Branded Prescription Drug Fee, 43631-43645 [2014-17697]
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Federal Register / Vol. 79, No. 144 / Monday, July 28, 2014 / Rules and Regulations
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to section 7703(b), do not file a joint
return, 50 percent of the premiums for
a period of coverage in a qualified
health plan are allocated to each
taxpayer. However, all of the premiums
are allocated to only one of the
taxpayers for a period in which a
qualified health plan covers only that
taxpayer, only that taxpayer and one or
more dependents of that taxpayer, or
only one or more dependents of that
taxpayer.
(b)(5), Example 1 through Example 8
[Reserved]. For further guidance, see
§ 1.36B–4(b)(5), Example 1 through
Example 8.
Example 9. (i) The facts are the same as in
Example 8, except that X and Y live apart for
over 6 months of the year and X properly
files an income tax return as head of
household. Under section 7703(b), X is
treated as unmarried and therefore is not
required to file a joint return. If X otherwise
qualifies as an applicable taxpayer, X may
claim the premium tax credit based on the
household income and family size X reports
on the return. Y is not an applicable taxpayer
and is not eligible to claim the premium tax
credit.
(ii) X must reconcile the amount of credit
with advance credit payments under
paragraph (a) of this section. The premium
for the applicable benchmark plan covering
X and his two dependents is $9,800. X’s
premium tax credit is computed as follows:
$9,800 benchmark plan premium minus X’s
contribution amount of $5,700 ($60,000 ×
.095) equals $4,100.
(iii) Under paragraph (b)(4) of this section,
half of the advance payments ($6,880/2 =
$3,440) is allocated to X and half is allocated
to Y. Thus, X is entitled to $660 additional
premium tax credit ($4,100¥$3,440). Y has
$3,440 excess advance payments, which is
limited to $600 under paragraph (a)(3) of this
section.
Example 10. (i) A is married to B at the
close of 2014 and they have no dependents.
A and B are enrolled in a qualified health
plan for 2014 with an annual premium of
$10,000 and advance credit payments of
$6,500. A is not eligible for minimum
essential coverage (other than coverage
described in section 5000A(f)(1)(C)) for any
month in 2014. A is a victim of domestic
abuse as described in § 1.36B–2(b)(2)(iii). At
the time A files her tax return for 2014, A is
unable to file a joint return with B for 2014
because of the domestic abuse. A certifies on
her 2014 return, in accordance with relevant
instructions, that she is living apart from B
and is unable to file a joint return because
of domestic abuse. Thus, under § 1.36B–
2(b)(2)(ii), A satisfies the joint return filing
requirement in section 36B(c)(1)(C) for 2014.
(ii) A’s family size for 2014 for purposes of
computing the premium tax credit is one and
A is the only member of her coverage family.
Thus, A’s benchmark plan for all months of
2014 is the second lowest cost silver plan
offered by the Exchange for A’s rating area
that covers A. A’s household income
includes only A’s modified adjusted gross
income. Under paragraph (b)(4)(ii) of this
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section, A takes into account $5,000 ($10,000
× .50) of the premiums for the plan in which
she was enrolled in determining her
premium tax credit. Further, A must
reconcile $3,250 ($6,500 × .50) of the advance
credit payments for her coverage under
paragraph (b)(4)(i) of this section.
(c) Effective/applicability date.
Paragraphs (a)(1)(ii), (a)(3)(iii), (a)(4),
Examples 4, 10, 11, 12, 13, and 14,
(b)(3), (b)(4), and (b)(5), Examples 9 and
10 apply to taxable years beginning after
December 31, 2013.
(d) Expiration date. Paragraphs
(a)(1)(ii), (a)(3)(iii), (a)(4), Examples 4,
10, 11, 12, 13, and 14, (b)(3), (b)(4), and
(b)(5), Examples 9 and 10 expire on July
24, 2017.
■ Par. 8. Section 1.162(l)–1T is added to
read as follows:
§ 1.162(l)–1T Deduction for health
insurance costs of self-employed
individuals (temporary).
(a) Coordination of section 162(l)
deduction for taxpayers subject to
section 36B—(1) In general. A taxpayer
is allowed a deduction under section
162(l) for specified premiums, as
defined in paragraph (a)(2) of this
section, not to exceed an amount equal
to the lesser of—
(i) The specified premiums less the
premium tax credit attributable to the
specified premiums; and
(ii) The sum of the specified
premiums not paid through advance
credit payments, as described in
paragraph (a)(3) of this section, and the
additional tax (if any) imposed under
section 36B(f)(2)(A) and § 1.36B–4(a)(1)
with respect to the specified premiums
after application of the limitation on
additional tax in section 36B(f)(2)(B)
and § 1.36B–4(a)(3).
(2) Specified premiums. For purposes
of paragraph (a)(1) of this section,
specified premiums means premiums
for a specified qualified health plan or
plans for which the taxpayer may
otherwise claim a deduction under
section 162(l). For purposes of this
paragraph (a)(2), a specified qualified
health plan is a qualified health plan, as
defined in § 1.36B–1(c), covering the
taxpayer, the taxpayer’s spouse, or a
dependent of the taxpayer (enrolled
family member) for a month that is a
coverage month within the meaning of
§ 1.36B–3(c) for the enrolled family
member. If a specified qualified health
plan covers individuals other than
enrolled family members, the specified
premiums include only the portion of
the premiums for the specified qualified
health plan that is allocable to the
enrolled family members under rules
similar to § 1.36B–3(h), which provides
rules for determining the amount under
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43631
§ 1.36B–3(d)(1) when two families are
enrolled in the same qualified health
plan.
(3) Specified premiums not paid
through advance credit payments. For
purposes of paragraph (a)(1)(ii) of this
section, specified premiums not paid
through advance credit payments equal
the amount of the specified premiums
minus the advance credit payments
attributable to the specified premiums.
(b) Additional guidance. The
Secretary may provide by publication in
the Federal Register or in the Internal
Revenue Bulletin (see § 601.601(d)(2) of
this chapter) additional guidance on
coordinating the deduction allowed
under section 162(l) and the credit
provided under section 36B.
(c) Effective/applicability date. This
section applies for taxable years
beginning after December 31, 2013.
(d) Expiration date. This section
expires on July 24, 2017.
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
Approved: July 22, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2014–17695 Filed 7–24–14; 4:15 pm]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 51 and 602
[TD 9684]
RIN 1545–BJ39
Branded Prescription Drug Fee
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations, temporary
regulations, and removal of temporary
regulations.
AGENCY:
This document contains final
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.
This document also withdraws the
Branded Prescription Drug Fee
temporary regulations and contains new
temporary regulations regarding the
definition of controlled group that apply
beginning on January 1, 2015. The final
regulations and the new temporary
SUMMARY:
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Federal Register / Vol. 79, No. 144 / Monday, July 28, 2014 / Rules and Regulations
regulations affect persons engaged in the
business of manufacturing or importing
certain branded prescription drugs. The
text of the temporary regulations in this
document also serves as the text of
proposed regulations set forth in a
notice of proposed rulemaking (REG–
123286–14) on this subject in the
Proposed Rules section in this issue of
the Federal Register.
DATES: Effective Date: These regulations
are effective on July 28, 2014.
Applicability Date: For dates of
applicability, see §§ 51.11, 51.11T, and
51.6302–1(b).
FOR FURTHER INFORMATION CONTACT:
Celia Gabrysh at (202) 317–6855 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information
contained in these regulations has been
reviewed and approved by the Office of
Management and Budget under control
number 1545–2209. The collection of
information in these final regulations is
in §§ 51.2(f)(2) and 51.7. Section
51.2(f)(2) requires consents to be
maintained, in the case of a controlled
group that is not an affiliated group, by
the designated entity and each member
of the controlled group. Section § 51.7
requires a covered entity that chooses to
dispute its preliminary fee calculation
to provide certain information.
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.
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 section
6103 of the Internal Revenue Code.
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Background
This document contains final
regulations that provide guidance under
section 9008 of the Patient Protection
and Affordable Care Act, Public Law
111–148 (124 Stat. 119 (2010)), as
amended by section 1404 of the Health
Care and Education Reconciliation Act
of 2010, Public Law 111–152 (124 Stat.
1029 (2010)) (collectively the ACA). All
references in this preamble to section
9008 are references to section 9008 of
the ACA. Section 9008 did not amend
the Internal Revenue Code (Code) but
cross-references specified Code sections.
On November 29, 2010, the IRS
released Notice 2010–71, 2010–50 IRB
822, which proposed an approach to
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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 August 18, 2011, the Federal
Register published temporary
regulations relating to the fee on
branded prescription drugs (TD 9544, 76
FR 51245). The Federal Register also
published on the same day a notice of
proposed rulemaking (REG–112805–10,
76 FR 51310) cross-referencing the
temporary regulations (the proposed
regulations).
In response to the proposed
regulations, the Department of the
Treasury (Treasury Department) and the
IRS received a variety of comments from
the public. All written comments are
available at www.regulations.gov or
upon request. The Treasury Department
and the IRS held a public hearing on
November 9, 2012. After considering the
public comments and the hearing
testimony, the final regulations adopted
by this Treasury decision are generally
consistent with the proposed
regulations and also reflect certain
minor changes as described in this
preamble. The corresponding temporary
regulations are removed. The final
regulations and the new temporary
regulations are discussed in this
preamble.
All references to section 505 are
references to section 505 of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C.
353(b)). Unless otherwise indicated, all
other references to subtitles, chapters,
subchapters, and sections in this
preamble are references to subtitles,
chapters, subchapters, and sections in
the Code and related regulations. All
references to ‘‘fee’’ in the final
regulations are references to the fee
imposed by section 9008 of the ACA.
Effect on Other Documents
The following publications are
obsolete as of July 28, 2014:
Notice 2010–71, 2010–51 IRB 822,
and Notice 2011–9, 2011–6 IRB 459.
Explanation of Provisions and
Summary of Comments
Definitions
Manufacturer or Importer
Section 9008(d)(1) defines covered
entity as any manufacturer or importer
with gross receipts from branded
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prescription drug sales. Section 9008(e)
defines branded prescription drug sales
to mean sales of branded prescription
drugs to any specified government
programs or pursuant to coverage under
such programs. These 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).
The temporary regulations defined a
manufacturer or importer of a branded
prescription drug as the person
identified in the Labeler Code of the
National Drug Code (NDC). The NDC is
a unique identifier that is assigned to all
drug products approved by the Food
and Drug Administration (FDA),
including a branded 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.
Commenters asked the IRS to allocate
drug sales to an entity other than the
person identified in the Labeler Code of
a drug’s NDC when a covered entity
transfers a drug to another covered
entity during the sales year or engages
in a transaction, such as a
reorganization or a bankruptcy, that
results in a different entity selling the
drug. The final regulations do not adopt
this request. A rule that uses the Labeler
Code to identify the manufacturer or
importer of a branded prescription drug
provides certainty for both covered
entities and the IRS. The FDA maintains
a database that is available on the FDA
Web site with information about each
NDC, including its Labeler Code, which
is assigned by the FDA. The IRS refers
to this database to identify the person in
the NDC’s Labeler Code. The IRS
encourages covered entities to review
and update their NDC data with the
FDA to reflect changes in the
manufacturer or importer of a branded
prescription drug.
Covered Entity and Adjustment Amount
To be a covered entity, a manufacturer
or importer must have gross receipts
from branded prescription drug sales.
Section 9008(b)(1) requires the IRS to
calculate each covered entity’s fee each
fee year using sales data from the
preceding calendar year. Pursuant to
section 9008(g), the Centers for
Medicare and Medicaid Services of the
Department of Health and Human
Services (CMS), the Department of
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Veterans Affairs (VA), and the
Department of Defense (DOD)
(collectively, the Agencies) provide
sales data to the IRS. For purposes of
calculating the fee, the temporary
regulations used the second calendar
year preceding the fee year as the sales
year. This rule is necessary because
CMS cannot complete its data
processing within the necessary time
frame. The temporary regulations
further provided that, 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 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. Because CMS
cannot complete its data processing any
earlier, the final regulations adopt this
approach.
A commenter asserted that, under the
temporary regulations, a former covered
entity may not be eligible for an
adjustment amount if the entity does not
have any sales in subsequent years and
is, therefore, no longer a covered entity.
According to the commenter, if a
covered entity owes a fee in 2013 based
on 2011 sales, but has no sales in 2012
or later years, then that entity would not
qualify as a covered entity in 2014
because the temporary regulations do
not provide a mechanism for the entity
to receive an adjustment amount for
2013. The commenter suggested that if
an adjustment amount results in a net
credit to the covered entity’s fee, the IRS
should treat the adjustment amount as
an overpayment. The final regulations
do not adopt this suggestion. However,
the final regulations clarify that an
entity is treated as a covered entity for
any year in which the entity has
branded prescription drug sales and for
any year for which those sales must be
taken into account in calculating the fee
and determining the adjustment
amount. Therefore, an entity’s status as
a covered entity begins in the first year
it has branded prescription drug sales to
the Programs even though the fee does
not take those sales immediately into
account, and continues until all sales for
that entity have been taken into account
for both fee calculation and adjustment
amount purposes.
For example, assume that an entity
had sales in 2011 with no sales in
earlier or later years. The entity is a
covered entity beginning in 2011. The
entity is not liable for a fee in 2011 or
2012 since those fee years are based on
2009 and 2010 sales, respectively. In
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2013, the entity is liable for the fee
based on its 2011 sales. Furthermore,
the entity is liable for the adjustment
amount for the difference between the
2012 fee for the entity computed using
2010 sales, which is $0, and what the
2012 fee would have been using 2011
sales. Even though the entity does not
have any sales in 2012 or later years, it
will continue to be a covered entity in
2014 because its 2011 sales must be
taken into account for purposes of
determining the adjustment amount
relating to the 2013 fee that applies to
the 2014 fee year. The entity will not be
a covered entity after 2014 because its
2011 sales will not be taken into
account after 2014. The final regulations
include this example.
Controlled Group
In accordance with the statute, the
temporary regulations provided that a
covered entity includes a controlled
group. The temporary regulations
defined the term controlled group to
mean 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). Under the final
regulations, this definition applies
through December 31, 2014. Therefore,
this definition applies for purposes of
determining who is in the controlled
group through the 2016 fee year because
the fee for the 2016 fee year is based
upon data from the 2014 sales year. In
this Treasury decision, the Treasury
Department and the IRS are also issuing
new temporary regulations (the 2014
temporary regulations), that define the
term controlled group to mean a group
of two or more persons, including at
least one person that is a covered entity,
that are treated as a single employer
under section 52(a), 52(b), 414(m) or
414(o). This new definition applies
beginning on January 1, 2015. Therefore,
this definition applies for purposes of
determining who is in the controlled
group beginning with the 2017 fee year
because the fee for the 2017 fee year is
based upon data from the 2015 sales
year. The broader definition of
controlled group in the 2014 temporary
regulations is supported by the statutory
language and is consistent with how
controlled group rules with similar
statutory language are applied,
including how controlled group is
defined in § 57.2(c)(1) for purposes of
the health insurance providers fee under
ACA section 9010. The Treasury
Department and the IRS expect that the
broader definition in the 2014
temporary regulations will primarily
impact joint and several liability for the
fee and will not otherwise affect the
administration of the fee. The final
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43633
regulations include conforming changes
to the provision for joint and several
liability to clarify that joint and several
liability applies to all members of the
controlled group under either definition
of controlled group, whichever applies.
Designated Entity
The temporary regulations required
each controlled group that files a Form
8947, ‘‘Report of Branded Prescription
Drug Information,’’ to have a designated
entity. A designated entity is the person
within the controlled group that acts on
behalf of the controlled group with
regard to the fee. The temporary
regulations further provided that if the
controlled group, without regard to
foreign corporations included under
section 9008(d)(2)(B), is also an
affiliated group that files 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 files a consolidated
return, the temporary regulations
allowed the controlled group to select
its designated entity. However, if the
controlled group did not select a
designated entity, the IRS would select
a member of the controlled group as the
designated entity.
The final regulations modify the
temporary regulations to better
coordinate with the consolidated return
regulations. Specifically, the final
regulations provide that the designated
entity of a controlled group, without
regard to foreign corporations included
under section 9008(d)(2)(B), that is a
consolidated group (within the meaning
of § 1.1502–1(h)) is the agent for the
group (within the meaning of § 1.1502–
77).
The temporary regulations required
the designated entity to state under
penalties of perjury that all the covered
entities that are members of the
controlled group have consented to the
selection of the designated entity. The
final regulations adopt this requirement
and further require each member of the
controlled group to maintain a record of
its consent. The final regulations also
require the designated entity to
maintain a record of all of the members’
consents. Under the final regulations,
this consent requirement does not apply
to a controlled group that is a
consolidated group (within the meaning
of § 1.1502–1(h)). If a controlled group
that is not a consolidated group does not
select a designated entity, the final
regulations provide that the IRS will
select a designated entity and all
covered entities in the controlled group
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will be deemed to have consented to the
IRS’s selection of a designated entity.
