[Federal Register: July 6, 2005 (Volume 70, Number 128)]
[Rules and Regulations]               
[Page 39021-39102]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06jy05-21]                         


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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 414



Medicare Program; Competitive Acquisition of Outpatient Drugs and 
Biologicals Under Part B; Interim Rule


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 414

[CMS-1325-IFC]
RIN 0938-AN58

 
Medicare Program; Competitive Acquisition of Outpatient Drugs and 
Biologicals Under Part B

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period implements 
provisions of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 that require the implementation of a 
competitive acquisition program for certain Medicare Part B drugs not 
paid on a cost or prospective payment system basis. Beginning January 
1, 2006, physicians will generally be given a choice between obtaining 
these drugs from vendors selected through a competitive bidding process 
or directly purchasing these drugs and being paid under the average 
sales price system.

DATES: Effective date: The amendments to Sec.  414.906(c); Sec.  
414.908(b), (c), (d), and (e); Sec.  414.910, and Sec.  414.912(a) are 
effective on July 6, 2005. All other amendments are effective September 
6, 2005.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on September 6, 2005.

ADDRESSES: In commenting, please refer to file code CMS-1325-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of three ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/regulations/ecomments.
 (Attachments should be in Microsoft Word, WordPerfect, or 

Excel; however, we prefer Microsoft Word.)
    2. By mail. You may mail written comments (one original and two 
copies) to the following address ONLY:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1325-IFC, P.O. Box 8013, Baltimore, MD 
21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7195 in advance to schedule your arrival 
with one of our staff members.
    Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, 
SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 
21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Lia Prela, (410) 786-0548.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in further considering 
issues and developing policies. You can assist us by referencing the 
file code CMS-1325-IFC and the specific ``issue identifier'' that 
precedes the section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all electronic 
comments received before the close of the comment period on its public 
Web site as soon as possible after they have been received. Hard copy 
comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of a document, at the headquarters of the Centers for 
Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, 
Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 
p.m. To schedule an appointment to view public comments, phone 1-800-
743-3951.
    Information on the competitive acquisition program, including a 
copy of this interim final rule with comment period, can be found on 
the CMS homepage. You can access this data by going to the following 
Web site: http://www.cms.hhs.gov/providers/drugs/compbid.

    To assist readers in referencing sections contained in this 
preamble, we are providing the following table of contents.

Outline of Contents

I. Background
    A. Covered Drugs and Biologicals
    1. Drugs Furnished Incident to a Physician's Service
    2. Durable Medical Equipment (DME) Drugs
    3. Statutorily Covered Drugs and Other Drugs
    4. Types of Providers
    5. Drugs Paid on a Cost or Prospective Payment Basis
    B. Revised Drug Payment Methodology
    C. Competitive Acquisition Program (CAP)
    D. Requirements for Issuance of Regulations
II. Provisions of the March 4, 2005 Proposed Rule and Our Summary of 
and Responses to Public Comments
    A. Policy for the CAP
    1. General Overview of the CAP
    2. Categories of Drugs To Be Included Under the CAP
    3. Competitive Acquisition Areas
    B. Operational Aspects of the CAP
    1. Statutory Requirements Concerning Claims Processing
    2. Proposed Claims Processing and Operational Overview
    3. Dispute Resolution
    C. CAP Contracting Process
    1. Quality and Product Integrity Aspects
    2. Bidding Entity Qualifications
    3. CAP Bidding Process--Evaluation and Selection
    4. Contract Requirements
    5. Judicial Review
    D. Implementation of the CAP
    1. Physician Election Process
    2. Vendor or Physician Education
    3. Beneficiary Education
III. Provisions of the Interim Final Rule
IV. Waiver of Delayed Effective Date
V. Response to Comments
VI. Collection of Information Requirements
VII. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects
    C. Impact of Establishment of a Competitive Acquisition Program

[[Page 39023]]

    D. Alternatives Considered
    E. Impact on Beneficiaries

    In addition, because of the many organizations and terms to which 
we refer by acronym in this interim final rule with comment period, we 
are listing these acronyms and their corresponding terms in 
alphabetical order below.

Alphabetical List of Acronyms Appearing in the Interim Final Rule With 
Comment Period

ABN--Advanced Beneficiary Notice
ASP--Average sales price
AWP--Average wholesale price
BBA--Balanced Budget Act of 1997, Pub. L. 105-33
CAP--Competitive Acquisition Program
CERT--Comprehensive Error Rate Testing
CFR--Code of Federal Regulations
CMS--Centers for Medicare & Medicaid Services (formerly Health Care 
Financing Administration)
COBC--Coordination of Benefits Contractor
DAW--Dispense as written
DME--Durable medical equipment
DMERC--Durable medical equipment regional carrier
DOJ--Department of Justice
EAC--Estimated acquisition cost
ESRD--End-stage renal disease
FAR--Federal Acquisition Regulation
FDA--Food and Drug Administration
GAO--Government Accountability Office
GPOs--Group Purchasing Organizations
GPO Access--Government Printing Office Access
HCPCS--Healthcare Common Procedure Coding System
HHS--Health and Human Services
HIC--Health Insurance Number
HIPAA--Health Insurance Portability and Accountability Act of 1996, 
Public Law 104-191
ICD-9--International Classification of Diseases--Ninth Edition
IVIG--Intravenous immune globulin
LCDs--Local coverage determinations
MMA--Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MSN--Medical summary notice
NDC--National Drug Code
OIG--Office of Inspector General
OPPS--Outpatient prospective payment system
PPAC--Practicing Physicians Advisory Council
PIN--Provider identification number
PSCs--Program Safeguard Contractors
RAC--Recovery Audit Contractor
RFA--Regulatory Flexibility Act (September 19, 1980, Pub. L. 96-354)
RFI--Request for information
RTI--Research Triangle Institute
UPIN--Unique provider identification number
WAC--Wholesale acquisition cost

I. Background

A. Covered Drugs and Biologicals

    Medicare Part B currently covers a limited number of prescription 
drugs. For the purposes of this interim final rule with comment period, 
the term ``drugs'' will hereafter refer to both drugs and biologicals. 
Currently covered Medicare Part B drugs generally fall into three 
categories: Drugs furnished incident to a physician's service, drugs 
administered via a covered item of durable medical equipment (DME), and 
drugs covered by statute.
1. Drugs Furnished Incident to a Physician's Service
    Injectable or intravenous drugs as well as non-injectable or non-
intravenous drugs are administered incident to a physician's service as 
specified under section 1861(s)(2)(A) of the Social Security Act (the 
Act). Under the ``incident-to'' provision, the physician must incur a 
cost for the drug, and must bill for it. The Medicare Prescription 
Drug, Improvement, and Modernization Act (MMA) of 2003 (Pub. L. 108-
173, enacted on December 8, 2003) revised the ``incident-to'' 
provision, permitting payment of ``incident-to'' drugs under the CAP 
even though the physician participating in the CAP would not, in fact, 
incur a cost for the drug or actually bill for the drug. The Act limits 
``incident-to'' coverage to drugs that are not usually self-
administered. Examples include injectable drugs used in connection with 
the treatment of cancer (such as epoetin alpha), intravenous drugs used 
to treat cancer (such as paclitaxel and docetaxel used to treat breast 
cancer), injectable anti-emetic drugs used to treat the nausea 
resulting from chemotherapy, infliximab or other similar products used 
to treat rheumatoid arthritis, rituximab or other similar products used 
to treat non-Hodgkin's lymphoma, and Dermagraft or other similar 
products used to treat skin ulcers.
2. Durable Medical Equipment (DME) Drugs
    DME drugs are administered through a covered item of DME, such as a 
nebulizer or pump. Two of the most common drugs in this category are 
the inhalation drugs albuterol sulfate and ipratropium bromide.
3. Statutorily Covered Drugs and Other Drugs
    Drugs specifically covered by statute include--immunosuppressive 
drugs; hemophilia blood clotting factor; certain oral anti-cancer 
drugs; oral anti-emetic drugs; pneumococcal, influenza and hepatitis B 
vaccines; antigens; erythropoietin for trained home dialysis patients; 
certain other drugs separately billed by end-stage renal disease (ESRD) 
facilities (for example, iron dextran, vitamin D injections); and 
osteoporosis drugs.
4. Types of Providers
    Types of providers and suppliers that are paid based on the current 
ASP system for all or some of the Medicare covered drugs they furnish 
include the following: physicians and certain non-physician 
practitioners, pharmacies, DME suppliers, hospital outpatient 
departments, and ESRD facilities.
5. Drugs Paid on a Cost or Prospective Payment Basis
    Drugs paid on a cost or prospective payment basis that are outside 
of the scope of this interim final rule include--drugs furnished during 
an inpatient hospital stay (except clotting factor); drugs paid under 
the outpatient prospective payment system (OPPS); drugs furnished by 
ESRD facilities whose payments are included in Medicare's composite 
rate; and drugs furnished by critical access hospitals, skilled nursing 
facilities (unless outside of a covered stay), comprehensive outpatient 
rehabilitation facilities, rural health facilities, and federally 
qualified health centers.

B. Revised Drug Payment Methodology

    The MMA revised the drug payment methodology by creating a new 
pricing system based on a drug's Average Sales Price (ASP). The MMA 
also provides for a program beginning in 2006 to give physicians a 
choice between--(1) Obtaining these drugs from vendors selected through 
a competitive bidding process; or (2) directly purchasing these drugs 
and being paid under the ASP system.
    Effective January 2005, Medicare pays for the majority of Part B 
covered drugs using a drug payment methodology based on the ASP. In 
accordance with section 1847A of the Act, manufacturers submit to us 
the ASP data for their products. These data include the manufacturer's 
total sales (in dollars) and number of units of a drug to all 
purchasers in the United States in a calendar quarter (excluding 
certain sales exempted by statute), with limited exceptions. The sales 
price is net of discounts such as volume discounts, prompt pay 
discounts, cash discounts, free goods that are contingent on any 
purchase requirement, chargebacks, and rebates (other than rebates 
under section 1927 of the Act). The Medicare payment rate is based on 
106 percent of the ASP (or for single source drugs, 106 percent of 
wholesale acquisition cost (WAC), if lower), less applicable deductible 
and coinsurance. The WAC is defined, with respect to a drug or 
biological, as the

[[Page 39024]]

manufacturer's list price for the drug or biological to wholesalers or 
direct purchasers in the United States, not including prompt pay or 
other discounts, rebates, or reductions in price, for the most recent 
month for which the information is available, as reported in wholesale 
price guides or other publications of drug or biological pricing data.

C. Competitive Acquisition Program (CAP)

    Section 303(d) of the MMA provides for an alternative payment 
methodology for most Part B covered drugs that are not paid on a cost 
or prospective payment basis. In particular, section 303(d) of the MMA 
amends Title XVIII of the Act by adding a new section 1847B, which 
establishes a competitive acquisition program for the acquisition of 
and payment for competitively biddable Part B covered drugs and 
biologicals furnished on or after January 1, 2006.
    Beginning January 1, 2006, physicians will have a choice between--
(1) Obtaining these drugs from entities selected to participate in the 
CAP in a competitive bidding process; or (2) acquiring and billing for 
Part B covered drugs under the ASP system. The provisions for acquiring 
and billing for drugs through this new system, as well as additional 
information about this new drug payment system are described in this 
interim final rule.
    The CAP may provide opportunities for Federal savings to the extent 
that aggregate bid prices are less than 106 percent of ASP. However, 
the CAP has other purposes than the potential to achieve savings. The 
competitive acquisition program provides opportunities for physicians 
who do not wish to be in the business of drug acquisition. Engaging in 
drug acquisition may require physicians to bear financial burdens such 
as employing working capital and bearing financial risk in the event of 
non-payment for drugs. The CAP is designated to reduce this financial 
burden for physicians. In addition, physicians who furnish drugs often 
cite the burden of collecting coinsurance on drugs, which can represent 
a substantial dollar amount to a beneficiary and physicians' practice. 
The competitive acquisition program eliminates the need for physicians 
to collect coinsurance on CAP drugs from Medicare beneficiaries.

D. Requirements for Issuance of Regulations

    Section 902 of the MMA amended section 1871(a) of the Act and 
requires the Secretary, in consultation with the Director of the Office 
of Management and Budget, to establish and publish timelines for the 
publication of Medicare final regulations based on the previous 
publication of a Medicare proposed or interim final regulation. Section 
902 of the MMA also states that the timelines for these regulations may 
vary but shall not exceed 3 years after publication of the preceding 
proposed or interim final regulation except under exceptional 
circumstances. We intend to publish the final rule within the 3-year 
timeframe established under section 902 of the MMA.

