As used in this subpart, the following definitions apply:

Biosimilar has the meaning set forth in section 351(i) of the PHS Act.

Currently in shortage means that at least one NDC-10 of a Part D rebatable drug with the status “currently in shortage” is on a shortage list maintained by the FDA under section 506E of the FD&C Act.

Drug shortage or shortage means a period of time when the demand or projected demand for the drug within the United States exceeds the supply of the drug (see section 506C(h)(2) of the FD&C Act).

Generic Part D rebatable drug means a generic drug approved under an ANDA under section 505(j) of the FD&C Act that meets the sole source criteria specified in § 428.101(a)(3).

Likely to be in shortage means that a generic Part D rebatable drug is likely to be described as currently in shortage during a subsequent applicable period without such rebate reduction.

Natural disaster means any natural catastrophe, including, but not limited to any of the following: hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought, or regardless of cause, any fire, flood, or explosion.

Other unique or unexpected event means any exogenous, unpredictable event outside of a manufacturer's control, including, but not limited to, a geopolitical disruption, pandemic, or act of terror.

Plasma-derived product means a licensed biological product that is derived from human whole blood or plasma, as indicated on the approved product labeling.

Severe supply chain disruption means a change in production or distribution that is reasonably likely to lead to a significant reduction in the U.S. supply of a generic Part D rebatable drug or biosimilar by a manufacturer and significantly affects the ability of the manufacturer of the generic drug or biosimilar to fill orders or meet expected demand for its product in the United States for at least 90 days. This definition does not include interruptions in manufacturing due to matters such as routine maintenance, manufacturing quality issues, or insignificant changes made in the manufacturing process for the drug.

(a) General. As required under section 1860D-14B(b)(1)(C)(i) of the Act, CMS will reduce the total rebate amount determined under § 428.201(a), if any is owed, for a Part D rebatable drug that is currently in shortage, as set forth in § 428.300, at any point during the applicable period.

(b) Calculation of the reduced rebate amount. (1) For each applicable period beginning on or after October 1, 2022, the reduced total rebate amount for a Part D rebatable drug currently in shortage will be calculated using the following formula:

(2) For purposes of paragraph (b)(1) of this section, the applicable percent reduction is:

(i) For a Part D rebatable drug that is a generic drug or plasma-derived product:

(A) 75 percent for the first applicable period such drug is currently in shortage.

(B) 50 percent for the second applicable period such drug is currently in shortage.

(C) 25 percent for each subsequent period such drug is currently in shortage.

(ii) For a Part D rebatable drug that is not a generic drug or plasma-derived product:

(A) 25 percent for the first applicable period such drug is currently in shortage.

(B) 10 percent for the second applicable period such drug is currently in shortage.

(C) 2 percent for each subsequent applicable period such drug is currently in shortage.

(iii) Except as provided in paragraph (b)(iv) of this section, CMS will apply the greatest applicable percent reduction as set forth in paragraph (b)(2)(i)(A) or (b)(2)(ii)(A) of this section starting with the first applicable period that a Part D drug or biological is described as currently in shortage, regardless of whether the drug or biological meets the definition of a Part D rebatable drug or whether a rebate amount is owed for that applicable period, starting with the applicable period that begins October 1, 2022.

(iv) If an applicable period for which a rebate reduction determined under § 428.302 or 428.303 has been granted would be the first applicable period set forth in paragraph (b)(2)(i)(A) or (b)(2)(ii)(A) of this section and the Part D rebatable drug or biosimilar continues to be in shortage after the rebate reduction period set forth in § 428.302 or 428.303, as applicable, CMS will treat the applicable period following the applicable period in which the rebate reduction determined under § 428.302 or 428.303 applies as the first applicable period so described.

(3) For purposes of paragraph (b)(1) of this section, the percentage of time the drug is currently in shortage during the applicable period is equal to the number of days such drug is currently in shortage in an applicable period, divided by the total number of days in the applicable period.

(c) Application of reduction. CMS will apply a reduction of the rebate amount as determined under paragraph (b) of this section to the Part D rebatable drug at the NDC-9 level.

(a) General. As required under section 1860D-14B(b)(1)(C)(ii) of the Act, CMS will reduce the total rebate amount determined under § 428.201(a), if any is owed, for a generic Part D rebatable drug or biosimilar when CMS determines there is a severe supply chain disruption during the applicable period such as that caused by a natural disaster or other unique or unexpected event.

