[Federal Register Volume 70, Number 128 (Wednesday, July 6, 2005)]
[Rules and Regulations]
[Pages 39022-39102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-12938]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 414



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

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

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 414

[CMS-1325-IFC]
RIN 0938-AN58


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

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

ACTION: Interim final rule with comment period.

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

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

ADDRESSES: In commenting, please refer to file code CMS-1325-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of three ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/regulations/ecomments. (Attachments should be in Microsoft Word, WordPerfect, or 
Excel; however, we prefer Microsoft Word.)
    2. By mail. You may mail written comments (one original and two 
copies) to the following address ONLY:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1325-IFC, P.O. Box 8013, Baltimore, MD 
21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7195 in advance to schedule your arrival 
with one of our staff members.
    Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, 
SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 
21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

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

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

Outline of Contents

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

[[Page 39023]]

    D. Alternatives Considered
    E. Impact on Beneficiaries

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

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

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

I. Background

A. Covered Drugs and Biologicals

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

B. Revised Drug Payment Methodology

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

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

C. Competitive Acquisition Program (CAP)

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

D. Requirements for Issuance of Regulations

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

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

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

A. Policy for the CAP

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

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

[[Page 39026]]

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

Regulations

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

[[Page 39027]]

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

[[Page 39028]]

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

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

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

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

[[Page 39029]]

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

[[Page 39030]]

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

[[Page 39031]]

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

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

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

[[Page 39032]]

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

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

[[Page 39033]]

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

Table 2.--Percent of 2003 Total Allowed Charges Accounted for by the CAP
                              Bidding Drugs
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Oncology........................................................  84.92
Ophthalmology...................................................  99.97
Psychiatry......................................................  46.14\
                                                                  *\
Rheumatology....................................................  99.29
Other specialties...............................................  80.57
All non-oncology specialties....................................  86.00
All physicians (in office)......................................  85.20
------------------------------------------------------------------------
* Note: Our data on drug billing by psychiatrists showed a high
  proportion (53 percent) of allowed charges for Rho D immune globulin,
  which is not included in our single drug category for the reasons
  discussed above. The drugs that we have included represent 97.94
  percent of allowed charges for all other drugs commonly used by
  psychiatrists.

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

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

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

[[Page 39034]]

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

[[Page 39035]]

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

[[Page 39036]]

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

B. Operational Aspects of the CAP

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

[[Page 39037]]

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

[[Page 39038]]

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

[[Page 39039]]

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

[[Page 39040]]

physicians will be required to incorporate e-prescribing technologies 
if ordering drugs currently under the Part B program or acquiring drugs 
through the CAP.
    Response: The MMA electronic prescription program provisions apply 
to the electronic prescription of Medicare Part D drugs for Part D 
enrolled individuals, not specifically Part B drugs. The MMA provides 
that not later than one year after the promulgation of final standards 
for Medicare Part D drugs for Part D enrolled individuals, prescription 
and certain other related information transmitted electronically can 
only be transmitted according to the adopted final standards. The 
Medicare Prescription Drug Benefit final rule (70 FR 4198, January 28, 
2005) states that Part D sponsors that participate in the Part D 
program are required to support and comply with adopted electronic 
prescription standards. Physicians would not be required to write 
prescriptions electronically and therefore their participation in Part 
D electronic prescription drug programs would be voluntary. Those 
physicians that decide to prescribe Part D drugs electronically, 
however, would be required to comply with the adopted final standards. 
We proposed a foundation set of final standards in February 2005 (70 FR 
6256, February 4, 2005) and hope to finalize those standards and 
require compliance by January 2006, when the Medicare Part D 
prescription drug benefit begins. We will also monitor the program as 
it develops to determine if some aspects of it could be adapted for use 
in the CAP drug ordering process.
Content of the CAP Drug Order
    We proposed that the physician would transmit the following 
specific information to the CAP drug vendor from whom he or she has 
elected to receive drugs. (Abbreviated information could be sent for 
repeat patients.)
     Date of order
     Beneficiary name
     Physician identifying information: Name, practice 
location, group practice information (if applicable), PIN and UPIN, 
Drug name
     Strength
     Quantity ordered
     Dose
     Frequency/instructions
     Anticipated date of administration
     Beneficiary Medicare information/Health insurance (HIC) 
number
     Supplementary Insurance information (if applicable)
     Medicaid information (if applicable)
     Shipping address
     Additional Patient Information: date of birth, allergies, 
Height/Weight/ICD-9.

We specifically requested comments on this proposed information as well 
as any additional information that might be necessary.
    Comment: We received several comments about the proposed content of 
the physician's order. Some commenters stated that the proposed items 
duplicate those submitted on a claim for service and do not reflect the 
information typically included in a drug order or prescription. Other 
commenters were concerned about compliance with HIPAA guidelines and 
requested that unnecessary patient-specific information be deleted from 
the order form. Commenters also stated that the detailed list of order 
information should be needed only for the initial order for a new 
patient. They noted that subsequent orders could be greatly 
abbreviated.
    Response: The statute provides that we must establish a process for 
the sharing of applicable deductible and coinsurance information 
between the participating CAP physician and the approved CAP vendor. 
The participating CAP physician is also required to submit a 
prescription order to the approved CAP vendor to order drugs for an 
individual patient. The order form information that we proposed in the 
proposed rule contains information necessary to comply with both of 
those requirements. It is not possible to link beneficiary-specific 
information from our claims processing system with the physician's 
order before the drug vendors compiling the information necessary to 
prepare the drug order and return it to the physician because it is not 
possible for a provider to query the system and obtain beneficiary 
billing information. Allowing suppliers and providers to obtain 
beneficiary specific information from the Medicare claims processing 
system could be a violation of beneficiary privacy rules. In addition, 
the statute specifies that this information will be provided by the 
physician. The HIPAA guidelines allow the sharing of beneficiary-
specific information necessary for treatment purposes. Without needed 
information, the approved CAP vendor will be prevented from completing 
the drug order accurately and providing the drug to the participating 
CAP physician so that the required treatment can be administered to the 
patient. We are specifying in our regulations that the participating 
CAP physician will be required to provide the approved CAP vendor 
complete patient information only for the initial order, or when the 
information changes (for example, the patient develops a new drug 
allergy). The approved CAP vendor will specify which information is 
necessary on a follow-up order.
    Comment: One commenter stated that the physician may be uncertain 
when the patient will be receiving his or her treatment, and thus it 
may not be possible to determine the anticipated date of treatment with 
any accuracy. This commenter recommended instead that CMS allow the 
physician to specify a range of dates when the treatment may be 
administered.
    Response: We agree with the commenter that it may not be feasible 
for a physician to establish in advance an exact date for drug 
administration. We will specify that providing the vendor with a range 
of dates over a 7-day period will be sufficient. We have selected the 
7-day timeframe based on our understanding that many of the drugs 
included in the CAP are used in a treatment regimen that repeats on a 
weekly basis. The 7-day time period is intended to provide the 
physician with flexibility to shift the specific date of administration 
of needed drugs within a specified period without overlapping the next 
treatment period. When the approved CAP vendor submits its claim for 
the drug, the vendor will be instructed to include the first day in the 
7-day period as the date of service. Because the vendor will not know 
the actual date the drug is administered before submitting its claim, 
the date of service will not be used to match the approved CAP vendor's 
claim with the participating CAP physician's claim. Instead, as 
described later in this section, a unique number will be used to match 
the claims.
    Comment: Some commenters recommended that CMS eliminate the 
``Additional Patient Information'' (date of birth, allergies, height, 
weight, ICD-9 codes) specified in the potential list of data elements. 
Information related to height and weight would be used by the physician 
to determine the dose, and the ICD-9 would be included on the 
physician's claim form, so the physician would not need to provide it. 
The commenters stated that this type of information was not typically 
included in a drug order and that the CAP vendor should not use the 
information to perform pharmacy functions.
    Response: Based on our decisions regarding the approved CAP 
vendor's ability to break up shipments in appropriate circumstances, 
our conclusion that approved CAP vendors may directly appeal the denial 
of their

[[Page 39041]]

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

[[Page 39042]]

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

[[Page 39043]]

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

[[Page 39044]]

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

[[Page 39045]]

statute requires that the approved CAP vendor may not provide drugs to 
a participating CAP physician unless the physician submits a written 
prescription order to the approved CAP vendor.
    We proposed that a CAP prescription order could be initiated by 
telephone and followed up with a written order. We proposed that the 
delivery time period would begin when a drug order was received by the 
approved CAP vendor and would end at the time of delivery to the 
physician's office or other intended setting. We proposed that routine 
shipments of drugs furnished under the CAP would occur within a one- to 
two-business-day time period and that the duration of the delivery time 
period must not exceed the drug's stability in appropriate shipping 
containers and packaging. Emergency drug orders would need to be 
furnished on the next day for orders received by the approved CAP 
vendor before 3 p.m. (approved CAP vendor's local time). We requested 
comment on how to define timely delivery for routine and emergency drug 
shipments and on the feasibility of requiring a shorter duration for 
routine delivery of CAP drugs and of providing same-day deliveries for 
orders received for emergency situations.
    Comment: Comments on the definition of an appropriate timeframe for 
deliveries defined a relatively narrow potential timeframe. The 
shortest recommended timeframes were daily, or up to twice daily 
deliveries for emergencies, while the longest timeframes were three to 
five business days. Most comments suggested a one-or two-business-day 
timeframe for delivery in routine cases and overnight delivery for 
emergencies. The relatively short turn around time assumed a ``clean'' 
order--one without patient safety, logistical, or payment problems. One 
comment suggested category-specific timeframes.
    Response: At the program's start, we plan to implement a two-
business-day timeframe for routine deliveries and a one business day 
timeframe for emergency deliveries, except for deliveries to certain 
U.S. territories in the Pacific, as discussed below. However, these 
timeframes shall not exceed the drug's stability in appropriate 
shipping and packaging as defined by manufacturer's labeling, drug 
compendia, or specialized drug stability references used in the 
practice of pharmacy or drug distribution. If drug stability 
necessitates a shorter shipping timeframe, or specialized shipping 
conditions, the approved CAP vendor must comply with them. For example, 
some drugs may require insulated packaging and/or cold-packs to prevent 
exposure to temperature extremes during shipping. Furthermore, we are 
aware that some drug products are shipped by express carriers in such 
conditions and are marked ``perishable.''
    The delivery timeframe begins when a complete CAP prescription 
order is transmitted from the participating CAP physician to the 
approved CAP vendor. The participating CAP physician may begin this 
process with a phone call to the approved CAP vendor, but must follow-
up with a written prescription order within 8 hours for routine 
deliveries. For emergency deliveries, a telephone order must be 
immediately followed with a written prescription order. If the 
participating CAP physician does not meet these deadlines for sending 
the written prescription order, the emergency or routine delivery 
timeframes are delayed accordingly until the written prescription order 
is received. The delivery timeframe ends when the drug is received at 
the participating CAP physician's office. A written prescription order 
may be transmitted by FAX, e-mail, or mail, subject to applicable HIPAA 
privacy and security requirements, and any applicable State pharmacy 
laws. As specified earlier, all communication between the physician and 
the approved CAP vendor must be conducted in accordance with applicable 
HIPAA privacy and security requirements, and with any applicable State 
pharmacy laws.
    The approved CAP vendor is responsible for complying with the 
timeframes for routine and emergency delivery, as well as with the 
requirements for appropriate shipping conditions for drugs. If the 
participating CAP physician is dissatisfied with the vendor's 
compliance with the shipping timeframes or the manner in which drugs 
are being shipped, the physician should address the issue by means of 
the vendor's grievance procedure. If the two parties are unable to 
resolve the situation to their satisfaction they may ask the designated 
carrier's dispute resolution staff for assistance.
    We believe that the two-business-day period for most routine 
prescription orders will provide an opportunity to resolve many common 
problems that can occur with transmitted drug orders, like legibility 
or poor transmission quality, simple clarification, etc. The two-
business-day timeframe also provides a greater window of opportunity 
for approved CAP vendors and participating CAP physicians who are in 
different time zones to interact. The intent of the two-business-day 
timeframe is to balance the cost of shipping with potentially changing 
clinical requirements of a patient population and the requirement that 
needed drugs must be available promptly to the physician. The intent of 
the one-business-day timeframe for emergency deliveries is to 
accommodate the physician's need for more rapid delivery of drugs in 
certain clinical situations where the patient's rapidly changing 
condition requires it with the vendor's ability to ship the drug and 
have it delivered promptly in a nationwide delivery area. The emergency 
delivery option is not intended to be used routinely. It should be 
reserved for those situations when the patient's need for the drug 
could not have been accommodated under the routine delivery timeframe. 
At a minimum, under both the routine and emergency delivery timeframes, 
we expect vendors to accept new prescription orders until at least 5 
p.m. (vendor's local time) on business days and we expect physicians to 
be able to take receipt of deliveries on business days until at least 5 
p.m. (physician's local time). For emergency deliveries, we expect that 
the vendor will make the necessary adjustments in order to be able to 
prepare the drug for shipping and to deliver it the next business day. 
We note that the physician and the vendor will each need to be mindful 
of the time zones within which each are located. CAP participating 
physicians and approved CAP vendors operating in different time zones 
will need to be aware of cut-off times for placing orders and 
coordinate appropriately. We also point out that in some cases, two-
business-day shipping may actually require several calendar days of 
transit during weekends and the commonly observed Federal holidays of 
New Years, Memorial Day, Independence Day, Labor Day, Thanksgiving, and 
Christmas. Some degree of coordination between the vendor and the 
physician's office will be required in those situations, and we stress 
that the drugs shipped must be packaged in a manner to preserve product 
integrity during shipping, for example to withstand temperature changes 
during shipping.
    Specific examples appear below.

    Example 1: The two-business-day timeframe for routine deliveries 
means that the physician's office may expect to receive a CAP 
prescription order on the second business day after it was placed. 
Therefore, an order received in the approved CAP vendor's office on 
a Monday by 5 p.m. (Vendor's local time) would arrive in the 
physician's office no later than Wednesday at 5 p.m. (physician's 
local time). Orders placed on Friday would arrive no later than

[[Page 39046]]

Tuesday. (Note: These orders must comply with the process specified 
above if the initial prescription order is placed by phone, the 
follow-up written prescription order must be received within 8 hours 
for routine deliveries.
    Example 2: The one-business-day timeframe for emergency 
deliveries means that an order received in writing in the approved 
CAP vendor's office at 1 p.m. (approved CAP vendor's local time) on 
a Wednesday must be received by the physician in his or her office 
by 5 p.m. Thursday (physician's local time).

