Proposed Rules. Notice of proposed special conditions
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BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 25 [Docket No. NM354; Notice No. 25-06-09-SC] Special Conditions: Boeing Commercial Airplane Group, Boeing Model 777-200 Series Airplane; Overhead Cross Aisle Stowage Compartments AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed special conditions. SUMMARY: The FAA proposes special conditions for the Boeing Model 777-200 series airplanes. This airplane, modified by Boeing Commercial Airplane Group, will have novel or unusual design features associated with overhead cross aisle stowage compartments.
The applicable airworthiness regulations do not contain adequate or appropriate safety standards for these design features. These proposed special conditions contain the additional safety standards the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards. DATES: We must receive your comments on or before November 7, 2006. ADDRESSES: You may mail or deliver comments on these special conditions in duplicate to:
Federal Aviation Administration, Transport Airplane Directorate, Attn: Rules Docket (ANM-113), Docket No. NM354, 1601 Lind Avenue, SW., Renton, Washington 98057-3356. You must mark your comments: Docket No. NM354. FOR FURTHER INFORMATION CONTACT: Jayson Claar, FAA, Airframe/Cabin Branch, ANM-115, Transport Airplane Directorate, Aircraft Certification Service, 1601 Lind Avenue, SW., Renton, Washington 98057-3356; telephone
(425)227-2194; facsimile
(425)227-1232. SUPPLEMENTARY INFORMATION: Comments Invited We invite interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data. We ask that you send us two copies of written comments. We will file in the docket all comments we receive, as well as a report summarizing each substantive public contact with FAA personnel concerning these special conditions. You may inspect the docket before and after the comment closing date. If you wish to review the docket in person, go to the address in the ADDRESSES section of this preamble between 7:30 a.m. and 4 p.m., Monday through Friday, except Federal holidays. We will consider all comments we receive on or before the closing date for comments. We will consider comments filed late if it is possible to do so without incurring expense or delay. We may change these special conditions based on the comments we receive. If you want the FAA to acknowledge receipt of your comments on these proposed special conditions, include with your comments a pre-addressed, stamped postcard on which the docket number appears. We will stamp the date on the postcard and mail it back to you. Background On April 20, 2005, Boeing Commercial Airplane Group, Seattle, Washington, applied for a supplemental type certificate to permit installation of overhead cross aisle stowage compartments in Boeing 777-200 series airplanes. The Boeing Model 777-200 series airplanes are large twin engine airplanes with four pairs of Type A exits, a passenger capacity of 440, and a range of 5000 miles. (The Boeing 777-200 airplanes can be configured with various passenger capacities and range). The regulations do not address the novel and unusual design features associated with the installation of overhead cross aisle stowage compartments installed on the Boeing Model 777-200, making these special conditions necessary. Generally, the requirements for overhead stowage compartments are similar to stowage compartments in remote crew rest compartments (i.e., located on lower lobe, main deck or overhead) already in use on Boeing Model 777-200 and -747 series airplanes. Remote crew rest compartments have been previously installed and certified in the main passenger cabin area, above the main passenger area, and below the passenger cabin area adjacent to the cargo compartment of the Boeing Model 777-200, and -300 series airplanes. Type Certification Basis Under the provisions of § 21.101, Boeing Commercial Airplane Group must show that the Boeing Model 777-200, as changed, continues to meet the applicable provisions of the regulations incorporated by reference in Type Certificate No. T00001SE or the applicable regulations in effect on the date of application for the change. The regulations incorporated by reference in the type certificate are commonly referred to as the “original type certification basis.” The regulations incorporated by reference in Type Certificate No. T00001SE for the Boeing Model 777-200 series airplanes include Title 14 Code of Federal Regulations (CFR), part 25, as amended by Amendments 25-1 through 25-82, except for § 25.571(e)(1) which remains at Amendment 25-71, with exceptions. Refer to Type Certificate No. T00001SE, as applicable, for a complete description of the certification basis for this model, including certain special conditions that are not relevant to these proposed special conditions. If the Administrator finds the applicable airworthiness regulations (part 25 as amended) do not contain adequate or appropriate safety standards for the Boeing Model 777-200 because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16. In addition to the applicable airworthiness regulations and special conditions, the Boeing Model 777-200 must comply with the fuel vent and exhaust emission requirements of 14 CFR part 34 and the noise certification requirements of 14 CFR part 36. The FAA issues special conditions, as defined in § 11.19, under § 11.38 and they become part of the type certification basis under § 21.101. Special conditions are initially applicable to the model for which they are issued. Should the applicant apply for a supplemental type certificate to modify any other model included on the same type certificate to incorporate the same or similar novel or unusual design feature, the special conditions would also apply to the other model under § 21.101. Novel or Unusual Design Features The Boeing Model 777-200 will incorporate the following novel or unusual design features: the installation of powered lift-enabled stowage compartments that rise into the overhead area and lower into the emergency exit cross aisle. The overhead cross aisle stowage compartments are configured to allow stowage of galley type standard containers as well as coats, bags, and other items typically stowed in closets or bins. These stowage compartments will be located above the emergency exit cross aisle at Doors 2 and 4 of Boeing Model 777-200 series airplanes. Each stowage compartment is accessed from the main deck by a powered lift that lowers and raises the stowage compartment between the overhead and the main deck. In addition, the lift can be hand cranked up and down in the event of a power or lift motor failure. A smoke detection system will be provided in the overhead cross aisle stowage compartments. Discussion of the Proposed Special Conditions In general, the requirements listed in these proposed special conditions for overhead cross aisle stowage compartments are similar to those previously approved for overhead crew rest compartments in earlier certification programs, such as for the Boeing Model 777-200 and Model 747 series airplanes. These proposed special conditions establish compartment access, power lift, electrical power, smoke/fire detection, fire extinguisher, fire containment, smoke penetration, and compartment design criteria for the overhead cross aisle stowage compartments. The overhead stowage compartments are not a direct analogy to stowage compartments in remote crew rest compartments installed and certified for Boeing Model 777 series airplanes, but the safety issues raised are similar. Features similar to those considered in the development of previous special conditions for fire protection will be included here also. The proposed requirements would provide an equivalent level of safety to that provided by other Boeing Model 777-200 series airplanes with similar overhead compartments. Operational Evaluations and Approval The FAA's Aircraft Certification Service will administer these proposed special conditions, which specify requirements for design approvals (that is, type design changes and supplemental type certificates) of overhead cross aisle stowage compartments. The Aircraft Evaluation Group of the FAA's Flight Standards Service must evaluate and approve the operational use of overhead cross aisle stowage compartments prior to use. The Aircraft Evaluation Group must receive all instructions for continued airworthiness, including service bulletins, prior to the FAA accepting and issuing approval of the modification. Proposed Special Condition No. 1, Compartment Access and Placards Appropriate placards, or other means, are required to address door access and locking to prohibit passenger access and operation of the overhead storage compartment. There must also be a means to preclude anyone from being trapped inside the stowage compartment. Proposed Special Condition No. 2, Power Lift The power lift must be designed so the overhead stowage compartment will not jam in the down position, even if lowered on top of a hard structure. The lift must operate at a speed that allows anyone underneath the compartment to move clear without injury. The lift controls must be placed clear of the compartment door and must be pressed continuously for lift operation. Training on operation procedures must be added to appropriate manuals. Proposed Special Condition No. 3, Manual Lift There must be a means to manually operate the lift that is independent of the electrical drive system and is capable of overcoming jamming in the drive and lift mechanisms. The lift must be operable by a range of occupants, including a fifth percentile female. The manual lift must be capable of lowering the overhead stowage compartment quickly to the main deck to fight a fire. The manual lift system must be capable of raising the compartment quickly so the cross aisle is not blocked in an emergency. Training on manual operation must be added to appropriate manuals. Proposed Special Condition No. 4, Handheld Fire Extinguisher A handheld fire extinguisher appropriate to fight the kinds of fire likely to occur in the overhead stowage compartment must be provided. This handheld fire extinguisher must be adjacent to the overhead compartment. This extinguisher must be in addition to those required for the passenger cabin. Proposed Special Condition No. 5, Fire Containment This special condition requires either the installation of a manually activated fire extinguishing system that is accessible from outside the overhead stowage compartment, or a demonstration that the crew could satisfactorily perform the function of extinguishing a fire under the prescribed conditions. A manually activated built-in fire extinguishing system would be required only if a crewmember could not successfully locate and get access to the fire during a demonstration where the crewmember is responding to the alarm. Proposed Special Condition No. 6, Smoke Penetration The design of the compartment must provide means to exclude hazardous quantities of smoke or extinguishing agent originating in the compartment or drive motor from entering other occupied areas. The means must take into account the time period during which the compartment may be accessed to manually fight a fire, if applicable. During the one-minute smoke detection time (see Special Condition No. 7), penetration of a small quantity of smoke (one that would dissipate within 3 minutes under normal ventilation conditions) from this overhead stowage compartment design into an occupied area on this airplane configuration would be acceptable based on the limitations placed in this and other associated special conditions. These special conditions place sufficient restrictions in the quantity and type of material allowed in the overhead stowage compartment that threat from a fire in this remote area would be equivalent to that experienced on the main cabin. Proposed Special Condition No. 7, Compartment Design Criteria The material used to construct the overhead stowage compartment must meet the flammability requirements for compartment interiors in § 25.853 and be fire resistant. Depending on the size of the compartment, certain fire protection features of Class B cargo compartments are also required. Enclosed stowage compartments equal to or exceeding 25 ft 3 in interior volume must be provided with a smoke or fire detection system to ensure that a fire can be detected within a one-minute detection time. This is the same requirement as has been applied to remote crew rest compartments. Enclosed stowage compartments equal to or greater than 57 ft 3 in interior volume but less than or equal to 200 ft 3 , must have a liner that meets the requirements of § 25.855 for a Class B cargo compartment. The overhead stowage compartment may not be greater than 200 ft 3 in interior volume. The in-flight accessibility of very large enclosed stowage compartments and the subsequent impact on the crewmember's ability to effectively reach any part of the compartment with the contents of a handheld fire extinguisher would require additional fire protection considerations similar to those required for inaccessible compartments such as Class C cargo compartments. The overhead stowage compartment smoke or fire detection and fire suppression systems (including airflow management features which prevent hazardous quantities of smoke or fire extinguishing agent from entering any other compartment occupied by crewmembers or passengers) is considered complex in terms of paragraph 6d of Advisory Circular
(AC)25.1309-1A, “System Design and Analysis.” The FAA considers failure of the overhead stowage compartment fire protection system (that is, smoke or fire detection and fire suppression systems) in conjunction with an overhead stowage fire to be a catastrophic event. Based on the “Depth of Analysis Flowchart” shown in Figure 2 of AC 25.1309-1A, the depth of analysis should include both qualitative and quantitative assessments (reference paragraphs 8d, 9, and 10 of AC 25.1309-1A). The requirements to enable crewmember(s) quick access to the overhead stowage compartment and to locate a fire source inherently places limits on the amount of baggage stowed and the size of the overhead stowage compartment. The overhead stowage compartment is limited to stowage of galley type standard containers as well as coats, bags, and other items typically stowed in closets or bins. It is not intended to be used for the stowage of other items. The design of such a system to include other items may require additional special conditions to ensure safe operation. Applicability These special conditions are applicable to the Boeing Model 777-200 series airplanes with overhead cross aisle stowage compartments. Should Boeing Commercial Airplane Group apply later for a change to the type certificate to include another model included on Type Certificate No. T00001SE, incorporating the same novel or unusual design feature, the special conditions would apply to that model as well under the provisions of § 21.101. The Boeing Model 777-200 series airplane is scheduled for imminent delivery. Special conditions for other types of stowage compartments in remote areas of airplanes have been subject to the notice and public comment procedure in several prior instances. Therefore, because a delay would significantly affect the applicant's installation of the overhead cross aisle stowage compartment and certification of the airplane, we are shortening the public comment period to 20 days. Conclusion This action affects only certain novel or unusual design features on the Boeing Model 777-200 series airplanes. It is not a rule of general applicability and affects only the applicant who applied to the FAA for approval of these features on the airplane. List of Subjects in 14 CFR Part 25 Aircraft, Aviation safety, Reporting and recordkeeping requirements. The authority citation for these special conditions is as follows: Authority: 49 U.S.C. 106(g), 40113, 44701, 44702, 44704. The Proposed Special Conditions Accordingly, the Federal Aviation Administration
(FAA)proposes the following special conditions as part of the type certification basis for Boeing Model 777-200 series airplanes. Each overhead cross aisle stowage compartment and the adjacent area, including the structural frame, mechanical system and drive motor, must meet the following requirements: 1. *Compartment Access and Placards.* There must be a means to prohibit or prevent passengers from entering or operating the overhead cross aisle stowage compartment. Placards prohibiting access are acceptable. For all doors installed, there must be a means to preclude anyone from being trapped inside the stowage compartment. If a latching/locking mechanism is installed, the door must be capable of being opened from the outside without the aid of special tools. The mechanism must not prevent opening from the inside of the stowage at any time. 2. *Power Lift.* There must be a means such as a load or force limiter to protect the overhead cross aisle stowage compartment electrical lift drive system from failure or jamming in the down position in the event it is lowered on top of hard structure such as a galley cart.
(a)The electrical lift controls must be placed so the operator is clear of the lift and designed such that the controls must be pressed continuously for lift operation.
(b)The electrical lift must raise and lower the stowage compartment at a slow enough rate, and stop above the floor at such a height, that anyone underneath can easily move clear without injury.
(c)Stowage compartment operation training procedures must be added to the appropriate flight attendant manuals. 3. *Manual Lift.* There must be a means in the event of failure of the aircraft's main power system, or of the electrically powered overhead cross aisle stowage compartment lift system, for manually activating the lift system.
(a)This manual lift must be independent of the electrical drive system and capable of overcoming jamming in the drive and lift mechanisms.
(b)The manual lift must be accessible and operable by a range of occupants, including a fifth percentile female.
(c)The manual lift must be capable of lowering the stowage compartment to the main deck quickly enough to fight a fire in the stowage compartment before overhead cross aisle stowage compartment fire containment is compromised.
(d)The manual lift must be capable of quickly raising the stowage compartment such that the cross aisle is not blocked in the event of an emergency.