(b) Calculation of the reduced rebate amount—(1) Initial reduction. If CMS determines the criteria set forth in paragraph (c)(4) of this section are met, then CMS will reduce the total rebate amount determined under § 428.201(a), if any is owed, for a generic Part D rebatable drug or biosimilar by 75 percent for the applicable period in which the event occurred or began or, the following applicable period if the request is submitted less than 60 calendar days before the end of an applicable period.

(2) Extension of reduction. If CMS determines a severe supply chain disruption continues into a second consecutive applicable period as set forth in paragraph (c)(5) of this section, then CMS will reduce the total rebate amount determined under § 428.201(a), if any is owed, for a generic Part D rebatable drug or biosimilar by 75 percent for that second applicable period.

(3) Application of reduction. If CMS determines there is a severe supply chain disruption for an NDC-11, CMS will apply any reduction of the rebate amount as determined under paragraphs (b)(1) and (2) of this section to a Part D rebatable drug at the NDC-9 level.

(4) Limitation on rebate reductions. CMS will not apply multiple rebate reductions for the same Part D rebatable drug and applicable period.

(i) If a manufacturer believes there are multiple events causing severe supply chain disruptions during the same applicable period for the same generic Part D rebatable drug or biosimilar and submits multiple rebate reduction requests for the same drug or biosimilar, CMS will grant no more than 1 rebate reduction determined under paragraph (b)(1) or (2) of this section for that product for the applicable period.

(ii) If CMS grants a rebate reduction request under this section and the generic Part D rebatable drug or biosimilar subject to the reduction appears as currently in shortage during the same applicable period as the one for which the severe supply chain disruption reduction request was granted, CMS will reduce the rebate amount as determined under paragraph (b)(1) of this section and will not grant a reduction as set forth in § 428.301 during that applicable period.

(iii) If a generic Part D rebatable drug or biosimilar that is currently in shortage experiences a severe supply chain disruption, CMS will reduce the rebate amount as determined under paragraph (b)(1) of this section, and will not grant a reduction as set forth in § 428.301 during that applicable period.

(c) Eligibility for a rebate reduction—(1) Eligible drug. Subject to paragraph (b)(3) of this section, eligibility for a rebate reduction under this section is limited to generic Part D rebatable drugs and biosimilars for which a manufacturer submits a rebate reduction request under this section.

(2) Timing. For a natural disaster or other unique or unexpected event occurring on or after August 2, 2024 that the manufacturer believes caused a severe supply chain disruption, the manufacturer must submit the rebate reduction request within 60 calendar days from the first day that the natural disaster or other unique or unexpected event occurred or began to receive consideration for a reduction in the rebate amount owed determined under paragraph (b)(1) of this section.

(3) Required elements of a rebate reduction request. To receive consideration for a reduction in the rebate amount owed as determined under paragraph (b)(1) of this section, the manufacturer must submit to CMS information and supporting documentation to substantiate the evaluation criteria set forth in paragraph (c)(4) of this section. Such information and supporting documentation include the following:

(i) Evidence that the severe supply chain disruption directly affects the manufacturer itself, a supplier of an ingredient or packaging, a contract manufacturer, or a method of shipping or distribution that the manufacturer uses to make or distribute the generic Part D rebatable drug(s) or biosimilar(s), such as a change in the production or distribution of the generic Part D rebatable drug(s) or biosimilar(s) that is reasonably likely to lead to a significant reduction in the U.S. supply of product and significantly affects the manufacturer's ability to fill orders or meet expected demand for the generic Part D rebatable drug(s) or biosimilar(s) for at least 90 days;

(ii) Information about when the manufacturer expects supply of the generic Part D rebatable drug(s) or biosimilar(s) to meet expected demand;

(iii) Evidence that the natural disaster or other unique or unexpected event caused the severe supply chain disruption, including when the natural disaster or other unique or unexpected event occurred or began occurring, and the expected or actual duration of the severe supply chain disruption; and

(iv) Evidence of the manufacturer's physical presence related to manufacturing the generic Part D rebatable drug(s) or biosimilar(s) in a geographic area where a natural disaster or other unique or unexpected event occurred. If the manufacturer is not physically present in a geographic area where a natural disaster or other unique or unexpected event occurred, but believes there is a severe supply chain disruption caused by a natural disaster or other unique or unexpected event that affects the manufacturer's generic Part D rebatable drug(s) or biosimilar(s), the information and supporting documentation may include evidence of the impact of the natural disaster or other unique or unexpected event on the supply chain of the generic Part D rebatable drug or biosimilar, on a supplier of an ingredient or packaging, or method of shipping or distribution that the manufacturer uses.

