[Federal Register Volume 84, Number 62 (Monday, April 1, 2019)]
[Rules and Regulations]
[Pages 12130-12137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06274]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 447

[CMS-2345-F2 and 2345-IFC2]
RIN 0938-AT09


Medicaid Program; Covered Outpatient Drug; Line Extension 
Definition; and Change to the Rebate Calculation for Line Extension 
Drugs

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

ACTION: Final rule and interim final rule with comment period.

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SUMMARY: This interim final rule with comment period revises the 
regulatory text to accurately reflect the applicable statutory language 
describing the rebate calculation for line extension drugs, which was 
revised by the Bipartisan Budget Act (BBA) of 2018. In addition, we 
also are issuing a final rule which responds to comments on the 
definition and identification of line extension drugs for which we 
requested additional comments in the Covered Outpatient Drugs final 
rule with comment period

[[Page 12131]]

published in the February 1, 2016 Federal Register.

DATES: Effective date: April 1, 2019.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on May 31, 2019.

ADDRESSES: In commenting, please refer to file code CMS-2345-IFC2 when 
commenting on issues in the interim final rule with comment period. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission. You may submit comments in one of three 
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-2345-IFC2, 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-2345-IFC2, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Ruth Blatt, (410) 786-1767, for issues 
related to the definition and identification of line extension drugs, 
and the rebate calculation for line extension drugs. Wendy Tuttle, 
(410) 786-8690, for all other inquiries.

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 
website as soon as possible after they have been received: http://regulations.gov. Follow the search instructions on that website to view 
public comments.
    Provisions open for comment: We will consider comments that are 
submitted as indicated above in the DATES and ADDRESSES sections on the 
rebate calculation for line extension drugs discussed in the IFC.

I. Background

A. Introduction

    The Covered Outpatient Drugs final rule with comment period (COD 
final rule) was published in the February 1, 2016 Federal Register (81 
FR 5170) and became effective on April 1, 2016. The COD final rule 
implemented provisions of section 1927 of the Social Security Act (the 
Act) that were added by the Patient Protection and Affordable Care Act 
of 2010, as amended by the Health Care and Education Reconciliation Act 
of 2010 (collectively referred to as the Affordable Care Act) 
pertaining to Medicaid reimbursement for covered outpatient drugs 
(CODs). It also revised other requirements related to CODs, including 
key aspects of Medicaid coverage and payment and the Medicaid Drug 
Rebate (MDR) program under section 1927 of the Act. Additionally, the 
COD final rule did not finalize a regulatory definition of ``line 
extension'' but requested additional public comments on the definition 
and identification of line extension drugs.

B. Requesting Comments on Definition and Identification of Line 
Extension Drugs

    We stated in the preamble to the COD final rule that we received 
numerous comments regarding our proposed definition of line extension 
drug. The comments addressed reasons why certain parameters should not 
be included in the definition of a line extension drug. For example, 
comments addressed why new combinations, new indications, and new 
ester, new salt or other noncovalent derivatives should not be included 
in the definition of a line extension. Other comments included concerns 
that our definition was too broad and not supported by legislative 
history and suggested alternative definitions of line extension drugs.
    We stated that while we appreciated the comments that were 
provided, we had decided not to finalize the proposed regulatory 
definition of line extension drug at Sec.  447.502. Instead, we 
requested additional public comments on the definition and 
identification of line extension drugs (81 FR 5197). The comment period 
for this additional request for public comments closed on April 1, 
2016.
    The Comprehensive Addiction and Recovery Act of 2016 (CARA) (Pub. 
L. 114-198, enacted on July 22, 2016) amended the last sentence of 
section 1927(c)(2)(C) of the Act. That statutory provision now reads, 
in this subparagraph, the term ``line extension'' means, with respect 
to a drug, a new formulation of the drug, such as an extended release 
formulation, but does not include an abuse-deterrent formulation of the 
drug (as determined by the Secretary), regardless of whether such 
abuse-deterrent formulation is an extended release formulation. The 
amendment applies to drugs that are paid for by a state in calendar 
quarters beginning on or after the July 22, 2016, the date of enactment 
of CARA, which would be, October 1, 2016, the beginning of fourth 
quarter 2016. In short, CARA exempts certain abuse-deterrent 
formulations (ADFs) from the definition of line extension for purposes 
of the MDR program.
    We issued Manufacturer Release No. 102 on November 17, 2016 to 
provide guidance on CARA. In that Manufacturer Release we described how 
we intend to verify if a drug is an ADF, and thus, should be excluded 
from the definition of line extension for purposes of the MDR program. 
This Manufacturer Release states that we intend to use information 
provided on the Drug Details page for the drug on Drugs@FDA: FDA 
Approved Drug Products to perform this verification process for the MDR 
program. For further details, please see the release which is available 
at https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Prescription-Drugs/Downloads/Rx-Releases/MFR-Releases/mfr-rel-102.pdf. Please note that FDA has subsequently updated the way in which 
it lists drug information on Drugs@FDA. The ``Drug Details'' section is 
no longer included but details about the drug are available based on 
the application number, including whether FDA has determined whether 
the drug has abuse-deterrent properties.

