Medicare Program; Competitive Acquisition of Outpatient Drugs and Biologicals Under Part B, 10746-10773 [05-3992]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 70, Number 42 (Friday, March 4, 2005)]
[Proposed Rules]
[Pages 10746-10773]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-3992]



[[Page 10745]]

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

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; Proposed Rule

Federal Register / Vol. 70, No. 42 / Friday, March 4, 2005 / Proposed 
Rules

[[Page 10746]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 414

[CMS-1325-P]
RIN 0938-AN58


Medicare Program; Competitive Acquisition of Outpatient Drugs and 
Biologicals Under Part B

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

ACTION: Proposed rule.

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

SUMMARY: This proposed rule would implement 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. We are 
seeking comments on which of the proposed approaches we should use to 
implement the competitive acquisition program as well as the criteria 
and standards that should be applied in the selection and enrollment of 
vendors.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on April 26, 2005.

ADDRESSES: In commenting, please refer to file code CMS-1325-P. 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 https://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-
P, P.O. Box 8010, Baltimore, MD 21244-8010.
    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) 786-6508.

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-P 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. CMS posts all electronic 
comments received before the close of the comment period on its public 
website 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 can be found on 
the CMS homepage. You can access this data by going to the following 
Web site: https://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. History of the Current Payment System
    C. Revised Drug Payment Methodology
    D. Competitive Acquisition Program (CAP)
II. Provisions of the Proposed Rule
    A. Policies 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 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. Collection of Information Requirements
IV. Response to Public Comments
V. Regulatory Impact Analysis
    A. Anticipated Effects
    B. Impact of Establishment of a Competitive Acquisition Program
    C. Alternatives Considered
    D. Impact on Beneficiaries Regulations Text

    In addition, because of the many organizations and terms to which 
we refer by acronym in this proposed rule, we are listing these 
acronyms and their corresponding terms in alphabetical order below.

Alphabetical List of Acronyms Appearing in the Proposed Rule

ASP--Average sales price.

[[Page 10747]]

AWP--Average wholesale price.
BBA--Balanced Budget Act of 1997, Public Law 105-33.
CAP--Competitive Acquisition Program.
CFR--Code of Federal Regulations.
CMS--Centers for Medicare & Medicaid Services (formerly Health Care 
Financing Administration).
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.
PIN--Provider identification number.
PSCs--Program Safeguard Contractors.
RFA--Regulatory Flexibility Act (September 19, 1980, Public Law 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 proposed rule, 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
    These are injectable or intravenous drugs that are administered 
incident to a physician's service (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 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 coverage to drugs that 
are not usually self-administered. Examples include injectable prostate 
cancer drugs (such as lupron acetate for depot suspension, goserelin 
acetate implant), 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 used to treat rheumatoid 
arthritis, and rituximab used to treat non-Hodgkin's lymphoma.
2. Durable Medical Equipment (DME) Drugs
    These are drugs that 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 
drug payment methodology for all or some of the Medicare covered drugs 
they furnish include: physicians, 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 proposed 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. History of the Current Payment System

    In the June 5, 1991 physician fee schedule proposed rule (56 FR 
25792), we proposed that the drug payment limit be based on 85 percent 
of the national average wholesale price (AWP) of the drug. For very 
high volume drugs, we proposed that the drug payment limits be based on 
the lesser of the 85 percent of the AWP or the estimated acquisition 
cost (EAC) of the drugs. Based on comments received, the 1992 physician 
fee schedule final rule established a payment limit based on the lower 
of 100 percent of AWP or the EAC. However, the EAC proved to be 
unworkable and was never implemented. Various legislative proposals 
were submitted to move away from payment based on 100 percent of AWP, 
including changing the percentage of AWP to a lower amount. In 1997, 
the Congress amended the Act to limit payment for drugs not paid on a 
cost or prospective payment basis to the lower of the actual charge or 
95 percent of AWP (section 1842(o)(1) of the Act as added by section 
4556 of the Balanced Budget Act of 1997 (BBA 1997) (Pub. L. 105-33)).
    Numerous reports by the General Accounting Office (GAO), and the 
Office of Inspector General (OIG), as well as data collected by the 
Department of Justice (DOJ), indicated that 95 percent of list AWP 
reflected in published compendia is significantly higher than the 
prices that drug manufacturers, wholesalers, physician supply houses, 
specialty pharmacies, and similar entities actually charge to 
physicians and other suppliers purchasing these drugs.

