[Federal Register Volume 70, Number 223 (Monday, November 21, 2005)]
[Rules and Regulations]
[Pages 70478-70481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-22175]



[[Page 70477]]

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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 414



Medicare Program; Exclusion of Vendor Purchases Made Under the 
Competitive Acquisition Program (CAP) for Outpatient Drugs and 
Biologicals Under Part B for the Purpose of Calculating the Average 
Sales Price (ASP); Interim Final Rule

Federal Register / Vol. 70, No. 223 / Monday, November 21, 2005 / 
Rules and Regulations

[[Page 70478]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 414

[CMS-1325-IFC3]
RIN 0938-AN58


Medicare Program; Exclusion of Vendor Purchases Made Under the 
Competitive Acquisition Program (CAP) for Outpatient Drugs and 
Biologicals Under Part B for the Purpose of Calculating the Average 
Sales Price (ASP)

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

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period provides 
clarification and solicits comments on the relationship between drugs 
supplied under the Competitive Acquisition Program (CAP) for Part B 
Drugs and Biologicals and the calculation of Average Sales Price (ASP). 
(For purposes of this interim final rule, the term ``drug'' refers to 
drugs and biologicals.) This interim final rule with comment period 
also will exclude units of drugs supplied under the CAP from ASP 
calculations for a period of up to 3 years, at which time the policy 
will be re-evaluated. In addition, this rule revises the definition of 
unit to reflect the exclusion of units of CAP drugs administered to 
beneficiaries by participating CAP physicians.

DATES: Effective Date: November 21, 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 January 20, 2006.

ADDRESSES: In commenting, please refer to file code CMS-1325-IFC3. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four 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 regular 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-IFC3, P.O. Box 8017, Baltimore, MD 21244-8017.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send 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-IFC3, Mail Stop C4-26-05,7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. 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) 786-7197 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: Angela Mason (410) 786-7452 (for 
issues related to payment for covered outpatient drugs and 
biologicals). Corinne Axelrod (410) 786-5620 (for issues related to the 
competitive acquisition program (CAP) for Part B drugs).

SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments 
from the public on all issues set forth in this rule to assist us in 
fully considering issues and developing policies. You can assist us by 
referencing the file code CMS-1325-IFC3.
    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 comments 
received before the close of the comment period on a public Web site as 
soon as possible after they are 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.
    This Federal Register document is also available from the Federal 
Register online database through GPO Access a service of the U.S. 
Government Printing Office. The web site address is: http://www.access.gpo.gov/nara/index.html.
    Information on covered outpatient drugs and biologicals can be 
found at: http://www.cms.hhs.gov/providers/drugs/asp.asp.
    Information on the Competitive Acquisition Program can be found at: 
http://www.cms.hhs.gov/providers/drugs/compbid.
    Some of the issues discussed in this preamble affect the payment 
policies, but do not require changes to the regulations in the Code of 
Federal Regulations. Information on the regulation's impact appears 
throughout the preamble and is not exclusively in section IV.

I. Background

A. Average Sales Price (ASP)

    Section 303(c) of the Medicare Modernization Act (MMA) revised the 
drug payment methodology by creating a new pricing system based on a 
drug's ASP. Effective January 2005, Medicare pays for the vast majority 
of Part B covered drugs and biologicals using a drug payment 
methodology based on the ASP. In accordance with section 1847A of the 
Social Security Act (the Act), manufacturers submit the ASP data for 
their products to us on a quarterly basis. 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

[[Page 70479]]

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, less applicable deductible and 
coinsurance, and is updated quarterly.

