[Federal Register Volume 75, Number 193 (Wednesday, October 6, 2010)]
[Rules and Regulations]
[Pages 61621-61623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25043]


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

DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 17

RIN 2900-AN15


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

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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

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

DATES: Effective Date: This final rule is effective on March 18, 2011.
    Applicability Date: The final rule will apply to prescriptions 
filled on or after March 18, 2011.

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

SUPPLEMENTARY INFORMATION: Under 38 U.S.C. 1729, VA has the right to 
recover or collect reasonable charges for medical care or services 
(including the provision of prescription drugs) from a third party to 
the extent that the veteran or the provider of the care or services 
would be eligible to receive payment from the third party for:
    <bullet> A nonservice-connected disability for which the veteran is 
entitled to care (or the payment of expenses of care) under a health 
plan contract, 38 U.S.C. 1729(a)(2)(D), 38 CFR 17.101(a)(1)(i);
    <bullet> A nonservice-connected disability incurred incident to the 
veteran's employment and covered under a worker's compensation law or 
plan that provides reimbursement or indemnification for such care and 
services, 38 U.S.C. 1729(a)(2)(A), 38 CFR 17.101(a)(1)(ii); or
    <bullet> A nonservice-connected disability incurred as a result of 
a motor vehicle accident in a State that requires automobile accident 
reparations (no-fault) insurance, 38 U.S.C. 1729(a)(2)(B), 38 CFR 
17.101(a)(1)(iii).
    However, under current 38 CFR 17.101(a)(4), which implements 38 
U.S.C. 1729(c)(2)(B), a third-party payer liable for such medical care 
and services under a health plan contract has the option of paying, to 
the extent of its coverage, either the billed charges or the amount the 
third-party payer demonstrates it would pay for care or services 
furnished by providers other than entities of the United States for the 
same care or services in the same geographic area.
    Prior to the effective date of this document, VA billed for 
prescription drugs not administered during treatment based on the sum 
of two components: (1) The national average of VA's drug costs for all 
prescriptions, and (2) the national average of VA's administrative 
costs associated with furnishing prescription drugs. Further, in 
accordance with Sec.  17.102(h), prior to the effective date of this 
document, VA billed $51 for each prescription filled (see 70 FR 66866, 
Nov. 3, 2005).
    In a document published in the Federal Register on July 9, 2009 (74 
FR 32819), we proposed to change the billing methodology for 
prescription drugs not administered during treatment. With respect to 
the portion of the billing concerning VA's cost for such prescription 
drugs, we proposed to bill based on the actual cost to VA of each 
prescription drug rather than the national average of drug costs for 
all prescriptions. In this regard, we proposed to bill the total of:

[[Page 61622]]

