[Federal Register Volume 84, Number 227 (Monday, November 25, 2019)]
[Rules and Regulations]
[Pages 64783-64787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25514]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 447

[CMS-2345-IFC3]
RIN 0938-AT09


Medicaid Program; Covered Outpatient Drug; Further Delay of 
Inclusion of Territories in Definitions of States and United States

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

ACTION: Interim final rule with comment period.

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SUMMARY: The Covered Outpatient Drug final rule with comment period was 
published in the February 1, 2016 Federal Register. As part of that 
final rule with comment period, we amended the regulatory definitions 
of ``States'' and ``United States'' to include the U.S. territories 
(American Samoa, the Commonwealth of the Northern Mariana Islands, 
Guam, the Commonwealth of Puerto Rico, and the Virgin Islands of the 
United States) beginning April 1, 2017. Subsequently, in the November 
15, 2016 Federal Register, we published an interim final rule with 
comment period (IFC) to further delay the inclusion of the U.S. 
territories in the regulatory definitions of ``States'' and ``United 
States'' until beginning April 1, 2020. This IFC further delays the 
inclusion of the territories in the definitions of ``States'' and 
``United States'' until beginning April 1, 2022.

DATES: 
    Effective date: These regulations are effective on January 24, 
2020.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on January 24, 2020.

ADDRESSES: In commenting, please refer to file code CMS-2345-IFC3. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    Comments, including mass comment submissions, must be submitted in 
one of the following 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-IFC3, 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-IFC3, 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: Wendy Tuttle, (410) 786-8690.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following website as soon as possible after they have been 
received: http://regulations.gov. Follow the search instructions on 
that website to view public comments.

[[Page 64784]]

I. Background

A. Introduction

    The Covered Outpatient Drug final rule with comment period was 
published in the February 1, 2016 Federal Register (81 FR 5170) (final 
rule). The 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). The final rule 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. The final rule became effective on April 1, 2016. However, the 
regulatory definitions of ``States'' and ``United States'' under Sec.  
447.502 were amended to include the U.S. territories (American Samoa, 
Northern Mariana Islands, Guam, Puerto Rico, and the Virgin Islands) 
beginning April 1, 2017.
    We stated in the preamble to the final rule that U.S. territories 
may use existing waiver authority to elect not to participate in the 
MDR program consistent with the statutory waiver standards. 
Specifically, the Northern Mariana Islands and American Samoa may seek 
to opt out of participation under the broad waiver that has been 
granted to them in accordance with section 1902(j) of the Act. Puerto 
Rico, the Virgin Islands, and Guam may use waiver authority under 
section 1115(a)(1) of the Act to waive section 1902(a)(54) of the Act, 
which requires state compliance with the applicable requirements of 
section 1927 of the Act (81 FR 5203 through 5204).
    We also stated in the final rule that, effective with the change in 
the definition of ``United States'', drug manufacturers would be 
required to include prices paid by entities in the U.S. territories in 
the same manner in which they include prices paid by entities located 
in one of the 50 states and District of Columbia (81 FR 5224) in their 
calculations of average manufacturer price (AMP) and best price. This 
change requires manufacturers to include eligible sales and associated 
discounts, rebates, and other financial transactions that take place in 
the U.S. territories in their calculations of AMP and best price once 
the revised definitions of States and United States become effective, 
regardless of whether the U.S. territories seek to waive participation 
in the MDR program.

