[Federal Register: March 4, 2005 (Volume 70, Number 42)]
[Proposed Rules]
[Page 10745-10773]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04mr05-21]
[[Page 10745]]
-----------------------------------------------------------------------
Part II
Department of Health and Human Services
-----------------------------------------------------------------------
Centers for Medicare & Medicaid Services
-----------------------------------------------------------------------
42 CFR Part 414
Medicare Program; Competitive Acquisition of Outpatient Drugs and
Biologicals Under Part B; Proposed Rule
[[Page 10746]]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 414
[CMS-1325-P]
RIN 0938-AN58
Medicare Program; Competitive Acquisition of Outpatient Drugs and
Biologicals Under Part B
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This proposed rule would implement 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. We are
seeking comments on which of the proposed approaches we should use to
implement the competitive acquisition program as well as the criteria
and standards that should be applied in the selection and enrollment of
vendors.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on April 26, 2005.
ADDRESSES: In commenting, please refer to file code CMS-1325-P. 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-
P, P.O. Box 8010, Baltimore, MD 21244-8010.
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) 786-6508.
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-P 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. CMS posts all electronic
comments received before the close of the comment period on its public
website 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 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. History of the Current Payment System
C. Revised Drug Payment Methodology
D. Competitive Acquisition Program (CAP)
II. Provisions of the Proposed Rule
A. Policies 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 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. Collection of Information Requirements
IV. Response to Public Comments
V. Regulatory Impact Analysis
A. Anticipated Effects
B. Impact of Establishment of a Competitive Acquisition Program
C. Alternatives Considered
D. Impact on Beneficiaries Regulations Text
In addition, because of the many organizations and terms to which
we refer by acronym in this proposed rule, we are listing these
acronyms and their corresponding terms in alphabetical order below.
Alphabetical List of Acronyms Appearing in the Proposed Rule
ASP--Average sales price.
[[Page 10747]]
AWP--Average wholesale price.
BBA--Balanced Budget Act of 1997, Public Law 105-33.
CAP--Competitive Acquisition Program.
CFR--Code of Federal Regulations.
CMS--Centers for Medicare & Medicaid Services (formerly Health Care
Financing Administration).
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.
PIN--Provider identification number.
PSCs--Program Safeguard Contractors.
RFA--Regulatory Flexibility Act (September 19, 1980, Public Law 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 proposed rule, 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
These are injectable or intravenous drugs that are administered
incident to a physician's service (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 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 coverage to drugs that
are not usually self-administered. Examples include injectable prostate
cancer drugs (such as lupron acetate for depot suspension, goserelin
acetate implant), 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 used to treat rheumatoid
arthritis, and rituximab used to treat non-Hodgkin's lymphoma.
2. Durable Medical Equipment (DME) Drugs
These are drugs that 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
drug payment methodology for all or some of the Medicare covered drugs
they furnish include: physicians, 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 proposed 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. History of the Current Payment System
In the June 5, 1991 physician fee schedule proposed rule (56 FR
25792), we proposed that the drug payment limit be based on 85 percent
of the national average wholesale price (AWP) of the drug. For very
high volume drugs, we proposed that the drug payment limits be based on
the lesser of the 85 percent of the AWP or the estimated acquisition
cost (EAC) of the drugs. Based on comments received, the 1992 physician
fee schedule final rule established a payment limit based on the lower
of 100 percent of AWP or the EAC. However, the EAC proved to be
unworkable and was never implemented. Various legislative proposals
were submitted to move away from payment based on 100 percent of AWP,
including changing the percentage of AWP to a lower amount. In 1997,
the Congress amended the Act to limit payment for drugs not paid on a
cost or prospective payment basis to the lower of the actual charge or
95 percent of AWP (section 1842(o)(1) of the Act as added by section
4556 of the Balanced Budget Act of 1997 (BBA 1997) (Pub. L. 105-33)).
Numerous reports by the General Accounting Office (GAO), and the
Office of Inspector General (OIG), as well as data collected by the
Department of Justice (DOJ), indicated that 95 percent of list AWP
reflected in published compendia is significantly higher than the
prices that drug manufacturers, wholesalers, physician supply houses,
specialty pharmacies, and similar entities actually charge to
physicians and other suppliers purchasing these drugs.
C. Revised Drug Payment Methodology
Based on these numerous reports conducted by the OIG and the GAO as
well as the data collected by the DOJ
[[Page 10748]]
that identified the well-documented flaws in the AWP drug payment
system, significant changes were made to the manner in which Medicare
Part B pays for covered drugs.
The MMA revised the drug payment methodology 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.
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 all the
manufacturer's sales of a drug to all purchasers in the United States
in a calendar quarter (excluding certain sales exempted by statute) and
the total number of units of the drug sold by the manufacturer in that
same quarter, 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.
D. 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
competitively biddable Part B covered drugs under the ASP drug payment
methodology. 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 proposed rule.
The competitive acquisition program 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 and that drug coinsurance can represent
large amounts for a beneficiary and physician. The competitive
acquisition program eliminates the need for physicians to collect
coinsurance on CAP drugs from Medicare beneficiaries.
II. Provisions of the Proposed Rule
A. Policy for the CAP
1. General Overview of the CAP
[If you choose to comment on issues in this section, please include
the caption ``Overview of the CAP'' at the beginning of your comments.]
Implementation
To implement the CAP, we need to complete a number of activities
prior to 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 and described
elsewhere in this proposed rule.
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'.
Activities Prior to the Issuance of This Proposed Rule
Subsequent to the enactment of the MMA, we initiated the following
activities to enable us to implement the statutory provisions of
section 1847B of the Act:
--We awarded a contract to Research Triangle Institute (RTI) to obtain
information and develop alternatives regarding the implementation of a
drug and biological competitive bidding program. As part of this
contract, RTI consulted with groups representing beneficiaries,
physicians and suppliers, drug suppliers, and drug manufacturers to
obtain input on the implementation of this MMA provision.
--We conducted a Special Open Door Listening Session on April 1, 2004,
to gather additional input, and to allow interested parties to hear and
be heard by other members of the healthcare industry.
--We established an electronic mailbox, MMA303DDrugBid@cms.hhs.gov, for
interested parties to submit comments on the CAP program prior to the
issuance of this proposed rule.
--We issued a Request for Information (RFI) on December 13, 2004. The
purpose of this RFI was to assess the public's interest in bidding on
contracts to supply drugs and biologicals for the CAP. In reply to the
RFI, we received 15 responses expressing an interest to participate in
the CAP. Most responders indicated a willingness to provide selected
Part B drugs on a national basis. Responders also provided information
regarding the types of drugs they would be most interested in providing
within the selected jurisdictions. Four responders indicated a
willingness to provide nearly all the drugs listed on the RFI.
In the specialty areas of oncology, hematology, internal medicine,
infectious disease, urology, rheumatology, and obstetrics/gynecology,
several responders indicated a willingness to provide the most costly
and the most frequently used drugs in these areas. In addition, some
responders indicated an interest in providing drugs or biologicals in
the areas of oncology, hematology, pulmonary, and neurology.
[[Page 10749]]
Regulations
We propose to codify the requirements and provisions for the CAP in
regulations at 42 CFR Part 414, Subpart K. We propose to revise the
heading for subpart K to read ``Payment for Drugs and Biologicals under
Part B''. We also propose to 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 are
proposing to revise existing Sec. 414.900, which sets forth the basis
and scope for subpart K, to provide that the regulations in this
subpart implement sections 1847A and 1847B of the Act. In the examples
of drugs at Sec. 414.900, we propose to revise paragraph (b)(ii) to
clarify that the hepatitis vaccine referred to in this paragraph is the
hepatitis ``B'' vaccine. Under this subpart, we propose to add new
Sec. 414.906 through Sec. 414.920 to address requirements with
respect to payment under the CAP. We also are revising Sec. 414.902 to
add definitions pertaining to the new CAP addressed in new Sec.
414.906 through Sec. 414.920.
2. Categories of Drugs To Be Included Under the CAP
[If you choose to comment on issues in this section, please include
the caption ``Categories of Drugs to be Included under the CAP'' at the
beginning of your comments.]
Section 1847B of the Act describes a program that will permit
physicians to elect to obtain drugs from contractors 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, the mechanisms described in the statute include the following:
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 section 1874B 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 vendor 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 submission of information that will be used by the
vendor 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 vendors.
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
such drugs and biologicals--
(1) Is not likely to result in significant savings; or
(2) Is likely to have an adverse impact on access to such 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.'' 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 in the CAP 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. There may be an alternative reading of the
statute, under which the CAP is properly restricted to drugs
administered incident to a physician's service. We welcome comments on
this issue.
Using our authority to establish drug categories and to phase in
the CAP as appropriate, we could include in the CAP all drugs
administered by physicians, or, for an initial period, only drugs that
are usually administered by one or more physician specialties (for
example, oncology or rheumatology). The CAP could be phased in with
respect to categories of drugs in any number of ways. A phase-in could,
for example, begin with drugs that are usually administered by
oncologists, and later be extended to include all drugs administered by
physicians. Given our concerns about the clear direction of the statute
that the election to participate in this program rests with physicians,
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 recognize that the statute provides a
potentially broader definition of ``competitively biddable drugs and
biologicals'' in section 1847B(a)(2)(A) of the Act. Therefore, we are
soliciting 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.
We propose to set forth the definition for ``competitively biddable
drugs'' and other terms relevant to the CAP in regulations under
revised Sec. 414.902.
Below we discuss the merits of these options for the drug
categories to be included within the CAP. We also discuss our proposed
approach to phasing in the program with respect to drug categories. We
invite comments on all these options and on all aspects of our
proposal. We welcome alternative suggestions for our consideration for
the final rule.
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, inclusion of all drugs furnished incident to a physician's
service would be important to provide an alternative to physicians who
did not want to be in the drug purchasing business and did not want to
have to collect coinsurance on drugs. It may also provide more
opportunity for realizing savings to the program than some other
options.
[[Page 10750]]
Phasing in CAP Drugs by Physician Specialty
As we have discussed above, it may be advisable 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. In fact, drugs
that are typically furnished incident to an oncologist's service
represent the largest portion of expenditures for physician-
administered drugs under Medicare, followed by drugs typically
furnished incident to a urologist's service, a rheumatologist's
service, a gynecologist's service, an infectious disease specialist's
service, and a primary care physician's service. Drugs typically
administered by other physician specialties represent smaller portions
of physician-administered drugs. We therefore believe that the basic
phase-in decision with respect to drugs administered in physician
offices is 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. We
discuss each of these options below.
Begin with Drugs Used by a Single Physician Specialty: Oncology
Under this approach, we would initially implement the CAP for a
limited set of drugs that are typically administered by oncologists.
Drugs typically administered by other specialties would be included
over the next few years of the program.
The advantage of this approach is that during the phase-in we could
focus our implementation efforts on one specialty with a more
homogeneous set of concerns and issues. Also, by limiting the target
drugs to those typically administered by oncologists, the required
physician education process would be streamlined and potentially more
effective. In addition, oncologists use a high proportion of the
physician-administered drugs that could be included under the CAP. By
initiating a phase-in with drugs that are typically administered by
oncologists, we could thus begin to realize much of the benefit that is
possible under the CAP. Therefore, we believe that it would be
reasonable to include drugs typically administered by oncologists in
the early stages of implementing the CAP.
A potential disadvantage of singling out drugs typically
administered by one physician specialty for the initial stages of
phasing in the CAP is that the scope of the CAP in the early years may
be too narrow for us to effectively identify issues or concerns for
specialties that typically administer drugs not initially included. In
addition, the CAP would not initially provide an alternative for
physicians in other specialties. We welcome comments from oncologists
and others about the merits of beginning the phase-in of the CAP with
drugs typically administered by oncologists.
Begin with Specialties That Use Fewer Part B-Covered Drugs
An alternative phase-in approach would be to choose a limited set
of drugs that are typically administered by one or more physician
specialties that use Part B-drugs less intensively. Focusing on Part B
drugs typically administered by physicians in these specialties would
limit the scope of the initial implementation, and allow operational
issues to be addressed more gradually. This more limited scope would
allow us to identify lessons and issues before phasing in larger drug
classes (such as drugs typically administered by oncologists) at a
later time. The disadvantage of this approach, however, is that such a
limited scope may also restrict the potential benefits of the CAP,
especially potential savings to the Medicare program and potential
benefits to physicians in other specialties who do not want to be in
the drug procurement and drug coinsurance collection business and who
would prefer to obtain drugs that they typically administer under the
CAP. The restricted scope of this approach might not elicit a response
from potential bidders if they believe that the potential market is too
limited.
In light of these considerations, we are considering several
alternative approaches to phasing in the CAP with respect to drug
categories. One alternative would be to phase in the CAP by initially
including all drugs typically administered by oncologists within the
program. We would begin with drugs typically administered by
oncologists primarily because these drugs constitute such a major
portion of the physician-administered drugs under Part B. Another
option is to begin with some set of the drugs that are typically
administered in physician offices by other specialties (for example,
drugs typically administered by urologists). This option would mean
that implementation of the CAP would have a more limited impact
initially on the provision and payment for Part B drugs than beginning
with drugs typically administered by oncologists or with all Part B
drugs furnished incident to a physician's service. A final option is to
implement the CAP for all Part B drugs that are furnished incident to a
physician's service. We are not considering categories smaller than
drugs typically administered by a physician specialty. For the oncology
option, for example, we are not considering to include only the top
three oncology drugs. All drugs typically administered by oncologists
would be included under this option.
We are actively considering all these options, but we are not
proposing any particular option at this time. Rather, we encourage
comments on all the options that we have discussed. We also welcome
recommendations of other options for consideration, and will also
consider other options presented by commenters for adoption in the
final rule. We especially encourage 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. For example, physicians may prefer relatively broad drug
categories that encompass all the drugs that they commonly furnish,
which presumably would allow those physicians to largely avoid
purchasing drugs for their Medicare patients. Under this proposed
approach one category of drugs might be all the drugs commonly
furnished incident to an oncologist's (or other specialist's) service.
Other narrower ways of structuring the categories are also possible.
After further analysis and consideration of the comments, we may adopt
one of the options described above, or an option brought to our
attention through the comment process, in the final rule.
It is important to note 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.
It is also important to note that the categories that are
established for
[[Page 10751]]
physicians to select will be the same categories that would be open for
bids by potential vendors. For example, if a category embracing all
drugs typically administered by oncologists is established, vendors
would bid on all the HCPCS codes contained in the category and an
oncologist who elects to participate in the CAP would be electing to
acquire that category from the vendor. 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 vendor. Table 1 below illustrates a
potential category.
Table 1.--Most Commonly Used HCPCS by Oncologists Defined by Specialty Code 90
[Using 2003 Medicare Claims Data, Allowed Services Greater Than 100 and Allowed Charges (Adjusted for 2005)
Greater Than $10,000]
----------------------------------------------------------------------------------------------------------------
HCPC Description HCPC Description
----------------------------------------------------------------------------------------------------------------
J0207............... Amifostine. J9040.............. Bleomycin sulfate
injection.
J0637............... Caspofungin acetate. J9045.............. Carboplatin injection.
J0640............... Leucovorin calcium injection. J9050.............. Carmus bischl nitro inj.
J0696............... Ceftriaxone sodium injection. J9060.............. Cisplatin 10 mg injection.
J0800............... Corticotropin injection. J9062.............. Cisplatin 50 mg injection.