Orphan Drug Sales
Section 9008(e)(3) provides that the
term branded prescription drug sales
does not include sales of any drug or
biological product with respect to which
a credit was allowed for any taxable
year under section 45C. Section
9008(e)(3) also provides that this
exclusion does not apply with respect to
any such drug or biological product
after the date on which such drug or
biological product is approved by the
FDA for marketing for any indication
other than the treatment of the rare
disease or condition with respect to
which such credit was allowed. In
accordance with the statute, the
temporary regulations generally defined
the term orphan drug to mean 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 provided 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, in accordance with the
statute, the temporary regulations
provided that an 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 before,
in the same year as, or after this FDA
approval.
Commenters requested that the final
regulations treat a drug as an orphan
drug if the section 45C credit was
‘‘allowable’’; that is, the section 45C
credit could have been claimed, but was
not actually claimed. Another
commenter requested that the final
regulations extend orphan drug
treatment to any drug for which the
section 45C credit was allowable but for
which a research tax credit under
section 41 was claimed with respect to
a taxable year ending on or before
December 31, 2010. Several commenters
also reasoned that the statutory
exception for orphan drugs should be
extended to any drug that has been
designated by the FDA as an orphan
drug. Commenters also requested that
the final regulations extend the orphan
drug exclusion to drug sales for
therapies that have only been approved
to treat orphan diseases, and to all
products that are FDA-approved for
marketing solely for rare diseases and
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conditions. The final regulations do not
adopt these suggestions because the
plain language of section 9008(e)(3)
requires that the drug be an orphan drug
for which the section 45C credit was
actually allowed rather than merely
allowable. The terms ‘‘allowed’’ and
‘‘allowable’’ have separate and distinct
meanings throughout the Code. For
example, under section 1016(a)(2), a
taxpayer may adjust basis to the extent
the amount was ‘‘allowed’’ as a
deduction in computing taxable income
but not less than the amount
‘‘allowable.’’ 1 In addition, the
overwhelming weight of authority under
the case law interprets the term
‘‘allowed’’ in the Code to require the
taxpayer to have actually taken the
amount into account for tax purposes.2
The FDA’s mere classification of a drug
as an orphan drug is not a determining
factor because the plain language of
section 9008(e)(3) applies the exclusion
only to sales of drugs for which a
section 45C credit was in fact allowed.
Commenters also requested that
orphan drug status be given to a drug for
which a section 45C credit was allowed,
even though the drug had been
subsequently 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 final regulations do
not adopt this suggestion because the
plain language of section 9008(e)(3)
indicates 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, in the same
year as, or after a section 45C credit was
allowed for the drug, sales of that drug
are not considered sales of an orphan
drug beginning in the following sales
year. However, a drug will retain its
orphan drug status if the drug
subsequently receives approval only for
another indication for a rare disease or
condition for which a section 45C credit
was allowed.
Pre-1984 Generic Drugs
Section 9008(e)(2)(A) defines the term
branded prescription drug to include
any prescription drug the application
for which was submitted to the FDA
1 Likewise, under section 1250(b)(3), if a taxpayer
can establish that the amount ‘‘allowed’’ as a
deduction was less than the amount ‘‘allowable,’’
then the amount taken into account for purposes of
a depreciation adjustment is the amount ‘‘allowed.’’
See also section 36B(c)(1)(D) and section
42(j)(5)(A)(i).
2 See Virginian Hotel Corporation of Lynchburg v.
Helvering, 319 U.S. 523, 526 (1943); Flood v. United
States, 33 F.3d 1174, 1178 n.5 (9th Cir. 1994); Lenz
v. Commissioner, 101 T.C. 260, 265 (1993);
Hightower v. Commissioner, T.C. Memo 1982–559.
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under section 505(b). The final
regulations track the statutory language
in defining the term branded
prescription drug. Neither the statute
nor the final regulations specifically
refer to or address the treatment of
generic drugs.
On September 24, 1984, Congress
enacted the Drug Price Competition and
Patent Restoration Act of 1984, Public
Law 98–417 (1984) (the 1984 Act). The
1984 Act added section 505(j) to provide
an expedited approval process for
generic drugs. Because an applicant
submits an application for approval of a
generic drug after the 1984 Act under
section 505(j) rather than section 505(b),
such a drug is not a branded
prescription drug for purposes of the
branded prescription drug fee.
It has come to our attention that,
before the 1984 Act, an applicant
submitted an application for approval of
any prescription drug under section
505(b), and no separate statutory
process existed for approval of a generic
drug. The Treasury Department and the
IRS request comments on whether a
special rule is appropriate regarding the
treatment of generic drugs for which
applications were submitted under
section 505(b) prior to the 1984 Act,
including comments on how to
distinguish generic drugs for which
applications were submitted under
section 505(b) prior to the 1984 Act
from other prescription drugs for which
applications were submitted under
section 505(b) prior to the 1984 Act in
a manner that is both administrable and
consistent with section 9008. Any
special rule regarding the treatment of
these generic drugs would be
prospective only.
Comments with regard to this issue
should be submitted in writing and can
be mailed to the Office of Associate
Chief Counsel (Passthroughs and
Special Industries), Re: REG–112805–
10, CC;PSI:B7, Room 5314, 1111
Constitution Avenue NW., Washington,
DC 20224. All comments received will
be available for public inspection at
https://www.regulations.gov (IRS REG–
112805–10).
Information Requested From Covered
Entities
The temporary regulations gave each
covered entity the opportunity to
provide information relevant to the
determination of the fee by annually
submitting Form 8947, including
information regarding rebates.
Commenters asked that CMS include all
rebate data in its reports to the IRS,
rather than have the IRS collect rebate
data from the covered entities on Form
8947. CMS now includes rebate data for
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Medicare and federal Medicaid in its
reports. Therefore, the final regulations
eliminate the provision for separate
reporting of Medicare and federal
Medicaid rebates by covered entities
and Form 8947 no longer requests
information on these rebates. However,
CMS does not include Medicaid state
supplemental rebate data. Until CMS
can include Medicaid state
supplemental rebate data in its reports
to the IRS, covered entities will
continue to have the opportunity to
submit this rebate data on Form 8947.
Therefore, the final regulations retain
the provision that permits separate
reporting of Medicaid state
supplemental rebate data by covered
entities.
A commenter asked whether to
include state-only pharmaceutical
program rebates on Form 8947 as
Medicaid Drug Rebates. According to
CMS, state-only pharmaceutical
programs are not part of the Medicaid
Drug Rebate Program or the federal
Medicaid program. Therefore, the final
regulations specify that the Medicaid
Drug Rebate Program’s calculated
branded prescription drug fee does not
include state-only pharmaceutical sales
or rebates. Accordingly, a covered entity
may not report on its Form 8947 or error
report a rebate paid by the covered
entity in connection with a state-only
pharmaceutical program.
A commenter asked that the final
regulations provide that a covered entity
may submit an incomplete Form 8947.
The final regulations do not adopt this
suggestion. Submission of Form 8947 is
voluntary. A covered entity that chooses
to file Form 8947, however, must state,
under penalties of perjury, that to the
best of the filer’s knowledge and belief,
the information provided on Form 8947
is true, correct, and complete. As in the
past, a covered entity may correct and
supplement information it submitted on
Form 8947, if necessary, by submitting
one or more error reports as part of the
dispute resolution process.
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Information Provided by the Agencies
Section 9008(g) requires each Program
to calculate and provide sales data
based on the methodologies described
in section 9008(g). Section 9008(b)(3)
requires the IRS to use the data
provided by the Programs to calculate
the fee. In accordance with the statute,
the temporary regulations required the
Agencies to provide data to the IRS on
branded prescription drug sales that
occurred during the sales year by
Program and NDC. The temporary
regulations also set forth the
methodologies used by the Agencies for
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calculating the sales amounts for each
Program.
Commenters raised questions about
the descriptions in the temporary
regulations of the methodologies used
by the Agencies, asked that these
descriptions be clarified, suggested
alternative methods of calculating
Program sales data, and requested
additional data. In response to these
comments, the final regulations adopt
certain suggestions to include revised
descriptions of the data and
computations the Agencies use to
calculate branded prescription drug
sales as described in the following
sections for each Program. In addition,
this preamble provides further
background on the methodologies used
by the Agencies as described in the
following sections for each Program.
Because the Agencies have the
responsibility to compute and report the
data described in the statute, the
Treasury Department and the IRS
coordinated extensively with the
Agencies in preparing the additional
background information in the preamble
and the revised descriptions in the final
regulations.
Medicare Part D
The temporary regulations provided
that, to determine branded prescription
drug sales amounts for 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.
Section 9008(g)(1)(A) requires Medicare
Part D sales amounts to be reduced by
‘‘any per-unit rebate, discount, or other
price concession provided by the
covered entity.’’
Commenters asked that the final
regulations clarify how CMS determines
these net sales amounts. The final
regulations adopt this suggestion. The
final regulations clarify that CMS will
aggregate the ‘‘Ingredient Cost Paid’’
field on the PDE records at the NDC
level, reduced by discounts, rebates, and
other price concessions provided by the
covered entity. To obtain this
information, CMS uses two main data
sources to determine net sales amounts:
the PDE records and the Detailed Direct
and Indirect Remuneration (DIR) Report.
CMS obtains information for these two
data sources from Medicare Part D
sponsors.
The final regulations specifically
define ‘‘discounts, rebates, and other
price concessions provided by the
covered entity’’ to include, in part, DIR.
DIR is any and all rebates, subsidies, or
other price concessions from any source
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(including manufacturers, pharmacies,
enrollees, or any other person) that
serve to decrease the costs incurred by
the Medicare Part D sponsor (whether
directly or indirectly) for the Medicare
Part D drug. See 42 CFR 423.308. Thus,
DIR includes discounts, chargebacks,
rebates, cash discounts, free goods
contingent on a purchase agreement, upfront payments, and coupons. DIR also
includes goods in kind, free or reducedprice services, grants, legal judgment
amounts, settlement amounts from
lawsuits or other legal action, and other
price concessions or similar benefits.
However, DIR does not include price
concessions that CMS does not consider
to directly or indirectly impact drug
costs incurred by the Medicare Part D
sponsor.
The final regulations further provide
that DIR includes both DIR reported on
the PDE records at the point of sale and
DIR reported on the Detailed DIR
Report. The temporary regulations
provided that, if CMS does not have
Medicare Part D rebate information for
a sales year, then the IRS will reduce the
branded prescription drug sales
reported for Medicare Part D by rebates
reported by covered entities on Form
8947. This procedure was necessary for
fee year 2011 because CMS did not have
the information necessary to report
Medicare Part D sales data net of DIR.
To provide this data to the IRS at the
individual drug level as the statute
requires, CMS began to collect DIR at
the NDC level from Medicare Part D
sponsors for use in the 2012 fee year,
which Medicare Part D sponsors report
to CMS on the Detailed DIR Report.
Medicare Part D sponsors also report
DIR on the PDE records at the point of
sale, though these amounts tend to be
nominal. Therefore, since fee year 2012,
CMS has been reporting its Medicare
Part D sales data to the IRS net of all DIR
by deducting from the Ingredient Cost
both DIR reported on the PDE records at
the point of sale and DIR reported on
the Detailed DIR Report. The final
regulations reflect this approach. As
stated earlier in this preamble, the final
regulations also eliminate the provision
for separate reporting of Medicare Part
D rebates by covered entities on Form
8947.
A commenter requested that the final
regulations clarify the treatment of
coverage gap discount amounts. The
final regulations adopt this suggestion
effective for fee years beginning in 2014.
The Medicare Part D coverage gap, also
known as the ‘‘donut hole,’’ is a gap in
prescription drug coverage that is being
closed due to the Affordable Care Act.
Part of closing the coverage gap is the
Coverage Gap Discount Program
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described in section 1860D–14A of the
Social Security Act, which requires a
50-percent manufacturer-paid discount
on covered brand-name drugs in certain
instances. For fee years 2012 and 2013,
CMS did not deduct coverage gap
discount amounts from the Ingredient
Cost. This comment, however,
prompted CMS to recharacterize
coverage gap discount amounts as a type
of rebate, discount, or other price
concession for purposes of the fee
calculation. Therefore, beginning with
the final fee calculation for fee year
2014, CMS will report Medicare Part D
sales data to the IRS that is net of
coverage gap discount amounts. The
final regulations reflect this change.
The final regulations also remove the
reference to the ‘‘Quantity Dispensed’’
field of the PDE records. This field has
no impact on sales because CMS totals
the ingredient cost at the NDC level and
determines DIR reported on the PDE
records at the point of sale and DIR
reported on the Detailed DIR Report at
the NDC level. Thus, the unit of
reference used by CMS is consistently at
the NDC level.
Commenters suggested that the final
regulations require CMS to exclude
sales in Puerto Rico in determining sales
amounts for Medicare Part D. The final
regulations do not adopt this suggestion.
Section 9008(g) requires each Agency to
report to the IRS the total branded
prescription drug sales for each covered
entity for each Program. Section 9008
does not provide any exclusion for sales
in Puerto Rico or any other territory.
When calculating its branded
prescription drug sales data for
Medicare Part D, CMS includes sales,
DIR reported on the PDE records at the
point of sale, and DIR reported on the
Detailed DIR Report for all sales in the
United States and its territories,
including the Commonwealth of Puerto
Rico.
Medicare Part B
The temporary regulations provided
that CMS will determine branded
prescription drug sales under Medicare
Part B using two data sources. First,
CMS will use the data reported by
manufacturers pursuant to section
1847A(c) of the Social Security Act (42
U.S.C. 1395w-3a(c)) to calculate the
annual weighted average sales price
(ASP) for each Healthcare Common
Procedure Coding System code (HCPCS
code) for the sales year. Second, CMS
will use the Medicare Part B National
Summary Data File located at https://
www.cms.gov/Research-Statistics-Dataand-Systems/Files-for-Order/
NonIdentifiableDataFiles/
PartBNationalSummaryDataFile.html to
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obtain the number of allowed billing
units per HCPCS code for claims
incurred during the sales year. The
temporary regulations further provided
separate detailed methods for CMS to
use this data to determine Medicare Part
B sales amounts depending on whether
(1) the HCPCS code consists solely and
exclusively of branded prescription
drugs manufactured by a single entity,
(2) the HCPCS code consists of a
mixture of branded prescription drugs
made by different manufacturers and/or
a mixture of branded prescription and
generic drugs, or (3) CMS is unable to
establish a reliable proportion of sales
attributable to each NDC assigned to the
HCPCS code.
Under the third method in the
temporary regulations, if CMS is unable
to establish a reliable proportion of sales
attributable to each NDC assigned to the
HCPCS code, CMS will calculate
Medicare Part B sales by using Medicare
Part D utilization percentages. A
commenter requested that CMS develop
a more accurate backup method. The
final regulations do not adopt this
suggestion. In CMS’s view, the existing
backup method is sufficiently reliable.
Additionally, CMS did not anticipate
frequent use of this approach and has
not needed to use the backup method
for any fee calculation to date. The final
regulations do, however, include a more
detailed explanation of how CMS uses
HCPCS codes as well as an example.
Commenters also expressed concern
about whether Medicare Part B is
capturing complete data on what are
sometimes referred to as non-separately
payable drugs. Non-separately payable
drugs may not be directly correlated
with a single specific HCPCS code.
Some non-separately payable drugs are
associated with more than one HCPCS
code or are bundled with services, such
as dialysis. CMS recognizes this concern
and makes extensive effort to gather as
complete a data set as possible. CMS
will continue to work with the data
available to capture non-separately
payable drugs.
Medicaid
The temporary regulations provided
that CMS will determine branded
prescription drug sales as the per-unit
Average Manufacturer Price (AMP) less
the Unit Rebate Amount (URA) that
CMS calculates based on manufacturerreported pricing data multiplied by the
number of units reported billed by the
states to manufacturers. Specifically, the
temporary regulations provided that 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
uses the following methodology to
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derive the branded prescription sales
amounts that account for third-party
payers:
Step 1. Report total dollars per NDC
for AMP minus URA, multiplied by the
units reported by a state or states;
Step 2. Determine the percentage of
the total amount reimbursed that is the
Medicaid amount of that
reimbursement; and
Step 3. Multiply the percentage of the
Medicaid amount of that reimbursement
by the dollar figure from step 1 (AMP
minus URA, multiplied by units) to get
the new adjusted sales dollar totals.
