Rule: Medicaid: Prescription Drugs Average Manufacturer Price

Tuesday,
July 17, 2007
Part II
Department of
Health and Human
Services
Centers for Medicare & Medicaid Services
42 CFR Part 447

Medicaid Program; Prescription Drugs;
Final Rule
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39142 Federal Register / Vol. 72, No. 136 / Tuesday, July 17, 2007 / Rules and Regulations
DEPARTMENT OF HEALTH AND Please allow sufficient time for mailed Christina Lyon, (410) 786–3332 (for
HUMAN SERVICES comments to be received before the issues related to physician-administered
close of the comment period. drugs).
Centers for Medicare & Medicaid 3. By express or overnight mail. You Bernadette Leeds, (410) 786–9463 (for
Services may send written comments (one issues related to the regulatory impact
original and two copies) to the following analysis (RIA)).
42 CFR Part 447 address ONLY: Centers for Medicare & SUPPLEMENTARY INFORMATION:
Medicaid Services, Department of Submitting Comments: We welcome
[CMS–2238–FC] Health and Human Services, Attention: comments from the public on the AMP
CMS–2238–FC, Mail Stop C4–26–05, and FUL outlier provisions as set forth
RIN 0938–AO20 7500 Security Boulevard, Baltimore, MD in this rule to assist us in fully
21244–8012. considering issues and developing
Medicaid Program; Prescription Drugs
4. By hand or courier. If you prefer, policies. You can assist us by
AGENCY: Centers for Medicare & you may deliver (by hand or courier) referencing the file code CMS–2238–FC.
Medicaid Services (CMS), HHS. your written comments (one original Inspection of Public Comments: All
ACTION: Final rule with comment period. and two copies) before the close of the comments received before the close of
comment period to one of the following the comment period are available for
SUMMARY: This final rule with comment addresses. If you intend to deliver your viewing by the public, including any
period will implement the provisions of comments to the Baltimore address, personally identifiable or confidential
the Deficit Reduction Act of 2005 (DRA) please call telephone number (410) 786– business information that is included in
pertaining to prescription drugs under 7195 in advance to schedule your a comment. We post all comments
the Medicaid Program. The DRA arrival with one of our staff members. received before the close of the
requires the Secretary of HHS to Room 445–G, Hubert H. Humphrey comment period on the following Web
promulgate a final regulation no later Building, 200 Independence Avenue, site as soon as possible after they have
than July 1, 2007. In addition, we are SW., Washington, DC 20201; or been received: http://www.cms.hhs.gov/
adding to existing regulations certain 7500 Security Boulevard, Baltimore, MD eRulemaking. Click on the link
established Medicaid rebate policies 21244–1850. ‘‘Electronic Comments on CMS
that are currently set forth in CMS (Because access to the interior of the Regulations’’ on that Web site to view
guidance. This rule will bring together HHH Building is not readily available to public comments.
existing and new regulatory persons without Federal Government Comments received timely will be
requirements in one, cohesive subpart. identification, commenters are also available for public inspection as
Finally, this final rule with comment encouraged to leave their comments in they are received, generally beginning
period allows for further public the CMS drop slots located in the main approximately three weeks after
comment on the Average Manufacturer lobby of the building. A stamp-in clock publication of a document, at the
Price and Federal upper limit (FUL) is available for persons wishing to retain headquarters of the Centers for Medicare
outlier section of the rule. a proof of filing by stamping in and & Medicaid Services, 7500 Security
DATES: Effective Date: These regulations retaining an extra copy of the comments Boulevard, Baltimore, Maryland 21244,
are effective on October 1, 2007. being filed.) Monday through Friday of each week
Comment date: To be assured Comments mailed to the addresses from 8:30 a.m. to 4 p.m. To schedule an
consideration, comments must be indicated as appropriate for hand or appointment to view public comments,
received at one of the addresses courier delivery may be delayed and phone 1–800–743–3951.
provided below, no later than 5 p.m. on received after the comment period.
Submission of comments on I. Background
January 2, 2008.
paperwork requirements. You may A. Introduction
ADDRESSES: In commenting, please refer submit comments on this document’s
to file code CMS–2238–FC. Because of paperwork requirements by mailing Under the Medicaid Program, States
staff and resource limitations, we cannot your comments to the addresses may provide coverage of outpatient
accept comments by facsimile (FAX) provided at the end of the ‘‘Collection drugs as an optional service under
transmission. of Information Requirements’’ section in section 1905(a)(12) of the Social
You may submit comments in one of this document. Security Act (the Act). Section 1903(a)
four ways (no duplicates, please): For information on viewing public of the Act provides for Federal financial
1. Electronically. You may submit comments, see the beginning of the participation (FFP) in State
electronic comments on specific issues SUPPLEMENTARY INFORMATION section. expenditures for these drugs. In order
in this regulation to http:// FOR FURTHER INFORMATION CONTACT: for payment to be made available under
www.cms.hhs.gov/eRulemaking. Click Kimberly Howell, (410) 786–6762 (for section 1903 for certain drugs,
on the link ‘‘Submit electronic issues related to the determination of manufacturers must enter into the
comments on CMS regulations with an average manufacturer price (AMP)). national rebate agreement as set forth in
open comment period.’’ (Attachments Joseph Fine, (410) 786–2128 (for section 1927(a) of the Act. Section 1927
should be in Microsoft Word, issues related to the determination of of the Act provides specific
WordPerfect, or Excel; however, we best price). requirements for rebate agreements,
prefer Microsoft Word.) Yolanda Reese, (410) 786–9898 (for drug pricing submission and
2. By regular mail. You may mail issues related to authorized generics). confidentiality requirements, the
written comments (one original and two Madlyn Kruh, (410) 786–3239 (for formula for calculating rebate payments,
copies) to the following address ONLY: issues related to nominal prices). and requirements for States with respect
Centers for Medicare & Medicaid Marge Watchorn, (410) 786–4361 (for to covered outpatient drugs.
Services, Department of Health and issues related to manufacturer reporting This final rule implements sections
Human Services, Attention: CMS–2238– requirements). 6001(a)–(d), 6002, and 6003 of the DRA,
FC, P.O. Box 8012, Baltimore, MD Gail Sexton, (410) 786–4583 (for Pub. L. 109–171 (Feb. 8, 2006). It also
21244–8012. issues related to FULs). codifies those parts of section 1927 of
Federal Register / Vol. 72, No. 136 / Tuesday, July 17, 2007 / Rules and Regulations 39143
the Act that pertain to requirements for Section 6001(c) of the DRA modifies (NDA) approved under section 505(c) of
drug manufacturers’ calculation and the definition of AMP to remove the Federal Food, Drug, and Cosmetic
reporting of AMP and best price, and it customary prompt pay discounts Act (FFDCA) when they report AMP
revises existing regulations that set extended to wholesalers from the AMP and best price to the Secretary.
upper payment limits for certain calculation and requires manufacturers Section 6003(b) of the DRA amends
covered outpatient drugs. This final rule to report these customary prompt pay section 1927(c)(1)(C) of the Act to clarify
also implements section 1903(i)(10) of discounts to the Secretary. It requires that manufacturers must include the
the Act, as revised by the DRA, with the Inspector General of the Department lowest price available to any entity for
regard to the denial of FFP in of Health and Human Services (IG) to a drug sold under an NDA approved
expenditures for certain physician- review the requirements for, and the under section 505(c) of the FFDCA
administered drugs. Finally, the rule manner in which, AMP is determined when determining best price. Section
addresses other provisions of the and submit to the Secretary and 6003(b) also amends section 1927(k) of
Medicaid Drug Rebate Program, to the Congress any recommendations for the Act to require that in the case of a
extent those provisions are affected by changes no later than June 1, 2006. manufacturer that approves, allows, or
the DRA. Finally, it requires the Secretary to otherwise permits any of its drugs to be
The Medicaid Drug Rebate Program promulgate a regulation that clarifies the sold under an NDA approved under
was established by section 4401 of the requirements for, and the manner in section 505(c) of the FFDCA, the AMP
Omnibus Budget Reconciliation Act of which, AMP is determined no later than shall be calculated to include the
1990 (OBRA 90), Pub. L. 101–508 (Nov. July 1, 2007, taking into consideration average price paid for such drugs by
5, 1990) and subsequently modified by any IG recommendations. wholesalers for drugs distributed to the
the Veterans Health Care Act of 1992 Section 6001(d) of the DRA requires retail pharmacy class of trade. Section
(VHCA), Pub. L. 102–585 (Nov. 4, 1992) manufacturers to report information on 6003(c) of the DRA provides that the
and the Omnibus Budget Reconciliation sales at nominal price to the Secretary amendments made by section 6003 are
Act of 1993, Pub. L. 103–66 (Aug. 10, for calendar quarters beginning on or effective January 1, 2007.
1993). These provisions were after January 1, 2007. It also specifies
C. Proposed Rule Published September
implemented primarily through the the entities to which nominal price
19, 1995
national rebate agreement (56 Fed. Reg. applies. It limits the merely nominal
exclusion to sales at nominal prices to On September 19, 1995, CMS (then
7049 (Feb. 21, 1991)) and other informal the Health Care Financing
the following: a covered entity
program releases, which provide Administration) published a proposed
described in section 340B(a)(4) of the
standards for manufacturer reporting rule in the Federal Register (60 FR
Public Health Service Act (PHSA), an
and rebate calculations. The statutory 48442 (Sept. 19, 1995)). The purpose of
intermediate care facility for the
changes that affect the provisions of this the 1995 proposed rule was to propose
mentally retarded (ICF/MR), a State-
final rule are described below. regulations pertaining to the Medicaid
owned or operated nursing facility, and
B. Changes Made by the Deficit any other facility or entity that the Drug Rebate Program and to address the
Reduction Act of 2005 Secretary determines is a safety net national rebate agreement (56 FR 7049
provider to which sales of such drugs at (Feb. 21, 1991)). On August 29, 2003,
Section 6001(a) of the DRA amends CMS finalized two of the provisions in
a nominal price would be appropriate,
section 1927(e) of the Act to revise the the 1995 proposed rule through a final
based on certain factors such as type of
formula CMS uses to set FULs for rule with comment period (68 FR
facility or entity, services provided by
multiple source drugs. Effective January 51912). These regulations require
the facility or entity, and patient
1, 2007, the upper limit for multiple manufacturers to retain records for data
population.
source drugs shall be established at 250 Section 6001(e) of the DRA amends used to calculate AMP and best price for
percent of the AMP (as computed section 1927 of the Act to provide for a three years from when AMP and best
without regard to customary prompt pay survey of retail prices and State price are reported to CMS. We also
discounts extended to wholesalers) for performance rankings. These provisions provided that manufacturers should
the least costly therapeutic equivalent. were not addressed in the proposed report revisions to AMP and best price
Section 6001(b) of the DRA amends rule. for a period not to exceed twelve
section 1927(b)(3) of the Act to create a Section 6001(f) of the DRA makes quarters from the quarter in which the
requirement that manufacturers report minor amendments to section 1927(g) of data are due. On November 26, 2004, we
certain prices to the Secretary monthly. the Act which are self-implementing. published final regulations (69 FR
It also requires the Secretary to provide Section 6001(g) of the DRA provides 68815) that require a manufacturer to
AMP to States on a monthly basis that the amendments in section 6001 are retain pricing data for 10 years from the
beginning July 1, 2006 and post AMP on effective on January 1, 2007, unless date the manufacturer reports that data
a Web site at least quarterly. We are otherwise noted. to CMS and for an additional time frame
aware of concerns that the AMPs Section 6002 of the DRA amends where the manufacturer is the subject of
released to the States beginning July 1, section 1903(i)(10) of the Act by an audit or government investigation.
2006, will not reflect changes to the prohibiting Medicaid FFP for physician- Due to the time that has elapsed since
definition of AMP made by the DRA and administered drugs unless States submit publication of the 1995 proposed rule
finalized in this rule. While we made the utilization data described in section and changes in the prescription drug
the AMPs available to the States 1927(a) of the Act. It also amends industry, we do not plan to finalize the
beginning July 1, 2006, States should section 1927 of the Act to require the other provisions of that proposed rule,
keep these data confidential in submission of utilization data for and any comments on the 1995
accordance with section 1927(b)(3)(D) of physician-administered drugs. proposed rule are outside the scope of
the Act. Section 6001(b) of the DRA Section 6003(a) of the DRA amends this final rule with comment period.
revises these confidentiality provisions, section 1927(b)(3)(A) of the Act to This final rule with comment period
effective January 1, 2007, to permit require manufacturers to include within does not address the entire Medicaid
States to use AMP to calculate payment AMP and best price all of its drugs that Drug Rebate Program, but focuses
rates. are sold under a new drug application primarily on the provisions of the DRA
that address the Medicaid Drug Rebate where multiple drugs are discounted, measurement or mixing of the covered
Program. the aggregate value of all the discounts outpatient drug, filling the container,
should be proportionately allocated beneficiary counseling, physically
II. Provisions of the Proposed
across all the drugs in the bundle. providing the completed prescription to
Regulations We proposed to define ‘‘Consumer the Medicaid beneficiary, delivery,
Basis and Purpose of Subpart I Price Index—Urban (CPI–U)’’ as the special packaging, and overhead
(§ 447.500) same as it is defined in the national associated with maintaining the facility
rebate agreement, except we would and equipment necessary to operate the
We proposed that this subpart would
replace ‘‘U.S. Department of Commerce’’ pharmacy; and
implement specified provisions of
with ‘‘U.S. Department of Labor’’ to (3) does not include administrative
sections 1927, 1903(i)(10), and reflect that the Department of Labor is costs incurred by the State in the
1902(a)(54) of the Act related to now responsible for updating the CPI– operation of the covered outpatient drug
implementation of the DRA. It would U. Therefore, the term CPI–U would benefit including systems costs for
include requirements related to State mean the index of consumer prices interfacing with pharmacies.
plans, FFP for drugs, and the payment developed and updated by the U.S. We proposed to define ‘‘innovator
for covered outpatient drugs under Department of Labor. For purposes of multiple source drug’’ based on the
Medicaid. In the proposed rule, we also this subpart, it would be the CPI for all definition in section 1927(k)(7)(A)(ii) of
proposed to move the existing Medicaid urban consumers (U.S. average) for the the Act. We also proposed using the
drug provisions in the Federal month before the beginning of the definition from the national rebate
regulations from subpart F to subpart I calendar quarter for which the rebate is agreement. Innovator multiple source
of 42 CFR part 447. paid. drug would mean a multiple source
Definitions (§ 447.502) We proposed to define ‘‘dispensing drug that was originally marketed under
fee’’ similarly to how it is defined for an original NDA approved by the Food
We proposed that the rule include the Medicare Part D program in 42 CFR and Drug Administration (FDA). It
definitions of key terms used in 42 CFR 423.100 in light of some of the parallels would include a drug product marketed
part 447, subpart I. We proposed to use of Part D to Medicaid. We proposed to by any cross-licensed producers or
definitions from several sources, define this term in order to assist States distributors operating under the NDA
including the Act, Federal regulations, in their evaluation of factors in and a covered outpatient drug approved
program guidance, and the national establishing a reasonable dispensing fee under an NDA, Product License
rebate agreement. We invited the public to pharmacy providers. We note that Approval (PLA), Establishment License
to provide comments on the terms we while we proposed to define this term, Approval (ELA) or Antibiotic Drug
chose to define as well as the definitions we do not intend to mandate a specific Approval (ADA). We believe this
described below. formula or methodology which the definition is consistent with our
We proposed to define ‘‘bona fide States must use to determine the understanding of the drug rebate statute
service fee’’ as a fee paid by a dispensing fee. The formula is and section 6003 of the DRA which
manufacturer to an entity, that consistent with our regulation that includes within the definition those
represents fair market value for a bona defines estimated acquisition costs drugs which often receive a certain
fide, itemized service actually which give States flexibility to amount of patent protection and/or
performed on behalf of the manufacturer determine EAC. However, consistent market exclusivity.
that a manufacturer would otherwise with a recommendation made by the We proposed to define
perform (or contract for) in the absence Office of Inspector General (OIG) in its ‘‘manufacturer’’ based on the definition
of the service arrangement, and that is report, ‘‘Determining Average in section 1927(k)(5) of the Act and the
not passed in whole or in part to a client Manufacturer Prices for Prescription national rebate agreement. It would also
or customer of an entity, whether or not Drugs under the Deficit Reduction Act mirror the current definition of
the entity takes title to the drug. of 2005,’’ (A–06–06–00063) May 2006, manufacturer used by Medicare in the
We proposed to define ‘‘brand name we encouraged States to analyze the regulations regarding manufacturer’s
drug’’ as a single source or innovator relationship between AMP and average sales price (ASP) data. For
multiple source drug. pharmacy acquisition costs to ensure purposes of the Medicaid Program, we
We proposed to define ‘‘bundled sale’’ that the Medicaid Program proposed that manufacturer would be
as an arrangement regardless of physical appropriately reimburses pharmacies for defined as any entity that possesses
packaging under which the rebate, estimated acquisition costs. legal title to the NDC for a covered drug
discount, or other price concession is We proposed to define ‘‘dispensing or biological product and—
conditioned upon the purchase of the fee’’ as the fee which— (a) is engaged in the production,
same drug or drugs of different types (1) is incurred at the point of sale and preparation, propagation, compounding,
(that is, at the nine-digit National Drug pays for costs other than the ingredient conversion, or processing of covered
Code (NDC) level) or some other cost of a covered outpatient drug each outpatient drug products, either directly
performance requirement (for example, time a covered outpatient drug is or indirectly by extraction from
the achievement of market share, dispensed; substances of natural origin, or
inclusion or tier placement on a (2) includes only pharmacy costs independently by means of chemical
formulary), or where the resulting associated with ensuring that possession synthesis, or by a combination of
discounts or other price concessions are of the appropriate covered outpatient extraction and chemical synthesis; or
greater than those which would have drug is transferred to a Medicaid (b) Is engaged in the packaging,
been available had the bundled drugs beneficiary. Pharmacy costs include, but repackaging, labeling, relabeling, or
been purchased separately or outside are not limited to, any reasonable costs distribution of covered outpatient drug
the bundled arrangement. For bundled associated with a pharmacist’s time in products and is not a wholesaler of
sales, the discounts are allocated checking the computer for information drugs or a retail pharmacy licensed
proportionately to the dollar value of about an individual’s coverage, under State law.
the units of each drug sold under the performing drug utilization review and (c) With respect to authorized generic
bundled arrangement. For bundled sales preferred drug list review activities, products, the term ‘‘manufacturer’’ will
also include the original holder of the Federal Supply Schedule (FSS). We • Net sales means quarterly gross
NDA. proposed that nominal price would sales revenue less cash discounts
(d) With respect to drugs subject to mean a price that is less than 10 percent allowed and all other price reductions
private labeling arrangements, the term of AMP in the same quarter for which (other than rebates under section 1927
‘‘manufacturer’’ will also include those the AMP is computed. of the Act) which reduce the actual
entities that do not possess legal title to ‘‘Rebate period’’ is defined in section price paid.
the NDC. 1927(k)(8) of the Act as a calendar Consistent with these provisions, it
‘‘Multiple source drug’’ is currently quarter or other period specified by the has been our policy that in order to
defined in Federal regulations at section Secretary with respect to the payment of provide a reflection of market
42 CFR 447.301. We proposed to remove rebates under the national rebate transactions, the AMP for a quarter
the definition from that section and agreement. The Medicaid Drug Rebate should be adjusted by the manufacturer
revise the definition to reflect the DRA Program currently operates using a if cumulative discounts or other
amendments to section 1927 of the Act. calendar quarter for the rebate period. arrangements subsequently adjust the
We proposed to define the term While AMPs would be reported prices actually realized.
multiple source drug to mean, with monthly for purposes of calculating AMP should be adjusted for bundled
respect to a rebate period, a covered FULs and for release to States, we can sales (as defined above) by determining
outpatient drug for which there is at find no evidence in the legislative the total value of all the discounts on all
least one other drug product which— history of the DRA that Congress drugs in the bundle and allocating those
(1) Is rated as therapeutically intended to change the definition of discounts proportionately to the
equivalent. For the list of drug products rebate period. Therefore, we proposed to respective AMP calculations. The
rated as therapeutically equivalent, see define rebate period as a calendar aggregate discount is allocated
the FDA’s most recent publication of quarter. proportionately to the dollar value of
‘‘Approved Drug Products with ‘‘Single source drug’’ is defined in the units of each drug sold under the
Therapeutic Equivalence Evaluations’’ section 1927(k)(7)(A)(iv) of the Act as a bundled arrangement. Where discounts
which is available at http:// covered outpatient drug which is are offered on multiple products in a
www.fda.gov/cder/orange/default.htm produced or distributed under an bundle, the aggregate value of all the
or can be viewed at the FDA’s Freedom original NDA approved by the FDA, discounts should be proportionately
of Information Public Reading Room at including a drug product marketed by allocated across all the drugs in the
5600 Fishers Lane, rm. 12A–30, any cross-licensed producers or bundle. The average unit price means a
Rockville, MD 20857; distributors operating under the NDA. It manufacturer’s quarterly sales included
(2) Is pharmaceutically equivalent and is further defined in the national rebate in AMP less all required adjustments
bioequivalent, as determined by the agreement as a covered outpatient drug divided by the total units sold and
FDA; and approved under a PLA, ELA, or ADA. included in AMP by the manufacturer
(3) Is sold or marketed in the United We proposed to define the term single in a quarter.
States during the rebate period. source drug as it is defined in the statute
We proposed to define ‘‘national drug and the national rebate agreement. Provisions of the DRA
code (NDC)’’ as it is used by the FDA Section 6001(c)(1) of the DRA
and based on the definition used in the Determination of Average Manufacturer
Price (§ 447.504) amended section 1927(k)(1) of the Act to
national rebate agreement. For purposes revise the definition of AMP to exclude
of this subpart, it would mean the 11- Background customary prompt pay discounts to
digit numerical code maintained by the Prior to the DRA, section 1927(k)(1) of wholesalers, effective January 1, 2007.
FDA that indicates the labeler, product, the Act specified that the AMP with Section 6001(c)(3) of the DRA requires
and package size, unless otherwise respect to a covered outpatient drug of the OIG to review the requirements for
specified in the regulation as being a manufacturer for a rebate period is the and manner in which AMPs are
without respect to package size (9-digit average unit price paid to the determined and recommend changes to
numerical code). manufacturer for the drug in the United the Secretary by June 1, 2006. Section
‘‘National rebate agreement’’ is States by wholesalers for drugs 6001(c)(3) of the DRA requires the
described in section 1927 of the Act. distributed to the retail pharmacy class Secretary to clarify the requirements for
Section 1927(b) of the Act outlines the of trade after deducting customary and the manner in which AMPs are
terms of the national rebate agreement, prompt pay discounts. determined by promulgating a
including reporting timeframes, The national rebate agreement (56 FR regulation no later than July 1, 2007,
manufacturer responsibilities, penalties, 7049 (Feb. 21, 1991)) further specifies taking into consideration the OIG’s
and confidentiality of pricing data. We that: recommendations.
proposed that the national rebate • Direct sales to hospitals, health
agreement would continue to be defined maintenance organizations (HMOs) and OIG Recommendations on AMP
as the rebate agreement developed by wholesalers, where the drug is relabeled In accordance with 6001(c)(3) of the
CMS and entered into by CMS on behalf under that distributor’s NDC number, DRA, the OIG issued its report,
of the Secretary or his designee and a and FSS prices are not included in the ‘‘Determining Average Manufacturer
manufacturer to implement section 1927 calculation of AMP; Prices for Prescription Drugs under the
of the Act. • AMP includes cash discounts and Deficit Reduction Act of 2005,’’ (A–06–
We proposed to define ‘‘nominal all other price reductions (other than 06–00063), in May 2006. In this report,
price’’ as it is in the national rebate rebates under section 1927 of the Act), the OIG recommended that CMS:
agreement. We proposed incorporating which reduce the actual price paid; • Clarify the requirements in regard
this definition in this rule because it is • AMP is calculated as net sales to the definition of retail pharmacy class
the standard presently used in the divided by the number of units sold, of trade and treatment of pharmacy
Medicaid Program and the Medicare excluding free goods (that is, drugs or benefit manager (PBM) rebates and
Part B program, and is similar to that any other items given away, but not Medicaid sales and
used by the Department of Veterans contingent on any purchase • Consider addressing issues raised
Affairs (DVA) in administering the requirements), and by industry groups, such as:
Æ Administrative and service fees, the FULs section for a more complete Oversight Raises Concerns about
Æ Lagged price concessions and description of outlier exclusions). The Rebates Paid to States,’’ (GAO–05–102),
returned goods, statute also requires that AMP be February 2005.
Æ The frequency of AMP reporting, provided to States monthly and be We believe, based in part on the OIG
Æ AMP restatements, and posted on a public Web site. While there and GAO reports, that retail pharmacy
Æ Base date AMP. is no requirement that States use AMPs class of trade means that sector of the
The OIG also recommended that the to set payment amounts, we believe the drug marketplace, similar to the
Secretary direct CMS to: Congress intended that States have drug marketplace for other goods and
• Issue guidance in the near future pricing data based on actual prices, in services, which dispenses drugs to the
that specifically addresses the contrast to previously available data that general public and which includes all
implementation of the AMP-related did not necessarily reflect actual price concessions related to such goods
reimbursement provisions of the DRA manufacturer prices of sales to the retail and services. As such, we proposed
and pharmacy class of trade. We considered excluding from AMP the prices of sales
• Encourage States to analyze the several options to define what prices to nursing home pharmacies (long-term
relationship between AMP and should be included in AMP. We care pharmacies) because nursing home
pharmacy acquisition cost to ensure that considered including only prices of pharmacies do not dispense to the
the Medicaid Program appropriately sales to retail pharmacies that dispense general public. We proposed including
reimburses pharmacies for estimated drugs to the general public (for example, in AMP the prices of sales and
acquisition costs. independent and chain pharmacies) in discounts to mail order pharmacies. We
We addressed these recommendations retail pharmacy class of trade and considered limiting mail order
as we discussed provisions of the removing prices to mail order pharmacy prices to only those prices
proposed rule in the section below. pharmacies, nursing home pharmacies that are offered to all pharmacies under
Definition of Retail Pharmacy Class of (long-term care pharmacies), and PBMs. similar terms and conditions. However,
Trade and Determination of AMP We proposed that this definition would given our belief that such prices are
address the retail pharmacy industry’s simply another form of how drugs enter
We recognize that there have been into the retail pharmacy class of trade,
contentions that an AMP used for
concerns expressed regarding AMP we proposed maintaining these prices in
reimbursement to retail pharmacies
because of inconsistencies in the way the definition. We noted that even were
should only reflect prices of sales to
manufacturers determine AMP, changes those pharmacies which dispense drugs we to incorporate this change, retail
in the drug marketplace, and the to the general public. pharmacies may not be able to meet the
introduction of newer business practices The exclusion of prices to mail order terms and conditions placed on mail
such as payment of services fees. We pharmacies, nursing home facilities order pharmacies to be eligible for some
also realize that in light of the DRA (long-term care facilities), and PBMs manufacturer price concessions. CMS
amendments, AMP will serve two would substantially reduce the number sought public comment on the inclusion
distinct purposes: For drug rebate of transactions included in AMP. of all mail order pharmacy prices in our
liability and for payments. For the Removal of these prices would simplify definition of retail pharmacy class of
purpose of determining drug rebate AMP calculations for manufacturers trade for purposes of inclusion in the
liability, drug manufacturers would because it is our understanding that determination of AMP.
generally benefit from a broad definition certain data (for example, PBM pricing We recognized that a major factor
of retail pharmacy class of trade which data) are difficult for manufacturers to contributing to the determination of
would include entities that purchase capture. In addition, removal of these AMP is the treatment of PBMs. These
drugs at lower prices and which would prices would address differing entities have assumed a significant role
lower rebate liability. Including these interpretations of CMS policy identified in drug distribution since the enactment
lower prices would decrease the AMP, by the OIG and the Government of the Medicaid Drug Rebate Program in
decreasing manufacturers’ rebate Accountability Office (GAO) due to the 1990. We considered how PBM rebates,
liability. The retail pharmacy industry lack of a clear definition of AMP or discounts, or other price concessions
might benefit from a narrow definition specific guidance regarding which retail should be recognized for purposes of
of retail pharmacy prices that would be prices should be included in AMP. AMP calculations.
limited to certain higher priced sales However, such a removal would not be A GAO report, ‘‘Medicaid Drug Rebate
given that, in light of the DRA consistent with past policy, as specified Program—Inadequate Oversight Raises
amendments, States might use AMP to in Manufacturer Releases 28 and 29 Concerns about Rebates Paid to States,’’
calculate pharmacy payment rates. (http://www.cms.hhs.gov/ (GAO–05–102), in February 2005,
Excluding low-priced sales would MedicaidDrugRebateProgram/ indicated that the Medicaid Drug Rebate
increase AMP, increasing, in all 03_DrugMfrReleases.asp#TopOfPage), Program does not clearly address certain
likelihood, manufacturers’ rebate would likely result in a higher AMP, financial concessions negotiated by
payments. The pharmacy industry and would result in an increase in drug PBMs. The GAO recommended that we
believes that mail order pharmacies and manufacturers’ rebate liabilities. issue clear guidance on manufacturer
nursing home pharmacies (long-term We also considered not revising the price determination methods and the
care pharmacies) pay less for drugs than entities included in the retail pharmacy definitions of AMP and best price, and
retail pharmacies (for example, class of trade. However, this would not update such guidance as additional
independents and chain pharmacies), address the issues identified by the OIG issues arise.
and thus the inclusion of such prices in its report, ‘‘Medicaid Drug Rebates: The issue regarding PBMs was also
would lower AMP below the price paid The Health Care Financing addressed in the OIG report,
by such retail pharmacies. Administration Needs to Provide ‘‘Determining Average Manufacturer
The statute mandates that, effective Additional Guidance to Drug Prices for Prescription Drugs under the
January 1, 2007, the Secretary use AMP Manufacturers to Better Implement the Deficit Reduction Act of 2005,’’ (A–06–
when computing FULs. For this Program,’’ (A–06–91–00092), November 06–00063), in May 2006. In this report,
purpose, we proposed excluding certain 1992 and GAO in its report ‘‘Medicaid the OIG recommended that we clarify
outlier payments (see our discussion in Drug Rebate Program—Inadequate the treatment of PBM rebates. This
report says that manufacturers treat should be included within AMP impacts as generic drugs are rarely, if
rebates and fees paid to PBMs in the calculations. In accordance with those ever, subject to PBM price adjustments
calculation of AMP in three different releases, our position has been that in this context); possible future
ways. Specifically they found that PBMs have no effect on the AMP evolution in industry pricing and
manufacturers (1) did not subtract calculations unless the PBM is acting as management practices (for example,
rebates or fees paid to PBMs from the a wholesaler as defined in the national growth of ‘‘preferred’’ generic drugs);
AMP calculation; (2) subtracted the rebate agreement. We are concerned, and possible impacts on reimbursement
rebates or fees paid to PBMs; or (3) however, that this position may unduly for brand name drugs under Medicaid.
subtracted a portion of the PBMs rebates exclude from AMP certain PBM prices We were generally interested in
or fees from the AMP calculation. and discounts which have an impact on comments on how and to what extent
In developing the proposed rule, we prices paid to the manufacturer. PBMs act as ‘‘wholesalers.’’ We
considered including all rebates, We believe that AMP should be proposed to incorporate the explicitly
discounts and other price concessions calculated to reflect the net drug price listed exclusions in section 1927 of the
from PBMs in the determination of recognized by the manufacturer, Act, and in the national rebate
AMP. We also considered excluding inclusive of any price adjustments or agreement, which are direct sales to
rebates, discounts and other price discounts provided directly or hospitals, HMOs/managed care
concessions from PBMs in the indirectly by the manufacturer. We were organizations (MCOs), wholesalers
determination of AMP. interested in comments on this where the drug is relabeled under that
One of the most difficult issues with proposal, including the comments on distributor’s NDC and FSS prices.
PBM discounts, rebates, or other price the operational difficulties of including The specific terms we proposed to
concessions is that manufacturers such PBM arrangements within AMP clarify and the proposed clarifications
contend that they do not know what calculations. follow.
part of these discounts, rebates, or other We recognize that the statute defines Retail Pharmacy Class of Trade: We
price concessions is kept by the PBM for AMP as the average price paid to the proposed to include in the definition of
the cost of its activities and profit, what manufacturer by wholesalers for drugs retail pharmacy class of trade any entity
part is passed on to the health insurer distributed to the retail pharmacy class that purchases prescription drugs from
or other insurer or other entity with of trade; however, in light of our a manufacturer or wholesaler for
which the PBM contracts, and what understanding of congressional intent, dispensing to the general public (for
part, if any, that entity passes on to we believe that the definition is meant example, retail, independent, chain and
pharmacies. Despite the difficulties of to capture discounts and other price mail order pharmacies), except as
including certain PBM rebates, adjustments, regardless of whether such otherwise specified by the statute or
discounts or other price concessions in discounts or adjustments are provided regulation (for example, HMOs,
AMP, excluding all of these price directly or indirectly by the hospitals).
concessions could result in an artificial manufacturer. We invited comments on PBM Price Concessions: We proposed
inflation of AMP. For this reason, we this definition and whether AMP should to include any rebates, discounts or
proposed to include PBM rebates, be calculated to include all adjustments other price adjustments provided by the
discounts, or other price concessions for that affect net drug prices. manufacturer to the PBM that affect the
drugs provided to the retail pharmacy We acknowledged that there are many net price recognized by the
class of trade for the purpose of PBM/manufacturer arrangements. To manufacturer for drugs provided to
determining AMP; however, we invited the extent manufacturers are offering entities in the retail pharmacy class of
comments on whether this proposal is rebates, discounts, or other price trade.
operationally feasible. concessions to the PBM that are not Customary Prompt Pay Discounts:
As discussed more fully below, we bona fide service fees, we proposed that Prior to the DRA, neither the statute nor
proposed that PBM rebates and price these lower prices should be included the national rebate agreement defined
concessions that adjust the amount in the AMP calculations. We requested customary prompt pay discounts. The
received by the manufacturer for drugs comments on the operational difficulties DRA revises the definition of AMP to
distributed to the retail pharmacy class of tracking these rebates, discounts, or exclude customary prompt pay
of trade should be included in the chargebacks provided to a PBM for discounts extended to wholesalers;
calculation of AMP. We acknowledged purposes of calculating AMP and on the however, it does not revise or define
that manufacturers have a variety of inclusion of all such price concessions customary prompt pay discounts. We
arrangements with PBMs and thus in AMP. Specifically, we solicited proposed to define customary prompt
invited comments on all aspects of our comments on the extent to which CMS pay discounts as any discount off the
proposal as explained below. should or should not define in purchase price of a drug routinely
The national rebate agreement defines regulation which rebates, discounts, or offered by the manufacturer to a
AMP to include cash discounts and all price concessions provided to PBMs wholesaler for prompt payment of
other price reductions (other than should be included in AMP and how purchased drugs within a specified time
rebates under section 1927 of the Act), best to measure these. Also, we solicited of the payment due date.
which reduce the actual price paid to public comment on how these PBM Treatment of Medicaid Sales: The OIG
the manufacturer for drugs distributed price concessions should be reported to recommended that we should address
to the retail pharmacy class of trade. As CMS to assure that appropriate price whether AMP should include Medicaid
noted in Manufacturer Release 28 and adjustments are captured and included prices of sales; that is, prices of sales
reiterated in Manufacturer Release 29, in the determination of AMP. where the end payer for the drug is the
manufacturers have developed a myriad Finally, we requested comments on Medicaid Program. In its May 2006
of arrangements whereby specific any other issues that we should take report, the OIG noted confusion on this
discounts, chargebacks, or rebates are into account in making our final issue and recommended that we clarify
provided to PBMs which, in turn, are decisions. These included, but were not that these prices of sales are to be
passed on to the purchaser. Those limited to, possible Federal and State included in AMP. It is our position that
releases recognize that certain prices budgetary impacts (our savings these sales are included in AMP because
provided by manufacturers to PBMs estimates assumed no budgetary they are not expressly excluded in the
statute. In the proposed rule, we also for covered Part D drugs provided on Prescription Drugs under the Deficit
proposed clarifying that prices to State behalf of Part D eligible individuals Reduction Act of 2005,’’ (A–06–06–
Children’s Health Insurance Program should be included in the AMP 00063), May 2006, that confusion exists
(SCHIP) Title XIX through an expanded calculation. Like the Medicaid Program, about the treatment of fees, such as
Medicaid Program are covered under PDPs and MA–PDs do not directly service fees negotiated between a
the provisions of section 1927 of the Act purchase drugs, but are usually third manufacturer and pharmaceutical
and generally subsumed in Medicaid party payers. As with Medicaid sales, distributor. Some believe that these fees
sales. As a general matter, Medicaid these sales are included in AMP to the should not be included in AMP because
does not directly purchase drugs from extent they are sales to the retail the manufacturer does not know if the
manufacturers or wholesalers but pharmacy class of trade. Therefore, we fees act to reduce the price paid by the
instead reimburses pharmacies for these believe these prices of sales should not end purchasers. Others believe such fees
drugs. Therefore, Medicaid sales are be backed out of the AMP. Rebates paid should be included in the calculation,
determined by the entities that are by the manufacturer to the PDP or MA– which would reduce AMP because they
actually in the sales chain and because PD should be included in the serve as a price concession. For the
Medicaid reimburses pharmacies for calculation of AMP. same reason as for sales to PBMs, we
drugs for Medicaid beneficiaries, SPAP Price Concessions: In the proposed that all fees except fees paid
integrated into the chain of sales proposed rule, we also proposed to for bona fide services should be
otherwise included in AMP. clarify how the prices to State included in AMP. We proposed that
In the proposed rule, we proposed pharmaceutical assistance programs bona fide service fees means fees paid
clarifying that the units associated with (SPAPs) should be treated. Like the by a manufacturer to an entity, which
Medicaid sales should be included as Medicaid Program, PDPs, and MA–PDs, represent fair market value for a bona
part of the total units in the AMP SPAPs do not directly purchase drugs, fide, itemized service actually
calculation. We proposed that AMP be but are generally third party payers. As performed on behalf of the manufacturer
calculated to include all sales and with Medicaid sales, these sales are that the manufacturer would otherwise
associated discounts and other price included in AMP to the extent the sales perform (or contract for) in the absence
concessions provided by the are to an entity included in the retail of the service arrangement, and which
manufacturer for drugs distributed to pharmacy class of trade. Therefore, we are not passed in whole or in part to a
the retail pharmacy class of trade unless proposed that SPAP sales should not be client or customer of an entity, whether
the sale, discount, or other price backed out of the AMP calculation. or not the entity takes title to the drug.
concession is specifically excluded by Rebates paid by the manufacturer to the Medicare Part B also adopted this
the statute or regulation or is provided SPAP should be included in the definition in its final rule with comment
to an entity excluded by statute or calculation of AMP. period that was published on December
regulation. Therefore, we proposed Prices to Other Federal Programs: We
1, 2006 (71 FR 69623 through 70251)
clarifying that rebates paid to States proposed that any prices on or after
that implemented the ASP provisions
under the Medicaid Drug Rebate October 1, 1992, to the Indian Health
enacted in the Medicare Prescription
Program should be excluded from AMP Service (IHS), the DVA, a State home
Drug, Improvement, and Modernization
calculations but that price concessions receiving funds under section 1741 of
Act of 2003 (MMA). We did not propose
associated with the sales of drugs in the title 38, United States Code, the
to define fair market value. However,
retail pharmacy class of trade which are Department of Defense (DoD), the Public
CMS invited comments from the public
provided to Medicaid patients should be Health Service (PHS), or a covered
regarding an appropriate definition for
included. entity described in subsection
fair market value.
We also proposed to clarify how the 1927(a)(5)(B) of the Act (including
prices of sales to SCHIP Title XXI non- inpatient prices charged to hospitals Direct Patient Sales: In response to
Medicaid expansion programs should be described in section 340B(a)(4)(L) of the manufacturers’ questions, CMS has
treated. Like the Medicaid Program, PHSA); any prices charged under the stated previously that covered
SCHIP non-Medicaid expansion FSS of the General Services outpatient drugs sold to patients
programs do not directly purchase Administration (GSA); and any depot through direct programs should be
drugs. Because such programs are not prices (including TRICARE) and single included in the calculation of AMP.
part of the Medicaid Program, they are award contract prices, as defined by the These sales are usually for specialty
not covered under the provisions of Secretary, of any agency of the Federal drugs through a direct distribution
section 1927 of the Act. As with Government are excluded from the arrangement, where the manufacturer
Medicaid sales, these sales are included calculation of AMP. We proposed that retains ownership of the drug and pays
in AMP to the extent they concern sales the prices to these entities should be either an administrative or service fee to
at the retail pharmacy class of trade. excluded from AMP because the prices a third party for functions such as the
Therefore, these sales should not be to these entities are not available to the storage, delivery and billing of the drug.
backed out of the AMP calculation to retail pharmacy class of trade. Some manufacturers have contended
the extent that such sales are included Administrative and Service Fees: that direct patient sales for covered
within sales provided to the retail Current Medicaid drug rebate policy is outpatient drugs sold by a manufacturer
pharmacy class of trade. Rebates and that administrative fees which include through a direct distribution channel
units associated with those sales should service fees and distribution fees, should not qualify for inclusion in the
also be included in the calculation of incentives, promotional fees, calculation of AMP because the
AMP. chargebacks and all discounts or Medicaid rebate statute and the national
Treatment of Medicare Part D Sales: rebates, other than rebates under the rebate agreement do not address covered
We proposed clarifying that the Medicaid Drug Rebate Program, should outpatient drugs that are not sold to
treatment of prices of sales through a be included in the calculation of AMP, wholesalers and/or not distributed in
Medicare Part D prescription drug plan if those sales are to an entity included the retail pharmacy class of trade. We
(PDP), a Medicare Advantage in the calculation of AMP. The OIG has believe that the distributor is acting as
prescription drug plan (MA–PD), or a noted in its report, ‘‘Determining a wholesaler and these sales are to the
qualified retiree prescription drug plan Average Manufacturer Prices for retail pharmacy class of trade. In light
of this, we proposed that these sales and Requirements for Average Manufacturer requirement, volume discounts and
the rebates associated with these sales to Price rebates (other than rebates under section
patients through direct programs would To implement the provisions set forth 1927 of the Act), which reduce the price
be included in AMP. CMS invited in sections 6001 and 6003 of the DRA paid;
comments from the public on this • Must be determined on a unit basis
related to AMP, we proposed a new
proposed policy. without regard to special packaging,
§447.504. In §447.504(a), we proposed a
Returned Goods: Current Medicaid labeling or identifiers on the dosage
revised definition of AMP and clarified
Drug Rebate Program policy is that form or product or package;
that AMP is determined without regard • Must not take into account prices
returned goods are credited back to the
to customary prompt pay discounts that are merely nominal in amount.
manufacturer in either the quarter of
extended to wholesalers. In §447.504(b), Consistent with these provisions and
sale or quarter of receipt. This has
we proposed to define average unit the national rebate agreement, it has
caused difficulty for some
manufacturers when these returns have price. In §447.504(c), we proposed to been our policy that in order to reflect
substantially reduced AMP in a quarter define customary prompt pay discount. market transactions, the best price for a
or resulted in a negative AMP. In light In §447.504(d), we proposed to define rebate period should be adjusted by the
of these concerns, we proposed to net sales. In §447.504(e), we proposed to manufacturer if cumulative discounts or
exclude returned goods from the define retail pharmacy class of trade. In other arrangements subsequently adjust
calculation of AMP when returned in §447.504(f), we proposed to define the prices actually realized.
good faith. CMS considers that goods wholesaler. In §447.504(g), we Best price should be adjusted for any
are being returned in good faith when described in detail the sales, rebates, bundled sale. The drugs in a ‘‘bundle’’
they are being returned pursuant to discounts, or other price concessions do not have to be physically packaged
manufacturer policies which are not that must be included in AMP. In together to constitute a ‘‘bundle,’’ just
designed to manipulate or artificially §447.504(h), we described the sales, part of the same bundled transaction.
inflate or deflate AMP. The Medicare rebates, discounts, or other price Section 1927(c)(1)(C)(ii)(I) of the Act
Part B program excludes returned goods concessions that must be excluded from specifies that best price must include
from the calculation of ASP. The AMP. In §447.504(i), we provided free goods that are contingent on any
exclusion of returned goods will allow further clarification about how purchase requirement. Thus, only those
the manufacturer to calculate and report manufacturers should account for price free goods that are not contingent on
an AMP that is more reflective of its true reductions and other pricing any purchase requirements may be
pricing policies to the retail pharmacy arrangements which should be included excluded from best price.
class of trade in the reporting period. It in the calculation of AMP. Section 103(e) of the Medicare
lessens the administrative burden and Modernization Act of 2003 (MMA)
Determination of Best Price (§447.505)
problems associated with allocating the modified the definition of best price by
returned goods back to the reporting Prior to the DRA, section 1927(c)(1)(C) excluding prices which are negotiated
period in which they were sold, as well of the Act provided that manufacturers by a PDP under part D of title XVIII of
as eliminating artificially low, zero or must include in their best price the Act, by any MA–PD plan under part
negative AMPs that may result from calculation, for a single source or C of such title with respect to covered
these adjustments. innovator multiple source drug, the part D drugs, or by a qualified retiree
Manufacturer Coupons: In the lowest price available from the prescription drug plan (as defined in
proposed rule, we proposed to clarify manufacturers during the rebate period section 1860D–22(a)(2) of the Act) with
how manufacturer coupons should be to any wholesaler, retailer, provider, respect to such drugs on behalf of
treated. The treatment of manufacturer HMO, non-profit entity, or individuals entitled to benefits under
coupons has been problematic for CMS governmental entity within the United part A or enrolled under part B of such
as well as some manufacturers. We States except for those entities title. Section 1002(a) of the MMA
proposed to include coupons redeemed specifically excluded by statute. modified section 1927(c)(1)(C)(i)(I) of
by any entity other than the consumer Excluded from best price are prices the Act by clarifying that inpatient
in the calculation of AMP. We believe charged on or after October 1, 1992, to prices charged to hospitals described in
that the redemption of coupons by the the IHS, the DVA, a State home section 340B(a)(4)(L) of the PHSA are
consumer directly to the manufacturer receiving funds under section 1741 of exempt from best price.
is not included in the retail pharmacy title 38, United States Code, the DoD, Section 6003 of the DRA amended
class of trade. In the proposed rule, we the PHS, or a covered entity described section 1927(c)(1)(C) of the Act by
proposed to exclude coupons redeemed in section 1927(a)(5)(B) of the Act revising the definition of best price to
by the consumer directly to the (including inpatient prices charged to clarify that the best price includes the
manufacturer from the calculation of hospitals described in section lowest price available to any entity for
AMP. CMS invited comments from the 340B(a)(4)(L) of the PHSA); any prices any such drug of a manufacturer that is
public on the proposed policy. charged under the FSS of the GSA; any sold under an NDA approved under
Future Clarifications of AMP: Based prices used under an SPAP; any depot section 505(c) of the FFDCA.
on past comments from the GAO and prices (including TRICARE) and single In the proposed rule we proposed to
the OIG and recommendations of the award contract prices, as defined by the define best price with respect to a single
OIG in its May 2006 report on AMP, we Secretary, of any agency of the Federal source drug or innovator multiple
believe that we need to have the ability Government; and prices to a Medicare source drug of a manufacturer,
to clarify the definition of AMP in an Part D PDP, an MA–PD, or a qualified including any drug sold under an NDA
expedited manner in order to address retiree prescription drug plan for approved under section 505(c) of the
the evolving marketplace for the sale of covered Part D drugs provided on behalf FFDCA, as the lowest price available
drugs. We proposed to address future of Part D eligible individuals. from the manufacturer during the rebate
clarifications of AMP through the The statute further specifies that best period to any entity in the United States
issuance of program releases and by price: in any pricing structure (including
posting the clarifications on the CMS • Includes cash discounts, free goods capitated payments) in the same quarter
Web site as needed. that are contingent on any purchase for which the AMP is computed. It
continues to be our policy that best if other arrangements subsequently Program does not clearly address certain
price reflects the lowest price at which adjust the prices actually realized. We financial concessions negotiated by
the manufacturer sells a covered proposed to consider any price PBMs. The GAO recommended that we
outpatient drug to any purchaser, except adjustment which ultimately affects issue clear guidance on manufacturer
those prices specifically exempted by those prices which are actually realized price determination methods and the
law. We proposed to define provider as by the manufacturer as ‘‘other definitions of AMP and best price, and
a hospital; HMO, including an MCO or arrangements’’ and that such adjustment update such guidance as additional
PBM; or other entity that treats should be included in the calculation of issues arise.
individuals for illnesses or injuries or best price, except to the extent that such The issue regarding PBMs was also
provides services or items in the adjustments qualify as bona fide service addressed in the recently issued OIG
provisions of health care. fees. report, ‘‘Determining Average
As with the determination of AMP, We proposed that best price be Manufacturer Prices for Prescription
the DRA does not establish a calculated to include all sales, Drugs under the Deficit Reduction Act
mechanism to clarify how best price is discounts, and other price concessions of 2005,’’ (A–06–06–00063), in May
to be determined should new entities be provided by the manufacturer for 2006. In this report, the OIG
formed after this regulation takes effect. covered outpatient drugs to any entity recommended that we clarify the
We believe that we need to have the unless the manufacturer can treatment of PBM rebates.
ability to clarify best price in an demonstrate that the sale, discount, or One of the most difficult issues with
expedited manner in order to address other price concession is specifically PBM discounts, price concessions, or
the evolving marketplace for the sale of excluded by statute or is provided to an rebates is that manufacturers contend
drugs. We proposed to address future entity not included in the rebate that they do not know what part of these
clarifications to best price through the calculation. To the extent that an entity discounts, price concessions, or rebates
issuance of program releases and by is not included in the best price are kept by the PBM for the cost of their
posting the clarifications on the CMS calculation, both sales and associated activities and profit, what part is passed
Web site as needed. Even though the discounts or other price concessions on to the health insurer or other insurer
DRA did not require CMS to clarify the provided to such an entity should be or other entity with which the PBM
requirements for best price, we excluded from the calculation. The contracts, and what part that entity
determined that it was reasonable to specific terms we propose to clarify and passes on to pharmacies.
propose these provisions in the the proposed clarification follow. Despite the difficulties of including
proposed rule, consistent with long- The national rebate agreement defines certain PBM rebates, discounts or other
standing Medicaid Drug Rebate Program best price, in part, as the lowest price at price concessions in best price,
policy and the MMA with respect to which the manufacturer sells the excluding these price concessions could
best price as revised by the DRA. covered outpatient drug to any result in an artificial inflation of best
We proposed to incorporate the purchaser in the United States. We price. We proposed to include PBM
explicitly listed exclusions in section proposed to codify this policy in the rebates, discounts, or other price
1927 of the Act, which are prices proposed rule. concessions for the purpose of
charged on or after October 1, 1992, to Customary Prompt Pay Discounts: determining best price.
the IHS, the DVA, a State home The DRA revises the definition of AMP To the extent manufacturers are
receiving funds under section 1741 of to exclude customary prompt pay offering PBMs rebates, discounts, or
title 38, United States Code, the DoD, discounts to wholesalers; however, it other price concessions, these lower
the PHS, or a covered entity described does not change the definition of best prices should be included in the best
in section 1927(a)(5)(B) of the Act price to exclude customary prompt pay price calculations. Therefore, where the
(including inpatient prices charged to discounts. Therefore, we proposed to use of the PBM by manufacturers affects
hospitals described in section include customary prompt pay the price available from the
340B(a)(4)(L) of the PHSA); any prices discounts in best price. manufacturer, we proposed that these
charged under the FSS of the GSA; any PBM Price Concessions: We recognize lower prices should be reflected in best
prices paid under an SPAP; any depot that a major factor contributing to the price calculations. We acknowledged
prices (including TRICARE) and single determination of best price includes the that there are many PBM/manufacturer
award contract prices, as defined by the treatment of PBMs. These entities have arrangements.
Secretary, of any agency of the Federal assumed a significant role in drug We believe that PBMs often obtain
Government; and payments made by a distribution since the enactment of the rebates, discounts, or other price
Medicare Part D PDP, an MA–PD, or a Medicaid Drug Rebate Program in 1990. concessions which adjust prices, either
qualified retiree prescription drug plan As noted in Manufacturer Release 28 directly or indirectly. Unless the fees/
for covered Part D drugs provided on and reiterated in Manufacturer Release discounts qualify as bona fide service
behalf of Part D eligible individuals. We 29, manufacturers have developed a fees (which are excluded), we proposed
proposed to codify this policy and myriad of arrangements whereby that the PBM rebates, discounts, or
require that manufacturers exclude the specific discounts, chargebacks, or chargebacks should be included in best
prices to these entities from best price. rebates are provided to PBMs which in price. We proposed to consider these
Because best price represents the lowest turn are passed on to the purchaser. In rebates, discounts, or chargebacks in
price available from the manufacturer to such situations where discounts, best price calculations. CMS invited
any entity with respect to a single chargebacks, or rebates are used to public comment on the inclusion of
source drug or innovator multiple adjust drug prices at the wholesaler or certain PBM price concessions in the
source drug of a manufacturer, retail level, such adjustments are determination of best price. Also, we
including an authorized generic, any included in the best price calculation. solicited public comment on how these
price concession associated with that A GAO report, ‘‘Medicaid Drug Rebate PBM price concessions should be
sale should be netted out of the price Program—Inadequate Oversight Raises reported to CMS to assure that
received by the manufacturer in Concerns about Rebates Paid to States,’’ appropriate price concessions are
calculating best price and best price (GAO–05–102), in February 2005, captured and included in the
should be adjusted by the manufacturer indicated that the Medicaid Drug Rebate determination of best price.
We proposed to incorporate the above be included for the purpose of the Medicaid Program and the best price
explicitly listed exclusions in section calculating AMP, we proposed that for each single source or innovator
1927 of the Act and in the national prices negotiated by a PDP, an MA–PD, multiple source drug available to any
rebate agreement. Because best price or a qualified retiree prescription drug wholesaler, retailer, provider, HMO,
represents the prices available from the plan for covered Part D drugs provided non-profit entity, or governmental entity
manufacturer for prescription drugs, on behalf of Part D eligible individuals with certain exceptions.
best price should be adjusted by the not be taken into account for the For purposes of the Medicaid Drug
manufacturer if other arrangements purpose of establishing best price. Rebate Program, an authorized generic
subsequently adjust the prices actually Manufacturer Coupons: In the is any drug product marketed under the
realized. We proposed to consider that proposed rule, we proposed to clarify innovator multiple source drug or brand
any price adjustment which ultimately how manufacturer coupons should be manufacturer’s original NDA, but
affects those prices which are actually treated for the purpose of establishing labeled with a different NDC than the
realized by the manufacturer as ‘‘other best price. We believe that the innovator multiple source drug or brand
arrangements’’ and that such an redemption of coupons by any entity product. According to our reading of the
adjustment should be included in the other than the consumer to the statute, authorized generics are single
calculation of best price. The specific manufacturer ultimately affects the source or innovator multiple source
terms we proposed to clarify and the price paid by the entity (for example, drugs for the purpose of computing the
proposed clarifications follow. retail pharmacy). We proposed to drug rebate and are classified based on
Administrative and Service Fees: We include coupons redeemed by any whether the drug is being sold or
proposed that administrative fees which entity other than the consumer in the marketed pursuant to an NDA.
include service fees and distribution calculation of best price. We believe that Responsibility for the rebate rests with
fees, incentives, promotional fees, the redemption of coupons by the the manufacturer selling or marketing
chargebacks and all discounts or consumer directly to the manufacturer the drug to the retail pharmacy class of
rebates, other than rebates under the does not affect the price paid by any trade.
Medicaid Drug Rebate Program, should entity whose sales are included in best We proposed to implement section
be included in the calculation of best price. In the proposed rule, we proposed
6003 of the DRA by proposing to adopt
price, if those sales are to an entity to exclude coupons redeemed by the
the term ‘‘authorized generic’’ and
included in the calculation of best price. consumer directly to the manufacturer
define this term with respect to the
As previously discussed, the OIG has from the calculation of best price. CMS
Medicaid Drug Rebate Program, as any
noted in its report, ‘‘Determining invited comments from the public on
drug sold, licensed or marketed under
Average Manufacturer Prices for this proposed policy.
Medicaid Rebates and Supplemental an NDA approved by the FDA under
Prescription Drugs under the Deficit
Rebates: Section 1927(c)(1)(C)(ii)(I) of section 505(c) of the FFDCA that is
Reduction Act of 2005,’’ (A–06–06–
the Act and the national rebate marketed, sold or distributed directly or
00063), May 2006, that confusion exists
agreement provide that any rebates paid indirectly under a different product
about the treatment of fees, such as
service fees negotiated between a by manufacturers under section 1927 of code, labeler code, trade name,
manufacturer and pharmaceutical the Act are to be excluded from the trademark, or packaging (other than
distributor for AMP and best price. We calculation of best price. Therefore, we repackaging the listed drug for use in
believe that price adjustments which proposed to exclude Medicaid rebates institutions) than the listed drug.
ultimately affect those prices which are from best price. Likewise, we Section 6003 of the DRA amended
actually available from the manufacturer considered rebates paid under CMS- section 1927(b)(3)(A) of the Act to
should be included in best price. We authorized separate (supplemental) include drugs approved under section
proposed that manufacturers should Medicaid drug rebate agreements with 505(c) of the FFDCA in the reporting
include all such fees except bona fide States to meet this requirement and requirements for the primary
service fees provided at fair market proposed that these rebates be excluded manufacturer (NDA holder) for AMP
value in the best price calculation. from best price. In accordance with and best price. We proposed to interpret
Treatment of Medicare Part D Prices: section 1927 of the Act pertaining to the the language of section 6003 of the DRA
In the proposed rule, we proposed to determination of best price and our to include in the best price and AMP
clarify the treatment of prices which are understanding of congressional intent, calculations of the branded drugs, the
negotiated by a Medicare Part D PDP, an we proposed a new § 447.505. In authorized generic drugs that have been
MA–PD, or a qualified retiree § 447.505(a), we provided a general marketed by another manufacturer or
prescription drug plan for covered Part definition of the term best price. In subsidiary of the brand manufacturer (or
D drugs provided on behalf of Part D § 447.505(b), we proposed to define NDA holder). We believe that to limit
eligible individuals. We proposed that provider. In § 447.505(c), we specified the applicability of this regulation to the
these prices are exempt from the best the sales and prices which must be sellers of authorized generic drugs
price. Section 1860D–2(d)(1)(C) of the included in best price. In § 447.505(d), would allow manufacturers to
Act specifically states that ‘‘prices we specified which sales and prices circumvent the intent of the provision
negotiated by a prescription drug plan, must be excluded from best price. In by licensing rather than selling the
by an MA–PD plan with respect to § 447.505(e), we further clarified the rights to such drugs. This is why we
covered part D drugs, or by a qualified price reductions and other pricing proposed a broad definition of
retiree prescription drug plan (as arrangements included in the authorized generic drugs rather than a
defined in section 1860D–22(a)(2)) with calculation of best price. more narrow definition of such drugs.
respect to such drugs on behalf of Part We proposed to require the NDA holder
D eligible individuals, shall Authorized Generic Drugs (§ 447.506) to include sales of the authorized
(notwithstanding any other provision of In the proposed rule, we stated that generic product marketed by the
law) not be taken into account for the drug manufacturers participating in the secondary manufacturer or the brand
purposes of establishing the best price Medicaid Drug Rebate Program are manufacturer’s subsidiary in its
under section 1927(c)(1)(C).’’ Therefore, required to report the AMP for each calculation of AMP and best price. We
while we proposed that the prices listed covered outpatient drug offered under welcomed comments on this issue.
The secondary manufacturer or nominal price exception applies only subsection (d) hospital (as defined in
subsidiary of the brand manufacturer when certain entities are the purchasers. section 1886(d)(1)(B) of the Act) that (i)
would continue to pay the single source Section 6001(d)(2) of the DRA is owned or operated by a unit of State
drug or innovator multiple source drug modified section 1927(c)(1) of the Act to or local government, is a public or
rebate for the authorized generic drug limit the nominal price exclusion from private non-profit corporation which is
products based on utilization under its best price to exclude only sales to formally granted governmental powers
own NDC number, as required under certain entities and safety net providers. by a unit of State or local government,
current law. We welcomed comments Specifically, it excluded from best price or is a private non-profit hospital which
on these issues. those nominal price sales to 340B has a contract with a State or local
In § 447.506(a), we proposed defining covered entities as described in section government to provide health care
the term authorized generic drug for the 340B(a)(4) of the PHSA, ICFs/MR, and services to low income individuals who
purposes of the Medicaid Drug Rebate State-owned or operated nursing are not entitled to benefits under title
Program. facilities. In addition, the Secretary has XVIII of the Act or eligible for assistance
In § 447.506(b), we proposed authority to identify as safety net under the State plan under this title, (ii)
requiring the sales of authorized generic providers other facilities or entities to for the most recent cost reporting period
drugs that have been sold or licensed to which sales at a nominal price will be that ended before the calendar quarter
another manufacturer to be included by excluded from best price if he deems involved, had a disproportionate share
the primary manufacturer as part of its them eligible safety net providers based adjustment percentage (as determined
calculation of AMP for the single source on four factors: the type of facility or under section 1886(d)(5)(F) of the Act)
or innovator multiple source drug entity, the services provided by the greater than 11.75 percent or was
(including all such drugs that are sold facility or entity, the patient population described in section 1886(d)(5)(F)(i)(II)
under an NDA approved under section served by the facility or entity and the of the Act, and (iii) does not obtain
505(c) of the FFDCA). number of other facilities or entities covered outpatient drugs through a
eligible to purchase at nominal prices in group purchasing organization (GPO) or
In § 447.506(c), we proposed requiring
the same service area. other group purchasing arrangement.
that sales of authorized generic drugs by Section 340B(a)(4) of the PHSA
the secondary manufacturer that buys or We did not believe it necessary to
defines entities covered under that elaborate further on these entities. We
licenses the right to sell the drugs be provision. Covered entities include: a
included by the primary manufacturer proposed to define ICF/MR, for
federally qualified health center as purposes of the nominal price exclusion
in sales used to determine the best price defined in section 1905(l)(2)(B) of the
for the single source or innovator from best price, to mean an institution
Act; an entity receiving a grant under for the mentally retarded or persons
multiple source drug approved under section 340A of the PHSA; a family
section 505(c) of the FFDCA during the with related conditions that provides
planning project receiving a grant or
rebate period to any manufacturer, services as set forth in 42 CFR 440.150.
contract under Section 1001 of the
wholesaler, retailer, provider, HMO, Additionally, we proposed to define
PHSA (42 U.S.C. § 300); an entity
non-profit entity, or governmental entity nursing facility as a facility that
receiving a grant under subpart II of part
within the United States. The primary provides those services set forth in 42
C of title XXVI of the PHSA (relating to
manufacturer must include in its CFR 440.155.
categorical grants for outpatient early
calculation of best price all sales of the intervention services for HIV disease); a The statute allows the Secretary to
authorized generic drug which have State-operated AIDS drug purchasing determine other facilities or entities to
been sold or marketed by a secondary assistance program receiving financial be safety net providers to whom sales of
manufacturer or by a subsidiary of the assistance under title XXVI of the drugs at a nominal price would be
brand manufacturer. PHSA; a black lung clinic receiving excluded from best price. The
funds under section 427(a) of the Black Secretary’s determination would be
Exclusion From Best Price of Certain
Lung Benefits Act; a comprehensive based on the four factors noted above
Sales at a Nominal Price (§ 447.508)
hemophilia diagnostic treatment center established by the DRA. We considered
Pursuant to the terms of the national receiving a grant under section 501(a)(2) using this authority to expand this
rebate agreement, manufacturers of the Act; a Native Hawaiian Health exclusion to other safety-net providers.
excluded from their best price Center receiving funds under the Native We considered proposing that we use
calculations outpatient drug prices Hawaiian Health Care Act of 1988; an the broader definition of safety net
below ten percent of the AMP. The urban Indian organization receiving provider used by the Institute of
national rebate agreement did not funds under the title V of the Indian Medicine (IOM). In its report,
specify whether this nominal price Health Care Improvement Act, any ‘‘America’s Health Care Safety Net,
exception applied to all purchasers or to entity receiving assistance under title Intact but Endangered,’’ the IOM defines
a subset of purchasers. Medicaid has XXVI of the PHSA (other than a State or safety-net providers as ‘‘providers that
used this definition since the start of the unit of local government or an entity by mandate or mission organize and
Medicaid Drug Rebate Program and receiving a grant under subpart II of part deliver a significant level of healthcare
Medicare Part B also adopted it in its C of title XXVI of the PHSA), but only and other health-related services to the
April 6, 2004 interim final rule with if the entity is certified by the Secretary uninsured, Medicaid and other
comment period (69 FR 17935) that pursuant to section 340B(a)(7) of the vulnerable patients.’’ We also
implemented the ASP provisions PHSA; an entity receiving funds under considered proposing how the Secretary
enacted in the MMA. It is also similar section 318 of the PHSA (relating to might use the four factors to allow the
to the definition of nominal price in the treatment of sexually transmitted nominal price exclusion to best price to
VHCA. diseases) or section 317(j)(2) of the apply to other safety net providers.
We proposed to continue to define PHSA (relating to treatment of However, we believe that the entities
nominal prices as prices at less than 10 tuberculosis) through a State or unit of specified in the statute are sufficiently
percent of the AMP in that same quarter; local government, but only if the entity inclusive and capture the appropriate
however, in accordance with the DRA, is certified by the Secretary pursuant to safety net providers. Therefore, we
we further proposed to specify that the section 340B(a)(7) of the PHSA; a chose not to propose to expand the
entities subject to this provision at this subject to certain audits or government later than 30 days after the end of the
time. Additionally, we believe that investigations. On November 26, 2004, rebate period.
adding other entities or facilities would we published final regulations (69 FR Section 6001(b)(1) of the DRA
have an undesirable effect on the best 68815) that require that a manufacturer amended section 1927(b)(3)(A)(i) of the
price by expanding the entities for retain pricing data for ten years from the Act by adding ‘‘month of a’’ before
which manufacturers could receive the date the manufacturer reports that ‘‘rebate period.’’ Section 6003(a) of the
best price exclusion beyond those period’s data to CMS. We proposed to DRA restructured section
specifically mandated by the DRA and move the recordkeeping requirements at 1927(b)(3)(A)(i) of the Act. The statute,
lowering manufacturer rebates to the § 447.534(h) to § 447.510(f) and revise as amended by these provisions, can be
Medicaid Program. Because the statute them by adding the requirement that read in different ways. One
gives the Secretary discretion not to manufacturers must also retain records interpretation is that the revisions made
expand the list of entities, we did not used in calculating the customary by section 6003(a) of the DRA supersede
propose to do so in the proposed rule. prompt pay discounts and nominal the revisions made by section 6001(b)(1)
CMS has concerns that despite the prices reported to CMS. of the DRA, effectively eliminating the
fact that the DRA limits the nominal Existing regulations at § 447.534(i) requirement that manufacturers report
price exclusion to specific entities, the require manufacturers to report data to CMS on a monthly basis.
nominal price exclusion will continue revisions to AMP and best price for a However, we did not believe that this
to be used as a marketing tool. period not to exceed 12 quarters from reading is the better reading of the
Historically, patients frequently remain the quarter in which the data were due. statute. It is unreasonable to presume
on the same drug regimen following We proposed to move this provision to that Congress would simultaneously
discharge from a hospital. Physicians § 447.510(b) and revise it to require establish and render meaningless a new
may be hesitant to switch a patient to manufacturers to also report revisions to provision of law and we do not propose
a different brand and risk destabilizing customary prompt pay discounts and to adopt this interpretation. Another
the patient once discharged from the nominal prices for the same period. interpretation is that the revisions made
hospital. We believe that using nominal In order to reflect the changes to AMP by section 6001(b)(1) of the DRA, when
price for marketing is not within the as set forth in the DRA, we proposed read with the amendments made by
spirit and letter of the law. We allowing manufacturers to recalculate section 6003 of the DRA, create a new
considered crafting further guidance to base date AMP in accordance with the requirement that AMP, best price, and
address this issue. CMS invited definition of AMP in § 447.504(e) of this customary prompt pay discounts be
comments from the public to assist us subpart. Base date AMP is used in the reported on a monthly basis. However,
in ensuring that all aspects of this issue calculation of the additional rebate there is no compelling evidence in the
are fully considered. described in section 1927(c)(2) of the legislative history which indicates that
In accordance with the provisions of Act. This additional rebate is defined as Congress intended to change the rebate
the DRA, we proposed that the the difference between the quarterly period from quarterly to monthly. Best
restriction on nominal price sales shall AMP reported to CMS and the base date price is reported to CMS quarterly for
not apply to sales by a manufacturer of AMP trended forward using the CPI–U. purposes of our calculation of the unit
covered outpatient drugs that are sold We proposed this amendment so that rebate amount (URA) for single source
under a DVA master agreement under the additional rebate would not increase and innovator multiple source drugs.
section 8126 of title 38, United States due to changes in the definition of AMP. While the DRA requires AMPs to be
Code. We proposed giving manufacturers an reported and disclosed to States on a
We proposed a new § 447.508 in opportunity to submit a revised base monthly basis, it did not establish any
which we specified those entities to date AMP with their data submission for similar monthly use for best price or
which a manufacturer of covered the first full calendar quarter following customary prompt pay discounts. For
outpatient drugs may sell at nominal the publication of the final rule. We these reasons, we proposed to interpret
price and provided for the exclusion of proposed to allow manufacturers the section 6001(b) of the DRA to require
such sales from best price. option to decide whether they will that manufacturers report only AMP to
recalculate and submit to CMS a base CMS on a monthly basis beginning
Requirements for Manufacturers
date AMP based on the new definition January 1, 2007. To implement this
(§ 447.510)
of AMP or submit their existing base provision, we proposed requiring in
On August 29, 2003, CMS finalized date AMP. We were giving § 447.510(d) that manufacturers must
two of the provisions in the 1995 manufacturers this option because we submit monthly AMP to CMS not later
proposed rule through a final rule with were aware that some manufacturers than 30 days after each month. We also
comment period (68 FR 51912). We may not have the data needed to proposed requiring manufacturers to
required manufacturers to retain records recalculate base date AMP or may find report quarterly AMP, best price, and
for data used to calculate AMP and best the administrative burden to be more customary prompt pay discounts on a
price for three years from when AMP costly than the savings gained. quarterly basis.
and best price are reported to CMS. We Under section 1927(b)(3)(A) of the Act We proposed that the monthly AMP
also required manufacturers to report and the terms of the national rebate will be calculated the same as the
revisions to AMP and best price for a agreement, manufacturers that sign the quarterly AMP, with the following
period not to exceed 12 quarters from national rebate agreement must supply exceptions. The time frame represented
the quarter in which the data are due. CMS with a list of all product data (for by the monthly AMP would be one
On January 6, 2004, we published an example, date entered market, drug calendar month instead of a calendar
interim final rule with comment period category of single source, innovator quarter and once reported, would not be
replacing the three-year recordkeeping multiple source, or noninnovator subject to revision later than 30 days
requirement with a ten-year requirement multiple source) and pricing after each month. Because we
on a temporary basis (69 FR 508 (Jan. 6, information for their covered outpatient recognized that industry pricing
2004)). We also required that drugs. In accordance with the statute, practices sometimes result in rebates or
manufacturers retain records beyond the we proposed requiring manufacturers to other price concessions being given by
ten-year period if the records were report AMP and best price to CMS not manufacturers to purchasers at the end
of a calendar quarter, if the monthly Section 1927(b)(3)(C) of the Act Existing regulations at
AMP were calculated simply using sales describes penalties for manufacturers § 447.332(a)(1)(i) state that an upper
in that month, these pricing practices that provide false information or fail to limit for a multiple source drug may be
might result in fluctuations between the provide timely information to CMS. In established if all of the formulations of
AMP for the first two months and the light of these requirements, we the drug approved by the FDA have
AMP for the third month in a calendar proposed to require that manufacturers been evaluated as therapeutically
quarter. In order to maximize the certify the pricing reports they submit to equivalent in the current edition of the
usefulness of the monthly AMP and CMS in accordance with § 447.510. We FDA’s publication, ‘‘Approved Drug
minimize volatility in the prices, we proposed to adopt the certification Products with Therapeutic Equivalence
proposed allowing manufacturers to rely requirements established by the Evaluations.’’
on estimates regarding the impact of Medicare Part B Program for ASP in the Section 1927(e)(4) of the Act, as
their end-of-quarter rebates or other interim final rule with comment period amended by OBRA 90, expanded the
price concessions and allocate these published on April 6, 2004. Each criteria for multiple source drugs subject
rebates or other price concessions in the manufacturer’s pricing reports would be to FUL reimbursement. Specifically, the
monthly AMPs reported to CMS certified by the manufacturer’s chief statute required CMS to establish an
throughout the quarter. We considered executive officer (CEO), chief financial upper payment limit for each multiple
applying this same methodology to officer (CFO), or an individual who has source drug when there are at least three
other cumulative rebates or other price delegated authority to sign for, and who therapeutically and pharmaceutically
concessions over longer periods of time, reports directly to, the manufacturer’s equivalent multiple source drugs,
but were not certain that such rebates or CEO or CFO. regardless of whether all additional
other price concessions could be We proposed that all product and formulations are rated as such. Effective
allocated with respect to monthly AMP pricing data, whether submitted on a January 1, 2007, the DRA changed the
calculations. We invited comments on quarterly or monthly basis, be submitted requirement such that a FUL must be
allowing the use of 12-month rolling to CMS in an electronic format. When established for each multiple source
average estimates of all lagged price the Medicaid Drug Rebate Program was drug for which the FDA has rated two
concessions for both the monthly and first implemented in 1991, electronic or more products as therapeutically
quarterly AMP. We also considered data transfer was one of three data equivalent.
allowing manufacturers to calculate the submission options as the use of such Currently, if all formulations of a
monthly AMP based on updates of the electronic media was not yet as multiple source drug are identified as A-
most recent three-month period (that is, commonplace as it is today. Due to the rated in the FDA’s publication,
a rolling three-month AMP). While this new monthly data reporting ‘‘Approved Drug Products with
requirements and additional quarterly Therapeutic Equivalence Evaluations,’’
methodology may minimize volatility in
data reporting requirements, we at least two formulations must be listed
the data, we believed it would be fairly
proposed to require manufacturers to in that publication for CMS to establish
complex for manufacturers to
use one uniform data transmission a FUL for that drug. If all formulations
operationalize. We encouraged
format to transmit and collect these of a multiple source drug are not A-
comments on the appropriate
data. We stated that CMS will issue rated, there must be at least three A-
methodology for calculating monthly
operational instructions to provide rated versions of the drug listed in
AMP.
additional guidance regarding the new ‘‘Approved Drug Products with
Section 6001(b)(2)(C) of the DRA Therapeutic Equivalence Evaluations’’
amended the confidentiality electronic data submission
requirements. for CMS to establish a FUL for the drug.
requirements at section 1927(b)(3)(D) of If a product meets the FDA criteria
the Act by adding an exception for AMP Aggregate Upper Limits of Payment described above, we confirm that at
disclosure through a Web site accessible (§ 447.512) least three suppliers (that is,
to the public. The statute does not manufacturers, wholesalers, re-
We proposed that the existing
specify that this exception only applies packagers, re-labelers or any other entity
§ 447.331 be revised and redesignated as
to monthly AMP; therefore, we also from which a drug can be purchased)
a new § 447.512. We proposed to revise
proposed to make the quarterly AMP list the drug in published compendia of
subsection (a) to clarify that the upper
publicly available. We noted that the cost information for drugs available for
limit for multiple source drugs applies
quarterly AMP would not necessarily be sale nationally (for example, Red Book,
in the aggregate. We also proposed to
identical to the monthly AMP due to the First DataBank, or Medi-Span). Then,
update several cross-references to
potential differences in AMP from one using these pricing compendia, we
provisions in subpart I.
timeframe to the next. select the lowest price (for example, the
Section 6001(d)(1) of the DRA Upper Limits for Multiple Source Drugs average wholesale price (AWP),
modified section 1927(b)(3)(A)(iii) of the (§ 447.514) wholesale acquisition cost (WAC), or
Act by adding a requirement that We proposed that the existing direct price) from among the A-rated
manufacturers report nominal prices for § 447.332 be revised in a new § 447.514. formulations of a particular drug and
calendar quarters beginning on or after apply the formula described in existing
January 1, 2007 to the Secretary. To A. Upper Limits for Multiple Source § 447.332 to determine the FUL for that
implement this provision, we proposed Drugs drug. FUL lists and changes to those
to require that manufacturers report Existing regulations at 42 CFR lists based on the methodology set forth
nominal price exception data to CMS on 447.331, 447.332 and 447.334 address in the statute and regulations are issued
a quarterly basis. We further proposed upper limits for payment of drugs periodically through Medicaid Program
that nominal price exception data shall covered under the Medicaid Program. issuances and are posted on the CMS
be reported as an aggregate dollar We proposed to redesignate existing Web site.

