Branded Prescription Drug Fee, 51245-51255 [2011-21011]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 76, Number 160 (Thursday, August 18, 2011)]
[Rules and Regulations]
[Pages 51245-51255]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-21011]



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Rules and Regulations
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / 
Rules and Regulations

[[Page 51245]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 51 and 602

[TD 9544]
RIN 1545-BK34


Branded Prescription Drug Fee

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations that provide 
guidance on the annual fee imposed on covered entities engaged in the 
business of manufacturing or importing branded prescription drugs. This 
fee was enacted by section 9008 of the Patient Protection and 
Affordable Care Act, as amended by section 1404 of the Health Care and 
Education Reconciliation Act of 2010. The regulations affect persons 
engaged in the business of manufacturing or importing certain branded 
prescription drugs. The text of the temporary regulations also serves 
as the text of the proposed regulations set forth in the notice of 
proposed rulemaking on this subject in the Proposed Rules section of 
this issue of the Federal Register.

DATES: Effective Date: These regulations are effective on August 18, 
2011.
    Applicability Date: For dates of applicability, see Sec. Sec.  
51.11T and 51.6302-1T(b).

FOR FURTHER INFORMATION CONTACT: Celia Gabrysh, (202) 622-3130 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    These temporary regulations are being issued without prior notice 
and public procedure pursuant to the Administrative Procedure Act (5 
U.S.C. 553). For this reason, the collection of information contained 
in these regulations has been reviewed and pending receipt and 
evaluation of public comments, approved by the Office of Management and 
Budget under control number 1545-2209.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number.
    For further information concerning this collection of information, 
and where to submit comments on the collection of information and the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble to the cross-reference notice of 
proposed rulemaking on this subject in the Proposed Rules section in 
this issue of the Federal Register.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document adds the Branded Prescription Drug Fee Regulations to 
the Code of Federal Regulations (26 CFR Part 51) under section 9008 of 
the Patient Protection and Affordable Care Act (ACA), Public Law 111-
148 (124 Stat. 119 (2010)), as amended by section 1404 of the Health 
Care and Education Reconciliation Act of 2010 (HCERA), Public Law 111-
152 (124 Stat. 1029 (2010)). All references in this preamble to section 
9008 are references to section 9008 of ACA, as amended by section 1404 
of HCERA. Section 9008 did not amend the Internal Revenue Code (Code) 
but cross-references to specified Code sections.

Statutory Provisions

    Section 9008(a) imposes an annual fee on each covered entity 
engaged in the business of manufacturing or importing branded 
prescription drugs, to be paid not later than the annual date specified 
by the Secretary of the Treasury or his delegate (Secretary), but in no 
event later than September 30th of each calendar year in which a fee 
must be paid (fee year).
    Section 9008(d)(1) defines a covered entity as any manufacturer or 
importer with gross receipts from branded prescription drug sales. 
Section 9008(d)(2) provides a controlled group rule under which all 
persons treated as a single employer under section 52(a), 52(b), 
414(m), or 414(o) of the Code are treated as a single covered entity. 
For this purpose, a foreign entity subject to tax under section 881 is 
included within a controlled group under section 52(a) or 52(b). Under 
section 9008(d)(3), all persons treated as a single employer under 
section 9008(d)(2) are jointly and severally liable for the fee.
    Section 9008(e)(2) defines branded prescription drug as (i) any 
prescription drug the application for which was submitted under section 
505(b) of the Federal Food, Drug, and Cosmetic Act (FFDCA) (21 U.S.C. 
355(b)), or (ii) any biological product the license for which was 
submitted under section 351(a) of the Public Health Service Act (42 
U.S.C. 262(a)). For this purpose, a prescription drug is any drug that 
is subject to section 503(b) of the FFDCA (21 U.S.C. 353(b)).
    Section 9008(b) provides rules for determining the amount of the 
annual fee for each covered entity. Under section 9008(b)(4), the 
aggregate fee amount each year for all covered entities (referred to as 
the applicable amount) is $2.5 billion for fee year 2011; $2.8 billion 
for fee years 2012 and 2013; $3 billion for fee years 2014 through 
2016; $4 billion for fee year 2017; $4.1 billion for fee year 2018; and 
$2.8 billion for fee year 2019 and thereafter. Section 9008(b)(1) 
requires the applicable amount for each year to be allocated, using a 
specified formula, among covered entities with aggregate branded 
prescription drug sales of over $5 million to specified government 
programs or pursuant to coverage under such programs. Section 
9008(e)(4) provides that the specified government programs are the 
Medicare Part B program, the Medicare Part D program, the Medicaid 
program, any program under which branded prescription drugs are 
procured by the Department of Veterans Affairs, any program under which 
branded prescription drugs are procured by the Department of Defense, 
and the TRICARE retail pharmacy program (collectively, the Programs).
    Specifically, section 9008(b)(1) provides that the annual fee for 
each covered entity is calculated by determining the ratio of (i) the 
covered entity's branded prescription drug sales

[[Page 51246]]

taken into account during the preceding calendar year to (ii) the 
aggregate branded prescription drug sales taken into account for all 
covered entities during the same year, and applying this ratio to the 
applicable amount. Sales taken into account means branded prescription 
drug sales after the application of the percentage adjustment table in 
section 9008(b)(2). The sales data is generally to be provided by the 
Centers for Medicare and Medicaid Services of the Department of Health 
and Human Services (CMS), the Department of Veterans Affairs (VA), and 
the Department of Defense (DOD) (collectively, the Agencies) pursuant 
to section 9008(g).
    Section 9008(b)(3) requires the Secretary to determine the amount 
of each covered entity's fee and permits the Secretary to rely on 
reports submitted by the Agencies and any other source of information 
available to the Secretary in determining that amount. Section 9008(i) 
also directs the Secretary to publish guidance necessary to carry out 
the purposes of the statute.
    Section 9008(f) treats the fee as an excise tax with respect to 
which only civil actions for refunds under the provisions of subtitle F 
of the Code will apply. Thus, the fee may be assessed and collected 
using the procedures in subtitle F without regard to the restrictions 
on assessment in section 6213 (relating to petitions to the Tax Court). 
Section 9008(f) also characterizes the fee as a nondeductible tax under 
section 275 of the Code.

