[Federal Register Volume 76, Number 160 (Thursday, August 18, 2011)]
[Rules and Regulations]
[Pages 51245-51255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-21011]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 /
Rules and Regulations
[[Page 51245]]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 51 and 602
[TD 9544]
RIN 1545-BK34
Branded Prescription Drug Fee
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
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SUMMARY: This document contains temporary regulations that provide
guidance on the annual fee imposed on covered entities engaged in the
business of manufacturing or importing branded prescription drugs. This
fee was enacted by section 9008 of the Patient Protection and
Affordable Care Act, as amended by section 1404 of the Health Care and
Education Reconciliation Act of 2010. The regulations affect persons
engaged in the business of manufacturing or importing certain branded
prescription drugs. The text of the temporary regulations also serves
as the text of the proposed regulations set forth in the notice of
proposed rulemaking on this subject in the Proposed Rules section of
this issue of the Federal Register.
DATES: Effective Date: These regulations are effective on August 18,
2011.
Applicability Date: For dates of applicability, see Sec. Sec.
51.11T and 51.6302-1T(b).
FOR FURTHER INFORMATION CONTACT: Celia Gabrysh, (202) 622-3130 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These temporary regulations are being issued without prior notice
and public procedure pursuant to the Administrative Procedure Act (5
U.S.C. 553). For this reason, the collection of information contained
in these regulations has been reviewed and pending receipt and
evaluation of public comments, approved by the Office of Management and
Budget under control number 1545-2209.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
For further information concerning this collection of information,
and where to submit comments on the collection of information and the
accuracy of the estimated burden, and suggestions for reducing this
burden, please refer to the preamble to the cross-reference notice of
proposed rulemaking on this subject in the Proposed Rules section in
this issue of the Federal Register.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document adds the Branded Prescription Drug Fee Regulations to
the Code of Federal Regulations (26 CFR Part 51) under section 9008 of
the Patient Protection and Affordable Care Act (ACA), Public Law 111-
148 (124 Stat. 119 (2010)), as amended by section 1404 of the Health
Care and Education Reconciliation Act of 2010 (HCERA), Public Law 111-
152 (124 Stat. 1029 (2010)). All references in this preamble to section
9008 are references to section 9008 of ACA, as amended by section 1404
of HCERA. Section 9008 did not amend the Internal Revenue Code (Code)
but cross-references to specified Code sections.
Statutory Provisions
Section 9008(a) imposes an annual fee on each covered entity
engaged in the business of manufacturing or importing branded
prescription drugs, to be paid not later than the annual date specified
by the Secretary of the Treasury or his delegate (Secretary), but in no
event later than September 30th of each calendar year in which a fee
must be paid (fee year).
Section 9008(d)(1) defines a covered entity as any manufacturer or
importer with gross receipts from branded prescription drug sales.
Section 9008(d)(2) provides a controlled group rule under which all
persons treated as a single employer under section 52(a), 52(b),
414(m), or 414(o) of the Code are treated as a single covered entity.
For this purpose, a foreign entity subject to tax under section 881 is
included within a controlled group under section 52(a) or 52(b). Under
section 9008(d)(3), all persons treated as a single employer under
section 9008(d)(2) are jointly and severally liable for the fee.
Section 9008(e)(2) defines branded prescription drug as (i) any
prescription drug the application for which was submitted under section
505(b) of the Federal Food, Drug, and Cosmetic Act (FFDCA) (21 U.S.C.
355(b)), or (ii) any biological product the license for which was
submitted under section 351(a) of the Public Health Service Act (42
U.S.C. 262(a)). For this purpose, a prescription drug is any drug that
is subject to section 503(b) of the FFDCA (21 U.S.C. 353(b)).
Section 9008(b) provides rules for determining the amount of the
annual fee for each covered entity. Under section 9008(b)(4), the
aggregate fee amount each year for all covered entities (referred to as
the applicable amount) is $2.5 billion for fee year 2011; $2.8 billion
for fee years 2012 and 2013; $3 billion for fee years 2014 through
2016; $4 billion for fee year 2017; $4.1 billion for fee year 2018; and
$2.8 billion for fee year 2019 and thereafter. Section 9008(b)(1)
requires the applicable amount for each year to be allocated, using a
specified formula, among covered entities with aggregate branded
prescription drug sales of over $5 million to specified government
programs or pursuant to coverage under such programs. Section
9008(e)(4) provides that the specified government programs are the
Medicare Part B program, the Medicare Part D program, the Medicaid
program, any program under which branded prescription drugs are
procured by the Department of Veterans Affairs, any program under which
branded prescription drugs are procured by the Department of Defense,
and the TRICARE retail pharmacy program (collectively, the Programs).
Specifically, section 9008(b)(1) provides that the annual fee for
each covered entity is calculated by determining the ratio of (i) the
covered entity's branded prescription drug sales
[[Page 51246]]
taken into account during the preceding calendar year to (ii) the
aggregate branded prescription drug sales taken into account for all
covered entities during the same year, and applying this ratio to the
applicable amount. Sales taken into account means branded prescription
drug sales after the application of the percentage adjustment table in
section 9008(b)(2). The sales data is generally to be provided by the
Centers for Medicare and Medicaid Services of the Department of Health
and Human Services (CMS), the Department of Veterans Affairs (VA), and
the Department of Defense (DOD) (collectively, the Agencies) pursuant
to section 9008(g).
Section 9008(b)(3) requires the Secretary to determine the amount
of each covered entity's fee and permits the Secretary to rely on
reports submitted by the Agencies and any other source of information
available to the Secretary in determining that amount. Section 9008(i)
also directs the Secretary to publish guidance necessary to carry out
the purposes of the statute.
Section 9008(f) treats the fee as an excise tax with respect to
which only civil actions for refunds under the provisions of subtitle F
of the Code will apply. Thus, the fee may be assessed and collected
using the procedures in subtitle F without regard to the restrictions
on assessment in section 6213 (relating to petitions to the Tax Court).
Section 9008(f) also characterizes the fee as a nondeductible tax under
section 275 of the Code.
IRS Guidance
On November 29, 2010, the Internal Revenue Service (IRS) released
Notice 2010-71 (2010-50 IRB 822), which proposed an approach to
implementing the section 9008 fee and requested comments on the
proposed approach. The proposed approach included an opportunity to
report certain information to the IRS relevant to the fee calculation
and provided that the IRS would provide each covered entity with notice
of a preliminary fee calculation. This notice was modified and
superseded by Notice 2011-9 (2011-6 IRB 459), which was released on
January 14, 2011.
On April 29, 2011, the IRS released Rev. Proc. 2011-24 (2011-20 IRB
787), which established a process for covered entities to submit
claimed errors in their preliminary fee calculations for consideration
before final fee calculations for 2011. On May 27, 2011, the IRS
released Notice 2011-46 (2011-25 IRB 887) to defer the due date for
submission of error reports and the last possible date for sending
final fee calculations for 2011.
Explanation of Provisions
The temporary regulations describe the rules related to the fee and
the actions to be taken before the September 30th due date of each
year's fee. The temporary regulations first provide a general overview
of the rules and then provide an explanation of terms used in
implementing the fee. Next, the temporary regulations describe the
information requested from covered entities and provided by the
Agencies. The temporary regulations then describe how the fee is
calculated and provide for a subsequent adjustment. The temporary
regulations then provide for a notice of the preliminary fee
calculation, a dispute resolution process to allow covered entities to
submit error reports relating to the preliminary fee calculation, and a
notice of the final fee calculation. The temporary regulations also
explain how to pay the fee, how the fee is treated for tax purposes,
and how to make refund claims.