C. Revised Drug Payment Methodology

    Based on these numerous reports conducted by the OIG and the GAO as 
well as the data collected by the DOJ

[[Page 10748]]

that identified the well-documented flaws in the AWP drug payment 
system, significant changes were made to the manner in which Medicare 
Part B pays for covered drugs.
    The MMA revised the drug payment methodology 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.
    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 all the 
manufacturer's sales of a drug to all purchasers in the United States 
in a calendar quarter (excluding certain sales exempted by statute) and 
the total number of units of the drug sold by the manufacturer in that 
same quarter, 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.

D. 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 
competitively biddable Part B covered drugs under the ASP drug payment 
methodology. 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 proposed rule.
    The competitive acquisition program 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 non-payment 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 and that drug coinsurance can represent 
large amounts for a beneficiary and physician. The competitive 
acquisition program eliminates the need for physicians to collect 
coinsurance on CAP drugs from Medicare beneficiaries.

II. Provisions of the Proposed Rule

A. Policy for the CAP

1. General Overview of the CAP
    [If you choose to comment on issues in this section, please include 
the caption ``Overview of the CAP'' at the beginning of your comments.]
Implementation
    To implement the CAP, we need to complete a number of activities 
prior to 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 and described 
elsewhere in this proposed rule.
    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'.
Activities Prior to the Issuance of This Proposed Rule
    Subsequent to the enactment of the MMA, we initiated the following 
activities to enable us to implement the statutory provisions of 
section 1847B of the Act:

--We awarded a contract to Research Triangle Institute (RTI) to obtain 
information and develop alternatives regarding the implementation of a 
drug and biological competitive bidding program. As part of this 
contract, RTI consulted with groups representing beneficiaries, 
physicians and suppliers, drug suppliers, and drug manufacturers to 
obtain input on the implementation of this MMA provision.
--We conducted a Special Open Door Listening Session on April 1, 2004, 
to gather additional input, and to allow interested parties to hear and 
be heard by other members of the healthcare industry.
--We established an electronic mailbox, MMA303DDrugBid@cms.hhs.gov, for 
interested parties to submit comments on the CAP program prior to the 
issuance of this proposed rule.
--We issued a Request for Information (RFI) on December 13, 2004. The 
purpose of this RFI was to assess the public's interest in bidding on 
contracts to supply drugs and biologicals for the CAP. In reply to the 
RFI, we received 15 responses expressing an interest to participate in 
the CAP. Most responders indicated a willingness to provide selected 
Part B drugs on a national basis. Responders also provided information 
regarding the types of drugs they would be most interested in providing 
within the selected jurisdictions. Four responders indicated a 
willingness to provide nearly all the drugs listed on the RFI.
    In the specialty areas of oncology, hematology, internal medicine, 
infectious disease, urology, rheumatology, and obstetrics/gynecology, 
several responders indicated a willingness to provide the most costly 
and the most frequently used drugs in these areas. In addition, some 
responders indicated an interest in providing drugs or biologicals in 
the areas of oncology, hematology, pulmonary, and neurology.

[[Page 10749]]