B. Interim Final Rule With Comment Period Published November 15, 2016

    Based on initial discussions with the U.S. territories, it became 
evident that interested U.S. territories would not be ready to 
implement the program by April 1, 2017. Specifically, the territories 
needed time to develop and change electronic claims processing systems 
to identify and report utilization (taking into account all of the 
complexities in tracking utilization by National drug code numbers) and 
to match utilization with the unit rebate amounts to generate rebate 
invoices. Further, these systems must be capable of collecting, 
reporting, validating and tracking drug utilization on an ongoing 
basis. In addition, they require extensive advance planning and 
budgeting. We received comments during the comment period of the COD 
proposed rule, which requested that we delay the inclusion of the 
territories in the MDR program because the manufacturers and 
territories would need this additional time to implement provisions 
necessary to include territories in all aspects of the MDR program. We 
took these comments into consideration and in the final rule delayed 
the inclusion of the territories into the definitions of ``States'' and 
``United States'' until 1 year after the effective date of the final 
rule (81 FR 5203, 5204), that is, beginning April 1, 2017. However, 
despite this 1-year delay, it became evident that we underestimated the 
timeline required, particularly in light of other demands on 
territorial systems development and the fact that the territories are 
at various stages of planning and development for these systems. While 
the U.S. territories have the ability to seek a waiver from the 
requirements that they would have to meet when classified as 
``States'', doing so would impose some burdens on a territory, 
particularly for those territories that are not included in the broad 
waiver authority under section 1902(j) of the Act. Moreover, waivers 
under section 1115 of the Act are limited to requirements applicable to 
States or territories under section 1902(a) of the Act, and would not 
apply to the requirements placed on drug manufacturers that sell in the 
territories. These manufacturers cannot be waived from the section 1927 
of the Act requirements under which manufacturers must include sales 
that take place in the U.S. territories when determining AMP and best 
price.
    We heard from various stakeholders who reiterated many of the 
concerns that were summarized in the final rule (81 FR 5224) that drug 
manufacturers would likely be prompted to increase drug prices, 
including prices paid by U.S. territory Medicaid programs. This would 
result in the U.S. territories that receive a waiver realizing an 
increase in their Medicaid drug costs without the offsetting benefit of 
receiving Medicaid rebates. Furthermore, the increase in Medicaid costs 
could adversely impact territories because of their Medicaid funding 
cap. For these reasons, in the November 15, 2016 Federal Register, we 
published an interim final rule with comment period (IFC) (81 FR 80003) 
that amended the regulatory definitions of ``States'' and ``United 
States'' to include the U.S. territories beginning April 1, 2020 rather 
than April 1, 2017 (interim final rule).

C. Impracticability of Implementation by April 1, 2020

    Based on further discussions with the U.S. territories since the 
publication of the interim final rule, we have learned that while the 
territories are making progress towards developing their Medicaid 
Management Information Systems (MMIS), only one territory would be 
prepared to implement the MDR program by April 1, 2020. In particular, 
Puerto Rico has been delayed in its development of the necessary 
components of the MMIS system due to the natural disasters experienced 
by the territory over the past 2 years, and has specifically requested 
another delay in the inclusion of U.S. territories in the definitions 
of ``States'' and ``United States''.\1\
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    \1\ Angela M. Avila Marrero, Executive Director of Puerto Rico 
Health Insurance Administration (ASES for its acronym in Spanish) 
letter to John Coster, Director of the Division of Pharmacy, 
Disabled and Elderly Health Programs Group, Centers for Medicaid and 
CHIP Services, Centers for Medicare and Medicaid Services, March 21, 
2019.
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    We considered whether it would be feasible to delay the inclusion 
of U.S. territories in the definitions of ``States'' and ``United 
States'' for only those territories that are not prepared to implement 
the MDR program by April 1, 2020. However, since all five territories 
are referenced in each definition, the effect of a delay for only 
certain territories would possibly modify the previously finalized 
definitions rather than merely delay their effective dates. 
Additionally, a delay for only certain territories would only be 
feasible if we were also able to expressly permit manufacturers to 
continue treating sales to the territories not yet included in the 
definitions of ``States'' and ``United States'' as excluded from their 
calculations of AMP and best price. Such changes would require us to

[[Page 64785]]

undertake full notice and comment rulemaking ahead of the April 1, 2020 
effective date. As discussed in section III. of this IFC, we have 
determined that there is insufficient time to undertake full notice and 
comment rulemaking ahead of the April 1, 2020 effective date.
    As discussed in section I.B. of this IFC, the U.S. territories have 
the ability to seek a waiver from the requirements that they would have 
to meet when classified as ``States'', but doing so would impose some 
burdens on a territory, and waivers under section 1115 of the Act are 
limited to requirements applicable to States or territories under 
section 1902(a) of the Act, and would not apply to the requirements 
placed on drug manufacturers that sell covered outpatient drugs in the 
territories. These manufacturers cannot be waived from the section 1927 
of the Act requirements under which manufacturers must include sales 
that take place in the U.S. territories when determining AMP and best 
price. As stated previously, we heard from various stakeholders that 
drug manufacturers would likely be prompted to increase drug prices, 
including prices paid by U.S. territory Medicaid programs. While 
territories that need more time to prepare to implement the MDR program 
could seek the appropriate waiver, it would result in such territories 
realizing an increase in their Medicaid drug costs without the 
offsetting benefit of receiving Medicaid rebates.

