[Federal Register Volume 74, Number 130 (Thursday, July 9, 2009)]
[Proposed Rules]
[Pages 32819-32822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-16294]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 17

RIN 2900-AN15


Charges Billed to Third Parties for Prescription Drugs Furnished 
by VA to a Veteran for a Nonservice-Connected Disability

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Veterans Affairs (VA) proposes to amend its 
medical regulations concerning ``reasonable charges'' for medical care 
or services provided or furnished by VA to a veteran for a nonservice-
connected disability. More specifically, VA proposes to amend the 
regulations regarding charges billed for prescription drugs not 
administered during treatment by changing the billing formula to 
reflect VA's actual drug costs for each drug rather than our current 
practice of using a national average drug cost for all prescriptions 
dispensed. The revised formula for calculating ``reasonable charges'' 
for prescription drug costs would also continue to include an average 
administrative cost for each prescription. The purpose is to provide VA 
with a more accurate billing methodology for prescription drugs.

[[Page 32820]]


DATES: Comments must be received by VA on or before August 10, 2009.

ADDRESSES: Written comments may be submitted through http://www.regulations.gov; by mail or hand-delivery to the Director, 
Regulations Management (02REG), Department of Veterans Affairs, 810 
Vermont Avenue, NW., Room 1068, Washington, DC 20420; or by fax to 
(202) 273-9026. Comments should indicate that they are submitted in 
response to ``RIN 2900-AN15 ``Charges Billed to Third Parties for 
Prescription Drugs Furnished by VA to a Veteran for a Nonservice-
Connected Disability.'' Copies of comments received will be available 
for public inspection in the Office of Regulation Policy and 
Management, Room 1063B, between the hours of 8 a.m. and 4:30 p.m. 
Monday through Friday (except holidays). Please call (202) 461-4902 for 
an appointment. (This is not a toll-free number.) In addition, during 
the comment period, comments may be viewed online through the Federal 
Docket Management System (FDMS) at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Romona Greene, Manager of Rates and 
Charges, VHA Chief Business Office (168), Veterans Health 
Administration, Department of Veterans Affairs, 810 Vermont Avenue, 
NW., Washington, DC 20420, (202) 461-1595. (This is not a toll-free 
number.)

SUPPLEMENTARY INFORMATION: Under 38 U.S.C. 1729, VA has the right to 
recover or collect reasonable charges for medical care or services 
(including the provision of prescription drugs) from a third party to 
the extent that the veteran or the provider of the care or services 
would be eligible to receive payment from the third party for:
     A nonservice-connected disability for which the veteran is 
entitled to care (or the payment of expenses of care) under a health 
plan contract, 38 U.S.C. 1729(a)(2)(D), 38 CFR 17.101(a)(1)(i);
     A nonservice-connected disability incurred incident to the 
veteran's employment and covered under a worker's compensation law or 
plan that provides reimbursement or indemnification for such care and 
services, 38 U.S.C. 1729(a)(2)(A), 38 CFR 17.101(a)(1)(ii); or
     A nonservice-connected disability incurred as a result of 
a motor vehicle accident in a State that requires automobile accident 
reparations (no-fault) insurance, 38 U.S.C. 1729(a)(2)(B), 38 CFR 
17.101(a)(1)(iii).
    However, under current 38 CFR 17.101(a)(4), which implements 38 
U.S.C. 1729(c)(2)(B), a third-party payer liable for such medical care 
and services under a health plan contract has the option of paying, to 
the extent of its coverage, either the billed charges or the amount the 
third-party payer demonstrates it would pay for care or services 
furnished by providers other than entities of the United States for the 
same care or services in the same geographic area.
    In general, current regulations set forth a methodology to 
establish VA charges that replicate, insofar as possible, the 80th 
percentile of community charges, adjusted to the market areas in which 
VA facilities are located, and trended forward to the time period 
during which the charges will be used (see 68 FR 56876, October 2, 
2003). To avoid a windfall, the regulations do not apply this 
methodology to prescription drugs because, under authority of 38 U.S.C. 
8126, VA purchases drugs at discounted prices. Instead, VA currently 
bills for prescription drugs based on the sum of two components: (1) 
The national average of VA's drug costs for all prescriptions, and (2) 
the national average of VA's administrative costs associated with 
furnishing prescription drugs. Further, in accordance with Sec.  
17.102(h), VA currently bills $51 for each prescription filled (see 70 
FR 66866, November 3, 2005).
    We propose to change the billing methodology for prescription 
drugs. With respect to the portion of the billing concerning VA's cost 
for prescription drugs, we propose to bill based on the actual cost to 
VA of each prescription drug rather than the $51 national average. 
Under the current methodology, VA bills more than the actual cost for 
some prescription drugs and less than the actual cost for others. (For 
the purpose of the following two examples, VA's ``actual average cost'' 
is based upon the total cost incurred by VA for filling the 
prescription drug during calendar year 2008 and divided by the sum of 
the total number of such prescriptions filled nationally.) For example, 
in 2008 VA's average actual cost for a 30-day supply of immunological 
agent was $297.73 (not including administrative cost). Also, in 2008 
VA's average actual cost for a 30-day supply of antihistamine was $7.46 
(also not including administrative costs). However, under the current 
methodology, VA billed $51.00 for each of these prescriptions 
(including administrative costs), regardless of whether the 
prescription was for 30, 60, or 90 days.
    Instead of billing based on a national average, it is more accurate 
to bill as close to the actual costs as possible. Consistent with this 
conclusion, we propose to change the methodology for billing for 
prescription drugs not administered during treatment. In this regard, 
we propose to bill the total of:
     The actual cost to VA for prescription drugs (i.e., the 
cost to the facility that purchased the drugs); and
     The average national administrative cost associated with 
dispensing the drugs for each prescription.
    We created the current national average for prescription drug costs 
at a time when it was not feasible to bill for the actual cost of the 
drugs. However, we now have the capability to bill VA's actual local 
cost for each specific drug (i.e., the cost to the facility that 
purchased the drugs). The cost will be obtained from the Outpatient 
Pharmacy Prescription file or the Drug file at each VA facility.
    We would still use VA's national average for the administrative 
costs associated with the dispensing of the drugs. The formula that VA 
would use to determine the average for the administrative costs is set 
forth in proposed Sec.  17.101(m). This formula considers the sum of 
the indirect costs (such as utilities and financial service) and the 
national drug dispensing costs (such as labor and packaging) and then 
divides the total by the actual number of VA prescriptions filled 
nationally. The national average is the most administratively feasible 
methodology to utilize to determine this cost. We know of no other 
practical manner in which to determine the actual administrative costs 
associated with each prescription.
    Further, we propose to calculate the administrative cost annually 
for the prior Fiscal Year (FY) (October through September) and then 
apply any changes at the beginning of the next calendar year. Based on 
the FY 2008 national VA average for the administrative costs associated 
with the provision of prescription drugs, the administrative cost to be 
used for calendar year 2009 is $11.17.
    In FY 2008, we billed health care plans approximately $350.3 
million (based upon VA's average actual cost for each prescription) but 
due to lesser amounts payable under the terms of the health care plans, 
we collected approximately $127.5 million. Had the proposed rule been 
in effect, we would have billed approximately $303.4 million (VA's 
actual cost plus an administrative cost for each prescription), and we 
believe we would have collected approximately $186.6 million (based on 
our model regarding projected payments under the proposed rule). This 
reflects a substantial increase in the percentage of payment compared

