Medicaid Program; Covered Outpatient Drugs, 5169-5357 [2016-01274]
Agencies
[Federal Register Volume 81, Number 20 (Monday, February 1, 2016)] [Rules and Regulations] [Pages 5169-5357] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2016-01274] [[Page 5169]] Vol. 81 Monday, No. 20 February 1, 2016 Part II Department of Health and Human Services ----------------------------------------------------------------------- Centers for Medicare & Medicaid Services ----------------------------------------------------------------------- 42 CFR Part 447 Medicaid Program; Covered Outpatient Drugs; Final Rule Federal Register / Vol. 81 , No. 20 / Monday, February 1, 2016 / Rules and Regulations [[Page 5170]] ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Part 447 [CMS-2345-FC] RIN 0938-AQ41 Medicaid Program; Covered Outpatient Drugs AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Final rule with comment period. ----------------------------------------------------------------------- SUMMARY: This final rule implements provisions of the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively referred to as the Affordable Care Act) pertaining to Medicaid reimbursement for covered outpatient drugs (CODs). This final rule also revises other requirements related to CODs, including key aspects of their Medicaid coverage and payment and the Medicaid drug rebate program. DATES: Effective Date: The final rule is effective on April 1, 2016. Compliance Date: State Medicaid Agencies must comply with the requirements of Sec. 447.512(b), Sec. 447.518(a), and Sec. 447.518(d) by submitting a State Plan Amendment (SPA) by June 30, 2017 to be effective no later than April 1, 2017. Comment Date: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on April 1, 2016. (See the SUPPLEMENTARY INFORMATION section of this final rule with comment period for a list of provisions open for comment.) ADDRESSES: In commenting, please refer to file code CMS-2345-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. You may submit comments in one of four ways (please choose only one of the ways listed): 1. Electronically. You may submit electronic comments on this regulation to www.regulations.gov. Follow the instructions for ``submitting a comment.'' 2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2345-FC, P.O. Box 8013, Baltimore, MD 21244-8013. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail. You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2345-FC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses: a. For delivery in Washington, DC-- Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201. (Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp- in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.) b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members. Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period. FOR FURTHER INFORMATION CONTACT: Ruth Blatt, (410) 786-1767, for issues related to the definition of covered outpatient drug, including drug category, and rebates for line extensions. Brian Du, (410) 786-6814, for issues related to the offset of rebates and collection of information. Emeka Egwim (410-786-1092), for issues related to 340B and the Federal Upper Limits. Lisa Ferrandi, (410) 786-5445, for issues related to 340B, rebates for drugs dispensed by Medicaid managed care organizations, requirements for states, the Collection of Information Requirements, and the Regulatory Impact Analysis. Renee Hilliard, (410) 786-2991, for issues related to the definitions of states and United States. Christine Hinds, (410) 786-4578, for issues related to authorized generics, nominal price, blood clotting factor, and exclusively pediatric drugs. Gail Sexton, (410) 786-4583, for issues related to Federal upper limits and the definitions of actual acquisition cost and professional dispensing fee. Terry Simananda, (410) 786-8144, or Wendy Tuttle, (410) 786-8690, for issues related to the determination of Average Manufacturer Price (AMP), identification of 5i drugs, the determination of Best Price, and manufacturer reporting requirements. Andrea Wellington, (410) 786-3490 for issues related to the Regulatory Impact Analysis. Wendy Tuttle, (410) 786-8690, for all other inquiries. SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that Web site to view public comments. Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951. Provisions open for comment: We will consider comments that are submitted as indicated above in the Dates and Addresses sections on the following subject areas discussed in this final rule with comment period: The definition and identification of line extension drugs. To assist readers in referencing sections contained in this document, we are providing the following Table of Contents. Table of Contents I. Background A. Introduction B. Changes Made by the Affordable Care Act C. Other Changes Concerning the Medicaid Drug Rebate Program [[Page 5171]] II. Summary of Proposed Provisions, Analysis of and Response to Public Comments, and Provisions of the Final Rule A. Basis and Purpose (Sec. 447.500) B. Definitions (Sec. 447.502) C. Determination of Average Manufacturer Price (Sec. 447.504) D. Determination of Best Price (Sec. 447.505) E. Authorized Generic Drugs (Sec. 447.506) F. Exclusion From Best Price of Certain Sales at a Nominal Price (Sec. 447.508) G. Medicaid Drug Rebates (Sec. 447.509) H. Requirements for Manufacturers (Sec. 447.510) I. Requirements for States (Sec. 447.511) J. Drugs: Aggregate Upper Limits of Payment (Sec. 447.512) K. Upper Limits for Multiple Source Drugs (Sec. 447.514) L. Upper Limits for Drugs Furnished as Part of Services (Sec. 447.516) M. State Plan Requirements, Findings, and Assurances (Sec. 447.518) N. FFP: Conditions Relating to Physician-Administered Drugs (Sec. 447.520) O. Optional Coverage of Investigational Drugs and Other Drugs Not Subject to Rebate (Sec. 447.522) III. Collection of Information Requirements A. Wage Estimates B. ICRs Carried Over from the February 2, 2012, Proposed Rule 1. Information Collection Requirement (ICR) Regarding Covered Outpatient Drug Definition (Sec. 447.502) 2. ICR's Regarding Identification of 5i Drugs (Sec. 447.507) 3. ICR's Regarding Medicaid Drug Rebates (Sec. 447.509) 4. ICR's Regarding Requirements for Manufacturers (Sec. 447.510) 5. ICR's Regarding Requirements for States (Sec. 447.511) C. Summary of Annual Burden Estimates D. Submission of PRA-Related Comments IV. Regulatory Impact Analysis A. Introduction B. Statement of Need C. Overall Impacts D. Detailed Economic Analysis 1. Anticipated Effects on Drug Manufacturers 2. Anticipated Effects on Retail Community Pharmacies 3. Anticipated Effects on State Medicaid Programs 4. Anticipated Effects on U.S. Territories E. Alternatives Considered F. Accounting Statement and Table G. Conclusion V. Regulatory Flexibility Act Analysis VI. Unfunded Mandates Reform Act Analysis VII. Federalism Analysis VIII. Congressional Review Act Acronyms Because of the many organizations and terms to which we refer by acronym in this final rule, we are listing these acronyms and their corresponding terms in alphabetical order below: 5i drug Inhalation, infusion, instilled, implanted or injectable drugs AAC Actual acquisition cost ADA Antibiotic drug application AI/AN American Indians and Alaska Natives AMP Average manufacturer price ANDA Abbreviated New Drug Application APA Administrative Procedures Act APD Advanced planning document ASP Average sales price AWP Average wholesale price BLA Biologics license application BMN Brand medically necessary