The final regulations clarify that CMS
will determine branded prescription
drug sales as the per-unit AMP less the
URA that CMS calculates based on
manufacturer-reported pricing data
multiplied by the number of units
reported as paid by the states rather
than as billed by the states.
Commenters requested that the final
regulations require Medicaid to use the
per-unit ingredient cost paid to
pharmacies by the states as provided in
section 9008(g)(3) instead of AMP in
computing total branded prescription
drug sales. The final regulations do not
adopt this suggestion. Medicaid does
not have the ability to use the per-unit
ingredient cost paid to pharmacies by
the states because Medicaid systems are
not designed to track drug sales data in
this manner or obtain this type of
detailed information from the states.
Instead, Medicaid systems track drug
sales data using AMP. AMP is the best
alternative that Medicaid systems
permit and serves as a reasonable proxy
for the per-unit ingredient cost paid to
pharmacies by the states.
The temporary regulations provided
that Medicaid branded prescription
drug sales 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. The final regulations
clarify that the sales data is based on the
data that covered entities report for the
sales year rather than the data that
covered entities report during the sales
year because some reporting for a sales
year may occur after that year ends.
Commenters requested that the final
regulations clarify the meaning of the
phrase ‘‘drugs paid for by the states in
the Medicaid Drug Rebate Program’’ and
whether it includes units paid for under
managed care organization plans. In
response to this request, the final
regulations specify that ‘‘drugs paid for
by the states in the Medicaid Drug
Rebate Program’’ includes all branded
prescription drug units for which the
states bill rebates to covered entities
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under the Medicaid Drug Rebate
Program. This program includes, but is
not limited to, units paid for under
various health care plans such as fee for
service, managed care organizations,
and drugs administered in a non-retail
setting such as drugs administered in a
physician’s office, clinic, hospital or
other setting. Under the Medicaid Drug
Rebate Program, states provide the
required utilization data. States report
separate totals for each NDC for both
fee-for-service and managed care
organization utilization data. Also, as
stated earlier in this preamble, the final
regulations specify that the Medicaid
Drug Rebate Program’s calculated
branded prescription drug fee does not
include state-only pharmaceutical
program sales or rebates.
Commenters asked how a covered
entity can ensure that a state has
updated its Medicaid data files to
accurately reflect state rebates. This
issue is beyond the scope of these
regulations. However, since 2011, in the
context of the dispute resolution
process, CMS, IRS, and covered entities
have devoted extensive resources to
resolving discrepancies between a
state’s reported rebate data that CMS
uses to compute Medicaid’s branded
prescription drug sales data for the IRS
and the rebate data that covered entities
receive from that state. To resolve these
discrepancies on a timely basis, CMS
has established a reconciliation process.
To maximize the effectiveness of this
reconciliation process, however, a
covered entity must use the CMS
reconciliation process in a timeframe
that allows discrepancies to be resolved
before CMS computes the branded
prescription sales data that it sends the
IRS for purposes of computing a covered
entity’s preliminary fee calculation. A
covered entity’s timely use of the CMS
reconciliation process will help
minimize, if not eliminate, the errors
related to CMS’s Medicaid data that a
covered entity would otherwise include
in its error report. The web address for
this resource is https://medicaid.gov/
Medicaid-CHIP-Program-Information/
By-Topics/Benefits/Prescription-Drugs/
Branded-Prescription-Drug.html. This
CMS Medicaid Branded Prescription
Drug Fee program Web page also has
additional information regarding
Medicaid sales data. Covered entities
may email questions to CMS Medicaid
regarding the data used in this program
at MedicaidBPD@cms.hhs.gov with
‘‘BPD’’ in the email subject line.
Department of Veterans Affairs
The temporary regulations provided
that VA will provide, by NDC, the total
amount paid (net of refunds and rebates,
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when they are associated with a specific
NDC) for each branded prescription
drug procured by VA for its
beneficiaries during the sales year. For
this purpose, a drug is procured on the
invoice (billing) date. The temporary
regulations further provided that 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.
A commenter requested that the final
regulations require that the amount of
the IFF and CRF be excluded from VA
sales either by requiring VA to exclude
these amounts from its sales data or by
allowing a covered entity to report these
amounts on its Form 8947. The final
regulations do not adopt this suggestion.
According to VA, these amounts are part
of the total price VA pays to its
Pharmaceutical Prime Vendor and are
properly included in the sales amount.
A commenter requested that the final
regulations confirm that VA sales data
does not include DOD, Coast Guard,
Indian Health, or other purchases made
under the Federal Supply Schedule. VA
does not include in its sales data
purchases made by other agencies.
Because the methodology in the
regulations is already limited to
purchases made by VA, the final
regulations do not need further
clarification.
Department of Defense
The temporary regulations provided
that, for DOD programs other than
TRICARE, 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 during the sales year. For this
purpose, a drug is procured based upon
the date it was ordered.
A commenter requested that the final
regulations require that the amount of
the Industrial Funding Fee (IFF) and the
Cost Recovery Fee (CRF) be excluded
from DOD sales, either by requiring
DOD to exclude these fees from its sales
data or by allowing a covered entity to
report these fees on its Form 8947. The
IFF and CRF are administrative fees that
are added to the cost of purchasing
under the Federal Supply Schedule and
National Contract Service. The final
regulations do not adopt this suggestion.
According to DOD, these fee amounts
are part of the total price DOD pays to
procure a drug and are properly
included in the sales amount.
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TRICARE
The temporary regulations provided
that 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 (TRICARE) during the sales
year. For TRICARE, 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 claims submitted during the
program year, minus any refunds or
rebates for the corresponding claims.
Commenters expressed concern that
TRICARE’s drug sales overlap with DOD
and VA and asked that the final
regulations address this perceived
overlap. The final regulations do not
adopt this suggestion. No overlap exists
because TRICARE only reports sales
from its retail pharmacy network, which
is distinct from sales reported by DOD
and VA. TRICARE, DOD, and VA
separately maintain and report their
own drug sales data.
Section 51.4T(f) described the
TRICARE and DOD methodologies for
calculating sales data. Section 51.4(f)
continues to describe the DOD
methodology. A new subsection,
§ 51.4(g), describes the TRICARE
methodology.
Fee Calculation Including Adjustment
As stated earlier in this preamble,
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 temporary regulations
provided that 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.
A commenter asked that the final
regulations provide for a separate
dispute resolution process for the
adjustment amount after the final fee
calculation because errors reported in
the dispute resolution process may not
be resolved in time to be reflected in the
final fee calculation. The final
regulations do not adopt this suggestion.
The adjustment amount is part of the
preliminary fee calculation. Therefore,
each covered entity has an opportunity
to raise disputes regarding the
adjustment amount during the existing
dispute resolution process. Moreover,
an adjustment to one covered entity’s
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final fee calculation would necessitate a
recalculation of each covered entity’s
prior final fee calculation because the
fee is an allocated fee. The final
regulations clarify that the IRS will not
make adjustments to a final fee
calculation.
Because the amount of the fee under
the temporary regulations was based on
sales from the second preceding year,
commenters suggested that the final
regulations allow a covered entity to
reduce its fee liability in the same year
that the covered entity experiences an
event that would significantly reduce its
sales to the Programs and make
corresponding adjustments in future
years. Such events may include a drug
recall, a loss of patent exclusivity, or
bankruptcy. The final regulations do not
adopt this suggestion. The statute
requires the IRS to determine each
covered entity’s branded prescription
drug sales on the basis of reports
submitted by the Agencies and to
uniformly apply the fee determination
rules to each covered entity’s sales data.
The methodology adopted in the final
regulations ensures that the applicable
fee amount is appropriately apportioned
among the covered entities.
In accordance with section 9008(f)(1),
the temporary regulations treated the fee
as an excise tax for purposes of subtitle
F. A commenter suggested that the final
regulations provide for interest
payments for adjustment amounts that
are credited to a covered entity. The
final regulations do not adopt this
suggestion. Instead, the final regulations
clarify that an adjustment amount itself
is neither an overpayment nor an
underpayment, but rather a component
of the current year’s fee. Thus, for
purposes of section 6601, any increase
in the current year’s fee resulting from
any adjustment amount, along with the
remainder of the fee, is treated as due
on the due date for the current year’s
fee. Conversely, for purposes of section
6611, any adjustment amount that
decreases the current year’s fee is
treated as a payment towards the
current fee amount made on the due
date of the current fee year.
Commenters asked that the final
regulations clarify whether a covered
entity must file Form 843, ‘‘Claim for
Refund and Request for Abatement,’’ to
request that the IRS calculate an
adjustment amount when a covered
entity anticipates that it is entitled to a
positive adjustment amount. As stated
earlier in this preamble, a positive
adjustment amount is not an
overpayment. Accordingly, in response
to this comment, the final regulations
clarify that a covered entity does not file
Form 843 to obtain an adjustment
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amount. The IRS automatically
calculates adjustment amounts.
Additionally, the final regulations
clarify that if a covered entity’s
adjustment amount reduces the fee
below zero and results in an amount
due to the covered entity for the fee
year, the IRS will automatically pay this
amount due to the covered entity.
Another commenter suggested that
the final regulations clarify whether the
period of limitations on filing a claim
set forth in section 6511 applies to the
adjustment amount. Under the final
regulations, section 6511 applies to the
fee, but not separately to the adjustment
amount, because the adjustment amount
is merely a component of the fee. For
purposes of section 6511, any
adjustment amount that decreases the
current year’s fee is treated as a payment
towards the current fee amount made on
the due date of the current fee year.
Notification and Payment of Fee
The temporary regulations provided
that, no later than August 31st of each
fee year, the IRS will send each covered
entity its final fee calculation for that fee
year. Several commenters suggested that
the IRS send the final fee notice in an
electronic format. The final regulations
do not adopt this suggestion because it
is outside the scope of these regulations.
However, the final regulations do not
prohibit the IRS from using an
electronic format for the final fee notice.
Moreover, at the time these comments
were submitted, the IRS was already
sending a covered entity’s sales data
with its preliminary fee notice on a
separate CD–ROM in Microsoft Excel
format to each covered entity that timely
requested it. After receiving these
comments, the IRS began also sending a
covered entity’s sales data with its final
notice on a separate CD–ROM in
Microsoft Excel format if the entity had
made a timely request for the CD–ROM
to be sent with its preliminary fee
notice. More information about the
manner for notifying covered entities of
their preliminary and final fee
calculations is contained in Notice
2014–42.
In accordance with section 9008(a)(2),
the temporary regulations provided that
each covered entity must pay its final
fee by September 30th of the fee year.
A commenter suggested that the final
regulations clarify whether section 7503
applies to the deadline for fee payment.
Section 7503 provides that if the last
day for performing an act required
under the authority of the internal
revenue laws falls on a Saturday,
Sunday, or a legal holiday, the
performance of the act is timely if the
act is performed on the next succeeding
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day that is not a Saturday, Sunday, or
a legal holiday. The final regulations do
not provide a special rule because
section 9008(f)(1) and the final
regulations treat the fee as an excise tax
for purposes of subtitle F. Therefore,
section 7503 applies to the deadline for
fee payment.
Dispute Resolution Process
The temporary regulations provided
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 the final fee
calculation. The temporary regulations
described the information that covered
entities must submit. The final
regulations adopt these provisions with
the following minor changes that will
allow the IRS to more accurately process
a covered entity’s disputes.
The temporary regulations required
that a Form 2848, ‘‘Power of Attorney
and Declaration of Representative’’ must
be filed with an error report. The final
regulations clarify that a Form 2848 is
required only when the representative is
not an employee of the covered entity
who is authorized under section 6103 or
designated on Form 8947 to discuss the
information reported on Form 8947.
The temporary regulations required
the name, telephone number, and email
address (if available) of one or more
employees or representatives with
whom errors may be discussed. The
final regulations also require a fax
number.
For Program errors, the temporary
regulations required a covered entity to
submit a separate error report for each
Program with the asserted errors. For
non-Program errors, the temporary
regulations required a covered entity to
submit one error report with all of the
non-Program errors. To streamline the
error reporting process, the final
regulations require a covered entity to
combine both Program and non-Program
errors on a single error report, with each
asserted error on a separate line.
Availability of IRS Documents
The IRS notices, the revenue
procedure, and the temporary
regulations cited in this preamble are
published in the Internal Revenue
Bulletin and are available at
www.irs.gov. The temporary regulations
are also available in the Code of Federal
Regulations.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866, as
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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 (5
U.S.C. chapter 5) does not apply to these
regulations. It is hereby certified that the
collection of information in these final
regulations will not have a significant
economic impact on a substantial
number of small entities. This
certification is based on the fact that the
only collection burden imposed by
these regulations is the requirement to
maintain a record of consent to the
selection of a designated entity, and this
collection burden applies only to
designated entities of controlled groups,
which tend to be large corporations, and
their members. Therefore, a Regulatory
Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f), the notice of proposed
rulemaking was submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business, and no
comments were received.
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
§ 51.1
§ 51.1T
26 CFR Part 51
Overview.
(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
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.
[Removed]
Drugs, Reporting and recordkeeping
requirements.
Par. 3. Section 51.1T is removed.
■ Par. 4. Section 51.2T is revised to read
as follows:
26 CFR Part 602
§ 51.2T
■
Reporting and recordkeeping
requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 51 and 602
are amended as follows:
PART 51—BRANDED PRESCRIPTION
DRUG FEE
Paragraph 1. The authority citation
for part 51 continues to read as follows:
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■
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).
Par. 2. Section 51.1 is added to read
as follows:
■
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Explanation of terms (temporary).
(a) Through (e)(2) [Reserved]. For
further guidance see § 51.2(a) through
(e)(2).
(3) Controlled Group. The term
controlled group means a group of two
or more persons, including at least one
person that is a covered entity, that is
treated as a single employer under
section 52(a), 52(b), 414(m), or 414(o).
(e)(4) through (m) [Reserved]. For
further guidance see § 51.2(e)(4) through
(m).
Par. 5. Section 51.2 is added to read
as follows:
§ 51.2
Explanation of terms.
(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—
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(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)) (FFDCA); 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 FFDCA.
(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 a controlled group.
(3) Controlled group— (i) On or before
December 31, 2014. 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).
(ii) After December 31, 2014. For
guidance regarding the definition of
controlled group after December 31,
2014, see § 51.2T(e)(3).
(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 person 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.
(5) Covered entity status—(i) Rule. An
entity’s status as a covered entity begins
in the first fee year in which the entity
has branded prescription drug sales and
continues each subsequent fee year until
there are no remaining branded
prescription drug sales for that entity to
be taken into account as described in
§ 51.5(c) or used to calculate the
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adjustment amount described in
§ 51.5(e).
(ii)
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Example. The following example
illustrates the rule of paragraph (e)(5)(i) of
this section:
(A) Facts. Entity A is a manufacturer with
gross receipts of more than $5 million from
branded prescription drugs sales in 2011.
Entity A does not have any gross receipts
from branded prescription drug sales before
or after 2011.
(B) Analysis. Entity A is a covered entity
beginning in 2011 because it had gross
receipts from branded prescription drug sales
in 2011. For the 2011 fee year, Entity A does
not owe a fee because the 2011 fee is based
on sales data from the 2009 sales year. For
the 2012 fee year, Entity A does not owe a
fee because the 2012 fee is based on sales
data from the 2010 sales year. Entity A
continues to be a covered entity for the 2012
fee year because its branded prescription
drug sales from the 2011 sales year have not
yet been taken into account as described in
§ 51.5(c) and used to calculate the adjustment
amount described in § 51.5(e). For the 2013
fee year, Entity A continues to be a covered
entity because a portion of its branded
prescription drug sales from the 2011 sales
year are taken into account as described in
§ 51.5(c) for purposes of computing the 2013
fee. For the 2013 fee year, Entity A is also
liable for the adjustment amount described in
§ 51.5(e) for the difference between its 2012
fee computed using sales data from the 2010
sales year, which is $0, and what the 2012
fee would have been using sales data from
the 2011 sales year. For the 2014 fee year,
Entity A continues to be a covered entity
because a portion of its branded prescription
drug sales for the 2011 sales year are used to
calculate the adjustment amount described in
§ 51.5(e). Therefore, for the 2014 fee year,
Entity A will receive an adjustment amount
for the difference between its 2013 fee
computed using sales data from the 2011
sales year, and what the 2013 fee would have
been using sales data from the 2012 sales
year, which is $0. After the 2014 fee year,
there are no remaining branded prescription
drug sales to be taken into account as
described in § 51.5(c) or used to calculate the
adjustment amount described in § 51.5(e) for
Entity A. Accordingly, Entity A is not a
covered entity after the 2014 fee year.
(f) Designated entity—(1) In general.
The term designated entity means the
person within a controlled group that is
designated to act for the 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
§ 51.7; and
(iv) Paying the fee to the government.