II. Provisions of the March 4, 2005 Proposed Rule and Our Summary of 
and Responses to Public Comments

    We received approximately 570 timely pieces of correspondence 
containing multiple comments in response to the March 4, 2005 proposed 
rule. Summaries of the public comments and our responses are set forth 
in the various sections of this preamble under the appropriate heading.

A. Policy for the CAP

1. General Overview of the CAP
    In the March 4, 2005 proposed rule, we discussed the activities to 
implement the CAP that need to be completed before January 1, 2006, 
including--designating or developing quality, service, and financial 
performance standards for vendors; creating a pricing methodology; 
designing and running a bidding process from solicitation through 
contract award; providing physicians with an opportunity to elect to 
participate and select a vendor; educating beneficiaries about the 
program; and other activities specified in section 1847B of the Act.
    The statute provides some flexibility in the development of the CAP 
by requiring an appropriate ``phase-in'' of the program and providing 
the Secretary with the discretion to select appropriate categories of 
drugs and appropriate geographic areas for the program. Section 
1847B(a)(1)(B) of the Act states that for purposes of implementing the 
CAP, ``the Secretary shall establish categories of competitively 
biddable drugs and biologicals. The Secretary shall phase in the 
program with respect to those categories beginning in 2006 in such 
manner as the Secretary determines to be appropriate.'' Additionally, 
the statute states that the competitive acquisition areas for the CAP 
on which contracts are to be awarded (and vendors chosen) are 
``appropriate geographic regions established by the Secretary.''
    We also briefly discussed the activities we had initiated to enable 
us to implement the statutory provisions of section 1847B of the Act 
including:
     The award of a contract to Research Triangle Institute 
(RTI) to obtain information and develop alternatives regarding the 
implementation of a drug and biological competitive bidding program.
     Convening a Special Open Door Listening Session on April 
1, 2004, to gather input and allow interested parties to hear and be 
heard by other members of the healthcare industry.
     Establishment of an electronic mailbox, 
MMA303DDrugBid@cms.hhs.gov, for interested parties to submit comments 
on the CAP program before the issuance of the March 4, 2005 proposed 
rule.
     Issuance of a Request for Information (RFI) on December 
13, 2004 to assess public interest in bidding on contracts to supply 
drugs and biologicals for the CAP.
    Comment: A few commenters referenced the discussion in the proposed 
rule concerning the activities that we initiated to implement the 
statute. These commenters questioned the fact that we only received 15 
responses from the issuance of an RFI, given the number of Medicare 
beneficiaries, specialty groups (particularly oncology), State 
organizations, and providers that could be impacted by the proposed 
rule. Another commenter commended us for acknowledging the need to 
gather information and obtain industry input through informal processes 
and encouraged us to continue to solicit input from the public through 
formal and informal means, while an additional commenter implored us to 
give serious consideration to the comments on the proposed rule from 
affected specialty societies.
    Response: The discussion in the March 4, 2005 proposed rule 
provided examples of activities and resources we used to establish the 
framework for the proposed rule. The reference to 15 responses was 
specific to the RFI that we issued on December 13, 2004, which was 
vendor interest specific. As mentioned in the March 4, 2005 proposed 
rule, our contractor, RTI, also consulted with groups and 
organizations, including medical specialty organizations and a national 
oncology practice to obtain input concerning establishment of a CAP 
program. As with any rulemaking process, we have given serious 
consideration to the comments from both specialty groups as well as 
individuals on the proposed rule.

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    Comment: Some commenters were supportive of the proposal for the 
CAP, with several commenters stating that the current buy and bill 
reimbursement system has created undue barriers. These commenters 
believe the CAP would at least provide an alternative to buy and bill 
arrangements for consumers and providers, by simplifying the 
reimbursement process.
    Response: As discussed in the March 4, 2005 proposed rule, and also 
later in this preamble, participation in the CAP is voluntary on the 
part of the physician. As pointed out by commenters, implementation of 
the CAP provides an alternative to the current buy and bill system. To 
the extent that a physician or physicians' group believes that the CAP 
is not a viable alternative to the current buy and bill system, that 
physician or physicians' group can continue to use the current system 
and not elect to participate in the CAP.
    Comment: Many commenters believe that we should beta test the CAP 
or have a limited trial period or phase-in of some sort, to confirm the 
quality of the CAP before full implementation. These commenters 
expressed concern that introducing the CAP system, particularly given 
the short timeframe, without any formal testing or analysis is risky to 
patient care because it is a dramatic potential change to the current 
system. Some commenters referenced the Government Accountability 
Office's (GAO) final report assessing the durable medical equipment, 
prosthetic, orthotics, and supplies (DMEPOS) competitive bidding 
demonstrations that suggests that further demonstrations be conducted 
for the DMEPOS before implementation. These commenters believe the GAO 
report supports taking a slower approach for implementing the CAP for 
Part B drugs. The commenters suggested that a slower approach would 
allow us to refine our application and vendor selection process. Other 
commenters, while cognizant of the January 2006 effective date, 
suggested we delay the effective date of the CAP to allow us to fully 
structure the CAP to meet congressional objectives and benefit 
physicians without compromising beneficiary access to drug therapies 
and treatment. In addition, commenters argued that the introduction of 
Part D beginning in 2006 may cause significant stress to providers and 
beneficiaries, and introducing the CAP at the same time could create 
confusion.
    Response: Although we understand the concerns of the commenters, we 
believe the regulatory framework established through this rulemaking 
provides a firm basis for implementing the CAP program in January 2006. 
We recognize that the timeframe for implementation is ambitious but we 
believe that it is important to provide the physicians' community with 
an alternative to the current buy and bill system as soon as possible. 
In addition, the statute also requires that we coordinate the 
physician's election to participate in the CAP with the Medicare 
Participating Physician Process described in section 1842(h) of the 
Act. The use of a designated carrier for processing vendor claims is 
one of the approaches we will be using to ensure a smooth 
implementation. Other aspects of the CAP discussed later in the 
preamble also provide information on how we are addressing the 
implementation of CAP within this restricted timeframe. Additionally, 
the Congress did not intend this to be a demonstration, but instead 
established the CAP as an operational program.
    We recognize that the Medicare community will be faced with many 
new challenges and options in 2006. We will be working to ensure that 
providers and beneficiaries are aware of these new choices and programs 
and that the transition is as smooth as possible.
    Comment: One commenter requested that we continue to issue guidance 
to further clarify and refine the CAP requirements. The commenter also 
encouraged us to continue our efforts to educate and seek input through 
venues such as the ``Open Door'' sessions.
    Response: We agree that it is important to continue our educational 
efforts and obtain feedback from the provider community and plan to 
convene special ``Open Door'' sessions as part of the implementation of 
the CAP. Additional discussion of this important aspect of the CAP is 
provided later in the preamble.
    Comment: A few commenters expressed concern that we were limiting 
the CAP to oncology drugs.
    Response: As discussed in the proposed rule, we were considering 
several alternative approaches to phasing in the CAP with respect to 
drug categories, one of which was initially including only all oncology 
drugs. The specific drug categories for the CAP that will be effective 
January 1, 2006 are discussed in detail later in this section of the 
preamble.
    Comment: A number of commenters raised concerns about maintaining 
the safety of the drug delivery system or ``medication pipeline,'' 
particularly in light of the frequent changes in the disease status of 
certain patient populations (for example, cancer patients).
    Response: We understand the commenters concerns, and, as discussed 
in more detail later in the preamble, we have established financial and 
quality standards to ensure that reputable and experienced vendors are 
chosen to participate in the CAP. We have also indicated that under the 
dispute resolution requirements, issues connected with drug quality 
will be given top priority.
    Comment: One commenter stated that private insurers have tried 
models similar to the CAP and all of them have resulted in minimal 
savings but increased administrative overhead and patient 
inconvenience.
    Response: We are mindful of the points that the commenter raised 
concerning private insurers attempts at similar models and have sought 
to address these points in establishing the CAP as reflected in the 
requirements we are establishing concerning the operational aspects of 
CAP (section II.B of this interim final rule) as well as those 
discussed in the CAP contracting process (section II.C of this interim 
final rule).
Other Comments
    We also received many comments concerning: Payment for drug 
administration services, infusion services, and evaluation and 
management services for cancer patients; the chemotherapy demonstration 
project; price controls for drugs; and the new Medicare Part D 
Prescription Drug Program. These issues were outside the scope of this 
rulemaking, and, therefore, we will not be responding to these comments 
as part of this interim final rule.
    Comment: Several commenters contended that our proposed rule did 
not satisfy all the requirements of the Administrative Procedure Act 
(APA). In particular, these commenters pointed out that the proposed 
rule did not include a specific proposal about the drug categories that 
would be adopted in the initial implementation of the CAP, or a 
specific proposal about the competitive acquisition areas that would be 
established. The commenters contended that the proposed rule therefore 
did not provide sufficient factual detail and rationale to permit 
interested parties to comment meaningfully. These commenters contend 
that CMS must either publish a second proposed rule providing specific 
proposals on these issues, or at least present our decisions about 
these matters in the context of an interim final regulation with 
opportunity for public comment. Other commenters recommended that we 
implement the

[[Page 39026]]

CAP through the issuance of an interim final rule. This would provide 
an extended opportunity for public comment and facilitate the approval 
of required program modifications.
    Response: We do not believe that our proposed rule failed to 
satisfy the requirements of the APA. In our March 4, 2005 proposed 
rule, we presented specific options concerning the drug categories and 
competitive acquisition areas that we were considering for adoption in 
the final rule. We also discussed the advantages and disadvantages of 
each option to provide a basis for informed comment, and we received 
several comments on these options. These comments addressed in detail 
the options that we discussed, and addressed the specific 
considerations that we had discussed. The commenters offered specific 
recommendations and proposals based on the options that we had 
presented. The comments themselves thus are convincing evidence that 
our proposed rule provided adequate basis for meaningful comment from 
interested parties. Although we do not believe that we are required 
under the provisions of the APA to publish another proposed rule with 
more specific proposals, as requested by some commenters, we are 
exercising our discretion and publishing this rule as an interim final 
rule to allow our provisions to take effect and to provide the public 
with the opportunity to comment on our final provisions. We believe 
that additional public comment on this new and complex program would be 
valuable. We especially welcome comments on issues related to phasing 
in the program. For example, we describe below how we have decided to 
exercise our statutory authority to determine and phase in categories 
of drugs under the CAP. We specifically invite comments on the further 
development of appropriate drug categories after this initial stage of 
implementing the program. We also welcome comments on other issues 
regarding the CAP program.