(e)Stowage compartment firefighting training procedures must be added to the appropriate flight attendant manuals. 4. *Fire Extinguisher.* The means to manually fight a fire in the overhead cross aisle stowage compartment or involving the compartment motor must consider the additional stowage volume and time required to manually lower the compartment after indication. The following equipment must be provided directly adjacent to each overhead cross aisle stowage compartment: at least one approved handheld fire extinguisher appropriate for the kinds of fires likely to occur within the overhead stowage compartment and fires involving the compartment motor. 5. *Fire Containment.* Fires originating within the overhead cross aisle stowage compartment or at the drive motor must be controlled without a crewmember having to access the compartment. Alternatively, the design of the access provisions must allow crewmembers equipped for firefighting to have unrestricted access to the compartment and drive motor. If the latter approach is elected it must be demonstrated that a crewmember has sufficient access to enable them to extinguish a fire. The time for a crewmember on the main deck to react to the fire alarm, (and, if applicable, to don the firefighting equipment and to open the compartment) must not exceed the flammability and fire containment capabilities of the stowage compartment. 6. *Smoke Penetration.* There must be a means provided to exclude hazardous quantities of smoke or extinguishing agent originating in the overhead cross aisle stowage compartment or drive motor from entering any other compartment occupied by crewmembers or passengers. If access is required to comply with Special Condition 5., this means must include the time period when accessing the stowage compartment to manually fight a fire. Smoke entering any other compartment occupied by crewmembers or passengers, when access to the stowage compartment is opened to manually fight a fire, must dissipate within five minutes after the access to the stowage compartment is closed. Prior to the one minute smoke detection time (reference note 2 in paragraph (7)) penetration of a small quantity of smoke from the stowage compartment into an occupied area is acceptable. Flight tests must be conducted to show compliance with this requirement. 7. *Compartment Design Criteria.* The overhead cross aisle stowage compartment must be designed to minimize the hazards to the airplane in the event of a fire originating in the stowage compartment or drive motor.
(a)*Fire Extinguishing System.* If a built-in fire extinguishing system is used in lieu of manual firefighting, then the fire extinguishing system must be designed so no hazardous quantities of extinguishing agent will enter other compartments occupied by passengers or crew. The system must have adequate capacity to suppress any fire occurring in the stowage compartment or drive motor, considering the fire threat, volume of the compartment, and the ventilation rate.
(b)*Compartment Size.* All enclosed remote stowage compartments, including the overhead cross aisle stowage compartment, must meet the design criteria given in the table below. As indicated by the table below, enclosed stowage compartments greater than 200 ft 3 in interior volume are not addressed by this special condition. Stowage Compartment Interior Volumes Fire protection features less than 25 ft 3 25 ft 3 to 57 ft 3 57 ft 3 to 200 ft 3 Materials of Construction 1 Yes Yes Yes. Detectors 2 No Yes Yes. Liner 3 No Yes Yes. 1 *Material.* The material used to construct each enclosed stowage compartment must be at least fire resistant and must meet the flammability standards established for interior components (that is, 14 CFR Part 25 Appendix F, Parts I, IV, and V) per the requirements of § 25.853. For compartments less than 25 ft 3 in interior volume, the design must ensure the ability to contain a fire likely to occur within the compartment under normal use. 2 *Detectors.* Enclosed stowage compartments equal to or exceeding 25 ft 3 in interior volume must be provided with a smoke or fire detection system to ensure that a fire can be detected within one minute. Flight tests must be conducted to show compliance with this requirement. Each system (or systems) must provide:
(a)A visual indication in the flight deck within one minute after the start of a fire;
(b)A warning in the main passenger cabin. This warning must be readily detectable by a flight attendant, taking into consideration the positioning of flight attendants throughout the main passenger compartment during various phases of flight. 3 *Liner.* If it can be shown the material used to construct the stowage compartment meets the flammability requirements of a liner for a Class B cargo compartment (that is, § 25.855 at Amendment 25-93 and Appendix F, part I, paragraph (a)(2)(ii)), in addition to the above. 1 *Material requirement* , then no liner would be required for enclosed stowage compartments equal to or greater than 25 ft 3 in interior volume but less than 57 ft 3 in interior volume. For all enclosed stowage compartments equal to or greater than 57 ft 3 in interior volume but less than or equal to 200 ft 3 , a liner must be provided that meets the requirements of § 25.855 for a Class B cargo compartment. Issued in Renton, Washington, on October 10, 2006. Kalene C. Yanamura, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E6-17345 Filed 10-17-06; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF COMMERCE Bureau of Industry and Security 15 CFR Parts 732, 736, 740, 744, 752, 764, and 772 [Docket No. 040915266-6239-03] RIN 0694-AC94 Revised “Knowledge” Definition, Revision of “Red Flags” Guidance and Safe Harbor AGENCY: Bureau of Industry and Security, Commerce. ACTION: Proposed rule; withdrawal. SUMMARY: BIS is withdrawing a proposed rule published October 2004. That rule would have revised the definition of “knowledge” in the Export Administration Regulations. It also would have updated the “red flags” guidance and would have provided a safe harbor from liability arising from knowledge under the definition of that term. In light of the public comments received on the proposed rule and BIS's review of relevant provisions of the existing regulations, this proposed rule is being withdrawn. DATES: The proposed rule is withdrawn on October 18, 2006. FOR FURTHER INFORMATION CONTACT: William Arvin, Office of Exporter Services, at *warvin@bis.doc.gov,* fax 202-482-3355 or telephone 202-482-2440. SUPPLEMENTARY INFORMATION: Background On October 13, 2004, BIS published a proposed rule to amend the EAR by revising the definition of “knowledge” that applies throughout most of the regulations, to revise its “red flag” guidance and to create a safe harbor with respect to certain violations that have “knowledge” as one of the elements of the offense (69 FR 60829, October 13, 2004; Comment period reopened 69 FR 65555, November 15, 2004). The proposed rule would have revised the definition of knowledge in § 772.1 of the EAR in four ways. It would have incorporated a “reasonable person” standard, replaced the phrase “high probability” with the phrase “more likely than not,” added the phrase “inter alia” to the description of the facts and circumstances that could make a person aware of the existence or future occurrence of a fact, and eliminated the phrase “known to a person” from the sentence in the knowledge definition that states that knowledge may be inferred from “conscious disregard of facts known to a person.” The proposed rule also would have limited the applicability of the definition to certain actors in transactions subject to the Export Administration Regulations
(EAR)and excluded certain usages from the definition. The proposed rule would have increased from 12 to 23 the number of circumstances explicitly set forth as “red flags” in Supplement No. 3 to part 732 of the EAR. The proposed rule would have created a “safe harbor” from knowledge based violations. To take advantage of the safe harbor, a party would have to commit no violations of the EAR, in connection with the transaction, identify and resolve any “red flags” present in the transaction and report the red flags found and the resolution to BIS. BIS would have been required to acknowledge receipt of all such reports. Thereafter, if BIS responded to the party's report by stating that it concurred that the party had adequately addressed red flags or by advising the party that BIS would not be responding to the report, the party would have been able to take advantage of the safe harbor, assuming the party had accurately disclosed all relevant information to BIS. The proposed rule stated BIS's intention to respond to most reports within 45 days. However, the response might consist of a notice that BIS needed more time to evaluate the party's report. If BIS did not respond to the party's report by the date stated in the acknowledgment provided to the party, the party could have contacted BIS to inquire about the status of the report. BIS received 18 comments on this proposed rule. Nine of these comments were filed by associations that have multiple members. With regard to revising the definition of knowledge, the most frequently expressed opinion was that the revisions were, in fact, substantive changes to the definition rather than mere clarifications. Commenters also stated that BIS had not offered any reason as to why any change in the knowledge definition was necessary. Although the revisions to the “red flags” were criticized less than other proposed changes, commenters made suggestions for revisions or elimination of 12 specific “red flags.” In addition, some commenters asserted that the proposal increased the number of circumstances that could be red flags without providing adequate guidance as to the circumstances when any particular “red flag” would be applicable. The notice did state (as does current Supplement No. 3 to part 732 of the EAR) that not all red flags are applicable in all circumstances. A number of commenters criticized the safe harbor proposal, stating that it was too complex and lengthy. Several predicted that few, if any, firms would be inclined to use it. Some suggested that submitting a license application for the transaction would be simpler and probably faster than waiting to see if BIS approved of the manner in which the party resolved the “red flags.” Withdrawal of Proposal BIS has considered the comments on the proposed rule. BIS has also reviewed the proposed rule as compared to the corresponding existing provisions of the EAR and has considered several possible modifications of the proposed rule. As a result of this consideration, BIS has concluded that utilizing this proposed rule as a basis for amending the EAR would neither clarify the public's responsibilities under the EAR nor make the regulations more effective. Accordingly, BIS is withdrawing this proposal. Dated: October 11, 2006. Christopher A. Padilla, Assistant Secretary for Export Administration. [FR Doc. E6-17265 Filed 10-17-06; 8:45 am] BILLING CODE 3510-33-P DEPARTMENT OF JUSTICE Drug Enforcement Administration 21 CFR Part 1312 [Docket No. DEA-276P] RIN 1117-AB00 Reexportation of Controlled Substances AGENCY: Drug Enforcement Administration (DEA), Department of Justice. ACTION: Notice of proposed rulemaking. SUMMARY: The Controlled Substances Export Reform Act of 2005 amended the Controlled Substances Import and Export Act to provide authority for the Drug Enforcement Administration
(DEA)to authorize the export of controlled substances from the United States to another country for subsequent export from that country to a second country, if certain conditions and safeguards are satisfied. DEA is hereby proposing to amend its regulations to implement the new legislation. DATES: Written comments must be postmarked, and electronic comments must be sent, on or before December 18, 2006. ADDRESSES: Please submit comments, identified by “Docket No. DEA-276,” by one of the following methods: 1. *Regular mail:* Deputy Assistant Administrator, Office of Diversion Control, Drug Enforcement Administration, Washington, DC 20537, Attention: DEA Federal Register Representative/ODL. 2. *Express mail:* DEA Headquarters, Attention: DEA Federal Register Representative/ODL, 2401 Jefferson-Davis Highway, Alexandria, VA 22301. 3. *E-mail comments directly to agency: dea.diversion.policy@usdoj.gov* . 4. *Federal eRulemaking portal: http://www.regulations.gov.* Follow the online instructions for submitting comments. Anyone planning to comment should be aware that all comments received before the close of the comment period will be made available in their entirety for public inspection, including any personal information submitted. For those submitting comments electronically, DEA will accept attachments only in the following formats: Microsoft Word, WordPerfect, Adobe PDF, or Excel. FOR FURTHER INFORMATION CONTACT: Mark W. Caverly, Chief, Liaison and Policy Section, Office of Diversion Control, Drug Enforcement Administration, Washington, DC 20537, Telephone
(202)307-7297. SUPPLEMENTARY INFORMATION: Background The Controlled Substances Export Reform Act of 2005 (Pub. L. 109-57) was enacted on August 2, 2005. The Act amended the Controlled Substances Import and Export Act to provide authority for the Attorney General (and DEA, by delegation) 1 to authorize the export of controlled substances from the United States to another country for subsequent export from that country to a second country, if certain conditions and safeguards are satisfied. 1 28 CFR 0.100(b). Previously under the Controlled Substances Import and Export Act (prior to the 2005 legislation), there were no circumstances in which it was permissible to export a controlled substance in Schedules I and II, or a narcotic controlled substance in Schedules III and IV, for the purpose of reexport to another country. Such controlled substances could lawfully be exported only to the immediate country where they would be consumed. With the passage of the Controlled Substances Export Reform Act of 2005, Congress added a new provision, designated Section 1003(f) of the Controlled Substances Import and Export Act (21 U.S.C. 953(f)), which states: Notwithstanding [21 U.S.C. 953] subsections (a)(4) and (c)(3), the Attorney General may authorize any controlled substance that is in schedule I or II, or is a narcotic drug in schedule III or IV, to be exported from the United States to a country for subsequent export from that country to another country, if each of the following conditions is met:
(1)Both the country to which the controlled substance is exported from the United States (referred to in this subsection as the 'first country') and the country to which the controlled substance is exported from the first country (referred to in this subsection as the 'second country') are parties to the Single Convention on Narcotic Drugs, 1961, and the Convention on Psychotropic Substances, 1971.
(2)The first country and the second country have each instituted and maintain, in conformity with such Conventions, a system of controls of imports of controlled substances which the Attorney General deems adequate.
(3)With respect to the first country, the controlled substance is consigned to a holder of such permits or licenses as may be required under the laws of such country, and a permit or license to import the controlled substance has been issued by the country.
(4)With respect to the second country, substantial evidence is furnished to the Attorney General by the person who will export the controlled substance from the United States that—
(A)The controlled substance is to be consigned to a holder of such permits or licenses as may be required under the laws of such country, and a permit or license to import the controlled substance is to be issued by the country; and
(B)The controlled substance is to be applied exclusively to medical, scientific, or other legitimate uses within the country.
(5)The controlled substance will not be exported from the second country.
(6)Within 30 days after the controlled substance is exported from the first country to the second country, the person who exported the controlled substance from the United States delivers to the Attorney General documentation certifying that such export from the first country has occurred.