COD Covered outpatient drug CPI-U Consumer Price Index--Urban DDR Drug data reporting [for Medicaid system] DRA Deficit Reduction Act EAC Estimated acquisition cost ELA Establishment license application FDA Food and Drug Administration FFP Federal financial participation FFDCA Federal Food, Drug and Cosmetic Act FQHC Federally qualified health center FR Federal Register FSS Federal supply schedule FUL(s) Federal upper [reimbursement] limit(s) GPO Group purchasing organization HCERA Health Care and Education Reconciliation Act ICR Information Collection Requirement I/T/U IHS, Tribal, and Urban Indian Organizations IHS Indian Health Services MCO Managed care organization MDR Medicaid drug rebate MMIS Medicaid Management and Information Systems NADAC National average drug acquisition cost NCPDP National Council for Prescription Drug Plans NDA New Drug Application NDC National drug code NSDE NDC Structured Product Labeling (SPL) Data Elements OBRA `90 Omnibus Budget Reconciliation Act of 1990 OBRA `93 Omnibus Budget Reconciliation Act of 1993 OIG Office of Inspector General OPA Office of Pharmacy Affairs OTC Over-the-counter PBM Pharmacy Benefit Manager PHS Public Health Service PHSA Public Health Service Act PLA Product license application REMS Risk Evaluation and Mitigation Strategy SPA State plan amendment SPAP State pharmacy assistance program SPL Structured Product Labeling U&C Usual and customary URA Unit rebate amount WAC Wholesale acquisition cost I. Background A. Introduction Under the Medicaid program, states may provide coverage of prescribed drugs as an optional service under section 1905(a)(12) of the Social Security Act (the Act). Section 1903(a) of the Act provides for federal financial participation (FFP) in state expenditures for these drugs. Section 1927 of the Act governs the Medicaid Drug Rebate (MDR) Program and payment for covered outpatient drugs (CODs), which are defined in section 1927(k)(2) of the Act. In general, for payment to be made available under section 1903(a) of the Act for CODs, manufacturers must enter into a National rebate agreement (agreement) as set forth in section 1927(a) of the Act. Section 1927 of the Act provides specific requirements for rebate agreements, drug pricing submission and confidentiality requirements, the formulas for calculating rebate payments, and requirements for states for CODs. This final rule implements changes to section 1927 of the Act made by sections 2501, 2503, and 3301(d)(2) of the Patient Protection and Affordable Care Act of 2010 (Pub. L. 111-148, enacted on March 23, 2010), and sections 1101(c) and 1206 of the Health Care and Education Reconciliation Act of 2010 (HCERA) (Pub. L. 111-152, enacted on March 30, 2010) (collectively referred to as the Affordable Care Act). It also implements changes to section 1927 of the Act as set forth in section 202 of the Education Jobs and Medicaid Assistance Act (Pub. L. 111-226, enacted on August 10, 2010). As discussed in the proposed rule published in the February 2, 2012 Federal Register (77 FR 5318) and summarized in this section, these revisions are consistent with the Secretary's authority set forth in section 1102 of the Act to publish regulations that are necessary to the efficient administration of the Medicaid program. B. Changes Made by the Affordable Care Act Section 2501(a) of the Affordable Care Act amended section 1927(c) of the Act by increasing the minimum rebate percentage for most single source and innovator multiple source drugs from 15.1 percent of the average manufacturer price (AMP) to 23.1 percent of AMP. Section 2501(a) of the Affordable Care Act also amended section 1927(c) of the Act by establishing a minimum rebate percentage of 17.1 percent of AMP for certain single source and innovator multiple source clotting factors and single source and innovator multiple source drugs approved by the Food and Drug Administration (FDA) exclusively for pediatric indications. Section 2501(a) of the Affordable Care Act also added section 1927(b)(1)(C) to the Act to make changes to the non-Federal share of rebates by specifying that the amounts attributable to the increased rebate percentages be remitted to the [[Page 5172]] federal government. The amendments made by section 2501(a) of the Affordable Care Act were effective January 1, 2010. Section 2501(b) of the Affordable Care Act amended section 1927(c) of the Act by increasing the rebate percentage for noninnovator multiple source drugs from 11 percent of AMP to 13 percent of AMP, effective January 1, 2010. Section 2501(c) of the Affordable Care Act amended section 1903(m)(2)(A) of the Act by specifying new conditions for managed care organization (MCO) contracts, including that CODs dispensed to individuals eligible for medical assistance under Title XIX of the Act who are enrolled with a Medicaid MCO shall be subject to the same rebate required by the rebate agreement authorized under section 1927 of the Act. The Affordable Care Act also amended section 1903(m)(2)(A) of the Act to establish that MCO capitation rates shall be based on actual cost experience related to rebates and subject to federal regulations at 42 CFR 438.6 regarding actuarial soundness of capitation payments. The legislation also provided that MCOs are responsible for reporting to the state certain utilization data and such other data as the Secretary determines necessary for the state to access the rebates authorized by this provision. Section 2501(c) of the Affordable Care Act also made conforming amendments to section 1927(b)(1)(A) of the Act by requiring manufacturers that participate in the MDR program to provide rebates for drugs dispensed to individuals enrolled with a MCO, if the MCO is responsible for coverage of such drugs. It also amended section 1927(b)(2)(A) of the Act by requiring states to include information on drugs paid for by Medicaid MCOs under the state plan during the rebate period when requesting rebates from manufacturers. Finally, section 2501(c) modified section 1927(j)(1) of the Act to specify that CODs are not subject to the rebate requirements if such drugs are both subject to discounts under the 340B of the Public Health Service Act (PHSA) and dispensed by health maintenance organizations (HMOs), including Medicaid MCOs. The amendments made by section 2501(c) were effective March 23, 2010. Section 2501(d) of the Affordable Care Act added a new section 1927(c)(2)(C) of the Act effective for drugs paid for by a state on or after January 1, 2010. This provision modifies the unit rebate amount (URA) calculation for a drug that is a line extension (new formulation) of a single source or innovator multiple source drug that is an oral solid dosage form. Section 2501(e) of the Affordable Care Act amended section 1927(c)(2) of the Act by adding a new subparagraph (D) and establishing a maximum on the total rebate amount for each single source or innovator multiple source drug at 100 percent of AMP, effective January 1, 2010. Section 2501(f) of the Affordable Care Act made conforming amendments to section 340B of the PHSA, but those amendments are not addressed in this final rule. Section 2503(a)(1) of the Affordable Care Act amended section 1927(e) of the Act by revising the Federal upper reimbursement limit (FUL) to be no less than 175 percent of the weighted average (determined on the basis of utilization) of the most recently reported monthly AMPs for pharmaceutically and therapeutically equivalent multiple source drug products that are available for purchase by retail community pharmacies on a nationwide