On August 18, 2011, the Internal Revenue Service (IRS) issued Proposed Regulations regarding the Branded Prescription Drug Fee (the Fee) that will be charged to manufacturers beginning in 2011. The Proposed Regulations are the same as the Temporary Regulations put in place by IRS on the same date, to enable it to administer the Fee while the Proposed Regulations are being finalized.1 These regulations supplant the proposed guidance on the branded prescription drug fee issued by IRS on November 29, 2010.2 The regulations affect all manufacturers of branded prescription drugs for which reimbursement is made by a government payor. The Fee was established by the Patient Protection and Affordable Care Act of 2010 (Affordable Care Act).3 It requires all branded prescription drug manufacturers to pay a portion of a set aggregate fee on an annual basis. All covered entities with aggregate branded prescription drug sales of over $5 million to Medicare Part D and Part B, Medicaid, the Department of Veterans Affairs (VA), the Department of Defense (DOD), and the TRICARE retail pharmacy program must pay the Fee. The proportion of the Fee to be paid by each manufacturer is determined by that manufacturer’s share of total drug sales to the specified government programs in the sales year. Thus, government reimbursement for a manufacturer’s branded prescription drugs relative to government reimbursement for all branded prescription drugs determines how much of the Fee that manufacturer will end up paying. The proportion of the Fee is determined on a National Drug Code (NDC) level, and the Fee will be calculated based on NDCs owned by the manufacturer (referred to in the regulations as a “covered entity”) as of December 31 of the “sales year.” For example, in fee year 2012, the 2010 sales of a given NDC will be attributed to the entity that owns that NDC as of December 31, 2010. Therefore, companies seeking to acquire branded prescription drugs should keep in mind the effect the acquisition of that product may have on its branded prescription drug fee in future years. Each covered entity’s branded prescription drug sales for the purpose of the Fee will be calculated as follows: (1) the sum of all the covered entity’s branded prescription drug sales to the specified government programs, less (2) the sum of all branded prescription drug sales to the specified government programs for which the covered entity has appropriately claimed the orphan drug tax credit, less (3) the sum of rebates to the specified government programs reported by the covered entity on Form 8947. The entity’s sales will be divided by the total of government sales for all covered entities and multiplied by the applicable total fee for that year as set forth in the statute to arrive at the fee for the covered entity. The fee set forth in the statute varies from year to year, beginning at $2.5 billion in 2011.
Data Lag Leads to Annual Adjustment of Covered Entity’s Fee
Reporting Government Sales
The Orphan Drug Exclusion
Preliminary Fee Calculation
Final Fee Calculation
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