Regulations

    In the March 4, 2005 rule, we proposed to codify the requirements 
and provisions for the CAP in regulations at 42 CFR Part 414, Subpart 
K. We proposed to revise the heading for subpart K to read ``Payment 
for Drugs and Biologicals under Part B''; amend existing sections and 
section headings; and add new definitions and sections to set forth the 
proposed requirements with respect to the CAP. Specifically, we 
proposed to make the following changes:
     Revise existing Sec.  414.900, which sets forth the basis 
and scope for subpart K;
     Revise Sec.  414.900(b)(ii) to clarify that the hepatitis 
vaccine referred to in this paragraph is the hepatitis ``B'' vaccine;
     Add new Sec.  414.906 through Sec.  414.920 to address 
requirements with respect to payment under the CAP; and
     Revise Sec.  414.902 to add definitions pertaining to the 
new CAP addressed in new Sec.  414.906 through Sec.  414.920.
    We did not receive comments on the proposed organization of subpart 
K or the proposed changes to Sec.  414.900, which sets forth the basis 
and scope for subpart K or Sec.  414.900(b)(ii). Therefore, we finalize 
them as proposed. Specific comments pertaining to the proposed 
definitions for the CAP as well as proposed sections Sec.  414.906 
through Sec.  414.920 are addressed later in this preamble.
2. Categories of Drugs To Be Included Under the CAP
    Section 1847B of the Act describes a program that will permit 
physicians to elect to obtain drugs from vendors rather than purchasing 
and billing for those drugs themselves. The statute, therefore, most 
closely describes a system for the provision of and the payment for 
drugs provided incident to a physician's service. For example, under 
the mechanisms described in the statute:
     Only physicians are expressly given an opportunity to 
elect to participate in the CAP.
     The second sentence of section 1847B(a)(1)(A) of the Act 
explicitly indicates that such section shall not apply in the case of a 
physician who elects section 1847A of the Act to apply.
     Physicians who elect to obtain drugs under the CAP make an 
annual selection of the contractor through which drugs will be acquired 
and delivered to the physician under Part B.
     Section 1847B(a)(3)(A) of the Act specifically applies the 
CAP to drugs and biologicals that are prescribed by a physician who has 
elected the CAP to apply.
     Payment for drugs furnished under the CAP is conditioned 
upon drug administration.
     The requirement for submission of information that will be 
used by in the contract for collection of cost sharing applies to 
physicians.
     The primary site for delivery of drugs furnished under the 
CAP is the physician's office.
     The statute requires the Secretary to make available to 
physicians on an ongoing basis a list of CAP contractors.
     The statute explicitly defines a ``selecting physician'' 
to be one who has elected the CAP program to apply.
    Section 1847B(a)(1)(B) of the Act specifically requires the 
Secretary to establish categories of drugs that will be included in the 
CAP, and requires the Secretary to phase-in the program with respect to 
these categories, as the Secretary determines to be appropriate. 
Section 1847B(a)(1)(D) of the Act further authorizes the Secretary to 
exclude competitively biddable drugs and biologicals from the 
competitive bidding system if the application of competitive bidding to 
those drugs and biologicals--
    (1) Is not likely to result in significant savings; or
    (2) Is likely to have an adverse impact on access to those drugs 
and biologicals.
    Finally, the statute defines the term ``competitively biddable 
drugs and biologicals'' for purposes of the CAP as ``a drug or 
biological described in section 1842(o)(1)(C) of the Act and furnished 
on or after January 1, 2006.'' As discussed in the March 4, 2005 
proposed rule, the drugs described in section 1842(o)(1)(C) of the Act 
include most drugs paid under Medicare Part B and not otherwise paid 
under cost-based or prospective payment basis. Medicare Part B covered 
vaccines, drugs infused through a covered item of DME, and blood and 
blood products (not including clotting factor and intravenous immune 
globulin (IVIG)) are not included under this definition because they 
are expressly excluded from section 1842(o)(1)(C) of the Act. The 
statutory definition of ``competitively biddable drugs'' therefore 
includes drugs administered incident to a physician's service (for 
example, drugs commonly furnished by oncologists), drugs administered 
through DME (for example, inhalation drugs) with the exception of DME 
infusion drugs, and some drugs usually dispensed by pharmacies (for 
example, oral immunosuppressive drugs). Although the statutory 
definition includes all these categories of drugs, as noted above, the 
specific mechanisms described under section 1847B of the Act relate to 
the provision of and the payment for drugs provided incident to a 
physician's service. Given our concerns about the clear direction of 
the statute that the election to participate in this program rests with 
physicians, in the proposed rule we indicated that we do not believe it 
is possible to include drugs other than those administered as incident 
to a physician's service as part of this program. However, we also 
recognized that the statute provides a potentially broader definition 
of ``competitively biddable drugs and

[[Page 39027]]

biologicals'' in section 1847B(a)(2)(A) of the Act. We, therefore, 
requested comments on whether, in the light of these mechanisms, the 
CAP is properly restricted under the statute to drugs administered 
incident to a physician's service.
    We also solicited comments on how an expansion of the drugs covered 
under this program might work, given that the option to participate 
clearly rests with the physician.
    Comment: Many commenters supported our proposal to restrict the 
CAP, at least initially, to drugs administered incident to a 
physician's service. Some of these commenters endorsed the more 
restrictive reading of the statute, under which the CAP is properly 
restricted to drugs administered incident to a physician's service. A 
congressional commenter advised that the intent of the Congress was to 
include all physician injectable drugs within the CAP. Other commenters 
expressed the view that the statute would allow the program to include 
drugs administered incident to a physician's service (for example, 
drugs commonly furnished by oncologists), drugs administered through 
DME (for example, inhalation drugs) with the exception of DME infusion 
drugs, and some drugs usually dispensed by pharmacies (for example, 
oral immunosuppressive drugs). However, some of these commenters also 
supported restricting the program, at least initially, to drugs 
administered incident to a physician's service as an appropriate 
exercise of the Secretary's authority to phase-in the drug categories 
established under the CAP. A few commenters supported including some 
categories of drugs administered through DME or drugs usually dispensed 
by pharmacies in the CAP, either initially or at an early stage of 
implementing the program. These commenters generally cited the 
statutory definition of ``competitively biddable drugs,'' which in and 
of itself is broad enough to include drugs administered incident to a 
physician's service, drugs administered through DME (with the exception 
of DME infusion drugs), and some drugs usually dispensed by pharmacies. 
Some of these commenters acknowledged that the general statutory 
structure of the program, which defines acquisition mechanisms 
applicable only to physicians, raises practical and/or legal issues 
about including drugs administered through DME and drugs usually 
dispensed by pharmacies within the program.
    Response: We continue to believe that, given the clear direction of 
the statute that the election to participate in this program rests with 
physicians, it is not advisable to include drugs other than those 
administered as incident to a physician's service as part of this 
program. As we discuss further below, we, therefore, will implement the 
CAP initially for a broad range of drugs administered incident to a 
physician's service. However, we will continue to consider whether the 
statute allows extension of the program to Part B drugs that are 
administered through DME or dispensed by pharmacies. We will continue 
to analyze whether drugs other than those administered as incident to a 
physician's service can be included in the CAP within the parameters of 
the statute. At the same time, we have no present plans to expand the 
program beyond the class of drugs administered incident to a 
physician's service. If we were to determine that it was warranted to 
expand the program beyond the category of drugs furnished incident to a 
physician's service, we would first publish a proposed rule and allow 
for public comment before proceeding, as necessary.
    The March 4, 2005 proposed rule included discussions on the merits 
of several options for defining the drug categories to be included 
within the CAP, as well as for phasing in the program with respect to 
drug categories. These are summarized below:
Drugs Furnished Incident to a Physician's Service
    Under this option, all drugs furnished incident to a physician's 
service would be included in the CAP. The majority (more than 80 
percent) of Medicare Part B drug expenditures are for drugs furnished 
incident to a physician's service, such as chemotherapy drugs. 
Therefore, it is important to include all drugs furnished incident to a 
physician's service to provide an alternative to physicians who did not 
want to purchase drugs directly. It may also provide more opportunity 
for realizing savings to the program than some other options.
Phasing in CAP Drugs by Physician Specialty
    Another option would be to phase-in the program by implementing the 
CAP initially for a limited set of drugs that are typically 
administered by a single physician specialty, such as a set of drugs 
commonly furnished by oncologists. Drugs commonly furnished by 
additional specialties could be included over the next few years of the 
program. Drugs typically furnished by oncologists constitute a large 
portion of the Part B drug market. Drugs typically administered by 
other physician specialties represent smaller portions of physician-
administered drugs. A basic decision with respect to a phase-in for 
drugs administered in physician offices would be whether to begin 
implementation of the program only with drugs typically administered by 
oncologists, or with some set of drugs that other specialties (for 
example, urology) tend to administer.
    A few of the alternative approaches that could be used to phase-in 
the CAP with respect to drug categories discussed in the proposed rule 
were:
     Initially include all drugs typically administered by 
oncologists within the program.
     Begin with some set of the drugs that are typically 
administered in physician offices by other specialties (for example, 
drugs typically administered by urologists).
     Implement the CAP for all Part B drugs that are furnished 
incident to a physician's service.
    We stated that we were actively considering all these options, and 
encouraged comments on all the options that we have discussed. We also 
welcomed recommendations of other options for consideration that could 
be adopted. We especially encouraged comments from physicians 
concerning their preferences about how a phase-in should be designed 
and more generally how the categories of drugs under the CAP should be 
structured.
    Comment: Many commenters (especially from the oncology community) 
recommended beginning the phase-in with drugs that are typically used 
by some specialty that is less drug-intensive than oncology. However, 
many other commenters recommended beginning a phase-in with oncology 
drugs, on the grounds that doing so would provide much of the potential 
benefit of the CAP immediately. Other commenters, including some 
members of the oncology community, recommended inclusion of all 
physicians' drugs within the program immediately, in order to provide 
an alternative method of obtaining drugs for all physicians. A 
congressional commenter recommended that the program start with a 
sufficiently large category of drugs to provide a sufficiently sized 
market for vendors and that the program ramp up quickly to include all 
physician-administered Part B drugs.
    Response: We have been convinced by the commenters that it is 
feasible and appropriate to implement the CAP initially for the broad 
range of drugs administered incident to a physician's service. As we 
discuss in more detail

[[Page 39028]]

below, in response to these comments, we have identified a set of 169 
drugs that are most commonly administered incident to a physician's 
service for inclusion in the initial stage of the CAP. We have not 
included drugs with very low volumes of billing by physicians because 
we believe including such drugs at this time would impose a greater 
burden on vendors, and undercut the goal of providing a sufficiently 
sized market. As described in further detail below, in response to 
concerns raised by commenters we have also not included certain drugs 
whose patterns of use do not make them suitable for inclusion under the 
CAP. For example, certain vaccines, such as tetanus and diphtheria 
vaccines, are most commonly used in emergency situations. These drugs 
are therefore poorly suited for the normal ordering and billing 
procedures contemplated by the CAP statute. Physicians often will not 
be in the position to submit to their approved CAP vendor in advance a 
patient-specific order for these drugs. Although section 1847B(b)(5) of 
the Act outlines special rules to allow approved CAP vendors to 
resupply drugs used in emergency situations, we do not believe that it 
is advisable to include within the CAP drugs for which this special 
mechanism will be routinely employed, at least during this initial 
stage of implementing the program. (It is important to note that the 
statute specifically excludes pneumococcal vaccine, influenza vaccine, 
and hepatitis B vaccine from the CAP.) As we discuss in response to the 
specific comments below, we have also not included, at least initially, 
certain types of drugs that pose special issues. For example, we have 
not included drugs that pose special implementation issues such as some 
controlled substances and orphan drugs.
    Comment: One commenter asked about the status of opioid medications 
administered intrathecally through implanted variable-rate infusion 
devices (for example, Prialt[reg]). The commenter notes that 
historically, when these pain medications have been furnished by 
physicians in their offices, they have been covered and billed through 
the local carriers as drugs administered incident to physicians' 
services, rather than as drugs infused through covered durable medical 
equipment billed through the DMERCs. In the light of this, the 
commenter requested that we confirm specifically that those medications 
will be eligible for the CAP, at least once the program is fully phased 
in.
    Response: We agree in principle that opioid medications 
administered intrathecally through implanted variable-rate infusion 
devices could be included under the CAP, when they are administered by 
physicians in their offices incident to their services. In the specific 
case of Prialt[supreg], we have not been able to include the drug in 
this initial phase of the CAP because it is very new and has not yet 
been assigned a code. (We discuss treatment of new drugs in greater 
detail below.) However, our analysis has suggested that some pain 
medications may be inappropriate for inclusion in the CAP, at least in 
the initial stage. Specifically, we are concerned that the special 
recordkeeping and other requirements that apply to Schedule II, III, 
and IV controlled substances would make inclusion of these drugs in the 
CAP problematic. Under the CAP, the approved CAP vendor retains title 
to the drug, even after it is shipped to the physician, which may make 
it more difficult to ensure compliance with the special rules for 
controlled substances. We, therefore, are not including Schedule II, 
III, and IV controlled substances in the initial stage of implementing 
the CAP. We welcome comments on the implications of these special 
requirements for including these drugs in the CAP during later stages 
of implementation.
    Comment: Several commenters recommended that we exclude orphan 
drugs from the CAP. (``Orphan drug'' is defined by FDA, under 21 CFR 
316.3(b)(10), as a ``drug intended for use in a rare disease or 
condition as defined in section 526 of the Federal Food, Drug, and 
Cosmetic Act.'') These commenters pointed out that orphan drugs often 
pose access challenges. Specifically, one commenter noted that vendors 
may not be able to provide orphan drugs adequately in a timely manner. 
The same commenter noted that CMS has provided a special exception for 
payment of orphan drugs in the outpatient prospective payment system.
    Response: We agree with the commenters that access problems provide 
a sound reason for not including some orphan drugs from the CAP, at 
least in the initial stages of the program. However, we do not believe 
that it is necessary to decline to include all orphan drugs from the 
program, even in this initial stage of implementation. This is because 
many orphan drugs are not approved exclusively for the treatment of 
orphan indications, but they are also approved for other non-orphan 
indications that affect broader groups of the public. In contrast, 
other orphan drugs are approved exclusively for the treatment of orphan 
indications. The latter group of orphan drugs poses much more severe 
access issues than other orphan drugs precisely because their use is 
generally limited to relatively rare orphan indications. As one 
commenter noted, we provide special payment consideration under the 
outpatient prospective payment system (OPPS) to this latter set of 
orphan drugs. Specifically, we designate drugs that meet the following 
criteria as single indication orphan drugs under the OPPS:
     The drug is designated as an orphan drug by the FDA and 
approved by the FDA only for treatment of only one or more orphan 
conditions(s); and
     The current United States Pharmacopoeia Drug Information 
(USPDI) shows that the drug has neither an approved use nor an off-
label use for other than the orphan condition(s).

