FR Doc 05-22175

[Federal Register: November 21, 2005 (Volume 70, Number 223)]
[Rules and Regulations]
[Page 70477-70481]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21no05-18]

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Part III

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; Exclusion of Vendor Purchases Made Under the
Competitive Acquisition Program (CAP) for Outpatient Drugs and
Biologicals Under Part B for the Purpose of Calculating the Average
Sales Price (ASP); Interim Final Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 414

[CMS-1325-IFC3]
RIN 0938-AN58

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 provides
clarification and solicits comments on the relationship between drugs
supplied under the Competitive Acquisition Program (CAP) for Part B
Drugs and Biologicals and the calculation of Average Sales Price (ASP).
(For purposes of this interim final rule, the term ``drug'' refers to
drugs and biologicals.) This interim final rule with comment period
also will exclude units of drugs supplied under the CAP from ASP
calculations for a period of up to 3 years, at which time the policy
will be re-evaluated. In addition, this rule revises the definition of
unit to reflect the exclusion of units of CAP drugs administered to
beneficiaries by participating CAP physicians.

DATES: Effective Date: November 21, 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 January 20, 2006.

ADDRESSES: In commenting, please refer to file code CMS-1325-IFC3.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four 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 regular 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-IFC3, P.O. Box 8017, Baltimore, MD 21244-8017.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send 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-IFC3, Mail Stop C4-26-05,7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. 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) 786-7197 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: Angela Mason (410) 786-7452 (for
issues related to payment for covered outpatient drugs and
biologicals). Corinne Axelrod (410) 786-5620 (for issues related to the
competitive acquisition program (CAP) for Part B drugs).

SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments
from the public on all issues set forth in this rule to assist us in
fully considering issues and developing policies. You can assist us by
referencing the file code CMS-1325-IFC3.
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 comments
received before the close of the comment period on a public Web site as
soon as possible after they are 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.
This Federal Register document is also available from the Federal
Register online database through GPO Access a service of the U.S.
Government Printing Office. The web site address is: http://www.access.gpo.gov/nara/index.html
.

Information on covered outpatient drugs and biologicals can be
found at: http://www.cms.hhs.gov/providers/drugs/asp.asp.

Information on the Competitive Acquisition Program can be found at:
http://www.cms.hhs.gov/providers/drugs/compbid.

Some of the issues discussed in this preamble affect the payment
policies, but do not require changes to the regulations in the Code of
Federal Regulations. Information on the regulation's impact appears
throughout the preamble and is not exclusively in section IV.

I. Background

A. Average Sales Price (ASP)

Section 303(c) of the Medicare Modernization Act (MMA) revised the
drug payment methodology by creating a new pricing system based on a
drug's ASP. Effective January 2005, Medicare pays for the vast majority
of Part B covered drugs and biologicals using a drug payment
methodology based on the ASP. In accordance with section 1847A of the
Social Security Act (the Act), manufacturers submit the ASP data for
their products to us on a quarterly basis. 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

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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, less applicable deductible and
coinsurance, and is updated quarterly.

