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July 6, 2005

Part II

Department of
Health and Human
Centers for Medicare & Medicaid Services

42 CFR Part 414

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

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39022 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations

DEPARTMENT OF HEALTH AND Please allow sufficient time for mailed public inspection as they are received,
HUMAN SERVICES comments to be received before the generally beginning approximately 3
close of the comment period. weeks after publication of a document,
Centers for Medicare & Medicaid 3. By hand or courier. If you prefer, at the headquarters of the Centers for
Services you may deliver (by hand or courier) Medicare & Medicaid Services, 7500
your written comments (one original Security Boulevard, Baltimore,
42 CFR Part 414 and two copies) before the close of the Maryland 21244, Monday through
comment period to one of the following Friday of each week from 8:30 a.m. to
[CMS–1325–IFC] addresses. If you intend to deliver your 4 p.m. To schedule an appointment to
comments to the Baltimore address, view public comments, phone 1–800–
RIN 0938–AN58
please call telephone number (410) 786– 743–3951.
Medicare Program; Competitive 7195 in advance to schedule your Information on the competitive
Acquisition of Outpatient Drugs and arrival with one of our staff members. acquisition program, including a copy of
Biologicals Under Part B Room 445–G, Hubert H. Humphrey this interim final rule with comment
Building, 200 Independence Avenue, period, can be found on the CMS
AGENCY: Centers for Medicare & SW., Washington, DC 20201; or 7500 homepage. You can access this data by
Medicaid Services (CMS), HHS. Security Boulevard, Baltimore, MD going to the following Web site:
ACTION: Interim final rule with comment 21244–1850.
period. (Because access to the interior of the drugs/compbid.
HHH Building is not readily available to To assist readers in referencing
SUMMARY: This interim final rule with persons without Federal Government sections contained in this preamble, we
comment period implements provisions identification, commenters are are providing the following table of
of the Medicare Prescription Drug, encouraged to leave their comments in contents.
Improvement, and Modernization Act of the CMS drop slots located in the main Outline of Contents
2003 that require the implementation of lobby of the building. A stamp-in clock
a competitive acquisition program for I. Background
is available for persons wishing to retain A. Covered Drugs and Biologicals
certain Medicare Part B drugs not paid a proof of filing by stamping in and 1. Drugs Furnished Incident to a
on a cost or prospective payment system retaining an extra copy of the comments Physician’s Service
basis. Beginning January 1, 2006, being filed.) 2. Durable Medical Equipment (DME)
physicians will generally be given a Comments mailed to the addresses Drugs
choice between obtaining these drugs indicated as appropriate for hand or 3. Statutorily Covered Drugs and Other
from vendors selected through a courier delivery may be delayed and Drugs
competitive bidding process or directly received after the comment period. 4. Types of Providers
purchasing these drugs and being paid 5. Drugs Paid on a Cost or Prospective
Submission of comments on Payment Basis
under the average sales price system. paperwork requirements. You may B. Revised Drug Payment Methodology
DATES: Effective date: The amendments submit comments on this document’s C. Competitive Acquisition Program (CAP)
to § 414.906(c); § 414.908(b), (c), (d), and paperwork requirements by mailing D. Requirements for Issuance of
(e); § 414.910, and § 414.912(a) are your comments to the addresses Regulations
effective on July 6, 2005. All other provided at the end of the ‘‘Collection II. Provisions of the March 4, 2005 Proposed
amendments are effective September 6, of Information Requirements’’ section in Rule and Our Summary of and
this document. Responses to Public Comments
2005. A. Policy for the CAP
Comment date: To be assured For information on viewing public
1. General Overview of the CAP
consideration, comments must be comments, see the beginning of the 2. Categories of Drugs To Be Included
received at one of the addresses SUPPLEMENTARY INFORMATION section. Under the CAP
provided below, no later than 5 p.m. on FOR FURTHER INFORMATION CONTACT: Lia 3. Competitive Acquisition Areas
September 6, 2005. Prela, (410) 786–0548. B. Operational Aspects of the CAP
1. Statutory Requirements Concerning
Claims Processing
to file code CMS–1325–IFC. Because of Submitting Comments: We welcome 2. Proposed Claims Processing and
staff and resource limitations, we cannot comments from the public on all issues Operational Overview
accept comments by facsimile (FAX) set forth in this rule to assist us in 3. Dispute Resolution
transmission. further considering issues and C. CAP Contracting Process
You may submit comments in one of developing policies. You can assist us 1. Quality and Product Integrity Aspects
three ways (no duplicates, please): by referencing the file code CMS–1325– 2. Bidding Entity Qualifications
1. Electronically. You may submit IFC and the specific ‘‘issue identifier’’ 3. CAP Bidding Process—Evaluation and
electronic comments on specific issues that precedes the section on which you
4. Contract Requirements
in this regulation to http:// choose to comment. 5. Judicial Review Inspection of Public Comments: All D. Implementation of the CAP
ecomments. (Attachments should be in comments received before the close of 1. Physician Election Process
Microsoft Word, WordPerfect, or Excel; the comment period are available for 2. Vendor or Physician Education
however, we prefer Microsoft Word.) viewing by the public, including any 3. Beneficiary Education
2. By mail. You may mail written personally identifiable or confidential III. Provisions of the Interim Final Rule
comments (one original and two copies) business information that is included in IV. Waiver of Delayed Effective Date
to the following address ONLY: a comment. We post all electronic V. Response to Comments
VI. Collection of Information Requirements
Centers for Medicare & Medicaid comments received before the close of VII. Regulatory Impact Analysis
Services, Department of Health and the comment period on its public Web A. Overall Impact
Human Services, Attention: CMS–1325– site as soon as possible after they have B. Anticipated Effects
IFC, P.O. Box 8013, Baltimore, MD been received. Hard copy comments C. Impact of Establishment of a
21244–8013. received timely will be available for Competitive Acquisition Program

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Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 39023

D. Alternatives Considered rule with comment period, the term vitamin D injections); and osteoporosis
E. Impact on Beneficiaries ‘‘drugs’’ will hereafter refer to both drugs.
In addition, because of the many drugs and biologicals. Currently covered
4. Types of Providers
organizations and terms to which we Medicare Part B drugs generally fall into
refer by acronym in this interim final three categories: Drugs furnished Types of providers and suppliers that
rule with comment period, we are incident to a physician’s service, drugs are paid based on the current ASP
listing these acronyms and their administered via a covered item of system for all or some of the Medicare
corresponding terms in alphabetical durable medical equipment (DME), and covered drugs they furnish include the
order below. drugs covered by statute. following: physicians and certain non-
physician practitioners, pharmacies,
Alphabetical List of Acronyms Appearing in 1. Drugs Furnished Incident to a DME suppliers, hospital outpatient
the Interim Final Rule With Comment Period Physician’s Service departments, and ESRD facilities.
ABN—Advanced Beneficiary Notice Injectable or intravenous drugs as
ASP—Average sales price 5. Drugs Paid on a Cost or Prospective
well as non-injectable or non-
AWP—Average wholesale price Payment Basis
intravenous drugs are administered
BBA—Balanced Budget Act of 1997, Pub. L. Drugs paid on a cost or prospective
incident to a physician’s service as
105–33 payment basis that are outside of the
CAP—Competitive Acquisition Program specified under section 1861(s)(2)(A) of
CERT—Comprehensive Error Rate Testing the Social Security Act (the Act). Under scope of this interim final rule
CFR—Code of Federal Regulations the ‘‘incident-to’’ provision, the include—drugs furnished during an
CMS—Centers for Medicare & Medicaid physician must incur a cost for the drug, inpatient hospital stay (except clotting
Services (formerly Health Care Financing and must bill for it. The Medicare factor); drugs paid under the outpatient
Administration) Prescription Drug, Improvement, and prospective payment system (OPPS);
COBC—Coordination of Benefits Contractor Modernization Act (MMA) of 2003 (Pub. drugs furnished by ESRD facilities
DAW—Dispense as written L. 108–173, enacted on December 8, whose payments are included in
DME—Durable medical equipment Medicare’s composite rate; and drugs
DMERC—Durable medical equipment
2003) revised the ‘‘incident-to’’
provision, permitting payment of furnished by critical access hospitals,
regional carrier
DOJ—Department of Justice ‘‘incident-to’’ drugs under the CAP even skilled nursing facilities (unless outside
EAC—Estimated acquisition cost though the physician participating in of a covered stay), comprehensive
ESRD—End-stage renal disease the CAP would not, in fact, incur a cost outpatient rehabilitation facilities, rural
FAR—Federal Acquisition Regulation for the drug or actually bill for the drug. health facilities, and federally qualified
FDA—Food and Drug Administration The Act limits ‘‘incident-to’’ coverage to health centers.
GAO—Government Accountability Office drugs that are not usually self-
GPOs—Group Purchasing Organizations B. Revised Drug Payment Methodology
administered. Examples include
GPO Access—Government Printing Office The MMA revised the drug payment
Access injectable drugs used in connection
with the treatment of cancer (such as methodology by creating a new pricing
HCPCS—Healthcare Common Procedure system based on a drug’s Average Sales
Coding System epoetin alpha), intravenous drugs used
HHS—Health and Human Services to treat cancer (such as paclitaxel and Price (ASP). The MMA also provides for
HIC—Health Insurance Number docetaxel used to treat breast cancer), a program beginning in 2006 to give
HIPAA—Health Insurance Portability and injectable anti-emetic drugs used to treat physicians a choice between—(1)
Accountability Act of 1996, Public Law the nausea resulting from Obtaining these drugs from vendors
104–191 chemotherapy, infliximab or other selected through a competitive bidding
ICD–9—International Classification of process; or (2) directly purchasing these
similar products used to treat
Diseases—Ninth Edition drugs and being paid under the ASP
IVIG—Intravenous immune globulin rheumatoid arthritis, rituximab or other
similar products used to treat non- system.
LCDs—Local coverage determinations Effective January 2005, Medicare pays
MMA—Medicare Prescription Drug, Hodgkin’s lymphoma, and Dermagraft
or other similar products used to treat for the majority of Part B covered drugs
Improvement, and Modernization Act of
2003, Public Law 108–173 skin ulcers. using a drug payment methodology
MSN—Medical summary notice based on the ASP. In accordance with
NDC—National Drug Code 2. Durable Medical Equipment (DME) section 1847A of the Act, manufacturers
OIG—Office of Inspector General Drugs submit to us the ASP data for their
OPPS—Outpatient prospective payment DME drugs are administered through products. These data include the
system a covered item of DME, such as a manufacturer’s total sales (in dollars)
PPAC—Practicing Physicians Advisory and number of units of a drug to all
nebulizer or pump. Two of the most
Council purchasers in the United States in a
PIN—Provider identification number common drugs in this category are the
inhalation drugs albuterol sulfate and calendar quarter (excluding certain sales
PSCs—Program Safeguard Contractors
RAC—Recovery Audit Contractor ipratropium bromide. exempted by statute), with limited
RFA—Regulatory Flexibility Act (September exceptions. The sales price is net of
3. Statutorily Covered Drugs and Other discounts such as volume discounts,
19, 1980, Pub. L. 96–354)
RFI—Request for information
Drugs prompt pay discounts, cash discounts,
RTI—Research Triangle Institute Drugs specifically covered by statute free goods that are contingent on any
UPIN—Unique provider identification include—immunosuppressive drugs; purchase requirement, chargebacks, and
number hemophilia blood clotting factor; certain rebates (other than rebates under section
WAC—Wholesale acquisition cost oral anti-cancer drugs; oral anti-emetic 1927 of the Act). The Medicare payment
I. Background drugs; pneumococcal, influenza and rate is based on 106 percent of the ASP
hepatitis B vaccines; antigens; (or for single source drugs, 106 percent
A. Covered Drugs and Biologicals erythropoietin for trained home dialysis of wholesale acquisition cost (WAC), if
Medicare Part B currently covers a patients; certain other drugs separately lower), less applicable deductible and
limited number of prescription drugs. billed by end-stage renal disease (ESRD) coinsurance. The WAC is defined, with
For the purposes of this interim final facilities (for example, iron dextran, respect to a drug or biological, as the

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manufacturer’s list price for the drug or Director of the Office of Management We also briefly discussed the
biological to wholesalers or direct and Budget, to establish and publish activities we had initiated to enable us
purchasers in the United States, not timelines for the publication of to implement the statutory provisions of
including prompt pay or other Medicare final regulations based on the section 1847B of the Act including:
discounts, rebates, or reductions in previous publication of a Medicare • The award of a contract to Research
price, for the most recent month for proposed or interim final regulation. Triangle Institute (RTI) to obtain
which the information is available, as Section 902 of the MMA also states that information and develop alternatives
reported in wholesale price guides or the timelines for these regulations may regarding the implementation of a drug
other publications of drug or biological vary but shall not exceed 3 years after and biological competitive bidding
pricing data. publication of the preceding proposed program.
or interim final regulation except under • Convening a Special Open Door
C. Competitive Acquisition Program Listening Session on April 1, 2004, to
(CAP) exceptional circumstances. We intend to
publish the final rule within the 3-year gather input and allow interested parties
Section 303(d) of the MMA provides timeframe established under section 902 to hear and be heard by other members
for an alternative payment methodology of the MMA. of the healthcare industry.
for most Part B covered drugs that are • Establishment of an electronic
not paid on a cost or prospective II. Provisions of the March 4, 2005 mailbox,
payment basis. In particular, section Proposed Rule and Our Summary of, for
303(d) of the MMA amends Title XVIII and Responses to Public Comments interested parties to submit comments
of the Act by adding a new section We received approximately 570 on the CAP program before the issuance
1847B, which establishes a competitive timely pieces of correspondence of the March 4, 2005 proposed rule.
acquisition program for the acquisition containing multiple comments in • Issuance of a Request for
of and payment for competitively response to the March 4, 2005 proposed Information (RFI) on December 13, 2004
biddable Part B covered drugs and rule. Summaries of the public comments to assess public interest in bidding on
biologicals furnished on or after January and our responses are set forth in the contracts to supply drugs and
1, 2006. various sections of this preamble under biologicals for the CAP.
Beginning January 1, 2006, physicians Comment: A few commenters
the appropriate heading.
will have a choice between—(1) referenced the discussion in the
Obtaining these drugs from entities A. Policy for the CAP proposed rule concerning the activities
selected to participate in the CAP in a that we initiated to implement the
1. General Overview of the CAP
competitive bidding process; or (2) statute. These commenters questioned
acquiring and billing for Part B covered In the March 4, 2005 proposed rule, the fact that we only received 15
drugs under the ASP system. The we discussed the activities to responses from the issuance of an RFI,
provisions for acquiring and billing for implement the CAP that need to be given the number of Medicare
drugs through this new system, as well completed before January 1, 2006, beneficiaries, specialty groups
as additional information about this including—designating or developing (particularly oncology), State
new drug payment system are described quality, service, and financial organizations, and providers that could
in this interim final rule. performance standards for vendors; be impacted by the proposed rule.
The CAP may provide opportunities creating a pricing methodology; Another commenter commended us for
for Federal savings to the extent that designing and running a bidding acknowledging the need to gather
aggregate bid prices are less than 106 process from solicitation through information and obtain industry input
percent of ASP. However, the CAP has contract award; providing physicians through informal processes and
other purposes than the potential to with an opportunity to elect to encouraged us to continue to solicit
achieve savings. The competitive participate and select a vendor; input from the public through formal
acquisition program provides educating beneficiaries about the and informal means, while an
opportunities for physicians who do not program; and other activities specified additional commenter implored us to
wish to be in the business of drug in section 1847B of the Act. give serious consideration to the
acquisition. Engaging in drug The statute provides some flexibility comments on the proposed rule from
acquisition may require physicians to in the development of the CAP by affected specialty societies.
bear financial burdens such as requiring an appropriate ‘‘phase-in’’ of Response: The discussion in the
employing working capital and bearing the program and providing the Secretary March 4, 2005 proposed rule provided
financial risk in the event of non- with the discretion to select appropriate examples of activities and resources we
payment for drugs. The CAP is categories of drugs and appropriate used to establish the framework for the
designated to reduce this financial geographic areas for the program. proposed rule. The reference to 15
burden for physicians. In addition, Section 1847B(a)(1)(B) of the Act states responses was specific to the RFI that
physicians who furnish drugs often cite that for purposes of implementing the we issued on December 13, 2004, which
the burden of collecting coinsurance on CAP, ‘‘the Secretary shall establish was vendor interest specific. As
drugs, which can represent a substantial categories of competitively biddable mentioned in the March 4, 2005
dollar amount to a beneficiary and drugs and biologicals. The Secretary proposed rule, our contractor, RTI, also
physicians’ practice. The competitive shall phase in the program with respect consulted with groups and
acquisition program eliminates the need to those categories beginning in 2006 in organizations, including medical
for physicians to collect coinsurance on such manner as the Secretary specialty organizations and a national
CAP drugs from Medicare beneficiaries. determines to be appropriate.’’ oncology practice to obtain input
Additionally, the statute states that the concerning establishment of a CAP
D. Requirements for Issuance of competitive acquisition areas for the program. As with any rulemaking
Regulations CAP on which contracts are to be process, we have given serious
Section 902 of the MMA amended awarded (and vendors chosen) are consideration to the comments from
section 1871(a) of the Act and requires ‘‘appropriate geographic regions both specialty groups as well as
the Secretary, in consultation with the established by the Secretary.’’ individuals on the proposed rule.

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

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CAP through the issuance of an interim • Revise existing § 414.900, which • The statute explicitly defines a
final rule. This would provide an sets forth the basis and scope for subpart ‘‘selecting physician’’ to be one who has
extended opportunity for public K; elected the CAP program to apply.
comment and facilitate the approval of • Revise § 414.900(b)(ii) to clarify that Section 1847B(a)(1)(B) of the Act
required program modifications. the hepatitis vaccine referred to in this specifically requires the Secretary to
Response: We do not believe that our paragraph is the hepatitis ‘‘B’’ vaccine; establish categories of drugs that will be
proposed rule failed to satisfy the • Add new § 414.906 through included in the CAP, and requires the
requirements of the APA. In our March § 414.920 to address requirements with Secretary to phase-in the program with
4, 2005 proposed rule, we presented respect to payment under the CAP; and respect to these categories, as the
specific options concerning the drug • Revise § 414.902 to add definitions Secretary determines to be appropriate.
categories and competitive acquisition pertaining to the new CAP addressed in Section 1847B(a)(1)(D) of the Act further
areas that we were considering for new § 414.906 through § 414.920. authorizes the Secretary to exclude
adoption in the final rule. We also We did not receive comments on the competitively biddable drugs and
discussed the advantages and proposed organization of subpart K or biologicals from the competitive bidding
disadvantages of each option to provide the proposed changes to § 414.900, system if the application of competitive
a basis for informed comment, and we which sets forth the basis and scope for bidding to those drugs and biologicals—
subpart K or § 414.900(b)(ii). Therefore, (1) Is not likely to result in significant
received several comments on these
we finalize them as proposed. Specific savings; or
options. These comments addressed in
(2) Is likely to have an adverse impact
detail the options that we discussed, comments pertaining to the proposed
on access to those drugs and biologicals.
and addressed the specific definitions for the CAP as well as Finally, the statute defines the term
considerations that we had discussed. proposed sections § 414.906 through ‘‘competitively biddable drugs and
The commenters offered specific § 414.920 are addressed later in this biologicals’’ for purposes of the CAP as
recommendations and proposals based preamble. ‘‘a drug or biological described in
on the options that we had presented. section 1842(o)(1)(C) of the Act and
2. Categories of Drugs To Be Included
The comments themselves thus are furnished on or after January 1, 2006.’’
Under the CAP
convincing evidence that our proposed As discussed in the March 4, 2005
rule provided adequate basis for Section 1847B of the Act describes a proposed rule, the drugs described in
meaningful comment from interested program that will permit physicians to section 1842(o)(1)(C) of the Act include
parties. Although we do not believe that elect to obtain drugs from vendors most drugs paid under Medicare Part B
we are required under the provisions of rather than purchasing and billing for and not otherwise paid under cost-based
the APA to publish another proposed those drugs themselves. The statute, or prospective payment basis. Medicare
rule with more specific proposals, as therefore, most closely describes a Part B covered vaccines, drugs infused
requested by some commenters, we are system for the provision of and the through a covered item of DME, and
exercising our discretion and publishing payment for drugs provided incident to blood and blood products (not including
this rule as an interim final rule to allow a physician’s service. For example, clotting factor and intravenous immune
our provisions to take effect and to under the mechanisms described in the globulin (IVIG)) are not included under
provide the public with the opportunity statute: this definition because they are
to comment on our final provisions. We • Only physicians are expressly given expressly excluded from section
believe that additional public comment an opportunity to elect to participate in 1842(o)(1)(C) of the Act. The statutory
on this new and complex program the CAP. definition of ‘‘competitively biddable
would be valuable. We especially • The second sentence of section drugs’’ therefore includes drugs
welcome comments on issues related to 1847B(a)(1)(A) of the Act explicitly administered incident to a physician’s
phasing in the program. For example, indicates that such section shall not service (for example, drugs commonly
we describe below how we have apply in the case of a physician who furnished by oncologists), drugs
decided to exercise our statutory elects section 1847A of the Act to apply. administered through DME (for
authority to determine and phase in • Physicians who elect to obtain example, inhalation drugs) with the
categories of drugs under the CAP. We drugs under the CAP make an annual exception of DME infusion drugs, and
specifically invite comments on the selection of the contractor through some drugs usually dispensed by
further development of appropriate drug which drugs will be acquired and pharmacies (for example, oral
categories after this initial stage of delivered to the physician under Part B. immunosuppressive drugs). Although
implementing the program. We also • Section 1847B(a)(3)(A) of the Act the statutory definition includes all
welcome comments on other issues specifically applies the CAP to drugs these categories of drugs, as noted
regarding the CAP program. and biologicals that are prescribed by a above, the specific mechanisms
physician who has elected the CAP to described under section 1847B of the
apply. Act relate to the provision of and the
In the March 4, 2005 rule, we • Payment for drugs furnished under payment for drugs provided incident to
proposed to codify the requirements and the CAP is conditioned upon drug a physician’s service. Given our
provisions for the CAP in regulations at administration. concerns about the clear direction of the
42 CFR Part 414, Subpart K. We • The requirement for submission of statute that the election to participate in
proposed to revise the heading for information that will be used by in the this program rests with physicians, in
subpart K to read ‘‘Payment for Drugs contract for collection of cost sharing the proposed rule we indicated that we
and Biologicals under Part B’’; amend applies to physicians. do not believe it is possible to include
existing sections and section headings; • The primary site for delivery of drugs other than those administered as
and add new definitions and sections to drugs furnished under the CAP is the incident to a physician’s service as part
set forth the proposed requirements physician’s office. of this program. However, we also
with respect to the CAP. Specifically, • The statute requires the Secretary to recognized that the statute provides a
we proposed to make the following make available to physicians on an potentially broader definition of
changes: ongoing basis a list of CAP contractors. ‘‘competitively biddable drugs and

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

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below, in response to these comments, intrathecally through implanted The latter group of orphan drugs poses
we have identified a set of 169 drugs variable-rate infusion devices could be much more severe access issues than
that are most commonly administered included under the CAP, when they are other orphan drugs precisely because
incident to a physician’s service for administered by physicians in their their use is generally limited to
inclusion in the initial stage of the CAP. offices incident to their services. In the relatively rare orphan indications. As
We have not included drugs with very specific case of Prialt, we have not one commenter noted, we provide
low volumes of billing by physicians been able to include the drug in this special payment consideration under
because we believe including such initial phase of the CAP because it is the outpatient prospective payment
drugs at this time would impose a very new and has not yet been assigned system (OPPS) to this latter set of
greater burden on vendors, and a code. (We discuss treatment of new orphan drugs. Specifically, we designate
undercut the goal of providing a drugs in greater detail below.) However, drugs that meet the following criteria as
sufficiently sized market. As described our analysis has suggested that some single indication orphan drugs under
in further detail below, in response to pain medications may be inappropriate the OPPS:
concerns raised by commenters we have for inclusion in the CAP, at least in the • The drug is designated as an orphan
also not included certain drugs whose initial stage. Specifically, we are drug by the FDA and approved by the
patterns of use do not make them concerned that the special FDA only for treatment of only one or
suitable for inclusion under the CAP. recordkeeping and other requirements more orphan conditions(s); and
For example, certain vaccines, such as that apply to Schedule II, III, and IV • The current United States
tetanus and diphtheria vaccines, are controlled substances would make Pharmacopoeia Drug Information
most commonly used in emergency inclusion of these drugs in the CAP (USPDI) shows that the drug has neither
situations. These drugs are therefore problematic. Under the CAP, the an approved use nor an off-label use for
poorly suited for the normal ordering approved CAP vendor retains title to the other than the orphan condition(s).
and billing procedures contemplated by drug, even after it is shipped to the In this interim final rule, we, therefore,
the CAP statute. Physicians often will physician, which may make it more are not including those orphan drugs
not be in the position to submit to their difficult to ensure compliance with the that meet the above criteria within the
approved CAP vendor in advance a special rules for controlled substances. CAP, at least during the initial stage of
patient-specific order for these drugs. We, therefore, are not including implementing the program. Under these
Although section 1847B(b)(5) of the Act Schedule II, III, and IV controlled criteria, the following drugs are not
outlines special rules to allow approved substances in the initial stage of included, at least for the initial stage of
CAP vendors to resupply drugs used in implementing the CAP. We welcome CAP:
emergency situations, we do not believe comments on the implications of these
that it is advisable to include within the special requirements for including these J0205 (Injection, Alglucerase, per 10
CAP drugs for which this special drugs in the CAP during later stages of units);
mechanism will be routinely employed, implementation. J0256 (Injection, Alpha 1-proteinase
at least during this initial stage of Comment: Several commenters inhibitor, 10 mg);
implementing the program. (It is recommended that we exclude orphan J9300 (Gemtuzumab ozogamicin, 5mg);
important to note that the statute drugs from the CAP. (‘‘Orphan drug’’ is J1785 (Injection, Imiglucerase, per
specifically excludes pneumococcal defined by FDA, under 21 CFR unit);
vaccine, influenza vaccine, and 316.3(b)(10), as a ‘‘drug intended for use J2355 (Injection, Oprelvekin, 5 mg)
in a rare disease or condition as defined J3240 (Injection, Thyrotropin alpha,
hepatitis B vaccine from the CAP.) As
we discuss in response to the specific in section 526 of the Federal Food, 0.9 mg);
Drug, and Cosmetic Act.’’) These J7513 (Daclizumab, parenteral, 25 mg);
comments below, we have also not
commenters pointed out that orphan J9010 (Alemtuzumab, 10 mg);
included, at least initially, certain types
drugs often pose access challenges. J9015 (Aldesleukin, per single use
of drugs that pose special issues. For
Specifically, one commenter noted that vial);
example, we have not included drugs
vendors may not be able to provide J9017 (Arsenic trioxide, 1 mg);
that pose special implementation issues
orphan drugs adequately in a timely J9160 (Denileukin diftitox, 300 mcg);
such as some controlled substances and
manner. The same commenter noted and
orphan drugs.
Comment: One commenter asked that CMS has provided a special J9216 (Interferon, gamma 1–b, 3
about the status of opioid medications exception for payment of orphan drugs million units).
administered intrathecally through in the outpatient prospective payment We welcome comments on whether
implanted variable-rate infusion devices system. these drugs should be included in the
(for example, Prialt). The commenter Response: We agree with the CAP during later stages of
notes that historically, when these pain commenters that access problems implementation.
medications have been furnished by provide a sound reason for not Comment: Several commenters also
physicians in their offices, they have including some orphan drugs from the recommended that we not include
been covered and billed through the CAP, at least in the initial stages of the contrast agents within the CAP. Some of
local carriers as drugs administered program. However, we do not believe these commenters recommended
incident to physicians’ services, rather that it is necessary to decline to include permanent exclusion of contrast agents
than as drugs infused through covered all orphan drugs from the program, even from the program. Others recommended
durable medical equipment billed in this initial stage of implementation. that we phase-in these agents during
through the DMERCs. In the light of This is because many orphan drugs are later stages of implementing the CAP.
this, the commenter requested that we not approved exclusively for the Contrast drugs are used only in
confirm specifically that those treatment of orphan indications, but diagnostic imaging tests. The
medications will be eligible for the CAP, they are also approved for other non- commenters cited various reasons for
at least once the program is fully phased orphan indications that affect broader excluding contrast agents. These
in. groups of the public. In contrast, other included the difficulty of determining
Response: We agree in principle that orphan drugs are approved exclusively appropriate categories for these
opioid medications administered for the treatment of orphan indications. products, fast pace of change in this

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

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

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

Number of line
Specialty group Number of claims Allowed charges

Oncology .................................................................................................................... 7,311,248 14,628,558 $5,647,268,606

Opthalmology ............................................................................................................. 169,061 178,604 154,720,837
Psychiatry .................................................................................................................. 43,752 55,599 3,626,108
Rheumatology ............................................................................................................ 952,381 1,211,630 404,027,916
All other specialties .................................................................................................... 12,034,708 15,448,287 1,369,525,241

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

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the category, a drug needed to satisfy at claims percentage thresholds described determining ‘‘low volume’’ had to vary
least one of the following conditions: in step (7) above. We believe that these somewhat among the specialties that we
• Be identified as an oncolytic, drugs should be included in the CAP (so have separately identified in this
chemotherapy adjunct, anti-emetic, long as they meet the baseline claims analysis. In this context, we have
hematologic, or have a HCPCS in the volume threshold specified above and determined that the low volume
J9000 series (except for J9999, which is are not on the list specified in step (6) threshold should be relative to the size
excluded as a NOC code). above). We believe it is necessary to of the specialty and the overall volume
• Appear on more than 0.1 percent of include these drugs, even at lower of billing for Part B drugs by the
claims for the oncology or all other volumes, because they may often be specialty: The universe of Part B drugs
specialty groups. used in conjunction with one another, billed by oncologists is roughly
• Appear on more than 1 percent of both by oncologists and by physicians comparable to those in all other
claims for the ophthalmology, in many other specialties. specialties in the aggregate and is much
psychiatry, or rheumatology specialty However, for other drugs, we looked larger than the universe of Part B drugs
groups. at claims volume in the aggregate of all billed by ophthalmology, psychiatry, or
• Have more than $250,000 in specialties except those identified below rheumatology. Specifically, the overall
allowed charges in office settings in to determine a threshold that would volume of billing for Part B drugs by
2004 and be identified as an allow for a sufficiently sized market for oncologists is very high, while the
antibacterial, antifungal, antiparasitic, vendors, while at the same time making overall volume of billing for Part B
antidote, or cardiovascular agent. the CAP a meaningful alternative for drugs by psychiatry and ophthalmology
• Have more than $1 million in most physician specialties. At the same is relatively low. The same percentage
allowed charges in office settings in time, in response to specific comments
threshold for these specialties would
2004. about specialties where there is not
therefore yield very different numbers of
In addition to satisfying one of the significant overlap between small but
claims for exclusion. We therefore
above conditions, a drug must also highly utilized groups of drugs, the
determined that it would be appropriate
satisfy both of the following conditions: drugs that physicians in those
to establish different percentage
• Not be on the list specified in step specialties use, and drugs commonly
thresholds for including drugs billed by
(6) above of drugs that are not included used by other physician specialties, we
these specialties in the CAP. We
in the CAP drug category. identified psychiatry, ophthalmology,
accordingly set the percentage threshold
• Have more than $50,000 in allowed and rheumatology as specialties whose
drugs claim threshold should be for the oncology and all other specialty
charges in office settings in 2004 groups at 0.1 percent of claims
(another measure designed to avoid different. In order to lessen the
inventory burden for vendors, we submitted by the specialty. We set the
including very low volume drugs in this threshold for ophthalmology,
initial category). wanted to minimize the number of
drugs included in the CAP that are psychiatry, and rheumatology, at 1.0
We employed the criteria above to billed in very low volumes, so we have percent of claims. A low percentage
ensure that our single drug category applied a $50,000 minimum threshold threshold (0.1 percent) for oncology
would include a broad spectrum of the for all drugs that otherwise would be claims (and claims for the other
Part B drugs billed by physicians included in the CAP (see step (7) above). specialty category) is appropriate in
generally and by various physicians’ We determined separate counts for relation to the overall high numerical
specialties in particular. Our intent was several specialties, in order to be able to volume of billing by oncologists for Part
to provide the physician with a single ensure that a broad spectrum of the Part B drugs: a higher percentage threshold
source for drugs (that is, the approved B drugs used by physicians was for this specialty would exclude some
CAP vendor) that would be able to included in this initial drug category for relatively high volume drugs from the
furnish the majority of drugs used in a the CAP. In some cases (oncology), we category. Conversely, a similarly low
practice regardless of the practice included a separate count for the percentage threshold for psychiatric
specialty or the diversity of prescribing specialty because of the significance of drugs would not be appropriate because
patterns in that practice. Furthermore, drug billing by these physician it would allow some very low volume
we intended to provide the physician specialists relative to overall billing for drugs into the CAP. A higher percentage
with choice and flexibility within Part B drugs. In other cases (psychiatry, threshold in this case is necessary to
groups of drugs that might be used by ophthalmology, and rheumatology), we exclude some very low volume drugs
different specialties for the treatment of included distinct counts in order to from the CAP. We decided on these
various conditions. This list of drugs is respond adequately to comments specific percentage thresholds after
intended to accommodate a variety of specifically recommending the drugs examining various alternative levels (for
physician practice patterns and a variety commonly billed by those specialties for example, 0.01 percent) and different
of specialties with the understanding inclusion in the program, which, as combinations of levels (for example, 0.1
that many drugs, for example, anti- noted above, are not frequently used by percent for oncology drugs, 0.01 percent
emetics, are used by more than one physicians in other specialties. As we for ophthalmology and psychiatry).
specialty. have discussed above, we agree with the After examining a number of
As noted above, we believe that in comment that we should include within alternatives, we determined that these
many cases, there is significant overlap this initial stage of the CAP drugs that levels strike an appropriate balance:
in the types of Part B drugs provide a sufficiently large market for they are high enough to prevent truly
administered by most physician the program to be viable for vendors. low volume drugs from being included
specialties, including oncology. For this For this reason, we decided not to in the category, and low enough to
reason, we decided that oncolytics, include most very low volume drugs in incorporate within the category a truly
chemotherapy adjuncts, anti-emetics, this initial drug category. However, broad spectrum of the Part B drugs
hematologics, and drugs having a because overall volume of billing for commonly billed by physicians. When
HCPCS in the J9000 series (except for Part B drugs varies widely from one we considered cutting the list off at a
J9999), should be included in the CAP physician category to another, we higher threshold (for example, 1.0
even if they did not meet the specialty determined that the threshold for percent) for oncology drugs (and the

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‘‘other specialty’’ category), we realized services in our Part B billing data. More ‘‘approved CAP vendor’’ and clarified to
that numerous commonly billed drugs importantly, they represent about 85 specifically reference 1847B of the Act.
would have been excluded. Similarly, percent of the charges for all the Part B In addition, it is important to keep in
when we considered a lower threshold drugs billed by physicians. We also mind that HCPCS codes can often
(for example, 0.1 percent) for have revised the definition of ‘‘CAP describe products represented by
ophthalmology, psychiatry, and drug’’ in the regulations at § 414.902 to multiple National Drug Codes (NDC).
rheumatology, we realized that many clarify that the provisions of the CAP For example, the drug
drugs billed in small numbers would be program apply to drugs that we have cyclophosphamide is manufactured by a
included. included in the drug category. number of different pharmaceutical
Finally, we set several other Comment: Several commenters noted companies and has multiple NDC codes.
thresholds based on claims volume that that, in light of the congressional intent In proposed § 414.908(d), we
we believe would be appropriate for to provide physicians with an indicated that vendors will not be
balancing the goal of providing alternative method for obtaining the Part required to provide every National Drug
approved CAP vendors with a B drugs that they use, it would be Code associated with a HCPCS code.
sufficiently sized market with that of especially appropriate to incorporate Section 1847B(b)(1) of the Act states
allowing physicians to obtain a broad into the CAP at an early stage of that ‘‘in the case of a multiple source
array of drugs through the CAP. For this implementation those drugs that have drug, the Secretary shall conduct such
reason, we determined that a $250,000 been identified as posing acquisition competition among entities for the
threshold would be appropriate for problems for physicians under the ASP acquisition of at least one competitively
drugs identified as an antibacterial, system. biddable drug and biological within
antifungal, antiparasitic, antidote, or Response: The methodology that we each billing and payment code within
cardiovascular agents. These drugs are described above does not specifically each category for each competitive
often used by particular specialties like account for those drugs. However, we acquisition area.’’ However, we also
infectious disease or cardiology, but have reviewed the resulting list of 169 proposed that vendors be required to
many of these drugs may be used by drugs against a list that we have provide potential physician participants
other specialties, and the $250,000 maintained of drugs that have been in the competitive acquisition program
reported to us as posing access problems the specific NDCs within each HCPCS
threshold ensures that only those drugs
for physicians under the ASP system. code that they will be able to provide to
of this type that are commonly used are
Most of the drugs on that list appear in the physician. Potential vendors would
included in the CAP. Finally, for the
the drug category that we are also need to provide this same
same reasons, we believe that any drug
establishing for this initial phase of information to us as part of the bidding
that otherwise meets the criteria for
implementing the CAP. These include: application. This information would be
inclusion in the CAP (as specified
provided to physicians who request it
above), but does not meet one of the J7050 Normal Saline 250 mL no later than the beginning of the
other four specific criteria outlined in J9245 Melphalan/Alkeran 50 mg election period during which the
step (7) above, should be included if the J2430 Pamidronate physician chooses whether to
volume of claims for the drug is J2920 Methylprednisolone participate in the CAP and, if so, selects
significant. We have set that threshold J2930 Methylprednisolone a vendor.
at $1 million. The result of performing J7317 Sodium Hyaluronate Comment: Many commenters
this methodology is a list of 169 drugs. J7320 Hylan G-F 20 supported our proposal to require
Table 2 gives the percentage of total J9310 Rituximab vendors to submit bids on at least one
allowed charges for Part B drugs for J1750 Iron Dextran 50 mg Injection drug for each HCPCS code within a
each of the five specialty groups shown J2405 Odansetron 1 mg Injection category. Many of these commenters
in Table 1. To account for the drug category that urged us to resist any recommendation
we are adopting in this interim final that vendors be permitted to establish
TABLE 2.—PERCENT OF 2003 TOTAL rule with comment period, we have drug formularies by offering drugs from
ALLOWED CHARGES ACCOUNTED revised the proposed regulations at only some of the codes included in a
FOR BY THE CAP BIDDING DRUGS § 414.902 to specify that CAP drugs are category. Many other commenters
those physician-administered drugs or expressed opposition to any attempt by
Oncology ........................................... 84.92 biologicals furnished on or after January the agency to establish a formulary as an
Ophthalmology .................................. 99.97 1, 2006 described in section element of implementing the CAP. A
Psychiatry ......................................... 46.14* 1842(o)(1)(C) of the Act and supplied by few commenters representing potential
Rheumatology ................................... 99.29 an approved CAP vendor under the CAP vendors did make such a
Other specialties ............................... 80.57
as provided in this subpart. recommendation. Other commenters
All non-oncology specialties ............. 86.00
All physicians (in office) .................... 85.20 recommended that we establish a more
Vendor Implications stringent standard, such as: requiring
* Note: Our data on drug billing by psychia- We pointed out that the categories that vendors offer at least one drug for
trists showed a high proportion (53 percent) of established for physicians to select each distinctive treatment or therapy
allowed charges for Rho D immune globulin,
which is not included in our single drug cat- would be the same categories that represented within a HCPCS code;
egory for the reasons discussed above. The would be open for bids by potential requiring that vendors be required to
drugs that we have included represent 97.94 vendors. Vendors would not be able to offer at least one formulation (that is, at
percent of allowed charges for all other drugs submit bids on only some of the HCPCS least one NDC) for each single-source
commonly used by psychiatrists.
codes in the category, and physicians drug that falls within the same HCPCS
Using these steps, we have identified would not be able to elect to acquire code; or requiring that vendors be
a list of 169 drugs for inclusion in our only some of the HCPCS codes in that required to provide all available FDA-
single drug category. We show the list category from the approved CAP approved drugs within a HCPCS code.
of these drugs in Addendum A. These vendor. Note that in § 414.902 the Finally, some commenters
drugs represent a large proportion of the proposed definition for ‘‘approved recommended that information about
440 drugs billed incident to physicians’ vendor’’ at § 414.902 has been revised to which specific NDC codes vendors will

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39034 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations

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

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

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exclusion of the vendors that could bid preamble the term ‘‘vendor’’ means the treatment’’ or ‘‘change a physician’s
and supply drugs on a regional or State term ‘‘contractor’’ as referred to in the flexibility in terms of writing a
basis. Under such a phase-in plan, the statute.) (2) Any applicable deductible prescription for drugs or biologicals for
definition of competitive acquisition and coinsurance may not be collected a single treatment or a course of
area would ultimately be established on unless the drug was administered to the treatment.’’ As we stated in the
the basis of regions, States, or some beneficiary. (For purposes of the proposed rule, it is not our intention to
other smaller geographic area, which preamble the term ‘‘drug’’ refers to restrict the physician’s flexibility when
might expand the number of vendors drugs and biologicals.) (3) Medicare can ordering drugs from a CAP vendor.
that could bid to participate in the make payments only to the vendor, and
Resupplying Inventory
program.’’ these payments are conditioned upon
In this interim final rule, we are the administration of the drug. Section 1847B(b)(5) of the Act
establishing a single, national The statute requires the Secretary to requires the Secretary to establish rules
distribution area for the initial stage of provide for a process for adjustments to under which drugs acquired under the
the CAP. This national distribution area payments when payment was made for CAP may be used to resupply
will embrace the 50 States, the District the drugs, but they were not actually inventories of these drugs administered
of Columbia, Puerto Rico, and U.S. administered to the beneficiary. The by physicians. The statute contains four
territories. In order to participate in this Secretary is also required to provide a criteria that must be met in order for the
initial stage of the program, vendors will process by which physicians submit physician to use this provision: the
need to be appropriately licensed in all information to vendors for purposes of drugs are required immediately; the
50 States and the District of Columbia the collection of applicable deductible physician could not have anticipated
(as well as Puerto Rico and the U.S. or coinsurance. Payment may not be the need for the drugs; the vendor could
territories). It is important that, as we made for competitively biddable drugs not have delivered the drugs in a timely
discuss in section 2.C.1 of this interim supplied to a physician who has elected manner; and the drugs were
final rule, vendors submitting bids to to participate in the CAP unless the administered in an emergency situation.
participate in the program may employ vendor supplying the drugs has a Comment: One commenter stated that
subcontractors, including vendors that contract to provide them in that the statutory requirement to provide for
operate on a State-wide or regional geographic area and the physician a process of adjustments to payments in
basis, to provide for distribution of receiving them has elected the vendor to cases where payment was made for a
drugs across the nationwide area that supply that category of drug in that drug that was not actually administered
geographic area. to the beneficiary was unnecessary and
we are establishing. Under this phase-in
Section 1847B(b)(4)(E) of the Act should be removed or clarified since
plan, we expect that the definition of
requires that the vendor supply drugs under the proposed claims processing
competitive acquisition areas will
directly only to the selecting physicians system payment to the vendor would
ultimately be established on the basis of
and not directly to individuals, except not be made until administration was
regions, States, or some other smaller
under circumstances and settings where verified, unless CMS adopted the partial
geographic area, which we expect to
the individual currently receives drugs payment methodology.
increase the number of vendors that Response: We agree with the
could bid to participate in the program. in his or her home or another non-
physician office setting, as provided by commenter that generally the claims
We will consider how to establish processing system we are adopting in
smaller competitive acquisition areas the Secretary. In addition, the vendor
may not provide drugs to a physician this interim final rule makes it less
(regional or State-based) as this initial likely that we will need to recover
participating in the CAP unless the
phase of implementation proceeds. We payments made in error to vendors for
physician submits a written order or
welcome additional comments in drugs that were not actually
prescription, and any other data
response to this interim final rule on administered to the beneficiary, because
specified by the Secretary, to the
how to proceed with the development of we will not pay the vendor until the
smaller competitive acquisition areas for However, the statute also makes it drug administration claim has been
later stages of implementing the clear that the physician is not required processed. However, it is still possible
program. We anticipate that our final to submit an order (prescription) for that claims filing and processing errors
plan for those areas will not only allow individual treatments of a drug or could occur and that as a result, a
smaller, State-based or regional vendors biological, and that the statute is not vendor could be paid in error. In that
to compete for contracts under the CAP, intended to change a physician’s event, we will use existing overpayment
but also preserve the opportunity for flexibility to choose whether to write a recovery processes to recover claims
large vendors to participate in the prescription for a single treatment or a payments made in error. Therefore, we
program on a nationwide basis. course of treatments. In certain sections are retaining the language at
B. Operational Aspects of the CAP of the proposed rule, we used the term § 414.906(d).
‘‘prescription’’ and the term ‘‘order’’ Comment: Some commenters
1. Statutory Requirements Concerning interchangeably. Section 1847B of the requested that we define the term
Claims Processing Act uses the term ‘‘prescription’’ but prescription and/or order in the final
Section 1847B(a)(3)(A) of the Act sets does not define it. For purposes of the rule preamble and regulations. Other
forth specific requirements that have a CAP, we proposed to interpret the term commenters stated that because the
direct impact on the administrative and to include a written order submitted to statute uses the word prescription, CMS
operational parameters for instituting a the vendor. does not have the authority to redefine
CAP. This section of the statute requires We also noted that section the term to mean an order. Several
the following: (1) Vendors participating 1847B(b)(4)(E) of the Act, in requiring commenters characterized the drug
in the CAP bill the Medicare program that vendors deliver drugs only upon order process described in the proposed
for the drug or biological supplied, and receipt of a ‘‘prescription,’’ expressly rule as the filling of a prescription for
collect any applicable deductibles and indicates that the statute does not a patient, and stated that only a licensed
coinsurance from the Medicare ‘‘require a physician to submit a pharmacist may fill a prescription under
beneficiary. (For purposes of the prescription for each individual State and Federal law. Another