IRS Guidance

    On November 29, 2010, the Internal Revenue Service (IRS) released 
Notice 2010-71 (2010-50 IRB 822), which proposed an approach to 
implementing the section 9008 fee and requested comments on the 
proposed approach. The proposed approach included an opportunity to 
report certain information to the IRS relevant to the fee calculation 
and provided that the IRS would provide each covered entity with notice 
of a preliminary fee calculation. This notice was modified and 
superseded by Notice 2011-9 (2011-6 IRB 459), which was released on 
January 14, 2011.
    On April 29, 2011, the IRS released Rev. Proc. 2011-24 (2011-20 IRB 
787), which established a process for covered entities to submit 
claimed errors in their preliminary fee calculations for consideration 
before final fee calculations for 2011. On May 27, 2011, the IRS 
released Notice 2011-46 (2011-25 IRB 887) to defer the due date for 
submission of error reports and the last possible date for sending 
final fee calculations for 2011.

Explanation of Provisions

    The temporary regulations describe the rules related to the fee and 
the actions to be taken before the September 30th due date of each 
year's fee. The temporary regulations first provide a general overview 
of the rules and then provide an explanation of terms used in 
implementing the fee. Next, the temporary regulations describe the 
information requested from covered entities and provided by the 
Agencies. The temporary regulations then describe how the fee is 
calculated and provide for a subsequent adjustment. The temporary 
regulations then provide for a notice of the preliminary fee 
calculation, a dispute resolution process to allow covered entities to 
submit error reports relating to the preliminary fee calculation, and a 
notice of the final fee calculation. The temporary regulations also 
explain how to pay the fee, how the fee is treated for tax purposes, 
and how to make refund claims.
    These temporary regulations are generally consistent with the 
approach proposed in previous IRS guidance. Certain modifications and 
additions were made in response to public comments that were received 
in response to the solicitation in Notice 2011-9. The changes and the 
public comments are discussed in more detail in this preamble.

I. Overview

    The temporary regulations provide guidance on the annual fee 
imposed on covered entities engaged in the business of manufacturing or 
importing branded prescription drugs by section 9008. Generally, each 
covered entity with aggregate branded prescription drug sales of over 
$5 million to the Programs (or pursuant to the Programs) is liable for 
an annual fee in each fee year that is based on its sales of branded 
prescription drugs in the sales year that corresponds to the fee year 
in an amount determined by the IRS under these temporary regulations.

II. Explanation of Terms

    The temporary regulations define numerous key terms used in section 
9008 and in these regulations, including agencies, branded prescription 
drug, covered entity, fee year, government programs, sales taken into 
account, and sales year. Explanations of several terms are discussed in 
more detail in this preamble.

A. Manufacturer or Importer

    Section 9008(d)(1) provides that covered entity means any 
manufacturer or importer with gross receipts from branded prescription 
drug sales. Consistent with the proposal in previous IRS guidance, the 
temporary regulations define a manufacturer or importer of a branded 
prescription drug as the person identified in the Labeler Code of the 
National Drug Code (NDC) for such a drug. The NDC is an identifier 
assigned by the FDA to a prescription drug. The Labeler Code is the 
first five numeric characters of the NDC or the first six numeric 
characters when the available five-character code combinations are 
exhausted.

B. Designated Entity

    Consistent with the proposal in previous IRS guidance, the 
temporary regulations provide that, in the case of a controlled group 
that is treated as a single covered entity under section 9008(d)(2), 
the controlled group may identify a person as the designated entity 
that acts for the controlled group concerning the section 9008 fee. 
However, the temporary regulations further provide that if the 
controlled group, without regard to foreign corporations included under 
section 9008(d), is also an affiliated group that filed a consolidated 
return for Federal income tax purposes, the designated entity is the 
common parent of the affiliated group identified on the tax return 
filed for the sales year. If the controlled group is not an affiliated 
group that filed a consolidated return for Federal income tax purposes, 
it may select a person as the designated entity on Form 8947, ``Report 
of Branded Prescription Drug Information.'' If the controlled group 
does not select a person as a designated entity on its Form 8947, the 
IRS will select a person as a designated entity for the controlled 
group and advise the filer accordingly.

C. Orphan Drug Sales

    Section 9008(e)(3) excludes orphan drug sales from the definition 
of branded prescription drug sales. Consistent with the proposal in 
previous IRS guidance, the temporary regulations define orphan drug, 
subject to certain exceptions, as any branded prescription drug for 
which any person claimed a section 45C credit and that credit was 
allowed for any taxable year. The temporary regulations further provide 
that an orphan drug does not include any drug for which there has been 
a final assessment or court order disallowing the full section 45C 
credit taken for the drug. Additionally, an

[[Page 51247]]

orphan drug does not include any drug for any sales year after the 
calendar year in which the FDA approved the drug for marketing for any 
indication other than the treatment of a rare disease or condition for 
which a section 45C credit was allowed, regardless of whether a section 
45C credit was allowed for the drug either before, at the same time, or 
after this FDA approval.
    Several commentators suggested that a drug should be considered an 
orphan drug if the section 45C credit was ``allowable''; that is, the 
section 45C credit could have been claimed, rather than was claimed. 
Other commentators suggested that orphan drug status should be given to 
a drug for which a section 45C credit was allowed even though the drug 
had been approved by the FDA for marketing for an indication other than 
the treatment of a rare disease or condition for which a section 45C 
credit was allowed.
    The temporary regulations do not adopt these suggestions. The plain 
language of section 9008(e)(3) requires the section 45C credit to have 
actually been allowed rather than to have merely been allowable. In 
addition, the Treasury Department and the IRS interpret section 
9008(e)(3) to mean that if a drug is ever approved for an indication 
other than the treatment of a rare disease or condition for which a 
section 45C credit was allowed, whether before, during, or after a 
section 45C credit was allowed for the drug, sales of that drug are not 
considered sales of an orphan drug. However, a drug will retain its 
orphan drug status if the drug receives approval for a subsequent 
indication for a rare disease or condition for which a subsequent 
section 45C credit was allowed.

III. Information Requested From Covered Entities

    Consistent with the proposal in previous IRS guidance, the 
temporary regulations give each covered entity the opportunity to 
provide information relevant to the determination of the section 9008 
fee by annually submitting Form 8947, ``Report of Branded Prescription 
Drug Information,'' and providing the information specified by the form 
and instructions, including the NDCs for branded prescription drugs 
that the covered entity sold to the Programs (or pursuant to coverage 
under the Programs), Medicare and Medicaid rebate information, section 
45C orphan drug information, members of controlled groups, and 
designated entity information.
    One commentator suggested that the Treasury Department and the IRS 
confirm that submission of Form 8947 is voluntary. Section 51.3T(a) of 
the temporary regulations provides that a covered entity may file a 
completed Form 8947; thus, the submission of Form 8947 is voluntary.
    Commentators expressed a preference for CMS to include all rebate 
data in their reports to the IRS rather than collecting rebate data 
from the covered entities on Form 8947. The IRS and CMS are continuing 
to work on this issue. Until CMS can report all the relevant rebate 
data, covered entities will continue to have the opportunity to submit 
rebate data as requested on Forms 8947 and in the format prescribed in 
the form instructions.
    Several commentators suggested that the Treasury Department and the 
IRS provide guidance on how covered entities may amend their Form 8947 
to correct errors or omissions in the information reported. A number of 
covered entities notified the IRS of corrections to their Forms 8947 in 
the error reports that they submitted as part of the dispute resolution 
process provided under Rev. Proc. 2011-24. That proved to be an 
efficient and effective way to relay corrections. Accordingly, under 
the temporary regulations, a covered entity may notify the IRS of any 
changes or additions to information it submitted on Form 8947 by 
submitting error reports in the dispute resolution process, discussed 
later in this preamble.

