Budget Amendment ID: FY2022-S3-412
EHS 412
Penalty on drug manufacturers for excessive price increases
Messrs. O'Connor and Tarr moved that the proposed new text be amended by inserting after section 63 the following sections:-
“SECTION XX. The General Laws are hereby amended by inserting after chapter 63B the following chapter:-
Chapter 63E. Penalty on drug manufacturers for excessive price increases
Section 1. "Commissioner", the commissioner of revenue.
"Consumer price index", the consumer price index for all urban consumers for Boston, as most recently reported by the federal Bureau of Labor Statistics.
"Drug", any medication, as identified by a National Drug Code, approved for sale by the U.S. Food and Drug Administration.
"Excessive price," the price of a drug if it exceeds the sum of (a) the reference price of that drug, as adjusted for any increase or decrease in the consumer price index since the reference price was determined, and (b) an additional 2 per cent of the reference price for each 12 month period that has elapsed since the date on which the reference price was determined. The 2 per cent increment provided in (b) of the preceding sentence shall compound annually on the first day of the first calendar quarter commencing after the end of each 12 month period described therein.
"Excessive price increase", the amount by which the price of a drug exceeds the sum of (a) the reference price of that drug, as adjusted for any increase or decrease in the consumer price index since the reference price was determined, and (b) an additional 2 per cent of the reference price for each 12 month period that has elapsed since the date on which the reference price was determined. The 2 per cent increment provided in (b) shall compound annually on the first day of the first calendar quarter commencing after the end of each 12 month period described therein.
"Person", any natural person or legal entity.
"Price", the wholesale acquisition cost of a drug, per unit, as reported to the First Data Bank or other applicable price compendium designated by the commissioner.
"Reference price", the price of a drug as of January 1, 2021 or in the case of any drug first commercially marketed in the United States after January 1, 2021, the price of the drug on the date when first marketed.
"Related party", an entity is a related party with respect to a person if that entity belongs to the same affiliated group as that person under section 1504 of the Internal Revenue Code, as amended and in effect for the taxable year, or if the entity and the person are otherwise under common ownership and control.
"Unit", the lowest dispensable amount of a drug.
Section 2. (a) Any person who manufactures and sells drugs, directly or through another person, for distribution in the commonwealth and who establishes an excessive price for any such drug directly or in cooperation with a related party, shall pay a per unit penalty on all units of the drug ultimately dispensed or administered in the commonwealth. The penalty for each unit shall be 80 per cent of the excessive price increase for each unit, determined at the beginning of the calendar quarter.
(b) A person who establishes an excessive price for a drug as described in subsection (a) shall file a return as provided in section 4 declaring all units of excessively priced drug sold for distribution in the commonwealth during the quarter. In the event that a person filing such a return pays a penalty with regard to one or more units of drug that are ultimately dispensed or administered outside of the commonwealth, the person may claim a credit for such penalty amounts on the return for the tax period during which such units are ultimately dispensed or administered.
Section 3. The penalty under section 2 shall apply for any calendar quarter only to a person who maintains a place of business in the commonwealth or whose total sales of all products, directly or through another person, for distribution in the commonwealth were more than $100,000 in the prior twelve month period. The penalty shall not apply more than once to any unit of drug sold.
Section 4. Any person subject to the penalty under section 2 shall file a return with the commissioner and shall pay the penalty by the fifteenth day of the third month following the end of each calendar quarter, subject to such reasonable extensions of time for filing as the commissioner may allow. The return shall set out the person's total sales subject to penalty in the immediately preceding calendar quarter and shall provide such other information as the commissioner may require.
Section 5. The penalty imposed under this chapter shall be in addition to, and not a substitute for or credit against, any other penalty, tax or excise imposed under the General Laws.
Section 6. The commissioner may disclose information contained in returns filed under this chapter to the department of public health for purposes of verifying that a filer's sales subject to penalty are properly declared and that all reporting is otherwise correct. Return information so disclosed shall remain confidential and shall not be public record.
Section 7. To the extent that a person subject to penalty under section 2 fails to pay amounts due under this chapter, a related party of such person that directly or indirectly distributes in the commonwealth any drug whose sales are subject to this chapter shall be jointly and severally liable for the penalty due.
Section 8. The commissioner may promulgate regulations or issue other guidance for the implementation of this chapter.
SECTION XX. Chapter 63E of the General Laws, as inserted by section X2, shall apply to sales commencing on or after the enactment date of this act. The commissioner of revenue shall issue regulations or other guidance regarding the reporting and payment of the penalty as soon as practicable after the enactment date of this act.”