[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