B. Competitive Acquisition Program (CAP)

Section 303(d) of the MMA provides for an alternative payment
methodology to the ASP for certain Part B covered drugs that are not
paid on a cost or prospective payment basis. The MMA amended Title
XVIII of the Social Security Act by adding a new section 1847B, which
established a competitive acquisition program for the acquisition of
and payment for competitively-biddable Part B covered drugs. This
program is anticipated to begin on July 1, 2006. At that time,
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 the CAP were first described in the March 4, 2005 proposed rule
(70 FR 10746).
In response to the March 4, 2005 proposed rule, many commenters
requested clarification about whether the prices determined under the
CAP will be taken into account in computing the ASP under section 1847A
of the Act. Most commenters recommended that purchases made under the
CAP be excluded from the ASP calculation, although one commenter noted
that the CAP was not included in the section 1847A(c)(2) of the Act
list of sales that are exempt from the ASP calculation and, therefore,
could not be excluded. Our response in the Competitive Acquisition
Program of Outpatient Drugs and Biologicals under Part B interim final
rule with comment period published July 6, 2005 (70 FR 39022) was that
because the CAP was not included in the section 1847A(c)(2) of the Act
list of sales that are exempt from the ASP calculation, we believed
that sales to vendors made under the CAP must be included in the ASP.
We received similar comments on the July 6, 2005 CAP interim final
rule with comment period reiterating concern about including purchases
made by vendors under the CAP in the ASP calculations and requesting
that we change our interpretation of our statutory authority. Several
commenters provided detailed legal arguments supporting the exclusion
of purchases by vendors made under the CAP from the calculation of ASP.
Some commenters argued that we could use our demonstration
authority to exclude CAP prices from ASP. Other commenters took the
position that we could use our authority to establish CAP drug
categories to establish a category of drugs that are excluded from the
ASP calculation. Several commenters argued that sales to approved CAP
vendors should be considered excluded from the determination of ``best
price'' under section 1927(c)(1)(C) of the Act and, by virtue of this
exclusion, be excluded from the calculation of ASP. One commenter
contended that sales to CAP vendors are excluded from best price
because CAP vendors do not fit squarely into the list of entities
contained in the definition of ``best price'' in section
1927(c)(1)(C)(i) of the Act. Another commenter suggested that approved
CAP vendors, as Medicare contractors, should be considered Federal
purchasers exempt from the determination of best price under section
1927(c)(1)(C)(i)(I-II) of the Act.
Finally, several commenters stated that the intent of the Congress
was to create two different and separate structures, with separate
pricing, to provide physicians with a choice of programs. These
commenters reference the language contained in section 1847A(a)(2) of
the Act, which states that section 1847A ``shall not apply in the case
of a physician who elects under subsection (a)(1)(A)(ii) of section
1847B for that section to apply instead of this section for the payment
for drugs and biologicals,'' and in section 1847B(a)(1)(A), which
states that ``this section shall not apply in the case of a physician
who elects section 1847A to apply.'' These commenters argue that this
language, which is contained in both the ASP and CAP statutes, clearly
indicates that the Congress intended the two programs to operate
independently. These commenters assert that as independent programs,
the pricing methodologies under ASP and the CAP should not be linked.
These commenters further believe that including CAP prices in the
calculation of ASP would undermine the CAP program by virtually
eliminating any incentive that a manufacturer might have to offer
discounts to CAP vendors.

II. Provisions of the Interim Final Rule

[If you choose to comment on issues in this section, please include
the caption ``PROVISIONS'' at the beginning of your comments.]
Although we did not take a position on whether sales of CAP drugs
should be part of the computation of the ASP, we were not convinced
that we had the statutory authority to exclude sales of CAP drugs from
the calculation of ASP. However, in response to the comments that we
received on this issue, we revisited our analysis of our statutory
authority. We do not find the commenters' arguments above regarding
demonstration authority, best price, or the definition of categories
entirely persuasive. However, we recognize the commenters' concerns
about the effect of including CAP prices in the calculation of ASP and
agree that the best outcome for both the ASP methodology and the CAP
programs would be one in which prices under CAP did not affect payment
amounts under the ASP methodology. In particular, we find compelling
the commenters' arguments about the separation of the ASP and CAP
programs and that the two programs are intended to be alternatives to
each other. We acknowledge the possibility that the Congress intended
the programs to be completely independent of each other. Therefore, as
a result of our reassessment, and in accordance with our statutory
authority, including our authority under section 1847A(b)(2)(B) of the
Act to establish methods for counting units, we have decided to
exclude, for the initial 3-year contract period under the CAP, units of
CAP drugs that are administered to beneficiaries by participating CAP
physicians. In light of Congress's intent to give physicians a choice
between the two programs, we believe the relationship between the CAP
and the ASP methodology represents a unique circumstance. We believe it
is appropriate to implement this exclusion from the ASP calculation
because this exclusion is necessary for implementing the CAP, a program
that the Congress has expressly identified as an alternative to the ASP
payment methodology. We intend to examine the effect of this exclusion
and, if necessary, revisit our decision at the end of the initial 3-
year period of the CAP.
Because CAP prices will not be included in the ASP calculation for
at least the first 3 years of the CAP, we are revising Sec. 414.802
(definition of unit) to reflect the exclusion of units of CAP drugs
administered to beneficiaries by participating CAP physicians.
Manufacturers also must exclude rebates and lagged price
concessions attributable to units of CAP drugs administered to a
beneficiary by a

