Biotech Company Recommends Changes to Proposed Regs on Branded Prescription Drug Fee

Dear Commissioner Shulman:

On behalf of Amgen Inc. (Amgen), I welcome this opportunity to submit the following comments regarding the temporary and proposed regulations implementing Section 9008 of the Patient Protection and Affordable Care Act ("PPACA"), which imposes a fee on manufacturers and importers of certain branded prescription drugs ("branded prescription drug fee"). Amgen appreciates Internal Revenue Service's (IRS') considered approach in developing these regulations, and we look forward to continuing to work with IRS to ensure that the fee is implemented in a manner that is fair, accurate, and consistent with the statute.

I. State Medicaid Data Errors

Amgen acknowledges and appreciates IRS's considerable efforts to ensure that the data on which the branded prescription drug fee is based are complete and accurate. Nevertheless, we remain deeply concerned that substantial data errors in the Medicaid utilization files submitted to Centers for Medicare and Medicaid Services (CMS) by the states are going uncorrected when CMS transmits Medicaid sales data to IRS for calculation of the fee. In 2011, these errors significantly impacted Amgen's fee assessment. To ensure that such errors are not repeated or amplified in the 2012 fee calculation, and in light of certain states' continuing failure to correct what are often the same types of errors year after year, we respectfully ask that the Final Rule calculate Medicaid sales using the Medicaid reimbursement amount reported by the states (minus any rebates as reported by manufacturers).

Each of these errors has the potential to cause a significant miscalculation of a manufacturer's Medicaid sales and hence a significant misstatement of the fee assessment for all manufacturers. Indeed, Amgen's 2011 fee assessment was significantly impacted as a result of certain states' failure to correct data errors in their utilization files. As the size of the overall fee increases through 2018, the impact of these miscalculations will become only more serious in future years should errors in the state utilization files remain unaddressed.

Amgen repeatedly has alerted the states to these errors, which continue year after year. Since the enactment of Section 9008 and its reliance on Medicaid utilization data, we have redoubled our efforts to ensure not only that the states correct errors in revised invoices but also that these corrections are carried through to the utilization files sent to CMS. We have contacted individual states with significant data errors to emphasize the impact of the state's failure to correct these errors and to remind the states of their obligation to update their utilization files to reflect resolved disputes and corrected errors. Despite these efforts, each year a number of states persist in making the same errors and failing to correct these errors when they send utilization data to CMS. While Amgen has raised these concerns directly with CMS as well, we understand that there currently is no penalty or other consequence available for CMS to impose on states for failure to update and correct utilization data, leaving manufacturers with no viable remedy other than the fee dispute and refund processes to address this issue.

These errors, if left uncorrected, have the clear potential to impede the effective administration of the branded prescription drug fee. Amgen and other manufacturers will be forced to submit error reports to correct misstated preliminary assessments or, if the errors are still uncorrected in the final assessment, file for refunds of the improperly assessed fee amounts. Due to the structure of the fee statute, the adjustment of one manufacturer's assessment affects every other manufacturer's assessment as well, so that a significant decrease in one manufacturer's share of the fee could result in a significant increase in the shares of other manufacturers. The failure to correct utilization errors before the preliminary or final fee calculation could cause many manufacturers to see a significant change in their fee assessment. This volatility can create uncertainty regarding the appropriate amount a manufacturer should accrue for its fee liability (a material item for financial reporting purposes), and also could lead to a cascade of disputes or refund filings from manufacturers whose share of the fee increases unexpectedly once utilization errors finally are corrected.

Use of the reimbursement amount to quantify Medicaid sales also is more consistent with the statutory direction to rely on ingredient cost to quantify Medicaid sales. CMS' current approach is to multiply units billed by each drug's AMP to quantify Medicaid sales. This approach uses AMP as a proxy for ingredient cost, when no proxy is needed. Medicaid reimbursement amount measures this amount directly.

