Wednesday,

July 6, 2005

Part II

Department of 

Health and Human 

Services

Centers for Medicare & Medicaid Services 

42 CFR Part 414

Medicare Program; Competitive 

Acquisition of Outpatient Drugs and 

Biologicals Under Part B; Interim Rule

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

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. 

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 § 414.906(c); § 414.908(b), (c), (d), and 

(e); § 414.910, and § 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 

Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 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 nonintravenous 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 selfadministered. 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 nonHodgkin’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 nonphysician 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 

39024 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 nonpayment 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, 

MMA303DDrugBid@cms.hhs.gov, 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. 

Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 39025

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 

39026 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 414.900, which 

sets forth the basis and scope for subpart 

K; 

• Revise § 414.900(b)(ii) to clarify that 

the hepatitis vaccine referred to in this 

paragraph is the hepatitis ‘‘B’’ vaccine; 

• Add new § 414.906 through 

§ 414.920 to address requirements with 

respect to payment under the CAP; and 

• Revise § 414.902 to add definitions 

pertaining to the new CAP addressed in 

new § 414.906 through § 414.920. 

We did not receive comments on the 

proposed organization of subpart K or 

the proposed changes to § 414.900, 

which sets forth the basis and scope for 

subpart K or § 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 § 414.906 through 

§ 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 

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

39028 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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). 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, 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 nonorphan 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 

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

39030 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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, § 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 Bcovered drugs that are used in sufficient 

quantities by a variety of Part Badministering 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 

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

Specialty group Number of claims Number of line 

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 Qcodes corresponding to Part B drugs. We 

also excluded blood product HCPCS Pcodes 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 nondepot 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 

39032 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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, antiemetics, 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 

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

§ 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 § 414.902 the 

proposed definition for ‘‘approved 

vendor’’ at § 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 § 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 FDAapproved drugs within a HCPCS code. 

Finally, some commenters 

recommended that information about 

which specific NDC codes vendors will 

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

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 

§ 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 § 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. 

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

39036 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 nonphysician 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 

§ 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 

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

39038 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 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 § 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 

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

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

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 

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

39042 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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.

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

§ 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 

39044 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 midyear 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 § 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 

Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 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 oneor 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 categoryspecific 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, twobusiness-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 

39046 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 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 

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

§ 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 

39048 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 

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

§ 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 

39050 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 nonMedicare 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, antikickback statute, and Medicare rules 

regarding billing agents (§ 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. 

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

39052 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 collectionrelated 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 nonMedicaid-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 

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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 § 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 antikickback 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 costsharing 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 § 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 § 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 costsharing in accordance with section 

1128A(I)(6)(A) of the Act, 42 CFR 

§ 1003.101, and § 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 

§ 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 

39054 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 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 § 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 § 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 § 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 § 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 

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

§ 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 § 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 

39056 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 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 § 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 

§ 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. 

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

§ 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 § 414.916 or § 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 § 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 § 414.917. This 

process is very similar to the process for 

removing participating CAP physicians, 

which is described above and in 

§ 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 

39058 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 414.917. 

In response to these comments, we 

also believe that the process set forth in 

§ 414.917 is the appropriate means for 

approved CAP vendors to seek a review 

of our suspension or termination of its 

CAP contract under § 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, § 414.916 and § 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 

Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 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 § 414.908(b) and § 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 

§ 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 

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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 § 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 § 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). 

Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 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 § 414.906(a)(4) and 

§ 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 

39062 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 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 

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

39064 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 longterm 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 

§ 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 

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

39066 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 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 § 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. Selfreporting 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 

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

§ 414.908(e), ‘‘Multiple contracts for a 

category and area,’’ § 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 

39068 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 

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

§ 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 § 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: 

39070 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

• 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 

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

§ 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 

39072 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 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 

Drug Total HCPCS 

units 

Relative 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 ×

0.3520) + ($400 × 0.2395) + ($135 ×

0.4050) + ($4,780 × 0.0035), which is 

equal to $350.25. The composite bids for 

the other three bidders are computed 

similarly.

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

($516 × 0.3520 + $376 × 0.2395 + $111 

× 0.4050 + $4,831 × 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

Drug Weight Bidder 1 Bidder 2 Bidder 3 Bidder 4 Bids 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 § 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 

39074 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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. 

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

§ 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 

§ 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 

§ 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. 

39076 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 

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

39078 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 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 § 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 § 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 § 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 § 414.914(a) 

or § 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 § 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 § 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 § 414.920 

concerning administrative and judicial 

reviews, so we are finalizing this section 

as proposed. 

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

39080 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 § 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 § 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 § 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 § 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 

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

§ 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 

§ 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 

39082 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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’’

(§ 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 

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

§ 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 

§ 414.908 with modification. At 

§ 414.908(a)(2), we set forth the 

exceptions to the annual selection 

process. At § 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 § 414.902, we are clarifying the 

definition of the participating CAP 

physician election agreement. 

39084 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 physicianadministered 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 

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

§ 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 § 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 § 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 § 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 § 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 

39086 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

coinsurance will be calculated from the 

quantity of the drugs that is 

administered. 

We are making revisions under 

§ 414.906(c)(1) to clarify the payment 

methodology for CAP drugs. 