(7)A permit to export the controlled substance from the United States has been issued by the Attorney General. Note: The above text of the Act is published for the convenience of the reader, given that the Act sets forth what are essentially regulatory requirements that must be directly incorporated into this proposed rule. The official text is published at 21 U.S.C. 953(f). DEA Proposed Implementation of the Controlled Substances Export Reform Act of 2005 The rule being proposed here would amend DEA regulations to implement this new legislation. Most of the amendments to the regulations being proposed here either reiterate the new statutory provisions added by the 2005 Act or specify the procedural details for complying with the new statutory provisions. In three respects, however, the proposed rule contains substantive requirements not contained in the statute. The first additional proposed requirement is that the reexporter notify DEA when the shipment leaves the United States. The second additional proposed requirement is that the reexport from the first country to the second country take place within 90 days after the shipment leaves the United States. The third additional proposed requirement is that bulk materials undergo further manufacturing in the first country prior to being shipped to the second country. This is the same requirement contained in existing DEA regulations for reexports of nonnarcotic controlled substances in Schedules III and IV and Schedule V controlled substances (21 CFR 1312.27(b)(5)). It is proposed that these three additional requirements would entail minimal regulatory burden yet allow the agency to carry out the 2005 Act more effectively. Under the 2005 Act (subsection (6)), Congress mandated that the reexporter notify DEA within 30 days after the controlled substance is shipped from the first country to the second country. It can be inferred that one purpose of this provision is to provide a means for DEA to maintain an awareness of the status of shipments leaving the United States for reexport and thereby enhance the agency's ability to monitor and prevent diversion of such shipments. The three additional proposed requirements listed above further this same goal by eliminating the possibility that DEA would be unable to ascertain the status of an approved reexport for an indefinite period of time. Without the requirements being proposed here, a scenario could arise in which DEA has issued a permit authorizing a reexport, yet be without sufficient documentation to determine whether the shipment
(i)has remained for many months in the first country without being reexported,
(ii)has been improperly reexported to a different second country than that indicated on the reexport application, or
(iii)was properly reexported to the second country but the reexporter failed to notify DEA within 30 days as required by the statute. The proposed additional notification requirement and the 90-day time limit for reexports is intended to minimize the likelihood of such uncertainties regarding the status of reexport shipments and thereby minimize the likelihood of diversion. Requiring that reexports be completed within a finite time frame is also consistent with the historical approach in the DEA regulations that export permits be of a finite duration. See 21 CFR 1312.25 (setting forth expiration dates for export permits and providing maximum duration of six months). Finally, it is anticipated that it will not be unduly burdensome for reexporters to notify DEA within 30 days after the shipment has left the United States or to complete the reexport within 90 days thereafter. DEA notes that the statute requires the reexporter (as a condition of obtaining an export permit from DEA) to specify both the first and the second countries, and to provide substantial evidence that, with respect to the second country, the controlled substance is to be consigned to a holder of such permits or licenses as may be required under the laws of such country, and a permit or license to import the controlled substance is to be issued by the country. Further, the statute requires the exporter to provide substantial evidence that the controlled substance is to be applied exclusively to medical, scientific, or other legitimate uses within the second country. Therefore, DEA anticipates that reexporters will, themselves, seek to complete the reexport well within 90 days of arriving within the first country. DEA welcomes comments on these and any other relevant considerations. Treaty Considerations The first two subsections of the 2005 Act pertain to the Single Convention on Narcotic Drugs, 1961 (Single Convention), and the Convention on Psychotropic Substances, 1971 (Psychotropic Convention). Under these provisions, a reexport may take place only if both the first and second country are parties to both treaties and only if the Attorney General
(DEA)determines that both the first country and the second country maintain an adequate system of controls in conformity with the treaties. Thus, Congress expressly intended that reexports take place in accordance with the treaties. The control measures imposed under the 2005 Act, along with the regulations being proposed here, are intended to work in tandem with the international control regimes under the treaties. The ultimate goal of the 2005 Act and this proposed rule is to permit exportation of controlled substances in Schedules I and II and narcotic controlled substances in Schedules III and IV from the United States to a first country for subsequent exportation to one or more second countries while preventing international diversion resulting from reexports. Whenever considering safeguards against diversion of international shipments, one must bear in mind the backdrop of the treaties. Toward this end, the following treaty principles are noted. Under the Single Convention, each country that is a party to the treaty is required to furnish the International Narcotics Control Board
(INCB)with annual estimates of, among other things, the quantities of narcotic drugs on hand, the anticipated amounts that will be consumed by the party for legitimate purposes, and the anticipated production quantities. The Single Convention also requires parties to furnish the INCB with statistical returns for the prior year, indicating the amounts of drugs produced, utilized, consumed, imported, exported, seized, disposed of, and in stock. The Psychotropic Convention requires the parties to provide the INCB with statistical reports and assessments containing similar information with respect to psychotropic substances. Through the collection of this information, the INCB provides exporting countries with information on the legitimate requirements of the importing countries and can take steps to reduce the likelihood of international diversion. For example, the INCB may notify parties if the quantity of drugs exported to a particular country exceeded the estimates for that country. Parties that receive such notification from the INCB are prohibited from authorizing further exports of the drug concerned to that country. The United States has always viewed as critical its obligation to work with the INCB closely to monitor imports and exports, and to take additional appropriate measures to safeguard against diversion. Therefore, based on the principles of the Single Convention and Psychotropic Convention pertaining to international drug control, and based on the requirements of the Controlled Substances Export Reform Act regarding the reporting of reexportations, DEA is proposing the additional requirements discussed above to ensure that DEA has the information necessary to determine whether controlled substances shipments intended for reexportation are occurring as initially reported to DEA or being diverted to illicit purposes. Issuance of Permits Under the 2005 Act, before a controlled substance can be exported for subsequent reexport, the exporter must obtain from DEA a permit that authorizes the export for this purpose. Consistent with the 2005 Act, DEA may only issue such permit if each of the conditions specified in the Act is met. Each of these conditions is restated in the proposed rule. Although most of these conditions are self-explanatory, some additional explanation is warranted. First, as the proposed rule indicates, DEA will be issuing a new application form, DEA Form 161-r, for a permit to export controlled substances for subsequent reexport in accordance with the 2005 Act. The proposed rule also indicates what will constitute “substantial evidence” for purposes of subsection
(4)of the 2005 Act. Specifically, if on the completed DEA 161-r, the applicant has identified an appropriately licensed or permitted consignee in the second country and certified that the second country is a party to the Conventions and maintains a system of controls of imports consistent with the requirements of the treaties, and so affirmed in the affidavit section of the application, DEA will consider this substantial evidence that a permit or license to import the controlled substance will be issued by the second country. Reexportation to More Than One Second Country DEA believes it is consistent with the text, structure, and purpose of the 2005 Act to allow a shipment of controlled substances to be exported from the United States to a “first country” for reexport to more than one “second country,” (but not further export from any second country to a third country) provided the exporter notifies DEA of such intent in the application for export permit, and provided further that the statute is fully complied with in all other respects. The proposed rule expressly provides for reexport to more than one second country, and the new Form 161-r will be structured accordingly. For example, DEA must be able to determine, based on information contained in the permit application (DEA Form 161-r), that each named second country is a party to the Single Convention and Psychotropic Convention and that each such country has instituted and maintains, in conformity with such treaties, a system of controls that DEA deems adequate. Refused Shipments Under current DEA regulations, 21 CFR 1312.27(b)(5), it is permissible under the conditions specified therein to reexport non-narcotic controlled substances in Schedules III and IV, and controlled substances in Schedule V. Subsection 1312.27(b)(5)(iv) of this existing regulation addresses the situation where a shipment has been exported from the United States but is refused by the consignee in the country of destination (the second country), or is otherwise unacceptable or undeliverable. The rule being proposed here would apply the same type of procedures set forth in subsection 1312.27(b)(5)(iv) to reexports under the 2005 Act, whereby the exporter may seek permission from DEA, in appropriate circumstances, to return the shipment to the registered exporter in the United States. Regulatory Certifications Regulatory Flexibility Act The Deputy Assistant Administrator hereby certifies that this rulemaking has been drafted in accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed this regulation, and by approving it certifies that this regulation will not have a significant economic impact on a substantial number of small entities. This rulemaking permits Schedule I and II controlled substances, and narcotic controlled substances in Schedules III and IV, to be exported from the United States to the first country for subsequent reexport to second countries for consumption. Previously such reexportation was not permitted within DEA law and regulations. Executive Order 12866 The Deputy Assistant Administrator further certifies that this rulemaking has been drafted in accordance with the principles in Executive Order 12866 § 1(b). DEA has determined that this is a significant regulatory action. Therefore, this action has been reviewed by the Office of Management and Budget. Executive Order 12988 This regulation meets the applicable standards set forth in §§ 3(a) and 3(b)(2) of Executive Order 12988 Civil Justice Reform. Executive Order 13132 This rulemaking does not preempt or modify any provision of state law; nor does it impose enforcement responsibilities on any state; nor does it diminish the power of any state to enforce its own laws. Accordingly, this rulemaking does not have federalism implications warranting the application of Executive Order 13132. Unfunded Mandates Reform Act of 1995 This rule will not result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $118,000,000 or more in any one year, and will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995. Paperwork Reduction Act of 1995 The Department of Justice, Drug Enforcement Administration, is revising the information collection entitled “Application for Permit to Export Controlled Substances”, by adding a new DEA Form 161-r to be used by persons applying for a permit to reexport controlled substances in Schedules I and II, and narcotic controlled substances in Schedules III and IV. DEA has submitted the new DEA Form 161-r and the information collection request to the Office of Management and Budget for review and clearance in accordance with review procedures of the Paperwork Reduction Act of 1995. The proposed information collection is published to obtain comments from the public and affected agencies. All comments and suggestions, or questions regarding additional information, to include obtaining a copy of the proposed information collection instrument with instructions, should be directed to Mark W. Caverly, Chief, Liaison and Policy Section, Office of Diversion Control, Drug Enforcement Administration, Washington, DC 20537, *Telephone:*
(202)307-7297. Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Comments should address one or more of the following four points:
(1)Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
(2)Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
(3)Enhance the quality, utility, and clarity of the information to be collected; and
(4)Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses. Overview of this information collection:
(1)*Type of Information Collection:* Revision of an existing collection.
(2)*Title of the Form/Collection:* Application for Permit to Export Controlled Substances.
(3)*Agency form number, if any, and the applicable component of the Department of Justice sponsoring the collection:* *Form Number:* DEA Form 161, Application for Permit to Export Controlled Substances; DEA Form 161-r, Application for Permit to Export Controlled Substances for Subsequent Reexport. Office of Diversion Control, Drug Enforcement Administration, U.S. Department of Justice.
(4)*Affected public who will be asked or required to respond, as well as a brief abstract:* *Primary:* Business or other for-profit. *Other:* None. *Abstract:* Title 21 CFR 1312.21 and 1312.22 require persons who export controlled substances in Schedules I and II and who reexport controlled substances in Schedules I and II and narcotic controlled substances in Schedules III and IV to obtain a permit from DEA. Information is used to issue export permits, exercise control over exportation of controlled substances, and compile data for submission to the United Nations to comply with treaty requirements.
(5)An estimate of the total number of respondents and the amount of time estimated for an average respondent to respond: It is estimated that 90 respondents will respond, with submissions as follows: Number of responses Average time per response Total (hours) DEA Form 161 (exportation only) 2,200 30 minutes (0.5 hours) 1,100 DEA Form 161-r (reexportation) 400 45 minutes (0.75 hours) 300 Certification of exportation from United States to first country 400 15 minutes (0.25 hours) 100 Certification of reexportation from first country to second country* 1,200 15 minutes (0.25 hours) 300 Total 4,200 1,800 *Assumes three separate reexports to second countries.
(6)An estimate of the total public burden (in hours) associated with the collection: The total public burden (in hours) for this collection is estimated to be 1,800 hours. Small Business Regulatory Enforcement Fairness Act of 1996 This rule is not a major rule as defined by Section 804 of the Small Business Regulatory Enforcement Fairness Act of 1996. This rule will not result in an annual effect on the economy of $100,000,000 or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets. List of Subjects in 21 CFR Part 1312 Administrative practice and procedure, Drug traffic control, Exports, Imports, Reporting and recordkeeping requirements. For the reasons set out above, 21 CFR part 1312 is proposed to be amended as follows: PART 1312—IMPORTATION AND EXPORTATION OF CONTROLLED SUBSTANCES [AMENDED] 1. The authority citation for part 1312 continues to read as follows: Authority: 21 U.S.C. 952, 953, 954, 957, 958. 2. § 1312.22 is proposed to be amended by revising paragraph
(a)and adding paragraphs
(c)through
(e)to read as follows: § 1312.22 Application for export permit.
(a)An application for a permit to export controlled substances shall be made on DEA Form 161, and an application for a permit to reexport controlled substances shall be made on DEA Form 161-r. Forms may be obtained from, and shall be filed with, the Drug Enforcement Administration, Import/Export Unit, Washington, DC 20537. Each application shall show the exporter's name, address, and registration number; a detailed description of each controlled substance desired to be exported including the drug name, dosage form, National Drug Code
(NDC)number, the Administration Controlled Substance Code Number as set forth in Part 1308 of this chapter, the number and size of packages or containers, the name and quantity of the controlled substance contained in any finished dosage units, and the quantity of any controlled substance (expressed in anhydrous acid, base, or alkaloid) given in kilograms or parts thereof. The application shall include the name, address, and business of the consignee, foreign port of entry, the port of exportation, the approximate date of exportation, the name of the exporting carrier or vessel (if known, or if unknown it should be stated whether shipment will be made by express, freight, or otherwise, exports of controlled substances by mail being prohibited), the date and number, if any, of the supporting foreign import license or permit accompanying the application, and the authority by whom such foreign license or permit was issued. The application shall also contain an affidavit that the packages are labeled in conformance with obligations of the United States under international treaties, conventions, or protocols in effect on May 1, 1971. The affidavit shall further state that to the best of affiant's knowledge and belief, the controlled substances therein are to be applied exclusively to medical or scientific uses within the country to which exported, will not be reexported therefrom and that there is an actual need for the controlled substance for medical or scientific uses within such country, unless the application is submitted for reexport in accordance with paragraphs
(c)and
(d)of this section. In the case of exportation of crude cocaine, the affidavit may state that to the best of affiant's knowledge and belief, the controlled substances will be processed within the country to which exported, either for medical or scientific use within that country or for reexportation in accordance with the laws of that country to another for medical or scientific use within that country. The application shall be signed and dated by the exporter and shall contain the address from which the substances will be shipped for exportation.
(c)Notwithstanding paragraphs
(a)and
(b)of this section, the Administration may authorize any controlled substance listed in Schedule I or II, or any narcotic drug listed in Schedule III or IV, to be exported from the United States to a country for subsequent export from that country to another country, if each of the following conditions is met, in accordance with § 1003(f) of the Controlled Substances Import and Export Act (21 U.S.C. 953(f)):
(1)Both the country to which the controlled substance is exported from the United States (referred to in this section as the “first country”) and the country to which the controlled substance is exported from the first country (referred to in this section as the “second country”) are parties to the Single Convention on Narcotic Drugs, 1961, and the Convention on Psychotropic Substances, 1971;
(2)The first country and the second country have each instituted and maintain, in conformity with such Conventions, a system of controls of imports of controlled substances which the Administration deems adequate;
(3)With respect to the first country, the controlled substance is consigned to a holder of such permits or licenses as may be required under the laws of such country, and a permit or license to import the controlled substance has been issued by the country;
(4)With respect to the second country, substantial evidence is furnished to the Administration by the applicant for the export permit that—
(i)The controlled substance is to be consigned to a holder of such permits or licenses as may be required under the laws of such country, and a permit or license to import the controlled substance is to be issued by the country; and
(ii)The controlled substance is to be applied exclusively to medical, scientific, or other legitimate uses within the country;
(5)The controlled substance will not be exported from the second country;
(6)The person who exported the controlled substance from the United States has complied with paragraph
(d)of this section and a permit to export the controlled substance from the United States has been issued by the Administration; and
(7)Within 30 days after the controlled substance is exported from the first country to the second country, the person who exported the controlled substance from the United States must deliver to the Administration documentation certifying that such export from the first country has occurred. If the permit issued by the Administration authorized the reexport of a controlled substance from the first country to more than one second country, notification of each individual reexport shall be provided. This documentation shall be submitted on company letterhead, signed by the responsible company official, and shall include the following information:
(i)Name of second country;
(ii)Actual quantity shipped;
(iii)Actual date shipped; and
(iv)DEA export permit number for the original export.
(d)Where a person is seeking to export a controlled substance for reexport in accordance with paragraph
(c)of this section, the following requirements shall apply in addition to (and not in lieu of) the requirements of paragraphs
(a)and
(b)of this section:
(1)Bulk substances will not be reexported in the same form as exported from the United States, i.e., the material must undergo further manufacturing process. This further manufactured material may only be reexported to a country of ultimate consumption.
(2)Finished dosage units, if reexported, must be in a commercial package, properly sealed and labeled for legitimate medical use in the country of destination (the second country);
(3)Any proposed reexportation must be made known to the Administration at the time the initial DEA Form 161-r is submitted. In addition, the following information must also be provided where indicated on the form:
(i)Whether the drug or preparation will be reexported in bulk or finished dosage units;
(ii)The product name, dosage strength, commercial package size, and quantity;
(iii)The name of consignee, complete address, and expected shipment date, as well as the name and address of the ultimate consignee in the country to where the substances will be reexported.
