[Federal Register: November 26, 2004 (Volume 69, Number 227)]
[Rules and
Regulations]
[Page 68815-68818]
From the Federal Register Online via GPO Access
[wais.access.gpo.gov]
[DOCID:fr26no04-25]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 447
[CMS-2175-F]
RIN 0938-AM20
Medicaid Program; Time Limitation on Recordkeeping
Requirements
Under the Drug Rebate Program
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule finalizes 10-year recordkeeping
requirements
for drug manufacturers under the Medicaid drug rebate program.
Manufacturers must retain records for 10 years from the date the
manufacturer reports data to us for a rebate period.
This final rule also finalizes the requirement
that manufacturers
must retain records beyond the 10-year period if the records are
known
by the manufacturer to be the subject of an audit or a government
investigation.
Furthermore, this final rule responds to
public comments on the
January 6, 2004 interim final rule with comment period and the
proposed
rule pertaining to the 10-year recordkeeping requirements,
respectively.
DATES: This rule is effective January 1, 2005.
FOR FURTHER INFORMATION CONTACT: Kim Howell, (410) 786-6762.
SUPPLEMENTARY INFORMATION:
I. Background
In order for a pharmaceutical manufacturer's
products to be
eligible for Medicaid reimbursement under section 1903(a) of the
Social
Security Act (the Act), the manufacturer must sign an agreement
with us
on behalf of the Secretary of Health and Human Services to
participate
in the Medicaid drug rebate program. Among the terms to which the
manufacturer must agree is the requirement to retain pricing data
to
support the calculation of average manufacturer price and best
price as
defined in section 1927 of the Act. Absent a regulatory or
statutory
requirement, it has been our position that manufacturers must
retain
these records indefinitely.
On September 19, 1995, we published a proposed
rule (60 FR 48442)
in the Federal Register that proposed numerous provisions related
to
the Medicaid drug rebate program. As relevant to this rule, we
proposed
a new 3-year recordkeeping requirement for drug manufacturers
under the
Medicaid drug rebate program and proposed a 3-year time
limitation
during which manufacturers must recalculate and report data to us
on
the average manufacturer price and best price. On August 29,
2003, we
published a final rule with comment period (68 FR 51912) in the
Federal
Register that finalized both provisions. On September 26, 2003,
we
issued a correction notice (68 FR 55527) in the Federal Register
to
change the effective date of the August 29, 2003 rule from
October 1,
2003 to January 1, 2004.
II. Provisions of the Proposed Regulations and Interim Final Rule
On January 6, 2004, we published an interim
final rule with comment
period that removed the 3-year recordkeeping requirement issued
in the
August 29, 2003 final rule with comment period, and replaced it
with
10-year recordkeeping requirements on a temporary basis for
manufacturers participating in the Medicaid drug rebate program,
and
solicited comments on the 10-year requirement.
Under the 10-year recordkeeping requirement,
we required that
manufacturers retain records for 10 years from the date the
manufacturer reports data to us for a rebate period. We also
required
that manufacturers retain records beyond the 10-year period if
the
records are the subject of an audit or a government investigation
of
which the manufacturer is aware and if the audit findings or
investigation related to the average manufacturer price and best
price
have not been resolved. The provisions of the January 6, 2004
interim
final rule related to record retention are scheduled to sunset on
December 31, 2004.
In addition, the January 6, 2004 interim final
rule with comment
period responded to public comments on the August 29, 2003 final
rule
with comment period that pertain to the 3-year recordkeeping
requirement at Sec. 447.534(h). The 3-year recordkeeping
requirement
for drug manufacturers participating in the Medicaid drug rebate
program has caused a significant amount of concern from
commenters with
regard to the False Claims Act (FCA) and other possible fraud and
abuse
violations.