These temporary regulations are generally consistent with the
approach proposed in previous IRS guidance. Certain modifications and
additions were made in response to public comments that were received
in response to the solicitation in Notice 2011-9. The changes and the
public comments are discussed in more detail in this preamble.
I. Overview
The temporary regulations provide guidance on the annual fee
imposed on covered entities engaged in the business of manufacturing or
importing branded prescription drugs by section 9008. Generally, each
covered entity with aggregate branded prescription drug sales of over
$5 million to the Programs (or pursuant to the Programs) is liable for
an annual fee in each fee year that is based on its sales of branded
prescription drugs in the sales year that corresponds to the fee year
in an amount determined by the IRS under these temporary regulations.
II. Explanation of Terms
The temporary regulations define numerous key terms used in section
9008 and in these regulations, including agencies, branded prescription
drug, covered entity, fee year, government programs, sales taken into
account, and sales year. Explanations of several terms are discussed in
more detail in this preamble.
A. Manufacturer or Importer
Section 9008(d)(1) provides that covered entity means any
manufacturer or importer with gross receipts from branded prescription
drug sales. Consistent with the proposal in previous IRS guidance, the
temporary regulations define a manufacturer or importer of a branded
prescription drug as the person identified in the Labeler Code of the
National Drug Code (NDC) for such a drug. The NDC is an identifier
assigned by the FDA to a prescription drug. The Labeler Code is the
first five numeric characters of the NDC or the first six numeric
characters when the available five-character code combinations are
exhausted.
B. Designated Entity
Consistent with the proposal in previous IRS guidance, the
temporary regulations provide that, in the case of a controlled group
that is treated as a single covered entity under section 9008(d)(2),
the controlled group may identify a person as the designated entity
that acts for the controlled group concerning the section 9008 fee.
However, the temporary regulations further provide that if the
controlled group, without regard to foreign corporations included under
section 9008(d), is also an affiliated group that filed a consolidated
return for Federal income tax purposes, the designated entity is the
common parent of the affiliated group identified on the tax return
filed for the sales year. If the controlled group is not an affiliated
group that filed a consolidated return for Federal income tax purposes,
it may select a person as the designated entity on Form 8947, ``Report
of Branded Prescription Drug Information.'' If the controlled group
does not select a person as a designated entity on its Form 8947, the
IRS will select a person as a designated entity for the controlled
group and advise the filer accordingly.
C. Orphan Drug Sales
Section 9008(e)(3) excludes orphan drug sales from the definition
of branded prescription drug sales. Consistent with the proposal in
previous IRS guidance, the temporary regulations define orphan drug,
subject to certain exceptions, as any branded prescription drug for
which any person claimed a section 45C credit and that credit was
allowed for any taxable year. The temporary regulations further provide
that an orphan drug does not include any drug for which there has been
a final assessment or court order disallowing the full section 45C
credit taken for the drug. Additionally, an
[[Page 51247]]
orphan drug does not include any drug for any sales year after the
calendar year in which the FDA approved the drug for marketing for any
indication other than the treatment of a rare disease or condition for
which a section 45C credit was allowed, regardless of whether a section
45C credit was allowed for the drug either before, at the same time, or
after this FDA approval.
Several commentators suggested that a drug should be considered an
orphan drug if the section 45C credit was ``allowable''; that is, the
section 45C credit could have been claimed, rather than was claimed.
Other commentators suggested that orphan drug status should be given to
a drug for which a section 45C credit was allowed even though the drug
had been approved by the FDA for marketing for an indication other than
the treatment of a rare disease or condition for which a section 45C
credit was allowed.
The temporary regulations do not adopt these suggestions. The plain
language of section 9008(e)(3) requires the section 45C credit to have
actually been allowed rather than to have merely been allowable. In
addition, the Treasury Department and the IRS interpret section
9008(e)(3) to mean that if a drug is ever approved for an indication
other than the treatment of a rare disease or condition for which a
section 45C credit was allowed, whether before, during, or after a
section 45C credit was allowed for the drug, sales of that drug are not
considered sales of an orphan drug. However, a drug will retain its
orphan drug status if the drug receives approval for a subsequent
indication for a rare disease or condition for which a subsequent
section 45C credit was allowed.
III. Information Requested From Covered Entities
Consistent with the proposal in previous IRS guidance, the
temporary regulations give each covered entity the opportunity to
provide information relevant to the determination of the section 9008
fee by annually submitting Form 8947, ``Report of Branded Prescription
Drug Information,'' and providing the information specified by the form
and instructions, including the NDCs for branded prescription drugs
that the covered entity sold to the Programs (or pursuant to coverage
under the Programs), Medicare and Medicaid rebate information, section
45C orphan drug information, members of controlled groups, and
designated entity information.
One commentator suggested that the Treasury Department and the IRS
confirm that submission of Form 8947 is voluntary. Section 51.3T(a) of
the temporary regulations provides that a covered entity may file a
completed Form 8947; thus, the submission of Form 8947 is voluntary.
Commentators expressed a preference for CMS to include all rebate
data in their reports to the IRS rather than collecting rebate data
from the covered entities on Form 8947. The IRS and CMS are continuing
to work on this issue. Until CMS can report all the relevant rebate
data, covered entities will continue to have the opportunity to submit
rebate data as requested on Forms 8947 and in the format prescribed in
the form instructions.
Several commentators suggested that the Treasury Department and the
IRS provide guidance on how covered entities may amend their Form 8947
to correct errors or omissions in the information reported. A number of
covered entities notified the IRS of corrections to their Forms 8947 in
the error reports that they submitted as part of the dispute resolution
process provided under Rev. Proc. 2011-24. That proved to be an
efficient and effective way to relay corrections. Accordingly, under
the temporary regulations, a covered entity may notify the IRS of any
changes or additions to information it submitted on Form 8947 by
submitting error reports in the dispute resolution process, discussed
later in this preamble.
IV. Information Provided by the Agencies
Consistent with the proposal in the previous IRS guidance, the
temporary regulations provide that the IRS will (1) compile a list of
branded prescription drugs by NDC using the data submitted on Forms
8947; (2) apply appropriate due diligence; and (3) provide the Agencies
with the list. The temporary regulations describe the data the Agencies
are to provide the IRS annually for each NDC on the list by Program.
The temporary regulations further clarify that the IRS may revise the
list of NDCs as a result of information received in the dispute
resolution process, and that the data the IRS uses to produce the final
fee determination includes any revisions provided by the Agencies at
the completion of the dispute resolution process.
Commentators raised questions about the descriptions in previous
IRS guidance of the methodology used by the Agencies to report branded
prescription drug sales to the IRS and asked that these descriptions be
clarified. In addition, some of the error reports submitted as part of
the dispute resolution process under Rev. Proc. 2011-24 identified the
need for clarification in describing Agency data. In response to the
comments and the issues illuminated by the error reports, the temporary
regulations provide revised descriptions of the data and computations
for some of the Programs.
Commentators raised questions about the methodology proposed for
computing branded prescription drug sales for Medicare Part B.
