Is the PPACA Annual Tax on Branded Drugs Contributing to Higher Drug Costs?

PBIRx®
Intelligent Solutions in Pharmacy Benefits
12 Wheelers Farms Road, Milford, CT 06461
(888) 797-2479

Hidden in the many pages of the original  2010  Patient Protection and Affordable Care Act (ACA), is Section 9008 from the Internal Revenue Service, which requires an annual fee on each covered entity engaged in the business of manufacturing or importing branded prescription drugs to “specific government programs”, to be paid not later than September 30th of each year.    “Specific government programs” refers to Medicare Parts B and D, Medicaid, Department of Veterans Affairs, Department of Defense and the Tricare retail pharmacy program.

On July 28, 2014, the Internal Revenue Service (IRS) issued final regulations (26 CFR Parts 51 and 602) on the fee, which is treated as an excise tax for purposes of subtitle F of the Internal Revenue Code (Code) (sections 6001-7874).  The final regulations describe the rules related to the fee, including how the IRS computes it and how covered entities pay it.  The fee is assessed, collected, enforced, subject to examination and summons and subject to confidentiality rules in the same manner as taxes imposed by the Code.  The fee applies to calendar years beginning after December 31, 2010.  

In general, the fee is imposed on each covered entity with aggregated branded prescription drug sales of over $5 million to specified government programs or pursuant to coverage under such programs.

There were a few articles in June about the rising drug costs by Pfizer – 91 drugs rose by an average of 20% in 2017.   How much of that price increase is due to the IRS’s required brand fee/excise tax?   Obviously the brand manufacturers are going to pass this fee down the chain of payers including pharmacies, wholesalers, plan sponsors and, of course, consumers.    

The Washington Examiner article dated June 2, 2017, commented that pharmaceutical companies price their drugs high to recoup the soaring research and development costs. Consumer and patient advocacy groups complain that there is no way to determine how much of the revenue goes to actual research versus marketing.  However, few mention the required fee/tax, payable to our government by covered entities, i.e. pharmaceutical manufacturers , as being another contributor of the two to four  increases in Average Wholesale Prices on drugs per year.

If you would like to learn more about these fee calculations, please go the IRS website at:

PBIRx has been exclusively providing intelligent solutions to clients in the management of pharmacy benefit costs since 1993. With a staff that includes IT personnel, actuaries, financial analysts, clinical pharmacists, attorneys, HIPAA Compliance Officers and many more experts, PBIRx’s mission is to create optimal health care outcomes while minimizing overall health care costs. For more information, please visit www.pbirx.com or call (888) 797-2479.

PBIRx's Role in Healthcare Reform Compliance

PBIRx®

Intelligent Solutions in Pharmacy Benefits

612 Wheelers Farms Road, Milford, CT 06461

(888) 797-2479

The topic of Healthcare Reform, otherwise known as The Patient Protection and Affordable Care Act (PPACA), the Affordable Care Act (ACA) or even "Obamacare," is one that requires a lot of attention in the pharmacy and pharmacy benefit industry. Being that the first version of the law reads "The Patient Protection and Affordable Care Act," one may assume that this law has adjusted healthcare plans to be more affordable today than in the past. However, the nature of the law suggests that the desired level of affordability is still not where many hoped it would be.

A particular section of the Affordable Care Act that we would like to point out is Coverage of Preventive Services. There are specific terms and guidelines stated by the US Preventative Services Task Force (USPSTF), as to what preventive services must be covered under a patient's health plan and some of those services also include the coverage of certain pharmaceutical drugs at a zero copayment.

This is where PBIRx steps in! At PBIRx, one of our responsibilities related to the Affordable Care Act is to make sure that all of our clients are compliant with the USPSTF coverage of certain drugs for plans that are non-grandfathered. Thus, we carefully review our clients' current plan design of covered drugs and make sure that they accurately reflect the guidelines stated in the ACA and that such guidelines have been implemented appropriately with their PBM and communicated to our clients' members. But our services don't stop there! As we work towards making sure everyone is compliant with the law, we also make sure our clients have the necessary documentation such as a Summary of Benefits and Coverage available to their members.

The following is a list of preventative drugs often subject to certain criteria, which may include age and/or disease state, for which the USPSTF mandates a zero copay:

• Aspirin to prevent cardiovascular disease for certain ages
• Fluoride Supplements
• Folic Acid
• Iron Supplements
• Vitamin D
• Immunizations
• Oral Contraceptives
• Breast Cancer Preventive (plan renewals starting 10/1/14)
• Aspirin for preeclampsia risk (plan renewals starting 9/1/15)

Furthermore, it is important to note that smoking cessation coverage is also included in the list of preventative drugs that the USPSTF mandates a zero copay for. However, since this coverage does not have a deadline, anyone that currently requests drugs or services to aid in this process at a $0 copay is given a "safe harbor" compliance status.

For more information on how PBIRx works to help with ACA compliance, please give us a call at (888) 797-2479 today!