IV. Information Provided by the Agencies

    Consistent with the proposal in the previous IRS guidance, the 
temporary regulations provide that the IRS will (1) compile a list of 
branded prescription drugs by NDC using the data submitted on Forms 
8947; (2) apply appropriate due diligence; and (3) provide the Agencies 
with the list. The temporary regulations describe the data the Agencies 
are to provide the IRS annually for each NDC on the list by Program. 
The temporary regulations further clarify that the IRS may revise the 
list of NDCs as a result of information received in the dispute 
resolution process, and that the data the IRS uses to produce the final 
fee determination includes any revisions provided by the Agencies at 
the completion of the dispute resolution process.
    Commentators raised questions about the descriptions in previous 
IRS guidance of the methodology used by the Agencies to report branded 
prescription drug sales to the IRS and asked that these descriptions be 
clarified. In addition, some of the error reports submitted as part of 
the dispute resolution process under Rev. Proc. 2011-24 identified the 
need for clarification in describing Agency data. In response to the 
comments and the issues illuminated by the error reports, the temporary 
regulations provide revised descriptions of the data and computations 
for some of the Programs.
    Commentators raised questions about the methodology proposed for 
computing branded prescription drug sales for Medicare Part B. 
Specifically, they questioned the use of Medicare-allowed charges to 
establish the sales rather than a computation based on the per-unit 
average sales price (ASP) and the units paid for under Medicare Part B 
as specified in section 9008(g)(2). Commentators also asked whether CMS 
would use ASP (that is, ASP plus 0%) or ASP plus 6% (which reflects 
amounts actually paid) in computing the sales figures. After 
considering the comments, CMS refined its calculation process. Thus, 
the temporary regulations provide that branded prescription drug sales 
for Medicare Part B will be computed based on ASP and units paid for 
under Medicare Part B.
    Commentators also requested clarification about how sales will be 
calculated for branded prescription drugs that are not separately 
payable or reported. In the unusual situation where CMS is unable to 
establish a reliable proportion of sales by NDC, for example due to 
unavailable, inaccurate, or incomplete manufacturer sales data, the 
temporary regulations clarify that CMS has a back-up method that will 
use Medicare Part D utilization percentages in lieu of manufacturer 
data. It should be noted, however, that for the 2011 fee calculations, 
this back-up method was not required.
    Commentators also expressed concerns about whether Medicare Part B 
is capturing complete data with respect to non-separately payable 
drugs, that is, drugs that are not directly correlated with a specific 
HCPCS Code. CMS recognizes the commentators' concern and has made 
extensive efforts to gather as complete a data set as possible. CMS 
will continue to work with the data available to capture non-separately 
payable drugs.
    Some commentators asked whether the sales data from Medicaid 
reflected sales where Medicaid was the secondary payer, resulting 
potentially in duplicate reporting where another one of the Programs 
(for example, Medicare Part B), was the primary payer. In response, CMS 
has revised the Medicaid methodology to exclude non-Medicaid payments, 
and the temporary regulations include a description of this aspect of 
the methodology.

[[Page 51248]]

Commentators asked whether TRICARE sales data would be net of refunds 
and rebates associated with specific NDCs. The temporary regulations 
make clear that DOD will report for TRICARE the sales data for each NDC 
based on retail pharmacy claims submitted during the sales year, net of 
any refunds or rebates. Commentators questioned whether the VA sales 
data excluded purchases made at individual treatment facilities. The VA 
includes most of its purchases made at the individual medical treatment 
facility level in its data because most of these purchases are made via 
VA's Pharmaceutical Prime Vendor. The description of VA sales data 
contained in the temporary regulation is revised from the description 
contained in earlier guidance to eliminate language suggesting that 
sales at the individual medical treatment facility level are not 
included and to clarify that the sales data is net of refunds and 
rebates.

V. Fee Calculation Including Adjustment

    The temporary regulations clarify that the IRS will compute the fee 
for a covered entity based on the branded prescription drug sales data 
for each NDC reported by the Agencies and any rebate data for each NDC 
reported by the covered entities. For purposes of computing the fee, 
each NDC will be assigned to the covered entity that owns the NDC as of 
the end of the day on December 31st of the sales year. For a covered 
entity that is a controlled group, this includes all NDCs that a member 
of the covered entity owns as of the end of the day on December 31st of 
the sales year.
    The temporary regulations provide that two years are relevant to 
the calculation of the section 9008 fee: The fee year, and the calendar 
year of the branded prescription drug sales, which will be used to 
determine the amount of the fee (the sales year). As proposed in 
previous IRS guidance, the temporary regulations use the second 
calendar year preceding the fee year as the sales year for purposes of 
calculating the section 9008 fee. The Treasury Department and the IRS 
have determined that, although DOD and VA are expected to have complete 
data on branded prescription drug sales for the calendar year 
immediately preceding the fee year within the time frame necessary to 
administer the fee, CMS is not expected to have comparable data because 
it cannot complete its data processing within the necessary time frame. 
Accordingly, the IRS will calculate the fee based on the branded 
prescription drug sales data provided by the Agencies for the second 
calendar year preceding the fee year. Because the use of the second 
preceding year as the sales year, rather than the immediately preceding 
year, may affect the amount of the fee paid by a covered entity, the 
annual fee due in every year after 2011 will include an adjustment 
amount. This adjustment amount will be added (or subtracted), as 
appropriate, to (or from) the fee otherwise payable by the covered 
entity in the fee year in which the adjustment is calculated.
    The proposal in previous guidance was to compute the adjustment 
separately for each NDC. Commentators raised questions about the effect 
of the adjustment where a drug is owned by different covered entities 
in the second preceding year and immediately preceding year and asked 
whether the adjustment could be computed at the covered entity level 
rather than the NDC level. The Treasury Department and the IRS have 
considered these questions, and have decided to calculate the 
adjustment at the covered entity level.
    The adjustment will reflect the difference between the fee 
determined for a covered entity in the immediately preceding fee year, 
using data from the second calendar year preceding that fee year, and 
what the fee for the covered entity would have been for the immediately 
preceding fee year using data from the calendar year immediately 
preceding the prior fee year. For example, for 2012, the adjustment 
amount for a covered entity will be the difference between the 2011 fee 
computed using 2009 sales data, and what the 2011 fee would have been 
using 2010 sales data. Although the adjustment reflects a revision of 
the prior year's fee based on data from the sales year immediately 
preceding the prior fee year, the adjustment is only taken into account 
by adding it to or subtracting it from the fee computed for the current 
fee year.

