[Federal Register Volume 69, Number 97 (Wednesday, May 19, 2004)]
[Rules and Regulations]
[Pages 28842-28846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11191]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Part 1003

RIN 0991-AB30


Medicare and State Health Care Programs; Fraud and Abuse: OIG 
Civil Money Penalties Under the Medicare Prescription Drug Discount 
Card Program

AGENCY: Office of Inspector General (OIG), HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: In accordance with section 1860D-31 of the Social Security 
Act, this rule sets forth the OIG's new authority for imposing civil 
money penalties (CMPs) against endorsed sponsors under the Medicare 
prescription drug discount card program that knowingly engage in false 
or misleading marketing practices; overcharge program enrollees; or 
misuse transitional assistance funds.

DATES: Effective date: These regulations are effective on June 18, 
2004.
    Comment date: We will consider comments if we receive them at the 
appropriate address, as provided in the address section below, no later 
than 5 p.m. on July 19, 2004.

ADDRESSES: In commenting, please refer to file code OIG-54-FC. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission. Please mail or deliver your written 
comments to the following address: Office of Inspector General, 
Department of Health and Human Services, Attention: OIG-54-FC, Room 
5246, Cohen Building, 330 Independence Avenue, SW,. Washington, DC 
20201.
    Please allow sufficient time for us to receive mailed comments on 
time in the event of delivery delays. Because access to the Cohen 
Building is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the OIG drop box located in the main lobby of the building. For 
information on viewing public comments, see section IV. in the 
SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Joel Schaer, Office of Management and 
Policy, (202) 619-0089; or Niteesha Gupte, Office of Counsel to the 
Inspector General, (202) 619-1306.

SUPPLEMENTARY INFORMATION: 

I. OIG Civil Money Penalties

    In 1981, Congress enacted the civil money penalty statute, section 
1128A of

[[Page 28843]]

the Social Security Act (42 U.S.C. 1320a-7a), as one of several 
administrative remedies to combat increases in fraud and abuse. The 
civil money penalty (CMP) law authorized the HHS Secretary and the 
Inspector General to impose CMPs and program exclusions on individuals 
and entities whose wrongdoing caused injury to HHS programs or their 
beneficiaries. Since 1981, the CMP provisions have been expanded to 
apply by reference to numerous types of fraudulent and abusive 
activities.

II. The Medicare Prescription Drug, Improvement, and Modernization Act

    Section 101 of the Medicare Prescription Drug, Improvement, and 
Modernization Act (MPDIMA) of 2003, as enacted by Public Law 108-173 
and codified in section 1860D-31 of the Social Security Act (the Act), 
provides for a voluntary prescription drug discount card program for 
Medicare beneficiaries entitled to benefits, or enrolled, under Part A 
or enrolled under Part B, excluding beneficiaries entitled to medical 
assistance for outpatient prescription drugs under Medicaid, including 
section 1115 waiver demonstrations. Eligible beneficiaries may access 
negotiated prices on prescription drugs by enrolling in drug discount 
card programs offered by Medicare-endorsed sponsors.\1\ The Medicare 
drug discount card program is intended to serve as a transitional 
program providing immediate assistance to Medicare beneficiaries with 
prescription drug costs during calendar years 2004 and 2005 while 
preparations are made for implementation of the Medicare drug benefit 
under Medicare Part D in 2006.
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    \1\ Eligible beneficiaries may enroll in the Medicare drug 
discount card program beginning no later than 6 months after the 
date of enactment of MPDIMA and ending December 31, 2005. After 
December 31, 2005, beneficiaries enrolled in the program may 
continue to use their drug discount card during a short transition 
period beginning January 1, 2006 and ending upon the effective date 
of a beneficiary's outpatient drug coverage under Medicare Part D, 
but no later than the last day of the initial open enrollment period 
under Part D.
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    The implementing regulations establishing the requirements for the 
MPDIMA program were published in the Federal Register as an interim 
final rule with comment period by the Centers for Medicare & Medicaid 
Services (CMS) on December 15, 2003 (68 FR 69840).\2\
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    \2\ Section 902 of MPDIMA has established timelines for the 
publication of the Medicare rules under section 1871(a) of the Act. 
This provision requires CMS to publish a final rule within 3 years 
of the publication of the interim final rule.
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1. Eligibility Procedures and Enrollment

