[Federal Register: January 28, 2005 (Volume 70, Number 18)]
[Rules and Regulations]
[Page 4193-4585]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ja05-21]
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Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 400, 403, 411, 417, and 423
Medicare Program; Medicare Prescription Drug Benefit; Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 400, 403, 411, 417, and 423
[CMS-4068-F]
RIN 0938-AN08
Medicare Program; Medicare Prescription Drug Benefit
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule implements the provisions of the Social
Security Act (the Act) establishing and regulating the Medicare
Prescription Drug Benefit. The new voluntary prescription drug benefit
program was enacted into law on December 8, 2003 in section 101 of
Title I of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub. L. 108-173). Although this final
rule specifies most of the requirements for implementing the new
prescription drug program, readers should note that we are also issuing
a closely related rule that concerns Medicare Advantage organizations,
which, if they offer coordinated care plans, must offer at least one
plan that combines medical coverage under Parts A and B with
prescription drug coverage. Readers should also note that separate CMS
guidance on many operational details appears or will soon appear on the
CMS website, such as materials on formulary review criteria, risk plan
and fallback plan solicitations, bid instructions, solvency standards
and pricing tools, plan benefit packages.
The addition of a prescription drug benefit to Medicare represents
a landmark change to the Medicare program that will significantly
improve the health care coverage available to millions of Medicare
beneficiaries. The MMA specifies that the prescription drug benefit
program will become available to beneficiaries beginning on January 1,
2006.
Generally, coverage for the prescription drug benefit will be
provided under private prescription drug plans (PDPs), which will offer
only prescription drug coverage, or through Medicare Advantage
prescription drug plans (MA PDs), which will offer prescription drug
coverage that is integrated with the health care coverage they provide
to Medicare beneficiaries under Part C of Medicare. PDPs must offer a
basic prescription drug benefit. MA-PDs must offer either a basic
benefit or broader coverage for no additional cost. If this required
level of coverage is offered, MA-PDs or PDPs, but not fallback PDPs may
also offer supplemental benefits through enhanced alternative coverage
for an additional premium. All organizations offering drug plans will
have flexibility in the design of the prescription drug benefit.
Consistent with the MMA, this final rule also provides for subsidy
payments to sponsors of qualified retiree prescription drug plans to
encourage retention of employer-sponsored benefits.
We are implementing the drug benefit in a way that permits and
encourages a range of options for Medicare beneficiaries to augment the
standard Medicare coverage. These options include facilitating
additional coverage through employer plans, MA-PD plans and high-option
PDPs, and through charity organizations and State pharmaceutical
assistance programs. See sections II.C, II.J, and II.P, and II.R of
this preamble for further details on these issues.
The proposed rule identified options and alternatives to the
provisions we proposed and we strongly encouraged comments and ideas on
our approach and on alternatives to help us design the Medicare
Prescription Drug Benefit Program to operate as effectively and
efficiently as possible in meeting the needs of Medicare beneficiaries.
DATES: These regulations are effective on March 22, 2005.
FOR FURTHER INFORMATION CONTACT: Lynn Orlosky (410) 786-9064 or Randy
Brauer (410)786-1618 (for issues related to eligibility, elections,
enrollment, including auto-enrollment of dual eligible beneficiaries,
and creditable coverage).
Melvin Sanders (410) 786-8355 (for issues related to marketing and
user fees).
Vanessa Duran (214) 767-6435 (for issues related to benefits and
beneficiary protections, including Part D benefit packages, Part D
covered drugs, coordination of benefits in claims processing and
tracking of true-out-of-pocket costs, pharmacy network access
standards, plan information dissemination requirements, and privacy of
records).
Craig Miner, RPh. (410) 786-1889 for issues of pharmacy benefit
cost and utilization management, formulary development, quality
assurance, medication therapy management, and electronic prescribing).
Mark Newsom (410) 786-3198 (for issues of submission, review,
negotiation, and approval of risk and limited risk bids for PDPs and
MA-PD plans; the calculation of the national average bid amount;
determination and collection of enrollee premiums; calculation and
payment of direct and reinsurance subsidies and risk-sharing; and
retroactive adjustments and reconciliations.)
Jim Owens (410) 786-1582 (for issues of licensing and waiver of
licensure, the assumption of financial risk for unsubsidized coverage,
and solvency requirements for unlicensed sponsors or sponsors who are
not licensed in all States in the region in which it wants to offer a
PDP.)
Jim Slade (410) 786-1073 (for issues related to pre-emption of
State law) and (for issues related to solicitation, review and approval
of fallback prescription drug plan proposals; fallback contract
requirements; and enrollee premiums and plan payments specific to
fallback plans.)
Christine Hinds (410) 786-4578 (for issues of coordination of Part
D plans with providers of other prescription drug coverage including
Medicare Advantage plans, State pharmaceutical assistance programs
(SPAPs), Medicaid, and other retiree prescription drug plans; also for
issues related to eligibility for and payment of subsidies for
assistance with premium and cost-sharing amounts for Part D eligible
individuals with lower income and resources; for rules for States on
eligibility determinations for low-income subsidies and general State
payment provisions including the phased-down State contribution to drug
benefit costs assumed by Medicare).
Mark Smith (410) 786-8015 (for issues related to conditions
necessary to contract with Medicare as a PDP sponsor, as well as
contract requirements, intermediate sanctions, termination procedures
and change of ownership requirements.)
Jean LeMasurier (410) 786-1091 (for issues related to employer
group waivers and options).
Frank Szeflinski (303) 844-7119 (for issues related to cost-based
HMOs and CMPS offering Part D coverage.)
John Scott (410) 786-3636 (for issues related to the procedures PDP
sponsors must follow with regard to grievances, coverage
determinations, and appeals.)
Mark Smith (410) 786-8015 (for issues related to solicitation,
review and approval of fallback prescription drug plan proposals;
fallback contract requirements; and enrollee premiums and plan payments
specific to fallback plans.)
Jim Mayhew (410) 786-9244 (for issues related to the alternative
retiree
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drug subsidy and other employer-based sponsor options.)
Joanne Sinsheimer (410) 786-4620 (for issues related to physician
self-referral prohibitions.)
Brenda Hudson (410) 786-4085 (for issues related to PACE
organizations offering Part D coverage.)
Julie Walton (410) 786-4622 or Kathryn McCann (410) 786-7623 (for
issues related to provisions on Medicare supplemental (Medigap)
policies.)
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.
Table of Contents
I. Background
A. Medicare Prescription Drug, Improvement, and Modernization Act
of 2003
B. Codification of Regulations
C. Organizational Overview of Part 423
II. Discussion of the Provisions of the Final Rule
A. General Provisions
1. Overview
2. Discussion of Important Concepts and Key Definitions
B. Eligibility and Enrollment
1. Eligibility and Enrollment
2. Enrollment Process
3. Enrollment of Full Benefit Dual Eligible Individuals
4. Disenrollment process
5. Enrollment Periods
6. Effective Dates
7. Involuntary Disenrollment by the PDP
8. Late Enrollment Penalty
9. Information about Part D
10. Approval of Marketing Materials and Enrollment Forms
11. Information Provided to PDP sponsors and MA Organizations
12. Procedures to Determine and Document Creditable Status of
Prescription Drug Coverage
C. Voluntary Prescription Benefits and Beneficiary Protections
1. Overview and Definitions
2. Plan Formularies
3. Establishment of Prescription Drug Plan Service Areas
4. Access to Covered Part D Drugs
5. Special Rules for Out-of-Network Access to Covered Part D Drugs
at Pharmacies
6. Dissemination of Plan Information
7. Public Disclosure of Pharmaceutical Prices for Equivalent Drugs
8. Privacy, Confidentiality, and Accuracy of Enrollee Records
D. Cost Control and Quality Improvement Requirements for Part D
Plans
1. Overview (Scope)
2. Drug Utilization Management, Quality Assurance, and Medication
Therapy Management Programs (MTMPs)
3. Consumer Satisfaction Surveys
4. Electronic Prescription Program
5. Quality Improvement Organizations (QIO) Activities
6. Treatment of Accreditation
E. RESERVED
F. Submission of Bids and Monthly Beneficiary Premiums: Plan
Approval
1. Overview
2. Requirements for Submission of Bids and Related Information
3. General CMS Guidelines for Actuarial Valuation of Prescription
Drug Coverage
4. Determining Actuarial Equivalency for Variants of Standard
Coverage and for Alternative Coverage.
5. Test for Assuring the Same Protection against High Out-of-Pocket
Costs
6. Review and Negotiation of Bid and Approval of Plans
7. National Average Monthly Bid Amount
8. Rules Regarding Premiums
9. Collection of Monthly Beneficiary Premiums
G. Payments to Part D Plan Sponsors for Qualified Prescription Drug
Coverage
1. Overview
2. Definitions
3. General Payment Provisions
4. Requirement for Disclosure of Information
5. Determination of Payment
6. Low-Income Cost-Sharing Subsidy Interim Payments
7. Risk Sharing Arrangements
8. Retroactive Adjustments and Reconciliation
9. Reopening
10. Payment Appeals
H. RESERVED
I. Organization Compliance with State Law and Preemption by Federal
Law.
1. Overview
2. Waiver of Certain Requirements in Order to Expand Choice
3. Temporary Waiver for Entities Seeking to Offer a Prescription
Drug Plan in more than One State in a Region
4. Solvency Standards for Non-Licensed Entities
5. Preemption of State Laws and Prohibition of Premium Taxes
J. Coordination Under Part D Plans with Other Prescription Drug
Coverage
1. Overview and Terminology
2. Application of Part D Rules to Certain Part D Plans on and after
January 1, 2006
3. Application to PACE Plans
4. Application to Employer Groups
5. Medicare Secondary Payer Procedures
6. Coordination of Benefits with Other Providers of Prescription
Drug Coverage.
K. Application Procedures and Contracts with PDP Sponsors
1. Overview
2. Definitions
3. Application Requirements
4. Evaluation and Determination Procedures for Applications to Be
Determined Qualified to Act as a Sponsor
5. General Provisions
6. Contract Provisions
7. Effective Date and Term of Contract
8. Nonrenewal of Contract
9. Modification or termination of contract by mutual consent
10. Termination of Contracts by CMS
11. Termination of Contract by the Part D Plan Sponsor
12. Minimum Enrollment Requirements
13. Reporting Requirements
14. Prohibition of Midyear Implementation of Significant New
Regulatory Requirements
15. Fraud, Waste and Abuse
L. Effect of Change of Ownership or Leasing of Facilities during
the Term of Contract
1. General Provisions
2. Change of Ownership
3. Novation Agreement Requirements
M. Grievances, Coverage Determinations, and Appeals
1. Introduction
2. General Provisions
3. Grievance Procedures
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4. Coverage Determinations
5. Formulary Exceptions Procedures
6. Appeals
7. Effectuation of Reconsideration Determinations
8. Federal Preemption of Grievances and Appeals
9. Employer Sponsored Prescription Drug Programs and Appeals
10. Miscellaneous
N. Medicare Contract Determinations and Appeals
1. Overview
2. Provisions of the Final Rule
O. Intermediate Sanctions
1. Kinds of Sanctions
2. Basis for Imposing Sanctions
3. Procedures for Imposing Sanctions
P. Premiums and Cost-Sharing Subsidies for Low-Income Individuals
1. Definitions
2. Eligibility for the Low-Income Subsidy
3. Eligibility Determinations, Redeterminations and Applications
4. Premium Subsidy and Cost-Sharing Subsidy
5. Administration of Subsidy Program
Q. Guaranteeing Access to a Choice of Coverage (Fallback
Prescription Drug Plans)
1. Overview
2. Terminology
3. Assuring Access to a Choice of Coverage
4. Submission and Approval of Bids
5. Rules Regarding Premiums
6. Contract Terms and Conditions
7. Payment to Fallback Plans
R. Payments to Sponsors of Retiree Prescription Drug Plans
1. Introduction
2. Options for Sponsors of Retiree Prescription Drug Programs
3. Definitions
4. Requirements for qualified retiree prescription drug plans
5. Retiree drug subsidy amounts
6. Appeals
7. Change of Ownership
8. Construction
S. Special Rules for States-Eligibility Determinations for Low-
Income Subsidies, and General Payment Provisions
1. Eligibility Determinations
2. General Payment Provisions
3. Treatment of Territories
4. State Contribution to Drug Benefit Costs Assumed by Medicare
T. Part D Provisions Affecting Physician Self-Referral, Cost-Based
HMO, PACE, and Medigap Requirements
1. Definition of Outpatient Prescription Drugs for Purposes of
Physician Self-Referral Prohibition
2. Cost-Based HMOs and CMPS offering Part D coverage
3. PACE Organizations Offering Part D Coverage
4. Medicare Supplemental Policies
III. Provisions of the Final Rule
IV. Collection of Information Requirements
V. Regulatory Impact Analysis
In addition, because of the many organizations and terms to which
we refer by acronym in this final rule, we are listing these acronyms
and their corresponding terms in alphabetical order below:
ABN Advanced beneficiary notice
ADAP AIDS Drug Assistance Program
AEP Annual coordinated election period
AHRQ Agency for Healthcare Research and
Quality
AI/AN American Indians and Alaska Natives
AIC Amount in controversy
ALJ Administrative Law Judge
AMA American Medical Association
AMCP Academy of Managed Care Pharmacy
ANCI American National Standards Institute
AO Accreditation organization
ASAP American Society of Automation in
Pharmacy
ASHP American Society of Health Systems
Pharmacists
AWP Average wholesale price
BBA Balanced Budget Act
BLS Bureau of Labor Statistics
CAHP Consumer Assessment of Health Plan
CBI Confidential business information
CBO Congressional Budget Office
CCIP Chronic care improvement programs
CCP Comprehensive Compliance Program
CFR Code of Federal Regulations
CHOW Change of ownership
CMP competitive medical plan
CMS Centers for Medicare & Medicaid
Services
COB Coordination of benefit
COBRA Consolidated Omnibus Budget
Reconciliation Act (of 1985)
CPI-PD Consumer Price Index for Prescription
Drugs and Medical Supplies
CPT Current Procedural Terminology
CY Calendar year
DAB Departmental Appeals Board
DHS Designated health services
DME Durable medical equipment
DoD Department of Defense
DOL Department of Labor
DUR Drug utilization review
EOB explanation of benefits
ERISA Employee Retirement Income Security
Act of 1974
ESRD End stage renal disease
FAR Federal Acquisition Regulation
FDA Food and Drug Administration
FEHBP Federal Employee Health Benefits
Program
FFP Federal financial participation
FOIA Freedom of Information Act
FQHCs Federally qualified health centers
FPL Federal poverty level
FR Federal Register
FSA Flexible savings account
FY Fiscal year
HEDIS Health plan Employer Data and
Information Set
HHS Department of Health and Human
Services
HIC Health insurance claim
HIPAA Health Insurance Portability and
Accountability Act of 1996
HMO Health maintenance organization
HPMS Health Plan Management System
HRA Health reimbursement account
HRSA Health Resources and Services
Administration
HSA Health savings account
ICFs/MR Intermediate care facilities for the
mentally retarded
IDIQ Indefinite duration, indefinite
quantity
IEP Initial enrollment period
IHS Indian Health Service
IRE Independent review entity
I/T/U Indian Tribes and Tribal
organizations, and urban Indian
organizations
JCHACO Joint Commission on Accreditation of
Health Care Organizations
LIS Low-income subsidy
LTC Long term care
MA Medicare Advantage (formerly
Medicare+Choice)
MA-PD Medicare Advantage prescription drug
plans
MAC Medicare Appeals Council
MAX Medicaid Analytic extract
MCBS Medicare Current Beneficiary Survey
MMA Medicare Prescription Drug,
Improvement, and Modernization Act of
2003
MSA Medicare savings account
MSIS Medicaid Statistical Information
System
MSP Medicare Secondary Payor
MTMP Medication Therapy Management Program
NAIC National Association of Insurance
Commissioners
NCQA National Committee for Quality
Assurance
NCPDP National Council for Prescription Drug
Programs
NCVHS National Center for Vital and Health
Statistics
NDC National Drug Code
NHE National Health Expenditure
NPA National PACE Association
NPI National Provider Identifier
OACT Office of the Actuary (CMS)
OBRA Omnibus Budget Reconciliation Act
OCR Office for Civil Rights
OEPI Open enrollment period for
institutionalized individuals
OIG Office of the Inspector General
OPM Office of Personnel Management
P&T Pharmaceutical and therapeutic
PBA Pharmacy benefit administrator
PBMs Pharmacy benefit managers
PBP Plan Benefit Package
PDP Private prescription drug plan
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PDSC Phased-down State contribution
PFFS Private fee-for-service plan
PHI Protected health information
PhRMA Pharmaceutical Manufacturers and
Researchers of America
PPO Preferred provider organization
PPV Pharmaceutical Prime Vendor
PSO Provider-sponsored organization
QDWIs Qualified disabled and working
individuals
QIl Qualified individuals
QIO Quality Improvement Organization
QMB Qualified Medicare beneficiaries
REACH Regional Education About Choices in
Health
RHC Rural Health Center
SCHIP State Children's Health Insurance
Program
SEP Special enrollment period
SHIP State health insurance assistance
program
SLMB Special Low-Income Beneficiaries
SOW Scope of work
SPAP State Pharmaceutical Assistance
Program
SPD Summary Plan Description
SPOC Single point of contact
SSA Social Security Administration
SSI Supplemental Security Income
SSRI Selective serotonin reuptake inhibitor
SSSGs Similarly Sized Subscriber Groups
TANF Temporary assistance for needy
families
TrOOP True out-of-pocket
U&C Usual and customary
URAC Utilization Review Accreditation
Commission
USP U.S. Pharmacopoeia
VA Department of Veterans Affairs
VDSA Voluntary data sharing agreement
I. Background
A. Medicare Prescription Drug, Improvement, and Modernization Act of
2003
Section 101 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub. L. 108-173) amended Title XVIII
of the Social Security Act (the Act) by establishing a new Part D: the
Voluntary Prescription Drug Benefit Program. (For ease of reference, we
will refer to the new prescription drug benefit program as Part D of
Medicare and we will refer to the Medicare Advantage Program described
in Part C of title XVIII of the Act -as Part C of Medicare.)
We believe that the new Part D benefit constitutes the most
significant change to the Medicare program since its inception in 1965.
The addition of outpatient prescription drugs to the Medicare program
reflects the Congress' recognition of the fundamental change in recent
years in how medical care is delivered in the U.S. It recognizes the
vital role of prescription drugs in our health care delivery system,
and the need to modernize Medicare to assure their availability to
Medicare beneficiaries. This final rule is designed to broaden
participation in the new benefit both by organizations that offer
prescription drug coverage and by eligible beneficiaries. In
conjunction with complementary improvements to the Medicare Advantage
program, these changes should significantly increase the coverage and
choices available to Medicare beneficiaries.
Effective January 1, 2006, the new program establishes an optional
prescription drug benefit for individuals who are entitled to or
enrolled in Medicare benefits under Part A and Part B. Beneficiaries
who qualify for both Medicare and Medicaid (full-benefit dual
eligibles) will automatically receive the Medicare drug benefit unless
Medicare has identified the individual as having other creditable
coverage through an employer-based prescription drug plan. The statute
also provides for assistance with premiums and cost sharing to eligible
low-income beneficiaries.
In general, coverage for the new prescription drug benefit will be
provided through private prescription drug plans (PDPs) that offer
drug-only coverage, or through Medicare Advantage (MA) (formerly known
as Medicare+Choice) plans that offer integrated prescription drug and
health care coverage (MA-PD plans). PDPs must offer a basic drug
benefit. MA-PDs must offer either a basic benefit, or a benefit with
broader coverage than the basic benefit, but at no additional cost to
the beneficiary. If this required level of coverage is offered, MA-PDs
or PDPs, but not fallback plans, may also offer supplemental benefits,
called ``enhanced alternative coverage,'' for an additional premium.
All organizations offering drug plans will have flexibility in
terms of benefit design, including the authority to establish a
formulary to designate specific drugs that will be available, and the
ability to have a cost-sharing structure other than the statutorily-
defined structure, subject to certain actuarial tests. Most Part D
plans also may include supplemental drug coverage such that the total
value of the coverage offered exceeds the value of basic prescription
drug coverage. The specific sections of the Act that address the
prescription drug benefit program are the following:
1860D-1 Eligibility, enrollment, and
information.
1860D-2 Prescription drug benefits.
1860D-3 Access to a choice of qualified
prescription drug coverage.
1860D-4 Beneficiary protections for qualified
prescription drug coverage.
1860D-11 PDP regions; submission of bids; plan
approval.
1860D-12 Requirements for and contracts with
prescription drug plan (PDP)
sponsors.
1860D-13 Premiums; late enrollment penalty.
1860D-14 Premium and cost-sharing subsidies for
low-income individuals.
1860D-15 Subsidies for Part D eligible
individuals for qualified
prescription drug coverage.
1860D-16 Medicare Prescription Drug Account in
the Federal Supplementary Medical
Insurance Trust Fund.
1860D-21 Application to Medicare Advantage
program and related managed care
programs.
1860D-22 Special rules for employer-sponsored
programs.
1860D-23 State pharmaceutical assistance
programs.
1860D-24 Coordination requirements for plans
providing prescription drug coverage.
1860D-41 Definitions; treatment of references
to provisions in Part C.
1860D-42 Miscellaneous provisions.
Specific sections of the MMA that also
relate to the prescription drug
benefit program are the following:
Sec. 102 Medicare Advantage Conforming
Amendments
Sec. 103 Medicaid Amendments
Sec. 104 Medigap
Sec. 109 Expanding the work of Medicare Quality
Improvement Organizations to include
Parts C and D.
B. Codification of Regulations
The final provisions set forth here are codified in 42 CFR Part
423-Voluntary Medicare Prescription Drug Benefit. Note that the
regulations--
for Medicare supplemental policies (Medigap) will continue
to be located in 42 CFR part 403 (subpart B);
for exclusions from Medicare and limitations on Medicare
payment (the physician self-referral rules) will continue to be located
in 42 CFR part 411;
for managed care organizations that contract with us under
cost contracts will continue to be located in 42 CFR part 417, Health
Maintenance Organizations, Competitive Medical Plans, and Health Care
Prepayment Plans;
for PACE organizations will continue to be located in 42
CFR part 460.
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C. Organizational Overview of Part 423
The regulations set forth in this final rule are codified in the
new 42 CFR Part 423-Voluntary Medicare Prescription Drug Benefit. There
are a number of places in which statutory provisions in Part D
incorporate by reference specific sections in Part C of Medicare (the
MA program). The MA regulations appear at 42 CFR Part 422. Since the
same organizations that offer MA coordinated care plans will also be
required to offer MA-PD plans, we believed it was appropriate to adopt
the same organizational structure as part 422. Wherever possible, we
modeled the prescription drug regulations on the parallel provisions of
the part 422 regulations.
The major subjects covered in each subpart of part 423 are as
follows:
Subpart A, General Provisions: Basis and scope of the new part 423,
Definitions and discussion of important concepts used throughout part
423, and sponsor cost-sharing in beneficiary education and enrollment-
related costs (user fees).
Subpart B, Eligibility, Election, and Enrollment: Eligibility for
enrollment in the Part D benefit, enrollment periods, disenrollment,
application of the late enrollment penalty, approval of marketing
materials and enrollment forms, and the meaning and documentation of
creditable coverage. (Please note that other, related topics, are
discussed in the following subparts: Subpart P, eligibility and
enrollment for low-income individuals; Subpart S, provisions relating
to the phase-down of State contributions for dual-eligible drug
expenditures; Subpart F, calculation and collection of late enrollment
fees; Subpart C, plan disclosure; Subpart Q, eligibility and enrollment
for fallback plans; and Subpart T, the definition of a Medicare
supplemental (Medigap) policy.)
Subpart C, Benefits and Beneficiary Protections: Prescription drug
benefit coverage, service areas, network and out-of-network access,
formulary requirements, dissemination of plan information to
beneficiaries, and confidentiality of enrollee records. (Please note
that actuarial valuation of the coverage offered by plans, as well as
the submission of the bid, is discussed in subpart F. Access to
negotiated prices is discussed in subpart C, while the reporting of
negotiated prices is discussed in subpart G. Formularies are discussed
in subpart C, while appeals related to formularies are discussed in
subpart M. Incurred costs toward true out-of-pocket (TrOOP
expenditures) are discussed in subpart C, while the procedures for
determining whether a beneficiary's Part D out-of-pocket costs are
actually reimbursed by insurance or another third-party arrangement are
discussed in subpart J. Information that plans must disseminate to
beneficiaries is discussed in subpart C, while Part D information that
CMS must disseminate to beneficiaries is discussed in subpart B.)
Subpart D, Cost Control and Quality Improvement Requirements for
Part D Plans: Utilization controls, quality assurance, and medication
therapy management, as well as rules related to identifying enrollees
for whom medication therapy management is appropriate, consumer
satisfaction surveys, and accreditation as a basis for deeming
compliance.
Subpart E, Reserved.
Subpart F, Submission of Bids and Monthly Beneficiary Premiums;
Plan Approval: Bid submission, the actuarial value of bid components,
review and approval of plans, and the calculation and collection of
Part D premiums.
Subpart G, Payments to Part D plans for Qualified Prescription Drug
Coverage: Data submission, payments and reconciliations for direct
subsidies, risk adjustment, reinsurance, and risk-sharing arrangements.
Subpart H, Reserved.
Subpart I, Organization Compliance with State Law and Preemption by
Federal Law: Licensure, assumption of financial risk, solvency, and
State premium taxes.
Subpart J, Coordination Under Part D With Other Prescription Drug
Coverage: Applicability of Part D rules to the Medicare Advantage
program, waivers available to facilitate the offering of employer group
plans, waivers of part D provisions for PACE plans and 1876 cost plans
offering qualified prescription drug coverage, and procedures to
facilitate calculation of true out-of-pocket (TrOOP) expenses and
coordination of benefits with State pharmaceutical assistance programs
and other entities that provide prescription drug coverage. (Please
note that subpart C discusses, in more detail, coordination of benefits
from the perspective of which prescription drug benefits are covered by
Part D and the determination of which incurred beneficiary costs will
be counted as TrOOP expenditures. Provisions relating to disenrollment
for material misrepresentation by a beneficiary are discussed in
subpart B.)
Subpart K, Application Procedures and Contracts with PDP Sponsors:
Application procedures and requirements; contract terms; procedures for
termination of contracts; reporting by PDP sponsors.
Subpart L, Effect of Change of Ownership or Leasing of Facilities
during Term of Contract: Change of ownership of a PDP sponsor; novation
agreements; leasing of a PDP sponsor's facilities.
Subpart M, Grievances, Coverage Determinations and Appeals:
Coverage determinations by sponsors, exceptions procedures, and all
levels of appeals by beneficiaries.
Subpart N, Medicare Contract Determinations and Appeals:
Notification by CMS about unfavorable contracting decisions, such as
nonrenewals or terminations; reconsiderations; appeals.
Subpart O, Sanctions: Provisions concerning available sanctions for
participating organizations.
Subpart P, Premiums and Cost-Sharing Subsidies for Low-Income
Individuals: Eligibility determinations and payment calculations for
low-income subsidies.
Subpart Q, Guaranteeing Access to a Choice of Coverage (Fallback
Plans): Definitions, access requirements, bidding process, and contract
requirements for fallback PDPs.
Subpart R, Payments to Sponsors of Retiree Prescription Drug Plans:
Provisions for making retiree drug subsidy payments to sponsors of
qualified retiree prescription drug plans.
Subpart S, Special Rules for States--Eligibility Determinations for
Subsidies and General Payment Provisions: State/Medicaid program's role
in determining eligibility for low-income subsidy and other issues
related to the Part D benefit.
In addition, in subpart T, this final rule also makes changes to:
part 400 relating to definitions of Parts C & D, part 403 relating to
Medicare supplemental policies (Medigap), part 411 relating to
exclusions from Medicare and limitations on Medicare payment (the
physician self-referral rules), part 417 relating to cost-based health
maintenance organizations (HMOs), and part 460 relating to PACE
organizations.
II. Provisions of the Proposed Rule
We received 7,696 items of correspondence containing comments on
the August 2004 proposed rule. Commenters included managed care
organizations and other insurance industry representatives, pharmacy
benefit management firms, pharmacies and pharmacy education and
practice-related organizations, pharmaceutical manufacturers,
representatives of physicians and other health care professionals,
beneficiary advocacy
[[Page 4199]]
groups, representatives of hospitals and other healthcare providers,
States, employers and benefits consulting firms, members of the
Congress, Indian Health Service, Tribal and Urban Health Programs,
American Indians and Alaska Natives, beneficiaries, and others. We also
received many comments expressing concerns unrelated to the proposed
rule. Some commenters expressed concerns about Medicare unrelated to
the Prescription Drug Benefit, while others addressed concerns about
health care and health insurance coverage unrelated to Medicare.
Because of the volume of comments we received in response to the
proposed rule, we will be unable to address comments and concerns that
are unrelated to the proposed rule.
Most of the comments addressed multiple issues, often in great
detail. Listed below are the areas of the regulation that received the
most comments:
Transition of Coverage for Dual Eligibles from Medicaid to
Medicare
Access to Drugs in Long Term Care Facilities
Formulary Policies
Medication Therapy Management Requirements
Network Access Standards
Part B/Part D Drug Identification and Coordination
Dispensing Fees
In this final rule, we address comments received on the proposed
rule. For the most part, we will address issues according to the
numerical order of the related regulation sections.
A. General Provisions
1. Overview
Section 423.1 of subpart A specified the general statutory
authority for the ensuing regulations and indicated that the scope of
part 423 is to establish requirements for the Medicare prescription
drug benefit program. We proposed key definitions at Sec. 423.4 for
terms that appear in multiple sections of part 423.
Consistent with the MMA statute, in many cases we proposed
procedures that parallel those in effect under the MA program. Our goal
was to maintain consistency between these two programs wherever
possible; thus we evaluated the need for parallel changes in the MA
final rule when we received comments on provisions that affect both
programs.
Comment: Many commenters urged us to finalize regulations by early
January--and detailed business requirements soon thereafter. Some also
recommended that we make public certain key decisions and data sooner
than January in order to promote planning.
Response: We agree that the earliest possible release of program
requirements and final rules will facilitate planning and
implementation of new business processes required to offer and
administer this new program. Consequently we have made numerous draft
documents, such as the risk plan solicitation, PDP solvency
requirements, formulary review policies, and the actuarial bidding
instructions, available for public comment in November and December of
2004 and have expedited the rulemaking process to meet these goals. In
response to the lack of specificity regarding the PDP regions in our
proposed rule, we conducted extensive outreach in order to obtain
public input prior to the publication of our final rule. On December 6,
2004, we announced the establishment of 26 MA regions and 34 PDP
regions.
2. Discussion of Important Concepts and Key Definitions (Sec. 423.4)
a. Introduction
For the most part, the proposed definitions were taken directly
from section 1860D-41 of the Act. The definitions set forth in subpart
A apply to all of part 423 unless otherwise indicated, and are
applicable only for the purposes of part 423. For example, ``insurance
risk'' applies only to pharmacies that contract with PDP sponsors under
part 423.
Definitions that have a more limited application have not been
included in subpart A, but instead are set forth within the relevant
subpart of the regulations. For example, in subpart F, we have included
all the definitions related to bids and premiums. The detailed
definitions and requirements related to prescription drug coverage are
included in subpart C, but because of their direct relevance to the
bidding process they are also referenced in subpart F.
Following our discussion of important concepts, we provide brief
definitions of terms that occur in multiple sections of this preamble
and part 423. We believe that it is helpful to define these frequently
occurring terms to aid the reader, but that these terms do not require
the extended discussion necessary in our section on important concepts.
b. Discussion of Actuarial Equivalence, Creditable Prescription Drug
Coverage, PDP Plan Regions, Service Area, and User Fees
Discussion of the Meaning of Actuarial Equivalence
The concept of actuarial equivalence is applied in several
different contexts in Title I of the MMA. In very general terms,
actuarial equivalence refers to a determination that, in the aggregate,
the dollar value of drug coverage for a set of beneficiaries under one
plan can be shown to be equal to the dollar value for those same
beneficiaries under another plan. Given the various uses for this term
in the Part D provisions, we proposed the following relatively general
definition: ``Actuarial equivalence'' means a state of equivalent
values demonstrated through the use of generally accepted actuarial
principles and in accordance with section 1860D-11(c) of the Act and
Sec. 423.265(c)(3) of this part. This concept is discussed in further
detail in those sections of this preamble, such as section II.F, where
actuarial equivalence comes into play. We will provide further detailed
guidance on methods required to demonstrate actuarial equivalence.
Comment: One commenter requested that the definition of actuarial
equivalence be refined through examples or more descriptive language.
Response: We agree that it is critical to disclose our requirements
for calculation of actuarial values under Part D requirements as fully
and as expeditiously as possible to reduce uncertainty on the part of
potential plan sponsors. To that end we made available our draft bid
preparation rules and processes early in December 2004 for public
comment, and we will continue to refine our guidance to bidders through
vehicles such as the annual 45-day notice and the CMS website. We have
modified our definition to refer to this separate guidance.
Discussion of the Meaning of Creditable Prescription Drug
Coverage
Comments on creditable coverage are addressed in the preamble for
subparts B and T.
Prescription Drug Plan Regions
Prescription drug plan regions are areas in which a contracting PDP
sponsor must provide access to covered Part D drugs. Although we
included specifications for regions in Sec. 423.112, the regions
themselves were not set forth in the proposed rule. To the extent
feasible, we tried to establish PDP regions that were consistent with
MA regions. The MMA specifically required no fewer than 10 regions and
no more than 50 regions, not including the territories. For a further
discussion of the PDP regions, see section II.C of this preamble.
Comment: Many commenters expressed concerns about the MA and PDP
region decisions. Many argued that
[[Page 4200]]
regions should closely mirror existing State insurance markets to
maximize participation. Others representing rural constituencies argued
for larger regions to encourage offering of coverage in rural areas.
Response: We conducted a market survey and analysis, including an
examination of current insurance markets as required in the MMA. Key
factors in the survey and analysis included payment rates; eligible
population size per region; preferred provider organization (PPO)
market penetration; current existence of PPOs, MA plans, or other
commercial plans; and presence of PPO providers and primary care
providers. Additional factors were also considered, including solvency
and licensing requirements, as well as capacity issues. Recognizing the
lack of specificity regarding the PDP regions in our proposed rule, we
conducted extensive outreach in order to obtain public input prior to
the publication of our final decision. On December 6, 2004, we
announced the establishment of 26 MA regions and 34 PDP regions. For
maps and fact sheets on the regions, please see http://www.cms.hhs.gov/medicarereform/mmaregions/
.
Service Area
In the proposed rule we proposed that Medicare beneficiaries would
be eligible to enroll in a PDP or an MA-PD plan only if they reside in
the PDP's or MA-PD plan's ``Service Area.'' For PDPs the service area
is defined as the region or regions for which they must provide access.
This is the Region established by CMS either pursuant to proposed Sec.
423.112, or, in the case of fallback plans, the fallback service area
pursuant to Sec. 423.859, within which the PDP is responsible for
providing access to the Part D drug benefit in accordance with the
access standards in proposed Sec. 423.120. Under the MA program, an MA
plan's service area is defined in Sec. 422.2. For coordinated care
plans, the definition of ``service area'' expressly includes the
condition that the service area is an area in which access is provided
in accordance with access standards in Sec. 422.112.
We also proposed that for purposes of enrolling in Part D with a
PDP, or under an MA-PD plan, the definition of Service Area that
governs eligibility to enroll is the area within which the Part D
access standards under Sec. 423.120 are met. Beneficiaries in jail or
prison do not have access to pharmacies available as required under
Sec. 423.120. Therefore, such beneficiaries would not be considered to
be in a PDP or MA-PD plan's Service Area for purposes of enrolling in
Part D. Incarcerated individuals accordingly would not be assessed a
late penalty when they enroll in Part D (either with a PDP or MA-PD
plan) upon being released. The same analysis applies with regard to a
beneficiary who lives abroad, and does not reside within the boundaries
of any PDP Region or MA-PD Service Area. We have modified our
definition of service area to clarify our intent as proposed.
Comment: Several commenters asked that we waive the service area
requirement for employer group PDP plans.
Response: We agree that we have the authority to waive the service
area requirement for employer-sponsored group prescription drug plans,
and we plan to do so in appropriate cases. We will provide further
details on waivers in separate CMS guidance.
Sponsor Cost-Sharing in Beneficiary Education and Enrollment
Related Costs-User Fees (Sec. 423.6)
The last section of subpart A proposed regulations implementing the
user fees provided for in section 1857(e)(2) of the Act, as
incorporated by section 1860D-12(b)(3)(D) of the Act. These fees are
currently required of MA plans for the purpose of defraying part of the
ongoing costs of the national beneficiary education campaign that
includes developing and disseminating print materials, the 1-800-
MEDICARE telephone line, community based outreach to support State
health insurance assistance programs (SHIPs), and other enrollment and
information activities required under section 1851 of the Act and
counseling assistance under section 4360 of the Omnibus Budget
Reconciliation Act of 1990 (Pub. L. 103-66).
The MMA expands the user fee to apply to PDP sponsors as well as MA
plans. The expansion of the application of user fees recognizes the
increased Medicare beneficiary education activities that we would
require as part of the new prescription drug benefit. In 2006 and
beyond, user fees will help to offset the costs of educating over 41
million beneficiaries about the drug benefit through written materials
such as a publication describing the drug benefit, internet sites, and
other media. The user fee provisions establish the applicable aggregate
contribution portions for PDP sponsors and MA organizations through two
calculations.
Comment: Several commenters supported the extension of user fees to
PDP sponsors in addition to MA plans. One commenter emphasized the need
for Medicare to provide national beneficiary educational materials in
accessible formats (including Braille and other languages commonly used
by beneficiaries), as well as telecommunications equipment to support
beneficiaries with hearing impairments, in order to meet the various
needs of Medicare beneficiaries with disabilities. Another commenter
urged us to focus beneficiary education efforts on helping
beneficiaries make a choice, as opposed to simply describing the array
of choices. This commenter also urged us not to overlook the M+C
population in its outreach campaign.
Response: We have a long-standing tradition of making our
beneficiary education materials accessible in a variety of formats to
meet the needs of people with disabilities and special communications
barriers. Beneficiary publications on a variety of topics are available
in Braille, large print, and audiotape versions, in addition to
conventional formats. We expect to continue these practices when
educating beneficiaries about MMA topics. In addition, we are
finalizing a partnership with the Social Security Administration (SSA)
that will allow some of our educational products to be translated into
14 languages (other than English and Spanish) and reach a broader
audience.
We are currently planning the development of a range of tools and
strategies that will help beneficiaries make a choice that meets their
needs. We agree that this action is an essential part of our education
process, in addition to building general awareness and understanding.
We will address the needs of multiple audiences through our outreach
and education efforts, including those with M+C (MA) plans.
c. Definitions of Frequently Occurring Terms
The following definitions were discussed in the preamble to our
proposed rule:
Full-benefit dual eligible beneficiary means an individual who
meets the criteria established in Sec. 423.772 (Subpart P), regarding
coverage under both Part D and Medicaid.
Comment: One commenter asked us to clarify whether individuals
eligible for Medicaid at the special income level for long term care
qualify as full benefit dual eligibles for a full subsidy.
Response: Yes, all individuals who qualify for Medicaid, including
expansion populations and persons eligible for Medicaid in long term
care facilities under a State's special income standard which does not
exceed 300 percent of the supplemental security income (SSI) payment
standard will qualify as full benefit dual eligible beneficiaries
eligible for a full subsidy.
Insurance risk means, for a participating pharmacy, risk of the
type
[[Page 4201]]
commonly assumed only by insurers licensed by a State and does not
include payment variations designed to reflect performance-based
measures of activities within the control of the pharmacy, such as
formulary compliance and generic drug substitutions, nor does it
include elements potentially in the control of the pharmacy (for
example, labor costs or productivity).
Comment: Several commenters supported our definition of `insurance
risk', including the exclusion of performance-based compensation as
this is not commonly viewed as insurance risk.
Response: We will adopt the definition as proposed.
MA means Medicare Advantage, which refers to the program authorized
under Part C of Title XVIII of the Act.
MA-PD plan means an MA plan that provides qualified prescription
drug coverage.
Medicare prescription drug account means the account created within
the Federal Supplementary Medical Insurance Trust Fund for purposes of
Medicare Part D.
Part D eligible individual means an individual who is entitled to
Medicare benefits under Part A or enrolled in Medicare Part B. For
purposes of this part, enrolled under Part B means ``entitled to
receive benefits'' under Part B.
Prescription drug plan or PDP means prescription drug coverage that
is offered under a policy, contract, or plan that has been approved as
specified in Sec. 423.272 and that is offered by a PDP sponsor that
has a contract with CMS that meets the contract requirements under
subpart K or in the case of fallback PDPs also under subpart Q.
PDP region means a prescription drug plan region as determined by
CMS under Sec. 423.112.
PDP sponsor means a nongovernmental entity that is certified under
this part as meeting the requirements and standards of this part for
that sponsor.
Comment: Several commenters noted that the terms PDP sponsor and MA
organization offering an MA-PD plan were not consistently used in the
proposed rule to represent distinct and mutually exclusive entities. As
a result the proposed rule was not always clear regarding when
requirements or options applied only to one or the other entity, or
both.
Response: We acknowledge that the terminology regarding sponsors
and plans was inconsistently applied. We have revised the language in
the final rule accordingly and have also standardized the terms `Part D
plan' and `Part D plan sponsor' when referring to all plans and
sponsors in general. Consequently we have relocated these terms from
subpart C to this subpart and clarified that references to ``Part D
plans'' in the final rule refer to any or all of MA-PD plans, PDPs,
PACE plans and cost plans. Likewise, the term ``Part D plan sponsor''
refers to MA organizations offering MA-PD plans, PDP sponsors, and
sponsors of PACE plans and cost plans.
Comment: Several commenters asked that we be flexible in its
definition of a non-governmental entity to allow either the creation of
State-sponsored entities as PDPs or the selection of a preferred PDP
entity for Medicaid dual eligible and SPAP populations.
Response: While we understand and support the goals of minimizing
client confusion and facilitating continuity of care, we believe the
requirements imposed by sections 1860D-41(13) and 1860D-23(b)(2) of the
Act do not allow us to approve State-sponsored PDPs or the selection of
preferred PDPs for State populations. We would note, however, that we
believe we can waive the non-governmental requirement in section 1860D-
41(23) of the Act under the employer waiver authority for States that
seek to sponsor Part D plans on behalf of their employees. This is
discussed in more detail in subpart J of this rule.
d. Financial Relationships between PDP Sponsors, Health Care
Professionals and Pharmaceutical Manufacturers
The financial relationships that exist between or among PDP
sponsors, health care professionals (including physicians and
pharmacists), or pharmaceutical manufacturers may be subject to the
anti-kickback statute and, if the relationship involves a physician,
the physician self-referral statute. Nothing in this regulation should
be construed as implying that financial relationships described in this
final rule meet the requirements of the anti-kickback statute or
physician self-referral statute or any other applicable Federal or
State law or regulation. All such relationships must comply with
applicable laws.
In addition to the provisions in these regulation, under section
6(a)(1) of the Inspector General Act of 1978, as amended, OIG has
access to all records, reports, audits, reviews, documents, papers and
other materials to which the Department has access that relate to
programs and operations for which the Inspector General has
responsibilities under the Inspector General Act. The provisions in
these regulations do not limit the Office of the Inspector General's
(OIG) authority to fulfill the Inspector General's responsibilities
under Federal law.''
e. ERISA application and requirements
The rules contained in this rulemaking apply for purposes of Title
I of the MMA and no inference should be drawn from anything in this
rule regarding the applicability of title I of ERISA. In addition,
nothing in this rulemaking should be construed as relieving a plan
administrator or other fiduciary of obligations under title I of ERISA.
B. Eligibility and Enrollment
We outlined the eligibility and enrollment requirements for Part D
plans in subpart B of the August 2004 proposed rule. We received over
100 comments on this subpart. Below we summarize the provisions of the
proposed rule and our final rule and respond to public comments.
(Please refer to the proposed rule (69 FR 46637) for a detailed
discussion of our proposals.)
1. Eligibility for Part D (Sec. 423.30)
Section 101 of the MMA established section 1860D-1 of the Act,
which includes the eligibility criteria an individual must meet in
order to obtain prescription drug coverage and enroll in a Part D plan.
Section 1860D-1(a)(3)(A) of the Act defines a ``Part D eligible
individual'' as an individual who is entitled to Medicare benefits
under Part A or enrolled in Part B. Further, in order to be eligible to
enroll in a PDP plan, Sec. 423.30(a) of the proposed rule provided
that the individual must reside in the plan's service area, and cannot
be enrolled in an MA plan, other than a Medicare savings account (MSA)
plan or private fee-for-service (PFFS) plan that does not provide
qualified prescription drug coverage. In addition, Sec. 423.4 of the
proposed rule provided the definition of service area, which describes
that for purposes of eligibility to enroll to receive Part D benefits,
certain access standards must be met, hence, making certain individuals
ineligible to enroll.
Generally, a Part D eligible individual enrolled in an MA plan that
does not provide qualified prescription drug coverage (that is, an MA
plan) may not enroll in a PDP. There are, however, exceptions under
sections 1860D-1(a)(1)(B)(iii) and (iv) of the Act for individuals who
are enrolled in either an MA private fee-for-service plan (as defined
in section 1859(b)(2) of the Act) that does not provide qualified
prescription drug coverage or an MSA plan (as defined in section
1859(b)(3) of the Act). We provided for these
[[Page 4202]]
exceptions in Sec. 423.30(b) of the proposed rule.
Except as provided above, in accordance with section 1860D-
1(a)(1)(B)(i) of the Act, and as provided in Sec. 423.30(c) of the
proposed rule, a Part D eligible individual who is enrolled in an MA-PD
plan must obtain prescription drug coverage through that plan. In order
to enroll in an MA-PD plan, a Part D eligible individual must also meet
the eligibility and enrollment requirements of the MA-PD plan as
provided in Sec. 422.50 through Sec. 422.68 of the proposed rule
establishing and regulating the MA program (CMS-4069-P) which was also
published August 2004.
Except as otherwise provided below, the final rule adopts the
eligibility criteria set forth in Sec. 423.30 of the proposed rule.
Comment: Several commenters requested clarification of the
definition of a Part D eligible individual. One commenter stated than a
literal reading of the proposed definition appears to say that any
individual who is eligible for Medicare but not enrolled could get the
Part D benefit, and asks if an individual must enroll in Part A or Part
B in order to be eligible for Part D. One commenter indicated that it
was unclear how CMS would coordinate Part D eligibility with any
retroactive eligibility determinations made by SSA.
Response: Section 1860D-1(a)(3)(A) of the Act defines a ``Part D
eligible individual'' as ``an individual who is entitled to benefits
under Part A or enrolled under Part B.''
In other context, we generally have interpreted the concept of
``entitled'' to benefits to mean that an individual has met all of the
necessary requirements for a benefit (that is, is eligible for the
benefit), and has actually applied for and been granted coverage. We
believe for purposes of applying the definition of ``Part D eligible
individual'' under section 1860D-1(a)(3) of the Act, we believe this
interpretation of ``entitlement'' is the appropriate interpretation.
Accordingly, we will deem an individual ``entitled'' to Part A, and
thus a Part D eligible individual, if the individual is eligible for
benefits under Part A, and has actually applied for and been granted
coverage under Part A. On the other hand, under our Medicare Part B
regulations at part 407, an individual is considered to be ``enrolled''
in Part B when he or she has applied for Part B coverage (or is deemed
to have applied). Nevertheless, we do not believe this interpretation
of ``enrolled'' in Part B is the correct interpretation of section
1860D-1(a)(3)(A) of the Act, and instead interpret ``enrolled under
Part B'' to mean that the individual is entitled to receive benefits
under Part B.
When establishing eligibility and enrollment rules for the MA
program upon its inception, we adopted a similar interpretation of
section 1851(a) (3) of the Act. Section 1851(a) (3) of the Act defined
the term ``Medicare+Choice eligible individual'' to mean an individual
who is entitled to benefits under part A ``and enrolled under part B.''
As we explained in our proposed rule for the Medicare+Choice program
(see 63 FR 34979), we believe that the Congress intended that we
provide an individual the opportunity to enroll in the Medicare+Choice
program only if entitled to actually receive benefits under Part B in
addition to Part A. As we explained, under some situations, an
individual may apply for or be deemed to have applied for Part B before
he or she is actually entitled to receive coverage. For example, if an
individual applies for Part B coverage after he or she reaches age 65,
the individual may not actually be entitled to Part B coverage under
section 1837 of the Act until one or several months after the month of
application and enrollment. If we had interpreted section 1851(a) (3)
of the Act to permit individuals to enroll in a Medicare+Choice plan
when an individual has only been enrolled in Part B, but is not yet
entitled to Part B, he or she could be entitled to the benefits under a
Medicare+Choice plan before actually being entitled to Medicare Part B
coverage. In order to avoid such a result, we interpreted the language
``enrolled'' in Part B in section 1851(a) (3) of the Act to mean
``entitled'' to Part B.
We similarly will interpret section 1860D-1(a)(3)(A) of the Act as
providing that an individuals is eligible for Part D only if the
individual is entitled to receive benefits under Part A or Part B.
Section 1860D-1(b)(1)(B) of the Act requires us to use rules similar to
and coordinated with certain rules for enrollment that govern
eligibility for the MA program. Hence, we believe that the Congress
intended that we provide an individual the opportunity to enroll in
part D only if entitled to actually receive benefits under Part B (or
Part A); otherwise an individual would be entitled to receive coverage
of Part D drugs under PDP before being entitled to receive benefits
under original fee-for-service Medicare.
Our regulations at Sec. 422.2 define an MA eligible individual as
someone who meets the requirements of Sec. 422.50, which outlines the
various criteria that an individual must meet to be eligible to elect
an MA plan, including: entitlement to Parts A and B, residency in a
plan's service area, making an enrollment election and agreeing to
abide by the rules of the MA plan. We intend to apply a parallel
approach to the Part D program. We will amend Sec. 423.4 to define a
Part D eligible individual as an individual who meets the requirements
at Sec. 423.30, that is, the individual is entitled to Medicare
benefits under Part A or enrolled in Part B and lives in the service
area of the Part D plan. We clarify, however, that ``enrolled'' in Part
B means that the individual not only has applied for and enrolled in
Part B, but is also receiving coverage for Part B services, in
accordance with part 407.
We have included in Sec. 423.30 to be eligible to enroll in a Part
D plan, the individual must also reside in the Part D plan's service
area and not be enrolled in another Part D plan.
We have clarified Part D eligibility for those individuals for whom
eligibility determinations for Medicare Part A or B have been made
retroactively, which results in retroactive entitlement to these
programs. The MA statute at section 1851(f) of the Act provides that
initial elections shall take effect upon the date the individual
becomes entitled to Part A or B, except as the Secretary may provide
``in order to prevent retroactive coverage.'' Under the MA program, an
individual who has received a retroactive eligibility determination for
Medicare Part A or B is not permitted to enroll in an MA plan
retroactively. Again, using section 1860D-1(b)(1)(B) of the Act that
directs us to establish rules similar to those in MA, we envision
individuals enrolling in a Part D plan prospectively and have revised
Sec. 423.30 so that individuals who become entitled to Medicare Part A
or Part B benefits for a retroactive effective date are deemed Part D
eligible as of the month in which notice of Medicare Part A or Part B
entitlement is provided.
Such revisions at Sec. 423.4 and Sec. 423.30 will clarify that an
individual is eligible for Part D at the same time an individual is
eligible to enroll in Part D.
Comment: Commenters requested clarification on the eligibility of
incarcerated individuals. One commenter did not believe that we had the
authority to create such exclusion. Another requested clarification of
the ability of individuals released from incarceration on probation or
parole to enroll in Part D.
Response: In the preamble of the proposed rule, we explained that
individuals who are incarcerated likely do not have access to Part D
services, as they cannot obtain their prescription drugs from network
pharmacies, yet
[[Page 4203]]
technically the jail or prison may be located within the larger
geographic area encompassing a PDP's service area. As a result, the
individual would be subject to a late enrollment penalty for not
enrolling in a Part D plan. As a result, we believe that it is
appropriate to provide in Sec. 423.4 that a PDP's service area would
exclude areas in which incarcerated individuals reside (that is, a
correctional facility) and as a result, incarcerated individuals would
be ineligible to enroll in a PDP and we have revised the definition to
clarify this point. Upon release from incarceration, such as for
probation or parole, individuals will be considered eligible for Part D
by living in a PDP service area, if they meet other Part D eligibility
requirements.
Comment: One commenter suggested that we consider individuals who
are residents of a State mental institution to be out of the service
area and therefore ineligible for enrollment in a Part D plan.
Response: We would not consider individuals who are residing in a
State mental institution to be out of the service area. Medicare
beneficiaries residing in such institutions have access to Medicare
benefits under Parts A and B and therefore would be entitled to enroll
in a Part D plan. However, we do recognize that individuals in a State
mental institution may be limited to the pharmacy network contracted
with the facility. Therefore, we will provide such individuals a
Special Enrollment Period (SEP) to enable them to join the appropriate
Part D plan based upon their situation. We will clarify this in
guidance following publication of this rule.
Comment: One commenter asked that we clarify Sec. 423.30(c) in the
final rule to indicate when an individual in an MA-PD plan can change
plans.
Response: The provisions explaining the opportunities for
individuals to make PDP enrollment choices are fully set forth at Sec.
423.38 of the final rule. The requirements for MA plans are outlined
under Sec. 422.50 through Sec. 422.80.
Comment: One commenter suggested that we permit beneficiaries
enrolled in an MA plan to enroll in a PDP or disenroll from the MA plan
and enroll in an MA-PD plan.
Response: Section 1860D-1(a)(1) of the Act specifically prohibits
an MA plan enrollee from enrolling in a PDP except in the case of
enrollees of a MA PFFS plan that does not provide qualified
prescription drug coverage or enrollees of an MSA plan. All
individuals, including enrollees of MA plans, can enroll in a Part D
plan during the established enrollment periods, as described at Sec.
423.38 of the final rule.
2. Enrollment Process (Sec. 423.32)
Section 1860D-1(b)(1) of the Act requires that we establish a
process for the enrollment, disenrollment, termination, and change of
enrollment of Part D eligible individuals in prescription drug plans.
The statute further requires that this process use rules similar to,
and coordinated with, the enrollment, disenrollment, termination, and
change of enrollment rules for MA plans under certain provisions of
section 1851 of the Act. Thus, we proposed, where possible, to adopt
the MA enrollment requirements provided under Sec. 422.50 through
Sec. 422.80.
Generally, a Part D eligible individual who wishes to make, change,
or discontinue an enrollment during applicable enrollment periods must
file an enrollment with the PDP directly. However, we will allow PDPs
to use other enrollment mechanisms, as approved by us. In addition,
Sec. 423.32 of the final rule provides that beneficiaries will remain
enrolled in their PDP without having to actively re-enroll in that PDP
at the beginning of each calendar year. Except as otherwise provided
below, the final rule adopts the enrollment rules set forth in Sec.
423.34 of the proposed rule.
Comment: Several commenters submitted identical comments on various
aspects of the coordination of the enrollment process reflected at both
Sec. 423.34(b) and Sec. 423.42(a).
Response: Commenters provided similar comments about the enrollment
process at Sec. 423.34(b)(1) of the proposed rule and the coordination
of enrollment and disenrollment process at Sec. 423.42(a) of the
proposed rule. After reviewing these comments, we recognized that these
sections were duplicative and could cause confusion. To address this
problem, we have reorganized the following subjects in subpart B into a
more logical order: the enrollment process at Sec. 423.32 (previously
proposed Sec. 423.34); auto-enrollment process for dual eligible
individuals at Sec. 423.34 (previously proposed Sec. 423.34(d); the
disenrollment process at Sec. 423.36; the enrollment periods in Sec.
423.38; and the effective dates at Sec. 423.40. We believe that this
will simplify and clarify these provisions.
Comment: Several commenters supported the inclusion of regulatory
provisions that would permit enrollment through means other than the
submission of signed, hard-copy enrollment forms in order to facilitate
flexibility for future enrollments. These commenters supported allowing
alternative mechanisms for enrollment, particularly electronic
enrollments, to enable beneficiaries with access to computers to enroll
or disenroll through secure websites established by PDP sponsors.
Another commented that we should make the same enrollment mechanisms
that are available to Medicare Advantage plans available to PDP
sponsors. A few commenters requested clarification as to the ``other
mechanisms'' referenced by us in the proposed rule, specifically what
types of enrollment are envisioned and the populations to which these
``other mechanisms'' would be applied. One commenter recommended we
allow electronic enrollments through a CMS-hosted web site, and that we
develop a standard registration process to authenticate the
enrollments. Another stated that processing applications via the
Internet would require significant systems changes and that the
regulation appeared to lack requirements necessary to process
applications in such a manner.
Response: We were pleased by the general support for flexibility
and creativity in this important part of the enrollment process, and we
anticipate working in collaboration with all of our partners to develop
enrollment processes that will be convenient, reliable and secure for
all beneficiaries. We will adopt this provision as proposed at Sec.
423.32(b), rather than specify or limit the types of alternative
enrollment processes that may be used. We will continue to assess the
technology available and provide additional operational guidance in the
future, including specific systems requirements and other information
necessary to implement these processes.
Comment: We received several comments requesting clarification of
what parties are authorized to act on behalf of a beneficiary for
enrollment purposes. One commenter noted that the regulation does not
appear to recognize a beneficiary's ``authorized'' or ``personal''
representative who could be designated to make decisions for
individuals and refers to the personal representative definition that
we created in subpart P of the proposed rule. Another commenter was
concerned that individuals in long-term care facilities do not have a
designated surrogate decision maker in place to make such a decision
and lack the cognitive capacity to select a PDP. While some commenters
stated that we should allow an individual's personal representative to
enroll a person into a PDP, others requested that we recognize specific
representatives who could effectuate
[[Page 4204]]
such an enrollment within the regulatory text (for example, SPAP).
Response: In the regulation, we refer to a Part D eligible
``individual'' who wishes to enroll. An individual who has been
appointed as the legal representative to execute such an enrollment on
behalf of the beneficiary, in accord with State law, would constitute
the ``individual'' for purposes of making the enrollment or
disenrollment. As with the Medicare Advantage provisions, we will
recognize State laws that authorize persons to effect an enrollment for
Medicare beneficiaries. We will include more information on this
clarification in future operational guidance.
Comment: Several commenters asked that we clarify that nothing
would prevent a person or entity from assisting a beneficiary in
completing and submitting his or her application to the PDP, as the MA
program allows at Sec. 422.60(c).
Response: We agree and have revised the regulatory language at
Sec. 423.32(b) to allow for such assistance, consistent with the MA
regulations.
Comment: One commenter suggested that we set forth an appeals
process for beneficiaries who are denied enrollment.
Response: Although we agree with the commenter that we should
establish a procedure for beneficiaries to dispute enrollment denials,
we do not believe that a formal appeals process is necessary. Instead,
we intend to address beneficiary complaints regarding enrollment in a
similar manner as we have done under the MA program. Under the MA
program, individuals are advised through their notice of denial of
enrollment that if they disagree with the decision to deny enrollment,
they may contact the MA organization. We monitor MA organizations
periodically to ensure that they are providing this notification. We
also respond to specific inquiries from beneficiaries and investigate
possible situations where MA organizations have failed to notify
beneficiaries of the process or where an organization may have
incorrectly denied a beneficiary's enrollment. If we discover a
beneficiary was incorrectly denied enrollment we can require the MA
organization to enroll that individual, as provided in our manual
instructions. We believe our current process provides adequate remedies
to beneficiaries and will therefore establish a similar process for
PDPs. We decline to establish a separate appeals process for these
denials at this time.
Comment: One commenter requested that we specify in the final rule
that PDPs must provide written notice of enrollment decisions to each
consumer.
Response: In Sec. 423.32(d) we require PDPs to provide all
individuals prompt notice of acceptance or denial of enrollment in the
PDP in a format and manner specified by CMS. We will provide specific
instructions on the format and manner of these required notices in
operational guidance and intend to provide model language and materials
for PDPs to use as well. Looking ahead, we believe that beneficiaries
may want to receive documents (such as notices) in a variety of
formats, rather than just in writing. To that end, we decline to
require a specific format in regulation, thereby preserving the
flexibility to foster innovation and creativity to satisfy beneficiary
and industry expectations in the future.
Comment: One commenter suggested that individuals enrolled in PACE
should remain enrolled in the PACE organization for purposes of Part D
coverage effective January 1, 2006. Another commenter suggested a
similar process be established for cost plans.
Response: Section 1860D-21(f) of the Act provides that a PACE plan
may elect to provide qualified prescription drug coverage to its Part D
eligible enrollees. Section 1860D-21(e) of the Act establishes a
similar directive to cost-based HMO or competitive medical plan (CMP)
plans. Discussion of the application of the Part D benefit to both PACE
and cost-based HMO or CMP plans can be found under subpart T of the
proposed rule. For PACE plans, we stated that PACE plans generally will
be treated similar to MA local plans. Applying the appropriate MA rules
from Sec. 422.66, PACE enrollees will receive their Part D benefits
through the PACE plan if the PACE plan has elected to provide such
coverage. Beneficiaries who are enrolled in PACE plans that provide
such coverage as of December 31, 2005 will remain enrolled in that plan
on January 1, 2006. For cost-based HMO or CMP plans, we state that cost
contracts may offer Part D coverage only to individuals also enrolled
for Medicare in the cost contract. As a result of the provisions for
PACE and cost-based HMO or CMP plans, we revised Sec. 423.32(f) to
provide that individuals who are in PACE or cost-based HMO or CMP plans
that provide prescription drug coverage on December 31, 2005 will
remain enrolled in that plan and be enrolled in the Part D benefit
offered through that plan as of January 1, 2006.
3. Enroll Full-Benefit Dual Eligible Individuals (Sec. 423.34)
In the proposed rule, Sec. 423.34(d) required that full benefit
dual eligible individuals who fail to enroll in a PDP or MA-PD during
their initial enrollment period would be automatically enrolled into an
appropriate Part D plan, specifically a PDP with a Part D premium that
does not exceed the low-income premium subsidy amount. When there is
more than one available PDP in a region, full benefit dual eligible
individuals would be auto-enrolled on a random basis.
All beneficiaries in an MA plan with any prescription drug coverage
on December 31, 2005 will be deemed enrolled on January 1, 2006 in an
MA-PD plan offered by the same MA organization in accordance with Sec.
422.66(e)(2) and (e)(3) of Title II of the final regulation even if the
monthly beneficiary premium exceeds the low-income premium subsidy
amount. For full-benefit dual eligible individuals only, the proposed
rule provided that those already enrolled in an MA plan without any
prescription drug coverage would be auto-enrolled into an MA-PD plan
offered by the same organization, and that has a monthly Part D premium
that does not exceed the low-income premium subsidy amount. The
proposed rule clarified that those auto-enrolled into a Part D plan may
affirmatively decline Part D coverage or change Part D plans.
In a related area, Sec. 423.36(c) of the proposed rule provided a
SEP for full-benefit dual eligible individuals that permits them to
change Part D plans at any time. Separately, there already exists a SEP
for full-benefit dual eligible individuals to enroll in or disenroll
from a Medicare Advantage plan at any time, and this will be expanded
to include MA-PD plans. This SEP is provided in operational guidance
(see section 30.4.4-5 of Chapter 2 of the Medicare Managed Care
Manual), in accordance with section 1851(e)(4)(D) of the Act, which
gives us the authority to provide Special Enrollment Periods for
exceptional circumstances. Taken together, the PDP and MA-PD plan SEPs
mean a full-benefit dual eligible individual may switch from Original
Medicare and a PDP into an MA-PD plan and vice versa; from one PDP to
another; and from one MA-PD plan to another MA-PD plan at any time.
We requested comment on two areas: whether we or States should
conduct auto-enrollment, and how to address an inherent conflict in the
statute, whereby the statute requires auto-enrollment of full-benefit
dual eligible individuals
[[Page 4205]]
into a Part D plan with a premium that does not exceed the low-income
premium subsidy amount, but does not speak to those instances in which
an individual is enrolled in an MA organization whose premium for the
available MA-PD plan(s) exceeds the low-income premium subsidy amount.
Except as otherwise provided below, the final rule adopts the
enrollment rules for full-benefit dual eligible individuals set forth
in Sec. 423.34(d) of the propose rule.
Comment: Several commenters supported CMS performing the auto-
enrollment function. They viewed it as the most appropriate entity
because it is in the best position to randomly assign beneficiaries to
MA-PD plans or PDPs in the region, and to establish links with each MA-
PD plan or PDP in each region, thereby more efficiently auto-enrolling
individuals. Some commenters also suggested that we consider adding an
enrollment broker to the process for populations with special health
care needs.
A number of other commenters recommended that States either be
required or have the option to perform the auto-enrollment function, as
they view the States as having more readily available data identifying
dual eligible individuals and a vested interest in ensuring these
individuals are enrolled in appropriate Part D plans. This option was
also viewed as advancing care coordination and ensuring continuity of
care. It was noted that these options also present a disincentive for
States to maximize enrollment, since the phased-down State contribution
payments are tied to the number of Part D eligible individuals enrolled
in Part D plans. Commenters also acknowledged that, if we were to
afford States the option of conducting the auto-enrollment function, we
would have to develop its own systems for auto-enrollment in States
that lack the capacity to develop such systems. Commenters supporting
this option felt strongly that we should reimburse States for all of
their costs related to enrollment activities they are required to
perform.
Some commenters recommended that an independent third party
coordinate the enrollment process. Those parties could include State
and local officials and representatives of nonprofit organizations
specializing in care for seniors. One also suggested that the
contracted agent would need to be compliant with the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) privacy rule and
should have no financial incentives regarding a full-benefit dual
eligible individual's assignment beyond the contract between it and
CMS.
Response: We agree with those who commented that we, or a
contractor on our behalf, should perform the auto-enrollment function
because we can better ensure consistent, timely implementation. In
addition, we would not have to develop and implement a separate
administrative structure to oversee auto-enrollment being performed by
some or all of the States. Finally, it would likely be more cost
effective for us to have a single entity perform auto-enrollment,
rather than pay 51 separate entities. For these reasons, we will modify
the final regulation to specify that we will conduct the auto-
enrollment process.
At this time, we do not envision contracting with an enrollment
broker to provide more intensive choice counseling for beneficiaries
subject to auto-enrollment. Because the statute makes us ultimately
responsible for the auto-enrollment process, we will, at least
initially, conduct it ourselves. Instead of hiring a new third party,
we believe it would be more effective to partner with existing
stakeholders to conduct broad-based outreach and education; provide
clear and comprehensive information to beneficiaries; and refer
individuals to either the 1-800-MEDICARE toll-free line or to Part D
plans for additional information. However, if we decide in the future
to contract with an independent enrollment broker, we agree with the
commenter that the entity would need to be free of conflicts of
interest and comply with HIPAA privacy rules. We note that any
delegation to a third party would make the third party a business
associate of ours for HIPAA purposes, since the entity would be
performing a function on behalf of us.
Comment: Many commenters recommended that we define ``random'' to
include auto-enrollment based on beneficiaries' particular drug needs,
pharmacy affiliation, or on their classification as a special needs
population. Many commenters expressed concerns about how random
assignment will impact individuals who are on drug regimens on which
they have been previously stabilized. They were concerned that these
individuals would be auto-enrolled in a ``low-cost'' plan that may not
cover the drugs they need. Without direct access to the coverage they
need, this population would have no real choice but to switch
medications, even though changing medications can be difficult and lead
to adverse health outcomes, reactions, and so on.
Several other commenters expressed similar concerns about
individuals who reside in long-term care facilities. In addition, some
long-term care facilities require residents to use a pharmacy selected
and contracted by the facility. One commenter requested that we define
``random,'' specifically detail how we envision the random process
would work, and seek further public comment.
Response: We share the commenters' concerns with ensuring access to
necessary prescription drug coverage for vulnerable populations. For
ensuring continued access to existing drugs prescribed for an
individual, please refer to comments on Sec. 423.120(b) of the final
regulation. For ensuring access to long-term care facilities'
contracted pharmacies, please refer to comments on Sec. 423.120(a) of
the final regulation.
The systems challenges associated with anything other than a random
process would be significant, and possibly result in inappropriate
assignment or delayed implementation. For example, we have drug
utilization data for Medicaid beneficiaries, but there is a time lag in
receiving those data. Furthermore, we do not currently have access to
information about the pharmacies that contract with long-term care
facilities. Finally, we realize that pharmacy affiliation and
particular drug needs are only two of the variables that impact a
beneficiary's choice of a Part D plan. For example, a beneficiary may
also consider cost-sharing, formulary structure, customer service and,
in the case of MA-PD plans, whether she or he would want to receive all
of her or his Medicare benefits from one organization.
Given these data limitations, and the many and varied reasons for
choosing a Part D plan, we do not believe we are in a position to make
a judgment about what is best for individual beneficiaries, and decline
to change the proposed regulations. However, we will make every effort
to ensure that beneficiaries and community organizations receive enough
information in time for them to determine the appropriate plan for the
beneficiary. The SEP provided for full-benefit dual eligible
individuals in the statute and in our final rule at Sec. 423.38(c)(4)
also ensures that they can change plans to better accommodate their
pharmaceutical needs and pharmacy affiliations.
Comment: One commenter recommended that we establish a bid process
whereby PDPs with an expected enrollment by full-benefit dual eligible
individuals that is higher than the proportion in the total Medicare
eligible population in the relevant PDP region
[[Page 4206]]
automatically qualify for inclusion in the auto-enrollment process. The
commenter further recommended that, if such a plan has a monthly
beneficiary premium above the low-income premium subsidy amount, we
should permit a ``waiver'' based on a subsidy or payment of that excess
premium by CMS or another entity in order to reduce the premium to an
amount equal to or below the low-income premium subsidy amount.
Response: Those plans available for purposes of auto-enrollment are
ones that have premiums at or below the low-income premium subsidy
amount. This includes fallback plans in areas where they exist. It is
our intent to implement the Part D program and adhere to the statute as
closely as possible, assuming tenable options are available to do so.
In the case of PDPs that serve a disproportionate share of full-benefit
dual eligible individuals, and whose premium exceeds the low-income
premium subsidy amount, we believe there are tenable options, that is,
other PDPs with premiums at or below the low-income premium subsidy
amount. However, we note that risk-adjustment should correct for the
higher costs incurred by plans with larger proportions of full-benefit
dual eligible individuals.
Comment: A few commenters recommended that we not limit the Part D
plans available for auto-enrollment to just those plans with premiums
below the low-income premium subsidy amount, as this limits full-
benefit dual eligible individuals to the ``lowest cost'' plans, which
may offer a less generous benefit. The commenters suggested that,
regardless of whether these individuals enroll on their own or are
auto-enrolled, they should be permitted to enroll in any plan and not
be charged any additional premium. At a minimum, a beneficiary's
medical provider could attest that a higher premium plan will better
meet his or her medical needs and therefore be allowed to enroll in a
higher premium plan without the added premium.
Response: We appreciate the commenters' concern that full-benefit
dual eligible individuals be able to enroll in the plan best suited for
them, not just ``low cost'' plans. We note that a full-benefit dual
eligible individual is free to enroll in any Part D plan during the
initial enrollment period or annual coordinated election period.
For auto-enrollment, however, section 1860D-1(b)(1)(C) of the Act
only permit us to, auto-enroll full-benefit dual eligible individuals
into those plans with premiums at or below the low-income premium
subsidy amount. In addition, those full-benefit dual eligible
individuals randomly auto-enrolled in a particular plan may still
choose another plan pursuant to a special enrollment period.
In addition, as we do not have the authority under section 1860D-
14(a)(1)(A) of the Act to increase the low-income premium subsidy
amount (as defined under section 1860D-14(b)(2)(B) of the Act), full-
benefit dual eligible individuals who elect to enroll in a plan with a
premium exceeding the low-income premium subsidy amount must pay the
difference in premium. We are also precluded under sections 1860D-
13(a)(1)(F) and 1854(c) of the Act from requiring or even permitting
Part D plans from waiving any premium in excess of the premium subsidy
amount, including allowing MA-PD plans to use rebate dollars to reduce
the premium only for this portion of their enrolled population.
Comment: We received numerous comments related to the timing of the
auto-enrollment process for full-benefit dual eligible individuals.
Commenters identified the possibility of a gap in coverage for some of
those individuals if the auto-enrollment did not occur until the close
of the Initial Enrollment Period on May 15, 2006, since Medicaid
coverage of Part D drugs ends several months earlier, on January 1,
2006. They proposed that we require auto-enrollment of these
individuals to be completed prior to Medicaid coverage ending on
December 31, 2005. Some commenters recommended that the process be
completed as early as November 15, 2005, and one commenter suggested
starting the 2005 Initial Enrollment Period for full-benefit dual
eligible individuals prior to November 15, 2005. Another commenter
recommended that auto-enrollment precede Part D eligibility by 6
months, and that Medicaid coverage of Part D drugs be continued until
auto-enrollment can be done.
Response: We did not intend to implement a process that would
create a gap in drug coverage for full-benefit dual eligible
individuals. We do not believe that the Congress intended for such a
gap to occur. Therefore, we will modify the final rule so that the
auto-enrollment of these individuals will begin as soon as Part D plans
with premiums at or below the low-income premium subsidy amount are
known prior to January 1, 2006. We will also modify the final rule to
provide that those full-benefit Medicaid individuals who become
eligible for Medicare after January 1, 2006, will be enrolled as soon
as their Medicare Part D eligibility is determined. For the suggestion
to start the 2005 Initial Enrollment Period for full-benefit dual
eligible individuals before November 15, 2005, we are precluded from
doing so, as this date is explicitly identified in section 1860D-
1(b)(2)(A) of the Act as the date upon which enrollment in Part D may
commence.
Comment: Many other commenters suggested that we delay
implementation of the Part D program for full-benefit dual eligible
individuals by at least five or six months, and some recommended a
year's delay, although the commenters recognized that such a delay
would require a legislative change. The commenters' concern was based
on the limited time to transition drug coverage for these full-benefit
dual eligible individuals from Medicaid to Medicare. The commenters
expressed concern about the feasibility of identifying, educating, and
enrolling the population of full-benefit dual eligible individuals in
time for a smooth transition of drug coverage. Some commenters
highlighted the need to ensure adequate time for physicians and
patients to navigate administrative barriers and change medications to
comply with formularies. One commenter suggested Medicare beneficiaries
who currently participate in Medicaid buy-in programs (that is,
qualified Medicare beneficiaries (QMB), special low-income
beneficiaries (SLMB), and qualified individuals (QI1)) be permitted to
keep Medicaid drug coverage after Part D starts.
A few commenters recommended that, assuming Part D coverage begins
for full-benefit dual eligible individuals on January 1, 2006, Medicaid
coverage of Part D drugs be extended past December 31, 2005, and
continued until such time as full-benefit dual eligible individuals are
enrolled in Part D.
One commenter recommended that full-benefit dual eligible
individuals who are American Indians or Alaska Natives (AI/AN) be
exempt from Part D and continue to be eligible for Medicaid drug
coverage after January 1, 2006. The commenter argued that this would
prevent loss of revenues to pharmacies operated by Indian Health
Services (IHS), Tribal Clinics, and Urban Indian Clinics, who may
receive lower payments from Part D plans than they currently receive
from Medicaid, and eliminate barriers for this population.
Response: As the commenters correctly point out, a delay in the
implementation of the Part D program, including auto-enrollment for
full-benefit dual eligible individuals would require a change to the
statute. Similarly, extending Medicaid coverage of prescription drugs
covered under Part D would also require a legislative
[[Page 4207]]
change. Absent such changes, we cannot delay implementation, extend
Medicaid coverage of Part D drugs, nor can we exclude full-benefit dual
eligible individuals who are AI/AN, or participants in Medicaid buy-in
programs from Part D.
Comment: A couple of commenters requested clarification about the
circumstances under which a beneficiary may affirmatively decline
participation in Part D. They expressed concern that individuals with
diminished mental faculties may not fully understand the impact of
their decision, and that States would likely bear additional costs
associated with full-benefit dual eligible individuals whose health
deteriorates due to their failure to take necessary medications. One
commenter urged that States be able to obtain FFP to provide
prescription drug coverage in these instances. Another commenter
asserted that permitting a full-benefit dual eligible individual to
affirmatively decline enrollment in Part D contradicts numerous
statutory and regulatory provisions that require this population's
enrollment in Part D. One commenter urged CMS to make disenrollment
contingent upon selection of another Part D plan to ensure there is no
lapse in coverage. Finally, one commenter suggested expanding the
ability to affirmatively decline enrollment in Part D to Medicare
beneficiaries who are not auto-enrolled.
Response: The Congress specified that prescription drug coverage
under this program is voluntary, and section 1860D-1(b)(1)(C) of the
Act specifically stipulates that auto-enrollment does not prevent a
full-benefit dual eligible individual from declining or changing such
enrollment. Absent any legislative change, we cannot intervene with an
individual's right to decline coverage. Nor can we adopt the suggestion
to permit Federal financial participation (FFP) for State Medicaid
agencies that choose to provide drug coverage for full-benefit dual
eligible individuals who affirmatively decline auto-enrollment. Section
1935(d)(1) of the Act stipulates that no FFP is available for any Part
D drugs or cost-sharing for Part D drugs for full-benefit dual eligible
individuals who are eligible for Part D, even if they are not enrolled
in a Part D plan. However, we will be making every effort to ensure
that beneficiaries and community organizations have sufficient
information to assist individuals in making the most appropriate
choices about participating in Part D.
Concerning the comment that we should make disenrollment from a
Part D plan contingent upon enrolling in another Part D plan to prevent
a coverage gap for full-benefit dual eligibles, we decline to do so in
regulation, but will continue to work develop strategies to prevent a
coverage gap in this instance.
We decline to expand the ability to affirmatively decline Part D
enrollment to individuals who are not auto-enrolled or for whom we do
not facilitate enrollment into a Part D plan. This population is
comprised of those who are not deemed or determined eligible for the
low-income subsidy. If these individuals do not want Part D coverage,
they can simply choose not to enroll in a Part D plan.
Comment: One commenter suggested that there should be flexibility
for CMS to change the plan into which a beneficiary has been auto-
enrolled should the plan no longer meet the needs of the enrollee.
Response: We agree that it would be prudent to retain the
flexibility to enroll an individual in subsequent years in a different
plan from the one into which we originally enrolled the individual, and
have modified the final rule to provide for this. We note that this
will require an exception to the maintenance of enrollment provision in
Sec. 423.32(e), so we have modified the final rule to provide for one.
We envision this may only be necessary in certain limited
circumstances. For example, we may want to consider doing this if the
plan's premium in a subsequent year exceeded the low-income premium
subsidy amount. We will ensure that beneficiaries are fully notified,
and have the option to remain in their original plan. We will examine
the need for this as the program evolves and provide operational
guidance should we implement it.
Comment: A number of commenters responded to our request in the
preamble for solutions to an inherent conflict in the statute. In this
instance, the statute requires auto-enrollment of full-benefit dual
eligible individuals into a Part D plan with a premium at or below the
low-income premium subsidy amount. Section 423.34(d) of the proposed
rule stipulated that those in an MA-only plan would be auto-enrolled
into an MA-PD plan in the same organization that has a premium that
does not exceed the low-income premium subsidy amount. However, there
may be instances in which an individual is enrolled in an MA-only plan
offered by an MA organization, and all the MA-PD plans in that
organizations have premiums that exceed the low-income premium subsidy
amount.
We note that most MA enrollees will be deemed to be enrolled into
an MA-PD plan in accordance with Sec. 422.66(e)(2) and (e)(3).
However, deeming does not address those who elect an MA-only plan that
does not offer any drug coverage in 2005, nor qualified prescription
drug coverage thereafter.
Several commenters supported auto-enrolling these full-benefit dual
eligible individuals into an MA-PD plan offered by the same
organization with the lowest Part D premium, even if it was higher than
the low-income premium subsidy amount. This would provide seamless
continuation of their Medicare benefits through the same organization.
Commenters noted that these individuals retain the right to decline
Part D coverage, and have a SEP that permits them to change PDPs or MA-
PD plans at any time.
One commenter noted that excluding full-benefit duals from auto-
enrollment in an MA-PD plan with a premium higher than the low-income
premium subsidy amount would give those MA plans an unfair advantage by
removing from their risk pool full-benefit dual eligible individuals,
who tend to have higher drug utilization.
Response: We agree with commenters' concerns about ensuring
continuity of care through the same MA organization, if possible.
However, as we discussed in the preamble to the proposed regulation,
there is an inherent statutory conflict that would seem to preclude
using auto-enrollment authority to accomplish this. Section 1860D-
1(b)(1)(C) of the Act directs the Secretary to auto-enroll full-benefit
dual eligible individuals who do not enroll in a PDP or MA-PD plan on a
random basis into a PDP with a premium at or below the low-income
premium subsidy amount; it does not identify an MA-PD plan as an entity
into which an individual could be auto-enrolled.
General principles of statutory interpretation requires us to
reconcile two seemingly conflicting statutory provisions rather than
allowing one provision to effectively nullify the other provision. We
had proposed to resolve this by interpreting the reference to
``prescription drug plans'' in section 1860D-1(b)(1)(C) of the Act as
including both PDPs and MA-PD plans, thereby allowing auto-enrollment
of an MA full-benefit dual eligible individual into an MA-PD offered by
the same organization offering his or her MA plan if the premium for
such plan did not exceed the low-income premium subsidy amount.
[[Page 4208]]
Upon further consideration, we believe there continue to be legal
concerns as to whether we have the authority to auto-enroll full-
benefit dual eligible individuals into an MA-PD plan. Rather than rely
on auto-enrollment authority under section 1860D-1(b)(1)(C) of the Act
to ensure continuity of Part D coverage for full-benefit dual eligible
individuals enrolled in MA-only plans, we instead will rely on our
general authority to establish enrollment procedures under section
1860D-1(b)(1)(A) of the Act to establish a facilitated enrollment
process that substantially fulfills the intent of ensuring no
prescription drug coverage gap for these individuals.
We will therefore facilitate enrollment into Part D for full-
benefit dual eligible individuals enrolled in a MA plan that does not
offer qualified prescription drug coverage by assigning them to an MA-
PD plan with the lowest premium offered by the same MA organization,
even if the plan's MA monthly prescription drug beneficiary premium
exceeds the low income premium subsidy amount. We will inform them in
advance of this assignment. If the beneficiary fails to affirmatively
elect an alternative plan or declines enrollment in Part D, she or he
will be enrolled into the plan into which she or he has been assigned.
In this instance, a beneficiary's silence would be deemed consent to
the enrollment choice we are making on their behalf. We note that the
right to affirmatively decline in Sec. 423.34(e), on affirmatively
declining Part D enrollment, and the Special Enrollment Period in Sec.
423.38(c)(4), apply equally to all full-benefit dual eligibles, whether
they are auto-enrolled or have their enrollment facilitated.
In the case of a full-benefit dual eligible for whom we facilitate
enrollment into an MA-PD plan with a premium higher than the low-income
premium subsidy amount, we acknowledge that this creates a new
financial obligation for the enrollee to pay the balance of the monthly
MA monthly prescription drug beneficiary premium not covered by the
low-income premium subsidy amount. However, this option best preserves
informed enrollee choice, is consistent with statutory intent, respects
the beneficiary's initial choice to enroll in an MA plan, and ensures
continuity of prescription drug coverage. These individuals will have
information about other plan choices available and retain their right
to a Special Enrollment Period to choose another plan at any time, as
provided by section 1861D-1(b)(3) of the Act for PDPs, and section
1851(e)(4)(D) of the Act and section 30.4.4-5 of Chapter 2 of the
Medicare Managed Care Manual for MA-PD plans.
Comment: A few commenters generally supported auto-enrolling full-
benefit dual eligible individuals into an MA-PD plan, but urged CMS to
find a solution that would ensure no additional costs were imposed on
beneficiaries. Some of the commenters that supported auto-enrollment
into the MA-PD plan with the lowest Part D premium provided suggestions
as to how to minimize the financial impact on beneficiaries. A few
suggested that for those who are institutionalized, the excess premium
should be considered an incurred medical expense and deducted from
their monthly share of cost to the facility. For non-institutionalized
beneficiaries, in States with State Pharmacy Assistance Programs
(SPAPs), SPAPs should be allowed to pay the balance. For full-benefit
dual eligible individuals who are medically needy, the balance should
be considered an incurred medical expense contributing towards their
spend-down. Otherwise, individuals should be counseled about the
premium discrepancy and about the right to disenroll from an MA plan
and enroll in Original Medicare with a PDP.
Response: We appreciate these suggestions for minimizing the
financial impact on beneficiaries. We intend to highlight the impact of
our facilitating enrollment into an MA-PD plan with a premium higher
than the low-income premium subsidy amount to these beneficiaries and
advise them of their ability to switch plans. We note that under
Medicaid, whatever portion of the premium the individual pays would be
an incurred medical expense, including any portion of the premium that
is paid by the SPAP. Since incurred medical expenses are deducted from
income when determining patient liability for an institutionalized
individual, and are deducted from income for medically needy spend-down
purposes, the commenter's suggestions correctly characterize how
Medicaid would treat any premium difference paid by the individual. The
commenter is also correct in noting that SPAPs will be allowed to pay
the balance for their enrollees, but we note this is an option for all
enrollees of an SPAP, not just non-institutionalized enrollees. Since
these options are already permitted under the regulatory language in
the proposed rule, we will not modify the regulation further to specify
them.
Comment: One commenter suggested that we permit MA-PD plans to
waive the portion of their premium above the low-income premium subsidy
amount. The commenter suggested that explicit authorization by CMS
would be a contract amendment, not an inducement to a beneficiary to
enroll, which would ensure that the waiver of the excess premium does
not implicate the Federal anti-kickback rules or be considered
disparate treatment.
Response: We appreciate the intent of the commenter's suggestion.
However, we are precluded from permitting MA-PD plans to waive a
portion of the Part D premium for a subset of their enrollees by
section 1854(c) of the Act, which requires uniform premiums for all
enrollees of an MA plan.
Comment: A few commenters urged CMS to prohibit auto-enrollment of
full-benefit dual eligible individuals into MA-PD plans. Instead, these
MA enrollees should be auto-enrolled into a PDP for their Part D
benefit. The commenters note that these beneficiaries could always
switch to an MA-PD plan.
Response: Section 1861D-1(a)(1)(B)(ii) of the Act specifies that,
with limited exceptions, individuals in an MA plan may not also enroll
in a PDP. The only exceptions are those enrolled in a MSA plan, or in a
MA private fee-for-service plan or cost-based HMO or CMP that does not
offer qualified prescription drug coverage, may enroll in a PDP. Thus,
auto-enrolling these individuals into a PDP would require us to also
disenroll them from their MA plan, which could be inconsistent with our
current MA requirements Sec. 422.66(e), which provide that an
individual who elects an MA plan is considered to have continued to
have made that election until he or she voluntarily changes that
election, or the plan is discontinued or no longer serves the service
area.
Comment: Finally, one commenter suggested that if no MA-PD plan is
available, or if the Part D premium of the available MA-PD plan exceeds
the low-income premium subsidy amount, CMS should auto-enroll these
beneficiaries into another organization's MA-PD plan whose premium does
not exceed the low-income premium subsidy amount.
Response: For the concern that no MA-PD plan would be available, we
note that section 1860D-21(a) of the Act requires all MA organizations
to offer at least one MA-PD plan.
Involuntarily disenrolling the individual from his or her MA plan,
and auto-enrolling him or her into another MA-PD plan offered by
another MA organization, is inconsistent with MA requirements at Sec.
422.66(e) described above.
Comment: A few commenters urged expanding Part D auto-enrollment in
the
[[Page 4209]]
case of full-benefit dual eligible individuals who are in an
organization's Medicaid managed care product, but currently receive
Part A and B benefits through Original Medicare. Specifically, the
commenters recommended that these beneficiaries be auto-enrolled into
an MA-PD plan that is offered under common ownership and control of the
organization offering the Medicaid managed care plan.
Response: Please refer to responses to comments on Sec. 422.66(d)
in Title II of the final regulation for a discussion on this issue.
Comment: A few commenters proposed that, where a full-benefit dual
eligible individual in Original Medicare will be auto-enrolled into a
PDP that is affiliated with an MA Special Needs Plan, CMS auto-enroll
the individual into the MA Special Needs Plan for their Part A and B
benefits, as a way to promote better overall coordination of care. To
preserve the beneficiary choice, the commenter suggested the regulation
provide an opportunity for the individual to ``opt out'' within some
specified period of time (for example, 90 days).
Response: The statute prohibits beneficiaries who have Part D
coverage through a PDP from getting their Medicare A and B coverage
through an MA-only plan. As a result, we decline to make the suggested
change.
Comment: One commenter asked CMS to clarify that, if a full-benefit
dual eligible individual is auto-enrolled into an MA-PD plan with a
premium higher than the low-income premium subsidy amount, that the
State Medicaid program would not be obliged to pay the balance on
behalf of the beneficiary.
Response: We confirm that the State Medicaid agency has no
obligation to pay any Part D premium in excess of the low-income
premium subsidy amount. Further, section 1905(a) of the Act, which
provides Federal medical assistance for Medicare cost-sharing (as
defined in section 1905(p)(3)(A) of the Act), does not include Part D
premiums.
Comment: A few commenters recommended that we consider establishing
a process for automatically enrolling or at least facilitating the
enrollment into Part D plans all individuals deemed eligible for the
full low-income subsidy. In effect, this would expand auto-enrollment
to individuals in Medicare Savings Programs. These are individuals for
whom State Medicaid agencies pay for Medicare cost sharing, but who are
not eligible for comprehensive Medicaid benefits and thus are not
considered full-benefit dual eligible individuals. They include QMB,
SLMB, and QI1. To the extent that we accept this recommendation, the
commenters suggested we also broaden the SEP provision to cover any
full subsidy eligible individual who is auto-enrolled in a Part D Plan.
A few commenters advocated expanding auto-enrollment even further
to all those who receive the low-income subsidy. This would include not
only those deemed eligible for the subsidy, but also those who have to
apply and be determined eligible. Auto-enrollment would ensure that
these individuals are not subject to a late enrollment penalty.
Response: We agree that there are compelling reasons to promote
Part D enrollment of all individuals deemed or determined eligible for
the low-income subsidy. These individuals typically are less healthy
and often face barriers to care. Effective medication management and
prescription drug coverage can lead to reduced inpatient hospital
expenditures, making it more cost-effective to provide drug coverage.
Facilitating enrollment into Part D would promote access to drug
coverage for these beneficiaries by ensuring that they have drug
coverage starting in 2006, while also preserving the voluntary nature
of enrollment in Part D. Doing so would also ensure that beneficiaries
with limited means would not be liable for a late enrollment penalty
for failing to enroll in Part D when first eligible.
We intend to pursue many steps to assist beneficiaries,
particularly low-income beneficiaries, in taking advantage of the new
Medicare drug coverage. Such steps could include facilitating
enrollment into Part D for those beneficiaries. We will provide details
in operational guidance to be issued shortly after the publication of
the final regulation, including details on the population for whom we
will facilitate enrollment. By facilitating enrollment, we mean giving
beneficiaries an opportunity to choose a Part D plan first; if they do
not choose, we would notify them that we intend to facilitate their
enrollment into a specific plan prospectively. If the beneficiary fails
to affirmatively elect an alternative plan or declines enrollment in
Part D by a given date, she or he would be enrolled into the plan into
which she or he has been assigned. In this instance, a beneficiary's
silence would be deemed consent to the enrollment choice we are making
on their behalf. If we facilitate enrollment in this manner, we would
likely follow rules for assigning beneficiaries to Part D plans similar
to those for the auto-enrollment and facilitated enrollment process for
full-benefit dual eligibles: MA enrollees would be enrolled into an MA-
PD plan with the lowest Part D premium; Original Medicare beneficiaries
would be enrolled in a PDP with a Part D premium that does not exceed
the low-income premium subsidy amount, and, if there is more than one
such PDP available, the individual would be randomly enrolled into one
of the plans available. In establishing a process for this facilitated
enrollment, we would rely upon discretion afforded the Secretary under
section 1860D-1(b)(1)(A) of the Act to establish enrollment processes
for Part D eligible individuals. Similarly, we would extend some of the
same protections afforded the full-benefit dual eligible population who
are auto-enrolled to those whose enrollment we facilitate. These
protections would include a Special Enrollment Period, the right to
affirmatively decline Part D enrollment, and where possible,
facilitating enrollment into plans whose premiums do not exceed the
low-income premium subsidy amount.
Comment: One commenter suggested expanding auto-enrollment to PACE
enrollees, that is, CMS auto-enroll them into their PACE organization
for purposes of Part D coverage effective January 1, 2006, unless the
PACE enrollee makes another enrollment choice. PACE organizations would
provide their enrollees an opportunity to opt out of enrollment in Part
D (and, as a result, out of the PACE organization).
Response: We agree that PACE enrollees should not be required to
take any additional steps to obtain their Part D benefit through their
PACE organization. Individuals who enroll in a PACE organization elect
to get all their Medicaid (if eligible for Medicaid) and Medicare
benefits through the PACE organization. As noted in response to a
similar comment on Sec. 423.32 of the final regulation, we will modify
the final regulation to deem individuals enrolled in a PACE
organization as of December 31, 2005 to be enrolled with that PACE
organization for their Part D benefit as of January 1, 2006. This
precludes the need to expand auto-enrollment to PACE enrollees, so we
decline to make that change.
Comment: One commenter noted that no provision was made for auto-
enrollment of full-benefit dual eligible individuals enrolled in
Medicare cost-based HMO or CMPs. The commenter suggested that for full-
benefit dual eligible individuals enrolled in a cost-based HMO or CMP,
CMS auto-enroll these individuals into the cost-based HMO or CMP for
Part D benefits if the cost-based HMO or CMP offers Part D,
[[Page 4210]]
even if the Part D premium is higher than the low-income premium
subsidy amount. If the cost-based HMO or CMP does not offer Part D
benefits, the commenter recommends auto-enrolling the beneficiary into
a PDP.
Response: We agree that we should ensure that full-benefit dual
eligible individuals, and potentially others eligible for the low-
income subsidy who are enrollees of a cost-based HMO or CMP obtain Part
D benefits. As noted in response to a similar comment on Sec. 423.32
of the final regulation, we will modify the final regulation to specify
that all individuals enrolled in a cost-based HMO or CMP that offers
any prescription drug coverage as of December 31, 2005, will be deemed
to be enrolled in the cost-based HMO or CMP for Part D benefits as of
January 1, 2006, if the cost-based HMO or CMP opts to provide Part D
benefits, and regardless of whether the Part D premium exceeds the low-
income subsidy amount.
We believe the same legal concerns noted above for auto-enrolling
full-benefit dual eligible individuals into MA-PD plans arise for auto-
enrolling them into a cost plan HMO or CMP. As a result, we decline to
expand auto-enrollment a suggested by this commenter. Instead, we will
use a facilitated enrollment process discussed above to accomplish
substantially the same end. We will facilitate the enrollment of full-
benefit dual eligible individuals enrolled in a cost plan HMO or CMP
that offers Part D benefits and who fail to enroll in a Part D plan
into the Part D benefits offered by their cost plan HMO or CMP. If the
cost plan HMO or CMP does not offer Part D benefits, the individual
will be enrolled in a PDP. We may similarly facilitate the enrollment
of other cost plan enrollees eligible for the low-income subsidy who
fail to elect a Part D plan into the Part D benefit offered by their
cost plans.
Comment: One commenter requested clarification as to whether auto-
enrollment into a PDP will only occur for Medicare beneficiaries who
receive comprehensive health care benefits (full hospital and physician
services) from both Medicare and Medicaid, or whether auto-enrollment
also applies to Medicare beneficiaries that receive pharmacy-only
benefits through Medicaid.
Response: The final rule will limit auto-enrollment to only those
dual eligible individuals who receive comprehensive health benefits
from both Medicare and Medicaid. As noted above, we may facilitate
enrollment of all others deemed or determined eligible for the low-
income subsidy into Part D plans. To the extent that a Medicare
beneficiary with pharmacy-only Medicaid benefits is in the population
whose enrollment we facilitate, we would facilitate that individual's
enrollment into a Part D plan.
Comment: One commenter recommended that we explore auto-enrolling
residents of long term care facilities who are not full-benefit dual
eligible individuals, and permitting these beneficiaries to disenroll
or choose another Part D plan. The commenter was especially concerned
about residents who lack the cognitive capacity to select a PDP and who
do not have a designated surrogate decision-maker in place.
Response: Generally, enrollment in Part D is voluntary. Section
1860D-1(b)(1)(C) of the Act provides for auto-enrollment of full-
benefit dual eligible individuals. As noted above, we may facilitate
enrollment of others deemed or otherwise determined eligible for the
low-income subsidy into Part D plans. To the extent that a resident of
a long term care facility is in the population whose enrollment we
facilitate, we would facilitate that individual's enrollment into a
Part D plan.
Since the Act limits auto-enrollment to full-benefit dual eligible
individuals, we decline to auto-enroll long-term care residents who do
not receive the low-income subsidy. While we acknowledge that access to
prescription drug coverage is critical for this population, we believe
they generally have the resources and support to make timely enrollment
decisions. We will, however, continue to explore options regarding
enrollment for all individuals in long-term care facilities.
Comment: A number of commenters urged CMS to permit SPAPs to act as
authorized representatives and enroll some or all of the beneficiaries
they serve into the SPAP's preferred PDP. These beneficiaries should be
permitted to decline enrollment in the SPAP's preferred PDP or to
change to another Part D plan.
Response: With regard to the issue of authorized representatives,
we defer to State law, as discussed in response to comments on Sec.
423.32. However, it is important to note that SPAPs that act as the
authorized representative for the individual must also comply with the
nondiscrimination provisions at Sec. 423.464(e). Please see responses
to related comments in subpart J.
Comment: One commenter noted that it appears that a full-benefit
dual eligible individual cannot enroll in an MA-PD plan if the
individual is not already an MA enrollee. The commenter urged that MA-
PD plans that bid at or below the low-income premium subsidy amount
should be an enrollment option for all full-benefit dual eligible
individuals.
Response: During the Part D initial enrollment period that starts
November 15, 2005, full-benefit dual eligible individuals who are in
Original Medicare are free to change to an MA-PD plan. Further, we have
established in our operational guidance a Special Enrollment Period
(SEP) that permits full-benefit dual eligible individuals to enroll in
and disenroll from an MA plan at any time, and will extend this SEP to
MA-PD plans. This will ensure that MA-PD plans are an option for all
full-benefit dual eligible individuals.
As indicated previously, any individual enrolled in a PACE
organization as of December 31, 2005 will be deemed to be enrolled with
that organization for their Part D benefit as of January 1, 2006.
The chart below provides a summary of the enrollment rules for all
beneficiaries, including those with and without the low-income subsidy,
in accordance with Sec. 423.32, Sec. 423.34, and Sec. 422.66.
------------------------------------------------------------------------
Population Enrollment Rules
------------------------------------------------------------------------
General Medicare Population (1) A beneficiary who chooses to
enroll a Part D plan must do so as
follows:
Original Medicare [rtarr2] Original
Medicare with separate PDP
MA Plan without drug coverage
[rtarr2] MA-PD plan
Medical Savings Account (MSA) Plan
[rtarr2] MSA with separate PDP
PFFS with Part D [rtarr2] PFFS with
Part D
Private Fee-For-Service Plan (PFFS)
without Part D [rtarr2] PFFS with
separate PDP
Cost Plan with Part D [rtarr2] Cost
plan Part D or cost plan with
separate PDP
[[Page 4211]]
Cost Plan without Part D [rtarr2]
Cost Plan with separate PDP
(2) A beneficiary enrolled in an
entity that offers any drug
coverage in 2005, CMS deems him or
her enrolled as follows* :
MA Plan [rtarr2] MA-PD Plan
Cost Plan [rtarr2] Cost Plan with
Part D
PACE Organization [rtarr2] PACE
Organization
(3) On a case-by-case basis, CMS
may allow an MA organization to
process ``seamless'' enrollments
into the organization's MA-PD plan
if individuals are enrolled in a
health plan offered by that MA
organization that includes
prescription drug coverage upon
their entitlement to Medicare.
------------------------------------------------------------------------
Full-Benefit Dual Eligible (1) A beneficiary who chooses to
Beneficiaries enroll in a Part D Plan follows
the same rules as above; otherwise
CMS auto-enrolls or facilitates
enrollment for him or her as
follows:
Original Medicare [rtarr2] PDP
MSA Plan [rtarr2] PDP
PFFS Plan without Part D [rtarr2]
PDP
Cost Plan with Part D [rtarr2] Cost
plan with Part D
Cost Plan without Part D [rtarr2]
PDP
MA-Only Plan [rtarr2] MA-PD Plan
(2) For a beneficiary enrolled in
an entity that offers any drug
coverage in 2005, CMS deems him or
her enrolled as follows:
MA Plan [rtarr2] MA-PD Plan
Cost Plan [rtarr2] Cost Plan with
Part D
PACE Organization [rtarr2] PACE
Organization
(3) On a case-by-case basis, CMS
may allow an MA organization to
process ``seamless'' enrollments
into the organization's MA-PD plan
if individuals are enrolled in a
health plan offered by that MA
organization that includes
prescription drug coverage upon
their entitlement to Medicare.
------------------------------------------------------------------------
* Those in an MA Plan without any drug coverage in 2005 will not be
deemed into an MA-PD plan, but instead must actively choose one if they
want Part D benefits.
** We may facilitate enrollment for other beneficiaries eligible for the
low income subsidy; if so, we would likely follow these same rules.
For additional detail, please see discussion on:
Sec. 423.32--Beneficiary's choice
Sec. 422.66(d)(5)--``Seamless'' enrollment on case-by-case basis
Sec. 422.66(e)(2)-(3)--Deemed enrollment in 2005
Sec. 423.34--Auto-enrollment and facilitated enrollment
------------------------------------------------------------------------
4. Disenrollment process (Sec. 423.36)
Section 1860D-1(b)(1)(A) of the Act authorizes us to establish a
process to allow disenrollment from prescription drug plans. In the
proposed rule, we outlined the rules for a Part D eligible individual
who wishes to change or discontinue an enrollment during applicable
enrollment periods, including filing a disenrollment with the PDP
directly or enrolling in another PDP.
While we initially envision a paper disenrollment process, we
retain the flexibility for other secure and convenient mechanisms that
we may approve in the future. Any such mechanism will be available at
the option of each PDP sponsor. We believe it is important to clarify
that, as other mechanisms are approved and implemented, we will require
all PDPs offer a minimum standard process, which at this time would be
a paper process, along with any optional election mechanism available
to prospective enrollees and plan members in conjunction with the paper
process. In the future, as technology evolves, another process may be a
more appropriate minimum standard. Except as provided below, the final
rule adopts the disenrollment rules set forth at Sec. 423.42 of the
proposed rule.
Comment: One commenter asked that we clarify whether an enrollment
in a different PDP would automatically disenroll the beneficiary from
his or her previous PDP effective the first day of enrollment in a new
PDP and asked who is responsible for that notification.
Response: We envision creating a process similar to that created
for the MA program, under which an individual who is eligible to enroll
in another PDP will automatically be disenrolled from the previous PDP
upon enrollment in the new PDP. The PDP to which the individual submits
an enrollment is required to provide a notice of acceptance or denial,
as provided in Sec. 423.32(d). We will notify the previous PDP of the
disenrollment and that PDP will inform the individual that he or she
has been disenrolled. As for the specifics of the notice requirements,
we will issue guidance to PDPs following the publication of this rule.
Comment: One commenter requested that we clarify in the regulations
that proper beneficiary protections for retroactive disenrollments are
in place for beneficiary requests that are made but not properly acted
upon.
Response: We will treat an individual's request for disenrollment
that was made but not properly acted upon as if the disenrollment had
properly occurred. We will provide guidance to PDPs as to how to handle
the processing of such requests, including proper notification to the
beneficiary.
Comment: One commenter asked CMS to address the issue for those
retirees who enroll in both a PDP and the employer sponsored plan due
to their confusion over the variety of new coverage options. The
commenter indicated that this not only results in duplicative coverage
and unnecessary premium costs. In addition, the commenter was concerned
because
[[Page 4212]]
many retirees may not be aware that a consequence of enrolling in Part
D may be the discontinuation of their employer group benefits, often
permanently prevented from ever being able to rejoin the group once he
or she enrolls in other coverage, such as Part D. One commenter
requested that we allow for retroactive disenrollment from Part D and
refund of the Part D premiums for these retirees who enrolled by
mistake into a PDP.
Response: We recognize that during the initial enrollment period
that some retirees may be confused about how their employer-based
coverage may coordinate with Part D coverage. While we feel that
establishing a retroactive disenrollment process specifically for this
reason would generally be inappropriate, we can establish a process in
which we would work with employer group sponsors, PDPs and MA-PDs to
educate beneficiaries prior to open enrollment and at the time of
enrollment. In addition, we intend to establish a process for the PDPs
and MA-PDs to verify an enrollment request for those individuals who
have been identified to CMS as having been claimed by an employer group
sponsor to receive the employer based subsidy. We will also include
information in beneficiary education and enrollment materials targeted
to those individuals who already have other prescription drug coverage
to provide assistance in determining whether enrollment in Part D would
be appropriate for that individual. We will issue operational guidance
on this process shortly following publication of the final rule.
5. Part D Enrollment Periods (Sec. 423.38)
In the proposed rule, as directed by the MMA, we established three
coverage enrollment periods: (1) the initial enrollment period (IEP);
(2) the annual coordinated election period (AEP); and (3) SEPs.
Generally, in accordance with section 1860D-1(b)(2)(B) of the Act, the
IEP for Part D is the same as the initial enrollment period established
for Part B. In addition, as part of the implementation of the Part D
program, and in accordance with section 1860D-1(b)(2)(A) of the Act, we
have established an initial enrollment period for Part D from November
15, 2005 until May 15, 2006 for those individuals who are already
eligible to enroll in a Part D plan as of November 15, 2005.
In accordance with section 1860D-1(b)(1)(B)(iii) of the Act, the
AEP for Part D is concurrent with the annual coordinated election
period for the MA program under section 1851(e)(3) of the Act. It is
during this annual period in which all PDP plans must open enrollment
to Medicare beneficiaries. For coverage beginning in 2006, the annual
coordinated election period begins on November 15, 2005 and ends on May
15, 2006. As a result, the initial enrollment period for individuals
who are eligible to enroll in a Part D plan as of November 15, 2005 and
the annual coordinated election period will run concurrently during
this time frame. In accordance with section 1851(e)(3)(B)(iv) of the
Act, Sec. 423.36(b)(2) of our proposed rule provides that, for 2007
and subsequent years, the annual coordinated election period will be
November 15 through December 31 for coverage beginning on January 1 of
the following year.
The MMA also establishes SEPs. SEPs allow an individual to
disenroll from one PDP and enroll in another PDP. Similarly, the SEP
rules that will apply for individuals in an MA-PD plan will be provided
under Sec. 422.62(b). We will include in regulation those SEPs that
have been specifically named in the statute. Those SEPs established for
exceptional circumstances for PDPs and MA-PDs, as authorized by section
1860D-1(b)(3)(C) of the Act and section 1851(e)(4) for MA-PDs of the
Act, respectively, will be provided in our manual instructions. The
final rule adopts the enrollment periods as proposed.
Comment: We received several comments regarding SEPs. Several
commenters supported the SEPs for exceptional conditions we proposed to
provide through manual guidance. Specifically, these include certain
SEPs already established in the MA program for circumstances where a
plan terminates its contract or the individual changes his or her
permanent residence. These commenters also supported an SEP to enroll
in a PDP for individuals disenrolling from an MA-PD plan during the MA
Open Enrollment Period, and for institutionalized individuals. Other
commenters suggested we establish various other SEPs, including the
following:
A subsidy-eligible individual who leaves private
prescription drug coverage for any reason, including his or her
inability to pay;
A change in a person's health status that makes a current
plan choice no longer suitable to his or her needs;
Individuals eligible for the low-income subsidy, other
than full benefit dual eligible individuals;
If there are substantial changes to the plan's formulary;
Individuals with ``life-threatening situations;''
Individuals whose situations are pharmacologically
complex;
All individuals for the first 18 months of the program as
it may be a confusing time;
All beneficiaries leaving MA plans throughout the year so
that they can enroll in a PDP;
Medicare-eligible retirees whose plan sponsor changes
their retiree drug coverage so that it no longer meets the criteria for
creditable coverage;
Individuals enrolled in, or desiring to enroll in PACE, as
the PACE program has continuous enrollment and disenrollment; and
Full benefit dual eligibles at any time, including every
time a PDP changes its plan in a way that directly effects these
individuals, such as removing a drug from its formulary, changing the
co-payment tier for a drug, or denying their appeal concerning a non-
formulary drug or an effort to change the co-payment tier.
Response: We appreciate this feedback. As previously mentioned, we
have historically included in regulation only those SEPs that have been
specifically named in the statute. The SEPs explicitly provided for in
statute include an SEP for full-benefit dual eligible individuals,
individuals who permanently change their residence so that they no
longer reside in their PDP's service area, and individuals enrolled in
a PDP whose contract is terminated.
We will issue guidance regarding the above SEPs and other
additional SEPs that we choose to establish following publication of
the regulation. We intend to establish in this guidance an SEP for
those individuals eligible for the low-income subsidy whose enrollment
into a Part D plan will be facilitated, individuals in long-term care
facilities, individuals enrolled in, or desiring to enroll, in PACE and
individuals enrolled in employer group health plans. However, we
decline to establish SEPs for other reasons included in the comments
described above, because we do not view these circumstances as
exceptional. However, we retain the right to establish additional SEPs
in the future and will do so in our operational guidance. Furthermore,
we may establish SEPs on a case-by-case basis, where warranted by an
immediate exceptional circumstance, such as an individual with a life-
threatening condition or illness. For the commenter's request that we
provide an SEP for the first 18 months of the program, we do not
believe that such an SEP is warranted in the circumstances. First, we
are committed to ensuring all beneficiaries have adequate information
to make informed choices about participating in the Part D program.
Second, the statute provides for an
[[Page 4213]]
extended AEP and provides a concurrent IEP at the beginning of this
program. These extended enrollment periods, in conjunction with the
planned education and information campaigns, will provide all
beneficiaries with adequate time and information to make an enrollment
decision. Therefore, we do not believe that such an SEP is warranted.
Comment: A few commenters recommended that we should provide a SEP
to permit those individuals who will receive the low-income subsidy
under subpart P but who are not full-benefit dual eligible individuals
to change to a plan of their choosing.
Response: We strongly agree that we should permit those individuals
who are enrolled or whose enrollment is facilitated by CMS the
opportunity to change to a plan of their choosing. Since we are
generally limiting in regulation those SEPs specified in statute, we
will provide for this SEP in operational guidance.
Comment: One commenter recommends that we change the provision of
an SEP for the involuntary loss of creditable coverage to include
individuals who lose such coverage due to failure to pay premiums. The
commenter believes the provision as proposed is too restrictive and
should be modified.
Response: Section 1860D-1(b)(3)(A)(iii) of the Act is clear that
disenrollments for failure to pay premiums will be considered a
voluntary disenrollment action. We therefore do not believe it
appropriate to treat this disenrollment as an exceptional circumstance
justifying an SEP.
Comment: One commenter asked if MA-PD plans are required to
participate in the AEP.
Response: The MA enrollment periods are discussed in the MA
regulations at Sec. 422.62. The AEP applies to both PDP and MA-PD
plans.
Comment: One commenter requested clarification of how many times an
individual may use an SEP to enroll in a PDP and encouraged CMS to
limit the number of times an SEP may be used to enroll.
Response: The duration and applicability of an SEP is specific to
each SEP and may vary from one specific circumstance to another. For
example, an SEP in the MA program for individuals affected by a plan
termination is specific to the circumstances surrounding that specific
action and limited in duration. Other SEPs apply more generally to
individuals, for example, full-benefit dual eligible dual individuals.
We will provide detailed guidance concerning each SEP following the
publication of this rule.
Comment: One commenter requested clarification of proposed Sec.
423.36(c)(3) regarding the SEP for individuals whose enrollment or
nonenrollment in Part D is caused by an error of a Federal employee or
any person authorized by the Federal government to act on its behalf.
The commenter suggests that we include all sponsors of Part D plans as
``persons authorized by the Federal Government to act on its behalf.''
Response: We have interpreted this statutorily required SEP to
apply to Federal government employees, staff, and contractors hired by
the Federal government to perform government duties. We would not
consider Part D plans to be performing enrollment functions as a
subcontractor on the behalf of CMS; rather, Part D plans must perform
certain enrollment functions as requirement of their direct contract
with CMS. While it is unlikely that an SEP would be necessary, we will
correct any errors made by the plan and not hold the individual liable
for the plan's mistake. Thus, we may allow an SEP in individual
situations, if appropriate.
Comment: One commenter asked if SEP enrollment in a PDP could be
retroactive in order to maintain continuity of care.
Response: An SEP enrollment in a PDP will generally be prospective.
We establish the effective date for SEPs and can accommodate unusual
circumstances on a case-by-case basis.
Comment: One commenter suggested that we establish an SEP with no
late enrollment penalty if a Medigap issuer or other entity fails to
provide adequate or accurate notice of whether such coverage is
creditable.
Response: Section 423.38(c)(2) of the final rule establishes an SEP
for all individuals who are not adequately informed when their
creditable prescription drug coverage is lost or changes so that it is
no longer creditable prescription drug coverage or that the individual
never had such creditable coverage. We believe that these provisions
adequately protect an individual who does not receive the required
notice from a Medigap issuer or other entity. Regarding the late
enrollment penalty, the provision of an SEP is not directly related to,
nor does it have a direct effect upon, the imposition of applicable
late enrollment penalties. The late enrollment penalty is discussed in
more detail at Sec. 423.46 and its relationship to creditable
prescription drug coverage is discussed at Sec. 423.56. Specifically,
at Sec. 423.56(g) of the final rule we describe the available remedy
for an individual who was not adequately informed that their
prescription drug coverage is not creditable.
Comment: One commenter believed the enrollment process should
ensure that residents of a long-term care facility are enrolled in a
PDP that provides access to the pharmacy located in the long-term care
facility.
Response: We understand the issue raised by the commenter.
Individuals who are in a long-term care facility will be given an SEP
to ensure they can choose the PDP that is appropriate for their
situation. This will be clarified in guidance following publication of
this rule.
6. Effective Dates of Coverage and Change of Coverage (Sec. 423.40)
Section 1860D-1(b)(1)(B)(iv) of the Act directs us to apply the
effective date requirements provided under the MA program at section
1851(f) of the Act. As described above, the three enrollment periods
provided under Part D are the IEP, the AEP, and SEP. In the proposed
rule, we established the following effective dates for these enrollment
periods:
a. Initial Enrollment Period
In accordance with section 1851(f)(1) of the Act, as incorporated
into Part D under section 1860D-1(b)(1)(B)(iv) of the Act, an
enrollment made during the initial enrollment period will generally be
effective the first day of the calendar month following the month in
which the individual enrolled in Part D. An enrollment made prior to
the month of entitlement to Part A or enrollment in Part B is effective
the first day of the month the individual is entitled to Part A or
enrolled in Part B. Since the Part D provisions are not effective until
January 1, 2006, we clarified that in no case may enrollment in Part D
be effective prior to this date. We also clarified that initial
enrollments made between November 15 and December 31, 2005 will be
effective January 1, 2006. An enrollment made during or after the month
of entitlement to Part A or enrollment in Part B is effective the first
day of the calendar month following the month in which the enrollment
in Part D is made.
b. Annual Coordinated Election Period
In accordance with section 1851(f)(3) of the Act, as incorporated
into Part D under section 1860D-1(b)(1)(B)(iv) of the Act, an
enrollment made during the annual coordinated election period is
effective as of the first day of the following calendar year, that is,
January 1\st\. One exception to this rule occurs during 2006 in the
special annual coordinated election period in 2006, in
[[Page 4214]]
which elections made between January 1, 2006 though May 15, 2006 will
be effective the first day of the calendar month following the month in
which the enrollment in Part D is made.
c. Special Enrollment Period
A SEP is effective in a manner that we determine to ensure
continuity of health benefits coverage.
The final rule adopts the effective dates as proposed.
Comment: Three commenters suggested that we specify a distinct
effective date for the SEPs in the final rule (as described in Sec.
423.38(c) of the proposed rule) to ensure adequate consumer protection.
Two commenters suggested adding: ``but no later than the first day of
the second calendar month following the month of the request for the
enrollment change'' to the end of this section. The third commenter
suggested we add: ``changes made before the 20\th\ of the month are
effective the first day of the second month following'' the change.
Response: We have outlined the specific effective date requirements
for SEPs granted in the MA program in operational guidance and will
follow the same process for the Part D program. We believe that in so
doing, we retain our ability to react quickly to changes or unforeseen
circumstances.
7. Involuntary Disenrollment by the PDP (Sec. 423.44)
Section 1860D-1(b)(1)(B) of the Act generally directs us to use
disenrollment rules similar to those established under section 1851 of
the Act. The proposed disenrollment provisions for PDPs were outlined
in Sec. 423.44 of our proposed rule, including the basis for
disenrollment--both optional and required--and guidance for notice
requirements.
Specifically, we proposed at Sec. 423.44(b)(2) that a PDP is
required to disenroll an individual who dies, no longer resides in the
PDP's service area, loses entitlement or enrollment to Medicare
benefits under Part A and is no longer enrolled in Part B, or knowingly
misrepresents to the PDP that he or she has received or expects to
receive reimbursement for covered Part D drugs through other third-
party coverage. The proposed rule also required a PDP to disenroll an
individual if the PDP sponsor's contract is terminating.
In addition to providing requirements for mandatory disenrollments,
we also provided under Sec. 423.44(d) of our proposed rule that PDPs
may disenroll individuals who do not pay monthly premiums or whose
behavior is disruptive, consistent with section 1860D-1(b)(1)(B)(v) of
the Act.
As with the MA program, PDP sponsors will be required in the final
rule to provide proper notice to the beneficiary, as outlined at
proposed Sec. 423.44(c), and afford him or her due process in
accordance with the procedures outlined in our operational instructions
prior to disenrolling the individual. For example, a PDP that wishes to
disenroll a beneficiary for disruptive behavior must receive our prior
approval and demonstrate to our satisfaction that it has made a good
faith effort to resolve the issue prior to requesting the
disenrollment. We will review these requests on a case-by-case basis,
taking into account all of the facts and circumstances of a particular
case, prior to making its decision. PDP sponsors must apply their
policies for optional disenrollment for failure to pay premiums and
disruptive behavior consistently among individuals enrolled in their
plans, unless we permit otherwise, and must do so consistent with
applicable laws regarding discrimination on the basis of disability.
Except as otherwise provided below, the final rule adopts the
involuntary disenrollment rules set forth in Sec. 423.44 of the
proposed rule.
Comment: Several commenters urged CMS to establish a process for
individuals to appeal disenrollment decisions. Several commenters
believed that individuals should have access to an outside independent
review process, especially if these individuals are disenrolled without
an SEP. Another commenter stated that involuntary disenrollments must
be heavily scrutinized and an appeal right be available on an expedited
basis.
Response: As we discussed under a previous comment regarding
appeals for enrollment denials, we do not believe that a formal appeals
process is necessary. Instead, we intend to address beneficiary
complaints regarding disenrollment in a manner addressed under the MA
program. Under the MA program, MA plans are required to follow a
specific process, which includes notice of potential disenrollment if
the individual does not address situation. We currently provide
assistance to MA organizations to handle beneficiary inquiries and
complaints regarding disenrollment through staff assigned to each MA
organization. We envision a similar process being established under the
PDP program.
Comment: Several commenters pointed out an error in the numbering
of the regulatory text for disruptive behavior at proposed Sec.
423.44(b)(1).
Response: We concur and have corrected the numbering.
Comment: A commenter requested that we clearly define how long an
individual would need to reside out of the PDP service area before we
would consider the individual as no longer residing in the service
area. One commenter did not think that it was reasonable to apply a 6-
month time limit to PDPs; PDPs should not be required to disenroll
individuals if the PDP can provide individuals access to benefits out
of the service area through a PDP in another region, or the PDP's
network of pharmacies in other regions, or mail order pharmacies. One
commenter believed the decision should be left to the individual as to
when he or she has permanently moved out of the PDP service area. A few
commenters did not believe that a person's residency should be a factor
in a plan's basis for disenrollment. Another commenter stated that a
PDP should not be required to disenroll an individual if the PDP meets
licensure requirements in the State where the individual has moved and
the PDP has a national pharmacy network in place. Another commenter
suggested that PDP maintain members if they are an established sponsor
and meet certain network adequacy requirements in the region in which
the beneficiary moves.
Response: We agree that disenrolling a beneficiary after being
temporarily out of the service area for a certain period of time may be
less appropriate for PDPs than in the MA program. The MMA directs us to
use rules similar to (and coordinated with) the MA residency
requirements at section 1851(b)(1)(A) of the Act, which provides that
an individual may elect an MA plan only if the plan serves the
geographic area in which the individual resides, except as the
Secretary may otherwise provide. However, the MA regulation at Sec.
422.74(d)(4) generally provides for disenrollment of an individual if
that individual is out of the service area, even temporarily, for 6
months, unless the MA organization offers visitor or traveler benefits
that provide for benefits while outside of the service area. We believe
that the nature of the prescription drug benefit and the ability for
many individuals to access the benefit through mail order or chain drug
stores provide greater flexibility in accessing the prescription drug
benefit while temporarily being out of the PDP's service area. However,
while an individual has greater flexibility to be temporarily outside
the service area and still access the PDP benefit, we maintain that the
individual must maintain his or her permanent residence within the
[[Page 4215]]
PDP's service area to be a member of the PDP. If the PDP learns of a
change in the individual's permanent address, the PDP would initiate
the disenrollment process. It is, however, an individual's
responsibility to notify the PDP if the individual permanently moves
out of the service area. We will provide further guidance to PDPs on
the process of disenrollment when an individual permanently moves out
of the service area following publication of this rule.