In this interim final rule, we, therefore, are not including those 
orphan drugs that meet the above criteria within the CAP, at least 
during the initial stage of implementing the program. Under these 
criteria, the following drugs are not included, at least for the 
initial stage of CAP:

J0205 (Injection, Alglucerase, per 10 units);
J0256 (Injection, Alpha 1-proteinase inhibitor, 10 mg);
J9300 (Gemtuzumab ozogamicin, 5mg);
J1785 (Injection, Imiglucerase, per unit);
J2355 (Injection, Oprelvekin, 5 mg)
J3240 (Injection, Thyrotropin alpha, 0.9 mg);
J7513 (Daclizumab, parenteral, 25 mg);
J9010 (Alemtuzumab, 10 mg);
J9015 (Aldesleukin, per single use vial);
J9017 (Arsenic trioxide, 1 mg);
J9160 (Denileukin diftitox, 300 mcg); and
J9216 (Interferon, gamma 1-b, 3 million units).

We welcome comments on whether these drugs should be included in the 
CAP during later stages of implementation.
    Comment: Several commenters also recommended that we not include 
contrast agents within the CAP. Some of these commenters recommended 
permanent exclusion of contrast agents from the program. Others 
recommended that we phase-in these agents during later stages of 
implementing the CAP. Contrast drugs are used only in diagnostic 
imaging tests. The commenters cited various reasons for excluding 
contrast agents. These included the difficulty of determining 
appropriate categories for these products, fast pace of change in this

[[Page 39029]]

field, and the rapid changes in coding and payment for these products. 
These changes may not yet be well understood among physicians, and this 
may hamper their ability to select the vendor that provides the most 
appropriate contrast agents for their patients.
    Response: We agree with the commenters that the rapid pace of 
change in this field, in conjunction with major changes in coding and 
payment in recent years, may pose special possibilities for confusion 
during the initial stage of the CAP. We, therefore, are not including 
contrast agents under the CAP during this initial stage of implementing 
the program. We, however, will consider including them as we refine and 
develop the drug categories under the program in future stages of 
implementation.
    Comment: Several commenters requested that CMS clarify whether 
carriers' least costly alternative (LCA) policies would apply under the 
CAP. Most of these commenters maintained that those policies should not 
be applied under the CAP. For example, one commenter argued that 
substituting one manufacturer's price for another is inconsistent with 
a system of establishing prices for HCPCS codes on the basis of 
submitted bids. Others pointed out that it would be administratively 
difficult to apply LCA policies within the CAP claims processing 
system.
    Response: As we note in section II.B of this interim final rule, 
least costly alternative policies are established by our contractors. 
Nothing in this interim final rule is intended to disrupt the 
longstanding ability of contractors to apply this policy under section 
1862(a)(1)(A) of the Act. Section 1862(a)(1)(A) provides that 
notwithstanding any other provision in the Medicare statute (that is, 
including section 1847B), no payment may be made under Part A or Part B 
for any expenses incurred for items and services that are not 
reasonable and necessary. Medicare carriers establish local coverage 
determinations (LCDs), under which coverage for a particular drug is 
limited to the coverage level for its least costly alternative. As 
stated in the March 2005 proposed rule, physicians who submit claims 
under the CAP must comply with applicable LCDs.
    However, we acknowledge that the existence of LCA policies, and the 
fact that they will apply under the CAP just as they apply outside the 
CAP, have obvious implications for the provision of certain drugs under 
the CAP. If a carrier applies an LCA policy to a particular drug, the 
approved CAP vendor's claim for that drug, when ordered by a 
participating CAP physician in that carrier's jurisdiction, would be 
subject to LCA. We are aware of one instance in which every carrier has 
applied the ``least costly alternative'' policy to a drug that would 
otherwise meet the criteria outlined in this section for inclusion in 
the CAP. Every carrier has applied an LCA policy to injectable forms of 
leuprolide (not, however, to leuprolide implant). Under these polices, 
claims for leuprolide are paid at the level of its least costly 
alternative (goserelin). We are implementing the CAP initially through 
a single, broad drug category and a single, national competitive 
acquisition area; therefore, because leuprolide is subject to LCA 
policies in all carrier jurisdictions, its inclusion in the current CAP 
drug category would have the effect of requiring vendors to supply the 
drug at the cost of goserelin in each instance in which a participating 
CAP physician orders it, regardless of the price established for 
leuprolide under the bidding and single price determination processes 
that we describe below, and regardless of the geographic location (and 
local carrier jurisdiction) of the participating CAP physician. For 
this reason, we have decided to exercise our authority under 
1847B(a)(1)(B) not to include leuprolide in this initial stage of 
implementing the CAP. This decision is based on our authority under the 
CAP statute, and does not affect the applicability of LCA policies to 
leuprolide. We welcome comments on how to deal with this issue in later 
stages of implementing the program.
    Comment: We received a number of comments recommending that we 
exclude blood clotting factors and intravenous immune globulin (IVIG) 
from the CAP. A number of these commenters recommended that we employ 
the authority under section 1847B(a)(1)(D) of the Act to exclude these 
products on the grounds that their inclusion within the program would 
not result in significant savings or would have an adverse impact on 
access. Many of these commenters also argued that IVIG is implicitly 
excluded from the CAP by section 1842(o)(1)(E)(ii) of the Act (section 
303(b)(1)(E)(ii) of the MMA), which provides that the payment for IVIG 
``in 2005 and subsequent years'' is the amount determined under the ASP 
system. Some commenters also pointed to the Conference Report on the 
MMA, which states that ``[c]ompetitively biddable drugs and biologicals 
exclude IVIG products and blood products.'' Other commenters contended 
that IVIG is inappropriate for inclusion under the CAP because it is 
frequently not administered incident to a physician's services. A 
number of commenters also pointed out that hemophilia patients commonly 
receive treatment with blood clotting factor at special treatment 
centers, or self-administer blood clotting factor at home. As in the 
case of IVIG, these commenters contended that blood clotting factor is 
therefore inappropriate for inclusion in a program intended and 
designed primarily for drugs administered incident to a physician's 
services.
    Response: In this interim final rule, we continue to rely solely on 
the Secretary's statutory authority under section 1847B(a)(1)(B) of the 
Act to establish categories of drugs that will be included in the CAP, 
and to phase-in the program with respect to these categories. Using 
this authority, we have not included blood clotting factors or IVIG 
within the CAP. If we were to consider including blood clotting factors 
or IVIG, we would first publish a proposed rule and seek public 
comment.
    We are also exercising our statutory authority to establish and 
phase-in drug categories in deciding not to include other immune 
globulins from the CAP in this initial stage of implementing the 
program. As in the case of tetanus and diphtheria vaccines, these 
products are commonly used in emergency situations, and are therefore 
poorly suited for the normal ordering and billing procedures 
contemplated by the CAP statute. We do not believe that it is advisable 
to include within the CAP drugs for which the special emergency 
mechanism will be routinely employed, at least during this initial 
stage of implementing the program. In addition, immune globulins are 
considered by some to belong to the category of blood products, which 
are explicitly excluded under the definition of competitively biddable 
drugs (see section 1847B(a)(2)(A) of the Act). Although we do not 
necessarily agree that immune globulins are properly classified as 
blood products within the meaning of the statute, we will not include 
them in our initial drug category in order to provide opportunity for 
further comment on whether they should properly be excluded on a 
permanent basis.
    Comment: Numerous members of the mental health community 
(physicians, representatives of mental health clinics, and other mental 
health professionals) have requested inclusion of physicians' 
injectable psychiatric medications (for example, long-acting anti-
psychotic drugs) in the initial phase-in of the CAP.

[[Page 39030]]

These commenters contend that including these medications within the 
CAP would enhance access to treatments of proven therapeutic value to a 
very vulnerable population. Some commenters specifically requested 
inclusion of these drugs in the CAP in order to make it more feasible 
for community mental health centers (CMHCs) to acquire and provide 
these therapies for their patients. Other commenters also noted that 
coinsurance for these drugs can be approximately 50 percent (in 
contrast to the 20 percent coinsurance for other Part B drugs) under 
the mental health limit (section 1833(c) of the Act, Sec.  410.155 of 
our regulations).
    Response: We will include drugs commonly billed incident to the 
services of psychiatrists in this initial stage of implementing the 
CAP. The single drug category that we are establishing for this initial 
stage of the program does in fact include many of the drugs that 
commenters specifically recommended for inclusion in the CAP. However, 
it is important to note that, under the statutory structure of the CAP 
as we are implementing it, CMHCs themselves will not be able to elect 
to participate in the CAP for provision of Part B drugs. This is 
because, as we have noted before, the specific mechanisms described 
under section 1847B of the Act as we have implemented them relate to 
the provision of and the payment for drugs provided incident to a 
physician's service. Therefore, only physicians are eligible to elect 
participation in the CAP for provision of the drugs that they 
administer incident to their services.
    The issue of the appropriate coinsurance for mental health drugs in 
the light of the mental health limit provision is outside the scope of 
this regulation.
    Comment: Several commenters asked for clarification of how codes 
for drugs that are not otherwise classified (NOC codes, including codes 
J3490, J3590, J7199, J7599, J7699, J7799, J9999, and Q0181) would be 
treated for purposes of the CAP.
    Response: We do not believe that it would be appropriate to include 
the drugs billed under these codes within the CAP. Bidding and 
determination of payment for these codes would present insurmountable 
problems and pose unwarranted risks for potential vendors under the 
CAP. These are codes into which new drugs are assigned before receiving 
an appropriate permanent code. Some new drugs are assigned to these 
codes on a temporary basis, and each code thus represents a shifting 
collection of miscellaneous, unrelated products. It is not feasible for 
potential vendors to develop meaningful bids on these codes, given the 
fact that the codes represent such disparate products and that the 
specific drugs assigned to these codes are constantly changing.
    Comment: Some commenters recommended that we establish narrowly 
defined drug categories. These commenters argued that broader 
categories would place a greater burden on vendors, who would have to 
bid and supply all drugs within broad categories. However, other 
commenters strongly supported the establishment of drug categories that 
are broadly defined to include all the drugs typically administered by 
a given medical specialty. These commenters argued that broadly defined 
categories would simplify the program for vendors, physicians, and the 
agency. Specifically, broad categories would allow most physicians to 
be able to choose one CAP vendor to meet all their Part B drug needs. 
One commenter in particular recommended establishing a single category 
including all Part B drugs administered incident to a physician's 
services. This commenter argued that such a broad category would make 
the CAP most accessible to all physicians, and allow vendors to bid on 
a wide array of products, give them a wider market, and allow for 
greater flexibility in designing their bids.
    Response: We are persuaded that establishing relatively broad 
categories of drugs is the most appropriate and feasible approach for 
implementing the CAP, at least in the initial stage. We agree with the 
commenters that broad categories will promote greater access to the 
program for physicians, and provide vendors with flexibility in 
designing their bids. Broad categories will also, as noted by a number 
of commenters, allow most physicians to meet all (or almost all) their 
Part B drug needs.
    We are also convinced by the arguments for establishing one broad 
category, at least for this initial stage of implementing the CAP. Such 
a broad category would make the CAP most accessible to all physicians. 
It would also allow vendors to bid on a wide array of products, give 
them a wider market, and provide them with greater flexibility in 
designing their bids. We, therefore, believe that employing a single 
category for the broad range of drugs administered incident to a 
physician's service is an appropriate measure, at least for the initial 
stage of implementing the CAP. We intend this single drug category as 
an interim measure, for this initial stage of implementing the program. 
We believe that establishing a single, broad drug category in this 
initial stage of implementing the CAP is an appropriate exercise of the 
Secretary's authority under the statute to establish categories of 
competitively biddable drugs and to phase-in the program with respect 
to those categories. We expect to phase-in multiple drugs categories, 
probably defined around the drugs commonly used by physicians' 
specialties (for example, urology, rheumatology), as we refine and 
develop the CAP. We welcome comments on how to develop and refine 
multiple drug categories for later stages of implementing the program.
    As described below, we are therefore providing in this interim 
final rule for the establishment of a single category consisting of 169 
drugs commonly provided incident to physicians' services. This broad 
category incorporates drugs commonly used by a wide range of 
specialties that bill for Part B drugs. The category also incorporates 
approximately 85 percent of physicians' Part B drugs by billed charges. 
In response to commenters' concerns, we have elected not to include at 
this time certain low volume drugs, as described further below.
    The procedure that we used to select drugs for CAP bidding employed 
multiple sources of data to find Part B-covered drugs that are used in 
sufficient quantities by a variety of Part B-administering physicians. 
We believe that the broad drug category that we have developed through 
this procedure should tend to increase the interest of potential 
vendors and physicians in participating by making it more likely that 
(1) the fixed costs of being a vendor can be covered across the broad 
array of Part B physician-administered drugs that are included; (2) the 
impact of spoilage can be reduced; and (3) physicians electing can 
select one vendor to provide all, or almost all, of the Part B drugs 
that they administer. We derived our basic utilization data (restricted 
to physicians' specialties administering drugs in an office setting) 
from 2003 claims, the most recent available data. We supplemented these 
data with data on 2004 Medicare Part B drug utilization in office 
settings extracted from the Part B Extract and Summary System (BESS) to 
provide volume data on new drugs.
    In the light of these considerations, we employed the following 
specific steps to develop a single category of the drugs most commonly 
used incident to a physician's services:
    (1) We determined the claims volume for all Part B drugs in 
calendar year 2003. We did so by counting, in the claims from both the 
100 percent carrier

