81 FR 80003 - Medicaid Program; Covered Outpatient Drug; Delay in Change in Definitions of States and United States

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services

Federal Register Volume 81, Issue 220 (November 15, 2016)

The Covered Outpatient Drug final rule with comment period was published in the February 1, 2016 Federal Register. As part of that final rule with comment, we amended the regulatory definitions of ``States'' and ``United States'' to include the U.S. territories (American Samoa, the Northern Mariana Islands, Guam, the Commonwealth of Puerto Rico, and the Virgin Islands) beginning April 1, 2017. This interim final rule with comment period delays the inclusion of the territories in the definition of ``States'' and ``United States'' until April 1, 2020.

[Federal Register Volume 81, Number 220 (Tuesday, November 15, 2016)]
[Rules and Regulations]
[Pages 80003-80005]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-27423]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 447

[CMS-2345-IFC]
RIN 0938-AT09


Medicaid Program; Covered Outpatient Drug; Delay in Change in 
Definitions of States and United States

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: The Covered Outpatient Drug final rule with comment period was 
published in the February 1, 2016 Federal Register. As part of that 
final rule with comment, we amended the regulatory definitions of 
``States'' and ``United States'' to include the U.S. territories 
(American Samoa, the Northern Mariana Islands, Guam, the Commonwealth 
of Puerto Rico, and the Virgin Islands) beginning April 1, 2017. This 
interim final rule with comment period delays the inclusion of the 
territories in the definition of ``States'' and ``United States'' until 
April 1, 2020.

DATES: Effective date: These regulations are effective on November 15, 
2016.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on January 17, 2017.

ADDRESSES: In commenting, please refer to file code CMS-2345-IFC. 
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 http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    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-IFC, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    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-IFC, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period:
    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, 
call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:  Wendy Tuttle, (410) 786-8690.

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: http://regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will be also 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.

I. Background

A. Introduction

    The Covered Outpatient Drug final rule with comment period was 
published in the February 1, 2016 Federal Register (81 FR 5170). That 
final rule with comment period implemented provisions of section 1927 
of the Social Security Act (the Act) that were added by the Patient 
Protection and Affordable Care Act of 2010, as amended by the Health 
Care and

[[Page 80004]]

Education Reconciliation Act of 2010 (collectively referred to as the 
Affordable Care Act) pertaining to Medicaid reimbursement for covered 
outpatient drugs (CODs). That final rule with comment period also 
revised other requirements related to CODs, including key aspects of 
Medicaid coverage and payment and the Medicaid Drug Rebate (MDR) 
program under section 1927 of the Act. The rule became effective on 
April 1, 2016. However, the regulatory definitions of ``States'' and 
``United States'' under Sec.  447.502, included the U.S. territories 
(American Samoa, Northern Mariana Islands, Guam, Puerto Rico, and the 
Virgin Islands) beginning April 1, 2017.
    We stated in the preamble to the final rule with comment period 
that U.S. territories may use existing waiver authority to elect not to 
participate in the MDR program consistent with the statutory waiver 
standards. The Northern Mariana Islands and American Samoa may seek to 
opt out of participation under the broad waiver that has been granted 
to them in accordance with section 1902(j) of the Act. Puerto Rico, the 
Virgin Islands, and Guam may use waiver authority under section 
1115(a)(1) of the Act to waive section 1902(a)(54) of the Act, which 
requires state compliance with the applicable requirements of section 
1927 of the Act (81 FR 5203 through 5204).
    We also stated in the final rule with comment period that, 
effective with the change in the definition of ``United States,'' drug 
manufacturers would be required to include prices paid by entities 
located in one of the U.S. territories in the same manner in which they 
include prices paid by entities located in one of the 50 states and 
District of Columbia (81 FR 5224) in their calculations of average 
manufacturer price (AMP) and best price. This change requires 
manufacturers to include eligible sales and associated discounts, 
rebates, and other financial transactions that take place in the U.S. 
territories in their calculations of AMP and best price once the 
revised definitions of States and United States become effective, 
regardless of whether the U.S. territories seek to waive participation 
in the MDR program.