Comment: One commenter asked how a PDP will learn of loss of
entitlement to Part A or Part B.
Response: We will notify the PDPs of the loss of Part A or B
benefits. We will issue detailed operational guidance for PDPs prior to
2006.
Comment: A few commenters requested that we further clarify the
provision that an individual who ``knowingly misrepresents to the PDP
that he or she has received or expects to receive reimbursement for
covered Part D drugs through other third party coverage'' (that is,
whether his or her costs are expected to be reimbursed through
insurance or otherwise, such as a group health plan) must be
disenrolled. These commenters also asked how ``knowingly'' will be
determined and what entity would be responsible for investigating such
a case. One commenter indicated that a beneficiary should not be
penalized for unintended errors or inadvertent omissions, and that many
beneficiaries will be confused at the outset about their PDP coverage
and how it may coordinate with other insurance.
Response: Section 1860D-2(b)(4)(D)(ii) of the Act provides that
``material misrepresentation'' by an individual as to whether his or
her costs are expected to be reimbursed through insurance or otherwise
(through a group health plan or other third party payment arrangement)
shall be grounds for termination by the PDP. Since section 1860D-
2(b)(4)(D)(ii) of the Act also provides that a PDP sponsor may
periodically ask Part D eligible individuals about such reimbursement,
the statute establishes a penalty for an individual who ``materially''
misrepresents such information. This provision is not intended to
disenroll individuals who simply make an error, but instead apply to
those individuals who knowingly provide such false information. We
would be responsible for reviewing and issuing the final decision on
such a case. We plan to issue further guidance on this for PDPs prior
to 2006.
Comment: We received several comments on the disenrollment for
nonpayment of premium provision, both supporting and opposing inclusion
of such a process. Several commenters requested that we clarify the
details of disenrollment for nonpayment of premium, including what we
view as ``reasonable efforts'' to collect the premium. Several
commenters recommended providing a minimum grace period for repayment
before permitting disenrollment. One commenter requested that we waive
payment of past premiums for full-benefit dual eligible individuals or
low-income subsidy individuals. Some commenters believe that it is
inappropriate for us to disenroll any individual from Part D for
nonpayment of premium. One commenter stated that individuals enrolled
in a PACE plan should not be subject to the disenrollment requirements
under Sec. 423.44 of the proposed rule.
Response: Section 1860D-1(b)(1)(B)(v) of the Act specifically
directs us to apply rules to PDPs that are similar to (and coordinated
with) the MA provisions at section 1851(g) of the Act related to
disenrollment for nonpayment of premium. While some commenters objected
to disenrollment by the PDP on those grounds, we note that such
disenrollment is at the PDP sponsor's option and PDP sponsors therefore
have the ability to apply this rule to their plan enrollees. In
contrast, under Part B, individuals who fail to pay their Part B
supplementary medical insurance premiums must be disenrolled from Part
B. While we do not review and approve such disenrollments, we maintain
that if a PDP chooses the option to disenroll a beneficiary for
nonpayment of the premium, we would require that the PDP apply this
policy consistently, as we direct, amongst all its members and could
not ``waive'' the premium for a certain group of its members. As
indicated in the preamble of subpart T of this rule, we will issue
additional guidelines that will include a comprehensive listing of Part
D waivers applicable to PACE organizations. However, we agree that PACE
organizations should not be subject to the disenrollment requirements
of Sec. 423.44 as they are duplicative of the PACE disenrollment
requirements associated with Sec. 460.164 of the PACE regulation.
Comment: Several commenters recommended that we permit plans to
deny reinstatement following disenrollment for failure to pay premiums
unless the enrollee pays the outstanding amount that is due. Other
commenters stated that PDP should not be required, under any
circumstance, to re-enroll individuals who are disenrolled for
nonpayment of the premium.
Response: We have provided in the final regulation at Sec.
423.44(d)(1)(iii) that a PDP may decline future enrollment to
individuals who have been disenrolled for failure to pay premiums until
past due premiums are paid to the PDP. However, we would not allow a
PDP to prohibit an individual from enrolling in its plan if the
individual has paid all past due premiums to the PDP.
Comment: We received a substantial number of comments on proposed
Sec. 423.44(d)(2) to allow PDP sponsors to disenroll individuals who
exhibit disruptive behavior.
One commenter supported the definition established in the proposed
rule, while several commenters supported the due process safeguards
afforded by our approval of disenrollment requests. Two commenters
suggested that we provide guidance to PDP sponsors on the symptoms of
mental illness and dementia and other personality disorders to
distinguish between disruptive behavior and behavior resulting from a
medical condition. There were other commenters who asked us to clearly
define the terms and requirements for disenrolling a beneficiary for
disruptive behavior. These commenters recommended that we include in
the final rule such requirements as documentation of a PDP sponsor's
effort to provide a reasonable accommodation for individuals with
disabilities and sufficient notice of the sponsor's actions during the
course of the disenrollment process.
Numerous commenters expressed concern that the proposed definition
of disruptive behavior does not adequately protect individuals whose
behavior is induced by disability, mental illness, cognitive
impairment, or certain prescribed drugs and who rely on prescription
drug therapy to stabilize their behavior. Some commenters recommended
that we prohibit PDP sponsors from disenrolling certain populations for
disruptive behavior, explaining that State Medicaid programs will not
be able to claim Federal matching funds for prescription drugs spending
on behalf of full-benefit dual eligibles who have been disenrolled by a
PDP sponsor. Other commenters suggested that we develop more stringent
criteria for PDP sponsors requesting to disenroll a full-benefit dual
eligible individual. Several commenters stated that, in cases where an
individual is unstable, disruptive behavior could be related to
unsuccessful attempts to find the proper medication. There were also a
number
[[Page 4216]]
of commenters who asserted that we lacked statutory authority to permit
PDPs sponsors to disenroll individuals for disruptive behavior. Two
commenters questioned the appropriateness of applying a policy of
involuntary disenrollment for disruptive behavior to PDPs. One
commenter suggested that we allow an individual who is disruptive to
designate an authorized representative to access services on his or her
behalf.
Response: In the final rule, we aim to strike a balance between
allowing PDP sponsors to disenroll individuals who exhibit disruptive
behavior and creating adequate protections for individuals who face
involuntary disenrollment from a PDP. In accordance with the statute
(at section 1860D-1(b)(1)(B)(v) of the Act), we must establish a
process that is similar to and coordinated with the process under the
MA program that permits MA organizations to disenroll an individual for
disruptive behavior. At the same time, we recognize the impact of such
a disenrollment on an individual's ability to access prescription drug
coverage under the Medicare program, and the need for adequate
safeguards for individuals whose disruptive behavior is due to mental
illness or a medical condition. Continuity of care for these
individuals is essential, especially if they are taking prescription
medications that can minimize the debilitating impact of their illness
and restore their functioning.
Therefore, in revising our proposed definition of disruptive
behavior in Sec. 423.44(d)(2)(i) of the final rule, we focus on
behavior that substantially impairs a PDP sponsor's ability to arrange
or provide care for the individual or other plan members. Behavior that
is related to the use of medical services or compliance (or non-
compliance) with medical advice is not disruptive behavior.
We also agree with commenters that arranging or providing care for
individuals with mental illness, cognitive impairments such as
Alzheimer's disease or other dementias, and medical conditions and
treatments that may cause disruptive behavior warrant special
consideration, and therefore revise Sec. 423.44(d)(2)(v) to require
PDP sponsors to provide a reasonable accommodation to individuals in
such exceptional circumstances that we deem necessary. Such
accommodation is intended to ensure that the individual can maintain
Medicare prescription drug coverage and may include granting an
individual a SEP to choose another plan, or requiring the plan to
continue the individual's enrollment until the Annual Coordinated
Election Period, when the individual has an opportunity to enroll in
another plan. We will determine the type of accommodation necessary
after a case-by-case review of the needs of all parties involved. This
review will be conducted as part of our review and approval of the PDP
sponsor's request, as required in regulations at Sec. 423.44(d)(2)(v),
and will include expert opinion from our staff with appropriate
clinical or medical background.
In addition, we recognize that circumstances may arise where an
individual is only able to obtain qualified prescription drug coverage
from a fallback prescription drug plan operating in his or her service
area. In such instances, allowing a fallback entity to disenroll an
individual may create substantial barriers to accessing prescription
medications under the Medicare program. Section 1860D-11(g)(4)(B) of
the Act grants us authority to establish additional requirements
specifically for fallback prescription plans. Under this authority, we
reserve the right at Sec. 423.44(d)(2)(vi) to deny a fallback
prescription drug plan's request to disenroll an individual for
disruptive behavior.
In the proposed rule, we established procedures that PDP sponsors
must follow prior to requesting to disenroll a member for disruptive
behavior. Under proposed Sec. 423.44(c), a PDP sponsor must give an
individual timely notice of the disenrollment, which includes an
explanation of the individual's right to a hearing under the PDP's
grievance procedures. We further required at proposed Sec.
423.44(d)(2)(ii) a sponsor to make a serious effort to resolve the
problems presented by the individual, including the use or attempted
use of the organization's grievance procedures. Finally, we established
under proposed Sec. 423.44(d)(2)(iii) that a PDP sponsor must document
the individual's behavior, its own efforts to resolve the problem, and
the use or attempted use of its internal grievance procedures. We are
preserving all of these requirements in the final rule at Sec.
423.44(c) and Sec. 423.44(d)(2)(iii) and (d)(2)(iv).
We believe that the final rule achieves the twin goals of
permitting involuntary disenrollment based on an individual's
disruptive behavior, while also establishing necessary protections for
individuals who are subject to our disenrollment rules.
Comment: Several commenters contended that allowing a PDP sponsor
to disenroll an individual for disruptive behavior provides an
opportunity for PDP sponsors to discriminate against individuals with
disabilities, mental illness, Alzheimer's, and other cognitive
conditions.
Response: We appreciate the commenters concern about the need to
ensure that individuals are not discriminated against on the basis of
their disability. However, the Part D plans are not provided the
authority to make the decision on such a disenrollment. In addition to
establishing safeguards in the final rule for individuals with special
needs by requiring PDP sponsors to make reasonable accommodations where
we deem necessary, it is CMS who reviews the request for disenrollment
and makes the decision to approve or deny the request. In our review,
we will include our staff with the appropriate clinical or medical
expertise review the case before a final decision is made.
Comment: Several commenters noted that the proposed rule denies
protection to individuals who comply with medical advice by trying an
on-formulary drug instead of the drug originally prescribed and
subsequently experience an adverse reaction that triggers the
disruptive behavior. A few commenters asked us to prohibit PDPs from
disenrolling an individual because of his or her refusal or inability
to adhere to a treatment plan developed by the PDP or other health care
professionals associated with the plan.
Response: We agree with the commenters and clarify in the final
rule at Sec. 423.44(d)(2)(i) that an individual cannot be considered
disruptive if such behavior is related to the use of medical services
or compliance (or non-compliance) with medical advice or treatment.
Comment: Two commenters supported the flexibility afforded PDP
sponsors by our allowing PDP sponsors to limit re-enrollment for
individuals who are disenrolled for disruptive behavior, and one of
these commenters specifically asked us to establish criteria for re-
enrolling an individual such as a minimum waiting period and a
commitment by the individual to discontinue such behavior. On the other
hand, there were many commenters who opposed the ability of a PDP
sponsor to decline re-enrollment of an individual. These commenters
contended that prohibiting an individual from re-enrolling in a PDP for
a specified period could cause undue harm and lapses in coverage,
especially if the individual is not able to enroll in another PDP. One
commenter requested that we specify the maximum period of time that a
PDP sponsor may prohibit re-enrollment of
[[Page 4217]]
an individual who has been disenrolled for disruptive behavior.
Response: In the proposed rule, we enabled PDP sponsors to request,
at their option, the ability to decline future enrollment by an
individual who had been disenrolled for disruptive behavior. While we
retain this option for PDPs in the final rule, we require these
sponsors to request future conditions on re-enrollment as part of their
disenrollment request. At the same time, we reserve the right in
accordance with Sec. 423.44(d)(2)(v) to review each request on a case-
by-case basis. In the review process, we will give due consideration to
exceptional circumstances that may warrant reasonable accommodations in
addition to the appropriateness of conditions on re-enrollment.
Comment: There were several commenters who objected to the
expedited disenrollment process. The commenters noted that the
expedited process lacks even the minimal standards and requirements
that are in place to protect beneficiaries in these circumstances.
Response: It is our intent to ensure that all individuals facing
involuntary disenrollment for disruptive behavior have sufficient
opportunity, as provided by the notice requirements, to change their
behavior or grieve the PDP sponsor's decision to request involuntary
disenrollment from us. We have therefore removed this provision from
the final regulation.
Comment: One commenter asked us to clarify whether a full-benefit
dual eligible individual who is disenrolled for disruptive behavior is
entitled to a SEP.
Response: In accordance with the Sec. 423.38(c)(4), a full-benefit
dual eligible individual as defined under section 1935(c)(6) of the Act
is entitled to a SEP. A full benefit dual eligible individual who is
involuntarily disenrolled for disruptive behavior remains entitled to a
Special Enrollment Period.
Comment: We received two comments asking us to adopt an
interpretation of nonpayment of cost sharing as disruptive behavior as
we had discussed in the preamble of the proposed rule for MA
organizations.
Response: We appreciate the feedback provided on the consideration
to include nonpayment of cost-sharing as disruptive for the purposes of
applying the provisions under disruptive behavior. We will consider
these comments in developing guidance for the disruptive behavior
provisions.
8. Late Enrollment Penalty (Sec. 423.46)
Section 1860D-13(b) of the Act establishes late enrollment
penalties for beneficiaries who fail to maintain creditable
prescription drug coverage for a period of 63 days following the last
day of an individual's initial enrollment period and ending on the
effective date of enrollment in a Part D plan. We outlined this process
for imposing the penalty in the proposed rule. We also proposed that an
uncovered month is any month in which an individual does not have
creditable coverage at any time during that month. We also reference
the calculation of the amount of the penalty, which was described at
Sec. 423.286(d)(3) of the proposed rule.
The final rule adopts the rules for late enrollment penalties as
proposed.
Comment: Several commenters requested that we waive the late
enrollment penalty for certain individuals, such as full-benefit dual
eligible individuals, subsidy eligible individuals, individuals who are
eligible for a special enrollment period and individuals who are
involuntarily disenrolled. One commenter asked that State Medicaid
programs be allowed to request and obtain such a waiver. Other
commenters urged CMS to delay the implementation of the late enrollment
penalty for one to two years, or be flexible with the application of
the penalty, stating the Part D program was new and complex. Another
commenter asked if we would provide any exception to the penalties for
exceptional circumstances, such as natural disaster, family death, or
clinical justification. A few commenters did not see a late penalty
appeals process in the regulation and requested that we add an
opportunity to appeal the late penalty.
Response: There is nothing in the statute that would provide us
with the authority to waive or delay the late enrollment penalty at any
time unless an individual was not adequately informed that his or her
prescription drug coverage as described at Sec. 423.56 was not
creditable. Only in this limited situation will we be able to deem the
individual's prescription drug coverage as creditable, regardless of
whether it actually is creditable, so as not to impose the late
penalty. Further, it is clear that the statute intended this provision
to apply to full-benefit dual eligible individuals since the
application of the penalty is specifically referenced in the definition
of the full premium subsidy under section 1860D-14(a)(1)(A) of the Act,
for which full-benefit dual eligible individuals are eligible.
Specifically, section 1860D-14(a)(1)(A) of the Act provides that full
subsidy eligible individuals, including full-benefit dual eligible
individuals, are responsible for 20 percent of any late enrollment
penalty for the first 60 months during which such penalty is imposed.
As discussed in the proposed rule, we will develop a process for
individuals to apply to CMS for reconsideration of the penalty. We
appreciated the feedback that organizations provided on setting up such
a process.
Comment: Several commenters asked CMS to clarify that those who do
not receive a notice that their prescription drug coverage was not
creditable (or received the wrong notice) are not subject to the late
enrollment penalty.
Response: As provided in Sec. 423.56(g) of the final rule, an
individual who is not adequately informed that his or her prescription
drug coverage was not creditable may apply for our review and make a
determination if this occurred. If we determine that the individual did
not receive adequate notice or received incorrect information, we may
deem the individual to have had creditable coverage so that the late
enrollment penalty will not be imposed.
Comment: One commenter asked CMS to clarify how the 63-day period
would be counted. The commenter recommended from the end of the IEP to
the date of the application for the low-income subsidy since
individuals may delay a decision until he or she knows whether there
will be a subsidy.
Response: The count of the 63-day period will commence the day
following the end of the individual's IEP or, once the IEP has passed,
the day following the last day of creditable coverage or Part D
enrollment (in a PDP or MA-PD plan). The application of the 63-day
period will be consistently applied to all individuals, regardless of
when an individual may or may not apply for the low-income subsidy.
Comment: One commenter asked how the late enrollment penalty will
be coordinated with the late enrollment penalty for Part B.
Response: We are currently developing operational and system
requirements to implement the late enrollment penalty process.
Additional guidance will be provided to PDPs and individuals with
specific information as to how this will occur.
9. Part D Information That CMS Provides to Beneficiaries (Sec. 423.48)
As provided under section 1860D-1(c)(1) of the Act, we will conduct
activities designed to broadly disseminate information about Part D
coverage to individuals who are either eligible or prospectively
eligible for Part
[[Page 4218]]
D benefits. In the proposed rule, we indicated that this information
will be made available to beneficiaries at least 30 days prior to their
initial enrollment period.
Each organization offering a PDP or MA-PD plan must provide us
annually with the information to disseminate to individuals who are
currently or prospectively eligible for Part D benefits. The
information dissemination activities for Part D will be similar to, and
coordinated with, the information dissemination activities that we
currently perform for Medicare beneficiaries under sections 1851(d) and
1804 of the Act.
As required under section 1860D-1(c)(3) of the Act, we proposed to
include the following comparative information for qualified
prescription drug coverage provided by PDPs and MA-PD plans as part of
our dissemination of Part D information and our efforts to promote
informed beneficiary decisions:
Benefits and prescription drug formularies;
Monthly beneficiary premium;
Quality and performance;
Beneficiary cost-sharing; and
Results of consumer satisfaction surveys.
We also proposed to provide information to beneficiaries regarding
the methodology we will use for determining late enrollment penalties,
as provided in Sec. 423.286(d) of our proposed rule.
In carrying out the annual dissemination of Part D information, we
will conduct a significant public information campaign to educate
beneficiaries about the new Medicare drug benefit and to ensure the
broad dissemination of accurate and timely information. We will work
with SSA and the States to ensure that low-income individuals eligible
for or currently enrolled in Part D benefits are aware of the
additional benefits available to them and how to receive those
benefits. In order to maximize the enrollment of Part D eligible
individuals, this public information campaign would include outreach,
information, mailings, and enrollment assistance with and through
appropriate State and Federal agencies, including SHIPs, and will
coordinate with other Federal programs providing assistance to low-
income individuals. In addition, we will undertake special outreach
efforts to disadvantaged and hard-to-reach populations, including
targeted efforts among historically underserved populations, and
coordinate with a broad array of public, voluntary, private community
organizations, plan sponsors and stakeholders serving Medicare
beneficiaries to explain the options available under this program.
Materials and information will be made available in languages other
than English where appropriate.
This information will enable beneficiaries to make informed
decisions regarding their Part D coverage options. Organizations
offering a PDP or MA-PD plan will be required to provide this
information in a format and to use standard terminology that we will
specify in further operational guidance.
In the interest of broadly disseminating information that promotes
informed decision-making among Part D enrollees and prospective Part D
enrollees, as required under Section 1860D-1(c) of the Act, we would
extend the price comparison requirements to PDP sponsors and MA
organizations offering MA-PD plans and making comparative information
about Part D plans' negotiated prices available to beneficiaries
through http://www.medicare.gov.
Since the introduction of http://www.medicare.gov in 1998, we have
substantially increased the amount of personalized information
available to Medicare beneficiaries, making it one of the government's
most comprehensive and customer-oriented sites available to the public.
The web site hosts twelve separate database applications to help
individuals make their own health care decisions. The most significant
ones are: the Medicare Personal Plan Finder (which contains costs,
benefits, quality, satisfaction and disenrollment measures), Nursing
Home Compare (which contains basic characteristics, staffing
information and inspection results), the Prescription Drug and Other
Assistance Programs application (which contains the most extensive,
nationally complete listing of the Medicare-approved discount drug
cards, including price comparisons, as well as other government and
private programs designed to help with prescription drug costs), and
the Medicare Eligibility Tool (which assists users in determining when
they are eligible, how to enroll and what they need to consider when
joining Medicare). Other tools providing customized results include:
the Participating Physician and Supplier Directories, Home Health and
Dialysis Facility Compare, Your Medicare Coverage, Helpful Contacts,
Publications, and Frequently Asked Questions. By updating all
information on the web site at least once a month, the information
provided to Medicare beneficiaries via http://www.medicare.gov is the most
reliable and consistent information available.
Much of the information available through http://www.medicare.gov is also
available via the 1-800-MEDICARE helpline. 1-800-MEDICARE is a major
information channel for providing the most personalized and reliable
information to people with Medicare. The beneficiary can call 1-800-
MEDICARE to find out the most reliable information on public and
private programs that offer discounted or free medication, programs
that provide help with other health care costs, and Medicare health
plans that include prescription drug coverage. The caller can always
talk to a live person at 1-800-MEDICARE to get the facts they need. We
can also give the beneficiary personalized brochures containing
information on their health plan choices, nursing homes and Medicare
participating physicians in their area. 1-800-MEDICARE is available 24
hours a day, 7 days a week, to provide the one-on-one service that our
Medicare beneficiaries need to make appropriate health care decisions.
The final rule adopts the information requirements set forth in the
proposed rule.
Comment: Several commenters were concerned that the web site should
reflect accurate information that is presented in an appropriate
context and in a way that is useful for beneficiaries to use. Many
commenters noted that the web site should provide beneficiaries with
the ability to compare plans on the basis of estimating their out-of-
pocket spending, including premiums and applicable cost sharing.
Several commenters encouraged CMS to rely not only on price as the
factor in determining which Part D plan fits beneficiary needs. Another
commenter urged CMS to include specific information regarding which
drugs are covered by each plan. Other commenters indicated that other
information that the beneficiaries would need to consider would be the
level of coinsurance, the amount a beneficiary would pay during any
period he or she is liable for 100 percent of the cost sharing, whether
the drug is on or off the formulary, and other cost management
techniques that may apply, such as step therapy and prior
authorization. Another commenter stated that we must post prices on its
website of retail pharmacies that offer maintenance supplies of
medications. One commenter stated that beneficiaries need to know
whether the pharmacy is included in the plan's network.
Response: We appreciate this feedback and will consider this when
[[Page 4219]]
developing the requirements for the Part D price comparison web tool.
Comment: Another commenter stated that we need to ensure that any
website includes price comparisons about generic drugs compared to
their innovator brands, as well as generics compared to other brand
name drugs in a similar therapeutic class.
Response: This comment will be considered when developing the
requirements for the Part D price comparison web tool. As with the
current price comparison tool for the Medicare-approved drug discount
card program, we include pricing information for both brand and generic
drugs.
Comment: One commenter noted that correct information may not be
provided to seniors if we require plans to post the maximum price that
could be charged, since the maximum price is typically the pharmacy's
usual and customary cash price.
Response: It is our understanding that usual and customary pricing
data is not readily accessible; therefore, we anticipate posting the
maximum negotiated prices for prescription drugs on the website with
the understanding that beneficiaries will pay the lower of the
negotiated or usual and customary price at the point of sale. It is
anticipated that the prices displayed on the website would reflect what
enrollees would expect to pay at the point of sale for their
prescriptions under the respective plans.
Comment: One commenter asked that we define the process for the
information sharing exchange between PDPs and CMS.
Response: The process has not been defined at this time. Once we
have developed the data requirements and process for submission of
data, we will share this information with all prospective Part D plans.
Comment: Several commenters believe that the price comparison tool
should not be a requirement for PDP sponsors or MA organizations
offering MA-PD plans.
Response: It is important for beneficiaries to have access to all
information in order to make informed choices. We are committed to
providing Medicare beneficiaries with information about both PDPs and
MA-PD plans through the price comparison tool. Therefore, we will keep
this requirement.
Comment: One commenter expressed a general concern with the
disclosure of negotiated prices and the negative impact that disclosure
of such information could have on competition. The commenter further
noted that negotiated prices may be subject to confidentiality
agreements. The commenter suggested that we disclose only estimated or
average prices and that this information only be posted on the specific
website of the Part D plan.
Response: As mentioned previously, it is anticipated that the
prices displayed on the website will reflect what enrollees would
expect to pay at the point of sale for their prescriptions under the
respective plans.
Comment: A commenter stated it was unacceptable for CMS not to
provide quality and performance information in the first year or second
year of the Part D program.
Response: Quality data will not be available for the first year
since this is a new program and historical data will not be available
for reporting. For year two, the regulation simply states that if it is
impractical to obtain data or if it is not available, it will not be
reported; this is not the same as stating that it will not be available
for the second plan year. From the perspective of many beneficiaries,
cost and availability are the most important quality issues. Hence, we
will be able to report timely in response to these issues.
Comment: One commenter urged the agency to work closely with
pharmacies to ensure that any price comparison website is
understandable and free of errors before it is made public.
Response: Historically, we have worked closely with beneficiaries,
stakeholders, partners, and advocacy groups to ensure the information
disseminated meets the needs of the Medicare population we serve. We
will continue this practice in the development of the website for Part
D plan information.
Comment: One commenter stated that we are silent on the
notification timeframe for beneficiaries. CMS simply refers to the 30-
day notice period. The commenter thinks that beneficiaries will need
much more than 30 days to digest all of the information they will
receive from CMS to enable them to make informed choices about their
Part D coverage. The commenter urges information to be disseminated as
soon as possible and urges CMS to plan numerous information campaigns
now and involve numerous organizations in developing education
activities and materials. Another commenter suggests dissemination
activities occur at least 60 days prior to the initial enrollment
period for Part D, which begins November 15, 2005.
Response: We are planning outreach and education activities that
will occur throughout 2005 and 2006. Detailed information about drug
plans and their individual benefit structures will be released as soon
as possible after this information is approved. It is impossible to
send out plan data any sooner due to submission dates for plan
information and the process steps needed to translate the raw data into
consumer-friendly information, as well as the print production steps
for the publication that will house this comparative information.
Comment: One commenter asked what information we will provide to
SSA, SHIPs, and other groups to educate beneficiaries about the late
enrollment penalty.
Response: We will provide important details about the penalty
associated with late enrollment in the information provided to SSA and
SHIPs, as well as in SHIP training materials. In addition, we will
develop materials that can be used by employers, unions, partners,
advocacy groups and other stakeholders to educate beneficiaries about
the late enrollment penalty.
Comment: One commenter stated that we must give greater attention
to developing materials and education campaigns focused on informing
beneficiaries, especially those with special needs, about the new drug
benefit and to help them to enroll in the best plan available.
Response: We are planning a multi-tiered education program to
repeatedly reach all beneficiaries. This program will include plans for
specific important target audiences, including those with special
needs. Mailings and outreach activities to dual eligibles are currently
being planned. Education and outreach materials developed for
beneficiaries will be thoroughly tested with the target audience.
Comment: Another commenter stated that we should mail, no later
than October 15, 2005, standardized, easy-to-understand notices to
full-benefit dual eligible individuals that, among other things: inform
them of their eligibility to receive the low-income subsidy if they
enroll in a PDP; list of choices of health plans, clearly denoting
those that meet the benefit premium assistance limit, and contact
information for each plan; explain that full-benefit dual eligible
individuals will be randomly enrolled in a prescription drug plan at a
specified date if they fail to opt out or enroll in a plan themselves;
explain how they may change their drug plans if they wish at any time;
and inform them of where in their community they can go to get help
with enrollment. The commenter also recommended that these notices
should be tested for readability by focus groups and experts.
[[Page 4220]]
Response: We plan to consumer test beneficiary notices and send out
the information noted by the commenter above by October 15, 2005. We
are considering using the mailing to inform the full-benefit dual
eligible individuals about what plan they will be auto-enrolled in if
they fail to elect a Part D plan by December 31, 2005 or affirmatively
opt of Part D, and that they have a right to choose to enroll in a
different plan.
Comment: One commenter stated that the website should be provided
in languages other than English to reflect the language spoken in a PDP
service area.
Response: We appreciate this feedback and will consider this when
developing the requirements for the website.
Comment: CMS should include in the final rule binding and
enforceable standards defining information plans must provide to
beneficiaries with various types of disabilities. For example, this
information must be available to individuals who are blind or have low-
vision. Further, CMS must require PDP internet websites to be
accessible for individuals with vision impairments.
Response: Our websites are accessible to people with various
disabilities, including those who are blind or have low-vision. Under
our marketing requirements in Sec. 423.50, we require Part D plans to
demonstrate that marketing resources are allocated to marketing to the
vulnerable populations, as well as beneficiaries age 65 and over. It is
also important to note that Section 508 of the Rehabilitation Act of
1973 allows individuals with disabilities to access electronic
information.
Comment: Commenters stated that the proposed rule focused largely
on support through Internet sources and the 1-800 Medicare number, and
argued that both are necessary and helpful but insufficient to meet the
needs of many duals, as well as those eligible for the low-income
subsidy.
Response: Although the basis for information dissemination is
through publications, http://www.medicare.gov and 1-800-MEDICARE, we do not
plan to solely rely on these resources to reach the population as a
whole. We will work closely with SSA, SHIPs, Area Associations on Aging
as well as other national stakeholders and partners, to provide
assistance to those who may qualify for the low-income subsidy. Through
a broad network of support from community based organizations, we will
make considerable efforts to reach those beneficiaries who do not have
access to the Internet or are uncomfortable calling 1-800-MEDICARE.
Comment: CMS should also make detailed information about PDPs
available electronically to others in accessible formats that would
enable them to conduct independent analyses about what plan would be
best for a particular individual.
Response: Because the actual plan data underlying the price
comparison tool is considered proprietary, we do not anticipate making
the underlying data available electronically to outside organizations.
Since nothing in the MMA addresses disclosure of plan data, the Freedom
of Information Act (FOIA) rules apply. FOIA Exemption 4 protects
certain confidential commercial information that is submitted to a
Federal agency. Determinations about the applicability of FOIA
Exemption 4 to plans' pricing data would be made on a case-by-case
basis depending on whether the submitter of the data could demonstrate
that disclosure of this information would likely cause substantial
competitive harm to the submitter's competitive position. If FOIA
Exemption 4 is found to protect submitted price information, we cannot
disclose this information because to do so would violate the Trade
Secrets Act (18 U.S.C. 1905).
Comment: Several commenters stated that we should develop specific
outreach and education strategies for vulnerable populations, including
disabled Medicare beneficiaries and dual eligibles. Another commenter
stated that PDPs should be required to include specific plans for
encouraging enrollment of hard-to-reach populations, including
individuals with mental illness. Another commenter indicated that
outreach efforts must involve community-based groups on a collaborative
basis and not just use these groups as conduits for distributing
written materials produced by CMS regarding the new benefit. Resources
must be provided to enable these groups to educate beneficiaries about
their choices and help enroll them. This collaboration with community
groups must begin as soon as possible to establish the infrastructure
needed once Part D goes into effect.
Response: We are developing an extensive outreach campaign for
these individuals and are working closely with U.S. Department of
Health and Human Services' Office of Disability to ensure that this
important audience is reached.
Comment: One commenter strongly urged CMS to develop a specific
plan for facilitating enrollment of beneficiaries with disabilities
that incorporates collaborative partnerships with State and local
agencies and disability advocacy organizations.
Response: In addition to working closely with the HHS Office of
Disability to ensure we reach this group of individuals, we plan to
broaden local partner networks though the Regional Education About
Choices in Health (REACH) campaign to provide training, information and
planning support to provide outreach and assistance to these
populations. REACH is a national education and publicity campaign
implemented at the local level by our Regional Offices and their
partners. The REACH campaign works through partnerships to increase
awareness of the Medicare program and resources among hard to reach
populations.
Comment: A commenter suggested that we should develop and implement
effective outreach strategies utilizing the Medicare Beneficiary
Ombudsman authorized under section 923 of the MMA.
Response: Section 923 of the MMA states that, to the extent
possible, the Ombudsman shall work with SHIPs to facilitate the
provision of information to individuals entitled to benefits under Part
A or enrolled under Part B, or both regarding MA plans and changes to
those plans. We will ensure that SHIPs receive sufficient training in
all aforementioned subjects so that SHIPs can provide information and
assistance to beneficiaries referred to them by the Ombudsman. The
Ombudsman operational design assumes that 1-800-MEDICARE will refer
callers to appropriate sources, including SHIPs, for resolution of
complaints and appeals and, when necessary, refer them directly to the
Ombudsman as a last resort.
Comment: We received two comments that strongly recommended that we
clarify the SHIPs mandate to ensure that they address the needs of
individuals with disabilities, including non-elderly individuals.
Response: Section 4360 of the Omnibus Budget Reconciliation Act
(OBRA) 1990, which created SHIP, requires that SHIPs provide
information, counseling and assistance to Medicare eligible
beneficiaries, including beneficiaries with disabilities. All CMS SHIP
grant announcements expressly reference beneficiaries with disabilities
as intended recipients of SHIP services. In addition, we provide
training and information on the special needs and issues related to
this population. We agree with the commenters and will clarify the SHIP
mandate through the methods described here to address this need.
[[Page 4221]]
Comment: One commenter suggested that we partner with and fund
community-based disability organizations to conduct outreach,
information, and referral activities on the new Part D benefit.
Response: While we agree to partner with these organizations in
these activities, funding these groups are subject to available funds
in our budget.
Comment: One commenter was concerned about beneficiaries being
inundated with marketing and outreach materials. Since many
beneficiaries will need counseling on plan selection, this commenter
asked for clarification regarding whether counseling will be available,
what the States' role will be, and whether there will be Federal
financial participation available for such costs.
Response: States that had SPAPs on October 1, 2003 will have
Federal assistance available to them through the transitional grant
program authorized under section 1860D-23(d) of the Act. These States
will use the transitional grant funds to educate SPAP enrollees about
the plans that are available to them under part D, as well as provide
technical assistance, phone support, counseling, and other activities
the SPAP believes will promote the effective coordination of enrollment
in Part D. States that do not have a SPAP operational as of October 1,
2003 will not have these transitional funds available to them.
In addition, we will continue to provide grants to the States
through the SHIP. SHIP is a national program that offers one-on-one
counseling and assistance to people with Medicare and their families.
Through grants directed to States, SHIPs provide free counseling and
assistance via telephone and face-to-face interactive sessions, public
education presentations and programs, and media activities. We expect
SHIP counseling to be an important source of information for
beneficiaries about Part D.
Comment: One commenter was concerned that the targeted and hands-on
outreach, education and decision support and enrollment services,
particularly outreach to lower income, rural and disabled beneficiaries
is not adequate.
Response: Through the REACH campaign, we plan to broaden local
partner networks in order to provide training, information and planning
support to provide outreach and assistance to these populations.
Through a broad network of support from community-based organizations
as well as national stakeholders and partners, considerable effort will
be made to reach those beneficiaries who do not have access to the
Internet or who are uncomfortable calling 1-800-MEDICARE.
Comment: One commenter stated that we should consider preparing
educational materials that would help pharmacists understand the
benefits and other material that they can use to educate beneficiaries.
Response: We are working with our provider education staff to
develop materials for all providers, including pharmacists, for
educational use.
10. Approval of Marketing Materials and Enrollment Forms (Sec. 423.50)
Section 1860D-1(b)(1)(B)(vi) of the Act directs us to use rules
similar to those established under section 1851 of the Act to review
PDPs' marketing materials and application forms.
In the proposed rule, we generally replicated the marketing
provisions established under Sec. 422.80 for MA plans as appropriate
for PDPs. Therefore, we proposed at Sec. 423.50(a) guidance for our
review of marketing materials, definition of marketing materials,
deemed approval, and standards for PDP marketing. We do recognize that
the differences between PDPs and MA plans will require different
marketing requirements and we requested comments on this issue. We have
drafted the final rule to apply the marketing requirements to all Part
D sponsors, although we may waive the Part D provisions in deference to
similar MA, PACE and cost plan requirements.
We also proposed to add Sec. 423.50(a)(3) in order to streamline
the marketing review process for all PDP sponsors for those materials
which pose the lowest risk of confusing or misleading beneficiaries.
This aspect of the File and Use program allows the PDP sponsor, prior
to distribution, to submit and certify that for certain types of
marketing materials it followed all applicable marketing guidelines, or
for certain other marketing materials that it used, without
modification, proposed model language as specified by CMS.
Except as otherwise provided below, the final rule adopts the
marketing rules set forth in Sec. 423.50 of the proposed rule.
Although the following area generally applies to Fallback plans,
subpart Q specifically addresses issues related Fallback plans.
In addition to marketing materials and enrollment forms, comments
provided the opportunity to respond to enrollment issues related to
SPAPs, pharmacist and physician marketing to beneficiaries, and
organizations marketing additional products in conjunction with PDP
services.
Comment: We received several comments on types and quantity of
information that should be disseminated to beneficiaries. Many
commenters suggested that specific formulary information needs to be
provided including specific drugs (top 25-50), pricing and premium
information, benefit structure, pharmacy networks, plan availability by
region, medication management services offered (and who is eligible for
them), appeals and exception process and information on plan
performance. Most agreed that this information should be mailed, as
well as provided on the Internet and that comparison tables with this
information for all plans in a geographic region should be provided so
that beneficiaries can compare plans side-by-side. One commenter was
concerned that beneficiaries would be overwhelmed with materials and
expressed concern about the potential for adverse selection. It was
suggested that strict and detailed regulations on marketing be issued
to protect beneficiaries. One commenter suggested that we need more
detail in the final rule around patient education.
Response: We agree with the commenters that beneficiaries will need
information on the Part D plans available in their areas. Our goals in
providing information has always been to ensure that beneficiaries have
access to timely, accurate and reliable information that helps them
make informed health care decisions. Our education and outreach efforts
related to Part D are no exception. We will employ multiple tactics,
including publications, direct mailings, the Internet
(http://www.medicare.gov), toll-free telephone numbers, and localized
grassroots partnerships to help beneficiaries access the level of
detailed information that they want and need to make their best choice
among Part D plans. Our tiered communications approach recognizes that
different beneficiaries have varying information needs and what might
be an overwhelming level of detail to some individuals may only meet
the baseline needs of another. By using multiple, integrated education
and outreach approaches and thoroughly market testing our products and
messages during development, we are working to strike the best balance
of providing the right information at the right time. In addition, we
are committed to making sure plans provide clear, accurate information
on covered benefits, including formulary, pharmacy networks, and costs.
We intend to require such information in guidance rather than
specifying the full range of materials in the regulations so that we
[[Page 4222]]
can modify our requirements in a timely manner to meet beneficiary
needs.
Comment: We received several comments regarding the use of various
marketing vehicles to promote PDPs. Several of the commenters supported
the distribution of information through websites, 800 numbers, written
communications and telemarketing. One commenter stated that marketing
should be limited to mail contacts only due to concerns regarding
fraud. One commenter stated that the restrictions on marketing need to
be expanded due to the potential for fraud. Many commenters opposed
telemarketing and one was explicitly against email as well.
Response: Section Sec. 1860(D)(1)(b) of the Act allows for similar
marketing rules for the drug benefit as those for MA. We intend to
follow this guidance and promote marketing guidelines that are in line
with those under the MA program. The MA program supports the use of
websites, 800 numbers, mailings, email and telemarketing for plan
marketing. By allowing plans multiple routes for marketing, we believe
that greater numbers of beneficiaries will be reached and thus enrolled
in drug benefit plans. We believe this is an important goal given the
penalty for late enrollment in Part D. We understand that this is
contrary to what we allowed in the drug discount programs. We did not
allow the drug discount card programs to participate in telemarketing
practices because many of the drug card sponsors were stand alone
start-up companies that did not have a previous history of doing
business. We expect that the PDP sponsors will have previous experience
administering drug plans, insurance or other lines of similar business,
with established reputations, much like MA plans.
Marketing guidelines are in the process of being established, and
these will set forth in greater detail what will be expected of the
plans. PDP sponsors may be barred from engaging in certain practices if
abuses occur. In addition, PDPs will be prohibited from requesting
beneficiary identification numbers over the telephone or via email as
related to marketing activities.
Comment: One commenter stated that the States should be able to
steer its SPAP enrollees toward the most appropriate plan.
Response: Section 1860D-23(b)(2) of the Act defines an SPAP as a
State program which, in determining eligibility and the amount of
assistance to a Part D eligible individual under the program, provides
assistance to such individuals in all Part D plans and does not
discriminate based upon the Part D plan in which the individual is
enrolled. We further interpreted that provision in the preamble of the
proposed regulation such that a SPAP may not designate a preferred PDP,
even if the State allows beneficiaries to choose a non-preferred plan
and provides for benefits equivalent to that which it also provides for
the preferred plan (referred to as wrap-around benefits). We believe
that, regardless of whether the SPAP is authorized under State law to
make enrollment decisions on behalf of the beneficiary, we interpret
using that authority to steer beneficiaries to a preferred PDP or MA-PD
plan would be interpreted to violate the non-discrimination provision
under section 1860D-23(b)(2) of the Act.
Section 1860D-23(d) of the Act provides for grants to SPAPs, in
existence as of October 1, 2003, which were awarded in September of
2004 for fiscal year 2005, for the purpose of educating their members
about options to access Medicare drug benefit coverage and about
comparing options so they can choose the best value to them. We will
reach out to SPAPs with information to help people with Medicare
understand their drug plan options. We will also assist SPAPs in
adapting this information to ensure that their members understand the
way that the new Part D plans coordinate with their SPAP benefit and
supporting their members in making informed decisions about drug
benefit plan options. Outreach to SPAPs would also include instruction
on the educational/outreach/assistance activities SPAPs could pursue
while not discriminating against Part D plans.
SPAPs cannot discriminate amongst plans; however, they may provide
beneficiaries with comparable education on all of the available Part D
plans (PDPs, MA-PD plans, and PACE and cost-based HMO or CMPs offering
qualified prescription drug coverage) in terms of the following: which
plans have lower premiums after application of any uniform SPAP premium
subsidy; which plans offer formularies that cover the drugs utilized by
the beneficiaries so that beneficiaries can continue to use the same
drugs; which plans offer the drugs used by the beneficiary at the most
favorable combination of deductibles, coinsurance/co-pays, and
negotiated prices; which plans use the same network pharmacies as the
SPAP so that beneficiaries can continue to use the same pharmacy; and
which plans (if any) have ID cards that include an emblem or symbol
indicating its coordination with the SPAP to facilitate secondary
payment at the point of service.
In addition, SPAPs are prohibited from recommending Part D plans
based on their financial interest in minimizing their cost of providing
coverage that supplements (wraps-around) their members Part D benefits.
They are required to mirror our process auto-enrolling full-benefit
dual eligible individuals among PDPs on a random basis in the event
that members do not actively select a Part D plan during their IEP or
after enroll in the SPAP.
Part D plans benefit coordination requirements include establishing
procedures to share information with SPAPs on enrollment files, the
processing and payment of claims, claims reconciliation reports and
whether the beneficiary has satisfied the out-of-pocked limit. Part D
plans are encouraged to work with all SPAPs to co-brand the Part D
benefits by providing (in its electronic claim response to the
pharmacy) information on payment of premiums and coverage, and whether
claims should be sent to an SPAP for processing. Plans should also
consider including the SPAPs' benefits in marketing and educational
materials to beneficiaries, which includes SPAP benefit information,
eligibility criteria, order of party payment, and a phone number for
SPAP enrollment and claims payment information.
Comment: Two commenters were concerned that SPAP beneficiaries will
be confused by materials and decline enrollment if premiums,
deductibles and coverage gaps are discussed since SPAP participants
were never required to pay these amounts. It was also stated that
marketing materials for this population should include coordination of
benefit (COB) information.
Response: We expect that SPAPS will provide information to
beneficiaries on their drug plan choices in their States. We expect
that plans will work cooperatively with SPAPs to co-brand materials,
when appropriate, to ensure that beneficiaries are provided with
comprehensive, appropriate, coordinated information that will
facilitate education and understanding of their benefits. Requirements
for coordination of benefits with other providers of prescription drug
coverage are described under Sec. 423.464 (e). We expect Part D plans
to work with SPAPs on coordination of benefit activities to ensure that
beneficiaries are provided seamless care that is easily understandable.
Comment: We received multiple comments regarding the specific
requirements for marketing materials. Many commenters agreed that
marketing materials should be available in Spanish and in other
languages that
[[Page 4223]]
are in the plan's service area. Two commenters stated that marketing
materials should be developed at an appropriate health literacy level.
Two commenters stated that the information will need to be adapted for
the blind/low vision, those with cognitive disabilities, in Braille,
large print and on audio or computer disks. It was also stated that
there should be a requirement that the Internet site be accessible for
the visually impaired and that interpreters and alternative
communication methods should be mandated. Another commenter stated that
a subpart should be devoted to notice requirements.
Response: We agree that there are special needs of beneficiaries
that will need to be provided for. The regulation currently dictates
that marketing materials need to be available in low-literacy formats.
While we do not require materials to be available in other languages,
it is highly encouraged. In addition, basic enrollee information should
be developed to accommodate the visually impaired. Call centers must be
able to accommodate non-English speaking/reading beneficiaries. Plan
sponsors should have appropriate individuals or translation services
available to call center personnel to answer questions that
beneficiaries may have concerning aspects of the drug benefit. We are
working on developing guidance shortly following publication of the
final rule that is similar to the MA requirements to ensure appropriate
information is available to beneficiaries.
Comment: Several commenters stated that marketing materials should
be consistent with other Medicare programs.
Response: We are currently developing additional marketing
guidelines and expect them to be similar to other Medicare programs
(for example, the MA and the Medicare-approved prescription drug
discount card programs), to the extent possible, in order to reduce the
administrative burden for plans that participate in these programs.
Comment: We received many conflicting comments regarding whether
providers (pharmacists and physicians) should be allowed to market to
beneficiaries. This includes the display of materials from Part D
sponsors as well as verbally steering beneficiaries to particular
plans. Several commenters were in support of pharmacies marketing MA/PD
and PDPs; some of these commenters stated that equal attention should
be provided to all plans in the particular area. In addition, some
commenters specifically mentioned that they were in support of
physicians marketing Part D plans.
Other commenters were against marketing of Part D plans in the
pharmacy setting; three specifically mentioned the prohibition of
physicians from marketing to beneficiaries. Most stated that the
reasons for their positions were that physicians or pharmacists could
steer a beneficiary to inappropriate Part D plans.
Response: Both the MA and the Medicare-approved prescription drug
discount card programs allow some provider marketing to occur. Our
position is that it is appropriate to allow providers and pharmacies to
market to beneficiaries. This marketing provides beneficiaries with
access to information about the options available to them under Part D
that they may not have received through other sources because
beneficiaries often look to their health care professionals to provide
them with complete information regarding their health care choices.
Therefore, we believe that providers and pharmacies should provide
prospective enrollees with information on the full range of options
available to them under Part D. This process is similar to the process
followed for the discount drug card program, where pharmacies may
provide information on where beneficiaries may get complete information
regarding all the Medicare-approved discount cards available in the
region in their service area. We would require Part D sponsors that
want their network pharmacies to provide marketing materials to
prospective enrollees to include in their contracts language requiring
the pharmacies Part D eligible individuals with information on all Part
D options available in the service area. This requirement would be
specified in the further guidance issued by CMS. Any remuneration
offered to providers in exchange for providing to patients information
about particular Part D plans must comply with applicable Federal and
State laws on fraud and abuse.
Comment: Two commenters stated that Part D sponsors should be
prohibited from using Medicare discount card enrollee and applicant
information to provide leads for marketing their Part D plans.
Response: We acknowledge the importance of beneficiary privacy, and
the marketing limitations that drug cards operate in accordance with
section 1860D-31(h)(7) of the Act. The drug card provisions under
section 1860D-31 of the Act contemplate a transition from the drug card
program to Part D, and we are considering what will be the specific
drug card responsibilities of drug card sponsors during transition.
From that understanding we will assess whether PDP sponsors currently
offering a drug card may use of beneficiary drug card information to
market their Part D plans and we will provide further guidance to the
drug card sponsors and Part D sponsors at a later time. We note,
however, that the HIPAA Privacy Rules may limit the ability of drug
card sponsors to disclose their enrollees' information to un-affiliated
Part D sponsors.
Comment: One commenter suggested that the File & Use program should
be delayed one year until we have more experience with evaluating the
practice of the PDPs, and that the term ``performance requirements''
needs to be defined.
Response: We will define the eligibility and performance
requirements associated with the File & Use program in further
guidance.
Comment: There was concern over the amount of time that was stated
was necessary for a review of PDP and MA-PD marketing materials. Some
suggestions included decreasing the time of this review from 45 days to
30 days, and instituting a 10-day review period for resubmitted
materials. In addition, if unaltered model materials were used, the
review should be limited to 10 days.
Response: We agree that that timelines for reviewing marketing
materials should be shortened. However, we intend on maintaining the
proposed timelines for Part D marketing materials as defined in the
statute. We will work to develop a review process that is as efficient
as possible. We will develop a range of model materials for Part D
sponsors.
Comment: We also received a comment that the amount of materials
that must be individually approved should be limited. There was also
concern that we may not have enough staff to review the materials and
that the process needs to be open, fair and constructive.
Response: We will develop a range of model materials for Part D
sponsors to choose from to improve efficiency of the marketing review
process. Materials that utilize ``model language'', without
modification, are subject to a streamlined review process. We will work
to develop a review process that is as efficient and effective as
possible utilizing standardized criteria to review the materials.
Comment: Two commenters stated that it is unacceptable that
marketing materials are deemed approved if we fail to approve them
within the time
[[Page 4224]]
period and materials should be reviewed multiple times for multiple
regions.
Response: It is a statutory requirement that we approve marketing
materials within 45 days or that they are then deemed approved. In
developing sub regulatory marketing guidance and processes, we will
work to ensure that our reviews are completed within the statutory
timeframe.
Comment: Commenters stated that guidelines for CMS review under
Sec. 423.5(c)(i),(ii), and (iii) of the proposed rule need to be more
specific. These sections lay out the information that Part D plans need
to provide to beneficiaries.
Response: We will provide greater detail in the sub regulatory
guidance in order to facilitate any necessary future changes that would
need to be made.
Comment: Many commenters gave input as to whether additional
products, such as financial services, should be marketed to Medicare
beneficiaries in conjunction with the Part D benefit. Several of the
organizations expressed their concerns over the fact that beneficiaries
may be confused with receiving additional information for other
products and services in conjunction with information about the Part D
benefit. The major concern is that beneficiaries would choose not to
participate in Part D because they did not like some of the other
products or that they may mistakenly believe that we have approved
these products. One commenter suggested that individuals must actively
agree to receive marketing materials other than enrollment materials.
Some commenters suggested that financial institutions should not be
encouraged to participate as PDPs, since the potential for abuse, as in
selection of healthier beneficiaries into plans and avoidance of
financial services to less healthy individuals, is enormous.
Some health plans commented that they are in favor of allowing PDP
sponsors to market additional health-related and non-health-related
products to beneficiaries. These products could be provided for an
additional fee or at no additional cost to the beneficiary. The belief
is that the additional tools could help beneficiaries manage their
expenses and financial securities. One organization also stated that if
PDP sponsors are permitted to provide these additional products, than
MA-PD plans should be allowed to similarly provide these additional
products.
Response: We do not want to restrict beneficiaries from receiving
materials about of health-related and non-health-related services that
may be of benefit to them in managing their health or payments for
health care. All organizations that are qualified to be a Part D
sponsor are encouraged to participate in providing services under Part
D. In situations where plans want to use or disclose protected health
information (PHI), for purposes of marketing these other products or
services, for example beneficiary enrollment information, Part D plans
must comply with the HIPAA Privacy Rule and obtain a written
authorization from the beneficiary prior to using the beneficiary's PHI
to market non-health-related products and services. In other cases
where Part D plans implement general marketing mailings that do not use
beneficiary PHI, we would not object to plans providing such
information to beneficiaries as long as the information is not
contingent upon PHI to do so. For example, a plan may obtain a general
mailing list from a non-related marketing vendor to mail materials to
all individuals over age 65 in a geographic area to promote its
products. The use of beneficiary names and addresses obtained from a
plan and used for mailings to beneficiaries only, would presumably use
PHI. Consequently, plans could not market non-health-related products
through mailings using beneficiary information absent authorization.
Comment: One commenter recommended that any Part D sponsor offering
other health coverage to its Part D plan enrollees be required to
provide anti-duplication notices like those that are required under the
National Association of Insurance Commissioners (NAIC) model regulation
for Medigap policies. The purpose of these anti-duplication notices is
to advise Medicare beneficiaries as to whether other non-Medigap types
of coverage being offered to them might duplicate coverage they already
have under Medicare.
Response: The disclosure statements that are required under the
NAIC model regulation for Medigap policies were adopted by the NAIC
pursuant to anti-duplication provisions contained in section 171(d) of
the Social Security Act Amendments of 1994 (SSAA'94-Pub. L. 103-432)
that amended section 1882(d)(3)(A) of the Act. These statements apply
to all issuers of health insurance coverage that is offered to Medicare
beneficiaries that is neither a Medigap policy nor a type of coverage
that is listed as exempt from this requirement in a Federal Register
notice that CMS [then HCFA] published on June 12, 1995. Section 171(d)
required CMS to either publish the disclosure statements developed by
the NAIC or publish its own. The FR notice through which CMS accepted
the 10 separate disclosure statements developed by the NAIC for the
various types of coverage commonly offered to Medicare beneficiaries
contained a list of types of policies not requiring disclosure
statements (See 60 FR 30880).
Among the types of coverage not requiring the use of a disclosure
statement were managed care organizations with Medicare contracts under
section 1876 of the Act. The notice went on to explain that these types
of policies are exempt because ``these plans do not `duplicate'
Medicare benefits; rather their purpose is to actually provide all
covered Medicare benefits directly to enrolled beneficiaries.'' In
1995, cost and risk managed care organizations with contracts under
section 1876 of the Act were the primary alternative to fee-for-service
Medicare. Medicare+Choice plans were authorized by the Balanced Budget
Act (BBA) in 1997, and the program has now been renamed Medicare
Advantage by MMA. MMA also provided for private prescription drug plans
(PDPs) to contract to deliver Medicare prescription drug benefits under
Medicare Part D. Because Part D plans will actually provide all covered
Medicare drug benefits directly to enrolled beneficiaries, we wish to
clarify that these entities will not have to provide anti-duplication
notices for their provision of coverage pursuant to their Medicare Part
D contracts. However, if Part D plans choose to market to their
enrollees other (non-Medigap) health insurance products that are not
part of their contracts under Part D, these other types of health
insurance products will have to bear the disclosure statements required
by section 1882(d)(3)(A) (vi) of the Act and the NAIC model regulation
unless the other coverage comes within one of the specified exemptions.
11. Information Provided to PDP sponsors and MA Organizations
Section 1860D-1(b)(4)(A) of the Act authorizes us to provide
information about Part D eligible individuals to PDP sponsors and MA
organizations to facilitate the marketing and enrollment of
beneficiaries in their PDP and MA-PD plans. This information is
intended to ensure participation in the Part D program, as well as to
reduce costs to those plans.
In the final rule, it is not necessary to provide regulatory text
implementing this provision; however, we intend to provide additional
guidance shortly following publication of this rule, as explained
below.
[[Page 4225]]
Comment: We received several comments on this MMA provision.
Several of the commenters supported the provision of such information
to organizations, with a few offering to work with CMS to develop
guidance and ensure that the appropriate beneficiary protections are in
place. Many who supported this initiative believed that, at a minimum,
the name, address, and telephone number of the individual should be
provided. Another commenter believed that the statute permits
organizations to contact beneficiaries through written, electronic, or
phone communication. Another commenter stated that the individual's
dual eligible or low-income subsidy status should also be provided. The
commenter also noted that we should provide the information to
organizations upon request, as opposed to being limited to only
receiving such information at certain times of the year. The commenter
also believed that the statute would permit PDP sponsors to obtain
marketing information on low-income and dual eligible individuals
directly from States and SPAPs.
Several commenters also opposed such information being provided to
organizations. One commenter believed that providing such information
to Part D competitors would generate more problems and ``incite'' more
negative beneficiary reaction that would outweigh any value in
enhancing beneficiary outreach. Other commenters were concerned that
such information would be used to ``cherry pick'' healthier and less
expensive beneficiaries. Several commenters noted that if we were to
provide such information to organizations, such information should be
limited to the minimum amount necessary. They stated that certain
information, such as health or financial information or telephone
numbers should not be provided. Further, beneficiaries should be given
the option to request that we not share their information with plans.
Several commenters did not believe that PDPs or MA-PD plans should be
able to use the information for telemarketing purposes. Another
commenter indicated that we should only disclose information to the
plan if the plan's marketing material contains formulary and drug
pricing information and is accompanied by an application form.
Response: We decline to provide specifics on the provision of this
information at this time but reserves the right to provide this
information to plans in the future. We will develop further guidance on
this issue shortly after publication of this rule.
12. Procedures to Determine and Document Creditable Status of
Prescription Drug Coverage (Sec. 423.56)
Section 1860D-13(b)(6) of the Act identifies certain entities,
which we describe in our proposed rule that must disclose whether the
prescription drug coverage that they provide to their members who are
Part D eligible is creditable prescription drug coverage.
Sections 1860D-13(b)(4) (A) through (G) of the Act lists seven
forms of potential creditable prescription drug coverage: Coverage
under a PDP or under an MA-PD plan; Medicaid; a group health plan
(including coverage provided by a Federal or a nonfederal government
plan and by a church plan for its employees); a State pharmaceutical
assistance program; veterans' coverage of prescription drugs,
prescription drug coverage under a Medigap policy; and military
coverage (including Tricare). Many of these terms are defined elsewhere
in Federal regulations; some of them are under the jurisdiction of
other Federal agencies.
In addition to the forms of creditable coverage identified in
sections 1860D-13(b)(4) (A)-(G) of the Act, section 1860D-13(b)(4)(H)
of the Act provides the Secretary with the flexibility to identify
``other coverage'' that could be considered to be creditable
prescription drug coverage. We proposed, at Sec. 423.56, to expand the
list of types of creditable prescription drug coverage.
As discussed in Sec. 423.46 of the proposed rule, upon becoming
eligible for Part D, beneficiaries must decide whether to enroll in
Part D, or forego that opportunity and face a possible financial
penalty should they later decide to enroll. Beneficiaries who decide
not to enroll in Part D because they have creditable prescription drug
coverage will not face such a penalty if they later decide to enroll in
Part D.
According to section 1860D-13(b)(5) of the Act, an enrollee who
would otherwise be subject to a late enrollment penalty may avoid the
penalty if his or her previous coverage met the standards of
``creditable prescription drug coverage''. Under section 1860D-13(b)(5)
of the Act, previous coverage will only meet those standards ``if the
coverage is determined (in a manner specified by the Secretary) to
provide coverage of the cost of prescription drugs the actuarial value
of which (as defined by the Secretary) to the individual equals or
exceeds the actuarial value of standard prescription drug coverage.''
In the proposed rule, we interpreted ``to the individual'' in this
case as being to the average individual under the plan, as opposed to
the sponsor of the plan. For purposes of determining creditable
coverage, we proposed a ``gross'' test: will the expected plan payout
on average be at least equal to the expected plan payout under the
standard benefit? We also proposed at Sec. 423.56(c) that any entity
seeking to offer coverage of the type described in Sec. 423.56 must
attest to the actuarial equivalence (or non-equivalence) of its
prescription drug coverage in their notice to Medicare beneficiaries
and in a submission to CMS, and must maintain documentation of the
actuarial analysis and assumptions supporting the attestation.
In coordination with the provisions regarding the late enrollment
penalty, we proposed at Sec. 423.56 to establish a process under which
these entities will disclose the creditable status of their
prescription drug coverage to us and to each part D eligible
beneficiary enrolled in such coverage.
Section 1860D-13(b)(6)(C) of the Act, implemented at Sec.
423.56(g) of the proposed rule, provides that an individual who was not
adequately informed that his or her prescription drug coverage was not
creditable prescription drug coverage may apply to CMS to have such
coverage treated as creditable prescription drug coverage for purposes
of not having the late penalty imposed.
Comment: One commenter stated that Medicaid should not be
considered creditable prescription drug coverage, for the purposes of
Part D, because no Medicaid benefit for Part D covered prescription
drugs is available to Part D eligible beneficiaries.
Response: All entities listed under Sec. 423.56(b), except PDPs
and MA-PDs under (b)(1) and PACE plans and cost-based HMOs and CMPs
offering qualified prescription drug coverage, must provide notice to
both CMS and its members whether the prescription drug coverage
provided is or is not creditable. The purpose of the notice of
creditable coverage is to ensure that individuals are aware of whether
such coverage is creditable prescription drug coverage and its
implication to the late enrollment penalty.
Medicaid is prohibited from providing Part D drugs to full-benefit
dual eligible individuals. However, since there may be other
individuals who are not receiving the full range of benefits from
Medicaid but who will continue to receive some drug coverage from the
State, these individuals must also receive this notice providing status
of the coverage.
Comment: One commenter requested that we include SPAP in the
definition
[[Page 4226]]
of types of coverage that may be creditable.
Response: The proposed rule at Sec. 423.56(b)(4) includes SPAPs as
potentially creditable. Section 1860D-13(b)(4)(D) of the Act specifies
these programs, as described in section 1860D-23(b) of the Act, as
such. To ensure this concept is clear, we will revise Sec.
423.56(b)(4) to include the acronym ``SPAP.''
Comment: We received a comment indicating that the value of
prescription drug coverage under PACE will likely equal or exceed the
actuarial value of Part D standard prescription drug coverage as a
result of existing requirements in sections Sec. 460.90 and Sec.
460.92 of the PACE regulation. The commenter recommended incorporating
PACE into the CMS definition of creditable prescription drug coverage
found in Sec. 423.56(a).
Response: We agree with the commenter and have incorporated PACE
into the definition of potentially creditable prescription drug
coverage found in Sec. 423.56(b). Additional discussion of the
applicability to Part D benefits and requirements to PACE are outlined
in subpart T of the final rule.
Comment: A few commenters inquired about the actuarial equivalence
test that the entities listed will be required to meet, since the
actuarial equivalence reference in Sec. 423.265 refers to bid
submissions. Commenters supported both the concept of ``gross'' test
and an ``aggregate test'' for calculation of the actuarial equivalence
for plans, including group health plans which offer several benefit
packages to determine if the prescription drug coverage is creditable.
Response: The basic actuarial equivalence value test for the
determination of creditable coverage of alternative coverage is
determined by calculating whether the expected plan payout on average
will be at least equal to the expected plan payout under defined
prescription drug coverage (gross test). We believe Section 1860D-
22(a)(2) of the Act is subject to two reasonable interpretations of
calculating the creditable coverage test (gross test). Under the first
interpretation, the actuarial equivalence standard for determining
creditable coverage would be applied to the alternative coverage as a
whole, and under the second interpretation the actuarial standard would
be applied for each benefit option (including separate cost-sharing
arrangements) within a single group health plan. Whereas our proposed
rule required plans to apply the actuarial equivalence standard at the
aggregate level, for the final rule we instead require plans to apply
the actuarial equivalence standard to each benefit option within its
plan.
Our rationale for revising the actuarial equivalence test is to
ensure that beneficiaries are adequately informed that their coverage
is or is not creditable prescription drug coverage. A sponsor may offer
many different benefit options to beneficiaries. One of those benefit
options may not pass the gross test but be included in an overall (or
``aggregate'') text. As a result, this would leave beneficiaries in
certain benefit options with a determination that their coverage is
creditable, when in actuality it is not. For example, a sponsor has a
group in which richer benefits are offered, compared to another group
that has more limited benefits. If the sponsor would aggregate the two
benefits together, the lower benefit will end up as ``creditable'' when
the benefit packages are averaged together.
We will issue guidance on the aspects of actuarial equivalence
shortly following publication of the final rule.
Comment: One commenter asked if any coverage that is less than full
pharmacy benefits could be considered creditable prescription drug
coverage, such as coverage for maintenance or coverage of specific
disease-only drugs.
Response: We believe that the definition of creditable prescription
drug coverage would prohibit us from concluding that such coverage is
creditable. To be creditable prescription drug coverage, the coverage
must equal or exceed the actuarial value of defined standard
prescription drug coverage, as we will define in guidance referenced in
the previous response. It is likely that coverage of a very limited
scope such as the commenter refers will not likely meet our actuarial
equivalence test.
Comment: In response to our request for comments on other forms of
coverage that may potentially be considered creditable, two commenters
requested that we cost-based HMOs and CMPs authorized under section
1876 of the Act as potential providers of creditable prescription drug
coverage. Both commenters also suggest that we include a provision
allowing CMS to designate other types of coverage as potentially
creditable prescription drug coverage in the future without requiring
such an addition be accomplished through the rule making process.
Another commenter suggested that coverage provided by State high risk
insurance pools also be included in the types of coverage that may be
creditable.
Response: We agree with these suggestions and have revised Sec.
423.56(b) to include cost-based HMOs and CMPs and coverage offered by
State high risk pools, as defined under the HIPAA regulations at Sec.
146.113(a)(1)(vii), as well as a provision permitting CMS to recognize
other types of coverage as potentially creditable prescription drug
coverage, which we would do so in separate guidance as determined
necessary.
Comment: Several commenters supported permitting the disclosure of
the creditable prescription drug status of coverage through the
inclusion of this information in already existing beneficiary
materials, such as Summary Plan Descriptions (SPDs), or annual notices.
One commenter suggested that because beneficiaries are already familiar
with these documents, they provide a more recognizable and familiar
avenue for this important information. On the other hand, several
commenters supported requiring all notices of the creditable status of
coverage to ``stand alone;'' that is; to be provided separately in a
specific notice to each individual. Some commenters expressed concern
that if this disclosure were not highlighted in a separate notice, the
important message could go unnoticed and inadvertently subject an
individual to the late enrollment penalty. Another commenter suggested
that all notices be linked to ERISA disclosure documents (that is,
SPDs), and to HIPAA or COBRA required notices. One commenter suggested
that notice of creditable status could be incorporated into already
existing beneficiary information materials, while notice of non-
creditable status should stand alone. Lastly, a commenter requested
that we specify the elements that would be required to be included in
these notices.
Response: We specifically requested comment on the disclosure of
creditable prescription drug notice requirements and appreciate the
feedback received. Based on the comments we received we believe that
linking the notice of creditable status to other required documents is
an acceptable vehicle provided it is conspicuous and includes standard
information elements. This approach appropriately recognizes the
importance and familiarity of materials that beneficiaries currently
receive regarding coverage they have. Further, we believe that it is
important to encourage compliance with the provision of these notices
by eliminating duplication and the undue burden associated with it. To
that end, we have revised Sec. 423.56(c) to allow notices of
creditable and non-creditable status to be provided in the same manner,
and will provide specific guidance following the publication of the
rule. This guidance will require that
[[Page 4227]]
a notice of creditable and non-creditable status be provided, at
minimum, prominently with other beneficiary information materials, and
will include model language for both types of notices.
We may specify different requirements for those entities identified
at Sec. 423.56(b) that are required to provide these notices, where
appropriate, to reduce beneficiary confusion and minimize
administrative burden. For example, as explained in our discussion of
Sec. 423.34 above, we intend to notify full benefit dual eligible
individuals that they are eligible for the low-income subsidy. This
notice will also inform individuals that Medicaid will no longer cover
those prescription drugs covered under Part D and that any additional
prescription drug coverage provided by Medicaid would not be creditable
coverage under Part D. Including this information in the same notice
will avoid duplication of effort and possible beneficiary confusion.
Comment: Several commenters felt that requiring an attestation by
group health plans of actuarial equivalence for creditable coverage
when the sponsor of such coverage elects not to enroll in the retiree
drug subsidy program under subpart R was an unnecessary cost and an
administrative burden. The commenters believed that for those employer
groups that offer prescription drug coverage to active employees who
might be Part D eligible individuals, such coverage should be assumed
to be ``creditable'' and should only have to provide notices to those
qualified retirees and dependents who are Part D eligible individuals.
The commenters also suggested that notices could be published in
summary plan descriptions, on employer website and via e-mail.
Response: Section 1860D-13(b)(6)(B) of the Act requires specific
entities that offer prescription drug coverage to provide notices to
all Part D eligible individuals enrolled in their plans regarding
whether such prescription drug coverage is creditable. This would
include sponsors (as defined under Sec. 423.880) not electing the
Retiree Drug Subsidy, as described in subpart R. A notice of creditable
or non-creditable coverage must be provided to active Medicare eligible
employees and Medicare eligible dependents so that a late enrollment
penalty will not be imposed when the beneficiary enrolls in Part D
coverage.
We will provide further guidance on a simplified method of
determining creditable coverage for those sponsors not electing the
retiree drug subsidy.
We will also provide guidance to sponsors on the form, manner, and
timing of such notice requirements, following publication of this final
rule. Notices may be provided, at minimum, prominently with other plan
participant information materials (for example, summary plan
descriptions, or HIPAA notices) that the sponsor is required to provide
as long as it is conspicuous and includes standard information elements
as determined in our guidance. This approach appropriately recognizes
the importance and familiarity of materials that beneficiaries
currently receive regarding coverage they have.
Comment: Many commenters responded to our request for comments on
the timing of the delivery of creditable coverage status notices to
Part D eligible individuals. Several of these commenters suggested that
the initial notice should be required to be delivered prior to the
commencement of the AEP which begins on November 15, 2005. One
commenter suggested that notices also be issued at least 60 days prior
to the effective date of any change to current coverage. Another
commenter suggested that entities required to deliver these notices
should do so within 30 to 45 days of the end of Part D enrollment
periods.
Response: We appreciate the feedback we received regarding the
timing of notices to disclose creditable prescription drug coverage. We
agree that, in order to ensure beneficiaries are making informed
choices regarding enrollment in Part D, notice must be provided to all
Part D eligible individuals each year prior to the commencement of the
AEP, which begins on November 15\th\. We also believe there are three
other key times when notice must be provided: (1) prior to the
commencement of the individual's initial enrollment period in Part D;
(2) prior to the effective date of enrollment in such coverage or any
change in creditable status of that coverage; and, (3) upon request by
the beneficiary. We will revise Sec. 423.56(f) to require that notice
be provided, at minimum, at these 4 times.
Comment: One commenter requested that we clarify the meaning of the
words in Sec. 423.56(b) of the proposed rule ``with the exception of
PDPs and MA-PD plans.'' for the duty to furnish notices of creditable
coverage to beneficiaries. The commenter also requested clarification
of the duty of Cost plans offered under section 1876 of the Act that
provide qualified prescription drug coverage to furnish such notice.
Lastly, the commenter asked us to clarify if the provision at Sec.
423.56(d) of the proposed rule regarding the disclosure of creditable
status to CMS applies to any entity that is exempted from notice
requirements according to Sec. 423.56(b).
Response: It is our view that the practical need for disclosure of
creditable status notices is directly related to a beneficiary's
understanding of their options related to enrolling in Part D and any
consequences should they choose not to, such as the late enrollment
penalty. It also provides the beneficiary with information about how
their coverage compares to what is available under a Part D plan.
Beneficiaries enrolled in a PDP, MA-PD plan, PACE plan or cost plan
that provides qualified prescription drug coverage are enrolled in Part
D, and therefore not subject to any consequence of choosing not to
enroll. Including these types of coverage in the list of coverage that
may be considered creditable ensures that at no time could a
beneficiary who has maintained enrollment in a legitimate Part D plan
be subject to the late enrollment penalty for the same time period.
However, sending notice of creditable status seems superfluous since,
as these plans are Part D plans, the creditable status is automatic.
The statute at 1860D-13(b)(6)(B) of the Act exempts PDP sponsors
and MA organizations from providing notice of creditable coverage to
its members. Since sections 1860D-21(e) and (f) of the Act provide that
we treat cost-based HMO and CMPs and PACE organizations that elect to
provide qualified prescription drug coverage similar to MA-PD local
plans, such cost-based HMO and CMP and PACE organizations offering
qualified prescription drug coverage will also be excepted from this
notice requirement. We will revise the notice requirements under Sec.
423.56(c) to reflect that PACE plans and 1876 Cost plans offering
qualified prescription drug coverage as excepted entities from the
notice requirements under Sec. 423.56(c). We also note that PACE plans
and section 1876 of the Act cost plans that do not offer qualified
prescription drug coverage must provide notices, as required. To ensure
that Part D plan members understand their options, we will ensure that
an explanation of the late enrollment penalty and the concept of
creditable coverage are included in plan documents.
Similarly, a requirement for organizations that provide Part D
benefits to submit separate notice would be duplicative by their nature
as CMS approved Part D plans, they are creditable. We will revise Sec.
423.56(e) to clarify that all entities providing CMS-approved Part D
coverage do not have
[[Page 4228]]
to disclose creditable status of Part D coverage to us under this
paragraph.
Comment: One commenter suggests that we consider ways that entities
could provide the required notice of creditable status to beneficiaries
and CMS via electronic means.
Response: We recognize that most plan documents have been
historically provided to beneficiaries in hard-copy (that is, paper)
but know from the comments received from plan sponsors and business
advocates that participants are receiving plan information through
other electronic means, such as websites and e-mail. Most beneficiaries
are probably accustomed to receiving materials in one of these manners.
We feel that paper documents have better ensured that the beneficiary
receives and understands the information. In addition, paper documents
will provide beneficiaries a hard copy that they can present whenever
needed to show proof of creditable coverage. Since beneficiaries may
already be choosing to receive information electronically, we will
explore this option as we develop operational guidance for creditable
notice requirements.
As for entities notifying us of the creditable status of their
coverage, we will describe the form and manner in which entities
disclose this information to us in operational guidance and will
consider various options for entities to do so.
C. Voluntary Prescription Benefits and Beneficiary Protections
1. Overview and Definitions (Sec. 423.100)
Proposed subpart C of part 423 implemented sections 1860D-2, 1860D-
4(a), 1860D-4(b), 1860D-4(i), 1860D-4(k), 1860D 11(a), 1860D-21(a),
1860D-21(c)(3), and 1860D 21(d)(2) of the Act. This subpart set forth
requirements regarding--
Definitions for terms that are frequently used in this
subpart.
The benefits offered by Part D sponsors.
The establishment of prescription drug plan service areas.
Access standards with regard to covered Part D drugs.
Part D sponsor formularies.
Information dissemination by Part D sponsors.
Disclosure to beneficiaries of pricing information for
generic versions of covered Part D drugs.
Privacy, confidentiality, and accuracy of PDP sponsors'
beneficiary records.
Below we summarize the provisions of subpart C and respond to
public comments. (Please refer to the proposed rule (69 FR 46646) for a
detailed discussion of our proposals.)
a. Part D Drug
The definition of a covered Part D drug in Sec. 423.100 of our
proposed rule closely followed the statutory definition in section
1860D-2(e) of the Act. According to this definition, a covered Part D
drug was available only by prescription, approved by the Food and Drug
Administration (FDA), used and sold in the United States, and used for
a medically accepted indication (as defined in section 1927(k)(6) of
the Act). A covered Part D drug included prescription drugs, biological
products, insulin as described in specified paragraphs of section
1927(k) of the Act, and vaccines licensed under section 351 of the
Public Health Service Act. The definition also included ``medical
supplies associated with the injection of insulin (as defined in
regulations of the Secretary).'' We proposed to define those medical
supplies to include syringes, needles, alcohol swabs, and gauze.
In accordance with section 1860D-2(e)(2) of the Act, the definition
of a covered Part D drug specifically excluded drugs or classes of
drugs, or their medical uses, which may be excluded from coverage or
otherwise restricted under Medicaid under section 1927(d)(2) of the
Act, with the exception of smoking cessation agents. In accordance with
section 1927(d)(2) of the Act, the drugs or classes of drugs that may
currently be excluded or otherwise restricted under Medicaid include:
(1) agents when used for anorexia, weight loss, or weight gain; (2)
agents when used to promote fertility; (3) agents when used for
cosmetic purposes or hair growth; (4) agents when used for the
symptomatic relief of cough and colds; (5) prescription vitamins and
mineral products, except prenatal vitamins and fluoride preparations;
(6) nonprescription drugs; (7) outpatient drugs for which the
manufacturer seeks to require that associated tests or monitoring
services be purchased exclusively from the manufacturer or its designee
as a condition of sale; (8) barbiturates; and (9) benzodiazepines.
The definition of a covered Part D drug also excluded any drug for
which, as prescribed and dispensed or administered to an individual,
payment would be available under Parts A or B of Medicare for that
individual (even though a deductible may apply).
Except as otherwise provided below, the final rule adopts the
definition of ``covered Part D drug'' set forth in Sec. 423.100 of the
proposed rule.
Comment: Several commenters were confused about the distinction
between drugs that may be covered under Part D given the definition of
the term ``covered Part D drug'' in section 1860D-2(e) of the Act and
those drugs that are actually included on a Part D plan's formulary.
Response: In order to clarify when we are referring to a drug that
may be covered under Part D and one that not only is covered by Part D
but is also included on a particular Part D plan's formulary, we refer
to drugs that may be covered under Part D, consistent with the
definition of the term ``covered Part D drug'' in section 1860d-2(e) of
the Act, simply as ``Part D drugs.'' We use the term ``covered Part D
drug'' to refer to a drug that not only is a Part D drug, but that is
included in a Part D plan's formulary or treated (through a coverage
determination or appeal described in subpart M of this preamble) as
being included in a Part D plan's formulary, and is obtained at a
network pharmacy or at an out-of-network pharmacy in accordance with
Sec. 423.124 of our final rule. Both terms are defined in Sec.
423.100 of our final rule.
Comment: One commenter recommended that we consider expanding the
definition of ``medically accepted indication'' beyond the FDA-approved
indications to include uses in official compendia or research. Another
commenter was concerned that the definition of ``medically accepted
indication'' may allow Part D sponsors to limit their payments for use
of Part D drugs solely to FDA-approved indications even though clinical
standards allow for alternative uses. Another commenter was concerned
that pharmacists will be penalized for dispensing prescriptions that
are prescribed for an indication that is not a medically accepted
indication. This commenter indicated that pharmacists cannot be
expected to contact each physician for each prescription in question to
determine if the drug is being prescribed for a medically-accepted
indication.
Response: To qualify as a Part D drug, a drug or biological must be
used for a medically accepted indication, as defined under section
1927(k)(6) of the Act. This definition states that a medically accepted
indication means not only any use for a covered outpatient drug which
is FDA-approved, but also a use which is supported by one or more
citations included or approved for inclusion in any of the compendia
listed in section 1927(g)(1)(B)(i) of the Act-the American Hospital
Formulary Service Drug Information, United States
[[Page 4229]]
Pharmacopoeia-Drug Information, the DRUGDEX Information System, and
American Medical Association Drug Evaluations. We cannot extend the
meaning of ``medically accepted indication'' to cover uses in research,
as one commenter notes, since the definition of ``medically accepted
indication'' in section 1927(k)(6) of the Act does not include the
reference in section 1927(g)(1)(B)(ii) of the Act to peer-reviewed
medical literature. Thus, a ``medically accepted indication'' is
limited by statute to a use for a covered outpatient drug which is
approved by the FDA, or the use of which is supported by one or more
citations in the compendia listed above. It will be Part D plans'
responsibility to ensure that covered Part D drugs are prescribed for a
medically accepted indication; plans may, for example, rely on
utilization management policies and procedures (which we will review as
part of our comprehensive review of Part D plan benefits) to ensure
that drugs are prescribed and used for medically accepted indications.
We clarify that pharmacists will not be required to contact each
physician to verify whether a prescription is being used for other than
a medically accepted indication.
Comment: Some commenters recommended including coverage for all
EPA-recommended disposal methods and disposal solutions as part of the
definition of ``medical supplies associated with injection of
insulin''. The commenters noted that proper disposal of needles and
lancets are necessary to patient safety and important to public health.
Some commenters requested that the definition include lancets, blood
glucose test strips, glucometers, syringes, and needles. One commenter
suggested that gauze not be included.
Response: We are interpreting the term ``medical supplies
associated with the injection of insulin'' in section 1860D-2(e)(1)(B)
of the Act as comprising syringes, needles, alcohol swabs, gauze, and
insulin delivery devices not otherwise covered by Part B, such as
insulin pens, pen supplies, and needle-free syringes. Given that
section 1860D-2(e)(2)(B) of the Act excludes products covered by Part B
from the definition of a Part D drug, test strips and lancets, which
are covered under Part B, cannot be covered under Part D. While we
recognize the importance of needle disposal systems, we also do not
consider the systems to be directly associated with injection. Thus,
these devices fall outside of our interpretation of medical supplies
associated with the injection of insulin.
We note that it is our intention to narrowly construe further Part
D plan determinations of what constitutes ``medical supplies associated
with the injection of insulin'' in order to ensure that such
determinations are consistent with the examples we have provided, and
that they do not lead to an inappropriate expansion of the Part D
benefit.
Comment: Some commenters asked for clarification on coverage of
smoking cessation products, specifically regarding whether over-the-
counter products will be covered under Part D. Another commenter
suggested that in order to cover smoking cessation products, Part D
plans should require proof of smoking cessation classes.
Response: Section 1860D-2(e)(1)(A) of the Act specifies that a Part
D drug is a drug that may be dispensed only upon a prescription.
Although section 1860D-2(e)(1)(B) of the Act specifically allows
smoking cessation agents to be covered under Part D, such agents must
not otherwise be excluded from coverage under Part D. Over-the-counter
smoking cessation products (for example, gum and most patches), by
virtue of being not being drugs that may be dispensed only upon a
prescription, therefore cannot be considered Part D drugs, even though
they are smoking cessation products. Smoking cessation products that
may be dispensed only upon a prescription, however (for example, some
patches, oral inhalants, nasal sprays, and Zyban), may be considered
Part D drugs provided they meet all other applicable requirements under
the definition of a Part D drug in Sec. 423.100 of the final rule. We
do not have the authority to require Part D plans to condition coverage
of permissible smoking cessation agents on proof of smoking cessation
classes.
Comment: One commenter requested clarification in the final rule
that Part D plans are not prohibited from providing drugs on the
exclusion list (under section 1927(d)(2) of the Act, other than smoking
cessation drugs) if they are provided through an enhanced benefit.
Response: As provided in Sec. 423.104(f)(1)(ii)(A) of our final
rule and in accordance with section 1860D-2(a)(2)(A)(ii) of the Act,
Part D plans may only provide coverage of drugs that are specifically
excluded as Part D drugs under section 1860D-2(e)(2)(A) of the Act,
that is, drugs or classes of drugs, or their medical uses, which may be
excluded from coverage or otherwise restricted under Medicaid under
section 1927(d)(2) of the Act, with the exception of smoking cessation
agents--if they do so as supplemental benefits through enhanced
alternative coverage and if they would otherwise meet the definition of
a Part D drug under section 1860D-2(e)(1) of the Act, but for the
application of section 1860D-2(e)(2)(A) of the Act.
Comment: Many commenters urged us to remove benzodiazepines from
the exclusion list indicating the multiple therapeutic uses of this
drug. One commenter was concerned that excluding drugs such as these
from the Part D benefit would force health care providers to alter how
they treat patients based on which medications are Part D drugs. Many
commenters noted that benzodiazepines serve as valuable therapy for
anxiety disorders, bipolar disorder, Parkinson's disease, seizures, and
other conditions. Some commenters noted that excluding drugs such as
benzodiazepines that are inexpensive, first-line therapies would
require more expensive drugs to be prescribed simply because they are
covered. Some commenters were concerned about the dangers of
beneficiary withdrawal from benzodiazepines if these drugs are not
covered under Part D. Some commenters were concerned about loss of drug
coverage for benzodiazepines for dual eligibles, especially because
benzodiazepines are covered in many States. Many commenters also urged
us to remove barbiturates from the exclusion list, citing similar
reasons as those listed for benzodiazepines.
Some commenters urged us to make an exception for vitamins used
under special circumstances, specifically with ESRD patients. Another
commenter was concerned about the exclusion of renal vitamins under
Part D and requested that we allow the coverage of water-soluble
vitamins lost during dialysis to be covered under Part D. Another
commenter noted that prescription vitamins are relatively inexpensive.
Some commenters requested coverage of over-the-counter medications
for beneficiaries with certain conditions. One commenter asked us to
reconsider excluding over-the-counter drugs that were formerly
prescription-only drugs and now have over-the-counter status. Another
commenter recommended including a provision allowing over-the-counter
drugs to be covered if prescribed in the same manner as a prescription
item. Another commenter asked us to consider over-the-counter drugs and
medications for unintended weight loss as a covered drug under Part D.
One commenter suggested that we amend the exclusion for ``agents used
for symptomatic relief of cough or cold'' to ``non-prescription agents
used for symptomatic relief of cough or cold''.
[[Page 4230]]
Response: Section 1860D-2(e)(2) of the Act clearly requires us to
exclude certain drugs from the definition of a Part D drug. According
to the statute, the definition of a Part D drug specifically excludes
certain drugs or classes of drugs that may be excluded from Medicaid
coverage under section 1927(d)(2) of the Act, including agents when
used for anorexia, weight loss, or gain; agents when used for cosmetic
purposes or hair growth; agents when used for symptomatic relief of
cough and colds; prescription vitamins and mineral products, except
prenatal vitamins and fluoride preparations; outpatient drugs for which
the manufacturer seeks to require that associated tests or monitoring
services be purchased exclusively from the manufacturer or its designee
as a condition of sale; nonprescription drugs; barbiturates; and
benzodiazepines. We have no flexibility to allow Part D coverage of any
of these drugs, including over-the-counter drugs used to treat certain
medical conditions, except as provided in Sec. 423.104(f)(1)(ii)(A) of
the final rule, which permits Part D plans to provide coverage of drugs
that otherwise meet the definition of a Part D drug under section
1860D-2(e)(1) of the Act and are not otherwise excluded under section
1860D-2(e)(2)(B) of the Act, if they do so as supplemental benefits
through enhanced alternative coverage. We also note that insurance or
otherwise, group health plans, or third party payment arrangements
(including States under Medicaid and State Pharmaceutical Assistance
Programs) may, at their discretion, provide Part D enrollees with
supplemental coverage for drugs excluded from coverage under Part D.
Comment: One commenter said that many of the categories of
excludable drugs in section 1927(d)(2) of the Act refer to drugs when
used for a specific purpose and that it is inappropriate to simply
exclude these drugs when they may be covered depending on the specific
clinical use. This commenter recommended that that we provide coverage
for potentially excludable drugs when they are prescribed for a
clinical use not covered by section 1927(d)(2) of the Act. Two examples
provided were ``weight loss agents'' when used not for cosmetic
purposes, but for the treatment of morbid obesity, and decongestant
combination products, which while commonly prescribed to treat coughs
and colds, could be used for the treatment of allergic conditions.
Response: Drugs that are excluded from coverage under Part D when
used as agents for certain conditions may be considered covered when
used to treat other conditions not specifically excluded by section
1927(d)(2) of the Act, provided they otherwise meet the requirements of
section 1860D-2(e)(1) of the Act and are not otherwise excluded under
section 1860D-2(e)(2)(B) of the Act. To the extent this is the case,
and a drug is dispensed for a ``medically accepted indication'' as
described in the statute, weight loss agents may be covered for the
treatment of morbid obesity, and decongestant products for example, may
be covered when used to treat allergies. However, we clarify that Part
D plans may establish utilization management processes in order to
ensure that such drugs are being prescribed for medically accepted
indications that are not excluded under section 1927(d)(2) of the Act
(for example, decongestant products when used for ``symptomatic relief
of coughs and colds'').
Comment: One commenter suggested excluding drugs that have non-
prescription drug alternatives available as Part D drugs. Two
commenters supported excluding drugs that are ``lifestyle'' drugs such
as Viagra, Levitra, and Cialis.
Response: We do not have the authority to exclude the drugs if they
meet all the criteria of a Part D drug as provided under section 1860D-
2(e)(1) of the of the Act and are not otherwise excluded under section
1860D-2(e)(2) of the Act. However, we clarify that Part D plans may
subject these drugs to utilization management processes provided we do
not find such processes to discourage enrollment by certain Part D
enrollees as part of the benefits package review we will conduct (and
which is discussed in detail elsewhere in this preamble).
Comment: One commenter supports the current statutory language
regarding the manufacturer tying arrangements exclusion, whereas
another commenter supports expanding this prohibition but does not
specify how we should expand it. One commenter opposes any CMS effort
to mandate the interactions between Part D plans and pharmaceutical
manufacturers, and another asks us to affirm that this exclusion will
not interfere with Part D plan decisions to cover drugs/diagnostic test
combinations if manufacturers do not require the purchase of the
combinations. Yet another commenter points out that the tying
arrangement exclusion would exclude drugs from Part D coverage that are
tied to one pharmacy system because of requirements for patient
monitoring.
Response: We appreciate the clarification provided by the various
commenters. We are not expanding the manufacturer tying arrangement
exclusion of coverage under Part D in our final rule. We believe that
existing Federal fraud and abuse laws, including the anti-kickback
statute at section 1128B(b) of the Act, as well as the civil monetary
penalty provision at Section 1128A(a)(5) of the Act, provide clear
guidance regarding what are and are not inappropriate manufacturer
tying arrangements. Manufacturers remain responsible for ensuring that
they do not engage in any tying arrangements that violate the anti-
kickback statute or, where applicable, the civil monetary penalty
provision prohibiting inducements to beneficiaries.
Comment: Some commenters asked for clarification on which vaccines
are covered under the Part D benefit and suggested that we provide
additional guidance on how non-Part B vaccines are to be covered under
Part D, including administrative fees. Another commenter requested that
we strongly encourage Part D plans to include all vaccines that are not
covered under Part B on their formularies.
Response: The definition of a Part D drug in section 1860D-2(e) of
the Act clarifies that Part D may cover a biological product described
in sections 1927(k)(2)(B)(i) to (k)(2)(B)(iii) of the Act--to include a
vaccine licensed under section 351 of the Public Health Service Act.
Since section 1860D-2(e)(2)(B) of the Act excludes an otherwise covered
Part D drug from coverage under Part D ``if payment for such drug as so
prescribed and dispensed or administered with respect to that
individual is available (or would be available but for the application
of a deductible) under Part A or B for that individual,'' certain drugs
and vaccines would be covered under Part D only to the extent they are
not covered under Part B.
In addition to excluding Part B vaccines from coverage under Part
D, section 1860D-2(e)(3) of the Act provides that a Part D plan may
exclude from coverage covered Part D drugs for which payment may not be
made under section 1862(a) of the Act if applied to Part D. Section
1862(a)(1)(A) generally excludes from payment items and services that
are not reasonable and necessary for the diagnosis or treatment of
illness or injury or to improve the functioning of a malformed body
member, except those vaccines identified in section 1862(a)(1)(B) of
the Act as covered Part B vaccines. Section 1862(a)(1)(A) of the Act,
however, excepts from this rule vaccines covered under Part B.
Therefore, if these provisions are read literally, Part D plans would
be permitted to exclude
[[Page 4231]]
from coverage preventative vaccines that are covered Part D drugs
because they are not ``reasonable and necessary for the diagnosis or
treatment of an illness or injury.''
However, we argue that whereas section 1862(a)(1)(B) of the Act
requires coverage under Part B of covered Part B vaccines, by analogy,
section 1862(a)(1)(B) of the Act as applied to Part D should be read as
requiring coverage under Part D of vaccines that are covered Part D
drugs. This argument is buttressed by the fact that the Congress
specifically defined Part D drugs under section 1860D-2(e)(1) of the
Act to include vaccines. Moreover, section 1860D-2(e)(3) of the Act
references all of section 1862(a) of the Act, and the only way to give
meaning to the reference to section 1862(a)(1)(B) of the Act is to
extend the provision to permit coverage of Part D vaccines. In other
words, if section 1862(a)(1)(B) of the Act as applied to Part D were
read literally as only permitting coverage of Part B vaccines, the
reference in section 1860D-2(e)(3)(A) of the Act to section
1862(a)(1)(B) of the Act would be rendered meaningless.
Building on the argument that by analogy section 1862(a)(1)(B) of
the Act should be extended to Part D so as to require coverage of non-
Part B vaccines under Part D, the standard under Part D should reflect
a standard similar to section 1862(a)(1)(b) of the Act but adapted to
apply to preventative vaccines. Therefore, we believe such standard
should be vaccines that are ``reasonable and necessary for the
prevention of illness.'' Plans will need to develop explicit criteria
that can be applied on a case-by-case basis to determine that the
administration of Part D vaccine is ``reasonable and necessary'' and
that the Part D vaccine is therefore a covered Part D drug. Presumably
these will comply with any widely accepted practice guidelines. If
widely accepted practice guidelines are not available for certain
vaccines, Part D plans will need to develop criteria that they can
support with sound clinical reasoning.
Currently, most vaccines of interest to the Medicare population are
covered under Part B. Although Part B makes only three exceptions
(influenza, pneumococcal, and hepatitis B vaccines for high risk
patients) to its rule requiring injury or direct exposure, these three
exceptions probably account for the majority of vaccinations needed by
an elderly population. Since many of the remaining vaccines on the
market are administered during childhood, we do not expect that Part D
will cover a large number of vaccines. However, as more vaccines are
developed and practice guidelines develop, Part D plans might face a
growing burden with supplying vaccinations to significant numbers of
their Part D patient populations. Therefore, the ability of Part D
plans to limit payment to those situations that are ``reasonable and
necessary for the prevention of illness'' will become more and more
important.
Given the definition of dispensing fees we have incorporated in the
final rule, the costs of Part D-covered vaccine administration could
not be covered as part of a dispensing fee. Neither could those costs
be covered as separate administrative fees, since as discussed
elsewhere in this preamble, other than medication therapy management
programs (described in subpart D), we do not expect medical or clinical
services to be included in administrative fees.
As discussed in subpart J, Part D-covered vaccines administered in
a physician's office will be covered under the out-of-network access
rules at Sec. 423.124 of our final rule. The costs of vaccine
administration may be included in physician fees under Part B since
Part B pays for the medically necessary administration of non-covered
drugs and biologicals. However, there is currently no ready mechanism
for physicians to bill Part D plans for Part D-covered vaccine costs.
In the short-term, we will require that a Part D enrollee self-pay the
physician for the Part D-covered vaccine cost and submit a paper claim
for reimbursement by his or her Part D plan. This approach is
consistent with how beneficiaries accessing covered Part D drugs at an
out-of-network pharmacy will be reimbursed by Part D plans for costs
associated with those drugs. Once Part D is implemented, we will get a
better sense for the actual volume of Part D-covered vaccines (and
other covered Part D drugs appropriately dispensed and administered in
a physician's office) and the need and most appropriate mechanisms for
any automatic cross-over procedures such that physicians could submit
claims for reimbursement of Part D-covered vaccine ingredient costs
directly to the appropriate Part B carrier. Any such automatic cross-
over procedures would mean that beneficiaries would not have to submit
paper claims and, instead, physicians could submit a single claim for
reimbursement of both the Part D-covered vaccine ingredient costs and
the administration fee directly to the appropriate Part B carrier,
which would forward the Part D charge to the appropriate Part D plan.
Comment: One commenter asked that we cover individually compounded
medications or combinations of medications. Another commenter stated
that we should not consider compounded drugs as meeting the definition
of a Part D drug, as it is contrary to the definition in the MMA and
would put patients at risk.
Response: Historically, extemporaneous compounding has filled an
important role in pharmacy practice and continues to be an important
part of contemporary pharmacy practice. While less than one percent of
prescriptions are compounded, these compounded prescriptions often
provide medically necessary drug therapies that would otherwise be
unavailable to patients. Compounding also provides many independent
pharmacies with the opportunity to offer services that competitively
differentiate them from the chain industry. In addition, compounded
prescription drug products are frequently reimbursed under commercial
prescription drug benefit plans. Therefore, excluding compounded
prescription drug products from Medicare Part D would be a significant
change from current pharmacy practice.
Section 1860D-2(e)(1)(A) of the Act defines a Part D drug as
including a drug that may be dispensed only upon a prescription and
that is described in section 1927(k)(2)(A)(i), (A)(ii) or (A)(iii) of
the Act. As a matter of simplification, we refer to these products as
``FDA approved prescription drug products,'' and note that, as used in
this part of the preamble, that term incorporates the non-FDA approved
drug products specifically described under sections 1927(k)(2)(A)(ii)
and (A)(iii) of the Act.
Compounded prescription drug products may contain: (1) all FDA
approved prescription drug products; (2) some FDA approved prescription
drug products; or (3) all non-FDA approved drug products. While the
strictest reading of section 1927(k)(2) of the Act appears to indicate
that non-FDA approved compounded prescription drug products are not
Part D drugs, we believe that FDA-approved prescription drug product
components of a non-FDA approved compounded prescription drug product
could be considered to be Part D drugs. The definition of a Part D drug
is not based on the final form of the drug as dispensed to the
beneficiary; rather, section 1860D-2(e)(1)(A) of the Act speaks to a
drug ``that may be dispensed'' only upon a prescription and that meets
the requirements of section 1927(k)(2) of the Act. Therefore,
[[Page 4232]]
the FDA approved component can satisfy section 1860D-2(e)(1)(A) of the
Act even if the finished product does not. Although reimbursement must
be limited to the FDA approved prescription drug components (that is,
no reimbursement is available for compounded products containing only
products that are not approved by the FDA, or otherwise described under
sections 1927(k)(2)(A)(ii) and (A)(iii) of the Act, or only over-the-
counter products), these usually account for the most significant drug
costs and, accordingly, current commercial practice often limits
reimbursement to the most expensive component only. In addition, the
labor costs associated with mixing a compounded drug product that
contains at least one FDA approved prescription drug component can be
included in dispensing fees (as defined in Sec. 423.100 of our final
rule).
Comment: Two commenters suggested covering medical foods under the
Part D benefit because medical foods contain vitamins and nutrition
that are beneficial to beneficiaries with certain diseases such as End
Stage Renal Disease (ESRD). Another commenter asked that we cover
parenteral nutrition therapy.
Response: It is not clear what the commenter meant by ``medical
foods.'' If ``medical foods'' refers to products that are vitamins and
mineral products, these are excluded from the definition of Part D
drugs and are not a covered Part D benefit. In addition, enteral
nutrients are not regulated as drugs by the FDA and are therefore not
covered under Part D.
On the other hand, parenteral nutrition frequently contains primary
components such as amino acids, nitrogen products, and dextrose
mixtures that are regulated by the FDA as drugs and therefore meets the
definition of a Part D drug if prescribed for a medically accepted
indication and not otherwise excluded under section 1860D-2(e)(2) of
the Act. Vitamins and minerals added to parenteral nutrition are not be
considered Part D drugs, and costs associated with these vitamins or
minerals cannot be paid for under Part D.
Part D plans would only need to include parenteral nutrition
coverage for reasonable and necessary medically accepted indications
that are not covered under Parts A or B. These situations would likely
involve long-term care facility or home infusion patients who do not
qualify for Part B coverage under the prosthetic benefit provision for
permanent dysfunction of the alimentary tract. This could include
temporary situations in which patients are unable to swallow or absorb
nutrients from the alimentary tract, either for physical or cognitive
reasons. We are currently unable to estimate the potential impact of
such coverage on Part D expenditures. However, Part D plans will need
to establish appropriate policies and procedures in order to limit Part
D coverage of parenteral nutrition to patients with medically accepted
indications that are not otherwise covered by Parts A or B. In
addition, we note that Part D plans are not responsible for the costs
of supplies and equipment related to parenteral nutrition therapy.
Comment: One commenter suggested additional supplies to consider
for Part D coverage: spacers and aerochambers for administration of
inhalation products, devices for administration of eye drops, and
flushing supplies (for example, saline and heparin for home infusion
therapy).
Response: Section 1860D-2(e)(1) of the Act provides us with
authority to deem medical supplies to be Part D drugs to the extent
they are associated with the injection of insulin. Thus, the supplies
mentioned by this commenter cannot be covered under Part D, as they are
not associated with the injection of insulin. We clarify that although
heparin is a Part D drug, a heparin flush is not used to treat a
patient for a medically accepted indication, but rather to dissolve
possible blood clots around an infusion line. Therefore, heparin's use
in this instance is not therapeutic but is, instead, necessary to make
durable medical equipment work. It would therefore not be a Part D drug
when used in a heparin flush.
Comment: One commenter recommended that Part D drugs should include
liquid, chewable, transdermal and other special dosage forms and
delivery mechanisms to accommodate swallowing limitations and
intravenous medications, such as antibiotics.
Response: The definition of a Part D drug at section 1860D-2(e) of
the Act places no limitations on drug dosage forms and delivery
mechanisms provided that a drug or biological product is not otherwise
excluded by the statute. We expect Part D plans to provide an adequate
benefit that includes coverage of special dosage forms and delivery
mechanisms to fit the needs of all their enrollees.
Comment: Several commenters supported our proposed framework for
Part D coverage wrapping around Part B coverage at the individual
level. However, other commenters recommended that drugs currently
covered under Part B be excluded from coverage under Part D until the
mandated study on the transitioning of Part B prescription drug
coverage into Part D is released. Another commenter recommended that
individual drugs be paid by either Part B or Part D in all
circumstances.
Response: The statutory definition of the term ``covered Part D
drug'' would, under section 1860D-2(e)(2)(B) of the Act, exclude any
drug for which, as dispensed and administered to an individual, payment
would be available under Parts A or B of Medicare for that individual
(even though a deductible may apply). By including the language ``as so
prescribed and dispensed or administered,'' section 1860D-2(e)(2)(B) of
the Act makes a distinction between what would be paid for under Part D
as opposed to Part B. This language indicates that the Congress was
aware that some drugs could qualify for payment under Part B in some
circumstances and Part D in others, depending on the way those drugs
are dispensed or administered. Given the statutory definition of the
term ``covered Part D drug'', we cannot preclude drugs that may be
covered under Part B under some circumstances (for example, when they
are furnished ``incident to'' a physician's service), but that are not
covered under Part B under other circumstances, from being covered
under Part D under such other circumstances (for example, because they
are self-administered by the patient at home). Such a policy would
require statutory changes by the Congress. The various issues raised by
the drugs covered under Part B for the administration of the Part D
drug benefit will be addressed in our report mandated by section 1860D-
42(c) of the Act.
Comment: We solicited comments concerning any drugs that may
require special guidance with regard to their coverage under Part D,
and any gaps that may exist in the combined ``Part D & B'' coverage
package. A number of commenters requested that we further clarify the
relationship between drugs covered under Medicare Part B and drugs that
will be covered under Part D. These commenters would like us to clarify
how Part D plans can recognize Part B covered drugs since no universal
list exists, Part B coverage differs by patient and situation, and Part
B coverage policies differ regionally. They raise concerns about
appropriately limiting coverage of drugs under Part D while achieving
our goal of wrapping around Medicare Part B to the greatest extent
possible.
Response: We acknowledge that there are numerous complexities
involved in the distinction between drugs covered
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under Parts B and D, as well as with wrapping around existing drug
coverage under Part B. Nevertheless, section 1860D-2(e)(2)(B) of the
Act states that Part D plans must exclude any drug that would otherwise
be considered a Part D drug for which, as so prescribed and dispensed
or administered to that individual, payment would be available under
Parts A or B (even though a deductible may apply). Furthermore, we
believe that the language ``as so prescribed and dispensed or
administered'' indicates the Congress's awareness that the
determination regarding whether a particular drug is covered under Part
B or Part D could differ on a case-by-case basis.
Despite the complexities, we believe Part D plans can best wrap
around existing Part B coverage under Part D by understanding the scope
of the definition of covered Part D drug, becoming familiar with the
general categories of Part B covered drugs, and planning for potential
Part B interactions that are likely to be encountered in specific
settings with regard to some of these categories.
Part D drugs are not limited to typical outpatient prescription
drugs. The definition includes injectable prescription drugs (for
example, intramuscular, intravenous, and infusible drugs, as well as
vaccines). Some Part D plans may lack experience with covering the
drugs under an outpatient prescription drug benefit program because
they are more commonly covered under commercial medical benefits, as
opposed to commercial prescription drug benefits.
The implementation of the Part D benefit does not alter coverage or
associated rules for drugs currently covered under Part B. Part B
covers drugs in a variety of settings. In almost all of these settings
the question of whether coverage should be provided under Part D will
not arise since the drugs are being provided in the context of a
service or procedure. For a limited number of categories, however,
pharmacists and infusion providers will have to determine whether to
bill Part B or Part D, and Part D sponsors will need to confirm whether
Part D is being billed correctly. In some cases, this determination can
be made on the basis of the drug. For example, in the case of oral
anti-cancer drugs, there is a list of drugs covered under Part B based
on certain statutory criteria. All other oral anti-cancer drugs will be
covered under Part D, provided they otherwise meet the definition of a
Part D drug. In other cases, the pharmacist or infusion provider would
need information about the member in order to bill appropriately. For
example, in the case of drugs used in immunosuppressive therapy, Part B
should be billed in the case of a beneficiary whose transplant has been
covered by Medicare. Part D should make payment in all other instances.
We will provide more information and guidance on the relation between
Part B and Part D coverage in separate guidance to Part D plans.
Based upon the definition of the term ``Part D drug'' and the
general categories of coverage under Part B, we believe that Part D
plans could implement utilization management strategies to identify
potential Part B drug coverage overlap for individuals and verify
appropriate coverage accordingly. For example, if a Part D beneficiary
were filling a retail prescription for an antiemetic, prior
authorization could be used to ensure that the drug is not covered by
Part B. Similarly, prior authorization could be used to flag drugs
dispensed via home infusion that are covered under the Part B durable
medical equipment policy. Plans will need to ensure that they do not
cover any drugs which, as prescribed and dispensed or administered, are
covered under Part B in a specific region under its local medical
review policy (LMRP).
We clarify that MA organizations must follow fee-for-service
coverage rules as provided in section 1852(a)(1) of the Act in
determining whether to pay for a drug under its Part A/Part B or Part D
benefits. Payment for injectable drugs that Medicare considers to be
usually not self-administered should be paid under the Part A or Part B
benefits if provided in a physician's office, and under Part D if
dispensed by a network pharmacy. Even if an MA plan offers coverage
under Part D of an injectable drug that Medicare considers to be
usually not self-administered (for example, Avonex) the plan cannot
deny coverage of this drug under its Part A or Part B benefits when
furnished in a physician's office.
Comment: Several commenters noted that excluding Part B drugs from
coverage under Part D regardless of whether the consumer is enrolled in
Part B is seriously detrimental to consumers who enroll in Part B but
who cannot effectuate their enrollment for many months due to the Part
B enrollment timeframes. Consumers without Part B coverage, but who
intend to enroll, could enroll in Part D in April of 2006 but would not
be able to gain coverage for Part B drugs until 15 months later
(enrollment in January effective in July). These commenters argue that
we should make an exception for beneficiaries in this predicament such
that their Part D plans could cover Part B drugs. This is especially
important for full-benefit dual eligible individuals in this situation,
since they would be unable to fall back on Medicaid to obtain coverage
for Part B-covered medications. They recommend that Part D plans be
required to cover Part B medications for a consumer for up to 15 months
(the maximum amount of time it could take to effectuate an enrollment
under Part B).
Response: Section 1860D-2(e)(2)(B) of the Act specifies that a drug
prescribed to a Part D eligible individual that would otherwise qualify
as a Part D drug cannot be considered a covered Part D drug if payment
for such drug ``... is available (or would be available but for the
application of a deductible) under part A or B for that individual.''
We interpreted this to mean that if payment could be available under
Part A or Part B to the individual for such drug, then it will not be
covered under Part D. Thus, for all Part D eligible individuals, drugs
covered under Parts A and B are available if they choose to pay the
appropriate premiums.
This will be the case even if a beneficiary has Part A, but not
Part B, or vice versa, since, as we explain in subpart F of this
preamble and at Sec. 423.265(c) of the Act, Part D sponsors must offer
a uniform benefit package in order to carry out the Congress's intent
in section 1860D-13(a)(1)(F) of the Act. If Part B covered drugs were
included in the Part D benefit package only for those enrollees without
Part B, but not for others, it would not be possible for Part D
sponsors to offer uniform benefit packages for a uniform premium to all
enrollees. In addition, we believe that payment for a drug under Part A
or B is available to any individual who could sign up for Parts A or B,
regardless of whether they actually enrolled or are waiting to be
enrolled, as these commenters describe. All individuals who are
entitled to premium-free Part A are eligible to enroll in Part B. This
includes individuals who are entitled to Part A based on age,
disability, and ESRD. All individuals who are entitled to Part B only
are age 65 or older and, in almost all instances, not eligible for
premium-free Part A. However, they are eligible to buy into Part A for
a premium.
Comment: Some commenters recommended that we introduce more
consistent coverage rules by adopting national standards rather than
relying on local carriers for coverage and payment decisions.
Response: Policies with regard to coverage of infusible drugs
covered as DME supplies are uniform across the
[[Page 4234]]
country. Some differences do exist between carriers with regard to
which injectable drugs will be covered under Part B ``incident to'' a
physician service. These differences in coverage in a physician's
office setting, however, should not impact whether a Part D plan will
cover a prescription for an injectable drug presented at a
participating pharmacy. The statute does not exclude ``all drugs''
covered under Medicare, but rather, drugs when Medicare coverage under
Part B is available ``as so prescribed and dispensed or administered.''
Comment: One commenter asked about the interface between the
hospice benefit and Part D, specifically whether we anticipated that
Part D would account for or impact the delivery of hospice drugs.
Response: As provided in section 1861(dd)(1) of the Act, the
hospice benefit covers all medications related to a beneficiary's
terminal illness. There is no change in Medicare coverage of these
drugs. However, all other medications provided to the beneficiary are
currently paid for either out-of-pocket or by private insurance. These
drugs could now be covered by Part D plans on either a primary or
secondary basis depending on the presence or nature of other insurance.
Given the life expectancy of beneficiaries receiving hospice benefits,
we do not expect this to be a large expense for Part D plans.
b. Dispensing Fees
The MMA does not define the term ``dispensing fee,'' although the
terms ``dispensing fee'' and ``dispense'' appear several times
throughout the MMA. Because the statute is ambiguous on the meaning of
``dispensing fee,'' in the proposed rule we did not propose a specific
definition of ``dispensing fee,'' but instead offered three different
options we believed would be reasonable, permissible definitions of the
term and invited comments on which option would be most appropriate
under Part D.
Option 1: The dispensing fee will include only those
activities related to the transfer of possession of the covered Part D
drug from the pharmacy to the beneficiary, including charges associated
with mixing drugs, delivery, and overhead. The dispensing fee will not
include any activities beyond the point of sale (that is, pharmacy
follow-up phone calls) or any activities for entities other than the
pharmacy.
Option 2: The dispensing fee will include the activities
included in Option 1, but in addition will include amounts for the
supplies and equipment necessary for the drugs to be provided in a
State in which they can be effectively administered.
Option 3: The dispensing fee will include the activities
in Option 2, but in addition will include activities associated with
ensuring proper ongoing administration of the drugs, such as the
professional services of skilled nursing visits and ongoing monitoring
by a clinical pharmacist.
We also requested comments regarding any implications for our
proposed options for defining dispensing fees vis-[agrave]-vis the
administration of other drugs (for example, vaccines and injectable
long-acting antipsychotic drugs).
Comment: The majority of commenters favored Option 1 claiming that
this definition is consistent with current industry practice regarding
dispensing fees. Several said that professional services involved in
providing medications should more appropriately be covered under Parts
A and B, and another commenter opined that Options 2 and 3 were
burdensome for Part D sponsors. Another commenter expressed concern
that what is currently covered under Part B should not be shifted to
Part D through the dispensing fees. Other commenters stated that,
although they supported Option 1, they believed that the definition
proposed for Option 1 was too narrow. One commenter suggested that
pharmacists are required to provide patient counseling for Medicaid
patients under OBRA 1990 and that they should be reimbursed for those
efforts. They also felt that the definition of what it means to
dispense a drug should be clarified. One commenter argued that
supplies, equipment and professional services needed to deliver a drug
should be covered under ancillary fees negotiated between pharmacies
and Part D plans and should not be included in dispensing fees. Another
commenter pointed out that requiring PBMs to pay for professional
services, as contemplated under Option 3, would require them to
renegotiate tens of thousands of contracts with the pharmacies in their
networks.
Several commenters supported Option 2. One commenter focused on
medication packaging and the need to cover packaging specifically
designed for the cognitively impaired or those with physical
impairments.
Other commenters favored adoption of Option 3. Some of these
commenters argued that the Congress meant for home infusion to be
covered and that failure to pay for the supplies, equipment and
services involved in delivering home infusion drugs was tantamount to
failure to cover the drug itself. Since Part D specifically covers
those drugs, (antibiotics, pain management, chemotherapy, parenteral
nutrition, immune globulin and other infused drugs) they argued that we
must require that dispensing fees cover the resources needed to deliver
them. Other commenters argued that new treatment modalities were
allowing patients to remain at home, a cost-effective setting, to
receive their medications, and that some patients might not be able to
receive their medications at home should the definition of dispensing
fee fail to cover the service, equipment, and supplies needed to
deliver the medications in the home setting. One commenter specifically
noted the need to cover supplies and services surrounding infusion of
long-term anti-psychotic medications in community mental health
centers. Two commenters focused on the need to pay for physician
services involved in home infusion of certain drugs given that many
infections and adverse events take place in this setting. Direct
physician supervision of these services is required to mitigate these
potential problems.
Other commenters argued for Part D plan flexibility in establishing
dispensing fees that would be appropriate for the setting and
medication at issue, allowing each Part D plan to define dispensing
fee. One commenter thought that Part D plans should be allowed to use
tiered dispensing fees to encourage the use of generic drugs. One
commenter indicated that point of sale systems in place today already
support multiple variations of dispensing fees based on drug or amount
of effort required to prepare or administer medication and such systems
could handle the multiple variations for the drug benefit. Another
commenter specified that the transmission standard should be the
National Council of Prescription Drug Program's Telecommunication
Standard Version 5.1.
Response: We agree with the majority of commenters that Option 1--
including only those activities related to the transfer of possession
of the covered Part D drug from the pharmacy to the beneficiary,
including charges associated with mixing drugs, delivery, and overhead
is the most appropriate definition of the term ``dispensing fees'' for
Part D, and we have included a definition of dispensing fees in Sec.
423.100 of our final rule consistent with Option 1.
Although we recognize that Options 2 or 3 would eliminate current
gaps in coverage relative to home infused drugs, such approaches would
also extend the definition of dispensing fee beyond the
[[Page 4235]]
mere transfer of possession of the drug, and certainly beyond what we
believe to have been Congressional intent regarding the scope of an
outpatient drug benefit. The inclusion of professional services in the
definition of dispensing fees is also problematic given the potential
for double billing with regard to some of the skilled nursing costs
associated with home infusion. In many cases, these skilled nursing
costs are separately billable to Part A, Medicaid, or supplemental
insurance, and we are concerned about Part D supplanting these other
sources of payment.
We believe Option 1 represents the best reading of the statute,
since it will limit dispensing fees to a transfer of possession of the
drug and will not include any fees associated with administering the
drug. We also note that where the Congress wished for us to include the
cost of supplies under Part D, it specifically directed us to do so
(for example, by requiring that the supplies associated with the
injection of insulin be included in the definition of the term Part D
drug).
Even though some commenters suggest that the supplies, equipment,
and services associated with Options 2 and 3 could be paid for through
a separate fee or additional compensation to home infusion and other
providers, we caution that such separate administrative fees would not
be allowed under Part D. Other than medication therapy management
programs, as described in section 1860D-4(c)(2) of the Act, we do not
expect medical or clinical services to be included in administrative
fees. Please refer to the subpart G preamble discussion of the types of
costs that Part D plans may include as administrative costs in their
bids. Thus, the costs for professional services associated with home
infusion could not be included in the premium bid. In addition,
professional services, including those associated with home infusion,
may not be included in Part D plan supplemental coverage, given that
section 1860D-2(a)(2) of the Act defines supplemental coverage as
consisting of: (1) a reduction in the deductible, coinsurance
percentage, initial coverage limit, or any combination thereof; or (2)
coverage of drugs that are excluded from the definition of a ``Part D
drug'' because of the application of section 1927(d)(2) or (3) of the
Act.
Provided that Part D plans include only those activities allowed
under our definition of dispensing fees in the dispensing fees
negotiated with network pharmacies and offer standard contracting terms
and conditions to all pharmacies, we note that Part D plans have the
flexibility to vary the actual dispensing fee paid to pharmacies. For
example, Part D plans may need to increase the dispensing fees paid to
rural or long-term care pharmacies in order to obtain their
participation in networks and meet the pharmacy access standards.
As detailed elsewhere in this preamble, Part D plans will be
required to ensure adequate access to home infusion services as part of
their pharmacy network access standards. Thus, enrollees will have
access to home infusion services, though they may have to pay for
supplies, equipment, and professional services out-of-pocket
particularly if they are enrolled in a Part D plan and have no source
of supplemental coverage.
As we noted in the proposed rule, our definition of dispensing fees
under Part D will not carry over to Part B of the Medicare program.
Section 1842(o)(2) of the Act gives the Secretary discretionary
authority to pay a dispensing fee to a licensed pharmacy that furnishes
certain covered Part B drugs and biologicals to Medicare beneficiaries.
While the term ``dispensing fee'' is not defined in section 1842(o)(2)
of the Act, the considerations under Medicare Part B, a more
comprehensive health insurance product that has separate payment
mechanisms for durable medical equipment and professional services, are
different from those under Part D.
Comment: Some commenters did not support a particular option for
defining the term ``dispensing fees,'' but were more concerned about
including certain activities in the definition of dispensing fees (for
example, staff, equipment, automation, facilities overhead, time
inputting information into a computer, resolving problems with PBMs and
prescribing practitioners, counseling the patient, waste disposal,
turning the medication over to the patient, particularly when it
involved home delivery, and actually packaging the medications). Many
of these commenters noted that pharmacists merit a small profit and
that dispensing fees should not be specifically designed simply to meet
costs. Others felt that terms used in the proposed options were too
vague. Specifically, they wanted the meaning of dispensing to be
defined to include the costs they outlined. They also wanted to account
for the level of complexity and include clear definitions of
reconstituting, mixing and compounding drugs, which they believe
involve very different equipment, skill and time resources.
Response: We have defined the term ``dispensing fees'' in Sec.
423.100 of our final rule to include reasonable pharmacy costs
associated with ensuring that possession of the appropriate covered
Part D drug is transferred to a Part D enrollee. We specify that
reasonable pharmacy costs may include costs associated with a
pharmacist's time in checking the computer for information about an
individual's coverage, performing quality assurance activities
consistent with Sec. 423.153(c)(2) of our final rule, measurement or
mixing of the covered Part D drug, filling the container, physically
providing the completed prescription to the Part D enrollee, delivery
costs, special packaging costs, and overhead costs associated with
maintaining the facility and equipment necessary to operate the
pharmacy. We clarify that in using the term ``reasonable'' pharmacy
costs, our intent is to convey that such costs be appropriate for the
typical beneficiary in that pharmacy setting. We believe that our
definition clarifies commenters' concerns about the inclusion of some
overhead costs, time spent inputting information into a computer and
resolving problems with PBMs and prescribing practitioners,
transferring the medication to the patient, and special packaging
costs.
We clarify that reasonable delivery costs include only those costs
appropriate for the typical beneficiary in a particular pharmacy
setting. Thus, while it would be appropriate for Part D plans to
reimburse long-term care, mail-order, and home infusion pharmacies for
home delivery costs via the dispensing fee, this would not be the case
for retail pharmacies (where the term ``delivery'' would be limited to
the transfer of a covered Part D drug from the pharmacist to the
patient at the point of sale) because the typical retail customer does
not require home delivery. While retail pharmacies may offer home
delivery services, Part D plans may not reimburse those pharmacies for
these costs, and the delivery cost must be borne by the beneficiary.
As concerns patient counseling, dispensing fees for covered Part D
drugs may include pharmacy costs associated with quality assurance
activities consistent with Sec. 423.153(c)(2) of our final rule.
Section 423.153(c)(1) of our final rule requires Part D plans to
represent that pharmacists in their network pharmacies comply with
minimum standards for pharmacy practice established by the States.
Since almost all States have established requirements for pharmacy
practice
[[Page 4236]]
related to counseling, we believe that the offer of counseling that
pharmacists currently provide their customers will continue consistent
with current pharmacy practice in compliance with State requirements.
.Any pharmacist counseling activities in addition to those established
by the States will have to be negotiated and paid for separately under
Part D plans' medication therapy management programs (discussed in
greater detail elsewhere in this preamble).
As provided in section 1860D-11(i) of the Act, we cannot intervene
in negotiations between pharmacies and Part D plans. Thus, the extent
to which Part D plans reimburse pharmacies for their entire dispensing
costs (or even in excess of their dispensing costs) will depend on the
outcome of those negotiations. In addition, we clarify that we expect
Part D plans and pharmacies to account for pharmacy profit as part of
negotiated prices--either as part of overhead costs accounted for in
dispensing fees or in the reimbursement rates for ingredient costs
negotiated with pharmacies.
We clarify that we interpret the term ``mixing'' as used in our
definition of the term ``dispensing fees'' to encompass reconstituting
and compounding of covered Part D drugs. Further, we note that Part D
plans have the flexibility to pay differential dispensing fees to
pharmacies based on higher labor costs--for example, for a compounded
product relative to a non-compounded covered Part D drug. Plans could
also used differential dispensing fees to encourage the use of generics
over brand-name drugs as appropriate.
Comment: Another commenter wanted dispensing fees for non-profit
entities to reflect their preferred acquisition costs, arguing that
without this, Part D would be assisting tax-exempt non-profit
competitors of small business pharmacies.
Response: As mentioned previously, we have defined the term
``dispensing fees'' in Sec. 423.100 of our final rule to include
pharmacy costs associated with ensuring that possession of the
appropriate covered Part D drug is transferred to a Part D enrollee.