Regulations
    We propose to codify the requirements and provisions for the CAP in 
regulations at 42 CFR Part 414, Subpart K. We propose to revise the 
heading for subpart K to read ``Payment for Drugs and Biologicals under 
Part B''. We also propose to 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 are 
proposing to revise existing Sec.  414.900, which sets forth the basis 
and scope for subpart K, to provide that the regulations in this 
subpart implement sections 1847A and 1847B of the Act. In the examples 
of drugs at Sec.  414.900, we propose to revise paragraph (b)(ii) to 
clarify that the hepatitis vaccine referred to in this paragraph is the 
hepatitis ``B'' vaccine. Under this subpart, we propose to add new 
Sec.  414.906 through Sec.  414.920 to address requirements with 
respect to payment under the CAP. We also are revising Sec.  414.902 to 
add definitions pertaining to the new CAP addressed in new Sec.  
414.906 through Sec.  414.920.
2. Categories of Drugs To Be Included Under the CAP
    [If you choose to comment on issues in this section, please include 
the caption ``Categories of Drugs to be Included under the CAP'' at the 
beginning of your comments.]
    Section 1847B of the Act describes a program that will permit 
physicians to elect to obtain drugs from contractors 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, the mechanisms described in the statute include the following:
     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 section 1874B 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 vendor 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 submission of information that will be used by the 
vendor 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 vendors.
     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 
such drugs and biologicals--
    (1) Is not likely to result in significant savings; or
    (2) Is likely to have an adverse impact on access to such 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.'' 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 in the CAP 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. There may be an alternative reading of the 
statute, under which the CAP is properly restricted to drugs 
administered incident to a physician's service. We welcome comments on 
this issue.
    Using our authority to establish drug categories and to phase in 
the CAP as appropriate, we could include in the CAP all drugs 
administered by physicians, or, for an initial period, only drugs that 
are usually administered by one or more physician specialties (for 
example, oncology or rheumatology). The CAP could be phased in with 
respect to categories of drugs in any number of ways. A phase-in could, 
for example, begin with drugs that are usually administered by 
oncologists, and later be extended to include all drugs administered by 
physicians. Given our concerns about the clear direction of the statute 
that the election to participate in this program rests with physicians, 
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 recognize that the statute provides a 
potentially broader definition of ``competitively biddable drugs and 
biologicals'' in section 1847B(a)(2)(A) of the Act. Therefore, we are 
soliciting 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.
    We propose to set forth the definition for ``competitively biddable 
drugs'' and other terms relevant to the CAP in regulations under 
revised Sec.  414.902.
    Below we discuss the merits of these options for the drug 
categories to be included within the CAP. We also discuss our proposed 
approach to phasing in the program with respect to drug categories. We 
invite comments on all these options and on all aspects of our 
proposal. We welcome alternative suggestions for our consideration for 
the final rule.
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, inclusion of all drugs furnished incident to a physician's 
service would be important to provide an alternative to physicians who 
did not want to be in the drug purchasing business and did not want to 
have to collect coinsurance on drugs. It may also provide more 
opportunity for realizing savings to the program than some other 
options.

[[Page 10750]]

Phasing in CAP Drugs by Physician Specialty
    As we have discussed above, it may be advisable 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. In fact, drugs 
that are typically furnished incident to an oncologist's service 
represent the largest portion of expenditures for physician-
administered drugs under Medicare, followed by drugs typically 
furnished incident to a urologist's service, a rheumatologist's 
service, a gynecologist's service, an infectious disease specialist's 
service, and a primary care physician's service. Drugs typically 
administered by other physician specialties represent smaller portions 
of physician-administered drugs. We therefore believe that the basic 
phase-in decision with respect to drugs administered in physician 
offices is 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. We 
discuss each of these options below.
Begin with Drugs Used by a Single Physician Specialty: Oncology
    Under this approach, we would initially implement the CAP for a 
limited set of drugs that are typically administered by oncologists. 