Specifically, they questioned the use of Medicare-allowed charges to
establish the sales rather than a computation based on the per-unit
average sales price (ASP) and the units paid for under Medicare Part B
as specified in section 9008(g)(2). Commentators also asked whether CMS
would use ASP (that is, ASP plus 0%) or ASP plus 6% (which reflects
amounts actually paid) in computing the sales figures. After
considering the comments, CMS refined its calculation process. Thus,
the temporary regulations provide that branded prescription drug sales
for Medicare Part B will be computed based on ASP and units paid for
under Medicare Part B.
Commentators also requested clarification about how sales will be
calculated for branded prescription drugs that are not separately
payable or reported. In the unusual situation where CMS is unable to
establish a reliable proportion of sales by NDC, for example due to
unavailable, inaccurate, or incomplete manufacturer sales data, the
temporary regulations clarify that CMS has a back-up method that will
use Medicare Part D utilization percentages in lieu of manufacturer
data. It should be noted, however, that for the 2011 fee calculations,
this back-up method was not required.
Commentators also expressed concerns about whether Medicare Part B
is capturing complete data with respect to non-separately payable
drugs, that is, drugs that are not directly correlated with a specific
HCPCS Code. CMS recognizes the commentators' concern and has made
extensive efforts to gather as complete a data set as possible. CMS
will continue to work with the data available to capture non-separately
payable drugs.
Some commentators asked whether the sales data from Medicaid
reflected sales where Medicaid was the secondary payer, resulting
potentially in duplicate reporting where another one of the Programs
(for example, Medicare Part B), was the primary payer. In response, CMS
has revised the Medicaid methodology to exclude non-Medicaid payments,
and the temporary regulations include a description of this aspect of
the methodology.
[[Page 51248]]
Commentators asked whether TRICARE sales data would be net of refunds
and rebates associated with specific NDCs. The temporary regulations
make clear that DOD will report for TRICARE the sales data for each NDC
based on retail pharmacy claims submitted during the sales year, net of
any refunds or rebates. Commentators questioned whether the VA sales
data excluded purchases made at individual treatment facilities. The VA
includes most of its purchases made at the individual medical treatment
facility level in its data because most of these purchases are made via
VA's Pharmaceutical Prime Vendor. The description of VA sales data
contained in the temporary regulation is revised from the description
contained in earlier guidance to eliminate language suggesting that
sales at the individual medical treatment facility level are not
included and to clarify that the sales data is net of refunds and
rebates.
V. Fee Calculation Including Adjustment
The temporary regulations clarify that the IRS will compute the fee
for a covered entity based on the branded prescription drug sales data
for each NDC reported by the Agencies and any rebate data for each NDC
reported by the covered entities. For purposes of computing the fee,
each NDC will be assigned to the covered entity that owns the NDC as of
the end of the day on December 31st of the sales year. For a covered
entity that is a controlled group, this includes all NDCs that a member
of the covered entity owns as of the end of the day on December 31st of
the sales year.
The temporary regulations provide that two years are relevant to
the calculation of the section 9008 fee: The fee year, and the calendar
year of the branded prescription drug sales, which will be used to
determine the amount of the fee (the sales year). As proposed in
previous IRS guidance, the temporary regulations use the second
calendar year preceding the fee year as the sales year for purposes of
calculating the section 9008 fee. The Treasury Department and the IRS
have determined that, although DOD and VA are expected to have complete
data on branded prescription drug sales for the calendar year
immediately preceding the fee year within the time frame necessary to
administer the fee, CMS is not expected to have comparable data because
it cannot complete its data processing within the necessary time frame.
Accordingly, the IRS will calculate the fee based on the branded
prescription drug sales data provided by the Agencies for the second
calendar year preceding the fee year. Because the use of the second
preceding year as the sales year, rather than the immediately preceding
year, may affect the amount of the fee paid by a covered entity, the
annual fee due in every year after 2011 will include an adjustment
amount. This adjustment amount will be added (or subtracted), as
appropriate, to (or from) the fee otherwise payable by the covered
entity in the fee year in which the adjustment is calculated.
The proposal in previous guidance was to compute the adjustment
separately for each NDC. Commentators raised questions about the effect
of the adjustment where a drug is owned by different covered entities
in the second preceding year and immediately preceding year and asked
whether the adjustment could be computed at the covered entity level
rather than the NDC level. The Treasury Department and the IRS have
considered these questions, and have decided to calculate the
adjustment at the covered entity level.
The adjustment will reflect the difference between the fee
determined for a covered entity in the immediately preceding fee year,
using data from the second calendar year preceding that fee year, and
what the fee for the covered entity would have been for the immediately
preceding fee year using data from the calendar year immediately
preceding the prior fee year. For example, for 2012, the adjustment
amount for a covered entity will be the difference between the 2011 fee
computed using 2009 sales data, and what the 2011 fee would have been
using 2010 sales data. Although the adjustment reflects a revision of
the prior year's fee based on data from the sales year immediately
preceding the prior fee year, the adjustment is only taken into account
by adding it to or subtracting it from the fee computed for the current
fee year.
VI. Notice of Preliminary Fee Calculation
Consistent with the proposal in the previous IRS guidance, the
temporary regulations provide that the IRS will provide each covered
entity with a notice of preliminary fee calculation each year that will
include the covered entity's preliminary fee calculation; the covered
entity's branded prescription drug sales, by NDC, for each Program; the
covered entity's branded prescription drug sales taken into account
after application of section 9008(a)(2); the aggregate branded
prescription drug sales taken into account for all covered entities;
after the 2011 fee year, a preliminary adjustment amount; and a
reference to the fee dispute resolution process set forth in guidance
published in the Internal Revenue Bulletin. The date by which the IRS
will send the preliminary fee calculation notice will be specified for
future years in guidance published in the Internal Revenue Bulletin.
For 2011, the IRS sent the notices by May 16, 2011. The Treasury
Department and the IRS anticipate sending these notices earlier in
future years.
VII. Dispute Resolution Process
Consistent with previous IRS guidance, the temporary regulations
provide for a dispute resolution process that allows a covered entity
to submit error reports in response to the preliminary fee calculation
for the IRS to consider before performing a final fee calculation. The
temporary regulations describe the information that covered entities
must submit. The IRS will specify in guidance published in the Internal
Revenue Bulletin the format for error report submissions and the date
by which a covered entity must submit an error report(s). For 2011, a
covered entity's error report was required to be submitted no later
than June 10, 2011. The Treasury Department and the IRS anticipate that
covered entities will have more time to prepare and send their error
reports to the IRS in future years.
Several commentators requested the ability to submit additional
error reports after the IRS sends notification of the final fee
determination. In the interest of providing finality to the fee
calculation process, the temporary regulations do not adopt this
suggestion.
VIII. Notification and Payment of Fee
Section 9008(a) provides that the annual fee must be paid not later
than the annual date specified by the Secretary, but in no event later
than September 30th of each fee year. The temporary regulations provide
that the IRS will send each covered entity its final fee calculation
for that year no later than August 31st and that the covered entity
must pay the fee by September 30th by electronic funds transfer. For
2011, the IRS will send covered entities notification of their 2011
final fee calculation by August 24th. This notification will include
the covered entity's final fee; the covered entity's branded
prescription drug sales by NDC for each Program; the covered entity's
branded prescription drug sales taken into account after application of
section 9008(a)(2); the aggregate branded prescription drug sales taken
into account for all covered entities; after the 2011 fee year, an
adjustment
[[Page 51249]]
amount; and the final determination with respect to error reports.
There is no tax return to be filed for the section 9008 fee.