Also, on January 6, 2004, we published a
proposed rule (69 FR 565)
that would remove the 3-year recordkeeping requirement and
replace it
with 10-year recordkeeping requirement on a permanent basis. We
also
proposed that manufacturers must retain records beyond the
10-year
period if the manufacturers are aware that the records are the
subject
of an audit or a government investigation and if the audit
findings or
investigation related to the manufacturer's average manufacturer
price
and best price have not been resolved. This final rule finalizes
both
the interim final rule and the proposed rule that we published on
January 6, 2004.
III. Analysis of and Response to Public Comments on the January
6, 2004
Interim Final With Comment Period and Proposed Rule
We received 3 timely comments in response to
the January 6, 2004
interim final rule with comment period and proposed rule. We
received
comments from an attorney who represents the pharmaceutical
industry, a
coalition comprised of national advocacy groups, and a non-profit
organization. These comments and our responses are summarized
below.
Comment: One commenter urged us to promulgate
the 10-year
requirement as a final rule, effective before the expiration of
the
current 10-year requirement on December 31, 2004.
Response: We agree; therefore, we are issuing
this final rule to
permanently establish the 10-year recordkeeping requirements for
manufacturers.
Comment: One commenter expressed the opinion
that the January 6,
2004 interim final rule and proposed rule should be modified to
change
the record retention requirements back to 3 years. A manufacturer
would
still have the discretion to retain records for as long as it
wanted,
but would not be subject to a mandatory requirement in excess of
the 3-
year period. The government would not be restricted by these
rules from
pursuing claims under the False Claims Act (FCA) or applicable
health
care laws against a manufacturer for fraud, abuse, or knowingly
submitting false data to the government. Changing the record
retention
requirement back to 3 years would reconcile the current conflict
between the 10-year record retention requirement and the 3-year
price
recalculation reporting requirement. The commenter further stated
that
the interim final rule and the proposed rule should be finalized
to
clearly state that the 3-year time
[[Page 68816]]
limitation is a statute of limitations and that a manufacturer
will not
be liable or obligated to pay the government or be entitled to be
the
beneficiary of any errors in calculations for periods outside of
the 3-
year time limitation.
Response: We believe that it is necessary to
replace the 3-year
provision with a 10-year provision to address concerns regarding
Federal and State investigations for fraud under the FCA and
related
anti-fraud provisions concerning the Medicaid drug rebate
program.
Since the manufacturer is often unaware of the qui tam
investigations,
we must ensure that manufacturers participating in the Medicaid
drug
rebate program do not erroneously conclude that they could
discard
records concerning drug price calculations, as well as data
supporting
those calculations that are subject to the FCA and other fraud
laws.
The qui tam whistleblower provisions allow persons with evidence
of
fraud against Federal programs or contracts to bring suit on
behalf of
the government. Qui tam actions are filed under seal and
preliminary
investigations often take place without notice to manufacturers.
As noted in the January 6, 2004 interim final
rule, we received
comments suggesting that the 3-year recordkeeping requirements
were too
short, but none to convince us to expand the time limit on
pricing
recalculations. Therefore, since manufacturers are in full
possession
of the documents that they need to make pricing recalculations,
we
continue to believe that 3 years is an adequate timeframe to
permit
manufacturers to recalculate their pricing data. Furthermore, the
3-
year limitation rule was designed to establish time limits for
reporting recalculations and to decrease associated
administrative
burdens on manufacturers and States. After further consideration,
we
firmly believe that the 10-year provision will be more
appropriate and
sufficient to ensure a Federal standard with regard to the
Medicaid
drug rebate program that will not hinder the activities of
Federal and
State law enforcement activities regarding the issues of
potential
fraud and abuse violations and litigation.
Comment: One commenter expressed the opinion
that the 10-year
recordkeeping requirement is a significant improvement over the
original rule, and will provide a more effective safeguard
against
improper or fraudulent drug price inflation and abuse of both the
Medicaid rebate program and the program under section 340B of the
Public Health Service Act. However, the commenter believes that
an even
longer period of record retention should be required of drug
manufacturers.