(2) Selection of designated entity—(i)
Controlled group selection of a
designated entity. Except as provided in
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paragraph (f)(2)(ii) of this section, the
controlled group may select a person as
the designated entity by filing Form
8947 in accordance with the form
instructions. The designated entity must
state under penalties of perjury that all
members of the controlled group have
consented to the selection of the
designated entity. The designated entity
must maintain a record of all member
consents. Each member of a controlled
group must maintain a record of its
consent to the controlled group’s
selection of the designated entity.
(ii) Requirement for affiliated groups;
agent for the group. If the controlled
group, without regard to foreign
corporations included under section
9008(d)(2)(B), is also an affiliated group
whose common parent files a
consolidated return for federal income
tax purposes, the designated entity is
the agent for the group (within the
meaning of § 1.1502–77 of this title).
(iii) IRS selection of a designated
entity. Except as provided in paragraph
(f)(2)(ii) of this section, if a controlled
group does not select a designated entity
as provided in paragraph (f)(2)(i) of this
section, the IRS will select a member of
the controlled group as the designated
entity for the controlled group. If the
IRS selects the designated entity, then
all members of that controlled group
will be deemed to have consented to the
IRS’s selection of the designated entity.
(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 a
unique identifier that is assigned to all
drug products approved by the Food
and Drug Administration (FDA),
including a branded prescription drug.
The Labeler Code is the first five
numeric characters of the NDC or the
first six numeric characters when the
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available five-character code
combinations are exhausted.
(k) Orphan drugs—(1) In general.
Except as provided in paragraph (k)(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 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
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 2011. In 2011, 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 2012, 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 2011 and 2012, 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 2012, the FDA
did not approve the drug for marketing for
any indication other than the treatment of a
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rare disease or condition for which a section
45C credit was allowed. However, Drug A is
not an orphan drug for the 2013 sales year
or later sales years because in 2012 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 2011. In
2011, FDA approved Drug B for marketing for
the treatment of a rare disease or condition
and also approved Drug B for marketing for
an indication other than the treatment of a
rare disease or condition. In 2012, 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 2011, Drug B is not an
orphan drug because no section 45C credit
was allowed and because the FDA approved
Drug B for an indication other than the
treatment of a rare disease or condition. In
2012, 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 2011 for
marketing for an indication other than the
treatment of a rare disease or condition for
which a section 45C credit was allowed in
2012. Thus, Drug B is not an orphan drug for
the 2012 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 2010.
In 2010, a covered entity claimed a section
45C credit for its qualified clinical testing
expenses related to Drug C. In 2012, 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 2010. There was
no final IRS assessment or court order that
disallowed the full credit for Drug C in 2010
or 2012. 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 2010 and 2011, 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
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indication other than the treatment of a rare
disease or condition for which a section 45C
credit was allowed. In 2012, 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 2013 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
§ 51.5(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 2014, the
sales year is 2012.
■ Par. 6. Section 51.3 is added to read
as follows:
§ 51.3 Information requested from covered
entities.
(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.
§ 51.3T
[Removed]
Par. 7. Section 51.3T is removed.
■ Par. 8. Section 51.4 is added to read
as follows:
■
§ 51.4 Information provided by the
Agencies.
(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
§ 51.7) 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 that occurred during the sales
year by Program and NDC. The Agencies
will provide data for use in preparing
the preliminary fee calculation
(described in §§ 51.5 and 51.6) 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
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techniques and assumptions that the
Agencies expect to use, is described in
this section.
(b) Medicare Part D—(1) In general.
CMS will determine branded
prescription drug sales under Medicare
Part D by aggregating the ingredient cost
reported in the ‘‘Ingredient Cost Paid’’
field on the Prescription Drug Event
(PDE) records at the NDC level, reduced
by discounts, rebates, and other price
concessions provided by the covered
entity, for each sales year. CMS will
only include PDE data that Part D
sponsors have submitted by the PDE
submission deadline (within 6 months
after the end of the sales year) and that
CMS has approved for inclusion in the
Part D payment reconciliation.
(2) Discounts, rebates, and other price
concessions—(i) In general. For
purposes of paragraph (b)(1) of this
section, the term discounts, rebates, and
other price concessions means:
(A) Any direct and indirect
remuneration (DIR) (within the meaning
of paragraph (b)(2)(B) of this section),
which includes any DIR reported on the
PDE records at the point of sale and any
DIR reported on a Detailed DIR Report
(within the meaning of paragraph
(b)(2)(C) of this section); and
(B) Any coverage gap discount
amount (within the meaning of
paragraph (b)(2)(D) of this section).
(ii) Direct and indirect remuneration.
For purposes of paragraph (b)(2)(A)(i) of
this section, the term direct and indirect
remuneration (DIR) has the same
meaning as found in the definition of
actually paid in 42 CFR 423.308.
(iii) Detailed DIR Report. For purposes
of paragraph (b)(2)(A)(i) of this section,
the term Detailed DIR Report means the
report containing any DIR (within the
meaning of paragraph (b)(2)(B) of this
section) that is collected yearly from
Part D sponsors at the NDC level.
(iv) Coverage gap discount amount.
For purposes of paragraph (b)(2)(A)(ii)
of this section, the term coverage gap
discount amount means a 50-percent
manufacturer-paid discount on certain
drugs under the Coverage Gap Discount
Program described in section 1860D–
14A of the Social Security Act.
(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.
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(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—(i) In general. 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. CMS reports sales amounts per
HCPCS billing code, not per NDC.
Therefore, a covered entity’s total Part B
sales amounts for all NDCs in a given
HCPCS billing code appears under only
one NDC in each HCPCS billing code
and the covered entity’s remaining
NDCs in the HCPCS billing code are
listed with a sales amount of zero.
(ii) Example of a Part B sales report:
HCPCS
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J9876
NDC
12345–6789–01
12345–6789–02
12345–6789–03
12345–6800–80
12345–6800–90
Part B
amount
$789,000
0
0
0
0
(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
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
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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 × (annual weighted
ASP × 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 manufacturerreported 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 for
the sales year by covered entities and
the states for drugs paid for by the states
in the Medicaid Drug Rebate Program
for the sales year. The data will include
all branded prescription drug units for
which the states bill rebates to covered
entities under the Medicaid Drug Rebate
Program. This program includes, but is
not limited to, units paid for under
various health care plans such as fee for
service, managed care organizations,
and drugs administered in a non-retail
setting such as drugs administered in a
physician’s office, clinic, hospital or
other setting. The Medicaid Drug Rebate
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Program’s calculated branded
prescription drug fee does not include
state-only pharmaceutical program sales
or rebates.
(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 minus 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 determine branded prescription
drug sales to VA by providing, 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 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. VA sales
data includes the Industrial Funding
Fee and the Cost Recovery Fee because
these amounts are part of the price VA
pays to its Pharmaceutical Prime
Vendor to procure a drug.
(f) Department of Defense. DOD will
determine branded prescription drug
sales to DOD (for DOD programs other
than the TRICARE retail pharmacy
program) by providing, 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 includes
the Industrial Funding Fee and the Cost
Recovery Fee in its drug sales data
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because these amounts are part of the
price DOD pays to procure a drug.
(g) TRICARE. DOD will determine
branded prescription drug sales to DOD
for the TRICARE retail pharmacy
program by providing, 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.
Covered entity’s branded
prescription drug sales during the calendar year that
are:
Percentage of
branded prescription drug
sales taken
into account
is:
Not more than $5,000,000 ...
More than $5,000,000 but
not more than
$125,000,000 ....................
More than $125,000,000 but
not more than
$225,000,000 ....................
More than $225,000,000 but
not more than
$400,000,000 ....................
More than $400,000,000 ......
0
10
40
75
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 identified in the
§ 51.4T [Removed]
Labeler Code as of the end of the day on
■ Par. 9. Section 51.4T is removed.
December 31st of the sales year. For a
covered entity that is a controlled group,
■ Par. 10. Section 51.5 is added to read
this includes all NDCs in which a
as follows:
member of the covered entity is
§ 51.5 Fee calculation.
identified. For this purpose, the IRS
may revise the list of NDCs as a result
(a) Fee components—(1) In general.
For every fee year, the IRS will calculate of information received in the dispute
resolution process, and the data the IRS
a covered entity’s total fee as described
uses to produce the final fee calculation
in this section. The IRS will determine
will include any revisions provided by
a covered entity’s total fee by applying,
the Agencies at the completion of the
if applicable, the adjustment amount
dispute resolution process. Each
described in paragraph (e) of this
covered entity’s branded prescription
section to the entity’s allocated fee
drug sales will be reduced by its
described in paragraph (d) of this
Medicaid state supplemental rebate
section.
amounts in the following manner. If
(2) Calculation of branded
CMS has Medicaid state supplemental
prescription drug sales. Each covered
rebate information for a sales year, CMS
entity’s allocated fee for any fee year is
will report to the IRS branded
equal to an amount that bears the same
prescription drug sales for Medicaid net
ratio to the applicable amount as the
of Medicaid state supplemental rebates.
covered entity’s branded prescription
If CMS does not have complete
drug sales taken into account during the Medicaid state supplemental rebate
sales year bears to the aggregate branded information for a sales year, the IRS will
prescription drug sales of all covered
reduce the branded prescription drug
entities taken into account during the
sales that CMS reported for Medicaid by
sales year.
Medicaid state supplemental rebates
(3) Applicable amount. The
reported by the covered entities on
applicable amounts for fee years are—
Form 8947.
(c) Determination of sales taken into
Fee year
Applicable amount account. (1) For each sales year and for
each covered entity, the IRS will
2011 ..............................
$2,500,000,000
2012 ..............................
2,800,000,000 calculate sales taken into account. The
2013 ..............................
2,800,000,000 resulting number is the numerator of the
2014 ..............................
3,000,000,000 ratio described in paragraph (d)(1) of
2015 ..............................
3,000,000,000 this section.
(2) For each sales year, the IRS will
2016 ..............................
3,000,000,000
2017 ..............................
4,000,000,000 calculate the aggregate branded
2018 ..............................
4,100,000,000 prescription drug sales taken into
2019 and thereafter ......
2,800,000,000 account for all covered entities. The
resulting number is the denominator of
(4) Sales taken into account. A
the ratio described in paragraph (d)(2) of
covered entity’s branded prescription
this section.
(d) Allocated fee calculation. For each
drug sales taken into account during any
covered entity for each fee year, the IRS
calendar year are as follows:
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43643
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—(1) In
general. In addition to the allocated fee
computed under paragraph (d) of this
section, the IRS will also automatically
calculate for each covered entity an
adjustment amount. An adjustment
amount 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
2014, the adjustment amount for a
covered entity will be the difference
between the entity’s 2013 allocated fee,
using 2011 data, and what the 2013
allocated fee would have been using
2012 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. An adjustment
amount is treated as a component of the
current year’s fee. For purposes of
section 6601, any increase in the
allocated fee computed under paragraph
(d) of this section for the current fee
year resulting from any adjustment
amount, along with the remainder of the
fee, is treated as a fee liability due on
the due date for the current year’s fee.
For purposes of sections 6511 and 6611,
any adjustment amount that decreases
the allocated fee computed under
paragraph (d) of this section for the
current fee year is treated as a payment
towards the current fee liability made
on the due date of the current fee year.
(2) Amounts paid to a covered entity
because of an adjustment amount. If a
covered entity’s adjustment amount
reduces the fee computed under
paragraph (d) of this section below zero
and results in an amount due to the
covered entity for the fee year, the IRS
will pay this amount due to the covered
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entity. A covered entity does not file
Form 843, Claim for Refund and
Request for Abatement, to receive this
amount owed to a covered entity.
§ 51.5T
[Removed]
Par. 11. Section 51.5T is removed.
■ Par. 12. Section 51.6 is added to read
as follows:
■
§ 51.6 Notice of preliminary fee
calculation.
(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 § 51.5. 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 § 51.5(a)(4);
(4) The aggregate branded
prescription drug sales taken into
account for all covered entities;
(5) The covered entity’s adjustment
amount calculated as described in
§ 51.5(e); and
(6) A reference to the fee dispute
resolution procedures set forth in
guidance published in the Internal
Revenue Bulletin.
(b) Time of notice. The IRS will send
each covered entity notice of its
preliminary fee calculation by the date
prescribed in guidance published in the
Internal Revenue Bulletin.
§ 51.6T
[Removed]
Par. 13. Section 51.6T is removed.
■ Par. 14. Section 51.7 is added to read
as follows:
■
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§ 51.7
Dispute resolution process.
(a) In general. Upon receipt of its
preliminary fee calculation, each
covered entity will have an opportunity
to dispute this calculation by submitting
to the IRS an error report as described
in this section. The IRS will provide its
final determination with respect to error
reports no later than the time the IRS
provides a covered entity with a final
fee calculation.
(b) Error report information. To assert
that there have been one or more errors
in the drug sales data reported by a
Program, the mathematical calculation
of the fee, the rebate data, the listing of
an NDC for an orphan drug, or any other
error, a covered entity must submit an
error report with each asserted error
reported on a separate line. The report
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14:46 Jul 25, 2014
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must include the following
information—
(1) Entity name, address, and
Employer Identification Number (EIN)
as previously reported on the Form
8947;
(2) The name, telephone number, fax
number, and email address (if available)
of one or more employees or
representatives of the entity with whom
the IRS may discuss the claimed errors.
If the representative is not an employee
of the covered entity who is authorized
under section 6103 or designated on
Form 8947 to discuss the information
reported on Form 8947 with the IRS, a
Form 2848, ‘‘Power of Attorney and
Declaration of Representative,’’ must be
filed with the error report;
(3) For an error in the drug sales data
reported by a Program, the name of the
Program that reported the data, the
NDC, the specific amount of sales data
disputed, the proposed corrected
amount, an explanation of why the
Agency should use the proposed
corrected data instead, and
documentation of any Program drug
sales data or other information used to
establish the existence of any errors.
(4) For a mathematical calculation
error, the specific calculation element(s)
that the entity disputes and its proposed
corrected calculation;
(5) For a rebate data error, the NDC for
the drug to which it relates; a discussion
of whether the data used in the
preliminary fee calculation matches
previously reported Form 8947 data on
rebates; and, if the data used in the
preliminary fee calculation does match
the Form 8947 data, an explanation of
why the Form 8947 data was erroneous
and why the IRS should use the
proposed corrected data instead;
(6) For the listing of an NDC for an
orphan drug, the name and NDC of the
orphan drug; a discussion of whether
the data used in the preliminary fee
calculation matches previously reported
Form 8947 data on orphan drugs; and,
if the data used in the preliminary fee
calculation does match the Form 8947
data, an explanation of why the Form
8947 data was erroneous and why the
IRS should use the proposed corrected
data instead;
(7) For any other asserted error, an
explanation of the nature of the error,
how the error affects the fee calculation,
an explanation of how the entity
established that an error occurred, the
proposed correction to the error, and an
explanation of why the IRS or Agency
should use the proposed corrected data
instead;
(8) If an entity is using data to
establish the existence of an error and
that data was not reported on Form 8947
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Fmt 4700
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or contained in the notification of the
preliminary fee calculation, a
description of what the data is, how the
entity acquired the data, and who
maintains it; and
(9) Documentation of any rebate and
orphan drug data, or other information
used to establish the existence of any
errors.
(c) Form, manner, and timing of
submission. Each covered entity must
submit its error report(s) in the form and
manner that is prescribed in guidance
published in the Internal Revenue
Bulletin. This guidance will also
prescribe the date by which each
covered entity must submit its report(s).
(d) Finality. A covered entity must
assert any basis for contesting its
preliminary fee calculation during the
dispute resolution period. In the interest
of providing finality to the fee
calculation process, the IRS will not
accept an error report after the end of
the dispute resolution period or alter the
final fee calculation on the basis of
information provided after the end of
the dispute resolution period.
§ 51.7T
[Removed]
Par. 15. Section 51.7T is removed.
Par. 16. Section 51.8 is added to read
as follows:
■
■
§ 51.8
Notification and payment of fee.
(a) Notification of final fee
calculation. No later than August 31st of
each fee year, the IRS will send each
covered entity its final fee calculation
for that year. In any fee year, the IRS
will base its final fee calculation on data
provided to it by the Agencies as
adjusted pursuant to the dispute
resolution process. The notification to a
covered entity of its final fee calculation
will include—
(1) The covered entity’s allocated fee;
(2) The covered entity’s adjustment
amount calculated as described in
§ 51.5;
(3) The covered entity’s branded
prescription drug sales, by NDC, by
Program;
(4) The covered entity’s branded
prescription drug sales taken into
account after application of § 51.5(a)(4);
(5) The aggregate branded
prescription drug sales taken into
account for all covered entities; and
(6) The final determination with
respect to error reports.
