Rev Proc 2011-24, 2011-20 IRB
In a Revenue Procedure, IRS has established the exclusive dispute resolution process for the preliminary calculation of the 2011 annual fee imposed on covered entities engaged in the business of manufacturing or importing branded prescription drugs. The guidance, which is effective May 2, 2011, explains who can submit information asserting an error, what information must be provided and in what format, and what is the deadline for such a submission. It also provides an IRS contact person.
Background. Sec. 9008 of the Patient Protection and Affordable Care Act (P.L. 111-148), as amended by Sec. 1404 of the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152), provided that each “covered entity” (i.e. any manufacturer or importer with gross receipts from branded prescription drug sales) with aggregate branded prescription drug sales of over $5 million to any specified government program or pursuant to coverage under any such program must pay an annual nondeductible fee for calendar years beginning after Dec. 31, 2010.
The specified government programs include Medicare Part B, Medicare Part D, Medicaid, and any program under which branded prescription drugs are procured by the Department of Veterans Affairs (VA), the Department of Defense (DOD), and the TRICARE retail pharmacy program (collectively, the programs). The applicable fee amount is allocated among the covered entities using a formula specified in Sec. 9008(b) based on sales to the programs. The sales data is to be provided by the Centers for Medicare and Medicaid Services of the Department of Health and Human Services (CMS), the VA, and the DOD (collectively, the agencies).
The annual flat fee beginning in 2011 is allocated across the industry according to market share. The schedule for the flat fee is: 2011, $2.5 billion; 2012 to 2013, $2.8 billion; 2014 to 2016, $3 billion; 2017, $4 billion; 2018, $4.1 billion; 2019 and later, $2.8 billion.
Under Sec. 9008(b), the aggregate fee will be apportioned among the covered entities each year based on each entity's relative share of branded prescription drug sales taken into account during the previous calendar year, which IRS will compute based on information provided to it by the agencies and by the covered entities themselves via Form 8947, Report of Branded Prescription Drug Information. Form 8947 is used to report information on all branded prescription drugs sold by covered entities to specified government programs (or sales due to coverage under the programs) during the 2009 calendar year, including National Drug Codes, Medicare and Medicaid rebate information, Code Sec. 45C orphan drug information, and designated entity and controlled group members information, if applicable.
Although the DOD and VA are expected to have complete data on branded prescription drug sales for the calendar year immediately preceding the year in which the fee must be paid (fee year) within the time frame necessary to administer the fee, CMS cannot complete its data processing within the necessary time frame. Accordingly, IRS will make a preliminary calculation of the fee based on the branded prescription drug sales data provided by the agencies for the second calendar year preceding the fee year. Since the use of the second preceding year may affect the amount of the fee paid by a covered entity, the fee due in every year after 2011 will include an appropriate adjustment amount to reflect that difference.
Dispute resolution. Rev Proc 2011-24, provides the exclusive process a covered entity must use to dispute what it believes are errors in its 2011 preliminary fee calculation and to obtain a change to data that would be reflected in the final fee calculation mailed by IRS by Aug. 15, 2011.
If a covered entity believes that the notification that contains its 2011 preliminary fee calculation from IRS contains one or more errors in the mathematical calculation of the fee, the orphan drug or rebate data, the Program drug sales data, or any other error, the covered entity must provide a written error report to IRS postmarked by June 1, 2011, in order for a correction to the claimed errors to be considered by IRS. If a designated entity filed a Form 8947 on behalf of the covered entity, the designated entity must also file any error report for the covered entity.
If a covered entity asserts that there has been one or more errors in drug sales data, the entity must submit a separate error report for each Program with its asserted errors. The report must include the information specified in Rev Proc 2011-24, Sec. 4.02. If a covered entity asserts that there has been one or more errors in the mathematical calculation of the fee, the rebate data, the listing of a national drug code (NDC) for an orphan drug, or any other error (other than Program drug sales data errors), the entity must submit one error report, separated into sections by type of error. The report must include the information specified in Rev Proc 2011-24, Sec. 4.03.
Each covered entity must submit its error reports and supporting documentation on a single CD-ROM.
A separate folder must be created for each Program with asserted drug sales data errors and the corresponding files for each Program placed in the Program folder. Asserted errors in Program drug sales data must be presented in a Microsoft Excel spreadsheet file (no version newer than 2007) in a format consistent with the data format from Attachment 2 of the Preliminary Fee Calculation Letter (IRS will mail these letters (Letter 4657) by May 16, 2011) showing the amount reported by the Program and the corresponding amount asserted by the covered entity, with the difference between the two.
Asserted errors in mathematical calculations, rebate data, an NDC listing for an orphan drug, or any other asserted errors must be submitted on a separate Microsoft Excel spreadsheet file (no version newer than 2007).
A separate narrative for each Microsoft Excel spreadsheet file must be submitted and must be in Microsoft Word format (no version newer than 2007). Supporting documentation for each Microsoft Excel spreadsheet file must be in Adobe Portable Document Format (no version newer than 8.0), if not available in Microsoft Word or Excel format. A covered entity must also provide an additional copy of its error reports and supporting documentation in a separate folder labeled “IRS Comprehensive Error Report.” Formats for submission other than Microsoft Word, Excel, or Adobe Portable Document format may be arranged on a case-by-case basis, if necessary, by contacting the first IRS representative listed in Rev Proc 2011-12, Sec. 6.
Review process. If a claimed error involves a mathematical calculation or a correction to orphan drug or rebate data, IRS will review the information and determine whether to make a correction. If a claimed error involves drug sales data provided by a Program, IRS will provide the information sent by the covered entity to the Agency with jurisdiction over the appropriate Program to determine whether to make a correction. For any other claimed error, IRS will review the information and determine whether IRS or an Agency should determine whether to make a correction.
IRS and the Agencies will review the error reports to determine whether to make the proposed corrections to the covered entity's preliminary fee calculation for 2011. IRS will rely exclusively on the Agencies to make determinations for any proposed corrections to the Program drug sales data. IRS will notify the covered entity in writing of the final determination of error reports when it sends the covered entity the final fee calculation no later than Aug. 15, 2011.
IRS will base a covered entity's final fee determination solely on the data used for the preliminary fee calculation, together with any adjustments to that data made as a result of this dispute resolution process. Any changes will be reflected in the covered entity's final fee calculation for 2011.
References: For the annual fee on prescription drug sales, see FTC 2d/FIN ¶H-4950 et seq.