[[Page 39031]]

and DMERC SAFs for 2003, the number of separate claims on which each 
Part B drug HCPCS appeared as a line item. If a particular HCPCS 
appeared multiple times on a single claim (for example, if the dates of 
service for the claim spanned more than a single day), this claim would 
only count once toward the HCPCS' claim count. We also tabulated 
separate counts for a number of physicians' specialties, specifically:
     Oncology specialties (including hematology, hematology/
oncology, medical oncology, surgical oncology, urology, gynecology/
oncology, and interventional radiology).
     Ophthalmology.
     Psychiatry (psychiatry, addiction medicine, and 
neuropsychiatry).
     Rheumatology.
     We determined separate counts for each of these 
specialties in order to be able to ensure that a broad spectrum of the 
Part B drugs used by physicians was included in this initial drug 
category for the CAP. In some cases (oncology, rheumatology) we 
included a separate count for the specialty because of the significance 
of drug billing by physicians in the specialty relative to overall 
billing for Part B drugs. In other cases (psychiatry, ophthalmology), 
we included distinct counts in order to respond adequately to comments 
specifically recommending the drugs commonly billed by those 
specialties for inclusion in the program. By specifically considering 
these drugs, we are responding to comments from member of these 
specific specialties in favor of including these drugs under the CAP. 
In addition, many of these drugs are highly specialized and unlikely to 
be present in the utilization data for other specialties. (Many other 
specialties are represented in this analysis because the drugs they 
commonly administer are also furnished by specialties that are 
specifically included. For example, most drugs commonly billed by 
urologists are also commonly billed by oncologists.) Finally, we 
tabulated a count for all other specialties not specifically identified 
above.
    (2) We determined the proportion of each specialty group's claims 
on which each Part B drug appears. Once the claim counts from step (1) 
were computed, they were divided by the total number of claims 
submitted by the specialty groups for Part B drugs in an office 
setting. (Note that the sum over all drugs of these proportions will 
generally exceed 1.0 because multiple drugs can appear on the same 
claim.) Table 1 below shows these total claim counts, along with the 
number of Part B drug line items and total allowed Part B drug charges 
for each specialty group for drugs administered in an office setting.

             Table 1.--Class & Line Item Volume and Allowed Charges for the Specialty Groups in 2003
----------------------------------------------------------------------------------------------------------------
                                                                              Number of line
                    Specialty group                       Number of claims        items         Allowed charges
----------------------------------------------------------------------------------------------------------------
Oncology...............................................          7,311,248         14,628,558     $5,647,268,606
Opthalmology...........................................            169,061            178,604        154,720,837
Psychiatry.............................................             43,752             55,599          3,626,108
Rheumatology...........................................            952,381          1,211,630        404,027,916
All other specialties..................................         12,034,708         15,448,287      1,369,525,241
----------------------------------------------------------------------------------------------------------------

    (3) We then extracted utilization and allowed charge data for each 
Part B drug in 2004 from BESS. Using BESS, information on utilization 
(HCPCS units) and total allowed charges for each Part B drug HCPCS code 
administered in an office setting were extracted. (For codes in the 
range 90200 through 90799 we retained only those CPT codes for vaccines 
and immune globulins; the other codes in that range were eliminated 
because they represent drug administration. We included all HCPCS J-
codes. We also included HCPCS Q-codes corresponding to Part B drugs. We 
also excluded blood product HCPCS P-codes because of the statutory 
exemption of blood products from the CAP.) The resulting BESS output 
files were merged to create a single 2004 utilization file.
    (4) We then crosswalked 2003 and 2004 Part B drug HCPCS to 2005 
HCPCS. We did this in order to account for updates of the HCPCS codes. 
Specifically, several HCPCS codes from 2003 and 2004 were updated to 
2005 codes in the Part B drug utilization data from steps (2) and (3). 
In most cases, this merely required changing the old HCPCS code to the 
new code and converting the units of service. However, two drugs 
required special treatment. In the case of lidocaine (which was 
formerly J2000, and is now J2001), the unit of service changed from 50 
cc to 5 ml, and the NDCs included in the new code suggested a 
significant change in the mode of administration. In the case of 
octreotide acetate (which was formerly J2352 and Q4053, and is now 
J2353 and J2354), a new distinction was made between the depot and non-
depot formulations that did not appear, from utilization data and NDC 
lists, to have been made previously. For these drugs, we summed the 
allowed charges, and imputed the number of claims to be the maximum of 
the number of claims for the old HCPCS.
    (5) We merged the crosswalked drug utilization data for 2003 and 
2004 by the 2005 HCPCS. The data from step (4) for the 2003 and 
utilization data were merged by the 2005 HCPCS.
    (6) We then identified the drugs that we have determined not to 
include in the CAP drug category at this time. (We have discussed the 
reasons for not including most of these drugs above.) The types of 
drugs that are not included in the CAP drug category are:
     Clotting factors and immune globulins.
     Drugs administered through durable medical equipment.
     HCPCS used for erythropoietin administered to ESRD 
patients.
     HCPCS used for specific drugs administered in hospital 
outpatient departments and covered by section 1861(s)(2)(B) of the Act 
(codes Q2001 through Q2022).
     Orally-administered anti-cancer and anti-emetics.
     Orphan drugs that meet the criteria to be single 
indication orphan drugs for purposes of OPPS, as discussed above.
     Controlled substances on Schedules II, III, IV, and V.
     Tissues (for example, dermal, metabolically active, etc.). 
(Tissues are not considered drug products, and do not appropriately 
belong under the category of physician administered drugs that we have 
devised in response to the comments.)
     Influenza, pneumococcal, hepatitis B, tetanus, and 
diphtheria vaccines.
     Not otherwise classified (NOC) drugs (HCPCS J3490, J3590, 
J7199, J7599, J7699, J7799, J9999, and Q0181).
     Leuprolide
    (7) We identified drugs to be included in our initial CAP category 
using the utilization data described above. Specifically, in order to 
be included in

[[Page 39032]]

the category, a drug needed to satisfy at least one of the following 
conditions:
     Be identified as an oncolytic, chemotherapy adjunct, anti-
emetic, hematologic, or have a HCPCS in the J9000 series (except for 
J9999, which is excluded as a NOC code).
     Appear on more than 0.1 percent of claims for the oncology 
or all other specialty groups.
     Appear on more than 1 percent of claims for the 
ophthalmology, psychiatry, or rheumatology specialty groups.
     Have more than $250,000 in allowed charges in office 
settings in 2004 and be identified as an antibacterial, antifungal, 
antiparasitic, antidote, or cardiovascular agent.
     Have more than $1 million in allowed charges in office 
settings in 2004.
    In addition to satisfying one of the above conditions, a drug must 
also satisfy both of the following conditions:
     Not be on the list specified in step (6) above of drugs 
that are not included in the CAP drug category.
     Have more than $50,000 in allowed charges in office 
settings in 2004 (another measure designed to avoid including very low 
volume drugs in this initial category).

We employed the criteria above to ensure that our single drug category 
would include a broad spectrum of the Part B drugs billed by physicians 
generally and by various physicians' specialties in particular. Our 
intent was to provide the physician with a single source for drugs 
(that is, the approved CAP vendor) that would be able to furnish the 
majority of drugs used in a practice regardless of the practice 
specialty or the diversity of prescribing patterns in that practice. 
Furthermore, we intended to provide the physician with choice and 
flexibility within groups of drugs that might be used by different 
specialties for the treatment of various conditions. This list of drugs 
is intended to accommodate a variety of physician practice patterns and 
a variety of specialties with the understanding that many drugs, for 
example, anti-emetics, are used by more than one specialty.
    As noted above, we believe that in many cases, there is significant 
overlap in the types of Part B drugs administered by most physician 
specialties, including oncology. For this reason, we decided that 
oncolytics, chemotherapy adjuncts, anti-emetics, hematologics, and 
drugs having a HCPCS in the J9000 series (except for J9999), should be 
included in the CAP even if they did not meet the specialty claims 
percentage thresholds described in step (7) above. We believe that 
these drugs should be included in the CAP (so long as they meet the 
baseline claims volume threshold specified above and are not on the 
list specified in step (6) above). We believe it is necessary to 
include these drugs, even at lower volumes, because they may often be 
used in conjunction with one another, both by oncologists and by 
physicians in many other specialties.
    However, for other drugs, we looked at claims volume in the 
aggregate of all specialties except those identified below to determine 
a threshold that would allow for a sufficiently sized market for 
vendors, while at the same time making the CAP a meaningful alternative 
for most physician specialties. At the same time, in response to 
specific comments about specialties where there is not significant 
overlap between small but highly utilized groups of drugs, the drugs 
that physicians in those specialties use, and drugs commonly used by 
other physician specialties, we identified psychiatry, ophthalmology, 
and rheumatology as specialties whose drugs claim threshold should be 
different. In order to lessen the inventory burden for vendors, we 
wanted to minimize the number of drugs included in the CAP that are 
billed in very low volumes, so we have applied a $50,000 minimum 
threshold for all drugs that otherwise would be included in the CAP 
(see step (7) above).
    We determined separate counts for several specialties, in order to 
be able to ensure that a broad spectrum of the Part B drugs used by 
physicians was included in this initial drug category for the CAP. In 
some cases (oncology), we included a separate count for the specialty 
because of the significance of drug billing by these physician 
specialists relative to overall billing for Part B drugs. In other 
cases (psychiatry, ophthalmology, and rheumatology), we included 
distinct counts in order to respond adequately to comments specifically 
recommending the drugs commonly billed by those specialties for 
inclusion in the program, which, as noted above, are not frequently 
used by physicians in other specialties. As we have discussed above, we 
agree with the comment that we should include within this initial stage 
of the CAP drugs that provide a sufficiently large market for the 
program to be viable for vendors. For this reason, we decided not to 
include most very low volume drugs in this initial drug category. 
However, because overall volume of billing for Part B drugs varies 
widely from one physician category to another, we determined that the 
threshold for determining ``low volume'' had to vary somewhat among the 
specialties that we have separately identified in this analysis. In 
this context, we have determined that the low volume threshold should 
be relative to the size of the specialty and the overall volume of 
billing for Part B drugs by the specialty: The universe of Part B drugs 
billed by oncologists is roughly comparable to those in all other 
specialties in the aggregate and is much larger than the universe of 
Part B drugs billed by ophthalmology, psychiatry, or rheumatology. 
Specifically, the overall volume of billing for Part B drugs by 
oncologists is very high, while the overall volume of billing for Part 
B drugs by psychiatry and ophthalmology is relatively low. The same 
percentage threshold for these specialties would therefore yield very 
different numbers of claims for exclusion. We therefore determined that 
it would be appropriate to establish different percentage thresholds 
for including drugs billed by these specialties in the CAP. We 
accordingly set the percentage threshold for the oncology and all other 
specialty groups at 0.1 percent of claims submitted by the specialty. 
We set the threshold for ophthalmology, psychiatry, and rheumatology, 
at 1.0 percent of claims. A low percentage threshold (0.1 percent) for 
oncology claims (and claims for the other specialty category) is 
appropriate in relation to the overall high numerical volume of billing 
by oncologists for Part B drugs: a higher percentage threshold for this 
specialty would exclude some relatively high volume drugs from the 
category. Conversely, a similarly low percentage threshold for 
psychiatric drugs would not be appropriate because it would allow some 
very low volume drugs into the CAP. A higher percentage threshold in 
this case is necessary to exclude some very low volume drugs from the 
CAP. We decided on these specific percentage thresholds after examining 
various alternative levels (for example, 0.01 percent) and different 
combinations of levels (for example, 0.1 percent for oncology drugs, 
0.01 percent for ophthalmology and psychiatry). After examining a 
number of alternatives, we determined that these levels strike an 
appropriate balance: they are high enough to prevent truly low volume 
drugs from being included in the category, and low enough to 
incorporate within the category a truly broad spectrum of the Part B 
drugs commonly billed by physicians. When we considered cutting the 
list off at a higher threshold (for example, 1.0 percent) for oncology 
drugs (and the

