[Federal Register Volume 73, Number 51 (Friday, March 14, 2008)]
[Rules and Regulations]
[Pages 13785-13788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1022]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 447

[CMS-2238-IFC]
RIN 0938-AP26


Medicaid Program; Multiple Source Drug Definition

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

ACTION: Interim final rule with comment period.

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SUMMARY: On July 17, 2007, we published a final rule with comment 
period in the Federal Register that implemented provisions of the 
Deficit Reduction Act of 2005 pertaining to prescription drugs under 
the Medicaid program. In that rule, we finalized certain provisions of 
the Medicaid drug rebate program, including definitions concerning 
average manufacturer price, best price, single source drug, and 
multiple source drug. In this interim final rule with comment period, 
we are revising the definition of ``multiple source drug'' to better 
conform with the statutory provisions. This interim final rule with 
comment period solicits additional public comment on the revised 
definition of ``multiple source drug.''

DATES: Effective date: These regulations are effective on April 14, 
2008.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on April 14, 2008.

ADDRESSES: In commenting, please refer to file code CMS-2238-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions for 
``Comment or Submission'' and enter the filecode to find the document 
accepting comments.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-2238-IFC, P.O. Box 8016, Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-2238-IFC, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses: a. 
Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201.

(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.)

    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Gail Sexton, (410) 786-4583.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any

[[Page 13786]]

personally identifiable or confidential business information that is 
included in a comment. We post all comments received before the close 
of the comment period on the following Web site as soon as possible 
after they have been received: http://www.regulations.gov. Follow the 
search instructions on that Web site to view public comments.
    Comments received timely will be also 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 1-800-743-3951.

I. Background

    On July 17, 2007, we published a final rule with comment period (72 
FR 39142) in the Federal Register implementing the provisions of the 
Deficit Reduction Act of 2005 (DRA) pertaining to prescription drugs 
under the Medicaid Program. In that rule, we defined terms used in the 
Medicaid drug rebate program. We codified requirements pertaining to 
the calculation and reporting of the average manufacturer price (AMP) 
and best price by pharmaceutical manufacturers and amended existing 
regulations concerning Federal upper payment limits for certain covered 
outpatient drugs. The final rule was effective October 1, 2007. This 
interim final rule is not being issued in response to public comments 
received on the July 2007 AMP final rule with comment period. We are 
still considering those comments.
    On November 15, 2007, the National Association of Chain Drug Stores 
and the National Community Pharmacists Association filed a motion for a 
preliminary injunction in the United States District Court for the 
District of Columbia. They contended, in part, that the definition of 
``multiple source drug'' adopted in the July 17, 2007, final rule 
(``drug rebate rule'') is contrary to the statutory language in that it 
defined a multiple source drug, in part, as a drug which is sold or 
marketed in the United States, as opposed to the State. Plaintiffs are 
concerned that all drug products are not generally available in every 
State. National Association of Chain Drug Stores, et al. v. Health and 
Human Services, Civil Action No. 1:07-cv-02017 (RCL). In light of these 
concerns, we are issuing this interim final rule with comment period 
and revising the definition of ``multiple source drug.'' We believe, 
however, that when an FDA-approved equivalent generic drug is sold or 
marketed in the United States, at least one generic drug product is 
sold or marketed in every State. Accordingly, we expect the effect of 
this revision, if any, to be small.
    This interim final rule to the extent that it may affect Medicaid 
reimbursement rates for retail pharmacies is subject to the injunction 
issued by the United States District Court for the District of Columbia 
in National Association of Chain Drug Stores, et al. v. Health and 
Human Services, Civil Action No. 1:07-cv-02017 (RCL).