VI. Notice of Preliminary Fee Calculation

    Consistent with the proposal in the previous IRS guidance, the 
temporary regulations provide that the IRS will provide each covered 
entity with a notice of preliminary fee calculation each year that will 
include the covered entity's preliminary fee calculation; the covered 
entity's branded prescription drug sales, by NDC, for each Program; the 
covered entity's branded prescription drug sales taken into account 
after application of section 9008(a)(2); the aggregate branded 
prescription drug sales taken into account for all covered entities; 
after the 2011 fee year, a preliminary adjustment amount; and a 
reference to the fee dispute resolution process set forth in guidance 
published in the Internal Revenue Bulletin. The date by which the IRS 
will send the preliminary fee calculation notice will be specified for 
future years in guidance published in the Internal Revenue Bulletin. 
For 2011, the IRS sent the notices by May 16, 2011. The Treasury 
Department and the IRS anticipate sending these notices earlier in 
future years.

VII. Dispute Resolution Process

    Consistent with previous IRS guidance, the temporary regulations 
provide for a dispute resolution process that allows a covered entity 
to submit error reports in response to the preliminary fee calculation 
for the IRS to consider before performing a final fee calculation. The 
temporary regulations describe the information that covered entities 
must submit. The IRS will specify in guidance published in the Internal 
Revenue Bulletin the format for error report submissions and the date 
by which a covered entity must submit an error report(s). For 2011, a 
covered entity's error report was required to be submitted no later 
than June 10, 2011. The Treasury Department and the IRS anticipate that 
covered entities will have more time to prepare and send their error 
reports to the IRS in future years.
    Several commentators requested the ability to submit additional 
error reports after the IRS sends notification of the final fee 
determination. In the interest of providing finality to the fee 
calculation process, the temporary regulations do not adopt this 
suggestion.

VIII. Notification and Payment of Fee

    Section 9008(a) provides that the annual fee must be paid not later 
than the annual date specified by the Secretary, but in no event later 
than September 30th of each fee year. The temporary regulations provide 
that the IRS will send each covered entity its final fee calculation 
for that year no later than August 31st and that the covered entity 
must pay the fee by September 30th by electronic funds transfer. For 
2011, the IRS will send covered entities notification of their 2011 
final fee calculation by August 24th. This notification will include 
the covered entity's final fee; the covered entity's branded 
prescription drug sales by NDC for each Program; the covered entity's 
branded prescription drug sales taken into account after application of 
section 9008(a)(2); the aggregate branded prescription drug sales taken 
into account for all covered entities; after the 2011 fee year, an 
adjustment

[[Page 51249]]

amount; and the final determination with respect to error reports.
    There is no tax return to be filed for the section 9008 fee.

IX. Tax Treatment of Fee

    Section 9008(f)(1) provides that the branded prescription drug fee 
for purposes of subtitle F of the Internal Revenue Code shall be 
treated as an excise tax with respect to which only civil actions for 
refund under procedures of subtitle F shall apply. Thus, under the 
temporary regulations, the section 9008 fee is treated as an excise tax 
for purposes of subtitle F of the Code (sections 6001-7874) to which 
the deficiency procedures of sections 6211-6216 do not apply. The 
temporary regulations provide that the IRS must assess the amount of 
the section 9008 fee for any fee year within three years of September 
30th of that fee year.

X. Refund Claims

    The temporary regulations provide that any claim for refund must be 
filed on Form 843, ``Claim for Refund and Request for Abatement.''

Availability of IRS Documents

    IRS notices and the revenue procedure cited in this preamble are 
published in the Internal Revenue Bulletin or Cumulative Bulletin and 
are available at IRS.gov.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It also has been determined that section 
553(b) of the Administrative Procedure Act (APA) (5 U.S.C. chapter 5) 
does not apply to these regulations. For applicability of the 
Regulatory Flexibility Act (5 U.S.C. chapter 6), please refer to the 
Special Analysis section in the preamble to the cross-referenced notice 
of proposed rulemaking in the Proposed Rules section in this issue of 
the Federal Register. Pursuant to section 7805(f) of the Code, these 
regulations have been submitted to the Chief Counsel for Advocacy of 
the Small Business Administration for comment on their impact on small 
businesses.
    Section 553(b) of the APA does not apply to these regulations 
because they are interpretative rules. Alternatively, the Treasury 
Department and the IRS have determined that good cause exists under 
section 553(b)(B) of the APA. That section provides that an agency is 
not required to publish a notice of proposed rulemaking in the Federal 
Register when the agency, for good cause, finds that notice and public 
comment thereon are impracticable, unnecessary, or contrary to the 
public interest. Due to the novel and complex issues raised by the 
branded prescription drug fee provision and the required coordination 
with other governmental agencies, the Treasury Department and the IRS 
have concluded that it would take significantly longer than the time 
between enactment (March 23, 2010) and the date of collection of the 
first fee (no later than September 30, 2011) to draft and issue a 
proposed rule with a comment period, review comments thoroughly, and 
then draft and issue a final rule. Accordingly, the Treasury Department 
and the IRS have determined that the notice and comment procedures are 
impracticable.
    In the months following enactment of section 9008, the Treasury 
Department and the IRS, in coordination with other governmental 
agencies, developed the proposed methodologies and processes to 
compute, verify, assess and collect the annual fee amounts, and 
published notices and a revenue procedure in the Internal Revenue 
Bulletin describing the proposed approach and soliciting public 
comments. The Treasury Department and the IRS provided an extended 
comment period to give the covered entities an opportunity to review 
their preliminary fee calculations before submitting comments on the 
proposed approach. In addition, the Treasury Department and the IRS 
engaged in discussions with affected external stakeholders and 
extensively coordinated with other governmental agencies. Consequently, 
the Treasury Department and the IRS also have determined that 
additional notice and comment before implementation of the process set 
forth in these regulations is unnecessary.
    Since Congress mandated that the IRS collect the applicable fee 
amount for the first fee year no later than September 30, 2011, it is 
necessary that these regulations be issued immediately in order to 
provide covered entities with the rules governing the fee and payment 
prior to issuance of final fee determinations. However, comments are 
being solicited in the cross-referenced notice of proposed rulemaking 
that is in the Proposed Rules section in this issue of the Federal 
Register and will be considered before final regulations are issued 
regarding the branded prescription drug fee.