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

[[Page 39047]]

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

[[Page 39048]]

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

[[Page 39049]]

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

[[Page 39050]]

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

[[Page 39051]]

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

[[Page 39052]]

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

[[Page 39053]]

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

[[Page 39054]]

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

[[Page 39055]]

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

[[Page 39056]]

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

[[Page 39057]]

    Response: As noted above, we have clarified that the approved CAP 
vendor has an independent right to appeal claims under existing Part B 
appeals rules. To assist approved CAP vendors in exercising these 
rights, we are including a new obligation in the participating CAP 
physician's CAP election agreement. The participating CAP physician 
must reasonably cooperate with the approved CAP vendor if the vendor 
chooses to appeal the local carrier's denial. Reasonable cooperation 
may include providing the approved CAP vendor with access to or copies 
of medical records, as appropriate, and written statements.
    Comment: Several commenters were concerned that the process for 
determining whether a participating CAP physician should be removed 
from the CAP program would allow approved CAP vendors to pressure 
participating CAP physicians to alter their prescribing pattern and to 
intrude unacceptably on the participating CAP physician's clinical 
decision making.
    Response: Please note the approved CAP vendor will be required 
under the terms of its CAP contract to ship the drug ordered by a 
participating CAP physician in most cases. The designated contractor 
will closely monitor the activities of approved CAP vendors and 
complaints from participating CAP physicians to ensure that no such 
inappropriate intrusion on physician clinical decision making occurs. 
Participating CAP physicians may address concerns of this type through 
the participating CAP physician/approved CAP vendor dispute resolution 
process described below and in Sec.  414.917.
    Comment: Several commenters suggested that, during the designated 
carrier's investigation into the participating CAP physician's 
compliance with his or her CAP election agreement, the designated 
carrier should be explicitly required to gather information from the 
participating CAP physician.
    Response: The designated carrier will gather necessary information 
from the local carrier, the participating CAP physician and the 
approved CAP vendor. Section 414.916(b)(2)(ii) has been adjusted to 
explicitly include the physician among the sources of information the 
designated carrier must query during the investigation.
    Comment: A commenter from a physician association believed that the 
participating CAP physician should be allowed to submit additional 
material to the record during the phase described in Sec.  
414.916(b)(3) when CMS makes a determination whether to suspend the 
participating CAP physician's CAP participation agreement.
    Response: We agree. Section 414.916(b)(3) has been adjusted to 
require us to gather additional material from the participating CAP 
physician as appropriate.
    Comment: Several commenters have suggested emphatically that CMS 
drop from the final rule the requirement that suspended physicians' 
names be published in the Federal Register. These commenters also 
requested that the final rule make clear that suspension of a CAP 
election agreement for denial of claims does not result in the 
physician becoming listed on the exclusion list under section 1128 of 
the Act.
    Response: A suspension of a participating CAP physician's CAP 
election agreement or a termination of an approved CAP vendor's 
contract with us does not result per se in either party being excluded 
from participation in any Federal health care program. Such a decision 
only precludes the physician or vendor from participation in the CAP. 
Whether a participating CAP physician or vendor is excluded from all 
Federal health care programs under section 1128, 1128A, or any other 
exclusionary authority given to the Secretary under the Act, shall be 
based on a determination made by the Office of Inspector General of 
HHS, not by CMS through the Sec.  414.916 or Sec.  414.917 processes. 
We agree with the commenters' recommendation that we refrain from 
publishing the names of suspended physicians in the Federal Register, 
and this requirement has been removed.
    Comment: One potential vendor suggested that vendors should not be 
required to enroll or re-enroll physicians who had been suspended from 
CAP at the conclusion of the suspension period.
    Response: Physicians whose period of suspension from the CAP 
program has ended will be allowed to elect to participate in the CAP as 
described above, and could potentially select the same vendor that 
generated the suspension request. Section 1847B(a)(1)(A)(ii) of the Act 
states that each physician is given the opportunity annually to elect 
to obtain drugs under the CAP.

b. Resolution of Physicians' Drug Quality and Service Complaints

    The proposed rule discussed how the participating CAP physician 
would use the approved CAP vendor's grievance process for drug quality 
or approved CAP vendor service issues and turn to the designated 
carrier for assistance in developing solutions. Based on comments from 
physicians, we have added Sec.  414.917. This new section sets forth a 
process culminating in termination of the approved CAP vendor's 
contract for serious quality or service issues. It is described below 
in the responses to comments.
    Comment: Several commenters suggested that CMS make approved CAP 
vendors indemnify participating CAP physicians for legal defense costs 
connected with ``adverse drug events'' when the participating CAP 
physician is ultimately exonerated.
    Response: Individual participating CAP physicians and approved CAP 
vendors can seek legal advice from someone competent to provide such 
advice regarding the product liability laws and other laws applicable 
to financial liability associated with adverse drug events. We believe 
that addressing these complex issues is beyond the scope of this rule.
    Comment: Several commenters requested that the final rule include a 
more definitive process for participating CAP physicians to employ for 
the resolution of service and drug quality issues. They requested a 
process that would include suspension of the vendor's right to 
participate in the CAP program.
    Response: Issues connected with drug quality and approved CAP 
vendor service will be given a top priority. Both the approved CAP 
vendor and the designated carrier will be required to have qualified 
staff available to address drug quality and service complaints upon 
their receipt. Egregious drug safety issues should be brought to the 
designated carrier right away. For instance, evidence of counterfeit 
drugs would generate an immediate referral to the appropriate Federal, 
State, and local authorities, including the Department of Health and 
Human Services, Office of the Inspector General. The ultimate sanction 
for service and quality issues is suspension and/or termination of the 
approved CAP vendor's contract upon exhaustion of the reconsideration 
process set forth in Sec.  414.917. This process is very similar to the 
process for removing participating CAP physicians, which is described 
above and in Sec.  414.916.
    When a participating CAP physician is dissatisfied with the drug 
quality or drug delivery performance of an approved CAP vendor, we 
expect the participating CAP physician to make a meaningful effort to 
resolve the issue with the approved CAP vendor informally, and then to 
use the approved CAP vendor's grievance procedure. The next step is to 
ask for

[[Page 39058]]

the designated carrier's assistance in developing a solution with 
cooperation from both parties. Failing resolution there, the 
participating CAP physician may ask the designated carrier to recommend 
to CMS that the approved CAP vendor's contract be suspended. CMS will 
act on that recommendation after gathering any necessary, additional 
information from the participating CAP physician and approved CAP 
vendor. The vendor may appeal our initial decision through the process 
articulated in Sec.  414.917.
    In response to these comments, we also believe that the process set 
forth in Sec.  414.917 is the appropriate means for approved CAP 
vendors to seek a review of our suspension or termination of its CAP 
contract under Sec.  414.914(a). We are specifying that this process 
will be available to approved CAP vendors who are dissatisfied with our 
determination to suspend or terminate the CAP contract for default. 
While the approved CAP vendor's appeal of our decision is pending, the 
approved CAP vendor's participation in the CAP would be suspended. We 
seek further comment about this issue.
    In summary, Sec.  414.916 and Sec.  414.917 present several dispute 
resolution processes to treat program challenges experienced by 
beneficiaries, participating CAP physicians, and approved CAP vendors. 
The framework of the process for treating the approved CAP vendor's 
request to suspend the participating CAP physician's CAP election 
agreement has been changed in these ways:
     The participating CAP physician may now offer information 
to the designated carrier as it develops its recommendation on whether 
CMS should suspend the participating CAP physician's CAP election 
agreement;
     The participating CAP physician may now offer information 
to CMS as it makes its decision on whether to suspend the participating 
CAP physician's CAP election agreement; and
     CMS will not publish in the Federal Register the names of 
physicians whose CAP participation agreements have been suspended.

Section 414.917 has been added to create a process for termination of a 
vendor's CAP contract upon the request of a physician when service and 
quality issues cannot be resolved cooperatively.
    We will ensure beneficiaries are educated on the avenues available 
to them to dispute billing issues. Approved CAP vendors may use the 
advance beneficiary notice (ABN) process if the approved CAP vendor 
reasonably expects its drug claims may be denied.

c. Resolution of Beneficiary Billing Issues

    In the proposed rule, we specified that the beneficiary would 
receive a medical summary notice (MSN) from the local carrier 
indicating whether the physician's drug administration claim has been 
paid or denied. If the drug administration claim has been denied, the 
MSN would reflect a message instructing the beneficiary that no 
deductible or coinsurance may be collected for the drug. If the 
beneficiary receives a bill for coinsurance from the vendor, the 
beneficiary may participate in the approved CAP vendor's grievance 
process to request correction of the approved CAP vendor's file. If the 
beneficiary is dissatisfied with the result of the approved CAP 
vendor's grievance process, the beneficiary may request intervention 
from the designated carrier. The designated carrier would first 
investigate the facts and then facilitate correction to the appropriate 
claim record and beneficiary file. If the approved CAP vendor requires 
targeted education on the subject of beneficiary billing, the 
designated carrier would initiate that effort.
    Comment: Several commenters requested that CMS require every CAP 
MSN to include standard language clearly explaining the beneficiary 
grievance process and make clear that the CAP physician is not involved 
with billing for drug coinsurance amounts.
    Response: We share the commenters' concern that beneficiaries 
should be provided with complete and timely information about the 
approved CAP vendor's grievance process. We support the commenters' 
interest in giving the beneficiary notice that the participating CAP 
physician is independent from the approved CAP vendor. We will consider 
these comments as the educational materials are finalized. All 
beneficiary education materials are focus-group tested to be certain 
they are understandable and communicate the intended message. We will 
require approved CAP vendors to provide participating CAP physicians 
with information on how beneficiaries, and participating CAP 
physicians, can each use their respective grievance processes when the 
approved vendors send introductory materials to the participating CAP 
physicians each autumn. It is unlikely the Medicare summary notice will 
be used to communicate about the beneficiary grievance process because 
there will exist no billing dispute until the approved CAP vendor 
actually bills the beneficiary. Information on the beneficiary 
grievance process will be more appropriately included with any bill the 
approved vendor may send to the beneficiary. We also will require all 
participating CAP physicians to distribute the CMS developed fact sheet 
to beneficiaries in the participating CAP physician's office. The fact 
sheet presents a good medium for distribution of information on the 
beneficiary grievance process, and information about the participating 
CAP physician's independence from the approved vendor.
    Comment: Several commenters have requested that we describe whether 
and how an approved CAP vendor could deliver an ABN to a beneficiary.
    Response: An ABN is the standard mechanism for advising 
beneficiaries of the cost of items and/or services for which they will 
be financially responsible. Generally, an ABN informs the beneficiary 
that, even though the service being delivered may be covered by 
Medicare in some situations, the issuer has reason to believe Medicare 
coverage policy will not support payment under the circumstances of the 
present case. For instance, an approved CAP vendor may reach the 
conclusion that the drug it is providing to the participating CAP 
physician for administration to the beneficiary would not be reasonable 
and necessary--and therefore will not be paid for by Medicare--after 
reviewing data on the prescription order and having follow-up 
communication with the participating CAP physician. The approved CAP 
vendor may request the participating CAP physician to deliver an ABN. 
If the participating CAP physician agrees to do so, then the physician 
will describe on the ABN both the administration services and the drug 
product, together with the estimated cost for each that the beneficiary 
must pay if he or she receives the drug.
    If the participating CAP physician will not deliver an ABN on 
behalf of the requesting approved CAP vendor, then the approved CAP 
vendor may issue an ABN directly to the beneficiary before the item(s) 
or service(s) is received. For instructions and forms connected with 
ABNs, please visit this Web site: http//www.cms.hhs.gov/medicare/bni.

C. CAP Contracting Process

1. Quality and Product Integrity Aspects
    Sections 1847B(b)(2), 1847B(b)(3), and 1847B(b)(4) of the Act 
address the issue of quality under the competitive acquisition process 
at both the product and approved CAP vendor level. We proposed to use 
the bid evaluation

[[Page 39059]]

process to ensure that these quality aspects are met.

a. Information To Assess and Ensure Quality

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

[[Page 39060]]

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

b. Product Integrity

    Section 1847B(b)(3)(C) of the Act states that the Secretary must 
consider the ability of the applicant to ensure product integrity. We 
proposed that the evaluation include, but not be limited to, the 
applicants' ability to assure that products are not adulterated, 
misbranded, spoiled, contaminated, expired, or counterfeit. We stated 
that at a minimum, all drugs and biologics used in this program must be 
licensed under section 351 of the Public Health Service Act or approved 
under section 505 of the Federal Food, Drug, and Cosmetic Act. We also 
indicated approved CAP vendors would also be required to comply with 
sections 501 and 502 of the Federal Food, Drug, and Cosmetic Act 
concerning adulteration and misbranding. We note drug products 
furnished under CAP are expected to comply with FDA requirements 
including current good manufacturing practices (See 501(a)(2)(B) of the 
Federal Food Drug and Cosmetic Act; 21 CFR Parts 210 and 211 for 
finished pharmaceuticals).

[[Page 39061]]

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

[[Page 39062]]

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

[[Page 39063]]

drug product may be used for subsequent dosing on the same beneficiary 
or for use on another beneficiary.
     If excess drug product remaining in a vial shipped by an 
authorized CAP vendor must be returned, the approved CAP vendor is 
expected to accept excess drugs for disposal and is expected to pay for 
shipping. The physician is responsible for appropriately packing the 
drug. Consolidating shipping into larger and less frequent packages by 
the physician would be encouraged. We do not intend for this 
requirement to be used as a vehicle for routine disposal of empty or 
nearly empty vials, disposal of any drug product not shipped by an 
authorized CAP vendor, or disposal of drug mixed in IV bags, syringes, 
associated needles and tubing, or other devices used in the 
administration of the drug product to a beneficiary.
     The vendor bills Medicare only for the amount of drug 
administered to the beneficiary and the beneficiary's coinsurance 
amount will be calculated from the quantity of drug that is 
administered. Since the CAP statute authorizes us to pay the approved 
CAP vendor only upon administration of the drug, any discarded drug (or 
drug that is considered waste) will not be eligible for payment. We 
have modified the proposed regulation at Sec.  414.906(a)(5).
    The CAP dispute resolution process will be available to resolve any 
associated disputes. This process is described in the interim final 
rule at section II.B.3.
    Comment: Commenters also cited ``brown-bagging'' (that is, having a 
beneficiary pick up a drug at a pharmacy and bring it to the 
physician's office for administration) as a potential threat to product 
integrity as well as an inconvenience for the beneficiary.
    Response: We agree that the practice of brown bagging may 
jeopardize product integrity by potentially subjecting the drug to 
unknown storage conditions and exposing the drug to diversion. Brown 
bagging may also create a further burden on the beneficiary by 
requiring additional time and travel to obtain the drug product and 
then requiring appropriate storage of the drug. Section 1847B(b)(4)(E) 
of the Act indicates that drugs furnished under the CAP must usually be 
shipped directly to the physicians. The CAP is being implemented in a 
manner consistent with section 1847B(b)(4)(E) of the Act; therefore, we 
do not expect ``brown bagging'' to occur.

c. Financial Performance and Solvency Standards

    Section 1847B(b)(2) of the Act discusses the financial performance 
and solvency standards we must develop for entities that seek to become 
approved CAP vendors. We proposed to fold integrity and internal 
control aspects of fiscal responsibility into this analysis.
    In the March 4, 2005 proposed rule, we stated that while licensure 
by the State to distribute drugs may assess some degree of financial 
responsibility, we believe the focus and depth of financial capability 
evaluations associated with licensure might vary across States. To 
assess bidders' financial solvency in a consistent manner with 
appropriate scrutiny and minimal burden on the bidders, we proposed 
using criteria from the Federal Acquisition Regulation (FAR) Section 
9.104 and following standards for ``responsible contractors'' as a 
baseline standard. The FAR standards also contain nonfinancial 
components that address areas such as integrity, performance, and 
ethics. In addition, we sought to add standards that would demonstrate 
the following:
Overall Capitalization and Financial Capability and Working Capital
    We proposed that bidders furnish a copy of their most recent year's 
audited financial statements. Specific items, such as net worth, could 
be used in the evaluation process. We requested comments on the 
potential validity of specific financial indicators for this process 
and whether or not specific thresholds would be applicable. We also 
requested comment on this overall requirement from potential bidders, 
such as group purchasing organizations Group Purchasing Organizations 
(GPOs), who do not routinely take possession of drug products.
    We proposed to review the audited financial statements to determine 
if the bidder has adequate working capital to meet contractual 
obligations. Ratios of current assets to current liabilities, total 
liabilities to net worth, and cash or cash equivalents to current 
liabilities are commonly used to assess financial capability (see the 
form at FAR 53.301-1407). Given the 3-year contract duration, we 
requested comments regarding the appropriateness of these tests, and 
thresholds to apply for the ratios.
    Comment: Several commenters noted that financial standards in the 
proposed rule were not clearly defined. One commenter agreed that 
financial capability standards were important, but cautioned against 
setting standards that could unfairly or inadvertently exclude bidders 
due to insufficient capitalization, while another suggested that credit 
worthiness be evaluated in cases where a bidder was seeking to expand 
operations by participating as an approved CAP vendor. Other commenters 
suggested that vendors have significant financial stability to 
withstand the potential risk of participating in CAP and that debt to 
capital ratio be included in the evaluation because the commenter 
considered financial ratio to be particularly useful in assessing a 
prospective vendor's financial stability.
    Response: In the proposed rule we stated that we sought to define a 
set of overall financial standards that would ensure that reputable and 
experienced vendors are chosen to participate in the CAP. As noted by 
several commenters, the proposed rule was intended to provide us with a 
framework to which we could add details based on public comment.
    Financial data supplied by the bidders is intended to demonstrate 
that the entity is capitalized, generating sales volume, and is not 
operating at a loss. We also plan to use several simple financial 
ratios from Standard Form (SF) 1407, Preaward Survey of Prospective 
Contractor Financial Capability (see FAR 53.301-1407) to determine 
whether a contractor has financial resources to perform a contract. We 
expect bidders to have a current ratio (current assets : current 
liability) of >1. However, many bidders are expected to have 
significant inventory, particularly if they are engaged in drug 
distribution activities. We will also apply the quick ratio (also known 
as the acid test ratio, that is, current assets minus inventory : 
current liability). Comparison of the current and quick ratios also 
gives a sense of the relative amount of inventory that an entity may 
possess The debt to equity ratio (total liability : net worth) is 
intended to gain a sense of the role that creditors have in financing 
the entity's operations. These ratios will be used to help assess 
whether the vendor can meet obligations to deliver CAP drugs on receipt 
of a prescription order. More specific financial information, such as 
audited annual financial statements, will be used to confirm the 
general findings above.
    Bidding entities could be a diverse group that could include single 
organizations or groups. The entities could have a variety of 
backgrounds including drug distribution, specialty pharmacy, or group 
purchasing. Therefore, in an effort to minimize the risk of having an 
absolute threshold disqualify a potentially capable bidder,

[[Page 39064]]