Response: We recognize that there is some
cross-over between the
data required for the Medicaid drug rebate program and the 340B
program. However, our regulation is solely designed to address
the
Medicaid drug rebate program. We believe that a 10-year
recordkeeping
requirement is consistent with the FCA and offers immediate
protection
to address potential fraud and abuse violations and litigation.
IV. Provisions of the Final Rule
We are adopting the provisions of the
regulation text in the
January 6, 2004 proposed rule. We are making editorial changes to
Sec.
447.534(h)(1)(i) and we are removing paragraph (h)(2), which was
included in the interim final rule with comment. This final rule
establishes a permanent 10-year recordkeeping requirement for
prescription drug manufacturers that participate in the Medicaid
drug
rebate program. This provision would be set forth in 42 CFR part
447
subpart I. Under the 10-year recordkeeping requirement, we
require that
a drug manufacturer retain records for 10 years from the date the
manufacturer reports that rebate period's data to us. In
addition, we
require a manufacturer retain data beyond the 10-year period if
the
manufacturer is aware that the records are the subject of an
audit or a
government investigation and if the audit findings or
investigation
related to the manufacturer's average manufacturer price and best
price
have not been resolved.
In addition, in Sec. 447.534, we are
removing the paragraph (ii)
[Reserved] at the end of the section, which is a misprint. The
paragraph that precedes it is the lower case letter ``i.'' It was
misconstrued for the roman numeral one (i). Thus, paragraph (ii)
is
erroneous and should be removed.
V. Collection of Information Requirements
Under the Paperwork Reduction Act (PRA) of
1995, we are required to
provide 30-day notice in the Federal Register and solicit public
comment when a collection of information requirement is submitted
to
the Office of Management and Budget (OMB) for review and
approval. In
order to fairly evaluate whether an information collection should
be
approved by OMB, section 3506(c)(2)(A) of the PRA requires that
we
solicit comment on the following issues:
in carrying out the proper functions of our agency.
burden.
collected.
burden on the affected public, including automated collection
techniques.
However, the collection requirements
referenced below are currently
approved by OMB, under OMB control number 0938-0578, entitled
``Medicaid Drug Rebate Program, Manufacturers''.
Section 447.534 Manufacturer Reporting Requirements
Paragraph (h) of this section states a
manufacturer must retain
records (written or electronic) for 10 years from the date the
manufacturer reports data to CMS for a rebate period. The records
must
include these data and any other materials from which the
calculations
of the average manufacturer price and best price are derived,
including
a record of any assumptions made in the calculations. The 10-year
timeframe applies to a manufacturer's quarterly submission of
pricing
data and any revised pricing data subsequently submitted to CMS.
VI. Regulatory Impact Analysis
A. Overall Impact
We have examined the impacts of this rule as
required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L.
96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
Executive Order 12866 (as amended by Executive
Order 13258, which
merely assigns responsibility of duties) directs agencies to
assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that
maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules
with
economically significant effects ($100 million or more in any 1
year).
We do not believe this rule will have an economically significant
effect. We believe the rule will not result in costs to the
Medicaid
program and that additional costs to drug manufacturers will be
minimal. We do not consider this rule to be a major rule.
[[Page 68817]]
The RFA requires agencies to analyze options
for regulatory relief
of small businesses. For purposes of the RFA, small entities
include
small businesses, nonprofit organizations, and government
agencies.
Most hospitals and most other providers and suppliers are small
entities, either by nonprofit status or by having revenues of $6
million to $29 million in any 1 year. For purposes of the RFA,
pharmaceutical manufacturers with 750 or fewer employees are
considered
small businesses according to the Small Business Administration's
size
standards matched to the North American Industry Classification
System,
effective October 1, 2002, (http://www.sba.gov/size/sizetable2002.html
). Use of the Small Business Administration's size
standards matched to North American Industry Classification
System is
in compliance with the Small Business Administration's regulation
that
set forth size standards for health care industries at 65 FR
69432.