C. Statutory Change to the Rebate Calculation for Line Extension Drugs

    Section 53104 of the BBA of 2018 (Pub. L. 115-123, enacted on 
February 9, 2018) amends section 1927 of the Act by providing a 
technical correction to the alternative rebate formula for line 
extension drugs that was established under the Affordable Care Act. 
Specifically, it amends section 1927(c)(2)(C) of the Act such that the 
rebate for a line extension drug is the greater of either (a) the 
standard rebate (calculated as a base rebate amount plus an additional 
inflation-based rebate), or (b) the base rebate amount increased by the 
alternative formula contained in section 1927(c)(2)(C)(i) through 
(c)(2)(C)(iii) of the Act. This amendment

[[Page 12132]]

applies to rebate periods beginning on or after October 1, 2018. We 
issued Manufacturer Release No. 109 and State Release No. 186 on August 
9, 2018 to provide guidance to manufacturers and states on the 
statutory amendments to the alternative rebate formula for line 
extension drugs. For further details, please see the releases which are 
available at https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-186.pdf and https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-109.pdf. In addition, we have also included an 
interim final rule with comment period to revise Sec.  447.509(a)(4) to 
accurately reflect the statutory amendments to section 1927(c)(2)(C) of 
the Act. The interim final rule with comment period includes a 60-day 
comment period.

II. Responses to Public Comments on Definition and Identification of 
Line Extension Drugs

    As discussed in the COD final rule, we decided not to finalize the 
proposed regulatory definition of line extension drug at Sec.  447.502 
and, instead, we requested additional comments on the definition of 
line extension drug noting that we may consider addressing this issue 
in future rulemaking (81 FR 5197). After the additional public comment 
period closed, CARA passed, and we issued guidance to the public on how 
we would apply section 1927(c)(2)(C) of the Act. While the additional 
comments that we received through the additional public comment period 
were insightful of the public's thoughts at a particular time, the 
comments are not informed by the current statutory framework. 
Therefore, we are not finalizing a definition of line extension in this 
final rule and interim final rule with comment period, but instead, are 
reiterating guidance provided in the COD final rule that manufacturers 
are to rely on the statutory definition of line extension at section 
1927(c)(2)(C) of the Act, and where appropriate are permitted to use 
reasonable assumptions in their determination of whether their drug 
qualifies as a line extension drug (81 FR 5265). Reasonable assumptions 
must be consistent with the purpose of section 1927 of the Act, federal 
regulations, and the terms of the MDR agreement; manufacturers must 
maintain adequate documentation explaining any such assumptions (83 FR 
12770, 12785 (March 23, 2018)). If we later decide to develop a 
regulatory definition of line extension drug, we will do so through our 
established Administrative Procedures Act (APA) compliant rulemaking 
process and issue a proposed rule.
    We received 31 public comments, some of which are beyond the scope 
of the request for comments on the definition of line extension drugs. 
Relevant public comments on the definition of line extension drugs 
related to the scope of the definition of line extension drug, included 
concerns regarding the process and establishment of a final definition 
of line extension drug, and proposed mechanisms suggested to define the 
term. We appreciate the comments and again note that we are not 
finalizing a definition of line extension drug at this time in this 
final rule or interim final rule with comment period.