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

a. Quality and Financial Information--Vendor Application

    In the March 4, 2005 proposed rule, we stated that the vendor would 
be responsible for completing and meeting all criteria on both the 
Vendor Application Form and the Provider/Supplier Enrollment 
Application (Form CMS 855B) (for the purpose of completing these 
applications, vendors will be considered suppliers) by the established 
deadlines in order to be considered as a potential vendor under the 
CAP. For example, if a vendor has been excluded from participation in a 
Federal health program, or has been convicted of a fraud-related crime, 
the vendor must record that on the form 855B. We would treat these 
admissions from vendors in the same manner as we do for other 
suppliers. Both a draft copy of the Vendor Application Form and the 
Provider/Supplier Enrollment Application (Form CMS 855B) are available 
on the CMS Web site at the following address: http://www.cms.hhs.gov/providers/drugs/). Both forms are needed to cover all required vendor 
qualifications.
    In the proposed rule, we stated that we would require that the 
vendor be prepared to offer complete information in four major areas 
and complete a certification statement. The vendor's business 
experience would be required to be within the United States. In 
addition, we proposed to require that prospective vendor provide on the 
Vendor Application Form, a complete list of drugs that the vendor would

[[Page 39065]]

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

[[Page 39066]]

expertise of a pharmacist, rather than a general wholesaler.
    Response: We believe that vendors must operate as distributors in 
order to participate in the CAP, and we recognize that a natural 
outgrowth of participating in this program may be that those 
distributors also will need to be licensed as a pharmacy. Regardless, 
either the vendor, its sub-contractor under the CAP, or both, must be 
licensed appropriately by each State to conduct its operations under 
the CAP. Therefore, a vendor under the CAP would be required to be 
licensed as a pharmacy as well as a distributor if a State requires it. 
Because our initial competitive acquisition area is nationwide, 
appropriate licensure in all States would be required. We note that by 
its terms, nothing in section 1847B of the Act shall be construed as 
waiving applicable State requirements relating to the licensing of 
pharmacies.
Business Integrity
    In the proposed rule, we stated that the vendor would be 
responsible for identifying and disclosing business relationships and 
conflicts of interest as well as potential conflicts of interest with 
other organizations. We also stated that the vendor would be required 
to answer questions and provide information about fraud investigations, 
settlement agreements, and Federal government exclusions.
    Comment: We received several comments supporting our strong 
requirements related to vendor qualifications, including management and 
operations standards, operation of a grievance process, experience, 
HIPAA compliance, licensure, and business integrity. Commenters believe 
that the requirements were necessary to ensure that only qualified 
entities were selected as CAP vendors.
    Response: In evaluating whether to award a CAP vendor contract or 
renew an approved CAP vendor contract, CMS will take into account a 
bidder's record of corporate integrity and performance and will review 
the bidder's internal integrity measures, which include at a minimum, a 
compliance plan to prevent fraud, waste and abuse. We appreciate 
comments in support of our approach to review these criteria as part of 
our selection and renewal process. As a result, we are retaining our 
requirements for potential vendors under the CAP. Additionally, in 
response to comments we are including language at Sec.  414.908(c) that 
permits CMS to refuse to award or terminate a contract based on a 
potential CAP vendor's past violations or misconduct related to the 
marketing, distribution, or handling of drugs. This requirement will 
strengthen CMS' efforts to ensure that entities granted the ability to 
provide Medicare products or services have a record of corporate 
integrity and performance that reflects the provision of scrupulous 
products and services.
Certification
    We proposed that the vendor be prepared to certify that all the 
information in the Vendor Application Form is true, accurate, and 
complete and to certify to any other requirements as specified by us. 
Failure to provide correct and updated information when it becomes 
available, if it affects the information provided on the Vendor 
Application Form, may be cause for termination of the vendor's contract 
under the CAP. We believe that it is vital to certify that the 
information provided is accurate. We received no comments on this 
issue, so, as a result, we are finalizing that requirement in this 
rule. In addition, we provide further direction for vendor and 
subcontractor conduct in the next two sections (Fraud and Abuse as well 
as Conflicts of Interest).

b. Specific Information Relating to Prevention of Fraud and Abuse

    Section 1847B(b)(4)(D)(ii) of the Act requires that the approved 
CAP vendor comply with all applicable provisions relating to the 
prevention of fraud and abuse. This includes compliance with applicable 
guidelines of the Department of Justice (DOJ) and the Office of the 
Inspector General (OIG) of the DHHS.
    In accordance with this statutory authority, we proposed that each 
approved CAP vendor develop and maintain a compliance plan to control 
program fraud, waste, and abuse, that includes at a minimum, the 
requirements proposed at Sec.  414.914(c) of our regulations. These 
requirements already apply to many of the entities participating in the 
Medicare program, such as prescription drug plans administering the 
prescription drug benefit and Medicare Advantage organizations. In 
addition, the OIG has recommended these minimum elements in published 
guidance.
    We stated in our proposed rule that a compliance plan should 
contain policies and procedures that control program fraud, waste and 
abuse. In developing written policies, procedures, and standards of 
conduct for detecting and preventing waste, fraud and abuse, we stated 
that approved CAP vendors should consult a variety of sources including 
applicable statutes and regulations and compliance guidance issued by 
CMS, our contractors, Program Safeguard Contractors (PSCs), and the 
OIG. We provided some recommended sources for relevant information. 
Approved CAP vendor compliance plans must be submitted with the CAP 
applications, and must be available to us and our contractors for 
periodic reviews.
    We also proposed that approved CAP vendors and entities that they 
contract with establish effective training and education programs 
related to fraud, waste and abuse that address pertinent laws related 
to fraud and abuse including the physician self-referral (``Stark'') 
prohibition (section 1877 of the Act) and the Federal Anti-Kickback 
statute (section 1128B(b) of the Act), and the False Claims Act (31 
U.S.C. 3729-3733). In addition, we proposed that approved CAP vendors 
and entities that they contract with be trained on detecting and 
preventing common fraudulent schemes in the pharmaceutical industry, as 
identified by CMS, the OIG, and/or the DOJ and provided examples of 
some common fraudulent or abusive problems within the pharmaceutical 
industry.
    To ensure successful internal monitoring and auditing of fraud, 
waste, and abuse under Part B, we proposed that approved CAP vendors 
should regularly monitor and audit their processes and procedures to 
ensure that they are in fact taking the steps necessary to comply with 
all Federal and State regulations and to mitigate the potential for 
waste, fraud, and abuse within their organizations. Establishing 
procedures to ensure prompt responses to potential fraud violations is 
an important element in an effective fraud and abuse plan. Approved CAP 
vendors are responsible for monitoring and identifying potentially 
fraudulent or abusive activity. We further stated that after an 
approved CAP vendor has determined that any misconduct has violated or 
may violate criminal, civil or administrative law, the approved CAP 
vendor should report the existence of the misconduct to OIG or other 
appropriate government authority within a reasonable period, but no 
later than 60 days after the determination that a violation may have 
occurred. Self-reporting of fraud and abuse is a critical element to an 
effective compliance plan, and approved CAP vendors are strongly 
encouraged to alert CMS, the PSCs, the OIG, or law enforcement of any 
potential fraud or misconduct relating to the CAP. We investigate all 
cases referred as potentially fraudulent and then refer them to the 
appropriate law enforcement agency as warranted. Likewise, we expect 
that the approved CAP vendors would fully cooperate in

[[Page 39067]]

any investigations related to fraud identified in a particular approved 
CAP vendor's organization.
    We are aware that there are many possible approaches to developing 
an effective compliance plan. Therefore, we requested comments on the 
scope and implementation of an effective compliance plan.
    Comment: There were some operational comments regarding the 
opportunity for fraud, waste and abuse. One commenter pointed out that 
when a drug product sent to a physicians' office is unused and returned 
to the approved CAP vendor, this transaction could allow for the 
opportunity for fraud and drug spoilage. Because CAP drugs are kept in 
a separate inventory, a commenter asked if inventory errors would be 
subject to prosecution for fraud and abuse.
    Response: We discuss the design of the inventory and return process 
in section II.B.2 of this interim final rule and the product integrity 
requirement in section II.C.1 of this interim final rule. We believe 
these processes, along with the fraud, waste and abuse provisions 
outlined above provide a framework for ensuring the integrity of the 
product delivery process. We note that the return of a product must be 
in accordance with applicable State and Federal laws. The approved CAP 
vendor is responsible for providing appropriate drug product delivery 
to the participating CAP physician's office that preserves that drug's 
integrity. The participating CAP physician is responsible for not 
accepting delivery of a drug product damaged during shipment or whose 
integrity the participating CAP physician believes was compromised. It 
is also the responsibility of the participating CAP physician to store 
appropriately an accepted product delivery to ensure its continued 
integrity.
    Typically, there must be intent to commit fraud in order for the 
government to subject a physician or approved CAP vendor to prosecution 
for fraud and abuse. Minor inventory errors normally would not subject 
a participating CAP physician or approved CAP vendor to prosecution for 
fraud and abuse. Approved CAP vendors and participating CAP physicians 
each are responsible for complying with all laws and regulations 
applicable to them that govern the receipt, storage, and return of drug 
products. Participating CAP Physicians and approved CAP vendors may be 
held accountable for failing to adhere to any applicable requirements. 
We will investigate all cases brought to our attention as potentially 
fraudulent and then, if warranted, refer them to the appropriate law 
enforcement agency.

c. Conflicts of Interest

    Section 1847B(b)(4)(D)(i)of the Act requires that approved CAP 
vendors participating in the CAP comply with a code of conduct, 
specified or recognized by the Secretary. The statute authorizes us to 
require approved CAP vendors to establish a code of conduct related to 
conflicts of interest in bidding and performance.
    In the March 4, 2005 proposed rule, we stated that a code of 
conduct should function much like a constitution, that is, it should be 
a document that details the fundamental principles, values, and 
framework for action within an organization. We proposed that the code 
of conduct for approved CAP vendors articulate the approved CAP 
vendor's expectations of commitment to compliance by management, 
employees, and agents, and summarize the broad ethical and legal 
principles under which the company must operate.
    Avoiding conflicts of interest and the appearance of these 
conflicts is critical to the operations of the CAP. In accordance with 
our statutory authority under the Act, we proposed to require that each 
approved CAP vendor establish and follow a code of conduct that 
addresses its policies and procedures for identifying and resolving any 
conflict of interest. We stated that a conflict of interest may occur 
where an approved CAP vendor, its representative, or contractor 
provides a product or service for a Medicare participating CAP 
physician or beneficiary and the approved CAP vendor, representative or 
contractor has a relationship with another person, entity, product or 
service that impairs or appears to impair the approved CAP vendor's or 
contractor's objectivity to provide the Medicare-covered product or 
service. Situations that compromise or appear to compromise an approved 
CAP vendor's ability to avoid self-dealing when providing a Medicare 
product or service create a conflict of interest and must be resolved. 
Approved CAP vendors should take steps to identify and mitigate any 
conflict of interest that may arise in the provision of a product or 
service for a Medicare participating CAP physician or beneficiary.
    We indicated the code of conduct should communicate the need for 
all management, board of directors, employees, and agents to comply 
with the approved CAP vendor's code of conduct and policies and 
procedures for addressing and resolving conflicts of interest. It also 
should reflect the approved CAP vendor's commitment to detect and 
resolve any conflict of interest. The code of conduct should establish 
procedures for determining whether or not a conflict exists, and if so, 
how the conflict will be resolved. We proposed that the code of conduct 
address issues such as whether or not the offer or acceptance of some 
remuneration to or from an approved CAP vendor, physician, beneficiary, 
or manufacturer would diminish, or appear to diminish, the objectivity 
of professional judgment; or whether or not certain transactions raise 
patient safety or quality of care concerns.
    In addition, throughout the solicitation of CAP contracts, we 
proposed that approved CAP vendors comply with the requirements of the 
FAR organizational conflict of interest guidance, found under 48 CFR 
Subpart 9.5, and the requirements and standards contained in each 
individual contract awarded to perform functions under section 1847B of 
the Act. Consistent with FAR 9.507-2, in making awards to approved CAP 
vendors, we proposed that each contract contain a conflict of interest 
clause specific to the approved CAP vendor for inclusion in the 
contract.
    We proposed fairly general conflict of interest requirements 
because we believe that individual contracts may be a better venue to 
address specific conflicts of interest. However, we solicited comments 
regarding what may or may not constitute a conflict of interest in the 
CAP program and how such conflicts might be identified and mitigated.
    We proposed to set forth our conflict of interest policies and 
procedures in regulations at proposed Sec.  414.912.
    Comment: One commenter suggested that CMS require full disclosure 
of an approved CAP vendor's corporate relationships during the bidding 
process and take steps to prevent monopolization by any one company 
within the bidding or contract award stages of the CAP program. This 
includes adopting language that requires corporate-structure disclosure 
and specifically prohibits approved CAP vendor subsidiaries from 
bidding against their parent company or other subsidiaries with the 
same parent company. The commenter suggested that CMS revise the 
language of Sec.  414.908(e), ``Multiple contracts for a category and 
area,'' Sec.  414.910(a) on the bidding process, and elsewhere, to 
reflect this bidding and contract award restriction. Another commenter 
suggested that the final rule address situations in which a company 
affiliated with a potential approved CAP vendor

[[Page 39068]]

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

[[Page 39069]]

Contracting department and inform law enforcement where appropriate.
    Physicians, suppliers, and approved CAP vendors should be aware 
that we expect all entities with whom we do business to continue to 
comply with all applicable conflict of interest rules, including the 
Stark law and Anti-Kickback Statute. We also hope that all entities 
involved in the CAP will continue to take whatever measures they 
believe necessary to assure the prevention of conflicts of interest.
    Comment: Commenters recommended that CMS prohibit approved CAP 
vendors from using, sharing or selling patient information for any 
purpose other than that which is strictly related to fulfilling CAP 
orders.
    Response: An approved CAP vendor is a HIPAA covered entity and is 
subject to the HIPAA Privacy Rule that governs the use and disclosure 
of protected health information. As covered entities, approved CAP 
vendors also are subject to the HIPAA Security Rule.

Record Retention

    As in other regulations that apply to entities that retain records 
of their dealings with the Medicare program, we believe approved CAP 
vendors should be held to reasonable record retention standards. We 
seek additional comment on whether these requirements should be further 
explicated in the final CAP regulation.
    After reviewing the comments, we are finalizing Sec.  414.912 with 
amendments to the content of the code of conduct which is submitted as 
part of the application process.
3. CAP Bidding Process--Evaluation and Selection

a. Evaluating Bid Prices by the Composite Bid Price

    In the March 4, 2005 proposed rule we stated that in selecting 
vendors, the statute requires consideration of both price and non-price 
(for example, quality of service and financial qualifications) aspects 
of the bid. We also stated that technical and financial criteria for 
selecting CAP vendors would be used to determine which bidders will be 
awarded contracts to furnish drugs under the CAP. Our ultimate choice 
of an appropriate evaluation process will take into account the final 
policies concerning the drug categories, the geographic areas for the 
program, and comments on our proposed evaluation process. We proposed a 
basic approach to the evaluation and bidding selection process and 
encouraged comments on this proposal and recommendations for 
alternative approaches.
    Comment: Several commenters suggested that CMS continue to provide 
interested parties with opportunities for learning more about the CAP. 
One commenter specifically suggested that a pre-bid conference be held 
for potential CAP vendors in order to provide potential bidders with 
detailed information that bidders could then use to calculate their bid 
prices.
    Response: We agree that communicating information about the CAP 
bidding process (as well as other aspects of CAP) is necessary. 
Therefore, we plan to use several methods to communicate bidding 
requirements, update existing information, provide clarification, and 
answer questions. While we may not have time to host a formal pre-bid 
conference, these methods may include a public conference call with 
potential vendors. We also may hold an open door forum. We will also 
provide updates to the CAP Web site, and other channels.
    Comment: One comment asked for clarification about whether the 
vendor could provide services to manufacturers for fees and whether 
this payment would influence ASP calculations.
    Response: Bona fide service fees that are paid by a manufacturer to 
an entity, that represent fair market value for an actual service 
provided by the entity, and that are not passed on in whole or in part 
to a client or customer of an entity, are not included in the 
calculation of ASP because these fees would not ultimately affect the 
price realized by the manufacturer. ``Bona fide service fees'' means 
expenses that are for an itemized service actually performed by an 
entity on behalf of the manufacturer that would have generally been 
paid for by the manufacturer at the same rate had these services been 
performed by other entities.
    In the discussion of our proposal for the bidding process as set 
forth in Sec.  414.910, we assumed that we were conducting competitive 
bidding for some number of distinct drug categories. We also assumed 
that bidders with relatively large (including national) distribution 
networks might also want to submit bids for multiple acquisition areas 
(depending upon the area definitions that we adopted in the final 
rule). We stated that these bidders would be permitted either to submit 
the same bid price for all areas in which they wish to compete, or to 
submit separate bid prices for each acquisition area. The procedure for 
evaluating the price component of the bids (and setting payment rates) 
would be the same regardless of the method for defining the categories 
of drugs (HCPCS) adopted in the final rule. Section 1847B(c)(6) of the 
Act requires that the submitted bid price include all costs related to 
the delivery of the drug to the selecting physician, and the costs of 
dispensing (including shipping) the drug and management fees. Costs 
related to the administration of the drug or wastage, spillage, or 
spoilage may not be included in the submitted bid. We proposed to 
specify these requirements at Sec.  414.910 of the regulations.
    As discussed in the proposed rule, the purpose of requiring vendors 
to bid for all drugs in a category would be to identify a set of 
vendors that can supply the range of drugs in that category at an 
appropriate overall cost. Because a vendor may have different discounts 
that it can negotiate for a drug, a vendor may be able to bid a lower 
price for one drug, but not for another drug within a category. We 
sought to identify a selection process that, in the aggregate, could 
provide drugs at reasonable cost to the program while maintaining the 
required quality standards.
    We therefore proposed to employ a ``composite bid,'' constructed 
from the bid prices for the individual drugs in the CAP category, in 
the process of selecting bidders for the CAP. The composite bid would 
be constructed by weighting each HCPCS bid by the HCPCS code's share of 
volume (measured in HCPCS units) of drugs in a particular drug category 
during the prior year. Within each CAP category, the drug weights would 
sum to one. Based on data availability, the volume data used for bids 
in the first CAP bidding cycle (for supplying drugs starting January 1, 
2006) would be from 2004 because bidding is anticipated to occur in 
mid-2005. (We noted that we had not developed a method to weight drugs 
introduced during and after 2004, but invited public comment on methods 
for consideration.) The calculated composite bid would equal the 
average price per HCPCS unit for drugs in that category. In this way, 
the composite bid would be proportional to the expected cost to the 
program of acquiring drugs from that vendor (based on the assumption 
that the 2004 volume in each HCPCS category is roughly proportional to 
volume in 2006). If one vendor has a lower composite bid than another, 
it will also have a lower expected cost of supplying all drugs in the 
particular CAP category.
    The statute requires consideration of price and non-price (for 
example, quality of service and financial qualifications) aspects of 
the bid. In order to implement this requirement, we proposed a two-step 
bidder selection process:

[[Page 39070]]

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

[[Page 39071]]

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

[[Page 39072]]

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

        Table 3.--Example Drug Volumes and Relative Volumes, 2004
------------------------------------------------------------------------
                                               Total HCPCS    Relative
                    Drug                          units        volume
------------------------------------------------------------------------
Drug A......................................     1,452,472        0.3520
Drug B......................................       988,586        0.2395
Drug C......................................     1,671,567        0.4050
Drug D......................................        14,302        0.0035
                                             ---------------
    Total...................................     4,126,927        1.0000
------------------------------------------------------------------------

    Three drugs (Drugs A, B, and C) have volumes (total HCPCS units) 
much greater than that of the fourth (Drug D). The second column of 
Table 3 gives the relative volumes, computed by dividing the volumes of 
the individual components of this CAP category by the total volume of 
HCPCS units for drugs in this category. These relative volumes are the 
weights used to construct the composite bids.
    The computation of the composite bids for these four bidders is 
shown in Table 4. The composite bid for Bidder 1 is computed as the 
weighted sum of the bids for the four drugs: ($520 x 0.3520) + ($400 x 
0.2395) + ($135 x 0.4050) + ($4,780 x 0.0035), which is equal to 
$350.25. The composite bids for the other three bidders are computed 
similarly.

[[Page 39073]]



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

                           Table 5.--Example: Proposed Composite Bid Selection Method
----------------------------------------------------------------------------------------------------------------
                                                                                                         Bids
               Drug                    Weight      Bidder 1     Bidder 2     Bidder 3     Bidder 4     selected
----------------------------------------------------------------------------------------------------------------
Drug A............................       0.3520         $520         $530         $550         $530  ...........
Drug B............................       0.2395          400          410          380          390  ...........
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 Category of Drugs

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

[[Page 39074]]

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

[[Page 39075]]

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

[[Page 39076]]

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

[[Page 39077]]

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

[[Page 39078]]

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

[[Page 39079]]

D. Implementation of the CAP

1. Participating CAP Physician Election Process
    Section 1847B(a)(1)(A) of the Act specifies that each physician be 
given the opportunity annually to elect to participate in the CAP. 
Physicians who do not elect to participate in the CAP would continue to 
buy the drugs they provide to beneficiaries incident to a physician's 
service and bill the Medicare program for them under section 1847A of 
the Act, the ASP system.
    Section 1847B(a)(5)(A) of the Act requires that we develop a 
process that physicians who wish to participate in the CAP may use on 
an annual basis to select the approved CAP vendor from whom they wish 
to obtain the categories of drugs they wish to obtain under the CAP 
program. The statute also requires that we coordinate the physician's 
election to participate in the CAP with the Medicare Participating 
Physician Process described in section 1842(h) of the Act. To inform 
physicians about the choices of drugs and approved CAP vendors 
available to them under the CAP, we are required to post a directory on 
our Web site or to make such a directory available to interested 
physicians on an ongoing basis.
    In the proposed rule, we specified that physicians who elect to 
participate in the CAP would remain in the program for at least 1 
calendar year. As described in more detail later in this section, 
physicians who elect to participate in the CAP would be required to 
complete a CAP election agreement. By completing this participating CAP 
physician election agreement, the participating CAP physician would 
select the approved CAP vendor that he or she would use under the CAP 
and would agree to the participating CAP physician requirements. As 
described in further detail in this section and the regulations, a 
participating CAP physician agrees to--
     Share information with the approved CAP vendor to 
facilitate the collection of applicable deductible and coinsurance.
     Promptly file drug administration claims.
     Timely and appropriately pursue claims that are denied 
because of medical necessity issues.
     Accept assignment for CAP drug administration claims.
     Notify the approved CAP vendor when a drug is not 
administered.
     Agree to comply with emergency drug replacement rules.
     Agree to requirements for using the ``furnish as written'' 
provision.
     Maintain an inventory for each CAP drug he or she obtains.
     Provide support to the approved CAP vendor on an 
administrative appeal of the drug administration claim denial. Such 
support may include medical records and written statements.
If we find it necessary, we could suspend the physician's election to 
participate in the CAP if the participating CAP physician fails to 
abide by the participating CAP physician election agreement.

    We proposed to initiate an annual participating CAP physician 
election process and modeled this proposed process after the existing 
Medicare Participating Physician Process to the extent possible. In 
addition, we communicated information to physicians about the upcoming 
CAP through the fact sheet that accompanied the 2005 Participating 
Physician Mailing, and proposed to continue to use that vehicle to 
communicate information about CAP to physicians in future years. 
However, we noted that the annual physician participation election 
process for accepting assignment runs from November 14 to December 31 
of each year. Waiting until December 31 to receive information about 
physicians' CAP election choices would not provide sufficient time for 
us and our claims processing contractors to record information about 
participating CAP physicians and their approved CAP vendor selections, 
update claims processing files, perform testing, and inform approved 
CAP vendors so that we are ready to pay CAP claims on January 1, 2006. 
For this 3-year contract cycle for the approved CAP vendors, there will 
be one drug category. In the future, as more CAP drug categories are 
developed, the collection of information on the selection of the 
approved CAP vendor and drug category will be more complicated. In 
addition, a deadline of December 31 would not allow sufficient time for 
approved CAP vendors to meet the operational timeframe of January 1. 
Therefore, we proposed that the participating CAP physician election 
process would run from October 1 to November 15 of each calendar year. 
We proposed that participating CAP physicians who intend to continue 
into subsequent years may signal that preference by executing an 
abbreviated participating CAP physician election agreement. The 
abbreviated agreement would be used to indicate a preference to change 
approved CAP vendors or, as applicable, drug categories from year to 
year. We proposed that a physician who has elected to participate in 
the CAP would select an approved CAP vendor outside the annual election 
process if the previously selected approved CAP vendor's contract is 
terminated, or if the participating CAP physician leaves the group 
practice that had selected the given approved CAP vendor or relocates 
to another competitive area once multiple CAP competitive areas are 
developed. We proposed to set forth the exceptions to the annual 
selection process at Sec.  414.908(a)(2) of our regulations.
    We requested comments on the potential options available to 
affected participating CAP physicians when an approved CAP vendor's 
contract is terminated during the middle of the CAP year. The proposed 
participating CAP physician options included leaving the CAP or 
selecting another approved CAP vendor as presented in the proposed 
participating CAP physician election agreement for the physician to 
participate in the CAP.
    Comment: One commenter expressed concern that for this first year 
in 2005 participating CAP physician election agreements must be 
postmarked by November 15 but that the carrier is not expected to be 
ready to pay claims until January 1, 2006. This meant that the earlier 
a physician elects CAP and acquires drugs from CAP, the longer the 
physician will wait for reimbursement for drug administration. The 
commenter expressed concern that the time lag would be more than 3 
months for those who elect early. The commenter suggested that we 
permit physicians to complete the participating CAP physician election 
process, with the agreement effective as of January 1, 2006, and allow 
them to use the ASP system until then.
    Response: Although the participating CAP physician election period 
ends on November 15, 2005, the CAP does not begin until January 1, 
2006. Physicians who elect to participate in the CAP are to continue to 
use the ASP system through December 31, 2005. On January 1, 2006, 
physicians who have elected to participate in the CAP should order 
drugs from the approved CAP vendor they have selected. The early 
selection process is necessary so that the local carrier and the 
designated carrier can begin system testing to be ready to pay claims. 
This is consistent with the statute, which requires that the CAP be 
phased in beginning in 2006.
    Comment: Commenters opposed the election period of October 1 to 
November 15 for physicians to elect to participate in the CAP. They 
asserted that this deadline would confuse physicians because it is 
different from

[[Page 39080]]

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

[[Page 39081]]

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

[[Page 39082]]

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

[[Page 39083]]

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

[[Page 39084]]

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

[[Page 39085]]

first visit to the office subsequent to the physician enrolling in the 
CAP.
    This fact sheet detailing the CAP program in plain language will 
also be available to beneficiaries via 1-800-MEDICARE (1-800-633-4227) 
and http://www.medicare.gov. When distributing the fact sheet, 
physicians may include additional information specific to the 
beneficiary. We believe that this approach will allow the participating 
CAP physician to address the specific needs of the beneficiary and 
minimize the burden on the participating CAP physician. As commenters 
suggested, we will also encourage the approved CAP vendors to provide 
introductory information about themselves and the CAP program that 
could be shared with beneficiaries. As discussed in section II.B.3 of 
this interim final rule, we will also have the approved CAP vendor 
include information on the beneficiary grievance process with any bill 
that is sent to the beneficiary. As a final point, as part of the 
vendor application process, we have stated that customer service is of 
primary importance and approved CAP vendors must demonstrate the 
ability to respond to inquiries on both weekdays and weekends.
    Because we recognize the impact the CAP will have on Medicare 
beneficiaries, we will use a multi-tiered educational approach to 
provide information that will increase beneficiary awareness of the 
issues related to the CAP. The outreach efforts will include the 
following:
     A plain language fact sheet to be distributed by 
participating CAP physicians and available upon request via 1-800-
MEDICARE (1-800-633-4227) and http://www.medicare.gov.
     New language in the existing Medicare & You and Your 
Medicare Benefits booklets. The Medicare & You booklet is mailed each 
fall to every beneficiary household. Your Medicare Benefits is 
available through 1-800-MEDICARE (1-800-633-4227) and http://www.medicare.gov.
     CAP related scripts for the customer service 
representatives at 1-800-MEDICARE (1-800-633-4227).
     Frequently asked questions and answers in consumer 
friendly language regarding the CAP available at http://www.medicare.gov on the Web.

III. Provisions of the Interim Final Rule

[If you choose to comment on issues in this section, please include 
the caption ``Provisions to the Interim Final Rule'' at the 
beginning of your comments.]

    For the most part, this interim final rule incorporates the 
provisions of the March 4, 2005 proposed rule. Those provisions of this 
interim final rule that differ from the proposed rule follow.
    Under Sec.  414.902, we are revising our definitions section to 
revise current definitions set forth in the proposed rule and to add 
new definitions:
    We are making a conforming change to revise ``approved vendor'' to 
read ``approved CAP vendor.'' In Sec.  414.902, we are also making a 
technical clarifying revision to the definition of an ``approved CAP 
vendor'' to specify that this vendor is one that has been approved by 
CMS to participate in the CAP program under ``1847B of the Act'' to 
avoid confusion with the competitive acquisition program for DME 
provided for under section 1847 of the Act. We are also revising the 
definition of ``participating CAP physician'' to clarify that 
physicians who do not participate in Medicare but elect to participate 
in the CAP agree to accept assignment for CAP drug administration 
services.
    We are adding a definition of ``CAP drug'' to mean a physician-
administered drug or biological furnished on or after January 1, 2006 
described in section 1842(o)(1)(C) of the Act and supplied by an 
approved CAP vendor under the CAP as provided in this subpart.
     Under Sec.  414.902, we are adding the definition of 
emergency delivery to mean the delivery of a CAP drug within one 
business day in appropriate shipping and packaging, in all areas of the 
United States and its territories, with the exception of the Pacific 
Territories. In the Pacific Territories, emergency delivery means 
delivery of a CAP drug within 5 business days in appropriate shipping 
and packaging. We are also adding that this timeframe may be reduced if 
product stability requires it, meaning that the manufacturer's labeling 
instructions, drug compendia, or specialized drug stability references 
indicate that a shorter delivery timeframe is necessary to avoid 
adversely affecting the product's integrity, safety, or efficacy.
     We are adding the definition of an emergency situation to 
mean an unforeseen occurrence or situation determined by the 
participating CAP physician, in his or her clinical judgment, to 
require prompt action or attention for the purposes of permitting the 
participating CAP physician to use a drug from his or her own stock, if 
the other requirements for the CAP under Sec.  414.906 are met.
     We are adding a definition ``Pacific territories'' to 
mean, for purposes of the CAP, American Samoa, Guam, or the Northern 
Mariana Islands.
     We are making a conforming change to revise ``CAP election 
agreement'' to read ``Participating CAP physician election agreement.'' 
In addition, we are revising the definition to clarify that this is an 
agreement the physician signs to notify CMS of the physician's election 
to participate in the CAP and to agree to the terms and conditions of 
CAP participation as set forth in our regulations.
     We are adding a definition for prescription order. We are 
defining a prescription order as a written order submitted by the 
participating CAP physician to the approved CAP vendor that meets the 
requirements of part 414, subpart K.
     Under Sec.  414.902, we are adding the definition of 
routine delivery to mean the delivery of a drug within 2 business days 
in appropriate shipping and packaging, in all areas of the United 
States and its territories, with the exception of the Pacific 
Territories. In the Pacific Territories, routine delivery of drug means 
delivery of a CAP drug within 7 business days in appropriate shipping 
and packaging. This timeframe will be reduced if product stability 
requires it, meaning that the manufacturer's labeling instructions, 
drug compendia, or specialized drug stability references indicate that 
a shorter delivery timeframe is necessary to avoid adversely affecting 
the product's integrity, safety, or efficacy.
     Under Sec.  414.902, we are adding the definition of 
``timely delivery'' to mean the delivery of a CAP drug within the 
defined routine and emergency delivery timeframes. Compliance with 
timely delivery standards is also a factor for evaluation of potential 
and approved CAP vendors.
     We are also making additional conforming changes to terms 
under our definitions section to include revising ``competitive area'' 
to read ``competitive acquisition area.''
    We are revising Sec.  414.906(a)(4) to specify that when the 
approved CAP vendor delivers the drugs directly to the participating 
CAP physician, the drugs must be in unopened vials or other original 
container as supplied by the manufacturer or from a distributor that 
has acquired the products directly from the manufacturer, and the 
shipping material must include language stating that the drug was 
acquired in a manner that is consistent with statutory requirements. In 
addition, we are providing the process that the approved CAP vendor 
must follow if the approved CAP vendor opts to split shipments. We are 
revising Sec.  414.906(a)(5) to specify that the approved CAP vendor 
bills Medicare only for the amount of the drug that the participating 
CAP physician has administered to the patient, and the beneficiary's

[[Page 39086]]

