[Federal Register Volume 69, Number 179 (Thursday, September 16, 2004)]
[Rules and Regulations]
[Pages 55763-55765]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-20823]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 414

[CMS-1380-F]
RIN 0938-AN05


Medicare Program; Manufacturer Submission of Manufacturer's 
Average Sales Price (ASP) Data for Medicare Part B Drugs and 
Biologicals

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

ACTION: Final rule.

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SUMMARY: On April 6, 2004, we published an interim final rule in the 
Federal Register implementing the provisions of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 
related to the calculation and submission of manufacturer's average 
sales price (ASP) data on certain Medicare Part B drugs and biologicals 
by manufacturers. This final rule responds to the public comments 
received on the interim final rule concerning the methodology for 
estimating price concessions associated with manufacturers' ASP 
reporting requirements. Other issues and comments relating to the 
interim final rule will be addressed at a future time.

DATES: These regulations are effective September 16, 2004.

FOR FURTHER INFORMATION CONTACT: Marjorie Baldo, (410) 786-0548.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 303(c) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) amends Title XVIII of the Social 
Security Act (the Act) by adding new section 1847A. This new section 
establishes the use of the ASP methodology for payment for drugs and 
biologicals described in section 1842(o)(1)(C) of the Act furnished on 
or after January 1, 2005. For calendar quarters beginning on or after 
January 1, 2004, the statute requires manufacturers to report 
manufacturer's ASP data to CMS for Medicare Part B drugs and 
biologicals paid under sections 1842(o)(1)(D), 1847A, or 
1881(b)(13)(A)(ii) of the Act. Manufacturers are required to submit 
their quarterly ASP data to us beginning April 30, 2004. Reports are 
due not later than 30 days after the last day of each calendar quarter. 
The types of Medicare Part B covered drugs and biologicals paid under 
sections 1842(o)(1)(D), 1847A, or 1881(b)(13)(A)(ii) of the Act include 
drugs furnished incident to a physician's service, drugs furnished 
under the durable medical equipment (DME) benefit, certain oral anti-
cancer drugs, and oral immunosuppressive drugs.
    All Medicare Part B covered drugs and biologicals paid under 
sections 1842(o)(1)(D), 1847A, or 1881(b)(13)(A)(ii) of the Act are 
subject to the ASP reporting requirements. Certain drugs and 
biologicals (for example, radiopharmaceuticals) are not paid under 
these sections of the Act and are not subject to the ASP reporting 
requirements.
    As stated in the summary of this final rule, the April 6, 2004, 
interim final rule implemented the manufacturer ASP reporting 
requirements of section 303(i)(4) of the MMA, effective April 30, 2004. 
In this final rule, we are addressing those comments concerning price 
concession calculation issues because we believe a clearer 
understanding of the issues is required in order that manufacturers 
report ASP data accurately and consistently in time for the submissions 
due in October 2004. The October data will be used to calculate the 
payment allowances effective January 1, 2005. The 2005 ASP based 
payment system was displayed at the Office of the Federal Register on 
July 27, 2004, and published on August 5, 2004, in the Federal Register 
(69 FR 47488).

II. Provisions of the Final Rule

    In the April 6, 2004, interim final rule published in the Federal 
Register (69 FR 17935), we implemented the requirement in section 
1847A(c)(3) of the Act, which provides that in calculating the 
manufacturer's ASP, a manufacturer must include volume discounts, 
prompt pay discounts, cash discounts, free goods that are contingent on 
any purchase requirement, chargebacks, and rebates (other than rebates 
under the Medicaid drug rebate program).
    To the extent that data on volume discounts, prompt pay discounts, 
cash discounts, free goods that are contingent on any purchase 
requirement, chargebacks, and rebates are available on a lagged basis, 
the rule provides the following methodology: The manufacturer is 
required to apply a methodology based on the most recent 12-month 
period available to estimate costs attributable to these price 
concessions. Specifically, a manufacturer would sum the volume 
discounts, prompt pay discounts, cash discounts, free goods that are 
contingent on any purchase requirement, chargebacks, and rebates for 
the most recent 12-month period available and divide by 4 to determine 
the estimate to apply in calculating the manufacturer's ASP for the 
quarter being submitted. Manufacturers are required to report ASP data 
to us within 30 days after the last day of the calendar quarter in 
accordance with section 1927(b)(3)(A) of the Act.
    Since publication of the interim final rule, manufacturers have 
expressed concerns regarding the estimation methodology for pricing 
concessions. As discussed in section III of this final rule, they have 
noted that the methodology may result in a disproportionate allocation 
of pricing concessions within quarterly ASP submissions. In response to 
these concerns, we have decided to revise the estimation methodology in 
this final rule.