III. Interim Final Rule With Comment Period To Address Statutory Change 
to the Rebate Calculation for Line Extension Drugs

A. Bipartisan Budget Act of 2018 Changes the Rebate Calculation for 
Line Extension Drugs

    As stated previously, section 53104 of the BBA of 2018 amends the 
applicable statute by providing a technical correction to the 
alternative rebate formula for line extension drugs first established 
under the Affordable Care Act. Specifically, it amends section 
1927(c)(2)(C) of the Act such that the rebate for a line extension drug 
is the greater of either (a) the standard rebate (calculated as a base 
rebate amount plus an additional inflation-based rebate), or (b) the 
base rebate amount increased by the alternative formula contained in 
section 1927(c)(2)(C)(i) through (c)(2)(C)(iii) of the Act. This 
amendment applies to rebate periods beginning on or after October 1, 
2018. The interim final rule with comment period revises Sec.  
447.509(a)(4) to accurately reflect the statutory language of section 
1927(c)(2)(C)(i) through (c)(2)(C)(iii) of the Act, as it applies 
beginning October 1, 2018.

B. Regulatory and System Change Required

    For rebate periods occurring after the enactment of the Affordable 
Care Act and prior to the enactment of the BBA of 2018, that is, drugs 
paid for by a state after December 31, 2009 and prior to October 1, 
2018, the unit rebate amount calculation (URA) for a line extension 
drug is the greater of: (1) Standard URA = the basic rebate plus the 
additional rebate for the line extension drug or (2) Alternative URA = 
the product of the average manufacturer price (AMP) of the line 
extension drug (for each dosage form and strength) and the highest 
additional rebate (calculated as a percentage of AMP) under section 
1927(c) of the Act for any strength of the original single source drug 
or innovator multiple source drug (``initial brand name listed drug''.)
    Effective for rebate periods beginning on or after October 1, 2018, 
the URA for a line extension drug will be the greater of: (1) Standard 
URA = the basic rebate plus the additional rebate for the line 
extension drug or (2) Alternative URA = the basic rebate plus the 
product of the quarterly AMP of the line extension drug (for each 
dosage form and strength) and the highest additional rebate (calculated 
as a percentage of AMP) under section 1927 of the Act for any strength 
of the original single source drug or innovator multiple source drug.
    The proposed revisions to Sec.  447.509(a)(4) are as follows: In 
Sec.  447.509(a)(4)(i), the phrase ``for the rebate periods beginning 
January 1, 2010 through September 30, 2018'' is added between ``the 
rebate obligation'' and ``is the amount computed.
    Additionally, Sec.  447.509(a)(4)(ii) is redesignated as Sec.  
447.509(a)(4)(iii) and Sec.  447.509(a)(4)(ii) is changed to state that 
in the case of a drug that is a line extension of a single source drug 
or an innovator multiple source drug that is an oral solid dosage form, 
the rebate obligation for the rebate periods beginning on or after 
October 1, 2018 is the amount computed under paragraphs (a)(1) through 
(3) of this section for such new drug or, if greater, the amount 
computed under paragraph (a)(1) of this section plus the product of the 
following:
     The AMP of the line extension of a single source drug or 
an innovator multiple source drug that is an oral solid dosage form;
     The highest additional rebate (calculated as a percentage 
of AMP) under this section for any strength of the original single 
source drug or innovator multiple source drug; and
     The total number of units of each dosage form and strength 
of the line extension product paid for under the State plan in the 
rebate period (as reported by the State).
    We will modify the rebate system to incorporate the revised line 
extension URA calculation as part of the quarterly rebate files 
beginning with the fourth quarter 2018 file that will be sent to the 
states in early February 2019. We will provide additional operational 
instructions to manufacturers and states regarding the status of the 
system modifications. As always, while we provide states with URA 
information as a courtesy, in accordance with section

[[Page 12133]]

1927(c)(2)(C) of the Act, manufacturers remain responsible for 
calculating the revised line extension URA in accordance with the BBA 
of 2018 effective fourth quarter of calendar year 2018.