amount which includes all nominal regulations at §§ 447.331, 447.332, and By the term, ‘‘therapeutically
price sales to the entities listed in 447.334 as new regulations at equivalent,’’ we mean drugs that are
§ 447.508(a) of this subpart for the §§ 447.512, 447.514, and 447.516, identified as A-rated in the current
rebate period. respectively. edition of the FDA’s publication,
‘‘Approved Drug Products with or, in the case of liquids, the commonly the Congress intended that AMP should
Therapeutic Equivalence Evaluations’’ listed size. be restructured to collect it by 11-digit
(including supplements or successor Section 6001(a)(2) of the DRA added NDCs. We proposed to use the currently
publications). We proposed that the section 1927(e)(5) to the Act that reported 9-digit AMP for calculating the
FUL will be established, as per section changed the formula used to establish FUL. Changing the current method of
1927(e)(4) of the Act, only using an ‘‘A’’ the FUL for multiple source drugs. calculating the AMP would require
rated drug. However, we proposed to Effective January 1, 2007, the upper manufacturers to make significant
continue our current practice of limit for multiple source drugs shall be changes to their reporting systems and
applying the FUL to all drug established at 250 percent of the AMP have an unknown effect on the
formulations, including those drug (as computed without regard to calculation of rebates in the existing
versions not proven to be customary prompt pay discounts Medicaid Drug Rebate Program. In State
therapeutically equivalent, (for example, extended to wholesalers) for the least Medicaid payment systems that
B-rated drugs). We believe it is costly therapeutic equivalent. The consider a number of different factors in
appropriate to apply the FUL to B-rated currently reported AMP is based on the deriving payment rates, we also
drugs in order not to encourage nine-digit NDC and is specific only to believed it would offer minimal
pharmacies to substitute B-rated drugs the product code, combining all package advantages. Furthermore, we expected
to avoid the FUL in the case where B- sizes of the drug into the same that because the AMP is marked up 250
rated drugs would be excluded from the computation of AMP. We proposed to percent, the resultant reimbursement
FUL. Current regulation does not continue to use the AMP calculated at should be sufficient to reimburse the
prohibit or exclude B-rated drugs from the nine-digit NDC for the FUL pharmacy for the drug regardless of the
the FUL reimbursement. calculation. In accordance with the DRA package size the pharmacy purchased
We proposed revising the amendments, we will no longer take the and that to the extent it does have an
methodology we use to establish FULs individual 11-digit NDC, and thereby impact, it would encourage pharmacies
for multiple source drugs based on the the most commonly used package size to buy the most economical package
modifications made by the DRA. into consideration when computing the size.
Specifically, sections 6001(a)(3) and (4) FUL because the currently reported We specifically asked for comments
of the DRA changed the definition of AMP does not differentiate among on the alternative approach of using the
multiple source drug established in package sizes. 11-digit NDC to calculate the AMP. We
section 1927(k)(7)(A)(i) of the Act to We considered using the 11-digit NDC invited comments on the merits of using
mean, with respect to a rebate period, a to calculate the AMP, which would both approaches in calculating the AMP
covered outpatient drug for which there require manufacturers to report the for the FUL.
is at least one other drug product which AMP at the 11-digit NDC for each In computing the FUL, we proposed
is rated as therapeutically equivalent package size and that doing so would that the monthly AMP submitted by the
(under the FDA’s most recent offer other advantages to the program for manufacturer will be used. Using the
publication of ‘‘Approved Drug FULs and other purposes. An AMP at monthly AMP will provide for the
Products with Therapeutic Equivalence the 11-digit NDC would allow us to timeliest pricing data and allow
Evaluations’’). Also, section 6001(a)(1) compute a FUL based on the most revisions to the FUL list on a monthly
of the DRA changed the requirement for common package size as specified in basis. It will also permit us to update
a FUL to be established for each current regulations. We did not believe the FULs on a timely basis in
multiple source drug for which the FDA computing an AMP at the 11-digit NDC accordance with the provisions of
has rated three or more products would be significantly more difficult section 1927(f)(1)(B) of the Act, wherein
therapeutically and pharmaceutically than computing the AMP at the 9-digit the Secretary, after receiving
equivalent to a requirement for a FUL NDC as the data from each of the 11- notification that a therapeutically
when the FDA has established such a digit NDCs is combined into the current equivalent drug product is generally
rating for two or more products. AMP. The AMP at the 11-digit NDC available, shall determine within seven
Therefore, we proposed in would also align with State Medicaid days if that drug product should have a
§ 447.514(a)(1)(ii) that a FUL will be set drug payments that are based on the FUL.
when at least two suppliers (for package size. It would also allow us to Section 6001(c)(1) of the DRA
example, manufacturers, wholesalers, more closely examine manufacturer redefines AMP to exclude customary
re-packagers, or re-labelers) list the drug price calculations and allow the States prompt pay discounts extended to
in a nationally available pricing and the public to know the AMP for the wholesalers. Due to this change in the
compendia (for example, Red Book, drug for each package size. It would also computation, and the requirement that
First DataBank, or Medi-Span). allow 340B covered entities, which are monthly AMP first be reported as of
Existing regulations at § 447.332(b) entitled to buy drugs at a discount that January 1, 2007, we proposed that a FUL
specify that the agency’s payments for is in part based on calculations related update of drugs, using the new
multiple source drugs identified and to AMP, to know what the pricing is for methodology first be published when
listed must not exceed, in the aggregate, each package size, as 340B ceiling prices the revised AMPs are available and
payment levels determined by applying, are established per package size. processed.
for each drug entity, a reasonable Calculating the AMP at the 11-digit NDC We proposed to adopt additional
dispensing fee established by the level permits greater transparency, and criteria to ensure that the FUL will be
agency, plus an amount that is equal to may increase accuracy and reduce errors set at an adequate price to ensure that
150 percent of the published price for for the 340B covered entities where a drug is available for sale nationally as
the least costly therapeutic equivalent prices are established for a package-size presently provided in our regulations.
(using all available national pricing product rather than a per unit cost using When establishing a FUL, we proposed
compendia) that can be purchased by the product’s weighted average AMP. to disregard the AMP of an NDC which
pharmacies in quantities of 100 tablets However, the legislation did not has been terminated. The AMP of a
or capsules (or, if the drug is not change the level at which manufacturers terminated NDC will not be used to set
commonly available in quantities of are to report AMP, and we find no the FUL beginning with the first day of
100, the package size commonly listed) evidence in the legislative history that the month after the actual termination
date reported by the manufacturer. This ensure that a drug is available nationally crosswalk these codes to NDC numbers
refinement may not capture all outlier at the FUL price. We asked commenters because most HCPCS codes for single
AMPs that would offset the availability to please submit data supporting their source drugs include only one NDC in
of drugs at the FUL price. It is possible proposals when available. Upper Limits order to collect rebates.
that a product that is not discontinued for Drugs Furnished as Part of Services Section 1927(a)(7)(C) of the Act
may be available on a limited basis at (§ 447.516) requires that, beginning January 1, 2007,
a very low price. As a further safeguard We proposed that the existing States must provide for the submission
to ensure that a drug is nationally § 447.334 be redesignated as a new of claims data with respect to physician-
available at the FUL price and that a § 447.516. administered drugs (both single source
very low AMP is not used by us to set State Plan Requirements, Findings and and multiple source drugs) using NDC
a FUL that is lower than the AMP for Assurances (§ 447.518) numbers, unless the Secretary specifies
other therapeutically and that an alternative coding system can be
pharmaceutically equivalent multiple We proposed that the existing used. The Secretary did not propose to
source drugs, we proposed to set the § 447.333 be redesignated as a new specify an alternative coding system
FUL based on the lowest AMP that is § 447.518. because we believe that NDC numbers
not less than 30 percent of the next FFP: Conditions Relating to Physician- are well established in the medical
highest AMP for that drug. That is to Administered Drugs (§ 447.520) community and provide States the most
say, that the AMP of the lowest priced useful information to collect rebates.
therapeutically equivalent drug will be Prior to the DRA, many States did not
collect rebates on physician- Section 1927(a)(7)(B) of the Act
used to establish the FUL, except in requires the Secretary, by January 1,
cases where this AMP is more than 70 administered drugs when they were not
identified by NDC number because the 2007, to publish a list of the 20 multiple
percent below the second lowest AMP. source physician-administered drugs
In those cases, the second lowest AMP NDC number is necessary for States to
bill manufacturers for rebates. In its with the highest dollar volume
will be used in the FUL calculation. We dispensed under the Medicaid Program.
proposed to use this percentage report, ‘‘Medicaid Rebates for Physician
Administered Drugs,’’ (April 2004, OEI– We proposed that the list be developed
calculation as a benchmark to prevent by the Secretary using data from the
an outlier price from determining the 03–02–00660), the OIG reported that, by
2003, 24 States either required providers Medicaid Statistical Information System
FUL, but invited comments as to and published on the CMS Web site.
whether this percentage is an to bill using NDC numbers or identified
NDC numbers using a Healthcare Section 1927(a)(7)(B)(ii) of the Act
appropriate measure to use. We did (when read with other DRA
consider other options, such as 60 Common Procedure Coding System
(HCPCS)-to-NDC crosswalk for amendments) requires that, effective
percent below the next highest AMP so
physician-administered drugs in order January 1, 2008, in order for FFP to be
that at least drugs of two different
to collect rebates. Four of the 24 States available, States must provide for the
manufacturers would be in the FULs
were able to collect rebates for all submission of claims for physician-
group, but we were concerned that this
physician-administered drugs, both administered multiple source drugs
percentage was insufficient to encourage
single source and multiple source drugs using NDC numbers for those drugs
competition where the cost of a
(one State only collected these rebates with the highest dollar volume listed by
particular drug was dropping rapidly.
from targeted providers). Section 6002 the Secretary.
We also considered a test of a drug
priced 90 percent below the next lowest of the DRA added sections 1927(a)(7) We proposed, for the purpose of this
priced drug, in line with how we look and 1903(i)(10)(C) to the Act to require section, that the term ‘‘physician-
on nominal prices, as an indicator that that States collect rebates on certain administered drugs’’ be defined as
the manufacturer was offering this drug physician-administered drugs in order covered outpatient drugs under section
on a not-for-profit basis. However, we for FFP to be available for these drugs. 1927(k)(2) of the Act (many are also
noted that nominal price relates to best Section 1927(a)(7)(A) of the Act covered by Medicare Part B) that are
price for some sales and it is unlikely a requires that, effective January 1, 2006, typically furnished incident to a
manufacturer would sell all of its drugs in order for FFP to be available, States physician’s service. These drugs are
at this price. We welcomed suggestions must require the submission of usually injectable or intravenous drugs
about other means to address outliers utilization data for single source administered by a medical professional
and whether outliers should be physician-administered drugs using in a physician’s office or other
addressed at all. HCPCS codes or NDC numbers. (HCPCS outpatient clinical setting. Examples
We proposed an exception to the 30 codes are numeric and alpha-numeric include injectables: lupron acetate for
percent carve-out policy when the FUL codes assigned by CMS to every medical depot suspension (primarily used to
group only includes the innovator single or surgical supply, service, orthotic, treat prostate cancer), epoetin alpha
source drug and the first new generic in prosthetic and generic or brand name (injectable drug primarily used to treat
the market, including an authorized drug for the purpose of reporting cancer), anti-emetic drugs (injectable
generic. In this event, we would not healthcare transactions for claims drug primarily used to treat nausea
apply the 30-percent rule as we believe billing. Physician-administered drugs resulting from chemotherapy)
the DRA intends that a FUL be set when are assigned alpha-numeric HCPCS intravenous drugs primarily used to
new generic drugs become generally codes, and are commonly referred to as treat cancer (paclitaxel and docetaxel),
available so as to encourage greater J-codes. However, physician- infliximab primarily used to treat
utilization of a generic drug when the administered drugs are also coded using rheumatoid arthritis, and rituximab
price is set less than its brand name other letters of the alphabet. For this primarily used to treat non-Hodgkin’s
counterpart. reason, we referred to the coding lymphoma. We believed that some oral
We invited comments from the public system, HCPCS, as opposed to one set self-administered drugs (administered
on all issues set forth in this subpart. of alpha-numeric codes in our in an outpatient clinical setting), such as
We invited suggestions on how best to discussion of section 6002 oral anti-cancer drugs, oral anti-emetic
accomplish the goal of ensuring that the requirements.) If States collect HCPCS drugs should also be included in the
use of AMP in calculating the FUL will codes for single source drugs, they can designation of physician-administered
drugs consistent with Part B policy and of the major issues and our responses previous policies already established by
sections 1861(s)(2)(Q) and (T) of the Act. follow. the Agency, those policies will remain
Section 1927(a)(7)(D) of the Act in effect. Further, the DRA provided
General Comments
allows the Secretary to grant States specific effective dates for certain
extensions if they need additional time We received many comments provisions as noted in the preamble to
to implement or modify reporting expressing general support for the the proposed rule.
systems to comply with this section. We provisions of the proposed rule. One Comment: Many commenters asked
did not propose any criteria for commenter specifically indicated us to consider delaying implementation
reviewing these extension requests as support for Federal efforts that are of the final rule. Several commenters
we expected that most, if not all States designed to positively affect the suggested that we delay the overall
would be able to meet the statutory affordability of and access to effective date of this final rule at least
deadlines for collection of NDC prescription drugs and healthcare six months from the date of publication
numbers on claims. Most States are professionals. Other commenters in order to provide manufacturers with
already collecting rebates for single indicated support for CMS’ efforts to necessary time to revise their systems
source drugs that are provided in a clarify the definitions of significant and retrain personnel on the
physician’s office. For multiple source terms as well as the treatment of various requirements of this final rule. One
drugs, the States have nearly two years types of sales and prices in commenter noted that government
following enactment of the DRA before manufacturer calculations. pricing system vendors will need
Comment: Commenters asked CMS to between six months to one year after the
FFP would be denied for the 20
explain how we will reconcile the effective date of this final rule to code,
multiple source drugs specified by the
national rebate agreement with this final implement and test the required
Secretary as having the highest dollar
rule, which substantially changes a computer changes.
volume.
number of the definitions and Other commenters suggested a delay
We expected that States would requirements of the agreement. One of four quarters for the entire rule. One
require physicians to submit all claims commenter asked CMS to specify that it commenter suggested we delay
using NDC numbers, as using multiple will not incorporate into a revised finalizing the rule until more detailed
billing systems would be burdensome national rebate agreement any information regarding AMP and the
for physicians and States. This would definitions or requirements until such established FUL is made available to the
also advantage States because rebates provisions have been subject to notice- pharmacy industry; another commenter
would be collectible on all physician- and-comment rulemaking. suggested a delay of 90 days after the
administered drugs. Response: The national rebate release of the new FUL source file.
For States not currently billing agreement provides that manufacturers Another commenter suggested a 180-day
manufacturers for rebates on single should comply with the Medicaid rebate compliance period followed by a 90-day
source drugs, we believed that the statute, any amendments to that statute, testing period, during which time the
Medicare Part B crosswalk may be and regulations issued by the Secretary AMP may only be used for research and
helpful to crosswalk HCPCS codes to to implement the statute. We will verification purposes only.
NDC numbers. This crosswalk may be consider revising the national rebate A few commenters specifically asked
found on the CMS Web site at http:// agreement in accordance with that we delay the implementation of the
new.cms.hhs.gov/ applicable Federal statutes and requirement that manufacturers submit
McrPartBDrugAvgSalesPrice/ regulations. a base date AMP. Another commenter
02_aspfiles.asp. noted that the practical implication of
To implement the provisions set forth Effective Date treating inpatient and outpatient
in section 6002, we propose a new Comment: Many commenters asked hospital sales differently for AMP
§ 447.520. In § 447.520(a), we proposed CMS to clarify that the provisions of this purposes would mean that hospital
to require States to require that claims final rule will be applied prospectively. contracts for the purchase of
for physician-administered drugs be One commenter specifically asked for prescription drugs would need to be
submitted using codes that identify the clarification of the effective date of the renegotiated, which could necessitate a
drugs sufficiently to bill a manufacturer provision regarding the treatment of delay in the implementation of the AMP
for rebates in order for the State to Medicaid sales in AMP. Another rule for six months to a year.
receive FFP. In § 447.520(b), we commenter expressed concern that CMS Response: The DRA provides specific
proposed requiring States to require should have published the proposed timeframes for the implementation of
providers to submit claims using NDC rule by September 1, 2006 to provide many of the major provisions addressed
numbers. In § 447.520(c), we proposed adequate time for community in this final rule. Because the DRA was
allowing States that require additional pharmacies to prepare for the signed into law on February 8, 2006, we
time to comply with the requirements of implementation of the changes in the believe there was sufficient time for
this section to apply to the Secretary for Medicaid Program. affected parties to prepare for the
an extension. Response: In this final rule, we are implementation of these provisions. In
bringing together existing and new addition, CMS issued guidance to States
III. Analysis of and Responses to Public
regulatory requirements in one cohesive and manufacturers in December, 2006 to
Comments
subpart. Unless otherwise indicated, address many of the details pertaining
We received over 1,600 timely items these regulations are effective on to the drug provisions in the DRA.
of correspondence that addressed the October 1, 2007. However, this rule is Accordingly, we are not convinced that
issues in the proposed rule. We received not designed to delay the effective date there is a compelling reason to delay
comments from pharmacists and other with respect to statutory provisions, implementation of the provisions of this
health care providers, drug regulations or policies that are already final rule beyond the October 1, 2007,
manufacturers, membership in effect. Those existing requirements effective date.
organizations, law firms, PBMs, that remain unchanged in this final rule Comment: One commenter
consultants, State agencies, members of will continue in force. In addition, to recommended that CMS do more to
Congress, and individuals. A summary the extent that this rule addresses educate Medicare participating
providers, particularly pharmacies, Definitions (§ 447.502) sale. Another commenter requested that
about the changes in reimbursement CMS confirm that the proposed
Bundled Sale
addressed in this final rule. ‘‘bundled sale’’ definition applies to
Comment: One commenter supported sales of the same drug only where the
Response: We received hundreds of
the inclusion of bundled sales in the manufacturer provides free or
comments on the proposed rule from
determination of AMP. discounted goods contingent on a
individual pharmacy providers and Response: We appreciate the support
national pharmacy membership purchase requirement. The commenter
for this provision and have retained this stated that they can conceive of only
organizations. Therefore, we believe requirement in the final rule.
there is already a high level of one instance where sales of the same
Comment: One commenter said that drug properly should be considered
awareness about how the provisions of the proposed definition of what
this final rule will impact pharmacies. bundled—where the manufacturer
constitutes a bundled agreement is provides a discount or free drugs if the
In addition, we recognize the vital role confusing. For example, it could be
that States play in the State-Federal purchaser agrees to buy a certain
assumed that any type of amount of the same drug; for example,
Medicaid partnership by establishing comprehensive, multi-product portfolio
relationships with pharmacy providers. ‘‘buy nine, get one free’’ or ‘‘buy nine,
contract could fit within CMS’ proposed get the tenth at half price.’’ The
States process pharmacy claims, new definition. The commenter does commenter believes that such sales
maintain participating provider lists, not believe that this is CMS’ intent. The essentially represent volume discounts,
and provide a variety of information commenter asked us to provide and the discount properly should be
directly to pharmacies. Therefore, we examples of bundled discounts that apportioned across the drugs provided
continue to believe that States are in a meet the final definition. by the manufacturer in the bundled (or
better position to provide any education Response: We appreciate the contingent) arrangement. The
to pharmacies to the extent that States comment and are including an example commenter stated that the Medicaid
may opt to revise their payment rates. to provide some additional clarity. This rebate statute mandates such a result,
Comment: One commenter noted that example is for illustrative purposes only requiring ‘‘free goods that are contingent
if we had published the proposed rule as the complexity of the market place on any purchase requirement’’ and
earlier, it would have been easier for all prevents us from describing every volume discounts to be included in best
affected parties to meet the deadlines situation. price.
mandated in the DRA. The commenter Response: A contingent arrangement
Bundled Sale Example
asked that CMS extend the comment involving drugs with different NDC–9s
period for the proposed rule for an Products A and B are sold under a constitutes a bundled arrangement. A
additional 60 days. One commenter bundled arrangement and have a contingent arrangement involving drugs
expressed concern that our proposed combined bundled discount equal to that share the same NDC–9 may
rule did not contain enough discussion $200,000 on total undiscounted sales of constitute a bundled sale or volume
of the issue of bundled sales in $1 million. If Product A has discount. For these types of
§ 447.502 to provide reasonable notice undiscounted sales of $600,000 and arrangements, the aggregate value of all
and an opportunity for comment. The product B has undiscounted sales of the discounts must be allocated
commenter suggests that CMS provide $400,000, the manufacturer would proportionately to all drugs within the
some alternative mechanism or forum allocate 60 percent of the combined bundled or volume discount
for manufacturers and other interested bundled discount to Product A when arrangement.
parties to have more substantial and calculating AMP. Forty percent of the Comment: One commenter stated that
more specific communication with CMS combined bundled discount would be CMS should define ‘‘drugs of different
on this issue. allocated to Drug B. The effective unit types’’ as those with different 9-digit
price of each product would be NDC codes and clarify that it is the
One commenter urged CMS to issue
calculated by subtracting the discount aggregate value of all the bundled
an interim final rule with comment
allocated to each drug product discounts that must be allocated across
period instead of this final rule. The
($600,000 ¥ $120,000 = $480,000 for the drugs in the bundle.
commenter expressed confusion
Product A; $400,000 ¥ $80,000 = Response: We agree. The definition of
regarding the correct interpretation of a
$320,000 for Product B) and dividing bundled sale provides that drugs are
number of provisions in the proposed
the result by the number of units for considered to be the same drug when
rule. The commenter believes that an
each drug product in the bundled sale. they share a 9-digit NDC and are
interim final rule with comment period Comment: Several commenters considered to be drugs of different types
would foster even greater dialog requested that CMS explicitly clarify when their 9-digit NDCs are not the
between the pharmaceutical industry how bundled discounts that meet the same.
and CMS. definition should be allocated across Comment: A few commenters said
Response: We disagree with the products. that the proposed definition differs
commenters regarding the need for an Response: We appreciate this significantly from the definition of
additional comment period for the vast comment and have clarified the bundled sales provided in the Medicaid
majority of issues addressed in this final regulation at § 447.502 to specify how to rebate agreement and that it contains a
rule. However, as discussed below in allocate a discount. We have clarified number of vague and ambiguous terms.
greater detail, we have decided to that where multiple drugs are Response: The clarification of the
publish the AMP and FUL outlier discounted, the aggregate value of all bundled sales definition in this final
provision as a final rule with an the discounts in the bundled rule does not create a new definition or
extended comment period. This will arrangement should be proportionately impose new obligations that did not
allow for further public comment after allocated across all the drugs in the already exist under the Rebate
the clarified definition of AMP becomes bundle. Agreement. It has always been our
effective and it will give CMS an Comment: Several commenters said policy that AMP and best price must be
opportunity to further revise this that CMS should not include sales of the adjusted to reflect discounts offered in
provision. same drug in the definition of bundled bundled sale arrangements to those
entities included in the determination of purchased in order to get a discount on of the discount for the contingent and
AMP and best price. any drug in the bundle regardless of non-contingent drugs. The data used in
Comment: Several commenters said whether any drug is purchased at full the determination of bundled sales
that CMS does not provide any price. Additionally, a bundled sale arrangement should reflect and apply to
explanation for why it proposes to exists where the discounts available are the month or quarter being used in the
change the definition of bundled sale, greater than those which have been determination, for example, in a
describe the policy objectives the received had the drug products been situation where a manufacturer must
changes are intended to promote, or purchased separately and apart from the achieve a certain market share of the
provide sufficient specificity to give bundled arrangement. product in one quarter to achieve a
adequate notice and opportunity to Comment: Several commenters discount in the second quarter, CMS
comment. Should CMS wish to pursue recommended that CMS apply the would treat the contingent discount as
this new definition, the commenters bundled sale definition only in a bundle. The quarter for the prior
requested that CMS provide additional situations where a manufacturer cannot purchase and current purchase would
information regarding the new determine the price of a specific item be used in the determination of the
definition and another opportunity for and clarify how discounts involved in a bundled sale arrangement.
comment before the definition is bundled sale are to be allocated Comment: One commenter said that
finalized. In the interim, CMS should proportionately when such allocation is discounts for bundled sales should be
clarify that manufacturers may continue needed. used only if the bundled sales are
to rely on the definition included in the Response: We disagree. To assure the available to a majority of retail
national rebate agreement. consistent application of this policy by pharmacies, and the manufacturer
Response: We believe that it is all manufacturers, we believe that the should not include bundled sales
necessary to clarify the definition of a definition, as clarified in this final rule available to institutional long-term care
bundled sale because of questions we at § 447.502, is needed to clearly and or mail order pharmacies.
have received from manufacturers. Our uniformly specify what constitutes a Response: We do not agree. AMP is
policy objective is unchanged from that bundled sale and how discounts must based on the ‘‘average’’ price paid to a
set forth in the rebate agreement be allocated across products in the manufacturer by wholesalers. It does not
inasmuch as manufacturers are required bundle. take into account prices available to a
to report the effect of these and other Comment: Another commenter certain percentage of pharmacies. As
arrangements that affect price on AMP expressed disappointment with the lack discussed previously, the calculation of
and best price. The proposed rule was of meaningful detail in the proposed AMP is based on the average price paid
designed to clarify the definition in the rule and noted that it essentially mirrors to the manufacturer by wholesalers for
rebate agreement and program guidance the bundling proposal CMS articulated drugs distributed to the retail pharmacy
and to specify that AMP and best price last year for ASP in the 2007 Medicare class of trade. It is calculated to include
must be adjusted to reflect discounts, Physician Fee Schedule Proposed Rule. the sale, as well as the discount, rebate,
rebates or other price concessions for all Response: We have provided further and other price concession associated
drugs in a bundled or contingent sale details on the application of this policy with that sale, unless the discount,
arrangement. in this final rule. We believe a rebate, or other price concession is
Comment: One commenter said that consistent methodology for addressing excluded by statute or regulation.
there are important implications that bundled sales in the Medicaid and Accordingly, in a bundled sale, the
CMS should evaluate regarding the Medicare Part B programs will reduce discount should be allocated to the
proposed new definition of ‘‘bundled the burden and likelihood of errors for drugs sold in the bundled sale
sale’’ given that it differs significantly manufacturers calculating and reporting arrangement, regardless of whether the
from that term’s definition in the Medicaid rebate prices and ASP. discount is only available to certain
Medicaid Drug Rebate Agreement. The Comment: One commenter requested retail pharmacies. We do not include
commenter believes that the new that CMS clarify that the new definition institutional long-term care pharmacies
proposed definition would not improve does not apply for periods prior to the in the retail pharmacy class of trade,
the accuracy of rebate calculations. effective date of this final rule. while we do include mail order
Since there is no compelling policy Response: The provisions of this final pharmacies.
rationale for the new proposed rule do not create a new definition for Comment: One commenter suggested
definition and there is no demonstrated bundled sales, but merely clarify the that the language should be clarified to
problem with the current definition, the existing definition. remove room for interpretive error
proposed change does not appear Comment: One commenter said that a regarding the intent. The phrase
necessary and serves no purpose. figure for a prior period may be used as ‘‘allocated proportionately to the dollar
Response: We believe that this the basis of performance for the current value of the units’’ should be slightly
clarification will enable manufacturers period. For example, if the market share modified to state ‘‘allocated
to better understand what constitutes a during the previous quarter was 20 proportionately to the total dollar value
bundled sale and how discounts offered percent, and an increase of 2 percent to of the units’’ and the word ‘‘should’’ in
with bundled sales must be allocated 22 percent will gain the purchaser a the last sentence should be amended to
when reporting the AMP and best prices discount of 5 percent, the commenter ‘‘shall.’’
for drugs in the bundle. requested that CMS clarify whether the Response: We agree and have revised
Comment: One commenter requested 5 percent discount should be reallocated the regulation text in § 447.502 to reflect
that CMS clarify how discounts should to the sales in the prior quarter. The the recommended changes.
be allocated when a bundled sale commenter asserts that the five percent Comment: One commenter stated that
arrangement includes both contingent discount need not be reallocated to the drugs placed on a formulary without a
and non-contingent discounts and prior period. purchase requirement do not represent
rebates. Response: We have clarified in a discount on another product and
Response: We consider all contingent § 447.502 that the bundled sale applies should not be the basis for considering
and non-contingent drugs to be within to all drugs for all quarters including a sale to be bundled. The commenter
the bundled sale if any drug must be prior purchases used in the calculation further stated that the requirement that
the value of the discounts be discount. In such an arrangement, the supplies) particularly in the nursing
proportionately allocated across all of aggregate or total value of all the home setting. Several commenters said
the drugs in the bundle could open the discounts must be allocated to all the that the definition of dispensing fee
door to manipulation of prices reported drugs in the bundle. For example, if should incorporate the true cost of a
for bundled products. In addition, there Drug A is discounted to a purchaser if pharmacist’s time spent and other real
is a large administrative burden for the purchaser achieves a set market costs such as rent and utilities. One
manufacturers to implement a system share of Drug B, Drugs A and B are part commenter agreed that the definition
for aggregating and allocating discounts of a bundled arrangement. The total should be sufficiently broad to
for bundled sales. discount for Drug A and any discount accommodate any future costs that
Response: We believe that the on Drug B must be proportionately pharmacies might incur in dispensing
clarification of a bundled sale in this allocated to both drugs. prescriptions to Medicaid beneficiaries,
final rule at § 447.502 will ensure the Comment: One commenter expressed and supported the terminology
accuracy of the AMP and best price concern that CMS broadens the ‘‘includes’’ and, ‘‘are not limited to’’ in
calculation and reduce the opportunity definition of ‘‘bundled sale’’ in the the final definition. One commenter
for improper manipulation. A bundled proposed rule to potentially include would add ‘‘professional’’ fees to the
sale exists where the rebate, discount, or routine multiple drug sales to entities definition. One commenter notes that
price concession is ‘‘conditioned’’ upon such as wholesalers and GPOs. The the proposed definition refers to ‘‘point
additional purchase requirements. A commenter does not believe that CMS of sale’’ which seems to preclude
bundled sale also exists where the intended to require that manufacturers dispensing to Medicaid populations in
discounts under the arrangement are allocate on an item-by-item basis the nursing homes, home and community
greater than those which have been discounts on the price of the drug based settings, etc. A more appropriate
received had the drug products been product had it been sold separately. The replacement would be ‘‘point of
purchased separately and apart from the commenter recommends that CMS service.’’ Several commenters stated that
bundled arrangement. The requirement should not broaden the definition of the the CMS definition of dispensing fee
to allocate discounts for bundled sales term ‘‘bundled sale.’’ specifies that pharmacy costs do not
is not new for manufacturers that have Response: We disagree. A bundled include ‘‘administrative cost incurred
been participating in the Medicaid drug sale occurs whenever a discount is by the States in the operation of the
rebate program. It has always been our given for the purchase of a group of covered outpatient drug benefit
policy that AMP and best price must be drugs, contingent on the sale of another including systems costs for interfacing
adjusted to reflect discounts offered as drug, a performance requirement such with pharmacies,’’ and that this
part of bundled sales. Therefore, we do as market share arrangements or other disclaimer is unnecessary and confusing
not believe that this final rule places purchases. Additionally, a bundled sale as it is obvious that States’ costs are not
new obligations or additional also exists where the discounts are those of pharmacy providers.
administrative burdens on greater than those which would have Response: We provided a definition in
manufacturers. been received if the drugs were order to assist States in their evaluation
Comment: A few commenters asked purchased separately and outside the of factors used in establishing a
CMS to clarify that manufacturers may bundled arrangement. reasonable dispensing fee. We did not
continue to rely on the definition of Comment: One commenter requested intend to mandate a specific formula or
bundled sale in the national rebate that CMS confirm the information methodology which States must use
agreement. Several commenters stated provided in the Medicaid Drug Rebate when calculating those fees. Therefore,
that the definition that is set forth in the Operational Training Guide that we believe that the definition of
national rebate agreement should be bundled sale arrangements are limited dispensing fee is generally sufficient to
retained. to arrangements that involve covered capture the activities involved with the
Response: The final regulation does outpatient drugs. dispensing of a drug. However, we
not change the definition of bundled Response: We have clarified in the concur with the commenter about the
sales at § 447.502 but clarifies the regulation text at § 447.502 that a need to recognize different service
existing definition. bundled sale arrangement involves an settings. Therefore, in the final rule, we
Comment: A few commenters asked arrangement for the sale of covered are revising the definition of dispensing
for additional guidance on how to treat outpatient drugs or some other purchase fee by adding ‘‘or service’’ after ‘‘point
a discount when its receipt is requirement. of sale’’ in § 447.502. States may also
conditioned on utilization levels for require the prescriptions be filled in
Dispensing Fee
multiple drug products. specified quantities or to have other
Response: We have clarified in this Comment: Some commenters asserted measures in place in order to avoid
final rule at § 447.502 that aggregate that the proposed definition of paying additional dispensing fees and
value of all discounts are to be allocated dispensing fee inferred a cost-based encourage efficient filling schedules.
across all the products within the methodology not reflective of economies Comment: Many commenters
bundled arrangement. and competition in the marketplace. expressed concern that CMS did not
Comment: One commenter stated that One commenter stated that the proposed propose that States be required to pay a
the concept of bundled sale does not definition of dispensing fee minimum dispensing fee to ensure that
seem to apply to market share inadvertently infers that a pharmacy is pharmacies’ operating costs are covered.
arrangements and asked CMS to clarify entitled to a dispensing fee every time A few commenters stated that CMS
what discounts on market based a covered outpatient drug is dispensed. should require States to make a specific
contracts are considered bundled sales The commenter goes on to say that such finding that their dispensing fee is
for which discounts must be allocated. a definition does not assure efficient adequate to cover the cost of dispensing
Response: Discounts that are filling schedules for maintenance drugs, prescriptions to the Medicaid
contingent on performance and encourages pharmacies to split population. Other commenters
requirements, such as the achievement prescribers’ orders to receive more suggested that we include a
of market share may result in either a reimbursement, (for example, split a 30- comprehensive and accurate definition
bundled arrangement or a volume day supply prescription into two 15-day of dispensing fee in the final rule, issue
formal guidance to States, and require fees for drugs reimbursed with FUL compliance with the applicable statutes
States to conduct annual surveys or pricing, but admitted that until the State and regulations.
studies on the pharmacy provider’s cost has experience with FUL prices, the Comment: Several commenters stated
to dispense a prescription. One State will not know if this dispensing that CMS should specifically instruct
commenter stated that the pharmacy fee compensates pharmacies States to establish higher reimbursement
dispensing fee should be increased appropriately. for specialty pharmacies, as Medicare
based on the Federal Cost of Living Response: Dispensing fees must be Part B has done. Citing section 303(e)(1)
Adjustment. One commenter stated that approved as part of the Medicaid State of the MMA, which created a furnishing
CMS should advise States if we intend plan. We encourage States to set fee for certain blood clotting factors,
that some profit to the pharmacy be reasonable dispensing fees to some commenters felt that a separate
included in the dispensing fee. One appropriately pay pharmacies for their furnishing fee should be established for
commenter believed that the proposed costs. We will review State requests to Medicaid providers who dispense
rule should remain silent on the criteria change dispensing fees as to their prescriptions that may require more
for calculating dispensing fees. reasonableness. States need to describe time or resources for handling, storing,
Response: We do not agree that CMS in their State plan the methodology they or delivery.
should establish or mandate specific use to establish drug payment rates Response: We do not agree. CMS
criteria for States to use when setting (which include dispensing fees) and believes its proposal/provision provides
their dispensing fees. We proposed to demonstrate that their dispensing fees a definition which is reasonable. While
define the term dispensing fee in are reasonable. We will evaluate CMS appreciates the comment, the
regulation to assist States in their requests to change reimbursement for MMA provision is not applicable to
evaluation of factors in establishing a ingredient costs and dispensing fees Medicaid.
reasonable dispensing fee to providers, separately but we encourage States to Comment: Some commenters stated
and we continue to believe that we review their dispensing fees when they that a formula for prescription drug
should not mandate a specific formula consider changes to reimbursement for reimbursement should include a
or methodology which the States must ingredient costs. dispensing and/or education fee as an
use to determine the dispensing fee. We Comment: Many commenters stated actual part of the reimbursement.
believe that the flexibility provided that dispensing fees must cover costs to Another commenter stated that a
States is sufficient to allow them to set safely and effectively dispense a percentage standard or a flat fee should
reasonable dispensing fees. We have not prescription. Many commenters be added to prescription reimbursement
separately identified profit as a communicated the findings of surveys to achieve an adequate reimbursement
component of the dispensing fee as we such as the Grant Thornton LLP to pharmacy providers.
believe the components of the National Study to Determine the Cost of Response: We disagree. The
dispensing fee we have already Dispensing Prescriptions in Community dispensing fee is determined separately
identified include a reasonable profit. Retail Pharmacies, prepared for the from the cost of the drug ingredient and
We also do not agree that we should Coalition for Community Pharmacy covers the cost of dispensing the drug as
remain silent on the criteria for Action (CCPA), published in January defined in this regulation. As discussed
calculating dispensing fees as we 2007, and accessible at http:// in the proposed rule, dispensing fees are
believe it is important that pharmacies www.aphanet.org/AM/Template.cfm? related to the transfer or possession of
be reasonably compensated for the Section=Home&CONTENTID=7641& the drug to the beneficiary. If dispensing
services they provide in dispensing a TEMPLATE=/CM/ContentDisplay.cfm fees were bundled with ingredient cost,
prescription. that reported the average national cost it would be difficult for CMS or States
Comment: A few commenters said to dispense a prescription to be $10.50. to determine whether the dispensing
that allowing the States to determine Response: We agree that States should fees, as discussed in this regulation, are
their dispensing fees, without Federal set reasonable dispensing fees; however, reasonable.
guidelines or mandates, would permit we disagree that they should be required Comment: Many commenters
States with financial problems the to use any specific methodology expressed concern that current
latitude to arbitrarily cut dispensing including the Grant Thornton study to dispensing fees, in light of the DRA
fees. Another commenter suggested that do so. States may continue to use other provisions that change ingredient
CMS expeditiously approve State plan sources to set dispensing fees, such as reimbursement for FUL drugs to a
amendments (SPAs) that would increase their own surveys. They may also look methodology based on AMP, will not
pharmacies’ professional fees so that at dispensing fees paid to pharmacies by cover the pharmacy provider’s cost of
they are closer to the actual cost of other payers or the amount of dispensing medications to the Medicaid
dispensing and provide a reasonable dispensing fees paid in neighboring population and that, as a result, the
return. The commenter also proposed States. CMS intends to permit States to dispensing fee should be increased for
that CMS disapprove SPAs that decrease retain the authority to set reasonable generic drugs. One commenter asserted
reimbursement paid to pharmacies for dispensing fees and exercise flexibility that retail pharmacies that serve large
the ingredient cost component unless in setting their dispensing fees. numbers of Medicaid beneficiaries may
they increase the dispensing fee. One Comment: Several commenters be particularly hard hit. One commenter
commenter suggested that the language pointed out that the Congressional stated that the proposed rule suggested
of the proposed regulation should be Budget Office’s (CBO) estimates of that the States examine the market
changed to clarify that States will retain savings to the Medicaid Program based realities and adjust their dispensing fee
the authority to set reimbursement rates on the provisions of the DRA, assumed to compensate pharmacies, and while
and dispensing fees for single source that States will raise dispensing fees to this was an important correction to the
drugs. Several commenters stated that it mitigate the effects of the revised reimbursement system, it did not solve
is inappropriate for CMS to require payment limit on pharmacies. the underlying problem presented by an
States to increase dispensing fees to Response: CMS will review any State unreasonable system for calculating the
compensate for decreased plan amendments or revisions to drug FUL.
reimbursement. One commenter noted payment rates, including any revisions Response: We believe that States are
that a State decided to raise dispensing to the dispensing fees, to assure in the best position to identify and
address what is a reasonable dispensing ANDA. To clarify the distinction is dispensed. This is also the labeler
fee and we encourage them to evaluate between multiple source drugs responsible for paying rebates.
and set such dispensing fees. Since the approved under an ANDA and multiple Comment: One commenter suggested
dispensing fee is meant to reflect the source drugs approved under an NDA, that ‘‘manufacturer’’ should include an
cost of dispensing a drug, it should not we are adding a definition of entity that does not possess legal title to
be affected by the determination of noninnovator multiple source drug in the NDC but that markets a drug through
ingredient cost. As we have said this final rule. Noninnovator multiple a private labeling arrangement.
elsewhere in this regulation, we believe source drugs are defined as multiple Response: This final rule incorporates
the system for calculating the FUL will source drugs marketed under an ANDA the definition in the proposed rule with
permit pharmacies to be reasonably or an abbreviated antibiotic drug respect to drugs subject to private
compensated for drugs they dispense to application. labeling arrangements, and provides
Medicaid beneficiaries. In response to the comments that, with respect to drugs, the term
Estimated Acquisition Cost regarding drugs that entered the market ‘‘manufacturer’’ will also include the
prior to 1962, we believe these drugs are entity that does not possess legal title to
Comment: One commenter suggested not classified as innovator multiple the NDC.
that CMS revise the definition of source drugs unless they are marketed
estimated acquisition cost (EAC) by Multiple Source Drug
under an NDA. Further, we recognize
adding at the end, ‘‘within the previous the need to classify drugs that entered Comment: One commenter suggested
twelve months as provided to State the market prior to 1962 that are not that CMS revise the definition of
Medicaid agencies by the Centers for marketed under an NDA. Therefore, we multiple source drug in two ways. First,
Medicare & Medicaid Services.’’ This are further defining noninnovator the commenter asked us to consider the
would provide States with more specific multiple source drugs as drugs that situation where, at the end of the life
guidance and a source from which to entered the market prior to 1962 that cycle of a particular drug product, the
draw the information regarding the were not originally marketed under an only covered outpatient drug remaining
package size of drug most frequently on the market in the U.S. happens to be
original NDA.
purchased by providers.
In response to comments regarding a version of the drug that was originally
Response: The DRA did not modify
drugs approved under a BLA, we approved by the FDA under an ANDA.
the definition of EAC and we have not
made any modifications in this believe the statutory definition of Second, the commenter asked us to
regulation. Additionally, States covered outpatient drug in section 1927 include products that came to market
currently report all utilization of the Act is sufficient to address these before 1962 and remain commercially
information to CMS by package size; concerns without further revision to the available today.
however, we do not sort by most definition of innovator multiple source Response: Multiple source drugs that
frequently dispensed or utilized package drug. are marketed under an ANDA are
size. This information is posted on our considered noninnovator multiple
Manufacturer
Web site at http://www.cms.hhs.gov/ source drugs. We have added a
MedicaidDrugRebateProgram/SDUD/ Comment: One commenter definition of noninnovator multiple
list.asp. recommended that the definition of source drugs to this final rule, which we
manufacturer be narrowed such that believe addresses this concern as well as
Innovator Multiple Source Drug entities that repackage drugs simply for the concern regarding products that
Comment: One commenter noted that distribution to retail pharmacies not be came to market before 1962.
our definition of innovator multiple considered manufacturers. The Comment: One commenter asked us
source drug does not address the commenter noted that these retail to consider adding products approved
situation where, at the end of the life pharmacy service repackagers prepare under BLAs to the definition of multiple
cycle of a particular drug product, the ‘‘unit of use’’ quantities in a highly source drug.
only covered outpatient drug remaining efficient manner, increasing the Response: The definition of covered
on the market in the U.S. happens to be efficiencies of prescription dispensing outpatient drug in section 1927 of the
a version of the product that was for retail pharmacies, and they should Act includes biological products, other
originally approved by the FDA under not be responsible for signing rebate than vaccines, that are licensed under
an abbreviated NDA (ANDA). The agreements with the Secretary of HHS or section 351 of the PHS Act. Drugs that
commenter also noted that we did not paying rebates to Medicaid. are approved under this statutory
address products that came to market Response: The statutory definition of provision include products approved
before 1962 and remain commercially manufacturer clearly includes such under BLAs.
available today. The commenter repackagers, so we are not excluding Comment: A few commenters asked
suggested that CMS revise the definition them from the definition of us to consider revising or creating
of innovator multiple source drugs to manufacturer in this final rule. separate definitions for multiple source
address these situations. Other Comment: One commenter asked drugs. One component of the definition
commenters requested that we revise CMS to clarify the meaning of ‘‘legal should define this term with respect to
the definition of innovator multiple title’’ in the definition of manufacturer. the establishment of the FUL since the
source drug to include those drugs Specifically, if a product is sold from FUL will be applied on a particular date
approved under a biological license one manufacturer to another, are the of service on a pharmacy claim, while
application (BLA). manufacturers required to calculate data the other component would address this
Response: By statute, an innovator based on both labeler codes? term with respect to the payment of
multiple source drug is a drug that was Response: Except as noted in the rebates. One of the commenters
originally marketed under an original regulatory provisions pertaining to recommended maintaining the current
NDA approved by the FDA. We do not authorized generics, we would consider definition of multiple source drug listed
believe that it would be consistent with the manufacturer holding legal title to at 42 CFR § 447.301 with a note
the statute to modify the definition to the drug to be the labeler whose NDC specifying that FULs are placed on
include drugs marketed under an appears on the label at the time the drug multiple source drugs complying with
the requirements in §§ 447.512 and Rebate Period source drug, and have revised the
447.514. Comment: One commenter urged definition in § 447.502 accordingly.
Response: We disagree with the CMS to redefine the rebate period as a However, we believe the statutory
commenters about the need to revise the monthly period rather than a quarterly definition of covered outpatient drug in
definition of multiple source drugs in period. The commenter cited the new section 1927 of the Act is sufficient to
order to address the application of that requirement that AMP be reported address the remainder of these concerns
term in the context of the FULs. The monthly as support for this change, in without further revision to the
DRA amended the definition to require addition to the observation that definition of single source drug.
that two or more drug products be rated Congress did not explicitly prohibit Terms Not Defined in the Proposed Rule
as therapeutically equivalent, such a change in the provisions of the
Comment: A few commenters
pharmaceutically equivalent, or DRA.
recommended that CMS include in this
bioequivalent. The DRA also requires Another commenter indicated support
final rule a definition of covered
CMS to calculate a FUL for each drug for maintaining a quarterly rebate
outpatient drug that addresses both
that qualifies as a multiple source drug. period. The commenter noted that in
over-the-counter (OTC) products and
We believe the regulatory provisions at addition to the lack of legislative intent
prescription drug products. The
§ 447.514 are sufficient to address the to change the rebate period, establishing
commenter also noted that the statutory
application of the FULs to multiple a different or more frequent time period
definition of covered outpatient drug
source drugs. would place unnecessary burdens on
incorporates grandfathered products
changing drug manufacturers’
Comment: One commenter supported and drugs still undergoing the Drug
government reporting systems without
the revised definition of multiple source Efficacy Study Implementation (DESI)
additional public benefit.
drug, which requires only one other review process.
Response: We don’t see a need to
covered outpatient drug to be rated as Response: We believe the statutory
redefine the rebate period at this time,
therapeutically equivalent, definitions of covered outpatient drug
so we are maintaining a quarterly rebate
pharmaceutically equivalent, and and nonprescription drug in section
period.
bioequivalent. 1927(k) of the Act, as well as the
Response: We appreciate the support Single Source Drug definition of noninnovator multiple
for this definition and agree because the Comment: A few commenters source drug in this final rule, are
FUL will apply to more drugs. expressed concern with our definition sufficient to address the concerns raised
of single source drug. The commenters by the commenters. We do not believe
National Drug Code (NDC) noted that certain FDA regulations there would be an additional benefit to
require biologic products to be approved incorporating a definition of covered
Comment: A few commenters asked outpatient drug in this final rule.
for clarification of the relationship under a BLA under section 351 of the
PHS Act. The proposed definition of Comment: One commenter asked us
between the 10-digit NDC maintained to define the term NDA. The commenter
by the FDA and the 11-digit NDC single source drug excludes these
products. The commenters suggested we states that the term is not defined in the
referenced in the proposed rule. One of Medicaid Rebate statute, the national
these commenters suggested that we revise the definition to include these
products as follows: ‘‘a covered rebate agreement, or the FFDCA.
define NDC as ‘‘the segmented, 10-digit Another commenter asked us to define
numerical code maintained by the FDA outpatient drug that is produced or
distributed under an original NDA or the term ‘‘original NDA.’’
that indicates the labeler, product and Response: The FDA has extensive
package size, and that for commercial BLA approved by the FDA, including a
drug product marketed by any cross- information about the NDA process on
and technical reasons, must be its Web site at http://www.fda.gov/cder/
converted to an unsegmented 11-digit licensed producers or distributors
operating under the NDA or BLA.’’ regulatory/applications/nda.htm. We do
number by inserting a place-holding not see the need to add a definition of
Another commenter noted that our
zero.’’ The commenter also noted that NDA in this final rule. Further, the FDA
definition does not address the situation
the FDA recently published a proposed does not make a distinction between an
where, at the end of the life cycle of a
rule which contemplates changes to the NDA and an original NDA; therefore, we
particular drug product, the only
NDC system maintained by the FDA and view these terms as having the same
covered outpatient drug remaining on
recommended that CMS consult with meaning.
the market in the U.S. happens to be a
FDA prior to finalizing this rule so that, Comment: One commenter asked
version of the product that was
to the extent possible, the agencies can CMS to specify that the ‘‘United States’’
originally approved by the FDA under
determine how best to harmonize the means the 50 States and the District of
an ANDA. The commenter also noted
definition of NDC. Other commenters Columbia.
that we did not address products that
expressed support for our proposed came to market before 1962 and remain Response: It has been our
definition of NDC, particularly as it commercially available today. The longstanding policy to define States as
pertains to 11-digits vs. 9-digits. commenter suggested CMS revise the the 50 States and the District of
Response: We are retaining the use of definition of single source drugs to Columbia; this is the definition we
the 11-digit NDC in the Medicaid Drug address these situations. adopted in the national rebate
Rebate Program. Because we have used Response: As noted above, we have agreement. Therefore, we concur with
the 11-digit code since the start of the added a definition of noninnovator the commenter and have added a
Medicaid Drug Rebate Program, we do multiple source drug to this final rule in definition of States as the 50 States and
not believe that it is necessary to clarify order to clarify the distinction between the District of Columbia.
this further in the regulation. If the FDA drugs approved under an NDA and Determination of AMP (§ 447.504)
makes changes to the NDC number, at drugs approved under an ANDA. We
some point in the future, we will concur with the commenters about the Definition of Net Sales
determine the effect of this change on need to address products approved Comment: Several commenters
the program and respond accordingly. under a BLA in the definition of single requested that CMS clarify that the term
‘‘revenue’’ in the ‘‘net sales’’ definition labeling arrangements) possesses legal acquire prescription drugs and prevent
refers only to sales dollars associated title to the NDC for the covered confusion and burdensome
with a transaction and not revenue outpatient drug. We do not believe that administrative and recordkeeping
recognized for a transaction for financial further definition is necessary at this requirements for drug manufacturers,
accounting purposes. This time. health plans, wholesalers, and
interpretation is consistent with the pharmacies that would result from use
Private Labeling Arrangements
position CMS already has taken in the of inconsistent definitions.
context of ASP reporting. Another Comment: One commenter requested Response: These statutory
commenter believes that it is that CMS clarify whether sales under requirements applicable to the Medicaid
appropriate to define net sales as a private labeling agreements are or are drug rebate program are different from
measure of actual sales made regardless not included in AMP. those applicable to Part D. We believe
of the financial accounting treatment of Response: We have clarified that sales that the definition of retail pharmacy
the transaction. to another manufacturer which acts as a class of trade included in this rule at
Response: Net sales should be wholesaler and does not repackage/ § 447.504(e) is defined for the purpose
calculated as gross sales less cash relabel under the purchaser’s NDC of the Medicaid Drug Rebate Program
discounts allowed and other price including private labeling agreements consistent with our interpretation of the
reductions (other than the rebates or are included in AMP. applicable statutory requirements.
price reductions excluded by the statute Comment: One commenter said that
Definition of Retail Pharmacy Class of
or regulations) which reduce the the inclusion of ‘‘other outlets’’ provides
Trade
amount received by the manufacturer. for a number of entities that are
We have defined AMP to center on the Comment: Some commenters typically not considered retail
concept of a transaction, such that any requested that CMS define the term pharmacies. For example, outpatient
given transaction includes both the ‘‘general public’’ used in the proposed clinics are outlets that purchase drugs
‘‘sale’’ and any discounts, rebates, or definition of retail pharmacy class of and provide these drugs to the general
other price concessions associated with trade. public; however, they are not retail
Response: We appreciate the pharmacies. The commenter further
that sale. In certain instances, the statute
comment but do not believe that further stated that it seems that the calculation
or regulations specifically exclude from
definition is necessary at this time. We of AMP would have to include these
the calculation of AMP either certain
remind manufacturers that in the entities since they are not expressly
portions of a transaction or entire
absence of specific guidance, they may excluded in subsequent paragraphs of
transactions with certain entities.
make reasonable assumptions. the proposed rule.
Absent such specific exclusions, we Comment: A commenter said that
believe that manufacturers should Response: We believe that the
retail pharmacy class of trade is not inclusion of ‘‘other outlets’’ allows for
calculate AMP by matching sales with universally defined. Variations may
their associated price concessions. In the inclusion of sales for those entities,
exist in the marketplace among for example physician offices and
the absence of specific guidance, a manufacturers as to the class of trade to
manufacturer may make reasonable outpatient clinics, that purchase drugs
which PBMs and mail order pharmacies from the manufacturer and provide
assumptions in its calculations, belong. One commenter requested that
consistent with the general them to the general public.
CMS reconsider the definition of retail Comment: A commenter stated that
requirements and the intent of the Act, pharmacy which will be used in the
Federal regulations, and its customary the definition of retail pharmacy class of
calculation of AMP. Several trade should not use general and
business practices. commenters requested that CMS define
Comment: One commenter expressed undefined descriptions such as
the retail pharmacy class of trade as ‘‘independent’’ or ‘‘mail order’’
support for the definition of net sales
defined in the Prescription Drug pharmacy, or ‘‘other outlet.’’ The
because it addresses quarterly gross
Marketing Act (PDMA) and FDA definition should be amended to mean
sales revenue less discounts and price
regulations. any entity in the United States that is
reductions which reduce the amount Response: We have revised the
received by the manufacturer. licensed as a pharmacy which provides
definition of retail pharmacy class of drugs to the general public.
Response: We appreciate the support
trade in § 447.504(e) to mean any Response: We disagree. We believe
for this provision and have retained this
independent pharmacy, chain that a narrow definition of retail
requirement in this final rule at
pharmacy, mail order pharmacy, or pharmacy class of trade which would
§ 447.504(d).
other outlet that purchases drugs from a exclude independent and mail order
Definition of Nursing Home Pharmacies manufacturer, wholesaler, distributor, or pharmacies does not encompass the
Comment: One commenter stated that other licensed entity and subsequently universe of entities which purchase
CMS should unambiguously define sells or provides the drugs to the general drugs from manufacturers and provide
nursing home pharmacies. public. them to the general public.
Response: We do not believe that it is Comment: Several commenters noted
that the proposed definition is different Wholesaler
necessary to define these entities in the
final rule. We remind manufacturers from the definition of ‘‘retail pharmacy’’ Comment: Several commenters said
that in the absence of specific guidance, under Medicare Part D which defines that CMS should define the term
they may make reasonable assumptions. retail pharmacy as a licensed pharmacy ‘‘wholesaler’’ to mean any entity that
that is not a mail order pharmacy from purchases drugs from a manufacturer for
Definition of Repackagers/Relabelers which Part D enrollees can purchase a purposes of resale. This would be
Comment: One commenter stated that covered Part D drug. The commenters consistent with the definition in the
CMS should unambiguously define believe that adopting the Part D national rebate agreement. Another
repackager/relabelers. definition of retail pharmacy for retail commenter said that ‘‘wholesaler’’
Response: We have defined pharmacy class of trade would result in should be defined in a manner that
manufacturer to mean the entity that an AMP that more accurately reflects better reflects current law and practice.
(except with respect to certain private the prices at which retail pharmacies The commenter proposed wholesaler to
mean any entity that is licensed in a consistent with the provisions of the whether the end purchaser was ‘‘retail,’’
State as a wholesaler distributor of DRA and section 1927 of the Act, and those sales are excluded from AMP.
pharmaceuticals to which the include cash discounts and all other Response: We have modified this final
manufacturer sells, or arranges for the price reductions. We have defined rule at § 447.504(g)(1) to state that where
sale of, covered outpatient drugs, but wholesaler at § 447.504(f) to mean any the manufacturer can identify with
that does not relabel or repackage the entity (including those entities in the adequate documentation that
covered outpatient drug. Several retail pharmacy class of trade) to which subsequent sales from the wholesaler
commenters requested that CMS define the manufacturer sells the covered are to an excluded entity, the
the terms wholesaler, wholesale outpatient drugs, but that does not manufacturer can exclude such sales
distribution and distributor be relabel or repackage the covered from AMP.
consistent with FDA regulation. The outpatient drug. The DRA amendment Comment: A few commenters
FFDCA defines wholesale distributor as excluded customary prompt discounts requested that CMS clarify that clearly
any person (other than the manufacturer ‘‘extended to wholesalers’’ but not other identifiable indirect sales to excluded
or the initial importer) who distributes discounts or price reductions applicable entities should be excluded from AMP
a device or drug from the original place to AMP. (for example, sales identified through
of manufacture to the person who makes Comment: One commenter stated that chargeback data). Similarly, they asked
the final delivery or sale of the device mail order purchases and discounts, that we confirm that indirect sales to
or drug to the ultimate consumer or Medicaid or SCHIP payments and excluded entities, if not identifiable as
user. Under the PDMA regulations, discounts, or Medicare Part D payments such by the data available to a
wholesale distributor means any person and discounts should not be included in manufacturer, are not required to be
engaged in the wholesale distribution of AMP because the discounts associated ‘‘excluded.’’
prescription drugs, including, but not with these programs are not provided to Response: We have modified this final
limited to manufacturers, repackers, entities which qualify as not rule at § 447.504 to state that
own-label distributors, private-label wholesalers. manufacturers should only exclude
distributors, jobbers, brokers, sales to the wholesaler where the
Response: We continue to believe that
warehouses, including manufacturers’ subsequent sale of the drug to an
mail order pharmacies serve the general
and distributors’ warehouses, chain excluded entity could be adequately
public and have included them in the
drug warehouses, and wholesale drug documented.
retail pharmacy class of trade in this Comment: One commenter noted that
warehouses, independent wholesale final rule at § 447.504(g)(9). We agree, in
drug traders, and retail pharmacies that the proposed rule does not address
part with the comments on discounts, whether sales to entities that relabel or
conduct wholesale distributions. rebates or other price concessions from
Several commenters support repackage under the purchaser’s NDC
manufacturers to Medicaid, SCHIP, and are included in AMP.
warehousing pharmacy chains, Part D programs and have clarified at
warehousing mass merchant and Response: We have defined
§ 447.504(h)(23) that such discounts, manufacturer at § 447.502 to mean the
supermarket pharmacy operations being rebates, or other price concessions when
treated as wholesalers. entity that (except with respect to
provided to third party payers such as certain private labeling arrangements)
Response: We believe that for this
a SCHIP program or an MA–PD are not possesses legal title to the NDC for the
final rule to be consistent with current
included in the determination of AMP. covered outpatient drug. Therefore, we
law as well as reflect recommendations
We retained in the regulation text at decided in the final rule that sales to
made to us by the OIG and relevant
§ 447.504(g) that sales to wholesalers for other manufacturers who repackage/
comments, it is necessary to revise the
definition of wholesaler. We have drugs distributed to the retail pharmacy relabel under the purchaser’s NDC are
revised wholesaler at § 447.504(f) to class of trade (including sales, which are excluded from AMP.
mean any entity (including those provided to a SCHIP program or an MA– Comment: One commenter stated that
entities in the retail pharmacy class of PDP) are included in AMP. they interpret the definition of
trade) to which the manufacturer sells Comment: One commenter stated that wholesaler to mean it is exclusive of any
the covered outpatient drug, but that it is not possible to determine AMP for entity that purchases a covered
does not relabel or repackage the direct sales to wholesalers where the outpatient drugs and repackages or
covered outpatient drug. wholesaler then sells to an entity that is relabels using the purchaser’s own NDC.
Comment: Another commenter said unknown to the manufacturer. The The commenter requests that CMS
that the only transactions that should be manufacturer is not able to identify the confirm or provide guidance on what is
included in AMP are those prices that purchaser or to assess whether the meant for an entity to relabel or
(1) are paid by wholesalers to entity was in the retail pharmacy class repackage under § 447.504(f).
manufacturers, and (2) apply to the of trade. Response: We have clarified at
purchase of prescription drugs by Response: We have modified this final § 447.504(f) that wholesaler means any
wholesalers from manufacturers for the rule at § 447.504(g)(1) to state that entity (including those entities in the
wholesalers’ redistribution to the retail manufacturers should include sales to retail pharmacy class of trade) to which
pharmacy class of trade. The commenter the wholesaler except where the the manufacturer sells covered
believes that because Congress subsequent sale of the drug to an outpatient drugs, but that does not
specifically exempted customary excluded entity could be adequately relabel or repackage the covered
prompt pay discounts between the documented. outpatient drug. Furthermore, we are
manufacturer and wholesalers from the Comment: One commenter said that requiring at § 447.504(g)(2) that sales to
definition of AMP, it is reasonable to many manufacturers rely on chargeback other manufacturers who act as
conclude that they intended that only data to identify the retail pharmacy wholesalers and do not repackage/
price concessions between class of trade for AMP. The commenter relabel under the purchaser’s NDC are
manufacturers and wholesalers be requested that CMS confirm that to the included in AMP.
included in AMP. extent that there is no chargeback Comment: One commenter requested
Response: We disagree. We have associated with a sale and a that CMS delete from the definition of
defined AMP in § 447.504(a) to be manufacturer has no way of knowing wholesaler, the parenthetical
‘‘(including a pharmacy, chain of accommodate prompt pay policies for further clarify ‘‘cash discounts’’ to
pharmacies or PBM).’’ standard sales. Discounts that do not exclude any discount off of the purchase
Response: We have clarified the meet this standard which are used for price of a drug routinely offered by the
definition of wholesaler for these other purposes (for example, marketing, manufacturer to a wholesaler for prompt
entities in the regulation text at sales, and promotional strategies, payment of purchased drugs within a
§ 447.504(f). special package discounts, incentives, specified time from when the payment
Customary Prompt Pay Discounts and performance based discounts) are is due. Another commenter requested
not considered customary prompt pay that CMS add a parenthetical phrase
Comment: One commenter asked that discounts and should not be excluded reading ‘‘(except customary prompt pay
CMS confirm that a customary prompt from AMP. discounts extended to wholesalers)’’
pay discount is the discount ‘‘routinely Comment: One commenter said that, after the term ‘‘cash discount’’ in
offered by the manufacturer to an in restating the base date AMP, if prior § 447.504(d) and (i).
individual wholesaler at the time of data is not available, ‘‘customary Response: We agree and have clarified
payment,’’ and not a historical amount prompt pay discounts’’ should be the what we mean by cash discounts in the
approximating the typical discount discount that was typically offered by regulation at § 447.504(d). We have also
offered to all wholesalers. the manufacturer to wholesalers for changed §§ 447.504(d) and (i) to add
Response: We agree and have clarified prompt pay at the time of the price ‘‘except customary prompt pay
this issue in this final rule at reporting submission related to such discounts’’ after ‘‘cash discounts.’’
§ 447.504(c). utilization, as reasonably determined by Comment: One commenter requested
Comment: Several commenters said manufacturers. The commenter believes that CMS refrain from defining ‘‘cash
that customary prompt pay discounts that any other reading would be discounts’’ in a manner that is
extended to wholesalers should be arbitrary, impractical to implement, and inconsistent with the definition of
included in the AMP calculation. inconsistent with congressional intent. customary prompt pay discounts in the
Response: We disagree. The statute The commenter requested that CMS proposed rule. Clarity and consistency
requires that customary prompt pay confirm this interpretation. of pricing terms is essential for the
discounts to wholesalers be excluded Response: Manufacturers must have accurate submission of AMP data.
from AMP. data on actual prompt pay discounts Response: We agree and have clarified
Comment: One commenter said that provided during the period for which cash discounts in this final rule at
the word ‘‘routinely’’ should be deleted the base date AMP applies in order to § 447.504(d).
from the definition so that any recompute their base date AMPs. Comment: One commenter said that
customary prompt pay discounts the Manufacturers should document how customary prompt pay cash discounts
manufacturer passes on to the retail they calculated their base date AMPs extended by wholesalers to pharmacies
pharmacy class of trade are excluded and maintain supporting should be omitted from AMP. Cash
from AMP. The commenter further documentation. discounts are provided to some retail
believes that the definition is overly Comment: One commenter said that pharmacies based on financing terms
restrictive because manufacturers may prompt pay discounts, if included in negotiated between the wholesaler and
have a standard customary prompt pay AMP, will have a negative impact on the the pharmacy. These are not
policy but may also occasionally offer wholesaler drug distribution system, performance-based discounts. Not all
other prompt pay discounts when a which needs that cash flow. The pharmacies, especially independent
product is introduced or production is commenter further stated that the pharmacies, have the distribution
expanded to encourage wholesalers and incentive for customary prompt pay capabilities or the cash flow to take
retailers to stock a product without a discounts will be eliminated; therefore advantage of these terms.
proven demand. Additionally, the impact will be negative to the Response: The statute defines AMP as
manufacturers establish prompt pay economy of the industry. If wholesale the average price paid to the
standards that are intended to apply to distribution is negatively impacted, it manufacturer by wholesalers for
the retail marketplace and expect the will have direct consequences on drug covered outpatient drugs distributed to
wholesaler to honor this policy. Another availability at the patient level. the retail pharmacy class of trade,
commenter said that CMS should clarify Response: The law requires that without regard to customary prompt pay
what is meant by ‘‘routinely offered’’ manufacturers exclude customary discounts extended to wholesalers.
and specify the criteria that prompt pay discounts extended to Therefore, neither prices nor discounts
manufacturers should use to determine wholesalers from AMP beginning in to those prices offered by wholesalers to
what is ‘‘routine.’’ In particular, CMS January 2007. pharmacies affect AMP.
should address whether a customary Comment: A few commenters agreed Comment: A few commenters agreed
prompt pay discount is considered with the exclusion of customary prompt with the definition of customary prompt
routine if (1) it differs across customers; pay discounts from the AMP pay discount, but requested that CMS
(2) it changes over the life cycle of the calculation. confirm that manufacturers may make
product; for example, the prompt pay Response: We appreciate the support reasonable assumptions in applying this
discount offered at the introduction of for the provisions. This is a requirement definition to their AMP calculations and
the product differs from the prompt pay of law and we have retained this in the reporting of such discounts each
discount offered for the remainder of the requirement at § 447.504(h)(20) in the quarter. One commenter expressed hope
product’s life cycle; and (3) it is final rule. that CMS will take note of the
different across products. Comment: Several commenters stated significant administrative burdens
Response: CMS proposed a definition that many people in the industry have associated with tracking customary
which we believe is consistent with historically referred to ‘‘prompt pay prompt pay discounts on an individual
customary business practice regarding a discounts’’ as ‘‘cash discounts;’’ basis.