(b) Differences in preliminary fee
calculation and final fee calculation. A
covered entity’s final fee calculation
may differ from the covered entity’s
preliminary fee calculation because of
changes made pursuant to the dispute
resolution process described in § 51.7.
Even if a covered entity did not file an
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error report described in § 51.7, a
covered entity’s final fee may differ
from a covered entity’s preliminary fee
because of a change in data reported by
the Agencies after resolution of error
reports, including a change in the
aggregate prescription drug sales figure.
A change in aggregate prescription drug
sales data can affect each covered
entity’s fee because each covered
entity’s fee is a fraction of the aggregate
fee collected from all covered entities. A
covered entity’s final fee may also differ
from its preliminary fee calculation
because the data used in the preliminary
fee calculation may have contained
inaccurate branded prescription drug
sales information that was corrected or
updated at the conclusion of the dispute
resolution process.
(c) Payment of final fee. Each covered
entity must pay its final fee by
September 30th of the fee year. For a
controlled group, the payment must be
made using the designated entity’s EIN
as reported on Form 8947. The fee must
be paid by electronic funds transfer as
required by § 51.6302–1. There is no tax
return to be filed for the fee.
(d) Joint and several liability. In the
case of a controlled group that is liable
for the fee, all members of the controlled
group are jointly and severally liable for
the fee. Accordingly, if a controlled
group’s fee is not paid, the IRS will
separately assess each member of the
group for the full amount of the
controlled group’s fee.
§ 51.8T
[Removed]
Par. 17. Section 51.8T is removed.
■ Par. 18. Section 51.9 is added to read
as follows:
■
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§ 51.9
Tax treatment of fee.
(a) Treatment as an excise tax. The fee
imposed by section 9008 is treated as an
excise tax for purposes of subtitle F of
the Internal Revenue Code (Code)
(sections 6001–7874). Thus, references
in subtitle F to ‘‘taxes imposed by this
title,’’ ‘‘internal revenue tax,’’ and
similar references, are also references to
the fee imposed by section 9008. For
example, the fee imposed by section
9008 is assessed (section 6201),
collected (sections 6301, 6321, and
6331), enforced (section 7402 and 7403),
subject to examination and summons
(section 7602), and subject to
confidentiality rules (section 6103) in
the same manner as taxes imposed by
the Code.
(b) Deficiency procedures. The
deficiency procedures of sections 6211–
6216 do not apply to the fee imposed by
section 9008.
(c) Limitation on assessment. The IRS
must assess the amount of the fee for
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14:46 Jul 25, 2014
Jkt 232001
any fee year within three years of
September 30th of that fee year.
(d) Application of section 275. The fee
is treated as a tax described in section
275(a)(6) (relating to taxes for which no
deduction is allowed).
§ 51.9T
Authority: 26 U.S.C. 7805.
Par. 19. Section 51.9T is removed.
■ Par. 20. Section 51.10 is added to read
as follows:
Refund claims.
Any claim for a refund of the fee must
be made by the person that paid the fee
to the government and must be made on
Form 843, ‘‘Claim for Refund and
Request for Abatement,’’ in accordance
with the instructions for that form.
§ 51.10T
Par. 27. The authority citation for part
602 continues to read as follows:
■
[Removed]
■
§ 51.10
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 28. In § 602.101, paragraph (b) is
amended by:
■ 1. Removing the entry for 51.8T from
the table; and
■ 2. Adding entries, in numerical order,
for 51.2(f)(2)(ii) and 51.7 to the table to
read as follows:
■
§ 602.101
*
OMB Control numbers.
*
*
(b) * * *
*
*
CFR part or section where
identified and described
[Removed]
Par. 21. Section 51.10T is removed.
Par. 22. Section 51.11T is revised to
read as follows:
Current OMB
Control No.
■
■
§ 51.11T
Effective/applicability date.
(a) through (b) [Reserved]. For further
guidance see § 51.11(a) through (b).
(c) Section 51.2T(e)(3) applies to any
fee on branded prescription drug sales
that is due on or after January 1, 2015.
(d) The applicability of § 51.2T(e)(3)
expires on July 24, 2017.
■ Par. 23. Section 51.11 is added to read
as follows:
§ 51.11
Effective/applicability date.
(a) Except as otherwise provided in
this section, §§ 51.1 through 51.10 apply
on and after July 28, 2014.
(b) Section 51.2(e)(3) applies on July
28, 2014 through December 31, 2014.
(c) [Reserved]. For further guidance
see § 51.11T(c).
§ 51.12T
Par. 24. Section 51.12T is removed.
Par. 25. Section 51.6302–1 is added to
read as follows:
■
■
§ 51.6302–1 Method of paying the branded
prescription drug fee.
(a) Fee to be paid by electronic funds
transfer. Under the authority of section
6302(a), the fee imposed on branded
prescription drug sales by section 9008
and § 51.5 must be paid by electronic
funds transfer as defined in § 31.6302–
1(h)(4)(i) of this title, as if the fee were
a depository tax. For the time for paying
the fee, see § 51.8.
(b) Effective/applicability date. This
section applies on and after July 28,
2014.
[Removed]
Par. 26. Section 51.6302–1T is
removed.
■
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*
*
*
51.2(f)(2)(ii) ...........................
51.7 .......................................
*
*
*
*
1545–2209
1545–2209
*
*
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
Approved: July 22, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2014–17697 Filed 7–24–14; 4:15 pm]
BILLING CODE 4830–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
[Removed]
§ 51.6302–1T
*
Sfmt 4700
33 CFR Part 151
[Docket No. USCG–2014–0410]
RIN 1625–AC13
Navigation and Navigable Waters;
Technical, Organizational, and
Conforming Amendments
Coast Guard, DHS.
Final rule; correction.
AGENCY:
ACTION:
The Coast Guard published a
final rule in the Federal Register on July
7, 2014, that made non-substantive
corrections throughout Title 33 of the
Code of Federal Regulations. One of the
amendatory instructions, which was
intended to update a mailing stop
number, contained a reference to the
wrong paragraph in a section. This rule
corrects that error.
SUMMARY:
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Agencies
[Federal Register Volume 79, Number 144 (Monday, July 28, 2014)]
[Rules and Regulations]
[Pages 43631-43645]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17697]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 51 and 602
[TD 9684]
RIN 1545-BJ39
Branded Prescription Drug Fee
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations, temporary regulations, and removal of
temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final 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. This document also withdraws the Branded
Prescription Drug Fee temporary regulations and contains new temporary
regulations regarding the definition of controlled group that apply
beginning on January 1, 2015. The final regulations and the new
temporary
[[Page 43632]]
regulations affect persons engaged in the business of manufacturing or
importing certain branded prescription drugs. The text of the temporary
regulations in this document also serves as the text of proposed
regulations set forth in a notice of proposed rulemaking (REG-123286-
14) on this subject in the Proposed Rules section in this issue of the
Federal Register.
DATES: Effective Date: These regulations are effective on July 28,
2014.
Applicability Date: For dates of applicability, see Sec. Sec.
51.11, 51.11T, and 51.6302-1(b).
FOR FURTHER INFORMATION CONTACT: Celia Gabrysh at (202) 317-6855 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these regulations has
been reviewed and approved by the Office of Management and Budget under
control number 1545-2209. The collection of information in these final
regulations is in Sec. Sec. 51.2(f)(2) and 51.7. Section 51.2(f)(2)
requires consents to be maintained, in the case of a controlled group
that is not an affiliated group, by the designated entity and each
member of the controlled group. Section Sec. 51.7 requires a covered
entity that chooses to dispute its preliminary fee calculation to
provide certain information.
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.
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 section 6103 of
the Internal Revenue Code.
Background
This document contains final regulations that provide guidance
under section 9008 of the Patient Protection and Affordable Care Act,
Public Law 111-148 (124 Stat. 119 (2010)), as amended by section 1404
of the Health Care and Education Reconciliation Act of 2010, Public Law
111-152 (124 Stat. 1029 (2010)) (collectively the ACA). All references
in this preamble to section 9008 are references to section 9008 of the
ACA. Section 9008 did not amend the Internal Revenue Code (Code) but
cross-references specified Code sections.
On November 29, 2010, the 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 August 18, 2011, the Federal Register published temporary
regulations relating to the fee on branded prescription drugs (TD 9544,
76 FR 51245). The Federal Register also published on the same day a
notice of proposed rulemaking (REG-112805-10, 76 FR 51310) cross-
referencing the temporary regulations (the proposed regulations).
In response to the proposed regulations, the Department of the
Treasury (Treasury Department) and the IRS received a variety of
comments from the public. All written comments are available at
www.regulations.gov or upon request. The Treasury Department and the
IRS held a public hearing on November 9, 2012. After considering the
public comments and the hearing testimony, the final regulations
adopted by this Treasury decision are generally consistent with the
proposed regulations and also reflect certain minor changes as
described in this preamble. The corresponding temporary regulations are
removed. The final regulations and the new temporary regulations are
discussed in this preamble.
All references to section 505 are references to section 505 of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 353(b)). Unless
otherwise indicated, all other references to subtitles, chapters,
subchapters, and sections in this preamble are references to subtitles,
chapters, subchapters, and sections in the Code and related
regulations. All references to ``fee'' in the final regulations are
references to the fee imposed by section 9008 of the ACA.
Effect on Other Documents
The following publications are obsolete as of July 28, 2014:
Notice 2010-71, 2010-51 IRB 822, and Notice 2011-9, 2011-6 IRB 459.
Explanation of Provisions and Summary of Comments
Definitions
Manufacturer or Importer
Section 9008(d)(1) defines covered entity as any manufacturer or
importer with gross receipts from branded prescription drug sales.
Section 9008(e) defines branded prescription drug sales to mean sales
of branded prescription drugs to any specified government programs or
pursuant to coverage under such programs. These 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).
The temporary regulations defined a manufacturer or importer of a
branded prescription drug as the person identified in the Labeler Code
of the National Drug Code (NDC). The NDC is a unique identifier that is
assigned to all drug products approved by the Food and Drug
Administration (FDA), including a branded 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.
Commenters asked the IRS to allocate drug sales to an entity other
than the person identified in the Labeler Code of a drug's NDC when a
covered entity transfers a drug to another covered entity during the
sales year or engages in a transaction, such as a reorganization or a
bankruptcy, that results in a different entity selling the drug. The
final regulations do not adopt this request. A rule that uses the
Labeler Code to identify the manufacturer or importer of a branded
prescription drug provides certainty for both covered entities and the
IRS. The FDA maintains a database that is available on the FDA Web site
with information about each NDC, including its Labeler Code, which is
assigned by the FDA. The IRS refers to this database to identify the
person in the NDC's Labeler Code. The IRS encourages covered entities
to review and update their NDC data with the FDA to reflect changes in
the manufacturer or importer of a branded prescription drug.
Covered Entity and Adjustment Amount
To be a covered entity, a manufacturer or importer must have gross
receipts from branded prescription drug sales. Section 9008(b)(1)
requires the IRS to calculate each covered entity's fee each fee year
using sales data from the preceding calendar year. Pursuant to section
9008(g), the Centers for Medicare and Medicaid Services of the
Department of Health and Human Services (CMS), the Department of
[[Page 43633]]
Veterans Affairs (VA), and the Department of Defense (DOD)
(collectively, the Agencies) provide sales data to the IRS. For
purposes of calculating the fee, the temporary regulations used the
second calendar year preceding the fee year as the sales year. This
rule is necessary because CMS cannot complete its data processing
within the necessary time frame. The temporary regulations further
provided that, 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 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. Because CMS cannot complete its data processing any
earlier, the final regulations adopt this approach.
A commenter asserted that, under the temporary regulations, a
former covered entity may not be eligible for an adjustment amount if
the entity does not have any sales in subsequent years and is,
therefore, no longer a covered entity. According to the commenter, if a
covered entity owes a fee in 2013 based on 2011 sales, but has no sales
in 2012 or later years, then that entity would not qualify as a covered
entity in 2014 because the temporary regulations do not provide a
mechanism for the entity to receive an adjustment amount for 2013. The
commenter suggested that if an adjustment amount results in a net
credit to the covered entity's fee, the IRS should treat the adjustment
amount as an overpayment. The final regulations do not adopt this
suggestion. However, the final regulations clarify that an entity is
treated as a covered entity for any year in which the entity has
branded prescription drug sales and for any year for which those sales
must be taken into account in calculating the fee and determining the
adjustment amount. Therefore, an entity's status as a covered entity
begins in the first year it has branded prescription drug sales to the
Programs even though the fee does not take those sales immediately into
account, and continues until all sales for that entity have been taken
into account for both fee calculation and adjustment amount purposes.
For example, assume that an entity had sales in 2011 with no sales
in earlier or later years. The entity is a covered entity beginning in
2011. The entity is not liable for a fee in 2011 or 2012 since those
fee years are based on 2009 and 2010 sales, respectively. In 2013, the
entity is liable for the fee based on its 2011 sales. Furthermore, the
entity is liable for the adjustment amount for the difference between
the 2012 fee for the entity computed using 2010 sales, which is $0, and
what the 2012 fee would have been using 2011 sales. Even though the
entity does not have any sales in 2012 or later years, it will continue
to be a covered entity in 2014 because its 2011 sales must be taken
into account for purposes of determining the adjustment amount relating
to the 2013 fee that applies to the 2014 fee year. The entity will not
be a covered entity after 2014 because its 2011 sales will not be taken
into account after 2014. The final regulations include this example.
Controlled Group
In accordance with the statute, the temporary regulations provided
that a covered entity includes a controlled group. The temporary
regulations defined the term controlled group to mean 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). Under the final regulations,
this definition applies through December 31, 2014. Therefore, this
definition applies for purposes of determining who is in the controlled
group through the 2016 fee year because the fee for the 2016 fee year
is based upon data from the 2014 sales year. In this Treasury decision,
the Treasury Department and the IRS are also issuing new temporary
regulations (the 2014 temporary regulations), that define the term
controlled group to mean a group of two or more persons, including at
least one person that is a covered entity, that are treated as a single
employer under section 52(a), 52(b), 414(m) or 414(o). This new
definition applies beginning on January 1, 2015. Therefore, this
definition applies for purposes of determining who is in the controlled
group beginning with the 2017 fee year because the fee for the 2017 fee
year is based upon data from the 2015 sales year. The broader
definition of controlled group in the 2014 temporary regulations is
supported by the statutory language and is consistent with how
controlled group rules with similar statutory language are applied,
including how controlled group is defined in Sec. 57.2(c)(1) for
purposes of the health insurance providers fee under ACA section 9010.
The Treasury Department and the IRS expect that the broader definition
in the 2014 temporary regulations will primarily impact joint and
several liability for the fee and will not otherwise affect the
administration of the fee. The final regulations include conforming
changes to the provision for joint and several liability to clarify
that joint and several liability applies to all members of the
controlled group under either definition of controlled group, whichever
applies.
Designated Entity
The temporary regulations required each controlled group that files
a Form 8947, ``Report of Branded Prescription Drug Information,'' to
have a designated entity. A designated entity is the person within the
controlled group that acts on behalf of the controlled group with
regard to the fee. The temporary regulations further provided that if
the controlled group, without regard to foreign corporations included
under section 9008(d)(2)(B), is also an affiliated group that files 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 files a consolidated return, the temporary
regulations allowed the controlled group to select its designated
entity. However, if the controlled group did not select a designated
entity, the IRS would select a member of the controlled group as the
designated entity.
The final regulations modify the temporary regulations to better
coordinate with the consolidated return regulations. Specifically, the
final regulations provide that the designated entity of a controlled
group, without regard to foreign corporations included under section
9008(d)(2)(B), that is a consolidated group (within the meaning of
Sec. 1.1502-1(h)) is the agent for the group (within the meaning of
Sec. 1.1502-77).
The temporary regulations required the designated entity to state
under penalties of perjury that all the covered entities that are
members of the controlled group have consented to the selection of the
designated entity. The final regulations adopt this requirement and
further require each member of the controlled group to maintain a
record of its consent. The final regulations also require the
designated entity to maintain a record of all of the members' consents.
Under the final regulations, this consent requirement does not apply to
a controlled group that is a consolidated group (within the meaning of
Sec. 1.1502-1(h)). If a controlled group that is not a consolidated
group does not select a designated entity, the final regulations
provide that the IRS will select a designated entity and all covered
entities in the controlled group
[[Page 43634]]
will be deemed to have consented to the IRS's selection of a designated
entity.
Orphan Drug Sales
Section 9008(e)(3) provides that the term branded prescription drug
sales does not include sales of any drug or biological product with
respect to which a credit was allowed for any taxable year under
section 45C. Section 9008(e)(3) also provides that this exclusion does
not apply with respect to any such drug or biological product after the
date on which such drug or biological product is approved by the FDA
for marketing for any indication other than the treatment of the rare
disease or condition with respect to which such credit was allowed. In
accordance with the statute, the temporary regulations generally
defined the term orphan drug to mean 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
provided 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, in accordance with the
statute, the temporary regulations provided that an 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 before, in the same year as, or after this FDA
approval.