basis. Additionally, it specifies that the Secretary shall implement a smoothing process for AMP which shall be similar to the smoothing process used in determining the average sales price (ASP) of a drug or biological product under Medicare Part B. Section 2503(a)(2) of the Affordable Care Act amended section 1927(k) of the Act by revising the definition of AMP to now mean the average price paid to the manufacturer for the drug in the United States by wholesalers for drug distribution to retail community pharmacies and retail community pharmacies that purchase drugs directly from the manufacturer. Section 2503(a)(3) of the Affordable Care Act also amended the definition of multiple source drug to specify in the definition that the sales of such drugs shall be specifically within the United States. Section 2503(a)(4) of the Affordable Care Act added to section 1927(k) of the Act definitions of retail community pharmacy and wholesaler for purposes of section 1927 of the Act. Section 2503(b) of the Affordable Care Act amended section 1927(b) of the Act by establishing a requirement that manufacturers report, not later than 30 days after the last day of each month of a rebate period under the agreement, on the manufacturer's total number of units that are used to calculate the monthly AMP for each COD. It also amended the preexisting requirement that the Secretary disclose AMPs to instead require the Secretary to post, on a Web site accessible to the public, the weighted average of the most recently reported monthly AMPs and the average retail survey price determined for each multiple source drug in accordance with section 1927(f) of the Act. The amendments made by section 2503(b) of the Affordable Care Act were effective October 1, 2010. Section 2503(c) of the Affordable Care Act amended section 1927(f) of the Act by clarifying that the survey of retail prices described in such subsection applies to retail community pharmacies. Section 2503(d) of the Affordable Care Act specified that the amendments made by section 2503 of the Affordable Care Act were effective October 1, 2010. Section 2503(d) of the Affordable Care Act further specified that the amendments made by section 2503 shall take effect without regard to whether final regulations to carry out such amendments have been issued by October 1, 2010. Section 3301(d)(2) of the Affordable Care Act included a conforming amendment to the definition of best price (BP) under Medicaid at section 1927(c)(1)(C)(i)(VI) of the Act. This amendment provides that any discounts provided by manufacturers under the Medicare coverage gap discount program under section 1860D-14A of the Act are exempt from a manufacturer's best price calculation, effective for drugs dispensed on or after July 1, 2010. Section 7101(a) of the Affordable Care Act expanded the drug pricing program under section 340B of the PHSA to include certain children's hospitals, freestanding cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals. Section 204 of the Medicaid Extenders Act of 2010 (Pub. L. 111-309) revised section 340B of the PHSA by removing children's hospitals from the orphan drug exclusion described in section 2302 of HCERA. Section 1101(c) of HCERA also includes a conforming amendment to the definition of AMP under Medicaid at section 1927(k)(1)(B)(i) of the Act by providing that discounts provided by manufacturers under the Medicare coverage gap discount program under section 1860D-14A are excluded from a manufacturer's determination of AMP, effective March 30, 2010. C. Other Changes Concerning the Medicaid Drug Rebate Program This final rule also implements other miscellaneous provisions pertaining to CODs. It implements changes to section 1927 of the Act as set forth in section 221 of Division F, Title II, of the Omnibus Appropriations Act, 2009, (Pub. L. 111-8, enacted on March 11, 2009) (the Appropriations Act). It [[Page 5173]] codifies other requirements in section 1927 of the Act pertaining to the MDR program, revises certain regulatory provisions presently codified at 42 CFR part 447, subpart I, and makes other changes concerning rebate requirements. II. Summary of Proposed Provisions, Analysis of and Responses to Public Comments, and Provisions of the Final Rule The proposed rule for implementing the requirements of section 1927 of the Act, as revised by the Affordable Care Act, and the requirements related to coverage and payment for CODs, was published on February 2, 2012 (77 FR 5318). As discussed in the proposed rule, we specifically proposed provisions that would revise the MDR program (77 FR 5320), including the calculation of AMP (77 FR 5326), drug rebate payments (77 FR 5338), and upper limits for multiple source drugs (77 FR 5345). We received approximately 425 comments from drug manufacturers, membership organizations, law firms, pharmacy benefit managers, state Medicaid agencies, advocacy groups, not-for-profit organizations, consulting firms, health care providers, employers, health insurers, health care associations, as well as individual citizens. The comments ranged from general support or opposition to the proposed provisions to very specific questions or comments regarding the proposed changes. The following summarizes comments about the proposed rule, in general, or about issues not addressed in the proposed regulations: Comment: Several commenters expressed support for the proposed rule, noting that it was a significant undertaking and important for CMS to require adequate state and federal reimbursement for CODs under the Medicaid program. Response: We appreciate the support the commenters expressed about the proposed rule and we believe that the final policies we are adopting in this final rule will continue to allow the federal and state governments the flexibility to provide adequate reimbursement for the cost of CODs under the Medicaid program. Comment: One commenter emphasized the importance of pharmacists in the health care team and the need to provide reasonable reimbursement for both prescription and cognitive services to ensure beneficiary access. Response: We appreciate the comment and agree that pharmacists play a vital role in the health care delivery system. We have provided for payment consistent with the statute and regulations which contemplate reimbursement for appropriate professional dispensing fees, which we have defined to include certain prescription and beneficiary counseling services. Comment: While many commenters were supportive of the proposed rule, some voiced concerns regarding its impact on the economy or pharmacy payments. Some commenters also voiced concerns with the implementation of Medicare Prescription Drug Coverage, the birth control mandate, and coverage of mental health benefits. Response: While we appreciate these comments, issues regarding the implementation of Medicare Prescription Drug Coverage, the birth control mandate, and coverage of mental health benefits are beyond the scope of this rulemaking. As we discuss later in the final rule, we do not believe this rule will have an adverse impact on the economy or pharmacy payments; this final rule is designed to ensure that pharmacy reimbursement is aligned with the acquisition cost of drugs and that the states pay an appropriate professional dispensing fee. Discussions regarding the impact on the economy and pharmacy payments are discussed in the Regulatory Impact Analysis section of this final rule. Comment: One commenter requested that CMS evaluate every aspect of the proposed rule and revise it in favor of simplicity versus