(4)The application (DEA Form 161-r) must also contain an affidavit that the consignee in the country of ultimate destination (the second country) is authorized under the laws and regulations of the country of ultimate destination to receive the controlled substances. The affidavit must also contain the following statement, in addition to the statements required under paragraph
(a)of this section:
(i)That the packages are labeled in conformance with the obligations of the United States under the Single Convention on Narcotic Drugs, 1961, the Convention on Psychotropic Substances, 1971, and any amendments to such treaties;
(ii)That the controlled substances are to be applied exclusively to medical or scientific uses within the country to which reexported (the second country);
(iii)That the controlled substances will not be further reexported from the second country, and
(iv)That there is an actual need for the controlled substances for medical or scientific uses within the second country.
(5)If the applicant proposes that the shipment of controlled substances will be separated into parts after it arrives in the first country and then reexported to more than one second country, the applicant shall so indicate on the DEA Form 161-r, providing all the information required in this section for each second country.
(6)Within 30 days after the controlled substance is exported from the United States, the person who exported the controlled substance shall deliver to the Administration documentation on the DEA Form 161-r initially completed for the transaction certifying that such export occurred. This documentation shall be signed by the responsible company official and shall include the following information:
(i)Actual quantity shipped;
(ii)Actual date shipped; and
(iii)DEA export permit number.
(7)The controlled substance will be reexported from the first country to the second country (or second countries) no later than 90 days after the controlled substance was exported from the United States.
(8)Shipments that have been exported from the United States and are refused by the consignee in the country of destination (the second country), or are otherwise unacceptable or undeliverable, may be returned to the registered exporter in the United States upon authorization of the Administration. In these circumstances, the exporter in the United States shall file a written request for the return of the controlled substances to the United States with a brief summary of the facts that warrant the return, along with a completed DEA Form 357, Application for Import Permit, with the Drug Enforcement Administration, Import/Export Unit, Washington, DC 20537. The Administration will evaluate the request after considering all the facts as well as the exporter's registration status with the Administration. If the exporter provides sufficient documentation, the Administration will issue an import permit for the return of these drugs, and the exporter can then obtain an export permit from the country of original importation. The substance may be returned to the United States only after affirmative authorization is issued in writing by the Administration.
(e)In considering whether to grant an application for a permit under paragraphs
(c)and
(d)of this section, the Administration shall consider whether the applicant has previously obtained such a permit and, if so, whether the applicant complied fully with the requirements of this section. 3. Section 1312.23 is proposed to be amended by revising paragraphs
(a)and
(f)to read as follows: § 1312.23 Issuance of export permit.
(a)The Administration may authorize exportation of any controlled substance listed in Schedule I or II or any narcotic controlled substance listed in Schedule III or IV if he finds that such exportation is permitted by subsections 1003(a), (b), (c), (d), or
(f)of the Act (21 U.S.C. § 953(a), (b), (c), (d), or (f).
(f)No export permit shall be issued for the exportation, or reexportation, of any controlled substance to any country when the Administration has information to show that the estimates or assessments submitted with respect to that country for the current period, under the Single Convention on Narcotic Drugs, 1961, or the Convention on Psychotropic Substances, 1971, have been, or, considering the quantity proposed to be imported, will be exceeded. If it shall appear through subsequent advice received from the International Narcotics Control Board of the United Nations that the estimates or assessments of the country of destination have been adjusted to permit further importation of the controlled substance, an export permit may then be issued if otherwise permissible. Dated: October 10, 2006. Joseph T. Rannazzisi, Deputy Assistant Administrator, Office of Diversion Control. [FR Doc. E6-17275 Filed 10-17-06; 8:45 am] BILLING CODE 4410-09-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG-141901-05] RIN 1545-BE92 Exchanges of Property for an Annuity AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking and notice of public hearing. SUMMARY: This document contains proposed regulations that provide guidance on the taxation of the exchange of property for an annuity contract. These regulations are necessary to outline the proper taxation of these exchanges and will affect participants in transactions involving these exchanges. This document also provides notice of public hearing. DATES: Written or electronic comments must be received by January 16, 2007. Outlines of topics to be discussed at the public hearing scheduled for February 16, 2007, at 10 a.m. must be received by January 16, 2007. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-141901-05), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered to CC:PA:LPD:PR (REG-141901-05), Courier's Desk, Internal Revenue Service, Crystal Mall 4 Building, 1901 S. Bell St., Arlington, VA, or sent electronically, via the IRS Internet site at *http://www.irs.gov/regs* or via the Federal eRulemaking Portal at *http://www.regulations.gov* (IRS and REG-141901-05). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, James Polfer, at
(202)622-3970; concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Kelly Banks, at
(202)622-0392 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background This document contains proposed amendments to the Income Tax Regulations. Section 1001 of the Internal Revenue Code
(Code)provides rules for determining the amount of gain or loss recognized. Gain from the sale or other disposition of property equals the excess of the amount realized therefrom over the adjusted basis of the property; loss from the sale or other disposition of property equals the excess of the adjusted basis of the property over the amount realized. Section 1.1001-1(a) of the Income Tax Regulations provides further that the exchange of property for other property differing materially either in kind or in extent is treated as income or as loss sustained. Under section 1001(b), the amount realized from the sale or other disposition of property is the sum of any money received plus the fair market value of any property (other than money) received. Except as otherwise provided in the Code, the entire amount of gain or loss on the sale or exchange of property is recognized. Under section 72(a), gross income includes any amount received as an annuity (whether for a period certain or for the life or lives of one or more individuals) under an annuity, endowment, or life insurance contract. Section 72(b) provides that gross income does not include that part of any amount received as an annuity which bears the same ratio to such amount as the investment in the contract bears to the expected return under the contract. Under section 72(e), amounts received under an annuity contract before the annuity starting date are included in gross income to the extent allocable to income on the contract, and are excluded from gross income to the extent allocable to the investment in the contract. Investment in the contract is defined in section 72(c) as the aggregate amount of premiums or other consideration paid, reduced by amounts received before the annuity starting date that were excluded from gross income. In *Lloyd* v. *Commissioner* , 33 B.T.A. 903 (1936), *nonacq.* , XV-2 CB 39 (1936), *nonacq. withdrawn and acq.* , 1950-2 CB 3, the Board of Tax Appeals considered the taxation of gain from a father's sale of property to his son for an annuity contract. The Board concluded that the annuity contract had no fair market value within the meaning of the predecessor of section 1001(b) because of the uncertainty of payment from the son. Because the annuity contract had no fair market value under that provision, the Board held that the gain from the sale of the property was not required to be recognized immediately but rather would be included in income only when the annuity payments exceeded the property's basis. In reaching its holding, the Board applied the open transaction doctrine articulated by the Supreme Court in *Burnet* v. *Logan* , 283 U.S. 404 (1931). Under this doctrine, if an amount realized from a sale cannot be determined with certainty, the seller recovers the basis of the property sold before any income is realized on the sale. In Rev. Rul. 69-74, 1969-1 CB 43, a father transferred a capital asset having an adjusted basis of $20,000 and a fair market value of $60,000 to his son in exchange for the son's legally enforceable promise to pay him a life annuity of $7,200 per year, in equal monthly installments of $600. The present value of the life annuity was $47,713.08. The ruling concluded that:
(1)The father realized capital gain based on the difference between the father's basis in the property and the present value of the annuity;
(2)the gain was reported ratably over the father's life expectancy;
(3)the investment in the contract for purposes of computing the exclusion ratio was the father's basis in the property transferred;
(4)the excess of the fair market value of the property transferred over the present value of the annuity was a gift from the father to the son; and
(5)the prorated capital gain reported annually was derived from the portion of each annuity payment that was not excludible. In *Estate of Bell* v. *Commissioner,* 60 T.C. 469 (1973), *acq. in part and nonacq. in part,* 1974 WL 36039 (Jan. 8, 1974), *acq.* , AOD No. 1979-184 (August 15, 1979), a husband and wife transferred stock in two closely held corporations to their son and daughter and their spouses in exchange for an annuity contract. The fair market value of the stock substantially exceeded the value of the annuity contract. The stock transferred was placed in escrow to secure the promise of the transferees. As further security, the annuity agreement provided for a cognovit judgment against the transferees in the event of default. Because of the secured nature of the annuity, the tax court held that
(i)the difference between the value of the stock and the value of the annuity contract constituted a gift;
(ii)the difference between the adjusted basis of the stock and the value of the annuity contract constituted gain that was taxable in the year of the transfer (which was not before the court); and
(iii)the investment in the annuity contract equaled the present value of the annuity. Similarly, in *212 Corp.* v. *Commissioner,* 70 T.C. 788 (1978), the tax court held that the entire amount of gain realized from the exchange of appreciated real property for an annuity contract was fully taxable in the year of the exchange because the annuity contract was secured by
(i)an agreement that the annuity payments would be considered a charge against the rents from the property,
(ii)an agreement not to mortgage or sell the property without written consent of the transferors, and
(iii)the authorization of a confession of judgment against the transferee in the event of default. The Treasury Department and the IRS have learned that some taxpayers are inappropriately avoiding or deferring gain on the exchange of highly appreciated property for the issuance of annuity contracts. Many of these transactions involve private annuity contracts issued by family members or by business entities that are owned, directly or indirectly, by the annuitants themselves or by their family members. Many of these transactions involve a variety of mechanisms to secure the payment of amounts due under the annuity contracts. The Treasury Department and the IRS believe that neither the open transaction approach of *Lloyd* v. *Commissioner* nor the ratable recognition approach of Rev. Rul. 69-74 clearly reflects the income of the transferor of property in exchange for an annuity contract. Contrary to the premise underlying these authorities, an annuity contract—whether secured or unsecured—may be valued at the time it is received in exchange for property. See generally section 7520 (requiring the use of tables to value any annuity contract for federal income tax purposes, except for purposes of any provision specified in regulations); § 1.1001-1(a) (“The fair market value of property is a question of fact, but only in rare and unusual circumstances will property be considered to have no fair market value.”). The Treasury Department and the IRS believe that the transferors should be taxed in a consistent manner regardless of whether they exchange property for an annuity or sell that property and use the proceeds to purchase an annuity. Explanation of Provisions These proposed amendments provide that, if an annuity contract is received in exchange for property (other than money),
(i)the amount realized attributable to the annuity contract is the fair market value (as determined under section 7520) of the annuity contract at the time of the exchange;
(ii)the entire amount of the gain or loss, if any, is recognized at the time of the exchange, regardless of the taxpayer's method of accounting; and
(iii)for purposes of determining the initial investment in the annuity contract under section 72(c)(1), the aggregate amount of premiums or other consideration paid for the annuity contract equals the amount realized attributable to the annuity contract (the fair market value of the annuity contract). Thus, in situations where the fair market value of the property exchanged equals the fair market value of the annuity contract received, the investment in the annuity contract equals the fair market value of the property exchanged for the annuity contract. In order to apply the proposed regulations to an exchange of property for an annuity contract, taxpayers will need to determine the fair market value of the annuity contract as determined under section 7520. In the case of an exchange of property for an annuity contract that is in part a sale and in part a gift, the proposed regulations apply the same rules that apply to any other such exchange under section 1001. The proposed regulations provide that, for purposes of determining the investment in the annuity contract under section 72(c)(1), the aggregate amount of premiums or other consideration paid for the annuity contract is the portion of the amount realized on the exchange that is attributable to the annuity contract (which is the fair market value of the annuity contract at the time of the exchange). This rule is intended to ensure that no portion of the gain or loss on the exchange is duplicated or omitted by the application of section 72 in the years after the exchange. The annuitant's investment in the contract would be reduced in subsequent years under section 72(c)(1)(B) for amounts already received under the contract subsequent to the exchange and excluded from gross income when received as a return of the annuitant's investment in the contract. The proposed regulations do not distinguish between secured and unsecured annuity contracts, or between annuity contracts issued by an insurance company subject to tax under subchapter L and those issued by a taxpayer that is not an insurance company. Instead, the proposed regulations provide a single set of rules that leave the transferor and transferee in the same position before tax as if the transferor had sold the property for cash and used the proceeds to purchase an annuity contract. The same rules would apply whether the exchange produces a gain or loss. The regulations do not, however, prevent the application of other provisions, such as section 267, to limit deductible losses in the case of some exchanges. The proposed regulations apply to exchanges of property for an annuity contract, regardless of whether the property is exchanged for a newly issued annuity contract or whether the property is exchanged for an already existing annuity contract. Existing regulations in § 1.1011-2 govern the tax treatment of an exchange of property that constitutes a bargain sale to a charitable organization (including an exchange of property for a charitable gift annuity). Example 8 in section 2(c) of those regulations provides that any gain on such an exchange is reported ratably, rather than entirely in the year of the exchange. This notice of proposed rulemaking does not propose to change the existing regulations in § 1.1011-2. However, comments are requested as to whether a change should be made in the future to conform the tax treatment of exchanges governed by § 1.1011-2 to the tax treatment prescribed in these proposed regulations. The Treasury Department and the IRS are aware that property is sometimes exchanged for an annuity contract, including a private annuity contract, for valid, non-tax reasons related to estate planning and succession planning for closely held businesses. The proposed regulations are not intended to frustrate these transactions, but will ensure that income from the transactions is accounted for in the appropriate periods. In section 453, Congress set forth rules permitting the deferral of income from a transaction that qualifies as an installment sale. Taxpayers retain the ability to structure transactions as installment sales within the meaning of section 453(b), provided the other requirements of section 453 are met. The Treasury Department and IRS request comments as to the circumstances, if any, in which an exchange of property for an annuity contract should be treated as an installment sale, and as to any changes to the regulations under section 453 that might be advisable with regard to those circumstances. Proposed Effective Date The Treasury Department and the IRS propose § 1.1001-1(j) to be effective generally for exchanges of property for an annuity contract after October 18, 2006. Thus, the regulations would not apply to amounts received after October 18, 2006 under annuity contracts that were received in exchange for property before that date. For a limited class of transactions, however, § 1.1001-1(j) is proposed to be effective for exchanges of property for an annuity contract after April 18, 2007. The Treasury Department and the IRS propose § 1.72-6(e) to be effective generally for annuity contracts received in such exchanges after October 18, 2006. For a limited class of transactions, however, § 1.72-6(e) is proposed to be effective for annuity contracts received in exchange for property after April 18, 2007. The Treasury Department and the IRS also propose to declare Rev. Rul. 69-74 obsolete effective contemporaneously with the effective date of these regulations. Thus, the obsolescence would be effective April 18, 2007 for exchanges described in § 1.1001-1(j)(2)(ii) and § 1.72-6(e)(2)(ii), and effective October 18, 2006 for all other exchanges of property for an annuity contract. In both regulations, the effective date is delayed for six months for transactions in which
(i)the issuer of the annuity contract is an individual;
(ii)the obligations under the annuity contract are not secured, either directly or indirectly; and
(iii)the property transferred in the exchange is not subsequently sold or otherwise disposed of by the transferee during the two-year period beginning on the date of the exchange. The Treasury Department and the IRS believe that the later proposed effective date for these transactions provides ample notice of the proposed rules for taxpayers currently planning transactions that present the least opportunity for abuse. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulation flexibility analysis is not required. This certification is based on the fact that typically only natural persons within the meaning of section 72(u) exchange property for an annuity contract. In addition, these regulations do not impose new reporting, recordkeeping, or other compliance requirements on taxpayers. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight
(8)copies) or electronic comments that are timely submitted to the IRS. In addition to comments on the proposed regulations more generally, the Treasury Department and the IRS specifically request comments on
(i)the clarity of the proposed regulations and how they can be made easier to understand;
(ii)what guidance, if any, is needed in addition to Rev. Rul. 55-119, 1955-1 CB 352, see § 601.601(d)(2), on the treatment of the issuer of an annuity contract that is not taxed under the provisions of subchapter L of the Code;
(iii)whether any changes to § 1.1011-2 (concerning a bargain sale to a charitable organization in exchange for an annuity contract), conforming those regulations to the proposed regulations, would be appropriate;
(iv)circumstances (and corresponding changes to the regulations under section 453, if any) in which it might be appropriate to treat an exchange of property for an annuity contract as an installment sale;
(v)circumstances, if any, in which the fair market value of an annuity contract for purposes of § 1.1001-1(j) should be determined other than by tables promulgated under the authority of section 7520; and
(vi)additional transactions, if any, for which the six month delayed effective date would be appropriate. All comments will be available for public inspection and copying. A public hearing has been scheduled for February 16, 2007, at 10 a.m., in the auditorium, Internal Revenue Service, New Carrollton Building, 5000 Ellin Road, Lanham, MD 20706. All visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area lobby more than 30 minutes before the hearing starts. For information about having your name placed on the access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT portion of this preamble. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit written comments by January 16, 2007, and submit an outline of the topics to be discussed and the time to be devoted to each topic (a signed original and eight
(8)copies) by that same date. A period of 10 minutes will be allotted to each person making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. Drafting Information The principal author of these proposed regulations is James Polfer, Office of the Associate Chief Counsel (Financial Institutions and Products), Internal Revenue Service. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Proposed Amendment to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAX **Paragraph 1.** The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2.** In § 1.72-6, paragraph
(e)is added to read as follows: § 1.72-6 Investment in the contract.
