[Federal Register Volume 75, Number 171 (Friday, September 3, 2010)]
[Proposed Rules]
[Pages 54073-54076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-22115]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 447

[CMS-2238-P2]
RIN 0938-AP67


Medicaid Program; Withdrawal of Determination of Average 
Manufacturer Price, Multiple Source Drug Definition, and Upper Limits 
for Multiple Source Drugs

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

ACTION: Proposed rule.

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SUMMARY: In this rule, we are proposing to withdraw two provisions from 
the ``Medicaid Program; Prescription Drugs'' final rule (referred to 
hereafter as ``AMP final rule'') published in the July 17, 2007 Federal 
Register. The provisions we are proposing to withdraw are as follows: 
The determination of average manufacturer price (AMP), and the Federal 
upper limits (FULs) for multiple source drugs. We are also proposing to 
withdraw the definition of ``multiple source drug'' as it was revised 
in the ``Medicaid Program; Multiple Source Drug Definition'' final rule 
published in the October 7, 2008 Federal Register.
    The provisions of the AMP final rule and the definition of multiple 
source drug that we are proposing to withdraw were challenged in a 
lawsuit that was filed in November 2007. The challenged regulations 
have been superseded in significant part by the Patient Protection and 
Affordable Care Act, as amended by the Health Care and Education 
Reconciliation Act, and the FAA Air Transportation Modernization and 
Safety Improvement Act. This document would withdraw the regulatory 
provisions challenged in the aforementioned litigation.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on October 4, 2010.

ADDRESSES: In commenting, please refer to file code CMS-2238-P2. 
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 ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-2238-P2, 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 to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-2238-P2, 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 before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.

    (Because access to the interior of the Hubert H. Humphrey 
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

[[Page 54074]]

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. For delivery in Baltimore, MD--

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, 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: Wendy Tuttle, (410) 786-8690.

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 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 also 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 1-800-743-3951.

I. Background

    On July 17, 2007, we published a final rule, titled ``Medicaid 
Program; Prescription Drugs'' in the Federal Register (72 FR 39142) 
(referred to hereafter as ``AMP final rule''), which implemented 
sections 6001(a) through (d), 6002, and 6003 of the Deficit Reduction 
Act of 2005 (Pub. L. 109-171, enacted on February 8, 2006) (DRA) as 
well as codified parts of section 1927 of the Social Security Act (the 
Act) that pertain to requirements for drug manufacturers' calculation 
and reporting of average manufacturer price (AMP) and best price, and 
revised existing regulations that set Federal upper limits (FULs) for 
certain covered outpatient drugs. The AMP final rule also implemented 
section 1903(i)(10) of the Act, as revised by the DRA with regard to 
the denial of FFP in expenditures for certain physician administered 
drugs. Finally, the AMP final rule addressed other provisions of the 
Medicaid Drug Rebate Program.
    On November 7, 2007, a complaint was filed with the United States 
District Court for the District of Columbia by the National Association 
of Chain Drug Stores (NACDS) and the National Community Pharmacists 
Association (NCPA) (collectively, the Plaintiffs), which alleged that 
the AMP final rule unlawfully changes the methodology by which 
pharmacies are reimbursed for dispensing prescription drugs to Medicaid 
patients. The Complaint sought to enjoin the Department of Health and 
Human Services and CMS (the Defendants) from implementing the AMP final 
rule for purposes of reimbursing pharmacies and posting on a public Web 
site the data calculated pursuant to the AMP final rule. In addition, 
it sought declaratory relief that the AMP final rule fails to comply 
with the Act.
    On December 19, 2007, the Court issued a preliminary injunction 
after finding that the ``Plaintiffs are likely to succeed on the merits 
of their claims that Defendants violated the Administrative Procedure 
Act and acted contrary to law and/or arbitrarily and capriciously in 
creating'' the AMP final rule because ``the AMP Rule does not comply 
with either the statutory definition of `average manufacturer price' or 
the statutory definition of `multiple source drug' as stated by the 
Court.'' Accordingly, the preliminary injunction prohibits CMS from 
``[u]ndertaking any and all action to implement the AMP Rule to the 
extent such action affects Medicaid reimbursement rates for retail 
pharmacies under the Medicaid program,'' and, subject to certain 
exceptions, prohibits CMS from ``[p]osting any AMP data on a public Web 
site or otherwise disclosing any AMP data to any individual or 
entities.'' The preliminary injunction, however, does not enjoin 
implementation of the AMP final rule as it relates to the calculation 
of rebates for the Medicaid rebate program, or the disclosure of AMP 
data to States as necessary for the administration of that program.
    On March 14, 2008, in response to this litigation, CMS published an 
interim final rule with comment period to revise the definition of 
multiple source drug to better conform to the statutory definition of 
``multiple source drug'' found in section 1927(k)(7) of the Act, and to 
inform the public of the procedures and practices the Agency would 
follow to ensure compliance with those statutory provisions. The 
subsequent final rule was published on October 7, 2008. The Plaintiffs, 
however, amended their filing with the Court contending that the 
revised multiple source drug definition and implementation procedures 
remained inconsistent with the statute.
    On July 15, 2008, the Medicare Improvements for Patients and 
Providers Act of 2008 (Pub. L. 110-275) (MIPPA) was enacted. Section 
203 of MIPPA prohibited HHS from imposing FULs prior to October 1, 
2009, for multiple source drugs under Sec.  447.514(b) as published in 
the July 17, 2007, AMP final rule. In accordance with the law, CMS 
resumed publishing FULs for multiple source drugs, using the 
methodology in Sec.  447.332 as in effect on December 31, 2006. The 
methodology in Sec.  447.332 applied through September 30, 2009. Since 
the preliminary injunction was issued, CMS has been unable to implement 
certain provisions of the DRA (as implemented in the July 17, 2007 AMP 
final rule). As a result of the lawsuit, and subsequent preliminary 
injunction, CMS has been enjoined from implementing the AMP-based FULs 
that the DRA had required. However, manufacturers were not affected by 
the injunction and continue to calculate and report AMP for the purpose 
of Medicaid rebates, in accordance with the Determination of AMP as 
specified in the AMP final rule.
    Section 2503(a) of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148, enacted on March 23, 2010), amended section 1927(e) 
of the Act by revising the Federal upper reimbursement limit to be no 
less than 175 percent of the weighted average (determined on the basis 
of utilization) of the most recently reported monthly AMPs for 
pharmaceutically and therapeutically equivalent multiple source drug 
products that are available for purchase by retail community pharmacies 
on a nationwide basis. It also amends section 1927(k) of the Act by 
revising the definitions of AMP, multiple source drug, and wholesaler. 
In addition, it adds to section 1927(k) of the Act the definition of 
the term ``retail community pharmacy,'' and eliminates the term 
``retail pharmacy class of trade.'' The amendments made by section 
2503(a) of the Patient Protection and Affordable Care Act, as amended 
by section 1101(c) of the Health Care and Education Reconciliation Act 
(Pub. L. 111-152, enacted on March 30, 2010)