IX. Tax Treatment of Fee
Section 9008(f)(1) provides that the branded prescription drug fee
for purposes of subtitle F of the Internal Revenue Code shall be
treated as an excise tax with respect to which only civil actions for
refund under procedures of subtitle F shall apply. Thus, under the
temporary regulations, the section 9008 fee is treated as an excise tax
for purposes of subtitle F of the Code (sections 6001-7874) to which
the deficiency procedures of sections 6211-6216 do not apply. The
temporary regulations provide that the IRS must assess the amount of
the section 9008 fee for any fee year within three years of September
30th of that fee year.
X. Refund Claims
The temporary regulations provide that any claim for refund must be
filed on Form 843, ``Claim for Refund and Request for Abatement.''
Availability of IRS Documents
IRS notices and the revenue procedure cited in this preamble are
published in the Internal Revenue Bulletin or Cumulative Bulletin and
are available at IRS.gov.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866, as
supplemented by Executive Order 13563. Therefore, a regulatory
assessment is not required. It also has been determined that section
553(b) of the Administrative Procedure Act (APA) (5 U.S.C. chapter 5)
does not apply to these regulations. For applicability of the
Regulatory Flexibility Act (5 U.S.C. chapter 6), please refer to the
Special Analysis section in the preamble to the cross-referenced notice
of proposed rulemaking in the Proposed Rules section in this issue of
the Federal Register. Pursuant to section 7805(f) of the Code, these
regulations have been submitted to the Chief Counsel for Advocacy of
the Small Business Administration for comment on their impact on small
businesses.
Section 553(b) of the APA does not apply to these regulations
because they are interpretative rules. Alternatively, the Treasury
Department and the IRS have determined that good cause exists under
section 553(b)(B) of the APA. That section provides that an agency is
not required to publish a notice of proposed rulemaking in the Federal
Register when the agency, for good cause, finds that notice and public
comment thereon are impracticable, unnecessary, or contrary to the
public interest. Due to the novel and complex issues raised by the
branded prescription drug fee provision and the required coordination
with other governmental agencies, the Treasury Department and the IRS
have concluded that it would take significantly longer than the time
between enactment (March 23, 2010) and the date of collection of the
first fee (no later than September 30, 2011) to draft and issue a
proposed rule with a comment period, review comments thoroughly, and
then draft and issue a final rule. Accordingly, the Treasury Department
and the IRS have determined that the notice and comment procedures are
impracticable.
In the months following enactment of section 9008, the Treasury
Department and the IRS, in coordination with other governmental
agencies, developed the proposed methodologies and processes to
compute, verify, assess and collect the annual fee amounts, and
published notices and a revenue procedure in the Internal Revenue
Bulletin describing the proposed approach and soliciting public
comments. The Treasury Department and the IRS provided an extended
comment period to give the covered entities an opportunity to review
their preliminary fee calculations before submitting comments on the
proposed approach. In addition, the Treasury Department and the IRS
engaged in discussions with affected external stakeholders and
extensively coordinated with other governmental agencies. Consequently,
the Treasury Department and the IRS also have determined that
additional notice and comment before implementation of the process set
forth in these regulations is unnecessary.
Since Congress mandated that the IRS collect the applicable fee
amount for the first fee year no later than September 30, 2011, it is
necessary that these regulations be issued immediately in order to
provide covered entities with the rules governing the fee and payment
prior to issuance of final fee determinations. However, comments are
being solicited in the cross-referenced notice of proposed rulemaking
that is in the Proposed Rules section in this issue of the Federal
Register and will be considered before final regulations are issued
regarding the branded prescription drug fee.
Drafting Information
The principal author of these regulations is Celia Gabrysh, Office
of the Associate Chief Counsel (Passthroughs and Special Industries).
However, other personnel from the Treasury Department and the IRS
participated in their development.
List of Subjects
26 CFR Part 51
Drugs, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR chapter 1 is amended by adding part 51 to
subchapter D and amending part 602 as follows:
0
Paragraph 1. Part 51 is added to read as follows:
PART 51--BRANDED PRESCRIPTION DRUG FEE
Sec.
51.1T Overview (temporary).
51.2T Explanations of terms (temporary).
51.3T Information requested from covered entities (temporary).
51.4T Information provided by the agencies (temporary).
51.5T Fee calculation (temporary).
51.6T Notice of preliminary fee calculation (temporary).
51.7T Dispute resolution process (temporary).
51.8T Notification and payment of fee (temporary).
51.9T Tax treatment of fee (temporary).
51.10T Refund claims (temporary).
51.11T Effective/applicability date (temporary).
51.12T Expiration date (temporary).
51.6302-1T Method of paying the branded prescription drug fee
(temporary).
Authority: 26 U.S.C. 7805; sec. 9008, Public Law 111-347 (124
Stat. 119).
Section 51.8 also issued under 26 U.S.C. 6302(a).
Section 51.6302-1 also issued under 26 U.S.C. 6302(a).
Sec. 51.1T Overview (temporary).
(a) The regulations in this part 51 are designated ``Branded
Prescription Drug Fee Regulations.''
(b) The regulations in this part 51 provide guidance on the annual
fee imposed on covered entities engaged in the business of
manufacturing or importing branded prescription drugs by section 9008
of the Patient Protection and Affordable Care Act (ACA), Public Law
111-148 (124 Stat. 119 (2010)), as amended by section 1404 of the
Health Care and Education Reconciliation Act of 2010 (HCERA), Public
Law 111-152 (124 Stat. 1029 (2010)). All references in
[[Page 51250]]
these regulations to section 9008 are references to section 9008 of the
ACA, as amended by section 1404 of HCERA. Unless otherwise indicated,
all other section references are to sections in the Internal Revenue
Code. All references to ``fee'' in these regulations are references to
the fee imposed by section 9008.
(c) Section 9008(b)(4) sets an applicable fee amount for each year,
beginning with 2011, that will be apportioned among covered entities
with aggregate branded prescription drug sales of over $5 million to
government programs or pursuant to coverage under such programs.
Generally, each covered entity is liable for a fee in each fee year
that is based on its sales of branded prescription drugs in the sales
year that corresponds to the fee year in an amount determined by the
Internal Revenue Service (IRS) under the rules of this part.
Sec. 51.2T Explanation of terms (temporary).
(a) In general. This section explains the terms used in this part
for purposes of the fee imposed by section 9008 on branded prescription
drugs.
(b) Agencies. The term agencies means--
(1) The Centers for Medicare and Medicaid Services of the
Department of Health and Human Services (CMS);
(2) The Department of Veterans Affairs (VA); and
(3) The Department of Defense (DOD).
(c) Branded prescription drug--(1) In general. The term branded
prescription drug means--
(i) Any prescription drug the application for which was submitted
under section 505(b) of the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 355(b)); or
(ii) Any biological product the license for which was submitted
under section 351(a) of the Public Health Service Act (42 U.S.C.
262(a)).
(2) Prescription drug. The term prescription drug means any drug
that is subject to section 503(b) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 353(b)).
(d) Branded prescription drug sales. The term branded prescription
drug sales means sales of branded prescription drugs to any government
program or pursuant to coverage under any such government program.
However, the term does not include sales of orphan drugs.
(e) Covered entity--(1) In general. The term covered entity means
any manufacturer or importer with gross receipts from branded
prescription drug sales including--
(i) A single-person covered entity; or
(ii) A controlled group.
(2) Single-person covered entity. The term single-person covered
entity means a covered entity that is not affiliated with any other
covered entity.