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

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

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processed for drugs provided under the from the beneficiary, and the physician subject to the LCA policy, rather than
CAP receive special treatment relative to refuses to change the order, the vendor the CAP-established price. Both the
the balance of Part B claims. will still be required to provide the drug physician and the drug vendor should
Comment: A commenter suggested to the physician under its contract with be aware of any LCDs that are in effect
that the final rule address the steps us. If the claim for the drug in a particular jurisdiction. When
necessary for a non-CAP physician to administration is denied, the physician ordering drugs we ask that the physician
refer a patient for treatment to a would be required to pursue an appeal be mindful of the fact that the vendor’s
participating CAP physician. of the denial with the local carrier. The claim for drug payment will be
Response: If a non-participating CAP vendor also may appeal the denial of the dependent on the local carrier’s
physician refers a patient to a drug claim. If the claim ultimately coverage policies, including least costly
participating CAP physician, the remains unpaid, the vendor may ask the alternative policies. As stated above,
participating CAP physician will treat designated carrier for assistance under under its contract with us, the vendor
the beneficiary as he or she would any the dispute resolution process. (This would need to ship an ordered drug if
other patient, because the decision to process is described in more detail in the vendor believes it will receive a
participate in the CAP is made at the the section on dispute resolution reduced payment because of a carrier
physician level rather than on a (section II.B.3 of this interim final rule).) payment policy. The vendor may call
beneficiary-by-beneficiary basis. The We are requiring the vendor to deliver the physician to discuss the order, but
participating CAP physician would the drug to ensure that the physician’s if the physician confirms the order, the
need to provide the same education judgment about the appropriate vendor must ship it. (The vendor would
about the CAP to the beneficiary treatment for the beneficiary is primary have the same right to collect an ABN
referred by the non-participating CAP in the decision-making process. In from the beneficiary in this situation, as
physician as he or she did for his or her addition, the local carrier’s coverage described elsewhere in this section. In
regular patients. If the participating CAP determination (rather than the addition, the vendor could appeal the
physician needs to provide a drug to the designated carrier’s) must apply in the drug claim denial. Further, the vendor
referred patient and the drug is a CAP local carrier’s jurisdiction so that the may ask the designated carrier for
drug, the drug may be obtained from the same coverage policies are in force in an assistance under the dispute resolution
approved CAP vendor. If it is medically area regardless of whether a drug is paid process.)
necessary that the patient receive a for under the CAP or under the ASP Comment: Some commenters support
specific formulation of a drug not system. The only exception to this our proposal that the CAP order may be
available from the approved CAP policy is that if the beneficiary does not initiated via a Health Insurance
vendor, the physician may obtain the pay his or her cost sharing in certain Portability and Accountability Act
drug under the ‘‘Furnish As Written’’ circumstances, the vendor may refuse to (HIPAA) compliant phone call or fax
provision. Finally, if the drug the ship additional drugs to the with a follow-up written order. The
patient needs is not one that is included participating CAP physician for that vendor could begin filling the order but
in the CAP category the physician beneficiary. For more information on wait to finalize shipment until the
would buy the drug and bill for it under this process, please see the discussion of written order is received. These
the normal ASP system. beneficiary cost sharing later in this commenters believe that this process
Comment: Several commenters section. would provide drugs to patients more
requested guidance about whether the Comment: One commenter requested quickly than if the vendor is required to
vendor would be able to refuse to ship that CMS clarify whether the local wait until it has a written order in hand
an order if the vendor believed it was carrier may also apply its least costly before it begins preparing the order.
inconsistent with an LCD or if the alternative policy to the claim submitted Additionally, one commenter asked that
designated carrier had denied payment under the CAP, despite the we clarify that electronic transmission
for the drug previously for some other establishment of pre-determined CAP of the drug order between the physician
reason. Some commenters stated that reimbursement rates. and vendor would be permitted.
the vendor should be prevented from Response: Least costly alternative Response: We appreciate that
substituting its decision making for that policies are established by our commenters supported our proposal.
of the physician by refusing to ship an contractors. Nothing in this interim final Both the participating CAP physician
ordered drug or changing the dose of a rule is intended to disrupt the and the approved CAP vendor will be
particular drug. longstanding ability of contractors to enrolled Medicare suppliers. As noted
Response: If the vendor believes a apply this policy under section elsewhere, the approved CAP vendor
drug order is not consistent with an 1862(a)(1)(A) of the Act. Section will be a covered entity for purposes of
LCD, the vendor may call the physician 1862(a)(1)(A) provides that the HIPAA rules. If a participating CAP
to discuss the order and try to determine notwithstanding any other provision in physician meets the criteria under the
why the physician believes it will be the Medicare statute (that is, including HIPAA rules, he or she may also be a
covered under the local carrier’s LCD. If section 1847B of the Act), no payment covered entity. Covered entities must
the physician declines to change the may be made under Part A or Part B for comply with HIPAA privacy and
order, but the vendor still believes the any expenses incurred for items and security requirements. Where
local carrier will not cover the drug, the services that are not reasonable and transmission of protected health
vendor may ask the beneficiary to sign necessary. Medicare carriers establish information via electronic means would
an Advanced Beneficiary Notice (ABN). local coverage determinations (LCDs), be permitted under the HIPAA privacy
Because approved CAP vendors will be under which coverage for a particular and security rules, covered entities may
Medicare suppliers, they will have the drug is limited to the coverage level for do so. The CAP statute and these
same right to issue ABNs that any other its least costly alternative. If there is an implementing regulations are not
Medicare supplier has. A signed ABN LCD on a particular drug that contains intended to affect the manner in which
would make the beneficiary liable to a least costly alternative provision, and HIPAA-compliant communications may
pay for the drug if the carrier denied the the drug is included in the CAP, when occur.
claim. However, in the event the vendor the participating CAP physician orders Comment: One commenter requested
is not successful in collecting an ABN that drug, the drug claim will be paid clarification as to how, if at all,

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39040 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations

physicians will be required to • Shipping address vendor complete patient information

incorporate e-prescribing technologies if • Additional Patient Information: only for the initial order, or when the
ordering drugs currently under the Part date of birth, allergies, Height/Weight/ information changes (for example, the
B program or acquiring drugs through ICD–9. patient develops a new drug allergy).
the CAP. We specifically requested comments on The approved CAP vendor will specify
Response: The MMA electronic this proposed information as well as any which information is necessary on a
prescription program provisions apply additional information that might be follow-up order.
to the electronic prescription of necessary. Comment: One commenter stated that
Medicare Part D drugs for Part D Comment: We received several the physician may be uncertain when
enrolled individuals, not specifically comments about the proposed content the patient will be receiving his or her
Part B drugs. The MMA provides that of the physician’s order. Some treatment, and thus it may not be
not later than one year after the commenters stated that the proposed possible to determine the anticipated
promulgation of final standards for items duplicate those submitted on a date of treatment with any accuracy.
Medicare Part D drugs for Part D claim for service and do not reflect the This commenter recommended instead
enrolled individuals, prescription and information typically included in a drug that CMS allow the physician to specify
certain other related information order or prescription. Other commenters a range of dates when the treatment may
transmitted electronically can only be were concerned about compliance with be administered.
transmitted according to the adopted Response: We agree with the
HIPAA guidelines and requested that
final standards. The Medicare commenter that it may not be feasible
unnecessary patient-specific
Prescription Drug Benefit final rule (70 for a physician to establish in advance
information be deleted from the order
FR 4198, January 28, 2005) states that an exact date for drug administration.
form. Commenters also stated that the We will specify that providing the
Part D sponsors that participate in the detailed list of order information should
Part D program are required to support vendor with a range of dates over a 7-
be needed only for the initial order for day period will be sufficient. We have
and comply with adopted electronic a new patient. They noted that
prescription standards. Physicians selected the 7-day timeframe based on
subsequent orders could be greatly our understanding that many of the
would not be required to write abbreviated.
prescriptions electronically and drugs included in the CAP are used in
Response: The statute provides that a treatment regimen that repeats on a
therefore their participation in Part D we must establish a process for the
electronic prescription drug programs weekly basis. The 7-day time period is
sharing of applicable deductible and intended to provide the physician with
would be voluntary. Those physicians coinsurance information between the
that decide to prescribe Part D drugs flexibility to shift the specific date of
participating CAP physician and the administration of needed drugs within a
electronically, however, would be approved CAP vendor. The participating
required to comply with the adopted specified period without overlapping
CAP physician is also required to the next treatment period. When the
final standards. We proposed a submit a prescription order to the
foundation set of final standards in approved CAP vendor submits its claim
approved CAP vendor to order drugs for for the drug, the vendor will be
February 2005 (70 FR 6256, February 4, an individual patient. The order form
2005) and hope to finalize those instructed to include the first day in the
information that we proposed in the 7-day period as the date of service.
standards and require compliance by proposed rule contains information Because the vendor will not know the
January 2006, when the Medicare Part D necessary to comply with both of those actual date the drug is administered
prescription drug benefit begins. We requirements. It is not possible to link before submitting its claim, the date of
will also monitor the program as it beneficiary-specific information from service will not be used to match the
develops to determine if some aspects of our claims processing system with the approved CAP vendor’s claim with the
it could be adapted for use in the CAP physician’s order before the drug participating CAP physician’s claim.
drug ordering process. vendors compiling the information Instead, as described later in this
Content of the CAP Drug Order necessary to prepare the drug order and section, a unique number will be used
return it to the physician because it is to match the claims.
We proposed that the physician not possible for a provider to query the Comment: Some commenters
would transmit the following specific system and obtain beneficiary billing recommended that CMS eliminate the
information to the CAP drug vendor information. Allowing suppliers and ‘‘Additional Patient Information’’ (date
from whom he or she has elected to providers to obtain beneficiary specific of birth, allergies, height, weight, ICD–
receive drugs. (Abbreviated information information from the Medicare claims 9 codes) specified in the potential list of
could be sent for repeat patients.) processing system could be a violation
• Date of order data elements. Information related to
of beneficiary privacy rules. In addition, height and weight would be used by the
• Beneficiary name
• Physician identifying information: the statute specifies that this physician to determine the dose, and
Name, practice location, group practice information will be provided by the the ICD–9 would be included on the
information (if applicable), PIN and physician. The HIPAA guidelines allow physician’s claim form, so the physician
UPIN, Drug name the sharing of beneficiary-specific would not need to provide it. The
• Strength information necessary for treatment commenters stated that this type of
• Quantity ordered purposes. Without needed information, information was not typically included
• Dose the approved CAP vendor will be in a drug order and that the CAP vendor
• Frequency/instructions prevented from completing the drug should not use the information to
• Anticipated date of administration order accurately and providing the drug perform pharmacy functions.
• Beneficiary Medicare information/ to the participating CAP physician so Response: Based on our decisions
Health insurance (HIC) number that the required treatment can be regarding the approved CAP vendor’s
• Supplementary Insurance administered to the patient. We are ability to break up shipments in
information (if applicable) specifying in our regulations that the appropriate circumstances, our
• Medicaid information (if participating CAP physician will be conclusion that approved CAP vendors
applicable) required to provide the approved CAP may directly appeal the denial of their

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drug claims, and the fact, with limited requires that we develop a process for • Gender
exceptions, that approved CAP vendors the sharing of information between the In the March 4, 2005 rule, we
must ship CAP drugs upon receipt of a participating CAP physician and the proposed that the participating CAP
prescription order, we believe it is approved CAP vendor related to the physician could place an order for a
important for approved CAP vendors to payment of deductible and coinsurance. beneficiary’s entire course of treatment
have the information specified above. We have interpreted this to mean at one time, but that the approved CAP
For example, ICD–9 information may beneficiary contact information, vendor could split the order in to
help an approved CAP vendor assess Medicare information, and third party appropriately spaced shipments. The
whether it should seek to obtain an ABN insurance information. We will not ask approved CAP vendor would create a
from the beneficiary. Dosing the physician to collect the beneficiary’s separate prescription order number for
information will help an approved CAP credit card information and share it each shipment and the physician would
vendor determine whether it can with the vendor because it is not track each prescription order number
appropriately split a prescription order information necessary to complete the separately and place the appropriate
into separate shipments. Patient date of drug ordering process, nor is it part of prescription order number(s) on each
birth is required by the Medicare claims any supplemental insurance coverage drug administration claim. The
processing system and is a required that the beneficiary may have. Should physician would have the ability to
field on the claim form. the beneficiary choose to pay his or her modify the course of treatment and
Comment: Another commenter noted share of the coinsurance via a credit submit a separate prescription order as
that because the proposed order form card, he or she can provide that necessary.
information requested the frequency information directly to the approved Comment: Many commenters
with which the drug was to be given, CAP vendor after receiving a bill. supported our proposal that the
the physician was being required to Comment: One commenter requested physician should be able to place one
submit a treatment and delivery that CMS begin using the National order for the entire course of treatment
schedule that would be difficult to Provider Identifier (NPI) as soon as because it reduces the burden of CAP
comply with for some individuals, such possible, but not later than May 2007 ordering on both physicians and
as ‘‘snowbirds’’ who obtain their drugs (the implementation date of the NPI). vendors. However, some commenters
from multiple locations. Response: We plan to adopt the supported, while others opposed, our
Response: The expected frequency of National Provider Identifier for use by proposal that the vendor, at its
drug administration is needed so that the CAP as soon as it is available. discretion, could split the order into
the approved CAP vendor can In this interim final rule, we have different shipments. Those opposed
determine how often the drug will be made revisions to the required list of were concerned that some shipments
administered, the amount of drug to drug order information. We are adding might not arrive timely and needed
ship at one time and the appropriate that ‘‘a range of dates not to exceed 7 treatment could be delayed to the
timing of the shipments. Should the days’’ may be noted if the physician is beneficiary. Another commenter stated
participating CAP physician need to uncertain of the specific date the drug that the vendor should not be allowed
deviate from the anticipated schedule, will be administered. In addition, we to ship more than one visit’s drugs at
that can be accommodated. However, if are adding beneficiary’s address and one time, because many physicians’
the change in the administration phone number; physician’s shipping practices will not have the space to store
schedule will require the approved CAP address, the National Provider additional inventory.
vendor to ship more drugs, or ship them Identifier, and patient’s gender to the Response: We plan to implement our
on a different schedule, the proposal and allow the approved CAP
list. The information on patient’s gender
participating CAP physician will need vendor to split shipments. We believe
is required for claim submission and
to inform the approved CAP vendor. the commenters’ concerns regarding
was inadvertently omitted from the list
Comment: Another commenter potential delays in split orders are
in the proposed rule.
pointed out that a physician may have The required list of drug order adequately addressed by the routine and
several practice locations and that it is emergency delivery timeframes
information will be the following:
important that a physician’s practice • Date of order discussed elsewhere in this interim final
location be included in the information • Beneficiary’s name, address, and rule because the approved CAP vendor
that the physician will provide to the phone number will still be required to deliver the
vendor. (Additional elements of this • Physician’s identifying information: initial dose of the drug within two
comment are addressed in the section Name, practice location/shipping business days for routine delivery or
below on shipping.) address, group practice information (if one business day for emergency
Response: A physician’s practice applicable), PIN and UPIN (NPI when delivery. Delivery timeframes are
location and his or her shipping address available) discussed in more detail later in this
are both included as required data • Drug name section. We will require that if the
elements in the CAP drug order. • Strength approved CAP vendor opts to split
Comment: One commenter suggested • Quantity ordered shipments, the approved CAP vendor
that the order form should also include • Dose must notify the physician in writing that
beneficiary contact information (phone • Frequency/instructions it is a split shipment and of the
number, billing address) and credit card • Anticipated date of administration schedule for delivering subsequent
information to enable the vendor to (Range of dates not to exceed 7 days) shipments. We will also require that
collect the beneficiary’s coinsurance. • Beneficiary Medicare information/ incremental shipments must arrive at
Response: We will add beneficiary’s Health insurance (HIC) number least two business days before they are
address and phone number to the • Supplementary Insurance info (if expected to be administered to a patient
required list of data elements to enable applicable) (as noted on the prescription order). The
the approved CAP vendor to mail the • Medicaid info (if applicable) two-business-day time period is
bill to the beneficiary and to call him or • Additional Patient Information: consistent with the routine delivery
her should there be an error in mailing date of birth, allergies, Height/Weight/ timeframe, and should ensure that the
to correct the address. The statute ICD–9 code physician has sufficient time to obtain

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the drugs under the emergency delivery shipping. The approved CAP vendor with the approved CAP vendor through
timeframe in the event that they are not would ship the drug to the participating the designated carrier’s dispute
delivered within the routine delivery CAP physician using a delivery method resolution process to promptly restore
timeframe. In response to the specified by its contract with us. dependable service. If, despite all of our
commenters who were concerned that Comment: One commenter requested efforts to resolve the problem, we were
physicians may not have the space to additional information on the process to make a decision to terminate an
store an entire course of treatment and that the vendor will use to verify the approved CAP vendor for failure to
wanted drugs shipped incrementally, patient’s Medicare eligibility with the comply with its contractual obligations,
we will allow the physician to specify designated carrier. we would allow the affected physicians
to the approved CAP vendor whether or Response: We anticipate that the to switch to another approved CAP
not he or she can accommodate larger approved CAP vendor will contact the vendor who could assume the workload.
shipments based on a prescription order designated carrier by telephone to verify Those physicians would also be given
for a course of treatment, if the that the beneficiary has current Part B the option to revert to billing under the
approved CAP vendor desires to do so. coverage. As well as being able to verify ASP system for the remainder of the
The participating CAP physician could the beneficiary’s coverage the carrier year. In addition in situations where the
also control the amount of drugs that may also know whether another insurer emergency restocking criteria apply, the
were shipped by ordering smaller is primary to Medicare. physician could use his or her own
quantities of drugs at one time. Comment: One commenter requested inventory and get a replacement from
Comment: Another commenter clarification on whether the vendor the vendor.
requested clarification of whether one would ship and bill drugs at the HCPCS
prescription order number will be level or the NDC level. The commenter Submitting Prescription Order Number
assigned for each patient or whether believes that bidding, ordering and Once a shipment is received from the
multiple prescription order numbers claims processing should all occur at approved CAP vendor, the participating
will be assigned (that is, one for each either the NDC level or the HCPCS level. CAP physician would store the drug
drug). These commenters proposed that Response: Drug ordering and claims
until the date of drug administration.
each drug should have a separate processing will occur at the HCPCS
When the drug is administered to the
prescription order number, which level. Billing will occur at the HCPCS
beneficiary, the physician or his or her
would include a unique patient level, as occurs currently for Part B
drugs. The drugs being furnished by the staff will place the prescription order
identification number. This number number for each drug administered on
should be attached to the drug to vendor will be identified at the NDC
level during the bidding process. We the claim form submitted to the regular
decrease the possibility of patient Part B carrier. Similarly, when the
billing errors. intend for the approved CAP vendors to
be able to furnish CAP drugs in a approved CAP vendor bills Medicare for
Response: We will require that each
manner that minimizes waste, the drug it shipped to the physician, it
dose of a drug must have a separate
reshipping and risk of diversion. Noting will place the relevant prescription
prescription order number in order to
that section 1847B of the Act states that order number on the claim form
facilitate claim matching and approved
competition shall occur, for multiple submitted to the designated carrier. We
CAP vendor payment. The prescription
source drugs, for ‘‘at least one note that the electronic version of the
order number will be unique to a dose
competitively biddable drug * * * Medicare carrier claim form has space
of a drug to be administered to a
within each billing and payment code for a series of prescription numbers,
particular beneficiary in one setting. It
within each category,’’ we encourage which we have not used previously for
will include an approved CAP vendor
approved CAP vendors to submit bids in Part B drugs.
specific identification number, the
HCPCS code for the drug, and a a manner that will provide them with In the proposed rule, we stated that
randomly generated number. The flexibility in terms of providing more vendors and physicians who elect to
beneficiary information will be than one package size or formulation participate in the CAP will need to be
provided by the HIC number that will be within a HCPCS code that contains capable of submitting these prescription
entered separately on the claim form. multiple NDCs. The approved CAP order numbers to us in their claims
Because of privacy concerns we are not vendor will be required to specify the processing systems. If physicians and
making the HIC number part of the NDCs that it will be providing for a potential vendors are not already billing
prescription order number. particular HCPCS code for multi-source other payors using prescription
drugs. This information will be numbers, they will need to work with
Drug Vendor’s Prescription Order available to the physician when he or their internal information systems staff
Process she chooses to participate in the CAP or practice management software
In the proposed rule, we specified and may be used by the physician when vendors to make the necessary changes
that the approved CAP vendor would selecting an approved CAP vendor. to submit these data elements to
receive the prescription order from the Comment: Some commenters Medicare in a manner consistent with
physician, check the physician’s CAP suggested that CMS develop a HIPAA transaction guidelines for
eligibility from a list provided by the contingency plan for use in cases where capturing prescription numbers.
designated carrier and verify the the CAP runs into ongoing operational Comment: One commenter indicated
beneficiary’s Medicare eligibility with challenges that significantly delay drug that to accommodate the new data
the designated carrier. delivery to oncologists and jeopardizes element, his claims processing software
After those checks were completed, timely treatment of cancer patients. would need to be modified. Another
the approved CAP vendor would Under these procedures, commenters commenter requested that CMS issue
generate a prescription order number recommended that CMS consider billing instructions that instruct
that would include the approved CAP permitting physicians to temporarily physicians regarding the appropriate
vendor’s assigned identification number revert to billing under the ASP system. HIPAA compliant fields on the 837 and
and the drug HCPCS code. The Response: Should a drug delivery CMS 1500 forms to use in submitting
approved CAP vendor would assemble problem develop with one of our the prescription order number on their
the prescription order and prepare it for approved CAP vendors, we will work claims.

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Response: As stated in the proposed under the ASP system that he or she and manufacturers who were seeking a
rule, we are aware that our proposed currently uses. In these situations, the way to opt out of the CAP when it was
claims processing system will require physician will place a modifier on his financially favorable.
some physicians to modify their claims claim form that will allow him to bill for Response: We are implementing the
processing software if they do not both the drug and the administration in ‘‘furnish as written’’ option as described
already have the capability to submit that circumstance. in the proposed rule. The ‘‘furnish as
claims with prescription numbers. After written’’ option is intended to be used
‘‘Furnish As Written’’ only occasionally in limited
publication of the interim final rule, we
will issue billing instructions with We proposed to allow the physician circumstances where a patient’s medical
guidance about the appropriate fields on to obtain a drug under the ASP system condition requires a particular
our electronic and paper claim form to in ‘‘furnish as written’’ cases when formulation of a drug at the NDC level—
use in billing. medical necessity requires that a it is not intended to be used in routine
specific formulation of a drug be situations as a means to circumvent the
Claims Processing Methodology furnished to the patient and that normal CAP ordering process. An
Our claims processing methodology formulation is not provided by the example of a situation when the
will use the prescription order number approved CAP vendor. This situation ‘‘furnish as written’’ option would be
to match the two claims and authorize closely parallels dispense as written appropriate is where a participating
payment to the approved CAP vendor. (DAW) prescription orders that are used CAP physician is treating a patient with
Payment to the approved CAP vendor in retail pharmacies or other locations a documented allergy to certain
will be dependent upon the filing of the where a prescription is written and the excipients or preservatives who requires
drug administration claim by the physician wants the pharmacist to fill a specific formulation of a product that
physician, and the physician’s claim the prescription with a particular brand the approved CAP vendor does not
being approved for payment by our of the drug. In cases when the approved furnish as a part of its CAP contract. In
claims processing system. CAP vendor does not furnish a specific this case, documentation of the allergy
Comment: Some commenters stated formulation of a drug or a product is a justification to use another product.
that requiring the physician to put the defined by the product’s NDC number, However, this documentation must be
prescription number on the claim form and the physician has determined that maintained in the patient’s medical
will complicate the billing process for it is medically necessary to use another record. Use of the ‘‘furnish as written’’
the physician. In addition, one brand of product within the HCPCS or modifier will permit the physician to
commenter believes that a separate an NDC that is not being furnished by bill under the ASP system in this
billing process will be required for the approved CAP vendor, the physician limited circumstance even though the
drugs billed under the emergency could purchase the product for the physician has elected to participate in
replacement process (discussed below), beneficiary and bill Medicare for it the CAP. Physicians who believe the
and that the physician will also require using the ASP system. The physician ‘‘furnish as written’’ provision and the
another process for drugs billed under would be instructed to place a ‘‘furnish emergency replacement provision along
the ‘‘furnish as written’’ methodology as written’’ modifier on his or her claim with the drugs available through the
(discussed below). They suggested that form and bill his or her Medicare carrier regular CAP drug ordering process will
in order to reduce physicians’ cost, CMS for the drug and the administration fee. not meet their patients’ clinical needs
should simplify the process so that one The modifier would alert the carrier to may choose to continue billing under
billing system could be used for all CAP allow the physician to bill under the the ASP system rather than electing to
drugs. ASP system in this case. We proposed participate in the CAP.
Response: We are aware that adding that the physician’s carrier would, at Comment: One commenter requested
the prescription order number to the times, conduct a post payment review of that CMS provide more guidance on
claim form will be an additional activity the use of the ‘‘furnish as written’’ what is meant by the term ‘‘specific
required for physicians who elect to modifier. If the carrier determined that formulation.’’
participate in the CAP. Under the CAP the physician had not complied with Response: A patient known not to
program as we are implementing it, the ‘‘furnish as written’’ requirements and respond appropriately to a certain
use of the prescription order number is that a specific NDC or brand name drug formulation of a product may require a
necessary to allow our claims was not medically necessary, the carrier specific formulation of a product that is
processing system to match the could deny the claim for the drug and still within the same HCPCS, but not
physician’s claim for administering the the administration fee. furnished under the approved CAP
drug with the approved CAP vendor’s We established this method of vendor’s CAP contract because the
claim for the drug. The physician’s alternative payment for a competitively approved CAP vendor submitted a bid
process for billing a drug administration biddable drug under proposed to provide a different NDC within the
claim for a CAP drug acquired through § 414.906(c)(2)(ii) of our regulations. HCPCS code. Documentation of
the regular ordering process and one Comment: Commenters were treatment failure or adverse effects from
acquired through the emergency generally in favor of the ‘‘furnish as specific formulations may provide
replacement process will be essentially written’’ proposal. However, some justification to use another product (for
the same, except that the physician will commenters who support the ‘‘furnish example, if an approved CAP vendor
add an additional modifier to the claim as written’’ provision felt it should be was contracted to provide HCPCS code,
form indicating that the drug was simplified and made easier for J9260, which represents the drug
acquired under the emergency physicians to use or that CMS should Methotrexate Sodium). Several different
replacement provision. The modifier is create other options for the physician to manufacturers produce this drug, and it
necessary to enable the carrier to accommodate clinical differences may be formulated with or without a
identify the replacement claims. For among patients who are on the same preservative. Each product within
drugs that the participating CAP treatment regimen. Other commenters HCPCS code J9260 has a specific NDC
physician acquires under the ‘‘furnish were concerned that the ‘‘furnish as number. If the physician determines
as written’’ process, the physician will written’’ option might be overused and that it is medically necessary to
bill for the drug and the administration subject to gaming by some physicians administer the preservative-free

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methotrexate injection for the patient, carrier’s dispute resolution staff for to appeal on the part of the physician.
but the approved CAP vendor did not assistance. Some commenters stated that although
offer that product’s NDC, the physician In a situation where an item becomes physicians are accustomed to
would be able to purchase the specific unavailable for an extended period of supporting medical necessity of their
drug for the patient and bill for it under time (more than 2 weeks), the approved orders, historically this has not involved
the ASP system by using the ‘‘furnish as CAP vendor must identify a a comparison of clinical appropriateness
written’’ modifier. replacement product or products, obtain of one drug within a HCPCS code with
Comment: Another commenter asked CMS approval to do a long-term that of another.
whether the vendor might be able to substitution from the designated Response: The statute is clear that for
discontinue providing a drug mid-year carrier’s medical director, and notify all multiple source drugs, the approved
if it discovered that the CMS CAP physicians who have elected to receive CAP vendors are required to supply at
payment amount was not covering its CAP drugs from that approved CAP least one drug NDC in each HCPCS
costs. Other commenters asked what vendor in writing of the change. code. It is also clear that physicians
would happen if a CAP vendor had Payment for the substituted drug will be must elect the CAP for an entire drug
trouble obtaining a CAP drug or it at the CAP bid price; the vendor may category. As such, we believe it is
became unavailable. seek price adjustment at the following appropriate to ensure physicians
Response: Once a vendor elects to annual price adjustment period. employ a ‘‘furnish as written’’
participate in the CAP and decides for Physicians who have elected to instruction only when medically
a multi-source drug which formulation participate with that approved CAP necessary. As a result, it is important
of the drug (NDC) to provide within a vendor will be notified before such a that physicians document the necessity
HCPCS code, the approved CAP vendor change is made. of a particular formulation of a drug in
will not be able to switch NDCs mid- We request comments on refinement the medical record. If the physician’s
year should the price increase. and alternatives to the short and long use of the ‘‘furnish as written’’ option is
However, as discussed in further detail term substitution processes. denied by the local carrier, it will be up
in section C.3 below, the statute Comment: Other commenters stated to the physician as to whether to appeal
provides for adjustments to the that a physician who uses the ‘‘furnish because payment to the approved CAP
reimbursement for CAP drugs in certain as written’’ methodology to obtain vendor will not be affected.
circumstances in response to changes in needed drugs for his or her patients may Comment: Some commenters from
the approved CAP vendor’s reasonable be charged more by a non-CAP physicians’ groups and some
net acquisition costs. wholesaler because its volume has commenters from potential vendors
Mid-year changes will only be declined because of the physician’s have expressed an interest in the
allowed should an NDC become participation in the CAP. They propose vendor’s providing the needed drug in
unavailable or go through a period of instead that the physician be a ‘‘furnish as written’’ situation. Many
short supply. We expect that the need reimbursed for his or her actual of the physician commenters suggested
for substitutions or changes will occur acquisition costs of the drug instead of that the vendor should be required to
rarely. Although we would like to paying them under the ASP system. provide different formulations of a drug
incorporate flexibility into this process Response: We do not have the other than the one bid, while some
so that an approved CAP vendor may statutory authority to allow physicians potential vendors have suggested that
react quickly to substitute an to be paid their actual acquisition costs they be given the option to provide it.
appropriate product, we are concerned for Part B drugs in this situation. Response: As indicated above, we are
that an unrestricted substitution process Physicians have the choice of obtaining implementing the ‘‘furnish as written’’
could have negative consequences. drugs under the ASP system or of provision described in the proposed
Although many multi-source products obtaining them from the approved CAP rule, but we have moved it as an
can be considered therapeutically vendor. The occasional need to element to § 414.908(a)(3) as this
equivalent, in some situations, purchase drugs outside of the CAP and placement is more appropriate. The
differences in packaging, preservatives, which approved CAP vendor to select CAP statute and section 1861(s)(2)(A) of
fillers and dissolution rates for powders will need to be factored into the the Act, as amended by Section 303(i)
that require reconstitution may have physician’s decision to participate in of the MMA, contemplate that approved
clinical impact on the beneficiary and the program. If an approved CAP vendor CAP vendors can submit claims and be
work flow impact on those who are provides many of the drugs at the NDC paid for drugs only when they are
preparing and administering the drug. If level that a physician routinely uses, the provided through the CAP. Thus, we do
a vendor is facing a situation where a physician should need to rely on the not believe the commenter’s proposal to
certain CAP NDC cannot be supplied, ‘‘furnish as written’’ provision rarely. allow the approved CAP vendor to
but a comparable product can be sent Comment: Some commenters provide the drug under the CAP in
and the approved CAP vendor is willing questioned why the carrier would be ‘‘furnish as written’’ situations is
to accept payment for that product at conducting a retroactive review of the feasible.
the CAP rate, the approved CAP vendor physician’s use of the ‘‘furnish as
must contact the physician’s office in written’’ option, because that would Timeframes for Routine and Emergency
order to have the office approve the permit the physician to buy and bill the Shipment
substitution. This procedure is intended drugs under the ASP system. The Section 1847B (b)(2)(A)(i)(II) of the
to be used occasionally and is not commenters asserted that because Act requires that approved CAP vendors
intended to justify a situation where an physicians’ ASP claims are not have sufficient capacity to acquire and
approved CAP vendor repeatedly calls a routinely reviewed by the carrier, deliver drugs in a timely manner within
physician to seek approval for a less physicians’ use of this provision in the the geographic area, to deliver drugs in
costly item. If the physician and the CAP should not be either. Another emergency situations, and to ship drugs
approved CAP vendor are unable to commenter stated that if the physician’s at least 5 days each week. However, the
resolve short term issues around drug use of the ‘‘furnish as written’’ modifier statute does not provide specific
availability and substitution on their was denied on the basis of post payment definitions of these timeframes. In
own, they may ask the designated review, this could trigger an obligation addition, as noted previously, the

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statute requires that the approved CAP packaging and/or cold-packs to prevent timeframe is to balance the cost of
vendor may not provide drugs to a exposure to temperature extremes shipping with potentially changing
participating CAP physician unless the during shipping. Furthermore, we are clinical requirements of a patient
physician submits a written prescription aware that some drug products are population and the requirement that
order to the approved CAP vendor. shipped by express carriers in such needed drugs must be available
We proposed that a CAP prescription conditions and are marked promptly to the physician. The intent of
order could be initiated by telephone ‘‘perishable.’’ the one-business-day timeframe for
and followed up with a written order. The delivery timeframe begins when emergency deliveries is to accommodate
We proposed that the delivery time a complete CAP prescription order is the physician’s need for more rapid
period would begin when a drug order transmitted from the participating CAP delivery of drugs in certain clinical
was received by the approved CAP physician to the approved CAP vendor. situations where the patient’s rapidly
vendor and would end at the time of The participating CAP physician may changing condition requires it with the
delivery to the physician’s office or begin this process with a phone call to vendor’s ability to ship the drug and
other intended setting. We proposed the approved CAP vendor, but must have it delivered promptly in a
that routine shipments of drugs follow-up with a written prescription nationwide delivery area. The
furnished under the CAP would occur order within 8 hours for routine emergency delivery option is not
within a one- to two-business-day time deliveries. For emergency deliveries, a intended to be used routinely. It should
period and that the duration of the telephone order must be immediately be reserved for those situations when
delivery time period must not exceed followed with a written prescription the patient’s need for the drug could not
the drug’s stability in appropriate order. If the participating CAP physician have been accommodated under the
shipping containers and packaging. does not meet these deadlines for routine delivery timeframe. At a
Emergency drug orders would need to sending the written prescription order, minimum, under both the routine and
be furnished on the next day for orders the emergency or routine delivery emergency delivery timeframes, we
received by the approved CAP vendor timeframes are delayed accordingly expect vendors to accept new
before 3 p.m. (approved CAP vendor’s until the written prescription order is prescription orders until at least 5 p.m.
local time). We requested comment on received. The delivery timeframe ends (vendor’s local time) on business days
how to define timely delivery for when the drug is received at the and we expect physicians to be able to
routine and emergency drug shipments participating CAP physician’s office. A take receipt of deliveries on business
and on the feasibility of requiring a written prescription order may be days until at least 5 p.m. (physician’s
shorter duration for routine delivery of transmitted by FAX, e-mail, or mail, local time). For emergency deliveries,
CAP drugs and of providing same-day subject to applicable HIPAA privacy we expect that the vendor will make the
deliveries for orders received for and security requirements, and any necessary adjustments in order to be
emergency situations. applicable State pharmacy laws. As able to prepare the drug for shipping
Comment: Comments on the specified earlier, all communication and to deliver it the next business day.
definition of an appropriate timeframe between the physician and the approved We note that the physician and the
for deliveries defined a relatively CAP vendor must be conducted in vendor will each need to be mindful of
narrow potential timeframe. The accordance with applicable HIPAA the time zones within which each are
shortest recommended timeframes were privacy and security requirements, and located. CAP participating physicians
daily, or up to twice daily deliveries for with any applicable State pharmacy and approved CAP vendors operating in
emergencies, while the longest laws.
different time zones will need to be
timeframes were three to five business The approved CAP vendor is
aware of cut-off times for placing orders
days. Most comments suggested a one- responsible for complying with the
or two-business-day timeframe for timeframes for routine and emergency and coordinate appropriately. We also
delivery in routine cases and overnight delivery, as well as with the point out that in some cases, two-
delivery for emergencies. The relatively requirements for appropriate shipping business-day shipping may actually
short turn around time assumed a conditions for drugs. If the participating require several calendar days of transit
‘‘clean’’ order—one without patient CAP physician is dissatisfied with the during weekends and the commonly
safety, logistical, or payment problems. vendor’s compliance with the shipping observed Federal holidays of New
One comment suggested category- timeframes or the manner in which Years, Memorial Day, Independence
specific timeframes. drugs are being shipped, the physician Day, Labor Day, Thanksgiving, and
Response: At the program’s start, we should address the issue by means of Christmas. Some degree of coordination
plan to implement a two-business-day the vendor’s grievance procedure. If the between the vendor and the physician’s
timeframe for routine deliveries and a two parties are unable to resolve the office will be required in those
one business day timeframe for situation to their satisfaction they may situations, and we stress that the drugs
emergency deliveries, except for ask the designated carrier’s dispute shipped must be packaged in a manner
deliveries to certain U.S. territories in resolution staff for assistance. to preserve product integrity during
the Pacific, as discussed below. We believe that the two-business-day shipping, for example to withstand
However, these timeframes shall not period for most routine prescription temperature changes during shipping.
exceed the drug’s stability in orders will provide an opportunity to Specific examples appear below.
appropriate shipping and packaging as resolve many common problems that Example 1: The two-business-day
defined by manufacturer’s labeling, drug can occur with transmitted drug orders, timeframe for routine deliveries means that
compendia, or specialized drug stability like legibility or poor transmission the physician’s office may expect to receive
references used in the practice of quality, simple clarification, etc. The a CAP prescription order on the second
pharmacy or drug distribution. If drug two-business-day timeframe also business day after it was placed. Therefore,
an order received in the approved CAP
stability necessitates a shorter shipping provides a greater window of vendor’s office on a Monday by 5 p.m.
timeframe, or specialized shipping opportunity for approved CAP vendors (Vendor’s local time) would arrive in the
conditions, the approved CAP vendor and participating CAP physicians who physician’s office no later than Wednesday at
must comply with them. For example, are in different time zones to interact. 5 p.m. (physician’s local time). Orders placed
some drugs may require insulated The intent of the two-business-day on Friday would arrive no later than

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Tuesday. (Note: These orders must comply shipping costs and delivery time Response: At the time a shipment of
with the process specified above if the initial periods, these timeframes may be too CAP drugs is received at the
prescription order is placed by phone, the narrow for territories in the Pacific (that participating CAP physician’s office, we
follow-up written prescription order must be
is, Guam, American Samoa, and the expect that the individual who takes
received within 8 hours for routine
deliveries. Northern Mariana Islands). Although receipt of the order will be responsible
Example 2: The one-business-day the CAP drug vendor may be able to for inspecting the external condition of
timeframe for emergency deliveries means meet these timeframes in certain cases, the package(s) and will be given an
that an order received in writing in the the financial cost of doing so could opportunity not to accept the shipment
approved CAP vendor’s office at 1 p.m. greatly exceed the vendor’s regular on the basis of potential compromise of
(approved CAP vendor’s local time) on a delivery costs. Therefore we are setting the product’s integrity or damage during
Wednesday must be received by the shipping. This initial inspection is not
the standard delivery timeframes for the
physician in his or her office by 5 p.m.
Pacific Territories, (Guam, American meant to be a final inspection, and we
Thursday (physician’s local time).
Samoa, and the Northern Mariana realize that some types of damage or
These are minimum standards, and Islands) based upon delivery compromise in integrity may only
nothing precludes the approved CAP information available from commercial become apparent after the package is
vendor from using faster services and shippers, to be seven business days for opened and the drug is being readied for
alternative delivery times (for example, routine delivery, and five business days use. A physician may return a drug
Saturday delivery) when these services for emergency delivery. product to the approved CAP vendor at
are available and appropriate. If an any time if the product’s integrity is in
As we gain operational experience
approved CAP vendor routinely offers question. We recommend that returns of
with CAP, we would like to explore
faster shipping services, the approved product on the basis of product integrity
being able to provide more rapid order
CAP vendor should inform the be coordinated with the approved CAP
turnaround, particularly in urgent
physician of their availability. vendor so that the approved CAP
We believe that the timeframes situations. We are requesting comments
on shortening the routine shipping vendor may take appropriate action to
defined above, are practical and apply follow up on the reason for the breach
to the vast majority of situations that timeframe to one business day and for
requiring shorter shipping timeframes of integrity. (Delivery requirements are
will be experienced at the program’s also addressed in section II.C.2 of this
implementation. However we anticipate for emergency orders, especially the
logistical and cost factors involved for interim final rule, ‘‘Bidding Entity
that there will be occasional situations Qualifications.’’)
where a CAP vendor will not be able to same day or overnight delivery with
furnish a drug to an office because the early morning drop off. We are Resupply Option for Emergency
drug is needed sooner than the available specifically interested in examples of Situations
delivery timeframes allow. In these circumstances when it would apply, We proposed to implement the
situations, the vendor may elect to use who would be responsible for the cost criteria specified in section 1847B(b)(5)
the emergency resupply procedures of more rapid shipping methods, how of the Act that governs when in
described later in this section, if the unnecessary express shipping could be emergency situations, drugs acquired
situation complies with the relevant avoided, how approved CAP vendors under the CAP could be used to
criteria. who frequently missed timely delivery resupply inventories of drugs
The CAP was not designed to supply deadlines for same-day shipments administered by physicians. The four
drugs that would be needed in would be sanctioned, and how those criteria contained in the Act are: (1) The
emergencies such as acute care settings. who abuse express shipments by drugs were required immediately. (2)
However, we believe that even with a seeking express delivery unnecessarily The physician could not have
national program, an approved CAP would be sanctioned. We ask that anticipated the need for the drugs. (3)
vendor with multiple distribution commenters address whether same day The approved CAP vendor could not
points can provide turnaround in less shipping can provide any real benefit to have delivered the drugs in a timely
than one to two business days in many beneficiaries, or if overnight delivery manner. (4) The drugs were
situations. with early morning drop-off is administered in an emergency situation.
Our discussions above reflect our sufficient. We also welcome comment In section II.C.2.a. of this interim final
anticipation that most shipments will on the practicality of the timeframes set rule, we requested comment on how to
occur within the continental United above for the Pacific territories and define timeframes for timely delivery,
States. However, the initial CAP other areas outside of the continental for emergency delivery, and for
competitive acquisition area also United States. We seek input on additional criteria we could use to
includes Alaska, Hawaii, and the United whether the timeframes in general define the replacement process.
States Territories. (We note that the should be adjusted and whether the We proposed that in emergency
United States territories in which timeframe for delivery to the Pacific situations that met the criteria outlined
Medicare pays for services are defined territories are reflective of current above, the physician would treat the
in § 400.200 of our regulations as the delivery timeframes used by other drug Medicare beneficiary with a drug from
Commonwealth of Puerto Rico, the U.S. distributors shipping to those locations. his or her own stock. After
Virgin Islands, Guam, American Samoa, Comment: Some commenters stated administering the drug to the
and the Northern Mariana Islands.) We that the CAP requirements should beneficiary, the physician would
believe that shipping to Alaska, Hawaii specify that the physician could return prepare an order, identifying the drug as
and the eastern territories (that is, without penalty any drug that arrived in an emergency replacement for a drug
Puerto Rico and the U.S. Virgin Islands) damaged condition or whose integrity already administered to the beneficiary.
within the timeframes described above the physician believes may have been This notation could involve the use of
is feasible, and we will require the compromised. The commenters a modifier to a HCPCS code, or another
vendor to ship to those areas within the requested that the approved CAP vendor standardized means of incorporating the
standard routine and emergency not be allowed to require the physician information into a claim. The approved
timeframes. However, we are concerned to seek a remedy from the company that CAP vendor would prepare the drug
that based on available information on delivered the product. order, assign the unique transaction

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identification (or prescription) number, Comment: Another commenter drugs directly to physicians in their
and ship the replacement product to the expressed concern about enforcement, offices. Although the statute allows us
physician. When the drug was received especially any documentation to provide for the shipment of drugs to
from the approved CAP vendor, the requirements for physicians using the other settings under certain conditions,
physician would return the drug to his emergency resupply provision. we did not propose to implement the
stock. Both the physician and the Response: The process for billing for CAP in alternative settings at this time.
approved CAP vendor would bill drugs ordered under the emergency Comment: A commenter pointed out
normally for the drug or its resupply provision will be very similar that a physician may have several
administration as applicable. We to the regular CAP billing process, with practice locations. If the patient should
anticipated that the physician’s carrier an additional modifier that the change his or her site of treatment from
would, at times, conduct a post payment physician will add to the claim. The the one to which the vendor originally
review of emergency drug replacement physician will be expected to maintain shipped the drug, the physician will
in order to determine whether documentation in the patient’s medical need an appropriate way of transporting
physicians were complying with record to verify that he or she complied the drugs from one location to another.
conditions for emergency drug with the criteria governing the resupply Some potential vendors expressed
replacement. provision. concern that drugs could be improperly
Comment: Some commenters were Comment: One commenter suggested moved to an alternative location and
concerned that neither the statute nor that CMS design the CAP ordering that, as a result, spoilage and breakage
the proposed rule defines ‘‘emergency,’’ process so that the physician could could occur. They expressed concern
and encouraged CMS to provide a obtain extra doses of CAP drugs from that since the vendor retains ownership
definition in the final rule. They also the approved CAP vendor to keep in his of the drug until it is administered to
questioned whether the definition of or her inventory should the need arise the beneficiary that they could be held
emergency would cover situations when to administer them to Medicare liable if the drug deteriorates and is
the approved CAP vendor failed to beneficiaries in an emergency situation. administered to the beneficiary in
deliver a needed drug within specified This process would be in addition to the substandard condition.
timeframes. Some commenters proposed process specified under the emergency Response: We recognize that a
that CMS define an emergency to allow resupply option. physician or group of physicians may
any situation the physician felt required Response: The statute does not maintain multiple office locations and,
immediate attention would meet the directly address whether an alternative as a result, may desire to administer
criteria. method for emergency drug replacement drugs to patients at any one of these
Response: We believe that the is permissible. However, it contemplates multiple locations. Under the CAP, we
definition of emergency to be used in a beneficiary-specific order, and states will require the physician practicing
the emergency replacement provision that the approved CAP vendor shall not individually, as well as the physician
should be one that enables the deliver drugs to the physician except who is practicing as part of a group, to
physician to use his or her clinical upon receipt of the prescription order provide the address at which business
judgment to determine when his or her and such necessary data as may be will be conducted as part of the CAP
patient needs immediate treatment. We required by the Secretary to carry out election process. In the March 4, 2005
will define an emergency for purposes section 1847B of the Act. However, the rule, we proposed that the vendor
of this provision as a situation statute provides for the replacement of provide the ordered drugs to the address
determined by the physician’s clinical drugs taken from a physician’s own that the physician(s) specified on the
judgment to be an unforeseen situation inventory in an emergency situation election form. At this time, it is not a
and require prompt action or attention. where the physician has administered uniform requirement that physicians
Should the more expansive definition of drugs from his or her own stock. In that with multiple practice locations be
the term appear to be causing overuse of case, where the emergency resupply issued a unique practice identification
this provision, we will consider criteria are met, the participating CAP number (UPIN); therefore, in this
adopting a more limited interpretation physician can replace the drugs that interim final rule, we are expanding the
in the future. We will require that were used from his or her own reporting information on the election
physicians ordering drugs under this inventory by means of an order to the form to allow physicians to provide
provision continue to comply with the approved CAP vendor. Although we multiple addresses if they will be
14-day prompt filing requirement. The recognize the commenters’ concerns, we administering CAP drugs in multiple
approved CAP vendor will provide a are also concerned about the potential locations. We have also revised
replacement drug from the same HCPCS for abuse if a stock of the approved CAP § 414.908(a)(3)(v) to add the physician’s
category that it is providing in the CAP. vendor’s drugs was placed in shipping address to the information that
In determining whether the patient’s physician’s offices for use only by CAP the physician will provide to the vendor
need for the drug complies with the patients in very limited circumstances. on the prescription order. In response to
emergency replacement criteria, the We believe because of potential program the concern expressed by potential
physician will assess whether all of the integrity and drug diversion concerns vendors about the possible damage to
criteria are applicable and will that the emergency replacement CAP drugs if they are transported by the
document the patient’s medical record provision specified in the statute is the physician, we will require that
accordingly. If the approved CAP more appropriate way of providing physicians must have CAP drugs
vendor’s emergency delivery timeframe needed drugs to beneficiaries when the shipped directly to the location at
would result in delivery of the drug patient’s clinical condition does not which they plan to administer them.
after the time necessary to meet the allow time to obtain the drug from the The physician may not transport CAP
patient’s clinical need, it shall be approved CAP vendor. drugs from one location to another. We
considered that the drug could not have are adding this requirement to the
been delivered timely. (Refer to the Delivery of the CAP Drugs regulations at 414.908(a)(3)(xi). We
previous section on delivery times for As we specified in the proposed rule understand that there may be occasions
more detail on the definition of routine under § 414.906(a)(4) of our regulations, where a physician may currently
and emergency deliveries.) approved CAP vendors would deliver transport drugs purchased under the