J0880............... Darbepoetin alfa injection. J9065.............. Inj cladribine per 1 mg.
J0895............... Deferoxamine mesylate inj. J9090.............. Cyclophosphamide 500 mg
inj.
J1190............... Dexrazoxane HCl injection. J9096.............. Cyclophosphamide
lyophilized.
J1260............... Dolasetron mesylate. J9160.............. Denileukin diftitox, 300
mcg.
J1440............... Filgrastim 300 mcg injection. J9170.............. Docetaxel.
J1441............... Filgrastim 480 mcg injection. J9178.............. Inj, epirubicin hcl, 2 mg.
J1450............... Fluconazole. J9181.............. Etoposide 10 mg inj.
J1626............... Granisetron HCl injection. J9182.............. Etoposide 100 mg inj.
J1642............... Inj heparin sodium per 10 u. J9185.............. Fludarabine phosphate inj.
J1645............... Dalteparin sodium. J9190.............. Fluorouracil injection.
J1650............... Inj enoxaparin sodium. J9201.............. Gemcitabine HCl.
J1655............... Tinzaparin sodium injection. J9202.............. Goserelin acetate implant.
J1745............... Infliximab injection. J9206.............. Irinotecan injection.
J1750............... Iron dextran. J9208.............. Ifosfomide injection.
J1756............... Iron sucrose injection. J9209.............. Mesna injection.
J2353............... Octreotide injection, depot. J9213.............. Interferon alfa-2a inj.
J2355............... Oprelvekin injection. J9214.............. Interferon alfa-2b inj.
J2405............... Ondansetron hcl injection. J3305.............. Inj trimetrexate
glucoronate.
J2430............... Pamidronate disodium/30 mg. J9217.............. Leuprolide acetate
suspension.
J2505............... Injection, pegfilgrastim 6 mg. J9265.............. Paclitaxel injection.
J2820............... Sargramostim injection. J9280.............. Mitomycin 5 mg inj.
J2997............... Alteplase recombinant. J9293.............. Mitoxantrone hydrochl/5 mg.
J3370............... Vancomycin hcl injection. J9310.............. Rituximab cancer treatment.
J3487............... Zoledronic acid. J9340.............. Thiotepa injection.
J9000............... Doxorubic hcl 10 mg vl chemo. J9350.............. Topotecan.
J9001............... Doxorubicin hcl liposome inj. J9355.............. Trastuzumab.
J9010............... Alemtuzumab injection. J9390.............. Vinorelbine tartrate/10 mg.
J9015............... Aldesleukin/single use vial. Q0136.............. Non esrd epoetin alpha inj.
J9017............... Arsenic trioxide. Q3025.............. IM inj interferon beta 1-a.
J9031............... Bcg live intravesical vac.
----------------------------------------------------------------------------------------------------------------
In addition, it is important to keep in mind that HCPCS codes
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.
As discussed in proposed Sec. 414.908(d), we are proposing 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 are also proposing that vendors will 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.
In addition, we are proposing that this information will 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. We anticipate that the first
physician election process will occur in the fall of 2005.
Finally, we would like to emphasize that, in framing these options,
we are relying 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. We do 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. At this time, we have made no findings
that including certain drugs in the CAP would not result in significant
savings or would have an adverse impact on access to those drugs. We
propose to set forth the circumstances for which we may exclude
competitively biddable drugs and biologicals (including categories of
[[Page 10752]]
drugs) from the CAP at proposed Sec. 414.906(b) of our regulations.
3. Competitive Acquisition Areas
Definition of Competitive Acquisition Areas
(If you choose to comment on issues in this section, please include
the caption ``Competitive Acquisitions Areas'' at the beginning of your
comments.)
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 and biological 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. The definition of these areas
will therefore 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. At the same time, the
statute grants the Secretary broad discretion in defining competitive
acquisition areas under the CAP. We believe that several factors must
be considered in defining competitive acquisition areas for
competitively biddable drugs and biologicals. In particular, the
designation of competitive acquisition areas are to take into account
how promptly physicians need drugs provided to their practices if
distribution capacity varies geographically. In addition, 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. Below we
discuss several options for defining ``competitive acquisition areas''
for purposes of the CAP. Each of these definitions could be adopted
initially in a manner that allows for the program to be phased in
geographically. For example, defining ``competitive acquisition areas''
in terms of regions or in terms of States is compatible with phasing in
the program by implementing it initially in one or more, but not all,
regions or States. Under this phase-in plan, the program would
eventually be expanded to all regions or States. Conversely, 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 exclusion of the vendors that could bid and
supply drugs on a regional or State basis. Under this 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.
We have identified several basic options for defining the
competitive acquisition areas required under the CAP. The basic options
for defining these areas include--establishing a national competitive
acquisition area; establishing regional competitive acquisition areas;
and establishing statewide competitive acquisition areas. We invite
comment on these possible approaches.
National Competitive Acquisition Area
Under this option, the competitive acquisition program would
require participating vendors to offer competitively biddable drugs and
biologicals to physicians in any State within the United States, as
well as the District of Columbia, Puerto Rico, and the U.S.
territories. In other words, there would be only a single national
competitive acquisition area. Bidders that seek to compete in a
national competitive acquisition area would need a national network of
distribution points that could serve physicians in a timely manner with
products that are properly stored and shipped. In addition, drug
vendors would need to be appropriately licensed in all 50 States, the
District of Columbia, Puerto Rico, and the U.S. territories in order to
comply with FDA rules.
Establishing a single national competitive acquisition area may
have several advantages. First, in a single national area, the number
of Medicare beneficiaries and physicians is sufficiently large to
encourage vendors to participate to gain market share. This option may
also impose less administrative burden on potential bidders than other
options, because all applicants would be applying for contracts to
cover the same region. The administrative burden on CMS might also be
less: the fewer the number of acquisition areas, the fewer bids that
must be submitted and evaluated. However, smaller regional drug
distributors would be less likely to participate in the CAP under this
option, because they may not be able to serve the entire country. This
would reduce competition in the bidding process.
Regional Competitive Acquisition Areas
Under this general category, there are several possible options.
One option is that we could establish multi-State acquisition areas
based on existing markets. Under this option, we could define
acquisition areas based on existing markets of regional distributors
and specialty pharmacies. As an alternative regional approach, we could
define four large competitive acquisition areas, which would limit the
administrative burden of implementation. With just four acquisition
areas, it may be less likely that there would be an insufficient number
of vendors in any one area. We could also determine competitive
acquisition areas that coincide with the prescription drug plan regions
[[Page 10753]]
established under section 1860D-11 of the Act (http://www.cms.hhs.gov/medicarereform/mmaregions/
) for more information.
Establishing sub-national regions could be a natural first step in
a geographic phase-in of the program. As discussed above, for example,
we could implement the CAP in only a few areas at first. Overcoming
challenges in the first phase would be important in gaining wide
physician and vendor participation and successful implementation on a
large scale. If we chose this approach, we would consider factors such
as the number of potential bidders, the capacity of existing
distribution networks, and the distribution of physician specialties in
selecting a limited geographic area for the first competitive
acquisition bidding process. This approach would also allow regional
distributors to participate more easily in the CAP, thereby potentially
increasing competition in the bidding process.
However, this approach may impose additional administrative burden
on national vendors since they may need to submit multiple bids to
cover the entire country.
Competitive Acquisition Areas Based on Single States
Under this option, we would define CAP areas based on State
boundaries, the District of Columbia, Puerto Rico, and the territories.
This option has the advantage of using clearly defined geopolitical
borders as the basis for acquisition areas. As we have noted, current
licensing for specialty pharmacies and vendors operates at the State
level. Also, establishing State-based regions could support a
geographic phase-in of the program, and we could implement the CAP in
only some States at first. (As in the case of a possible phase-in of a
region-based approach, we would consider factors such as the number of
potential bidders, the capacity of existing distribution networks, and
the distribution of physician specialties in selecting one or more
States for the first competitive acquisition bidding process.)
Overcoming challenges in the first phase would be important in gaining
wide physician and vendor participation and successful implementation
on a large scale. This approach would also allow State-based regional
distributors to more easily participate in CAP, thereby potentially
increasing competition in the bidding process.
We encourage comments on all the options that we have discussed. We
also welcome recommendations of other options for consideration. We
believe that defining competitive acquisition areas, at least
initially, on the basis of a level no smaller than the States is the
most feasible approach. To our knowledge, there are few, distributors
of drugs administered incident to physician services that operate on a
scale smaller than a State level. However, we welcome comments on this
issue, and all other aspects of this discussion. We are still
considering all the options described above, and will also consider
other options presented by commenters. After further analysis and
consideration of the comments, in the final rule, we may adopt one of
the options described above, or an option brought to our attention
through the comment process.
B. Operational Aspects of the CAP
1. Statutory Requirements Concerning Claims Processing
[If you choose to comment on issues in this section, please include
the caption ``Statutory Requirements Concerning Claims Processing'' at
the beginning of your comments.]
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 Part B Drug Competitive
Acquisition Program bill the Medicare program for the drug or
biological supplied, and collect any applicable deductibles and
coinsurance from the Medicare beneficiary. (For purposes of this
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 this 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.
In addition, the Secretary is required to provide for a process for
adjustments to payments in those cases 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 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 only
supply drugs directly 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 this
proposed rule, we have 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
propose to interpret the term to include a written order submitted to
the vendor. We note 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.'' It is not our intention to restrict the
physician's flexibility when ordering drugs from a CAP vendor, or to
require that a physician participating in CAP would order drugs
differently from a CAP vendor than he or she would a non-CAP vendor.
(For purposes of this preamble the term ``order'' and ``prescription''
are used interchangeably.)
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. This process
will apply only if the physician can demonstrate all of the following
to the Secretary: 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.
[[Page 10754]]
2. Proposed Claims Processing Overview
[If you choose to comment on issues in this section, please include
the caption ``Claims Processing Overview'' at the beginning of your
comments.]
To comply with the statutory requirements described above, we
propose to implement a claims processing system that will enable
selected vendors to bill the Medicare program directly, and to bill the
Medicare beneficiary and/or his or her third party insurance after
verification that the drug has been administered. We propose to set
forth the requirements for payment under the CAP at proposed Sec.
414.906 of our regulations. For the initial implementation of the CAP,
we plan to designate one Medicare fee-for-service claims processing
carrier to process all drug vendor's Medicare claims. (In this preamble
this entity will be referred to 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.
This proposed rule uses the term ``carrier'' to describe an entity
that processes Medicare benefit claims and performs related functions
under Part B. These entities may service a particular type of provider,
or they may service all Part B suppliers within a specified geographic
area.
The designated carrier and the physician's local carrier would each
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 following
diagram describes the procedures for claims processing under the CAP.
[GRAPHIC] [TIFF OMITTED] TP04MR05.000
At this time we are proposing to incorporate only drugs incident to
a physician's service into the CAP. As noted earlier in section II.B.2.
of this preamble, we are seeking comment on a broader definition of
``competitively biddable drugs''. As described below, consistent with
the statute, we propose 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.
As we specify at proposed Sec. 414.906(a)(4) of our regulations,
we are proposing that CAP vendors would deliver drugs directly to
physicians in their offices. Although the statute allows CMS to provide
for the shipment of drugs to other settings under certain conditions,
we are not proposing to implement the CAP in alternative settings at
this time.
The vendor would use order form information to bill the beneficiary
and/or his or her third party insurance for applicable deductible and
coinsurance after drug administration has been verified by the Medicare
carrier.
The claims processing methodology we propose to implement would
verify drug administration to the beneficiary by means of a
prescription number that would be placed on the physician claim for
drug administration and the drug vendor claim for the drug. Our claims
processing system would use the prescription number to match the two
claims and authorize payment to the vendor.
We propose that the physician could place an order for a
beneficiary's entire course of treatment at one time however; the
vendor may split the order into appropriately spaced shipments. The
vendor would create a separate prescription number for each shipment
and the physician would track each prescription number separately and
place the appropriate prescription number(s) on each drug
administration claim. The physician would also have the ability to
modify the course of treatment and submit a separate order as
necessary.
The drug vendor would generate the prescription number when it
prepares the drug for shipping. The drug and prescription number would
be shipped to the physician and would be maintained until the date of
drug administration. At the time the drug was administered to the
beneficiary, the physician or his or her staff would place the
prescription number for each drug administered on the claim form.
Similarly, when the vendor billed Medicare for the drug it shipped to
the physician, it would place the relevant prescription number on the
claim form. The electronic version of the Medicare carrier claim form
has space for a series
[[Page 10755]]
of prescription numbers, which CMS has not utilized previously for Part
B drugs.
As part of implementing the CAP program, we would require that
vendors and physicians who elect to participate in CAP have the
capability of submitting these prescription numbers to us in their
claims processing systems. If physicians and potential vendors are not
already billing other payors using prescription numbers, they would
need to work with their internal information systems staff or practice
management software vendors to make the necessary changes to submit
these data elements to Medicare in a manner consistent with HIPAA
transaction guidelines for capturing prescription numbers.
Our claims processing methodology would use the prescription number
to match the two claims and authorize payment to the vendor. Under our
proposed approach, payment to the vendor would be dependent upon the
filing of the drug administration claims by the physician, and the
physician's claim being approved for payment by the CMS claims
processing system. We are seeking public comment on whether there are
demonstrable, compelling reasons why CMS should consider making a
partial payment to the vendor in cases where the drug administration
claim is not received by the CMS claims processing system within 28
calendar days of the anticipated date of administration. We are also
seeking public comment on what the appropriate percentage of the
partial payment should be.
Although we are not proposing to make a partial payment at this
time, the following section describes how we would propose that the
partial payment methodology would work, if we decide to implement this
option. After the designated carrier makes the partial payment, the CMS
claims processing system would continue to attempt to match the
physician claim and the vendor claim for 90 days. We would not pay
interest on interim payments. If a match of the two claims occurred,
the vendor would receive Medicare payment for the remaining amount of
money due on the claim. If no match between the two claims was made
within 90 days, recovery of the amount already paid by Medicare would
occur using normal Medicare overpayment recovery processes.
As required by the statute, the vendor would not be allowed to bill
the beneficiary and/or his or her third party insurance for any
applicable deductible and coinsurance until the Medicare carrier had
verified that the physician has administered the drug to the
beneficiary, and final payment is made by the Medicare program. Proof
that the drug was administered to the beneficiary would be established
by the physician's claim being matched with the drug vendor's claim in
the Medicare central claims processing system. After the two claims are
matched the claims processing system would notify the designated
carrier to issue final payment to the vendor. The obligation to pay
interest on a clean claim would not arise until drug administration had
been verified by the Medicare claims processing system. We propose that
issuance of final payment by the Medicare program would serve as
notification to the vendor that drug administration had been verified
and that the vendor could proceed with billing the beneficiary or his
or her third party insurance.
We propose that in accordance with section 1847B(b)(5) of the Act,
in emergency situations drugs acquired under the CAP could be used to
resupply inventories of drugs administered by physicians. We propose
that this process would apply if the physician could demonstrate all of
the following to the local carrier: (1) The drugs were required
immediately. (2) The physician could not have anticipated the need for
the drugs. (3) The vendor could not have delivered the drugs in a
timely manner. (4) The drugs were administered in an emergency
situation.
As discussed in section C.2.a. of the preamble, we are seeking
public comment on how to define timeframes for timely delivery, and for
emergency delivery.