complexity and clarity versus complication. Response: To the extent practical, we have made every effort to ensure that the provisions of this final rule are simple and clear. Comment: One commenter expressed general concerns that, if CMS finalized the proposed rule as drafted, it would violate the Administrative Procedure Act (APA) because CMS's interpretations are either contrary to statute or are arbitrary and capricious under 5 U.S.C. 706(2)(A). The commenter stated that many of CMS's proposals (such as AMP, line extensions, inclusion of territories, and 340B issues in best price) in the proposed rule are entirely conclusory, failed to consider important aspects of the problem, or are internally inconsistent, and constitute unreasonable interpretations. The commenter urged CMS to revise its proposals related to calculating AMP using a buildup versus presumed inclusion methodology; AMP for 5i drugs not generally dispensed through retail community pharmacies, line extensions, territories, 340B issues in best price, and bundled sales arrangements. Response: We disagree with the commenter. We believe that we have sufficiently met the requirements of the APA. In particular, in the proposed rule, we identified the legal authority for our proposals, sufficiently described the substance of the proposed rule and the subjects involved, as well as proposed regulation text. The proposed rule also identified the data, information, and assumptions supporting our proposals. After consideration of public comments, we are issuing this final rule and, as discussed in greater detail in the sections that follow, we demonstrate that we have examined the relevant information, considered the significant issues relevant to the proposed rule, and sufficiently explained our final policies. The detailed comments and responses pertaining to issues concerning AMP, best price, line extensions, and bundled sales arrangements can be found in subsequent sections of this final rule. In those sections, we explain why our proposals are consistent with the relevant provisions of the statute, and our authority to implement those provisions, as well as consistent with our understanding of congressional intent and recent Affordable Care Act amendments. We also explain in response to comments why we either finalized a proposed provision or revised a proposed provision based on comments. Accordingly, we believe that we have taken the necessary steps to comply with the requirements of the APA and that the requirements of this final rule are neither arbitrary nor capricious. Comment: Several commenters requested that CMS specifically identify any provisions that are retroactive and specify the effective date and legal basis for the retroactive application. Many commenters requested that the final rule be implemented on a prospective basis only and believe that it is reasonable that manufacturers, states and territories will require a lead time of 6 to 12 months from the publication date of the final rule to implement the significant changes in the proposed rule. One commenter noted that allowing all parties equal time for implementation would recognize that all parties (manufacturers, states and territories) have equal responsibility to comply with the program requirements. Another commenter believed that stakeholders and manufacturers are not bound by the proposed rule because it is non-binding. Response: The final rule is effective on April 1, 2016. We believe our final [[Page 5174]] policies will allow adequate time for implementation and where appropriate, have extended time for compliance. We further note that the Affordable Care Act established earlier effective dates for certain statutory provisions without regard to this rulemaking, as discussed in the proposed rule (77 FR 5319). To the extent any provisions are not new and merely emphasize or clarify longstanding agency policy, we have endeavored to note that as such. Comment: One commenter requested that CMS confirm that manufacturer's use of reasonable interpretations of the statute is permissible prior to the effective date of the final rule. Response: Manufacturers are always encouraged to interpret the statute in a manner consistent with the requirements and intent of section 1927 of the Act and federal regulations, as discussed in prior rules regarding the MDR program (see, for example, 72 FR 39167 (July 17, 2007)) and consistent with the national rebate agreement. However, in accordance with the requirements of the national rebate agreement, manufacturers must maintain adequate documentation supporting any assumptions. Comment: One commenter requested that CMS provide the states flexibility to come into compliance with final regulations or guidance due to variations in timing of state legislative sessions and state procurement procedures. The commenter was particularly concerned with the provisions relating to reimbursement at AAC and the professional dispensing fee. Response: We appreciate the concerns expressed by the commenter. As discussed in this section, we have included a compliance date that specifies that states will have 1 year after the effective date of this final rule to submit a state plan amendment (SPA) which would incorporate the requirements of the final rule. We expect to issue subregulatory guidance to the states regarding this process. A. Basis and Purpose (Sec. 447.500) Section 2501(c) of the Affordable Care Act established new requirements for manufacturers that participate in the MDR program to pay rebates for drugs dispensed to individuals enrolled with a Medicaid MCO, if the MCO is responsible for coverage of such drugs. To effectuate those changes, we proposed to add Sec. 447.500(a)(4), to specify sections 1903(m)(2)(A)(xiii) and 1927(b) of the Act as the basis for requiring that manufacturers provide rebates for CODs dispensed to individuals eligible for medical assistance who are enrolled in Medicaid MCOs (77 FR 5320). We proposed to add Sec. 447.500(a)(5) which would add section 1902(a)(30)(A) as an additional statutory basis for calculating payments for CODs. We received no comments concerning the proposals to add Sec. 447.500(a)(4) and (5), and therefore, for the reasons we noted, we are finalizing these provisions as proposed. We note that the comments and responses pertaining to the proposed requirements regarding the calculation of rebates for drugs dispensed through Medicaid MCOs are discussed later in the Medicaid Drug Rebates (Sec. 447.509) section (section II.G.3.) of this final rule. B. Definitions (Sec. 447.502) 1. 5i drug Section 202 of the Education, Jobs and Medicaid Assistance Act (Pub. L. 111-226), enacted on August 10, 2010 and effective on October 1, 2010, amended the definition of AMP under section 1927(k)(1)(B)(i)(IV) of the Act to include sales for inhalation, infusion, instilled, implanted, or injectable drugs that are not generally dispensed through retail community pharmacies. Given this amendment, we included a proposed definition, which defined a ``5i drug'' to mean an inhalation, infusion, instilled, implanted, or injectable drug that is not generally dispensed through a retail community pharmacy (77 FR 5359). We did not receive any comments specific to this proposed definition of 5i drug, but we received a number of comments concerning the identification of such drugs for purposes of the calculation of AMP. We address comments pertaining to the identification of and other 5i drug issues in section II.C. of this final rule. At this time, we do not believe a definition of 5i drug is necessary and therefore we are not finalizing any definition for 5i drug that was proposed in Sec. 447.502 (77 FR 5359). However, we note that the acronym ``5i drug'' has already been widely adopted in the nomenclature of many stakeholders, including drug manufacturers, retail community pharmacies, consulting firms and even CMS as simply a convenient way to condense the list of the five specific drug types (inhalation, infusion, instilled, implanted, or injectable drugs). Therefore, we will use the ``5i drug'' acronym to refer to all inhalation, infusion, instilled, implanted, or injectable drugs when discussing the identification of such drugs. Therefore, for the reasons discussed in this section, we have decided not to finalize in Sec. 447.502 the definition of 5i drug that was proposed (77 FR 5359). 