C. Illustration and Example of Calculation

    Below, we are providing an illustration of the steps for the 
calculation of the URA and unit rebate offset amount (UROA) \1\ for a 
line extension drug, along with an example of each calculation.
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    \1\ Drug products are identified and reported using a unique, 
three-segment number, called the National Drug Code (NDC), which 
serves as a universal product identifier for drugs. The amount per 
unit of a drug at the 9-digit NDC level that is returned to the 
federal government is attributable to the increased amount of 
rebates that manufacturers are required to pay under the Medicaid 
drug rebate program due to changes in the rebates made in the 
Affordable Care Act.
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    Step 1: Calculate Standard URA = Basic Unit Rebate Amount + 
Additional Unit Rebate Amount.
    Step 2: Calculate Alternative URA = Basic Unit Rebate Amount + 
Product of the AMP of the line extension drug and the highest 
additional rebate (calculated as a percentage of AMP) under section 
1927 for any strength of the initial brand name listed drug.
    Step 3: Determine the URA = Greater of (1) Standard URA or (2) 
Alternative URA.
    Step 4: Determine if the URA is greater than 100 percent of the 
Quarterly AMP
    a. If the URA is greater than or equal to 100 percent of the 
Quarterly AMP, then the URA = Quarterly AMP (consistent with section 
1927(c)(2)(D) of the Act.)
    b. If the URA is less than 100 percent of Quarterly AMP, then use 
the URA.
    Step 5: Calculate the UROA
    a. If the Alternative URA is greater than the Standard URA, then 
the UROA for the line extension drug will be the difference between the 
Alternative URA and the Standard URA plus the Basic UROA.\2\
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    \2\ See SMDL #10-019 for additional information on CMS policy on 
Federal offset of rebates which is based on the increase in the 
minimum rebate percentage effectuated by the Affordable Care Act.
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    b. If the Alternative URA is less than or equal to the Standard 
URA, then there is no UROA for the line extension portion; however, the 
Basic UROA still applies.

Example

Baseline AMP (line extension) = 100.00
Best Price (line extension) = 250.00
Quarterly CPI-U = 200.00
Quarterly AMP (line extension) = 300.00
Baseline CPI-U \3\ = 170.00
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    \3\ A measure of the average change over time in the prices paid 
by urban consumers for a market basket of consumer goods and 
services.
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Step 1: Calculate Standard URA
A. Basic Unit Rebate Amount is the greater of:
    (a) Quarterly AMP x 23.1% = 300.00 x 23.1% = 69.30 or
    (b) Quarterly AMP-Best Price = 300.00-250.00 = 50.00

    The greater of the two results (69.30 or 50.00) is 69.30

    Basic Unit Rebate Amount = 69.30

B. Additional Unit Rebate Amount = Quarterly AMP-[(Baseline AMP/
Baseline CPI-U) x Quarterly CPI-U]

    = 300-[100/170 x 200]

    = 300-117.65 = 182.35

    Additional Unit Rebate Amount = 182.35

    If the [(Baseline AMP/Baseline CPI-U) x Quarterly CPI-U] is equal 
to or greater than the Quarterly AMP, then the Additional Unit Rebate 
Amount is zero.

    Standard URA = Basic Unit Rebate Amount + Additional Unit Rebate 
Amount = 69.30 + 182.35 = 251.65

Step 2: Calculate Alternative URA

    Quarterly AMP (line extension) = 300.00
    Best Price (line extension) = 250.00

A. Basic Unit Rebate Amount is the greater of:
    (a) Quarterly AMP x 23.1% = 300.00 x 23.1% = 69.30 or
    (b) Quarterly AMP-Best Price = 300.00-250.00 = 50.00

    The greater of the two results (69.30 or 50.00) is 69.30

    Basic Unit Rebate Amount = 69.30

B. Alternative Additional Unit Rebate Amount:
    Product of the Quarterly AMP of the line extension drug and the 
highest additional rebate (calculated as a percentage of AMP) for any 
strength of the initial brand name listed drug.