[[Page 32821]]

to the billed amounts. Accordingly, had the proposed billing 
methodology been in effect in FY 2008, we believe that the VA 
collections for prescription drugs would have increased by 
approximately $59 million. Based on OMB's Medical Consumer Price Index, 
when we compare FY 2008 with 2019 (ten year period after projected 
publication of final rule) we would expect the VA collections amount to 
increase by almost $87.2 million (an annual increase of slightly more 
than 3 percent). Based on the amount of time in FY 2010 that the 
proposed rule is in effect, we project that VA will realize a 
proportional amount of $62,570,965 in additional collections. We 
project that in FY 2011 VA will realize $64,760,949 million in 
additional VA collections (first full year of implementation). We 
expect that this amount will increase by the projection for the Medical 
Consumer Price Index (CPI) which is approximately 3 percent each year 
as shown in the table below. We welcome any comments regarding VA's 
projected collections and projected payments.

1st................................  FY2010...............   $62,570,965
2nd................................  FY2011...............    64,760,949
3rd................................  FY2012...............    67,157,104
4th................................  FY2013...............    69,709,074
5th................................  FY2014...............    72,358,019
6th................................  FY2015...............    75,107,623
7th................................  FY2016...............    77,961,713
8th................................  FY2017...............    80,924,258
9th................................  FY2018...............    83,999,380
10th...............................  FY2019...............    87,191,356
 

    As required by 38 U.S.C. 1729(c)(2)(A), we will consult with the 
Comptroller General of the United States prior to promulgating a final 
rule.

Comment Period

    Under the rulemaking guidelines in Executive Order 12866, VA 
ordinarily provides a 60-day comment period for proposed rules. 
However, as stated in the preamble of this rulemaking notice, the 
methodology for billing health care plans for prescription drugs in 
VA's current regulations is not accurate for certain drugs because it 
results in significant underpayments. Under the proposed rule, VA would 
implement an actual-cost methodology that ensures fair and accurate 
billing for all prescription drugs covered by third party payers. The 
rule would ensure that VA satisfies its obligation to seek 
reimbursement for prescription drug purchases and maintain all 
appropriate funds for the care of veterans. Accordingly, VA has 
determined that it would be in the public interest to provide a shorter 
comment period for this proposed rule and has specified that comments 
must be received within 30 days of the publication in the Federal 
Register.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in an expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any year. This proposed rule would have no such effect on 
State, local, and tribal governments, or on the private sector.