2. Actual Acquisition Cost In proposed Sec. 447.502, we proposed to replace the term, ``estimated acquisition cost'' (EAC) with ``actual acquisition cost'' (AAC) and to define AAC as the agency's determination of the pharmacy providers' actual prices paid to acquire drug products marketed or sold by specific manufacturers (77 FR 5320 and 5359). As discussed in the proposed rule, we believe that this definition provides a more accurate estimate of the prices available in the marketplace, while assuring sufficient beneficiary access, consistent with section 1902(a)(30)(A) of the Act (77 FR 5320 through 5321). We received the following comments concerning the proposed revised definition of AAC: a. Support for Proposal To Define/Implement AAC Comment: One commenter supports CMS's efforts to provide states with accurate reference prices upon which to base reimbursement for CODs and to replace EAC with AAC. Several commenters appreciated CMS's desire to move away from an estimated reimbursement based on average wholesale price (AWP) or wholesale acquisition cost (WAC) and to substitute instead a requirement that states adopt AAC payment formulas. Another commenter stated that drug reimbursement based on AAC as opposed to AWP seems to present a fair cost-based approach to pharmacy reimbursement and allows pharmacies to negotiate for their true value in the healthcare system in the professional dispensing fee. Response: We agree with these comments and believe that reimbursement based on AWP or WAC may fail to represent accurate purchase prices, because (unlike prices based on AAC) prices based on AWP or WAC do not necessarily include the discounts and price concessions available in the marketplace. Comment: One commenter stated that CMS should require states to implement AAC as the exclusive means to reimburse drugs. The commenter expressed concern that allowing states to include AAC in their existing lower of reimbursement formulas would result in inconsistent and inadequate reimbursement. The commenter also noted that CMS should require states to adopt an adequate professional dispensing fee with their AAC reimbursement methodology. Response: In accordance with the provisions of section 1902(a)(30)(A) of [[Page 5175]] Act, which requires, in part, that states have methods and procedures to assure that payment for Medicaid care and services are consistent with efficiency, economy, and quality of care, we proposed to replace the term EAC with AAC, which revises the reimbursement standard for prescription drugs. We believe that this change is necessary to require that states calculate reimbursement prices based on the prices actually available to pharmacies in the marketplace. However, we recognize that there may be instances when a survey price, such as the National average drug acquisition cost (NADAC), is not available for a specific drug product, and therefore, we believe that states should have some flexibility for establishing reimbursement rates. Furthermore, as discussed in the State Plan Requirements, Findings and Assurances section (section II.M.) of this final rule, we have revised Sec. 447.518(d) of this final rule such that when states are proposing changes to either the ingredient cost reimbursement or the professional dispensing fee reimbursement, they will be required to evaluate their proposed changes in accordance with the requirements of this final rule to ensure that total reimbursement to the pharmacy provider complies with the requirements of section 1902(a)(30)(A) of the Act. States are responsible for providing adequate information to support any proposed changes to either or both of the components of the reimbursement methodology. b. Opposition to Proposal To Define/Implement AAC Comment: Several commenters believe that states should be able to use an EAC or an AAC for pharmacy reimbursement. One of the commenters stated that to implement an AAC methodology, a state would have to conduct their own regular, costly survey or depend on the NADAC. The commenter added that some states may think that the NADAC does not truly represent the costs to pharmacies in that state, especially where a state has a disproportionate share of independent pharmacies. Response: EAC was defined, in part, as the states' estimate of the prices generally and currently paid for a drug, and states traditionally used published compendia prices such as the AWP to establish this estimate. The HHS Office of Inspector General (OIG) has published several reports (OIG Audit reports--A-06-00-00023, A-06-01- 00053, A-06-02-00041),\1\ which demonstrate that, because of the flawed nature of an AWP-based reimbursement, states have often reimbursed too much for CODs; thus, the OIG has recommended that we work with states and the Congress to base reimbursement on an amount that more accurately reflects pharmacy acquisition cost. We believe that a change to AAC is more consistent with the statutory provisions at section 1902(a)(30)(A) of the Act as AAC requires states to calculate reimbursement prices based on the prices actually paid by pharmacy providers. We have cited examples in the proposed rule (77 FR 5350) that the states can use to develop or support an AAC. As discussed further below, states retain the flexibility to establish an AAC reimbursement based on several different pricing benchmarks, but they have the responsibility to ensure that Medicaid pharmacy providers are adequately reimbursed in accordance with the requirements of section 1902(a)(30)(A) of the Act. --------------------------------------------------------------------------- \1\ ``Medicaid Pharmacy--Actual Acquisition Cost of Brand Name Prescription Drug Products,'' (A-06-00-00023), August 10, 2001; ``Medicaid Pharmacy--Actual Acquisition Cost of Generic Prescription Drug Products'' (A-06-01-00053), March 14, 2002; ``Medicaid Pharmacy--Additional Analyses of the Actual Acquisition Cost of Prescription Drug Products,'' (A-06-02-00041), September 16, 2002. --------------------------------------------------------------------------- Comment: One commenter stated that the phrase ``actual acquisition cost'' is misleading, as pharmacy providers' reimbursement will not be based on their actual price. The commenter stated that, for example, a yearly national survey cannot simultaneously or accurately reflect actual ingredient costs in different states and believes that AAC is no better a price indicator than the EAC. A few commenters stated that EAC should be used for pharmacy reimbursement because it may be unrealistic for a state to determine any pharmacy's AAC for a drug product, net of rebates, incentives, or other purchasing arrangements because invoice reviews will not provide the actual cost, will only apply to a particular timeframe, drug