    <bullet> The actual cost to VA for prescription drugs (i.e., the 
cost to the facility that purchased the drugs); and
    <bullet> The average national administrative cost associated with 
dispensing the drugs for each prescription.
    We provided a 30-day comment period that ended on August 10, 2009. 
We received comments from three commenters and the issues they raised 
are discussed below. Based on the rationale set forth in the proposed 
rule and this document, we are adopting the proposed rule with the 
nonsubstantive changes discussed below.
    Two commenters indicated that the final rule should ensure that 
insurance companies pay VA in response to VA billing, and thereby 
reduce or eliminate the veterans' copayment. We agree that the payment 
practices of third-party payers need to be addressed. However, those 
practices are not within the scope of this rulemaking. This rulemaking 
concerns VA's methodology for determining reasonable charges for 
prescription drugs. We did not propose to amend other VA regulations 
regarding third-party payment procedures or to promulgate new 
regulations regarding such procedures. However, we intend to separately 
publish a proposed rule to address issues regarding requirements for 
third-party payers making payments to VA.
    Another commenter raised a number of issues. All of these issues 
are discussed below.
    The commenter indicated that the VA acquisition cost for 
prescription drugs could be more than the third-party payer cost for 
the same prescription drugs and seemed to suggest that the billing 
amount for the cost of the drugs should not be more than the amount 
that the third-party payer would be required to pay for the same 
prescription drugs. The commenter also indicated that the VA 
administrative fee of $11.17 is more than the average private 
dispensing fee and that private industry has been successful in 
negotiating such fees in the range of $1.50 to $2.00. We clarified what 
is meant by administrative costs but made no other changes based on 
these comments.
    Under the provisions of 38 U.S.C. 1729, VA has authority to bill 
third-party payers in an amount constituting ``reasonable charges.'' We 
believe that the billing formula is warranted under the statute. 
Moreover, VA has taken steps to keep costs at a minimum.
    In most cases VA purchases drugs in bulk at discounted prices. 
Also, insofar as possible, VA prescribes generic drugs.
    Further, the $1.50 to $2.00 amounts quoted by the commenter were 
represented as negotiated fees and not represented as covering the 
actual administrative costs. We question whether these negotiated fees 
include all of the actual administrative costs. The VA administrative 
costs include general overhead costs, such as costs of buildings and 
maintenance, utilities, billing, and collections, and includes 
dispensing costs, such as costs of the labor of the pharmacy 
department, packaging, and mailing.
    Even so, in some cases, a third party payor may be allowed to pay 
less than the VA billed amount. In this regard, under section 1729 a 
third party payor has the option of paying, to the extent of its 
coverage, either the billed charges or the amount the third-party payor 
would pay for the prescription drugs to private sector providers in the 
same geographic area. Accordingly, this alternative will continue to be 
available to third party payors in accordance with the statutory 
mandate (see 38 CFR 17.101(a)(4)).
    The commenter questioned how VA will determine the price point 
within the drug file and how this information will be communicated to 
health plan payers. We made no changes based on this comment. The 
proposed rule stated that the prescription cost will be obtained from 
the Outpatient Pharmacy Prescription file or the Drug file at each VA 
facility (74 FR 32820). The product cost of the prescription will be 
calculated using the most recent purchase price of the product used by 
VA to fill the prescription. VA's bill will reflect the cost of the 
drugs, taking into consideration the quantity dispensed and VA's 
national administrative cost. The total prescription cost will be 
transmitted on a bill to a third-party payer.
    In addition, the commenter also questioned what billing claim field 
VA will use for submitting cost information. We made no changes based 
on this comment. VA will combine the drug costs plus administrative 
costs and provide the total prescription cost in the appropriate field 
in the form submitted, e.g., National Council for Prescription Drug 
Programs electronic format, UB04; Centers for Medicare and Medicaid 
Services (CMS) 1500.
    The commenter also suggested that VA have a graduated or phased 
implementation so that third-party payers will have time to absorb the 
increased cost of payments. We do not believe that a graduated or 
phased implementation is necessary. Although payments made to VA by 
third party payors will represent an increase in the amount of 
collections, we believe that the overall impact on third party payors 
will be minimal. In 2009, U.S sales of prescription drugs totaled 
approximately $300.3 billion. In contrast, VA spent an estimated 4.9 
billion on prescription drugs in 2009 (less than 2 per cent of the 
total sales). A large portion of the prescription drugs distributed in 
the U.S. are covered by third party payors. However, with or without 
the changes made by this rule, VA would have collected less than $200 
million in 2009 from third party payors.
    Not only do we believe that the overall impact to third party 
payors will be minimal because of VA's minimal share, but as noted 
above, in some cases a third party payor may be allowed to pay less 
than the VA billed amount based on the provisions in section 1729 which 
provide that a third party payor has the option of paying, to the 
extent of its coverage, either the billed charges or the amount the 
third-party payor would pay for the prescription drugs to private 
sector providers in the same geographic area.
    The commenter suggested that the final rule become effective only 
prospectively, questioned when the changes will become effective, and 
expressed concerns regarding when VA will make system changes necessary 
to implement the final rule. We agree with the commenter that the new 
billing methodology should not be applied retrospectively. This final 
rule is effective March 18, 2011. The system changes are scheduled to 
be in place on that date. For further clarification, we have added in 
the DATES section of this document a statement indicating that the 
final rule will apply to prescriptions filled on or after the effective 
date of this final rule. This will also provide some lead time for 
third party payors to prepare for compliance with the amended 
regulations.
    We also added a clarifying change in paragraph (m). We inserted 
``regarding VA charges'' after ``Notwithstanding other provisions of 
this section'' to emphasize that paragraph (m) does not concern other 
aspects of Sec.  17.101, such as the provisions of 38 CFR 17.101(a)(4), 
which explain that a third-party payer's liability is limited, to the 
extent of its coverage, to the lesser of the billed charges or the 
amount that the third-party payer would pay to a provider other than 
VA.
    As required by 38 U.S.C. 1729(c)(2)(A), we consulted with the 
Comptroller General of the United States prior to promulgating this 
final rule.

[[Page 61623]]

Unfunded Mandates

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

Paperwork Reduction Act

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

Executive Order 12866

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

Regulatory Flexibility Act

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

Catalog of Federal Domestic Assistance Numbers

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

List of Subjects in 38 CFR Part 17

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

    Editorial Note: This document was received in the Office of the 
Federal Register on September 30, 2010.

    Approved: January 11, 2010.
John R. Gingrich,
Chief of Staff, Department of Veterans Affairs.

0
For the reasons stated in the preamble, VA amends 38 CFR part 17 as 
follows:

PART 17--MEDICAL

0
1. The authority citation for part 17 continues to read as follows:

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


0
2. Revise the second sentence of paragraph (a)(2) and paragraph (m) of 
Sec.  17.101 to read as follows:


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

    (a) * * *
    (2) * * * In addition, the charges billed for prescription drugs 
not administered during treatment will be the amount determined under 
paragraph (m) of this section. * * *
* * * * *
    (m) Charges for prescription drugs not administered during 
treatment. Notwithstanding other provisions of this section regarding 
VA charges, when VA provides or furnishes prescription drugs not 
administered during treatment, within the scope of care referred to in 
paragraph (a)(1) of this section, charges billed separately for such 
prescription drugs will consist of the amount that equals the total of 
the actual cost to VA for the drugs and the national average of VA 
administrative costs associated with dispensing the drugs for each 
prescription. The actual VA cost of a drug will be the actual amount 
expended by the VA facility for the purchase of the specific drug. The 
administrative cost will be determined annually using VA's managerial 
cost accounting system. Under this accounting system, the average 
administrative cost is determined by adding the total VA national drug 
general overhead costs (such as costs of buildings and maintenance, 
utilities, billing, and collections) to the total VA national drug 
dispensing costs (such as costs of the labor of the pharmacy 
department, packaging, and mailing) with the sum divided by the actual 
number of VA prescriptions filled nationally. Based on this accounting 
system, VA will determine the amount of the average administrative cost 
annually for the prior fiscal year (October through September) and then 
apply the charge at the start of the next calendar year.
* * * * *
[FR Doc. 2010-25043 Filed 10-5-10; 8:45 am]
BILLING CODE 8320-01-P