    Sections 1860D-31(b)(1) and (2) of the Act, and 42 CFR 403.810(a) 
and (b) of the CMS regulations, establish the eligibility criteria for 
the Medicare drug discount card program and for transitional 
assistance. Section 1860D-31(f)(1)(A) of the Act directs the Secretary 
to specify the procedures for determining a beneficiary's eligibility 
for the Medicare drug discount card program or transitional assistance, 
and section 1860D-31(c)(1) directs the Secretary to establish a process 
for eligible beneficiaries enrolling in, and disenrolling from, an 
endorsed program. These provisions have been codified, respectively, in 
42 CFR 403.810 and 403.811 of the CMS regulations.

2. Endorsed Sponsors

    Section 1860D-31(a)(1)(A) of the Act requires the Secretary to 
endorse qualified applicants seeking to offer endorsed discount card 
programs to Medicare beneficiaries. MPDIMA sets forth specific 
requirements that applicants must satisfy to be eligible for 
endorsement and that endorsed sponsors must meet to retain their 
endorsement. The obligations of endorsed sponsors related to 
eligibility determinations and enrollment are specifically set forth in 
section II.C.6. of the preamble to the interim final rule.

3. Transitional Assistance

    Under MPDIMA, certain low-income Medicare beneficiaries enrolled in 
the Medicare drug discount card program are eligible to receive 
transitional assistance of up to $600 per year, which may be applied 
toward the cost of covered discount card drugs obtained under the 
program. Section 1860D-31(h)(1)(C) of the Act requires endorsed 
sponsors to administer the transitional assistance on behalf of CMS and 
to demonstrate to the Secretary that they have satisfactory 
arrangements to account for the transitional assistance provided to 
transitional assistance enrollees. These requirements are codified in 
42 CFR 403.806(e).

4. Information and Outreach

    Section 1860D-31(d)(2)(A) of the Act requires that each 
prescription drug card endorsed sponsor that offers an endorsed 
discount card program make available to beneficiaries eligible for the 
discount card program--through the internet and otherwise--information 
that the Secretary identifies as being necessary to promote informed 
choice among endorsed discount card programs, including information on 
enrollment fees and negotiated prices for covered discount card drugs. 
In addition, section 1860D-31(h)(7)(A) of the Act limits drug card 
endorsed sponsors to providing under their endorsements only products 
and services directly related to covered discount card drugs, or 
discounts on over-the-counter drugs; and section 1860D-31(h)(7)(B) 
prohibits endorsed sponsors from marketing, under their endorsements, 
any products and services other than those described in section 1860D-
31(h)(7)(A). The requirements for information to be included in 
materials are contained in the CMS regulations at 42 CFR 403.806(g).

III. Civil Money Penalties Under Public Law 108-173

    Section 1860D-31(i)(3) of the Act authorizes the imposition of CMPs 
against endorsed sponsors that knowingly engage in conduct that 
violates the requirements of section 1860D-31 of the Act or engage in 
false or misleading marketing practices. Section 403.820(b) of the CMS 
regulations interpreted this to mean that those endorsed sponsors that 
knowingly engage in conduct that violates the conditions of their 
endorsement agreement with the Department or that constitutes false or 
misleading marketing practices may be subject to CMPs.
    The Department has divided the sanction authority between CMS and 
the OIG. Where CMP authority is shared between CMS and the OIG, the 
Department has assigned sanction authority to the OIG for those 
violations that concern misleading or defrauding a beneficiary. The 
Department also assigned sanction authority to the OIG for misuse of 
transitional assistance funds.\3\ On the other hand, CMS has the 
authority to impose CMPs in those instances where the endorsed 
sponsor's conduct constitutes non-compliance with an operational 
requirement not directly related to beneficiary protection. (Section 
403.802(b)(2) of the CMS regulations sets forth a full listing of the 
CMS CMP authorities related to MPDIMA.)
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    \3\ Technical assistance, as defined in Sec.  403.802 of the CMS 
regulations, refers to the subsidy funds that transitional enrollees 
may apply toward the cost of covered discount card drugs in the 
manner described in Sec.  403.808(d).
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    As a result, in accordance with CMS's Medicare prescription drug 
discount card implementing regulations (68 FR 69787; December 15, 
2003), in addition to or in place of sanctions that CMS may impose, as 
set forth in 42 CFR 403.820(a), the OIG has been authorized to impose 
CMPs against an endorsed