prices change rapidly, and the dispense date may be different than the actual date it was purchased. A few commenters stated that the methodology for calculating the AAC should be referenced in the definition. One commenter also stated that because prices paid may be different due to pharmacy provider's wholesaler agreements, EAC or average invoice cost or ``average actual acquisition cost'' would be a more accurate terminology. Response: We believe that AAC is a better price indicator than EAC. As discussed in this section, there has been longstanding concern by the OIG that states continue to overpay for Medicaid CODs, as states traditionally used published compendia prices such as the AWP to establish the EAC. As we stated in the proposed rule, (77 FR 5350), states retain the flexibility to establish an AAC reimbursement based on several different pricing benchmarks, including, but not limited to, a national survey of AACs, a state survey of retail pharmacy providers, or AMP data. The AMP is based on actual sales data and reported and certified by drug manufacturers, and could be considered as a reimbursement metric, provided that the use of such a metric is consistent with section 1927(b)(3)(D) of the Act. The state can determine the relationship of the AMP to factors such as the wholesaler markup, which covers the cost of distribution and other service charges by the wholesaler, to determine a reasonable reimbursement that would appropriately compensate pharmacies. As we stated in the proposed rule (77 FR 5321 and 5350), we realize that states may have difficulty determining the actual price of each drug at the time it was purchased. However, as states have flexibility to establish a methodology to determine AAC, we decline to include a specific methodology for calculating AAC in the definition. Comment: One commenter stated that the proposal to move to AAC for branded drugs was not authorized by the Congress, and therefore, should not be undertaken. The commenter further stated that the Congress legislated specific limits on Medicaid pricing for drugs subject to FULs, but changes to brand drugs were absent. One commenter stated that when CMS issued the AMP final rule on the Deficit Reduction Act (DRA) in July 2007, they declined to modify the definition of EAC because CMS stated that the DRA did not modify the definition. Another commenter stated that by proposing a shift from EAC to AAC, CMS has introduced an issue that is not germane to the implementation of the AMP changes in the Affordable Care Act for rebate and FUL purposes. Response: While we agree with the commenter that these changes are not expressly required by the Affordable Care Act, as discussed previously in this section, we are authorized to make these changes under section 1902(a)(30)(A) of the Act. Furthermore, we believe that AAC will be more reflective of actual prices paid, as opposed to unreliable published compendia pricing, while [[Page 5176]] continuing to provide sufficient payment to assure beneficiary access. At the time that we issued the proposed rule, certain states had already begun to incorporate survey data based on pharmacy invoice prices into their pharmacy reimbursement methodologies to calculate more accurate payment rates.\2\ Since the publication of the proposed rule, additional states have incorporated the use of acquisition costs, based on survey data, as a reimbursement metric for CODs, including Colorado, Idaho, Iowa, and Louisiana. In addition, using a commercially published reference price as the basis for Medicaid pharmacy reimbursement has been problematic for both the states and the federal government because reimbursement based on published compendia prices, as discussed in several reports issued by the OIG, is often significantly inflated, and not necessarily reflective of a pharmacy's actual purchase price for a drug.\3\ Therefore, we have decided to finalize the requirements concerning AAC in this final rule. --------------------------------------------------------------------------- \2\ Alabama-10-008, effective date September 22, 2010 (Alabama AAC Survey information available at https://www.mslc.com/Alabama/) and Oregon-10-13, effective date January 1, 2011 (Oregon AAC Survey information available at https://www.mslc.com/Oregon/) \3\ https://oig.hhs.gov/oas/reports/region6/60000023.htm; https://oig.hhs.gov/oas/reports/region6/60100053.htm;https://oig.hhs.gov/oas/reports/region6/60200041.htm; --------------------------------------------------------------------------- Comment: One commenter stated that some states have requested that CMS establish a national benchmark based on AAC; however, the commenter believed that Congressional intent was not for CMS to mandate that an AAC benchmark be implemented by states. Response: The definition of AAC in this final rule does not mandate that states use a specific formula or methodology to establish their AAC reimbursement. As we stated in the proposed rule, (77 FR 5350), states continue to retain the flexibility to establish an AAC reimbursement based on several different pricing benchmarks, including, but not limited to, NADAC files, AMP, or surveys--such as a state survey of retail pharmacy providers-- because all of these measures are based on actual market prices of drugs. The state may use WAC to develop and support an AAC model of reimbursement, if the state can provide data to support a model of reimbursement using the WAC prices consistent with Sec. 447.512(b) of this final rule. c. Language Changes to the Proposed Definition of AAC Comment: A few commenters stated that the AAC definition should be amended to require that the word ``currently'' be included in the definition between ``prices'' and ``paid'' (that is, ``actual prices currently paid'') to ensure payment is not based on outdated pricing and also stated that this is especially important for brand drugs which are responsible for 80 percent of all Medicaid drug spending. Response: We do not believe that it is necessary to incorporate the term ``currently'' into the definition of AAC. We have defined AAC to require that states establish payment rates based on actual prices paid to acquire drug products, and we expect that those prices would reflect current prices. The pricing benchmarks we provide to states, for example, the weekly NADAC files, and the monthly and quarterly AMP, are updated to reflect current prices. Further, if a state chooses to conduct a state survey to create a database of acquisition cost data, then the timing of the collection of that data would be at the state's discretion subject to federal approval. Comment: A few commenters indicated that the AAC definition in the proposed rule should be more explicit and should address implementation issues such as a requirement that the AAC be recalculated whenever the state makes a change in the professional dispensing fee. Another commenter stated that the language in the proposed rule is confusing regarding the cost of the product, and that the proposal to replace EAC with AAC seems to create a mandate for states to move to a reimbursement mechanism that uses a close estimate of the pharmacy's AAC, but is not clear in that respect. Response: We appreciate the comments. We have revised Sec. 447.518(d) to require states to consider both the ingredient cost reimbursement and the professional dispensing fee reimbursement when proposing changes to either of these components of the reimbursement for Medicaid covered drugs. Additionally, we have addressed such implementation concerns by noting that states that need to revise their payment methodologies in accordance with this final rule must submit a SPA no later than 4 quarters from the effective date of this final rule to revise their payment methodology for CODs in accordance with the requirements of Sec. Sec. 447.512(b) and 447.518(d). For the reasons we articulated, we are finalizing the definition of AAC at Sec. 447.502 as proposed (77 FR 5359). 