    Additional Unit Rebate Amount (initial brand name listed drug) 
strength A = 200.00
    Additional Unit Rebate Amount (initial brand name listed drug) 
strength B = 125.00
    Additional Unit Rebate Amount (initial brand name listed drug) 
strength C = 110.00

    Quarterly AMP (initial brand name listed drug) strength A = 280.00
    Quarterly AMP (initial brand name listed drug) strength B = 275.00
    Quarterly AMP (initial brand name listed drug) strength C = 270.00

    Additional rebate ratio strength A = 200/280 = 0.7143
    Additional rebate ratio strength B = 125/275 = 0.4545
    Additional rebate ratio strength C = 110/270 = 0.4074

    Quarterly AMP of line extension drug x highest additional rebate 
ratio for any strength of the initial brand name listed drug = 300 x 
0.7143 = 214.29

    Alternative Additional Unit Rebate Amount = 214.29

    Alternative URA = Basic Unit Rebate Amount + Alternative Additional 
Unit Rebate Amount = 69.30 + 214.29 = 283.59

Step 3: Determine the URA = the greater of:
    (Step 1) Standard URA = 251.65 or
    (Step 2) Alternative URA = 283.59

    URA = 283.59

Step 4: Determine if the URA is greater than or equal to 100 percent of 
the Quarterly AMP

    100 percent of Quarterly AMP = 100% x 300.00 = 300.00
    URA = 283.59

    If the URA is greater than or equal to 100 percent of the Quarterly 
AMP, then URA = Quarterly AMP.

    If the URA is less than 100 percent of the Quarterly AMP, then use 
the URA

    283.59 is less than 300.00

    URA is equal to 283.59

Step 5: Calculate total UROA = Line Extension UROA + Basic UROA of line 
extension drug

A. Line Extension UROA = Alternative URA-Standard URA = 283.59-251.65 = 
31.94

    If the Alternative URA is less than or equal to the Standard URA, 
then there is no Line Extension UROA, however, the Basic UROA still 
applies.

B. Basic UROA--
    If Quarterly AMP-BP is greater than Quarterly AMP x 15.1% and less 
than Quarterly AMP x 23.1%

    Quarterly AMP (line extension) = 300.00
    Best Price (line extension) = 250.00

    Quarterly AMP-BP = 300.00-250.00 = 50.00
    Quarterly AMP x 15.1% = 300.00 x 15.1% = 45.30

    Quarterly AMP x 23.1% = 300.00 x 23.1% = 69.3

    Quarterly AMP-BP (50.00) is greater than Quarterly AMP x 15.1% 
(45.30) and less than Quarterly AMP x 23.1% (69.3)

    Then, the Basic UROA= Quarterly

[[Page 12134]]

AMP x 23.1%-(Quarterly AMP-BP) = 69.30-0.00 = 19.30

    Consistent with our reading of the statutory offset provision in 
section 1927(b)(1)(B) of the Act, we have calculated the offset amount 
to reflect the amount attributable to the increase in the percentages 
affected by the Affordable Care Act amendments. In this scenario, this 
NDC would have both a Line Extension UROA of 31.94 and a Basic UROA of 
19.30, the sum of which equals 51.24.

D. Waiver of Proposed Rulemaking and Waiver of Delay in Effective Date 
for Changes to the Rebate Calculation for Line Extension Drugs