Plans may wish to consider non-profit entities' preferred acquisition
costs in the ingredient cost reimbursement negotiated with those
entities as part of negotiated prices on covered Part D drugs. However,
it is unclear to us why dispensing fees should vary among non-profit
and for-profit pharmacies based on differences in acquisition costs.
Comment: Several commenters emphasized the need to provide
dispensing fees tailored to long term care pharmacies. They focused on
the need to reimburse long-term care pharmacists for 24-hour care, the
specialized packaging that is required, emergency preparation and
delivery of medications, and the distinct type of medications typically
prepared and delivered.
Response: The definition of dispensing fee in Sec. 423.100 of our
final rule encompasses some of the services--for example, specialized
packaging, delivery, and preparation of medications (not including the
actual administration of those medications)--typically provided by
long-term care pharmacies. Additional long-term care pharmacy services
could be reimbursed via medication therapy management programs
established by Part D plans for institutionalized Part D enrollees.
Comment: Some commenters emphasized the need for the dispensing fee
to cover all of the costs involved in providing a medication.
Response: As provided in section 1860D-11(i) of the Act, we cannot
intervene in negotiations between pharmacies and Part D plans. Thus,
the extent to which Part D plans reimburse pharmacies for their entire
dispensing costs will depend on the outcome of those negotiations.
Given Part D plans' need to secure a network of providers that meets
our access standards, we believe that Part D plans will have every
incentive to adequately reimburse pharmacies via dispensing fees for
the costs involved with providing covered Part D drugs to Part D
enrollees.
c. Long-Term Care Facility
We requested comments regarding the definition of the term long-
term care facility in Sec. 423.100 of our proposed rule, which we
interpreted to mean a skilled nursing facility (as defined in section
1819(a) of the Act), or a nursing facility (as defined in section
1919(a) of the Act). We were particularly interested to explore whether
we should include in the definition facilities other than skilled
nursing and nursing facilities--particularly intermediate care
facilities for the mentally retarded (ICFs/MR), described in Sec.
440.150, and other types of facilities in which full-benefit dual
eligible individuals may reside and which may exclusively contract with
long-term care pharmacies in a manner similar to current practice in
skilled nursing and nursing facilities.
Comment: We received a number of comments urging us to expand the
definition of the term ``long-term care facility'' in the proposed
rule. Some of the suggested additions include ICFs/MR; assisted living
facilities; other facilities recognized by State law as eligible for
payment under Sections 1915(c) (Home and Community Based waivers),
1616(e), and 1115 of the Act; group homes for the developmentally
disabled; and other forms of congregate living arrangements regulated
by the States. Some commenters suggested that many of these facilities
operate under exclusive contracts with long-term care pharmacies. Other
commenters urged us not to make the presence of exclusive contracts
with long-term care pharmacies the only criterion for defining
congregate living arrangements as long-term care facilities, as these
beneficiaries could benefit significantly from subsidies for low-income
institutionalized Part D enrollees.
Response: We have expanded the definition of the term ``long-term
care facility'' in Sec. 423.100 of our final rule to encompass not
only skilled nursing facilities, as defined in section 1819(a) of the
Act, but also any medical institution or nursing facility for which
payment is made for institutionalized individuals under Medicaid, as
defined in section 1902(q)(1)(B) of the Act. We note that we have
eliminated the reference to nursing facilities as defined in section
1919(a) of the Act, as such facilities are captured as nursing
facilities for which payment is made for institutionalized individuals
under Medicaid. Such an expansion would include ICFs/MR and inpatient
psychiatric hospitals along with skilled nursing and nursing facilities
in the definition of a long-term care facility, provided those
facilities meet the requirements of a medical institution that receives
Medicaid payments for institutionalized individuals under section
1902(q)(1)(B) of the Act. We do not believe that the definition of term
long-term care facility should be expanded to include other facilities
recognized by State law but not by Medicare or Medicaid, regardless of
whether some of these facilities contract on an exclusive basis with
long-term care pharmacies. Furthermore, we do not believe that our
definitions of terms associated with institutionalized Part D enrollees
should conflict. Our revised definition of the term ``long-term care
facility'' is consistent with the definition of ``institutionalized''
in subpart P of this rule and will allow for residents of a number of
institutional settings to benefit from the special rules for access to
covered Part D drugs established for residents of long-term care
facilities. 2. Requirements Related to Qualified Prescription Drug
Coverage (Sec. 423.104)
Under section 1860D-11(e)(2)(A) of the Act, we may approve as Part
D sponsors only those entities proposing to offer qualified
prescription drug
[[Page 4237]]
coverage in accordance with our requirements. As provided in section
1860D-2(a)(1) of the Act, qualified prescription drug coverage may
consist of either standard prescription drug coverage or alternative
prescription drug coverage.
a. Standard Prescription Drug Coverage
As provided under section 1860D-2(b) of the Act, ``standard
prescription drug coverage'' consists of coverage of covered Part D
drugs subject to an annual deductible; 25 percent coinsurance (or an
actuarially equivalent structure) up to an initial coverage limit; and
catastrophic coverage after an individual incurs out-of-pocket expenses
above a certain threshold. In 2006, the annual deductible will be $250,
the initial coverage limit will be $2,250, and the out-of-pocket
threshold will be $3,600.
Once a Part D enrollee reached the annual out-of-pocket threshold,
in 2006, his or her nominal cost-sharing will be equal to the greater
of: (1) 5 percent coinsurance; or (2) a copayment of $2 for a generic
drug or a preferred multiple source drug and $5 for any other drug, or
an actuarially equivalent structure. (See Table C-1 for a summary
version of standard prescription drug coverage benefits for 2006.)
Section 1860D-2(b) of the Act provides that, beginning in 2007, the
annual deductible, initial coverage limit, out-of-pocket threshold, and
beneficiary cost-sharing after the out-of-pocket threshold is met are
to be adjusted annually. In accordance with section 1860D-2(b)(6) of
the Act, these amounts will be increased over the previous year's
amounts by the annual percentage increase in average per capita
aggregate expenditures for Part D drugs for the 12-month period ending
in July of the previous year. We requested comments regarding the
methods and data sources we might use to determine the annual
percentage increase in the first several years of the Part D program.
Table C-1
Standard Prescription Drug Coverage Benefits for 2006
----------------------------------------------------------------------------------------------------------------
Cost-Sharing Beneficiary Out- Plan Payment
Percentage of-Pocket Costs Percentage Plan Payment
----------------------------------------------------------------------------------------------------------------
Annual Deductible ($0-$250 in 100 percent $250 0 percent $0
spending on covered Part D drugs)
----------------------------------------------------------------------------------------------------------------
Initial Benefit ($250.01-$2,250 in 25 percent\1\ $500\2\ 75 percent\1\ $1,500
spending on covered Part D drugs)
----------------------------------------------------------------------------------------------------------------
No coverage of costs ($2,250.01- 100 percent $2,850\3\ 0 percent $0
$5,100\3\ in spending on covered
Part D drugs)
----------------------------------------------------------------------------------------------------------------
Catastrophic Coverage (after the The greater of: -- 95 percent --
enrollee has incurred out-of-pocket (1) 5 percent; or
costs on covered Part D drugs (2) $2 for a
greater than $3,600; this is generic or
generally equivalent to $5100\3\ in preferred
covered Part D drug spending) multiple source
drug/$5 for other
drugs.\1\
----------------------------------------------------------------------------------------------------------------
\1\ Entities have the option of substituting a cost-sharing structure that is actuarially equivalent.
\2\ $500 is the maximum out-of-pocket costs if coverage is based on 25 percent coinsurance. Under an actuarially
equivalent cost-sharing structure, the maximum out-of-pocket costs and the maximum plan payment for any Part D
enrollee could be higher or lower.
\3\ This figure may, in fact, be higher to the extent that a Part D enrollee is reimbursed for out-of-pocket
costs for covered Part D drugs covered under his or her plan by a group health plan, insurance or otherwise,
or other third party arrangement.
In our proposed rule, we interpreted the provisions of section
1860D 2(b) of the Act to provide for two distinct types of standard
prescription drug coverage-``defined standard coverage'' and
``actuarially equivalent standard coverage.'' Section 1860D-
2(b)(2)(A)(ii) of the Act provides that Part D sponsors offering
actuarially equivalent standard prescription drug coverage will be
permitted to substitute cost-sharing requirements (including tiered
structures tied to Part D plan formularies and particular pharmacies in
a Part D plan's network) for costs above the annual deductible and up
to the initial coverage limit, provided that those alternative cost-
sharing requirements are actuarially equivalent to an average expected
coinsurance of 25 percent for costs above the annual deductible and up
to the initial coverage limit. Alternative cost-sharing arrangements
under actuarially equivalent standard coverage could include reducing
cost-sharing to $0 for generic or preferred covered Part D drugs, as
provided under section 1860D-2(b)(5) of the Act, as long as the cost-
sharing structure is actuarially equivalent to an average expected
coinsurance of 25 percent for costs above the annual deductible and up
to the initial coverage limit.
Based on our interpretation of section 1860D-2(b)(5) of the Act, we
also proposed allowing Part D plans offering actuarially equivalent
standard coverage to establish cost-sharing of an amount that is
actuarially equivalent to the expected cost-sharing above the out-of-
pocket threshold. We proposed requiring that any alternative cost-
sharing structure for costs in the catastrophic range (whether under
actuarially equivalent standard coverage or enhanced alternative
coverage) be actuarially equivalent to standard prescription drug
coverage's structure of the greater of 5 percent coinsurance or $2/$5
copayments. We noted that any such alternative cost-sharing
arrangements would be reviewed, along with the rest of a Part D plan's
benefit design, to ensure that they do not discourage enrollment by
certain Part D eligible individuals.
Except as otherwise provided below, the final rule adopts the
criteria for standard prescription drug coverage set
[[Page 4238]]
forth in Sec. 423.104(e) of the proposed rule.
Comment: Several commenters felt that the benefit structure
established in our proposed regulations was too complex and should be
simplified to minimize beneficiary confusion.
Response: We do not have the statutory authority to simplify the
benefit further, as suggested by this commenter. The MMA provides
private plans with a great deal of flexibility to vary their benefit
structures consistent with Congressional intent to ensure that Medicare
beneficiaries have choices regarding outpatient prescription drug
coverage under Part D that fit their particular needs and minimize
beneficiary and Medicare costs.
Comment: One commenter asked how cross-licensed drugs will be
classified as generics or as brands for the purpose of cost-sharing.
The commenter also asks what the co-payments would be for multiple
source drugs that are ordered ``dispensed as written.''
Response: The amount of cost-sharing, and any variations in cost-
sharing based on brands, generics, or other classifications will be
determined by Part D plans.
Comment: Two commenters suggested alternative data sources to use
in determining the annual percentage increase in the first several
years of the Part D program. The first commenter recommended two data
sources to use for years 2007 and 2008--the annual estimates of
prescription drug expenditures in the CMS National Health Accounts data
(based on census data and sample surveys of private retail pharmacy
sales) and employer retiree health plan data (released by Pharmacy
Benefit Managers and benefit consulting firms). Either of these sources
of data could be used as a starting point, but should be adjusted to
account for any difference in trend for Medicare-eligible individuals
compared to the overall prescription trend. In addition, the trend in
Part D will likely differ from the overall prescription drug trend due
to the large volume negotiating power which could control the trend or
allow manufacturers leeway to raise drug prices. FEHBP experience may
be useful in accounting for such large volume influences in Part D.
This commenter also suggested using our Office of the Actuary (OACT)
procedure in place for Medicare Advantage to make coverage limit
adjustments the following year for over- or under-stated trends. The
commenter also noted that the Medicare Current Beneficiary Survey
(MCBS) and the Medicare 5 percent sample are not available in a timely
enough fashion to be useful data sources.
Another commenter recommended that we use the OACT spending growth
projections that will underlie the Fiscal Year (FY) 2007 President's
Budget Medicare baseline that will be published in February 2006. We
could use the March 2006 OACT Medicare baseline estimates as a
reference check on the OACT projections. OACT and the Congressional
Budget Office (CBO) are preferred because they use the latest available
empirical data based on MCBS, these data are the basis for the Medicare
Trustees' Reports, and the data are widely accepted. In addition, this
commenter recommended that OACT use the Consumer Price Index for
Prescription Drugs and Medical Supplies (CPI-PD), issued in a timely
fashion by the Bureau of Labor Statistics (BLS), as the basis for
projecting the price inflation component of per capita Part D spending
growth. This commenter thought that utilization growth should be based
primarily on the analysis of the latest available MCBS data.
Response: We appreciate the ideas suggested by the commenters and
will take these recommendations into consideration as we develop our
strategy for determining the annual percentage increase in the first
several years of the Part D drug benefit program. We will provide
further detail regarding the sources of data to be used and how the
annual percentage increase will be determined via operational guidance
to Part D sponsors prior to the deadline for bid submissions.
b. Incurred Costs/TrOOP Limit
According to section 1860D-2(b)(4)(C) of the Act, beneficiary costs
for Part D drugs are only considered incurred (for purposes of
applicability toward beneficiary spending against the annual out-of-
pocket limit) if they are incurred--
(1) Against any annual deductible, any applicable cost-sharing for
costs above the annual deductible and up to the initial coverage limit,
and any applicable cost-sharing for costs above the initial coverage
limit and up to the out-of-pocket threshold;
(2) By the Part D enrollee (or by another person on behalf of that
individual); paid on behalf of a low-income individual under the Part D
subsidy provisions described in Sec. 423.782 of the proposed rule; or
paid on behalf of the enrollee under a SPAP defined in Sec. 423.454 of
the proposed rule; and
(3) On covered Part D drugs (in other words, Part D drugs that are
either included in a Part D plan's formulary or treated as being
included in a Part D plan's formulary as a result of a coverage
determination, redetermination, or appeal under Sec. 423.566, Sec.
423.580, Sec. 423.600, Sec. 423.610, Sec. 423.620, and Sec. 423.630
of our final rule).
We also proposed that beneficiary costs incurred under the
following circumstances count as incurred costs (with Part D plans
explicitly accounting for such price differentials in the actuarial
valuation of their coinsurance in their bids): (1) any differential
between a network retail pharmacy's negotiated price and a network
mail-order pharmacy's negotiated price for an extended (for example,
90-day) supply of a covered Part D drug purchased at a retail pharmacy;
and (2) any differential between an out-of-network pharmacy's usual and
customary price for a covered Part D drug purchased in accordance with
the out-of-network access rules and the plan allowance for that covered
Part D drug. As further explained below, because we have clarified that
the differential for a 90-day supply dispensed at a retail network
pharmacy will generally be a differential in cost-sharing and not
negotiated price (in other words, the difference in cost sharing for
the 90-day supply between the retail and mail-order network
pharmacies), we have modified the definition of incurred costs in Sec.
423.100.
Section 1860D-2(b)(4)(C)(ii) of the Act provides that any costs for
which a Part D individual is reimbursed by insurance or otherwise, a
group health plan, or another third-party payment arrangement do not
count toward incurred costs; only costs paid by a Part D enrollee, or
on behalf of a Part D enrollee by another person, will count as
incurred, or TrOOP costs. This provision thus creates a distinction
between all enrollee out-of-pocket expenditures and those that are
counted as TrOOP expenditures.
Except as otherwise provided below, the final rule adopts the rules
applicable to incurred costs set forth in Sec. 423.100 of our proposed
rule.
Comment: Several commenters urged us to count all beneficiary
spending on Part D drugs whether on a Part D plan's formulary or not
toward TrOOP.
Response: Section 1860D-2(b)(4)(C)(i) of the Act specifically
excludes from the definition of the term ``incurred costs'' those costs
incurred for Part D drugs that are not included (or treated as being
included on a formulary as a result of a coverage determination,
redetermination, appeal, or exception) on a Part D plan's formulary.
Therefore, we do not have the statutory authority to permit the
payments to count toward a Part D enrollees' TrOOP limit.
[[Page 4239]]
Comment: Many commenters supported our proposal that beneficiary
costs incurred as a result of any differential between a network retail
pharmacy's negotiated price and a network mail-order pharmacy's
negotiated price for an extended (for example, 90-day) supply of a
covered Part D drug purchased at a retail pharmacy count as an incurred
costs for the purposes of TrOOP. Only one commenter opposed allowing
such differentials to count toward TrOOP.
Many commenters supported our proposal that beneficiary costs
incurred as a result of any differential between an out-of-network
pharmacy's usual and customary price for a covered Part D drug
purchased in accordance with the out-of-network access rules and the
plan allowance for that covered Part D drug count as an incurred costs
for the purposes of TrOOP. Only one commenter specifically opposed our
proposal, stating that if the differential were allowed to count toward
TrOOP, the use of retail pharmacies would not be cost-neutral to Part D
plans because individuals who use retail pharmacies would reach the
out-of-pocket limit sooner.
Response: We agree with the majority of commenters that it is
appropriate to allow beneficiary payment differentials to count toward
TrOOP in cases in which a beneficiary accesses a covered Part D drug
consistent with the out-of-network policy in Sec. 423.124(a) of our
final rule.
Section 423.120(a)(6) of our proposed rule provided that a Part D
enrollee who obtained a 90-day supply of a covered Part D drug at a
network pharmacy that is a retail pharmacy rather than a network mail-
order pharmacy would be required to pay for any differential in the
negotiated price for the covered Part D drug. However, consistent with
section 1860D-4(b)(1)(D) of the Act, which requires that the Part D
enrollee pay for ``any differential in charge'' when accessing a 90-day
supply of a covered Part D drug at a network retail pharmacy instead of
a network mail-order pharmacy, we have clarified in Sec.
423.120(b)(10) of our final rule that the beneficiary is not
responsible for the difference in negotiated price but, rather, for any
higher cost-sharing associated with purchasing the drug at a retail
pharmacy rather that a mail-order pharmacy. Any such difference in
cost-sharing would therefore automatically count toward a beneficiary's
TrOOP expenditures, since the covered Part D drug in question is being
purchased at a network pharmacy.
Comment: Several commenters asked us to define the term ``person''
such that a family member can pay for enrollees' cost-sharing on their
behalf.
Response: Section 1860D-2(B)(4)(C)(ii) of the Act specifically
mentions a family member as an example of a person who may pay cost-
sharing on behalf of a beneficiary. We clarify that our proposed rule
defined the term ``person'' to include a ``natural person.'' Such a
definition of the term ``person'' thus permits other individuals, such
as family members, to pay for covered Part D drug cost-sharing on
behalf of Part D enrollees. We have therefore retained this definition
of the term ``person'' in Sec. 423.100 of our final rule.
Comments: Several commenters supported our proposed definition of
the term ``person,'' which would allow financial assistance for
beneficiary cost-sharing rendered by ``bona fide'' charities to count
toward enrollee's out-of-pocket threshold. Some commenters requested
that we clarify what constitutes a ``bona fide'' charity. Another
commenter objected to Part D plan member financial assistance programs
being treated differently from third-party charities for purposes of
TrOOP.
Response: Our broad definition of the term ``person'' captures not
only ``bona fide'' charities, but other charitable organizations as
well. We note that any arrangement in accordance to which a charitable
organization pays a Medicare beneficiary's cost-sharing obligations
must comply with all applicable fraud and abuse laws, including, where
applicable, the anti-kickback statute at section 1128B(b) of the Act,
as well as the civil monetary penalty provision prohibiting inducements
to beneficiaries at section 1128A(a)(5) of the Act. Thus, even if a
charity is not a bona fide charity for purposes of Federal fraud and
abuse law, any drug payments it makes on behalf of Part D enrollees
would count toward TrOOP unless otherwise excluded as payments by a
group health plan, insurance or otherwise, or similar third party
arrangement. Charities that are established, maintained, or otherwise
controlled by an employer or union will likely fall under our
definition of ``group health plan,'' and any benefits supplementing
Part D benefits that they provide will therefore be excluded from TrOOP
on this basis.
Comment: We noted in the proposed rule that we were considering
whether assistance in paying enrollees' out-of-pocket cost-sharing
obligations provided through prescription drug patient assistance
programs sponsored by pharmaceutical manufacturers would be allowed
under Federal fraud and abuse laws, including the anti-kickback
statute, section 1128B(b) of the Act, as well as the civil monetary
penalty provision at Section 1128A(a)(5) of the Act.
We received a number of comments requesting clarification regarding
whether assistance in paying enrollees' out-of-pocket cost-sharing
obligations provided through pharmaceutical manufacturer-sponsored
patient assistance programs (PAPs) would be permissible under Federal
fraud and abuse laws and request that we work with the OIG to develop
guidelines. Some commenters believe that financial assistance and
product donations provided by PAPs should be allowed to count toward
beneficiaries' TrOOP expenditures. Some of these commenters recommended
that product donations be counted as incurred costs and valued at the
price beneficiaries would have paid at a network pharmacy (the
negotiated price). One commenter recommended that we allow
manufacturers to provide funds to Part D plans so that Part D plans can
apply appropriate criteria and make payments on behalf of
manufacturers. Another commenter cautions us that without a change in
the current interpretation of Federal fraud and abuse laws preventing
PAPs from providing cost-sharing assistance, many low-income
beneficiaries may avoid filling scripts, resort to splitting pills, and
interrupt critical drug therapy.
Response: Regardless of whether a manufacturer patient assistance
program is a bona fide charity for the purpose of Federal fraud and
abuse laws, any drug payments it makes on behalf of Part D enrollees
would count toward TrOOP unless these organizations qualify as group
health plans, insurance or otherwise, or similar third-party payment
arrangements. However, any arrangements pursuant to which a charitable
organization pays a Medicare beneficiary's cost-sharing obligations
must comply with Federal fraud and abuse laws, where applicable,
including the anti-kickback statute at section 1128(b) of the Act, as
well as the civil monetary penalty provision prohibiting inducements to
beneficiaries at section 1128A(a)(5) of the Act.
A related issue although it is not mentioned in the proposed rule
is whether pharmacies can waive or reduce Part D cost-sharing
obligations given Federal fraud and abuse laws and, if they can,
whether such waived or reduced cost-sharing should count toward a
beneficiary's TrOOP limit. Although we did not receive comments on this
matter, we would like to clarify our policy. Under the new exception to
[[Page 4240]]
the anti-kickback statute added by section 101(e) of the MMA,
pharmacies are permitted to waive or reduce cost-sharing amounts
provided they do so in an unadvertised, non-routine manner after
determining that the beneficiary is financially needy or after failing
to collect the cost-sharing amount despite reasonable efforts, as set
forth in section 1128A(i)(6)(a) of the Act. In addition, a pharmacy may
waive or reduce a beneficiary's Part D cost-sharing without regard to
these standards for beneficiaries enrolled in a Part D plan eligible
for the low-income subsidy under section 1860D-14 of the Act, provided
the pharmacy has not advertised that the waivers or reductions of cost-
sharing are available. Depending on the circumstances, pharmacies that
waive or reduce cost-sharing amounts for covered Part D drugs without
following the requirements of the pharmacy waiver safe harbor could be
subject to civil monetary penalties and exclusion from participating in
Federal health care programs, as well as criminal fines and
imprisonment under the anti-kickback statute.
We will allow waivers or reductions of Part D cost-sharing by
pharmacies to count toward TrOOP. Not allowing such waived or reduced
cost-sharing to count toward TrOOP would make it more burdensome for
Part D plans given the need to track down whether cost-sharing was
actually incurred by a beneficiary rather than a pharmacy. Moreover, we
believe this option is consistent both with the definition of
``person'' in the proposed rule (making waiver or reduction of cost-
sharing applicable toward an enrollee's incurred costs), and with
Congressional intent in amending the anti-kickback statute to provide
for a pharmacy waiver safe harbor.
Comment: Several commenters asked that coverage supplementing the
benefits available under Part D coverage provided by various government
programs be allowed to count as incurred costs for purposes of TrOOP.
These government insurers and programs included Medicaid (using State-
only funds), Medicaid Section 1115 ``Pharmacy Plus'' waiver programs,
Federally qualified health centers (FQHCs), the Department of Veterans
Affairs health care program, and local or State indigent drug programs.
In addition, a substantial number of commenters urged us to allow
coverage that supplements the benefits available under Part D coverage
that is provided by AIDS Drug Assistance Programs (ADAPs) funded under
the Ryan White CARE Act to count as incurred costs. These commenters
argued that ADAPs are an integral component of the safety net for HIV/
AIDS patients because they fill coverage gaps in public and private
insurance for critical HIV/AIDS drug treatments. They argue that if
ADAP supplemental coverage payments do not count as incurred costs,
ADAPs will have little incentive to coordinate coverage with Part D
plans, particularly if Part D plans impose user fees on ADAPs. Many of
these commenters also urged us to define ADAPs as SPAPs so that their
supplemental coverage will be considered incurred costs for the
purposes of TrOOP.
Several commenters also objected to the inclusion of IHS and Indian
Tribes and Tribal organizations, and urban Indian organizations
(collectively I/T/U) facilities in the definition of ``insurance or
otherwise'' in Sec. 423.100 of our proposed rule. Since IHS
beneficiaries--by custom and regulation--may not be charged any cost-
sharing, I/T/U facilities must provide supplemental coverage for all
cost-sharing that would have been assessed by a Part D plan. For this
reason, the commenters argue, our proposed regulations essentially
ensure that most IHS beneficiaries will never incur costs above the
out-of-pocket threshold and thus subject AI/AN enrollees and the I/T/U
pharmacies that serve them to severe financial penalties in comparison
to non-AI/ANs and non-I/T/U pharmacies. I/T/U facilities will have to
continue to use their limited appropriated funds to pay the
prescription drug costs of AI/AN beneficiaries. Commenters further
argue that the proposed exclusion of financial assistance for cost-
sharing provided by I/T/U facilities is not required by the statute and
is simply an interpretation of the term ``insurance or otherwise.''
Given the Federal government's obligation to provide health services to
AI-ANs based on the government-to-government relationship between the
United States and Tribes, these commenters argue that IHS and tribal
health programs are not ``insurance or otherwise,'' but instead
``persons'' given that I/T/U facilities are the functional equivalent
of ``family members.'' We were also asked to clarify why supplemental
coverage of deductible costs counts toward a beneficiary's deductible
limit, but supplemental coverage of cost sharing above the deductible
and initial coverage limit, does not count toward TrOOP.
Response: Section 1860D-24(a)(1) of the Act extends the
coordination of benefits provisions required for SPAPs to entities
providing other prescription drug coverage--including Medicaid
programs, Section 1115 waiver demonstrations, group health plans,
Federal Employee Health Benefits Program (FEHBP), military coverage
(including TRICARE), and ``such other health benefit plans or programs
that provide coverage or financial assistance for the purchase or
provision of prescription drug coverage on behalf of Part D eligible
individuals as the Secretary may specify.'' Section 1860D-24(b) of the
Act defines includes among these entities providing other prescription
drug coverage some government payers, which when coupled with section
1860D-24(a)(2) of the Act, which specifically applies the TrOOP
provisions at 1860D-2(b)(4)(D) of the Act to Rx plans suggests that the
Congress intended for the term ``insurance or otherwise'' to include
government benefit plans or programs that provide health care or pay
the cost of covered Part D drugs. Although section 1860D-24(b) of the
Act does not list all the government health care programs we consider
to be ``insurance or otherwise,'' in the absence of a meaningful
distinction between those entities specifically listed in section
1860D-24(b)--Medicaid, SPAPs, TRICARE, and FEHBP--and other government
health care programs, allowing payments from such other programs to
count toward TrOOP would be arbitrary. Further, in giving the Secretary
the authority to identify other entities providing other prescription
drug coverage under section 1860D-24(b)(5) of the Act, the Congress
contemplated that its list of entities providing other prescription
drug coverage was not exhaustive.
For additional clarification of this issue, we have split the
definition of ``insurance or otherwise,'' in our proposed rule into two
separate definitions--``insurance'' and ``or otherwise''--in our final
rule. The term insurance (at Sec. 423.100 of our final rule) refers to
a health plan that provides, or pays the cost of covered Part D drugs,
including, but not limited to health insurance coverage, a MA plan, and
a PACE organization. We note that our definition of ``insurance'' does
not modify the definition of ``health plan'' at 45 CFR 160.103 of the
HIPAA Administrative Simplification Regulations, or any interpretation
thereof issued by the Department of Health and Human Services.
We believe that the phrase ``or otherwise'' refers to government-
funded health programs. We have defined the term ``government-funded
health programs'' at Sec. 423.100 of our final rule to mean any
program established, maintained, or funded--in whole or in part--by the
Federal government, the
[[Page 4241]]
governments of States or political subdivisions of States, or any
agency or instrumentality of these governments which uses public funds
in whole or in part to provide to, or pay on behalf of, an individual
the cost of Part D drugs. Thus, insurance or otherwise encompasses not
just traditional health insurance coverage that is not considered a
group health plan, but also government programs and entities (including
the Department of Veterans Affairs (VA), IHS, Federally Qualified
Health Centers (FQHCs), Department of Labor (DOL) Federal Workers'
Compensation Program), government insurers (including Medicaid,
Medicaid 1115 demonstrations, and the State Children's Health Insurance
Program (SCHIP)), and government-sponsored funds (including black lung
benefits, Ryan White CARE Act funds, and State special funds that
assist certain individuals with their medical costs, such as a special
fund for AIDS patients).
We believe we have defined these terms consistent with the
Congress's intent of reducing incentives for current employers, other
insurers, and government programs to reduce their current levels of
coverage. Because costs for covered Part D drugs paid by insurance or
otherwise on behalf of a Part D enrollee do not, as previously
discussed, count as incurred costs, any coverage that supplements the
benefits available under Part D coverage that are provided to
beneficiaries by Medicaid, Medicaid Section 1115 ``Pharmacy Plus''
waiver programs, the VA health care program, the IHS, ADAP programs,
and local or State indigent drug programs would not count as an
incurred cost for purposes of TrOOP. We note, however, that to the
extent that a State provides assistance with covered Part D costs to
Part D enrollees with State-only funds and meets the requirements of a
State Pharmaceutical Assistance Program as specified in Sec.
423.464(e)(1), such assistance does count as an incurred cost as
provided by section 1860D-2(b)(4)(C)(ii) of the Act. However, if an
entity providing for or paying the cost of drugs receives a government
grant none of which is used to pay for drugs (for example, a low-income
housing grant)--such an entity is not considered a government-funded
program. On the other hand, if an entity pays for drugs using a mix of
private and public funds, the entity is considered a government-funded
health program, and all of its drug spending is excluded from TrOOP.
As mentioned above, Pharmacy Plus program costs, including State
spending, cannot be counted towards TrOOP because Pharmacy Plus
programs are funded under Medicaid and therefore do not qualify as
SPAPs. For this reason, we believe that, generally, States will be
better off and will realize savings if they restructure their
prescription drug programs as SPAPs, rather than continuing their
Pharmacy Plus programs. Their savings could be used in a variety of
ways, such as directly paying for their enrollees' Part D premiums,
wrapping around the Part D benefit by paying for the required cost-
sharing, or paying Part D plans for supplemental benefits.
According to IHS estimates, we anticipate that a large proportion
of AI/ANs will be eligible for low-income subsidies under Part D, which
should significantly limit the financial impact on I/T/U facilities.
For those AI/ANs not eligible for the low-income subsidies and enrolled
in a Part D plan, the IHS will still obtain some benefit from Part D
coverage because I/T/U facilities participating in Part D plan networks
will be reimbursed for 75 percent of spending (on average) between the
deductible and the initial coverage limit. Moreover, AI/AN enrollees
will experience no difference in the way they obtain their prescription
drugs to the extent that they use I/T/U pharmacies or IHS-contracted
pharmacies.
ADAPs cannot be considered SPAPs because these programs receive
Federal funding. As discussed in subpart J, we have interpreted section
1860D-23(b) of the Act, which requires SPAPs to be State programs that
provide financial assistance for the purchase of provision of
prescription drugs, to mean that an SPAP must provide such assistance
with State funds. Therefore, the definition of the term SPAP excludes
any program in which program funding is from Federal grants, awards,
contracts, entitlement programs, or other Federal sources of funding
(though we clarify that this does not exclude some Federal
administrative funding or incidental Federal monies). Since ADAPs
receive Federal funding, they cannot be defined as SPAPs under Sec.
423.454 of our final rule. However, according to HRSA estimates, we
anticipate that a substantial majority of ADAP enrollees will qualify
for low-income subsidies. For those ADAP enrollees who do not receive a
full or partial subsidy, we estimate that the Part D benefit would pay
75 percent, on average, of an enrollee's covered Part D drug
expenditures between the deductible and initial coverage limit. To
ensure coordination of benefits for the HIV/AIDS and population, as
well as to eliminate any barriers to enrolling in Part D benefits, the
ADAP program may wish to pay for their beneficiaries' premiums to
eliminate any barriers to Part D benefits.
Per several commenters' request, we also wish to clarify that
section 1860D-2(b)(4)(C) of the Act defines the term ``incurred costs''
only for the out-of-pocket threshold. Thus, the fact that coverage that
supplements the benefits available under Part D coverage that is
provided by certain entities is excluded from the definition of
incurred costs for purposes of TrOOP has no bearing on counting that
supplemental coverage against the deductible. In other words, ADAPs,
IHS, and other programs providing coverage that supplements the
benefits provided under Part D may subsidize costs incurred against a
Part D enrollee's deductible for those patients unable to afford these
costs. The provision of the supplemental coverage will not affect an
enrollee's ability to satisfy the deductible and therefore qualify for
reduced cost-sharing between the deductible and the initial coverage
limit. In addition, these entities are not precluded from paying for a
Part D enrollee's cost-sharing above the out-of-pocket threshold once a
beneficiary has accumulated incurred costs in excess of the out-of-
pocket threshold.
Comment: We requested comments regarding the treatment of health
savings account (HSAs), flexible savings arrangements (FSAs), health
reimbursement arrangements (HRAs), and medical savings accounts (MSAs)
vis-[agrave]-vis our definitions of ``group health plan,'' ``insurance
or otherwise,'' and ``third party payment arrangements.'' Many
commenters suggested that HSAs, FSAs, MSAs, and HRAs be excluded from
our proposed definition of ``group health plan'' such that any
distributions used by Part D enrollees to pay out-of-pocket costs
associated with cost-sharing for covered Part D drugs are allowed to
count as incurred costs. These commenters agreed that these funds are
analogous to beneficiaries' bank accounts. Some of these commenters
asked that we specify that payment of out-of-pocket expenses via these
accounts count toward TrOOP only when such accounts are bona fide
arrangements set up in accordance with IRS rules and guidance, such
funds are not limited to paying prescription drug expenses, and
individuals have control over how the funds from these accounts are
utilized. One commenter notes that any exemption of HSAs, FSAs, MSAs,
and HRAs from our definition of ``group health plan'' should be written
carefully to avoid circumvention of Medicare Secondary Payer (MSP)
laws. Another
[[Page 4242]]
commenter noted that from Part D plans' perspective, it makes the most
sense administratively and operationally to allow funds from these
accounts to count toward incurred costs because it will be difficult
for them to identify and differentiate between different sources of
enrollee funds and carve out the payments from TrOOP calculations. One
commenter noted that HRAs present a more difficult case, since they are
by definition employer-funded only. However, this commenter noted that,
from an administrative perspective, it may be difficult to distinguish
between HRAs and other types of personal health savings vehicles.
In contrast, several commenters disagreed that HSAs and similar
accounts should be exempted from our definition of ``group health
plan.'' Some of these commenters believed that contributions from one
type of employer-sponsored benefit should not receive differential
treatment than other types, particularly when contributions from
employer-sponsored group health coverage are not being counted as
incurred costs. One commenter thought that we had no statutory
authority to create a special rule to exempt HSAs from our definition
of ``group health plan.'' This commenter was concerned about non-
employer sponsored HSAs, that these funds are not like bank accounts
given the tax breaks associated with them, that allowing these funds to
count toward TrOOP discriminates against retirees with employer-
sponsored drug coverage, and that we would create a substantial
windfall and unjustified double taxpayer subsidy.
Response: We agree with the majority of the commenters that HSAs,
FSAs, and MSAs are essentially analogous to a beneficiary's bank
account, and that distributions from these personal health savings
vehicles should count as incurred costs for the purposes of the out-of-
pocket threshold. However, as one commenter noted, we believe that HRAs
are fundamentally different from these personal health saving vehicles
because they are required to be solely employer-funded. Although
employers are permitted to contribute funds to HSAs, FSA, and MSAs and
may administer the benefits associated with these accounts, employees
are not foreclosed from contributing to these vehicles as they are
under HRAs. Excluding FSAs, MSAs, and HSAs from the definitions of
``insurance'' and ``group health plan'' for purposes of calculation of
TrOOP expenditures will further our objective of encouraging
beneficiaries to set aside their own money for drug expenses by
allowing those funds to count toward enrollees' TrOOP expenditures. In
order to clarify that distributions from HSAs, FSAs, and MSAs can be
counted toward a Part D enrollee's incurred costs, we have revised the
definitions in Sec. 423.100 of our final rule accordingly and added a
definition of ``personal health savings vehicles'' that is limited to
HSAs, FSAs, and Archer MSAs.
We note that the term ``group health plan'' is used in reference to
TrOOP, creditable coverage, and the retiree subsidy in our final rule,
but that we do not define the term uniformly in our final rule. Section
1860D-22(c) of the Act explicitly defines ``group health plan'' to
include ERISA plans, which may include an FSA, MSA, and, in limited
circumstances, an HSA. The reference to ``group health plan'' under the
creditable coverage provisions in section 1860D-13(b)(4)(C) of the Act
states that a group health plan includes a qualified retiree
prescription drug plan as defined under section 1860D-22 of the Act,
which is in turn based on the definition of ``group health plan'' under
section 1860D-22(C) of the Act and thus may include an MSA or, in
limited circumstances, an FSA or HSA. In contrast, the TrOOP provisions
simply refer to a ``group health plan,'' without specifying what this
term may include. Given that the statutory references to ``group health
plan'' under the TrOOP and creditable coverage provisions use different
language, and that the policies underlying these issues are different,
we have adopted two different definitions of the term ``group health
plan'': one with regard to the TrOOP provisions, and another with
regard to the remaining provisions of Part D, including the creditable
coverage and the retiree subsidy provisions. While the Congress
specifically enumerated two types of coverage to be considered group
health plans with regard to creditable coverage, the TrOOP provisions
do not.
We also note that the definition of a ``group health plan'' used to
implement the Part D drug benefit will differ from the definition of
``group health plan'' used by the Medicare Secondary Payer (MSP)
program for recovery of Medicare payments. While both of our Part D
definitions of ``group health plan'' are based on the ``ERISA''
definition set forth at 29 U.S.C. 1167(1), the MSP definition is taken
from the Internal Revenue Service (IRS) definition of ``group health
plan'' at 26 U.S.C. 5000(b)(1). Therefore, the definitions of ``group
health plan'' in Sec. 423.100 and Sec. 423.4 of our final rule do not
permit circumvention of the MSP laws since they will not apply in the
MSP context.
b. Alternative Prescription Drug Coverage
Section 1860D-2(c) of the Act provides that a Part D sponsor may
offer an alternative prescription drug benefit design, provided that
the Part D sponsor applies for and receives our approval for the
proposed alternative. In order to receive approval to offer an
alternative prescription drug benefit design, a Part D sponsor will
have to meet the requirements related to actuarial equivalence
described in section 1860D-2(c)(1) of the Act, and must use defined
standard coverage (and not actuarially equivalent standard coverage) as
a fixed point of comparison.
Basic Alternative Coverage
Beyond the required parameters for alternative coverage discussed
above, we interpreted the provisions of section 1860D-2(c) of the Act,
together with section 1860D-2(a)(1) of the Act, as providing for two
forms of alternative coverage--either ``basic alternative coverage'' or
``enhanced alternative coverage.'' Basic alternative coverage refers to
alternative coverage that is actuarially equivalent to defined standard
prescription drug coverage. Enhanced alternative coverage refers to
alternative coverage that exceeds defined standard coverage by offering
supplemental benefits.
Within the parameters for alternative prescription drug coverage
described above, a Part D sponsor with a basic alternative prescription
drug benefit design can theoretically--by combining features such as a
reduction in the deductible, changes in cost-sharing, and a
modification of the initial coverage limit--still maintain an actuarial
value of coverage equal to defined standard prescription drug coverage.
Enhanced Alternative Coverage
Section 423.104(f) of our proposed rule permitted Part D sponsors
to provide qualified prescription drug coverage that includes
supplemental benefits. We referred to any Part D benefit package that
includes supplemental benefits as ``enhanced alternative coverage.''
Enhanced alternative coverage includes basic prescription drug
coverage and supplemental benefits. The requirements for the
supplemental benefits that may be included in enhanced alternative
coverage are found in section 1860D-2(a)(2) of the Act. These
supplemental benefits will supplement basic prescription drug coverage,
providing for a package of benefits that exceeds the actuarial value of
defined standard coverage. Supplemental benefits can consist of:
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[[Continued from page 4242]]
[[Page 4243]]
+ Reductions in cost-sharing that increase the actuarial value of
the coverage beyond that of defined standard coverage; or
+ Coverage of drugs that are specifically excluded from the
definition of Part D drugs under section 1860D-2(e)(2)(A) of the Act
and Sec. 423.100 of our proposed rule.
Under section 1860D-2(a)(2)(B) of the Act, a PDP sponsor would not
be permitted to offer a prescription drug plan that provided enhanced
alternative coverage in a particular service area unless it also offers
a prescription drug plan that provides only basic prescription drug
coverage (which we defined as either standard prescription drug
coverage or basic alternative coverage, with access to negotiated
prices) in that same area.
Similarly, as provided under section 1860D-21(a)(1)(A) of the Act,
beginning on January 1, 2006, an MA organization cannot offer an MA
coordinated care plan in a service area unless that plan, or another MA
plan offered by the same organization in the same service area,
includes required prescription drug coverage. As defined in Sec.
423.100 of our proposed rule, required prescription drug coverage, for
the purposes of an MA organization offering an MA-PD plan, included
either: (1) basic prescription drug coverage; or (2) enhanced
alternative coverage, provided there is no MA monthly supplemental
beneficiary premium applied under the MA-PD plan. The enhanced
alternative coverage could be provided without a monthly supplemental
beneficiary premium only if a MA-PD plan applied a credit against the
otherwise applicable premium of rebate dollars available under section
1854(b)(1)(C) of the Act.
Rebate dollars represent the dollars available for supplemental
(and other) benefits when an MA plan's risk-adjusted non-drug bid is
under the risk-adjusted non-drug monthly benchmark amount. In other
words, to the extent that an MA-PD plan chooses to provide enhanced
alternative coverage for no additional premium through the application
of rebate dollars, the enhanced alternative coverage would constitute
required coverage for the purposes of meeting the requirement in
section 1860D-21(a)(1)(A) of the Act.
As provided under section 1860D-21(a)(1)(B)(i) of the Act, an MA
organization could not offer prescription drug coverage (other than
that required under Parts A and B of Medicare) to enrollees of a
medical savings account (MSA) plan. Under section 1860D-21(a)(1)(B)(ii)
of the Act, an MA organization also could not offer prescription drug
coverage (other than that required under Parts A and B of Medicare)
under another type of MA plan--including a private fee-for-service
plan--unless the drug coverage it provided under that MA plan consisted
of qualified prescription drug coverage and met our requirements
regarding required prescription drug coverage.
Given changes in Sec. 417.440(b) of our final rule (described in
subpart T), we clarify in our final rule the requirements associated
with the offering of enhanced alternative coverage by cost plans. As
provided in Sec. 423.104(f)(4)(i) of our final rule, a cost plan that
elects to offer qualified prescription drug coverage under Part D may
offer enhanced alternative coverage only as an optional supplemental
benefit (under Sec. 417.440(b)(2)(ii)), and only if the cost plan also
offers basic prescription drug coverage.
As provided in Sec. 423.104(f)(4)(ii) of our final rule, a cost
plan that elects to offer Part D coverage as an optional supplemental
benefit (under Sec. 417.440(b)(2)(ii)) may only do so if the coverage
it offers consists of qualified prescription drug coverage. However, a
cost plan that does not offer qualified prescription drug coverage may
provide prescription drug coverage that is not qualified prescription
drug coverage, and the requirements of Part D do not apply to the
coverage.
Except as otherwise provided below, the final rule adopts the rules
of alternative coverage set forth in Sec. 423.104(f) and Sec.
423.104(g) of our proposed rule.
Comment: One commenter recommended that we issue regulations
encouraging basic alternative coverage including optional drugs because
it will offer beneficiaries a more comprehensive benefit package.
Response: We do not have the statutory authority to allow basic
alternative coverage to include drugs that are statutorily excluded
from the definition of Part D drugs. Coverage of drugs otherwise
excluded from the definition of Part D drug under section 1860D-
2(e)(2)(A) of the Act is considered a supplemental benefit as provided
under section 1860D-2(a)(2) of the Act. As specified in Sec. 423.100
of our proposed and final rules, basic alternative coverage must be
actuarially equivalent to defined standard coverage and cannot include
any supplemental benefits. The only way that Part D plans may provide
supplemental benefits, to include coverage of drugs excluded from the
definition of Part D drugs under section 1860-D(2)(e)(2)(A) of the Act,
is by providing enhanced alternative coverage.
Comment: One commenter sought clarification as to whether
alternative coverage would be subject to the same kind of out-of-pocket
cost limits and coverage thresholds instituted under standard
prescription drug coverage.
Response: In accordance with section 1860D-2(b)(A)(i)(I) of the
Act, Part D plans offering enhanced alternative coverage may only
reduce certain cost-sharing specifically, a reduction in the
deductible, a reduction in the coinsurance percentage or copayments
applicable to covered Part D drugs obtained between the annual
deductible, and the initial coverage limit, or an increase in the
initial coverage limit. Section 1860D-2(A)(i) does not permit Part D
plans to offer enhanced alternative drug coverage consisting of a
reduction of the out-of-pocket threshold under Sec. 423.104(d)(5)(iii)
of our final rule. Section 1860D-2(c)(3) of the Act also requires that
Part D plans offering alternative prescription drug coverage provide
the same protection against high out-of-pocket expenditures as defined
standard coverage. Thus, enhanced alternative coverage may fill in some
of the coverage gaps in defined standard coverage, but it cannot affect
the true out-of-pocket threshold described in Sec.
423.104(d)(5)(B)(iii) of our final rule, which will be $3,600 in 2006.
In other words, beneficiaries must still incur $3,600 (in 2006) in true
out-of-pocket expenses before they can benefit from the Medicare
catastrophic coverage cost-sharing amounts (the greater of 5 percent
coinsurance or $2/$5 copayments), and before Part D plans are eligible
to receive reinsurance subsidies from Medicare. As with actuarially
equivalent standard coverage, Part D plans can provide an actuarially
equivalent version of the coverage provided after the true out-of-
pocket threshold is met. In addition, enhanced alternative coverage can
improve this coverage.
Comment: Several commenters opposed the provisions of Sec.
423.104(f) of our proposed rule and recommended that the final rule
exclude provisions for enhanced alternative coverage. These commenters
argue that this section exceeds the statutory authority supplied to the
Secretary under the MMA and that allowing such Part D plans to be
offered would make it impossible to make a valid comparison between
Part D plans, thus making it more difficult for beneficiaries to choose
a Part D plan.
Response: We disagree with these commenters. Section 1860D-2(a)(2)
of the Act provides that qualified prescription drug coverage may
include supplemental prescription drug
[[Page 4244]]
coverage consisting of: (1) reductions in cost-sharing (for example, a
reduction in the deductible, a reduction in the coinsurance percentage
or copayments applicable to covered Part D drugs obtained between the
annual deductible and the initial coverage limit, or an increase in the
initial coverage limit), provided these reductions in cost-sharing
increase the actuarial value of the benefits provided above the
actuarial value of basic prescription drug coverage; or (2) coverage of
drugs that are specifically excluded as Part D drugs under section
1860D-2(e)(2)(A) of the Act. ``Enhanced alternative coverage'' is
simply our term for qualified prescription drug coverage that includes
these supplemental benefits specifically permitted by the statute. We
understand commenters' concerns about beneficiaries' ability to compare
Part D plan features given the benefit flexibility design accorded to
Part D plans under the MMA and will work to ensure that our comparative
information is as standardized and user friendly as possible.
c. Negotiated Prices
Section 1860D-2(d)(1) of the Act requires that a Part D sponsor
provide beneficiaries with access to negotiated prices for covered Part
D drugs. As required by section 1860D-2(d)(1)(B) of the Act, negotiated
prices will have to take into account negotiated price concessions for
covered Part D drugs such as discounts, direct or indirect subsidies,
rebates, and direct or indirect remunerations, and would include any
applicable dispensing fees. Access to negotiated prices will be
provided even when no benefits would otherwise be payable on behalf of
an enrollee due to the application of a deductible, the initial
coverage limit, or other cost-sharing.
As required under section 1860D-2(d)(1)(C) of the Act, prices
negotiated with manufacturers for covered Part D drugs by either (1) a
Part D plan, or (2) a qualified retiree prescription drug plan for
covered Part D drugs provided on behalf of Part D eligible individuals
will not be taken into account in making best price determinations
under the Medicaid program.
Section Sec. 423.104(h)(3) of our proposed rule required that Part
D sponsors disclose to us all aggregate negotiated price concessions
including discounts, direct or indirect subsidies, and direct or
indirect remunerations, they obtain from each pharmaceutical
manufacturer that are passed through to the Medicare program in the
form of lower subsidies or to beneficiaries in the form of: (1) lower
monthly beneficiary premiums; or (2) lower covered Part D drug prices
at the point of sale.
As provided under section 1860D-2(d)(2) of the Act, information on
negotiated prices reported to us for the purposes of ascertaining the
level of pass-through will be protected under the confidentiality
provisions applicable to Medicaid pricing data under section
1927(b)(3)(D) of the Act. However, that these confidentiality
protections did not preclude audit and evaluation of negotiated price
concession information by the HHS OIG.
As provided under section 1860D-2(d)(3) of the Act and codified in
Sec. 423.104(h)(4) of our proposed rule, we are authorized to conduct
periodic audits either directly or through contracts with other
organizations of the financial statements and records of Part D
sponsors pertaining to the Part D plans they offer. As required in
section 1860D-2(d)(3) of the Act, this auditing will be performed with
the ultimate goal of protecting the Medicare program against fraud and
abuse, as well as ensuring proper disclosures and accounting under Part
D.
Except as otherwise provided below, the final rule adopts the rules
for negotiated prices set forth in Sec. 423.104(h) of our proposed
rule.
Comment: Some commenters believed that the phrase ``take into
account'' in our definition of negotiated prices is not strong enough,
and that we should establish minimum requirements for the proportion of
total negotiated price concessions passed through to beneficiaries.
Suggestions ranged from a majority (75 to 80 percent) to 100 percent of
negotiated price concessions.
Response: Section 1860D-2(d)(1)(B) of the Act specifically requires
that negotiated prices ``shall take into account negotiated price
concessions, such as discounts, direct or indirect subsidies, rebates,
and direct or indirect remunerations.'' Had the Congress intended that
all negotiated price concessions be passed through to beneficiaries,
they would have used a phrase other than ``take into account'' in the
definition of the term ``negotiated prices.''
In addition, section 1860D-2(d)(2) of the Act specifically requires
that Part D plans disclose to us aggregate negotiated price concessions
that are passed through to enrollees and to us through lower subsidies,
lower monthly premiums, and lower prices through pharmacies and other
dispensers. In requiring Part D plans to disclose to us the extent to
which they pass through negotiated price concessions to enrollees and
to us, section 1860D-2(d)(2) of the Act anticipates that Part D plans
might not pass through all negotiated price concessions. Therefore, we
interpret the definition of the term negotiated prices in section
1860D-2(d)(1)(B) of the Act as requiring Part D plans to pass on to
enrollees some, but not necessarily all, of these price concessions and
have clarified this interpretation in our definition of the term
``negotiated prices'' in Sec. 423.100 of our final rule. We believe
that market competition will encourage Part D plans to pass through to
enrollees a high percentage of the negotiated price concessions they
obtain in the form of negotiated prices at the point of sale.
Establishing minimum threshold levels for the pass-through of
negotiated price concessions would have the effect of undercutting
market competition, as Part D plans might cluster their negotiated
prices around that threshold.
Comment: Some commenters recommended that we clarify how price
concessions will be passed through to the pharmacy and to the
beneficiaries. Some of these commenters specifically asked us to ensure
that Part D plans, not pharmacists, bear the costs of discounts.
Response: The Part D benefit was established by the MMA as a
market-based model under which marketplace competition ensures that
enrollees receive low prices for prescription drugs. Given this market-
based approach envisioned by the Congress, we are wary of regulating
negotiations between private parties particularly regarding the
specifics of price negotiations so as to ensure that enrollees receive
competitive prices on their covered Part D drugs. We note, as well,
that pharmacies are not required to contract with Part D plans. To the
extent that pharmacies believe that the discounts they are being asked
to offer are too high, they can refuse to participate in Part D plan
pharmacy networks. Given our pharmacy access standards at Sec.
423.120(a)(1), we expect that pharmacies will have some leverage vis-
[agrave]-vis the payment provisions in Part D plan contracts.
Comment: Two commenters stated that they considered our requirement
that pharmacies pass through negotiated prices during coverage gaps and
for non-covered formulary drugs to be price controls.
Response: Section 1860D-2(d)(1) of the Act requires, as implemented
under Sec. 423.104(g)(1) of our final rule, that a Part D sponsor
provide enrollees with access to negotiated prices for covered Part D
drugs even when no benefits would otherwise be payable on behalf of an
enrollee due to the application of a deductible, the initial coverage
limit, or other cost-sharing. We interpret the
[[Page 4245]]
reference to the lack of payable benefits due to the application of the
initial coverage limit as referring to that portion of covered Part D
drug expenditures between the initial coverage limit and the threshold
for catastrophic coverage. In that expenditure range, a beneficiary
enrolled in standard prescription drug coverage would be responsible
for 100 percent cost-sharing. These are still covered Part D drugs, and
enrollees should be able to benefit from negotiated prices during the
coverage gap.
We clarify that negotiated prices do not have to be made available
for non-covered Part D drugs. However, as we stated in the preamble to
our proposed rule, we are interpreting the phrase ``or other cost-
sharing'' as a reference to Part D plan designs that include, as part
of their formulary design, access to negotiated prices on certain drugs
but at a tier within their formulary in which the Part D plan would pay
no benefits and the enrollee would be responsible for 100 percent cost-
sharing (in other words, a negotiated price would be available and the
drug would be on the Part D plan's formulary, but the beneficiary would
always be responsible for 100 percent of the drug's negotiated price).
These drugs would therefore be formulary drugs and would have to be
offered at negotiated prices. As stated elsewhere in this preamble,
however, we note that we will review formulary design as part of our
benefit package review to ensure that Part D plans do not establish
formulary structures (including tiered cost-sharing) that substantially
discourage enrollment by certain beneficiaries. To the extent that Part
D plans propose using certain cost-sharing tiers (including, but not
limited to, 100 percent cost-sharing tiers) in a discriminatory
fashion, they would not be allowed.
In addition, we clarify that we interpret the requirement that
negotiated prices always be provided to mean that uniform negotiated
prices must be available to beneficiaries for a particular drug when
purchased from the same pharmacy. In other words, the negotiated price
for a particular drug will be the same, at a particular pharmacy,
regardless of whether a beneficiary's drug spending is between $0 and
the deductible, between the deductible and initial coverage limit,
between the initial coverage limit and the out-of-pocket threshold, or
in excess of the out-of-pocket threshold. We believe that non-uniform
negotiated prices would discourage enrollment by certain Part D
eligible individuals in violation of section 1860D-11(e)(2)(D)(i) of
the Act and, therefore, plans will not be able to apply differential
negotiated prices to any drug purchased from a given pharmacy.
Comment: Other commenters recommended that the definition of the
term ``negotiated price'' reflect the price to the Part D plan net of
any rebates, discounts, or other price concessions paid to the Part D
plan for a covered Part D drug prescription obtained from either a
retail or mail-order pharmacy. Some commenters asked that price
concessions not be allowed to artificially lower the cost of mail order
prescriptions.
Response: Part D sponsors will negotiate prices with pharmacies and
manufacturers, and we assume based on current market practices that
negotiated prices will vary within a retail pharmacy network, as well
as between retail and mail-order pharmacies. How a Part D sponsor nets
out negotiated price concessions in its negotiated prices is at the
discretion of the Part D sponsor, but we expect that competition will
create incentives for Part D sponsors to offer reasonable negotiated
prices. Ultimately, however, these pricing issues are between a Part D
sponsor and the network pharmacies and manufacturers with whom the Part
D plan negotiates price concessions.
Comment: Some commenters recommended that Part D plans be required
to reimburse pharmacies to recover costs of purchasing, handling, and
dispensing products to beneficiaries.
Response: As provided elsewhere in this preamble, negotiated prices
will include any dispensing fees for covered Part D drugs related to
the transfer of possession of the covered Part D drug from the pharmacy
to the beneficiary, including charges associated with mixing drugs,
delivery, and overhead. As provided in section 1860D-11(i) of the Act,
we cannot intervene in negotiations between pharmacies and Part D
plans. Thus, the extent to which Part D plans reimburse pharmacies for
their entire dispensing costs will depend on the outcome of those
negotiations.
Comment: Two commenters noted that our definition of the term
``negotiated prices'' appears to envision network model Part D plans,
but that MA organizations and cost plans that own and operate their own
pharmacies do not negotiate reimbursement rates with contract
pharmacies. One commenter recommended that negotiated prices for such
MA organizations and cost plans be defined as the prescription charge
established by the organization, and that such charge include the
acquisition cost of the drug, dispensing, operational, capital,
overhead, and margin costs. The commenter suggested that, in
determining whether Part D plans' negotiated prices meet the standard
of section 1860D-2(d)(1)(B) of the Act, we could either compare an MA
organization's negotiated prices to negotiated prices of network model
Part D plans in the same market or, alternatively, require the MA
organization to demonstrate how it takes price discounts it receives
from manufacturers into account in its pricing methodology or formula.
Another commenter suggested that we permit such MA organizations to
establish a pricing methodology that reflects a good faith effort to
reflect prices analogous to those that would be negotiated by an MA
organization with third party pharmacy providers, and that we consult
with affected MA organizations in establishing this policy.
Response: We clarify that our definition of the term ``negotiated
prices'' in Sec. 423.100 of the final rule requires that ``discounts,
direct or indirect subsidies, rebates, other price concessions, and
direct or indirect remunerations'' be taken into account in
establishing covered Part D drug negotiated prices. Plans do not have
to take into account pharmacy discounts to the extent that no such
discounts exist. Moreover, we note that our definition of the term
``dispensing fees'' in Sec. 423.100 of the final rule indicates that,
in the case of pharmacies owned and operated by a health plan,
dispensing fees are understood to be the equivalent of all reasonable
pharmacy costs included in the definition (those related to the
transfer of possession of a covered Part D drug to a Part D plan
enrollee), including the salaries of pharmacists and other pharmacy
workers as well of the costs associated with maintaining the pharmacy
facility and equipment necessary to operate the pharmacy. For purposes
of evaluating the validity of a Part D plan's bid, including its
negotiated prices for covered Part D drugs, we will request and
evaluate disaggregated negotiated price concession data only to the
extent that such detail is necessary in order to justify actuarial
assumptions or as part of an audit.
Comment: One commenter asked that we define the meaning of the
terms ``direct or indirect subsidies'' and ``direct or indirect
remunerations.'' Another commenter suggested that negotiated price
concessions reported to us should include formulary placement
incentives, market share movement incentives, administrative fees paid
to
[[Page 4246]]
Part D plans, and direct and indirect forms of remuneration. One
commenter asked that we provide clarification on how rebates will be
calculated, reflected in negotiated prices, and reported to us.
Response: We note that Part D plans may fulfill the requirements of
section 1860D-2(d)(2) of the Act through the data submission
requirements discussed in further detail in subpart G. In other words,
we should be able to determine the proportion of total aggregate price
concessions passed through to either the Medicare program or to
enrollees based on the cost data Part D plans will be required to
submit to us. Although all negotiated price concessions be they direct
or indirect subsidies, direct or indirect remunerations, rebates, or
discounts must be reported to us, as provided in Sec. 423.104(g)(3) of
our final rule, we will require that Part D plans break out any fair
market value administrative fees pharmaceutical manufacturers may pay
Part D sponsors. The use of the term indirect with direct is meant to
be all-inclusive. In other words, we clarify that this means any and
all subsidies or remunerations. We will specify in operational guidance
the format and frequency of these reports, as well as what constitutes
direct or direct subsidies, direct or indirect remunerations, rebates,
and discounts.
Comment: We received a number of comments regarding our aggregate
negotiated price concession disclosure requirements. Several commenters
asked us to clarify that only aggregate price concessions passed
through to us and to enrollees will be reported to us, rather than the
amount or proportion of total price concessions obtained by a Part D
plan. Other commenters thought that Part D plans should be required to
disclose all price concessions, not just the proportion passed through
to Part D enrollees. A number of other commenters asked that we require
the disclosure of negotiated price concession by drug.
Response: We clarify that, as provided under section 1860D-2(d)(2)
of the Act, and specified in Sec. 423.104(g)(3) of our final rule, we
will require that all aggregate negotiated price concession data and
not just the proportion passed through to beneficiaries be reported to
us for purposes of Part D plan bids. However, as explained in subpart
G, it may be necessary for us to receive disaggregated negotiated price
concession data from Part D plans in order to ensure accurate payment
to Part D plans. We will provide further information regarding
negotiated price concession reporting in separate guidance.
Comment: Several commenters recommended that Part D plans share all
negotiated price concession data reporting with SPAPs.
Response: Since nothing in the MMA addresses disclosure of
negotiated price information to SPAPs, FOIA rules apply. FOIA applies
to requests for data from States. FOIA Exemption 4 protects certain
confidential commercial information that is submitted to a Federal
agency. Determinations about the applicability of FOIA Exemption 4 to a
Part D plan's pricing data would be made on a case-by-case basis
depending on whether the submitter of the data could demonstrate that
disclosure of this information would likely cause substantial
competitive harm to the submitter's competitive position. If FOIA
Exemption 4 is found to protect submitted price information, we cannot
disclose this information to States because to do so would violate the
Trade Secrets Act (18 U.S.C. 1905).
Comment: One commenter stated the ``best price'' provision
undermined the original intent of section 1927 (c)(1)(C) of the Act and
would have a negative financial impact on the Medicaid prescription
drug program.
Response: We believe the Congress intended that there be no Federal
barriers to Part D sponsors negotiating the lowest prices possible for
their plan members. If negotiated prices counted towards ``best
price,'' this could create a disincentive for manufacturers to offer
discounts. Further, the purpose of ``best price'' exemptions in section
1927(c)(1)(C) of the Act is to ensure that manufacturers offer Medicaid
programs strong rebates that are market-driven, without penalizing the
manufacturers indirectly for the discounts they offer by law under
other Federal drug programs. Exempting negotiated prices under the new
Medicare prescription drug benefit is consistent with that purpose. The
issue of effects on Medicaid best price is discussed in the impact
analysis.
Comment: One commenter asked for further guidance regarding the
``best price'' exemption, stating that Part D providers should be able
to negotiate simultaneously for commercial prices, which would count
toward ``best price,'' and for Medicare/qualified retiree prices, which
would not count toward ``Best Price.''
Response: Under section 1860D-11(i) of the Act, we have no
authority to regulate price concessions between manufacturers and Part
D plans. Consequently, we cannot prohibit or require Part D plans from
negotiating simultaneously for commercial prices, which would be
included in the calculation of the Medicaid drug rebate best price, and
Medicare prices, which would not be included in the calculation of the
Medicaid drug rebate best price. If Part D plans wish to simultaneously
negotiate their commercial and Medicare prices, they are free to do so.
Comment: One commenter suggested that we recommend to the Congress
alternatives to the existing ``best price'' rebate formula. The
commenter recommended a flat rebate formula to generate savings for
State Medicaid programs, while eliminating the negative impact of the
``best price'' formula on the prescription drug market generally.
Response: This regulation does not address the best price
provisions of the Medicaid drug rebate statute as we do not have the
statutory authority under Title I of the MMA to modify the Medicaid
rebate program.
3. Establishment of Prescription Drug Plan Service Areas (Sec.
423.112)
Section 1860D-11(a)(2) of the Act provides us with the authority to
establish PDP regions, and such PDP regions must be established in a
manner that is consistent with the establishment of MA regions. Section
1860D-11(a)(2)(B) of the Act stipulates that PDP regions must be, to
the extent practicable, consistent with MA regions as established under
section 1858(a)(2) the Act. However, we may establish PDP regions that
vary from MA regions if we determine that access to Part D benefits
would be improved by establishing different regions. Section 1860D-
11(a)(2)(C) of the Act stipulates that we designate a separate PDP
region (or regions) for the U.S. territories.
Except as otherwise provided below, the final rule adopts the
requirements related to the establishment of prescription drug plan
service areas set forth in Sec. 423.112 of the proposed rule.
Comment: We received a number of comments on the establishment of
PDP regions both in response to the provisions of our proposed rule and
as follow-up to a public meeting held in Chicago on July 21, 2004. The
majority of commenters favored establishing 50 State-based regions or,
more generally, a larger number of smaller regions--close to that of
State-level regions. Issues identified in support of 50 State-based
regions included the large assumption of risk associated with the
establishment of larger regions; insufficient time for Part D plans to
negotiate and develop networks, or to renegotiate providers' contracts
and form partnerships; potential difficulties in meeting State
licensure and solvency requirements; and greater ease in terms of
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coordination between Part D plans and SPAPs in providing coverage that
supplements the benefits available under Part D coverage. Several
commenters recommended an intermediate number of regions between the 10
and 50 regions authorized by the MMA. One commenter cautioned us to
develop an appropriate number of regions in order to ensure that
beneficiaries particularly those in rural areas have meaningful access
to Part D choices. Yet another commenter recommended that we align PDP
and MA regions in order to preclude beneficiary confusion by MA
enrollees as they try to understand their options during the initial
enrollment period for Part D coverage.
Several other commenters specifically recommended that a standalone
region be created for Puerto Rico separate from the 50 States and any
of the other U.S. territories. These commenters believe it is necessary
for Puerto Rico to be placed in its own PDP region because a multi-
state PDP region for Puerto Rico would compromise the viability of Part
D on the island. They argue that Puerto Rico-based plans have years of
experience working with the local Medicare population and its distinct
linguistic and cultural traditions and will be disadvantaged when
competing with U.S. companies to build provider networks outside Puerto
Rico. Some commenters also thought that combining Puerto Rico and
another State or States (for example, Florida or New York) will drive
up premiums for Puerto Rican enrollees. On the other hand, one
commenter argued that a standalone region for Puerto Rico would isolate
it, and preferred to stay in the New York region under the MA and PDP
programs.
Response: We conducted a market survey and analysis, including an
examination of current insurance markets as required in the MMA. Key
factors in the survey and analysis included payment rates; eligible
population size per region; PPO market penetration; current existence
of PPOs, MA plans, or other commercial plans; and presence of PPO
providers and primary care providers. Additional factors were also
considered, including solvency and licensing requirements, as well as
capacity issues. In response to the lack of specificity regarding the
PDP regions in our proposed rule, we conducted extensive outreach in
order to obtain public input prior to the publication of our final
rule. On December 6, 2004, we announced the establishment of 26 MA
regions and 34 PDP regions. For maps and fact sheets on the on the
regions, please see http://www.cms.hhs.gov/medicarereform/mmaregions/.
4. Access to Covered Part D Drugs (Sec. 423.120)
a. Pharmacy Access Standards
As required by section 1860D-4(b)(1)(C) of the Act, Part D plans
must secure the participation in their pharmacy networks of a
sufficient number of pharmacies that dispense drugs directly to
patients (other than by mail order) to ensure convenient access to
covered Part D drugs by Part D plan enrollees. To achieve that goal, we
are authorized to establish access rules that are no less favorable to
enrollees than rules for convenient access established in the statement
of work solicitation (MDA906-03-R-0002) by the Department of
Defense (DOD) on March 13, 2003, for purposes of the TRICARE Retail
Pharmacy program. Consistent with the TRICARE standards, our proposed
rule required that Part D plans establish pharmacy networks in which:
In urban areas, at least 90 percent of Medicare
beneficiaries in the Part D plan's service area, on average, live
within 2 miles of a retail pharmacy participating in the plan's
network;
In suburban areas, at least 90 percent of Medicare
beneficiaries in the Part D plan's service areas, on average, live
within 5 miles of a retail pharmacy participating in the prescription
drug plan's or MA-PD plan's network; and
In rural areas, at least 70 percent of Medicare
beneficiaries in the Part D plan's service area, on average, live
within 15 miles of a retail pharmacy participating in the plan's
network.
As provided under section 1860D-21(c)(3) of the Act and codified in
Sec. 423.120(a)(3)(i) of our proposed rule, we are authorized to waive
the pharmacy access standards in Sec. 423.120(a)(1) in the case of an
MA-PD plan or cost plan that provides access (other than via mail
order) to qualified prescription drug coverage through pharmacies owned
and operated by the MA organization that offers the plan or the cost
plan. However, in order for the pharmacy access standards to be waived,
the MA-PD plan or cost plan in question is required to have a pharmacy
network that, per our determination, provides comparable pharmacy
access to its enrollees as provided under Sec. 422.112.
Similarly, section 1860D 21(d)(2) of the Act provides that if a
private fee-for-service MA plan offering qualified prescription drug
coverage provides coverage for drugs, including covered Part D drugs,
purchased from all pharmacies regardless of whether they are network
pharmacies under contract with the MA plan, and provided that
beneficiaries are not charged any cost-sharing above and beyond what
they will be charged under standard prescription drug coverage--the
pharmacy access requirements will also be waived.
As provided under section 1860D-4(b)(1)(A) of the Act, Part D
sponsors will be required to permit the participation in their Part D
plan networks of any pharmacy that was willing to accept the plan's
terms and conditions. Based on section 1860D-4(b)(1)(B) of the Act, our
proposed rule clarified that a Part D sponsor will have the option of
reducing cost-sharing for its enrolled beneficiaries below the level
that would otherwise apply for covered Part D drugs dispensed through
network pharmacies. We interpreted this provision as permitting Part D
sponsors from varying cost-sharing not only based on type of drug or
formulary tier, but also on a particular pharmacy's status within the
Part D plan's pharmacy network-in essence authorizing distinctions
between ``preferred'' and ``non-preferred'' pharmacies.
As stipulated under section 1860D-4(b)(1)(E) of the Act and Sec.
423.120(a)(4)(ii) of our proposed rule, pharmacies could not be
required to accept insurance risk as a condition of participation in a
Part D sponsor's pharmacy network. We defined ``insurance risk'' in
relation to a network pharmacy as referring to risk of the type
commonly assumed only by insurers licensed by a State, but not
including payment variations designed to reflect performance-based
measures of activities within the control of a pharmacy, such as
formulary compliance and generic drug substitutions, or elements
potentially in the control of the pharmacy (for example, labor costs,
and productivity).
Section 1860D-4(b)(1)(D) of the Act requires Part D sponsors to
allow their enrollees to receive benefits at a network retail pharmacy
instead of a network mail-order pharmacy, if they so choose. Consistent
with the statute, our proposed rule allowed Part D plan enrollees who
choose to obtain an extended supply of a covered Part D drug through a
network retail pharmacy to be responsible for any differential between
the network retail pharmacy's and the network mail-order pharmacy's
negotiated price for that covered Part D drug. We sought comments on
our proposal that this price differential be counted as an incurred
cost against the annual out-of-pocket threshold and note that, as
discussed elsewhere in this preamble, we have modified the level
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playing field provision at Sec. 423.120(b)(10) of our final rule to
clarify that an enrollee will be responsible for any higher cost-
sharing (and not a differential in negotiated price) associated with
purchasing a 90-day supply of a covered Part D drug at a network retail
pharmacy, as well as our definition of incurred costs at Sec. 423.100
of the final rule.
Except as otherwise provided below, the final rule adopts the
access standards set forth in Sec. 423.120(a) of the proposed rule.
Comment: In our proposed rule, we interpreted the TRICARE access
standards such that a prescription drug plan or regional MA-PD plan
would have been required to meet or exceed the access standards across
each region in which it operates, and a local MA-PD plan would have to
meet or exceed the access standards in its local service area.
Some commenters supported this application of the TRICARE access
standards in our proposed rules (regional for prescription drug plans
and MA-PD plans). A number of commenters expressed concerns about the
adequacy of our proposed application of the access standards and urged
us to apply the standards at the local (zip-code) level. A number of
other commenters urged us to apply the TRICARE standards at the State
level. Several other commenters recommended that Part D plans meet the
access standards at the broadest geographic area served by the plan
(for example, regional, multi-regional, or national).
Response: Although section 1860D-4(b)(1)(C)(ii) of the Act directs
us to adopt access standards no less favorable to enrollees than those
set forth in the March 13, 2003, statement of work solicitation
(MDA906-03-R-0002) of the Department of Defense under the
TRICARE Retail Pharmacy Program, we note that the statement of work
does not specify the geographic level at which to apply the TRICARE
standard. We therefore believe that we have discretion to apply the
TRICARE standards at the geographic level we believe to be most
appropriate.
Although we considered applying the TRICARE standard at the local
(zip code or county) level for Part D plans, we believe such
application would make it impossible for Part D plans to meet the
standards particularly the rural standard--in some parts of the
country. On the other hand, we believe that application of the access
standards at the broader, regional level would not adequately ensure
convenient access for beneficiaries given the potential for Part D
plans to ``average out'' the access standards across many urban,
suburban, and rural areas in a region--thus meeting the access
standards in the aggregate but potentially leaving certain parts of a
region without convenient access to retail pharmacies.
We agree with commenters who proposed a State-level application of
the TRICARE pharmacy access standards for regional MA-PD plans and
prescription drug plans, and have made changes to Sec. 423.120(a)(1)
accordingly such that a prescription drug plan or regional MA-PD plan
will have to meet or exceed the access standards across urban,
suburban, and rural areas, respectively, in each State in which it
operates, a local-MA-PD plan would have to meet or exceed the access
standards across urban, suburban, and rural areas, respectively, in
each service area (including multi-county service areas) in which it
operates, and a cost plan would have to meet or exceed the access
standards across urban, suburban, and rural areas, respectively, in
each geographic area in which it operates. In other words, a
prescription drug plan or regional MA-PD that operates in a multi-
region or national service area could not meet the access standards
proposed in Sec. 423.120(a)(1) by applying them across the entire
geographic area serviced by the plan; instead, it would have to meet
the standards in each State of its multi-region or national service
area. We believe that such an interpretation is a reasonable compromise
between application at the local level and application at the regional
or national level, and maximizes Part D plan flexibility while ensuring
convenient access to network pharmacies for Part D enrollees.
Comment: Some commenters expressed concern that TRICARE's rural
access standard was insufficient to provide convenient access to
network pharmacies in rural areas and urged us to adopt a more adequate
definition of rural. Others argued for an exceptions process for
remote, isolated areas in which it is simply not feasible to establish
pharmacy networks that comply with our requirements.
Response: We are aware of the difficulties faced by rural
beneficiaries in accessing medical care. We believe that TRICARE's
definition of ``rural'' is adequate and have not modified it in our
final rule (though we will monitor the access standards over time to
ensure they continue to provide convenient access to all
beneficiaries). Furthermore, we believe access in rural areas will be
improved given our revised interpretation of the access standards,
whereby we will evaluate access at the State (and not the regional)
level. However, we are aware--based on our experience implementing the
Medicare Prescription Drug Discount Card and Transitional Assistance
Program--that there are likely to be several States in which meeting
the rural access standard will be impossible or impracticable given the
lack of infrastructure. We expect to establish an exceptions process,
which we will outline in operational guidance to Part D plans that will
account for any problem areas and mitigate any disincentives plans may
have to avoid doing business in parts of the country in which meeting
the pharmacy access standards would be a challenge.
In addition, and as explained elsewhere in this preamble, and
codified in Sec. 423.120(a)(2) of our final rule, we will allow Part D
plans to count certain non-retail pharmacies--specifically, I/T/U,
Federally Qualified Health Center (FQHC), and Rural Health Center (RHC)
pharmacies--toward the pharmacy access requirements in Sec.
423.120(a)(1) of our final rule. We believe this policy will help
ensure convenient access in rural areas.
Comment: Several commenters asked that we ensure that national Part
D plans are created. These commenters thought that national Part D
plans would be of benefit to beneficiaries who travel regularly or who
reside in more than one State in a given year (for example,
``snowbirds''), and urged that the ramifications of choosing a local
MA-PD plan or a regional Part D plan be made clear to beneficiaries who
may not realize the implications of such limited geographic access when
they select Part D plan coverage.
Response: Although a Part D sponsor may offer a Part D plan in more
than one PDP or MA region, it is not required to do so. Therefore, we
cannot require national Part D plans, though we certainly recognize the
benefits of such plans for some beneficiaries given the limited
applicability of our out-of-network access policy. We note that our
pharmacy access standards would not in any way preclude Part D sponsors
from contracting with pharmacies outside their Part D plans' service
areas, provided that the plans meet the pharmacy access requirements
within their service areas. Such a feature would be of particular use
to beneficiaries who spend significant amounts of time outside their
Part D plan's service area (for example, snowbirds) and could make a
particular Part D plan that offered such benefits more attractive to
beneficiaries who travel regularly. National Part D plans are also of
interest to employers who have retirees living throughout the country,
and the
[[Page 4249]]
employer group waiver authority discussed in subpart J could facilitate
these employer-only national Part D plans. We also note that, as part
of our information dissemination requirements in Sec. 423.128(b) of
the final rule, Part D plans will be required to inform beneficiaries
about the plan's service area, as well as the locations of network
pharmacies.
Comment: Several commenters asked us to make allowances for
``snowbirds,'' stating that our regulations should allow Part D
sponsors to offer ``visitor/traveler'' benefits available under the MA
program. One commenter specifically suggested the application of the MA
requirements, which allow an organization to provide such benefits to
an individual who is temporarily out of the area for up to 12 months. A
few commenters stated that we should require prescription drug Part D
plans to offer visitor/traveler benefits. One commenter suggested,
however, that we allow exceptions for regional Part D plans and those
with out-of-network services. One commenter suggested that we consider
allowing Part D plans to offer ``travel'' networks without requiring
them to contract in those regions, suggesting that this could be an
interim approach pending evaluation of the cost/payment experience for
both Part D plans and us.
Response: We appreciate the feedback provided by the commenters on
applying a visitor/traveler benefit to prescription drug plans as has
been provided to the MA program. We do not have the authority to
establish a visitor/traveler benefit. However, as noted above, our
pharmacy access standards would not in any way preclude Part D sponsors
from contracting with pharmacies outside their plans' service areas,
provided that plans meet the pharmacy access requirements within their
service areas, and such access is not provided outside the United
States.
Comment: We interpreted the access requirements in section 1860D-
4(b)(1)(C) of the Act as requiring Part D plans to count only retail
pharmacies as part of their networks for the purpose of meeting the
access standards, and we proposed defining a retail pharmacy as any
licensed pharmacy from which covered Part D enrollees could purchase a
covered Part D drug without being required to receive medical services
from a provider or institution affiliated with that pharmacy. We also
requested comment regarding whether we should allow Part D plans to
count pharmacies that are operated by the Indian Health Service, Indian
tribes and tribal organizations, and urban Indian organizations (I/T/U
pharmacies) toward their network access requirements when the
pharmacies are under contract with the Part D plan, and it would be
impossible or impracticable for the plan to meet the access standard in
rural areas of its service area without the inclusion of some or all of
these pharmacies. In addition, we solicited comments on permissible
ways to ensure enrollee access to FQHC and rural pharmacies, since
these pharmacies could potentially provide access to covered Part D
drugs in remote, rural areas.
Several commenters support counting only retail pharmacies towards
Part D plans' access requirements. Other commenters supported allowing
I/T/U pharmacies to count toward Part D plans' pharmacy access
requirements to the extent that we do not require Part D plans to offer
I/T/U pharmacies a standard contract, at a minimum.
Response: We agree that, in most cases, only retail pharmacies,
which we define in Sec. 423.100 of our final rule as any licensed
pharmacy from which covered Part D enrollees could purchase a covered
Part D drug without being required to receive medical services from a
provider or institution affiliated with that pharmacy, should count
toward our pharmacy access standards. Examples of non-retail pharmacies
include I/T/U, FQHC, Rural Health Center (RHC), and hospital and other
provider-based pharmacies, as well as Part D-owned and operated
pharmacies that serve only plan members.
However, as explained elsewhere in this preamble, we are concerned
about access to pharmacies in rural and underserved areas. As one way
of addressing this concern, Sec. 423.120(a)(2) of our final rule
allows Part D plans to count certain non-retail pharmacies--
specifically, I/T/U, FQHC, and RHC pharmacies toward the pharmacy
access requirements in Sec. 423.120(a)(1) of our final rule.
FQHCs and RHCs face many of the same barriers to inclusion in
commercial plan networks as do I/T/U pharmacies, which we discuss in
greater detail elsewhere in this preamble. Beneficiaries served by
FQHCs and RHCs are often served in those settings because of their
financial and geographic circumstances. We believe that allowing Part D
plans to count these pharmacies toward their access requirements will
incentivize plans to make an extra effort to solicit and include these
pharmacies in their networks. As the number of these pharmacies is
limited and, with the exception of I/T/U pharmacies, can generally
offer services to a broad-based population, we do not believe that this
exception will have a significant impact on convenient access to
pharmacies in rural areas for the general population. However, we
intend to review Part D plans' proposed pharmacy networks to ensure
that their inclusion of I/T/U, FQHC, and RHC pharmacies does not
substitute for the inclusion in Part D plan networks of retail
pharmacies. We also note that this policy should not be interpreted as
requiring broader access to I/T/U, FQHC, and RHC pharmacies than is
currently permissible.
Comment: Several commenters expressed concern about the inclusion
of rural and FQHC pharmacies in Part D plan networks, with some
advocating for requiring plans to contract in some cases, under
preferential contracting terms and conditions with these pharmacies.
Other commenters opposed requiring Part D plans to contract with
specific kinds of pharmacies, asserting that the any willing pharmacy
and pharmacy network access requirements are sufficient to ensure an
adequate pharmacy network for all beneficiaries. One commenter asked
that, to the extent we require Part D plans to contract with certain
pharmacies, plans would only be required to offer standard terms and
conditions.
Response: With the exception of I/T/U pharmacies, we will not
require Part D plans to contract with non-retail pharmacies including
FQHC or rural pharmacies. We believe our access standards for rural
areas and the Statewide application of access rules generally will
ensure adequate access in rural areas. However, as discussed elsewhere
in this preamble, we will allow Part D plans to count I/T/U, FQHC, and
RHC pharmacies toward their access requirements as an incentive for
Part D plans to contract with these pharmacies, which are critical
providers in underserved areas.
Comment: One commenter believes we should mandate that Part D plans
solicit inner city and rural pharmacies that meet the Small Business
Administration's small business standard for participation in their
pharmacy networks and should give them access to any terms that the
Part D plan offers to a subset of pharmacies.
Response: We believe the pharmacy access standards, as well as
their application at the State level, in Sec. 423.120(a)(1) of our
final rule, will ensure adequate access to covered Part D drugs for all
Part D enrollees in urban, suburban, and rural areas. Given the
standards, pharmacies' bargaining power will be strengthened in
underserved areas. Ultimately, however, it is at Part D plans'
discretion how they will establish pharmacy networks--
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including the offering of contracting terms and conditions that are
different than standard contracting terms and conditions and the
establishment of preferred pharmacies provided they meet our pharmacy
access standards, non-discrimination provisions, and other applicable
requirements under Part D. We believe that the type of market
intervention requested by the commenter is contrary to the Congress's
intent that we not interfere in the private negotiations between Part D
plans and pharmacies. We will therefore not mandate that Part D plans
solicit inner city and rural retail pharmacies or that they
automatically deem them preferred pharmacies within their networks.
Comment: We sought public comments regarding whether we should
consider using the authority in section 1860D-4(b)(1)(C) of the Act to
require that Part D plans contract with a sufficient number of home
infusion pharmacies in their service area to provide reasonable access
for Part D enrollees.
Several commenters supported requiring Part D plans to contract
with a sufficient number of home infusion pharmacies in their service
areas to ensure adequate access for beneficiaries. One commenter noted
that this requirement would result in savings for the Medicare program
by reducing expenditures under Parts A and B. In addition, these
pharmacies allow beneficiaries to safely receive their medications at
home by providing training and skilled support so beneficiaries can
avoid the inconvenience of hospitals, clinics, and doctor visits. One
commenter urged us to expand our proposed requirement to include all
specialty pharmacies, not just home infusion pharmacies.
Other commenters recommended not mandating Part D plans to contract
with these non-retail pharmacies but rather encourage participation
because it would reduce negotiating leverage of plans with these
pharmacies.
One commenter urged that home infusion pharmacies should not be
counted toward network TRICARE standards.
Response: We agree with commenters who believe that we should use
our authority under section 1860D-4(b)(1)(C) of the Act to require Part
D plans to provide adequate access to home infusion pharmacies. Given
coverage of home infusion drugs under Part D, we do not believe it is
an option for Part D plans not to include at least some home infusion
pharmacies in their networks in order to provide enrollees with
meaningful access to those drugs. This is particularly a concern with
regard to prescription drug plans which, unlike other Part D plans, do
not benefit from reduced medical costs associated with home infusion
and may therefore have little incentive to contract with home infusion
pharmacies. Therefore, we have added a new provision to our final
regulations at Sec. 423.120(a)(4) which requires Part D plans to
demonstrate to us that they provide adequate access to home infusion
pharmacies consistent with CMS operational guidance to Part D plans. We
expect that Part D plans will demonstrate adequate access based in part
on the number of enrollees in their service areas and the geographic
distribution and capacity of home infusion pharmacies in those service
areas. We have not included specialty pharmacies that do not provide
home infusion services in this requirement however, as it is unclear
whether beneficiaries will need routine access to such pharmacies or
would not be adequately served through our out-of-network access rules.
We clarify, that we have made a distinction between specialty
pharmacies and long-term care pharmacies. We note that home infusion
pharmacies will not count toward Part D plans' pharmacy access
requirements because they are not retail pharmacies.
Comment: We requested comments regarding the advantages and
disadvantages of using the authority provided under section 1860D-
4(b)(1)(C)(iv) of the Act to require Part D plans to approach some or
all long-term care pharmacies in their service areas with at least the
same terms available under their standard pharmacy contracts, or,
alternatively, to not require (but strongly encourage) Part D sponsors
to negotiate with and include long-term care pharmacies in their Part D
plans' pharmacy networks. In addition, we requested comments regarding
how to balance convenient access to long-term care pharmacies with
appropriate payment to long-term care pharmacies under the provisions
of the MMA.
Some commenters were adamant that the current one-to-one
relationship between the long-term care pharmacies and nursing homes be
preserved, as it is critical to ensuring safety and convenient access
to drugs for Medicare beneficiaries residing in nursing homes. One
commenter suggested that Part D plans should also provide standardized
long-term care pharmacy contracts that recognize long-term care
pharmacies' essential role.
Some commenters recommended that the final regulation require Part
D plans to contract with any willing long-term care pharmacy. A number
of commenters would prefer that we do not require Part D plans to
contract with any particular non-retail pharmacies (including long-term
care pharmacies) because both our access standards and the any willing
pharmacy requirement adequately address our objective of ensuring
access to Part D drugs for all enrollees. One commenter notes that Part
D plans will need to include long-term care pharmacies in their
networks to meet access standards, and that this will encourage Part D
plans to contract with long-term care pharmacies. Another believes that
we struck a balance with the option for long-term care pharmacies to
provide benefits in- or out-of-network because it gives long-term care
pharmacies and Part D plans the appropriate negotiating flexibility to
reach mutually satisfactory arrangements for providing services to
long-term care residents. Also, one commenter points out that some
long-term care pharmacies would not be able to meet all the operational
standards necessary to participate in Part D, and Part D plans would
have to negotiate special reimbursement rates with these pharmacies.
Some commenters believe that we should promote appropriate payment
methodologies (for example, via dispensing fees or separate fee
schedules to pay for specialized services) that would enable all long-
term care pharmacies to join networks and provide a meaningful benefit.
Another variation suggested was that a Part D plan should be required
to include at least one long-term care pharmacy in its network and to
contract with any long-term care pharmacy that agrees to the Part D
plan's standard contract.
One commenter reasoned that there should be a balance in the
contracting requirement; for example, long-term care pharmacies that
service X percent of beneficiaries should also be required to contract
with at least one Part D plan. But, without this balance, the commenter
felt the Part D plans and long-term care pharmacies should be strongly
encouraged to contract with each other. A few commenters believed that
we should encourage, but not require, Part D plans to contract with
long-term care pharmacies and that we should explicitly state in
regulation that long-term care residents can access long-term care
pharmacies as out-of-network providers when those pharmacies do not
contract with particular Part D plans. Other commenters believe that it
is sufficient to require that long-term care pharmacies be offered
standard
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contracting terms and conditions by Part D plans.
Response: Section 1860D-4(b)(1)(C)(iv) of the Act provides that, in
establishing rules for convenient access to network pharmacies, we may
include standards with respect to access to long-term care pharmacies
for Part D enrollees who reside in long-term care facilities. For a
variety of reasons, including the quality aspects of Federal nursing
home regulations, it is generally the case that long-term care
facilities have chosen to contract with a single long-term care
pharmacy. Given this state of affairs, our proposed rule assumed that
Part D enrollees residing in a long-term care facility could not
reasonably be expected to access their Part D drugs at another pharmacy
if their facility's long-term care pharmacy is not part of their Part D
plan's network. In the proposed rule, we proposed that enrollees
residing in long-term care facilities whose contracted long-term care
pharmacies did not participate in their Part D plans' networks could
continue to use those long-term care pharmacies consistent with our
proposed out-of-network access policy. However, given the narrow
statutory authority to establish out-of-network access rules provided
by section 1860D-4(b)(1)(C)(iii) of the Act, we do not believe as
discussed in greater detail elsewhere in this preamble that access to
out-of-network pharmacies on a routine basis can be justified. Thus,
beneficiaries residing in long-term care facilities that do not
contract with a pharmacy included in their Part D plan network will not
be able to access covered Part D drugs at the out-of-network long-term
care pharmacy through the out-of-network access rules in Sec. 423.124
of our final rule.
However, it is important to note that we will provide a SEP for
prescription drug plan enrollment and disenrollment for beneficiaries
entering in, living in, or leaving an institution. In addition,
individuals enrolled in an MA-PD plan have an unlimited open enrollment
period for institutionalized individuals (OEPI). While MA organizations
may choose individually, at the plan level, whether or not to be open
for enrollments during this period, they must always accept
disenrollments.
Given the risk associated with institutionalized beneficiaries,
relying on the market alone to ensure that Part D plans include a
sufficient number of long-term care pharmacies in their networks may
not be sufficient. We note that relying on the pharmacy access
standards in Sec. 423.120(a)(1) of our final rule will also not ensure
sufficient access to long-term care pharmacies, since many of these
pharmacies are not retail pharmacies and therefore would not count
toward those requirements. Absent a contracting mandate, Part D plans
may view contracting with long-term care pharmacies given the risk
associated with institutionalized beneficiaries as too risky. To the
extent that we require Part D plans to solicit long-term care
pharmacies in their service areas to join their networks, plans may be
forced to negotiate preferential contracting terms and conditions
(relative to the terms they would offer any other pharmacy willing to
participate in its network) for long-term care pharmacy-specific
specialized packaging and services with a number of long-term care
pharmacies in order to meet our requirement. In addition, although the
statute includes an ``any willing pharmacy'' requirement, even if we
require Part D plans to contract with any long-term care pharmacy in a
service area, we cannot compel long-term care pharmacies to accept the
plans' terms and conditions.
We believe it is essential to inject competition into the long-term
care pharmacy market while preserving the relationships and levels of
service that long-term care facilities now enjoy vis-[agrave]-vis their
contracted long-term care pharmacies. To that end, we have used our
authority under section 1860D-4(b)(1)(C)(iv) of the Act to require, in
Sec. 423.120(a)(5) of our final rule, that Part D plans offer standard
contracting terms and conditions, including performance and service
criteria for long-term care pharmacies that we will specify in
operational guidance to all long-term care pharmacies in their service
areas. In other words, we are establishing an ``any willing pharmacy''
requirement specifically for long-term care pharmacies, coupled with a
requirement that Part D plans develop standard contracting terms and
conditions for long-term care pharmacies, such that any pharmacy in a
service area could become an eligible long-term care pharmacy by
certifying that it meets certain performance and service criteria for
providing pharmacy services to long-term care facilities. These
criteria would be incorporated into a Part D plan's standard
contracting terms and conditions for long-term care pharmacies. We will
provide further detail regarding these criteria in operational
guidance, but we expect that they will address access to urgent and
emergency medications on a 24/7 basis, standardized prescribing
systems, and the availability of one of several standard delivery
packaging and delivery systems for routine medications. We expect to
review the reasonableness of Part D plans' standard contracting terms
and conditions for long-term care pharmacies. We note that entities
other than current long-term care pharmacies (for example, retail
pharmacies) could become an eligible long-term care pharmacy by meeting
these standards of practice, so long as they also meet specific State
law requirements, if any, for such entities. Plans in a region would be
required to contract with any willing long-term care pharmacy in that
region, provided those pharmacies were able to reach agreement with
Part D plans on all standard contract terms and conditions including
payment rates.
As provided in Sec. 423.120(a)(5) of our final rule, we will
require Part D plans to demonstrate that they have contracts with a
sufficient number of long-term care pharmacies to ensure convenient
access to prescription drugs for institutionalized beneficiaries within
the service area. We will provide more detailed information in CMS
guidance regarding what constitutes convenient access, but we expect
that Part D plans will demonstrate convenient access based in part on
the number of enrollees in their service areas and the geographic
distribution, capacity, and contracting relationships with long-term
care facilities of long-term care pharmacies in those service areas.
We expect that each long-term care facility will select one or more
eligible network pharmacies to provide a Part D plan's long-term care
drug benefits to all of its residents enrolled in a Part D plan. In
order to minimize the number of pharmacy suppliers and maintain patient
safety, long-term care facilities will likely select long-term care
pharmacies that meet Part D standards and participate in the largest
number of Part D plan long-term care networks. To maintain convenient
access and minimize out-of-pocket expenses, Part D plan enrollees would
obtain Part D benefits from the eligible long-term care pharmacy
selected by the facility. The SEP and OEPI available to
institutionalized beneficiaries, which will provide beneficiaries with
the ability to change Part D plans to the extent that their current
Part D plan does not include their facility's long-term care pharmacy
in its network, will further incentivize long-term care pharmacies to
participate in as many Part D plan long-term care networks as possible.
All long-term care pharmacies in a region will have to negotiate
terms and conditions with as many Part D plans as possible or risk
losing this business to
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another more competitive long-term care pharmacy. This competition will
preserve the one-to-one long-term care pharmacy long-term care facility
relationship favored by so many commenters, but will require a
negotiation between the long-term care pharmacy and the Part D plan to
maintain that relationship. Given our rules for access to Part D drugs
for institutionalized Part D enrollees, all Part D products and
services would be removed from existing long-term care pharmacy
contracts because payments for drugs for dual eligible individuals
under Medicaid will become obsolete. This will likely necessitate the
renegotiation of existing long-term care facility/long-term care
pharmacy contracts. Separating the cost of the drug and dispensing fee
from other long-term care pharmacy specialized services (for example,
drug administration) may provide for more appropriate negotiation of
these services and costs between long-term care facilities and
pharmacies. We note that Part D plan payments under medication therapy
management programs, described in further detail elsewhere in this
preamble, may represent an additional revenue stream to long-term care
pharmacy services for some of the special services provided by these
pharmacies but not reimbursed through dispensing fees.
We believe that our long-term care pharmacy access rules will align
incentives to accomplish several goals, including ensuring that long-
term care pharmacies come to the table in good faith; negotiation of
more competitive pricing than currently exists in the long-term care
pharmacy market; and allowing for the one long-term care facility-one
long-term care pharmacy relationship to remain intact, to the extent
that long-term care facilities would like to keep it that way.
Comment: Two commenters favored the carve-out of beneficiaries in
long-term care facilities through the establishment of a separate PDP
region in which plans could bid, at risk, to serve this population.
Response: We understand that, given the institutionalized
population's special needs, a carve-out of this population may seem
logical. However, given the risk associated with institutionalized
beneficiaries, we believe that carving out such a high-risk population
would result in significant adverse selection and could result in
unsustainable beneficiary premiums for the institutionalized
population. In addition, our research related to risk adjustment is
still in progress, and until that research is completed, we cannot be
certain as to whether our risk adjustment model could adequately
mitigate the risk inherent in this population under the highly unique
circumstances of a plan serving only a carved-out institutionalized
population. Consequently, particularly in the first few years after the
implementation of the Part D program, we wonder whether potential Part
D sponsors would be willing to serve a carved-out institutionalized
population and therefore ensure access to Part D drugs for Part D
enrollees residing in long-term care facilities. We are also concerned
that beneficiaries entering and leaving long-term care facilities will
be forced to change Part D plans to the extent that institutionalized
beneficiaries are carved out into a separate PDP region. For these
reasons, we will not create a separate PDP region for institutionalized
beneficiaries and, as discussed above, will ensure convenient access to
covered Part D drug in long-term care facilities as provided in Sec.
423.120(a)(5) of our final rule.
Comment: We requested comments regarding whether we should use our
authority under section 1860D-4(b)(1)(C)(iv) of the Act to require-or,
instead, strongly encourage-that Part D sponsors approach any I/T/U
pharmacies in their Part D plan service areas with at least the same
terms available under the plan's standard pharmacy contracting terms
and conditions.
Some commenters believe that we must use our authority under
section 1860D-4(b)(1)(iv) of the Act to require Part D plans to
contract with I/T/U pharmacies because, without this requirement,
private plans will have little or no financial incentive to contract
given the uniqueness of both the AI/AN population and I/T/U pharmacies.
Simply encouraging contracts will not work because of the uniqueness
and remoteness of I/T/U facilities and the perceived cost and time to
contract with these pharmacies. These commenters urge us to require, in
regulation, that Part D plans contract with I/T/U pharmacies using
specific contract provisions. They urge us to consider one of several
approaches to ensuring that I/T/U pharmacies experience no reduction in
revenue as a result of the transition from Medicaid to Medicare Part D:
supplemental payments from Part D plans or the Federal government to
supplement the difference between the amount paid by the Part D plan
and the amount the I/T/U pharmacy would have received under Medicaid, a
carve-out of AI/AN enrollees for Part D plans willing to serve only
those beneficiaries through I/T/U pharmacies, and an exemption of dual
eligibles from Part D (with continued prescription drug coverage under
Medicaid).
Response: There are currently 235 I/T/U pharmacies serving 107,000
senior and disabled AI/ANs in 27 States. In some areas, I/T/U
pharmacies may be the only facilities capable of providing medication
therapy management services to certain AI/AN beneficiaries due to
language and cultural barriers. It is our understanding that I/T/U
pharmacies are not currently well integrated in commercial pharmacy
networks. We agree with the commenters who believe that--in the absence
of a contracting requirement--Part D plans may make assumptions
regarding the administrative costs (whether real or perceived) of
contracting with I/T/U pharmacies and may not actively solicit the
inclusion of these pharmacies in their networks. The lack of I/T/U
pharmacies in Part D plan networks would render enrollment in Part D of
little use to AI/AN beneficiaries who rely primarily on I/T/U
facilities for their health care. For this reason, we have added a
provision to our final regulations, at Sec. 423.120(a)(6), requiring
that Part D plans offer contracts to all I/T/U pharmacies in their
service areas.
However, we recognize that contracting with I/T/U pharmacies is
potentially more complex than contracting with retail pharmacies given
that there are a number of provisions in the standard contracts of
commercial health plans that would likely need to be modified or
deleted given statutory or regulatory restrictions to which I/T/U
pharmacies are subject, as well as the particular circumstances of I/T/
U pharmacies (for example, I/T/U pharmacies purchase drugs off the
Federal Supply Schedule (FSS) or through the 340B program; can only
serve AI/ANs; may have less experience than retail pharmacies, or none
at all, with point-of-sale technology; are not typically well
integrated into commercial pharmacy networks; generally stock a more
limited range of drugs than would be required under a Part D formulary;
and always waive co-pays). Thus, standard contracting terms and
conditions will not be sufficient for Part D plans to obtain the
participation of I/T/U pharmacies in their networks. We are therefore
requiring Part D plans to include a special addendum to their standard
contracting terms and conditions in order to account for these
differences. We will work with major stakeholders to develop a model
special addendum that will take the special
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circumstances of I/T/U pharmacies into account. As provided in Sec.
423.120(a)(6) of our final rule, we will require Part D plans to
demonstrate that they have contracts with a sufficient number of I/T/U
pharmacies to ensure convenient access to prescription drugs for AI/AN
enrollees within the service area. We expect to review the
reasonableness of Part D plans' standard contracting terms and
conditions for I/T/U pharmacies.
While we understand the Indian Health Service's concerns regarding
reductions in revenue resulting from the transition of drug coverage
from Medicaid to Medicare, we clarify that we do not have the statutory
authority to require supplemental payments from Part D plans or the
Federal government to supplement the difference between the amount paid
by the Part D plan and the amount the I/T/U pharmacy would have
received under Medicaid; a carve-out of AI/AN enrollees for Part D
plans willing to serve only those beneficiaries through I/T/U
pharmacies; or an exemption of dual eligibles from Part D (with
continued prescription drug coverage under Medicaid). As we develop the
model special addendum for I/T/U contracts, we will consider how,
within our statutory authority, we might ensure that I/T/U pharmacies
do not experience significant revenue losses as a result of the
transitioning of drug coverage from Medicaid to Part D for dual
eligible AI/ANs.
Comment: Several commenters noted that many small I/T/U pharmacies
and dispensaries carry a limited stock of drugs, and that an exemption
from formulary requirements (and the ability to use permissible
substitutes) is necessary in order to accommodate the fact. In
addition, these commenters note that another factor in whether I/T/U
pharmacies will stock a particular drug is whether it is available from
the Federal Supply Schedule or 340B program, which are the principal
sources of drugs purchased by I/T/U pharmacies. Thus, a Part D plan may
choose one particular cholesterol-lowering agent on its formulary
because it is able to negotiate a greater discount for that particular
Part D drug. However, I/T/U pharmacies may be able to access a
different medication for a similar, or perhaps lower, price and
therefore include that drug on its formulary.
Response: We are aware that most Tribes and Tribal Organizations
(operating under health programs pursuant to contracts under the Indian
Self-Determination Education and Assistance Act, Public Law 93-638) and
all IHS facilities use the Department of Veterans Affairs
Pharmaceutical Prime Vendor (PPV) for purchasing their pharmaceuticals.
By ordering through the PPV, IHS and Tribes (but not Urban programs)
are able to access FSS Contract, National Standardization Contract, and
Blanket Purchasing Agreement pricing for pharmaceuticals. In addition
to FSS pricing, Tribes and Urban programs that have been designated as
Federally Qualified Health Centers (FQHCs) and have been approved by
the Health Resources and Services Administration (HRSA) are eligible
for HRSA 340B drug pricing. Since I/T/U facilities have access to
different pricing than commercial health plans, their formulary
selections reflect the drugs for which this pricing is available. As
previously mentioned, we are requiring Part D plans to include a
special addendum to their standard contracting terms and conditions in
order to account for the differences between retail and I/T/U
pharmacies and therefore facilitate contracting with these pharmacies.
We will work with major stakeholders to develop a model special
addendum that will take the special circumstances of I/T/U pharmacies
into account, including the limited stocking of drugs at these
facilities.
Comment: Several commenters said that the any willing pharmacy rule
should apply to mail order as well as retail pharmacies, and that Part
D plans should not be able to exclusively use a plan-owned mail order
facility.
Response: We agree that the any willing pharmacy requirement at
section 1860D-4(b)(1)(A) of the Act applies to all pharmacies--
including non-retail pharmacies such as mail-order pharmacies--
notwithstanding a Part D plan's ability to designate certain of its
network pharmacies as preferred pharmacies with lower cost-sharing, or
to negotiate terms better than those in its standard terms and
conditions with certain pharmacies. We clarify that a Part D plan could
have standard terms and conditions for retail pharmacies and a second,
separate set of standard terms and conditions for mail order pharmacies
in light of those pharmacies' different characteristics. For example, a
plan's contracting terms and conditions for mail-order pharmacies could
reflect the full cost of adding another mail-order vendor, as well as
the differential costs of strong data controls involved with having
multiple network mail-order pharmacies.
Comment: One commenter said it was not clear how the any willing
pharmacy rule applies to facilities that are owned and operated by a
Part D plan. The commenter said such plans should be permitted to
maintain a limited network of contract pharmacies for purposes of
meeting the access standard in order to maximize cost savings.
Response: We agree with this commenter that the any willing
pharmacy requirement makes little sense in the context of Part D plans
that own and operate their own pharmacies particularly since the
pharmacy access rules in Sec. 423.120(a)(1) of our final rule will be
waived for MA-PD plans and cost plans that can demonstrate comparable
pharmacy access under Sec. 422.112. As provided in Sec. 423.458(b) of
our final rule, we may waive any Part D provision as applied to an MA-
PD plan if it duplicates, or is in conflict with, provisions otherwise
applicable to the MA organization or MA-PD plan under Part C of
Medicare, or if waiver of a Part D provision is necessary in order to
improve coordination of benefits under Part D with those offered under
Part C. Similarly, Sec. 423.458(d) provides that we may waive any Part
D provision as applied to a cost plan if it duplicates, or is in
conflict with, provisions otherwise applicable to the cost plan under
section 1876 of the Act, or if waiver of a Part D provision is
necessary in order to improve coordination of benefits under Part D
with those offered by the cost plans. We will consider waiving this
requirement for Part D plans that own and operate their own pharmacies
to the extent that they request such waiver as provided in Sec.
423.458(b)(2) and Sec. 423.458(d) of our final rule.
Comment: We sought comment on whether, in order to guarantee that
any pharmacy willing to meet a Part D sponsor's contracting terms and
conditions could participate in a Part D plan's pharmacy network, we
should require that a Part D sponsor make available to all pharmacies a
standard contract for participation in their Part D plans' networks.
A number of commenters thought that Part D plans should be required
to have a standard or model contract for use with all pharmacies. Other
comments said that we should not require a standard contract.
Alternatively, several commenters said that even with a standard
contract, Part D plans should have maximum flexibility to vary their
contracting terms and conditions in order to reflect local conditions.
Some questioned whether we should try to evaluate whether pharmacy
contract terms are ``reasonable and relevant,'' as proposed in subpart
K of our proposed rule.
Response: We concur with the majority of commenters on this issue
and will require, under Sec. 423.505(b)(18) of our final rule that
Part D plans offer pharmacies reasonable and relevant
[[Page 4254]]
standard terms and conditions for network participation. We do not
intend to define ``reasonable and relevant'' in order to provide Part D
plans with maximum flexibility to structure their standard terms and
conditions.
However, it is unreasonable to assume--the any willing pharmacist
requirement notwithstanding--that a Part D plan could establish a
network using a uniform set of terms and conditions throughout a
service area because it will likely need to modify contracting terms
and conditions to ensure access to certain pharmacies (for example,
rural and long-term care pharmacies). We clarify that standard terms
and conditions particularly for payment terms may vary to accommodate
geographic areas or types of pharmacies) and that this is acceptable,
provided that all similarly situated pharmacies are offered the same
standard terms and conditions. Thus, for example, provided Part D plans
offer all mail-order pharmacies in a particular area with the same
standard terms and conditions, they may offer separate standard terms
and conditions to mail-order pharmacies. With standard terms and
conditions as a ``floor'' of minimum requirements that all similarly
situated pharmacies must abide by, Part D plans may modify some of
their standard terms and conditions to encourage participation by
particular pharmacies.
Comment: Many commenters disagreed with our interpretation of the
``any willing pharmacy'' provision, specifically with allowing Part D
plans to construct networks of preferred and non-preferred pharmacies
that have different requirements for beneficiary cost sharing. These
commenters argued that allowing preferred networks undermines the any
willing pharmacy rule and runs counter to Congressional intent. Many
said that allowing Part D plans to steer beneficiaries to preferred
pharmacies would impede pharmacy access and disrupt existing
relationships between pharmacists and patients. Some argued that our
interpretation would disadvantage small, independent, and rural
pharmacies. Others said that a designation of ``non-preferred'' would
carry a negative connotation about the pharmacy's quality of service.
Several other commenters concurred with the any willing pharmacy
policy in our proposed rule. One commenter said that State any willing
pharmacy laws should be expressly preempted, while another commenter
said we should clarify that State any willing provider laws continue to
apply to Part D plans' non-Medicare business. One commenter asked us to
clarify the extent to which we will allow Part D plans to vary their
cost sharing for preferred networks.
Response: We believe that we have correctly interpreted the two
related provisions in sections 1860D-4(b)(1)(A) and (B) of the Act,
which require Part D plans to allow any willing pharmacy to participate
in their pharmacy networks, while also allowing Part D plans to reduce
cost-sharing differentially for network pharmacies. General principles
of statutory interpretation require us to reconcile two seemingly
conflicting statutory provisions whenever possible, rather than
allowing one provision to effectively nullify the other provision.
Consequently, when a statutory provision may reasonably be interpreted
in two ways, we have an obligation to adopt the interpretation that
gives full effect to competing provisions of the statute. We believe
that our policy of permitting cost-sharing discounts for preferred
pharmacies, as codified in Sec. 423.120(a)(9), strikes an appropriate
balance between the need for broad pharmacy access and the need for
Part D plans to have appropriate contracting tools to lower costs.
We note, however, that while these within network distinctions are
allowed, the statute also requires that such tiered cost-sharing
arrangements in no way increase our payments to Part D sponsors.
Therefore, tiered cost-sharing arrangements based on within-network
distinctions could be included in Part D plans' benefits subject to the
same actuarial tests that apply to formulary-based tiered cost-sharing
structures. Thus, a reduction in cost sharing for preferred pharmacies
in a Part D plan network could be offered through higher cost sharing
for non-preferred pharmacies (or as alternative prescription drug
coverage). We also note that differential cost-sharing in the context
of preferred and non-preferred pharmacies does not raise the cost-
sharing obligation of low-income subsidy eligible enrollees above the
levels specified in sections 1860D-14(a)(1) and (2) of the Act.
We recognize the possibility that Part D plans could effectively
limit access in portions of their service areas by using the
flexibility provided in Sec. 423.120(a)(9) of our final rule to create
a within-network subset of preferred pharmacies. In other words, in
designing its network, a Part D plan could establish a differential
between cost-sharing at preferred versus non-preferred pharmacies--
while still meeting the access standards in Sec. 423.120(a)(1) of our
proposed rule--that is so significant as to discourage enrollees in
certain areas (rural areas or inner cities, for example) from enrolling
in that Part D plan. We emphasize that such a network design has the
potential to substantially discourage enrollment by certain Part D
enrollees, and that we have the authority under section 1860D-
11(e)(2)(D) of the Act to disallow benefit designs that are
discriminatory. We clarify that State any willing pharmacist laws would
be preempted as applicable to plans' Part D business. This is
consistent with section 1860D-12(g) of the Act, which extends the State
preemption provisions under section 1856(b)(3) of the Act to Part D
plans.
Comment: Several commenters thought that Part D plans should only
be allowed to have differential cost sharing for preferred pharmacies
if they exceed the TRICARE access standard.
Response: We see no statutory basis for such a rule. Moreover, it
would be difficult to construct and operationalize such a policy.
Comment: Several commenters wrote that special needs enrollees
should be exempted from higher cost sharing at non-preferred
pharmacies.
Response: We see no statutory basis for such a rule, and we believe
that Part D plans will provide sufficient access for all Part D
enrollees under our access standards in Sec. 423.120(a)(1). As noted
in our proposed rule, we will use the authority provided under section
1860D-11(e)(2)(D) of the Act to review, as part of the bid negotiation
process, how Part D plan networks make preferred and non-preferred
distinctions among their network pharmacies and disallow them if such
proposed network designs would substantially discourage enrollment by
certain beneficiaries in any part of a Part D plan's service area. We
believe that special needs enrollees will be sufficiently protected by
this review. To the extent that special needs enrollees are also
eligible for low-income subsidies, as indicated above, differential
cost-sharing based on preferred pharmacy status does not raise the
cost-sharing obligation of low-income subsidy eligible enrollees above
the levels specified in the Act.
Comment: Several commenters suggested that the TRICARE access
standards be applied to Part D plans' ``preferred'' networks rather
than its general network. Several other commenters concurred with the
regulation as drafted in the proposed rule.
Response: Section 1860D-4(b)(1)(B) of the Act clarifies that a Part
D sponsor has the option of reducing cost-sharing for covered Part D
drugs dispensed through network pharmacies below the level that would
have otherwise applied. Because the statute provides
[[Page 4255]]
that such distinctions can be made within a network, we do not believe
that only preferred pharmacies constitute a Part D plan's network for
the purposes of meeting the access standards in Sec. 423.120(a)(1) of
our final rule. Rather, both preferred and non-preferred pharmacies
form part of a Part D plan network, and plans may count both of these
types of network pharmacies toward their access standards.
Comment: Several commenters recommended that beneficiaries be able
to get an extended supply of drugs, greater than a 30-day supply, from
network retail pharmacies and mail-order pharmacies.
Response: We clarify that section 1860D-4(b)(1)(D) of the Act, and
Sec. 423.120(a)(10) of our final rule, require Part D plans to permit
enrollees to receive extended supplies (for example, 90-day supplies)
of covered Part D drugs through a network retail pharmacy.
Comment: Some commenters noted that our proposed regulations would
unfairly allow Part D plans to charge beneficiaries more when they
obtain their prescriptions at a community pharmacy than when they use
mail order. One commenter notes that seniors benefit from face-to-face
interaction with a pharmacist more than other age groups, which would
be precluded under mail order and would limit enrollees' ability to use
the pharmacy and pharmacist of their choice.
Many commenters recommended that we specifically prohibit Part D
plans from using economic incentives for beneficiaries to use mail
order that could create significant differences in cost sharing for
mail order versus retail pharmacy prescription, or that plans make such
difference minimal. One commenter recommended that Part D plans use the
same average wholesale price (AWP) basis to determine the reimbursement
rate for mail order and retail pharmacies. Another commenter noted that
there is substantial evidence that seniors, particularly low-income
seniors, are victims of theft from their mailboxes, undermining the
financial incentive of mail order. This commenter recommended that we
allow beneficiaries to pay the mail order price at a retail pharmacy
when they can demonstrate their mailbox is not secure.
Response: As provided in section 1860D-11(i) of the Act, we have no
authority to interfere with the negotiations between Part D plans and
pharmacies and therefore cannot mandate that Part D plans negotiate the
same, or similar, reimbursement rates with all pharmacies. Provided
Part D plans offer all pharmacies standard terms and conditions, they
may modify their contracting terms--including payment provisions as
necessary, as long as all similarly situated pharmacies are subject to
the same minimum terms and conditions. Moreover, section 1860D-
4(b)(1)(B) of the Act provides Part D plans with the authority to
designate some network pharmacies, including mail-order pharmacies, as
preferred pharmacies offering plan enrollees lower cost sharing.
Comment: One commenter noted that MA organizations that own and
operate their own pharmacies usually have internal systems for
providing prescription services by mail that are fully integrated with
the overall pharmacy operation. As a result, it is difficult to provide
an incentive to beneficiaries to use less costly mail services. The
commenter said we should permit these organizations to establish
differential benefit levels for mail delivery as opposed to in-facility
pickup.
Response: As noted above, Part D plans have the flexibility to
establish different cost-sharing requirements for the pharmacies in
their networks consistent with section 1860D-4(b)(1)(B) of the Act.
Accordingly, Part D plans have the flexibility to establish
differential cost-sharing requirements for mail delivery and in-
facility pickup.
Comment: One commenter recommended that we require Part D plans to
contract with pharmacies that offer home delivery service, noting that
same-day or next day need for medications makes mail-order an
impracticable option.
Response: We do not believe there is a compelling rationale to
require Part D plans to contract with pharmacies that offer home
delivery service. As discussed elsewhere in this preamble, we have
defined the term ``dispensing fees'' in Sec. 423.100 of our final rule
to include reasonable pharmacy costs, including delivery costs,
associated with ensuring that possession of the appropriate covered
Part D drug is transferred to a Part D enrollee. We clarify that
reasonable delivery costs include only those costs appropriate for the
typical beneficiary in a particular pharmacy setting. Thus, while it
would be appropriate for Part D plans to reimburse long-term care,
mail-order, and home infusion pharmacies for home delivery costs via
the dispensing fee, this would not be the case for retail pharmacies
(where the term ``delivery'' would be limited to the transfer of a
covered Part D drug from the pharmacist to the patient at the point of
sale) because the typical retail customer does not require home
delivery. While retail pharmacies may offer home delivery services,
Part D plans may not reimburse those pharmacies for these costs, and
the delivery cost must be borne by the beneficiary.
Comment: Two commenters expressed their support for our
interpretation of the term ``insurance risk'' and asked that we include
in our regulations a statement that the prohibition against the
assumption of risk by Part D plans' network pharmacies not preclude
performance-based measures of activities within the control of a
pharmacy (for example, formulary compliance and generic drug
substitution).
Response: We clarify that our definition of the term ``insurance
risk'' in Sec. 423.4 of the final rule specifically excludes ``payment
variations designed to reflect performance-based measures of activities
within the control of a pharmacy, such as formulary compliance and
generic drug substitutions.''
b. Formulary Requirements
1. P&T Committee Requirements
To the extent that a Part D sponsor uses a formulary to provide
qualified prescription drug coverage to Part D enrollees, it will be
required to meet the requirements of section 1860D-4(b)(3)(A) of the
Act to use a pharmaceutical and therapeutic (P&T) committee to develop
and review that formulary.
The majority of members comprising the P&T committee will be
required to be practicing physicians or practicing pharmacists. In
addition, at least one practicing pharmacist and one practicing
physician member will have to be experts in the care of elderly and
disabled individuals. Section Sec. 423.120(b)(1)(ii) of the proposed
rule also provided that at least one practicing pharmacist and one
practicing physician members on a Part D plan's P&T committee be
independent experts.
When developing and reviewing the formulary, the P&T committee will
be required, in accordance with section 1860D-4(b)(3)(B) of the Act, to
base clinical decisions on the strength of scientific evidence and
standards of practice, including assessing peer-reviewed medical
literature. Section Sec. 423.120(b)(1)(viii) of our proposed rule
required that any decisions made by the P&T committee regarding
development or revision of a Part D plan's formulary be documented in
writing.
Except as otherwise provided below, the final rule adopts the
requirements related to P&T committees set forth in Sec. 423.120(b)(1)
of our proposed rule.
Comment: Many commenters thought that P&T committee decisions
regarding
[[Page 4256]]
a Part D plan's formulary should be binding on a plan. Other commenters
thought that P&T committee recommendations should be advisory, and not
binding. Several others believed that only clinical decisions should be
binding on the Part D plan and that the ultimate responsibility for
overall formulary design should reside with the plan and ultimately
involved business leaders and technical experts. One commenter stated
that it was not likely that a P&T committee comprised of non-employee
clinicians would be able to make coverage determination in the Part D
plan's and enrollees' best interests, particularly since many benefit
design decisions have a financial, as well as a clinical, component.
Response: We agree with commenters who sought to draw a distinction
between clinical and overall formulary design issues. We believe that
the function of a P&T committee is to provide expertise on clinical
issues, and not financial or benefit design issues. We interpret the
requirement in section 1860D-4(b)(3)(A) of the Act and Sec.
423.120(b)(1) of our final rule that Part D plan formularies be
developed and reviewed by a P&T committee to mean that committee
recommendations regarding which drugs are placed on a plan's formulary
be binding on the Part D plan. Although Sec. 423.120(b)(vi) and
(b)(vii) of our final rule envision a role for the P&T committee in
reviewing policies that guide exceptions and other utilization
management processes including drug utilization review, generic
substitution, quantity limits, and therapeutic interchange and in
evaluating and analyzing treatment protocols and procedures related to
the Part D plan's formulary at least annually, P&T committee
recommendations in these areas should be considered advisory and not
binding. We clarify, for example, that while the P&T committee may be
involved in providing clinical recommendations regarding the placement
of a particular Part D drug on a formulary cost-sharing tier, the
ultimate decision on such formulary design issues is the Part D plan's,
and that decision weighs both clinical and non-clinical factors. Thus,
a P&T committee's role in formulary cost-sharing tiers, while
important, would be advisory and not binding.
Comment: Many commenters recommended that we strengthen the
statutory requirement in section 1860D-4(b)(3)(A)(ii) of the Act and
require that more than just one practicing physician and one practicing
pharmacist are independent and free of conflict. Suggestions for new
requirements included that all, a majority, two-thirds, one-half, 40
percent, and at least four (at least two practicing physicians and two
practicing pharmacists) members of a Part D plan's P&T committee be
independent and free of conflict in order to ensure that formulary
development is in line with beneficiary and not plan or pharmaceutical
manufacturer interests. One commenter supported our current requirement
requiring that at least one practicing physician and one practicing
pharmacist on the committee be independent and free of conflict
Response: We appreciate commenters' suggestions and agree that
maintaining the impartiality and objectivity of P&T committee members
is an important goal. We have retained the proposed rule requirement
that at least one practicing pharmacist and one practicing physician on
the P&T committee be independent and free of conflict--in Sec.
423.120(b)(1)(ii) of our final rule, though Part D plans should view
this requirement as a floor which we encourage them to exceed. To
balance concerns about conflicts of interest with regard to P&T
committee members, and as proposed in the draft benefit design review
criteria we recently issued for public comment, we would require all
P&T committee members to sign a conflict of interest statement
revealing economic or other relationships with entities that could
influence pharmaceutical decisions, and to disclose such conflicts to
other committee members. If P&T committee discussions center around a
drug that presents a conflict of interest issue for a particular
committee member, he or she would recuse himself or herself from any
discussions or votes associated with that drug. We believe this
requirement is necessary to ensure that the P&T committee's clinical
decisions regarding development and review of the formulary are based
on the strength of scientific evidence and standards of practice,
safety and efficacy considerations, and other such appropriate
information and considerations in accordance with section 1860D-
4(b)(3)(B) of the Act. In addition, this requirement is consistent with
best practices in pharmacy benefit management, and we expect that Part
D plans will implement disclosure of conflicts and recusal procedures
consistent with standard industry practice.