II. Provisions of the Interim Final Rule

    In 42 CFR 447.502, we defined key terms used to calculate payment 
and rebates concerning Medicaid prescription drugs. We defined multiple 
source drug as a covered outpatient drug for which there is at least 
one other drug product which is rated as therapeutically equivalent, is 
pharmaceutically equivalent and bioequivalent, as determined by the 
FDA, and is sold or marketed in the United States during the rebate 
period. We are revising this definition of multiple source drug to 
state that the drug product is sold or marketed in the ``State'' during 
the rebate period, as opposed to sold or marketed in the ``United 
States'' during the rebate period. By changing ``United States'' to 
``State'' we define the term, ``multiple source drug'' in accordance 
with the language in the Social Security Act (the Act). Further, in 
accordance with section 1927(k)(7)(C)(iii) of the Act, we consider the 
drug to be sold or marketed in a State if it appears in a published 
national listing of average wholesale prices that we have selected--
currently, Red Book, Bluebook, or Medi-Span--provided the listed 
product is generally available to the public through retail pharmacies 
in that State.
    In light of our experience with the Federal upper limit (FUL) 
program, we believe that there is a national market for prescription 
drug products, and that if a drug is available in a State, it will be 
available in every State. From our experience, once an FDA-approved 
equivalent generic drug enters the market, there are nearly always at 
least two equivalent products available everywhere (the brand drug and 
at least one equivalent generic drug) such that a FUL will be properly 
applied. Furthermore, we do not have any record of receiving requests 
to delete or modify a FUL price based on a drug not being available in 
a particular State or a geographic location. Plaintiffs in the National 
Association of Chain Drug Stores litigation contend, however, that 
there may be situations where certain drug products are not available 
to the public through retail pharmacies in every State. We do not 
interpret the law to require us to continually survey drug availability 
in the retail pharmacies of every State, and note that pharmacies and 
States are in a substantially better position to assess the 
availability of drugs in their areas. Therefore, we will consider all 
covered outpatient drugs to be generally available in a State except in 
those situations where there is evidence to the contrary. Such evidence 
could include notification from pharmacies to the State that a drug 
cannot be purchased in that State, provided the State can confirm that 
to be the case. CMS will issue regulatory guidance on this issue in the 
future should the need arise.
    When the State confirms that a covered outpatient drug is not a 
multiple source drug in the State, that drug is not subject to the FUL 
in that State for the applicable rebate period. Where the drug does not 
qualify as a multiple source drug in the State, the State should apply 
its alternative pricing methodologies as set forth in the approved 
State plan.
    While this change in the definition of multiple source drug may 
impact the FUL program, it should have no impact on the manufacturer's 
calculation of rebates. The definition as revised is consistent with 
the statutory provision, which has been in effect since the inception 
of the drug rebate program. Manufacturers calculate rebates based, in 
part, on whether the drug product is produced, distributed, or marketed 
under a new drug application approved by the FDA. In such situations, 
the rebate calculation is based on a percentage of the AMP or the 
difference between AMP and best price, whichever is greater. Where a 
drug is not marketed pursuant to such a new drug application, the 
manufacturer calculates rebate payments based on a fixed percentage (11 
percent) of the average manufacturer price. Accordingly, rebate 
calculations should not be affected by the revisions in this 
regulation. Thus, we are not changing our policy regarding rebates or 
manufacturer reporting requirements for these drugs.

III. 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

[[Page 13787]]

time specified in the DATES section of this preamble, and, when we 
proceed with a subsequent document, we will respond to the comments in 
the preamble to that document.

IV. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice and comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued, or if the 
agency is promulgating interpretive rules, general statements of 
policy, or rules of agency procedure or practice.
    We do not believe that we need to delay publication of this rule 
pending completion of a notice and comment period. We are conforming 
the regulation to the statutory definition of multiple source drug and 
informing the public of the procedures and practices the agency will 
follow to ensure compliance with those statutory provisions. However, 
to the extent that notice and comment rulemaking would otherwise apply, 
we find good cause to waive such requirements.
    Specifically, we find it unnecessary to undertake notice and 
comment rulemaking in this instance in light of the statutory language. 
We are applying the definition specified in statute and we believe it 
is redundant to, in effect, propose a rule to incorporate the words of 
a provision already contained in the statute. We would not be able to 
change the definition in this regulation in response to public comment. 
We are also describing a procedure to ensure compliance with the 
relevant provisions of the statute. This description is exempt from 
notice and comment rulemaking as an interpretive rule, general 
statement of policy, and/or rule of agency procedure or practice. As we 
have previously stated, we believe that there is a national market for 
prescription drugs and that a drug product available as a multiple 
source drug in one State will be available as a multiple source drug in 
every State. However, in light of the concerns raised in litigation, we 
believe it is necessary to establish a process to ensure State 
availability and consistency with the statute. Therefore, under 5 
U.S.C. 553(b), we find good cause to waive notice and comment 
rulemaking procedures for this revision, if such procedures are 
required at all.