routine discount extended to all therefore, to avoid confusion, CMS Response: As with other pricing
purchasers for payment within a set should clarify the term ‘‘cash calculations, in the absence of specific
time period; for example, 30, 60, or 90 discounts.’’ Another commenter guidance, manufacturers may make
days and that would be flexible and requested that the final rule should reasonable assumptions consistent with
the statute, Federal regulations, and Response: As specified in statute, longstanding interpretation of the
customary business practices. We only prompt pay discounts to statute.
believe that manufacturers should wholesalers, as defined in this final rule Response: We have clarified in this
maintain documentation to support the in at § 447.504(c) are to be excluded final rule in § 447.504 that AMP should
customary prompt pay discounts from AMP. be calculated to include all sales and
reported to CMS. However, Comment: Several commenters associated discounts and other price
manufacturers may not assume an support the definition of customary concessions provided by the
across the board percentage for prompt pay discount. manufacturer for drugs distributed to
customary prompt pay discounts. We Response: We appreciate the support the retail pharmacy class of trade unless
recognize that reporting the amount of for this definition. the sale, discount, or other price
customary prompt pay discounts is a Comment: One commenter requested concession is specifically excluded by
new requirement but that it is required that CMS exclude customary prompt the statute or regulation or is provided
by law. pay discounts from the calculation of to an entity excluded by statute or
Comment: A commenter requested ASP. regulation. We have also clarified that
that CMS clarify that ‘‘prompt’’ is Response: These issues are not rebates, discounts, or other price
defined by the manufacturer regardless addressed in the proposed rule and are concessions to PBMs should not be
of the length of time in which the outside the scope of this rulemaking included in AMP because we believe
purchaser can receive the discount. document. Therefore, we have not they do not adjust the price actually
Response: The length of time in considered these comments as we realized. We believe that this final rule
which the purchaser can receive the consider revisions to the final rule. provides a definition of AMP and
discount should be consistent across Comment: One commenter stated that wholesaler consistent with the
purchasers for that manufacturer as well the exclusion of customary prompt pay provisions of the DRA and section 1927
as consistent with customary business discounts from AMP will effectively of the Act.
practice. increase the AMP, resulting in Comment: One commenter stated that
Comment: A commenter requested incremental increases to the rebates for they know that an imprecise definition
that CMS clarify that, in accordance drugs to States and the Federal of AMP, especially if publicly posted,
with current industry practice, it is Government. will be misleading to State Medicaid
appropriate for manufacturers to Response: CMS does not have data Directors and others who will use this
calculate customary prompt pay sufficient to predict how AMP will as a reference point for setting pharmacy
discounts by applying the available change to the exclusion of customary reimbursement.
prompt pay discount percentage (for prompt pay discounts or other changes Response: We have clarified the
example, two percent) to total direct in this rule. definition of AMP in § 447.504(a) to be
sales. Comment: One commenter agreed that consistent with the current law. We
Response: We do not agree. CMS should not specify payment intend to clarify in guidance that posted
Manufacturers must report the actual amounts or time terms in the definition. AMPs are not designed to reflect prices
amount of customary pay discounts Although some manufacturers may ask paid by specific pharmacies.
provided for the period. CMS to further define the various Comment: Another commenter said
Comment: One commenter requested aspects of customary prompt pay that CMS proposes to include in AMP
that CMS clarify that ‘‘any discount’’ discounts, the commenter encouraged all sales to wholesalers except for those
means a discount regardless of the CMS to maintain the proposed sales that can be identified with
amount that is conditioned on the definition in this final rule because this ‘‘adequate documentation’’ as being
timing of payment. approach allows manufacturers and subsequently sold to any excluded
Response: We disagree. ‘‘Any wholesalers the necessary flexibility to entity. The commenter requested CMS
discount’’ should be the discount off of negotiate payment terms, including to specify what constitutes adequate
the purchase price of a drug provided customary prompt pay discounts based documentation. In the absence of further
when payment is made within a on their particular situations and the guidance, the commenter presumes that
specified time that is consistent with commercial conditions at the time of the manufacturers may make reasonable
customary business practices. particular transaction. Additionally, this assumptions in determining whether
Comment: One commenter requested flexibility promotes competition in the they have satisfied the adequate
that we clarify the term ‘‘routine’’ to healthcare distribution business, which documentation requirement. However,
apply only to those discounts that are ultimately will lower distribution costs. the commenter requests that CMS
provided to entities that satisfy Response: We appreciate the support provide an opportunity for
manufacturer defined, objective criteria. but note that customary prompt pay manufacturers to comment on any
Response: We agree and have clarified discounts must be routinely offered in further guidance prior to issuing a final
in § 447.504(c) that the discount should order to be excluded from AMP. rule.
be consistent with customary business Response: We have clarified that
Determination of AMP adequate documentation includes, but is
practice.
Comment: One commenter requested Comment: One commenter stated that not limited to, chargeback data or data
that CMS clarify the term ‘‘prompt pay.’’ the law clearly limits prices included in for which an outside auditor, certified
Response: The term ‘‘prompt pay’’ AMP to be prices paid by wholesalers, public accounting firm, CMS, the OIG,
refers to a discount provided consistent including discounts received by or another authorized government
with industry customary business wholesalers. However, CMS proposed to agency could reconstruct the
practices for payment within a specific require that manufacturers include transaction. Manufacturers may
timeframe. prices that are not paid by wholesalers, continue to make reasonable
Comment: One commenter requested such as to PBMs, as well as discounts assumptions that are consistent with
that CMS clarify whether prompt pay on drugs that are not received by this final rule, statute, and general
discounts paid to pharmacies and PBMs wholesalers. The commenter believes business practices. We do not
are eligible for exclusion from AMP that the proposal is inconsistent with specifically request comments on
based on the definition of wholesaler. both congressional intent and CMS’ guidance issued to implement the rebate
program but we intend to respond to discounts, which reduce the amount concessions provided by the
comments received before and after received by the manufacturer (unless manufacturer for drugs distributed to
such guidance. the sale or discount is excluded by the the retail pharmacy class of trade unless
Comment: One commenter suggested statute or regulation). We have clarified the sale, discount, or other price
that CMS reconsider whether all of the the definition in the regulation. concession is specifically excluded by
sales enumerated under § 447.504(g) are Comment: One commenter requested the statute or regulation or is provided
appropriately ‘‘included’’ in AMP based that CMS clarify the phrase ‘‘prices to an entity excluded by statute or
on the definition of ‘‘wholesaler.’’ which are actually available’’ used in regulation. Absent such specific
Response: We appreciate the the proposed rule. Available prices exclusions, we believe that
comment and have revised the should not be used to define AMP. If a manufacturers should calculate AMP by
regulation text in § 447.504 to reflect price is offered and not taken, it is matching sales with their associated
revisions based upon comments irrelevant to prices received by price concessions.
received on this issue. manufacturers or prices paid by retail Comment: Many commenters asked
Comment: Several commenters pharmacies. that CMS issue a clear definition of
requested that CMS provide a clear Response: Actual sales must occur in AMP that covers community,
definition of AMP. Other commenters the period in order for a particular price independent and chain pharmacy
said that it must be defined fairly and to be reflected in AMP. acquisition costs. This definition should
equitably. Another commenter also said Comment: One commenter requested be issued as soon as possible, before
that the current definition of AMP is that AMP be defined as, ‘‘with respect AMP takes effect.
ambiguous and has never been to a covered outpatient drug of a Response: We have defined AMP
adequately defined by CMS. One manufacturer (including those sold consistent with our understanding of
commenter said that AMP cannot be under an NDA approved under section the current law. Because AMP is based
clearly defined as the industry does not 505(c) of the FFDCA) for a calendar on the average price received by the
have a true standard definition. month, the average price received by the manufacturer for the drug, it does not
Response: We believe that this final manufacturer for the drug in the United necessarily reflect a pharmacy’s
rule provides a clear and adequate States from wholesalers for drugs acquisition cost for the drug.
definition of AMP consistent with the distributed to the retail pharmacy class Comment: One commenter
provisions of the DRA and helps resolve of trade. ‘‘AMP shall be determined commended CMS for articulating the
ambiguities and confusion that may without regard to customary prompt pay rationale behind our proposals
have existed with the pre-DRA discounts extended to wholesalers.’’ regarding the determination of AMP.
definition. The commenter requested that AMP be For example, in the definition of ‘‘retail
Comment: One commenter said that defined to include only sales to chain pharmacy class of trade,’’ CMS
they did not support the current and independent pharmacies, and articulated an assessment based on
definition of AMP. discounts to retail pharmacies, but only whether or not sales are available to the
Response: We have revised the to the extent that such discounts reduce general public. The commenter
regulation text at § 447.504 to reflect the actual price paid by retail appreciated this effort to describe the
revisions based upon comments pharmacies. history and development of the
received. Response: We disagree. In light of our Agency’s thinking. However, the
Comment: One commenter said that understanding of the statute and DRA commenter was concerned that the test,
this final rule should be consistent with amendments, we have decided to as articulated, lacks sufficient clarity.
established Medicaid rebate policies, include in the AMP and retail pharmacy The commenter believed that the
definitions and terms set forth in class of trade, sales to chain, proposed rule represents an important
current CMS guidance, such as program independents, and mail order and necessary step forward in
releases and the national rebate pharmacies, as well as discounts to such standardizing AMP calculations.
agreement. entities to the extent that they reduce However, the commenter urged CMS to
Response: We have clarified previous the amount received by the significantly refine its guidance.
policies as well as incorporated changes manufacturer and are not otherwise Response: We believe that this final
mandated by the DRA. This final rule is excluded by statute and regulation. rule provides a clearer, accurate and
consistent with current law and it Comment: One commenter requested precise definition of AMP to allow
reflects recommendations made to us by that CMS clarify the meaning of the manufacturers to accurately calculate
the OIG and relevant comments. term, ‘‘associated with,’’ referenced in AMPs. We expect to continue to issue
Comment: One commenter requested §447.504(g)(10) in the proposed rule. further guidance and answer specific
clarification regarding whether the Response: The term, ‘‘associated questions to the extent necessary to
definition of AMP is being changed. The with’’ means with respect to the AMP provide additional clarity. Furthermore,
commenter requested clarification calculation, that manufacturers should this final rule period allows for
regarding whether AMP is the price include all sales and associated rebates, additional public comment on AMP.
received by the manufacturer, the price discounts, or other price concessions Comment: One commenter said that
recognized by the manufacturer, or the which relate to the sale, unless those the proposed definition of AMP is
price paid by the retail pharmacy class sales, rebates, or other price concessions unfair to retail pharmacies because it
of trade. are excluded by statute or regulation. includes sales to PPOs, HMOs, and
Response: We have clarified at Comment: One commenter requested outpatient clinics, all of which receive
§447.504(a) that the AMP is the average that CMS exclude from AMP price bid prices from drug companies. To be
price received by the manufacturer for adjustments that do not affect the actual fair, the cost should be derived from the
the drugs in the United States from price provided by the manufacturer and prices paid by retail pharmacies. Many
wholesalers for drugs distributed to the that are not received by retail commenters said that if AMP is to
retail pharmacy class of trade, without community pharmacies. accurately serve as both the basis for
regard to customary prompt pay Response: As noted previously, we rebates and payment, CMS must define
discounts extended to wholesalers, and have defined AMP to include sales and AMP to reflect the actual acquisition
inclusive of sales and associated associated discounts and other price cost with respect to prices paid for
drugs by retail pharmacies, excluding container, counseling time, delivery rule. Current law provides no authority
all rebates and price concessions not costs, and packaging. Another for a different AMP for different types
available to retail pharmacy. commenter stated that the formula must of entities. However, we believe that the
Response: As we noted previously, be tweaked to provide a true cost. publication of AMP will provide the
the statute defines AMP, in part, as the Response: We disagree. As we have Federal and State Governments with
average price received by the noted elsewhere in this regulation, the more transparency with respect to the
manufacturer for drugs distributed to AMPs will be used to establish FULs, average price received by manufacturers
the retail pharmacy class of trade. which is calculated based, in part, on for prescription drugs, and provide a
Accordingly, AMP does not necessarily 250 percent of the AMP. To the extent basis on which to set payments rates.
reflect the pharmacy’s acquisition cost. States decide to use AMPs for We further believe that, in light of the
We note that when the AMP is used in reimbursement that decision will be methodology for calculating the FULs,
the calculation of FULs, the calculation subject to our review and approval the AMPs will be fully adequate for
includes a markup of 250 percent and through a State plan amendment computing the upper limits and that
excludes certain outlier prices, as approval process. We believe that this States will make their own best
described elsewhere in this regulation. final regulation provides an adequate decisions, subject to the State plan
The DRA does not require the States to opportunity for States to set adequate amendment process, with respect to
otherwise base their payments on reimbursement rates for drugs subject to how to use AMP as a factor in provider
AMPs. To the extent that they do so, we the upper limits. We also believe that payment.
would expect them to look at States that opt to use AMP as a basis for Comment: One commenter said that it
appropriate mark-ups and any other their pharmacy reimbursements will will be harder for community
relevant factors to ensure access. Such also use other resources available to pharmacies to compete with the retail
changes in payment would also require them to determine fair and reasonable giants as their prescription volume is
the submission and CMS approval of a reimbursement to ensure continued much lower and it will be harder to
State plan amendment. access to pharmacy services for recover their expenses. Community
Comment: One commenter agreed Medicaid patients. We also note that we pharmacies will not necessarily receive
with CMS’ interpretation of encourage States to reevaluate their the discounts that the larger retail
congressional intent that both direct and dispensing fees to ensure that they are pharmacies receive when purchasing
indirect pharmacy sales be included in reasonable and cover the costs to generic drugs.
AMP. The commenter requested that dispense drugs identified in this final Response: We believe that any
CMS incorporate direct retail pharmacy rule. payment revisions that states may
sales in AMP without adopting a Comment: A few commenters said establish as a result of these provisions
strained, overly-broad definition of that a new definition for AMP is will not prevent community pharmacies
wholesaler. It should be sufficient to needed, which should be Average Retail from competing with other pharmacies.
include a provision in the final rule Price (ARP). CMS has calculated the FULs without
expressly stating that net sales to retail Response: Current law requires that regard to any outlier AMPs and will
pharmacies are to be included when AMP be computed based, in part, on the review any state plan amendment
AMP is calculated, but CMS could avoid average price received by manufacturers submission as a result of those FULs to
all ambiguity about the requirement to and submitted by manufacturers and it ensure sufficient access. We further note
include direct pharmacy sales in AMP provides no authority for us to define that States maintain the authority to
by adding the parenthetical, ‘‘(direct AMP as an average retail price. vary payment rates by rural area as well
and indirect)’’ after the word ‘‘sales’’ at Comment: A few commenters stated as by the type of the provider.
the beginning of proposed that the field is skewed against Comment: Several commenters said
§ 447.504(g)(5). independent pharmacies. If CMS that the proposed rule would unduly
Response: We appreciate the proceeds with AMP, then there needs to reduce AMP.
comment and believe that we have be a different AMP for different classes Response: We appreciate the
defined AMP to be consistent with the of trade. Some commenters stated comment and have revised AMP at
provisions of the DRA and section 1927 further that mail order, retail, hospital, § 447.504 to address similar concerns.
of the Act, and include sales, rebates, and long-term care pharmacies all Comment: One commenter said that it
and price concessions provided by the purchase drugs at different costs and the is clear from the proposed rule
manufacturer for drugs distributed to same AMP should not be used for every discussion that CMS has struggled to
the retail pharmacy class of trade. In class of trade. One commenter said that balance AMP-based rebate collection
addition the definition of wholesaler the formula is taking into account all of and AMP-based reimbursement through
has been revised. the rebates and special pricing afforded the inclusion of non-pharmacy entities.
Comment: One commenter said that to the ‘‘closed door’’ specialties such as Should CMS believe it important to
the new determination of AMP will nursing homes, mail order houses, and maintain these entities in AMP for the
cause many pharmacies to consider hospitals. It has already been shown purposes of reducing manufacturer
disenrolling from Medicaid pharmacy that the actual reimbursement proposed rebates, then an alternative would be to
programs. Commenters said that the will be far less than what retail have monthly and quarterly rebates
current definition of AMP will cause pharmacies can purchase the product calculated differently. Monthly and
their retail pharmacy to lose money for. quarterly AMPs would afford CMS the
with each prescription that is filled. A Response: We disagree. We know of opportunity to use the monthly AMP to
few commenters stated that AMP must no evidence at this point that the establish the FUL in a way that would
be defined as it relates to the retail payments, which would be set as a provide a more accurate reflection of
pharmacy class of trade. Retail result of the revised FULs or publication traditional retail pharmacy purchasing
pharmacy must be able to purchase of AMPs would be any less than (that is, only including licensed
these drugs at a price that is less than pharmacy acquisition prices especially pharmacies and excluding other entities
the reimbursement it is to receive, given that neither the FUL methodology such as PBMs) and maintain the CMS
including the cost of electronic nor AMP data has been established or decision to reduce manufacturer rebate
transmission to the PBM, labeling, available prior to publication of this liabilities by the inclusion of the various
non-pharmacy entities in the quarterly a fair and level playing field for documented, they should be excluded
AMP reporting. Another commenter physician reimbursement. from AMP.
said that the best method of resolving Response: We believe that we have Comment: One commenter said that
any conflict between the two functions developed requirements in this final AMP should be calculated based on the
of AMP (paying rebates and payment) is regulation that are clear and concise and average price, not the lowest price.
to examine the basic purposes of the that can provide a basis for consistent Response: We agree. The AMP, as
statutes and craft the definition and use calculations and fair reimbursement amended by the DRA, represents the
of AMP to better fit those purposes. The rates. average unit price, not the lowest price,
commenter did not believe the proposed Comment: One commenter stated that received by the manufacturer for the
rule dealt with these purposes AMP would be valid for determining drug in the United States from
adequately. transactions between a manufacturer wholesalers for drugs distributed to the
Response: We do not agree. There is and the next step down the trade chain retail pharmacy class of trade, without
only one definition of AMP, as revised (for example, a drug wholesaler) but regard to customary prompt pay
by the DRA, that is applied for both using AMP is not valid to compute the discounts extended to wholesalers as
rebate and FUL purposes. By using only price of the drug at the point a noted previously, AMP should be
one definition, these AMPs become community pharmacist is dispensing it calculated to include sales and
much more transparent and provide to his or her patients. associated discounts and other price
information regarding the average price Response: The statute provides that concessions provided by a manufacturer
received by manufacturer from manufacturers calculate Medicaid for drugs distributed to the retail
wholesalers for drugs distributed to the rebates and CMS calculates the FULs pharmacy class of trade (unless the sale,
retail pharmacy class of trade. We based in part, on AMP. In accordance discount, or other price concession is
believe that the definition of AMP as with the statute, we have defined AMP specifically excluded by statute or
clarified in this final rule at § 447.504(a) as the average price received by the regulation), which reduce the amount
accurately reflects the dual purposes of manufacturer from wholesalers for received by the manufacturer.
AMP. Comment: One commenter said that
drugs distributed to the retail pharmacy
Comment: One commenter stated that an appropriate calculation of AMP
class of trade, excluding customary
the approach that CMS used in the depends on an accurate definition of
prompt pay discounts extended to
determination of AMP is overly broad, retail pharmacy class of trade, accurate
wholesalers and including certain sales
in that past policy reflects a different identification of manufacturers’ prices
and associated discounts. As stated
focus on the use of AMP and the paid by wholesalers for drugs
elsewhere in this final rule, we have not
agency’s interpretation of the distributed to retail pharmacies, and an
only applied the 250 percent markup to
marketplace does not provide adequate appropriate definition of wholesaler.
the lowest price therapeutically
consideration of the obvious The commenter stated that CMS’
inconsistencies that occur when FULs equivalent drug, we have implemented
proposed definition has problems in all
based on AMPs are defined in the other policies to assure that the
three areas.
proposed rule as approximations for resulting FULs, in the aggregate, are Response: In response to comments,
estimated acquisition cost (EAC). The reasonably established to reflect the we have clarified the definition of retail
transactions included in AMP should be pharmacy acquisition cost of drugs pharmacy class of trade at § 447.504(e),
based on a more narrow view of what subject to the FULs, while protecting the wholesalers at § 447.504(f), and the list
is meant by the retail pharmacy class of taxpayer against excessive costs. of sales included in the determination of
trade, but should also consider more Comment: A commenter AMP at § 447.504(g).
significantly the link between FULs and recommended that the playing field on Comment: One commenter said that
EAC. drug pricing be leveled by making the AMP is as ambiguous as AWP or ASP
Response: We agree that although discounts extended to PBMs, mail order in that it can be interpreted many ways
AMP was defined in the rebate pharmacies, and government contracts and does not consider business
agreement, the list of sales included in available to retail pharmacies and allow overhead requirements of drug
the AMP calculation was not well a reasonable profit structure as any wholesalers and distributors.
established when the DRA was enacted. business deserves. Response: We do not agree. ASP and
While we have reviewed the OIG’s Response: These issues were not AMP are defined in the statute and
recommendations and those of addressed in the proposed rule; Medicare regulations. However, AWP is
commenters, and incorporated changes therefore, we can not consider these a term that is not further defined in the
where we thought appropriate, we comments as we consider revisions to regulation and has been found to
believe that we have crafted a definition be included in the final rule. frequently overstate the actual cost of
of AMP that reflects the requirements of Comment: One commenter stated that drugs.
the law and serves as a basis for both the definition of AMP must be Comment: One commenter stated that
rebates and the FULs program. operational and feasible for AMP should have full transparency.
Comment: A few commenters said manufacturers. Manufacturers are Another commenter said that the AMP
that without clear and concise guidance frequently not aware of the subsequent calculation should be solidified and that
from CMS regarding how AMP is to be sales of their drug products after the a more transparent method should be
calculated, including what classes of first sale. Manufacturers do not have developed.
trade are eligible and which classes of information about sales to hospitals, Response: We have clarified at
trade are not eligible, for inclusion in other wholesalers, mail order § 447.504(i)(2) and § 447.510(d)(2) how
the AMP calculation manufacturers who pharmacies, and PBMs. manufacturers should calculate and
compete in the same therapeutic area Response: We have modified the report AMP on both a quarterly and
could have differing methodologies requirements in § 447.504(h) with monthly basis, and we expect to post
resulting in unfair physician respect to AMP calculations to exclude AMP data for public review on our Web
reimbursement calculations. CMS needs certain sales to hospitals and PBMs. The site. Although the manufacturers’
to provide clear guidance on the requirement of AMP specifies that documentation for these calculations
calculation of AMP in order to maintain where sales to excluded entities are will not be made available to the general
public, they are subject to Federal ensure that manufacturers are able to and exclusions from AMP, this
Government verification. determine the sales and associated price definition creates confusion.
Comment: Many commenters stated concessions that should not be included Response: We appreciate the
that all rebates and price concessions in AMP and to ensure consistency in comment. As discussed previously, we
are appropriately included in best price AMP calculations across all have revised the definition of AMP in
but should not be included in AMP. manufacturers. § 447.504(g) to clarify which sales and
Another commenter said that CMS Response: We have clarified in the associated price concessions must be
should exclude from AMP those sales regulation text at § 447.504(g) those included.
that are exempt from best price under sales and associated price concessions Comment: One commenter said that
section 1927(c)(1)(C)(i) of the Act. The included in AMP. the proposed rule provided
commenter asserts that including sales Comment: A commenter stated that manufacturers a significant amount of
to SPAPs and Part D Plans that are §§ 447.504(a), (g) and (i) indicate types latitude and discretion with respect to
exempt from best price in AMP will of discounts and price concessions that the final AMP calculation. It is likely
artificially lower AMP as a manufacturers should deduct from the that there will be widespread
reimbursement benchmark by including calculation of the AMP. By including differences in interpretation with
discounts in AMP to which pharmacists these discounts and concessions, the respect to those elements that should be
do not have access. proposed rule incorrectly based AMP, included or excluded from AMP. One
Response: We have revised this final not on the amounts paid by example of this confusion relates to the
rule in § 447.504(h)(23) to exclude wholesalers—the predominant supply treatment of a ‘‘bona fide service fee.’’
rebates and other price concessions source for retail pharmacies—but It remains unclear as to the comparative
provided to SPAPs and Part D plans. It instead includes amounts that standard that will be used to establish
is our understanding that such rebates manufacturers have contracted to pay the determination of ‘‘fair market
and price concessions do not adjust the other entities. While these discounts, value.’’ The commenter requests that
prices actually realized. We have rebates, chargebacks and other forms of additional clarity be provided to
continued in § 447.504(g)(15) to include price concessions may reduce the eliminate variation in manufacturer’s
sales with respect to such programs and amount received by the manufacturer AMP calculation.
plans to the extent that they occur for drugs, they are not realized by retail Response: We believe that this final
through the retail pharmacy class of pharmacies and do not reduce prices rule provides a clearer, accurate and
trade. paid by retail pharmacies. precise definition of AMP, eliminating
Comment: One commenter asked Response: Our definition of AMP is much of the confusion and assumptions
whether CMS’ intent is to continue to consistent with our understanding of regarding the entities included and
allow manufacturers to treat an entity as the section 1927(k)(1), as amended by excluded in AMP. For example, we have
either included or excluded in the retail the DRA. While we understand that introduced the concept of bona fide
pharmacy class of trade based on its some commenters do not agree with that service fees and provided further
function, provided that the definition because it does not represent instructions on how they are to be
manufacturer can provide sound the exact amount at which pharmacies determined. We expect that
rationale. purchase drugs, we believe that our manufacturers participating in the
Response: In the final rule we have definition is consistent with the statute. Medicaid Drug Rebate Program will be
defined that AMP be calculated to As we explain elsewhere in this final in a much better position to understand
include sales and associated discounts rule, the statute requires the use of our requirements and to determine their
and other price concessions provided by AMPs in the FUL calculation with a AMP calculations consistent with this
the manufacturer to wholesalers for sufficient markup of the AMP and we final regulation. In the absence of
drugs distributed to the retail pharmacy have included other exclusions in the specific guidance, manufacturers may
class of trade unless the sale, discount, FUL calculation to assure that these make reasonable assumptions consistent
or other price concession is specifically FULs prices in the aggregate are with the statute, regulations and general
excluded by the statute or regulation or sufficient to cover pharmacists’ costs. business practices.
is provided to an entity excluded by Comment: One commenter said that
§ 447.504(a) through (i) proposed Nursing Homes
statute or regulation. Sales and
associated price concessions should be revisions to various definitions and Comment: Many commenters said
included in AMP to the extent they directions to manufacturers related to that nursing home pharmacies should
concern sales at the retail pharmacy AMP calculation. The validity of CMS’ not be included in AMP because they
class of trade and are not otherwise consideration for inclusion or exclusion are not traditional retail pharmacies.
exclude. of factors in determining AMP is Several commenters stated that rebates
Comment: One commenter stated that essential for obtaining data that and discounts to nursing homes are not
any entity that does not directly accurately reflects drug pricing. The available to retail pharmacies. Other
purchase drugs from the wholesaler commenter recommended that CMS commenters said that nursing homes
should be excluded from AMP. adopt clear and specific policies to sales should be outside the retail
Response: We have revised ensure consistency in the calculation of pharmacy class of trade as these sales
wholesaler in § 447.504(g) to mean any AMPs across all manufacturers. are not accessible to the public. A few
entity (including those entities in the Response: We appreciate this commenters supported excluding
retail pharmacy class of trade) to which comment and believe we have done so. nursing home pharmacies from the
the manufacturer sells the covered Comment: One commenter said that definition of retail pharmacy class of
outpatient drugs, but that does not the proposed definition, coupled with trade and noted that long-term care
relabel or repackage the covered the broad definition of wholesaler, is pharmacies are not retail pharmacies for
outpatient drug. intended to capture transactions with Part D.

Comment: A commenter stated that entities that do not pay manufacturers a Response: We appreciate the support
CMS will need to be exceedingly clear price established by the manufacturer for this policy and have decided to
in the guidance that it provides to directly or through distributors. When finalize our proposal to exclude nursing
manufacturers in calculating AMP to combined with the proposed inclusions facility pharmacies from the retail
pharmacy class of trade, and, therefore commenter further recommended that included in the retail pharmacy class of
AMP, in this final rule at CMS establish a list of long-term care trade because such entities provide
§ 447.504(h)(6). pharmacies similar to the list of eligible pharmacy to the general public.
Comment: One commenter requested 340B covered entities provided by the Response: We have clarified in this
that CMS clarify whether contract Office of Pharmacy Affairs in HRSA. final rule at § 447.504(g)(12) that sales to
pharmacies that dispense drugs to Response: We consider a long-term home health care providers are included
nursing home and long-term care care pharmacy to be a pharmacy that in the retail pharmacy class of trade and
residents also should be excluded from provides drugs to nursing home AMP unless such drugs are dispensed
the calculation of AMP. patients. Infusion centers and through nursing facilities. We believe
Response: We have clarified in the rehabilitation centers that serve patients that, unlike nursing facilities, home
regulation text at § 447.504(h)(6) that outside a nursing home would not be health care providers operate to provide
sales to contract pharmacies that included. We do not believe it is drugs to the general public.
dispense drugs through nursing homes administratively feasible for CMS to
and long-term care facilities and other Physician Offices and Other Provider
maintain a list of the entities that fall
entities such as assisted living facilities Settings
into this category.
which do not serve the general public Comment: A commenter asserted that Comment: Many commenters
are excluded from AMP. Since we it is often operationally infeasible for requested that CMS specify in the final
believe a manufacturer would not know manufacturers to identify those sales rule whether sales to physicians are in
which drugs are dispensed to a nursing that are made to a particular type of the retail pharmacy class of trade.
facility through an outside contract entity such as a long-term care Several commenters requested guidance
pharmacy, we have not excluded these pharmacy, as opposed to another type of regarding the treatment of the physician
sales from AMP unless that entity that might not satisfy the class of trade (direct and indirect sales)
manufacturer has reasonable definition of a long-term care pharmacy. since it was not addressed in the
documentation that the drugs were Manufacturer sales data are captured at proposed rule.
subsequently sold to an excluded entity. the contract level, but any included or Response: We have clarified in the
Comment: One commenter stated that excluded class of trade customer could regulation text at § 447.504(g)(13) that
to remove nursing home sales from purchase products from any wholesaler sales to physicians fall into the
AMP would be inconsistent with CMS source contract. Thus, manufacturers definition of retail pharmacy class of
guidance issued to date and would be a have no way of determining whether trade and are included in AMP. The
substantive policy change. The final sales are made to customers definition of retail pharmacy class of
commenter requested that long-term excluded from AMP. Given this trade includes any pharmacy or other
care sales continue to be included in inherent difficulty with calculating outlet that purchases, or arranges for the
AMP because these transactions are a AMP, it is imperative that CMS provide purchase of, drugs from a manufacturer,
significant portion of the market for mechanisms by which manufacturers wholesaler, or distributor and
many drugs and the exclusion of those can calculate AMP as consistently as subsequently sells or provides the drugs
transactions from AMP would yield possible. to the general public. We believe that,
inaccurate and misleading AMPs. Response: The final rule in to the extent that the physician is
Changing the current policy would § 447.504(h)(6) clearly indicates that operating to provide drugs to the general
require substantial changes in systems, nursing home sales are excluded from public, they should be included within
policies, procedures, and data links that AMP and allows manufacturers to use the definition of retail pharmacy class of
would more than offset the benefit from standards of reasonable documentation trade and AMP.
simplifying the AMP calculations. A to identify such sales. Comment: One commenter sought
few commenters encouraged CMS to clarification concerning whether sales to
continue its long-standing policy of Hospice and Other Home Health Care surgical centers, ambulatory care
including these sales in the calculation Pharmacies centers, prisons, and mental health
of AMP. Comment: One commenter suggested centers are in the retail pharmacy class
Response: We have decided to retain that sales to hospice pharmacies should of trade. Unlike walk-in pharmacies,
the proposed exclusion at be treated the same as sales to long-term these providers generally provide drugs
§ 447.504(h)(6) in this final rule because care pharmacies and excluded from incident to providing medical services
we believe that nursing home sales are AMP and best price. to persons who are their private
not in the retail pharmacy class of trade Response: Hospice pharmacies are patients, although some physician
because the general public cannot outside of the regular retail marketplace, practices sell self-administered products
obtain drugs through this source. as drugs from these pharmacies are not to patients who take the products home.
Comment: One commenter said that available to the general public. Response: We appreciate this
CMS has not clearly identified those Therefore, we have clarified in the comment and have clarified in the
entities that would be considered long- regulation text at § 447.504(h)(7) that regulation text at § 447.504(h)(9) that
term care (or nursing home) pharmacies. sales to hospices (outpatient and sales to prisons are excluded from AMP.
The commenter encouraged CMS to inpatient) are excluded from AMP. We have further clarified at
clearly define the attributes of entities Comment: Several commenters § 447.504(g)(8) that sales to surgical
that qualify as long-term care requested that CMS specify in the final centers, ambulatory care centers, and
pharmacies to avoid disparate treatment rule whether home health care mental health centers are included in
by manufacturers as they exclude prices providers meet the retail pharmacy class AMP to the extent that such facilities
to long-term care pharmacies. In of trade definition. One commenter provide drugs to the general public
particular, the commenter believed that asked CMS to clarify whether prices
unless such drugs are provided through

