordkeeping Provision in the August 29, 2003 Final 
Rule With Comment Period
    We considered retaining the 3-year recordkeeping provision in the 
August 29, 2003 final rule with comment period. However, we believe it 
is necessary to propose replacing the 3-year provision with a 10-year 
provision to address concerns raised by commenters regarding Federal 
and State investigations under the False Claims Act and related anti-
fraud provisions.
Propose a Different Time Limitation
    Another alternative would be to propose a longer or a shorter 
recordkeeping requirement. We did not choose a longer recordkeeping 
timeframe because we believe a 10-year period would offer immediate 
protection to address situations where investigations are under seal in 
False Claims Act qui tam actions. Further, the exception to the 10-year 
requirement would adequately address situations where investigations 
known to manufacturers are not yet resolved. We did not suggest a 
shorter recordkeeping timeframe in this rule because we are concerned 
that such a timeframe, should it eventually become effective, could be 
misconstrued to lead a manufacturer to believe it could prematurely 
discard vital evidence in a case of fraud against the government.
Finalize the 10-Year Requirement Without Issuing Another Proposed Rule
    We considered finalizing the 10-year recordkeeping requirement 
without issuing another proposed rule. However, we believe that it is 
important to offer interested parties an opportunity to provide 
comments about whether a 10-year recordkeeping requirement is the 
proper timeframe to address the concerns raised on this provision.

D. Conclusion

    For these reasons, we are not preparing analyses for either the RFA 
or section 1102(b) of the Act because we have determined that this rule 
would not have a significant economic impact on a substantial number of 
small entities or a significant impact on the operations of a 
substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

    Accounting, Administrative practice and procedure, Drugs, Grant 
programs-health, Health facilities, Health professions, Medicaid, 
Reporting and recordkeeping requirements, Rural areas.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV part 447 as set 
forth below:

PART 447-PAYMENTS FOR SERVICES

    1. The authority citation for part 447 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart I-Payment for Outpatient Prescription Drugs Under Drug 
Rebate Agreements

    2. In Sec.  447.534, paragraph (h)(2) is removed and paragraph 
(h)(1) is revised to read as follows:


Sec.  447.534  Manufacturer reporting requirements.

* * * * *
    (h) Recordkeeping requirements. (1)(i) A manufacturer must retain 
records (written or electronic) for 10 years from the date the 
manufacturer reports that rebate period's data to CMS. The records must 
include these data and any other materials from which the calculations 
of the average manufacturer price and best price are derived, including 
a record of any assumptions made in the calculations. The 10-year time 
frame applies to a manufacturer's quarterly submission of pricing data 
as well as any revised pricing data subsequently submitted to CMS.
    (ii) A manufacturer must retain records beyond the 10-year period 
if both of the following circumstances exist:
    (A) The records are the subject of an audit or of a government 
investigation related to pricing data that are used in average 
manufacturer price or best price of which the manufacturer is aware.
    (B) The audit findings or investigation related to the average 
manufacturer price and best price have not been resolved.
* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: December 29, 2003.
Dennis G. Smith,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: December 30, 2003.
Tommy G. Thompson,
Secretary.
[FR Doc. 03-32330 Filed 12-31-03; 12:47 pm]
BILLING CODE 4120-01-P