We propose that in emergency situations that met the criteria
outlined above, the physician would treat the Medicare beneficiary with
a drug from his or her own stock. After administering the drug to the
beneficiary, the physician would prepare an order, identifying the drug
as an emergency replacement. When the drug was received from the vendor
the physician would return the drug to his stock. Both the physician
and the vendor would bill normally for the drug or its administration
as applicable. We seek comment on the additional criteria we will use
to define the replacement process.
We also propose to allow the physician to obtain a drug under the
ASP methodology in ``furnish as written'' cases when medical necessity
requires that a specific formulation of a drug be furnished to the
patient. This situation closely parallels dispense as written (DAW)
prescription orders. In cases when the vendor has not been contracted
to furnish a specific formulation of a drug or a product defined by the
product's NDC number, and the specified product is medically necessary,
the physician could purchase the product for the beneficiary from a
source other than the CAP vendor and bill Medicare for it using the ASP
methodology. We would establish this method of alternative payment for
a competitively biddable drug under proposed Sec. 414.906(c)(2) of our
regulations.
We propose that physicians who elect to participate in the CAP
would continue to bill their local carrier for drug administration. In
addition, we are proposing that for those drugs that are not included
in the CAP, and for drug categories that the physician does not select,
the physician would continue to bill and be paid under the ASP
methodology. We are seeking public comment on whether physicians must
obtain all categories of drugs that a particular CAP vendor provides
from the vendor, or whether the physician should be allowed to choose
the categories drugs he wishes to obtain from the vendor.
Some physicians have expressed concern that participation in the
CAP would be administratively burdensome, for example, involve clerical
and inventory resources. We do not believe that the clerical and
inventory resources associated with participation in the CAP exceed the
clerical and inventory resources associated with buying and billing
drugs under the ASP system. The payment for clerical and inventory
resources associated with buying and billing for drugs under the ASP
system is bundled into the drug administration payment under the
physician fee schedule. Taking these factors into account we are not
proposing to make a separate payment to physicians for the clerical and
inventory resources associated with participation in the CAP program.
In addition, we propose to require prompt claim filing on the part
of physicians who elect to participate in the CAP in order to
facilitate the match between the physician claim and the drug vendor
claim so that drug administration can be verified. Statistics obtained
from Medicare claims filing data indicate that more than 75 percent of
physician's claims are currently filed within 14 days of the date of
service. We propose that in their CAP election agreements, physicians
who choose to participate in CAP would be required to agree to bill
their claims within 14 calendar days of the date the drug was
administered to the beneficiary, unless extenuating circumstances
prevented
[[Page 10756]]
them from filing the claim. We seek public comment on how we should
define the extenuating circumstances.
All drug vendors would submit their claims to the designated
carrier who would be designated to receive them.
After a physician saw a Medicare beneficiary and ordered a CAP
drug, 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. The physician would prepare a drug order and
forward it to the drug vendor.
The order transmitted between the physician and the drug vendor may
occur in a variety of HIPAA-compliant formats, such as by telephone
with a follow-up written order. We propose that the physician would
transmit the following information to the CAP drug vendor from whom he
or she has elected to receive drugs. Abbreviated information could be
sent for repeat patients.
Date of order
Beneficiary name
Physician identifying information
Name, practice location, group practice information (if
applicable), PIN and UPIN
Drug name
Strength
Quantity ordered
Dose
Frequency/instructions
Anticipated date of administration
Beneficiary Medicare information/Health insurance (HIC)
number
Supplementary Insurance info (if applicable)
Medicaid info (if applicable)
Shipping address
Additional Patient Info: date of birth, allergies, Ht/Wt/
ICD-9, etc.
We are interested in receiving comments on the information we are
proposing to require as well as any additional information that might
be necessary.
In emergency replacement situations, the physician would also make
a notation on the order that the drug was a replacement for a drug
already administered to the beneficiary. This notation may involve the
use of a modifier to a HCPCS code, or another standardized means of
incorporating the information into a claim. The vendor would prepare
the drug order, assign the unique transaction identification (or
prescription) number and ship the replacement product to the physician.
Standard CAP billing and claim processing procedures would follow. We
anticipate that the physician's carrier would, at times, conduct a post
payment review of emergency drug replacement in order to determine
whether physicians were complying with conditions for emergency drug
replacement.
We propose that in ``furnish as written'' situations, when the
physician has determined that it is medically necessary to use another
brand of product within the HCPCS or a product with an NDC that is not
being furnished by the vendor that the physician would be allowed to
bill for the drug under ASP, even though he or she had elected to
participate in the CAP. We propose that the physician would obtain the
specific product through normal distribution channels and bill the
product using the ASP methodology. The physician would be instructed to
place a ``furnish as written'' modifier on his or her claim form and
bill his or her Medicare carrier for the drug and the administration
fee. The modifier would alert the carrier to allow the physician to
bill under ASP in this case. We anticipate that the physician's carrier
would, at times, conduct a post payment review of the use of the
``furnish as written'' modifier. If the carrier determined that the
physician had not complied with furnish as written requirements and
that a specific NDC or brand name drug was not medically necessary, the
carrier could deny the claim for the drug and the administration fee.
After the physician submitted an order for the drug, the drug
vendor would receive it and check the physician's CAP eligibility from
a list provided by the designated carrier and would verify the
beneficiary's Medicare eligibility with the designated carrier.
After those checks were completed, the vendor would generate a
prescription number that would include the vendor's assigned
identification number and the drug HCPCS code. The vendor would
assemble the order and prepare it for shipping. The vendor would ship
the drug to the physician using a delivery method specified by its
contract with CMS.
We anticipate that the physician's office staff would receive the
CAP drug(s) and store them until the time of administration. Although
the statute discusses a patient-specific drug ordering process, it does
not address the methods that may be used to store and inventory drugs
in an office or clinic setting, or the potential burden associated with
storing a patient's CAP drugs separately from other drugs. We believe
that less burdensome alternatives to keeping separate inventories
exist; however, any alternatives would be required to maintain program
integrity and product integrity and to minimize the risk of diversion,
and medication errors. We do not believe that separate physical storage
of CAP drugs is required. However, we are proposing that physicians
participating in the CAP would be required to maintain a separate
electronic or paper inventory for each CAP drug obtained. We seek
public comment on additional requirements that we should impose on
maintaining CAP inventory.
If for some reason the drug could not be administered to the
beneficiary on the expected date of administration, we propose that the
physician would notify the vendor and reach an agreement on how to
handle the unused drug, consistent with applicable State and Federal
law. The notification would also serve to inform the vendor not to
submit a claim for the drug. If the vendor and the physician agreed
that the drug could be maintained in the physician's inventory for
administration to another Medicare beneficiary at a later time, the
physician would generate a new order form at that time. Included in the
order would be a notation that the drug was being obtained from the
physician's inventory of the vendor's drugs and that the vendor need
not ship the drug.
We note that billing beneficiaries for applicable deductible and
coinsurance would not be allowed at the time the drug is administered
at the physician's office as is the current customary practice outside
of the CAP. The statute requires that the vendor bill Medicare and the
beneficiary, and that the beneficiary may not be billed until after the
drug has been administered to the beneficiary. As discussed earlier, we
are proposing that the vendor be allowed to bill the beneficiary and/or
his or her third party insurance after drug administration has been
verified by matching the physician claim with the vendor claim using
the prescription number, and final payment is made by the Medicare
program.
After administering the drug, the physician would submit a claim to
his or her local carrier for drug administration. We propose that the
claim would include the drug administration fee, the HCPCS code for the
drug administered, the prescription number for each drug administered,
and the date of service.
The local carrier would adjudicate the claim and check that the
physician was billing for appropriate drugs from the selected drug
vendor, and that the claim was compliant with all local coverage
determinations (LCDs). If the physician's claim failed LCD edits, the
local carrier would deny the claim and
[[Page 10757]]
would notify the central CMS claims processing system that the drug
vendor's claim for the drug should not be paid.
If the claim passes all edits, the local carrier would forward it
to the CMS central claims processing system for additional editing and
approval for payment.
After shipping the drug to the physician, we propose that the drug
vendor would file a claim for the drug with the designated carrier no
sooner than the expected date of administration. The claim form would
contain the prescription number for each drug administered to the
beneficiary on one calendar date, the unique provider identification
number (UPIN) for the physician to whom the drug was supplied, and the
expected date of service.
The designated carrier would submit the claim to the central claims
processing system after the claim had passed all edits.
The central claims processing system would match the physician
claim with the vendor claim using the prescription number. If the
physician claim for administering the drug had not been received in the
central claims processing system but the vendor claim had received
initial approval for payment, the claims processing system may pay the
vendor a percentage of the claim payment amount. (Note: At this time,
we are not proposing to implement a partial claims payment. However, as
described earlier in this section, we are seeking comments on
compelling reasons for making such a payment. The following section
describes the process that we would follow if a partial payment
methodology were implemented.)
If CMS decides to make an initial payment to the vendor, the vendor
would be paid for the remaining amount of the claim when the
physician's claim was matched with the vendor claim in the claims
processing system. We note that CMS would not pay interest on partial
payments.
If the physician's claim was not received within 90 days, or the
claim was not approved for payment, the initial partial payment made to
the vendor would be recouped using CMS overpayment recovery processes.
As noted previously, after the Medicare program makes the final
payment, the vendor would be allowed to bill the beneficiary or the
beneficiary's third party insurance, or both.
The following diagram demonstrates the proposed delivery system:
[GRAPHIC] [TIFF OMITTED] TP04MR05.001
3. Dispute Resolution
[If you choose to comment on issues in this section, please include
the caption ``Dispute Resolution'' at the beginning of your comments.]
Section 1847B of the Act is generally silent with regard to the
treatment of disputes surrounding the delivery of drugs and the denial
of drug claims. Section 1847B(b)(2)(A)(ii)(II) of the Act does contain
a reference to a grievance process which is included among the quality
and service requirements expected of vendors.
We have given substantial consideration to the applicability of the
Medicare Part B administrative appeals process found at 42 CFR 405.801
et seq. We believe the traditional Part B appeals process continues to
be the appropriate dispute resolution process for beneficiaries and
physicians seeking review of drug administration claims that have been
denied by the local carrier for any of the reasons described
[[Page 10758]]
in Sec. 405.803(a). Those reasons include the following: (1) Services
were not a covered benefit; (2) Deductible was not met; (3) No evidence
of acceptable payment; (4) Charges for services were unreasonable; and
(5) Services furnished were not reasonable and necessary.
We see several reasons why disputes raised by the vendor regarding
the nonpayment of a drug claim by the designated carrier cannot be
adjudicated by application of the traditional Part B appeals process.
First, the designated carrier's denial is based on the lack of a unique
prescription ID number match in the central claims processing system.
This reason does not meet any of the appeal criteria in Sec.
405.803(a). Second, given the ministerial aspect of the designated
carrier's prescription number matching task, an informal process
focused on getting the underlying physician drug administration claim
properly filed and adjudicated is a more effective remedy. Finally, we
believe application of the progressive alternative dispute resolution
process described below represents a better use of program
administration resources.
We encourage physicians, beneficiaries and vendors to use informal
communication to resolve service-related administration issues that
occur in a delivery and payment system of this complexity. However, we
recognize a certain percentage of these disputes will require the
intervention of a neutral third party. Our proposed dispute resolution
process is set forth in regulations at proposed Sec. 414.916.
a. Resolution of Vendor's Claim Denial. The physician has exclusive
control of the claim filed with the local carrier for drug
administration services.
The vendor will not be a party to the appeal a physician may file
if his or her drug administration claim is denied. The vendor's drug
claim may be denied by the designated carrier if there is no unique
prescription number match in the central claims processing system. The
vendor cannot bill Medicare for the cost of a drug and cannot bill the
beneficiary for the appropriate deductible or coinsurance.
The vendor may track its business with the individual physicians
who order drugs. When a vendor is not paid and the total dollar amount
of the vendor's loss exceeds an acceptable threshold, then the vendor
may ask the designated carrier to counsel the physician on his or her
obligation under the CAP election agreement to file a clean claim and
pursue an administrative appeal in accordance with his or her CAP
participation agreement. The particulars of the participating CAP
physician's CAP election agreement are outlined in Sec. 414.908(a)(3)
of our regulations. We seek comment on the appropriate amount for the
vendor's loss threshold. If problems persist, we propose the vendor may
ask the designated carrier to review the situation and potentially
recommend a suspension of the physician's CAP participation agreement.
The designated carrier will gather and review the relevant facts, and
make a recommendation to CMS on whether the physician has been filing
his or her CAP administration claims in accordance with the
requirements for CAP participation. We would review the recommendation
of the designated carrier and, if necessary, gather additional
information before deciding whether to revoke the physician's election
to participate in the CAP for a period not to exceed the end of the
following CAP election cycle.
The physician may appeal our initial decision through the process
articulated in proposed Sec. 414.916.
b. Resolution of Physicians' Drug Quality and Service Complaints.
Issues connected with drug quality will be given a top priority. Both
the vendor and the designated carrier will be required to have
qualified staff available to address drug quality complaints upon their
receipt. The physician's first point of contact for quality related
issues will be the vendor. If the issue is not resolved to the
physician's satisfaction through the vendor's grievance process, the
physician may escalate the matter to the designated carrier
immediately.
We recognize the physician's need for a process to treat vendor
service issues as well. Service issues may include timeliness of
delivery and quantity of the drug ordered. We propose that a physician
be allowed to request intervention from the designated carrier. We
propose the designated carrier will attempt to develop solutions that
will satisfy both parties. The designated carrier will create a
quarterly compendium of the issues and solutions to share with us.
c. Resolution of Beneficiary Billing Issues. The beneficiary would
receive a medical summary notice (MSN) from the local carrier
indicating whether the physician's drug administration claim has been
paid or denied. If the drug administration claim has been denied, the
MSN will reflect a message instructing the beneficiary no deductible or
coinsurance may be collected for the drug. If the beneficiary receives
a bill for coinsurance from the vendor, the beneficiary may participate
in the vendor's grievance process to request correction of the vendor's
file. If the beneficiary is dissatisfied with the result of the
vendor's grievance process, the beneficiary may request intervention
from the designated carrier. The designated carrier will first
investigate the facts and then facilitate correction to the appropriate
claim record and beneficiary file. If the vendor requires targeted
education on the subject of beneficiary billing the designated carrier
will initiate that effort.
C. CAP Contracting Process
1. Quality and Product Integrity Aspects
[If you choose to comment on issues in this section, please include
the caption ``Contracting Process-Quality and Product Integrity
Aspects'' at the beginning of your comments.]
Sections 1847B(b)(2), 1847B(b)(3), and 1847B(b)(4) of the Act
address the issue of quality under the competitive acquisition process
at both the product and vendor level. We propose to use the evaluation
process to ensure that these quality aspects are met.
a. Information to Assess and Ensure Quality. Sections
1847B(b)(2)and 1847B(b)(3) of the Act specifically require that
potential CAP vendors meet financial and quality of care requirements
aimed at assuring the stability and safety of the CAP program. Section
1847B(b)(2)(A) of the Act requires that vendors have sufficient
capacity to acquire and deliver drugs in a timely manner within the
geographic area, to deliver drugs in emergency situations, and to ship
drugs at least 5 days each week. This section also requires that
vendors meet quality, service, financial performance, and solvency
standards, which include having procedures for dispute resolution with
physicians and beneficiaries regarding product shipment, and having an
appeals process for the resolution of disputes. We propose that CMS be
allowed to suspend or terminate a vendor's contract if the vendor falls
out of compliance with any of these quality requirements. Section
1847B(b)(2)(B) of the Act states that the Secretary may refuse to award
a contract, and may terminate a contract if the entity's license to
distribute drugs (including controlled substances) has been suspended,
or revoked, or if the entity is excluded from participation under
section 1128 of the Act. We note this requirement is enforced through
the routine provider enrollment form monitoring process. Finally,
section 1847B(b)(3)(C) of the Act states that the ability to ensure
product integrity must be included in the criteria for awarding vendor
contracts.