(3) Controlled group. The term controlled group means a group of at
least two covered entities that are treated as a single employer under
section 52(a), 52(b), 414(m), or 414(o).
(4) Special rules for controlled groups. For purposes of paragraph
(e)(3) of this section (related to controlled groups)--
(i) A foreign entity subject to tax under section 881 is included
within a group under section 52(a) or 52(b); and
(ii) A covered entity is treated as being a member of a controlled
group if it is a member of the group on the end of the day on December
31st of the sales year.
(f) Designated entity--(1) In general. The term designated entity
means the person that acts for a controlled group regarding the fee
by--
(i) Filing Form 8947, ``Report of Branded Prescription Drug
Information'';
(ii) Receiving IRS communications about the fee for the group;
(iii) Filing an error report for the group, if applicable, as
described in Sec. 51.7T; and
(iv) Paying the fee to the IRS.
(2) Selection of designated entity--(i) Choice of controlled group.
Unless the controlled group is an affiliated group that filed a
consolidated return for Federal income tax purposes, the controlled
group may select a person as the designated entity by filing Form 8947
in accordance with the form instructions. Among other requirements, the
designated entity must state that all the manufacturers or importers of
branded prescription drugs that are members of the group have consented
to the selection of the designated entity.
(ii) Requirement for affiliated groups; common parent. If the
controlled group, without regard to foreign corporations included under
section 9008(d)(2)(B), is also an affiliated group that filed a
consolidated return for Federal income tax purposes, the designated
entity is the common parent of the affiliated group as identified on
the tax return filed for the sales year. The covered entities in an
affiliated group must name the common parent as the designated entity
on Form 8947.
(iii) IRS selection of a designated entity. If a controlled group
does not select a designated entity, the IRS will select a member of
the controlled group as the designated entity for the controlled group.
(g) Fee year. The term fee year means the calendar year in which
the fee for a particular sales year must be paid to the government.
(h) Government programs. The term government programs (collectively
``Programs''), means--
(1) The Medicare Part B program;
(2) The Medicare Part D program;
(3) The Medicaid program;
(4) Any program under which branded prescription drugs are procured
by the Department of Veterans Affairs;
(5) Any program under which branded prescription drugs are procured
by the Department of Defense; and
(6) The TRICARE retail pharmacy program.
(i) Manufacturer or importer. The term manufacturer or importer
means the person identified in the Labeler Code of the National Drug
Code (NDC) for a branded prescription drug.
(j) NDC. The term NDC means the National Drug Code. The NDC is an
identifier assigned by the Food and Drug Administration (FDA) to a
branded prescription drug, as well as other drugs. The Labeler Code is
the first five numeric characters of the NDC or the first six numeric
characters when the available five-character code combinations are
exhausted.
(k) Orphan drugs--(1) In general. Except as provided in paragraph
(j)(2) of this section, the term orphan drug means any branded
prescription drug for which any person claimed a section 45C credit and
that credit was allowed for any taxable year.
(2) Exclusions. The term orphan drug does not include--
(i) Any drug for which there has been a final assessment or court
order disallowing the full section 45C credit taken for the drug; or
(ii) Any drug for any sales year after the calendar year in which
the FDA approved the drug for marketing for any indication other than
the treatment of a rare disease or condition for which a section 45C
credit was allowed, regardless of whether a section 45C credit was
allowed for the drug either before, in the same year as, or after this
FDA designation.
(3) FDA marketing approval for treatment of another rare disease or
condition. If a drug has prior FDA marketing approval for the treatment
of a rare disease or condition for which a section 45C credit was
allowed, and the FDA subsequently gives the drug marketing approval for
the treatment of another rare disease or condition for which another
section 45C credit was also allowed, the drug retains its status as an
orphan drug provided the FDA has never approved the drug for marketing
for any indication other than the treatment of a rare disease or
condition
[[Page 51251]]
for which a section 45C credit was allowed.
(4) Examples. The following examples illustrate the rules of this
paragraph (k):
Example 1: Allowance of section 45C credit and later FDA
marketing approval of drug for an indication other than the
treatment of a rare disease or condition. (i) Facts. Drug A is a
branded prescription drug that was not on the market before 2008. In
2008, a covered entity claimed a section 45C credit for its
qualified clinical testing expenses related to Drug A. There was no
final IRS assessment or court order that disallowed the full credit
for Drug A. In 2009, the FDA approved Drug A for marketing for an
indication other than the treatment of the rare disease or condition
for which the section 45C credit was allowed and this indication was
not for another rare disease or condition for which a section 45C
was allowed.
(ii) Analysis. In 2008 and 2009, Drug A is an orphan drug
because: first, it was a branded prescription drug for which a
person claimed a section 45C credit and for which that credit was
allowed for a taxable year; second, there was not a final assessment
or court order disallowing the full credit taken for the drug; and
third, before 2009, the FDA did not approve the drug for marketing
for any indication other than the treatment of a rare disease or
condition for which a section 45C credit was allowed. However, Drug
A is not an orphan drug for the 2010 sales year or later sales years
because in 2009 the FDA approved Drug A for marketing for an
indication other than the treatment of the rare disease or condition
for which the section 45C credit was allowed and this indication was
not for treatment of another rare disease or condition for which a
section 45C credit was allowed.
Example 2: FDA marketing approval of drug for an indication
other than the treatment of a rare disease or condition and later
allowance of section 45C credit. (i) Facts. Drug B is a branded
prescription drug that was not on the market before 2008. In 2008,
FDA approved Drug B for marketing for an indication other than the
treatment of a rare disease or condition for which a section 45C
credit was allowed. In 2009, a covered entity claimed a section 45C
credit for its qualified clinical testing expenses related to Drug
B. There was no final IRS assessment or court order that disallowed
the full credit for Drug B.
(ii) Analysis. In 2008, Drug B is not an orphan drug because no
section 45C credit was allowed. In 2009, although the covered entity
was allowed a section 45C credit for its qualified clinical testing
expenses related to Drug B and there was no final IRS assessment or
court order that disallowed the full credit, Drug B still is not an
orphan drug because the FDA had approved the drug in 2008 for
marketing for an indication other than the treatment of a rare
disease or condition for which a section 45C credit was allowed in
2009. Thus, Drug B is not an orphan drug for the 2009 sales year or
later sales years.
Example 3: Allowance of section 45C credit and subsequent
allowance of section 45C credit with no intervening FDA marketing
approval of drug for an indication other than the treatment of a
rare disease or condition for which a section 45C credit was
allowed. (i) Facts. Drug C is a branded prescription drug that was
not on the market before 2007. In 2007, a covered entity claimed a
section 45C credit for its qualified clinical testing expenses
related to Drug C. In 2009, a covered entity claimed an additional
section 45C credit for its qualified clinical testing expenses
related to Drug C for marketing for the treatment of a rare disease
or condition different than the one for which the section 45C credit
was claimed in 2007. There was no final IRS assessment or court
order that disallowed the full credit for Drug C in 2007 or 2009.
The FDA has not approved Drug C for an indication other than the
treatment of a rare disease or condition for which a section 45C was
allowed.
(ii) Analysis. In 2007 and 2008, Drug C is an orphan drug
because: first, it was a branded prescription drug for which a
person claimed a section 45C credit and for which that credit was
allowed for a taxable year; second, there was not a final assessment
or court order disallowing the full credit taken for the drug; and
third, FDA had not approved the drug for marketing for any
indication other than the treatment of a rare disease or condition
for which a section 45C credit was allowed. In 2009, Drug C retains
its orphan drug status because another section 45C credit was
allowed and the FDA did not approve Drug C for marketing for any
indication other than the treatment of another rare disease or
condition for which a section 45C credit was allowed. Thus, Drug C
is an orphan drug for the 2010 sales year.