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ASP system in order to administer them CAP emergency drugs) and doing so stated that 11 States allow for ‘‘reuse’’
to Medicare beneficiaries in their would require additional storage space, of unused drugs in very limited
homes. We seek comment on how this and could increase the risk of drug circumstances. Typically unused drugs
could be accommodated under the CAP administration and claims processing are destroyed by physician or pharmacy
in a way that addresses the product errors. staff. The commenter requested that any
integrity concerns expressed by the Response: As we stated in the reference to this possibility be removed
potential vendors. proposed rule, the physician is required to avoid giving the impression that we
to keep track separately of each CAP favored such an option in conflict with
Storing the CAP Drugs drug obtained for each beneficiary. State law in many States. The
We proposed that the physician’s Beyond this requirement, each commenter proposed that the vendor be
office staff would receive the CAP physician may decide the most feasible compensated for drugs that are not
drug(s) and store them until the time of way for this to work within the confines administered to patients and cannot be
administration. Although the statute of his or her practice. If the physically billed. Another commenter suggested
discusses a patient-specific drug separate storage of the drugs under CAP that we include a statement in the final
ordering process, it does not address the works better, then the physician is free rule that makes it clear that physicians
methods that may be used to store and to store the CAP drugs separately. If participating in the CAP would be
inventory drugs in an office or clinic space limitations are an issue or if the allowed to use CAP drugs ‘‘only’’ for a
setting, or the potential burden separate storage of CAP drugs imposes patient for whom the drugs were
associated with storing a patient’s CAP an additional untenable administrative dispensed and identified by the
drugs separately from other drugs. We burden or creates confusion, then the beneficiary’s Medicare number.
believe that less burdensome physician is not required to store the Response: We defer to State law and
alternatives to keeping separate CAP drugs separately. The CAP drugs, regulations as well as manufacturers’
inventories exist; however, any even if they are not stored separately, requirements concerning the disposition
alternatives would be required to must in some way be tracked separately, of drugs that are not administered or
maintain program integrity and product either electronically or on paper; drugs that are left over from an
integrity and to minimize the risk of however, this could be something as administration. Section
diversion and medication errors. We do simple as an electronic spreadsheet. 1847B(a)(3)(A)(iii) of the Act states that
not believe that separate physical Comment: One commenter supported payment for CAP drugs is conditioned
storage of CAP drugs is required. allowing CAP vendors and physicians to upon the administration of such drugs.
However, we proposed that physicians enter into contracts that would allow Therefore, we do not have the authority
participating in the CAP would be the vendor to receive returns of drugs to pay for CAP drugs that were not
required to maintain a separate that were shipped but not administered administered to the beneficiary. Please
electronic or paper inventory for each to the beneficiary. Many commenters refer to section II.C of this interim final
CAP drug obtained. We requested expressed safety concerns with returns rule for a more complete discussion of
comment on additional requirements of unused drugs, especially partly used our policy on drug wastage and the
that we should impose on maintaining multi-dose vials. Another commenter process for returning unused drugs.
CAP inventory. addressed the burden of asking the Special contracts between the vendor
We also proposed that if for some physician to notify the vendor about the and the physician should not be
reason the drug could not be change of administration plans and necessary to provide for the return of
administered to the beneficiary on the negotiate redirection of the unused unused drugs because the participating
expected date of administration, the drug. Another commenter pointed out CAP physician election agreement and
physician would notify the vendor and that State pharmacy laws may not allow the approved CAP vendor’s contract
reach an agreement on how to handle for redirection of unused drugs with CMS, as well as the requirements
the unused drug, consistent with dispensed for one patient to another; stated in the regulations, address this
applicable State and Federal law. The some manufacturers do not allow the issue. We are requiring that when a
notification would also serve to inform return of drugs when they are ordered physician does not administer a drug
the vendor not to submit a claim for the through a distributor; and there may be during the time frame specified on the
drug. If the vendor and the physician potential discrepancies between State order form, or administers a smaller
agreed that the drug could be law, manufacturers’ requirements, and amount of the drug than was originally
maintained in the physician’s inventory the CAP. One commenter asked whether ordered, that the physician must contact
for administration to another Medicare the vendor could require the physician the vendor to discuss what to do. If it
beneficiary at a later time, the physician to retain the drug and attempt to use it is permissible under state law, the drug
would generate a new order form at that on another patient. Another commenter is unopened, and both the physician
time. Included in the order would be a requested that we explain the process and the vendor are in agreement, the
notation that the drug was being that is to be followed if the vendor physician may retain the drug for
obtained from the physician’s inventory requests that the physician return the administration to another Medicare
of the vendor’s drugs and that the drug, and whether the physician would beneficiary. However, before the drug
vendor need not ship the drug. be responsible for paying the return could be administered the physician
Comment: Some commenters, shipping cost. One commenter stated would need to provide the vendor with
responding to the suggestion that CAP that communication between the vendor a new prescription order for the drug,
drugs would not need to be separately and the physician should be handled and the vendor would need to supply
physically maintained, indicated that electronically when a drug was not the physician with a new beneficiary
this would not allow the physician’s administered and that we should specific prescription order number.
staff to determine visually the amount of implement an electronic system to Comment: One commenter inquired
stock on hand and for which patient it facilitate this communication. One whether a physician will be able to use
was intended. Another commenter commenter stated that return on unused the CAP if he or she is aware that
stated that the physician would actually drugs should only be allowed when the another insurance is primary to
need three separate inventory areas (for box has not been opened, and no patient Medicare. In addition, commenters
non-CAP drugs, for CAP drugs and for labels are attached. The commenter also asked that we explain what happens if

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the physician is not aware, before to add additional categories of drugs. number before administering the drug
administering the drug, that another When there are additional categories would also be a new activity. One
insurance is primary. The commenters from which to choose, physicians will physician also stated that his city
also wanted to know if the CAP be allowed to select the categories of requires that he pay tax at the time a
requirements will be different if the drugs that they will obtain from the drug is administered to a patient, and
beneficiary has a Medigap policy. CAP. We will encourage physicians to that he believed the CAP should
Response: Many beneficiaries have select vendors in a manner that will compensate him for this cost.
coverage in addition to Medicare. For minimize the number of vendors used Response: Although we agree that a
instance, some beneficiaries have a by one practice, in an attempt to reduce physician may have to make some
Medigap policy or another type of potential billing errors and beneficiary adjustments in his or her practice in
supplemental insurance that covers confusion. Physicians will be limited to order to comply with the requirements
costs that Medicare does not. Some one vendor per category; however, it under the CAP, we believe that the relief
beneficiaries have retiree coverage will be possible to select a different of the financial burden of purchasing
through a former employer that is vendor for each category if the the drugs and billing Medicare for these
secondary to Medicare, and such physician decides that it best meets his drugs will be a substantial improvement
coverage is, for practical purposes, or her needs. Physicians billing under a and benefit for many physicians. Again,
similar to supplemental coverage group billing number will need to reach as we have stated previously, a
because it may cover costs Medicare agreement among themselves on physician is free to a significant extent
does not. (See section on beneficiary whether to participate in CAP and to design his or her practice so that the
coinsurance for more detail.) However, which vendor to select for each additional burden of participating under
many beneficiaries have employer category. [See Section II.D of this the CAP is as small as possible. CAP is
coverage that is primary to Medicare. In interim final rule on physician election a voluntary program, so if a physician
this instance, Medicare pays secondary. for more detailed information on this finds it more burdensome, then he or
A beneficiary’s additional coverage may requirement.] she is under no obligation to participate.
have an effect on when or from whom Although initially a physician’s staff
an approved CAP vendor receives Administrative Burden may have to make software changes to
payment. However, the requirements In the proposed rule, we indicated recognize the CAP system, this would
under the CAP will not be different. that we did not believe that the clerical be a one-time burden. Also, as we have
When a beneficiary has supplemental or and inventory resources associated with stated previously, separate drug storage
secondary insurance, the approved CAP participation in the CAP exceed the is not required—it is a suggested option
vendor may bill such insurance as clerical and inventory resources if such a procedure makes it easier on
appropriate (that is, after payment from associated with buying and billing drugs the physician’s practice to track the CAP
Medicare). Where Medicare is the under the ASP system. The payment for drugs. Further, in the interest of easing
secondary payer and not the primary clerical and inventory resources the burden of information exchange to
payer for the beneficiary, the vendor associated with buying and billing for the extent possible, we are requiring at
would bill the primary insurer first, and drugs under the ASP system is bundled § 414.908(a)(3)(iii) that the physician
bill Medicare second, as appropriate, in into the drug administration payment provide the vendor with patient
accordance with normal Medicare under the physician fee schedule. information for the initial order, or
secondary payment rules. Taking these factors into account, we when the patient’s information changes
proposed not to make a separate (for example, the patient develops a new
Restricting Physicians to One Vendor payment to physicians for the clerical drug allergy). The vendor would be able
We requested comment on whether and inventory resources associated with to specify which information is
we should require that CAP- participation in the CAP program. necessary on a follow-up order. (We
participating physicians obtain all Comment: Some commenters disagree note that some patient specific
categories of drugs that a particular with our assessment of the clerical and information such as date of birth and
approved CAP vendor provides from the inventory resources associated with gender are required by the Medicare
vendor, or whether the physician participation in the CAP. They believe claims processing system. For
should be allowed to choose the that the administrative cost of managing additional information refer to Content
categories of drugs he or she wishes to inventory would not be eliminated nor of the Drug Order earlier in this section.
obtain from the vendor. reduced proportionally based on drug
Comment: Several commenters volume decrease due to the CAP. They Drug Administration
supported allowing physicians to added that with the separate ordering We proposed that after administering
choose the categories of drugs they process for CAP drugs requiring patient- the drug, the physician would submit a
obtain from the CAP. Another specific orders, the number of claim to his or her local carrier for drug
commenter suggested that physicians individual orders would be higher with administration. The claim would
should be required to obtain all drugs additional delivery times and likely include the HCPCS code for the drug
for all HCPCS within a designated increase waste. One commenter noted administered, the drug administration
specialty for their Medicare patients that oncologists often use an automated fee, the prescription code for each drug
from the CAP vendor to increase billing storage and inventory control system administered, and the date of service.
accuracy, and reduce inventory and that automatically tracks the amount of The local carrier would adjudicate the
paperwork burden. Finally, several each drug on hand. Instead of a bulk claim for drug administration and check
commenters suggested that physicians ordering system, the CAP will require a that the physician was billing for
should be allowed to contract with detailed patient-specific order. The appropriate drugs from the selected
multiple vendors for different categories commenters also pointed out that the drug vendor, and that the claim was
of drugs. billing processes would be similar but compliant with all local coverage
Response: As indicated earlier in this that the CAP claim form would require determinations (LCDs). In general, if the
preamble we are implementing CAP the prescription order number for each physician’s claim was inconsistent with
initially with one category that contains drug in addition to the HCPCS code. an LCD, the local carrier would deny the
all CAP drugs. At a later point we plan Keeping track of the prescription order claim for the drug administration and

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would notify our central claims situations. They believe the same ‘‘furnish as written’’ conditions are met.
processing system that the drug standards should be applied in the CAP. If a patient becomes eligible for
vendor’s claim for the drug would not Response: Concerning the 14-day Medicare and the treating physician is
be paid. requirement on physicians to file claims participating in the CAP, and a
If the claim passes all local carrier for drug administrations, we point out particular formulation of a patient’s
edits, the local carrier would forward it that the vendor’s payment depends on drug is not available through the CAP,
to our CMS central claims processing the physician’s administration of the but is medically necessary, then the
system for additional editing and drug that the vendor has already physician may obtain the drug through
approval for payment. purchased and provided. We believe it the ‘‘furnish as written’’ methodology
We also proposed to require prompt is reasonable for the vendor to expect to and bill the local carrier for the drug
claim filing for the drug administration be paid timely, and it is a benefit to the under the ASP system.
on the part of physicians who elect to physician to be paid timely as well. The Comment: Several commenters
participate in the CAP in order to claim filing data we cited in the suggested that the CAP vendors and
facilitate the match between the proposed rule were based on all physicians should be able to enter into
physician claim and the drug vendor physician claims where the place of contracts or agreements that would
claim so that drug administration can be service was the physician office, so it allow them to work out details of doing
verified. We proposed that in their CAP represented claims filed by all physician business under the CAP such as how to
election agreements, physicians who practices. Based on physicians’ current handle drugs that were ordered and
choose to participate in the CAP would claims filing practices, we believe that shipped but not administered. Other
be required to agree to bill their claims complying with this requirement will commenters proposed that we allow
within 14 calendar days of the date the not be problematic for most physicians. vendors and physicians to enter into
drug was administered to the We expect that physicians will take the contracts that would increase vendor
beneficiary, unless extenuating requirement into account when they financial incentives to participate in the
circumstances prevented them from make a decision whether to participate CAP while at the same time reducing
filing the claim. (Statistics obtained in CAP and that before electing to the physician’s administrative burden.
from Medicare claims filing data participate they will have procedures in As an example, the commenter
indicated that more than 75 percent of place that will enable them to meet the suggested allowing the vendor to bill for
physician’s claims are currently filed requirement on a routine basis if they both the administration fee on behalf of
within 14 days of the date of service.) are not already doing so. The local the physician and the drug itself. In
We requested comment on how we carrier may grant exceptions on rare
addition, another commenter asked if
should define the extenuating occasions when due to extenuating
there are any restrictions concerning a
circumstances that should be circumstances the physician is unable to
considered for exceptions to the 14 physician using a CAP vendor for non-
submit claims within 14 days. Such
calendar day time frame. Medicare patients. Specifically, the
requests should not be granted on a
Comment: A commenter representing commenter inquired whether a
routine basis. As physician billing
an organization of specialty distributors participating CAP physician could have
practices increasingly become
supported the timely filing of physician an ancillary agreement with the
automated, we believe that this
claims requirements in the proposed approved CAP vendor to obtain drugs
requirement will become less of a
rule; however, the commenter noted for his or her non-Medicare patients.
burden. We will ask the local carriers to
that few procedures are proposed to periodically conduct a post payment Response: This interim final rule does
augment physician compliance. The review of participating CAP physicians’ not prohibit approved CAP vendors and
commenter supported development of compliance with this requirement. If a physicians from entering into a contract
an enforcement mechanism before the vendor notes repeated non-compliance or agreement governing their
physician’s dismissal from the program. with this requirement on the part of a arrangements for the provision of CAP
Other commenters believe that it is physician, the vendor may ask the drugs or other items or services.
burdensome for a physician to file a designated carrier to assist in working However, parties to such arrangements
claim within 14 days after drug with the physician to resolve this must ensure that the arrangements do
administration. One commenter asked situation. Failure to comply with this not violate the physician self-referral
for more detailed information about our requirement may be a factor taken into (‘‘Stark’’) prohibition (section 1877 of
data on physician claim filing because consideration in the designated carrier’s the Act), the Federal anti-kickback
the statistics we cited are not reflective recommendation to CMS about statute (section 1128B(b) of the Act), or
of their knowledge of small group removing a participating CAP physician any other Federal or State law or
practices and solo practitioners. They from the program. regulation governing billing or claims
asserted that requiring CAP physicians Comment: One commenter noted that submission. For example, an agreement
to submit their claims within 14 days is the proposed rule did not address how under which the approved CAP vendor
too drastic a change from the 365 day the patient newly eligible for the provides billing services to a physician
current standard, and suggest that the Medicare program during a course of must comply with the Stark law, anti-
requirement should be changed to 30 treatment would be handled under the kickback statute, and Medicare rules
days. In response to our request for CAP. The commenter inquired whether regarding billing agents (§ 447.10). On
comment on extenuating circumstances the physician would be required to the other hand, an approved CAP
that could be considered for exceptions change the patient’s therapy because the vendor may not contract to furnish
to the 14 day filing requirement, the vendor might be offering a different drugs at below market rates to a
commenter stated that extenuating NDC of a drug than the physician had physician or a group for their private
circumstances for claim filing been using previously. pay patients in exchange for the
requirements are already defined in Response: A physician that is treating physician’s or group’s CAP business.
Chapter 1 section 70.7 of the Medicare a new Medicare patient is not required For additional information on the Stark
Claims Processing manual and that to change that patient’s course of and anti-kickback statutes, parties may
providers are allowed an extra 120 days treatment merely because he or she may wish to consult the CMS and OIG Web
in which to file claims in certain be participating in the CAP if the sites.

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Payment to Vendor process to certify the medical necessity (2) We do not have the statutory
After shipping the drug to the of a drug before the CAP vendor sends authority under section 1847B of the
physician, we proposed that the drug the order to the physician, creating risk Act to create risk corridors.
vendor could file a claim for the drug corridors similar to those being used in (3) We have designed the CAP
with the designated carrier no sooner the Part D program so that the vendor payment system so that the vendor may
and CMS are sharing in the risks and bill the beneficiary and or his or her
than the expected date of
benefits of the program, and third party insurance when payment for
administration. The claim form would
implementing a process so that the CAP the drug has been made by the CMS
contain the prescription number for
vendor could collect coinsurance from claims processing system. In order to
each drug administered to the
the beneficiary at the time the drug is ensure that this process happens as soon
beneficiary on one calendar day, the
administered. Commenters also as possible, we are imposing a 14-day
unique provider identifier (UPIN) or
expressed concern about the potential claim submission requirement on the
(NPI when available) for the physician
for low profit margins and delayed physician. We have implemented this
to whom the drug was supplied, and the
payment that exist in the CAP and requirement because the statute requires
expected date of service. The designated
suggested that we should provide that applicable deductible and
carrier would submit the claim to the coinsurance may not be collected unless
central claims processing system after additional financial safeguards for CAP
vendors. the drug was administered to the
the claim had passed all edits. The beneficiary. Currently, we have no way
central claims processing system would Response: Following is a response to
the commenters’ proposed suggestions of verifying drug administration other
match the physician claim with the than by the matching of the physician’s
vendor claim using the prescription about how to lessen the degree of risk
that vendors will face in the CAP: claim for drug administration with the
number. vendor’s claim for the drug. We seek
As required by the statute, we (1) Medicare contractors do not
generally provide advance approval of comment on other ways that
proposed that the vendor would not be administration could be verified earlier
allowed to bill the beneficiary or his or potential claims. As stated previously
in the process that minimize the burden
her third party insurance, or both, for both the participating CAP physician
on the approved CAP vendor, the
any applicable deductible and and the approved CAP vendor are
participating CAP physician, and the
coinsurance until the Medicare carrier expected to familiarize themselves with
had verified that the physician LCDs, NCDs, and other Medicare rules
administered the drug to the that may affect claims payment. If an Partial Payment
beneficiary, and final payment was approved CAP vendor encounters a Although we noted in the March 4,
made by the Medicare program. Proof circumstance where it believes that a 2005 rule that we were not proposing to
that the drug was administered to the prescription order is inconsistent with implement a system for partial claims
beneficiary would be established by the any of these things, the approved CAP payment, we requested comments on
physician’s claim being matched with vendor may work with the physician to compelling reasons for making such a
the drug vendor’s claim in the Medicare amend the order. If the physician payment. We also sought comment on
central claims processing system. After declines to change the order, but the whether there are demonstrable,
the two claims were matched, the approved CAP vendor believes the drug compelling reasons why we should
claims processing system would notify claim will not be paid by Medicare, the consider making a partial payment to
the designated carrier to issue final approved CAP vendor may issue an the vendor in cases where the drug
payment to the vendor. We proposed ABN to the beneficiary. If for some administration claim is not received by
that issuance of final payment by the reason the vendor is unable to obtain a our claims processing system within 28
Medicare program would serve as signed ABN from the beneficiary, the calendar days of the anticipated date of
notification to the vendor that drug vendor still will have a responsibility administration and what the appropriate
administration had been verified and under its CAP contract to ship the drug percentage of the partial payment
that the vendor could proceed with to the physician. (The only exception to should be.
billing the beneficiary or his or her third this requirement is in the case of the We briefly described how such a
party insurance. beneficiary’s failure to meet his or her partial payment methodology might
Comment: A specialty distributors obligation to pay deductible or work, if we decided to implement such
association commented that every day coinsurance. This provision is described an option. After the designated carrier
that a vendor must wait for payment in more detail in the discussion of made the partial payment, our claims
from Medicare and the beneficiary or beneficiary coinsurance later in this processing system would continue to
his or her third party insurance section.) attempt to match the physician claim
represents additional working capital We will include in the CAP contract and the vendor claim for 90 days. We
invested in the program by the CAP a requirement that the vendor ship the would not pay interest on interim
vendor and added inefficiencies to the drug in most situations because we payments. If a match of the two claims
Medicare program. Vendors may believe that under the CAP program as occurred, the vendor would receive
experience at least a 2-month delay in it is being implemented, it would be Medicare payment for the remaining
payment from the time the drug is inappropriate for the approved CAP amount of money due on the claim. If
shipped to the physician and payment vendor to interfere in the participating no match between the two claims was
is received from the Medicare program. CAP physician’s clinical decision made within 90 days, recovery of the
The commenter stated that CAP vendors making. If the payment for the drug is amount already paid by Medicare would
will not be able to assume the level of ultimately denied, then the physician occur using normal Medicare
financial risk that was described in the will be required to appeal the drug overpayment recovery processes. After
proposed rule. They proposed a series of administration claim denial. The the Medicare program made the final
steps that we could take in the final rule approved CAP vendor may also appeal payment, the vendor would be allowed
to attempt to lessen the degree of risk to the local carrier in accordance with to bill the beneficiary or the
that CAP vendors will assume. These the discussion of administrative appeals beneficiary’s third party insurance, or
include: Establishing a pre-review below in the dispute resolution section. both.

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Comment: Some commenters beneficiaries who are unable to meet collection techniques, or no longer
supported partial payment of the their coinsurance obligations; however provide drugs for patients who are too
vendor’s claim at the time the drug is we note that (as explained in more far in arrears.
shipped to the physician, and 20 detail below) approximately 80 percent • Effect on approved CAP vendors.
percent was suggested as an appropriate of beneficiaries have supplemental The inability of approved CAP vendors
amount. Another commenter strongly insurance coverage which covers their to collect coinsurance from beneficiaries
opposed partial payment for the vendor Part B coinsurance. In order to help could pose a major financial hardship to
because neither physicians nor ensure more prompt payment to the vendors. Collection of coinsurance may
pharmacies nor DME suppliers have vendor, we are requiring that the also be exacerbated due to the time
ever received partial payment. The participating CAP physician must delay between the dates of treatment
commenter expressed concern that the submit the claim for drug and payment, as well as the approved
beneficiary would receive a bill on the administration within 14 calendar days CAP vendor’s lack of a direct personal
partial payment. of the date of administration. In relationship with patients.
Response: After further consideration addition, the existing CMS coordination • Clinical issues. Failure to provide
of this issue, we will finalize the of benefits process provides for the the drug due to nonpayment of
proposal to pay only when both the automatic crossover of many Medicare coinsurance by the beneficiary may
vendor claim for the drug and the beneficiaries’ claims to their endanger patients and expose
physician’s claim for administering the supplemental insurance provider after physicians to liability issues.
drug have been matched in the claims Medicare has paid its portion of the Commenters stated that regardless of the
processing system. We believe that this claim. For beneficiaries with patient/vendor dispute, this does not
is a more straightforward process and supplemental insurance, their involve physician services, and failure
that it is a process that will assist in coinsurance obligation is usually met of the vendor to provide the required
preserving the Medicare trust fund through the automatic coordination of drug could affect the physician’s plan of
because it will not involve payment benefit process, instead of requiring the treatment for the beneficiary.
recovery if a claim is denied or a beneficiary to pay the coinsurance at the Commenters recommended that the
physician does not administer the drug. time of service. We are currently vendor should not be able to drop the
consolidating the claims crossover physician from the CAP or withhold the
Beneficiary Coinsurance shipping of the drugs due to
process, on a national basis, to
Comment: Some commenters stated introduce standardization and nonpayment of the coinsurance.
that having the vendor collect the efficiencies in a national crossover Additionally, commenters suggested
coinsurance adds further ‘‘bureaucracy’’ process that will automatically cross vendors be required to have in place
to patient care and introduces a claims over to supplemental insurers/ procedures for assessing indigence and
middleman between the doctor/patient payers, including Medigap plans, waiving coinsurance when a non-
relationship. employer retiree supplemental plans, Medicaid-eligible beneficiary’s income,
Response: As stated in the proposed TRICARE, and State Medicaid Agencies, assets, and medical expenses meet
rule, the statute specifically requires for their use in calculating their certain pre-established criteria. Ideally,
that the vendors participating in the financial liability after Medicare. Under these procedures should incorporate the
CAP collect any applicable deductible this consolidated crossover process, assistance of social workers trained to
and coinsurance from the beneficiary. supplemental insurers/payers will explore all payment options and
Therefore, we do not have any latitude execute a national Coordination of assistance programs available to the
in determining who collects the Benefits Agreement with a single CMS individual. The commenters
coinsurance. contractor, the national Coordination of recommended that assessment of these
Comment: A few commenters Benefits Contractor (COBC), for procedures should be part of our vendor
questioned our proposal to prohibit the purposes of receiving Medicare evaluation process. If it is determined
vendor from billing for coinsurance crossover claims. We believe that the that vendors can refuse to deliver drugs
until final payment of claim, stating this majority of supplemental insurers/ because of coinsurance issues,
would be a significant change from payers will participate in the national commenters believe this must be made
current practice. The commenters consolidated crossover process due to clear to physicians when they sign up
believe delayed billing would increase the consistencies and efficiencies that for the CAP. As an alternative, other
risk of bad debt and increase collection- result from a standard national process. commenters recommended that when
related efforts and costs and potentially Standardization of the crossover process this occurs, physicians should be able to
risk solvency of the vendor and viability thereby decreases the likelihood that obtain drugs through the ASP system or
of program. beneficiaries’ claims will not be crossed be able to opt out of the CAP
Response: We understand the over. immediately. One commenter suggested
concerns raised by the commenters; Comment: Commenters raised that this option should also be available
however, the statute specifies that the concerns about the requirement that the if the beneficiary’s secondary insurance
collection of any applicable deductible approved CAP vendor collect the denies the claim.
or coinsurance cannot occur until the coinsurance for the drug from the The Practicing Physicians Advisory
drug is administered and that the beneficiary with respect to the following Council (PPAC) expressed similar
vendor is responsible for billing the three major areas: concerns about the collection of
beneficiary for cost sharing. We note • Effect on beneficiaries. Under the coinsurance and recommended that we
that Medicare allows for the collection current system, the physician often require selected CAP vendors be willing
of coinsurance at the time a service is works with the beneficiary and social to advance credit for drugs to patients
delivered, however since the approved agencies to obtain payment, or in who are not able to pay the coinsurance.
CAP vendor is not present at the time appropriate circumstances these costs Other commenters recommended that
the drug is administered the vendor is may be born by the physician practice the final rule allow CAP vendors to
unable to bill the beneficiary at that in cases of financial hardship as bad refuse to distribute products to patients
time. We agree that the delay in billing debt. Commenters expressed concern who have a prior history of failing to
could increase the incidence of that vendors may use overly aggressive fulfill coinsurance obligations. This

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would eliminate a significant amount of 1003.101 (Definition of postmark date of the approved CAP
financial risk and uncertainty for ‘‘Remuneration’’). The availability of vendor’s bill to the beneficiary, the
vendors. waivers may not be advertised or be beneficiary’s coinsurance obligation
Response: We appreciate the made as part of a solicitation; however, remains unpaid, the vendor may refuse
commenters’ concerns, and we address vendors may inform beneficiaries to make further shipments of drugs to
these concerns as outlined below: generally of the various categories of the physician for that beneficiary. We
• Effect on beneficiaries. With respect assistance noted in the preceding note that these provisions assume that
to commenters’ concerns about the sentence. In no event may the vendor the vendor bills the beneficiary after
impact of the CAP on beneficiaries, the include or make any statements or payment is received from Medicare and
purpose of the CAP is to provide an representations that promise or his or her supplemental insurance
alternative to physicians for obtaining guarantee that beneficiaries will receive provider (if applicable.)
Medicare Part B drugs and is not cost-sharing waivers. We will evaluate If the beneficiary requests cost-sharing
intended to have a negative impact on the procedures that applicant vendors assistance and the vendor refers the
patient care. However, as part of their propose to implement to make cost- beneficiary to a bona fide independent
enrollment in Medicare, beneficiaries sharing assistance referrals as part of the charitable organization for assistance or
are obligated to pay the Part B approved CAP vendor application offers a payment plan, the vendor must
deductible and coinsurance amounts, review process. wait an additional 15 days from the
and this cost-sharing assists in • Effect on approved CAP vendors. postmark date of the approved CAP
controlling the over utilization of With respect to concerns about the vendor’s response to the beneficiary’s
services. Information from the 2003 potential impact on the approved CAP request for cost-sharing assistance. If at
Medicare Current Beneficiary Survey vendors, we will not require an the end of the 15-day time period the
shows that approximately 80 percent of approved CAP vendor to continue to vendor has not received a cost-sharing
fee-for service Medicare enrollees report provide CAP drugs for beneficiaries who payment (either from the charitable
that they have supplemental coverage do not pay their deductible or organization or from the beneficiary
that covers their Part B coinsurance coinsurance. As noted previously, under under the payment plan), the vendor
obligations. Although we are uncertain the CAP contract, we are requiring may refuse to ship additional drugs to
of the level of coverage provided by vendors to ship ordered drugs to the physician on behalf of that
these plans, we believe this physicians in most situations. However, beneficiary. Further, if the approved
supplemental coverage provides in the case of a beneficiary who fails to CAP vendor implements a reasonable
significant financial protection to many satisfy his or her cost-sharing payment plan, the vendor must
beneficiaries. However, we understand obligations for CAP drugs ordered by a continue to ship CAP drugs for the
that there will be instances where a particular participating CAP physician, beneficiary, so long as the beneficiary
beneficiary may have difficulty in we will allow the vendor to refuse to remains in compliance with the
meeting the deductible or coinsurance make further shipments to that payment plan.
payment. When this occurs under the physician for that beneficiary in Finally, if the vendor waives the cost-
current payment system, the physician accordance with the provisions outlined sharing in accordance with section
often helps the beneficiary in finding below. The vendor may refuse to ship 1128A(I)(6)(A) of the Act, 42 CFR
assistance to meet this obligation or drugs to a physician for a beneficiary § 1003.101, and § 414.914(g)(3) of these
might choose not to pursue collection of who has not met his or her coinsurance regulations, the vendor may not refuse
the cost-sharing if the physician has obligations, when the conditions to ship CAP drugs for the beneficiary. In
made a good faith determination of outlined below are met, until the earlier instances where a beneficiary has failed
financial need or reasonable collection of the end of the calendar year or the to meet his or her obligation to pay
efforts have failed. beneficiary’s past due balance is paid in coinsurance or deductible for a drug and
In order to address these concerns, we full. We will require that after receiving the vendor has refused to continue
are modifying the program requirements final payment by Medicare, the vendor providing the drug, we will permit the
at § 414.914(g) to include a provision must first bill any applicable participating CAP physician to opt out
requiring vendors to provide supplemental insurance policy that the of that drug category for CAP. Note that
information on sources of cost-sharing beneficiary may have. If there is a for the initial implementation of the
assistance available to beneficiaries on balance due after payment by the CAP, there is only one CAP drug
request. It is important to note that supplemental insurer, or if the category. Thus, a physician exercising
routine waiver of deductibles and beneficiary has no supplemental this option will be opting out of the
coinsurance can violate the Federal anti- insurance, the vendor may proceed with entire CAP program until the next
kickback statute, as well as the civil billing the beneficiary. opportunity to elect to participate. We
prohibition on offering inducements to As discussed previously, consistent are amending the regulations at
beneficiaries at section 1128A(a)(5) of with the requirements of section § 414.908(a)(5) to include this provision.
the Act. However, cost-sharing waivers 1128A(a)(5) of the Act and § 414.914(g), We seek comment on additional
are permitted under certain conditions at the time of billing, the vendor may provisions that we should use to define
for beneficiaries who are experiencing inform the beneficiary generally of the these processes to protect the vendor
financial hardship. The assistance types of cost-sharing assistance that may and the beneficiary.
offered by the vendor must take the be available. If the beneficiary is unable • Clinical issues. With respect to
form of one of the following: a referral to pay the coinsurance or deductible, he concerns raised that the inability of a
to a bona fide and independent or she may request assistance from the beneficiary to make the coinsurance
charitable organization, implementation vendor as described above. The vendor payment should not affect treatment, we
of a reasonable payment plan, and/or a has an obligation to provide the believe the modifications we are making
full or partial waiver of the cost-sharing information requested, and to take one to require the vendor to provide
amount based on the individual of the actions specified in § 414.914(g). information on sources available to a
financial need of the patient, provided However, if the beneficiary has not beneficiary who may be in need of
that the waiver meets all of the requested financial assistance and if assistance with his or her coinsurance
requirements of paragraph (1) of 42 CFR after a period of 45 days from the payment as well as allowing the

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physician to opt out of the CAP will to reimburse vendors for part of the bad consideration to the applicability of the
assist in ensuring that the treatment is debt they experience when they are Medicare Part B administrative appeals
not affected. unable to collect in full the coinsurance process found at § 405.801 et seq. We
Comment: One commenter questioned and deductibles, similar to provisions believe the traditional Part B appeals
what is required from physicians for for certain other providers. process continues to be the appropriate
patients with Medigap or another type Alternatively, the commenters believe dispute resolution process for
of supplemental insurance coverage. we should adjust the bid limit to take beneficiaries and participating CAP
Response: A high percentage of this issue into account. physicians seeking review of drug
Medicare beneficiaries carry Response: The bad debt policy administration claims that have been
supplemental insurance such as a referred to by the commenter is denied by the local carrier for any of the
Medigap policy to cover deductible and established by statute and regulations reasons described in § 405.803(a). Those
coinsurance amounts, and the physician for specific provider types and is not reasons include the following: (1)
will provide this insurance information applicable to the CAP program. We do Services were not a covered benefit; (2)
to the approved CAP vendor. The not agree with the suggestion that we The deductible was not met; (3) No
specific information that the physician should adjust the proposed bid limit to evidence of acceptable payment; (4)
must provide is discussed earlier in this account for the possibility that vendors Charges for services were unreasonable;
section. will be unable to collect all coinsurance. and (5) Services furnished were not
Comment: Another commenter Although the Medicare statute and reasonable and necessary.
requested that we implement processes regulations provide specific provisions We also outlined reasons that we
to assist vendors in collecting to recognize and account for bad debt in believed disputes raised by the
beneficiary coinsurance, especially if the context of payments to hospitals and approved CAP vendor regarding the
the patient is deceased. certain other provider types, there is no nonpayment of a drug claim by the
Response: We do not believe special such provision in relation to the CAP. designated carrier cannot be adjudicated
provisions need to be made in this rule We therefore lack authority to provide by application of the traditional Part B
for beneficiaries who are deceased. If a for explicit recognition of bad debt in appeals process. First, the designated
beneficiary has died after receiving the the mechanisms for bidding and carrier’s denial is based on the lack of
CAP drug, but before he or she could determining payment amounts under a unique prescription ID number match
pay the coinsurance amount to the the CAP. in the central claims processing system.
vendor, the designated carrier would Comment: One commenter stated that This reason does not meet any of the
still process the approved CAP vendor’s the CAP could result in beneficiaries appeal criteria in § 405.803(a). Second,
drug claim in accordance with the returning to the physician’s office more given the ministerial aspect of the
normal procedures outlined in these often and thus double the coinsurance designated carrier’s prescription number
regulations, and the approved CAP amount. For example, a beneficiary matching task, an informal process
vendor could bill the beneficiary’s estate undergoing chemotherapy may see the focused on getting the underlying
or the beneficiary’s alternative physician and have his or her laboratory participating CAP physician’s drug
insurance in accordance with CAP results checked one day and, based on administration claim properly filed and
requirements. However, we would changes to the prescription, the adjudicated is a more effective remedy.
welcome further comments on this physician will have to order a new drug Finally, we believed application of the
issue. and the beneficiary will have to return proposed progressive alternative dispute
Comment: Commenters questioned on another day to receive the drug. resolution process described in the
whether vendors would be expected to Response: The statute and these proposed rule represents a better use of
bill Medicaid for coinsurance and regulations provide for situations in program administration resources.
deductible after billing Medicare in the which a drug is needed immediately. If We encourage participating CAP
case of dual eligible beneficiaries and the criteria outlined in § 414.906(e) are physicians, beneficiaries, approved CAP
the consequences to the beneficiary if met, the participating CAP physician vendors and the designated carrier to
Medicaid did not pay the coinsurance. can submit a prescription order to the use informal communication to resolve
Another commenter recommended that approved CAP vendor to obtain a service-related administration issues
we require any vendors awarded the replacement for a drug from his own that occur in a delivery and payment
contracts to provide this prescription stock that was used to treat the system of this complexity. However, we
benefit with a coinsurance structure no beneficiary. The participating CAP recognized certain disputes will require
higher than Medicaid. physician is always free to do what is the intervention of a neutral third party
Response: The CAP is an alternative best for the beneficiary, but under CAP and established a proposed dispute
to the current system for paying for payment rules, payment is made for the resolution process § 414.916 which is
Medicare Part B drugs. Because the CAP drug only when it is ordered from summarized as follows.
coinsurance is a part of the Medicare the vendor or the resupply or ‘‘furnish
total payment amount, we cannot a. Resolution of Vendor’s Claim Denial
as written’’ criteria are met.
establish a limit for this amount based The participating CAP physician has
on another payment system (that is, 3. Dispute Resolution control of the claim filed with the local
Medicaid). We have no authority to set Section 1847B of the Act is generally carrier for drug administration services.
coinsurance at anything other than 20 silent with regard to the treatment of In the proposed rule, we stated that the
percent of the Medicare rate. If a disputes surrounding the delivery of approved CAP vendor would not be a
beneficiary has supplemental insurance, drugs and the denial of drug claims. party to the appeal a physician may file
the approved CAP vendor will bill the However, section 1847B(b)(2)(A)(ii)(II) if his or her drug administration claim
insurance provided by the beneficiary of the Act does contain a reference to a is denied. We based this statement on
for the coinsurance amount. Medicaid grievance process which is included the fact that the approved CAP vendor
payment rates and policies for dual among the quality and service would possess little of the evidence
eligibles will vary by State. requirements expected of vendors. required to substantiate the medical
Comment: One commenter As explained in the March 4, 2005 necessity requirements for
recommended that we establish a policy proposed rule, we gave substantial administration of the drug. However, we

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wish to clarify that the approved CAP We outlined the particulars of the primary concern is the welfare of the
vendor may appeal as a Medicare proposed participating CAP physician’s beneficiary and the implications of
supplier under the Part B appeals rules CAP election agreement in repeated drug administrations that are
at 42 CFR Part 405 and the online § 414.908(a)(3) of our regulations and not in accordance with Medicare
Medicare Claims Processing Manual, we requested comment on the coverage policy. Our existing medical
Chapter 29, §§ 20 and 60.4. Because the appropriate amount for the CAP review safeguards and provider
local carrier’s initial determination vendor’s loss threshold. education efforts are as applicable to
regarding the drug administration claim If problems persist, we proposed that drug administration when the drug is
is determinative of the CAP vendor’s the approved CAP vendor may request provided by the approved CAP vendor
drug claim, we interpret that initial the designated carrier to review the as when it is purchased by the
determination to be an initial situation and potentially recommend a participating CAP physician. These
determination regarding payment of the suspension of the participating CAP existing mechanisms help ensure that
CAP vendor’s drug claim for purposes of physician’s CAP election agreement. our beneficiaries are receiving medically
the Part B appeals regulations at 42 CFR The designated carrier would gather and reasonable and necessary services and,
405. Thus, the CAP vendor is a party to review the relevant facts, and make a as a consequence, will help ensure that
any redetermination of the drug recommendation to us on whether the the approved CAP vendors are able to be
administration claim by the local physician has been filing his or her CAP paid for drugs shipped to physicians.
carrier. In addition, any appeal from an administration claims in accordance We also note that physicians, as a
initial determination regarding a claim with the requirements for CAP condition of participation in CAP, will
for payment of a drug by the designated participation. We would review the have agreed to the claims, appeals filing,
carrier should be filed with the local recommendation of the designated and CAP assignment requirements
carrier. It is the local carrier, rather than carrier and, if necessary, gather described in section II.D.1, ‘‘Physician
the designated carrier, that possesses all additional information before deciding Election,’’ of this interim final rule. This
information necessary to adjudicate an whether to suspend the participating will also help to ensure that the
appeal from a denial of a claim for CAP physician’s election to participate approved CAP vendors are able to be
payment of a CAP drug. This in the CAP. paid for drugs shipped to physicians.
information includes local coverage We proposed the suspension would We emphasize that we believe many
decisions, medical necessity last for a period not to exceed the end of the issues of concern raised by the
determinations, and information of the following CAP election cycle. potential vendors can either be resolved
regarding payment of drug Inasmuch as participating CAP through cooperative interaction between
administration claims. Thus, all parties, physicians can elect to enroll every year the approved CAP vendor and the
including the CAP vendor, will have for a 12-month period commencing in participating CAP physician or the
120 days from the date of receipt of an January, the suspension would end on dispute resolution efforts of the
initial determination by the designated one or another December thirty-first. We designated carrier without using the
carrier regarding a claim for payment of are clarifying that the participating CAP formal process for removal of physician
a drug in which to file a request for a physician could enroll again a year from from the CAP program. However, we
redetermination of that claim with the the next January first. Upon recognize the need for such a process in
local carrier. consideration of the situation where the the event the above efforts are
Accordingly, we have expanded the participating CAP physician is unsuccessful just as we recognize the
participating CAP physician’s suspended in the early months of the need to be able remove an approved
participation obligations to include year, we have determined that the CAP vendor from the CAP program if
support of the approved CAP vendor’s suspension may prove to be necessary.
appeal with documentation and written unnecessarily long. Accordingly, we We believe each CAP drug claim
statements. Please see the comments have determined that a suspension denial will require individual analysis
and responses below. commencing before October 1 will to determine the cause. That review
The approved CAP vendor’s drug conclude on December 31 of the same focuses on the depth of consideration
product claim may be denied by the year. A suspension commencing on or the participating CAP physician gave to
designated carrier if the participating after October 1 will conclude on the pertinent Medicare coverage policy.
CAP physician’s drug administration December 31 of the next year. A If it turns out the physician knowingly
claim is denied. In that event, the suspension of less than 2 months would ordered and administered a drug that is
approved CAP vendor can not bill not have a meaningful impact. We not covered, and the physician did not
Medicare for the cost of a drug and can indicated that the physician would be file a claim, or filed a frivolous claim to
not bill the beneficiary for the able to appeal our initial decision create the appearance of appropriate
appropriate deductible or coinsurance. through the process articulated in consideration of the coverage
The approved CAP vendor will track proposed § 414.916. requirements, then the approved CAP
its business with the individual Comment: Comments on the vendor’s request to initiate a suspension
participating CAP physicians who order appropriate loss threshold that an investigation may be well founded.
drugs. We proposed that when an approved CAP vendor would have to Approved CAP vendors can not be
approved CAP vendor is not paid and bear before requesting suspension of the expected to have no recourse in the
the total dollar amount of the approved participating CAP physician were event they are routinely shipping drugs
CAP vendor’s loss exceeds an varied. The potential vendor community for which they do not receive payment.
acceptable threshold, then the approved indicated that it would prefer to have However, participating CAP physicians
CAP vendor may ask the designated authority to exclude participating CAP should not be removed from the CAP
carrier to counsel the participating CAP physicians unilaterally. Physician program lightly. We think the ability of
physician on his or her obligation under commenters indicated that they would the approved CAP vendor to raise these
the CAP election agreement to file a like a well-defined threshold with a issues to an independent party, the
clean claim and pursue an high dollar and occurrence level. designated carrier, for investigation and
administrative appeal in accordance Response: Regardless of whether a a recommendation to us, provides a fair
with his or her CAP election agreement. physician is participating in CAP, our opportunity for the participating CAP

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physician and the approved CAP vendor before a drug with a relatively high cost contractors. We will closely monitor the
to submit evidence in support of is denied. We will monitor the data designated carrier’s dispute resolution
continued participation in CAP or trends carefully and may reexamine our function with Government oversight
removal from the program. Our review dispute resolution process as we gain staff experienced with other contractors
of the recommendation adds another more experience under the CAP. Our that perform dispute resolution
impartial step to the determination of final process is codified in § 414.916(b). functions in the Medicare program.
whether to remove the participating Comment: Some potential physicians Although we believe either the
CAP physician from the program. If we commented and questioned the legal designated carrier or local carrier would
determine that the participating CAP authority for the designated contractor function impartially, the designated
physician should be removed from the to function in this capacity. One carrier will have the most familiarity
CAP program, the ability of the commented that the designated carrier with the CAP program and there are
participating CAP physician to request is not qualified to make the administrative efficiencies that can be
reconsideration and the potential for the recommendation discussed in realized from consolidating this
involvement of an impartial hearing § 414.916(b)(2)(i) because the function. However, because the local
officer provides yet another level of recommendation amounts to a legal carrier will possess valuable
safeguard against the improper removal determination, and the regulation states information to add to the process, the
of a physician from the CAP program. no qualification for the individual designated carrier will work closely
However, to take into account the designated carrier employee who with the local carrier as appropriate
legitimate business needs of the develops that recommendation. before making a recommendation.
approved CAP vendor once a Response: As we noted in the Comment: Some potential physician
determination by us has been made that proposed rule, section 1847B of the Act commenters questioned the
the participating CAP physician should is generally silent with regard to the qualifications and impartiality of the
have his or her CAP participation treatment of disputes surrounding the hearing officer.
agreement suspended, the physician delivery of drugs and the denial of drug Response: We find the Director of the
claims. However, section CMS Center for Medicare Management,
will be able to obtain drugs and bill for
1847B(b)(2)(A)(ii)(II) of the Act does the Center with oversight responsibility
them under the ASP payment system
contain reference to a grievance process for the CAP program, to be abundantly
until a final reconsideration
which is included among the quality qualified to make an appropriate
determination is made. In response to
and service requirements expected of unbiased selection of a hearing officer.
comments, we have removed the last Comment: One commenter
sentence of § 414.916(b)(3) which vendors. We believe that section
1847B(b)(2)(A)(ii)(II) of the Act, at a encouraged CMS to inform the
indicated a participating CAP physician participating CAP physician community
could select another approved CAP minimum, provides authority for this
function of the designated contractor. that claims should be submitted timely
vendor while a reconsideration was and in compliance with local medical
We have a longstanding history of
pending. The ability of the Director of policies. This commenter suggested that
working with contractors such as
the Center for Medicare Management to CMS supply approved CAP vendors
carriers and fiscal intermediaries, that
provide a final reconsideration of the with coverage determination
employ individuals to make
matter is yet a potential fourth level of information prior to delivery of the drug
recommendations with respect to
safeguard in this process. We believe and shift the financial risk to the
various operational and policy issues
this process strikes an appropriate participating CAP physician. The
related to the administration of the
balance between providing swift commenter also suggested that CMS
Medicare program. The designated
recourse for approved CAP vendors and regularly post the CAP claim denial
carrier will meet all of the qualifications
the desire for a fixed threshold. rates of participating CAP physicians on
that are applicable to our administrative
Given the impartial nature of the contractors generally. a Web site in an effort to encourage
process for removing physicians from Specialty carriers perform a variety of participating CAP physicians to meet
the CAP, and after consideration of all functions to support programs that their obligation to file claims and
the related comments, we believe that deliver benefits in a new or unique appeals.
institution of a fixed threshold would manner. As an example, the Durable Response: As described earlier, the
run counter to the desired outcome. We Medical Equipment Competitive participating CAP physicians’ claims
seek to have participating CAP Acquisition demonstration carrier and appeals filing expectations are
physicians give careful consideration to performed an alternative dispute described in section II.D.1, ‘‘Physician
Medicare coverage policy before resolution function similar to the Election,’’ of this interim final rule.
ordering drugs. There will be cases function the designated carrier will Approved CAP vendors should consult
when the cost of the denied drug is perform here. with the local carrier Web sites to
high, but the participating CAP Therefore, we believe that both the familiarize themselves with LCDs. They
physician researched and considered designated carrier and its employees should also review NCDs posted on the
the applicable coverage policy as will be qualified to undertake the our Web site.
carefully as possible. Conversely, there activities called for in this regulation. We do not believe it is appropriate to
will be cases where the cost of the Comment: Some commenters publish the names and claim denial
denied drug is relatively low, but questioned the impartiality of the rates of participating CAP physicians
coverage was denied because the designated carrier and indicated a because approved CAP vendors will not
participating CAP physician did not preference for the local carrier. have the authority to refuse to service
consider whether the applicable Response: We note that the designated participating CAP physicians who select
coverage policy would support payment carrier is not making the removal them.
for the drug and its administration determination, but only providing a Comment: One commenter asked us
under the circumstances of the specific recommendation to us. The designated to create a more meaningful way for the
case. The approved drug vendor must be carrier has been selected from the pool approved CAP vendor to appeal the
able to address a participating CAP of existing Part B carriers though the local carrier’s denial of the drug
physician who flouts coverage policy process used to select Title XVIII administration claim.