[[Page 39033]]

``other specialty'' category), we realized that numerous commonly 
billed drugs would have been excluded. Similarly, when we considered a 
lower threshold (for example, 0.1 percent) for ophthalmology, 
psychiatry, and rheumatology, we realized that many drugs billed in 
small numbers would be included.
    Finally, we set several other thresholds based on claims volume 
that we believe would be appropriate for balancing the goal of 
providing approved CAP vendors with a sufficiently sized market with 
that of allowing physicians to obtain a broad array of drugs through 
the CAP. For this reason, we determined that a $250,000 threshold would 
be appropriate for drugs identified as an antibacterial, antifungal, 
antiparasitic, antidote, or cardiovascular agents. These drugs are 
often used by particular specialties like infectious disease or 
cardiology, but many of these drugs may be used by other specialties, 
and the $250,000 threshold ensures that only those drugs of this type 
that are commonly used are included in the CAP. Finally, for the same 
reasons, we believe that any drug that otherwise meets the criteria for 
inclusion in the CAP (as specified above), but does not meet one of the 
other four specific criteria outlined in step (7) above, should be 
included if the volume of claims for the drug is significant. We have 
set that threshold at $1 million. The result of performing this 
methodology is a list of 169 drugs. Table 2 gives the percentage of 
total allowed charges for Part B drugs for each of the five specialty 
groups shown in Table 1.

Table 2.--Percent of 2003 Total Allowed Charges Accounted for by the CAP
                              Bidding Drugs
------------------------------------------------------------------------

------------------------------------------------------------------------
Oncology........................................................  84.92
Ophthalmology...................................................  99.97
Psychiatry......................................................  46.14\
                                                                  *\
Rheumatology....................................................  99.29
Other specialties...............................................  80.57
All non-oncology specialties....................................  86.00
All physicians (in office)......................................  85.20
------------------------------------------------------------------------
* Note: Our data on drug billing by psychiatrists showed a high
  proportion (53 percent) of allowed charges for Rho D immune globulin,
  which is not included in our single drug category for the reasons
  discussed above. The drugs that we have included represent 97.94
  percent of allowed charges for all other drugs commonly used by
  psychiatrists.

    Using these steps, we have identified a list of 169 drugs for 
inclusion in our single drug category. We show the list of these drugs 
in Addendum A. These drugs represent a large proportion of the 440 
drugs billed incident to physicians' services in our Part B billing 
data. More importantly, they represent about 85 percent of the charges 
for all the Part B drugs billed by physicians. We also have revised the 
definition of ``CAP drug'' in the regulations at Sec.  414.902 to 
clarify that the provisions of the CAP program apply to drugs that we 
have included in the drug category.
    Comment: Several commenters noted that, in light of the 
congressional intent to provide physicians with an alternative method 
for obtaining the Part B drugs that they use, it would be especially 
appropriate to incorporate into the CAP at an early stage of 
implementation those drugs that have been identified as posing 
acquisition problems for physicians under the ASP system.
    Response: The methodology that we described above does not 
specifically account for those drugs. However, we have reviewed the 
resulting list of 169 drugs against a list that we have maintained of 
drugs that have been reported to us as posing access problems for 
physicians under the ASP system. Most of the drugs on that list appear 
in the drug category that we are establishing for this initial phase of 
implementing the CAP. These include:

J7050 Normal Saline 250 mL
J9245 Melphalan/Alkeran 50 mg
J2430 Pamidronate
J2920 Methylprednisolone
J2930 Methylprednisolone
J7317 Sodium Hyaluronate
J7320 Hylan G-F 20
J9310 Rituximab
J1750 Iron Dextran 50 mg Injection
J2405 Odansetron 1 mg Injection

    To account for the drug category that we are adopting in this 
interim final rule with comment period, we have revised the proposed 
regulations at Sec.  414.902 to specify that CAP drugs are those 
physician-administered drugs or biologicals furnished on or after 
January 1, 2006 described in section 1842(o)(1)(C) of the Act and 
supplied by an approved CAP vendor under the CAP as provided in this 
subpart.
Vendor Implications
    We pointed out that the categories established for physicians to 
select would be the same categories that would be open for bids by 
potential vendors. Vendors would not be able to submit bids on only 
some of the HCPCS codes in the category, and physicians would not be 
able to elect to acquire only some of the HCPCS codes in that category 
from the approved CAP vendor. Note that in Sec.  414.902 the proposed 
definition for ``approved vendor'' at Sec.  414.902 has been revised to 
``approved CAP vendor'' and clarified to specifically reference 1847B 
of the Act.
    In addition, it is important to keep in mind that HCPCS codes can 
often describe products represented by multiple National Drug Codes 
(NDC). For example, the drug cyclophosphamide is manufactured by a 
number of different pharmaceutical companies and has multiple NDC 
codes.
    In proposed Sec.  414.908(d), we indicated that vendors will not be 
required to provide every National Drug Code associated with a HCPCS 
code. Section 1847B(b)(1) of the Act states that ``in the case of a 
multiple source drug, the Secretary shall conduct such competition 
among entities for the acquisition of at least one competitively 
biddable drug and biological within each billing and payment code 
within each category for each competitive acquisition area.'' However, 
we also proposed that vendors be required to provide potential 
physician participants in the competitive acquisition program the 
specific NDCs within each HCPCS code that they will be able to provide 
to the physician. Potential vendors would also need to provide this 
same information to us as part of the bidding application. This 
information would be provided to physicians who request it no later 
than the beginning of the election period during which the physician 
chooses whether to participate in the CAP and, if so, selects a vendor.
    Comment: Many commenters supported our proposal to require vendors 
to submit bids on at least one drug for each HCPCS code within a 
category. Many of these commenters urged us to resist any 
recommendation that vendors be permitted to establish drug formularies 
by offering drugs from only some of the codes included in a category. 
Many other commenters expressed opposition to any attempt by the agency 
to establish a formulary as an element of implementing the CAP. A few 
commenters representing potential vendors did make such a 
recommendation. Other commenters recommended that we establish a more 
stringent standard, such as: requiring that vendors offer at least one 
drug for each distinctive treatment or therapy represented within a 
HCPCS code; requiring that vendors be required to offer at least one 
formulation (that is, at least one NDC) for each single-source drug 
that falls within the same HCPCS code; or requiring that vendors be 
required to provide all available FDA-approved drugs within a HCPCS 
code. Finally, some commenters recommended that information about which 
specific NDC codes vendors will

[[Page 39034]]

be offering be made generally available, perhaps through the CMS Web 
site, and not merely made available to physicians upon request.
    Response: In this interim final rule, we are finalizing our 
proposal to require vendors to submit bids on at least one drug for 
each HCPCS code within a category. At the same time, we do not believe 
that it is advisable or feasible to require vendors to provide all 
available FDA-approved drugs within a HCPCS code. We are concerned that 
such a requirement may exclude vendors who are unable to provide even 
one drug in a category, unduly limiting the number of vendors that 
would participate in the program. We also do not believe that it is 
advisable to establish a standard requiring that vendors offer at least 
one drug for each distinctive treatment or therapy represented within a 
HCPCS code. Such a provision would be difficult to distinguish from 
establishing the type of formulary that many commenters opposed. 
Consistent with the requirement of 1847B(b)(1) of the Act, we have 
therefore decided to finalize our proposal to require vendors to submit 
bids on at least one drug for each HCPCS code within a category. We 
believe that the program will provide a strong incentive for vendors to 
include a broad selection of drugs within individual codes. It will be 
difficult for vendors to attract business from physicians under the 
program if the choice among drugs within specific codes is unduly 
restrictive. We expect that this incentive will be sufficient to prompt 
vendors to offer a wide range of drugs, including multiple NDCs within 
a single drug code, and thus protect physicians' ability to choose the 
most medically appropriate therapies for their patients. In addition, 
our decision to include our proposed ``furnish as written'' provision 
in this interim final rule should provide protection for physicians in 
those cases when an approved CAP vendor does not offer the specific 
drug or formulation that is medically necessary for a patient. (See 
section II.B of this interim final rule.) In addition, in this interim 
final rule, we are finalizing our proposed policy that vendors will be 
required to provide to potential physician participants in the CAP the 
specific NDCs within each HCPCS code that they will be able to provide 
to the physician. We are not accepting the recommendation that vendors 
be permitted to establish drug formularies by offering drugs from only 
some of the codes included in a category. The statute expressly 
requires that for multiple source drugs, a competition be conducted for 
the acquisition of at least one drug per billing code within the 
category. Thus, the statute does not contemplate a formulary. Finally, 
we agree with the suggestion that the specific NDC codes vendors will 
be offering be made generally through our Web site. By October 1, 2005, 
we will make available, on the CAP web page, a directory of the 
approved CAP vendors and the specific NDC numbers these vendors will be 
providing.
    We also note that we have revised the definition of approved vendor 
at Sec.  414.902 to read ``approved CAP vendor'' and we have 
specifically referenced 1847B of the Act.
    Comment: A number of commenters asked us to clarify that, if the 
CAP is phased in by physicians' specialty, physicians of any specialty 
will still be able to obtain drugs initially included in the program 
from a CAP vendor.
    Response: We stated in the proposed rule (70 FR 10750) that ``if we 
choose to phase-in the CAP by restricting the program initially to 
drugs typically administered by members of one specialty, all 
physicians who administer the drugs selected would still be eligible to 
elect to obtain these drugs through the CAP and to select a vendor of 
these drugs. For example, if we choose to phase-in the program 
initially with drugs typically administered by oncologists, 
participation in the CAP would not be restricted to oncologists: non-
oncologists who prescribe these drugs would still be eligible to elect 
the CAP and to select a vendor from which to obtain these drugs.'' In 
this interim final rule, we are establishing one broad category of 
drugs commonly furnished incident to a physician's services for the 
initial stage of implementing the program. Physicians of any specialty 
are eligible to elect the CAP and to select a vendor from which to 
obtain these drugs. As we refine and expand the program, and expand our 
single category into multiple drug categories, we will maintain the 
policy that any physician, regardless of specialty, who administers the 
drugs in a specific category, may elect to obtain those drugs through 
the CAP in accordance with the statute and implementing regulations.
    Finally, in the proposed rule, we emphasized that, in framing these 
options, we relied solely on the Secretary's statutory authority under 
section 1847B(a)(1)(B) of the Act to establish categories of drugs that 
will be included in the CAP, and to phase-in the program with respect 
to these categories. Although we did not propose to rely at this time 
on the Secretary's authority under section 1847B(a)(1)(D) of the Act to 
exclude competitively biddable drugs and biologicals from the CAP on 
the grounds that including those drugs and biologicals would not result 
in significant savings or would have an adverse impact on access to 
those drugs and biologicals, we proposed to set forth the circumstances 
for which we may exclude competitively biddable drugs and biologicals 
(including categories of drugs) from the CAP at Sec.  414.906(b) of our 
regulations. In this interim final rule, we continue to rely solely on 
the Secretary's statutory authority under section 1847B(a)(1)(B) of the 
Act to establish categories of drugs that will be included in the CAP, 
and to phase-in the program with respect to these categories.
3. Competitive Acquisition Areas
Definition of Competitive Acquisition Areas
    Section 1847B(a)(1)(A)(i) of the Act provides that, under the 
competitive acquisition program (CAP), competitive acquisition areas 
are established for contract award purposes. Section 1847B(a)(2)(C) of 
the Act further defines the term ``competitive acquisition area,'' for 
purposes of the CAP, as ``an appropriate geographic region established 
by the Secretary.'' Section 1847B(b)(1) of the Act also requires that 
the Secretary conduct a competition among entities for the acquisition 
of at least one competitively biddable drug within each billing and 
payment code within each category of competitively biddable drugs for 
each competitive acquisition area. Finally, section 1847B(b)(3) of the 
Act states that the Secretary may limit (but not below two) the number 
of qualified entities that are awarded contracts for any competitively 
biddable drug category and competitive acquisition area.
    Under this statutory scheme, competitive acquisition areas (that 
is, the geographic areas the contractor would be responsible for 
serving) have an important role in the CAP. These areas constitute the 
geographic boundaries within which entities will compete for contracts 
to provide competitively biddable drugs.
    As explained in the March 4, 2005 proposed rule, the definition of 
these areas will be a crucial factor in determining--the number of 
entities that bid for contracts; the number of entities that are 
ultimately awarded these contracts; the level of savings from the 
successful bids; and the efficiency with which the system delivers 
competitively biddable drugs to physicians.