V. Collection of Information Requirements

    This document does not impose any information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 35).

VI. Regulatory Impact 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 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 interim 
final 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 entities. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. 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, and the Secretary certifies, that this 
interim final rule with comment period will not have a significant 
economic impact on a substantial number of small entities.
    The only small entities that will potentially be affected by this 
interim final rule are small pharmacies. We believe that the effect 
will be small because we have not identified any situation in which 
there is at least one FDA-approved equivalent generic drug available as 
a multiple source drug in one State but in which no FDA-approved 
equivalent generic is available in another State. To the extent a State 
would find, however, that a drug is not a multiple source drug in that 
State because no FDA-approved equivalent product is available in that 
State, the only effect will be to permit that State to disregard the 
FUL price for the one drug that is available in that State when 
determining the aggregate limit that the State can reimburse for that 
drug and claim Federal financial participation. States may choose not 
to change their reimbursement to pharmacies for those drugs. Should 
States decide to change reimbursement, the change would usually be to 
increase the price paid to pharmacies.
    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 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, and 
the Secretary certifies, that this interim final rule with comment 
period will not have a significant impact on the operations of a 
substantial number of small rural hospitals. Small rural hospitals 
would be affected only to the extent that no FDA-approved equivalent 
product is available in that State for a particular outpatient drug 
provided through their outpatient pharmacies. As discussed above for 
pharmacies, States may choose to change reimbursement for drugs in such 
groups, but this change is expected to be to increase reimbursement. 
Section 202 of the Unfunded Mandates Reform Act of 1995 also requires 
that agencies assess anticipated costs and benefits before issuing any 
rule whose mandates require spending in any 1 year of $100 million in 
1995 dollars, updated annually for inflation. That threshold level is 
currently approximately $120 million. This interim final rule will have 
no consequential effect on State, local, or tribal governments or on 
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. This regulation will impose only a very small burden, if 
any, on States. When a pharmacy has notified a State that a drug on the 
CMS FUL list may not be available as a multiple source drug in that 
State, the State must confirm that the drug is generally not available 
in the

[[Page 13788]]

State. The State, however, has no obligation to make an independent 
assessment of drug availability in the absence of such notification by 
a pharmacy. We believe that the vast majority of drugs of manufacturers 
that participate in the Medicaid program are generally available on a 
national basis. We believe that all or nearly all of the drugs are 
distributed by national wholesalers and are generally available in 
every State. This interim final rule will only apply in those rare 
cases in which a particular FDA-approved drug product is not available 
to the retail pharmacies in a particular State and, as a result, only 
one FDA-approved drug product is available to those pharmacies. In this 
circumstance, a State would need to verify the information received 
from its pharmacies that no equivalent drug is available. This would 
impose only a small burden on States. State systems are designed to 
allow for payment changes as a routine matter and to change the 
composition of the FUL groups or delete FUL groups. Since this 
regulation does not impose any significant 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 Sections in 42 CFR Part 447

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

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 447--PAYMENTS FOR SERVICES

0
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).


0
2. Section 447.502 is amended by:
0
A. Republishing the introductory text of the definition for ``Multiple 
source drug''; and
0
B. Revising paragraph (3) of the definition for ``Multiple Source 
Drug'' to read as follows:


Sec.  447.502  Definitions.

* * * * *
    Multiple source drug means, with respect to a rebate period, a 
covered outpatient drug for which there is at least one other drug 
product which--
* * * * *
    (3) Is sold or marketed in the State during the rebate period as 
follows:
    (i) A covered outpatient drug is considered sold or marketed in a 
State if it appears in a published national listing of average 
wholesale prices, selected by the Secretary, provided the covered 
outpatient drug is generally available to the public through retail 
pharmacies in that State.
    (ii) A covered outpatient drug is not subject to the FUL for a 
rebate period if it is not a multiple source drug in the State for that 
rebate period.
* * * * *

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


    Dated: February 21, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: February 21, 2008.
Michael O. Leavitt,
Secretary.
[FR Doc. 08-1022 Filed 3-10-08; 2:42 pm]
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