[[Page 10759]]
At a minimum, we seek to define a set of overall financial and
quality standards that would ensure that reputable, and experienced
vendors are chosen to participate in the CAP. These features are
important for a number of reasons. Physicians would be reluctant to
participate in the CAP if they have little confidence that CAP vendors
would be reliable and provide quality CAP products. Also, given the
importance of the drugs and biologicals currently covered under
Medicare Part B to beneficiaries, CAP vendors would be required to
provide quality products in a timely manner.
Section 1847B(b)(4)(C) of the Act specifies that any contractor
selected for this program ``shall (i) acquire all drugs and biological
products it distributes directly from the manufacturer or from a
distributor that has acquired the products directly from the
manufacturer; and (ii) comply with any product integrity safeguards as
may be determined to be appropriate by the Secretary.'' We propose to
include this requirement in the contracts signed between CMS and
vendors providing drugs or biologicals under this section. However, we
invite comment on what records or other evidence that bidders would be
required to furnish and approved vendors would be required to maintain
during the contract period.
b. Product Integrity. Section 1847B(b)(3)(C) of the Act states that
the Secretary must consider the ability of the applicant to ensure
product integrity. We propose that the evaluation include, but not be
limited to, the applicants' ability to assure that products are not
adulterated, misbranded, spoiled, contaminated, expired, or
counterfeit. This means that at a minimum, all drugs and biologics
utilized in this program must be licensed under section 351 of the
Public Health Service Act or approved under section 505 of the Federal
Food, Drug, and Cosmetic Act. Vendors would also be required to comply
with sections 501 and 502 of the Federal Food, Drug, and Cosmetic Act
concerning adulteration and misbranding.
Additionally, applicants would be required to employ trained
personnel, have appropriate physical facilities, and utilize adequate
security measures to assure that processing, handling, storage, and
shipment of drugs and biologicals are adequate to maintain product
integrity. Because Federal statutory and regulatory requirements are
designed to meet the standards in the paragraph above, we propose to
require that all applicants comply with State licensing requirements
and be in full compliance with any State or Federal requirements for
wholesale distributors of drugs or biologics in States where they
furnish drugs for the CAP.
Although we are not proposing to require applicants to employ
measures beyond those required for licensure and regulatory compliance,
we do believe those are a minimum standard, and we will request that
applicants discuss any additional measures they have taken to assure
product integrity. For a more complete discussion of measures available
for wholesale distributors to deter and detect counterfeit drugs, we
ask applicants to review the report on counterfeit drugs issued by the
Food and Drug Administration (FDA) on February 18, 2004. This report,
``Combating Counterfeit Drugs,'' is available on the FDA Web site at
http://www.fda.gov/counterfeit. At this time, we propose that
applicants describe measures taken to ensure drug product integrity on
the vendor application form.
Examples of additional measures that pose minimal burden, but
greatly enhance the ability to detect adulterated, misbranded or
counterfeit drugs that wholesale distributors have taken to assure
product integrity include the following:
--Complying with the ``Recommended Guidelines for Pharmaceutical
Distribution System Integrity'' developed by the Healthcare
Distribution Management Association, available at
http://www.healthcaredistribution.org. Among other things, these guidelines
contain recommended measures for due diligence to ensure the integrity
and legitimacy of supply chain business partners including the
performance, by a wholesale distributor, of extensive corporate and
personnel background checks as well as a physical facility inspection
of another wholesale distributor prior to entering into a business
relationship.
--Cooperating with Federal and State authorities in their
investigations of suspected counterfeit drugs.
--Establishing mechanisms to obtain timely information about suspected
counterfeits in the marketplace and to educate their employees on how
to identify them.
--Notifying appropriate State and Federal authorities within 5 business
days of any suspected counterfeit products discovered by the
wholesaler.
c. Financial Performance and Solvency Standards. Section
1847B(b)(2) of the Act discusses the financial performance and solvency
standards we must develop for entities that seek to become vendors. We
propose to fold integrity and internal control aspects of fiscal
responsibility into this analysis.
While licensure by the State to distribute drugs may assess some
degree of financial responsibility, we believe the focus and depth of
financial capability evaluations associated with licensure may vary
across States. We seek to assess bidders' financial solvency in a
consistent manner that will demonstrate appropriate scrutiny without
creating unnecessary burden on the bidders. We propose using criteria
from the Federal Acquisition Regulation (FAR) Section 9.104 and
following standards for ``responsible contractors'' as a baseline
standard. The FAR standards also contain nonfinancial components that
address areas such as integrity, performance, and ethics. We seek to
add standards that would demonstrate the following:
--Overall Capitalization and Financial Capability. We propose that
bidders furnish a copy of their most recent year's audited financial
statements. Specific items, such as net worth, could be used in the
evaluation process. We seek comment on the potential validity of
specific financial indicators for this process and whether or not
specific thresholds would be applicable. We also seek comment on this
overall requirement from potential bidders, such as group purchasing
organizations (GPOs), who do not routinely take possession of drug
products.
--Working Capital. We propose to review the audited financial
statements to determine if the bidder has adequate working capital to
meet contractual obligations. Ratios of current assets to current
liabilities, total liabilities to net worth, and cash or cash
equivalents to current liabilities are commonly used to assess
financial capability (see the form at FAR 53.301-1407). Given the 3-
year contract duration, we seek comments regarding the appropriateness
of these tests, and thresholds to apply for the ratios.
--Record of Integrity. We propose that the bidders supply us with
applicable information on whether any of the bidder's Board of
Directors, employees, affiliated companies, or subcontractors--
Know they are under investigation by any State, Federal,
or Local Government agency related to a fraud issue; and
Have escrowed money in anticipation of, or entered into a
[[Page 10760]]
settlement agreement or corporate integrity agreement with any State or
Federal Government agency related to a fraud issue.
We would also request bidders to provide a conflict of interest
mitigation plan to address financial relationships the bidder may have
with manufacturers of drugs or biologicals in the CAP.
--Internal Control. We propose to review information relating to
the establishment and effectiveness of the bidder's internal control
system designed to provide reasonable assurance financial and
compliance objectives. Examples of information that we may review as
evidence of the design and effectiveness of a bidder's internal control
system include previous Statement on Auditing Standards 70 review
results, independent third party reviews of the system, or other
related information as we deem appropriate.
We propose to set forth these requirements in regulations at
proposed Sec. 414.908.
Deemed Compliance
Some vendor applicants may already be subject to financial
oversight by one or more State or Federal regulators. The vendor's
current financial reporting may satisfy one or more of the above
requirements. We propose to request documentation of this parallel
oversight together with contact information for the regulator. We would
contact the regulator to inquire as to the vendor's status and we may
deem certain portions of the above requirements ``met'' at our
discretion.
2. Bidding Entity Qualifications
a. Quality and Financial Information--Vendor Application.
[If you choose to comment on issues in this section, please include
the caption ``Bidding Entity Qualifications'' at the beginning of your
comments.]
The vendor would be responsible for completing and meeting all
criteria on both the Vendor Application Form and the Provider/Supplier
Enrollment Application (Form CMS 855B) (for this purpose, vendors will
be considered suppliers) by the established deadlines in order to be
considered as a potential vendor under the CAP. For example, if a
vendor has been excluded from participation in a Federal health
program, or has been convicted of a fraud-related crime, the vendor
must record that on the form 855B. CMS would treat these admissions
from vendors in the same manner as it does for other suppliers. Both
the Vendor Application Form and the Provider/Supplier Enrollment
Application (Form CMS 855B) would be available on the CMS Web site at
the following address: http://www.cms.hhs.gov/providers/drugs/). Both
forms are needed to cover all required vendor qualifications. However,
the forms cannot be completed online. They must be printed, completed
and mailed to CMS.
We would require that the vendor be prepared to offer complete
information in four major areas and also to complete a certification
statement. The vendor's business experience would be required to be
within the United States. Also required on the Vendor Application Form
would be a complete list of drugs that the vendor would intend to bid
by National Drug Code (NDC) number.
Management and Operations
We propose to require that the vendor attest that adequate
administrative arrangements are in place to ensure effective
operations, such as but not limited to, policies that assure that
business is conducted in the best interest of the customer, maintenance
of fidelity bonds, and insurance policies to cover losses. General
identifying information would also be required such as business name,
address, taxpayer identification number, contacts representing the
organization, and a description of the organization's structure. In
addition, each subcontractor, subsidiary, or business affiliate that is
used by the vendor under the CAP would be required to provide the same
information.
Experience and Capabilities
The vendor would be required to maintain the operation of a
grievance process so that physician, beneficiary, and beneficiary
caregiver complaints can be addressed. We expect vendors to provide a
prompt response to any inquiry as outlined in the vendor application
form. We would require that vendors maintain business hours on weekdays
and weekends with staff available to provide customer assistance for
the disabled, including the hearing impaired, and to Spanish speaking
inquirers. Vendors would also be required to provide toll free
emergency assistance when the call center is closed. Customer service
is a primary consideration, especially the ability to respond on an
emergency basis to physicians. In addition, we would require that a
working telephone customer service number be submitted and will be
verified during the bid evaluation process.
Section 1847B (b)(2)(A)(i)(II) of the Act gives some guidance
regarding timeframes for routine and emergency shipment, however, the
statute does not provide specific definitions of these timeframes.
Therefore, we are seeking public comment on how to define timely
delivery for routine and emergency drug shipments. For the purposes of
this discussion, we propose that the delivery time period would begin
when a drug order is received by the vendor and would end at the time
of delivery to the physician's office or other intended setting. We
propose that routine shipments of drugs furnished under the CAP would
occur within a one to two business day time period. However, the
duration of the delivery time period must not exceed the drug's
stability in appropriate shipping containers and packaging. We seek
comments on the feasibility of requiring a shorter duration for routine
delivery of CAP drugs. We also propose that emergency drug orders be
furnished on the next day for orders received by the vendor before 3
p.m. (vendor's local time), however, we seek comments on the
feasibility of providing same-day deliveries for orders received for
emergency situations.
We propose to require that vendors maintain a formal mechanism for
responding to complaints from physicians, beneficiaries, and their
caregivers (if applicable). We propose that evidence of this mechanism,
in the form of any complaint resolution manuals, agendas, and minutes
from complaint resolution committee meetings, or other evidence would
be submitted as part of the bid application.
In addition to providing an audited financial statement as an
attachment, we propose that the vendor be required to present a
standardized summary of financial information on the collection form.
We would require the vendor to have been in the business of furnishing
Part B injectable drugs for at least 3 years. We seek comment on this
standard, especially on whether the requirement of 3 tax reporting
years of experience would prevent newer vendors with sufficient
experience and resources from being included in the program. The vendor
would be prepared to offer and substantiate the drug volume managed
(dollars and units) for the immediate previous calendar year. Also, the
vendor would be asked to provide specific personnel statistics such as
the number of staff assigned to various activities, and its policy-
making organizational structure within the United States, including a
discussion of the membership of this body and to whom it reports.
Finally, by virtue of the fact that selected vendors would be
enrolled Medicare suppliers, a vendor would be a health care provider
and would be a covered entity under the HIPAA
[[Page 10761]]
Administrative Simplification Rules, to the extent that it conducts any
of the standard HIPAA transactions electronically. As a covered entity,
vendors would be required to comply with the Administrative
Simplification rules, including the Privacy Rule.
Licensure
The vendor would be required to maintain an appropriate license in
each State in which the drug vendor seeks to operate under the CAP. We
would also require that the vendor certify that any subcontractor or
subsidiary also maintains a license that complies with State
regulations in every applicable State.
Business Integrity
The vendor is responsible for identifying and disclosing business
relationships and conflicts of interest as well as potential conflicts
of interest with other organizations. Also, the vendor is required to
answer questions and provide information about fraud investigations,
settlement agreements, and Federal government exclusions.
Certification
We propose that the vendor be prepared to certify that all the
information in the Vendor Application Form is true, accurate, and
complete and to certify to any other requirements as specified by CMS.
Failure to provide correct and updated information when it becomes
available, if it affects the information provided on the Vendor
Application Form may be cause for termination of the vendor's contract
under the CAP.
b. Specific Information Relating to Prevention of Fraud and Abuse.
[If you choose to comment on issues in this section, please include
the caption ``Contracting Process-Quality and Product Integrity
Aspects'' at the beginning of your comments.]
Section 1847B(b)(4)(D)(ii) of the Act requires that the drug vendor
comply with all applicable provisions relating to the prevention of
fraud and abuse. This includes compliance with applicable guidelines of
the Department of Justice (DOJ) and the Inspector General of the
Department of Health and Human Services (OIG). In accordance with this
statutory authority, we propose that each CAP vendor develop and
maintain a compliance plan to control program fraud, waste, and abuse,
that includes at a minimum, the requirements proposed at Sec.
414.914(c) of our regulations. These requirements already apply to many
of the entities participating in the Medicare program, such as
prescription drug plans administering the prescription drug benefit and
Medicare Advantage organizations. In addition, the OIG has recommended
these minimum elements in published guidance.
A compliance plan should contain policies and procedures that
control program fraud, waste and abuse. In developing written policies,
procedures, and standards of conduct for detecting and preventing
waste, fraud and abuse, CAP vendors should consult a variety of sources
including applicable statutes and regulations and compliance guidance
issued by CMS, its contractors, Program Safeguard Contractors (PSCs),
and the OIG. Publications that may provide relevant information include
the OIG's Program Compliance Guidance for Pharmaceutical Manufacturers,
(68 FR 23731) and OIG's voluntary Provider Self-Disclosure Protocol,
(63 FR 58399). We propose that CAP vendors also consider industry best
practices in developing their compliance plans.
We propose that vendors establish effective training and education
programs related to waste, fraud, and abuse that address pertinent laws
related to fraud and abuse including the Anti-Kickback law and the
False Claims Act. In addition, we propose that CAP vendors and
contracted entities be trained on detecting and preventing common
fraudulent schemes in the pharmaceutical industry, as identified by
CMS, the OIG, and/or the DOJ. Some examples of common fraudulent or
abusive problems within the pharmaceutical industry include--
Lack of integrity of data used to establish payment amounts;
Kickbacks and other illegal remuneration; and
Lack of compliance with laws regulating drug samples.
To ensure successful internal monitoring and auditing of waste,
fraud, and abuse under Part B, we propose that CAP vendors should
regularly monitor and audit their processes and procedures to assure
that they are in fact taking the steps necessary to comply with all
Federal and State regulations and to mitigate the potential for waste,
fraud, and abuse within their organizations. Industry best practices
related to fraud, waste, and abuse detection include the use of
proactive data analysis and or other analytical processes to detect and
address potential fraud. Establishing procedures to ensure prompt
responses to potential fraud violations is an important element in an
effective fraud and abuse plan. CAP vendors would be responsible for
monitoring and identifying potentially fraudulent or abusive activity.