(l) Sales taken into account. The term sales taken into account
means branded prescription drug sales after application of the
percentage adjustment table in section 9008(b)(2) (relating to annual
sales less than $400,000,001). See Sec. 51.5T(a)(3).
(m) Sales year. The term sales year means the second calendar year
preceding the fee year. Thus, for example, for the fee year of 2011,
the sales year is 2009.
Sec. 51.3T Information requested from covered entities (temporary).
(a) In general. Annually, each covered entity may submit a
completed Form 8947, ``Report of Branded Prescription Drug
Information,'' in accordance with the instructions for the form.
Generally, the form solicits information from covered entities on NDCs,
orphan drugs, designated entities, rebates, and other information
specified by the form or its instructions.
(b) Due date. Form 8947 must be filed by the date prescribed in
guidance in the Internal Revenue Bulletin.
Sec. 51.4T Information provided by the agencies (temporary).
(a) In general. For each sales year, the IRS will compile a list of
branded prescription drugs by NDC using the data submitted on Forms
8947 and in error reports submitted as part of the dispute resolution
process (described in Sec. 51.7T) and, after applying appropriate due
diligence, will provide this list to the Agencies. The Agencies will
provide data to the IRS on branded prescription drug sales during the
sales year by Program and NDC. The Agencies will provide data for use
in preparing the preliminary fee calculation (described in Sec. Sec.
51.5T and 51.6T) and may revise or supplement that data following
review of error reports submitted as part of the dispute resolution
process. The calculation methodology for calculating the sales amounts
for each Program, including any reasonable estimation techniques and
assumptions that the Agencies expect to use, is described in this
section.
(b) Medicare Part D. CMS will aggregate the ingredient cost
reported in the ``Ingredient Cost Paid'' field and the units reported
in the ``Quantity Dispensed'' field of the Prescription Drug Event
(PDE) records at the NDC level for each sales year. Only PDE data that
Part D sponsors have submitted by the PDE submission deadline (within 6
months after the end of the sales year) and have been approved for
inclusion in the Part D payment reconciliation will be included.
(c) Medicare Part B--(1) In general. CMS will determine branded
prescription drug sales under Medicare Part B using the following two
data sources:
(i) CMS will use data reported by manufacturers pursuant to section
1847A(c) of the Social Security Act to calculate the annual weighted
average sales price (ASP) for each Healthcare Common Procedure Coding
System (HCPCS) code for the sales year.
(ii) CMS will use the Medicare Part B National Summary Data File
located at http://www.cms.gov/NonIdentifiableDataFiles/03_PartBNationalSummaryDataFile.asp to obtain the number of allowed
billing units per HCPCS code for claims incurred during the sales year.
(2) Calculation. Using the data described in paragraph (c)(1) of
this section, CMS will determine branded prescription drugs sales under
Medicare Part B as described in paragraphs (c)(3), (4), and (5) of this
section.
(3) HCPCS code; single entity. For each HCPCS code consisting
solely and exclusively of branded prescription drugs (as identified by
their respective NDCs) manufactured by a single entity, CMS will
multiply the annual weighted ASP by the total number of allowed billing
units paid during the sales year
[[Page 51252]]
to determine the total sales for all NDCs associated with the HCPCS
code attributed to Medicare Part B.
(4) HCPCS code; multiple manufacturers and/or multiple drugs--(i)
Step one. For each HCPCS code consisting of a mixture of branded
prescription drugs made by different manufacturers and/or a mixture of
branded prescription and generic drugs, CMS will determine--
(A) The annual weighted ASP for the HCPCS code;
(B) The total number of allowed billing units paid by Medicare Part
B for each HCPCS code during the sales year;
(C) The names of the entities engaged in manufacturing each NDC
assigned to the HCPCS code; and
(D) Those entities (if any) identified in paragraph (c)(4)(C) of
this section that are manufacturing branded prescription drugs assigned
to the HCPCS code.
(ii) Step two. Using the information from paragraph (c)(4)(i) of
this section, CMS will then do the following:
(A) Calculate the proportion of sales, expressed as a percentage,
attributed to each NDC assigned to the HCPCS code by determining the
percentage of total sales reported to CMS by each manufacturer of
NDC(s) that are assigned to the HCPCS code. For example, if HCPCS code
JXXXX contains three drugs with a total of $310,000 sales reported by
manufacturers to CMS for the sales year, and $100,000 was reported for
Drug A, $200,000 was reported for Drug B, and $10,000 was reported for
Drug C, the proportion of sales attributed to each NDC will be 32.26
percent for Drug A, 64.52 percent for Drug B, and 3.22 percent for Drug
C; and
(B) For each NDC, multiply the product of the annual weighted ASP
and the total allowed billing units paid by Medicare Part B for the
HCPCS code by the proportion of sales calculated in paragraph
(c)(4)(ii)(A) of this section to determine the sales reportable to the
IRS (that is, percentage x (annual weighted ASP x allowed units) =
total sales reported to IRS for the NDC). The sales for each
manufacturer's NDCs assigned to a HCPCS code are summed and the total
sales for each manufacturer's NDCs in a HCPCS code will be reported to
the IRS.
(5) HCPCS code; unable to establish a reliable proportion of sales.
If CMS is unable to establish a reliable proportion of sales
attributable to each NDC assigned to the HCPCS code using the method
described in paragraph (c)(4)(ii)(A) of this section, CMS will use
Medicare Part D utilization percentages in lieu of the proportion of
sales determined under paragraph (c)(4)(ii)(A) of this section to
perform the calculation described in paragraph (c)(4)(ii)(B) of this
section.
(d) Medicaid. (1) CMS will determine the branded prescription drug
sales for Medicaid as the per-unit Average Manufacturer Price (AMP)
less the Unit Rebate Amounts (URA) that CMS calculates based on
manufacturer-reported pricing data multiplied by the number of units
reported billed by states to manufacturers. This data will be based on
the data reported to CMS during the sales year by covered entities and
the states for drugs paid for by the states in the Medicaid drug rebate
program during the sales year.
(2) For any covered entity identified in the first five (or six)
digits of an NDC during any of the four quarters of a sales year, CMS
will use the following methodology to derive the sales figures that
account for third-party payers, such as Medicare Part B:
(i) Report total dollars per NDC for AMP-URA multiplied by the
units reported by a state or states.
(ii) Determine the percentage of the total amount reimbursed that
is the Medicaid amount of that reimbursement. For example, if the total
amount reimbursed is $100,000, and the Medicaid amount reimbursed is
$20,000, then the percentage is 20 percent.
(iii) Multiply the percentage of the Medicaid amount of that
reimbursement (in the example in paragraph (d)(2)(ii) of this section,
20 percent) by the dollar figure derived from paragraph (d)(2)(i) of
this section (AMP minus URA multiplied by units) to get the new
adjusted sales dollar totals.
(e) Department of Veterans Affairs. VA will provide, by NDC, the
total amount paid (net of refunds and rebates, when they are associated
with a specific NDC) for each branded prescription drug procured by the
VA for its beneficiaries during the sales year. For this purpose, a
drug is procured on the invoice (billing) date. The basis of this
information will be national procurement data reported during the sales
year by VA's Pharmaceutical Prime Vendor to the VA Pharmacy Benefits
Management Service and National Acquisition Center.