We are making revisions under 

§ 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 

§ 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 § 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 § 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 § 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 § 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 § 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 § 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 § 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 

§ 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 § 414.908(a)(5) 

to set forth the opt out provision for 

participating CAP physicians that is in 

addition to the circumstances described 

under § 414.908(a)(2). We specify that if 

the approved CAP vendor refuses to 

ship to the participating CAP physician 

because the conditions of § 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 § 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 § 414.908(b)(1), we specify the 

criteria we use to select an approved 

bidder. We are adding additional 

criteria. We are revising 

§ 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 

§ 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 § 414.908(b)(1)(x) to indicate that 

the approved CAP vendor must provide 

cost-sharing assistance. We are 

redesignating proposed 

§ 414.908(b)(1)(ix) as § 414.908(b)(1)(xi) 

with minor editorial revisions. 

At § 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 § 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 § 414.917.’’

At § 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 selfreferral (‘‘Stark’’) prohibition, the AntiKickback 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 § 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 § 414.914, we are adding 

additional conditions under the terms of 

the contract between the approved CAP 

vendor and us under new 

§ 414.914(f)(8), (f)(9), (f)(10), and (f)(11). 

We are adding a new § 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 costsharing 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 

§ 1003.101 of this title. The availability 

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

§ 414.916 to read ‘‘Dispute resolution 

process for vendors and beneficiaries.’’

Under § 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 § 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 

§ 414.916(b)(3), which indicated a 

participating CAP physician could 

select another approved CAP vendor 

while a reconsideration was pending. 

Under § 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 § 414.916(c)(9), we are 

clarifying our language regarding the 

final reconsideration determination. 

Under § 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 § 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 

§ 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 § 414.917. We are 

also redesignating the proposed 

paragraph (e) as new (d) under this 

section. 

We are adding a new § 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 § 414.916 and § 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 

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

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 (§ 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 § 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 

(§ 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 

§ 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 § 414.906(c)(2)(ii); provide 

information to the approved CAP 

vendor to facilitate collection of 

applicable deductible and coinsurance 

as described in § 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 (§ 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 (§ 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 

(§ 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 (§ 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. 

Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 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 Martin@omb.eop.gov. 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 

39090 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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. 

Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 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 Medicareapproved CAP vendor may be 

resupplied through the Medicareapproved 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 

39092 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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 

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

■ 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

■ 1. The authority citation for part 414 

continues to read as follows:

Authority: Secs. 1102, 1871, and 1881(b)(1) 

of the Social Security Act (42 U.S.C. 1302, 

1395hh, and 1395rr(b)(1)).

Subpart K—Payment for Drugs and 

Biologicals Under Part B

■ 2. Revise the heading of subpart K to 

read as set forth above.

■ 3. Amend § 414.900 by—

■ A. Revising the section heading.

■ B. Revising paragraph (a).

■ C. Revising paragraph (b)(3)(ii).

The revisions read as follows:

§ 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.

* * * * *

■ 4. Amend § 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.’’

§ 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 physicianadministered 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 

§ 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. 

39094 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

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.

* * * * *

■ 5. Amend § 414.904 by revising the 

section heading to read as follows:

§ 414.904 Average sales price as the basis 

for payment.

* * * * *

■ 6. Add § 414.906 to read as follows:

§ 414.906 Competitive acquisition program 

as the basis for payment. 

(a) Program payment. Beginning in 

2006, as an alternative to payment 

under § 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 § 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 § 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 § 414.902. 

(4) The participating CAP physician 

administered the drugs in an emergency 

situation, as defined in § 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 § 414.906(c).

■ 7. Add § 414.908 to read as follows:

§ 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 § 414.908(a)(2). 

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

§ 414.908(a)(2), if the approved CAP 

vendor refuses to ship to the 

participating CAP physician because the 

conditions of § 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 § 414.914(g). 

(xi) Other factors as determined by 

CMS. 

(2) Approved CAP vendors must also 

meet the contract requirements under 

§ 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 

§ 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.

■ 8. Add § 414.910 to read as follows:

39096 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

§ 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.

■ 9. Add § 414.912 to read as follows:

§ 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.

■ 10. Add § 414.914 to read as follows:

§ 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 § 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 § 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 selfreport 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 

§ 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 § 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 § 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 costsharing amounts through any one or all 

of the following: 

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

§ 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 

§ 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 § 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 § 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 

§ 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.

■ 11–12. § 414.916 to read as follows:

§ 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 § 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 

§ 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 

39098 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

(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.

■ 13. Add § 414.917 to read as follows:

§ 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 

§ 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 

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

■ 14. Add § 414.918 to read as follows:

§ 414.918 Assignment. 

Payment for a CAP drug may be made 

only on an assignment-related basis.

■ 15. Add § 414.920 to read as follows:

§ 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. 

39100 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

ADDENDUM A.—SINGLE DRUG CATEGORY LIST—Continued

HCPCS Long description 

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. 

Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 39101

ADDENDUM A.—SINGLE DRUG CATEGORY LIST—Continued

HCPCS Long description 

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. 

39102 Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Rules and Regulations 

ADDENDUM A.—SINGLE DRUG CATEGORY LIST—Continued

HCPCS Long description 

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