(e)*Certain annuity contracts received in exchange for property* —(1) *In general.* If an annuity contract is received in an exchange subject to § 1.1001-1(j), the aggregate amount of premiums or other consideration paid for the contract equals the amount realized attributable to the annuity contract, determined according to § 1.1001-1(j).
(2)*Effective date* —(i) *In general.* Except as provided in paragraph (e)(2)(ii), this paragraph
(e)is applicable for annuity contracts received after October 18, 2006 in an exchange subject to § 1.1001-1(j).
(ii)This paragraph
(e)is applicable for annuity contracts received after April 18, 2007 in an exchange subject to § 1.1001-1(j) if the following conditions are met—
(A)The issuer of the annuity contract is an individual;
(B)The obligations under the annuity contract are not secured, either directly or indirectly; and
(C)The property transferred in exchange for the annuity contract is not subsequently sold or otherwise disposed of by the transferee during the two-year period beginning on the date of the exchange. For purposes of this provision, a disposition includes without limitation a transfer to a trust (whether a grantor trust, a revocable trust, or any other trust) or to any other entity even if solely owned by the transferor. **Par. 3.** In § 1.1001-1, paragraphs (h),
(i)and
(j)are added to read as follows: § 1.1001-1 Computation of gain or loss.
(h)[Reserved.]
(i)[Reserved.]
(j)*Certain annuity contracts received in exchange for property* —(1) *In general.* If an annuity contract (other than an annuity contract that either is a debt instrument subject to sections 1271 through 1275, or is received from a charitable organization in a bargain sale governed by § 1.1011-2) is received in exchange for property, receipt of the contract shall be treated as a receipt of property in an amount equal to the fair market value of the contract, whether or not the contract is the equivalent of cash. The amount realized attributable to the annuity contract is the fair market value of the annuity contract at the time of the exchange, determined under section 7520. For the timing of the recognition of gain or loss, if any, *see* § 1.451-1(a). In the case of a transfer in part a sale and in part a gift, *see* paragraph
(e)of this section. In the case of an annuity contract that is a debt instrument subject to sections 1271 through 1275, *see* paragraph
(g)of this section. In the case of a bargain sale to a charitable organization, *see* § 1.1011-2.
(2)*Effective date* —(i) *In general.* Except as provided in paragraph (j)(2)(ii), this paragraph
(j)is effective for exchanges of property for an annuity contract (other than an annuity contract that either is a debt instrument subject to sections 1271 through 1275, or is received from a charitable organization in a bargain sale governed by § 1.1011-2) after October 18, 2006.
(ii)This paragraph
(j)is effective for exchanges of property for an annuity contract (other than an annuity contract that either is a debt instrument subject to sections 1271 through 1275, or is received from a charitable organization in a bargain sale governed by § 1.1011-2) after April 18, 2006 if the following conditions are met—
(A)The issuer of the annuity contract is an individual;
(B)The obligations under the annuity contract are not secured, either directly or indirectly; and
(C)The property transferred in exchange for the annuity contract is not subsequently sold or otherwise disposed of by the transferee during the two-year period beginning on the date of the exchange. For purposes of this provision, a disposition includes without limitation a transfer to a trust (whether a grantor trust, a revocable trust, or any other trust) or to any other entity even if solely owned by the transferor. Mark E. Matthews, Deputy Commissioner for Services and Enforcement. [FR Doc. E6-17301 Filed 10-17-06; 8:45 am] BILLING CODE 4830-01-P GENERAL SERVICES ADMINISTRATION 41 CFR Part 102-35 [FMR Case 2004-102-1; Docket 2006-0001; Sequence 3] RIN 3090-AH93 Federal Management Regulation; Disposition of Personal Property AGENCY: Office of Governmentwide Policy, General Services Administration (GSA). ACTION: Proposed rule; reopening of comment period. SUMMARY: The General Services Administration is reopening the comment period for the subject proposed rule. The proposed rule pertains to amending the Federal Management Regulation
(FMR)by revising coverage on personal property and moving it into Subchapter B of the FMR. A proposed rule was published in the **Federal Register** on September 12, 2006 (71 FR 53646). DATES: Interested parties should submit comments in writing on or before November 17, 2006 to be considered in the formulation of a final rule. ADDRESSES: Submit comments identified by FMR case 2004-102-1 by any of the following methods: • Federal eRulemaking Portal: *http://www.regulations.gov* . Search for any document by first selecting the proper document types and selecting “General Services Administration” as the agency of choice. At the “Keyword” prompt, type in the FMR case number (for example, FMR Case 2006-102-1) and click on the “Submit” button. You may also search for any document by clicking on the “Advanced search/document search” tab at the top of the screen, selecting from the agency field “General Services Administration”, and typing the FMR case number in the keyword field. Select the “Submit” button. • Fax: 202-501-4067. • Mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW., Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405. *Instructions* : Please submit comments only and cite FMR case 2004-102-1 in all correspondence related to this case. All comments received will be posted without change to *http://www.regulations.gov* , including any personal information provided. FOR FURTHER INFORMATION CONTACT: Mr. Robert Holcombe, Office of Governmentwide Policy, Personal Property Management Policy, at
(202)501-3828, or e-mail at *robert.holcombe@gsa.gov* , for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat at
(202)501-4755, Room 4035, GS Building, Washington, DC, 20405. Please cite FMR case 2004-102-1. Dated: October 12, 2006. Russ H. Pentz, Assistant Deputy Associate Administrator. [FR Doc. E6-17340 Filed 10-17-06; 8:45 am] BILLING CODE 6820-14-S DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Part 423 [CMS-4119-P] RIN # 0938-AO58 Medicare Program; Medicare Part D Data AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Proposed rule. SUMMARY: This proposed rule would allow the Secretary to use the claims information that is now being collected for Part D payment purposes for other research, analysis, reporting, and public health functions. The Secretary needs to use this data because other publicly available data are not, in and of themselves, sufficient for the studies and operations that the Secretary needs to undertake as part of the Department of Health and Human Service's obligation to oversee the Medicare program, protect the public health, and respond to Congressional mandates. DATES: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on December 18, 2006. ADDRESSES: In commenting, please refer to file code CMS-4119-P. Because of staff and resource limitations, we cannot accept comments by facsimile
(FAX)transmission. You may submit comments in one of four ways (no duplicates, please): 1. *Electronically.* You may submit electronic comments on specific issues in this regulation to *http://www.cms.hhs.gov/eRulemaking* . Click on the link “Submit electronic comments on CMS regulations with an open comment period.” (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word.) 2. *By regular mail.* You may mail written comments (one original and two copies) to the following address *only:* Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-4119-P, P.O. Box 8017, Baltimore, MD 21244-8017. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. *By express or overnight mail.* You may send written comments (one original and two copies) to the following address *only:* Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-4119-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. *By hand or courier.* If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses. If you intend to deliver your comments to the Baltimore address, please call telephone number
(410)786-7195 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. For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section. FOR FURTHER INFORMATION CONTACT: Alissa DeBoy,
(410)786-6041; Nancy DeLew,
(202)690-7351. SUPPLEMENTARY INFORMATION: *Submitting Comments:* We welcome comments from the public on all issues set forth in this proposed rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-4119-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. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: *http://www.cms.hhs.gov/eRulemaking* . Click on the link “Electronic Comments on CMS Regulations” on that Web site to view public comments. Comments received timely will also 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. I. Background A. Introduction Under the Social Security Act (the Act), the Secretary has the authority to include in Part D sponsor contracts any terms or conditions the Secretary deems necessary and appropriate, including requiring the organization to provide the Secretary with such information as the Secretary may find necessary and appropriate. ( *See* section 1857(e)(1) of the Act as incorporated into Part D through section 1860D-12(b)(3)(D) of the Act.) We propose to implement section 1860D-12(b)(3)(D) of the Act to allow the Secretary to collect the same claims information now collected under the authority of section 1860D-15 of the Act for research, internal analysis, oversight, and public health purposes. While the purposes underlying such collection are discussed in more detail under this proposed rule, they include evaluating the new prescription drug benefit, including its effectiveness and impact on health outcomes, performing Congressionally mandated or other demonstration projects and studies, reporting to Congress and the public regarding expenditures and other statistics involving the new Medicare prescription drug benefit, studying and reporting on the Medicare program as a whole, and creating a research resource for the evaluation of utilization and outcomes associated with the use of prescription drugs. We note that because this proposed rule would apply to all Part D sponsors, it would apply to any entity offering a Part D plan, including both prescription drug plan sponsors and Medicare Advantage organizations offering qualified prescription drug coverage. We further note that the Part D prescription drug event payment data (hereinafter referred to as “claims data”) will include data relating to any covered Part D drug, which per 42 CFR 423.100, includes not only drugs, but insulin, biologic products, certain medical supplies and vaccines. B. Statutory Basis On December 8, 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA)(Pub. L. 108-173). Title I of the MMA amended the Act to establish a new Part D in title XVIII of the Act and established a new voluntary prescription drug benefit program. As we stated in the preamble to the January 28, 2005 final rule (70 FR 4197), implementing the new prescription drug benefit, we believe that the addition of outpatient prescription drug coverage to the Medicare program is the most significant change to the Medicare program since its inception in 1965. Unlike Parts A and B of the Medicare program, where Medicare acts as the payer and insurer and generally pays for items and services on a fee-for-service basis, the prescription drug benefit is based on a private market model. Under this model, CMS contracts with private entities—prescription drug plans (PDPs), Medicare Advantage
(MA)plans, as well as other types of Medicare health plans—who then act as the payers and insurers for prescription drug benefits. These private entities generally are referred to as “Part D sponsors” in our rules. Section 1860D-12 of the Act contains the majority of provisions governing the contracts CMS enters into with the Part D sponsors. That section, entitled, “Requirements for and contracts with prescription drug plan
(PDP)sponsors,” incorporates by reference many of the contract requirements that previously were applicable to Medicare+Choice (now Medicare Advantage) plans. One of the incorporated provisions at section 1860D-12(b)(3)(D)of the Act is section 1857(e)(1) of the Act, which provides broad authority for the Secretary to add terms to its contracts with Part D sponsors, including terms that require the sponsor to provide the Secretary “with such information * * * as the Secretary may find necessary and appropriate.” We believe that the broad authority of section 1860D-12(b)(3)(D) of the Act authorizes us to collect much of the information CMS is already collecting in order to properly pay sponsors under the statute. However because, as discussed below, the statutory section governing CMS's payment of Part D sponsors (section 1860D-15 of the Act) contains provisions that might be viewed as limiting such collection, we are engaging in this rulemaking in order to resolve the statutory ambiguity, as well as to explain how we plan to implement the broad authority of section 1860D-12(b)(3)(D) of the Act. Most of the payment provisions with respect to Part D sponsors are found in section 1860D-15 of the Act. 1 Sections 1860D-15(d) and
(f)of the Act authorize the Secretary to collect any information he needs to carry out that section; however, those subsections also state that “information disclosed or obtained pursuant to [the provisions of section 1860D-15 of the Act] may be used by officers, employees, and contractors of the Department of Health and Human Services only for the purposes of, and to the extent necessary in, carrying out [section 1860D-15 of the Act].” (sections 1860D-15(d)(2)(B) and (f)(2) of the Act). 1 We note that there are other provisions outside of section 1860D-15 that also contain payment provisions. For example, section 1860D-14 discusses how CMS pays low-income subsidy. In the January 28, 2005 Medicare prescription drug benefit final rule (70 FR 4399), we stated that the section 1860D-15 of the Act restriction applies only in cases where section 1860D-15 of the Act is the authority for collecting the information. Where information is collected under an independent authority (even if the collected information duplicates the data collected under section 1860D-15 of the Act) no restriction would apply. Thus, for example, we noted that quality improvement organizations
(QIOs)have independent authority to collect Part D claims data in order to evaluate the quality of services provided by Part D sponsors and would not be barred from collecting such data despite the restrictions of section 1860D-15 of the Act. In the January 28, 2005 final rule (70 FR 4399) we stated the following: [W]e interpret sections 1860D-15(d) and
(f)of the Act as limiting the use of information collected under the authority of that section. If information is collected under some other authority, however, we do not believe that section 1860D-15 of the Act would limit its use-because the information would not be collected “pursuant to the provisions” of section 1860D-15 of the Act. QIOs have independent authority to collect data, and to fulfill their responsibilities. To the extent QIOs need access to data from the transactions between pharmacies and Part D sponsors, these data could be extracted from the claims data submitted to us. Similar to the statutory provisions authorizing QIOs to collect the information they need to perform their statutory duties, section 1860D-12(b)(3)(D) of the Act recognizes that the Secretary will need to collect a broad array of data in order to properly carry out his responsibilities as Secretary of the Department of Health and Human Services. Thus, if the Secretary determines it is necessary and appropriate for him to collect Part D data in order to carry out responsibilities outside section 1860D-15 of the Act, then section 1860D-15 of the Act would not serve as an impediment to such collections. We also do not believe that language in sections 1860D-12(b)(3)(D) and 1857(e)(1) of the Act noting that the authority to collect information exists only “except as otherwise provided,” and in a manner that is “not inconsistent with this Part,” would serve as a hindrance to the independent collection of Part D claims. Again, this is due to the clear language of section 1860D-15 of the Act, which, on its face, restricts the use of information only when such information is collected under the authority of that section. Thus, nothing in section 1860D-15 of the Act will conflict with or be inconsistent with claims information collected under the authority of section 1860D-12(b)(3)(D) of the Act. Most likely Congress included the broad grant of authority in section 1860D-15 of the Act in order to ensure that the Secretary—without engaging in any rulemaking—would have the legislative authority to collect any necessary data in order to pay Part D sponsors correctly. However, we do not believe that the Congress intended to restrict the Secretary when the Secretary otherwise has independent authority to collect identical information to that collected under section 1860D-15 of the Act. For example, the Secretary will need to evaluate Part D claims information in order to determine how access to Part D drug benefits affects beneficiary utilization of services under Parts A and B of the Medicare program. When Congress enacted the MMA, one of the stated reasons was to ensure that “by lowering the cost of critical prescription drugs, seniors will better be able to manage their health care, and ultimately live longer, healthier lives.” Press Release, House Ways and Means Committee, Seniors' Wait for Affordable Rx Drugs Comes to an End. President Bush Signs Historic Medicare Bill into Law (December 8, 2003) (available at *http://waysandmeans.house.gov/news.asp* ). In order to determine whether lowering the costs of prescription drugs actually reduces health expenditures or improves health outcomes for seniors, however, the Secretary will need to match individual level Parts A and B data with Part D claims data. In this way, the Secretary will be able to evaluate the effectiveness and efficiency of the Part D benefit and report to Congress and others on the progress of the program. Similarly, we do not believe that section 1860D-15 of the Act was intended to prohibit the Secretary from reporting to both the public and to the Congress. For example, we are required to report to the Congress regarding whether mandated disease management demonstrations are budget neutral and whether beneficiaries in these demonstrations are on the appropriate medications. Part D claims data are needed for these budget neutrality calculations as well as quality measures assessing appropriate use of medications. We may also need to make reports under the Part D program, for example, the publication of statistics detailing aggregate Medicare and beneficiary spending by class of drug, average number of drugs used by beneficiaries, total Medicare program spending, and other similar statistics. In order to derive such statistics, we would need to collect Part D claims data. These examples demonstrate that in a wide variety of situations it will be “necessary and appropriate” for CMS to evaluate the same information collected under section 1860D-15 of the Act, even though such information would not be used to implement section 1860D-15 of the Act. In these situations, we believe the clear language of section 1860D-12(b)(3)(D) of the Act provides the authority to collect the necessary information, and nothing about such collection will be inconsistent or in conflict with any other part of the statute. II. Provisions of the Proposed Rule A. Information To Be Collected [If you choose to comment on issues in this section, please include the caption “Information to be collected” at the beginning of your comments.] We would be collecting the same claims information collected under section 1860D-15 of the Act. We note that although section 1860D-12(b)(3)(D) of the Act would permit us to independently collect claims data from Part D sponsors, in order to ensure that Part D sponsors would not have to submit the claims information twice, we propose to access the claims data submitted under section 1860D-15 of the Act. This access avoids Part D sponsors engaging in duplicative efforts. Thus throughout this preamble, we may refer to “accessing” rather than “collecting” Part D data. The claims data for 2006 includes 37 data elements. We refer readers to the Prescription Drug Event data instructions which can be accessed at *http://www.cms.hhs.gov/DrugCoverageClaimsData/01_PDEGuidance.asp#TopOfPage* for a full description of this information. These instructions define each data element and its specific potential use for CMS's payment process. Generally stated, these data elements include the following: • Identification of the Part D sponsor and Part D plan through contract number and plan benefit package identification number. • Health insurance claim number, which identifies the particular beneficiary receiving the prescription. • Patient date of birth and gender. • Date of service. • Date paid by the plan. • Identification of pharmacy where the prescription was filled. • Identification of prescribing health care professional. • Identification of dispensed product using national drug code