    Under 5 U.S.C. 553(b) of the Administrative Procedure Act (APA), 
the agency is required to publish a notice of the proposed rule in the 
Federal Register before the provisions of a rule take effect. Section 
553(b)(B) of the APA authorizes an agency to dispense with normal 
rulemaking requirements for good cause if the agency makes a finding 
that the notice and comment process is impracticable, unnecessary, or 
contrary to the public interest.
    Section 553(d) of the APA ordinarily requires a 30-day delay in 
effective date of final rules after the date of their publication in 
the Federal Register. This 30-day delay in effective date can be 
waived, however, if an agency finds for good cause that the delay is 
impracticable, unnecessary, or contrary to the public interest, the 
agency may incorporate a statement of the findings and its reasons in 
the rule issued.
    We find that there is good cause to waive the notice and comment 
requirements under sections 553(b)(B) of the APA as it would be 
unnecessary and impracticable to undergo notice and comment procedures 
before finalizing, on an interim basis with an opportunity for public 
comment, the policies described herein because the provisions of 
section 53104 of the BBA of 2018 are otherwise self-implementing as of 
the effective date required by statute, that is, for rebate periods 
beginning on or after October 1, 2018. The interim final rule with 
comment period simply revises Sec.  447.509(a)(4) to accurately reflect 
the amended statutory language of section 1927(c)(2)(C)(i) through 
(iii) of the Act. Further, such procedures would be unnecessary, as we 
are not altering the calculations required expressly in statute. 
Rather, we are simply implementing the calculation for rebates for line 
extension drugs adopted by Congress. Moreover, we note that the 
statute, as amended by section 53104 of the BBA of 2018, already 
requires these rebate calculations to apply. Thus, we are exercising no 
discretion in this interim final rule with comment period and emphasize 
that it is intended solely to ensure there is no confusion as to the 
rebate calculations that apply for such drugs for rebate periods 
beginning on or after October 1, 2018, as required by statute.
    Finally, undertaking notice and comment procedures to incorporate 
the statutory amendments to section 1927 of the Act would be contrary 
to the public interest because it is in the public's interest to ensure 
that manufacturers are paying appropriate rebates on covered outpatient 
drugs, and the state Medicaid programs and the federal Medicaid program 
are receiving appropriate rebates to ensure efficient and economical 
functioning of the programs.
    Therefore, we find good cause to waive the notice of proposed 
rulemaking as provided under section 553(b)(B) of the APA and to issue 
this interim final rule with an opportunity for public comment. We are 
providing a 60-day public comment period as specified in the DATES 
section of this document.
    We are also waiving the 30-day delay in effective date for this 
interim final rule with comment period. We believe that a delay in the 
effective date is unnecessary as we are complying with statutory 
requirements. It is also contrary to the public interest to delay the 
effective date for this interim final rule with comment period beyond 
the statutorily mandated effective date, that is, applicability to 
rebate periods beginning on or after October 1, 2018. Therefore, we 
also find good cause to waive the 30-day delay in effective date.

IV. Provisions of the Final Rule

    This final rule responds to comments on the definition and 
identification of line extension drugs for which we requested 
additional public comments in the COD final rule published on February 
1, 2016. Therefore, we are reiterating our guidance provided in the COD 
final rule that manufacturers are to rely on the statutory definition 
of line extension at section 1927(c)(2)(C) of the Act, and where 
appropriate and consistent with the requirements of the MDR agreement, 
are permitted to use reasonable assumptions in their determination of 
whether their drug qualifies as a line extension drug (81 FR 5265).

V. Provisions of the Interim Final Rule With Comment Period

    The interim final rule with comment period revises Sec.  
447.509(a)(4) to accurately reflect the applicable statutory language 
describing the rebate calculation for line extension drugs, which was 
revised by section 53104 of the BBA of 2018.

VI. Collection of Information Requirements

    The actions in this final rule and interim final rule with comment 
period do not impose any new or revised information collection, 
reporting, recordkeeping, or third-party disclosure requirements or 
burden on manufacturers. Manufacturers must continue to report product 
and pricing data to CMS using the CMS-367 forms approved by the Office 
of Management and Budget (OMB) under control number 0938-0578. The 
forms' requirements and burden figures are unaffected by this rule. 
Consequently, there is no need for review by OMB under the authority of 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

VII. 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.

VIII. Regulatory Impact Analysis

A. Statement of Need

    As stated previously, section 53104 of the BBA of 2018 amends 
section 1927 of the Act by providing a technical correction to the 
alternative rebate formula for line extension drugs that was 
established under the Affordable Care Act. Specifically, it amends 
section 1927(c)(2)(C) of the Act such that the rebate for a line 
extension drug is the greater of either (a) the standard rebate 
(calculated as a base rebate amount plus an additional inflation-based 
rebate), or (b) the base rebate amount increased by the alternative 
formula contained in section 1927(c)(2)(C)(i) through (iii) of the Act.