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Response: As noted above, we have participating CAP physician’s CAP developing solutions. Based on
clarified that the approved CAP vendor participation agreement. comments from physicians, we have
has an independent right to appeal Response: We agree. Section added § 414.917. This new section sets
claims under existing Part B appeals 414.916(b)(3) has been adjusted to forth a process culminating in
rules. To assist approved CAP vendors require us to gather additional material termination of the approved CAP
in exercising these rights, we are from the participating CAP physician as vendor’s contract for serious quality or
including a new obligation in the appropriate. service issues. It is described below in
participating CAP physician’s CAP Comment: Several commenters have the responses to comments.
election agreement. The participating suggested emphatically that CMS drop Comment: Several commenters
CAP physician must reasonably from the final rule the requirement that suggested that CMS make approved CAP
cooperate with the approved CAP suspended physicians’ names be vendors indemnify participating CAP
vendor if the vendor chooses to appeal published in the Federal Register. physicians for legal defense costs
the local carrier’s denial. Reasonable These commenters also requested that connected with ‘‘adverse drug events’’
cooperation may include providing the the final rule make clear that suspension when the participating CAP physician is
approved CAP vendor with access to or of a CAP election agreement for denial ultimately exonerated.
copies of medical records, as of claims does not result in the Response: Individual participating
appropriate, and written statements. physician becoming listed on the CAP physicians and approved CAP
Comment: Several commenters were exclusion list under section 1128 of the vendors can seek legal advice from
concerned that the process for Act. someone competent to provide such
determining whether a participating Response: A suspension of a advice regarding the product liability
CAP physician should be removed from participating CAP physician’s CAP laws and other laws applicable to
the CAP program would allow approved election agreement or a termination of financial liability associated with
CAP vendors to pressure participating an approved CAP vendor’s contract with adverse drug events. We believe that
CAP physicians to alter their prescribing us does not result per se in either party addressing these complex issues is
pattern and to intrude unacceptably on being excluded from participation in beyond the scope of this rule.
the participating CAP physician’s any Federal health care program. Such Comment: Several commenters
clinical decision making. a decision only precludes the physician requested that the final rule include a
Response: Please note the approved or vendor from participation in the CAP. more definitive process for participating
CAP vendor will be required under the Whether a participating CAP physician CAP physicians to employ for the
terms of its CAP contract to ship the or vendor is excluded from all Federal resolution of service and drug quality
drug ordered by a participating CAP health care programs under section issues. They requested a process that
physician in most cases. The designated 1128, 1128A, or any other exclusionary would include suspension of the
contractor will closely monitor the authority given to the Secretary under vendor’s right to participate in the CAP
activities of approved CAP vendors and the Act, shall be based on a program.
complaints from participating CAP determination made by the Office of Response: Issues connected with drug
physicians to ensure that no such Inspector General of HHS, not by CMS quality and approved CAP vendor
inappropriate intrusion on physician through the § 414.916 or § 414.917 service will be given a top priority. Both
clinical decision making occurs. processes. We agree with the the approved CAP vendor and the
Participating CAP physicians may commenters’ recommendation that we designated carrier will be required to
address concerns of this type through refrain from publishing the names of have qualified staff available to address
the participating CAP physician/ suspended physicians in the Federal drug quality and service complaints
approved CAP vendor dispute Register, and this requirement has been upon their receipt. Egregious drug safety
resolution process described below and removed. issues should be brought to the
in § 414.917. Comment: One potential vendor designated carrier right away. For
Comment: Several commenters suggested that vendors should not be instance, evidence of counterfeit drugs
suggested that, during the designated required to enroll or re-enroll would generate an immediate referral to
carrier’s investigation into the physicians who had been suspended the appropriate Federal, State, and local
participating CAP physician’s from CAP at the conclusion of the authorities, including the Department of
compliance with his or her CAP election suspension period. Health and Human Services, Office of
agreement, the designated carrier should Response: Physicians whose period of the Inspector General. The ultimate
be explicitly required to gather suspension from the CAP program has sanction for service and quality issues is
information from the participating CAP ended will be allowed to elect to suspension and/or termination of the
physician. participate in the CAP as described approved CAP vendor’s contract upon
Response: The designated carrier will above, and could potentially select the exhaustion of the reconsideration
gather necessary information from the same vendor that generated the process set forth in § 414.917. This
local carrier, the participating CAP suspension request. Section process is very similar to the process for
physician and the approved CAP 1847B(a)(1)(A)(ii) of the Act states that removing participating CAP physicians,
vendor. Section 414.916(b)(2)(ii) has each physician is given the opportunity which is described above and in
been adjusted to explicitly include the annually to elect to obtain drugs under § 414.916.
physician among the sources of the CAP. When a participating CAP physician
information the designated carrier must is dissatisfied with the drug quality or
query during the investigation. b. Resolution of Physicians’ Drug drug delivery performance of an
Comment: A commenter from a Quality and Service Complaints approved CAP vendor, we expect the
physician association believed that the The proposed rule discussed how the participating CAP physician to make a
participating CAP physician should be participating CAP physician would use meaningful effort to resolve the issue
allowed to submit additional material to the approved CAP vendor’s grievance with the approved CAP vendor
the record during the phase described in process for drug quality or approved informally, and then to use the
§ 414.916(b)(3) when CMS makes a CAP vendor service issues and turn to approved CAP vendor’s grievance
determination whether to suspend the the designated carrier for assistance in procedure. The next step is to ask for

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the designated carrier’s assistance in reasonably expects its drug claims may beneficiary. Information on the
developing a solution with cooperation be denied. beneficiary grievance process will be
from both parties. Failing resolution more appropriately included with any
c. Resolution of Beneficiary Billing
there, the participating CAP physician bill the approved vendor may send to
may ask the designated carrier to the beneficiary. We also will require all
recommend to CMS that the approved In the proposed rule, we specified participating CAP physicians to
CAP vendor’s contract be suspended. that the beneficiary would receive a distribute the CMS developed fact sheet
CMS will act on that recommendation medical summary notice (MSN) from to beneficiaries in the participating CAP
after gathering any necessary, additional the local carrier indicating whether the physician’s office. The fact sheet
information from the participating CAP physician’s drug administration claim presents a good medium for distribution
physician and approved CAP vendor. has been paid or denied. If the drug of information on the beneficiary
The vendor may appeal our initial administration claim has been denied, grievance process, and information
decision through the process articulated the MSN would reflect a message about the participating CAP physician’s
in § 414.917. instructing the beneficiary that no independence from the approved
In response to these comments, we deductible or coinsurance may be vendor.
also believe that the process set forth in collected for the drug. If the beneficiary Comment: Several commenters have
§ 414.917 is the appropriate means for receives a bill for coinsurance from the requested that we describe whether and
approved CAP vendors to seek a review vendor, the beneficiary may participate how an approved CAP vendor could
of our suspension or termination of its in the approved CAP vendor’s grievance deliver an ABN to a beneficiary.
CAP contract under § 414.914(a). We are process to request correction of the Response: An ABN is the standard
specifying that this process will be approved CAP vendor’s file. If the mechanism for advising beneficiaries of
available to approved CAP vendors who beneficiary is dissatisfied with the result the cost of items and/or services for
are dissatisfied with our determination of the approved CAP vendor’s grievance which they will be financially
to suspend or terminate the CAP process, the beneficiary may request responsible. Generally, an ABN informs
contract for default. While the approved intervention from the designated carrier. the beneficiary that, even though the
CAP vendor’s appeal of our decision is The designated carrier would first service being delivered may be covered
pending, the approved CAP vendor’s investigate the facts and then facilitate by Medicare in some situations, the
participation in the CAP would be correction to the appropriate claim issuer has reason to believe Medicare
record and beneficiary file. If the coverage policy will not support
suspended. We seek further comment
approved CAP vendor requires targeted payment under the circumstances of the
about this issue.
education on the subject of beneficiary present case. For instance, an approved
In summary, § 414.916 and § 414.917
billing, the designated carrier would CAP vendor may reach the conclusion
present several dispute resolution
initiate that effort. that the drug it is providing to the
processes to treat program challenges Comment: Several commenters
experienced by beneficiaries, participating CAP physician for
requested that CMS require every CAP
participating CAP physicians, and administration to the beneficiary would
MSN to include standard language
approved CAP vendors. The framework not be reasonable and necessary—and
clearly explaining the beneficiary
of the process for treating the approved therefore will not be paid for by
grievance process and make clear that
CAP vendor’s request to suspend the Medicare—after reviewing data on the
the CAP physician is not involved with
participating CAP physician’s CAP prescription order and having follow-up
billing for drug coinsurance amounts.
election agreement has been changed in Response: We share the commenters’ communication with the participating
these ways: concern that beneficiaries should be CAP physician. The approved CAP
• The participating CAP physician provided with complete and timely vendor may request the participating
may now offer information to the information about the approved CAP CAP physician to deliver an ABN. If the
designated carrier as it develops its vendor’s grievance process. We support participating CAP physician agrees to
recommendation on whether CMS the commenters’ interest in giving the do so, then the physician will describe
should suspend the participating CAP beneficiary notice that the participating on the ABN both the administration
physician’s CAP election agreement; CAP physician is independent from the services and the drug product, together
• The participating CAP physician approved CAP vendor. We will consider with the estimated cost for each that the
may now offer information to CMS as it these comments as the educational beneficiary must pay if he or she
makes its decision on whether to materials are finalized. All beneficiary receives the drug.
suspend the participating CAP education materials are focus-group If the participating CAP physician
physician’s CAP election agreement; tested to be certain they are will not deliver an ABN on behalf of the
and understandable and communicate the requesting approved CAP vendor, then
• CMS will not publish in the Federal intended message. We will require the approved CAP vendor may issue an
Register the names of physicians whose approved CAP vendors to provide ABN directly to the beneficiary before
CAP participation agreements have been participating CAP physicians with the item(s) or service(s) is received. For
suspended. information on how beneficiaries, and instructions and forms connected with
Section 414.917 has been added to participating CAP physicians, can each ABNs, please visit this Web site:
create a process for termination of a use their respective grievance processes http//
vendor’s CAP contract upon the request when the approved vendors send C. CAP Contracting Process
of a physician when service and quality introductory materials to the
issues cannot be resolved cooperatively. participating CAP physicians each 1. Quality and Product Integrity Aspects
We will ensure beneficiaries are autumn. It is unlikely the Medicare Sections 1847B(b)(2), 1847B(b)(3), and
educated on the avenues available to summary notice will be used to 1847B(b)(4) of the Act address the issue
them to dispute billing issues. communicate about the beneficiary of quality under the competitive
Approved CAP vendors may use the grievance process because there will acquisition process at both the product
advance beneficiary notice (ABN) exist no billing dispute until the and approved CAP vendor level. We
process if the approved CAP vendor approved CAP vendor actually bills the proposed to use the bid evaluation

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process to ensure that these quality products directly from the the ability to provide quality products
aspects are met. manufacturer; and (ii) comply with any and service, timely and accurate
product integrity safeguards as may be shipping, use of a compliance plan,
a. Information To Assess and Ensure
determined to be appropriate by the history of past experience, and evidence
Secretary.’’ We proposed to include this of appropriate State licensure. We
Sections 1847B(b)(2) and 1847B(b)(3) requirement in the contracts signed believe that the requirements described
of the Act specifically require that between CMS and approved CAP above will not be improved by
approved CAP vendors meet financial vendors who are providing drugs or incorporating additional criteria
and quality of care requirements aimed biologicals under this section. We intended to assess retail pharmacy
at assuring the stability and safety of the solicited comments on what records or networks because CAP vendors are
CAP program. Section 1847B(b)(2)(A) of other evidence bidders would be expected to operate differently than
the Act requires that approved CAP required to furnish and approved CAP retail pharmacy networks. In addition,
vendors have sufficient capacity to vendors would be required to maintain we have determined that the CAP
acquire and deliver drugs in a timely during the contract period. vendors will be considered suppliers for
manner within the geographic area, to Comment: Several commenters raised Medicare purposes.
deliver drugs in emergency situations, issues related to product integrity and Comment: Several commenters stated
and to ship drugs at least 5 days each vendors’ distribution systems (for that in order to attract physician
week. This section also requires that example, shipping and storage participation, quality requirements
approved CAP vendors meet quality, procedures). In addition, many should be stringent, and approved CAP
service, financial performance, and commenters, including physicians, vendors should be held to very high
solvency standards, which include potential vendors, and a mix of other standards for quality and performance.
having procedures for dispute affected groups, associated high quality These commenters agreed that
resolution with physicians and with appropriate access to care, measures, up to and including contract
beneficiaries regarding product avoiding delays in therapy, and termination, were appropriate means of
shipment, and having an appeals beneficiary safety. Commenters did not dealing with failure to adhere to a
process for the resolution of disputes. perceive new or additional product contractual agreement. One commenter
We proposed that CMS be allowed to integrity requirements as desirable, but also requested that we clarify the
suspend or terminate an approved CAP requested that we provide a more procedure physicians should follow to
vendor’s contract if the vendor falls out specific description of product integrity obtain CAP drugs when an approved
of compliance with any of these quality and other quality requirements. One CAP vendor is terminated from the
requirements. Section 1847B(b)(2)(B) of commenter noted that the criteria for program.
the Act states that the Secretary may assessing the adequacy of retail Response: As mentioned earlier,
refuse to award a contract, and may pharmacy networks under Tricare and entities seeking a contract to furnish
terminate a contract if the entity’s the Part D rule (68 FR 4194) that will be CAP drugs will be required to submit
license to distribute drugs (including implemented in 2006 exist and that detailed information that will be used
controlled substances) has been these guidelines could be used to during the bid evaluation. Ongoing
suspended or revoked, or if the entity is evaluate CAP vendors. quality assessment will be conducted in
excluded from participation in the Response: The approved CAP a variety of ways, including routine
Medicare or other Federal health care vendors’ ability to accurately furnish Medicare provider enrollment
program under section 1128 or 1128A of drug products in a timely manner will monitoring, carrier statistics, and
the Act. In the proposed rule, we stated be vital to this program’s success. complaint monitoring. Approved CAP
this requirement is enforced through the Assessment of the bidding entity’s vendors are also expected to maintain
routine provider enrollment form ability to perform similar drug appropriate licensure to furnish CAP
monitoring process. We also specified distribution tasks and the entity’s drugs in the States in which they are
that section 1847B(b)(3)(C) of the Act financial status will occur through the supplying drugs and to maintain status
states that the ability to ensure product Medicare Provider enrollment process as a Medicare supplier through the
integrity must be included in the criteria and through a separate CAP Vendor contract’s period of performance.
for awarding approved CAP vendor Application. This form was made During the contract’s period of
contracts. available for public comment and is performance, compliance with these
In the March 4, 2005 proposed rule, pending OMB approval. standards, as well as such other terms
we stated that at a minimum, we wanted In an effort to ensure that the CAP and conditions as we may specify
to define a set of overall financial and provides high quality service and to consistent with section 1847B of the
quality standards to ensure that protect the integrity of drugs furnished Act, will be a contractual requirement.
reputable and experienced vendors are under the CAP, we proposed that the The contract between CMS and an
chosen to participate in the CAP. We approved CAP vendor be a Medicare approved CAP vendor shall provide for
believe that physicians would be provider or supplier, and we proposed contract termination for patterns of poor
reluctant to participate in the CAP if additional and more specific performance, single serious breaches of
they had little confidence that the CAP requirements on licensing, product contract, or failure to comply with
vendors would be reliable and provide integrity, and contract agreements. We applicable laws and regulations.
quality CAP products. We also stated plan to implement these requirements Methods to improve vendor
that approved CAP vendors would be in this interim final rule. The proposed performance and to resolve disputes
required to provide quality products in regulation and corresponding changes to between parties are discussed in the
a timely manner. sections § 414.908(b) and § 414.914(f) of dispute resolution section of this
Section 1847B(b)(4)(C) of the Act the proposed regulation reflect these interim final rule in section II.B.3. We
specifies that any contractor selected for requirements. The Provider Enrollment note that the process described in
this program ‘‘shall (i) acquire all drugs and Vendor Application form process § 414.917 for reconsidering the
and biological products it distributes will collect the detailed information that termination of a CAP vendor’s approved
directly from the manufacturer or from will be used to assess a potential CAP status applies not only in cases where
a distributor that has acquired the vendor’s capacity to acquire drugs, and the termination was the result of a drug

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service or quality issue brought to our the approved CAP vendor for the role Information supplied during the
attention by a participating CAP that they play in furnishing CAP drugs. provider enrollment process and from
physician, but also in cases where we Section 414.914(f)(9) of the regulation the Vendor Application Form addresses
suspend the CAP contract for states subcontractors’ requirements. the comments above. Although this
noncompliance or terminate the CAP The approved CAP vendor and the process does not specifically ask for
contract for cause under § 414.914(a). subcontracted entity would need to references, the process collects and
We believe that this process will make arrangements between themselves, checks similar information, including
provide approved CAP vendors with an so that even if the subcontractor licensure, financial stability, and
adequate process to contest our decision handled the billing in a particular area, business affiliations. In response to
to suspend or terminate the contract. As it would still be acting as an agent of the these comments, we plan to amend the
noted above, pending the final vendor and identify itself as acting on Vendor Application form to include a
determination under § 414.917, the the vendor’s behalf. Medicare will only request for references from businesses or
approved CAP vendor’s contract is make payment to the vendor, and the organizations to which the bidding
suspended. Finally, we note that we vendor is responsible for payment to the entity has supplied significant volumes
consider the termination of the subcontractor. Payment from the vendor of Medicare Part B injectables.
approved CAP contract to be separate to the subcontractor shall be consistent Comment: Several commenters raised
and distinct from any determination with all applicable laws, including all issues regarding licensure and its
with respect to the approved CAP fraud and abuse laws such as the relationship to quality. Although some
vendor’s status as a Medicare supplier. physician self-referral (‘‘Stark’’) comments supported the inclusion of
Therefore, the provisions of 42 CFR part prohibition (section 1877 of the Act) pharmacists in the CAP order process,
498 would not apply in the case of the and the Federal anti-kickback statute others pointed out that the involvement
termination of a CAP contract. (section 1128B(b) of the Act). of additional professionals may not
Comment: One commenter stated that Comment: Several comments stated
guarantee product integrity.
the statutory requirement to make that proven capacity, including specific
experience with Part B injectable drugs, Response: The issue of licensing is
payments to the vendor meant that
was a desirable quality for a vendor. discussed elsewhere in this IFC. We do
vendors would not be permitted to
One commenter stated that evidence of not seek to pre-empt State law, but we
subcontract with a local or State
Pharmacy licensing would be a also recognize that licensing
licensed pharmacy, because the
sufficient measure as an alternative to requirements may not always guarantee
pharmacy could not be reimbursed
directly. The commenter believes that the requirement for 3-years of quality. Approved CAP vendors will be
this would mean that an approved CAP experience furnishing Medicare Part B required to have and maintain licensure
vendor would be required to obtain a drugs. Among commenters who that is required by the State(s) in which
license in each State, and the overall discussed a specific timeframe they furnish drugs under the CAP. This
cost of the program would be increased. associated with furnishing Part B drug licensing requirement and additional
Response: We do not agree that the injectable drugs, 3 years was generally quality requirements included in the
statutory requirement that states acceptable, but some commenters vendor application process and
payments be made directly to the suggested that experience with the ultimately in the approved CAP
approved CAP vendor would preclude drugs in a category would be a better vendor’s contract are intended to ensure
the vendor from subcontracting with marker. One commenter asked if our 3- that the CAP provides the highest
another drug distributor or pharmacy. A year requirement for ‘‘furnishing’’ Part B quality services.
vendor could subcontract with another injectable drugs meant furnishing drugs b. Product Integrity
entity as long as that entity met all of that would be used by physicians for
our approved CAP vendor requirements their Medicare beneficiaries under the Section 1847B(b)(3)(C) of the Act
and the subcontracting arrangement was ASP system, specialty pharmacy, and states that the Secretary must consider
divulged in the vendor’s CAP distribution experience. One commenter the ability of the applicant to ensure
application. A subcontractor’s also stated that the ability to ship on an product integrity. We proposed that the
qualifications, including its history, immediate basis was highly desirable. evaluation include, but not be limited
structure, ownership and measures used Other commenters stated that 3 years of to, the applicants’ ability to assure that
to ensure product integrity must be experience furnishing Part B injectables products are not adulterated,
described on the application and will be did not measure services expected in a misbranded, spoiled, contaminated,
reviewed during the bidding process. pharmacy dispensing model, and its expired, or counterfeit. We stated that at
The applicant is also required to certify restrictive nature could decrease a minimum, all drugs and biologics
that other aspects of a subcontractor’s competition. Another commenter used in this program must be licensed
operation are in compliance with specifically recommended that we ask under section 351 of the Public Health
licensing requirements, Federal and for references that could describe the Service Act or approved under section
State requirements, including entity’s customer service. 505 of the Federal Food, Drug, and
compliance with all applicable fraud Response: Although pharmacy Cosmetic Act. We also indicated
and abuse requirements, and that key licensing may indicate some vendors’ approved CAP vendors would also be
personnel have not been excluded from ability to meet certain standards and required to comply with sections 501
participation in various Federal and may be required in some States, we and 502 of the Federal Food, Drug, and
State health care programs, including believe that 3 years’ experience in Cosmetic Act concerning adulteration
Medicare. It is the approved CAP furnishing Medicare Part B drugs serves and misbranding. We note drug
vendor’s responsibility to determine to demonstrate the approved CAP products furnished under CAP are
that subcontractors remain compliant vendors’ commitment to maintaining an expected to comply with FDA
with these standards. We intend that infrastructure required to acquire, store, requirements including current good
subcontractors or other entities and handle these drugs, to ship them in manufacturing practices (See
associated with furnishing CAP drugs a timely manner, and also demonstrates 501(a)(2)(B) of the Federal Food Drug
under an approved CAP vendor’s familiarity with these products at the and Cosmetic Act; 21 CFR Parts 210 and
contract maintain the same standards as organizational level. 211 for finished pharmaceuticals).

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Additionally, we proposed that acquiring CAP drugs directly from the physician’s office. We have modified
applicants would be required to employ manufacturer or from a distributor who the regulation text at § 414.906(a)(4) and
trained personnel, have appropriate has acquired the drug from a § 414.914(c)(1) to reflect the comments
physical facilities, and use adequate manufacturer. One commenter also above.
security measures to assure that suggested that we require approved CAP Comment: Some commenters
processing, handling, storage, and vendors to be in compliance with the expressed concern that physicians could
shipment of drugs and biologicals are Prescription Drug Marketing Act not vouch for the quality of products
adequate to maintain product integrity. (PDMA) in addition to State and other that were opened by the vendor for
Because Federal statutory and Federal requirements. repackaging, for mixing the drug with
regulatory requirements are designed to Response: The CAP vendor other drugs or injectable fluids
meet the standards in the paragraph application process, the maintenance of (admixture), or for removing a part of
above, we also proposed to require that appropriate licensure and Medicare the contents in order to supply the exact
all applicants comply with State supplier status form the framework for dose for a beneficiary. Therefore, these
licensing requirements and be in full protecting product integrity. We believe commenters recommended that vendors
compliance with any State or Federal that these requirements address the deliver their products in the same form
requirements for wholesale distributors qualifications of personnel who may be in which they are received from the
of drugs or biologics in States where handling the drugs as well. The FDA, manufacturer, without opening
they furnish drugs for the CAP. not CMS, is the agency that is charged packaging or containers, mixing or
Although we did not propose to with enforcing the PDMA, however reconstituting vials, or repackaging.
require applicants to employ measures approved CAP vendors are still subject Specific points of concern included the
beyond those required for licensure and to the PDMA’s requirements, including capabilities of individuals who mix the
regulatory compliance, we believe the the prohibition on the sale of drug drug, as well as shipping conditions,
measures set a minimum standard, and samples. Vendors should consult with storage and stability.
we requested that applicants discuss the FDA for further guidance on the Response: CAP is not intended to
any additional measures they have PDMA. require approved CAP vendors to
taken to assure product integrity. We Comment: Another commenter stated perform pharmacy admixture services,
suggested that applicants review the that distributors and vendors that (for example, to furnish reconstituted or
report on counterfeit drugs issued by the participated in the CAP supply chain otherwise mixed drugs repackaged in IV
Food and Drug Administration (FDA), could verify a product’s origin and bags, syringes, or other containers that
‘‘Combating Counterfeit Drugs,’’ avoid use of a paper pedigree (a are ready to be administered to a
available on the FDA Web site http:// document that tracks the product’s patient) when furnishing CAP drugs. We proposed origin) by including simple language Admixture services for injectable drugs
that applicants describe measures taken with shipping materials. The language require specialized staff, training, and
to ensure drug product integrity on the would verify that CAP drugs were equipment, and these services are
CAP vendor application. We provided obtained directly from the manufacturer subject to standards such as United
examples of additional measures that or from a distributor that acquired them States Pharmacopoeia Chapter 797,
posed minimal burden, but enhance the from the manufacturer. This commenter Pharmaceutical Compounding—Sterile
ability to detect adulterated, misbranded also noted that a ‘‘paper pedigree’’ Preparations. These requirements have
or counterfeit drugs that included the system was burdensome and subject to significant impact on drug shipping,
following: forgery or other types of failure, and that storage, and stability requirements as
• Complying with the practical electronic pedigrees are a well as system cost and complexity.
‘‘Recommended Guidelines for future solution that is 2 to 4 years away. Approved CAP vendors are to ship CAP
Pharmaceutical Distribution System Response: The statute does not drugs in unopened manufacturer’s
Integrity’’ developed by the Healthcare exempt CAP vendors from PDMA packaging. Packages containing multiple
Distribution Management Association, requirements, therefore a CAP vendor individual units of one drug (like vial
available at http:// who makes a wholesale distribution of trays) may be split into quantities that prescription drugs for which it is not an are appropriate for a beneficiary’s
• Cooperating with Federal and State authorized distributor is required to shipment, but individual vials must be
authorities in their investigations of pass on a pedigree that complies with unopened and any packaging
suspected counterfeit drugs. PDMA and current regulations (see surrounding the individual vial must be
• Establishing mechanisms to obtain U.S.C. 353(e)(1)(A). Since some CAP left intact.
timely information about suspected drug shipments may not be classified as Comment: One commenter mentioned
counterfeits in the marketplace and to drug distribution, we also require a that because approved CAP vendors
educate their employees on how to distributor who ships to an approved would obtain drugs directly from the
identify them. CAP vendor or an approved CAP vendor manufacturer or from a distributor who
• Notifying appropriate State and who ships to a physician’s office to had obtained the drugs directly from the
Federal authorities within 5 business include language with shipping material manufacturer, the Healthcare
days of any suspected counterfeit stating that the drug was acquired Distribution Management Association
products discovered by the wholesaler. directly from the manufacturer or that (HDMA) Recommended Guidelines for
Comment: A number of commenters the vendor possesses verification that Pharmaceutical Distribution System
agreed that vendors must demonstrate the drug was acquired directly from the Integrity would not apply. The
commitment to furnishing products that manufacturer and has been acquired in guidelines were not intended to be
were not adulterated, misbranded, a manner that is consistent with applied to relationships between
spoiled, contaminated, expired, or statutory requirements. The approved distributors and manufacturers. Instead,
otherwise counterfeit. Commenters also CAP vendor or the distributor must also they had been developed for situations
supported CMS’ overall approach to be able to immediately furnish evidence when a distributor was planning to buy
maintaining product integrity and to support that information if requested drug products from another distributor,
vendor contract requirements that by CMS, its contractors, law or to establish trading partner
include the statutory requirement for enforcement, the designated carrier, or a agreements. Because the document was

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a guideline, the commenter urged CMS expected to maintain appropriate reconstituted or partly used), and a drug
to allow vendors to use the guidelines licensure to furnish CAP drugs in the that has been removed from a vial or
to fit the individual vendor’s States in which they are supplying package and is in a syringe, IV bag, or
circumstances. drugs. other device or container used for drug
Response: The HDMA Guidelines Comment: For quality standards other administration. Unused quantities of a
were being used as an example of than product integrity, two commenters drug may increase the risk of waste,
measures that could be used or adapted suggested that we use the DMEPOS fraud and abuse, and attempts to use the
in order to decrease risk of product Supplier Manual as a guideline. excess drug may violate pharmacy law
integrity. We did not propose to require Response: The CAP does not and may compromise product integrity.
applicants to employ further measures encompass DME drugs and is intended We expect that approved CAP vendors
beyond those required for licensure and to furnish medications to a physician’s will furnish drugs in a manner that will
regulatory compliance. However, we office. Therefore, we do not believe that minimize unused drug. We also expect
would like bidders to be aware of the DMEPOS quality standards are an that physicians and approved CAP
specific additional measures, such as exact match for the CAP. However, we vendors will both make an effort to
the HDMA Guidelines, that may be used do note that our focus on product label, ship, and store drugs in a manner
to protect product integrity. integrity, accurate delivery and other that will allow the legal reuse of an
Comment: One commenter stated that vendor qualifications, including unopened and intact container of a
a formal compliance program to ensure enrollment as a Medicare supplier are drug. Returns of unused products
adherence to drug storage and handling similar to the DMEPOS standards. through a distribution system may be
requirements should be required of Comment: Several comments acceptable, however many States
vendors and distributors, and that this questioned how the effects of shipping prohibit reusing drugs that have been
information should be a part of the bid. on product integrity would be addressed dispensed by a pharmacy (For further
Response: We believe that the vendor and were especially concerned with information, see FDA CPG 460.300). We
application process we proposed will breakage, damage, and delays. One are aware of situations when an
adequately assess a bidding entity’s commenter asked who would bear the approved CAP vendor may label a
compliance plan. The vendor cost burden of shipping a damaged drug vendor-supplied outer container for
application form specifically requires or a drug whose integrity was in prescriptions to keep the actual
the applicant to submit a compliance question, and whether replacement manufacturer’s packaging intact and
plan that describes written policies, would be offered. Another suggested unlabelled. We further expect approved
procedures, and standards of conduct that approved CAP vendors be CAP vendors to offer and ship units of
articulating the organization’s responsible for maintaining records of a drug that match the beneficiary’s
commitment to abide by all applicable product integrity from the time that the dosing requirements and HCPCS billing
Federal and State standards; the vendor received the product until it amount as closely as practical. In this
designation of a compliance officer and reached the physician’s office, including way, a degree of waste will be
compliance committee accountable to situations where a third party shipper prevented. Specific details, including
senior management. The compliance transported the drug to the physician’s how waste, returns, and their cost
plan is also required to establish office. burden are handled, will depend on
effective training and education of the Response: Approved CAP vendors are State law and regulation as well as the
compliance officer, organization required to ship drugs in a manner that individual situations. Approved CAP
employees, contractors, agents, and will protect product integrity and a vendors should establish policies on
directors; effective lines of manner that is consistent with the these issues (making sure that they
communication between the compliance definitions of the CAP delivery time comply with applicable laws and
officer and organization employees, frames, contractual obligations under regulations) and make the policies
contractors, agents and directors and the CAP, and drug stability available for physicians to review
members of the compliance committee; requirements. Approved CAP vendors during the election period and through
disciplinary standards; procedures for are also responsible for keeping records the CAP contract’s period of
internal monitoring and auditing; and of how and when a specific drug order performance.
procedures for ensuring prompt was shipped to the physician’s office. Approved CAP vendors will furnish
response to detected offenses and Finally, vendors are financially drugs to physician’s offices in unopened
development of corrective action responsible for the shipping costs vials. However, in situations where a
initiatives, relating to the applicant’s associated with the return of drugs, and drug is dosed by body weight or body
contract as an approved CAP vendor. the approved CAP vendor retains title to surface area, the amount of drug in vials
In the application and under our the drug until it is administered. may not match the patient’s actual dose,
regulation at § 414.914(c)(6)), we also However, as noted above, other issues and the vendor will be forced to ship
recommend that applicants’ compliance regarding product liability laws and excess drug. In certain States, pharmacy
plans include provisions that require other laws applicable to financial law may prevent the use of excess CAP
the reporting of fraud and abuse to the liability associated with adverse drug drug for another beneficiary if the order
appropriate government authority. events are beyond the scope of this rule. must be labeled as a prescription.
Approved CAP vendors that self-report Comment: Commenters suggested that The return process is guided by the
violations will continue to receive the we provide specific guidance on how to following:
benefits of voluntary self-reporting manage drug waste and returns. • Federal Law and guidelines (such
found in the False Claims Act and Response: Although a variety of as the FDA’s CPG 460.300), State law,
Federal sentencing guidelines. situations may create quantities of Medicare requirements (such as the
As we mentioned elsewhere, in order unused drugs at the place of Claims Processing Manual), drug
to monitor approved CAP vendor administration, we believe the unused stability, and appropriate standards
quality, we plan to include routine CAP drugs will come in 3 forms: an (such as United States Pharmacopoeia
Medicare provider enrollment unopened vial (and/or vial package) as Chapter 797, Pharmaceutical
monitoring, carrier statistics, and shipped by the approved CAP vendor, Compounding—Sterile Preparations)
complaint monitoring. Vendors are also an opened vial (that may or may not be will be used to determine how extra

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drug product may be used for c. Financial Performance and Solvency could unfairly or inadvertently exclude
subsequent dosing on the same Standards bidders due to insufficient
beneficiary or for use on another Section 1847B(b)(2) of the Act capitalization, while another suggested
beneficiary. discusses the financial performance and that credit worthiness be evaluated in
cases where a bidder was seeking to
• If excess drug product remaining in solvency standards we must develop for
entities that seek to become approved expand operations by participating as an
a vial shipped by an authorized CAP
CAP vendors. We proposed to fold approved CAP vendor. Other
vendor must be returned, the approved
commenters suggested that vendors
CAP vendor is expected to accept excess integrity and internal control aspects of
have significant financial stability to
drugs for disposal and is expected to fiscal responsibility into this analysis.
withstand the potential risk of
pay for shipping. The physician is In the March 4, 2005 proposed rule,
participating in CAP and that debt to
responsible for appropriately packing we stated that while licensure by the
capital ratio be included in the
the drug. Consolidating shipping into State to distribute drugs may assess
evaluation because the commenter
larger and less frequent packages by the some degree of financial responsibility,
considered financial ratio to be
physician would be encouraged. We do we believe the focus and depth of
particularly useful in assessing a
not intend for this requirement to be financial capability evaluations
prospective vendor’s financial stability.
used as a vehicle for routine disposal of associated with licensure might vary Response: In the proposed rule we
empty or nearly empty vials, disposal of across States. To assess bidders’ stated that we sought to define a set of
any drug product not shipped by an financial solvency in a consistent overall financial standards that would
manner with appropriate scrutiny and ensure that reputable and experienced
authorized CAP vendor, or disposal of
minimal burden on the bidders, we vendors are chosen to participate in the
drug mixed in IV bags, syringes,
proposed using criteria from the Federal CAP. As noted by several commenters,
associated needles and tubing, or other
Acquisition Regulation (FAR) Section the proposed rule was intended to
devices used in the administration of 9.104 and following standards for
the drug product to a beneficiary. provide us with a framework to which
‘‘responsible contractors’’ as a baseline we could add details based on public
• The vendor bills Medicare only for standard. The FAR standards also comment.
the amount of drug administered to the contain nonfinancial components that Financial data supplied by the
beneficiary and the beneficiary’s address areas such as integrity, bidders is intended to demonstrate that
coinsurance amount will be calculated performance, and ethics. In addition, we the entity is capitalized, generating sales
from the quantity of drug that is sought to add standards that would volume, and is not operating at a loss.
administered. Since the CAP statute demonstrate the following: We also plan to use several simple
authorizes us to pay the approved CAP Overall Capitalization and Financial financial ratios from Standard Form (SF)
vendor only upon administration of the Capability and Working Capital 1407, Preaward Survey of Prospective
drug, any discarded drug (or drug that Contractor Financial Capability (see
is considered waste) will not be eligible We proposed that bidders furnish a FAR 53.301–1407) to determine whether
for payment. We have modified the copy of their most recent year’s audited a contractor has financial resources to
proposed regulation at § 414.906(a)(5). financial statements. Specific items, perform a contract. We expect bidders to
such as net worth, could be used in the have a current ratio (current assets :
The CAP dispute resolution process evaluation process. We requested current liability) of >1. However, many
will be available to resolve any comments on the potential validity of bidders are expected to have significant
associated disputes. This process is specific financial indicators for this inventory, particularly if they are
described in the interim final rule at process and whether or not specific engaged in drug distribution activities.
section II.B.3. thresholds would be applicable. We also We will also apply the quick ratio (also
Comment: Commenters also cited requested comment on this overall known as the acid test ratio, that is,
‘‘brown-bagging’’ (that is, having a requirement from potential bidders, current assets minus inventory : current
beneficiary pick up a drug at a such as group purchasing organizations liability). Comparison of the current and
pharmacy and bring it to the physician’s Group Purchasing Organizations quick ratios also gives a sense of the
office for administration) as a potential (GPOs), who do not routinely take relative amount of inventory that an
threat to product integrity as well as an possession of drug products. entity may possess The debt to equity
inconvenience for the beneficiary. We proposed to review the audited ratio (total liability : net worth) is
financial statements to determine if the intended to gain a sense of the role that
Response: We agree that the practice bidder has adequate working capital to creditors have in financing the entity’s
of brown bagging may jeopardize meet contractual obligations. Ratios of operations. These ratios will be used to
product integrity by potentially current assets to current liabilities, total help assess whether the vendor can
subjecting the drug to unknown storage liabilities to net worth, and cash or cash meet obligations to deliver CAP drugs
conditions and exposing the drug to equivalents to current liabilities are on receipt of a prescription order. More
diversion. Brown bagging may also commonly used to assess financial specific financial information, such as
create a further burden on the capability (see the form at FAR 53.301– audited annual financial statements,
beneficiary by requiring additional time 1407). Given the 3-year contract will be used to confirm the general
and travel to obtain the drug product duration, we requested comments findings above.
and then requiring appropriate storage regarding the appropriateness of these Bidding entities could be a diverse
of the drug. Section 1847B(b)(4)(E) of tests, and thresholds to apply for the group that could include single
the Act indicates that drugs furnished ratios. organizations or groups. The entities
under the CAP must usually be shipped Comment: Several commenters noted could have a variety of backgrounds
directly to the physicians. The CAP is that financial standards in the proposed including drug distribution, specialty
being implemented in a manner rule were not clearly defined. One pharmacy, or group purchasing.
consistent with section 1847B(b)(4)(E) of commenter agreed that financial Therefore, in an effort to minimize the
the Act; therefore, we do not expect capability standards were important, but risk of having an absolute threshold
‘‘brown bagging’’ to occur. cautioned against setting standards that disqualify a potentially capable bidder,

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we are avoiding using absolute failing to report standards or missing the We proposed to set forth these
thresholds when possible. Instead, we standards. requirements in regulations at proposed
plan to compare data, especially the Response: The proposed rule § 414.908.We received no comments
financial ratios, and use the data to rank mentions using FAR Section 9.104 as a about internal financial control.
bidders relative to one another. We will baseline for evaluating a prospective Therefore, we will finalize these
rank the bidders on four basic financial contractor. We also adapted a form (FAR requirements as proposed.
categories: Financial ratios, profitability, 53.301–1407) used for the preaward Deemed Compliance
capitalization, and total sales. These financial evaluation of a contractor for
rankings would then be used along with use in the Vendor Application. In the proposed rule, we noted that
quality information provided during the However, the FAR does not contain some vendor applicants may already be
bidding process and bid prices to select specific financial solvency standards. subject to financial oversight by one or
vendors who will be offered a contract We did not propose a competition more State or Federal regulators. The
to furnish drugs under CAP. A lower strictly based on FAR, nor do we plan vendor applicant’s current financial
financial ranking will not be an absolute on implementing CAP in this manner in reporting may satisfy one or more of the
reason for exclusion from the bidding this interim final rule. Business above requirements. We proposed to
process, but will be one of several integrity, conflict of interest, request documentation of this parallel
factors being evaluated. compliance, and penalties are discussed oversight together with contact
Comment: One commenter stated that in section 2.B.2 of this interim final information for the regulator. We would
requiring bidders to have Medicare sales rule. contact the regulator to inquire as to the
account for less than half of their total vendor applicant’s status and we may
predicted sales volume for the Record of Integrity
deem certain portions of the above
upcoming year would demonstrate an We proposed that the bidders supply requirements ‘‘met’’ at our discretion.
entity’s scale and would limit the us with applicable information on We received no comments on this topic.
entity’s dependence on Medicare as a whether any of the bidder’s Board of Therefore, we will finalize these
means to ensure financial viability. Directors, employees, affiliated requirements as proposed.
Response: Although we believe that companies, or subcontractors—
experience with Medicare Part B • Know they are under investigation 2. Bidding Entity Qualifications
injectable drugs is necessary for a by any State, Federal, or Local a. Quality and Financial Information—
vendor, we do not believe that it would Government agency related to a fraud Vendor Application
be appropriate for us to set a limit in the issue; and
manner the commenter suggests because • Have escrowed money in In the March 4, 2005 proposed rule,
it could interfere with the vendor’s anticipation of, or entered into a we stated that the vendor would be
business planning and may have the settlement agreement or corporate responsible for completing and meeting
effect of excluding qualified bidders. integrity agreement with any State or all criteria on both the Vendor
Comment: Group Purchasing Federal Government agency related to a Application Form and the Provider/
Organizations (GPOs) and similar fraud issue. Supplier Enrollment Application (Form
entities who do not routinely take We also proposed that bidders CMS 855B) (for the purpose of
possession of drug products were provide a conflict of interest mitigation completing these applications, vendors
invited to comment on the assessment plan to address financial relationships will be considered suppliers) by the
of a bidder’s financial capability. the bidder may have with manufacturers established deadlines in order to be
However, we received one comment of drugs or biologicals in the CAP. considered as a potential vendor under
from a GPO expressing concern about We received no comments on this the CAP. For example, if a vendor has
the significant financial risk of long- topic. Therefore, we will finalize these been excluded from participation in a
term receivables and low margins, but requirements as proposed. The vendor Federal health program, or has been
GPOs did not comment specifically on application process, which includes convicted of a fraud-related crime, the
proposed financial indicators. enrollment as a Medicare Supplier and vendor must record that on the form
Response: We will use the financial the completion of the Vendor 855B. We would treat these admissions
evaluation process outlined earlier. By Application and Bid Form will provide from vendors in the same manner as we
statute, payment for drugs furnished information related to a record of do for other suppliers. Both a draft copy
under CAP is conditioned upon the integrity. Bidders will also be required of the Vendor Application Form and the
administration of a drug to the to submit a conflict of interest Provider/Supplier Enrollment
beneficiary. This limits how soon a mitigation plan as described above Application (Form CMS 855B) are
vendor can be paid. We believe that during the vendor application process. available on the CMS Web site at the
establishment of operations and the Conflict of interest and mitigation following address: http://
opportunity for periodic price strategies are described in section
adjustments will create an opportunity II.2.C.3. in this interim final rule. Both forms are needed to cover all
for the vendors to achieve financial required vendor qualifications.
stability while participating in the CAP. Internal Control In the proposed rule, we stated that
Comment: Several commenters agreed We proposed to review information we would require that the vendor be
with deriving financial and solvency relating to the establishment and prepared to offer complete information
standards from the FAR. Commenters effectiveness of the bidder’s internal in four major areas and complete a
also suggested that FAR business control system designed to provide certification statement. The vendor’s
integrity and conflict of interest reasonable assurance of financial and business experience would be required
standards be adopted. Finally, compliance objectives. We provided to be within the United States. In
commenters requested details on how examples of information that we might addition, we proposed to require that
ongoing compliance would be review as evidence of the design and prospective vendor provide on the
monitored, which parameters would effectiveness of a bidder’s internal Vendor Application Form, a complete
have to be reported, and penalties for control system. list of drugs that the vendor would