[[Page 54075]]

and section 202 of the FAA Air Transportation Modernization and Safety 
Improvement Act (Pub. L. 111-226, enacted on August 10, 2010), are 
effective October 1, 2010.

II. Provisions of the Proposed Regulations

    In light of the lawsuit and preliminary injunction imposed by the 
Court and, in light of the changes in the relevant statutory language, 
CMS proposes the following revisions to the AMP final rule published on 
July 17, 2007:
     Section 447.504, ``Determination of AMP,'' should be 
withdrawn in its entirety;
     Section 447.514, ``Upper limits for multiple source 
drugs,'' should be withdrawn in its entirety; and
     The definition of ``multiple source drug'' in Sec.  
447.502, ``Definitions'' (as it was amended by the Multiple Source Drug 
Rule published on October 7, 2008), should be withdrawn.
    The terms ``average manufacturer price'' and ``multiple source 
drug'' would be defined by section 1927 of the Act, including changes 
made by section 2503 of the Patient Protection and Affordable Care Act, 
as amended by the Health Care and Education Reconciliation Act, and the 
FAA Air Transportation Modernization and Safety Improvement Act. In 
particular, drug manufacturers would be advised to base their AMP 
calculations on the definitions set forth in section 1927 of the Act, 
instead of on the AMP and AMP-related definitions provided in existing 
regulations and guidance.
    CMS expects to develop regulations that will implement the 
provisions of section 2503 of the Patient Protection and Affordable 
Care Act.
    Additionally, there are three sections within the AMP final rule 
that make reference to the sections being proposed for withdrawal. 
Section 447.510 ``Requirements for manufacturers'', makes reference to 
Sec.  447.504 ``Determination of AMP'', and Sec.  447.512 ``Drugs: 
Aggregate upper limits for payment'', and Sec.  447.518 ``State plan 
requirements'', make reference to Sec.  447.514 ``Upper limits for 
multiple source drugs. We are proposing conforming regulatory 
amendments to those sections.