Drafting Information

    The principal author of these regulations is Celia Gabrysh, Office 
of the Associate Chief Counsel (Passthroughs and Special Industries). 
However, other personnel from the Treasury Department and the IRS 
participated in their development.

List of Subjects

26 CFR Part 51

    Drugs, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR chapter 1 is amended by adding part 51 to 
subchapter D and amending part 602 as follows:

0
Paragraph 1. Part 51 is added to read as follows:

PART 51--BRANDED PRESCRIPTION DRUG FEE

Sec.
51.1T Overview (temporary).
51.2T Explanations of terms (temporary).
51.3T Information requested from covered entities (temporary).
51.4T Information provided by the agencies (temporary).
51.5T Fee calculation (temporary).
51.6T Notice of preliminary fee calculation (temporary).
51.7T Dispute resolution process (temporary).
51.8T Notification and payment of fee (temporary).
51.9T Tax treatment of fee (temporary).
51.10T Refund claims (temporary).
51.11T Effective/applicability date (temporary).
51.12T Expiration date (temporary).
51.6302-1T Method of paying the branded prescription drug fee 
(temporary).

    Authority:  26 U.S.C. 7805; sec. 9008, Public Law 111-347 (124 
Stat. 119).
    Section 51.8 also issued under 26 U.S.C. 6302(a).
    Section 51.6302-1 also issued under 26 U.S.C. 6302(a).


Sec.  51.1T  Overview (temporary).

    (a) The regulations in this part 51 are designated ``Branded 
Prescription Drug Fee Regulations.''
    (b) The regulations in this part 51 provide guidance on the annual 
fee imposed on covered entities engaged in the business of 
manufacturing or importing branded prescription drugs by section 9008 
of the Patient Protection and Affordable Care Act (ACA), Public Law 
111-148 (124 Stat. 119 (2010)), as amended by section 1404 of the 
Health Care and Education Reconciliation Act of 2010 (HCERA), Public 
Law 111-152 (124 Stat. 1029 (2010)). All references in

[[Page 51250]]

these regulations to section 9008 are references to section 9008 of the 
ACA, as amended by section 1404 of HCERA. Unless otherwise indicated, 
all other section references are to sections in the Internal Revenue 
Code. All references to ``fee'' in these regulations are references to 
the fee imposed by section 9008.
    (c) Section 9008(b)(4) sets an applicable fee amount for each year, 
beginning with 2011, that will be apportioned among covered entities 
with aggregate branded prescription drug sales of over $5 million to 
government programs or pursuant to coverage under such programs. 
Generally, each covered entity is liable for a fee in each fee year 
that is based on its sales of branded prescription drugs in the sales 
year that corresponds to the fee year in an amount determined by the 
Internal Revenue Service (IRS) under the rules of this part.


Sec.  51.2T  Explanation of terms (temporary).

    (a) In general. This section explains the terms used in this part 
for purposes of the fee imposed by section 9008 on branded prescription 
drugs.
    (b) Agencies. The term agencies means--
    (1) The Centers for Medicare and Medicaid Services of the 
Department of Health and Human Services (CMS);
    (2) The Department of Veterans Affairs (VA); and
    (3) The Department of Defense (DOD).
    (c) Branded prescription drug--(1) In general. The term branded 
prescription drug means--
    (i) Any prescription drug the application for which was submitted 
under section 505(b) of the Federal Food, Drug, and Cosmetic Act (21 
U.S.C. 355(b)); or
    (ii) Any biological product the license for which was submitted 
under section 351(a) of the Public Health Service Act (42 U.S.C. 
262(a)).
    (2) Prescription drug. The term prescription drug means any drug 
that is subject to section 503(b) of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 353(b)).
    (d) Branded prescription drug sales. The term branded prescription 
drug sales means sales of branded prescription drugs to any government 
program or pursuant to coverage under any such government program. 
However, the term does not include sales of orphan drugs.
    (e) Covered entity--(1) In general. The term covered entity means 
any manufacturer or importer with gross receipts from branded 
prescription drug sales including--
    (i) A single-person covered entity; or
    (ii) A controlled group.
    (2) Single-person covered entity. The term single-person covered 
entity means a covered entity that is not affiliated with any other 
covered entity.
    (3) Controlled group. The term controlled group means a group of at 
least two covered entities that are treated as a single employer under 
section 52(a), 52(b), 414(m), or 414(o).
    (4) Special rules for controlled groups. For purposes of paragraph 
(e)(3) of this section (related to controlled groups)--
    (i) A foreign entity subject to tax under section 881 is included 
within a group under section 52(a) or 52(b); and
    (ii) A covered entity is treated as being a member of a controlled 
group if it is a member of the group on the end of the day on December 
31st of the sales year.
    (f) Designated entity--(1) In general. The term designated entity 
means the person that acts for a controlled group regarding the fee 
by--
    (i) Filing Form 8947, ``Report of Branded Prescription Drug 
Information'';
    (ii) Receiving IRS communications about the fee for the group;
    (iii) Filing an error report for the group, if applicable, as 
described in Sec.  51.7T; and
    (iv) Paying the fee to the IRS.
    (2) Selection of designated entity--(i) Choice of controlled group. 
Unless the controlled group is an affiliated group that filed a 
consolidated return for Federal income tax purposes, the controlled 
group may select a person as the designated entity by filing Form 8947 
in accordance with the form instructions. Among other requirements, the 
designated entity must state that all the manufacturers or importers of 
branded prescription drugs that are members of the group have consented 
to the selection of the designated entity.
    (ii) Requirement for affiliated groups; common parent. If the 
controlled group, without regard to foreign corporations included under 
section 9008(d)(2)(B), is also an affiliated group that filed a 
consolidated return for Federal income tax purposes, the designated 
entity is the common parent of the affiliated group as identified on 
the tax return filed for the sales year. The covered entities in an 
affiliated group must name the common parent as the designated entity 
on Form 8947.
    (iii) IRS selection of a designated entity. If a controlled group 
does not select a designated entity, the IRS will select a member of 
the controlled group as the designated entity for the controlled group.
    (g) Fee year. The term fee year means the calendar year in which 
the fee for a particular sales year must be paid to the government.
    (h) Government programs. The term government programs (collectively 
``Programs''), means--
    (1) The Medicare Part B program;
    (2) The Medicare Part D program;
    (3) The Medicaid program;
    (4) Any program under which branded prescription drugs are procured 
by the Department of Veterans Affairs;
    (5) Any program under which branded prescription drugs are procured 
by the Department of Defense; and
    (6) The TRICARE retail pharmacy program.
    (i) Manufacturer or importer. The term manufacturer or importer 
means the person identified in the Labeler Code of the National Drug 
Code (NDC) for a branded prescription drug.
    (j) NDC. The term NDC means the National Drug Code. The NDC is an 
identifier assigned by the Food and Drug Administration (FDA) to a 
branded prescription drug, as well as other drugs. The Labeler Code is 
the first five numeric characters of the NDC or the first six numeric 
characters when the available five-character code combinations are 
exhausted.
    (k) Orphan drugs--(1) In general. Except as provided in paragraph 
(j)(2) of this section, the term orphan drug means any branded 
prescription drug for which any person claimed a section 45C credit and 
that credit was allowed for any taxable year.
    (2) Exclusions. The term orphan drug does not include--
    (i) Any drug for which there has been a final assessment or court 
order disallowing the full section 45C credit taken for the drug; or
    (ii) Any drug for any sales year after the calendar year in which 
the FDA approved the drug for marketing for any indication other than 
the treatment of a rare disease or condition for which a section 45C 
credit was allowed, regardless of whether a section 45C credit was 
allowed for the drug either before, in the same year as, or after this 
FDA designation.
    (3) FDA marketing approval for treatment of another rare disease or 
condition. If a drug has prior FDA marketing approval for the treatment 
of a rare disease or condition for which a section 45C credit was 
allowed, and the FDA subsequently gives the drug marketing approval for 
the treatment of another rare disease or condition for which another 
section 45C credit was also allowed, the drug retains its status as an 
orphan drug provided the FDA has never approved the drug for marketing 
for any indication other than the treatment of a rare disease or 
condition