3. Authorized Generic Drug We proposed moving the definition of ``Authorized generic drug'' from Sec. 447.506(a) to Sec. 447.502 (discussed in more detail at 77 FR 5321). However, we did not propose any revisions to the definition presently set forth at Sec. 447.506(a). To clarify, for purposes of the MDR program, we define an authorized generic drug as any drug sold, licensed, or marketed under a New Drug Application (NDA) approved by the FDA under section 505(c) of the Federal Food, Drug and Cosmetic Act (FFDCA) that is marketed, sold, or distributed under a different labeler code, product code, trade name, trademark, or packaging (other than repackaging the listed drug for use in institutions) than the brand name drug. We did not receive any comments concerning the proposal to move the definition of authorized generic drug. Therefore, we are finalizing the definition of authorized generic drug in Sec. 447.502 as it was proposed. 4. Bona Fide Service Fee In proposed Sec. 447.502, we proposed to revise the definition of bona fide service fee to mean fees paid by a manufacturer to wholesalers or retail community pharmacies that represent fair market value for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement; and that is not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug. The fee includes, but is not limited to, distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative service agreements and patient care programs (such as medication compliance programs and patient education programs) (77 FR 5321 and 5359). We received the following comments concerning the proposed revision to the definition of bona fide service fee: a. Application of Bona Fide Service Fees Exclusion to Limited Entities Comment: Many commenters supported the proposed definition of bona fide service fee at proposed Sec. 447.502. One commenter indicated there are a wide variety of legitimate service arrangements with wholesalers and other direct purchase customers, and those arrangements frequently [[Page 5177]] change to address new patient needs and new challenges in the drug distribution chain. These commenters further stated that retention of the existing standard set forth in Sec. 447.502 for bona fide service fee facilitates manufacturer compliance and allows manufacturers to develop new business models and contractual relationships to adapt to the changing prescription drug market. However, many commenters expressed their concerns regarding the proposed definition of bona fide service fee because it contains a recipient limitation. The proposed definition limited the application of the bona fide service fee exclusion to fees paid by manufacturers to only wholesalers and retail community pharmacies and does not account for other direct purchase customers further recognized in the calculation of AMP under the proposed regulation and statute. One commenter indicated that CMS proposed to include in the AMP transaction many other entities, such as those CMS view as ``conducting business as'' wholesalers or retail community pharmacies, secondary manufacturers for authorized generics, and a wide spectrum of entities that dispense 5i drugs not generally dispensed through retail community pharmacies; and while the commenter does not believe all these transactions should be included in the calculation of AMP, to the extent transactions with other entities are included in AMP, any bona fide service fees paid to those entities should also be excluded. Several commenters stated that the Congress did not amend the statute to define ``bona fide service fee,'' but amended the AMP provision of the statute to provide examples of bona fide service fees. Many of the commenters stated that in light of those amendments, the revised reference from ``an entity'' to ``wholesalers and retail community pharmacies'' was a drafting error by CMS, and does not make sense for AMP calculations for 5i drugs not generally dispensed through retail community pharmacies and best price determinations because such calculations include transactions to other direct customers other than retail community pharmacies and wholesalers. Other commenters believed there was a drafting error in the proposed definition at Sec. 447.502 because in proposed Sec. 447.505, the proposed rule expressly included fees paid to group purchasing organizations (GPOs), which are not wholesalers or retail community pharmacies. Another commenter provided, as an example, that if a manufacturer was to purchase ``pharmaco- economic data'' from a health plan at fair market value and the arrangement otherwise satisfied the four-part test for bona fide service fees, it would not make sense to treat this payment as a discount merely because it was not paid to a wholesaler or a retail community pharmacy. One commenter noted that including bona fide service fees paid by manufacturers to any entity in AMP for 5i drugs not generally dispensed through retail community pharmacies and including bona fide service fees in best price as discounts or price concessions would result in an artificially low AMP for such 5i drugs calculation and a lower best price determination for all single source or innovator multiple source drugs. Another commenter indicated that limiting the definition would be operationally difficult to do since manufacturers would need to recognize the same fee as a discount/price concession in some government pricing programs, but as a legitimate fee for service in others. Several commenters also noted that under the existing regulation (definition of bona fide service fee at Sec. 447.502 based on the 2007 AMP final rule (72 FR 39240)) bona fide service fee is defined in relevant part to mean, ``fees paid by a manufacturer to an entity'' and that the reference to ``an entity'' from this current rule has been replaced with ``wholesalers and retail community pharmacies.'' The commenters stated that ``an entity'' language is more appropriate for purposes of defining bona fide service fee because the definition applies not only to the calculation of AMP, but also to the calculation of AMP for 5i drugs not generally dispensed through retail community pharmacies and best price determinations as well. One commenter stated that CMS's proposed definition was unreasonable in that fees would need to be treated as discounts because the customer, while included in the AMP and best price calculation, did not qualify as a wholesaler or retail community pharmacy. Response: We appreciate the support for the proposed definition of bona fide service fee and comments that raised concerns regarding our changes we proposed given the specific changes to the AMP calculation as added by section 2503(a)(2) of the Affordable Care Act. After considering the issues raised by the commenters, we have decided to amend the definition at Sec. 447.502 in this final rule to remove the references to wholesalers and retail community pharmacies. We agree with commenters that there is no indication that the Congress intended to limit the definition of bona fide service fees for best price. Section 1927(k)(1)(B)(i)(II) of the Act, as added by section 2503(a)(2) of the Affordable