Comment: Many commenters requested clarification regarding our
definition of the term ``independent and free of conflict'' with
respect to a Part D sponsor and a Part D plan. Several commenters asked
to clarify that our regulations regarding independence and freedom from
conflict not preclude individuals from serving on a P&T committee
simply because they are members of a Part D plan's provider network.
Response: In our proposed rule, we interpreted the language at
section 1860D-4(b)(3)(A)(ii) of the Act requiring certain members of
the P&T committee to be ``independent and free of conflict'' to mean
that such P&T committee members could have no stake, financial or
otherwise, in formulary determinations. We believe this interpretation
is still appropriate, but clarify that we believe a P&T committee
member not to be free of conflict of interest if he or she has any
direct or indirect financial interest in any entity--including Part D
plans and pharmaceutical manufacturers--that would benefit from
decisions regarding plan formularies.
Thus, Part D plan network providers may be considered to be
independent and free of conflict, provided they are not plan employees
or contract workers and do not otherwise have any conflicts of
interests that would compromise their independence. In cases of staff
model HMOs, panel providers may be determined to be independent and
free of conflict to the extent that any remuneration received from a
Part D plan is limited to his or her clinical responsibilities for the
care of plan enrollees.
Comment: In our proposed rule, we interpreted the language at
section 1860D-4(b)(3)(A)(ii) of the Act requiring certain members of
the P&T committee to be ``independent and free of conflict'' to mean
that such P&T committee members would be required to be independent and
free of conflict not only with respect to a Part D sponsor and its Part
D plan, but also for pharmaceutical manufacturers. Some commenters
supported such a requirement. A few commenters opposed such a
requirement, however, claiming that our interpretation imposes a more
stringent requirement than is permitted under the MMA. A number of
other commenters cautioned us that our interpretation could exclude a
significant number of individuals who are engaged in pharmaceutical and
clinical research funded by pharmaceutical manufacturers.
Response: Section 1860D-4(b)(3)(A)(ii)(I) of the Act requires that
at least one practicing physician and at least one practicing
pharmacist on a Part D plan's P&T committee be independent and free of
conflict only with respect to a Part D sponsor and its Part D plan.
However, given the requirement in section 1860D-4(b)(3)(B) of the Act
that
[[Page 4257]]
the P&T committee base clinical decisions on the strength of scientific
evidence and standards of practice, and taking into account therapeutic
advantages in terms of safety and efficacy, we believe it is necessary
for those committee members who are ``independent and free of
conflict'' to be so with respect to pharmaceutical manufacturers as
well. We agree that P&T committee members could have certain non-
employee relationships with pharmaceutical manufacturers (for example,
consulting, advisory, or research relationships) and still be
considered independent and free of conflict, provided those
relationships do not constitute significant sources of their income and
they do not otherwise have any conflicts of interests that would
compromise their independence. As already mentioned, our draft benefit
review criteria (recently issued for public comment) would require all
P&T committee members to sign a conflict of interest statement
revealing economic or other relationships with entities that could
influence pharmaceutical decisions. This requirement is consistent with
best practices in pharmacy benefit management, and we expect that it
will be met consistent with industry standards for conflict of interest
disclosures.
Comment: Several commenters supported requiring that a plurality of
P&T committee members be experts in the care of elderly and disabled
patients. Some commenters recommended that use of the certified
geriatric pharmacist credential would be an appropriate way to ensure
that at least one pharmacist on the P&T committee has expertise in care
of the elderly. One commenter opposed requiring that at least one
practicing physician and one practicing pharmacist be experts in the
care of elderly and disabled patients. Another commenter thought that
at least one member of Part D plans' P&T committees should be a State
Medicaid representative.
Response: As provided in Sec. 423.120(b)(1)(iii) of our final
rule, we are retaining the requirement that at least one practicing
physician and one practicing pharmacist on a P&T committee have
expertise in the care of elderly or disabled persons, though plans
should view this requirement as a floor which they can certainly
exceed. As proposed in the draft benefit design review criteria we
recently issued for public comment, we would require P&T committee
members to represent various clinical specialties. This requirement is
consistent with best practices in pharmacy benefit management and will
ensure that appropriate expertise--including in the areas of care of
disabled and elderly populations--is included on Part D plans' P&T
committees and that their clinical decisions are based on the strength
of scientific evidence and standards of practice, and safety and
efficacy considerations. We expect that P&T committee members will
represent a mix of clinical specialties in order to ensure that P&T
committees have the breadth of expertise necessary to adequately
evaluate scientific evidence, standards of practice, and other
information.
Comment: A number of commenters suggested that we should require
that P&T committees include experts in certain clinical specialties
(for example, nephrology, oncology, rheumatology, dermatology, mental
health, long-term care, and many others) or, at the very least, that
such experts serve as consultants to P&T committees.
Response: We agree that P&T committee members should represent
various clinical specialties in order to provide the depth of expertise
needed to develop an adequate formulary and utilization management
processes for the Medicare population. As proposed in the draft benefit
design review criteria we recently issued for public comment, we would
require P&T committee members to represent various clinical
specialties. This requirement is consistent with best practices in
pharmacy benefit management. In addition, we note that, since committee
members must base clinical decisions on the strength of scientific
evidence and standards of practice, it is not essential that every
specialty be represented--either as a P&T committee member or as a
consultant. For some issues, the use of peer-reviewed medical
literature--including randomized clinical trials, pharmacoeconomic
studies, outcomes research data, and other such information--may be
sufficient.
Comment: We received a number of comments regarding our
requirements for the basis of clinical decisions by Part D plan P&T
committees. One commenter supported our characterization of the
appropriate role of quality and cost considerations in Part D plan
formulary development. Some commenters emphasized that cost
considerations should be secondary to clinical issues in formulary
development and review. One commenter suggested segregating cost and
clinical reviews to preserve objectivity. Several commenters
specifically suggested that we require Part D plan P&T committees to
use classes of data that are included in the Academy of Managed Care
Pharmacy (AMCP) format for Formulary Submissions--including clinical
trials, health outcomes studies, and economic and budget impact
models--as well as clinical guidelines issued by medical specialty
societies. Several other commenters encouraged us to require Part D
plans to consider data addressing total health care costs, if
available, rather than pharmacy costs, in any cost considerations used
for clinical decision-making.
Response: As required in section 1860D-4(b)(3)(B) of the Act, P&T
committees will be required to base clinical decisions on the strength
of scientific evidence and standards of practice, including assessing
peer-reviewed medical literature (for example, randomized clinical
trials, pharmacoeconomic studies, outcomes research data, and other
such information as the committee determines appropriate). In addition,
a P&T committee must take into account whether including a particular
Part D drug on the Part D plan's formulary (or on a particular
formulary tier) has any therapeutic advantages in terms of safety and
efficacy. Where applicable, therapeutic advantage should be considered
in relation to the interaction of a drug therapy regimen and the use of
other health care services.
We agree with commenters who urged that Part D plans consider data
addressing total health care costs, if available, rather than pharmacy
costs, in any cost considerations used for clinical decision-making.
Since Part D sponsors have discretion with regard to the actual
information their P&T committees use, we cannot mandate that all Part D
plans use pharmacoeconomic studies, for example. However, in our
subsequent guidance we intend to make clear that to the extent that the
Part D plan considers costs in making its decision, it will take into
account total health care costs rather than just drug costs. For
example, to the extent that a particular drug has been shown to be more
effective in preventing the need for hospital care or better at
controlling acute flare-ups requiring the use of other services, we
expect P&T committees to take these things into account in their
determinations of drug efficacy. Given these requirements for evidence-
based decision-making, it is our expectation that committee members
will balance any relevant cost considerations with clinical
considerations.
Comment: Some commenters supported a role for P&T committees in
designing formulary tiers and any other clinical program implemented to
encourage the use of preferred drugs. One commenter supported such a
role,
[[Page 4258]]
provided that P&T committees are not required to be engaged in other
benefit design issues.
However, several commenters believed that P&T committees should
have no involvement in the development of utilization management
programs including development of cost-containment tools, medication
therapy management programs, and quality assurance programs, as well as
more specific benefit design issues such as the development of cost-
sharing tiers and should instead be limited to providing Part D plans
with clinical recommendations on formularies. Other commenters thought
that we should provide Part D plans with flexibility to determine how
utilization management programs are designed and administered.
Response: We believe that the requirement in section 1860D-3(c)(1)
of the Act that Part D sponsors establish an appropriate cost-effective
drug utilization management program supports a role for P&T committees
in the development of formulary management practices and policies--
including prior authorization, step therapy, generic substitution,
quantity limits, and other drug utilization management activities that
affect access to covered Part D drugs. Furthermore, section 1860D-
4(b)(3)(F) of the Act and Sec. 423.120(b)(1)(vii) of our final rule
require Part D plans to periodically evaluate and analyze treatment
protocols and procedures. Clinical input is critical in the development
of these policies in order to ensure that formulary management
decisions balance economic and clinical factors to achieve appropriate,
safe, and cost-effective policies. The review by P&T committees of Part
D plan policies that guide exceptions and other utilization management
processes is not only an important component in ensuring that plans
adopt appropriate utilization management activities consistent with the
statutory requirements, but also is consistent with best practices in
pharmacy management policy. However, as previously stated, we believe
that the primary function of a P&T committee is to provide clinical and
not financial or benefit design--expertise.
Comment: Some commenters suggested that P&T committees review
formularies regularly, with some suggesting a quarterly review and
others an annual review
Response: As proposed in the draft benefit design review criteria
we recently issued for public comment, we expect that P&T committees
will meet on a regular basis, but not less frequently than on a
quarterly basis. This standard is consistent with best practices in
pharmacy management policy.
Comment: One commenter urged us to specify minimum timeframes for
periodic evaluation of Part D plan treatment protocols and formulary-
related procedures under Sec. 423.120(b)(4) of our proposed rule. A
number of commenters recommended that protocol reviews be conducted on
an ongoing basis at least quarterly, whereas some specified that such
reviews be conducted at least annually.
Response: As specified in Sec. 423.120(b)(1)(vii) of our final
rule, Part D plan P&T committees will be required to evaluate and
analyze treatment protocols and procedures related to the plan's
formulary at least annually.
Comment: A number of commenters also asked us to require that P&T
committees have processes for making formulary revisions between
regularly scheduled meetings when new clinical information becomes
available or the FDA approves new medications.
Response: As proposed in the draft benefit design review criteria
we recently issued for public comment, we expect that P&T committees
will review new Part D drugs, or drugs for which new clinical
information is made available by the Food and Drug Administration,
within 90 days of the availability of new information. This will allow
for appropriate formulary changes to be made with all due speed and
ensure that a Part D plan's formulary is based on the most recently
available scientific evidence, standards of practice, and drugs'
relative therapeutic advantages in terms of safety and efficacy.
However, we expect that drugs pulled from the market by the FDA or
manufacturers will be removed from Part D plan formularies immediately.
Comment: Many commenters suggested additional requirements for
ensuring P&T committee accountability, including requiring Part D plans
to have a P&T committee regardless of whether they have a formulary or
not; including a patient advocate on the committee to represent
interests of patients; developing an oversight mechanism similar to
local Medicare carrier advisory committees; requiring P&T committee
meetings to be held publicly in order for consumers and stakeholders to
have an opportunity to hear committee deliberations; requiring Part D
plans to include a charge ensuring that the interests of beneficiaries
are protected by their benefit design decisions; requiring thorough
documentation of the rationale for P&T committee decisions; and
requiring P&T committee decisions to be issued to the public upon
request within a reasonable period of time.
Response: These requirements are not consistent with standard
practice in pharmacy benefit management. We believe that our
requirements in Sec. 423.120(b)(1) of the final rule, as well as our
formulary review which will consider the structure and utilization of
an organizations P&T committee will sufficiently ensure that P&T
committees function as a forum for evidence-based formulary review. As
an added safeguard, and as provided in Sec. 423.120(b)(1)(viii) of our
final rule, we will require Part D plan P&T committees to document in
writing the basis of their decisions regarding formulary development
and revision and utilization management activities.
2. Plan Formularies
As provided under section 1860D-4(b)(3)(C)(ii) of the Act, we
requested that the U.S. Pharmacopoeia (USP) develop a model set of
guidelines that consists of a list of drug categories and classes that
may be used by Part D sponsors to develop formularies for their
qualified prescription drug coverage, including their therapeutic
categories and classes. For more information about the USP model
guidelines and the model guidelines themselves, please consult http://www.usp.org/drugInformation/mmg/
.
Section 1860D-4(b)(3)(C) of the Act provides, and Sec.
423.120(b)(2) of our proposed rule required, the inclusion of drugs in
each therapeutic category and class of Part D drugs in a Part D plan's
formulary, although not necessarily all drugs within such categories
and classes. As discussed in the proposed rule, we interpreted this
provision to require coverage of at least two Part D drugs within each
therapeutic category and class of Part D drugs, unless only one Part D
drug existed in a particular therapeutic category and class of Part D
drugs.
We sought comments on ways to balance Part D plans' flexibility to
use utilization management mechanisms to maximize covered Part D drug
discounts and lower enrollee premiums with the needs of certain special
populations of Part D enrollees, including Part D enrollees residing in
long-term care facilities.
In accordance with section 1860D-4(b)(3)(C)(iii) of the Act, Part D
sponsors cannot change therapeutic categories and classes in a
formulary other than at the beginning of a Part D plan year, except as
we would permit to take into account new therapeutic uses and
[[Page 4259]]
newly approved Part D drugs. Section 423.120(b)(4) of our proposed rule
specified that, in accordance with section 1860D-4(b)(3)(F) of the Act,
Part D sponsors will periodically be required to evaluate and analyze
treatment protocols and procedures related to their formularies to
ensure that their Part D plan members were receiving the best possible
care for conditions related to their use of covered Part D drugs.
In addition, section 1860D-4(b)(3)(E) of the Act requires that Part
D sponsors provide ``appropriate notice'' to us, affected enrollees,
authorized prescribers, pharmacists, and pharmacies regarding any
decision to either: (1) remove a drug from its formulary; or (2) make
any change in the preferred or tiered cost-sharing status of a drug.
Section 423.120(b)(5) of our proposed rule implemented this requirement
by defining appropriate notice as at least 30 days prior to such change
taking effect during a given contract year.
As provided under Sec. 423.120(b)(6) of our proposed rule, we
proposed that Part D sponsors be prohibited from removing a covered
Part D drug or from changing the preferred or tiered cost-sharing
status of a covered Part D drug between the beginning of the annual
coordinated election period described in Sec. 423.38(b) and 30 days
subsequent to the beginning of the contract year associated with that
annual coordinated election period.
Each Part D sponsor will also be required to establish policies and
procedures to educate and inform health care providers and enrollees
about its formulary, according to the provisions of section 1860D-
4(b)(3)(D) of the Act. As required under section 1860D-4(b)(3) of the
Act, the requirements regarding the development and application of
formularies discussed in this preamble section may be met by a Part D
sponsor directly, or through contracts or other arrangements between a
Part D sponsor and another entity or entities.
Except as otherwise provided below, the final rule adopts the rules
for Part D plan formularies set forth in Sec. 423.120(b) of the
proposed rule.
Comment: We received a significant number of comments that directly
and indirectly relate to the USP draft model guidelines issued for
public comment in August 2004. In general, the USP related comments can
be grouped into two categories. On one side, many comments claim that
the current draft model guidelines lack the necessary detail to ensure
that beneficiaries will have access to a comprehensive drug benefit,
often citing specific examples of medications that are necessary for
the treatment of the most frail and vulnerable populations and could be
excluded from Part D plan formularies that comply with the model
guidelines.
On the other hand, many comments recommended that the USP model
guidelines allow Part D plans the flexibility they need to develop
clinically sound formularies that offer a prescription drug benefit at
the lowest possible cost. Most of these commenters believe that the
draft model guidelines, while in need of some specific modifications,
are closer to reasonable than unreasonable. However, these commenters
claim that the minimum ``drugs'' requirements for each category and
class could significantly increase benefit costs if the categories and
classes increase to a level of detail that interferes with Part D
plans' ability to negotiate with manufacturers.
Response: We believe that the USP model guidelines identify a
reasonable number of categories and classes that balance the need for a
comprehensive Part D benefit with the need to allow Part D plans
flexibility to develop their own formularies and manage costs. These
model guidelines will provide us with a useful, standard format as a
starting point for our review of Part D plan benefit packages, since we
expect many plans will adopt the model guidelines as the basis for
their formulary classifications and submissions.
The model guidelines, while important in creating a template for a
formulary classification system, are not the only determinant of an
adequate formulary. Plans will be required to include the types of
drugs most commonly needed by Part D enrollees, as recognized in
national treatment guidelines, in their formularies. Regardless of
whether a Part D plan chooses to use the model guidelines or not, we
will review the drugs chosen to populate plan formularies under our
authority in section 1860D-11(e)(2)(D) of the Act to ensure that plan
benefit design does not discourage enrollment by certain classes of
Part D eligible individuals. However, formulary structure--including
tiered cost-sharing structures -utilization management processes, P&T
committee utilization and structure, and exceptions and appeals
processes are just as important in ensuring a comprehensive benefit,
and we intend to review these benefit design features as part of our
comprehensive benefit package review. We discuss our benefit design
review criteria in greater detail elsewhere in this preamble.
Comment: Several commenters disagreed with our interpretation of
the statutory term ``drugs'' as requiring coverage of at least two Part
D drugs within each therapeutic category and class of Part D drugs
(unless only one Part D drug existed in a particular therapeutic
category and class of Part D drugs), arguing that such an
interpretation was too expansive, and requiring coverage of too many
drugs in too many categories would diminish Part D plans' negotiating
leverage. These commenters provided examples of drug categories for
which a blanket requirement of two drugs is not appropriate, and an
exception should be granted. One commenter recommended that we should
allow an exception from this rule for categories and classes that only
include two drugs, and allow enrollees to obtain the non-formulary drug
in such categories via the exceptions process only.
In contrast, several commenters believed that requiring Part D
plans to include two drugs in each therapeutic category and class of
Part D drugs was not sufficient to ensure enrollee access to necessary
medications. They were concerned that for some categories--including
cancer treatments, rare diseases, mental illness, chronic pain, and
other conditions--requiring only two drugs per drug category and class
would be inadequate for Part D plans in terms of the statutory
requirement that plan design not discourage enrollment.
Several commenters urged us to clarify that this minimum two-drug
requirement must be met through drugs or biologicals offered on an
unrestricted basis (for example, not subject to utilization management
processes, such as prior authorization or step therapy, non-preferred
cost-sharing tiers, or other such restrictions on access to necessary
therapies), with some specifically urging us to impose restrictions on
step therapy by Part D plans. Some asked us to specify that the two
drugs must be distinct chemical entities. One commenter recommended
that we do not allow any Part B-covered drugs to count toward the two-
drug-per-category requirement.
Response: Section 1860D-4(b)(3)(C) of the Act requires that Part D
plans' formularies include ``drugs within each therapeutic category and
class of Part D drugs, although not necessarily all drugs within such
categories and classes.'' We believe that our interpretation of
``drugs'' as ``at least two drugs'' is consistent with Congressional
intent, and that it strikes an appropriate balance between providing
Part D plans with the necessary leverage to negotiate with
manufacturers for significant
[[Page 4260]]
discounts on covered Part D drugs and ensuring sufficient drug choice
for beneficiaries. We have therefore retained the two-drug minimum
requirement in Sec. 423.120(b)(2)(i) of our final rule.
However, we recognize that Part D categories and classes may exist
for which there are only two Part D drugs, and that including both of
those drugs on a formulary may be problematic if the two drugs are
vastly different in their clinical effectiveness. Given that section
1860D-4(b)(3)(C) of the Act requires that Part D plan formularies
include ``drugs within each therapeutic category and class of Part D
drugs, although not necessarily all drugs within such categories and
classes,'' we will allow plans to request exceptions to the requirement
in Sec. 423.120(b)(2)(i) of our final rule to the extent they can
demonstrate that there are only two Part D drugs available for a
particular Part D drug category or class and that one of those drugs is
clinically superior to the other. We have incorporated this provision
at Sec. 423.120(b)(2)(ii) of our final rule.
In response to comments that our proposed requirement is
insufficient to provide adequate access to medically necessary
treatments for Part D enrollees, we clarify that we will require Part D
plans to adopt policies that ensure that beneficiaries have reasonable
access to medically necessary drugs. Although Part D plans will not be
required to include every Part D drug on their formularies, we will--as
codified in Sec. 423.120(b)(2)(iii) of our final rule--require that
plans include adequate access to the types of drugs most commonly
needed by Part D enrollees, as recognized in national treatment
guidelines, on plan formularies. We are establishing this requirement
consistent with section 1860D-11(d)(2)(B) of the Act, which provides us
with authority similar to that provided to the Director of the Office
of Personnel Management for setting ``reasonable minimum standards''
for health benefits plans. We are looking to existing national
standards to inform our review at the drug level, and Part D plans will
be expected to accommodate national guidelines and offer complete
treatment options for a variety of medical conditions, including (but
not limited to) asthma, diabetes, depression, lipid disorders,
hypertension, and HIV. This is necessary in order to ensure that Part D
plans do not substantially discourage enrollment by certain Part D
eligible individuals based on exclusions of certain classes of drugs
from their formularies. In addition to examining specific drugs on Part
D plan formularies, and as discussed in greater detail elsewhere in
this preamble, we will review other aspects of plan benefit designs--
including tiered cost-sharing formulary structures, P&T committee
structure and utilization, utilization management policies and
processes, and exceptions and appeals processes--to ensure that Part D
plans generally meet the requirements under Part D, including the
provision of an adequate benefit.
We do not agree with comments asking that the two-drug requirement
be met through drugs offered on an unrestricted basis. We recognize
that Part D plans may establish utilization management processes in
such a way as to substantially discourage enrollment by certain
beneficiaries. On the other hand, utilization management restrictions
may be entirely appropriate for specific drugs or categories of drugs.
Furthermore, the statute specifically allows plans to utilize tiered
cost-sharing structures provided they meet certain actuarial
equivalence tests. As previously mentioned, part of our benefit design
review will focus not only on the specific drugs included on a Part D
plan's formulary, but also on a plan's utilization management policies
and procedures, to ensure that plans do not discriminate against
certain enrollees.
In addition, while drugs covered under Part B cannot be covered
under Part D, as provided in section 1860D-2(e)(2)(B) of the Act, this
exception to Part D coverage is limited to the drugs ``as so prescribed
and administered'' under Part B. Thus, the fact that a beneficiary can
have a particular drug covered under Part B ``incident to'' a physician
service or as part of a hospital outpatient procedure does not mean
that a prescription for the same drug should be denied by a Part D
plan. We will provide more guidance on this issue, but we clarify that
the number of drugs that may be denied coverage under Part D on the
basis of the drug itself is limited. One category of drugs that can
clearly never be covered under Part D is the list of oral cancer drugs
covered under Part B. Such drugs and limited number of others may not
be counted toward the two-drug minimum.
Finally, we clarify that our two-drug minimum requirement must be
met through the provision of two chemically distinct drugs. In other
words, Part D plans may not include two dosage forms or strengths of
the same drug, or a brand-name drug and a generic equivalent, in a
particular category or class and meet the requirement in Sec.
423.120(b)(2)(i) of our final rule.
Comment: One commenter recommended that Part D plans' formularies
include a wide variety of available dosage forms to the extent that was
feasible. Another commenter asked us to clarify that we would not allow
Part D plans to count different dosages of the same active ingredient
as two separate drugs for the purposes of our two drug requirement. A
third commenter asked us to clarify that it is acceptable for Part D
plans to favor some dosages over others on their formularies.
Response: We stated in our proposed rule that it was our
expectation that the drugs included in each therapeutic category or
class would include a variety of strengths and dosage forms, and we
stand by that expectation in our final rule. However, we clarify that
Part D plans will not have to provide equal access to all strengths and
dosage forms of a particular Part D drug, although beneficiaries will
have the right to pursue coverage of additional strengths and dosage
forms through the appeals process. We have clarified in Sec.
423.120(b)(2)(i) of our final rule that Part D plans must include two
chemically distinct Part D drugs in each therapeutic category and class
of drugs, with different strengths and doses available for each of
those drugs. Thus, Part D plans may not meet this requirement by only
including two or more different dosages of the same Part D drug in a
particular drug category or class.
Comment: Many commenters were concerned that our regulations will
create barriers to physicians prescribing the best medication for their
patients, including off-label uses of medications, which are common for
many conditions and are the norm for some conditions. In actuality,
off-label use is critically important and may be the mainstay of
medical practice for successfully managing certain conditions, such as
mental illnesses, chronic pain, chronic heart failure, arthritis,
Parkinson's, HIV/AIDS and dementia. The FDA recognizes that ``off-label
use of drugs by prescribers is often appropriate and may represent the
standard of practice.'' A number of commenters opposed our position
that the USP model guidelines should not be required to include classes
of drugs if there is no FDA approved drug with an on-label indication
for each class, even though there are FDA-approved drugs with commonly
accepted off-label uses that would fall within a class. One commenter
noted that any action taken by us regarding off-label use of
medications would have a ripple effect on other public and private
programs.
[[Page 4261]]
Some commenters requested that we clarify the formulary
requirements in our final rule to require Part D plans to cover
medically accepted off-label use of prescription drugs. They believe
this is consistent with Congressional intent and past practice under
the Medicare and Medicaid programs. In addition, one commenter is
concerned that by assigning a drug to a specific class for formulary
purposes, a Part D plan may not cover it for other medically accepted
indications. One commenter suggested formularies should be required to
include off-label uses for drugs for the prevention and treatment
recommended in clinical guidelines issued by government agencies and
medical societies, whether on-label or off-label. Another commenter
said that off-label use must be accessible through a Part D plan's
exceptions process for non-formulary drugs.
Response: We recognize the value of off label prescribing,
particularly with regard to certain medical conditions. As mentioned in
the proposed rule, we expect that the model categories and classes
developed by USP will be defined so that each includes at least one
drug that is approved by the FDA for the indication(s) in the category
or class. That is, no category or class will be created for which there
is no FDA approved drug and which would therefore have to include a
drug based on its ``off label'' indication. We expect Part D plans
using alternative drug classification systems to include at least one
drug that is approved by the FDA for the indication(s) in each drug
category or class. However, this would not preclude physicians and
other prescribers from prescribing drugs for off label indications,
provided the drug is prescribed for a ``medically accepted
indication,'' as defined in section 1927(k)(6) of the Act. Further, we
clarify that the USP model guidelines would not preclude Part D
sponsors from assigning an FDA approved drug to a category or class
based on an off label use for that drug, provided the FDA has not made
a determination that the drug is unsafe for that use.
We do not have the authority to require that Part D plans cover the
off-label use of certain Part D drugs. However, as discussed in greater
detail elsewhere in this preamble, we will thoroughly evaluate plan
benefit design to ensure that Part D plans provide an adequate benefit
and do not discriminate against certain classes of Part D enrollees--
including a review of plan utilization management policies and
processes, formulary structure, and plan exceptions and appeals
processes. We believe that these safeguards will ensure Part D enrollee
access to Part D drugs dispensed for medically appropriate off label
indications.
Comment: Multiple commenters were concerned that it is
inappropriate for physicians to be given the new burden to ``document
and justify'' off-label use in their Part D enrollees' clinical records
due to the administrative burden and the interference with the practice
of medicine by physicians. Many commenters mentioned that the FDA has
recognized the right of physicians to use approved drugs and devices as
they believe appropriate and never suggested there is a need to
document such use. One commenter noted this documentation requirement
is unprecedented and steps beyond well-established boundaries by
inserting us into an individual physician's professional decision-
making. If documentation is required, one commenter asked us to clarify
what constitutes sufficient documentation.
One commenter, however, noted the need for documentation on
prescriptions for off label use to enable pharmacists to conduct drug
utilization review. Another commenter recommended regular reviews by us
and by P&T committees through drug utilization and provider interviews
as is customary in commercial plans.
Many commenters urged us to mandate that Part D plans give
deference and flexibility to physicians when making coverage
determinations since a patient's physician has clinical expertise and
intimate knowledge of patients' medical needs. One commenter suggested
that we specify that Part D plans may not prohibit providers from
prescribing drugs for discretionary use if such use is supported by one
or more standard reference compendia or by one or more scientific
studies published in peer-reviewed medical journals or by generally
accepted standards of clinical care. One commenter suggested that MMA
regulations should restrict the ability of Part D plans to limit
physician prescribing for off-label purposes unless there is objective
medical evidence that such prescribing is inefficacious or harmful to
the individual patient.
Commenters noted that onerous administrative hurdles associated
with medically necessary off-label use could result in barriers to
patient access to essential therapies. Without specific guidance, Part
D plans could simply minimize financial risk through delay tactics
disguised as Federal documentation requirements. One commenter
recommended that at a minimum, we should clarify that there is nothing
to prevent a Part D plan from covering an off-label use that does not
meet the statutory definition of ``medically accepted indication'' if,
based on expert advice, the plan determines that such use is
appropriate. Multiple commenters suggested that the final rule guidance
for Part D drugs should be at least as flexible as the current coverage
policies for drugs covered under Medicare Part B. Under Part B, the
definition of a ``medically accepted indication'' includes indications
published in peer-reviewed literature; current Part B coverage policy
regarding off-label drug use is also consistent with these norms.
Response: By stating in the proposed rule preamble that we strongly
encouraged physicians and other prescribers to clearly document and
justify off-label use in their Part D enrollees' clinical records, we
did not intend to establish a new documentation requirement for
prescribers. We agree with commenters that physicians must have
sufficient latitude to prescribe drugs as necessary based on their
patients' particular medical needs and consistent with medical
standards of practice, and our statement should not be interpreted as
imposing new and onerous reporting requirements on prescribers. As
previously mentioned, we will thoroughly review plan benefit designs to
ensure that Part D plans meet all applicable requirements under Part D
including the provision of an adequate benefit. We expect that onerous
documentation requirements for off-label prescribing could potentially
be cause for finding that a Part D plan's proposed benefit structure
does not meet Part D requirements.
We note that a drug is considered to be a Part D drug only if
prescribed for a ``medically accepted indication'' as defined under
section 1927(k)(6) of the Act. Drugs may not be covered under Part D
even if they are not prescribed for a medically accepted indication.
Coverage for other than a medically accepted indication is not
permitted under the statute, since such drugs would not be considered
Part D drugs. Plans have the flexibility to decide how to monitor
whether a drug is prescribed for a medically accepted indication, as
well as to determine whether the statutory definition of ``medically
accepted indication'' is met with regard to the particular use of a
drug.
Comment: We received numerous comments regarding our authority
under section 1860D-11(e)(2)(D)(i) of the Act to review Part D plan
benefit designs including any formulary or tiered formulary structure
to ensure that plans do not discriminate against certain Part
[[Page 4262]]
D eligible individuals. Many commenters urged us to use this authority
to thoroughly, comprehensively, and judiciously review Part D plan
design and benefits including formulary structure to prevent
discriminatory practices. Some of these commenters were adamant that
such a review not be limited only to the particular drugs included on a
formulary list, but also to tiered cost-sharing (including the use of
100 percent cost-sharing tiers), and utilization management
requirements (for example, appeals, prior authorization, and step
therapy requirements).
Several other comments cautioned us not to be overly prescriptive
in our formulary review criteria and avoid unintentionally limiting the
ability of Part D plans to manage the costs of the Part D benefit. One
commenter suggested that our formulary review standards should provide
substantial deference to P&T committees including on cost-sharing,
step-therapy, and prior authorization processes, and that we should not
establish our own requirements in these areas.
Other commenters asked that greater specificity regarding our
criteria for formulary review, as well as practices that would be
considered discriminatory, be provided either in regulation or in
separate guidance, or both. Several commenters urged us to use defined
performance metrics to make formulary discrimination assessments.
Several commenters encouraged us to establish a flexible and readily
accessible process for dialogue with a variety of stakeholders to
create appropriate formulary review criteria, and one commenter urged
us to actually involve States in the review process.
Several commenters thought our formulary review process should be
performed annually and that contract renewal should be contingent upon
passing our review. Others thought that Part D plan formularies should
be reviewed more often given plans' ability to make formulary changes
mid-year.
Response: We will comprehensively review Part D plans' proposed
benefit structure to ensure that they generally comply with all
applicable standards under Part D. We intend to conduct a reasonable
review, providing guidelines that Part D plans can use in building
formularies and structuring their bids. We recently shared with the
public a first draft of our benefit package review criteria and, based
on public comments received on that document, will finalize and make
available publicly our final review criteria in early 2005.
Consistent with the authority provided under section 1860D-
11(e)(2)(D)(i) of the Act, we will review Part D plan formularies to
ensure that plans do not discriminate against certain classes of Part D
eligible individuals by adopting a benefit design (including any
formulary or tiered formulary structure) that would substantially
discourage enrollment by certain beneficiaries. Nothing in the statute
would foreclose us from concluding that a Part D plan's formulary
substantially discourages enrollment even if the plan's classes and
categories are considered non-discriminatory (for example, because the
plan uses the USP model guidelines to structure its formulary).
Although Part D plans will not be required to include every Part D drug
on their formularies, we will require Part D plans to offer an adequate
benefit. For example, we have the discretion to find that failure to
include a specific drug would substantially discourage enrollment by
beneficiaries with a condition that may only be treated by that drug.
We are looking to existing national standards to inform our review at
the drug level, and Part D plans will be expected to accommodate these
national guidelines.
We believe that other aspects of Part D plan benefit design
including formulary structure (including tiered cost-sharing
structures), the structure and utilization of a plan's P&T committee, a
plan's utilization management policies and procedures (for example,
prior authorization, step therapy, and generic substitution), and a
plan's exceptions and appeals processes are as important as a plan's
formulary list of drugs in ensuring that beneficiaries are offered an
adequate benefit that generally complies with all applicable standards
under Part D. Therefore, we intend to review these plan features as
part of our comprehensive review of Part D plan benefit designs.
We will review tiered cost-sharing arrangements to ascertain that
the cost sharing associated with certain drugs or classes of drugs does
not discourage enrollment by certain beneficiaries for example, those
with certain diseases or medical conditions. We will also review a Part
D plan's P&T committee structure and processes to ensure that plans
comply with the requirements of section 1860D-4(b)(3)(B) of the Act,
which creates standards designed to ensure impartial, clinically-based
decision-making by P&T committees.
A Part D plan's utilization management policies and processes must
ensure that beneficiaries have continuous, timely, and appropriate
access to Part D drugs, and that such policies are structured on
evidence-based criteria that are reviewed by a Part D plan's P&T
committee. Section 1860D-4(c)(1)(A) of the Act requires Part D plans to
establish cost-effective drug utilization management programs
(including incentives to reduce costs when medically appropriate). Our
review of plan utilization management policies and processes will
ensure that those policies and processes are medically appropriate and
do not discriminate against certain beneficiaries.
We clarify that a non-formulary drug is not necessarily a non-
covered Part D drug. The MMA provides for an exceptions process whereby
enrollees and prescribers can request Part D coverage at more favorable
cost sharing than for non-preferred drugs, as well as access to non-
formulary drugs at formulary cost-sharing levels. As discussed
elsewhere in this preamble, we interpret section 1860D-4(h)(2) of the
Act as requiring Part D plans to cover a non-formulary drug on appeal
when, upon review, a physician determination of medical necessity is
upheld. Thus, while Part D plans are not required to approve a non-
formulary Part D drug in the first instance at the point of sale, plans
are required to provide access to Part D drugs, both formulary and non-
formulary, on appeal, where there is a legitimate medical need. We will
review Part D plans' exceptions and appeals processes to ensure that
evidence-based criteria are used to ensure medically appropriate access
to all Part D drugs, including those drugs that are not favorably
placed on a plan's formulary or not on the formulary at all.
Section 1860D-11(d)(2)(B) of the Act provides us with authority
similar to that provided to the Director of the Office of Personnel
Management with respect to health benefits plans; this includes setting
``reasonable minimum standards'' for plans. As we finalize our
guidelines, we will look to existing national standards and guidelines,
such as those established by the Utilization Review Accreditation
Commission (URAC), the National Committee for Quality Assurance (NCQA),
the American Society of Health Systems Pharmacists (ASHP), and the
Academy of Managed Care Pharmacy (AMCP) to develop a framework for
formulary management. The principles embodied in these standards and
guidelines represent commercial best practice, and we believe Part D
enrollees should be granted the same rights and protections under their
Part D plan as generally
[[Page 4263]]
available to those enrolled in commercial plans.
Comment: Many commenters supported establishing rules for special
treatment, to include alternative or open formularies and other special
provisions and exemptions, for certain classes of enrollees. Commenters
suggested a number of classes of beneficiaries that we may want to
consider ``special populations'' for the purpose of offering such
special rules, including dual eligibles, institutionalized
beneficiaries, individuals with certain diseases or medical conditions,
and minority populations. Other commenters opposed any requirement that
special populations be subject to special rules. Instead, they argued
that we should provide Part D plans the flexibility to manage and
design benefits consistent with their enrollees' needs. They felt that
prescriptive guidance was not necessary and that our review for
discrimination should be sufficient to ensure adequate access to all
medically necessary drugs.
Response: We share commenters' concerns about access to all
medically necessary Part D drugs by vulnerable Part D enrollees.
However, after much consideration, we disagree with commenters who
advocated for specific requirements in regulation that would create
special rules applicable only to certain classes of Part D enrollees.
We believe commenters' concerns regarding access to Part D drugs for
vulnerable populations will be addressed via our review of Part D plan
benefit packages.
As discussed in great detail elsewhere in this preamble, we will
comprehensively review Part D plans' proposed benefit structure to
ensure that they generally comply with all applicable standards under
Part D--including the provision of a benefit that provides for adequate
coverage of the types of drugs most commonly needed by Part D
enrollees, as recognized in national treatment guidelines. We intend to
conduct a reasonable review, providing guidelines that Part D plans can
use in building formularies and structuring their bids. We recently
shared with the public a first draft of our benefit package review
criteria and, based on public comments received on that document, will
finalize and make available publicly our final review criteria in early
2005.
Comment: A number of commenters urged us to place strict limits on
Part D plans' ability to remove drugs or increase the cost sharing
associated with certain formulary drugs mid-year. One commenter
suggested we allow for changes only at the beginning of a contract year
so that changes are announced to current and prospective enrollees
prior to the open enrollment period and Part D plans are able to market
their new formulary for the upcoming plan year. Another commenter
recommended that we allow formulary changes only from October 1\st\ to
November 14\th\ of a given year.
Several commenters suggested that Part D plans be required to
provide justification for any decision to remove a drug from the
formulary. Another commenter stated that Part D plans should be
required to document any decision to remove a drug from the formulary
based on detailed scientific and clinical evidence. This commenter
noted that reasons for discontinuing coverage could include new
clinical evidence that a drug is unsafe, contraindicated for particular
indications, or a manufacturer's withdrawal from the market. Other
commenters noted that Part D plans should only be allowed to remove
drugs from their formulary when new information about a drug's safety
becomes available.
Response: The goal of the MMA was to encourage private sector
organizations who meet the law's requirements to offer a range of Part
D plan options for Medicare beneficiaries by providing flexibility in
plan design and management. This flexibility is modeled after the way
consumers in the private sector receive drug benefits. Although the
statute requires us to limit changes in the therapeutic categories and
classes of a Part D plan's formulary to the beginning of each plan year
(except as we permit to take into account new therapeutic uses and
newly approved Part D drugs), it does not give us similar authority to
preclude mid-year changes to a Part D plan's formulary list. However,
as provided in section 1860D-4(b)(3)(E) of the Act, codified in Sec.
423.120(b)(5) of our final rule, and discussed in greater detail
elsewhere in this preamble, Part D plans must provide appropriate
notice to affected enrollees, among others, prior to removing a drug
from their formulary or changing the preferred or tier status of a
formulary drug. Such notice will provide beneficiaries with ample time
to transition to a covered Part D drug that meets the enrollee's needs,
or to request a coverage exception.
Comment: We received a number of comments urging us to consider
requirements related to the ``grandfathering,'' on the same terms as
previously available, of covered Part D drugs that are either removed
from Part D plan formularies, or whose cost-sharing tier or preferred
status changes, mid-year. One commenter stated that patients with
chronic diseases who are stabilized by a plan-covered drug at the
beginning of the year should not experience a higher copayment or be
denied coverage of a drug based on a formulary change.
Other commenters thought the grandfathering should apply more
broadly. Some commenters said that Part D plans should be required to
grandfather a drug for anyone taking the medication prior to its
removal from their formulary (unless removed due to FDA safety
concerns). One commenter recommended that we require Part D plans to
grandfather coverage of chronic medications until the next open
enrollment period. Other commenters noted that, if we do not include
rules placing strict limits on formulary changes during the year, Part
D plans should be required to continue coverage of the discontinued
drug for the remainder of year, at the same price, for all individuals
taking the drug as part of an ongoing treatment regimen. One commenter
suggested that Part D plans be required to provide patients with a 72-
hour supply of a drug if it has been removed from the formulary.
However, some commenters also clarified that such a requirement should
not be meant to prohibit a Part D plan from asking physicians to
voluntarily switch patients to less costly drugs through a therapeutic
substitution initiative.
Response: Although the MMA does not preclude mid-year formulary
changes by Part D plans, it does require that plans provide appropriate
advance notice to affected enrollees of any removal of a covered Part D
drug from a formulary, or any change in the preferred or tiered cost-
sharing status of a covered Part D drug. As detailed elsewhere in this
preamble, we have interpreted ``appropriate notice'' to mean at least
60 days prior to such change taking effect. We believe that 60 days,
which is consistent with National Association of Insurance
Commissioners (NAIC) model guidelines, provides affected enrollees with
ample time to either switch to a therapeutically appropriate
alternative medication, or obtain a redetermination by the Part D plan,
reconsideration by the independent review entity, and request an
administrative law judge hearing before the change becomes effective.
To the extent that Part D plans do not provide such 60-day advance
notice, they will be required to provide such notice and a 60-day
supply of the drug at the same terms covered previously when affected
enrollees request refills of their prescriptions. Once notice is
provided, enrollees will have a 60-day window to either switch to a
[[Page 4264]]
therapeutically appropriate alternative medication, or obtain a
redetermination by the Part D plan, reconsideration by the independent
review entity, and request an administrative law judge hearing before
the 60-day supply is exhausted.
Comment: A number of commenters voiced support for some kind of
transition period for beneficiaries, particularly full-benefit dual
eligibles, transitioning to Medicare Part D from other drug coverage.
These commenters argue that, under Medicaid, many beneficiaries--
especially those with certain conditions (HIV/AIDS and mental illness,
for example, as well as those residing in long-term care facilities)--
may experience relatively unfettered access to medically necessary
drugs. This may not be the case when these enrollees transition their
drug coverage from Medicaid to Part D, since different Part D plans
will have different formularies, cost-sharing tiers, and utilization
management requirements. Commenters are concerned that vulnerable
beneficiaries may elect, or may be auto-enrolled in, a Part D plan that
does not cover the drugs these beneficiaries need. More generally,
several commenters noted that many beneficiaries--and not just those
who are considered vulnerable or special populations--could face a
significant loss of continuity of care if Part D plans' formularies are
substantively different from each other or from commercial plans. They
advocate for an additional coverage clause for patients transitioning
into or changing Part D plans in order to avoid disruptions in care.
Response: We agree with commenters that Part D plans should have
processes in place to transition current enrollees from their old
coverage to their new Part D plan coverage, particularly in cases where
new enrollees are currently taking Part D drugs that are not included
on the Part D plan's formulary at the time of enrollment. However, we
envision that the need for such a transition period will be limited for
several reasons.
In reviewing a Part D plan's benefit package, we have the
discretion to find that failure to include a specific drug on the
formulary would substantially discourage enrollment by beneficiaries
with a condition that may only be treated with that drug. For example,
we expect that ensuring that beneficiaries with certain conditions,
such as HIV/AIDS, are not as a group substantially discouraged from
enrolling in a Part D plan will require that all or substantially all
drugs in a particular therapeutic class be covered. In addition, in our
review of plan benefit packages and our general oversight to ensure
that Part D plans comply with all applicable requirements, we will
examine not only the inclusion of particular drugs on a formulary, but
also the structure and utilization of a plan's P&T committee, formulary
structure (including tiered cost-sharing structures), a plan's
utilization management policies and procedures (for example, prior
authorization, step therapy, and generic substitution), and exceptions
and appeals processes and how such processes guide access to both
formulary and non-formulary drugs. Given such a review of the overall
benefit package, we would expect that the majority of transition
concerns vis-[agrave]-vis special populations will be obviated prior to
beneficiary enrollment, as Part D plans will know our benefit package
review criteria in advance of the bidding process. In addition, and as
described in detail elsewhere in the section of this preamble
discussing exceptions and appeals, we are adopting a substantive rule
requiring coverage of non-formulary drugs on appeal provided that a
medical necessity determination is upheld upon review.
To address the needs of new Part D plan enrollees who are
transitioning to Part D from other prescription drug coverage, and
whose current drug therapies may not be included in their Part D plan's
formulary despite the safeguards noted above, we are requiring--in
Sec. 423.120(b)(3) of our final rule--that Part D plans establish an
appropriate transition process for new enrollees which we would review
as part of our benefit package review process. Section 1860D-
11(d)(2)(B) of the Act provides us with authority similar to that
provided to the Director of the Office of Personnel Management (OPM)
with respect to health benefits plans; as provided in 5 U.S.C. 8902(e),
this includes the authority to ``prescribe reasonable minimum standards
for health benefits plans.'' It is our understanding that OPM, in its
contract negotiations with FEHBP plans, requires a transition policy.
Furthermore, many commercial plans include transition processes for new
enrollees. Failure to appropriately transition certain beneficiaries
could result in aggravation of certain medical conditions including, in
some cases, hospitalization which could ultimately increase costs to
Medicare under Parts A and B. Thus, requiring Part D plans to establish
appropriate transition policies for new enrollees appears to be
consistent with our authority to prescribe reasonable minimum standards
for Part D plans.
We believe that a requirement for an appropriate transition process
for new enrollees prescribed Part D drugs that are not on the Part D
plan's formulary appropriately balances the protection of certain
vulnerable populations with flexibility for Part D plans to develop a
transition process that dovetails with plans' specific benefit designs.
We will provide additional guidance regarding transition process
requirements as part of our benefit package review criteria. However,
we expect that a Part D plan's transition process would address
procedures for medical review of non-formulary drug requests and, when
appropriate, a process for switching new Part D plan enrollees to
therapeutically appropriate formulary alternatives failing an
affirmative medical necessity determination. Such a policy should also
focus on particularly vulnerable populations, including dual eligibles
and individuals with certain medical conditions (for example, enrollees
with HIV/AIDS, mental illness, and those with other cognitive
disorders).
Comment: Some commenters requested that we establish a standard
process for making formulary changes that Part D plans are required to
follow, including standard policies and procedures for communicating
changes to beneficiaries, pharmacists, and physicians. Another
commenter suggested that we develop a standard formulary change form.
Response: As provided in section 1860D-4(b)(3)(E) of the Act, and
codified in Sec. 423.120(b)(5)(i) of our final rule, we will require
that Part D plans provide appropriate notice regarding any removal of a
covered Part D drug from their formulary or any change in the preferred
or tiered cost-sharing status of a drug to affected enrollees and other
parties. We believe that Part D plans should have the flexibility to
develop formulary change notices that meet their particular needs,
provided they include the information elements we specify at Sec.
423.120(b)(5)(ii) of our final rule and discussed in greater detail
elsewhere in this preamble.
Comment: One commenter suggested that notice not be required when
the enrollees' cost sharing is being reduced. This commenter also
suggested that notice not be required when generic competitors have
dropped out of the market, leaving only one supplier, and the generic
drug as a result becomes effectively treated as a single-source ``brand
name'' drug. Another commenter noted that the requirement for written
notice should extend beyond changes in covered medication and should
also be sent when the Part D plan changes procedures for accessing a
[[Page 4265]]
particular medicine. Some commenters suggested we define ``appropriate
notice'' differently for the expansion of a formulary versus the
removal of a drug from the formulary to be consistent with the private
market.
Response: Section 1860D-4(b)(3)(E) of the Act requires Part D plans
to provide notice before making ``any change in the preferred or tiered
cost-sharing status of a drug.'' Plans must therefore provide notice
regarding any cost-sharing changes be they increases or reductions,
consistent with the requirements of Sec. 423.120(b)(5) of our final
rule. The previously cited statutory language limits the provision of
notice of formulary changes to the removal of a drug from a formulary
or any change in the preferred or tier status of a drug, meaning that
Part D plans will not be required to provide notice regarding a change
in utilization management processes associated with a particular drug.
However, we encourage Part D plans to do so to the extent practicable.
We agree with the commenter who asks that we make a distinction between
drugs added to and removed from a formulary. As provided in Sec.
423.120(b)(5)(i) of our final rule, Part D plans will only be required
to provide advance notice of formulary changes to affected
beneficiaries when drugs are removed from a formulary; at their option,
Part D plans may also wish to notify enrollees of new additions to
their formularies.
Comment: Some commenters support the 30-day notice provision in our
proposed regulation. Other comments specifically noted that there
should be exceptions to the 30-day requirement in cases where there has
been an FDA directive to remove a drug from the market.
However, many commenters were concerned that the 30-day notice
provision in the proposed regulation would not provide the adequate
time frame for enrollees to make the necessary changes in their drug
treatment and ensure continuity of care particularly for enrollees with
chronic conditions. Many commenters suggested a 90-day notice
requirement. Several commenters suggested that beneficiaries be
notified directly in writing at least 60 days before any change, and
one commenter noted that NAIC model regulations for drug benefit
changes require a 60-day notice.
Response: We appreciate the feedback on our interpretation of
``appropriate notice'' in the proposed rule as consisting of advance
notice of at least 30 days. To ensure that Part D enrollees are
provided with sufficient time either to switch to a therapeutically
appropriate alternative medication, or obtain a redetermination by the
Part D plan, reconsideration by the independent review entity, and
request an administrative law judge hearing, we have defined
appropriate notice as at least 60 days in Sec. 423.120(b)(5)(i)(A) of
our final rule. In addition to affording enrollees more time to manage
the consequences of mid-year formulary changes, a 60-day requirement is
consistent with the NAIC model guidelines for drug benefit changes. As
provided in Sec. 423.120(b)(5)(i)(B) of our final rule, Part D plans
also have the option to the extent that they are not able to provide a
60-day advance notice to provide the notice and provide 60 days'
coverage of the Part D drug, under the same terms as previously
available under the Part D plan, at the time the enrollee fills his or
her prescription. Once notice is provided, enrollees will have a 60-day
window to either switch to a therapeutically appropriate alternative
medication, or obtain a redetermination by the Part D plan,
reconsideration by the independent review entity, and request an
administrative law judge hearing before the 60-day supply is exhausted.
We note that, in order for the requirement regarding plan changes
during the beginning of a contract year in Sec. 423.120(b)(6) of our
final rule to be consistent with the 60-day advance notice requirement
in Sec. 423.120(b)(5)(i)(A) of the final rule, we have changed the
requirement in the proposed rule such that a Part D sponsor may not
remove a covered Part D drug from its Part D plan's formulary, or make
any change in the preferred or tiered cost-sharing status of a covered
Part D drug on its plan's formulary, between the beginning of the
annual coordinated election period and 60 days after the beginning of
the contract year associated with that AEP. As previously mentioned, we
had proposed a period of 30 days in Sec. 423.120(b)(6) of our proposed
rule.
We note that, in cases in which the FDA requires the removal of a
covered Part D drugs from the market or a manufacturer pulls the drug
from the market for safety reasons, 60-day advance notice will not be
required, as provided in Sec. 423.120(b)(5)(iii) of our final rule.
However, Part D plans will be required to provide notice to affected
enrollees (as well as to SPAPs, entities providing other prescription
drug coverage, authorized prescribers, network pharmacies, pharmacists,
and us) about the removal of a such a covered Part D drug from their
formularies as quickly as possible after the drug is actually removed
from the formulary. This notification must comply with our notification
requirements in Sec. 423.120(b)(5)(ii)(A) through (b)(5)(ii)(D).
Comment: Some commenters asked for clarification on what is
considered as ``appropriate notice''. Many commenters urged us to
require Part D plans provide notice in writing and mail directly to
each enrollee who is affected by the change. The commenters noted that
without specifying that the notice must be provided in writing, Part D
plans may believe they satisfy requirement by posting this information
on their plan websites. Several commenters noted that website
notification is inadequate. One commenter asked that Part D plans be
allowed to give notice electronically if the enrollee opts for that
communication method.
Another commenter asked that Part D plans, primarily MA plans,
receive more flexibility in giving notice to enrollees. One commenter
noted that Part D plans should be allowed to convey certain types of
formulary changes through pre- and post-enrollment materials such as
sales brochures, enrollment forms, evidence of coverage, or summaries
of benefits.
Response: We agree that Part D plans must provide any formulary
change notice in writing, and deliver it directly to affected
enrollees. This requirement is reflected in Sec. 423.120(b)(5)(i)(A)
of our final rule. As provided in Sec. 423.128(d)(2)(iii) of the final
rule, Part D sponsors must also provide this notice to all current and
prospective Part D enrollees via their plan websites. However, we agree
with commenters who assert that website notification, on its own, is an
inadequate means of providing specific information to the enrollees who
most need it. Website notification will simply be an additional way in
which Part D plans may provide notice of formulary changes to affected
enrollees. We therefore require Part D plans to provide this notice
directly to affected beneficiaries. As an alternative to providing this
notice to affected beneficiaries via U.S. mail, to the extent that plan
enrollees affirmatively elect to receive such notice electronically
rather than in writing, via U.S. mail, Part D plans may provide notice
electronically only.
We do not believe that the formulary change notice requirements
should apply any differently to MA-PD plans (or to cost plans offering
qualified prescription drug coverage) than they do to prescription drug
plans. In order to ensure that enrollees receive and process
information about formulary changes in a timely way, we believe that
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a notice of formulary changes is the most efficient way to do so, and
that other materials (including pre- and post-enrollment materials such
as sales brochures, enrollment forms, evidence of coverage, or
summaries of benefits) are not the most appropriate mechanisms to
convey such information.
Comment: Many commenters recommended requiring Part D plans to
include information about enrollees' rights to request an appeal or
exception with their formulary change notification. One commenter urged
that if the notice of the change in formulary involves the addition of
a medication, the notice should also explain how the medication will be
classed, if the Part D plan uses a tiered co-pay system or step therapy
system. The notice should also indicate expected cost to the
beneficiary. If a medication is being removed from the formulary, the
notice should indicate what medication is available for individuals who
were prescribed the medication being removed.
Response: In response to the helpful public comments received on
what ``appropriate notice'' of formulary changes should comprise, Sec.
423.120(b)(5)(ii) of our final rule requires that Part D plans include
the following information on their formulary changes notices: (1) the
name of the affected covered Part D drug; (2) whether the plan is
removing such covered Part D drug from the formulary, or changing its
preferred or tiered cost-sharing status; (3) the reason why the plan is
removing such covered Part D drug from the formulary, or changing its
preferred or tiered cost-sharing status; (4) alternative drugs in the
same therapeutic category or class or cost-sharing tier and expected
cost-sharing for those drugs; and (5) the means by which enrollees may
obtain a coverage determination under Sec. 423.566 or exception under
Sec. 423.578 of our final rule. These required information elements
will provide enrollees with the information they need to request an
independent review or to switch to an alternative formulary drug.
Comment: Several commenters noted that advance notice of formulary
changes should only be required for enrollees currently using a
particular drug, per our proposal in our notice of proposed rulemaking.
One commenter asked that our interpretation of the term ``affected
enrollee'' be further expanded to include an enrollee who has been
dispensed a drug that has been removed, or whose status has changed,
within the last 90 days. Other commenters urged us to require Part D
plans to provide all enrollees (not just those taking the affected
drug) with advance notice of formulary changes.
Response: We interpret the statutory term ``affected enrollee'' as
referring to a Part D enrollee who is currently taking a covered Part D
drug that is either being removed from a Part D plan's formulary, or
whose preferred or tiered cost-sharing status is changing. In other
words, Part D plans will not be required to notify all enrollees
regarding formulary changes during a contract year only those directly
affected by changes with respect to a particular covered Part D drug.
This will minimize Part D plan administrative costs while getting
information to those individuals who need it. We have incorporated this
definition of the term ``affected enrollee'' in Sec. 423.100 of our
final rule.
Comment: Several commenters recommended that Part D plans notify
prescribers, pharmacists and pharmacies through information posted on
plans' websites or through routine communication to prescribers and
pharmacists rather than contacting all prescribers and pharmacies
directly. More than one commenter stated that sending a mailed
notification to all beneficiaries, affected physicians, and pharmacists
would be an enormous undertaking and expense. This commenter believes
that it is appropriate to mail notifications to those taking the
medication and provide it electronically to physicians, pharmacists,
and other beneficiaries via the Part D plan website and upon request.
Response: We agree with commenters that we should provide greater
flexibility in terms of the mechanism by which they provide notice to
parties other than affected enrollees to whom they are required to
provide advance notice of formulary changes (including authorized
prescribers, pharmacists, pharmacies, and us). As provided in Sec.
423.120(b)(5)(i) of our final rule, we do not specify that written
notice is required to be provided to these parties. Thus, Part D plans
can determine the most effective means by which to communicate
formulary change information to these parties, including electronic
means.
Comment: Several commenters suggested Part D plans also notify
SPAPs, State retiree plans, and State Medicaid programs of formulary
changes, and another commenter suggested State Medicaid offices as
well.
Response: Section 1860D-4(b)(3)(E) of the Act requires that
``appropriate notice'' of formulary changes be made specifically to the
Secretary, affected enrollees, physicians, pharmacies, and pharmacists.
However, we expect Part D plans to coordinate with SPAPs and other
plans providing benefits that supplement the benefits available under
Part D coverage to Part D enrollees. Provision of formulary change
information to these health plans and programs will be important in
ensuring effective coordination. Given that section 1860D-24(a)(2)(F)
of the Act provides us with flexibility to establish coordination of
benefits requirements regarding other administrative processes not
specified in section 1860D-24(a)(2) of the Act, we believe it is
reasonable to require Part D plans to notify SPAPs and other health
plans and programs (as defined in Sec. 423.454(f)(1) of our final
rule) regarding formulary deletions or changes to the tiered cost-
sharing status of a drug. We have incorporated this requirement into
Sec. 423.120(b)(5) of our final rule.
Comment: One commenter recommended that Part D sponsors should
include in their formulary notice to us a certification that they are
still meeting the statutory formulary requirements.
Response: We note that, notwithstanding any formulary changes Part
D plans make mid-year, plans will still be required to meet all the
formulary requirements in Sec. 423.120(b) of our final rule, and we
will review all formulary changes to ensure that this is the case.
c. Use of Standardized Technology
In accordance with the requirements of section 1860D 4(b)(2)(A) of
the Act, Part D sponsors must issue (and reissue, as appropriate) a
card or other technology that enrollees could use to access negotiated
prices for covered part D drugs. Section 1860D-4(b)(2)(B)(i) of the Act
mandates that we develop, adopt, or recognize standards relating to a
standardized format for a card or other technology for accessing
negotiated prices to covered Part D drugs. Section 1860D 4(b)(2)(B)(ii)
of the Act requires us to consult with the National Council for
Prescription Drug Programs (NCPDP) and other standard setting
organizations, as appropriate, to develop these standards.
Except as otherwise provided below, the final rule adopts the rules
regarding use of standardized technology set forth in Sec. 423.120(c)
of the proposed rule.
Comment: A number of commenters support our using a standardized
identification card using NCPDP standards. These commenters note that a
standardized card using the NCPDP format will create increased
efficiencies such as reduced waiting times for dispensing medications
that will benefit pharmacy providers and beneficiaries. A
[[Page 4267]]
few commenters suggested that we provide MA organizations with the
flexibility to integrate their drug card with their medical benefits
card rather than issuing a separate card if the MA organization chooses
to do so and others requested clarification that MA organizations could
issue a single card for both their medical and drug benefits. One
commenter expressed concern about using an identification number other
than the beneficiaries' Medicare Identification Number because this
number is familiar and known by the beneficiaries. In certain
situations, if the card were lost or stolen, beneficiaries could easily
remember their drug card number.
Response: As provided under section 1860D 4(b)(2)(B)(ii) of the
Act, we will consult with the National Council for Prescription Drug
Programs (NCPDP) and other standard setting organizations, as
appropriate, to develop these standards. Given that NCPDP is recognized
as the industry standard for current prescription drug programs, and we
relied on its standards in developing requirements for discount card
sponsors' cards under the Medicare Prescription Drug Discount Card and
Transitional Assistance Program, we expect to base our card standards
on NCPDP's ``Pharmacy ID Card Standard.'' This standard is based on the
American National Standards Institute ANSI INCITS 284-1997 standard
titled Identification Card--Health Care Identification Cards, which may
be ordered through the Internet at http://www.ansi.org. We will provide
further operational guidance regarding our standards for a card (or
other technology) to entities wishing to become Part D sponsors in time
for these entities to use the standards (and have their cards approved
for use by us) beginning January 1, 2006. We understand that Part D
sponsors would like flexibility to integrate their medical and drug
benefit cards and will provide Part D sponsors with that flexibility
consistent with our approach under the Medicare Prescription Drug
Discount Card and Transitional Assistance Program. It is our intent,
however, that these standards require that Part D plans use something
other than an enrollee's social security number (SSN) as an identifier
on their cards given rising concern over the increasing number of cases
regarding identity fraud using an individual SSNs and privacy concerns.
We understand that this number is the most familiar and known to the
beneficiaries but we will work to make the drug card identification
number and process easy and convenient for beneficiaries.
5. Special Rules for Out-of-Network Access to Covered Part D Drugs at
Pharmacies (Sec. 423.124)
Section 1860D-4(b)(1)(C)(iii) of the Act requires us to establish
pharmacy access standards that include rules for adequate emergency
access to covered Part D drugs by Part D enrollees. Given the inherent
difficulties in establishing emergency access standards for covered
Part D drugs, we proposed to meet the requirements of section 1860D
4(b)(1)(C)(iii) of the Act by establishing a broader out-of-network
access requirement. We proposed requiring that Part D sponsors ensure
that their enrollees had adequate access to drugs dispensed at out-of-
network pharmacies when they could not reasonably be expected to obtain
covered Part D drugs at a network pharmacy. In the proposed rule, we
stated that we expected out-of-network access to be guaranteed under at
least the following four scenarios:
In cases in which a Part D enrollee meets all of the
following: is traveling outside his or her Part D plan's service area;
runs out of or loses his or her covered Part D drug(s) or becomes ill
and needs a covered Part D drug; and cannot access a network pharmacy;
In cases in which a Part D enrollee cannot obtain a
covered Part D drug in a timely manner within his or her service area
because, for example, there is no network pharmacy within a reasonable
driving distance that provides 24-hour-a-day/7-day-per-week service;
In cases in which a Part D enrollee resides in a long-term
care facility and the contracted long-term care pharmacy does not
participate in his or her Part D plan's pharmacy network; and
In cases in which a Part D enrollee must fill a
prescription for a covered Part D drug, and that particular covered
Part D drug (for example, an orphan drug or other specialty
pharmaceutical typically shipped directly from manufacturers or special
vendors) is not regularly stocked at accessible network retail or mail-
order pharmacies. Both the enrollee and his or her Part D plan would
have been financially responsible for covered Part D drugs obtained at
an out-of-network pharmacy as described. In the proposed rule, we
specified that such cost-sharing would have been applied relative to
the plan allowance for that covered Part D drug. We requested comments
on how to further define the term ``plan allowance.''
In addition to this cost-sharing, and as provided under proposed
Sec. 423.124(b)(2), the enrollee would have been responsible for any
difference in price between the out-of-network pharmacy's usual and
customary (U&C) price and the plan allowance for that covered Part D
drug. We requested public comments regarding our definition of usual
and customary price. We also sought comments regarding our proposal
that the price differential between out-of-network pharmacies' U&C
costs and the plan allowance be counted as an incurred cost against the
out-of-pocket threshold consistent with the definition of ``incurred
cost'' in Sec. 423.100 of the proposed rule. Finally, we requested
general comments regarding our proposed payment rules for covered Part
D drugs obtained at out-of-network pharmacies when enrollees cannot
reasonably obtain those drugs at a network pharmacy.
Except as otherwise provided below, the final rule adopts the out-
of-network access rules set forth in Sec. 423.124 of the proposed
rule.
Comment: Many commenters generally supported our proposed out-of-
network pharmacy proposal and said beneficiaries--particularly those in
rural areas--should not be penalized for going out-of-network when
necessary. However, some commenters felt the proposal's list of
situations in which access to out-of-network pharmacies would be
allowed was overly broad and recommended limiting such access to
emergency situations only. Some commenters expressed support for plans
having the discretion to establish out-of-network access requirements,
but not being given a specific list of requirements. Some expressed
concern that the message to beneficiaries might be that they can go to
out-of-network pharmacies at will, resulting in increased costs.
A number of commenters stated that as proposed, allowing access to
out-of-network pharmacies is impractical because these pharmacies
cannot determine if beneficiaries have met their deductibles, are in
the coverage gap, or the amount their Part D plan would pay had they
gone to a participating pharmacy. Out-of-network pharmacies do not have
access to data needed to calculate payment rates other than their own
usual and customary price. These commenters asked that we clarify that
out-of-network pharmacies may charge beneficiaries their usual and
customary price that beneficiaries must be responsible for submitting
claims for out-of-network medications they purchase to their Part D
plans, and that plans must accept claims submitted to them by
beneficiaries once such a purchase is made. One commenter recommended
Part D plans be given
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time to retroactively modify claims databases to accommodate paper
claims tracking, suggesting that we minimize these requirements and be
specific in the timeline under which these modifications are required
(for example, 60 days).
Some commenters stated that the proposal is inadequate for
emergency situations and should require Part D plans to cover a
temporary supply of drugs. One commenter recommended that we require
Part D plans to establish a mechanism to guarantee payment for at least
a 72-hour supply of any medically necessary, covered Part D drug
obtained out-of-network. One commenter disagreed with the proposal
entirely, stating that if the TRICARE access standards were met by a
Part D plan, this should be a sufficient guarantee of adequate network
access.
Response: We expect that, given our pharmacy access standards, Part
D enrollees will have adequate access to network pharmacies. However,
section 1860D-4(b)(1)(C)(iii) of the Act requires us to establish
pharmacy access standards that include rules for adequate emergency
access to covered Part D drugs by Part D enrollees. Given the inherent
difficulties in establishing what constitutes an ``emergency,'' we
believe it is most appropriate to establish a broader out-of-network
access requirement. Section 423.124(a)(1) of our final rule clarifies
that Part D plans are required to ensure that their enrollees have
adequate access to drugs dispensed at out-of-network pharmacies when
they cannot reasonably be expected to obtain covered Part D drugs at a
network pharmacy. Provided that such access to out-of-network
pharmacies is not routine, we expect that Part D plans would guarantee
out-of-network access in cases in which an enrollee: (1) is traveling
outside his or her plan's service area, runs out of or loses his or her
covered Part D drugs or becomes ill and needs a covered Part D drug,
and cannot access a network pharmacy; (2) cannot obtain a covered Part
D drug in a timely manner within his or her service area because, for
example, there is no network pharmacy within a reasonable driving
distance that provides 24/7 service; (3) must fill a prescription for a
covered Part D drug, and that particular drug (for example, an orphan
drug or other specialty pharmaceutical) is not regularly stocked at
accessible network retail or mail-order pharmacies;; and (4) is
provided covered Part D drugs dispensed by an out-of-network
institution-based pharmacy while a patient is in an emergency
department, provider-based clinic, outpatient surgery, or other
outpatient setting. We are not incorporating these scenarios into our
final regulations but will closely monitor out-of-network access to
ensure that Part D plans are adequately meeting beneficiaries' out-of-
network access needs. In addition, plans must provide coverage of drugs
in physician's offices in cases in which a beneficiary is administered
a vaccine covered by Part D (or another covered Part D drug that is
appropriately dispensed and administered in a physician's office).
We understand commenters' concerns that routine access to out-of-
network pharmacies could undermine a Part D plan's ability to achieve
cost-savings for both beneficiaries and the Medicare program. For this
reason, we would like to clarify that Sec. 423.124(c) of our final
rules requires Part D plans to establish reasonable rules to ensure
that enrollees use out-of-network pharmacies in an appropriate manner--
provided they ensure adequate access to out-of-network pharmacies on a
non-routine basis when enrollees cannot reasonably access network
pharmacies. For example, Part D plans may wish to limit the amount of
covered Part D drugs dispensed at an out-of-network pharmacy, require
that a beneficiary purchase maintenance medications via mail-order for
extended out-of-area travel, or require a plan notification or
authorization process for individuals who fill their prescriptions at
out-of-network pharmacies. Plans will be required to disseminate
information to enrollees about their out-of-network access policies as
provided in Sec. 423.128(b)(6) of our final rule.
We wish to clarify that enrollees obtaining covered Part D drugs at
out-of-network pharmacies, which by virtue of not being under contract
with an enrollee's Part D plan will not have access to the data needed
to calculate Part D plan payment rates, will have to pay the pharmacy's
U&C price at the point-of-sale, submit a paper claim to their Part D
plan, and wait for reimbursement from the plan. Out-of-network
pharmacies will therefore be made whole, relative to their U&C price
for a covered Part D drug, at the point of sale.
Comment: One commenter stated that patients in emergency
departments, provider-based clinics, outpatient surgery, or under
observation are often administered drugs (self-administered drugs or
insulin, for example) under physician order for medically necessary
conditions. These drugs are not covered under Part A or Part B and are
billed to patients as a patient liability. For safety and quality of
care reasons, patients often cannot bring their own medications into
hospitals or outpatient settings when they are being treated for other
conditions. This commenter asked for clarification regarding whether
Part D plans will cover self-administered prescription drugs dispensed
by hospital pharmacies; if so, how beneficiaries will avail themselves
of their Part D benefits; and, if not, whether hospitals will have to
provide drug coding and other detail on billing statements for
beneficiaries so they can submit those statements to their Part D plans
for reimbursement.
Response: As provided elsewhere in this preamble, Part D plans may
include institutional pharmacies, including hospital-based pharmacies,
in their networks, although these pharmacies will not count toward the
access requirements Part D plans must meet under Sec. 423.120(a)(1) of
our final rule. To the extent hospital pharmacies are included in Part
D plan networks, Part D enrollees who are furnished covered Part D
drugs by those pharmacies, the situations noted by the commenter will
not be an issue. However, we recognize that enrollees who are provided
covered Part D drugs by hospital and other institution--based
pharmacies under the circumstances described by this commenter cannot
reasonably be expected to obtain needed covered Part D drugs at a
network pharmacy. We therefore clarify that we expect that Part D plans
guarantee out-of-network access to covered Part D drugs in cases in
which an enrollee is provided covered Part D drugs dispensed by an out-
of-network institution-based pharmacy while a patient in an emergency
department, provider-based clinic, outpatient surgery, or other
outpatient setting.
Comment: Two commenters recommended that Part D plan enrollees who
live in different States during the year should be allowed access to
out-of-network pharmacies, as with the other four instances we
proposed. One commenter further argued that restricting pharmacy access
to mail order during long absences from or trips out of a Part D plan's
service area violates the prohibition on exclusive use of mail order
pharmacies.
Response: The statutory authority for our proposed out-of-network
access policy derives from the requirement, in section 1860D-
4(b)(1)(C)(iii) of the Act, that our network access rules include
provisions for adequate emergency access for Part D enrollees. Given
that narrow statutory authority, we do not believe that access to out-
of-network pharmacies on a routine basis can be justified under our
out-of-network
[[Page 4269]]
access rules. Through our educational efforts, we will encourage
enrollees who live in different States during a year (snowbirds, for
example) to enroll in national or regional Part D plans that will
provide coverage in multiple areas, or in Part D plans that include
out-of-area pharmacies in their networks. However, to the extent that a
beneficiary is enrolled in a Part D plan that does not provide such
access, plans may not allow routine out-of-network access consistent
with Sec. 423.124(a)(2) of our final rule.
Comment: Two commenters emphasized the need to allow out-of-network
access for specialty medications, such as orphan drugs, that are not
typically stocked in a retail pharmacy. Their argument was echoed by
commenters who emphasized the need to allow for out-of-network access
to home infusion therapy.
Response: We expect that Part D plans will provide out-of-network
access to specialty pharmacies in cases in which specialty medications,
such as orphan drugs, are not available at a network pharmacy, as this
is a case in which enrollees could not reasonably be expected to access
their medications at a network pharmacy. However, given that out-of-
network access to covered Part D drugs may not be provided routinely,
consistent with Sec. 423.124(a)(2) of our final rule, Part D cannot
not provide access to out-of-network access to a specialty pharmacy on
an ongoing basis. As discussed elsewhere in this preamble, our final
rule requires that Part D plans provide adequate access to home
infusion pharmacies. We established this access requirement to mitigate
the need for routine out-of-network access to home infusion drugs.
However, in cases in which an enrollee cannot reasonably access a home
infusion pharmacy in his or her Part D plan's network, we expect that
plans will provide access to an out-of-network home infusion pharmacy
consistent with Sec. 423.124(a) of our final rule.
Comment: Some commenters stated that the final rule should clarify
that beneficiaries residing in a long-term care facility should be
allowed access to long term care pharmacies as out-of-network
pharmacies, should the pharmacy contracting with the long-term care
facility in which they reside not participate with their chosen Part D
plan. Another commenter thought that our proposed policy vis-[agrave]-
vis beneficiaries residing in long-term care facilities is
inappropriate given that our authority for establishing such
requirements is based on emergency access only.
Response: As noted previously, we agree with the commenter who
questioned our authority for allowing access to out-of-network long-
term care pharmacies on a routine basis. The statutory authority for
our proposed out-of-network access policy derives from the requirement,
in section 1860D-4(b)(1)(C)(iii) of the Act, that our network access
rules include provisions for adequate emergency access for Part D
enrollees. Given that narrow statutory authority, we do not believe
that access to out-of-network pharmacies on a routine basis including
in cases where a beneficiary resides in a long-term care facility whose
contracted long-term care pharmacy is not in his or her Part D plan's
network can be justified under our out-of-network access rules.
Comment: One commenter said that physician offices should be
considered out-of-network pharmacies insofar as they supply covered
Part D drugs.
Response: We note that vaccines (and other covered Part D drugs
that are appropriately dispensed and administered in a physician's
office) administered in a physician's office will be covered under our
out-of-network access rules at Sec. 423.124(a)(2) of our final rule,
since Part D plan networks are defined as pharmacy networks only. A
scenario under which a Part D enrollee must obtain a Part D-covered
vaccine in a physician's office constitutes a situation in which out-
of-network access would be permitted because a beneficiary could not
reasonably be expected to obtain that vaccine at a network pharmacy. We
expect that the application of this requirement will be limited to
vaccines and a handful of drugs (for example, some injectable long-
acting anti-psychotics) that are appropriately dispensed and
administered in a physician's office and are not covered under Part B,
and that plans may establish utilization management policies and
procedures to ensure that out-of-network coverage is limited to such
covered Part D drugs. Enrollees will be required to self-pay the
physician for the cost of the vaccine (or other covered Part D drug
appropriately dispensed and administered in a physician's office) and
submit a paper claim for reimbursement by their Part D plan.
Comment: Commenters generally recommended the beneficiary pay the
difference between the network price applicable to that beneficiary and
the maximum price charged to any Part D plan with which the pharmacy
participates. However, they argue, determining that amount would be
difficult because out-of-network pharmacies do not have access to the
data necessary to calculate that amount. Some commenters specified that
beneficiaries purchasing drugs from an out-of-network pharmacy in an
emergency situation should not be charged anything more than the
network amount. Several commenters urged us to exempt low-income
beneficiaries from any differential costs incurred for visiting an out-
of-network pharmacy. One noted that we should monitor usage of out-of-
network pharmacies by low-income beneficiaries.
Response: As provided in Sec. 423.124(b) of our final rule, if a
Part D plan offers coverage other than defined standard coverage, it
may require enrollees to not only be responsible for any cost-sharing,
including a deductible, that would have otherwise applied had the
covered Part D drug been purchased at a network pharmacy, but also any
differential between the out-of-network pharmacy's (or provider's)
usual and customary (U&C) price and the enrollee's cost-sharing.
However, given the cost-sharing requirements for defined standard
coverage in Sec. 423.104(d)(2)(A) of our final rule, under which the
cost-sharing between the deductible and initial coverage limit must be
25 percent of the actual cost of a drug at the point of sale, Part D
plans offering defined standard coverage may not offer such an out-of-
network differential. Instead, a Part D plan offering defined standard
coverage must simply require its enrollees to pay any deductible or
cost-sharing, relative to the out-of-network pharmacy's (or provider's)
usual and customary price. The Part D plan will pay the difference
between the out-of-network pharmacy's (or provider's) U&C price and the
enrollee's cost-sharing.
In either case, enrollees will likely be required to pay more for a
covered Part D drug purchased out-of-network than one purchased at a
network pharmacy, though, as explained below, any such differential
will count toward an enrollee's TrOOP limit. In order to curb
unnecessary out-of-network use and preserve Part D plans' ability to
achieve cost-savings based on network pharmacy use, we believe it is
appropriate that beneficiaries pay more for out-of-network access to
covered Part D drugs.
As explained below, we will pay any out-of-network differential for
appropriate non-routine use of out-of-network pharmacies (or providers)
for full and other subsidy-eligible individuals as part of our low-
income subsidy under subpart P of the final rule.
Comment: Some commenters asked us to clarify whether subsidy
eligible
[[Page 4270]]
individuals who reside in long-term care facilities will have to pay
any out-of-network differentials when obtaining drugs from an out-of-
network long-term care pharmacy. Many recommended that we pay the out-
of-network differential for institutionalized enrollees who are subsidy
eligible.
Response: We agree that for full and other subsidy-eligible
individuals--whether they are institutionalized or not--we should pay
any out-of-network differential for appropriate non-routine use of out-
of-network pharmacies. As provided in Sec. 423.104(d)(2) of our final
rule, we define enrollee cost sharing in relation to the total cost of
the drug to the Part D plan and the beneficiary (actual costs).
Therefore, in cases where the total payment is not limited by the plan
allowable because a drug is obtained out-of-network, the cost sharing
can be defined as the total paid by beneficiary, or in the case of a
subsidy eligible individual, as the total cost sharing paid by both the
beneficiary and by us. This approach reconciles the need to charge the
OON differential and to hold the subsidy eligible individual liable for
only the statutorily allowed copayment amounts ($1/$3, $2/$5, or $0 in
the case of institutionalized full subsidy individuals who are full-
benefit dual eligible individuals).
Comment: A few commenters argued that enrollees accessing covered
Part D drugs at out-of-network FQHC, rural and I/T/U pharmacies should
also be exempt from any out-of-network differentials.
Response: We do not believe there exists a compelling rationale to
exempt beneficiaries who access their drugs at FQHC, rural, or I/T/U
pharmacies. However, to the extent such individuals qualify as full or
partial subsidy eligible individuals, they will be responsible only for
the cost-sharing amounts required in subpart P.
Comment: Comments on the definition of ``U&C price'' fell into
three groups. Some commenters felt that the U&C price should be defined
as that amount charged to cash paying customers, excluding sales tax.
Others argued that the U&C price should be the amount typically charged
to senior groups or other cash customers who are directly given some
sort of discount as an inducement to make a purchase from a given
supplier. A third group of commenters felt that the U&C price should be
the maximum the pharmacy charges any customer covered by a Part D plan.
Several commenters noted that we should not allow pharmacies to
manipulate their U&C prices and should check them periodically to be
sure they were less than or equal to the average wholesale price.
Response: We appreciate commenters' suggestions. We believe our
proposed definition of the term ``usual and customary price'' the price
that a pharmacy (or provider) charges a customer who does not have any
form of prescription drug coverage is adequate and are retaining it in
Sec. 423.100 of our final rule. We note, in response to several
commenters' suggestions, that we do not have the authority to require
out-of-network pharmacies to accept a particular price (for example,
the maximum price a pharmacy charges any of its customers enrolled in
Part D plans) as their U&C price. We believe that Part D plans, not
CMS, should be responsible for monitoring of U&C prices for covered
Part D drugs at out-of-network pharmacies, since, given that any price
differential paid by a beneficiary would count toward the TrOOP
threshold, they ultimately have a vested interest in limiting the costs
associated with out-of-network use.
Comment: With regard to the definition of ``plan allowance,''
several commenters recommended that it be defined as ``the lowest of
contractual discounts offered in a standard contract or U&C price.''
One commenter recommended defining the term in CMS guidance to permit
consultation with affected parties. One commenter pressed for Part D
plan flexibility so that they could ensure the lowest prices for their
members.
Response: We have retained our proposed definition of ``plan
allowance'' in Sec. 423.100 of our final rule in order to provide Part
D plans with maximum flexibility to establish the most appropriate plan
allowance for drugs obtained out-of-network.
Comment: One commenter asked for clarification of the appeals
process relating to adverse coverage decisions for out-of-network
drugs.
Response: As provided under Sec. 423.566(b)(1) of our final rule,
a Part D plan's failure to pay for a covered Part D drug furnished by
an out-of-network pharmacy is an action that is a coverage
determination.
Comment: Another commenter wanted to be sure that out-of-network
pharmacies did not advertise their services as Medicare covered so that
beneficiaries would not be confused.
Response: We believe that beneficiaries should always receive
accurate and clear information about their pharmacy benefits, and we
believe pharmacies must ensure that out-of-network beneficiaries are
not misled. However, we have no authority under the MMA to regulate
pharmacies' marketing activities. Marketing activities of pharmacies
may implicate other Federal or State laws, however, including, but not
limited to, consumer protection laws. Pharmacies may also be subject to
sanction under section 1140 of the Social Security Act if they
misrepresent an affiliation with, or endorsement by the Medicare
program.
6. Dissemination of Plan Information (Sec. 423.128)
Our proposed rule established beneficiary protection requirements
concerning the dissemination of Part D information by Part D sponsors
to enrollees in, and individuals eligible to enroll in, a Part D plan.
Part D information disseminated by Part D sponsors to current or
prospective Part D enrollees will constitute marketing materials and
must be approved by us.
With the exception of the drug-specific information dissemination
requirements, many of the proposed requirements duplicated information
dissemination requirements contained in Sec. 422.111 of our proposed
MA rule that are applicable to all MA plans, including MA-PD plans. We
proposed applying the requirements of section 1860D-4(a) of the Act to
other Part D plans to ensure that all Part D eligible enrollees have
access to comparable drug-specific information about Part D plans.
a. Content of Plan Description
Proposed Sec. 423.128(a) and (b) complied with the stipulation in
section 1860D-4(a)(1) of the Act that requirements for the
dissemination of Part D information be similar to the information
dissemination requirements for MA organizations under section
1852(c)(1) of the Act and as interpreted in Sec. 422.111(b).
In order to ensure that individuals who are either eligible for, or
enrolled in, a Part D plan receive the information they need to make
informed choices about their Part D coverage options, Part D sponsors
would be required to disclose, to each enrollee in a Part D plan
offering qualified prescription drug coverage, a detailed description
of that plan. This description must be provided in a clear, accurate,
and standardized form at the time of enrollment and annually, at a
minimum, after enrollment. The information provided will be similar to
the information MA plans must disclose to their enrollees.
Except as otherwise provided below, the final rule adopts the
requirements pertaining to plan content description set forth in Sec.
423.128(b) of the proposed rule.
Comment: One commenter sought clarification regarding what we mean
by ``standardized'' in our requirement that
[[Page 4271]]
Part D plans provide information to enrollees in a ``clear, accurate,
and standardized form.''
Response: We expect Part D plans to provide information about their
benefit packages in a manner that is consistent with marketing
guidelines that we will make available to plans.
Comment: Several commenters requested that we allow Part D plans
the flexibility to make plan information available through the
Internet. For the convenience of beneficiaries as well as to control
costs, these commenters recommend that we encourage the use of more
efficient information distribution channels (for example, Internet and
email) to disseminate detailed Part D plan information and thus limit
the distribution of paper materials to situations in which that makes
sense. Another commenter recommended that we clarify that, with the
express consent of the enrollee, Part D plans may waive enrollees'
right to request and receive any required information in writing and
allow for the enrollee to obtain that information via a plan website or
email.
Response: We agree that some beneficiaries may prefer to receive
Part D plan information electronically and that the provision of plan
information through electronic means has the potential to significantly
reduce Part D plans' costs. However, a number of Medicare beneficiaries
still do not have access to the Internet or prefer to receive their
information in written formats. We have modified Sec. 423.128(a) of
our final rule to note that we may specify the manner in which plan
information must be disseminated to beneficiaries. We clarify that
information disseminated by Part D plans as part of a plan description
under Sec. 423.128(b), as well as information disclosed upon enrollee
request under Sec. 423.128(c), must be provided in a written format
and delivered to beneficiaries via U.S. mail unless a beneficiary
explicitly consents--by actively opting in--to receive information
electronically or via telephone rather than by mail. The electronic
provision of Part D plan information should simply be one additional
mechanism for Part D plans to communicate with enrollees and potential
enrollees.
Comment: One commenter recommended that Part D plans provide
information regarding any prior authorization processes required for
certain drugs as part of their information dissemination efforts
regarding formularies.
Response: We agree with this commenter and have modified that
language at Sec. 423.128(b)(4) to clarify that Part D plans must
disclose information about any utilization management procedures they
may use as part of the formulary information they must disseminate to
beneficiaries.
Comment: One commenter recommended that Part D plans be required to
provide a list of pharmacies in their networks since the proposed rule
requires information only about the types of pharmacies in plans'
networks.
Response: We believe the commenter misinterpreted the provision at
Sec. 423.128(b)(5) of our proposed rule. This provision, which we have
retained in our final rule, requires Part D sponsors to disseminate
information about ``the number, mix, and distribution (addresses) of
network pharmacies.'' We believe that requiring Part D plans to
disseminate information about the addresses of network pharmacy at
which an enrollee may reasonably be expected to obtain covered Part D
drugs is, in fact, tantamount to requiring plans to provide a list of
network pharmacies serving enrollees' service areas. We therefore
clarify that Part D plans will be expected to provide enrollees with a
list of network pharmacies, including addresses, as well as information
about the number and mix of network pharmacies available.
Comment: One commenter requested greater detail regarding the
contents of the description of quality assurance policies and
procedures that Part D plans must provide under Sec. 423.128(b)(8) of
our proposed rule. Another commenter states that, as written, the
provision requiring Part D plans to describe their quality assurance
policies and procedures did not indicate a clear CMS-directed oversight
and enforcement structure. This commenter argues that compliance
monitoring and enforcement would at best be indirect, leaving us
reliant on the results of deemed status arrangements as set forth in
our proposed Sec. 423.165.
Response: We expect plans to provide descriptions of their policies
and procedures for concurrent drug utilization review, retrospective
drug utilization review, and internal medication error identification
and reduction systems. We also expect plans to provide descriptions of
their medication therapy management programs, including information
describing which enrollees are eligible for such services. With respect
to CMS-directed oversight and enforcement, we have added reporting
requirements to Sec. 423.153(c) and Sec. 423.153(d) of our final
rule, and we will specify the details of these reporting requirements
in separate guidance.
Comment: One commenter was concerned that the transition of full-
benefit dual eligible individuals from Medicaid to Medicare Part D on
January 1, 2006 will likely lead full-benefit dual eligible individuals
to contact Medicaid agencies for more information regarding their new
pharmacy benefits. This commenter recommended that we require Part D
plans to include information in their enrollee materials that clarifies
that State Medicaid agencies are no longer the primary providers of
pharmacy benefits and cannot answer questions about the Medicare
benefit, except as pertains to limited supplemental coverage that
Medicaid may provide.
Response: Our education and outreach efforts will ensure that
beneficiaries receive detailed information regarding their transition
from Medicaid to Medicare for prescription drug coverage. Therefore, we
do not believe it is necessary to require Part D plans to include this
information in their materials.
b. Disclosure of Information upon Request
In addition, in accordance with section 1860D-4(a)(2) of the Act,
the proposed rule at Sec. 423.128(c) provided that a beneficiary who
is eligible to enroll in a Part D sponsor's Part D plan will have the
right to obtain, upon request, more detailed plan information. Except
as otherwise provided below, the final rule adopts the standards set
forth in Sec. 423.128(c) of the proposed rule.
Comment: A number of commenters are supportive of the provision in
the proposed rule that required Part D plans to make available
information about how to obtain information about the formulary, but
thought that this requirement was insufficient given that beneficiaries
will need precise and detailed formulary information to make informed
choices about enrollment. These commenters recommend requiring Part D
plan descriptions to include a detailed formulary listing not only the
drugs on the formulary, but also any formulary tiers and corresponding
copayment amounts.
Response: We agree that it will be critically important for Part D
enrollees and prospective enrollees to have access to complete
formulary information in order to make the best possible Part D plan
selection for their particular medical and prescription drug needs. For
this reason, we have modified the formulary information requirements
under Sec. 423.128(b)(4) such that Part D plans will be required to
include not only information about the manner in which the formulary
functions (including tiering structures and any
[[Page 4272]]
utilization management procedures used), a process for obtaining an
exception to a Part D plan's tiered cost-sharing structure or
formulary, and a description of how an enrollee may obtain additional
information on the formulary, but also an actual list of drugs included
on the Part D plan's formulary. For each drug, this list must indicate
any cost-sharing tier information applicable to that drug and whether
utilization management programs apply.
Comment: Several commenters urged us to expand the requirement that
Part D plans disclose, upon request, information about the number of
disputes and their disposition in the aggregate to include exceptions.
Another commenter noted that we appeared to have made a mistake in
terms of our references to the provisions on grievances and
reconsiderations in Sec. 423.128(c)(3) of our proposed rule.
Response: We agree with these commenters. We have corrected the
reference errors in Sec. 423.128(c)(3) of our final rule and have
expanded this requirement such that Part D plans must disclose, upon
request, information about the number of exceptions and their
disposition in the aggregate. We did not originally include a reference
to exceptions in our proposed because section 1852(C)(2) of the Act, on
which the requirements in our proposed Sec. 423.128 were based, did
not envision an exceptions process for the MA program.
Comment: Several commenters noted that Sec. 423.128(c)(1)(iii) of
our proposed rule required Part D plans to inform enrollees about the
potential for contract termination, but only upon request. However,
these commenters felt strongly that this information needed to be
included in all plan descriptions and marketing materials, and not just
if requested by an enrollee or prospective enrollee, particularly in
light of previous experience with volatility in the Medicare+Choice
market.
Response: We agree with these commenters and have moved the
requirement that Part D plans disclose information about the potential
for contract termination upon request only, to Sec. 423.128(b)(10),
under which plans will be required to disclose this information as part
of the plan description provided at the time of enrollment and at least
annually thereafter.
c. Provision of Specific Information
As required under section 1860D-4(a)(3) of the Act and proposed at
Sec. 423.128(d) of our proposed rule, Part D sponsors will be required
to have in place a mechanism for providing, on a timely basis, specific
information to current and prospective enrollees upon request. Such
mechanisms will include:
A toll-free customer call center;
An Internet website; and
Responses in writing upon beneficiary request.
As proposed at Sec. 423.128(d)(1)(i) and (d)(1)(ii), Part D plans'
customer call centers will be required to be open during usual business
hours and provide customer telephone service, including to pharmacists,
in accordance with standard business practices. We strongly
recommended, however, that Part D plans provide some sort of 24-hour-a-
day/7 day-a-week access to their toll-free customer call centers in
order to provide timely responses to time-sensitive questions. In
addition, we proposed requiring that Part D plans maintain websites as
one means of disseminating information to current and prospective Part
D enrollees that would include the detailed plan description
information described in Sec. 423.128(b) of our proposed rule.
Finally, Part D plans would be required to respond to beneficiary
requests for specific information in writing, upon request. This
requirement was codified in Sec. 423.128(d)(3) of our proposed rule.
Except as otherwise provided below, the final rule adopts the
specific information disclosure standards set forth in Sec. 423.128(d)
of the proposed rule.
Comment: Several commenters recommended against requiring a 24-
hour/7-day-a-week call center because of the high costs associated with
operating a call center during off-hours. These commenters support
operating a call center during normal business hours as required in the
proposed regulations. One commenter suggested Part D plans consider
developing a website and IVR system that allows beneficiaries to access
their accounts to determine their TrOOP balance.
Other commenters recommended requiring Part D plans to operate 24/7
call centers, stating that the need for prescription drugs may arise
outside of normal business hours and would necessitate timely
assistance and resolution of coverage issues. These commenters noted
that the implications of delayed access are potentially very serious.
One commenter stated that advice hotlines should be available 24-hour/
7-days a week to assist enrollees and pharmacies in understanding Part
D plan formularies. Another commenter urged requiring extended service
hours especially during the initial enrollment period and also ensuring
that language specialists are available.
Response: We have retained our proposed requirement (in Sec.
423.128(d)(1) of our final rule) that Part D plans maintain a toll-free
customer call center that is open during usual business hours and
provides customer telephone service, including to pharmacists, in
accordance with standard business practices. However, Part D plans
should view this requirement as a floor which they can exceed--
particularly at times such as annual open enrollment periods. Access to
bilingual customer service representatives may also be appropriate in
certain parts of the country. Given the need for Part D plans to
provide timely information on certain time-sensitive issues, however,
we strongly recommend that Part D plans also provide access to 24/7
clinical advice hotlines as is customary for many health plans.
Comment: One commenter recommended that we require formulary
updates to plans' websites only when actual changes are made, but no
more than once per month.
Response: We agree with this commenter. We recognize the need for
formulary information to be kept as current as possible to allow
enrollees and prospective enrollees to make the best possible decisions
regarding coverage of their particular Part D drugs. However, P&T
committees typically meet quarterly, and we expect that most formulary
changes recommended by a P&T committee will be implemented following
regular committee meetings. We have therefore changed the requirement
in Sec. 423.128(d)(2)(ii) of our proposed rule, which required weekly
updates of formulary information on Part D plan websites, to require
monthly updates instead. This requirement is codified at Sec.
423.128(d)(2)(ii) of our final rule.
Comment: One commenter asked us to clarify that formulary
information will be made available through means other than plan
websites.
Response: As previously stated, enrollees and prospective enrollees
will be able to obtain specific Part D plan information, including
formulary information, upon request via telephone and in writing. In
addition, we have revised our final rule at Sec. 423.128(b)(4) to
require Part D plans to provide enrollees with an actual list of drugs
included on the plan's formulary.
Comment: One commenter requested clarification that our requirement
that formulary information be posted on a Part D plan website be
limited to including only a list of formulary drugs and not the full
range of clinical information associated with those drugs.
[[Page 4273]]
Response: Plans will only be required to include a list of drugs
included on their formularies--and not the clinical information
associated with those drugs--under our information dissemination
requirements.
d. Claims Information
In accordance with the requirements of section 1860D-(4)(a)(4) of
the Act, Sec. 423.128(e) of the proposed rule required Part D sponsors
to furnish to enrollees who receive covered Part D drugs an explanation
of benefits (EOB). EOBs will be required to be written in a form easily
understandable to beneficiaries. In Sec. 423.128(e)(6) of our proposed
rule, we proposed that an EOB be provided at least monthly for those
utilizing their prescription drug benefits in a given month.
We also proposed in Sec. 423.128(e)(1)-(5) that Part D plans' EOBs
include:
A listing of the item or service for which payment was
made, as well as the amount of such payment for each item or service;
A notice of the individual's right to request an itemized
statement;
Information regarding the cumulative, year-to-date amount
of benefits provided relative to the deductible, the initial coverage
limit, and the annual out-of-pocket threshold for that year;
A beneficiary's cumulative, year-to-date total of incurred
costs (to the extent practicable); and
Information about any applicable formulary changes.
Except as otherwise provided below, the final rule adopts the EOB
standards set forth in Sec. 423.128(e) of the proposed rule.
Comment: Some commenters supported the requirement to mail
enrollees an EOB each month that the drug benefits are provided, as
stated in the proposed regulations. Some commenters recommended
dissemination of the EOBs quarterly and upon request of the enrollees
rather than monthly when prescription drug benefits are provided.
Several commenters urged us to allow Part D plans the flexibility
to provide an EOB to enrollees through means other than mail, such via
a plan website, electronically through email, or by telephone inquiry.
One commenter noted that it is not current practice for health plans to
mail enrollees an EOB monthly and that this would raise administrative
costs. Some commenters expressed their objection to providing an EOB at
pharmacies, stating this would be far beyond pharmacies' technological
capabilities, and that provision of the EOB via mail or electronically
should be plans' responsibility.
Some commenters expressed that the EOBs should also include
information about appeals right and processes, information about
formulary information and plan terminations, and information regarding
whether the deductible and out-of-pocket thresholds have been met.
Another commenter stated that the EOB should be modified to be
applicable to beneficiaries who are subsidy eligible individuals due to
the differences in the deductibles and cumulative spending limits for
these individuals.
Response: We appreciate commenters' feedback regarding our proposed
EOB requirements. As provided in Sec. 423.128(e)(6) of our final rule,
we are retaining our proposed requirement that an EOB be provided at
least monthly for those enrollees utilizing their prescription drug
benefits in a given month. This requirement is consistent with our
policy regarding the Medicare Summary Notice, which is provided monthly
for beneficiaries with Part A or Part B utilization.
We believe it is most appropriate for enrollees to receive a
written EOB, via U.S. mail, and have provided for this under Sec.
423.128(e) of our final rule. Plans may offer additional mechanisms for
the provision of such information--for example, via a website or call
center. Plans may provide the EOB through alternative means
electronically via email, for example only to the extent that enrollees
affirmatively elect to receive their EOBs in such a manner. In the
preamble, we suggested that Part D plans might explore provision of
EOBs at the point-of-sale, but that statement was in no way intended to
impose a requirement on pharmacies to provide Part D plan information
in the absence of the technological capacity to do so.
We do not believe that the EOB is the most appropriate mechanism
for provision of information about appeals rights and processes or
information about plan terminations; this information will be provided
through other mechanisms. We clarify, however, that EOBs will be
required to include information regarding the cumulative, year-to-date
amount of benefits provided relative to the deductible, the initial
coverage limit, and the annual out-of-pocket threshold for that year,
as well as information about any upcoming formulary changes. For low-
income beneficiaries, the information about the cumulative, year-to-
date total of incurred costs provided by the Part D plan in the EOB
will include CMS subsidy amounts that count toward incurred costs.
7. Public Disclosure of Pharmaceutical Prices for Equivalent Drugs
(Sec. 423.132)
Under section 1860D-4(k)(1) of the Act, Part D sponsors will be
required to ensure that pharmacies inform enrollees of any differential
between the price of a covered Part D drug to an enrollee and the price
of the lowest priced generic version of that drug and available under
the Part D plan at that pharmacy. As stipulated in our proposed rule,
this information will have to be provided at the time the plan enrollee
purchases the drug, or in the case of drugs purchased by mail order, at
the time of delivery of that drug. Disclosure of this information will
not be necessary, however, if the particular covered Part D drug
purchased by an enrollee was the lowest-priced generic version of that
drug available at a particular pharmacy.
As provided under section 1860D-4(k)(2)(B) of the Act, we are
permitted to waive the requirement that information on differential
prices between a covered Part D drug and generic equivalent covered
Part D drugs be made available to Part D plan enrollees at the point of
sale (or at the time of delivery of a drug purchased through a mail-
order pharmacy). Accordingly, we proposed waiving the requirement that
information on lowest-priced generic drug equivalents be provided to
enrollees for covered Part D drugs purchased by Part D plan enrollees
when those covered Part D drugs are purchased at:
Any pharmacy, when the individual is enrolled in an MA
private fee-for-service plan that offers qualified prescription drug
coverage and provides plan enrollees with access to covered Part D
drugs dispensed at all pharmacies, without regard to whether they are
contracted network pharmacies, and does not charge additional cost-
sharing for access to covered Part D drugs dispensed at all pharmacies;
Out-of-network pharmacies;
I/T/U network pharmacies; and
Network pharmacies located in any of the U.S. territories
(American Samoa, the Commonwealth of the Northern Mariana Islands,
Guam, Puerto Rico, and the Virgin Islands). We requested comments on
the appropriateness of the circumstances we proposed for waiver of the
requirements in Sec. 423.132(c) of our proposed rule, as well as any
additional circumstances we may wish to consider.
We also proposed waiving the requirement that information on
differential prices between a covered Part D drug and generic
equivalent covered Part D drugs be made available to Part D plan
enrollees at the point of
[[Page 4274]]
sale when Part D plan enrollees obtain covered Part D drugs in long-
term care pharmacies. We requested comments regarding appropriate
standards with regard to the timing of disclosure of generic price
differentials to institutionalized Part D enrollees.
Except as otherwise provided below, the final rule adopts the
standards for public disclosure of pharmaceutical prices for equivalent
drugs set forth in Sec. 423.132 of the proposed rule.
Comment: One commenter was concerned about the administrative
burden the disclosure requirement would impose at the community
pharmacy level and believed it was essential for us to develop
appropriate guidance to minimize potential problems. The commenter
noted that the administrative burden required to calculate cost-sharing
differences should cause us to consider compliance with the
requirements to be impracticable in all pharmacy settings because while
many community pharmacies' prescription processing systems currently
compare retail prices for brand-name and generic medications, the
systems are not equipped to compare the discount price calculated by a
Part D plan with the potential discount price by a plan for a generic
drug. According to this commenter, obtaining this discounted generic
price would require the pharmacy to process and submit a second
prescription transaction for the generic, and then require the pharmacy
to calculate the difference between the two prescriptions; the need to
compare the enrollee's cost-sharing under the two scenarios would add
more challenges. Other commenters assured us that this requirement is
not burdensome for retail pharmacies.
Response: As provided in section 1860D-4(k) of the Act, Part D
plans must provide that each pharmacy in their networks with the
exceptions that we note in Sec. 423.132(c) of our final rule complies
with the requirement to disclose to beneficiaries information about
less expensive therapeutically equivalent and bioequivalent covered
Part D drugs. Given this statutory requirement, we cannot waive it
wholesale for all community pharmacies. We do not expect this
requirement will be burdensome for community pharmacists since, given
that, under Sec. 423.132(b) of our final rule, we are requiring
disclosure of generic differential information after a claim has been
adjudicated and for informational purposes only. We clarify that we do
not expect pharmacies to become involved in substituting a generic
equivalent in order for Part D plans to comply with the disclosure
requirement in Sec. 423.132(a) of our final rule. We expect that Part
D plans will work with their network pharmacies to operationalize this
requirement, but we do not expect that it will be burdensome to the
pharmacy industry given the prevalence of generic substitution and
information programs established by private plans in the market today.
Comment: One commenter asked that we define ``lowest price'' as
determined by the Part D plan at the point of sale. Another commenter
asked that we clarify that ``price'' is defined as what the enrollee
would pay at the pharmacy subject to the applicable cost sharing. Two
commenters recommended that pricing comparison should be between the
brand name drug and the Maximum Allowable Cost (MAC) established by the
Part D plan for the generic equivalent to the branded drug. Another
commenter suggested allowing an estimated price differential between
brand and non-MAC generics to be made available to enrollees rather
than the exact cost differential between the price of a covered Part D
drug and the lowest priced generic version because of the technical
limitations of plans (for example, plans do not have a record of
generics in stock at all network pharmacies). This commenter claims
that, otherwise, this requirement would involve enormous administrative
efforts and costs for Part D plans. This commenter suggested a
reasonable alternative would be allowing plans to utilize historical
dispensing patterns and costs to have available relative price
information in the form of an estimate of the price differential
transmitted to pharmacies in the electronic claim response when a
prescription is filled, and that Part D plans would contractually
require pharmacies to share this information at the point-of-sale.
Response: Under section 1860D-4(k) of the Act, Part D plans must
provide that each pharmacy in their networks complies with the
requirement to disclose to beneficiaries information about less
expensive therapeutically equivalent and bioequivalent covered Part D
drugs. Specifically, Part D plans must provide information about the
differential between the price of the covered Part D drug to the
enrollee (factoring in any applicable cost-sharing) and the price of
the lowest-priced therapeutically equivalent and bioequivalent drug
available at that pharmacy. We expect that Part D plans will work with
their network pharmacies to operationalize this requirement in the most
efficient way possible, and in a manner that complies with our
requirements under Sec. 423.132 of our final rule.
Comment: One commenter recommended that disclosure of the generic
drug price be the lowest priced generic available at that pharmacy
because most pharmacies do not carry multiple generic drug options for
the same generic entity.
Response: We agree with the commenter and clarify that Sec.
423.132(a) requires pharmacies to disclose the differential between the
price of a covered Part D drug and the price of the lowest-priced
generic version of that drug available at that pharmacy, consistent
with section 1860D-4(k)(1) of the Act.
Comment: One commenter recommended only requiring pharmacists to
inform patients of price differentials if they are dispensing a high
cost version of a ``multiple source'' drug that is available at that
pharmacy. This commenter noted that in many cases these off-patent
innovator brands, also known as ``multiple source'' drugs, are less
costly than their generic counterparts (for example, some brand name
version antibiotics are often equal or lower in price than their
generic counterparts). Without this technical correction, these drugs
may not be considered by some Part D plans as generics and the
pharmacists would not inform the beneficiary that these lower cost
``multiple source'' drugs are available. Another commenter stated that
generics should be further defined to include ``multiple source'' brand
name drugs.
Response: Section 1860D-4(k) of the Act requires that each pharmacy
that ``dispenses a covered Part D drug shall inform an enrollee of any
differential between the price of the drug to the enrollee and the
price of the lowest priced generic covered part D drug under the plan
that is therapeutically equivalent and bioequivalent and available at
such pharmacy.'' While we appreciate the commenter's point that off-
patent innovator drugs may also be available to enrollees at low
prices, and that this information should be disclosed at the point of
sale, the statute very specifically applies the requirement to the
lowest priced generic covered Part D drug available at that pharmacy.
Our definition of ``generic drug'' at Sec. 423.4 of the final rule
does not encompass an off-patent innovator drug, however. In addition,
given that section 1860D-2(b)(4)(A)(i)(I) of the Act specifically
distinguishes between a ``generic drug'' and a ``preferred drug that is
a multiple source drug,'' we do not believe it is appropriate to define
a generic drug to include a ``multiple
[[Page 4275]]
source'' brand-name version of a drug. However, nothing in the statute
would prohibit Part D plans from requiring their network pharmacies to
provide pricing information about lower priced off-patent innovator
drugs, and we encourage Part D plans to do so in the interest of
ensuring Part D enrollees get the best prices available for their
covered Part D drugs.
Comment: One commenter concerned with the burden on pharmacies to
disclose pricing information stated that the disclosure requirement
should be limited to cases in which an enrollee asks for this
information at the pharmacy.
Response: As provided in section 1860D-4(k) of the Act, Part D
plans must require network pharmacies, except for those which we have
specifically exempted from the requirement, to disclose information
about price differentials. We cannot limit this requirement to
circumstances in which an enrollee specifically asks for the
information. Furthermore, we believe such disclosure will provide
enrollees--many of whom may not know that less expensive generic
equivalents are available--with valuable information that will save
money for beneficiaries, Part D plans, and Medicare.
Comment: One commenter recommended disclosure only when a brand
name drug is prescribed and the prescriber has not stated ``Do Not
Substitute.''
Response: As provided in section 1860D-4(k) of the Act, Part D
plans must require network pharmacies, except for those which we have
specifically exempted from the requirement, to disclose information
about price differentials. We cannot limit this requirement to
circumstances in which a prescriber has written a prescription for a
brand name drug and has not specifically stated that the pharmacy must
not substitute the brand name drug for a generic drug. We believe such
disclosure will provide enrollees many of whom may not know that less
expensive generic equivalents are available with valuable information
that will save money for beneficiaries, Part D plans, and Medicare.
Comment: Two commenters suggested that we clarify that the lowest
price generic version that is ``therapeutically equivalent and
bioequivalent'' is an AB-rated generic equivalent, as AB rated drugs
have been proved to be bioequivalent (rather than presumed to be
bioequivalent). Another commenter suggested that we limit disclosure
requirements to products with ``A'' code, as specified in the FDA
Orange Book.
Response: We agree with these commenters and clarify that the
disclosure requirement in Sec. 423.132(a) of our final rule applies
only with respect to AB-rated alternatives that are therapeutically
equivalent and bioequivalent to the covered Part D drug in question.
Comment: A number of commenters recommended requiring mail-order
pharmacies to provide price differentials before the prescription is
filled and delivered rather than at the time of delivery. The
commenters noted that notification by the time of delivery may be too
late for beneficiaries to receive possible savings, especially since
mail-order pharmacies provide a 90-day supply and generally have lower
dispensing rates than retail pharmacies.
Response: We do not believe it is practicable to require a mail-
order pharmacy to contact an enrollee with price differential
information prior to filling and delivering their prescription. We
believe such a requirement will delay the delivery of needed drugs and
could potentially compromise beneficiaries' privacy given attempts by
mail-order pharmacies to contact plan enrollees. In addition, such a
requirement would be inconsistent with the requirement for retail
pharmacies in Sec. 423.132(b) of our final rule, which does not
require that Part D plans provide price differential information before
the drug is purchased. We have therefore retained our requirement, in
Sec. 423.132(b) of our final rule, that disclosure must occur at the
time of delivery of the drug when a drug is dispensed by a mail-order
pharmacy.
Comment: One commenter recommended that we not waive the public
disclosure requirement for private fee-for-service plans offering
qualified prescription drug coverage because there are many
opportunities for generic savings that might not be realized in the
absence of this requirement.
Response: Section 1860D-12(d)(2) of the Act specifically requires
us to waive the public disclosure requirement for private fee-for-
service MA plans that offer qualified prescription drug coverage and
provide plan enrollees with access without charging additional cost-
sharing for covered Part D drugs dispensed at all pharmacies.
Commenter: One commenter strongly urged that we waive the public
disclosure requirement for I/T/U pharmacies because these pharmacies
bear beneficiaries' out-of-pocket costs for covered Part D drugs,
obviating the need for AI/AN Part D enrollees obtaining covered Part D
drugs at these pharmacies to have this price comparison information.
Response: As provided both in our proposed rule and in our final
rule at Sec. 423.132(c)(3), we will waive the public disclosure
requirement for I/T/U pharmacies.
Comment: One commenter requested that MA-PD plans be allowed to
request a waiver of the public disclosure requirement.
Response: As provided in Sec. 423.132(c)(5), we will consider
waiving the public disclosure requirement under circumstances other
than those specified in Sec. 423.132(c)(1)-(4) to the extent that we
deem such compliance to be impossible or impracticable. MA-PD plans
seeking a waiver of the public disclosure requirement for any of their
network pharmacies will therefore have to demonstrate to us that
compliance with the public disclosure requirement in Sec. 423.132(a)
is impossible or impracticable. In addition we note that, as provided
in section 1860D-21(c), we will waive any Part D requirement for an MA-
PD plan that conflicts with or duplicates a requirement under Part C,
or the waiver of which is necessary to promote coordination between
benefits provided under Parts C and D.
Comment: Another commenter suggested that we specifically waive the
disclosure requirement for MA-PD plans that own and operate their own
pharmacies because these pharmacies may carry only one version of any
particular generic drug at any one time (except when transitioning from
one manufacturer's product to another).
Response: We do not believe the commenter has provided us with
sufficient information to determine that the public disclosure
requirement is impossible or impracticable for Part D plans that own
and operate their own pharmacies and should therefore be waived in
regulation. However, we note that MA-PD plans may also wish to consider
seeking a waiver of the public disclosure requirement if, as provided
in section 1860D-21(c) of the Act, they can demonstrate that this
requirement conflicts with or duplicates a requirement under Part C, or
that such waiver is necessary to promote coordination between benefits
provided under Parts C and D.
Comment: Several commenters supported the applicability of
disclosure requirements to long-term care pharmacies because many long-
term care facility residents and their families would be interested to
know if additional savings are possible. Two commenters opposed
requiring price
[[Page 4276]]
disclosure at long-term care pharmacies because most long-term care
beneficiaries do not have a choice regarding long-term care pharmacies
and will likely qualify for low-income subsidies for institutionalized
Part D enrollees who are full-benefit dual eligible individuals (which
means they will have no out-of-pocket costs for covered Part D drugs).
Thus, this information will have little effect on the drugs used by
this population and will increase administrative burden for long-term
care pharmacies.
Response: We agree with commenters who thought long-term care
residents and their families would be interested to know if additional
covered Part D drug savings are possible through the use of generic
drugs, particularly since not all long-term care patients will qualify
as full subsidy eligible individuals. We are therefore retaining the
requirement we proposed at Sec. 423.132(d)(1) of our proposed rule,
but clarify--in Sec. 423.132(d)(1) of our final rule--that long-term
care pharmacies will have to provide information about differential
price information required under Sec. 423.132(a) of our final rule to
Part D plans, which will, in turn, provide that information to their
institutionalized enrollees via the explanation of benefits required
under Sec. 423.128(e) of our final rule.
8. Privacy, Confidentiality, and Accuracy of Enrollee Records (Sec.
423.136)
To the extent that the prescription drug plan offered by a PDP
sponsor maintains medical records or other health information regarding
Part D enrollees, Sec. 423.136 of our proposed rule required the PDP
sponsor to meet the same requirements regarding confidentiality and
accuracy of enrollee records as MA organizations offering MA plans must
currently meet under 42 CFR 422.118, according to the stipulations of
section 1860D 4(i) of the Act. We clarify that the requirements of
Sec. 423.136 do not apply to PACE organizations and cost plans
offering qualified prescription drug coverage, since these plans are
subject to similar requirements under Sec. 460.200(e) and Sec.
460.210, and Sec. 417.486, respectively.
PDP sponsors will be required to--
Abide by all Federal and State laws regarding
confidentiality and disclosure of medical records or other health and
enrollment information, including the Health Insurance Portability and
Accountability Act (HIPAA) of 1996 and the privacy rule promulgated
under HIPAA;
Ensure that medical information is released only in
accordance with applicable Federal or State law;
Maintain the records and information in an accurate and
timely manner; and
Ensure timely access by enrollees to records and
information pertaining to them.
Prescription drug plans will be covered entities under the HIPAA
Privacy Rule because they meet the definition of ``health plan,'' as
defined in 45 CFR 160.103. The HHS Office for Civil Rights (OCR) is
responsible for implementing and enforcing the HIPAA Privacy Rule. OCR
has authority to investigate complaints, to conduct compliance reviews,
and to impose civil money penalties for HIPAA Privacy Rule violations.
Thus, any violations by PDP sponsor for its obligations under the
Privacy Rule as a covered entity are subject to such enforcement by
OCR. OCR maintains a website with frequently asked questions and other
compliance guidance at http://hhs.gov/ocr/hipaa.
Comment: One commenter thought that we should detail the
confidentiality and disclosure requirements set forth in Sec. 423.136
of our proposed rule in the final rule, instead of simply referencing
the requirements in Sec. 422.118. This commenter believes that because
of the importance of privacy protections, it is necessary that required
protections are reiterated in our final rule and that PDP sponsors
adequately understand their responsibilities to safeguard the health
information of Medicare beneficiaries. Without privacy safeguards built
directly in the regulation, beneficiaries could be vulnerable to
another amendment.
Response: We agree with this commenter and have incorporated the
provisions of Sec. 422.118 directly into Sec. 423.136 of our final
rule rather than only referencing the provisions of Sec. 422.118.
Comment: One commenter recommends that we make privacy provisions
stronger for PDP sponsors, not only reiterating the protections under
Sec. 422.118, but also including specific rules regarding uses and
disclosures of beneficiary information that both incorporate the
provisions of important laws (such as the notice and authorization
provisions of the HIPAA privacy rule) and strengthen the provisions of
those laws to better protect the health information of Medicare
beneficiaries.
Response: The requirements in Sec. 423.136 of our final rule make
clear that PDP sponsors must abide by all Federal and State laws
regarding confidentiality and disclosure of medical records, or other
health and enrollment information. This obligation includes compliance
with the provisions of the HIPAA privacy rule and its specific rules
regarding uses and disclosures of beneficiary information. Because
section 1860d-4(i) of the Act stipulates that the privacy provisions
under section 1852(h) apply to prescription drug plans in the ``same''
manner as they apply to MA plans under Medicare Part C, we do not have
the statutory authority to expand upon those provisions as the
commenter suggests.
Comment: One commenter recommends that we permit MA organizations
and PDP sponsors to prevent pharmacies in their networks and out-of-
network pharmacies from releasing prescriber data to third parties.
Some MA organizations are concerned that providing data to drug
manufacturers will have the negative effect of assisting manufacturers
in targeting their marketing of unnecessary, expensive drugs in a more
effective manner.
Response: Pharmacies that engage in electronic transactions are
covered entities under HIPAA and are thus required to comply with the
HIPAA Privacy Rule. As provided in 45 CFR 164.508, such pharmacies, as
covered entities, would be prohibited from releasing individually
identifiable health information to drug manufacturers for the purpose
of the manufacturers' marketing unless a patient specifically
authorizes the disclosure of his or her information for this purpose.
However, the Privacy Rule protects patient information only, and is
therefore not implicated regarding the sharing of information about
prescribers.
D. Cost Control and Quality Improvement Requirements for Part D Plans
1. Overview (Scope) (Sec. 423.150)
Subpart D of part 423 implements provisions included in sections
1860D 4(c), 1860D-4(d), 1860D-4(e), 1860D-4(j), and 1860D-21(d)(3) of
the Act and sections 102(b) and 109 of Title I of the MMA. This subpart
sets forth the requirements related to the following:
Drug utilization management programs, Quality assurance
measures and systems, and Medication Therapy Management programs (MTMP)
for Part D sponsors;
Consumer satisfaction surveys of Part D plans;
Electronic prescription program;
[[Page 4277]]
Quality Improvement Organization (QIO) activities;
Compliance deemed on the basis of accreditation;
Accreditation organizations;
Procedures for the approval of accreditation as a basis
for deeming compliance.
Below we summarize the proposed provisions and respond to comments.
(For a detailed discussion of our proposals, please refer to the
proposed rule (69 FR 46666)).
2. Drug Utilization Management, Quality Assurance, and Medication
Therapy Management Programs (MTMPs) (Sec. 423.153)
Proposed Sec. 423.153(a) required each Part D sponsor to establish
a drug utilization management program, quality assurance measures and
systems, and a MTMP.
We combined these requirements into one section of the regulation
because each of these requirements will impact the quality and cost of
care provided to beneficiaries. We stated that our intent was to ensure
that the prescription drug benefit was provided using state of the art
cost management and quality assurance systems. We stated that we also
understood the overlapping nature of these requirements and that
provisions under one requirement might complement another requirement.
We also explained in the proposed rule that although these
requirements were similar in their underlying goals, they could also be
quite different, and that while we understood that some members of the
industry use various quality assurance measures and systems for
controlling utilization and reducing medication errors, less
information was available regarding MTMPs.
After receiving many comments on our proposals, our final policy,
generally stated, is that cost control and quality improvement
requirements describe minimum standards for drug utilization
management, quality assurance, and MTMP so as to provide plans with
flexibility to develop, implement, and update their programs and
systems to reflect changing best practices and to continue to provide
beneficiaries with the best quality prescription drug benefit at the
lowest possible cost. We expect plans to continuously monitor their
programs and processes, identify opportunities for improvement, and
develop improvement plans and strategies.
As we stated in the proposed rule, we believe that the different
program and system requirements in this subpart frequently overlap and
therefore, plans need flexibility to coordinate among the different
requirements. Moreover, flexibility is required to ensure that plans
can support forthcoming electronic prescribing standards that we
envision will dramatically affect the utilization management and
quality assurance landscape. Nevertheless, despite the lack of
specificity in our requirements, we expect plans to continually pursue
innovative improvements for their programs and systems, and maximize
technological advances when appropriate.
Ultimately, the evaluation of these programs and systems needs to
be based upon their impact on therapeutic outcomes. As part of our
commitment to improving therapeutic outcomes through the Medicare
Prescription Drug Benefit, we intend to work with industry and other
stakeholders to develop a comprehensive strategy for evaluating plan
performance that collectively considers multiple standards and services
affecting the cost and quality of drug therapy. As industry practices
evolve, including the expected expansion of electronic prescribing, we
believe meaningful performance measures can be identified that will
validate best practices and provide benchmarks that will spur further
program and system improvements. Accordingly, we will work with
industry to identify new standards for quality and performance that
could eventually become plan requirements. Our goal is to ensure that
the Medicare Prescription Drug Benefit will always provide
beneficiaries with the highest quality prescription drug benefits at
the lowest possible cost.
In addition to our efforts to work with industry and stakeholders
to develop future performance measures and standards for Part D plans,
we also intend to implement a plan for utilizing Medicare prescription
drug data to improve the evidence on risks, benefits, and overall costs
of drug therapies for the chronically ill and other Medicare
beneficiaries. This plan will be developed through a public process and
implemented in a manner that preserves the confidentiality of
beneficiary information.
a. Drug Utilization Management
Proposed Sec. 423.153(b) provided flexibility to Part D sponsors
in their design of drug utilization management, and included minimum
requirements for drug utilization management programs. These
requirements were: (1) that plans maintain a program that includes
incentives to reduce costs where medically appropriate; and (2) that
plans maintain policies and systems to assist in preventing over-
utilization and under-utilization of prescribed medications. The
proposed rule also stated that Part D sponsors must inform enrollees of
program requirements, such as those involving allowable refill
timeframes, in order to prevent unintended interruption in drug
therapy.
In addition, the proposed rule contained a discussion about whether
drug utilization management techniques should be under the direction
and oversight of a P&T Committee to ensure an appropriate balance
between clinical efficacy and cost effectiveness. The discussion on P&T
Committees and their oversight of drug utilization management is
contained in subpart C of this final rule.
We invited comments on whether there are industry standards for
drug utilization management and whether we should adopt any of these
standards.