Drugs typically administered by other specialties would be included 
over the next few years of the program.
    The advantage of this approach is that during the phase-in we could 
focus our implementation efforts on one specialty with a more 
homogeneous set of concerns and issues. Also, by limiting the target 
drugs to those typically administered by oncologists, the required 
physician education process would be streamlined and potentially more 
effective. In addition, oncologists use a high proportion of the 
physician-administered drugs that could be included under the CAP. By 
initiating a phase-in with drugs that are typically administered by 
oncologists, we could thus begin to realize much of the benefit that is 
possible under the CAP. Therefore, we believe that it would be 
reasonable to include drugs typically administered by oncologists in 
the early stages of implementing the CAP.
    A potential disadvantage of singling out drugs typically 
administered by one physician specialty for the initial stages of 
phasing in the CAP is that the scope of the CAP in the early years may 
be too narrow for us to effectively identify issues or concerns for 
specialties that typically administer drugs not initially included. In 
addition, the CAP would not initially provide an alternative for 
physicians in other specialties. We welcome comments from oncologists 
and others about the merits of beginning the phase-in of the CAP with 
drugs typically administered by oncologists.
Begin with Specialties That Use Fewer Part B-Covered Drugs
    An alternative phase-in approach would be to choose a limited set 
of drugs that are typically administered by one or more physician 
specialties that use Part B-drugs less intensively. Focusing on Part B 
drugs typically administered by physicians in these specialties would 
limit the scope of the initial implementation, and allow operational 
issues to be addressed more gradually. This more limited scope would 
allow us to identify lessons and issues before phasing in larger drug 
classes (such as drugs typically administered by oncologists) at a 
later time. The disadvantage of this approach, however, is that such a 
limited scope may also restrict the potential benefits of the CAP, 
especially potential savings to the Medicare program and potential 
benefits to physicians in other specialties who do not want to be in 
the drug procurement and drug coinsurance collection business and who 
would prefer to obtain drugs that they typically administer under the 
CAP. The restricted scope of this approach might not elicit a response 
from potential bidders if they believe that the potential market is too 
limited.
    In light of these considerations, we are considering several 
alternative approaches to phasing in the CAP with respect to drug 
categories. One alternative would be to phase in the CAP by initially 
including all drugs typically administered by oncologists within the 
program. We would begin with drugs typically administered by 
oncologists primarily because these drugs constitute such a major 
portion of the physician-administered drugs under Part B. Another 
option is to begin with some set of the drugs that are typically 
administered in physician offices by other specialties (for example, 
drugs typically administered by urologists). This option would mean 
that implementation of the CAP would have a more limited impact 
initially on the provision and payment for Part B drugs than beginning 
with drugs typically administered by oncologists or with all Part B 
drugs furnished incident to a physician's service. A final option is to 
implement the CAP for all Part B drugs that are furnished incident to a 
physician's service. We are not considering categories smaller than 
drugs typically administered by a physician specialty. For the oncology 
option, for example, we are not considering to include only the top 
three oncology drugs. All drugs typically administered by oncologists 
would be included under this option.
    We are actively considering all these options, but we are not 
proposing any particular option at this time. Rather, we encourage 
comments on all the options that we have discussed. We also welcome 
recommendations of other options for consideration, and will also 
consider other options presented by commenters for adoption in the 
final rule. We especially encourage 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. For example, physicians may prefer relatively broad drug 
categories that encompass all the drugs that they commonly furnish, 
which presumably would allow those physicians to largely avoid 
purchasing drugs for their Medicare patients. Under this proposed 
approach one category of drugs might be all the drugs commonly 
furnished incident to an oncologist's (or other specialist's) service. 
Other narrower ways of structuring the categories are also possible. 
After further analysis and consideration of the comments, we may adopt 
one of the options described above, or an option brought to our 
attention through the comment process, in the final rule.
    It is important to note 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.
    It is also important to note that the categories that are 
established for