II. Provisions of the Interim Final Rule With Comment Period

    For the reasons discussed in section I.C. of this IFC, this IFC 
amends the regulatory definitions of ``States'' and ``United States'' 
under Sec.  447.502 to include the U.S. territories (American Samoa, 
Northern Mariana Islands, Guam, Puerto Rico, and the Virgin Islands) 
beginning April 1, 2022 rather than April 1, 2020.

III. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued.
    As discussed in sections I.B. and C. of this IFC, in light of the 
longer time frames needed by territories for planning, budgeting and 
developing systems necessary to implement the MDR program, the 
competing demand on system development resources, the long time frames 
for manufacturer pricing determinations, and particularly delays caused 
by the natural disasters experienced by Puerto Rico over the past 2 
years, we believe it is necessary to provide territories and 
manufacturers with advance notice of any change in the timing for the 
inclusion of territories in the MDR program.
    As previously stated, we considered whether it would be feasible to 
delay the inclusion of U.S. territories in the definitions of 
``States'' and ``United States'' for only certain territories, but the 
effect of such a delay would possibly modify rather than merely delay 
the previously finalized definitions. Additionally, such a delay would 
only be feasible if we were to undertake full notice and comment 
rulemaking ahead of the April 1, 2020 effective date to expressly 
permit manufacturers to continue treating sales to the territories not 
yet included in the definitions of ``States'' and ``United States'' as 
excluded from their calculations of AMP and best price. We have 
determined that there is insufficient time to undertake full notice and 
comment rulemaking ahead of the April 1, 2020 effective date. Issuance 
of a proposed rule would be impracticable, and contrary to public 
interest such that a delay of the inclusion of U.S. territories in the 
definitions of ``States'' and ``United States'' would not become 
effective until after public comments are submitted, considered, and 
addressed in a final rule, which would not become effective until after 
the April 1, 2020 effective date.
    Thus, we find good cause to waive the requirement for proposed 
rulemaking because the short time frame remaining before the inclusion 
of territories would otherwise take effect does not permit sufficient 
time to both undertake proposed rulemaking and provide the necessary 
advance notice for territories and manufacturers to meaningfully adjust 
planning and systems development to accommodate the revised timing. 
Furthermore, we find good cause to waive the requirement for proposed 
rulemaking because it would be contrary to public interest to delay 
notifying manufacturers of the change in the timing of the territorial 
inclusion in light of the potential that, absent sufficient advance 
notice, drug manufacturers may raise prices on drugs sold in the 
territories and thereby increase drug costs for both Medicaid and non-
Medicaid consumers in the territories.
    Therefore, we find good cause to waive the notice of proposed 
rulemaking and to issue this final rule on an interim basis. We are 
providing a 60-day public comment period.

IV. Collection of Information Requirements

    This IFC further delays the inclusion of the U.S. territories in 
the regulatory definitions of ``States'' and ``United States'' under 
Sec.  447.502 until beginning April 1, 2022. This delay does not impose 
any new or revised information collection requirements or burden. 
Consequently, there is no need for review of this action by the Office 
of Management and Budget under the authority of the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.).