III. Collection of Information Requirements

    This document does not impose any new information collection and 
recordkeeping requirements. The burden associated with the reporting 
requirements contained in Sec.  447.510(a) are currently approved under 
OMB 0938-0578 with an expiration date of October 31, 2010.

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, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993) the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive 
Order 13132 on Federalism (August 4, 1999) and the Congressional Review 
Act (5 U.S.C. 804(2)).
    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 
regulatory action withdraws those regulatory provisions that have been 
superseded by the Affordable Care Act. We do not expect that this 
proposed rule will have any economic effects. Therefore, this proposed 
rule is not considered an economically significant 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 small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$7.0 million to $34.5 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 the Secretary has determined that this 
proposed 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 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 for Medicare payment regulations and has fewer than 
100 beds. We are not preparing an analysis for section 1102(b) of the 
Act because the Secretary has determined that this proposed rule will 
not have a significant impact on the operations of a substantial number 
of small rural hospitals.
    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. In 2010, that 
threshold is approximately $135 million. This rule would 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. Since this regulation does not impose any costs on State 
or local governments, the requirements of Executive Order 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 447

    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 as set forth 
below:

PART 447--PAYMENT 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).

[[Page 54076]]

Subpart I--Payment for Drugs


Sec.  447.502  [Amended]

    2. Section 447.502 is amended by removing the definition of 
``multiple source drug.''


Sec.  447.504  [Removed and reserved]

    3. Section 447.504 is removed and reserved.
    4. Section 447.510 is amended by--
    A. Republishing paragraph (a) introductory text.
    B. Revising paragraphs (a)(1), (c)(2)(i), and (d)(2).
    The revisions read as follows:


Sec.  447.510  Requirements for manufacturers.

    (a) Quarterly reports. A manufacturer must report product and 
pricing information for covered outpatient drugs to CMS not later than 
30 days after the end of the rebate period. The quarterly pricing 
report must include:
    (1) AMP, calculated in accordance with section 1927 (k)(1) of the 
Social Security Act.
* * * * *
    (c) * * *
    (2) * * *
    (i) A manufacturer's recalculation of the base date AMP must only 
reflect the revisions to AMP as provided for in section 1927(k)(1) of 
the Social Security Act.
* * * * *
    (d) * * *
    (2) Calculation of monthly AMP. Monthly AMP should be calculated 
based on section 1927(k)(1) of the Social Security Act, except the 
period covered should be based on monthly, as opposed to quarterly AMP 
sales.
* * * * *
    5. Section 447.512 is amended by--
    A. Removing and reserving paragraph (a).
    B. Revising the introductory text of paragraph (b).
    C. Revising paragraph (c).
    The revisions read as follows:


Sec.  447.512  Drugs: Aggregate upper limits of payment.

    (a) [Reserved]
    (b) Other drugs. The agency payments for brand name drugs certified 
in accordance with paragraph (c) of this section and drugs other than 
multiple source drugs for which a specific limit has been established 
must not exceed, in the aggregate, payments levels that the agency has 
determined by applying the lower of the--.
* * * * *
    (c) Certification of brand name drugs.
    (1) The upper limit for payment for multiple source drugs for which 
specific limit has been established does not apply if a physician 
certifies in his or her own handwriting (or by an electronic 
alternative means approved by the Secretary) that a specific brand is 
medically necessary for a particular recipient.
    (2) The agency must decide what certification form and procedure 
are used.
    (3) A check-off box on a form is not acceptable but a notation like 
``brand necessary'' is allowable.
    (4) The agency may allow providers to keep the certification forms 
if the forms will be available for inspection by the agency or HHS.


Sec.  447.514  [Removed and reserved]

    5. Section 447.514 is removed and reserved.
    6. Section 447.518 is amended by:
    A. Revising paragraph (b)(1)(i).
    B. In paragraph (b)(2), removing the citations ``Sec. Sec.  447.512 
and Sec.  447.514'' and adding citation ``Sec.  447.512'' in its place.
    The revision reads as follows:


Sec.  447.518  State plan requirements, findings and assurances.

* * * * *
    (b) * * *
    (1) * * *
    (i) In the aggregate, its Medicaid expenditures for multiple source 
drugs are in accordance with the established upper limits.
* * * * *

    Authority:  Catalog of Federal Domestic Assistance Program No. 
93.778, Medical Assistance Program.

    Dated: August 18, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: August 31, 2010.
Kathleen Sebelius,
Secretary.
[FR Doc. 2010-22115 Filed 9-2-10; 8:45 am]
BILLING CODE 4120-01-P