For assistance in identifying what constitutes abusive or fraudulent
activity, CAP vendors may consult a variety of sources including media
reports, DOJ litigation history, OIG published guidance and CMS policy
manuals. After a CAP vendor has determined that any misconduct has
violated or may violate criminal, civil or administrative law, the CAP
drug vendor should report the existence of the misconduct to OIG or
other appropriate government authority within a reasonable period, but
no later than 60 days after the determination that a violation may have
occurred. Self-reporting of fraud and abuse is a critical element to an
effective compliance plan, and CAP vendors are strongly encouraged to
alert CMS, the PSCs, the OIG, or law enforcement of any potential fraud
or misconduct relating to the CAP. We investigate all cases referred as
potentially fraudulent and then refer them to the appropriate law
enforcement agency as warranted. Likewise, we expect that the CAP
vendors fully cooperate in any investigation that we or our law
enforcement partners pursue related to fraud identified in a particular
drug vendor's organization.
We are aware that there are many possible approaches to developing
an effective compliance plan to implement a successful waste, fraud,
and abuse program. Therefore, we are seeking comments on the scope and
implementation of an effective compliance plan.
c. Conflicts of Interest. Section 1847B(b)(4)(D)(i)of the Act
requires that drug vendors participating in the CAP comply with a code
of conduct, specified or recognized by the Secretary. The statute
authorizes CMS to establish codes of conduct related to conflicts of
interest in bidding and performance for drug vendors.
A code of conduct should function much like a constitution, that
is, it should be a document that details the fundamental principals,
values, and framework for action within an organization. We propose
that the code of conduct for CAP vendors articulate the vendor's
expectations of commitment to compliance by management, employees, and
agents, and summarize the broad ethical and legal principles under
which the company must operate.
Avoiding conflicts of interest or the appearance of such conflicts
is critical to the operations of CAP. In accordance with our statutory
authority under the Act, we propose to require that each CAP vendor
establish and follow a code of conduct that addresses their policies
[[Page 10762]]
and procedures for identifying and resolving any conflict of interest.
A conflict of interest may occur where a drug vendor, its
representative, or contractor provides a product or service for a
Medicare provider or beneficiary and the drug vendor, representative or
contractor has a relationship with another person, entity, product or
service that impairs or appears to impair the drug vendor's or
contractor's objectivity to provide the Medicare covered product or
service. Situations that compromise or appear to compromise a drug
vendor's ability to avoid self-dealing when providing a Medicare
product or service create a conflict of interest and must be resolved.
Drug vendors should take steps to identify and mitigate any conflict of
interest that may arise in the provision of a product or service for a
Medicare provider or beneficiary.
We propose that the code of conduct communicates the need for all
management, board of directors, employees, and agents to comply with
the CAP vendor's code of conduct and policies and procedures for
addressing and resolving conflicts of interest. We propose that the
code of conduct reflects the CAP vendor's commitment to detect and
resolve any conflict of interest. We propose further that the code of
conduct establish procedures for determining whether or not a conflict
exists, and if so, how the conflict will be resolved. We propose that
the code of conduct address issues such as whether or not the offer or
acceptance of some remuneration to or from a vendor, physician,
beneficiary, or manufacturer would diminish, or appear to diminish, the
objectivity of professional judgment; or whether or not certain
transactions raise patient safety or quality of care concerns.
In addition, throughout the solicitation of CAP contracts, we
propose that drug vendors comply with the requirements of the FAR
organizational conflict of interest guidance, found under 48 CFR
Subpart 9.5, and the requirements and standards contained in each
individual contract awarded to perform functions under section 1847B of
the Act. Consistent with FAR 9.507-2, in making awards to drug vendors,
we propose that each contract contain a conflict of interest clause
specific to the CAP vendor for inclusion in the contract.
We are proposing fairly general conflict of interest requirements
because we believe that individual contracts may be a better venue to
address specific conflicts of interest. However, we solicit and welcome
comments regarding what may or may not constitute a conflict of
interest in the CAP program and how such conflicts might be identified
and mitigated.
We propose to set forth our conflict of interest policies and
procedures in regulations at proposed Sec. 414.912.
3. CAP Bidding Process--Evaluation and Selection
a. Evaluating Bid Prices by the Composite Bid Price.
[If you choose to comment on issues in this section, please include
the caption ``Cap Bidding Process-Evaluation and Selection'' at the
beginning of your comments.]
In selecting vendors, the statute requires consideration of both
price and non-price (for example, quality of service and financial
qualifications) aspects of the bid. Once we have adopted technical and
financial criteria for selecting CAP vendors, and bids have been
submitted, the bids must be evaluated to determine which bidders will
be awarded contracts to furnish drugs under the CAP. In the final rule,
our ultimate choice of an appropriate evaluation process will take into
account the final policies concerning the drug categories that will be
bid, the geographic areas chosen for the program, and comments on our
proposed evaluation process. In this proposed rule, we are proposing a
basic approach to the evaluation and bidding selection process. We
encourage comments on this proposal, and recommendations for
alternative approaches. In the discussion of our proposal for the
bidding process as set forth in Sec. 414.910, and the various other
options that we have identified, we assume that we are conducting
competitive bidding for some number of distinct drug categories. We
also assume that bidders with relatively large (including national)
distribution networks might also want to submit bids for multiple
acquisition areas (depending upon the area definitions that we adopt in
the final rule). These bidders will be permitted to submit the same bid
price for all areas in which they wish to compete, or to submit
completely separate bid prices for each acquisition area. The procedure
for evaluating the price component of bids (and setting payment rates)
would be the same regardless of the exact method for defining
categories of HCPCS drugs that is adopted in the final rule. Section
1847B(c)(6) of the Act requires that the submitted bid price include
all costs related to the delivery of the drug to the selecting
physician, and the costs of dispensing (including shipping) of the drug
and management fees. Costs related to the administration of the drug or
wastage, spillage, or spoilage may not be included in the submitted
bid. We proposed to specify these requirements at proposed Sec.
414.910 of the bidding process.
The purpose of requiring vendors to bid for all drugs in a category
would be to determine a set of vendors that can supply the range of
drugs in that category at an appropriate overall cost. Because bidders
have different expectations of the discounts they can negotiate for
drugs, one vendor may be able to bid a lower price for one drug, but
may expect a lesser discount on another. We have therefore sought to
identify a selection process that, in the aggregate, can provide drugs
at reasonable cost to the program while maintaining the required
quality standards.
We are therefore proposing to employ a ``composite bid,''
constructed from the bid prices for the individual drugs in the CAP
category, in the process of selected bidders for the CAP. The composite
bid would be constructed by weighing each HCPCS bid by the HCPCS code's
share of volume (measured in HCPCS units) of drugs in a particular drug
category during the prior year. Within each CAP category, the drug
weights would sum to one. Based on data availability, the volume data
used for bids in the first CAP bidding cycle (for supplying drugs
starting January 1, 2006) would be from 2004 since bidding is
anticipated to occur in mid-2005. (At this time, we have not developed
a method to weight drugs introduced during and after 2004, but invite
public comment on methods for consideration.) The calculated composite
bid would be equal to the average price per HCPCS unit for drugs in
that category. In this way, the composite bid will be proportional to
the expected cost to the program of acquiring drugs from that vendor
(assuming the 2004 volume in each HCPCS category is roughly
proportional to volume in 2006). If one vendor has a lower composite
bid than another, it will also have a lower expected cost of supplying
all drugs in the particular CAP category.
To illustrate how the composite bid would be calculated, we are
providing the following example. Suppose that there are four drugs in a
particular CAP drug category (Drug A, Drug B, Drug C, and Drug D). The
first column of Table 2 below provides the total volume (HCPCS units)
of these drugs administered in 2004 for this hypothetical drug
category.
[[Page 10763]]
Table 2.--Example Drug Volumes and Relative Volumes, 2004
------------------------------------------------------------------------
Total
Drug HCPCS Relative
units volume
------------------------------------------------------------------------
Drug A........................................ 1,452,472 0.3520
Drug B........................................ 988,586 0.2395
Drug C........................................ 1,671,567 0.4050
Drug D........................................ 14,302 0.0035
--------------
Total..................................... 4,126,927 1.0000
------------------------------------------------------------------------
Three drugs (Drugs A, B, and C) have volumes (total HCPCS units)
much greater than that of the fourth (Drug D). The second column of
Table 2 gives the relative volumes, computed by dividing the volumes of
the individual components of this CAP category by the total volume of
HCPCS units for drugs in this category. These relative volumes are the
weights used to construct the composite bids.
The computation of the composite bids for these four bidders is
shown in Table 3. The composite bid for Bidder 1 is computed as the
weighted sum of the bids for the four drugs: ($520 x 0.3520) + ($400 x
0.2395) + ($135 x 0.4050) + ($4,780 x 0.0035), which is equal to
$350.25. The composite bids for the other three bidders are computed
similarly.
Table 3.--Example Composite Bid Computation
----------------------------------------------------------------------------------------------------------------
Low
Drug Weight Bidder 1 Bidder 2 Bidder 3 Bidder 4 bidder
----------------------------------------------------------------------------------------------------------------
Drug A........................................ 0.3520 $520 $530 $550 $530 1
Drug B........................................ 0.2395 400 410 380 390 3
Drug C........................................ 0.4050 135 105 135 120 2
Drug D........................................ 0.0035 4,780 4,830 4,430 4,800 3
Composite Bid................................. ......... 350.25 344.19 354.79 345.37 2
----------------------------------------------------------------------------------------------------------------
As Table 3 illustrates, it is possible for a bidder to be the low
bidder on more individual drugs than other bidders (Bidder 3, the low
bidder for Drug B and Drug D), but have the highest composite bid. This
is due to Bidder 3's relatively high bid for Drug A and Drug C, which
have the largest volumes (in HCPCS units). Also note that although
Bidder 4 is not the low bidder for any of the four drugs, its composite
bid is the second lowest.
As we have noted above, the statute requires consideration of price
and non-price (for example, quality of service and financial
qualifications) aspects of the bid. In order to implement this
requirement, we propose a two-step bidder selection:
First, certain quality and financial thresholds must be
met by all bidders.
Then, winning bidders would be selected from those that
meet the quality and financial thresholds on the basis of a method for
evaluating the composite bids.
We have considered several basic methods for evaluating the
composite bids. From these alternatives, we have decided to propose a
method that bases the selection of winning bidders on a predetermined
threshold. Specifically, under the method we are proposing, we would
select, from all those bidders that meet the quality and financial
thresholds, up to the five lowest bidders for a drug category in each
area. However, we would not select any bid for the category that is
higher than 106 percent of the weighted ASP for the drugs in that
category. We believe that limiting the maximum bid price that we would
accept is consistent with Congressional intent that the CAP promote
savings.
As an example of this computation, suppose that the ASPs for four
drugs in the composite bid example above (see Table 2) are as follows:
$516 for Drug A, $376 for Drug B, $111 for Drug C, and $4,831 for Drug
D. Using the relative weights in Table 2, we would compute the
composite bid threshold as 1.06 x ($516 x 0.3520 + $376 x 0.2395 + $111
x 0.4050 + $4,831 x 0.0035), which is equal to $353.56. In this
example, three bidders (Bidder 1, 2 and 4) would be selected as CAP
vendors. (See Table 4.)
Table 4.--Example: Proposed Composite Bid Selection Method
----------------------------------------------------------------------------------------------------------------
Bids
Drug Weight Bidder 1 Bidder 2 Bidder 3 Bidder 4 selected
----------------------------------------------------------------------------------------------------------------
Drug A............................ 0.3520 $520 $530 $550 $530 ...........
Drug B............................ 0.2395 400 410 380 390 ...........
Durg C............................ 0.4050 135 105 135 120 ...........
Drug D............................ 0.0035 4,780 4,830 4,430 4,800 ...........
--------------
Composite bid................. ........... 350.25 344.19 354.79 345.37 ...........
--------------
Maximum bid................... ........... 353.56 353.56 353.56 353.56 1, 2, 4
----------------------------------------------------------------------------------------------------------------
We are proposing this method for selecting bids for several
reasons. This method is straightforward and relatively easy to
implement. In addition, accepting no bid prices that exceed the payment
level under the new ASP payment methodology is consistent with one
major purpose of the new competitive acquisition system, since it
creates the possibility of realizing savings to the Medicare program.
We believe that this method is preferable to other options. For
example, one alternative to the method that we are proposing is simply
to accept any composite bid for a drug category that is less than 106
percent of the weighted ASP for the drugs in that category. Under this
method, it would be possible for every bidder to submit a bid price
just below ASP plus 6 percent, in the confidence that the bid would be
accepted. This method would thus limit the potential for savings to the
program, compared to the bidding process that we are proposing. Under
the process that we are proposing, bidders retain an
[[Page 10764]]
incentive to submit the best bid price that is possible for them. Thus,
restricting the number of bidders that might be accepted provides for
more competition in the bidding process than accepting all bidders
under a designated threshold. In this proposed rule, we are therefore
proposing to accept up to five composite bids, for a category of drugs,
but we do not propose to accept any bid that exceeds a composite bid
threshold of 106 percent of ASP. We would compute the composite bids,
and the 106 percent composite bid threshold, in the manner described in
the examples above. We welcome comments on this proposal, and
recommendations for alternative approaches. In the final rule, after we
have considered the comments, we may adopt some variation of this
proposal, or some alternative recommended by the commenters.
b. Determining the Single Price for a Category of Drugs. Once the
winning bidders have been identified, section 1847B(d)(1) of the Act
requires that a single price must be determined for each drug in a
competitive acquisition area, ``based on bids submitted and accepted.''
We have considered a number of options for determining this single
price on the basis of the accepted bid prices. In this proposed rule at
Sec. 414.906(c)(1), (which describes the computation of the payment
amount), we are proposing to establish a single price, for each drug in
a competitive acquisition area, based on the median bid of the winning
bidders. As a simple example of how this method might work, consider
the bids for one drug submitted by the winning bidders under our
proposed composite bid selection method (see Table 4). For Drug D,
Bidder 1 submitted a bid of $4,780, Bidder 2 submitted a bid of $4,830,
and Bidder 4 submitted a bid of $4,800. The median of these three bids
is $4,800. Under this version of our proposed method, then, the single
price for this drug would be $4,800.
We are proposing to employ the median bid for several reasons.
First, this method is straightforward and relatively easy to implement.
In addition, this method could realize some savings to the Medicare
program. Unless all accepted bids are at the level of the maximum
allowable bid (106 percent of ASP), this method for determining the
single price would yield savings to the program. Finally, using the
median of the acceptable bids is an obvious statistical method to
determine a single price on the basis of using the information provided
by these bids, as required by the statute.
In cases where there are four winning bidders for a drug category
in an area, we will employ the average of the two bid prices in the
middle of the array for a particular drug in that category in order to
set the single prices for that drug. Specifically, if four bidders are
selected, we would employ the average of the bids of the second and
third highest bidders on each drug to set the price for the drug. If
only two bidders are selected, we would use the average of the two bids
for the drug to set the price for that drug. The qualified vendors
would be made aware of the established price set for the CAP drugs
before he or she signs the contract to be an approved vendor.
We invite comments on this proposal and also invite commenters to
recommend alternative approaches. After analyzing the comments, we may
adopt some variation of this proposal, or some alternative recommended
by the commenters, in the final rule.