Comment: We received numerous comments on our proposed standards,
with several commenters supporting the flexibility we proposed and
stating that there are no current, widely-accepted standards in the
area of drug utilization management. Others supported additional detail
in the regulations and suggested that we should further specify drug
utilization management program standards. Some expressed concern that
plans could use drug utilization management programs to restrict
utilization inappropriately. In addition, several commenters
recommended that we require plans to focus equally on over-utilization
and under-utilization to ensure appropriate utilization by enrollees
and to monitor plan performance in these areas.
Response: Based on a literature review by Booz-Allen-Hamilton\3\,
and the public comments received on this topic, we are not adopting
further specifications for drug utilization management requirements in
the final rule. While drug utilization management is common practice,
plans appropriately employ a number of different approaches (for
example, formularies, step therapy, tiered cost sharing, prior
authorization) and different combinations of those approaches, and
therefore, while we will consider additional standards in the future,
we are adopting the flexibility we proposed in the proposed rule. As we
stated in the proposed rule, we believe the competitive bidding and
premium setting processes, combined with the requirements for
transparency and information availability, will provide powerful
incentives for plans to
[[Page 4278]]
innovate and adopt the best techniques available.
---------------------------------------------------------------------------
\3\ Booz-Allen-Hamilton. Final Report for Technical Support for
the Implementation of Part D. September 15, 2004.
---------------------------------------------------------------------------
Nevertheless, our requirement for inclusion of incentives to reduce
costs when medically appropriate must be interpreted broadly to mean
that all drug utilization management techniques must be medically
appropriate, and Sec. 423.153(b) requires the utilization management
program established by plans to be ``reasonable and appropriate.'' As
outlined in the formulary guidance that will follow this final rule, we
will review plans' drug utilization management requirements to ensure
that beneficiaries are given appropriate access to medically necessary
drugs in a timely manner. In order to ensure that plans appropriately
employ drug utilization management techniques, and to develop or adopt
further drug utilization management performance measures, we agree with
commenters who recommended we track plan performance in this area.
Therefore, we are adding a reporting requirement at Sec. 423.153(b)(3)
and we will specify the information that we will require in separate
guidance.
Comment: One commenter stated that there are no standard measures
for drug utilization management and recommended that we investigate
using HEDIS (Health plan Employer Data and Information Set) measures as
well as a number of other specific measures. Another commenter
suggested that we use total health care costs as a measure.
Response: As discussed in the previous response, we intend to
develop or adopt further drug utilization management performance
measures in the future. While we agree that no universally accepted
performance measures currently exist, and are therefore not prepared to
specify further requirements in regulation, we also understand that
there are some performance measures being utilized today and that these
could provide valuable information. We intend to evaluate existing
measures, such as HEDIS, and could include these or similar performance
measures in our formulary guidance or drug utilization management
reporting guidelines that will follow publication of this rule. In
general, we expect drug utilization management programs to ensure that
beneficiaries have appropriate access to medically necessary drugs in a
timely manner.
b. Quality Assurance
As with the proposed regulations for drug utilization management
programs, the proposed rule for quality assurance measures and systems
provided minimum standards for quality assurance measures and systems,
while for the most part giving plans flexibility to design such
measures and systems. Proposed Sec. 423.153(c) required Part D
sponsors to include quality assurance measures and systems for: (1)
reducing medication errors; (2) reducing adverse drug interactions;
and, (3) improving medication use. It also proposed to require plans to
establish requirements for: (1) drug utilization review (DUR); (2)
patient counseling; and, (3) patient information record-keeping.
In the proposed rule, we stated that the DUR, patient counseling
and patient information record-keeping requirements would generally
need to comply with section 4401 of the Omnibus Reconciliation Act of
1990 as codified in Sec. 456.705 and section 1927(g)(2)(A) of the Act,
and we stated that we were considering such specific requirements for
the final rule. Although those regulations were written specifically
for the Medicaid population, we stated that we understood that they
describe currently accepted standards for contemporary pharmacy
practice, and our intent was to require plans to continue to comply
with contemporary standards. We solicited comment on whether the
Medicaid standards were in fact industry standards, whether they are
appropriate standards for part D, and if they are, how they should be
adapted for use in Part D. We also stated our understanding that some
members of industry use additional quality assurance measures and
systems. We invited comments on whether there were additional industry
standards that we might adopt. Furthermore, we proposed that Part D
sponsors will be required to have systems and measures established to
ensure that network pharmacy providers are complying with the plans'
quality assurance requirements. We requested comments on the costs and
challenges associated with these systems and measures.
Comment: Most commenters agreed that the relevant parts of OBRA 90
for DUR, patient counseling and patient information record-keeping
describe widely accepted standards for pharmacy practice. While no
other suggestions for widely accepted standards of pharmacy practice
were offered, one commenter indicated that these requirements will not
adequately cover appropriate standards for home infusion pharmacies,
which the commenter recommended should also require patient interviews
and clinical assessments. Alternatively, several commenters recommended
that we defer to State laws and State board of pharmacy regulations
regarding pharmacy practice standards instead of creating a redundant
Federal standard for pharmacy practice.
Response: The overwhelming majority of comments confirmed our
understanding that the relevant parts of OBRA90 for DUR, patient
counseling, and patient information record-keeping generally describe
widely accepted standards of pharmacy practice for both Medicaid and
Non-Medicaid patients. We find that almost all of the State boards of
pharmacy have adopted regulations for pharmacy practice that, at a
minimum, generally reflect these relevant parts of the OBRA 90
requirements. However, upon reconsideration, since our intent was to
ensure that plans provided access to network providers that are
required to comply with contemporary pharmacy practice standards, and
not to create a new Federal standard for pharmacy practice, we agree
with commenters that recommended that we defer to existing authority
for regulating pharmacy practice. In fact, this is consistent with the
Department of Health and Human Service's (HHS) general position of
deferring to States for regulating the practice of pharmacy. Therefore,
our requirement at Sec. 423.153(c)(1) in the final rule states that
plans must provide us with representation that their network providers
are required to comply with minimum standards for pharmacy practice
established by the States.
While we understand that additional quality standards might apply
to specific pharmacy practice-settings such as home infusion pharmacy,
specialty pharmacy and long-term care pharmacy practice, we are not
prepared to adopt additional, practice-setting specific Federal
standards at this time. We believe that current pharmacy practice
standards established by the States, whether or not a State has
additional standards for specific pharmacy practice-settings, still
provide applicable minimum standards for all pharmacy practice-
settings. Nevertheless, we encourage plans and their network pharmacy
providers to establish and agree upon additional quality assurance
standards as necessary, including those required for accreditation by
recognized accrediting organizations.
Comment: Several commenters stated that concurrent and
retrospective drug utilization review (DUR) systems illustrate
successful examples of industry practices that help prevent
inappropriate drug therapy. Concurrent DUR systems are used to identify
potential inappropriate drug therapy before a patient receives a
prescription while retrospective DUR systems can
[[Page 4279]]
often identify patterns of potential inappropriate prescribing and drug
utilization based upon drug claim history.
Response: Based upon these comments as well as similar information
provided in the Booz-Allen-Hamilton report, we agree that concurrent
and retrospective DUR must be components of the quality assurance
systems and measures to be implemented by Part D plans. Accordingly, we
have specified requirements for concurrent and retrospective DUR
systems, policies, and procedures at Sec. 423.153(c)(2) and Sec.
423.153(c)(3), respectively.
In the proposed rule, we stated that elements we viewed as
desirable for quality assurance systems were: (1) electronic
prescribing; (2) clinical decision support systems; (3) educational
interventions; (4) bar codes; (5) adverse event reporting systems; and,
(6) provider and patient education.
While we did not expect Part D plans to adopt all of these
elements, we stated that we expected substantial innovation and rapid
development of improved quality assurance systems in the new
competitive and transparent market being created by the new Part D
benefit.
We invited comments on which, if any, elements of a quality
assurance system should be contained in our program requirements. We
were particularly interested in best practices in quality assurance,
costs and benefits associated with each element, the challenges
involved in implementing quality assurance measures and systems, types
of data useful for reducing medication errors, associated costs and
challenges with collecting this data, and how these data could best be
communicated to providers and beneficiaries to improve medication use.
We noted that the MMA does not define or explain the term
``medication error.'' Nevertheless, we stated that we believe a common
definition was important. Therefore, we cited the following definition
as one that we might use initially in interpretive guidance, which was
previously adopted by the FDA in its proposed rule requiring bar codes
on human drug products:
``Any preventable event that may cause or lead to inappropriate
medication use or patient harm while the medication is in the
control of the healthcare professional, patient, or consumer. Such
events may be related to professional practice; healthcare products,
procedures, and systems, including prescribing; order communication;
product labeling, packaging, and nomenclature; compounding;
dispensing; distribution; administration; education; monitoring; and
use.'' (See 68 FR 12500 (March 14, 2003)).
We indicated that in the future we may require quality measures
that include error reports and stated that we could use this
information to evaluate plans. In addition, we indicated that we may
publish this information for enrollees to use when comparing and
choosing their individual plans. Therefore, we invited specific
comments on how we could evaluate Part D plans based on the types of
quality assurance measures and systems they have in place, on this
proposed definition of ``medication error'', on how error rates can be
used to compare and evaluate plans, and on how such information could
best be provided to beneficiaries to assist them in making their
choices among plans.
Comment: A number of commenters recommended we include all elements
discussed in the proposed rule including decision support, electronic
prescribing, bar codes, adverse event reports, and provider and patient
education. Most of them recommended that we require adverse event and
medication error tracking systems. However, many commenters recommended
that these tracking systems be used internally and that reports not be
sent to CMS or made public. These commenters argued that there is too
much inconsistency in the definitions used in the field and that an
external reporting requirement would actually be counter productive for
quality improvement. While several commenters generally thought our
proposed definition for ``medication error'' was accurate, these same
commenters stated that such a definition would need to be narrowed to
prove useful for consistent reporting among the plans.
Response: As to all the elements that we listed in the preamble, we
agree with the many industry organizations that there are no well
accepted industry standards to make these mandatory requirements. The
Booz-Allen-Hamilton report\4\ supports this finding. We continue to
believe that these are desirable goals and have found that many
organizations are already using them. We expect that electronic
prescribing will greatly increase the availability of clinical decision
support. We intend to work with various stakeholders to further develop
these and other quality assurance systems enhancements.
---------------------------------------------------------------------------
\4\Ibid.
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We agree with commenters that there are inconsistencies associated
with the reporting of adverse events and medication errors. Moreover,
we are not convinced, based upon many of the comments received, that an
external reporting requirement for medication errors, even if we
provided a more specific and narrow definition of ``medication error'',
will lead to improved quality of care. Therefore, instead of requiring
plans to report medication errors to us, we require plans to implement
internal medication error identification and reduction systems, and we
have added this requirement at Sec. 423.153(c)(4). We are also
requiring plans to provide us with information concerning their quality
assurance measures and systems, in accordance with guidelines published
by us. In addition, we encourage plans to utilize the FDA Medwatch form
for reporting adverse events, as well as educating prescribers and
pharmacy providers about its availability. Finally, although we will
not require external medication error reporting at this time, we
maintain that our proposed definition of ``medication error'' can still
serve as appropriate guidance for internal medication error
identification and reduction systems.
c. Medication Therapy Management Programs (MTMPs)
Proposed Sec. 423.153(d) required Part D sponsors to establish an
MTMP described in section 1860D-4(c)(2) of the Act that is designed to
optimize therapeutic outcomes for targeted beneficiaries by improving
medication use and reducing adverse drug events, including adverse drug
interactions, that may be furnished by a pharmacist, and that may
distinguish between services in ambulatory and institutional settings.
We stated that MTMPs may include elements designed to promote (for
targeted beneficiaries):
Enhanced enrollee understanding--through beneficiary
education counseling, and other means that promotes the appropriate use
of medications and reduces the risk of potentially adverse events
associated with the use of medications.
Increased enrollee adherence to prescription medication
regimens (for example, through medication refill reminders, special
packaging, compliance programs, and other appropriate means).
Detection of adverse drug events and patterns of over-use
and under-use of prescription drugs.
We proposed that in order to promote these elements and optimize
therapeutic outcomes for targeted beneficiaries, we envision MTMPs
potentially spanning a range of services, from simple to complex. In
addition to those mentioned in the statute, services could include, but
may not be limited to, performing patient health status
[[Page 4280]]
assessments, formulating prescription drug treatment plans, managing
high cost specialty medications, evaluating and monitoring patient
response to drug therapy, providing education and training,
coordinating medication therapy with other care management services,
and participating in State-permitted collaborative drug therapy
management.
We specifically sought comment on MTMP best practices, essential
components of successful MTMPs, appropriate MTMP providers, service
level requirements, quality assurance requirements for MTMPs,
information on effective MTMP services that could be publicized and
used by beneficiaries, and other effective steps to make valuable,
proven MTMP services available to beneficiaries.
Comment: Numerous commenters recommended that we specifically
define a minimum package of services that all plans must offer for
MTMPs, because plans will not have the economic incentives to offer
adequate MTMP services otherwise, or because different plans will offer
such different services that the quality of services provided will vary
significantly. Although comments suggested a wide variety of possible
MTMP services, common elements identified in several best practice
examples provided in the comments included: (1) Initial assessment/
patient interview; (2) Development of a drug plan identifying goals for
therapy; and, (3) Monitoring and evaluation of therapy. Nevertheless, a
number of commenters recommended that we maintain the level of
specificity contained in the proposed rule. These commenters stated
that no widely accepted MTMP standards exist and plans need flexibility
to develop and implement MTMPs that can best meet the needs of their
specific patient populations and therefore, achieve the best outcomes.
Response: After reviewing extensive comments and conducting
additional research, we believe that insufficient standards and
performance measures exist to support further specification for MTMP
services and service level requirements, and therefore we are adopting
the flexibility proposed in the proposed rule. Although best practice
examples identified some common elements, neither the Booz-Allen-
Hamilton report, nor any comments submitted to us, showed that these
MTMPs reflected widely accepted standards of practice. In fact, until
the Pharmacist Provider Coalition's recent publication of their
definition of MTMP, no widely agreed upon definition of MTMP existed,
let alone standards and measures. While we understand the concern with
potential disincentives for part D plans to develop robust MTMPs, we
are not adopting additional regulatory requirements at this time
because it us unclear which specific, additional requirements would
enhance MTMPs, and ultimately improve therapeutic outcomes for part D
beneficiaries.
We continue to believe that MTMPs can and must offer appropriate
services for targeted beneficiaries. However, we are concerned that
further premature regulatory requirements at this time might not only
fail to improve MTMPs, but could negatively impact their development.
Requiring a universal set of minimum services and service levels,
without fully understanding how they could effectively be implemented
on a much larger platform than illustrated in best practice examples,
could result in MTMPs becoming perfunctory services offered just to
satisfy regulatory requirements as opposed to patient focused services
aimed at improving therapeutic outcomes. For example, several of the
best practice examples stressed the importance of collaboration with
prescribers to ensure that MTMP is successful. However, simply
requiring specific services and service delivery mechanisms will not do
anything to ensure successful collaboration. Therefore, we believe that
at the outset of the Medicare Prescription Drug Benefit, plans must
have maximum flexibility to develop MTMPs that can achieve the
statutory goal of improving therapeutic outcomes.
Notwithstanding the lack of current MTMP standards and performance
measures, we believe that MTMP must evolve and become a cornerstone of
the Medicare Prescription Drug Benefit. With an understanding that the
introduction of MTMP requirements can significantly impact the current
practice of pharmacy, we intend to utilize the Medicare Prescription
Drug Benefit as a platform for driving the quality improvement of
prescription drug therapy. We require plans to report details on their
respective MTMPs, and we intend to collaborate further with industry to
develop measures that can be used to evaluate programs and establish
appropriate standards. Our goal is to evaluate MTMPs within the context
of an overall strategy that evaluates not only MTMP, but also other
quality of care programs, standards, and services, such as drug
utilization management, drug utilization review, chronic care
improvement programs, and the role of QIOs. In so doing, we believe
that we will identify best practices that will evolve into industry
practice standards and could eventually be adopted as our standards.
Comment: Several commenters recommended that we require plans to
allow beneficiaries to receive MTMP services from their network/non-
network provider of choice. In addition, several commenters recommend
that we require plans to offer MTMPs that favor face-to-face
consultations over other forms of intervention.
Response: Consistent with our overall approach to MTMPs, at this
time we believe plans need the discretion to decide on which methods
and which providers are best for providing MTMP services available
under their specific MTMP. We assume that such providers will include
some network pharmacy providers, but plans are not obligated to use any
specific providers as long as those providing services for the plan are
qualified to provide such services. Furthermore, although we indicated
in the proposed rule that we believe pharmacists will be the primary
providers of these services, and that we believe beneficiary choice and
on-going beneficiary-provider relationships should play a role in
determining the appropriate providers, we recognize that such
determinations must be made in the context of the specific, overall
program design. Moreover, while we understand that face-to-face
consultations can offer advantages over other methods of service
delivery, it is still but one component of a successful MTMP.
Successful MTMPs will need to consider and coordinate not only the
method of communication and the providers of services, but also other
components such as the content of the service, the qualifications of
the providers, the identification of targeted beneficiaries, and the
documentation requirements associated with services performed. Because
plans are responsible for designing the programs to improve therapeutic
outcomes, plans will be in position to make the determinations that
will maximize overall MTMP effectiveness, taking into account all
factors that influence successful MTMP.
In addition, while section1860D-4(b)(1)(C)(iii) of the Act requires
us to establish pharmacy access standards that include rules for
adequate emergency access to covered part D drugs, we do not believe
the same authority applies to out of network access for MTMP services.
Unlike situations when patients face an urgent need for covered Part D
drugs but do not have access to a network provider, we do not believe
this urgent need rationale reasonably applies to MTMP. In addition, the
Congress clearly knows
[[Page 4281]]
how to require out-of-network access and did so specifically for Part D
drugs in emergency situations. Accordingly, we can not require plans to
offer MTMP services through out-of-network pharmacies.
Comment: One commenter noted that MTMP services will fall under the
consideration of State boards of pharmacy and how States have defined
the practice of pharmacy and scope of services which pharmacists are
legally able to provide to patients. Therefore, this commenter
requested that we work with States and their boards of pharmacy to
prevent conflicts between MTMP under the Medicare Prescription Drug
Benefit and State definitions of pharmacy practice and scope of
allowable pharmacist activities.
Response: Generally, unless there is a conflict with Federal law,
we will defer to State laws and regulations pertaining to the practice
of pharmacy. We do not believe our current MTMP requirements pose any
conflicts with State laws and therefore, plans need to develop MTMPs
that comply with State laws and regulations.
Comment: Several commenters recommended that we clarify that
providers can offer MTMP to non-targeted beneficiaries and bill the
beneficiaries for these services.
Response: We agree that providers can offer MTMP services to non-
targeted beneficiaries because MTMP in these circumstances is not part
of the Medicare Prescription Drug Benefit. Providers need to notify
beneficiaries receiving these services that the services are not
offered as part of the Medicare Prescription Drug Benefit and
therefore, the beneficiary is responsible for all of the cost of the
MTMP.
Similarly, if plans choose to offer MTMP to non-targeted
beneficiaries, beneficiaries must be notified that they are responsible
for 100 percent of the cost. Moreover, the costs for these services
fall entirely outside the Part D cost sharing structure and do not
count for purposes of tracking beneficiaries' total costs, out-of-
pocket costs, or for purposes of reinsurance and risk sharing with
Medicare.
Comment: Several commenters recommended that we prohibit plans from
implementing MTMPs as a utilization management tool geared towards
shifting market share as opposed to improving therapeutic outcomes.
Response: We agree that MTMPs are more than utilization management
programs focused on shifting market-share. Part D plans must implement
MTMPs designed to optimize therapeutic outcomes by improving medication
use and reducing the risk of adverse drug events, including adverse
drug interactions. Plan sponsors will need to coordinate their MTMPs
and utilization management strategies to improve therapeutic outcomes
at the lowest possible costs.
In the proposed rule, we proposed that MTMP fees be treated as
administrative fees and incorporated into the premium, rather than
being billed to the beneficiary on a case-by-case basis. We noted that
while section 1860D-4(c)(2)(E) of the Act specifies that the time and
resources necessary to implement the MTMPs must be taken into account
when establishing fees, it does not specify how these fees should be
paid. We stated our belief that fees associated with provision of MTMP
services are separate and distinct from dispensing fees discussed in
Sec. 423.100. Although section 1860D-4(c)(2)(E) of the Act states that
Part D sponsors must disclose to the Secretary the amount of ``any such
management or dispensing fees'', it merely governs disclosure and does
not require that MTMP be included in the dispensing fee (indeed the Act
distinguishes management fees from dispensing fees that are part of
individual prescriptions).
Comment: Most commenters agreed with our interpretation that MTMP
should be considered an administrative cost as opposed to a benefit,
thereby preventing direct beneficiary cost sharing for MTMP services.
Response: We agree that direct beneficiary cost sharing for MTMP
services could negatively impact targeted beneficiary participation and
therefore, our final policy is to consider MTMP as an administrative
cost (included in the plan bid), incident to appropriate drug therapy,
and not an additional benefit.
Comment: Many commenters recommended that we include reporting
requirements in the final regulation, specifying, for example, that
plans provide detailed policies and procedures for implementing their
MTMPs and associated performance measures for evaluating the impact on
therapeutic outcomes.
Response: We agree with these commenters that we must include a
reporting requirement for MTMPs. As we work with industry and other
stakeholders to improve the therapeutic outcomes by optimizing
prescription drug therapy, we will need detailed information about each
MTMP. Therefore, we are adding a reporting requirement at Sec.
423.153(d)(6) and we will specify the information that we will require
in separate guidance.
Comment: Several commenters suggested that we specifically involve
QIOs with the collecting and analyzing of data from MTMPs and establish
a mechanism for QIOs to secure information from medical claims to
identify targets.
Response: We believe that QIOs could play a significant role with
MTMPs and this will be reflected in our contracts with the QIOs.
Specific technical assistance could include collecting and analyzing
MTMP data.
Comment: Several commenters responded to our request for incentives
that would help drive the creation and evolution of significant MTMPs
by suggesting pay-for-performance incentives and minimum renewal
criteria, both based upon mutually agreed upon thresholds of patient
care.
Response: We have a more complete discussion of pay-for-performance
in the quality improvement section of the preamble to the final Title
II rule. We are conducting several demonstrations to test this approach
and we are very interested in studying this direction for plans. Plans
are free to develop such arrangements with their providers, and we
encourage them to do so. Such arrangements have existed for a number of
years in the Medicare Advantage program. Plans will need to be mindful
of any restrictions imposed by the anti-kickback statute, and those
needing further clarification may want to use the OIG's advisory
opinion process to obtain guidance relating to specific transactions
and arrangements.
Comment: CMS should clarify that MTMP services are voluntary and
that targeted beneficiaries are under no obligation to participate with
programs in order to receive prescription drug benefits.
Response: We agree that beneficiaries must not be obligated to
participate in MTMPs. While we hope that beneficiaries will participate
to improve their therapeutic outcomes, beneficiaries must not be denied
access to prescription drugs based upon failure to participate in
MTMPs.
Comment: One commenter recommended that we require Part D plans to
separate MTMP services agreements with providers from standard network
provider contracts to reduce potential conflict of interest.
Response: Since we do not know who will be providing MTMP services,
it is premature for us to require specific terms and conditions for
such contracts. While MTMP service providers will likely include some
network pharmacy providers, Part D plans will need to specify, in their
applications, their approach to determining MTMP fees
[[Page 4282]]
which accounts for the time and resources necessary to perform the
services. In addition, plans need to comply with any restrictions
imposed by the anti-kickback statute.
Comment: One commenter recommended that we change the language at
Sec. 423.153(d)(1)(i) from ``must assure'' to ``must have processes in
place so that.''
Response: Upon review of the proposed language, we agree that Sec.
423.153(d)(1)(i) must be changed. We have changed ``must assure'' to
``is designed to ensure.'' We believe this language does not impact the
intent but better reflects what is required of MTMPs.
Section 1860D-4(c)(2)(A)(ii) of the Act describes targeted
beneficiaries as Part D individuals who: (1) have multiple chronic
diseases (such as diabetes, asthma, hypertension, hyperlipidemia, and
congestive heart failure); (2) are taking multiple covered part D
drugs; and (3) are identified as likely to incur annual costs for
covered Part D drugs that exceed a level specified by the Secretary,
and we codified this requirement at proposed Sec. 423.153(d)(2).
We invited comment on further defining ``multiple chronic
diseases'' and ``multiple covered Part D drugs,'' and whether we should
add further specifications or leave such determinations to the plans.
Furthermore, we invited comment on whether we should set the cost
threshold for determining targeted beneficiaries or if this
determination could also be left up to the plans. Generally, we invited
comment on disease, drug and cost issues that we should consider in
further refining the definition of targeted beneficiary.
Comment: Many commenters recommended that we specify which chronic
diseases, the number of chronic diseases, and the number of covered
part D drugs that will qualify a beneficiary for MTMP services.
Moreover, several commenters suggested that specific patient
populations, such as beneficiaries in long term care, should
automatically be considered eligible for MTMP services in all plans.
Alternatively, many commenters suggested that such determinations are
best left to the individual plans for designing their plan specific
MTMPs.
Response: At this time, we believe these determinations must be
left to the plans. Although we are not adding further specific
requirements for chronic disease and multiple drugs, we do recommend
that plans take notice of the statutory examples of chronic diseases
when developing MTMPs. We plan to monitor the programs developed by the
plans to learn from them as to whether or not further guidance is
desirable.
Comment: Many commenters provided recommendations on the level of
annual costs for Part D drugs likely to be incurred by a beneficiary
that should be used as a threshold for MTMP eligibility. Some
commenters argued that any cost threshold is inappropriate because it
does not indicate those that could benefit from MTMP and in fact, could
exclude beneficiaries that would benefit most. Others recommended
various cost thresholds including specific dollar amounts and
percentage based thresholds (for example, top 5 percent). Most comments
suggested that we should make this determination and not delegate it to
the plans.
Response: Despite our discussion in the proposed rule about leaving
this determination to the plans, we do not believe we have the
authority to delegate the cost threshold determination to plans and
therefore, we will set a cost threshold. While cost might not the be
best proxy for identifying patients that could benefit most from MTMP,
the statute requires us to set a threshold and our goal is to identify
a manageable target population so that plans offer truly valuable
services to beneficiaries that will benefit from such services. Factors
we will consider include typical costs associated with the most common
chronic diseases and co-morbidities for Medicare beneficiaries, the
relationship between cost and the number of medications a beneficiary
is taking, the impact specific cost thresholds have on the size of the
target population, and the alignment of incentives for providing MTMP
services within the standard part D benefit structure. We intend to
provide the specific cost threshold in separate guidance.
Comment: Several commenters recommended that we should require
plans to allow providers and beneficiaries (self-referral) to identify
appropriate MTMP targets in addition to plans utilizing system edits to
identify eligible MTMP targets.
Response: The identification of targeted beneficiaries will be
determined by individual plan policies. Therefore, plans will decide if
and how providers and beneficiaries can participate with identifying
targets. Once again, we believe that successful MTMPs must be
coordinated and that plans need to develop appropriate mechanisms for
notifying and identifying targeted beneficiaries that are eligible for
MTMP services.
Section 1860D-4(c)(2)(C) of the Act requires Part D sponsors to
develop their MTMPs in cooperation with licensed and practicing
pharmacists and physicians, and we codified this requirement at Sec.
423.153(d)(3).
Comment: Several commenters recommended that we specify that
practicing pharmacists and physicians must be licensed in the United
States.
Response: Part D sponsors must comply with State licensure
requirements for pharmacy practice, and therefore, we believe further
specific licensure requirements are not warranted.
Section 1860D-4(c)(2)(D) of the Act requires us to establish
guidelines for the coordination of MTMPs with chronic care improvement
programs established under section 1807 of the Act for targeted
beneficiaries, and we codified this requirement at Sec. 423.153(d)(4).
The Chronic Care Improvement Program (CCIP) is a new program
established by section 721 of the MMA, which added a new section,
section 1807, to the Act. The new section 1807 creates a method for us
to assist beneficiaries with multiple chronic conditions in managing
their care. The program is targeted only to beneficiaries in original
fee-for-service Medicare not beneficiaries enrolled in MA plans.
We invited comment on how services provided through CCIP could be
effectively coordinated with MTMP services provided by PDPs. We also
sought comment on how to integrate MTMP services and financial
incentives into the CCIP under section 721 of the Act.
Comment: Several commenters recommended that we share CCIP
enrollment information with PDPs so that these individuals will be
excluded from MTMP services. In addition, several other commenters
recommended that we require PDPs to share their drug data with CCIPs.
Response: We agree that Part D plans need to share drug data with
CCIPs and have specified this requirement in our regulation text at
Sec. 423.153(d)(4). CCIPs need this valuable data in order to provide
the comprehensive care management that is intended under the CCIP.
However, plans must determine, in conjunction with CCIPs, whether or
not it is desirable to offer MTMP services to persons participating in
CCIPs. We note that in sharing the data, both the CCIP and the Part D
sponsor will need to abide by the HIPAA privacy rules including
transmitting only the minimum data necessary. We strongly encourage
Part D plans to consult with their privacy counsel to ensure that the
[[Page 4283]]
transmission of data complied with all aspects of the HIPAA privacy
rules.
In the proposed rule we also discussed the requirement in section
1860D-4(c)(2)(E) of the Act specifying that the time and resources
necessary to implement MTMP be taken into account when establishing
fees for pharmacists or others providing MTMP services under the plan.
We stated that to implement this section, in evaluating the
administrative component of a Part D plan's bid, we will ask a Part D
sponsor to disclose the fees it pays to pharmacists or others,
including an explanation of those fees attributable to MTMP services.
The fee information provided to us under this authority will be
protected under the confidentiality provisions of section 1927(b)(3)(D)
of the Act. Under those provisions, we are prohibited from disclosing
the specific fees in a manner that links the fees to the particular
pharmacy or other provider providing the MTMP services except to the
extent necessary to administer the Part D program, to permit the
Comptroller General to review the information, or to permit the
Director of the CBO to review the information. If we were to discover
situations in which plans systematically did not pay the fees described
in their applications-and, if those errors were not corrected upon
notification, we might, at our discretion, employ the broad ranges of
intermediate sanctions or termination provisions available under
subparts K and O of the regulations.
We stated, however, that while we expected to perform the due
diligence described above through application review and potentially
following up on any complaints, we did not believe we have the
authority to mandate that Part D sponsors pay pharmacists or other
providers a certain amount for MTMP services. We also stated that we
will not adjudicate any specific disputes between Part D and
pharmacists or other providers regarding the specific fees due for MTMP
services.
Comment: Many commenters recommended that we provide further
requirements for MTMP fees, including establishing a fee schedule,
identifying a particular documentation and billing mechanism, and
requiring plans to reimburse for MTMP services provided by out of
network providers.
Response: These details are up to the plans and their arrangements
with pharmacists and other providers. We do not believe the MMA
provides us with the authority to establish fee schedules or interfere
with the contracts between plans and providers. While we are familiar
with the recommendation and accompanying efforts to pursue a CPT coding
mechanism for MTMP services, which would provide for common billing and
documentation procedures, the American Medical Association's (AMA)
Current Procedural Terminology (CPT) Editorial Panel will make that
determination and it does not directly involve us. Therefore, in the
final rule, we are adopting our proposed policy to require sponsors to
discuss their MTMP fees in their applications, but neither to mandate
any specific MTMP fees nor become involved in payment disputes
regarding MTMP between pharmacies and sponsors.
Section 423.153(e) in the proposed rule discussed fraud, waste and
abuse programs required by section 1860D-4(c)(1)(D) of the Act. In an
effort to consolidate, the requirements and preamble discussion
pertaining to fraud, waste and abuse programs, we moved Sec.
423.504(b)(4)(vi)(H) to subpart K, and included as a component of a
Part D sponsor's general compliance plan.
d. Exception for Private Fee for Service Plans
Proposed Sec. 423.153(f) implemented section 1860D-21(d)(3) of the
Act by exempting private fee for-service MA plans that offer qualified
prescription drug coverage from the requirement to establish a drug
utilization management program and a MTMP; however, these private fee-
for-service MA plans are still required to establish quality assurance
measures and systems and a program to control fraud, waste and abuse as
described in Sec. 423.153(c) and Sec. 423.504(b)(4)(vi)(H),
respectively.
We did not receive any comments on these provisions and they have
been adopted in the final rule at Sec. 423.153(e).
3. Consumer Satisfaction Surveys (Sec. 423.156)
As proposed under Sec. 423.156, we will conduct consumer
satisfaction surveys of enrollees of Part D plans in order to provide
comparative information about qualified prescription drug coverage to
enrollees as part of our information dissemination efforts. Section
1860D 4(d) of the Act specifies that these surveys be conducted in a
manner similar to how they are conducted under Sec. 422.152(b) for MA
plans by using the Consumer Assessment of Health Plans (CAHPs).
In the proposed rule, we stated that we believed a CAHPs-like
instrument (or perhaps a modification of CAHPs for MA organizations
offering MA-PD plans) will most likely be the vehicle used to collect
this information. In addition, we stated that we anticipated working
with the Agency for Healthcare Research and Quality (AHRQ) to develop a
survey measuring the experience of beneficiaries with their qualified
prescription drug coverage, a sampling strategy, and an implementation
strategy. We also indicated that we will provide further information
regarding this survey as it is developed.
Comment: Commenters had several suggestions and questions regarding
the design and implementation of the survey, including the following:
CMS and CAHPs should provide draft models of the survey instruments to
the Part D plans for input prior to final draft and distribution;
CAHPs/AHRQ should differentiate satisfaction with the benefit versus
the service provided by the network pharmacy; if all plans are
actuarially equivalent as approved by CMS, how will we differentiate
consumer satisfaction; the first surveys should be conducted starting
in 2006 with the results available before the fall open season;
consumers must be included in the survey design process; and, surveys
should be sent and the results analyzed by CMS, prior to the annual May
notification to plans about whether or not their contracts will be
renewed.
Response: We plan to have a public comment process in the
development of the survey, and solicit input from key stakeholders. We
expect that consumers will be included in the design process through
focus groups, cognitive interviews and testing of the instrument. The
purpose of the satisfaction survey is to provide information in a
timely manner for purposes of beneficiary plan choice which occurs
during the fall of the year. We are still determining the timing for
survey administration. One major constraint is pilot testing of the
survey cannot begin until early in 2006.
Since the purpose of the survey is to help consumers choose among
the plan options, during the development process we will try our best
to focus on things that may vary across plans versus satisfaction with
the overall benefit. Although the plans are actuarially equivalent,
there will be differences in formularies, customer service,
informational materials, etc.
Comment: Additional comments focused on the fact that fully
integrated MA organizations, unlike other MA organizations and PDP
sponsors, own and operate their own pharmacies. As a result, survey
instruments may be confusing to beneficiaries enrolled in these
organizations if the instrument is designed only for network model
plans. In addition, to the extent that survey instruments do not
reflect satisfaction ratings with retail pharmacies under contract to
network model plans, comparisons between network plans
[[Page 4284]]
and integrated organizations will be unlikely to result in apples-to-
apples comparisons. In addition, consumer satisfaction ratings in
health care are notoriously suspect to regional variation. In reporting
satisfaction levels, we should attempt to adjust for these variations.
Response: We agree that making appropriate comparisons and
adjustments will be essential to take into account certain factors that
may impact satisfaction but are not under the control of the Part D
plans. In the development work, we will be exploring what are the
appropriate adjusters for this survey.
4. Electronic Prescription Program (Sec. 423.159)
Section 1860D-4(e) of the Act contains provisions for electronic
prescription programs. The statute contains specific provisions on when
voluntary initial standards may be adopted (not later than September 1,
2005), and when final standards must be published (not later than April
1, 2008) and then effective (not later than 1 year after the date of
promulgation of final standards).
While we included a fairly long discussion of electronic
prescribing in the proposed rule, shortly we will issue another
proposed rule devoted to the standards that will be used for electronic
prescribing and have reserved Sec. 423.159(a) and Sec. 423.159(b) of
this final rule for such electronic prescribing standards. Therefore,
the proposals we made for such standards are not being addressed in
this final rule. Moreover, comments received in response to such
proposals may be considered in the electronic prescribing-specific
proposed rule. In addition, commenters who wish to provide additional
comments on electronic prescribing will be permitted to do so after
publication of the electronic prescribing proposed rule.
One standard we are finalizing is the requirement that Part D
sponsors have the capacity to support electronic prescribing, once
final standards are in effect, including any standards that are
established before the drug benefit begins in 2006. We proposed such
language at Sec. 423.159(a) of the proposed rule. Since Part D
sponsors will in fact have to support electronic prescribing, once
standards are in place, we have modified the language in Sec.
423.159(c) to make clear that Part D sponsors must not just have the
capacity to support electronic prescribing but will actually have to
support it. We received no comments on this proposal and are adopting
it at Sec. 423.159(c).
We also proposed at Sec. 423.159(b) to allow an MA-PD plan to
provide a separate or differential payment to a participating physician
who prescribes covered Part D drugs in accordance with electronic
prescription standards. (Note that this provision only applies to MA-PD
plans and not to PDPs) Section 102(b) of the MMA makes it clear that
this differential payment may occur when a participating physician
prescribes drugs in accordance with an electronic prescription program
that meets standards established under section 1860D-4(e) of the Act.
We solicited comments on the differential payments provision described
in Sec. 423.159(b) of the proposed rule as it relates to the
application of various legal authorities including ``the physician
self-referral prohibition at Sec. 1877 of the Act'' and the Federal
anti-kickback provisions at section 1128B(b) of the Act. In order to
facilitate electronic prescribing by a Part D sponsor, we also invited
public comment on additional steps to spur adoption of electronic
prescribing, overcome implementation challenges, and improve Medicare
operations.
Comment: Many commenters supported the provision of a separate or
differential payment to a participating physician that prescribes
covered Part D drugs in accordance with electronic prescription
standards.
Response: We agree that participating physicians have a substantial
role in electronic prescribing and will have upfront and on-going costs
of implementation. For this reason, the regulation permits an MA
organization offering an MA-PD to provide a separate or differential
payment to a participating physician that prescribes covered Part D
drugs in accordance with electronic prescription standards, including
both voluntary standards promulgated by HHS and final standards
established by HHS once final standards are effective.
Comment: Many commenters also encouraged us to allow MA-PD plans to
make similar incentive payments to participating pharmacies and
pharmacists.
Response: We agree that pharmacies and pharmacists have a
substantial role in electronic prescribing and will have upfront and
on-going costs of implementation. The MMA statute provided for such
incentives directly to physicians; however MA plans could in compliance
with the Federal anti-kickback and Stark self-referral statutes offer
incentives to pharmacies and pharmacists through individual plan
contract agreements. HHS may consider this issue when developing the
pilot programs.
Comment: One comment stated that differential payments should also
be permissible by PDPs. While ``PDPs sponsors will not have network
contracts with physicians in the way that MA organizations will, PDPs
may have service contracts with physicians to provide MTMP services.''
The commenter noted that we have the authority to permit such payments
under section 1860D-4(c)(1)(B) of the Act as part of a quality
assurance program.
Response: We disagree. The MMA statute was specific in the use of
incentives by MA-PD plans to participating physicians that prescribe
covered Part D drugs in accordance with an electronic prescription
program that meet the standards established under section 1860D-4(e) of
the Act.
Comment: Many commenters expressed concern that separate or
differential payments should not inappropriately influence physician
prescribing behavior or restrict provider choice or decision making.
Many also suggested that we provide guidance to plans to guarantee that
such incentives do not impact prescribing judgment and that any
incentives utilized in e-prescribing programs focus on rewarding
improvements in patient safety and quality.
Response: We agree with the commenters that incentives must not
inappropriately influence physician prescribing patterns. We will be
providing guidance to plans on physician incentives.
Comment: Many commenters agreed that any differential payments
provision must be in compliance with other Federal and State laws
including the physician self-referral prohibition at section 1877 of
the Act and the Federal anti-kickback provisions at section 1128B(b) of
the Act. They urged the Secretary to consider extending the
applicability of the safe harbor provisions beyond Part D programs and
to include monetary and non-monetary remuneration.
Response: As outlined in the preamble in the proposed rule, we are
sharing any comments regarding the anti-kickback statute with the OIG.
Additionally, in response to comments we have added language at Sec.
423.159(d) that such payments be subject to compliance with applicable
Federal and State laws and regulations related to fraud and abuse.
In the proposed rule, we also sought comment on measures of MA-PD
plan quality related to the use of electronic prescribing and other MA-
PD quality
[[Page 4285]]
measures that reflect effective electronic prescribing systems.
We invited comments on the challenges and on possible Federal
activities that will promote the effective use of electronic
prescribing by providers, including publishing best practices, and
making technical information on electronic prescribing products
available. In addition, receptivity to the use of electronic
prescribing by consumers is not well understood especially among the
elderly and disadvantaged populations. We requested additional
information on how those populations may view electronic prescribing
and what steps may be taken to get them to use this modality and, thus,
take advantage of the safety and quality benefits it offers.
We also invited comments on how to promote the use of electronic
prescribing by providers, health plans and pharmacies and other
entities involved in the provision and payment of health care to
Medicare beneficiaries. Beyond the differential payments authorized in
Sec. 423.159, we invited comments on what incentives could be used to
spur more widespread adoption, especially for early implementers. We
also invited comments on what educational efforts or data analyses
might be undertaken to help health practitioners understand, or
empirically confirm, and ultimately realize, the benefits of electronic
prescribing. Lastly, we sought public input on the ways electronic
prescribing can further reduce costs to the Medicare program and
promote quality of care to beneficiaries.
We received numerous comments in response to our requests.
Comment: HHS received universal support from all those who
commented on Sec. 423.159 regarding the establishment of electronic
prescribing standards and its potential for improved quality of care
through reduced medication errors, better therapeutic compliance and
better process and cost efficiencies.
Response: We agree with the commenters that electronic prescribing
has great potential to improve the health of Medicare beneficiaries and
reduce medication errors.
Comment: Many commenters suggested that HHS should evaluate how
electronic prescribing may improve patient compliance, clinical
outcomes and patient safety and facilitate other electronic prescribing
processes. Additionally commenters provided a variety of areas to focus
educational efforts and data analyses.
Response: We agree with the commenters that MA-PD plan quality,
related to electronic prescribing, must be evaluated to further promote
quality of care for beneficiaries. We will take these suggested areas
under consideration as we develop quality measures for MA-PD plans.
Furthermore, for quality improvement purposes, we will make any plan
information on electronic prescribing available to our QIOs either
directly from the Part D plans or through us.
Comment: Many commenters stated that HHS should publish best
practices and make technical information on electronic prescribing
products available so that providers can make informed comparisons.
Many agreed that these efforts will also spur effective adoption and
use of electronic prescribing.
Response: HHS appreciates these thoughtful comments and will take
them into consideration as we implement electronic prescribing.
Comment: A few commenters responded that electronic prescribing
will result in procedural and behavioral changes by beneficiaries. They
suggested that HHS work to ensure patients are aware of and comfortable
with the new prescribing method and should disseminate information and
educate enrollees on the changes resulting from electronic prescribing.
Response: We agree that electronic prescribing will result in
procedural and behavioral changes in our beneficiaries. We will
consider these suggestions as we work with the Part D sponsors on
information dissemination and outreach.
Comment: One commenter stated that HHS should work with National
Center for Vital and Health Statistics (NCVHS) to study the use of
reduced malpractice insurance premiums as a financial incentive to
promote the adoption of electronic prescribing.
Response: HHS will share this comment with the NCVHS.
Comment: Many commenters provided a variety of areas to focus
educational efforts and data analyses to spur more widespread adoption.
Response: We will take these suggested areas for data analyses
under consideration as we develop our educational efforts and quality
improvement strategies by making such information on electronic
prescribing available to our QIOs either directly from the Part D plans
or through us.
Comment: Many commenters stated that developing standards for
electronic prescribing will reduce costs to the Medicare program. Many
commenters stated that the primary benefits of electronic prescribing
are increased quality of care, reductions in the use of medical
resources, and improved patient safety, specifically in the areas of
reduced adverse events. Additionally, many stated that electronic
prescribing improves the efficiency of processing prescriptions.
Response: We agree with the commenters that these electronic
prescribing areas have great potential to reduce costs to the Medicare
program.
5. Quality Improvement Organizations (QIO) Activities (Sec. 423.162)
Section 109 of the MMA expands the work of QIOs to include Part C
and Part D. This provision explicitly covers the full range of Part C
organizations. QIOs are required to offer providers, practitioners, and
Part D sponsors quality improvement assistance pertaining to health
care services, including those related to prescription drug therapy.
In the proposed rule, we stated the QIOs will need access to data
from transactions between pharmacies and Part D plans. We offered
examples of the types of data that would likely be required by QIOs and
also discussed our role in potentially aggregating and distributing the
data. Finally, we proposed that any information collected by the QIOs
will be subject to confidentiality requirements in part 480 of our
regulations. For purposes of applying these confidentiality
regulations, we also proposed that Part D sponsors fall within the
definition of health care facilities and that part 480 would apply in
the same manner as that Part applies to institutions.
As the QIOs activities under Part D are developed within the 8\th\
Scope of Work, and basic decisions are made about the collection,
storage and use of Part D claims data, CMS will work with QIOs and Part
D plans to develop a strategy to provide QIOs with data necessary to
accomplish their task and safeguard patient confidentiality.
Comment: One commenter believes that PDPs may need additional data
to identify enrollees to be targeted for MTMP services. They believe
QIOs could provide that data to plans using information from medical
claims submissions.
Response: QIOs cannot share with Part D plans beneficiary-specific
identifiable data that it has acquired as part of its function as a
QIO, but we could provide the data necessary to identify enrollees to
be targeted for MTMP services to the Part D plans if appropriate. QIOs
can provide other types of technical assistance to Part D plans.
Comment: One commenter recommends that serious evaluations be
[[Page 4286]]
designed to compare the effectiveness of different MTMP services,
delivery, and payment methodologies. Another commenter wrote that QIOs
could potentially perform a valuable role in collecting and analyzing
the data to be made available to plans for use in establishing or
revising their MTMP services.
Response: Once Title I has been implemented, we expect that outcome
measures will be developed to allow the QIOs to assess the
effectiveness of the MTMP services. We expect that both plans and
pharmacies will be able to request technical assistance from QIOs to
improve their MTMPs.
Comment: One commenter recommended that the last sentence of Sec.
423.162(b) be deleted. [``PDP sponsors and MA plans offering MA-PD
plans are required to provide specified information to CMS for
distribution to the QIOs as well as directly to QIOs''] They support
the voluntary nature in terms of whether a Part D plan must contract
with a QIO. They are concerned about the submission of undefined
information to CMS for passing through to QIOs as well as directly to
QIOs regardless as to whether a Part D plan works with a QIO. In
addition, it is unclear to which QIO such information will be provided,
particularly since some drug plans may serve more than one State.
Another commenter stated QIOs must have access to pharmacy and medical
claims for quality improvement projects and oversight of the PDPs.
Response: We do not believe that the last sentence of Sec.
423.162(b) must be deleted. QIOs need, and have the authority under
section 1154 of the Act and section 109 of the MMA, to access specified
data from the transactions between pharmacies and Part D plans
providing the Part D benefit. However, the determination of what actual
data, if any, that will be made available to QIOs will be made in
subsequent guidance after QIOs activities under Part D are developed
within the 8\th\ Scope of Work, and basic decisions are made about the
collection, storage and use of Part D claims data. We could provide
specific data to QIOs to use for quality monitoring and extract these
data from data already required by us for other administrative
functions of the Title I program, thus not increasing the Part D plans'
burden. We could also make data available to a QIO from plans that do
not contract with the QIO but are directly related to the QIO's
responsibilities as negotiated with us under its 8\th\ scope of work.
QIOs may also have access to additional data provided by plans working
directly with a QIO.
Other QIO Activities
Comment: While PBMs have processes in place to monitor pharmacy
dispensing and alert a pharmacy in cases where dispensing a medication
may not be safe for a particular patient, it is critical the PBM or
drug plan not be held accountable or responsible for activities that
are beyond its control. Drug plans can be evaluated for having such
process measures in place but should not be held accountable for
problems outside their control, such as physician, pharmacist or
manufacturer errors.
Response: We expect that the QIOs will work with physicians,
pharmacists, and plans to improve the quality of beneficiaries'
medication therapies. The QIOs' goal is to improve quality of care, not
to assign blame. They can assist each of these players to design
systems to facilitate the delivery of quality of care.
Comment: One commenter stated that QIOs should establish
educational programs to assist drug plans and prescribers in the
implementation of best practice guidelines through treatment
algorithms.
Response: The QIOs' scope of work is being described in their
contracts rather than in the regulation. The contracting mechanism
allows flexibility to adjust the QIOs' tasks to be responsive for the
need for quality improvement. The QIOs' activities will address quality
improvement for both prescribers and plans.
Comment: The confidentiality of information collected by QIOs
should be protected, as CMS has proposed.
Response: The QIOs will protect the confidentiality of the
collected information, as specified in part 480. We have clarified
Sec. 423.162(c) in this final rule to make clear that the provisions
of part 480 apply in the same manner as they apply to institutions.
Comment: There were several commenters who expressed concern
regarding how QIOs will handle beneficiaries' complaints about the
quality of care in Part D. The final rule in Sec. 423.153(c) needs to
state clearly that the QIOs will review quality of care complaints and
lack of access complaints to requested services, as well as to clarify
how this traditional QIO function will be carried out in the unique
environment of Part D plans.
Response: Section 423.564(c), not Sec. 423.153(c), states that
QIOs must review enrollees' written complaints about the quality of
services they have received under the Medicare program, as specified in
section 1154(a)(14) of the Act. For any complaint submitted to a QIO,
the Part D sponsor must cooperate with the QIO in resolving the
complaint. For further discussion, please refer to the preamble to
subpart M.
Comment: The final regulation should reflect the information
contained in the summary of the 8\th\ scope of work (SOW) for QIOs. The
commenter added the regulation should specify that quality improvement
projects will be performed by the QIO or by a third party (independent
of the Part D plan) contracted by the QIO.
Response: This information is typically conveyed in the SOW of the
contract between each QIO and us rather than in the regulation because
a contract allows us the flexibility to modify the QIOs' activities
without modifying the regulation. The contract is an effective way to
ensure that these important tasks are accomplished.
Comment: Educational interventions are best done by QIOs or a third
party independent of the Part D plan contracted by the QIO.
Response: QIOs will likely do educational interventions either with
their own staff or with subcontractors, but we do not want to exclude
other entities from also providing objective, evidence-based
educational interventions.
Comment: Oversight of formulary decisions and subsequent review of
Part D sponsors' formulary decisions could be key components necessary
for QIO's to assess quality, especially in the dual-eligible long term
care patients.
Response: We believe that decisions concerning which medications
are on a plan's formulary are administrative decisions of the plan.
These do not fall within the quality review functions of the QIO. The
QIO will review beneficiary complaints that the plan's rules were not
executed correctly. We will conduct reviews of plans' applications to
ensure that formularies are not discriminatory, as well as review
through program monitoring.
Comment: MA organizations delivering benefits through their owned
and operated pharmacies are likely to rely on specialized pharmacy
information systems that differ from the systems designed for PDP
sponsors to communicate with their contract network pharmacies. As a
result, it is possible that pharmacy data may be misinterpreted by a
QIO. If QIOs will be using data from integrated MA organizations to
assess quality, it will be important to work closely with the
organizations to understand the data, or to develop more efficient
methods to achieve the same result-an appropriate assessment of quality
performance.
Response: We expect that QIOs will work cooperatively with plans.
Because
[[Page 4287]]
QIOs work with identified organizations, they will have the opportunity
to understand the context of the data they are analyzing.
Comment: One commenter suggests that QIOs examine the prescription
drug claims submitted to the plan, specifically looking at the number
of claims that are rejected and appealed.
Response: QIOs' activities focus on quality improvement. The number
of claims rejected is an administrative function, and we do not expect
the QIOs to be active in this area. It is likely the administrative
performance of plans will be assessed by our program monitoring.
6. Treatment of Accreditation (Sec. 423.165, Sec. 423.168, and Sec.
423.171)
Section 1860D-4(j) of the Act requires that the provisions of
section 1852(e)(4) of the Act relating to the treatment of
accreditation will apply to Part D sponsors for:
Access to covered Part D drugs including the pharmacy
access requirements and the use of standardized technology and
formulary requirements;
Drug utilization management, Quality assurance, Medication
Therapy Management, and a program to control fraud, waste and abuse as
described in subpart K Sec. 423.504(b)(4)(vi)(H);
Confidentiality and accuracy of enrollee records.
Thus, the requirements in Sec. 423.165, Sec. 423.168, and Sec.
423.171 are similar to the requirements found in Sec. 422.156, Sec.
422.157, and Sec. 422.158 for the MA program, except for subject areas
that are deemed.
Proposed Sec. 423.165 provided the conditions under which a Part D
sponsor may be deemed to meet our requirements permitted under
paragraph (b) of that section. We stated that the first condition will
be that the plan be fully accredited (and periodically reaccredited) by
a private, national accreditation organization (AO) that we approve.
The second condition will be that the plan be accredited using the
standards that we approved for the purposes of assessing compliance
with Medicare requirements.
Consistent with our approach in the MA program, in the proposed
rule we proposed that we will analyze on a standard-by-standard basis
whether an AO applies and enforces requirements that are no less
stringent than those in part 423 for the standard at issue. We proposed
that we will determine the scope of the AO's approval (and, thus, the
extent to which Part D plans accredited by the organization are deemed
to meet our requirements) based on a comparison of the AO's standards
and its procedures for assessing compliance with our deemable
requirements and our own decision-making standards. We stated that we
will make those determinations on the basis of the application
materials submitted by AOs seeking our approval in accordance with
Sec. 423.168. We also proposed to conduct surveys to validate the AO's
enforcement on a standard-by-standard basis.
Proposed Sec. 423.165(d) established the obligations of deemed
Part D sponsors. A Part D sponsor will be required to submit to our
surveys. We stated that the proposed surveys were intended to validate
an AO's process and authorize the AO to release to us a copy of its
most current accreditation survey, together with any information
related to the survey that we may require (including corrective action
plans and summaries of our unmet requirements). We stated that such
activities will be part of our ongoing oversight strategy for ensuring
that the AO applies and enforces its accreditation standards in a
manner comparable to ours.
Proposed Sec. 423.165(e) addressed removal of deemed status and
proposed Sec. 423.165(f) explained that we retain the authority to
initiate enforcement action against any Part D sponsor that we
determine, on the basis of our own survey or the results of the
accreditation survey, no longer meets the Medicare requirements for
which deemed status was granted. We stated that we expected the AO to
have a system in place for enforcing compliance with our standards
(such as sanctions for motivating correction of deficiencies), but we
also stated that we could not delegate to the AO the authority to
impose the intermediate sanctions established by section 1860D-12 of
the Act or termination of the contract.
In the proposed rule, we acknowledged that deeming applies only to
our enforcement of this regulation, and neither our enforcement of this
regulation nor accreditation by an accrediting body undercuts the
Office for Civil Rights enforcement of the HIPAA privacy rule.
Proposed Sec. 423.168 discussed the three conditions for our
approval of an AO if the organization applies and enforces standards
for Part D sponsors that are at least as stringent as Medicare
requirements and, if the organization complies with the application and
reapplication procedures proposed in Sec. 423.171.
Proposed Sec. 423.168(c) established ongoing AO responsibilities.
These responsibilities largely parallel those currently imposed upon
accreditors under original Medicare. One exception was the proposed
requirement that an AO notify us in writing within three days of
identifying, for an accredited Part D sponsor, a deficiency that poses
immediate jeopardy to the Part D sponsor's enrollees or to the general
public.
Proposed Sec. 423.168(d) established specific criteria and
procedures for continuing oversight and for withdrawing approval of an
AO. Oversight consists of equivalency review, validation review, and
onsite observation.
In the proposed rule, we stated that we could withdraw our approval
of an AO at any time if we determine that deeming based on
accreditation no longer guarantees that the Part D plan meets the
Medicare requirements, that failure to meet those requirements could
jeopardize the health or safety of Medicare enrollees or constitute a
significant hazard to the public health, or that the AO has failed to
meet its obligations under Sec. 423.165 through Sec. 423.171.
Proposed Sec. 423.171 addressed the procedures for approval of
accreditation as a basis for deeming compliance. As mentioned, the
process that we stated will be used to deem compliance with Part D
requirements is virtually identical to the process that is being used
for deeming compliance with fee-for-service requirements. One
requirement proposed in Sec. 423.171, and which also appeared in
regulations governing MA plans at Sec. 422.158(a)(11), but did not
appear in regulations governing original Medicare, is the requirement
that an AO applying for approval of deeming authority submit the name
and address of each person with an ownership or control interest in the
AO. We proposed that we will use this information to determine whether
the AO is controlled by the organizations it accredits for the purposes
of Sec. 423.168. Section 423.171 further provided for reconsideration
of adverse determinations of accreditation applications.
Comment: Several consumer groups oppose deeming because they
believe it will diminish beneficiary protections. Several different
types of organizations, such as pharmacy organizations, and others want
to have input into the process, and asked who will be the AOs, how will
they operate, and what standards will be used. They also commented that
AOs will not be in place prior to the initiation of the program.
Response: Section 1860D-4(j) of Act provides for accreditation. We
have
[[Page 4288]]
successfully administered accreditation programs in:
Hospital settings, for example, JCAHCO;
Home health, for example, JCAHCO, NLN; and
Nursing homes and managed care, for example, NCQA, JCAHCO.
The advantages of AOs is that they eliminate duplication of efforts
between us and AOs, since many private purchasers require AOs.
Furthermore, it reduces the burden on government oversight.
AOs must demonstrate that their standards are at least as stringent
as those in part 423 of our final regulations. Given that the
regulations can only be finalized upon publication of this final rule,
we agree with the commenters that AOs cannot be in place before the
bids and contract applications for 2006 are due. Thus, at least in the
first year of the program, applicants will have to determine on their
own that they meet all of our standards. Once these rules are in
effect, we can begin to consider applications for AOs; however, other
program priorities will influence when we will be able to issue a
public notice requesting applications. Currently, we do not believe
that any AOs can meet our standards. Furthermore, it must be noted that
in the Medicare Advantage program, it was several years before any AOs
were accredited.
As to giving stakeholders a chance to comment, our regulation at
Sec. 423.168(b) provides that we publish a notice in the Federal
Register whenever we are considering an AO's application. The public
then has 30 days to comment.
We will be glad to meet with stakeholders to discuss these issues.
The AOs must meet or exceed each of our standards. They can pass one or
all standards, but will only be allowed to administer those standards
for which they are approved.
The final rule has adopted the proposed rules on accreditation.
F. Submission of Bids and Monthly Beneficiary Premiums: Plan Approved
1. Overview
Subpart F will implement most of the provisions in sections 1860D-
11 and 1860D-13 of the Act, as well as sections 1860D-12(b)(2)(on
limitation on entities offering fallback plans), 1860D-15(c)(2)(on
geographic adjustment of the national average monthly bid amount),
1860D-21(d) (on special rules for private fee-for-service (PFFS)
plans), 1860D-21 (e)(3) (on cost contractors), and 1860D-21 (f)(3)(on
PACE) of the Act. In this section we address submission, review,
negotiation, and approval of bids for prescription drug plans and MA-PD
plans; the calculation of the national average bid amount; and
determination and collection of enrollee premiums. References to 42 CFR
part 422 of our regulations are to the new MA rules. See Subpart T for
additional information on PACE. Bidding is to be distinguished from the
application process discussed in subpart K.
Although in this preamble we use the terminology, prescription drug
plans and MA-PD plans, the regulations extend to all Part D sponsors
(including PACE organizations and cost-based HMOs and CMPs) as these
entities--just like PDP sponsors--will be required to submit bids for
the prescription drug coverage they plan to offer. Therefore, we have
changed the accompanying regulation text to use the terminology, ``Part
D sponsor,'' throughout. We have also indicated in the regulation where
separate rules would apply to fallback entities.
As discussed in subpart C, the statute provides a framework for the
provision of subsidized prescription drug coverage. Within this
framework, PDP sponsors and MA organizations have some flexibility to
design coverage that is different from defined standard coverage to
meet the needs of Part D-eligible Medicare beneficiaries. This
framework plays a critical role in bid submissions, and the actuarial
evaluation and approval of bids.
As part of our discussion we specify the actuarial equivalency
tests plan sponsors will have to meet when offering coverage other than
defined standard coverage. Please note that the coverage definitions
are discussed in detail in subpart C of the preamble. In order to
determine actuarial equivalency, plan sponsors will compare their plans
to the defined standard coverage baseline to assess the various tests
of actuarial equivalency that we discuss in detail in the sections
below.
2. Requirements for Submission of Bids and Related Information
As provided under section 1860D-11(b) of the Act, each applicant to
become a PDP sponsor or MA organization will be required to submit a
bid for prescription drug coverage for each plan it intends to offer.
Most bids will be expected to represent full risk plans, meaning that
the prescription drug plan is not a limited risk plan or a fallback
prescription drug plan, and is not asking for any modification of the
statutory risk sharing arrangements. A bid from a full risk plan may be
referred to as a full risk bid. PDP sponsors may choose to participate
as limited risk plans, meaning that they provide basic prescription
drug coverage and request a modification of risk level (as described in
Sec. 423.265(d)) in its bid submitted for the plan. A bid with a
modified level of risk is referred to as a limited risk bid. This term
does not include a fallback prescription drug plan. Bids will be due to
us no later than the first Monday in June for each plan to be offered
in the subsequent calendar year. This date stems from the requirement
in section 1860D-11(b) of the Act that bid data from potential PDP
sponsors be submitted at the same time and in a similar manner as the
information described in section 1854(a)(6) of the Act for MA plans.
Since section 1854(a)(1) of the Act requires initial data to be
submitted on the first Monday of June of each year after 2004, we have
also incorporated this date into our regulations. In the case of MA-PD
plans, the prescription drug bid will be a component of the unified MA
bid described in Sec. 422.254(b)(1) with benefits beyond basic
coverage (if any) incorporated into the supplemental benefits portion
of the prescription drug benefit bid.
We are clarifying that this bid will represent the expected monthly
average cost (including reasonable administrative costs) to be incurred
by the plan applicant for qualified prescription drug coverage in the
applicable area for a Part D eligible individual with a national
average risk profile for the factors described in section 1860D
15(c)(1)(A) of the Act and in Sec. 423.329(b)(1) of this rule. We plan
to develop and publish the risk adjustment factors and identify the
characteristics of an average individual no later than the date of the
45-day notice for the announcement of 2006 rates, which is February 18,
2005. Any modifications to these characteristics for subsequent years
will be announced by the date of the annual 45-day notice. (For further
discussion of prescription drug risk adjustment, see subpart G of this
preamble.) In the August 2004 proposed rule we solicited comment on the
nature of any additional information needed to prepare bids and
suggestions for any other methods that the bid submission process could
be structured to provide for later pricing data submission.
The costs represented in each plan bid must be those for which the
plan will actually be responsible. Given the structure of qualified
prescription drug coverage, these costs will not include payments made
by the enrollee for deductible, coinsurance (including 100 percent
coinsurance between the initial
[[Page 4289]]
coverage limit and the out of-pocket threshold), copayments, or
payments for the difference between a plan's allowance and an out-of-
network pharmacy's usual and customary charge (as discussed in Sec.
423.124(b). It also does not include costs reimbursed by us through the
reinsurance subsidy. However, we require the separate identification,
calculation, and reporting of costs assumed to be reimbursed by us
through reinsurance. For standard coverage, defined or actuarial
equivalent, these costs will include the plan's share of costs above
the deductible and up to the initial coverage limit, as well as the
plan's share of costs above the annual out of pocket limit. If enhanced
alternative coverage is provided, the plan costs for supplemental
benefits will be distinguished from those for basic coverage. The costs
attributable only to basic coverage, once approved, are known as the
standardized bid amount.
In Sec. 423.265(c) we will require that, with the exception of
potential employer group waivers under section 1860D-22(b) of the Act
and section 1857(i) of the Act, late enrollment penalties and low-
income premium and cost sharing subsidies, the bid represents a uniform
benefit package based upon a uniform level of premium and cost sharing
among all beneficiaries enrolled in the plan. This means that all
enrollees in a given PDP or MA-PD plan will be subject to the same cost
sharing structure and will be charged the same premium for benefits the
PDP sponsor or MA organization chose to offer.
We note that while benefits are required to be uniform for all
enrollees under the drug benefit, this is not the case for enrollees
under a prescription drug discount card program. To avoid any confusion
between these related programs, we would like to make this distinction
clear. Because of the limited low-income assistance under the card
program, card sponsors have been permitted to negotiate lower prices
for low-income members. Also, in some cases there may be reduced cost
sharing sponsored by manufacturers for low-income members after the
$600 in transitional assistance is used that does not apply to other
card members. Under the Part D prescription drug program, however, both
the negotiated prices and the benefit structure will be the same for
all enrollees in a given PDP or MA PD plan. While the low-income
subsidies will result in low-income beneficiaries' actual out of pocket
costs being lower than for beneficiaries who do not qualify for this
assistance, the benefit structure to which the subsidies apply is the
same for all enrollees in a plan.
Comment: Two commenters suggested that we assist bidders by making
accessible relevant drug utilization data from sources such as Tricare,
PBMs, the National Association of Chain Drug Stores and current
Medicare Advantage plans with drug benefits.
Response: We either does not have access to such data or does not
have the authority for public release. Most of the data suggested by
the commenters would be considered proprietary. There are other data
sets that are being used to meet industry's requests that we share
information from public data sets that could help potential drug plan
bidders to better understand or estimate the eligible Medicare
beneficiary population's utilization of prescription drugs. They
include: 1) data for Federal retirees 65+, enrolled in the Federal
Employee Health Benefit national Blue Cross Blue Shield plan; 2) data
from the Medicare Current Beneficiary Survey; and 3) Medicaid Pharmacy
Benefit Use and Reimbursement in 1999 Statistical Compendium. The
latter is prepared from Medicaid Analytic eXtract (MAX) files for
calendar year 1999. For more information, or to download these data see
http://www.cms.hhs.gov/pdps/default.asp.
Comment: Several comments urged that bids be rejected from PDPs
that are owned or financially controlled by a drug manufacturer or
group of manufactures.
Response: We note the concern that many stakeholders have had over
manufacturer acquisition of PBMs in the 1990's. However, the Federal
Trade Commission's response by imposing restrictions on manufacturers
acquiring PBMs (for example, offer open formularies, include drugs that
compete with the parent company's products, etc) has generally led
manufacturers to divest from PBMs, or to alter their behaviors in order
to prevent antitrust enforcement actions (see Christopher Sroka's
November, 2000 report ``Pharmacy benefit managers'' for the
Congressional Research Service and Regina Johnson's 2002 piece ``PBMs:
Ripe for regulation'' in Volume 57, Issue 2 of the Food and Drug Law
Journal). Regardless of future industry activity in this area, the
statute does not give us the authority to implement a ban as suggested
by the commenters.
Comment: One commenter indicated that Part D plans are required to
submit bids no later than the first Monday in June to be offered in the
subsequent calendar year. This is not sufficient time for SPAPs that
need to coordinate benefits. SPAPs will need to know by June of 2005
what plans will be qualified sponsors and operating in their States.
Response: Section 1854 of the Act amended by the MMA sets the bid
submission date as no later than the first Monday of June. PDP sponsors
and MA organizations with MA-PDs need the maximum amount of time to put
together a bid. PDPs and MA-PDs will need to keep SPAPs informed in
order to complete the bid process, so communication between these
entities should not be an issue.
Comment: One commenter suggested that plans should be required to
provide for coverage of services to residents of Long Term Care
facilities that are required by OBRA 1987 and under OBRA 1990. They
recommended that this be added to the included costs in Sec.
423.265(b)(1) under submission of bids. The commenter went on to state
that Part D plans should not be exempt from providing the same services
required under Medicare Part A or Medicaid to nursing facility
residents and recommended that we require plans to incorporate the
costs of paying for such services into their bid submissions, and that
plans state clearly how they intend to pay qualified pharmacists for
providing such services.
Response: Part D plans are only obligated to pay the negotiated
price for covered part D drugs, which consists of the ingredient cost
of the drug and a ``dispensing fee'' and that take into account any
discounts, direct or indirect subsidies, rebates or other price
concessions received by the Part D plan). The fee will include only
those activities related to the transfer of possession of the covered
Part D drug from the pharmacy to the beneficiary, including charges
associated with mixing drugs, delivery, and overhead. The dispensing
fee will not include any activities beyond the point of sale (that is,
pharmacy follow-up phone calls) or any activities for entities other
than the pharmacy. The dispensing fee does not include any charges
associated with administering the drug once the drug has already been
transferred to the beneficiary. This means that the pharmaceutical
services listed under 1819(b)(4)(A)(iii) are included within the
negotiated prices for covered part D drugs only if the term
``dispensing fee'' as defined in Sec. 423.100 captures such services.
Comment: Several commenters asked for guidance regarding the costs
that we view as administrative.
Response: Administrative costs are not clinical services unless
part of a Medication Therapy Management Program. Administrative costs
include such costs as: 1) crossover fees paid to
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obtain information from other payors in order to calculate TROOP (True
Out-of-Pocket); 2) Medication Therapy Management Program expenses; 3)
Marketing & Sales; 4) Direct Administration (for example, customer
service, billing and claims administration); 5) Indirect Administration
(for example, corporate services, such as accounting operations,
actuarial, legal and human resources); 6) Net Cost of Private
Reinsurance (that is, reinsurance premium less projected reinsurance
recoveries); 7) Medicare User Fees; 8)Uncollected Enrollee Premium; and
9) return on investment. Additional guidance on administrative costs
will be given with the release of the bid submission tool. Instructions
for the tool will include more detail defining administrative costs and
guidance on how they are to be indicated in the bid submission.
Comment: One comment urged us to modify the timeline to permit
bidders to submit a bid for approval before June 6, 2005.
Response: While bids can be submitted before the first Monday in
June (June 6 in 2005), they cannot be approved before that date because
they are reviewed collectively.
Comment: Several commenters urged that the bid submission process
use electronic methods and be parsimonious for data requirements.
Response: We agree with the commenters that electronic methods are
preferable. Accordingly, bid submitters will upload an electronic Plan
Benefit Package (PBP) and bid submission pricing tool to the Health
Plan Management System (HPMS). The bid is to represent the expected
monthly average cost to be incurred by a plan applicant providing
qualified prescription drug coverage in an applicable area for a Part D
eligible beneficiary with a national average risk profile. We are
cognizant of plan burden and therefore required submission data will be
limited to what is absolutely necessary for us to fulfill its bid
review, payment, and negotiation obligations.
Comment: One commenter asked if plans will get the rebates from
manufacturers for drugs covered by SPAP wrap around.
Response: CMS does not have the authority to dictate how
manufacturers pay rebates to plans. However, we would expect that drugs
covered by secondary payers would still be subject to rebates.
3. General CMS Guidelines for Actuarial Valuation of Prescription Drug
Coverage
As directed by section 1860D-11(c) of the Act, we will develop
processes and methods using generally accepted actuarial principles and
methodologies for determining the actuarial valuation of prescription
drug coverage. Although we plan to provide additional information in
the future in the form of interpretive guidance on these processes, we
intend on using the following processes and methods for calculating
``actuarial valuation'' and ``actuarial equivalence'' in the context of
risk bids:
Sponsors offering standard coverage with cost-sharing
variants either to the 25 percent coinsurance (before the initial
coverage limit) or the greater of 5 percent coinsurance or $2 generic/
preferred/$5 any other drug (after the out-of-pocket threshold is met)
will be required to demonstrate the actuarial equivalence of their
variations.
Sponsors offering basic or enhanced alternative
prescription drug coverage will be required to demonstrate that--
+ The actuarial value of total or gross plan coverage of their
alternative is at least equal to the actuarial value of total or gross
coverage of the defined standard benefit.
+ The actuarial value of unsubsidized coverage of their
alternative is at least equal to the actuarial value of the
unsubsidized portion of defined standard coverage; and
+ The plan payout at the dollar value of the initial coverage
limit under standard coverage, for individuals whose total spending
exceeds that limit, is at least equal to that provided under defined
standard coverage.
All sponsors will determine the actuarial value of the
defined standard benefit, either because it is--
+ Offered to the beneficiaries;
+ Used as a comparison for either of the following:
Standard coverage with actuarially equivalent cost-
sharing variants.
Alternative coverage; or
+ Used to determine the basic component in enhanced alternative
coverage.
Sponsors that offer enhanced alternative coverage will
also be required to determine the actuarial value of coverage beyond
basic coverage.
We will further specify in additional guidelines the data
sources, methodologies, assumptions, and other techniques in accordance
with generally accepted actuarial principles as either recommended or
required in further guidance. We will also specify the data elements
(including format) to be sent to us for evaluation. We will then
evaluate the analysis and assumptions for compliance and
reasonableness. For example, we will evaluate the source, size, and
timeframe of data on which assumptions are based, the demographic
characteristics of enrollees, the distribution of risk levels, the
average costs in each cost-sharing tier, and the update factors used,
among other considerations.
We will also require the separate identification of
administrative costs. Since the level of the bid will directly affect
the premium paid by the beneficiary and the attractiveness of the plan,
we expect that plans will have a strong incentive to keep
administrative costs and return on investment at reasonable levels. Any
review of administrative costs will likely focus primarily on outliers
from the competitive range identified in the bids received. All
proposals will contain a description of how certain costs are included
in the calculations. Processes and methods for determining actuarial
valuation will take into account the effect that providing actuarially
equivalent standard coverage or alternative prescription drug coverage
(rather than defined standard coverage) has on drug utilization. This
includes utilization effects attributable to different benefit
structures, such as from tiered cost sharing, as well as those
attributable to supplemental benefits. The utilization effect of
supplemental benefits on basic benefits will have to be loaded into the
supplemental portion of the bid. In other words, since the existence of
supplemental coverage will increase total average per capita spending,
that increase over the average spending (if coverage were limited to
basic coverage) will be included in the portion of the bid attributable
to supplemental coverage. Section 1860D-11(c)(1)(D) of the Act
specifies ``the use of generally accepted actuarial principles and
methodologies.'' We are interpreting this to require that a qualified
actuary certify the plan's actuarial valuation (which may be prepared
by others under his or her direction or review). Actuarial
certification will give better assurance that the actuarial values in
the bid were prepared in conformance with actuarial standards and
methodologies.
Section 1860D-11(c)(3)(B) of the Act specifies that PDP
sponsors or MA organizations offering MA-PD plans may use qualified
independent actuaries in certifying the actuarial values in their bids.
(The actuarial valuation may be prepared by others under the direction
or review of a qualified actuary). We interpret this provision as
requiring PDP sponsors and MA organizations that do
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not employ qualified actuaries, to use outside actuaries in their
processes. We proposed in the August proposed rule to specify that a
qualified actuary is an individual who is a member of the American
Academy of Actuaries because members of the Academy must meet not only
educational and experience requirements, but also a code of
professional conduct and standards of practice. These standards create
a common ground for actuarial analysis. Furthermore, a member of the
Academy is subject to its disciplinary action for violations of the
code and standards. This same requirement is specified in the SCHIP
legislation at section 2103(c)(4)(A) of the Act. Moreover, the National
Association of Insurance Commissioners (NAIC) imposes significantly
stricter requirements on actuaries preparing the financial statements
of insurance companies.
Comment: Several commenters asked for flexibility in the actuarial
standards. One commenter specifically asked for flexibility in the use
of methods and actuarial assumptions by permitting the use of internal
data or normative claims databases.
Response: Section 1860D-11(c)(1) of the Act instructs the Secretary
to ``establish processes and methods for determining the actuarial
valuation of prescription drug coverage including.the use of generally
accepted actuarial principles and methodologies''. To the extent it is
possible under this paradigm to be flexible, we will be. Use of
internal data or normative claims databases is not only acceptable, but
encouraged. We will however, review the assumptions and results of your
analysis for reasonableness and appropriateness.
Comment: One commenter asserted that being a member of the American
Academy of Actuaries should be a requirement, but should not be
sufficient by itself.
Response: Our policy position is to require that an actuary have
the skills and experience to perform the actuarial certification
required. Accordingly, in Sec. 423.265(c)(3) we state that a
``qualified actuary must certify the plan's actuarial valuation, and
must be a member of the American Academy of Actuaries to be deemed
qualified.'' By requiring membership in the American Academy of
Actuaries we are both requiring a minimal standard, and providing an
additional assurance that the actuary will be qualified. For the latter
comment, the Code of Professional Conduct for Actuaries states ``an
Actuary shall perform Actuarial Services only when the Actuary is
qualified to do so on the basis of basic and continuing education and
experience.''
Comment: Two commenters expressed that there could be problems with
the proposal that the costs associated with any increased utilization
in the Part D basic benefit arising from enhanced alternative coverage
would be included in the supplemental benefit portion of the bid. They
assert that the application of this policy as it applies to the Part D
program could be problematic because in many instances an enrollee will
have supplemental coverage arising from another source that would not
be part of enhanced alternative coverage of the sponsor or
organization. One commenter gave the example of a beneficiary who may
elect basic prescription drug coverage under a PDP or MA-PD plan and
may also receive coverage under an employer/union group plan that wraps
around the Part D benefit. They argue that in this case, if no
supplemental benefits were included in the MA-PD plan or PDP, there
would be no way to take into account in the bid the impact of any
increased utilization unless it can be reflected in the bid for the
basic benefit. This problem could be greater for special needs plans
serving dually eligible beneficiaries who are eligible for substantial
subsidies under the Part D program. In this instance, if no
supplemental benefits are included in the MA-PD or PDP plan, the only
avenue for taking increased utilization the may result from the subsidy
into account would be the bid for the basic benefit. However, this
could result in a bid above the benchmark that would produce a premium
higher than the low-income premium subsidy resulting in an increase in
the premium obligation for dual eligible enrollees. This situation
could threaten the viability of a special needs plan.
Response: Plan bids will take into account the anticipated impact
of induced utilization due to the structure of the plan benefit, other
insurance coverage, and the low income subsidy. The impact of induced
utilization will be addressed directly in the bid for enhanced
alternative coverage. Note that this is for Part D only and is
different from what is discussed for Part C in the Title II regulation.
There are three major mechanisms for adjusting payment to account for
the utilization of the actual enrolled population in any given plan,
these are risk adjustment, reinsurance, and risk corridors. One
intention of risk adjustment is to take into account the utilization of
dual eligibles and adjust payment appropriately for the level of
utilization in this population. For all bids, the anticipated impact of
other insurance coverage on the bid and its effect on reinsurance will
be taken into account. Risk corridors will serve to decrease the
exposure of plans where allowed costs exceed plan payments for the
basic Part D benefit.
4. Determining Actuarial Equivalency for Variants of Standard Coverage
and for Alternative Coverage.
When considering the specific requirements for actuarial
equivalence and valuation in the Act, we are aware that there is no
official definition of actuarial equivalence. Moreover, the concept of
actuarial equivalence is applied in multiple contexts. We must address
actuarial equivalence requirements regarding cost sharing, expected
benefits, and bid submissions. Thus, we are using interpretive guidance
to further explain the process and methodology for determining
actuarial equivalence and valuation. The processes and methods for
determining actuarial equivalence and valuation would be in keeping
with generally accepted actuarial principles. We would require
prospective PDP sponsors and MA organizations wishing to offer MA-PD
plans to include all of the requirements discussed in the following
sections in the information submitted with the bid, when applicable.
The MMA contains some specific requirements for actuarial equivalence
or valuation. These actuarial equivalence tests are discussed below.
a. Actuarial Equivalence as Applied to Actuarially Equivalent Standard
Coverage-Cost-Sharing
As required in section 1860D-2(b)(2)(A) of the Act, standard
prescription drug coverage must have ``coinsurance for costs above the
annual deductible . . . and up to the initial coverage limit that is
equal to 25 percent; or is actuarially equivalent . . . to an average
expected payment of 25 percent of such costs.'' We interpret this to
mean that sponsors would be required to demonstrate that the actuarial
value of their alternative cost-sharing as a percent of the actuarial
value of both cost-sharing and plan payments for claims up to the
initial coverage limit is the same percentage as for 25 percent
coinsurance under defined standard coverage. In calculating these
percentages, sponsors would reflect the utilization impacts of the two
structures, but hold constant formulary (drug list), drug pricing
(except to the extent that the plan incorporated differential pricing
and cost sharing based on participation
[[Page 4292]]
status within the plan's network), and the group whose utilization is
modeled. This would allow plans to have variable co-payments or
coinsurance, including tiered structures for preferred and non-
preferred drugs, in the initial coverage interval as long as the
actuarial equivalence test is met. As a simple example, a plan could
have a tiered coinsurance benefit with coinsurance higher than 25
percent for brand name drugs and lower than 25 percent for generics.
Some beneficiaries with expenses between the deductible and the initial
coverage limit would be expected to pay more than 25 percent, and
others to pay less, depending on their usage of brand versus generic
drugs. Overall, however, the total coinsurance would have to be
actuarially equivalent to an average of 25 percent for all
beneficiaries with expenses in this interval, even if the total
expenditures beneath the initial coverage limit ($2,250 in 2006) are
lower than would be expected under defined standard coverage (due to
increased use of generics, for example).
If sponsors wanted to provide a variant on defined standard cost
sharing after the out-of-pocket threshold is met, an actuarial test
similar to that described above for variants on the 25 percent
coinsurance would apply. In this case, based on the group of
individuals projected to exceed the out-of-pocket threshold, the
sponsor would compute total cost sharing once the true out-of-pocket
(TROOP) threshold has been met as a percentage of the sum of that cost
sharing plus the comparable plan payout. This percentage would have to
equal the percentage computed in the same manner using the defined
standard benefit (that is, the greater of $2/$5 or 5 percent). We note
that any variant in cost sharing could not lead to discrimination
against certain beneficiaries, for example, by increasing the cost
sharing of a drug used for a particular illness well above the cost
sharing for other drugs.
b. Tests for Alternative Coverage
As required by section 1860D-2(c) of the Act, sponsors offering
alternative coverage, that is, benefit structures different from
standard coverage, must satisfy five tests (three of the five are
actuarial equivalency tests). As discussed in subpart C, alternative
coverage would include coverage actuarially equivalent to defined
standard coverage (basic alternative coverage) or coverage that would
include supplemental coverage (enhanced alternative coverage). All
alternative coverage would have to meet all five of the coverage
standards or tests discussed in section b.1-5 of this preamble. Tests
one through three were established by the Congress to ensure that
alternative coverage would be at least actuarially equivalent to
standard coverage. Tests four and five are additional tests imposed by
the Congress through section 1860D-2(c) of the Act.
(1) Test for Assuring at Least Equivalent Value of Total Coverage
As required in section 1860D-2(c)(1)(A) of the Act, a plan could
offer alternative prescription drug coverage as long as the actuarial
value of total or gross coverage is at least equal to total or gross
coverage provided under standard coverage. Based on a typical
distribution of enrollee utilization, the average plan payout
(including costs reimbursed by Medicare through the reinsurance
subsidy) would have to be at least equal to the sponsor's estimate of
the payout under defined standard coverage (holding various factors
constant as described above under section 4.a.).
Alternative benefit structures, such as a decrease in the
deductible with an increase in coinsurance below the initial coverage
limit, or a lower initial coverage limit with a corresponding decrease
in coinsurance, or a lower initial coverage limit with a corresponding
decrease in deductible, could be accommodated as basic alternative
coverage as long as the actuarial value of this coverage equaled that
of defined standard coverage. Alternative structures could not increase
the deductible or provide less than the protection offered against high
out-of-pocket expenditures described in section 1860D-2(b)(4) of the
Act. To the extent that the alternative coverage exceeds the value of
defined standard coverage, the plan would be offering enhanced
alternative coverage, that is, alternative coverage that includes
supplemental benefits (as discussed in subpart C).
(2) Test for Assuring Equivalent Unsubsidized Value of Coverage
In section 1860D-2(c)(1)(B) of Act, a plan could offer alternative
coverage as long as the unsubsidized value of coverage (the value of
the coverage exceeding subsidy payments) is at least equal to the
sponsor's estimate of unsubsidized value under defined standard
coverage (holding various factors constant as described above section
4.a.). We interpret the unsubsidized value of coverage to mean the
value of the benefit attributable to the beneficiary share of the
premium.
There is a basic question about how this test could be applied
during the plan review and approval process. In order to determine the
unsubsidized value of coverage, one would have to know the projected
reinsurance payments, and the value of the direct subsidy. While the
projected reinsurance payments would be known at the time of the
submission (since the actuarial value of the benefit is reduced by
projected reinsurance payments to produce the bid), the value of the
direct subsidy would not be known (since it would require computing the
national weighted average bid and bids have not yet been approved). In
the face of this problem, one approach could be to remove reinsurance
payments as estimated by the sponsor and to use an estimate of the
direct subsidy that we would provide. For instance, in the first year
we might provide the estimate used for budgeting purposes, and in
subsequent years, an estimate based on prior years' actual experience
updated for trend. Additional guidance will be released concerning this
matter.
Comment: Two commenters suggested that we should waive the second
test of actuarial equivalence because if a plan meets all of the other
tests the second test would be redundant, and without knowing the true
value of direct subsidy the second test would be difficult to conduct.
Response: The second actuarial equivalence test for alternative
coverage ensures the equivalent unsubsidized value of coverage. As we
are defining this test, the beneficiary premium for alternative
coverage must be greater than or equal to the beneficiary premium for
standard coverage. Since beneficiary premiums will not be determinable
until after all bids have submitted and applied against the national
average bid, we interpret the application of this provision to be that
the total Part D bid for alternative coverage must be greater than or
equal to the sponsor's bid for defined standard coverage. We note that
the first test of actuarial equivalence guarantees that the total value
(including reinsurance) of coverage for the basic alternative benefit
must be equal to the total value of coverage of the standard benefit.
The second test then precludes a basic alternative benefit structure
that increases government reinsurance costs relative to define standard
coverage. We note that the test imposes no additional burden beyond the
first test (that is, if you constructed a bid and shown that you meet
test 1, you would already have all the information available
to show whether you meet test 2). Given that the program is
just beginning and we have no practical experience to show that the
second test adds no value beyond the first test, we see no basis for
waiving this test at this time.
[[Continued on page 4293]]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
]
[[pp. 4293-4342]] Medicare Program; Medicare Prescription Drug Benefit
[[Continued from page 4292]]
[[Page 4293]]
(3) Test for Assuring Standard Payment for Costs at Initial Coverage
Limit
Under section 1860D-2(c)(1)(C) of the Act, sponsors are to
determine the average payout ``for costs incurred that are equal to the
initial coverage limit'' for ``an actuarially representative pattern of
utilization.'' This projected payout is compared to a dollar amount
that is equal to what defined standard coverage would pay for someone
with costs equal to the initial coverage limit. Given the comparison,
this raises the question of what represents ``an actuarially
representative pattern of utilization.'' As with the other tests, we
believe that it would be reasonable for plans to use either anticipated
plan utilization or a typical utilization pattern based on the Medicare
population. However, given the implicit comparison to payout under
defined standard for someone with costs equal to the initial coverage
limit, it would not be valid to include individuals with expenses below
the value of the initial coverage limit. After excluding individuals
with total expenses below the value of the initial coverage limit, the
plan would compute the actuarial value of plan payout at the point
where total expenses are equal to the initial coverage limit under
standard coverage. Under this interpretation, a plan could offer
alternative coverage as long as the coverage is designed to provide an
actuarial value of plan payout that is equal to at least 75 percent of
costs between the standard deductible and initial coverage limit
($1,500 in 2006). In other words, considering only plan enrollees with
expected expenses greater than or equal to the dollar value of the
standard initial coverage limit, the plan would have to demonstrate
that the expected plan payout associated with expenses equal to that
dollar value would be at least 75 percent of benefit costs between the
deductible and initial coverage limit (75 percent of $2,000 per
beneficiary in CY 2006) including taking into account their expected
behavioral response to the different benefit structure. This test,
combined with the prohibition on increasing the deductible under
alternative coverage (described below), would ensure that the benefit
below the dollar level of the standard initial coverage limit is always
actuarially equivalent to standard coverage. As a result, it is not
permissible to trade off benefits above the initial coverage limit for
benefits below.
(4) Test for Assuring the Deductible Does not Exceed the Standard
Deductible
In keeping with the requirements of section 1860D 2(c)(2) of the
Act, alternative coverage could not be structured so that the
deductible is any higher than what it is in standard coverage ($250 in
2006).
(5) Test for Assuring the Same Protection Against High Out of-Pocket
Costs
As specified by section 1860D-2(c)(3) of the Act, any alternative
coverage must provide ``the coverage'' specified for costs above the
catastrophic limit in standard coverage. We interpret this to mean that
both enhanced and basic alternative coverage would have to offer at
least the coverage available above the catastrophic limit through
defined standard coverage. We would apply this test in the same way
that we do for standard coverage with a variant of cost sharing above
the catastrophic limit. That is, examining the group of individuals the
sponsor projects would exceed the out-of-pocket threshold, total cost
sharing once TROOP has been met, as a percentage of the sum of such
cost sharing plus comparable plan payout, must be less than or equal to
the percentage computed using the defined standard benefit (that is,
the greater of $2/$5 or 5 percent). Again, we note that any variant in
cost sharing could not lead to discrimination against certain
beneficiaries, for example, by increasing the cost sharing of a drug
used for a particular illness well above the cost sharing for other
drugs.
c. Value of Qualified Coverage
In accordance with section 1860D-11(b)(2)(B) of the Act, with the
bid, each PDP sponsor and MA organization offering an MA-PD plan must
submit the actuarial value of qualified coverage in the region for the
Part D eligible individual with a national average risk profile for the
factors described in section 1860D-15(c)(1)(A) of the Act. We interpret
this to mean that the weighted average of the plan's expected risk-
standardized costs will represent the plan's cost for the theoretical
national average-risk Part D individual. Any increase in costs
attributable to increased utilization as the result of enhanced
alternative coverage must be excluded from this calculation. Any
alternative coverage that does not include supplemental coverage would
be, by definition, actuarially equivalent to standard coverage. Any
utilization effect that supplemental coverage has on the basic benefit
should be priced into the supplemental portion of the bid.
Comment: One commenter wants to ensure that they have the ability
to establish flat copayments rather than the 25 percent coinsurance of
the standard design. We should permit Part D providers to round flat
copayments to the nearest $5 dollar level, as these are the benefit
designs commonly offered in the market place.
Response: Any copayment structure must meet the test for either
actuarially equivalent standard coverage or for alternative coverage.
These tests are available to allow for flexibility in benefit design
including use of copays rather than coinsurance. While we would
anticipate that some rounding would be consistent with these tests,
rounding to the nearest $5 dollar level may create too great a
difference between rounded and unrounded values.
Comment: One commenter stated that the regulation text should allow
for the value of any enhanced benefit design to reflect both the
potential impact of utilization changes and mix shifts to less
expensive drugs. Any test of benefit value should also take into
account the impact of utilization management, which may increase
utilization, but have a favorable impact on total costs.
Response: To the extent that a benefit design other than that of
defined standard coverage will have a projected impact on the mix of
drugs, this impact will be included in the pricing of that proposed
design. We anticipate that utilization management will be held constant
in the pricing of defined standard and the proposed design, as well as
the population modeled; drug formulary; and drug pricing (except to the
extent that the proposed design incorporates differential pricing and
cost sharing based on participation status within the plan's network).
These issues will be fully discussed in our guidance on ``processes and
methods using generally accepted actuarial principles and
methodologies''.
5. Information Included with the Bid
a. Bid Format
The exact format for the bid submission is detailed in separate CMS
guidelines with the bid submission tool. Section 1860D-11(c)(1)(D) of
the Act specifies ``the use of generally accepted actuarial principles
and methodologies.'' We require that an actuary (a member of the
American Academy of Actuaries) certify the actuarial valuation, which
may be prepared by others under his or her direction or review.
Actuarial certification would give better assurance that the actuarial
values in the bid were prepared in conformance with actuarial standards
and methodologies. Section 1860D 11(c)(3)(B) of the Act permits use of
outside qualified independent actuaries. We expect that plans would use
outside actuaries, especially if they did not have qualified in-house
actuaries.
[[Page 4294]]
As provided in section 1860D 11(b)(3) of the Act, we have developed
(see Draft PDP Bid Instructions and Pricing Tool http://www.cms.hhs.gov/pdps/
) the bid submission format to facilitate the
submission of bids for multiple regions and in all regions, and we have
taken this into account in process development. This approach would
need to ensure that separate bids were provided for each region in
order to calculate the national average monthly bid amount and any
geographic adjustment required. Our overall approach would be to
increase our flexibility to develop appropriate methodologies in
response to program changes, while minimizing burden, rather than
codifying these processes in regulation. We believe that we would have
the authority to develop these methodologies through interpretive
guidance because our regulations state that sponsors provide the
actuarial value of their plans in accordance with generally accepted
actuarial principles and methodologies.
In most cases the information included with the bid would be
sufficient for our review of the acceptability of a proposed plan based
on actuarial principles and for negotiation of terms and conditions of
an entity's participation in the provision of Part D benefits. However,
we may require additional information during the review to support the
assumptions and methods accompanying the bid. As provided in section
1860D-11(b)(2) of Act and Sec. 423.265(d) of this rule, the
information that would accompany the bid submission would, at a
minimum, include the following:
Information on the prescription drug coverage to be
provided, including the structure of the benefit, including
deductibles, coinsurance (including any tiers), initial (or subsequent)
coverage limits at which coinsurance levels change, and out-of-pocket
thresholds. This would also include the plan's formulary, utilization
management techniques, and any drugs, or types of drugs, excluded from
coverage, and all documents provided to beneficiaries explaining the
benefit, including the Evidence of Coverage, and would be certified by
an officer of the plan. We solicit comments on the best way to obtain
clear information on what drugs are included in the formulary.
The actuarial value of the qualified prescription drug
coverage in the region for a beneficiary with a national average risk
profile certified by a qualified actuary.
The portion of the bid attributable to basic benefits.
The portion of the bid attributable to supplemental
benefits, if applicable.
The actuarial basis for the portion of the bid
attributable to basic coverage and to supplemental benefits, if
applicable, certified by a qualified actuary.
The assumptions regarding reinsurance subsidy payments.
The assumptions regarding administrative expenses.
The plan's service area and the plan's network of
pharmacies serving that service area.
(For PDP sponsors only) the level of risk assumed in the
bid, including whether the sponsor requires a modification of risk
level (see discussion below) and, if so, the extent of the
modification. Although our procedures may subsequently seek this
information, we may only review it to the extent that the initial
submission of bids does not yield the statutory minimum number of full
risk bidders in each region and area. Our goal in designing the bidding
process will be to maximize the level of risk borne by contracting
plans and to minimize the need for fallback plans; and
Any other information that we would require.
Response to public comment
Comment: Several comments were received concerning privacy
protections for information submitted during the bidding process. Two
manufacturers urged adoption of the ``restriction on use of
information'' standard in Sec. 423.322(b) for bidding information.
Moreover, they believe that the Trade Secrets Act (18 USC Sec. 1905)
should apply and be inserted into the regulation to cover manufacturer
pricing information. Three additional comments were received suggesting
that we should limit our requests concerning specific pricing and cost
information. These commenters while not referring to the Trade Secrets
Act, did seek protection of any information submitted. Additionally,
one pharmacy benefits manager and one health insurer expressed concern
that bidding information will not be protected from disclosure under
the Freedom of Information Act (FOIA).
Response: We believe that information submitted with the bid that
is used to pay plans (such as estimations of reinsurance or
administrative costs) would be protected under Sec. 423.322(b) and
sections 1860D-15(d)(2)(B) and 1860D-15(f)(2) of the Act. These
sections protect information that is submitted to us for the purposes
of carrying out section 1860D-15 of the Act. Because the direct subsidy
in section 1860D-15(a) of the Act is based upon the plan's standardized
bid amount, we believe that the portion of the standardized bid which
is used in calculating that subsidy would be protected. On the other
hand, information submitted with the bid that is not used in
calculating the direct subsidy (such as the structure of the formulary
or the utilization management techniques to be used by the applicant)
would not be protected under sections 1860D-15(d)(2)(B) and 1860D-
15(f)(2) of the Act. However, bidders can always seek to protect their
information under the Freedom of Information Act and label truly
proprietary information ``confidential'' or ``proprietary.'' When
information is so labeled, the bidder is required to explain the
applicability of the FOIA exemption they are claiming. When there is a
request for information that is designated by the submitter as
confidential or that could reasonably be considered exempt under
Exemption 4, the Department is required by its FOIA regulation at 45
C.F.R. Sec. 5.65(d) and by Executive Order 12,600 to give the
submitter notice before the information is disclosed. To determine
whether the submitter's information is protected by Exemption 4, the
submitter must show that- (1) disclosure of the information is likely
to impair the government's ability to obtain necessary information in
the future; (2) disclosure of the information is likely to cause
substantial harm to the competitive position of the submitter; or (3)
the records are considered valuable commodities in the marketplace
which, once released through the FOIA, would result in a substantial
loss of their market value. Consistent with our approach under the Part
C program, we would not release information under the Part D program
that would be considered proprietary in nature or that would tend to
stifle the availability of discounts or rebates from pharmaceutical
manufacturers negotiated by Part D plans.
Bidders may identify trade secrets and confidential business
information (CBI) with their submission. However, if they have not we
will give them another chance when a FOIA request has been made on
their records. In this case we will notify the business submitters that
we are in receipt of FOIA requests for their records. We will then
provide the business submitters with instructions and ask them to
identify any trade secret or CBI in order to justify our application of
Exemption 4. We will then review their justifications and highlighted
information against FOIA case law to see if we can support their
requested redactions. Under Executive Order 12600, if the business
submitters
[[Page 4295]]
disagree with our Exemption 4 analysis (which includes their
justification) of their identified trade secret or CBI, they are
provided the opportunity to seek a restraining order or injunction in
Federal court prohibiting us from releasing their records under FOIA.
Comment: One commenter suggested that Pharmacy Benefit Managers be
required to disclose all rebate arrangements with manufacturers.
Response: It is unclear to whom the commenter wants rebate
disclosed to and in what context. The comment was made in reference to
bidding and in this case information on rebates will generally be
limited to the aggregate level. However, per Sec. 423.272 more
detailed information may be reviewed if necessary to ensure the
reasonableness and appropriateness of the bid. Uniform requirements for
detailed rebate information would unnecessarily increase the burden of
the bidder. Detailed rebate information will be collected for reasons
other than the bid.
b. Risk Adjustment of Supplemental Premium
The portion of the bid attributable to supplemental benefits (part
of enhanced alternative coverage defined in Sec. 423.104(g))
represents the supplemental premium for a beneficiary with a national
average risk profile. The payment process provided in section 1860D-15
of the Act will only address risk adjustment of the basic portion of
the bid, and there are no other provisions for risk adjusting the
supplemental benefit portion of the bid. If not addressed, this would
result in plans with average risk scores above 1.0 being under-
compensated by enrollees for supplemental benefits, and plans with
average risk scores below 1.0 being over-compensated, as illustrated
below.
Table F-1
Supplemental Premium Risk Adjustment
----------------------------------------------------------------------------------------------------------------
Plan A Plan B Plan C
----------------------------------------------------------------------------------------------------------------
................. ................. .................
----------------------------------------------------------------------------------------------------------------
Plan Average Risk Profile 0.80 1.00 1.10
----------------------------------------------------------------------------------------------------------------
................. ................. .................
----------------------------------------------------------------------------------------------------------------
1.0 Supplemental Premium 100 100 100
----------------------------------------------------------------------------------------------------------------
Supplemental Premium if Risk-Adjusted 80 100 110
----------------------------------------------------------------------------------------------------------------
................. ................. .................
----------------------------------------------------------------------------------------------------------------
Over or (under) compensation $20.00 $0.00 $(10.00)
----------------------------------------------------------------------------------------------------------------
Table F-1 illustrates the case of three equally efficient plans
that each estimate the cost of the same supplemental benefits at $100.
Plan B has an average risk profile, that is, the arithmetic average of
the risk scores of all of its enrollees is equal to 1.0. Plan A and
Plan C, however, have healthier and sicker than average risk pools,
with enrollee risk scores averaging .80 and 1.10, respectively. Plan A
only needs an average risk-adjusted premium of $80 to meet the revenue
requirements of providing those supplemental benefits to its healthier
enrollees, but would receive $20 more on average from enrollees if it
collects the whole $100 unadjusted premium. In contrast, Plan C needs
to collect $10 more than it would receive from the unadjusted (1.0)
premium to fully fund the expected needs of its sicker enrollees.
Consequently, we will require additional information on the projected
risk profiles of projected enrollees for accurate valuation of the
supplemental portion of the bid with the bid submission. We intend,
through the negotiation process, to reach agreement on a supplemental
premium based on the bid submission that would account for the risk
profile of enrollees and, thus, meet the plan's revenue requirements.
Our goal is to maintain a level playing field that would facilitate the
fair competition envisioned in the MMA. Review and approval of this
information is discussed in section F.3. of this preamble.
c. Modification of Risk in PDP Bids
As provided under section 1860D-11(b)(2)(E) of Act and in Sec.
423.265(d)(4), PDP sponsors may request a modification of certain risk
sharing arrangements provided under section 1860D-15(e) of the Act,
thus, becoming a limited risk plan. Modification of risk could include
an increase in the Federal percentage assumed in the risk corridors or
a decrease in the size of the risk corridors. Any modification of risk
will have to apply to all PDP plans offered by a PDP sponsor in a
region.
Section 1860D-11(b)(2)(E)(i) of the Act states that modification of
risk will not be available to MA-PD plans. Therefore, in discussing the
possibility of including in the bid a request for a modification of
risk, we include only PDP sponsors. Limited risk plans will only be
accepted if the access requirements in section 1860D-3(a) of the Act
could not otherwise be met through the approval of a sufficient number
of full risk plans. These requirements call for at least two qualifying
plans offered by different entities, one of which must be a stand-alone
prescription drug plan. If other bidders meet these requirements, a bid
from a limited risk plan could not be approved and might not be
reviewed.
Comment: The proposed rule offers no guidance as to what we view as
``minimal risk.''
Response: While the statute allows ``limited risk'' arrangements to
be accepted in order to ensure that the access requirements are met,
such arrangements must provide for more than a ``de minimis'' level of
risk. We would generally consider anything below 10 percent risk as
``de minimis''. Any proposal for a level of risk above the ``de
minimis'' but less than the standard full risk contract will be
considered if there was a need to accept a ``limited risk''
arrangement.''
Comment: One commenter suggested that we should allow PDPs who wish
to enroll low income subsidy beneficiaries to apply for limited risk,
but be treated as a full risk plan.
Response: While it is unclear what the commenter meant by being
``treated as a full risk plan,'' while being limited risk, full risk
plans get priority and we will only approve limited risk plans when
there are not a sufficient number
[[Page 4296]]
of full risk plans to meet the access requirements of section 1860D-
3(a). Also, per section 1860D-11(f)(1), approval of a limited risk plan
is conditioned on not being able to meet the access requirements but
for the approval of such a limited risk plan. Thus, if there are
sufficient full risk plans, we will not approve limited risk plans
regardless of whether the PDP wishes to specifically enroll low income
subsidy beneficiaries.
Comment: One commenter expressed confusion over how the low-income
cost sharing amounts enter into the bid ``calculation'' since these
amounts help to satisfy revenue needs already identified by the plans
as part of the bid. The commenter went on to state that during the
early years of the program it will be difficult for plans to estimate
the number of low-income beneficiaries expected to enroll and the
amounts that would be paid on their behalf. They requested that we
recognize that these estimates are likely to be subject to error and
include statement in the preamble to the final rules that a good faith
standard will apply to these estimates.
Response: The commenter is correct that the low-income subsidy is
not part of the bid since it represents a subsidy for enrollee cost-
sharing liability rather than plan liability. We ask for PDP sponsors'
or MA-PD plans' estimate of their low-income subsidy to assist us in
determining an interim payment for this subsidy, which is separate from
the direct and reinsurance subsidies. Their actual low-income subsidy
payment will be based on the actual experience for this group.
Estimates will be reviewed for reasonableness and appropriateness using
``generally accepted actuarial principles and methodologies'' as
instructed by 1860D-11(c)(1)(D) of the Act.
Comment: One commenter urged that bids include information on how
plans will coordinate with SPAPs for Part D wraparounds at the point of
sale.
Response: Specific information elements included in the bid
submission tool are not part of the regulatory text and will be
released in separate additional guidance on the bidding process.
Comment: One commenter urged us to specify that bids must include
information on specific drugs in each formulary tier and their
corresponding co-pays, in addition to any prior authorization
requirements.
Response: Specific details concerning the response fields will be
released with the guidance materials accompanying the bid pricing tool
and the Plan Benefit Package; however, formulary tiering structures and
prior authorizations requirements will be information that we will
review.
Comment: One comment stated that we should provide a sample
actuarial pricing form that illustrates the type of information
desired.
Response: Additional guidance on actuarial pricing will be made
available in a timely manner.
6. Review and Negotiation of Bid and Approval of Plans
a. Authority to Review Bids
We will review the information filed by the PDP sponsor or MA
organization in order to conduct negotiations on the terms and
conditions proposed in the bid. In addition to general authority to
negotiate terms and conditions of the proposed bid submitted and other
terms and conditions of a proposed plan, the MMA grants use of the
authority to negotiate bids and benefits ``similar to'' the statutory
authority given the Office of Personnel Management (OPM) in negotiating
health benefits plans under the FEHBP program. We believe that the
Congress used ``similar to'' in the statute because of the differences
between the two programs. For example, while the OPM authority applies
to level of benefits, standard Part D drug coverage is defined. With
regard to rates, in some cases the context for FEHBP negotiations is
not applicable to Part D. For example, the rates for community-rated
plans under FEHBP are related to the rate the entity provides to
similarly sized groups, and there is no comparable concept in Part D.
Arguably the degree of competition among plans, and price signaling
through premium and benefits, might be significantly greater in Part D
than in FEHBP. Although these differences do exist there are also
similarities. OPM is concerned about trend factors used to establish
the premium for experience-rated plans, and we will have similar
concerns about the reasonableness of a sponsor's trend assumptions. OPM
is concerned about cost-sharing changes proposed by plans, and we will
have similar concerns with regard to supplemental benefits. OPM wants
to maintain high member satisfaction and ensure top quality service by
plans, and we will have similar interests.
Chapter 89 of title 5 USC gives OPM broad discretion to negotiate
prices and levels of benefits. For example, 5 USC 8902(i) states that
OPM may negotiate with carriers if it believes the rates charged do not
``reasonably and equitably'' reflect the cost of the benefits provided.
In addition, OPM has broad authority to negotiate the level of
benefits, including the ability to prescribe ``reasonable minimum
standards for health benefits plans.'' (See 5 USC 8902(e).)
Notwithstanding our broad negotiating authority and our negotiating
authority ``similar to'' that of OPM, to the maximum extent feasible
and consistent with the appropriate discharge of our responsibilities,
we prefer to rely on competition rather than negotiation.
We note that the bid requirements will be negotiated and a denial
of a contract based on a failure to come to an agreement on the bid
will not be appealable under the administrative procedures for
appealing a contract denial beginning with reconsideration in Sec.
423.645. Only the application requirements, which are separate and
distinct from bid negotiation, can be appealed as detailed in subpart
N.
Comment: One commenter urged that we conduct a thorough review of
Part D providers' estimates of reinsurance to ensure a ``level playing
field.''
Response: We will review estimates of reinsurance. Per section
1860D-11(c)(1) of the Act ``an actuarial valuation of the reinsurance
subsidy payments'' will be conducted. Moreover, section 1860D-11(d) and
(e) require a review of the entire bid including the estimates of
reinsurance. Additional detail for this review will be released in
documentation supporting the bid submission process.
b. Bid and Benefit Package Review
We have the authority to negotiate in four broad areas: (1)
administrative costs; (2) aggregate costs; (3) benefit structure; and,
(4) plan management, if dissatisfied with some or all aspects of bid
submissions. We will evaluate administrative costs for reasonableness
in comparison to other bidders and in comparison to a PDP sponsor's
other lines of business. We will examine aggregate costs to determine
whether the revenue requirements for qualified prescription drug
coverage are reasonable and equitable. We will be interested in steps
that the sponsor is taking to control costs, such as through various
programs to encourage use of generic drugs. We will examine and discuss
any proposed benefit changes. Finally, we will discuss indicators and
any identified issues with regard to plan management, such as customer
service.
In addition to the negotiation process, we will ensure that bids
and plan designs meet statutory and regulatory requirements. In
general, we will examine bids to determine whether the bid meets the
standard of providing qualified prescription drug coverage, as
described in Sec. 423.104(b) of this rule and in subpart C of this
preamble. We will examine the actuarial analysis accompanying the bid
to ensure that it
[[Page 4297]]
has been prepared in accordance with our actuarial guidelines and
properly certified. We will examine bids to determine whether the
revenue requirements for qualified prescription drug coverage are
accurate and reasonable, and that the requirements relating to
actuarial determinations are met. We note that section 1860D-
11(e)(2)(c) of the Act requires that the portion of the bid
attributable to basic prescription drug coverage must be supported by
the actuarial basis and reasonably and equitably reflect revenue
requirements for benefits provided under the plan, less the sum of the
actuarial value of reinsurance payments. We will also review the
structure of premiums, deductibles, copayments, and coinsurance charged
to beneficiaries and other features of the benefit plan design to
ensure that it is not discriminatory. We will review cost sharing both
above and below the out-of-pocket threshold with regard to its impact
on groups of beneficiaries. We will also look to see that there is no
differential impact on groups of beneficiaries by geographical location
within the plan's region or service area attributable to different
levels of cost sharing between preferred and non-preferred network
providers.
As required under section 1860D-11(e)(2)(D)(i) of the Act and in
Sec. 423.272(b)(2), the structure of the benefit design (including
cost sharing provisions and formulary design) must not be
discriminatory; that is, it must not discourage enrollment by any Part
D eligible enrollee on the basis of health status, including medical
condition (related to mental as well as physical illness), claims
experience, receipt of health care, medical history, genetic
information, evidence of insurability, and disability. In general, this
means that we will review benefit plans for features that, when
applied, have differential impacts on beneficiaries with particular
medical conditions. Factors we will consider in determining whether a
benefit structure is discriminatory include, but are not limited to:
(1) the benefit design--including the initial coverage limit, the
tiered cost-sharing, the use of categories and classes in a formulary,
and the choice of drugs provided in each category. (For example, if the
tiered cost-sharing for drugs used to treat HIV is much higher than the
cost-sharing for other types of drugs, we will view this benefit
structure to be discriminatory); (2) the use of any discriminatory
limits such as 90-day limits or requirements for pre authorization; and
(3) supplemental benefits such as supplemental coverage of drugs that
will encourage a healthier population to join the PDP. As provided in
section 1860D-11(e)(2)(D)(ii) of the Act, plans using formulary designs
based on categories and classes that are consistent with the guidelines
established by the U.S.P. as discussed in subpart C, will be recognized
as satisfying the non-discrimination design related to formulary
structure as it pertains to categories and classes. However, adopting
the USP model categories and classes will not prohibit us from
reviewing other aspects, including the use of any limits or tiers, as
discussed above.
c. Approval of the Supplemental Premium
As provided under section 1860D-11(e)(2)(C)(ii) of the Act, we will
determine that the portion of the bid attributable to supplemental
benefits reasonably and equitably reflects the revenue requirements for
that coverage under the plan. Unless the supplemental portion of the
bid (which is paid by the enrollee in the form of the supplemental
premium) is risk adjusted for the average level of risk among
enrollees, plans with average risk scores above or below 1.0 will be
over compensated or under compensated by enrollees for supplemental
benefits. Therefore, on the basis of this authority, we will require
additional information, consisting of estimates of the projected risk
scores of the plan's enrollees in the subsequent year, to be submitted
by each plan for purposes of negotiating the appropriate risk
adjustment of the supplemental portion of the bid. We will review and
negotiate that information, and will approve a uniform supplemental
premium reflecting the average risk factor for the plan's expected
enrollment.
d. Rebate Reallocation for MA-PD plans
The negotiation process for MA-PD plans could include the
resubmission of modified benefit structures (other than changes in that
portion of their supplemental benefits related to drugs) once we know
the outcome of the national average monthly bid calculation and its
impact on beneficiary premiums. Part D drug benefits, including
benefits offered through supplemental Part D coverage) could not be
changed during this process because any changes will have an impact on
government reinsurance payments and, therefore, on the portion of the
bid related to basic drug benefits. The MMA requires that all MA bid
and benefit package submissions be provided to us no later than the
first Monday in June. In the prescription drug program enrollee
premiums must be based on a percentage of the national average monthly
bid amount that can only be calculated once all bids have been
received, if not actually approved. (While the enrollment weights are
determined from the previous year's reference month, the bid amounts
are not.) Therefore, the prescription drug portion of benefit packages
submitted by MA-PD plans will be based on estimates of monthly
beneficiary premiums. Some of these MA-PD plans will have allocated
portions of their Part C rebates to buy-down of the Part D premium.
Once the final national average monthly bid amount and the base
beneficiary premium have been calculated, some of these rebate
allocations in the bids could be either excessive or insufficient to
achieve the desired premium level.
Excessive rebate allocation will result in a portion of the rebate
that is not provided to the beneficiary as required by law, since a
premium of less than zero is not permitted. Compliance with the statute
will require a reallocation of the excessive portion of the rebate
credit back to other allowed uses of the Part C rebate, that is, to
supplemental benefits (including reduced cost sharing other than cost
sharing for Part D drugs) or to credits to the Part B or supplemental
premiums. On the other hand, insufficient rebate allocation may result
in minimal premiums that may be seen as burdensome by plans, enrollees,
and the financial institutions managing electronic funds transfer.
The statute does not address this situation, but section 1860D-11
of the Act does grant us broad authority to negotiate the terms and
conditions of the proposed bids and benefit plans. Our regulatory
approach will be to allow the negotiation process for MA-PD plans to
include the resubmission of modified benefit structures once the
outcome of the premium finalization process is known. MA PD plans will
be able to redistribute their Part C rebates to correct for the
difference between the projected and final national average monthly bid
amounts and to achieve the previously proposed level of Part D
premiums. Under no circumstances could plans submit modified bids.
For example, an MA-PD organization submitted its bid and benefit
package based on the assumption that the levels of the national average
monthly bid amount and its prescription drug standardized bid will
result in a $35.00 monthly beneficiary premium for basic coverage, and
that it will use $35.00 of its Part C rebate to completely buy down the
Part D premium. If the national average monthly bid amount is
determined to be higher than expected, the plan's bid will end up below
the
[[Page 4298]]
benchmark and its base beneficiary premium will be adjusted by
subtracting the difference between the bid and national average monthly
bid amount. Therefore, the plan's monthly beneficiary premium will be
less than the projected premium, for instance, $34.00, and the $35.00
amount allocated from the Part C rebate for Part D premium buy-down
will be excessive. In that case, we will require the MA organization to
amend its benefit package to reallocate the excessive $1.00 of the Part
C rebate credit to additional supplemental benefits (other than for
Part D drugs) or to Part B or supplemental premium credits. These
adjustments will be mandatory in order to ensure that the entire amount
of the rebate was provided to the beneficiary in some form.
Under an alternative scenario, the national average monthly bid
amount is determined to be lower than expected and the plan's bid ends
up above the benchmark. In this case, the plan's base beneficiary
premium will be adjusted by adding the difference between the bid and
national average monthly bid amount. Therefore, the plan's monthly
beneficiary premium will be higher than projected, for instance $36.00,
and the $35.00 amount allocated from the Part C rebate for Part D
premium buy-down will no longer be sufficient to eliminate the Part D
premium as planned. In that case, we will allow the MA organization to
amend its benefit package to reallocate an additional $1.00 of the Part
C rebate credit from additional supplemental benefits (other than for
Part D drugs) or from Part B or supplemental premium credits to
eliminate the Part D premium. These adjustments will be optional since
the Part C rebate has already been provided to the enrollee. We will
not permit an MA organization to simply eliminate a minimal premium
instead of reallocating the rebate because doing so will mean that the
cost of providing the prescription drug benefit had been overstated.
However, the MA organization could elect to charge the new increased
premium and to amend its benefit package submission accordingly.
Comment: One comment suggested that we should also allow
reallocation of rebate dollars to round off premiums and to support to
support the availability of MA-PD plans to dual eligibles.
Response: Title II MA-PD rebate dollars (note this is to be
distinguished from manufacturer rebates) could certainly be used to
round off premiums (Sec. 422.266(b)(2)), and as stated our regulatory
approach will be to have a negotiation process for MA-PD plans to
include the resubmission of modified benefit structures once the
outcome of the premium finalization process is known. Such a reduction
in the Part D premium will, however, have to be uniform for all plan
enrollees.
e. Private Sector Price Negotiation and Formulary Design
The Act envisions that most price negotiation including discounts,
rebates, or other direct or indirect subsidies or remunerations will
take place between PDP sponsors or MA organizations (or their
subcontractors) and pharmacies and pharmaceutical manufacturers. We
believe the Congress used the terms direct and indirect to be all
inclusive in defining subsidies. Section 1860D-11(i) of the Act
precludes us from interfering with negotiations between drug
manufacturers and pharmacies, or PDP sponsors, or requiring a
particular formulary or pricing structure. In other words, price
negotiation with manufacturers will be conducted by the private drug
benefit managers and plans that are already familiar with negotiating
prices of prescription drugs on a local, regional or national basis.
Moreover, we expect that providing information on discounted drug
prices to beneficiaries will encourage further competition on lower
prices. Because beneficiaries will choose a drug plan based on drug
prices and formulary coverage, the plans have strong incentives to
negotiate lower prices on drugs that beneficiaries use just as private
benefit managers currently do on behalf of the Federal government,
State governments, and employer and retiree plans. We expect that in
addition to price levels for drugs, these negotiations will also
include such terms as prohibitions on substitutions of drugs if the net
result will be higher costs for patients or the plans. The nature of
the negotiations that we will conduct with bidders is discussed later
for full-risk and limited-risk bids, and in subpart Q of this preamble
for fallback plans.
We expect that the private negotiations between PDP sponsors and
drug manufacturers will achieve comparable or better savings than
direct negotiation between the government and manufacturers, as well as
coverage options that better reflect beneficiary preferences. This
expectation reflects the strong incentives to obtain low prices and
pass on the savings to beneficiaries resulting from competition,
relevant price and quality information, Medicare oversight, and
beneficiary assistance in choosing a drug plan that meets their needs.
This is similar to the conclusion of other analyses, for example, CBO's
recent statement that ``Most single-source drugs face competition from
other drugs that are therapeutic alternatives. CBO believes that there
is little, if any, potential savings from negotiations involving those
single-source drugs. We expect that risk-bearing private plans will
have strong incentives to negotiate price discounts for such drugs and
that the Secretary would not be able to negotiate prices that further
reduce Federal spending to a significant degree. ``In accordance with
the Medicaid best price exemption provided under section 1860D-
2(d)(1)(c) of the Act and codified in Sec. 423.104(h)(2) of our rule,
drug plans may even be able to negotiate better prices than those paid
under Medicaid. It also reflects Medicare's recent experience with drug
price regulation for currently-covered drugs, in which regulated prices
for many drugs have significantly exceeded market averages.
By not allowing us to require any particular formulary, the statute
ensures that the Pharmacy and Therapeutics committees of prescription
drug plans and MA PD plans have the flexibility to make changes in
their classifications and lists of preferred drugs based on the most
current evidence-based information (subject to the limitations of Sec.
423.120(b)). Additional CMS guidelines on formulary review will be made
available. However, in summary we will evaluate plan formulary
categories and classes in comparison to the model guidelines developed
by U.S.P. In addition to evaluating any discriminatory features, as
discussed above, we have the authority to develop minimum standards and
to negotiate the terms and conditions of the bid under section 1860D-
11(d) of the Act. We also have the authority to promulgate additional
contract terms (section 1860D-12(b)(3)(D) of the Act). Finally, we
believe the structure of the Part D benefit, as laid out in section
1860D-2 of the Act, with a requirement for catastrophic coverage,
anticipates a structure where beneficiaries receive coverage for
medically necessary drugs. Therefore, we will evaluate the number of
categories in formularies that do not meet the model guidelines and the
choice of drugs available in those categories for meeting the needs of
the Medicare population. After the initial year of the program, we will
also review the history of plan formulary appeals to identify issues
with the plan's formulary. We will conduct additional research on
evaluating formularies and drug benefit designs and we would welcome
comments on evaluation. As noted previously, we may also review plan
cost sharing (that is, tiers). Our
[[Page 4299]]
formulary review will follow four important principles:
1. Rely On Existing Best Practices: Our review will rely on widely
recognized best practices for existing drug benefits serving millions
of seniors and people with disabilities to ensure non-discriminating,
appropriate access;
2. Provide Access to Medically Necessary Drugs: We will require
that drug plans provide access to medically necessary treatments for
all and do not discriminate against any particular types of
beneficiaries based on their expected drug costs;
3. Flexibility: We will allow plans to be flexible in their benefit
designs to promote real beneficiary choice while protecting
beneficiaries from discrimination; and
4. Administrative Efficiency: We will set up a process to conduct
effective reviews of plan offerings within a compressed period of time.
Comment: Several comments were made regarding formulary structures
that are likely to substantially discourage enrollment, with the
majority merely expressing support for our regulatory text. Ten
comments were received expressing concern over the definition of
``substantially discourage'', three of which called for dropping the
word ``substantially'' from the regulation. One commenter specifically
argued that step therapy for psychopharmacology should be considered as
substantially discouraging. Another commenter simply stated that step
therapy should be reviewed for discriminatory impact.
Response: The term ``substantially'' comes directly from the
statute in section 1860D-11(e)(2)(D)(i) of the Act and therefore we do
not believe it should be eliminated as some commenters recommended.
