(a) Determination of Part D rebatable drugs. (1) For each applicable period, CMS will use PDE data to identify all covered Part D drugs.

(2) CMS will match the covered Part D drugs identified in the PDE data with application numbers using FDA sources to determine whether each covered Part D drug is a drug or biological approved under an NDA under section 505(c) of the FD&C Act, approved under an ANDA under section 505(j) of the FD&C Act, or licensed under a Biologics License Application (BLA) under section 351 of the PHS Act, as of the first day of the applicable period.

(3) For a covered Part D drug identified in the PDE that is approved under an ANDA under section 505(j) of the FD&C Act, CMS will determine whether such drug meets the criteria in section 1860D-14B(g)(1)(C)(ii) of the Act as of the first day of the applicable period as follows:

(i) To determine whether the reference listed drug or an authorized generic of the reference listed drug is being marketed, as required under section 1860D-14B(g)(1)(C)(ii)(I) of the Act, CMS will use FDA's NDC Directory, including historical information from NDC Directory files such as discontinued, delisted, and expired listings, provided by the FDA or published on the FDA website.

(ii) To determine whether another drug has been approved under an ANDA that is therapeutically equivalent to the Part D rebatable drug identified as set forth in this paragraph (a)(3), CMS will use FDA's Orange Book. To determine if this therapeutically equivalent drug is being marketed, as required under section 1860D-14B(g)(1)(C)(ii)(II) of the Act, CMS will use FDA's NDC Directory, including historical information from NDC Directory files, such as discontinued, delisted, and expired listings, provided by the FDA or published on the FDA website.

(iii) To determine whether the manufacturer of the drug identified as set forth in this paragraph (a)(3) is a first applicant during the 180-day exclusivity period, or whether the manufacturer of this drug is a first approved applicant for a competitive generic drug therapy, CMS will refer to publicly available FDA sources such as the Orange Book and may consult with FDA for technical assistance as needed.

(b) Drugs and biologicals with average annual total cost below the applicable threshold. For each applicable period, CMS will identify drugs and biologicals with average annual total costs under Part D for such applicable period, per individual who uses such drug or biological, that are below the applicable threshold in accordance with the steps described in this paragraph (b). Such drugs and biologicals are not considered Part D rebatable drugs and will be excluded from the identification of Part D rebatable drugs set forth in paragraph (a) of this section.

(1) Average annual total cost. For each drug or biological that is identified as set forth in paragraph (a) of this section, CMS will calculate average annual total costs under Part D per individual who uses such drug or biological by dividing the gross covered prescription drug costs for the drug or biological by the number of individuals who use such drug or biological in the applicable period. When calculating the gross covered prescription drug costs for the drug or biological, CMS will exclude PDE records indicating the drug or biological was billed as a compound.

(2) Applicable threshold. CMS will calculate the applicable threshold for an applicable period as follows:

(i) For the applicable period beginning October 1, 2022, the applicable threshold is equal to $100.

(ii) For the applicable period beginning October 1, 2023, the applicable threshold is equal to $100 increased by the percentage increase in CPI-U for the 12-month period beginning October 1, 2023.

(iii) For subsequent applicable periods, the applicable threshold is equal to the applicable threshold for the prior applicable period increased by the percentage increase in the CPI-U for the 12-month period beginning with October of the previous period.

(iv) If the resulting amount determined under paragraph (b)(2)(ii) or (iii) of this section is not a multiple of $10, CMS will round that amount to the nearest multiple of $10.