B. Competitive Acquisition Program (CAP)

    Section 303(d) of the MMA provides for an alternative payment 
methodology to the ASP for certain Part B covered drugs that are not 
paid on a cost or prospective payment basis. The MMA amended Title 
XVIII of the Social Security Act by adding a new section 1847B, which 
established a competitive acquisition program for the acquisition of 
and payment for competitively-biddable Part B covered drugs. This 
program is anticipated to begin on July 1, 2006. At that time, 
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 the CAP were first described in the March 4, 2005 proposed rule 
(70 FR 10746).
    In response to the March 4, 2005 proposed rule, many commenters 
requested clarification about whether the prices determined under the 
CAP will be taken into account in computing the ASP under section 1847A 
of the Act. Most commenters recommended that purchases made under the 
CAP be excluded from the ASP calculation, although one commenter noted 
that the CAP was not included in the section 1847A(c)(2) of the Act 
list of sales that are exempt from the ASP calculation and, therefore, 
could not be excluded. Our response in the Competitive Acquisition 
Program of Outpatient Drugs and Biologicals under Part B interim final 
rule with comment period published July 6, 2005 (70 FR 39022) was that 
because the CAP was not included in the section 1847A(c)(2) of the Act 
list of sales that are exempt from the ASP calculation, we believed 
that sales to vendors made under the CAP must be included in the ASP.
    We received similar comments on the July 6, 2005 CAP interim final 
rule with comment period reiterating concern about including purchases 
made by vendors under the CAP in the ASP calculations and requesting 
that we change our interpretation of our statutory authority. Several 
commenters provided detailed legal arguments supporting the exclusion 
of purchases by vendors made under the CAP from the calculation of ASP.
    Some commenters argued that we could use our demonstration 
authority to exclude CAP prices from ASP. Other commenters took the 
position that we could use our authority to establish CAP drug 
categories to establish a category of drugs that are excluded from the 
ASP calculation. Several commenters argued that sales to approved CAP 
vendors should be considered excluded from the determination of ``best 
price'' under section 1927(c)(1)(C) of the Act and, by virtue of this 
exclusion, be excluded from the calculation of ASP. One commenter 
contended that sales to CAP vendors are excluded from best price 
because CAP vendors do not fit squarely into the list of entities 
contained in the definition of ``best price'' in section 
1927(c)(1)(C)(i) of the Act. Another commenter suggested that approved 
CAP vendors, as Medicare contractors, should be considered Federal 
purchasers exempt from the determination of best price under section 
1927(c)(1)(C)(i)(I-II) of the Act.
    Finally, several commenters stated that the intent of the Congress 
was to create two different and separate structures, with separate 
pricing, to provide physicians with a choice of programs. These 
commenters reference the language contained in section 1847A(a)(2) of 
the Act, which states that section 1847A ``shall not apply in the case 
of a physician who elects under subsection (a)(1)(A)(ii) of section 
1847B for that section to apply instead of this section for the payment 
for drugs and biologicals,'' and in section 1847B(a)(1)(A), which 
states that ``this section shall not apply in the case of a physician 
who elects section 1847A to apply.'' These commenters argue that this 
language, which is contained in both the ASP and CAP statutes, clearly 
indicates that the Congress intended the two programs to operate 
independently. These commenters assert that as independent programs, 
the pricing methodologies under ASP and the CAP should not be linked. 
These commenters further believe that including CAP prices in the 
calculation of ASP would undermine the CAP program by virtually 
eliminating any incentive that a manufacturer might have to offer 
discounts to CAP vendors.