According to research conducted for the Agency by Booz Allen Hamilton
(``Drug Utilization Management and Quality Assurance Best Practices and
Standards''), step therapy is one method of benefit design currently
used by industry for the purpose of managing costs by requiring more
cost effective drugs to be used before more expensive options are
prescribed. Other research indicated the widespread use of this
technique. For example, in its June 2004 ``Drug Trend Report,'' Express
Scripts, a large pharmacy benefits manager, stated that the use of step
therapy had risen from 4.5 million to 9.8 million lives between 2002
and 2004 for their members. Moreover, they report that step therapy
with psychotropics, in particular antidepressants, is common among
these members. Step therapy is also common among State Medicaid
programs. Indeed, a 2003 report by the Georgetown University Health
Policy Institute on behalf of the Kaiser Commission on Medicaid and the
Uninsured found that 28 Medicaid agencies in 2003 used step therapy in
their drug programs. The review process will examine the use of step
therapy as a utilization control, but a categorical ban would be
inconsistent with Congressional intent in Section 1860D-4(c)(1(A) of
the Act, which calls on PDPs to have ``a cost-effective drug
utilization management program, including incentives to reduce costs
when medically appropriate.'' As we have outlined, step therapy is one
common method of drug utilization management. The Congress was aware
that utilization management included step therapy, and they were also
aware of that some stakeholders have objections to it as evidenced by
the testimony given during the Subcommittee on Health of the Committee
on Energy and Commerce hearing ``Designing a Twenty-First Century
Medicare Prescription Drug Benefit'' on April 8, 2003. We will review
step therapy and other formulary structures to ensure that they are not
substantially discouraging. Accordingly, we will rigorously review
formularies in a number of ways as part of the bid negotiation process.
This review will include, but not be limited to: (1) reviewing the
classes and categories in relation to the USP model; (2) reviewing the
formulary to make sure that all appropriate treatments are available
for certain complex diseases such as HIV; (3) where possible and
appropriate, comparing the formularies and utilization management
programs (including step therapies) to applicable treatment guidelines
to make sure they support current treatment standards; and (4)
comparing formularies between plans to identify outlier practices,
which will include comparing plans for amount and specific drugs that
they are including in step therapy, quantity limits and prior
authorization.
Comment: One commenter indicated concern that SPAPs will incur
significant costs if PDP sponsors' formularies are inadequate. We
should establish a formulary evaluation criterion that would trigger a
detailed evaluation of the adequacy for the formulary.
Response: Formularies will be evaluated according to the provisions
of the statute. Regardless of the impact of specific plan formularies,
we have estimated that Part D will save SPAPs approximately $3 billion
between 2006--2010 (see the regulatory impact statement for more
detail).
f. Bid Level Negotiation
The FEHBP standard in 5 USC 8902(i) requires us to ascertain that
the bid ``reasonably and equitably reflects the costs of benefits
provided.'' In addition, we note that section 1860D-11(e)(2)(c) of the
Act requires that the portion of the bid attributable to basic
prescription drug coverage must ``reasonably and equitably'' reflect
revenue requirements . . . for benefits provided under that plan, less
the sum ... of the actuarial value of reinsurance payments.'' Analogous
to the manner in which FEHBP views its management responsibilities, we
see this requirement as imposing the fiduciary responsibility to
evaluate the appropriateness of the overall bid amount.
In general, we will evaluate the reasonableness of bids submitted
by at-risk plans by means of the actuarial valuation analysis. This
would require evaluating the plan's assumptions regarding the expected
distribution of costs, including average utilization and cost by drug
coverage tier, for example, in the case of standard coverage: (1) those
with no claims; (2) those with claims up to deductible; (3) those with
claims between the deductible and the initial coverage limit; (4) those
with claims between the initial coverage limit and the catastrophic
limit; and (5) those with claims in excess of the catastrophic limit.
We could test these assumptions for reasonableness through actuarial
analysis and comparison to industry standards and other comparable
bids. Bid negotiation could take the form of negotiating changes upward
or downward in the utilization and cost per script assumptions
underlying the bid's actuarial basis.
Arguably, appropriate assurance that plan bids reasonably and
equitably reflect the revenue requirements associated with providing
the Part D benefit requires knowing the final drug price levels the
plans are paying that are implicit in their bids. Consequently, in
addition to looking at final aggregate prices, if we found that a
plan's data differed significantly from its peers without any
indication as to the factors accounting for this result, we could also
ask bidders to provide information about rebates and discounts they are
receiving from manufacturers and others, in order to ensure that they
are negotiating as vigorously as possible. Section 1860D 11(b)(1)(C) of
the Act allows us to ask for necessary ``information on the bid''. In
other words, we will be able to inquire as to the ``net cost'' of drugs
since this is the key dollar value we will need to make accurate
``apples to apples'' comparisons on drug prices between
[[Page 4300]]
PDPs. Under this approach, if the particular bids appear to be
unusually high (or low), we could go back to the bidders and request
that they explain their pricing structure, the nature of their
arrangements with manufacturers, and we might ask further questions and
take further action to perform due diligence to ensure that there is no
conflict of interest leading to higher bids. For instance, we will look
at certain indicators, such as unit costs or growth rates in the bid
amounts to see if they are in keeping with private market experience to
the extent feasible for a comparable population (for example,
retirees). (In this case, we will be using the authority in 5 USC
section 8902(i) to negotiate bids that are ``consistent with the group
health benefit plans issued to large employers''.) If the overall bids
were unjustifiably high, we will have the authority to negotiate the
bids down to a level that is more in keeping with bids from other
sponsors. We could exercise our authority to deny a bid if we do not
believe that the bid and its underlying drug prices reflect market
rates. Our strong expectation, however, is that we will be able to rely
on the incentives provided by competitive bidding, and we will use our
authority under this part only on the rare occasion we find that a
plan's data differs significantly from its peers without any indication
as to the factors accounting for this result.
Comment: Several comments were received on the MMA provision of
``authority similar to the authority of the Director of the Office of
Personnel Management'' for the Federal Employee Health Benefits Program
(FEHBP) when negotiating bids for Part D. One commenter referenced that
in the preamble of the proposed rule, we stated that we were
considering regulations similar to those used by Office of Personnel
Management (OPM) in 48 CFR Chapter 16, which they note is comprised of
24 distinct parts and due to the lack of clarity with regard to the
provisions of the OPM regulations were referring to they would be
unable to comment. One health insurer asked that we clarify how our
intended oversight would differ from the Similarly Sized Subscriber
Groups (SSSGs) requirements in the FEHBP. Another commenter asserted
that OPM negotiates an annual dollar cap on administrative expenditures
that can be funded through premiums and that similar negotiations with
MA plans would not be appropriate given that the MMA works on a
competitive model. Two commenters suggested that broad use of the OPM
authority would violate the noninterference clause in the MMA and that
we should not review every plan during the bidding process in detail on
pricing structure and the nature of arrangements with manufacturers.
One commenter agreed with the Agency's interpretation of this authority
in the proposed rule noting that nothing in our interpretation would
``set the price for any individual drug or even plans if aggregate
price levels for groups of drugs were higher than prices observed among
peer plans''.
Response: The section 1860D-11(d)(2)(B) of the Act authority will
be used to review bids and negotiate changes consistent with the
statute and regulation. Specifically, we intend to evaluate the
reasonableness and appropriateness of the actuarial assumptions made in
the bid. We will examine bids to determine whether the revenue
requirements for qualified prescription drug coverage are accurate and
reasonable. We also will examine administrative costs for
reasonableness. We will review profit for reasonableness and
appropriateness. We also will review the structure of the benefit plan
design in terms of such features as premiums, deductibles, co-payments,
and coinsurance charged to beneficiaries to ensure that it is not
discriminatory.
There appears to have been confusion caused by our request for
comments on 48 CFR Chapter 16. These OPM regulations assume
applicability of the Federal Acquisition Regulation, which is not
applicable to at-risk or limited risk Part D plans. Therefore we are
not adopting any of the OPM regulations at this time. We will note
however that our negotiating authority ``similar to the authority...of
the Office of Personnel Management'' (section 1860D-11(d)(2)(B) of the
Act) is in addition to our general authority to ``negotiate the terms
and conditions of the proposed bid submitted and other terms and
conditions of a proposed plan'' (Section 1860D-11(d)(2)A) of the Act).
We have clarified the regulations to reflect these two separate
authorities.
With regard to the application of a SSSG concept to Part D, we
will note that the Part D program generally relies on competition to
ensure reasonable bids. There is no authority to tie a sponsor's rate
methodology to that used for a SSSG as applied under FEHBP with regard
to community-rated plans. Therefore, we do not believe that this type
of cross product line comparison will be appropriate at this time.
One comment correctly pointed out that there is no cap on
administrative costs under Part C or Part D similar to the cap in
effect in FEHBP experience rated plans. It is assumed that competition
among plans will generally ensure reasonable bids. The Congress,
however, did not leave the determination of rates entirely to market
forces. We are required to determine that the reasonable and equitable
test is met and is given negotiating authority to ensure this result.
The initial review will focus in part on low and high cost outliers,
and on bids in areas with little competition. It must be noted however,
that bid outliers are not necessarily inappropriate, nor are bids
within the measure of central tendency automatically correct. Indeed,
an outlier bid may be reasonable and appropriate after additional
review and explanation while an ``average'' bid could be based on
incorrect actuarial assumptions. In summary, all bids will be reviewed
for their reasonableness whether an outlier or not.
Two commenters seemed to suggest that they believe that the bid
review authority will be used as a back door price control mechanism in
direct violation of the non-interference provision of section 1860D-
11(i) of the Act, which directs the Secretary to not interfere with the
negotiations between drug manufacturers and pharmacies and PDP
sponsors; and to not require a particular formulary or institute a
price structure for the reimbursement of covered part D drugs. In the
proposed rule we interpreted the non-interference provision as
prohibiting us from setting the price of any particular drug or from
requiring an average discount in the aggregate on any group of drugs
(such as single-source brand-name drugs, multiple-source brand name
drugs, or generic drugs), but allowing us to require justification of
aggregate price levels. In addition, although we are prohibited from
negotiating the price levels of drugs, it is authorized to negotiate
the level of the overall bid. We will evaluate the reasonableness of
costs submitted by at-risk plans bids through actuarial valuation
analysis, and noted that this might require information regarding the
plan's assumptions about expected distribution of costs, including
average utilization and price by drug coverage tier, for: (1) those
with no claims; (2) those with claims up to deductible; (3) those with
claims between the deductible and the initial coverage limit; (4) those
with claims between the initial coverage limit and the catastrophic
limit and 5) those with claims in excess of the catastrophic limit.
Through actuarial analysis, these assumptions will be tested for
reasonableness, and compared to industry standards and other
[[Page 4301]]
comparable bids. We also want to clarify that we do not intend on
universally requiring plans to submit detailed information on pricing
structure and the nature of arrangements with manufacturers. Requests
for additional and more detailed information will only be triggered
questions involving the initial bid submission. We are confident that
additional bid submission guidance will limit such occurrences from
happening. We believe that this interpretation ensures that we fulfill
our duty to review bids for reasonableness while avoiding any direct
interference in the negotiations between manufacturers, pharmacies, and
PDP sponsors.
Under the previous Medicare+Choice program, we permitted
Medicare+Choice organizations to waive premiums or to offer mid-year
benefit enhancements to their benefit packages. However, in order to
maintain the integrity of the bidding process, we believe that it is no
longer appropriate to allow either MA organizations or PDP sponsors to
waive premiums or offer mid-year enhancements as they will be de facto
adjustments to benefit packages for which bids were submitted earlier
in the year.
These adjustments would be de facto acknowledgement that the
revenue requirements submitted by the plan were overstated. Allowing
premium waivers or mid year benefit enhancements would render the bid
meaningless. Excessive amounts included in the bid will be subject to
recovery by the government in the risk corridor calculations following
the coverage year.
Consequently, we interpret the statutory provisions on competitive
price negotiation as prohibiting us from setting a regulated price of
any particular drug or imposing by regulation an average discount in
the aggregate on any group of drugs (such as single-source brand-name
drugs, multiple-source brand name drugs, or generic drugs), but as
allowing justification of aggregate price levels for groups of drugs.
In addition, we could, under the specific circumstances previously
discussed, negotiate regarding the level of the overall risk bid. This
approach will allow us to exercise the authority similar to FEHBP as
visualized in the MMA to ensure that per capita rates charged
reasonably and equitably reflect the cost of the benefits provided, and
that beneficiaries receive the full benefits of vigorous price
negotiation by their drug plans.
g. Approval of Plans
After negotiations on the terms and conditions of the bid, we must
approve or disapprove the bid. After negotiations, we will approve a
plan only if--
The plan is found to be in compliance with requirements
specified in this regulation;
The plan meets the actuarial valuation requirements; and
The plan design does not discourage enrollment by certain
eligible beneficiaries.
In Sec. 423.272(c), we approve limited risk plans only if fewer
than two qualifying prescription drug plans offered by different
entities, one of which must be offered by a stand-alone PDP sponsor,
were submitted and approved in a region. We will approve only the
minimum number of limited risk plans needed to meet these access
requirements and will give priority to plans bearing the highest levels
of risk; however, we may take into account the level of the bids
submitted by these plans. Except as authorized under section 1860D-
11(g) of the Act and in Sec. 423.863 with regard to fallback plans, we
will not, under any circumstances, approve a plan that elected to bear
no risk or a de minimis level of risk.
Comment: One comment urged that we should reject bids that result
in only one PBM operating as a subcontractor to all the plans in a
given region.
Response: The statute does not give us the authority to do this.
The statute mandates that beneficiaries have the choice of at least one
PDP in an area in addition to whatever MA-PD options are available. The
number of PBMs that contract with the PDP sponsors and MA organizations
has no bearing on the access requirements.
h. Special Rules for PFFS Plans
As provided in section 1860D-21(d) of the Act, and codified in
Sec. 423.272(d), PFFS plans that offer prescription drug coverage are
exempt from review and negotiation (under sections 1860D-11(d) and
(e)(2)(C) of the Act) of their prescription drug bids and premium
amounts but are otherwise subject to all other requirements under this
part, with the following exceptions. While we will not negotiate PFFS
bids, those bids must meet the actuarial valuation requirements
applicable to all risk bids. These plans are not required to negotiate
discounted prices for prescription drugs. If they do negotiate, the
requirements under Sec. 423.104(h) related to negotiated prices will
apply. If the plan provides coverage for drugs purchased from all
pharmacies, without charging additional cost sharing, and without
regard to whether they are participating pharmacies, Sec. 423.120(a)
and Sec. 423.132 of this rule (requiring certain network access
standards and the disclosure of the availability of lower cost
bioequivalent generic drugs) will not apply to the plan. PFFS plans are
also exempt from drug utilization management program and medication
therapy management program requirements.
Finally, we note that section 1860D-21(d)(7) of the Act provides
that costs incurred for off-formulary drugs will not be excluded in
determining whether a beneficiary has reached the out-of-pocket
threshold if a PFFS plan does not use a formulary. We believe that
section 1860D 21(d)(7) of the Act is a tautology and simply states that
PFFS plans without formularies, by definition, cannot have non
formulary drugs to exclude from the out-of-pocket threshold
calculation.
7. National Average Monthly Bid Amount
In Sec. 423.279, we outline the calculation of the national
average monthly bid amount. For each year, beginning in 2006, we will
compute a national average bid based on approved bids in order to
calculate the national base beneficiary premium. As a practical matter,
we realize that we might need to calculate and announce the national
average monthly bid amount before negotiations on all bids were
completed in order to allow time for finalization of premiums and
benefit packages. Therefore, we anticipate that we will identify a date
by which the national average monthly bid amount will be published, and
we will use the bids that had passed a certain level of approval as of
that date as the basis for the calculation.
As provided in section 1860D 13(a)(4)(A) of the Act, in computing
the national average monthly bid amount, we will exclude bids submitted
for MA private fee-for-service (PFFS) plans, specialized MA plans for
special needs individuals, PACE programs under section 1894 of the Act
(pursuant to section 1860D-21(f) of the Act) and reasonable cost
reimbursement contracts under section 1876(h) of the Act (according to
section 1860D-21(e) of the Act). The exclusion from the calculation of
bids of PFFS, cost plans, specialized MA plans, and PACE suggests that
they are different from, and not comparable to, the average bid in some
way. We interpret this difference to be based solely on price levels
because the legislation--
Does not define any other basis for determining these
bids;
Continues to compare these bids to the national average
bid amount to determine adjustments to enrollee premiums; and
[[Page 4302]]
Generally, provides for payments to such plans (including
risk adjustment) in the same manner as to non-excluded plan types--
except that PFFS plans receive reinsurance payments according to
estimates--and not actual costs and are not eligible for risk corridor
payments.
Therefore, these excluded plan types will still submit bids on the
same basis as all other plans, that is, the 1.0 risk prescription drug
plan beneficiary, even though these bids are not included in the
national average bid amount at this time.
The national average bid amount will be equal to the weighted
average of the standardized bid amounts for each PDP and for each MA-PD
plan described in section 1851(a)(2)(A)(1) of the Act. The national
average monthly bid amount will be a weighted average, with the weights
being equal to the proportion of Part D eligible individuals enrolled
in each respective plan in the reference month (as defined in Sec.
422.258(c)(1)). For calendar year (CY) 2006, we will determine the
enrollment weights on the basis of assumptions that we will develop. In
the August 2004 proposed rule we outlined that one possible approach
would be to use the following procedure to assign weights to individual
bids for PDPs and MA-PD plans for CY 2006:
Obtain total Medicare enrollment by region, and enrollment
in each (local) MA plan that offers a drug benefit by region. These
enrollments will be as of a specific date, for example, March 31, 2005.
Assign each (local) MA-PD plan in each region a weight
equal to its MA enrollment.
Subtract the MA enrollment from the total Medicare
enrollment for each region to arrive at the PDP-eligible enrollment.
Divide the PDP-eligible enrollment for each region by the
number of companies offering PDPs in each region to arrive at the
weight for each company in each region.
For each company in a region, divide the company weight by
the number of plans offered by that company to arrive at the PDP
weight.
The regional average monthly bid amount will be calculated
by weighting each plan's bid by its assigned weight.
The national average monthly bid amount will be calculated
by weighting each regional average monthly bid amount by the region's
proportion of Part D eligible individuals (Medicare enrollment) and
summing these products.
Using this methodology, after subtracting MA enrollments, each
company offering PDP(s) in a region gets equal weight. An exception
might occur based on capacity limits indicated by MA-PD plans. This
assumes that beneficiaries will select a company, and then select a
plan from that company. It also dilutes the effect of any potential
artificially high bids designed solely to increase the national average
monthly bid amount. If a company offers multiple plans in a region,
each plan gets an equal allocated share of its company's assigned
weight.
New MA-PDs will get a zero weight. This treatment is consistent
with the weight assignment specified in the statute for subsequent
years. Starting with the second year, all new plans will get zero
weight because they have no prior year enrollment. We request comments
on the ``unequal'' inclusion of plans in the calculation of the
national average monthly bid. We note that many MA PDs will operate in
small geographic areas with small potential enrollment, and so we
believe that the impact of this approach for new local MA-PDs is likely
limited. We recognize, however, that this approach is perhaps more
problematic related to the treatment of the new regional MA-PD plans,
as these plans in a given region are likely to have larger enrollment
than local MA-PD plans. This particular approach implicitly assigns
persons in new MA PD plans (both local and regional) to the PDP
weights, hence giving potentially too much weight to the PDPs.
Alternatively, assigning equal weights to PDPs and new MA PD plans
(even if limited to just the regional MA-PDs) could likely assign too
much weight to the new regional MA PD plans, which at least in 2006 are
expected to have lower enrollment. Another possible alternative would
be to base weights on regional MA-PD plan projections of enrollment,
subject to our assessment of reasonableness of the estimates. In this
approach we would use the proportion of projected enrollment for each
plan as weights. However, particularly in the first year or so,
projections may be quite inaccurate, leading to a distorted and
unrepresentative benchmark. In the proposed rule we requested comments
on these and other alternative approaches for how to weight bids in
2006.
Note that in this methodology the assigned weights are price
inelastic, that is, the recommended weight assignment methodology
implies that price is not a factor in plan selection. We recognize that
in reality this is not the case, but in the absence of data on which to
base the relationship between price and plan choice in this population
for this benefit we cannot model the effect of price variations on
demand. We believe that the fairest method that is feasible for 2006 is
simply to assume an equal weight for each plan.
In subsequent years, the weights for the weighted average would be
calculated as a percentage with the numerator equal to the number of
Part D eligible individuals enrolled in the plan in the reference month
and the denominator equal to the total number of Part D eligible
individuals enrolled in all plans (except for those plans whose bids
are not include in the national average bid amount, as described above)
in the reference month. It represents the proportion of the Part D
eligible enrolled individuals in the plan. We would multiply the
portion of each plan bid attributable to basic benefits by its
proportion of total Part D enrolled individuals and sum each product to
arrive at the national average monthly bid. In Sec. 423.279(c), we
would also establish an appropriate methodology for adjusting the
national average monthly bid amount to take into account any
significant differences in prices for covered Part D drugs among PDP
regions. As part of carrying out the Congress' requirement that our
geographic adjustment methodology be ``appropriate,'' we believe the
method would first require gathering data from PDPs and MA-PDs on
regional drug prices. Therefore, we may not implement a geographic
adjuster for the first few years of the program unless we have acquired
sufficient information on pricing to accurately characterize that
variation. If we were to determine that there is significant geographic
variation in prices, we anticipate that we would announce the
adjustment factors in advance of the bidding process for any year in
which geographic adjustment would be applied to bids in the
calculation. This would be subject to notice and comment like any other
change in payment methodology and therefore would be announced in the
45-day notice in advance of the bidding process for that year. If we
were to determine that there is only minimal price variation, we would
not implement a geographic adjuster for the national average monthly
bid calculation. Additionally, we would implement any geographic
adjuster in a budget neutral manner to avoid a change in aggregate
payments from the total amount that would have been paid if we had not
applied an adjustment.
Comment: We received five comments on the proposed weighting
methodology for the first year. One health insurer suggested that any
of the CMS proposals would be acceptable. Another
[[Page 4303]]
commenter focused on the PDP portion of the first approach, supporting
the equal weighting of PDP sponsors. Another health insurer urged that
all MA plans be counted, reasoning that virtually all MA plans would
offer Part D. They also stated their support for giving no weight to
new MA-PDs. An industry association suggested that new MA plans,
including regional PPOs and PDPs, should be weighted based on their
projected enrollment as suggested in the final alternative proposed in
the proposed rule. Another health insurer urged that we assign MA-PD
weights based on projected enrollment, but they did not comment on
weighting for PDPs.
Response: Although none of the approaches outlined in the proposed
rule, or by commenters, are perfect we have decided that using MA
enrollment from a reference month for MA-PDs (new MA-PDs are assigned a
zero weight) and assigning equal weighting to each sponsor (other than
fallback entities) for the PDP-eligible enrollment in the region is the
superior choice. This option most closely mimics how the enrollment
weighting will be calculated in the future given that it uses reference
month data for MA-PDs and assigns new MA-PDs a zero weight. The PDP
portion of the method is the fairest method for 2006, given that we
cannot know enrollment prior to the launch of the drug benefit program.
Alternative weighting methodologies using projected enrollment are
fraught with problems. How would the validity of such projections be
assessed? What if the aggregate plan projections exceeded the total
number of Part D eligibles in the region? No commenter offered any
suggestions for dealing with such dilemmas. We note these comments
suggested the need to clarify that the weighted average does not work
unless restricted to Part D plans that submit bids and are included in
the national average bid amount. Accordingly, we modified Sec. 423.279
to clarify that the denominator does not include Part D eligible
individuals enrolled in fallbacks, MA private fee-for-service plans,
specialized MA plans for special needs individuals, PACE programs under
section 1894 of the Act, and contracts under reasonable cost
reimbursement contracts under section 1876(h) of the Act.
Comment: One commenter believes that MA-PDs would consistently have
lower bids and including them in the benchmark would disadvantage PDPs.
They suggest that MA-PDs and PDPs have separate benchmarks.
Response: Section 1860D-13(a)(4)(A) of the Act instructs the
Secretary to ``compute a national average monthly bid amount equal to
the average of the standardized bid amounts (as defined in paragraph
(5)) for each prescription drug plan and for each MA-PD plan described
in section 1851(a)(2)(A)(i) of the Act.'' Therefore we cannot have
separate benchmarks for MA-PDs and PDPs.
Comment: One commenter stated that we should calculate a unique
benchmark for Specialized Needs Plans in recognition of the higher
prescription drug costs these plans will have in providing coverage to
the high-risk population that they serve.
Response: In Sec. 423.279(a) we state that bids from specialized
MA plans for special needs individuals will not be included in the
national average monthly bid amount or benchmark. However, the payments
to the special needs plans as with all plans will be risk adjusted to
take into account the differences in enrolled populations.
Comment: Several comments were received concerning geographic
adjustment. Three health insurers urged that geographic adjustment be
implemented immediately. Another health insurer suggested that
geographic adjustment not be implemented until we have acquired
sufficient information on pricing to accurately characterize any
variation. One commenter urged us to explore other unit price data
beyond the Federal Employee Health Benefits Program data from Blue
Cross Blue Shield because using a single data source may misstate
actual regional variations. One health insurer urged that adjustments
be made both within and between regions. Another health insurer asked
that regional variations in prescription drug costs be examined based
on utilization, not price.
Response: Section 1860D-15(c)(2)(A) of the Act directs the
Secretary to establish an appropriate methodology for adjusting the
national average monthly bid amount (computed under section 1860D-
13(a)(4) of the Act) to take into account differences in prices for
covered Part D drugs among PDP regions.'' To meet the appropriateness
standard we will not implement a geographic adjustment until we have
acquired sufficient information on pricing to accurately characterize
any variation. We reiterate that we will announce the adjustment
factors in advance of the bidding process for any year in which
geographic adjustment would be applied to bids in the calculation. We
would also note that our authority for geographic adjustment is based
on differences in price not utilization. Section 107(a) of the MMA
requires a report and recommendations on adjusting for geographic
differences in both price and utilization (not explained by the risk-
adjuster). This report is due not later than January 1, 2009.
8. Rules Regarding Premiums
In Sec. 423.286, the monthly beneficiary premium will be the
result of the calculation of a national base beneficiary premium
subject to certain adjustments. Congressional intent was to arrive at
an average monthly beneficiary premium in CY 2006 representing a
certain percentage of the average total estimated benefit provided by
the drug plans on a national basis (including benefits subject to
Federal reinsurance subsidies). Taking into account that projected
reinsurance subsidies are excluded from plan bids, the applicable
percentage becomes approximately 34 percent, which is applied to the
national average monthly bid amount.
To determine the uniform plan premium, in Sec. 423.286(d), we will
adjust the base beneficiary premium for certain plan characteristics
including whether the plan's bid will be above or below the national
average bid, and whether the plan offers supplemental benefits. (Since
the bid has to be approved and premiums established for the entire
year, we are interpreting the phrase ``if for a month'' in section
1860D-13(a)(1)(B)(i) of the Act and 1860D-13(a)(1)(B) (ii) of the Act
as referring to the beneficiary premium as a monthly amount.) The base
premium is adjusted to reflect the full difference between the plan's
standardized bid amount and the national average monthly bid amount
(which may be adjusted for regional price differences if evidence for
such differences exists as determined in Sec. 423.279(c)). To the
extent that the plan's standardized bid amount is below the national
average monthly bid amount, the base premium is adjusted downward by
the difference. To the extent that the plan's standardized bid amount
is above the national average monthly bid amount, the base premium is
adjusted upward by the difference. The base premium will also be
adjusted by adding the premium amount approved after negotiations for
risk adjustment of the supplemental benefits, if any (as discussed
above). Table F-2 illustrates a calculation of the base beneficiary
premium and the adjustment for the difference between the bid and the
national average monthly bid amount.
[[Page 4304]]
Table F-2
Premium Illustration
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benchmark Plans in Region Bids Beneficiary Premium
--------------------------------------------------------------------------------------------------------------------------------------------------------
Applicable
Amount by which Amount by which Bid Percent of Nat'l
National Average Monthly Bid Amount\1\ Plans Approved Plan Bid Bid Exceeds is Below Benchmark Premium +/-
Benchmark Difference
--------------------------------------------------------------------------------------------------------------------------------------------------------
................. ................. .................. ................... .................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Plan 1 123 14.00 0.00 $51
--------------------------------------------------------------------------------------------------------------------------------------------------------
................. ................. .................. ................... .................
--------------------------------------------------------------------------------------------------------------------------------------------------------
109 Plan 2 109 0.00 0.00 $37
--------------------------------------------------------------------------------------------------------------------------------------------------------
................. ................. .................. ................... .................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Plan 3 99 0.00 (10.00) $27
--------------------------------------------------------------------------------------------------------------------------------------------------------
................. ................. .................. ................... .................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Est. Reinsurance Percentage 25.80 ( Assumed )
------------------------------------------------------------------------------------------------------------------
Applicable Percent = 0.3437 (25.5 /(100-25.80)
------------------------------------------------------------------------------------------------------------------
Base Beneficiary Premium = 37.00 ( 109 * .3437 )\2\
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Assumes no geographic adjustment
\2\ Rounded to nearest dollar
The sum of the base beneficiary premium, the adjustment for
difference between the bid and the national average bid, and the
supplemental benefit premium will be the monthly beneficiary premium.
The monthly beneficiary premium (except for any supplemental premium)
will be eliminated or reduced for low-income subsidy-eligible
individuals, as described in section 1860D-14 of the Act and Sec.
423.780. (This adjustment reflects the fact that the government will
pay all or a portion of the monthly beneficiary premium for subsidy-
eligible individuals.)
In Sec. 423.286(d)(3), the monthly beneficiary premium will be
increased for enrollees subject to the late enrollment penalty. The
penalty amount for a Part D eligible individual for a continuous period
of eligibility (as described in Sec. 423.46) will be the greater of an
amount that we determine is actuarially sound for each uncovered month
in the same continuous period of eligibility; or 1 percent of the base
beneficiary premium for each uncovered month in that period. The
beneficiary premium amount is cumulative which means that each month
the beneficiary is subject to a penalty, the penalty accumulates. Once
the beneficiary enrolls in Part D, that accumulated penalty will be
added to their premium amount each month. So for example, if the
penalty amount is 1 percent of the estimated base beneficiary premium
above, or $0.37 per month in 2004, and is subject to 12 months of this
penalty, the beneficiary would pay an additional $0.37 * 12 or $4.44
per month for as long as they are enrolled in Part D. During the first
several years of the program, we currently expect that we would specify
the penalty amount would be 1 percent of the base beneficiary premium
per month. Once we have sufficient data on experience under the program
for individuals who enroll after their Initial Enrollment Periods, we
would be able to determine the appropriate penalty amount, that is,
either one percent or a greater amount to be adopted.
We note that achieving very high (indeed, virtually universal)
access to prescription drug coverage for beneficiaries who participate
in Part D was a key Congressional consideration in enacting MMA.
Except as provided with regard to any enrollment penalty, low-
income assistance, or employer group waivers under section 1857(i) of
the Act and section 1860D-22(b) of the Act and Sec. 423.458(c) (as
discussed in subpart J of the preamble to our rule), the monthly
beneficiary premium for a prescription drug plan or MA-PD in a PDP
region must be the same for all Part D eligible individuals enrolled in
the plan. The monthly beneficiary premium charged under a fallback plan
is discussed in Sec. 423.867 of our rules and in subpart Q of this
preamble.
Comment: Section 1860D-13(a)(1) of the Act establishes that the
monthly beneficiary premium is the base beneficiary premium adjusted to
reflect the differences between the plan's bid and the national average
bid. Two commenters argued that the statute anticipated that Part D
providers may bid so far below the national average bid as to have a
negative premium. Both commenters assert that we were wrong to
interpret in the August 2004 proposed rule that negative premiums were
not allowable by statute. Both proposed that it would be a greater
benefit to beneficiaries if CMS were to require a Part D provider with
such a low bid ``to return the value of the savings'' to the
beneficiary in the form of an enhanced benefit that would be covered by
the enhanced direct subsidy.
Response: We agree with the commenters' textual interpretation of
the formula in the statute. Factoring out the impact of risk
adjustment, the direct subsidy in absolute dollars is uniform to all
plans. For the negative premium plans, the proposed rule would have
offered such plans less than everyone else. We agree with the
commenters that highly efficient plans that bid below the benchmark
should not receive less. However, it is clear that the statute did not
necessarily envisage negative premiums for there are no clear
directives on how the negative premium dollars should be treated. We
believe that direct rebates to beneficiaries might run into Federal
anti-kickback law issues, although a definitive opinion from the Office
of Inspector General has not been issued. There are other
[[Page 4305]]
potential issues with a direct rebate. For example, it is likely that
some significant portion of the plan enrollees will lose the rebate
check or never cash it, thus resulting in an overpayment to the plan
sponsor. Direct deposit of the rebate in the enrollee's bank would
address this problem, but would generate significant administrative
costs. Nevertheless, neither of the commenters argued for beneficiary
remuneration. Indeed, both expressed a desire for the negative premium
dollars to be allocated to supplemental benefits, a position we agree
with. This would require allowing a ``renegotiation'' of the benefit
package once the national average bid (and the negative premium) are
known, to incorporate the negative premium as supplemental benefits for
which there would be no additional enrollee premium. Any marginal
effects in the basic bid would be negotiated at the same time. As
supplemental benefits, the dollars must be accounted for in the benefit
package, and there will be no risk sharing on the amount. The review
and negotiation of bid and approval of plans submitted by potential PDP
sponsors or MA organizations planning to offer MA-PD plans (Sec.
423.272) and the rules regarding premiums (Sec. 423.286) in this
subpart have been amended to reflect this change.
9. Collection of Monthly Beneficiary Premiums
a. Means of Collection
In Sec. 423.293(a), the beneficiary will have the same options on
the method for premium payments as under Part C. Section 1860D-13(c)(1)
of the Act applies the provisions of section 1854(d) of the Act (as
amended by the MMA) to Part D premium collection. The beneficiary will
have the option of having the amount withheld from his or her Social
Security benefit check similar to the way Part B premiums are withheld.
Beneficiary premium payments could also be paid directly to the PDP
sponsor or MA organization through an electronic funds transfer
mechanism (for example, an automatic charge of an account at a
financial institution or a credit or debit card account). We could
specify other means of payment, including payment by an employer or
under employer-based retiree health coverage (as defined in section
1860D 22(c)(1) of the Act) on behalf of an employee or former employee
(or dependent). All premium payments withheld from Social Security
checks will be credited to the appropriate Trust Fund (or Account) and
will be paid by us to the PDP sponsor or MA organization involved.
Premiums from beneficiaries enrolled in fallback plans will not be
collected by the plan. Instead, these premiums will be withheld from
Social Security checks (or from other benefits as permitted under
section 1840 of the Act). Beneficiaries who do not receive Social
Security checks or otherwise have premiums deducted from other benefits
or annuities will pay us directly. Failure to make premium payments
could result in disenrollment as provided under section 1854(d)(1) of
the Act and Sec. 423.44(d) of our regulations.
b. Collection of Late Enrollment Penalties
Concerning collection of the late enrollment penalty calculated
under Sec. 423.286(d)(3), after the early years of the program we will
estimate and specify the portion of the penalty that will be
attributable to increased actuarial costs assumed by the PDP sponsor or
MA organization (and not taken into account through risk adjustment
provided under Sec. 423.329(b)(1) or through reinsurance payments
under Sec. 423.329(c)) as a result of that late enrollment. When the
premium is withheld from social security benefits, we will pay only the
portion of the late enrollment penalty attributable to the increased
actuarial costs to the PDP sponsor or MA organization. When the premium
is paid directly to the plan, we will reduce payments otherwise made to
the PDP sponsor or MA organization by an amount equal to the amount of
the enrollment penalty not attributable to increased actuarial cost.
(Fallback plans will not receive any enrollment penalties applicable to
their enrollees because they are not at risk.)
At least in the initial years of the program we do not anticipate
paying plans additional funds related to late enrollment individuals.
In the initial years there will not be a significant number of people
who can have delayed enrollment for a significant period of time.
Moreover, in the initial years of the program the risk corridors are
more generous and afford more protection. Consequently we do not think
it is necessary to provide a portion of the enrollment penalty to plans
until experience indicates that actual risk has increased.
Comment: Several States urged that Sec. 423.293(a) include State
Pharmacy Assistance Programs (SPAPs) as a payment option for premiums.
Response: Section 423.293(a) references paragraph (c) of the
section, which in turn references Sec. 422.262(f)(1). Beneficiary
premiums in Sec. 422.262(f)(1) allow premiums to be paid by the
beneficiary through Social Security withholding, electronic funds
transfer; or by an employer, employment-based retiree health coverage
or by other third parties such as a State, which will include SPAPs.
This rule is being adopted as final in the MA final rule, and will
therefore have final effect for the Part D rule as well. Therefore,
SPAPs will be able to pay premiums on behalf of enrollees.
Comment: One advocacy group asked that credit cards not be allowed
to pay Part D premiums. It is their position that funds transfer
mechanisms are error prone.
Response: Section 1860D-13(c)(1) of the Act states that the
provisions of section 1854(d) of the Act apply to PDP sponsors in the
same manner as they apply to MA organizations and beneficiary premiums
under Part C. Section 1854(d)(2)(B) of the Act states that an MA
organization ``shall permit each enrollee ... to make payment of
premiums ... through an electronic funds transfer mechanism (such as
automatic charges of an account at a financial institution or a credit
or debit card account).'' Given that the Congress specifically stated
electronic funds transfer will include credit or debit card accounts,
we cannot prohibit their use.
Comment: One commenter asked if cost plans could be allowed to have
their premiums deducted from SSA checks.
Response: An enrollee of a cost plan with Part D may pay their Part
D premiums through reduction of their SSA check. The statute however,
does not give us the authority to mandate an SSA check payment option
on the Part C side, but we are capable of permitting withholding if
acceptable to concerned parties.
Comment: We received several comments concerning the late
enrollment penalty. While there was universal support for having a late
enrollment penalty, there were disagreements regarding the amount of
the penalty. Four commenters suggested that 1 percent of the base
beneficiary premium may not be sufficient to control for adverse
selection, but none had a recommendation for a higher amount. By
contrast, another commenter suggested that beneficiaries will likely
enroll late due to confusion. They therefore concluded that the late
enrollment penalty should be less than 1 percent of the base
beneficiary premium. One commenter urged us to collect data as quickly
as possible to calculate a penalty amount that fairly reflects any
higher costs associated with beneficiaries who delay their enrollment.
[[Page 4306]]
Response: Although, Part D enrollment is voluntary it is sound
policy to try limiting adverse selection, or the tendency for persons
with high utilization or risk to enroll in health insurance while
healthy persons with no or low utilization do not, thus creating an
unbalanced or biased population. To provide an incentive to enroll, the
Congress created a late enrollment penalty in Section 1860D-13(b) of
the Act, which is the greater of ``an amount that the Secretary
determines is actuarially sound for each uncovered month'' or is ``1
percent of the base beneficiary premium''.
There is a paucity of relevant research in this area. Our only
potentially relevant experience comes from the Part B late enrollment
penalty, which is 10 percent per 12-month period. On average about 5 to
6 percent of Medicare Part A enrollees are not enrolled in Part B. It
should be noted however, that a significant proportion of eligibles not
enrolled in Part B are either working aged or are living overseas.
Additionally, the utilization patterns and risks for Part B services
and Part D drugs are different. Therefore, the Part B experience may
not predict beneficiary behavior for Part D. Accordingly, we will set
the late enrollment penalty at 1 percent of the base beneficiary
premium and revisit the issue when appropriate data are available.
G. Payments to Part D Plan Sponsors For Qualified Prescription Drug
Coverage
1. Overview (Sec. 423.301)
Subpart G of part 423 implements section 1860D-15 of the Act and
the deductible and cost sharing provisions of section 1860D-14(a) of
the Act. This section sets forth rules for the calculation and payment
of our direct and reinsurance subsidies for Part D plans; the
application of risk corridors and risk-sharing adjustments to payments;
and retroactive adjustments and reconciliations to actual enrollment
and interim payments. References to Sec. 422 of our regulations are to
the new MA rules. In general, the payment rules in this subpart do not
apply to fallback plans--which are discussed in subpart Q
2. Definitions
We proposed definitions of a number of terms used in the
computation of payments under this subpart, such as ``allowable
reinsurance costs'', ``actually paid'' and ``coverage year'' in Sec.
423.308 of our regulations, but discussed these separately in the
appropriate sections of this preamble. We did this because these terms
are complex and are best clarified in the context of the discussion of
the pertinent provisions. We wish to clarify that a covered Part D drug
for gross prescription drug costs means a Part D drug, as defined in
Sec. 423.100, that is included in a prescription drug plan's or MA-PD
plan's formulary, or treated as being included in a plan's formulary as
a result of a coverage determination or appeal under Sec. 423.566,
Sec. 423.580, and Sec. 423.600 of our rule.
3. General Payment Provisions (Sec. 423.315)
The payment provisions required by section 1860D-15 of the Act
include the following four different payment mechanisms: 1) the direct
subsidy; 2) reinsurance subsidies; 3) risk corridor payment
adjustments; and 4) payments to cover certain premium, cost-sharing,
and extended coverage subsidies for low-income subsidy eligible
individuals.
The first payment mechanism involves monthly payments that (along
with reinsurance subsidies) subsidize on average 74.5 percent of the
value of the basic prescription drug benefit, thereby maintaining
beneficiary premiums for basic coverage on average at 25.5 percent. The
direct subsidy is determined based on a national bidding process.
Sponsors who wish to offer plans submit bids on a standardized basis.
After our review and approval, these bids become the basis for the
direct subsidy that is equal to the plan's standardized bid, risk
adjusted for health status as provided in Sec. 423.329(b), minus the
base beneficiary premium (as determined in Sec. 423.286(c) and as
adjusted for any difference between the standardized plan bid and the
national average monthly bid amount (as described under Sec.
423.286(d)(1))). The risk adjustment applied to the bid compensates the
plan for individual enrollee differences in health status from the
average beneficiary and thus reduces the impact from any adverse risk
selection. Further adjustments to the direct subsidy payments will be
made to account for actual enrollment and updated health status
information.
The second and third payment mechanisms will substantially reduce
the uncertainty and risk of participating in this new program. Since
the Medicare prescription drug benefit is new, there is uncertainty
surrounding the utilization, costs, and risk profiles (participation
rates and characteristics) of potential enrollees. Federal reinsurance
subsidies and risk corridor payment adjustments work along with the
risk adjustment included in the direct subsidy to substantially reduce
the uncertainty and risk of participating in this new program. Through
reinsurance subsidies, in which we act as the re insurer, we will
subsidize a large portion of any catastrophic expenses (defined as
expenses over an individual's out-of-pocket limit) through a
reinsurance subsidy. Through risk corridor arrangements, exposure to
unexpected non-catastrophic expenses will be limited. These risk
sharing arrangements are structured by the statute as symmetrical risk
corridors, that is, agreements to share a portion of the losses or
profits resulting from expenses above or below expected levels,
respectively.
Finally, according to section 1860D-14 of the Act, PDP sponsors and
MA organizations will receive payments to cover certain premium, cost-
sharing, and extended coverage subsidies for low-income subsidy
eligible individuals. With the exception of interim estimated payments
of cost-sharing subsidies, these payments are discussed separately in
subpart P of this preamble and in Sec. 423.780 of our regulations.
Certain payments will be exceptions to these general payment
provisions. Under private fee-for-service (PFFS) plans, reinsurance
will be calculated differently and risk sharing will not be available.
Reinsurance subsidies and risk sharing will not be available for
fallback plans, which are paid in accordance with contractual terms
related to actual costs and management fees tied to performance
measures.
Comment: One commenter responded with support for immediate
implementation of a reinsurance demonstration that would increase
opportunities to fill in the donut hole in the Part D benefit and allow
for a more predictable revenue flow that would support enhanced
benefits for beneficiaries.
Response: The Conference Committee noted, ``the conditions under
which the government provides reinsurance subsidies may create
significant disincentives for private sector plans to provide
supplemental prescription drug coverage. To address this concern, the
conference agreement suggested use of the Secretary's current Medicare
demonstration to ``allow private sector plans maximum flexibility to
design alternative prescription drug coverage.'' CMS's authority to
conduct Medicare demonstrations is provided in section 402 of the
Social Security Amendments of 1967 (42 U.S.C. Sec. 1395b-1). Under
section 402(b), the Secretary is authorized to waive requirements in
title XVIII that relate to reimbursement
[[Page 4307]]
and payment. The conferees specifically stated that CMS should
demonstrate the effect of filling in the gap in coverage by reimbursing
participating plans a capitated payment that is actuarially equivalent
to the amount that plans would otherwise receive from the government in
the form of specific reinsurance when an individual plan enrollee
reaches the catastrophic attachment point ($3,600). They clarified that
CMS would not be permitted to waive the minimum benefits provided by
the plans. In the August proposed rule we stated in the executive
summary that we were considering establishing a demonstration to
evaluate possible ways of achieving extended coverage.
We intend to conduct a reinsurance demonstration that represents an
alternative payment approach. We are working on the design of the
budget neutral demonstration and issue separate guidance in the near
future.
4. Requirement for Disclosure of Information (Sec. 423.322)
a. Data Submission.
As provided under sections 1860D 15(c)(1)(C), 1860D-15(d)(2) and
1860D-15(f) of the Act and in Sec. 423.322 of our regulations, we will
condition program participation and payment upon the disclosure and
provision of information needed to carry out the payment provisions.
Such information will encompass the quantity, type, and costs of
pharmaceutical prescriptions filled by enrollees that can be linked to
individual enrollee data in our systems; that is, linked to the
Medicare beneficiary identification number (HIC). In the
August proposed rule we asked for comments on the content, format and
optimal frequency of data feeds. We stated that more frequent feeds
(that is monthly or quarterly) would allow us to identify and resolve
data issues and assist the various payment processes.
We have evaluated our minimum data requirements with regard to
prescription drug claims. Our goal is to have the least burdensome data
submission requirements necessary to acquire the data needed for
purposes of accurate payment and appropriate program oversight. Our
view is that we will need at least the following data categories for
100 percent of prescription drug claims for the processes discussed
below:
Beneficiary identification (for example, HIC,
date of birth, gender, name)
Prescription identification information (for example, RX
identification number, NDC, quantity dispensed, fill number, date of
service)
Cost information (for example, ingredient cost, dispensing
fee, sales tax, total gross cost)
Payment information (beneficiary amount paid, low income
cost sharing subsidy amount, secondary/other payer amount, supplemental
amount)
We assume that ingredient cost and dispensing fee reflect point of
sale price concessions in accordance with purchase contracts between
plans (or their agents, such as PBMs) and pharmacies, but do not
reflect subsequent price concessions from manufacturers, such as
rebates. We will need these data on prescription drug claims for
appropriate risk adjustment, reconciliation of reinsurance and low-
income subsidies, calculation of risk sharing payments or savings, and
program auditing. Data will also be required for assessing and
improving quality of care. We asked for comments on the nature and
format of data submission requirements based on the following
requirements:
The risk adjustment process will require 100 percent of
drug claims in order to develop and calibrate the weights for the model
for this new benefit. Consequently, PDP sponsors and MA organizations
offering MA-PD plans will be required to submit 100 percent of
prescription drug claims for Part D enrollees for the coverage year.
Risk adjustment will require the submission of prescription drug agent
identifying information, such as NDC codes and quantity, in order to
allow the standardized pricing of benefits in the model. Because we
will use standardized pricing in the model, cost data on each
prescription is not a requirement for risk adjustment, although it is
needed for other purposes.
The reinsurance subsidy payment process will require 100
percent of claims for each enrollee for whom the plan claimed allowable
reinsurance costs. (Although reconciliation of the reinsurance subsidy
does not require NDC codes or quantities, it does require member, cost
and date of service data.) All claims for enrollees with expenses in
excess of the out-of-pocket limit will be necessary to verify that the
costs are allowable because the totality and order in which the claims
are incurred will define which claims will be eligible for reinsurance
payments. While the start of reinsurance payments begins with claims
after the out-of-pocket threshold has been reached, which is $5,100 in
total spending (2006) for defined standard coverage, it may be
associated with a higher dollar total spending amount under alternative
coverage. Whatever the level, we will need to receive all claims by
date of service including the amount of beneficiary cost sharing in
order to determine the occurrence of the out-of-pocket threshold. Any
plan-incurred costs for claims for supplemental benefits cannot be
included in determining whether the out-of-pocket threshold has been
met.
The risk sharing process will require 100 percent of
claims for all enrollees for the calculation of total allowable risk
corridor costs. The plan will need to segregate costs attributable to
supplemental benefits from those attributable to basic benefits since
supplemental benefit costs are not subject to the risk corridor
provisions. Again, all claims will be necessary to verify that the
costs are allowable because the order in which the claims were incurred
will help determine whether the claims were solely for basic coverage.
For instance, a claim processed between a beneficiary's deductible and
initial coverage limit (in standard coverage) will count towards risk
sharing, but another claim (processed identically but immediately after
the initial coverage limit has been reached) will not. Unlike the
reinsurance subsidy, which is limited to individuals with expenses in
excess of the out-of-pocket threshold, risk sharing involves costs (net
of discounts, chargebacks and rebates, and administrative costs) for
all enrollees for basic coverage, but only those costs that are
actually paid by the sponsor or organization. Because all plans
participate in risk sharing, potentially all claims for all Part D
enrollees in all plans must be reviewed. Like the reinsurance
reconciliation, risk sharing does not require NDC codes or quantities,
but does require member, cost, and date of service data.
The program audit process will require at least a
statistically valid random sample of all Part D drug claims. We believe
that several points of reference including HIC, cost, date of
service, and NDC code will be required for unique identification of
individual claims in any random sample drawn from the population. If we
receive 100 percent claims to support the payment processes, this
sample could be drawn from our records. We believe it will be useful to
obtain the prescribing physician's National Provider Identifier (NPI)
number, as required by the administrative simplification provisions of
HIPAA, in the elements of collected data for purposes of fraud control
once it is available. (Nothing in this data collection discussion
should be construed as limiting OIG authority to conduct any audits and
evaluations necessary for carrying out our regulations.)
[[Page 4308]]
Comment: One commenter urged us to ensure that prescription
transaction data, be made available to the QIOs. Without this
information the commenter contends, it will be extremely difficult for
QIOs to execute the direction of the Congress in section 109 of the
MMA, to offer assistance to practitioners and plans for the purpose of
improving the quality of pharmacotherapy received by older and disabled
Americans enrolled in the Medicare outpatient drug benefit.
Response: Additional guidelines will be released dealing with QIO
access to Part D data. QIOs do, however, have their own independent
authority to collect claims data. Therefore, as we stated in the
proposed rule, we believe we would have the authority to share claims
data with QIOs if necessary.
Comment: One commenter stated that claims creation and submission
for the pharmacy claims as proposed would probably be even more
expensive, given the volume of data and the number of data elements.
They encouraged us to be parsimonious in collecting data, with the
understanding that plans would retain full data for audits.
Response: We will endeavor to reduce burden to the maximum extent
possible. We will require only the data elements necessary to carry out
the operations of the Part D program.
Comment: For the timeframe for data submissions, one commenter
stated that unless all plans can provide information electronically,
weekly data cycles would be too burdensome. Monthly or quarterly data
cycles are more in line with other plan financial processes. Another
commenter suggested that annual submission would be adequate with
additional data submitted on a quarterly basis. A PBM commented that
they have the capability of submitting drug utilization data to us on a
monthly basis in any format required. They also noted that all of the
data elements listed as proposed requirements in the proposed rule are
available in their point-of-sale system. Two commenters recommended
that data transmission use either the NCPDP or the American Society of
Automation in Pharmacy (ASAP) standard formats. They reasoned that such
standards are commonly used today and would have minimal impact on
existing software applications.
Response: We agree that data submissions should be based on an
established standardized format, and will be requiring data submissions
in the NCPDP format. The data required will be from both incoming
claims and the remittances to those claims. Some of the paid amounts
that need to be reported are not on the NCPDP format (for example, the
low income cost-sharing subsidy). Therefore, plans will be responsible
for calculating and retaining these amounts while calculating
appropriate payments and cost-sharing for each claim. We will require
that the data related to drug claims be submitted no less frequently
than monthly. Further details on data submission will be issued in
separate guidance.
b. Allowable Costs
Section 1860D-15(b)(2) and 1860D-15(e)(1)(B) of the Act and Sec.
423.308 of our regulations, specify that to determine ``allowable
costs'' for purposes of both the reinsurance and risk corridor
payments, only the net costs actually paid after discounts,
chargebacks, and average percentage rebates, as well as administrative
costs, are to be counted. In the proposed rule we discussed requiring
average percentage rebates, which upon reflection would represent only
a rough estimate on the part of a Part D plan. We wish to clarify that
in order to carry out our responsibilities we will require reporting of
aggregate (as opposed to at the beneficiary or claim level) rebates at
the product level on a quarterly basis. Adequate lead time will be
provided. Additional information will be provided through our payment
guidelines.
In the proposed rule we noted, also for rebates, that we understand
that much of the rebate accounting is not applied in the context of
point of sale claims data, but rather in periodic accounting
adjustments, and that rebates are frequently reported along with
administrative fees paid by the manufacturer. We wish to clarify that
we will expect reporting of all rebate dollars with no allowance for
separate administration fees in order to prevent inaccuracies in
reporting. We note that plans must require and keep accurate records on
all price concessions. All cost reporting will be subject to inspection
and audit (including periodic audits) by us and the OIG. Part D plans
sponsors seeking to limit access to rebate information under this
provision to Part D business only are advised to seek out separate
contracts with manufacturers for their Part D and other lines of
business. To the extent either we or the OIG discover that a sponsor
has been overpaid for reinsurance or risk sharing (that is, the records
do not support the payments made, or there is insufficient
documentation to determine whether the payments are correct), we may
recoup the overpayments. The reopening and overpayment provisions are
discussed at the end of this part G.
We also wish to clarify our interpretation of allowable costs in
the context of repackaged drugs. AWP is commonly used as the basis
through which a plan sponsor or fallback plan calculates payments to
pharmacies, and is used to when sponsors provide competitive bids for
the Medicare Part D prescription program. AWP is typically published
based on the NDC for a particular product, and is specific to the drug,
strength, distributor and package size. However, AWP can vary between
differing packages sizes of a drug and strength from a single
distributor, as well as between multiple distributors that product a
common drug, as in the case of generic products. AWP may not be
published for some products that are repacked for a specific buyer,
such as a mail-order pharmacy or a pharmacy chain. Furthermore, if a
pharmacy benefit manager or managed care organization owns a pharmacy
(including a mail-order, specialty, or clinic facility) and refers
members to that facility, it essentially purchases product from itself.
In these cases, special care must be taken to ensure that payment is
made for a prescription ingredient cost that is an accurate reflection
of the product that the facility purchases in terms of manufacturer,
strength, and acquisition price.
The Department of Health and Human Services' Office of Inspector
General issued the April 2003 report ``Compliance Program Guidance for
Pharmaceutical Manufacturers'' that addresses AWP. The guidance report
states that: ``... it is illegal for a manufacturer knowingly to
establish or inappropriately maintain a particular AWP if one purpose
is to manipulate the ``spread'' to induce customers to purchase its
product.'' We believe that the same principle of non-manipulation of
AWP applies to sponsors of the Part D benefit. Any repricing or
restatement of price of a pharmaceutical product is subject to audit,
and potentially constitutes fraudulent behavior if the repricing or
price restatement is done with the intent of increasing the profits of
that sponsor or mail order facility by increasing the reimbursement due
by the Federal government.
Comment: One commenter believes that administrative fees for
administering rebates should not be included in the assessment of
rebate fees.
Response: We disagree with the commenter. As stated in the proposed
rule such accounting will be incompatible with the need to report all
price concessions for purposes of determining allowable reinsurance and
risk corridor costs. In the preamble to the proposed rule, we said that
to the extent the administrative fees paid to
[[Page 4309]]
Part D plans (or their subcontractors, such as PBMs) are above the fair
market value of the services rendered, this differential will be
considered a price concession. Similarly, to the extent a Part D plans
pays manufacturers or others administrative fees, and these fees are
below fair market value, this would also be considered a price
concession. In sum, as fiduciaries of the Medicare trust fund, we have
a responsibility to ensure that price concessions are not masked as
administrative fees, and therefore, we continue to believe that
administrative fees are important in determining the reinsurance and
risk-sharing payments.
Comment: One comment urged clarification of definition of
``allowable costs'' so to exclude manufacturer-sponsored compliance and
appropriate use programs.
Response: Allowable costs are prescription drug costs excluding
administrative costs, but including dispensing fees costs related to
the dispensing of covered Part D drugs that are actually paid by the
PDP sponsor. Thus any service, such as a compliance program, that is
paid for in conjunction with drug costs as an administrative component
of managing the drug benefit is not be considered an allowable cost for
the PDP sponsor.
Comment: One commenter asked for clarification on how fair market
value is to be determined.
Response: The fair market value of administrative fees paid to a
Part D plan will typically be evaluated in relation to the values
reported by other Part D plans. In other words, the fair market value
will be the average or normal value of administrative fees within this
market. However, this may not be an exclusive methodology. For example,
if administrative fees paid to all plans were found to be improperly
inflated they would not reflect fair market value and we would devise
an alternative methodology.
Comment: One commenter requested that we require plans to attest to
the accuracy of information submitted to manufacturers in order to
ensure that rebates and discounts are based on accurate claims.
Response: We strongly encourage plans to attest to the accuracy of
information submitted to manufacturers. However, we do not have the
authority to require an attestation as the commenter suggests.
Comment: One commenter recommended the second approach to rebate
accounting in the proposed rule whereby a plan would calculate a ratio
of total rebate amounts to total spending and reinsurance-related
spending to total spending to derive the share of rebates to be
allocated to reinsurance. The commenter believes this option is
administratively straightforward and would result in a reasonably
accurate estimate of these discounts, chargebacks, and rebates.
Response: We will require reporting of actual rebates requested and
paid down to the product level on a quarterly basis. Additional
guidance will be released subsequent to publication of the final rule
that specifically deals with rebate accounting rules.
c. Coverage Year
In Sec. 423.308 the term ``coverage year'' is defined as a
calendar year in which covered Part D drugs are dispensed if the claim
for such drugs (and payment on such claim) is made not later than 3
months after the end of the year. In other words, drug claims paid past
the close of the 3-month period will not be considered part of that
coverage year (or the next), and will not be used to calculate that
year's payments or in reconciling risk adjustment payments for the
year.
This limit will be imposed in order to provide timely closure for
payment determination processes such as reinsurance, risk corridors and
employer subsidies. While the period of 3 months will be significantly
less than the fee-for-service Medicare medical claims standard of 18
months, we believe that a shorter period is warranted due to the highly
automated and point of sale nature of prescription drug claim
processing. We understand that the vast majority of prescriptions are
not filled without the claim being simultaneously processed and
therefore, there is a much shorter claims lag to be considered. We
believe that the number and value of drug claims that will potentially
be missed will be immaterial, consisting primarily of paper claims. The
3-month close-out window will not limit the liability of the plan or
its claims processing contractor for reimbursing any lagging claims,
but will simply establish a timely cut-off for finalizing payments. We
note that rebates for the coverage year must be credited against that
coverage year's costs. Although we are closing the year for claims
purposes after 3 months, the plan must account for and report to us all
rebates that occur throughout the coverage year and send us all the
data within 6 months after the end of the coverage year.
A shorter period for claims will allow for payment processes that
are dependent on the knowledge of total allowable costs for each
coverage year to be concluded on approximately the same schedule as
other reconciliations involving enrollment or risk adjustment data. On
this schedule, calculations of risk sharing could begin as soon as six
months after the close of the payment year. If the claims submission
standard were a longer period, final reconciliations will be
significantly delayed. We requested comments on this timetable,
specifically whether we should adopt a shorter or longer period than 3
months, and including data with which to estimate the proportion and
value of drug claims that could be excluded with a 3-month close-out
window.
Comment: Two commenters argued that the definition of the coverage
year in Sec. 423.308, being three months after the end of the year,
would not be enough time for certain drug claims, such as those from
out-of-network providers or those submitted by paper. They went on to
say that claims made after the 3-month closeout should be appropriately
accounted for. Another commenter stated that the majority of claims are
submitted and paid within the 90 day window described in the rule. They
went on to say that from a processor standpoint no more time is needed
and based on observed claims patterns at least 98 percent of the drug
claims are paid within 3 months. One industry association expressed
support for the proposal to define coverage year to encompass drugs
dispensed within a calendar year and for which claims have been paid no
later than three months after the end of the calendar year. The
commenter believes establishing finality in this manner is absolutely
essential to promote financial stability by allowing timely
determination of risk sharing amounts.
Response: According to Booz Allen Hamilton's August 2004 report
``Determination of Allowable Costs'' the industry standard is for
claims to typically be submitted within a three month window period. We
agree with the two latter comments that the definition of the coverage
year is both logistically feasible and promotes timely payment. We also
note that the coverage year is 3 months for claims run-out (Sec.
423.308), but plans have 6 months to submit data (Sec. 423.343). This
gives plans the extra time necessary to compile the data necessary for
retroactive reconciliation. We will adopt the definition of coverage
year as proposed.
5. Determination of Payment (Sec. 423.329)
a. Direct Subsidies
As directed in section 1860D-15(a)(1) of the Act and codified in
Sec. 423.329(a), we will provide direct subsidies to PDP sponsors and
MA organizations offering MA-PD plans. These subsidies will be in
[[Page 4310]]
the form of advance monthly payments. Payments will be equal to the
plan's standardized bid, risk adjusted for health status as provided in
Sec. 423.329(b), minus the base beneficiary premium (as determined in
Sec. 423.286(c) and adjusted for any difference between the
standardized plan bid and the national average monthly bid amount (as
described under Sec. 423.286(d)(1))). The standardized bid will be the
portion of the plan's bid attributable to basic coverage. This portion
will be risk adjusted by multiplying by our prescription drug risk
score attributable to each enrollee. Between the government direct
subsidy and the adjusted base beneficiary premium, the plan will
receive its entire risk-adjusted standardized bid in advance each
month. Payment for supplemental benefits will come from enrollees in
the form of additional premium. By statute, the sponsor must bear all
risk for such supplemental benefits. In the proposed rule we said ``We
would note that a plan's total per capita payment could never exceed
its bid, risk-adjusted for the beneficiary's health status. This would
be the case even if the difference between the plan's bid and the
national average monthly bid amount were greater than the beneficiary
monthly premium, mathematically resulting in a ``negative premium''
amount. We do not believe that the statute envisions plan payments in
excess of negotiated costs, since this would violate the revenue
requirements provisions discussed in the subpart F of this preamble''.
As outlined in detail in subpart F of this final rule, we have changed
our policy. We now state that if the standardized bid amount is less
than the national average monthly bid by an amount so great that it is
in excess of the base beneficiary premium, the direct subsidy payment
calculated above will be increased by the amount of the negative
premium. We, therefore, have modified Sec. 423.329(a)(1) to indicate
that the direct subsidy payment may be increased by the excess amount
of a negative premium as described in Sec. 423.286(d)(1), if
applicable.
b. Risk Adjustment
In section 1860D-15(c)(1) of the Act, we are directed to develop
and publish a prescription drug risk adjustment methodology taking into
account the similar methodologies under Sec. 422.308(c)(1) to adjust
payments to MA organizations for benefits under Part C on the basis of
costs incurred under original Medicare. In Sec. 423.329(c) we
establish this risk adjustment methodology. We will develop and publish
this risk adjustment methodology in the 45-day notice for the
announcement of 2006 Medicare Advantage rates. Section 1860D-
15(c)(1)(D) of the Act requires us to publish the risk adjustment for
Part D at the same time we publish risk adjustment factors under
section 1853(b)(1)(B)(i)(II) of the Act. Because these risk adjustment
factors under subpart C can only be published after 45-day advance
notice under section 1853(b)(2) of the Act, in general we will use the
same notice procedures we use under Part C for risk adjustment. We
believe this will promote consistency and uniformity in the process,
and, especially for MA-PD plans, allow entities to review notices
published on the same day for purposes of commenting on or learning
about risk adjustment. As usual, the 45-day notice will solicit public
comment on any change in proposed payment methodologies. We are
expecting that this new prescription drug risk adjustment methodology
will initially be based on the relationship of prescription drug
utilization within the entire Medicare population to medical diagnoses,
and that it will be applied at the individual beneficiary level. Our
longer-term plan would be to refine the risk adjustment model to
account for predictable risk based on both medical and drug claim data.
Section 1860D-15(c)(1)(C) of the Act and Sec. 423.329(b)(3) of
this rule authorize us to specify and require the submission of data
from PDP sponsors regarding drug claims that can be linked at the
individual level to part A and part B data in a form and manner similar
to the Medicare Advantage process provided in Sec. 422.310 and such
other information as we determine necessary. Similarly, MA
organizations that offer MA-PD plans must submit data regarding drug
claims that can be linked at the individual level to other data that
these organizations are required to submit to us. A primary
requirement, therefore, is receiving claims linked to the Medicare
beneficiary HIC. Other data submission elements are discussed
in section 4(a) of this part of the preamble. We expect to link these
data at the plan level and will then require the inclusion of the PDP
or Medicare Advantage contract identifier (H) as well as the
plan benefit package identifier. We will use this data to further
refine our prescription drug risk adjustment factors and methodology in
order to make payments that accurately reflect plan risk.
As we noted in the August proposed rule, any risk adjustment
methodology we adopt must adequately account for low-income subsidy
(LIS) individuals (and whether such individuals incur higher or lower-
than average drug costs). We stated that our risk adjustment
methodology should provide neither an incentive nor a disincentive to
enrolling LIS individuals, and we requested comments on this concern
and suggestions on how we might address this issue. Our particular
concern has been that a risk adjustment methodology, coupled with the
statutory limitation restricting LIS payments for premiums to amounts
at or below the average, could systematically underpay plans with many
LIS enrollees (assuming LIS enrollees have higher costs than average
enrollees). As noted in the proposed rule, the initial risk adjustment
system, which will be budget neutral across all Part D enrollees, must
not under compensate plans for enrolling LIS beneficiaries. In fact, to
the extent that an initial risk adjustor might at the margin tend to
overcompensate for LIS beneficiaries, plans would have a strong
incentive to disproportionately attract such beneficiaries. Plans could
attract LIS beneficiaries both by designing features that are
attractive to such beneficiaries and also by bidding low.
Comment: We received several comments generically expressing
concern over the risk of insuring the low-income subsidy population
exacerbated by the induced demand likely to be created by the low
income subsidy itself. Several commenters specifically agreed with our
proposal to deal with this issue via risk adjustment. No commenters
rejected the proposal. All the commenters noted that it is critical for
the risk adjustment methodology to pay fairly and appropriately for all
enrollees, including income subsidy individuals. Commenters requested
additional details about the risk adjustment methodology.
Response: We agree that the Part D risk adjuster must accurately
predict the drug expenditures for various population subgroups,
including low income beneficiaries. The best way to achieve this goal
is to calibrate the risk adjustment model on a sample of beneficiaries
that includes low income beneficiaries, which we intend on doing. We
have experience in dealing with an analogous situation with the Part C
risk adjustment model, where beneficiaries in long term care
institutions are known to have significantly higher expenditures than
community enrollees before health status is accounted for. In order to
accurately risk adjust for this population, we have generated a version
of the risk adjustment model that explicitly accounts both for these
higher expenditures and for the different
[[Page 4311]]
relative costs of diseases for the long term institutionalized
population compared to the community population. For induced demand, we
have Federal Employee Health Benefit Program and State Medicaid program
data that will permit us to model this effect. One commenter familiar
with these data noted that ``it seems reasonable that the risk
adjustment process be used to correct any underpayments due to LIS
induced demand.'' Additional details will be provided with the guidance
accompanying the release of the risk adjustment factors.
Comment: We also received comments concerning specific elements of
the risk adjustment model. One health insurer asserted that medical
diagnoses may not adequately predict drug utilization. A PBM commented
that some drugs are a very good marker of disease, while other drugs
can be used to treat a variety of conditions. A manufacturer suggested
that we should use data on prior medication expenditures and include
demographics and diagnoses.
Response: Work by Wrobel and colleagues (Health Care Financing
Review Winter 2003-2004) using data from the Medicare Current
Beneficiary Survey and Medicare claims data found a diagnostic based
risk adjustment model was a powerful predictor of drug expenditures.
Our current risk adjustment model does not use drugs as a marker of
disease but use diseases to predict drug spending (see http://www.cms.hhs.gov/pdps/riskad.zip
). A more detailed description of the elements of the
Part D risk adjustment model will be provided in the Advance Notice of
Payment Methodology. However, anyone interested in understanding how
risk adjustment works can read ``Risk Adjustment of Medicare Capitation
Payments Using the CMS-HCC Model'' in the Health Care Financing Review,
Volume 25, Number 4 (Summer 2004). These articles are publicly
available online at http://www.cms.hhs.gov/review/default.asp.
The Part D risk adjustment model will use demographics and
diagnoses. As Part D program data becomes available we will incorporate
other indicators to enhance the predictive power of the model. This may
include, if appropriate, indicators of prior use of medication. We will
provide the usual opportunities for public comment on subsequent
iterations.
c. Risk Adjustment Budget Neutrality
In accordance with section 1860D-15(c)(1)(A) of the Act and Sec.
423.329(b)(1), our risk adjustment methodology will be implemented in a
budget-neutral manner. A requirement for budget neutrality assumes that
there is a known budget. We interpret the statute to require that the
risk adjustment methodology must not result in a change in aggregate
amounts payable in section 1860D-15(a)(1) of the Act, that is, the risk
adjustment methodology must be ``budget neutral'' to some aggregate of
direct subsidy payments made before risk adjustment. (Since direct
subsidy payments are made only to full-risk or limited risk plans, this
budget by definition will not include payments to fallback plans.)
For comparison, in the current MA program the budget for risk-
adjustment budget neutrality is defined to be the aggregate government
payments made to plans under the 100 percent demographic payment
system. Since the health-status-risk-adjustment methodology currently
results in lower aggregate payments than the demographic methodology,
MA budget neutrality distributes among participating plans the
difference between total payments under the 2 methodologies via a
factor that allocated the difference in the same proportion as the
allocation of risk-adjusted payments. However, there is no
corresponding predetermined limit to aggregate payments in Title I,
that is, to the aggregate government direct subsidy payments made
before risk adjustment, so there is no amount to use as a basis for
comparison in determining budget neutrality.
In the MA program, the reason for the difference between the total
payments under the demographic methodology and total payments under
health status risk adjustment is that the average health status of
enrollees in MA is different than the average health status for the
program as a whole (that is, MA plus original Medicare). In Part D,
there is no equivalent to original Medicare since beneficiary access
subsidized coverage through enrollment in private plans. The Part D
risk adjustment system will be based on these enrollees. Since there is
no group of beneficiaries outside the system like there is under Part
C, total payments with and without risk adjustment are always equal or
budget neutral. Therefore, we believe that risk adjustment as applied
to Part D benefits must be budget neutral to the risk of the
individuals who actually enroll without any additional adjustment. We
did not receive any specific comments on this, and therefore will adopt
as proposed.
d. Reinsurance Subsidies
Allowable Reinsurance Costs
As provided in section 1860D-15(e) of the Act and Sec. 423.329(c),
we will reduce the risk of participating in this new program by
providing reinsurance subsidies. Subsidies will be limited to 80
percent of allowable reinsurance costs for drug costs incurred after an
enrollee has reached the annual out-of-pocket threshold. The annual
out-of-pocket threshold will be $3,600 in 2006. Under standard coverage
this corresponds to total gross covered prescription drug costs of
$5,100, and will be increased annually as provided in section 1860D-
2(b)(4)(B)(i)(II) of the Act and 1860D-2(b)(4)(B)(ii) (with regard to
rounding).
In meeting the various actuarial tests required of alternative
coverage, there could be instances where a sponsor wanting to provide
basic alternative coverage will have to enhance plan benefits in order
to meet the test of equal total actuarial value relative to defined
standard coverage. This could occur with the use of a tiered co-pay
benefit structure that could shift utilization to a cheaper set of
drugs, thus allowing plans to lower cost sharing to achieve the same
total dollar value as defined standard coverage. In these instances,
since cost sharing is reduced relative to defined standard coverage,
the out of pocket threshold will be associated with a higher total drug
costs than the $5,100 under standard coverage in 2006. For sponsors
offering enhanced alternative coverage, the out-of-pocket threshold
will also be associated with higher total drug spending. In this
instance, however, it will be due to fact that the plan's supplemental
benefits will be displacing part of the cost sharing that enrollees
will otherwise have incurred.
Allowable reinsurance costs are a subset of gross covered
prescription drug costs. Gross covered prescription drug costs are
those costs incurred under the plan, excluding administrative costs,
but including costs related to the dispensing of covered Part D drugs
during the year and costs relating to the deductible. These costs are
determined whether paid by the individual or under the plan, and
regardless of whether the coverage under the plan exceeds basic
prescription drug coverage. Allowable reinsurance costs, on the other
hand, are the subset of these costs that are attributable solely to
basic or standard benefits and that are actually paid by the sponsor or
organization or by (or on behalf of) an enrollee under the plan.
Actually paid means that these costs must be net of any discounts,
chargebacks, and average percentage rebates, and will exclude any
amounts not actually incurred by the sponsor. The reinsurance payments
are then calculated by determining the portion of
[[Page 4312]]
allowable reinsurance costs that are incurred after the enrollee has
reached the out-of-pocket threshold ($3,600 out of pocket in 2006). The
reinsurance subsidy will provide 80 percent of such excess amount.
Payment of Reinsurance Subsidy
Since allowable reinsurance costs (the subset of gross covered drug
costs that are attributable to basic coverage only and are actually
paid by the sponsor or plan) can only be fully known after all costs
have been incurred for the payment year, we proposed to make payments
on an incurred basis to assist PDP sponsors and MA organizations with
cash flow. We also proposed that we would consider payments of
reinsurance amounts on a monthly prospective basis based on the
reinsurance assumptions submitted and negotiated with each plan's
approved bid. In the August proposed rule we also stated that
regardless of which process we used for making reinsurance payments, as
discussed below, if, at the end of the year, the data demonstrates the
sponsor was overpaid through the interim payments--or if there is
insufficient evidence to support the reinsurance payments claimed--we
would recover the overpayments either through a lump sum recovery or by
reducing future payments during the coverage year. Similarly, if the
data demonstrates that the sponsor was underpaid, we would pay the
sponsor.
Comment: Numerous comments were received on the methodology of
reinsurance payments. There was a general consensus supporting
prospective monthly payments, with some commenters suggesting that the
payment be at 1/12th of the net present value of estimated allowable
reinsurance costs in each month of the coverage year. One commenter
urged that plans should be able to choose between incurred and
prospective payment. One commenter suggested that plans should invoice
daily for reinsurance costs rather than have prospective monthly
retrospective payments. Another commenter supported claims payments on
an incurred rather than prospective or retrospective basis, and
reimbursement on a monthly basis as proposed. Only one comment was
received supporting determining payment with either a plan-specific or
averaging approach
Response: Based on public comment, as well as on considerations of
our current systems capabilities, our initial methodology will entail
making monthly prospective payments of estimated allowable reinsurance
costs submitted with the bid. We will establish and calculate these
payments at the plan level so that reinsurance estimates reflect
individual plan risk and the impact of plan supplemental benefits (if
any) on when catastrophic benefits and reinsurance payments are
triggered. At the end of each calendar year, we will reconcile plans'
allowable incurred reinsurance costs for the year with the year's
prospective plan payments; we will then reimburse plans for any
underestimation of costs or recover any agency overpayments. More
details will be made available in CMS additional guidelines on the
payment methodology. We have modified Sec. 423.343(d)(1) to clarify
that CMS data requirements for reconciliation will be specified in
separate guidance. We note that two commenters suggested that payments
should be made on an incurred basis. We believe that advancements in
information systems could make this logistically feasible. We wish to
clarify that we reserve the right to alter the payment methodology. Any
future changes would be announced through the Advance Notice of
Methodological Changes and be subject to public comment.
Adjustments to Reflect the True Out-of-Pocket Threshold
The statute provides that the reinsurance subsidy would be paid
only for the plan's share of individual expenses in excess of an
enrollee's TrOOP threshold. As indicated above, if the PDP sponsor
offers enhanced alternative coverage or an MA-PD plan offers benefits
beyond basic coverage as part of its supplemental benefits, the plan's
spending for these benefits would not count toward the TrOOP threshold.
Since benefits beyond basic coverage reduce cost sharing that would
otherwise be incurred, they shift the effective prescription drug
catastrophic limit beyond the associated total spending under the
standard benefit ($5,100 in 2006) and raise the effective reinsurance
attachment point at the same time.
In addition, to the extent that plan cost sharing is paid or
reimbursed by secondary insurance coverage or otherwise, that cost
sharing does not count toward the out-of-pocket threshold.
Beneficiaries are required to report the existence of secondary
coverage or other types of coverage we identify and plans must identify
these payments and ensure that true out-of-pocket spending is accounted
for accurately in claims processing. This is more fully discussed in
subpart C and subpart J of this preamble.
Comment: One commenter noted that claims covered under supplemental
coverage do not count towards TrOOP. The commenter believes that
reinsurance should be triggered at the point that each enrollee hits
$5,100 rather than $3,600 in out-of-pocket because there will otherwise
be a strong disincentive to offer plans with enhanced coverage.
Response: We agree that the delayed reinsurance attachment point
that results from the provision of supplemental benefits is one issue
that must be considered by Part D plan sponsors. However, section
1860D-15(b)(2) of the Act defines allowable reinsurance costs to be
``no more than the part of such costs that would have been paid under
the plan if the prescription drug coverage under the plan were basic
prescription drug coverage, or, in the case of a plan providing
supplemental prescription drug coverage, if such coverage were standard
prescription drug coverage.'' Therefore, by statute, claims for
supplemental benefits cannot be counted toward allowable reinsurance
costs and we have no discretionary authority in this area.
Adjustments for the Insurance Effect of Supplemental Coverage
In the proposed rule we stated that supplemental benefits increase
the level of total drug spending after which reinsurance payments begin
(reinsurance attachment point). Assuming 2 identical groups of
enrollees for utilization, one enrolled in enhanced alternative
coverage and one in defined standard coverage, the total allowable
reinsurance costs for the group with standard coverage would be greater
than for the group with enhanced alternative coverage. Thus, one might
hold that the differences in benefit packages are accounted for without
the need for further adjustment. If one would examine average total
spending for both groups, however, one would find that the average
spending under enhanced alternative coverage would be greater than the
average under defined standard coverage because of the impact of the
insurance effect (or ``moral hazard'', that is, the tendency of
increased coverage resulting in increased utilization due to decreased
financial stake in the costs associated with utilization). All other
things being equal, this higher total spending would result in higher
allowable reinsurance costs than would otherwise occur if the total
spending under enhanced alternative coverage were comparable to that
under standard coverage. We therefore proposed requiring (in the
definition of allowable reinsurance costs) that allowable reinsurance
costs be adjusted to reflect the impact of this induced utilization. We
would make this adjustment to comply with the
[[Page 4313]]
requirement in section 1860D-15(b)(2) of the Act that in no case shall
the allowable reinsurance costs exceed the costs ``that would have been
paid under the plan if the ... coverage ... were standard prescription
drug coverage''.
Comment: One commenter responded that they were not clear that an
adjustment for the insurance effect of supplemental coverage would be
needed. They recommended that we consider allowing time to study this
issue, both to determine if an adjustment is appropriate at all and if
it is what the adjustment should be. Another commenter stated that this
issue is very complex and offered to discuss it further with us.
Another health insurer noted that if a health plan develops rates for a
commercial group, the rate for supplemental benefits developed for that
group will include the revenue needs for the supplemental benefits as
well as the plan's increased revenue needs to the extent that the
expected costs of providing the basic benefit are expected to increase
as a result of the supplemental coverage. They inquired as to how this
practice would be applied to Part D.
Response: We continue to believe that an adjustment for the
insurance effect of supplemental coverage is necessary. The effect of
reduced cost sharing resulting in increased demand for medical services
(including drugs) is firmly established in the economics literature and
has been discussed for decades (see Charles Phelps and Joseph
Newhouse's seminal review in the August 1974 issue of The Review of
Economics and Statistics and more recently Phelps' 1997 text ``Health
Economics''). Specific to the Medicare population, Margaret Artz and
colleagues report in the August 2002 issue of the American Journal of
Public Health that regardless of insurance type per capita prescription
drug expenditures increased as generosity of coverage increased in
their analysis of data from the Medicare Current Beneficiary Survey.
Accordingly, plans that offer supplemental benefits will be required to
provide an induced utilization estimate with their bid, and we have
adopted this provision without modification. Additional CMS guidelines
will be provided on estimating the induced utilization.
Reinsurance Subsidies to Private Fee-For-Service Plans
As provided under section 1860D-21(d)(4) of the Act and in Sec.
423.329(c)(3), we will base reinsurance payments for PFFS plans on an
alternative methodology. Rather than negotiating reinsurance
assumptions submitted with the PFFS plan bid or otherwise adjusting for
potential price level differences between PFFS and other MA
organization bids, we will estimate the amount of reinsurance payments
that will be payable if the plan were an MA-PD plan described in
section 1851(a)(2)(A)(i) of the Act. In doing so we will take into
account the average reinsurance payments made under Sec. 423.329(c)(2)
for basic benefits for populations of similar risk under such MA-PD
plans. Estimated payments will not be subject to any reconciliation
process to compare the amounts paid to the actual allowable reinsurance
expenses, and will not allow for payment recoveries in the event that
actual allowable reinsurance costs exceed payments.
6. Low-Income Cost-Sharing Subsidy Interim Payments
As provided under section 1860D-14 of the Act and in Sec. 423.780
of the regulations, we will provide additional assistance for certain
low-income beneficiaries in the form of premium, deductible and cost-
sharing subsidies. Since actual expenses incurred by these low income
beneficiaries can only be fully known after all costs have been
incurred for the payment year, we proposed to make estimated payments
on an interim basis to assist PDP sponsors and MA organizations with
cash flow. Under Sec. 423.329(d)(2)(i), we proposed to provide for
interim payments of low-income deductible and cost-sharing amounts on a
monthly prospective basis based on estimates of low-income cost sharing
submitted and negotiated with each plan's approved bid.
We also noted in the August proposed rule that low-income cost
sharing would not necessarily be incurred evenly throughout the
coverage year and that we were considering the most appropriate
methodology for distributing interim payments. Since equal payments
would be most compatible with our systems, in the first two years of
the program (and for the first two years of new plans thereafter) we
said in the proposed rule that we were considering an approach paying
1/12th of the net present value of estimated low-income cost sharing in
each month of the coverage year. This net present value would be
calculated on the basis of all estimated costs due at the end of the
year and discounted by the most recently available rate for one-year
Treasury bills. An alternative approach outlined in the proposed rule
would have required the submission of a schedule of the estimated
timing of incurred low-income cost sharing along with the plan bid. For
example, we might take schedules from each plan or we could propose an
incremental schedule (X percent of the total in January, Y percent in
February, etc.). We also noted that the prospective payment of
estimated costs might create an incentive to overstate low-income cost
sharing, and that we are interested in ensuring that our interim
payments are not excessive. We stated in the proposed rule that we
would welcome comments on these approaches and on the appropriate
treatment of interest in any methodology.
Again, we proposed that any reconciliation at the end of the year
would need to be based on the sponsor providing adequate information in
order to determine the subsidy amounts for the year. If the sponsor
could not provide such information, interim payments would be
recovered. In addition, the low-income payments would be subject to the
same inspection and audit provisions applying to the other payments
made under section 1860D 15 of the Act.
Comment: Several commenters supported prospective monthly payments
for the low-income subsidy based on estimates provided in the accepted
bid submissions. Two commenters suggested that low-income subsidies
should be paid to plan sponsors on an incurred basis.
Response: We will make low-income cost sharing subsidy payments on
a prospective basis using estimates submitted and negotiated with the
approved bid and will reconcile these payments after the end of the
coverage year with claims data. We agree with the majority of
commenters that this method best protects plans from cash flow
problems. More information will be provided with CMS guidelines on
payment methodology. We have modified Sec. 423.343(d)(1) to clarify
that our data requirements for reconciliation will be specified in
separate guidance.
Comment: One PBM urged that PDPs should be compensated for premium
underpayment if the low-income subsidy amount does not meet or exceed
their premium.
Response: The PDP will get paid its full premium. In cases where
the low-income subsidy amount is less that the plan's premium, any low-
income beneficiary enrolling in the plan is responsible for making up
the difference between the low-income premium subsidy and the plan's
premium.
Comment: Two commenters stated that some SPAPs would want to
supplement the premium subsidy so that their beneficiaries do not have
to pay first and be reimbursed by the SPAP. They suggested that Section
[[Page 4314]]
423.329 should include a requirement for plans to implement a process,
similar to the Medicare Part B buy-in process, which will allow States
to pay Medicare Part D premiums on behalf of SPAP beneficiaries.
Response: Such authority already exists. Collection of monthly
premiums are covered in Sec. 423.292. Section 1860D-13(c) of the Act
instructs that the provisions of 1854(d) shall apply to PDP sponsors
and premiums under this part be paid in the same manner as they apply
to MA under part C. Payment options under Sec. 422.262(f)(3) include
any ``other third parties such as a State''. Moreover, we are required
to establish standards for effective coordination between Part D plans
and SPAPs for payment of premiums and coverage, as well as payment for
supplemental prescription drug benefits. Further information on these
standards will be issued in separate guidance.
Comment: One commenter urged us to share all low-income subsidy
payment data under Sec. 423.315(d) directly with the SPAPs.
Response: Since nothing in the MMA addresses disclosure of data to
SPAPs, we believe that FOIA rules apply to these data. Therefore, it is
possible that we cannot disclose this data under exception 4 of FOIA,
but such a determination would be done on a case-by-case basis
following standard FOIA procedure.
7. Risk Sharing Arrangements
a. Risk Sharing Methodology and the Target Amount
As provided under section 1860D-15(e) of the Act and in Sec.
423.336, we would establish risk corridors. Risk-sharing payments would
limit exposure to unexpected expenses not already included in the
reinsurance subsidy or taken into account through risk adjustment.
These would be structured as symmetrical risk corridors that are
agreements to share a portion of the losses or profits resulting from
expenses for basic benefits either above or below expected levels,
respectively. However, plans would always be at full financial risk for
all spending on supplemental drug coverage. In addition, in accordance
with section 1860D-21(d)(5) of the Act and section 1860D 15(g) of the
Act, the risk sharing provisions are not available to PFFS and fallback
plans.
The expected level of expenses for basic benefits included in the
standardized bid is known as the ``target amount''. The target amount
for any plan would be equal to the total amount of direct subsidy
payments from us, and premium payments from enrollees to that plan for
the year based upon the risk-adjusted standardized bid amount, less the
administrative expenses and return on investment assumed in the
standardized bid. Since the standardized bid is the portion of the
accepted bid amount attributable to basic prescription drug coverage,
the target amount can be thought of as ``prepayments'' of prescription
drug expense for basic benefits. The standardized bid has also taken
into account (and excludes) any utilization effects of offering
supplemental coverage. The objective of risk sharing would be to
compare total actual incurred prescription drug expenses to the
prepayments, to compute the difference, and to reimburse or recover a
portion of the difference.
In Sec. 423.336(a)(2)(A), we establish risk corridors, defined as
specified risk percentages above and below the target amount. For
instance, in Sec. 423.336(a)(2)(ii), for 2006 and 2007, the first risk
corridor is defined as 2.5 percent above the target amount and the
second as 5 percent above the target amount. This means that, for 2006
and 2007, the first risk corridor is between 100 percent and 102.5
percent of the target amount and the second risk corridor is between
102.5 percent and 105 percent of the target amount. A third risk
corridor is above 105 percent of the target amount.
The term, symmetrical risk corridors--means that the same size
corridors exist below the target amount as above it. The actual upper
or lower limits of each corridor equal the target amount plus or minus
the product of the risk percentage times the target amount.
b. Allowable Risk Corridor Costs
The costs applicable to the computation of risk sharing are known
as allowable risk corridor costs. These costs are defined in section
1860D-15(e)(1)(B) of the Act and in Sec. 423.308 as the part of costs
for covered Part D drugs that are only attributable to basic benefits.
Allowable risk corridor costs cannot include costs attributable to
benefits outside the basic benefit. We interpret this as both the
actual differences in benefits structure and the insurance effect of
supplemental coverage on basic coverage. In section 1860D-15(e)(1)(B)
of the Act, reference is made to section 1860D-11(c)(2) of the Act that
provides for a utilization adjustment using as its reference point
standard prescription drug coverage. We are interpreting this to mean
the statutorily defined standard prescription drug coverage described
in subpart C. Also, allowable risk corridor costs must actually be paid
by the sponsor or organization under the plan and must be net of any
chargebacks, discounts or average percentage rebates. The allowable
risk corridor costs also do not include any administrative expenses
(including return on investment) of the sponsor or organization.
(Administrative expenses would not include costs directly related to
dispensing of Part D drugs during the year.) Note that unlike allowable
reinsurance costs, allowable risk corridor costs do not include any
amount paid by the enrollee. In Sec. 423.336(a)(1), we state that
allowable risk corridor costs must be adjusted in accordance with
section 1860D-15(e)(1)(A) of the Act, by subtracting expenses
reimbursed through other separate payments. Thus, reinsurance payments
made under Sec. 423.329(c)(2) and the non-premium low-income subsidy
payments made under Sec. 423.782 in subpart P of these regulations to
the sponsor of the plan for the year must be subtracted. The PDP
sponsor or MA organization would already have received compensation for
these costs, and thus they do not fall within the construct of risk
corridors that are directed at limiting exposure to unexpected
expenses.
If adjusted allowable risk corridor costs exceed the prepayments by
a certain amount, we would reimburse a percentage of the difference to
help plans with a portion of the unanticipated expenses associated with
their drug coverage. On the other hand, if prepayments exceed adjusted
allowable risk corridor costs, we would reduce future payments or
otherwise recover a percentage of the difference to reduce the impact
on the Trust Fund of excessive bids.
In order to arrive at a value for actual risk corridor costs
that can be appropriately compared to the target amount, allowable risk
corridor costs would be adjusted to remove expenses reimbursed through
total reinsurance payments and non-premium low income subsidy payments.
The statute indicates that allowable risk corridor costs must be
reduced by reinsurance payments and by the subsidy payments for low
income individuals. The subsidy payments for low-income individuals
under section 1860D-14 of the Act include subsidies for both premium
and for cost sharing. We interpret ``the total subsidy payments made
under section 1860D-14'' under section 1860D15(e)(1)(A)(ii)(II) of the
Act in the context of ``costs incurred by the sponsor or organization''
in the definition of allowable risk corridor costs. Since premiums are
not a cost, we limit our interpretation of ``the total subsidy
payments'' to payments related to cost sharing.
[[Page 4315]]
We note that when adjusted allowable risk corridor costs are
calculated by subtracting only non-premium subsidies the results are
the same as for an identical plan without any subsidy-eligible
individuals. However, if the adjusted allowable risk corridor costs are
calculated by subtracting total low-income subsidies (that is, for
premiums, cost sharing and coverage above the initial coverage limit),
the risk sharing calculation results in lower recouped costs on the
part of the plan and a different outcome from that in a plan without
subsidy eligible individuals. Since there must be no difference in
these amounts, the calculation subtracting only non-premium subsidies
must be the appropriate one. We believe that to do otherwise would
result in a major disincentive for PDP and MA-PD plans to enroll
individuals eligible for the low-income subsidies, and we do not
believe that this would be the logical outcome that was intended by the
statute. We are adopting this provision as proposed.
c. Changes in Risk Corridor Limits and Percentages (Sec. 423.336(a)
and (Sec. 423.336(b))
The risk corridors and the percentage of risk to be shared would be
set at certain levels for 2006 and 2007 with flexibility for us to
increase the risk sharing percentage if bids, and therefore target
amounts, are off during the early years of the program by a certain
percentage set by the statute in section 1860D 15(e)(2)(B)(iii) of the
Act. During 2006 and 2007, plans would be at full risk for adjusted
allowable risk corridor costs within 2.5 percent above or below the
target. Plans with adjusted allowable costs above 102.5 percent of the
target would receive increased payments. If their costs were between
102.5 percent of the target (1\st\ threshold upper limit) and at or
below 105 percent of the target (2\nd\ threshold upper limit), they
would be at risk for 25 percent of the increased amount; that is, their
additional payments would equal 75 percent of adjusted allowable costs
for spending in this range. If their costs were above 105 percent of
the target they would be at risk for 25 percent of the costs between
the first and second threshold upper limits and 20 percent of the costs
above that amount. That is, their additional payments would equal 75
percent of the difference between the first and second threshold upper
limits and 80 percent of the adjusted allowable costs over the second
threshold upper limit. Conversely, if plan spending fell below the 97.5
percent of target, plans would share the savings with the government.
They would have to refund 75 percent of the savings for any costs less
than 97.5 percent of the target amount but at or above 95 percent of
the target level, and 80 percent of any savings below 95 percent of the
target.
In Sec. 423.336(b)(2)(iii) the program will cover a higher
percentage of the risk for costs between the 1\st\ and 2\nd\ upper
threshold limits would apply in 2006 and 2007 if we were to determine
that: (1) 60 percent of Part D plans have adjusted allowable costs that
are more than the first threshold upper limit for the year; and (2)
these plans represent at least 60 percent of beneficiaries enrolled in
such plans. In this case, additional payments to plans would increase
from 75 percent to 90 percent of adjusted allowable costs between the
first and second upper threshold limits. Conversely, there would be no
change in savings shared with the government if costs fell below 97.5
percent of the target level.
For 2008 to 2011, the risk corridors and the percentage of risk to
be shared would be modified so that PDP and MA PD sponsors would assume
an increased level of risk. Plans would be at full risk for drug
spending within 5 percent above or below the target level. Plans would
be at risk for 50 percent of spending exceeding 105 percent and at or
below 110 percent of the target level. Additionally, they would be at
risk for 20 percent of any spending exceeding 110 percent of the target
level. Payments would be increased by 50 percent of adjusted allowable
costs exceeding the first threshold upper limit and up to the second
threshold upper limit and 80 percent for any additional costs exceeding
the second threshold upper limit. Conversely, if plan spending fell
below the target, plans would share the savings with the government.
They would have to refund 50 percent of the savings if costs fell
between 95 percent and 90 percent of the target level, and 80 percent
of any amounts below 90 percent of the target.
For years after 2011, we would establish the risk threshold
percentage as deemed necessary to create incentives for plans to enter
the market. The only required parameters would be that the first
threshold risk percentage could not be less than 5 percent and the
second threshold risk percentage could not be less than 10 percent of
the target amount.
d. Risk Sharing Payments or Recoveries
In Sec. 423.336(c), we will make payments or recover savings after
a coverage year after obtaining all of the information necessary to
determine the amount of payment. In Sec. 423.336(c)(1), the PDP
sponsor or MA organization offering a MA-PD plan would provide us with
the information necessary to calculate the risk sharing as discussed in
section 3(a) of this part of the preamble within six months. This would
include prior final reconciliation of reinsurance and low-income
subsidies since allowable risk corridor costs must be reduced by the
total reinsurance payments and non-premium low-income subsidies for the
year. Once this information has been received, under Sec.
423.336(c)(2) we would either make lump-sum payments or adjust monthly
payments in the following payment year based on the relationship of the
plan's adjusted allowable risk corridor costs to the predetermined risk
corridor thresholds in the coverage year. We would not make payment if
we did not receive the necessary information from the PDP sponsor or MA
organization. In addition, as stated, below, we are considering certain
corrective actions to recoup risk-sharing payments, in the event of
lack of information.
Comment: One State suggested that any savings accrued to the
government via risk sharing should be shared with the States.
Response: Risk sharing is symmetrical, meaning that if it were
permissible to share cost savings, the States would also have to assume
responsibility for the portion of the cost for specified risk
percentages above the target amount. Nevertheless, the Congress
intended for risk sharing to be between the Federal Government and the
plans with no State involvement whatsoever.
8. Retroactive Adjustments and Reconciliation (Sec. 423.343)
In Sec. 423.343(a) and Sec. 423.343(b) retroactive adjustments
are made to the aggregate monthly payments to a PDP or MA-PD for any
difference between the actual number and characteristics, including
health status, of enrollees and the number and characteristics on which
we had based the organization's advance monthly payments.
Reconciliation of actual payments made would be done as needed. In
order for total payments to be properly accounted for in all steps, the
order of reconciliation processes would be first, enrollment; second,
risk adjustment; third, low-income cost sharing; fourth, reinsurance;
and finally, risk sharing.
Under Sec. 423.343(c) and (d), we provide for a final
reconciliation process to compare the payments for reinsurance
subsidies and low-income cost-sharing subsidies made during the
coverage year to actual allowable reinsurance expenses and low-income
cost sharing and to make additional payments or payment recoveries
[[Page 4316]]
accordingly. The form and manner in which actual allowable reinsurance
costs would be submitted for reconciliation will be discussed in
additional CMS guidelines on payment methodology. PDP sponsors and MA
organizations offering a MA-PD plan would provide us with the
information necessary to finalize reinsurance payments as discussed in
section 3(a) of this part of the preamble within six months of the end
of a coverage year. Once complete data were received for a coverage
year, we would compare 80 percent of the allowable reinsurance costs
attributable to that portion of gross covered prescription drug costs
incurred in the coverage year after an individual has incurred costs
that exceed the annual out-of-pocket threshold to the monthly
reinsurance payments and compute the difference. We would then either
make lump-sum payments or adjust monthly payments throughout the
remainder of the payment year following the coverage year to pay out or
recover this difference.
If an entity did not provide us with sufficient documentation for
us to reconcile payments, we would reconcile by recovering payments for
which the entity lacked documentation. For example, if we make interim
payments during the year for the low-income subsidy, but at the end of
the year, the PDP sponsor or MA organization cannot provide
documentation demonstrating the amounts of beneficiary cost-sharing,
the reconciliation process would involve recouping the interim payments
for such subsidy. The need to provide sufficient documentation to
support final payment determinations applies even in the event of a
change of ownership. Thus, new owners of a PDP sponsor or MA
organization would be responsible for obtaining the documentation
necessary to support payment, and the reconciliation process would be
used to recover any payments for which the new owner lacked
documentation. We believe this authority stems from the direction of
the Congress that each PDP sponsor and MA-PD organization ``provide the
Secretary with such information as the Secretary determines is
necessary to carry out this section,'' (section 1860D-15(f)(1)(A) of
the Act) and that ``payments under this section . . . are conditioned
upon the furnishing to the Secretary in a form and manner specified by
the Secretary, of such information as may be required to carry out this
section,'' (section 1860D-15(d)(2)(A) of the Act)).
In the proposed rule we discussed potential remedies that should be
imposed in the event a PDP sponsor or MA organization offering an MA-PD
plan fails to provide us with adequate information regarding risk-
sharing arrangements. In the case of risk corridor costs, the
organization or sponsor may owe the government money if, for example,
prepayments exceed adjusted allowable risk corridor costs. In this
case, failure to provide information could result in a shortfall to the
government, since the entity would not have the information necessary
for the Secretary to establish the proper amount owed. Therefore, we
will assume that the sponsor's or organization's adjusted allowable
risk corridor costs are 50 percent of the target amount. We will use a
50 percent threshold because we believe this threshold would constitute
a lower limit; and it would be unlikely for any organization or sponsor
to have costs lower than 50 percent of their total payments. Additional
guidelines will detail our methodology for reconciliation for these
payments.
9. Reopening (423.346)
We believe that the provision in 1860D 15(f)(1) of the Act
providing the Secretary with the right to inspect and audit any books
and records of a PDP sponsor or MA organization regarding costs
provided to the Secretary would not be meaningful, if upon finding
mistakes pursuant to such audits, the Secretary were not able to reopen
final determinations made on payment. In addition, we believe that
sections 1870 and 1871 of the Act provide us with the authority to
reopen final determinations of payment to PDP sponsors and MA
organizations. Therefore, our reopening provisions patterned after
those used in Medicare claims reopening, found in Part 405 of the
regulations, subparts G and H. Including reopening provisions will
allow us to ensure that the discovery of any overpayments or
underpayments could be rectified. Under our provisions, reopening could
occur for any reason within one year of the final determination of
payment, within four years for good cause, or at any time when there is
fraud or similar fault. We could initiate a reopening on its own, or a
sponsor or organization could request reopening, but such reopenings
will be at our discretion. The Supreme Court has determined that in the
context of reopening cost reports, a fiscal intermediary's decision not
to reopen a final determination is not subject to judicial review, see
Your Home Visiting Nurse Services, Inc. v. Shalala, 525 U.S. 449, 456
(1999), and we believe the same reasoning would apply in the context of
Part D.
Good cause will be interpreted in the same manner as in Part 405
(see Medicare Carriers Manual section 12100). Thus, good cause will
exist, if (a) new and material evidence, not readily available at the
time of the determination, is furnished; (b) There is an error on the
face of the evidence on which such determination or decision is based;
or, (c) There is a clerical error in determination. In order to meet
the standard under (a) the evidence could not have been available at
the time the determination was made. A clerical error constitutes such
errors as computational mistakes or inaccurate coding. An error on the
face of the evidence exists if it is clear based upon the evidence that
was before us when it reached its initial determination that the
initial determination is erroneous. Thus, for example, good cause would
exist in cases where it is clear from the files that rebates or
administrative costs were not appropriately accounted for, where
computation errors had been made, where a sponsor or organization
included non-Part D drugs in their calculations, where individuals not
enrolled in the plan were included in calculating payment, and in
similar situations. Reopening could occur at any time in cases of fraud
or similar fault, such as in cases where the sponsor or organization
knew or should have known that they were claiming erroneous Medicare
payment amounts.
Comment: One commenter asked for clarification on the criteria that
we intend to follow in evaluating whether to reopen a determination
during the first year under Sec. 423.346.
Response: The criteria for reopening under Sec. 423.346 is no
different in the first year. Reopening could occur for any reason
within one year of the final determination of payment, within four
years for good cause, or at any time when there is fraud or similar
fault. We could initiate a reopening on its own, or a sponsor or
organization could request reopening, but such reopenings will be at
our discretion. Good cause will exist, if: (1) new and material
evidence, not readily available at the time of the determination, is
furnished; (2) there is an error on the face of the evidence on which
such determination or decision is based; or, (c) there is a clerical
error in determination.
10. Payment appeals (Sec. 423.350)
Several commenters were concerned with resolving payment accuracy
issues. Section 1860D-15(d)(1) of the Act gives broad authority to the
Secretary to develop payment methods and we intend on using this
authority to establish a payment appeals process to
[[Page 4317]]
help allay the aforementioned concerns. Accordingly, we have added
Sec. 423.350 to establish a payment appeals process whereby payment
determinations involving the following may be subject to appeals:
the reconciled health status risk adjustment of the direct
subsidy as provided in Sec. 423.343(b);
the reconciled reinsurance payments under Sec.
423.343(c);
the reconciled final payments made for low-income cost
sharing subsidies provided in Sec. 423.343(d); or
the final risk-sharing payments made under Sec. 423.336.
We wish to clarify that the payment appeals process only applies to
perceived errors in the application of the payment methodology
described in this subpart and subsequent CMS guidelines. Under no
circumstances may this process be used to submit new payment
information after the established deadline. Part D plans are expected
to submit payment information correctly and within the timelines we
established.
I. Organization Compliance with State Law and Preemption by Federal
Law.
1. Overview
In our proposed regulation at Sec. 423.401 we implemented the
requirements of section 1860D-12(a) of the Act that address licensing,
the assumption of financial risk for unsubsidized coverage, and
solvency and capital adequacy requirements for unlicensed sponsors or
sponsors who are not licensed in all States in the region in which it
wants to offer a PDP.
The provisions of this section specified the following:
A sponsor must be organized and licensed under State law
as a risk bearing entity eligible to offer health insurance or health
benefits coverage in each State that it offers a PDP.
There can be a waiver of the State licensure requirement
for the reasons and under the conditions set forth under section 1860D
12(c) of the Act.
To the extent an entity is at risk, it must assume
financial risk on a prospective basis for covered benefits that are not
covered by reinsurance. The PDP sponsor could obtain insurance or make
other arrangements for the cost of coverage provided to enrollees to
the extent that the sponsor is at risk for providing the coverage.
Below we summarize some of the proposals outlined in the August
2004 proposed rule, respond to public comment, and indicate any changes
we have made to the final rule. For a full explanation of the proposals
we refer readers to the August 2004 proposed rule.
a. Overview
We proposed at Sec. 423.410 to implement the provisions of section
1860D-12(c) of the Act that address waiver of certain requirements to
expand choice. Generally, section 1860D-12(c) of the Act specifies that
in order to expand access to prescription drug plans, we may waive the
State licensure requirement using many of the same standards that are
permitted under Part C for provider-sponsored organizations (PSOs). The
MMA also added some special rules for PDPs that are in addition to the
PSO waivers available under Part C. Finally, the MMA allows for
regional plan waivers under circumstances similar to those permitted
under Part C for regional plans. We proposed requirements for regional
plan waivers in Sec. 423.115.
b. Waivers Incorporated from 1855(a)(2)
Section 1860D-12(c) of the Act provides that a prospective PDP
sponsor may request a waiver from State licensure requirements from us
under the waiver provisions at sections 1855(a)(2)(B), 1855(a)(2)(C)
and 1855(a)(2)(D) of the Act. Because the Congress directed us to use
many of the same grounds for approving waivers used in accordance to
sections 1855(a)(2)(B), 1855(a)(2)(C), and 1855(a)(2)(D), we proposed
adopting the regulatory provisions in Sec. 422.372. These provisions
allow a waiver when the State has failed to complete action on a
licensing application within 90 days of receipt of a substantially
complete application. This rule was adopted in proposed Sec.
423.410(c)(1).
Proposed Sec. 423.410(c)(2) included the standard of Sec.
422.372(b)(2) (Denial based on discriminatory treatment). Under this
proposed regulation, a waiver could be granted if a determination by
CMS were made that: (1) the State denied an application based on
requirements that are not generally applicable to PDP sponsors or other
entities engaged in a similar business; or (2) the State required as a
condition of licensure that the PDP sponsor offer any product or plan
other than a prescription drug plan.
Proposed Sec. 423.410(c)(3) incorporated the standard of Sec.
422.372(b)(3) and stated that a waiver may be granted if the State
denied an application on the basis of procedures or standards relating
to solvency that are different from the solvency requirements
established by us. In Sec. 423.420, we proposed that we would use an
application process in which the waiver applicant would be required to
submit certain documents that indicate that the State is imposing
procedures or standards relating to solvency that are different from
CMS standards.
c. Additional Waivers Available under 1860D-12 of the Act.
In addition to the waivers available to PSOs under 1855(a)(2)(B),
(C) and (D) of the Act, the MMA also created additional waiver
opportunities for PDPs. The first of these was included in proposed
Sec. 423.410(c)(4) (implementing section 1860D-12(c)(2)(A)(ii) of the
Act), which provides that we may grant a waiver when a State imposes
requirements other than those required under Federal law.
The second and third of these (implementing section 1860D-
12(c)(2)(B) of the Act) were included in proposed Sec. 423.410(d) and
(e). We proposed granting a waiver in the following scenarios:
When a State does not have any licensing process for PDP
sponsors.
If a State does have a licensing process for years
beginning before January 1, 2008, a waiver will be granted if the PDP
sponsor merely submits its completed application for licensure to the
State.
We also proposed regional plan waivers at Sec.
423.410(b).
d. Other Sections of the Proposed Rule.
The proposed rule also included Sec. 423.420 (solvency standards
for all entities receiving a waiver of State licensure); Sec. 423.425
which proposed that an approved waiver does not deem the sponsor to
meet other requirements for a sponsor under Part 423 of the
regulations, and Sec. 423.440, which proposed prohibiting State
imposition of premium taxes and included the rules for Federal
preemption of State law.
2. Waiver of Certain Requirements in Order to Expand Clhoice
The statute requires, at section 1860D-12(c)(3) of the Act, that
the waivers granted under the provisions of section 1855 of the Act, as
well as under section 1860D-12(c)(2)(B) of the Act, must also meet the
conditions of approval established at section 1855(a)(2)(E),
1855(a)(2)(F) and 1855(a)(2)(G) of the Act. Accordingly, we implemented
the procedures for approving a waiver in regulations at Sec.
423.410(f). Please see our final regulations at Sec. 423.415 and our
discussion in section 2b of this preamble for requirements specific to
entities wishing to offer a prescription drug plan in more than one
State.
In proposed Sec. 423.410(f)(1), we established that except in
States without a licensing process for PDP sponsors and in the case of
regional plan waivers described in proposed Sec. 423.410(b)
[[Page 4318]]
(Sec. 423.415 in the final rule), a waiver applies only to a specific
State and is effective for 36 months and cannot be renewed. In the
final regulation we have made clarifying changes by adding new Sec.
423.415 which is specific to regional plan waivers. As was proposed in
Sec. 423.410., in Sec. 423.415(d) of the final rule we indicated that
regional waivers are valid until the State has completed processing the
application, but in no case can a regional plan waiver extend beyond
the end of the calendar year for which it is received. We proposed
implementing section 1855(a)(2)(F) of the Act at Sec. 423.410(f)(2) by
specifying that (except for regional plan waivers) we would grant or
deny a waiver application under this section within 60 days after we
determine that a substantially complete waiver application has been
filed. We proposed that a substantially complete application would have
to clearly demonstrate and document an applicant's eligibility for
waiver. We also proposed, at Sec. 423.410(f)(3) to implement 1860D-
12(c)(3) by establishing that if we determine that a State does not
have a licensing process for PDP sponsors, we will approve a waiver for
a PDP sponsor that meets our solvency and capital adequacy standards
and that this waiver would not be time limited
Comments and our responses to these waiver requirements follow.
We received several comments questioning, in general, the
requirement allowing State licensure to be waived when the State
applies grounds for licensure other than those required by Federal law.
Below, in the comment and responses section we discuss the specific
bases of these comments concerning preemption by Federal law, as well
as other comments we received on the proposed requirements.
Comments: Several commenters supported limiting our interpretation
of the preemption authority under State licensure requirements. One of
these, from a State insurance department, stated that only non-profit
organizations were eligible to apply under its State HMO licensure law.
The commenter expressed concern that State licensure waivers could
interfere with this State licensure requirement, since for-profit
entities might be able to receive licensure waivers from CMS. Another
commenter from a State insurance department expressed its hope that
Federal waiver authority of State licensure would not stop a State from
devising its own State approach to funding and financial management of
PDPs within its jurisdiction.
Response: In the issues raised by these commenters concerning
general licensing requirements we would need to evaluate a licensure
waiver request using the standards specified in Sec. 423.410 and Sec.
423.415 of the regulations. If an applicant met one of these standards
for waiver, we would grant the waiver, as the Congress required. This
could mean, for example, that a for-profit entity, operating under a
Federal waiver, does business in a State that offer HMO licenses only
to non-profit entities. We believe allowing qualified plans to
participate in a State or States is essential for establishing the new
program and, among other things, ensuring access for beneficiaries to
benefits and other requirements central to the prescription drug
benefit.
Concerning the comment about State solvency standards, our
regulations at Sec. 423.410(b)(3)(i) and (b)(3)(ii) allow a waiver of
State solvency and information requirements if the State requirements
concerning these go beyond those specified by Federal law. We are
finalizing our language from the proposed rule concerning these
requirements as we believe that the intent of the statute is to ensure
that entities wishing to offer prescription drug program in a State or
States not be subjected to requirements beyond those required by
Federal law.
Comment: Another organization requested that we specifically
identify those PDP sponsors which are State licensed and those which
have received a Federal waiver.
Response: We concur with the comment in principle that an
organization that is not State licensed but under a Federal waiver be
identified as such. As we develop additional guidance for the
requirements of Part D, we will consider how best to convey such an
identification. We do not believe, however, that it is necessary to
include the identification in the requirements of this final rule.
Comment: A PBM requested that we clarify the rules for States
without PDP licensure processes. The PBM proposed that if a State does
not have a specific insurance license for prescription drug-only
insurance plans, then this should be sufficient grounds for approval of
the waiver by us.
Response: The approach that we have in adopted in Sec.
422.372(b)(4) requires that the State licensing authority give the
organization written notice that it will not accept its licensure
application. Following this standard, we would require an organization
to approach the State licensing authority for review and receive their
decision prior to filing a request for waiver of State licensure under
the provisions of this section.
Comment: A managed care organization and an alliance of cost
contractors requested that we apply the licensure waiver rules to
Medicare cost plans as well as to PDPs.
Response: Section 1860D-12(c) of the Act specifically addresses the
waivers for prescription drug plans. We believe it would exceed our
authority to extend these waivers to cost plans, which are not
mentioned in section 1860D-12(c) of the Act. In addition, cost plans
are governed by the licensure requirements in Part C and in part 422 of
the regulations. This final rule is primarily addressed to the
regulations in the new part 423 of 42 CFR. Therefore, we do not believe
this final rule would be an appropriate place to adopt rules that
affect part 422 and not part 423 of the regulations.
Comment: A Native American council requested that State licensure
not be imposed upon a PDP that might be sponsored by the Indian Health
Service or a tribal health program.
Response: We do not have the authority to add to the waivers
included in section 1860D-12(c) of the Act. If a PDP sponsored by an
Indian Health Service or tribal health program meets one of the waiver
requirements in Sec. 423.410, the PDP applicant should receive a
waiver.
With the clarifying language noted we are, then, adopting our
regulations concerning eligibility for waivers largely as proposed for
Sec. 423.401 and Sec. 423.410.
3. Temporary Waiver for Entities Seeking to Offer a Prescription Drug
Plan in more than One State in a Region Sec. 423.115.
We implemented the regional plan waiver rule provided at section
1860D-12(c)(1)(B) of the Act in the regulations at proposed Sec.
423.410. (In this final rule, we have created a new Sec. 423.415 to
clarify that the regional plan waivers are distinct from the single-
State waivers, and often subject to different standards (for example,
they endure only until the end of the contract period and not for 36
months). As we stated, this would allow us to use the proposed waiver
authority at section 1858(d) of the Act and the temporary waiver would
be available in the event a prospective PDP sponsor proposed that its
prescription drug plan would cover a multi-State region, but was not
yet licensed in all of the States. (Under those circumstances, we
stated we could waive the State licensure requirement until the State
had completed processing of the application.) In the interim, the PDP
sponsor would be
[[Page 4319]]
required to comply with the solvency standards established by us. In
the event the State ultimately denied the application, we stated that
we could extend the waiver through the contract year as we deemed
appropriate to provide for transition.
In the final rule we have clarified, with the addition the
distinctions between the temporary waiver (for regional plans) and the
waiver for entities seeking to offer a plan in a single State, the
timeline for processing the application for the waiver and the length
of the waiver itself. Thus in new Sec. 423.415(c) we clarify that
Secretary will determine the time period appropriate for the processing
of the application and in new Sec. 423.415(d), we repeat the policy of
the proposed rule that in no case will the temporary waiver extend
beyond the end of the calendar year.
4. Solvency Standards for Non-Licensed Entities (Sec. 423.420)
In proposed Sec. 423.420, we specified that sponsors that have
been granted a waiver by us must maintain reasonable financial solvency
and capital adequacy.
Solvency standards have been developed after statutorily required
consultation with the National Association of Insurance Commissioners.
These standards are undergoing internal CMS review. We anticipate that
these standards, which are required to be published by January 1, 2005
will be published on the CMS website in the near future in conjunction
with the initial application forms for PDP organizations. These
solvency standards will include such items as required minimum net
worth and liquidity requirements as well as reporting requirements for
future PDPs who have received waiver of State licensure. We are
adopting the policy we proposed for reasonable financial solvency and
capital adequacy in this final rule.
5. Preemption of State Laws and Prohibition of Premium Taxes (Sec.
423.440)
In the August 4, 2004 proposed rule, we stated that we would
implement section 1860D-12(g) of the Act at proposed Sec. 423.440(a),
by specifying that to the extent there are Federal standards, those
standards supersede any State Law.
We proposed that for purposes of Part D, with the exceptions of
State licensing laws or State laws related to plan solvency, State laws
would not apply to prescription drug plans and PDP sponsors.
The proposed rule for the Medicare Advantage program also discussed
preemption of State laws, and because Part D and Part C incorporate the
same preemption laws at section 1856(b)(3) of the Act, we believe it is
necessary to summarize those discussions in this final rule.
In the Medicare Advantage proposed rule, we noted that prior to
enactment of the MMA, section 1856(b)(3) of the Act provided for two
types of preemption: general and specific. The presumption was that a
State law was not preempted if it did not conflict with an M+C
requirement, and did not fall into one of the four specified categories
where preemption was presumed. (These four categories were: benefit
requirements, including cost-sharing rules; requirements relating to
the inclusion or treatment of providers; requirements concerning
coverage determinations and related appeals and grievance processes;
and requirements relating to marketing materials and summaries and
schedules of benefits concerning M+C plans.)
We concluded that the MMA reversed this presumption and provided
that State laws are presumed to be preempted unless they relate to
licensure or solvency. We also referenced the Congress' intent that the
MA program, as a Federal program, operate under Federal rules, and
referred to the Conference Report of the MMA as making clear the
Congress' intent to broaden the scope of preemption through its change
to section 1856(b)(3) of the Act. See 69 FR 46866, 46904. We believe
that because the Congress incorporated the same preemption standard
into the Part D program, and because the Congress required the
preemption rules to apply consistently in Parts C and D, this same
reasoning would apply to Part D.
In addition, in the proposed rule for Part D, we stated that
although the Congress included broad preemption rules in section
1856(b)(3) of the Act, we did not believe that the Congress intended
for each and every State requirement applying to PDP sponsors to become
null and void. Specifically, we stated:
In areas where we have neither the expertise nor the authority
to regulate, we do not believe that State laws would be superseded
or preempted. For example, State environmental laws, laws governing
private contracting relationships, tort law, labor law, civil rights
laws, and similar areas of law would, we believe, continue in effect
and PDP sponsors in such States would continue to be subject to such
State laws. Rather, our Federal standards would merely preempt the
State laws in the areas where the Congress intended us to regulate--
such as the rules governing pharmacy access, formulary requirements
for prescription drug plans, and marketing standards governing the
information disseminated to beneficiaries by PDP sponsors. We
believe this interpretation of our preemption authority is in
keeping with principles of Federalism, and Executive Order 13132 on
Federalism, which requires us to construe preemption statutes
narrowly. (69 FR 46696.)
We also recognized that while the Congress specifically stated that
State licensure and solvency laws would not be preempted, this did not
mean that States could condition licensure on a sponsor meeting
requirements unrelated to what we would consider licensure
requirements. We also addressed this issue in the Medicare Advantage
proposed rule, explaining:
We believe that the exception for State laws that relate to
``State licensing'' must be limited to State requirements for
becoming State licensed, and would not extend to any requirement
that the State might impose on licensed health plans that-absent
Federal preemption-must be met as a condition for keeping a State
license. If a State requirement could be considered to relate to
State licensing simply because the State could revoke a health
plan's license for a failure to meet the requirement, this would
mean that States could impose virtually any requirement they wished
to impose without the requirement being preempted. ... Because we
believe that it is clear that the Congress intended to broaden the
scope of Federal preemption, not to narrow it, we also believe that
the exception for laws relating to State licensing must be limited
to requirements for becoming State licensed (such as filing articles
of incorporation with the appropriate State agency, or satisfying
State governance requirements), and not extended to rules that apply
to State licensed health plans. (69 FR 46904.)
We are adopting these preemption interpretations as our final
policy. We also note that in the accompanying regulation text we have
replaced PDP sponsor with Part D sponsor, as we believe that the
preemption of State law and the prohibition against imposition of
premium taxes should operate uniformly for all Part D sponsors. We note
that licensure requirements in this Part continue to apply only to PDP
sponsors, as other Part D sponsors (such as MA organizations and cost-
based HMOs and CMPs) are subject to their own licensing laws.
Comment: One large insurer felt that our narrow interpretation of
the statutory preemption authority was contrary to the language of
section 1856(b)(3) of the Act. This insurer requested that CMS consider
making clear that all State laws and regulations (with the exception of
State licensing and solvency laws) are preempted with respect to MA and
Part D plans.
Response: As noted in the proposed rule, we do not believe that
either the
[[Page 4320]]
principles of Federalism or the statute justify such a broad preemption
interpretation. We do not believe, for example, we could preempt all
State environmental or civil rights laws, nor do we believe it was the
Congress' intent to do so. The preemption in section 1860D-12(g) of the
Act is a preemption that operates only when CMS actually creates
standards in the area regulated. To the extent we do not create any
standards whatsoever in a particular area, we do not believe preemption
would be warranted.
Comment: A pharmaceutical manufacturer and a pharmaceutical
manufacturing association requested clarification from us that it is
not our intent to preempt any State pharmacy laws dealing with the
practice of therapeutic substitution.
Response: In general, we do not think we have the authority to
preempt State pharmacy licensing laws dealing with the practice of
therapeutic substitution and we do not intend to establish standards in
this area. However, it should be noted that the forthcoming electronic
prescription standards do have the potential to impact State pharmacy
practices and such standards could preempt State pharmacy practice laws
and regulations that conflict with them.
We are adopting the requirements of the proposed rule with the
technical and clarifying changes noted throughout this preamble. We are
also adopting the premium tax prohibition included in the proposed
without modification. Both rules are found at Sec. 423.440
J. Coordination Under Part D Plans with Other Prescription Drug
Coverage
Proposed subpart J set forth the application of Medicare Part D
rules to Medicare Part C plans; established waivers for employer-
sponsored group prescription drug plans, MA-PD plans, cost plans, and
PACE organizations; and established requirements for coordination of
benefits with State Pharmaceutical Assistance Programs (SPAPs) and
other providers of prescription drug coverage.
Below we summarize the proposed provisions of subpart J and respond
to public comments. (Please refer to the August 2004 proposed rule (69
FR 46696) for a detailed discussion of our proposals.)
