§5000D Designated Drugs During Noncompliance Periods

Summary

Manufacturers, producers, or importers must pay a tax when they sell certain covered drugs during specific noncompliance periods. The tax is figured so that tax ÷ (tax + sale price) equals the applicable percentage. The tax periods happen when a drug is put on the HHS list and while negotiations or determinations about a “maximum fair price” are underway, plus a special period if required information is certified overdue. Key dates: the first period begins the March 1 after the drug is listed (or October 2 for the initial price year 2026) and ends when the manufacturer reaches an agreement with HHS or HHS makes the required determination. A second period begins the following November 2 (or August 2 for the 2026 start) and ends when a maximum fair price is agreed or HHS makes the determination. For drugs selected for renegotiation, a period starts on the November 2 that begins 2 years before the first price-applicability year and ends when renegotiation is agreed or HHS makes the determination. Also, a period runs from the date HHS certifies required information is overdue until it is submitted. Days are excluded if the maker has terminated all applicable discount/rebate agreements and none of its drugs are covered by those programs; that exclusion runs until the next February final date after they re-enter coverage or sign a new agreement. The tax rates are: 65% for the first 90 days, 75% for days 91–180, 85% for days 181–270, and 95% after day 270. Definitions: “designated drug” = a negotiation-eligible drug on the HHS list made or imported for U.S. use; “United States” = as defined by law; “initial price applicability year,” “price applicability period,” and “maximum fair price” = meanings given in the Social Security Act. The Treasury may apply anti-avoidance rules and must issue regulations to carry out these rules.