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intend to bid by National Drug Code drugs furnished under the CAP would the distribution of drugs and biologicals.
(NDC) number. occur within a 1 to 2 business day time We believe that it is reasonable to
period. However, the duration of the expect a vendor who seeks to participate
Management and Operations
delivery time period must not exceed in the CAP to have been in the business
We proposed to require that the the drug’s stability in appropriate of furnishing Part B injectable drugs for
vendor attest that adequate shipping containers and packaging. We at least 3 years because that will provide
administrative arrangements are in requested comments on the feasibility of us with an appropriate amount of
place to ensure effective operations, requiring a shorter duration for routine information to assess the applicant’s
such as but not limited to, policies that delivery of CAP drugs. This discussion past experience. We believe that
assure that business is conducted in the is included in section II.B. of this requiring a potential vendor to prove 3
best interest of the customer, interim final rule, ‘‘Operational Aspects years of experience would allow us to
maintenance of fidelity bonds, and of the CAP.’’ evaluate their ability to use resources
insurance policies to cover losses. We proposed to require that approved appropriately based on their past
General identifying information would CAP vendors maintain a formal performance. Vendors with less than 3
also be required such as business name, mechanism for responding to years of experience would not be in a
address, taxpayer identification number, complaints from participating CAP position to demonstrate any kind of a
contacts representing the organization, physicians, beneficiaries, and their track record that could be reviewed so
and a description of the organization’s caregivers (if applicable). In the that we could be assured of their ability
structure. In addition, we proposed that proposed rule, we stated that evidence to perform effectively and in an
each subcontractor, subsidiary, or of this mechanism, in the form of any acceptable manner under the CAP.
business affiliate that is used by the complaint resolution manuals, agendas, Finally, a vendor who meets all the
vendor under the CAP would be and minutes from complaint resolution criteria except that it has not yet been
required to provide the same committee meetings, or other evidence in the business of furnishing Part B
information. of complaints being resolved would be injectable drugs for the required 3-year
submitted as part of the bid application. threshold is free to participate in the
Experience and Capabilities In addition to providing an audited CAP once it has met the 3-year
In the proposed rule we stated that financial statement as an attachment, we requirement.
the approved CAP vendor would be proposed that the vendor be required to
Comment: Commenters suggested that
required to: present a standardized summary of
submitted bid information provided by
• Maintain the operation of a financial information on the collection
the vendor should be kept confidential
grievance process so that physician, form. We also proposed that the vendor
and protected from public disclosure.
beneficiary, and beneficiary caregiver must have been in the business of
furnishing Part B injectable drugs for at Response: As we mentioned in the
complaints can be addressed;
• Provide a prompt response to any least 3 years, and specifically requested proposed rule, we will follow HIPAA
inquiry as outlined in the vendor comment on whether the requirement of standards to protect privacy. All cost
application form; 3 tax reporting years of experience information will be confidential and not
• Maintain business hours on would prevent newer vendors with made available for public display. In
weekdays and weekends with staff sufficient experience and resources from accordance with section 1927(b)(3) of
available to provide customer assistance being included in the program. We also the Act, bid prices will be kept
for the disabled, including the hearing proposed that the vendor would be confidential.
impaired, and to Spanish speaking prepared to offer and substantiate the Comment: Commenters suggested that
inquirers; and drug volume managed (in dollars and CMS collect additional information on
• Provide toll free emergency units) for the immediate previous the vendor’s application forms.
assistance when the call center is calendar year and provide specific Response: We believe that the vendor
closed. personnel statistics such as the number information submitted on the Form
We emphasized that customer service of staff assigned to various activities, 855B (the Medicare fee-for-service
is a primary consideration, especially and its policy-making organizational physician/supplier enrollment form)
the ability to respond on an emergency structure within the United States. and the vendor application forms is
basis to participating CAP physicians. In Finally, because selected approved sufficient.
addition, we stated that a working CAP vendors would be considered a Licensure
telephone customer service number be covered entity under the HIPAA
submitted for verification during the bid Administrative Simplification Rules, to We proposed that the vendor would
evaluation process. the extent that they conduct any of the be required to maintain an appropriate
Section 1847B(b)(2)(A)(i)(II) of the Act standard HIPAA transactions license in each State in which the drug
gives some guidance regarding electronically, these approved CAP vendor seeks to operate under the CAP.
timeframes for routine and emergency vendors would be required to comply We also proposed to require that the
shipment; however, the statute does not with the Administrative Simplification vendor certify that any subcontractor or
provide specific definitions of these rules, including the Privacy Rule. subsidiary also maintains a license that
timeframes. Therefore, we requested Comment: Some commenters were complies with State regulations in every
comment on how to define timely concerned with our proposed applicable State.
delivery for routine and emergency drug requirement for a vendor to have been Comment: Several commenters
shipments. For the purposes of this in business for 3 years as one of the believed that we should require a
discussion, we proposed that the thresholds for participation in the CAP. vendor to be licensed to operate a
delivery time period would begin when These commenters argue that there is no pharmacy as well as to be a licensed
a drug order is received by the vendor correlation between business longevity wholesaler in the States in which the
and would end at the time of delivery and quality of care. vendor seeks to do business under the
to the participating CAP physician’s Response: The statute directs us to CAP. These commenters stated that the
office or other intended setting. We select among qualified bidders based on, drug dispensing duties of a vendor
proposed that routine shipments of among other things, past experience in naturally require the experience and

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expertise of a pharmacist, rather than a handling of drugs. This requirement Program Safeguard Contractors (PSCs),
general wholesaler. will strengthen CMS’ efforts to ensure and the OIG. We provided some
Response: We believe that vendors that entities granted the ability to recommended sources for relevant
must operate as distributors in order to provide Medicare products or services information. Approved CAP vendor
participate in the CAP, and we have a record of corporate integrity and compliance plans must be submitted
recognize that a natural outgrowth of performance that reflects the provision with the CAP applications, and must be
participating in this program may be of scrupulous products and services. available to us and our contractors for
that those distributors also will need to periodic reviews.
be licensed as a pharmacy. Regardless, Certification We also proposed that approved CAP
either the vendor, its sub-contractor We proposed that the vendor be vendors and entities that they contract
under the CAP, or both, must be prepared to certify that all the with establish effective training and
licensed appropriately by each State to information in the Vendor Application education programs related to fraud,
conduct its operations under the CAP. Form is true, accurate, and complete waste and abuse that address pertinent
Therefore, a vendor under the CAP and to certify to any other requirements laws related to fraud and abuse
would be required to be licensed as a as specified by us. Failure to provide including the physician self-referral
pharmacy as well as a distributor if a correct and updated information when (‘‘Stark’’) prohibition (section 1877 of
State requires it. Because our initial it becomes available, if it affects the the Act) and the Federal Anti-Kickback
competitive acquisition area is information provided on the Vendor statute (section 1128B(b) of the Act),
nationwide, appropriate licensure in all Application Form, may be cause for and the False Claims Act (31 U.S.C.
States would be required. We note that termination of the vendor’s contract 3729–3733). In addition, we proposed
by its terms, nothing in section 1847B under the CAP. We believe that it is that approved CAP vendors and entities
of the Act shall be construed as waiving vital to certify that the information that they contract with be trained on
applicable State requirements relating to provided is accurate. We received no detecting and preventing common
the licensing of pharmacies. comments on this issue, so, as a result, fraudulent schemes in the
we are finalizing that requirement in pharmaceutical industry, as identified
Business Integrity this rule. In addition, we provide further by CMS, the OIG, and/or the DOJ and
In the proposed rule, we stated that direction for vendor and subcontractor provided examples of some common
the vendor would be responsible for conduct in the next two sections (Fraud fraudulent or abusive problems within
identifying and disclosing business and Abuse as well as Conflicts of the pharmaceutical industry.
relationships and conflicts of interest as Interest). To ensure successful internal
well as potential conflicts of interest monitoring and auditing of fraud, waste,
with other organizations. We also stated b. Specific Information Relating to
and abuse under Part B, we proposed
that the vendor would be required to Prevention of Fraud and Abuse
that approved CAP vendors should
answer questions and provide Section 1847B(b)(4)(D)(ii) of the Act regularly monitor and audit their
information about fraud investigations, requires that the approved CAP vendor processes and procedures to ensure that
settlement agreements, and Federal comply with all applicable provisions they are in fact taking the steps
government exclusions. relating to the prevention of fraud and necessary to comply with all Federal
Comment: We received several abuse. This includes compliance with and State regulations and to mitigate the
comments supporting our strong applicable guidelines of the Department potential for waste, fraud, and abuse
requirements related to vendor of Justice (DOJ) and the Office of the within their organizations. Establishing
qualifications, including management Inspector General (OIG) of the DHHS. procedures to ensure prompt responses
and operations standards, operation of a In accordance with this statutory to potential fraud violations is an
grievance process, experience, HIPAA authority, we proposed that each important element in an effective fraud
compliance, licensure, and business approved CAP vendor develop and and abuse plan. Approved CAP vendors
integrity. Commenters believe that the maintain a compliance plan to control are responsible for monitoring and
requirements were necessary to ensure program fraud, waste, and abuse, that identifying potentially fraudulent or
that only qualified entities were selected includes at a minimum, the abusive activity. We further stated that
as CAP vendors. requirements proposed at § 414.914(c) of after an approved CAP vendor has
Response: In evaluating whether to our regulations. These requirements determined that any misconduct has
award a CAP vendor contract or renew already apply to many of the entities violated or may violate criminal, civil or
an approved CAP vendor contract, CMS participating in the Medicare program, administrative law, the approved CAP
will take into account a bidder’s record such as prescription drug plans vendor should report the existence of
of corporate integrity and performance administering the prescription drug the misconduct to OIG or other
and will review the bidder’s internal benefit and Medicare Advantage appropriate government authority
integrity measures, which include at a organizations. In addition, the OIG has within a reasonable period, but no later
minimum, a compliance plan to prevent recommended these minimum elements than 60 days after the determination
fraud, waste and abuse. We appreciate in published guidance. that a violation may have occurred. Self-
comments in support of our approach to We stated in our proposed rule that a reporting of fraud and abuse is a critical
review these criteria as part of our compliance plan should contain element to an effective compliance plan,
selection and renewal process. As a policies and procedures that control and approved CAP vendors are strongly
result, we are retaining our program fraud, waste and abuse. In encouraged to alert CMS, the PSCs, the
requirements for potential vendors developing written policies, procedures, OIG, or law enforcement of any
under the CAP. Additionally, in and standards of conduct for detecting potential fraud or misconduct relating to
response to comments we are including and preventing waste, fraud and abuse, the CAP. We investigate all cases
language at § 414.908(c) that permits we stated that approved CAP vendors referred as potentially fraudulent and
CMS to refuse to award or terminate a should consult a variety of sources then refer them to the appropriate law
contract based on a potential CAP including applicable statutes and enforcement agency as warranted.
vendor’s past violations or misconduct regulations and compliance guidance Likewise, we expect that the approved
related to the marketing, distribution, or issued by CMS, our contractors, CAP vendors would fully cooperate in

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any investigations related to fraud then, if warranted, refer them to the approved CAP vendor’s commitment to
identified in a particular approved CAP appropriate law enforcement agency. detect and resolve any conflict of
vendor’s organization. interest. The code of conduct should
We are aware that there are many c. Conflicts of Interest
establish procedures for determining
possible approaches to developing an Section 1847B(b)(4)(D)(i)of the Act whether or not a conflict exists, and if
effective compliance plan. Therefore, requires that approved CAP vendors so, how the conflict will be resolved.
we requested comments on the scope participating in the CAP comply with a We proposed that the code of conduct
and implementation of an effective code of conduct, specified or recognized address issues such as whether or not
compliance plan. by the Secretary. The statute authorizes the offer or acceptance of some
Comment: There were some us to require approved CAP vendors to remuneration to or from an approved
operational comments regarding the establish a code of conduct related to CAP vendor, physician, beneficiary, or
opportunity for fraud, waste and abuse. conflicts of interest in bidding and manufacturer would diminish, or
One commenter pointed out that when performance. appear to diminish, the objectivity of
a drug product sent to a physicians’ In the March 4, 2005 proposed rule, professional judgment; or whether or
office is unused and returned to the we stated that a code of conduct should not certain transactions raise patient
approved CAP vendor, this transaction function much like a constitution, that safety or quality of care concerns.
could allow for the opportunity for is, it should be a document that details In addition, throughout the
fraud and drug spoilage. Because CAP the fundamental principles, values, and solicitation of CAP contracts, we
drugs are kept in a separate inventory, framework for action within an proposed that approved CAP vendors
a commenter asked if inventory errors organization. We proposed that the code comply with the requirements of the
would be subject to prosecution for of conduct for approved CAP vendors FAR organizational conflict of interest
fraud and abuse. articulate the approved CAP vendor’s guidance, found under 48 CFR Subpart
Response: We discuss the design of expectations of commitment to 9.5, and the requirements and standards
the inventory and return process in compliance by management, employees, contained in each individual contract
section II.B.2 of this interim final rule and agents, and summarize the broad awarded to perform functions under
and the product integrity requirement in ethical and legal principles under which section 1847B of the Act. Consistent
section II.C.1 of this interim final rule. the company must operate. with FAR 9.507–2, in making awards to
We believe these processes, along with Avoiding conflicts of interest and the approved CAP vendors, we proposed
the fraud, waste and abuse provisions appearance of these conflicts is critical that each contract contain a conflict of
outlined above provide a framework for to the operations of the CAP. In interest clause specific to the approved
ensuring the integrity of the product accordance with our statutory authority CAP vendor for inclusion in the
delivery process. We note that the under the Act, we proposed to require contract.
return of a product must be in that each approved CAP vendor We proposed fairly general conflict of
accordance with applicable State and establish and follow a code of conduct interest requirements because we
Federal laws. The approved CAP vendor that addresses its policies and believe that individual contracts may be
is responsible for providing appropriate procedures for identifying and resolving a better venue to address specific
drug product delivery to the any conflict of interest. We stated that conflicts of interest. However, we
participating CAP physician’s office that a conflict of interest may occur where solicited comments regarding what may
preserves that drug’s integrity. The an approved CAP vendor, its or may not constitute a conflict of
participating CAP physician is representative, or contractor provides a interest in the CAP program and how
responsible for not accepting delivery of product or service for a Medicare such conflicts might be identified and
a drug product damaged during participating CAP physician or mitigated.
shipment or whose integrity the beneficiary and the approved CAP We proposed to set forth our conflict
participating CAP physician believes vendor, representative or contractor has of interest policies and procedures in
was compromised. It is also the a relationship with another person, regulations at proposed § 414.912.
responsibility of the participating CAP entity, product or service that impairs or Comment: One commenter suggested
physician to store appropriately an appears to impair the approved CAP that CMS require full disclosure of an
accepted product delivery to ensure its vendor’s or contractor’s objectivity to approved CAP vendor’s corporate
continued integrity. provide the Medicare-covered product relationships during the bidding process
Typically, there must be intent to or service. Situations that compromise and take steps to prevent
commit fraud in order for the or appear to compromise an approved monopolization by any one company
government to subject a physician or CAP vendor’s ability to avoid self- within the bidding or contract award
approved CAP vendor to prosecution for dealing when providing a Medicare stages of the CAP program. This
fraud and abuse. Minor inventory errors product or service create a conflict of includes adopting language that requires
normally would not subject a interest and must be resolved. Approved corporate-structure disclosure and
participating CAP physician or CAP vendors should take steps to specifically prohibits approved CAP
approved CAP vendor to prosecution for identify and mitigate any conflict of vendor subsidiaries from bidding
fraud and abuse. Approved CAP interest that may arise in the provision against their parent company or other
vendors and participating CAP of a product or service for a Medicare subsidiaries with the same parent
physicians each are responsible for participating CAP physician or company. The commenter suggested
complying with all laws and regulations beneficiary. that CMS revise the language of
applicable to them that govern the We indicated the code of conduct § 414.908(e), ‘‘Multiple contracts for a
receipt, storage, and return of drug should communicate the need for all category and area,’’ § 414.910(a) on the
products. Participating CAP Physicians management, board of directors, bidding process, and elsewhere, to
and approved CAP vendors may be held employees, and agents to comply with reflect this bidding and contract award
accountable for failing to adhere to any the approved CAP vendor’s code of restriction. Another commenter
applicable requirements. We will conduct and policies and procedures for suggested that the final rule address
investigate all cases brought to our addressing and resolving conflicts of situations in which a company affiliated
attention as potentially fraudulent and interest. It also should reflect the with a potential approved CAP vendor

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manages a physician or medical/nurse Medical and utilization review order drugs, may find it medically
practice. In these cases the physician activities currently utilized by carriers necessary to require a specific drug
may have no effective choice of an and CMS Program Integrity contractors represented by a specific NDC within a
approved CAP vendor and non-affiliate will be applied to the provision of drug given HCPCS code. If the CAP vendor
vendors may not have a meaningful products through the CAP program. has contracted to provide a drug within
opportunity to compete for the business These efforts will help to ensure the that HCPCS code but not the specific
of the practice. The commenter medical necessity of the drugs provided NDC that the participating CAP
recommended that the final rule include and to monitor for inappropriate physician requires, then the
explicit conflict of interest standards to utilization that may stem from improper participating CAP physician may obtain
guard against preferential selection and preferential selection. the drug through the ‘‘Furnish As
treatment of potential approved CAP Comment: Some commenters were Written’’ option discussed in section
vendors that are affiliated with concerned that the creation of II.B.2 of this interim final rule. If the
physician and medical/nursing practice formularies could have the appearance participating CAP physician needs to
management companies. of conflicts of interest if their purpose obtain a drug identified by a HCPCS
Response: The proposed rule stated was to steer market share toward one code that is not available from the CAP
that the approved CAP vendor’s code of drug in a category over another in vendor, the participating CAP physician
conduct should communicate the need response to contracting discounts and may continue to obtain the drug through
for all management, board of directors, rebates. Commenters believed this could the normal ASP system.
occur if physicians are required to In response to the re-supply comment,
employees, and agents to comply with
acquire drugs within categories as section II.B.1 of this interim final rule
the approved CAP vendor’s code of
defined by the approved CAP vendor, describes the conditions under which a
conduct and policies and procedures for
and the approved CAP vendor offers drug administered from the
addressing and resolving conflicts of
only a limited selection of the possible participating CAP physician’s supply
interest. Also, consistent with FAR
drugs. may be replaced with a CAP drug. These
9.507–2, in making awards to approved Another commenter suggested that
CAP vendors, each contract will contain occurrences are expected to be few and
CMS prohibit approved CAP vendors
a conflict of interest clause specific to only in the event of an emergency. The
from offering physicians financial
the approved CAP vendor for inclusion utilization of this option will be
incentives to stock preferred drugs
in the contract. We believe this will monitored to detect patterns of abuse
specifically for ‘‘re-supply’’ under the
identify potential conflicts of interest through carrier and CMS Program
CAP. This will help prevent approved
pertaining to participation in the CAP. Integrity contractor oversight.
CAPs from enforcing preferred status in
Approved CAP vendors that are the CAP by controlling which agents a Comment: A commenter commended
affiliated with a medical practice physician keeps in-stock (for example, CMS on the thorough code of conduct
management company do not create a for their commercially insured patients). language. The commenter stated that
per se conflict of interest. However, Response: We believe that the code of they currently have an objective third
these relationships should be entered conduct should address issues such as party that monitors and prevents
into carefully and monitored closely for acceptance of remuneration to or from conflicts, and assures some equity
the appearances of a conflict of interest. an approved CAP vendor, participating within the market.
There are a minimum of two and a CAP physician, beneficiary, or Response: We believe the commenter
maximum of five approved CAP manufacturer that would diminish, or is indicating that it has a process in
vendors in each category in a given CAP appear to diminish, the objectivity of place to monitor for and prevent
area. In the optimal situation, there will professional judgment; or whether or conflicts in the healthcare market. The
be five approved CAP vendors for a not certain transactions raise patient commenter seems to indicate that this
given drug category, and where a safety or quality of care concerns. function should now be the
conflict of interest is obvious between Section II.A.2 of this interim final rule responsibility of the CAP. The CAP is
one approved CAP vendor and a describes the development of the drug only a small part of the healthcare
physician’s practice, the physician’s category. The drug category was market. Approved CAP vendors are
practice would have up to four other intended to be a list of HCPCS codes for ultimately responsible for monitoring
approved CAP vendors to choose from, the Part B drugs and biologicals on and preventing conflicts of interest
and should choose one of those other which a potential CAP vendor may bid. related to only their participation in the
approved CAP vendors accordingly. It does not constitute a drug formulary. CAP. Our contracts with approved CAP
Based on the comments received and We do not expect there to be creation of vendors will require that approved CAP
data analysis discussed elsewhere in a drug formulary. As discussed above, vendors adhere to a code of conduct that
this interim final rule with comment there will be one extensive CAP drug establishes policies and procedures for
period, there will be one extensive CAP category. It will include many of the recognizing and resolving conflicts of
category of drugs covering one single HCPCS for drugs commonly used by interest. We will also continue to apply
national area including all States, the physicians’ offices, but not all of them. the medical and utilization review
District of Columbia, and the U.S. Also, as discussed before, an NDC activities currently used by carriers and
Territories. If there are only two number represents a specific drug CMS Program Integrity contractors to
approved CAP vendors for a given drug manufacturer’s product formulation and the provision of drugs through the CAP.
category and there is a potential conflict package size for its drug product. These monitoring efforts will help to
of interest, the physician’s practice has Currently there may be more than one ensure the medical necessity of the
two options to consider. The physician’s NDC number associated with a HCPCS drugs provided and to monitor for
practice can choose to receive drug code if the drug is multi-source, is inappropriate utilization that may stem
products under the CAP program from available in multiple package sizes, or if from conflicts of interest. If an
the approved CAP vendor with which it the drug is available in different undisclosed conflict is discovered
does not have a conflict, or the formulations. A participating CAP through one of our various reviews,
physician’s practice can choose not to physician, who has elected a CAP such as a Program Safeguard Contractor
participate in the CAP program. vendor from whom he or she wishes to audit, we will raise the issue with our

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Contracting department and inform law Comment: Several commenters Act requires that the submitted bid price
enforcement where appropriate. suggested that CMS continue to provide include all costs related to the delivery
Physicians, suppliers, and approved interested parties with opportunities for of the drug to the selecting physician,
CAP vendors should be aware that we learning more about the CAP. One and the costs of dispensing (including
expect all entities with whom we do commenter specifically suggested that a shipping) the drug and management
business to continue to comply with all pre-bid conference be held for potential fees. Costs related to the administration
applicable conflict of interest rules, CAP vendors in order to provide of the drug or wastage, spillage, or
including the Stark law and Anti- potential bidders with detailed spoilage may not be included in the
Kickback Statute. We also hope that all information that bidders could then use submitted bid. We proposed to specify
entities involved in the CAP will to calculate their bid prices. these requirements at § 414.910 of the
continue to take whatever measures Response: We agree that regulations.
they believe necessary to assure the communicating information about the As discussed in the proposed rule, the
prevention of conflicts of interest. CAP bidding process (as well as other purpose of requiring vendors to bid for
Comment: Commenters recommended aspects of CAP) is necessary. Therefore, all drugs in a category would be to
that CMS prohibit approved CAP we plan to use several methods to identify a set of vendors that can supply
vendors from using, sharing or selling communicate bidding requirements, the range of drugs in that category at an
patient information for any purpose update existing information, provide appropriate overall cost. Because a
other than that which is strictly related clarification, and answer questions. vendor may have different discounts
to fulfilling CAP orders. While we may not have time to host a that it can negotiate for a drug, a vendor
Response: An approved CAP vendor formal pre-bid conference, these may be able to bid a lower price for one
is a HIPAA covered entity and is subject methods may include a public drug, but not for another drug within a
to the HIPAA Privacy Rule that governs conference call with potential vendors. category. We sought to identify a
the use and disclosure of protected We also may hold an open door forum. selection process that, in the aggregate,
health information. As covered entities, We will also provide updates to the CAP could provide drugs at reasonable cost
approved CAP vendors also are subject Web site, and other channels. to the program while maintaining the
to the HIPAA Security Rule. Comment: One comment asked for
required quality standards.
clarification about whether the vendor
Record Retention We therefore proposed to employ a
could provide services to manufacturers
for fees and whether this payment ‘‘composite bid,’’ constructed from the
As in other regulations that apply to bid prices for the individual drugs in
entities that retain records of their would influence ASP calculations.
Response: Bona fide service fees that the CAP category, in the process of
dealings with the Medicare program, we selecting bidders for the CAP. The
believe approved CAP vendors should are paid by a manufacturer to an entity,
that represent fair market value for an composite bid would be constructed by
be held to reasonable record retention weighting each HCPCS bid by the
standards. We seek additional comment actual service provided by the entity,
and that are not passed on in whole or HCPCS code’s share of volume
on whether these requirements should (measured in HCPCS units) of drugs in
be further explicated in the final CAP in part to a client or customer of an
entity, are not included in the a particular drug category during the
regulation. prior year. Within each CAP category,
After reviewing the comments, we are calculation of ASP because these fees
would not ultimately affect the price the drug weights would sum to one.
finalizing § 414.912 with amendments Based on data availability, the volume
to the content of the code of conduct realized by the manufacturer. ‘‘Bona
fide service fees’’ means expenses that data used for bids in the first CAP
which is submitted as part of the bidding cycle (for supplying drugs
application process. are for an itemized service actually
performed by an entity on behalf of the starting January 1, 2006) would be from
3. CAP Bidding Process—Evaluation manufacturer that would have generally 2004 because bidding is anticipated to
and Selection been paid for by the manufacturer at the occur in mid-2005. (We noted that we
same rate had these services been had not developed a method to weight
a. Evaluating Bid Prices by the drugs introduced during and after 2004,
performed by other entities.
Composite Bid Price In the discussion of our proposal for but invited public comment on methods
In the March 4, 2005 proposed rule the bidding process as set forth in for consideration.) The calculated
we stated that in selecting vendors, the § 414.910, we assumed that we were composite bid would equal the average
statute requires consideration of both conducting competitive bidding for price per HCPCS unit for drugs in that
price and non-price (for example, some number of distinct drug categories. category. In this way, the composite bid
quality of service and financial We also assumed that bidders with would be proportional to the expected
qualifications) aspects of the bid. We relatively large (including national) cost to the program of acquiring drugs
also stated that technical and financial distribution networks might also want from that vendor (based on the
criteria for selecting CAP vendors would to submit bids for multiple acquisition assumption that the 2004 volume in
be used to determine which bidders will areas (depending upon the area each HCPCS category is roughly
be awarded contracts to furnish drugs definitions that we adopted in the final proportional to volume in 2006). If one
under the CAP. Our ultimate choice of rule). We stated that these bidders vendor has a lower composite bid than
an appropriate evaluation process will would be permitted either to submit the another, it will also have a lower
take into account the final policies same bid price for all areas in which expected cost of supplying all drugs in
concerning the drug categories, the they wish to compete, or to submit the particular CAP category.
geographic areas for the program, and separate bid prices for each acquisition The statute requires consideration of
comments on our proposed evaluation area. The procedure for evaluating the price and non-price (for example,
process. We proposed a basic approach price component of the bids (and setting quality of service and financial
to the evaluation and bidding selection payment rates) would be the same qualifications) aspects of the bid. In
process and encouraged comments on regardless of the method for defining the order to implement this requirement, we
this proposal and recommendations for categories of drugs (HCPCS) adopted in proposed a two-step bidder selection
alternative approaches. the final rule. Section 1847B(c)(6) of the process:

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• First, all bidders must meet certain recommendations for alternative for drugs at 106 percent of ASP. This
quality and financial thresholds. approaches. ceiling is thus consistent with the
• Second, winning bidders would be Comment: Several commenters possibility of realizing savings to the
selected from those that meet the quality expressed general agreement with our Medicare program. It would also serve
and financial thresholds based on the proposal to employ a composite bid to to maintain a level of parity between the
composite bids. compare bids. However, a number of two systems, preventing a situation in
We considered several basic methods commenters objected to our proposal which significant payment differentials
for evaluating the composite bids. From not to accept any bid for a category that might skew incentives and choices. We
these alternatives, we proposed a is higher than 106 percent of the are therefore finalizing that provision in
method that bases the selection of weighted ASP of the drugs in a category. this interim final rule. We are not
winning bidders on a predetermined Some of these commenters expressed adopting some of the alternatives
threshold. Specifically, we proposed concern that such a limit would recommended by some commenters (for
that we would select, from all those discourage vendors from bidding, and example, no ceiling, a higher ceiling,
bidders that meet the quality and result in too few vendors participating waiver of ceiling under certain
financial thresholds, up to the five in the program. Some commenters circumstances) because the
lowest bidders for a drug category pointed out that the ASP system itself recommendations would not preserve
within each area. However, we would is new, and that it remains to be the possibility of realizing some savings
not select any bid for the category that determined whether it provides to the Medicare program. We are not
is higher than 106 percent of the adequate reimbursement. Some adopting the recommendation for
weighted ASP for the drugs in that commenters pointed out that the statute establishing risk corridors because we
category. We believe that limiting the itself does not require a ceiling. Some do not believe that such a provision
maximum bid price that we would commenters also expressed concern that would be consistent with the statute.
accept is consistent with Congressional the methodology would result in a ‘‘race Section 1847B(d)(1) of the Act
intent that the CAP promote savings. to the bottom,’’ as potential vendors specifically requires that the Secretary
We proposed this method for elect to bid only on drugs that can be establish a ‘‘single payment amount for
selecting bids because it is offered at a savings to the Medicare each competitively biddable drug’’ in an
straightforward and relatively easy to program. Other commenters area. We do not believe that the
implement. In addition, rejecting recommended that we impose no ceiling composite bid methodology we are
composite bids that exceed the payment on the level of acceptable composite adopting will lead to a ‘‘race to the
level under the new ASP payment bids; others advocated a higher ceiling bottom,’’ in which vendors bid only on
methodology is consistent with one (120 percent of ASP). One commenter drugs that will yield savings to the
major purpose of the new competitive suggested that the ceiling be waived if Medicare program. In the first place, we
acquisition system, since it creates the it was necessary to do so in order to are requiring potential vendors to bid on
possibility of realizing savings to the approve at least 3 bidders in any all the drugs in the broad category of
Medicare program. We believe this competitive acquisition area. Still other
method was preferable to other options Part B physician drugs that we are
commenters recommended the adoption establishing for this initial stage of
and provided a discussion of an of methods such as risk corridors to
alternative method that could have been implementing the CAP. Vendors will
protect vendors against unexpected not be able to choose among the HCPCS
used. This would have been to accept losses in the early stages of the program
any composite bid for a drug category codes included in the drug category. In
and simultaneously allow the program
that is less than 106 percent of the addition, the methodology that we are
to share in any savings that may be
weighted ASP for the drugs in that adopting does not require that the bid
realized from the CAP. One commenter
category. Under this alternative method, for each drug be at or below the level
asked for confirmation that the bidding
it would be possible for every bidder to of 106 percent of ASP. Rather, it
threshold should be established on the
submit a bid price just below ASP plus requires only that weighted average of
basis of ASP prices in effect during the
6 percent, in the confidence that the bid the bids for all drugs in the category will
quarter in which the bids are generated.
would be accepted. This alternative be less than or equal to 106 percent of
A few commenters suggested not
method would thus limit the potential the weighted average of the ASPs for all
announcing the composite bid
for savings to the program, compared to the drugs in a category. Under this
the bidding process that we proposed. Response: Although the statute does methodology, potential vendors can bid
Under the process that we proposed, not specifically require adopting a more than 106 percent of ASP for some
bidders retain an incentive to submit the ceiling on acceptable bids, we believe drugs in the broad, single category that
best bid price that is possible for them. that doing so is appropriate, as well as we are establishing. In order to meet the
Restricting the number of bids that consistent with the statute. Indeed, one threshold requirement, bidders will
might be accepted provides for more major purpose of the CAP is to create only have to bid below 106 percent of
competition in the bidding process than the possibility of realizing savings to the ASP on enough drugs in our large single
accepting all bidders under a designated Medicare program. This is one reason drug category to produce composite bids
threshold. Thus, we proposed to accept why the statute gives the Secretary the at or below 106 percent of the weighted
up to five composite bids, for a category authority (which we are not specifically average of the ASPs for all the drugs in
of drugs, but we proposed not to accept exercising with respect to our a category. We believe that it is
any bid that exceeds a composite bid determination of which competitively reasonable to expect that potential
threshold of 106 percent of ASP. We biddable drugs are included in the vendors will be able to realize sufficient
would compute the composite bids, and current drug category) to exclude from efficiency in obtaining and delivering
the 106 percent composite bid the CAP drugs that are not likely to Part B drugs commonly administered
threshold, in the manner described in result in significant savings (see section incident to a physician’s service to
the example we provided in the 1847B(a)(1)(D). The bid ceiling that we produce a composite bid at or below
proposed rule (70 FR 10763). proposed ensures that the CAP will be this threshold.
We requested comments on this no more costly to the Medicare program Finally, we are confirming that the
proposed process, as well as than the alternative method of paying composite bid ceiling will be

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determined on the basis of ASP prices setting the single price for each drug at not select any bid that is higher than
in effect during the quarter in which the the median of the bids of the winning 106 percent of the weighted ASP for the
bids are generated. Specifically, we will bidders for that drug. The utilization drugs in our single drug category.
determine the threshold (106 percent of data will play a role in determining Comment: One comment suggested
the weighted ASP for the drugs acceptable composite bids (those that the vendor be allowed to include
included in our single drug category) on composite bids that are no greater than costs of spoilage and breakage in the
the basis of the ASP prices in effect at 106 percent of the weighted average of bid. Another commenter suggested that
the time of the bidding, which will be the ASPs for all the drugs in the vendors be paid for patient and provider
conducted during the second quarter of category) and the winning bids (up to education, counseling and compliance
calendar year 2005. Potential vendors the five lowest composite bids below checks.
will be able to find the ASP pricing file the threshold in our nationwide Response: The costs that a bidding
on our Web site at http:// competitive acquisition area, from entity may include in their bid price are qualified applicants). However, once the described in section 1847B(c)(6) of the
asp.asp. We will provide potential winning bidders have been determined, Act. The statute requires that the
vendors with the ceiling in time for only those bidders’ specific bids for submitted bid price include ‘‘all costs
consideration in developing bids. each HCPCS code are used to set the related to the delivery of the drug or
Vendors will also be able to compute single price. Utilization data from a biological to the selecting physician’’
the ceiling from the weighting factors in prior year has no effect on the single and ‘‘the costs of dispensing (including
Addendum A of this interim final rule price for any drug under this shipping) of such drug or biological and
with comment period and the ASP methodology. management fees.’’ The statute
prices in effect for the second quarter of Comment: Several commenters specifically prohibits including ‘‘any
calendar year 2005. recommended that, in order to provide costs related to the administration of the
We also note that we have revised greater choice among vendors, we drug or biological, or wastage, spillage,
§ 414.910(b) of our proposed regulations should accept all bidders with or spoilage.’’ We therefore do not have
to clarify that the amount of a bid for composite bids at or below 106 percent the statutory authority to allow
any CAP drug must be uniform for all of the weighted average of the ASPs for inclusion of costs for spoilage and
portions of a specific competitive all the drugs in a category. These breakage in the bid. We also do not have
acquisition area. commenters therefore requested that we the authority to provide separate
Comment: Several commenters drop our proposal to accept up to the payment to vendors for patient and
expressed concern about the lag in the five lowest bids. provider education, counseling, and
utilization data that would be employed Response: As we discussed in the compliance checks.
in weighting the bid prices under the proposed rule (70 FR 10763), we had Comment: One comment stated that
composite bid methodology. Even the considered this alternative to our the method for determining the bid
most recent available utilization data proposal that we accept the five lowest price for multiple source drugs was not
may not reflect utilization patterns in bids in any area with composite bids at clear and suggested that it should be the
the payment year, creating a potential or below 106 percent of the weighted same method that is used for single
vulnerability for vendors if physicians average of the ASPs for all drugs in the source drugs. Another comment
increase their utilization of more costly category. We stated in that discussion suggested that using a pre-MMA fee
drugs. that one alternative to the method we schedule as the threshold was more
Response: We will always employ the proposed is simply to accept any appropriate.
most recent available utilization data to composite bid for a drug category that Response: We assume that the
compute the weights that will be is less than 106 percent of the weighted commenter is referring to the drug
employed in computing composite bids. ASP for the drugs in that category. prices established under the AWP
In this interim final rule, we are Under this method, it would be possible methodology in effect prior to the MMA.
employing utilization data from FY for every bidder to submit a bid price We do not believe that employing the
2003 and FY 2004 for this purpose. (We just below ASP plus 6 percent, in the prices determined under that
describe the utilization data used to confidence that the bid would be methodology as a benchmark would be
construct the weights in section II.A.2 of accepted. This method would thus limit appropriate, because Congress has
this interim final rule. We display the the potential for savings to the program, specifically replaced that methodology
weights that we computed on the basis compared to the bidding process that we with the ASP system for most Part B
of these data in our table of the drugs proposed. Under the process that we drugs. Under the composite bidding
that we are including in our single drug proposed, bidders retain an incentive to methodology that we have adopted,
category. See Addendum A of this submit the best bid price that is possible bidders must submit bid prices for each
interim final rule with comment for them. Thus, restricting the number HCPCS code included in our broad
period.) At the same time, we do not of bidders that might be accepted category of drugs. As we note in section
believe that the composite bid provides for more competition in the A.2 of this rule, HCPCS codes can often
methodology creates the vulnerability bidding process than accepting all describe products represented by
described by the commenters. It is bidders under a designated threshold. multiple National Drug Codes (NDCs).
important to keep in mind that while it We continue to find this rationale We are requiring vendors to submit bids
is necessary to employ a prior year’s persuasive. Therefore, in order to for each HCPCS code within a category,
utilization data in the computation and promote competition among vendors and to provide at least one drug within
evaluation of composite bids, the and the possibility of realizing some each code. Vendors will also be required
composite bids themselves do not savings for the Medicare program, we to provide potential physician
determine the single payment price for are finalizing our proposal to select, participants in the competitive
each drug. Rather, as we describe below from all those bidders that meet the acquisition program the specific NDCs
in section 3.b. of this interim final rule, quality and financial thresholds, up to within each HCPCS code that they will
the single price for a drug is a function the five lowest bids for a drug category be able to provide to the physician. In
of the bids submitted for that drug by in our nationwide competitive constructing their bids for each code,
the winning bidders: specifically, we are acquisition area. However, we would vendors will need to take into account

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which specific drug(s) they intend to new therapies such as risperidone. The (measured in HCPCS units) of drugs in
provide within that code. In complete list of these drugs is shown in our single drug category during the prior
constructing their bids, it will also be Addendum B of this interim final rule year. Within the single category, the
important for potential vendors to with comment period. We will require drug weights will thus sum to one.
consider whether the drug or drugs that prospective vendors include bids Based on data availability, the volume
within a specific code are multiple for these drugs in their submissions and data used for bids in the first CAP
source or single source, and the prices provide these drugs to physicians who bidding cycle (for supplying drugs
at which they may be able to obtain elect to participate in the CAP. starting January 1, 2006) will from FY
these drugs from the respective However, we will not incorporate the 2004. The calculated composite bid will
manufacturers. However, it is neither bids for these drugs into the composite be equal to the average price per HCPCS
necessary nor advisable for us to bid methodology, because we lack unit for drugs in that category. In this
prescribe the manner in which vendors sufficient utilization data to compute way, the composite bid will be
should take these considerations into appropriate weights for these drugs. proportional to the expected cost to the
account in developing the bid price for Instead, we will consider these bids program of acquiring drugs from that
each specific code. Rather, we believe separately from, but parallel to, vendor (based on the assumption that
that the CAP will function most evaluation of the composite bid for the the 2004 volume is roughly proportional
efficiently in this respect if bidders have other drugs for which we have adequate to volume in 2006). If one vendor has
the flexibility to construct their bids in utilization data. Specifically, we will a lower composite bid than another, it
the light of their own business goals and require bidders to submit a separate bid will also have a lower expected cost of
cost analysis within the statutory and for each drug in the list. We will also supplying all drugs in the CAP category.
regulatory parameters (that bid prices impose a ceiling on acceptable bids. As Also, as a point of clarification,
may not include any costs related to in the case of the composite bids, that although it will not impact the initial
wastage, spillage, or spoilage). ceiling will be tied to the ASP payment implementation of CAP since it is one
As discussed above, our method for methodology. Specifically, we will not area, we are revising § 414.910 to clarify
computing composite bids requires us to accept any bid for a new drug that is in the case of multiple areas, entities
weigh the bids for the specific drugs in higher than 106 percent of the ASP for can bid on one or more areas.
our single drug category. We proposed that drug (as determined at the time To illustrate how the composite bid
to employ volume data, specifically when the bidding begins, which will be will be calculated, we are providing the
each HCPCS code’s share of volume the second quarter of calendar year following example. Suppose that there
(measured in HCPCS units) for the prior 2005). Vendors will be able to locate the are four drugs in a CAP drug category
year. In the proposed rule, we invited appropriate prices for that quarter on (Drug A, Drug B, Drug C, and Drug D).
public comment on methods for our Web site at The first column of Table 3 below
weighting drugs introduced during and providers/drugs/asp.asp. In order to be provides the total volume (HCPCS units)
after 2004 within the composite bidding selected as a CAP vendor, a bidder must of these drugs administered in 2004 for
methodology (70 FR 10762). submit acceptable bids on each of the this hypothetical drug category.
Comment: Many commenters urged new drugs listed in Addendum B of this
us to provide for inclusion of newer interim final rule with comment period. TABLE 3.—EXAMPLE DRUG VOLUMES
drugs within the drug categories that we In order to be selected as a vendor, AND RELATIVE VOLUMES, 2004
adopt. Commenters did not offer then, a bidder must meet three
specific proposals for developing conditions. First, a bidder must submit Total HCPCS Relative vol-
weights for these drugs in order to a composite bid on the single drug units ume
provide for considering them with the category that is less than or equal to the
composite bidding methodology. Drug A .......... 1,452,472 0.3520
106 percent of the weighted ASP for the Drug B .......... 988,586 0.2395
Commenters generally suggested using drugs in that category (based on the ASP Drug C .......... 1,671,567 0.4050
the new ASP system as a basis of prices in effect during the second Drug D .......... 14,302 0.0035
bidding and payment for these drugs quarter of CY 2005, during which the
within the CAP, or allowing for bidding will begin). Second, a bidder Total ....... 4,126,927 1.0000
payment based on a vendor’s actual must submit one of the five lowest bids
costs for acquiring these drugs. for the single drug category in our Three drugs (Drugs A, B, and C) have
Response: We agree with the nationwide competitive acquisition volumes (total HCPCS units) much
commenters that it is important to area. Third, a bidder must also submit greater than that of the fourth (Drug D).
include newer drugs within the CAP as acceptable bids on each of the new The second column of Table 3 gives the
quickly as possible. In the case of drugs drugs listed in Addendum B of this relative volumes, computed by dividing
that have been introduced during and interim final rule with comment period. the volumes of the individual
after 2003 (but in time for consideration An acceptable bid on one of these new components of this CAP category by the
in developing this interim final rule), drugs is less than or equal to 106 total volume of HCPCS units for drugs
we have decided upon the following percent of the ASP for that drug (as in this category. These relative volumes
methodology. We have developed a list determined at the time of the bidding, are the weights used to construct the
of drugs that have been introduced which will begin during the second composite bids.
during and after 2003 and that are quarter of CY 2005). The computation of the composite
appropriate for inclusion within the In this interim final rule, we are bids for these four bidders is shown in
established category of Part B drugs that therefore finalizing our proposal to Table 4. The composite bid for Bidder
are commonly administered incident to employ a ‘‘composite bid,’’ constructed 1 is computed as the weighted sum of
a physician’s services. We have from the bid prices for the individual the bids for the four drugs: ($520 ×
included in this list only those drugs drugs in the CAP category, in the 0.3520) + ($400 × 0.2395) + ($135 ×
that meet a minimum threshold in process of selected bidders for the CAP. 0.4050) + ($4,780 × 0.0035), which is
allowed charges ($50,000) in our billing The composite bid will be constructed equal to $350.25. The composite bids for
data from the first quarter of CY 2005. by weighting each HCPCS bid by the the other three bidders are computed
The drugs on this list include important HCPCS code’s share of volume similarly.

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Drug Weight Bidder 1 Bidder 2 Bidder 3 Bidder 4 Low 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 4 illustrates, it is possible for the selection of winning bidders on consistent with Congressional intent
a bidder to submit the lowest bid on applying a predetermined ceiling on the that the CAP promote savings.
more individual drugs than other composite bid. Specifically, under the As an example of this computation,
bidders (such as, Bidder 3 has submitted method we are adopting, we will select, suppose that the ASPs for four drugs in
the lowest bids for Drug B and Drug D), from all those bidders that meet the the composite bid example above (see
but have the highest composite bid. This quality and financial thresholds, up to Table 4) are as follows: $516 for Drug A,
is because Bidder 3 submitted relatively the five lowest bidders for the single $376 for Drug B, $111 for Drug C, and
high bids for Drug A and Drug C, which drug category in our nationwide $4,831 for Drug D. Using the relative
have the largest volumes (in HCPCS competitive acquisition area. However, weights in Table 4, we would compute
units). Also note that although Bidder 4 we will not select any bid for the the composite bid threshold as 1.06 ×
did not submit the lowest bid for any of category that is higher than 106 percent ($516 × 0.3520 + $376 × 0.2395 + $111
the four drugs, its composite bid is the of the weighted ASP for the drugs in × 0.4050 + $4,831 × 0.0035), which is
second lowest. that category. As we have also equal to $353.56. In this example, three
As we have discussed above, we have discussed, we believe that limiting the bidders (Bidder 1, 2 and 4) would be
decided to adopt a method that bases maximum bid price we would accept is selected as CAP vendors. (See Table 5.)


Bids se-
Drug Weight Bidder 1 Bidder 2 Bidder 3 Bidder 4 lected

Drug A .............................................................................. 0.3520 $520 $530 $550 $530 ....................