B. Impracticability of Implementation by April 1, 2017

    Based on discussions with the U.S. territories, it has become 
evident that interested U.S. territories could not be ready to 
implement the program by April 1, 2017, although a few territories have 
expressed interest in participating once they have made the necessary 
systems changes. Specifically, the territories need time to develop and 
change electronic claims processing systems to identify and report 
utilization (taking into account all of the complexities in tracking 
utilization by National drug code numbers) and to match utilization 
with the unit rebate amounts to generate rebate invoices. Further, 
these systems must be capable of collecting, reporting, validating and 
tracking drug utilization on an ongoing basis. In addition, they 
require extensive advance planning and budgeting. We received comments 
during the comment period of the proposed rule which requested that CMS 
delay the inclusion of the territories in the MDR program because the 
manufacturers and territories would need this additional time to 
implement provisions necessary to include territories in all aspects of 
the MDR program. We took these comments into consideration and in the 
final rule delayed the inclusion of the territories into the 
definitions of States and United States until 1 year after the 
effective date of the final rule (81 FR 5203, 5204). Despite this 1 
year delay, it has since become evident that we underestimated the 
timeline required, particularly in light of other demands on 
territorial systems development and the fact that the territories are 
at various stages of planning and development with respect to these 
systems. While the U.S. territories have the ability to seek a waiver 
from the requirements that they would have to meet when classified as 
``states,'' doing so would impose some burdens on a territory, 
particularly for those territories that are not included in the broad 
waiver authority under section 1902(j) of the Act. Moreover, waivers 
under section 1115 of the Act are limited to requirements applicable to 
states or territories under section 1902(a) of the Act, and would not 
apply to the requirements placed on drug manufacturers that sell in the 
territories. These manufacturers cannot be waived from the section 1927 
of the Act requirements under which manufacturers must include sales 
that take place in the U.S. territories when determining AMP and best 
price.
    We have heard from various stakeholders who have reiterated many of 
the concerns that were summarized in the final rule with comment (81 FR 
5224) that drug manufacturers will likely be prompted to increase drug 
prices, including prices paid by U.S. territory Medicaid programs. This 
would result in the U.S. territories that receive a waiver realizing an 
increase in their Medicaid drug costs without the offsetting benefit of 
receiving Medicaid rebates. Furthermore, the increase in Medicaid costs 
could adversely impact territories because of their Medicaid funding 
cap.

II. Provisions of the Interim Final Rule

    For the reasons discussed in the Background section, this interim 
final rule with comment period amends the regulatory definitions of 
``States'' and ``United States'' under Sec.  447.502 to include the 
U.S. territories (American Samoa, Northern Mariana Islands, Guam, 
Puerto Rico, and the Virgin Islands) beginning April 1, 2020 rather 
than April 1, 2017.

III. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued.
    As discussed in section I.B. of this interim final rule with 
comment period, in light of the longer time frames needed by 
territories for planning, budgeting and developing systems necessary to 
implement the Medicaid drug rebate program, the competing demand on 
system development resources, and the long time frames for manufacturer 
pricing determinations, we believe it is necessary to provide 
territories and manufacturers with advance notice of any change in the 
timing for the inclusion of territories in the Medicaid drug rebate 
program. Issuance of a proposed rule would be impracticable because it 
would result in a notice of the final rule without sufficient time for 
territories or manufacturers to adjust their actions to take into 
account the revised timing. Thus, we find good cause to waive the 
requirement for proposed rulemaking because the short time frame before 
the inclusion of territories would otherwise take effect does not 
permit sufficient time to both undertake proposed rulemaking and 
provide the necessary advance notice for territories and manufacturers 
to meaningfully adjust planning and systems development to accommodate 
the revised timing. Furthermore, we find good cause to waive the 
requirement for proposed rulemaking

[[Page 80005]]

because it would be contrary to public interest to delay notifying 
manufacturers of the change in the timing of the territorial inclusion 
in light of the potential that, absent sufficient advance notice, drug 
manufacturers may raise prices on drugs sold in the territories and 
thereby increase drug costs for both Medicaid and non-Medicaid 
consumers in the territories.
    Therefore, we find good cause to waive the notice of proposed 
rulemaking and to issue this final rule on an interim basis. We are 
providing a 60-day public comment period.

IV. Collection of Information Requirements

    This rule's delay in including the territories in the definitions 
of ``States'' and ``United States'' until April 1, 2020, does not 
impose any new or revised information collection, reporting, 
recordkeeping or third-party disclosure requirements or burden. 
Consequently, there is no need for review by the Office of Management 
and Budget under the authority of the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501 et seq.).

V. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

VI. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999) and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct 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). 
This rule does not reach the economic threshold and thus is not 
considered a major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
less than $7.5 million to $38.5 million in any 1 year. Individuals and 
states are not included in the definition of a small entity. We are not 
preparing an analysis for the RFA because we have determined, and the 
Secretary certifies, that this interim final rule with comment period 
will not have a significant economic impact on a substantial number of 
small entities.
    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 for Medicare payment regulations and has fewer than 
100 beds. We are not preparing an analysis for section 1102(b) of the 
Act because we have determined, and the Secretary certifies, that this 
interim final rule with comment period will not have a significant 
impact on the operations of a substantial number of small rural 
hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2016, that 
threshold is approximately $146 million. This rule will have no 
consequential effect on state, local, or tribal governments or on 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. Since this regulation does not impose any costs on state 
or local governments, the requirements of Executive Order 13132 are not 
applicable.
    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.
    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 citation for part 447 continues to read as follows:

    Authority:  Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).


0
2. Section 447.502 is amended by revising the definitions of ``States'' 
and ``United States'' to read as follows:


Sec.  447.502  Definitions.

* * * * *
    States means the 50 States and the District of Columbia and, 
beginning April 1, 2020, also includes the Commonwealth of Puerto Rico, 
the Virgin Islands, Guam, the Northern Mariana Islands and American 
Samoa.
    United States means the 50 States and the District of Columbia and, 
beginning April 1, 2020, also includes the Commonwealth of Puerto Rico, 
the Virgin Islands, Guam, the Northern Mariana Islands and American 
Samoa.
* * * * *

    Dated: October 5, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: November 8, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2016-27423 Filed 11-14-16; 8:45 am]
 BILLING CODE 4120-01-P