IRS Issues Guidance on Calculation of the Annual Fee Imposed on Manufacturers and Importers of Branded Prescription Drugs Under the Affordable Care Act


On November 29, 2010, the Internal Revenue Service (the "IRS") issued Notice 2010-71, 2010-50 IRB (the "Notice"), which provides guidance on the calculation of the annual fee imposed on certain manufacturers and importers of branded prescription drugs for calendar years beginning after December 31, 2010, pursuant to the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the Affordable Care Act or the "ACA"). The following provides background on the annual fee and a summary of the information contained in the Notice.


Section 9008 of the ACA imposes an annual fee (the "Fee") on each "covered entity" engaged in the business of manufacturing or importing "branded prescription drugs." The Fee applies to calendar years after 2010.

A "covered entity" is any "manufacturer or importer" with gross receipts from "branded prescription drug sales." Certain controlled groups of corporations (including foreign corporations that are part of such a controlled group) are treated as a single covered entity for purposes of determining and assessing the Fee.1 A "manufacturer or importer" is the person identified in the labeler code segment of the National Drug Code ("NDC") for a particular "branded prescription drug." The term "branded prescription drug sales" means sales of "branded prescription drugs" to any "specified government program" or pursuant to coverage under any such program. "Branded prescription drugs" generally are (i) "prescription drugs" for which a new drug application was submitted under section 505(b) of the Federal Food, Drug, and Cosmetic Act (the "FDC Act"), and (ii) biological products for which a license was submitted under section 351(a) of the Public Health Service Act. A "prescription drug" generally is any drug subject to section 503(b) of the FDC Act. The term "specified government program" means (i) Medicare Part D, (ii) Medicare Part B, (iii) Medicaid, (iv) any program under which branded prescription drugs are procured by the Department of Veteran Affairs, (v) any program under which branded prescription drugs are procured by the Department of Defense, and (vi) the TRICARE retail pharmacy program (each, a "Program," and collectively, the "Programs").

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