Drug B .............................................................................. 0.2395 400 410 380 390 ....................
Drug 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

b. Determining the Single Price for a bids.] The qualified vendors would be vendors would be made aware of the
Category of Drugs made aware of the established price set established price set for the CAP drugs
for the CAP drugs before he or she signs before they sign the contract to be an
Once the winning bidders have been the contract to be an approved vendor. approved vendor. As we stated in the
identified, section 1847B(d)(1) of the proposed rule (70 FR 10763), qualified
Act requires that a single price must be We proposed to employ the median
bid for several reasons. First, this vendors will be made aware of the
determined for each drug in a established price set for the CAP drugs
competitive acquisition area, ‘‘based on method is straightforward and relatively
easy to implement. The median bid is before he or she signs the contract to be
bids submitted and accepted.’’ We an approved vendor.
considered a number of options for an obvious statistical method to
determine a single price based on using We requested comments on our
determining this single price on the proposed approach for determining the
basis of the accepted bid prices. In the the information provided by bids, as
price of the drug under the CAP and any
proposed rule at § 414.906(c)(1), (which required by the statute. In addition, this
alternative approaches that might be
describes the computation of the method could realize some savings to
payment amount), we proposed to the Medicare program: Unless the bids Comment: One commenter suggested
establish a single price for each drug in for a given drug of all selected bidders that vendor-specific payment be
a competitive acquisition area, based on are at or above the level of the considered, but also acknowledged that
the median bid of the winning bidders maximum allowable bid (106 percent of this would require a change to the
if there is an odd number of vendors (3 ASP), this method for determining the statute. Some commenters also
or 5). If there are four vendors, we will single price would yield savings to the recommended that we pay each vendor
employ the median through averaging of program. the actual bid amount rather than pay a
the bids of the second and third highest In cases where there are four winning median of the bids of all the winning
bidders on each drug to set the price for bidders for a drug category in an area, vendors.
the drugs. If only two bidders are we proposed to employ the average of Response: We agree with the
selected, we would use the median, in the bids of the second and third highest commenter who acknowledged that
this case also the average, of the two bidders on each drug to set the price for statutory change would be necessary to
bids for the drug to set the price for that the drug. If there are only two bidders, adopt vendor-specific payment. The
drug. [Note the mean (or average) is the we would use the average of the two statute specifically requires
median of the two middle bids or the bids for the drug to set the price for that establishment of a ‘‘single payment
straight average if there are only two drug. We noted that the qualified amount for each competitively biddable

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drug or biological’’ in an area (section We agree with the commenters that year 2006. We have chosen to update to
1847B((d)(1) of the Act). It is not adopting some mechanism for updating the mid-point of the year to most
possible to establish a single price for prices from the period in which bidding accurately reflect the increase in prices
each drug in the nationwide competitive begins (the second quarter of calendar that will occur over the course of the
acquisition area and simultaneously to year 2005) to the period in which the year. ASP prices are updated on a
provide for vendor-specific payment. single prices will actually be in effect quarterly basis so there is no need to
Because paying each vendor the actual (calendar year 2006) is appropriate. We make projections under that payment
bid amount would essentially establish also agree with the suggestion of some system. On balance and over the entire
a vendor-specific payment, that method commenters that the most appropriate year, CAP and ASP prices should be
also is not permitted by the statute. mechanism for doing so is to employ the equivalent. We welcome comments on
Comment: One commenter expressed changes in the Producer Price Index this method of updating the single drugs
concern that one expensive and heavily (PPI) for prescription preparations over prices to the payment year, and will
utilized HCPCS code in a category could the same period. Therefore, in this consider those comments as we develop
have a significant impact on the entire interim final rule, we are providing that and refine the CAP in subsequent
category’s price. the single price for each drug (HCPCS regulations.
Response: We do not believe that our code) will be initially determined on the Section 1847B(d)(2) of the Act
proposed method for using bids to basis of the median of the bids requires the Secretary to ‘‘establish rules
determine single prices for drugs will submitted during the second quarter of regarding the use * * * of the
lead to this result. In particular, we did calendar year 2005 for that drug. The alternative payment amount provided
not propose establishing a price for an price of each drug will then be updated under section 1847A of the Act’’ for
entire category. Rather, we proposed to the mid-point of calendar year 2006 payment of a new drug or biological
using the bids, for each specific HCPCS (five quarter increase) PPI for under the CAP. Section 1847A of the
code, of the successful bidders to set the prescription preparations. The PPI for Act establishes the average sales price
price for the drug. In addition, we prescription preparations is released methodology for most drugs paid under
proposed that the single price for a drug monthly by the Bureau of Labor Part B of the Medicare program. Section
would be the median of those bids (or Statistics, and reflects price changes at 1847A(c)(4) of the Act further provides
in the cases of even numbers of the wholesale or manufacturer stage. By alternatives for the Secretary to
accepted bidders, averages of the bids, comparison, the Consumer Price Index determine the amount payable for new
(CPI) reflects price changes at the retail drugs during an initial period. In
as previously described). The weighting
stage. Because the CAP drugs are accordance with the requirement at
of heavily utilized drugs will thus have
purchased direct from the manufacturer section 1847B(d)(2) of the Act, we
an effect on the calculation of composite
or wholesaler, this is an appropriate proposed to apply the payment amount
bids and the determination of successful
price index to use. In addition, the PPI that we establish under section 1847A
bids. However, our decision to establish
for prescription drugs is the measure of the Act in the case of any drug or
one large category with a large number
used in various market baskets that biological for which we determine
of HCPCS codes will minimize the effect
update Medicare payments to hospitals, that—(1) the drug or biological is
of any one drug or one manufacturer on
physicians, skilled nursing facilities and properly assigned to a category
the composite bids as a whole. In
home health agencies. We will be using established under the CAP; and (2)
addition, using the median to determine issuance of a new HCPCS code is
the most up to date forecast data
the single price limits the effects of any required for the drug or biological. We
available from Global Insight Inc. at the
one highly expensive drug in a HCPCS also stated we would employ the
time of contract award to determine the
code on the determination of the single payment amount determined in
PPI. We feel that the use of an
price for that code. accordance with the methodology
independent forecast, in this case from
Comment: Several comments asked us Global Insight, Inc. is superior to using provided under section 1847A(c)(4) of
to confirm which ASP quarter would be the National Health Expenditure the Act until the next annual update of
used to evaluate bid prices. Some Projections for drug prices (which is the the single price amounts.
commenters also requested that we CPI for prescription drugs) and is Comment: Many commenters asked
provide some allowance for price consistent with the methodology used us to clarify whether and how we would
increases from that quarter until the in projecting market basket increases in pay for new drugs. Many of these
contract period during which the single Medicare prospective payment systems. commenters recommended that vendors
drug prices would be in effect. One Currently, we do not believe there has be required to provide new drugs, so
commenter suggested using the been enough experience with the ASP that beneficiaries will have access
Producer Price Index for this purpose. payment methodology to update the through the CAP to the most recent
Other commenters suggested tying bids based on growth in the ASP. We therapies available. These commenters
single price updates to changes in ASP are only in the second quarter of using variously recommended that vendors be
prices. ASP as a payment, and we do not have reimbursed at the ASP price or at cost
Response: As we discussed in section enough data to make reliable projections for providing these new drugs.
3.a above, the composite bid ceiling will in growth. However, we will continue to Alternatively, some commenters asked
be determined on the basis of ASP analyze the ASP data and will revisit us to clarify that physicians who elect
prices in effect during the quarter in this issue in the future. We welcome to obtain their drugs through a CAP
which the bids are generated. comments on this method of updating vendor may still obtain drugs that are
Specifically, we will determine the the single drugs prices to the payment not available through the vendor, such
threshold (106 percent of the weighted year, and will consider those comments as new drugs or drugs not included in
ASP for the drugs included in our single as we develop and refine the CAP. the drug category provided under the
drug category) on the basis of the ASP Under our approach of updating to CAP contract, from other sources and
prices in effect at the time when the the mid-point of 2006, it is also receive payment under the ASP system.
bidding begins, which will be during important to note that the CAP prices Another comment recommended that
the second quarter of calendar year may be somewhat higher than the ASP new drugs be added to CAP no later
2005. prices during the first half of calendar than 2 quarters after introduction.

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Response: It is important to to note that physicians who have Section 1847B(b)(4)(B) of the Act
distinguish two categories of new drugs elected to participate in CAP are provides that contracts for the
in relation to the CAP. The first category expected to order all of the CAP drugs acquisition of competitively biddable
consists of drugs that have been released they use through the CAP vendor except drugs under the CAP must be for a
in the period just prior to the bidding in when a CAP physician is utilizing the period of 3 years. Therefore, it is
a given year, have been assigned codes, ‘‘furnish as written’’ exception. If a necessary to determine some
and have established prices under the physician obtains a CAP drug mechanism for setting the single price
ASP system. In these cases, we elsewhere, the drug will not be covered. for each category of drugs in the second
sometimes do not have sufficient data When a participating CAP physician is and third years of this 3-year contract.
on volume to include these drugs in the purchasing a drug under the ‘‘furnish as We proposed to employ the mechanisms
composite bidding methodology. As we written’’ exception or is purchasing a provided under section 1847B(c)(7) of
discuss in section 3.a above, we have drug that is not available under the the Act for this purpose. Specifically,
decided to include a select list of drugs CAP, he or she can receive payment for that section requires that each contract
that have been introduced during and those drugs through the ASP system and must provide for disclosure to the
after 2004 within the single drug would be expected to bill Medicare Secretary of the vendor’s ‘‘reasonable,
category that we are adopting. We will net acquisition costs’’ on a regular basis
directly for the drugs. At the same time,
also require that prospective vendors (not more often than quarterly). It
we certainly encourage vendors to add
include bids for these drugs in their further requires that contracts must
such new drugs as they are introduced.
submissions and provide these drugs to provide for ‘‘appropriate price
We are therefore adopting the adjustments over the period of the
physicians who elect to participate in mechanism we proposed in order to
the CAP. However, we will not contract to reflect significant increases
make it possible for vendors to do so. In or decreases in a vendor’s reasonable,
incorporate the bids for these drugs into accordance with the requirement at
the composite bid methodology, but net acquisition costs, as so disclosed.’’
section 1847B(d)(2) of the Act and Therefore we proposed at
rather consider these bids separately,
§ 414.906(c)(2), we will apply the § 414.906(c)(1) to update the CAP prices
imposing a ceiling tied to the ASP
payment amount that we establish for each drug in a category in year 2 and
payment methodology on acceptable
under section 1847A of the Act in the year 3 based on the vendor’s
bids. That is, the bids for each drug on
case of any drug or biological for which ‘‘reasonable, net acquisition costs’’ for
the list must not exceed the payment
we determine that—(1) The drug or that category as determined by CMS
level determined under section 1847A
of the Act. biological would be properly assigned to based, in part, on information disclosed
the single drug category that we are to the Secretary and limited by the
The second category of new drugs establishing for this initial stage of weighted payment amount established
consists of those that are introduced too implementation under the CAP; and (2) under 1847A of the Act across all drugs
late even to be incorporated under this issuance of a new HCPCS code is in that category.
special methodology. These drugs may Section 1847B(c)(7) of the Act gives
required for the drug or biological and
have been introduced prior to the the Secretary the discretion to establish
will revise the regulation at
bidding period, but too late to obtain an appropriate schedule for the CAP
§ 414.906(c)(2) to ensure that it is
HCPCS codes and/or ASP prices. Other vendor’s disclosure of this cost
explicit. We will provide for payment to
such new drugs may not be introduced information to us, provided that
CAP vendors for these new drugs at the
until after the bidding period, even in disclosure is not required more
the second or third years of the vendor time of the next quarterly update after
the drug receives a code. Vendors may frequently than quarterly. We proposed
contracts under the CAP. We agree with to require that each vendor disclose to
the commenters that it is important to contact CMS in order to propose adding
a new drug to their approved list. If we the Secretary its reasonable, net
provide beneficiaries with access to acquisition costs for the drugs covered
these drugs as quickly and effectively as determine that the new drug is
appropriate for inclusion on the under the contract annually during the
possible. However, we do not agree that period of its contract. Annual disclosure
it is appropriate, especially during the approved CAP vendor’s approved list,
we will approve the vendor’s request to imposes the minimal burden on vendors
initial stages of implementing the CAP, consistent with employing this
to impose a requirement on vendors to add the drug under the CAP contract
provision to determine the single price
include all new drugs introduced too and provide for payment at the next
for drugs in the second and third years
late to be taken into consideration quarterly update. The new drug will be
of a contract. More frequent disclosure
during the bidding period. Such a considered a CAP drug for purposes of (for example, quarterly) is, of course,
requirement may impose unpredictable, the CAP program, and the coverage also consistent with this purpose. We
and sometimes difficult or impossible, rules described above will apply (that is, anticipate that the annual disclosure
burdens on some vendors. Vendors may the physician must obtain the drug from would be required in or around October
not be able to make the acquisition the approved CAP vendor in order for of each year, to provide sufficient time
arrangements necessary to obtain some payment to be made for the drug, unless to determine what, if any, update in
new drugs, or at least to obtain them at the ‘‘furnish as written’’ exception drug prices would be appropriate for the
a reasonable price. It would also be applies). We will not formally revise the following year. We invited comments
difficult to develop the administrative CAP categories in order to accommodate regarding an appropriate disclosure
mechanisms necessary to identify new vendor requests to add new drugs, since schedule under section 1847B(c)(7) of
drugs that should be included within such additions will not be mandatory. If the Act for this purpose.
the CAP, to advise vendors that they there are any further annual updates Comment: Several commenters stated
must begin providing specific new during the period of a vendor’s contract that yearly cost disclosure and price
drugs, to monitor vendor compliance, after we initially provide for payment of adjustments would be sufficient. One
and to enforce these requirements a new drug that the vendor is providing, commenter favored yearly adjustment
(where necessary) in a timely fashion. we will employ the mechanism for because more frequent adjustment may
Therefore, we are not adopting such a annual updates of single price amounts cause vendors to leave the program if
requirement at this time. It is important that we describe below. rates are not adjusted in their favor.

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Many other commenters recommended reflect increase or decreases in costs. It increases while the other vendors report
more frequent reporting and updates. is therefore possible that the single price price decreases or vice versa. In this
Some of these commenters for a drug could decrease in the second situation, we would follow the same
recommended a biannual process, but or third year of a contract where, for two step process for updating the single
most preferred quarterly updates. Some example, acquisition costs for the drug price. As noted in the proposed rule, we
comments acknowledged that more have decreased because of the will limit the annual update by the
frequent acquisition cost reporting introduction of a generic equivalent. weighted payment amount established
could be a burden for vendors, but many Comment: A number of commenters under section 1847A of the Act across
commenters noted that increasing the recommended that we apply no all drugs in the category. We will
frequency of acquisition cost reporting threshold test in determining whether require submission of net reasonable
and price adjustments would provide price adjustments should occur. One cost information by each vendor at the
for greater consistency between CAP commenter supported using a rolling 12 beginning of the fourth quarter in each
and ASP systems, minimize the month ASP as the basis of price year of the contract, in order to provide
payment difference between CAP and adjustments in order to smooth out the sufficient time to determine any update
ASP, and would be less financially risky influence of price spikes. Another in drug prices for the following calendar
for vendors. comment recommended that price year. We believe that this reporting
Response: We appreciate the concerns changes from manufacturers should be deadline reduces the inevitable lag
of the commenters who recommended automatically reflected in an update. between the reporting of financial
more frequent (biannual or quarterly) Comments asked for more specific information and the time of adjustment
updates. However, we continue to information about how the threshold to an acceptable, minimal level.
believe that annual reporting and would be calculated, specifically, which We indicated in the proposed rule
payment updates provide the most quarter’s data would be used to that we would consider ‘‘reasonable, net
appropriate balance between vendor calculate an adjustment, noting that the acquisition costs’’ to be those costs
and CMS administrative burden and ‘‘lag’’ period between the time of actually incurred by the vendor that are
paying for CAP drugs based upon the adjustment and the time that financial necessary and proper for acquiring the
most timely data, at least during this information was collected should be drugs that the vendor is obligated to
initial stage of implementing the CAP. minimal. provide under a CAP contract. Actual
Specifically, we remain concerned that Response: We agree with the acquisition costs are net of all discounts
more frequent updates would also commenters who recommended that we and rebates provided by the vendor’s
require more frequent reporting. We are not employ a threshold for determining own suppliers. We would require full
reluctant to impose the burden of whether a change in costs warranted an disclosure of the vendor’s acquisition
semiannual or quarterly reporting at this update in the single prices for drugs. costs for drugs included in the CAP
time. When the administrative Rather, we will adopt the mechanism contract. We proposed that this
mechanisms of the CAP are operational that we described in the proposed rule disclosure would reflect the vendor’s
and vendors have more experience without applying any threshold. purchases of these drugs from all
under the program, we will consider Specifically, we will employ the net manufacturers, and the total number of
whether more frequent reporting would reasonable cost information disclosed units purchased from each
be appropriate. by each vendor to determine whether manufacturer. The vendor would be
We proposed the following the vendor has experienced changes in required to submit full documentation
methodology for developing an the reasonable, net acquisition costs for reflecting actual purchase prices. This
appropriate adjustment on the basis of the drugs included in our single documentation would include all
the net reasonable cost information category of drugs. If there is a change in records reflecting discounts that result
disclosed by vendors. We would employ the costs reported by a particular in a reduction of actual cost to the
the net reasonable cost information vendor, we would use a two-step vendor. (Such discounts would include
disclosed by each vendor to determine process to recompute the single price for volume discounts, prompt pay
whether the vendor has experienced each drug in the single drug category. discounts, cash discounts, free goods
significant increases or decreases in the First, we would adjust the bid price that that are contingent on any purchase
reasonable, net acquisition costs across the vendor originally submitted by the requirement, chargebacks, rebates,
a category of drugs. For this purpose, we percentage change indicated in the refunds, and other price concessions
stated that we were considering information that the vendor disclosed. regardless of when they are recognized.)
establishing a threshold percentage Next, we would recompute the single Comment: One commenter
change in these costs, to determine price for the drug as the median of all recommended that all costs related to
whether the changes warrant computing of these adjusted bid prices. We would drug delivery and dispensing be
an adjustment to the single prices for then notify all of the vendors of the included in the report and that all
the drugs in that category. If the change single price that we would be paying for factors be considered in determining the
in the costs reported by a particular the particular drugs in the following price adjustment. Other commenters
vendor meet this threshold, we would year. As we noted in the notice of stated that only CAP program prices be
use a two-step process to recompute the proposed rulemaking, this mechanism used in the price determination.
single price for each drug in that class. would apply in the case of any change Another commenter stated that prompt
First, we would adjust the bid price that in reasonable, net acquisition costs, pay discounts should be excluded for
the vendor originally submitted by the whether those changes reflect increase the net acquisition cost, since the
percentage change indicated in the or decreases in costs. It is therefore discount actually occurs as a term of
information that the vendor disclosed. possible that the single price for a drug financing.
Next, we would recompute the single could decrease in the second or third Response: We do not agree with the
price for the drug as the median of these year of a contract where, for example, recommendation to exclude prompt pay
adjusted bid prices. We noted that this acquisition costs for the drug have discounts from the determination of
mechanism would apply in the case of decreased because of the introduction of reasonable, net acquisition costs for
any significant change in reasonable, net a generic equivalent. It is also possible purposes of Section 1847B(c)(7) of the
acquisition costs, whether those changes that one vendor would report large Act. It is not obvious to us that this

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discount occurs exclusively as a term of data submitted by bidders and vendors providing in § 414.906(c)(1)(iv) of this
financing, nor that it should be under the CAP. Generally, the FAR interim final rule with comment period
excluded from consideration even if that requires contractors and bidders to that, in cases where drugs are
is the case. We do not see how prompt clearly mark all information they seek to withdrawn from the market, vendors
pay discounts are any different from protect, and generally, a bidder’s may substitute another drug if one is
other types of price concessions and confidential business strategies and unit available (for example, another drug
why they would need to be treated prices are protected as confidential. within a HCPCS code that contains
differently for purposes of the CAP. We However, what is confidential for FAR multiple NDCs). In order to make such
are interested in learning more about purposes may not necessarily be substitutions more feasible for vendors,
how these discounts are arranged and protected under the provisions of the we will also expand our proposal for
whether they are indeed different from Freedom of Information Act (FOIA). In more frequent updates (restricted in the
other price concessions and discount the event that CMS receives a FOIA proposed rule to introduction of a new
arrangements. We appreciate the request for pricing information, the CMS drug, expiration of a drug patent, or a
comment that only CAP program prices FOIA officer will process the request in material shortage) to include this case.
be used in the determination of whether accordance with 5 U.S.C 552 and 5 CFR This mechanism will not, of course, be
acquisition costs have increased. part 5, and determine whether any of available if no replacement (another
However, we are concerned that it may the FOIA’s exemptions to mandatory available NDC within the HCPCS) is
be administratively difficult for disclosure may apply to protect the available. Until we have the opportunity
approved CAP vendors to distinguish information. In addition, under section to update the drug price, we will pay for
their acquisition costs for provision of 1847B(c)(5) of the Act, the Medicaid these substitutions at the price
drugs under the CAP program from drug rebate confidentiality provisions of previously established for the drug
acquisition costs for drugs generally. We section 1927(b)(3)(D)of the Act apply to code.
are therefore not adopting the periods during which a bid is submitted Comment: Many commenters also
recommendation at this time. Finally, with respect to a CAP drug in the same requested clarification about whether
we cannot adopt the recommendation manner as it applies to information the prices determined under CAP will
that all costs related to drug delivery disclosed under the Medicaid drug be taken into account in computing the
and dispensing be included in the rebate statute. We also require that average sales price (ASP) under section
report. Section 1847B(c)(7) of the Act vendors certify the accuracy of their 1847A of the statute. Most of these
provides only for the disclosure of CAP drug pricing information on the commenters recommended exclusion of
contractor’s ‘‘reasonable, net acquisition vendor application form. CAP prices from the ASP calculation.
costs’’ to the Secretary, and for basing We also proposed to make more Some of these commenters pointed out
price adjustments under the CAP on frequent adjustments (but not more that inclusion of CAP prices in the ASP
‘‘significant increases or decreases’’ in often than quarterly) in three cases: computation may discourage
those costs. Therefore, only net introduction of a new drug, expiration manufacturers from offering price
acquisition costs that meet these criteria of a drug patent, or a material shortage concessions to CAP vendors. A
may be included. We would also note that results in a significant price congressional commenter supported
that we are not adopting any specific increase for a drug. We may restrict the exclusion of CAP prices from the ASP
definition of ‘‘significant’’ at this time. circumstances in which we would make computation, stating that it was the
In this initial stage of the program, we adjustments to account for shortages to intent of Congress that these two
will treat all cost increases and those in which the Secretary has programs should not interact, and that
decreases as significant. declared a public health emergency prices developed under the CAP should
Comment: Two commenters under section 319 of the Public Health not be incorporated into ASP
expressed concern about whether price Service Act. We invited comments on calculations. Another commenter noted,
information could be made exempt from this approach. however, that section 1847A(c)(2) of the
Freedom of Information Act requests Comment: We received no comments Act contains a specific list of sales that
and suggested that vendors certify the addressing our specific proposal for are exempt from the ASP calculation,
accuracy of CAP drug price information more frequent updates in these cases. and sales to vendors operating under
in a manner similar to ASP pricing However, several commenters asked for CAP are not included on that list. This
certification. Another commenter clarification about the obligations of commenter therefore contended that
mentioned confidentiality provisions of vendors when a drug offered under the manufacturer prices offered under the
the Trade Secrets Act. These CAP becomes unavailable (such as in CAP must be included in ASP
commenters requested details about the case of a recall). Some of these calculations.
how confidentiality of manufacturer’s commenters recommended that the Response: We do not believe that we
pricing information would be handled. vendor be allowed to add a new drug to have the statutory authority to exclude
Two commenters stated that the pricing its list to replace or complement the prices determined under the CAP from
information is proprietary and should drug that is no longer available. One the computation of ASP under section
be treated as such. Several comments commenter recommended that vendors 1847A of the Act. Section 1847A(c)(2) of
noted that price data provided to CMS should be allowed to remove drugs from the Act contains a specific list of sales
should be afforded the same protection the list of CAP drugs only when it is that are exempt from the ASP
as ASP data and data submitted to necessary to address safety concerns or calculation, and sales to vendors
Medicaid. when the drug has been removed from operating under CAP are not included
Response: Section 1847B(a)(1)(C) of the market. on that list. Prices offered under the
the Act provides that, in implementing Response: We agree with the CAP must therefore be included in ASP
the CAP, the Secretary may waive recommendation that vendors should be calculations.
provisions of the Federal Acquisition allowed to remove drugs from their lists In this interim final rule, we are
Regulation (FAR), ‘‘other than in cases of withdrawals from the market. therefore establishing the following
provisions relating to the confidentiality We also agree that vendors should be policies and procedures for establishing
of information.’’ The confidentiality allowed to replace such drugs where it single prices for drugs under the CAP,
provisions of the FAR thus apply to the is possible to do so. Therefore, we are and updating those prices as

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appropriate. Once the winning bidders the CAP drugs they use through the CAP 4. Contract Requirements
have been identified, section vendor except when the ‘‘furnish as Section 1847B(b)(4) of the Act
1847B(d)(1) of the Act requires that a written’’ exception applies. If a discusses items to be incorporated in
single price must be determined for physician obtains a CAP drug the contract entered into with an
each drug in a competitive acquisition elsewhere, the drug will not be covered. approved CAP vendor. These include
area, ‘‘based on bids submitted and When a participating CAP physician is the following:
accepted.’’ Consistent with that purchasing a drug under the ‘‘furnish as • The length of the contract.
requirement, we calculate a single price, written’’ exception or is purchasing a • Assurance of the integrity of the
for each drug in a competitive drug that is not available under the drug distribution system.
acquisition area, based on the median of CAP, he or she can bill for those drugs • A pledge to comply with code of
the bids for that drug submitted by the under the ASP system. conduct and fraud and abuse rules.
winning bidders. (In case there are four Section 1847B(b)(4)(B) of the Act • Assurance that drugs are only
winning bidders, we will employ the provides that contracts for the supplied directly to CAP physicians,
average of the bids of the second and acquisition of competitively biddable with limited exceptions, upon receipt of
third highest bidders on each drug to set drugs under the CAP must be for a a prescription and other necessary data.
the median price for the drug. If there period of 3 years. Therefore, it is We set forth the contract terms
are only two winning bidders, we would necessary to determine some between CMS and the approved CAP
use the average of the two bids for the mechanism for setting the single price vendor as well as approved CAP vendor
drug to set the median price for that for each category of drugs in the second responsibilities in proposed § 414.914.
drug.) and third years of this 3-year contract. Comment: A potential vendor
We will also update the single prices We will employ the mechanisms commented that a vendor should be
from the period in which bidding is provided under section 1847B(c)(7) of allowed to withdraw from the CAP at
conducted (the second quarter of the Act for this purpose. Specifically, any time upon a showing of financial
calendar year 2005) to the period in that section requires that each contract hardship or if the vendor can
which the single prices will actually be must provide for disclosure to the demonstrate it cannot acquire product
in effect (calendar year 2006). Secretary of the vendor’s ‘‘reasonable, directly from the manufacturer for less
Specifically, the price of each drug will net acquisition costs’’ on a regular basis than the reimbursed amount.
be updated to the mid-point of calendar Response: We appreciate the potential
(not more often than quarterly). It
year 2006 on the basis of projecting the vendor’s comment on the duration of
further requires that contracts must
overall change in PPI prices for the approved CAP vendor’s contract.
provide for ‘‘appropriate price
prescription preparations. Given the statutory requirement that the
adjustments over the period of the
Section 1847B(d)(2) of the Act term of the contracts are for 3 years, we
contract to reflect significant increases
requires the Secretary to ‘‘establish rules are specifying at § 414.914(a)(2) that an
or decreases in a vendor’s reasonable,
regarding the use ‘‘of the alternative approved CAP vendor may terminate
net acquisition costs, as so disclosed.’’
payment amount provided under the contract in the absence of a contract
section 1847A of the Act’’ for payment In this interim final rule, we are violation, if the approved CAP vendor
of a new drug or biological under the providing in § 414.906(c)that we will provides notice to us by June 30 for an
CAP. Section 1847A of the Act employ the net reasonable cost effective date of termination of
establishes the average sales price information disclosed by each vendor to December 31 of the same year. We
methodology for most drugs paid under determine whether the vendor has believe that to allow for a mid-year
Part B of the Medicare program. In experienced changes in the reasonable, termination, except where we terminate
accordance with this requirement and as net acquisition costs for the drugs the contract as provided in § 414.914(a)
established in § 414.906(c)(2), we will included in our single category of drugs. or § 414.917, including in cases of
apply the payment amount that we Such disclosure will be required quality problems, would be
establish under section 1847A of the Act annually, at the beginning of the fourth unnecessarily disruptive to services
in the case of any drug or biological for quarter of each calendar year of the being provided and to the operation of
which we determine that—(1) the drug contract. If there is a change in the costs the CAP.
or biological is properly assigned to a reported by a particular vendor, we will Contract terms between CMS and the
category established under the CAP; and use a two-step process to recompute the approved CAP vendor, as well as
(2) issuance of a new HCPCS code is single price for each drug in the single approved CAP vendor responsibilities,
required for the drug or biological. We category for all vendors. First, we will will be addressed at § 414.914 as
are encouraging vendors to add such adjust the bid price that the vendor proposed; however, modifications have
drugs that are introduced too late to be originally submitted by the percentage been made to incorporate revisions
incorporated into the bidding process to change indicated in the information that based on issues discussed elsewhere in
the lists of the drugs provided under the vendor disclosed. Next, we would this preamble.
CAP. However, due to systems recompute the single price for the drug
limitations during this initial stage of as the median of these adjusted bid 5. Judicial Review
the CAP, we will only be able to provide prices. This mechanism would apply in Provisions of section 1847(B)(g) of the
for payment to CAP vendors at the time the case of any change in reasonable, net Act concerning administrative and
of the next quarterly update of the CAP acquisition costs, whether those changes judicial review are set forth in
prices. If there are any further annual reflect increase or decreases in costs. regulations at proposed § 414.920. This
updates during the period of a vendor’s We will also make more frequent section of the Act specifies aspects of
contract after we initially provide for adjustments (but not more often than the CAP that are not subject to
payment of a new drug that the vendor quarterly) in four cases: introduction of administrative or judicial review.
is providing, we would employ the a new drug, expiration of a drug patent, We received no specific comments on
mechanism for annual updates of single substitution of a drug for a drug requirements proposed under § 414.920
price amounts that we describe below. withdrawn from the market, or a concerning administrative and judicial
As noted above, participating CAP material shortage that results in a reviews, so we are finalizing this section
physicians are expected to order all of significant price increase for a drug. as proposed.

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D. Implementation of the CAP • Agree to requirements for using the has elected to participate in the CAP
‘‘furnish as written’’ provision. would select an approved CAP vendor
1. Participating CAP Physician Election
• Maintain an inventory for each CAP outside the annual election process if
drug he or she obtains. the previously selected approved CAP
Section 1847B(a)(1)(A) of the Act • Provide support to the approved vendor’s contract is terminated, or if the
specifies that each physician be given CAP vendor on an administrative appeal participating CAP physician leaves the
the opportunity annually to elect to of the drug administration claim denial. group practice that had selected the
participate in the CAP. Physicians who Such support may include medical given approved CAP vendor or relocates
do not elect to participate in the CAP records and written statements. to another competitive area once
would continue to buy the drugs they If we find it necessary, we could multiple CAP competitive areas are
provide to beneficiaries incident to a suspend the physician’s election to developed. We proposed to set forth the
physician’s service and bill the participate in the CAP if the exceptions to the annual selection
Medicare program for them under participating CAP physician fails to process at § 414.908(a)(2) of our
section 1847A of the Act, the ASP abide by the participating CAP regulations.
system. physician election agreement. We requested comments on the
Section 1847B(a)(5)(A) of the Act We proposed to initiate an annual potential options available to affected
requires that we develop a process that participating CAP physician election participating CAP physicians when an
physicians who wish to participate in process and modeled this proposed approved CAP vendor’s contract is
the CAP may use on an annual basis to terminated during the middle of the
process after the existing Medicare
select the approved CAP vendor from CAP year. The proposed participating
Participating Physician Process to the
whom they wish to obtain the categories CAP physician options included leaving
extent possible. In addition, we
of drugs they wish to obtain under the the CAP or selecting another approved
communicated information to
CAP program. The statute also requires CAP vendor as presented in the
physicians about the upcoming CAP
that we coordinate the physician’s proposed participating CAP physician
through the fact sheet that accompanied
election to participate in the CAP with election agreement for the physician to
the 2005 Participating Physician
the Medicare Participating Physician participate in the CAP.
Mailing, and proposed to continue to Comment: One commenter expressed
Process described in section 1842(h) of use that vehicle to communicate
the Act. To inform physicians about the concern that for this first year in 2005
information about CAP to physicians in participating CAP physician election
choices of drugs and approved CAP future years. However, we noted that the
vendors available to them under the agreements must be postmarked by
annual physician participation election November 15 but that the carrier is not
CAP, we are required to post a directory process for accepting assignment runs
on our Web site or to make such a expected to be ready to pay claims until
from November 14 to December 31 of January 1, 2006. This meant that the
directory available to interested each year. Waiting until December 31 to earlier a physician elects CAP and
physicians on an ongoing basis. receive information about physicians’ acquires drugs from CAP, the longer the
In the proposed rule, we specified CAP election choices would not provide physician will wait for reimbursement
that physicians who elect to participate sufficient time for us and our claims for drug administration. The commenter
in the CAP would remain in the processing contractors to record expressed concern that the time lag
program for at least 1 calendar year. As information about participating CAP would be more than 3 months for those
described in more detail later in this physicians and their approved CAP who elect early. The commenter
section, physicians who elect to vendor selections, update claims suggested that we permit physicians to
participate in the CAP would be processing files, perform testing, and complete the participating CAP
required to complete a CAP election inform approved CAP vendors so that physician election process, with the
agreement. By completing this we are ready to pay CAP claims on agreement effective as of January 1,
participating CAP physician election January 1, 2006. For this 3-year contract 2006, and allow them to use the ASP
agreement, the participating CAP cycle for the approved CAP vendors, system until then.
physician would select the approved there will be one drug category. In the Response: Although the participating
CAP vendor that he or she would use future, as more CAP drug categories are CAP physician election period ends on
under the CAP and would agree to the developed, the collection of information November 15, 2005, the CAP does not
participating CAP physician on the selection of the approved CAP begin until January 1, 2006. Physicians
requirements. As described in further vendor and drug category will be more who elect to participate in the CAP are
detail in this section and the complicated. In addition, a deadline of to continue to use the ASP system
regulations, a participating CAP December 31 would not allow sufficient through December 31, 2005. On January
physician agrees to— time for approved CAP vendors to meet 1, 2006, physicians who have elected to
• Share information with the the operational timeframe of January 1. participate in the CAP should order
approved CAP vendor to facilitate the Therefore, we proposed that the drugs from the approved CAP vendor
collection of applicable deductible and participating CAP physician election they have selected. The early selection
coinsurance. process would run from October 1 to process is necessary so that the local
• Promptly file drug administration November 15 of each calendar year. We carrier and the designated carrier can
claims. proposed that participating CAP begin system testing to be ready to pay
• Timely and appropriately pursue physicians who intend to continue into claims. This is consistent with the
claims that are denied because of subsequent years may signal that statute, which requires that the CAP be
medical necessity issues. preference by executing an abbreviated phased in beginning in 2006.
• Accept assignment for CAP drug participating CAP physician election Comment: Commenters opposed the
administration claims. agreement. The abbreviated agreement election period of October 1 to
• Notify the approved CAP vendor would be used to indicate a preference November 15 for physicians to elect to
when a drug is not administered. to change approved CAP vendors or, as participate in the CAP. They asserted
• Agree to comply with emergency applicable, drug categories from year to that this deadline would confuse
drug replacement rules. year. We proposed that a physician who physicians because it is different from

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the Medicare participation agreement statute does provide for an annual select an approved CAP vendor outside
timeline. They proposed that the election, nothing in the statute requires of the annual selection process or opt
deadline coincide with the participation or supports the use of a ‘‘lock-in’’ out of the CAP for the remainder of the
agreement election period (November 14 period. Still other commenters annual selection period when one of the
through December 31) and that although requested that we provide more conditions specified in § 414.908(a)(2) is
notification of enrollment may occur flexibility within the CAP enrollment met.
after December 31, physicians could bill period to be able to evaluate the impact Comment: Commenters urged us to
for drugs under the ASP system until on a practice’s financial situation by assure physicians that vendors will be
the vendor had processed and being able to asses the most current ASP required to accept all physicians who
acknowledged approval of the physician payment rates, published quarterly, and elect to participate in the CAP. A few
application. A commenter suggested then determining whether to elect to commenters also requested assurance
that we should provide vendor participate in the CAP. that vendors not be allowed to terminate
notification of selection by a physician. Response: Section 1847B(a)(1)(A)(ii) the ‘‘contract’’ with a physician because
Response: We believe that an election and section 1847B(a)(5)(A)(ii) of the Act the beneficiaries are not making their
period that is earlier than the require that each physician be given the coinsurance payments.
participating physician enrollment opportunity annually to elect to obtain Response: As noted above in section
process is necessary to allow both the drugs and biologicals through the CAP II.B.2 of this preamble, this interim final
approved CAP vendors and us to and to select an approved CAP vendor. rule does not prohibit CAP vendors and
prepare for the CAP and to be ready to Furthermore, section 1847B(a)(5)(A)(i) physicians from entering into a contract
ship drugs and pay claims on January 1, of the Act allows for selection of another or agreement governing their
2006. Waiting until December 31 to approved CAP vendor more frequently arrangements for the provision of CAP
receive information about physicians’ than annually in exigent circumstances drugs or other items or services.
CAP election choices will not provide as defined by CMS. As discussed above, However, we will not require contracts
sufficient time for the approved CAP we proposed that a participating CAP between participating CAP physicians
vendors to acquire the necessary volume physician would select an approved and the approved CAP vendor they
of drugs and make introductions with CAP vendor outside the annual election select. Instead, there will be 3-year
participating CAP physicians who have process if the previously selected contracts between CMS and the
selected them in order to meet the approved CAP vendor’s contract is approved CAP vendors, and
operational timeframe of January 1, terminated, or if the participating CAP participating CAP physicians will sign
2006. Further, waiting until December physician leaves the group practice that annual participating CAP physician
31 will not allow for us and our claims had selected the given approved CAP election agreements with CMS.
processing contractors to record vendor, or the participating CAP Discussed elsewhere in this interim
information about participating CAP physician relocates to another final rule are the criteria for the
physicians and their selected approved competitive area (once multiple CAP selection of the approved CAP vendor
CAP vendor, update the Web site with competitive areas are developed). and the content of the approved CAP
CAP information, update the claims Physicians will need to carefully vendor contracts. We will include a
processing files, perform testing, and consider their options because the CAP provision in the approved CAP vendor
inform approved CAP vendors so that election agreement will be binding for 1 contract that requires an approved CAP
we are ready to pay CAP claims on calendar year. We proposed to set forth vendor to accept all physicians who
January 1, 2006. For this 3-year contract the exceptions to the annual selection elect to participate in the annual CAP
for the approved CAP vendors, there process at § 414.908(a)(2) of our election process. In addition, the
will be one drug category. In the future, regulations. contract will specify that approved CAP
as more CAP drug categories are It is typical for Government and vendors may not unilaterally drop
developed, the collection of information private sector programs to operate on a participating CAP physicians. Rather,
on the election of the approved CAP 1-year basis. However, we have built in the approved CAP vendor may ask the
vendor and drug category will be more safeguards in the CAP that participating designated carrier to intervene under
complicated. CAP physicians may use in addressing the dispute resolution process described
Comment: Several commenters operational issues that arise in addition elsewhere in this preamble.
asserted that physicians should have the to communicating their program issues As noted above, in addition to the 3-
ability to elect into the system more to their local carrier. These include the year approved CAP vendor contract
than once per year. Commenters dispute resolution option that there will be an initial participating
suggested election options that ranged participating CAP physicians may use to CAP physician election agreement, and
from the ability to disenroll or switch address operational and quality issues an abbreviated participating CAP
vendors at any time, to the adoption of (see section II.B.3 of this interim final physician agreement for subsequent
a transition period ranging anywhere rule on dispute resolution). If approved years, that participating CAP physicians
from 3 to 24 months during which there CAP vendor quality issues cannot be will sign to notify us of their intent to
would be greater flexibility to opt in or resolved, we may terminate the elect the CAP and agree to the terms and
out of the CAP. Commenters were approved CAP vendor’s contract. The conditions of the CAP participation. We
concerned that the 1-year enrollment participating CAP physician would then are clarifying the definition of the
period would commit them to a poor have the option to elect a new approved participating CAP physician election
performing vendor with no recourse CAP vendor mid-cycle. We also believe agreement at § 414.902 to codify that
available to them. In particular, that by the time physicians are given the participating CAP physicians must sign
commenters were concerned with the option to elect the CAP, they will have this agreement to notify us of their
quality of the products, timely delivery had almost 1 year of experience in the participation in CAP and to agree to the
of drugs, overall performance of the ASP system and will be able to choose terms and conditions of CAP
vendor, and the physician’s financial which option is best for their practice. participation as set forth in these
situation if he or she chooses the CAP However, in response to comments, we regulations.
versus the ASP system. Other have modified § 414.908(a)(2), to allow A physician may elect to participate
commenters asserted that although the a participating CAP physician to either in the CAP independently of his or her

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choice to participate in Medicare. completion this summer so that the circumstance that would permit a
Participation in Medicare is not a carriers can disseminate it to their physician to choose another vendor.
requirement for participation in the physicians by September 1, 2005. Before The commenter believes that it would
CAP. However, as noted below, all October 1 2005, there will be an not be necessary for a nationally based
participating CAP physicians must be education campaign to inform acquisition area program.
enrolled in Medicare. physicians about the CAP Web site and Response: For a nationally based
Participating CAP physicians will the election process. By October 1, 2005, approved CAP vendor, it would not be
select the approved CAP vendor to we will make available, on our Web site, necessary for a relocating participating
provide them with drugs for their information on the CAP, a directory of CAP physician to choose another
Medicare patients on an annual basis. the approved CAP vendors and the approved CAP vendor. This would be
We previously described the specific NDC numbers the approved the case for this first round of
circumstances, listed in § 414.908(a)(2), CAP vendors will be providing, and the competitive acquisition. In the future,
under which a physician who has participating CAP physician election when we create other competitive
elected to participate in the CAP would agreement forms. We will continue to acquisition areas, we believe
select an approved CAP vendor outside update the approved CAP vendor participating CAP physicians who are
the annual election process. In addition directory on our Web site or make the relocating to another competitive
to those circumstances, for the specific directory available to interested acquisition area will need to be able to
circumstance that the beneficiary does physicians on an ongoing basis, as select a different approved CAP vendor.
not pay their coinsurance, we will allow required under the statute. Therefore, we retain this provision in
a participating CAP physician the Physicians will be asked to access the the regulation.
opportunity to opt out of that drug participating CAP physician election Comment: Commenters suggested that
category; and while there is only one agreement on our Web site and if a vendor leaves the program mid-year,
drug category for CAP, the participating determine whether they would like to the physician should have the option to
CAP physician would be allowed to opt- elect to participate in the program. They either leave the program or choose
out of the CAP altogether. The opt-out will have 6 weeks in which to evaluate another vendor. In particular, one
would be effective until the next the information, download and commenter suggested that physicians
election cycle begins at which time the complete the election forms and mail might choose to be in the CAP based on
physician can elect a new approved them to their carrier. Physicians who the specific brand-name drugs a vendor
CAP vendor, that same approved CAP elect to participate will be asked to would supply. In that case, the
vendor or leave CAP. We are amending download, complete, and sign the CAP commenter believes, if that vendor
our regulations at § 414.908 to include election agreement. The participating leaves the program mid-cycle, the
this provision. CAP physician election agreement will physician should be given the option to
Comment: Commenters questioned require that they select the approved choose another vendor or return to the
whether information for the CAP CAP vendor(s) in their area from which ASP system. However, another
election would be available timely. One they would like to obtain drugs and the commenter indicated that because
commenter stated that targeting to categories of drugs they wish to obtain physicians are accustomed to changing
complete the following steps by Fall through the program when multiple suppliers on a frequent basis, it should
2005 appeared to be an unrealistic categories of drugs become available. not be problematic for them to select a
timeframe: Bidding and finalizing For this 3-year contract-cycle with the different CAP vendor.
vendors, having materials sent to approved CAP vendor, there will only Response: We previously described
physicians, notifying beneficiaries, and be one category of drugs. the circumstances, listed in
allowing physicians time to evaluate the Physicians will be instructed to return § 414.908(a)(2), under which a
specific NDCs. Another commenter the completed participating CAP physician who has elected to participate
would like to see the list of approved physician election agreement to their in the CAP would select an approved
CAP vendors within a sufficient amount local carrier. The participating CAP CAP vendor outside the annual election
of time to be able to make a decision on physician election agreement must be process. These were if the selected
whether to select a CAP vendor or the postmarked by November 15. The local approved CAP vendor’s contract is
ASP system. carrier will note the physician’s terminated, or if the participating CAP
Response: We stated in the proposed decision to participate in the CAP, and physician leaves the group practice that
rule that we would prepare a posting on the approved CAP vendor and had selected the given approved CAP
our Web site approximately on October categories of drugs selected when vendor, or the participating CAP
1, describing the approved CAP vendors multiple categories of drugs become physician relocates to another
we have selected for CAP, their available. The local carrier will forward competitive acquisition area, once
categories of drugs, and the geographic information from the participating CAP multiple CAP competitive areas are
areas within which they would operate. physician election agreement to the CAP developed, or other exigent
We stated that we would publicize the designated carrier. The designated circumstances defined by CMS.
participating CAP physician election carrier will compile a master list of all However, under these specific
information on our Web site via our participating CAP physicians’ approved circumstances, the participating CAP
physicians’ listservs, and through our CAP vendor and drug category physician may also opt out of CAP. We
Medicare fee-for-service contractors’ selections. In addition, the designated have revised the regulation accordingly.
Web sites and newsletters. We would carrier will notify each approved CAP
also coordinate with physician specialty vendor of the participating CAP Requirements for Group Practices
organizations to inform their members physicians who have elected to enroll We specified in the proposed rule
that the participating CAP physician with that approved CAP vendor. that, consistent with the Medicare
election information is available. Comment: One commenter urged us Participating Physician Process, if
We agree that this is an ambitious to modify the proposed members of a group practice elect to
timeline and intend to provide timely § 414.908(a)(2)(ii) to remove the participate in the CAP, the entire
communication about the CAP. The example of ‘‘physician relocates to practice would participate. Physician
CAP fact sheet is scheduled for another competitive area’’ as an exigent groups that elect to participate in the

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CAP would be paid for drug participate in the CAP and that physicians’ choice while simplifying the
administration based on the group PIN physicians who are part of the group election process, assuring that election
number that they place on their claim. practice should not be permitted to bill into the CAP is correctly identified for
We proposed that when a physician separately for drugs covered under the billing purposes, and minimizing the
bills as a member of a group using the CAP. potential for program abuse.
group PIN, he or she must follow the A commenter requested that we With respect to the comment that the
group’s election to participate or not to clarify whether an individual physician group CAP election apply across group
participate in the CAP. However, we in a group practice would be allowed to and private practice affiliations, we
also proposed that if a group practice enroll in the CAP program under his or believe the commenter is recommending
physician maintains a separate solo her own individual number; in not allowing a physician in a group and
practice, he or she could make a particular, the commenter questioned a solo practice in another location
different determination to participate or whether the group would be held separately to determine whether to
not to participate in the CAP with accountable to the individual’s decision. participate in the CAP. In the proposed
respect to the solo practice if using his Commenters asserted that it would be rule, we noted that if a physician has a
or her individual PIN. the individual physician’s choice to solo practice in another location, he or
Comment: Commenters asserted that participate in the CAP and it should not she will be able to make a separate
requiring a single CAP election for an be attributed to the whole group, unless determination about whether to
entire physician group practice is the business as a whole enrolls the participate in the CAP. To assist the
contrary to the statute. Some of these entire group under its number in the approved CAP vendor in identifying for
commenters suggested that we allow program. which practice a physician has elected
physicians that practice in groups to Response: We do not believe that CAP CAP, we will be requiring collecting on
elect to participate in CAP on an elections on a group basis violate the the participating CAP physician election
individual or on a specialty basis. This statutory provision requiring each form the participating CAP physician’s
flexibility would allow a specialty physician to be given an opportunity to UPIN and the PIN or Group PIN, or
having difficulty obtaining its drugs to elect to obtain drugs under the CAP both, for each practice that has elected
elect CAP while not affecting another program. The statute requires us to the CAP. We believe this information
specialty within the same group that is coordinate the selection of the approved will avert the unethical practices that
satisfied with ‘‘buy and bill.’’ The CAP vendor with agreements entered were of concern to the commenter.
commenters asserted that, without such into under section 1842(h) of the Act Comment: Some commenters stated
flexibility multi-specialty groups may (agreements to become a Medicare that groups whose physicians cannot
break up into separate practices. participating physician). The agree on whether to elect CAP
Alternatively, the commenters suggested participating physician enrollment participation will dissolve or break up.
that physicians might provide care at process coordinates the participation The commenters asserted that the
other sites operated by the group, election of, and claims processing for, dissolution or breakup of group
thereby potentially decreasing patient physicians, including those who work practices had implications under the
access to care in order to comply with in one or more group practices. physician self-referral prohibition (also
the group election provision. Consistent with the rules for Medicare known as the ‘‘Stark law’’) in section
In contrast, other commenters participation agreements under section 1877 of the Act. Specifically, the
supported the recommendation that all 1842(h) of the Act, CAP elections are commenter feared that groups suffering
physicians in a group practice who linked to the billing number under a partial breakaway of group members
enroll in the CAP program under the which an individual physician bills. might be unable to satisfy the
group number must adhere to the Accordingly, if a physician in a group ‘‘substantially all test’’ under the Stark
participation decision of the group practice chooses to bill for his or her definition of a ‘‘group practice’’
because it simplifies the need to enroll professional services through a billing (§ 411.352), which in turn would
all group practice physicians in the CAP number assigned to a group, he or she jeopardize the group’s ability to rely on
program. One commenter requested that has chosen to delegate the CAP election the Stark exception for in-office
the group CAP election apply across to the group. If a physician practices in ancillary services.
group and private practice affiliations. a group that has elected to participate in Response: We think it is unlikely that
They recommended that we require CAP, but the physician wants to ‘‘buy CAP will cause a significant number of
group practices to submit both group and bill,’’ the physician may avoid group practices to dissolve because a
and individual unique provider participating in CAP by billing all of his group physician may still ‘‘buy and
identification number (UPIN) numbers or her professional services under his or bill,’’ even though the group has elected
upon application to avoid the her own billing number instead of under to participate in CAP, as long as the
possibility of allowing physicians to a billing number assigned to the group physician bills all of his or her
‘‘cherry pick’’ medications to administer (this would require the physician to professional services rendered to group
in their private practice, thereby revoke his or her reassignment patients under his or her own
requiring approved CAP vendors to agreement with the group in accordance individual PIN. Moreover, we believe
supply a disproportionate share of the with applicable Medicare procedures). that physicians choose to practice in a
unprofitable drugs. Another commenter Thus, a physician in a group practice group for many reasons having nothing
asserted that there is a possibility that may not participate in the two payment to do with whether or not a vendor
a group practice may channel different systems (ASP and CAP) at the same time furnishes a particular item or service to
purchases through different physicians, in the same practice. However, if a patients served by the group (for
allowing the group to choose on a per physician renders professional services example, the ability to share overhead
drug basis whether to use the CAP or in more than one group practice (or in costs, coverage duties, and expertise).
the ASP system. The commenter a group practice and in a separate solo Under the ‘‘substantially all test’’
suggested that to avoid such abuses, practice), the CAP elections of the referenced by the commenter,
group practices (including any entities different groups or practices need not be substantially all of the patient care
controlled by a group practice) should the same. We believe that our services of the physicians who are
be required to choose, as a group, to interpretation will preserve each members of the group must be furnished

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through the group and billed under a obtain drugs and the categories of drugs administration claim denials. Therefore,
billing number assigned to the group, they wish to obtain through the program non-participating physicians who elect
and the amounts received must be (when multiple categories of drugs to join the CAP will need to accept
treated as receipts of the group. We see become available). For this 3-year assignment for CAP drug administration
no reason why the resignation of one or contract-cycle with the approved CAP claims on a case-by-case basis in order
more physician members of a group vendors, there will only be one category to be in compliance with their CAP
would cause the remaining group of drugs. election agreements. We are revising the
members to be unable to satisfy the (5) Physicians will be instructed to definition of participating CAP
‘‘substantially all test.’’ On the other return the completed participating CAP physician to address this issue at
hand, depending on the circumstances, physician election agreement to their § 414.902.
it is possible that the decision of some local carrier. The participating CAP
group members to bill individually and physician election agreement must be Toward the end of each calendar year
not through a number assigned to the postmarked by November 15 for (generally in November), all Medicare
group could cause the group to fail the participation in the CAP beginning carriers have an open enrollment
‘‘substantially all test.’’ Accordingly, January 1 of the following year. period. Also toward the end of each
physicians and their group practices (6) The local carrier will note the calendar year (generally in October), we
will have to consider the Stark law physician’s decision to participate in will be making available to physicians
implications of their CAP elections and the CAP, and the approved CAP vendor the option to participate in the CAP. As
exercise their choice in a manner that and categories of drugs selected (when noted above, a physician who is newly
will ensure compliance with Stark. multiple categories of drugs become enrolled in Medicare will have the
available). For this 3-year contract-cycle opportunity to elect to join the CAP.
CAP Election Agreement with the approved CAP vendor, there Comment: One commenter requested
Consistent with the Medicare will only be one category of drugs. that we clarify whether physicians will
participating physician enrollment (7) The local carrier will forward be penalized if they do not elect to
process, we will give physicians who information from the CAP election
participate in the CAP in the first year.
are newly enrolled in Medicare 90 days agreement to the CAP designated
Another commenter requested that we
in which to decide to elect to participate carrier.
(8) The designated carrier will clarify the definition of ‘‘new
in the CAP. We will provide
compile a master list of all participating physician’’ for the purposes of the CAP
information about the CAP when they
CAP physicians’ approved CAP vendor program and the triggering event for the
enroll in Medicare and will be
instructed how to find the election and drug category selections. In 90 days notification timeline.
information and forms on our Web site. addition, the designated carrier will Response: We will not penalize
If they elect to participate in the CAP, notify each approved CAP vendor of the physicians if they choose not to
they will download the participating participating CAP physicians who have participate in the CAP in the first year.
CAP physician election agreement and selected that approved CAP vendor. If a physician chooses not to enroll the
submit it to their Medicare carrier. (9) After the necessary claims first year, there will be an annual
The final election process is processing files are prepared, the local process for physicians to participate in
summarized as follows: carrier and the designated carrier will CAP, and the physician may enroll
(1) We will prepare a posting on our begin system testing to be ready to pay during the next available period.
Web site approximately on October 1, claims by January 1, 2006. However, if the reason for not electing
describing the approved CAP vendors, The requirements concerning a to participate in the first year of the CAP
the categories of drugs they will be physician’s election to participate in the was that the physician was newly
providing, and the geographic areas CAP are set forth in § 414.908(a). enrolled in Medicare, he or she may
within which each approved CAP Comment: Commenters requested elect to participate within 90 days of his
vendor will operate. clarification as to whether a physician or her billing number activation, and his
(2) We will publicize the availability must participate in Medicare in order to or her initial CAP election agreement
of the participating CAP physician participate in the CAP. will continue through December 31 of
election information on our Web site via Response: We believe that the
the calendar year. The date that the
our physicians’ listservs, and our commenter is asking if the physician
billing number is activated is the
Medicare fee-for-service contractors’ must agree to accept assignment for all
triggering event of the 90-day election
Web sites and newsletters. We will also Medicare covered services, not if a
time-period. This is consistent with the
coordinate with physician specialty physician must be enrolled in the
process for new physicians to choose to
organizations to enlist their assistance Medicare program. A physician is
participate in Medicare and accept
in informing their members that the required to be enrolled into the
physician election information is Medicare program as a supplier in order
available. to receive a Medicare billing number. We will finalize the requirements at
(3) Physicians will be asked to access Physicians who participate in Medicare § 414.908 with modification. At
the participating CAP physician election must accept assignment, but non- § 414.908(a)(2), we set forth the
agreement on our Web site and participating physicians are not exceptions to the annual selection
determine whether they would like to required to accept assignment. A process. At § 414.908(a)(5), we amend
elect to participate in the program. physician can be in the CAP and have the provision to include the option for
(4) Physicians who elect to participate a CAP election agreement if he or she is a physician to opt out of that drug
will be asked to download, complete enrolled in the Medicare program, but is category; and while there is only one
and sign the participating CAP not required to be a Medicare drug category for CAP, the physician
physician election agreement. The participating physician who has elected would be allowed to opt-out of the CAP
participating CAP physician election to accept assignment of all Medicare altogether for the remainder of the year.
agreement will require that they select covered services. However, as we have At § 414.902, we are clarifying the
the approved CAP vendor(s) in their implemented the CAP, participating definition of the participating CAP
area from which they would like to CAP physicians must appeal drug physician election agreement.