[[Page 10751]]

physicians to select will be the same categories that would be open for 
bids by potential vendors. For example, if a category embracing all 
drugs typically administered by oncologists is established, vendors 
would bid on all the HCPCS codes contained in the category and an 
oncologist who elects to participate in the CAP would be electing to 
acquire that category from the vendor. 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 vendor. Table 1 below illustrates a 
potential category.

                 Table 1.--Most Commonly Used HCPCS by Oncologists Defined by Specialty Code 90
   [Using 2003 Medicare Claims Data, Allowed Services Greater Than 100 and Allowed Charges (Adjusted for 2005)
                                              Greater Than $10,000]
----------------------------------------------------------------------------------------------------------------
        HCPC                         Description                        HCPC                 Description
----------------------------------------------------------------------------------------------------------------
J0207...............  Amifostine.                               J9040..............  Bleomycin sulfate
                                                                                      injection.
J0637...............  Caspofungin acetate.                      J9045..............  Carboplatin injection.
J0640...............  Leucovorin calcium injection.             J9050..............  Carmus bischl nitro inj.
J0696...............  Ceftriaxone sodium injection.             J9060..............  Cisplatin 10 mg injection.
J0800...............  Corticotropin injection.                  J9062..............  Cisplatin 50 mg injection.
J0880...............  Darbepoetin alfa injection.               J9065..............  Inj cladribine per 1 mg.
J0895...............  Deferoxamine mesylate inj.                J9090..............  Cyclophosphamide 500 mg
                                                                                      inj.
J1190...............  Dexrazoxane HCl injection.                J9096..............  Cyclophosphamide
                                                                                      lyophilized.
J1260...............  Dolasetron mesylate.                      J9160..............  Denileukin diftitox, 300
                                                                                      mcg.
J1440...............  Filgrastim 300 mcg injection.             J9170..............  Docetaxel.
J1441...............  Filgrastim 480 mcg injection.             J9178..............  Inj, epirubicin hcl, 2 mg.
J1450...............  Fluconazole.                              J9181..............  Etoposide 10 mg inj.
J1626...............  Granisetron HCl injection.                J9182..............  Etoposide 100 mg inj.
J1642...............  Inj heparin sodium per 10 u.              J9185..............  Fludarabine phosphate inj.
J1645...............  Dalteparin sodium.                        J9190..............  Fluorouracil injection.
J1650...............  Inj enoxaparin sodium.                    J9201..............  Gemcitabine HCl.
J1655...............  Tinzaparin sodium injection.              J9202..............  Goserelin acetate implant.
J1745...............  Infliximab injection.                     J9206..............  Irinotecan injection.
J1750...............  Iron dextran.                             J9208..............  Ifosfomide injection.
J1756...............  Iron sucrose injection.                   J9209..............  Mesna injection.
J2353...............  Octreotide injection, depot.              J9213..............  Interferon alfa-2a inj.
J2355...............  Oprelvekin injection.                     J9214..............  Interferon alfa-2b inj.
J2405...............  Ondansetron hcl injection.                J3305..............  Inj trimetrexate
                                                                                      glucoronate.
J2430...............  Pamidronate disodium/30 mg.               J9217..............  Leuprolide acetate
                                                                                      suspension.
J2505...............  Injection, pegfilgrastim 6 mg.            J9265..............  Paclitaxel injection.
J2820...............  Sargramostim injection.                   J9280..............  Mitomycin 5 mg inj.
J2997...............  Alteplase recombinant.                    J9293..............  Mitoxantrone hydrochl/5 mg.
J3370...............  Vancomycin hcl injection.                 J9310..............  Rituximab cancer treatment.
J3487...............  Zoledronic acid.                          J9340..............  Thiotepa injection.
J9000...............  Doxorubic hcl 10 mg vl chemo.             J9350..............  Topotecan.
J9001...............  Doxorubicin hcl liposome inj.             J9355..............  Trastuzumab.
J9010...............  Alemtuzumab injection.                    J9390..............  Vinorelbine tartrate/10 mg.
J9015...............  Aldesleukin/single use vial.              Q0136..............  Non esrd epoetin alpha inj.
J9017...............  Arsenic trioxide.                         Q3025..............  IM inj interferon beta 1-a.
J9031...............  Bcg live intravesical vac.
----------------------------------------------------------------------------------------------------------------

    In addition, it is important to keep in mind that HCPCS codes 
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.
    As discussed in proposed Sec.  414.908(d), we are proposing 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 are also proposing that vendors will 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. 
In addition, we are proposing that this information will 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. We anticipate that the first 
physician election process will occur in the fall of 2005.
    Finally, we would like to emphasize that, in framing these options, 
we are relying 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. We do 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. At this time, we have made no findings 
that including certain drugs in the CAP would not result in significant 
savings or would have an adverse impact on access to those drugs. We 
propose to set forth the circumstances for which we may exclude 
competitively biddable drugs and biologicals (including categories of

[[Page 10752]]