B. Overall Impact

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the

[[Page 12135]]

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 Orders 12866 and 13563 direct 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). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order. The interim final rule 
has been designated as an economically significant rule, under section 
3(f)(1) of Executive Order 12866. We estimate that the interim final 
rule is ``economically significant'' as measured by the $100 million 
threshold, and hence also a major rule under the Congressional Review 
Act. Accordingly, we have prepared a Regulatory Impact Analysis that to 
the best of our ability presents the costs and benefits of the 
rulemaking. OMB has reviewed these proposed regulations, and the 
Departments have provided the following assessment of their impact.

C. Anticipated Effects

1. Effects on Drug Manufactures of Line Extension Drugs
    Manufacturers of Line Extension Drugs will be impacted by the 
technical correction that was made by section 53104 of the BBA of 2018 
to the alternative rebate formula for line extension drugs that was 
established under the Affordable Care Act. During the drafting of this 
legislation, the Congressional Budget Office (CBO) scored an estimated 
savings for the revised line extension rebate calculation of $1.877 
billion over 5 years and $5.65 billion over 10 years. Table 1 shows the 
CMS Office of the Actuary's (OACT's) estimated savings of $1.64 billion 
over 5 year and $3.95 billion over 10 years. OACT utilized second 
quarter 2018 rebate data along with first through fourth quarter 2017 
state drug utilization data to conduct their analysis. Since OACT's 
estimate is based on more current data we will use these estimated 
savings figues in the remaining regulatory impact analysis discussion. 
This savings will be the result of additional rebates being paid by 
these drug manufacturers to the federal government.

                            Table 1--Savings of the Line Extension Unit Rebate Amount Calculation Revisions Under BBA 2018 *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                Fiscal Year                   2019      2020      2021      2022      2023      2024      2025      2026      2027      2028      Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Impact (million)..................      280       300       330       350       380       400       430       460       490       530     3,950
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Source: OACT, September 2018.

    The Regulatory Flexibility Act (RFA) requires agencies to analyze 
options for regulatory relief of small entities if a rule has a 
significant impact on a substantial number of small entities. 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 less than $7.5 million to 
$38.5 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 we have determined, and the Secretary certifies, that 
this final rule and interim final rule with comment period will not 
have a significant economic impact on a substantial number of small 
entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 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 we have determined, and the Secretary certifies, that this 
final rule and interim final rule with comment period 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 2018, that 
threshold is approximately $150 million. This final rule and interim 
final rule with comment period will have no consequential effect on 
state, local, or tribal governments or on the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues 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.
2. Effects on Medicaid Program
    The Federal Medicaid program will benefit from the technical 
correction that was made by section 53104 of the BBA of 2018 to the 
alternative rebate formula for line extension drugs that was 
established under the Affordable Care Act. As stated above, OACT 
estimated a savings of $1.64 billion over 5 year and $3.95 billion over 
10 years. This savings will be the result of additional rebates being 
paid to the federal government by these drug manufacturers.

D. Alternatives Considered

    The interim final rule with comment period simply revises Sec.  
447.509(a)(4) to accurately reflect the amended statutory language of 
section 1927(c)(2)(C)(i) through (iii) of the Act. We considered

[[Page 12136]]

the notice and comment rulemaking process, but as described in section 
III.D., Waiver of Proposed Rule Making and Waiver of Delay in Effective 
Date for Changes to the Rebate Calculation for Line Extension Drugs, we 
find that there is good cause to waive the notice and comment 
requirements under sections 553(b)(B) of the APA as it would be 
unnecessary and impracticable and contrary to the public interest to 
undergo notice and comment procedures before finalizing, on an interim 
basis with an opportunity for public comment, the policies described 
herein because the provisions of the section 53104 of the BBA of 2018 
are otherwise self-implementing as of the effective date required by 
statute, that is, for rebate periods beginning on or after October 1, 
2018. The interim final rule with comment period simply revises Sec.  
447.509(a)(4) to accurately reflect the amended statutory language of 
section 1927(c)(2)(C)(i) through (iii) of the Act.

E. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4), we have prepared an 
accounting statement in Table 2 showing the classification of the 
transfers associated with the provisions of this final rule and interim 
final rule with comment period.