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

[[Page 39087]]

of waivers may not be advertised or be made as part of a solicitation. 
Approved CAP vendors may inform beneficiaries that they generally make 
available the categories of assistance described in paragraphs (g)(1), 
(g)(2), and (g)(3) of this section. In no event may the approved CAP 
vendor include or make any statements or representations that promise 
or guarantee that beneficiaries will receive cost-sharing waivers.
    We are adding a new Sec.  414.914(h) to specify the procedures that 
the approved CAP vendor must comply with before it may refuse to make 
further shipment of CAP drugs to a participating CAP physician on 
behalf of a specific beneficiary.
    We are revising the heading of Sec.  414.916 to read ``Dispute 
resolution process for vendors and beneficiaries.''
    Under Sec.  414.916, regarding the responsibilities of the 
designated carrier, we are removing paragraph (b)(2)(i) under this 
section that stated that the designated carrier will investigate and 
make a recommendation to us on whether the participating CAP physician 
has been meeting the claims and appeals obligations in his or her CAP 
election agreement. We are also redesignating paragraphs (b)(2)(ii) and 
(b)(2)(iii) as paragraphs (b)(2)(i) and (b)(2)(ii), respectively.
    Upon receiving the designated carrier's recommendation, we will 
make a determination regarding suspension of the participating CAP 
physician's election agreement. Specifically, we are revising Sec.  
414.916(b)(3) to clarify the suspension period for participating CAP 
physicians. We are adding that a suspension commencing before October 1 
will conclude on December 31 of the same year. A suspension commencing 
on or after October 1 will conclude on December 31 of the next year. We 
are removing the last sentence in Sec.  414.916(b)(3), which indicated 
a participating CAP physician could select another approved CAP vendor 
while a reconsideration was pending.
    Under Sec.  414.916(c)(8) regarding the findings of the hearing 
officer, we are clarifying that if the hearing officer decides to 
conduct an in-person or telephone hearing, the hearing officer will 
send a hearing notice to the participating CAP physician ``within 10 
days of receipt of the hearing request.''
    Under Sec.  414.916(c)(9), we are clarifying our language regarding 
the final reconsideration determination. Under Sec.  414.916(c)(9)(i) 
we are clarifying that if the decision is favorable to the 
participating CAP physician, the participating CAP physician may resume 
participation in the CAP. We are also adding that the hearing officer 
and the CMS official may review decisions that are favorable or 
unfavorable to the participating CAP physician. Under Sec.  
414.916(c)(9)(iv), we are clarifying that if our decision is 
unfavorable to the participating CAP physician, the participating CAP 
physician's CAP election agreement is terminated.
    We are removing proposed Sec.  414.916(d) that stated the 
following: ``The approved CAP vendor treats quality and service issues 
through its grievance process. If the approved CAP vendor does not 
resolve a quality issue to the participating CAP physician's 
satisfaction, the participating CAP physician may escalate the matter 
to the designated carrier. The designated carrier attempts to develop 
solutions that satisfy program requirements and the needs of both the 
participating CAP physician and the approved CAP vendor.'' This 
language has been incorporated into new Sec.  414.917. We are also 
redesignating the proposed paragraph (e) as new (d) under this section.
    We are adding a new Sec.  414.917 to set forth the process and 
responsibilities for the dispute resolution for participating CAP 
physicians and for suspension or termination of an approved CAP 
vendor's CAP contract. We believe that moving this language to a 
separate section more clearly presents the process and the 
responsibilities of the particular parties.
    Under the dispute resolution process set forth under Sec.  414.916 
and Sec.  414.917, we are adding that the designated carrier will 
include in its recommendation to us, ``numbered findings of fact'' when 
it makes a recommendation whether the participating CAP physician has 
been filing his or her drug administration claims in accordance with 
the requirements of physician participation in the CAP.
    In addition, we are making editorial and technical revisions as 
well as necessary conforming changes.

IV. Response to Comments

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

V. Waiver of Delayed Effective Date

[If you choose to comment on issues in this section, please include 
the caption ``Waiver of Delayed Effective Date'' at the beginning of 
your comments.]

    We also ordinarily provide a 60-day delay in the effective date of 
the provisions of a rule in accordance with the Administrative 
Procedure Act (APA) (5 U.S.C. 553(d), which requires a 30-day delayed 
effective date, and the Congressional Review Act (5 U.S.C. 801(a)(3), 
which requires a 60-day delayed effective date for major rules. 
However, we can waive the delay in effective date if the Secretary 
finds, for good cause, that such delay is impracticable, unnecessary, 
or contrary to the public interest, and incorporates a statement of the 
finding and the reasons in the rule issued. 5 U.S.C. 553(d)(3); 5 
U.S.C. 808(2).
    The Secretary finds that good cause exists to implement the 
requirements related to the selection process for approved CAP vendors 
immediately upon publication in the Federal Register. Under section 
1847B of the Act, we are required to phase in the CAP beginning in 
2006. In addition, section 1847B(a)(5)(A)(ii) of the Act requires that 
the physicians' annual selection of approved CAP vendors be coordinated 
with the Medicare participating physician described in the (PARDOC) 
process under section 1842(h) of the Act, which occurs in November and 
December each year. To comply with that statutory mandate, it will be 
necessary for us to have contracts in place with approved CAP vendors 
in time to give physicians a meaningful opportunity to review and 
select an available approved CAP vendor in their competitive 
acquisition areas. If contracts with vendors are not in place by that 
time, the next available physician selection period would be at the end 
of 2006 for a CAP implementation date of January 1, 2007. Such a delay 
would not be consistent with the statutory mandate that the CAP be 
phased-in beginning in 2006. Therefore, the Secretary has determined 
that it would be impractical and contrary to the public interest to 
delay the effective date of the provisions that apply to the vendor 
application and bidding process would be impracticable and contrary to 
the public interest. An effective date of July 6, 2005, for the 
requirements related to the selection process for approved CAP vendors 
will ensure that the selection of approved CAP vendors can proceed and 
will afford the approved CAP vendors needed time to prepare for the 
enrollment of physicians and education

[[Page 39088]]

of beneficiaries concerning the CAP program.
    We note that only the provisions associated with the selection 
process for approved CAP vendors will be implemented within 60 days of 
the date of publication of this rule. There will be at least 60 days 
between publication of this rule and the implementation of other 
provisions of this rule, including the provisions related to physician 
selection and operation of the CAP program.
    For all these reasons, we believe that a 60-day delay in the 
effective date of the provisions that apply to the vendor application 
and bidding process would be impracticable and contrary to the public 
interest. We therefore find good cause for waiving the 60-day delay in 
the effective date for the requirements related to the selection 
process for approved CAP vendors.

VI. Collection of Information Requirements

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

[[Page 39089]]

    This process may involve the gathering of information, however, 
since the requirements set forth in this section are in accordance with 
administrative action, audit, or investigation, the requirements of 
this section are exempt from the PRA as stipulated under 5 CFR 
1320.4(a)(2).
    If you comment on these information collection and recordkeeping 
requirements, please mail copies directly to the following:

Centers for Medicare & Medicaid Services, Office of Strategic 
Operations and Regulatory Affairs, Regulations Development Group, Attn: 
Jim Wickliffe, CMS-1325-IFC, Room C5-13-28, 7500 Security Boulevard, 
Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Christopher Martin, CMS Desk Officer, CMS-1325-P, 
Christopher [email protected]. Fax (202) 395-6974.

Comments Related to the Collection of Information Requirements

    Comment: One commenter suggested that CMS revise its estimate for 
completing the physician application for CAP election to reflect the 
additional time it will take for physicians to evaluate the CAP.
    Response: While we understand this concern, paperwork burden 
estimates generally do not include the time necessary to evaluate or 
consider taking a specific action. Paperwork burden estimates generally 
the time to complete the information collection, including the time to 
review instructions, search existing data resources, gather the needed 
data, and complete and review the information collection. Accordingly, 
CMS is not adopting this recommendation.
    Comment: Several commenters recommended that CMS closely monitor 
physician clerical and inventory resources associated with the CAP 
during the initial years of the program, and if appropriate, consider 
making additional payment to physicians to cover the administrative 
costs associated with CAP.
    Response: CMS will monitor the impact of the CAP program on 
physicians, patients, and on Part B drug prices closely. CMS will 
monitor its implementation approach and, if necessary, make adjustments 
to ensure patient access and reduce the administrative costs for 
providers.

VII. Regulatory Impact Analysis

[If you choose to comment on issues in this section, please include 
the caption ``Regulatory Impact Analysis'' at the beginning of your 
comments.]

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects (that is, a final rule that would have 
an annual effect on the economy of $100 million or more in any 1 year, 
or would adversely affect in a material way the economy, a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities).
    We indicated in the March 4, 2005 proposed rule that we were 
considering this to be a major rule, but at that time we had not yet 
defined geographic area(s) and category(ies) of CAP drugs. Based on the 
establishment of the CAP initially as a national program with one drug 
category, we continue to believe that this rule is a major rule, and we 
anticipate more than $100 million will pass through the CAP payment 
system in 2006. Therefore, we have prepared a regulatory impact 
analysis (RIA). However, as previously discussed in the preamble, 
certain sections of this rule will be effective immediately. 
Specifically, the provisions related to the vendor bidding process will 
not be subject to the 60-day delay in effective date applicable to 
major rules under the Congressional Review Act (5 U.S.C. 801 et seq.) 
because of the need to meet the statutory requirement to coordinate the 
physicians' election to participate in the CAP with the Medicare 
Participating Physician Process described in section 1842(h) of the 
Act. We can only meet this statutory requirement if the delay in 
effective date for these particular portions of the rule are waived. We 
note that although the vendor bidding process will begin immediately, 
vendors will not be required to sign contracts with Medicare until 
after the effective date of all of the provisions of this rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
less than $6 million to $29 million in any 1 year. We prepare an 
initial or final regulatory flexibility analysis unless we certify that 
a rule will not have a significant economic impact on a substantial 
number of small entities. The analysis must include a justification 
concerning the reason the action is being taken, the kinds and number 
of small entities the rule affects, and an explanation of any 
meaningful options that achieve the objectives with less significant 
adverse economic impact on the small entities. Individuals and States 
are not included in the definition of a small entity. For the reasons 
described in the section on ``Anticipated Effects,'' we certify that 
this rule will not have a significant economic impact on a substantial 
number of small entities.
    For purposes of the RFA, physicians and non-physician practitioners 
are considered small businesses if they generate revenues of $8.5 
million or less. Approximately 96 percent of physicians in private 
practice are considered to be small entities. There are in excess of 
20,000 physicians and other practitioners that receive Medicare payment 
for drugs. These physicians are more concentrated in the specialties of 
oncology, urology, and rheumatology. Of the physicians in these 
specialties, approximately 40 percent are in oncology and 45 percent in 
urology.
    The impact of this interim final rule on an individual physician is 
dependent on the drugs they provide to Medicare beneficiaries and 
whether these drugs are included in the category of ``incident to'' 
drugs identified in the preamble for competitive acquisition and 
whether the physician chooses to obtain drugs administered to Medicare 
beneficiaries through the CAP.
    In addition, this interim final rule will have a potential impact 
on entities, either existing or formed specifically for this purpose, 
that are involved in the dispensing or distribution of drugs. This 
aspect was dependent on our determination of the particular category/
categories of drugs to be included in the CAP and the geographic areas 
in which

[[Page 39090]]

it is to take place. It also depends on the ability of potential 
vendors to successfully compete and receive approval as a vendor under 
the CAP. As previously discussed, the CAP will be a national program, 
and an approved CAP vendor must be able to furnish all the drugs in the 
established CAP category of drugs.
    Comment: At least one commenter believed that the initial 
regulatory flexibility analysis was not sufficient to allow small 
vendors sufficient notice that the CAP could have an impact on them.
    Response: We believe that small businesses received ample notice 
that this rule could have an impact on them. We provided detailed 
explanations of the options for the areas and categories in the 
preamble to the proposed rule, and indicated that the impact on small 
entities would depend on how those choices played out. We received more 
than 500 comments from a variety of sources, including potential CAP 
vendors and individual physicians. We believe that all possibly 
affected entities, including small vendors, had an opportunity to 
comment.
    Also, section 1102(b) of the Social Security Act requires us to 
prepare an initial and final regulatory flexibility analysis if a rule 
has a significant impact on the operations of a substantial number of 
small rural hospitals. This analysis must conform to the provisions of 
section 604 of the RFA. For purposes of section 1102(b) of the Act, we 
define a small rural hospital as a hospital that is located outside of 
a Metropolitan Statistical Area and has fewer than 100 beds. We have 
determined that this interim final rule will have no significant impact 
on the operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that mandates expenditures in any 1 year by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $110 million. Executive Order 13132 establishes certain 
requirements that an agency must meet when it promulgates a final rule 
that imposes substantial direct requirement costs on State and local 
governments, preempts State law, or otherwise has Federalism 
implications. We have examined this interim final rule in accordance 
with Executive Order 13132 and UMRA and have determined that this 
regulation will have no consequential effect on the rights, roles, or 
responsibilities of State, local, or tribal governments, or impose 
direct costs on State, local, or tribal governments. Nor does the rule 
mandate direct costs on the private sector.
    Comment: Several commenters believe that, should CMS include 
oncologists and oncology drugs in the CAP, more Medicare beneficiaries 
will require hospital treatment due to delayed access to necessary 
drugs for their treatment programs and this will potentially impact 
small hospitals.
    Response: Based on the comments received and the results of our 
data analysis, we will be including certain oncology drugs in the CAP, 
and we anticipate that some oncologists may elect to participate in the 
CAP. However, participation under the CAP is voluntary, and we would 
not expect these physicians to participate if this would result in 
adverse consequences for their Medicare beneficiary patients. Moreover, 
we believe that we have built into the program various safeguards that 
will preserve beneficiary access and prevent treatment delays or 
unnecessary hospital referrals, as discussed elsewhere in the preamble: 
For example, the provisions related to ``furnish as written'' and the 
resupply of inventories for drugs administered in an emergency 
situation will help ensure that Medicare beneficiaries will receive 
their treatments timely within their physicians' offices. Finally, the 
likely effects on physicians and Medicare beneficiary patients are 
discussed at greater length in the discussion of ``Anticipated 
Effects'' below.

B. Anticipated Effects

    We have prepared the following analysis related to the assessment 
requirements. It explains the rationale for, and purposes of, the rule, 
details the costs and benefits of the rule, analyzes alternatives, and 
presents the measures we are using to minimize the burden on small 
entities. As indicated elsewhere in this rule, this program provides an 
alternative to the method that physicians currently use to obtain and 
pay for certain Medicare drugs in response to the requirements of 
section 1847B of the Act. The provisions of this rule discuss how this 
option will be offered to physicians. The CAP process is an alternative 
payment system for Part B drugs and biologicals. This rule does not 
impose reporting, recordkeeping, and other compliance requirements 
except as described in sections II.B, II.C and II.D. of the preamble. 
We are not aware of any relevant Federal rules that duplicate, overlap, 
or conflict with this rule.
    Comment: Several commenters expressed concern that there would be a 
significant administrative as well as a financial impact on physicians. 
These commenters claimed that physicians who elect to participate in 
the CAP will not be appropriately compensated for additional costs such 
as maintaining separate drug storage for CAP medications, hiring 
additional personnel to order and keep track of CAP medications, and 
the additional time required to adequately track the actual drug 
administrations.
    Response: Although we recognize that electing to participate in the 
CAP imposes certain new burdens on physicians who choose to 
participate, we believe these are offset by the decrease in burden 
associated with no longer having to buy most Part B drugs and bill the 
Medicare program for them. The administrative payment burdens that are 
relieved or reduced include collecting the applicable deductible and 
coinsurance from the beneficiary or other supplemental insurer and the 
time and cost of assuming legal ownership of the drugs covered under 
the CAP. As the physician does not assume legal ownership of the drug 
under the CAP (ownership remains with the approved CAP vendor), this 
removes the burden of negotiating with drug suppliers for the best 
price. Further, it is possible that the time and effort involved in 
generating the drug in a quantity other than that in which it was 
received also could be removed from the physician. Receiving drugs in 
the proper administration dosage, where possible, saves the physician 
time and effort. We note that the CAP is an option offered to 
physicians who believe that it is a viable alternative to the buy and 
bill system, especially when dealing with extremely expensive drugs. 
Physicians who believe the CAP burden would be too onerous for their 
practice always will have the option of electing not to participate in 
the CAP and continue to be paid under the ASP payment system for the 
medically necessary drugs that they obtain and administer under 
Medicare. We remain committed to working with members of the health 
care community to assist them in identifying the most appropriate 
payment scenarios for providers as well as the highest quality of care 
for beneficiaries.
    Comment: Several commenters were concerned that if CMS selected a 
national geographic area, then approved CAP vendors who participate in 
the CAP would be asked to handle business on a national level. Small 
vendors who want to operate under the CAP in a specific area for a 
small number of local physicians believe that in such an event, they 
will have been excluded from the CAP out of hand.