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2. Vendor or Physician Education 3. Beneficiary Education Comment: Several commenters were

pleased with the proposals to create and
To ensure that vendors and The CAP will have an impact on distribute material on CAP to educate
physicians have timely access to beneficiaries who receive physician- stakeholders while one commenter
accurate Medicare program information administered drugs. As discussed in the believed that a fact sheet was not
regarding the CAP, in the proposed rule, March 4, 2005 proposed rule, if a sufficient. Some commenters indicated
we indicated we would instruct the CAP physician elects to participate in the that the physician should be required to
designated carrier to use various CAP, beneficiaries receiving services provide information about the CAP to
communication channels at the local from this physician would receive a the beneficiary. However, one
and national levels to disseminate separate medical summary notice (MSN) commenter stated that proactive
information about the CAP and assist from the designated carrier that communication for services that they
vendors and physicians in processes invoices for the approved may never receive will increase costs to
understanding the Medicare program’s CAP vendor as well as a bill from the CMS and physicians for a program not
operations, policy, and billing and approved CAP vendor for the applicable to all beneficiaries, while
administration procedures regarding the coinsurance of the drug. This could another commenter recommended the
CAP. The CAP designated carrier would cause confusion for the beneficiary fact sheet be developed as a template
be instructed to use data analyses in because he or she would only know that with sections that could be customized
tailoring its outreach and educational the drugs were administered by a by each CAP physician so information
efforts for vendors and physicians physician. In addition, because the relevant to a specific beneficiary could
regarding identified areas of confusion activity of the approved CAP vendor be added (for example, CAP drugs being
about the CAP. Additionally, we would be transparent to the procured, name of vendor).
specified that the CAP designated beneficiaries, they may question why Other commenters opposed a mandate
carrier would be instructed to use mass they are receiving a bill from an to require physicians to distribute
media, as well as educational and unknown entity. outreach materials to beneficiaries. One
outreach products, services, forums, and To educate beneficiaries in a of these commenters stated it was not
partnerships in an effort to disseminate proactive fashion, we proposed to the physician’s responsibility to make
information about, and provide develop a beneficiary-focused fact sheet this information available to their
assistance regarding, the CAP to the and to update existing related patients, while another stated practice
vendor and healthcare practitioner educational materials to reflect these management systems cannot easily
communities. The fundamental goal of changes. The fact sheet would be identify patients who are participating
our outreach and education available for physicians who elect to in a subprogram of an individual health
requirements of the CAP designated participate in the CAP to provide to insurance product. Other commenters,
carrier would be to ensure that those beneficiaries at the time of service. It while agreeing this information is
who provide services to beneficiaries would explain the CAP and its impact important, believed that this
receive the information they need to on the beneficiary. We would also make information should come from CMS and
understand the Medicare program so this fact sheet available at 1–800– added that the physician and the CAP
that it is administered appropriately and MEDICARE, as well as on the http:// vendor should not be required to
billed correctly. As such, we would be Web site. Although educate the beneficiary directly as this
involved in oversight of, and we did not propose to require is outside their role.
partnership with, the CAP designated One commenter also encouraged us to
participating CAP physicians to provide
carrier’s vendor and physician outreach have the CAP vendors supply fact sheets
beneficiaries with the fact sheet, we
and educational program regarding the or introductory letters to the CAP
requested comments on the
CAP. physicians who contract with them that
administrative burden associated with
Comment: Commenters were the physician can provide to
this activity. In addition, although we
supportive of our proposal to utilize beneficiaries.
did not propose to require any Response: We agree that the education
numerous outreach and educational additional options for specific outreach, of the stakeholders in the CAP is
activities to disseminate information we requested comments on other extremely important and we will be
about the CAP and emphasized that mechanisms that might be used to providing information on the CAP as
education is paramount to successful inform the beneficiary of services discussed in the proposed rule. Because
implementation of the CAP program. provided as part of the CAP and the we are aware that the CAP may not
Commenters also stressed that burden that would be associated with impact all beneficiaries, we will not
information provided by the CAP this mechanism. provide specific information on the CAP
designated carrier must be correct and We also proposed to provide to all Medicare beneficiaries. However,
timely and that CMS stay actively information about the CAP in the 2006 we will provide some general
involved in the process. versions of the Medicare & You information about the CAP in the
Response: We also believe that handbook and Your Medicare Benefits. Medicare & You booklet so that
education will be vital to the success of The handbook is mailed annually to beneficiaries will be aware of this
the CAP and will be ensuring that the each beneficiary household. Your program. Although a few commenters
CAP designated contractor fulfills the Medicare Benefits is available upon recommended that the participating
responsibility of providing timely and request at 1–800–MEDICARE, as well as CAP physician should not be required
accurate information on the CAP. on the Web to provide a fact sheet to beneficiaries,
As proposed we will have the CAP site. We also proposed to provide we believe that it is important that
designated carrier utilize a variety of information to the 1–800–MEDICARE beneficiaries understand that their
communication channels at the local helpline so that operators can answer physician has elected to participate in
and national levels to disseminate CAP-related questions. The http:// the CAP and what this will mean to the
information about the CAP and assist Web site would also beneficiary. Therefore, we will require
approved CAP vendors and physicians have consumer-friendly information the physician to provide the fact sheet
in understanding this new program. available about the CAP. developed by us during the beneficiary’s

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first visit to the office subsequent to the provisions of this interim final rule that election agreement.’’ In addition, we are
physician enrolling in the CAP. differ from the proposed rule follow. revising the definition to clarify that this
This fact sheet detailing the CAP Under § 414.902, we are revising our is an agreement the physician signs to
program in plain language will also be definitions section to revise current notify CMS of the physician’s election
available to beneficiaries via 1–800– definitions set forth in the proposed rule to participate in the CAP and to agree
MEDICARE (1–800–633–4227) and and to add new definitions: to the terms and conditions of CAP When We are making a conforming change participation as set forth in our
distributing the fact sheet, physicians to revise ‘‘approved vendor’’ to read regulations.
may include additional information ‘‘approved CAP vendor.’’ In § 414.902, • We are adding a definition for
specific to the beneficiary. We believe we are also making a technical prescription order. We are defining a
that this approach will allow the clarifying revision to the definition of an prescription order as a written order
participating CAP physician to address ‘‘approved CAP vendor’’ to specify that submitted by the participating CAP
the specific needs of the beneficiary and this vendor is one that has been physician to the approved CAP vendor
minimize the burden on the approved by CMS to participate in the that meets the requirements of part 414,
participating CAP physician. As CAP program under ‘‘1847B of the Act’’ subpart K.
commenters suggested, we will also to avoid confusion with the competitive • Under § 414.902, we are adding the
encourage the approved CAP vendors to acquisition program for DME provided definition of routine delivery to mean
provide introductory information about for under section 1847 of the Act. We the delivery of a drug within 2 business
themselves and the CAP program that are also revising the definition of days in appropriate shipping and
could be shared with beneficiaries. As ‘‘participating CAP physician’’ to clarify packaging, in all areas of the United
discussed in section II.B.3 of this that physicians who do not participate States and its territories, with the
interim final rule, we will also have the in Medicare but elect to participate in exception of the Pacific Territories. In
approved CAP vendor include the CAP agree to accept assignment for the Pacific Territories, routine delivery
information on the beneficiary grievance CAP drug administration services. of drug means delivery of a CAP drug
process with any bill that is sent to the We are adding a definition of ‘‘CAP within 7 business days in appropriate
beneficiary. As a final point, as part of drug’’ to mean a physician-administered shipping and packaging. This timeframe
the vendor application process, we have drug or biological furnished on or after will be reduced if product stability
stated that customer service is of January 1, 2006 described in section requires it, meaning that the
primary importance and approved CAP 1842(o)(1)(C) of the Act and supplied by manufacturer’s labeling instructions,
vendors must demonstrate the ability to an approved CAP vendor under the CAP drug compendia, or specialized drug
respond to inquiries on both weekdays as provided in this subpart. stability references indicate that a
and weekends. • Under § 414.902, we are adding the shorter delivery timeframe is necessary
Because we recognize the impact the definition of emergency delivery to to avoid adversely affecting the
CAP will have on Medicare mean the delivery of a CAP drug within product’s integrity, safety, or efficacy.
beneficiaries, we will use a multi-tiered one business day in appropriate • Under § 414.902, we are adding the
educational approach to provide shipping and packaging, in all areas of definition of ‘‘timely delivery’’ to mean
information that will increase the United States and its territories, the delivery of a CAP drug within the
beneficiary awareness of the issues with the exception of the Pacific defined routine and emergency delivery
related to the CAP. The outreach efforts Territories. In the Pacific Territories, timeframes. Compliance with timely
will include the following: emergency delivery means delivery of a delivery standards is also a factor for
• A plain language fact sheet to be CAP drug within 5 business days in evaluation of potential and approved
distributed by participating CAP appropriate shipping and packaging. We CAP vendors.
physicians and available upon request are also adding that this timeframe may • We are also making additional
via 1–800–MEDICARE (1–800–633– be reduced if product stability requires conforming changes to terms under our
4227) and it, meaning that the manufacturer’s definitions section to include revising
• New language in the existing labeling instructions, drug compendia, ‘‘competitive area’’ to read ‘‘competitive
Medicare & You and Your Medicare or specialized drug stability references acquisition area.’’
Benefits booklets. The Medicare & You indicate that a shorter delivery We are revising § 414.906(a)(4) to
booklet is mailed each fall to every timeframe is necessary to avoid specify that when the approved CAP
beneficiary household. Your Medicare adversely affecting the product’s vendor delivers the drugs directly to the
Benefits is available through 1–800– integrity, safety, or efficacy. participating CAP physician, the drugs
MEDICARE (1–800–633–4227) and • We are adding the definition of an must be in unopened vials or other emergency situation to mean an original container as supplied by the
• CAP related scripts for the customer unforeseen occurrence or situation manufacturer or from a distributor that
service representatives at 1–800– determined by the participating CAP has acquired the products directly from
MEDICARE (1–800–633–4227). physician, in his or her clinical the manufacturer, and the shipping
• Frequently asked questions and judgment, to require prompt action or material must include language stating
answers in consumer friendly language attention for the purposes of permitting that the drug was acquired in a manner
regarding the CAP available at the participating CAP physician to use that is consistent with statutory on the Web. a drug from his or her own stock, if the requirements. In addition, we are
other requirements for the CAP under providing the process that the approved
III. Provisions of the Interim Final Rule CAP vendor must follow if the approved
§ 414.906 are met.
[If you choose to comment on issues in this • We are adding a definition ‘‘Pacific CAP vendor opts to split shipments. We
section, please include the caption territories’’ to mean, for purposes of the are revising § 414.906(a)(5) to specify
‘‘Provisions to the Interim Final Rule’’ at the CAP, American Samoa, Guam, or the that the approved CAP vendor bills
beginning of your comments.] Northern Mariana Islands. Medicare only for the amount of the
For the most part, this interim final • We are making a conforming change drug that the participating CAP
rule incorporates the provisions of the to revise ‘‘CAP election agreement’’ to physician has administered to the
March 4, 2005 proposed rule. Those read ‘‘Participating CAP physician patient, and the beneficiary’s

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coinsurance will be calculated from the drug than was originally ordered. The At § 414.908(c)(3), we are adding
quantity of the drugs that is participating CAP physician and the language indicating that CMS may
administered. approved CAP vendor will agree on how refuse to award a contract or terminate
We are making revisions under to handle the unused CAP drug. We an approved CAP vendor contract for
§ 414.906(c)(1) to clarify the payment outlined the procedures the past violations or misconduct related to
methodology for CAP drugs. participating CAP physician follows if the pricing, marketing, distribution, or
We are making revisions under an agreement is reached for this handling of drugs provided incident to
§ 414.906(c)(2) regarding those physician to maintain the CAP drug in a physician’s service.
circumstances under which the his or her inventory to be administered At § 414.914(a), we are making
alternative payment amount established later. revisions to clarify that the term of the
under section 1847A of the Act may be We are adding new § 414.908(a)(3)(x) contract between the approved CAP
used to establish payment for a to state that the physician participating vendor and us is 3 years, ‘‘unless
competitively biddable drug. At in the CAP agrees not to transport CAP terminated or suspended earlier as
§ 414.906(c)(2)(i) and (ii), we are drugs from one practice location (place provided in this section or § 414.917.’’
clarifying that this alternative payment of service) to another location. At § 414.914(c)(1), we describe the
amount may be allowed if the drug is We are adding new § 414.908(a)(3)(xi) elements of the approved CAP vendor’s
properly assigned to a category to specify that the physician compliance plan. We indicated in the
established under the CAP and if a participating in the CAP agrees to proposed rule that the approved CAP
HCPCS code must be established for the provide the CMS-developed CAP fact vendor must comply with all applicable
drug. sheet to beneficiaries. Federal and State laws, regulations, and
We are adding § 414.906(f) to specify guidance and we have added that this
We are adding a new
the process the approved CAP vendor also includes, but is not limited to,
§ 414.908(a)(3)(xii) to specify that the
must follow if the approved CAP vendor compliance with the Prescription Drug
participating CAP physician may
substitutes a CAP drug. Marketing Act, the physician self-
We are revising § 414.908(a)(2) to receive payment under the ASP system
when medical necessity requires a referral (‘‘Stark’’) prohibition, the Anti-
clarify that under certain circumstances, Kickback statute, and the False Claims
the participating CAP physician not certain brand or formulation of a drug
that the approved CAP vendor has not Act.
only has the option to choose another Under 414.914(f)(2), we are clarifying
approved CAP vendor outside of the been contracted to furnish under the
CAP. that the approved CAP vendor must
annual selection process but also the have arrangements for shipment at least
option to ‘‘opt out’’ of the CAP for the We are adding a new § 414.908(a)(5)
5 ‘‘weekdays’’ each week of CAP drugs
remainder of the annual selection to set forth the opt out provision for
under the contact.
period. The circumstances may include participating CAP physicians that is in
Under § 414.914(f)(7), we are
when the approved CAP vendor ceases addition to the circumstances described
clarifying that the terms of the contract
to participate in the CAP; the under § 414.908(a)(2). We specify that if
for the approved CAP vendor must also
participating CAP physician leaves a the approved CAP vendor refuses to
specify that the approved CAP vendor
group practice participating in CAP; the ship to the participating CAP physician
comply with all ‘‘applicable Federal and
participating CAP physician relocates to because the conditions of § 414.914
State laws, regulations, and guidance’’
another competitive acquisition area; or have been met, the physician can
related to the prevention of fraud and
other exigent circumstances defined by withdraw from CAP for the remainder of
CMS. the year immediately upon notice to us • Under § 414.914, we are adding
We are revising § 414.908(a)(3)(iii) to and the approved CAP vendor. additional conditions under the terms of
specify that the participating CAP We are revising § 414.908(b)(1)(i) to the contract between the approved CAP
physician will submit a ‘‘prescription specify that competing bidders and vendor and us under new
order’’ to the approved CAP vendor vendors will submit the bid prices § 414.914(f)(8), (f)(9), (f)(10), and (f)(11).
with complete patient information for ‘‘using the OMB Approved Vendor We are adding a new § 414.914(g) to
the initial orders or when the Application and Bid Form’’ for include additional vendor requirements
information changes. In addition, we are competitively biddable drugs within the under the contract. These terms specify
specifying how and when abbreviated category and competitive acquisition that the approved CAP vendor must
information may be used and we are area. provide appropriate assistance to
also adding that the participating CAP Under § 414.908(b)(1), we specify the patients experiencing financial
physician may initiate the prescription criteria we use to select an approved difficulty in paying their cost-sharing
orders by telephone with a follow-up bidder. We are adding additional amounts through any one or all of the
written order within a specified period criteria. We are revising following:
of time. § 414.908(b)(1)(iii) to add that the • Referral to a bona fide and
We are revising § 414.908(a)(3)(v) to potential vendor’s ‘‘grievance process’’ independent charitable organization.
set forth the specific information that is considered when we select a bidder. • Implementation of a reasonable
the participating CAP physician must We are also adding a new payment plan.
provide to the approved CAP vendor to § 414.908(b)(1)(ix) to include that the • A full or partial waiver of the cost-
facilitate collection of applicable approved CAP vendor must maintain sharing amount after determining in
deductible and coinsurance (except appropriate licensure to supply CAP good faith that the individual is in
where applicable State pharmacy law drugs in States in which the approved financial need or the failure of
prohibits it). CAP vendor supplies the drugs as well reasonable collection efforts, provided
We are adding new § 414.908(a)(3)(vi) as new § 414.908(b)(1)(x) to indicate that that the waiver meets all of the
to specify that the participating CAP the approved CAP vendor must provide requirements of section 1128A(i)(6)(A)
physician must also notify the approved cost-sharing assistance. We are of the Act and the corresponding
CAP vendor when a drug is not redesignating proposed regulations at paragraph (1) of the
administered, or when he or she § 414.908(b)(1)(ix) as § 414.908(b)(1)(xi) definition of ‘‘Remuneration’’ in
administers a smaller amount of the with minor editorial revisions. § 1003.101 of this title. The availability

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of waivers may not be advertised or be hearing officer and the CMS official may V. Waiver of Delayed Effective Date
made as part of a solicitation. Approved review decisions that are favorable or [If you choose to comment on issues in this
CAP vendors may inform beneficiaries unfavorable to the participating CAP section, please include the caption ‘‘Waiver
that they generally make available the physician. Under § 414.916(c)(9)(iv), we of Delayed Effective Date’’ at the beginning
categories of assistance described in are clarifying that if our decision is of your comments.]
paragraphs (g)(1), (g)(2), and (g)(3) of unfavorable to the participating CAP We also ordinarily provide a 60-day
this section. In no event may the physician, the participating CAP delay in the effective date of the
approved CAP vendor include or make physician’s CAP election agreement is provisions of a rule in accordance with
any statements or representations that terminated. the Administrative Procedure Act (APA)
promise or guarantee that beneficiaries (5 U.S.C. 553(d), which requires a 30-
We are removing proposed
will receive cost-sharing waivers. day delayed effective date, and the
We are adding a new § 414.914(h) to § 414.916(d) that stated the following:
‘‘The approved CAP vendor treats Congressional Review Act (5 U.S.C.
specify the procedures that the
quality and service issues through its 801(a)(3), which requires a 60-day
approved CAP vendor must comply
grievance process. If the approved CAP delayed effective date for major rules.
with before it may refuse to make
vendor does not resolve a quality issue However, we can waive the delay in
further shipment of CAP drugs to a
to the participating CAP physician’s effective date if the Secretary finds, for
participating CAP physician on behalf
satisfaction, the participating CAP good cause, that such delay is
of a specific beneficiary.
We are revising the heading of physician may escalate the matter to the impracticable, unnecessary, or contrary
§ 414.916 to read ‘‘Dispute resolution designated carrier. The designated to the public interest, and incorporates
process for vendors and beneficiaries.’’ carrier attempts to develop solutions a statement of the finding and the
Under § 414.916, regarding the that satisfy program requirements and reasons in the rule issued. 5 U.S.C.
responsibilities of the designated the needs of both the participating CAP 553(d)(3); 5 U.S.C. 808(2).
carrier, we are removing paragraph physician and the approved CAP The Secretary finds that good cause
(b)(2)(i) under this section that stated vendor.’’ This language has been exists to implement the requirements
that the designated carrier will incorporated into new § 414.917. We are related to the selection process for
investigate and make a recommendation also redesignating the proposed approved CAP vendors immediately
to us on whether the participating CAP paragraph (e) as new (d) under this upon publication in the Federal
physician has been meeting the claims section. Register. Under section 1847B of the
and appeals obligations in his or her Act, we are required to phase in the
We are adding a new § 414.917 to set CAP beginning in 2006. In addition,
CAP election agreement. We are also
forth the process and responsibilities for section 1847B(a)(5)(A)(ii) of the Act
redesignating paragraphs (b)(2)(ii) and
the dispute resolution for participating requires that the physicians’ annual
(b)(2)(iii) as paragraphs (b)(2)(i) and
CAP physicians and for suspension or selection of approved CAP vendors be
(b)(2)(ii), respectively.
Upon receiving the designated termination of an approved CAP coordinated with the Medicare
carrier’s recommendation, we will make vendor’s CAP contract. We believe that participating physician described in the
a determination regarding suspension of moving this language to a separate (PARDOC) process under section
the participating CAP physician’s section more clearly presents the 1842(h) of the Act, which occurs in
election agreement. Specifically, we are process and the responsibilities of the November and December each year. To
revising § 414.916(b)(3) to clarify the particular parties. comply with that statutory mandate, it
suspension period for participating CAP Under the dispute resolution process will be necessary for us to have
physicians. We are adding that a set forth under § 414.916 and § 414.917, contracts in place with approved CAP
suspension commencing before October we are adding that the designated vendors in time to give physicians a
1 will conclude on December 31 of the carrier will include in its meaningful opportunity to review and
same year. A suspension commencing recommendation to us, ‘‘numbered select an available approved CAP
on or after October 1 will conclude on findings of fact’’ when it makes a vendor in their competitive acquisition
December 31 of the next year. We are recommendation whether the areas. If contracts with vendors are not
removing the last sentence in participating CAP physician has been in place by that time, the next available
§ 414.916(b)(3), which indicated a filing his or her drug administration physician selection period would be at
participating CAP physician could claims in accordance with the the end of 2006 for a CAP
select another approved CAP vendor requirements of physician participation implementation date of January 1, 2007.
while a reconsideration was pending. in the CAP. Such a delay would not be consistent
Under § 414.916(c)(8) regarding the with the statutory mandate that the CAP
In addition, we are making editorial be phased-in beginning in 2006.
findings of the hearing officer, we are
and technical revisions as well as Therefore, the Secretary has determined
clarifying that if the hearing officer
necessary conforming changes. that it would be impractical and
decides to conduct an in-person or
telephone hearing, the hearing officer IV. Response to Comments contrary to the public interest to delay
will send a hearing notice to the the effective date of the provisions that
participating CAP physician ‘‘within 10 Because of the large number of public apply to the vendor application and
days of receipt of the hearing request.’’ comments we normally receive on bidding process would be impracticable
Under § 414.916(c)(9), we are Federal Register documents, we are not and contrary to the public interest. An
clarifying our language regarding the able to acknowledge or respond to them effective date of July 6, 2005, for the
final reconsideration determination. individually. We will consider all requirements related to the selection
Under § 414.916(c)(9)(i) we are comments we receive by the date and process for approved CAP vendors will
clarifying that if the decision is time specified in the DATES section of ensure that the selection of approved
favorable to the participating CAP this preamble, and, when we proceed CAP vendors can proceed and will
physician, the participating CAP with a subsequent document, we will afford the approved CAP vendors
physician may resume participation in respond to the comments in the needed time to prepare for the
the CAP. We are also adding that the preamble to that document. enrollment of physicians and education

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39088 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations

of beneficiaries concerning the CAP collection of applicable deductible and demonstrating that the requirements set
program. coinsurance. forth in the contract have been or will
We note that only the provisions We estimate the burden to be be met.
associated with the selection process for approximately 29167 hours. We believe We currently estimate that it will
approved CAP vendors will be there will be 500,000 claims and it will require 12 bid applicants 40 hours each
implemented within 60 days of the date take five minutes for the initial claim to meet the bidding and contract
of publication of this rule. There will be per beneficiary and three minutes for requirements. This revised estimate is
at least 60 days between publication of subsequent beneficiary claims. The based on data from the CAP RFI that
this rule and the implementation of collection of information for the initial concluded in January and the policies
other provisions of this rule, including claim is estimated to take five minutes outlined in this IFC. The estimate of
the provisions related to physician and subsequent claims will take hours required for one bidder to meet
selection and operation of the CAP approximately three minutes. We this burden is unchanged.
program. estimate 25 percent of claims to be Terms of contract (§ 414.914). The
For all these reasons, we believe that initial and 75 percent to be subsequent. terms of the contract between CMS and
a 60-day delay in the effective date of Competitive acquisition program the approved CAP vendor will be for a
the provisions that apply to the vendor (§ 414.908). A physician is provided an term of 3 years. During the contract
application and bidding process would application process for the selection of period the approved CAP vendor must
be impracticable and contrary to the an approved CAP vendor on an annual disclosure to CMS or its agent, the
public interest. We therefore find good basis. The CAP election agreement will approved CAP vendor’s reasonable, net
cause for waiving the 60-day delay in facilitate physician enrollment and acquisition costs for a specified period
the effective date for the requirements designation of their approved CAP of time, on at least an annual basis.
related to the selection process for vendor and agreement to abide by the The burden associated with these
approved CAP vendors. CAP program requirements. requirements is the time and effort
In addition, physicians participating
necessary for the approved CAP vendor
VI. Collection of Information in the CAP must elect to use an
to submit to CMS or its agent, the
Requirements approved CAP vendor for the drug
category area as discussed in approved CAP vendor’s reasonable, net
Under the Paperwork Reduction Act acquisition costs for a specified period
§ 414.904(a)(1); submit a written order
of 1995, we are required to provide 30- of time, at least on an annual basis.
or prescription to the approved CAP
day notice in the Federal Register and We estimate that it will require each
vendor; not receive payment for the
solicit public comment before a of the five vendors 8 hours on an annual
competitively biddable drug except as
collection of information requirement is basis to submit the necessary
described in § 414.906(c)(2)(ii); provide
submitted to the Office of Management information, for total annual burden of
information to the approved CAP
and Budget (OMB) for review and 8 hours per vendor. The estimate was
vendor to facilitate collection of
approval. In order to fairly evaluate revised to reflect a maximum of five
applicable deductible and coinsurance
whether an information collection as described in § 414.906(a)(3); notify approved CAP vendors for one national
should be approved by OMB, section the approved CAP vendor when a drug area.
3506(c)(2)(A) of the Paperwork is not administered; maintain a separate Dispute resolution for vendors and
Reduction Act of 1995 requires that we electronic or paper inventory for each beneficiaries. Dispute resolution
solicit comment on the following issues: CAP drug obtained; agree to file the (§ 414.916). Cases of an approved CAP
• The need for the information Medicare claim when the drug is vendor’s dissatisfaction with denied
collection and its usefulness in carrying administered. drug claims are resolved through a
out the proper functions of our agency. The revised burden associated with voluntary alternative dispute resolution
• The accuracy of our estimate of the this requirement is the time and effort process.
information collection burden. necessary for the participating CAP The dispute resolution process may
• The quality, utility, and clarity of physician to provide and/or maintain involve the gathering of information,
the information to be collected. the information required as discussed however, since the requirements set
• Recommendations to minimize the above. We revised our original estimate forth in this section are in accordance
information collection burden on the to reflect new estimates on how many with administrative action, audit, or
affected public, including automated physicians may participate in CAP and investigation, the requirements of this
collection techniques. the time required to fill out the most section are exempt from the PRA as
We are soliciting public comment on current revision of the Physician stipulated under 5 CFR 1320.4(a)(2).
each of these issues for the following election form. For these burden Dispute resolution and process for
sections of this document that contain purposes, we estimate that there will be suspension or termination of an
information collection requirements: 10,000 physicians who fill out an approved CAP vendor (§ 414.917). If a
Competitive acquisition program as application and it will take the participating CAP physician finds an
the basis for payment (§ 414.906). A physician 2 hours to complete the approved CAP vendor’s service, or the
physician who elects to participate in application. Therefore, the burden quality of a CAP drug to be
the program and has selected an estimate is 20,000 hours. dissatisfactory, then the participating
approved CAP vendor, must provide Bidding process (§ 414.910). Vendors CAP physician may treat the issue first
information to the approved CAP may bid to furnish competitively through the approved CAP vendor’s
vendor to facilitate collection of biddable drugs in all areas of the United grievance process, and second through
applicable deductible and coinsurance States, or a specific region that meets an alternative dispute resolution process
as described in § 414.906(a)(2). the requirements of this section. administered by the designated carrier
The burden associated with this The burden associated with these and CMS. In addition, if CMS suspends
requirement is the time and effort requirements is the time and effort or terminates an approved CAP vendor’s
necessary for the participating CAP necessary to submit the bid application, CAP contract for cause, the approved
physician to provide the information to supporting documentation, and CAP vendor may request a
the approved CAP vendor to facilitate maintain necessary documentation reconsideration of this decision.

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Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 39089

This process may involve the VII. Regulatory Impact Analysis that although the vendor bidding
gathering of information, however, since [If you choose to comment on issues in this process will begin immediately, vendors
the requirements set forth in this section section, please include the caption will not be required to sign contracts
are in accordance with administrative ‘‘Regulatory Impact Analysis’’ at the with Medicare until after the effective
action, audit, or investigation, the beginning of your comments.] date of all of the provisions of this rule.
requirements of this section are exempt The RFA requires agencies to analyze
A. Overall Impact options for regulatory relief of small
from the PRA as stipulated under 5 CFR
1320.4(a)(2). We have examined the impacts of this businesses. For purposes of the RFA,
If you comment on these information rule as required by Executive Order small entities include small businesses,
collection and recordkeeping 12866 (September 1993, Regulatory nonprofit organizations, and small
requirements, please mail copies Planning and Review), the Regulatory governmental jurisdictions. Most
directly to the following: Flexibility Act (RFA) (September 19, hospitals and most other providers and
1980, Pub. L. 96–354), section 1102(b) of suppliers are small entities, either by
Centers for Medicare & Medicaid the Social Security Act, the Unfunded nonprofit status or by having revenues
Services, Office of Strategic Mandates Reform Act of 1995 (Pub. L. of less than $6 million to $29 million in
Operations and Regulatory Affairs, 104–4), and Executive Order 13132. any 1 year. We prepare an initial or final
Regulations Development Group, Executive Order 12866 (as amended regulatory flexibility analysis unless we
Attn: Jim Wickliffe, CMS–1325–IFC, by Executive Order 13258, which certify that a rule will not have a
Room C5–13–28, 7500 Security merely reassigns responsibility of significant economic impact on a
Boulevard, Baltimore, MD 21244– duties) directs agencies to assess all substantial number of small entities.
1850; and costs and benefits of available regulatory The analysis must include a justification
Office of Information and Regulatory alternatives and, if regulation is concerning the reason the action is
Affairs, Office of Management and necessary, to select regulatory being taken, the kinds and number of
Budget, Room 10235, New Executive approaches that maximize net benefits small entities the rule affects, and an
Office Building, Washington, DC (including potential economic, explanation of any meaningful options
20503, Attn: Christopher Martin, CMS environmental, public health and safety that achieve the objectives with less
Desk Officer, CMS–1325–P, effects, distributive impacts, and significant adverse economic impact on
Christopher Fax equity). A regulatory impact analysis the small entities. Individuals and
(202) 395–6974. (RIA) must be prepared for major rules States are not included in the definition
with economically significant effects of a small entity. For the reasons
Comments Related to the Collection of (that is, a final rule that would have an described in the section on ‘‘Anticipated
Information Requirements annual effect on the economy of $100 Effects,’’ we certify that this rule will
Comment: One commenter suggested million or more in any 1 year, or would not have a significant economic impact
that CMS revise its estimate for adversely affect in a material way the on a substantial number of small
completing the physician application economy, a sector of the economy, entities.
for CAP election to reflect the additional productivity, competition, jobs, the For purposes of the RFA, physicians
time it will take for physicians to environment, public health or safety, or and non-physician practitioners are
evaluate the CAP. State, local, or tribal governments or considered small businesses if they
communities). generate revenues of $8.5 million or
Response: While we understand this
We indicated in the March 4, 2005 less. Approximately 96 percent of
concern, paperwork burden estimates
proposed rule that we were considering physicians in private practice are
generally do not include the time this to be a major rule, but at that time
necessary to evaluate or consider taking considered to be small entities. There
we had not yet defined geographic are in excess of 20,000 physicians and
a specific action. Paperwork burden area(s) and category(ies) of CAP drugs. other practitioners that receive Medicare
estimates generally the time to complete Based on the establishment of the CAP payment for drugs. These physicians are
the information collection, including initially as a national program with one more concentrated in the specialties of
the time to review instructions, search drug category, we continue to believe oncology, urology, and rheumatology.
existing data resources, gather the that this rule is a major rule, and we Of the physicians in these specialties,
needed data, and complete and review anticipate more than $100 million will approximately 40 percent are in
the information collection. Accordingly, pass through the CAP payment system oncology and 45 percent in urology.
CMS is not adopting this in 2006. Therefore, we have prepared a The impact of this interim final rule
recommendation. regulatory impact analysis (RIA). on an individual physician is dependent
Comment: Several commenters However, as previously discussed in the on the drugs they provide to Medicare
recommended that CMS closely monitor preamble, certain sections of this rule beneficiaries and whether these drugs
physician clerical and inventory will be effective immediately. are included in the category of ‘‘incident
resources associated with the CAP Specifically, the provisions related to to’’ drugs identified in the preamble for
during the initial years of the program, the vendor bidding process will not be competitive acquisition and whether the
and if appropriate, consider making subject to the 60-day delay in effective physician chooses to obtain drugs
additional payment to physicians to date applicable to major rules under the administered to Medicare beneficiaries
cover the administrative costs Congressional Review Act (5 U.S.C. 801 through the CAP.
associated with CAP. et seq.) because of the need to meet the In addition, this interim final rule will
Response: CMS will monitor the statutory requirement to coordinate the have a potential impact on entities,
impact of the CAP program on physicians’ election to participate in the either existing or formed specifically for
physicians, patients, and on Part B drug CAP with the Medicare Participating this purpose, that are involved in the
prices closely. CMS will monitor its Physician Process described in section dispensing or distribution of drugs. This
implementation approach and, if 1842(h) of the Act. We can only meet aspect was dependent on our
necessary, make adjustments to ensure this statutory requirement if the delay in determination of the particular category/
patient access and reduce the effective date for these particular categories of drugs to be included in the
administrative costs for providers. portions of the rule are waived. We note CAP and the geographic areas in which

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it is to take place. It also depends on the direct costs on State, local, or tribal financial impact on physicians. These
ability of potential vendors to governments. Nor does the rule mandate commenters claimed that physicians
successfully compete and receive direct costs on the private sector. who elect to participate in the CAP will
approval as a vendor under the CAP. As Comment: Several commenters not be appropriately compensated for
previously discussed, the CAP will be a believe that, should CMS include additional costs such as maintaining
national program, and an approved CAP oncologists and oncology drugs in the separate drug storage for CAP
vendor must be able to furnish all the CAP, more Medicare beneficiaries will medications, hiring additional
drugs in the established CAP category of require hospital treatment due to personnel to order and keep track of
drugs. delayed access to necessary drugs for CAP medications, and the additional
Comment: At least one commenter their treatment programs and this will time required to adequately track the
believed that the initial regulatory potentially impact small hospitals. actual drug administrations.
flexibility analysis was not sufficient to Response: Based on the comments Response: Although we recognize that
allow small vendors sufficient notice received and the results of our data electing to participate in the CAP
that the CAP could have an impact on analysis, we will be including certain imposes certain new burdens on
them. oncology drugs in the CAP, and we physicians who choose to participate,
Response: We believe that small anticipate that some oncologists may we believe these are offset by the
businesses received ample notice that elect to participate in the CAP. decrease in burden associated with no
this rule could have an impact on them. However, participation under the CAP longer having to buy most Part B drugs
We provided detailed explanations of is voluntary, and we would not expect and bill the Medicare program for them.
the options for the areas and categories these physicians to participate if this The administrative payment burdens
in the preamble to the proposed rule, would result in adverse consequences that are relieved or reduced include
and indicated that the impact on small for their Medicare beneficiary patients. collecting the applicable deductible and
entities would depend on how those Moreover, we believe that we have built coinsurance from the beneficiary or
choices played out. We received more into the program various safeguards that other supplemental insurer and the time
than 500 comments from a variety of will preserve beneficiary access and and cost of assuming legal ownership of
sources, including potential CAP prevent treatment delays or unnecessary the drugs covered under the CAP. As
vendors and individual physicians. We hospital referrals, as discussed the physician does not assume legal
believe that all possibly affected elsewhere in the preamble: For example, ownership of the drug under the CAP
entities, including small vendors, had the provisions related to ‘‘furnish as (ownership remains with the approved
an opportunity to comment. written’’ and the resupply of inventories CAP vendor), this removes the burden
Also, section 1102(b) of the Social for drugs administered in an emergency of negotiating with drug suppliers for
Security Act requires us to prepare an situation will help ensure that Medicare the best price. Further, it is possible that
initial and final regulatory flexibility beneficiaries will receive their the time and effort involved in
analysis if a rule has a significant treatments timely within their generating the drug in a quantity other
impact on the operations of a substantial physicians’ offices. Finally, the likely than that in which it was received also
number of small rural hospitals. This effects on physicians and Medicare could be removed from the physician.
analysis must conform to the provisions beneficiary patients are discussed at Receiving drugs in the proper
of section 604 of the RFA. For purposes greater length in the discussion of administration dosage, where possible,
of section 1102(b) of the Act, we define ‘‘Anticipated Effects’’ below. saves the physician time and effort. We
a small rural hospital as a hospital that note that the CAP is an option offered
is located outside of a Metropolitan B. Anticipated Effects
to physicians who believe that it is a
Statistical Area and has fewer than 100 We have prepared the following viable alternative to the buy and bill
beds. We have determined that this analysis related to the assessment system, especially when dealing with
interim final rule will have no requirements. It explains the rationale extremely expensive drugs. Physicians
significant impact on the operations of for, and purposes of, the rule, details the who believe the CAP burden would be
a substantial number of small rural costs and benefits of the rule, analyzes too onerous for their practice always
hospitals. alternatives, and presents the measures will have the option of electing not to
Section 202 of the Unfunded we are using to minimize the burden on participate in the CAP and continue to
Mandates Reform Act of 1995 (UMRA) small entities. As indicated elsewhere in be paid under the ASP payment system
also requires that agencies assess this rule, this program provides an for the medically necessary drugs that
anticipated costs and benefits before alternative to the method that they obtain and administer under
issuing any rule that mandates physicians currently use to obtain and Medicare. We remain committed to
expenditures in any 1 year by State, pay for certain Medicare drugs in working with members of the health
local, or tribal governments, in the response to the requirements of section care community to assist them in
aggregate, or by the private sector, of 1847B of the Act. The provisions of this identifying the most appropriate
$110 million. Executive Order 13132 rule discuss how this option will be payment scenarios for providers as well
establishes certain requirements that an offered to physicians. The CAP process as the highest quality of care for
agency must meet when it promulgates is an alternative payment system for beneficiaries.
a final rule that imposes substantial Part B drugs and biologicals. This rule Comment: Several commenters were
direct requirement costs on State and does not impose reporting, concerned that if CMS selected a
local governments, preempts State law, recordkeeping, and other compliance national geographic area, then approved
or otherwise has Federalism requirements except as described in CAP vendors who participate in the
implications. We have examined this sections II.B, II.C and II.D. of the CAP would be asked to handle business
interim final rule in accordance with preamble. We are not aware of any on a national level. Small vendors who
Executive Order 13132 and UMRA and relevant Federal rules that duplicate, want to operate under the CAP in a
have determined that this regulation overlap, or conflict with this rule. specific area for a small number of local
will have no consequential effect on the Comment: Several commenters physicians believe that in such an event,
rights, roles, or responsibilities of State, expressed concern that there would be they will have been excluded from the
local, or tribal governments, or impose a significant administrative as well as a CAP out of hand.