                                          Table 2--Accounting Statement
----------------------------------------------------------------------------------------------------------------
                                                                                       Units
                    Category                         Estimates   -----------------------------------------------
                                                                    Year dollar    Discount rate  Period covered
----------------------------------------------------------------------------------------------------------------
Transfers
    Annualized..................................           324.6            2018              7%       2019-2023
    Monetized ($million/year)...................           326.5            2018              3%       2019-2023
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
From Whom To Whom...............................             Drug Manufacturers to Federal Government
----------------------------------------------------------------------------------------------------------------

F. Regulatory Reform Analysis under E.O. 13771

    Executive Order 13771, entitled ``Reducing Regulation and 
Controlling Regulatory Costs,'' was issued on January 30, 2017 and 
requires that the costs associated with significant new regulations 
``shall, to the extent permitted by law, be offset by the elimination 
of existing costs associated with at least two prior regulations.'' It 
has been determined that this final rule and interim final rule with 
comment period are actions that primarily result in transfers and thus 
are not a regulatory or deregulatory action for the purposes of 
Executive Order 13771.

G. Conclusion

    The estimated savings of the revised line extension rebate 
calculation is $1.64 billion over 5 years and $3.95 billion over 10 
years. This savings will be the result of additional rebates being paid 
by drug manufacturers, as applicable. The analysis above, together with 
the remainder of this preamble, provides a Regulatory Impact Analysis. 
This final rule and interim final rule with comment period are subject 
to the Congressional Review Act provisions of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and 
have been transmitted to the Congress and the Comptroller General for 
review. In accordance with the provisions of Executive Order 12866, 
this final rule and interim final rule with comment period 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 amends 42 CFR chapter IV as set forth below:

PART 447--PAYMENTS FOR SERVICES

0
1. The authority citation for part 447 is revised to read as follows:

    Authority: 42 U.S.C. 1302 and 1396r-8.

0
2. Section 447.509 is amended by revising paragraph (a)(4) to read as 
follows:


Sec.  447.509  Medicaid drug rebates (MDR).

    (a) * * *
    (4) Treatment of new formulations. (i) In the case of a drug that 
is a line extension of a single source drug or an innovator multiple 
source drug that is an oral solid dosage form, the rebate obligation 
for the rebate periods beginning January 1, 2010 through September 30, 
2018 is the amount computed under paragraphs (a)(1) through (3) of this 
section for such new drug or, if greater, the product of all of the 
following:
    (A) The AMP of the line extension of a single source drug or an 
innovator multiple source drug that is an oral solid dosage form.
    (B) The highest additional rebate (calculated as a percentage of 
AMP) under this section for any strength of the original single source 
drug or innovator multiple source drug.
    (C) The total number of units of each dosage form and strength of 
the line extension product paid for under the State plan in the rebate 
period (as reported by the State).
    (ii) In the case of a drug that is a line extension of a single 
source drug or an innovator multiple source drug that is an oral solid 
dosage form, the rebate obligation for the rebate periods beginning on 
or after October 1, 2018 is the amount computed under paragraphs (a)(1) 
through (3) of this section for such new drug or, if greater, the 
amount computed under paragraph (a)(1) of this section plus the product 
of all of the following:
    (A) The AMP of the line extension of a single source drug or an 
innovator multiple source drug that is an oral solid dosage form.
    (B) The highest additional rebate (calculated as a percentage of 
AMP) under this section for any strength of the original single source 
drug or innovator multiple source drug.
    (C) The total number of units of each dosage form and strength of 
the line extension product paid for under the State plan in the rebate 
period (as reported by the State).
    (iii) The alternative rebate is required to be calculated if the 
manufacturer of the line extension drug also manufactures the initial 
brand name listed drug or has a corporate relationship with the 
manufacturer of the initial brand name listed drug.
* * * * *


[[Page 12137]]


    Dated: October 3, 2018.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: December 18, 2018.
Alex M. Azar, II,
Secretary, Department of Health and Human Services.
[FR Doc. 2019-06274 Filed 3-28-19; 4:15 pm]
 BILLING CODE 4120-01-P