drugs) from the CAP at proposed Sec.  414.906(b) of our regulations.
3. Competitive Acquisition Areas
Definition of Competitive Acquisition Areas
    (If you choose to comment on issues in this section, please include 
the caption ``Competitive Acquisitions Areas'' at the beginning of your 
comments.)
    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 and biological 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. The definition of these areas 
will therefore 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. At the same time, the 
statute grants the Secretary broad discretion in defining competitive 
acquisition areas under the CAP. We believe that several factors must 
be considered in defining competitive acquisition areas for 
competitively biddable drugs and biologicals. In particular, the 
designation of competitive acquisition areas are to take into account 
how promptly physicians need drugs provided to their practices if 
distribution capacity varies geographically. In addition, 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. Below we 
discuss several options for defining ``competitive acquisition areas'' 
for purposes of the CAP. Each of these definitions could be adopted 
initially in a manner that allows for the program to be phased in 
geographically. For example, defining ``competitive acquisition areas'' 
in terms of regions or in terms of States is compatible with phasing in 
the program by implementing it initially in one or more, but not all, 
regions or States. Under this phase-in plan, the program would 
eventually be expanded to all regions or States. Conversely, 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 exclusion of the vendors that could bid and 
supply drugs on a regional or State basis. Under this 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.
    We have identified several basic options for defining the 
competitive acquisition areas required under the CAP. The basic options 
for defining these areas include--establishing a national competitive 
acquisition area; establishing regional competitive acquisition areas; 
and establishing statewide competitive acquisition areas. We invite 
comment on these possible approaches.
National Competitive Acquisition Area
    Under this option, the competitive acquisition program would 
require participating vendors to offer competitively biddable drugs and 
biologicals to physicians in any State within the United States, as 
well as the District of Columbia, Puerto Rico, and the U.S. 
territories. In other words, there would be only a single national 
competitive acquisition area. Bidders that seek to compete in a 
national competitive acquisition area would need a national network of 
distribution points that could serve physicians in a timely manner with 
products that are properly stored and shipped. In addition, drug 
vendors would need to be appropriately licensed in all 50 States, the 
District of Columbia, Puerto Rico, and the U.S. territories in order to 
comply with FDA rules.
    Establishing a single national competitive acquisition area may 
have several advantages. First, in a single national area, the number 
of Medicare beneficiaries and physicians is sufficiently large to 
encourage vendors to participate to gain market share. This option may 
also impose less administrative burden on potential bidders than other 
options, because all applicants would be applying for contracts to 
cover the same region. The administrative burden on CMS might also be 
less: the fewer the number of acquisition areas, the fewer bids that 
must be submitted and evaluated. However, smaller regional drug 
distributors would be less likely to participate in the CAP under this 
option, because they may not be able to serve the entire country. This 
would reduce competition in the bidding process.
Regional Competitive Acquisition Areas
    Under this general category, there are several possible options. 
One option is that we could establish multi-State acquisition areas 
based on existing markets. Under this option, we could define 
acquisition areas based on existing markets of regional distributors 
and specialty pharmacies. As an alternative regional approach, we could 
define four large competitive acquisition areas, which would limit the 
administrative burden of implementation. With just four acquisition 
areas, it may be less likely that there would be an insufficient number 
of vendors in any one area. We could also determine competitive 
acquisition areas that coincide with the prescription drug plan regions

[[Page 10753]]

established under section 1860D-11 of the Act (https://www.cms.hhs.gov/
medicarereform/mmaregions/) for more information.
    Establishing sub-national regions could be a natural first step in 
a geographic phase-in of the program. As discussed above, for example, 
we could implement the CAP in only a few areas at first. Overcoming 
challenges in the first phase would be important in gaining wide 
physician and vendor participation and successful implementation on a 
large scale. If we chose this approach, we would consider factors such 
as the number of potential bidders, the capacity of existing 
distribution networks, and the distribution of physician specialties in 
selecting a limited geographic area for the first competitive 
acquisition bidding process. This approach would also allow regional 
distributors to participate more easily in the CAP, thereby potentially 
increasing competition in the bidding process.
    However, this approach may impose additional administrative burden 
on national vendors since they may need to submit multiple bids to 
cover the entire country.
Competitive Acquisition Areas Based on Single States
    Under this option, we would define CAP areas based on State 
boundaries, the District of Columbia, Puerto Rico, and the territories. 
This option has the advantage of using clearly defined geopolitical 
borders as the basis for acquisition areas. As we have noted, current 
licensing for specialty pharmacies and vendors operates at the State 
level. Also, establishing State-based regions could support a 
geographic phase-in of the program, and we could implement the CAP in 
only some States at first. (As in the case of a possible phase-in of a 
region-based approach, we would consider factors such as the number of 
potential bidders, the capacity of existing distribution networks, and 
the distribution of physician specialties in selecting one or more 
States for the first competitive acquisition bidding process.) 
Overcoming challenges in the first phase would be important in gaining 
wide physician and vendor participation and successful implementation 
on a large scale. This approach would also allow State-based regional 
distributors to more easily participate in CAP, thereby potentially 
increasing competition in the bidding process.
    We encourage comments on all the options that we have discussed. We 
also welcome recommendations of other options for consideration. We 
believe that defining competitive acquisition areas, at least 
initially, on the basis of a level no smaller than the States is the 
most feasible approach. To our knowledge, there are few, distributors 
of drugs administered incident to physician services that operate on a 
scale smaller than a State level. However, we welcome comments on this 
issue, and all other aspects of this discussion. We are still 
considering all the options described above, and will also consider 
other options presented by commenters. After further analysis and 
consideration of the comments, in the final rule, we may adopt one of 
the options described above, or an option brought to our attention 
through the comment process.