[[Page 51251]]

for which a section 45C credit was allowed.
    (4) Examples. The following examples illustrate the rules of this 
paragraph (k):

    Example 1: Allowance of section 45C credit and later FDA 
marketing approval of drug for an indication other than the 
treatment of a rare disease or condition. (i) Facts. Drug A is a 
branded prescription drug that was not on the market before 2008. In 
2008, a covered entity claimed a section 45C credit for its 
qualified clinical testing expenses related to Drug A. There was no 
final IRS assessment or court order that disallowed the full credit 
for Drug A. In 2009, the FDA approved Drug A for marketing for an 
indication other than the treatment of the rare disease or condition 
for which the section 45C credit was allowed and this indication was 
not for another rare disease or condition for which a section 45C 
was allowed.
    (ii) Analysis. In 2008 and 2009, Drug A is an orphan drug 
because: first, it was a branded prescription drug for which a 
person claimed a section 45C credit and for which that credit was 
allowed for a taxable year; second, there was not a final assessment 
or court order disallowing the full credit taken for the drug; and 
third, before 2009, the FDA did not approve the drug for marketing 
for any indication other than the treatment of a rare disease or 
condition for which a section 45C credit was allowed. However, Drug 
A is not an orphan drug for the 2010 sales year or later sales years 
because in 2009 the FDA approved Drug A for marketing for an 
indication other than the treatment of the rare disease or condition 
for which the section 45C credit was allowed and this indication was 
not for treatment of another rare disease or condition for which a 
section 45C credit was allowed.

    Example 2: FDA marketing approval of drug for an indication 
other than the treatment of a rare disease or condition and later 
allowance of section 45C credit. (i) Facts. Drug B is a branded 
prescription drug that was not on the market before 2008. In 2008, 
FDA approved Drug B for marketing for an indication other than the 
treatment of a rare disease or condition for which a section 45C 
credit was allowed. In 2009, a covered entity claimed a section 45C 
credit for its qualified clinical testing expenses related to Drug 
B. There was no final IRS assessment or court order that disallowed 
the full credit for Drug B.
    (ii) Analysis. In 2008, Drug B is not an orphan drug because no 
section 45C credit was allowed. In 2009, although the covered entity 
was allowed a section 45C credit for its qualified clinical testing 
expenses related to Drug B and there was no final IRS assessment or 
court order that disallowed the full credit, Drug B still is not an 
orphan drug because the FDA had approved the drug in 2008 for 
marketing for an indication other than the treatment of a rare 
disease or condition for which a section 45C credit was allowed in 
2009. Thus, Drug B is not an orphan drug for the 2009 sales year or 
later sales years.

    Example 3: Allowance of section 45C credit and subsequent 
allowance of section 45C credit with no intervening FDA marketing 
approval of drug for an indication other than the treatment of a 
rare disease or condition for which a section 45C credit was 
allowed. (i) Facts. Drug C is a branded prescription drug that was 
not on the market before 2007. In 2007, a covered entity claimed a 
section 45C credit for its qualified clinical testing expenses 
related to Drug C. In 2009, a covered entity claimed an additional 
section 45C credit for its qualified clinical testing expenses 
related to Drug C for marketing for the treatment of a rare disease 
or condition different than the one for which the section 45C credit 
was claimed in 2007. There was no final IRS assessment or court 
order that disallowed the full credit for Drug C in 2007 or 2009. 
The FDA has not approved Drug C for an indication other than the 
treatment of a rare disease or condition for which a section 45C was 
allowed.
    (ii) Analysis. In 2007 and 2008, Drug C is an orphan drug 
because: first, it was a branded prescription drug for which a 
person claimed a section 45C credit and for which that credit was 
allowed for a taxable year; second, there was not a final assessment 
or court order disallowing the full credit taken for the drug; and 
third, FDA had not approved the drug for marketing for any 
indication other than the treatment of a rare disease or condition 
for which a section 45C credit was allowed. In 2009, Drug C retains 
its orphan drug status because another section 45C credit was 
allowed and the FDA did not approve Drug C for marketing for any 
indication other than the treatment of another rare disease or 
condition for which a section 45C credit was allowed. Thus, Drug C 
is an orphan drug for the 2010 sales year.

    (l) Sales taken into account. The term sales taken into account 
means branded prescription drug sales after application of the 
percentage adjustment table in section 9008(b)(2) (relating to annual 
sales less than $400,000,001). See Sec.  51.5T(a)(3).
    (m) Sales year. The term sales year means the second calendar year 
preceding the fee year. Thus, for example, for the fee year of 2011, 
the sales year is 2009.


Sec.  51.3T  Information requested from covered entities (temporary).

    (a) In general. Annually, each covered entity may submit a 
completed Form 8947, ``Report of Branded Prescription Drug 
Information,'' in accordance with the instructions for the form. 
Generally, the form solicits information from covered entities on NDCs, 
orphan drugs, designated entities, rebates, and other information 
specified by the form or its instructions.
    (b) Due date. Form 8947 must be filed by the date prescribed in 
guidance in the Internal Revenue Bulletin.