it is not clear whether the following paid by home health care agencies for a nursing facility pharmacy.
would be considered a long-term drugs delivered to home bound patients
pharmacy: long-term care pharmacies are included in AMP. Several Hospital Pharmacy Sales
owned by a hospital, infusion centers, commenters requested that CMS clarify Comment: Several commenters stated
and rehabilitation centers. The that home health care providers are that hospital prices should be excluded
from AMP because hospital pharmacies Response: The term outpatient clinic decision to maintain its existing policy
receive generous price breaks from was intended to capture all outpatient to include sales and price concessions
wholesalers and manufacturers that are facilities including hospital surgical to mail order pharmacies in the AMP
not available to retail pharmacies. Many centers, ambulatory care centers and calculation. One commenter agreed that
commenters believe that CMS should outpatient departments because such mail order should be included in AMP
exclude all hospital pharmacy sales facilities provide drugs that are on the basis that it is simply another
from AMP because the vast majority of available to the general public. We have form of how drugs enter into the retail
sales are for inpatient use and hospitals revised the regulation text in pharmacy class of trade.
do not generally track whether a drug is § 447.504(g)(8) to expand the term Response: We appreciate the support
provided to an individual receiving ‘‘outpatient clinic’’ to ‘‘outpatient for this provision and have retained this
inpatient services or outpatient services. facilities; for example, outpatient requirement in this final rule at
Another commenter stated that it would clinic.’’ § 447.504(g)(9).
be administratively difficult for Comment: One commenter requested Comment: One commenter said that
manufacturers to include sales to walk- that CMS define outpatient clinic. The mail order pharmacy rebates,
in pharmacies located in hospitals commenter assumed that federally chargebacks, and other price
because most hospitals buy drugs for qualified health centers, independent concessions should not be included in
inpatient and outpatient use through diagnostic facilities, and the like are AMP.
wholesalers or distributors under outpatient clinics. Response: We do not agree. After
agreements negotiated by GPOs. The Response: We have revised the term consideration of all comments received,
commenter further suggested that outpatient clinic in § 447.504(g)(8) to we continue to believe that mail order
manufacturers be permitted to assume mean ‘‘outpatient facilities; for example, pharmacies are part of the retail
hospital purchases are for their outpatient clinic’’ in the regulation text. pharmacy class of trade inasmuch as
inpatient inventory and exclude them Comment: One commenter indicated they are accessible and dispense
from AMP unless sales to hospital that it is unclear if the term outpatient prescriptions to the general public. The
outpatient pharmacies are identifiable. clinic was intended to include rebate agreement which provides for the
One commenter said that drugs physician offices. If not, the proposed inclusions of rebates, discounts, and
provided through hospital outpatient rule is silent on the handling of sales to price concessions associated with drugs
departments are not available to the physicians in AMP. provided to the retail pharmacy class of
general public and should be excluded Response: The term outpatient clinic
trade be included in AMP. We further
as they are not in the retail pharmacy was not intended to cover direct
believe that we are correct to include
class of trade. Another commenter physician sales. We have clarified in the
mail order pharmacies in AMP, since
stated that hospital outpatient final regulation text at § 447.504(g)(13)
Congress did not seek to change the
departments receive drugs at lower that the retail pharmacy class of trade
policy regarding the inclusion of mail
prices than retail pharmacies which may include physicians to the extent
order pharmacy sales and associated
would result in a lower AMP and that they provide drugs to the general
price concessions in AMP with the
unfairly lower reimbursement to retail public.
Comment: One commenter requested recent DRA (except with respect to
pharmacies. customary prompt pay discounts
that CMS clarify that the term
Response: We agree that ‘‘outpatient clinic’’ is not intended to extended to wholesalers). Accordingly,
manufacturers often do not know what mean hospital outpatient departments CMS has not changed the policy in this
drugs sold to hospitals are used in the since a different sub-paragraph in 42 final rule.
hospital outpatient pharmacies or other CFR § 447.504(g) addresses sales to Comment: Several commenters said
hospital facilities, such as clinics. In hospitals outpatient pharmacies. that any closed-door mail order
such an event, we believe that Manufacturers may find it difficult to pharmacy, in that it sells only to
manufacturers should exclude hospital distinguish between hospital-affiliated facilities or plans with which a
sales from AMP. We have provided in freestanding outpatient clinics and true contractual relationship exists, should
this final rule at § 447.504(g)(3) that hospital-based outpatient departments. be excluded.
drugs sold to hospitals for use in an Response: We have clarified in the Response: As previously discussed,
outpatient pharmacy are included in regulation text at § 447.504(g)(8) that we believe that all sales to mail order
AMP, except where the manufacturer outpatient clinics and facilities, which pharmacies are within the retail
cannot identify and document hospital are not hospital-affiliated entities, are pharmacy marketplace and drugs from
sales for outpatient use. included in AMP. We have further these pharmacies are available to the
Comment: One commenter stated that clarified in the regulation text at general public. We have clarified in the
it is unclear if pharmacies in physician § 447.504(g)(3) that sales to hospitals, final regulation at § 447.504(e) the
clinics that dispense prescriptions in for use by an outpatient pharmacy for a definition of retail pharmacy class of
such clinics are included in the retail hospital outpatient department, clinic or trade.
pharmacy class of trade. affiliated entity are included in AMP, Comment: Several commenters said
Response: We consider physician except when a manufacturer does not that any mail order pharmacy whose
clinics, to the extent that they provide have information to distinguish these rebate and discount arrangements are
drugs to the general public, to be in the sales from sales used for inpatients. not available to other pharmacies in the
retail pharmacy class of trade and drugs retail pharmacy class of trade should be
sold to these clinics should be included Mail Order Pharmacies excluded.
in AMP. Comment: Many commenters said Response: We disagree. The rebate
Comment: One commenter asked if an that though mail order pharmacies have agreement which provides that rebates,
outpatient clinic includes hospital a tendency to decrease AMP, they discounts, and price concessions
surgical centers, ambulatory care centers should be included in AMP because associated with drugs provided to the
and outpatient departments in which a they are licensed pharmacies and retail pharmacy class of trade be
patient is admitted to the hospital and provide drugs to the general public. included in AMP. It does not
released the same day. Some commenters support CMS’ precondition this on whether other
entities within the retail pharmacy class tremendous advantages over community retail pharmacy class of trade. They
of trade can get these same discounts. retail pharmacies due to their should be considered separate entities.
Comment: One commenter expressed preferential treatment by Response: We disagree. We continue
the concern that the inclusion of mail pharmaceutical manufacturers. Their to believe that mail order pharmacies
order discounts and rebates in the AMP special discounts and pricing are not are a segment of the retail pharmacy
calculation will impact access for a drug available to the public. Therefore, class of trade and should remain in
when used for the purposed of the FUL adding their pricing into the equation AMP. We note that in the OIG’s report,
process. Several commenters said that to will cause an artificially low AMP to be ‘‘Medicaid Drug Rebates: The Health
include mail order pharmacies in AMP reported. Another commenter stated Care Financing Administration Needs to
will skew the price to a lower price at that community pharmacies are at a loss Provide Additional Guidance to Drug
which retail outlets will never be able compared to hospital/clinic Manufacturers to Better Implement the
to purchase medications. Another organizations, PBMs, and mail order Program,’’ (A–06–91–00092), November
commenter noted that although mail pharmacies because these pharmacies 1992 and in the GAO report, ‘‘Medicaid
order pharmacies serve consumers on a have access to rebates and price Drug Rebate Program—Inadequate
retail level their dispensing rate per day concessions that may not be available to Oversight Raises Concerns about
is many hundreds of times larger than community pharmacy. Rebates Paid to States,’’ (GAO–05–102),
a community-based retail pharmacy, Response: We disagree. Mail order February 2005, retail pharmacy class of
allowing them to buy at a lower cost and other pharmacies are included in trade was defined to mean that sector of
the definition retail pharmacy class of the drug marketplace, similar to the
that is not available to a community-
trade given that they provide drugs to marketplace for other goods and
based retail pharmacy. Another
the general public. Furthermore, the services, which dispenses drugs to the
commenter stated that the inclusion of
calculation of AMP is based, in part, on general public and which includes all
mail order pharmacies will lower
the average price received by price concessions related to such goods
reimbursement to the community
manufacturers. Some drug prices in and services. We do believe that there
pharmacies below their cost. Several
AMP will be lower than the average but are not sufficient similarities between
commenters stated that drug acquisition
they will be combined with other sales long-term care pharmacies and mail
costs available to mail order pharmacies
prices that are higher. The FULs, in order pharmacies especially given that
may not be available to smaller retail
turn, are calculated based on the lowest drugs of long-term care pharmacies are
pharmacies and that inclusion of mail priced drug inflated by 250 percent. In only available to residents of those
order pharmacies will serve to drive addition, we have taken other measures institutions.
down pharmacy ingredient costs even as described in this regulation to assure Comment: One commenter said that
further below average acquisition cost. that drugs used in the FUL calculation removing mail order pharmacies from
One commenter said that it is self- will be available at the FULs price. the retail pharmacy class of trade creates
evident to those in the industry that Comment: One commenter said that consistency in the regulation and
independent pharmacies do not while the proposed rule makes a strong conforms the definition to market
purchase pharmaceuticals at the same case for the inclusion of prices of sales reality.
cost as mail order pharmacies or chain to mail order pharmacies, it remains Response: We disagree. We have
pharmacies. This is driven by the extremely vague on operational issues. consistently applied the definition of
inability to collectively negotiate with Because the inclusion of these prices retail pharmacy class of trade to mean
manufactures and to purchase will have a significant impact on the that segment of the market accessible to
pharmaceuticals without acquiring the AMP, the operational detail is extremely the general public. Given that mail order
product from a wholesaler or distributor important. pharmacies are a segment of the retail
that requires significant additional Response: We are unable to respond marketplace, we continue to believe that
margins for the distribution of those to this comment as the commenter did their inclusion reflects market reality.
items from the manufacturers to not include enough specific information Comment: One commenter stated that
independent pharmacies. They further regarding operational issues to enable us mail order pharmacies are owned by
noted that the differentials of mail order to do so. Prices of sales to mail order PBMs and PBMs are not wholesale
and chain pharmacies to other pharmacies are currently included in distributors; therefore, there is no
pharmacies acquisition cost are very AMP; therefore, we do not believe that method for distributing this lower cost
significant. Many commenters said that the finalization of this provision will to the retail sector. Another commenter
the proposed rule is flawed by allowing present or create new operational issues said that should CMS decide to include
manufacturers to include mail order in for manufacturers. mail order pharmacies in its definition
AMP on the basis that AMP will not Comment: Many commenters said of ‘‘retail pharmacy class of trade’’ then
reflect the price paid by traditional that mail order pharmacies should be PBMs acting as wholesalers and or mail
retail pharmacies or community excluded from AMP because mail order order pharmacies would by default need
pharmacies. A few commenters said that pharmacy sales are not traditional retail to have their purchase discounts
the idea of an AMP is acceptable, but pharmacies and are a restricted vehicle included in the calculation of AMP.
only if hospital and mail order for the delivery of prescriptions which Response: As discussed previously,
pharmacy pricing is excluded from is not publicly accessible to all patients. we have decided to exclude PBM
AMP as mail order and hospital They do not provide the expected and rebates, discounts and other price
pharmacies receive generous price needed services a retail pharmacy concessions from the determination of
breaks from wholesalers and provides nor do they provide identical AMP, except for purchases through
manufacturers alike, and thus their medications. Another commenter noted PBM mail order pharmacies. We
AMP should be calculated separately that a traditional retail pharmacy almost understand that PBMs do not generally
from other traditional retail pharmacies. without exception pays the highest take possession of pharmaceutical
One commenter further said that mail price. Mail order pharmacies are products. Only in their role as mail
order pharmacies do not create a level structurally similar to pharmacies that order pharmacies do PBMs participate
playing field with community service nursing homes, which have been directly in the purchase or delivery of
pharmacies. Mail order pharmacies have excluded in the proposed rule from the prescriptions drugs. However, we
continue to include sales to mail order included in AMP, the resulting base make their best decisions on the
pharmacies operated by PBMs. We date AMP will be artificially low. application of these AMPs to the
believe that the sale to a mail order Response: As elsewhere described in providers in their States.
pharmacy, regardless of whether such a this final rule, we are allowing Comment: One commenter said that
pharmacy in owned by a PBM, meets manufacturers to revise their base date providing mail order pharmacy services
the definition of a sale to the retail AMPs for the first four calendar quarters in rural areas will not suffice because of
pharmacy class of trade given that the following publication of this final rule. the inability to do what is required to
drugs provided by such pharmacies are Comment: AMP needs to be defined obtain medicines.
generally available to the general public. so that the community pharmacist can Response: In this final rule, we are
Comment: One commenter said that continue to serve Medicaid patients. addressing the issue of what prices are
mail order sales should not be included Response: We believe that this final included in AMP; we are not addressing
in the calculation of AMP because they regulation permits states to provide for this issue at this time.
are treated by the pharmaceutical adequate reimbursement for FUL drugs Comment: One commenter said that if
manufacturers as a different class of subject to the FULs. mail order pharmacies are in the same
trade. Comment: One commenter said that class of trade as retail pharmacies, then
Response: We disagree. The definition CMS should take into consideration it is not clear why the MMA, which
of retail pharmacy class of trade for the how price concessions are earned by established Medicare Part D, created
purposes of the drug rebate program is mail order pharmacies. Mail order separate distinctions for retail
governed be the standards in this rule, pharmacies are able to provide pharmacy, nursing home pharmacy and
not by how a manufacturer treats a sale. manufacturers with increased market mail order pharmacy. Another
Comment: A few commenters stated share via the use of formularies and commenter stated that CMS specifically
that mail order pharmacies will have an incentives, such as copayments. In excluded mail order pharmacies from
unfair competitive advantage over retail return for increased market share and the definition of retail pharmacy in the
pharmacy if the final rule permits the profits, manufacturers offer monies and rule implementing the Medicare Part D
inclusion in AMP. incentives not available to purchasers Program. Therefore, excluding mail
Response: We do not believe the other than mail order for Medicaid order pharmacies from AMP would be
inclusion of mail order pharmacies in prescriptions. Medicaid requires consistent with CMS’ current Part D
AMP in this final rule will significantly manufacturers to pay rebates/incentives definition of retail pharmacy.
affect the competitive advantage one directly to States. Manufacturers Response: The statutory provisions
segment of the market has over the expressly exclude Medicaid applicable to Medicare Part D and the
other. As we previously noted, the FULs prescriptions from incentive programs Medicaid Drug Rebate Program are
price, which is calculated as an offered to mail order. The calculation of significantly different. We continue to
aggregate upper limit based on 250 AMP should exclude discounts or believe that mail order pharmacies are
percent of the AMP, should allow incentives that are not available for a segment of the retail pharmacy class
adequate payment to any pharmacy. We Medicaid prescriptions. of trade accessible to the general public
believe that States will consider the Response: We appreciate the and should remain in AMP.
interests of all pharmacies in the State comment; however, the methods for Comment: One commenter said that
in setting other pharmacy payment rates earning such price concessions by mail the only reason offered by CMS in the
and note that such rates will require order pharmacies are outside of the proposed rule for including mail order
approval of a State plan amendment. scope of the proposed rule. The pharmacies in AMP is that the removal
Comment: One commenter suggests calculation of AMP is not based on would be inconsistent with past policy
that if mail order pharmacy pricing is incentives offered to one segment of the (71 FR 77178). The commenter further
not excluded, then it should at least be market or whether these incentives are states that this does not apply to the
used only with a diminished weight in offered for Medicaid prescriptions. DRA AMP.
the actual equation used to calculate Comment: Several commenters stated Response: We disagree. Our reasons
AMP. that because mail order pharmacies do for including mail order pharmacies are
Response: We disagree. The not generally service the Medicaid clearly enunciated in this final rule and
legislation does not support a different population, they should not be included as noted, we do so based on more than
methodology for mail order pharmacies in the definition of retail pharmacy class consistency with previous policy. We
or any other segment of the retail of trade. continue to believe that mail order
pharmacy class of trade when Response: We disagree. The definition pharmacies are a segment of the retail
calculating AMP. of retail pharmacy class of trade is not pharmacy class of trade accessible to the
Comment: One commenter said that dependent on whether or not Medicaid general public and should remain in
including mail order pricing in the beneficiaries obtain their services from AMP. The DRA required that we clarify
determination of AMP is wrong and the pharmacy. the definition of AMP, but did not
instead there should be a retail AMP Comment: One commenter said that mandate a manner in which we do so.
and a mail order AMP. the inherent variable nature of AMP Comment: One commenter stated that
Response: The current law does not coupled with the fact that CMS if mail order should be included in the
provide for separate AMP calculations. proposed to include the prices paid to definition of retail pharmacy class of
Comment: One commenter questioned mail order pharmacies in the calculation trade, a significant additional
why mail order pharmacies pay less for of AMP will not provide for a viable percentage increase to the FUL or
drugs. The commenter stated that benchmark for the cost of drugs that will significantly higher dispensing fee
community pharmacy should have the allow States to control prescription should be provided to those entities that
same rebates and pricing to save money. drugs cost while providing provide the more desirable mode of
Response: Such issues regarding the pharmaceutical care for the Medicaid delivery of products and services, such
purchase prices of different entities are population. as community pharmacies.
not covered by this final rule. Response: We disagree. We believe Response: We disagree. The law
Comment: A few commenters stated that the AMPs will be fully adequate for provides that the FUL should be
that if mail order price concessions are computing FULs and that States will calculated based on a 250 percent of the
AMP for the lowest price drug. The public. Unlike retail pharmacies, Response: The AMP is the average
determination of dispensing fees is left infusion pharmacies treat only a price received by the manufacturer for
up to each State, with CMS’ approval specialized class of patients who rely on the drugs in the United States from
through a State plan amendment. We these pharmacies for services that wholesalers for drugs distributed to the
also disagree that mail order pharmacies support their therapy regimen as a retail pharmacy class of trade excluding
do not offer a desirable mode of substitute for hospitalization. In other certain customary prompt pay discounts
delivery. contexts, infusion pharmacies have been and including certain price concessions,
excluded from the retail pharmacy class as defined in the regulation. We have
Specialty Pharmacies and Direct Patient
of trade. For instance, CMS excluded defined AMP consistent with our
Sales
infusion pharmacies from this understanding of current law. Since
Comment: One commenter stated that classification for purposes of Health AMP is based on the price received by
direct sales to patients are usually for Insurance Portability and the manufacturer for the drug, it does
specialty drugs provided through a Accountability Act (HIPAA) standards not necessarily reflect a particular
direct distribution arrangement and when it established the National pharmacy’s acquisition cost of a drug.
should be excluded from AMP. Several Council for Prescription Drugs Program Comment: One commenter asked
commenters believed that specialty (NCPDP) claim format for retail whether all community retail entities
pharmacies should not be included in pharmacy claims. Infusion pharmacies buy drugs at the same price; if not, what
the definition of retail pharmacy class of also are distinguished from retail are the differences in purchased drugs
trade and therefore, excluded from pharmacies under HCPCS. HCPCS for all the retail outlets (HMOs, mail
AMP, because they limit their services provides approximately 80 ‘‘S’’ codes order pharmacies, hospital pharmacies,
to a defined population and do not for home infusion therapy services that Federal agency pharmacies, chain
dispense to the general public. Another may not be used by retail pharmacies for pharmacies and independent retail
commenter requested that CMS provide their drug claims. It is not clear if pharmacies). If there is a significant
specific guidance regarding the payment based on AMP would difference, is CMS discriminating
treatment of discounts and rebates to appropriately reimburse home infusion against some retail outlets? One
specialty pharmacies when calculating pharmacies for the drugs that they commenter said that the definition
AMP. Several commenters stated that provide. should reflect the prices at which
traditional pharmacies do not have Response: We believe that even traditional retail pharmacies purchase
access to the prices provided to though home infusion therapy medications. Another commenter said
specialty pharmacies. pharmacies serve a defined population that in order to be included in the
Response: We believe that drugs based on medical condition and are definition of retail pharmacy class of
supplied through specialty pharmacies classified differently for the purpose of trade, the prices used should be prices
are within the regular retail reimbursement; the drugs from these available to community pharmacy and
marketplace. The fact that the pharmacies are sold in the retail the prescriptions should be publicly
pharmacies serve a client population marketplace and are available to the accessible.
characterized by specific medical general public. In accordance with the Response: As we have previously
conditions does not mean that their statute, the AMPs could be used to noted, AMP is based on the average
drugs are not sold to the general public, establish FULs. States may decide to use price received by the manufacturer for
nor does it take them out of the retail AMPs for reimbursements subject to our the drug; it does not necessarily reflect
pharmacy class of trade. Therefore, we review and approval of a State plan the pharmacy’s acquisition cost.
have clarified in the regulation text at amendment. We further believe that this Comment: Several commenters agreed
§ 447.504(g)(11) that sales, rebates, final regulation provides states with that the entities included in the retail
discounts, or other price concessions to sufficient flexibility to establish pharmacy class of trade must provide
specialty pharmacies are included in adequate reimbursement rates for FULs public access. Another commenter said
AMP. drugs. Therefore, we have clarified in that retail pharmacy class of trade
Comment: Several commenters said the regulation text that sales to home describes outlets that dispense drugs to
that sales to specialty pharmacies infusion therapy pharmacies are the general public.
should be included in AMP. included in AMP. Response: We agree.
Response: We appreciate the Comment: One commenter stated that
Retail Pharmacy Class of Trade entities should be included in the
commenters’ support for this provision
and have retained this requirement at Comment: One commenter said that definition of retail pharmacy class of
§ 447.504(g)(11) in this final rule. the proposed definition of retail trade on the basis that they do not
Comment: One commenter requested pharmacy class of trade does not allow conduct a manufacturer-wholesaler
that CMS confirm that payments for for adequate analysis of the costs related transaction. Also, hospitals and nursing
specialty pharmacy services that satisfy to operating such pharmacy. What homes do not distribute drugs to the
the definition of a bona fide service fee normally qualifies as a retail pharmacy general public and should not be
should be excluded from the calculation is an independently owned grocery, or included in retail pharmacy class of
of AMP. chain pharmacy locations. Mail service trade. Only traditional retail pharmacies
Response: We concur. Payments for and hospital outpatient pharmacies do (chains and independents) should be
specialty pharmacy services that satisfy not incur the same costs as retail included. The retail pharmacy class of
the definition of bona fide service fees pharmacies. These practice sites are able trade should be defined as those
should be excluded from the to purchase drugs at a lower cost than pharmacies that provide face-to-face
determination of AMP. retail pharmacies. Any definition of service to patients, offer timely delivery,
Comment: A few commenters said pharmacy that is used in calculating can provide 24/7 availability and
that home infusion pharmacies do not costs must adequately differentiate response to patient needs, and are
clearly fit the definition of retail between various practices settings so available to patients in the event of a
pharmacy class of trade for the purpose that the reimbursement can properly disaster.
of this regulation because they do not cover the true cost associated with each Response: We do not agree that the
sell or provide drugs to the general setting. retail pharmacy class of trade is limited
to those entities proposed by the Comment: A few commenters said in the OIG reports is consistent with our
commenter. As stated in response to that independent pharmacy owners definition of the retail pharmacy class of
prior comments, we define retail should have a level playing field. It is trade. As discussed previously, we have
pharmacy class of trade more broadly to not fair to include rebates and discounts defined retail pharmacy class of trade to
include, for example, direct sales to to PBMs, insurance companies and include the sector of the drug
physicians and outpatient hospital government agencies and exclude marketplace, similar to the marketplace
sales, to the extent that they provide rebates to independent business owners. for other goods and services, which
drugs to the general public. One commenter said that only if dispenses drugs to the general public
Comment: Many commenters stated complete access to all discounts offered and which include all price concessions
that the retail pharmacy class of trade at every level, mail order, government, related to such goods and services.
should include any independent HMO and PPOs are offered to any
Treatment of Medicaid Sales
pharmacy, independent pharmacy willing buyer will this system be fair.
franchise, independent chains, Response: We disagree. The rebate Comment: One commenter stated that
independent compounding pharmacy, agreement provides for the inclusion of price concessions associated with the
and traditional chain pharmacy— rebates, discounts, and price sales to Medicaid should be included in
including each traditional chain concessions associated with drugs AMP but Medicaid rebates should be
pharmacy location, mass merchant provided to the retail pharmacy class of excluded because no portion of these
pharmacy and supermarket pharmacy. trade in AMP. It does not condition the rebates is shared with the retail
Response: We agree, but note that we inclusion of such price concessions on pharmacy community. One commenter
do not believe this list of pharmacies to whether other entities within the retail agreed that prices paid by Medicaid
pharmacy class of trade can receive programs should be included in AMP.
be inclusive of all entities in the retail
these same discounts. We agree with the Response: We appreciate the support
pharmacy class of trade.
comments concerning the PBMs and for this provision and have clarified in
Comment: Another commenter said the regulation text at § 447.504(h)(23)
that the proposed definition of retail certain government purchasers, and
have decided to exclude certain Federal that discounts and other price
pharmacy class of trade includes concessions to third party payers,
entities such as mail-service and state sales, and PBM rebates,
discounts, or other price concessions including Medicaid, are excluded from
pharmacies, hospital outpatient AMP.
from the determination of AMP, except
pharmacies, and outpatient clinics that Comment: One commenter stated that
for purchases through PBM mail order
may have access to rebates and price if CMS requires Medicaid sales and
pharmacies. As noted previously, we
concessions that are not accessible to units to be included in AMP, then CMS
believe there may be circumstances in
community pharmacies. One should require that the applicable
which an entity within the retail
commenter further said that these Medicaid rebates are included in AMP.
pharmacy class of trade might receive a
entities fall clearly outside of the Requiring the inclusion of Medicaid
rebate or discount not available to other
statutory definition of AMP. Some units in AMP without including the
entities in that class of trade.
commenters said that if AMP is to Comment: One commenter stated that applicable Medicaid rebates will skew
represent the price of drugs bound to there is no basis in the statute or in the the AMP calculation and make the
the retail pharmacy class of trade then congressional discussion surrounding resulting AMP inaccurate.
it should include and exclude the legislation to include sales to mail Response: We disagree. We do not
components (including discounts, order pharmacies and rebates, believe that including Medicaid sales
rebates, and other price concessions) discounts, or other price concessions and units without the respective rebate
according to their impact on the associated with sales of drugs provided in AMP results in an inaccurate AMP.
acquisition price actually paid by the to the retail pharmacy class of trade in AMP is calculated by dividing net sales
retail pharmacy class of trade. AMP. Had Congress wanted to do so, it by total number of units sold, less free
Response: We disagree. We believe would have expressly provided for these goods. This has been CMS’ policy since
the statute requires that rebates, items to be included in AMP, as it had the inception of the Medicaid Drug
discounts, and price concessions done in establishing the ASP-based Rebate Program. While AMP and best
associated with drugs to the retail reimbursement system for Medicare Part price include discounts or other price
pharmacy class of trade be included in B drugs. concessions, we do not believe that
AMP. The definition does not Response: We do not agree. After Medicaid rebates should be subtracted
precondition the inclusion of such consideration of all comments received, from sales. As a practical matter, we do
discounts or other price concessions on we continue to believe that mail order not know how this could be done with
whether other entities within the retail pharmacies are part of the retail accuracy because manufacturers often
pharmacy class of trade can access these pharmacy class of trade in as much as do not know which of their sales are
same discounts. We believe there are they dispense prescriptions to the dispensed to Medicaid beneficiaries.
variety of circumstances in which an general public. The rebate agreement Comment: Many commenters stated
entity within the retail pharmacy class has consistently provided for the that Medicaid sales should not be
of trade might receive a rebate or inclusion of rebates, discounts, and included in AMP, similar to other
discount not available to other entities price concessions associated with drugs Federal payers.
in that class. provided to the retail pharmacy class of Response: We disagree. Medicaid
Comment: One commenter said that trade be included in AMP. We see no sales are included in AMP, as are the
manufacturers should be instructed to reason to change that policy in this rule. sales in other Federal programs (except
exclude from AMP sales to entities that Comment: One commenter requested for those excluded as identified in the
do not meet the definition of the retail that CMS clarify what it means to sell regulation), because Medicaid sales are
pharmacy class of trade. or provide covered drugs to the general part of the chain of sales to retail
Response: We have clarified at public. pharmacies. Therefore, we believe that
§ 447.504(g)–(h) which sales are Response: We believe that the term it is appropriate to include Medicaid
included and excluded in this final sell or provide covered drugs to the sales in AMP. Furthermore,
regulation. general public as discussed previously manufacturers often do not know which
of their sales are dispensed to Medicaid Response: Rebates paid to State Comment: One commenter requested
beneficiaries, making it impossible to Medicaid Agencies under either the that CMS clarify that rebates paid to
remove these sales from AMP. national rebate agreement or CMS- States under the Medicaid Drug Rebate
Comment: One commenter stated that authorized State supplemental rebate Program should be excluded from AMP
AMP should reflect rebates paid by agreements are excluded from AMP. calculations but that price concessions
manufacturers to third party payers Comment: Several commenters stated associated with the sales of drugs in the
such as Medicaid which are unavailable that including Medicaid data in AMP is retail pharmacy class of trade which are
to retail pharmacies. ‘‘bootstrapping’’ the AMP calculation provided to Medicaid patients should be
Response: AMP generally reflects and does not recognize that Medicaid included.
rebates provided by the manufacturer pricing is heavily regulated by the State Response: Rebates paid to States
for drugs distributed to the retail and Federal Government. The under the Medicaid Drug Rebate
pharmacy class of trade. However, the commenters believed that the inclusion Program are excluded from AMP, but
rebate agreement specifically state that of Medicaid data would have an the units and price concessions
rebates paid to States under the artificial impact on market prices, and associated with the sales of drugs in the
Medicaid Drug Rebate Program are that Medicaid should be excluded from retail pharmacy class of trade, regardless
excluded from AMP calculations. We the AMP calculation. Other commenters of whether such drugs are provided to
see no reason to change that policy in stated that including Medicaid sales Medicaid patients, are included.
this rule. data would likely create a circular loop, Comment: A commenter requested
Comment: One commenter requested negating the validity of AMP. that CMS clarify whether supplemental
that CMS explain what sales and Response: We disagree. The AMP is state rebates (for example, those
associated rebates are paid under the not intended to represent the prices associated with a preferred drug list) are
Medicaid Program other than those paid paid by retail pharmacies for included as well.
under section 1927 of the Act. medications; rather, it is the average Response: All supplemental rebates
Response: Rebates paid to State unit price paid to the manufacturer for paid under a CMS-authorized State
Medicaid Agencies for covered the drug in the United States by supplemental rebate agreement are
outpatient drugs dispensed to Medicaid wholesalers for drugs distributed to the excluded from AMP regardless of
beneficiaries, including CMS-authorized retail pharmacy class of trade. We do whether the agreement is associated
State supplemental rebates, are not believe that the inclusion of with a preferred drug list.
excluded from AMP. Medicaid sales will have an impact on
Comment: One commenter requested Treatment of Medicare Part D Sales
market prices because they are
that CMS clarify what we mean in the subsumed in the total sales from Comment: Several commenters
proposed by the statement, ‘‘Therefore, manufacturers to wholesalers. expressed support for CMS’ treatment of
we would clarify that rebates paid to the Medicare Part D.
States under the Medicaid Drug Rebate Treatment of Supplemental Rebates Response: We appreciate the support
Program should be excluded from AMP Comment: One commenter stated that for this provision and have clarified in
calculations but that the price supplemental rebates paid to the the regulation text at § 447.504(h)(23)
concessions associated with the sales of Medicaid agency are not disclosed, that associated discounts, rebates, or
drugs in the retail pharmacy class of never shared with pharmacy vendors other price concessions to third party
trade which are provided to Medicaid and may be significant in their negative payers such as a PDP or an MA–PD are
patients should be included’’ (71 FR impact on those vendors participating in not included in the calculation of AMP
77180). the Medicaid Program. on the basis that such price concessions
Response: This statement was Response: Medicaid supplemental are essentially third party discounts and
intended to clarify how price rebates paid to the Medicaid agency are not discounts which adjust the price
concessions provided to wholesalers for not included in AMP. We see no reason actually realized at the retail pharmacy.
drugs for which Medicaid is the payer why supplemental rebates paid to the We retained in the regulation text that
differ from Medicaid rebates paid State that do not impact the payment the sales of drugs in the retail pharmacy
directly by manufacturers to Medicaid rate to pharmacies would affect their class of trade which are provided to a
agencies. It would be virtually participation in the Medicaid Program. PDP or an MA–PD are included in AMP.
impossible for a manufacturer to Comment: A few commenters stated Comment: Several commenters stated
separate these price concessions out that because community pharmacies do that sales and rebates to a Medicare Part
from its AMP calculation because not receive State supplemental rebates, D PDP and an MA–PD should not be
Medicaid does not purchase drugs the rebates should be excluded from included in AMP. One commenter
directly, but reimburses pharmacies for AMP. Another commenter requested recommended that CMS exclude price
drugs. Rebates, however, are paid based that CMS clarify that any supplemental concessions under Medicare Part D, as
on state utilization data by rebates manufacturers pay to State these price discounts are PBM discounts
manufacturers to States. These are Medicaid programs are to be considered of those PBMs that administer the Part
clearly identifiable and are not taken ‘‘other price concessions’’ for the D Program. One commenter further
into account in the calculation of AMP. purposes of this section; thus, these stated that the rebates paid by the
Comment: One commenter requested rebates should be included in AMP manufacturer to a PDP or an MA–PD are
that CMS clarify how rebates paid to calculations. not considered by wholesalers when
State Medicaid agencies under either Response: Supplemental rebates paid determining the purchase price to a
the national rebate agreement or a CMS- under a CMS-authorized State retail community pharmacy and should
authorized supplemental rebate supplemental rebate agreement are not be included in any calculation to
agreement are treated in the calculation excluded from AMP and not considered reimburse the pharmacy. A few
of AMP. The commenter asked whether as ‘‘other price concessions’’ for the commenters stated that Medicare Part D
manufacturers are expected to perform purposes of this section. We have rebates are similar to Medicaid rebates,
some level of diligence to trace clarified in the regulation text at which are excluded from AMP, and that
Medicaid sales to the retail pharmacy § 447.504(h)(24) that such supplemental Medicare Part D rebates should be
class of trade. drug rebates are excluded from AMP. treated similarly. One commenter
requested that CMS confirm and retained in the regulation text that the included in AMP. As discussed
provide guidance regarding whether sale of the drugs reimbursed by these previously, such price concessions are
rebates paid to Medicare Part D are programs and units associated with the essentially third party discounts and not
excluded from AMP. Another sales of drugs in the retail pharmacy discounts which adjust the price
commenter stated that including the class of trade which are reimbursed by actually realized.
prices of sales and rebates through a a qualified retiree prescription drug Comment: One commenter said that
PDP, MA–PD, or a qualified retiree plan under section 1860D–22(a)(2) of CMS should recognize in the final rule
prescription drug plan would result in the Act should remain included in the operational challenges
a windfall to manufacturers and an AMP. manufacturers face in collecting data.
additional burden for retail pharmacies. Comment: One commenter stated that Based on those challenges, the
The commenter stated that while prices the proposed rule excludes from AMP commenter urged CMS to allow
charged to Part D plans cannot create a rebates to Medicaid, the DoD, the IHS, manufacturers to make and rely upon
new best price for the Medicaid and the DVA because prices to these appropriate reasonable assumptions
Program, including Part D prices that entities are not available to the retail when including Part D sales in AMP.
are lower than typical commercial pharmacy class of trade. Rebates offered Response: We recognized the
prices in AMP calculations could to SCHIP, Medicare Part D Plans, and operational challenges manufacturers
further reduce the reported AMPs below SPAPs are also not available to the retail face in collecting data and have clarified
the actual cost to retail pharmacies. pharmacy class of trade but are required in the final regulation text the
Response: We have clarified in the to be included in AMP. The commenter submission of lagged price concessions
regulation text at § 447.504(h)(23) that asserted that assumptions in the and the use of manufacturer
associated discounts, rebates, or other proposed rule regarding these programs assumptions.
price concessions to third party payers are definitely flawed and should be SPAP Price Concessions
such as to a PDP or an MA–PD are not revisited.
included in AMP. Such price Response: We revised the regulation Comment: Many commenters
concessions are essentially third party text at § 447.504(h)(23) to state that suggested that CMS exclude
discounts and not discounts which associated discounts, rebates, or other manufacturer rebates to SPAPs from
adjust the price actually realized. We price concessions to third party payers AMP calculations as it does with
retained in the regulation text that the such as a PDP, MA–PD, SCHIP, or an Medicaid rebates. Another commenter
sale of the drugs reimbursed by these SPAP are not included in the expressed appreciation for CMS’
programs and units associated with the calculation of AMP. Such price specific guidance regarding the
sales of drugs in the retail pharmacy concessions are essentially third party treatment of discounts/rebates to SPAPs,
class of trade which are reimbursed by discounts and not discounts which but disagreed with including discounts/
a PDP or an MA–PD should remain in adjust the price actually realized. rebates to SPAPs in AMP. This
AMP. We do not believe that this will Comment: One commenter stated that commenter argued that SPAPs are
be a burden for retail pharmacy because including Part D in AMP may change government-run programs, and
the manufacturer would not necessarily manufacturer discounting behavior for discounts offered to them are often
know the ultimate destination or Part D. statutorily driven (sometimes tied to
whether the discount or price Response: We do not believe that a Medicaid rebates) or otherwise not
concession to the third party payer is change in manufacturer discounting determined by market factors. Another
passed on to the retail pharmacy class behavior is likely, as the manufacturer commenter stated that SPAPs are
of trade such that it would result in an would not necessarily know the similar to the Medicaid Program in that
adjustment of the price actually ultimate destination when initially sold. SPAPs represent third-party government
realized. Furthermore, as discussed previously, payers; therefore, rebates for these
Comment: One commenter requested we have revised the regulation to programs should be treated the same as
that CMS clarify whether a exclude discounts, rebates, or other Medicaid rebates. One commenter
manufacturer discount provided to a price concessions to third party payers, stated that the proposal to include all
PBM in connection with Part D mail such as a PDP or MA–PD. Such price SPAP sales and rebates in AMP to the
order business should be included in concessions are essentially third party extent that these sales are made to the
AMP. discounts and not discounts which retail pharmacy class of trade conflicts
Response: We have clarified in the adjust the price actually realized. with Manufacturer Release 68, which
final rule at § 447.504(g)(6) that sales Comment: A few commenters said states that only SPAPs that meet
and discounts to mail order pharmacies that the proposed rule directs specified criteria are excluded from
operated by PBMs are included in AMP. manufacturers to consider sales and AMP. Another commenter requested
Comment: One commenter requested associated price concession extended to that CMS clarify that all SPAP sales and
that CMS clarify the treatment of Part D. However, manufacturers do not rebates are included regardless of the
qualified retiree prescription drug plans have access to this information until administrative structure of the SPAP.
for purposes of AMP. they receive quarterly invoices from the Other commenters supported the
Response: We have clarified in the States. CMS should include in the final inclusion of SPAP sales and rebates in
regulation text at § 447.504(h)(23) that rule instructions for addressing lagged AMP.
associated discounts, rebates, or other data. Response: We recognize that SPAPs
price concessions paid to third party Response: We appreciate these are typically third-party governmental
payers such as rebates paid by the comments and have clarified in the payers that do not directly purchase
manufacturer to a qualified retiree regulation text at § 447.504(h)(23) that drugs from manufacturers. After
prescription drug plan under section associated discounts, rebates, or other considering the comments received, we
1860D–22(a)(2) of the Act are not price concessions paid to third party agree that SPAP sales, as well as sales
included in AMP. Such price payers such as rebates paid by the to PDPs and MA–PDs under the
concessions are essentially third party manufacturer to a qualified retiree Medicare Part D Program should be
discounts and not discounts which prescription drug plan under section treated in the same manner as Medicaid
adjust the price actually realized. We 1860D–22(a)(2) of the Act are not sales. That is, sales of drugs that are
paid by these programs to pharmacies for AMP and best price purposes and that the data is already being furnished
are included in AMP, but we have exclude them from both. AMP should to State Medicaid Agencies.
revised our policy and provide in this reflect prices in the commercial Response: The URAs for brand name
final rule at § 447.504(h)(23) that marketplace and including prices set by drugs are based on best price, which we
associated discounts, rebates, or other statute in the AMP calculation consider confidential. The URAs for
price concessions to the extent that they undermines this purpose. Likewise, generic drugs are 11 percent of AMP,
do not adjust prices at the retail excluding prices from best price which will be posted on our Web site.
pharmacy class of trade are excluded encourages manufacturers to provide Treatment of SCHIP
from AMP. As discussed previously, we concessions that do not reflect
believe that such price concessions are commercial considerations, as is the Comment: One commenter noted that
essentially third party discounts and not case with SPAPs, where prices or the proposed rule directs manufacturers
discounts which adjust the price rebates are generally the result of State to consider sales and associated price
actually realized. Other State payments law rather than market negotiations. concession extended to SCHIP.
for drugs, such as State employee Response: We disagree. While the However, manufacturers do not have
benefit programs or medical programs statute specifically excludes SPAPs access to this information until they
for inmates or patients of State prisons from the determination of best price, receive quarterly invoices from the
or hospitals, do not meet the criteria of CMS believes that SPAP sales should be States. CMS should include in the final
an SPAP. We also agree with the included in AMP because they are rule instructions for addressing lagged
commenter regarding Manufacturer subsumed in the overall chain of sales price concessions.
Release 68 and have clarified that SPAP Response: We have modified the
from the manufacturers through
sales should be included in AMP and regulation text regarding the submission
wholesalers to the pharmacies in the
SPAP discounts should be excluded. of lagged price concessions to allow
retail pharmacy class of trade.
Therefore, all SPAP sales will be treated manufacturers to submit such
Comment: One commenter asked
the same for AMP, regardless of whether information.
CMS to provide guidance regarding how Comment: One commenter asked that
they meet the criteria in Manufacturer SPAP sales and rebates should be
Release 68. we clarify the meaning of the term
included. Specifically, the commenter ‘‘associated with sales of drugs provided
Comment: Several commenters stated asked CMS to specify what ratio of sales
that community pharmacies do not to the retail pharmacy class of trade’’ in
manufacturers should apply to SPAP regard to Part D, SCHIP, and SPAP.
receive State-only and SPAP prices and rebates, since the data available to
rebates; therefore, these should be Response: We have clarified in the
manufacturers do not indicate the regulation text at § 447.504(h)(23) that
excluded from AMP. One commenter particular sales to which the rebates
believed it is inconsistent with the associated discounts, rebates, or other
apply. price concessions paid to third party
legislative intent of the DRA for CMS to
Response: We have clarified in the payers such as rebates paid by the
include sales reimbursed by SPAPs for
regulation text at § 447.504(h)(23) that manufacturer to Medicare Part D,
non-Medicare Part D covered
associated discounts, rebates, or other SCHIP, and SPAP are not included in
prescriptions in the calculation of the
price concessions paid to third party AMP. However, we continue to believe
AMP because no Federal money is
payers such as rebates paid by the that the respective sales are included in
involved, making it outside CMS’
manufacturer to a SPAP are not AMP to the extent that such sales have
purview in determining what to include
included in AMP. Such price occurred through the retail pharmacy
in AMP. One commenter stated that the
inclusion of SPAPs seems inconsistent concessions are essentially third party class of trade. However, the associated
with legislative intent. discounts and not discounts which discounts, rebates, or other price
Response: CMS believes that SPAP adjust the price actually realized. concessions for these sales are not
sales should be included in AMP given Comment: One commenter noted that included in AMP because we
our understanding of the statute. We the proposed rule directs manufacturers understand such price concessions are
also find that SPAP sales, like Medicaid to consider sales and associated price essentially third party discounts and not
and Medicare Part D sales, are part of concession extended to SPAPs. discounts which adjust the price
the broader chain of sales from However, manufacturers do not have actually realized.
manufacturers to wholesalers or access to this information until they Comment: One commenter stated that
pharmacies that are indistinguishable receive quarterly invoices from the SCHIP should be excluded from AMP
from other market sales. We believe that states. CMS should include in the final and another commenter expressed
SPAP sales are within the scope of AMP rule instructions for addressing lagged support for the inclusion of SCHIP.
because AMP is intended to capture data. Response: We agree that the treatment
sales to the retail pharmacy class of Response: We have in of SCHIP sales is determined by the
trade. § 447.504(h)(23) excluded the associated entities that are actually in the sales
Comment: One commenter requested discounts, rebates, or other price chain for drugs for SCHIP beneficiaries.
that CMS post on its Web site a concessions provided by the We recognize that SCHIP sales are
complete and accurate list of qualified manufacturer to SPAPs from AMP in similar to Medicaid sales and should be
SPAPs which is updated on a frequent this final rule. treated as such. Therefore, we have
and regular basis. Comment: One commenter requested clarified in the regulation text at
Response: We appreciate this that CMS define SPAP. § 447.504(h)(23) that the associated
comment and will continue to post a Response: We have decided not to discounts, rebates, or other price
current list of SPAPs designated as define SPAP in this regulation at this concessions for these sales are not
exempt from best price on the CMS Web time. The current guidance for the included in AMP. We understand that
site at http://www.cms.hhs.gov/ definition of SPAP has been set forth in such price concessions are essentially
MedicaidDrugRebateProgram/ Manufacturer Release 68. third party discounts and not discounts
Downloads/SPAPBestPriceList.pdf. Comment: One commenter requested which adjust the price actually realized.
Comment: Another commenter asked that we share with SPAPs the quarterly We retained in the regulation text at
that CMS treat SPAP sales consistently unit rebate amount (URA) on the basis § 447.504(g)(15) that the sale and units
associated with the sales of drugs in the excluded from AMP, the final rule must discounts, rebates, or price concessions
retail pharmacy class of trade which are specify whether the units are to be left are not available to the wholesaler, we
provided to SCHIP are included in in the calculation, as with Medicaid have clarified that the associated
AMP. rebates, or, if the units are to be rebates, discounts, or other price
excluded, the value at which the concessions are not included in AMP.
Prices to Other Federal Programs
excluded units should be removed from We retained in the regulation text at
Comment: One commenter endorsed the AMP calculation. § 447.504(h)(23) that the sales of the
CMS’ position to exclude from AMP the Response: We have clarified in this drug reimbursed by the HMO/MCO
prices provided to government programs final regulation at § 447.504(g)(15) that should remain in AMP, but sales
on the basis that such purchases are sales of drugs to pharmacies that are directly to the HMO/MCO should be
outside the retail pharmacy class of reimbursed by TRICARE are included in excluded. However, when drugs are
trade. Other commenters stated that AMP, but we have revised our policy dispensed by HMOs, including managed
community pharmacies do not receive and provide in this final rule at care organizations, those drugs are not
FSS/depot prices and should be § 447.504(h)(23) that associated subject to the requirements of the
excluded from AMP. discounts, rebates, or other price Medicaid drugs rebate program.
Response: We appreciate the support concessions, whether mandatory or Comment: One commenter noted that
for this provision and have retained this voluntary, are excluded from AMP. in some places in the proposed rule
requirement at § 447.504(h) in the final Comment: One commenter requested CMS uses the terms MCO and HMO
rule. that CMS clarify whether payment of interchangeably, but in others, it refers
Comment: Several commenters stated rebates by a manufacturer on TRICARE to ‘‘health maintenance organizations
that CMS rightly excluded from AMP, utilization is a prerequisite for (HMOs), including managed care
manufacturer rebates paid to the DoD concluding that such utilization is a organizations (MCOs).’’ The commenter
under TRICARE. One commenter depot sale. noted that MCO is usually an umbrella
requested that the classification of the Response: We have clarified in the term for a number of different entities,
retail TRICARE pharmacies as a depot final regulation at § 447.504(h)(23) that one of which is an HMO. The
should be avoided until the issue associated discounts, rebates, or other commenter requested that CMS clarify
between manufacturers and the DVA price concessions to TRICARE are the definition of MCO for purposes of
has been resolved. Several commenters excluded from AMP. the final rule. Another commenter
requested that CMS provide clarification Comment: Several commenters stated stated that neither HMO nor MCO is
regarding which TRICARE prices, if any, that CMS rightly excluded manufacturer defined in the proposed rule.
are considered depot prices and are rebates paid to the DVA and the DoD Response: We acknowledge that the
excludable. Several commenters from AMP. terminology used for these entities
requested that CMS provide clarification Response: We appreciate the support varies. Our intent is that sales to HMOs
in the treatment of TRICARE utilization for this provision and have retained this and MCOs that purchase and take
when the manufacturer has not paid requirement at § 447.504(h)(1) in the possession of drugs are excluded from
rebates on the utilization and does not final rule. AMP. We have clarified in
receive utilization data. § 447.504(h)(23) that the associated
Response: We appreciate the HMOs and MCOs
rebates, discounts, or other price
comment regarding the litigation Comment: A few commenters stated concessions for an HMO does not
concerning TRICARE and DVA program. that it is unclear whether the HMO/ purchase or take possession of drugs are
See The Coalition for Common Sense in MCO exclusion from AMP applies only not included in AMP. We retained in
Government Procurement v. Secretary of to purchases by MCOs that have their the regulation text at § 447.504(g)(15)
Veteran Affairs, 464 F.3d 1306 (Fed. Cir. own facilities, or whether it also that the sales of the drug reimbursed by
2006). However, we recognize that excludes transactions of health plans the HMO/MCO should remain in AMP.
TRICARE, like the Medicaid Program, is that reimburse network providers. The Comment: One commenter requested
a third-party governmental payer that commenters further stated that only that CMS clarify whether HMO-operated
does not directly purchase drugs from transactions with clearly identifiable pharmacies that provide drugs only to
manufacturers. After considering the HMOs and health plans should be their enrollees are excluded from AMP.
comments received, we agree that treated as excluded from AMP. Many The commenter noted that these
TRICARE sales, as well as sales to commenters asked that CMS clarify that pharmacies do not serve the general
SPAPS, PDPs and MA–PDs under the HMOs that simply reimburse enrollees public in the way that other retail
Medicare Part D Program should be for their drug purchases at retail pharmacies do.
treated in the same manner as Medicaid pharmacies (without themselves Response: HMO-operated pharmacies
sales to the extent that such sale has purchasing or taking possession of the that purchase drugs and provide these
occurred through the retail pharmacy drugs) are included in the calculation of drugs only to their enrollees are
class of trade. That is, sales of drugs to AMP. excluded from AMP. We have clarified
pharmacies that are reimbursed by these Response: We recognize that many in the regulation text at § 447.504(h)(5)
programs are included in AMP, but we HMOs that act as third party payers, like that direct sales to HMO-operated
have revised our policy and provide in SPAPs and PBMs, do not generally take pharmacies are excluded from AMP.
this final rule at § 447.504(h)(23) that possession of pharmaceutical products. Comment: One commenter asked that
associated discounts, rebates, or other Sales of these drugs flow through the we clarify whether the reference to
price concessions to these programs are regular retail chain of sales and are not HMOs and MCOs are limited to so-
excluded from AMP. distinguishable to manufacturers. called ‘‘staff model’’ HMOs and MCOs
Comment: One commenter requested Accordingly, similar to a third party that purchases pharmaceuticals for
that CMS clarify whether the exclusion payer, when an HMO does not purchase dispensing to their members, or whether
for depot prices applies both to or take possession of drugs, we consider they include so-called ‘‘IPA-model’’
mandatory rebates and voluntary rebates those sales to be within the retail sales HMOs and MCOs that arrange for
paid to the DoD. Additionally, if chain and not the HMOS. Because as pharmacy discounts but do not actually
voluntary rebates paid to DoD are to be with other third party payers, the purchase drugs.
Response: As explained above, direct follow a particular method for two standard methods by which
sales to HMOs that purchase and take evaluating whether a fee equals fair manufacturers have paid service fees
possession of drugs, such as many staff market value. The commenter further and recommended that CMS create an
model HMOs, would be excluded from said that the bona fide service fee additional explicit exclusion for
AMP. definition requires these fees to ‘‘not be administrative fee arrangements that
Comment: One commenter was passed on, in whole or in part, to a meet the OIG safe harbor under the anti-
pleased that CMS included MCOs in its client or customer of an entity.’’ The kickback statute.
definition of HMOs, which the statute commenter urged CMS to replicate its Response: We believe that it is outside
specifically excludes in section 1927 of interpretation of this clause in the ASP the scope of our authority to propose
the Act. Another commenter expressed context for AMP. Another commenter exclusions regarding the OIG safe harbor
support for the treatment of HMOs/ stated that CMS should clarify that the under the anti-kickback statute since
MCOs. explanations applicable to the definition only the IG of the U.S. Department of
Response: As discussed in the of bona fide service fees when Health and Human Services has been
preceding responses, we distinguish manufacturers are calculating ASP also authorized to issue advisory opinions
between HMOs and MCOs that purchase apply when they are determining AMP related to health care fraud and abuse
and take possession of drugs, which are and best price because many under section 1128D(b) of the Act.
excluded from AMP, from those that manufacturers do not make products Comment: Several commenters
reimburse for drugs through retail subject to ASP reporting and may not be recommended that CMS eliminate the
pharmacies, which are included in familiar with the discussion of service condition that the services would be
AMP. fees in the preamble to the 2007 PFS required ‘‘in the absence of the service
Comment: One commenter requested final rule. The commenter requested arrangement’’ or otherwise clarify that
that CMS exclude direct and identifiable CMS to expressly reference the fees paid for bona fide administrative
indirect sales to HMOs that operate their discussion of bona fide service fees in services related to the administration of
own pharmacy. the preamble to the 2007 PFS final rule, a rebate contract will qualify as ‘‘bona
Response: As noted in the preceding as well as make clear that CMS is fide service fees’’ as long as they are: (i)
responses, these sales are excluded from adopting the principles and positions for legitimate services, (ii) for services
AMP. applicable to bona fide service fees that the manufacturer would otherwise
outlined in the 2007 PFS final rule in have to perform or have others perform
Administrative and Service Fees for it, and (iii) represent fair market
the ASP context for purposes of AMP
Comment: Several commenters agreed and best price. value.
with CMS that ‘‘bona fide service fees’’ Response: We agree. In light of the Response: We disagree. We do not
should not be taken into account for the many comments received, we are believe that for the purposes of the
purpose of AMP. These commenters adopting the 2007 final ASP reporting Medicaid drug rebate program,
noted that this is consistent with rule’s (71 FR 69668, December 1, 2006) administrative services related to the
Congress’s intent and consistent with interpretation of the definition of bona administration of a rebate contract
the treatment of bona fide services fees fide service fees and how manufacturers would qualify as bona fide service fees
for the calculation of ASP for Medicare may apply the definition for the because these fees are not associated
Part B. purposes of AMP and best price. We with the efficient distribution of drugs
Response: We appreciate the support appreciate these comments and have or our interpretation of the bona fide
for this provision and have retained this further clarified in § 447.502 that bona service fee guidance.
provision at § 447.504(h)(19) in the final fide service fees mean fees for an Comment: A commenter further said
regulation. expense that would have been paid by that bona fide service fees should
the manufacturer at the same rate had explicitly include all fees paid by
ASP
these services been performed by the manufacturers to non-terminal retail
Comment: Many commenters manufacturer or another entity. providers.
requested that CMS explicitly adopt all Comment: One commenter believes Response: We disagree. We believe
guidance related to the definition of CMS should apply the definition of that the definition and additional
bona fide service fee contained in the bona fide service fees to the term guidance clearly defines what
preamble to the 2007 Physician Fee ‘‘distribution services’’ on the basis that constitutes a bona fide service fee and
Schedule (PFS) final rule published on the ASP final rule has clearly articulated distinguishes these fees from other fees
December 1, 2006 (71 FR 69624). a standard for exclusion. Furthermore, that may reduce the price of a drug.
Another commenter supported the same incorporating the term ‘‘distribution Comment: One commenter strongly
approach for AMP in Medicaid. CMS services’’ into the definition of AMP supports CMS’ proposed definition of
defined these fees as ‘‘expenses that does not reflect the fact that many core bona fide services and believes that the
generally would have been paid for by distribution services—such as decision to adopt the same definition of
the manufacturer at the same rate had packaging, shipping and handling—may these fees for both ASP and AMP will
these services been performed by other meet the test of bona fide service fee and enhance uniformity in reporting across
or similarly situated entities.’’ CMS should be excluded from AMP. the Medicare and Medicaid Programs.
should continue to permit Response: We appreciate this However, the commenter encourages
manufacturers, depending on the comment and have clarified at CMS to confirm several points by
circumstances and the nature of the § 447.504(h) that distribution services replicating portions of the narrative of
services involved, to calculate the fair which meet the definition of bona fide the PFS final rule and (1) deleting the
market value for a set of itemized bona services fees are excluded from AMP. specific reference to ‘‘distribution fees’’
fide services, rather than for each Comment: Several commenters in the definition of AMP, (2) confirm
service individually. Moreover, as the expressed support for the exclusion of that the terms ‘‘bona fide,’’ ‘‘itemized,’’
method for determining fair market legitimate service fees from AMP, since and ‘‘actually performed on behalf of
value may vary based on the terms of by definition, these fees are paid for the manufacturer or otherwise
the contract at issue, CMS should services, not the drug. However, the performed’’ include ‘‘any reasonably
refrain from requiring manufacturers to exclusion only recognizes one of the necessary or useful services of value to
the manufacturer that are associated the member pharmacy, client or sales to hospitals would be excluded
with the efficient distribution of drugs.’’ customer of any entity included in the from AMP in this circumstance.
CMS should reiterate that AMP will calculation of AMP in order for the Response: We agree that these fees
incorporate the ASP definition’s manufacturer to exclude these fees from should be excluded to the extent that
reference to services that are performed the determination of AMP. the sales are not recognized as
‘‘on behalf of’’ a manufacturer as Comment: Several commenters said outpatient hospital sales as elsewhere
including both those services that a that unlike the ‘‘safe harbor’’ discussed in this final rule.
manufacturer possesses the capacity to regulations, the proposed rule should Comment: One commenter expressed
perform and those that only another not differentiate between administrative support for the comment provided by an
entity can perform. fees paid to entities, such as GPOs and entity within the industry which
Response: We appreciate the support PBMs, and fees for other services, such suggested that fees to GPOs should not
for this provision and have incorporated as distribution and inventory be treated as price concessions ‘‘unless
the final ASP reporting rule’s management. The commenter further the fees (or any portion thereof) are
interpretation of the definition of bona supported the exclusion of both types of passed on to the group purchasing
fide service fees at § 447.502 and how fees from AMP, if they satisfy the organization’s members or customers as
manufacturers may apply the definition criteria for itemized bona fide services part of an agreement between the
for the purposes of AMP in its entirety. performed on behalf of a manufacturer manufacturer and GPO.’’
for fair market value not passed through Response: We have incorporated the
Group Purchasing Organizations 2007 final ASP reporting rule’s
to a customer or client of the recipient,
Comment: Many commenters interpretation of the definition of bona
regardless of whether it takes title to the
requested that CMS specify that fide service fees at § 447.502 and how
drugs, because such fees are necessary
administrative fees paid to GPOs be manufacturers may apply these
business expenditures. However, the
specifically excluded from AMP. A few definitions for purposes of AMP. We
commenters urge CMS to allow
commenters requested that CMS clarify believe that it is necessary to retain
categorical exclusion of administrative
an issue in the preamble to the final consistency regarding bona fide service
fees of three percent or less if they fall
ASP rule regarding whether fees paid to fees and clarify that to the extent that
within the GPO administrative fee safe
GPOs would come within the definition fees to GPOs meet the definition of
harbor, including its limitation with
of bona fide service fees. The ‘‘bona fide service fees’’ the fees are
commenters stated that these fees ownership of members. Such a
excluded from the calculation of AMP.
should receive the same treatment as categorical exclusion would be Comment: One commenter stated that
other administrative and service fees for consistent with the purpose of the the proposed rule treats fees, discounts
the purpose of AMP and best price. statutory exemption and safe harbor, and other concessions offered to
Also, CMS should clarify in the final which encourage group purchasing purchasers of drugs the same as
rule that such arrangements do not arrangements, and alleviate the payments made to third parties like
constitute price concessions or necessity to evaluate each GPO PBMs and GPOs that do not purchase or
discounts to purchasers and should agreement to determine if it is fair take possession of drugs (and for GPOs,
require the manufacturer to ascertain if market value for bona fide services do not even pay for drugs). The
the fee is passed on. One commenter received by the manufacturer. commenter requested that CMS limit the
requested that CMS clarify that fees paid Response: We appreciate these provision to price reductions and other
to GPOs are excluded and revise the comments and have clarified at payments that flow to purchasers, and
definition of bona fide service fee to § 447.504(h)(19) that to the extent that expressly exclude payments that flow to
read, ‘‘For purposes of 42 CFR fees to GPOs meet the definition of third parties not involved in the
§§ 447.504(h) and 447.505(e), fees paid ‘‘bona fide service fee,’’ they are purchase transactions. The commenter
by a manufacturer to a bona fide group excluded from the calculation of AMP. recommended that CMS clarify this to
purchasing organization, as defined at We believe that to propose a categorical state that all fees that manufacturers pay
42 CFR § 100.952(j)(2), will not exclusion of administrative fees of 3 to customers or third parties meeting the
constitute a price concession by the percent or less if they fall within the definition of a bona fide service fee are
manufacturer unless the fees (or any GPO safe harbor provisions would be excluded from the calculation of AMP.
portion thereof) are passed on to the inconsistent with our guidance The commenter contended that the
group purchasing organization’s regarding an actual determination of the provision clouds the issue of proper
members or customers as part of an amount of bona fide service fees. handling of bona fide service fees and
agreement between the manufacturer Comment: One commenter requested appears to create distinctions between
and the GPO.’’ that CMS clarify that the guidance administrative fees, service fees and
Response: We have clarified in provided in the preamble to the final distribution fees that do not always
§ 447.504(h)(19) that to the extent that rule on the ASP calculation is equally exist.
fees, including service fees, distribution applicable in the Medicaid context, Response: We appreciate this
fees, and administrative fees and other except with regard to those comment and have clarified at § 447.502
fees to GPOs meet the definition of circumstances in which a GPO is that to the extent that fees to any entity
‘‘bona fide service fee,’’ such fees are passing on fees to members. included in the retail pharmacy class of
excluded from the calculation of AMP Response: As we have previously trade meet the definition of bona fide
and are not considered price stated, we have incorporated the policy fees, they are excluded from the
concessions. If the manufacturer has an in the ASP rule into this final regulation calculation.
agreement with the GPO that any of in § 447.502. Comment: One commenter
these monies are passed on to the group Comment: One commenter further recommended that CMS remove the
purchasing organization’s members or requested that CMS clarify that GPO bona fide service fees provision because
customers, they would not be excluded fees do not affect AMP calculations this term is not well defined and is open
as a bona fide service fee. We believe when the GPO negotiates prices for for interpretation, abuse, and fraud. The
there must be no evidence or member hospitals for drugs used in the commenter believed that if this term
arrangement that the fee is passed on to inpatient setting, since the underlying reduces AMP, it should be eliminated.
Response: We disagree. We believe this final rule and will continue to manufacturers and PBMs. We have not
that the excluding bona fide service fee review such arrangements individually. further defined ‘‘fair market value’’ so
results in an appropriate measure of that manufacturers have the flexibility
Fair Market Value
AMP. We also believe that it provides to determine fair market value
the appropriate safeguard against Comment: One commenter disagrees consistent with industry accepted
potential fraud and abuse. The Federal with the adoption of Medicare Part B’s methods. This is consistent with our
Government, however, will continue to definition of fair market value. The adoption of the discussion in the 2007
monitor these calculations to assure commenter said that AMP should not final ASP reporting rule (see 71 FR
they are not done improperly. exclude bona fide service fees set at the 69668, December 1, 2006).
Comment: One commenter said that fair market value because Part B drugs Comment: One commenter
the final rule should provide an cannot be purchased by the pharmacy recommended that CMS not provide
overview of the types of payments that community at the prices set using ASP. that a fee must not be passed on in order
are bona fide service fees but not The commenter further stated that for it to be considered a bona fide
identify an exclusive list. This would excluding bona fide service fees from service fee. If the fee is for a legitimate
allow for manufacturers and contracting AMP would transform chain pharmacy service performed for the manufacturer,
entities to make future interpretations stores into variety stores and it should not matter if it is passed on.
based on the practices of the independent pharmacies would cease to Moreover, the administrative burden for
marketplace. The commenter did not exist. Access to prescription drugs manufacturers to gather confidential
see the need for future guidance or would be unavailable and hospital information from PBMs and others in
rulemaking to add to this list and emergency rooms would become the drug channel would be significant
understaffed clinics. and may cause manufacturers to forgo
believes that doing so may reduce the
Response: We disagree. We do not any service arrangements.
level of innovation and impede the
believe that allowing manufacturers to Response: We disagree. We believe
delivery of new products to patients. exclude bona fide service fees that that a fee which is passed on is not a
Other commenters requested that CMS represent the fair market value of the bona fide service fee but rather a price
provide more guidance as to what service will have any impact on the concession. Price concessions reduce
constitutes a bona fide service fee, as operations of chain and independent the price realized by the manufacturer
well as provide additional parameters pharmacies. for drugs distributed to the retail
and/or specific examples to assist Comment: One commenter stated that pharmacy class of trade. We understand
manufacturers in making this to be truly fair and appropriate, the that manufacturers may face
determination. Another commenter definition of fair market value of drugs administrative burdens regarding the
supported excluding bona fide service must be in some way related to the collection of data to determine whether
fees from AMP, especially when those purchasing power of the pharmacy a fee is passed on and have incorporated
fees are not passed through to the involved. If all pharmacies are to be the discussion in the 2007 final ASP
product’s ultimate purchaser, but did included in the calculation, then it must reporting rule (see 71 FR 69669,
not support any attempt to list specific be the cost at which the least powerful December 1, 2006). Finally, elsewhere
bona fide service fees in the final purchaser can obtain the product. in this final rule, we have excluded
regulation. The commenter further Alternatively the markets could be rebates, discounts and price concession
noted that the preamble should provide separated in a fair manner and the to PBMs so there is no longer the
examples of types of bona fide service average acquisition cost for each market administrative burden associated with
fee payments that would be acceptable could be considered to be the fair PBM adjustments.
for exclusion from the AMP calculation market value of that particular segment. Commenter: One commenter asked
at this time. Response: We believe that the that CMS allow manufacturers
Response: We believe that the commenter misunderstood the context discretion in selecting methodologies
definition defines what constitutes a of fair market value as it relates to a for determining fair market value and in
bona fide service fee. Providing a list of manufacturer’s payment of bona fide identifying the types of services that can
types of bona fide service fee payments service fees. We do not believe that qualify as bona fide services.
could limit the scope of what allowing manufacturers to determine Response: We have not further
constitutes a bona fide service and, the fair market value of drug defined ‘‘fair market value’’ so that
because of the complexities of the distribution services as it relates to bona manufacturers have the flexibility to
marketplace, raises further questions as fide service fees impacts the average determine fair market value consistent
to why some examples were included acquisition cost. with generally recognized standards.
and some excluded from that list. Comment: One commenter supported This is consistent with our adoption of
Other Fees the exclusion of bona fide service fees the discussion in the 2006 final ASP
from AMP but stated that an reporting rule (see 71 FR 69668,
Comment: Commenters requested that unnecessarily narrow reading of what December 1, 2006).
CMS provide guidance regarding the constitutes ‘‘fair market value’’ Comment: One commenter requested
treatment of payments from remuneration for legitimate services that CMS amend the definition of bona
manufacturers for performing certain performed on behalf of a manufacturer fide service fee to reflect that a fee paid
patient care programs, such as patient may disrupt normal and legitimate by a manufacturer to a group purchasing
education and compliance and business transactions between PBMs organization, as that term is defined in
persistency programs. These payments and manufacturers. 42 CFR § 1001.952(j), represents ‘‘fair
should be omitted from the AMP Response: Elsewhere in this final rule, market value’’ if the fee results from
calculation because they do not reflect we have excluded rebates, discounts arms-length, bona fide bargaining
prices paid by wholesalers for drug and price concessions provided to PBMs between the manufacturer and the GPO.
products or reduce the retail pharmacy’s from the determination AMP, except for Response: We believe that the
cost of purchasing the drugs. purchases through PBM mail order proposed definition and additional
Response: We are providing no pharmacies eliminating an effect on guidance incorporated from the final
further policy on these arrangements in these transactions between ASP reporting rule clarifies that fees,
including service fees, administrative Response: We believe that the resell or provide drugs to the general
fees and other fees paid to GPOs are not definition and additional guidance public. A few commenters said that
considered price concessions to the clearly defines what constitutes a bona there is no support for CMS to expand
extent that they satisfy the definition of fide service fee and distinguishes these ‘‘wholesaler’’ and ‘‘retail pharmacy class
a bona fide service fee. fees from other fees that may reduce the of trade’’ to include direct-to-patient
Comment: A commenter said that price of a drug. sales by a manufacturer. CMS has not
CMS should amend the definition of provided an analysis as to why it
‘‘bona fide service fee’’ to allow that a Retail Impact
believes patients are within the retail
payment need not represent fair market Comment: One commenter said that pharmacy class of trade.
value in order to qualify as a bona fide community pharmacies do not receive Response: We appreciate the
services fee. administrative service agreements from comment and have clarified that where
Response: We do not agree. As wholesalers and should be excluded the distributor is acting as a wholesaler,
previously discussed, we have not from AMP. Another commenter stated such sales should be included in AMP.
further defined ‘‘fair market value’’ so that administrative fees and service fees We believe such sales are usually for
that manufacturers have the flexibility paid to wholesalers, PBMs or HMOs specialty drugs through a direct
to determine fair market value should not be excluded from the distribution arrangement, where the
consistent with generally recognized calculation of AMP because these fees manufacturer may retain ownership of
standards. This is consistent with our are not available to the retail pharmacy the drug and pay either an
adoption of the discussion in the 2006 of trade. The commenter further stated administrative or service fee to a third
final ASP reporting rule (see 71 FR that the fees are kept by the above party for functions such as the storage,
69668, December 1, 2006). entities and have no effect on invoice delivery and billing of the drug. In this
Comment: Other commenters stated pricing to the retail pharmacy. If CMS case, where the distributor is acting as
that CMS should allow a manufacturer feels that these fees are more than a wholesaler, such sales should be
to exclude from AMP any payment to nominal, then this should be addressed included in AMP.
any entity other than a purchaser, where in the future through further legislation. Comment: A few commenters said
this payment is not passed on in whole Response: We disagree. A that direct-to-patient programs are an
or in part by the entity to a purchaser manufacturer’s AMP should include efficient, cost-effective means to provide
of the manufacturer’s drugs as a price administrative fees, service fees (except much needed therapies. Federal policy
concession by the manufacturer. bona fide service fees) and distribution should encourage such programs rather
Response: We disagree. We believe fees for those entities and units of drugs than discourage their development and
that the proposed definition and included in the determination of AMP. use. However, requiring manufacturers
additional guidance incorporated from to include such sales in AMP many
the final ASP reporting rule clearly Direct Patient Sales
have an unintended effect of
define what constitutes a bona fide Comment: One commenter supported discouraging manufacturers from
service fee to an entity included in the the inclusion of direct patient sales in implementing such programs. The
retail pharmacy class of trade, which is AMP on the basis that when drugs are commenter urged CMS to revise its
excluded from AMP. provided to patients through proposed rule so that direct sales to
Comment: One commenter requested distributors, the distributor is acting as patients are excluded from AMP.
that CMS clarify whether a service fee a wholesaler and the transaction is a Another commenter said that including
determined not to be ‘‘bona fide,’’ sale to the retail pharmacy class of these sales and, presumably, discounts,
should be prorated to include only that trade. in the AMP calculation may potentially
portion related to sales included in Response: We appreciate the support serve as a disincentive for
AMP. for this provision and have retained this manufacturers to offer patient assistance
Response: A manufacturer’s AMP requirement in the final rule at programs or other subsidies to patients.
should include administrative fees, § 447.504(g)(7). However, as discussed If the intent of the AMP calculation is
service fees (except bona fide service below, we did not intend to include to determine the net price paid by
fees) and distribution fees for those patient assistance programs. wholesalers for drugs to the retail
entities and units of drugs included in Comment: A few commenters stated pharmacy class of trade, including sales
the determination of AMP. that CMS should reconsider the and discounts directly to patients may
Comment: One commenter agreed that rationale used to include direct sales to improperly lower AMP.
certain service fees should be included patients in AMP because the statute Response: The inclusion of direct
in the calculation of AMP on the basis does not contemplate those patients patient sales in AMP is not intended to
that some wholesalers charge inventory within the classes of purchasers used to discourage manufacturers from
service or stocking fees to certain determine AMP. One commenter said implementing these programs. However,
manufacturer for carrying their that sales directly to patients should be we believe that the inclusion of such
products. Fees such as inventory service excluded from AMP. Several direct patient sales in AMP (where the
or stocking fees should not be commenters said that sales and rebates distributor is acting as a wholesaler) is
considered bona fide service fees as they associated with direct sales programs consistent with our understanding of
do not fall under the proposed should not be included in AMP for the statute and our definition of
definition and effectively result in a pharmacy reimbursement. Many wholesaler. The policy with respect to
discount that should be considered commenters said that the retail patient assistance programs is addressed
when calculating AMP. The commenter pharmacy class of trade does not have elsewhere in this final rule.
further expressed concern that access to direct to patient sales and that Comment: One commenter said that
inventory service or stocking fees they should not be included in AMP. the inclusion of direct patient sales in
charged to manufactures by wholesalers One commenter requested that CMS AMP is inconsistent with CMS’ position
are not imposed uniformly and agreed explain how drugs distributed directly on patient coupons, which are excluded
that these should be excluded from to patients fall within the definition of from AMP.
AMP to ensure consistency between drugs distributed to the retail pharmacy Response: We disagree. Direct patient
manufacturers. class of trade when patients do not sales (where the distributor is acting as
a wholesaler) are like other sales Medicaid drug rebate program, and the replacement cost of products
included in AMP where the harmonizing the AMP calculation with returned in good faith.
manufacturer sells a drug to a that of ASP. Thus, they asked that CMS Response: The returned goods policy
wholesaler/distributor which then sells/ finalize its proposed rule on returned in this regulation pertains to when
transfers the drug to a pharmacy or goods. payments for these goods are to be
dispenses the drug itself. Our policy is Response: We appreciate this support excluded from AMP. It should not affect
based on our understanding of the and have retained this requirement in negotiated agreements between
transaction and on the pharmacy or the final rule at § 447.504(h)(21). pharmacies and manufacturers
wholesaler not being involved in the Comment: Several commenters regarding returned goods. While the
patient coupon transaction given that requested that CMS clarify the standards proposed rule did not address the
there is no adjustment of price at the for determining when a return is made treatment of replacement products, in
wholesaler or pharmacy level. in good faith. The commenters asked the final rule at § 447.504(h)(21), we
Comment: One commenter requested whether a manufacturer may assume clarify that replacement products
that CMS clarify whether products that goods are returned in good faith if should not be included in AMP.
which are sold directly to patients a manufacturer has no evidence to the Comment: One commenter said that
through company stores that sell only to contrary. Alternatively, they requested the language regarding handling
the company’s employees are included that CMS delete the ‘‘good faith’’ returned goods in ‘‘good faith’’ leaves
in AMP. requirement as this requirement too much opportunity for interpretation
Response: We are unable to respond addresses the intentions of those by various manufacturers. The
to this comment as the commenter did returning the drugs and not the commenter stated that CMS should
not include enough specific information manufacturer. clearly state whether or not returned
to enable us to do so. However, we have goods are to be included in pricing
Response: We intend that ‘‘good
defined retail pharmacy class of trade at calculations rather than providing a
faith’’ must be demonstrated on the part
§ 447.504(e) to mean any independent method for some manufacturers to pick
of the manufacturer, not the returning
pharmacy, chain pharmacy, mail order and choose when they will exclude
entity. We believe that returns made in
pharmacy or other outlet that purchase returns.
good faith should be made in Response: We do not agree that we
drugs from a manufacturer, wholesaler,
distributor, or other licensed entity and accordance with pre-existing should provide a standard definition at
subsequently sells or provides the drugs manufacturer policies that comply with this time. As previously stated, we
to the general public. We will continue customary acceptable business believe that returns made in ‘‘good
to respond to such questions via the practices; and applicable laws and faith’’ should be made in accordance
website or informal guidance when regulations. with manufacturer policies that comply
additional information can be obtained. Comment: One commenter stated that with customary business practices; and
Comment: One commenter requested these negotiated return goods policies applicable laws and regulations.
that CMS clarify the meaning of ‘‘direct should take into consideration the Comment: The commenter
sales’’ as it used in the calculation of unique burdens which retail pharmacies recommended that we eliminate the
AMP. must absorb in order to efficiently reference to ‘‘manufacturers’ policies’’
Response: As we understand this return expired pharmaceutical products as it is unfair and could result in
term, it means sales for which the to manufacturers. By mandating that additional changes by manufacturers in
manufacturer exerts control over the only returns made pursuant to their policies that would compromise
distribution of the drug through either manufacturers’ policies be excluded community retail pharmacy.
an exclusive wholesaler/distributor or from AMP, CMS could be voiding these Response: We disagree. Historically,
pharmacy. While this is the general negotiated return goods policies (which manufacturers have had the flexibility
definition we used to respond to these were negotiated in good faith between to determine whether returns were to be
comments, we note that the underlying manufacturers and retailers) and are credited to the quarter of sales or quarter
basis for our policy on these sales’ forcing retailers to accept of receipt. This has caused difficulty for
inclusion in AMP is based on our manufacturers’ policies and their some manufacturers when returns have
broader policy concerning the type of inherent deficiencies. The commenter substantially reduced AMP in a quarter
sales that are included in our definition asserted that such action ignores that or resulted in a negative AMP. In light
of the retail pharmacy class of trade. retailers absorb considerable cost of these concerns, we proposed to
through replacement value of returns, exclude returned goods from the
Returned Goods inventory carry cost, reverse logistic calculation of AMP. The intent of this
Comment: Some commenters costs, and administrative expense. In revision is not to cause or encourage
expressed support for CMS’ proposal to order to remedy this inequity, the manufacturers to change their current
exclude returned goods from the commenter believes that goods returned policies regarding returns. On the
calculation of AMP pursuant to in good faith pursuant to a commercial contrary, the exclusion of returned
manufacturer policies that are not agreement, written or otherwise, goods will allow the manufacturer to
designed to manipulate or artificially between a manufacturer and a purchaser calculate and report an AMP that is
inflate or deflate AMP. The commenters of its product, including wholesalers more reflective of its true pricing
believed that manufacturers should be and pharmacies, should also be policies to the retail pharmacy class of
able to design their return policies and excluded from AMP. The commenter trade in the reporting period. It
exclude such returns from AMP, further recommended that CMS adopt a eliminates artificially low, zero or
provided the policies do not represent a policy regarding returned goods that negative AMPs that may result from
covert means of manipulating AMP. As define them as the result of a these adjustments.
they understood it, CMS’ proposal commercial agreement, written or Comment: One commenter expressed
permits manufacturers the operational otherwise, between a manufacturer and support for the proposal to exclude
freedom to define and accept returned a purchaser of its product, including returned goods from AMP. The
goods, while eliminating administrative wholesalers and pharmacies, which are commenter further requested that CMS
burdens, preserving the integrity of the designed to reimburse pharmacies for clarify that manufacturers may exclude
returned goods based on the good faith Comment: One commenter expressed the face value of the coupon up to the
of the manufacturer in accepting the concern regarding the exclusion of amount the consumer is required to pay
return, because manufacturers do not returned goods because of the effect that the entity that dispense the drugs, or
have a basis to determine the good faith excluding these goods may have on subsequent to the purchase, through
of the returning purchaser. AMP. The commenter believed that a receipt of a cash reimbursement from
Response: We intend that the ‘‘good significant increase or decrease in the the manufacturer (or a vendor under
faith’’ be shown on the part of the AMP as a result of a returned good contract to the manufacturer to
manufacturer, not the pharmacy could lead to inaccuracies in FULs and administer the coupon program) where
returning the goods. In order to exclude potential future payment methodologies the reimbursement amount is equal to
returned goods from the AMP based on AMP to be used by third party the lesser of the amount the consumer
calculation, the manufacturer must programs. paid to the dispensing entity or the face
exercise good faith, in accordance with Response: We disagree. We believe value of the coupon. The commenter
the manufacturers return policy. that the exclusion of returns will further requested that CMS clarify that
Comment: One commenter requested stabilize AMP and allow the manufacturers should exclude from
that CMS clarify that goods that are manufacturer to calculate and report an AMP any fee paid to an entity other
returned in accordance with the AMP that is reflective of its pricing to than a consumer that redeems a
manufacturer’s written return policies the retail pharmacy class of trade in the manufacturer coupon where the fee
will be deemed to have been made in reporting period. It eliminates satisfies the definition of ‘‘bona fide
good faith. artificially low, zero or negative AMPs service fee’’ adopted by the final rule.
Response: We agree to the extent it that may result from these adjustments. Response: In light of the comments
meets the criteria specified in this final received, we believe that manufacturer
Manufacturer Coupons
rule. coupons redeemed by any entity other
Comment: One commenter stated that than the consumer where full value of
Comment: One commenter said that a the final rule should clarify that
manufacturer’s payment to a pharmacy the coupon is passed on to the
manufacturer coupons redeemed by consumer, and the pharmacy does not
or wholesaler for expired or recalled consumers, either directly to the
merchandise as well as fees associated receive any price concessions, should be
manufacturer or at point of sale through excluded from AMP. We also agree with
with those services should be excluded pharmacies, are excluded from AMP as
from the manufacturer’s AMP the comment regarding the need to
long as manufacturer payments to clarify criteria regarding coupons and
calculation of the basis that the level of pharmacies are limited to administrative
credit provided is not enough to cover are codifying our prior guidance in this
fees, charged at fair market rates, to final rule with respect to manufacturer
the replacement values, the cost of compensate the pharmacies for their coupons at § 447.504(g)(15) to state that
carrying the product to expiration, the services; and, the prices paid by such manufacturer coupons redeemed by any
cost of returning the product and the pharmacies for the drugs are not entity other than the consumer are
administrative cost associated with affected by the coupon. Several excluded from AMP as long as the
tracking the return. commenters stated that if CMS decides following provisions are met:
Response: We would consider these that coupons redeemed by entities other 1. The manufacturer coupon is not
payments acceptable provided that this than the consumer are to be included in contingent upon any purchase
payment is in lieu of a credit for the AMP, additional guidance would be requirement to individuals.
returned good and meet the other needed regarding the valuation of such 2. The manufacturer establishes a
criteria in this final rule for such transactions in AMP (for example, at benefit amount of the coupon to be
returns. wholesale acquisition cost (WAC), retail given to individual patients, without
Comment: One commenter requested cost, or some other method). Another any negotiation between the
that CMS clarify that products destroyed commenter requested that CMS clarify manufacturer and any other third party
by purchasers (and thus, not returned to that coupons should not be included in (such as an insurer or PBM) as to that
the manufacturer) should be excluded AMP if, the benefit provided to the amount.
from AMP. patient was set by the manufacturer 3. The entire amount of the free
Response: We agree. Products that are without any negotiation between the product or coupon amount is made
destroyed with no replacement product manufacturer and a third party; the available to the individual patient,
issued can be treated as a return. entire amount of the benefit was made without any opportunity for the retail
Comment: One commenter available to an individual patient, pharmacy or any third party (such as an
recommended that recalls be treated the without any opportunity for the retail insurer or PBM), to reduce the benefit
same as returned goods and excluded pharmacy or other third party (such as amount, or take a portion of it, for its
from AMP and urged CMS to clarify the an insurer or PBM) to reduce that own purposes.
treatment for AMP calculation of any benefit or take a portion of it for its own 4. The pharmacy collects no
return fees or reasonable recall fees paid purposes; and the pharmacy collected additional payment, other than the
by manufacturers. no additional payment, other than the benefit amount and a bona fide service
Response: We agree to the extent that benefit amount, from the drug discount fee, from the coupon.
these recalls meet the other criteria in program. Coupons redeemed directly by Comment: Many commenters
this final rule. patients with the manufacturer should requested that CMS clarify that it does
Comment: One commenter requested be treated the same as coupons not matter who or which type of entity
that CMS clarify whether a redeemed through other parties. The provides the benefit to the patient.
manufacturer may treat all chargeback commenter proposed that CMS adopt as Another commenter requested that CMS
reversals as returns if data is not a definition of manufacturer coupon any make clear that manufacturer coupons
available to the manufacturer to indicate certificate provided to a consumer that redeemed by a consumer, whether
otherwise. provides by its terms that the consumer directly or indirectly to the
Response: Only returns within the is entitled to a discount on his or her manufacturer should be excluded from
criteria in this final rule are to be purchase of drugs, either at the point-of- AMP. One commenter stated that in
excluded from AMP. purchase, through a reduction equal to instances where a third party vendor is
used by the manufacturer to administer expense, plus a bona fide service fee. pharmacy does not receive any price
a coupon program on its behalf, that the The commenter further stated that CMS concessions, it should be excluded from
coupon be considered redeemed should require manufacturers to exclude AMP. We have amended the final rule
directly to the manufacturer by the from AMP any manufacturer coupon at § 447.504(h)(16) to incorporate these
consumer. One commenter requested redeemed by a consumer either directly comments.
that CMS affirm that, when the only to the manufacturer or to a vendor Comment: One commenter said that
party receiving an economic benefit under contract to the manufacturer to no distinction should be made between
from the program is the patient, the administer the coupon program; or manufacturer coupons and other
value of the coupon will not be alternately, any manufacturer coupon manufacturer-sponsored point-of-sale
included in AMP. The commenter redeemed by an entity other than a discounts.
further requested that CMS confirm that consumer (after being presented by the Response: This policy only applies to
the delegation of the operations of a consumer and honored by such entity) manufacturer coupons and vouchers, as
coupon program to a fulfillment house either directly to the manufacturer or to discussed in the previous response.
or other agent does not by itself cause a vendor under contract to the Comment: A commenter said that
the coupon to be included in AMP. One manufacturer to administer the coupon CMS should provide further guidance
commenter requested that CMS abandon program. If CMS does decide to treat concerning what arrangements it
its focus on redemption mechanics, as manufacturer vouchers separately from, considers to constitute ‘‘coupons
that focus will yield arbitrary results on or as part of, manufacturer coupons, directly redeemable to the
the basis that the coupons would CMS should define manufacturer manufacturer.’’ It is unclear whether
require disparate treatment for voucher to mean any certificate CMS intends for the term ‘‘coupon’’
transactions that are indistinguishable provided to a consumer that provides by only to cover coupon arrangements in
in their substance. its terms that the consumer is entitled their traditional sense or whether the
Response: We appreciate these to a specified number of units of a drug term also is intended to cover other
comments and have provided in the free of charge, without any co-payment types of consumer subsidies. Another
final regulation at § 447.504(h)(15) that from the consumer, or reimbursement to commenter requested that CMS provide
manufacturer coupons redeemed by any the entity that dispenses the drug from an explanation of what arrangements
entity other than the consumer which any insurance program of which the CMS considers to be patient coupons
meet the previously discussed criteria consumer may be a beneficiary. and guidance regarding how such
may be excluded from AMP. Furthermore, the commenter requested arrangements should be incorporated in
Comment: One commenter said that that CMS instruct manufacturers to AMP.
although coupon and voucher programs exclude from their AMP: (i) any Response: We have clarified in the
may appear similar, they are different in manufacturer voucher redeemed by a final regulation at § 447.504(h)(15) the
purpose and function. The commenter criteria that must be met for
consumer either directly to the
was concerned that ‘‘vouchers’’ may manufacturer coupons redeemed by the
manufacturer or to a vendor under
also be included in potential consumer to be excluded from AMP.
contract to the manufacturer to
interpretations of the term coupon, Comment: One commenter requested
administer the voucher program; and (ii)
whether or not this was CMS’ intent. that CMS explain how coupons other
any manufacturer voucher redeemed by
The commenter used the term, coupons than those redeemed by the
an entity other than a consumer (after
as certificates provided to patients that manufacturer are to be accounted for in
being presented by the consumer and
entitle them to discounts on their those calculations. The commenter
honored by such entity) either directly
prescription drug purchases, either at further stated that the proposed rule
to the manufacturer or to a vendor
the point of sale (through a reduction in does not account for a variety of coupon
the amount that consumer is required to under contract to the manufacturer to
arrangements that exist.
pay the dispensing pharmacy) or administer the program; and specify that Response: We have clarified in the
subsequent to the purchase (by sending manufacturers should also exclude from final regulation at § 447.504(h)(15) that
the coupon to the manufacturer or a AMP; (i) the reimbursement amount manufacturer coupons redeemed by the
clearinghouse with proof of purchase to paid for any manufacturer vouchers; consumer that meet the criteria in this
receive a cash reimbursement from the and (ii) any fees paid to an entity other final rule are excluded from AMP.
manufacturer). In either case, the than a consumer that redeems a Comment: One commenter asked if
amount of the discount provides a manufacturer voucher where the fee patient assistance continue to be
dollar for dollar reduction in the satisfies the definition of ‘‘bona fide excluded from AMP. Another
amount paid out of pocket by the services fee.’’ If CMS does not adopt the commenter requested that CMS provide
patient. In point-of-sale coupons, the approach to treating coupon and guidance regarding how a manufacturer
dispensing pharmacy receives voucher programs, clear guidance from may properly structure a patient
reimbursement for the discount passed CMS as to how manufacturers should assistance program utilizing coupons.
on to the patient plus a small handling account for the value of point-of-sale Response: In light of the comments
fee for administering the transaction. coupons and vouchers in the calculation received, we believe that patient
Vouchers are certificates provided to of AMP is needed, including specific assistance programs which extend free
patient that entitle the patient to receive mathematical examples as to how the products to consumers without
a specified number of units of a drug value of such coupon and voucher purchase contingencies and which do
free of charge. The vouchers function should be accounted for in AMP. not provide any price concessions to the
similarly to product samples. The Response: We believe that vouchers pharmacy, should be excluded from
pharmacy dispenses the drug free-of- for free sample products should be AMP. We are codifying guidance in this
charge to the patient and is then excluded from AMP in instances that final rule at § 447.504(h)(12) to clarify
reimbursed by the vendor according to the, voucher is not contingent on other that patient assistance programs should
a formula negotiated between the purchase requirements and is redeemed be excluded from AMP as long as the
vendor and the pharmacy, plus a by any entity other than the consumer, following criteria are met.
dispensing fee. The vendor bills the where the full value of the coupon is 1. The program is focused on
manufacturer for this reimbursement passed on to the consumer and the extending free products not contingent
upon any purchase requirement or price realized must be included in AMP. program exclusion from best price is
extending financial assistance to low- To count these coupons in AMP would retained in the final rule, then the final
income individuals and families, as distort those price figures and create a rule should also provide a similar
determined by CMS. disincentive for manufacturers to exclusion from AMP. The commenter
2. Each manufacturer establishes an continue offering these valuable further stated that a drug discount card
amount of the subsidy to be given to programs. Several commenters said that program involving the pass-through of a
individual patients, without any manufacturer coupons should be manufacturer discount of 100 percent to
negotiation between the manufacturer excluded from AMP because these are the consumer and does not affect the
and any other third party (such as an not sales to traditional pharmacies. price received by the manufacturer for
insurer or PBM) as to that amount. Response: We appreciate these drugs distributed to the retail pharmacy
3. The entire amount of the free comments and have clarified in class of trade.
product or subsidy is made available to § 447.504(h)(15) that manufacturer Response: We have clarified at
the individual patient, without any coupons redeemed by any entity other § 447.504(h)(17) that manufacturer-
opportunity for the retail pharmacy or than the consumer which meet the sponsored discount card programs
any third party (such as an insurer or previously discussed criteria are which meet the previously discussed
PBM), to reduce that subsidy, or take a excluded from AMP. criteria for patient assistance programs
portion of it, for its own purposes. Comment: A few commenters are excluded from AMP.
4. The pharmacy collects no requested that CMS clarify the
additional payment, other than the definition of ‘‘coupon.’’ A commenter Other Entities
benefit amount and a bona fide service further asked if CMS intended the term Comment: A few commenters
fee, from the patient assistance program. to refer only to paper coupons or to requested that CMS provide clarification
Comment: One commenter said that include patient assistance discount regarding the treatment of dialysis
CMS should provide in the final rule cards and other media provided to centers, surgical centers, ambulatory
that any type of consumer program, be consumers. care centers, and mental health centers.
it a patient assistance, coupon, or debit Response: We have not specified that Unlike walk-in pharmacies, these
card program, be exempted from AMP, coupons must be printed on paper so as providers generally provide drugs
and so as long as such program does not not to limit these in the future. We have incident to providing medical services
affect the price paid by the pharmacist clarified in the final regulation the to persons who are their private
to acquire the product. The commenter treatment of other patient assistance patients, although some physician
further said that CMS should clarify that programs.
programs should be excluded from AMP practices sell self-administered products
Comment: One commenter urged to patients who take the products home.
to the extent that the full amount of the CMS to expand the patient assistance
discount goes to the consumer and does Response: Sales to outpatient facilities
program exception to cover those such as dialysis centers, surgical
not affect the price realized by the programs as a category, regardless of
pharmacist, or any end user other than centers, ambulatory care centers and
whether they provide goods free of mental health centers that are not
a patient. charge or at limited cost to patients.
Response: We have clarified in the hospital-affiliated entities are included
Response: We appreciate this in AMP. We have clarified at
final regulation at § 447.504(h) the types comment and have clarified in
of programs; for example, patient § 447.504(g)(8) in the regulation text the
§ 447.504(h)(12) that patient assistance treatment of outpatient facilities.
assistance programs and manufacturer programs which met the previously
coupons that provide free goods which Comment: A few commenters
discussed criteria are excluded from requested that CMS clarify whether
are not contingent upon future AMP.
purchases to patients, that should be sales to prisons are included in AMP.
Comment: One commenter said that Response: We have clarified at
excluded from AMP. CMS should exclude all patient
Comment: Many commenters said § 447.504(h)(9) in the regulation text
transactions; for example, direct patient that sales to prisons are not included in
that coupons redeemed by pharmacists, sales, patient coupons, and patient
just as those redeemed directly by AMP.
assistance programs from AMP on the
manufacturers, should be excluded from Comment: One commenter stated that
basis that patients are not part of the
AMP. In such cases the pharmacist is examples of non-retail entities should
retail pharmacy class of trade.
merely a pass-through entity as the be included in final rule; that is sold to
Response: We appreciate this
pharmacist does not realize any other manufacturers, academic medical
comment and have clarified the
monetary gain. Another commenter centers and physician investigators for
treatment of these transactions in this
noted that patient coupons do not have research purposes.
final rule at § 447.504.
an impact on prices for entities included Response: We have provided
in AMP and any requirement to include Copayment Assistance Programs clarification at § 447.504(g)–(h)
such arrangements in those calculations Comment: One commenter requested regarding which sales are included and
could impact the continued viability of that CMS clarify the treatment of excluded in this final regulation.
the patient access programs. Other copayment assistance coupons. Comment: One commenter requested
commenters stated that CMS should Response: We have clarified that that CMS clarify whether sales to
clarify that patient coupons transactions copayment assistance programs are veterinary offices are within the
should not be included in AMP. another form of patient assistance definition of retail pharmacy class of
Another commenter said that CMS programs and should receive similar trade. In the commenter’s view,
incorrectly assumed that all indirect treatment provided they otherwise veterinary offices are not licensed to
redemption arrangements necessarily qualify for exclusion from AMP under provide drugs to people and thus could
affect the price realized by the this final rule at § 447.504(h)(12). not provide them to the general public.
redeeming pharmacy and that CMS Response: We have clarified in the
should revise its proposed policy on Drug Discount Card Programs regulation text at § 447.504(h)(8) that
manufacturer coupons to make clear Comment: Some commenters stated sales to veterinarians are excluded from
that only arrangements that affect the that if the manufacturer drug discount AMP.
Comment: One commenter requested recommended that CMS specify that all service fees), other fees, and any other
that CMS clarify whether State, county, discounts, rebates, payments and fees discounts or price reduction and
and municipal entities are excluded (other than bona fide service fees) rebates, other than rebates under section
from the retail pharmacy class of trade. provided to entities in the retail 1927 of the Act, which reduce the price
Response: We have clarified in the pharmacy class of trade or related sales received by the manufacturer for drugs
regulation text at § 447.504(h)(11) that flowing through the retail pharmacy distributed to the retail pharmacy class
sales to State, county, and municipal class of trade be included in the of trade.
entities are excluded from the retail calculation of AMP. This would include
pharmacy class of trade and, therefore, Free Goods
off-invoice discounts, rebates, and
are excluded from AMP. payments of preferred product Comment: Several commenters stated
Comment: One commenter requested positioning, payments for the number of that non-contingent free goods should
that CMS explicitly state that the retail products carried or preferred, floor stock be excluded from AMP because
pharmacy class of trade does not adjustments, new store credits, ‘‘meet community pharmacies do not receive
include physician-administered drugs. the competition’’ price adjustments, and them. Exclusion of free goods from the
The preamble to the proposed rule did the like. AMP calculation effectively penalizes
not address whether to include prices to Response: We have clarified at the manufacturer for engaging in this
physicians in the retail pharmacy class § 447.504(g) those sales that are type of marketing by not lowering the
of trade. In the same way that CMS included in AMP in this final rule. We AMP which bases the Federal rebate on
excluded sales to long-term care do not agree that price concessions a higher value and by not reducing the
pharmacies from the AMP calculation offered by generic manufacturers are to difference between AMP and best price.
because they typically are closed be included in AMP if they do not relate However, another commenter supported
operations that serve only residents of a to the sale of the drug and do not the exclusion of free goods from the
specific long-term care facility, a otherwise meet the criteria in this final calculation of AMP.
physician’s office is not a retail location rule. Response: When a free good is non-
open to the general public. contingent on any other purchase
Response: In light of the definition of Discounts and Rebates
requirement, there is no sale of this drug
wholesaler set forth in the rule, Comment: One commenter said that and it is appropriately excluded from
physician-administered drugs are rebates, kickbacks, allowances, AMP. We have retained in the final rule
included in AMP because physicians discounts and all other schemes should at § 447.504(h)(18) the requirement that
operate to provide such drugs to the be declared illegal or not counted in free goods not contingent upon any
general public. Specifically, the sales to AMP. purchase requirement are excluded from
physicians for these drugs are included Response: Issues regarding health care AMP.
in AMP as well. fraud and abuse are not addressed in the
Comment: One commenter requested Comment: One commenter asked
proposed rule. Concerns regarding CMS to make clear in the final rule that
that CMS provide clarification regarding health care fraud and abuse should be
the treatment of sales to facilities that a free goods coupon that is redeemed
addressed to the IG of the U.S. through a pharmacy that either used
may operate both a closed-door long- Department of Health and Human
term care pharmacy (excluded from consigned product or its own product
Services. but receives replacement product, plus
AMP in the proposed rule) and a retail Comment: One commenter said that
pharmacy (included in AMP). For such a bona fide service fee, is excluded from
the calculation of AMP for the purpose
a facility, it is impossible for the AMP. A few commenters said that CMS
of establishing FULs should exclude
manufacturer to identify which units should clarify that coupons for free
discounts or incentives that are not
were sold through the long-term care drugs, such as starter prescriptions, that
available for Medicaid prescriptions.
pharmacy and which units were sold Response: We disagree. Under the are not contingent on the purchase of
through the retail pharmacy, since their law, AMP has the same definition for the same or any other drugs, should be
orders do not distinguish between the purposes of rebates and the FULs excluded from AMP.
two. program. Response: As previously discussed,
Response: Where a manufacturer does Comment: One commenter stated that we believe that vouchers for free
not have adequate documentation to it is inappropriate to include cash samples should be excluded from AMP
substantiate whether these drugs are discounts and price reductions in AMP. in instances that the pharmacy receives
dispensed to a long-term care facility or Response: The rebate agreement a replacement product or collects no
to the general population, the provides that AMP includes cash payment greater than the cost of the
manufacturer should include all of these discounts and price concessions which sample and a bona fide service fee. We
sales in AMP. reduce the price amount received by the have amended the final rule at
Comment: One commenter requested manufacturer with respect to drugs § 447.504(h)(21) to incorporate these
that CMS specify that closed-wall distributed to the retail pharmacy class comments.
pharmacies which do not sell to the of trade. Nominal Price
general public are not included in the Comment: One commenter said that
retail pharmacy class of trade. discounts included in the retail Comment: One commenter stated that
Response: We are not familiar with pharmacy class of trade should reflect nominal prices are not available to the
the term ‘‘closed-wall pharmacy,’’ but only those prices that are provided to retail pharmacy class of trade and
we have clarified the definition of retail wholesalers for drugs distributed to should be excluded from AMP.
pharmacy class of trade. If a pharmacy retail pharmacies. Response: In order to be included in
meets this definition, sales to it would Response: AMP includes cash AMP, nominal prices must be available
be including in AMP. discounts, free goods that are contingent to the retail pharmacy class of trade. As
Comment: A commenter asked that on any purchase requirement, volume we explain elsewhere in this final rule,
CMS provide guidance regarding price discounts, chargebacks, incentives, we consider the retail pharmacy class of
concessions offered by generic administrative fees, service fees, trade to encompass more than walk-in
companies. The commenter distribution fees (except bona fide pharmacies.
Future Clarification of AMP Calculation appropriate or efficient mechanism to were able to do so within the law, we
Comment: One commenter said that provide interpretations or additional have considered the impact this
CMS should commit to updating the guidance as may be necessary. calculation will have on manufacturers.
Medicaid regulations and/or guidance We believe that this final rule provides
Other Issues
on a regular basis so that manufacturers a clear, precise and adequate definition
Comment: One commenter stated that of AMP consistent with the provisions
have clear guidance with regard to the
CMS should provide more explanation of the DRA and helps resolve
treatment of new and evolving classes of
for ‘‘reasonable assumptions’’ ambiguities and confusion associated
trade within the retail channel. Such
manufacturers are to use when data are with the pre-DRA definition.
regular updating will prevent a
insufficient or not available to calculate Comment: One commenter suggested
recurrence of the situation where
prices. that CMS consider implementing a
ambiguity of the AMP definition leads Response: We believe that reasonable
to different practices across tolerance level for quarterly AMP
assumptions are those made by variation, within which an AMP
manufacturers. manufacturers consistent with Medicaid
Response: We appreciate this restatement (positive or negative) would
drug rebate statute, regulation, and not be permitted. This would reduce the
comment. We believe that the final rule general business practice.
clarifies the determination of AMP. We burden on States, CMS and
Comment: One commenter said that manufacturers to comply with the
are unable to commit to a schedule for should CMS provide clarification
the issuance of Medicaid regulations at requirement that a manufacturer must
regarding whether FFP is available for adjust the AMP if cumulative discounts,
this time. We expect to continue to issue drugs included in a package with a non-
subregulatory guidance regarding these rebates, or other arrangements
drug item and if so, how is pricing to subsequently adjust the prices actually
regulations and other policy be reported.
clarification, as appropriate, in a timely realized.
Response: These issues are not
manner. In addition, given some of the Response: We disagree. The
addressed in the proposed rule and are
revisions, we have decided that this calculation of AMP is based on actual
outside the scope of this rulemaking
final rule with comment period should sales data, and the AMP must be revised
document. Therefore, we cannot
allow for further public comment on when errors or omissions are found,
consider these comments as we consider
AMP. consistent with the regulations.
revisions to the final rule.
Comment: One commenter believed Comment: One commenter Comment: A few commenters
that any future clarifications by CMS recommended that a formal appeals and requested that CMS define the terms
should be prospectively effective, adjudication process is needed at CMS ‘‘include’’ and ‘‘exclude’’ with respect
providing manufacturers with a to provide a forum in which retailers to the dollars and units components of
reasonable period of time to implement can bring forth concerns regarding the the AMP calculation. The proposed rule
necessary changes in order to ensure method by which AMP is calculated, as is not clear as to how to treat such terms
accuracy. well as which products are included in for purposes of performing the AMP
Response: We appreciate this the determination of AMP. calculation. The commenter requested
comment and will address this concern Response: We appreciate this that CMS include a sample AMP
when we issue the subregulatory comment. The proposed rule was calculation and a chart indicating each
guidance. designed to provide the public with an of the various entities that may affect
Comment: One commenter expressed opportunity to provide meaningful the AMP and best price calculation
concern that other new classes of trade comments; however, retailers and whether sales, discounts, and/or units
which receive prices not available to manufacturers have the option of raising are deducted from the gross (for
community pharmacy should not be additional concerns directly to CMS to example, factor dollar and unit
included in AMP. the extent necessary. Retailers can also numbers) for purposes of AMP. The
Response: We disagree. New classes raise concerns to the states as may be commenter suggested that the list of
of trade which provide sales to the necessary. excluded entities should have an
general public are by definition Comment: One commenter said that identifier such as a Drug Enforcement
included in the retail pharmacy class of CMS should specify a timeframe for Administration (DEA) number or Health
trade and AMP. review of manufacturer methodology Industry Number and updated as
Comment: One commenter expressed change requests so that manufacturers frequently as AMP reports are filed.
the concern that some areas of can resolve their financial liability for Response: We have provided
clarification will likely reflect policy past quarters. clarification in § 447.504(g)–(h)
choices, as opposed to being technical Response: We cannot specify a regarding which sales are included and
clarifications. For those more timeframe; however, in the absence of excluded in this final regulation. We
substantive areas, a regulatory, due guidance, manufacturers may make have not provided a sample calculation
process method of proposing and reasonable assumptions consistent with or chart of included AMP and best price
receiving comments on proposed the statute, regulations, and reasonable sales here but will consider doing so in
rulemaking should be used. Another business practices. subregulatory guidance, depending on
commenter requested that CMS Comment: One commenter said that whether we get more specific questions.
reconsider the strategy to address future CMS should avoid including in the Comment: One commenter cautioned
clarifications of AMP and to publish a calculation of AMP data that is not CMS to carefully weigh the OIG’s
proposed rule for public comment. readily available to manufacturers, or recommendation against the Agency’s
Response: We appreciate this that would significantly increase the own significant expertise in the area.
comment. We believe that the final rule number of calculations and assumptions Because the OIG lacked a working
clarifies the determination of AMP, to be made. understanding of the history of many of

thereby eliminating ambiguity, Response: The provision of the DRA these issues, the commenter feared that
confusion and need for additional does not provide for the exclusion of its recommendation could lead to the
clarification. However, we do not AMP data that is not readily available to inconsistent treatment of important
believe that rulemaking is the most manufacturers. To the extent that we issues related to the program.
Response: The DRA required the OIG for PBMs to purchase prescription drugs generally do not affect the price actually
to review how AMP is determined and from a manufacturer or wholesaler, or to realized. The distribution functions
recommend changes to the Secretary of dispense drugs to the public, PBMs typically performed by wholesalers are
the Department of Health and Human generally need to be licensed as different from the functions performed
Services by June 1, 2006. It also required pharmacies under the applicable State’s by PBMs. Furthermore, because rebates,
CMS to consider the IG’s law. Commenters stated that they were discounts, or other price concessions
recommendations and promulgate a not aware of any State that licenses obtained by PBMs are not passed on to
regulation that clarifies the PBMs as pharmacies to purchase, the retail pharmacy class of trade,
requirements for and the manner in receive, or dispense drugs to the public. including PBMs in the definition of
which AMP is determined no later than Response: We have decided to wholesalers would permit the inclusion
July 1, 2007. We have evaluated the exclude PBM rebates, discounts, or of price concessions to which
OIG’s recommendations and have other price concessions from the community retail pharmacies do not
incorporated them where we believe determination of AMP, except for have access. Therefore, in § 447.504(g),
they are appropriate. purchases through PBM mail order we are not classifying PBMs as
Comment: One commenter requested pharmacies in § 447.504(h)(22). We wholesalers.
that CMS confirm and provide guidance believe this is consistent with previous Comment: Some commenters
regarding whether rebates paid to guidance issued in manufacturer requested that PBM rebates, discounts,
Medicaid as a secondary payer under releases and to the extent that PBM or other price concessions (except for
this title and the national rebate discount rebates and price concessions mail order sales) be excluded from the
agreement on outpatient drugs are did not meet these criteria, the impact calculation of AMP because to include
excluded from AMP. on the calculation of AMP is likely to be them in the calculation of AMP could
Response: Rebates paid under this minor. increase drug costs for Medicare Part D
title are excluded from AMP, including Furthermore, we understand that and lower Medicaid rebate payments.
those rebates paid for Medicare claims PBMs do not generally take possession Response: As discussed elsewhere in
where Medicaid is the secondary payer. of pharmaceutical products. Only in this regulation, we have decided to
their role as mail order pharmacies do exclude PBM rebates, discounts, or
PBMs
PBMs participate directly in the other price concessions from the
Comment: Many commenters purchase or delivery of prescription determination of AMP, except for
requested that PBM rebates, discounts, drugs. Accordingly, except with respect purchases through PBM mail order
or other price concessions be excluded to such mail order activities, we have pharmacies in § 447.504(h)(22).
from the calculation of AMP because decided that PBM sales and associated Comment: Some commenters stated
PBMs receive discounts, rebates, or rebates, discounts, or other price that reporting PBM rebates, discounts,
other price concessions that are not concessions fall outside of our or price concessions can cause
available to community retail definition of AMP. operational difficulties and competitive
pharmacies. Commenters stated that the Comment: Many commenters concerns. The degree to which
fact that these discounts, rebates, or requested that PBM rebates, discounts, manufacturer rebates are passed through
other price concessions are not paid to or other price concessions be excluded or shared with PBM clients is privately
community retail pharmacies clearly from the calculation of AMP because held, competitively sensitive
indicates that they should not be they believe that PBMs are not information that can differ from contract
included in a cost-based benchmark that wholesalers; therefore, transactions with to contract. Drug manufactures are not
may become the determining factor them should not fall within the privy to this information and would
associated with reimbursement for definition of AMP. The commenters need to review thousands of rebate
community retail pharmacies. The argued that the proposed definition is arrangements to require PBMs to share
commenters contended that PBMs are contrary to how the term wholesaler is this information.
not included within the retail pharmacy defined in the national rebate agreement Response: We agree with the
class of trade. They argued that, in light and that Manufacturer Releases 28 and commenters that the administrative
of the rationale used by CMS to exclude 29 support that PBMs do not meet the burden for manufacturers to gather
nursing facility sales from the definition definition of a wholesaler in that they confidential information from PBMs and
of retail pharmacy class of trade, CMS do not purchase, or take delivery of others in the drug chain regarding
should similarly exclude PBM sales, drugs or redistribute drugs to retail and rebates, discounts, or other price
discounts, rebates, and other price institutional pharmacies. Commenters concessions is significant. Therefore, as
concessions. indicated that they were not aware of discussed above and in § 447.504(h)(22),
Other commenters stated that any PBM arrangements currently in we have decided to exclude PBM
excluding PBM pharmacies from the existence where PBMs are acting as rebates, discounts, or other price
definition of retail pharmacy class of wholesalers, as they do not buy concessions from the determination of
trade offers numerous benefits, pharmaceuticals directly from the AMP, except for purchases through
including reduced recordkeeping manufacturers and resell them to PBM mail order pharmacies.
requirements, reduced risk of price pharmacies, which then dispense to the Comment: One commenter stated that
fluctuations, and limiting the need for public. Commenters suggested that we CMS should clarify that there is no
additional regulatory burdens. In define the term wholesaler to be automatic requirement that
addition, commenters argued that PBMs consistent with its traditional meaning manufacturers affirmatively obtain
do not dispense to the public, and that and the definition in the national rebate information concerning transactions
patients have to belong to a specific agreement to mean any entity that between downstream entities. The
health plan in order to access drugs purchases drugs from a manufacturer for commenter believes that such a
through a particular PBM. purposes of resale. requirement would create serious