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Response: Initially, we believe that, in participating CAP physicians money CAP vendors, and CMS gain experience
order to get the program started, the because they will not be in the drug with this new program.
CAP needs to be administered on a purchasing and procurement business
D. Alternatives Considered
national level. Most of the comments we and will not have to collect coinsurance
received indicated that small vendors for those drugs from beneficiaries. As we developed the CAP, we
were not limited geographically but, Comment: Several commenters were considered whether to break the country
instead, by drug specialty. The CAP concerned about increased drug waste into smaller geographic regional or State
requirements are in place to facilitate by physicians who participate in the areas as opposed to one national
access to care for Medicare beneficiaries CAP because, in their view, the competitive acquisitions area (the 50
and to maintain quality of care in the physician will not be able to return the United States, the District of Columbia
treatment programs of these unused drug to the approved CAP and the U.S. territories). We also
beneficiaries. However, that does not vendor or to use the drug when a considered whether to include all drugs
mean that larger vendors cannot beneficiary’s treatment plan changes on available under the CAP in one category
contract with smaller vendors under the short notice. These commenters further as opposed to breaking the drugs out
CAP to provide drugs to smaller cited problems with redirecting these into different categories such as
geographic areas of the country or unused medications to alternative oncology drugs, non-oncology drugs,
specific physicians, as long as all other beneficiaries due to State regulations in and crossover drugs. We also considered
criteria can be met by the sub-contracted some instances. variations of these options such as
vendor. Furthermore, there is nothing breaking down the drug categories at the
Response: If it becomes apparent that
that precludes a relatively small firm national level versus offering one drug
there is a problem with excessive waste
from providing services on a national category at the regional or State level. In
under the CAP, then we will examine
basis. In this way, every qualified reference to these options, we did not
ways to specifically address the issue. receive any comments about
vendor has the opportunity to One question would concern whether
participate, even though it may not be administering the CAP in specific
some types of physician practices may regions of the country or specific States
in a direct way. In the future, we will be affected because drugs they use are
establish additional or alternative or any data to support such a
more prone to wastage for particular conclusion. As we stated earlier in this
competitive acquisition areas and drug reasons, or if waste is more of a random
categories and solicit comments on section, vendors who wish to be
problem that would lead us to deal with approved CAP vendors and who also
those additions or alternatives, as the issue on an individual basis.
necessary. wish to operate in certain States,
The effect of this interim final rule on This rule also establishes rules regions, or areas of the country, as
an individual physician will be whereby drugs administered by the opposed to nationally, are free to seek
dependent on the drugs he or she participating CAP physician in out vendors who plan to participate in
provides to Medicare beneficiaries and emergency situations that were not the CAP at the national level to see
whether the drugs he or she furnishes originally acquired through a Medicare- whether their services can be used at the
are included in the category of drugs approved CAP vendor may be sub-contractor level. We do not intend
considered for the CAP. For example, a resupplied through the Medicare- to direct such an arrangement other than
physician may (1) determine the cost approved CAP vendor, as described to reiterate that our criteria for
associated with acquiring drugs through elsewhere in the preamble. participation in the CAP must be met by
the competitive acquisition program; (2) C. Impact of Establishment of a any and all potential approved CAP
determine the cost associated with Competitive Acquisition Program vendors; however, we encourage this
acquiring drugs through traditional communication between potential CAP
means and billing Medicare under the The purpose of the CAP program is to vendors as we believe that it will
ASP payment system methodology; and potentially achieve budgetary savings to enhance the opportunities for approved
(3) determine whether there is a cost Medicare and beneficiaries through a CAP vendors as well as participating
savings to them associated with either competitive bidding approach to CAP physicians under the CAP.
program. Different outcomes may result determining Medicare payment rates for We also considered whether or not to
from these calculations depending on selected drugs and to provide split drugs into more than one category
the drug mix, overhead cost, and physicians with an alternative way to as well as several options for defining
Medicare beneficiary patient mix. obtain these selected drugs that they use drug categories across a wide spectrum
A physician who elects to participate for treating their Medicare beneficiaries of physician Part B drugs, as described
in the program would obtain all of his in their offices. We have estimated the in the preamble. Commenters on the
or her Medicare-related drugs included impact of the costs of furnishing or proposed rule were divided about
in the category through an approved administering drugs through the CAP on whether to employ broadly defined or
CAP vendor. The approved CAP vendor the Medicare program and expect it to narrowly defined categories of drugs.
will collect applicable deductibles and be negligible, at least during the We are persuaded that more broadly
coinsurance from the beneficiary. Under beginning until participating CAP defined categories would better serve
this option, the participating CAP physicians, approved CAP vendors and the purposes of the program, at least in
physician will never take legal CMS gain more experience with the the initial stage. This approach would
ownership of the drug and will program. During the first year, we make it more feasible for participating
eliminate the cost associated with anticipate no significant additional cost CAP physicians to obtain all, or almost
collecting deductibles and coinsurance. savings or increases associated with the all, of their Part B drugs from one
Because the drug remains the property CAP, particularly relative to the ASP approved CAP vendor. We expect that
of the approved CAP vendor until the payment system. The CAP program will the approved CAP vendors participating
time of administration, the participating provide alternatives to physicians who on a nationwide scale will be able to
CAP physician also may be able to do not wish to be in the drug purchasing provide the broad spectrum of drugs
reduce the cost associated with storage and coinsurance collection business. We without appreciably more difficulty, if
and individual drug supplier will further refine theses impacts as any, than narrower sets of drugs. In
negotiations. The CAP may also save participating CAP physicians, approved accordance with the statute, we will

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develop more narrowly defined will see on their Medicare summary new drugs are introduced or patents
categories if it seems advisable at a later notices. Specifically, under the CAP, expire due to the restrictions of the
stage. beneficiaries will now pay their CAP. An approved CAP vendor is
In this interim final rule, based on the coinsurance and deductibles to their limited to offering drugs within a
comments and our data analysis, we are approved CAP vendor instead of the certain category while the participating
implementing the CAP with one administering participating CAP CAP physician can act outside the CAP
extensive category as it provides the physician. for drugs that are different or new.
most expansive category of drugs and it Comment: Several commenters Response: We appreciate the fact that
is the most simple in terms of believed that beneficiary access to a new drugs may become available
operationalization. We believe that this drug or drugs associated with the through the FDA drug or biological
option will encourage the highest beneficiary’s specific treatment program approval process, or alternatively that
number of approved CAP vendors to will be compromised under the CAP, previously approved drugs may be
participate under the CAP due to the resulting in multiple trips to the discontinued on an ongoing basis. New
potential for larger market share and the physician’s office by not only the drugs may be included in the CAP once
opportunity for smaller vendors to beneficiary, but the beneficiary’s family they are assigned a permanent HCPCS
contract with the larger vendors. We members, for a single treatment. Also, code, as described elsewhere in this
also believe that this option will these commenters believe that the preamble. If a new drug or biological is
encourage the highest number of beneficiary’s condition may be not offered by the participating CAP
physicians to participate under the CAP compromised and, in fact, may decline, physician’s approved CAP vendor,
due to the potential for acquiring a large resulting in a hospital admission, participating CAP physician can
portion of the drugs administered to because treatment was delayed in these purchase it and bill for it through the
their Medicare beneficiaries from a circumstances. The commenters stated ASP payment system.
single approved CAP vendor. that, often, a beneficiary’s treatment A drug approved by the FDA as a
However, we will monitor the program is altered on short notice. A generic for an existing drug with a
program carefully, assessing all the participating CAP physician that HCPCS code may not be available
issues discussed above, and make stocked his or her own drugs would, within the CAP because for multiple
appropriate program adjustments if presumably, be able to accommodate source drugs, the approved CAP vendor
these seem warranted. We welcome these treatment changes onsite, rather is required to provide only one NDC
input on any and all issues. than having to plan a subsequent visit within a HCPCS code (although the
E. Impact on Beneficiaries while an alternative drug prescription
approved CAP vendor is free to bid to
order is filled.
We have estimated the potential provide multiple NDCs within a HCPCS
Response: We appreciate the concerns
changes in beneficiary coinsurance for of these commenters, and we will code). If a participating CAP physician
drugs and related changes in beneficiary monitor beneficiary access under the finds it medically necessary to prescribe
Part B premium payments resulting CAP. We believe that the construct of a new drug that is within an existing
from the implementation of the CAP for the CAP will enhance beneficiary access HCPCS code in the CAP drug category,
Part B drugs. We do not expect, during in several ways. The participating CAP but that his or her selected approved
the first year of the program, that there physician will have access to a category CAP vendor has not contracted to
will be an appreciable difference to the of drugs that he or she can order to meet provide, he or she can obtain it and bill
beneficiaries if their drugs were to be the beneficiary’s needs. If the approved for it under the ASP payment system
administered by a physician CAP vendor does not offer a particular using the ‘‘furnish as written’’
participating in the CAP or purchasing drug that is medically necessary for a provision.
them and being reimbursed for them beneficiary’s treatment plan, then the Comment: A large number of
within the ASP payment system. At participating CAP physician may use commenters involved in the mental
least initially, until approved CAP the ‘‘furnish as written’’ option and health arena stated that the inclusion of
vendors, participating CAP physicians, access the specific drug through this psychiatric drugs under the CAP would
and CMS gain more experience with channel. Further, if a beneficiary enable more patients in need of valuable
this new program, we do not anticipate presents in a condition that requires the mental health medications to have
there would be any significant participating CAP physician to alter his access to them, especially in rural areas,
additional costs or savings to a or her treatment plan, and the and, as a result, bring new psychiatric
beneficiary whose physician participating CAP physician determines therapies into wider use. In the view of
participates in the CAP. The CAP it is an emergency, and the other criteria these commenters, the current ASP
should be largely transparent to the under the resupply provision are met payment system presents them with
beneficiary population. The only change such as, that the need is unanticipated barriers to care for their patients because
should be the entity that bills the and the vendor cannot provide the drug of the administrative burden of locating
beneficiary for the coinsurance. in time, then the participating CAP new mental health therapies and then
We do not believe that beneficiaries physician could immediately administer billing Medicare and tracking the
would experience drug access issues as a drug out of his or her own stock and claims, which often are only partly paid.
a result of implementation of the CAP. then order a replacement from the If psychiatric drugs were included as an
However, we intend to monitor approved CAP vendor. Although we available category, then this burden
beneficiary access closely and may cannot say that a situation would never would be removed.
propose additional changes to our occur wherein a beneficiary would need Response: We appreciate the positive
payment system in the future, if a drug that is not immediately available, response from the mental health
necessary. this could also occur under the current community for the CAP. We are working
We intend to develop educational ASP payment system. to ensure the availability of the most
material to distribute to beneficiaries, Comment: Some commenters pointed effective treatments to enable at-risk
such as pamphlets and a discussion in out that beneficiaries may be individuals to live productive lives in
The Medicare & You Handbook, to help disadvantaged if an approved CAP the least restrictive environments. As
explain the CAP and the changes they vendor cannot react expeditiously when previously stated, several mental health

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drugs are included in the drug category List of Subjects in 42 CFR Part 414 a competitive acquisition area for a
we have established for the CAP. Administrative practice and particular price and time period.
Comment: Several commenters procedure, Health facilities, Health CAP drug means a physician-
professions, Kidney diseases, Medicare, administered drug or biological
believe that Medicare beneficiaries will
Reporting and recordkeeping furnished on or after January 1, 2006
have a difficult time understanding why
requirements. described in section 1842(o)(1)(C) of the
they receive two statements (one from
Act and supplied by an approved CAP
the participating CAP physician for the ■ For the reasons set forth in this
vendor under the CAP as provided in
administration of the drug and one from preamble, the Centers for Medicare &
this subpart.
the approved CAP vendor for the Medicaid Services amends 42 CFR Competitive acquisition area means a
coinsurance and deductible payments) chapter IV as set forth below: geographic area established by the
about each episode of treatment. Secretary for purposes of implementing
Response: We have built extensive MEDICAL AND OTHER HEALTH the CAP required by section 1847B of
educational tools into the CAP for SERVICES the Act.
beneficiaries, as described elsewhere in Competitive acquisition program
the preamble. Beneficiaries will receive ■ 1. The authority citation for part 414 (CAP) means a program as defined
information on the implementation of continues to read as follows: under section 1847B of the Act.
the CAP and how it will affect them and Authority: Secs. 1102, 1871, and 1881(b)(1) Designated carrier means an entity
what they see as far as Medicare billing of the Social Security Act (42 U.S.C. 1302, assigned by CMS to process and pay
is concerned. They will also be 1395hh, and 1395rr(b)(1)). claims for drugs and biologicals under
provided with access to a help line for the CAP.
the questions about their bills as well as Subpart K—Payment for Drugs and * * * * *
written information that they can Biologicals Under Part B Emergency delivery means delivery of
reference. Of course, regardless of which a CAP drug within one business day in
■ 2. Revise the heading of subpart K to appropriate shipping and packaging, in
option they select, we would expect read as set forth above.
most participating CAP physicians to all areas of the United States and its
■ 3. Amend § 414.900 by— territories, with the exception of the
explain to their Medicare beneficiaries ■ A. Revising the section heading.
the process by which they will be billed. Pacific Territories. In the Pacific
■ B. Revising paragraph (a).
Territories, emergency delivery means
Comment: Some commenters were ■ C. Revising paragraph (b)(3)(ii).
The revisions read as follows: delivery of a CAP drug within 5
concerned that beneficiaries who were business days in appropriate shipping
financially burdened would be § 414.900 Basis and scope. and packaging. In each case, this
adversely affected by the CAP because (a) This subpart implements sections timeframe shall be reduced if product
they would be removed from dealing 1842(o), 1847A, and 1847B of the Act stability requires it, meaning that the
directly with their physicians in and outlines two payment manufacturer’s labeling instructions,
working out payment options for their methodologies applicable to drugs and drug compendia, or specialized drug
deductibles and copayments because biologicals covered under Medicare Part stability references indicate that a
the approved CAP vendor would be B that are not paid on a cost or shorter delivery timeframe is necessary
responsible for billing the beneficiaries prospective payment system basis. to avoid adversely affecting the
for these items. (b) * * * product’s integrity, safety, or efficacy.
Response: Beneficiaries are legally (3) * * * Emergency situation means, for the
responsible for paying their (ii) Pneumococcal and Hepatitis B purposes of the CAP, an unforeseen
coinsurance, and providers, including vaccines. occurrence or situation determined by
participating CAP physicians and other * * * * * the participating CAP physician, in his
suppliers such as the approved CAP ■ 4. Amend § 414.902 by republishing or her clinical judgment, to require
vendors, are required to make an effort the introductory text to the section and prompt action or attention for purposes
to collect it. We address above in this adding the definitions of ‘‘Approved of permitting the participating CAP
preamble measures that the approved CAP vendor,’’ ‘‘Bid,’’ ‘‘CAP drug,’’ physician to use a drug from his or her
CAP vendor may take to address this ‘‘Competitive acquisition area,’’ own stock, if the other requirements of
‘‘Competitive acquisition program,’’ § 414.906(e) are met.
issue. We encourage beneficiaries to talk
Local carrier means an entity assigned
to the approved CAP vendor in these ‘‘Designated carrier,’’ ‘‘Emergency
by CMS to process and pay claims for
circumstances and encourage the delivery,’’ ‘‘Emergency situation,’’
administration of drugs and biologicals
approved CAP vendor to provide ‘‘Local carrier,’’ ‘‘Pacific Territories,’’
under the CAP.
beneficiaries information about patient ‘‘Participating CAP physician,’’
assistance programs. Again, we will be ‘‘Participating CAP physician election * * * * *
agreement,’’ ‘‘Prescription order,’’ Pacific Territories means, for
monitoring beneficiary access under the
‘‘Routine delivery,’’ and ‘‘Timely purposes of the CAP, American Samoa,
CAP. In addition, approximately 80
delivery.’’ Guam, or the Northern Mariana Islands.
percent of Medicare beneficiaries have Participating CAP physician means a
some type of supplemental coverage for § 414.902 Definitions. physician electing to participate in the
Part B that will pay their deductible and CAP, as described in this subpart. The
As used in this subpart, unless the
coinsurance amounts either in whole or participating CAP physician must
context indicates otherwise—
in part. Approved CAP vendor means an complete and sign the participating CAP
F. Conclusion entity that has been awarded a contract physician election agreement.
by CMS to participate in the competitive Physicians who do not participate in
In accordance with the provisions of acquisition program under 1847B of the Medicare but who elect to participate in
Executive Order 12866, this regulation Act. the CAP must agree to accept
was reviewed by the Office of Bid means an offer to furnish a CAP assignment for CAP drug administration
Management and Budget. drug within a category of CAP drugs in claims.

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Participating CAP physician election other original containers as supplied by (ii) It is a drug for which a HCPCS
agreement means the agreement that the the manufacturer or from a distributor code must be established.
physician signs to notify CMS of the that has acquired the products directly (d) Adjustments. There is an
physician’s election to participate in the from the manufacturer and includes established process for adjustments to
CAP and to agree to the terms and language with the shipping material payments to account for drugs that were
conditions of CAP participation as set stating that the drug was acquired in a billed, but which were not
forth in this subpart. manner consistent with all statutory administered.
Prescription order means a written requirements. If the approved CAP (e) Resupply of participating CAP
order submitted by the participating vendor opts to split shipments, the physician drug inventory. A
CAP physician to the approved CAP participating CAP physician must be participating CAP physician may
vendor that meets the requirements of notified in writing which can be acquire drugs under the CAP to
this subpart. included with the initial shipment, and resupply his or her private inventory if
Routine delivery means delivery of a each incremental shipment must arrive all of the following requirements are
drug within 2 business days in at least 2 business days before the met:
appropriate shipping and packaging in anticipated date of administration. (1) The drugs were required
all areas of the United States and its (5) The approved CAP vendor bills immediately.
territories, with the exception of the Medicare only for the amount of the (2) The participating CAP physician
Pacific Territories. In the Pacific drug administered to the patient, and could not have anticipated the need for
Territories, routine delivery of drug the beneficiary’s coinsurance will be the drugs.
means delivery of a CAP drug within 7 calculated from the quantity of drug that (3) The approved CAP vendor could
business days in appropriate shipping is administered. not have delivered the drugs in a timely
and packaging. In each case, this (b) Exceptions to competitive manner. For purposes of this section,
timeframe will be reduced if product acquisition. Specific CAP drugs, timely manner means delivery within
stability requires it, meaning that the including a category of these drugs, may the emergency delivery timeframe, as
manufacturer’s labeling instructions, be excluded from the CAP if the defined in § 414.902.
drug compendia, or specialized drug application of competitive bidding to (4) The participating CAP physician
stability references indicate that a these drugs— administered the drugs in an emergency
shorter delivery timeframe is necessary (1) Is not likely to result in significant situation, as defined in § 414.902.
savings; or (f) Substitution of CAP drugs. An
to avoid adversely affecting the
(2) Is likely to have an adverse impact approved CAP vendor may agree to
product’s integrity, safety, or efficacy.
on access to those drugs. furnish more than one CAP drug
* * * * * (c) Computation of payment amount. (defined at the NDC level) for a HCPCS
Timely delivery means delivery of a (1) Except as specified in paragraph code. Payment is based on a bid price
CAP drug within the defined routine (c)(2) of this section, payment for CAP defined by the HCPCS code and the unit
and emergency delivery timeframes. drugs is based on bids submitted, as a of measure for the HCPCS code.
Compliance with timely delivery result of the bidding process as Substitution of a different NDC within
standards is also a factor for evaluation described in § 414.910. Based on these the HCPCS code for the NDC currently
of potential and approved CAP vendors. bids, a single payment amount for each furnished by the approved CAP vendor
* * * * * CAP drug in the competitive acquisition can occur in the following situations:
■ 5. Amend § 414.904 by revising the area is determined on the basis of the (1) On an occasional basis, if the
section heading to read as follows: bids submitted and accepted and approved CAP vendor is willing to
updated from the bidding period to the accept the payment amount that was
§ 414.904 Average sales price as the basis established for the original NDC within
payment year. This single payment
for payment. a HCPCS code under the CAP, and the
amount is then updated on an annual
* * * * * basis based on the approved CAP participating CAP physician approves
■ 6. Add § 414.906 to read as follows: vendor’s reasonable net acquisition the substitution; or
costs for that category as determined by (2) For an extended period of time
§ 414.906 Competitive acquisition program (more than 2 weeks), if the approved
as the basis for payment. CMS based, in part, on information
disclosed to CMS and limited by the CAP vendor identifies the replacement
(a) Program payment. Beginning in weighted payment amount established product, the designated carrier’s
2006, as an alternative to payment under section 1847A of the Act across medical director approves the long-term
under § 414.904, payment for a CAP all drugs in that category. Adjustment to substitution on behalf of CMS, and all
drug may be made through the CAP if the payment amounts may be made participating CAP physicians who have
the following occurs: more often than annually, but no more selected the approved CAP vendor are
(1) The CAP drug is supplied under often than quarterly, in any of the notified of the change. In the case of
the CAP by an approved CAP vendor as following cases: such long-term substitution, payment is
specified in § 414.908(b). (i) Introduction of new drugs. based on the price established in
(2) The claim for the prescribed drug (ii) Expiration of a drug patent or accordance with § 414.906(c).
is submitted by the approved CAP availability of a generic drug. ■ 7. Add § 414.908 to read as follows:
vendor that supplied the drug, and (iii) Material shortage that results in a
payment is made only to that vendor. significant price increase for the drug. § 414.908 Competitive acquisition
(3) The approved CAP vendor collects (iv) Withdrawal of a drug from the program.
applicable deductible and coinsurance market. (a) Participating CAP physician
with respect to the drug furnished under (2) The alternative payment amount selection of an approved CAP vendor.
the CAP only after the drug is established under section 1847A of the (1) CMS provides the participating CAP
administered to the beneficiary. Act may be used to establish payment physician with a process for the
(4) The approved CAP vendor delivers for a CAP drug if— selection of an approved CAP vendor on
CAP drugs directly to the participating (i) The drug is properly assigned to a an annual basis, with exceptions as
CAP physician in unopened vials or category established under the CAP; and specified in § 414.908(a)(2).

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Participating CAP physicians will also (M) Additional patient information: category and competitive acquisition
receive information about the CAP in date of birth, allergies, height/weight, area that—
the enrollment process for Medicare ICD–9. (A) Places the vendor among the
participation set forth in section 1842(h) (vi) Notifies the approved CAP vendor qualified bidders with the lowest five
of the Act. when a drug is not administered or a composite bids; and
(2) A participating CAP physician smaller amount was administered than (B) Does not exceed the weighted
may select an approved CAP vendor was originally ordered. The payment amount established under
outside the annual selection process or participating CAP physician and the section 1847A of the Act across all
opt out of the CAP for the remainder of approved CAP vendor agree on how to drugs in that category.
the annual selection period when— handle the unused CAP drug. If it is (ii) Ability to ensure product integrity.
(i) The selected approved CAP vendor agreed that the participating CAP (iii) Customer service/Grievance
ceases participation in the CAP; physician will maintain the CAP drug in process.
(ii) The physician leaves a group his inventory for administration at a (iv) At least 3 years experience in
practice participating in CAP; later date, the participating CAP furnishing Part B injectable drugs.
(iii) The participating CAP physician physician submits a new prescription (v) Financial performance and
relocates to another competitive order at that time. This prescription solvency.
acquisition area; or order specifies that the CAP drug is (vi) Record of integrity and the
(iv) For other exigent circumstances being obtained from the participating implementation of internal integrity
defined by CMS. CAP physician’s CAP inventory and measures.
(3) The physician participating in the shipment should not occur; (vii) Internal financial controls.
CAP— (vii) Maintains a separate electronic or (viii) Acquisition of all CAP drugs
(i) Elects to use an approved CAP paper inventory for each CAP drug directly from the manufacturer or from
vendor for the drug category and area as obtained; a distributor that has acquired the
set forth in § 414.908(b); (viii) Agrees to file the Medicare claim products directly from the
(ii) Completes and signs the CAP within 14 calendar days of the date of manufacturer.
election agreement; drug administration; (ix) Maintenance of appropriate
(iii) Submits a written prescription (ix) Agrees to submit an appeal licensure to supply CAP drugs in States
order to the approved CAP vendor with accompanied by all required in which they are supplying CAP drugs.
complete patient information for documentation (such as medical records (x) Cost-sharing assistance as
patients new to the approved CAP or a certification) necessary to support described in § 414.914(g).
vendor or when information changes. payment if the participating CAP (xi) Other factors as determined by
Abbreviated information may be sent on physician’s drug administration claim CMS.
all subsequent orders for a patient for for a CAP drug is denied; (2) Approved CAP vendors must also
which the approved CAP vendor has (x) Agrees not to transport CAP drugs meet the contract requirements under
previously received complete from one practice location (place of § 414.914.
information and that has no changes to service) to another location; (c) Additional considerations. CMS
the original information. Prescription (xi) Agrees to provide the CMS- may refuse to award a contract or
orders may be initiated by telephone, developed CAP fact sheet to terminate an approved CAP vendor
with a follow-up written order provided beneficiaries; and contract based upon the following:
within 8 hours for routine deliveries (xii) May receive payment under the (1) Suspension or revocation by the
and immediately for emergency ASP system when medical necessity Federal or State government of the
deliveries; requires a certain brand or formulation entity’s license for distribution of drugs,
(iv) Does not receive payment for the of a drug that the approved CAP vendor including controlled substances.
CAP drug; has not been contracted to furnish under (2) Exclusion of the entity under
(v) Except where applicable State the CAP. section 1128 of the Act from
pharmacy law prohibits it, provides the (4) Physician group practices. If a participation in Medicare or other
following information to the approved physician group practice using a group Federal health care programs. These
CAP vendor to facilitate collection of billing number(s) elects to participate in considerations are in addition to CMS’
applicable deductible and coinsurance the CAP, all physicians in the group are ability to terminate the approved CAP
as described in § 414.906(a)(3): considered to be participating CAP vendor for cause as specified in
(A) Date of order. physicians when using the group’s § 414.914(a).
(B) Beneficiary name, address, and billing number(s). (3) Past violations or misconduct
phone number. (5) Additional opt out provision. In related to the pricing, marketing,
(C) Physician identifying information: addition to the circumstances listed in distribution, or handling of drugs
Name, practice location/shipping § 414.908(a)(2), if the approved CAP provided incident to a physician’s
address, group practice information (if vendor refuses to ship to the service.
applicable), PIN, and UPIN. participating CAP physician because the (d) Multiple source drugs. In the case
(D) Drug name. conditions of § 414.914(h) have been of multiple source drugs, there must be
(E) Strength. met, the physician can withdraw from a competition among entities for the
(F) Quantity ordered. CAP for the remainder of the year acquisition of at least one CAP drug
(G) Dose. immediately upon notice to CMS and within each billing and payment code
(H) Frequency/instructions. the approved CAP vendor. within each category for each
(I) Anticipated date of administration. (b) Program requirements. (1) CMS competitive acquisition area.
(J) Beneficiary Medicare information/ selects approved CAP vendors through (e) Multiple contracts for a category
Health insurance (HIC) number. a competition among entities based on and area. The number of bidding
(K) Supplementary insurance the following: qualified entities that are awarded a
information (if applicable). (i) Submission of the bid prices using contract for a given category and area
(L) Medicaid information (if the OMB-approved Vendor Application may be limited to no fewer than two.
applicable). and Bid Form for CAP drugs within the ■ 8. Add § 414.910 to read as follows:

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§ 414.910 Bidding process. section or provided in § 414.917. The costs for a specified period of time, not
(a) Entities may bid to furnish CAP contract may be terminated— to exceed quarterly.
drugs in all competitive acquisition (1) By CMS for default if the approved (e) The contract must provide for
areas of the United States, or one or CAP vendor violates any term of the appropriate adjustments as described in
more specific competitive acquisition contract; or § 414.906(c)(1).
areas. (2) In the absence of a contract (f) Under the terms of the contract, the
(b) The amount of the bid for any CAP violation, by either CMS or the approved CAP vendor must also—
drug for a specific competitive approved CAP vendor, if the (1) Have sufficient arrangements to
acquisition area must be uniform for all terminating party notifies the other acquire and deliver CAP drugs within
portions of that competitive acquisition party by June 30 for an effective date of the category in the competitive
area. termination of December 31 of that year. acquisition area specified by the
(c) A submitted bid price must (b) The contract will provide for a contract;
include the following: code of conduct for the approved CAP (2) Have arrangements in effect for
(1) All costs related to the delivery of vendor that includes standards relating shipment at least 5 weekdays each week
the drug to the participating CAP to conflicts of interest standards as set of CAP drugs under the contract,
physician. forth at § 414.912. including the ability to comply with the
(2) The costs of dispensing (including (c) The approved CAP vendor will routine and emergency delivery
shipping) of the drug and management have and implement a compliance plan timeframes defined in § 414.902;
fees. The costs related to the that contains policies and procedures (3) Have procedures in place to
administration of the drug or wastage, that control program fraud, waste, and address and resolve complaints of
spillage, or spoilage may not be abuse, and consists of the following participating CAP physicians and
included. minimum elements: individuals and inquiries regarding
■ 9. Add § 414.912 to read as follows: (1) Written policies, procedures, and shipment of CAP drugs;
standards of conduct articulating the (4) Have a grievance and appeals
§ 414.912 Conflicts of interest. organization’s commitment to comply process for dispute resolution;
(a) Approved CAP vendors and with all applicable Federal and State (5) Meet applicable licensure
applicants that bid to participate in the laws, regulations, and guidance, requirements in each State in which it
CAP are subject to the following: including, but not limited to, the supplies drugs under the CAP;
(1) The conflict of interest standards Prescription Drug Marketing Act (6) Be enrolled in Medicare as a
and requirements of the Federal (PDMA), the physician self-referral participating supplier;
Acquisition Regulation (FAR) (‘‘Stark’’) prohibition, the Anti-Kickback (7) Comply with all applicable
organizational conflict of interest statute and the False Claims Act. Federal and State laws, regulations and
guidance, found under FAR subpart 9.5. (2) The designation of a compliance guidance related to the prevention of
(2) Those requirements and standards officer and compliance committee fraud and abuse;
contained in each individual contract accountable to senior management. (8) Supply CAP drugs upon receipt of
awarded to perform functions under (3) Effective training and education of a prescription order to all participating
section 1847B of the Act. the compliance officer and organization CAP physicians who have selected the
(b) Post-award conflicts of interest. employees, contractors, agents, and approved CAP vendor, except when the
Approved CAP vendors must have a directors. conditions of § 414.914(h) are met;
code of conduct that establishes policies (4) Enforcement of standards through (9) Ensure that subcontractors who are
and procedures for recognizing and well publicized disciplinary guidelines. involved in providing services under
resolving conflicts of interest between (5) Procedures for effective internal the approved CAP contractor’s CAP
the approved CAP vendor and any monitoring and auditing. contract meet all requirements and
entity, including the Federal (6) Procedures for ensuring prompt comply with all laws and regulations
Government, with whom it does responses to detected offenses and relating to the services they provide
business. The code of conduct which is development of corrective action under the CAP program.
submitted as part of the application initiatives relating to the organization’s Notwithstanding any relationship the
must— contract as an approved CAP vendor. CAP vendor may have with any
(1) State the need for management, (i) If the approved CAP vendor subcontractor, the approved CAP
employees, contractors, and agents to discovers evidence of misconduct vendor maintains ultimate
comply with the approved CAP related to payment or delivery of drugs responsibility for adhering to and
vendor’s code of conduct, and policies or biologicals under the contract, it will otherwise fully complying with all
and procedures for conflicts of interest; conduct a timely and reasonable inquiry terms and conditions of its contract with
and into that conduct. CMS;
(2) State the approved CAP vendor’s (ii) The approved CAP vendor will (10) Comply with product integrity
expectations for management, conduct appropriate corrective actions and record keeping requirements
employees, contractors, and agents to including, but not limited to, repayment including but not limited to drug
comply with the approved CAP of overpayments and disciplinary acquisition, handling, storage, shipping,
vendor’s code of conduct, and policies actions against responsible individuals, drug waste, and return processes; and
and procedures for detecting, in response to potential violations (11) Comply with such other terms
preventing, and resolving conflicts of referenced at paragraph (c)(6)(i) of this and conditions as CMS may specify in
interest. section. the CAP contract consistent with section
■ 10. Add § 414.914 to read as follows: (7) Procedures to voluntarily self- 1847B of the Act.
report potential fraud or misconduct (g) Under the terms of the contract,
§ 414.914 Terms of contract. related to the CAP to the appropriate the approved CAP vendor must provide
(a) The contract between CMS and the government agency. assistance to beneficiaries experiencing
approved CAP vendor will be for a term (d) The contract must provide for financial difficulty in paying their cost-
of 3 years, unless terminated or disclosure of the approved CAP sharing amounts through any one or all
suspended earlier as provided in this vendor’s reasonable, net acquisition of the following:

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(1) Referral to a bona fide and compliance with the payment plan and recommendation will include numbered
independent charitable organization. makes an initial payment under the plan findings of fact.
(2) Implementation of a reasonable within 15 days after the postmark date (3) CMS will review the
payment plan. of the approved CAP vendor’s written recommendation of the designated
(3) A full or partial waiver of the cost- notice to the beneficiary offering the carrier and gather relevant additional
sharing amount after determining in payment plan. information from the participating CAP
good faith that the individual is in (7) If the approved CAP vendor has physician before deciding whether to
financial need or the failure of waived the cost-sharing obligations in suspend the participating CAP
reasonable collection efforts, provided accordance with section 1128A of the physician’s CAP election agreement. A
that the waiver meets all of the Act and § 414.914(g)(3), the approved suspension commencing before October
requirements of section 1128A(i)(6)(A) CAP vendor may not refuse to ship 1 will conclude on December 31 of the
of the Act and the corresponding drugs for that beneficiary. same year. A suspension commencing
regulations at paragraph (1) of the (8) If the approved CAP vendor refers on or after October 1 will conclude on
definition of ‘‘Remuneration’’ in the beneficiary to a bona fide and December 31 of the next year.
§ 1003.101 of this title. The availability independent charity in accordance with (4) The participating CAP physician
of waivers may not be advertised or be § 414.914(g)(1), the approved CAP may appeal that suspension by
made as part of a solicitation. Approved vendor may refuse to ship drugs if the requesting a reconsideration of CMS’
CAP vendors may inform beneficiaries past due balance is not paid 15 days decision. The reconsideration will
that they generally make available the after the postmark date of the approved address whether the participating CAP
categories of assistance described in CAP vendor’s written notice to the physician’s denied claims and appeals
paragraphs (g)(1), (g)(2), and (g)(3) of beneficiary containing the referral for were the result of the participating CAP
this section. In no event may the cost-sharing assistance. physician’s failure to participate in
approved CAP vendor include or make (9) The approved CAP vendor may
accordance with the requirements of
any statements or representations that refuse to make further shipments to that
§ 414.908(a)(3).
promise or guarantee that beneficiaries participating CAP physician on behalf
will receive cost-sharing waivers. of the beneficiary for the lesser of the (c) Reconsideration. (1) Right to
(h) The approved CAP vendor must end of the calendar year or until the reconsideration. A participating CAP
comply with the following procedures beneficiary’s balance is paid in full. physician dissatisfied with a
before it may refuse to make further determination that his or her CAP
■ 11–12. § 414.916 to read as follows:
shipments of CAP drugs to a election agreement has been suspended
participating CAP physician on behalf § 414.916 Dispute resolution for vendors by CMS is entitled to a reconsideration
of a beneficiary: and beneficiaries. as provided in this subpart.
(1) Subsequent to receipt of final (a) General rule. Cases of an approved (2) Eligibility for reconsideration.
payment by Medicare, the approved CAP vendor’s dissatisfaction with CMS reconsiders any determination to
CAP vendor must bill any applicable denied drug claims are resolved through suspend a participating CAP physician’s
supplemental insurance policies. a voluntary alternative dispute election agreement if the participating
(2) If after that action is taken, a resolution process delivered by the CAP physician files a written request for
balance remains, or if there is no designated carrier, and a reconsideration in accordance with
supplemental insurance, the approved reconsideration process provided by paragraphs (c)(3) and (c)(4) of this
CAP vendor may bill the beneficiary. CMS. section.
(3) At the time of billing, the (b) Dispute resolution. (1) When an (3) Manner and timing of request for
approved CAP vendor may inform the approved CAP vendor is not paid on reconsideration. A participating CAP
beneficiary of any types of cost-sharing claims submitted to the designated physician who is dissatisfied with a
assistance that may be available carrier, the vendor may appeal to the CMS decision to suspend his or her CAP
consistent with the requirements of designated carrier to counsel the election agreement may request a
section 1128A(a)(5) of the Act and responsible participating CAP physician reconsideration of the decision by filing
§ 414.914(g). on his or her agreement to file a clean a request with CMS. The request must
(4) If the beneficiary demonstrates a claim and pursue an administrative be filed within 30 days of receipt of the
financial need, the approved CAP appeal in accordance with subpart H of CMS decision letter notifying the
vendor must follow the conditions part 405 of this chapter. If problems participating CAP physician of CMS’
outlined in paragraph (g) of this section. persist, the approved CAP vendor may decision to suspend his or her CAP
(5) If after 45 days from the postmark ask the designated carrier to— election agreement. From the date of
date of the approved CAP vendor’s bill (i) Review the participating CAP receipt of the decision letter until the
to the beneficiary, the beneficiary’s cost physician’s performance; and day the reconsideration determination is
sharing obligation remains unpaid, the (ii) Potentially recommend to CMS final, the ASP payment methodology
approved CAP vendor may refuse that CMS suspend the participating CAP under section 1847A of the Act applies
further shipments to the participating physician’s CAP election agreement. to the physician.
CAP physician for that beneficiary; (2) The designated carrier— (4) Content of request. The request for
however, if the beneficiary has (i) Gathers information from the local
reconsideration must specify—
requested cost-sharing assistance within carrier, the participating CAP physician,
the 45-day period, the provisions of the beneficiary, and the approved CAP (i) The findings or issues with which
paragraph (6), (7), or (8), as applicable, vendor; and the participating CAP physician
apply. (ii) Makes a recommendation to CMS disagrees;
(6) If the approved CAP vendor on whether the participating CAP (ii) The reasons for the disagreement;
implements a reasonable payment plan, physician has been filing his or her CAP (iii) A recital of the facts and law
as specified in § 414.914(g)(2), the drug administration claims in supporting the participating CAP
approved CAP vendor must continue to accordance with the requirements for physician’s position;
ship CAP drugs for the beneficiary, as physician participation in the CAP as (iv) Any supporting documentation;
long as the beneficiary remains in set forth in § 414.908(a)(3). The and

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(v) Any supporting statements from telephone hearing, the hearing officer § 414.917 Dispute resolution and process
approved CAP vendors, local carriers, or will send a hearing notice to the for suspension or termination of approved
beneficiaries. participating CAP physician within 10 CAP contract.
(5) Withdrawal of request for days of receipt of the hearing request, (a) General rule. If a participating CAP
reconsideration. A participating CAP and the findings and recommendations physician finds an approved CAP
physician may withdraw his or her are due to the participating CAP vendor’s service, or the quality of a CAP
request for reconsideration at any time physician within 30 days of the drug supplied by the approved CAP
before the issuance of a reconsideration hearing’s conclusion. vendor to be unsatisfactory, then the
determination. physician may address the issue first
(6) Discretionary informal hearing. In (ii) The written report of the hearing through the approved CAP vendor’s
response to a request for officer includes separate numbered grievance process, and second through
reconsideration, CMS may, at its findings of fact and the legal an alternative dispute resolution process
discretion, provide the participating conclusions of the hearing officer. administered by the designated carrier
CAP physician the opportunity for an (9) Final reconsideration and CMS. If CMS suspends an approved
informal hearing that— determination. (i) The hearing officer’s CAP vendor’s CAP contract for
(i) Is conducted by a hearing officer decision is final unless the director of noncompliance or terminates the CAP
appointed by the director of the CMS the CMS Center for Medicare contract in accordance with
Center for Medicare Management or his Management or his or her designee § 414.914(a), the approved CAP vendor
or her designee; and chooses to review that decision within may request a reconsideration in
(ii) Provides the participating CAP 30 days. If the decision is favorable to accordance with paragraph (c) of this
physician the opportunity to present, by the participating CAP physician, then section.
telephone or in person, evidence to the participating CAP physician may (b) Dispute resolution. (1) When a
rebut CMS’ decision to suspend or resume his or her participation in CAP. participating CAP physician is
terminate a participating CAP The hearing officer and the CMS official dissatisfied with an approved CAP
physician’s CAP election agreement. may review decisions that are favorable vendor’s service or the quality of a CAP
(7) Informal hearing procedures. (i) or unfavorable to the participating CAP drug supplied by the approved CAP
CMS provides written notice of the time physician. vendor, then the participating CAP
and place of the informal hearing at physician may use the approved CAP
least 10 days before the scheduled date. (ii) The CMS official may accept, vendor’s grievance process. If the
(ii) The informal reconsideration reject, or modify the hearing officer’s service or quality issues are not resolved
hearing will be conducted in accordance findings. through the grievance process to the
with the following procedures: (iii) If the CMS official reviews the physician’s satisfaction, then the
(A) The hearing is open to CMS and hearing officer’s decision, the CMS participating CAP physician may ask
the participating CAP physician official issues a final reconsideration the designated carrier to—
requesting the reconsideration, determination to the participating CAP (i) Review the approved CAP vendor’s
including— physician on the basis of the hearing performance; and
(1) Authorized representatives; officer’s findings and recommendations (ii) Potentially recommend
(2) Technical advisors (individuals and other relevant information. termination of the approved CAP
with knowledge of the facts of the case vendor’s CAP contract.
or presenting interpretation of the facts); (iv) The reconsideration (2) Responsibility of the designated
(3) Representatives from the local determination of the CMS official is carrier. The designated carrier—
carrier; final. If the final decision is unfavorable (i) Gathers information from the local
(4) Representatives from the approved to the participating CAP physician, then carrier, the participating CAP physician,
CAP vendor; and the participating CAP physician’s CAP the beneficiary, and the approved CAP
(5) Legal counsel. election agreement is terminated. vendor; and
(B) The hearing is conducted by the (d) The approved CAP vendor may (ii) Makes a recommendation to CMS
hearing officer who receives relevant not charge the beneficiary for the full on whether the approved CAP vendor
testimony; drug coinsurance amount if the has been meeting the service and quality
(C) Testimony and other evidence designated contractor did not pay the obligations of its CAP contract. This
may be accepted by the hearing officer approved CAP vendor in full, unless a recommendation will include numbered
even though it would be inadmissible properly executed advance beneficiary findings of fact.
under the rules of evidence applied in notice is in place. When a beneficiary (3) CMS will review the
Federal courts; receives an inappropriate coinsurance recommendation of the designated
(D) Either party may call witnesses carrier and, gather relevant additional
bill, the beneficiary may participate in
from among those individuals specified information from the approved CAP
the approved CAP vendor’s grievance
in paragraph (c)(7)(ii)(A) of this section; vendor, the participating CAP
process to request correction of the
and physician, the local carrier, and the
approved CAP vendor’s file. If the
(E) The hearing officer does not have beneficiary before deciding whether to
beneficiary is dissatisfied with the result
the authority to compel by subpoena the terminate the approved CAP vendor’s
production of witnesses, papers, or of the approved CAP vendor’s grievance
CAP contract.
other evidence. process, the beneficiary may request
(4) The approved CAP vendor may
(8) Hearing officer’s findings. (i) intervention from the designated carrier.
appeal that termination by requesting a
Within 30 days of the hearing officer’s This is in addition to, rather than in reconsideration. A determination must
receipt of the hearing request, the place of, any other beneficiary appeal be made as to whether the approved
hearing officer presents the findings and rights. The designated carrier will first CAP vendor has been meeting the
recommendations to the participating investigate the facts and then facilitate service and quality obligations of its
CAP physician who requested the correction to the appropriate claim CAP contract.
reconsideration. If the hearing officer record and beneficiary file. (c) Reconsideration. (1) Right to
decides to conduct an in-person or ■ 13. Add § 414.917 to read as follows: reconsideration. An approved CAP

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vendor dissatisfied with a determination (7) Informal hearing procedures. (i) decision is final unless the Director of
that its CAP contract has been CMS will provide written notice of the the CMS Center for Medicare
suspended or terminated by CMS is time and place of the informal hearing Management or his or her designee
entitled to a reconsideration as provided at least 10 days before the scheduled (CMS official) chooses to review that
in this subpart. date. decision within 30 days. If the decision
(2) Eligibility for reconsideration. (ii) The informal reconsideration is favorable to the approved CAP
CMS will reconsider any determination hearing will be conducted in accordance vendor, then the approved CAP vendor
to suspend or terminate an approved with the following procedures: may resume participation in CAP. The
CAP vendor’s contract if the approved (A) The hearing is open to CMS and hearing officer and the CMS official may
CAP vendor files a written request for the approved CAP vendor requesting the review decisions that are favorable or
reconsideration in accordance with reconsideration, including— unfavorable to the approved CAP
paragraphs (c)(3) and (c)(4) of this (1) Authorized representatives; vendor.
section. (2) Technical advisors (individuals (ii) The CMS official may accept,
(3) Manner and timing of request for with knowledge of the facts of the case reject, or modify the hearing officer’s
reconsideration. An approved CAP or presenting interpretation of the facts); findings.
vendor that is dissatisfied with a CMS (3) Representatives from the local (iii) If the CMS official reviews the
decision to suspend or terminate its carriers and the designated carrier; hearing officer’s decision, the CMS
CAP contract may request a (4) The participating CAP physician official will issue a final reconsideration
reconsideration of the decision by filing who requested the suspension, if any; determination to the approved CAP
a request with CMS. The request must and vendor on the basis of the hearing
be filed within 30 days of receipt of the (5) Legal counsel. officer’s findings and recommendations
CMS decision letter notifying the (B) The hearing will be conducted by and other relevant information.
approved CAP vendor of the suspension the hearing officer, who will receive
or termination of its CAP contract. (iv) The reconsideration
relevant testimony; determination of the CMS official is
(4) Content of request. The request for (C) Testimony and other evidence
reconsideration must specify— final.
may be accepted by the hearing officer
(i) The findings or issues with which even though it would be inadmissible ■ 14. Add § 414.918 to read as follows:
the approved CAP vendor disagrees; under the rules of evidence applied in
(ii) The reasons for the disagreement; § 414.918 Assignment.
(iii) A recital of the facts and law Federal courts;
(D) Either party may call witnesses Payment for a CAP drug may be made
supporting the approved CAP vendor’s only on an assignment-related basis.
position; from among those individuals specified
in the paragraph (c)(7)(ii)(A) of this ■ 15. Add § 414.920 to read as follows:
(iv) Any supporting documentation;
and section; and
§ 414.920 Judicial review.
(v) Any supporting statements from (E) The hearing officer does not have
the authority to compel by subpoena the The following areas under the CAP
participating CAP physicians, the local
production of witnesses, papers, or are not subject to administrative or
carrier, or beneficiaries.
(5) Withdrawal of request for other evidence. judicial review:
reconsideration. An approved CAP (8) Hearing officer’s findings. (i) (a) The establishment of payment
vendor may withdraw its request for Within 30 days of the hearing officer’s amounts.
reconsideration at any time before the receipt of the hearing request, the (b) The awarding of vendor contracts.
issuance of a reconsideration hearing officer will present the findings (c) The establishment of competitive
determination. and recommendations to the approved acquisition areas.
(6) Discretionary informal hearing. In CAP vendor that requested the (d) The selection of CAP drugs.
response to a request for reconsideration. If the hearing officer (e) The bidding structure.
reconsideration, CMS may, at its conducts a hearing in person or by (f) The number of vendors selected.
discretion, provide the approved CAP phone, the hearing officer will send a
hearing notice to the approved CAP (Catalog of Federal Domestic Assistance
vendor the opportunity for an informal Program No. 93.773, Medicare—Hospital
hearing that— vendor within 10 days of receipt of the
Insurance; and Program No. 93.774,
(i) Is conducted by a hearing officer hearing request, and the findings and Medicare—Supplementary Medical
appointed by the Director of the CMS recommendations are due to the Insurance Program)
Center for Medicare Management or his approved CAP vendor within 30 days
Dated: June 9, 2005.
or her designee; and from of the hearing’s conclusion.
(ii) Provides the approved CAP (ii) The written report of the hearing Mark B. McClellan,
vendor the opportunity to present, by officer will include separate numbered Administrator, Centers for Medicare &
telephone or in person, evidence to findings of fact and the legal Medicaid Services.
rebut CMS’ decision to suspend or conclusions of the hearing officer. Approved: June 23, 2005.
terminate the approved CAP vendor’s (9) Final reconsideration Michael O. Leavitt,
CAP contract. determination. (i) The hearing officer’s Secretary.


HCPCS Long description