Commenters requested that the final regulations treat a drug as an
orphan drug if the section 45C credit was ``allowable''; that is, the
section 45C credit could have been claimed, but was not actually
claimed. Another commenter requested that the final regulations extend
orphan drug treatment to any drug for which the section 45C credit was
allowable but for which a research tax credit under section 41 was
claimed with respect to a taxable year ending on or before December 31,
2010. Several commenters also reasoned that the statutory exception for
orphan drugs should be extended to any drug that has been designated by
the FDA as an orphan drug. Commenters also requested that the final
regulations extend the orphan drug exclusion to drug sales for
therapies that have only been approved to treat orphan diseases, and to
all products that are FDA-approved for marketing solely for rare
diseases and conditions. The final regulations do not adopt these
suggestions because the plain language of section 9008(e)(3) requires
that the drug be an orphan drug for which the section 45C credit was
actually allowed rather than merely allowable. The terms ``allowed''
and ``allowable'' have separate and distinct meanings throughout the
Code. For example, under section 1016(a)(2), a taxpayer may adjust
basis to the extent the amount was ``allowed'' as a deduction in
computing taxable income but not less than the amount ``allowable.''
\1\ In addition, the overwhelming weight of authority under the case
law interprets the term ``allowed'' in the Code to require the taxpayer
to have actually taken the amount into account for tax purposes.\2\ The
FDA's mere classification of a drug as an orphan drug is not a
determining factor because the plain language of section 9008(e)(3)
applies the exclusion only to sales of drugs for which a section 45C
credit was in fact allowed.
---------------------------------------------------------------------------
\1\ Likewise, under section 1250(b)(3), if a taxpayer can
establish that the amount ``allowed'' as a deduction was less than
the amount ``allowable,'' then the amount taken into account for
purposes of a depreciation adjustment is the amount ``allowed.'' See
also section 36B(c)(1)(D) and section 42(j)(5)(A)(i).
\2\ See Virginian Hotel Corporation of Lynchburg v. Helvering,
319 U.S. 523, 526 (1943); Flood v. United States, 33 F.3d 1174, 1178
n.5 (9th Cir. 1994); Lenz v. Commissioner, 101 T.C. 260, 265 (1993);
Hightower v. Commissioner, T.C. Memo 1982-559.
---------------------------------------------------------------------------
Commenters also requested that orphan drug status be given to a
drug for which a section 45C credit was allowed, even though the drug
had been subsequently 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 final regulations do not
adopt this suggestion because the plain language of section 9008(e)(3)
indicates 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, in the same year as, or after a
section 45C credit was allowed for the drug, sales of that drug are not
considered sales of an orphan drug beginning in the following sales
year. However, a drug will retain its orphan drug status if the drug
subsequently receives approval only for another indication for a rare
disease or condition for which a section 45C credit was allowed.
Pre-1984 Generic Drugs
Section 9008(e)(2)(A) defines the term branded prescription drug to
include any prescription drug the application for which was submitted
to the FDA under section 505(b). The final regulations track the
statutory language in defining the term branded prescription drug.
Neither the statute nor the final regulations specifically refer to or
address the treatment of generic drugs.
On September 24, 1984, Congress enacted the Drug Price Competition
and Patent Restoration Act of 1984, Public Law 98-417 (1984) (the 1984
Act). The 1984 Act added section 505(j) to provide an expedited
approval process for generic drugs. Because an applicant submits an
application for approval of a generic drug after the 1984 Act under
section 505(j) rather than section 505(b), such a drug is not a branded
prescription drug for purposes of the branded prescription drug fee.
It has come to our attention that, before the 1984 Act, an
applicant submitted an application for approval of any prescription
drug under section 505(b), and no separate statutory process existed
for approval of a generic drug. The Treasury Department and the IRS
request comments on whether a special rule is appropriate regarding the
treatment of generic drugs for which applications were submitted under
section 505(b) prior to the 1984 Act, including comments on how to
distinguish generic drugs for which applications were submitted under
section 505(b) prior to the 1984 Act from other prescription drugs for
which applications were submitted under section 505(b) prior to the
1984 Act in a manner that is both administrable and consistent with
section 9008. Any special rule regarding the treatment of these generic
drugs would be prospective only.
Comments with regard to this issue should be submitted in writing
and can be mailed to the Office of Associate Chief Counsel
(Passthroughs and Special Industries), Re: REG-112805-10, CC;PSI:B7,
Room 5314, 1111 Constitution Avenue NW., Washington, DC 20224. All
comments received will be available for public inspection at https://www.regulations.gov (IRS REG-112805-10).
Information Requested From Covered Entities
The temporary regulations gave each covered entity the opportunity
to provide information relevant to the determination of the fee by
annually submitting Form 8947, including information regarding rebates.
Commenters asked that CMS include all rebate data in its reports to the
IRS, rather than have the IRS collect rebate data from the covered
entities on Form 8947. CMS now includes rebate data for
[[Page 43635]]
Medicare and federal Medicaid in its reports. Therefore, the final
regulations eliminate the provision for separate reporting of Medicare
and federal Medicaid rebates by covered entities and Form 8947 no
longer requests information on these rebates. However, CMS does not
include Medicaid state supplemental rebate data. Until CMS can include
Medicaid state supplemental rebate data in its reports to the IRS,
covered entities will continue to have the opportunity to submit this
rebate data on Form 8947. Therefore, the final regulations retain the
provision that permits separate reporting of Medicaid state
supplemental rebate data by covered entities.
A commenter asked whether to include state-only pharmaceutical
program rebates on Form 8947 as Medicaid Drug Rebates. According to
CMS, state-only pharmaceutical programs are not part of the Medicaid
Drug Rebate Program or the federal Medicaid program. Therefore, the
final regulations specify that the Medicaid Drug Rebate Program's
calculated branded prescription drug fee does not include state-only
pharmaceutical sales or rebates. Accordingly, a covered entity may not
report on its Form 8947 or error report a rebate paid by the covered
entity in connection with a state-only pharmaceutical program.
A commenter asked that the final regulations provide that a covered
entity may submit an incomplete Form 8947. The final regulations do not
adopt this suggestion. Submission of Form 8947 is voluntary. A covered
entity that chooses to file Form 8947, however, must state, under
penalties of perjury, that to the best of the filer's knowledge and
belief, the information provided on Form 8947 is true, correct, and
complete. As in the past, a covered entity may correct and supplement
information it submitted on Form 8947, if necessary, by submitting one
or more error reports as part of the dispute resolution process.
Information Provided by the Agencies
Section 9008(g) requires each Program to calculate and provide
sales data based on the methodologies described in section 9008(g).
Section 9008(b)(3) requires the IRS to use the data provided by the
Programs to calculate the fee. In accordance with the statute, the
temporary regulations required the Agencies to provide data to the IRS
on branded prescription drug sales that occurred during the sales year
by Program and NDC. The temporary regulations also set forth the
methodologies used by the Agencies for calculating the sales amounts
for each Program.
Commenters raised questions about the descriptions in the temporary
regulations of the methodologies used by the Agencies, asked that these
descriptions be clarified, suggested alternative methods of calculating
Program sales data, and requested additional data. In response to these
comments, the final regulations adopt certain suggestions to include
revised descriptions of the data and computations the Agencies use to
calculate branded prescription drug sales as described in the following
sections for each Program. In addition, this preamble provides further
background on the methodologies used by the Agencies as described in
the following sections for each Program. Because the Agencies have the
responsibility to compute and report the data described in the statute,
the Treasury Department and the IRS coordinated extensively with the
Agencies in preparing the additional background information in the
preamble and the revised descriptions in the final regulations.
Medicare Part D
The temporary regulations provided that, to determine branded
prescription drug sales amounts for 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. Section 9008(g)(1)(A) requires Medicare Part D sales amounts to
be reduced by ``any per-unit rebate, discount, or other price
concession provided by the covered entity.''
Commenters asked that the final regulations clarify how CMS
determines these net sales amounts. The final regulations adopt this
suggestion. The final regulations clarify that CMS will aggregate the
``Ingredient Cost Paid'' field on the PDE records at the NDC level,
reduced by discounts, rebates, and other price concessions provided by
the covered entity. To obtain this information, CMS uses two main data
sources to determine net sales amounts: the PDE records and the
Detailed Direct and Indirect Remuneration (DIR) Report. CMS obtains
information for these two data sources from Medicare Part D sponsors.
The final regulations specifically define ``discounts, rebates, and
other price concessions provided by the covered entity'' to include, in
part, DIR. DIR is any and all rebates, subsidies, or other price
concessions from any source (including manufacturers, pharmacies,
enrollees, or any other person) that serve to decrease the costs
incurred by the Medicare Part D sponsor (whether directly or
indirectly) for the Medicare Part D drug. See 42 CFR 423.308. Thus, DIR
includes discounts, chargebacks, rebates, cash discounts, free goods
contingent on a purchase agreement, up-front payments, and coupons. DIR
also includes goods in kind, free or reduced-price services, grants,
legal judgment amounts, settlement amounts from lawsuits or other legal
action, and other price concessions or similar benefits. However, DIR
does not include price concessions that CMS does not consider to
directly or indirectly impact drug costs incurred by the Medicare Part
D sponsor.
The final regulations further provide that DIR includes both DIR
reported on the PDE records at the point of sale and DIR reported on
the Detailed DIR Report. The temporary regulations provided that, if
CMS does not have Medicare Part D rebate information for a sales year,
then the IRS will reduce the branded prescription drug sales reported
for Medicare Part D by rebates reported by covered entities on Form
8947. This procedure was necessary for fee year 2011 because CMS did
not have the information necessary to report Medicare Part D sales data
net of DIR. To provide this data to the IRS at the individual drug
level as the statute requires, CMS began to collect DIR at the NDC
level from Medicare Part D sponsors for use in the 2012 fee year, which
Medicare Part D sponsors report to CMS on the Detailed DIR Report.
Medicare Part D sponsors also report DIR on the PDE records at the
point of sale, though these amounts tend to be nominal. Therefore,
since fee year 2012, CMS has been reporting its Medicare Part D sales
data to the IRS net of all DIR by deducting from the Ingredient Cost
both DIR reported on the PDE records at the point of sale and DIR
reported on the Detailed DIR Report. The final regulations reflect this
approach. As stated earlier in this preamble, the final regulations
also eliminate the provision for separate reporting of Medicare Part D
rebates by covered entities on Form 8947.
A commenter requested that the final regulations clarify the
treatment of coverage gap discount amounts. The final regulations adopt
this suggestion effective for fee years beginning in 2014. The Medicare
Part D coverage gap, also known as the ``donut hole,'' is a gap in
prescription drug coverage that is being closed due to the Affordable
Care Act. Part of closing the coverage gap is the Coverage Gap Discount
Program
[[Page 43636]]
described in section 1860D-14A of the Social Security Act, which
requires a 50-percent manufacturer-paid discount on covered brand-name
drugs in certain instances. For fee years 2012 and 2013, CMS did not
deduct coverage gap discount amounts from the Ingredient Cost. This
comment, however, prompted CMS to recharacterize coverage gap discount
amounts as a type of rebate, discount, or other price concession for
purposes of the fee calculation. Therefore, beginning with the final
fee calculation for fee year 2014, CMS will report Medicare Part D
sales data to the IRS that is net of coverage gap discount amounts. The
final regulations reflect this change.
The final regulations also remove the reference to the ``Quantity
Dispensed'' field of the PDE records. This field has no impact on sales
because CMS totals the ingredient cost at the NDC level and determines
DIR reported on the PDE records at the point of sale and DIR reported
on the Detailed DIR Report at the NDC level. Thus, the unit of
reference used by CMS is consistently at the NDC level.
Commenters suggested that the final regulations require CMS to
exclude sales in Puerto Rico in determining sales amounts for Medicare
Part D. The final regulations do not adopt this suggestion. Section
9008(g) requires each Agency to report to the IRS the total branded
prescription drug sales for each covered entity for each Program.
Section 9008 does not provide any exclusion for sales in Puerto Rico or
any other territory. When calculating its branded prescription drug
sales data for Medicare Part D, CMS includes sales, DIR reported on the
PDE records at the point of sale, and DIR reported on the Detailed DIR
Report for all sales in the United States and its territories,
including the Commonwealth of Puerto Rico.
Medicare Part B
The temporary regulations provided that CMS will determine branded
prescription drug sales under Medicare Part B using two data sources.
First, CMS will use the data reported by manufacturers pursuant to
section 1847A(c) of the Social Security Act (42 U.S.C. 1395w-3a(c)) to
calculate the annual weighted average sales price (ASP) for each
Healthcare Common Procedure Coding System code (HCPCS code) for the
sales year. Second, CMS will use the Medicare Part B National Summary
Data File located at https://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/NonIdentifiableDataFiles/PartBNationalSummaryDataFile.html to obtain the number of allowed
billing units per HCPCS code for claims incurred during the sales year.
The temporary regulations further provided separate detailed methods
for CMS to use this data to determine Medicare Part B sales amounts
depending on whether (1) the HCPCS code consists solely and exclusively
of branded prescription drugs manufactured by a single entity, (2) the
HCPCS code consists of a mixture of branded prescription drugs made by
different manufacturers and/or a mixture of branded prescription and
generic drugs, or (3) CMS is unable to establish a reliable proportion
of sales attributable to each NDC assigned to the HCPCS code.
Under the third method in the temporary regulations, if CMS is
unable to establish a reliable proportion of sales attributable to each
NDC assigned to the HCPCS code, CMS will calculate Medicare Part B
sales by using Medicare Part D utilization percentages. A commenter
requested that CMS develop a more accurate backup method. The final
regulations do not adopt this suggestion. In CMS's view, the existing
backup method is sufficiently reliable. Additionally, CMS did not
anticipate frequent use of this approach and has not needed to use the
backup method for any fee calculation to date. The final regulations
do, however, include a more detailed explanation of how CMS uses HCPCS
codes as well as an example.
Commenters also expressed concern about whether Medicare Part B is
capturing complete data on what are sometimes referred to as non-
separately payable drugs. Non-separately payable drugs may not be
directly correlated with a single specific HCPCS code. Some non-
separately payable drugs are associated with more than one HCPCS code
or are bundled with services, such as dialysis. CMS recognizes this
concern and makes extensive effort to gather as complete a data set as
possible. CMS will continue to work with the data available to capture
non-separately payable drugs.
Medicaid
The temporary regulations provided that CMS will determine branded
prescription drug sales as the per-unit Average Manufacturer Price
(AMP) less the Unit Rebate Amount (URA) that CMS calculates based on
manufacturer-reported pricing data multiplied by the number of units
reported billed by the states to manufacturers. Specifically, the
temporary regulations provided that 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 uses the following methodology to derive
the branded prescription sales amounts that account for third-party
payers:
Step 1. Report total dollars per NDC for AMP minus URA, multiplied
by the units reported by a state or states;
Step 2. Determine the percentage of the total amount reimbursed
that is the Medicaid amount of that reimbursement; and
Step 3. Multiply the percentage of the Medicaid amount of that
reimbursement by the dollar figure from step 1 (AMP minus URA,
multiplied by units) to get the new adjusted sales dollar totals.
The final regulations clarify that CMS will determine branded
prescription drug sales as the per-unit AMP less the URA that CMS
calculates based on manufacturer-reported pricing data multiplied by
the number of units reported as paid by the states rather than as
billed by the states.
Commenters requested that the final regulations require Medicaid to
use the per-unit ingredient cost paid to pharmacies by the states as
provided in section 9008(g)(3) instead of AMP in computing total
branded prescription drug sales. The final regulations do not adopt
this suggestion. Medicaid does not have the ability to use the per-unit
ingredient cost paid to pharmacies by the states because Medicaid
systems are not designed to track drug sales data in this manner or
obtain this type of detailed information from the states. Instead,
Medicaid systems track drug sales data using AMP. AMP is the best
alternative that Medicaid systems permit and serves as a reasonable
proxy for the per-unit ingredient cost paid to pharmacies by the
states.
The temporary regulations provided that Medicaid branded
prescription drug sales 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. The final regulations clarify that the sales data is based on the
data that covered entities report for the sales year rather than the
data that covered entities report during the sales year because some
reporting for a sales year may occur after that year ends.