Consequently, commenters stated that Response: We agree with the administrative difficulties.
PBM rebates, discounts, or other price commenters that many of the sales to Manufacturers have no authority to
concessions are not typically available PBMs do not flow through wholesalers require recipients of these payments to
to the public. Commenters argued that so the discounts received by PBMs disclose to the manufacturers whether
they have shared the payment with their rebates, discounts, or other price qualifying as PBMs for purposes of
customers or clients, and there is no concessions from the calculation of including price concessions from such
guarantee that payment recipients AMP, except for purchases through entities and/or establish a list of
would agree to such disclosure. PBM mail order pharmacies in excluded entities. This would allow
Response: As discussed previously, § 447.504(h)(22). We believe this will manufacturers to use uniform criteria to
we have decided to exclude PBM alleviate some of the administrative distinguish between PBMs and non-
rebates, discounts, or other price burden associated with the calculation PBMs for purposes of incorporating
concessions from the calculation of of AMP and result in more accurate and rebates and fees into AMP calculations.
AMP, except for purchases by PBM mail consistent AMPs across manufacturers. The commenters argued that if CMS
order pharmacies in § 447.504(h)(22). Comment: While some commenters fails to set forth guidance regarding
Therefore, manufacturers do not have to supported CMS’ proposal to include PBMs, manufacturers would continue to
collect rebate data with respect to such PBM rebates and discounts in the AMP treat PBM price concessions disparately,
transactions between such downstream calculation, they and other commenters resulting in inconsistent AMP
entities. stated that there would be operational calculations across manufacturers.
Comment: Many commenters raised difficulties if manufacturers were Response: We have decided to
other concerns about PBMs, such as that required to segregate price concessions exclude PBM rebates, discounts, or
there is a need for PBM transparency, provided on mail order utilization from other price concessions from the
that PBMs should be regulated, that that provided on other PBM utilization determination of AMP, except for
PBMs continue to impose non- as such detail is not available from the purchases through PBM mail order
negotiable contracts on independent PBMs to quantify these two figures. The pharmacies in § 447.504(h)(22).
pharmacies, or that PBMs are making commenters stated that it is often Therefore, we do not need to define the
too much profit. impractical, if not impossible, for a attributes of entities qualifying as PBMs
Response: These issues are not manufacturer to obtain precise retail for purposes of including price
addressed in the proposed rule and are and non-retail analysis on a PBM’s non- concessions from such entities and/or
outside the scope of this rulemaking mail order sales. The commenters also establish a list of excluded entities.
document. Therefore, we cannot stated that some PBMs may provide data Comment: One commenter agreed that
consider these comments as we consider that may allow some manufacturers to PBM discounts should be included in
revisions to this final rule. segregate their non-mail order sales data the calculation of AMP since most
Comment: Some commenters stated into retail and non-retail sales under Americans, including dual eligible
that the proposed rule included some circumstances. However, the beneficiaries enrolled in the Medicare
confusing language about how to treat commenters argued this is not always prescription drug program, benefit from
price concessions to PBMs in the AMP the case. The commenters contended these discounts.
calculation. The commenters requested that many PBMs are unwilling or unable Response: We appreciate the
that CMS clarify that the AMP to provide this data to manufacturers comment, but we have decided to
calculation includes all PBM rebates, and that some PBMs do not compile exclude PBM discounts from AMP
discounts, or other price concessions in such data. Due to the lack of PBM data, calculations, except in certain situations
the AMP calculations. The commenters commenters argued that manufacturers where the PBM is operating a mail order
believed that such a requirement would should be able to make reasonable pharmacy. The issue regarding the
be administratively less burdensome to assumptions with respect to PBM sales benefits associated with PBM
implement and would not affect the and discounts. arrangements is outside the scope of this
overall value of manufacturer AMP Response: We have decided to rulemaking document.
calculations. While manufacturers can exclude PBM rebates, discounts, or Comment: One commenter supported
track price concessions provided to other price concessions from the the inclusion of Medicare Part D PDPs
PBMs, the commenters stated that it is determination of AMP except for and PBM rebates, discounts, or other
neither realistic nor appropriate for purchases through PBM mail order price concessions for drugs provided to
them to track which price concessions pharmacies in § 447.504(h)(22). the retail pharmacy class of trade for the
PBMs pass through to the retail Therefore, manufacturers will not need purpose of determining AMP. However,
pharmacy class of trade. To include all to obtain retail and non-retail analysis the commenter asked that CMS clarify
PBM rebates, discounts, or other price with respect to PBM non-mail order the treatment of sales associated with
concessions would also help promote sales. PBMs and how these differ from
greater uniformity in AMP calculations Comment: Some commenters payments to PDPs. The commenter
and preclude the possibility of supported the inclusion of PBM rebates, believes that PDPs are functioning as
confusion regarding the treatment of discounts, or other price concessions in PBMs for Medicare Part D beneficiaries.
PBM price concessions. Conversely, the determination of AMP. However, the Another commenter also argued that it
requiring additional granularity in commenters stated that CMS needs to seems inconsistent that prices to PDPs,
allocating PBM rebates could require clarify what factors are included and which are PBMs, be excluded from best
manufacturers to make significant excluded in PBM price concessions and price calculations but included in AMP
modifications to existing systems and be more direct and specific as to what calculations.
could result in inaccurate and types of PBM rebates and discounts Response: We appreciate the
inconsistent AMP calculations. should be included in AMP. If CMS fails comment and have decided to exclude
Commenters also stated that if CMS to define the term PBM for the purpose PBM rebates, discounts, or other price
include discounts for products that flow of AMP calculations, manufacturers concessions from the calculation of
through the retail pharmacy class of would include sales from any entity that AMP, except for purchases through
trade in AMP, CMS also should include a manufacturer considers to be a PBM, PBM mail order pharmacies in
rebates paid directly to health plans by including sales to MCOs, which are § 447.504(h)(22).
manufacturers, unless the health plan is specifically excluded from AMP under Comment: A few commenters agreed
a staff model HMO. the national rebate agreement. The that the exclusion of PBM rebates,
Response: As discussed previously, commenters believed that CMS needs to discounts, or other price concessions
we have decided to exclude PBM clearly define the attributes of entities would cause AMP to be higher than it
would be if these discounts were from the determination of AMP in Another commenter opposed using
included. However, the commenters § 447.504(h)(22) and best price in AMP as a benchmark for Medicaid
disagreed with the characterization of § 447.505(d)(13), except for purchases reimbursement stating that pharmacies
this higher amount as artificial inflation. through PBM mail order pharmacies. save money for State Medicaid agencies,
Instead, the commenters believed that Comment: A few commenters stated have provided many hours of free
the exclusion of these amounts results that rebates and discounts offered to counseling services to Medicaid
in a more accurate reflection of AMP, PBMs typically are based on patients, spent uncompensated hours
and that their inclusion artificially relationships between the PBM and resolving Medicare Part D issues and
depresses AMP because PBMs are not HMO or Medicaid MCO. Given that deserve actual acquisition costs for
wholesalers nor are PBM rebates CMS proposed to exclude rebates and dispensed medications.
reflected in the prices paid by discounts to HMOs and Medicaid MCOs Response: The DRA does not require
community retail pharmacies. from the calculation of AMP, the States to use AMP as a benchmark to
Response: As discussed previously, commenter believed that rebates and calculate pharmacy payment rates. To
we agree with the commenters that discounts to their associated PBMs the extent that States opt to use AMP in
excluding PBM rebates, discounts, or should be excluded as well. their payment methodologies, they will
other price concessions would result in Response: As discussed previously, be required to submit SPAs. We will
a more accurate reflection of AMP. we have decided to exclude PBM review the amendments to ensure that
Therefore, in § 447.504(h)(22) we have rebates, discounts, or other price proposed payment methodologies are
excluded them from the determination concessions from the determination of consistent with State plan requirements,
of AMP in this final rule, except for AMP, except for purchases through and will allow for fair and reasonable
purchases through PBM mail order PBM mail order pharmacies in payments to providers for drugs to
pharmacies. § 447.504(h)(22). protect beneficiaries’ access to quality
Comment: Some commenters argued pharmacy services.
Reimbursement Based on AMP
that because CMS excluded Comment: Several commenters
manufacturer rebates paid to State We received numerous comments requested that CMS clarify how AMP
Medicaid programs, to the DoD under regarding the option for State Medicaid will be balanced to benefit all entities
TRICARE, and to the DVA from the Agencies to use AMP as a benchmark to within the pharmaceutical industry and
AMP calculation, CMS should also calculate pharmacy payment rates, as the retail pharmacy class of trade since
exclude rebates paid to PBMs from the discussed below: lower AMPs will benefit manufacturers
AMP calculation. The commenters Comment: Many commenters opposed in lower rebate payments to States and
reasoned that these rebates are not the proposal to permit States to use higher AMPs will allow pharmacies to
available to the retail pharmacy class of AMP as a benchmark for pharmacy receive increased reimbursement rates
trade, and none of the funds are ever reimbursement because the commenters but may not reflect all market pricing.
received by community retail believed that AMP is not representative Response: As discussed elsewhere in
pharmacies. They also argued that the of pharmacy providers’ acquisition costs this rule, we have decided to exclude
retail pharmacy class of trade does not and does not consider the markup rebates, discounts and price concessions
have access to these direct-to-patient applied within the distribution chain to PBMs (except those to PBMs’ mail
sale prices and thus these transactions between the manufacturer and the order pharmacies) while maintaining
should also be excluded from the AMP purchasing pharmacy. Other our position that prices to mail order
calculation. commenters expressed concern that the pharmacies should be included in the
Response: We agree that these PBM proposal to permit States to use AMP to determination of AMP. We believe that
rebates, discounts, or other price calculate pharmacy payment rates we have carefully considered the impact
concessions are not generally available would result in a decrease in that our decisions made in this final
to the retail pharmacy class of trade and reimbursement to retail pharmacies. rule will have on AMP and all of the
should be excluded from AMP. We have Many commenters stated that using entities that may be affected by it.
excluded them from the determination AMP for reimbursement targets Comment: A few commenters stated
of AMP in this final rule in independent pharmacies because AMP that there is a conflict in using AMP as
§ 447.504(h)(22), except for purchases does not adequately address the costs a baseline for reimbursement and an
through PBM mail order pharmacies. incurred by independent pharmacies. index for rebates that manufacturers pay
Comment: Some commenters said These commenters predicted that the to States.
best price was included as a factor in proposal will result in decreased Response: The law does not require
the rebate calculation so that States pharmacy reimbursement and decreased that AMP be used for reimbursement.
receive a rebate that more closely profits on the dispensing of generic Rather, the law provides that AMP be
matches pricing in the marketplace. medications and may drive independent used as a basis for the calculation of
Manufacturers must pay States the pharmacies out of business. Many rebates and the FULs (based on 250
greater of a percentage of AMP or the commenters estimated that retail percent of the relevant AMP) and that
difference between AMP and best price. pharmacy profit margins are less than States may also use AMP data when
In this context, the commenters ten percent of gross sales and determining pharmacy reimbursement.
suggested that best price is the most pharmacists will be unable to dispense Comment: One commenter stated that
appropriate place to include PBM drugs to Medicaid patients if a publicly reported, widely available
rebates, discounts, or other price reimbursement rates are set by using the AMP that includes all supply chain
concessions as well as direct-to-patient proposed definition of AMP. One discounts will lead to higher prices for
sales and manufacturer coupons. commenter said that the proposed AMP- the entire pharmaceutical market, as the
Response: We appreciate the based reimbursement is unfair to retail AMP will become the benchmark below
commenters’ suggestion to include PBM pharmacies as their profit margins are which manufacturers will not lower
rebates, discounts, or other price being set by insurers when other their prices. In addition, an AMP that
concessions in best price; however, we entities, such as manufacturers and includes all supply chain discounts will
have decided to exclude PBM rebates, wholesalers, are able to set their prices reduce competition, particularly in the
discounts, or other price concessions and determine their profit margins. generic market, as manufacturers make
the decision to stop the production of the DRA amendments. Elsewhere in this business transactions may cause
certain products. The commenter regulation, we have encouraged States periodic changes in AMP from month-
believed that these factors together will to examine their dispensing fees to to-month. Therefore, the AMP may
raise pharmaceutical prices. determine whether they reasonably fluctuate depending on the timing of the
Response: The DRA provides for the cover the cost of dispensing the drug. original sale and transactions that occur
public release of AMP data. We have no Comment: Several commenters stated after the original sale that could span
reason to believe the market will not that using AMP to set reimbursement is across multiple periods.
adjust to the availability of this flawed and would not be an appropriate Response: The DRA amended the
information. indicator of community pharmacy costs statute to require that, effective January
Comment: A few commenters stated because it does not include wholesaler 1, 2007, the Secretary calculate FULs
that AWP better reflects true costs to costs to pharmacies. One commenter based on 250 percent of the AMP (as
independent retail pharmacies as it has stated that the proposal requires computed without regard to customary
allowed payment to exceed the manufacturers to calculate AMP using prompt pay discounts extended to
estimated acquisition costs of generic prices that are inaccessible to wholesalers). The statute also provides
drugs, compensating pharmacies for community retail pharmacies and will that, by July 1, 2007, the Secretary
counseling services and medical advice result in skewed calculations and promulgate a regulation clarifying the
offered to Medicaid patients. Another misinterpretation that could negatively requirements for AMP calculations.
commenter suggested that AWP would affect provider reimbursement. Another AMPs are based on the average prices
be a better benchmark for commenter noted the importance of paid to manufacturers, net of discounts
reimbursement than AMP because it is accurately incorporating the acquisition and price concessions, and will be more
a publicly available list price and it is costs of providers and suppliers in the useful than prices reported to drug
easily accessible. One commenter stated AMP calculation if AMP is to be used pricing compendia that have been
that the proposal to allow States to use as a benchmark for pharmacy shown to often have no relationship to
AMP as a benchmark for pharmacy reimbursement. market prices.
reimbursement eliminates pharmacists’ Response: There is no requirement Comment: One commenter expressed
ability to cover their costs as opposed to that States use AMPs to set payment concern that drug rebates and other
using AWP as a benchmark, in that rates for pharmacy providers. The DRA complicated payment arrangements
pharmacies benefit from the difference amended section 1927 of the Act to account for high costs for prescription
between the actual cost of the drug and require that CMS use AMP, as opposed drugs. The commenter cited a report by
AWP. One commenter stated that AMP to AWP, in the FUL calculation. States the McKinsey Global Institute,
may offer a closer estimate of ingredient may continue to use methodologies that ‘‘Accounting for The Cost of Healthcare
cost than AWP but recommended that they believe will accurately reflect in the United States (January 2007),’’
CMS consider both the cost of the drug pharmacy acquisition costs. We believe that found that although Americans use
and the cost of dispensing in the final that we have made States aware in our fewer drugs per capita, they pay about
rule as dispensing fees in most States discussions of AMP in this rule of what 70 percent more for prescription drugs
are far below the actual cost pharmacies AMP represents and that States will use than citizens of peer nations. This
incur to dispense prescriptions. One this as a factor when determining a commenter recommended that CMS
commenter expressed concern that not reasonable reimbursement methodology bring greater transparency and accuracy
only will pharmacy reimbursement for for pharmacy providers. by exposing hidden rebates and
generic drugs be reduced but that the Comment: One commenter suggested discounts and determining the true cost
President’s Fiscal Year 2008 budget that CMS consider a definition of AMP of prescription drugs to enable more
proposes to further reduce that differentiates between various purchasers to obtain lower prices for
reimbursement to pharmacists to 150 practice settings so that reimbursement drugs.
percent of AMP and urged CMS to will adequately address true costs Response: The law only provides for
oppose any further cuts to pharmacy associated with each setting. Another making AMPs publicly available.
reimbursement. commenter recommended that CMS However, we believe that the public
Response: We do not believe that consider using one AMP such as the availability of monthly and quarterly
AWP reflects acquisition cost. In the monthly AMP for the calculation of the AMPs will bring greater transparency
OIG report, ‘‘Determining Average FUL (and a benchmark for and accuracy to manufacturer pricing.
Manufacturer Prices for Prescription reimbursement) and the quarterly AMP Comment: Several commenters
Drugs Under the Deficit Reduction Act for use as the basis for Medicaid rebates. recommended alternatives to States’ use
of 2005’’ (A–06–06–0063), it was noted Response: We disagree that AMP of AMP as a benchmark for
that Medicaid pharmacy reimbursement should be calculated separately for each reimbursement. One commenter
based on AWP often exceeds entity within the retail pharmacy class recommended that AMP not be used to
pharmacies’ actual acquisition costs. of trade or that monthly and quarterly set pharmacy reimbursement rates and
GAO also stated in its report, ‘‘Medicaid AMPs should be defined and used recommended that CMS instruct States
Outpatient Prescription Drugs: differently. The law makes no to use actual net acquisition costs,
Estimated 2007 Federal Upper Limits distinction in AMP by entity or use. allowing for a reasonable profit and
for Reimbursement Compared With Comment: A few commenters dispensing fee. One commenter
Retail Pharmacy Acquisition Costs’’ suggested that setting reimbursement recommended that CMS urge States to
(GAO–07–239R), that the AMP-based rates based on AMP is complicated and consider the markup applied within the
FUL is preferable to an AWP-based FUL would result in States reimbursing distribution chain between the
as long as States ensure adequate pharmacy providers below the manufacturer and the purchasing
pharmacy reimbursement. As discussed acquisition costs of generic drugs. For pharmacy when setting pharmacy
previously, we believe that States who this reason, the commenters requested payment rates. A few commenters
opt to use AMP, as opposed to AWP, to that CMS not implement this portion of recommended that CMS consider a
determine pharmacy payment rates will the proposed rule. A few commenters reimbursement formula that pays
ensure that such payment rates have expressed concern that AMP is not a pharmacies actual acquisition costs for
greater transparency, as consistent with true indicator of market prices because drugs plus a fair retail markup and
incorporates a dispensing fee and an acquisition costs. Another commenter Response: We appreciate the
education fee to compensate recommended that CMS instruct States comment; however, as our definition of
pharmacists for Drug Utilization Review to use the monthly Retail Price Survey AMP is based on what we have defined
services, including checking for (RPS) data as a benchmark for pharmacy as the retail pharmacy class of trade, we
interactions with medicine and food reimbursement as this data represents believe it is unnecessary for CMS to
and educating patients regarding their the weighted average reimbursement conduct the recommended review. As
medications. One commenter suggested received by independent community previously discussed in this final rule,
that CMS refocus efforts to save pharmacies for each drug. One we have decided that the retail
Medicaid dollars on brand name drugs commenter requested that CMS define pharmacy class of trade includes mail
by mandating an additional rebate on the pharmacy reimbursement order pharmacies. We believe that, as
brand name drugs and stated that this methodology for States and set the with traditional pharmacies, mail order
would result in far greater savings for dispensing fee in a manner that drugs are available to the general public.
the Medicaid Program than reducing adequately compensates independent Comment: One commenter
payment for generic drugs. One retail pharmacies, as independent recommended that CMS offer grants to
commenter recommended that CMS pharmacies will not be offered drug the States to (1) develop separate,
require States to include a minimum products from their suppliers at AMP or differentiated payment to pharmacies
profit margin for low-cost generic drugs near the AMP. One commenter agreed for clinical services provided to
in their reimbursement methodologies with CMS that States should be allowed Medicaid beneficiaries beyond OBRA 90
for independent pharmacies that at least to use AMPs as a benchmark for mandates and (2) develop differential
pharmacy reimbursement and suggested payments based on quality measures
covers the cost of dispensing that drug.
that CMS conduct studies to identify and implementation of patient safety
Several commenters expressed concern
manufacturers whose products measures. Other commenters requested
that the proposal that States use AMP as
consistently have atypically large that CMS encourage the use of
a benchmark for reimbursement does
spreads between AMP and AWP or incentives to support efforts of
not address dispensing fees and suggests
WAC. The commenter suggested that pharmacists to improve patient
that the lack of guidance allows States
States may then implement alternative outcomes through patient education and
to continue to underpay pharmacists for
payment rates on products distributed medication compliance instead of
dispensing-related services. One
by these manufacturers, thus preventing reducing costs to States by decreasing
commenter recommended that CMS
revenue enhancing schemes and reimbursement to pharmacies.
consider an alternate proposal that Response: While we appreciate these
retaining the usefulness of their current
would cap the cost of medications from comments, they are beyond the scope of
reimbursement techniques. Another
the pharmaceutical companies, charge this final rule.
commenter stated that AMP should be
all pharmacies the same price without Comment: A few commenters
considered by States as the minimum
preferential treatment or pricing for one expressed concern that AMP may serve
allowable reimbursement.
type of pharmacy over another, and set Response: We do not agree with these as a benchmark for reimbursement by
all Medicaid dispensing fees at the same proposals that CMS should establish other third party payers. Other
rate for all pharmacies based on the dispensing fees or reimbursement commenters stated that although the
Grant Thornton LLP National Study to methodologies as the States are in a rule proposes that States may use AMP
Determine the Cost of Dispensing better position to determine such as a benchmark for reimbursement of
Prescriptions in Community Retail payment amounts. The statute does not generic drugs, it will also have
Pharmacies, prepared for the CCPA, give CMS the authority to assess higher implications for the reimbursement of
published in January 2007, and rebates on certain brand name drugs or single source products.
accessible at http://www.aphanet.org/ to regulate the price charged by Response: The use of AMPs by other
AM/Template.cfm?Section=Home& manufacturers for drugs. payers is beyond the scope of this rule.
CONTENTID=7641&TEMPLATE=/CM/ Comment: One commenter noted that Comment: One commenter requested
ContentDisplay.cfm. Another State MAC lists currently are that CMS use its authority to review and
commenter recommended that CMS significantly lower than the FUL for approve SPAs to prevent States from
require reimbursement to be based on some products and that AMP-based modifying pharmacy reimbursement
the WAC plus a professional fee of $10 reimbursement will not adequately methodologies before the final rule has
for brands and $15 for generics to more cover pharmacy operating costs. The been implemented and the new AMP
accurately account for pharmacy commenter suggested that CMS data has been assessed.
acquisition costs and ensure that complete a study to evaluate whether Response: We do not agree. While we
pharmacy providers are reimbursed States are currently reimbursing will review SPAs to ensure compliance
fairly. One commenter recommended providers below 250 percent of AMP. with the dictates of section 1902(a) of
that CMS set a standard reimbursement Response: Since the FULs the Act, we do not have the authority to
methodology for pharmacy providers methodology is established in the DRA, prevent States from submitting SPAs to
based on AWP or the average price per we see no benefit at this time in modify pharmacy reimbursement
unit that a pharmacy pays for a drug. completing a study to determine methodologies before this final rule has
Another commenter recommended that whether States are already paying less been implemented and the new AMP
CMS offer guidance to the States to than this amount. We note that States data assessed.
establish a meaningful percentage continue to be able to establish their Comment: A few commenters
differential to be applied to all FULs own MACs as well as adjust the recommended that CMS instruct States
(AMPs) for all small pharmacies that individual prices of drugs provided they to provide appropriate reimbursement
meet the definition of ‘‘small business’’ do not exceed the FULs in the aggregate. for clinical services provided by
as defined by the Small Business Comment: One commenter specialty pharmacies, including long-
Administration (SBA). Other recommended that CMS review the term care pharmacies and other
commenters stated that pharmacy price disparity between retail pharmacy pharmacies that specialize in unit dose
provider acquisition costs surveys class of trade and mail order packaging as these services help ensure
should be used to estimate pharmacy pharmacies. the effectiveness of patients’ treatment
regimens, are not provided in the retail Determination of Best Price (§ 447.505) and do not typically purchase drugs
pharmacy setting and ultimately reduce Comment: One commenter asked that directly. The commenter recommended
costs to the Medicaid Program. One if a manufacturer offers a price that is that the exclusion from best price be
commenter requested that CMS consider lower than any actual price paid, is best expanded to include price concessions
the financial impact of the proposed price set on the lowest price paid or the received by SPAPs including rebates.
AMP-based reimbursement Response: We agree. SPAPs operate
lowest price available.
methodology on specialty pharmacies as their programs similar to PBMs whose
Response: The best price is the price
the average cost to dispense rebates, discounts, or other price
from the manufacturer which is
prescriptions in the specialty concessions have been excluded from
calculated to include all applicable sales
pharmacies is ten times greater than that AMP and best price. These PBM rebates,
and discounts; it is the price actually
of traditional retail pharmacies. Some discounts or price concessions are not
realized. Best price includes prices
commenters expressed concern that available to the retail pharmacy class of
available to any purchaser, inclusive of
pharmacies’ cost of serving mentally ill trade and, therefore, are not passed on
cash discounts, free goods contingent on
Medicaid patients, particularly those to community pharmacies. SPAPs, as
any purchase requirement, volume with PBMs, are treated by
whose drugs require pharmacies to
discounts, and rebates (other than pharmaceutical manufacturers as a
provide special packaging, would not be
rebates under section 1927 of the Act). different class of trade and are not
covered by the FULs, resulting in many
Comment: One commenter stated that accessible to the public. Therefore, in
special needs patients being
the proposed rule defines best price as accordance with section 1927(c)(1)(C)(i)
institutionalized at Medicaid’s expense.
Response: States may differentiate ‘‘* * * the lowest price available from of the Act, we are excluding rebates
dispensing fees for specialty pharmacies the manufacturer during the rebate obtained from designated SPAPs from
and other classes of providers to ensure period to any entity in the United States manufacturers from the best price.
appropriate reimbursement. * * *.’’ However, the national rebate Comment: One commenter noted that
Comment: One commenter stated that agreement defines best price as ‘‘* * * in § 447.505(b) of the proposed rule,
the proposal to permit States to use the lowest price at which the CMS defined providers as ‘‘a hospital,
AMP as a benchmark for pharmacy manufacturer sells the covered HMO, including an MCO or entity that
reimbursement does not address a outpatient drug to any purchaser in the treats or provides coverage or services to
separate furnishing fee for anti- United States * * *.’’ The commenter individuals for illnesses or injuries or
hemophilic clotting factors as set forth asked if CMS intends to materially provides services or items in the
in section 303(e)(1) of the MMA. The change the definition of best price by provisions of health care’’. In
commenter has requested that CMS using ‘‘entity’’ rather than ‘‘purchaser.’’ § 447.505(c)(3), CMS noted that ‘‘prices
consider a separate furnishing fee, a If CMS is not changing the definition, to providers (for example, hospitals,
separate payment added into the the commenter asked that we use the HMOs/MCOs, physicians, nursing
payment rates, to allow Medicaid language from the national rebate facilities, and home health agencies)’’
patients who are affected by bleeding agreement in the final rule. are included in best price. The
disorders to maintain access to care and Response: We used the term ‘‘entity’’ commenter asked if it is the intent of
access to anti-hemophilic clotting factor in the proposed rule because this is the CMS to define home health providers as
medications. term used in the DRA. We are retaining retail providers or non-retail providers.
Response: Medicaid already has other this term in the final rule. We do not Response: We consider home health
service categories that can be used to intend any material change, except that providers to be retail providers. Home
appropriately reimburse providers for given the DRA amendments, the term health agencies (as well as hospices,
these other services. States are also able entity may include sales to other hospitals, and skilled nursing facilities)
to establish a dispensing fee that is manufacturers. are providers for purposes of Medicare
appropriate for the dispensing of anti- Comment: One commenter questioned (see section 1861(u) of the Act).
hemophilic clotting factor medications. if all SPAPs are excluded from the Accordingly, we have decided, in light
Comment: One commenter expressed determination of best price in the of section 1927(c)(1)(C) of the Act, that
concern that CMS will not consider proposed rule or only SPAPs that CMS should include sales to home
expert advice from pharmacists, qualify under the criteria set out in health agencies within best price.
pharmacy organizations and Congress Manufacturer Release 68. Comment: One commenter expressed
regarding the proposal that States may Response: SPAPs should continue to concern with the exemption from best
use AMP as a basis for reimbursement. meet the qualifications in program price of payments made by PDPs and
Response: We have considered and guidance, which is currently set out in MA–PDs to manufacturers. With the
appreciate the advice that we received Manufacturer Release 68, which can be advent of the Medicare Part D program,
from all interested parties including the found on the CMS Web site at http:// there are substantial sales attributable to
comments received on the proposed www.cms.hhs.gov/ PDPs and MA–PDs. If included in best
rule. MedicaidDrugRebateProgram/ price, the commenter believed these
Comment: Another commenter 03_DrugMfrReleases.asp. A list of sales arrangements would result in more
recommended that CMS require the use designated Medicaid SPAPs can be accurate pricing information and
of therapeutic alternatives when an found on the CMS Web site at http:// enhance the Medicaid Drug Rebate
alternate product in the same class has www.cms.hhs.gov/ Program.
a generic available in order to control MedicaidDrugRebateProgram/ Response: Section 1927(c)(1)(C)(i)(VI)
the use of expensive brand name Downloads/SPAPBestPriceList.pdf. of the Act provides that prices
medications and save Medicaid dollars. Price concessions to SPAPs that do not negotiated by a PDP under Part D and
Response: Since many States already meet these standards would not be an MA–PD under Part C, both of Title
require generic substitution and have exempt from best price. We have added XVIII of the Act, are excluded from best
other measures in effect to encourage language to this final rule to clarify this price.
the dispensing of generic drugs, we do point. Comment: Several commenters agreed
not agree that there needs to be a further Comment: One commenter stated that with the statement in the preamble to
CMS requirement here. SPAPs are generally third-party payers the proposed rule that to the extent that
an entity is not included in the best 1. The program is focused on reaffirm that best price is the lowest
price calculation, both sales and extending financial assistance to low- price available from the manufacturers
associated discounts or other price income individuals and families, as reflecting concessions provided by the
concessions provided to such an entity determined by CMS, who are not manufacturers.
should be excluded from the otherwise eligible for Medicare and do Response: We do not agree with the
calculation. not have public or private prescription commenters. Although we have deleted
Response: We agree and have retained drug coverage. the requirement that manufacturers
this policy in the final rule. 2. Each manufacturer establishes an include PBM rebates and discounts and
Comment: One commenter amount of the subsidy to be given to other price concessions in best price,
recommended that CMS publish a individual patients, without any there are instances where some PBM
proposed rule for public comment when negotiation between the manufacturer rebates and discounts may be designed
significant changes related to best price and any other third party (such as an to adjust prices at the retail or provider
are being considered rather than issue insurer or PBM) as to that amount. level. Best price is designed to reflect
program releases and post clarifications 3. The entire amount of the subsidy is the lowest price available from the
on the CMS Web site as proposed in the made available to the individual patient, manufacturer to any purchaser,
rule. Another commenter noted that without any opportunity for the retail inclusive of rebates, discounts, or price
clarifications to the definition of AMP pharmacy or any third party (such as an concessions that adjust the price
should be made through formal notice insurer or PBM), to reduce that subsidy, realized. Where PBM rebates, discounts,
and comment rather than through or take a portion of it, for its own or price concessions do not operate to
program releases and Web site postings. purposes. adjust prices, they should not be
4. The pharmacy collects no included in the best price calculation.
Response: We agree that substantive
additional payment, other than the Comment: Several commenters
changes in policy should be made
benefit amount, from the patient suggested that PBM rebates should be
through the rulemaking process. We
assistance program. included in the best price calculation
note, however, that policy established Comment: Several commenters stated but not in the calculation of AMP
through regulation may need to be that to include PBM rebates in best price because including these prices would
clarified to explain how it applies in poses significant operational issues reduce the FUL to an amount below
specific situations or to new situations because manufacturers often do not available market price. The commenter
in the marketplace. CMS will continue know the amount a PBM receives as stated that this would undermine the
to issue subregulatory guidance when rebates for retail mail order and non- FUL and shrink rebates paid to States.
we find this to be necessary or mail order sales. The commenters Response: We appreciate the
appropriate. suggested that the final rule should recommendation of the commenters. We
Comment: Several commenters allow manufacturers to use reasonable believe that, as a general matter, PBM
disagreed with limiting the exemption assumptions to estimate PBM rebates. rebates, discounts, and price
from best price for manufacturer This would be similar to Medicare Part concessions obtained from
coupons to those redeemed by the B ASP reporting requirements (71 FR manufacturers (except for PBM mail
consumer with the manufacturer. The 69623 and 69676, Dec. 1, 2006). order purchases) should be excluded
commenters believe that coupons Response: We recognize the from both best price and AMP. We have
redeemed by a pharmacy or other third commenters’ concerns and have decided concluded that we should not consider
party should also be exempt from best that, except in those situations where PBMs as falling within the retail
price when the pharmacy or other party PBM rebates are designed to provide pharmacy class of trade as they are not
passes through the full value of the price concessions, discounts, or rebates, directly involved in the supply chain of
coupon to the consumer and does not or to adjust prices recognized by pharmaceuticals. PBMs are treated by
receive any price concession on providers or retailers, PBM rebates the pharmaceutical manufacturers as a
acquisition cost from the manufacturer should not be included in best price different class of trade and the public
other than the coupon amount and the calculations. does not necessarily have access to
handling fee. Comment: Several commenters stated drugs supplied through PBMs.
Response: We concur. We are that some industry analysts appeared to Therefore, we do not believe that it is
exempting coupons redeemed through a misread the proposed rule to suggest appropriate to include PBM rebates,
pharmacy from best price as long as the that manufacturers may be obligated to discounts, and prices in either AMP or
exact value of the coupon is paid to the add concessions paid to PBMs to the best price, except for mail order
pharmacy from the manufacturer or its concessions paid to customers of the purchases.
agent, the full value of the coupon is PBMs in calculating best price. This Comment: One commenter requested
passed on to the consumer, and the would effectively call for the combining that PBM price concessions should not
pharmacy does not receive any price of two separate prices, one offered to a be used in the best price calculation
concessions. PBM and the other to a customer of a because they are not shared with
Comment: One commenter requested PBM. The commenter stated that the pharmacies.
that CMS reaffirm that multi- statute is quite clear in defining best Response: We have excluded PBM
manufacturer patient assistance price as the lowest price to ‘‘any price concessions except for mail order
programs continue to be exempt from wholesaler, retailer, provider, health purchases where rebates or price
the best price determination. maintenance organization, non-profit concessions are designed to adjust
Response: We agree, and as discussed entity, or government entity * * *.’’ prices at the retail or provider level.
previously with respect to AMP, we The commenters argued that if Congress Comment: One commenter disagreed
have decided to codify our existing had intended anything other than a with the proposed rule that prices of
policy in this rule. Accordingly, patient customer-by-customer analysis of sales directly to patients should be
assistance programs are exempt from the separate prices, the statute would have included in best price because direct-to-
best price determination under combined each customer with the word patient sales are not specified in the
1927(c)(1)(C) of the Act as long as the ‘‘and’’ instead of the disjunctive ‘‘or.’’ statute. Rather, the commenter believed
following provisions are met: The commenters requested that CMS that the statutory definition is intended
to capture prices to commercial entities, other price concessions available to the (464 F.3d 1306 (Fed. Cir. 2006)). It is our
and that CMS’ interpretation goes end-customer are to be included in the understanding that DoD has ceased the
beyond, and is inconsistent with, the determination of best price. TRRx program and is refunding any
plain language of the statute. Comment: One commenter requested rebates previously paid. The commenter
Response: The statute clearly specifies that the regulation not define fair market requested that any voluntary price
at sections 1927(c)(i)(I)–(VI) of the Act value for administrative and service fees concessions provided to DoD by
those sales, including, for example, that are excluded from best price. The manufacturers on direct purchases, sales
sales provided to patients through the commenter suggested that CMS mirror to TRICARE mail order pharmacy, or
endorsed discount card program, that Medicare’s position on ASP which through rebates on TRICARE be exempt
are excluded from best price. As we permits manufacturers to determine the from best price even though the prices
discussed previously, we believe that most appropriate industry-accepted are not obtained from depot purchasing.
sales directly to patients are included, method to determine fair market value Response: We recognize the Federal
except as specifically excluded by of the drug distribution services they Circuit Court of Appeals remanded the
statute, as this is an alternate channel receive. DVA’s Dear Manufacturer Letter
for sales that normally flow through Response: We concur that (October 24, 2004) for substantive
included entities. manufacturers should be permitted to rulemaking. However, to the extent
Comment: One commenter requested determine the fair market value of drug section 1927(c)(1)(C)(i)(I) of the Act
that discounts negotiated on behalf of distribution services using industry- includes the DoD as an exclusion from
retirees enrolled in retiree prescription accepted methods and have not defined best price, TRRx prices are excluded
plans which are excluded from best these terms in this final rule. from best price.
price be extended to their dependents. Comment: One commenter requested Comment: One commenter requested
The commenter stated that rebate that further guidance be given on when that if the final rule changes the AMP
agreements for retirees for qualified GPOs should be excluded from best NDC reporting from 9 digits to 11 digits,
retiree prescription drug utilization price. The commenter suggested that CMS should also require that best price
apply the same price structure to all of fees to GPOs should not be treated as be reported for each package size. This
the individuals covered by the plan and price concessions unless the fees (or any would allow for more consistent,
do not distinguish between utilization portion thereof) are passed on to the transparent, and accurate calculations
by retirees and of their dependents. GPO’s members or customers. between AMP and best price.
Response: We proposed to exempt Response: GPOs may function as
Response: This final rule maintains
from best price any prices charged negotiators for price concessions on
that AMP reporting remain at nine
which are negotiated by a qualified behalf of member pharmacies with
digits.
retiree prescription drug plan under GPOs receiving service fees for their
section 1860D–22(a)(2) of the Act. To services or they may function as a Authorized Generic Drugs (§ 447.506)
the extent the prices are negotiated by distributor to their member pharmacies
Summary of Comments
a qualified retiree prescription drug of price concessions from manufacturers
plan under section 1860D–22(a), they after volume sales benchmarks have The DRA requires drug manufacturers
are exempt from best price. been attained. If the service fees paid to to include drugs sold under an NDA
Comment: Several commenters GPOs are bona fide service fees, and approved under section 505(c) of the
requested that CMS not include there is no evidence or arrangement that FFDCA in their AMPs and best prices.
customary prompt pay discounts in the the fee is passed on to the member In the proposed rule, we would
determination of best price to the extent pharmacy, client or customer of any require the manufacturer holding title to
that such discounts are excluded from entity, the manufacturer can exclude the the NDA of the authorized generic drug
AMP. They stated that Congress fees from the determination of best to include the direct and indirect sales
recognized that discounts serve an price. of this drug in its AMP and to include
important role in providing a revenue Comment: One commenter stated that in the computation of best price the
stream for distributors to ensure the safe in 2004, the DoD restructured its price of the innovator multiple source
and effective distribution of drugs to pharmaceutical benefit plan TRICARE drug as well as the single source drug.
patients. and placed the pharmacy benefit under We received numerous and detailed
Response: We do not agree. Congress contract with PBMs. DoD determined, comments concerning these proposed
did not exclude customary prompt pay and CMS agreed, that the TRICARE requirements that led us to agree with
discounts from the determination of best transactions, known as TRICARE Retail commenters that these requirements
price. Therefore, customary prompt pay Pharmacy Program or TRRx, amounted would be unduly burdensome on
discounts remain included in the to depot sales that qualified for Federal manufacturers, call into question the
determination of best price. ceiling prices (FCP). Manufacturers paid veracity of manufacturer pricing
Comment: One commenter requested rebates, called refunds on TRRx information reported to CMS, and
that when best price is determined, utilization, and those rebates were potentially violate anti-trust statutes
customary prompt pay discounts calculated in a manner intended to because they would require
extended to wholesalers should not be provide DoD with FCP for that manufacturers to share pricing
aggregated with price concessions utilization. In Manufacturer Release 69, information and engage in anti-
available to an end-customer under a CMS directed that both TRRx sales and competitive practices.
contract administered through a refunds be excluded from AMP and best In the final rule, we limit the
wholesaler chargeback arrangement, price because they qualified as depot application of the requirement to the
regardless of whether the manufacturer sales. In September 2006, the Federal sale of an authorized generic product
negotiated the contract directly with the Circuit Court of Appeals raised from the primary manufacturer; that is,
end-customer or with a third party. significant concerns with the TRRx drug the manufacturer that holds the NDA, to
Response: We do not agree. As we program holding that DoD could not the secondary manufacturer; that is, the
have previously stated, there is no basis require manufacturers to pay refunds manufacturer that markets and sells the
to exclude these discounts. Both the without issuing a regulation through authorized generic drug. This eliminates
customary prompt pay discounts and formal notice and comment rulemaking the need for manufacturers to share
information on sales to other entities Definition of Authorized Generic recommended that CMS allow the
and potential competitors. We believe Comment: One commenter urged primary manufacturer to calculate a
that the sale price of the drug from the CMS to clarify that the term ‘‘authorized blended AMP and determine the best
primary to the secondary manufacturer generic’’ is limited to those products for price based on the pricing data provided
will generally be lower than the lowest which the title passes to an authorized by the secondary manufacturer. One
price paid for the authorized generic generic entity. commenter suggested two methods for
drug by subsequent purchasers. We Response: We disagree. We do not blending authorized generic sales data
have further supported this by stating interpret the DRA amendment as with the sales data of the primary
that all price concessions, discounts and necessarily limiting the application of manufacturer. Several commenters
fees other than bona fide service fees this provision to drugs for which the
suggested that CMS require the primary
must be reflected in the primary manufacturer to obtain from the
secondary manufacturer holds title.
manufacturer’s calculations of best Comment: One commenter suggested
secondary manufacturer either the AMP
price. This will prevent the primary and best price or underlying authorized
that CMS exclude from the definition of
manufacturer from circumventing its generic sales data. The primary
‘‘authorized generic,’’ drugs that are
rebate liability, impact the rebate owed manufacturer would then combine its
repackaged for use in institutions. The
by the primary manufacturer, and result own sales data with the sales data
commenter requested that CMS clarify
in the savings contemplated by the provided by the secondary manufacturer
that private label arrangements
provision. to calculate the AMP and determine the
At this time, we do not require that involving distinct packaging due to
best price for the brand drug. One
subsequent sales of an authorized variations in package size from the
commenter asked for guidance regarding
generic product by the secondary branded product do not constitute
a method for calculating a weighted
manufacturer be included in the AMP ‘‘authorized generics’’ where the private AMP value for authorized generic drugs.
calculation of the primary manufacturer. label product is used in an institution. Several commenters recommended that
We note that this is consistent with our Another commenter recommended that CMS require manufacturers to use a
reading of the DRA in that, unlike the CMS preserve its current policy of weighted average to calculate the AMP
best price amendment, the DRA did not exempting manufacturers who for authorized generic drugs.
amend the definition of AMP, which repackage products (for sale) from Response: This final rule provides the
continues to require that AMP be reporting best price. The commenter requirements for manufacturers to use
calculated with respect to the covered recommended that CMS classify the in calculating the AMP for covered
outpatient drug of a manufacturer based secondary manufacturer of authorized outpatient drugs. Specific calculation
on the price paid to the manufacturer generic products as a repackager. methods are left up to the manufacturer
‘‘by wholesalers for drugs distributed to Response: The definition of consistent with this rule.
the retail pharmacy class of trade.’’ The authorized generic drugs excludes drugs In light of the comments, we have
DRA did not amend the AMP definition that have been repackaged for use in decided to reconsider our proposal that
to include prices paid to the institutions. Thus, any sales of the primary manufacturers include the
manufacturer by other manufacturers. repackaged drug by the repackager authorized generic product pricing data
Furthermore, in light of the comments would not be included in the primary of a secondary manufacturer in their
we have received with respect to the manufacturer’s rebate calculation if it best price and AMP calculations. At this
proposed rule, we believe that to require were simply repackaged in an time, we have revised the authorized
the primary manufacturer to include institutional package size with the generics provision to require the
sales of the secondary manufacturer primary manufacturer’s NDC; however, primary manufacturer to include in best
within its calculation would be the sale to the institution would be price the authorized generic sales from
problematic from an administrative included in the primary manufacturer’s the primary manufacturer to a
accounting and anti-trust perspective. best price. secondary manufacturer or subsidiary of
We also note that to include the sales of AMP and Best Price Reporting the brand company.
the authorized generic drug in the AMP At this time, based on concerns raised
Requirements
of the primary manufacturer’s drug by the commenters, primary
could lower the AMP and rebate Comment: Many commenters manufacturers would not be required to
liability, and present additional expressed concern regarding the incorporate the sales of the authorized
concerns with respect to the FUL proposed policy to require the price or generic in the AMP of the brand drug.
calculation, contrary to our reading of sales of the authorized generic drug to The primary manufacturer and the
the provision. be included in the AMP and the best secondary manufacturer would be
In light of the comments received and price of the branded drug. Many responsible for separately calculating
our concerns given the statutory commenters requested further guidance their own AMP. The method for
amendment, at this time we have to clarify how the price or sales of determining the AMP, as described
decided not to include authorized authorized generic products should be elsewhere in this final rule, is the same
generic products marketed by the gathered, shared and incorporated into for all covered outpatient drugs,
secondary manufacturer in the AMP the AMP and best price of the branded including authorized generics.
calculation. We will continue to review drug. One commenter stated that the Comment: A few commenters
this issue, but we believe this proposed rule did not address whether expressed concern that a blended AMP
interpretation best implements the DRA the primary manufacturer must and best price would distort the AMP
amendments. incorporate raw sales data into the and the best price of authorized generic
brand drug calculations in order to drugs which in turn may cause
General Comments derive a blended AMP and best price or pharmacies to receive substantially
Comment: One commenter expressed whether the primary manufacturer can lower reimbursements for such drugs.
general support for the authorized rely on the secondary manufacturer to One commenter stated that a blended
generic provisions in the proposed rule. provide the authorized generic AMP- AMP for the brand drug may be lower
Response: We appreciate the support eligible units and dollars to derive the than a pharmacy’s acquisition cost for
the commenter expressed. AMP. Several commenters the product. A few commenters stated
that while CMS may allow the primary previously, based on the comments amended the definition of best price, in
manufacturer to pay its rebate based on received, we have decided that the part, to specifically provide that the best
a blended AMP, it is not fair to use this primary manufacturer should not price should be inclusive of the lowest
blended AMP to potentially underpay incorporate the sales of authorized price available from the primary
pharmacies for dispensing the brand generic products by the secondary manufacturer to ‘‘any manufacturer.’’ In
drug when prescribed by a physician. manufacturer in the AMP of the brand accordance with the best price
One commenter stated that this final drug. At this time, we have decided that provisions in section 1927(c)(1)(C)(i) of
rule would result in new AMP-based the primary manufacturer and the the Act, we believe that all price
calculations that would apply to more secondary manufacturer would discounts, except for bona fide service
medications, thereby compounding separately calculate their own AMP. fees, should be included in the best
concerns regarding decreased Comment: One commenter requested price of the brand drug unless the
reimbursement to pharmacies for that CMS clarify whether the sales by discount is specifically excluded by
authorized generic products. The the primary manufacturer of an statute or regulation. Therefore, the
commenter further stated that the authorized generic to a secondary primary manufacturer will be required
broadened definition of authorized manufacturer should be included in the to include in the best price of its drug
generic could create a disincentive for primary manufacturer’s AMP and best any price concession provided by the
generic utilization, thereby increasing price. The commenter indicated that manufacturer to any entity (including
costs to the Medicaid Program. A few inclusion of such manufacturer-to- the secondary manufacturer) that
commenters suggested that separate manufacturer sales in the AMP would reduces the price of the authorized
AMPs should be posted on CMS’ result in double-counting in AMP of generic drug sold by the primary
website for the brand drug and the every authorized generic unit; once manufacturer and actually realized by
authorized generic drug. when the unit is sold by the primary the primary manufacturer, unless the
Response: We agree with these manufacturer to the secondary price concession is specifically
comments. The primary manufacturer manufacturer, and again when the unit excluded by statute or regulation or falls
should not include within its AMP is sold by the secondary manufacturer to within the definition of a bona fide
calculation any pricing data concerning its customers, thereby resulting in a service fee.
the sale by the secondary manufacturer distortion of the AMP. A few Comment: Several commenters
regarding the authorized generic commenters urged CMS to clarify that expressed concern that our proposed
product. manufacturer-to-manufacturer sales are policy would require the primary
Comment: A few commenters non-retail sales and, therefore, excluded manufacturer and the secondary
requested further clarification on how to from AMP. Another commenter stated manufacturer to share confidential
handle incomplete or inaccurate data that including inter-company transfer pricing information that may result in
reported by the secondary manufacturer. prices in the AMP for every unit of a anti-trust violations. Commenters
In addition, commenters wanted to drug would deflate the market price and strongly urged CMS to consult with the
know what should be done when skew the AMP to an inappropriately low FTC before implementing the new
information is not received from the level. The commenter suggested that the reporting requirements outlined in the
secondary manufacturer in a timely final rule clarify that inter-company DRA. One commenter recommended
manner. One commenter recommended transfer prices will be excluded from that CMS consider eliminating or
that CMS allow the use of the prior AMP or best price regardless of the delaying implementation of the
month’s data to calculate the blended circumstances surrounding the transfer authorized generic reporting
AMP to ensure compliance with of product within the same corporate requirements until a later date.
reporting deadlines. Many commenters company, even if the product is Response: We appreciate the
requested that CMS confirm that the provided at a lower price from one comments and have revised the
primary manufacturer may rely on the member of the company to another authorized generics provision to require
AMP and sales data provided by the member of the company. Another the primary manufacturer, that is, is the
secondary manufacturer without having commenter recommended that CMS NDA holder, to include its sales of the
to review the underlying data and define the term ‘‘any entity’’ in the best authorized generic to the secondary
methodologies for accuracy. Several price definition to exclude the sales manufacturer in best price. We have
commenters also requested that the price of authorized generics from the revised the best price provision to
primary manufacturer not be held primary manufacturer to the secondary provide, at this time, that best price
responsible for certifying (in accordance manufacturer so that this sales price should only include authorized generic
with the certification requirements set would not set the best price. The sales from the primary manufacturer to
forth in this rule) the accuracy and commenter further explained that a secondary manufacturer or subsidiary
completeness of the AMP and best price failure to exclude the sale price from the of the primary manufacturer and shall
data provided by the secondary primary manufacturer to the secondary be the lowest price at which the primary
manufacturer. Another commenter manufacturer would result in increased manufacturer sells the drug.
requested that CMS allow the primary costs that will shift to payors and At this time, we believe this revision
manufacturer to incorporate the AMP consumers because both the primary will avoid any anti-trust concerns that
and best price of the authorized generic manufacturer and the secondary could potentially arise as a result of
product into the AMP and the best price manufacturer will raise their prices in pricing data being exchanged between
of the brand drug. order to recoup reduced profit margins manufacturers. In light of the DRA
Response: We appreciate the resulting from an inaccurate best price. amendments, we are not eliminating or
comments and have revised the Response: We appreciate the delaying the implementation of this
authorized generics provision to require comments but have not revised our provision but we will continue to
the primary manufacturer to include in definition of ‘‘any entity’’ as we believe, consider this issue as we receive AMP
best price the authorized generic sales in light of the DRA amendments, that and best price data.
from the primary manufacturer to a any sales of covered outpatient drugs Comment: Several commenters
secondary manufacturer or subsidiary of between manufacturers must be requested that CMS require the primary
the primary manufacturer. As discussed included in the best price. The DRA manufacturer and the secondary
manufacturer to separately report and adjustments to the contracted transfer eligible sale. In addition, the best price
calculate the AMP and determine the price have been added; or (2) the lowest for the secondary manufacturer is the
best price for their own products, using price at which the secondary lowest price charged for the drug by the
only the sales data based on the manufacturer sells the authorized secondary manufacturer in a best price-
products’ NDCs, and include in each of generic in the marketplace. The eligible sale. Another commenter
their own AMP reports the number of commenter stated that either requested that CMS allow the primary
units sold during the rebate period. clarification of the term ‘‘price’’ would manufacturer to obtain from the
Other commenters recommended that help ensure a true and accurate secondary manufacturer the best price
CMS allow the primary manufacturer reflection of the best price of the for the authorized generic and compare
and secondary manufacturer to submit authorized generic in the marketplace. the secondary manufacturer’s best price
separate pricing data regarding their The commenter indicated that the sales to its own best price and then submit
own sales so that CMS may calculate the of the authorized generic drugs by the the lowest price of the two drugs.
AMP and best price. secondary manufacturer to its own Response: In this final rule, we state
Response: We have revised the customers should be included in the that the best price includes authorized
provision to no longer require the best price, not the primary generic sales from the primary
primary manufacturer to include manufacturer’s sales price to the manufacturer to the secondary
authorized generic sales of the secondary manufacturer. Several manufacturer or subsidiary of the
secondary manufacturer in the AMP. commenters requested that the transfer primary manufacturer, and the best
The best price shall include authorized price at which the primary price is the lowest price at which that
generic sales from the primary manufacturer sells the drug to the product is sold.
manufacturer to a secondary secondary manufacturer not be taken Comment: One commenter
manufacturer or to a subsidiary of the into account or included in the best recommended that CMS clarify that the
primary manufacturer and shall be the price or the AMP. One commenter proposed authorized generic provisions
lowest price at which the drug is sold stated that the transfer price should not do not apply to situations in which a
by the primary manufacturer. be included in the best price even if this product is sold to a secondary
Comment: A few commenters price would otherwise be the lowest manufacturer for purposes of
expressed concern that there are a price at which the drug is sold. The incorporating the product into a ‘‘kit’’
number of transactions that may not commenter stated that transfer prices consisting of multiple products.
have been intended to fall within the involve complex royalty or profit- Response: The authorized generic
scope of the authorized generic sharing arrangements that would be provisions apply to the transaction
provision. Several commenters difficult for the primary manufacturer to between the primary and secondary
requested that CMS clarify that inter- incorporate into its best price and manufacturers. Therefore, the price for
company transactions between the difficult for CMS to evaluate. Another any authorized generic product sold for
primary manufacturer and the commenter recommended that CMS the purpose of incorporating the
secondary manufacturer will not be require manufacturers to include the product into a kit consisting of multiple
included in the primary manufacturer’s transfer price from the primary products must be included in the best
pricing calculations. Several manufacturer to the secondary price of the primary manufacturer.
commenters recommended that inter- manufacturer in the best price. Comment: One commenter stated that
company transactions such as transfer Response: We believe that transfer the authorized generic provisions
price, royalties and/or license payments prices and all fees paid by the secondary negatively impact manufacturers and
made by the secondary manufacturer to manufacturer to the primary penalize them for entering into
the primary manufacturer should not be manufacturer for the authorized generic authorized generic arrangements. The
included in pricing calculations. A few product, other than bona fide service commenter stated that CMS has
commenters indicated support of CMS’ fees or other discounts excluded by prematurely taken a negative position
decision not to require manufacturers to statute or regulation, are price discounts on authorized generics before receiving
include the transfer price of the which should be included in the best results from an FTC study that is
authorized generic drug in best price. price of the primary manufacturer. The currently analyzing the impact of
One commenter requested that CMS inclusion of such price reductions or authorized generics in the marketplace.
clarify how manufacturers should fees ensures that the amount recognized The commenter further indicated that it
account for transfer prices when the by the primary manufacturer for the would be premature and unwise of CMS
product is sold from the primary authorized generic product reflects all to adopt any policy that would impose
manufacturer to the secondary discounts and price concessions that are a penalty on the authorized generic
manufacturer. Other commenters were meant to be included in the best price. industry before conclusions of the FTC
concerned that transfer fees, licensing Therefore, we have revised the study are in hand.
fees and manufacturer contracting fees authorized generic provision to include Response: We appreciate the
would be inappropriately included in in the best price of the brand drug, comments, but the statute does not
the best price and AMP for authorized transfer prices and other fees paid for condition this policy on the results of
generic sales. Several commenters stated authorized generics by the secondary the FTC study or its findings. The policy
that such fees should not be taken into manufacturer to the primary concerning authorized generics is
account in the authorized generic manufacturer, unless such prices or fees intended to implement our
provision and only the sales of the are excluded by statute or regulation or understanding of the provisions of the
authorized generic products in the fall within the definition of a bona fide DRA. The purpose of the authorized
marketplace should be considered. One service fee as defined in § 447.505 of generic provisions is to ensure that
commenter requested that CMS clarify this final rule. prices for such drugs are accounted for
that the term ‘‘price’’ used in Comment: One commenter requested in prices reported by manufacturers
§ 447.506(c) would be considered to be that CMS confirm that the best price for participating in the Medicaid Drug
either (1) the adjusted transfer price authorized generic products is the Rebate Program.
after the value of all profit-sharing, lowest price charged for the drug by the Comment: One commenter
royalties, license fees and other primary manufacturer in a best price- recommended that CMS treat authorized
generic drugs as noninnovator multiple primary manufacturer no longer sells quarter after the authorized generic
source drugs unless the manufacturer the brand drug and the secondary product is launched. The commenter
has licensed the drug to another labeler manufacturer buys an authorized suggested CMS clarify that authorized
and has no control over pricing, generic version of the drug and changes generic products will not be taken into
marketing or distribution. the NDC, the primary manufacturer is account in monthly AMP calculations
Response: We disagree. Authorized responsible for paying rebates on its until the first month of the first full
generic drugs are single source or drugs still in the supply chain and must quarter following the launch of the
innovator multiple source drugs. In supply a termination date equal to the authorized generic.
accordance with our understanding of shelf life of the last lot/stock sold under Response: We are not redefining the
the statute, drugs sold, marketed or the previous NDC. It must also supply rebate period or adjusting the monthly
distributed under an NDA must be pricing data for four quarters beyond the and quarterly reporting requirements as
treated as single source or innovator shelf life of the drug. The secondary they are currently defined under the law
multiple source drugs for purposes of manufacturer would be responsible for and this regulation. Like other
the Medicaid Drug Rebate Program. supplying pricing data starting with the manufacturer programs that start in the
Comment: Several commenters quarter the authorized generic is for sale middle of a quarter or a month, the
requested further guidance regarding the under its own NDC. appropriate authorized generic sales
inclusion of authorized generics in the Comment: A few commenters must be reported for whatever part of
AMP and best price when the drug is requested clarification regarding the reporting period they occur.
being sold by the primary manufacturer whether the secondary manufacturer or Comment: Several commenters
and a secondary manufacturer at the licensee should include the combined indicated that there are several
same time. The commenter suggested sales of two separate NDCs in its price operational issues that may prevent the
that all sales of the authorized generic reporting data where the licensee is primary manufacturer from
product should be considered when selling both the brand and authorized incorporating authorized generic AMP
calculating the AMP and best price and generic version of the licensed and best price data from the secondary
requested that CMS provide guidance in innovator multiple source drug, or manufacturer within the required 30-
order to confirm this interpretation. should the licensee continue to report day timeframe. A few commenters
Another commenter requested that CMS data for two separate NDCs as is stated that it would be infeasible for the
clarify in the final rule that the currently done under existing policy. primary manufacturer to calculate the
authorized generic provision applies to Response: If the secondary company AMP and best price for the brand drug
sales of the brand drug under a new markets two drugs that have the same within 30 days if the primary
labeler code. A few commenters asked nine-digit NDC numbers, the pricing manufacturer is unable to rely on the
if the authorized generic provision data with respect to both products information provided by the secondary
would apply to situations where the should be used in AMP and best price manufacturer. In addition, a few
primary manufacturer has completely calculations. commenters stated that the primary
sold the drug to another manufacturer Comment: One commenter manufacturer would not have access to
(including all rights to sell the recommended that CMS redefine the the proprietary data and records of the
authorized generic drug). Other rebate period following the initial secondary manufacturer, who may be a
commenters asked how sales should be launch of an authorized generic by competitor, and there may be
treated when the primary manufacturer dividing the first quarter in which the intersystem incompatibility between the
is no longer manufacturing the authorized generic is launched into two reporting systems of the primary
authorized generic product but is selling separate rebate periods: (1) One period manufacturer and the secondary
off existing inventory. One commenter prior to the launch of the authorized manufacturer. Another commenter
requested that CMS confirm its generic; and (2) one period starting at suggested that allowing the primary
interpretation that the licensed drug the date of the launch. The commenter manufacturer to calculate a weighted
would meet the definition of a single indicated that this change would allow AMP and determine the best price based
source drug because the primary the manufacturer to apply an AMP and on sales data provided by the secondary
manufacturer is not a source of the drug. weighted best price for the first quarter manufacturer would allow primary
Another commenter recommended that of the authorized generic entry. The manufacturers to avoid the
the primary manufacturer not be commenter also mentioned a second administrative burden and complexity
required to take into account authorized option that would allow manufacturers of incorporating raw sales data of
generic sales after the date the primary to report, for the first quarter of the authorized generic products into the
manufacturer stops marketing the brand authorized generic entry, an AMP and pricing calculations of the brand drug.
product. weighted best price based on the Another commenter recommended that
Response: The manufacturer that number of days the authorized generic CMS allow the manufacturers to use
holds the title to the labeler code and is available in the quarter. Additionally, aggregate data at the 11-digit NDC level
whose NDC appears on the product the commenter suggested a third option, (supplied by the secondary
when a Medicaid prescription is in which the incorporation of the manufacturer to the primary
dispensed is responsible for reporting authorized generic would begin with the manufacturer) to minimize operational
pricing and paying rebates. We have first full quarter the authorized generic and legal issues. Another commenter
revised this final rule to state that the is available. Another commenter requested that CMS allow
primary manufacturer will no longer be recommended that for authorized manufacturers flexibility in reporting in
required to include the sales of generic agreements effective during the order to minimize operational issues.
authorized generics by the secondary middle of a quarter, CMS should not Response: We have revised this final
company in the AMP or best price of the begin to apply the blending of AMP data rule to no longer require the primary
brand drug. Each manufacturer will be until the following quarter. One manufacturer to include the sales of the
responsible for determining the AMP or commenter recommended that CMS secondary manufacturer or subsidiary in
best price for its own products require the brand manufacturer to the AMP. The primary manufacturer
consistent with the methodology incorporate authorized generic products will be required to include in best price
described elsewhere in this rule. If the into pricing calculations the first full its sales to the secondary manufacturer
or subsidiary of the primary Exclusion From Best Price of Certain Response: The statute allows the
manufacturer and the best price shall be Sales at a Nominal Price (§ 447.508) Secretary to determine other entities to
the lowest price at which the drug is Comment: Several commenters did which sales of drugs at a nominal price
sold. not agree with the statement in the would be excluded from best price.
Comment: One commenter expressed preamble that using the nominal price However, the statute does not mandate
support for CMS’ assertion that the exception as a marketing tool was not that the Secretary do so. This final rule
secondary manufacturer would continue within the spirit and letter of the law exercises the Secretary’s authority to
to calculate AMP and best price and pay and requested CMS to issue further choose not to expand that list of entities.
rebates for the authorized generic drug guidance through the formal rulemaking We believe the entities listed in the
based on its own NDC according to its process. Another commenter requested statute to be sufficiently inclusive. In
own utilization of the drug, as is done that until such guidance is forthcoming, addition, commenters indicated that
under current policy. manufacturers should be permitted to many manufacturers routinely used the
continue to exclude nominal price sales nominal price exclusion for other than
Response: We appreciate the support charitable purposes. Furthermore,
this commenter expressed. from best price.
Response: CMS does not believe that manufacturers who have chosen to
Comment: One commenter further guidance is needed on this make drugs available to indigent
recommended that CMS clarify that for subject. We believe, in light of the DRA patients often do so through patient
store brand versions of the brand drug, amendments, that the final regulation is assistance programs, which are
the primary manufacturer must include clear concerning what sales at nominal excluded from best price (as discussed
in its AMP and best price the sales of price may be excluded from best price. previously in this rule), and not through
such authorized generics to the Comment: Numerous commenters nominal pricing.
secondary manufacturer, not sales to expressed concern that the proposed Comment: One commenter stated that
consumers by the secondary rule explicitly declined to exercise the sales of contraceptive drugs at a
manufacturer. The commenter indicated Secretary’s statutory discretion to nominal price are not contingent on
that the sales of store brand products to identify additional safety net providers market share agreements or the
retailers are commercial prices and are that could receive nominal pricing on purchase of other products, which were
not subject to transfer pricing or other drugs that would be excluded from best the concerns that prompted Congress to
similar profit-sharing arrangements. The price. They stated that CMS’ failure to restrict the nominal price exemption. A
commenter mentioned that in many define a fourth category to include other few commenters stated that nominal
cases the primary manufacturer labels charitable health care providers is pricing predated Medicaid best price
the store brand products under the contrary to congressional intent, ill- and rebates and that keeping family
retailer’s labeler code, thereby making advised and unfair to providers that are planning providers as entities that can
the retailer a secondary manufacturer of the mainstay of the nation’s health care receive nominal prices would not
those drugs. The commenter stated that safety net. Many of these commenters suddenly have an adverse effect on the
unlike secondary manufacturers of suggested that a fourth category of safety Medicaid Drug Rebate Program. Another
prescription authorized generic net providers include non-profit entities commenter stated that family planning
products, a secondary manufacturer of that serve the uninsured and is a cost-effective public health strategy
an OTC authorized generic sells the underinsured, regardless of their ability that saves money by preventing other,
authorized generic directly to to pay and for whom a majority of their more costly health problems. In
consumers and typically does not patients have income at less than 200 addition, several commenters noted that
participate in the Medicaid Drug Rebate percent of the Federal Poverty Level although family planning clinics that
Program. The commenter stated that the (FPL). Many commenters disagreed with receive funding under Title X of the
most appropriate sales data to include the limited entities that qualify to PHS Act and are funding covered
in the branded product’s AMP and best purchase drugs under the proposed entities under the PHS Drug Pricing
price calculations would be the primary nominal price exclusion. These Program, their 340B status is not
manufacturer’s sales transactions with commenters suggested that other safety permanent and could be lost due to
the retailer. The commenter further net providers who offer low-cost oral funding deficits. Other commenters
suggested that in calculating the contraceptive drugs to their low-income, remarked that 340B clinics that rely on
blended AMP and best price figures for uninsured or underinsured patients subsidies from non-340B clinics within
authorized generics sales, the primary should continue to be eligible for the same organization to finance their
manufacturer should incorporate the nominal pricing exceptions. operation may not be able to continue
direct and indirect sales to secondary Commenters requested that nominal to keep their doors open because the
manufacturers of the store brand pricing exceptions should continue to non-340B clinics will no longer have
authorized generic. The commenter be extended to such reproductive health access to excess funds when they can no
requested that CMS confirm that the care centers, including college and longer purchase contraceptives at
primary manufacturer may comply with university health centers, which have nominal prices. Numerous commenters
the authorized generics provisions by traditionally purchased contraceptive wrote indicating that non-Title X family
including its sales of the authorized drugs from manufacturers at nominal planning clinics are often the sole
generic to the secondary manufacturer prices. Commenters contended that the source of primary health care for
when the primary manufacturer impact of the rule is significant because uninsured or underinsured women and
calculates the blended AMP and best it would require the reproductive health provide vital reproductive health care
price figures for the brand product. care centers to close their doors or to services including birth control drugs
Response: The primary manufacturer charge the patients who are unable to and supplies at deeply discounted
would be responsible for including pay and, therefore, eliminate access to prices, well-woman exams, screenings
prices to the secondary manufacturer, oral contraceptives. These patients for breast and cervical cancer, and
but further sales from the secondary would be at risk for unplanned treatment for sexually transmitted
manufacturer to the consumer would pregnancies and increased reliance on diseases, diabetes, hypertension, and
not be included. abortion. anemia. Many of these commenters also
noted that the ability of these providers Manufacturers did not differentiate nominal pricing contracts in the non-
to continue to provide quality health between for-profit and non-profit 340B parts of their hospitals would be
care at low or no cost rests on their entities when offering nominal pricing, devastating to the amount of service
ability to purchase contraceptives at and manufacturers’ agreements they could continue to provide.
nominal price. Other commenters noted frequently included market share Response: Section 1927(c)(1)(C)(i)(I)
that because Title X funding has not requirements. Additionally, the surveys of the Act exempts inpatient prices
increased since 1977, newer clinics found that the use of the nominal price charged to 340B hospitals from best
have not received Title X funding. exception has declined since 2003. price, so we believe that there is no
Another commenter stated that where Comment: A few commenters noted need to address these prices in the
two non-profit entities perform the same that their purchase price for a month’s context of the nominal price exemption.
function for similar populations and one supply of oral contraceptives has Section 1927(c)(1)(D)(i)(I) of the Act
is a 340B covered entity and the other increased more than tenfold. Other provides that nominal prices to 340B
is not, it is reasonable to believe that the commenters reported that covered entities are exempt from best
Congress intended both to have access manufacturers are discontinuing price; the statute does not extend the
to the same discounted pricing nominal prices for oral contraceptives. exemption to any part of a broader
structure. Numerous commenters expressed organization of which the 340B covered
Response: CMS recognizes the concern that prices will increase for entity is a part. The Secretary has not
important role that family planning these patients, many of whom are on chosen to expand the list of which
clinics play in providing for the basic fixed incomes and unable to absorb entities qualify for the nominal price
health care needs of a vulnerable patient additional expense to purchase these exclusion to include facilities not
population. However, we do not agree medications. Another commenter asked identified in the statute.
that the broad categories of populations if a mechanism will be provided for Comment: One commenter noted that
served by the clinics suggested by the non-Medicaid patients to continue to a study of manufacturers’ policies and
commenters, which include student receive deeply discounted drugs if practices with respect to nominal price
existing philanthropic programs no practices indicated that the nominal
health centers, constitute a vulnerable
longer qualify for the best price nominal price exclusion was used primarily as a
population. It would also be difficult for
price exclusion. competitive marketing tool and not used
us to distinguish between agencies; for
Response: As previously stated, we for charitable purposes as intended by
example, agencies with non-profit status
believe that there are already programs Congress.
under the Internal Revenue Code that Response: We appreciate this
in place by which manufacturers can
are truly serving a public interest from comment and believe that this was a key
continue to make available drugs to the
others that may not be doing so. Such factor in the legislation to restrict the
indigent and underinsured without
an expansion would be far in excess of types of entities eligible for the nominal
raising best price concerns for drug
the current definition in the 340B price exclusion from best price.
manufacturers.
Program. Therefore, we do not believe Comment: One commenter expressed Comment: One commenter requested
that there is sufficient reason to include disappointment that we did not list that CMS provide a list of qualified
these entities in the nominal price community health providers that safety net providers eligible for the best
exclusion. receive funding under Title V of the price exemption. Another commenter
Comment: A few commenters noted PHS Act as 340B covered entities suggested that CMS maintain a current
that Congress established the nominal because they serve the same populations list of entities that qualify as ICFs/MR
price exclusion to protect discounts as family planning clinics. They stated or State-owned or operated nursing
offered to charitable organizations and that by this oversight, the government facilities, similar to the CMS list of
clinics. One commenter noted that would incur increased costs for qualified SPAPs under Medicare Part D.
surveys conducted by the Senate maternity care and providing welfare. Yet another commenter requested CMS
Committee on Finance in 2004 and 2005 Additionally, the commenter noted that to develop and publish procedures to be
found that not-for-profit, acute care, local health departments were used to identify additional safety net
teaching and other hospitals appeared to considering no longer providing family providers. Yet another commenter
be the primary recipients of nominal planning services, which would have a recommended that safety net providers
prices. This commenter, along with tremendous impact on underserved be required to complete a self-
others, urged CMS to define safety net populations and that this may pave the certification process. Another
provider as non-profit organizations, way for civil rights action. commenter stated that they appreciated
comprised of an outpatient clinic or Response: CMS does not determine the clear guidance given by CMS in
several clinics, which offer health care what entities qualify for the 340B delineating the covered entities eligible
to patients regardless of their ability to Program. In this final rule, as discussed for the nominal pricing exemption.
pay, and for whom the majority of their above, we have decided not to expand Response: The Secretary has chosen
patients have income at less than 200 the entities which can have nominal not to designate a fourth category of
percent of the FPL. price sales excluded from best price for safety net providers; therefore, the
Response: In its 2004 and 2005 purposes of the Medicaid Drug Rebate argument for a certification process is
surveys, the Senate Committee on Program. unnecessary, as is the need to establish
Finance found that while hospitals Comment: One commenter requested and publish procedures for the
appeared to be the primary recipients of that CMS clarify the scope of the best identification of additional safety net
nominal pricing, most manufacturers’ price exemption specifically to allow providers. The Health Resources and
policies did not reflect the use of the the best price exemption for nominally Services Administration (HRSA)
nominal price exception for charitable priced drugs to a 340B hospital to administers the 340B Program and we
purposes. (This discussion can be found extend to drugs purchased for inpatient rely on that agency to identify providers
at http://www.cms.hhs.gov/ use and by other components of a large in the 340B Program. Furthermore,
eRulemaking/ECCMSR/list.asp; docket health system of which a 340B ICFs/MR and State-owned or operated
ID CMS–2238–P; paper comment participating hospital is a part. Other nursing facilities fall under State
number 33.) commenters said that the loss of jurisdiction and we expect the State
Medicaid Agencies to identify these for price is defined as less than ten percent pricing data 30 days after the month
manufacturers. of AMP in the same quarter for which closes, the published pricing data will
Comment: A few commenters the AMP is computed. be at least 60 days behind the
requested that we add language in the marketplace pricing. One commenter
preamble or in the regulation text of the Requirements for Manufacturers
asked CMS to revise the AMP reporting
final rule to state that the Secretary (§ 447.510) period to a timeframe that is available
intends to retain his discretionary Electronic Data Submission in the private sector.
authority to add to the list of safety net Response: The DRA requires
Comment: A few commenters
provider entities for which sales at manufacturers to report AMP monthly
expressed support for CMS’ proposal to
nominal prices are excluded from best to CMS. While we acknowledge that
require manufacturers to submit all prices change in the marketplace more
price should CMS choose not to exercise
the authority at this time. Several product and pricing data in an frequently than monthly, we are
comments urged CMS not to relinquish electronic format. implementing the monthly AMP
the authority to establish nominal price Response: We appreciate the support reporting requirement in this final rule.
exemptions for additional classes of for this provision and have retained this We note that States are not required to
providers. requirement in the final rule. base their Medicaid pharmacy
Response: In accordance with the Data Reported to CMS reimbursement on AMP. AMP will be
reasons stated above, the Secretary has one of many prices that States can look
chosen not to exercise his authority at Comment: One commenter asked
at when setting their pharmacy
this time. The Secretary retains the CMS to revise the regulation text at
reimbursement rates. Furthermore, we
authority to propose expansion of this § 447.510(a) to clarify that
note that the FULs will be calculated
list for any appropriate safety net manufacturers are responsible to ensure
based on 250 percent of the AMP, in
providers at a future time through the that they report to CMS only those
accordance with the statute, which
notice and comment process. products/NDCs that are truly covered
should allow for some market
Comment: One commenter agreed outpatient drugs. The commenter also fluctuations.
with the proposed rule directing asked CMS to coordinate with the FDA Comment: A few commenters noted
manufacturers to exclude nominal sales or other Federal agencies to ensure that that the lag time between the timeframe
from the AMP calculation stating it the products manufacturers report to covered by monthly AMP and when the
would be unfair to allow deeply CMS actually are covered outpatient AMPs are available may result in
discounted prices offered only to safety drugs. Finally, if any products are inaccurate AMPs due to the reporting
net providers and not available in subsequently determined to not be delay. The commenters urged CMS to
commercial transactions to put covered outpatient drugs, the address this timing issue directly and in
downward pressure on AMPs and commenter asked that CMS clarify that detail before we encourage States and
depress Medicaid reimbursement to States are not to be held accountable for others to use it as a reimbursement
retail pharmacies. any expenditures or rebates collected for benchmark. One way to do this would
Response: We agree that nominal the products in the interim. be to compare AMPs to WACs, and only
price sales that are excluded from best Response: CMS already coordinates publish those AMPs that approximate
price should not be included in AMP with the FDA to ensure that drugs the WAC for a brand name drug.
and we have retained that provision in covered by the Medicaid Program meet Another commenter suggested that CMS
the final rule. the statutory definition of covered issue new FULs within seven to ten
Comment: One commenter asked outpatient drugs. days of receiving monthly AMP data.
whether the AMP used in determining Comment: A few commenters Response: We share the commenters’
a nominal price for purposes of the best expressed support for our position that interest in making sure that AMPs
price exclusion should be the combined AMP should be reported on a monthly reported to CMS and released to the
AMP for the brand manufacturer who basis and AMP, best price, and public are as accurate as possible. Also,
also has sold or licensed an authorized customary prompt pay discounts should we note that States have been notified
generic. be reported on a quarterly basis. of the limitations of the AMP data. We
Response: Brand manufacturers who Another commenter urged us to appreciate such concerns and have
also have sold or licensed rights to an eliminate the monthly AMP reporting decided to establish a timeframe
authorized generic should compute the requirement. sufficient for initial implementation of
AMP for the brand drugs according to Response: We continue to believe that the new FUL prices. CMS has posted a
the requirement in § 447.506. in accordance with the DRA, AMP timeline for implementation of the FUL
Comment: A few commenters should be reported monthly, while on its Web site (http://
believed that nominally priced products AMP, best price, and customary prompt www.cms.hhs.gov/DeficitReductionAct/
should be excluded from best price pay discounts should be reported Downloads/
calculations because those prices are not quarterly. AMPFULTentativeTimeline.pdf).
representative of the acquisition costs Comment: Several commenters Comment: A few commenters noted
available to retail pharmacies. Several suggested that AMP must be reported that the record layout for the quarterly
commenters stated that nominal prices weekly in order to accurately realize pricing report that CMS issued in
are not available to the retail pharmacy market costs and reimburse retail December 2006 did not include a field
class of trade and should therefore be pharmacy accordingly. One commenter for customary prompt pay discounts.
excluded from any calculations. noted that the monthly reporting system The commenters asked for clarification
Response: CMS concurs with the would be inadequate and unfair, if not as to how customary prompt pay
commenter that nominal priced sales to illegal. Some commenters noted that discounts should be reported.
certain specified entities such as 340B pricing changes daily; therefore, Response: We will issue a revised
entities, ICFs/MR and State-owned or monthly reporting will cause too long of record layout to manufacturers to
operated nursing facilities are to be a delay in updated AMP prices. Another include customary prompt pay
excluded from best price calculations. commenter noted that with discounts in accordance with this final
For purposes of this exclusion, nominal manufacturers supplying CMS the rule.
Comment: A few commenters asked believed there is no purpose to report a manufacturers should restate their
for operational guidance on reporting combined figure for these values. quarterly AMPs if there are subsequent
customary prompt pay discounts to Response: We agree with the restatements of the monthly AMPs on
CMS. Specifically, should commenter. A primary manufacturer which the quarterly AMPs are based.
manufacturers recognize discounts should not include customary prompt In addition, we are revising the
given at the time of sale of the product pay discounts or nominal prices for regulation text at § 447.510(d)(2) to
to the customer? Also, should authorized generic drugs marketed by clarify that monthly AMP should be
manufacturers report customary prompt another manufacturer when reporting calculated as the weighted average of
pay discounts at the 9-digit NDC, 11- these data to CMS. prices for all the manufacturer’s package
digit NDC, or at the labeler code level? Comment: One commenter asked for sizes for each covered outpatient drug
Should the information be provided in clarification about what format will be sold by the manufacturer during a
whole dollars, units, or by percentage? used to report nominal sales. Another month. It is calculated as net sales
Would reporting an accrued amount by commenter asked for clarification as to divided by number of units sold,
NDC suffice? One commenter noted that whether nominal price reporting should excluding goods or any other items
the statement in the proposed rule, that be at the gross or net level, with a given away unless contingent on any
these discounts should be reported at an preference for reporting at the net level. purchase requirements.
aggregate level, including discounts The commenter also asked CMS to Comment: One commenter expressed
paid to all purchasers in the rebate provide an example of how nominal concern with the provision in the
period is too vague to know what level price data should be reported. regulation that allows manufacturers to
of detail is required. The commenter Response: In the proposed rule, we
revise their quarterly AMPs for up to
asked CMS to include additional stated that nominal prices shall be
twelve quarters from the quarter in
specification in this final rule. reported as an aggregate dollar amount
which the data were due. The
and shall include all sales to the entities
Other commenters noted that it is commenter recommended that CMS
listed in § 447.508(a) of this subpart.
difficult for a manufacturer to quantify address the ability of a payer to recoup
The dollar value of all sales should be
the discounts taken by a purchaser, or erroneous payments or the ability of a
aggregated for each drug at the 9-digit
deducted from payments made during provider to claim shortages based on
NDC level. We will issue further
the rebate period, as doing so requires instructions and a revised record layout incorrect AMPs in this final rule.
the manufacturer to reconcile the to clarify the format manufacturers Response: We intend to use monthly
deductions relating to customary should use to report nominal prices AMPs in the calculation of the FULs.
prompt pay discounts and deductions after the publication of this final rule. Although manufacturers will be allowed
taken for other reasons, such as Comment: One commenter asked to restate their monthly AMPs, we do
shortages in the amount of product CMS to clarify that quarterly AMP not anticipate that there will be any
shipped. Even if the manufacturer could submissions should be based on retroactive adjustments to the FULs
quantify such deductions, that amount quarterly sales, not the aggregate or because we will calculate the FULs
would relate to the invoices paid rather average of the three monthly AMPs based on the current monthly AMPs and
than the sales made in the rebate period. submitted during the same quarterly we do not intend to recalculate the
In contrast, the commenters believed period. Other commenters urged CMS to FULs if the monthly AMPs are
that manufacturers can readily quantify allow manufacturers to calculate their subsequently revised by manufacturers.
the customary prompt pay discounts quarterly AMPs based on the weighted However, we note that States may
offered during a rebate period, and ask average of monthly AMPs in the quarter need to revise payments to the extent
that CMS clarify the reporting and to clarify that manufacturers that they base their reimbursement
requirement accordingly. select this option would not be required methodologies on AMPs that are
Response: We want this reporting to restate their quarterly AMP, other subsequently revised by manufacturers.
requirement to be as simple as possible. than to correct an error. The Comment: One commenter asked for
Therefore, manufacturers may report commenters believed this approach guidance on monthly reporting of AMP
customary prompt pay discounts offered would minimize discrepancies between when a product is discontinued.
during a rebate period aggregated with monthly and quarterly AMP and would Another commenter asked CMS to
respect to all purchasers. All of the be administratively simple for clarify that a manufacturer’s reporting
pricing information reported to CMS, manufacturers and CMS to administer. obligation for monthly AMP ceases with
including customary prompt pay Response: We concur with the the product’s termination date,
discounts, should be reported at the commenters who suggested we define beginning with the first monthly report
nine-digit NDC level. We also clarified quarterly AMP as the weighted average after the expiration date of the last lot
in § 447.510(a)(3) that manufacturers of monthly AMPs. Accordingly, we have sold. Also, States should not be able to
should report customary prompt pay revised the regulation text at set reimbursement rates based on
discounts provided to all wholesalers in § 447.504(i)(2) to require manufacturers expired AMPs as they do not reflect the
the rebate period. We will clarify this to calculate quarterly AMP as the acquisition price of a product that is
requirement further when we issue a weighted average of monthly AMPs in currently available for purchase by the
revised record layout after publication the quarter. We agree that this approach retail pharmacy class of trade.
of this final rule. will minimize discrepancies between Response: Manufacturers should
Comment: One commenter asked for monthly and quarterly AMPs. However, continue to report monthly AMP for
guidance on whether manufacturers because we do not agree that this will twelve months past the product’s
should combine customary prompt pay eliminate the need for manufacturers to termination date. The purpose of
discounts for authorized generics with correct their quarterly AMPs, we have reporting a terminated product is that a
customary prompt pay discounts for the retained in the final rule the product may be billed by the pharmacy
brand name drug. Similarly, should requirement that manufacturers report for up to a year past the date the drug
nominal prices for authorized generics revisions to quarterly AMPs for up to 12 was dispensed. We have clarified this
be combined with nominal prices for quarters from the quarter in which the requirement in the final rule at
brand name drugs? The commenter data were due. Furthermore, § 447.510(d)(5).
In regard to the issue of State payment termination date, metric unit AMP, policy and we believe it best represents
rates, we will continue to review SPAs AMP begin date, AMP end date, and file the AMP for each drug. This will assure
to ensure that payment complies with reporting date. that manufacturers pay a rebate and will
section 1902(a)(30) of the Act. Response: The monthly and quarterly prevent offsets due to a negative AMP.
Comment: A few commenters AMPs will be on our Web site, so we do Comment: A few commenters asked
suggested that CMS implement a not see a need to provide them whether product reports must be filed
process that would trigger an alert if separately to First DataBank. In regard monthly.
there is a severe shift in AMP from one to the specific data elements, we expect Response: As set forth in the national
reporting period to another. The to address these concerns in operational rebate agreement, initial product
commenters suggested that the OIG be guidance after this final rule is information must be submitted within
alerted of all AMP price shifts and the published. 30 days after the first month in which
OIG would research and then Comment: A few commenters noted the drug is marketed in order for the
recommend an updated AMP figure to that CMS’ Drug Data Reporting System program to identify the relevant drug
CMS. Such a trigger mechanism would (DDR) requires that the employee products covered by the program. Initial
limit the effects of price posting lag, posting submissions to provide his or product data must be submitted once
mitigate potential market manipulation, her Social Security number (SSN). The before any prices can be reported.
mitigate a possible disincentive to fill commenters recommended that access Comment: One commenter suggested
generics by the retail pharmacies, limit to the DDR be revised to include the that we require manufacturers to report
incorrect public data, and provide CMS corporation’s tax ID number (TIN) or AMP and best price information using
with the most up-to-date calculation of SSN associated with the corporation NCPDP standard units, and that CMS
AMP. One commenter noted that there instead of the individual’s SSN. One of report the FUL using the same.
is even greater concern regarding the the commenters urged CMS to destroy Response: NCPDP standard units are
heightened risks of error and records of employee SSNs once a based on package pricing. The AMP and
inconsistency among manufacturers company has been enrolled under its best price information that
because AMP is potentially a TIN and notify the technical contacts of manufacturers report is based on unit
reimbursement metric that will be the destruction. pricing, without regard to package size;
calculated and reported on a monthly Response: This issue is not addressed therefore, we do not see a basis for using
basis. Other commenters urged CMS to in the proposed rule; therefore, we the NCPDP units given the Medicaid
implement systems checks and cannot consider this comment as we statute reporting requirements.
measures to hold manufacturers consider revisions to be included in the Monthly AMP
accountable for the quality of the data final rule. We intend to address this
they provide, including reporting or not issue in the future in guidance or Comment: Several commenters
reporting accurate data. The regulations, as appropriate. focused on the issue of revising monthly
commenters requested that CMS include Comment: One commenter suggested AMPs. A few commenters agreed with
representation from State Medicaid that CMS revise the DDR system to the position we stated in the proposed
Agencies in developing this system of allow manufacturers to submit a text rule, that manufacturers should not be
checks and accountability measures. document along with their AMP and permitted to revise their monthly AMPs.
One commenter suggested that CMS best price reports. Otherwise, the commenters noted that
compare the NDCs reported by Response: We are not revising the the revised monthly AMPs could be
manufacturers with the NDCs listed on DDR system to permit manufacturers to used as a basis for reducing
databases maintained by First DataBank submit a text document at this time. The reimbursements already paid for the
and Medispan in order to help assure DDR system was specifically designed drugs. Another commenter urged CMS
that all NDCs and their AMPs are to streamline the collection of product to allow manufacturers to revise their
reported to CMS. and pricing data from manufacturers. monthly AMPs for up to twelve quarters
Response: We are not implementing a We believe that any alterations to the after initially submitted, as is currently
trigger mechanism at this time; we will system at this time may hamper its allowed for quarterly AMP data. One
use the monthly AMPs that are functionality. Manufacturers that wish commenter noted that a prohibition on
submitted by manufacturers to calculate to submit documentation regarding their restatements of monthly AMPs could
the FULs, and we will post the monthly AMP and best price reports may do so have financial consequences for
and quarterly AMPs on our Web site. In outside the DDR system. manufacturers, pharmacies, physicians
regard to the NDCs reported by Comment: One commenter asked for and outpatient hospital departments.
manufacturers, we will address these guidance on how manufacturers may Other commenters expressed concern
ongoing operational issues at a later report pricing corrections on the record with allowing manufacturers to revise
time. layout. their monthly AMPs for up to 30 days
Comment: One commenter suggested Response: We will clarify how after each month. The commenters
that CMS allow First DataBank, the manufacturers should report pricing urged CMS to enforce the prohibition
pricing source used by most States, to corrections in future operational against adjusting monthly AMP beyond
have access to the AMP data instructions. the 30-day period.
electronically. This would centralize Comment: A few commenters asked Response: After consideration of these
administrative tasks and allow efficient for guidance on how to handle zero or comments, we have decided to allow
and cost-effective integration of AMPs negative monthly AMPs. The manufacturers to revise their monthly
into State data warehouses. The commenters noted that for quarterly AMPs for a period not to exceed 36
commenter also suggested that the AMP reports, CMS has instructed months from the month in which the
files include specific data elements to manufacturers to use the last quarter’s data were due and have revised the
streamline importing AMPs into State positive value when the current quarter regulation at § 447.510(d)(3). We
databases. Those data elements are the is a zero or negative value. reached this decision in part because we
11-digit NDC, brand name, strength, Response: Manufacturers should want to minimize the disparities
dose form, metric billing unit (for report the most recent positive AMP between monthly and quarterly AMPs.
example, each, milliliter, or gram), value. This is consistent with our past If a manufacturer discovers an error one
year after the AMP is reported, we want operational guidance after publication rolling 12-month average for reporting
the correction to be reflected in the of this final rule. monthly AMP, but require actual
monthly and quarterly AMPs. Comment: One commenter suggested discounts to be used in reporting the
We also recognize that because we are that CMS address the requirements for quarterly best price. Some commenters
using monthly AMP in the calculation monthly AMPs under Determination of suggested manufacturers should be
of the FULs, it would be impractical and AMP, § 447.504, rather than addressing allowed to employ a variety of
burdensome for States and pharmacies monthly AMP under Requirements for smoothing methodologies to calculate
if we revised the FULs based on revised Manufacturers, § 447.510. accurate quarterly and monthly AMPs,
monthly AMPs for up to three years. Response: We appreciate this while one suggested that manufacturers
Furthermore, we note in § 447.510(d)(2) comment but have decided to address be allowed to choose a preferred
that manufacturers are required to the requirements for monthly AMP method, provided that the method is
submit monthly AMPs based on the best under § 447.510. used consistently. One commenter
data available and to certify the Comment: One commenter asked that manufacturers be given the
accuracy of those submissions. As a recommended that we include the 11- option to estimate lagged price
result, we do not expect that we will digit NDC on the monthly AMP file that concessions for quarterly AMP through
need to revise the FULs. We will we distribute to States. a smoothing methodology or an
consider revisiting this issue if monthly Response: The 11-digit NDC will be estimation method based on accruals
AMP submissions become problematic. included on the monthly file distributed and sales experience. One commenter
Comment: One commenter noted that to States. asked us to clarify that manufacturers
Comment: One commenter asked can estimate all lagged rebates or
in our December 15, 2006 guidance to
CMS to consider defining monthly and concessions regardless of whether they
manufacturers, CMS stated that
quarterly AMPs differently. Another are quarterly or on a different period.
‘‘adjustments, such as those resulting
commenter agreed with CMS’ proposal Other commenters asked us to specify
from sales data, received after the
that monthly AMP be defined the same whether manufacturers should calculate
reporting period ends, should be
as quarterly AMP, except the monthly the 12-month rolling average using the
reflected in the next monthly AMP
AMP would represent data for one date the rebate is earned versus the date
submission.’’ The commenter noted that
calendar month. the rebate is paid.
the addition of data attributable to a Response: For reasons noted in the
previous month’s transactions into a Commenters suggested a modification
preamble to the proposed rule, we of the 12-month rolling percentage
later month’s AMP could artificially continue to believe that monthly and
inflate or deflate the later month’s AMP. methodology. They suggested requiring
quarterly AMPs should be defined the manufacturers to look to the four full
Response: Our intent in the December same. calendar quarters before the reporting
2006 release was to advise
Lagged Price Concessions period to calculate the rolling 12-month
manufacturers that they should submit
percentage, which could then be
a revised monthly AMP in the next In the proposed rule, we proposed applied to all three monthly AMPs and
monthly AMP submission if they allowing manufacturers to rely on the quarterly AMP. As an alternative,
receive sales data after the reporting estimates regarding the impact of their chargebacks and rebates could be
period ends. In this final rule, as noted end-of-quarter rebates or other price singled out for lagged treatment on a
above, we are permitting manufacturers concessions for purposes of calculating routine basis. In addition, the
to make revisions to monthly AMP for monthly AMP. We suggested a 12- commenters urged CMS to provide
up to 36 months after the month in month rolling average of all lagged price examples showing how the
which the data were due. Therefore, concessions for purposes of calculating methodology should be applied in both
data attributable to a previous month’s monthly and quarterly AMPs and the monthly and the quarterly context,
transactions should not result in the requested comments on the appropriate taking into account the proper treatment
artificial inflation or deflation of a later methodology for calculating monthly of the various types of bundled sales.
month’s AMP. We further believe this AMP. Other commenters recommended that
concern will be addressed by requiring Comment: Many commenters favored manufacturers be permitted to use a
manufacturers to estimate their lagged allowing manufacturers the flexibility to four-quarter rolling average of rebates to
price concessions, as discussed in detail estimate lagged price concessions for sales, and apply that percentage to
below. monthly and quarterly AMPs. Many of monthly sales. The commenters believe
Comment: One commenter asked these commenters expressed a that using a four-quarter rolling average
whether it is acceptable for preference for using a 12-month rolling for smoothing is more operationally
manufacturers to run monthly reports of average. Several commenters pointed feasible than a 12-month rolling average
sales and discounts to be included in out that a 12-month smoothing because rebates and other price
the AMP calculations based on the methodology for AMP would mirror the concessions are typically invoiced by
‘‘post’’ date of chargebacks, which smoothing methodology CMS customers and paid by the manufacturer
indicates when a chargeback has been established for ASP; therefore, it would on a quarterly basis. The commenters
‘‘paid.’’ be easier for manufacturers to also asked that CMS allow
Response: We will continue to allow implement, would reduce the risk of manufacturers to estimate excluded
manufacturers the flexibility to count errors, and would minimize the sales for the month using a four-quarter
chargebacks based on their GAAPs, volatility in the data. One commenter rolling average based on gross sales
provided they use one methodology noted that a 12-month rolling average is units divided by excludable AMP units.
uniformly. an auditable approach, but there are One commenter noted that end-of-
Comment: One commenter asked other, more credible approaches that year rebates or chargebacks should be
what procedure CMS will put in place would result in potentially more excluded from the AMP calculation in
if a manufacturer believes the monthly accurate AMPs (but the commenter did order to avoid significant 12 to 18-
AMP on CMS’ Web site is incorrect. not elaborate on what those approaches month revisions to AMP data. Such
Response: We will establish a are). Another commenter urged CMS to revisions would render AMP data
procedure to address this and will issue mandate that all manufacturers use a unusable for reimbursement purposes.
An alternative would be to require such as errors in the initial AMP the final rule with comment period
manufacturers to estimate their end-of- calculation. Therefore, we are not published on August 29, 2003 (68 FR
year settlements at minimum discount creating a broad exemption from this 51912) we believe this provision helps
levels. requirement. Instead, we have clarified streamline the administration of the
Response: We have decided to require in this final rule at § 447.510(b)(2) that Medicaid Drug Rebate Program.
manufacturers to use a 12-month rolling manufacturers should report revised
average to estimate the value of lagged Pricing Lag
AMPs except when the revision would
price concessions in their calculation of be solely as a result of data pertaining Comment: A few commenters
monthly and quarterly AMPs and have to lagged price concessions. expressed concern with the lag time
added this requirement to the regulation Comment: One commenter asked that between when manufacturers calculate
at § 447.510(d)(2). We believe this smoothing not be required for the first and report their monthly AMPs to CMS
methodology will ensure the greatest partial year of sales for new products and when those AMPs are made public.
stability and accuracy for AMP data. because the base date AMP can be They noted that the process could result
Comment: One commenter noted that skewed by non-recurring post-launch in data being up to 90 days old and
if CMS changes its position with regard start-up payments. asked CMS to provide guidance to
to the treatment of Medicaid units and Response: We disagree with the States and other users of AMP on the
rebates to Federal programs such as commenter’s suggestion about proper method to address any issues
Medicare Part D, that CMS should estimating lagged price concessions resulting from this lag time. One
consider allowing discretionary during the first partial year of sales for commenter noted that this problem
smoothing of those units and removal of new products. We believe such an highlights the challenges CMS faces in
a corresponding value from gross sales exception would run counter to the implementing AMP’s new dual purpose
dollars. intent of the DRA, which is to provide of serving as a measure for quarterly
Response: We are not changing our for increased transparency in AMP Medicaid rebates and potentially as a
position with regard to the treatment of pricing. reimbursement benchmark. Another
Medicaid units and rebates to Federal Comment: One commenter expressed commenter speculated that the lag time
programs such as Medicare Part D. concern that in light of the increasing would likely result in brand name drug
Comment: One commenter asked vertical integration of the pharmacy prices being higher than AMP, with the
CMS to clarify what we consider to be market, manufacturers could use the result that pharmacies will be
‘‘lagged price concessions.’’ Another monthly and quarterly ‘‘dual reporting’’ underpaid if they are reimbursed based
commenter urged us to only allow timeframes to manipulate AMP, thereby on AMP.
manufacturers to estimate the value of manipulating the market. This concern Response: While we will make every
price concessions between stems from the ability of manufacturers reasonable effort to publish this data as
manufacturers and true wholesalers. to restate their quarterly AMPs for soon as possible after we receive it, we
Response: We consider lagged price twelve quarters from the quarter in are aware that the monthly AMP data
concessions to be any discounts or which the data were due, as well as the we make available to the public will
rebates that are realized after the sale of ability of manufacturers to estimate likely be 45–60 days old, given the
the drug, except for customary prompt their end-of-quarter discounts and timeframes in the reporting
pay discounts. Lagged price concessions allocate these discounts in the monthly requirements. While we will make these
are not limited to discounts or rebates AMPs reported to CMS throughout the limitations known to the States and
offered to wholesalers. Accordingly, we rebate period. The commenter was also other parties, it will generally be up to
have added a definition of lagged price concerned that this situation could lead them to determine how to best use this
concessions to the regulation text at to a loss of price transparency. data.
§ 447.502. Response: We disagree with the
commenter that the possibility exists for Base Date AMP
Comment: A few commenters asked
CMS to clarify whether the current a lack of price transparency. Beginning Comment: Many commenters
month should be included in the 12- with the data for January 2007, we expressed support for allowing, but not
month rolling average. interpret the law to provide for posting requiring manufacturers to recalculate
Response: Manufacturers should of monthly and quarterly AMPs on our their base date AMPs. Noting the
include the current month in calculating Web site, which allows full difficulty in performing a calculation
the 12-month rolling average they use to transparency for monthly and quarterly using data that may be more than ten
determine the value of lagged price AMPs. The intent behind the decision to years old, several of these commenters
concessions. require manufacturers to estimate their further suggested that CMS permit
Comment: One commenter asked that end-of-quarter discounts was to manufacturers to estimate their
manufacturers who estimate lagged minimize volatility in the monthly AMP recalculated base date AMPs by relying
price concessions be exempt from the data, which is used to set the FUL and on reasonable assumptions,
requirement to report revised quarterly which States may consider in setting extrapolation or other accepted methods
AMPs in § 447.510(b). their pharmacy reimbursement rates. of estimation where partial data are
Response: The purpose of requiring Without this requirement, we anticipate available. One commenter suggested
manufacturers to report revised there would be significant volatility in that CMS allow manufacturers to use a
quarterly AMPs in § 447.510(b) is to the data from month to month, thereby ratio derived from a comparison to the
ensure the Medicaid rebate amounts are eroding its usefulness. current AMP and the AMP calculated in
as accurate as possible. In this final rule, The provision requiring accordance with this final rule. Another
we are requiring manufacturers to manufacturers to restate their quarterly commenter asked CMS to allow
estimate the value of lagged price AMPs for a period not to exceed twelve manufacturers to use an alternate
concessions using a 12-month rolling quarters from when the data were due methodology to restate base date AMP
average; however, we do not expect this became effective on October 1, 2003. when the original source data or
requirement will eliminate the need for Prior to that time, the national rebate systems are not available, such as a
manufacturers to correct their quarterly agreement did not provide a specific decrease of two percent. Several
AMP calculations for other reasons, period for recalculations. As noted in commenters urged CMS to clarify that
manufacturers have discretion to specifically recommended that CMS to be reported. The commenter noted
recalculate their base date AMPs on a allow manufacturers to restate their base that the record layout CMS issued in
product-by-product basis. date AMPs during the first four quarters December 2006 for the quarterly report
Response: Our intent in permitting after the publication of this final rule. does not include a field for base date
manufacturers to report a revised base One commenter suggested that revised AMP.
date AMP is to allow all manufacturers base date AMPs can be reported during Response: We will issue a revised
the opportunity to recalculate their base the third full calendar quarter following record layout to manufacturers and will
date AMPs in accordance with the the publication of the final rule. clarify how base date AMP is to be
definition of AMP in this final rule. We Response: We concur with the submitted after publication of this final
want this requirement to be minimally commenters about importance of an rule.
burdensome to manufacturers. accurate base date AMP in the
Certification Requirement
Therefore, we have added a provision to calculation of the Medicaid rebate
the regulation at § 447.510(c)(2)(ii) to amount. Therefore, in light of the Comment: Commenters noted several
allow manufacturers to choose to comments we received, we will permit difficulties with complying with the
recalculate their base date AMPs on a manufacturers to submit a revised base requirement that the CEO or the CFO
product-by-product basis. As with other date AMP within the first four calendar certify the pricing reports submitted to
pricing calculations, in the absence of quarters following publication of this CMS. First, it may be difficult to obtain
specific guidance, manufacturers may final rule at § 447.510(c)(1). We expect signatures from senior executives on a
make reasonable assumptions consistent that this extended timeframe will allow routine basis, and they may not be the
with the statute, Federal regulations, manufacturers to perform the necessary best individuals to attest to the accuracy
and customary business practices. research and analysis regarding the of the reporting to CMS. Further, these
However, because the base date AMPs decision to revise their base date AMPs titles do not fit into the organizational
will be used to determine all future in accordance with the definition of structure of every manufacturer. One
rebate calculations, we are not AMP in § 447.504. commenter suggested that CMS clarify
permitting manufacturers to rely solely Comment: One commenter asked that certification can be done by an
on estimates or reasonable assumptions CMS to explain how the revised base individual with authority and
for calculating a revised base data AMP. date AMP would be used for purposes accountability equivalent to an
Manufacturers must use actual data to of calculation of the Medicaid rebate individual holding such a title. Another
calculate revised base date AMPs. We amount. commenter suggested that the
have clarified this requirement in the Response: The revised base date AMP certification could be done by an
regulation text at § 447.510(c)(iii). will be incorporated in the formula that individual who reports indirectly to the
Comment: A few commenters noted CMS uses to calculate the Medicaid CEO or CFO. One commenter suggested
that the preamble and regulation text rebate on a prospective basis, beginning that the individual designated as being
appear to permit recalculation of base with the quarter in which the revised responsible for reporting of pricing
date AMP only in accordance with base date AMP is submitted. It will not information be the one accountable for
§ 447.504(e), the provision defining be used to revise the rebate for prior certification purposes. Commenters
retail pharmacy class of trade. The periods. suggested that a quarterly certification
commenters asked CMS to clarify that Comment: Commenters asked CMS to could be applied to the quarterly and
manufacturers are permitted to allow manufacturers to restate base date monthly data submissions; otherwise,
recalculate base date AMP in light of all AMPs back to January 1, 2007 to the timeliness of the monthly data
of the revisions and clarifications to the account for the impact caused by the submissions would be compromised.
definition of AMP. implementation of the customary Another commenter asked CMS to
Response: We have clarified the prompt pay discount and authorized clarify whether an electronic signature
regulatory text at § 447.510(c)(2)(i) such generic provisions of the DRA that or an e-mail will suffice in complying
that a manufacturer’s recalculation of became effective on that date. with this requirement.
the base date AMP should only reflect Response: In this final rule, we are Response: We recognize that
the revisions to AMP as provided for in permitting manufacturers to restate their manufacturers anticipate that it will be
§ 447.504 of this subpart, rather than the base date AMPs in accordance with all challenging to obtain signatures from a
provisions of § 447.504(e) of this of the clarifications to the determination CEO or CFO on a monthly basis for
subpart. of AMP. We believe it would be purposes of complying with the
Comment: A few commenters impractical to allow base date AMPs to certification requirements. We also
requested that CMS consider a longer be restated twice because, in accordance recognize that those titles may not apply
implementation timeframe for resetting with the effective date of this rule, the to the management structure of every
base date AMP than two quarters restated base date AMPs will be used on company. Therefore, we are revising the
following release of the final rule. One a prospective basis. We don’t see the regulation at § 447.510(e) to specify that
commenter suggested that CMS administrative practicality of delaying the certification may be made by the
establish a date certain within which restatements of base date AMP longer CEO, the CFO, or an individual with
manufacturers must submit revised base than four quarters after this final rule is another title who has authority
date AMPs, but require that all published. equivalent to one of those positions. In
manufacturers who choose to Comment: A few commenters asked addition, the certification may be made
recalculate must refile their AMPs as of CMS to clarify which quarter’s AMP by an individual with the authority
the effective date of the final rule. The should be submitted for the base date directly delegated to perform the
commenter noted that given the AMP requirement. certification on behalf of that
importance of the base date AMP in Response: Manufacturers should individual.
determining a manufacturer’s rebate submit the AMP for the same calendar In light of the fact that we are
liability, any recalculation should be quarter that is currently used as the base requiring manufacturers to submit data
undertaken in a manner that allows date AMP for each of its active NDCs. to CMS in an electronic format, we will
adequate time for thorough review and Comment: One commenter asked for provide that the certification be made
analysis. Another commenter clarification as to how base date AMP is electronically. In addition, the
certification must be made with every and any other materials from which the shortened from twelve quarters to four
data submission to CMS, regardless of customary prompt pay information is quarters. Quarterly data can be revised
whether submission is for monthly data derived, including a record of any for up to twelve quarters after the
or quarterly data. We will issue further assumptions made in the calculations. quarter in which the data were due.
operational guidance on the mechanism Comment: One commenter suggested Similarly, monthly AMP can be revised
manufacturers must use to certify their that CMS reduce the recordkeeping for up to 36 months after the month in
data after publication of this final rule. timeframe from ten years to seven years. which the data were due.
Comment: A few commenters noted Response: CMS finalized the ten-year
that the certification language for AMP recordkeeping requirement for Drugs: Aggregate Upper Limits of
should not be identical to the manufacturers in a final rule published Payment (§ 447.512)
certification language for ASP. The on November 26, 2004 (69 FR 68815). In Comment: One commenter asked that
commenters specifically recommended that rule, we provided a thorough CMS clarify proposed § 447.512 to allow
that the certification language for AMP rationale for requiring manufacturers to a physician to certify through electronic
include a knowledge qualifier until the retain their pricing data for a period of means that a brand is medically
AMP calculation standards are no ten years. We have not received necessary. Another commenter stated
longer in a state of flux. One commenter information to support a lesser period; that CMS should reconsider the
suggested that the certification language therefore, we are retaining the ten-year requirement that a physician must
should be expressly qualified and recordkeeping requirement at certify in his or her own handwriting
should read as follows, ‘‘To the best of § 447.510(f). that a drug is medically necessary in
my knowledge and belief, the reported Recalculations order to indicate that a specific brand
average manufacturer prices and best drug is to be dispensed to a patient, as
prices were calculated accurately and Comment: One commenter asked this is inconsistent with State and
all information and statements made in CMS to specify whether manufacturers Federal efforts to transition to e-
this submission are true, complete, and need to obtain CMS’ approval of prescribing and other health
current.’’ Another commenter asked methodology changes where those information technology innovations.
CMS to clarify the certification changes are being made to comply with Response: We appreciate these
requirements. provisions of this final rule. Other comments and have revised the final
Response: We appreciate the commenters asked CMS to describe in regulation at § 447.512(c)(1) to permit
commenters’ suggestions regarding the this final rule the circumstances in certification by an electronic alternative
certification language. As noted above, which we would either expect or permit approved by the Secretary. CMS intends
we will issue further guidance or manufacturers to recalculate their to address electronic certification in
regulation, as may be necessary, on the AMPs. In particular, one commenter future program guidance or regulations,
certification requirements after asked for guidance regarding whether, as appropriate.
publication of this final rule. in light of the need to maximize stability
Comment: One commenter noted in reimbursement metrics, restatements Upper Limits for Multiple Source Drugs
serious reservations regarding the remain an appropriate means for (§ 447.514)
certification of data from other correcting subsequently discovered Comment: Several commenters
manufacturers or data submitted based AMP calculation errors. Another support the agency’s goal of paying
on the company’s best estimates commenter suggested that the timeframe appropriately for generic drugs. One
regarding price concessions that may be for restatements be shortened from commenter raised concerns regarding
redeemed in any given month. The twelve quarters to four quarters. One the pre-DRA FUL system including
commenter also asked for further commenter asked CMS to permit, but infrequent adjustments to the FULs,
elaboration as to how the certification not require manufacturers to restate which did not necessarily reflect market
requirements would be enforced. their quarterly AMPs when actual data trends.
Response: As of the effective date of become available. Response: We agree. Numerous OIG
this rule, we will not accept data from Response: Manufacturers do not need reports found that the published prices
a manufacturer unless the certification to obtain CMS’ approval of methodology used to set FUL amounts often greatly
requirement has been met. As discussed changes where those changes are being exceeded prices available in the
above, we are not requiring brand made to comply with provisions of this marketplace. As noted in those reports,
manufacturers to report sales by generic final rule. In regard to all other AMP the pre-DRA FUL amounts often greatly
manufacturers for authorized generic restatements, manufacturers should exceeded pharmacy acquisition costs,
drugs. We believe this decision will submit their written requests to CMS and thus, could have unnecessarily
alleviate concerns regarding and wait for CMS’ response before increased costs to the State and Federal
certification of data from other submitting revised AMPs for Governments.
manufacturers. retrospective restatements. For
prospective restatements, manufacturers Implementation of FULs
Recordkeeping should submit their written requests to Comment: Another commenter stated
Comment: One commenter asked CMS, but they are not required to wait that CMS should suspend
CMS to clarify what customary prompt for CMS’ approval to submit revised implementation of the FULs until States
pay information is needed for retention AMPs. We note that requirements are able to adopt the changes necessary
under the recordkeeping requirements. regarding timeframes for recalculations to ensure that pharmacies are properly
Response: These recordkeeping at §§ 447.510(b) and (d)(3) apply to all compensated for providing generic
requirements are the same as for the rest restatements. Manufacturers should drugs; that is, until States have
of the manufacturer’s data for restate their quarterly AMPs if there are evaluated their dispensing fees.
computing the amount of the Medicaid subsequent restatements of the monthly Response: We disagree. The DRA
drug rebate. As we noted in the AMPs on which the quarterly AMPs are changed the formula used to establish
proposed regulations text at based. the FUL. Effective January 1, 2007, the
§ 447.510(f)(1), a manufacturer must We disagree with the suggestion that DRA required CMS to calculate the FUL
retain the customary prompt pay data the timeframe for restatements be at 250 percent of the AMP (computed
without regard to customary prompt pay understanding of congressional intent to Comment: Another commenter
discounts extended to wholesalers) for keep FUL reimbursement in line with supported the provision in law that
the least costly therapeutic equivalent market pricing trends. CMS determine whether a drug product
drug. The States have been advised that Comment: One commenter stated that should have a FUL within seven days
they should evaluate the reasonableness the FUL data on the CMS website after receiving notification from the RPS
of their dispensing fees in light of the should indicate the effective date. contractor to assure the FULs are
changes in payment methodology for Another commenter stated that the updated in a timely manner.
multiple source drugs under the DRA. identity of the manufacturer whose Response: We agree. CMS is required
Comment: One commenter proposed product is used to set the FUL should to determine if a drug is eligible for a
that the effective date of the new FUL be made public to provide a checks-and- FUL within seven days of notification
should be 90 days after release of the balance system whereby the pharmacy by the RPS contractor. CMS intends to
new source file to provide time for CMS community could supply feedback on make additions to the FUL list in a
to issue guidance to States regarding the the availability of the drug product. timely manner to achieve cost savings
source of the revised FULs, including Response: CMS expects to publish the for States and the Federal Government.
the file parameters, in order to allow AMP data when it finds them Comment: Several commenters stated
advance programming to take place. sufficiently complete and accurate. The that additions or changes to the FUL
Another commenter said that at least a AMP data will have corresponding should be disseminated to the larger
60-day timeframe should be allowed for NDCs; thus, specific drug product pharmacy community for their input on
the implementation of FULs. prices, as well as the manufacturer, will availability and pricing before releasing
Response: We appreciate such be available to the public and as final.
concerns and have decided to establish transparent. CMS expects that the FULs Response: We disagree. The 250
a timeframe sufficient for initial will be established monthly for all percent markup of the lowest priced
implementation of the new FUL prices. groups and will be in effect until the drug with respect to the FUL
CMS has posted a timeline for next monthly update. calculation, and our outlier policy
implementation of the FUL on its Web Comment: A commenter questioned which assures that two drugs are
site (http://www.cms.hhs.gov/ whether CMS will calculate and available at or below the FUL price
DeficitReductionAct/Downloads/ disseminate the FUL list, or if the should assure the availability of those
AMPFULTentativeTimeline.pdf). individual States will be responsible for drugs at or below the FUL price for the
Comment: One commenter requested calculating the FUL based on the pharmacists.
CMS to release its best estimate of FULs published AMP data. The commenter Comment: Several commenters stated
based on AMPs in order to analyze their proposes that CMS post the FUL. that CMS should provide a timely
impact. One commenter also requested Response: We agree. We will calculate appeals mechanism, to allow providers
an extension of the formal comment the FUL based on the criteria and States an opportunity to seek
period to the proposed rule to analyze established in the final rule, and post removal or modification of a FUL which
the data. the FULs on our website. is not consistent with changing market
Response: We appreciate the Comment: One commenter expressed conditions. One commenter said that
comment. CMS has stated that the new concern that it will be difficult for CMS severe price shifts and significant issues
FULs would not be issued until the to establish an accurate FUL if all AMPs associated with pricing lags could be
AMPs for 2007, which reflect the are not submitted monthly on a timely effectively addressed by a
exclusion of customary prompt pay basis by manufacturers. redetermination process similar to the
discounts and authorized generic drugs, Response: Manufacturers are required exceptions and appeals process under
are available and processed. CMS is to submit monthly AMP data to CMS Medicare Part D, including a toll-free
required by the DRA to publish a not later than 30 days after the last day number which would be monitored by
regulation by July 1, 2007. Given this of the month. Manufacturers must CMS. The commenter further suggested
deadline, we do not feel that an comply with this reporting requirement that the OIG or other Federal agency
extension or complete reopening of the to continue participation in the could review appeals and recommend
formal comment period is appropriate. Medicaid Drug Rebate Program and an updated AMP figure to CMS.
Comment: One commenter stated that avoid potential penalties, as set forth in Another commenter stated that changes
the FULs published data should be in a section 1927(b)(3)(C) of the Act. CMS to the FUL list should be allowed on a
format that allows importing data into will monitor compliance rates from State-by-State basis to reflect
Excel. One commenter also stated that manufacturers and initiate action or availability. One commenter stated that
all unique and identifiable data make referrals to the OIG, as may be CMS should be vigilant in monitoring
elements should be included on the file; necessary, for non-compliance of data the marketplace for signs of negative
that is, name, strength, dosage, billing submission. effects of using AMP as a basis for FULs,
unit, FUL implementation date, NDC, Comment: One commenter expressed and be prepared to alert Congress of the
and AMP file reporting date used to concern that updating the FUL on a negative effects and recommend any
establish the FUL. monthly basis could increase changes to ameliorate them.
Response: CMS will publicly post the administrative burden on States and Response: We believe that basing
FUL data in a format similar to the make planning of inventory levels for reimbursement on actual sales data such
current Web site posting of FUL pharmacies difficult. as AMP will help capture transparent
reimbursement prices. We expect that Response: Timely updating of FULs is pricing data to assure that the Federal
further specifications will be provided necessary in order that States and the Government and State Medicaid
in future program instructions. Federal Government receive the cost programs are paying appropriately for
Comment: One commenter stated that savings benefits of market changes. This generic drugs. We do not agree that an
the final rule should state our schedule regulation encourages pharmacy appeal or redetermination process is
of FULs updates. providers to buy the lowest priced necessary or would be useful because
Response: CMS expects to publish the generic available in the market, as may AMPs will be updated on a monthly
updated FULs reimbursement prices on be appropriate, to ensure to bill for basis to reflect changes in prices. We
a monthly basis consistent with our drugs at or below the FUL price. also note that the 250 percent markup
of the lowest priced NDC used to reimbursement cannot be gauged at this prospectively given the uncertainty of
compute the FUL, and the outlier policy time. utilization for multiple source drugs
established in this regulation, will help Response: The law provides that subject to a FUL.
to ensure that two or more drugs can be AMPs be publicly available. Therefore, Response: States have flexibility with
purchased at or below the FUL. To they may have an impact on respect to implementation. For example,
address the need for a State variation in reimbursement from other payers. AMP they can look at the previous years’
the FUL, we note that States may pay will be based, in part, on the average claims data to estimate their aggregate
above the FUL for an individual drug, price paid to manufacturers by caps.
given that the FUL is designed as an wholesalers for drugs distributed to the Comment: Many commenters
‘‘aggregate’’ limit. retail pharmacy class of trade. The 250 expressed concern that the new FULs
Comment: Many commenters urged percent markup of the lowest priced methodology will create a disincentive
that the implementation of the new drug should assure the availability of to dispense generic drugs. One
FULs based on the DRA provisions be those drugs at or below the FUL price commenter stated that the proposed rule
permanently suspended because the for the pharmacies. does not affect brand name drugs that
new generic reimbursement Comment: One commenter stated that have the greatest budgetary impact on
methodology of 250 percent of AMP pharmacies will seek further price State Medicaid programs.
will be below acquisition cost. One reductions from manufacturers to Response: The commenter is correct
commenter who analyzed AMP and maintain their margins and that this will that the FULs apply to multiple source
drug acquisition cost data said that the further reduce AMPs and FULs, creating drugs. However, we do not believe that
proposed FULs poorly estimate a downward cycle that will continue to this will lead to a decrease in the
pharmacy acquisition costs. lower profits for pharmacies. dispensing of generic drugs. States will
Response: We disagree. The DRA Response: CMS appreciates the continue to require the use of generic
requires that, effective January 1, 2007, comment but has no reason or evidence drugs when appropriate. We also
CMS calculate the FUL at 250 percent to believe the use of AMP data would believe that drug pricing transparency
of the AMP (computed without regard to lead to price reductions or a downward will lead to more equitable and
customary prompt pay discounts cycle of prices. appropriate reimbursement for
extended to wholesalers) for the least Comment: One commenter stated that prescription drugs as States gain greater
costly therapeutic equivalent drug. The the FUL amount should be the knowledge about the actual market price
250 percent markup of the lowest priced minimum reimbursement amount that of prescription drugs. Because AMPs for
drug, along with our outlier policy will the States can reimburse pharmacies for all covered outpatient drugs will be
assure the availability of drugs at or a multiple source drug. The State available to States, they will have more
below the FUL price for pharmacies. maximum allowable cost (MAC) information to use in setting appropriate
Comment: One commenter stated that programs should be discouraged with prices for brand name drugs as well as
a pharmacy’s acquisition cost may the implementation of the AMP-based generic drugs.
exceed the FUL reimbursement for a FULs, which will better reflect
particular drug because wholesalers sell acquisition cost to pharmacies. Disincentive To Market or Dispense
to independents under contractual Response: We disagree. The DRA Generic Medications
agreements which are not readily clearly mandates that the FUL amount Comment: Other commenters stated
transferable, and independent retail be the upper limit for payment. States that manufacturers may choose to not
pharmacies are not able to ‘‘cherry pick’’ retain the authority to implement a introduce new generics to the market
between wholesalers on a product-by- MAC program to limit reimbursement and wholesalers may not buy generic
product basis. amounts for certain drugs. Individual products because pharmacies will prefer
Response: We believe that the FULs States retain the authority to determine to dispense brand name drugs.
will be sufficient to allow all the types of drugs that are included in Response: We do not agree that these
pharmacies to purchase drugs at or their MAC programs and the method by changes with respect to the calculation
below the FUL price. If a State finds it which the MAC for a drug is calculated. of the FUL will so dramatically change
necessary to pay a higher price than the market dynamics.
FUL price, it can do so as long as it Methodology of FUL
remains within the aggregate limit. Comment: Many comments were Net Payments to States
Comment: Several commenters stated submitted pertaining to the new Comment: A few commenters said
that AMP was never meant to be a calculation/methodology for that FULs should be compared to net
reimbursement metric. establishing a FUL for multiple source payments after rebates, since that will
Response: The law requires the FULs drugs. Some commenters recommended allow the State to take advantage of
to be based on AMP and permits States using an AMP ‘‘average’’ instead of the higher rebates on brand name drugs.
to use AMP in their reimbursement lowest AMP to establish a FUL. Response: We disagree. In accordance
methodologies. We believe that basing Response: The DRA provides, with provisions of the DRA which
reimbursement, in part, on AMPs will effective January 1, 2007, that the upper amend section 1927(e) of the Act, the
help capture transparent pricing data to limit for multiple source drugs be FUL is based on 250 percent of the
assure that the Federal Government and established at 250 percent of the AMP AMP. Thus, we have based the FULs on
State Medicaid programs are paying (as computed without regard to AMP, as opposed to any payments by
appropriately for generic drugs. customary prompt pay discounts States net of rebates.
Comment: Many commenters stated extended to wholesalers) for the least Comment: Several commenters stated
that AMP and the resulting FUL will not costly therapeutic equivalent. Therefore, that it is not uncommon for a State to
only impact Medicaid Programs, but we do not believe that the statute allows designate a multiple source brand name
will substantially impact the entire for an AMP average to be used to set the drug as preferred when the
private market. Therefore, it is FUL amount. supplemental rebate offered by a
imperative that the FUL represent actual Comment: One commenter requested manufacturer results in the brand name
acquisition costs. Another commenter that CMS clarify how an aggregate drug being less expensive than the A-
stated that the impact of using AMP for payment system can be implemented rated generic equivalent. The new FULs
will require States to reanalyze these prices should be based on the most drugs in the FUL reimbursement means
arrangements, and possibly require commonly prescribed package sizes as that CMS is sanctioning the practice of
States to cancel or amend supplemental the current FULs are calculated. dispensing generic drugs which are not
rebate contracts with manufacturers. Response: We disagree. Using an 11- therapeutically equivalent. This
Response: In accordance with the digit level NDC specific to a package commenter further stated that if CMS
DRA amendments, States’ payments for size to calculate the AMP may allow chooses to include B-rated drugs, then
multiple source drugs must not exceed, manufacturers to avoid best price it must indemnify retail pharmacies
in the aggregate, the FULs. States may implications for certain products by from all adverse patient reactions and/
need to consider how this may affect manipulating sales. The use of the 11- or negative outcomes. One commenter
their preferred drug lists. digit level NDC to calculate AMP would states that some Medicaid Programs will
also have an effect on rebates paid by only reimburse A-rated equivalent
Nine-Digit Versus Eleven-Digit NDC
manufacturers which we believe is drugs.
Comment: Some commenters inconsistent with the statute. Response: We disagree. We believe
supported using the 9-digit NDC Comment: Commenters expressed that in light of the provisions of section
weighted AMP to calculate the FUL and concern that AMPs calculated and 1927(e) of the Act, as amended, it is
noted that this method is sufficient reported at the 9-digit NDC level, would appropriate to continue to apply the
because per-unit pricing differences adversely affect 340B covered entities, FUL to B-rated drugs. To do otherwise
between package sizes are not generally whose ceiling prices are based on AMP, may encourage pharmacies to substitute
significant. Other commenters because of a lack of transparency and B-rated drugs to avoid the FUL. Based
expressed concern that significant efficiency in setting prices. on section 1927(e)(4) of the Act, while
system changes would be required to Response: We continue to believe that the FUL would apply to a B-rated drug,
move to the 11-digit NDC method. in accordance with the statute, AMPs the FUL will only be set based on the
Response: We agree that the AMP should be uniform across package sizes. AMP of formulations that are
should continue to be weighted at the 9- Comment: Several commenters stated therapeutically and pharmaceutically
digit NDC level, and retain this that the 11-digit NDC should be used to equivalent.
requirement in the final rule. CMS has calculate the AMP, as this aligns with
used the weighted 9-digit AMP since the Number of Suppliers
State Medicaid Agencies’ drug
start of the rebate program and there is payments that are based on package Comment: Several commenters
nothing in the statute or legislative size. expressed concern that the FUL criteria
history to indicate that the Congress Response: We continue to believe that should be revised to require an adequate
meant for this to change when AMP is in accordance with the statute, AMPs number of suppliers, or that drug
used for FULs. should be uniform across package sizes. supplies should be nationally available.
Comment: With the changes in the One commenter stated that CMS should
DRA to compute the FUL based on Manufacturer-Submitted Utilization develop a method to survey
AMP, some commenters questioned if Comment: One commenter stated that manufacturers to determine if the
the weighted AMP, calculated at the 9- manufacturers should submit drug products included in the calculation of
digit NDC level (as currently reported utilization numbers so that FULs can be the AMP are actually widely available
for the Medicaid Drug Rebate based on the most commonly prescribed in the marketplace. A reasonable
calculation) will result in adequate package size. Also, the commenter threshold for marketplace penetration
reimbursement levels that will be in line suggested that CMS could calculate the should be defined and applied to ensure
with market-based acquisition costs and 9-digit weighted AMP from this that products are available nationally
preferred that we set FULs using the 11- information for rebate purposes, and and in consistent supply. One
digit NDC. this information could also be used to commenter pointed out that smaller
Response: We believe that using a identify outliers by noting supply generic manufacturers seek to capture
weighted AMP will result in adequate numbers. One commenter suggested that market share when entering the market
reimbursement and have retained this in CMS require manufacturers to submit by discounting their prices by 20–30
the final rule. information on their net units shipped percent, but do not have product
Comment: One commenter stated that for each product so CMS can determine inventories sufficient to serve the entire
the use of the 9-digit weighted AMP to if a product is widely available, bearing Medicaid population. One commenter
calculate the FUL will be problematic in mind that such information is stated that repackagers of drugs may
when the weighted average is controlled confidential. The commenter noted that often have limited availability, yet the
by high volume sales of larger-sized this requirement would mirror the prices of such drugs could be used to set
packages with a lower unit cost. requirement for ASP reporting. The a FUL. One commenter suggested that
Response: We disagree. We believe a commenter also suggested that CMS three suppliers of ‘‘A’’ rated products
weighted average will adequately reflect consider additional factors when setting should be necessary to establish a FUL.
all package sizes. FULs, such as whether the product is One commenter stated that the FUL
Comment: Some commenters stated available from several wholesalers. The should not be applied until there are
that using the 11-digit AMP to set the net unit information could also be used two or three different suppliers in the
FUL would allow the FUL to be based for weighting, as required for the rebate market, because establishing a FUL with
on individual package sizes, or would calculation process. just an innovator multiple source drug
allow a FUL to be established on the Response: We disagree. While CMS and an authorized generic by a
most commonly used package size. appreciates the comment, it does not subsidiary of the company may not
Other commenters stated that using the believe that such information is show much price difference between the
11-digit AMP would reflect the two. One commenter stated that a drug
necessary in light of the DRA