[[Page 39091]]

    Response: Initially, we believe that, in order to get the program 
started, the CAP needs to be administered on a national level. Most of 
the comments we received indicated that small vendors were not limited 
geographically but, instead, by drug specialty. The CAP requirements 
are in place to facilitate access to care for Medicare beneficiaries 
and to maintain quality of care in the treatment programs of these 
beneficiaries. However, that does not mean that larger vendors cannot 
contract with smaller vendors under the CAP to provide drugs to smaller 
geographic areas of the country or specific physicians, as long as all 
other criteria can be met by the sub-contracted vendor. Furthermore, 
there is nothing that precludes a relatively small firm from providing 
services on a national basis. In this way, every qualified vendor has 
the opportunity to participate, even though it may not be in a direct 
way. In the future, we will establish additional or alternative 
competitive acquisition areas and drug categories and solicit comments 
on those additions or alternatives, as necessary.
    The effect of this interim final rule on an individual physician 
will be dependent on the drugs he or she provides to Medicare 
beneficiaries and whether the drugs he or she furnishes are included in 
the category of drugs considered for the CAP. For example, a physician 
may (1) determine the cost associated with acquiring drugs through the 
competitive acquisition program; (2) determine the cost associated with 
acquiring drugs through traditional means and billing Medicare under 
the ASP payment system methodology; and (3) determine whether there is 
a cost savings to them associated with either program. Different 
outcomes may result from these calculations depending on the drug mix, 
overhead cost, and Medicare beneficiary patient mix.
    A physician who elects to participate in the program would obtain 
all of his or her Medicare-related drugs included in the category 
through an approved CAP vendor. The approved CAP vendor will collect 
applicable deductibles and coinsurance from the beneficiary. Under this 
option, the participating CAP physician will never take legal ownership 
of the drug and will eliminate the cost associated with collecting 
deductibles and coinsurance. Because the drug remains the property of 
the approved CAP vendor until the time of administration, the 
participating CAP physician also may be able to reduce the cost 
associated with storage and individual drug supplier negotiations. The 
CAP may also save participating CAP physicians money because they will 
not be in the drug purchasing and procurement business and will not 
have to collect coinsurance for those drugs from beneficiaries.
    Comment: Several commenters were concerned about increased drug 
waste by physicians who participate in the CAP because, in their view, 
the physician will not be able to return the unused drug to the 
approved CAP vendor or to use the drug when a beneficiary's treatment 
plan changes on short notice. These commenters further cited problems 
with redirecting these unused medications to alternative beneficiaries 
due to State regulations in some instances.
    Response: If it becomes apparent that there is a problem with 
excessive waste under the CAP, then we will examine ways to 
specifically address the issue. One question would concern whether some 
types of physician practices may be affected because drugs they use are 
more prone to wastage for particular reasons, or if waste is more of a 
random problem that would lead us to deal with the issue on an 
individual basis.
    This rule also establishes rules whereby drugs administered by the 
participating CAP physician in emergency situations that were not 
originally acquired through a Medicare-approved CAP vendor may be 
resupplied through the Medicare-approved CAP vendor, as described 
elsewhere in the preamble.

C. Impact of Establishment of a Competitive Acquisition Program

    The purpose of the CAP program is to potentially achieve budgetary 
savings to Medicare and beneficiaries through a competitive bidding 
approach to determining Medicare payment rates for selected drugs and 
to provide physicians with an alternative way to obtain these selected 
drugs that they use for treating their Medicare beneficiaries in their 
offices. We have estimated the impact of the costs of furnishing or 
administering drugs through the CAP on the Medicare program and expect 
it to be negligible, at least during the beginning until participating 
CAP physicians, approved CAP vendors and CMS gain more experience with 
the program. During the first year, we anticipate no significant 
additional cost savings or increases associated with the CAP, 
particularly relative to the ASP payment system. The CAP program will 
provide alternatives to physicians who do not wish to be in the drug 
purchasing and coinsurance collection business. We will further refine 
theses impacts as participating CAP physicians, approved CAP vendors, 
and CMS gain experience with this new program.

D. Alternatives Considered

    As we developed the CAP, we considered whether to break the country 
into smaller geographic regional or State areas as opposed to one 
national competitive acquisitions area (the 50 United States, the 
District of Columbia and the U.S. territories). We also considered 
whether to include all drugs available under the CAP in one category as 
opposed to breaking the drugs out into different categories such as 
oncology drugs, non-oncology drugs, and crossover drugs. We also 
considered variations of these options such as breaking down the drug 
categories at the national level versus offering one drug category at 
the regional or State level. In reference to these options, we did not 
receive any comments about administering the CAP in specific regions of 
the country or specific States or any data to support such a 
conclusion. As we stated earlier in this section, vendors who wish to 
be approved CAP vendors and who also wish to operate in certain States, 
regions, or areas of the country, as opposed to nationally, are free to 
seek out vendors who plan to participate in the CAP at the national 
level to see whether their services can be used at the sub-contractor 
level. We do not intend to direct such an arrangement other than to 
reiterate that our criteria for participation in the CAP must be met by 
any and all potential approved CAP vendors; however, we encourage this 
communication between potential CAP vendors as we believe that it will 
enhance the opportunities for approved CAP vendors as well as 
participating CAP physicians under the CAP.
    We also considered whether or not to split drugs into more than one 
category as well as several options for defining drug categories across 
a wide spectrum of physician Part B drugs, as described in the 
preamble. Commenters on the proposed rule were divided about whether to 
employ broadly defined or narrowly defined categories of drugs. We are 
persuaded that more broadly defined categories would better serve the 
purposes of the program, at least in the initial stage. This approach 
would make it more feasible for participating CAP physicians to obtain 
all, or almost all, of their Part B drugs from one approved CAP vendor. 
We expect that the approved CAP vendors participating on a nationwide 
scale will be able to provide the broad spectrum of drugs without 
appreciably more difficulty, if any, than narrower sets of drugs. In 
accordance with the statute, we will

[[Page 39092]]

develop more narrowly defined categories if it seems advisable at a 
later stage.
    In this interim final rule, based on the comments and our data 
analysis, we are implementing the CAP with one extensive category as it 
provides the most expansive category of drugs and it is the most simple 
in terms of operationalization. We believe that this option will 
encourage the highest number of approved CAP vendors to participate 
under the CAP due to the potential for larger market share and the 
opportunity for smaller vendors to contract with the larger vendors. We 
also believe that this option will encourage the highest number of 
physicians to participate under the CAP due to the potential for 
acquiring a large portion of the drugs administered to their Medicare 
beneficiaries from a single approved CAP vendor.
    However, we will monitor the program carefully, assessing all the 
issues discussed above, and make appropriate program adjustments if 
these seem warranted. We welcome input on any and all issues.

E. Impact on Beneficiaries

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

[[Page 39093]]

drugs are included in the drug category we have established for the 
CAP.
    Comment: Several commenters believe that Medicare beneficiaries 
will have a difficult time understanding why they receive two 
statements (one from the participating CAP physician for the 
administration of the drug and one from the approved CAP vendor for the 
coinsurance and deductible payments) about each episode of treatment.
    Response: We have built extensive educational tools into the CAP 
for beneficiaries, as described elsewhere in the preamble. 
Beneficiaries will receive information on the implementation of the CAP 
and how it will affect them and what they see as far as Medicare 
billing is concerned. They will also be provided with access to a help 
line for the questions about their bills as well as written information 
that they can reference. Of course, regardless of which option they 
select, we would expect most participating CAP physicians to explain to 
their Medicare beneficiaries the process by which they will be billed.
    Comment: Some commenters were concerned that beneficiaries who were 
financially burdened would be adversely affected by the CAP because 
they would be removed from dealing directly with their physicians in 
working out payment options for their deductibles and copayments 
because the approved CAP vendor would be responsible for billing the 
beneficiaries for these items.
    Response: Beneficiaries are legally responsible for paying their 
coinsurance, and providers, including participating CAP physicians and 
other suppliers such as the approved CAP vendors, are required to make 
an effort to collect it. We address above in this preamble measures 
that the approved CAP vendor may take to address this issue. We 
encourage beneficiaries to talk to the approved CAP vendor in these 
circumstances and encourage the approved CAP vendor to provide 
beneficiaries information about patient assistance programs. Again, we 
will be monitoring beneficiary access under the CAP. In addition, 
approximately 80 percent of Medicare beneficiaries have some type of 
supplemental coverage for Part B that will pay their deductible and 
coinsurance amounts either in whole or in part.

F. Conclusion

    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 414

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

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

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

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

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

Subpart K--Payment for Drugs and Biologicals Under Part B

0
2. Revise the heading of subpart K to read as set forth above.

0
3. Amend Sec.  414.900 by--
0
A. Revising the section heading.
0
B. Revising paragraph (a).
0
C. Revising paragraph (b)(3)(ii).
    The revisions read as follows:


Sec.  414.900  Basis and scope.

    (a) This subpart implements sections 1842(o), 1847A, and 1847B of 
the Act and outlines two payment methodologies applicable to drugs and 
biologicals covered under Medicare Part B that are not paid on a cost 
or prospective payment system basis.
    (b) * * *
    (3) * * *
    (ii) Pneumococcal and Hepatitis B vaccines.
* * * * *

0
4. Amend Sec.  414.902 by republishing the introductory text to the 
section and adding the definitions of ``Approved CAP vendor,'' ``Bid,'' 
``CAP drug,'' ``Competitive acquisition area,'' ``Competitive 
acquisition program,'' ``Designated carrier,'' ``Emergency delivery,'' 
``Emergency situation,'' ``Local carrier,'' ``Pacific Territories,'' 
``Participating CAP physician,'' ``Participating CAP physician election 
agreement,'' ``Prescription order,'' ``Routine delivery,'' and ``Timely 
delivery.''


Sec.  414.902  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Approved CAP vendor means an entity that has been awarded a 
contract by CMS to participate in the competitive acquisition program 
under 1847B of the Act.
    Bid means an offer to furnish a CAP drug within a category of CAP 
drugs in a competitive acquisition area for a particular price and time 
period.
    CAP drug means a physician-administered drug or biological 
furnished on or after January 1, 2006 described in section 
1842(o)(1)(C) of the Act and supplied by an approved CAP vendor under 
the CAP as provided in this subpart.
    Competitive acquisition area means a geographic area established by 
the Secretary for purposes of implementing the CAP required by section 
1847B of the Act.
    Competitive acquisition program (CAP) means a program as defined 
under section 1847B of the Act.
    Designated carrier means an entity assigned by CMS to process and 
pay claims for drugs and biologicals under the CAP.
* * * * *
    Emergency delivery means delivery of a CAP drug within one business 
day in appropriate shipping and packaging, in all areas of the United 
States and its territories, with the exception of the Pacific 
Territories. In the Pacific Territories, emergency delivery means 
delivery of a CAP drug within 5 business days in appropriate shipping 
and packaging. In each case, this timeframe shall be reduced if product 
stability requires it, meaning that the manufacturer's labeling 
instructions, drug compendia, or specialized drug stability references 
indicate that a shorter delivery timeframe is necessary to avoid 
adversely affecting the product's integrity, safety, or efficacy.
    Emergency situation means, for the purposes of the CAP, an 
unforeseen occurrence or situation determined by the participating CAP 
physician, in his or her clinical judgment, to require prompt action or 
attention for purposes of permitting the participating CAP physician to 
use a drug from his or her own stock, if the other requirements of 
Sec.  414.906(e) are met.
    Local carrier means an entity assigned by CMS to process and pay 
claims for administration of drugs and biologicals under the CAP.
* * * * *
    Pacific Territories means, for purposes of the CAP, American Samoa, 
Guam, or the Northern Mariana Islands.
    Participating CAP physician means a physician electing to 
participate in the CAP, as described in this subpart. The participating 
CAP physician must complete and sign the participating CAP physician 
election agreement. Physicians who do not participate in Medicare but 
who elect to participate in the CAP must agree to accept assignment for 
CAP drug administration claims.

[[Page 39094]]

    Participating CAP physician election agreement means the agreement 
that the physician signs to notify CMS of the physician's election to 
participate in the CAP and to agree to the terms and conditions of CAP 
participation as set forth in this subpart.
    Prescription order means a written order submitted by the 
participating CAP physician to the approved CAP vendor that meets the 
requirements of this subpart.
    Routine delivery means delivery of a drug within 2 business days in 
appropriate shipping and packaging in all areas of the United States 
and its territories, with the exception of the Pacific Territories. In 
the Pacific Territories, routine delivery of drug means delivery of a 
CAP drug within 7 business days in appropriate shipping and packaging. 
In each case, this timeframe will be reduced if product stability 
requires it, meaning that the manufacturer's labeling instructions, 
drug compendia, or specialized drug stability references indicate that 
a shorter delivery timeframe is necessary to avoid adversely affecting 
the product's integrity, safety, or efficacy.
* * * * *
    Timely delivery means delivery of a CAP drug within the defined 
routine and emergency delivery timeframes. Compliance with timely 
delivery standards is also a factor for evaluation of potential and 
approved CAP vendors.
* * * * *

0
5. Amend Sec.  414.904 by revising the section heading to read as 
follows:


Sec.  414.904  Average sales price as the basis for payment.

* * * * *

0
6. Add Sec.  414.906 to read as follows:


Sec.  414.906  Competitive acquisition program as the basis for 
payment.

    (a) Program payment. Beginning in 2006, as an alternative to 
payment under Sec.  414.904, payment for a CAP drug may be made through 
the CAP if the following occurs:
    (1) The CAP drug is supplied under the CAP by an approved CAP 
vendor as specified in Sec.  414.908(b).
    (2) The claim for the prescribed drug is submitted by the approved 
CAP vendor that supplied the drug, and payment is made only to that 
vendor.
    (3) The approved CAP vendor collects applicable deductible and 
coinsurance with respect to the drug furnished under the CAP only after 
the drug is administered to the beneficiary.
    (4) The approved CAP vendor delivers CAP drugs directly to the 
participating CAP physician in unopened vials or other original 
containers as supplied by the manufacturer or from a distributor that 
has acquired the products directly from the manufacturer and includes 
language with the shipping material stating that the drug was acquired 
in a manner consistent with all statutory requirements. If the approved 
CAP vendor opts to split shipments, the participating CAP physician 
must be notified in writing which can be included with the initial 
shipment, and each incremental shipment must arrive at least 2 business 
days before the anticipated date of administration.
    (5) The approved CAP vendor bills Medicare only for the amount of 
the drug administered to the patient, and the beneficiary's coinsurance 
will be calculated from the quantity of drug that is administered.
    (b) Exceptions to competitive acquisition. Specific CAP drugs, 
including a category of these drugs, may be excluded from the CAP if 
the application of competitive bidding to these drugs--
    (1) Is not likely to result in significant savings; or
    (2) Is likely to have an adverse impact on access to those drugs.
    (c) Computation of payment amount. (1) Except as specified in 
paragraph (c)(2) of this section, payment for CAP drugs is based on 
bids submitted, as a result of the bidding process as described in 
Sec.  414.910. Based on these bids, a single payment amount for each 
CAP drug in the competitive acquisition area is determined on the basis 
of the bids submitted and accepted and updated from the bidding period 
to the payment year. This single payment amount is then updated on an 
annual basis based on the approved CAP vendor's reasonable net 
acquisition costs for that category as determined by CMS based, in 
part, on information disclosed to CMS and limited by the weighted 
payment amount established under section 1847A of the Act across all 
drugs in that category. Adjustment to the payment amounts may be made 
more often than annually, but no more often than quarterly, in any of 
the following cases:
    (i) Introduction of new drugs.
    (ii) Expiration of a drug patent or availability of a generic drug.
    (iii) Material shortage that results in a significant price 
increase for the drug.
    (iv) Withdrawal of a drug from the market.
    (2) The alternative payment amount established under section 1847A 
of the Act may be used to establish payment for a CAP drug if--
    (i) The drug is properly assigned to a category established under 
the CAP; and
    (ii) It is a drug for which a HCPCS code must be established.
    (d) Adjustments. There is an established process for adjustments to 
payments to account for drugs that were billed, but which were not 
administered.
    (e) Resupply of participating CAP physician drug inventory. A 
participating CAP physician may acquire drugs under the CAP to resupply 
his or her private inventory if all of the following requirements are 
met:
    (1) The drugs were required immediately.
    (2) The participating CAP physician could not have anticipated the 
need for the drugs.
    (3) The approved CAP vendor could not have delivered the drugs in a 
timely manner. For purposes of this section, timely manner means 
delivery within the emergency delivery timeframe, as defined in Sec.  
414.902.
    (4) The participating CAP physician administered the drugs in an 
emergency situation, as defined in Sec.  414.902.
    (f) Substitution of CAP drugs. An approved CAP vendor may agree to 
furnish more than one CAP drug (defined at the NDC level) for a HCPCS 
code. Payment is based on a bid price defined by the HCPCS code and the 
unit of measure for the HCPCS code. Substitution of a different NDC 
within the HCPCS code for the NDC currently furnished by the approved 
CAP vendor can occur in the following situations:
    (1) On an occasional basis, if the approved CAP vendor is willing 
to accept the payment amount that was established for the original NDC 
within a HCPCS code under the CAP, and the participating CAP physician 
approves the substitution; or
    (2) For an extended period of time (more than 2 weeks), if the 
approved CAP vendor identifies the replacement product, the designated 
carrier's medical director approves the long-term substitution on 
behalf of CMS, and all participating CAP physicians who have selected 
the approved CAP vendor are notified of the change. In the case of such 
long-term substitution, payment is based on the price established in 
accordance with Sec.  414.906(c).

0
7. Add Sec.  414.908 to read as follows:


Sec.  414.908  Competitive acquisition program.

    (a) Participating CAP physician selection of an approved CAP 
vendor. (1) CMS provides the participating CAP physician with a process 
for the selection of an approved CAP vendor on an annual basis, with 
exceptions as specified in Sec.  414.908(a)(2).

[[Page 39095]]

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

0
8. Add Sec.  414.910 to read as follows:

[[Page 39096]]

Sec.  414.910  Bidding process.