Section 1847B(d)(2) of the Act requires the Secretary to
``establish rules regarding the use * * * of the alternative payment
amount provided under section 1847A of the Act'' for payment of a new
drug or biological under the CAP. Section 1847A of the Act establishes
the average sales price methodology for most drugs paid under Part B of
the Medicare program. Section 1847A(c)(4) of the Act further provides
alternatives for the Secretary to determine the amount payable for new
drugs during an initial period. In accordance with the requirement at
section 1847B(d)(2) of the Act, we are proposing to apply the payment
amount that we establish under section 1847A of the Act in the case of
any drug or biological for which we determine that--(1) The drug or
biological is properly assigned to a category established under the
CAP; and (2) issuance of a new HCPCS code is required for the drug or
biological. We would employ the payment amount determined in accordance
with the methodology provided under section 1847A(c)(4) of the Act
until the next annual update of the single price amounts that we are
proposing below.
Section 1847B(b)(4)(B) of the Act provides that contracts for the
acquisition of competitively biddable drugs under the CAP must be for a
period of 3 years. Therefore, it is necessary to determine some
mechanism for setting the single price for each category of drugs in
the second and third years of this 3-year contract. We are proposing to
employ the mechanism provided under section 1847B(b)(7) of the Act for
this purpose. That section provides for drug price adjustments on the
basis of cost information provided by vendors to the Secretary.
Specifically, that section provides that each contract must provide for
disclosure to the Secretary of the vendor's ``reasonable, net
acquisition costs'' on a regular basis (not more often than quarterly).
It further requires that contracts must provide for ``appropriate price
adjustments over the period of the contract to reflect significant
increases or decreases in a vendor's reasonable, net acquisition costs,
as so disclosed.'' We are therefore proposing at Sec. 414.906(c)(1) to
update the CAP prices for each drug in a category in year 2 and year 3
based on the vendor's ``reasonable, net acquisition costs'' for that
category as determined by CMS based, in part, on information disclosed
to the Secretary and limited by the weighted payment amount established
under 1847A of the Act across all drugs in that category.
Section 1847B(c)(7) of the Act gives the Secretary the discretion
to establish an appropriate schedule for the CAP vendor's disclosure of
this cost information to us, provided that disclosure is not required
more frequently than quarterly. There are obviously a number of
possible disclosure schedules. We are proposing to require that each
vendor disclose to the Secretary its reasonable, net acquisition costs
for the drugs covered under the contract annually during the period of
its contract. Annual disclosure imposes the minimal burden on vendors
consistent with employing this provision to determine the single price
for drugs in the second and third years of a contract. More frequent
disclosure (for example, quarterly) is, of course, also consistent with
this purpose. We anticipate that the annual disclosure will be required
in or around October of each year, to provide sufficient time to
determine what, if any, update in drug prices would be appropriate for
the following year. We invite comments regarding an appropriate
disclosure schedule under section 1847B(b)(7) of the Act for this
purpose.
There are also a number of methods that we could adopt to develop
an appropriate adjustment on the basis of the net reasonable cost
information disclosed by vendors.
We are proposing the following methodology. We would employ the net
reasonable cost information disclosed by each vendor to determine
whether the vendor has experienced significant increases or decreases
in the reasonable, net acquisition costs across a category of drugs.
For this purpose, we may establish a threshold percentage change (for
example, 5 percent) in these costs, to determine whether the changes
warrant computing an adjustment to the
[[Page 10765]]
single prices for the drugs in that category. If the change in the
costs reported by a particular vendor meet this threshold, we would use
a two-step process to recompute the single price for each drug in that
class. First, we would adjust the bid price that the vendor originally
submitted by the percentage change indicated in the information that
the vendor disclosed. To return to the example discussed earlier,
Bidder 1 submitted a bid of $4,780, Bidder 2 submitted a bid of $4,830,
and Bidder 4 submitted a bid of $4,800 for Drug D. The price for the
drug in the first year of the contract is therefore the median of these
three bids, or $4,800. Suppose that Bidder 1 submits information prior
to the second year of the contract indicating that the reasonable, net
acquisition costs for the drugs in a category have increased by 7
percent. At the same time, Bidder 4 submits information indicating that
costs have increased by 10 percent. We would adjust each of the
original bid prices for the drug accordingly. The bid price of Bidder 1
would increase from $4,780 to $5,115 ($4,780 x 1.07). Similarly, the
bid price of Bidder 4 would increase from $4,800 to $5,280 ($4,800 x
1.10). Next, we would recompute the single price for the drug as the
median of these adjusted bid prices. Specifically, the new single price
for the drug would be $5,115, the median of $5,115, $4,830, and $5,280.
It is important to note that this mechanism would apply in the case
of any significant change in reasonable, net acquisition costs, whether
those changes reflect increase or decreases in costs. It is therefore
possible that the single price for a drug could decrease in the second
or third year of a contract where, for example, acquisition costs for
the drug have decreased because of the introduction of a generic
equivalent.
We would consider ``reasonable, net acquisition costs'' to be those
costs actually incurred by the vendor that are necessary and proper for
acquiring the drugs that the vendor is obligated to provide under a CAP
contract. Actual acquisition costs are net of all discounts and rebates
provided by the vendor's own suppliers. We would require full
disclosure of the vendor's acquisition costs for drugs included in the
CAP contract. We propose that this disclosure would reflect the
vendor's purchases of these drugs from all manufacturers, and the total
number of units purchased from each manufacturer. The vendor would be
required to submit full documentation reflecting these purchases,
including contracts, invoices, and other agreements that reflect the
actual purchase prices. This documentation would include all records
reflecting discounts that result in a reduction of actual cost to the
vendor. These discounts would include volume discounts, prompt pay
discounts, cash discounts, free goods that are contingent on any
purchase requirement, chargebacks, rebates, refunds, and other price
concessions.
We also propose to make more frequent adjustments (but not more
often than quarterly) in three cases: introduction of a new drug,
expiration of a drug patent, or a material shortage that results in a
significant price increase for a drug. We may restrict the
circumstances in which we would make adjustments to account for
shortages to those in which the Secretary has declared a public health
emergency under section 319 of the Public Health Service Act. We invite
comments on this approach.
We also welcome comments on every aspect of this discussion,
especially on the frequency with which we would collect the requisite
data and the precise manner in which we would calculate the changes in
single drug prices.
4. Contract Requirements
[If you choose to comment on issues in this section, please include
the caption ``Contract Requirements'' at the beginning of your
comments.]
Sections 1847B(b)(4) of the Act discusses items to be incorporated
in the contract entered into with a CAP vendor. These include the
following:
--The length of the contract.
--Assurance of the integrity of the drug distribution system.
--A pledge to comply with code of conduct and fraud and abuse rules.
--Assurance that drugs are only supplied directly to CAP physicians
upon receipt of a prescription and other necessary data.
We propose to set forth the contract terms between CMS and the
approved vendor as well as vendor responsibilities in proposed Sec.
414.914.
5. Judicial Review
[If you choose to comment on issues in this section, please include
the caption ``Judicial Review'' at the beginning of your comments.]
Provisions of 1847(B)(g) of the Act concerning administrative and
judicial review are set forth in regulations at proposed Sec. 414.920.
This section of the Act specifies aspects of the CAP that are not
subject to administrative or judicial review.
D. Implementation of the CAP
1. Physician Election Process
[If you choose to comment on issues in this section, please include
the caption ``Physician Election Process'' at the beginning of your
comments.]
Section 1847B(a)(1)(A) of the Act specifies that each physician is
given the opportunity annually to elect to participate in the CAP.
Payment for a charge for any drug or biological may be made only on an
assignment-related basis in accordance with section 1842(o)(3)(A) of
the Act. Physicians who do not elect to participate in the CAP would
continue to buy the drugs they provide to beneficiaries incident to a
physician's service and bill the Medicare program for them under
section 1847A of the Act, the ASP methodology.
Section 1847B(a)(5)(A) of the Act requires that we develop a
process that physicians who wish to participate in the CAP may use on
an annual basis to select the vendor from whom they wish to obtain
drugs and the categories of drugs they wish to obtain under the CAP
program. 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. To inform
physicians about the choices of drugs and vendors available to them
under the CAP, we are required to post a directory on the CMS Web site
or to make such a directory available to interested physicians on an
ongoing basis.
We propose that physicians who elect to participate in the CAP
would remain in the program for at least 1 calendar year. As described
in more detail later in this section, physicians who elect to
participate in the CAP would be required to complete a CAP election
agreement. We propose that by completing this CAP election agreement,
the physician would select the approved vendor that he or she would use
under the CAP and would agree to the CAP participating physician
requirements. Under these requirements, the physician would agree to--
Share information with the vendor to facilitate the
collection of applicable deductible and coinsurance.
Promptly file claims.
Timely and appropriately pursue claims that are denied
because of medical necessity issues.
Notify the vendor when a drug is not administered.
Maintain an inventory for each CAP drug he or she obtains.
[[Page 10766]]
Participating CAP physicians would also agree to comply with
emergency drug replacement rules and requirements for using the
``furnish as written'' provision. If we find it necessary, we may
revoke the physician's election to participate in the CAP if the
physician fails to abide by the CAP election agreement.
We propose to initiate an annual CAP physician election process. We
have modeled our proposed CAP physician election process after the
Medicare Participating Physician Process to the extent possible. In
addition, we communicated information to physicians about the upcoming
CAP through the fact sheet that accompanied the 2005 Participating
Physician Mailing, and plan to continue to use that vehicle to
communicate information about CAP to physicians in future years.
However, we note that the annual Physician Participation election
process runs from November 14 to December 31 of each year. Waiting
until December 31 to receive information about physicians' CAP election
choices would not provide sufficient time for us and our claims
processing contractors to record information about CAP physicians and
their drug category selections, update claims processing files, perform
testing, and inform vendors so that we are ready to pay CAP claims on
January 1, 2006. In addition, a deadline of December 31 would not allow
sufficient time for vendors to meet the operational timeframe of
January 1. Therefore, we propose that the CAP physician election
process would run from October 1 to November 15 of each calendar year.
We propose that physicians who intend to continue into subsequent years
may signal that preference by executing an abbreviated CAP election
agreement. The abbreviated agreement may be used to indicate a
preference to change vendors or drug categories from year to year. We
propose that a CAP participating physician may select a vendor outside
the annual election process if the previously selected vendor ceases
participation in CAP, or if the physician leaves the group practice
that had selected the given vendor or relocates to another competitive
area. We propose to specify the exceptions to the annual selection
process at proposed Sec. 414.908(a)(2) of our regulations.
We seek comment on the potential options available to affected
physicians when a vendor leaves the program during the middle of the
CAP year. Proposed physician options would include leaving the CAP or
switching vendors as is required by the proposed CAP election agreement
for the physician to participate in the CAP. We propose that,
consistent with the Medicare Participating Physician Process, if
members of a group practice elect to participate in the CAP, the entire
practice would participate. Group practices enroll as a group, and are
assigned a group PIN number to bill Medicare. Physician groups that
elect to participate in the CAP would be paid for drug administration
based on the group PIN number that they place on their claim. We
propose that when a physician bills as a member of a group using the
group PIN, he or she must follow the group's election to participate or
not to participate in the CAP. However, we also propose that if the
physician in the group practice also has a solo practice, he or she may
make a different determination to participate or not to participate in
the CAP when using his or her individual PIN.
We also propose that consistent with the Medicare Participating
Physician Process, new physicians would be given 90 days in which to
decide to elect to participate in the CAP. They would receive
information about CAP when they enroll as a Medicare provider and would
be instructed how to find the election information and forms on the CMS
Web site. If they elect to participate, they would download the forms
and submit them to their Medicare carrier.
We propose to implement the following process:
(1) We would prepare a posting on our Web site by October 1,
describing the vendors we have selected to participate in the CAP, the
categories of drugs they would be providing, and the geographic areas
within which each vendor would operate.
(2) We would publicize the availability of the CAP physician
election information on our Web site via our physician listservs, and
our Medicare fee for service contractors' Web sites and newsletters. We
would also coordinate with physician specialty organizations to enlist
their assistance in informing their members that the physician election
information is available.
(3) Physicians would be asked to access the CAP election agreement
on our Web site and determine whether they would like to elect to
participate in the program.
(4) Physicians who elect to participate would be asked to download,
complete and sign the CAP election agreement. The CAP election
agreement would require that they select the vendor(s) in their area
from which they would like to obtain drugs and the categories of drugs
they wish to obtain through the program.
(5) Physicians would be instructed to return completed CAP election
agreement to their local carrier. The CAP election agreement must be
postmarked by November 15.
(6) The local carrier would make note of the physician's decision
to participate in the CAP, and the vendor(s) and categories of drugs
selected.
(7) The local carrier would forward information from the CAP
election agreement to the CAP designated carrier.
(8) The designated carrier would compile a master list of all
Medicare physician's vendor and drug selections. In addition, the
designated carrier would notify each CAP vendor of the physician who
has elected to enroll with that vendor.
(9) After the necessary claims processing files are prepared, the
local carrier and the designated carrier would begin system testing to
be ready to pay claims by January 1, 2006.
As we become more experienced with the CAP program, we plan to
evaluate these timeframes to determine if adjustments should be made to
the dates for the CAP election process. The requirements concerning a
physician's election to participate in the CAP are set forth in
regulations at proposed Sec. 414.908(a).
2. Vendor or Physician Education
[If you choose to comment on issues in this section, please include
the caption ``Vendor or Physician Education'' at the beginning of your
comments.]
To ensure that vendors and physicians have timely access to
accurate Medicare program information regarding the CAP, we would
instruct the CAP designated carrier to utilize various communication
channels at the local and national levels to disseminate information
about the CAP and assist vendors and physicians in understanding the
Medicare program's operations, policy, and billing and administration
procedures regarding the CAP. The CAP designated carrier would be
instructed to utilize data analyses in tailoring its outreach and
educational efforts for vendors and physicians regarding identified
areas of confusion about the CAP. Additionally, the CAP designated
carrier would be instructed to utilize mass media, as well as
educational and outreach products, services, forums, and partnerships
in an effort to disseminate information about, and provide assistance
regarding, the CAP to the vendor and healthcare practitioner
communities. The
[[Page 10767]]
fundamental goal of the CMS provider outreach and education
requirements of the CAP designated carrier would be to ensure that
those who provide service(s) to beneficiaries receive the information
they need to understand the Medicare program so that it is administered
appropriately and billed correctly. As such, we would be involved in
oversight of, and partnership with, the CAP designated carrier's vendor
and physician outreach and educational program regarding the CAP.
3. Beneficiary Education
[If you choose to comment on issues in this section, please include
the caption ``Beneficiary Education'' at the beginning of your
comments.]
The CAP would have an impact on beneficiaries who receive physician
administered drugs. If a physician elects to participate in the CAP,
beneficiaries receiving services from this physician would receive a
separate MSN from the designated carrier that processes invoices for
the drug vendor as well as a bill from the drug vendor for the
copayment of the drug. This may cause confusion for the beneficiary
because he or she would only know that the drugs were administered by a
physician. In addition, because the activity of the drug vendor would
be transparent to the beneficiaries, they may question why they are
receiving a bill from an unknown entity.