Individuals and States are not included in the definition of a
small
entity. Because pharmaceutical manufacturers are not required to
report
their numbers of employees to the Small Business Administration,
we
find there is no practical way to determine how many are
considered
small entities out of a total of 3,295 firms and establishment as
reported by the United States Census Bureau (see http://www.census.gov/csd/susb/usaalliol.xls
). Therefore, we believe this rule will not have
a significant impact on small businesses because, although some
pharmaceutical manufacturers may be small businesses, we estimate
that
the cost to manufacturers will be minimal, as described in
section
VII.B below.
In addition, section 1102(b) of the Act
requires us to prepare a
regulatory impact analysis if a rule may have a significant
impact on
the operations of a substantial number of small rural hospitals.
This
analysis must conform to the provisions of section 604 of the
RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. This rule will not
have a
significant impact on small rural hospitals, because the
provisions
contained herein do not pertain to hospitals.
Section 202 of the Unfunded Mandates Reform
Act of 1995 also
requires that agencies assess anticipated costs and benefits
before
issuing any rule that may result in expenditure in any 1 year by
State,
local, or tribal governments, in the aggregate, or by the private
sector, of $110 million. We anticipate this rule will not impact
State
governments or the private sector.
Executive Order 13132 establishes certain
requirements that an
agency must meet when it promulgates a proposed rule (and
subsequent
final rule) that imposes substantial direct requirement costs on
State
and local governments, preempts State law, or otherwise has
Federalism
implications. We do not anticipate this rule will impose any
direct
requirement costs on State governments.
B. Anticipated Effects
1. Effects on Drug Manufacturers
We do not collect information on the costs
associated with
manufacturer recordkeeping under the Medicaid drug rebate
program.
Therefore, in the absence of such information, we derived an
estimate
based on our annual costs of storing electronic pricing data that
we
receive from approximately 500 drug manufacturers. We store drug
product data, including pricing information, for approximately
55,000
drug products. Over the course of the 12 years the Medicaid drug
rebate
program has been in existence, we have gathered nearly 250
megabytes of
information. This information fits on one compact disc. The cost
of one
blank compact disc is less than $1. We did not have a reasonable
proxy
available to estimate the staffing costs associated with
maintaining
the data, so our estimate does not include these costs.
On the whole, we believe this approach is
reasonable because it is
our understanding that these records are maintained by most
manufacturers in an electronic format, while smaller companies
may
maintain their pricing records in written format. In order to
more
accurately evaluate the fiscal impact of this provision in the
final
rule, we requested that manufacturers provide us with information
on
the costs they would expect to incur pursuant to retaining
records for
a 10-year period. To the extent possible, we asked that
manufacturers
make an effort to distinguish between the costs of meeting the
10-year
recordkeeping requirement versus other recordkeeping requirements
that
may apply to the same records. However, we did not receive any
information or data in response to our request regarding the
expected
cost that would be incurred pursuant to retaining records for a
10-year
period necessary to determine whether our original assumptions
were
unsubstantiated. Accordingly, we continue to believe that our
estimates
are reasonable.
We do not anticipate that this rule will
adversely affect a drug
manufacturer's participation in the Medicaid drug rebate program
or
impact the current level of access and availability of
prescription
drugs for Medicaidbeneficiaries. There is no impact on
contractors or
providers.
2. Effects on the Medicaid Program
We are unable to quantitatively address the
burden to States with
respect to recordkeeping. This rule will not adversely affect a
State's
ability to obtain manufacturers' rebates or impact the current
level of
access and availability of prescription drugs for Medicaid
beneficiaries. There is no impact on Medicaid providers or
contractors.
C. Alternatives Considered
Retain the 3-Year Recordkeeping provision in
the August 29, 2003
final rule with comment period.