1. Overview and Terminology (Sec. 423.454)
Subpart J implemented sections 1860D-2(a)(4), 1860D-2(b)(4)(D),
1860D-11(j), 1860D-21(c), 1860D-22(b), 1860D-23(a), 1860D 3(b), 1860D-
23(c), 1860D-24(a), 1860D-24(b), and 1860D-24(c) of the Act, as added
to the Act by section 101(a) of the MMA. We proposed that, in general,
the requirements of Part D generally apply under Part C for
prescription drug coverage offered by MA-PD plans, although certain
waivers are available. In addition, we implemented section 1860D-22(b)
of the Act at proposed Sec. 423.458(c) providing us the authority to
waive the requirements of this part for employer-sponsored group
prescription drug plans.
a. Part D Plans
Unless otherwise indicated, references to ``Part D plans'' in the
proposed rule referred to any or all of MA-PD plans, prescription drug
plans (PDPs) and fallback prescription drug plans. Likewise, the term
``Part D plan sponsor'' referred to MA organizations offering MA-PD
plans, PDP sponsors, and eligible fallback entities offering fallback
plans. We have moved the definition of ``Part D plan'' to Sec. 423.4
of our final rule and expanded the definition such that it includes
cost plans and PACE organizations offering qualified prescription drug
coverage. Similarly, we have revised the definition of ``Part D
sponsor'' under Sec. 423.4 of our final rule to include cost plans and
PACE organizations offering qualified prescription drug coverage.
b. Employer-sponsored Group Prescription Drug Plan
We used the term ``employer-sponsored group prescription drug
plan'' to mean a prescription drug plan under a contract between a PDP
sponsor or MA organization offering an MA-PD plan and employers, labor
organizations, or the trustees of funds established by one or more
employers or labor organizations (or combination thereof) to furnish
prescription drug benefits under employment-based retiree health
coverage.
c. State Pharmaceutical Assistance Program (SPAP)
We defined an SPAP, for purposes of this part, as a program
operated by or under contract with a State if it:
(1) Provides financial assistance for the purchase or provision of
supplemental prescription drug coverage or benefits on behalf of Part D
eligible individuals;
(2) Provides assistance to Part D eligible individuals in all Part
D plans without discriminating based upon the Part D plan in which an
individual enrolls;
(3) Meets the benefit coordination requirements specified in this
part; and
(4) Does not change or affect the primary payer status of a Part D
plan.
Comment: Although one commenter supported our proposed definition
of the term ``SPAP,'' several commenters urged us to allow SPAPs to
endorse one or more Part D plans for SPAP enrollees. They believe that
the non-discrimination criteria contained in the definition of the term
SPAP should be designed to maximize the efficiency and effectiveness of
offering benefits that supplement the benefits available under Part D
coverage to enrollees. Some of these commenters believe that a
preferred plan approach, if accomplished via a competitive bid process,
supports the competitive, market-based model that the Congress
envisioned. One commenter stated that such an approach would help it to
``ratchet down'' administrative costs. Another commenter asserted that
the statute does not prohibit a State from providing consumer advice to
its SPAP enrollees regarding which Part D plan might work best with an
SPAP or offer the best value.
Commenters believe that this interpretation is consistent with the
intent to establish an effective coordination mechanism between SPAPs
and Part D plans. Defining non-discrimination in a way that prohibits
SPAPs from designating preferred Part D plans and prohibiting auto-
enrollment of SPAP beneficiaries into preferred plans would not
facilitate enrollment in Part D plans and would further complicate,
rather than promote, coordination between Part D plans and SPAPs.
Response: Section 1860D-23(b)(2) of the Act defines an SPAP, in
part, as a program that ``in determining eligibility and the amount of
assistance to Part D enrollees, provides assistance to such individuals
in all Part D plans and does not discriminate based upon the Part D
plan in which the individual is enrolled.'' We are interpreting the
non-discrimination language in section 1860D-23(b)(2) of the Act and
Sec. 423.464(e)(1)(ii) of our final rule to mean that SPAPs, if they
offer premium assistance or supplemental assistance for Part D cost
sharing, must not only offer equal assistance to beneficiaries enrolled
in all Part D plans available in the State, but also may not steer
beneficiaries to one plan or another through benefit design or
otherwise. We believe that the law intends that all Part D plans in a
State be given comparable opportunities. Requiring States to coordinate
with all Part D plans, without discrimination, levels the playing field
for Part D plans that want to provide benefits in a particular State.
We further interpret section 1860D-23(b)(2) of the Act as
prohibiting SPAPs from automatically enrolling (``auto-enrolling'')
beneficiaries into a preferred
[[Page 4321]]
plan because this would, in effect, allow the SPAP to choose a Part D
plan for the beneficiary. The non-discrimination provision is part of
the definition of an SPAP. Thus, even if under State law a State is the
authorized representative of its SPAP enrollees for purposes of
enrolling them in a Part D plan elected by the State, if it auto-
enrolls beneficiaries into a select plan, the State program will no
longer meet the statutory definition of SPAP under section 1860D-23(b)
of the Act.
This will jeopardize the program's special status with respect to
true out-of-pocket (TrOOP) costs. That is, if a State does not meet the
definition of an SPAP, its contributions to beneficiary cost sharing
under a Part D plan do not count toward the TrOOP limit, after which a
beneficiary is eligible for catastrophic coverage.
Section 1860D-23(d) of the Act provides for grants to SPAPs for the
purpose of educating their members who are Part D eligible individuals
about the options available to them under the Medicare drug benefit,
including information comparing Part D plans in the State so that SPAP
enrollees they can choose the Part D plan that provides them with the
best value. We will reach out to SPAPs and provide them with
information they can use to help their enrollees who are Part D
eligible individuals better understand their Part D plan options. We
will also assist SPAPs in their efforts to ensure that their members
understand the manner in which the Part D plans in their State
coordinate with their SPAP benefit. Our outreach to SPAPs will also
include guidance on the various educational, outreach, and assistance
activities SPAPs may undertake in a manner that will not discriminate
among Part D plans, for example: (1) SPAPs can provide beneficiaries
with objective and comparative education on all available Part D plans
offered in the State; and (2) SPAPs can advise members on:
which plans have lower beneficiary premiums than others
(after application of any low-income premium subsidy under 423.782 of
our final rule or premium subsidy offered by the SPAP, which must be
applied uniformly without respect to which Part D plan an individual
enrolls in),
which plan formularies include the drugs currently
utilized by the beneficiary,
which plans offer the beneficiary the most favorable
combination of deductibles, coinsurance, and negotiated prices for the
drugs currently utilized by the beneficiary, and
which plans' network pharmacies include the same
pharmacies participating in the SPAP, and which plans (if any) include
an emblem or symbol on their ID cards indicating their coordination
with the SPAP to facilitate secondary payment at the point of service.
The nondiscrimination requirement also bars SPAPs from recommending
Part D plans based on the SPAP's financial interest in minimizing the
cost of providing benefits under the SPAP that supplement the benefits
available under Part D coverage. In addition, to the extent an SPAP
assists the enrollment into Part D of its members who fail to elect a
Part D plan during their initial enrollment period or upon joining the
SPAP, we encourage SPAPs to mirror our procedures for auto-enrollment
of full-benefit dual eligible individuals into Part D plans, which will
be done on a random basis.
Comment: One commenter asked us to clarify whether a hybrid SPAP
with multiple components, some of which meet our definition of SPAP,
and some of which do not, would render an entire SPAP ``unqualified''
under our definition.
Response: We agree that components of State programs that provide
pharmaceutical assistance, provided they meet the definition of the
term ``SPAP'' in Sec. 423.454(e)(1) of our final rule, may provide
benefits that supplement the benefits available under Part D coverage,
and that such supplemental assistance for covered Part D drugs will
count toward Part D enrollees' TrOOP limit (as defined in Sec.
423.104(d)(5)(iii) of our final rule). Thus, for example, if an SPAP
receives Federal program funding for certain enrollees (for example,
HIV/AIDS patients) or for certain drugs (for example, vaccines or HIV/
AIDS drugs), while the State covers drug costs for other SPAP enrollees
or for other drugs, only those components of the SPAP program that
receive no Federal program funds may be considered an SPAP. We do not
see any reason why the existence of both qualified and non-qualified
components of a SPAP would interfere with our ability to count the
spending of the qualified SPAP toward TrOOP, as long as operations and
funding are appropriately segregated.
Comment: Several commenters asked for clarification regarding
whether State Kidney Programs, which are structurally similar to SPAPs,
can be defined as SPAPs so that their benefits supplementing the
benefits available under Part D coverage count toward their enrollees'
TrOOP limit.
Response: Section 1860D-23(b) of the Act provides that an SPAP is a
State program that provides financial assistance for the purchase or
provision of prescription drugs, and we interpret this to mean that it
provides assistance with State funds. Therefore, to the extent that all
sources of program funding for a State Kidney Program's financial
assistance for the purchase or provision of supplemental prescription
drug coverage or benefits on behalf of Part D enrollees are 100 percent
non-Federal and provided a program that meets the other criteria
included in the description of an SPAP in Sec. 423.464(e)(1) of our
final rule, the program will be considered an SPAP. Any benefits
provided by such a program that supplement the benefits available under
Part D coverage would therefore count as an incurred cost toward the
calculation of a beneficiary's TrOOP threshold.
Comment: One commenter asked us to clarify that a State can use any
source of funds available to it (other than Federal funds) to finance
any form of assistance to SPAP enrollees.
Response: We have clarified in Sec. 423.464(e)(1) of our final
rule that the term ``SPAP'' excludes any program under which program
funding is from Federal grants, awards, contracts, entitlement
programs, or other Federal sources of funding. However, the statutory
definition of the term SPAP does not address program funding sources.
We believe that a State program may still be considered an SPAP if some
or all of its program funding is from private sources (for example,
from charities or independent foundations). We also clarify that the
exclusion of Federal program funding does not exclude some Federal
administrative funding or incidental Federal monies (for example, the
Federal grants to SPAPs provided for in section 1860D-23(d) of the
Act).
In addition, to ensure SPAPs are funded in a manner consistent with
the Congress' intent in the statute, we clarify that a ``State
program'' under Sec. 423.454 of our final rule must provide assistance
based on financial need, age, or medical condition, and cannot do so
based on current or former employment status. Under section 1860D-23(b)
of the MMA, an ``SPAP'' is defined as a State program which provides
financial ``assistance'' for supplemental drug coverage or benefits.
The term ``assistance'' is defined in Webster's II dictionary as
``help'' or ``aid.'' We therefore interpret the word ``assistance'' to
mean financial help or aid provided to any individual in need of such
support--specifically,
[[Page 4322]]
individuals in financial need, the aged, or those with certain medical
conditions. Thus, as provided in Sec. 423.454 of our final rule, a
``State program'' is one that provides financial assistance for
supplemental drug coverage to individuals based on financial need, age,
or medical condition, but not based on current or former employment
status.
Comment: One commenter suggested that our interpretation of the MMA
should allow for the continuation and renewal at State discretion of
the Pharmacy Plus waivers.
Response: Pharmacy Plus programs can continue with Federal match
after January 1, 2006, under certain circumstances. Any State that
operates a Pharmacy Plus demonstration program must determine whether
it is feasible to continue that Pharmacy Plus program by submitting a
revised budget neutrality calculation for the demonstration. As
required in section III (10) of the terms and conditions of approval
for Pharmacy Plus programs, this calculation must account for the
reduction in Medicaid drug costs and a lesser diversion of dual
eligible beneficiaries into the Medicaid program due to the
implementation of Part D. We will review the revised budget neutrality
calculation and approve or disapprove the continuation of the
demonstration for the period after Part D is implemented.
2. Application of Part D Rules to Certain Part D Plans on and after
January 1, 2006 (Sec. 423.458)
In accordance with section 1860D-21(c)(1) of the Act, and proposed
at Sec. 423.458(a) of our notice of proposed rulemaking, the
provisions of Part D pertaining to the provision of qualified
prescription drug coverage apply under Part C to prescription drug
coverage provided by an MA-PD plan in lieu of other Part C provisions
that would apply to such coverage, unless otherwise provided. Thus,
Part D requirements not related to the provision of drug coverage (for
example, licensing requirements) do not apply to MA-PD plans.
We indicated that we would waive Part D provisions to the extent
that we determine that they duplicate, or conflict with, provisions
under Part C, or as necessary in order to improve coordination of Part
D benefits with the Part C program. In addition, we indicated that we
would apply our waiver authority to cost plans and PACE organizations
as proposed at Sec. 423.458(d).
Except as otherwise provided below, the final rule adopts the
provisions related to the application of Part D rules to MA-PD plans,
as well as waivers of Part D requirements for MA-PD plans and cost
plans, set forth in Sec. 423.458(a), (b), and (d) of the proposed
rule.
Comment: Two commenters suggested that waivers of Part D rules
related to formulary requirements and pharmacy and therapeutic (P&T)
committee requirements should not be allowed for MA-PD plans under the
waiver authority provided in section 1860D-21(c)(2) of the Act, since
there are no comparable provisions under Part C with which the Part D
rules could conflict. Another commenter believed that waivers of Part D
rules regarding coverage determinations and appeals should not be
allowed under the waiver authority provided in section 1860D-21(c)(2)
of the Act. Another commenter said that Part D appeals and grievances
requirements should be waived for MA-PD plans to the extent they are
not identical with Part C appeals and grievances requirements.
Response: Section 1860D-21(c)(2) of the Act requires the Secretary
to waive requirements under Part D to the extent the Secretary
determines they duplicate or are in conflict with provisions otherwise
applicable under Part C, or they are necessary to waive in order to
promote coordination of Part C and Part D benefits. In our proposed
rule, we proposed implementing this authority in Sec. 423.458(b). The
clear intent of this provision was to recognize that the delivery of
health care services covered under the original Medicare program under
Part C takes precedence over the delivery of a drug benefit under Part
D. Although the Part D drug benefit will become a vital part of the
health care services offered by an MA-PD plan, to the extent that the
Part D rules make it impossible for an MA-PD plan to effectively
deliver Part C benefits, we will exercise Part D waiver authority to
ensure that Part C benefits continue to be effectively delivered under
Sec. 423.458(b) of the final rule. We agree with the commenter that
the three waivers specifically mentioned related to formulary
requirements, P&T committee requirements, and the Part D appeals
process will not be waived for MA-PD plans insofar as there are no
conflicting provisions or rules under Part C that will make these Part
D requirements impossible for an MA-PD plan to implement.
Comment: One commenter requested two specific waivers related to
the Part D benefit offered by MA-PD plans. Specifically, the commenter
requested a waiver of the pharmacy access standards in Sec.
423.120(a)(1) of our proposed rule under similar conditions to the
waivers we have permitted for MA plans related to the Medicare
Prescription Drug Discount Card and Transitional Assistance Program.
The commenter also requested a waiver of the requirement that MA
organizations post their negotiated prices on our website, again saying
that we had approved a similar waiver for MA plans that are exclusive
card sponsors under the drug discount card program.
Response: In our proposed rule, we signaled our intention to waive
pharmacy network access requirements described at Sec. 423.120(a)(3)
in the case of an MA-PD plan that provides access (other than through
mail order pharmacies) to qualified prescription drug coverage through
pharmacies owned and operated by the MA organization to the extent we
determine that the network is sufficient to provide comparable access
for enrollees of the MA-PD plan. In the subpart B preamble of our
proposed rule, we discussed the information resources available through
the Internet at http://www.medicare.gov. Although we discussed information
available to Medicare-approved discount drug cards in that section of
the preamble, we did not specifically signal our intention to provide
identical information related to Part D plans. Therefore, it remains
unclear that the second waiver would be necessary. More importantly, to
the extent we discuss the required written waiver process in Sec.
423.458(b)(2), (c)(1) and (d)(2) of our final rule, it is more
appropriate at this time to direct the commenter to those sections of
the rule than it is to speculate as to what waivers would, and would
not, theoretically be allowed, if they were requested by an appropriate
party.
3. Application to PACE Organizations
Section 1860D-21(f) of the Act indicates that Part D provisions
shall apply to PACE organizations electing to offer qualified
prescription drug coverage in a manner that is similar to those of an
MA-PD local plan and that a PACE organization may be deemed to be an
MA-PD local plan. As discussed in detail in subpart T, PACE
organizations will not be deemed as MA-PD local plans, but will be
treated in a manner that is similar to MA-PD local plans for Part D
requirements applicable to the offering of qualified prescription drug
coverage. Proposed Sec. 423.458(d) established regulatory authority
for us to waive Part D provisions for PACE organizations to the extent
the provisions duplicate or conflict with a requirement under PACE, or
the waiver is necessary to promote coordination of benefits under
[[Page 4323]]
PACE and Part D, and indicates that PACE organizations may request
waivers from us.
The final rule adopts the rules regarding waivers of Part D
requirements for PACE organizations set forth in Sec. 423.458(d) of
the proposed rule.
Comment: We received various comments regarding waivers of Part D
requirements for PACE organizations.
Response: Please refer to subpart T of this preamble for a detailed
discussion of these comments and our responses to them.
4. Application to Employer Groups
Section 1860D-22(b) of the Act extends the waiver authority that is
provided for MA organizations related to Part C under section 1857(i)
of the Act and implemented at Sec. 422.106(c) of our proposed MA rule
to prescription drug plans. This waiver authority is intended to
provide employment-based retiree health coverage an opportunity to
furnish prescription drug benefits to its participants or beneficiaries
through Part D in the most efficient and effective manner possible.
We invited comment on the process we proposed for authorizing
waivers for employer-sponsored group prescription drug plans. We also
asked for comment on the manner in which additional waivers should be
permitted and what additional waivers, if any, we should not allow.
Except as otherwise provided below, the final rule adopts the
provisions related waivers of Part D requirements for employer-
sponsored group prescription drug plans set forth in Sec. 423.458(c)
of the proposed rule.
Comment: Most commenters indicated a strong desire to obtain clear
non-regulatory guidance addressing key issues in the waiver process
prior to the final regulations being published. Commenters also urged
us to adopt a process for employer waivers that gives employers maximum
flexibility while minimizing administrative burden. Several commenters
stressed the importance of providing waivers to facilitate employers
becoming their own PDP or MA-PD plan for their retiree population.
Several employers commented that under ERISA, State licensure
requirements would not apply. Commenters also suggested waivers for the
areas of network access, service area, marketing, disclosure, and
enrollment.
Response: We are adopting a streamlined approach for implementing
employer group waivers that allows maximum flexibility for employers to
retain retiree prescription drug coverage. Details on waivers that we
will and will not consider will be included in separate guidance.
Additional waiver requests will be addressed on a flow basis.
Comment: One commenter requested clarification as to whether we
will extend to cost plans (as defined under section 1876 of the Act)
its waiver authority under section 1860D-22(b) of the Act.
Response: Section 1860D-21(e)(1) of the Act provides that only
those provisions of Part D (and related provisions of Part C)
pertaining to the offering of qualified prescription drug coverage by a
MA-PD local plan would apply to the offering of the coverage by a cost
plan. Because the employer waiver authority under section 1860D-22(b)
of the Act pertains to the offering of qualified prescription drug
coverage, we believe section 1860D-21(e) of the Act extends this waiver
authority to cost plans. This will facilitate the retention of employer
sponsored retiree prescription drug coverage under cost plans. However,
the provisions of Part C and D that do not relate to the offering of
qualified prescription drug coverage by cost plans, including the
employer waiver authority under section 1857(i) of the Act, would not
apply to benefits offered under a cost plan other than any qualified
prescription drug coverage. Accordingly, we do not interpret these
statutory provisions as permitting us to apply our waiver authority for
employer-sponsored group coverage to Part A and B benefits offered
under cost plans.
Comment: One commenter stated that a PBM or other third party
administrator supporting an employer should be able to elect to solely
serve employer groups without also being required to open enrollment to
beneficiaries also in the service area but unaffiliated with the
employer.
Response: We will include details in separate guidance on waivers
that we will and will not consider. Section 423.458(c) of our proposed
rule did not propose interpreting section 1857(i)(2) of the Act as
permitting entities other than PDP sponsors and MA organizations from
requesting employer group waivers, or contracting with us to offer an
employer-sponsored group prescription drug plan. However, given the
commenter's request for clarification, we note that Sec. 423.458(c) of
our final rule provides that any entity seeking to offer, sponsor, or
administer an employer-sponsored group prescription drug plan may
request a waiver or modification of Part D requirements. We will
provide separate guidance regarding what entities we will contract
with, as well as how we will contract with them.
5. Medicare Secondary Payer Procedures (Sec. 423.462)
Section 1860D-2(a)(4) of the Act extends the Medicare secondary
payer (MSP) procedures applicable to MA organizations under section
1852(a)(4) of the Act and 42 CFR 422.108 to Part D sponsors and their
provision of qualified prescription drug coverage. Section 1852(a)(4)
of the Act provides that an MA organization may charge or authorize a
provider to seek reimbursement for services from a beneficiary or third
parties to the extent that Medicare is made a secondary payer under
section 1862(b)(2) of the Act. Accordingly, we proposed at Sec.
423.462 of our proposed rule that Part D sponsors are required to
follow the same rules as MA organizations regarding:
Their responsibilities under MSP procedures;
Collection of payment from insurers, group health plans
and large group health plans, the enrollee, or other entities for
covered Part D drugs; and
The interaction of MSP rules with State laws.
Comment: One commenter notes that MSP rules will apply to Part D
and that section 1860D-12(g) of the Act extends State law preemption to
Part D sponsors. This commenter believes that the MSP provisions
extended to Part D sponsors should also apply to cost plans offering
qualified prescription drug coverage. They argue that Part D is a
Federal program and should be implemented by all Part D plans in accord
with the same Federal rules and without regard to any State laws except
those governing licensure and solvency.
Response: Section 1860D-21(e)(1) of the Act provides that those
provisions of Part D (and related provisions of Part C) pertaining to
the offering of qualified prescription drug coverage by a MA-PD local
plan would apply to the offering of such coverage by a cost plan.
Accordingly, the MSP provisions under section 1860D-2(a)(4) of the Act
and the preemption provisions under section 1860D-12(g) of the Act are
extended to cost plans for offering of qualified prescription drug
coverage under the plans. However, the MSP and preemption provisions of
both Parts C and D would not apply to benefits offered under a cost
plan providing other than any qualified prescription drug coverage.
Accordingly, we do not interpret these statutory provisions as
permitting us to apply these provisions to Part A and B benefits
offered under
[[Page 4324]]
cost plans. Cost plans are thus still subject to the MSP and State law
preemption provisions under Sec. 411.172 for their Part A and B
benefits.
6. Coordination of Benefits with Other Providers of Prescription Drug
Coverage. (Sec. 423.464)
Section 1860D-23(a) of the Act authorizes us to establish
procedures and requirements to promote the effective coordination of
benefits between a Part D plan and an SPAP with respect to payment of
premiums and coverage, and payment for supplemental prescription drug
benefits. The elements to be coordinated include enrollment file
sharing, claims processing, payment of premiums for both basic and
supplemental drug benefits, third-party reimbursement of out-of-pocket
costs, application of protection against high out-of-pocket
expenditures (defined in section 1860D-2(b)(4) of the Act), and other
administrative processes and requirements that we specify.
We will establish procedures and requirements for Part D plans no
later than July 1, 2005, to ensure effective coordination. In addition,
as specified at section 1860D-24(a) of the Act, we will apply the
requirements for coordination of benefits with SPAPs to Part D plans
when they coordinate with entities providing other prescription drug
coverage, including Medicaid (including a plan operating under a waiver
under section 1115 of the Act), insurers, group health plans, the
Federal Employees Health Benefits Program (FEHBP), military coverage
(including TRICARE), and other coverage that we specify.
Section 1860D-24(a)(3) of the Act permits us to impose user fees to
defray the costs of Part D coordination of benefits, but not on SPAPs
under any method of operation, for the transmittal of benefit
coordination information under Part D. We are also provided authority
to retain a portion of these user fees to offset costs we incur for
determining whether enrollee out-of-pocket costs are being reimbursed
by third parties and for alerting Part D plans when, in fact, they are
being reimbursed. In the proposed rule, we noted that any user fees, if
collected, would not be assessed until the implementation of the Part D
benefit in 2006. We requested comments regarding the method we should
use to impose user fees, especially concerning whether it would be
advisable to impose user fees on a monthly or quarterly basis based on
the volume of data exchanged and whether we should require electronic
payment of user fees.
As provided in section 1860D-24(c)(1) of the Act, Part D plans may
continue to use cost management tools (such as tiered or differential
cost sharing) even if an SPAP or other drug plan provides benefits that
supplement the benefits available under Part D coverage for individuals
enrolled in the Part D plan. In the proposed rule, we requested
comments on how we could ensure that supplemental benefits offered by
SPAPs and plans providing other prescription drug coverage would not
undermine or eliminate the cost management tools established by Part D
plans. We also solicited comments on the most effective way to
administer this provision without creating undue administrative burden
on either Part D plans or other prescription drug coverage that
supplements Part D benefits.
Except as otherwise provided below, the final rule adopts the
coordination of benefit provisions set forth in Sec. 423.464 of the
proposed rule.
Comment: One commenter indicated that our policies regarding
coordination of benefits should ensure that this process is as
administratively simple as possible, and that coordination of benefits
rules are structured in a way that does not create incentives for
beneficiaries to switch Part D plans mid-year in order to obtain better
basic benefits.
Response: We agree and will keep this in mind as we work to develop
requirements for coordination of benefits between Part D plans and
SPAPs and entities providing other prescription drug coverage. We note,
as well, that Part D enrollees may only switch Part D plans mid-year
under the limited circumstances triggering a Special Election Period
(SEP) in accordance with Sec. 423.38(c) of our final rule.
Comment: One commenter indicated that while section 1860D-23 of the
Act requires us to establish requirements for coordination of benefits
beyond the tracking of TrOOP expenditures and claims payment (for
example, for premium payment with SPAPs), they believe that
coordination of benefits responsibilities should be limited for now to
the tracking of TrOOP expenditures and claims payment. This commenter
believed that an incremental approach is in the best interests of all
parties, particularly since it is still unclear how many entities will
choose to participate in or provide supplemental coverage to Part D.
Response: Section 1860D-23(a)(2) of the Act requires that benefit
coordination elements include, at a minimum, enrollment file sharing,
processing of claims, claims payment, claims reconciliation reports,
and application of the protection against high out of pocket
expenditures. We must comply with these statutory requirements in
establishing our coordination requirements for SPAPs and other
providers of prescription drug coverage, and it is in the best
interests of Part D enrollees and plans that coordination activities
begin as soon as possible. We do not believe that an incremental
approach will be necessary, and we will be issuing further information
on our coordination requirements and processes soon.
Comment: One commenter recommended that we establish a technical
advisory group with representatives from the industry, including
pharmacy software vendors and switching services, to develop
coordination of benefits requirements for Part D plans to ensure
effective coordination with SPAPs and other providers of prescription
drug coverage. Another commenter recommended that relevant
stakeholders, including pharmaceutical benefit managers, be consulted
as we develop our requirements.
Response: As discussed in our proposed rule, section 1823(a)(4) of
the Act requires us to consult with SPAPs, MA organizations, States,
pharmaceutical benefit managers, employers, representatives of Part D
eligible individuals, data processing experts, pharmacists,
pharmaceutical manufacturers, and other experts in establishing our
coordination of benefits requirements. To date, we have not only
encouraged comments on this issue in our proposed rule, but we have
also held many consultation sessions with these various stakeholders
and an Open Door Forum on TrOOP and coordination of benefits. We will
continue to meet with these parties as we develop our coordination
requirements and processes.
Comment: One commenter stated that an unintended consequence of
requiring Part D plans to collect information on incurred costs for
purposes of tracking of TrOOP expenditures is that confidential
negotiated pricing information will be released. This commenter thought
that we should require Part D plans to collect SPAP payment information
on ``incurred costs'' on a monthly or other periodic basis, in an
aggregate form broken out per beneficiary, or require SPAPs to report
the utilization information for enrollees for whom the SPAPs make
payments for benefits that supplement the benefits available under Part
D coverage, and for the Part D plans to
[[Page 4325]]
apply the price that would have prevailed had the plan been responsible
for payment.
Response: While we acknowledge the commenter's concern regarding
disclosure of negotiated pricing in the sharing of claims data, we must
point out that we will require Part D plans to submit point-of-sale
pricing data to us for display on a Part D version of Price Compare, so
this data will become publicly available information anyway. However,
we emphasize that the cost and price concession information submitted
on true acquisition costs in the allowable cost reconciliation
processes will not be disclosed, and that cost and price concession
information submitted as part of the bid submission process will be
protected to the extent it is confidential commercial information.
We wish to clarify that given that section 1860D-2(b)(4)(C)(ii) of
the Act allows SPAP assistance for covered Part D drugs to count toward
TrOOP, we do not expect that SPAPs will need to report paid claims
data. TrOOP calculation will work by counting all amounts not paid by
the Part D plan, unless such amounts are paid through group health
plans, insurance or otherwise, or third party payment arrangements.
Financial assistance with covered Part D drug costs provided by SPAPs
on behalf of beneficiaries is assumed to be equivalent to payments made
by the beneficiary and automatically counts toward TrOOP.
For calculation of a beneficiary's TrOOP expenditures, the Part D
plan will count the full amount left over after it pays a claim until
it receives notice through the TrOOP/coordination of benefits process
that some amount should not count (for example, because it was paid by
a group health plan, insurance or otherwise, or a third party payment
arrangement). The plan will then subtract that amount from the TrOOP
total. Thus, for example, if a beneficiary with spending between the
deductible and the initial coverage limit has a prescription for a
covered Part D drug that costs $100, a Part D plan that offers defined
standard coverage will pay $75 and count $25 toward the beneficiary's
TrOOP total. If the beneficiary has insurance coverage that pays $20,
the Part D plan will receive the information through the coordination
of benefits process and subtract $20 from the TrOOP total. However,
financial assistance provided by SPAPs will be treated as though the
beneficiary paid that amount, so the Part D plan will not need to
distinguish between how much an SPAP and the beneficiary paid,
respectively. Thus, the entire $25 copay (even though the SPAP paid a
portion of it) counts toward TrOOP, and it is not necessary for the
Part D plan to know how much of it the SPAP paid.
Comment: Multiple commenters asked that we not charge user fees for
Part D coordination of benefits. Their arguments were that supplemental
payers, particularly employers, would be more likely to drop benefits
that supplement the benefits available under Part D coverage because we
would be imposing burdensome administrative costs on them. One
commenter also added that Part D coordination of benefits, in
particular the tracking of TrOOP expenditures, is a feature designed to
lower costs to Medicare, and so the government (that is, the ultimate
benefactor of the coordination of benefits) should bear the
administrative cost of coordination of benefits under Part D.
Commenters varied in their responses to the methods for imposing
user fees. One commenter noted that if we were to procure a TrOOP
facilitation contractor but could not have it running beginning in
2006, we could charge higher user fees to offset our higher
administrative costs until the contractor was up and running and then
switch to a lower fee thereafter. Another commenter proposed that a
flat fee be used instead of a transmission volume fee because if volume
were the basis of fee amounts, the fees would be too variable and would
be too complicated to audit properly.
Commenters had different ideas about how frequently user fees
should be levied if indeed we charge them. One commenter said that
because most health insurance fees are collected monthly, we should
continue this trend and also collect its fees monthly. Another
commentator preferred a quarterly collection in order to reduce
overhead associated with the payment process.
Response: We appreciate all the feedback provided by commenters
regarding whether, and how, to assess user fees. We believe that while
third-party payers of drug claims, pharmacies, and Part D plans will
all benefit from the use of a coordination of benefits system that
supports the tracking of TrOOP expenditures, Part D plans are the
ultimate benefactors of the TrOOP process. Therefore, we expect that we
will charge a user fee of no more than $1 per beneficiary per year to
Part D plans, and we may be able to charge considerably less. We will
issue further guidance regarding the method we will employ for
assessing such user fees on Part D plans in separate guidance.
Comment: One commenter argued that we should interpret the language
in section 1860D-11(j) of the Act to mean that Part D plans may not
impose unnecessary or unreasonable user fees on SPAPs even when the
fees are related to coordination of benefits. This commenter added that
plans should factor coordination of benefits costs into their bids and
that we should bear these costs. The commenter wanted us to establish a
``nationwide baseline requirement of coordination'' and only make
States bear coordination costs if the costs were ``extraordinary,''
beyond the baseline, and ``related to the State's unique situation.''
The commenter asked that in such situations we negotiate such costs
with the SPAP in question before a contract with a Part D sponsor is
executed.
One commenter wanted us to clarify whether the provision at section
1860D-24(a)(3)(B) of the Act--which specifies that the Secretary may
not impose coordination of benefits user fees on SPAPs--meant that only
we are prohibited from charging such fees, or if the prohibition
extended to Part D plans as well. If Part D plans are allowed to charge
coordination of benefits user fees under this provision, the commenter
asked for clarification regarding the basis upon which we would allow
plans to charge the fees. They specifically mentioned cost-based fees,
enrollment-based fees, and flat fees. The commenter also wanted to know
whether the SPAPs would be allowed to verify or audit the imposition of
such fees. Another commenter asked if we would monitor Part D plans to
ensure that the user fees they imposed on SPAPs were reasonable and
accurate. One commenter argued that Part D plans should be required to
substantiate their actual costs in determining what to charge, in order
to avoid unreasonable charges. The commenter argued that Part D plans
should not be able to impose unrestricted fees on SPAPs.
Response: Section 1860D-24(a)(3)(B) of the Act prohibits us from
imposing user fees on SPAPs for the transmittal of third party
reimbursement information necessary for the tracking of TrOOP
expenditures. However, section 1860D-11(j) of the Act specifies that a
Part D sponsor offering a Part D plan must allow SPAPs and other
prescription drug coverage (described in sections 1860D-23 and 1860D-
24, respectively) to coordinate benefits with the Part D plan. In
connection with such coordination, Part D sponsors cannot impose any
user fees that are unrelated to the cost of coordination on SPAPs or
entities providing other prescription drug coverage. We interpret this
[[Page 4326]]
language to mean that Part D plans may charge user fees to SPAPs and
entities providing other prescription drug coverage, but only for costs
that are related to coordination of benefits between Part D plans and
SPAPs or entities providing other prescription drug coverage. Any user
fees imposed must be reasonable and related only to the Part D
sponsor's actual coordination of benefits costs.
Comment: One commenter states that we should prevent entities
providing coverage that supplements Part D benefits from removing
enrollee incentives to choose cost-effective options under their Part D
coverage. The commenter further stated that we should prohibit coverage
that supplements the benefits available under Part D coverage from
eliminating cost-sharing or otherwise reducing these to the extent that
they lack any force to deter unnecessary drug expenditures. The
commenter also thought that the supplemental benefits should also not
be allowed to change or eliminate the tiering of drugs on a formulary.
Another commenter thought that unless we interpret section 1860D-
24(c)(1) of the Act narrowly, plans could be allowed to veto many forms
of cost-sharing assistance and benefits that supplement the benefits
available under Part D coverage that employers, SPAPs, or others might
want to provide for enrollees in order to ensure that they have at
least as good drug coverage as they have today. They asked that we
tightly define ``prohibited'' practices that might impair cost-
management tools and make clear that plans are required to coordinate
with SPAPs and other prescription drug coverage unless they utilize
these prohibited practices as identified by us.
Response: Section 1860D-24(c)(1) of the Act provides that the
coordination of benefits requirements contained in section 1860D-23
shall not impair a Part D plan's application of cost-management tools
(such as tiered or differential cost sharing, prior authorization, step
therapy, and generic substitution), even if an SPAP or other drug plan
provides benefits that supplement the benefits available under Part D
coverage for individuals enrolled in the Part D plan. We do not believe
that section 1860D-24(c)(1) of the Act gives us the authority to
override Part D enrollees' benefit rights under SPAPs and other
prescription drug coverage. For example, we do not have the authority
to override an employer's contractual obligation to provide its
retirees generous supplemental drug benefits. Thus, while Part D plans
may freely apply their cost-management tools, we cannot require these
supplemental payers to modify their cost-sharing and other coverage
rules in order to maximize the effectiveness of the Part D plan's cost
management tools. However, we expect that supplemental payers may have
some interest in applying utilization management tools as well.
a. Coordination with SPAPs
The statute envisions close coordination of benefits between SPAPs
and Part D plans. SPAPs have filled a significant gap in prescription
drug coverage for many Medicare beneficiaries in the absence of a
Medicare drug benefit. With many States currently providing
prescription drug coverage to a large number of Medicare beneficiaries,
it is important to ensure that coordination between Part D plans and
SPAPs occurs as efficiently and effectively as possible. However,
section 1860D-23(c)(5) of the Act provides that nothing in the statute
shall be construed to require that an SPAP coordinate with or provide
financial assistance to beneficiaries enrolled in Part D plans.
We assume that some SPAPs will pay Part D plans' premiums on behalf
of their SPAP enrollees. For SPAPs that choose to simply supplement the
coverage provided under a Part D plan, and to forego subsidizing their
enrollees' monthly beneficiary premiums, we expect to include SPAP
enrollment information in the coordination of benefits system. In this
way, pharmacies will know that a claim should be sent to the SPAP
following adjudication by the Part D plan. We requested comment on this
proposed approach, including the feasibility of the approach for SPAPs
and the ease of administration for pharmacies. We also requested
comment on whether or not SPAPs that choose to coordinate benefits on a
wrap-around basis should be required to provide feedback on how much of
the remainder of the claim they have actually paid.
Comment: Several commenters suggested that the information that
Part D plans will be required to share with SPAPs as part of their
coordination requirements needs to be specifically incorporated in our
final regulations. In particular, several commenters asked for
clarification regarding how we will assist States with receiving timely
data exchanges from commercial insurance plans, employer-sponsored
plans, Part D plans, and MA programs for cost-avoidance and recovery.
Some commenters believe this information should include, among other
things, the exchange of eligibility files, the exchange of claims
payment files, and information concerning which drugs are on the plan
formularies. Furthermore, they believed such information should be
provided through a real-time point-of-sale process. One commenter
provided extensive recommendations regarding the data and methods by
which Part D plans should provide information to SPAPs.
Response: We appreciate the extensive number of comments we
received on this issue. As specified in section 1860D-23(a)(1) of the
Act, we will issue requirements by July 1, 2005, for Part D plans to
ensure the effective coordination between the Part D plans and SPAPs
and other entities providing prescription drug coverage for payment of
premiums and coverage and payment for supplemental prescription drug
benefits. These requirements will specify the specific coordination
elements that Part D plans must share with SPAPs and other prescription
drug coverage.
We note that, from a practical perspective, there may not be much
need for coordination between Part D plans and SPAPs, since Part D
plans will need information about supplemental payments that do not
count toward TrOOP rather than those that do count toward TrOOP (for
example, those made by SPAPs). To the extent that SPAPs are free-
standing supplemental plans, there may not be much need for
coordination activities that a Part D plan could charge for, since
claims will be adjudicated at the point of sale. As we note elsewhere
in this preamble, Part D enrollees will be required to provide their
Part D plan with information about third-party coverage so that the
Part D plan is aware that any supplemental coverage a beneficiary is
receiving is from an SPAP and not, for example, from a group health
plan, insurance or otherwise, or other third party payment
arrangements.
However, we acknowledge that SPAPs and States have an interest in
acquiring timely access to paid claims data on SPAP enrollees who are
also enrollees of State medical assistance programs in order to use
information on prescription drug utilization in their medical and case
management activities. We are continuing to work on means to
practically expedite the required data sharing with SPAPs. In addition,
although we do not have the authority to require data exchanges between
Part D plans and the States, we strongly encourage Part D plans to
independently share data on these shared enrollees with State Medicaid
plans, provided such disclosure is consistent with the HIPAA Privacy
Rule provisions for the sharing of protected
[[Page 4327]]
health information with another covered entity. To the extent
consistent with the applicable provisions of Title XIX, if there were a
cost to the State for access to this data, we would match as an
administrative cost at 50 percent.
Comment: One commenter believes that we should provide States with
flexibility to provide benefits that supplement the benefits available
under Part D coverage so as to ensure that SPAP beneficiaries have
continuous access to covered Part D drugs, even during the coverage
gap.
Response: As provided in Sec. 423.464(a) of our final rule,
Medicare Part D plans may coordinate with SPAPs in a number of ways,
including coordinating on a claim-specific basis when Part D plan pays
first and the SPAP is the secondary payer, and this may include
providing assistance after the initial coverage limit. As provided in
section 1860D-2(b)(4)(C)(ii) of the Act, SPAP payments for benefits
that supplement the benefits available under Part D coverage will count
toward an enrollee's TrOOP limit, which we believe provides SPAPs with
an incentive to supplement Part D benefits on behalf of Part D
enrollees, including paying part of a beneficiary's drug costs after
the beneficiary has met the initial coverage limit (as defined at Sec.
423.104(d)(3) of our final rule) under their Part D plan.
Comment: Several commenters were concerned that the coordination of
prescription drug coverage between Part D plans and SPAPs and other
prescription drug coverage will fall onto pharmacists. Pharmacists
would have to file multiple claims to bill both the primary and
secondary payers. They urged us to address these concerns when
developing the coordination of benefits system.
Response: In consultation sessions we held with various groups,
including pharmacies and companies that run pharmacies, they expressed
a willingness to perform multiple transactions in order to bill both
the primary and any secondary payers as necessary in order to get
billing and payment right the first time. Furthermore, if the pharmacy
does not perform a secondary transaction with the SPAP, the beneficiary
must pay everything left after the Part D plan pays. Beneficiaries who
qualify for SPAP coverage generally do so because they are low-income;
thus, being required to pay up front themselves and bill the SPAP for
later reimbursement is likely to be a heavy financial burden that may
make it impossible for some of these enrollees to purchase their
prescription drugs.
b. Coordination with Other Prescription Drug Coverage
As provided under section 1860D-24(a)(1) of the Act, Part D plans
must also coordinate with the following entities providing other
prescription drug coverage: (1) Medicaid programs (including a State
plan operated under a waiver under section 1115 of the Act, such as a
Pharmacy Plus waiver); (2) group health plans, as defined in 29 U.S.C.
1167(1); (3) the Federal Employee Health Benefits Program (FEHBP) under
chapter 89 of title 5 of the United States Code, (4) Military Coverage
(including TRICARE) under chapter 55 of title 10 of the United States
Code; and (5) other prescription drug coverage as we specify.
In the proposed rule, we requested comments regarding situations
that might involve coordination of benefits between States and Part D
plans (other than situations in which a State is acting as an
employer). We also invited comments on the other administrative
processes and requirements that we might identify in order to
facilitate coordination of benefits between Part D plans and entities
offering other prescription drug coverage.
Comment: Two commenters requested that we clarify that States are
prohibited from requiring pharmaceutical manufacturers to pay rebates
on medications delivered to beneficiaries through Part D plans. Several
other commenters thought that States should continue to be able to
benefit from drug rebates related to drugs purchased by the SPAP as a
supplemental benefit to SPAP enrollees enrolled in Part D plans.
Response: Given that the Medicaid rebate program does not apply to
SPAPs, we do not have the authority under the MMA to regulate or impose
prohibitions on drug rebate or drug pricing negotiations between SPAPs
and manufacturers.
c. Coordination of Benefits
Sections 1860D-23(a)(1) and 1860D-24(a)(1) of the Act require that
by July 1, 2005, we establish requirements for coordination of benefits
between Part D plans and SPAPs and other insurers providing
prescription drug coverage. The elements that are to be coordinated
must include: enrollment file sharing; claims processing and payment;
claims reconciliation reports; application of the protection against
high out-of-pocket expenditures (by tracking TrOOP expenditures); and
other processes we specify.
We considered whether a drug denied Part B coverage because the
beneficiary fills the prescription at a pharmacy that does not have a
Medicare supplier number should be considered a Part D drug (provided
such drug otherwise meets the definition of a Part D drug), and
requested comments on the relative likelihood of such an occurrence and
on alternative means of addressing such circumstances.
For drugs potentially covered by Part B that are dispensed by a
pharmacy that is not a Medicare supplier, we considered the development
of automatic cross-over procedures. (Similar cross-over procedures are
used today in connection with dual-eligible individuals entitled to
both Medicare and Medicaid and related to coordination between Medicare
and supplemental insurers.) We also mentioned a potential need for
similar cross-over procedures for any physician-administered drugs that
may be covered under Part B or Part D. Our proposed rule invited
comments on both these issues.
Comment: Several commenters suggested that we allow drugs and
biologicals that would otherwise be covered under Part B to be covered
under Part D when a beneficiary obtains the drug at a pharmacy that has
no Medicare supplier number. One commenter believed that our failure to
do so could greatly hinder enrollee access to therapies for which Part
D benefits should be available. In addition, allowing coverage of such
drugs under Part D would facilitate the coordination of benefits
process we have proposed. Another commenter asserted that these drugs
and supplies are necessary for vulnerable populations at high risk. One
commenter believed it would circumvent the Medicare statute to cover
drugs only under Part B or Part D and would also impose a penalty in
the form of higher out-of-pocket expenses on beneficiaries.
Response: While we understand the impact this could have on some
beneficiaries, we do not believe that commenters have provided a
compelling rationale for automatically covering drugs under Part D that
are denied coverage under Part B because a beneficiary fills the
prescription at the wrong pharmacy. Under section 1860D-2(e)(2)(B) of
the Act, a drug is excluded from coverage under Part D to the extent
that coverage for that drug is available to an individual under Parts A
or B. In this case, coverage would have been available under Part B had
the enrollee obtained the drug at a participating Medicare pharmacy.
To reduce the risk that beneficiaries do not lose Part B coverage
by filling a prescription at a pharmacy that does not have a Medicare
supplier number, we will: (1) encourage Part D plans to enroll
pharmacies with Medicare supplier
[[Page 4328]]
numbers in their networks; (2) encourage Part D plans to inform
beneficiaries whether their network pharmacies have a Medicare supplier
number, and explain why this is important when filling prescriptions
for drugs potentially covered by Part B; and (3) develop educational
materials reminding pharmacies without Medicare supplier numbers that
they must refund any payments collected from beneficiaries enrolled in
Part B for Part B drugs unless they first notify the beneficiary
(through an advanced beneficiary notice (ABN)) that Medicare likely
will deny the claim.
Statutory ``refund requirements'' apply to claims for ``medical
equipment and supplies'' that Medicare denies because the supplier
lacked a supplier number (unless the beneficiary signed an ABN
notifying him or her that Medicare will deny payment, and agreed to be
personally responsible for payment), or the supplier did not know and
could not reasonably have known that Medicare would deny payment. For
this purpose, coverage of medical equipment and supplies includes
durable medical equipment (DME), certain drugs and other supplies
necessary for use of an infusion pump, oral immunosuppressive drugs and
anti cancer drugs, and ``such other items as the Secretary may
determine.'' (See the Medicare Claims Processing Manual, Chapter 30,
sections 150.1.3 and 150.1.5.) Suppliers are presumed to know that
Medicare will not pay for medical equipment and supplies furnished by a
supplier that lacks a supplier number. (See section Sec. 150.5.4 of
Chapter 30 of the Medicare Claims Processing Manual.)
Comment: Several commenters urged us to provide guidance regarding
how vaccines not covered under Part B will be covered under Part D,
including reimbursement for their administration. One commenter
encouraged us to arrange for Part B carriers to serve as the point of
contact with physicians for purpose of payment by Part D plans for
vaccine administration.
Response: As discussed in subpart C, vaccines (and other covered
Part D drugs that are appropriately dispensed and administered in a
physician's office) administered in a physician's office will be
covered under our out-of-network access rules at Sec. 423.124(a)(2) of
our final rule, since Part D plan networks are defined as pharmacy
networks only. A scenario under which a Part D enrollee must obtain a
Part D-covered vaccine in a physician's office constitutes a situation
in which out-of-network access would be permitted because a beneficiary
could not reasonably be expected to obtain that vaccine at a network
pharmacy.
Below, we use vaccines as an example of how out-of-network access
to covered Part D drugs dispensed and administered in physician offices
will work under Part D. However, it is worth noting that other covered
Part D drugs that are appropriately dispensed and administered in a
physician's office will be subject to the same treatment under our out-
of-network access rules. As mentioned in subpart C, we expect the
application of our out-of-network access rules to covered Part D drugs
dispensed and administered in physician offices to be limited.
Costs directly related to vaccine administration may be included in
the physician fees under Part B, since Part B pays for the medically
necessary administration of non-Part B covered drugs and biologicals.
However, there is currently no ready mechanism for physicians to bill
Part D plans for vaccine costs. Requiring physicians who administer
such Part D-covered vaccines to submit a claim to the appropriate Part
B carrier would involve developing automatic cross-over procedures such
that, if the carrier denies the claim under Part B, it would submit the
claim to the TrOOP facilitation contractor, discussed elsewhere in this
preamble, which would in turn create an electronic claim that it would
send automatically to the Part D plan (or its claims processing agent)
through which the enrollee has Part D coverage. The Part D plan would
then pay the physician for the plan allowance for that vaccine.
While it is possible that we could eventually develop automatic
cross-over procedures, we are concerned that establishing the cross-
over procedures by January 1, 2006, will be onerous given many other
systems and implementation challenges that must be addressed by then.
Therefore, we believe that a two-step approach is the most appropriate
policy. In the short-term, a Part D enrollee may self-pay the physician
for the vaccine cost and submit a paper claim for reimbursement to his
or her Part D plan. We note that this will not be necessary for
enrollees of MA-PD plans, since medical and pharmacy benefits will be
integrated. This approach is consistent with how beneficiaries
accessing covered Part D drugs at an out-of-network pharmacy will be
reimbursed by Part D plans for costs associated with those drugs. Once
Part D is implemented, we will get a better sense for the actual volume
of Part D-covered vaccines and other physician-dispensed and
administered Part D drugs, and the need and most appropriate mechanisms
for such automatic cross-over procedures.
We note that, to the extent that the amount charged by a physician
for a Part D-covered vaccine and the plan's allowable cost for that
vaccine vary, a beneficiary may be responsible (depending on the plan's
out-of-network payment policy) for any out-of-network differential, as
is the case with other covered Part D drugs obtained out-of-network.
d. Collection of Data on Third Party Coverage
Section 1860D-2(b)(4)(D)(ii) of the Act permits Part D plans to
request information on third party insurance from beneficiaries. We
expect Part D plans to update Medicare records based on the information
provided by beneficiaries to reflect changes in coverage, including the
primary or secondary status of the coverage relative to Medicare.
Beneficiaries who materially misrepresent information about third party
coverage may be disenrolled from any Part D plan for a period specified
by us and may also be subject to late enrollment penalties upon
subsequent enrollment in another Part D plan.
Section 1860D-2(b)(4)(D)(i) of the Act authorizes us to establish
procedures for determining if costs for Part D enrollees are reimbursed
by other payers, and for alerting Part D plans about such arrangements.
In our proposed rule, we also considered mandating that beneficiaries
enrolling in Part D plans provide third-party payment information and
consent for release of data held by third parties as part of their
enrollment application and which could be validated through a HIPAA-
compliant beneficiary ``release'' or authorization. We clarify,
however, that a HIPAA authorization to disclose protected health
information to Part D plans for purposes of coordination of benefits
related to reimbursement for health care for an individual is not
required for third party payers that are covered entities under HIPAA,
since such disclosures are considered ``payment'' disclosures under the
HIPAA Privacy Rule.
Comment: One commenter believes that we should impose mandatory
reporting requirements on third-party payers regarding the payment of
out-of-pocket costs and that, as an incentive, the user fees charged to
third-party payers could be adjusted depending on their degree of
cooperation in providing TrOOP cost data. This commenter also thought
we should require enrollees to provide third-party payment information
in a standardized way as part of the enrollment process. Another
[[Page 4329]]
commenter suggested that the collection of third party enrollment data
be incorporated into the application process as it is with the Medicaid
eligibility determination, which requires a mandatory release of
information by the beneficiary. One commenter agreed that beneficiaries
must provide third-party payment information and consent to release of
data held by third parties, which could be validated through a HIPAA-
compliant beneficiary release or authorization.
Response: The Act does not give us an enforcement mechanism in the
statute to impose mandatory reporting by third-party payers. However,
as provided in Sec. 423.32(b)(ii) of our final rule, we will require
beneficiaries enrolling in or enrolled in a Part D plan to provide, in
a form and manner that we will specify in separate guidance, third-
party coverage information. Part D enrollees must also consent to the
release of such information collected or obtained from other sources.
Failure of beneficiaries to provide such information may be cause for
termination of Part D coverage, as discussed in greater detail in
subpart B.
We would like to clarify that in the event that a beneficiary does
not disclose alternative coverage payments to the Part D plan, that
plan has the authority to recover any payments made in error on the
basis of incorrect assumptions about the level of TrOOP expenditures.
The plan may recover these payments directly from the beneficiary on
whose behalf the payments were made. We have modified Sec.
423.464(f)(2) of our final rule and added paragraph (f)(4) to clarify
this authority.
e. Tracking True Out-of-Pocket (TrOOP) Costs
In the proposed rule we considered a number of options for
facilitating the exchange of data needed in order for Part D plans to
track a beneficiary's TrOOP costs, and discussed alternatives around
both mandatory versus voluntary reporting of claims and out-of-pocket
costs, and centralized versus distributed responsibility for tracking
the information in the. We considered two options for operationalizing
the data exchange related to the Part D coordination of benefits system
and TROOP accounting:
Option 1: The Part D plans will be solely responsible for tracking
TrOOP costs.
Option 2: We will procure a TrOOP facilitation contractor to
establish a single point of contact between payers, primary or
secondary.
Additionally, to foster proper billing and coordination of benefits
we also considered the establishment of the Medicare beneficiary
eligibility and other coverage query system using the HIPAA 270/271
eligibility query and requested comments concerning the development of
this system.
Comment: An overwhelming majority of commenters on the issue of
tracking TrOOP costs supported Option 2--having us procure a TrOOP
facilitation contractor to establish a single point of contact between
primary and secondary payers. Generally, commenters thought that a
single point of contact option would lead to standardization and
compatible formats among payers, as well as a cost-efficient and
effective means for providing accurate, consistently interpreted, and
timely information to all parties involved in operationalizing Part D.
One commenter stated that PBMs do not calculate this data and would
therefore be forced to build a new system for performing coordination
of benefits functions and tracking multiple payers. One commenter
thought that exchange of data between payers and us must be
administered efficiently and timely, and using technology and standard
processing already well established in the pharmacy industry to promote
online pharmacy benefit management. This commenter also urged us to
require Part D plans to routinely provide enrollment updates to the
TrOOP facilitator, including all data needed by payers to coordinate
benefits, as well as to develop an oversight task force consisting of
all parties involved in developing user requirements for the data
system. Another commenter urged us to include community retail
pharmacies in its single point of contact system, thereby considerably
increasing the efficiency and effectiveness of this option for tracking
TrOOP expenditures. One commenter supported our establishing a central
clearinghouse similar to that used for Medicare Parts A and B, and
another recommended that we streamline current coordination of benefits
procedures so that they can be accommodated in a new TrOOP/coordination
of benefits system.
Several commenters thought that tracking TrOOP expenditures in real
time might not be feasible immediately after implementation of the Part
D but should be a long or medium-range goal. One commenter thought we
should limit our coordination of benefits responsibilities to tracking
TrOOP and claims payment and reevaluate our options at a later date
when it becomes clearer how different parties will participate in or
interact with Part D. Another commenter urged us to establish interim
rules that are administratively workable and do not impose compliance
burdens or risks. Only one commenter thought that we should rely on
Part D plans to track and report TrOOP amounts rather than involve an
intermediary or TrOOP facilitation contractor.
Response: PDP and MA/PDs will be responsible for calculating TrOOP
for all individuals enrolled in their plan. When a beneficiary has no
supplemental coverage, TrOOP can be easily calculated. This is because
the plan has all the necessary data within the claims it processes to
calculate TrOOP. TrOOP is more complicated to compute when the
supplemental coverage is through a ``free standing'' plan that wraps
around Part D.
The overwhelming majority of responders felt that CMS must have
some facilitation role in terms of TrOOP. We are considering
facilitating the tracking of TrOOP in many ways, including: through the
establishment of a TrOOP facilitation contractor, contractors, or
blends of other suggested methods. Our goal is to facilitate the
tracking of TrOOP by leveraging the existing coordination of benefit
processes for Part D COB and TrOOP. This will include the collection of
other payer information that can be used by Part D plans as part of the
ongoing Medicare Secondary Payer processes. This process will be
modified to include information as to whether these alternative payers
that are primary to Medicare include coverage for prescription drugs.
We will also expand the existing trading partner processes for Parts A
and B supplemental wrap-around agreements to provide for the collection
of supplemental drug plan information. In situations where an employer
retiree wrap-around plan is currently wrapping around Medicare Part
Parts A and B, this will require that a small amount of additional
information be collected as part of the trading partner agreement to
ensure coordination with the primary Part D plan. Under this strategy
only one enrollment file would be required. (Employers, plans or payers
may choose to submit separate enrollment files for Parts A and B
crossover and Part D.) Only one file is required because this data will
be maintained in the CMS Medicare beneficiary database.
SPAPs can choose this method of enrollment file sharing as well.
Under this strategy an SPAP or employer will not have to create a
separate enrollment file for each Part D plan. Data collected through
these processes will be shared with the Part D plans. In addition to
our data collection efforts, the Part D plan will also request
information from beneficiaries on the presence of other
[[Page 4330]]
coverage that is primary or secondary to Part D, and will then have the
ability to add, change, or delete information about other coverage in
plan and CMS files.
We will also work with pharmacy providers, payers, PBMs and other
affected parties to create an acceptable solution to facilitate
situations where the pharmacy is lacking information in order to bill
the appropriate payer. It is our hope that our solution will include,
among other capabilities, an online eligibility file query function so
the pharmacy may obtain information sufficient to direct a claim to the
payer responsible for payment of a beneficiaries' claim.
We continue to work with industry on a solution to facilitate the
TrOOP tracking process. A final decision on how best to address TrOOP
process challenges will be released well before the July 1, 2005
statutory deadline. We are looking for a solution that will allow TrOOP
to be calculated in as close to real time as possible.
Comment: One commenter recommended that we establish a standard for
the transmission of TrOOP information since there is currently no HIPAA
standard for the transmission of coordination of benefits information
between payers in connection with pharmacy transactions. In addition,
this commenter recommends that we establish a national identifier for
payers and, with the help of the Congress, for patients as soon as
possible in order for coordination of benefits to function most
effectively.
Response: We intend to establish an efficient and effective process
for handling coordination of benefits and tracking of TrOOP
expenditures by the Part D plans in accordance with Federal laws and
CMS guidelines.
Comment: Several commenters thought that Part D sponsors should be
responsible for tracking TrOOP and that enrollees should not be held
accountable to the extent that another plan providing prescription drug
coverage does not act. Another commenter suggested that in
circumstances in which the information maintained by the TrOOP
facilitation contractor is not consistent with what an enrollee claims
to be the case at a pharmacy, benefits should be administered based on
data in the system at that time. The Part D plan should correct the
errors afterwards, as it is the plan's ultimate responsibility to
administer the benefit. The Part D plan could, for example, create a
flag in the system noting that the enrollee believes his or her payment
obligation is in error because of incorrect data; this flag would
result in notification to a plan so that the potential error can be
investigated and resolved. Another commenter thought that Part D plans
should not be responsible for tracking TrOOP costs when the plan is not
aware of a third party payer.
Response: Part D plans will always be responsible for correctly
calculating TrOOP for their Part D enrollees. In the event that
enrollees fail to provide information about other prescription drug
coverage to their Part D plans, and the Part D plan later discovers
that payments were made by a third-party payer, it must recalculate
TrOOP and, if necessary, recover overpayments. We agree that, at the
point-of-sale, the Part D plan's current information will always be the
basis for its payment; a beneficiary's disagreement with such
information can only be resolved by contacting the plan. At the
pharmacy, the beneficiary must either pay the amount specified or
decline to purchase the prescription until after the dispute is
resolved. We note that in the course of normal operations, the status
of beneficiary liability will fluctuate due to events such as failure
to pick up prescriptions or corrected transactions, and that current
pharmacy benefit management systems will automatically recalculate
beneficiary liability after the updating of information in their
systems. Consequently, any over- or under calculation of TrOOP will
automatically be adjusted on the next claim once correct information
has been received.
K. Application Procedures and Contracts with Part D Sponsors
1. Overview
Subpart K of part 423 implements section 1860D 12(b) of the Act.
This subpart sets forth requirements for contracts with Part D plans,
including application procedures, contract terms, procedures for
termination of contracts, and reporting. We note that while Medicare
Advantage (MA) organizations offering Part D plans are Part D plans,
they follow the requirements of part 422 for MA organizations, except
in cases where the requirements for the qualified prescription drug
coverage involve additional requirements (for example, the fraud and
abuse requirements specified in Sec. 423.504(b)(4)(vi)(H) and the
certification requirements in Sec. 423.505(k). Although in the
proposed rule we included the requirements of section 1860D-12(b)(2)
prohibiting a fallback from acting as a PDP sponsor or a subcontractor
to a PDP sponsor in subpart F of the regulations, we believe these
requirements are more appropriately viewed as contract requirements,
and not as bid requirements; therefore, we have moved those regulations
to this subpart.
As in the proposed rule, this subpart sets forth the conditions
necessary for an applicant to be considered qualified to contract with
Medicare as a Part D sponsor, as well as contract requirements and
termination procedures that would apply to Medicare-contracting Part D
sponsors. The final rule specifies those procedures and requirements.
Additionally, as we stated in the proposed rule, the applicable
requirements and standards included in Part D of Title XVIII of the Act
and our provisions under part 423, as well as the terms and conditions
for payments described in regulation and in the statute, also apply to
``fallback plans'' found under subpart Q.
In this final rule, we clarify that any entity offering a Part D
plan under the Medicare program is considered a Part D plan sponsor for
the purposes of this subpart. In addition to PDPs that offer fallback
plans, Part D plan sponsors can also include MA organizations that
offer MA-PD plans, cost plans, and competitive medical plans (CMPs), as
well as PACE organizations that offer Part D plans.
We clarify that entities offering Part D plans under Medicare must
follow the provisions of this subpart unless requirements specifically
pertaining to these entities in this final regulation include or allow
for a waiver of these requirements. Similarly, we also clarify, as is
the case with MA organizations and cost plans offering prescription
drug plans, that these organizations follow the requirements of part
422 for MA organizations except when there are additional requirements
in part 423 related solely to the prescription drug benefit component
of the MA plan (In these cases, MA organizations offering the
prescription drug benefit are directed by part 422 to any additional
requirements in part 423.).
As further clarification of the exceptions to, or waiver of,
requirements of this subpart, please note, for example, that PACE
programs, though subject to part 423 if offering a prescription drug
benefit, may waive several of the contract requirements under part 423.
PACE programs are unique in that they have a Medicaid component and
have been offering a prescription drug benefit for some time. As a
result, some of the part 423 requirements are duplicative or not
applicable. (Please see subpart T for discussion of the PACE program
and the prescription drug benefit under Part D.)
In our definitions section at Sec. 423.4 we include, as
clarification, the entities
[[Page 4331]]
identified above in our definition of ``Part D plan sponsor.''
The proposed rule discussed at Sec. 423.153(e) requirements for a
program to control fraud, waste and abuse as required by Section 1860D-
4(c)(1)(D) of the Act. In an effort to consolidate the requirements, we
are moving them to this subpart at Sec. 423.504(b)(4)(vi)(H) as a
component of a Part D sponsor's or MA organization offering a MA-PD
plan's overall compliance plan. In the preamble to this subpart, we
will discuss our final provisions and the comments we received on the
proposed requirements concerning fraud, waste, and abuse. For easier
reference, we discuss this section at the conclusion of this preamble.
Further, as stated in the proposed rule, the MMA requires that the
MA contracting provisions incorporated through section 1860D-12(b)(3)
of the Act be applied to contracts with PDP sponsors in the same manner
as those provisions apply to contracts with MA organizations under Part
C of Title XVIII of the Act. Our overarching intent in the proposed
rule, and our intent in the final rule, is to achieve a high degree of
uniformity in the contract and application processes for both Part C
and Part D. The maintenance of a single application and evaluation
procedure, and a single set of contract requirements for both the Part
C and Part D programs, brings simplicity, consistency, and reduced
administrative burden for those entities managing both programs.
Towards that end, the requirements under Sec. 423.501 through Sec.
423.516 are similar to the requirements in Sec. 422.500 through Sec.
422.524. We made every effort to keep the requirements in this subpart
the same as those requirements for MA organizations; this effort was
received without objection by any of the commenters; however, we did
receive some comments asking us to clarify if certain sections were
exclusive to PDP sponsors and inclusive of MA plans. In this preamble
we address those and other comments.
2. Definitions (Sec. 423.501)
We proposed that the definitions pertaining to PDP sponsors and MA
organizations offering MA-PD plans would be the same as those found in
Sec. 422.500, except in cases where the Part C definition is
inapplicable (for example, in definitions that reference hospitals or
hospital services). In addition, as mentioned above, we have added the
definition of ``Part D plan sponsor'' to Sec. 423.4 to clarify that we
consider any entity offering a Part D benefit to be a Part D sponsor
and, with the exception of requirements that may be waived. We have
made nomenclature changes throughout the regulations text for this
subpart as well, revising ``PDP sponsors'' in most cases to ``Part D
plan sponsors'' to bring this language into line with our definition at
Sec. 423.4 and to indicate more clearly that a Part D sponsor includes
any entity offering a Part D plan.
The majority of the subpart K regulations would also apply to
fallback entities, since fallback entities are included in the
definition of Part D sponsor. In addition, under Sec. 423.871(a),
fallback contracts are required to include the same terms of conditions
as risk contracts, except as appropriate to carry out the provisions of
subpart Q. We have also clarified the provisions that would not apply
to fallback entities. For example, because fallback entities do not
renew their 3-year contracts on a yearly basis, we have clarified that
the renewal and non-renewal provisions would not apply to fallback
entities. Fallback entities are also not required to be risk-bearing
entities, and at this time we are not requiring that the licensure or
solvency requirements of subparts I and K apply to fallback entities,
although we may reconsider this issue in the future and we may use
holding applicable licenses as a preferred, but not required selection
criterion. We have clarified these provisions in the accompanying
regulation text in Sec. 423.504(b)(2).
We did not receive any comments regarding the proposed definitions
for this subpart and will be adopting the policies proposed in the
proposed rule.
3. Application Requirements (Sec. 423.502)
We proposed application procedures based on those included for the
Part C program. Interested applicants would need to complete and submit
a certified application in the form and manner required by CMS. In
addition, we proposed that applicants must: (1) submit documentation of
appropriate State licensure; (2) submit documentation of State
certification that the entity is able to offer health insurance or
health benefits coverage that meets State specified standards as
discussed in the proposed subpart I; or (3) submit a Federal waiver as
described in the proposed subpart I of the proposed rule. An individual
authorized to act on behalf of the entity applying to become a Part D
sponsor must describe thoroughly how the entity meets the requirements
of the rule. We will determine if the applicant is qualified to
contract with CMS as a Part D sponsor and if that entity meets the
requirements of part 423. Also, we proposed that, as in the Part C
program, an applicant submitting material that the applicant believes
would be protected from disclosure under the Freedom of Information Act
(FOIA) (5 U.S.C. Sec. 522), or because of exceptions provided in 45
CFR Part 5 (the Department's regulations providing exceptions to
disclosure), would have to label the material ``privileged'' and
include an explanation of the applicability of an exception described
in 45 CFR Part 5.
Comment: We received one comment stating that we were silent on the
transition application requirements for current MA organizations
wishing to add a prescription drug component to their MA plans.
Response: The application requirements for current MA
organizations, and potential MA organizations wishing to offer MA-PD
plans, will basically mirror those listed here for other Part D
sponsors. In other words, MA organizations offering MA-PD plans and
other entities offering Part D plans will, subject to any specified
exceptions, follow the same requirements. Technically, MA organizations
are following these requirements as specified at part 422, while other
Part D plans are following these requirements at part 423. One
difference between the requirements at part 422 and those at part 423
is the provisions for fraud and abuse which apply only to entities
offering Part D benefits. In this case, the MA organization offering
Part D benefits is directed at part 422 to follow the additional
requirements specified in part 423 regarding its prescription drug
benefits. In general, however, the application and contracting
provisions in part 422 and part 423 are identical. Thus, while the MA-
PD contract is separate from the PDP contract under Part 423, the
requirements of this part will be incorporated, with any exceptions
specified, into the contract of the MA organization offering an MA-PD
plan. Specific transition guideline procedures will appear on the CMS
Web site and through other CMS guidance to ensure that the transition
to the prescription drug benefit under Part D works as smoothly as
possible. Similar guidance will given to M+C organizations wishing to
make the transitions to MA organizations.
To clarify further the transition to the MA-PD plan, for
organizations interested in offering a MA-PD plan, we are, whenever
practicable, keeping the contracting application and process the same
for PDP sponsors and MA organizations. Medicare Advantage contractors
will be required to apply for qualification to offer a Part D plan as
[[Page 4332]]
part of their MA application if their organization is a new participant
in the MA program. If the MA organization is transitioning from a
previous Medicare managed care contract, the Part D application will
simply be a stand-alone submittal. MA organizations can expect the Part
D portion of the MA application to be an abbreviated version of the PDP
sponsor application, as the regulation and the Act at section 1860D-
21(c)(2) of the Act, allow CMS to waive provisions that are duplicative
of, or in conflict with, MA requirements or where a waiver would be
necessary to improve coordination of Part C and Part D benefits.
Comments: In the application process under Sec. 423.502(d), we
proposed that a PDP sponsor applicant may request to have submitted
material protected from public view under the Disclosure of Application
Information under the Freedom of Information Act. A commenter
recommended that we make it clear that an entire application of a
potential PDP sponsor may not be protected in this manner. Also, the
commenter requested that we set standards for when and why exemptions
would be approved or provide a list of what is, and is not, protected
from disclosure.
Response: The final rule, while not specifying `how little' or `how
much' of an application may be protected, does require the applicant
submitting material under FOIA to include an explanation of the
applicability of an exemption specified in 45 CFR Part 5. The
exemptions specified here serve as the standard for `when' and `why' an
application in part, or whole, would be protected. Price and cost
information provided by the bidders marked as ``confidential'' or
``proprietary'' will generally be protected by the Trade Secrets Act.
However, FOIA requires the agency to disclose data to a requester if
the information does not fall within any of the FOIA's exemptions. We
would need to consider whether the pricing and cost data are covered by
FOIA Exemption 4, which protects trade secrets and commercial or
financial information obtained from a person that is privileged or
confidential. See 5 U.S.C. Sec. 552(b)(4). To facilitate this process,
submitters of information to the Department may designate part or all
of the information as exempt under FOIA Exemption 4 at the time the
records are submitted or within a reasonable time thereafter. See 45
CFR 5.65(c). When there is a request for information that is designated
by the submitter as confidential or that could reasonably be considered
exempt under Exemption 4, the Department is required by its FOIA
regulation at 45 CFR 5.65(d) and by Executive Order 12,600 to give the
submitter notice before the information is disclosed. When notice is
given, in order to determine whether a submitter's information is
protected by Exemption 4, the submitter must show that: (1) disclosure
of the information is likely to impair the government's ability to
obtain necessary information in the future; (2) disclosure of the
information is likely to cause substantial harm to the competitive
position of the submitter; or, (3) the records are considered valuable
commodities in the marketplace which, once released through the FOIA,
would result in a substantial loss of their market value. (This is the
general Exemption 4 legal standard used for required submissions to the
government.) A submission may be ``required'' if it is necessary to get
the benefits of a voluntary program (for example, applying to be a Part
D plan sponsor).
4. Evaluation and Determination Procedures for Applications to Be
Determined Qualified to Act as a Sponsor (Sec. 423.503)
Under proposed Sec. 423.503, we established procedures to evaluate
and determine an entity's application for a contract as a Part D plan
sponsor. These provisions mostly mirrored the provisions applicable to
MA specified at Sec. 422.502 of our proposed requirements for MA
organizations. We stated that the evaluation and determination of the
application would be done on the basis of information contained in the
application itself, as well as any additional information we obtained
through on-site visits, publicly available information, and any other
appropriate procedures. We also proposed rules regarding the timing of
the application process, as well as the window for applicants to cure
an incomplete or faulty application. See 69 FR 46709. Comments on these
provisions are discussed below.
Comment: Several comments were received asking us to produce the
final regulations as early as possible in January 2005 and to
streamline our application process in a way that that does not increase
administrative burden for MA organizations wishing to apply to offer
MA-PD plans or for other Part D plan sponsor applicants. A commenter
stated that the timing of the contracting (and bidding) and appeal
process would afford too short a time frame for applicants to make the
June 6 bidding deadline specified in subpart F. One commenter pointed
out that the timelines for appeals by other Part D sponsors and MA
organizations (that is, the timelines specified in parts 422 and 423)
varied widely, and would cause unnecessary confusion and administrative
burden. Two comments were received asking that we allow the contract
determination process and the bid application process to run
concurrently.
Response: We thank commenters for these comments and, in response,
we are specifying in the final rule that we will be allowing applicants
to enter into the bid process without an executed contract, and that
the application and bid processes will run concurrently. Note that the
bid application process will include both new bids to initially
participate as a sponsor, as well as renewal bids. The contract will be
pre-qualified and left unsigned until a successful bid negotiation has
been approved by CMS. We will not award a Part D contract to an
applicant until the applicant's bid is approved.
The contract application process and the bidding process as
detailed under subpart F are separate but dependent processes. We view
the bid application process as a negotiation and the contract process
as a determination of an entity's qualifications to provide the Part D
benefit. We have revised this final rule to make clear that the
application process under subpart K determines only whether an
applicant is qualified to contract as a Part D plan sponsor. However,
actually signing the contract will require a successful bid negotiation
as described under subpart F. Thus, although an entity may be pre-
qualified to enter into a contract, a contract may not be signed if CMS
and the entity cannot reach agreement on the bid.
We believe distinguishing between the bidding and the contract
application processes carries out the intent of the Congress in section
1860D-11(d)(2) of the Act, under which the Congress provided the
Secretary with the authority to ``negotiate the terms and conditions of
the proposed bid . . . and other terms and conditions of a proposed
plan'' and to exercise authority similar to that provided to the Office
of Personnel Management under 5 U.S.C. Chapter 89. The bid negotiation
will focus on the aspects of the bid and the benefit package to be
provided by the Part D plan sponsor, while the contract application
process will determine whether the entity offering the benefit package
has the capability to contract with us under Part D. In addition,
because the bid process is envisioned as a negotiation, only the
contracting process under subpart K will be subject to the
determinations and appeals process described in subpart N of these
regulations. In order
[[Page 4333]]
to clarify the language concerning this distinction, we have revised
our proposed rule to include new Sec. 423.503(c)(2). Whether or not
the entity and CMS are able to reach agreement on the bid and the
benefit package will not be subject to subpart N. Indeed, we do not
believe that the Congress intended for the bid to be appealable under
these administrative provisions, because subjecting the bid to these
appeals would frustrate our ability to calculate a national average
premium in time for the annual enrollment period starting November 15
of each year. (We expect to have calculated the national average
premium by at least August so that the beneficiary premiums, which are
based on the national benchmark, can be published in time for open
enrollment.)
Furthermore, taking bid negotiations out of the subpart N
reconsideration process encourages plans to negotiate in good faith, as
plans will realize that failure to negotiate will not lead to an
opportunity to appeal, thereby maintaining the integrity of the
negotiation process. We believe these changes to the contracting
application and determination process will allow qualified candidates
more time to prepare for CY 2006.
Additionally, we will be making the various timelines for appeals
of determinations under subpart N of part 422 (Part C) and subpart N of
part 423 (Part D) equivalent to eliminate any confusion and to shorten
the contract application process.
Comment: In the proposed rule, we asked for comment on allowing 10
days for an incomplete application to be cured by an applicant from the
date of the incomplete notice, and noted that the MA provision in Sec.
422.502(a)(2)) currently provides a 30-day window for the MA program to
furnish missing information. We also proposed a 10-day time frame for
responding to an intent to deny. We received comments suggesting that
the differing timelines between the Part D plan and MA organization
appeal timelines (that is, the requirements specified in parts 422 and
423) were confusing in general and expressing concern with the
relatively short timeline for the contract application process.
Response: We remain committed to providing successful applicants a
reasonable time to be prepared to begin operations by the first of the
year in their selected service area(s). However, we also wish to ensure
all potential applicants are given every chance to contract with CMS.
In the event that we determine that an application is incomplete,
we afford a means for the applicant to cure the contract application.
However, the bidding process required under the MMA makes the use of
the `rolling application' system previously used under the Medicare
Advantage and Medicare+Choice programs impracticable. As a result of
the new bid calculation requirements for Part C and Part D, we need to
process all final bids by a certain deadline each year. Therefore, we
needed to apply a similar deadline to the application review process.
In order to respond to concerns that the determination application
process as it was proposed could compromise a Part D plan sponsor's
ability to effectively prepare for the beginning of a contract period,
we are making the following modifications: We are no longer considering
Sec. 423.503(a)(2) as a separate and distinct step in the review
process. If an applicant's contract is submitted and found to be both
incomplete, as well as unqualified, (resulting in an intent to deny
notice) the period to remedy the application will be 10 days from the
date of the notice. Additionally, if after the initial review of
applications, we determine that an application is missing information
necessary for us to make a determination, we will make all reasonable
efforts to notify the applicant that this is the case. This is not a
requirement, however, and we are stating in the final rule that our
procedural rule will be that applicants receiving notification that
their application is incomplete, but who have not yet received an
intent to deny notice, respond back to CMS with a cured application
within two days of receiving the notice (instead of the ten days
originally proposed). The two days are, thus, a guide; however, we are
ultimately constrained by the total amount of time it will have to
review applications. As a result, an applicant that takes longer than
two days to remedy its incomplete application risks our issuing a
notice of intent to deny before the Applicant submits the requested
information. In cases where an Intent to deny notice has been issued,
either as a result of missing information, information that would lead
us to deny the application, or both, the applicant has ten days from
the date of the notice to remedy the application. We believe that the
amount of time given to applicants to furnish information is a
procedural rule that is not subject to notice and comment. In addition,
applicants will still receive the same 10 days included in the proposed
rule to revise their applications if they fail to respond within 2
days, and then receive an intent to deny notice from us.
These changes to the application timelines mirror the changes we
have included in the final rule for MA organizations. We believe that
maintaining a single application and evaluation procedure and a single
set of contract requirements for both the Part C and Part D programs
brings simplicity, consistency, and reduced administrative burden for
those entities that are managing both programs.
5. General Provisions (Sec. 423.504)
In the proposed rule, we stated that the requirements of Sec.
423.504 would specify the general provisions that apply to Part D
sponsor contracts. For more details on those proposals please see 69 FR
46709-11. For the most part, we stated that we planned to adopt the
provisions that already applied to MA organizations through the Part
422 regulations. As part of these general provisions, we proposed
mandatory self-reporting requirements and asked for comments on the
provisions. Finally, we noted that we would annually audit the
financial records (including, but not limited to, Medicare utilization,
costs, reinsurance cost, low-income subsidy payments, and risk corridor
costs) of at least one-third of the Part D plan sponsors, including
fallback plans. We asked for comments on the best approach to audit
fallback plans and whether they would require more frequent auditing
because of their different payment arrangements. In the proposed rule,
we also specified that we would use the authority of section 1857(c)(5)
of the Act (incorporated through section 1860D-12(b)(3)(B) of the Act)
to enter into Part D plan sponsor contracts without regard to the
Federal and Departmental acquisition regulations set forth in title 48
of the CFR. We did not receive any comments regarding fallback plans
audit methods, but did receive some comments on auditing in general,
which are discussed in more detail below.
Comment: One commenter thought that PBMs should be prohibited from
charging pharmacists a fee for submitting claims, as this has become
customary in the private sector, and some PBMs have increased their
fees for claims submission substantially. Some commenters said plans
should not be allowed to tie Medicare business to other commercial
business through an existing ``all products'' clause or passively
enroll pharmacies in Medicare drug plan networks; rather, plans should
be required to sign a Medicare-specific contract with each pharmacy, or
at least get a written response from each
[[Page 4334]]
pharmacy confirming its participation. One commenter suggested that
plans be allowed to set a limited sign-up period in which pharmacies
can take advantage of the standard contract.
Response: Concerning the comment that PBMs not be allowed to charge
pharmacists a fee for submitting claims, we believe that the intent of
the statute is to let market forces prevail within the regulatory
provisions outlined in the MMA and this final rule. In other words, if
a PBM charges a relatively high fee to participating pharmacies to
process claims, then it follows that a PBM would have difficulty
securing contractual arrangements with a sufficient number of
pharmacies to meet ``access'' requirements under Part D.
As to the comments concerning Medicare-specific contracts, our
primary goal is to ensure access to Part D drugs for Medicare
beneficiaries. To the extent a contract is reasonably construed by both
parties to ensure access to Part D by Medicare beneficiaries, the
contract is deemed sufficient.
Comment: As noted in the proposed rule, we proposed changing the
compliance program requirements for MA organizations at Sec.
422.501(b)(3)(vi)(G) to include provisions that would require MA
organizations to report misconduct it believes may violate various
criminal, civil or administrative authorities. We based the compliance
program requirements for Part D plan sponsors on these new and recently
proposed MA requirements. Numerous comments, both for and against, were
received regarding these requirements of mandatory self-reporting of
misconduct. The very large majority of the comments, however, objected
that the rule as written was vague and broad, with no basis in statute.
Other comments directed us to eliminate the proposal, stating that
current compliance requirements were sufficient.
Response: In response to these comments, we are eliminating from
this regulation an explicit requirement that Part D plan sponsors
report to CMS violations of law, regulation, or other wrongdoing on the
part of the organization or its employees/officers. While we are not
requiring Part D plan sponsors to engage in mandatory self-reporting,
we continue to believe that self-reporting of fraud and abuse is a
critical element to an effective compliance plan; and we strongly
encourage Part D plan sponsors to alert CMS, the OIG, or law
enforcement of any potential fraud or misconduct relating to the Part D
program. If after reasonable inquiry, the Part D plan sponsor has
determined that the misconduct has violated or may violate criminal,
civil or administrative law, the Part D plan sponsor should report the
existence of the misconduct to the appropriate Government authority
within a reasonable period, that is, within 60 days after the
determination that a violation may have occurred.
The failure to disclose such conduct may result in adverse
consequences for PDP sponsors, including criminal prosecution. For
example, Title 42 U.S.C. Section 1320a-7b(a)(3) punishes as a felony
the knowing failure to disclose an event affecting the initial or
continued right to a benefit or payment under the Medicare program. The
Federal civil False Claims Act, 31 U.S.C. Section 3729(a)(7) states
that any person who knowingly makes, uses, or causes to be made or
used, a false record or statement to conceal, avoid, or decrease an
obligation to pay or transmit money or property to the Government, is
liable to the United States for a civil penalty plus trebled
restitution for the damages sustained by the government. In addition,
both DOJ and the OIG have longstanding policies favoring self-
disclosure.
In summary, we have elected to recommend reporting fraud and abuse
as part of the compliance plan required as a condition of contracting
as a Part D plan sponsor. Plans that self-report violations will
continue to receive the benefits of voluntary self-reporting found in
the False Claims Act and Federal sentencing guidelines. In the future,
we will examine mandatory self-reporting of health care fraud and abuse
across all Medicare providers and contractors.
Comment: A commenter questioned the need for proposed Sec.
423.505(h), which would require Part D plan sponsors to comply with
certain specific Federal laws and rules, other laws applicable to
recipients of Federal funds, and all other applicable laws and rules.
The commenter argued that these requirements were on their face
seemingly inconsistent with our regulatory provisions exempting Federal
plans from procurement standards and preempting State laws other than
those relating to licensure. Furthermore, nothing suggests a rationale
for naming some laws and not others. The commenter also suggested that
the provisions might more appropriately be replaced with one focused on
plans committing themselves to compliance with Federal standards aimed
at preventing or ameliorating waste, fraud, and abuse.
Response: We agree that our efforts are best focused on
requirements to prevent fraud, waste, and abuse in the Part D program
and on issues for which we are responsible to enforce (for example, the
HIPAA Administrative Simplification rules).. We have, therefore, made
the suggested changes to reflect this focus. These changes are in no
way meant to imply that Part D plan sponsors need not comply with other
Federal laws and regulations as applicable, but rather only that the
enforcement of these Federal laws and regulations is the responsibility
of Federal agencies other than CMS. We have made a similar change in
the Medicare Advantage regulation.
Comments: We received four comments asking that we add an annual
audit to proposed Sec. 423.504(d) (protection against fraud and
beneficiary protections). Commenters requested stronger language to
clarify that we will perform an annual audit as part standard oversight
procedures. One commenter referred to a $1.1 million penalty imposed on
a company found to be switching patients from lower priced generics to
more expensive brands. Two comments requested that we add language to
the final rule that reads: ``CMS must audit annually...'' (as opposed
to reading ``CMS may audit annually.''). (emphasis added), not `may.'''
Response: Section 1860D-12(b)(3)(C) of the Act requires CMS to
implement the provisions of section 1857(d) in the same manner as those
provisions that apply to contracts under Part C of the Medicare
program. Section 1857(d)(1) of the Act specifies that the Secretary
will audit ``at least one-third'' of organizations. Therefore, in this
final rule, we will continue to adopt the regulations used in the MA
program under which we would expect to audit one-third of contracted
plans each year. If additional audits are necessary, we would have the
discretionary authority to perform them as well under Sec.
423.505(e)(2)(iii).
Comment: A commenter asked that we require plans to contract with,
and provide service through, long-term care pharmacies and Indian
Health Service, Tribal or Urban Indian pharmacies. Additionally, we
should carefully monitor and report on access to drugs for nursing home
residents and ensure equal access to prescription drugs for those
residents.
Response: We are including this issue here because some readers
might look for clarification in this subpart. However, we believe that
this issue is more appropriately discussed in the context of pharmacy
networks and therefore refer interested readers to a
[[Page 4335]]
discussion of this comment in subpart C of this final regulation.
Other than the above changes, we are adopting the substance of
proposed Sec. 423.504.
6. Contract Provisions (Sec. 423.505)
In the proposed rule we stated that, for the most part, we would be
adopting the additional contract provisions for the MA program with
modifications as necessary to accommodate differences between the MA
program and the prescription drug program. For a full discussion of our
proposals, please see 69 FR 46711-713. We noted that elsewhere in the
proposed rule, we identified additional contract terms that would apply
uniformly to MA organizations offering MA-PD plans and other Part D
plan sponsors ( for example, the requirement to support e-prescribing).
These rules continue to be included in the final rule at subpart D.
Comments: In Sec. 423.505(d), we proposed requiring record
maintenance and retention for six years, stating that records should be
kept ``for the current year and 6 prior years.'' This requirement
mirrored the record retention requirements from the MA program. A
commenter stated that this should be changed to read, ``6 prior
contract periods,'' stating that this would better clarify that the
retention requirements do not precede the execution of the contract. An
additional request was made to clarify whether the retention periods
also refer to MA-PD plans. Another commenter asked that we clarify our
retention of records to include all pertinent documents (whether in
paper or electronic form). That commenter also asked that our records
retention policy parallel the statute of limitations that applies to
False Claims Act (that is, a maximum of 10 years from the time of the
violation).
Response: We agree with the commenter that our retention
requirements should more closely follow the statute of limitations that
applies to the False Claims Act. As a result, in the final rule at
Sec. 423.505(e)(4), we are requiring that records be maintained for 10
years from the last contracting period or audit, whichever is latest,
to conform to the statute of limitations for the discovery of
violations under the False Claims Act.
We recognize that 10 years is the upper limit under the False
Claims Act, but we believe that this period will best enable us to have
access to pertinent records should this be necessary. Also, the 10-year
retention policy is in line with requirements concerning the
prescription drug rebates under the Medicaid program (Sec.
447.534(h)). We believe, as is the case with the Medicaid rule, that in
order to ensure that we have the proper oversight for investigating the
complex payment and other relationships associated with the delivery of
prescription drugs under a program like Part D, the 10-year retention
requirement is necessary. In order to maintain uniformity between
requirements for MA organizations and other Part D sponsors, we are
making a similar change to the final MA regulations.
We do not agree with the commenter, however, that we specify the
particular medium of records (paper or electronic, for example)that
must be retained. Specifying the type of record could lead to a
requirement that is unnecessary, lengthy, and confusing with CMS
attempting to list every type of medium (past, present, and future)
that could contain any information. We do believe, however, that all
pertinent information should be maintained, including any and all
electronic records.
In response to the comment requesting that ``6 prior contract
periods'' be specifically identified as opposed to ``6 years'' for the
record retention requirement, we continue to specify years in this
final rule (though 10 years, now, to parallel the statute of limitation
for the False Claims Act) as we believe there may be occasions when a
Part D sponsor during a prior period was under contract with us, ceased
operation, and, at a later time, contracted again with Medicare.
Specifying contract periods in these cases could make for a partial
record of information and prevent us from having full access to the
information over the period in question.
Comment: In Sec. 423.505(l), we proposed six certifications that
would be required of PDP sponsors. Although we refer readers to the
regulations for a full discussion of these certifications, generally
stated, they include certifying that--
(1) All data related to payment is accurate, complete and true;
(2) Each enrollee is validly enrolled in the prescription drug
plan;
(3) The claims data submitted is accurate, complete and truthful;
(4) The information in the bid submission and assumptions related
to projected reinsurance and the low income subsidy is accurate,
complete, truthful, and conforms with the regulations;
(5) The information provided for purposes of supporting allowable
costs for purposes of calculating risk corridor and reinsurance
payments is accurate, complete, truthful, and fully conforms to the
regulations; and
(6) The data submitted for price comparison is accurate, complete,
and truthful. These certifications were based on the certifications
required under the MA program, but were modified to reflect the
different payment mechanisms under the Part D program. A commenter
requested that we revise these six certifications and provide general
authority for requiring the certifications. The commenter requested
that we remove the specific language related to the content of the
certifications in order to provide CMS with flexibility in the start-up
phase of MMA, and to make it easier to integrate the Part D
certifications with the Part C certifications.
Response: As we have done elsewhere, we largely based the
certification process for Part D on the Part C requirements for MA
organizations. We do this because of the similarity in scope of both
programs, as well as the familiarity many will have with the MA
process. However, the Part D program differs in some payment respects
from the Part C program. Thus, while the MA regulations currently
require a certification of data included in the ACR, the Part D
regulations similarly require a certification of the information
included in the bid submission. Also, because there are additional
payment mechanisms under Part D (for example, risk corridors and
reinsurance) that do not exist for Part C, we believe it is appropriate
to require certifications for these separate types of payment. If at
the time it is found that additional, or alternate, certifications are
required we have the discretion to change them through notice and
comment rulemaking. The final rule requires that the CEO or CFO of a
Part D sponsor, or an authorized individual, request payment of claims
on a document that certifies (based on best knowledge information and
belief) the accuracy, completeness and truthfulness of all data related
to payment. We highly recommend that Part D sponsors collect
certification from their downstream partners as well. Further, if claim
data is generated by a related entity, contractor, or subcontractor of
a PDP sponsor, the entity, contractor, or subcontractor would be
required to similarly certify (based on best knowledge, information,
and belief) that the information provided for purposes of supporting
allowable costs, as defined in Sec. 423.308, is accurate, complete and
truthful, and fully conforms to the requirements in Sec. 423.336(c)
and Sec. 423.343(c).
Comment: A commenter recommended that we explicitly state that the
certification provisions of
[[Page 4336]]
Sec. 423.505(l) apply not exclusively to PDPs, but also to MA
organizations offering MA-PD plans as well.
Response: We note that the certification provisions under Sec.
423.505(l) apply to all Part D plan sponsors as defined earlier in this
section and in the definitions section at Sec. 423.4.
In Sec. 423.505(f)(2)(vii) we have added examples of other matters
where CMS may require statistical data and information from PDP
sponsors to further clarify these ``other matters that CMS may
require.'' For an effective oversight program, for example, CMS may
require PDP sponsors to submit statistics and information regarding
performance of operations in the following areas:
(a) Experience and capabilities.
(b) Licensure and solvency.
(c) Business integrity.
(d) Benefit design.
(e) Service area and regions.
(f) Pharmacy network.
(g) Enrollment and eligibility.
(h) Exceptions, appeals, and grievances.
(i) Quality assurance and utilization management.
(j) Medication Therapy Management Programs.
(k) HIPAA.
(l) Customer service and satisfaction.
(m) Coordination of Benefits (COB).
(n) Tracking Out-of-Pocket Costs (TrOOP).
(o) Marketing and beneficiary communications.
(p) Provider communications.
(q) Control of fraud, abuse, and waste.
(r) Claims processing.
(s) Other performance measures as specified in guidelines provided
by CMS.
7. Effective Date and Term of Contract (Sec. 423.506)
In the proposed rule, we specified the term of non-fallback
contracts (12 months) and specified that contracts could be renewed
from year to year, but only in the event that we inform the Part D plan
sponsor that a renewal is authorized, and only if the Part D plan
sponsor does not provide us with a notice of intent not to renew. We
stated that we would not require an application process for renewals,
and that because of the need to establish a national average monthly
bid amount from the approved bids, PDP contracts could not be effective
at any time other than the first of the year. We received no comments
on these provisions and are adopting the policies as stated in the
proposed rule on this section. We have changed the regulations to
clarify the distinction between the bidding and the application
processes. As discussed previously in this subpart, the revisions
indicate that the renewal process leads only to a determination that a
sponsor is qualified to renew its contract and that the actual renewal
of the contract will depend upon whether CMS and the sponsor are able
to reach agreement on the bid.
8. Nonrenewal of Contract (Sec. 423.507)
In the proposed rule, we indicated provisions concerning the non-
renewal of a Part D plan sponsor's contract. Under proposed Sec.
423.507, we required that a Part D plan sponsor not renewing its
contract provide us with notification in writing by the first Monday of
June in the year in which the contract ends. The Part D plan sponsor
would also have to notify each Medicare enrollee at least 90 days
before the date on which the nonrenewal is effective. This notice would
have to include a written description of alternatives available for
obtaining Medicare prescription drug services within the PDP region,
including MA-PD plans, and other Part D plans, and would have to
receive our approval. The general public would also have to be notified
at least 90 days before the end of the current calendar year by
publishing a notice in one or more newspapers of general circulation in
each community or county located in the Part D plan sponsor's service
area.
We proposed that if a Part D plan sponsor chose to non-renew a
contract as described in Sec. 423.507(a)(3), we would not enter into a
contract with the organization for 2 years unless circumstances
warranted special consideration, as determined by CMS. For purposes of
this section, we stated that we may elect not to authorize renewal of a
contract for any of the reasons listed in Sec. 423.509(a)(conditions
for terminating a contract) or in subpart O (including Sec. 423.752
(bases for imposing intermediate sanctions or civil money penalties.))
We proposed providing notice of our decision whether to authorize
renewal of the contract to the PDP sponsor by May 1 of the contract
year. In the event we found after May 1\st\ that a plan for whatever
reason should not be renewed the following year, we stated that we
retained the right to terminate the Part D plan sponsor contract at any
time based on any of the reasons stated in Sec. 423.509, regardless of
whether we renewed a Part D plan sponsor contract. If we decided not to
authorize a renewal of the contract, we stated we would provide notice
to the Part D plan sponsor's Medicare enrollees by mail at least 90
days before the end of the current calendar year. We also stated we
would notify the general public at least 90 days before the end of the
current calendar year by publishing a notice in one or more newspapers
of general circulation in each community or county located in the PDP
sponsor's service area. We stated that we would give the Part D plan
sponsor written notice of its right to appeal the decision that it was
not qualified to renew its contract in accordance with proposed Sec.
423.642(b).
We received a few comments on this section which we discuss below.
In the final rule we are adopting the provisions of the proposed rule
with some minor modifications (in particular to clarify that a decision
to non-renew a contract constitutes a determination that a contractor
is not qualified to renew its contract).
Comment: One commenter indicated that allowing for only four months
(January 1\st\--May 1\st\) for us to decide whether or not to renew a
Part D plan contract provides an inadequate amount of time for us to
make an informed decision.
Response: We must make the determination that a contractor is not
qualified to renew its contract by May so that we can know if an
organization will be entering a bid, and also so that we may calculate
the benchmarks for that particular area. If, after the deadline for CMS
non-renewal passes, we uncover additional information causing us to
question the qualifications of the contractor to continue serving as a
Part D plan sponsor, we have a range of options available under this
subpart, as well as under subpart O. (For example, we could impose an
enrollment freeze, a termination of marketing, or terminate the
contract if necessary.) In addition, even if we determine an entity is
qualified to renew its contract, this does not mean the contract will
necessarily be renewed. If we and the contractor cannot reach agreement
on the terms of the bid, then the contract will not be renewed.
Comment: Concern was expressed by a commenter that it was unclear
how a Part D plan sponsor not renewing its contract could fulfill the
requirement to inform consumers of other Part D plan options in the
same service area, especially if other plans are changing or leaving
the area at the same time.
Response: The plan is also required to notify the public 90 days
before the end of the current calendar year. If 90 days is October 1,
at that point, the plan should know (or should be able to find out from
CMS) what plans are likely to offer prescription drug coverage for the
[[Page 4337]]
upcoming annual enrollment period in the service area.
9. Modification or termination of contract by mutual consent (Sec.
423.508).
In proposed Sec. 423.508, we specified that a contract could be
modified or terminated at any time by written mutual consent. If the
contract were terminated by mutual consent, the PDP sponsor would have
to provide notice to its Medicare enrollees and the general public
using a timeframe we determine is appropriate. If the contract were
modified by mutual consent, the PDP sponsor would be required to notify
its Medicare enrollees of any changes that we determine are appropriate
for notification within timeframes specified by CMS. We received two
comments concerning this section on the proposed rule.
Comment: A Part D plan sponsor not intending to renew its contract
with CMS is required to provide notice by the first Monday in June in
the year in which the contract ends. Several commenters believed that
this was not enough lead-time to ensure a complete transfer of files.
They suggested that, as a condition of participating in the Part D
program or recovery of surety bonds, Part D sponsors be required to
cooperate in a timely manner with regard to all file and data
transfers, including in cases where the Part D sponsor is leaving the
market.
Response: We agree with the commenters that we should specify that
data and files must be transferred timely and are adding language at
Sec. 423.507(a)(4), Sec. 423.508(d), Sec. 423.509(b)(1)(iv), and
Sec. 423.510(f) to clarify that these transfers must take place in
cases of non-renewal, as well as in cases where the plan is ended for
other reasons..
10. Termination of Contracts by CMS (Sec. 423.509)
This section discusses reasons for termination by CMS of a Part D
sponsor. In the proposed rule, we asked for comments on Sec.
423.509(a)(14), which allows us to immediately terminate a plan's
contract without making corrective action available. This authority
would be used if we have credible evidence of false, fraudulent, or
abusive activities affecting the Medicare program. For the remainder of
our proposals under this section, please see 69 FR 46714-715. We
received one comment on this section as discussed below and are
adopting the proposed policies in this final rule.
Comment: A commenter stated that our requirements allowing plans to
cease operations 90 days after a CMS termination decision, and then
requiring that the terminated Part D sponsor notify enrollees at least
30 days before the termination, is an unacceptable 60-day delay in
notifying beneficiaries, and may cause gaps in coverage. Additionally,
the commenter asked that the regulations stipulate that plans be
immediately barred from any further marketing as soon as they are
notified by CMS of their termination.
Response: We must allow some time between when a termination notice
is given to an entity and when enrollees are notified of the
termination so that we can alert other plans in the same service area
that they are going to have to be open for enrollment and so that we
can determine which plans have the capacity to accept new enrollees. In
the event that only one other plan is in the area, we must make every
effort in a short amount of time to contract with a qualified Part D
sponsor to preserve beneficiary choice.
Regarding the comment about ending marketing immediately upon
termination, sponsors are afforded appeal rights. Terminated sponsors
have 15 days to file a notice of appeal.
11. Termination of Contract by the Part D Plan Sponsor (Sec. 423.510)
The proposed requirements for termination of a contract by a Part D
plan sponsor were discussed at 69 FR 46715. These proposed requirements
were unchanged from the MA program. We received one comment on
notifying the States of PDP sponsors that have their contract
terminated. We expect to adopt this suggestion in other guidance. In
this final rule, we are adopting the provisions of the proposed rule.
12. Minimum Enrollment Requirements (Sec. 423.512)
We discussed the minimum enrollment requirements for potential Part
D plan sponsors at 69 FR 46715 in the preamble of the proposed rule. We
asked for comments on whether we should retain the minimum enrollment
requirements from the MA program. We received one comment, discussed
below, addressing that proposal. In this final rule, we are adopting
the policies of the proposed rule.
Comment: Three commenters asked that we raise the minimum
enrollment amounts from the current levels of at least 5,000
individuals enrolled for the purpose of receiving prescription drug
benefits, and at least 1,500 enrollees for those plans serving rural
areas. Their rationale was that at these low levels, a Part D plan
sponsor could not be expected to negotiate and receive adequate
prescription drug discounts or provide quality customer services to its
beneficiaries.
Response: Although we have the authority under section 1860D-
12(b)(3)(A)(i) of the Act to increase the minimum number of enrollees
for PDP sponsors, given that we are in the first phase of the new drug
benefit, we believe it would be reasonable to maintain the minimum
enrollment numbers that were proposed. We may, in the future, need to
adjust these thresholds based on our early experience. For now,
however, we believe it would be prudent to adopt the minimum enrollment
thresholds already used in the MA context, as we have greater
experience with that program. Given that MA organizations offer a
broader range of services than will be offered by PDP sponsors, and
given that the minimum enrollment requirements have not seemed to
stifle negotiation in that context, we believe it is reasonable to
maintain these minimum enrollment numbers for potential PDP sponsors.
Additionally, it should be noted that during the first contract year
for a PDP sponsor in a region, the minimum enrollment requirements are
waived. In addition, our intention for the final rule is to attract as
many plans as possible to contract with us, thereby ensuring
beneficiary choice and price competition. If, in the future, we find
that the minimum enrollment numbers are too low for plans to garner
high enough discounts or to provide quality customer service, we may
increase the number through another round of rulemaking.
13. Reporting Requirements (Sec. 423.514)
Proposed reporting requirements were discussed at pages 46715 and
46716 of the proposed rule. We received no comments on this section and
will be adopting the policies proposed.
14. Prohibition of midyear implementation of significant new regulatory
requirements. (Sec. 423.516)
Under proposed Sec. 423.516, we stated that we could not
implement, other than at the beginning of a calendar year, provisions
under this section that would impose new, significant regulatory
requirements on a Part D plan sponsor or a prescription drug plan. We
did not receive any comments on the provision, and the policy will be
adopted in the final rule.
15. Fraud, Waste and Abuse.
Section 423.153(e) of the proposed rule discussed requirements for
a program to control fraud, waste and abuse as required by Section
1860D-4(c)(1)(D) of the Act. In an effort to
[[Page 4338]]
consolidate the various compliance requirements in the rule, the
requirements (and preamble discussion) pertaining to fraud, waste, and
abuse programs have been moved from subpart D to subpart K, and
included at Sec. 423.504(b)(4)(vi)(H) as a component of a Part D plan
sponsor's overall compliance plan.
Fraud and abuse compliance plans (referred to in this subpart as
fraud and abuse programs) have been a part of private business
practices since the early 1990's with the implementation of the Federal
Sentencing Guidelines for Organizations of 1991. The Guidelines provide
that a corporation can mitigate its sentencing when convicted of a
Federal crime if its compliance plan is effective. Additionally,
prosecutors may use their discretion in pursuing potential criminal
conduct for those organizations that have an effective compliance plan.
The Guidelines require an organization to exercise due diligence to
detect and prevent violations of law (not just criminal law), and to
promote an organizational culture that encourages compliance. They also
require that businesses periodically assess the risk that criminal
conduct might occur notwithstanding the organization's compliance and
ethics program.
With these Guidelines in mind, we developed a set of elements for
Part D plans to consider including in the fraud and abuse program
component of their Compliance Plan so that they may benefit from an
effective plan. These elements are similar to what many companies are
doing in the private industry, including what is being done in the
Federal Employee Health Benefits Program (FEHBP).
The Office of Personnel Management (OPM) requires the FEHBP plans
to have a fraud and abuse program that contains at a minimum these
components: an anti-fraud policy statement, written plan and
procedures, formal training, fraud hotlines, education, use of
technology to combat fraud and abuse, security safeguards to protect
member and provider information, and a mechanism to address fraud and
abuse practices that become patient safety issues.
States are also beginning to develop standards that pharmaceutical
companies must follow before doing business in their State. For
example, on September 29, 2004 Governor Arnold Schwarzenegger of
California signed a new law that requires pharmaceutical companies to
implement a Comprehensive Compliance Program (CCP). This CCP requires
companies that sell pharmaceuticals in the State of California to
comply with the tenets of the Code on Interactions with Health Care
Professionals of the Pharmaceutical Manufacturers and Researchers of
America (PhRMA) and the HHS Office of Inspector General's Compliance
Program Guidelines for Pharmaceutical Manufacturers. In addition, the
companies must declare in writing compliance with the plan, make its
CCP and written attestation accessible to the public on its Web site,
and provide a toll-free number where copies of the CCP and written
attestation may be obtained.
Similarly, the current M+C organizations, under Sec.
422.501(b)(3)(vi), must have a compliance plan that consists of the
following:
Written policies, procedures, and standards of conduct
that articulate the organization's commitment to comply with all
applicable Federal and State standards related to fraud and abuse.
The designation of a compliance officer and compliance
committee who are accountable to senior management.
Effective training and education between the compliance
officer and organization employees.
Effective lines of communication between the compliance
officer and the organization's employees.
Enforcement of standards through well-publicized
disciplinary guidelines.
Provision for internal monitoring and auditing.
Procedures for ensuring prompt response to detected
offenses and development of corrective action initiatives relating to
the organization's M+C contract.
With the emergence of organized criminal groups that have become
involved in healthcare fraud across the country, the defrauding of
Medicare and Medicaid has increased program vulnerabilities for CMS.
For example, prescription drug expenditures constitute one of the
fastest growing components of all Medicaid programs and amount to more
than $1 billion a year in Medicaid expenditures on pharmaceuticals.
Preventing inappropriate expenditures from occurring is preferable to
recouping inappropriately paid claims. States have been very aggressive
in responding to many of the fraud schemes used by individuals and
groups to defraud Medicaid programs. States have addressed fraud and
abuse by developing systems, processes, and procedures to identify and
prevent fraudulent providers from entering their programs, thus
avoiding patterns of payment and recovery.
As the Medicare Prescription Drug Benefit is implemented, it is
crucial to the success of the Medicare program to have a fraud
detection and prevention model in place. The identification and
analysis of inappropriate activities that are essential aspects of the
model will help Medicare to proactively combat fraudulent drug schemes.
After researching best practices currently utilized in the
industry, we recommend that Part D plan sponsors consider adopting a
program similar to the one used in FEHBP by including in the fraud,
waste and abuse component of their overall compliance plan the
following elements:
1) Written policies and procedures for detecting and preventing
fraud, waste, and abuse among Part D plan sponsors, any Pharmacy
Benefit Managers, pharmacies, drug manufacturers and physicians and
providers with whom the sponsors and MA organizations do business. In
developing these policies and procedures, sponsors and MA-PDs may also
consider requiring pharmacies to adhere to the Code of Ethics of the
American Pharmaceutical Association as a best practice for its standard
of conduct.
2) Designation of a compliance officer and compliance committee
with responsibility for developing, operating, and monitoring the Fraud
and Abuse program and with authority to report directly to the board of
directors, the president, or the CEO. The Part D plan sponsor or MA-PD
should consider the compliance officer's scope of responsibilities, the
organization's size and resources, and the complexity of the task in
determining whether this compliance officer needs to be a different
individual than the one required in the overall compliance plan.
3) Effective training and education on fraud, waste, and abuse,
which would address pertinent laws related to fraud and abuse (for
example, anti-kickback provisions and False Claims Act provisions) and
include training for Part D plan sponsor staff and contracted entities
on common fraudulent schemes in the pharmaceutical industry, identified
by CMS, the Office of Inspector General or Department of Justice.
4) Effective lines of communication between the sponsor and the
following entities: CMS and its contractors; law enforcement;
Pharmaceutical Benefit Managers; pharmacies; and physicians and
providers with whom the Part D plan sponsors do business, including an
effective line of communication between the Part D plan's compliance
officer and all employees using a process (for example, a hotline or
other reporting system) to receive complaints or questions. There
should also be procedures in place to protect the
[[Page 4339]]
anonymity of complainants and protect whistleblowers from retaliation.
5) Internal monitoring and auditing to protect the Medicare Trust
Fund from Part D fraud and abuse, including regular monitoring and
auditing by the Part D plan to ensure that they are in fact taking the
steps necessary to comply with all Federal and State regulations
related to fraud and abuse and are following their compliance plan to
mitigate the potential for fraud, waste, and abuse within their
organization.
6) Enforcement of standards through guidelines that are widely
disseminated to employees, contractors, agents, and directors.
7) Procedures to ensure prompt responses to detected problems and
to undertaking corrective action. We recommend these procedures
include: (a)referral of any abusive or potentially fraudulent conduct
or inappropriate utilization activities, once identified via proactive
data analysis or other processes, for further investigation to CMS or
its contractors; (b) procedures to cooperate with law enforcement; (c)
reporting of potential violations of Federal law to the HHS Office of
Inspector General or, alternatively, to appropriate law enforcement
authorities; and (d) the conduct of appropriate corrective actions,
including repayment of any overpayments due to the fraud or abuse and
disciplinary actions against responsible employees.
The guidelines discussed above will help ensure that the Medicare
Trust Fund is protected against fraud, waste, and abuse in the Part D
program. These guidelines should not be misconstrued to mean that Part
D plans should undertake law enforcement activities. Rather, Part D
plan sponsors should implement effective fraud and abuse programs,
consistent with industry standards, to detect problems, make referrals
to CMS or the appropriate program integrity contractor for further
investigation and follow-up, and undertake corrective action. These
provisions are crucial to the success of the Medicare Part D program
and to the millions of beneficiaries who rely on these benefits.
As noted in the proposed rule, we proposed changing the compliance
program requirements for MA organizations at Sec. 422.503(b)(4)(vi)(G)
to include provisions that would require a MA organization to report
misconduct it believes may violate various criminal, civil, or
administrative authorities. We also proposed basing the compliance
program requirements for Part D plan sponsors on these proposed new MA
requirements. Numerous comments, both for and against, were received
regarding these mandatory self-reporting of misconduct requirements.
The very large majority of the comments, however, objected that the
rule as written was vague and overbroad, with no basis in statute.
Other comments mentioned that imposing a self-reporting requirement on
only specific health providers contracting with Medicare was patently
unfair, and other comments directed us to eliminate the proposal,
stating that current compliance requirements were sufficient.
In response to these comments, we have eliminated the mandatory
self-reporting requirements that were proposed, but we expect all Part
D plan sponsors to comply with the requirement for a comprehensive
fraud and abuse plan as found under Sec. 423.504(b)(4)(vi)(H). We
continue to believe that self-reporting of fraud and abuse is a
critical element to an effective compliance plan, and that
organizations contracting with CMS will find it in their best interests
to alert CMS, the OIG, or law enforcement to any potential financial
fraud or misconduct. Part D plan sponsors must continue to have a
compliance plan as found under Sec. 423.504(b)(4)(vi).
The potential for fraud, waste, and abuse exists not only in Part D
plan sponsors offering prescription drug coverage, but also in the
PBMs, pharmacies, physicians, and other providers with whom Part D
sponsors do business. Therefore, we recommend that, as part of their
ongoing screening for abusive or fraudulent activity, one of the many
fraud and abuse activities that Part D sponsors should screen for is
the illegal prescribing of narcotics by physicians.
We recognize that there are many possible approaches to
implementing a successful waste, fraud, and abuse program, and we have
given Part D plans sponsors discretion in developing this program as
part of their overall compliance plan. In developing its fraud and
abuse program, we recommend that Part D plan sponsors consider the
previously outlined set of elements as well as other industry best
practice (for example, compliance guidelines published by the Office of
the Inspector General).
Comment: Commenters cautioned CMS against imposing additional
administrative requirements (for example, periodic reports summarizing
data analysis activities or reports on illegal prescribing practices)
unless it has been proven effective in reducing fraud and abuse.
Response: Based on the comments received, respondents felt that
these additional reports would be too burdensome to submit. We will not
be imposing these additional reporting requirements at this time.
However, while we expect that Part D plan sponsors will have policies
and procedures in place to effectively screen for wasteful, fraudulent,
and abusive activity, they should also be expected to produce evidence
(for example, a summary of data analysis activities, tools used,
resources employed, or trend analyses performed) of this activity upon
CMS request.
Comment: Commenters expressed concern that we were expecting plans
to be law enforcement-like entities who would take decisive action if
fraud was identified. Commenters did not believe that plans or their
contracted entities were in a position to take enforcement action
regarding physician or patient abuse, and that they did not have the
medical information necessary to track physician or patient abuse.
Commenters did not believe that plans or PBMs should be tasked with
taking, or judged for failing to take, enforcement actions against
providers or patients.
Response: We recognize that Part D plan sponsors are not law
enforcement entities and will not expect these entities to pursue
fraudulent activity in the same manner that law enforcement would.
However, just as other contractors who administer Medicare benefits are
responsible for monitoring for wasteful, abusive, and fraudulent
activities in their organizations, we have the same expectations for
Part D plan sponsors. We therefore recommend that Part D plan sponsors
offering prescription drug plans detect and prevent potentially
fraudulent or abusive activity. For assistance in identifying what
constitutes abusive or fraudulent activity, Part D plan sponsors may
consult a variety of sources including relevant statutes, regulations,
and case law, as well as media reports, DOJ litigation history, HHS-OIG
published guidance and CMS policy manuals. Once identified, we
encourage referrals be made to CMS or appropriate CMS contractors. CMS
and its contractors will investigate all cases referred as potentially
fraudulent and then refer them to the appropriate law enforcement
agency as warranted. Likewise, we encourage Part D sponsors offering
prescription drug plans to fully cooperate in any investigation that we
or our law enforcement partners pursue related to fraud identified in a
particular plan's area.
Comment: We give no assurance that the proposed rule provides those
giving
[[Page 4340]]
price concessions protection from liability under fraud and abuse laws.
CMS should strongly endorse the offering of price concessions as
entirely consistent with the anti-kickback statute for all
manufacturers or providers who: (1) identify the price concessions as
such in the applicable contract; (2) do not interfere with the
reporting obligations of Part D plans; and (3) contractually obligate
the plan at issue to accurately report all price concessions provided.
Response: The anti-kickback statute is enforced by the OIG and the
Department of Justice. Therefore we cannot respond directly to this
comment. Interested entities may wish to submit a request to the OIG
for an advisory opinion on these kinds of questions.
Comment: We should make clear in the final rule that Part D plan
sponsors that engage in illegal practices may be subject to sanction
under the False Claims Act and certify on an annual basis that sponsors
will meet all of the requirements imposed.
Response: Part D plan sponsors should devise their compliance
programs so that their policies and procedures are consistent with the
False Claims Act. With regard to the issue of annual certification, we
are not requiring Part D plan sponsors at this time to certify that
they are in compliance with their fraud and abuse programs.
Comment: In responding to the proposed rule, commenters questioned
whether we would develop uniform standards for all Part D plan sponsors
or if each Part D plan sponsor would develop its own criteria.
Additionally, commenters wanted to know whether these compliance
programs would be compared against one another.
Response: Understanding that there are many approaches to a
successful fraud, waste, and abuse program, we have developed a set of
suggested elements for Part D plan sponsors to consider as they develop
a plan for identifying and reporting fraud and abuse activity within
the overall compliance plan. We will not compare fraud and abuse plans
to each other, but expect Part D plan sponsors to follow through with
the monitoring and compliance initiatives that are identified in their
own fraud and abuse control plans.
In addition to plan efforts to control waste, fraud and abuse, we
will work to develop program level performance measures using our
oversight data related to costs, benefit structure, and other factors
to make comparisons with the non-Medicare prescription drug benefit
market and with Medicare prescription drug baseline data. We will
review these comparisons as part of our normal, continual review of the
Part D program. When divergent trends between the Medicare and non-
Medicare markets are identified, we will take appropriate action, as
necessary. In this way, we can work to ensure that the Medicare
continues to reflect private sector best practices in the efficient
delivery of drug benefits and that we can remove unnecessary barriers
to efficient care delivery.''
Comment: Commenters expressed concern that the proposed rule
identified illicit prescribing of narcotics by physicians as a primary
responsibility for Part D plan sponsors.
Response: Illegal narcotic prescribing is one of many ongoing
vulnerabilities we recommend that Part D sponsors should screen for in
implementing a successful fraud and abuse program. As noted in the
suggested guidance on developing a fraud and abuse plan, we recommend
Part D plan sponsors have in place procedures to detect and prevent
abusive or fraudulent activity in their organization.
Comment: Several respondents were concerned with the illegal
switching of medications and drug substitution for financial gain. For
instance, switching from brand to generic may be appropriate, but
switching brands, for example, Lipitor to Zocor, may not be appropriate
without consultation with the prescribing physician.
Response: We agree that the potential for fraud and abuse
surrounding drug substitutions programs is of grave concern. We have no
intention of restricting or targeting providers who are acting in the
genuine best interests of the patient, but rather are concerned that
such switching practices could be abused for financial gain. Therefore,
we recommend that Part D plan sponsors monitor for aberrant or abusive
behavior related to drug switching both within its own organization
(through its fraud and abuse component of its compliance program) and
with its pharmacy network (through proactive data analysis and trending
capability).
Comment: Several commenters asked CMS how they should forecast
fraud and abuse detection and prevention into their solicitation
proposal to be a Part D plan sponsor.
Response: Part D plan sponsors should bid these costs in the same
way they cost-out their current compliance and utilization control
activity, as fraud and abuse is inherently a utilization control.
Comment: Some commenters asked that safe harbors be developed for
Part D plans under the Anti-kickback and physician self-referral laws.
Response: The anti-kickback statute is enforced by the OIG and the
Department of Justice. Therefore, we cannot respond with specific
guidance to comments asking for exceptions to the anti-kickback laws.
While the physician self-referral rules are under CMS jurisdiction,
this final rule does not create any exceptions to these rules at this
time, as nothing on this topic was proposed. However, law concerning
physician self-referral is generally not implicated in many
arrangements involving PDPs and MA organizations, unless the
arrangement involves a referring physician.
Comment: Some commenters were concerned about unfair extrapolation
policies in the Part D plan auditing process of pharmacies. It was
recommended that the same standard required for Part D auditors be
required of CMS; that is, ``a statistically valid random sample.''
Response: We recommend that Part D plan sponsors utilize ``a
statistically valid random sample'' when auditing pharmacies; however,
Part D plan sponsors and pharmacies should agree on auditing procedures
in their network contracts.
Comment: Several commenters expressed concern about unfair ``bounty
hunting'' practices in the Part D plan auditing process of pharmacies.
It is recommended that Part D plan sponsors be prohibited from paying
auditors based on the denial of reimbursement claims. Instead, they
should be paid based on an objective analysis of reimbursement claims.
Response: We do not expect Part D plan sponsors to pay auditors
based on the number of reimbursement claims that auditors deny; rather,
Part D auditing processes should be based on an objective analysis of
reimbursement claims. Specific instructions regarding Part D auditing
practices will be outlined in subsequent policy guidance.
Comment: One commenter recommended that the Agency utilize the
regular auditing of plans and pharmacy benefit managers (PBMs) to help
control fraud, waste, and abuse.
Response: As a part of our mandated oversight responsibilities, we
will regularly audit all drug sponsors involved in the Part D program
as stated under Sec. 423.504(d).
Comment: Commenters wanted to ensure that providers and pharmacies
who were on State sanction lists could not participate in Part D.
Response: Part D entities such as providers, pharmacies, PBMs, and
plans may be excluded from participating in
[[Page 4341]]
Part D under certain circumstances. The Office of the Inspector General
maintains the authority to exclude individuals and entities from
participating in Federal health care programs, including Medicare.
Therefore, we cannot respond with specific guidance to comments asking
under what circumstances providers might be excluded from participating
in Part D.
Comment: The provider community indicated that they wanted to
review proposed fraud and abuse plan to ensure the consistent use of
fraud and abuse tools to mitigate illegal actions.
Response: Compliance plans are the property of the Part D plan
sponsors and for their internal use; consequently, we do not expect
plans to publish these documents for public access. Compliance plans
will only be available to government and oversight entities upon
request. However, CMS manuals that outline program integrity
expectations are available for public access. As for the consistent
application of fraud and abuse processes and procedures, we have
suggested in the final rule a set of elements for a fraud and abuse
control plan for Part D sponsors to consider in developing the fraud,
waste and abuse component of their overall compliance plans. Any
requirements in addition to this set of elements are encouraged by CMS
and are at the discretion of the Part D plan sponsors.
L. Effect of Change of Ownership or Leasing of Facilities During the
Term of Contract
Subpart L of part 423 describes the impact that a change of
ownership (CHOW) or the lease of facilities during the term of a PDP
sponsor's contract would have on the status of the organization's
contractual relationship with us, as well as the procedures the
Prescription Drug Plan sponsor is required to follow when a CHOW
occurs. The provisions of this subpart apply to PDP sponsor
organizations and are almost identical to the provisions that apply to
MA organizations at subpart L of part 422. We proposed making the
requirements essentially the same since we believe a single set of CHOW
requirements for both MA organizations and PDP sponsors will simplify
management, assure consistency, and reduce administrative burden. The
requirements in Sec. 423.551, Sec. 423.552, and Sec. 423.553 of this
rule, which apply to PDP sponsors, are, therefore, substantially the
same as the requirements found in Sec. 422.550, Sec. 422.552, and
Sec. 422.553, which apply to MA organizations. We received no comment
on this proposal and will adopt these provisions without modification
(with the exception of a slight change in wording which we will
describe below).
We also sought comments regarding the potential modification of the
CHOW rules. In particular, we sought comments regarding--
The situations which constitute a CHOW;
How these provisions should be applied to large companies
with multiple business units;
The notification requirements related to a CHOW and the
novation agreement provisions; and
The provision related to the leasing of a PDP sponsor's
facilities.