[[Page 28844]]

sponsor whom it determines knowingly (as defined in 42 CFR 
1003.102(e)):
     Misrepresented or falsified information in outreach 
material or comparable material provided to a program enrollee or other 
person;
     Charged a program enrollee in violation of the terms of 
the endorsement contract; or
     Used transitional assistance funds in any manner that is 
inconsistent with the purpose of the transitional assistance program.
    The OIG may impose CMPs of no more than $10,000 for each of these 
violations. A violation is deemed to occur in each instance when an 
endorsed sponsor (1) provides misleading information to a program 
enrollee or other person; (2) overcharges a program enrollee; or (3) 
misuses the transitional assistance funds of a program enrollee. Appeal 
rights will be afforded in accordance with the appeal procedures set 
forth in 42 CFR parts 1003 and 1005.

IV. Provisions of This Final Rule

    To address these new OIG civil money penalty authorities, we are 
amending 42 CFR part 1003 as follows:
     In Sec.  1003.100, Basis and purpose, we are revising 
paragraphs (a) and (b) to state the broad purpose of these new CMP 
authorities.
     In Sec.  1003.101, Definitions, we are adding a definition 
for the term ``transitional assistance,'' consistent with the 
definition in 42 CFR 403.802.
     In Sec.  1003.102, Basis for CMPs and assessments, we are 
adding new paragraphs (b)(17), (b)(18) and (b)(19) to cross-reference 
the implementing CMS regulations and the OIG's authority to impose 
penalties for violations.
     In Sec.  1003.103, Amount of penalty, we are adding a new 
paragraph (k) to address the $10,000 maximum penalty amounts for each 
of these violations.
    The OIG specifically seeks public comments on the possible 
inclusion of specific mitigating and aggravating factors to be 
considered in determining penalty amounts.
    We note that in addition to the CMPs set forth above, a card 
sponsor's misuse of the Medicare name or emblem may subject them to 
CMPs in accordance with 42 U.S.C. 1320b-10 and the OIG regulations at 
Sec.  1003.102(b)(7), which prohibit the misuse of the Medicare name 
and emblem. In general, in accordance with the statute and the 
implementing regulations, the OIG may impose penalties on any person 
who misuses the term ``Medicare,'' or other names associated with DHHS 
in any item constituting a communication in a manner which the person 
knows or should know gives the false impression that the item is 
approved, endorsed, or authorized by the Department. Violators are 
subject to fines of up to $5,000 per violation or, in the case of a 
broadcast or telecast violation, $25,000.