Care Act, excludes from the definition of AMP bona fide service fees paid by manufacturers to wholesalers and retail community pharmacies and it includes examples of those fees included in that exclusion. However, section 1927(k)(1)(B)(i)(II) of the Act does not provide an express definition of what constitutes a bona fide service fee generally, nor does it directly apply to Best Price. Therefore, we believe the proposed definition may have been too limiting with regard to the entities that were identified. Accordingly, in this final rule we are revising the definition of bona fide service fee at Sec. 447.502 to remove the reference to ``wholesalers and retail community pharmacies'' and replace it with ``an entity'' so that manufacturers can apply the definition with regard to their calculation of both AMP and best price. Further discussion regarding what is included and excluded from the determination of AMP and best price is included in sections II.C (Sec. 447.504(c) and (f)) and II.D (Sec. 447.505(c)) of this final rule. b. Four-Part Test Comment: Commenters stated that the proposed definition of bona fide service fee has no basis in the statute and stated that the Congress chose not to adopt the 2007 AMP final rule (72 FR 39142) definition because it is too limiting. Commenters also questioned whether the Congress intended that distribution fees, inventory management fees, and product stocking allowances be subject to fair market value, as the statutory language makes no reference to such a test, but stated they are to be excluded. A commenter noted that the proposed rule does not offer any criteria for whether a particular amount does or does not satisfy the test, thereby leaving manufacturers potentially at risk of inappropriately excluding a fee from their calculation of AMP. A commenter also provided that it is not clear why the decision of the service provider to pass on all, or a portion of, the service fee to a client should have any bearing on the determination as to whether a service was provided in return for the fee. One commenter agreed with CMS that the 2007 ``four-part test'' remains a definitive test to qualify a payment as a bona fide service fee and the four-part test should be applied to all agreements, regardless of the agreements referenced in the Affordable Care Act. The commenter requested that CMS establish the same [[Page 5178]] policy for treatment of bona fide service fees (that is, allow manufacturers to presume, in the absence of such evidence, that a bona fide service fee is not passed on in whole or in part to the client) in AMP, best price, and ASP. Response: Section 1927, along with our general rulemaking authority in section 1102 of the Act, provides the requisite authority for CMS to define and interpret certain terms such as bona fide service fees in regards to calculation of AMP and best price. Although the Affordable Care Act amendments to the AMP definition address such fees in regards to the exclusions from AMP, section 1927(k)(1)(B)(i)(II) of the Act does not provide an actual definition of bona fide service fee or apply directly to best price. Therefore, even though these statutory amendments to section 1927(k)(1)(B)(i)(II) of the Act are instructive and provide examples of the types of fees that would qualify as bona fide, we believe that the statutory amendments do not prohibit us from proposing a general definition of bona fide service fee that incorporates the four-part test we proposed and have been using in light of the definition in the present regulations (at Sec. 447.502). We agree with the commenter that the four-part test remains a definitive test to qualify a payment as a bona fide service fee and that manufacturers are responsible for meeting all four parts of the definition before a fee can qualify as a bona fide service fee. We believe the element regarding fees paid by a manufacturer that are not passed on in whole or in part to a client or customer of an entity is a major factor in distinguishing bona fide service fees from price concessions, such that if a fee is passed on in whole or in part to a client or customer of an entity, the fee would be considered a price concession and therefore would be included in the calculation of AMP. Price concessions reduce the price realized by the manufacturer for drugs distributed to retail community pharmacies as they do not reflect any service or offset of a bona fide service performed on behalf of the manufacturer. In light of comments regarding the need for the same application of the four-part test in the AMP, best price and ASP calculations, we have decided to revise our position taken in regards to the 2007 AMP final rule for the ``not passed on'' prong of the bona fide service fee test to more fully align with the ASP policy. Specifically, in the 2007 AMP final rule (72 FR 39183), our approach to this part of the four-part test differed slightly from the ASP policy. At that time, we believed that there must be no evidence or arrangement indicating that the fee is passed on to the member pharmacy, client or customer of any entity included in the calculation of AMP for the manufacturer to exclude these fees from the determination of AMP. However, based on comments received, we are revising our position and adopting the policy set forth in the CY 2007 Physician Fee Schedule (PFS) final rule, published December 1, 2006 (71 FR 69669), in which CMS allows manufacturers, for certifying to the accuracy of their ASP calculations, to presume, in the absence of any evidence or notice to the contrary, that the fee paid is not passed on to a client, or customer of any entity (if a fee paid meets the other elements of the definition of bona fide service fee). Therefore, if a manufacturer has determined that a fee paid meets the other elements of the definition of bona fide service fee, then the manufacturer may presume, in the absence of any evidence or notice to the contrary, that the fee paid is not passed on to a client or customer of any entity. Comment: One commenter pointed out that there are three slightly different definitions of bona fide service fee in the proposed rule: (1) The proposed definitions section at Sec. 447.502 which is limited to retail community pharmacies and wholesalers; (2) the proposed determination of AMP section at Sec. 447.504(c)(14) which is limited to retail community pharmacies, wholesalers and GPOs; and (3) the proposed determination of best price section at Sec. 447.505(c)(16) which includes any other entity that conducts business as a wholesaler or a retail community pharmacy. Several commenters urged CMS to replace these three definitions with one uniform bona fide service fee definition. The commenters specifically recommended using the proposed definition from the definitions section which includes the traditional four-part criteria, as well as the statutory examples of bona fide service fee. Some commenters recommended that CMS simplify the definition of bona fide service fee to mean the fair market value for services performed, and should eliminate the other requirements of the bona fide service fee definition. Another commenter stated that regardless of who receives a bona fide service fee, the payment is fair market value compensation for work done and not a price concession. Response: We agree with the commenter that the proposed definition of bona fide service fee is inconsistent in Sec. Sec. 447.502, 447.504 and 447.505; furthermore, it was not our intent to have three definiti
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