Paperwork Reduction Act

    This document contains no collections of information under the 
Paperwork Reduction Act (44 U.S.C. 3501-3521).

Executive Order 12866

    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, when regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety, 
and other advantages; distributive impacts; and equity). The Executive 
Order classifies as a ``significant regulatory action,'' requiring 
review by the Office of Management and Budget (OMB), unless OMB waives 
such review, as any regulatory action that is likely to result in a 
rule that may: (1) Have an annual effect on the economy of $100 million 
or more or 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; (2) create a serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) materially alter 
the budgetary impact of entitlements, grants, user fees, or loan 
programs or the rights and obligations of recipients thereof; or (4) 
raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in the Executive 
Order.
    VA has examined the economic, interagency, budgetary, legal, and 
policy implications of this proposed rule and has concluded that it is 
a significant regulatory action under Executive Order 12866 because it 
is likely to result in a rule that may raise novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.

Regulatory Flexibility Act

    The Secretary hereby certifies that this proposed rule will not 
have a significant economic impact on a substantial number of small 
entities as they are defined in the Regulatory Flexibility Act, 5 
U.S.C. 601-612. This proposed rule would mainly affect large insurance 
companies. This proposed rule might have an insignificant impact on a 
few small entities that do an inconsequential amount of their business 
with VA. Therefore, pursuant to 5 U.S.C. 605(b), this proposed rule is 
exempt from the initial and final regulatory flexibility analysis 
requirements of sections 603 and 604.

Catalog of Federal Domestic Assistance Numbers

    The Catalog of Federal Domestic Assistance numbers and titles for 
the programs affected by this document are 64.005, Grants to States for 
Construction of State Home Facilities; 64.007, Blind Rehabilitation 
Centers; 64.008, Veterans Domiciliary Care; 64.009, Veterans Medical 
Care Benefits; 64.010, Veterans Nursing Home Care; 64.011, Veterans 
Dental Care; 64.012, Veterans Prescription Service; 64.013, Veterans 
Prosthetic Appliances; 64.014, Veterans State Domiciliary Care; 64.015, 
Veterans State Nursing Home Care; 64.016, Veterans State Hospital Care; 
64.018, Sharing Specialized Medical Resources; 64.019, Veterans 
Rehabilitation Alcohol and Drug Dependence; 64.022, Veterans Home Based 
Primary Care.

List of Subjects in 38 CFR Part 17

    Administrative practice and procedure, Alcohol abuse, Alcoholism, 
Claims, Day care, Dental health, Drug abuse, Foreign relations, 
Government contracts, Grant programs--health, Grant programs--veterans, 
Health care, Health facilities, Health professions, Health records, 
Homeless, Medical and dental schools, Medical devices, Medical 
research, Mental health programs, Nursing homes, Philippines, Reporting 
and recordkeeping requirements, Scholarships and fellowships, Travel 
and transportation expenses, Veterans.

    Approved: April 17, 2009.
John R. Gingrich,
Chief of Staff, Department of Veterans Affairs.

    For the reasons stated in the preamble, VA proposes to amend 38 CFR 
part 17 as follows:

PART 17--MEDICAL

    1. The authority citation for part 17 continues to read as follows:


[[Page 32822]]


    Authority:  38 U.S.C. 501, 1721, and as noted in specific 
sections.

    2. Revise the second sentence of paragraph (a)(2) and paragraph (m) 
of Sec.  17.101 to read as follows:


Sec.  17.101  Collection or recovery by VA for medical care or services 
provided or furnished to a veteran for a nonservice-connected 
disability.

    (a) * * *
    (2) * * * In addition, the charges billed for prescription drugs 
not administered during treatment will be the amount determined under 
paragraph (m) of this section. * * *
* * * * *
    (m) Charges for prescription drugs not administered during 
treatment. Notwithstanding other provisions of this section, when VA 
provides or furnishes prescription drugs not administered during 
treatment, within the scope of care referred to in paragraph (a)(1) of 
this section, charges billed separately for such prescription drugs 
will consist of the amount that equals the total of the actual cost to 
VA for the drugs and the national average of VA administrative costs 
associated with dispensing the drugs for each prescription. The actual 
VA cost of a drug will be the actual amount expended by the VA facility 
for the purchase of the specific drug. The administrative cost will be 
determined annually using VA's managerial cost accounting system. Under 
this accounting system, the average administrative cost is determined 
by adding the total VA national drug indirect costs (such as utilities 
and financial services) to the total VA national drug dispensing costs 
(such as labor and packaging) with the sum divided by the actual number 
of VA prescriptions filled nationally. Based on this accounting system, 
VA will determine the amount of the average administrative cost 
annually for the prior fiscal year (October through September) and then 
apply the charge at the start of the next calendar year.
* * * * *
[FR Doc. E9-16294 Filed 7-8-09; 8:45 am]
BILLING CODE 8320-01-P