[Federal Register Volume 69, Number 239 (Tuesday, December 14, 2004)]
[Rules and Regulations]
[Pages 74451-74453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-27341]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Part 1003

RIN 0991-AB30


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

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

ACTION: Final rule.

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

DATES: The interim rule amending 42 CFR part 1003 became effective on 
June 18, 2004.

FOR FURTHER INFORMATION CONTACT: Joel Schaer, Office of External 
Affairs, (202) 619-0089.

SUPPLEMENTARY INFORMATION:

I. Background

A. OIG Civil Money Penalties

    In 1981, Congress enacted the civil money penalty statute, section 
1128A of the Social Security Act (the Act) (42 U.S.C. 1320a-7a), as one 
of several administrative remedies to combat increases in fraud and 
abuse. The civil money penalty (CMP) law authorized the HHS Secretary 
and the Inspector General to impose CMPs and program exclusions on 
individuals and entities whose wrongdoing caused injury to HHS programs 
or their beneficiaries. Since 1981, the CMP provisions have been 
expanded to apply by reference to numerous types of fraudulent and 
abusive activities.

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

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

[[Page 74452]]

Medicare & Medicaid Services (CMS) on December 15, 2003 (68 FR 
69840).\2\
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    \2\ Section 902 of MMA has established timelines for the 
publication of the Medicare rules under section 1871(a) of the Act. 
This provision requires CMS to publish a final rule within 3 years 
of the publication of the interim final rule.
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1. Eligibility Procedures and Enrollment
    Sections 1860D-31(b)(1) and (2) of the Act, and 42 CFR 403.810(a) 
and (b) of the CMS regulations, establish the eligibility criteria for 
the Medicare drug discount card program and for transitional 
assistance. Section 1860D-31(f)(1)(A) of the Act directs the Secretary 
to specify the procedures for determining a beneficiary's eligibility 
for the Medicare drug discount card program or transitional assistance, 
and section 1860D-31(c)(1) directs the Secretary to establish a process 
for eligible beneficiaries enrolling in, and disenrolling from, an 
endorsed program. These provisions have been codified, respectively, in 
42 CFR 403.810 and 403.811 of the CMS regulations.
2. Endorsed Sponsors
    Section 1860D-31(a)(1)(A) of the Act requires the Secretary to 
endorse qualified applicants seeking to offer endorsed discount card 
programs to Medicare beneficiaries. MMA sets forth specific 
requirements that applicants must satisfy to be eligible for 
endorsement and that endorsed sponsors must meet to retain their 
endorsement. The obligations of endorsed sponsors related to 
eligibility determinations and enrollment are specifically set forth in 
section II.C.6. of the preamble to the interim final rule.
3. Transitional Assistance
    Under MMA, certain low-income Medicare beneficiaries enrolled in 
the Medicare drug discount card program are eligible to receive 
transitional assistance of up to $600 per year, which may be applied 
toward the cost of covered discount card drugs obtained under the 
program. Section 1860D-31(h)(1)(C) of the Act requires endorsed 
sponsors to administer the transitional assistance on behalf of CMS and 
to demonstrate to the Secretary that they have satisfactory 
arrangements to account for the transitional assistance provided to 
transitional assistance enrollees. These requirements are codified in 
42 CFR 403.806(e).
4. Information and Outreach
    Section 1860D-31(d)(2)(A) of the Act requires that each 
prescription drug card endorsed sponsor that offers an endorsed 
discount card program make available to beneficiaries eligible for the 
discount card program--through the internet and otherwise--information 
that the Secretary identifies as being necessary to promote informed 
choice among endorsed discount card programs, including information on 
enrollment fees and negotiated prices for covered discount card drugs. 
In addition, section 1860D-31(h)(7)(A) of the Act limits drug card 
endorsed sponsors to providing under their endorsements only products 
and services directly related to covered discount card drugs, or 
discounts on over-the-counter drugs; and section 1860D-31(h)(7)(B) 
prohibits endorsed sponsors from marketing, under their endorsements, 
any products and services other than those described in section 1860D-
31(h)(7)(A). The requirements for information to be included in 
materials are contained in the CMS regulations at 42 CFR 403.806(g).

