On 15 August, the Internal Revenue Service (IRS) issued identical temporary and proposed regulations to govern the branded prescription drug fee imposed on pharmaceutical manufacturers under Section 9008 of the Patient Protection and Affordable Care Act (PPACA). The proposed regulations (76 Fed. Reg. 51245) are effective 18 August and are accompanied by a notice of proposed rulemaking (76 Fed. Reg. 51310) laying out the procedure for commenting. Comments on the proposed regulations are due by 16 November, except for comments on the paperwork/information collection aspect of the proposed regulations, which are due by 17 October.
These regulations will govern the final fee determination for the 2011 fee year and so will be what the IRS uses to address any disputes/error reports filed as to the preliminary fee amounts sent out in May. Note that the IRS expects to send out the final fee determinations, inclusive of the resolution of any disputes, by 24 August. The regulations do not permit the submission of disputes or error reports regarding these final fee assessments, "in the interest of providing finality to the fee calculation process."
Summarized below are certain aspects of the regulations. It will be important for branded prescription drug manufacturers to review the regulations and their preamble closely to identify any and all issues relevant to their business.
Orphan drug definition: The regulations continue to require that a manufacturer actually claim the section 45C tax credit for a drug to qualify as an orphan drug and thus be excluded from a manufacturer's sales amount. The regulations clarify, however, that an orphan drug for which a manufacturer has claimed the section 45C credit does not lose its exempt status if approved for a subsequent orphan indication and the manufacturer claims the 45C credit for that second indication as well. However, the regulation also makes clear that a drug can never qualify for the orphan exemption once it is approved for any non-orphan indication or there has been a final assessment or court order disallowing the full section 45C credit. There are a number of useful examples of how these standards apply to different factual scenarios in the regulation itself.
Form 8947/dispute resolution process: The regulations confirm that the submission of form 8947 is voluntary. The regulations also clarify that errors in form 8947 can be addressed through the dispute resolution process defined by the new regulations (which look very much like the error report submission process for this year's preliminary fee assessment). IRS is working with CMS to have CMS supply all rebate data for use in the sales valuation process, but until CMS can do so (with no end date specified), IRS will continue to rely on manufacturer submission of those data via form 8947.
Manufacturer definition: The regulations clarify that the manufacturer of a drug will be identified by the labeler code component of a drug's NDC.
Part B sales valuation: IRS' original guidance had Part B sales valued using Medicare-allowed charges. In response to comments that the statute instead requires valuation using ASP alone, the regulations now provide that Part B sales will be valued using ASP rather than Medicare-allowed charges. For HCPCS codes that contain branded prescription drugs of different manufacturers, or both branded and non-branded drugs, CMS will continue to apportion utilization under the code using ASP sales data reported by manufacturers, and will value those sales using weighted average annual ASP figures. In the "unusual" case where such data are insufficient to reliably apportion utilization across manufacturers, CMS will use Part D data to apportion sales. IRS acknowledges concerns regarding capturing complete data for non-separately-payable drugs and states that CMS will continue to work with the data available to do so. The regulations identify the Medicare Part B National Summary Data File as the file CMS uses to quantify Part B utilization.
Medicaid sales valuation: IRS' original guidance had Medicaid sales valued at AMP minus the URA times the number of units billed by the states. In response to comments that such valuation could double count Part B sales where Part B is the primary payer and Medicaid is a secondary payer or otherwise overstate Medicaid expenditures where other insurers are the primary payers, the regulations include a pro-rating methodology for valuing Medicaid sales where Medicaid is a secondary payer.
Part D valuation: Part D utilization will be valued using the ingredient cost paid and quantity dispensed fields in the Prescription Drug Event (PDE) records for each sales year. Only PDE data that Part D sponsors have submitted by the PDE deadline (within six months of the end of the sales year) and that have been approved for inclusion in the Part D payment reconciliation will be used.
Tricare valuation: Tricare utilization will be valued net of refunds/rebates and will be attributed based on dispense date.
VA sales valuation: VA sales will be calculated using data from the Pharmaceutical Prime Vendor and so will include sales to individual treatment facilities to the extent those sales are made through the Prime Vendor. Sales will be valued net of refunds/rebates and will be attributed based on invoice date.
DOD sales valuation: DOD sales (other than Tricare utilization) will be valued net of refunds/rebates and will be attributed based on order date.
Adjustment/true-up process: IRS will continue to adjust the fee due in a particular year, starting with the 2012 fee year, to reflect the adjustment to the prior year's fee amount necessary to reflect the use of the correct/updated sales year data. For example, a manufacturer's fee amount for the 2012 fee year will be increased or decreased by the amount the manufacturer's share of the 2011 fee increases or decreases once the 2011 fee is apportioned using 2010 rather than 2009 sales data. IRS originally had proposed to adjust the fee at the NDC level, but the regulations now provide that the adjustment will occur at the manufacturer level instead.
Refunds: Manufacturers who seek refunds of prior fees paid must use Form 843 - Claim for Refund and Request for Abatement.
Changes to preliminary fee assessments: Both the preamble and regulatory text go to some length to explain that manufacturers may see differences in the preliminary versus final fee assessments even if the manufacturer itself did not submit a dispute/error report. Specifically, because each manufacturer pays a portion of the total statutory fee amount, any change to the underlying sales universe or another manufacturer's share of that sales universe necessarily will impact every other manufacturer's fee assessment.