types eligible for participation in the Public Health Services 340B drug pricing program, established annual fees and taxes on manufacturers of certain prescription drugs, and created a new
Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts (as of January 1, 2019) off
negotiated prices.
Certain provisions of the ACA have been subject to judicial challenges as well as efforts to repeal or replace them or
to alter their interpretation and implementation. For example, bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or the Tax Act, included a provision repealing the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, commonly referred to as the individual
mandate. In December 2018, the District Court for the Northern District of Texas ruled (i) that the individual mandate is unconstitutional as a result of the associated tax penalty being repealed by Congress as part of the Tax
Act; and (ii) the individual mandate is not severable from the rest of the ACA, and as a result the entire ACA is invalid. In December 2019, the U.S. Court of Appeals for the Fifth Circuit affirmed the district courts decision that the
individual mandate is unconstitutional but remanded the case to the district court to reconsider the severability question. It is unclear how the ultimate decision in this case, which is now pending before the Supreme Court, or other efforts to
repeal, replace, or invalidate the ACA or its implementing regulations, or portions thereof, will affect our business.
In addition,
legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were reduced by 2% per fiscal
year under the sequestration required by the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012. Subsequent legislation extended the 2% reduction to 2029. The Coronavirus Aid, Relief, and Economic Security Act, or
CARES Act, which was signed into law on March 27, 2020, designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended these reductions from
May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030. In addition, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced
Medicare payments to several providers, including hospitals. We expect that additional healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal, state and foreign governments will pay for healthcare
products and services, which could result in reduced demand for the FDA-approved PF708 product or our product candidates, if approved, or additional pricing pressures.
With the approval of the FDA-approved PF708 product, we anticipate that Alvogen will need to
participate in the Medicaid Drug Rebate program. Participation is required for federal funds to be available for our covered outpatient drugs under Medicaid and, if applicable, Medicare Part B. Under the Medicaid Drug Rebate Program, we or our
collaboration partners would be required to pay a rebate to each state Medicaid program for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds
being made available to the states for our drugs under Medicaid and, if applicable, Part B of the Medicare program.
Federal law requires
that any company that participates in the Medicaid Drug Rebate Program also participate in the Public Health Services 340B drug pricing program in order for federal funds to be available for the manufacturers drugs under Medicaid and
Medicare Part B. The 340B drug pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B ceiling price for the manufacturers covered outpatient drugs. These
340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of
low-income patients.
In addition, in order to be eligible to have its products paid for with
federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, a manufacturer also must participate in the U.S. Department of Veterans Affairs, or VA, Federal Supply Schedule, or FSS, pricing
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