C. Civil Money Penalties Under Public Law 108-173

    Section 1860D-31(i)(3) of the Act authorizes the imposition of CMPs 
against endorsed sponsors that knowingly engage in conduct that 
violates the requirements of section 1860D-31 of the Act or engage in 
false or misleading marketing practices. Section 403.820(b) of the CMS 
regulations interpreted this to mean that those endorsed sponsors that 
knowingly engage in conduct that violates the conditions of their 
endorsement agreement with the Department or that constitutes false or 
misleading marketing practices may be subject to CMPs.
    The Department has divided the sanction authority between CMS and 
OIG. Where CMP authority is shared between CMS and OIG, the Department 
has assigned sanction authority to OIG for those violations that 
concern misleading or defrauding a beneficiary. The Department also 
assigned sanction authority to OIG for misuse of transitional 
assistance funds.\3\ On the other hand, CMS has the authority to impose 
CMPs in those instances where the endorsed sponsor's conduct 
constitutes non-compliance with an operational requirement not directly 
related to beneficiary protection. (Section 403.820(b)(2) of the CMS 
regulations sets forth a full listing of the CMS CMP authorities 
related to the Medicare prescription drug card program.)
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    \3\ Transitional assistance, as defined in Sec.  403.802 of the 
CMS regulations, refers to the subsidy funds that transitional 
enrollees may apply toward the cost of covered discount card drugs 
in the manner described in Sec.  403.808(d).
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    As a result, in accordance with CMS's Medicare prescription drug 
discount card implementing regulations (68 FR 69787; December 15, 
2003), in addition to or in place of sanctions that CMS may impose, as 
set forth in 42 CFR 403.820(a), OIG has been authorized to impose CMPs 
against an endorsed sponsor whom it determines knowingly (as defined in 
42 CFR 1003.102(e)):
    <bullet> Misrepresented or falsified information in outreach 
material or comparable material provided to a program enrollee or other 
person;
    <bullet> Charged a program enrollee in violation of the terms of 
the endorsement contract; or
    <bullet> Used transitional assistance funds in any manner that is 
inconsistent with the purpose of the transitional assistance program.
    OIG may impose CMPs of no more than $10,000 for each of these 
violations. A violation is deemed to occur in each instance when an 
endorsed sponsor (1) provides misleading information to a program 
enrollee or other person; (2) overcharges a program enrollee; or (3) 
misuses the transitional assistance funds of a program enrollee. Appeal 
rights will be afforded in accordance with the appeal procedures set 
forth in 42 CFR parts 1003 and 1005.

II. Summary Provisions of the Interim Final Rule With Comment Period

    On May 19, 2004, we published in the Federal Register (69 FR 28842) 
an interim final rule with comment period to address these new OIG 
civil money penalty authorities. The interim final rule amended 42 CFR 
part 1003 as follows:
    <bullet> In Sec.  1003.100, Basis and purpose, we revised 
paragraphs (a) and (b) to state the broad purpose of these new CMP 
authorities.
    <bullet> In Sec.  1003.101, Definitions, we added a definition for 
the term ``transitional assistance,'' consistent with the definition in 
42 CFR 403.802.
    <bullet> In Sec.  1003.102, Basis for CMPs and assessments, we 
added new paragraphs (b)(17), (b)(18) and (b)(19) to cross-reference 
the implementing CMS regulations and OIG's authority to impose 
penalties for violations.
    <bullet> In Sec.  1003.103, Amount of penalty, we added a new 
paragraph (k) to address the $10,000 maximum penalty amounts for each 
of these violations.
    The interim final rule noted that in addition to the CMPs set forth 
above, a card sponsor's misuse of the Medicare name or emblem may 
subject them to CMPs in accordance with 42 U.S.C.

[[Page 74453]]

1320b-10 and OIG regulations at Sec.  1003.102(b)(7), which prohibit 
the misuse of the Medicare name and emblem. In general, in accordance 
with the statute and the implementing regulations, OIG may impose 
penalties on any person who misuses the term ``Medicare,'' or other 
names associated with DHHS in any item constituting a communication in 
a manner which the person knows or should know gives the false 
impression that the item is approved, endorsed, or authorized by the 
Department. Violators are subject to fines of up to $5,000 per 
violation or, in the case of a broadcast or telecast violation, 
$25,000.

III. Analysis of and Responses to Public Comments

    We received no public comments in response to the May 19, 2004 
interim final rule.

IV. Provisions of the Final Regulations

    The provisions of this final rule are identical to the provisions 
of the May 19, 2004 interim final rule with comment period.

V. Regulatory Impact Statement

A. Regulatory Analysis

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

B. Paperwork Reduction Act

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

List of Subjects in 42 CFR Part 1003

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

PART 1003--CIVIL MONEY PENALTIES, ASSESSMENTS AND EXCLUSIONS

0
Accordingly, the interim final rule with comment period amending 42 CFR 
part 1003, which was published on May 19, 2004 in the Federal Register 
at 69 FR 28842-28846 is adopted as a final rule without change.

    Dated: August 23, 2004.
Lewis Morris,
Chief Counsel to the Inspector General.

    Approved: November 9, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-27341 Filed 12-13-04; 8:45 am]
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