/Vol. 76, No. 243/Monday, December 19, 2011/Proposed Rules
distribution of a covered drug, device, biological, or medical supply for sale ordistribution in the United States, or in aterritory, possession, or commonwealth of the United States.
We recognize that there are otherdefinitions of ‘‘manufacture,’’‘‘manufacturer’’ and ‘‘manufacturing’’with which industry may be familiar(such as those in 21 CFR 207.3, 21 CFR210.3(b)(12), 21 CFR 820.3(o), and 42USC 1396r–8(k)(5)). We note that thisproposed definition, which generallytracks the statute, is somewhat morelimited than those definitions.Under this definition, manufacturersof a covered drug, device, biological, ormedical supply (under either paragraph(1) or paragraph (2) of the definition) aredeemed to be an ‘‘applicablemanufacturer’’ if their products are soldor distributed in the United States(U.S.), regardless of where the covereddrug, device, biological, or medicalsupply is actually produced or wherethe entity is actually located orincorporated. Given the global nature of these industries, we believe that anyentity manufacturing covered drugs,devices, biologicals, or medical suppliesfor sale or distribution in the U.S. (orany entity under common ownershipwhich provides assistance or support inthe production, preparation,propagation, compounding, conversion,marketing, promotion, sale, ordistribution of such items) should besubject to the requirements of section1128G of the Act. The opportunity forundue influence or inappropriaterelationships caused by payments ortransfers of value to covered recipientsis the same for manufacturers of drugs,devices, biologicals, or medical suppliessold or distributed in the United Statesregardless of where the product isactually manufactured, and we,therefore, propose to treat them thesame.We also seek to clarify that anymanufacturer that meets the definitionof applicable manufacturer by selling ordistributing in the United States at leastone covered drug, device, biological, ormedical supply is considered anapplicable manufacturer, even though itmay also manufacturer products that donot fall within that category (as definedlater in this section). We propose that allpayments or transfers of value made byan applicable manufacturer to a coveredrecipient must be reported as requiredunder section 1128G of the Actregardless of whether the particularpayment or other transfer of value isassociated with a covered drug, device, biological, or medical supply.Additionally, we seek to clarify that theproposed definition includes entitiesthat hold Food and Drug Administration(FDA) approval, licensure, or clearancefor a covered drug, device, biological, ormedical supply, even if they contractout the actual physical manufacturing of the product to another entity. Weinterpret these entities as being‘‘engaged in the production,preparation, propagation, compounding,or conversion of a covered drug, device, biological, or medical supply.’’ We seekcomment on this interpretation.As noted previously, section1128G(e)(9) of the Act states that certaincompanies which are under ‘‘commonownership’’ with an entity thatproduces, prepares, propagates,compounds, or converts a covered drug,device, biological, or medical supply arealso subject to the reportingrequirements under this provision, eventhough they themselves may not beinvolved in the ‘‘manufacturing’’process. Specifically, this applies toentities under ‘‘common ownership’’with an applicable manufacturer whichprovide assistance or support to theapplicable manufacturer with respect tothe production, preparation,propagation, compounding, conversion,marketing, promotion, sale, ordistribution of a covered drug, device, biological, or medical supply for sale ordistribution in the U.S., or in a territory,possession, or commonwealth of theU.S. We propose to define ‘‘commonownership’’ as when the sameindividual, individuals, entity, orentities, directly or indirectly, own anyportion of two or more entities. Thecommon ownership definition wouldapply to a range of corporatearrangements, including, but not limitedto, parent companies and subsidiariesand brother/sister corporations.We are also considering an alternateinterpretation that would limit thecommon ownership definition tocircumstances where the sameindividual, individuals, entity, orentities own 5 percent or more of totalownership in two or more entities. Thiswould be subject to the samerequirements as the proposed definitiondescribed previously, but would onlyapply to interests of 5 percent of more.We seek comments on our proposeddefinition of ‘‘common ownership,’’including, whether a more specificdefinition is needed and, if a minimumpercentage threshold is adopted,whether 5 percent is appropriate. Weintend to finalize the agency’s positionon this in the final rule based oncomments received.If two entities are under commonownership with one another, and bothindividually meet the definition of anapplicable manufacturer underparagraph (1) of the definition, then wepropose that the entities should reportseparately under section 1128G of theAct. For example, if company A andcompany B are both owned by companyC, and companies A, B and C all meetthe definition of applicablemanufacturer under paragraph (1), thenall three have to report separately.However, if only one company undercommon ownership meets the definitionof applicable manufacturer underparagraph (1), and the other company isrequired to report under paragraph (2) of the definition, then we propose that theaffected entities can choose whether ornot to report together. For example, if only company C meets the definition of applicable manufacturer underparagraph (1) and companies A and Bmeet the definition of applicablemanufacturer under paragraph (2), thenthe companies can decide whether toreport together. If an applicablemanufacturer under paragraph (1)reports for itself as well as for entitiesunder common ownership that arerequired to report under paragraph (2),the report should clearly name all of theentities that are included in the report.Given the various relationships betweenentities under common ownership, wepropose that if an applicablemanufacturer under paragraph (1)reports for at least one additional entityunder common ownership, theapplicable manufacturer may decidewhether to identify the payments asthose from the entity under commonownership, or whether to combine themwith their payments or other transfers of value.In addition to payments or othertransfers of value to covered recipientsmade by applicable manufacturersthemselves, applicable manufacturers(under both paragraphs (1) and (2) of thedefinition) are also required by statuteto report payments and other transfersof value provided indirectly to coveredrecipients through third parties, if theapplicable manufacturer is aware of theidentity of the covered recipient. This isaddressed in more detail in thediscussion of third party paymentsfound later in this preamble.(2) Covered Drug, Device, Biological, orMedical SupplyThe reporting requirements arelimited to applicable manufacturers of a‘‘covered drug, device, biological, ormedical supply.’’ The phrase ‘‘covereddrug, device, biological, or medicalsupply’’ is defined in section1128G(e)(5) of the Act as any drug, biological product, device, or medicalsupply for which payment is‘‘available’’ under Medicare, Medicaid,
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