[[Page 39035]]

    Because the statute grants the Secretary broad discretion in 
defining competitive acquisition areas under the CAP, we discussed 
several factors that must be considered in defining competitive 
acquisition areas for competitively biddable drugs and biologicals, 
including how promptly physicians need drugs provided to their 
practices if distribution capacity varies geographically, as well as 
aspects of vendors and their distribution systems, such as:
     Current geographic service areas;
     Density of distribution centers, distances drugs and 
biologicals are typically shipped, and costs associated with shipping 
and handling;
     The relationships between vendors and their suppliers 
(manufacturers, wholesalers, etc.); and
     State licensing laws that may preclude vendors from 
operating in a State are to be taken in account. These factors can 
affect the price of supplying drugs to different regions as well as the 
size of the market in which vendors are allowed or able to operate.
    Section 1847B(a)(1)(B) of the Act specifically requires the 
Secretary to phase-in the CAP with respect to the categories of drugs 
and biologicals in the program, in such a manner as the Secretary 
determines to be appropriate. We believe that this provision, 
particularly in conjunction with the statutory definition of 
``competitive acquisition area'' (``an appropriate geographic region 
established by the Secretary'') (emphasis added), provides broad 
authority for the Secretary to phase-in the CAP with respect to the 
geographical areas in which the program will be implemented.
    In the proposed rule, we identified several basic options for 
defining the competitive acquisition areas required under the CAP along 
with possible advantages and disadvantages for these options. The 
specific options discussed included: establishing a national 
competitive acquisition area; establishing regional competitive 
acquisition areas; and establishing statewide competitive acquisition 
areas.
    We requested comments on all the options that we have discussed and 
also welcomed recommendations of other options for consideration but 
stated that defining competitive acquisition areas, at least initially, 
on the basis of a level no smaller than the States is the most feasible 
approach.
    Comment: Many commenters addressed these two related issues: (1) 
Whether to implement the CAP immediately on a national scale, or to 
phase-in the program by beginning in one or more smaller areas; and (2) 
whether to establish a national competitive acquisition area, regional 
competitive acquisition areas, or statewide competitive acquisition 
areas on a permanent basis.
    Commenters were divided about whether to implement the CAP 
nationally on January 1, 2006, or to phase-in the program by beginning 
on a more limited scale. Those commenters in favor of immediate 
national implementation emphasized congressional intent to establish a 
national program or the importance of providing physicians immediately 
with an alternative method for procuring drugs. Commenters in favor of 
a geographic phase-in argued that the CAP should be tested on a smaller 
scale in order to ensure that major implementation issues are solved 
before extending the program nationally. These commenters were divided 
on how to begin a geographic phase-in. Most of the commenters in favor 
of a phase-in endorsed beginning on a state or regional level. Some 
commenters specifically recommended beginning the program on a limited 
geographic basis in one or more of the most highly populated States, 
such as California, New York, or Texas. Other commenters recommended 
implementing the program initially with a few vendors serving a 
nationwide area.
    Some commenters recommended establishing a single, national 
acquisition area on a permanent basis. Other commenters supported 
either State-based or regional acquisition areas on a permanent basis. 
Supporters of State areas emphasized that the licensing requirements 
operate at the State level, and that State-based areas would permit 
participation by smaller vendors. Supporters of regional areas pointed 
to the regional administration of other Medicare programs. Others 
pointed out that vendors may not bid to provide drugs for some small, 
low population states if the acquisition areas are established on a 
statewide basis.
    Response: We are persuaded by those commenters who advocated 
national implementation of the CAP beginning January 1, 2006. We agree 
with these commenters that it is important to provide an alternative to 
the ``buy-and-bill'' method of drug acquisition for physicians as 
widely and quickly as possible. We have therefore decided to implement 
the program for the broad drug categories that we have previously 
described on a nationwide basis January 1, 2006.
    We also agree with those commenters who recommended initially 
implementing the program in a single, nationwide competitive 
acquisition area for several reasons. First, in a single national area, 
the number of Medicare beneficiaries and physicians is sufficiently 
large to encourage vendors to participate. In addition, starting with a 
nationwide competitive acquisition area allows additional time to 
consider whether smaller, regional competitive acquisition areas should 
consist of single States or multiple States. Also, implementing the 
program initially in a single nationwide area would impose less 
administrative burden on potential bidders than other options, because 
each applicant would be submitting bids for contracts to cover one 
geographic area. Finally, implementing a nationwide competitive 
acquisition area initially allows us to develop and evaluate the 
administrative structures of the new program in conjunction with the 
relatively smaller number of vendors that can operate on a national 
level before extending the program to the larger number of vendors that 
might operate on a State or regional level, while still providing all 
physicians the opportunity to participate from the outset. It is 
important to note that we received 15 responses to our December 13, 
2004 Request for Information. All these responders expressed an 
interest in participating in the CAP. Most of these responders 
indicated a willingness to provide selected Part B drugs on a 
nationwide basis. We therefore believe that implementing the CAP 
initially in a single nationwide competitive acquisition area will 
allow for an appropriate level of competition among vendors to provide 
drugs for physicians.
    We also agree with those commenters who supported phasing in the 
CAP. We agree with these commenters that phasing in the CAP would give 
us the opportunity to test and refine the administrative apparatus with 
a limited number of vendors before expanding the program to allow 
larger numbers of vendors to participate. Most of the commenters in 
favor of a phase-in recommended implementing the program initially on a 
limited geographic scale, such as one or more States or regions of the 
country. However, a few commenters supported an alternative phase-in 
approach that we discussed in the proposed rule. As we stated there, 
one way to phase-in the program is to begin with the limited number of 
vendors that can deliver drugs on a nationwide basis: ``the program 
could be phased in by initially employing a national competitive 
acquisition area. This would limit participation in the program 
initially to those vendors that could compete to bid and supply drugs 
nationally, to the

[[Page 39036]]

exclusion of the vendors that could bid and supply drugs on a regional 
or State basis. Under such a phase-in plan, the definition of 
competitive acquisition area would ultimately be established on the 
basis of regions, States, or some other smaller geographic area, which 
might expand the number of vendors that could bid to participate in the 
program.''
    In this interim final rule, we are establishing a single, national 
distribution area for the initial stage of the CAP. This national 
distribution area will embrace the 50 States, the District of Columbia, 
Puerto Rico, and U.S. territories. In order to participate in this 
initial stage of the program, vendors will need to be appropriately 
licensed in all 50 States and the District of Columbia (as well as 
Puerto Rico and the U.S. territories). It is important that, as we 
discuss in section 2.C.1 of this interim final rule, vendors submitting 
bids to participate in the program may employ subcontractors, including 
vendors that operate on a State-wide or regional basis, to provide for 
distribution of drugs across the nationwide area that we are 
establishing. Under this phase-in plan, we expect that the definition 
of competitive acquisition areas will ultimately be established on the 
basis of regions, States, or some other smaller geographic area, which 
we expect to increase the number of vendors that could bid to 
participate in the program. We will consider how to establish smaller 
competitive acquisition areas (regional or State-based) as this initial 
phase of implementation proceeds. We welcome additional comments in 
response to this interim final rule on how to proceed with the 
development of smaller competitive acquisition areas for later stages 
of implementing the program. We anticipate that our final plan for 
those areas will not only allow smaller, State-based or regional 
vendors to compete for contracts under the CAP, but also preserve the 
opportunity for large vendors to participate in the program on a 
nationwide basis.

B. Operational Aspects of the CAP

1. Statutory Requirements Concerning Claims Processing
    Section 1847B(a)(3)(A) of the Act sets forth specific requirements 
that have a direct impact on the administrative and operational 
parameters for instituting a CAP. This section of the statute requires 
the following: (1) Vendors participating in the CAP bill the Medicare 
program for the drug or biological supplied, and collect any applicable 
deductibles and coinsurance from the Medicare beneficiary. (For 
purposes of the preamble the term ``vendor'' means the term 
``contractor'' as referred to in the statute.) (2) Any applicable 
deductible and coinsurance may not be collected unless the drug was 
administered to the beneficiary. (For purposes of the preamble the term 
``drug'' refers to drugs and biologicals.) (3) Medicare can make 
payments only to the vendor, and these payments are conditioned upon 
the administration of the drug.
    The statute requires the Secretary to provide for a process for 
adjustments to payments when payment was made for the drugs, but they 
were not actually administered to the beneficiary. The Secretary is 
also required to provide a process by which physicians submit 
information to vendors for purposes of the collection of applicable 
deductible or coinsurance. Payment may not be made for competitively 
biddable drugs supplied to a physician who has elected to participate 
in the CAP unless the vendor supplying the drugs has a contract to 
provide them in that geographic area and the physician receiving them 
has elected the vendor to supply that category of drug in that 
geographic area.
    Section 1847B(b)(4)(E) of the Act requires that the vendor supply 
drugs directly only to the selecting physicians and not directly to 
individuals, except under circumstances and settings where the 
individual currently receives drugs in his or her home or another non-
physician office setting, as provided by the Secretary. In addition, 
the vendor may not provide drugs to a physician participating in the 
CAP unless the physician submits a written order or prescription, and 
any other data specified by the Secretary, to the vendor.
    However, the statute also makes it clear that the physician is not 
required to submit an order (prescription) for individual treatments of 
a drug or biological, and that the statute is not intended to change a 
physician's flexibility to choose whether to write a prescription for a 
single treatment or a course of treatments. In certain sections of the 
proposed rule, we used the term ``prescription'' and the term ``order'' 
interchangeably. Section 1847B of the Act uses the term 
``prescription'' but does not define it. For purposes of the CAP, we 
proposed to interpret the term to include a written order submitted to 
the vendor.
    We also noted that section 1847B(b)(4)(E) of the Act, in requiring 
that vendors deliver drugs only upon receipt of a ``prescription,'' 
expressly indicates that the statute does not ``require a physician to 
submit a prescription for each individual treatment'' or ``change a 
physician's flexibility in terms of writing a prescription for drugs or 
biologicals for a single treatment or a course of treatment.'' As we 
stated in the proposed rule, it is not our intention to restrict the 
physician's flexibility when ordering drugs from a CAP vendor.
Resupplying Inventory
    Section 1847B(b)(5) of the Act requires the Secretary to establish 
rules under which drugs acquired under the CAP may be used to resupply 
inventories of these drugs administered by physicians. The statute 
contains four criteria that must be met in order for the physician to 
use this provision: the drugs are required immediately; the physician 
could not have anticipated the need for the drugs; the vendor could not 
have delivered the drugs in a timely manner; and the drugs were 
administered in an emergency situation.
    Comment: One commenter stated that the statutory requirement to 
provide for a process of adjustments to payments in cases where payment 
was made for a drug that was not actually administered to the 
beneficiary was unnecessary and should be removed or clarified since 
under the proposed claims processing system payment to the vendor would 
not be made until administration was verified, unless CMS adopted the 
partial payment methodology.
    Response: We agree with the commenter that generally the claims 
processing system we are adopting in this interim final rule makes it 
less likely that we will need to recover payments made in error to 
vendors for drugs that were not actually administered to the 
beneficiary, because we will not pay the vendor until the drug 
administration claim has been processed. However, it is still possible 
that claims filing and processing errors could occur and that as a 
result, a vendor could be paid in error. In that event, we will use 
existing overpayment recovery processes to recover claims payments made 
in error. Therefore, we are retaining the language at Sec.  414.906(d).
    Comment: Some commenters requested that we define the term 
prescription and/or order in the final rule preamble and regulations. 
Other commenters stated that because the statute uses the word 
prescription, CMS does not have the authority to redefine the term to 
mean an order. Several commenters characterized the drug order process 
described in the proposed rule as the filling of a prescription for a 
patient, and stated that only a licensed pharmacist may fill a 
prescription under State and Federal law. Another