[[Page 55764]]

III. Analysis of and Response to Public Comments on the April 6, 2004, 
Interim Final Rule.

    We received 79 timely comments in response to the April 6, 2004, 
interim final rule. We received comments from drug manufacturers, 
pharmacies, physicians, national associations of the pharmaceutical 
industry, national associations of physicians, and consultants. 
Although we received comments on a variety of issues pertaining to the 
interim final rule, we are addressing only the comments that pertain to 
the methodology for estimating price concessions associated with ASP 
reporting requirements in this final rule. Those comments and our 
responses are summarized in this section of the final rule.
    Comment: Several commenters stated that the methodology implemented 
by the April 6, 2004, interim final rule could result in excessive 
quarter-to-quarter variability in the reported ASP. The commenters 
suggested an alternative methodology based on a rolling average 
percentage of price concessions divided by total sales in dollars 
(described below) for making this calculation.
    Response: We agree with these commenters and are adopting the 
alternative methodology they recommended. As a result, in Sec.  
414.804, we are revising the methodology manufacturers must use to 
calculate the estimates of price concessions. A manufacturer sums the 
volume discounts, prompt pay discounts, cash discounts, free goods that 
are contingent on any purchase requirement, chargebacks, and rebates 
(other than rebates under section 1927 of the Act) for the most recent 
12-month period available associated with all sales included in the ASP 
reporting requirements as stated in the April 6, 2004, interim final 
rule. However, the manufacturer then calculates a percentage using this 
summed amount as the numerator and the corresponding total sales data 
(that is, the total in dollars for the sales subject to the ASP 
reporting requirement for the same 12-month period) as the denominator. 
This results in a 12-month rolling average price concession percentage 
of Total Price Concessions (12-month)/Total Sales (12-month). This 
percentage is then applied to the total in dollars for the sales 
subject to the ASP reporting requirement for the quarter being 
submitted to determine the price concession amount for the quarter. The 
price concession amount is then applied as a reduction to the total 
sales dollar amount, and that result (that is, Total Sales (quarter) 
minus [Price Concession percentage x Total Sales (quarter)]) is the 
numerator used in calculating the quarterly ASP for that National Drug 
Code (NDC). We are also specifying that the price concession percentage 
must be carried out to a sufficient number of decimal places so that 
the price concession amount for the quarter being reported is accurate 
to the nearest dollar. We included this specification because otherwise 
the price concession amount might be less accurate and because these 
calculations are administratively simple.

    Example: The total price concessions (discounts, rebates, etc.) 
over the most recent 12-month period available associated with sales 
for NDC 12345-6789-01 subject to the ASP reporting requirement equal 
$200,000. The total in dollars for those same sales equals $600,000. 
The price concessions percentage for this period equals 200,000/
600,000 = .33333. The total in dollars for the sales subject to the 
ASP reporting requirement for the quarter being reported equals 
$50,000 for 10,000 units sold. The manufacturer's ASP calculation 
for this NDC for this quarter is as follows: $50,000 - (0.33333* x 
$50,000) = $33,334 (net total sales amount); $33,334/10,000 = $3.33 
(ASP). *(The manufacturer must carry a sufficient number of decimal 
places in the calculation of the price concessions percentage in 
order to round the net total sales amount accurately to the nearest 
whole dollar.)