(NDC)number. • Indication of whether drug was compounded or mixed. • Indication of prescriber's instruction regarding substitution of generic equivalents or order to ``dispense as written.'' • Quantity dispensed (for example, number of tablets, grams, milliliters, or other unit). • Days supply. • Fill number. • Dispensing status and whether the full quantity is dispensed at one time, or the quantity is partially filled. • Identification of coverage status, such as whether the product dispensed is covered under the plan benefit package or under Part D or both. This code also identifies whether the drug is being covered as part of a Part D supplemental benefit. • Indication of whether unique pricing rules apply, for example because of an out-of-network or Medicare as Secondary Payer services. • Indication of whether beneficiary has reached the catastrophic coverage threshold—which triggers reduced beneficiary cost-sharing and reinsurance payments. • Ingredient cost of the product dispensed. • Dispensing fee paid to pharmacy. • Sales tax. • Amount paid on the claim that is both below and above the catastrophic coverage threshold. • Amount paid by patient and not reimbursed by a third party (such as copayments, coinsurance, or deductibles). • Amount of third party payment that would count toward a beneficiary's ``out of pocket'' costs in meeting the catastrophic coverage threshold, such as payments on behalf of a beneficiary by a qualifying State Pharmacy Assistance Program (SPAP). • Low income cost sharing subsidy amount (if any). • Reduction in patient liability due to other payers paying on behalf of the beneficiary. This would exclude payers whose payments count toward a beneficiary's out of pocket costs, such as SPAPs. • Amount paid by the plan for standard benefits, such as amounts paid for supplemental Part D benefits. B. Purpose of CMS Collecting Information [If you choose to comment on issues in this section, please include the caption “Purpose of CMS Collecting Information” at the beginning of your comments.] We need to use Medicare Part D prescription drug related data for a wide variety of statutory and other purposes including— • Reporting to the Congress and the public on the overall statistics associated with the operation of the Medicare prescription drug benefit; • Conducting evaluations of the Medicare program; • Making legislative proposals with respect to the programs we administer, including the Medicare, Medicaid, and the State Children's Health Insurance Program; and • Conducting demonstration projects and making recommendations for improving the economy, efficiency, or effectiveness of the Medicare program. When the Congress passed the MMA in December 2003, allowing coverage of outpatient prescription drugs under the new Medicare Part D benefit, this addition, we believe, was the most fundamental change to the Medicare program since its inception in 1965. With this fundamental change to the program, it is critical that the Secretary maintain the ability to evaluate and oversee the progress of the new benefit and how it affects other parts of the Medicare, Medicaid, and State Children's Health Insurance programs. We have discussed in a variety of public settings, including an open door forum on this topic in the summer of 2005, the critical importance of the new Medicare Part D prescription drug event data—hereafter referred to as “claims” data—for studies on the impact of drug coverage on Medicare beneficiaries, spending for other Medicare health care services, efforts to improve the quality of health care services for Medicare beneficiaries with chronic illnesses, efforts to address health disparities by understanding how drugs are being used and how well they work in minority populations and in other populations which are often not studied in clinical trials (for example, older patients, patients with multiple co-morbid diseases, people with a disability), providing protection against adverse drug events through effective post-market surveillance on the safety of drugs for Medicare beneficiaries, and other studies to improve public health. Part D claims data must be linked at the individual beneficiary level to Parts A and B claims data to facilitate these studies. Individually identifiable data are required to link data across files, over time and to conduct multivariate analyses. As we discuss in greater detail in section II.C.2 of this preamble, CMS is developing a chronic care database that will link these Medicare Parts A, B, and D claims at the beneficiary level. This database will be an important new tool to facilitate our research, on a wide variety of topics that focus on improving the quality of and reducing the cost of health care services. As discussed in greater detail in section II.C. of this preamble, we believe that when information is collected under the auspices of section 1860D-12(b)(3)(D) of the Act, the restrictions of section 1860D-15 of the Act would not apply to such collections. Thus, any information collected for Part D purposes under this proposed rule would no longer be subject to the section 1860D-15 of Act limitations and could be shared outside of CMS as appropriate. Thus, for example, to the extent otherwise permitted by law, we would be able to share the data we collect under section 1860D-12(b)(3)(D) of the Act with entities outside of CMS including, for example, the Food and Drug Administration (in order to oversee the safety and effectiveness of prescription drugs and conduct post-market surveillance), as well as the Agency for Healthcare Quality and Research (AHRQ), in order to analyze comparative clinical effectiveness. Moreover, when we share such data, we do not believe any restrictions included in section 1860D-15 of the Act would apply. In section II.C. of this preamble, we provide a detailed explanation of a number of purposes for which the Part D data collected under the section 1860D-12(b)(3)(D) authority would be used. We also request comments on whether there should be any limitations on data when shared for purposes other than fulfilling CMS's responsibility to administer the Part D program. 1. Public Reporting (Proposed § 423.505(b)(8) and (f)(3)(i)) We believe we need the Part D claims information in order to report to the Congress and the public on overall statistics associated with the Part D program. For example, we need to preserve the ability to report on the performance of the Part D benefit program. We note that Congress specifically amended title XVIII of the Act to address reporting on all aspects of that title, including Part D. 2 We anticipate we may wish to report statistics on issues such as the experience of Medicaid beneficiaries as their pharmacy coverage changes from the Medicaid to the Medicare program. In order to analyze this information, we will need to have access to identifying beneficiary information (such as HIC number), information about the drug dispensed (including NDC, quantity and days supply), information about the amount paid by the beneficiary (including amounts paid on the claim, reimbursed by third parties, counting toward TROOP, low-income cost sharing subsidy, amount paid for standard benefits, and amount paid for non standard benefits). We anticipate potentially using this information to report statistics to Congress or the public or both with respect to the drug utilization of this unique population and whether they continue to receive the same mix of prescriptions as previously. We might also use such information to evaluate and report on this population's cost-sharing and whether there were any changes in their out-of-pocket costs vis-a-vis Medicaid coverage of prescription drugs. 2 Section 101(e) of the MMA specifically extended the study authority in section 1875(b) to include the prescription drug program under Title XVIII. Section 1875 now states in pertinent part that the Secretary “shall make a continuing study of the operation and administration of this title * * * and shall transmit to the Congress annually a report concerning the operation of such programs.” Another example of an issue on which we may want to report would include Medicare beneficiary utilization under the new drug benefit by class of drug. For example, we may want to report statistics on what classes of drugs are most utilized by the Medicare population, and whether there has been variation in such utilization across gender, age, and year. This would require access to such information as HIC number, date of birth and gender, date of service, and information about the drug itself (such as NDC, quantity and supply). We may also want to include in its national program statistics publications information about the Part D program that would require drug claims data. Such statistics include aggregate Medicare and beneficiary spending by class of drug, the total number of prescriptions by class of drug, average beneficiary cost-sharing amounts, catastrophic coverage utilization, geographic variation in utilization and pricing, third party payers paying on behalf of beneficiaries, whether drugs being dispensed are covered by plans, the average number of drugs used by beneficiaries, and other similar statistics. In order for us to be able to produce these types of program statistics, the following claims information are necessary: • Ingredient cost of the product dispensed. • Dispensing fee paid. • Sales tax. • Amount paid on the claim that is both below and above the catastrophic coverage threshold. • Amount paid by a patient and not reimbursed by a third party. • Amount of third party payment that would count toward a beneficiary's out-of-pocket costs in meeting the catastrophic threshold. • Low income cost sharing subsidy amount, if any. • Reduction in patient liability due to other payers paying on behalf of the beneficiary. • Amount paid by the plan for standard benefits. • Amount paid by the plan for nonstandard benefits. • Identification of coverage status. • Identification of dispensed product using the national drug code number. • Identification of whether the drug was compounded or mixed. • Identification of prescriber's instruction regarding substitution of generic equivalents or order to “dispense as written”. • Quantity dispensed. • Days supply. • Fill number. • Dispensing status and whether the full quantity is dispensed at one time, or the quantity is partially filled; (for example, to calculate utilization by drug classes). • Health insurance claim number— ++ Patient date of birth and gender, ++ Identification of whether unique pricing rules apply; and ++ Identification of whether a beneficiary has triggered the catastrophic threshold (for example, to calculate average beneficiary cost-sharing, amounts and average number of drugs purchased). 2. Evaluations of the Medicare Program (Proposed § 423.505(b)(8) and (f)(3)(ii)) We also anticipate that we would need to collect prescription drug claims information in order to conduct evaluations of the Medicare prescription drug program, including evaluations and oversight of the plans themselves. For example, we anticipate that in some cases, in order to evaluate the effectiveness of a plan's utilization management techniques we may need access to the claims information for a particular plan. For example, we have already announced on our Web site in frequently asked question 4483, ( *http://questions.cms.hhs.gov/* ), that in certain cases, plans could cover over-the-counter medications as part of a cost-reduction strategy. We stated that in certain cases nonprescription drugs (for example, Prilosec OTC® and Claritin®) were available by prescription when first marketed. Once off-prescription, these products may offer significantly less expensive alternatives to branded prescription medications, and work just as well for most patients. Therefore stated that plans could provide such over-the-counter drugs as part of a cost-effective drug utilization management (for example, step therapy) program. In cases where a plan offered coverage of such over-the-counter drugs, we wish to preserve the ability to monitor whether:
(1)The over-the-counter drugs are in fact being accessed and
(2)whether it appears the step-therapy is saving money. Such evaluation, we believe, would require access to information on the claim identifying the Part D sponsor and plan, information with respect to the drug prescribed, as well as information about beneficiary and plan payment. In this way we would be able to compare the amount spent on the over-the-counter drug against what would have been spent if a beneficiary had utilized a prescription drug on the plan's formulary. We would likely need to review alternatives to the nonprescription drug and determine the average plan payments for such nonprescription drugs. We believe we would need to aggregate such information to determine whether the plan decreased its overall spending by offering the step-therapy protocol. Furthermore, in order for us to evaluate the Medicare program overall, it is necessary to evaluate how the prescription drug benefit interacts with benefits provided under Parts A, B, and C, as well as Medicaid and the SCHIP program. It will be important to determine how the Part D benefit affects these programs. For example, it will be important to determine if the provision of the Part D benefit decreases spending under Medicare Parts A and B because patients are more readily able to obtain necessary medications while living in the community, which may help them comply with drug regimens and avoid more expensive inpatient care. Part D data could be used to determine the impact of the Part D benefit on reducing medical complications and as a result reducing costs incurred in other parts of the Medicare program, for example, by reducing hospitalizations and procedures. In order to evaluate the effect of Part D on Part C and other programs' spending, we would likely need to evaluate aggregated and nonaggregated claims data, including elements relating to health insurance claim number, date of service, date of birth, gender, the drug dispensed, its quantity, whether it was compounded or mixed and other information relating to the drug coverage received by the beneficiary. 3. Legislative Proposals We also believe that we would need to collect claims data to support legislative proposals offered to Congress relating to programs administered by CMS, including the Medicare, Medicaid and State Children's Health Insurance programs. Claims information could be used to derive statistics that would illustrate why certain changes to the Medicare statute should be considered, or why certain research and demonstration projects should be funded. For example, if we were to develop a proposal to move coverage of some drugs now covered under Part B to Part D or vice versa, we would need access to claims data to derive statistics to assess the cost impact of such a proposal. Thus, we would likely need to access claims data relating to the drug dispensed as well as the cost incurred under Part D. To analyze the cost incurred under Part D, we would need to see the amount paid by the plan (for example, ingredient cost, dispensing fee and sales tax) as well as whether we were required to pay reinsurance on the claim (for example, amount incurred above and below catastrophic), whether we paid a low income subsidy for the claim, the amount of beneficiary cost sharing, whether the drug was part of a basic supplemental benefit, and whether the drug was covered by the plan. This would allow us to assess costs involved with moving coverage from one part of the program to another. 4. Demonstration Projects and Research Studies We would also need the various elements of the Part D claims data to conduct demonstration projects and make recommendations for improving the economy, efficiency, or effectiveness of the Medicare program. Conducting demonstration projects and making recommendations for improving the Medicare program based on the evaluation of the effect of prescription drug coverage on health outcomes, safety or Medicare spending should positively affect patient care and provider satisfaction, as well as aid us in administering the various programs under our charge. Below, we describe the categories of data elements on the prescription drug claims and explain why our studies and projects require collection of such elements. It is also important to note that this proposed rule would permit retrospective studies of the administrative records (prescription drug event data) of Part D services for analysis after the services have already been provided. As such, research using Part D claims data is not comparable to clinical trials which are more prospective in nature and involve patients who may have access to certain drugs and other patients who may not have access to those drugs. We note that while we currently have studies underway that will require these collections, we anticipate that other similar studies will be conducted in the future that would also require collections of the data elements included on the Part D claims. An illustrative list of the studies currently underway is attached to this proposed rule as Appendix A. The categories of these elements are as follows:
(a)Drug Plan Identifiers (Such as the Part D Sponsor and Benefit Package Identifier) In our follow-up analysis on beneficiaries who participated in the replacement drug demonstration (section 641 of the MMA), we will be evaluating how enrollment in Part D affects the cost sharing and utilization of these beneficiaries. We would need plan identifiers in order to compare how utilization and cost sharing of this population varies plan by plan and to analyze such variation according to the design of the plan selected. Without plan identifiers, we could not tie particular cost sharing or utilization to a plan and determine whether certain plan design features minimized beneficiary cost-sharing. Moreover, in evaluating other managed care and fee for service demonstrations, we will sometimes need plan identifiers in order to compare enrollees in demonstration plans to enrollees in other MA plans and fee-for-service beneficiaries in the same geographic area. Drug plan identifiers will assist in matching beneficiaries to specific Part D prescription plan coverage.