(f) Department of Defense. The DOD will provide, by Labeler Code,
the manufacturer's name, the NDC, brand name, and the amount paid (net
of rebates and or refunds) for each branded prescription drug procured
by DOD (for DOD programs other than the TRICARE retail pharmacy
program) during the sales year. For DOD programs other than the TRICARE
retail pharmacy program, a drug is procured based upon the date it was
ordered. DOD will provide, by Labeler Code, the manufacturer's name,
the NDC, brand name, and the amount paid (net of rebates or refunds)
for each branded prescription drug procured by DOD through the TRICARE
Retail Pharmacy Program during the sales year. For the TRICARE retail
pharmacy program, a drug is procured based upon the date it was
dispensed. The amount paid is based on the submitted ingredient cost
paid, aggregated by NDC, for eligible TRICARE retail pharmacy claims
submitted during the program year, minus any refunds or rebates for the
corresponding claims.
Sec. 51.5T Fee calculation (temporary).
(a) Fee components--(1) In general. For every fee year, the IRS
will calculate a covered entity's total fee as described in this
section. For each fee year after 2011, the IRS will determine a covered
entity's total fee by applying, if applicable, the adjustment amount
described in paragraph (e) of this section to the entity's allocated
fee described in paragraph (d) of this section.
(2) Calculation of branded prescription drug sales. Each covered
entity's allocated fee for any fee year is equal to an amount that
bears the same ratio to the applicable amount as the covered entity's
branded prescription drug sales taken into account during the sales
year bears to the aggregate branded prescription drug sales of all
covered entities taken into account during the sales year.
(3) Applicable amount. The applicable amounts for fee years are--
------------------------------------------------------------------------
Fee year Applicable amount
------------------------------------------------------------------------
2011................................................ $2,500,000,000
2012................................................ 2,800,000,000
2013................................................ 2,800,000,000
2014................................................ 3,000,000,000
2015................................................ 3,000,000,000
2016................................................ 3,000,000,000
2017................................................ 4,000,000,000
2018................................................ 4,100,000,000
2019 and thereafter................................. 2,800,000,000
------------------------------------------------------------------------
(3) Sales taken into account. A covered entity's branded
prescription drug sales taken into account during any calendar year are
as follows:
[[Page 51253]]
------------------------------------------------------------------------
Percentage of
branded
Covered entity's branded prescription drug sales prescription drug
during the calendar year that are: sales taken into
account is
------------------------------------------------------------------------
Not more than $5,000,000............................ 0
More than $5,000,000 but not more than $125,000,000. 10
More than $125,000,000 but not more than 40
$225,000,000.......................................
More than $225,000,000 but not more than 75
$400,000,000.......................................
More than $400,000,000.............................. 100
------------------------------------------------------------------------
(b) Determination of branded prescription drug sales. The IRS will
compile each covered entity's branded prescription drug sales for each
Program by NDC. Each NDC will be attributed to the covered entity that
owns the NDC as of the end of the day on December 31st of the sales
year. For a covered entity that is a controlled group, this includes
all NDCs that a member of the covered entity owns as of the end of the
day on December 31st of the sales year. For this purpose, the IRS may
revise the list of NDCs as a result of information received in the
dispute resolution process, and the data the IRS uses to produce the
final fee calculation will include any revisions provided by the
Agencies at the completion of the dispute resolution process. Each
covered entity's branded prescription drug sales will be reduced by its
Medicare Part D rebates and Medicaid state supplemental rebate amounts
in the following manner. If CMS has the rebate information for these
Programs for a sales year, CMS will report to the IRS branded
prescription drug sales net of rebates. If CMS does not have the rebate
information for these programs for a sales year, the IRS will reduce
the branded prescription drug sales reported for these Programs by
rebates reported by the covered entities on Forms 8947.
(c) Determination of sales taken into account. (1) For each sales
year and for each covered entity, the IRS will calculate sales taken
into account. The resulting number is the numerator of the ratio
described in paragraph (d)(1) of this section.
(2) For each sales year, the IRS will calculate the aggregate
branded prescription drug sales taken into account for all covered
entities. The resulting number is the denominator of the ratio
described in paragraph (d)(2) of this section.
(d) Allocated fee calculation. For each covered entity for each fee
year, the IRS will calculate the entity's allocated fee by multiplying
the applicable amount from paragraph (a)(2) of this section by a
fraction--
(1) The numerator of which is the covered entity's branded
prescription drug sales taken into account during the sales year
(described in paragraph (c)(1) of this section); and
(2) The denominator of which is the aggregate branded prescription
drug sales taken into account for all covered entities during the same
year (described in paragraph (c)(2) of this section).
(e) Adjustment amount. For each fee year after 2011, in addition to
the allocated fee computed under paragraph (d) of this section, the IRS
will also calculate an adjustment amount that reflects the difference
between the allocated fee determined for the covered entity in the
immediately preceding fee year, using data from the second calendar
year preceding that fee year, and what the allocated fee would have
been for that entity for the immediately preceding fee year using data
from the calendar year immediately preceding that fee year. For
example, for 2012, the adjustment amount for a covered entity will be
the difference between the entity's 2011 allocated fee, using 2009
data, and what the 2011 allocated fee would have been using 2010 data.
Although the adjustment reflects a revision of the prior year's fee
based on data from the year immediately preceding the prior fee year,
the adjustment is only taken into account by adding it to or
subtracting it from the allocated fee computed under paragraph (d) of
this section for the current fee year to arrive at the total fee for
the current fee year.
Sec. 51.6T Notice of preliminary fee calculation (temporary).
(a) Content of notice. For each sales year, the IRS will make a
preliminary calculation of the fee for each covered entity as described
in Sec. 51.5T. The IRS will notify each covered entity of its
preliminary fee calculation for that sales year. The notification to a
covered entity of its preliminary fee calculation will include--
(1) The covered entity's allocated fee;
(2) The covered entity's branded prescription drug sales, by NDC,
by Program;
(3) The covered entity's branded prescription drug sales taken into
account after application of Sec. 51.5T(a)(3);
(4) The aggregate branded prescription drug sales taken into
account for all covered entities;
(5) After the 2011 fee year, the covered entity's adjustment amount
calculated as described in Sec. 51.5T(e); and
(6) A reference to the fee dispute resolution procedures set forth
in guidance published in the Internal Revenue Bulletin.
(b) Time of notice. The IRS will send each covered entity notice of
its preliminary fee calculation by the date prescribed in guidance
published in the Internal Revenue Bulletin.
Sec. 51.7T Dispute resolution process (temporary).
(a) In general. Upon receipt of its preliminary fee calculation,
each covered entity will have an opportunity to dispute this
calculation by submitting to the IRS an error report as described in
this section. The IRS will provide its final determination with respect
to error reports no later than the time the IRS provides a covered
entity with a final fee calculation.
(b) Program errors. To assert that there has been one or more
errors in drug sales data, a covered entity must submit a separate
error report for each Program with the asserted errors. Each report
must include the following information--
(1) Entity name, entity number (if applicable, from Part I (a) of
the Form 8947), address, and Employer Identification Number (EIN) as
previously reported on the Form 8947;
(2) The name, telephone number, and e-mail address (if available)
of one or more employees or representatives of the entity with whom the
Agencies may discuss the claimed errors. A Form 2848, ``Power of
Attorney and Declaration of Representative,'' must be filed with the
error report; and
(3) The name of the Program that reported the data, the NDC, the
specific amount of sales data disputed, the proposed corrected amount,
an explanation of why the Agency should use the proposed corrected data
instead,
[[Page 51254]]
and documentation of any Program drug sales data or other information
used to establish the existence of any errors.