difference in the popularity of a drug in amendments. should not be considered to be available
different areas of the country, or the unless it is available from the top five
package size that is most economical for Therapeutic Equivalency wholesalers in each CMS region.
a pharmacy provider to purchase. Comment: One commenter stated that Another commenter said that CMS
Several commenters said that AMP the inclusion of B-rated multiple source should include a provision for a
product-specific exemption or using AMPs submitted by wanted CMS to remove all outlier AMPs
adjustment by State or region when manufacturers to establish the FUL. that are less than 30 percent of the next
products are unavailable in those highest AMP, and use the industry-wide
National Availability
markets at the FUL price. Another weighted average AMP to establish the
commenter agreed that revision of Comment: One commenter stated that FUL.
criteria to establish a FUL for ingredient CMS should consider revising Several commenters agreed with
groups with two therapeutically § 447.514(b) to read, ‘‘for the least costly CMS’ proposal to set the FUL based on
equivalent drugs was a positive step. therapeutic equivalent available for sale the lowest AMP that is not less than 30
Response: We proposed to revise the nationally’’ to ensure that AMPs used to percent of the next highest AMP. One
methodology we use to establish FULs set the FUL are available nationally and commenter stated that CMS should use
for multiple source drugs based on the will yield sufficient FUL prices. a statistical calculation of a standard
Response: We disagree. We believe deviation for each group of
provisions of the DRA. Specifically,
that the FUL will be calculated to therapeutically equivalent drugs. Any
sections 6001(a)(3) and (4) of the DRA
ensure that a drug is available nationally manufacturer’s AMP falling below one
changed the definition of multiple
at or below the FUL price. The FUL will standard deviation would be removed as
source drug established in
be calculated based on a 250 percent an outlier. The AMP would then be
1927(k)(7)(A)(i) of the Act to mean, with
markup of AMP, will be applied in the based upon the lowest value within one
respect to a rebate period, a covered
aggregate, will not be set using standard deviation. Another commenter
outpatient drug for which there is at
terminated products, and will suggested that AMPs falling at or below
least one other drug product which is
incorporate an outlier policy on the use the 25th percentile of drug prices within
rated as therapeutically equivalent
of AMPs. We believe these the ingredient group should be excluded
(under the FDA’s most recent considerations address the commenter’s
publication of Approved Drug Products from establishing the FUL. Several
concern. commenters stated that the FUL should
with Therapeutic Equivalence
Evaluations). Also, section 6001(a)(1) of Outlier AMPs be calculated using the AMP of the
the DRA amended section 1927(e)(4) of lowest priced drug that is not less than
Comment: Many commenters 50 percent of the next highest AMP. In
the Act to require that a FUL be submitted recommendations pertaining
established for each multiple source other words, look at the lowest AMP,
to the FUL outlier policy, under which and then the next lowest AMP, and so
drug for which the FDA has rated two one or more of the lowest AMPs for an on, rejecting AMPs until an AMP is at
or more products therapeutically and ingredient group would be passed over least 50 percent of the next highest
pharmaceutically equivalent. We do not when setting the FUL in order to avoid AMP.
agree, in light of these DRA revisions, a FUL reimbursement below the cost at Other commenters suggested that
with the comment that CMS should which the drug is nationally available. manufacturers should report AMPs at
survey manufacturers regarding Commenters agreed with CMS that an the 11-digit NDC level with their
availability or make product-specific outlier policy should be implemented, respective unit volume. These
exemptions when products are not but differed on the metrics that should commenters state that the final rule
available at the FUL price. We believe be used. Several commenters proposed should include a FUL outlier
that our policy of applying the FUL in that we set the FUL on the lowest AMP methodology that examines AMPs on a
the aggregate, not using terminated that is not less than 80 percent of the cumulative market share basis, starting
products when setting FULs, and next highest AMP. Another commenter with the lowest AMP, then the next
adopting an outlier policy on the use of stated that we should set the FUL on the lowest and so on, rejecting AMPs until
AMPs to set FULs addresses the lowest AMP that is not less than 60 a cumulative market share of 50 percent
commenters’ concerns. percent of the next highest AMP. has been reached.
Listing in National Compendia Another commenter stated that, to Response: We appreciate the many
reduce the potential for volatility in the suggestions for how we could determine
Comment: One commenter raised AMP-based reimbursement system, we outlier AMPs. We have expanded our
concerns with the upper limit should exclude outliers that are more outlier policy in the final rule by
methodology set forth in than 10 percent below the next highest excluding the lowest AMP if it is less
§ 447.514(a)(1)(ii) and specifically AMP, looking at each AMP available in than 40 percent of the next highest AMP
questioned if CMS would consider a the ingredient group. Another in § 447.514(c)(2). That is to say, that the
drug to be available for sale nationally, commenter stated that AMPs no more AMP of the lowest priced
and thus consider it eligible to set the than 20 percent less than the next therapeutically equivalent drug will be
FUL, if the drug otherwise meeting the highest AMP should be excluded. used to establish the FUL, except in
criteria in § 447.514(a)(1)(i) is not listed Another commenter proposed that CMS cases where this AMP is more than 60
in a current edition or update of should establish a different outlier percent below the second lowest AMP.
published compendia of cost policy for immunosuppressive multiple In those cases, the second lowest AMP
information. source drugs due to the critical access will be used in the FUL calculation. By
Response: In this final rule, CMS is need for these drugs by transplant setting this as our outlier exclusion
revising the text language in recipients, under which the FUL would policy, we ensure that at least two drugs
§ 447.514(a)(1)(ii) by deleting ‘‘based on be based on the lowest AMP that is not are available at or below the FUL price.
all listings contained in current editions less than 70 percent of the next-highest Also, further analysis of the
(or updates) of published compendia of AMP in the multiple source drug group. manufacturer-submitted AMP data
cost information for drugs available for Another commenter stated that the revealed that we could exclude more
sale nationally,’’ because in light of the rationale behind the 30 percent outlier outlier prices by using the 40 percent
DRA amendments CMS will not be rule proposed by CMS is not readily standard. We have also decided to
using the published compendia of cost apparent, because verifiable data was publish § 447.514(c)(2) as a final rule
information, (for example, Red Book, not supplied in the proposed rule. One with comment period. This will allow
First DataBank, or Medi-Span) to commenter suggested that the 30 for further public comment after the
establish and set the FUL. CMS will be percent outlier rule was appropriate, but clarified definition of AMP becomes
effective and States would then have an Response: The proposed rule would encouraging States to consult with
opportunity to analyze AMPs, as revised exclude terminated NDCs from Tribes in open, good faith dialogue, on
by the DRA, and FULs. It will also give consideration when setting a FUL the DRA provisions that have the
CMS an opportunity to receive further beginning with the first day of the potential to impact Tribes and American
comments based on a broader analysis month after the actual termination date Indian and Alaska Native Medicaid
of the data. CMS will accept comments reported by the manufacturer to CMS. beneficiaries. The letter stated that it is
on the outlier (and as discussed We are retaining this provision in the important to maintain ongoing
previously on the AMP) policy for a final rule. A FUL reimbursement applies communication between States and
period of 180 days from the date of to all drugs within an ingredient group, Tribes in the redesign of Medicaid
publication of this final rule in the including drugs that are being Programs and services.
Federal Register. terminated by the manufacturer, but still Comment: One commenter requested
Comment: Several commenters being produced by a manufacturer. that CMS insert language in the final
strongly recommended that, in lieu of However, a terminated NDC would not rule to encourage States to maintain
an outlier, CMS should set FULs based be used to set the FUL. We continue to their current level/type of
on the weighted average AMP of the define a terminated drug according to reimbursement and filling fees to Tribal
therapeutically equivalent products the reason the product is being and IHS pharmacies. Tribal and IHS
available in the market. One commenter discontinued. If it is being pulled from providers should be explicitly
stated that this would avoid regional the shelf immediately due to a health or recognized as essential safety net
pricing that may not be widely available safety reason, whether it is by FDA or pharmacies.
for a specific product, ‘‘fire sale’’ pricing labeler directive, the termination date is Response: We appreciate the
on short-dated products, and prices that the date removed. If, however, it is comment and will take this suggestion
are not sustainable over a consistent being replaced by an improved version, into consideration as we consider
period of time. or discontinued, the termination date is revisions to State payment rates. In
Response: We disagree. The DRA the shelf life of the last batch sold. accordance with longstanding policy,
provides, effective January 1, 2007, that we believe that States should have the
Upper Limits for Drugs Furnished as
the upper limit for multiple source flexibility to establish payment rates
Part of Services (§ 447.516)
drugs be established at 250 percent of and reasonable dispensing fees,
Comment: One commenter pointed consistent with the upper limits and
the AMP (as computed without regard out that while the FUL will be revised
to customary prompt pay discounts standards set forth in our regulations.
monthly, managed care capitation Comment: One commenter believed
extended to wholesalers) for the least arrangements are negotiated for longer that the SPA process must be more
costly therapeutic equivalent. periods of time, making it difficult for deliberative and transparent than the
Comment: One commenter stated that State Medicaid Agencies to comply with process that has been used to date by
if the calculated FUL exceeds the AWP frequent FUL changes when setting States to make changes in their payment
of the innovator multiple source drug, capitation rates. Another commenter methodologies. States need to be more
or exceeds the innovator multiple stated that the final rule should be diligent and transparent in providing
source drug’s AMP by 25 percent or amended to exclude FULs from public notice about reimbursement
more, CMS should not publish a FUL capitation arrangements to address this methodologies and substantiating the
for that ingredient group. concern. impact that the changes could have on
Response: We do not agree that a FUL Response: States will need to consider Medicaid beneficiaries’ access to
should not be set if it exceeds the AWP possible fluctuations in FULs when community retail pharmacies.
for the innovator multiple source drug. negotiating future MCO contracts and Response: We disagree with the
There is no basis, given the statutory modify current contracts, if necessary, commenter. States must follow Federal
amendments, to calculate a FUL using to address any revisions needed to regulations at 42 CFR 430 subpart B for
an AWP standard. We agree that States capitation rates as a result of monthly all State plans.
may not find a FUL useful if it exceeds FUL changes. Also, to note the FULs are Comment: One commenter suggested
the AMP of the innovator multiple designed to be aggregate upper limits, to amend § 447.518(b)(1) by adding
source drug by 25 percent; however, we and do not represent individual another § 447.518(b)(1)(iii), which
do not believe we should make an payments for drugs. In accordance with would say, ‘‘in the aggregate, the
exception in this instance. The FUL is § 447.516, the upper limits for payment dispensing fees paid to pharmacies
designed to be an aggregate upper limit, for prescribed drugs also apply to cover the costs described in § 447.502
not necessarily a payment rate for drugs. payment for drugs provided under and are designed to encourage the
Terminated Drugs prepaid capitation arrangements. CMS utilization of multiple source drugs
has not changed this requirement. where appropriate.’’
Comment: Some commenters Response: We disagree with the
submitted comments regarding the use State Plan Requirements, Findings and commenter. In accordance with
of a terminated drug to set the FUL. One Assurances (§ 447.518) longstanding policy, we believe that
commenter expressed concern that the Comment: One commenter requested States should have the flexibility to
proposed rule does not take into that CMS insert language in the final establish payment rates and reasonable
account that an AMP may be from a rule that would require States to consult dispensing fees, consistent with the
terminated product. One commenter with Tribes in the development of any upper limits and standards set forth in
stated that CMS should provide SPA which would modify existing our regulations.
notification of terminated NDCs payment methodologies for prescription
associated with the establishment of drug reimbursement. This would allow FFP: Conditions Relating to Physician-
FULs, so that State Medicaid agencies each Tribe the opportunity to work with Administered Drugs (§ 447.520)
do not continue to reimburse for a its State to assess local impacts prior to We received many comments
terminated drug. One commenter stated submission of SPAs. regarding the requirement that State
that CMS should clarify the meaning of Response: A State Medicaid Director Medicaid Agencies provide for the
‘‘terminated.’’ letter dated November 9, 2006 was sent submission of NDCs on claims for
physician-administered drugs, as NDCs must be collected, and (3) NDCs Another commenter wished CMS to
discussed below: for manufacturers that participate in the continue with the historical practice of
Comment: Several commenters stated Medicaid Drug Rebate Program. having Medicaid claim rebates on the
that CMS has failed to define outpatient Response: At this time, we do not total amount paid for the drug by all
drugs that are physician-administered as intend to revise the HCPCS crosswalk to parties.
required by the statute. The commenter identify drugs not routinely covered by Response: We disagree that the rebate
further stated that CMS is incorrectly Medicare but covered by the Medicaid should be proportional to the amount of
interpreting the law by including drugs Drug Rebate Program. However, the the claim paid by Medicaid. Neither the
administered in the outpatient hospital publicly available AMP pricing data law nor the national rebate agreement
setting. will be listed with NDCs which will makes provision to reduce the rebate
Response: In light of the definition of indicate manufacturers participating in liability based on the amount of
covered outpatient drug provided in the Medicaid Drug Rebate Program as payment made by the Medicaid
section 1927 of the Act, we have chosen well as the products covered by the Program. Rather, the law provides
not to define what is meant by a covered program. The list of the top 20 multiple formulas for rebate payments for single
outpatient drug that is administered by source physician-administered drugs are source, innovator multiple source, and
a physician. We believe that the DRA posted on CMS’ Web site at http:// noninnovator multiple source drugs that
amendments to section 1927 of the Act www.cms.hhs.gov/DeficitReductionAct/ are used when Medicaid makes
were intended to emphasize that where Downloads/ payment for a drug. This has been the
covered outpatient drugs are Top20PhysicianAdministered.pdf. consistent policy position of the Agency
administered by a physician and Comment: Several commenters asked since the start of the Medicaid Drug
separately billed to Medicaid, States are that CMS clarify the prospective nature Rebate Program.
required to collect rebates from of the proposed definition of physician- Comment: One commenter said that
manufacturers for these drugs. The law administered drug. CMS should not deny Federal matching
requires that States obtain information Response: The DRA requirement that funds for physician-administered drugs
on the claims forms that will allow them States collect information sufficient to not covered by the national rebate
to bill manufacturers for rebates for bill for rebates on single source drugs agreement.
specific covered outpatient drugs in was effective January 1, 2006 and States Response: The statute requires drug
accordance with section 1927 of the Act. must bill for rebates to collect a Federal manufacturers to participate in the
Comment: A few commenters stated match on these drugs. For single source Medicaid Drug Rebate Program in order
that the statute permits the use of J- physician-administered drugs and the for their drugs to be covered by
codes as well as NDCs. 20 specified multiple source physician- Medicaid. We recognize that States may
Response: The statute allows the administered drugs, States must collect not always be aware of what drug was
Secretary to specify the required codes. NDCs beginning January 1, 2007. administered when a bill is submitted
We proposed to allow J-codes, also However, Federal match remains using a HCPCS code. However, when
known as HCPCS codes, to be used available until January 1, 2008, at which the law requires billing with an NDC, a
beginning January 1, 2006 for single time we expect that States will be in State Medicaid Agency cannot
source physician-administered drugs. compliance with this requirement. We knowingly pay that claim and collect
We also specified that the NDC be would note that the requirement for the Federal match.
required for single source drugs and the States to submit utilization data to Comment: Some commenters said that
20 multiple source drugs identified by collect rebates on covered outpatient the requirement that outpatient
the Secretary beginning January 1, 2007. drugs in section 1927(b) of the Act hospitals record NDCs would have a
We are finalizing these requirements in predates the DRA requirements and negative impact on patient safety
this final rule. inasmuch as physician-administered because it would disrupt the workflow
Comment: Several commenters asked drugs are covered outpatient drugs, we for dispensing drugs and divert limited
that CMS provide a list of NDCs within believe that the January 1, 2006 effective staff from accurate dispensing.
the J series of HCPCS codes that are date was reasonable. The DRA Response: We have no reason to
subject to rebates under the Medicaid emphasized physician-administered believe that patient safety will be
Drug Rebate Program. drugs because these drugs historically affected by this requirement.
Response: At this time, CMS does not have been billed by providers in such a Comment: One commenter stated the
intend to publish a list of NDCs for each way that prevented States from belief that contrast agents, typically
physician-administered drug that is collecting rebates for these drugs. used during hospital-based radiological
subject to Medicaid rebates, as such a Comment: Many commenters procedures, are excluded from Medicaid
list would be quite expansive. However, expressed the opinion that manufacturer rebates.
CMS provides monthly files of drugs of rebate liability should be proportional to Response: Only physician-
manufacturers that have a national State Medicaid expenditures when administered drugs that are separately
rebate agreement under the Medicaid Medicaid is the secondary payer. They billed to Medicaid as covered outpatient
Program. CMS also maintains a list of contended that this is more consistent drugs will be considered physician-
NDCs within HCPCS that can be found with the overall intent of the rebate administered drugs for the purposes of
on our Web site at http:// program to reduce the cost of drugs to this rule. If the contrast agents are not
www.cms.hhs.gov/ Medicaid and to ensure Medicaid the billed to Medicaid as outpatient drugs,
McrPartBDrugAvgSalesPrice/ best price provided to other purchasers. they would not be considered
01a_2007aspfiles.asp#TopOfPage. Other commenters believed that CMS’ physician-administered drugs for
Comment: One commenter asked that position concerning the intent of the purposes of this provision.
CMS revise the HCPCS J-code crosswalk Medicaid statute that full rebates are Comment: One commenter stated that
to NDCs on our Web site to identify: (1) due when Medicaid pays any amount of the regulation should exempt drugs
physician-administered drugs not the claim is incorrect and is administered in an emergency room
routinely covered by Medicare but procedurally invalid because this policy from this provision because physicians
covered by Medicaid, (2) the sole source was not established through formal should not need to concern themselves
and 20 multiple source drugs for which notice-and-comment rulemaking. with whether the patient is a Medicaid
beneficiary and because the physician the Act that exempts from Medicaid Web site in addition to the NPIs of 340B
does not know at the time drugs are drug rebates drugs administered to covered entities.
administered if the patient will be patients in hospital outpatient clinics Response: We are not addressing the
admitted or sent home. and departments. concerns of other agencies within the
Response: Drugs administered Response: We agree that the DRA did Department of Health and Human
incident to an emergency room service not change the exclusion of drugs from Services in this rule. Instead, we suggest
that are billed separately as covered Medicaid rebates when dispensed in an that the commenter should address
outpatient drugs, as defined by section outpatient hospital setting as long as HRSA regarding the posting of NPIs on
1927(k)(2) of the Act, are covered under Medicaid is billed at the hospital’s its Web site.
the Medicaid Drug Rebate Program and purchasing costs. However, hospitals Comment: One commenter noted that
must be billed using the NDC in order commonly bill Medicaid without regard physicians will not know which drugs
for States to collect the Federal match. to their costs and accept the full are included in the Medicaid Drug
Drugs that are billed as part of an reimbursement provided under the Rebate Program to be able to administer
emergency room service as described in Medicaid State plan. When this is the only those drugs to Medicaid patients.
section 1927(k)(3) of the Act, where the case, drug manufacturers are Several commenters noted that
cost of the drug is bundled within the responsible for paying rebates with physicians need to know which
cost of the service, are not covered by respect to those drugs that qualify as manufacturers participate in the
the Medicaid Drug Rebate Program. covered outpatient drugs under section Medicaid Drug Rebate Program because
Comment: One commenter asked if 1927(k)(3) of the Act. drugs of non-participating
HCPCS will be assigned to drugs that do Comment: One commenter said that manufacturers will not be covered by
not currently have them. rebates should not be collected on Medicaid.
Response: We do not plan to assign Response: We understand the
hospital outpatient drugs because they
HCPCS to drugs as the provisions commenter’s concern and believe that
are not part of the retail pharmacy class
addressed in this rule require the compliance with this provision will
of trade for AMP.
submission of NDCs on claims when depend upon the level of education/
Response: The commenter is not
billing Medicaid for physician- coordination provided by States to the
correct in that sales to hospital
administered drugs. provider community regarding the
Comment: One commenter asked outpatient departments are considered
in the retail pharmacy class of trade and resources available to them. As
CMS to clarify in the final rule that previously discussed in this rule, AMPs
claims for physician-administered drugs are included in the calculation of AMP
at the option of the drug manufacturer, for drugs covered by the Medicaid Drug
must meet all covered outpatient drug Rebate Program will be publicly
requirements, specifically, that the drug as specified in this final rule. Physician-
administered drugs will be excluded available and listed by NDC on our Web
must be subject to a Medicaid rebate, site. We believe that this resource, along
not have a termination date prior to the from the Medicaid Drug Rebate Program
requirements only when hospital with State information, will assist
date or service, and not be a drug with physicians to make informed decisions
a DESI value of five or six. outpatient departments have dispensed
these drugs using drug formulary regarding the list of covered outpatient
Response: The commenter is correct drugs available under Medicaid.
that all requirements for Medicaid drug systems, and have billed Medicaid at
Comment: Several commenters asked
coverage apply to physician- acquisition costs, consistent with
that CMS develop standard literature for
administered drugs. section 1927(j)(2) of the Act.
physicians to assist in education and
Comment: Several commenters Comment: Several commenters stated
outreach about the requirement for
believe that CMS went beyond that 340B hospitals should not need to
including NDCs on bills for Medicaid.
congressional intent by including forgo receiving discounts on drugs as a Response: States traditionally are
outpatient hospitals and clinics in the result of Medicaid collecting rebates on responsible for provider outreach and
requirement for States to collect NDC- them and have asked to be exempted education. Materials will vary by State
level information on pharmacy claims. from the requirement. based on processes and procedures
Commenters stated that the OIG report Response: This provision of the DRA determined by each State. We believe
on this topic addressed only drugs does not apply to 340B hospitals that that States can avoid duplication of
administered in physicians’ offices and receive discounted drugs and bill effort by working through the National
that this report was the impetus for the Medicaid at the acquisition cost of the Association of State Medicaid Directors
legislation. drug as determined under the State to share materials and best practices
Response: We base our interpretation plan. concerning this new requirement.
on the language in the statute which Comment: One commenter noted that Comment: One commenter asked
does not differentiate between providers certain safety-net hospitals receive CMS to develop a form for hospitals to
in requiring that States collect discounts under the 340B Program and use to bill States with NDCs because the
information sufficient to bill for rebates that the law provides that such drugs UB04 billing form does not allow for the
for covered outpatient drugs under not be also subject to Medicaid rebates. inclusion of NDCs. The commenter
section 1927(k)(3) of the Act. To the Response: We agree with the believed this would be more efficient
extent that providers bill for covered commenter that drug manufacturer sales than each State developing its own
outpatient physician-administered to safety-net hospitals under the 340B form.
drugs separately; that is, the cost of the Program are not subject to Medicaid Response: CMS would be happy to
drug administered is a separate line rebates as long as they are billed to work with States if they wish to develop
item from the service provided, we Medicaid at acquisition cost as a model form.
believe that, in accordance with the determined under the State plan. Comment: A few commenters asked
statute, States should be seeking rebates Comment: One commenter asked that that CMS develop a standard UB04 form
with respect to such drugs. HRSA post the National Provider that allows for the reporting of the NDC
Comment: Several commenters wrote Identifiers (NPI) of providers who will quantity and unit of measure.
that the DRA does not change the be billing for physician-administered Response: CMS cannot specify what is
existing statute at section 1927(j)(2) of drugs from 340B covered entities on its included on the UB04 form. The
National Uniform Billing Committee because of the non-standard billing representatives often call the
determines the content of the form. Both requirements it imposes. community hospital pharmacy directors
CMS and State Medicaid Agencies are Response: While we appreciate the to inform them of the number of items
represented on this committee and need comment, we have no reason to believe hospitals have purchased and how
to work together to establish the need that the DRA requirement will result in many items are returned for credit.
for any changes to the form and to reduced access to care. Response: While we appreciate the
obtain approval for the changes. Comment: One commenter noted that commenter’s suggestion, this approach
Comment: A few commenters noted not all package labels carry the 11-digit would not be operationally feasible
that not all Durable Medical Equipment NDC which is needed for billing. Some because manufacturers would not have
Regional Carriers (DMERC) pass through carry a 10-digit number and knowledge utilization data to determine the unit
the NDC to the Medicaid agency. The of conversion conventions is needed to amounts of drugs dispensed to patients.
commenters believed that the provision translate the number to the 11-digit Comment: One commenter stated that
that States allow for the submission of NDC. Another commenter stated an his hospital uses drug dispensing
NDCs on claims for physician- inability of some billing systems to machines located throughout the
administered drugs should also apply to capture the 11-digit NDC. Another hospital that have unit dosages of drugs
claims for supplies/durable medical commenter noted that the billing units that are not differentiated by NDC.
equipment for which Medicaid is the of certain drugs are different from the Compliance with this provision would
secondary payer so that States are able units used for Medicaid rebates. This require the hospital to limit each slot on
to collect rebates on these claims. will cause confusion and require the machine to one NDC, ordering only
Response: We are aware that not all translation. one NDC for each drug, or billing by
Response: As we have previously unit dose, all of which would be costly
DMERCs provide the NDC to the
stated, the education of the provider and inefficient.
Medicaid agency when Medicaid is the
community by the States will be Response: We understand that some
secondary payer. We also agree with the
paramount in ensuring proper billing hospitals and providers’ offices will
commenter that States should be
procedures and the successful require systems modifications and
collecting NDCs with respect to
implementation of this requirement. changes in dispensing and billing
separately reimbursed drugs in order to
Comment: Several commenters stated procedures in order to comply with the
secure rebates under section 1927 of the
that it will be nearly impossible for billing requirements of this provision.
Act to the extent that they are not Comment: One commenter asked
hospitals to accurately record the NDCs
included within a bundled rate. CMS to specify how compounded drugs
for some drugs. This will occur when
Comment: Several commenters asked drugs are bought in bulk or for cases in should be billed. The commenter
that the Secretary use the waiver which a portion of the drug unit is used. suggested that only the NDC and
authority provided by statute to delay The commenter noted that the difficulty quantity for the NDC that most closely
the requirement for States to collect will likely be encountered in instances ties to the HCPCS narrative description
NDC-level information from hospitals to when multiple drugs are mixed into a be required.
provide additional time for them to treatment ‘‘cocktail’’ and injected or Response: We require that NDCs and
reconfigure their systems to capture this infused into the patient. corresponding quantities for those NDCs
information. Response: We recognize the for each drug be included on the claims
Response: The statute provides for a operational difficulties that may exist for Medicaid reimbursement.
hardship waiver for States that require for some hospitals but note that the law, Comment: One commenter expressed
additional time to implement necessary as amended by the DRA, makes no concern that the requirement that
changes to their reporting systems. We exceptions for physician-administered providers submit NDCs for physician-
will consider States’ requests on a case- drug claims billed by hospital administered drugs will create an
by-case basis. outpatient departments. This process administrative burden for both the
Comment: One commenter noted that should be easier when hospitals use the providers and the State Medicaid
CMS stated in the proposed rule that we Uniform Product Codes for drugs Agencies. The requirement is
do not expect States to need hardship dispensed. impractical with respect to the CMS–
waivers to postpone the requirement Comment: One commenter asked that 1500 because the claims are usually
that States collect NDCs on claims for CMS bill manufacturers for rebates submitted after the drugs are
physician-administered drugs by directly as opposed to implementing administered making it difficult for the
January 2008. The commenter believed this requirement. provider to capture the NDC
that States may find it difficult to meet Response: This request is not feasible administered to the patient on the
this date because of other priorities for because States, not CMS, receive claims claim. Providers will need access to a
systems such as the NPI. data necessary to bill manufacturers for list of rebatable NDCs and have them in
Response: We anticipate that many rebates. Drug manufacturers do not stock, which could result in a delay in
States will have had ample time to meet know which or how much of their drugs administering the necessary medication.
the January 1, 2008 deadline to comply are supplied to Medicaid beneficiaries The requirement may in fact impair
with the DRA requirements since the until States submit utilization data as patients’ access to necessary
DRA was enacted nearly two years prior required in section 1927(b)(2) of the Act. medication.
to that deadline and CMS guidance was Comment: One commenter suggested Response: The law requires States to
given to State Medicaid Directors that it would be more appropriate for collect rebates on physician-
(SMDL 06–016, http:// States to obtain detailed NDC administered covered outpatient drugs
www.cms.hhs.gov/smdl/downloads/ information from the drug in order to receive a Federal match for
SMD071106.pdf) nearly 18 months prior manufacturers rather than from the the cost of the drugs. Because NDCs are
to the deadline. community hospitals. The commenter required by the manufacturer in order
Comment: One commenter suggested noted that drug manufacturers have for States to collect rebates on these
that CMS should re-examine this access to detailed NDC information and drugs, providers are required to submit
requirement as it will result in reduced other detailed purchasing information NDCs for physician-administered
access to care for Medicaid beneficiaries because the drug company covered outpatient drugs. We encourage
States to educate the provider billing of drug manufacturers for physician-administered drugs on our
community regarding the resources rebates. Web site and update it as necessary.
available to them that may assist them Comment: One commenter asked us Comment: One commenter asked that
in their transition to the requirements. to develop a better remedy for States we specify the file format for the
We have no reason to believe that this than rejecting the claim and asking the submission of claims for physician-
requirement will have a negative impact provider to rebill when an NDC is not administered drugs using NDCs for the
on providers or patients’ access to provided on a crossover claim. The top 20 drug list.
medication therapies in an outpatient commenter believes this method is Response: States are responsible for
hospital setting. costly, results in delay, is counter to the determining the file format to be used
Comment: One commenter asked intent and spirit of HIPAA, and may for the submission of claims. We
CMS to include a provision in the final result in a loss of access for Medicaid encourage the States through provider
rule to encourage States to provide a beneficiaries to needed drugs. education to inform providers of the
furnishing fee for blood clotting factors Response: It is crucial for States to correct file format to use when billing
modeled after that provided by communicate to the provider for physician-administered drugs using
Medicare. community the importance of including NDCs.
Response: State Medicaid programs NDCs on the claims when billing Comment: Several commenters said
have sufficient latitude under other Medicaid for physician-administered that State Medicaid Agencies should be
provisions of the statute to determine in drugs. In cases where providers have required to bear the cost for hospitals to
their State plans how they will not included NDCs on claims for change their systems in order to meet
reimburse adequately for blood clotting physician-administered drugs, we the NDC reporting requirement, as some
factors. This final rule does not revise recommend that States coordinate with outpatient hospital departments’
options that States have under other provider billing offices in any manner systems do not currently capture NDC
provisions of the statute and the State that they deem appropriate in order to level utilization data for patient billing.
plan to ensure access. obtain the NDCs necessary for States to Response: We do not believe that the
Comment: One commenter noted that bill manufacturers for rebates as law requires Medicaid agencies to pay
the HCPCS crosswalk is only effective required by the statute. hospitals for systems modifications that
for single source drugs where there is a Comment: One commenter stated that may be necessary to document claims
one-to-one relationship between HCPCS the burden of recording the NDC will for payment in a manner that would
code and NDC. There are, in fact, fall on clinicians, not support staff. comply with DRA requirements to
several single source drugs for which Because Medicaid is the secondary identify the NDC. States have the option
there is one J-code but numerous NDCs. payer for most of these claims, the to pay for overhead costs, such a
Response: We agree with the clinicians may note that the patient has provider billing systems, through
commenter that the HCPCS crosswalk is Medicare, which does not require NDCs dispensing fees to pharmacies or other
only effective for certain single source for billing, and may overlook the providers.
drugs and believe that this fact fully Medicaid requirement. Comment: One commenter stated that
supports the need for NDCs to be Response: We encourage States many State Medicaid processing
submitted on claims for physician- through provider education to convey systems are not designed to capture
administered drugs as set forth in the importance of including the NDCs NDCs on outpatient hospital bills and
statute and required by this rule. on the claim in order for States to that implementation of this provision
Comment: Several commenters noted process claims and payment for the should be delayed until alternate
that Part B carriers will need to provide service. systems can be designed. Another
the NDC on the crossover claim for the Comment: One commenter believed commenter stated that the manual
Medicaid agency to have the that the top 20 list of multiple source coding of NDCs would come at the
information needed to invoice drug drugs published on the CMS Web site expense of staff resources and would
manufacturers for rebates. One incorrectly included Factor VII disrupt administrative operations.
commenter asked that CMS ensure that Recombinant and Factor VIII plasma- Response: The timeframe for
Medicare carriers provide NDCs on derived because the commenter did not implementing this provision is set by
crossover claims sent to Medicaid. believe these products meet the statute. The DRA was signed into law on
Another commenter noted that the statutory definition of multiple source February 8, 2006. While States were
quantity administered for each NDC drug. required to start billing manufacturers
must also be recorded. Response: We agree with the for rebates for single source drugs on
Response: If the NDC is on the commenter and will remove these claims beginning January 1, 2006, States
electronic claim submitted (CMS–837), products from the top 20 list of multiple could crosswalk HCPCS to NDCs for
the Part B carrier will include it on the source drugs published on our Web site. these drugs. States continue to have
crossover claim sent to the Medicaid Comment: One commenter questioned until January 1, 2008 to collect NDCs on
agency. Although the new CMS–1500 the inclusiveness of the list of the 20 the 20 multiple source physician-
claim form does allow entry of the NDC, multiple source physician-administered administered drugs identified by the
the UB04 claim form does not contain drugs for which billing with the NDC Secretary before losing Federal match
a section to capture the NDC. As will be required. The commenter stated for these drugs. States that cannot meet
previously stated, States will need to that the list should include all NDCs this deadline can request a waiver from
make it clear that providers must submit with a particular HCPCS code. the Secretary to implement this
claims, complete with the NDC Response: At this time, we do not requirement at a later date.
information, to the Medicaid agency. intend to include all NDCs for a given
We encourage States to provide Issues Not Addressed in the Proposed
HCPCS code.
educational outreach to providers to Comment: One commenter asked Rule