(b)Beneficiary Identifiers (Such as Health Insurance Claim Number, Date of Birth, and Gender) Our current and future research, demonstration and evaluation projects will require collection of beneficiary identifiers in order to link Part D claims with Parts A and B claims at the beneficiary level. For example, in order to link Parts A and B data with Part D claims data, we would need to know the beneficiary's HIC number, name, and date of birth, in order to match claims appropriately. Once the data are linked they will be used in studies that evaluate drug utilization and its impact on other health care services, studies that measure the impact of the new drug benefit on improvements to beneficiary access to needed medications, and studies that link beneficiary characteristics, for example, age, race, sex, with drug data. For example, in the Medicare chronic condition data warehouse, we will use beneficiary identifiers such as HIC number, name, age, race and sex, in order to develop the public database under section 723 of the MMA which links data at the beneficiary level. The purpose of the database is to permit studies of chronic illness in the Medicare population to improve quality of health care and reduce the cost of health care services. Similarly, in all of our demonstration projects that use Part D claims data as part of the budget neutrality test, beneficiary identifiers are needed to link Parts A, B, and D claims data to examine the total cost of the demonstration intervention group compared to the control group.
(c)Information About the Drug Dispensed (Such as NDC Code, Days Supply, Quantity, Generic Identification, Compounding, Refills, and Dispensing Status) We are engaged in a number of projects and studies which will require collection of information with respect to the specific drug that is dispensed to enrollees. For example, in the mandated chiropractic demonstration (section 651 of the MMA), we will need to collect information on the drug dispensed to determine whether the use of chiropractic services reduces the use of pain medication. The purpose of the demonstration is to test whether the expanded coverage of chiropractic services results in offsetting decreases in other covered services such as pain medications, since the demonstration is required to be budget neutral. Therefore, we will need to study the use of pain medications in the demonstration and control groups to determine if the demonstration appears to be causing a reduction in the use of pain medications. We will also use drug dispensed in the Chronic Condition Warehouse (section 723 of the MMA) to refine identification of beneficiaries with chronic conditions (for example, insulin use and diabetes), to facilitate analysis of medication usage for beneficiaries with chronic illness, and to analyze the effectiveness of different treatment modalities. We also anticipate that we will engage in future studies and analyses that measure and examine quality of services or patient outcomes by utilization of certain types of medication. For example, we may conduct a study to determine whether access to beta blockers reduces the risk of heart attacks. In addition, we may perform studies that examine medication adherence and persistence patterns, which in turn can be used as control factors in outcomes research or to examine, for example, how specific medication therapy management programs under Part D affected medication adherence and persistence.
(d)Prescriber Identification We need to know who prescribed the drug for studies that assess appropriate prescribing practices such as those that would link physician payment to quality measures. We are exploring value-based purchasing initiatives, in which we may collect data on the extent to which physicians are appropriately prescribing needed medications.
(e)Payment Amounts We need to know payment amounts, including dispensing fee, amount paid below and above the catastrophic threshold, amount paid by patient and other third parties, sales tax, and low income subsidies for a variety of studies that assess the impact of the drug benefit on beneficiary cost-sharing, Medicare program payments, and total drug spending. In our demonstration evaluations, including disease management, physician group practice, chiropractor, and follow-up on the Medicare replacement drug demonstration, we will analyze the impact of the demonstration interventions on drug spending and utilization as well as total Medicare spending. Because these analyses often disaggregate the treatment group beneficiaries into categories based on characteristics identified as the analysis is underway (for example, source of referral into demonstration, disease, length of time in demonstration, interval between hospitalization and entry into demonstration, *etc.* ), claims detail needs to be retained at the patient level so they can be included in any group or subgroup analysis into which a particular beneficiary falls in order to determine aggregate cost statistics for the particular grouping. We propose to revise § 423.505(b)(8) by clarifying that Part D plan sponsors must comply with the disclosure and reporting requirements set forth by § 423.505(f). Furthermore, we propose to add a new § 423.505(f)(3) which would specify that, as part of the existing information disclosure, we would access the drug claims and related information that is already submitted to CMS for purposes the Secretary deems necessary and appropriate. These purposes would include, but not be limited to— • Reporting to the Congress and the public or both on overall statistics associated with the operation of the Medicare prescription drug program; • Conducting evaluations of the overall Medicare program, including the interaction between prescription drug coverage under Part D of title XVIII of the Act and the services and utilization under Parts A, B, and C of title XVIII of the Act, titles XIX, and XXI of the Act; • Making legislative proposals to the Congress regarding Federal health care programs and related programs; • Conducting demonstration projects and making recommendations for improving the economy, efficiency, or effectiveness of the Medicare program. C. Sharing Data With Entities Outside of CMS (Proposed § 423.505(f)(5)) [If you choose to comment on issues in this section, please include the caption “Sharing Data with Entities Outside of CMS” at the beginning of your comments.] In addition to collecting claims data for use in administering the Medicare Part D program under the authority of section 1860D-12(b)(3)(D) of the Act, CMS also believes that it is in the interest of public health to share some of the information collected under that authority with entities outside of CMS. As stated above, when information is collected under the authority of section 1860D-12(b)(3)(D) of the Act, we do not believe that the statutory language in section 1860D-15(d) and
(f)of the Act (requiring the information collected under the authority of that section to be used only in implementing such section) would apply, since any initial collection would be effectuated outside of section 1860D-15 of the Act. Therefore, we are proposing to add § 423.505(f)(5) that would specify that we could use and share the claims information we collect under § 423.505(f) with both outside entities and other government agencies, without regard to any restriction included in § 423.322(b). 1. Other Government Agencies In particular, Department of Health and Human Services' public health agencies such as NIH, FDA, and AHRQ have researchers that would also need to use Medicare Part D prescription drug related data for studies to improve public health consistent with the missions of these agencies. These studies will assess outcomes, and investigate clinical effectiveness, appropriateness of health care items and services (including prescription drugs), and develop strategies for improving the efficiency and effectiveness of clinical care. In addition, we believe that oversight agencies, such as the OIG, GAO, and CBO would need access to both aggregated and nonaggregated claims data in order to conduct evaluations of the Part D program. The NIH would need access to Medicare Part D data, linked to data from Medicare Parts A and B, in order to address its mission of conducting and supporting research regarding the cause, diagnosis, prevention, and cure of human diseases in order to improve the health of the nation. A wealth of information about diseases and their treatments can potentially be obtained from observational studies of therapeutic drug usage in Medicare patients. Because drug usages can be used as a surrogate measure for the existence and severity of diseases, Medicare Part D data could be used to investigate the incidence and prevalence of particular diseases, disease progression, and the health outcomes of people with the diseases, trends in disease and their treatments, and even the relative effectiveness of alternative therapeutic approaches. Moreover, matching Part D claims data with the Surveillance Epidemiology and End Results
(SEER)cancer registry would enable additional studies of cancer treatment and outcomes. Given the large number of patients involved, studies could also be designed to identify comorbidities that would be undetectable in conventional, prospective cohort studies. In addition, studies that correlate drug prescribing patterns with geography or patient demographics or examine trends over time could be used to identify differences and possible remediable problems with the health care system, to assess the magnitude of health disparities related to the delivery of care and indirectly assess the impact of new medical findings and other influences on prescribing and other health care practices. We also propose to share the information collected under the authority of section 1860D-12(b)(3)(D) of the Act with the FDA. The FDA's mission includes a mandate to ensure the safety and efficacy of drugs for the American people. Patients age 65 and older are more likely to experience serious or fatal adverse drug events than younger individuals because of their generally poorer health and because they typically take multiple medications for chronic conditions, which increases their opportunity for experiencing adverse drug effects. Part D data could be used to monitor patterns of drug use in the elderly and the disabled with the goal of identifying unsafe or suboptimal patterns of use, either with respect to the particular types of drugs being used or with respect to the dose or duration of use of these drug products. Additionally, Part D data could be used to identify rare but serious complications that certain patients may have with drugs more quickly and effectively than is achieved with the current surveillance systems. Formal epidemiologic studies could also be performed, to examine the nature and magnitude of risk conferred by particular medications, to identify risk factors for adverse event occurrence, or to assess the effect of risk management programs intended to reduce prescription drug risks. A third agency we believe would need access to the Part D claims data is the Agency for Healthcare Research and Quality (AHRQ). AHRQ's mission to conduct health services and outcomes studies in assessing the effectiveness of health care items and services, improving the quality of health care, promoting efficiency and patient safety, and reducing medical error will be enhanced by access to Medicare Part D claims data. Section 1013 of the MMA requires AHRQ to conduct research, demonstrations, and evaluations designed to improve the quality, effectiveness, and efficiency of Medicare, Medicaid, and the State Children's Health Insurance Program. To implement section 1013 of MMA, AHRQ has established a new research initiative called the Effective Health Care
(EHC)program. The EHC program supports research on the outcomes, comparative clinical effectiveness, and appropriateness of pharmaceuticals, devices, and health care services. Included in the EHC program is a research network of 13 centers with over 60 affiliated health scientists and the capacity to—(1) scientifically analyze administrative, survey, and clinical databases;
(2)develop and apply new scientific methods, instruments, and methodologies; and
(3)operate and analyze computerized surveillance and monitoring systems. The availability of Medicare Part D data, linked to data from Medicare Parts A and B, would greatly enhance the capacity of the EHC program to carry out research and program evaluations designed to improve the quality of CMS programs as mandated in section 1013 of the MMA. Other agencies within DHHS, such as the Centers for Disease Control and Prevention, the Health Resources and Services Administration (HRSA), or the Office of the Assistant Secretary for Planning and Evaluation, may also need the prescription drug data to perform evaluations or assess policies. We believe oversight agencies may also require access to the Part D claims data. These agencies would include the Office of the Inspector General (OIG), the Government Accountability Office (GAO), the Congressional Budget Office (CBO), and the Medicare Payment Advisory Commission (MedPAC). We believe these agencies may require access to data in order to evaluate the cost-effectiveness of various policies under the Part D program, to evaluate spending for various classes of drugs under such program, to analyze brand-name versus generic prescribing trends, and to conduct other oversight activities that are not specifically related to payment. For these reasons, we believe it would be appropriate to share some Part D data with these oversight agencies. Given these necessities, we propose to allow broad access for other agencies to our Part D claims data linked to our other claims data files. Other agencies, including the agencies listed above, would enter into a data use agreement, similar to what is used today (and described in greater detail in section II.C.2). This would allow the sharing of event level cost data, however, through a data use agreement we would protect confidentiality of beneficiary information and ensure that the use of Part D claims data serves a legitimate research purpose. We would also ensure that any system of records with respect to claims data is updated to reflect the most current uses of such data. We request comments on this proposed rule that would help us in our efforts to improve knowledge relevant to the public health. Specifically, we request guidance on how we can best serve the needs of other agencies through the sharing of information it collects under section 1860D-12(b)(3)(D) of the Act while at the same addressing the legitimate concerns of the public and of Part D plans that we appropriately guard against the potential misuse of data in ways that would undermine protections put in place to ensure confidentiality of beneficiary information, and the nondisclosure of proprietary data submitted by Part D plans. 2. External Researchers External researchers, such as those based in universities, regularly request and analyze Medicare data for their research studies, many of which are designed to address questions of clinical importance. We believe researchers who study a broad range of topics need access to the Part D claims linked to Parts A and B claims data as well. The research questions that have been previously addressed through analyses of Parts A and B claims have contributed to very significant improvements in the public health, have been critical in assessing the quality of care and costs of care for patients in the Medicare program, and have in many cases spurred other types of research. As such, we believe that a data source that includes Parts A and B claims as well as their attendant Part D claims would be used in a similarly constructive manner, such that greater knowledge on a range of topics, both clinical and economic, will be generated. This knowledge is expected to contribute positively to the evaluation and functioning of the Medicare program, and to improve the clinical care of beneficiaries. We will specifically address the needs of a segment of external researchers as part of our implementation of section 723 of the MMA, which requires the Secretary to develop a plan to “improve the quality of care and reduce the cost of care for chronically ill Medicare beneficiaries.” Congress specifically stated that the plan should provide for the collection of data in a data warehouse ( *see* section 723(b)(3) of the MMA). We will implement section 723 of the MMA by populating a chronic care condition data warehouse