Commenters requested that the final regulations clarify the meaning
of the phrase ``drugs paid for by the states in the Medicaid Drug
Rebate Program'' and whether it includes units paid for under managed
care organization plans. In response to this request, the final
regulations specify that ``drugs paid for by the states in the Medicaid
Drug Rebate Program'' includes all branded prescription drug units for
which the states bill rebates to covered entities
[[Page 43637]]
under the Medicaid Drug Rebate Program. This program includes, but is
not limited to, units paid for under various health care plans such as
fee for service, managed care organizations, and drugs administered in
a non-retail setting such as drugs administered in a physician's
office, clinic, hospital or other setting. Under the Medicaid Drug
Rebate Program, states provide the required utilization data. States
report separate totals for each NDC for both fee-for-service and
managed care organization utilization data. Also, as stated earlier in
this preamble, the final regulations specify that the Medicaid Drug
Rebate Program's calculated branded prescription drug fee does not
include state-only pharmaceutical program sales or rebates.
Commenters asked how a covered entity can ensure that a state has
updated its Medicaid data files to accurately reflect state rebates.
This issue is beyond the scope of these regulations. However, since
2011, in the context of the dispute resolution process, CMS, IRS, and
covered entities have devoted extensive resources to resolving
discrepancies between a state's reported rebate data that CMS uses to
compute Medicaid's branded prescription drug sales data for the IRS and
the rebate data that covered entities receive from that state. To
resolve these discrepancies on a timely basis, CMS has established a
reconciliation process. To maximize the effectiveness of this
reconciliation process, however, a covered entity must use the CMS
reconciliation process in a timeframe that allows discrepancies to be
resolved before CMS computes the branded prescription sales data that
it sends the IRS for purposes of computing a covered entity's
preliminary fee calculation. A covered entity's timely use of the CMS
reconciliation process will help minimize, if not eliminate, the errors
related to CMS's Medicaid data that a covered entity would otherwise
include in its error report. The web address for this resource is
https://medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/Branded-Prescription-Drug.html. This CMS
Medicaid Branded Prescription Drug Fee program Web page also has
additional information regarding Medicaid sales data. Covered entities
may email questions to CMS Medicaid regarding the data used in this
program at MedicaidBPD@cms.hhs.gov with ``BPD'' in the email subject
line.
Department of Veterans Affairs
The temporary regulations provided that 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 VA for its beneficiaries during the sales year. For this
purpose, a drug is procured on the invoice (billing) date. The
temporary regulations further provided that 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.
A commenter requested that the final regulations require that the
amount of the IFF and CRF be excluded from VA sales either by requiring
VA to exclude these amounts from its sales data or by allowing a
covered entity to report these amounts on its Form 8947. The final
regulations do not adopt this suggestion. According to VA, these
amounts are part of the total price VA pays to its Pharmaceutical Prime
Vendor and are properly included in the sales amount.
A commenter requested that the final regulations confirm that VA
sales data does not include DOD, Coast Guard, Indian Health, or other
purchases made under the Federal Supply Schedule. VA does not include
in its sales data purchases made by other agencies. Because the
methodology in the regulations is already limited to purchases made by
VA, the final regulations do not need further clarification.
Department of Defense
The temporary regulations provided that, for DOD programs other
than TRICARE, 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 during the
sales year. For this purpose, a drug is procured based upon the date it
was ordered.
A commenter requested that the final regulations require that the
amount of the Industrial Funding Fee (IFF) and the Cost Recovery Fee
(CRF) be excluded from DOD sales, either by requiring DOD to exclude
these fees from its sales data or by allowing a covered entity to
report these fees on its Form 8947. The IFF and CRF are administrative
fees that are added to the cost of purchasing under the Federal Supply
Schedule and National Contract Service. The final regulations do not
adopt this suggestion. According to DOD, these fee amounts are part of
the total price DOD pays to procure a drug and are properly included in
the sales amount.
TRICARE
The temporary regulations provided that 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
(TRICARE) during the sales year. For TRICARE, 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
claims submitted during the program year, minus any refunds or rebates
for the corresponding claims.
Commenters expressed concern that TRICARE's drug sales overlap with
DOD and VA and asked that the final regulations address this perceived
overlap. The final regulations do not adopt this suggestion. No overlap
exists because TRICARE only reports sales from its retail pharmacy
network, which is distinct from sales reported by DOD and VA. TRICARE,
DOD, and VA separately maintain and report their own drug sales data.
Section 51.4T(f) described the TRICARE and DOD methodologies for
calculating sales data. Section 51.4(f) continues to describe the DOD
methodology. A new subsection, Sec. 51.4(g), describes the TRICARE
methodology.
Fee Calculation Including Adjustment
As stated earlier in this preamble, 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
temporary regulations provided that 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.
A commenter asked that the final regulations provide for a separate
dispute resolution process for the adjustment amount after the final
fee calculation because errors reported in the dispute resolution
process may not be resolved in time to be reflected in the final fee
calculation. The final regulations do not adopt this suggestion. The
adjustment amount is part of the preliminary fee calculation.
Therefore, each covered entity has an opportunity to raise disputes
regarding the adjustment amount during the existing dispute resolution
process. Moreover, an adjustment to one covered entity's
[[Page 43638]]
final fee calculation would necessitate a recalculation of each covered
entity's prior final fee calculation because the fee is an allocated
fee. The final regulations clarify that the IRS will not make
adjustments to a final fee calculation.
Because the amount of the fee under the temporary regulations was
based on sales from the second preceding year, commenters suggested
that the final regulations allow a covered entity to reduce its fee
liability in the same year that the covered entity experiences an event
that would significantly reduce its sales to the Programs and make
corresponding adjustments in future years. Such events may include a
drug recall, a loss of patent exclusivity, or bankruptcy. The final
regulations do not adopt this suggestion. The statute requires the IRS
to determine each covered entity's branded prescription drug sales on
the basis of reports submitted by the Agencies and to uniformly apply
the fee determination rules to each covered entity's sales data. The
methodology adopted in the final regulations ensures that the
applicable fee amount is appropriately apportioned among the covered
entities.
In accordance with section 9008(f)(1), the temporary regulations
treated the fee as an excise tax for purposes of subtitle F. A
commenter suggested that the final regulations provide for interest
payments for adjustment amounts that are credited to a covered entity.
The final regulations do not adopt this suggestion. Instead, the final
regulations clarify that an adjustment amount itself is neither an
overpayment nor an underpayment, but rather a component of the current
year's fee. Thus, for purposes of section 6601, any increase in the
current year's fee resulting from any adjustment amount, along with the
remainder of the fee, is treated as due on the due date for the current
year's fee. Conversely, for purposes of section 6611, any adjustment
amount that decreases the current year's fee is treated as a payment
towards the current fee amount made on the due date of the current fee
year.
Commenters asked that the final regulations clarify whether a
covered entity must file Form 843, ``Claim for Refund and Request for
Abatement,'' to request that the IRS calculate an adjustment amount
when a covered entity anticipates that it is entitled to a positive
adjustment amount. As stated earlier in this preamble, a positive
adjustment amount is not an overpayment. Accordingly, in response to
this comment, the final regulations clarify that a covered entity does
not file Form 843 to obtain an adjustment amount. The IRS automatically
calculates adjustment amounts. Additionally, the final regulations
clarify that if a covered entity's adjustment amount reduces the fee
below zero and results in an amount due to the covered entity for the
fee year, the IRS will automatically pay this amount due to the covered
entity.
Another commenter suggested that the final regulations clarify
whether the period of limitations on filing a claim set forth in
section 6511 applies to the adjustment amount. Under the final
regulations, section 6511 applies to the fee, but not separately to the
adjustment amount, because the adjustment amount is merely a component
of the fee. For purposes of section 6511, any adjustment amount that
decreases the current year's fee is treated as a payment towards the
current fee amount made on the due date of the current fee year.
Notification and Payment of Fee
The temporary regulations provided that, no later than August 31st
of each fee year, the IRS will send each covered entity its final fee
calculation for that fee year. Several commenters suggested that the
IRS send the final fee notice in an electronic format. The final
regulations do not adopt this suggestion because it is outside the
scope of these regulations. However, the final regulations do not
prohibit the IRS from using an electronic format for the final fee
notice. Moreover, at the time these comments were submitted, the IRS
was already sending a covered entity's sales data with its preliminary
fee notice on a separate CD-ROM in Microsoft Excel format to each
covered entity that timely requested it. After receiving these
comments, the IRS began also sending a covered entity's sales data with
its final notice on a separate CD-ROM in Microsoft Excel format if the
entity had made a timely request for the CD-ROM to be sent with its
preliminary fee notice. More information about the manner for notifying
covered entities of their preliminary and final fee calculations is
contained in Notice 2014-42.
In accordance with section 9008(a)(2), the temporary regulations
provided that each covered entity must pay its final fee by September
30th of the fee year. A commenter suggested that the final regulations
clarify whether section 7503 applies to the deadline for fee payment.
Section 7503 provides that if the last day for performing an act
required under the authority of the internal revenue laws falls on a
Saturday, Sunday, or a legal holiday, the performance of the act is
timely if the act is performed on the next succeeding day that is not a
Saturday, Sunday, or a legal holiday. The final regulations do not
provide a special rule because section 9008(f)(1) and the final
regulations treat the fee as an excise tax for purposes of subtitle F.
Therefore, section 7503 applies to the deadline for fee payment.
Dispute Resolution Process
The temporary regulations provided 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
the final fee calculation. The temporary regulations described the
information that covered entities must submit. The final regulations
adopt these provisions with the following minor changes that will allow
the IRS to more accurately process a covered entity's disputes.
The temporary regulations required that a Form 2848, ``Power of
Attorney and Declaration of Representative'' must be filed with an
error report. The final regulations clarify that a Form 2848 is
required only when the representative is not an employee of the covered
entity who is authorized under section 6103 or designated on Form 8947
to discuss the information reported on Form 8947.
The temporary regulations required the name, telephone number, and
email address (if available) of one or more employees or
representatives with whom errors may be discussed. The final
regulations also require a fax number.
For Program errors, the temporary regulations required a covered
entity to submit a separate error report for each Program with the
asserted errors. For non-Program errors, the temporary regulations
required a covered entity to submit one error report with all of the
non-Program errors. To streamline the error reporting process, the
final regulations require a covered entity to combine both Program and
non-Program errors on a single error report, with each asserted error
on a separate line.
Availability of IRS Documents
The IRS notices, the revenue procedure, and the temporary
regulations cited in this preamble are published in the Internal
Revenue Bulletin and are available at www.irs.gov. The temporary
regulations are also available in the Code of Federal Regulations.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866, as
[[Page 43639]]
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 (5 U.S.C. chapter 5) does
not apply to these regulations. It is hereby certified that the
collection of information in these final regulations will not have a
significant economic impact on a substantial number of small entities.
This certification is based on the fact that the only collection burden
imposed by these regulations is the requirement to maintain a record of
consent to the selection of a designated entity, and this collection
burden applies only to designated entities of controlled groups, which
tend to be large corporations, and their members. Therefore, a
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pursuant to section 7805(f), the
notice of proposed rulemaking was submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small business, and no comments were received.
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 parts 51 and 602 are amended as follows:
PART 51--BRANDED PRESCRIPTION DRUG FEE
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Paragraph 1. The authority citation for part 51 continues to read as
follows:
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).
0
Par. 2. Section 51.1 is added to read as follows:
Sec. 51.1 Overview.
(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 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. 51.1T [Removed]
0
Par. 3. Section 51.1T is removed.
0
Par. 4. Section 51.2T is revised to read as follows:
Sec. 51.2T Explanation of terms (temporary).
(a) Through (e)(2) [Reserved]. For further guidance see Sec.
51.2(a) through (e)(2).
(3) Controlled Group. The term controlled group means a group of
two or more persons, including at least one person that is a covered
entity, that is treated as a single employer under section 52(a),
52(b), 414(m), or 414(o).
(e)(4) through (m) [Reserved]. For further guidance see Sec.
51.2(e)(4) through (m).
Par. 5. Section 51.2 is added to read as follows:
Sec. 51.2 Explanation of terms.
(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)) (FFDCA); 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 FFDCA.
(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 a controlled
group.
(3) Controlled group-- (i) On or before December 31, 2014. 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).
(ii) After December 31, 2014. For guidance regarding the definition
of controlled group after December 31, 2014, see Sec. 51.2T(e)(3).
(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 person 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.
(5) Covered entity status--(i) Rule. An entity's status as a
covered entity begins in the first fee year in which the entity has
branded prescription drug sales and continues each subsequent fee year
until there are no remaining branded prescription drug sales for that
entity to be taken into account as described in Sec. 51.5(c) or used
to calculate the
[[Page 43640]]
adjustment amount described in Sec. 51.5(e).
(ii)
Example. The following example illustrates the rule of
paragraph (e)(5)(i) of this section:
(A) Facts. Entity A is a manufacturer with gross receipts of
more than $5 million from branded prescription drugs sales in 2011.
Entity A does not have any gross receipts from branded prescription
drug sales before or after 2011.
(B) Analysis. Entity A is a covered entity beginning in 2011
because it had gross receipts from branded prescription drug sales
in 2011. For the 2011 fee year, Entity A does not owe a fee because
the 2011 fee is based on sales data from the 2009 sales year. For
the 2012 fee year, Entity A does not owe a fee because the 2012 fee
is based on sales data from the 2010 sales year. Entity A continues
to be a covered entity for the 2012 fee year because its branded
prescription drug sales from the 2011 sales year have not yet been
taken into account as described in Sec. 51.5(c) and used to
calculate the adjustment amount described in Sec. 51.5(e). For the
2013 fee year, Entity A continues to be a covered entity because a
portion of its branded prescription drug sales from the 2011 sales
year are taken into account as described in Sec. 51.5(c) for
purposes of computing the 2013 fee. For the 2013 fee year, Entity A
is also liable for the adjustment amount described in Sec. 51.5(e)
for the difference between its 2012 fee computed using sales data
from the 2010 sales year, which is $0, and what the 2012 fee would
have been using sales data from the 2011 sales year. For the 2014
fee year, Entity A continues to be a covered entity because a
portion of its branded prescription drug sales for the 2011 sales
year are used to calculate the adjustment amount described in Sec.
51.5(e). Therefore, for the 2014 fee year, Entity A will receive an
adjustment amount for the difference between its 2013 fee computed
using sales data from the 2011 sales year, and what the 2013 fee
would have been using sales data from the 2012 sales year, which is
$0. After the 2014 fee year, there are no remaining branded
prescription drug sales to be taken into account as described in
Sec. 51.5(c) or used to calculate the adjustment amount described
in Sec. 51.5(e) for Entity A. Accordingly, Entity A is not a
covered entity after the 2014 fee year.
(f) Designated entity--(1) In general. The term designated entity
means the person within a controlled group that is designated to act
for the 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. 51.7; and
(iv) Paying the fee to the government.
(2) Selection of designated entity--(i) Controlled group selection
of a designated entity. Except as provided in paragraph (f)(2)(ii) of
this section, the controlled group may select a person as the
designated entity by filing Form 8947 in accordance with the form
instructions. The designated entity must state under penalties of
perjury that all members of the controlled group have consented to the
selection of the designated entity. The designated entity must maintain
a record of all member consents. Each member of a controlled group must
maintain a record of its consent to the controlled group's selection of
the designated entity.
(ii) Requirement for affiliated groups; agent for the group. If the
controlled group, without regard to foreign corporations included under
section 9008(d)(2)(B), is also an affiliated group whose common parent
files a consolidated return for federal income tax purposes, the
designated entity is the agent for the group (within the meaning of
Sec. 1.1502-77 of this title).
(iii) IRS selection of a designated entity. Except as provided in
paragraph (f)(2)(ii) of this section, if a controlled group does not
select a designated entity as provided in paragraph (f)(2)(i) of this
section, the IRS will select a member of the controlled group as the
designated entity for the controlled group. If the IRS selects the
designated entity, then all members of that controlled group will be
deemed to have consented to the IRS's selection of the designated
entity.
(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 a
unique identifier that is assigned to all drug products approved by the
Food and Drug Administration (FDA), including a branded 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.
(k) Orphan drugs--(1) In general. Except as provided in paragraph
(k)(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 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 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 2011. In
2011, 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 2012, 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 2011 and 2012, 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 2012, the FDA did not approve the drug for marketing
for any indication other than the treatment of a
[[Page 43641]]
rare disease or condition for which a section 45C credit was
allowed. However, Drug A is not an orphan drug for the 2013 sales
year or later sales years because in 2012 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 2011. In 2011,
FDA approved Drug B for marketing for the treatment of a rare
disease or condition and also approved Drug B for marketing for an
indication other than the treatment of a rare disease or condition.
In 2012, 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 2011, Drug B is not an orphan drug because no
section 45C credit was allowed and because the FDA approved Drug B
for an indication other than the treatment of a rare disease or
condition. In 2012, 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 2011 for marketing for
an indication other than the treatment of a rare disease or
condition for which a section 45C credit was allowed in 2012. Thus,
Drug B is not an orphan drug for the 2012 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 2010. In 2010, a covered entity claimed a
section 45C credit for its qualified clinical testing expenses
related to Drug C. In 2012, 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 2010. There was no final IRS assessment or court
order that disallowed the full credit for Drug C in 2010 or 2012.