B. Operational Aspects of the CAP

1. Statutory Requirements Concerning Claims Processing
    [If you choose to comment on issues in this section, please include 
the caption ``Statutory Requirements Concerning Claims Processing'' at 
the beginning of your comments.]
    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 Part B Drug Competitive 
Acquisition Program bill the Medicare program for the drug or 
biological supplied, and collect any applicable deductibles and 
coinsurance from the Medicare beneficiary. (For purposes of this 
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 this 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.
    In addition, the Secretary is required to provide for a process for 
adjustments to payments in those cases 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 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 only 
supply drugs directly 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 non-
physician 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 this 
proposed rule, we have 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 
propose to interpret the term to include a written order submitted to 
the vendor. We note 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.'' It is not our intention to restrict the 
physician's flexibility when ordering drugs from a CAP vendor, or to 
require that a physician participating in CAP would order drugs 
differently from a CAP vendor than he or she would a non-CAP vendor. 
(For purposes of this preamble the term ``order'' and ``prescription'' 
are used interchangeably.)
    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. This process 
will apply only if the physician can demonstrate all of the following 
to the Secretary: 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.

[[Page 10754]]

2. Proposed Claims Processing Overview
    [If you choose to comment on issues in this section, please include 
the caption ``Claims Processing Overview'' at the beginning of your 
comments.]
    To comply with the statutory requirements described above, we 
propose to implement a claims processing system that will enable 
selected vendors to bill the Medicare program directly, and to bill the 
Medicare beneficiary and/or his or her third party insurance after 
verification that the drug has been administered. We propose to set 
forth the requirements for payment under the CAP at proposed Sec.  
414.906 of our regulations. For the initial implementation of the CAP, 
we plan to designate one Medicare fee-for-service claims processing 
carrier to process all drug vendor's Medicare claims. (In this preamble 
this entity will be referred to 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.
    This proposed rule uses the term ``carrier'' to describe an entity 
that processes Medicare benefit claims and performs related functions 
under Part B. These entities may service a particular type of provider, 
or they may service all Part B suppliers within a specified geographic 
area.
    The designated carrier and the physician's local carrier would each 
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 following 
diagram describes the procedures for claims processing under the CAP.
[GRAPHIC] [TIFF OMITTED] TP04MR05.000

    At this time we are proposing to incorporate only drugs incident to 
a physician's service into the CAP. As noted earlier in section II.B.2. 
of this preamble, we are seeking comment on a broader definition of 
``competitively biddable drugs''. As described below, consistent with 
the statute, we propose 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.
    As we specify at proposed Sec.  414.906(a)(4) of our regulations, 
we are proposing that CAP vendors would deliver drugs directly to 
physicians in their offices. Although the statute allows CMS to provide 
for the shipment of drugs to other settings under certain conditions, 
we are not proposing to implement the CAP in alternative settings at 
this time.
    The vendor would use order form information to bill the beneficiary 
and/or his or her third party insurance for applicable deductible and 
coinsurance after drug administration has been verified by the Medicare 
carrier.
    The claims processing methodology we propose to implement would 
verify drug administration to the beneficiary by means of a 
prescription number that would be placed on the physician claim for 
drug administration and the drug vendor claim for the drug. Our claims 
processing system would use the prescription number to match the two 
claims and authorize payment to the vendor.
    We propose that the physician could place an order for a 
beneficiary's entire course of treatment at one time however; the 
vendor may split the order into appropriately spaced shipments. The 
vendor would create a separate prescription number for each shipment 
and the physician would track each prescription number separately and 
place the appropriate prescription number(s) on each drug 
administration claim. The physician would also have the ability to 
modify the course of treatment and submit a separate order as 
necessary.
    The drug vendor would generate the prescription number when it 
prepares the drug for shipping. The drug and prescription number would 
be shipped to the physician and would be maintained until the date of 
drug administration. At the time the drug was administered to the 
beneficiary, the physician or his or her staff would place the 
prescription number for each drug administered on the claim form. 
Similarly, when the vendor billed Medicare for the drug it shipped to 
the physician, it would place the relevant prescription number on the 
claim form. The electronic version of the Medicare carrier claim form 
has space for a series

[[Page 10755]]

of prescription numbers, which CMS has not utilized previously for Part 
B drugs.
    As part of implementing the CAP program, we would require that 
vendors and physicians who elect to participate in CAP have the 
capability of submitting these prescription numbers to us in their 
claims processing systems. If physicians and potential vendors are not 
already billing other payors using prescription numbers, they would 
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.
    Our claims processing methodology would use the prescription number 
to match the two claims and authorize payment to the vendor.