(c) Errors other than Program drug sales errors. To assert that
there has been one or more errors in the mathematical calculation of
the fee, the rebate data, the listing of an NDC for an orphan drug, or
any other error (other than Program drug sales data errors), a covered
entity must submit one error report, separated into sections by type of
error, and must include the following information--
(1) Entity name, entity number (if applicable, from Part I (a) of
the Form 8947), address, and EIN as previously reported on the Form
8947;
(2) The name, telephone number, and e-mail address (if available)
of one or more employees or representatives of the entity with whom the
IRS and/or the Agencies may discuss the claimed errors. If the
representative is not an employee of the entity, a Form 2848 must be
filed with the error report;
(3) For a mathematical calculation error, the specific calculation
element(s) that the entity disputes and its proposed corrected
calculation;
(4) For a rebate data error, the NDC for the drug to which it
relates; a discussion of whether the data used in the preliminary fee
calculation matches previously reported Form 8947 data on rebates; and,
if the data used in the preliminary fee calculation does match the Form
8947 data, an explanation of why the Form 8947 data was erroneous and
why the IRS should use the proposed corrected data instead;
(5) For the listing of an NDC for an orphan drug, the name and NDC
of the orphan drug; a discussion of whether the data used in the
preliminary fee calculation matches previously reported Form 8947 data
on orphan drugs; and, if the data used in the preliminary fee
calculation does match the Form 8947 data, an explanation of why the
Form 8947 data was erroneous and why the IRS should use the proposed
corrected data instead;
(6) For any other asserted error, an explanation of the nature of
the error, how the error affects the fee calculation, an explanation of
how the entity established that an error occurred, the proposed
correction to the error, and an explanation of why the IRS or Agency
should use the proposed corrected data instead;
(7) If an entity is using data to establish the existence of an
error and that data was not reported on Form 8947 or contained in the
notification of the preliminary fee calculation, a description of what
the data is, how the entity acquired the data, and who maintains it;
and
(8) Documentation of any rebate and orphan drug data, or other
information used to establish the existence of any errors.
(d) Form, manner, and timing of submission. Each covered entity
must submit its error report(s) in the form and manner that is
prescribed in guidance published in the Internal Revenue Bulletin. This
guidance will also prescribe the date by which each covered entity must
submit its report(s).
Sec. 51.8T Notification and payment of fee (temporary).
(a) Notification of final fee calculation. No later than August
31st of each fee year, the IRS will send each covered entity its final
fee calculation for that year. In any fee year, the IRS will base its
final fee calculation on data provided to it by the Agencies as
adjusted pursuant to the dispute resolution process. The notification
to a covered entity of its final fee calculation will include--
(1) The covered entity's allocated fee;
(2) After the 2011 fee year, an adjustment amount calculated as
described in Sec. 51.5T;
(3) The covered entity's branded prescription drug sales, by NDC,
by Program;
(4) The covered entity's branded prescription drug sales taken into
account after application of Sec. 51.5T(a)(3);
(5) The aggregate branded prescription drug sales taken into
account for all covered entities; and
(6) The final determination with respect to error reports.
(b) Differences in preliminary fee calculation and final fee
calculation. A covered entity's final fee calculation may differ from
the covered entity's preliminary fee calculation because of changes
made pursuant to the dispute resolution process described in Sec.
51.7T. Even if a covered entity did not file an error report described
in Sec. 51.7T, a covered entity's final fee may differ from a covered
entity's preliminary fee because of a change in data reported by the
Agencies after resolution of error reports, including a change in the
aggregate prescription drug sales figure. A change in aggregate
prescription drug sales data can affect each covered entity's fee
because each covered entity's fee is a fraction of the aggregate fee
collected from all covered entities. A covered entity's final fee may
also differ from its preliminary fee calculation because the data used
in the preliminary fee calculation may have contained inaccurate
branded prescription drug sales information that was corrected or
updated at the conclusion of the dispute resolution process.
(c) Payment of final fee. Each covered entity must pay its final
fee by September 30th of the fee year. For a controlled group, the
payment must be made using the designated entity's EIN as reported on
Form 8947. The fee must be paid by electronic funds transfer as
required by Sec. 51.6302-1T. There is no tax return to be filed for
the fee.
(d) Joint and several liability. In the case of a controlled group
that is liable for the fee, all covered entities within the controlled
group are jointly and severally liable for the fee. Accordingly, if a
covered entity's fee is not paid, the IRS will separately assess each
covered entity in the group for the full amount of the controlled
group's fee.
Sec. 51.9T Tax treatment of fee (temporary).
(a) Treatment as an excise tax. The fee imposed by section 9008 is
treated as an excise tax for purposes of subtitle F of the Code
(sections 6001-7874). Thus, references in subtitle F to ``taxes imposed
by this title,'' ``internal revenue tax,'' and similar references, are
also references to the fee imposed by section 9008. For example, the
fee imposed by section 9008 is assessed (section 6201), collected
(sections 6301, 6321, and 6331), enforced (section 7602), subject to
examination and summons (section 7602), and subject to confidentiality
rules (section 6103), in the same manner as taxes imposed by the Code.
(b) Deficiency procedures. The deficiency procedures of sections
6211-6216 do not apply to the fee imposed by section 9008.
(c) Limitation on assessment. The IRS must assess the amount of the
fee for any fee year within three years of September 30th of that fee
year.
(d) Application of section 275. The fee is treated as a tax
described in section 275(a)(6) (relating to taxes for which no
deduction is allowed).
Sec. 51.10T Refund claims (temporary).
Any claim for a refund of the fee must be made by the person that
paid the fee to the government and must be made on Form 843, ``Claim
for Refund and Request for Abatement,'' in accordance with the
instructions for that form.
Sec. 51.11T Effective/applicability date (temporary).
Sections 51.1T through 51.10T apply to any fee on branded
prescription drug sales that is due on or after September 30, 2011.
Sec. 51.12T Expiration date (temporary).
The applicability of Sec. Sec. 51.1T through 51.10T expires August
15, 2014.
[[Page 51255]]
Sec. 51.6302-1T Method of paying the branded prescription drug fee
(temporary).
(a) Fee to be paid by electronic funds transfer. Under the
authority of section 6302(a), the fee imposed on branded prescription
drug sales by section 9008 and Sec. 51.5T must be paid by electronic
funds transfer as defined in Sec. 31.6302-1(h)(4)(i), as if the fee
were a depository tax. For the time for paying the fee, see Sec.
51.8T.
(b) Effective/applicability date. This section applies on and after
August 18, 2011.
(c) Expiration date. The applicability of this section expires
August 15, 2014.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 2. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 3. In Sec. 602.101, paragraph (b) is amended by adding the
following entry in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where indentified and described Control No.
------------------------------------------------------------------------
* * * * *
51.8T............................................... 1545-2209
* * * * *
------------------------------------------------------------------------
Sarah Hall Ingram,
Deputy Commissioner for Services and Enforcement.
Approved: August 12, 2011.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-21011 Filed 8-15-11; 11:15 am]
BILLING CODE 4830-01-P