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 2010 and 2011, 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 2012, 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 2013 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. 51.5(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 2014,
the sales year is 2012.
0
Par. 6. Section 51.3 is added to read as follows:
Sec. 51.3 Information requested from covered entities.
(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. 51.3T [Removed]
0
Par. 7. Section 51.3T is removed.
0
Par. 8. Section 51.4 is added to read as follows:
Sec. 51.4 Information provided by the Agencies.
(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. 51.7) 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 that
occurred 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. 51.5 and 51.6) 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--(1) In general. CMS will determine branded
prescription drug sales under Medicare Part D by aggregating the
ingredient cost reported in the ``Ingredient Cost Paid'' field on the
Prescription Drug Event (PDE) records at the NDC level, reduced by
discounts, rebates, and other price concessions provided by the covered
entity, for each sales year. CMS will only include PDE data that Part D
sponsors have submitted by the PDE submission deadline (within 6 months
after the end of the sales year) and that CMS has approved for
inclusion in the Part D payment reconciliation.
(2) Discounts, rebates, and other price concessions--(i) In
general. For purposes of paragraph (b)(1) of this section, the term
discounts, rebates, and other price concessions means:
(A) Any direct and indirect remuneration (DIR) (within the meaning
of paragraph (b)(2)(B) of this section), which includes any DIR
reported on the PDE records at the point of sale and any DIR reported
on a Detailed DIR Report (within the meaning of paragraph (b)(2)(C) of
this section); and
(B) Any coverage gap discount amount (within the meaning of
paragraph (b)(2)(D) of this section).
(ii) Direct and indirect remuneration. For purposes of paragraph
(b)(2)(A)(i) of this section, the term direct and indirect remuneration
(DIR) has the same meaning as found in the definition of actually paid
in 42 CFR 423.308.
(iii) Detailed DIR Report. For purposes of paragraph (b)(2)(A)(i)
of this section, the term Detailed DIR Report means the report
containing any DIR (within the meaning of paragraph (b)(2)(B) of this
section) that is collected yearly from Part D sponsors at the NDC
level.
(iv) Coverage gap discount amount. For purposes of paragraph
(b)(2)(A)(ii) of this section, the term coverage gap discount amount
means a 50-percent manufacturer-paid discount on certain drugs under
the Coverage Gap Discount Program described in section 1860D-14A of the
Social Security Act.
(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.
[[Page 43642]]
(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--(i) In general. 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. CMS reports sales
amounts per HCPCS billing code, not per NDC. Therefore, a covered
entity's total Part B sales amounts for all NDCs in a given HCPCS
billing code appears under only one NDC in each HCPCS billing code and
the covered entity's remaining NDCs in the HCPCS billing code are
listed with a sales amount of zero.
(ii) Example of a Part B sales report:
------------------------------------------------------------------------
Part B
HCPCS NDC amount
------------------------------------------------------------------------
J9876...................................... 12345-6789-01 $789,000
12345-6789-02 0
12345-6789-03 0
12345-6800-80 0
12345-6800-90 0
------------------------------------------------------------------------
(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 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 for the sales year by covered entities and the
states for drugs paid for by the states in the Medicaid Drug Rebate
Program for the sales year. The data will include all branded
prescription drug units for which the states bill rebates to covered
entities under the Medicaid Drug Rebate Program. This program includes,
but is not limited to, units paid for under various health care plans
such as fee for service, managed care organizations, and drugs
administered in a non-retail setting such as drugs administered in a
physician's office, clinic, hospital or other setting. The Medicaid
Drug Rebate Program's calculated branded prescription drug fee does not
include state-only pharmaceutical program sales or rebates.
(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 minus 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 determine branded
prescription drug sales to VA by providing, 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 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. VA sales data includes the
Industrial Funding Fee and the Cost Recovery Fee because these amounts
are part of the price VA pays to its Pharmaceutical Prime Vendor to
procure a drug.
(f) Department of Defense. DOD will determine branded prescription
drug sales to DOD (for DOD programs other than the TRICARE retail
pharmacy program) by providing, 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
includes the Industrial Funding Fee and the Cost Recovery Fee in its
drug sales data
[[Page 43643]]
because these amounts are part of the price DOD pays to procure a drug.
(g) TRICARE. DOD will determine branded prescription drug sales to
DOD for the TRICARE retail pharmacy program by providing, 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. 51.4T [Removed]
0
Par. 9. Section 51.4T is removed.
0
Par. 10. Section 51.5 is added to read as follows:
Sec. 51.5 Fee calculation.
(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. 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
------------------------------------------------------------------------
(4) Sales taken into account. A covered entity's branded
prescription drug sales taken into account during any calendar year are
as follows:
------------------------------------------------------------------------
Percentage of
branded
Covered entity's branded prescription drug sales during prescription
the calendar year that are: drug 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 $225,000,000... 40
More than $225,000,000 but not more than $400,000,000... 75
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
identified in the Labeler Code 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 in which a member of the covered entity
is identified. 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 Medicaid state supplemental rebate amounts
in the following manner. If CMS has Medicaid state supplemental rebate
information for a sales year, CMS will report to the IRS branded
prescription drug sales for Medicaid net of Medicaid state supplemental
rebates. If CMS does not have complete Medicaid state supplemental
rebate information for a sales year, the IRS will reduce the branded
prescription drug sales that CMS reported for Medicaid by Medicaid
state supplemental rebates reported by the covered entities on Form
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--(1) In general. In addition to the allocated
fee computed under paragraph (d) of this section, the IRS will also
automatically calculate for each covered entity an adjustment amount.
An adjustment amount 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 2014, the
adjustment amount for a covered entity will be the difference between
the entity's 2013 allocated fee, using 2011 data, and what the 2013
allocated fee would have been using 2012 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. An adjustment
amount is treated as a component of the current year's fee. For
purposes of section 6601, any increase in the allocated fee computed
under paragraph (d) of this section for the current fee year resulting
from any adjustment amount, along with the remainder of the fee, is
treated as a fee liability due on the due date for the current year's
fee. For purposes of sections 6511 and 6611, any adjustment amount that
decreases the allocated fee computed under paragraph (d) of this
section for the current fee year is treated as a payment towards the
current fee liability made on the due date of the current fee year.
(2) Amounts paid to a covered entity because of an adjustment
amount. If a covered entity's adjustment amount reduces the fee
computed under paragraph (d) of this section below zero and results in
an amount due to the covered entity for the fee year, the IRS will pay
this amount due to the covered
[[Page 43644]]
entity. A covered entity does not file Form 843, Claim for Refund and
Request for Abatement, to receive this amount owed to a covered entity.
Sec. 51.5T [Removed]
0
Par. 11. Section 51.5T is removed.
0
Par. 12. Section 51.6 is added to read as follows:
Sec. 51.6 Notice of preliminary fee calculation.
(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. 51.5. 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. 51.5(a)(4);
(4) The aggregate branded prescription drug sales taken into
account for all covered entities;
(5) The covered entity's adjustment amount calculated as described
in Sec. 51.5(e); and
(6) A reference to the fee dispute resolution procedures set forth
in guidance published in the Internal Revenue Bulletin.
(b) Time of notice. The IRS will send each covered entity notice of
its preliminary fee calculation by the date prescribed in guidance
published in the Internal Revenue Bulletin.
Sec. 51.6T [Removed]
0
Par. 13. Section 51.6T is removed.
0
Par. 14. Section 51.7 is added to read as follows:
Sec. 51.7 Dispute resolution process.
(a) In general. Upon receipt of its preliminary fee calculation,
each covered entity will have an opportunity to dispute this
calculation by submitting to the IRS an error report as described in
this section. The IRS will provide its final determination with respect
to error reports no later than the time the IRS provides a covered
entity with a final fee calculation.
(b) Error report information. To assert that there have been one or
more errors in the drug sales data reported by a Program, the
mathematical calculation of the fee, the rebate data, the listing of an
NDC for an orphan drug, or any other error, a covered entity must
submit an error report with each asserted error reported on a separate
line. The report must include the following information--
(1) Entity name, address, and Employer Identification Number (EIN)
as previously reported on the Form 8947;
(2) The name, telephone number, fax number, and email address (if
available) of one or more employees or representatives of the entity
with whom the IRS may discuss the claimed errors. If the representative
is not an employee of the covered entity who is authorized under
section 6103 or designated on Form 8947 to discuss the information
reported on Form 8947 with the IRS, a Form 2848, ``Power of Attorney
and Declaration of Representative,'' must be filed with the error
report;
(3) For an error in the drug sales data reported by a Program, the
name of the Program that reported the data, the NDC, the specific
amount of sales data disputed, the proposed corrected amount, an
explanation of why the Agency should use the proposed corrected data
instead, and documentation of any Program drug sales data or other
information used to establish the existence of any errors.
(4) For a mathematical calculation error, the specific calculation
element(s) that the entity disputes and its proposed corrected
calculation;
(5) For a rebate data error, the NDC for the drug to which it
relates; a discussion of whether the data used in the preliminary fee
calculation matches previously reported Form 8947 data on rebates; and,
if the data used in the preliminary fee calculation does match the Form
8947 data, an explanation of why the Form 8947 data was erroneous and
why the IRS should use the proposed corrected data instead;
(6) For the listing of an NDC for an orphan drug, the name and NDC
of the orphan drug; a discussion of whether the data used in the
preliminary fee calculation matches previously reported Form 8947 data
on orphan drugs; and, if the data used in the preliminary fee
calculation does match the Form 8947 data, an explanation of why the
Form 8947 data was erroneous and why the IRS should use the proposed
corrected data instead;
(7) For any other asserted error, an explanation of the nature of
the error, how the error affects the fee calculation, an explanation of
how the entity established that an error occurred, the proposed
correction to the error, and an explanation of why the IRS or Agency
should use the proposed corrected data instead;
(8) If an entity is using data to establish the existence of an
error and that data was not reported on Form 8947 or contained in the
notification of the preliminary fee calculation, a description of what
the data is, how the entity acquired the data, and who maintains it;
and
(9) Documentation of any rebate and orphan drug data, or other
information used to establish the existence of any errors.
(c) Form, manner, and timing of submission. Each covered entity
must submit its error report(s) in the form and manner that is
prescribed in guidance published in the Internal Revenue Bulletin. This
guidance will also prescribe the date by which each covered entity must
submit its report(s).
(d) Finality. A covered entity must assert any basis for contesting
its preliminary fee calculation during the dispute resolution period.
In the interest of providing finality to the fee calculation process,
the IRS will not accept an error report after the end of the dispute
resolution period or alter the final fee calculation on the basis of
information provided after the end of the dispute resolution period.
Sec. 51.7T [Removed]
0
Par. 15. Section 51.7T is removed.
0
Par. 16. Section 51.8 is added to read as follows:
Sec. 51.8 Notification and payment of fee.
(a) Notification of final fee calculation. No later than August
31st of each fee year, the IRS will send each covered entity its final
fee calculation for that year. In any fee year, the IRS will base its
final fee calculation on data provided to it by the Agencies as
adjusted pursuant to the dispute resolution process. The notification
to a covered entity of its final fee calculation will include--
(1) The covered entity's allocated fee;
(2) The covered entity's adjustment amount calculated as described
in Sec. 51.5;
(3) The covered entity's branded prescription drug sales, by NDC,
by Program;
(4) The covered entity's branded prescription drug sales taken into
account after application of Sec. 51.5(a)(4);
(5) The aggregate branded prescription drug sales taken into
account for all covered entities; and
(6) The final determination with respect to error reports.
(b) Differences in preliminary fee calculation and final fee
calculation. A covered entity's final fee calculation may differ from
the covered entity's preliminary fee calculation because of changes
made pursuant to the dispute resolution process described in Sec.
51.7. Even if a covered entity did not file an
[[Page 43645]]
error report described in Sec. 51.7, a covered entity's final fee may
differ from a covered entity's preliminary fee because of a change in
data reported by the Agencies after resolution of error reports,
including a change in the aggregate prescription drug sales figure. A
change in aggregate prescription drug sales data can affect each
covered entity's fee because each covered entity's fee is a fraction of
the aggregate fee collected from all covered entities. A covered
entity's final fee may also differ from its preliminary fee calculation
because the data used in the preliminary fee calculation may have
contained inaccurate branded prescription drug sales information that
was corrected or updated at the conclusion of the dispute resolution
process.
(c) Payment of final fee. Each covered entity must pay its final
fee by September 30th of the fee year. For a controlled group, the
payment must be made using the designated entity's EIN as reported on
Form 8947. The fee must be paid by electronic funds transfer as
required by Sec. 51.6302-1. There is no tax return to be filed for the
fee.
(d) Joint and several liability. In the case of a controlled group
that is liable for the fee, all members of the controlled group are
jointly and severally liable for the fee. Accordingly, if a controlled
group's fee is not paid, the IRS will separately assess each member of
the group for the full amount of the controlled group's fee.
Sec. 51.8T [Removed]
0
Par. 17. Section 51.8T is removed.
0
Par. 18. Section 51.9 is added to read as follows:
Sec. 51.9 Tax treatment of fee.
(a) Treatment as an excise tax. The fee imposed by section 9008 is
treated as an excise tax for purposes of subtitle F of the Internal
Revenue Code (Code) (sections 6001-7874). Thus, references in subtitle
F to ``taxes imposed by this title,'' ``internal revenue tax,'' and
similar references, are also references to the fee imposed by section
9008. For example, the fee imposed by section 9008 is assessed (section
6201), collected (sections 6301, 6321, and 6331), enforced (section
7402 and 7403), subject to examination and summons (section 7602), and
subject to confidentiality rules (section 6103) in the same manner as
taxes imposed by the Code.
(b) Deficiency procedures. The deficiency procedures of sections
6211-6216 do not apply to the fee imposed by section 9008.
(c) Limitation on assessment. The IRS must assess the amount of the
fee for any fee year within three years of September 30th of that fee
year.
(d) Application of section 275. The fee is treated as a tax
described in section 275(a)(6) (relating to taxes for which no
deduction is allowed).
Sec. 51.9T [Removed]
0
Par. 19. Section 51.9T is removed.
0
Par. 20. Section 51.10 is added to read as follows:
Sec. 51.10 Refund claims.
Any claim for a refund of the fee must be made by the person that
paid the fee to the government and must be made on Form 843, ``Claim
for Refund and Request for Abatement,'' in accordance with the
instructions for that form.
Sec. 51.10T [Removed]
0
Par. 21. Section 51.10T is removed.
0
Par. 22. Section 51.11T is revised to read as follows:
Sec. 51.11T Effective/applicability date.
(a) through (b) [Reserved]. For further guidance see Sec. 51.11(a)
through (b).
(c) Section 51.2T(e)(3) applies to any fee on branded prescription
drug sales that is due on or after January 1, 2015.
(d) The applicability of Sec. 51.2T(e)(3) expires on July 24,
2017.
0
Par. 23. Section 51.11 is added to read as follows:
Sec. 51.11 Effective/applicability date.
(a) Except as otherwise provided in this section, Sec. Sec. 51.1
through 51.10 apply on and after July 28, 2014.
(b) Section 51.2(e)(3) applies on July 28, 2014 through December
31, 2014.
(c) [Reserved]. For further guidance see Sec. 51.11T(c).
Sec. 51.12T [Removed]
0
Par. 24. Section 51.12T is removed.
0
Par. 25. Section 51.6302-1 is added to read as follows:
Sec. 51.6302-1 Method of paying the branded prescription drug fee.
(a) Fee to be paid by electronic funds transfer. Under the
authority of section 6302(a), the fee imposed on branded prescription
drug sales by section 9008 and Sec. 51.5 must be paid by electronic
funds transfer as defined in Sec. 31.6302-1(h)(4)(i) of this title, as
if the fee were a depository tax. For the time for paying the fee, see
Sec. 51.8.
(b) Effective/applicability date. This section applies on and after
July 28, 2014.
Sec. 51.6302-1T [Removed]
0
Par. 26. Section 51.6302-1T is removed.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 27. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 28. In Sec. 602.101, paragraph (b) is amended by:
0
1. Removing the entry for 51.8T from the table; and
0
2. Adding entries, in numerical order, for 51.2(f)(2)(ii) and 51.7 to
the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described Control No.
------------------------------------------------------------------------
* * * * *
51.2(f)(2)(ii).......................................... 1545-2209
51.7.................................................... 1545-2209
* * * * *
------------------------------------------------------------------------
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
Approved: July 22, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-17697 Filed 7-24-14; 4:15 pm]
BILLING CODE 4830-01-P