    (a) Entities may bid to furnish CAP drugs in all competitive 
acquisition areas of the United States, or one or more specific 
competitive acquisition areas.
    (b) The amount of the bid for any CAP drug for a specific 
competitive acquisition area must be uniform for all portions of that 
competitive acquisition area.
    (c) A submitted bid price must include the following:
    (1) All costs related to the delivery of the drug to the 
participating CAP physician.
    (2) The costs of dispensing (including shipping) of the drug and 
management fees. The costs related to the administration of the drug or 
wastage, spillage, or spoilage may not be included.

0
9. Add Sec.  414.912 to read as follows:


Sec.  414.912  Conflicts of interest.

    (a) Approved CAP vendors and applicants that bid to participate in 
the CAP are subject to the following:
    (1) The conflict of interest standards and requirements of the 
Federal Acquisition Regulation (FAR) organizational conflict of 
interest guidance, found under FAR subpart 9.5.
    (2) Those requirements and standards contained in each individual 
contract awarded to perform functions under section 1847B of the Act.
    (b) Post-award conflicts of interest. Approved CAP vendors must 
have a code of conduct that establishes policies and procedures for 
recognizing and resolving conflicts of interest between the approved 
CAP vendor and any entity, including the Federal Government, with whom 
it does business. The code of conduct which is submitted as part of the 
application must--
    (1) State the need for management, employees, contractors, and 
agents to comply with the approved CAP vendor's code of conduct, and 
policies and procedures for conflicts of interest; and
    (2) State the approved CAP vendor's expectations for management, 
employees, contractors, and agents to comply with the approved CAP 
vendor's code of conduct, and policies and procedures for detecting, 
preventing, and resolving conflicts of interest.

0
10. Add Sec.  414.914 to read as follows:


Sec.  414.914  Terms of contract.

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

[[Page 39097]]

    (1) Referral to a bona fide and independent charitable 
organization.
    (2) Implementation of a reasonable payment plan.
    (3) A full or partial waiver of the cost-sharing amount after 
determining in good faith that the individual is in financial need or 
the failure of reasonable collection efforts, provided that the waiver 
meets all of the requirements of section 1128A(i)(6)(A) of the Act and 
the corresponding regulations at paragraph (1) of the definition of 
``Remuneration'' in Sec.  1003.101 of this title. The availability of 
waivers may not be advertised or be made as part of a solicitation. 
Approved CAP vendors may inform beneficiaries that they generally make 
available the categories of assistance described in paragraphs (g)(1), 
(g)(2), and (g)(3) of this section. In no event may the approved CAP 
vendor include or make any statements or representations that promise 
or guarantee that beneficiaries will receive cost-sharing waivers.
    (h) The approved CAP vendor must comply with the following 
procedures before it may refuse to make further shipments of CAP drugs 
to a participating CAP physician on behalf of a beneficiary:
    (1) Subsequent to receipt of final payment by Medicare, the 
approved CAP vendor must bill any applicable supplemental insurance 
policies.
    (2) If after that action is taken, a balance remains, or if there 
is no supplemental insurance, the approved CAP vendor may bill the 
beneficiary.
    (3) At the time of billing, the approved CAP vendor may inform the 
beneficiary of any types of cost-sharing assistance that may be 
available consistent with the requirements of section 1128A(a)(5) of 
the Act and Sec.  414.914(g).
    (4) If the beneficiary demonstrates a financial need, the approved 
CAP vendor must follow the conditions outlined in paragraph (g) of this 
section.
    (5) If after 45 days from the postmark date of the approved CAP 
vendor's bill to the beneficiary, the beneficiary's cost sharing 
obligation remains unpaid, the approved CAP vendor may refuse further 
shipments to the participating CAP physician for that beneficiary; 
however, if the beneficiary has requested cost-sharing assistance 
within the 45-day period, the provisions of paragraph (6), (7), or (8), 
as applicable, apply.
    (6) If the approved CAP vendor implements a reasonable payment 
plan, as specified in Sec.  414.914(g)(2), the approved CAP vendor must 
continue to ship CAP drugs for the beneficiary, as long as the 
beneficiary remains in compliance with the payment plan and makes an 
initial payment under the plan within 15 days after the postmark date 
of the approved CAP vendor's written notice to the beneficiary offering 
the payment plan.
    (7) If the approved CAP vendor has waived the cost-sharing 
obligations in accordance with section 1128A of the Act and Sec.  
414.914(g)(3), the approved CAP vendor may not refuse to ship drugs for 
that beneficiary.
    (8) If the approved CAP vendor refers the beneficiary to a bona 
fide and independent charity in accordance with Sec.  414.914(g)(1), 
the approved CAP vendor may refuse to ship drugs if the past due 
balance is not paid 15 days after the postmark date of the approved CAP 
vendor's written notice to the beneficiary containing the referral for 
cost-sharing assistance.
    (9) The approved CAP vendor may refuse to make further shipments to 
that participating CAP physician on behalf of the beneficiary for the 
lesser of the end of the calendar year or until the beneficiary's 
balance is paid in full.

0
11-12. Sec.  414.916 to read as follows:


Sec.  414.916  Dispute resolution for vendors and beneficiaries.

    (a) General rule. Cases of an approved CAP vendor's dissatisfaction 
with denied drug claims are resolved through a voluntary alternative 
dispute resolution process delivered by the designated carrier, and a 
reconsideration process provided by CMS.
    (b) Dispute resolution. (1) When an approved CAP vendor is not paid 
on claims submitted to the designated carrier, the vendor may appeal to 
the designated carrier to counsel the responsible participating CAP 
physician on his or her agreement to file a clean claim and pursue an 
administrative appeal in accordance with subpart H of part 405 of this 
chapter. If problems persist, the approved CAP vendor may ask the 
designated carrier to--
    (i) Review the participating CAP physician's performance; and
    (ii) Potentially recommend to CMS that CMS suspend the 
participating CAP physician's CAP election agreement.
    (2) The designated carrier--
    (i) Gathers information from the local carrier, the participating 
CAP physician, the beneficiary, and the approved CAP vendor; and
    (ii) Makes a recommendation to CMS on whether the participating CAP 
physician has been filing his or her CAP drug administration claims in 
accordance with the requirements for physician participation in the CAP 
as set forth in Sec.  414.908(a)(3). The recommendation will include 
numbered findings of fact.
    (3) CMS will review the recommendation of the designated carrier 
and gather relevant additional information from the participating CAP 
physician before deciding whether to suspend the participating CAP 
physician's CAP election agreement. A suspension commencing before 
October 1 will conclude on December 31 of the same year. A suspension 
commencing on or after October 1 will conclude on December 31 of the 
next year.
    (4) The participating CAP physician may appeal that suspension by 
requesting a reconsideration of CMS' decision. The reconsideration will 
address whether the participating CAP physician's denied claims and 
appeals were the result of the participating CAP physician's failure to 
participate in accordance with the requirements of Sec.  414.908(a)(3).
    (c) Reconsideration. (1) Right to reconsideration. A participating 
CAP physician dissatisfied with a determination that his or her CAP 
election agreement has been suspended by CMS is entitled to a 
reconsideration as provided in this subpart.
    (2) Eligibility for reconsideration. CMS reconsiders any 
determination to suspend a participating CAP physician's election 
agreement if the participating CAP physician files a written request 
for reconsideration in accordance with paragraphs (c)(3) and (c)(4) of 
this section.
    (3) Manner and timing of request for reconsideration. A 
participating CAP physician who is dissatisfied with a CMS decision to 
suspend his or her CAP election agreement may request a reconsideration 
of the decision by filing a request with CMS. The request must be filed 
within 30 days of receipt of the CMS decision letter notifying the 
participating CAP physician of CMS' decision to suspend his or her CAP 
election agreement. From the date of receipt of the decision letter 
until the day the reconsideration determination is final, the ASP 
payment methodology under section 1847A of the Act applies to the 
physician.
    (4) Content of request. The request for reconsideration must 
specify--
    (i) The findings or issues with which the participating CAP 
physician disagrees;
    (ii) The reasons for the disagreement;
    (iii) A recital of the facts and law supporting the participating 
CAP physician's position;
    (iv) Any supporting documentation; and

[[Page 39098]]

    (v) Any supporting statements from approved CAP vendors, local 
carriers, or beneficiaries.
    (5) Withdrawal of request for reconsideration. A participating CAP 
physician may withdraw his or her request for reconsideration at any 
time before the issuance of a reconsideration determination.
    (6) Discretionary informal hearing. In response to a request for 
reconsideration, CMS may, at its discretion, provide the participating 
CAP physician the opportunity for an informal hearing that--
    (i) Is conducted by a hearing officer appointed by the director of 
the CMS Center for Medicare Management or his or her designee; and
    (ii) Provides the participating CAP physician the opportunity to 
present, by telephone or in person, evidence to rebut CMS' decision to 
suspend or terminate a participating CAP physician's CAP election 
agreement.
    (7) Informal hearing procedures. (i) CMS provides written notice of 
the time and place of the informal hearing at least 10 days before the 
scheduled date.
    (ii) The informal reconsideration hearing will be conducted in 
accordance with the following procedures:
    (A) The hearing is open to CMS and the participating CAP physician 
requesting the reconsideration, including--
    (1) Authorized representatives;
    (2) Technical advisors (individuals with knowledge of the facts of 
the case or presenting interpretation of the facts);
    (3) Representatives from the local carrier;
    (4) Representatives from the approved CAP vendor; and
    (5) Legal counsel.
    (B) The hearing is conducted by the hearing officer who receives 
relevant testimony;
    (C) Testimony and other evidence may be accepted by the hearing 
officer even though it would be inadmissible under the rules of 
evidence applied in Federal courts;
    (D) Either party may call witnesses from among those individuals 
specified in paragraph (c)(7)(ii)(A) of this section; and
    (E) The hearing officer does not have the authority to compel by 
subpoena the production of witnesses, papers, or other evidence.
    (8) Hearing officer's findings. (i) Within 30 days of the hearing 
officer's receipt of the hearing request, the hearing officer presents 
the findings and recommendations to the participating CAP physician who 
requested the reconsideration. If the hearing officer decides to 
conduct an in-person or telephone hearing, the hearing officer will 
send a hearing notice to the participating CAP physician within 10 days 
of receipt of the hearing request, and the findings and recommendations 
are due to the participating CAP physician within 30 days of the 
hearing's conclusion.
    (ii) The written report of the hearing officer includes separate 
numbered findings of fact and the legal conclusions of the hearing 
officer.
    (9) Final reconsideration determination. (i) The hearing officer's 
decision is final unless the director of the CMS Center for Medicare 
Management or his or her designee chooses to review that decision 
within 30 days. If the decision is favorable to the participating CAP 
physician, then the participating CAP physician may resume his or her 
participation in CAP. The hearing officer and the CMS official may 
review decisions that are favorable or unfavorable to the participating 
CAP physician.
    (ii) The CMS official may accept, reject, or modify the hearing 
officer's findings.
    (iii) If the CMS official reviews the hearing officer's decision, 
the CMS official issues a final reconsideration determination to the 
participating CAP physician on the basis of the hearing officer's 
findings and recommendations and other relevant information.
    (iv) The reconsideration determination of the CMS official is 
final. If the final decision is unfavorable to the participating CAP 
physician, then the participating CAP physician's CAP election 
agreement is terminated.
    (d) The approved CAP vendor may not charge the beneficiary for the 
full drug coinsurance amount if the designated contractor did not pay 
the approved CAP vendor in full, unless a properly executed advance 
beneficiary notice is in place. When a beneficiary receives an 
inappropriate coinsurance bill, the beneficiary may participate in the 
approved CAP vendor's grievance process to request correction of the 
approved CAP vendor's file. If the beneficiary is dissatisfied with the 
result of the approved CAP vendor's grievance process, the beneficiary 
may request intervention from the designated carrier. This is in 
addition to, rather than in place of, any other beneficiary appeal 
rights. The designated carrier will first investigate the facts and 
then facilitate correction to the appropriate claim record and 
beneficiary file.
0
13. Add Sec.  414.917 to read as follows:


Sec.  414.917  Dispute resolution and process for suspension or 
termination of approved CAP contract.

    (a) General rule. If a participating CAP physician finds an 
approved CAP vendor's service, or the quality of a CAP drug supplied by 
the approved CAP vendor to be unsatisfactory, then the physician may 
address the issue first through the approved CAP vendor's grievance 
process, and second through an alternative dispute resolution process 
administered by the designated carrier and CMS. If CMS suspends an 
approved CAP vendor's CAP contract for noncompliance or terminates the 
CAP contract in accordance with Sec.  414.914(a), the approved CAP 
vendor may request a reconsideration in accordance with paragraph (c) 
of this section.
    (b) Dispute resolution. (1) When a participating CAP physician is 
dissatisfied with an approved CAP vendor's service or the quality of a 
CAP drug supplied by the approved CAP vendor, then the participating 
CAP physician may use the approved CAP vendor's grievance process. If 
the service or quality issues are not resolved through the grievance 
process to the physician's satisfaction, then the participating CAP 
physician may ask the designated carrier to--
    (i) Review the approved CAP vendor's performance; and
    (ii) Potentially recommend termination of the approved CAP vendor's 
CAP contract.
    (2) Responsibility of the designated carrier. The designated 
carrier--
    (i) Gathers information from the local carrier, the participating 
CAP physician, the beneficiary, and the approved CAP vendor; and
    (ii) Makes a recommendation to CMS on whether the approved CAP 
vendor has been meeting the service and quality obligations of its CAP 
contract. This recommendation will include numbered findings of fact.
    (3) CMS will review the recommendation of the designated carrier 
and, gather relevant additional information from the approved CAP 
vendor, the participating CAP physician, the local carrier, and the 
beneficiary before deciding whether to terminate the approved CAP 
vendor's CAP contract.
    (4) The approved CAP vendor may appeal that termination by 
requesting a reconsideration. A determination must be made as to 
whether the approved CAP vendor has been meeting the service and 
quality obligations of its CAP contract.
    (c) Reconsideration. (1) Right to reconsideration. An approved CAP

[[Page 39099]]

vendor dissatisfied with a determination that its CAP contract has been 
suspended or terminated by CMS is entitled to a reconsideration as 
provided in this subpart.
    (2) Eligibility for reconsideration. CMS will reconsider any 
determination to suspend or terminate an approved CAP vendor's contract 
if the approved CAP vendor files a written request for reconsideration 
in accordance with paragraphs (c)(3) and (c)(4) of this section.
    (3) Manner and timing of request for reconsideration. An approved 
CAP vendor that is dissatisfied with a CMS decision to suspend or 
terminate its CAP contract may request a reconsideration of the 
decision by filing a request with CMS. The request must be filed within 
30 days of receipt of the CMS decision letter notifying the approved 
CAP vendor of the suspension or termination of its CAP contract.
    (4) Content of request. The request for reconsideration must 
specify--
    (i) The findings or issues with which the approved CAP vendor 
disagrees;
    (ii) The reasons for the disagreement;
    (iii) A recital of the facts and law supporting the approved CAP 
vendor's position;
    (iv) Any supporting documentation; and
    (v) Any supporting statements from participating CAP physicians, 
the local carrier, or beneficiaries.
    (5) Withdrawal of request for reconsideration. An approved CAP 
vendor may withdraw its request for reconsideration at any time before 
the issuance of a reconsideration determination.
    (6) Discretionary informal hearing. In response to a request for 
reconsideration, CMS may, at its discretion, provide the approved CAP 
vendor the opportunity for an informal hearing that--
    (i) Is conducted by a hearing officer appointed by the Director of 
the CMS Center for Medicare Management or his or her designee; and
    (ii) Provides the approved CAP vendor the opportunity to present, 
by telephone or in person, evidence to rebut CMS' decision to suspend 
or terminate the approved CAP vendor's CAP contract.
    (7) Informal hearing procedures. (i) CMS will provide written 
notice of the time and place of the informal hearing at least 10 days 
before the scheduled date.
    (ii) The informal reconsideration hearing will be conducted in 
accordance with the following procedures:
    (A) The hearing is open to CMS and the approved CAP vendor 
requesting the reconsideration, including--
    (1) Authorized representatives;
    (2) Technical advisors (individuals with knowledge of the facts of 
the case or presenting interpretation of the facts);
    (3) Representatives from the local carriers and the designated 
carrier;
    (4) The participating CAP physician who requested the suspension, 
if any; and
    (5) Legal counsel.
    (B) The hearing will be conducted by the hearing officer, who will 
receive relevant testimony;
    (C) Testimony and other evidence may be accepted by the hearing 
officer even though it would be inadmissible under the rules of 
evidence applied in Federal courts;
    (D) Either party may call witnesses from among those individuals 
specified in the paragraph (c)(7)(ii)(A) of this section; and
    (E) The hearing officer does not have the authority to compel by 
subpoena the production of witnesses, papers, or other evidence.
    (8) Hearing officer's findings. (i) Within 30 days of the hearing 
officer's receipt of the hearing request, the hearing officer will 
present the findings and recommendations to the approved CAP vendor 
that requested the reconsideration. If the hearing officer conducts a 
hearing in person or by phone, the hearing officer will send a hearing 
notice to the approved CAP vendor within 10 days of receipt of the 
hearing request, and the findings and recommendations are due to the 
approved CAP vendor within 30 days from of the hearing's conclusion.
    (ii) The written report of the hearing officer will include 
separate numbered findings of fact and the legal conclusions of the 
hearing officer.
    (9) Final reconsideration determination. (i) The hearing officer's 
decision is final unless the Director of the CMS Center for Medicare 
Management or his or her designee (CMS official) chooses to review that 
decision within 30 days. If the decision is favorable to the approved 
CAP vendor, then the approved CAP vendor may resume participation in 
CAP. The hearing officer and the CMS official may review decisions that 
are favorable or unfavorable to the approved CAP vendor.
    (ii) The CMS official may accept, reject, or modify the hearing 
officer's findings.
    (iii) If the CMS official reviews the hearing officer's decision, 
the CMS official will issue a final reconsideration determination to 
the approved CAP vendor on the basis of the hearing officer's findings 
and recommendations and other relevant information.
    (iv) The reconsideration determination of the CMS official is 
final.