IV. Waiver of 30-Day Delay in Effective Date

    We ordinarily provide an effective date 30 days after the 
publication of a final rule in the Federal Register. We can waive this 
procedure, however, if we find good cause that the delay is 
impracticable, unnecessary, or contrary to the public interest, and we 
incorporate a statement of this finding and its reasons in the rule 
issued. The provisions of this final rule are effective upon 
publication in the Federal Register because in this instance these 
provisions are necessary clarifications to the interim final rule that 
was published on April 6, 2004 (69 FR 17935). The statute requires 
implementation of the ASP payment methodology by January 1, 2005, which 
will require ASP data to be reported accurately by October 2004. In 
order to meet this deadline, drug manufacturers must be able to act on 
the information in this final rule immediately. The old methodology for 
estimating price concessions results in greater quarter to quarter 
price variation. This new methodology is more stable. Accordingly, we 
believe there is good cause to waive the 30-day delay in effective 
date.

V. Collection of Information Requirements

    The requirements in Sec.  414.804 are subject to the Paperwork 
Reduction Act of 1995, however, these requirements are currently 
approved under OMB control 0938-0921 with a current expiration 
date of 9/30/2007.

VI. Regulatory Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 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 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). This rule 
does not reach the economic threshold and, thus, is not considered 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 in any 1 year. Individuals and States are not 
included in the definition of a small entity. We are not preparing an 
analysis for the RFA because we have determined that this rule will not 
have a significant economic impact on a substantial number of small 
entities.
    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 604 for final rules 
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. We are not 
preparing an analysis for section 1102(b) of the Act because we have 
determined that this final rule will not have a significant impact on 
the operations of a substantial number of small rural hospitals.

[[Page 55765]]

    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. While this final rule revises a statutory data 
reporting requirement for drug manufacturers, the costs associated with 
this requirement are expected to be below the $110 million annual 
threshold established by section 202 of the Unfunded Mandates Reform 
Act.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it publishes 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. Since this final rule does not impose any costs on State 
or local governments, the requirements of E.O. 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 414

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.


0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR Chapter IV, as set forth below:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

0
1. The authority citation for part 414 continues to read as follows:

    Authority: Secs. 1102, 1871, and 1881(b)(1) of the Social 
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(1)).


0
2. Section Sec.  414.804 is amended by revising paragraph (a)(3) to 
read as follows:


Sec.  414.804  Basis of payment.

    (a) * * *
    (3) To the extent that data on price concessions, as described in 
paragraph (a)(2) of this section, are available on a lagged basis, the 
manufacturer must estimate this amount in accordance with the 
methodology described in paragraphs (a)(3)(i) through (a)(3)(iv) of 
this section.
    (i) For each such National Drug Code, the manufacturer calculates a 
percentage equal to the sum of the price concessions for the most 
recent 12-month period available associated with sales subject to the 
average sales price reporting requirement divided by the total in 
dollars for the sales subject to the average sales price reporting 
requirement for the same 12-month period.
    (ii) The manufacturer then multiplies the percentage described in 
paragraph (a)(3)(i) of this section by the total in dollars for the 
sales subject to the average sales price reporting requirement for the 
quarter being submitted. (The manufacturer must carry a sufficient 
number of decimal places in the calculation of the price concessions 
percentage in order to round accurately the net total sales amount for 
the quarter to the nearest whole dollar.) The result of this 
multiplication is then subtracted from the total in dollars for the 
sales subject to the average sales price reporting requirement for the 
quarter being submitted.
    (iii) The manufacturer then uses the result of the calculation 
described in paragraph (a)(3)(ii) of this section as the numerator and 
the number of units sold in the quarter as the denominator to calculate 
the manufacturer's average sales price for the National Drug Code in 
the quarter being submitted.
    (iv) Example. The total price concessions (discounts, rebates, 
etc.) over the most recent 12-month period available associated with 
sales for National Drug Code 12345-6789-01 subject to the ASP reporting 
requirement equal $200,000. The total in dollars for the sales subject 
to the average sales price reporting requirement for the same period 
equals $600,000. The price concessions percentage for this period 
equals 200,000/600,000 = .33333. The total in dollars for the sales 
subject to the average sales price reporting requirement for the 
quarter being reported equals $50,000 for 10,000 units sold. The 
manufacturer's average sales price calculation for this National Drug 
Code for this quarter is: $50,000 - (0.33333 x $50,000) = $33,334 (net 
total sales amount); $33,334/10,000 = $3.33 (average sales price).
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program.)

    Dated: August 17, 2004.
Mark McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: September 10, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-20823 9-10-04; 4:16 pm]
BILLING CODE 4120-01-P