II. Provisions of the Interim Final Rule

    [If you choose to comment on issues in this section, please include 
the caption ``PROVISIONS'' at the beginning of your comments.]
    Although we did not take a position on whether sales of CAP drugs 
should be part of the computation of the ASP, we were not convinced 
that we had the statutory authority to exclude sales of CAP drugs from 
the calculation of ASP. However, in response to the comments that we 
received on this issue, we revisited our analysis of our statutory 
authority. We do not find the commenters' arguments above regarding 
demonstration authority, best price, or the definition of categories 
entirely persuasive. However, we recognize the commenters' concerns 
about the effect of including CAP prices in the calculation of ASP and 
agree that the best outcome for both the ASP methodology and the CAP 
programs would be one in which prices under CAP did not affect payment 
amounts under the ASP methodology. In particular, we find compelling 
the commenters' arguments about the separation of the ASP and CAP 
programs and that the two programs are intended to be alternatives to 
each other. We acknowledge the possibility that the Congress intended 
the programs to be completely independent of each other. Therefore, as 
a result of our reassessment, and in accordance with our statutory 
authority, including our authority under section 1847A(b)(2)(B) of the 
Act to establish methods for counting units, we have decided to 
exclude, for the initial 3-year contract period under the CAP, units of 
CAP drugs that are administered to beneficiaries by participating CAP 
physicians. In light of Congress's intent to give physicians a choice 
between the two programs, we believe the relationship between the CAP 
and the ASP methodology represents a unique circumstance. We believe it 
is appropriate to implement this exclusion from the ASP calculation 
because this exclusion is necessary for implementing the CAP, a program 
that the Congress has expressly identified as an alternative to the ASP 
payment methodology. We intend to examine the effect of this exclusion 
and, if necessary, revisit our decision at the end of the initial 3-
year period of the CAP.
    Because CAP prices will not be included in the ASP calculation for 
at least the first 3 years of the CAP, we are revising Sec.  414.802 
(definition of unit) to reflect the exclusion of units of CAP drugs 
administered to beneficiaries by participating CAP physicians.
    Manufacturers also must exclude rebates and lagged price 
concessions attributable to units of CAP drugs administered to a 
beneficiary by a

[[Page 70480]]

participating CAP physician when using the estimation methodology 
specified in Sec.  414.804. (To assist manufacturers in the 
implementation of this exclusion, we are requiring approved CAP vendors 
to provide manufacturers with information necessary to determine which 
sales to the approved CAP vendor are sales of CAP drugs that are 
excluded from the ASP calculation. This requirement will be reflected 
in the approved CAP vendor's contract with CMS.) We welcome further 
comment on the exclusion of CAP drug units from the calculation of the 
ASP. We also seek comment on accounting for this exclusion when 
estimating lagged price concessions. We will provide additional 
guidance regarding lagged price concessions in a future ASP document. 
For the reasons stated in section IV. of this preamble, these changes 
to the calculation of the ASP are effective upon publication of this 
interim final rule with comment period. However, because there will not 
be any excludable CAP units until the CAP begins, which we expect to 
occur on July 1, 2006, this exclusion will not affect manufacturers' 
calculation of ASP until the third quarter of 2006.
    After the initial 3-year period of the CAP, we will evaluate the 
impact on approved CAP vendors, manufacturers, and others of excluding 
units supplied under the CAP from the calculation of ASP. If there 
appears to be a reason not to continue to exclude units supplied under 
the CAP from the calculation of ASP, we will undertake rulemaking to 
describe our findings and conclusions and to seek public comment.

III. Response to Comments

    Because of the large number of 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.

IV. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued.
    We find good cause to waive the requirement for publication of a 
notice of proposed rulemaking and public comment on the grounds that it 
is contrary to the public interest. We have re-examined our statutory 
authority and have determined that both the CAP and ASP payment 
methodologies are best served by excluding units supplied under the CAP 
from the calculation of ASP for an initial period of 3 years. We 
believe that excluding CAP drug units from the ASP calculation will 
give manufacturers an incentive to provide discounts to approved CAP 
vendors that will, in turn, result in lower prices under the CAP. 
However, unless it is implemented immediately, any beneficial effects 
of this policy could not be achieved, because it would not be effective 
in time to allow vendor applicants to take it into consideration as 
they prepare their CAP bids. In order to comply with the statutory 
mandate that the CAP begin in 2006, the bidding process for the CAP 
must commence in time to allow vendors sufficient time to formulate 
their bids, to allow us to assess the bids and vendor applications and 
select the approved CAP vendors, and to allow physicians a meaningful 
opportunity to review and select an approved CAP vendor. For this 
reason, it is necessary that policies affecting the CAP bidding process 
be in place now.
    In addition, the Administrative Procedure Act normally requires a 
30-day delay in the effective date of a final rule. This delay may be 
waived if an agency for good cause finds that the 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))
    We find that good cause exists to waive the 30-day delay so that 
this rule takes effect immediately upon publication in the Federal 
Register. As noted above, to comply with the statutory mandate that the 
CAP begin in 2006, 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. An effective date of November 21, 
2005 will ensure that the selection of CAP vendors can proceed and will 
afford the approved CAP vendors needed time to prepare for the 
enrollment of physicians and education of beneficiaries concerning the 
CAP program in time for the anticipated CAP start date, July 1, 2006.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-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:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> 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.
    In summary, this interim final rule with comment period requires 
manufacturers of Medicare Part B covered drugs paid under sections 
1847A, 1842(o)(1)(D), or 1881(b)(13)(A)(iii) of the Act to exclude all 
units supplied under the CAP from their calculation of ASP as well as 
adjust for this exclusion in their estimation of rebates and lagged 
price concessions using the estimation methodology. This interim final 
rule with comment period lays out the specifications for complying with 
these requirements.
    The burden associated with the requirements in this rule is the 
time and effort required by manufacturers of Medicare Part B drugs to 
prepare and submit the required data to CMS. While these requirements 
are subject to the PRA, this requirement is currently approved under 
OMB control number 0938-0921, with a current expiration date of 
September 30, 2007.
    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 and Issuances Group, Attn: 
William Parham, CMS-1325-IFC3, Room C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850; and Office of Information