(4) Evaluation criteria. In accordance with paragraph (b)(1) of this section, CMS will grant a reduction in the total rebate amount determined under § 428.201, if any is owed, if a manufacturer submits to CMS a request in writing for an eligible drug, in accordance with the timing set forth in paragraph (c)(2) of this section, demonstrating that:

(i) A severe supply chain disruption has occurred during the applicable period;

(ii) The severe supply chain disruption directly affects the manufacturer itself, a contract manufacturer, a supplier of an ingredient or packaging, or a method of shipping or distribution that the manufacturer uses in a significant capacity to make or distribute the generic Part D rebatable drug or biosimilar; and

(iii) The severe supply chain disruption was caused by a natural disaster or other unique or unexpected event.

(5) Rebate reduction extensions. If CMS determines that a generic Part D rebatable drug or biosimilar that received a reduction of the rebate amount as determined under paragraph (b)(1) of this section continues to be affected by the severe supply chain disruption, CMS will grant a single extension of the reduction for 1 additional consecutive applicable period and reduce the total rebate amount determined under § 428.201, if any is owed, as set forth in paragraph (b)(2) of this section.

(i) To receive consideration for a rebate reduction extension, a manufacturer must submit a request with updated or new information and supporting documentation on why the generic Part D rebatable drug or biosimilar continues to be affected by the severe supply chain disruption during the second applicable period.

(ii) A manufacturer must submit the rebate reduction extension request at least 60 calendar days before the start of the second consecutive applicable period to receive consideration for a reduction in the rebate amount owed, if any, determined under paragraph (b)(2) of this section, except for when the initial request is made less than 60 calendar days before the end of an applicable period such that the initial rebate reduction is applied to the next applicable period rather than the applicable period in which the event that caused the severe supply chain disruption occurred or began. In these cases, the rebate reduction extension request must be submitted at least 60 calendar days prior to the end of the applicable period in which the initial reduction determined under paragraph (b)(1) of this section is applied.

(6) Decision to grant or deny a request. CMS will review rebate reduction requests and rebate reduction extension requests within 60 calendar days of receipt of all documentation, if feasible, beginning with the applicable period that begins on October 1, 2024.

(i) CMS will deny a rebate reduction request that does not meet the criteria set forth in paragraph (c)(4) of this section or that is incomplete or untimely based on the requirements set forth in this paragraph (c).

(ii) CMS will deny a rebate reduction extension request that does not meet the criteria set forth in paragraph (c)(5) of this section, that is incomplete or untimely based on the requirements set forth in paragraph (c)(5) of this section, or if a reduction determined under paragraph (b)(1) of this section was not granted for such generic Part D rebatable drug or biosimilar.

(iii) CMS' decisions to deny a request are final and will not be subject to an appeals process.

(7) Public disclosure of information. CMS will keep confidential, to the extent allowable under law, any requests for a rebate reduction, including supporting documentation. Information provided as part of a request for a rebate reduction request that the submitter indicates is a trade secret or confidential commercial or financial information will be protected from disclosure if CMS determines the information meets the requirements set forth under Exemption 3 or Exemption 4 in 5 U.S.C. 552.

(a) General. As required under section 1860D-14B(b)(1)(C)(iii) of the Act, CMS will reduce the total rebate amount determined under § 428.201, if any is owed, for a generic Part D rebatable drug when CMS determines that the generic Part D rebatable drug is likely to be in shortage, as set forth in § 428.300.

(b) Calculation of the reduced rebate amount—(1) Initial reduction. If CMS determines the criteria set forth in paragraph (c)(4) of this section are met, then CMS will reduce the total rebate amount owed by the manufacturer for a generic Part D rebatable drug by 75 percent for the applicable period in which the request was submitted or the following applicable period, depending on the timing of the submission of the request.

(2) Extension of reduction. If CMS determines the generic Part D rebatable drug is likely to be in shortage in a second applicable period as set forth in paragraph (c)(5) of this section, then CMS will reduce the total rebate amount owed by the manufacturer for a generic Part D rebatable drug by 75 percent for a second consecutive applicable period.