V. Regulatory Impact Statement

A. Regulatory Analysis

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866, the Regulatory Flexibility Act (RFA) of 1980, 
the Unfunded Mandates Reform Act of 1995, and Executive Order 13132.
1. Executive Order 12866
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulations are 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health, and safety 
effects; distributive impacts; and equity). A regulatory impact 
analysis must be prepared for major rules with economically significant 
effects ($100 million or more in any given year). This is not a major 
rule as defined at 5 U.S.C. 804(2), and it is not economically 
significant since it would not have a significant effect on program 
expenditures and there would be no additional substantive cost to 
implement the resulting provisions. The OIG has significant experience 
in enforcing CMPs for a wide variety of violations and fraudulent 
conduct. Over the past three fiscal years (FYs), total CMPs levied by 
the OIG for various violations and fraudulent conduct has averaged 
about $2.2 million annually ($1.1 million in FY 2001; $2.4 million in 
FY 2002; and $3.1 million in FY 2003). In addition, the revisions to 42 
CFR part 1003 set forth in this rule are designed to further clarify 
statutory requirements, and hence the economic effect of these 
regulatory provisions should impact only those limited few endorsed 
sponsors that would perhaps engage in prohibited behavior in violation 
of the statute. Given the OIG's enforcement history and the nature of 
the entities subject to CMPs, we do not believe that these regulations 
will result in a significant economic impact or have an appreciable 
effect on the economy or on Federal or State expenditures.
2. Regulatory Flexibility Act
    The RFA, and the Small Business Regulatory Enforcement and Fairness 
Act of 1996, which amended the RFA, requires agencies to analyze 
options for regulatory relief of small businesses. For purposes of the 
RFA, small entities include small businesses, nonprofit organizations, 
and government agencies. Most providers are considered to be small 
entities by having revenues of $6 million to $29 million or less in any 
one year. For purposes of the RFA, most physicians and suppliers are 
considered to be small entities. In addition, section 1102(b) of the 
Social Security Act requires us to prepare a regulatory impact analysis 
if a rule may have a significant impact on the operations of a 
substantial number of small rural providers. This analysis must conform 
to the provisions of section 604 of the RFA.
    Because of the requirements to be an endorsed sponsor, we 
anticipate that few, if any, endorsed sponsors will be small entities 
and none will be rural providers. However, even if some sponsored 
entities are small entities, we believe that the aggregate economic 
impact of this rulemaking is minimal since it is the nature of the 
conduct and not the size or type of the entity that would result in a 
violation of the statute and the regulations. As a result, we have 
concluded that this rulemaking rule should not have a significant 
impact on the operations of a substantial number of small or rural 
providers, and that a regulatory flexibility analysis is not required 
for this rulemaking.
3. Unfunded Mandates Reform Act
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Public Law 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule that may result in expenditure in any 
one year by State, local, or tribal governments, in the aggregate, or 
by the private sector, of $110 million. As indicated, these proposed 
revisions comport with congressional and statutory intent and clarify 
the Department's legal authorities against those who defraud or 
otherwise act improperly against the Federal and State health care 
programs. As a result, we believe that there are no significant 
expenditures required by these revisions that would impose any mandates 
on State, local, or tribal governments, or the private sector that will 
result in an expenditure of $110 million or more (adjusted for 
inflation) in any given year, and that a full analysis under the 
Unfunded Mandates Reform Act is not necessary.
4. Executive Order 13132
    Executive Order 13132, Federalism, establishes certain requirements 
that an agency must meet when it promulgates a rule that imposes 
substantial direct requirements or costs on State and local 
governments, preempts State law, or

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otherwise has Federalism implications. In reviewing this rule under the 
threshold criteria of Executive Order 13132, we have determined that 
this proposed rule would not significantly affect the rights, roles, 
and responsibilities of State or local governments.
    The Office of Management and Budget (OMB) has reviewed this final 
rule in accordance with Executive Order 12866.

B. Paperwork Reduction Act

    The provisions of this rulemaking impose no express new reporting 
or recordkeeping requirements on health care providers or endorsed 
sponsors.

VI. Response to Public Comments

    Comments will be available for public inspection beginning on June 
2, 2004, in Room 5518 of the Office of Inspector General at 330 
Independence Avenue, SW., Washington, DC, on Monday and through Friday 
of each week from 8 a.m. to 4 p.m., (202) 619-0089. Because of the 
large number of comments we normally receive on regulations, we cannot 
acknowledge or respond to comments individually. However, we will 
consider all timely and appropriate comments when developing any 
revised final rulemaking.

VII. Waiver of Proposed Rulemaking

    We ordinarily publish a proposed rule in the Federal Register and 
provide a period for public comment before we publish a final rule. We 
may waive this procedure, however, for good cause if we find that the 
notice and comment procedure is impracticable, unnecessary, or contrary 
to the public interest and if we incorporate a statement of this 
finding and its reasons in the rule issued. We find it unnecessary to 
undertake notice and comment rulemaking in this instance because we 
believe that it is in the public interest to comply with the statutory 
requirement in section 1860D-31(a)(2)(B) of the Act, which authorizes 
interim final rules for implementing the prescription drug discount 
card program. The statute is clear on the penalty provisions and 
affords the OIG little discretion, and does not make or change 
substantive policy, but merely sets forth the statutorily specified 
penalty provisions in the OIG enforcement regulations. Therefore, in 
accordance with MPDIMA and the Administrative Procedure Act (APA) (5 
U.S.C. 553(b)(B)), for good cause, we waive notice and comment 
procedures.
    This rulemaking provides for a 60-day public comment period.

List of Subjects in 42 CFR Part 1003

    Administrative practice and procedure, Fraud, Grant programs--
health, Health facilities, Health professions, Maternal and child 
health, Medicaid, Medicare, Penalties, Social security.