0
14. Add Sec.  414.918 to read as follows:


Sec.  414.918  Assignment.

    Payment for a CAP drug may be made only on an assignment-related 
basis.

0
15. Add Sec.  414.920 to read as follows:


Sec.  414.920  Judicial review.

    The following areas under the CAP are not subject to administrative 
or judicial review:
    (a) The establishment of payment amounts.
    (b) The awarding of vendor contracts.
    (c) The establishment of competitive acquisition areas.
    (d) The selection of CAP drugs.
    (e) The bidding structure.
    (f) The number of vendors selected.

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

    Dated: June 9, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: June 23, 2005.
Michael O. Leavitt,
Secretary.

                 Addendum A.--Single Drug Category List
------------------------------------------------------------------------
        HCPCS                           Long description
------------------------------------------------------------------------
J0150................  INJECTION, ADENOSINE FOR THERAPEUTIC USE, 6 MG.
J0152................  INJECTION, ADENOSINE FOR DIAGNOSTIC USE, 30 MG.
J0170................  INJECTION, ADRENALIN, EPINEPHRINE, 1 ML AMPULE.
J0207................  INJECTION, AMIFOSTINE, 500 MG.
J0215................  INJECTION, ALEFACEPT, 0.5 MG.
J0280................  INJECTION, AMINOPHYLLIN, 250 MG.

[[Page 39100]]

 
J0290................  INJECTION, AMPICILLIN SODIUM, 500 MG.
J0475................  INJECTION, BACLOFEN, 10 MG.
J0540................  INJECTION, PENICILLIN G BENZATHINE AND PENICILLIN
                        G PROCAINE, 1,200,000 UNITS.
J0550................  INJECTION, PENICILLIN G BENZATHINE AND PENICILLIN
                        G PROCAINE, 2,400,000 UNITS.
J0570................  INJECTION, PENICILLIN G BENZATHINE, 1,200,000
                        UNITS.
J0585................  BOTULINUM TOXIN TYPE A, PER UNIT.
J0587................  BOTULINUM TOXIN TYPE B, PER 100 UNITS.
J0600................  INJECTION, EDETATE CALCIUM DISODIUM, 1000 MG.
J0637................  INJECTION, CASPOFUNGIN ACETATE, 5 MG.
J0640................  INJECTION, LEUCOVORIN CALCIUM, PER 50 MG.
J0670................  INJECTION, MEPIVACAINE HYDROCHLORIDE, PER 10 ML.
J0690................  INJECTION, CEFAZOLIN SODIUM, 500 MG.
J0692................  INJECTION, CEFEPIME HYDROCHLORIDE, 500 MG.
J0696................  INJECTION, CEFTRIAXONE SODIUM, PER 250 MG.
J0698................  INJECTION, CEFOTAXIME SODIUM, PER GM.
J0702................  INJECTION, BETAMETHASONE ACETATE & BETAMETHASONE
                        SODIUM PHOSPHATE, PER 3 MG.
J0704................  INJECTION, BETAMETHASONE SODIUM PHOSPHATE, PER 4
                        MG.
J0735................  INJECTION, CLONIDINE HYDROCHLORIDE, 1 MG.
J0800................  INJECTION, CORTICOTROPIN, 40 UNITS.
J0880................  INJECTION, DARBEPOETIN ALFA, 5 MCG.
J0895................  INJECTION, DEFEROXAMINE MESYLATE, 500 MG.
J1000................  INJECTION, DEPO-ESTRADIOL CYPIONATE, 5 MG.
J1020................  INJECTION, METHYLPREDNISOLONE ACETATE, 20 MG.
J1030................  INJECTION, METHYLPREDNISOLONE ACETATE, 40 MG.
J1040................  INJECTION, METHYLPREDNISOLONE ACETATE, 80 MG.
J1051................  INJECTION, MEDROXYPROGESTERONE ACETATE, 50 MG.
J1094................  INJECTION, DEXAMETHASONE ACETATE, 1 MG.
J1100................  INJECTION, DEXAMETHASONE SODIUM PHOSPHATE, 1MG.
J1190................  INJECTION, DEXRAZOXANE HYDROCHLORIDE, PER 250 MG.
J1200................  INJECTION, DIPHENHYDRAMINE HCL, 50 MG.
J1212................  INJECTION, DMSO, DIMETHYL SULFOXIDE, 50%, 50 ML.
J1245................  INJECTION, DIPYRIDAMOLE, PER 10 MG.
J1250................  INJECTION, DOBUTAMINE HYDROCHLORIDE, PER 250 MG.
J1260................  INJECTION, DOLASETRON MESYLATE, 10 MG.
J1335................  INJECTION, ERTAPENEM SODIUM, 500 MG.
J1440................  INJECTION, FILGRASTIM (G-CSF), 300 MCG.
J1441................  INJECTION, FILGRASTIM (G-CSF), 480 MCG.
J1450................  INJECTION, FLUCONAZOLE, 200 MG.
J1580................  INJECTION, GARAMYCIN, GENTAMICIN, 80 MG.
J1600................  INJECTION, GOLD SODIUM THIOMALATE, 50 MG.
J1626................  INJECTION, GRANISETRON HYDROCHLORIDE, 100 MCG.
J1631................  INJECTION, HALOPERIDOL DECANOATE, PER 50 MG.
J1642................  INJECTION, HEPARIN SODIUM, (HEPARIN LOCK FLUSH),
                        PER 10 UNITS.
J1644................  INJECTION, HEPARIN SODIUM, PER 1000 UNITS.
J1645................  INJECTION, DALTEPARIN SODIUM, PER 2500 IU.
J1650................  INJECTION, ENOXAPARIN SODIUM, 10 MG.
J1655................  INJECTION, TINZAPARIN SODIUM, 1000 IU.
J1710................  INJECTION, HYDROCORTISONE SODIUM PHOSPHATE, 50
                        MG.
J1720................  INJECTION, HYDROCORTISONE SODIUM SUCCINATE, 100
                        MG.
J1745................  INJECTION, INFLIXIMAB, 10 MG.
J1750................  INJECTION, IRON DEXTRAN, 50 MG.
J1756................  INJECTION, IRON SUCROSE, 1 MG.
J1885................  INJECTION, KETOROLAC TROMETHAMI.NE, PER 15 MG.
J1940................  INJECTION, FUROSEMIDE, 20 MG.
J1956................  INJECTION, LEVOFLOXACIN, 250 MG.
J2001................  INJECTION, LIDOCAINE HCL FOR INTRAVENOUS
                        INFUSION, 10 MG.
J2010................  INJECTION, LINCOMYCIN HCL, 300 MG.
J2150................  INJECTION, MANNITOL, 25% IN 50 ML.
J2260................  INJECTION, MILRINONE LACTATE, 5 MG.
J2300................  INJECTION, NALBUPHINE HYDROCHLORIDE, PER 10 MG.
J2324................  INJECTION, NESIRITIDE, 0.25 MG.
J2353................  INJECTION, OCTREOTIDE, DEPOT FORM FOR
                        INTRAMUSCULAR INJECTION, 1 MG.
J2354................  INJECTION, OCTREOTIDE, NON-DEPOT SUBCUTANEOUS OR
                        INTRAVENOUS INJECTION, 25 MCG.
J2405................  INJECTION, ONDANSETRON HYDROCHLORIDE, PER 1 MG.
J2430................  INJECTION, PAMIDRONATE DISODIUM, PER 30 MG.
J2505................  INJECTION, PEGFILGRASTIM, 6 MG.
J2550................  INJECTION, PROMETHAZINE HCL, 50 MG.
J2680................  INJECTION, FLUPHENAZINE DECANOATE, 25 MG.
J2765................  INJECTION, METOCLOPRAMIDE HCL, 10 MG.
J2780................  INJECTION, RANITIDINE HYDROCHLORIDE, 25 MG.
J2820................  INJECTION, SARGRAMOSTIM (GM-CSF), 50 MCG.
J2912................  INJECTION, SODIUM CHLORIDE, 0.9%, PER 2 ML.

[[Page 39101]]

 
J2916................  INJECTION, SODIUM FERRIC GLUCONATE COMPLEX IN
                        SUCROSE INJECTION, 12.5 MG.
J2920................  INJECTION, METHYLPREDNISOLONE SODIUM SUCCINATE,
                        40 MG.
J2930................  INJECTION, METHYLPREDNISOLONE SODIUM SUCCINATE,
                        125 MG.
J2997................  INJECTION, ALTEPLASE RECOMBINANT, 1 MG.
J3260................  INJECTION, TOBRAMYCIN SULFATE, 80 MG.
J3301................  INJECTION, TRIAMCINOLONE ACETONIDE, PER 10 MG.
J3302................  INJECTION, TRIAMCINOLONE DIACETATE, PER 5 MG.
J3303................  INJECTION, TRIAMCINOLONE HEXACETONIDE, PER 5 MG.
J3315................  INJECTION, TRIPTORELIN PAMOATE, 3.75 MG.
J3370................  INJECTION, VANCOMYCIN HCL, 500 MG.
J3396................  INJECTION, VERTEPORFIN, 0.1 MG.
J3410................  INJECTION, HYDROXYZINE HCL, 25 MG.
J3420................  INJECTION, VITAMIN B-12 CYANOCOBALAMIN, UP TO
                        1000 MCG.
J3475................  INJECTION, MAGNESIUM SULFATE, PER 500 MG.
J3480................  INJECTION, POTASSIUM CHLORIDE, PER 2 MEQ.
J3487................  INJECTION, ZOLEDRONIC ACID, 1 MG.
J7030................  INFUSION, NORMAL SALINE SOLUTION, 1000 CC.
J7040................  INFUSION, NORMAL SALINE SOLUTION, STERILE (500
                        ML=1 UNIT).
J7042................  5% DEXTROSE/NORMAL SALINE (500 ML = 1 UNIT).
J7050................  INFUSION, NORMAL SALINE SOLUTION , 250 CC.
J7051................  STERILE SALINE OR WATER, 5 CC.
J7060................  5% DEXTROSE/WATER (500 ML = 1 UNIT).
J7070................  INFUSION, D5W, 1000 CC.
J7120................  RINGERS LACTATE INFUSION, 1000 CC.
J7317................  SODIUM HYALURONATE, PER 20 TO 25 MG DOSE FOR
                        INTRA-ARTICULAR INJECTION.
J7320................  HYLAN G-F 20, 16 MG, FOR INTRA ARTICULAR
                        INJECTION.
J9000................  DOXORUBICIN HCL, 10 MG.
J9001................  DOXORUBICIN HYDROCHLORIDE, ALL LIPID
                        FORMULATIONS, 10 MG.
J9031................  BCG (INTRAVESICAL) PER INSTILLATION.
J9040................  BLEOMYCIN SULFATE, 15 UNITS.
J9045................  CARBOPLATIN, 50 MG.
J9050................  CARMUSTINE, 100 MG.
J9060................  CISPLATIN, POWDER OR S0LUTION, PER 10 MG.
J9062................  CISPLATIN, 50 MG.
J9065................  INJECTION, CLADRIBINE, PER 1 MG.
J9070................  CYCLOPHOSPHAMIDE, 100 MG.
J9080................  CYCLOPHOSPHAMIDE, 200 MG.
J9090................  CYCLOPHOSPHAMIDE, 500 MG.
J9091................  CYCLOPHOSPHAMIDE, 1.0 GRAM.
J9092................  CYCLOPHOSPHAMIDE, 2.0 GRAM.
J9093................  CYCLOPHOSPHAMIDE, LYOPHILIZED, 100 MG.
J9094................  CYCLOPHOSPHAMIDE, LYOPHILIZED, 200 MG.
J9095................  CYCLOPHOSPHAMIDE, LYOPHILIZED, 500 MG.
J9096................  CYCLOPHOSPHAMIDE, LYOPHILIZED, 1.0 GRAM.
J9097................  CYCLOPHOSPHAMIDE, LYOPHILIZED, 2.0 GRAM.
J9098................  CYTARABINE LIPOSOME, 10 MG.
J9100................  CYTARABINE, 100 MG.
J9110................  CYTARABINE, 500 MG.
J9130................  DACARBAZINE, 100 MG.
J9140................  DACARBAZINE, 200 MG.
J9150................  DAUNORUBICIN, 10 MG.
J9170................  DOCETAXEL, 20 MG.
J9178................  INJECTION, EPIRUBICIN HCL, 2 MG.
J9181................  ETOPOSIDE, 10 MG.
J9182................  ETOPOSIDE, 100 MG.
J9185................  FLUDARABINE PHOSPHATE, 50 MG.
J9190................  FLUOROURACIL, 500 MG.
J9200................  FLOXURIDINE, 500 MG.
J9201................  GEMCITABINE HCL, 200 MG.
J9202................  GOSERELIN ACETATE IMPLANT, PER 3.6 MG.
J9206................  IRINOTECAN, 20 MG.
J9208................  IFOSFAMIDE, 1 GM.
J9209................  MESNA, 200 MG.
J9211................  IDARUBICIN HYDROCHLORIDE, 5 MG.
J9213................  INTERFERON, ALFA-2A, RECOMBINANT, 3 MILLION
                        UNITS.
J9214................  INTERFERON, ALFA-2B, RECOMBINANT, 1 MILLION
                        UNITS.
J9219................  LEUPROLIDE ACETATE IMPLANT, 65 MG.
J9245................  INJECTION, MELPHALAN HYDROCHLORIDE, 50 MG.
J9250................  METHOTREXATE SODIUM, 5 MG .
J9260................  METHOTREXATE SODIUM, 50 MG.
J9263................  INJECTION, OXALIPLATIN, 0.5 MG.
J9265................  PACLITAXEL, 30 MG.

[[Page 39102]]

 
J9268................  PENTOSTATIN, PER 10 MG.
J9280................  MITOMYCIN, 5 MG.
J9290................  MITOMYCIN, 20 MG.
J9291................  MITOMYCIN, 40 MG.
J9293................  INJECTION, MITOXANTRONE HYDROCHLORIDE, PER 5 MG.
J9310................  RITUXIMAB, 100 MG.
J9320................  STREPTOZOCIN, 1 GM.
J9340................  THIOTEPA, 15 MG .
J9350................  TOPOTECAN, 4 MG.
J9355................  TRASTUZUMAB, 10 MG.
J9360................  VINBLASTINE SULFATE, 1 MG.
J9370................  VINCRISTINE SULFATE, 1 MG.
J9375................  VINCRISTINE SULFATE, 2 MG.
J9390................  VINORELBINE TARTRATE, PER 10 MG.
J9395................  INJECTION, FULVESTRANT, 25 MG.
J9600................  PORFIMER SODIUM, 75 MG.
Q0136................  INJECTION, EPOETIN ALPHA, (FOR NON ESRD USE), PER
                        1000 UNITS.
Q0137................  INJECTION, DARBEPOETIN ALFA, 1 MCG (NON-ESRD
                        USE).
Q3025................  INJECTION, INTERFERON BETA-1A, 11 MCG FOR
                        INTRAMUSCULAR USE.
------------------------------------------------------------------------


             Addendum B.--New Drugs for CAP Bidding for 2006
------------------------------------------------------------------------
                 Code                           2005 Description
------------------------------------------------------------------------
J0128.................................  Abarelix injection.
J0180.................................  Agalsidase beta injection.
J0878.................................  Daptomycin injection.
J1931.................................  Laronidase injection.
J2357.................................  Omalizumab injection.
J2469.................................  Palonosetron HCl.
J2794.................................  Risperidone, long acting.
J7518.................................  Mycophenolic acid.
J9035.................................  Bevacizumab injection.
J9041.................................  Bortezomib injection.
J9055.................................  Cetuximab injection.
J9305.................................  Pemetrexed injection.
------------------------------------------------------------------------

[FR Doc. 05-12938 Filed 6-21-05; 4:00 pm]
BILLING CODE 4120-01-P