We considered retaining the 3-year
recordkeeping provision in the
August 29, 2003 final rule with comment period. However, we
believe it
is necessary to replace the 3-year provision with a 10-year
provision
to address concerns regarding Federal and State investigations
for
fraud under the FCA concerning the Medicaid drug rebate program.
Establish a different time limitation.
Another alternative would be to establish a
longer or shorter
recordkeeping requirement. We did not choose a longer
recordkeeping
timeframe because we believe a 10-year period will offer
immediate
protection to address situations where investigations are under
seal in
qui tam actions. Further, the exception to the 10-year
requirement
adequately addresses situations where investigations known to
manufacturers are not yet resolved. We did not choose a shorter
recordkeeping timeframe in this rule because we are concerned
that such
a timeframe could be misconstrued to lead a manufacturer to
believe
that it could prematurely destroy vital evidence in a potential
fraud
and abuse litigation.
Finalize the 10-year recordkeeping requirement
with a sunset date
provision.
We considered finalizing the 10-year
recordkeeping requirement with
a sunset date provision. However, we did not choose to finalize
the
provision with a sunset date because as discussed previously, we
have
concerns about the potential premature destruction of evidence in
false
claims act litigation.
[[Page 68818]]
D. Conclusion
For these reasons, we are not preparing
analyses for either the RFA
or section 1102(b) of the Act because we have determined, and we
certify, that this rule will not have a significant economic
impact on
a substantial number of small entities or a significant impact on
the
operations of a substantial number of small rural hospitals.
In accordance with the provisions of Executive
Order 12866, this
regulation was reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 447
Accounting, Administrative practice and
procedure, Drugs, Grant
programs--health, Health facilities, Health professions,
Medicaid,
Reporting and recordkeeping requirements, Rural areas.
0
For the reasons set forth in the preamble, the Centers for
Medicare &
Medicaid Services amends 42 CFR chapter IV as set forth below:
PART 447--PAYMENTS FOR SERVICES
0
1. The authority for citation for part 447 continues to read as
follows:
Authority: Sec. 1102 of the Social Security
Act (42 U.S.C.
1302).
Subpart I--Payment for Outpatient Prescription Drugs Under Drug
Rebate Agreements
0
2. In Sec. 447.534, the following changes are made:
0
A. Paragraph (h)(1)(i) is revised.
0
B. Paragraph (h)(1)(ii) is republished.
0
C. Paragraph (h)(2) is removed and reserved.
0
D. Paragraph (i) is republished.
0
E. The paragraph designated (ii) [Reserved] at the end of the
section
is removed.
Sec. 447.534 Manufacturer reporting requirements.
* * * * *
(h) Recordkeeping requirements. (1)(i) A
manufacturer must retain
records (written or electronic) for 10 years from the date the
manufacturer reports data to CMS for that rebate period. The
records
must include these data and any other materials from which the
calculations of the average manufacturer price and best price are
derived, including a record of any assumptions made in the
calculations. The 10-year timeframe applies to a manufacturer's
quarterly submission of pricing data, as well as any revised
pricing
data subsequently submitted to CMS.
(ii) A manufacturer must retain records beyond
the 10-year period
if both of the following circumstances exist:
(A) The records are the subject of an audit or
of a government
investigation related to pricing data that are used in average
manufacturer price or best price of which the manufacturer is
aware.
(B) The audit findings or investigation
related to the average
manufacturer price and best price have not been resolved.
(2) [Reserved]
(i) Timeframe for reporting revised average
manufacturer price or
best price. A manufacturer must report to CMS revisions to
average
manufacturer price or best price for a period not to exceed 12
quarters
from the quarter in which the data were due.
(Catalog of Federal Domestic Assistance Program No. 93.778,
Medical
Assistance Program)
Dated: August 18, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: September 8, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-25969 Filed 11-24-04; 8:45 am]
BILLING CODE 4120-01-P