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participating CAP physician when using the estimation methodology
specified in Sec. 414.804. (To assist manufacturers in the
implementation of this exclusion, we are requiring approved CAP vendors
to provide manufacturers with information necessary to determine which
sales to the approved CAP vendor are sales of CAP drugs that are
excluded from the ASP calculation. This requirement will be reflected
in the approved CAP vendor's contract with CMS.) We welcome further
comment on the exclusion of CAP drug units from the calculation of the
ASP. We also seek comment on accounting for this exclusion when
estimating lagged price concessions. We will provide additional
guidance regarding lagged price concessions in a future ASP document.
For the reasons stated in section IV. of this preamble, these changes
to the calculation of the ASP are effective upon publication of this
interim final rule with comment period. However, because there will not
be any excludable CAP units until the CAP begins, which we expect to
occur on July 1, 2006, this exclusion will not affect manufacturers'
calculation of ASP until the third quarter of 2006.
After the initial 3-year period of the CAP, we will evaluate the
impact on approved CAP vendors, manufacturers, and others of excluding
units supplied under the CAP from the calculation of ASP. If there
appears to be a reason not to continue to exclude units supplied under
the CAP from the calculation of ASP, we will undertake rulemaking to
describe our findings and conclusions and to seek public comment.

III. Response to Comments

Because of the large number of comments we normally receive on
Federal Register documents, we are not able to acknowledge or respond
to them individually. We will consider all comments we receive by the
date and time specified in the DATES section of this preamble, and,
when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.

IV. Waiver of Proposed Rulemaking

We ordinarily publish a notice of proposed rulemaking in the
Federal Register and invite public comment on the proposed rule. The
notice of proposed rulemaking includes a reference to the legal
authority under which the rule is proposed, and the terms and
substances of the proposed rule or a description of the subjects and
issues involved. This procedure can be waived, however, if an agency
finds good cause that a notice-and-comment procedure is impracticable,
unnecessary, or contrary to the public interest and incorporates a
statement of the finding and its reasons in the rule issued.
We find good cause to waive the requirement for publication of a
notice of proposed rulemaking and public comment on the grounds that it
is contrary to the public interest. We have re-examined our statutory
authority and have determined that both the CAP and ASP payment
methodologies are best served by excluding units supplied under the CAP
from the calculation of ASP for an initial period of 3 years. We
believe that excluding CAP drug units from the ASP calculation will
give manufacturers an incentive to provide discounts to approved CAP
vendors that will, in turn, result in lower prices under the CAP.
However, unless it is implemented immediately, any beneficial effects
of this policy could not be achieved, because it would not be effective
in time to allow vendor applicants to take it into consideration as
they prepare their CAP bids. In order to comply with the statutory
mandate that the CAP begin in 2006, the bidding process for the CAP
must commence in time to allow vendors sufficient time to formulate
their bids, to allow us to assess the bids and vendor applications and
select the approved CAP vendors, and to allow physicians a meaningful
opportunity to review and select an approved CAP vendor. For this
reason, it is necessary that policies affecting the CAP bidding process
be in place now.
In addition, the Administrative Procedure Act normally requires a
30-day delay in the effective date of a final rule. This delay may be
waived if an agency for good cause finds that the delay is
impracticable, unnecessary or contrary to the public interest, and
incorporates a statement of the finding and the reasons in the rule
issued. (5 U.S.C. 553(d)(3))
We find that good cause exists to waive the 30-day delay so that
this rule takes effect immediately upon publication in the Federal
Register. As noted above, to comply with the statutory mandate that the
CAP begin in 2006, it will be necessary for us to have contracts in
place with approved CAP vendors in time to give physicians a meaningful
opportunity to review and select an available approved CAP vendor in
their competitive acquisition areas. An effective date of November 21,
2005 will ensure that the selection of CAP vendors can proceed and will
afford the approved CAP vendors needed time to prepare for the
enrollment of physicians and education of beneficiaries concerning the
CAP program in time for the anticipated CAP start date, July 1, 2006.

V. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comment on each of these issues for the
following sections of this document that contain information collection
requirements.
In summary, this interim final rule with comment period requires
manufacturers of Medicare Part B covered drugs paid under sections
1847A, 1842(o)(1)(D), or 1881(b)(13)(A)(iii) of the Act to exclude all
units supplied under the CAP from their calculation of ASP as well as
adjust for this exclusion in their estimation of rebates and lagged
price concessions using the estimation methodology. This interim final
rule with comment period lays out the specifications for complying with
these requirements.
The burden associated with the requirements in this rule is the
time and effort required by manufacturers of Medicare Part B drugs to
prepare and submit the required data to CMS. While these requirements
are subject to the PRA, this requirement is currently approved under
OMB control number 0938-0921, with a current expiration date of
September 30, 2007.
If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following: Centers for
Medicare & Medicaid Services, Office of Strategic Operations and
Regulatory Affairs, Regulations Development and Issuances Group, Attn:
William Parham, CMS-1325-IFC3, Room C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850; and Office of Information

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and Regulatory Affairs, Office of Management and Budget, Room 10235,
New Executive Office Building, Washington, DC 20503, Attn: Brenda
Aguilar, CMS Desk Officer, baquilar@omb.eop.gov. Fax (202) 395-6974.

VI. Regulatory Impact

[If you choose to comment on issues in this section, please include
the caption ``IMPACT'' at the beginning of your comments.]
We have examined the impact of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). A regulatory impact
analysis (RIA) must be prepared for major rules with economically
significant effects ($100 million or more in any 1 year). Because this
rule clarifies the reporting requirements for ASP data and does not
affect actual payment, it does not reach the economic threshold and
thus is not considered a major rule.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and government agencies.
Most hospitals and most other providers and suppliers are small
entities, either by nonprofit status or by having revenues of $6
million to $29 million in any 1 year. Individuals and States are not
included in the definition of a small entity. We are not preparing an
analysis for the RFA because we have determined that this rule will not
have a significant economic impact on a substantial number of small
entities.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 for final rules
of the RFA. For purposes of section 1102(b) of the Act, we define a
small rural hospital as a hospital that is located outside of a Core-
Based Statistical Area and has fewer than 100 beds. We are not
preparing an analysis of section 1102(b) of the Act because we have
determined that this rule will not have a significant impact on the
operations of a substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. That threshold
level is currently approximately $120 million. While this interim final
rule with comment period does implement a new data reporting
requirement for drug manufacturers, the costs associated with this
requirement are expected to be below the $120 million annual threshold
established by section 202 of the Unfunded Mandates Reform Act.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. This regulation does not impose any costs on State or
local governments, and there is no direct effect on States, or the
relationship between the national government and the States, or the
distribution of power or responsibilities between the national and
State or local governments, and, therefore, the requirements of E.O.
13132 are not applicable.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 414

Administrative practice and procedure, Health facilities, Health
professions, Kidney diseases, Medicare, Reporting and recordkeeping
requirements.

0
For the reasons set forth in this preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

0
1. The authority citation for part 414 continues to read as follows:

Authority: Secs. 1102, 1871, and 1881(b)(1) of the Social
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(1)).

Subpart J--Submission of Manufacturer's Average Sales Price Data

0
2. Section 414.802 is amended by revising the definition of ``unit,''
to read as follows:

Sec. 414.802 Definitions.

* * * * *
Unit means the product represented by the 11-digit National Drug
Code. During the first 3 years of the CAP (as defined in Sec.
414.902), the method of counting units excludes units of CAP drugs (as
defined in Sec. 414.902) administered to a beneficiary by a
participating CAP physician (as defined in Sec. 414.902).

(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

Dated: November 1, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: November 1, 2005.
Michael O. Leavitt,
Secretary.
[FR Doc. 05-22175 Filed 11-2-05; 5:07 pm]

BILLING CODE 4120-01-P