Sec.  51.4T  Information provided by the agencies (temporary).

    (a) In general. For each sales year, the IRS will compile a list of 
branded prescription drugs by NDC using the data submitted on Forms 
8947 and in error reports submitted as part of the dispute resolution 
process (described in Sec.  51.7T) and, after applying appropriate due 
diligence, will provide this list to the Agencies. The Agencies will 
provide data to the IRS on branded prescription drug sales during the 
sales year by Program and NDC. The Agencies will provide data for use 
in preparing the preliminary fee calculation (described in Sec. Sec.  
51.5T and 51.6T) and may revise or supplement that data following 
review of error reports submitted as part of the dispute resolution 
process. The calculation methodology for calculating the sales amounts 
for each Program, including any reasonable estimation techniques and 
assumptions that the Agencies expect to use, is described in this 
section.
    (b) Medicare Part D. CMS will aggregate the ingredient cost 
reported in the ``Ingredient Cost Paid'' field and the units reported 
in the ``Quantity Dispensed'' field of the Prescription Drug Event 
(PDE) records at the NDC level for each sales year. Only PDE data that 
Part D sponsors have submitted by the PDE submission deadline (within 6 
months after the end of the sales year) and have been approved for 
inclusion in the Part D payment reconciliation will be included.
    (c) Medicare Part B--(1) In general. CMS will determine branded 
prescription drug sales under Medicare Part B using the following two 
data sources:
    (i) CMS will use data reported by manufacturers pursuant to section 
1847A(c) of the Social Security Act to calculate the annual weighted 
average sales price (ASP) for each Healthcare Common Procedure Coding 
System (HCPCS) code for the sales year.
    (ii) CMS will use the Medicare Part B National Summary Data File 
located at https://www.cms.gov/NonIdentifiableDataFiles/03_PartBNationalSummaryDataFile.asp to obtain the number of allowed 
billing units per HCPCS code for claims incurred during the sales year.
    (2) Calculation. Using the data described in paragraph (c)(1) of 
this section, CMS will determine branded prescription drugs sales under 
Medicare Part B as described in paragraphs (c)(3), (4), and (5) of this 
section.
    (3) HCPCS code; single entity. For each HCPCS code consisting 
solely and exclusively of branded prescription drugs (as identified by 
their respective NDCs) manufactured by a single entity, CMS will 
multiply the annual weighted ASP by the total number of allowed billing 
units paid during the sales year

[[Page 51252]]

to determine the total sales for all NDCs associated with the HCPCS 
code attributed to Medicare Part B.
    (4) HCPCS code; multiple manufacturers and/or multiple drugs--(i) 
Step one. For each HCPCS code consisting of a mixture of branded 
prescription drugs made by different manufacturers and/or a mixture of 
branded prescription and generic drugs, CMS will determine--
    (A) The annual weighted ASP for the HCPCS code;
    (B) The total number of allowed billing units paid by Medicare Part 
B for each HCPCS code during the sales year;
    (C) The names of the entities engaged in manufacturing each NDC 
assigned to the HCPCS code; and
    (D) Those entities (if any) identified in paragraph (c)(4)(C) of 
this section that are manufacturing branded prescription drugs assigned 
to the HCPCS code.
    (ii) Step two. Using the information from paragraph (c)(4)(i) of 
this section, CMS will then do the following:
    (A) Calculate the proportion of sales, expressed as a percentage, 
attributed to each NDC assigned to the HCPCS code by determining the 
percentage of total sales reported to CMS by each manufacturer of 
NDC(s) that are assigned to the HCPCS code. For example, if HCPCS code 
JXXXX contains three drugs with a total of $310,000 sales reported by 
manufacturers to CMS for the sales year, and $100,000 was reported for 
Drug A, $200,000 was reported for Drug B, and $10,000 was reported for 
Drug C, the proportion of sales attributed to each NDC will be 32.26 
percent for Drug A, 64.52 percent for Drug B, and 3.22 percent for Drug 
C; and
    (B) For each NDC, multiply the product of the annual weighted ASP 
and the total allowed billing units paid by Medicare Part B for the 
HCPCS code by the proportion of sales calculated in paragraph 
(c)(4)(ii)(A) of this section to determine the sales reportable to the 
IRS (that is, percentage x (annual weighted ASP x allowed units) = 
total sales reported to IRS for the NDC). The sales for each 
manufacturer's NDCs assigned to a HCPCS code are summed and the total 
sales for each manufacturer's NDCs in a HCPCS code will be reported to 
the IRS.
    (5) HCPCS code; unable to establish a reliable proportion of sales. 
If CMS is unable to establish a reliable proportion of sales 
attributable to each NDC assigned to the HCPCS code using the method 
described in paragraph (c)(4)(ii)(A) of this section, CMS will use 
Medicare Part D utilization percentages in lieu of the proportion of 
sales determined under paragraph (c)(4)(ii)(A) of this section to 
perform the calculation described in paragraph (c)(4)(ii)(B) of this 
section.
    (d) Medicaid. (1) CMS will determine the branded prescription drug 
sales for Medicaid as the per-unit Average Manufacturer Price (AMP) 
less the Unit Rebate Amounts (URA) that CMS calculates based on 
manufacturer-reported pricing data multiplied by the number of units 
reported billed by states to manufacturers. This data will be based on 
the data reported to CMS during the sales year by covered entities and 
the states for drugs paid for by the states in the Medicaid drug rebate 
program during the sales year.
    (2) For any covered entity identified in the first five (or six) 
digits of an NDC during any of the four quarters of a sales year, CMS 
will use the following methodology to derive the sales figures that 
account for third-party payers, such as Medicare Part B:
    (i) Report total dollars per NDC for AMP-URA multiplied by the 
units reported by a state or states.
    (ii) Determine the percentage of the total amount reimbursed that 
is the Medicaid amount of that reimbursement. For example, if the total 
amount reimbursed is $100,000, and the Medicaid amount reimbursed is 
$20,000, then the percentage is 20 percent.
    (iii) Multiply the percentage of the Medicaid amount of that 
reimbursement (in the example in paragraph (d)(2)(ii) of this section, 
20 percent) by the dollar figure derived from paragraph (d)(2)(i) of 
this section (AMP minus URA multiplied by units) to get the new 
adjusted sales dollar totals.
    (e) Department of Veterans Affairs. VA will provide, by NDC, the 
total amount paid (net of refunds and rebates, when they are associated 
with a specific NDC) for each branded prescription drug procured by the 
VA for its beneficiaries during the sales year. For this purpose, a 
drug is procured on the invoice (billing) date. The basis of this 
information will be national procurement data reported during the sales 
year by VA's Pharmaceutical Prime Vendor to the VA Pharmacy Benefits 
Management Service and National Acquisition Center.
    (f) Department of Defense. The DOD will provide, by Labeler Code, 
the manufacturer's name, the NDC, brand name, and the amount paid (net 
of rebates and or refunds) for each branded prescription drug procured 
by DOD (for DOD programs other than the TRICARE retail pharmacy 
program) during the sales year. For DOD programs other than the TRICARE 
retail pharmacy program, a drug is procured based upon the date it was 
ordered. DOD will provide, by Labeler Code, the manufacturer's name, 
the NDC, brand name, and the amount paid (net of rebates or refunds) 
for each branded prescription drug procured by DOD through the TRICARE 
Retail Pharmacy Program during the sales year. For the TRICARE retail 
pharmacy program, a drug is procured based upon the date it was 
dispensed. The amount paid is based on the submitted ingredient cost 
paid, aggregated by NDC, for eligible TRICARE retail pharmacy claims 
submitted during the program year, minus any refunds or rebates for the 
corresponding claims.


