E9-16294. 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:

Proposed rule.

SUMMARY:

The Department of Veterans Affairs (VA) proposes to amend its medical regulations concerning “reasonable charges” for medical care or services provided or furnished by VA to a veteran for a nonservice-connected disability. More specifically, VA proposes to amend 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 our current practice of using a national average drug cost for all prescriptions dispensed. The revised formula for calculating “reasonable charges” for prescription drug costs would 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:

Comments must be received by VA on or before August 10, 2009.

ADDRESSES:

Written comments may be submitted through http://www.regulations.gov;​; by mail or hand-delivery to the Director, Regulations Management (02REG), Department of Veterans Affairs, 810 Vermont Avenue, NW., Room 1068, Washington, DC 20420; or by fax to [phone]. Comments should indicate that they are submitted in response to “RIN 2900-AN15 “Charges Billed to Third Parties for Prescription Drugs Furnished by VA to a Veteran for a Nonservice-Connected Disability.” Copies of comments received will be available for public inspection in the Office of Regulation Policy and Management, Room 1063B, between the hours of 8 a.m. and 4:30 p.m. Monday through Friday (except holidays). Please call [phone] for an appointment. (This is not a toll-free number.) In addition, during the comment period, comments may be viewed online through the Federal Docket Management System (FDMS) at http://www.regulations.gov.

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, [phone]. (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:

• 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);
• 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
• 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.

In general, current regulations set forth a methodology to establish VA charges that replicate, insofar as possible, the 80th percentile of community charges, adjusted to the market areas in which VA facilities are located, and trended forward to the time period during which the charges will be used (see 68 FR 56876, October 2, 2003). To avoid a windfall, the regulations do not apply this methodology to prescription drugs because, under authority of 38 U.S.C. 8126, VA purchases drugs at discounted prices. Instead, VA currently bills for prescription drugs 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 § 17.102(h), VA currently bills $51 for each prescription filled (see 70 FR 66866, November 3, 2005).

We propose to change the billing methodology for prescription drugs. With respect to the portion of the billing concerning VA's cost for prescription drugs, we propose to bill based on the actual cost to VA of each prescription drug rather than the $51 national average. Under the current methodology, VA bills more than the actual cost for some prescription drugs and less than the actual cost for others. (For the purpose of the following two examples, VA's “actual average cost” is based upon the total cost incurred by VA for filling the prescription drug during calendar year 2008 and divided by the sum of the total number of such prescriptions filled nationally.) For example, in 2008 VA's average actual cost for a 30-day supply of immunological agent was $297.73 (not including administrative cost). Also, in 2008 VA's average actual cost for a 30-day supply of antihistamine was $7.46 (also not including administrative costs). However, under the current methodology, VA billed $51.00 for each of these prescriptions (including administrative costs), regardless of whether the prescription was for 30, 60, or 90 days.

Instead of billing based on a national average, it is more accurate to bill as close to the actual costs as possible. Consistent with this conclusion, we propose to change the methodology for billing for prescription drugs not administered during treatment. In this regard, we propose to bill the total of:

• The actual cost to VA for prescription drugs (i.e., the cost to the facility that purchased the drugs); and
• The average national administrative cost associated with dispensing the drugs for each prescription.

We created the current national average for prescription drug costs at a time when it was not feasible to bill for the actual cost of the drugs. However, we now have the capability to bill VA's actual local cost for each specific drug (i.e., the cost to the facility that purchased the drugs). The cost will be obtained from the Outpatient Pharmacy Prescription file or the Drug file at each VA facility.

We would still use VA's national average for the administrative costs associated with the dispensing of the drugs. The formula that VA would use to determine the average for the administrative costs is set forth in proposed § 17.101(m). This formula considers the sum of the indirect costs (such as utilities and financial service) and the national drug dispensing costs (such as labor and packaging) and then divides the total by the actual number of VA prescriptions filled nationally. The national average is the most administratively feasible methodology to utilize to determine this cost. We know of no other practical manner in which to determine the actual administrative costs associated with each prescription.

Further, we propose to calculate the administrative cost annually for the prior Fiscal Year (FY) (October through September) and then apply any changes at the beginning of the next calendar year. Based on the FY 2008 national VA average for the administrative costs associated with the provision of prescription drugs, the administrative cost to be used for calendar year 2009 is $11.17.

In FY 2008, we billed health care plans approximately $350.3 million (based upon VA's average actual cost for each prescription) but due to lesser amounts payable under the terms of the health care plans, we collected approximately $127.5 million. Had the proposed rule been in effect, we would have billed approximately $303.4 million (VA's actual cost plus an administrative cost for each prescription), and we believe we would have collected approximately $186.6 million (based on our model regarding projected payments under the proposed rule). This reflects a substantial increase in the percentage of payment compared to the billed amounts. Accordingly, had the proposed billing methodology been in effect in FY 2008, we believe that the VA collections for prescription drugs would have increased by approximately $59 million. Based on OMB's Medical Consumer Price Index, when we compare FY 2008 with 2019 (ten year period after projected publication of final rule) we would expect the VA collections amount to increase by almost $87.2 million (an annual increase of slightly more than 3 percent). Based on the amount of time in FY 2010 that the proposed rule is in effect, we project that VA will realize a proportional amount of $62,570,965 in additional collections. We project that in FY 2011 VA will realize $64,760,949 million in additional VA collections (first full year of implementation). We expect that this amount will increase by the projection for the Medical Consumer Price Index (CPI) which is approximately 3 percent each year as shown in the table below. We welcome any comments regarding VA's projected collections and projected payments.

1st	FY2010	$62,570,965
2nd	FY2011	64,760,949
3rd	FY2012	67,157,104
4th	FY2013	69,709,074
5th	FY2014	72,358,019
6th	FY2015	75,107,623
7th	FY2016	77,961,713
8th	FY2017	80,924,258
9th	FY2018	83,999,380
10th	FY2019	87,191,356

As required by 38 U.S.C. 1729(c)(2)(A), we will consult with the Comptroller General of the United States prior to promulgating a final rule.

Comment Period

Under the rulemaking guidelines in Executive Order 12866, VA ordinarily provides a 60-day comment period for proposed rules. However, as stated in the preamble of this rulemaking notice, the methodology for billing health care plans for prescription drugs in VA's current regulations is not accurate for certain drugs because it results in significant underpayments. Under the proposed rule, VA would implement an actual-cost methodology that ensures fair and accurate billing for all prescription drugs covered by third party payers. The rule would ensure that VA satisfies its obligation to seek reimbursement for prescription drug purchases and maintain all appropriate funds for the care of veterans. Accordingly, VA has determined that it would be in the public interest to provide a shorter comment period for this proposed rule and has specified that comments must be received within 30 days of the publication in the Federal Register.

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 proposed rule would 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 proposed rule and has concluded that it is a significant regulatory action under Executive Order 12866 because it is likely to result in a rule that 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 proposed 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 proposed rule would mainly affect large insurance companies. This proposed 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 proposed 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

Approved: April 17, 2009.

John R. Gingrich,

Chief of Staff, Department of Veterans Affairs.

For the reasons stated in the preamble, VA proposes to amend 38 CFR part 17 as follows:

PART 17—MEDICAL

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.

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

§ 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. * * *

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(m) Charges for prescription drugs not administered during treatment. Notwithstanding other provisions of this section, 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 indirect costs (such as utilities and financial services) to the total VA national drug dispensing costs (such as labor and packaging) 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.

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