Amgen recognizes that the Medicaid reimbursement amount does not take account of the rebates paid by a manufacturer to the states, and that the statute requires quantification of rebates as well, as an offset to Medicaid sales. CMS currently quantifies this amount by multiplying units billed by each drug's unit rebate amount. If units are no longer used to quantify Medicaid sales, then they should not be used to quantify rebates either. As an alternative, we propose that IRS provide on Form 8947 that the manufacturer is to report actual Medicaid rebates. These manufacturer-reported rebates would then be subtracted from the reimbursement amount to arrive at a final Medicaid sales figure. Form 8947 already provides for manufacturer self-reporting of supplemental Medicaid rebates, and use of actual rebates as reported by manufacturers avoids reliance on the same error-prone state utilization data described above.

In summary, we respectfully urge IRS not to tolerate Medicaid data errors as significant as those included in the 2011 fee calculation. If these Medicaid data errors in the state utilization files remain unaddressed, the impact of these miscalculations will only become more serious in future years as the size of the overall fee increases through 2018. The statute mandates a certain calculation methodology and IRS has been careful to implement that methodology as faithfully and accurately as possible. Calculating Medicaid sales as the Medicaid reimbursement amount reported by the states less the actual rebates reported by manufacturers ensures both fidelity to the statute's requirements and an accurate and predictable calculation of each manufacturer's share of the fee.

II. Establishing a Point of Contact for Manufacturers at Each Program

We appreciate that IRS staff have made themselves available to answer manufacturers' questions and to address manufacturers' concerns with the fee calculation process. Nevertheless, with each distinct federal health program responsible for reporting such a large volume of data to IRS, it is important that manufacturers be able to communicate directly with a representative of each program regarding the source files and valuation methodologies that the program is using. We therefore respectfully suggest that IRS work with the programs responsible for reporting sales data to IRS to establish a point of contact for manufacturers within each program and to publicly identify that point of contact in IRS guidance. Identification of a direct point of contact at each program will prevent unnecessary delay and promote the fair and accurate administration of the fee by providing manufacturers with greater transparency about the sources and methods used by each program.

III. Transparency as to Data Sources and Valuation Methodologies

We ask that IRS work with the federal health programs that report data for calculation of the branded prescription drug fee to provide manufacturers with as much specific information as possible about the source files and valuation methodologies used by those programs to calculate sales amounts. Manufacturers, as a general matter, are obligated under financial accounting rules to accrue their estimated share of the branded prescription drug fee for a particular year. This accrual process starts at the beginning of the year, before the manufacturer receives IRS's first estimate of the fee and long before the assessment is later revised and due from the manufacturer. As a result, manufacturers must make reasonable estimates of the amount that will be due based on their understanding of the underlying sales data and valuation methodologies being used. By providing manufacturers with maximum transparency and specificity as to the data sources and valuation methodologies being used by each program, IRS and the reporting programs will allow manufacturers to accrue the appropriate amount and enable manufacturers to carry out an effective verification of the programs' sales data against their own sales data.

We also ask that IRS work with the reporting programs to ensure that manufacturers receive as much notice as possible of any change in the source data or valuation methodologies used to calculate each manufacturer's share of the branded prescription drug fee. Absent sufficient notice of changes in the data sources that a particular federal program is using to identify program sales or the valuation methodologies used to quantify those sales amounts, manufacturers may be forced to revise their accrual amounts unexpectedly, with the potential for serious financial consequences. We therefore ask that IRS or the programs themselves provide manufacturers with as much notice as possible before any change in the sales data source files or valuation methodologies is implemented.

IV. Electronic Invoicing

We note and appreciate that the recently-released IRS Notice 2011-92 provides a process by which the manufacturer can request that IRS send the preliminary fee notice to the manufacturer along with a CD-ROM setting forth in Microsoft Excel format the manufacturer's NDCs and sales data reported to IRS from the various government programs. We ask that IRS extend this policy to provide both preliminary and final fee invoices to manufacturers in electronic form, whether in Microsoft Excel format or in any other electronic format that IRS deems suitable. Because the first year's invoices were available only in paper form, manufacturers could validate data and attempt to identify errors only by manually entering the data into electronic form. We note also that IRS has initially required manufacturers to submit their reports identifying errors in the preliminary invoice in electronic form. We would greatly appreciate receiving both preliminary and final invoices in electronic form as well.