0
Accordingly, 42 CFR part 1003 is amended as set forth below:

PART 1003--CIVIL MONEY PENALTIES, ASSESSMENTS AND EXCLUSIONS

0
1. The authority citation for part 1003 is revised to read as follows:

    Authority: 42 U.S.C. 262a, 1302, 1320-7, 1320a-7a, 1320b-10, 
1395u(j), 1395u(k), 1395cc(j), 1395w-141(i)(3), 1395dd(d)(1), 
1395mm, 1395nn(g), 1395ss(d), 1396b(m), 11131(c), and 11137(b)(2).


0
2. Section 1003.100 is amended by revising paragraph (a); republishing 
the introductory text for paragraphs (b) and (b)(1); revising 
paragraphs (b)(1)(xv) and (b)(1)(xvi); and by adding a new paragraph 
(b)(1)(xvii) to read as follows:


Sec.  1003.100  Basis and purpose.

    (a) Basis. This part implements sections 1128(c), 1128A, 1140, 
1860D-31(i)(3), 1876(i)(6), 1877(g), 1882(d) and 1903(m)(5) of the 
Social Security Act; sections 421(c) and 427(b)(2) of Pub. L. 99-660; 
and section 201(i) of Pub. L. 107-188 (42 U.S.C. 1320-7(c), 1320a-7a, 
1320b-10, 1395w-141(i)(3), 1395dd(d)(1), 1395mm, 1395ss(d), 1396b(m), 
11131(c), 11137(b)(2) and 262).
    (b) Purpose. This part--
    (1) Provides for the imposition of civil money penalties and, as 
applicable, assessments against persons who--
* * * * *
    (xv) Violate the Federal health care programs' anti-kickback 
statute as set forth in section 1128B of the Act;
    (xvi) Violate the provisions of part 73 of this title, implementing 
section 351A(b) and (c) of the Public Health Service Act, with respect 
to the possession and use within the United States, receipt from 
outside the United States, and transfer within the United States, of 
select agents and toxins in use, or transfer of listed biological 
agents and toxins; or
    (xvii) Violate the provisions of part 403, subpart H of this title, 
implementing the Medicare prescription drug discount card and 
transitional assistance program, by misleading or defrauding program 
beneficiaries, by overcharging a discount program enrollee, or by 
misusing transitional assistance funds.
* * * * *

0
3. Section 1003.101 is amended by republishing the introductory text 
and by adding, in alphabetical order, a definition for the term 
``transitional assistance'' to read as follows:


Sec.  1003.101  Definitions.

    For purposes of this part:
* * * * *
    Transitional assistance means the subsidy funds that Medicare 
beneficiaries enrolled in the prescription drug discount card and 
transitional assistance program may apply toward the cost of covered 
discount card drugs in the manner described in Sec.  403.808(d) of this 
title.

0
4. Section 1003.102 is amended by republishing the introductory text 
for paragraph (b); and by adding new paragraphs (b)(17), (b)(18), and 
(b)(19) to read as follows:


Sec.  1003.102  Basis for civil money penalties and assessments.

* * * * *
    (b) The OIG may impose a penalty and, where authorized, an 
assessment against any person (including an insurance company in the 
case of paragraphs (b)(5) and (b)(6) of this section) whom it 
determines in accordance with this part--
* * * * *
    (17) Is an endorsed sponsor under the Medicare prescription drug 
discount card program who knowingly misrepresented or falsified 
information in outreach material or comparable material provided to a 
program enrollee or other person.
    (18) Is an endorsed sponsor under the Medicare prescription drug 
discount card program who knowingly charged a program enrollee in 
violation of the terms of the endorsement contract.
    (19) Is an endorsed sponsor under the Medicare prescription drug 
discount card program who knowingly used transitional assistance funds 
of any program enrollee in any manner that is inconsistent with the 
purpose of the transitional assistance program.

0
5. Section 1003.103 is amended by adding a new paragraph (m) to read as 
follows:
* * * * *


Sec.  1003.103  Amount of penalty.

* * * * *
    (m) For violations of section 1860D-31 of the Act and 42 CFR part 
403, subpart H, regarding the misleading or defrauding of program 
beneficiaries, or the misuse of transitional assistance funds, the OIG 
may impose a penalty of not more than $10,000 for each individual 
violation.


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    Dated: February 17, 2004.
Dara Corrigan,
Acting Principal Deputy Inspector General.
    Approved: March 1, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-11191 Filed 5-18-04; 8:45 am]
BILLING CODE 4152-01-P