inform them of the manner in which the when the list of 20 drugs will be We received several comments on
NDCs and corresponding quantities updated. issues that were not addressed in the
should be recorded on the claims forms Response: We intend to annually proposed rule. A summary of those
as they deem necessary for the accurate review the list of top 20 multiple source comments and our responses follow.
Posting AMP however, it is also important that we reiterated in a State Medicaid Director
Comment: Many commenters carry out the DRA amendments to make letter.
requested that CMS should delay any the AMP data publicly available. We Response: We will consider this
also disagree that the public disclosure comment when we issue further
public posting of the AMP data on a
of AMP negates the confidentiality clarification regarding the provisions of
public Web site until after the final
provisions of section 1927(b)(3)(D) of this final rule.
regulation has been issued and AMPs Comment: A few commenters
are determined to be reliable and the Act. The DRA amended section
1927(b)(3)(D)(v) to provide for the recommended that CMS develop clear
accurately reflect the prices paid to guidelines for the electronic format and
manufacturers by wholesalers for sales release of AMP data to the public.
Comment: A few commenters standardized unit reporting. Although
to the retail pharmacy class of trade. the proposed rule requires submission
expressed concern that CMS’ failure to
Commenters contended that AMP data of data by manufacturers in an
provide AMP data to the retail industry
may be flawed and to post the flawed electronic format, data specifications
has hampered its ability to provide
AMP data may cause confusion to the definitive and accurate commentary and unit reporting are not provided in
general public and adversely affect related to this matter. The commenter adequate detail.
community retail pharmacies if further said the final rule should be Response: CMS will post the AMP
Medicaid Programs and commercial delayed until adequate information is data file including labeler code, product
markets use these data for provided to the retail industry to allow code, package size code, the calendar
reimbursement purposes. They pointed for statistically significant evaluation of month and year of the most recently
out that CMS already delayed release of the AMP data. Another commenter reported AMP, and the AMP per unit
these data once, and urged CMS to urged CMS to provide AMPs to per product code for the month and year
consider delaying the release of the data community retail pharmacies on a covered, based on the sales. If a drug is
again. Delaying the posting of AMP data confidential basis for the 77 multiple distributed in multiple package sizes,
could permit manufacturers time to source drugs provided to the GAO there is one weighted AMP for the
adjust the submission of their data because this would allow community product, which is the same for all
consistent with the requirements of the retail pharmacies to speak with package sizes. We will address most of
final regulation and allow community specificity as to the costs that they will the procedural issues, such as data
retail pharmacies time to validate that bear under the proposed regulation. specifications and unit reporting, in
the AMPs are consistent with Response: We disagree with the guidance documents and on our Web
congressional intent. commenters. The DRA amended section site.
One commenter concurred with the 1927(e) of the Act to require that the Comment: A few commenters
OIG’s findings in its May 2006 report FULs be calculated based on AMP data. recommended that AMP data should be
that future errors or inconsistencies in The DRA also required that we publish posted on a secured password-protected
manufacturers’ AMP calculations could the regulation clarifying requirements internet Web site that can only be
lead to inaccurate or inappropriate concerning AMP by July 1, 2007. In accessed by authorized practitioners,
reimbursement amounts as well as accordance with the effective date of the providers, and government agencies.
rebate errors. amendments to section 1927(b)(3)(D) of The commenter argued that open access
One commenter raised concerns that the Act, we consider AMP data prior to to this information could allow
the public disclosure of manufacturer- January 1, 2007 to be confidential; competitor manufacturers to access
specific AMPs negates the therefore, we did not publicly disclose AMP information that can lead to
confidentiality provisions of section the AMP data in the proposed rule. information intelligence on specific
1927 of the Act. The commenter However, in accordance with the products and affect both commercial
expressed the opinion that such amendments to the confidentiality and Medicaid supplemental rebate
disclosure must be implemented provisions and section 1927(b)(3) of the offers.
through notice-and-comment Act, we will post this information on Response: We disagree with the
rulemaking, and that failure to do so the Web site and update that commenter. By statute, CMS is required
would violate the Administrative information on at least a quarterly basis. to post AMP data on a Web site
Procedures Act. Another commenter Comment: A few commenters urged accessible to the public. To post the
asked that we not make AMPs publicly CMS to preface any Web postings of the AMP data on a secured Web site would
available. The commenter noted AMP data with an introductory limit access to the AMP data.
concern that public release of AMP discussion explaining the current Comment: One commenter wanted to
would stifle competition among shortcomings of AMP as a measure of know how often the posted AMP data
manufacturers, ultimately driving up retail prices and pharmacy acquisition will be updated and which AMP data
the price of generic drugs. costs and highlighting the potential for will be posted so that AMPs reflect the
Response: We disagree with the changes in the calculation methodology most accurate AMPs filed by the
commenters about the need to further underlying AMP over the next year. manufacturers. The commenter
delay the public release of AMP. By One commenter also expressed that contended that failure to keep publicly
statute, CMS is required to update AMP CMS should post a disclaimer stating available AMPs accurate and in
data posted on a Web site accessible to that limited instructions were provided agreement with revised AMPs reported
the public. Furthermore, effective to guide manufacturers’ January AMP by manufacturers is going to invite
January 1, 2007, the confidentiality calculations. Posted data should be controversy from others interested in
provisions of the statute were amended viewed as preliminary and may not AMPs.
to permit public disclosure of AMP accurately reflect prices available in the Response: We expect that AMP data
data. CMS has interpreted these market to community retail pharmacies. will be updated on a monthly basis once
provisions to mean that we must The commenter stated that similar posted on a Web site accessible to the
publicly disclose data that the disclaimers should be sent to the States public. We will post the most recently
manufacturers report following January with their download tapes or new reported monthly and quarterly AMP
1, 2007. We understand the importance electronically transmitted price report data received from manufacturers, as
of the accuracy of the AMP data; files. These disclaimers should also be well as any revised monthly and
quarterly AMPs for a period not to Elsewhere in this final rule, we have the reporting or not reporting of
exceed twelve quarters from the quarter encouraged States to examine accurate data.
in which the data were due. dispensing fees to assess whether they Response: We disagree with the
Comment: A few commenters are reasonable. Some of the fees for commenter. Manufacturers are fully
recommended that AMP data should be furnishing hemophilia factors could also accountable for the accuracy of their
made available in an easily be paid in other Medicaid service data and subject to civil monetary
downloadable format. categories. penalties under section 1927(b)(3)(C) of
Response: The AMP data will be Comment: Several commenters the Act in situations where they report
posted in a flat text file format for easy offered alternatives to publishing the untimely or false information. While we
conversion to other file formats. monthly and quarterly AMPs for each encourage further scrutiny of these
Comment: One commenter requested manufacturer’s drugs. A few AMPs, there is no further burden on the
that CMS permit manufacturers to commenters recommended that we States imposed by this regulation to
review monthly and quarterly AMP data publish an aggregated, industry-wide review those numbers.
prior to its publication by CMS to weighted average that combines Comment: A few commenters raised
ensure its accuracy and give individual manufacturer AMPs into one concerns that the monthly AMP data file
manufacturers opportunity to bring any AMP for each drug. One commenter that CMS sends to States contains only
concerns about the accuracy of the data suggested that we publish an AMP that the drug name. States have to translate
to CMS’ attention before it is used by represents the weighted average of all of the drug descriptions in the file to
States for reimbursement purposes. the 11-digit AMPs for the analyze the impacts of the FUL with
Response: We disagree with the manufacturers’ most commonly their processed claims. In addition,
commenter. Monthly and quarterly dispensed retail package size that is having only the drug name may lead to
AMP data that will be posted are those widely and nationally available for misinterpretations and lack of
originally submitted by manufacturers; purchase by community retail identification of applicable products
thus, manufacturers should be pharmacies. This commenter also with their NDCs that are necessary to
reviewing their data for accuracy prior suggested that CMS release a limited process claims. The commenter
to submitting them to us. number of AMPs initially to allow the recommended that CMS provide on at
Comment: A few commenters marketplace to assess the validity of the least a monthly basis descriptive drug
requested that CMS provide the U.S. data. This would be similar to the information, unique identifiers, and
territories with access to the new AMP approach CMS used in adopting the use pricing data, and include updated NDC
data so they may leverage the of ASP for Part B drug reimbursement. codes to the nationally recognized
information in their calculations for Response: We considered these pricing compendia.
reimbursement on brand name and comments, but we want to reiterate our Response: CMS is not considering
generic drugs, as well as on rebate belief, which is supported by the providing any data to the pricing
negotiations with the drug companies. legislative history of the DRA, that the compendia. CMS has been sending
Access to the proposed new AMP data intent in making AMPs available to the States AMP data files on a monthly
would provide a benchmark in the public is to bring about increased basis since July 1, 2006. The AMP data
rebate negotiation process, maximizing transparency in prescription drug file includes the labeler code, product
the utilization of available Medicaid pricing for the Medicaid Program. The code, package size code, the calendar
funds. OIG and the GAO have consistently month and year of the most recently
Response: By statute, CMS is required found over the years that Medicaid reported AMP, and the AMP per unit
to post the AMP data on a Web site reimbursement for prescription drugs is per product code only for the month
accessible to the public. This well in excess of the cost of the drugs. and year covered, based on the sales. If
requirement allows everyone to have Limiting access to the data or masking a drug is distributed in multiple package
access and to view the AMP data. individual manufacturer’s data by sizes, there is one weighted AMP for the
Comment: One commenter requested publishing aggregate AMPs across product. The posted AMPs will also
that the AMP data accurately reflect the different manufacturers would have this level of detail.
reimbursement methodologies for counteract the overarching purpose of Comment: One commenter asked that
hemophilia factor therapies. The the Medicaid drug provisions of the CMS refrain from making quarterly
commenter stated that if the AMPs DRA. AMP data publicly available. The
reported to the States under the DRA do Comment: One commenter raised commenter contended that only
not reference the additional furnishing concerns over the lack of controls and monthly AMP data should be made
fee for blood clotting factors, they can accountability measures for available. Unlike monthly AMP, which
potentially create inadequate manufacturers submitting AMP data. may be used to set reimbursement rates,
reimbursement. The commenter argued The commenter suggested that CMS’ there is no need for the public to have
that if States rely solely on the AMPs in processes have been insufficient in access to quarterly data, which can lead
setting their reimbursement levels and monitoring and managing the to confusion.
do not take into account the furnishing prescription drug files submitted by Another commenter also expressed
fee payment that Congress recognized as manufacturers. The commenter stated concern with publishing both monthly
critical, then payment amounts may be that this lack of updated data will and quarterly AMPs on the CMS Web
too low. The commenter recommended undoubtedly result in inappropriate site. The commenter noted that having
we include this information in the AMP calculations. The commenter also two different AMP values could lead to
data. argued that these erroneous calculations confusion. The commenter urged CMS
Response: We disagree with the will impose an unforeseen burden on to only publish the last month’s AMP
commenter. The AMPs to be posted are States to identify and subsequently data for the quarter. Another commenter
defined in the laws and these report any inaccuracies to CMS. The urged CMS to publish AMP quarterly,
regulations. In accordance with these commenter urged CMS to implement not monthly.
definitions, AMPs do not include system checks and measures to hold Response: AMPs reported by
wholesaler or retailer mark-up, manufacturers accountable for the manufacturers beginning January 1,
dispensing fees, or furnishing fees. quality of data they provide, including 2007 are no longer confidential. By
statute, CMS is required to post AMP 340B ceiling prices from drug clarify whether prices to such children’s
data on a Web site accessible to the manufacturers and/or from CMS. hospitals will be eligible for the nominal
public. CMS has interpreted this Response: The question of whether price exclusion for AMP.
provision to mean that we must publicly HRSA should use the same definition of Response: CMS believes that HRSA is
disclose AMP data, monthly or AMP for the 340B Program that CMS the appropriate agency to address the
quarterly, that the manufacturers report. uses for the Medicaid Program is issue of which entities may participate
Comment: One commenter requested beyond the scope of this regulation. in the 340B Program. As to the question
that CMS provide the AMP data for This final rule implements the revisions of whether prices to children’s hospitals
numerous drugs covered in the GAO to AMP and best price as described in will be eligible for the nominal price
study for review. The commenter was the DRA, as well as regulatory exclusion for AMP, section 6004 of the
troubled by reports that CMS demanded provisions related to the Medicaid Drug DRA amended section 1927(a)(5)(B) of
data to support suggested changes to the Rebate Program. the Act by adding certain children’s
AMP definition but refused to make the Comment: A few commenters hospitals to the definition of covered
same data available for public review. In expressed concern with the impact of entity. Section 6004 did not amend the
addition, the commenter contended that the provisions in §§ 447.504 and PHS Act, which governs the 340B
CMS rejected the findings of the GAO 447.505 on the calculation of prices Program, nor did it amend section
study on the issue and that if CMS was available to covered entities that 1927(c)(1)(D) of the Act, which
going to dismiss the GAO report it participate in the 340B Program under addresses the nominal price exemption
should make a sampling of the AMP the PHS Act. Commenters also noted from best price. Therefore, we do not
data available for the public to review that the economic impact estimates do believe that prices to children’s
and use in their comments on the not include the potential costs to the hospitals can be considered within the
proposed rule. 340B Program and the costs list of entities addressed in the nominal
manufacturers incur to meet the 340B price exemption.
Response: In accordance with section
Program requirements. Commenters
1927(b)(3)(D) of the Act, AMP data prior RPS
asked CMS to analyze the fiscal effect of
to January 1, 2007 are considered these changes and revise the rule in
confidential and cannot be released to Comment: Several commenters raised
order to retain the most favorable concern that 6001(e) of the DRA, which
outside parties. CMS rejected GAO’s pricing for covered entities.
findings because we found GAO’s provides for a survey of retail prices and
Response: This final rule is designed State performance rankings, is not
conclusion to be premature, contrary to to implement the DRA amendments and
the DRA AMP revision, and addressed in the proposed regulation
other provisions concerning the which does not allow for comment.
unsupported by the report. The study Medicaid Drug Rebate Program, not Response: The DRA requires the
could not be thoroughly analyzed or provisions concerning section 340B of Department to enter into a contract with
replicated because GAO was not willing the PHSA. In addition, we note that a vendor to perform the survey. While
to release the data on which the study because the 340B Program is this provision of the DRA did not
was based. administered by HRSA, that agency, not necessitate public comment on the
340B Drug Pricing Program CMS, is the appropriate source for method of the survey, when the RPS is
clarification on the rules for the 340B published, the methodology will be
Comment: Many commenters noted Program. made available.
that HRSA has adopted a different Comment: A few commenters urged
definition of AMP from the definition of CMS to exempt hospital outpatient Policy Inquiries
AMP described in this final rule. In clinics from the requirement to bill Comment: One commenter noted that
effect, HRSA is asking manufacturers to Medicaid using the NDC code; the drug rebate operations area at CMS
report two different AMPs; one for otherwise, the facilities represented by has an e-mail address for manufacturers
Medicaid, and one for the 340B the commenters will forego the benefits to send operational questions. The
Program. Most of these commenters of 340B Program discounts. commenter asked whether the Division
objected to HRSA’s interpretation and Response: The requirement to bill of Pharmacy in CMS’ Center for
urged the Department to encourage Medicaid using the NDC code for Medicaid and State Operations (CMSO)
consistency between the two agencies. physician-administered drugs is has a similar resource. If not, the
One commenter provided a detailed established by statute; therefore, we are commenter asked to whom
analysis of alternatives available to CMS not creating an exemption for such manufacturers should send policy
and HRSA to resolve the issue, while facilities in the final rule. inquiries.
another noted that requiring different Comment: Section 6004 of the DRA Response: Formal policy inquiries
AMP calculations will further strain amends section 1927(a)(5)(B) of the Act should be addressed to the Director of
manufacturer resources. One commenter to provide a basis for the participation CMSO within CMS.
forwarded us a copy of the letter HRSA of certain children’s hospitals in the
issued on January 30, 2007. 340B Program. A few commenters noted Cost of Healthcare
Other commenters expressed support that CMS did not address section 6004 Comment: Some commenters noted
for HRSA’s position and asked CMS to in the proposed rule. One commenter that a good way to control the cost of
clarify that the AMP described in this asked HHS to address this provision healthcare in America is to educate
final rule is not applicable in calculating through a Federal Register notice. Other people about prevention, disease
340B ceiling prices. One commenter commenters noted that the Medicaid management, and the proper use of
urged CMS to support HRSA’s drug rebate statute was amended to medications through medication
interpretation and for CMS to provide include children’s hospitals in the therapy management programs. Other
the data required for the calculation of definition of ‘‘covered entity’’ for commenters pointed out that it should
two AMPs. The commenter also purposes of the best price exclusion; not be the entire responsibility of
suggested that this final rule should however, the definition of ‘‘covered pharmacies to mitigate the cost of
specify that HRSA will receive the entity’’ under the PHS Act was not decreasing expenditures on prescription
specific data needed to calculate the amended. Commenters asked us to medication. All parties involved in the
production to dispensing of a Medicare Part D drug prices. These issues are not
prescription medication should share Comment: One commenter urged addressed in the proposed rule;
proportionately in the cost sharing CMS to require electronic data transfer therefore, we cannot consider these
involved in reducing medical to support community pharmacy’s comments as we consider revisions to
expenditures. efforts to obtain electronic funds be included in the final rule.
Response: We appreciate the ideas transfer (EFT) reimbursement payment Comment: One commenter urged
shared by the commenters about ways to from PBMs for Part D claims submitted CMS to address severe price
control the cost of healthcare, but at this via EFT by pharmacies. Other fluctuations, which currently can take
time, we are not planning to add new commenters expressed concern that months to address and correct. Another
provisions to this regulation to control Medicare Part D had already cut commenter urged CMS to identify
drug costs. pharmacy profits by 30 percent. One atypical manufacturer pricing practices
commenter noted that independent and recommend remedies to Congress to
Medicare Part B pharmacies made Medicare Part D work address such practices.
Comment: Commenters noted that by loaning medicine and taking out Response: These issues are not
revisions to the calculation of AMP loans to make ends meet. Another addressed in the proposed rule;
could cause AMP to decrease for certain commenter noted that his pharmacy has therefore, we cannot consider these
drugs and biologicals. A decrease in stopped charging copayments for comments as we consider revisions to
AMP would increase the likelihood that Medicare Part D enrollees because they be included in the final rule.
the applicable threshold percentage will can’t afford the copayments. Comment: One commenter requested
be triggered, forcing the substitution of Response: These issues are not that CMS develop a specific
AMP for ASP under Medicare Part B. In addressed in the proposed rule; methodology for timely verification of
such circumstances, the commenters therefore, we cannot consider these the integrity and accuracy of
asked CMS to refrain from substituting comments as we consider revisions to calculations and price information
AMP for ASP when the threshold is be included in the final rule. Questions reported by manufacturers.
triggered due to the revised definition of regarding Medicare Part D should be Response: We appreciate the
AMP. addressed to the Director of the Center comment and will work with the OIG in
for Beneficiary Choices in CMS. HHS to ensure the integrity of drug
Response: This issue is not addressed Comment: One commenter noted that
in the proposed rule; therefore, we rebate data.
inconsistent policies in Medicaid and
cannot consider these comments as we Medicare Part D will lead to confusion State Supplemental Rebate Agreements
consider revisions to be included in the and burdensome administrative Comment: One commenter noted that
final rule. Issues regarding ASP recordkeeping requirements for drug some States are promoting the use of
substitution and the applicable manufacturers, health plans, brand name versions of generically-
threshold were discussed in recent wholesalers, and pharmacies. available drugs because they are
Medicare notice-and-comment Response: To the extent practicable, receiving supplemental rebates from
rulemaking concerning the payment for we have made every effort to ensure the branded manufacturers that lower the
Part B drugs and biologicals (see 71 FR provisions of this final rule are clear and net cost of the brand to that of the
48981, 49004 (Aug. 22, 2006) and 71 FR concise, with the minimum generic. This practice has potential
69624, 69680 (Dec. 1, 2006)). administrative burden for all affected
negative implications for generic drug
Comment: One commenter noted that parties. The authorizing statutory
use in Medicaid because it can
CMS advised manufacturers during an provisions for the Medicaid Drug Rebate
discourage the overall availability of
Open Door Forum to look to their Program and Medicare Part D are
generic drugs in the marketplace. The
customary business practices and their fundamentally different, making it
commenter urged CMS to prohibit
AMP procedures for guidance whenever difficult to streamline the regulatory
States from entering into such
the Act and the ASP regulations left requirements for these two programs.
agreements with manufacturers.
doubts about the proper handling of a Industry Price Controls Response: We believe any adverse
particular issue with regard to ASP impact on generic drug use by the
Comment: One commenter suggested
reporting. Given the similarities implementation of State supplemental
that CMS regulate the pharmaceutical
between the calculation methodologies rebates is mitigated by the fact that the
industry so prices would only increase
for AMP and ASP, the commenter urged overall FULs cap is applied to multiple
every six months, and there would be a
CMS to consider including a discussion source brand name drugs as well as
60-day advance notice of pricing
in the preamble to this final rule generics.
changes. Another commenter suggested
explaining when, or whether,
that all drug companies should be State Rebate Claims
manufacturers should apply new
required to sell their products to all
instruction from the AMP regulation to Comment: A few commenters
pharmacies at the same price. Other
their ASP policies. Another commenter commenters expressed concern that the expressed concern with the lack of
asked CMS to clarify that the treatment government is promoting unfair Federal regulation regarding the time
of bona fide service fee should be the competition because certain purchasers limit for States to submit rebate claims
same in ASP as it is for AMP. (for example, mail order pharmacies, to drug manufacturers under the
Response: These issues are not hospital outpatient department, and Medicaid Drug Rebate Program. The
addressed in the proposed rule; outpatient clinics) can receive better commenters noted that CMS (then the
therefore, we cannot consider these prices than independent pharmacies. Health Care Financing Administration)
comments as we consider revisions to One commenter suggested that proposed a 60-day time limit in the
be included in the final rule. Inquiries manufacturers be required to report to 1995 NPRM, but that provision was
regarding the definition of ASP should CMS any anticipated pricing increases never promulgated in a final rule. The
be addressed to the director of the with a 90-day advance notice. commenters requested that CMS enact a
Center for Medicare Management in Response: This rule is not designed to time frame not to exceed one year to
CMS. promote unfair competition or negotiate prevent continued State submission of
untimely rebate claims to services been performed by the on behalf of the manufacturer are
manufacturers. manufacturer or other entity. We also excluded from AMP. We further
Response: We encourage States to clarified that bona fide service fees are clarified that such coupons are excluded
submit timely rebate claims to paid by a manufacturer to an entity. as long as the full value of the coupon
manufacturers, but we are not In § 447.502, in the definition of is passed on to the consumer, pharmacy,
establishing a regulatory timeframe in dispensing fee, we inserted ‘‘or service’’ agent, or other entity does not receive
this final rule. after, ‘‘is incurred at the point of sale.’’ any price concession.
Comment: One commenter urged In § 447.502, we clarified that an In § 447.504(g)(15), we clarified that
CMS to require States to use an innovator multiple source drug includes sales of drugs reimbursed by third party
electronic claims system to invoice an authorized generic drug. We also payers are included in AMP, provided
manufacturers for rebates. clarified that term to include any such drugs are provided to the retail
Response: States currently have the labelers operating under the NDA. pharmacy class of trade. We further
option to submit electronic invoices; we In § 447.502, we clarified that a single clarified that third party payers include
are not establishing this as a source drug includes a covered a qualified retiree prescription drug
requirement in this final rule. outpatient drug approved under a BLA. plan under section 1860D–22(a)(2) of
In § 447.504(c), we revised the the Act, HMOs and MCOs that do not
Medicaid Eligibility definition of customary prompt pay purchase or take possession of drugs,
Comment: One commenter expressed discount by inserting ‘‘frame and and TRRx. In § 447.504(h)(23) we added
concern with individuals potentially consistent with industry standards and associated rebates, discounts, or other
abusing the public health system and normal business practices for payment’’ price concessions to third party payers
costing taxpayers money. Rather than after ‘‘a specified time.’’ including the Medicare Part D Program,
cut reimbursement to pharmacies, CMS In § 447.504(d), we revised the an MA–PD, a qualified retiree
should enforce who is covered under definition of net sales by inserting prescription drug plan under section
the Medicaid and Medicare Programs. ‘‘except customary prompt pay 1860D–22(a)(2) of the Act, SCHIP,
Response: We appreciate the discounts extended to wholesalers,’’ SPAPs, TRRx, and Medicaid programs
commenter’s concerns; however, this after ‘‘cash discounts allowed.’’ to the list of prices excluded from AMP.
issue is not addressed in the proposed In § 447.504(e), we removed PBMs In § 447.504(h)(5), we clarified that
rule. We will keep this suggestion in from the definition of retail pharmacy sales to HMO or MCO-operated
mind for future revisions of the class of trade. We also removed entities pharmacies that purchase or take
regulations. that arrange for the purchase of drugs possession of drugs are excluded from
from this definition. AMP.
Consistency in CMS Policies In § 447.504(f), we removed ‘‘a In § 447.504(h)(6), we clarified that
Comment: One commenter noted that pharmacy, chain of pharmacies, or sales to nursing facility pharmacies,
this final rule should be consistent with PBM’’ and ‘‘arranges for the sale of’’ contract pharmacies for the nursing
established Medicaid rebate policies, from the definition of wholesaler. We facility where these sales can be
definitions and terms set forth in also inserted ‘‘those entities in the retail identified with adequate
current CMS guidance, such as pharmacy class of trade’’ after documentation, and other entities where
Medicaid Program Releases and the ‘‘including.’’ the drugs are dispensed through a
national rebate agreement created under In § 447.504(g)(3) and (h)(4), we nursing facility pharmacy, such as
the OBRA 90. The commenter also clarified that direct and indirect sales to assisted living facilities, are excluded
believed the final rule should be hospitals that cannot be identified with from AMP.
consistent in treating similarly-situated adequate documentation as being used In §§ 447.504(h)(7) through (12), we
entities, while recognizing entities that in the outpatient pharmacy for added sales to hospices (inpatient and
are not similarly situated. outpatient use are not included in AMP. outpatient), veterinarians and prisons,
Response: We believe the provisions In §§ 447.504(g)(6), 447.504(h)(22), sales outside the 50 States and the
in this final rule are, in large part, and 447.504(i)(1), we clarified that District of Columbia, sales to State,
consistent with the policies we have discounts, rebates, or other price county, and municipal entities, and
previously adopted. To the extent that concessions to PBMs are excluded from sales to patient assistance programs to
we have clarified or revised our the determination of AMP, except for the list of sales excluded from AMP.
policies, we have so noted in the final purchases through the PBMs’ mail order In § 447.504(h)(16) and (17), we added
rule. pharmacies. that manufacturer vouchers and
In § 447.504(g)(8), we clarified that manufacturer-sponsored drug discount
IV. Provisions of the Final Regulations sales to outpatient facilities (for card programs are excluded from AMP.
For the most part, this final rule example, clinics, surgical centers, In § 447.504(h)(19), we clarified that
incorporates the provisions of the ambulatory care centers, dialysis bona fide service fees to any entities
proposed rule. Those provisions of this centers, and mental health centers) are included in the retail pharmacy class of
final rule that differ from the proposed included in AMP. trade are excluded from the
rule are as follows: In §§ 447.504(g)(9) through (13), we determination of AMP.
In § 447.300, we updated a statutory added sales to home infusion providers, In § 447.504(h)(21), we clarified that
reference. specialty pharmacies, home health care returned or replaced goods, when
In § 447.502, we added definitions of providers, and physicians to the list of accepted or replaced in good faith, are
three terms: lagged price concession, sales included in AMP. excluded from AMP.
noninnovator multiple source drug, and In § 447.504(g)(15), we removed In § 447.504(h)(24), we added
States. We also moved the definition of manufacturer coupons redeemed by any Medicaid rebates under the national
bona fide service fee to § 447.504 and entity other than the consumer from the rebate agreement or a CMS-authorized
clarified that bona fide service fees list of entities included in AMP. In State supplemental rebate agreement are
mean payment for an expense that § 447.504(h)(15), we clarified that excluded from AMP.
would have been paid by the manufacturer coupons redeemed by an In § 447.504(i)(1), we clarified that
manufacturer at the same rate had these agent, pharmacy, or other entity acting AMP includes cash discounts except
customary prompt pay discounts In § 447.510(a)(3), we clarified that CEO or CFO who has authority
extended to wholesalers. We also customary prompt pay discounts shall equivalent to a CEO or a CFO.
clarified that other fees are included in be reported for each covered outpatient In § 447.510(e)(4), we allowed pricing
AMP. drug at the 9-digit NDC level. We also reports to be certified by an individual
In § 447.504(i)(2), we revised the clarified that this term includes who has the directly delegated authority
methodology for calculating quarterly discounts provided to all wholesalers in to perform the certification on behalf of
AMP to be the weighted average of the rebate period. a CEO, a CFO, or an individual with
monthly AMPs in the quarter. In § 447.510(a)(4), we clarified that authority equivalent to a CEO or a CFO.
In § 447.505(c)(2), we deleted PBMs nominal prices include all sales of In § 447.512(c)(1), we added language
from the list of entities included in best single source and innovator multiple that would allow a physician to indicate
price. We also added ‘‘PBM rebates, source drugs to the entities listed in that a specific brand is necessary when
discounts, or other price concessions § 447.508(a) of this subpart. prescribing by an electronic means.
except mail order purchases’’ to the list We added § 447.510(b)(2) to specify In § 447.514(a)(1)(ii) we deleted ‘‘list
of prices excluded from best price in that manufacturers should not revise the drug which has met’’ and ‘‘based on
§ 447.505(d)(13). AMP when the revision would solely be all listings contained in current editions
In § 447.505(c)(12), we removed as a result of data pertaining to lagged (or updates) of published compendia of
‘‘manufacturer coupons redeemed by price concessions. cost information for drugs available for
any entity other than the consumer’’ In § 447.510(c)(1), we changed the sale nationally.
from the prices included in best price. timeframe in which a manufacturer In § 447.514(c)(2), we changed ‘‘30
We also added manufacturer coupons must report base date AMP to CMS from percent’’ to ‘‘40 percent’’ per the outlier
redeemed by an agent, pharmacy or the first full calendar quarter following policy which will be implemented
other entity acting on behalf of a publication of this final rule to the first during the period of the final rule with
manufacturer, as long as the full value four full calendar quarters following comment period.
of the coupon is passed on to the publication of this final rule. In § 447.514(c)(3), we clarified the
consumer and the pharmacy, agent or In § 447.510(c)(2)(i), we clarified that regulation text by replacing ‘‘innovator
other entity does not receive any price a manufacturer’s recalculation of base single source’’ with ‘‘brand name.’’
concession, to the list of prices excluded date AMP must only reflect the
from best price in § 447.505(d)(8). revisions to AMP as provided for in V. Collection of Information
In § 447.505(d)(3), we limited the § 447.504 of this subpart, as opposed to Requirements
SPAP best price exemption to any prices § 447.504(e) of the same. Under the Paperwork Reduction Act
or price concessions provided to In § 447.510(c)(2)(ii), we added a of 1995 (PRA), we are required to
designated SPAPs. provision to allow a manufacturer to provide 30-day notice in the Federal
In § 447.505(d)(4), we deleted choose to recalculate base date AMP on Register and solicit public comment
TRICARE from the list of prices a product-by-product basis. before a collection of information
excluded from best price. In § 447.510(c)(2)(iii), we added a requirement is submitted to the Office of
In § 447.505(e)(2), we clarified the provision to require manufacturers to Management and Budget (OMB) for
reference to the nominal price use actual and verifiable pricing records review and approval. In order to fairly
provisions in § 447.508. in the calculation of base date AMP. evaluate whether an information
In § 447.506(a), we removed the In § 447.510(d)(2), we revised the reg collection should be approved by the
phrase ‘‘directly or indirectly’’ from the text by removing the reference to OMB, section 3506(c)(2)(A) of the PRA
definition of authorized generic drug. § 447.504 and replacing it with the requires that we solicit comment on the
In § 447.506(b), we revised the initial requirement that monthly AMP should following issues:
provision requiring the manufacturer be calculated as the weighted average • The need for the information
holding title to the original NDA to for all the manufacturer’s package sizes collection and its usefulness in carrying
include the authorized generic sales of of each covered outpatient drug sold by out the proper functions of our agency.
the secondary manufacturer in the AMP the manufacturer during a month. We • The accuracy of our estimate of the
of the brand drug by specifying that the also added a requirement that a information collection burden.
manufacturer holding title to the manufacturer must estimate the impacts • The quality, utility, and clarity of
original NDA of an authorized generic of its lagged price concessions using a the information to be collected.
must include the sales of authorized 12-month rolling average to estimate the • Recommendations to minimize the
generics in the AMP of the manufacturer value of those discounts. information collection burden on the
holding title to the original NDA only In § 447.510(d)(3), we removed the affected public, including automated
when the products are sold directly to prohibition against reporting revised collection techniques.
a wholesaler. monthly AMP and replaced it with a We are soliciting public comment on
In § 447.506(c), we removed the initial requirement that a manufacturer report each of these issues for the following
provision that requires the manufacturer revisions to monthly AMP to CMS for a sections of this document that contain
holding title to the original NDA to period not to exceed 36 months from the information collection requirements:
include the sales of the secondary month in which the data were due.
manufacturer in the best price of the Section 447.510 Requirements for
We added § 447.510(d)(4) to prohibit
brand drug. We added language that Manufacturers
manufacturers from reporting revisions
would require sales from the to monthly AMP if the revisions would Section 447.510 states that a
manufacturer holding title to the be solely as a result of data pertaining manufacturer must report,
original NDA to the secondary to lagged price concessions. electronically, product and pricing
manufacturer to be included in the best We added § 447.510(d)(5) to address information for covered outpatient
price of the manufacturer holding title monthly AMP reporting requirements drugs to CMS not later than 30 days
to the original NDA. We also added for terminated products. after the end of the rebate period. In
language to state that the best price is In § 447.510(e)(3), we added a addition, customary prompt pay
the lowest price at which the authorized provision to allow pricing reports to be discounts and nominal prices must be
generic drug is sold. certified by an individual other than a reported quarterly. Detailed information
pertaining to the manufacturer’s currently approved under OMB# 0938– the actual acquisition cost of the drug
reporting requirements is located under 0578. While this requirement will now and hospitals that use a drug formulary
§§ 447.510(a), (b), (c), (d), and (e). also apply to monthly AMP data, we system and bill at the hospital’s
The burden associated with these new believe a similar set of data is now purchasing cost are exempted). The
requirements is the time and effort it retained to support the quarterly American Hospital Association (AHA)
would take for a drug manufacturer to retention requirement. It may require in 2002 estimated that it would cost
gather product and pricing information some additional record-keeping to retain $200,000 per hospital for changes
and submit it to CMS in an electronic the monthly, as well as the quarterly needed to use NDC codes for billing.
format. We estimate that these data, in the AMP system for Inflating this figure by the Consumer
requirements would affect the manufacturers that do not retain this Price Index (CPI) would make the
approximately 550 drug manufacturers information there now. However, we current cost approximately $230,000 for
that currently participate in the believe that most manufacturers already each of the 5,655 hospitals that
Medicaid Drug Rebate Program. Our have such monthly sales data (for participate in Medicaid for the total cost
current reporting and recordkeeping example, data of sale information) in to be $1.3 billion.
hour burden for each manufacturer in their system and transferring this to the We are not adopting this estimate as
the Medicaid Drug Rebate Program is 71 system for calculating monthly AMP we believe it to be high. This estimate
hours per quarter or 284 hours annually. would not be a significant burden. was developed in 2002 to implement a
We believe the new reporting
Section 447.520 FFP: Conditions stand alone NDC system from scratch.
requirements will require less than half
Relating to Physician-Administered Since its development, FDA in 2004
of this time. Specifically, we believe it
Drugs issued a final rule requiring drug
would take each manufacturer 31 hours
Section 447.520 requires providers, manufacturers to include Uniform
per quarter or 124 hours annually to
effective January 1, 2007, to submit Product Codes (bar codes) with NDC
report additional new information to
claims to the State for physician- numbers on drug packages. In their final
CMS. The total estimated burden on all
administered single source drugs and rule, FDA estimated a significant
drug manufacturers associated with the
the 20 multiple source drugs identified percent of hospitals would voluntarily
new requirements under § 447.510 is
68,200 annual hours. These new by the Secretary using NDC numbers. start to implement bar-coding systems,
reporting requirements for drug Assuming all States impose this in order to lower the number of
manufacturers participating in the requirement, the burden associated with medication errors and to realize other
Medicaid Drug Rebate Program this requirement is the time and effort efficiency gains. Consistent with FDA’s
associated with the Medicaid Drug it would take for a physician’s office, findings, some commenters noted that
Program Monthly and Quarterly hospital outpatient department or other hospitals are planning to use bar codes
Reporting Form (CMS–367) are entity (for example, non-profit facilities) on drugs in the future. When use of
approved under OMB# 0938–0578. CMS to include the NDC on claims submitted these codes is adopted, hospitals will be
will revise this collection to include to the State. We estimate this able to take the NDC from the bar code
changes in burden based upon this requirement would affect an excess of when billing Medicaid, minimizing the
regulation. 20,000 physicians, hospitals with cost of implementing this provision.
Section 447.510(f) requires a outpatient departments and other Section 447.520(c) allows States
manufacturer to retain records (written entities that would submit requiring additional time to comply
or electronic) for ten years from the date approximately 3,910,000 claims with the requirements of this section to
the manufacturer reports data to CMS annually. We believe this would take apply for an extension. The burden
for that rebate period. The ten-year time approximately 15 seconds per claim. We associated with this requirement is the
frame applies to a manufacturer’s estimated the cost based on the average time and effort it would take for each
quarterly and monthly submissions of annual wage and benefits paid for office State to apply for a one-time extension.
pricing data, as well as any revised and administrative support services in We estimate that it would take five
quarterly pricing data subsequently 2006 of $21.14 per hour (www.bls.gov/ hours for each State to apply for the
submitted to CMS. As stated under news.release/pdf/ecec.pdf). The per extension; however, we believe that
§ 447.510(f)(2), there are certain claim cost would be under nine cents. only a few States will apply. Therefore,
instances when records must be Many hospital outpatient departments we believe this requirement to be
maintained beyond the ten-year period. will also need to modify their billing exempt as specified at 5 CFR
While this requirement is subject to systems to capture the NDC on 1320.3(c)(4). We believe the total
the PRA, the retention of quarterly data Medicaid claims (hospitals that receive estimated annual burden for this rule is
is not a new requirement and is discounted drugs and bill Medicaid at 84,492 hours.
OMB No. Requirements Number of respondents Number of burden hours Total annual burden
0938–0578 ............................. 447.510 550 Drug Manufacturers ........ 31 hours per quarter .............. 68,200 hours.
None ....................................... 447.520 20,000 Physicians .................. 15 seconds per claim ............ 16,292 hours.
None/Exempt .......................... 447.520(c) Less than 10 States ............... NA .......................................... NA.
Total Annual Burden ....... ........................ ................................................ ................................................ 84,492 hours.
We have submitted a copy of this final If you comment on these information Regulations Development, Attn: Melissa
rule to the OMB for its review of the collection and recordkeeping Musotto, [CMS–2238–FC] Room C4–26–
information collection requirements requirements, please mail copies 05, 7500 Security Boulevard, Baltimore,
described above. These requirements are directly to the following: MD 21244–1850; and Office of
not effective until they have been Centers for Medicare & Medicaid Information and Regulatory Affairs,
approved by the OMB. Services, Office of Strategic Operations Office of Management and Budget,
and Regulatory Affairs, Division of Room 10235, New Executive Office
Building, Washington, DC 20503, Attn: explained that this burden is increased and will collect a single dollar value for
Katherine Astrich, CMS Desk Officer, because the monthly AMP data will be nominal and customary prompt pay
CMS–2238–FC, collected using an internet-based system discounts for each drug. This is the
katherine_astrich@omb.eop.gov. Fax that requires manual data entry by the minimal collection possible under the
(202) 395–6974. manufacturer rather than capturing data statute.
from an existing system. The commenter
Comments and Responses on Collection B. Section 447.520 FFP: Conditions
further asserted that this will have a
of Information Requirements Relating to Physician-Administered
major impact to manufacturers.
Response: The commenter did not Drugs
A. Section 447.510 Requirements for
Manufacturers document the additional burden on Comment: Many commenters stated
manufacturers. We continue to believe that the RIA concerning the collection of
Comment: Some commenters stated NDCs on outpatient hospital claims was
that the estimates from the proposed
that CMS greatly underestimated the rule best represent the costs that will be seriously understated. These
burden on pharmaceutical incurred by manufacturers. The new commenters said that most, if not all,
manufacturers, including manufacturers data collection system offers two types hospital patient accounting systems are
that are small businesses, to implement of data transmission, on-line data entry not designed to capture NDC data. One
the additional reporting requirement. and file transfer to accommodate the commenter estimated that a short-term
Commenters asserted that the burden manufacturers that use a file transfer. workaround would require 500 to 1,500
would be significant to implement a The new Web-based data collection hours per hospital to design, build, and
new methodology for AMP calculations method should not place any additional test. Other commenters estimated the
while quickly implementing monthly burden on manufacturer’s existing cost to be from $.25 to $10 per dose.
reporting of AMP and quarterly systems. One commenter estimated the systems
reporting of both customary prompt pay Comment: Another commenter changes necessary to automate the
discounts and nominal prices. asserted that the approximate $50,000 process to cost $1.7 million over five
Commenters did not provide revised start-up cost per drug manufacturer years per hospital. Several commenters
estimates of the increased hourly annual appears quite low and that most of their cited the cost estimate of $200,000 per
burden on manufacturers. They believed larger pharmaceutical manufacturing hospital, or $1.3 billion for all hospitals,
that CMS’ estimated 31 hours per clients have already spent more than that was presented by the AHA when
quarter is low by several hundred hours. this amount. The commenter further the final regulation for electronic health
Some commenters noted that stated that the $50,000 start-up estimate data standards for hospitals was under
pharmaceutical companies must pay to does not include the ongoing impact of development in 2002. Other
modify their drug price reporting additional resources required to oversee commenters estimated annual costs to
systems, hire and train additional the twelve additional annual update systems with ever-changing
personnel to meet the reporting submissions required by monthly AMP NDCs to be up to $200,000 per hospital
requirements, change operating reporting and inclusion of authorized per year. Many commenters noted that
procedures and government pricing generics in AMP and best price. these costs far exceed the projected
systems, and dedicate additional Response: Our estimate includes the saving of $179 million over five years to
employees to Medicaid price reporting. costs to hire one full-time employee Medicaid for this provision.
Response: Because the comments (FTE) to undertake the new reporting Response: Based on the comments
contained general estimates, but did not requirements for larger manufacturers received, we believe that we may have
provide adequate documentation of the and one half FTE costs for small underestimated the costs to outpatient
estimates of burden on manufacturers, manufacturers; therefore, we have departments of hospitals. The estimates
we have no basis to revise the estimates; retained the same estimated ongoing provided by commenters varied widely
therefore, we have retained the same burden in the final rule. and commenters offered little
estimates in the final rule. Comment: The commenter believed documentation to support their
Comment: One commenter asserted that the start-up burden for complying estimates. We have revised the Impact
that the estimated start-up cost per with the requirements of the proposed Analysis to acknowledge an estimate,
manufacturer to implement the rule rule of $50,000 and 208 hours greatly cited by some commenters, provided by
significantly exceeds the $50,000 underestimate the costs of developing a the AHA on the proposed rule to adopt
estimate stated in the proposed rule. system for allocating bundled sales. The modifications to standards for electronic
The commenter suggested that CMS commenter further suggested redefining transactions published by the Office of
should conduct industry surveys on a bundled sale and how such a sale the Secretary on May 31, 2002 (67 FR
implementation costs before making should be treated for purposes of 38047–38048). The AHA estimated that
such proposals. determining AMP and best price. it would cost a minimum of $200,000
Response: The public comment Response: The requirement for per hospital for hospital outpatient
process, of which this comment is a allocating discounts for bundled sales is departments to switch from using
part, is intended to provide an not new with this regulation. Further HCPCS to NDCs. Costs would vary
opportunity for interested parties to discussion of the requirements for based on the size of the facility. If this
submit additional information for us to bundled sales is discussed earlier in this estimate is accurate, the present cost,
consider before we finalize the preamble. updating this amount by the CPI from
estimates. We are not required to Comment: Commenters asked about 2002 to 2007 the cost would be
conduct a survey and, given the how customary prompt pay discounts $230,000 for the 5,655 hospitals that
timeframe for issuance of this rule and nominal pricing data is to be participate in the Medicaid Program, or
mandated by the DRA, do not have the reported and noted that they believe a total of $1.3 billion.
time and resources to do so. that these new data reporting We do not accept that the cost would
Comment: One commenter stated that requirements will have a major impact be this high. We note, as did some
completing monthly AMP data will be on manufacturers. commenters, that the Food and Drug
very demanding, especially for smaller Response: We are adopting in the Administration is planning on requiring
manufacturers. The commenter further final rule a quarterly reporting policy drug manufacturers to place Uniform
Product Codes (bar codes) on drug Response: We understand from the VI. Response to Comments
products which will include the NDC of comments received that hospitals may
the drug. Commenters stated that need to change procedures to meet this Because of the large number of public
hospitals are transitioning to use the bar new requirement. comments we normally receive on
codes on the drugs they dispense. Bar Comment: One commenter said that Federal Register documents, we are not
coding will allow hospitals to bill physician billing systems currently able to acknowledge or respond to them
Medicaid with NDCs. allow for one HCPCS code and cannot individually. We will consider all
Comment: Many commenters reported accommodate multiple NDCs. The comments we receive by the date and
that outpatient hospital billing systems commenter also said that discussions time specified in the DATES section of
capture the NDC only for the primary with vendors of billing systems have not this preamble, and, when we proceed
drug. Hospitals often restock with the offered a solution to accommodate with a subsequent document, we will
same drug of a different manufacturer, NDCs. respond to the comments in the
without recording the NDC for the Response: The statute, as revised by preamble to that document.
restocked drug. Similarly, hospitals are the DRA, requires States to collect NDCs
increasingly using automated drug VII. Regulatory Impact Analysis
with respect to covered outpatient drugs
dispensing machines, which do not so that they can collect rebates from A. Overall Impact
accommodate multiple NDCs. Drug drug manufacturers. Physician offices
products of multiple manufacturers are and their vendors may need to revise We have examined the impacts of this
used in a single slot in the machines. systems as necessary to comply with rule as required by Executive Order
The machines do not have the capacity this new requirement. 12866 (September 1993, Regulatory
to separate drugs by NDC. Comment: One commenter stated that Planning and Review), the Regulatory
Response: We acknowledge that many the claims processing system in the Flexibility Act (RFA) (September 19,
hospitals will need to change their Medicaid agency in his State is 1980, Pub. L. 96–354), section 1102(b) of
procedures to comply with this billing incapable of processing outpatient the Act, the Unfunded Mandates Reform
requirement. However, the statute Act of 1995 (Pub. L. 104–4), Executive
pharmacy claims billed with the NDC,
requires States to collect utilization data Order 13132, and the Congressional
so that his hospital would incur
with respect to covered outpatient drugs Review Act (CRA, 5 U.S.C. 804(2)).
additional costs, but it would not yield
in order to identify the manufacturer of Executive Order 12866 (as amended
additional revenue to Medicaid.
the drug to secure rebates. by Executive Order 13258, which
Comment: Several commenters raised Response: The statute requires States
other technical difficulties with to implement this provision or lose FFP reassigns responsibility of duties)
recording an accurate NDC on the claim. for the drugs administered. The statute directs agencies to assess all costs and
These include the complexity of requires States to collect NDCs with benefits of available regulatory
translating from units purchased to the respect to covered outpatient drugs in alternatives and, if regulation is
amount of the drug dispensed and how order to identify manufacturers and necessary, to select regulatory
to track and record multiple NDCs when secure rebates. If a State cannot approaches that maximize net benefits
a drug administered is comprised of implement the provision, it may request (including potential economic,
multiple drugs or the same drug from a waiver from the Secretary until the environmental, public health and safety
multiple manufacturers; for example, State can come into compliance. effects, distributive impacts, and
with compounded drugs or injectible Comment: Several commenters equity). An RIA must be prepared for
drugs. believed that the Regulatory Impact major rules with ‘‘economically
Response: We recognize that many Statement should reflect costs to State significant’’ effects ($100 million or
hospitals will need to institute new Medicaid Agencies for outreach and more in any 1 year). We believe this rule
procedures to obtain the information education of providers concerning this will have an economically significant
with respect to covered outpatient drugs requirement. effect. We believe the rule will save $8.4
that is required by the statute for billing Response: We agree that States will billion over the next 5 years ($4.93
Medicaid agencies. incur some costs for outreach and billion Federal savings and $3.52 billion
Comment: Several commenters noted education of physicians and outpatient State savings as shown in the table
that the requirement for billing using hospital staff. We have not included below). This figure represents a 5.6
NDC codes would apply only to State administrative costs. We note percent reduction in total Medicaid
Medicaid patients, but that the again, as we did in the proposed rule, drug expenditures in Federal fiscal
clinicians delivering the medications do that States will save considerably more years 2007–2011. We consider this final
not know the source of payment for from this regulation than the costs they rule with comment to be a major rule for
patients. will incur to implement it. purposes of the CRA.
STATE AND FEDERAL SAVINGS OVER 5 YEARS
[In millions]
FFY 2007–11
DRA section and provision Federal 2007 2008 2009 2010 2011 total sav-
State ings
Section 6001—Federal Upper Payment Federal .............................. $465 $750 $1,075 $1,155 $1,250 $4,695
Limits and Other Provisions State .................................. 330 535 765 825 890 3,345
Total ................................. 795 1,285 1,840 1,980 2,140 8,040

Section 6002—Rebates on Physician-Ad- Federal .............................. 18 19 20 22 24 103

ministered Drugs. State .................................. 13 14 15 16 18 76
Total ................................. 31 33 35 38 42 179
STATE AND FEDERAL SAVINGS OVER 5 YEARS—Continued

[In millions]
FFY 2007–11
DRA section and provision Federal 2007 2008 2009 2010 2011 total sav-
State ings
Section 6003—Reporting of Authorized Federal .............................. 10 25 28 32 36 131

