§5000D — Title 26 Internal Revenue Code | U.S. Code

Summary

Drug companies that refuse to take part in Medicare's drug price negotiation program face a steep tax on every sale of the drug involved. The tax runs only during "noncompliance" periods, such as when the manufacturer has not signed a negotiation agreement, has not agreed to a maximum fair price, has not agreed to a renegotiated price, or is late turning in required information to the Secretary of Health and Human Services. The tax is set so that it equals a fixed share of the total of the tax plus the sale price: 65 percent for the first 90 days of noncompliance, 75 percent for days 91 through 180, 85 percent for days 181 through 270, and 95 percent after that. A manufacturer can stop the clock by pulling its drugs out of Medicare entirely, ending its Medicare discount and Medicaid rebate agreements. The IRS can also treat a sale as taxable if it was timed just to dodge the tax.

Title 26, §5000D

Internal Revenue Code — Source: USLM XML via OLRC

(a)There is hereby imposed on the sale by the manufacturer, producer, or importer of any designated drug during a day described in subsection (b) a tax in an amount such that the applicable percentage is equal to the ratio of—

(1)such tax, divided by

(2)the sum of such tax and the price for which so sold.

(b)A day is described in this subsection with respect to a designated drug if it is a day during one of the following periods:

(1)The period beginning on the March 1st (or, in the case of initial price applicability year 2026, the October 2nd) immediately following the date on which such drug is included on the list published under section 1192(a) of the Social Security Act and ending on the earlier of—

(A)the first date on which the manufacturer of such designated drug has in place an agreement described in section 1193(a) of such Act with respect to such drug, or

(B)the date that the Secretary of Health and Human Services has made a determination described in section 1192(c)(1) of such Act with respect to such designated drug.

(2)The period beginning on the November 2nd immediately following the March 1st described in paragraph (1) (or, in the case of initial price applicability year 2026, the August 2nd immediately following the October 2nd described in such paragraph) and ending on the earlier of—

(A)the first date on which the manufacturer of such designated drug and the Secretary of Health and Human Services have agreed to a maximum fair price under an agreement described in section 1193(a) of the Social Security Act, or

(B)the date that the Secretary of Health and Human Services has made a determination described in section 1192(c)(1) of such Act with respect to such designated drug.

(3)In the case of any designated drug which is a selected drug (as defined in section 1192(c) of the Social Security Act) that the Secretary of Health and Human Services has selected for renegotiation under section 1194(f) of such Act, the period beginning on the November 2nd of the year that begins 2 years prior to the first initial price applicability year of the price applicability period for which the maximum fair price established pursuant to such renegotiation applies and ending on the earlier of—

(A)the first date on which the manufacturer of such designated drug has agreed to a renegotiated maximum fair price under such agreement, or

(B)the date that the Secretary of Health and Human Services has made a determination described in section 1192(c)(1) of such Act with respect to such designated drug.

(4)With respect to information that is required to be submitted to the Secretary of Health and Human Services under an agreement described in section 1193(a) of the Social Security Act, the period beginning on the date on which such Secretary certifies that such information is overdue and ending on the date that such information is so submitted.

(c)(1)A day shall not be taken into account as a day during a period described in subsection (b) if such day is also a day during the period—

(A)beginning on the first date on which—

(i)the notice of terminations of all applicable agreements of the manufacturer have been received by the Secretary of Health and Human Services, and

(ii)none of the drugs of the manufacturer of the designated drug are covered by an agreement under section 1860D–14A or 1860D–14C of the Social Security Act, and

(B)ending on the last day of February following the earlier of—

(i)the first day after the date described in subparagraph (A) on which the manufacturer enters into any subsequent applicable agreement, or

(ii)the first date any drug of the manufacturer of the designated drug is covered by an agreement under section 1860D–14A or 1860D–14C of the Social Security Act.

(2)For purposes of this subsection, the term “applicable agreement” means the following:

(A)An agreement under—

(i)the Medicare coverage gap discount program under section 1860D–14A of the Social Security Act, or

(ii)the manufacturer discount program under section 1860D–14C of such Act.

(B)A rebate agreement described in section 1927(b) of such Act.

(d)For purposes of this section, the term “applicable percentage” means—

(1)in the case of sales of a designated drug during the first 90 days described in subsection (b) with respect to such drug, 65 percent,

(2)in the case of sales of such drug during the 91st day through the 180th day described in subsection (b) with respect to such drug, 75 percent,

(3)in the case of sales of such drug during the 181st day through the 270th day described in subsection (b) with respect to such drug, 85 percent, and

(4)in the case of sales of such drug during any subsequent day, 95 percent.

(e)For purposes of this section—

(1)The term “designated drug” means any negotiation-eligible drug (as defined in section 1192(d) of the Social Security Act) included on the list published under section 1192(a) of such Act which is manufactured or produced in the United States or entered into the United States for consumption, use, or warehousing.

(2)The term “United States” has the meaning given such term by section 4612(a)(4).

(3)The terms “initial price applicability year”, “price applicability period”, and “maximum fair price” have the meaning given such terms in section 1191 of the Social Security Act.

(f)(1)Rules similar to the rules of paragraphs (2) and (4) of section 4132(c) shall apply for purposes of this section.

(2)In the case of a sale which was timed for the purpose of avoiding the tax imposed by this section, the Secretary may treat such sale as occurring during a day described in subsection (b).

(g)Rules similar to the rules of section 4662(e) (other than section 4662(e)(2)(A)(ii)(II)) shall apply for purposes of this chapter.

(h)The Secretary shall prescribe such regulations and other guidance as may be necessary to carry out this section.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The Social Security Act, referred to in text, is act Aug. 14, 1935, ch. 531, 49 Stat. 620. Sections 1191 to 1194 of the Act are classified to sections 1320f to 1320f–3, respectively, of Title 42, The Public Health and Welfare. section 1860D–14A and 1860D–14C of the Act are classified to section 1395w–114a and 1395w–114c, respectively, of Title 42. section 1927 of the Act is classified to section 1396r–8 of Title 42.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 117–169, title I, § 11003(d), Aug. 16, 2022, 136 Stat. 1864, provided that: “The

Amendments

made by this section [enacting this chapter and amending section 275 of this title] shall apply to sales after the date of the enactment of this Act [Aug. 16, 2022].”

§5000D Designated Drugs During Noncompliance Periods

Summary

Title 26, §5000D

Notes & Related Subsidiaries

Editorial Notes

References in Text

Statutory Notes and Related Subsidiaries

Effective Date

Amendments

Citations & Metadata