To educate beneficiaries in a proactive fashion, we propose to
develop a beneficiary-focused fact sheet, and to update existing
related educational materials, to reflect these changes. The fact sheet
would be available for physicians who elect to participate in the CAP
to provide to beneficiaries at the time of service. It would explain
the CAP and its impact on the beneficiary. We would also make this fact
sheet available at 1-800-MEDICARE, as well as on the http://www.medicare.gov
website. Although we are not proposing to require physicians to provide
beneficiaries with the fact sheet, we seek comment on the
administrative burden associated with this activity. In addition, while
we are not proposing to require any additional options for specific
outreach, we are also interested in obtaining comments on other
mechanisms that might be utilized to inform the beneficiary of services
provided as part of the CAP (such as a notice constructed to allow the
physician to specifically identify the drugs administered and the CAP
vendor which could be handed out to beneficiaries at the end of a
physician encounter) and the burden that would be associated with this
mechanism.
We also propose to provide information about CAP in the 2006
versions of the Medicare & You handbook and Your Medicare Benefits. The
handbook is mailed annually to each beneficiary household. Your
Medicare Benefits is available upon request at 1-800-MEDICARE, as well
as on the http://www.medicare.gov Web site. Information would also be
provided to the 1-800-MEDICARE helpline so that operators can answer
CAP related questions. The http://www.medicare.gov Web site would also
have consumer-friendly information available about CAP.
III. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995, we are required to
provide 30-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:
Section 414.906 Competitive Acquisition Program as the Basis for
Payment
A physician who elects to participate in the program and has
selected an approved vendor, must provide information to the approved
vendor to facilitate collection of applicable deductible and
coinsurance as described in Sec. 414.906(a)(3).
The burden associated with this requirement is the time and effort
necessary for the physician to provide the information to the vendor to
facilitate collection of applicable deductible and coinsurance. CMS is
requesting public comment on the extent of burden associated with this
requirement. In the final rule CMS will quantify the amount of burden
associated with this requirement based upon public input.
Section 414.908 Competitive Acquisition Program
A physician is provided an application process for the selection of
an approved vendor on an annual basis. The CAP election agreement will
facilitate physician enrollment and designation of their approved CAP
vendor and agreement to abide by the CAP program requirements.
The burden associated with this requirement is the time and effort
necessary for the physician to enroll and designate an approved CAP
vendor. We estimate that it will require 70,000 physicians 15 minutes
each to fulfill the application requirements.
In addition, physicians participating in the CAP must elect to use
an approved vendor for the drug category area as discussed in Sec.
414.904(a)(1); submit a written order or prescription to the approved
vendor; not receive payment for the competitively biddable drug except
as described in Sec. 414.906(c)(2)(ii); provide information to the
approved vendor to facilitate collection of applicable deductible and
coinsurance as described in Sec. 414.906(a)(3); notify the approved
vendor when a drug is not administered; maintain a separate electronic
or paper inventory for each CAP drug obtained; agree to file the
Medicare claim when the drug is administered.
The burden associated with this requirement is the time and effort
necessary for the physician to provide and/or maintain the information
required as discussed above. CMS is requesting public comment on the
extent of burden associated with this requirement. In the final rule
CMS will quantify the amount of burden associated with this requirement
based upon public input.
Section 414.910 Bidding Process
Vendors may bid to furnish competitively biddable drugs in all
areas of the United States, or a specific region that meets the
requirements of this section.
The burden associated with these requirements is the time and
effort necessary to submit the bid application, supporting
documentation, and maintain necessary documentation demonstrating that
the requirements set forth in the contract have been or will be met.
We estimate that it will require 25 bid applicants 40 hours each to
meet the bidding and contract requirements.
[[Page 10768]]
Section 414.914 Terms of Contract
The terms of the contract between CMS and the approved vendor will
be for a term of 3 years. During the contract period the vendor must
disclosure to CMS or its agent, the approved vendor's reasonable, net
acquisition costs for a specified period of time, on at least an annual
basis.
The burden associated with these requirements is the time and
effort necessary for the vendor to submit to CMS or its agent, the
vendor's reasonable, net acquisition costs for a specified period of
time, at least on an annual basis.
We estimate that it will require each of the 10 vendors 8 hours on
an annual basis to submit the necessary information, for total annual
burden of 8 hours per vendor.
Section 414.916 Dispute Resolution
Cases of an approved vendor's dissatisfaction with denied drug
claims are resolved through a voluntary alternative dispute resolution
process.
Since the requirements set forth in this section are in accordance
with administrative action, audit, or investigation, the requirements
of this section are exempt from the PRA as stipulated under 5 CFR
1320.4 (a)(2).
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 Group, Attn:
John Burke, CMS-1325-P, Room C5-13-28, 7500 Security Boulevard,
Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Christopher Martin, CMS Desk Officer, CMS-1325-P,
Christopher Martin@omb.eop.gov. Fax (202) 395-6974.
IV. Response to Public Comments
Because of the large number of public 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.
V. Regulatory Impact Analysis
[If you choose to comment on issues in this section, please include
the caption ``Regulatory Impact Analysis'' 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 (as amended by Executive Order 13258, which
reassigns responsibility of duties) directs agencies to assess all
costs and benefits of available regulatory alternatives and, when
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 must be prepared for final rules with
economically significant effects (that is, a final rule that would have
an annual effect on the economy of $100 million or more in any 1 year,
or would adversely affect in a material way the economy, a sector of
the economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities).
Since this rule is considered to be a major rule because it is
economically significant, we have prepared a regulatory impact
analysis. The RFA requires that we analyze regulatory options for small
businesses and other entities. We prepare a Regulatory Flexibility
Analysis unless we certify that a rule would not have a significant
economic impact on a substantial number of small entities. The analysis
must include a justification concerning the reason action is being
taken, the kinds and number of small entities the rule affects, and an
explanation of any meaningful options that achieve the objectives with
less significant adverse economic impact on the small entities.
For purposes of the RFA, physicians and non-physician practitioners
are considered small businesses if they generate revenues of $8.5
million or less. Approximately 96 percent of physicians are considered
to be small entities. There are in excess of 20,000 physicians and
other practitioners that receive Medicare payment for drugs. These
physicians are more concentrated in the specialties of oncology,
urology, and rheumatology. Of the physicians in these specialties,
approximately 40 percent are in oncology and 45 percent in urology.
The impact of this proposed rule on an individual physician is
dependent on the drugs they provide to Medicare beneficiaries and
whether these drugs are included in the categories of drugs considered
for competitive acquisition and whether the physician chooses to obtain
drugs administered to Medicare beneficiaries through the CAP.
In addition, this proposed rule would have an impact on entities,
either existing or formed specifically for this purpose, that are
involved in the dispensing of drugs. This impact would be dependent on
the categories of drugs and geographic areas that are determined to
fall under the CAP and on their ability to successfully compete and
receive approval as a vendor under the competitive acquisition program.
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis for any proposed rule that 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 603
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 a
Metropolitan Statistical Area and has fewer than 100 beds. We have
determined that this proposed rule will have no 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 that may result in expenditures in any 1 year by
State, local, or tribal governments, in the aggregate, or by the
private sector, of $110 million.
We have examined this proposed rule in accordance with Executive
Order 13132 and have determined that this regulation would have no
consequential effect on the rights, roles, or responsibilities of
State, local, or tribal governments.
A. Anticipated Effects
We have prepared the following analysis, related to the assessment
requirements. It explains the rationale for, and purposes of, the rule,
details the costs and benefits of the rule, analyzes alternatives, and
presents the measures we are using to minimize the burden on small
entities. As indicated elsewhere, we are making changes to method of
payment for drugs in response to the requirements of section 1847B of
the Act. We provide information on the options being considered in the
development of the CAP in the relevant sections in this rule. The
provisions of this rule discuss changes to our payment for drugs
through the establishment of a competitive
[[Page 10769]]
acquisition process as an alternative payment system for Part B drugs
and biologicals. This rule does not impose reporting, record keeping,
and other compliance requirements except as described in sections
II.C.3 and II.D.1 of the preamble. We are unaware of any relevant
Federal rules that duplicate, overlap, or conflict with this rule.
The effect of this proposed rule on an individual physician would
be dependent on the drugs they provide to Medicare beneficiaries and
whether these drugs are included in the categories of drugs considered
for competitive acquisition. For example, a physician may--(1)
Determine the cost associated with acquiring drugs through the
competitive acquisition program, (2) determine the cost associated with
acquiring drugs through traditional means and billing Medicare under
the ASP plus six percent methodology, and (3) determine if there is a
cost savings associated with either program. Different outcomes may
result from these calculations depending on the drug mix, overhead
cost, and patient mix.
A physician who elects to participate in the program would obtain
all of their Medicare related drugs in categories for which CAP is
implemented in their area through a competitive acquisition program
vendor. The vendor would then collect applicable deductibles and
coinsurance from the beneficiary. Under this option, the physician
would never take legal ownership of the drug and would eliminate the
cost associated with collecting deductibles and coinsurance. Because
the drug remains the property of the vendor until the time of
administration, the physician can also reduce the cost associated with
storage and individual drug supplier negotiations. The CAP may also
save physicians money since they would not be in the drug purchasing
and procurement business and would not have to collect coinsurance from
beneficiaries.
This rule also proposes establishing rules whereby drugs and
biologicals administered by the physician in emergency situations that
were not originally acquired through a Medicare vendor may be
resupplied through the Medicare competitive acquisition program vendor.
B. Impact of Establishment of a Competitive Acquisition Program
We have simulated the impact of the costs of furnishing or
administering drugs through the competitive acquisition program and
found it to be negligible. At this time we anticipate no additional
cost savings or increases associated with the competitive acquisition
program, particularly relative to the ASP + 6 percentages since the
specific parameters under which the CAP will be operating (for example,
specific drugs, physicians electing to participate in CAP) will be
directed by this rulemaking and are not yet determined. Moreover, some
of the key purposes of the CAP program are to provide alternatives to
physicians who do not wish to be in the drug purchasing and coinsurance
collection business.
C. Alternatives Considered
This proposed rule contains alternative approaches to implementing
a competitive acquisition program for Part B drugs that we considered,
each of which has been discussed in detail. We will select one of these
approaches after reviewing all public comments received on the proposed
rule and making any necessary modifications.
D. Impact on Beneficiaries
We have simulated the effect of changes in beneficiary coinsurance
for drugs and related changes in beneficiary Part B premium payments
resulting from the implementation of competitive acquisition program
for Part B drugs. We have concluded that there will be no appreciable
difference to the beneficiaries if their drugs were to be administered
by a physician participating in the CAP or purchasing them at ASP plus
6 percent, thus there would be no cost or savings to the beneficiary
whose physician participates in the CAP.
We do not believe that any beneficiaries would experience drug
access issues as a result of implementation of CAP. We intend to
monitor beneficiary access closely and may propose additional changes
to our payment system in the future if necessary.
We propose to develop educational material to distribute to
beneficiaries, such as pamphlets and a discussion in The Medicare
Handbook, to help explain the CAP and the changes they will see on
their Medicare summary notices. Specifically, under the CAP
beneficiaries would now pay their coinsurance and deductibles to their
CAP vendor instead of the administering physician.
In accordance with the provisions of Executive Order 12866, the
Office of Management and Budget has reviewed this regulation.
List of Subjects in 42 CFR Part 414
Administrative practice and procedure, Health facilities, Health
professions, Kidney diseases, Medicare, Reporting and recordkeeping
requirements.
For the reasons set forth in this preamble, the Centers for
Medicare & Medicaid Services proposes to amend 42 CFR chapter IV as set
forth below:
PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES
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 K--Payment for Drugs and Biologicals Under Part B
2. Revise the heading of subpart K as set forth above.
3. Amend Sec. 414.900 by--
A. Revising the section heading.
B. Revising paragraph (a).
C. Revising paragraph (b)(3)(ii).
The revisions read as follows:
Sec. 414.900 Basis and scope.
(a) This subpart implements sections 1842(o), 1847A, and 1847B of
the Act and outlines the two payment methodologies applicable to drugs
and biologicals covered under Medicare Part B that are not paid on a
cost or prospective payment system basis.
(b) * * *
(3) * * *
(ii) Pneumococcal and Hepatitis B vaccines.
* * * * *
4. Republish the introductory text to Sec. 414.902 and add the
definitions of ``Approved vendor,'' ``Bid,'' ``CAP election
agreement,'' ``Competitive acquisition program,'' ``Competitive area,''
``Competitively biddable drugs,'' ``Designated carrier,'' ``Local
carrier,'' and ``Participating CAP physician'' to read as follows:
Sec. 414.902 Definitions.
As used in this subpart, unless the context indicates otherwise--
Approved vendor means an entity that has been awarded a contract by
CMS to participate in the competitive acquisition program.
Bid means an offer to furnish a competitively biddable drug within
a category of competitively biddable drugs in a competitive area for a
particular price and time period.
Competitive acquisition program (CAP) means a program as defined
under section 1847B of the Act.
CAP election agreement means the form that the physician must
complete to notify CMS that he or she elects to participate in the CAP.
[[Page 10770]]
Competitive area means the geographic area established by the
Secretary for purposes of implementing the CAP required by section
1847B of the Act.
Competitively biddable drugs means a physician-administered drug or
biological furnished on or after January 1, 2006 described in section
1842(o)(1)(C) of the Act.
Designated carrier means an entity assigned by CMS to process and
pay claims for drugs and biologicals under the Part B drug competitive
acquisition program.
* * * * *
Local carrier means an entity assigned by CMS to process and pay
claims for administration of drugs and biologicals under the Part B
drug competitive acquisition program.
* * * * *
Participating CAP physician means a Medicare physician electing to
participate in the CAP described in this subpart. The participating CAP
physician must complete and sign the CAP election agreement.
* * * * *
5. Amend Sec. 414.904 by revising the section heading to read as
follows
Sec. 414.904 Average sales price as the basis of payment.
* * * * *
6. Add Sec. 414.906 to read as follows:
Sec. 414.906 Competitive acquisition program as the basis for
payment.
(a) Program payment. Beginning in 2006, as an alternative to
payment under Sec. 414.904, payment for a drug may be made through
competitive acquisition if the following occurs:
(1) The competitively biddable drug is supplied under the program
by an approved vendor as specified in Sec. 414.908(b).
(2) The claim for the prescribed drug is submitted by the approved
vendor that supplied the drug and payment is only made to that vendor.
(3) The approved vendor collects applicable deductible and
coinsurance with respect to the drug furnished under the CAP only after
the drug is administered to the individual.
(4) The approved vendor delivers the drugs directly to the
participating CAP physician.
(b) Exceptions to competitive acquisition. Specific competitively
biddable drugs, including a category of these drugs, may be excluded
from the CAP if the application of competitive bidding to these drugs--
(1) Is not likely to result in significant savings; or
(2) Is likely to have an adverse impact on access to such drugs.
(c) Computation of payment amount. (1) Except as specified in
paragraph (c)(2) of this section, payment for competitively biddable
drugs is based on bids submitted and accepted as described in Sec.
414.910. Based on these bids, a single payment amount for each
competitively biddable drug in the competitive area is determined. This
payment is updated on an annual basis based on the approved vendor's
reasonable net acquisition costs for that category as determined by CMS
based, in part, on information disclosed to CMS and limited by the
weighted payment amount established under section 1847A of the Act
across all drugs in that category. Adjustment to the payment amounts
may be made more often than annually, but no more often than quarterly,
in any of the following cases:
(i) Introduction of new drugs.
(ii) Expiration of a drug patent.