[[Page 39037]]

commenter noted that ``prescription'' and ``order'' have very different 
meanings in the marketplace, with prescription being associated with 
precise pharmacy rules, and order being more commonly used to describe 
a distribution system. Some commenters requested that CMS define the 
program as either a pharmacy program or a distribution program and use 
consistent language within the regulation. Other commenters felt that 
there was no doubt that the statute required CMS to define the patient-
specific drug order as a prescription and that CMS should consistently 
describe it as such.
    Response: As we stated in the proposed rule, the statute uses the 
term prescription but does not define it. Further, the process 
envisioned in the statute contains elements more commonly consistent 
with orders as well as elements usually associated with prescriptions. 
We do not believe that the Congress intended us to abide by a rigid 
definition of a prescription. We note that CAP vendors must comply with 
State licensing requirements in all cases, and that our definition of 
prescription as used in the statute is not meant in any way to override 
those requirements. For purposes of this interim final rule, we will 
define the CAP drug ordering process as a prescription order and will 
add a definition of the term to the regulations text at Sec.  414.902. 
For purposes of the CAP, we define a prescription order as a written 
order submitted by the physician to the vendor in accordance with the 
requirements of the CAP. (The discussion of whether CAP requires a drug 
distributor's license or a pharmacy license is dealt with in more 
detail in section II C, the CAP contracting process.)
    Comment: One commenter believed that it was a violation of 
physician flexibility to require that in the case of a multiple source 
drug, vendors supply only one drug within each billing and payment code 
within each category.
    Response: Section 1847B(b)(1) of the Act explicitly states the 
requirement, and we will implement it as stated in the statute: ``In 
the case of a multiple source drug, the Secretary shall conduct such 
competition among entities for the acquisition of at least one 
competitively biddable drug and biological within each billing and 
payment code within each category for each competitive acquisition 
area.''
    Comment: Another commenter believes that CAP vendors should be 
prohibited from acting differently than the drug distributors or 
wholesalers with which the physician currently does business. That is, 
the vendor should be prohibited from exercising the responsibilities of 
a physician or a pharmacist with regard to drug interactions, 
appropriate dosing, or other issues such as substituting drugs in the 
physician's order.
    Response: We expect vendors to perform their responsibilities 
consistent with applicable State law and this interim final rule. To 
the extent that the vendor is required by State law to include a 
pharmacist in the CAP process or to act as a pharmacy, the vendor may 
be required to discuss possible drug interactions or to perform other 
duties commonly performed by pharmacies. Although the CAP legislation 
does not require these activities as part of the CAP, neither does it 
excuse vendors from any applicable requirements under State law.
    Comment: Some commenters supported the resupply criteria. Others, 
including an association of cancer centers, expressed concern about the 
strict requirements for physician compliance with the criteria for the 
resupply provision described in section 1847B(b)(5) of the Act and 
requested that CMS liberalize the provisions.
    Response: The four criteria that govern the resupply option are 
contained in section 1847B(b)(5) of the Act, as specified above. The 
statute also states that the physician may use drugs and biologicals 
obtained from a CAP vendor to resupply drugs and biologicals that he or 
she has taken from his or her own stock to treat the beneficiary if the 
physician can demonstrate to us that all four of the criteria have been 
met. Because the criteria and the responsibility to comply with all of 
them are statutory, we do not have the authority to change them, or to 
allow that some of them be optional. However, we interpret ``timely 
manner,'' for purposes of the resupply provisions of the CAP, to mean 
the ability to meet emergency delivery standards for timely delivery as 
defined in Sec.  414.902. That is, if the vendor could not have 
delivered the drugs to the physician to respond to the patient's 
clinical need for the drug under the emergency delivery process, then 
the vendor could not have delivered the drug in a timely manner for 
purposes of the resupply provisions. Further, we interpret the term 
``emergency situation,'' for purposes of the resupply provisions of the 
CAP, to mean a situation that in the physician's clinical judgment 
requires immediate treatment of the patient. We have made some 
technical changes to these definitions in Sec.  414.902. (These 
comments are further addressed in the claims processing/operational 
overview section that follows).
    Comment: Some commenters suggested that in an emergency situation, 
the physician should be given the option of using the drug replacement 
option or of billing for the replacement drug using the ASP 
methodology.
    Response: We believe that the Congress created the emergency 
resupply provision to address situations when a physician participating 
in the CAP would need immediate access to drugs but would not have the 
time to obtain them from the vendor. This provision allows a physician 
to treat the patient in situations that comply with the four criteria 
specified in the Act, and then obtain replacement drugs from the CAP 
vendor. This provision specifies that the physician obtain replacement 
drugs from the CAP vendor and thus does not allow the physician to bill 
under ASP in this situation.
2. Proposed Claims Processing and Operational Overview
    To comply with the statutory requirements described above, in the 
March 4, 2005 rule, we proposed to implement a claims processing system 
that would enable selected vendors to bill the Medicare program 
directly, and to bill the Medicare beneficiary and/or his or her third 
party payor after verification that the physician has administered the 
drug. We set forth the proposed requirements for payment under the CAP 
at Sec.  414.906 of our regulations. For the initial implementation of 
the CAP, we discussed our plan to designate one Medicare fee-for-
service claims processing carrier to process all drug vendors' Medicare 
claims (and referred to this entity as the designated carrier.) 
Physicians who elect to participate in the program will continue to 
bill their local Medicare fee-for-service claims processing carrier for 
physicians' services.
    Comment: One commenter supported CMS' plan to make a single 
designated carrier responsible for processing drug vendor claims. 
However, the commenter encouraged CMS to move toward having the Part B 
carriers process both the physician's claim and the drug vendor's claim 
at some point. The commenter also suggested that CMS consider aligning 
the CAP areas with the claims processing jurisdictions that CMS will 
adopt for the Medicare Administrative Contractors.
    Response: We will continue to evaluate the operation of the CAP and 
will conduct the evaluation in the context of the implementation of 
Medicare contracting reform.

[[Page 39038]]

Roles of the Contractor
    We proposed that both the designated carrier and the physician's 
local carrier would be charged with keeping track of the physician's 
vendor selection and making sure that the physician is administering 
drugs provided by the vendor with whom he or she has elected to 
participate. This process also would involve our central claims 
processing system.
    The March 4, 2005 rule (70 FR 10754) also discussed the proposed 
operational structure for the CAP and the relationship and 
responsibilities of the participating CAP physician and approved vendor 
with respect to the ordering, delivery, and administration of the CAP 
drug and the payment aspects associated with the CAP drug. A summary of 
this proposed operational structure follows.
Ordering the CAP Drugs
    We proposed that when a physician who has elected to participate in 
the CAP prepares an order for a drug to be administered to a Medicare 
beneficiary, the physician would provide basic information about the 
beneficiary and the beneficiary's third party insurance to the drug 
vendor. In addition, the physician would check that he or she was 
planning to use the drug consistent with any local coverage 
determination policies (LCDs), just as he or she would do now if 
obtaining a drug under the current payment methodology.
    We proposed that the order transmitted between the physician and 
the drug vendor could occur in a variety of HIPAA-compliant formats, 
such as by telephone with a follow-up written order.
    Comment: Several commenters stated that the drug ordering process 
outlined in the proposed rule will make it difficult for the physician 
to treat a patient on the patient's first visit to the office, which 
will necessitate at least a 1-day delay in treatment. If the patient's 
condition changes and a different drug or a different amount of the 
same drug is needed, delays could occur and additional work by the 
physician's staff to work with the vendor to make the necessary 
revisions may be necessary. The commenters requested that CMS try to 
incorporate more flexibility into the drug ordering process.
    Response: The CAP drug ordering process must be considered in the 
context of the statutory requirements of a patient-specific drug 
ordering process, the requirement that payment to the vendor requires 
verification that the drug was administered, and the requirement that 
the vendor bill the Medicare program and the beneficiary or the 
beneficiary's third party insurance. We have defined delivery 
timeframes at Sec.  414.902 in such a way that the physician should be 
able to obtain needed drugs quickly, since the vendor is required to 
provide routine delivery within two business days, and emergency 
delivery within one business day. The vendor may be required to ship 
drugs more quickly if the integrity of the product requires it. If the 
vendor's routine and emergency delivery processes would not enable the 
physician to obtain the drug quickly enough for a particular patient, 
the physician will have the option of obtaining the drug order under 
the emergency replacement process if the situation complies with the 
four criteria governing this process specified in the statute. There 
could be some rare occasions when the physician is unable to obtain a 
drug to treat a patient at the desired time. In that case, the 
physician could choose to refer the patient to another health service 
provider or hospital outpatient department for immediate treatment, or 
to ask the patient to return to the office for treatment on another 
day. Physicians may already face this prospect under the buy and bill 
methodology currently in effect. We hope that these situations will be 
rare under either the CAP or the ASP system. Physicians who find that 
the CAP requirements and advantages do not fit the needs of their 
practice have the option to continue to obtain Part B drugs for their 
practice under the ASP system rather than electing to participate in 
the CAP. Note that we have made a technical revision to the proposed 
definition of designated carrier and local carrier under Sec.  414.902 
to specifically reference ``CAP'' rather than ``Part B Competitive 
Acquisition Program''.
    Comment: Some commenters asked for more information on how the 
carriers would apply coverage policies under the CAP, and whether CMS 
was planning to change its process for determining if drugs were 
covered for off-label uses. The Practicing Physicians Advisory Council 
(PPAC) recommended that CMS require CAP vendors to provide drugs for 
off-label use when evidence supports such use. In these cases, PPAC 
suggested that vendors could use established CMS processes for 
determining medical necessity.
    Response: Determinations of medical necessity are made by the 
Medicare carriers and are not made by suppliers, such as the approved 
CAP vendor. As we stated in the proposed rule, the local carrier will 
be responsible for adjudicating the physician's claim for drug 
administration and checking that the claim is compliant with all local 
coverage determinations (LCDs). If the local carrier determines that 
the claim is not compliant with an LCD, the local carrier will deny the 
physician's claims for administering the drug and send a message to the 
CMS central claims processing system that the drug vendor's claim for 
the drug is also not payable. The local carrier will enforce its LCDs 
because they govern the rules in effect where the drug was 
administered. The designated carrier's LCDs would not play a role in 
determining whether the vendor's claim was payable except in its 
carrier jurisdiction if it is acting as a local carrier in that 
jurisdiction. It is not our intention to change our policy on the 
carrier's authority to make decisions about whether a particular 
medication will be covered. Under the CAP, the local carrier will 
continue to exercise the same process it currently uses for determining 
if a drug is payable. Similar to the scenario we have outlined for 
enforcement of the local carrier's LCDs, we anticipate that the local 
carrier will review a drug prescribed and make a decision about whether 
the physician's claim for administering the drug and the vendor's claim 
for the drug is payable under those circumstances. The local carrier 
will notify our central claims processing system about its decision, 
and the vendor's claim will be paid or denied accordingly. If payment 
for the drug administration claim is denied, the physician will have a 
responsibility to appeal the denial. As noted in section II.B.3 of this 
interim final rule, the vendor also may appeal the denial of the drug 
claim. The vendor also can ask the designated carrier for assistance 
under the dispute resolution process in making sure the physician's 
appeal was filed properly or in determining other steps that the vendor 
can take to resolve the situation. (For a more detailed discussion of 
this, see the section on dispute resolution at the end of this 
section.)
    Comment: Some commenters requested guidance about how the 
Comprehensive Error Rate Testing Program (CERT) and the Recovery Audit 
Contractor Demonstration would apply to the CAP.
    Response: We anticipate that the CERT Program will apply to the CAP 
claims, but the process for doing so has not been determined at this 
point. The Recovery Audit Contractor (RAC) Demonstration will not apply