Sec.  51.5T  Fee calculation (temporary).

    (a) Fee components--(1) In general. For every fee year, the IRS 
will calculate a covered entity's total fee as described in this 
section. For each fee year after 2011, the IRS will determine a covered 
entity's total fee by applying, if applicable, the adjustment amount 
described in paragraph (e) of this section to the entity's allocated 
fee described in paragraph (d) of this section.
    (2) Calculation of branded prescription drug sales. Each covered 
entity's allocated fee for any fee year is equal to an amount that 
bears the same ratio to the applicable amount as the covered entity's 
branded prescription drug sales taken into account during the sales 
year bears to the aggregate branded prescription drug sales of all 
covered entities taken into account during the sales year.
    (3) Applicable amount. The applicable amounts for fee years are--

------------------------------------------------------------------------
                      Fee year                         Applicable amount
------------------------------------------------------------------------
2011................................................      $2,500,000,000
2012................................................       2,800,000,000
2013................................................       2,800,000,000
2014................................................       3,000,000,000
2015................................................       3,000,000,000
2016................................................       3,000,000,000
2017................................................       4,000,000,000
2018................................................       4,100,000,000
2019 and thereafter.................................       2,800,000,000
------------------------------------------------------------------------

    (3) Sales taken into account. A covered entity's branded 
prescription drug sales taken into account during any calendar year are 
as follows:

[[Page 51253]]



------------------------------------------------------------------------
                                                         Percentage of
                                                            branded
  Covered entity's branded prescription drug sales     prescription drug
         during the calendar year that are:            sales taken into
                                                          account is
------------------------------------------------------------------------
Not more than $5,000,000............................                   0
More than $5,000,000 but not more than $125,000,000.                  10
More than $125,000,000 but not more than                              40
 $225,000,000.......................................
More than $225,000,000 but not more than                              75
 $400,000,000.......................................
More than $400,000,000..............................                 100
------------------------------------------------------------------------

     (b) Determination of branded prescription drug sales. The IRS will 
compile each covered entity's branded prescription drug sales for each 
Program by NDC. Each NDC will be attributed to the covered entity that 
owns the NDC as of the end of the day on December 31st of the sales 
year. For a covered entity that is a controlled group, this includes 
all NDCs that a member of the covered entity owns as of the end of the 
day on December 31st of the sales year. For this purpose, the IRS may 
revise the list of NDCs as a result of information received in the 
dispute resolution process, and the data the IRS uses to produce the 
final fee calculation will include any revisions provided by the 
Agencies at the completion of the dispute resolution process. Each 
covered entity's branded prescription drug sales will be reduced by its 
Medicare Part D rebates and Medicaid state supplemental rebate amounts 
in the following manner. If CMS has the rebate information for these 
Programs for a sales year, CMS will report to the IRS branded 
prescription drug sales net of rebates. If CMS does not have the rebate 
information for these programs for a sales year, the IRS will reduce 
the branded prescription drug sales reported for these Programs by 
rebates reported by the covered entities on Forms 8947.
    (c) Determination of sales taken into account. (1) For each sales 
year and for each covered entity, the IRS will calculate sales taken 
into account. The resulting number is the numerator of the ratio 
described in paragraph (d)(1) of this section.
    (2) For each sales year, the IRS will calculate the aggregate 
branded prescription drug sales taken into account for all covered 
entities. The resulting number is the denominator of the ratio 
described in paragraph (d)(2) of this section.
    (d) Allocated fee calculation. For each covered entity for each fee 
year, the IRS will calculate the entity's allocated fee by multiplying 
the applicable amount from paragraph (a)(2) of this section by a 
fraction--
    (1) The numerator of which is the covered entity's branded 
prescription drug sales taken into account during the sales year 
(described in paragraph (c)(1) of this section); and
    (2) The denominator of which is the aggregate branded prescription 
drug sales taken into account for all covered entities during the same 
year (described in paragraph (c)(2) of this section).
    (e) Adjustment amount. For each fee year after 2011, in addition to 
the allocated fee computed under paragraph (d) of this section, the IRS 
will also calculate an adjustment amount that reflects the difference 
between the allocated fee determined for the covered entity in the 
immediately preceding fee year, using data from the second calendar 
year preceding that fee year, and what the allocated fee would have 
been for that entity for the immediately preceding fee year using data 
from the calendar year immediately preceding that fee year. For 
example, for 2012, the adjustment amount for a covered entity will be 
the difference between the entity's 2011 allocated fee, using 2009 
data, and what the 2011 allocated fee would have been using 2010 data. 
Although the adjustment reflects a revision of the prior year's fee 
based on data from the year immediately preceding the prior fee year, 
the adjustment is only taken into account by adding it to or 
subtracting it from the allocated fee computed under paragraph (d) of 
this section for the current fee year to arrive at the total fee for 
the current fee year.


Sec.  51.6T  Notice of preliminary fee calculation (temporary).

    (a) Content of notice. For each sales year, the IRS will make a 
preliminary calculation of the fee for each covered entity as described 
in Sec.  51.5T. The IRS will notify each covered entity of its 
preliminary fee calculation for that sales year. The notification to a 
covered entity of its preliminary fee calculation will include--
    (1) The covered entity's allocated fee;
    (2) The covered entity's branded prescription drug sales, by NDC, 
by Program;
    (3) The covered entity's branded prescription drug sales taken into 
account after application of Sec.  51.5T(a)(3);
    (4) The aggregate b