(iii) Material shortage that results in a significant price
increase for the drug.
(2) The alternative payment amount established under section 1847A
of the Act may be used to establish payment for a competitively
biddable drug--
(i) For which a payment and BILLING CODE has not been established;
or
(ii) When medical necessity requires a certain brand of drug that
the approved vendor has not been contracted to furnish under the CAP.
(d) Adjustments. There is an established process for adjustments to
payments to account for drugs that were billed at the time of
dispensing but which were not administered.
(e) Resupply of participating CAP physician drug inventory. A
participating CAP physician may acquire drugs under the CAP to resupply
his or her inventory if all of the following requirements are met:
(1) The drugs were required immediately.
(2) The participating CAP physician could not have anticipated the
need for the drugs.
(3) The vendor could not have delivered the drugs in a timely
manner.
(4) The participating CAP physician administered the drugs in an
emergency situation.
7. Add Sec. 414.908 to read as follows:
Sec. 414.908 Competitive acquisition program.
(a) Physician selection of an approved vendor. (1) CMS provides the
physician with a process for the selection of an approved vendor on an
annual basis, with exceptions as specified in Sec. 414.908(a)(2), and
will also receive information about the CAP in the enrollment process
for Medicare participation discussed in section 1842(h) of the Act.
(2) A physician may select an approved vendor outside the annual
selection process when--
(i) The approved vendor ceases participation in the CAP; or
(ii) Other exigent circumstances defined by the Secretary, for
example the participating CAP physician relocates to another
competitive area or the physician leaves a group practice participating
in the CAP.
(3) The physician participating in the CAP--
(i) Elects to use an approved vendor for the drug category area as
set forth in Sec. 414.904(a)(1);
(ii) Completes and signs the CAP election agreement;
(iii) Submits a written order or prescription to the approved
vendor;
(iv) Does not receive payment for the competitively biddable drug
except as described in Sec. 414.906(c)(2)(ii);
(v) Provides information to the approved vendor to facilitate
collection of applicable deductible and coinsurance as described in
Sec. 414.906(a)(3);
(vi) Notifies the approved vendor when a drug is not administered;
(vii) Maintains a separate electronic or paper inventory for each
CAP drug obtained;
(viii) Agrees to file the Medicare claim within 14 days of the date
of drug administration; and
(ix) Agrees to submit an appeal accompanied by all required
documentation (such as medical records or a certification) necessary to
support payment if the participating CAP physician's drug
administration claim is denied.
(4) Physician group practices. If a physician group practice using
a group billing number elects to participate in the CAP, all physicians
in the group are considered to be participating CAP physicians when
using the group number.
(b) Program requirements. (1) CMS selects approved vendors through
a competition among entities based on the following:
(i) Submitting the bid prices for competitively biddable drugs
within the category and competitive area that--
(A) Place the vendor among the lowest five qualified bidders; and
(B) Do not exceed the weighted payment amount established under
section 1847A of the Act across all drugs in that category.
(ii) Ability to ensure product integrity.
(iii) Customer service.
[[Page 10771]]
(iv) At least 3 years experience in furnishing Part B injectable
drugs.
(v) Financial performance and solvency.
(vi) Record of integrity and the implementation of internal
integrity measures.
(vii) Internal financial controls.
(viii) Acquisition of all drugs and biological products directly
from the manufacturer or from a distributor that has acquired the
products directly from the manufacturer.
(ix) Other factors as determined by the Secretary.
(2) Approved vendors must also meet the contract requirements under
Sec. 414.914.
(c) Additional considerations. CMS may refuse to award a contract
or terminate an approved vendor contract based upon the following:
(1) Suspension or revocation by the Federal or State government of
the entity's license for distribution of drugs, including controlled
substances.
(2) Exclusion of the entity under section 1128 of the Act from
participation in Medicare or other Federal health care programs.
(d) Multiple source drugs. In the case of multiple source drugs,
there must be a competition among entities for the acquisition of at
least one competitively biddable drug with each billing and payment
code within each category for each competitive area.
(e) Multiple contracts for a category. The number of bidding
qualified entities that are awarded a contract for a given category and
area may be limited to no fewer than two.
8. Add Sec. 414.910 to read as follows:
Sec. 414.910 Bidding process.
(a) Entities may bid to furnish competitively biddable drugs in all
competitive areas of the United States, or a specific competitive area.
(b) There will be uniformity among the bids for any specific
competitive area.
(c) A submitted bid price must include the following:
(1) All costs related to the delivery of the drug to the
participating CAP physician.
(2) The costs of dispensing (including shipping) of the drug and
management fees. The costs related to the administration of the drug or
wastage, spillage or spoilage may not be included.
9. Add Sec. 414.912 to read as follows:
Sec. 414.912 Conflicts of interest.
(a) Approved vendors and applicants that bid to participate in the
CAP are subject to the following:
(1) The conflict of interest standards and requirements of the
Federal Acquisition Regulation (FAR) organizational conflict of
interest guidance, found under 48 CFR subpart 9.5.
(2) Those requirements and standards contained in each individual
contract awarded to perform functions under section 1847B of the Act.
(b) Post-award conflicts of interest. Approved vendors must have a
code of conduct that establishes policies and procedures for
recognizing and resolving conflicts of interest between the approved
vendor and any entity, including the Federal Government, with whom it
does business. The code of conduct must--
(1) State the need for management, employees, and agents to comply
with the approved vendor's code of conduct, and policies and procedures
for conflicts of interest; and
(2) State the approved vendor's expectations of commitment to
compliance by management, employees, and agents.
10. Add Sec. 414.914 to read as follows:
Sec. 414.914 Terms of contract.
(a) The terms of the contract between CMS and the approved vendor
will be for a term of 3 years. The contract may be terminated--
(1) By CMS for default if the approved vendor violates any term of
the contract; or
(2) In the absence of a contract violation, by either CMS or the
approved vendor, if the terminating party notifies the other party by
June 30 for an effective date of termination of December 31 of that
year.
(b) The contract will provide for a code of conduct for the
approved vendor that includes standards relating to conflicts of
interest standards at Sec. 414.912.
(c) The vendor will have a compliance plan that contains policies
and procedures that control program fraud, waste, and abuse, and
consists of the following minimum elements:
(1) Written policies, procedures, and standards of conduct
articulating the organization's commitment to comply with all
applicable Federal and State standards.
(2) The designation of a compliance officer and compliance
committee accountable to senior management.
(3) Effective training and education between the compliance officer
and organization employees, contractors, agents, and directors.
(4) Enforcement of standards through well publicized disciplinary
guidelines.
(5) Procedures for effective internal monitoring and auditing.
(6) Procedures for ensuring prompt responses to detected offenses
and development of corrective action initiatives relating to the
organization's contract as a drug vendor.
(i) If the drug vendor discovers evidence of misconduct related to
payment or delivery of drugs or biologicals under the contract, it will
conduct a timely and reasonable inquiry into that conduct.
(ii) The drug vendor will conduct appropriate corrective actions
including, but not limited to, repayment of overpayments and
disciplinary actions against responsible individuals, in response to
potential violations referenced at paragraph (c)(6)(i) of this section.
(7) Procedures to voluntarily self-report potential fraud or
misconduct related to the CAP to the appropriate government agency.
(d) The contract must provide for disclosure of the approved
vendor's reasonable, net acquisition costs for a specified period of
time, not to exceed quarterly.
(e) The contract must provide for appropriate adjustments as
described in Sec. 414.906(c)(1).
(f) Under the terms of the contract, the approved vendor must
also--
(1) Have sufficient arrangements to acquire and deliver
competitively biddable drugs within the category in the competitive
area specified by the contract;
(2) Have arrangements in effect for shipment at least 5 days each
week of competitively biddable drugs under the contract, including
emergency situations, and for timely delivery of such drugs in the
competitive area;
(3) Have procedures in place to address and resolve complaints of
participating CAP physicians and individuals and inquiries regarding
shipment of competitively biddable drugs;
(4) Have a grievance and appeals process for dispute resolution;
(5) Meet applicable licensure requirements in each State in which
it distributes drugs under the CAP;
(6) Enroll in Medicare as a participating provider; and
(7) Comply with all necessary provisions related to the prevention
of fraud and abuse.
11. Add Sec. 414.916 to read as follows:
Sec. 414.916 Dispute resolution.
(a) General rule. Cases of an approved vendor's dissatisfaction
with denied drug claims are resolved through a voluntary alternative
dispute resolution process delivered by the designated carrier, and a
reconsideration process provided by CMS.
[[Page 10772]]
(b) Dispute resolution. (1) When an approved vendor is not paid on
claims submitted to the designated carrier, the vendor may appeal to
the designated carrier to counsel the responsible participating CAP
physician on his or her agreement to file a clean claim and pursue an
administrative appeal in accordance with subpart H of part 405 of this
chapter. If problems persist, the vendor may ask the designated carrier
to--
(i) Review the participating CAP physician's performance; and
(ii) Potentially recommend a suspension of the participating CAP
physician's CAP election agreement.
(2) Responsibility of the designated carrier. The designated
carrier--
(i) Investigates and makes a recommendation to CMS on whether the
participating CAP physician has been meeting the claims and appeals
obligations in his or her CAP election agreement;
(ii) Gathers information from the local carrier and the approved
vendor; and
(iii) Makes a recommendation to CMS on whether the participating
CAP physician has been filing his or her CAP drug administration claims
in accordance with the requirements for physician participation in the
CAP as set forth in Sec. 414.908(a)(3).
(3) CMS reviews the recommendation of the designated carrier and,
if necessary, gathers additional information before deciding whether to
suspend the participating CAP physician's CAP election agreement for a
period not to exceed the end of the following CAP election cycle. This
suspension is limited to the participating CAP physician's ability to
order drugs from the specific vendor.
(4) The participating CAP physician may appeal that exclusion by
requesting a reconsideration. A determination must be made as to
whether the participating CAP physician's denied claims and appeals
were the result of the participating CAP physician's failure to
participate in accordance with the requirements of Sec. 414.908(a)(3).
(c) Reconsideration. (1) Right to reconsideration. A participating
CAP physician dissatisfied with a determination that his or her CAP
election agreement has been suspended by CMS is entitled to a
reconsideration as provided in this subpart.
(2) Eligibility for reconsideration. CMS reconsiders any
determination to suspend a participating CAP physician's election
agreement if the participating CAP physician files a written request
for reconsideration in accordance with paragraphs (c)(3) and (c)(4) of
this section.
(3) Manner and timing of request for reconsideration. A
participating CAP physician who is dissatisfied with a CMS decision to
suspend his or her CAP election agreement may request a reconsideration
of the decision by filing a request with CMS. The request must be filed
within 30 days of receipt of the CMS decision letter. From the date of
receipt of the decision letter until the day the reconsideration
determination is final. The ASP payment methodology under section 1847A
of the Act applies.
(4) Content of request. The request for reconsideration must
specify--
(i) The findings or issues with which the participating CAP
physician disagrees;
(ii) The reasons for the disagreement;
(iii) A recital of the facts and law supporting the participating
CAP physician's position;
(iv) Any supporting documentation; and
(v) Any supporting statements from vendors, local carriers, or
beneficiaries.
(5) Withdrawal of request for reconsideration. A participating CAP
physician may withdraw his or her request for reconsideration at any
time before the issuance of a reconsideration determination.
(6) Discretionary informal hearing. In response to a request for
reconsideration, CMS may, at its discretion, provide the participating
CAP physician the opportunity for an informal hearing that--
(i) Is conducted by a hearing officer appointed by the director of
the CMS Center for Medicare Management or his or her designee; and
(ii) Provides the participating CAP physician the opportunity to
present, by telephone or in person, evidence to rebut CMS' decision to
suspend or terminate a participating CAP physician's CAP election
agreement.
(7) Informal hearing procedures. (i) CMS provides written notice of
the time and place of the informal hearing at least 10 days before the
scheduled date.
(ii) The informal reconsideration hearing will be conducted in
accordance with the following procedures:
(A) The hearing is open to CMS and the participating CAP physician
requesting the reconsideration, including--
(1) Authorized representatives;
(2) Technical advisors (individuals with knowledge of the facts of
the case or presenting interpretation of the facts);
(3) Representatives from the local carrier;
(4) Representatives from the approved vendor; and
(5) Legal counsel.
(B) The hearing is conducted by the hearing officer who receives
relevant testimony;
(C) Testimony and other evidence may be accepted by the hearing
officer even though it would be inadmissible under the rules of
evidence applied in Federal courts;
(D) Either party may call witnesses from among those individuals
specified in the paragraph (c)(7)(ii)(A) of this section; and
(E) The hearing officer does not have the authority to compel by
subpoena the production of witnesses, papers, or other evidence.
(8) Hearing officer's findings. (i) Within 30 days of the hearing
officer's receipt of the hearing request, the hearing officer presents
the findings and recommendations to the participating CAP physician who
requested the reconsideration. If the hearing officer conducts a
hearing in person or by phone, the findings and recommendations are due
to the participating CAP physician within 30 days from of the hearing's
conclusion.
(ii) The written report of the hearing officer includes separate
numbered findings of fact and the legal conclusions of the hearing
officer.
(9) Final reconsideration determination. (i) The hearing officer's
decision is final unless the director of the CMS Centers for Medicare
Management or his or her designee chooses to review that decision
within 30 days.
(ii) The CMS official may accept, reject, or modify the hearing
officer's findings.
(iii) If the CMS official reviews the hearing officer's decision,
the CMS official issues a final reconsideration determination to the
participating CAP physician on the basis of the hearing officer's
findings and recommendations and other relevant information.
(iv) The reconsideration determination of the CMS official is
final.
(v) CMS publishes a final reconsideration determination against a
participating CAP physician in the Federal Register.
(d) The approved vendor treats quality and service issues through
its grievance process. If the approved vendor does not resolve a
quality issue to the participating CAP physician's satisfaction, the
participating CAP physician may escalate the matter to the designated
carrier. The designated carrier attempts to develop solutions that
satisfy program requirements and the needs of both the participating
CAP physician and the approved vendor.
[[Page 10773]]
(e) The approved vendor may not charge the beneficiary for the full
drug coinsurance amount if the designated contractor did not pay the
approved vendor in full. When a beneficiary receives a coinsurance bill
under these circumstances, the beneficiary may participate in the
approved vendor's grievance process to request correction of the
approved vendor's file. If the beneficiary is dissatisfied with the
result of the approved vendor's grievance process, the beneficiary may
request intervention from the designated carrier. This is in addition
to, rather than is place of, any other beneficiary appeal rights. The
designated carrier will first investigate the facts and then facilitate
correction to the appropriate claim record and beneficiary file.
12. Add Sec. 414.918 to read as follows:
Sec. 414.918 Assignment.
Payment for a charge for a competitively biddable drug for which
payment is made may be made only on an assignment-related basis.
13. Add Sec. 414.920 to read as follows:
Sec. 414.920 Judicial review.
The following areas under the CAP are not subject to administrative
or judicial review:
(a) The establishment of payment amounts.
(b) The awarding of vendor contracts.
(c) The establishment of competitive acquisition areas.
(d) The selection of competitively biddable drugs
(e) The bidding structure.
(f) The number of vendors selected.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: February 10, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: February 24, 2005.
Michael O. Leavitt,
Secretary.
[FR Doc. 05-3992 Filed 2-25-05; 4:00 pm]
BILLING CODE 4120-01-P