(3) Application of reduction. If CMS determines that an NDC-11 is likely to be in shortage, CMS will apply any reduction of the rebate amount as determined under paragraphs (b)(1) and (2) of this section to the generic Part D rebatable drug at the NDC-9 level.

(4) Limitation on rebate reductions. If CMS grants a rebate reduction request under this section, and the generic Part D rebatable drug subject to the reduction is currently in shortage during the same applicable period as the one for which the request was granted, CMS will reduce the rebate amount as determined under paragraph (b)(1) of this section and will not grant a reduction determined under § 428.301 during that applicable period.

(c) Eligibility for a rebate reduction—(1) Eligible drug. Subject to paragraph (b)(3) of this section, eligibility for a rebate reduction under this section is limited to generic Part D rebatable drugs for which a manufacturer submits a rebate reduction request under this section.

(2) Timing. The manufacturer must submit the rebate reduction request before the start of the next applicable period in which the manufacturer believes the generic Part D rebatable drug is likely to be in shortage to receive consideration for a reduction in the rebate amount owed determined under paragraph (b)(1) of this section.

(3) Required elements of a rebate reduction request. To receive consideration for a reduction in the rebate amount owed determined under paragraph (b)(1) of this section, the manufacturer must submit to CMS information and supporting documentation to substantiate the evaluation criteria set forth in paragraph (c)(4) of this section. Such information and supporting documentation include the following:

(i) Evidence that demonstrates a generic Part D rebatable drug is likely to be in shortage, including anticipated cause(s) of the shortage and information about why the manufacturer believes the generic Part D rebatable drug is likely to be in shortage; and

(ii) Evidence of the anticipated start date and duration of the potential drug shortage, the actions the manufacturer is taking to avoid the potential drug shortage, and how the reduction of the rebate amount would reduce the likelihood of the drug appearing on an FDA shortage list.

(4) Evaluation criteria. In accordance with paragraph (b)(1) of this section, CMS will grant a reduction in the rebate amount owed if a manufacturer submits to CMS a request in writing for an eligible drug, in accordance with the timing set forth in paragraph (c)(2) of this section, demonstrating that:

(i) The generic Part D rebatable drug is likely to be in shortage;

(ii) The manufacturer is taking actions to avoid the potential drug shortage; and

(iii) The reduction of the rebate amount would reduce the likelihood of the drug appearing on an FDA shortage list.

(5) Rebate reduction extensions. If CMS determines that a generic Part D rebatable drug that received a reduction of the rebate amount as determined under paragraph (b)(1) of this section continues to be affected by the potential drug shortage, CMS will grant a single extension of the reduction for 1 additional consecutive applicable period and reduce the total rebate amount determined under § 428.201, if any is owed, as determined under paragraph (b)(2) of this section.

(i) To receive consideration for a rebate reduction extension, a manufacturer must submit a request with updated or new information and supporting documentation on why the generic Part D rebatable drug continues to be affected by the potential drug shortage during the second applicable period.

(ii) A manufacturer must submit the rebate reduction extension request at least 60 calendar days before the start of the second consecutive applicable period in which the manufacturer believes the generic Part D rebatable drug is likely to be in shortage to receive consideration for a reduction in the rebate amount owed, if any, in accordance with paragraph (b)(2) of this section.

(6) Decision to grant or deny a request. CMS will review rebate reduction requests and rebate reduction extension requests within 60 calendar days of receipt of all documentation, if feasible, beginning with the applicable period that begins on October 1, 2024.

(i) CMS will deny a rebate reduction request that does not meet the criteria set forth in paragraph (c)(4) of this section or that is incomplete or untimely based on the requirements set forth in this paragraph (c).

(ii) CMS will deny a rebate reduction extension request that does not meet the criteria set forth in paragraph (c)(5) of this section, that is incomplete or untimely based on the requirements set forth in paragraph (c)(5) of this section, or if a reduction determined under paragraph (b)(1) of this section was not granted for such generic Part D rebatable drug.

(iii) CMS' decisions to deny a request are final and will not be subject to an appeals process.

(7) Public disclosure of information. CMS will keep confidential, to the extent allowable under law, any requests for a rebate reduction, including supporting documentation. Information provided as part of a request for a rebate reduction that the submitter indicates is a trade secret or confidential commercial or financial information will be protected from disclosure if CMS determines the information meets the requirements set forth under Exemption 3 or Exemption 4 in 5 U.S.C. 552.