[[Page 70481]]

and Regulatory Affairs, Office of Management and Budget, Room 10235, 
New Executive Office Building, Washington, DC 20503, Attn: Brenda 
Aguilar, CMS Desk Officer, <a href="/cdn-cgi/l/email-protection#aac8cbdbdfc3c6cbd8eac5c7c884cfc5da84cdc5dc"><span class="__cf_email__" data-cfemail="3d5f5c4c4854515c4f7d52505f1358524d135a524b">[email protected]</span></a>. Fax (202) 395-6974.

VI. Regulatory Impact

    [If you choose to comment on issues in this section, please include 
the caption ``IMPACT'' at the beginning of your comments.]
    We have examined the impact 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 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 ($100 million or more in any 1 year). Because this 
rule clarifies the reporting requirements for ASP data and does not 
affect actual payment, it does not reach the economic threshold and 
thus is not considered a major 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 government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $6 
million to $29 million in any 1 year. Individuals and States are not 
included in the definition of a small entity. We are not preparing an 
analysis for the RFA because we have determined that this rule will not 
have a significant economic impact on a substantial number of small 
entities.
    In addition, section 1102(b) of the 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 hospitals. This 
analysis must conform to the provisions of section 604 for final rules 
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 Core-
Based Statistical Area and has fewer than 100 beds. We are not 
preparing an analysis of section 1102(b) of the Act because we have 
determined that this rule will not have a significant impact on the 
operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $120 million. While this interim final 
rule with comment period does implement a new data reporting 
requirement for drug manufacturers, the costs associated with this 
requirement are expected to be below the $120 million annual threshold 
established by section 202 of the Unfunded Mandates Reform Act.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. This regulation does not impose any costs on State or 
local governments, and there is no direct effect on States, or the 
relationship between the national government and the States, or the 
distribution of power or responsibilities between the national and 
State or local governments, and, therefore, the requirements of E.O. 
13132 are not applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 414

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

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

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

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

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

Subpart J--Submission of Manufacturer's Average Sales Price Data

0
2. Section 414.802 is amended by revising the definition of ``unit,'' 
to read as follows:


Sec.  414.802  Definitions.

* * * * *
    Unit means the product represented by the 11-digit National Drug 
Code. During the first 3 years of the CAP (as defined in Sec.  
414.902), the method of counting units excludes units of CAP drugs (as 
defined in Sec.  414.902) administered to a beneficiary by a 
participating CAP physician (as defined in Sec.  414.902).

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

    Dated: November 1, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 1, 2005.
Michael O. Leavitt,
Secretary.
[FR Doc. 05-22175 Filed 11-2-05; 5:07 pm]
BILLING CODE 4120-01-P


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