V. 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.

VI. Regulatory Impact Statement

    We have examined the impact of this IFC 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 Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999), the Congressional Review Act (5 U.S.C. 804(2)), and Executive 
Order 13771 on Reducing Regulation and Controlling Regulatory Costs 
(January 30, 2017).
    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). This rule 
does not reach the economic threshold of an annual effect

[[Page 64786]]

on the economy of $100 million or more and thus is not considered a 
major rule. To estimate the potential impact of this rule, we reviewed 
current levels of Medicaid prescription drug expenditures in the 5 U.S. 
territories with Medicaid programs. In 4 of the 5 territories, total 
prescription drug spending in fiscal year (FY) 2018 was about $29 
million (American Samoa, Guam, Northern Mariana Islands, and the U.S. 
Virgin Islands) as reported in the CMS-64 financial management reports. 
In Puerto Rico, prescription drug spending was not reported separately. 
We estimated prescription drug spending by assuming that 17 percent of 
managed care expenditures went towards prescription drugs; 17 percent 
is consistent with our analysis of managed care expenditures on drugs 
in Medicaid and data from the Medicaid drug rebate data system. Using 
this assumption, we estimated that drug expenditures in Puerto Rico 
were about $366 million in FY 2018. In total, we estimate Medicaid drug 
spending in the 5 territories was about $395 million in FY 2018.
    Using this estimate as a baseline for territory spending on 
prescription drugs in Medicaid, we believe delaying the inclusion of 
the territories in the definitions of ``States'' and ``United States'' 
does not reach the economic threshold of an annual effect on the 
economy of $100 million or more for the following reasons. First, while 
territory prescription drug expenditures after rebates may be lower 
once territories participate in the MDR Program, this effect may be 
partially offset by an increase in gross prices when manufacturers are 
required to report territory drug sales for Medicaid Best Price, and 
therefore the impact of a delay in territory participation in the MDR 
Program is expected to be modest.
    Second, as a condition of joining the MDR Program the territories 
will be required to expand their drug coverage to include every COD of 
every manufacturer that has a National Drug Rebate Agreement (NDRA) 
with the Secretary of the Department of Health and Human Services. 
Currently, the territories have significantly more flexibility in 
establishing their own drug formularies and can choose which drugs of 
which manufacturers they will cover. We believe this may also lead to 
increased prescription drug spending and offsetting some portion of the 
reductions in net drug spending due to the rebates.
    Third, given the varying sizes of the territories (in population), 
it is nearly impossible to claim that all territories will experience 
the same economic impact if they were to join the MDR program. For 
example, based on the information from the CMS-64 financial management 
reports American Samoa's drug spending represented 1 percent of its 
total Medicaid spending compared to the 21 percent in the U.S. Virgin 
Islands.
    Due to limitations in the data from the territory Medicaid 
programs, we are unable to quantify these effects. However, we believe 
that it is likely the financial impact of extending the Medicaid drug 
rebates to territory programs is less than $100 million.
    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of lnformation and Regulatory Affairs designated this rule 
as not a ``major rule'' as defined by 5 U.S.C. 804(2).
    The RFA requires agencies to analyze options for regulatory relief 
of small entities. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. 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 IFC 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 
IFC 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 2019, that 
threshold is approximately $154 million. This rule will have no 
consequential effect on state, local, or tribal governments or on the 
private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts state law, or otherwise has federalism 
implications. Since this regulation does not impose any costs on state 
or local governments, the requirements of Executive Order 13132 are not 
applicable.
    Executive Order 13771 (January 30, 2017) requires that the costs 
associated with significant new regulations ``to the extent permitted 
by law, be offset by the elimination of existing costs associated with 
at least two prior regulations.'' This interim final rule's designation 
under E.O. 13771 will be informed by public comments received.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 447

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

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services 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 447.502 is amended by revising the definitions of ``States'' 
and ``United States'' to read as follows:


Sec.  447.502  Definitions.

* * * * *
    States means the 50 States and the District of Columbia and, 
beginning April 1, 2022, also includes the Commonwealth of Puerto Rico, 
the Virgin Islands of the United States, Guam, the Commonwealth of the 
Northern Mariana Islands and American Samoa.
    United States means the 50 States and the District of Columbia and, 
beginning April 1, 2022, also includes the Commonwealth of Puerto Rico, 
the Virgin Islands of the United States, Guam, the Commonwealth of the 
Northern Mariana Islands and American Samoa.
* * * * *


[[Page 64787]]


    Dated: October 31, 2019.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.

    Dated: November 19, 2019.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2019-25514 Filed 11-21-19; 11:15 am]
BILLING CODE 4120-01-P