Generics for Medicaid Rebates State .................................. 7 19 21 24 27 98
Total ................................. 17 44 49 56 63 229
Total Savings for FFY Federal .............................. 493 794 1,123 1,209 1,310 4,929
State .................................. 350 568 801 865 935 3,519
Total ................................. 843 1,362 1,924 2,074 2,245 8,448
All savings estimates were developed forecast for Medicaid spending as well addition, drug manufacturers will be
by the Office of the Actuary (OACT) in as adjustments given that the proposal required to submit two additional
CMS. We note that the CBO, in its is limited to a subset of the prescription pricing data elements—customary
estimates of the budgetary effects of drug market. prompt pay discounts and nominal
these provisions of the DRA, reached an None of the estimates include Federal prices—on each of their drugs on a
almost identical estimate for these years, or State administrative costs. We believe quarterly basis. Because drug
about $4.8 billion in Federal outlay these costs will be small as they involve manufacturers provide nominal prices
reduction compared to the CMS changes in work processes rather than and customary prompt pay discounts,
estimate of $4.9 billion. new activities. The resulting program we believe that these figures are
Savings estimates for section 6001 of savings will be many times these costs. available in the manufacturers’ existing
the DRA—FULs and other provisions— The RFA requires agencies to prepare data systems and do not require new
were derived from simulations of the a regulatory flexibility analysis and to data collection. Rather, it simply
new FULs performed using price and analyze options for regulatory relief of requires that existing information be
utilization data from the Medicaid Drug small businesses and other small reported to CMS. For this reason, we
Rebate Program combined with generic entities if a proposed or final rule would believe the burden to be minimal.
group codes from First DataBank. have a ‘‘significant impact on a In addition, the rule will affect the
Percent savings from these simulations substantial number of small entities.’’ level of rebates due from manufacturers.
developed by CMS’ OACT were applied For purposes of the RFA, small entities The DRA provides that customary
to project Medicaid prescription drug include small businesses, non-profit prompt pay discounts be excluded from
spending developed for the President’s organizations, and small governmental AMP. This will result in higher AMPs
fiscal year 2007 budget. Savings were jurisdictions. Individuals and States are and, consequently, higher rebate
phased in over 3 years to allow for not included in the definition of a small payments. We have been told informally
implementation lags. On the previous entity. For purposes of the RFA, three by manufacturers that customary
chart, the estimate for FFY 2007 through types of small business entities are prompt pay discounts are generally
FFY 2010 includes $5 million for the potentially affected by this regulation. about two percent. We have found no
RPS. They are small pharmaceutical independent source to confirm this
The savings estimates for section 6002 manufacturers participating in the percentage. We also do not know what
of the DRA—rebates on physician- Medicaid Drug Rebate Program, small percent of sales qualify for customary
administered drugs—are based on the retail pharmacies, and physicians and prompt pay discounts. Based on this
2004 OIG report, ‘‘Medicaid Rebates for other practitioners (including small limited information, we believe that the
Physician-Administered Drugs.’’ A key hospitals or other entities such as non- removal of customary prompt pay
finding of the report is the amount of profit providers) that bill Medicaid for discounts will cost manufacturers up to
additional rebates that could have been physician-administered drugs. We will $160 million (two percent of $8 billion
collected in 2001 if all States had discuss each type of business in turn. in rebate payments annually). In this
collected rebates on physician- According to the SBA’S size rule, we also will remove sales to PBMs
administered drugs. This amount was standards, drug manufacturers are small and nursing home pharmacies from
then projected forward using historical businesses if they have fewer than 500 AMP as well as provide manufacturers
data (2001–2005) and projections employees (www.sba.gov/size/ the option to exclude hospital
consistent with the 2007 President’s sizetable2002.html). Approximately 550 outpatient sales if information is
Budget forecast for Medicaid spending drug manufacturers participate in the insufficient to accurately identify sales
to develop the total estimated impact. Medicaid Drug Rebate Program. We of drugs to hospitals used in the
The savings estimates for section 6003 believe that most of these manufacturers outpatient department. We have been
of the DRA—Reporting of authorized are small businesses. We anticipate that told by industry representatives that
generics for Medicaid rebates—were this rule will have a small impact on nursing home pharmacies and hospitals
developed by CMS’ OACT and are based small drug manufacturers. The rule will receive larger discounts than other
on the consensus of Medicaid experts require all drug manufacturers sectors, thus potentially resulting in an
and the review of available and relevant participating in the Medicaid Drug increase in AMP from these changes.
data. After estimating the impact of the Rebate Program to submit pricing Likewise, some commenters believe that
proposal in the first year of information (AMP) on each of their drug the exclusion of PBM sales will increase
implementation, the total impact was products on a monthly basis. Currently AMP. However, because we have no
projected using assumptions consistent drug manufacturers are required to independent data on the cost of drugs to
with the 2007 President’s Budget submit similar information quarterly. In these entities, we cannot quantify the
effect of these provisions other than to claims will be submitted a year. We have data to quantify how many of the
say that we have been told by the derived this number by multiplying the 3,910,000 annual total claims are
industry that it will increase rebates 23 million annual Part B claims by the submitted by these entities. In any case,
owed by drug manufacturers. Public percentage (17) of Medicare the cost will be under nine cents per
comments and responses specifically beneficiaries who are also Medicaid claim.
regarding small businesses including beneficiaries (Calendar Year 2004 Section 1102(b) of the Act requires us
drug manufacturers are discussed under Medicare Carrier Claims Data in the to prepare an RIA if a rule may have a
‘‘Comments and Responses on the National Claims History extract). We significant impact on the operations of
Regulatory Impact 6. Effects on Small believe most of the Medicaid a substantial number of small rural
Business Entities.’’ beneficiaries who receive physician- hospitals. This analysis must conform to
According to the SBA’s size administered drugs are also in Medicare the provisions of section 603 of the
standards, a retail pharmacy is a small because of the severity of the medical RFA. For purposes of section 1102(b) of
business if it has revenues of $6.5 conditions of people who require these the Act, we define a small rural hospital
million or less in 1 year (www.sba.gov/ drugs. We then assume that it will take as a hospital that is located outside of
size/sizetable2002.html). The SBA 15 seconds per claim. Multiplying a Core-Based Statistical Area and has
estimates that there are about 18,000 3,910,000 by 15 seconds equals fewer than 100 beds. There are
small pharmacies. These pharmacies 58,650,000 seconds or 16,292 hours approximately 700 small rural hospitals
will be affected by this regulation as the (58,650,000/3,600 seconds per hour). that meet this definition. We do not
law will result in lower FULs for most We multiplied 16,292 hours by the know how many of these hospitals have
drugs subject to the limits, thus hourly wage and benefit rate of $21.14 outpatient departments. However, we
reducing Medicaid payments to for office and administrative staff believe that this rule will impact small
pharmacies for drugs. The revision to published by the Department of Labor, rural hospitals to the extent that billing
the FULs will generally reduce those Bureau of Labor Statistics for March systems will need to be changed to
limits and, thereby, reduce Medicaid 2006 to estimate the annual cost to be capture NDCs on claims for drugs
payment for drugs subject to the limits. $344,000. We divided the total cost of administered by physicians in the
The savings for section 6001 of the DRA $344,000 by the 3,910,000 claims to outpatient department. We acknowledge
reflect this statutory change. The other estimate the cost per claim will be the AHA estimate of $200,000 per
provisions concerning payment for under 9 cents. Calculated another way, hospital for these changes ($230,000 in
drugs will provide States two new data the annual cost per physician practice 2007 adjusted by the CPI), but we have
points to use to set payment rates. After will be under $20 ($344,000 divided by no documentation to analyze or verify
their release in January 2007, States may 20,000 equals about $17). Accordingly, this estimate. We also believe that
use AMP and retail survey prices in we believe that there is no ‘‘significant hospitals can minimize the cost to the
their payment methodologies when they impact’’ on these physicians. extent that they use bar codes on the
are released. The savings for section
According to the SBA’s size drugs they dispense, as this will identify
6001 of the DRA do not reflect decreases
standards, hospitals are small the NDC of the drug needed to bill
to State payments for drugs not on the
businesses if they have yearly revenue Medicaid.
FUL list. As analyzed in detail below,
we believe that these legislatively of $31.5 million or less (www.sba.gov/ Section 202 of the Unfunded
mandated section 6001 savings will size/sizetable2002.html). As with Mandates Reform Act of 1995 also
potentially have a ‘‘significant impact’’ physician practices, outpatient units of requires that agencies assess anticipated
on some small, independent hospitals will need to include NDCs on costs and benefits before issuing any
pharmacies. Public comments and claims for physician-administered rule whose mandates on States and
responses specifically regarding small covered outpatient drugs. Outpatient private entities require spending in any
businesses including retail pharmacies hospital claims for physician- 1 year of $100 million in 1995 dollars,
are discussed under ‘‘Comments and administered drugs are included in the updated annually for inflation. That
Responses on the Regulatory Impact 6. 3,910,000 annual total claims discussed threshold level is currently
Effects on Small Business Entities.’’ The in the previous paragraph. In addition approximately $125 million. This rule
analysis in this section, together with we believe that most hospitals will need will mandate that drug manufacturers
the remainder of the preamble and the to change their billing systems to provide information on drug prices, and
regulatory impact analysis, constitutes a capture NDC codes. In 2002 when CMS that these data be used in calculating
Final Regulatory Flexibility Analysis proposed to rescind the use of NDCs for FULs. However, our estimate of costs to
(FRFA) for purposes of compliance with drug claims submitted by institutional manufacturers (see next section: Effects
the RFA, section 605. providers, the AHA estimated that these on Drug Manufacturers) falls far below
According to the SBA’s size changes would cost hospitals a the threshold and we anticipate this rule
standards, physician practices are small minimum of $200,000 each ($230,000 in will save States $3.5 billion over the
businesses if they have revenues of $9 2007 adjusted by the CPI). Because this five-year period from October 1, 2006
million or less in 1 year (www.sba.gov/ estimate is not documented, CMS is not through September 30, 2011.
size/sizetable2002.html). Nearly all of adopting it for purposes of this impact Executive Order 13132 establishes
the approximately 20,000 physician’s analysis; however, we do accept that certain requirements that an agency
practices that specialize in oncology, hospitals will incur some costs. We do must meet when it promulgates a
rheumatology and urology may not have an adequate basis to estimate proposed rule (and subsequent final
experience some administrative burden this cost, however, several commenters rule) that imposes substantial direct
due to new requirements that claims noted that hospitals are in the process requirement costs on State and local
include the NDC for drugs administered of instituting bar codes on drugs that governments, preempts State law, or
by these physicians. These practices contain the NDC. This will minimize otherwise has Federalism implications.
will be required to transfer the NDC the cost for hospitals to implement this Since this rule will impose only
code for drugs administered by a provision. Other small entities such as minimal new administrative burden on
physician to the electronic or paper non-profit providers may also be States and yield substantial savings to
claim. We estimate that 3,910,000 affected by this provision. We do not States, we believe that these costs can be
absorbed by States from the substantial departments of hospitals when data is in 2006 (www.nacds.org/
savings they would accrue. not available to separate out drugs wmspage.cfm?parm1=507). Based on
administered in the outpatient comments, we decided to exclude mail
B. Anticipated Effects
department from the hospital as a order and reflect only community-based
1. Effects on Drug Manufacturers whole. We have been told by industry retail sales in the total sales because the
As previously indicated, representatives that PBMs, nursing savings will principally come from
approximately 550 drug manufacturers homes and hospital pharmacies receive retail pharmacies. Assuming,
participate in the Medicaid Drug Rebate larger discounts than other sectors. If conservatively, that sales will rise at
Program. The rule will require all drug this information is accurate, removing only five percent a year, 2007 sales
manufacturers participating in the these prices will increase AMP. would be over $210 billion and 2011
Medicaid Drug Rebate Program to However, because we have no sales over $255 billion, for a 5-year total
submit pricing information (AMP) on independent data on the cost of drugs to of $1160 billion. Dividing the $8 billion
each of their drug products on a these entities, we cannot quantify the projected Medicaid savings by the
monthly basis. Currently drug effect of this provision other than to say $1,160 billion results in a loss in
manufacturers are required to submit that we believe it will increase rebates revenue of less than one percent. Thus,
similar information quarterly. In owed by drug manufacturers. the effect of this rule will be to reduce
addition, drug manufacturers will be retail prescription drug revenues by less
2. Effects on State Medicaid Programs
than one percent, on average. Actual
required to submit two additional States share in the savings from this revenue losses will be even smaller
pricing data elements—customary rule. As noted in the table above, we because pharmacies have the ability to
prompt pay discounts and nominal estimate 5-year State savings of over mitigate the effects of the rule by
prices—on each of their drugs on a $3.5 billion. State administrative costs changing purchasing practices. The 250
quarterly basis. We believe that drug associated with this regulation are percent FUL will typically be lower
manufacturers currently have these minor as States currently pay at or than the prices available to pharmacies
data; therefore, the new requirement below the FUL for drugs subject to that only when one or more very low cost
will not require new data collection. limit, determine their drug generic drugs are included in the
Rather it simply requires that existing reimbursement rates, and collect claims calculation. Pharmacies will often be
information be reported to CMS. For information on physician-administered able to switch their purchasing to the
this reason, we believe the burden to be drugs. lowest cost drugs and mitigate the effect
minimal. The estimated startup burden of the sales loss by lowering costs.
to the manufacturers is $27.5 million for 3. Effects on Retail Pharmacies
Although it is clear that the effects
a one-time systems upgrade, or $50,000 Retail pharmacies would be affected will be small on the great majority of
for each of the 550 manufacturers that by this regulation, as the law will result pharmacies, whether chain or
participate in the Medicaid Drug Rebate in lower FULs for most drugs subject to independent, we are unable to estimate
Program. To estimate the ongoing the limits, thus reducing Medicaid quantitatively effects on ‘‘small’’
burden, we expect that the payments to pharmacies for drugs. The pharmacies, particularly those in low-
manufacturers will each spend 208 revision to the FULs would generally income areas where there are high
hours annually (114,400 total hours reduce those limits and, thereby, reduce concentrations of Medicaid
annually) in complying with these Medicaid payment for drugs subject to beneficiaries. We received general
requirements. The estimated annual the limits. The savings for section 6001 comments that these pharmacies will be
operational expenses are $5.7 million, of the DRA reflect this statutory change. greatly impacted by the provisions of
which is 114,400 total annual hours The other provisions concerning this rule; however, we did not receive
multiplied by $37.50 per labor hour in payment for drugs would provide States documented estimates of these effects.
wages and benefits, or $4.3 million in two new data points to use to set Because of the lack of evidence as to the
labor burden, plus $1.4 million in payment rates. Beginning in 2007, States true effect, we have retained our prior
technical support. may use AMP and retail survey prices conclusion that this proposed rule is
In addition, the proposed regulation in their payment methodologies. The likely to have a ‘‘significant impact’’ on
would affect the level of rebates due savings for section 6001 of the DRA do some pharmacies.
from manufacturers. The DRA provides not reflect decreases to State payments
that customary prompt pay discounts be for drugs not on the FUL list that may 4. Effects on Physicians
excluded from AMP. This will result in result if States change their payment This regulation will affect physician
higher AMPs and, consequently, higher methodologies. practices that provide and bill Medicaid
rebate payments. We have been told The savings to the Medicaid Program for physician-administered drugs. This
informally by manufacturers that will largely be realized through lower includes about 20,000 physicians as
customary prompt pay discounts are payments to pharmacies. As shown well as hospitals with outpatient
generally about two percent. We have earlier in this analysis, the annual effect departments. The effect on physicians is
found no independent source to confirm of lower FULs and related changes will the same as discussed in section A—
this percentage. We also do not know likely reduce pharmacy revenues by Overall Impact above for small
what percent of sales qualify for about $800 million in 2007, increasing businesses because all or nearly all
customary prompt pay discounts. Based to a $2 billion reduction annually by physician offices are small businesses.
on this limited information, we believe 2011. These reductions, while large in
that the removal of customary prompt absolute terms, represent only a small 5. Effects on Hospitals
pay discounts will cost manufacturers fraction of overall pharmacy revenues. This regulation will affect hospitals
up to $160 million (two percent of $8 According to recent data summarized by with outpatient departments that
billion in rebate payments annually). In the National Association of Chain Drug provide and bill Medicaid for physician-
this rule, we also will remove sales to Stores, total retail prescription sales in administered covered outpatient drugs.
PBMs and nursing home pharmacies the United States, including chain drug As discussed above, hospitals with
from AMP and allow drug manufactures stores, independent drug stores, and outpatient departments would need to
to exclude sales to outpatient supermarkets totaled about $200 billion include the NDC on claims for such
physician-administered drugs. We each of their drug products on a pharmacy revenues by about $800
believe this will need to be done monthly basis with an estimated impact million in 2007, increasing to a $2
manually or will require a one-time that is minimal. The rule could also billion reduction annually by 2011.
systems change. We believe the cost of increase the amount of drug rebates that Nearly all of the approximately 20,000
adding the NDC to each claim would be manufacturers will pay as a result of physician practices that specialize in
small. We are not able to estimate the removing customary prompt pay oncology, rheumatology and urology are
cost to make needed systems changes discounts and nursing home sales from considered small businesses. The rule
but note that the AHA has estimated AMP, which is used in the rebate could impose some administrative
this to be at least $200,000 per hospital calculation. To the extent that PBMs are burden on these practices due to new
($230,000 in 2007 adjusted by the CPI). also excluded from best price, the requirements that claims include the
We also note that CMS has encouraged amount of rebates could decrease. The NDC for physician-administered drugs.
States to collect information on exclusion of customary prompt pay As shown earlier, we believe that the
physician-administered drug claims to discounts will cost manufacturers up to annual cost per claim would be under
enable them to collect rebates. Some $160 million (two percent of $8 billion 9 cents and the annual cost per
States have required that NDCs be in rebate payments annually). physician practice would be under $20.
included on claims and others are in the Additional detail regarding the effects of Accordingly, we believe that there is no
process of doing so. We expect that, in this proposed rule for the determination significant impact on these physician
the absence of the DRA requirement, the of drug prices and calculation of drug practices.
number of States requiring NDCs on rebate liability for drug manufacturers is We also previously indicated that this
these claims would have increased. described in the preamble under rule may have a significant impact on
6. Effects on Small Business Entities ‘‘Definition of Retail Pharmacy Class of the operations of small rural hospitals.
Trade and Determination of AMP.’’ There are approximately 700 small rural
As previously discussed, for purposes
of the RFA, three types of small We estimate that 18,000 small retail hospitals that meet the small business
business entities are potentially affected pharmacies will be affected by this standard. As previously discussed,
by this regulation. This regulation regulation. However, we are unable to small rural hospitals would need to
would affect small pharmaceutical specifically estimate quantitative effects include the NDC on claims for
manufacturers participating in the on small retail pharmacies, particularly physician-administered covered
Medicaid Drug Rebate Program, small those in low-income areas where there outpatient drugs through outpatient
retail pharmacies, and physicians and are high concentrations of Medicaid departments. We do not have data to
other practitioners (including small beneficiaries. The preamble under quantify how many of the overall claims
hospitals or other entities such as non- ‘‘Definition of Retail Pharmacy Class of for physician-administered drugs are
profit providers). Trade and Determination of AMP’’ submitted by these 700 small rural
According to the SBA’s size provides additional information hospitals. In any case, the cost to
standards, we believe that most of the regarding the entities included in the manually include the NDC on the claim
550 pharmaceutical manufacturers in retail pharmacy class of trade and the will be under nine cents per claim.
the Medicaid Drug Rebate Program are discounts or other price concessions for The following chart depicts the
small businesses. We previously drugs provided to the retail pharmacy number of small entities and the
indicated that this rule impacts drug class of trade. As shown earlier, the estimated economic impact for each
manufacturers by requiring them to annual effect of lower FULs and related category of small entity affected by this
submit pricing information (AMP) on changes will likely reduce overall rule.
Number
Small entity affected Estimated economic impact
by rule
Pharmaceutical Manufacturers in Medicaid Drug Rebate Pro- 550 $160 million (2 percent of $8 billion) higher rebates result from
gram. removal of customary prompt pay discounts from rebate cal-
culations. Other clarifications of AMP may also raise AMP
and result in higher rebate payments. Independent cost data
not available for excluded nursing home drug sales that are
expected to increase rebate cost.
Small Retail Pharmacies ............................................................... 18,000 Reduces overall pharmacy revenues by about $800 million in
2007 increasing to $2 billion annually by 2011.
Unable to quantitatively estimate effects on small retail phar-
macies, particularly in low income areas.
Physicians in their Offices, Hospital Outpatient Settings or Other 20,000 Under 9 cents per claim to enter NDC number.
Entities (e.g., Non-profit Facilities) that Specialize in Oncol- About $17 annual cost per physician practice to enter NDC
ogy, Rheumatology and Urology. number on claims for physician-administered drugs. Changes
in hospital billing systems will be needed for many hospital
outpatient departments.
Total estimated impact is $344,000.
Small Rural Hospitals .................................................................... 700 Minimal impact.
C. Alternatives Considered With regard to the definition of AMP, to be defined the same way for quarterly
we considered one definition for and monthly reporting.

We considered a number of different quarterly AMP and a different definition
policies and approaches during the We also considered redefining the
for monthly AMP. However, we believe entities included in ‘‘retail pharmacy
development of the final rule. the better reading of statute is for AMP class of trade’’ for purposes of the
definition of AMP. Options considered nominal prices and have those sales alternatives. We know of no relevant
included whether to include or exclude excluded from best price. However, we Federal rules that duplicate, overlap, or
sales to nursing home pharmacies, were concerned that expanding the list conflict with the final rule. The
PBMs, mail order pharmacies, and of entities eligible for nominal pricing preceding analysis, together with the
hospital outpatient departments. We would drive up best price, which would rest of this preamble, addresses all these
chose to exclude sales to PBMs and effectively lower the amount of rebates general requirements.
nursing home pharmacies and to allow manufacturers pay for Medicaid drugs. We have not, however, adopted any of
drug manufacturers to include or We considered using a non-weighted the various categories of burden
exclude sales to hospital outpatient AMP, which is specific to a package reduction listed in the RFA as
departments depending on the size, to establish the FUL. However, we appropriate for IRFAs. These
availability of information to document decided to continue to base AMP on all alternatives, such as an exemption from
these sales. package sizes for each drug. We did not coverage for small entities,
We considered retaining the current find any indication that the Congress establishment of less onerous
base date AMP rather than allowing intended to change how package size is requirements for small entities, or use of
manufacturers to recalculate their base used for AMP. Such a change would be performance rather than design
date AMP to reflect the revised burdensome on manufacturers and standards, simply do not appear to
definition of AMP. However, we would not have a significant impact on apply in a situation where uniform
decided that retaining the current base how States pay for drugs. payment standards are being
date AMP is not required and it would We considered various methods for
established. However, we welcome
create a financial burden on determining outlier prices in order to
comments with suggestions for
manufacturers that was not intended by avoid the use of such prices in the FUL
improvements we can make, consistent
section 6001 of the DRA. calculation and to ensure sufficient
We considered whether and how to with the statute, to minimize any
national supply. We proposed to set the
provide for manufacturers to ‘‘smooth’’ unnecessary burdens on pharmacies or
FUL on the lowest AMP that is not less
the AMP data to account for lagged other affected entities.
than 30 percent of the next highest AMP
discounts and other changes to monthly for the drug. Based on comments, we E. Accounting Statement
sales. We proposed to allow considered substituting a greater
manufacturers to rely on estimates percentage difference, expanding As required by OMB’s Circular A–4
regarding the impact of their lagged outliers to include drugs with AMPs (available at http://
price concessions when calculating above the lowest but below the next www.whitehouse.gov/omb/circulars/
monthly AMP. We also requested highest AMP by a set percentage, and a004/a-4.pdf), in the table below, we
comments on the possible use of a 12- using market share in determining have prepared an accounting statement
month rolling average. Many outliers. We decided to change the showing the classification of the
commenters asked for a 12-month outlier policy to set the FUL on the expenditures associated with the
rolling average as is used for Medicare AMP that is not lower than 40 percent provisions of this final rule. This table
Part B. Other commenters suggested that of the next highest AMP. provides our best estimate of the
we allow manufacturers to use a four decreases in Medicaid payments under
quarter rolling average. We have D. Other Requirements in the Regulatory sections 6001–6003 of the DRA. All
incorporated the 12-month rolling Flexibility Act expenditures are classified as transfers
average in the final rule. The RFA lists five general to the Federal and State Medicaid
We considered adding other entities requirements for a FRFA and four programs from retail pharmacies and
to those that may receive drugs at categories of burden-reducing drug manufacturers.
ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM FFY 2007 TO FFY 2011
[In millions]
Discount rate
Category Transfers From whom to whom?
(percent)
Total Federal Savings .................................................. $3,927.3 7 Reduction of transfers from the Federal Government
4,459.0 3 to State Governments.
4,929.0 0
Federal Annualized Monetized Transfers (Millions/ 957.8 7
Year). 973.6 3
985.8 0
Total State Savings ...................................................... 2,803.6 7 Reduction of transfers from State Governments to
3,183.3 3 Retail Pharmacies and increased transfers from
3,519.0 0 Drug Manufacturers to the State Governments.
State Annualized Monetized Transfers (Millions/Year) 683.8 7
695.1 3
703.8 0
F. Conclusion how the FULs on multiple source drugs drugs does not change the legal liability
are calculated and from a change in how of drug manufacturers for paying rebates
We estimate savings from this authorized generic drugs are treated for but would make it easier for States to
regulation of $8.4 billion over 5 years, AMP and best price. The majority of the collect these rebates.
$4.9 billion to the Federal Government savings would come from lower While the effects of this regulation are
and $3.5 billion to the States. Most of reimbursement to retail pharmacies. The substantial, they are a result of changes
these savings result from a change in provision on physician-administered to the law.
In accordance with the provisions of below the FUL in the aggregate. Unless levels will be inadequate under the
Executive Order 12866, this regulation otherwise indicated, these regulations revised formula used to establish the
was reviewed by the OMB. are effective on October 1, 2007 and any FUL. With inadequate reimbursement
adjustments will not be necessary until anticipated, the independent
Comments and Responses on the
after CMS issues any revised FULs. pharmacies asserted that they would go
Regulatory Impact Comment: One commenter suggested out of business, leaving Medicaid
A. Overall Impact that the State savings estimate in the beneficiaries and other patients with
proposed rule is overstated unless it limited access to drugs and resulting in
We have retained most of the original
took into account that reimbursement is loss of jobs for employees. Other
estimates of burden; however, we have
lower than the FUL in those States that commenters stated that pharmacy profit
updated our impact analysis from what
have State MAC programs. This would margins will be reduced so patient drug
was presented in our December 22, 2006
negate some or most of the savings therapy, medication counseling,
proposed rule. Our update reflects
projected in the proposed rule. prescription services in a single
responses to public comments and Response: The savings estimates for
improvements to the analysis based on location, home drug delivery,
section 6001 of the DRA were derived transportation services to the pharmacy,
additional information. from simulations of the new FULs prescription services on holidays and
B. Anticipated Effects compared to States’ current translation services will be eliminated.
reimbursement levels, including use of One commenter stated that it may be
1. Effects on Drug Manufacturers
State MACs; therefore, we do not necessary to increase fees for some
Comment: Commenters said that the believe the savings estimates are patients in order to cover losses from
proposed rule’s treatment of PBM overstated. Medicaid.
rebates will lead to lower AMPs which Comment: One commenter expected Response: We are analyzing the FULs
will reduce the amount of rebates paid that the FUL will be below the average data to ensure that it will allow States
by manufacturers for some single source retail acquisition cost and that States to provide adequate reimbursement for
drugs. Commenters further asserted that will have to increase the dispensing fee generic drugs and avoid any serious
they do not have access to the data to offset the reimbursement reduction consequences to the pharmacy
needed to estimate this revenue expected for pharmacies to ensure community. Additionally, drugs subject
reduction, but they are confident the accessibility to the drugs. State financial to the FUL represent only 8.3 percent of
losses will be significant. support for increased dispensing fees
Response: In this final rule in the total drug expenditures under the
will subsequently decrease the State Medicaid Drug Rebate Program.
§ 447.504(i), we have excluded PBM savings projected in the proposed rule.
rebates, discounts or other price Medicaid policy allows States to pay
Response: We believe that the new
concessions from the determination of above the FULs as long as total
methodology for determining AMP will
AMP and best price, except for expenditures for FULs drugs do not
provide for adequate reimbursement
purchases through the PBMs’ mail order exceed the aggregate FUL amount which
and assure the availability of drugs at or
pharmacies. Excluding PBM rebates and is calculated at 250 percent of the
below the FUL price for pharmacies.
price concessions may affect AMP, and, relevant AMP. We are confident that
thereby, rebates. However, we do not 3. Effects on Retail Pharmacies FULs calculations for drug
have information on how manufacturers Comment: One commenter stated that reimbursement will allow States to
currently calculate AMP. In its report, the FUL estimates should be published provide adequate reimbursement.
the OIG cited inconsistent treatment of so that commenters can thoroughly and Comment: Many commenters stated
PBM rebates by manufacturers in accurately analyze the impact of the that the lack of access to drugs and
calculating AMP. Therefore, we have no proposed rule on the pharmaceutical prescription use services will lead to
data to estimate the impact of excluding supply chain and on retail pharmacies, increased doctor visits, emergency room
PBM rebates and cannot conclude that especially those in low-income areas care, hospital stays and long-term care
the effect would be significant. that serve a large percentage of expenses, resulting in increased costs
Medicaid beneficiaries. The commenter for Medicaid.
2. Effects on State Medicaid Programs requested that CMS provide the FUL Response: We are continuing to
Comment: One commenter expressed and extend the comment period by a analyze the new FUL to assure that it is
concern that States will have minimum of 60 days. sufficient and adequately reimburses
insufficient time to prepare to Response: We share these concerns community pharmacies. As we have
implement the final regulations. States and we are analyzing the data to ensure said elsewhere in this regulation, we
may need to make revisions in the that the new FULs will allow States to believe the system for calculating the
Medicaid Management Information reimburse generic drugs adequately and FUL will permit pharmacies to be
System and manual processes to appropriately. We continue to believe reasonably compensated.
implement the provisions. States may that the new FUL will be sufficient to Comment: One commenter noted that
not have enough staff and funding to allow all pharmacies to purchase most this rule will be particularly hard on
meet the deadline. The commenter drugs at or below the FUL price. pharmacies that serve Medicaid
further stated that the 2006 AMP data Additionally, we believe that it is beneficiaries who suffer from HIV/AIDS
received by the States was inaccurate important for us to be sure the data is which are often pharmacies which
and insufficient to make firm policy complete and accurate prior to its receive almost 50 percent of total
decisions. Any changes that are needed release. In response to the commenters’ revenue from Medicaid and participate
to revise the State Medicaid plan or request to extend the comment period, in the 340B Program. The commenter
reimbursement structure will take we do not believe that we can reopen further stated that even a ten percent cut
considerable time. the comment period and meet the in Medicaid reimbursement will render
Response: We emphasize that the FUL requirement in the DRA that we must these pharmacies non-viable.
is the only reimbursement change that promulgate a regulation by July 1, 2007. Response: We believe that States will
States are required to address. States Comment: Many commenters ensure that pharmacies serving HIV/
may need to adjust payments to stay indicated that the drug reimbursement AIDS patients on Medicaid will be
compensated adequately to ensure their FULs; therefore, we have no basis to this AMP methodology would not
continued viability. estimate possible savings due to the prevent drug manufacturers from
Comment: One commenter stated that availability of AMP to States. continually pricing drugs at a premium.
any changes in Medicaid reimbursement Comment: Some commenters believed Response: Neither the DRA or this
may have the unintended consequence that the estimate of a one percent loss rule addresses prices set by drug
of causing Indian health programs that to retail pharmacies should be revised to manufacturers.
operate in remote rural areas to close. only reflect community-based retail Comment: One commenter asserted
Response: We believe that the impact pharmacy sales and not mail order sales that it is unlikely that pharmacies will
of this regulation will be far less than since there is almost no mail order use have the ability to mitigate the effects of
many commenters believe and that in Medicaid. the proposed rule by changing
States will be able to set appropriate Response: We have reduced the five- purchasing practices.
reimbursement rates under the aggregate year total sales by $50 billion to exclude Response: We believe that pharmacies
FULs to allow pharmacies to continue to mail order and reflect only community- will find it in their interest to seek the
serve Medicaid and other vulnerable based retail pharmacy sales because the lower cost drugs.
populations. savings will principally come from Comment: One commenter stated that
Comment: Other commenters noted retail pharmacies. Even with removing when manufacturer prices are public,
that the impact on long-term care these sales, our original estimate stands; the manufacturers will no longer offer
pharmacies and on rural independent that is, the total loss in the retail better prices to move the market share.
pharmacies has not been addressed prescription drug revenues will be less In addition, if the manufacturers are
adequately in the proposed rule. These than one percent, on average. forced to lower the prices to certain
commenters believed that Comment: Some commenters believed purchasers, they may need to make up
reimbursement to long-term care that the reduction to pharmacy for the loss by raising prices to larger
pharmacies should remain at the current reimbursement will exceed the one buyers. Public posting of prices would
levels in order for them to be able to percent cited. The commenters lead to comparable or identical prices
afford to provide the needed services. indicated that retail pharmacy profit and would reduce incentives to offer
The commenter would like the impact ranges from 2.8 percent to 3.6 percent lower prices because price increases
analysis to address long-term care per prescription. Decreasing would increase revenues and result in
pharmacies independently from retail reimbursement to pharmacies does not higher reimbursements to retail
pharmacies. change the prices that pharmacies pay pharmacies.
Response: We do not have sufficient to wholesalers or manufacturers or for Response: We believe that
data to analyze the impact of this their costs to support staff and operate transparency in pricing will introduce
regulation on segments such as long- stores. competition in the marketplace that will
term care of the pharmacy market. Response: As stated in our prior result in more appropriate drug pricing.
However, states will continue to have response, the one percent reduction is to Comment: One commenter expressed
flexibility to set reimbursement rates. total revenues for drugs to pharmacies, concern that the private PBMs sector
We believe that States are in the best and does not reflect profit levels. We will decrease their reimbursement levels
position to set payment levels to have no data to analyze the effect of and this could lead to a loss of revenue
appropriately reimburse different these changes on profits. to pharmacies and cause them to go out
sectors of the pharmacy market. Comment: One commenter believed of business.
Comment: One commenter stated that that the one percent estimated Medicaid Response: As previously stated, we
if the FUL decreased reimbursement by pharmacy revenue reduction for retail believe that Medicaid reimbursement
$3 to $4 per prescription, as some have pharmacies should be revised to will be sufficient to retain access to
asserted, this reduction will exceed the account for the availability of AMP on drugs for Medicaid beneficiaries and
one percent decreased reimbursement the Web site which could result in that transparency in pricing will
estimated by CMS. additional reductions to introduce competition in the
Response: CMS estimates that total reimbursements to retail pharmacies marketplace.
reimbursement for drugs will, on such as encouraging other non-Medicaid Comment: A few commenters asserted
average, decline by less than one third party payers that represent a that it is unlikely that most retail
percent. We derived the $8 billion five- majority of the average retail pharmacy pharmacies can make up the estimated
year savings by dividing it by an business to use the published AMP as loss of pharmacy revenue with
estimated $1,160 billion in total a basis for their reimbursement to increased front-end store sales and sales
prescription drug revenues for pharmacies too. Subsequently, this of non-prescription drug products as
community pharmacies to obtain this could potentially result in additional these sales are a minority of total sales
figure. reductions of reimbursement to in most retail pharmacies. In addition,
Comment: One commenter noted that pharmacies beyond Medicaid. pharmacies would need to invest in
analysis in the proposed rule does not Response: We agree that there is larger front-end areas, relocate stores to
take into account decreases in State potential for non-Medicaid third party high visibility areas, add staffing, and
payments for drugs that are not on the payers to use the published make other changes that many
FUL list, which may occur if States use reimbursement methodology established pharmacy retailers may not be able to
AMP as a reimbursement metric. The under this rule. However, we do not afford or want to do. The commenters
commenter suggested that CMS should know if non-Medicaid third party said that non-prescription revenue in
revise the impact analysis to reflect the payers will use AMP for reimbursement chain pharmacies is 28 percent of total
projected impact of the use of AMP, or what effect it would have on sales, and only 2 percent of total sales
rather than AWP, as a reimbursement reimbursement levels. in independent pharmacies.
benchmark for drugs other than those Comment: Another commenter Response: We agree that we cannot
subject to the FUL. asserted that the published AMP based assess the ability of pharmacies to
Response: We do not know what on a reliable methodology may provide increase non-drug revenue and have
changes States may make to States with a more accurate estimate of removed this language from the impact
reimbursement for drugs not subject to prices available to wholesalers, but that analysis.
Comment: One commenter asserted FUL, which are 8.3 percent of Medicaid the prescription drug sections of the
that the $8 billion estimated savings in expenditures. The GAO also did not Medicare Part D Program.
the RIA will be generated from the remove customary prompt pay Response: We recognize that the DRA
reduced reimbursement for multiple discounts or outlier AMPs when and this rule will result in lower
source drugs. Savings of $8 billion out calculating FULs as provided in this reimbursement for some drugs.
of $27 billion in spending for generic final rule, or account for the ability of However, as discussed previously, we
drugs equates to a 30 percent reduction States to set reimbursement levels below believe that pharmacy reimbursement
in reimbursement for generic drugs. or above the FUL as long as will be adequate for pharmacies to
Several commenters believed that this expenditures for FUL drugs are less than continue to serve Medicaid
change to a lower reimbursement will the aggregate of all FUL prices. We also beneficiaries.
not cover the pharmacy’s acquisition were not provided the price data used
4. Effects on Physicians
costs of purchasing generic medications. by the GAO. For these reasons, we do
Response: The new FUL could reduce not concur with GAO’s conclusion. See discussion under ‘‘V. Collection
Medicaid payments to a more Comment: Several commenters of Information Requirements for Effects
reasonable amount and eliminate the estimated their losses based on the 36 on Physicians.’’
opportunity for profits through the percent reduction reported in the GAO 5. Effects on Hospitals
reporting of artificially inflated prices. report.
We agree that most of the savings result Response: As noted above, the GAO See discussion under ‘‘V. Collection
from lower prices paid for multiple report only applies to drugs with a FUL of Information Requirements for Effects
source drugs, as this is what the DRA which currently accounts for 8.3 percent on Hospitals’’.
intended; however, we continue to of Medicaid drug expenditures. We 6. Effects on Small Business Entities
believe that it is appropriate to compare believe that many commenters believed
the savings to overall revenues of drugs that reimbursement for all generic drugs Comment: One commenter believed
to show the impact on pharmacies. As would be reduced by 36 percent. We that CMS grossly underestimated the
we have said elsewhere in this also believe that as discussed administrative cost for small
regulation, we believe the system for previously, reimbursement will be pharmaceutical manufacturing
calculating FUL will permit pharmacies sufficient to meet acquisition costs. businesses participating in the Medicaid
to be reasonably compensated. Comment: Commenters asserted that Drug Rebate Program to implement the
Comment: Many commenters asserted States will need to fill the financial gap additional reporting requirements. The
that a reduction of $8 million in generic caused by this rule to avoid pharmacy commenter did not provide an estimate
drug reimbursement could have a closings and maintain beneficiary access of the hourly annual burden but
considerable impact on incentives to to community pharmacy services. asserted that small pharmaceutical
dispense medications when pharmacies Response: We do not believe that companies will be required to spend
have a choice of dispensing brand States will find that reimbursements hundreds of thousands of dollars to
versus generic drugs. The commenter under the FUL are insufficient for modify their drug price reporting
believed that pharmacies will receive far pharmacies and that they will need to systems and hire additional personnel
less revenue from a generic drug rather cover a shortfall. We believe that the in order to meet the additional reporting
than it will with a brand name drug. new FULs methodology sets pharmacy requirements.
When brand products are dispensed to pricing at reasonable levels while Response: The commenter did not
Medicaid beneficiaries, they are likely allowing States to set reimbursement document the estimates provided;
to be paid above the FUL due to a that is based on true prices, thus therefore, we have no basis to revise the
‘‘dispense as written’’ designation. ensuring that taxpayers do not overpay estimated burden in the rule. We do not
Response: The commenters correctly for prescription drug benefits provided believe that the burden will be greater
note that a brand name drug in a FUL to Medicaid recipients. for small drug manufacturers than for
group is subject to the FUL unless the Comment: Several commenters stated other drug manufacturers. The data
physician asserts that the brand name that independent pharmacies have required for monthly reporting of AMP
drug is medically necessary for the assisted CMS in providing outreach and and reporting for customary prompt pay
Medicaid beneficiary. States frequently information to Medicare Part D discounts and nominal prices should
require prior authorization for beneficiaries in their communities and already exist in the manufacturer’s
dispensing a brand name drug; it is inappropriate to decrease their accounting systems.
therefore, we do not agree that Medicaid reimbursement after the Comment: Several commenters asked
pharmacists will be able to substitute pharmacies provided support to CMS. that CMS revise the overall one percent
brand name drugs over generic drugs. These commenters further stated that impact on retail pharmacy revenues and
Many States also have been requiring their pharmacies are still recovering and quantify an impact specifically on
the substitution of a generic drug for a experiencing losses from Medicare Part small, predominately independent
brand name drug; therefore, pharmacies D implementation due to low pharmacies, especially rural
do not always have a choice to reimbursement and delays in payment. independents since small business
substitute a brand drug for a generic Response: We recognize that pharmacies serve a disproportionate
drug. community pharmacy partners provided number of Medicaid patients and have
Comment: Commenters referred to considerable assistance to Medicare significantly lower revenues than the
findings in the GAO report that said the beneficiaries and helped make the broader retail pharmacy community.
AMP-based FULs would be, on average, implementation of Medicare Part D a This could account for the higher cost
36 percent lower than the average retail success. Nevertheless, the DRA requires of doing business in rural areas than in
pharmacy acquisition cost. CMS to calculate the FULs based on 250 other areas. One commenter noted that
Response: We do not concur with the percent of the AMP for Medicaid data from a recent nationwide survey
GAO findings that the AMP-based FUL outpatient drugs. found that Medicaid accounted for
would be lower than average retail Comment: One commenter said that approximately 12 percent of all
pharmacy acquisition cost. The GAO this rule will have a far greater impact prescriptions filled by rural pharmacies.
report looked at drugs subject to the on pharmacies than implementation of (See Grant Thornton LLP, ‘‘National
Study to Determine the Cost of must generate enough revenue to cover professions, Medicaid, Reporting and
Dispensing Prescriptions in Community costs of purchasing, maintaining, and recordkeeping requirements, Rural
Retail Pharmacies’’ (January 2007)). dispensing their pharmaceutical areas.
Response: We recognize that inventory. The commenters estimated ■ For the reasons set forth in the
pharmacies with a higher Medicaid that the average total sales in traditional preamble, the Centers for Medicare &
prescription volume relative to their pharmacies are about $4.5 million per Medicaid Services amends 42 CFR
overall prescription volume could year. chapter IV as set forth below:
experience a greater financial impact. Response: We used the SBA’s size
However, the method for setting FULs standards for a retail pharmacy of $6.5 PART 447—PAYMENTS FOR
was established by the DRA and we do million or less in revenue per year SERVICES
not have data by subgroups of (http://www.sba.gov/size/
pharmacies, such as small independent ■ 1. The authority citation for part 447
sizetable2002.html). The SBA estimates
or rural pharmacies, to separately continues to read as follows:
that there are about 18,000 small
analyze the impact for these segments. pharmacies. We do not believe it is Authority: Sec. 1102 of the Social Security
Comment: Some commenters raised appropriate to expand the number of Act (42 U.S.C. 1302).
the concern that small rural pharmacies small business pharmacies to include
will be forced to go out of business as Subpart F—Payment Methods for
pharmacies that are not consistent with
a result of inadequate reimbursements Other Institutional and Non-
this standard.
for all patients. The commenters Comment: Several commenters Institutional Services
believed a reduction in beneficiary suggested that the final rule should ■ 2. Section 447.300 is revised to read
access to prescriptions in rural areas exempt small retail pharmacies from the as follows:
could result in higher costs for other new reimbursement formula, create a
Medicaid services, such as separate reimbursement formula for § 447.300 Basis and purpose.
hospitalizations, physician office visits small retail pharmacies, or exempt In this subpart, § 447.302 through
and emergency room visits. The pharmacies if their Medicaid business § 447.325 and § 447.361 implement
commenters further suggested that CMS exceeds ten percent. section 1902(a)(30) of the Act, which
provide a public opportunity for small Response: The law specifies that the requires that payments be consistent
businesses to comment on the revised FUL is to be set at 250 percent of the with efficiency, economy and quality of
analysis. lowest AMP and does not provide the care. Section 447.371 implements
Response: In the proposed rule, we Secretary the authority to exempt small section 1902(a)(15) of the Act, which
noted that we did not have data to allow pharmacies. requires that the State plan provide for
us to quantify the effect of this rule on payment for rural health clinic services
small rural pharmacies. We further 7. Effects on Other Issues
in accordance with regulations
requested information to help us better Comment: Several commenters stated prescribed by the Secretary.
assess those effects before we make final that pharmaceutical manufacturers are
decisions. The commenters did not not impacted by the proposed rule and § 447.301 [Removed]
provide data to allow us to assess that Medicaid would achieve more ■ 3. Section 447.301 is removed.
separately the burden on pharmacies savings if the pharmaceutical
that are small businesses. Nevertheless, manufacturers would offer lower drug § 447.331 through § 447.334 [Removed]
as previously stated, we believe that pricing as they do in other countries. ■ 4. Sections 447.331 through 447.334
reduction to reimbursement to The commenters also suggested that are removed.
pharmacies will not force them to go out CMS should mandate more controls on ■ 5. Subpart I is revised to read as
of business. drug payments to manufacturers and
Comment: One commenter suggested follows:
issue regulations that require lower
that the one percent retail revenue payments to drug manufacturers. Subpart I—Payment for Drugs
reduction in the proposed rule be Response: The purpose of this Sec.
revised to comply with the Small regulation is to implement the Medicaid 447.500 Basis and purpose.
Business Regulatory Enforcement drug pricing provisions of the DRA. 447.502 Definitions.
Fairness Act (SBREFA). These comments are outside the scope 447.504 Determination of AMP.
Response: We believe the estimate of this rulemaking. 447.505 Determination of best price.
complies with the provisions under the 447.506 Authorized generic drugs.
Comment: Several commenters
SBREFA. It should also be noted that 447.508 Exclusion from best price of certain
suggested that pharmacies under sales at a nominal price.
the commenter did not provide specific Medicaid and Medicare should have the 447.510 Requirements for manufacturers.
information as to how the estimated same negotiating price and contract 447.512 Drugs: Aggregate upper limits of
reduction does not comply with this opportunities that HMOs and PBMs payment.
law. have under Medicare Part D. HMOs and 447.514 Upper limits for multiple source
Comment: Several commenters stated PBMs negotiate cheaper drug prices, drugs.
that we should analyze the impact on insist on mail order for maintenance 447.516 Upper limits for drugs furnished as
traditional retail pharmacies and drugs and sign yearly contracts where part of services.
institutional pharmacies separately. The 447.518 State plan requirements, findings
the net prices are at least ten times
institutional pharmacy industry is and assurances.
lower than the prices offered to 447.520 FFP: Conditions relating to
composed of hundreds of small independent pharmacies. physician-administered drugs.
pharmacies in addition to national Response: This comment is not within
companies. These commenters
the scope of this rulemaking document. Subpart I—Payment for Drugs

suggested that the number of small
business pharmacies should be List of Subjects in 42 CFR Part 447 § 447.500 Basis and purpose.
expanded to include pharmacies in Accounting, Administrative practice (a) Basis. This subpart—
retail chains because these pharmacies and procedure, Drugs, Grant programs— (1) Interprets those provisions of
operate as independent pharmacies and health, Health facilities, Health section 1927 of the Act that set forth
requirements for drug manufacturers’ (1) Is incurred at the point of sale or (2) Is engaged in the packaging,
calculating and reporting average service and pays for costs in excess of repackaging, labeling, relabeling, or
manufacturer prices (AMPs) and that set the ingredient cost of a covered distribution of covered outpatient drug
upper payment limits for covered outpatient drug each time a covered products and is not a wholesale
outpatient drugs. outpatient drug is dispensed; distributor of drugs or a retail pharmacy
(2) Implements section 1903(i)(10) of (2) Includes only pharmacy costs licensed under State law.
the Act with regard to the denial of associated with ensuring that possession (3) With respect to authorized generic
Federal financial participation (FFP) in of the appropriate covered outpatient products, the term ‘‘manufacturer’’ will
expenditures for certain physician- drug is transferred to a Medicaid also include the original holder of the
administered drugs. recipient. Pharmacy costs include, but NDA.
(3) Implements section 1902(a)(54) of are not limited to, reasonable costs (4) With respect to drugs subject to
the Act with regard to a State plan that associated with a pharmacist’s time in private labeling arrangements, the term
provides covered outpatient drugs. checking the computer for information ‘‘manufacturer’’ will also include the
(b) Purpose. This subpart specifies about an individual’s coverage, entity that does not possess legal title to
certain requirements in the Deficit performing drug utilization review and the NDC.
Reduction Act of 2005 and other preferred drug list review activities, Multiple source drug means, with
requirements pertaining to Medicaid measurement or mixing of the covered respect to a rebate period, a covered
payment for drugs. outpatient drug, filling the container, outpatient drug for which there is at
beneficiary counseling, physically least one other drug product which—
§ 447.502 Definitions. providing the completed prescription to (1) Is rated as therapeutically
Bona fide service fees mean fees paid the Medicaid beneficiary, delivery, equivalent. For the list of drug products
by a manufacturer to an entity; that special packaging, and overhead rated as therapeutically equivalent, see
represent fair market value for a bona associated with maintaining the facility the FDA’s most recent publication of
fide, itemized service actually and equipment necessary to operate the ‘‘Approved Drug Products with
performed on behalf of the manufacturer pharmacy; and Therapeutic Equivalence Evaluations’’
that the manufacturer would otherwise (3) Does not include administrative which is available at http://
perform (or contract for) in the absence costs incurred by the State in the www.fda.gov/cder/orange/default.htm
of the service arrangement; and that are operation of the covered outpatient drug or can be viewed at the FDA’s Freedom
not passed on in whole or in part to a benefit including systems costs for of Information Public Reading Room at
client or customer of an entity, whether interfacing with pharmacies. 5600 Fishers Lane, rm. 12A–30,
or not the entity takes title to the drug. Estimated acquisition cost (EAC) Rockville, MD 20857;
Brand name drug means a single means the agency’s best estimate of the (2) Is pharmaceutically equivalent and
source or innovator multiple source price generally and currently paid by bioequivalent, as determined by the
drug. providers for a drug marketed or sold by FDA; and
Bundled sale means an arrangement a particular manufacturer or labeler in (3) Is sold or marketed in the United
regardless of physical packaging under the package size of drug most frequently States during the rebate period.
which the rebate, discount, or other purchased by providers. National drug code (NDC) means the
price concession is conditioned upon Innovator multiple source drug means 11-digit numerical code maintained by
the purchase of the same drug, drugs of a multiple source drug that was the FDA that indicates the labeler,
different types (that is, at the nine-digit originally marketed under an original product, and package size, unless
National Drug Code (NDC) level) or new drug application (NDA) approved otherwise specified in this part as being
another product or some other by the Food and Drug Administration without respect to package size (that is,
performance requirement (for example, (FDA), including an authorized generic the 9-digit numerical code).
the achievement of market share, drug. It includes a drug product National rebate agreement means the
inclusion or tier placement on a marketed by any cross-licensed rebate agreement developed by CMS
formulary), or where the resulting producers, labelers, or distributors and entered into by CMS on behalf of
discounts or other price concessions are operating under the NDA and a covered the Secretary or his designee and a
greater than those which would have outpatient drug approved under a manufacturer to implement section 1927
been available had the bundled drugs product license approval (PLA), of the Act.
been purchased separately or outside establishment license approval (ELA) or Nominal price means a price that is
the bundled arrangement. For bundled antibiotic drug approval (ADA). less than ten percent of the AMP in the
sales, the discounts are allocated Lagged price concession means any same quarter for which the AMP is
proportionally to the total dollar value discount or rebate that is realized after computed.
of the units of all drug sold under the the sale of the drug, but does not Noninnovator multiple source drug
bundled arrangement. For bundled sales include customary prompt pay means (1) a multiple source drug that is
where multiple drugs are discounted, discounts. not an innovator multiple source drug
the aggregate value of all the discounts Manufacturer means any entity that or a single source drug, (2) a multiple
in the bundled arrangement shall be possesses legal title to the NDC for a source drug that is marketed under an
proportionally allocated across all the covered drug or biological product abbreviated NDA or an abbreviated
drugs in the bundle. and— antibiotic drug application, or (3) a drug
Consumer Price Index—Urban (CPI– (1) Is engaged in the production, that entered the market before 1962 that
U) means the index of consumer prices preparation, propagation, compounding, was not originally marketed under an
developed and updated by the U.S. conversion, or processing of covered original NDA.
Department of Labor. It is the CPI for all outpatient drug products, either directly Rebate period means a calendar
urban consumers (U.S. average) for the or indirectly by extraction from quarter.
month before the beginning of the substances of natural origin, or Single source drug means a covered
calendar quarter for which the rebate is independently by means of chemical outpatient drug that is produced or
paid. synthesis, or by a combination of distributed under an original NDA
Dispensing fee means the fee which— extraction and chemical synthesis; or approved by the FDA, including a drug
product marketed by any cross-licensed outpatient drugs, but that does not Advantage prescription drug plan (MA–
producers or distributors operating relabel or repackage the covered PD), a Qualified Retiree Prescription
under the NDA. It also includes a outpatient drug. Drug Plan under section 1860D–22(a)(2)
covered outpatient drug approved under (g) Sales, rebates, discounts, or other of the Act, State Children’s Health
a biological license application, PLA, price concessions included in AMP. Insurance Program (SCHIP), State
ELA, or ADA. Except with respect to those sales pharmaceutical assistance programs
States means the 50 States and the identified in paragraph (h) of this (SPAPs), health maintenance
District of Columbia. section, AMP for covered outpatient organizations (HMOs) (including
drugs shall include the following sales managed care organizations (MCOs))
§ 447.504 Determination of AMP.
and associated rebates, discounts, or that do not purchase or take possession
(a) AMP means, with respect to a other price concessions— of drugs, TRICARE Retail Pharmacy
covered outpatient drug of a (1) Sales to wholesalers, except for Program (TRRx), and Medicaid
manufacturer (including those sold those sales that can be identified with Programs that are associated with sales
under an NDA approved under section adequate documentation as being of drugs provided to the retail pharmacy
505(c) of the Federal Food, Drug, and subsequently sold to any of the class of trade (except for rebates under
Cosmetic Act (FFDCA)) for a calendar excluded entities as specified in section 1927 of the Act or as otherwise
quarter, the average price paid to the paragraph (h) of this section; specified in the statute or regulations).
manufacturer for the drug in the United (2) Sales to other manufacturers who (h) Sales, rebates, discounts, or other
States by wholesalers for drugs act as wholesalers and do not price concessions excluded from AMP.
distributed to the retail pharmacy class repackage/relabel under the purchaser’s AMP excludes—
of trade. AMP shall be determined NDC, including private labeling
without regard to customary prompt pay (1) Any prices on or after October 1,
agreements; 1992, to the Indian Health Service (IHS),
discounts extended to wholesalers. (3) Direct and indirect sales to
AMP shall be calculated to include all the Department of Veterans Affairs
hospitals, where the drug is used in the (DVA), a State home receiving funds
sales and associated discounts and other outpatient pharmacy, except those sales
price concessions provided by the under 38 U.S.C. 1741, the Department of
that cannot be identified with adequate Defense (DoD), the Public Health
manufacturer for drugs distributed to documentation as being used in the
the retail pharmacy class of trade unless Service (PHS), or a covered entity
outpatient pharmacy for outpatient use described in section 1927(a)(5)(B) of the
the sale, discount, or other price (for example hospital outpatient
concession is specifically excluded by Act (including inpatient prices charged
department, clinic, or affiliated entity); to hospitals described in section
statute or regulation or is provided to an (4) Sales at nominal prices to any
entity specifically excluded by statute or 340B(a)(4)(L) of the PHSA);
entity except a covered entity described
regulation. (2) Any prices charged under the
in section 340B(a)(4) of the Public
(b) Average unit price means a Federal Supply Schedule (FSS) of the
Health Service Act (PHSA), an
manufacturer’s quarterly sales included General Services Administration (GSA);
intermediate care facility for the
in AMP less all required adjustments mentally retarded (ICF/MR) providing (3) Any depot prices (including
divided by the total units sold and services as set forth in § 440.150 of this TRICARE) and single award contract
included in AMP by the manufacturer chapter, or a State-owned or operated prices, as defined by the Secretary, of
in a quarter. nursing facility providing services as set any agency of the Federal Government;
(c) Customary prompt pay discount forth in § 440.155 of this chapter; (4) Direct and indirect sales to
means any discount off the purchase (5) Sales to retail pharmacies hospitals, where the drug is used in the
price of a drug routinely offered by the including discounts or other price inpatient setting or in the outpatient
manufacturer to a wholesaler for prompt concessions that adjust prices either pharmacy for outpatient use where the
payment of purchased drugs within a directly or indirectly on sales of drugs sales cannot be identified with adequate
specified timeframe and consistent with to the retail pharmacy class of trade; documentation;
customary business practices for (6) Sales including discounts, rebates, (5) Sales to HMOs (including MCOs,
payment. or other price concessions provided to and HMO/MCO-operated pharmacies)
(d) Net sales means quarterly gross pharmacy benefit managers (PBMs) for that purchase or take possession of
sales revenue less cash discounts their mail order pharmacy purchases; drugs;
allowed, except customary prompt pay (7) Sales directly to patients; (6) Sales to long-term care facilities,
discounts extended to wholesalers, and (8) Sales to outpatient facilities (for including nursing facility pharmacies,
all other price reductions (other than example, clinics, surgical centers, contract pharmacies for the nursing
rebates under section 1927 of the Act or ambulatory care centers, dialysis facility where these sales can be
price reductions specifically excluded centers, and mental health centers); identified with adequate
by statute or regulation) which reduce (9) Sales to mail order pharmacies; documentation, and other entities where
the amount received by the (10) Sales to home infusion providers; the drugs are dispensed through a
manufacturer. (11) Sales to specialty pharmacies; nursing facility pharmacy, such as
(e) Retail pharmacy class of trade (12) Sales to home health care assisted living facilities;
means any independent pharmacy, providers; (7) Sales to hospices (inpatient and
chain pharmacy, mail order pharmacy, (13) Sales to physicians; outpatient);
or other outlet that purchases drugs (14) Rebates, discounts, or other price
from a manufacturer, wholesaler, concessions (other than rebates under (8) Sales to veterinarians;
distributor, or other licensed entity and section 1927 of the Act or as otherwise (9) Sales to prisons;
subsequently sells or provides the drugs specified in the statute or regulations) (10) Sales outside the 50 States and
to the general public. associated with sales of drugs provided the District of Columbia;
(f) Wholesaler means any entity to the retail pharmacy class of trade; and (11) Sales to State, county, and
(including those entities in the retail (15) Sales of drugs reimbursed by municipal entities;
pharmacy class of trade) to which the third party payers including the (12) Sales to patient assistance
manufacturer sells the covered Medicare Part D Program, a Medicare programs;
(13) Sales to wholesalers where the § 447.505 Determination of best price. (d) Prices excluded from best price.
drug is distributed to the non-retail (a) Best price means, with respect to Best price excludes:
pharmacy class of trade; a single source drug or innovator (1) Any prices on or after October 1,
(14) Sales to wholesalers or multiple source drug of a manufacturer 1992, charged to the IHS, the DVA, a
distributors where the drug is relabeled (including any drug sold under an NDA State home receiving funds under 38
under the wholesalers’ or distributors’ approved under section 505(c) of the U.S.C. 1741, the DoD, the PHS, or a
NDC number; FFDCA), the lowest price available from covered entity described in section
(15) Manufacturer coupons redeemed the manufacturer during the rebate 1927(a)(5)(B) of the Act (including
by a consumer, agent, pharmacy or period to any entity in the United States inpatient prices charged to hospitals
another entity acting on behalf of the in any pricing structure (including described in section 340B(a)(4)(L) of the
manufacturer, but only to the extent that capitated payments), in the same quarter PHSA);
the full value of the coupon is passed on for which the AMP is computed. Best (2) Any prices charged under the FSS
to the consumer and the pharmacy, price shall be calculated to include all of the GSA;
agent, or other entity does not receive sales and associated rebates, discounts (3) Any prices provided to a
any price concession; and other price concessions provided by designated SPAP;
the manufacturer to any entity unless (4) Any depot prices and single award
(16) Manufacturer vouchers;
the sale, discount, or other price contract prices, as defined by the
(17) Manufacturer-sponsored drug Secretary, of any agency of the Federal
discount card programs; concession is specifically excluded by
statute or regulation or is provided to an Government;
(18) Free goods, not contingent upon (5) Any prices charged which are
any purchase requirement; entity specifically excluded by statute or
regulation from the rebate calculation. negotiated by a prescription drug plan
(19) Bona fide service fees; under Part D of title XVIII, by any MA–
(b) For purposes of this section,
(20) Customary prompt pay discounts PD plan under Part C of such title with
provider means a hospital, HMO,
extended to wholesalers; respect to covered Part D drugs, or by
including an MCO or entity that treats
(21) Returned or replaced goods when or provides coverage or services to a Qualified Retiree Prescription Drug
accepted or replaced in good faith; individuals for illnesses or injuries or Plan (as defined in section 1860D–
(22) Discounts, rebates, or other price provides services or items in the 22(a)(2) of the Act) with respect to such
concessions to PBMs, except for their provision of health care. drugs on behalf of individuals entitled
mail order pharmacy’s purchases. (c) Prices included in best price. to benefits under Part A or enrolled
(23) Associated rebates, discounts, or Except with respect to those prices under Part B of Medicare;
other price concessions to third party (6) Rebates under the national rebate
identified in paragraph (d) of this
payers including the Medicare Part D agreement or a CMS-authorized
section, best price for covered
Program, an MA–PD, Qualified Retiree supplemental rebate agreement paid to
outpatient drugs includes the following
Prescription Drug Plan under section State Medicaid Agencies under section
prices and associated rebates, discounts,
1860D–22(a)(2) of the Act, SCHIP, 1927 of the Act;
or other price concessions that adjust (7) Prices negotiated under a
SPAPs, HMOs (including MCOs that do prices either directly or indirectly—
not take possession of drugs) the manufacturer-sponsored drug discount
(1) Prices to wholesalers; card program;
TRICARE Retail Pharmacy Program, and (2) Prices to any retailer, including
Medicaid Programs; and (8) Manufacturer coupons redeemed
rebates, discounts or other price by a consumer, agent, pharmacy or
(24) Rebates under the national rebate concessions that adjust prices either
agreement or a CMS-authorized State another entity acting on behalf of the
directly or indirectly on sales of drugs; manufacturer; but only to the extent that
supplemental rebate agreement paid to (3) Prices to providers (for example,
State Medicaid Agencies under section the full value of the coupon is passed on
hospitals, HMOs/MCOs, physicians, to the consumer and the pharmacy,
1927 of the Act. nursing facilities, and home health agent, or other entity does not receive
(i) Further clarification of AMP agencies); any price concession;
calculation. (1) AMP includes cash (4) Prices available to non-profit (9) Goods provided free of charge
discounts except customary prompt pay entities; under a manufacturer’s patient
discounts extended to wholesalers, free (5) Prices available to governmental assistance programs;
goods that are contingent on any entities within the United States; (10) Free goods, not contingent upon
purchase requirement, volume (6) Prices of authorized generic drugs, any purchase requirement;
discounts, chargebacks, incentives, sold by the primary manufacturer in (11) Nominal prices to certain entities
administrative fees, service fees, accordance with § 447.506(d) of this as set forth in § 447.508 of this subpart;
distribution fees, (except bona fide subpart; (12) Bona fide service fees; and
service fees), and any other rebates, (7) Prices of sales directly to patients; (13) PBM rebates, discounts, or other
discounts or other price concessions, (8) Prices available to mail order price concessions except their mail
other than rebates under section 1927 of pharmacies; order pharmacy’s purchases or where
the Act, which reduce the price received (9) Prices available to outpatient such rebates, discounts, or other price
by the manufacturer for drugs clinics; concessions are designed to adjust
distributed to the retail pharmacy class (10) Prices to other manufacturers prices at the retail or provider level.
of trade. who act as wholesalers and do not (e) Further clarification of best price.
(2) Quarterly AMP is calculated as a repackage/relabel under the purchaser’s (1) Best price shall be net of cash
weighted average of monthly AMPs in NDC, including private labeling discounts, free goods that are contingent
the quarter. agreements; and on any purchase requirement, volume
(3) The manufacturer must adjust the (11) Prices to entities that repackage/ discounts, customary prompt pay
AMP for a rebate period if cumulative relabel under the purchaser’s NDC, discounts, chargebacks, returns,
discounts, rebates, or other including private labeling agreements, if incentives, promotional fees,
arrangements subsequently adjust the that entity also is an HMO or other non- administrative fees, service fees (except
prices actually realized. excluded entity. bona fide service fees), distribution fees,
and any other discounts or price manufacturer of covered outpatient based on the methodology in section
reductions and rebates, other than drugs that are sold under a master 447.504 of this subpart, except the
rebates under section 1927 of the Act, agreement under 38, U.S.C. 8126. period covered should be based on
which reduce the price available from monthly, as opposed to quarterly, sales.
the manufacturer. § 447.510 Requirements for The monthly AMP should be calculated
(2) Best price must be determined on manufacturers.
based on the weighted average of prices
a unit basis without regard to package (a) Quarterly reports. A manufacturer for all the manufacturer’s package sizes
size, special packaging, labeling or must report product and pricing of each covered outpatient drug sold by
identifiers on the dosage form or information for covered outpatient the manufacturer during a month. It is
product or package, and must not take drugs to CMS not later than 30 days calculated as net sales divided by
into account prices that are nominal in after the end of the rebate period. The number of units sold, excluding goods
amount as described in § 447.508 of this quarterly pricing report must include: or any other items given away unless
subpart. (1) AMP, calculated in accordance contingent on any purchase
(3) The manufacturer must adjust the with § 447.504 of this subpart; requirements. Monthly AMP should be
best price for a rebate period if (2) Best price, calculated in calculated based on the best data
cumulative discounts, rebates, or other accordance with § 447.505 of this available to the manufacturer at the time
arrangements subsequently adjust the subpart; of submission. In calculating monthly
prices available from the manufacturer. (3) Customary prompt pay discounts,
AMP, a manufacturer must estimate the
which shall be reported as an aggregate
§ 447.506 Authorized generic drugs. impact of its lagged price concessions
dollar amount for each covered
(a) Authorized generic drug defined. using a 12-month rolling average to
outpatient drug at the nine-digit NDC
For the purposes of this subpart, an estimate the value of those discounts.
level, provided to all wholesalers in the
authorized generic drug means any drug (3) Timeframe for reporting revised
rebate period; and
sold, licensed, or marketed under an monthly AMP. A manufacturer must
(4) Prices that fall within the nominal
NDA approved by the FDA under report to CMS revisions to monthly
price exclusion, which shall be reported
section 505(c) of the FFDCA; and AMP for a period not to exceed 36
as an aggregate dollar amount and shall
marketed, sold, or distributed under a months from the month in which the
include all sales of single source and
different labeler code, product code, data were due.
innovator multiple source drugs to the
trade name, trademark, or packaging entities listed in § 447.508(a) of this (4) Exception. A manufacturer must
(other than repackaging the listed drug subpart for the rebate period. report revisions to monthly AMP,
for use in institutions) than the brand (b) Reporting revised quarterly AMP, except when the revision would be
drug. best price, customary prompt pay solely as a result of data pertaining to
(b) Inclusion of authorized generic discounts, or nominal prices. (1) A lagged price concessions.
drugs in AMP. A manufacturer holding manufacturer must report to CMS (5) Terminated products. A
title to the original NDA of the revisions to AMP, best price, customary manufacturer must not report a monthly
authorized generic drug must include prompt pay discounts, or nominal AMP for a terminated product beginning
the sales of this drug in its AMP only prices for a period not to exceed 12 with the first month after the expiration
when such drugs are being sold by the quarters from the quarter in which the date of the last lot sold.
manufacturer holding title to the data were due. (e) Certification of pricing reports.
original NDA directly to a wholesaler. (2) A manufacturer must report Each report submitted under paragraphs
(c) Inclusion of authorized generic revisions to AMP, except when the (a) through (d) of this section must be
drugs in best price. A manufacturer revision would be solely as a result of certified by one of the following:
holding title to the original NDA must data pertaining to lagged price (1) The manufacturer’s chief executive
include best price of an authorized concessions. officer (CEO);
generic drug in its computation of best (c) Base date AMP report. (1) A (2) The manufacturer’s chief financial
price for a single source or innovator manufacturer may report a revised base officer (CFO);
multiple source drug during a rebate date AMP to CMS within the first four (3) An individual other than a CEO or
period to any manufacturer, wholesaler, full calendar quarters following [OFR: CFO, who has authority equivalent to a
retailer, provider, HMO, non-profit insert publication date of the final rule]. CEO or a CFO; or
entity, or governmental entity in the (2) Recalculation of base date AMP. (4) An individual with the directly
United States, only when such drugs are (i) A manufacturer’s recalculation of the delegated authority to perform the
being sold by the manufacturer holding base date AMP must only reflect the certification on behalf of an individual
title to the original NDA. revisions to AMP as provided for in described in subsections (1) through (3).
§ 447.508 Exclusion from best price of § 447.504 of this subpart. (f) Recordkeeping requirements. (1) A
certain sales at a nominal price. (ii) A manufacturer may choose to manufacturer must retain records
(a) Exclusion from best price. Sales of recalculate base date AMP on a product- (written or electronic) for ten years from
covered outpatient drugs by a by-product basis. the date the manufacturer reports data
manufacturer at nominal prices are (iii) A manufacturer must use actual to CMS for that rebate period. The
excluded from best price when and verifiable pricing records in records must include these data and any
purchased by the following entities: recalculating base date AMP. other materials from which the
(1) A covered entity described in (d) Monthly AMP—(1) Definition of calculations of the AMP, the best price,
section 340B(a)(4) of the PHSA; Monthly AMP. Monthly AMP means the customary prompt pay discounts, and
(2) An ICF/MR providing services as AMP that is calculated on a monthly nominal prices are derived, including a
set forth in § 440.150 of this chapter; or basis. A manufacturer must submit a record of any assumptions made in the
(3) A State-owned or operated nursing monthly AMP to CMS not later than 30 calculations. The ten-year timeframe
facility providing services as set forth in days after the last day of each prior applies to a manufacturer’s quarterly
§ 440.155 of this chapter. month. and monthly submissions of pricing
(b) Nonapplication. This restriction (2) Calculation of monthly AMP. data, as well as any revised pricing data
shall not apply to sales by a Monthly AMP should be calculated subsequently submitted to CMS.
(2) A manufacturer must retain will be available for inspection by the § 447.516 Upper limits for drugs furnished
records beyond the ten-year period if agency or HHS. as part of services.
both of the following circumstances The upper limits for payment for
exist: § 447.514 Upper limits for multiple source prescribed drugs in this subpart also
drugs.
(i) The records are the subject of an apply to payment for drugs provided as
audit or of a government investigation (a) Establishment and issuance of a part of skilled nursing facility services
related to pricing data that are used in listing. (1) CMS will establish and issue and intermediate care facility services
AMP, best price, customary prompt pay listings that identify and set upper and under prepaid capitation
discounts, or nominal prices of which limits for multiple source drugs that arrangements.
the manufacturer is aware. meet the following requirements:
§ 447.518 State plan requirements,
(ii) The audit findings or investigation (i) The FDA has rated two or more findings and assurances.
related to the AMP, best price, drug products as therapeutically and
customary prompt pay discounts, or (a) State plan. The State plan must
pharmaceutically equivalent in its most describe comprehensively the agency’s
nominal price have not been resolved. current edition of ‘‘Approved Drug payment methodology for prescription
(g) Data reporting format. All product Products with Therapeutic Equivalence drugs.
and pricing data, whether submitted on Evaluations’’ (including supplements or (b) Findings and assurances. Upon
a quarterly or monthly basis, must be in successor publications), regardless of proposing significant State plan changes
submitted to CMS in an electronic whether all such formulations are rated in payments for prescription drugs, and
format. as such and only such formulations at least annually for multiple source
shall be used when determining any drugs and triennially for all other drugs,
§ 447.512 Drugs: Aggregate upper limits of
payment. such upper limit. the agency must make the following
(a) Multiple source drugs. Except for (ii) At least two suppliers meet the findings and assurances:
brand name drugs that are certified in criteria in paragraph (a)(1)(i) of this (1) Findings. The agency must make
accordance with paragraph (c) of this section. the following separate and distinct
section, the agency payment for (2) CMS publishes the list of multiple findings:
multiple source drugs must not exceed, source drugs for which upper limits (i) In the aggregate, its Medicaid
in the aggregate, the amount that would have been established and any revisions expenditures for multiple source drugs,
result from the application of the to the list in Medicaid Program identified and listed in accordance with
specific limits established in accordance issuances. § 447.514(a) of this subpart, are in
with § 447.514 of this subpart. If a accordance with the upper limits
(b) Specific upper limits. The agency’s
specific limit has not been established specified in § 447.514(b) of this subpart;
payments for multiple source drugs
under § 447.514 of this subpart, then the and
identified and listed periodically by
rule for ‘‘other drugs’’ set forth in (ii) In the aggregate, its Medicaid
CMS in Medicaid Program issuances
paragraph (b) of this section applies. expenditures for all other drugs are in
must not exceed, in the aggregate,
(b) Other drugs. The agency payments accordance with § 447.512 of this
payment levels determined by applying
for brand name drugs certified in subpart.
for each drug entity a reasonable
accordance with paragraph (c) of this (2) Assurances. The agency must
dispensing fee established by the State
section and drugs other than multiple make assurances satisfactory to CMS
agency plus an amount established by
source drugs for which a specific limit that the requirements set forth in
CMS that is equal to 250 percent of the
has been established under § 447.514 of § § 447.512 and 447.514 of this subpart
AMP (as computed without regard to
this subpart must not exceed, in the concerning upper limits and in
customary prompt pay discounts
aggregate, payment levels that the paragraph (b)(1) of this section
extended to wholesalers) for the least
agency has determined by applying the concerning agency findings are met.
costly therapeutic equivalent. (c) Recordkeeping. The agency must
lower of the— (c) Ensuring a drug is for sale maintain and make available to CMS,
(1) EAC plus reasonable dispensing nationally. To assure that a drug is for upon request, data, mathematical or
fees established by the agency; or sale nationally, CMS will consider the statistical computations, comparisons,
(2) Providers’ usual and customary following additional criteria: and any other pertinent records to
charges to the general public.
(1) The AMP of a terminated NDC will support its findings and assurances.
(c) Certification of brand name drugs.
(1) The upper limit for payment for not be used to set the Federal upper
§ 447.520 FFP: Conditions relating to
multiple source drugs for which a limit (FUL) beginning with the first day physician-administered drugs.
specific limit has been established of the month after the actual termination
date reported by the manufacturer to (a) No FFP is available for physician-
under § 447.514 of this subpart does not administered drugs for which a State
apply if a physician certifies in his or CMS.
has not required the submission of
her own handwriting (or by an (2) Except as set forth in paragraph claims using codes that identify the
electronic alternative means approved (c)(3) of this section, the AMP of the drugs sufficiently for the State to bill a
by the Secretary) that a specific brand is lowest priced therapeutically and manufacturer for rebates.
medically necessary for a particular pharmaceutically equivalent drug that is (1) As of January 1, 2006, a State must
recipient. not less than 40 percent of the next require providers to submit claims for
(2) The agency must decide what highest AMP will be used to establish single source, physician-administered
certification form and procedure are the FUL. drugs using Healthcare Common
used. (3) When the FUL group includes Procedure Coding System codes or NDC
(3) A checkoff box on a form is not only the brand name drug and the first numbers in order to secure rebates.
acceptable but a notation like ‘‘brand new generic or authorized generic drug (2) As of January 1, 2008, a State must
necessary’’ is allowable. which has entered the market, the require providers to submit claims for
(4) The agency may allow providers to criteria in paragraph (c)(2) of this the 20 multiple source physician-
keep the certification forms if the forms section will not apply. administered drugs identified by the
Secretary as having the highest dollar (c) A State that requires additional Dated: June 27, 2007.
value under the Medicaid Program time to comply with the requirements of Leslie V. Norwalk,
using NDC numbers in order to secure this section may apply to the Secretary Acting Administrator, Centers for Medicare
rebates. for an extension. & Medicaid Services.
(b) As of January 1, 2007, a State must (Catalog of Federal Domestic Assistance Approved: June 29, 2007.
require providers to submit claims for Program No. 93.778, Medical Assistance Michael O. Leavitt,
Program) Secretary.
physician-administered single source
(Catalog of Federal Domestic Assistance [FR Doc. 07–3356 Filed 7–6–07; 4:00 pm]
drugs and the 20 multiple source drugs Program No. 93.773, Medicare—Hospital
identified by the Secretary using NDC Insurance; and Program No. 93.774, BILLING CODE 4120–01–P
numbers. Medicare—Supplementary Medical
Insurance Program)

Rule: Medicaid: Prescription Drugs Average Manufacturer Price

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Tuesday,

July 17, 2007

42 CFR Part 447

be reported as an aggregate dollar We proposed to redesignate existing Web site.

customary business practice regarding a discounts’’ as ‘‘cash discounts;’’ basis.

outpatient drug. intended to capture transactions with Part D.

unless such drugs are provided through

clarifies the determination of AMP, to be made. understanding of the history of many of

through a particular PBM. purposes of resale. requirement would create serious

necessary in light of the DRA

educational outreach to providers to Comment: One commenter asked Rule

Total Annual Burden ....... ........................ ................................................ ................................................ 84,492 hours.

Total ................................. 795 1,285 1,840 1,980 2,140 8,040

Section 6002—Rebates on Physician-Ad- Federal .............................. 18 19 20 22 24 103

Total ................................. 31 33 35 38 42 179

STATE AND FEDERAL SAVINGS OVER 5 YEARS—Continued

Section 6003—Reporting of Authorized Federal .............................. 10 25 28 32 36 131

Total ................................. 17 44 49 56 63 229

Total ................................. 843 1,362 1,924 2,074 2,245 8,448

we considered one definition for and monthly reporting.

the scope of this rulemaking document. Subpart I—Payment for Drugs

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