(CCW)which would be accessible by private researchers in order for such researchers to conduct studies related to improving quality and reducing costs of care for chronically ill Medicare beneficiaries. The CCW will include a beneficiary sample and will include Part D claims, in order to allow researchers to analyze prescription drug information. In this way, researchers would be able to receive a complete picture of a beneficiary's care, and determine whether the treatment of chronically ill beneficiaries (including Parts A, B and D treatment) is as effective and efficient as possible. In addition to the section 723 of the MMA data warehouse, we are planning to make available Medicare Part D claims data linked to other Medicare claims files to external researchers on the same terms as other Medicare Parts A and B data are released today, with appropriate protections for beneficiary confidentiality. These data would be disseminated under our standard data use agreement protocols. This means that each data request would be evaluated to determine whether— • A legitimate research purpose is presented by a responsible party, • The minimum data needed to conduct the study will be released, and • The confidentiality of beneficiary information is protected. See our Agreement for Use of Centers for Medicare and Medicaid Services Data Containing Individual Specific Information at *http://www.resdac.umn.edu/docs/CMS-R-02352-v2-locked.doc* . In addition, we would ensure that our system of records for claims data would permit these usages of the data. We request comments on the proposed use of the data for research purposes that would help CMS in its efforts to improve knowledge relevant to public health. We also ask for comments on whether we should consider additional regulatory limitations for external researchers beyond our existing data use agreement protocols in order to further guard against the potential misuse of data for non-research purposes, commercial purposes, or to ensure that proprietary plan data or confidential beneficiary data is not released. D. Beneficiary Access to Part D Data [If you choose to comment on issues in this section, please include the caption “Beneficiary Access to Part D Data” at the beginning of your comments.] We are considering the use of Part D claims data for projects involving the development of personalized beneficiary medication history record that would be accessible by Medicare beneficiaries. We are requesting comments on this proposed use of Part D data collected under the authority of section 1860D-12(b)(3)(D) of the Act. E. Applicability [If you choose to comment on issues in this section, please include the caption “Applicability” at the beginning of your comments.] The proposed revision does not affect the applicability of HIPAA to the Department or any other appropriate parties, nor does it affect the applicability of the Privacy Act (5 U.S.C. 552a and b) or the Trade Secrets Act (18 U.S.C. 1905). F. Limitations [If you choose to comment on issues in this section, please include the caption “Limitations” at the beginning of your comments.] This proposed rule in no way affects or limits our already existing ability to collect data that is not identical to that collected under section 1860D-15 of the Act, such as enrollment, formulary, price comparison, quality assurance and utilization review data. Much of that data is already collected under other authorities in the statute. For example, section 1860D-1(c)(1) of the Act allows for data collection, such as price comparison data, to facilitate providing information to beneficiaries in order to allow informed decisions among the available choices for Part D coverage ( *see* also § 423.48). Similarly, section 1860D-4(c) of the Act authorizes data collection to evaluate sponsors' utilization management, quality assurance, medication therapy management, and fraud, waste and abuse programs ( *see* § 423.153(b)(3), (c)(5), and (d)(6)). Even in cases where data collection is not specifically mandated by statute, to the extent the collection is not identical to the data collected under section 1860D-15 of the Act, we do not believe it is necessary to resolve any statutory ambiguity, because the section 1860D-15 of the Act rules on using such information would not apply. Finally, this proposed rule does not address uses already permitted under section 1860D-15 of the Act, such as OIG or others conducting audits and evaluations necessary to ensure accurate and correct payment and to otherwise oversee Medicare reimbursement under Part D, price variation studies, risk score refinement studies including the mandated geographic variation in price and utilization study, the reinsurance demonstration evaluation, or other such uses. III. Collection of Information Requirements This document does not impose new information collection requirements on Medicare Part D plans. Medicare Part D sponsors are already required to submit Medicare Part D claims information by virtue of section 1860D-15 of the Act. Consequently, since there are no new information collection requirements on Medicare Part D plans, this document will not require a review by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995. IV. Response to Comments Because of the large number of public comments we normally receive on **Federal Register** documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the DATES section of this preamble, and, when we proceed with a subsequent document, we will respond to the comments in the preamble to that document. V. Regulatory Impact Statement We have examined the impact of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act
(RFA)(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132. Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis
(RIA)must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). Neither plan sponsors nor pharmacies are required to perform any new task or purchase any new equipment or increase their labor force. This proposed rule does not reach the economic threshold and thus is not considered a major rule. The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6 million to $29 million in any 1 year. Individuals and States are not included in the definition of a small entity. We are not preparing an analysis for the RFA because we have determined that this rule will not have a significant economic impact on a substantial number of small entities. In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. This proposed rule impacts Part D sponsors, not small rural hospitals. Therefore we are not preparing an analysis for section 1102(b) of the Act, because we have determined that this proposed rule will not have a significant impact on the operations of a substantial number of small rural hospitals. Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. That threshold level is currently approximately $120 million. This proposed rule will have no consequential effect on State, local, or tribal governments or on the private sector. Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. Since this regulation does not impose any costs on State or local governments, the requirements of E.O. 13132 are not applicable. In accordance with the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget. List of Subjects in 42 CFR Part 423 Administrative practice and procedure, Medicare, Prescription Drugs, Reporting and recordkeeping requirements. For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services proposes to amend 42 CFR Chapter IV part 423 as follows: PART 423—VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT 1. The authority citation for part 423 continues to read as follows: Authority: Secs. 1102, 1860D-1 through 1860D-42, and 1871 of the Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152 and 1395hh). Subpart K—Application Procedures and Contracts with PDP Sponsors 2. Section 423.505 is amended by— A. Revising paragraph (b)(8). B. Redesignating paragraph (f)(3) as (f)(4). C. Adding new paragraphs (f)(3) and (f)(5). The revision and additions read as follows: § 423.505 Contract provisions.
(b)* * *
(8)Comply with the disclosure and reporting requirements in § 423.505(f), § 423.514, and § 423.329(b) for submitting current and prior drug claims and related information to CMS for its use in risk adjustment calculations and for the purposes of implementing § 423.505(f), § 423.514, and § 423.329(b).
(f)* * *
(3)Drug claims and related information, as the Secretary deems necessary and appropriate for purposes including but not limited to—
(i)Reporting to Congress and the public on overall statistics associated with the operation of the Medicare prescription drug program;
(ii)Conducting evaluations of the overall Medicare program, including the interaction between prescription drug coverage under Part D of Title XVIII of the Social Security Act and the services and utilization under Parts A, B, and C of title XVIII of the Act and titles XIX and XXI of the Act;
(iii)Making legislative proposals to the Congress regarding Federal health care programs and related programs; and
(iv)Conducting demonstration projects and making recommendations for improving the economy, efficiency, or effectiveness of the Medicare program.
(5)CMS may use the information collected under this subsection and share it with other government agencies and outside entities, in accordance with applicable Federal law. Any restriction set forth by § 423.322(b) must not be construed to limit the Secretary's authority for these purposes. (Catalog of Federal Domestic Assistance Program No. 93.773, Medicare—Hospital Insurance; and Program No. 93.774, Medicare—Supplementary Medical Insurance Program). Dated: July 11, 2006. Mark B. McClellan, Administrator, Centers for Medicare & Medicaid Services. Approved: August 21, 2006. Michael O. Leavitt, Secretary. Editorial Note: The following Appendix will not appear in the Code of Federal Regulations. Appendix A—Current CMS Studies 1. Effect of Part B vs. Part D Drug Coverage On January 1, 2005, the Secretary reported to Congress on his recommendations for providing benefits under Part D for outpatient prescription drugs which are currently covered under Part B. The report was mandated in section 101(c) of the MMA. The study concluded that, while it would not be desirable to move coverage of separately billable Part B drugs to Part D for most categories of Part B drugs, it may be worth considering for a limited number of drugs. The report recommended that the decision with respect to changing coverage for this limited number of drugs be based upon experience with the Medicare Replacement Drug Demonstration (which provided Medicare coverage for certain drugs between enactment of MMA in 2003 and the start of the Part D drug benefit in 2006) and at least 2 years of experience with the Part D program. This follow-on study would further examine the relationship between Part B and Part D drug coverage using Part B and Part D claims and would include an assessment of the impact of such a change on beneficiaries, Part D sponsors and the Federal budget. 2. Dual Eligible Drug Coverage Transition From Medicaid to Medicare We will analyze Part D claims and other data for changes in dual eligibles' drug use and costs and the impact of the change in drug coverage on other Medicare and Medicaid services. Baseline drug data from Medicaid will allow person-level studies that analyze pharmacy use linked to all other Medicare (Parts A, B, and D claims) and Medicaid benefits before and after MMA implementation. The study will examine Medicare and Medicaid interactions with pharmacy services for specific subpopulations including people with disabilities and chronic diseases in community or institutional settings. 3. Evaluation of Disease Management Interventions CMS has several projects underway to evaluate the impact of Congressionally mandated disease management interventions (for example, sections 649 and 721 of the MMA, and earlier legislation) on beneficiary health outcomes, satisfaction, and Medicare expenditures. Part D claims data will be used to estimate the effects of these programs on adherence to evidence based medicine, such as the percent of patients who are on the appropriate medications for their condition. Part D claims data will be used to measure the cost/utilization differences between control and intervention groups in these programs, and to assess the costs of their medications. A very important aspect of disease management interventions is to reduce adverse drug interactions. Access to Part D claims data would allow us to assess whether the disease management intervention has any impact on polypharmacy. 3 All of these are factors which disease management programs are expected to influence. Part D data claims data will also be used in budget neutrality calculations. 3 “Polypharmacy” is defined most simply as “excessive or unnecessary use of prescription or nonprescription medications.” From Critical Thinking: Administering Medications to Elderly Patients
(2007)citing Jones, 1997. 4. Medicare Health Care Quality Demonstration Section 646 of the MMA mandates a 5-year demonstration program under which we will test major changes to improve quality of care while increasing efficiency across an entire health care system. Broadly stated, the goals of the Medicare Health Care Quality demonstration are to improve patient safety; enhance quality; increase efficiency; and reduce scientific uncertainty and the unwarranted variation in medical practice that results in both lower quality and higher costs. Projects approved under this demonstration will be expected to achieve significant improvements in safety, effectiveness, efficiency, patient-centeredness, timeliness and equity: the six aims for improvement in quality identified by the Institute of Medicine in its Crossing the Quality Chasm report. Each factor to be addressed in the evaluation of this demonstration can be directly or indirectly related to prescription drug use, hence the need for Part D claims and other data. For example, research on patient safety has illuminated the way that prescription drug errors represent a nexus that ties together the benefits of health information technology and the need to reduce care fragmentation, and improve care coordination. 5. Expanded Coverage for Chiropractic Services Evaluation Section 651 of the MMA mandated a budget neutral chiropractor demonstration. Achievement of budget neutrality for the expanded coverage of chiropractic services under the demonstration is likely to depend on the abilities of these services to substitute for the use of ambulatory services by allopathic physicians (for example, primary care physicians, orthopedic surgeons, and, possibly, neurologists) and to reduce the need for medications. Prevention of the need for surgical procedures and associated hospitalizations is also possible, but is likely to be infrequent over the course of a 2-year demonstration. Information on medication consumption under Part D will be a key component of the evaluation. For example, use of pain medications may be reduced by chiropractic services in patients with back pain, extremity pain due to arthritis, and in patients with migraine headaches. Reduction in the use of pain medications may, in turn, have beneficial effects on the need for treatment of complications associated with these medications. 6. Adult Medical Day Care Evaluation Section 703 of the MMA mandated an adult medical day care demonstration. In the evaluation, we will compare patient outcomes and costs of furnishing care for beneficiaries receiving some of their home health services in an adult day care setting, with outcomes and costs for beneficiaries receiving these services principally at home under current rules. Drug claims will be used to help identify matched comparison groups and to explore differences between beneficiaries who elect to enroll in the demonstration and those who decline to enroll or are excluded. 7. Follow-Up of Medicare Beneficiaries Enrolled in the Medicare Replacement Drug Demonstration Section 641 of the MMA mandated the Medicare Replacement Drug Demonstration that served as a bridge to the implementation of a full-scale Medicare prescription drug benefit. It targeted vulnerable beneficiaries with disabling or life threatening conditions. Many of the covered drugs were expensive “specialty” biologics, costing more than $20,000 per year. A review of benefit designs under Part D suggests specialty drugs are commonly being placed on fourth and fifth tiers with relatively high levels of patient cost sharing. Plan-level information from Part D coupled with individual drug claims data will allow us to examine levels of plan uptake among demonstration participants, the features of plan design selected, and the effect of Part D on patient cost-sharing for this vulnerable population. 8. Value-Based Purchasing Initiatives Many evidence-based guidelines underscore the importance of pharmacologic therapy to providing high-quality patient care. Yet, under prescribing of drugs with a known beneficial effect remains a common problem (for example, beta-blockers for treatment of hypertensive patients with a history of myocardial infarction). As Medicare moves toward value-based purchasing, it will be critical to design a payment system that provides incentives for physicians to appropriately prescribe proven pharmacologic therapies. This will require individual Part D claims linkable to a physician's practice. 9. Medicare Physician Group Practice Demonstration Section 412 of the Benefits Improvement and Protection Act mandated the Medicare Physician Group Practice Demonstration. This demonstration is a shared savings model that rewards physician groups for improving the quality and efficiency of health care services delivered to Medicare FFS beneficiaries. The financial model includes all Part A and Part B spending for beneficiaries assigned to the physician group as well as for the comparison population. Part D claims data will be used for budget neutrality calculations. Physician groups can also use the Part D claims data to improve quality by managing medications for their Medicare patients. 10. Chronic Care Data Warehouse Section 723 of the MMA mandates development of recommendations for improving the quality of care for chronically ill Medicare beneficiaries. To implement this sector we are developing a chronic care warehouse to be made available to researchers who want to study chronic illnesses in the Medicare population. The CCW consolidates beneficiary level Medicare enrollment and utilization data with MDS and OASIS assessment data to facilitate the study of the Medicare population with chronic conditions. Congress specifically directed us to identify any new data needs and develop a methodology to address these data needs. The absence of drug data is a significant gap in data available to study chronically ill Medicare beneficiaries. Integrating Part D enrollment information and drug claims data into the CCW will address this data need and greatly enhance the analytic power and utility of the CCW. [FR Doc. 06-8750 Filed 10-13-06; 4:05 pm]
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U.S. Code
- Federal Aviation Administration§ 106
- Exportation of controlled substances§ 953
- Avoidance of duplicative or unnecessary analyses§ 605
- Importation of controlled substances§ 952
- Rules and regulations§ 7805
- Records maintained on individuals§ 552a
- Disclosure of confidential information generally§ 1905
- Rules and regulations; impact analyses of Medicare and Medicaid rules and regulations on small rural hospitals§ 1302
CFR
15 references not yet in our index
- 14 CFR 25
- 14 CFR 34
- 14 CFR 36
- 21 CFR 1312
- Pub. L. 109-57
- 26 CFR 1
- 283 U.S. 404
- Rev. Rul. 69-74
- Rev. Rul. 55-119
- 41 CFR 102
- 42 CFR 423
- 42 CFR 423.100
- Pub. L. 108-173
- Pub. L. 96-354
- Pub. L. 104-4
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