We received only favorable comments on our proposal to consider
that, under Sec. 423.551(a)(2), an asset sale only occurs when there
is a transfer of substantially all the assets of the sponsor to another
party. We requested comments on situations where a sponsor transfers
substantial assets to another party, but less than substantially all of
its assets. We received a few comments describing different scenarios
that commenters believe should not constitute a CHOW. The intent of the
proposals under subpart L was to fashion requirements that would not
unfairly burden an organization when something less than substantially
all of an organization's assets were sold or transferred. When
reviewing the comments, however, it became apparent that for some
organizations selling or transferring their entire PDP line of business
could constitute something less than substantially all of their assets.
We note that we interpret the sale or transfer of an entire PDP line of
business as an asset transfer. We recognize that we cannot define all
possible existing business arrangements and transactions, we are,
therefore, issuing these rules as a framework and will provide guidance
as needed via interpretive documents (for example, FAQs,) and on a case
by case basis. Contracting organizations should be aware that we will
be alert to situations where organizations may be looking to avoid
compliance with the CHOW provisions to evade Medicare liabilities and
obligations.
In this final rule, we note that contracted PDP sponsors must
adhere to the Privacy Rule on sharing protected patient health
information in the course of a CHOW and the preparation of a novation
agreement. PDP sponsors are not permitted to share protected health
information, absent authorization from an enrollee, with a new owner
that is not, or will not, become a covered entity.
We also proposed a definition of a novation agreement. A novation
agreement is an agreement among the current PDP sponsor, the
prospective new owner, and CMS. This agreement would have to be signed
by all three parties and, to be effective, contain the provisions at
Sec. 423.552. In the agreement, we will recognize the new owner as the
successor in interest to the current owner's Medicare contract. This
definition has been adopted without modification.
1. General Provisions
We are adopting the provisions we proposed for this Subpart with
one slight modification to Sec. 423.551(a)(2). This paragraph is now
entitled, Asset transfer rather than Asset sale.
2. Change of Ownership (Sec. 423.551)
We asked for comments on the various arrangements between and
within companies that may, or may not, constitute a CHOW.
Comment: Commenters requested that we clarify that a CHOW does not
occur when a change in the structure of an entity's business units
occurs, but the same entity continues to be the PDP sponsor.
Response: The commenter did not provide, or otherwise define, what
was meant by ``change of structure.'' Assuming the entity here is a
unit of a multi-unit business with the PDP sponsor contract, and that
the change of structure is within the company, and the same entity
continues to hold, and be responsible for, the PDP sponsor contract, we
would agree that a CHOW would not appear to occur in this instance.
However, as mentioned above, we will be alert for any attempts by any
Medicare contracted organizations to evade their responsibility to the
Medicare program and its enrollees by avoiding compliance with the CHOW
requirements.
Comment: We sought comments regarding how the CHOW provisions and
provisions regarding the lease of a PDP sponsor's facilities should be
applied to large companies with multiple business units. We received a
number of similar comments regarding this issue. Commenters questioned
whether the transfer of functions within a multi-State operation that
centralizes functions within one entity would constitute a CHOW. One
commenter recommends that the final regulation clarify that the
transfer of functions within a multi-State company to an entity in
another State does not constitute a CHOW.
Response: We believe that the transferring of functions within a
[[Page 4342]]
company consisting of multiple business units is a common practice and
will in most cases be free of CHOW obligations, regardless of whether
or not the transfer of functions was from one State to another, and was
done in compliance with all applicable State licensure laws. What is
pertinent in this instance is whether the transfer of functions does
not represent substantially all assets of the organization and is truly
an intra-company transfer--that is, that the same party, or parties,
continues to be responsible for the PDP contract. As discussed in a
previous response we will be scrupulous in ensuring that organizations
contracting with the Medicare program do not evade their Medicare
contract obligations. Any transfer of functions, or assets cannot
result in a change of the entity responsible for the PDP contract
without complying with all the CHOW provisions at Sec. 423.551, Sec.
423.552, and Sec. 423.553.
Comment: A commenter requested that, given the impact a CHOW might
have on SPAPs and State retirees, the final regulation provide for
States to be notified of any CHOW.
Response: We will adopt the commenter's suggestion to notify States
in the event of a CHOW. We will likely handle this internally and
notify the appropriate State agencies.
3. Novation Agreement Requirements Sec. 423.552
In the proposed rule, we identified the three conditions that would
have to be met for approval of a novation agreement. A novation
agreement is an agreement among the current PDP sponsor, the
prospective owner and CMS. All three parties must sign the novation
agreement for it to be in effect. Consistent with the requirements that
apply to the MA program, at Sec. 423.552(a) we proposed that three
conditions would need to be met in order to obtain our approval of a
novation agreement. First, the PDP sponsor would be required to give us
notice at least 60 days before the effective date of a CHOW. That
notice would include updated financial information and a discussion of
the financial and solvency impact of the CHOW on the surviving
organization. If notice were not timely, the contractor would continue
to be liable for payments that we make to it on behalf of Medicare
enrollees after the date of the CHOW, as described in Sec.
423.551(c)(2). Second, the PDP sponsor would be required to submit
three signed copies of the novation agreement (that contains the
provisions specified in Sec. 423.552(b)) at least 30 days before the
proposed CHOW date, and submit one copy of other required documents.
Third, the PDP sponsor would have to obtain our determination that--
The new owner is in fact a successor in interest to the
contract;
Recognition of the new owner as a successor in interest is
in the best interest of the Medicare program; and
The successor organization meets the requirements to
qualify as a PDP sponsor under proposed subpart K.
At Sec. 423.552(b) we proposed that a valid novation agreement
would include the following provisions:
The new owner would assume all obligations under the
Medicare contract.
The previous owner would waive its right to reimbursement
for covered services furnished during the rest of the current contract
period.
The previous owner would guarantee performance of the
contract by the new owner during the contract period, or post a
performance bond that is satisfactory to us;
The previous owner would agree to make its books, records,
and other necessary information available to the new owner and to us to
permit an accurate determination of costs for the final settlement of
the contract period.
We proposed that the new owner would become the successor in
interest to the current owner's Medicare contract if the novation
agreement meets all the requirements of Sec. 423.552 and is signed by
us (and the parties to that agreement).
Comment: One commenter requested that we require that enrollees of
the PDP undergoing a CHOW receive detailed notification about any
change, including any impact the CHOW may have on the ability of the
new PDP sponsor to provide for enrollees' healthcare. This commenter
also notes that we do not seem to provide for a special enrollment
period to ensure continuity of care for beneficiaries in the event a
novation agreement is not reached between the prior owner of the
Medicare contact and the new owners, and the commenter requests that a
special enrollment period be provided to ensure continuity of care.
Response: If a CHOW takes place that we believe would not be in the
best interest of the beneficiaries then we will not enter into a
novation agreement with the parties. Under Sec. 423.551(3)(e), if a
novation agreement is not reached, the existing contract will become
invalid. However, before this occurs, we will send out notification of
the pending CHOW, and will make every effort to ensure that
beneficiaries are made aware of the alternate PDPs in the same service
area. In the event that a novation agreement is not executed, an
enrollee will be allowed to enroll during a Special Enrollment period,
as provided for at Sec. 423.36(c).
Comment: A commenter noted that it does not believe the proposed
requirements are administratively burdensome. However, the commenter
points to the advance notice requirement under Sec. 423.551(c), which
requires a PDP sponsor that is considering a CHOW to provide updated
financial information and a discussion of the financial and solvency
impact of the CHOW on the surviving organization. With respect to that
requirement, the commenter suggests that administrative burden could be
further reduced if the information required be equivalent to the
documentation routinely submitted to State departments of insurance or
similar entities.
Response: We appreciate the commenter's suggestion, but, in order
to maintain uniformity, we will retain the advance notice requirement
as proposed. Given that different States require different financial
solvency information we believe that the advance notice requirement
will best serve both our interests and the interests of our
beneficiaries without being unduly burdensome for the PDP sponsors.
M. Grievances, Coverage Determinations, and Appeals
1. Introduction
Subpart M of part 423 implements sections 1860D-4(f), 1860D-4(g),
and 1860D-4(h) of the Act, which sets forth the procedures PDP sponsors
and MA-PDs must follow with regard to grievances, coverage
determinations, and appeals. The MMA amended the Act to provide the
following:
A PDP sponsor or MA-PD must provide meaningful procedures
for hearing and resolving grievances between the PDP sponsor or MA-PD
(including any entity or individual through which the PDP sponsor or
MA-PD provides covered benefits) and enrollees.
A PDP sponsor's or MA-PD's procedures must meet the same
requirements as those that apply to MA organizations for organization
determinations and redeterminations.
If a PDP sponsor or MA-PD has tiered cost sharing for
formulary drugs, it must establish an exceptions process.
PDP sponsors or MA-PDs must follow appeals requirements
that are similar to those applicable to MA organizations regarding
independent
[[Continued on page 4343]]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
]
[[pp. 4343-4392]] Medicare Program; Medicare Prescription Drug Benefit
[[Continued from page 4342]]
[[Page 4343]]
review entity (IRE) review Administrative Law Judge (ALJ) hearings,
Medicare Appeals Council (MAC) review, and judicial review,
respectively.
Appeals involving coverage of a covered part D drug that
is not on a PDP's or MA-PD's formulary are permissible only if the
prescribing physician determines that all covered Part D drugs, on any
tier of the formulary for treatment of the same condition, will not be
as effective for the individual as the non-formulary drug, would have
adverse effects on the individual, or both.
We received 192 comments on subpart M in response to the August
2004 proposed rule. Below we summarize the major proposed provisions in
this subpart and respond to public comments. (For a detailed discussion
of our proposals, please refer to our proposed rule (69 FR 46,632).)
Please note that, for the convenience of the reader, we use the term
``plan'' to connote a PDP sponsor, MA-PD, or other Part D plan sponsor
throughout the discussion in this subpart.
Comment: We received several comments that we need to clarify
whether all of the subpart M provisions apply to PDPs, Medicare
Advantage plans that offer prescription drug benefits (MA-PDs), and
Section 1876 of the Act cost plans that offer qualifying Part D
coverage. Two commenters argued that we should determine which
provisions in subpart M of Part 423 apply to MA organizations and cost
plans and incorporate those provisions in Part 422 and Part 417 by
cross-reference. Alternatively, the commenters suggested that we add
language to the corresponding sections in Parts 422 and 417.
Response: We agree with the commenters, and wish to clarify that
the Part D appeal provisions do apply to PDPs (including fallback
plans), Medicare Advantage plans that offer prescription drug benefits
(MA-PDs), and Section 1876 of the Act, cost HMOs that offer qualifying
Part D coverage. Therefore, this final rule replaces all ``PDP
sponsor'' references in subpart M with ``Part D plan sponsor,'' which
is defined in Sec. 423.4 as PDP sponsors (including fallback
entities), MA organizations offering MA-PD plans, PACE plans offering
qualified prescription drug coverage, and cost-based HMOs and CMPs.
We recognize that MA-PDs and cost-based HMOs and CMPs will be
required to follow two different processes depending on whether a claim
involves a request for benefits under Part 422 or Part 423. (Note that
cost-based HMOs and CMPs will be required to follow Part 422 procedures
no later than January 1, 2006). However, we do not believe that it is
unduly burdensome for MA-PDs and cost-based HMOs and CMPs to follow two
sets of rules instead of one. To the contrary, we believe that if we
adopted the commenters' suggestions, the Part 422 provisions would be
difficult to follow.
2. General Provisions (Sec. 423.560 through Sec. 423.562)
We proposed, at Sec. 423.560, several definitions for terms used
in the subpart. These definitions were generally self-explanatory and
mirror those used in subpart M of part 422 for MA, but were modified to
reflect applicability to Part D drug benefits.
Proposed Sec. 423.562, General Provisions, provided an overview of
the responsibilities of plans and the rights of enrollees for
grievances, coverage determinations, and appeals. In general, plans are
responsible for establishing and maintaining procedures for grievances,
coverage determinations, exceptions to tiered cost-sharing formulary
structures, requests for formulary exceptions, and appeals. Enrollees
must receive written information about the grievance and appeal
procedures available to them through the plan, and about the QIO
complaint process available to enrollees. If the plan delegates this
task, it is still ultimately its responsibility to ensure that the
requirements are met.
Section 423.562(b) of our proposed rule explained the basic rights
of enrollees in relation to plans under subpart M and referenced the
regulations that explain the rights.
Proposed Sec. 423.562(c) specified that an enrollee has no appeal
right when there is no payment liability, or when benefits have been
provided by a non-network provider, except in those situations in
which, under subpart C, the plan is obligated to cover such drugs.
Finally, Sec. 423.562(d) explained that, unless otherwise noted, the
general Medicare appeals rule under part 422, subpart M, is applicable
for appeals to an ALJ or the MAC. We note that since new Sec.
423.562(c) will incorporate part 422, and since part 422 incorporates
part 405, the provisions of part 405 apply to the extent that they are
appropriate. This means, for example, that the provisions to implement
the time and place for a hearing before an ALJ under section 1869 of
the Act would apply to Part D appeals. Thus, we have added a reference
to Sec. 423.612(b) that the time and place for a hearing before an ALJ
will be set in accordance with section 405.1020. Although that section
has not yet been published in final form, we expect that it will be
published prior to the effective date of this rule. Readers may refer
to 67 FR 69311, 69331 (Nov. 15, 2002) for an explanation of the
proposals and a discussion of the possibility of using video-
teleconferencing in ALJ hearings. On the other hand, the ALJ and MAC
provisions that are dependent upon qualified independent contractors
would not apply since an independent review entity will conduct
reconsiderations for Part D appeals.
Comment: We received a comment suggesting that we modify the
definition of appeal in Sec. 423.560 from ``when a delay would
adversely affect the health of the enrollee'' to ``when a delay could
adversely affect the health of the enrollee.'' The same commenter
suggested that we must define ``delay'' in order for it to have
functional meaning.
Response: We disagree with the commenter. The ``would adversely
affect the health of the enrollee'' standard we proposed in the
proposed rule is consistent with the language governing MA procedures,
which were incorporated in the Part D regulations. In addition, we do
not think the term ``delay'' needs to be defined in the regulations.
The term ``delay'' simply refers to the plan not providing benefits
within the applicable adjudication timeframe.
Comment: We received several comments requesting that we not
prohibit an enrollee's appeal rights when the enrollee has no further
financial liability for a Part D benefit. The commenters' underlying
concern is, by prohibiting enrollees who have no financial liability
for a medication from filing a request for appeal, we are also
prohibiting State Pharmaceutical Assistance Programs (SPAPs) or other
secondary payors from acting on behalf of enrollees in the appeals
process.
Response: Under our proposal, an enrollee's appointed or authorized
representative (which could include SPAPs or secondary payors) are able
to act on behalf of enrollees in the appeals process. However, in the
proposed rule we took the position that if an enrollee has no further
financial liability for a medication because the secondary payor (that
is also the enrollee's appointed or authorized representative) covered
the enrollee's additional cost-sharing amount, neither the enrollee nor
the secondary payor would be able to request an appeal. We did not
intend to preclude SPAPs or other secondary payors from filing appeals
with Part D plans on behalf of enrollees. Therefore, we agree with the
commenters and have
[[Page 4344]]
deleted the proposed provision that would prohibit an enrollee's appeal
rights when he or she has no further liability to pay for prescription
drugs furnished through a Part D plan.
Comment: We received one comment requesting that the definition of
enrollee be revised to include people who are automatically enrolled in
a PDP or MA-PD.
Response: We agree with the commenter and have revised the
definition of enrollee in this final rule to mean a Part D eligible
individual who has elected or has been enrolled in a Part D plan.
3. Grievance Procedures (Sec. 423.564)
As defined in Sec. 423.560 of our proposed rule, a grievance means
any complaint or dispute, other than one that constitutes a coverage
determination, expressing dissatisfaction with any aspect of a plan's
operations, activities, or behavior, regardless of whether remedial
action is requested. Our proposed regulations (at Sec. 423.564)
required that each plan have procedures to ensure that grievances are
heard and resolved in a timely manner, but the regulations did not
include prescriptive details on the procedures. The only exception to
this approach was proposed under Sec. 423.564(d) and involved certain
limited situations where a plan must respond to a grievance within 24
hours.
Section 423.564(c) explained the distinction between the grievance
procedures of the plan and the quality improvement organization (QIO)
complaint process. This section further established that when an
enrollee submits a quality of care complaint to a QIO, the plan must
cooperate with the QIO in resolving the complaint.
Proposed Sec. 423.564(e) completed the grievance procedures by
proposing minimum record keeping requirements for a plan, which
included recording the receipt date of a grievance, its final
disposition, and the date the enrollee is notified of the disposition.
Comment: We received one comment suggesting that the QIO be
utilized to respond to expedited external appeals related to drug
benefits, and all complaints regarding quality of care should be
forwarded to the QIO.
Response: We thank the commenter for the suggestion, and will take
it into consideration when determining the entity that will perform the
IRE workload. In addition, we believe that a complaint involving a
quality of care issue must be processed by the QIOs since they are
statutorily required to perform such reviews under section 1154(a)(14)
of the Act. Although QIOs are required to review complaints involving
quality of care issues, by statute, plans must establish an internal
grievance procedure to resolve these types of issues as well. An
enrollee may choose to file a quality of care complaint with either the
plan, QIO, or both. Therefore, quality of care complaints will not be
automatically forwarded to QIOs. In addition, even if the quality of
care complaints were voluntarily forwarded by a plan, QIOs do not have
a statutory responsibility to review such complaints. QIOs are
responsible for reviewing quality of care complaints only when the
complaint has been filed directly with the QIO, in writing, and by an
individual (or his or her representative) who is entitled to Medicare
benefits.
Comment: We received several comments indicating that the grievance
procedures should be modeled after MA and include better record-keeping
requirements for grievances. Other commenters suggested that we allow
enrollees to appeal grievances directly to the IRE. Commenters also
requested that we clarify what types of issues can be adjudicated in
the grievance process, and what types of issues are subject to the
appeals process. Another commenter recommended allowing enrollees to
choose whether they want their complaint to be filed as an appeal or a
grievance.
Response: We agree with the commenters who suggested that the Part
D grievance procedures be modeled after the MA grievance procedures.
Therefore, as proposed, the same grievance requirements (including who
may request a grievance, the filing procedures and record-keeping
procedures) that are applicable under MA are applicable under Part D.
In the MA final rule, we are adopting revised grievance provisions
similar to those from a January 24, 2001 Medicare+Choice proposed rule.
See 66 FR 7,593. This is in response to comments we received on the
August 3, 2004 proposed rule to establish the MA program. See 69 FR
46,866, 46,913. There, in response to statutory changes in the MA
Federal rules governing preemption of State requirements, commenters
recommended that we adopt the January 2001 proposed grievance
provisions in an effort to establish uniform Federal procedures under
MA. Once these regulations are in effect, MA organizations will be
required to notify enrollees of their decisions as expeditiously as the
case requires, but no later than 30 calendar days after receiving a
complaint. An extension by up to 14 calendar days may be permitted if
the enrollee requests the extension, or if the organization justifies a
need for additional information and the delay is in the best interest
of the enrollee. Also, grievances that are made orally may be responded
to orally or in writing, unless the enrollee specifically requests a
written response. Quality of care issues and written complaints must be
responded to in writing. An enrollee must file a grievance no later
than 60 days after the event or incident that precipitates the
grievance. Because the MMA dictates that the grievance provisions of
the MA program also apply to the Part D program, the final MA
requirements have been included under Sec. 423.564, and thus will
apply to PDP sponsors and MA-PDs as well.
In the proposed rule, we specified the differences between
grievances, coverage determinations, and appeals in proposed Sec.
423.564, paragraphs (b) and (c). Nothing in the proposed rule prohibits
an enrollee from requesting that his or her complaint be adjudicated
under the process applicable for appeals or grievances. However, plans
are required to maintain different processes for each and must
determine which process applies when a request is received. As stated
in the proposed rule, any complaint that does not involve a coverage
determination or quality of care issue may be filed under the grievance
process. However, if the complaint involves a coverage determination
issue, plans must process it under its appeals procedures. If the
complaint involves a quality of care issue, an enrollee may request the
quality improvement organization or the plan to review the complaint
using its procedures. When a plan makes a decision on a grievance, its
resolution is final and is not subject to an appeal. We have retained
these proposals in the final rule.
4. Coverage Determinations (Sec. 423.566 through Sec. 423.576)
Proposed Sec. 423.566 through Sec. 423.576 implemented the MMA
requirement that plans establish procedures for making coverage
determinations and redeterminations regarding covered drug benefits
that are essentially the same as those in effect for MA organizations
under part 422, subpart M for MA. Therefore, for the drug benefits
under Part D, we continued standard and expedited requirements for
coverage determinations and redeterminations.
Section 423.566(a) of our proposed rule specified that each plan
must have a procedure for making timely coverage determinations
regarding the drug benefits an enrollee is entitled to receive
[[Page 4345]]
and the amount, if any, that an enrollee is required to pay for a
benefit. The plan would be required to establish both a standard
procedure for making coverage determinations and an expedited procedure
for situations in which applying the standard procedure could seriously
jeopardize the enrollee's life, health, or ability to regain maximum
function.
As proposed in Sec. 423.566(b), actions that constitute coverage
determinations include: a plan's decision not to provide or pay for a
Part D drug (including a decision not to pay because the drug is not on
the plan's formulary, the drug is determined not to be medically
necessary, the drug is furnished by an out-of-network pharmacy, or
because the plan determines that the drug otherwise would be excluded
under section 1862(a) of the Act); failure to provide a coverage
determination in a timely manner that would adversely affect the health
of the enrollee; decisions on the amount of cost sharing; or decisions
on whether the preferred drug is appropriate for an enrollee. As
proposed at Sec. 423.566(c), only the enrollee (including his or her
authorized representative) and the prescribing physician on behalf of
the enrollee could request a standard coverage determination.
Similarly, those individuals who could request an expedited
determination or an expedited redetermination were an enrollee
(including his or her authorized representative), or the prescribing
physician on behalf of the enrollee. In these situations we proposed
that a prescribing physician need not be an appointed representative of
the enrollee in order to assist in obtaining either a standard or an
expedited coverage determination. We welcomed comments on any
additional individuals or entities that should be able to request a
coverage determination.
The standard timeframes and notice requirements for coverage
determinations were proposed in Sec. 423.568. These requirements,
which are consistent with MA requirements and were incorporated in Part
D, included making a determination as expeditiously as the enrollee's
health condition requires, but no later than 14 calendar days after
receipt of the request if the request was for prescription drug
benefits. An extension of the timeframe by up to 14 calendar days would
be allowed if the enrollee requests the extension, or if the plan can
justify how a delay is in the interest of the enrollee. An enrollee
must be notified of the reasons for the delay, and informed of the
right to file an expedited grievance if the enrollee disagrees with the
plan's decision to invoke an extension.
As specified at proposed Sec. 423.568(b), which is consistent with
MA requirements and was incorporated in Part D, if the request is for
payment, the determination would need to be made no later than 30
calendar days after receipt of the request. This section also
established, at proposed Sec. 423.568(c), the requirement for written
notice for plan denials and the form and content of the denial notices,
including that the notices must explain the reason for the denial and
the availability of appeal rights.
Section 423.570 and Sec. 423.572 proposed the requirements
regarding expedited coverage determinations, including how an enrollee
or an enrollee's prescribing physician could make an oral or written
request (Sec. 423.570(b)), and how the plan must process requests
(Sec. 423.570(c)). We clarified in Sec. 423.570(a) that requests for
payment of prescription drugs already furnished for an enrollee could
not be expedited.
Section 423.570(b)(2) specified that a prescribing physician may
provide written or oral support for a request for expedition, and under
Sec. 423.570(c)(3)(ii), we clarified that when requests for expedition
were made or supported by an enrollee's prescribing physician, the plan
would grant the request if the physician indicated that applying the
standard timeframe could seriously jeopardize the enrollee's life,
health, or the ability to regain maximum function. Section 423.570(d)
proposed actions following a denial of a request and explained that
when a plan denies a request for an expedited determination, the
request would be automatically transferred and processed under the
standard determination procedures.
Proposed Sec. 423.572 outlined the timeframe and notice
requirements for expedited determinations. Specifically, this section
proposed the following:
The plan must make its expedited determination and notify
the enrollee and the prescribing physician of its determination as
expeditiously as the enrollee's health condition requires, but no later
than 72 hours after receiving the request.
The enrollee has the right to file an expedited grievance
if he or she disagreed with the plan's decision to invoke an extension.
If the plan first notified an enrollee of an adverse
expedited determination orally, then it must mail written confirmation
to the enrollee within 3 calendar days.
Notice of expedited determination must contain specific
information outlined by us.
Failure to provide a timely notice would constitute an
adverse coverage determination, which may be appealed.
Similar to the expedited requirements for MA under Part C, these
sections proposed requiring that drug coverage determinations be made
as expeditiously as the enrollee's health condition requires. Note that
given the requirement that the timing of determinations (and
redeterminations) be based on an enrollee's health condition, the plan
would have a responsibility to ensure that an enrollee's health
situation and needs are fully considered in reviewing any request (for
example, if an enrollee has a chronic condition that has necessitated
ongoing use of the drug in question).
Comment: Several commenters were unclear about the differences
between the processes for coverage determinations, exceptions for non-
formulary and non-preferred drugs, and appeals. Some commenters
believed that the procedures were too complex for enrollees to
navigate.
Response: We believe that it is important to clarify the process
for coverage determinations, including exceptions, and appeals to
ensure that enrollees, prescribing physicians, and plans understand the
procedures that apply to disputes involving drug benefits. Section
1860D-4(g) of the Act addresses the procedures for coverage
determinations and redeterminations of plans. In general, the MMA
requires that a plan's procedures meet the same requirements as those
that apply to MA organizations (under paragraphs (1) through (3) of
section 1852(g) of the Act) for organization determinations and
redeterminations. This includes the same requirements for expedited
procedures when the standard timeframes could seriously jeopardize an
enrollee's life, health, or ability to regain maximum function. In
addition, section 1860D-4(g)(2) of the Act specifies that if a plan has
tiered cost sharing for formulary drugs, it must establish an
exceptions process. Under the exceptions process, consistent with
guidelines established by the Secretary, a non-preferred drug could be
covered under the terms applicable for preferred drugs if the
prescribing physician determines that the preferred drug for treatment
of the same condition either would not be as effective for the
individual or would have adverse effects for the individual, or both.
Section 1860D-4(h) of the Act addresses appeals of a plan's
coverage
[[Page 4346]]
determinations and redeterminations. Here, the MMA requires that the
plans follow appeal requirements that are similar to those applicable
to MA organizations under paragraphs (4) and (5) of section 1852(g) of
the Act (regarding IRE review and ALJ hearings, respectively). In
addition, section 1860D-4(h)(2) of the Act specifies that appeals,
involving coverage of a covered part D drug that is not on a plan's
formulary, are permissible only if the prescribing physician determines
that all covered Part D drugs, on any tier of the formulary for
treatment of the same condition, would not be as effective for the
individual as the non-formulary drug, would have adverse effects on the
individual, or both.
In light of the MMA requirements mentioned above, our final
regulations at Sec. 423.566 through Sec. 423.630 establish a process
for addressing coverage determinations and appeals that largely mirror
the procedures under the MA program. The primary structural difference
between the Part D requirements and the MA rules involves the unique
feature whereby enrollees may request exceptions to a plan's formulary
and tiered cost-sharing structure. (Note that requests for non-
formulary drugs are of course part of the MA program today, but they
are not addressed separately in either the statute of regulations.) We
treat these exception requests as requests for coverage determinations.
Put another way, requests for tiering and formulary exceptions are
forms of coverage determinations. We have made several technical
changes to the proposed regulations to help clarify this point.
Section 423.566(b) of this final rule specifies the actions that we
consider coverage determinations. They include a plan's decision not to
provide or pay for a Part D drug (including a decision not to pay
because the drug is not on the plan's formulary, because the drug is
determined not to be medically necessary, because the drug is furnished
by an out-of-network pharmacy, or because the plan determines that the
drug is otherwise excluded under section 1862(a) of the Act) that the
enrollee believes may be furnished by the plan; failure to provide a
coverage determination in a timely manner when a delay would adversely
affect the health of the enrollee; a decision on the amount of cost
sharing for a drug; and a decision on whether a drug is a preferred
drug for an enrollee. Although a plan's decision to pay for or provide
a Part D drug is a coverage determination, these types of
determinations are not appealable and therefore are not included in the
definition of a coverage determination for purposes of subpart M. We
anticipate that only a fraction of all Part D claims will involve
disputes subject to the appeals and grievance procedures
Cost-utilization tools employed by plans may also result in
coverage determinations. For instance, a plan's denial of a request for
a specific drug based on an enrollee's failure to complete step-therapy
requirements constitutes a coverage determination. Similarly, a denial
based on an enrollee's exceeding a plan's quantity limitation also
constitutes a coverage determination. Although enrollees may appeal
such determinations if they believe that the cost-utilization
requirements have been satisfied or the requirements cannot be
satisfied for reasons of medical necessity, enrollees may not challenge
the fact that a plan has cost-utilization tools. These tools are
essentially part of a plan's benefit design, which is reviewed by us as
part of the plan approval process, and like other parts of the benefit
design may not discourage enrollment by certain Part D eligible
individuals as described in Sec. 423.272.
Only adverse coverage determinations are subject to the appeals
process. Therefore, if a plan denies an enrollee's request for an
exception, this action constitutes an adverse coverage determination
that may be appealed. If we did not treat a plan's decision regarding
an exceptions request as a coverage determination, then any adverse
decision by a plan regarding an exceptions request would not be subject
to the appeals process.
All of the enrollee filing deadlines; plan decision-making
timeframes, including rules on when to apply the expedited versus the
standard procedures; and notice requirements apply to exceptions
requests in the same manner as they apply to other coverage
determinations. Thus, Sec. 423.578(c) specifies that a plan's decision
concerning an exceptions request constitutes a coverage determination
under Sec. 423.566.
Consistent with MA appeal procedures, the entity that makes the
coverage determination has an opportunity to take a second look at its
original determination. Thus, the first level of the appeals process is
a redetermination by the plan. One or more individuals who were not
involved in making the coverage determination must make the
redetermination. If a lack of medical necessity formed the basis for
the coverage denial, then a physician with expertise in the field of
medicine appropriate for the services at issue must make the
redetermination. The redetermination procedures are set forth under
Sec. 423.580 through Sec. 423.590.
Plan redeterminations are subject to reconsideration by an IRE
under Sec. 423.600 through Sec. 423.604. Further appeals may be made
to an ALJ under Sec. 423.610 through Sec. 423.612, the MAC under
Sec. 423.620, and to Federal court under Sec. 423.630. An enrollee
must meet an amount in controversy threshold, as determined by the
Secretary on an annual basis, for appeals at the ALJ and Federal court
levels.
Comment: We received a significant number of comments indicating
that the adjudication timeframes were unreasonably long. The commenters
argued that if we shortened the timeframes for coverage determinations,
including exceptions, and appeals, the process would be less complex.
Some commenters recommended designing an expedited exceptions process
for enrollees with immediate needs such as mental health issues or
chronic or debilitating conditions, which requires a response within 24
hours. Many others suggested shortening the proposed 14-day deadline
for exception requests to 72 hours, or 24 hours for emergencies. One
commenter stated that requiring plans to respond to all exceptions
requests within 72 hours would be consistent with the practice typical
in private plans and would allow enrollees better access to the
therapies they need. The commenter maintained that the adjudication
timeframes under Part D should be shorter than the MA adjudication
timeframes because the majority of Part D claims will involve
prescription drugs that have not been received by enrollees, while MA
claims typically relate to payment for physician and hospital benefits
that enrollees have received. A few commenters supported allowing for
immediate online point of sale adjudication.
Response: We agree with the commenters that the proposed
adjudication timeframes are too long for making decisions involving an
enrollee's access to drugs. Therefore, we have amended the adjudication
timeframes for coverage determinations (which includes exception
requests), redeterminations by the plan, and reconsiderations by the
IRE. The NAIC created and adopted the Health Carrier Prescription Drug
Benefit Management Model Act, which has been used by many States to
develop laws that regulate prescription drug formularies and Pharmacy
Benefit Managers (PBMs). The NAIC Model Act requires plans to make
determinations within 72 hours after the date of the receipt of the
request, or if required by the health
[[Page 4347]]
carrier, the date of the receipt of the physician's supporting
statement. Many of the States that have created laws requiring plans
and PBMs to make determinations within a specified time-period have
adopted adjudication timeframes that are shorted than the 72-hour
timeframe adopted in the NAIC Model Act. For instance, Michigan, New
Jersey, Oklahoma, and Virginia requires plans and PBMs to make a
determination on an exceptions request within 24 hours of receipt,
while New Hampshire requires determinations on exceptions requests to
be made within 48 hours of receipt. Like many States, we have relied on
the adjudication timeframes adopted in the NAIC's Model Act as a
benchmark for developing the Part D adjudication timeframes. We
continue to maintain the requirement that all determinations be made as
expeditiously as the enrollee's health condition requires, but will
shorten the maximum amount of time that a plan or the IRE can take to
make a determination. A plan will have 24 hours for expedited coverage
determinations (including exception requests) and 72 hours for
expedited redeterminations. The expedited procedures will continue to
apply to situations where an enrollee's life, health, or ability to
regain maximum function could be seriously jeopardized by waiting for a
determination within the standard timeframe. For non-expedited matters,
plans will have up to 72 hours to make standard coverage determinations
(including acting on an exceptions request) and no later than 7 days
for standard redeterminations. In this final rule, the adjudication
timeframes begin after receipt of the request, or in the case of an
exceptions request, after receipt of the physician's supporting
statement. The timeframes of 72 hours for expedited cases and 7 days
for non-expedited cases used for redeterminations also apply to
reconsiderations by the IRE.
Although the MMA requires plans to meet the requirements for plan
determinations and redeterminations for Part D in the same manner as
such requirements apply to MA organizations under sections 1852(g)(1)
through (3) of the Act, we believe that we have the authority under the
Act to shorten the adjudication timeframes. Section 1852(g)(1)(A) of
the Act does not require us to mandate a specific amount of time for MA
plans to make standard coverage determinations. The Act requires only
that such coverage determinations be made on a ``timely basis.'' Under
MA, we interpreted ``timely basis'' to mean no more than 14 days from
the date the request is received. However, we agree with many of the
commenters that 14 days is not timely for determinations that involve
prescription drugs. There is too much risk for an enrollee's health if
determinations are not made sooner than 14 days from the date the
request is received, since an enrollee often will not be able to pay
out-of-pocket for a prescribed medication and thus must forgo necessary
therapy until a determination is made. We agree with the commenter that
the MA adjudication timeframes do not offer an appropriate standard for
Part D. We anticipate that the majority of Part D requests for
exceptions and appeals will involve prescription drugs that have not
yet been provided to enrollees, in contrast with MA requests, which
typically involve services that have already been received or are not
immediately needed, such as procedures that are often scheduled weeks
in advance of being performed. (Expedited determinations are the
exception to this general rule.) Clearly, Part D enrollees are likely
to suffer significant adverse consequences if medications are not
received quickly.
Section 1852(g)(2)(A) of the Act gives the Secretary the authority
to require MA organizations to make standard reconsiderations in a time
period that is no later than 60 days from the date the request is
received. In MA, we require MA organizations to complete standard
reconsiderations in 30 days from the date it receives a request.
However, in this final rule, we have established adjudication
timeframes that are shorter than the 60-day maximum imposed by the Act.
Under our final regulations at Sec. 423.590(a), plans must make
standard redeterminations within 7 days from the date a request is
received.
Because section 1860D-4(h)(1) of the Act only requires plans to
meet the requirements that apply to Part D IRE reconsiderations or
higher appeals in a similar manner as they apply to MA organizations,
we have the authority to revise the adjudication deadlines as
appropriate. As mentioned previously, we will hold the IRE to the same
timeframes as Part D plans (that is, as quickly as the beneficiary's
health requires but no later than 72 hours for expedited
reconsiderations and 7 days for standard reconsiderations). However,
ALJ hearings and Departmental Appeals Board (DAB) reviews will follow
the same timeframes and procedures under MA. The complexities
associated with in-person hearings and appellate reviews make it
impossible for an ALJ or the DAB to complete a decision in an
abbreviated timeframe.
Section 1852(g)(3)(B)(iii) of the Act requires MA organizations to
process expedited coverage determinations and reconsiderations ``under
time limitations established by the Secretary, but no later than 72
hours of the time of receipt of the request or the information
necessary to make the determination or reconsideration, or such longer
period as the Secretary may permit in expedited cases.'' Under MA,
health plans and the IRE must process expedited reviews no later than
72 hours. However, given that the final rule reduces the timeframe for
making a standard coverage determination (including an exceptions
request) under Part D from 14 calendar days to 72 hours, the 72-hour
decision-making timeframe we initially proposed for expedited
determination is unreasonable. We believe that a 24-hour deadline for
expedited initial coverage determinations (including expedited
exceptions requests) is more meaningful. This change is reflected under
Sec. 423.572(a). Expedited redeterminations and reconsiderations will
be processed no later than 72 hours, as proposed. We note that we have
removed references to 14-day extensions of the adjudication timeframes.
We believe that allowing extensions is inconsistent with our rationale
for shortening the adjudication timeframes.
Comment: We received many comments from the public suggesting that
we require plans to provide continued coverage of a prescription drug
during part or all of the coverage determination and appeals process,
or provide an emergency supply in limited circumstances. Several of the
commenters were concerned that the proposed timeframes for making
coverage determinations were too long, which would result in lapses of
coverage for enrollees.
The commenters' recommendations varied on the length of time a drug
should be supplied, as well as who should bear the burden of cost. Some
commenters recommended providing enrollees with a 72-hour emergency
supply of the prescription, while others suggested that enrollees be
provided with coverage for 45 days. A number of commenters suggested
that enrollees be permitted to continue receiving a requested drug at
no cost until the appeal is resolved, while others recommended
providing enrollees with the requested drug at the preferred cost-
sharing amount until final resolution.
Response: Although the commenters suggested different solutions,
each has requested some degree of continued coverage as a means of
addressing a larger concern--whether and how
[[Page 4348]]
enrollees can continue receiving a prescribed medication until the
coverage issue is properly adjudicated. We do not believe we have the
statutory authority to require plans to continue covering a drug that
has been removed from the plan's formulary, or placed on a different
tier during the plan year, pending the outcome of an appeal.
Nevertheless, we believe that we can address the commenters' concern in
this final rule by minimizing the adjudication timeframes as discussed
above, and by modifying the proposed provisions related to the
timelines for notices and coverage and appeals decisions. As required
under subpart C of this regulation, plans must either provide notice to
affected enrollees 60 days in advance of a change to its formulary or
tiering structure, or provide notice regarding the change along with a
60-day supply after an enrollee's request for a refill of the drug
affected by a change. As mentioned above, we have also significantly
reduced the adjudication timeframes for coverage determinations,
redeterminations, and reconsiderations. As a result, when a formulary
changes, enrollees will have sufficient time to obtain a determination,
including an independent review, before their medication runs out.
Finally, beneficiaries always have the option of paying out of pocket
for an initially non-covered Part D drug and then appealing to seek
reimbursement.
Comment: Some commenters also suggested that we incorporate a fast-
track appeals process for Part D similar to the fast-track appeals
process provided in the Medicare appeals regulations as a result of the
Grijalva v. Shalala settlement.
Response: The MA provisions at Sec. 422.624 and Sec. 422.626
apply to situations where an MA organization intends to terminate an
enrollee's services in a skilled nursing facility, home health agency,
or a comprehensive outpatient rehabilitation facility. The provider
must deliver a notice two days in advance of the services ending,
thereby affording an enrollee the ability to request an appeal by an
IRE before the services end. As noted above, we have created a similar
concept in Part D by shortening the maximum amount of time that a plan
or the IRE can take to make a determination and requiring plans to
either provide notice to affected enrollees 60 days in advance of a
change to its formulary or tiering structure, or provide notice
regarding the change along with a 60-day supply after an enrollee's
request for a refill of the drug affected by a change. Thus, enrollees
will receive notice in advance of a change to a plan's formulary,
thereby affording an enrollee the ability to request an appeal by an
IRE before a lapse in coverage occurs.
Comment: We received several comments from organizations arguing
that the regulations proposed in subpart M fail to meet the Due Process
Clause of the Fifth Amendment of the United States Constitution.
Specifically, the commenters believe that the proposed rules do not
afford enrollees with adequate notice explaining the reasons for a
denial and right to appeal, and an adequate opportunity to a hearing
with an impartial trier of fact. The commenters also noted that
Medicaid enrollees whose prescription requests are not being honored
currently receive a 72-hour supply of medication pending a resolution
of the initial coverage request, and Medicaid appeals are completed
more expeditiously than Medicare appeals. The commenters recognize that
although the most efficient means of protecting enrollees, amending the
MMA to provide for an appeals process similar to Medicaid, is beyond
our authority, we can take steps to improve notice and the opportunity
for a speedy review.
Response: As noted above, we have addressed the commenters'
concerns by significantly reducing the adjudication timeframes for
coverage determinations, redeterminations, and reconsiderations, and
requiring plans to either deliver notice to affected enrollees 60 days
in advance of a change to its formulary or tiering structure or provide
notice regarding the change along with a 60-day supply after an
enrollee's request for a refill of the drug affected by a change. Under
Sec. 423.568(d) and Sec. 423.572(c), we require plans to provide
enrollees with detailed written notices explaining the reason(s) for
the denial, and the enrollee's right to, and conditions for, obtaining
a redetermination and the rest of the appeals process. In addition,
under Sec. 423.590(g), we require plans to provide enrollees with the
same type of written notices required in Sec. 423.568(d) and Sec.
423.572(c) when a redetermination is made. Finally, Sec. 423.602
contains provisions governing the notice issued by an IRE upon a
reconsideration. Thus, we believe that the Part D process affords
enrollees with appropriate notice explaining their rights to an
exceptions process, reasons for any coverage denials, and the
opportunity to appeal to an independent review entity.
Comment: We received many comments that we need to clarify whether
the point-of-sale transaction at the pharmacy counter constitutes a
coverage determination. Some commenters suggested that the transaction
should not be considered a coverage determination on the basis that it
would be unrealistic to treat a pharmacy as an agent of a plan for the
purpose of accepting and processing appeals, and providing information
about a plan's benefit design does not constitute a denial triggering
notice. Others commented that point-of-sale transactions should be
considered coverage determinations because those transactions result in
enrollees receiving a decision that a drug is either covered or not,
and pharmacies receive real-time claims adjudication information from
plans and deliver that information to enrollees.
Response: We agree with the commenters who suggested that
transactions that occur at the pharmacy counter should not be
considered coverage determinations. Although pharmacists will receive
information from plans regarding whether to provide or pay for a
covered Part D drug, the amount of cost sharing, or whether a drug is a
preferred drug for the enrollee, we do not believe as a policy or
practical matter that such information by itself should be considered a
coverage determination. Instead, the pharmacist is conveying
information regarding the plan's benefit design as it pertains to all
enrollees, and is exercising no discretion on behalf of a plan. The
same type of information is provided in writing by the plan to
enrollees at the beginning of a new plan year, and is often made
available to enrollees in other formats, for example, online.
Like MA organizations under Part C, plans must issue written
notices to enrollees whenever the plans deny a drug benefit in whole or
in part. The written notice must state the specific reason(s) for the
denial and explain the enrollee's right to an appeal. It would be
difficult for pharmacists to create and issue written notices that
satisfy the coverage determination requirements given the number of
customers (likely from various plans) that pharmacists assist each day.
In addition, not all pharmacies have systems capable of receiving
information specific enough to explain that a prescription is not on a
plan's formulary or why the level of cost-sharing is higher than the
enrollee expected to pay.
The DOL considered a similar issue under 29 CFR 2560.503-1, which
generally applies to all claims for benefits under plans subject to the
Employee Retirement Income Security Act (ERISA). Specifically, the DOL
[[Page 4349]]
considered whether, when a group health plan participant presents a
prescription to a pharmacy to be filled at a cost to the participant
determined by reference to a formula or schedule established in
accordance with the terms of such plan and for which the pharmacy
exercises no discretion on behalf of the plan, the regulation under
Sec. 2560.503-1 requires that the presentation of the prescription be
treated as ``claim for benefits.'' The DOL is of the view that neither
ERISA nor the regulation under Sec. 2560.503-1 requires that a group
health plan treat interactions between participants and preferred or
network providers under such circumstances as a ``claim for benefits''
governed under Sec. 2560.503-1. See DOL, EBSA, Benefit Claims
Procedure Regulation Frequently Asked Questions and Answers, A-11, at
http://www.dol.gov/ebsa/faqs/faq_claims_proc_reg.html. We agree with
the approach taken by DOL. Under this final rule, therefore, a plan is
not required to treat the presentation of a prescription as a claim for
benefits; instead, enrollees must contact their plans to formally
request coverage determinations. However, consistent with the DOL
approach, nothing in this rule prohibits a plan from treating the
presentation of the prescription as a claim for benefits if it chooses
to. As under Part C, we will require PDP sponsors and MA-PDs to provide
information in the enrollee's Evidence of Coverage explaining how to
contact the plan to obtain a coverage determination and an appeal. We
will also develop standardized notices and require plans under Sec.
423.562(a)(3) to arrange that their pharmacy networks utilize the
standardized notices to notify enrollees of the right to receive, upon
request, a detailed written notice from the Part D plan sponsor
regarding the enrollee's prescription drug coverage, including
information about the exceptions process. The standardized notices may,
for example, be posted in or disseminated by a plan's network
pharmacies.
Comment: One commenter requested that we clarify Sec.
423.566(b)(4), which specifies that a decision on whether a drug is a
preferred drug for an enrollee is a coverage determination. The
commenter is concerned that, as proposed, the provision allows an
enrollee to challenge a plan's formulary development process, without
regard to whether the enrollee actually received the drug. To remedy
this problem, the commenter suggested that we ``limit the coverage
determination in this case to the scope of the exception.''
Response: We agree that enrollees may not challenge a plan's
formulary. The intent of Sec. 423.566(b)(4) was to ensure that a
plan's determination regarding an enrollee's request for an exception
involving a non-formulary drug is considered a coverage determination.
To clarify our intent, we have amended Sec. 423.566 (b)(3) and (4) to
state that a decision concerning an exceptions request under Sec.
423.578(a), or a decision concerning an exceptions request under Sec.
423.578(b), is a coverage determination.
Comment: One commenter requested clarification as to whether a
decision made by a plan not to pay for drugs obtained at an out-of-
network pharmacy is subject to appeal.
Response: If a plan decides not to pay for a drug that an enrollee
obtained at out-of-network pharmacy in accordance with Sec.
423.124(a), this action constitutes a coverage determination that is
subject to appeal. Therefore, Sec. 423.566(b)(1) requires that a
plan's decision not to provide or pay for a Part D drug because the
drug is furnished by an out-of-network pharmacy is a coverage
determination. To avoid confusion, we deleted the limitation proposed
in Sec. 423.562(c)(2), which gave the impression that such
determinations are not appealable. When a plan denies coverage for a
drug obtained at an out-of-network pharmacy on the grounds that the
provisions of Sec. 423.124(a) were not satisfied, but the enrollee
believes that the denial was unreasonable, for example, the enrollee
obtained a drug at an out-of-network pharmacy because he or she needed
the drug at midnight and the only pharmacy open at that time within a
reasonable driving distance was an out-of-network pharmacy, then the
enrollee can appeal the plan's determination. However, the policies
that plans develop to encourage enrollees to use network pharmacies are
not subject to appeal.
Comment: We received several comments expressing concern regarding
the notification procedures when a plan denies a prescribed medication.
Some commenters suggested that both the physician and enrollee be
provided with immediate written notification, while others recommended
providing the prescribing physician and the enrollee with notification
within 24 hours from the time the determination is made. Several
commenters requested that denials and approved requests be reported to
the pharmacists, and a significant number of commenters suggested that
we require pharmacists to distribute notices to enrollees at the
pharmacy counter.
Response: Most commenters who suggested that the point-of-sale
transaction is a coverage determination also argued that pharmacists
should deliver written notification of the coverage determination to
enrollees when they are not able to obtain a prescription at the
pharmacy counter. Although plans are required under the regulations to
deliver written notice to enrollees when plans make a coverage
determination, plans are not required to deliver a notice as a result
of the transaction that occurs at the pharmacy counter. As mentioned
above, point-of-sale transactions are not coverage determinations and
thus do not trigger the notice requirements associated with adverse
determinations. However, we recognize that it would be helpful for
enrollees to receive some information at the pharmacy explaining how to
obtain a coverage determination or request an exception. Therefore, we
will require plans under Sec. 423.562(a)(3) to arrange that their
network pharmacies notify enrollees of their right to receive, upon
request, a detailed written notice from the Part D plan sponsor
regarding the enrollee's prescription drug coverage, including
information about the exceptions process. Plans may, for instance,
require their network pharmacies to post or distribute notices that
instruct enrollees on how to contact their plans to obtain a coverage
determination or request an exception when enrollees disagree with the
information provided by the pharmacist.
Another concern raised by the commenters involved who would receive
notices from the entities offering Part D plans. Entities offering Part
D plans must send written notification to enrollees whenever the plan
makes any adverse coverage determination. Plans also must notify
prescribing physicians of any adverse coverage determination when the
physician requests standard or expedited coverage determinations, and
expedited redeterminations on behalf of enrollees. Plans must notify
enrollees and prescribing physicians, if the physician requested the
determination, for all favorable coverage determinations. Also, when a
plan denies a request that a determination or redetermination be
expedited, renders an unfavorable expedited coverage determination, or
affirms its unfavorable expedited coverage determination, the plan must
provide oral notification within the applicable timeframe and follow-up
with a written notice within three days.
A written notice of any determination must be sent to enrollees, or
any individual or entity appointed by an enrollee or authorized under
State or
[[Page 4350]]
other applicable law to act on behalf of an enrollee. We also wish to
point out in this final rule that we believe it is unnecessary to
require plans to provide pharmacists with formal written notice of
plans' coverage determinations or appeals. Plans have established
customary practices for communicating their benefit determinations with
pharmacists, and we see no reason to interfere with that relationship.
Comment: We received many comments expressing concern regarding who
should be considered an authorized representative. Commenters suggested
that we modify the definition of authorized representative to include
any licensed healthcare and social service provider caring for the
beneficiary, a practitioner's agent who may act on behalf of the
physician caring for the enrollee, pharmacists where State Pharmacy
Acts empower collaborative practice agreements, and secondary payors,
including employers, SPAPs, Medicaid agencies, and charities that
provide wrap-around coverage or otherwise may pay for a drug when the
plan denies coverage. One commenter suggested that we limit
representatives to authorized family members and physicians.
Response: We considered the comments provided and believe that the
commenters' concerns are already addressed. We do not need to add to
the list of individuals or entities permitted to act on behalf of
enrollees because they have the ability to appoint anyone to be their
representative under this rule. In addition, individuals or entities
authorized under State law may also act on behalf of enrollees.
Therefore, we removed the definition of an ``authorized
representative'' under Sec. 423.560 and replaced it with ``appointed
representative'' to clarify that a representative is an authorized
representative, or is an individual appointed by an enrollee, or
authorized under State or other applicable law, to act on behalf of the
enrollee in obtaining a coverage determination or in dealing with any
of the levels of the appeals process. Thus, any individual or entity
(including prescribing physicians, secondary payors, charities, and
pharmacists) appointed by an enrollee, or authorized under State law,
may file a grievance, request a coverage determination, or appeal on
behalf of enrollees. We also have clarified that the appointed
representative will have all of the rights and responsibilities of an
enrollee in obtaining a coverage determination or in dealing with any
of the levels of the appeals process.
In proposed Sec. 423.560, we proposed to define ``enrollee'' as a
part D eligible individual or his or authorized representative.
Instead, in our final rule we clarify that an enrollee is a Part D
eligible individual who has elected or has been enrolled in a
prescription drug plan offered by a PDP sponsor, MA organization, or
other Part D plan sponsor. Although we have now clarified that an
appointed representative is not an enrollee, a plan, nevertheless, has
an obligation to the appointed representative to fulfill the
requirements under this subpart in the same manner that it is required
to do so for the enrollee.
We also disagree with the commenter who suggested that we limit
authorized representatives to authorized family members and physicians.
We have always provided Medicare beneficiaries with the ability to
choose who may act on their behalf, and we see no reason to deviate
from this practice in Part D.
Comment: We received several comments addressing permissible filing
methods and locations for grievances, appeals, and exceptions. Some
commenters suggested that we require enrollees to submit requests in
writing only. Other commenters suggested that we require plans to
accept requests electronically, or by telephone, fax, or mail. One
commenter stated that accepting oral requests would be unduly
burdensome, and another argued that requests only be submitted directly
to the plans.
Response: As noted above, an enrollee may file a grievance either
orally or in writing. Also, as previously mentioned, the MMA requires
plans to meet the requirements for coverage determinations and
redeterminations under Part D in the same manner as they apply to
organization determinations and plan-level reconsiderations in MA. The
regulations applicable to MA do not specify the method by which
enrollees must file requests for standard organization determinations.
However, the MA regulations require MA organizations to have procedures
for accepting oral or written requests for expedited organization
determinations. The MA regulations also require requests for
reconsideration to be filed in writing, but permit requests for
expedited reconsiderations to be filed orally or in writing. Therefore,
plans must also have procedures for accepting oral or written requests
for expedited coverage determinations (including exceptions) and
requests for expedited redeterminations. However, plans need only
accept standard requests for redetermination when they are made in
writing.
Similar to the MA proposed rule, we proposed to require plans to
have procedures for accepting oral (including by telephone) or written
(including by fax or mail) requests for standard redeterminations.
However, consistent with the MA final rule, Part D enrollees must make
standard requests for redetermination in writing, unless the plan
accepts oral requests. Therefore, we deleted the provision in Sec.
423.582(a) that would have permitted enrollees to file oral requests
for redetermination with plans. Although the process currently cannot
accommodate electronic appeal requests, we intend to explore this as
another filing option for Medicare appeals.
Comment: We received several comments related to the consequences
that should apply when a plan fails to meet its adjudication deadlines
or provide timely notice. Some commenters suggested that this failure
should be considered a favorable determination because, under the
proposed rule, plans have no incentive for making coverage
determinations or redeterminations since the failure to meet the
adjudication deadlines result in de facto denials. The commenters argue
that, to ensure enrollee protection, there must be meaningful
consequences when plans fail to meet adjudication deadlines. Still
others believed that it should result in an adverse determination that
may be appealed.
Response: In the proposed rule, we indicated that the failure to
provide timely notice of a coverage determination or redetermination
would constitute an adverse determination that may be appealed. We also
proposed in Sec. 423.578(c)(2) that when the plan fails to make a
determination on an exceptions request when a drug is being removed
from a formulary, the enrollee would be entitled to receive the
medication in dispute until the plan notified the enrollee of its
determination. We agree with the commenters who suggested that this
provision provides little incentive for plans to make determinations
any sooner than by the end of the adjudication deadline, especially if
the plan expects to issue an unfavorable determination. Our intent, in
part, was to require plans to make timely determinations as mandated by
section 1852(g) of the Act. However, we also wanted to remove any
barriers for enrollees to accessing needed medications as quickly as
possible. We now believe that the provisions, as proposed, fall short
of that policy goal. Under MA, if a plan does not provide the enrollee
with timely notice of an organization determination, this failure
constitutes an adverse determination that may be appealed. However, if
the
[[Page 4351]]
MA plan fails to issue its reconsideration within the appropriate
timeframe, this failure constitutes an adverse determination that must
be automatically forwarded to the IRE within 24 hours of the expiration
of the timeframe. Unlike under MA, however, we did not propose that
Part D plans be required to automatically forward all adverse
determinations to the IRE. Instead, we believe that a more effective
policy under Part D is to require plans to automatically forward
enrollees' requests for determination or redetermination to the IRE
only when the plans fail to meet the adjudicatory timeframes for making
determinations and redeterminations. As under MA, plans must forward
the enrollees' requests to the IRE within 24 hours of the expiration of
the adjudication timeframe.
Comment: Several commenters maintained that enrollees should be
able to pursue an expedited appeal regardless of whether they already
paid for the drug in dispute. Commenters believed that low income
beneficiaries, in particular, would be harmed by having to wait 30 days
for a plan to make a coverage determination or 60 days to render a
redetermination.
Response: A determination regarding benefits is expedited when the
application of the normal time frame for making a decision could
seriously jeopardize the life or health of the enrollee or the
enrollee's ability to regain maximum function. As proposed in Part D
and like Part C, such a determination would not involve a payment
request since a medical emergency does not exist for an enrollee who
already obtained the medication in dispute. Nevertheless, the concern
raised by the commenters regarding the length of time it takes for an
enrollee to be reimbursed has been remedied by our decision to no
longer distinguish between payment and service-related disputes. As a
result, we have reduced the timeframe for plans to make standard
coverage determinations to 72 hours in Sec. 423.568(a), and
redeterminations to 7 days in Sec. 423.590(a). In addition to
shortening the adjudication timeframes, we also reduced the
effectuation timeframes for requests involving payment issues to 30
days. Thus, while plans must make a decision on whether to pay for a
prescription drug within 72 hours, they must effectuate the decision
within 30 days. Likewise, although a plan must make a redetermination
within 7 days, it must effectuate no later than 30 days. The
effectuation timeframes for requests involving payment issues are
longer than the effectuation timeframes for requests for benefits
because our experience is plans normally process claims in 30-day
cycles. Therefore, plans must effectuate claims for payment no later
than 30 days after making a favorable coverage determination or
redetermination, or receiving notice of a reversal by the IRE, ALJ,
MAC, or Federal court.
Comment: One commenter suggested that we delete the term
``seriously'' and add ``or maintain'' to the last sentence of Sec.
423.566(a) so that it states ``may jeopardize the enrollee's life,
health, or ability to regain or maintain maximum function, in
accordance with Sec. 423.570.'' The commenter maintained that such a
modification is necessary because any amount of jeopardy to an
enrollee's health or life is serious enough to warrant an expedited
review, and maintenance of maximum function is just as important as
regaining maximum function.
Response: The MMA requires entities that offer Part D plans to meet
the requirements that apply to Part D coverage determinations and
redeterminations in the same manner as they apply to MA organizations
for organization determinations and reconsiderations. Section
1852(g)(3)(B) of the Act requires MA organizations to establish
procedures for expediting organization determinations and
reconsiderations when ``the application of the normal timeframe for
making a determination...could seriously jeopardize the life or health
of the enrollee or the enrollee's ability to regain maximum function.''
Therefore, we are not adopting the commenter's suggestion.
Comment: We received one comment suggesting that the prescribing
physician should make the determination whether to expedite an
enrollee's request for a coverage determination or redetermination. The
commenter maintained that the physician, not the plan, is in the best
position to determine how quickly an enrollee needs a prescribed
medication.
Response: We agree with the commenter. Therefore, like under MA, we
require plans to automatically provide an expedited determination or
redetermination when the prescribing physician indicates that applying
the standard timeframe would seriously jeopardize the life or health of
the enrollee or the enrollee's ability to regain maximum function.
Comment: Two commenters suggested that prior authorization
decisions should be included in the list of actions that constitute a
coverage determination under Sec. 423.566(b). The commenters maintain
that placing a medication on a prior authorization list has the effect
of limiting access to such a medication since the administrative cost
and burden associated with obtaining a prior authorization may cause
physicians to cease prescribing drugs that require that a prior
authorization requirement be satisfied.
Response: As previously noted, information regarding a plan's
benefit design as it pertains to all enrollees is not a coverage
determination. We will allow plans the flexibility to determine how to
structure their formularies, subject to our approval. As a result,
plans are permitted to determine which medications are placed on their
prior authorization lists. The decision to place a medication on a
prior authorization list is not a coverage determination and is not
subject to appeal. However, when a plan processes a prior authorization
request, the plan's determination on whether to grant approval of a
drug for an individual enrollee constitutes a coverage determination
that is subject to appeal. In addition, if a plan denies a drug,
because the enrollee failed to seek prior authorization, that would
also constitute a coverage determination subject to appeal.
Comment: One commenter requested that we define ``State law'' where
we stipulate in Sec. 423.560 that a representative authorized under
State law may act as an authorized representative on behalf of an
enrollee. The commenter suggests that State law be defined as a
constitution, statute, regulations, rule, common law, or other State
action having the force and effect of law.
Response: We agree that ``State law'' may include a constitution,
statute, regulation, rule, common law, or other State action having the
force and effect of law. However, we do not believe that it is
necessary to define State law under Sec. 423.560.
Comment: We received one comment suggesting that we define the
phrase ``furnished by the PDP'' in Sec. 423.566(b)(1), which limits
actions that are coverage determinations to the failure to provide or
pay for a covered Part D drug that an enrollee believes may be
furnished by the plan. The commenter is concerned that if an enrollee
receives prescription drugs while satisfying the deductible or during
the period between the initial coverage limit and the out-of-pocket
threshold, a plan could determine that it did not furnish the drugs to
the enrollee. As a result, enrollees who receive prescription drugs
during such periods would not receive a coverage determination and
would therefore be
[[Page 4352]]
excluded from the appeals process. The commenter maintains that
enrollees should be entitled to appeal a determination that denies
coverage even when a plan does not pay for the prescription drug
because of the enrollee's cost-sharing obligations.
Response: Our intent in Sec. 423.566(b)(1) was to indicate that
the failure to provide or pay for a Part D drug that the enrollee
believes may be covered by the plan results in a coverage
determination. Rather than define what ``furnished by the PDP'' means,
we replaced ``furnished'' with ``covered'' to make clear that coverage
determination and appeals procedures do apply in these situations.
5. Formulary Exceptions Procedures (Sec. 423.578)
a. Exceptions to a Plan's Tiered Cost-Sharing Structure
The MMA specifies that an enrollee may request an exception to a
plan's tiered cost-sharing structure and that plans must have a process
in place to handle such requests. Under such an exception, a ``non-
preferred drug could (emphasis added) be covered under the terms
applicable for a preferred drug'' under certain conditions. At a
minimum, the prescribing physician will have to determine that the
preferred drug either will not be as effective for the individual, or
will have adverse effects for the individual, or both. Unfavorable
determinations constitute coverage denials and are subject to all the
appeal rights discussed in subpart M of part 423.
We proposed under Sec. 423.578 that a plan must establish a
tiering exceptions process that addresses each of the following sets of
circumstances: (1) the enrollee is using a drug and the applicable
tiered cost-sharing structure changes during the year; (2) the enrollee
is using a drug and the applicable tiered cost-sharing structure
changes at the beginning of a new plan year; and (3) there is no pre-
existing use of the drug by the enrollee.
While we thought it necessary to require plans to include certain
criteria in the tiering exceptions process, we also recognized the need
to avoid a situation where a plan's cost-sharing rules are effectively
driven by the tiering exceptions criteria, rather than the other way
around.
At proposed Sec. 423.578(a)(2) we outlined a limited number of
elements that must be included in any plan's tiering exceptions
criteria: (1) a description of the process used by the plan to evaluate
the physician's supporting statement; (2) consideration of the cost of
the requested drug compared to that of the preferred drug; (3)
consideration of whether the formulary includes a drug that is the
therapeutic equivalent of the requested drug; and (4) consideration of
the number of drugs on the plan's formulary that are in the same class
and category as the requested drug.
Consistent with existing MA rules, we proposed that an enrollee,
the enrollee's authorized representative, or the prescribing physician
may request a tiering exception. The statutory requirement that the
prescribing physician determine that the preferred drug either would
not be as effective for the individual generally, or would have adverse
effects for the individual, constitutes a minimum threshold for
approving an exception request. We proposed at Sec. 423.578(a)(4) that
a plan may require a written supporting statement to that effect from
the prescribing physician, as well as certain limitations on the
content requirements that plans could impose for these supporting
statements. We would permit plans flexibility in how this standard
would be applied. For example, a plan could require that a physician
certify that the preferred drug would be less effective than the non-
preferred drug, or the plan could choose to apply a more stringent
standard (such as requiring that the prescribing physician's supporting
statement also include the enrollee's patient history or require the
enrollee to first try the plan's preferred formulary drug, absent
medical contraindications).
A plan's exceptions procedures will also be required to describe
how a determination on an exception request will affect the enrollee's
cost sharing obligations under the plan's tiering structure.
Comment: Several commenters expressed concern regarding our
proposal to allow plans the flexibility to establish exceptions
criteria. Some commenters opposed giving plans the flexibility to
determine their own exceptions criteria because the MMA requires the
Secretary to establish guidelines for the exceptions process. Other
commenters stated that drug plans should establish their own criteria
to determine whether a preferred drug would not be as effective or
would have adverse effects for the enrollee's health condition.
Response: We agree with commenters that plans should impose some
criteria for making tiering exception determinations, and in this final
rule, we are requiring that plans grant exceptions when the plan
determines that the lower-tier drug would not be as effective for the
enrollee as the requested drug, would have adverse effects for the
enrollee, or both. Other than the above requirement, however, we will
not be overly prescriptive in how tiering exception criteria are
designed and what criteria a plan uses to determine whether a preferred
drug would not be as effective or would have adverse effects for the
enrollee. Although the MMA requires plans to develop an exceptions
process for requests involving a tiered cost-sharing issue that is
consistent with the guidelines established by the Secretary, it does
not require the Secretary to establish a comprehensive and uniform set
of criteria that plans must meet when developing their exceptions
processes. We have established specific requirements that plans must
satisfy when processing exceptions requests that are the same as other
coverage determinations. They include, for example, timeframes for
decision-making; the consequences for failing to make timely decisions;
expedited procedures when an enrollee's life, health, or ability to
regain maximum function could be seriously jeopardized; detailed
notices when exceptions are denied; the right to appeal through a 4-
tiered administrative process, and if necessary, to request judicial
review; and when the plan must continue benefits. However, while plans
must design their exception criteria so that drugs determined by the
plan to be medically appropriate for the enrollee are covered, we do
not believe that we should require detailed standards that go beyond
such a medical necessity requirement. This is particularly the case for
the reasons previously mentioned, that is, allowing plans flexibility,
and our uncertainty of how plans will develop formularies. Also, we
still have ultimate authority over what the criteria will entail.
Rather than exercise this authority through the establishment of
specific exceptions criteria, we believe that the most appropriate
policy is to review the plans' exceptions criteria as part of the
approval process, to ensure that the criteria are reasonable and
complete. For example, we would likely expect that a plan would
establish different types of criteria for different classes of drugs.
Thus, in some instances, tiering exceptions may be connected to
demonstrated adverse effects based on previous use of the lower tiered
drug, while in others, exceptions may be linked to predictive adverse
effects based on knowledge of the enrollee's medical condition. While
we are by no means dictating the establishment of separate criteria for
each drug class or
[[Page 4353]]
category, a plan's criteria should encompass all drug classes. Thus, to
the extent that the plan chooses to differentiate among drug classes,
its exceptions procedures need to clearly explain which criteria apply
for various types of drugs or situations. Additionally, we would not
approve a plan's tiering procedures if they are unreasonable.
Similarly, we would not approve a plan's procedure that would require
demonstrated adverse effects in every situation. Clearly, there are
situations in which enrollees would suffer significant harm if they are
required to demonstrate adverse effects.
Comment: One commenter suggested that plans only be required to
maintain an exceptions process for instances where an enrollee is
receiving a drug that is affected by a plan's mid-year tiering change.
The commenter believed that the four categories established under the
proposed rule were unnecessary.
Response: We disagree with the commenter that a plan's exceptions
procedures need only address instances where an enrollee is using a
drug that is affected by a plan's mid-year change to its formulary
tiers. We believe that a plan's exceptions procedures must encompass
all types of tiering exception requests and have added language to
Sec. 423.578(a) to make clear that Part D sponsors must have complete
exceptions procedures that grant exceptions when the plan determines
that the factors under Sec. 423.578(a)(4) exist (that is, the lower-
tiered drug would not be as effective, would have adverse effects, or
both). Nevertheless, we also recognize that the circumstances raised by
the commenter involve perhaps the single most critical aspect of a
plan's exceptions procedures.
To reflect and emphasize the importance of such circumstances
(where a tiering structure changes mid-year and the enrollee has
already been using the drug), we are modifying Sec. 423.578(a)(1) and
(b)(1) to mention only that circumstance as a situation that plans must
specifically address in their exceptions procedures. By no means does
this change obviate the need for complete exceptions procedures. A plan
must have exceptions procedures that can be applied to all requests for
exceptions. Thus, for example, plans' exceptions procedures would need
to address situations where an enrollee has no pre-existing use of a
drug in dispute and the tiering structure changes mid-year. However,
the case of a beneficiary who has a preexisting use of a drug and where
the tiering structure changes mid-year represents the only set of
circumstances that needs to be addressed distinctly.
We recognize that each plan is required to notify enrollees of
changes that will occur in an annual notice of coverage by October
31\st\ each year. Since enrollees have the option of switching plans at
the beginning of a new plan year, an exceptions request that has been
approved may be reviewed at the end of the year. Consistent with plans
notifying affected enrollees of changes to their formularies 60 days in
advance under Sec. 423.120(b)(5), a plan must also notify enrollees if
the plan intends to change the cost-sharing for a drug on its formulary
during the next enrollment period. Therefore, enrollees will have
sufficient notice of any tiering changes made at the beginning of a
plan year to either choose a new plan, or request an exception.
Comment: We received numerous comments concerning how the price for
a drug will be determined when there are mid-year changes in the
tiering structure and an exception is approved. Some commenters
suggested that, when there is a mid-year change in the tiering
structure, enrollees should be granted continued access to drugs at the
price before the change. Other commenters argued that we should define
who should receive continued access at the price before the change. One
commenter argued that it would be impossible to manage a benefit if
enrollees could obtain an exception that would permit non-preferred
drugs to be priced at the generic drug level. A few commenters,
however, believed that, when there is a mid-year change, we should not
require plans to provide access to drugs at the price before the
change.
Response: We agree that enrollees who are receiving a medication
affected by a mid-year change in the tiering structure must have a
method for ensuring that they are able to receive a medically necessary
drug at a given cost-sharing amount when a tiering exception is
granted. Consistent with section 1860D-4(g)(2) of the Act, Sec.
423.578(c)(3) requires that where a plan grants an exception to its
tiered cost-sharing structure, a non-preferred drug will be covered
under the terms applicable for preferred drugs. Thus, if a plan has a
generic level in its tiering structure, we would not expect the plan to
provide a non-preferred drug at the generic level. In addition, if a
plan has developed a tier in which it places very high cost and unique
items, for example, genomic and biotech products, a plan may design its
exception process so that such Part D drugs are not eligible for a
tiering exception. We have added regulatory language to Sec. 423.578
to make these two points clear.
As stated in Sec. 423.578(c), if a tiering exception is granted,
the enrollee will be approved for coverage as long as the prescribing
physician continues to prescribe the drug; the drug continues to be
safe for treating the enrollee's disease or medical condition; and the
enrollment period has not expired.
Comment: Many commenters suggested that we develop a single well-
designed exceptions process in which decisions are made based on the
medical needs of the enrollee. The commenters maintained that a single
process may help streamline administrative requirements and costs, and
one based on the medical needs of the enrollee would address all three
circumstances proposed in Sec. 423.578, that is, where an enrollee is
using a drug and the applicable tiered cost-sharing structure changes
mid-year; the enrollee is using a drug and the cost sharing changes at
the beginning of a new plan year; or there is no pre-existing use of
the drug by the enrollee. Other commenters recommended that the
certifying standard for physicians under proposed Sec. 423.578(a)(4)
be revised to comply with the statute.
Response: We partially agree with the commenters, and have added
regulatory language that requires both off-formulary and tiering
exceptions to be based on the medical needs of the enrollee. However,
tiering exceptions are not typically offered in private industry
currently. While tiering exception procedures must be reasonable,
complete, and based on medical needs, as we discuss above, we do not
believe that it would be appropriate at this stage to dictate a single
type of tiering exception procedure that must be used by all plans.
We also agree with the commenters that the ``certifying'' standard
for physicians must be revised to comply with section 1860D-4(g)(2) of
the Act. Note that the statute does not use the term ``certification,''
and we believe that this term may be interpreted too formally.
Therefore, we have modified Sec. 423.578(a)(4) to require plans to
obtain a ``supporting statement from the prescribing physician that the
preferred drug for treatment of the same condition either would not be
as effective for the enrollee, would have adverse effects for the
enrollee, or both. We have made corresponding technical changes to the
regulation wherever the term ``certification'' was previously used.
We also believe that a physician must be able to certify that the
enrollee meets one or both of these conditions orally or
[[Page 4354]]
in writing. A plan may require a physician who provides an oral
supporting statement to subsequently follow-up in writing, particularly
where a plan decides not to grant an exception. The plan may require
the prescribing physician to provide additional supporting medical
documentation as part of the written follow-up. A plan may want to
preserve the record in the event the enrollee or physician requests an
appeal. However, we do not want to create a process whereby physicians
must routinely provide written supporting statements. Otherwise, such
an administrative burden could have the unintended consequence of
discouraging exceptions requests when enrollees need non-preferred
drugs. Finally, once a physician provides an oral or written supporting
statement, the plan will review the request. The plan may obtain other
evidence, including additional medical information from the prescribing
physician. After performing its review, the plan must determine if the
enrollee's condition can be treated with the preferred drug. We removed
the content requirements for a physician's supporting statement, such
as the enrollee's name, patient history, primary diagnosis related to
the exceptions request, and why the non-preferred drug is needed.
Again, we do not want to mandate that every exceptions request must be
processed according to a listing of procedures. We believe that plans
are in the best position to determine on a case-by-case basis the type
of information they need to overcome the burden.
Comment: We received two comments suggesting that, instead of
creating a separate definition of therapeutic equivalence in proposed
Sec. 423.578(a)(2)(iii), we should apply the same definition proposed
in Sec. 423.100.
Response: We agree with the commenter. Therefore, we have deleted
the definition of therapeutic equivalence in the proposed rule and
added a cross-reference to Sec. 423.100.
Comment: A few commenters recommended that we adopt a uniform set
of exceptions codes to be used by physicians and pharmacists. One
commenter suggested that we work with the National Council for
Prescription Drug Programs, Inc. to develop a standard claim processing
field that payors and pharmacies would be required to use for purposes
of communicating which tier is applied. Both commenters argued that
adopting a uniform set of codes to be utilized by plans, pharmacists,
enrollees, and physicians would streamline the exceptions process and
make it easier to navigate.
Response: We appreciate the commenters' suggestions, but we believe
the entities that provide Part D plans are in the best position to
determine how to communicate with physicians and pharmacies. As we gain
a better understanding of how plans intend to develop their
formularies, we will work with interested parties to ensure that there
are standard systems or procedures in place to make the process as
simplistic as possible for pharmacists, physicians, and enrollees to
navigate.
b. Exceptions and Appeals Rules for Non-Formulary Determinations
Section 1860D-4(h)(2) of the Act establishes a limitation on
requests for exceptions when a particular drug is not on a plan's
formulary at all. The statute specifies that an enrollee may appeal a
determination not to provide coverage of a non-formulary drug ``only if
the prescribing physician determines that all covered Part D drugs on
any tier of the formulary for treatment of the same condition would not
be as effective for the individual as the non-formulary drug, would
have adverse effects for the individual, or both.''
Notably, this limitation is set forth under the ``appeals''
provisions of the statute, as opposed to under the preceding coverage
determination and redetermination provisions that are discussed above
for exceptions to tiered cost-sharing rules. Thus, we believe the
intent of this provision is to limit appeals to cases where the
prescribing physician has made the determination described by the law.
Unlike for the tiering exceptions, the statute does not
specifically require that plans develop an exceptions process to review
requests for exceptions for non-formulary drugs. However, the statute
under section 1860D-4(h)(2) of the Act permits enrollees to appeal a
determination not to provide for coverage of non-formulary drug only if
the prescribing physician determines that all of the covered Part D
drugs on any tier of the formulary for treatment of the same condition
would not be as effective for the enrollee as the non-formulary drug,
would have adverse effects, or both. As a result of the statutory
requirement that enrollees obtain a physician's determination to
request an appeal, we do not believe that the statute intends to
preclude an enrollee from obtaining a coverage determination from a
plan absent a determination by the prescribing physician, or to require
that the physician's determination alone will result in a favorable
coverage determination by the plan. Therefore, we proposed to require
that plans also establish exceptions criteria for addressing these
situations.
We stated our belief that requiring plans to use an exceptions
process to review requests for coverage of non-formulary drugs would
ensure that enrollees know what standards are to be applied and ensure
that a plan's formulary is based on scientific evidence rather than
tailored to fit exceptions and appeals rules for formulary drugs.
Under the exceptions process proposed at Sec. 423.578(b), a plan
would be required to allow enrollees to request (1) coverage of Part D
drugs that are not on a plan's formulary; (2) continued coverage of a
drug the plan has removed from its formulary; (3) an exception to a
plan's policy regarding coverage for a step therapy; and (4) an
exception to a plan's dosing limitation.
A plan's criteria would have to include a description of the
criteria it would use to evaluate the prescribing physician's
determination, clarify how the plan will evaluate the relative safety
and efficacy of the requested drug, and describe the cost-sharing
scheme that will be applied if coverage is provided. Again, an
enrollee, the appointed or authorized representative, or prescribing
physician could request an exception, and the plan could require a
written supporting statement from the prescribing physician that the
non-covered drug was medically necessary to treat the enrollee's
disease or medical condition. We proposed that an enrollee would have
the right to a redetermination by the plan of any unfavorable coverage
determination.
Comment: One commenter suggested that we not require plans to
develop and maintain an exceptions process for non-formulary drugs
because it would make formulary adherence more difficult for plans to
control.
Response: Although the statute does not specifically require that
plans develop an exceptions process to review requests for exceptions
for non-formulary drugs, we continue to believe that there is ample
authority in the statute to require plans to have exception processes
for off-formulary drugs. First, section 1860D-4(h) of the Act permits a
beneficiary to request an appeal of an off-formulary drug if the
prescribing physician determines that all covered part D drugs on any
tier of the formulary under the plan for treatment of the same
condition would not be as effective for the individual, would have
adverse effects, or both. We do not believe that it is reasonable to
require a beneficiary to wait until the appeal stage in order to
receive an off-formulary drug, when the plan could
[[Page 4355]]
just as easily determine at the initial coverage determination stage
that the on-formulary drugs are not appropriate for the beneficiary. In
addition, the entire structure of the benefit, as explained in section
1860D-2 of the Act, is a structure that assumes that beneficiaries will
have access to medically necessary drugs when appropriate, regardless
of whether such drugs are on or off the formulary. Finally, under
section 1860D-11(d)(2) of the Act we have the authority to set minimum
standards for sponsors' benefit packages, and under section 1860D-
12(b)(3)(D) of the Act, we have the authority to add contract terms to
PDP sponsor contracts. Based on all of these authorities, we believe it
is appropriate to require plans to maintain exception processes for
off-formulary drugs. Requiring plans to use an exceptions process to
review requests for coverage of non-formulary drugs will create a more
efficient and transparent process and will ensure that enrollees know
what standards are to be applied. In addition, this requirement is
consistent with the industry standard where private plans allow
enrollees to file exceptions to receive non-formulary medications.
Comment: Several commenters recommended that we require plans to
establish additional exceptions criteria, including criteria that would
preclude the use of a formulary drug where the enrollee experiences an
adverse reaction from the drug previously tried and failed. Commenters
believed that we should develop exceptions criteria for certain classes
of drugs, namely those used by special populations such as
beneficiaries with HIV/AIDS or mental health patients. Other
commenters, however, believed that the exceptions criteria should be
limited to whether the requested medication is appropriate for the
patient, as documented by the prescribing physician.
Response: First, we agree with commenters that exceptions criteria
should be designed to grant exceptions in cases where a plan determines
that an off-formulary drug is medically appropriate for an enrollee and
that the drug would have been covered but for the fact that the drug is
off-formulary. We have added language to Sec. 423.578(b) to this
effect. As stated above, we believe the structure of the benefit under
section 1860D-2 of the Act, the authority to create minimum standards
and additional contract terms, and the requirement for off-formulary
appeals, provide ample authority for this requirement. However, while
plans must design their exception criteria so that drugs determined by
the plan to be medically appropriate for the enrollee are covered, we
do not believe that we should require detailed standards that go beyond
such a medical necessity requirement. This is particularly the case
because we do not know how plans will design their formularies. These
comments illustrate the complexity of attempting to do so. Instead, the
plan must establish criteria that encompass all exceptions requests and
the procedural elements that must be followed to process a request. We
will review these criteria as part of the plan approval process.
The primary issue that plans must address in a plan's non-formulary
exceptions criteria is how it will determine medical necessity.
Although plans must provide access to all Part D drugs that they
determine are medically necessary (as that is described in Sec.
423.578(b)(5)), we are not requiring prescriptive requirements for the
methods that plans use to determine medical necessity. Therefore, plans
will have some flexibility in creating the criteria or methods, such as
prior authorization or step-therapy, to determine whether a non-
formulary drug is medically necessary for an enrollee. We agree that
where an enrollee's prior use of a drug has proven ineffective or
caused adverse consequences to the enrollee's health, the plan must not
require the use of the formulary drug as a condition in the exceptions
process. This is a key component of the exceptions process, which
entails a written statement from the prescribing physician that all
covered Part D drugs on any tier of the formulary would not be as
effective as the non-formulary drug, would have adverse effects for the
enrollee, or both. Note that such a statement does not necessarily
result in an automatic approval of the request. Clearly, nothing in
this rule precludes a plan adopting a process whereby it grants
automatic approval of a non-formulary drug upon a physician's
supporting statement. However, some plans may want physicians to
provide their rationale as to why, for example, the formulary drug
would not be as effective for treating the enrollee's condition.
Finally, we do not believe that the statute permits us to develop
unique exceptions criteria for certain classes of drugs used by special
populations. Nevertheless, special populations will benefit from the
rights and protections that the exceptions process affords all
enrollees.
Comment: Several commenters requested us to provide an exception
that would permit an enrollee to obtain a drug that is excluded from
Part D.
Response: We strongly disagree with the commenters. The MMA
mandates that we only provide access to Part D drugs and specifies
certain categories of drugs as excluded. Therefore, we do not have the
statutory authority to require plans to provide access to drugs that
are excluded from Part D. As a result, we have strengthened Sec.
423.578(e) to emphasize that nothing in the exceptions process shall be
construed to allow an enrollee to use the exceptions process to request
or be granted coverage for a prescription drug that is not a Part D
drug. However, we note that while an enrollee cannot appeal the policy
that a drug is not a Part D drug if excluded (that is, covered by Part
B or otherwise excluded from the definition of Part D drug in Sec.
423.100), the enrollee can request a coverage determination or an
appeal regarding the policy as it applies to his or her set of facts.
In other words, the enrollee can seek to demonstrate that the policy is
not applicable in a particular instance based on the facts of his or
her case. This is the same standard used in claims appeals where a
beneficiary cannot appeal a national coverage determination (NCD)
through the claims appeals process, but may appeal whether the NCD
should apply in his or her case.
Comment: One commenter sought clarification on whether formulary
use includes the type of the dosage, for example, liquid, capsule,
tablet, and packaging, such as bubble wraps for long-term care facility
residents. The commenter argued that ``formulary use'' includes more
than just dose restriction, and Sec. 423.578 must be revised to meet
the statutory requirements that the Secretary establish guidelines for
the exceptions process.
Response: We believe that an enrollee must be permitted to file an
exception when he or she cannot take the dosage form of a medication
that is included on a plan's formulary. If a medication is offered in
tablet and liquid form but the plan only covers the tablet form on its
formulary, an enrollee must be permitted to file an exception to obtain
the liquid form of the medication if the prescribing physician
indicates that the tablet form either would not be as effective for the
enrollee, would have adverse effects, or both. For example, an elderly
enrollee may not be able to swallow the tablet form. Therefore, we
clarified in Sec. 423.578(b) that ``formulary use'' includes the form
of the dosage. However, we do not agree that ``formulary use'' includes
packaging because the packaging of a drug, for example, bubble-
wrapping, blister-cards, cassettes, does not impact the
[[Page 4356]]
effectiveness of a medication. In addition, activities related to the
transfer of Part D drugs are included in the negotiation of the
dispensing fee under section 1860D-2(d)(1)(D) of the Act.
Comment: A few commenters requested that we clarify who should make
the determination as to whether a drug is no longer safe and effective
for treating an enrollee's disease or medical condition. The commenters
suggested that an authoritative agency or organization such as the FDA
should make this type of determination.
Response: Plans may discontinue coverage of a medication for safety
reasons, and in their exceptions procedures for non-formulary drugs,
must include a process for comparing applicable medical and scientific
evidence on the safety and effectiveness of the requested non-formulary
drug with the formulary drug. Thus, in some instances, plans themselves
may make an initial determination whether a drug is no longer safe and
effective for the treatment of a disease or medical condition, subject
to the appeals process. Plans also will rely on safety information
generated by an authoritative government body such as the FDA (for
example, relying on information released in an FDA Medwatch form) when
discontinuing coverage of a medication for safety reasons.
c. Exceptions and Appeals Rules for a Plan's Tiered Cost-Sharing
Structure and Non-Formulary Determinations
We received several comments that raise issues related to Sec.
423.578(a) and (b). Instead of addressing the comments in each of the
preamble discussions in sections 5.a. and 5.b. above, we have
consolidated the comments and responses in this section since the
issues are common to exceptions involving tiered cost-sharing structure
and non-formulary issues.
Comment: We received numerous comments regarding the weight that
plans will give a physician's supporting statement. Many commenters
suggested that the physician's supporting statement carry great weight
in determining whether an enrollee should receive a prescribed
medication. Other commenters suggested that, if a physician prescribes
a medication for an enrollee, he or she should automatically receive
it. Still other commenters suggested that once a physician certifies
that an enrollee should receive a prescribed medication, the burden
should shift to the plan to show why the physician's supporting
statement is not dispositive. The commenters argued that the burden on
physicians to justify their drug selection decisions is too great under
the proposed rule. In order to make the process faster and simpler for
enrollees, physicians, and pharmacists, the physician's supporting
statement should be the primary factor in determining whether an
enrollee should receive a requested medication.
Response: As noted above, we agree with the commenters that a
physician's opinion must carry great weight. However, we do not agree
that a physician's supporting statement necessarily means that an
enrollee must automatically receive a drug. If the Congress intended
such an outcome, there would be no need for plans to develop exceptions
procedures. Therefore, once a physician provides a supporting statement
that an enrollee should receive a prescribed medication, the plan will
review the request. The plan may obtain other evidence, including
additional medical information from the prescribing physician. After
performing its review, the plan must determine if the enrollee's
condition can be treated with the preferred or formulary drug. We note
that if an enrollee disagrees with the plan's exception determination,
it can still appeal that determination through the regular appeals
process.
Comment: We received several comments objecting to an option
considered by us that would require an enrollee who is using a drug
that is subsequently removed from the plan's formulary, or is no longer
designated as the ``preferred drug,'' to try a preferred drug(s), and
experience adverse effects, before being permitted to resume using the
original drug.
Response: We agree with the commenters that we must not add an
exceptions criterion that will require an enrollee to try a preferred
drug(s) and experience adverse effects before being permitted to resume
using the original drug. However, we wish to point out that nothing in
this rule precludes a plan from establishing such a requirement in its
exceptions process. As mentioned in our earlier response, we do not
believe that an enrollee who has used a formulary or preferred drug and
has already experienced adverse consequences should be required to take
the same harmful drug, as certified by the prescribing physician. For
instance, most clinicians find it inappropriate to change the
medication of a patient stabilized on a selective serotonin reuptake
inhibitor (SSRI) that was moved from a formulary, or from a lower tier
to a higher tier, because the effectiveness level of SSRIs is not
reached for two weeks. However, the scenario that the commenters have
described is quite different. There, the situation involves a drug that
has been removed from the plan's formulary or moved to a different
tier, subsequent to an enrollee's use of a drug. Because the enrollee
would be affected by the plan's formulary or tiering change, the plan
is obligated to provide a notice to the enrollee 60 days in advance, or
continue coverage of the drug as required under subpart C of this rule.
Thus, this gives the enrollee sufficient time to request an exception.
If the physician indicates that the formulary or preferred drug would
have an adverse effect on the enrollee's health, the plan likely will
not require the enrollee to take the drug. However, if the physician's
supporting statement does not demonstrate that the drug would have
adverse consequences or would be ineffective, we would not prohibit the
plan from requiring the enrollee to try the formulary or preferred
drug. For example, in many instances, a patient may be able to try a
formulary alternative statin medication when their current statin
medication is being removed from the formulary. However, if the
enrollee experiences adverse effects after trying the drug, the plan
must then grant the exception. In addition, as we state above, there
may be some cases where requiring a beneficiary to try a drug and
experience adverse effects would be unreasonable.
d. Treatment of Determinations Regarding Exceptions Requests
We proposed at Sec. 423.578(c)(1) that determinations on exception
requests would constitute plan coverage determinations under Sec.
423.566 and should be completed in the same timeframes. Enrollees would
then have an opportunity to request a plan redetermination. Unfavorable
redetermination decisions could then be appealed to the IRE. If the IRE
determines that the plan correctly applied its exceptions criteria, the
plan's determination would be upheld.
Thus, we proposed that the IRE would not have any discretion
regarding the validity of the plan's exceptions criteria or formulary.
Instead, we would be responsible for evaluating and approving a plan's
exceptions criteria and formulary as part of the annual plan approval
process. In many instances, however, evaluating whether the plan had
appropriately applied its own exceptions criteria for a formulary
exception would necessarily involve an element of medical judgment (for
example, if the plan had a rule that an enrollee would need to suffer
significant adverse effects by using the Part D drug covered by the
plan in order to obtain an exception, the IRE would need to
[[Page 4357]]
review whether such adverse effects had been experienced). In those
situations, we stated the IRE's medical staff would be responsible for
reviewing the plan's determination as to whether the formulary
exceptions criteria had been applied properly. Because the final rule
requires a Part D plan's formulary and tiering exceptions process to
grant an exception when the plan determines it is medically
appropriate, the IREs will likely be reviewing medical necessity in
numerous cases.
Although not required by statute, we thought it important to put in
place certain safeguards regarding the issuing and effect of a coverage
determination made as part of the exceptions process. We believed that
certain safeguards would help to ensure that the exceptions process was
both fair and efficient for enrollees. First, to ensure that enrollees
who file exceptions requests for drugs that are being removed from a
plan's formulary are not disadvantaged by a plan's failure to issue a
timely decision, we proposed in Sec. 423.578(c)(1) and Sec.
423.578(c)(2) that if a plan failed to issue a timely decision, the
plan would be required to continue providing coverage until a decision
was made on the request. Proposed Sec. 423.578(c)(2)(i) allowed
enrollees to receive up to a one-month supply of the requested drug,
but a plan could adjust the supply to account for a shorter time frame.
As noted above, we have revised proposed Sec. 423.578(c)(2) to be
consistent with our requirement in MA that an MA plan's failure to
issue its reconsideration within the appropriate timeframe constitutes
an adverse determination which must be automatically forwarded to the
IRE within 24 hours of the expiration of the timeframe. We also
provided, at proposed Sec. 423.578(c)(3), that once a plan approved a
drug pursuant to the exceptions process, an enrollee would be entitled
to continue receiving refills of the drug at the prescribing
physician's discretion.
The final safeguard implemented under proposed Sec. 423.578
prohibited plans from assigning drugs approved under either exceptions
process to a special formulary tier, co-payment, or other cost-sharing
requirement. In other words, plans must employ reasonable criteria in
determining the co-payments or other cost-sharing requirements of drugs
approved for coverage under the exceptions process.
Comment: We received several comments regarding the level of cost-
sharing that enrollees would be required to pay when an exception is
approved. Some commenters suggested that all drugs be approved at the
preferred level of cost-sharing. Another commenter agreed that non-
preferred drugs should be approved at the cost-sharing level applicable
for preferred drugs when an exception request is approved, but
recommended that we clarify that non-preferred drugs can not be
approved at the generic cost-sharing level.
Response: We agree with the commenters that, when an exceptions
request involving a tiering issue is approved, the enrollee is entitled
to the amount of cost-sharing that applies for a preferred drug, but
not for a generic drug. We have clarified this under Sec.
423.578(c)(3).
We do not agree that we must mandate the amount of cost-sharing
that applies when an exception involving a non-formulary drug is
approved. Section 1860D-4(h)(2) of the Act requires plans to treat non-
formulary Part D drugs approved under the exceptions process as being
included on the plan's formulary for purposes of determining whether an
enrollee has reached the annual out-of-pocket threshold specified in
section 1860D-2(b)(4)(B)(i) of the Act. However, the MMA does not
mandate that plans apply the cost-sharing terms of a particular tier
when plans establish tiers to manage covered Part D benefits.
Therefore, we do not specify in Sec. 423.578(c) the tier that must be
applied when a plan approves an exceptions request that involves a non-
formulary drug. Instead, Sec. 423.578(b)(2)(iii) gives plans the
flexibility to determine which level of cost-sharing will apply when it
approves an exceptions request involving non-formulary drugs. Plans
must explain in its exceptions criteria the cost-sharing scheme that
will be applied. Allowing plans the flexibility to determine which
level of cost-sharing will apply is consistent with section 1860D-
2(b)(2) of the Act, which permits a plan to establish tiers to manage
its covered Part D benefits so long as the co-payments associated with
the plan's tiers meet the actuarial equivalence standard in section
1860D-2(b)(2)(A)(ii) of the Act. If we required plans to apply the
cost-sharing amount that applies to covered part D drugs at a specific
cost-sharing level, we would impede a plan's flexibility to develop its
tiered cost-sharing structure.
We note that plans are prohibited under Sec. 423.578(c)(4)(ii)
from establishing a special formulary tier or other cost-sharing
requirement that is applicable to non-formulary Part D drugs that are
approved under the exceptions process. As mentioned previously, we will
review all of the plans' exceptions criteria and determine if they are
appropriate and meaningful. We have clarified under Sec. 423.578(c)(3)
through (4) the difference between how exceptions involving tiering and
non-formulary issues must be treated after approval.
We would also like to clarify that, if a plan approves an exception
for a non-formulary drug, an enrollee may not request a tiering
exception for the non-formulary drug. Although, section 1860D-4(h)(2)
of the Act requires plans to treat non-formulary Part D drugs approved
under the exceptions process as being included on the plan's formulary,
it does so only for purposes of determining whether an enrollee has
reached the annual out-of-pocket threshold. Plans are not required to
add a non-formulary drug to its formulary once an exception is granted.
Therefore, although a non-formulary drug could be obtained at the
amount of cost-sharing that applies to drugs on a plan's non-preferred
tier under the exceptions process, the ``non-formulary drug'' is not a
``non-preferred drug,'' and only non-preferred drugs are subject to the
exceptions process.
Comment: We received one comment recommending that we delete the
requirement in proposed Sec. 423.578(c)(3)(ii) which would prohibit
plans from assigning drugs approved under an exceptions request to a
special formulary tier, co-payment, or other cost-sharing requirement.
The commenter acknowledges that the provision is derived from the
statute, but maintains that the provision is unnecessary because the
commenter believes that we have presented two options for cost-sharing
(payment at the preferred and generic cost-sharing levels) that
constitute a special formulary tier.
Response: We disagree with the commenter that we have created a
special formulary tier. We believe that it is necessary to include in
Sec. 423.578(c)(4)(ii) a provision that will ensure that plans do not
assign drugs approved under a non-formulary exceptions request to a
special formulary tier, co-payment, or other cost-sharing requirement.
This policy is consistent with the statute.
Comment: Several commenters contended that, when an exceptions
request is approved, the approval should not be for an indefinite
period of time. The commenters argued that we should include provisions
for limiting indefinite exceptions based on safety or accepted clinical
practice standards, including step-therapy and length of therapy edits.
Some commenters suggested that plans be permitted to annually re-
evaluate exceptions that
[[Page 4358]]
have been approved. However, other commenters believed that proposed
Sec. 423.578(c)(3) provided important beneficiary protections to the
extent that the enrollee would not need to renew an exceptions request
so long as the prescribing physician continues to prescribe the drug.
Response: We agree that plans must continue providing a drug that
was approved under the exceptions process so long as the prescribing
physician continues to prescribe the medication and the medication
continues to be considered safe for treating the enrollee's condition.
However, we do not believe that an approval should last indefinitely.
Therefore, we have added Sec. 423.578(c)(4) to provide that once an
exceptions request is approved, the plan must provide coverage of the
drug so long as the enrollee also continues to be a member of the plan,
or the enrollment period has not expired, whichever is sooner. Thus, in
no case will a plan be required to continue coverage beyond the plan
year.
6. Appeals
a. Redeterminations (Sec. 423.580 through Sec. 423.590)
Sections 423.580 through Sec. 423.590 explain the right to a
redetermination and the requirements that apply to plans for both
standard and expedited redeterminations. If a decision regarding a
coverage determination is unfavorable (in whole or in part) to the
enrollee, the enrollee may file an oral or written request with the
plan for a redetermination on the decision.
The proposed regulations did not identify Social Security
Administration (SSA) field offices as possible locations for filing
redetermination requests. Using any filing location other than the plan
itself can significantly affect the speed with which the appeal is
resolved. Moreover, given that section 931 of the MMA mandates the
transfer of responsibility for Medicare appeals from SSA to DHHS by no
later than October 1, 2005, we believed that an explicit regulatory
reference to SSA field offices would not be appropriate.
For an expedited redetermination, an enrollee or the prescribing
physician (acting on behalf of an enrollee) may submit an oral or
written request for redetermination. However, requests for payment of
drugs already received would not be expedited. The proposed
requirements for making standard redeterminations for requests
involving covered benefits in proposed Sec. 423.590(a) specified that
the plan would issue its redetermination as expeditiously as the
enrollee's health condition required, but no later than 30 calendar
days from the date of receipt of the request.
Under proposed Sec. 423.590(b), for standard redeterminations
involving requests for payment, the plan would be required to issue its
redetermination no later than 60 calendar days from the date of receipt
of the request. In the case of expedited redeterminations, Sec.
423.590(d) specified that a plan would complete its redetermination and
give the enrollee and the prescribing physician involved, as
appropriate, notice of its determination as expeditiously as the
enrollee's health condition required, but no later than 72 hours after
receiving the request. For both the standard and expedited
redetermination for covered benefits, the plan could extend the
timeframe for making its determination by up to 14 calendar days if the
enrollee requested the extension, or if the plan justified a need for
additional information and how the delay would be in the interest of
the enrollee. An extension would not be provided for redeterminations
involving requests for payment. If the plan's redetermination resulted
in an affirmation, in whole or in part, of its original adverse
coverage determination, the plan would be required to give written
notification to the enrollee and advise the enrollee of the right to
file an appeal with the IRE that contracts with us.
Comment: Several commenters asked us to define ``good cause'' for
extending the timeframe for filing a redetermination request in Sec.
423.582(c).
Response: Although we have not defined ``good cause'' in the
regulations applicable to either MA or prescription drug appeals, we
believe that it is useful to provide examples of good cause to plans.
Examples of circumstances when good cause may be found to exist
include, but are not limited to, the following situations: (1) the
enrollee was prevented by serious illness from contacting the plan in
person, in writing, or through a friend, relative, or other person; (2)
the enrollee had a death or serious illness in his or her immediate
family; (3) important records were destroyed or damaged by fire or
other accidental cause; (4) the plan, or its designated entity, gave
the enrollee, appointed or authorized representative, or prescribing
physician incorrect or incomplete information about when and how to
request a redetermination; (5) the enrollee, appointed or authorized
representative, or prescribing physician did not receive notice of the
determination or decision; or, (6) the enrollee, appointed or
authorized representative, or prescribing physician sent the request to
another Government agency in good faith within the time limit and the
request did not reach the correct plan until after the time period had
expired. Again, these examples are not an exhaustive list, but are
illustrative of the kinds of scenarios that a plan might find good
cause for extending the filing deadline.
Comment: We received many comments that argued that the 30-day
redetermination timeframes were unreasonably long and should be
shortened.
Response: As mentioned earlier, we agree with the commenters that
the proposed adjudication timeframes are too long. Therefore,
redeterminations by the plan must be made as expeditiously as the
enrollee's health condition requires, but no later than 72 hours for
expedited cases and 7 days for standard cases. In response to the
concern raised by the commenters regarding the length of time it takes
for an enrollee to be reimbursed, we are no longer distinguishing
between payment and service-related disputes. As previously mentioned,
we reduced the timeframe for plans to make standard redeterminations to
7 days in Sec. 423.590(a) and (b). Again, redeterminations that
involve requests for payment cannot be expedited because a medical
emergency does not exist for an enrollee who already obtained the
medication in dispute.
Comment: Some commenters did not support the provision at Sec.
423.586, which would require plans to have methods in place for
receiving evidence in person because it is unduly burdensome for plans
to receive evidence in person.
Response: We disagree that permitting enrollees or prescribing
physicians to submit evidence in person is unduly burdensome. The right
to present evidence in writing as well as in person is consistent with
MA, and we anticipate that Part D enrollees may want to deliver
evidence in person rather than mailing their materials to plans.
Therefore, plans must have procedures in place for accepting evidence
in person from enrollees, including, for example, the ability to accept
evidence delivered by enrollees at the plan's physical location or by
telephone. However, we note that this requirement is not intended to
require plans to provide in-person hearings for enrollees.
b. Independent Review Entity (IRE) Reconsideration (Sec. 423.600
through Sec. 423.604)
The MMA gives the Secretary the flexibility to establish an appeals
process similar to that used for the MA appeals process. Thus, the
proposed IRE
[[Page 4359]]
reconsideration process set forth at Sec. 423.600 through Sec.
423.604 was much like that applicable to MA organizations under Part C.
Note that when the plan's redetermination affirms, in whole or in part,
its adverse coverage determination, any issue remaining in dispute
could be appealed by the enrollee to the IRE that contracts with us.
However, unlike under the MA program, plan redeterminations involving
tiering issues or coverage of a non-formulary drug would not be
automatically forwarded to the IRE. Instead, an enrollee would need to
request an IRE review. This proposed requirement modified the MA
procedure that affords automatic referral to the IRE whenever the MA
organization's original denial was upheld by the organization's
redetermination.
At Sec. 423.600, we proposed that an enrollee who was dissatisfied
with the plan's redetermination could file a written request for
reconsideration by the IRE. We also proposed that when an enrollee
filed for an appeal, the IRE would be required to solicit the views of
the prescribing physician. In order to request an off-formulary drug,
the prescribing physician would be required to indicate that all
covered part D drugs on any tier of the formulary for treatment of the
same condition would not be as effective for the individual as the non-
formulary drug, would have adverse effects for the individual, or both.
To be consistent with our requirement in Sec. 423.590(f), we added (e)
to Sec. 423.600, which requires reconsiderations to be made by a
physician with expertise in the field of medicine that is appropriate
for the services at issue when the issue is the denial of coverage
based on a lack of medical necessity (or any substantively equivalent
term used to describe the concept of medical necessity).
Section 423.602 proposed the requirements for the IRE
reconsideration determination notice, including the requirement that if
the determination were adverse, the enrollee must be informed of the
right to request an ALJ hearing and the procedures that must be
followed to obtain the hearing.
Section 423.604 of our proposed rule explained that a
reconsideration by the IRE was final and binding on the enrollee and
the plan, unless the enrollee requested an ALJ hearing.
Comment: We received a number of comments regarding automatic
forwarding of redeterminations to the IRE. While a few commenters
supported our decision to require enrollees to request an IRE
reconsideration, many argued that cases should be automatically
forwarded as provided in MA to ensure that enrollees receive an
independent review of a plan's redetermination. The commenters
maintained that the automatic forwarding of unfavorable
redeterminations to the IRE is necessary to prevent enrollees from
experiencing a lapse in coverage due to the length of time that it
takes for an appeal to receive an independent review. Some commenters
also disagreed that the dollar value of drug appeals would involve
relatively small monetary amounts, which we reasoned that forwarding
all adverse redeterminations to the IRE would be inefficient.
Response: As previously mentioned, we have streamlined the appeals
process by shortening the adjudication timeframes and requiring plans
to either provide notice to enrollees 60 days in advance of a change to
its formulary or provide notice and a 60-day supply of a medication
that is affected by a formulary change. Thus, enrollees will not be
faced with any lapses in coverage of a medication they are already
taking by being required to request a reconsideration with the IRE
directly. In addition, even if the amount in controversy for
reconsiderations is higher on average than originally anticipated by
us, we do not believe that requiring enrollees to request appeals has
any bearing on the process. Therefore, Sec. 423.600 requires that an
enrollee who is dissatisfied with the plan's redetermination may file a
written request for reconsideration with the IRE. We note that we have
eliminated the plan as an alternative filing location since the
decision-making timeframe begins upon receipt of the IRE's request.
This change ensures that there are no delays in enrollees receiving
timely responses.
Comment: Some commenters stated that the scope of an IRE's review
should not be limited to whether a plan applied its exceptions criteria
correctly.
Response: We agree with the commenters that the IRE's review must
not be limited to whether a plan applied its exceptions criteria
correctly. As stated above, plans' exceptions procedures must include
measures to grant an exception when the plan determines that an
exception would be medically appropriate. Because these determinations
will be subject to review by the IRE, the IRE will necessarily also
review whether a drug is medically necessary. Therefore, the IRE's
medical staff also must review the plan's medical necessity
determination in addition to whether the plan properly applied its
exceptions criteria for the individual in question. Examining the
record de novo using the plan's exceptions criteria, as approved by us,
and making an independent medical necessity determination will form the
basis for the IRE's decision. However, the IRE is prohibited from
ruling on the validity of a plan's exceptions criteria or formulary.
Only we can evaluate and decide whether to approve a plan's exceptions
criteria and formulary as part of the annual plan approval process.
Comment: We received several comments requesting that we specify
the method under Sec. 423.600(b) by which the IRE can solicit the
views of the prescribing physician.
Response: The IRE may solicit the views of the prescribing
physician either orally, or in writing. We also clarified that a
written account of the prescribing physician's views (prepared by
either the prescribing physician or IRE, as appropriate) must be
contained in the IRE's record so that, if appealed, the ALJ, MAC, or
Federal court will be able to review all of the evidence considered or
disregarded by the reviewing entity.
Comment: A few commenters recommended that we require requests for
IRE review to be filed directly with the IRE, as opposed to alternative
locations, to avoid delays.
Response: We agree with the commenter, and as mentioned above, have
modified Sec. 423.600(a) to require enrollees to file requests for IRE
review directly with the IRE instead of permitting enrollees to choose
whether to file a request with the IRE or plan.
Comment: One commenter recommended that enrollees and prescribing
physicians should be able to submit additional evidence to the IRE.
Response: We agree with the commenter, and like under MA, enrollees
and prescribing physicians must have an opportunity to submit
additional evidence to the IRE.
Comment: We received one comment suggesting that we require
physician certifications to accompany all requests for reconsideration
by an IRE and hearing by an ALJ. The commenter believed this
requirement would ensure that the reconsiderations are focused on
medical necessity rather than patient preference.
Response: We agree that supporting statements from prescribing
physicians are often necessary for making proper determinations,
especially when medical necessity is at issue. However, since the IRE
is required to solicit the views of the prescribing physician, it is
not necessary to require that supporting statements from physicians
accompany all requests for IRE reconsiderations or ALJ hearings. In
fact, IREs may not always be called upon to make medical
[[Page 4360]]
judgments. For example, the definition of a Part D drug excludes
``agents when used for anorexia, weight loss, or weight gain.'' See
Sec. 423.100 citing section 1927(d)(2) of the Act. An IRE may be
called upon to review whether an agent was in fact used for anorexia,
weight loss or weight gain (and therefore excluded from the definition
of Part D drug), or whether it was used for some other purpose.
Comment: One commenter suggested that we require IREs to include
information about an enrollee's right to an ALJ hearing, the procedure
for requesting it, and the amount in controversy threshold amount
required for an ALJ hearing in the notices of reconsideration.
Response: Section 423.602(b) specifies the requirements for the IRE
reconsideration determination notice, including the requirement that if
the determination is adverse, the enrollee must be informed of the
right to request an ALJ hearing if the amount in controversy meets the
requirements of Sec. 423.610, and the procedures that must be followed
to obtain the hearing.
c. Administrative Law Judge (ALJ) Hearings, Medicare Appeals Council
(MAC) Appeals, and Judicial Review (Sec. 423.610 through Sec.
423.630)
As stated above, section 1860D-4(h)(1) of the Act merely requires
the Secretary to establish a reconsideration and appeals process that
is ``similar'' to the process used for MA organizations under the
authority of sections 1852(g)(4) and (5) of the Act. Although we
believe the Congress gave us a good deal of discretion in designing
these procedural rules under Part D, we determined as a policy matter
to adopt most of the ALJ, MAC, and judicial review procedures currently
used in the MA program.
Section 1852(g)(5) of the Act provides the right to a hearing and
to judicial review for an enrollee dissatisfied by reason of the
enrollee's failure to receive a Part D drug to which he or she believes
he or she is entitled, and at no greater charge than he or she believes
he or she is required to pay. Section 1852(g)(5) of the Act also
specifies the amount in controversy needed to pursue a hearing and
judicial review, and authorizes representatives to act on behalf of
individuals that seek appeals.
As provided in proposed Sec. 423.610, if the IRE's reconsideration
determination is not fully favorable, the enrollee may request a
hearing before an ALJ if the amount remaining in controversy meets the
threshold requirement established annually by the Secretary. The
threshold requirement will be published annually in the Federal
Register. We note that in Sec. 423.612 (a) of the proposed rule, we
required enrollees to file their requests for ALJ review with the
entity specified in Sec. 423.582(a). However, we did not intend that
requests for ALJ hearing be filed with the Part D plan sponsor.
Therefore, we modified Sec. 423.612(a) of this final rule to require
enrollees to file written requests for an ALJ hearing with the entity
specified in the IRE's reconsideration notice. The plan is not
considered a party to the ALJ hearing, but may participate in the
hearing at the discretion of the ALJ. If the ALJ hearing does not
result in a fully favorable determination, the enrollee may request MAC
review of the ALJ decision. Unlike under MA, the plans do not have the
right to request an appeal of an ALJ decision with which the plan
disagrees.
Following the administrative review process, the enrollee is
entitled to judicial review of the final determination if the amount
remaining in controversy meets the threshold requirement established
annually by the Secretary and published in the Federal Register.
Comment: We received several comments expressing concern about how
we will calculate the amount remaining in controversy. Many commenters
noted that the proposed rule does not clearly state how ALJs and the
MAC will determine whether an enrollee has met the applicable amount in
controversy (AIC) threshold. One commenter recommended that calculation
of the amount remaining in controversy include the projected cost of
the drug at issue for at least the duration of the current calendar/
plan year, including consideration of any cost sharing amount paid by
the enrollee or a third-party. Additionally, commenters asked that we
define the term ``projected value'' as used under Sec. 423.610(b) of
the final regulation.
Response: In order to clarify how the amount remaining in
controversy will be calculated, we have adopted a modified version of
the formula used in the Medicare fee-for-service program to determine
the amount remaining in controversy. Therefore, the amount remaining in
controversy will be calculated by subtracting any allowed amount under
Part D, payments made by third parties, deductible, and coinsurance
amounts applicable to the particular Part D drug at issue from either
the projected value of the drug, or, where the enrollee is seeking
reimbursement, the actual amount the enrollee paid for the Part D drug.
Like the MA program, rather than putting this formula in regulation, we
will include it in separate guidance, such as CMS manuals, in order to
adjust the formula if necessary.
In response to comments we received about defining the term
``projected value,'' we have amended Sec. 423.610(b) to state that the
projected value of a Part D drug, for purposes of calculating the
amount remaining in controversy, shall include any costs the enrollee
could incur based on the number of refills prescribed for the drug in
dispute during the plan year.
Comment: Two commenters were concerned that the aggregation of
multiple enrollee appeals would limit the consideration given to
individual cases. Both commenters felt strongly that the assessment of
a particular prescription drug for an enrollee requires an evaluation
of the enrollee's individual case, including his or her medical
condition, medical history and other factors. To ensure that all
enrollees' cases receive this type of consideration, the commenters
recommended either reducing the AIC threshold at the ALJ level of
appeal so that aggregation is almost never necessary or precluding
aggregation of appeals by multiple enrollees.
Response: We first note that the ALJ AIC is a statutorily
established threshold. Neither CMS nor the Secretary has discretion to
alter this requirement. Nevertheless, we do not agree with the
commenters' assessment of the consideration individual appeals will
receive if multiple enrollees elect to aggregate their appeals for
purposes of meeting the AIC threshold. Currently, in the Medicare fee-
for-service program, two or more beneficiaries may combine claims to
meet the AIC requirement for obtaining an ALJ hearing, so long as the
claims involve common issues of law or fact. In adjudicating these
appeals, ALJs often make individual medical necessity determinations
for each beneficiary who received the item or service in dispute. Given
the ALJ's experience in adjudicating aggregated cases, we believe that
Part D appeals that are aggregated by multiple beneficiaries will
receive appropriate individual consideration.
Comment: Several commenters requested that we clarify the
applicable filing requirements for appeals that an enrollee wishes to
aggregate for purposes of meeting the AIC threshold for requesting an
ALJ hearing.
Response: We agree with the commenters' observation that the
proposed rule was not clear regarding the applicable filing timeframes
for appeals an enrollee wishes to aggregate. Therefore, we have to
amended Sec. 423.610(c)(1)(ii) and (2)(ii) in this final rule to
specify that multiple appeals,
[[Page 4361]]
filed by either a single enrollee or multiple enrollees, may be
aggregated to meet the AIC threshold for ALJ hearings so long as all of
the appeals to be aggregated have been filed in accordance with the
requirements in Sec. 423.612(b).
Comment: One commenter suggested that we revise our proposal that
plans are considered a ``party to the ALJ hearing'' for the limited
purpose of participating in the hearing. The commenter believes that
plans should be afforded full party status at the ALJ level so that
they can defend their redetermination decisions, rather than just
respond to questions asked by the ALJ. Additionally, the commenter
suggested that when a plan is a party to an ALJ hearing, it should be
permitted to file a request for review with the Medicare Appeals
Council and the appropriate Federal court, just as MA organizations are
permitted.
Response: In the proposed rule, we stated in the introduction of
the preamble to Sec. 423.610 that plans had party status for the
limited purpose of participating in ALJ hearings. Part 422, subpart M
gives MA organizations party status at the ALJ level. However, we do
not agree with the commenter that plans should have full party status
at the ALJ level as MA organizations. Section 1860D-4(h) of the Act,
which requires plans to provide Part D enrollees with ALJ hearings and
MAC review, allows only Part D enrollees to file appeal requests at
these levels. Thus, the Congress did not grant plans with party status
at the ALJ levels of the appeals process. To clarify this point, Sec.
423.620 has been revised to state that the MAC provisions that apply to
MA organizations apply to plans, to the extent applicable. Even though
plans are not parties to ALJ hearings, we continue to believe that it
is important to give plans the ability to participate in ALJ hearings.
Therefore, plans may participate in hearings at the ALJ's discretion.
Comment: One commenter suggested that we modify the Part D
regulations so that if the ALJ issues a decision that is favorable for
an enrollee and the plan files an appeal with the MAC, the plan does
not have to effectuate the ALJ's decision until the MAC upholds the
decision favorably to the enrollee. The commenter also suggested that
plans be required to effectuate ALJ decisions within 60 days after the
decision has been issued if the plan does not request a review by the
MAC within the 60-day timeframe. The commenter argued that adding these
provisions would be consistent with the MA regulations.
Response: As indicated above, Sec. 423.620 permits only Part D
enrollees to appeal ALJ decisions. Therefore, in accordance with the
requirements set out in Sec. 423.636(c), plans are required to
effectuate favorable ALJ decisions involving payment issues no later
than 30 calendar days after a final decision is issued and all other
cases as quickly as the enrollee's condition warrants, but no longer
than 72 hours after a final decision is issued. These effectuation
timeframes have been reduced from the proposed 60-day deadline in light
of our decision to shorten the adjudication timeframes.
7. Effectuation of Reconsideration Determinations (Sec. 423.636
through Sec. 423.638)
Section 423.636 and Sec. 423.638 proposed the requirements for
effectuation of coverage determinations reversed by the plan,
redeterminations reversed by the IRE, or reversals by an ALJ or higher
level of appeal. When the plan's redetermination is reversed by the
IRE, Sec. 423.636(b)(1) required that it must authorize the benefit
under dispute within 72 hours from the date it received notice
reversing the redetermination, or provide the benefit as expeditiously
as the enrollee's health required, but no later than 14 calendar days
from the date of the reversal notice. For redeterminations of requests
for payment, proposed Sec. 423.636(a)(2) required that if the plan
reversed its coverage determination, it must pay for the benefit no
later than 60 calendar days after the date it received the request for
reconsideration. Under Sec. 423.636(b)(2), if a plan's redetermination
was reversed by the IRE, it must pay for the benefit no later than 30
calendar days from the date it received notice reversing the
redetermination.
Section 423.638 proposed that for expedited redeterminations
reversed by the plan or the IRE, the plan must authorize or provide the
benefit under dispute as expeditiously as the enrollee's health
condition required but no later than 72 hours after the date it
received the request for redetermination, or in the case of reversal by
the IRE, from the date it received the reversal notice.
Finally, for reversals by an ALJ or higher level of appeal, we
proposed under Sec. 423.636(c) and Sec. 423.638(c) that the plan must
pay for, authorize, or provide the benefit under dispute as
expeditiously as the enrollee's health condition required, but no later
than 60 calendar days from the date it received notice reversing its
determination.
Comment: We received a number of comments requesting us to revise
the effectuation timeframes. Several commenters recommended that plans
effectuate IRE determinations within 24-48 hours, ALJ hearing decisions
within 48 hours, and the MAC review decisions within 48 hours. The
commenters also suggested that plans be required to authorize benefits
within 72 hours after receiving notice from the IRE.
Response: As mentioned previously, we agree that the proposed
adjudication timeframes were too long. As a result, we need to make
corresponding changes to the effectuation timeframes in Sec. 423.636
and Sec. 423.638. Therefore, the effectuation timeframes for appeals
involving non-payment issues are no later than 72 hours (expedited) or
7 calendar days (standard) from the date the plan receives the request
for redetermination if the plan is reversing its previous
determination, or no later than 24 hours (expedited) or 72 hours
(standard) from the date the plan receives notice of a reversal by the
IRE, ALJ, MAC, or Federal court. For payment issues, the plan must
authorize payment within 7 calendar days from the date it receives the
request for redetermination and make payment within 30 days from the
date from the date it receives the request for redetermination if the
plan is reversing its previous determination, or it must authorize
payment for the benefit within 72 hours and make payment no later than
30 calendar days from the date it receives notice reversing the
coverage determination by the IRE, ALJ, MAC, or Federal court.
Comment: We received a comment suggesting that we remove the term
``completely'' from Sec. 423.638(a) when describing a plan's
obligation to effectuate a coverage determination the plan reversed.
Response: We agree with the commenter. Under MA, the term
``completely'' was added to Sec. 422.638(a) because any MA
reconsideration that was not completely favorable was automatically
forwarded to the IRE for reconsideration. However, under Part D, the
regulations, except in limited circumstances where a Part D plan
sponsor has missed its claims adjudication or redetermination deadline,
do not allow automatic forwarding of unfavorable redeterminations to
the IRE. Therefore, we have deleted the term ``completely'' from Sec.
423.638(a).
[[Page 4362]]
8. Federal Preemption of Grievances and Appeals
Section 232(a) of the MMA amended section 1856(b)(3) of the Act so
that it now reads: ``The standards under this part shall supersede any
State law or regulation (other than State licensing laws or State law
relating to plan solvency) with respect to MA plans which are offered
by MA organizations under this part.'' Section 1860D-12(g) of the Act
then incorporates this preemption rule for plans.
We believe that the grievance procedures for the Part D Drug
Program under Title I must be the same as those that apply to the MA
program under Title II. In the proposed rule, we proposed continuing to
defer to State law on the issue of authorized representatives of
enrollees in the appeals process.
We did not believe that the Congress intended for the Secretary to
regulate matters for which the Secretary was not authorized to
promulgate standards (for example, spousal rights, powers of attorney,
or legal guardianship). Often, authorized representative matters are
non-Federal issues. However, because we do have the authority to
regulate in the field of grievances, we were concerned that State
grievance requirements would now be preempted, thereby requiring us to
reexamine our Federal grievance requirements. We requested comments on
this preemption issue and the specific State grievance requirements
that should be incorporated into Federal regulatory requirements at
Sec. 423.564.
We also noted that tort law, and often contract law, are generally
developed based on case law precedents established by courts, rather
than by legislators through statutes or by State officials through
regulations. In addition, we did not believe we would have the
authority under Part D to set specific tort remedies or to govern
resolution of private contracting disputes between plans and their
subcontractors. We believed that the Congress did not intend for our
regulations to supersede each and every State requirement applying to
plans--particularly those for which the Secretary lacks expertise and
authority to regulate. Thus, we did not believe, for example, that
wrongful death or similar lawsuits based upon tort law would be
superseded by the appeals process established in these regulations.
Similarly, State contract law would continue to govern private contract
disputes between plans and their subcontractors.
Under principles of Federalism, and Executive Order 13132 on
Federalism, which generally require us to construe preemption narrowly,
we believe that an enrollee will still have State remedies available in
cases in which the legal issue before the court is independent of an
issue related to the organization's status as a stand alone PDP or an
MA-PD plan.
Comment: We solicited comments on whether the proposed Federal
grievance procedures should preempt State grievance requirements. We
received several comments on this issue, which primarily supported
adopting a single set of grievance procedures to reduce enrollee
confusion and plan burden. Some commenters recommended that we adopt
the provisions proposed by us for Medicare+Choice organizations in a
January 24, 2001 proposed rule. See 66 FR 7,593. However, one commenter
opposed Federal law preempting State law where Part D appeals are
concerned.
Response: We agree with the commenters that establishing a uniform
set of grievance standards will reduce confusion and burden for
enrollees and plans. We also believe that one set of rules will ensure
better beneficiary protections and achieve consistency among plan
operations. Thus, Sec. 423.564 implements the specific guidelines for
Part D grievances that we proposed in January 2001 for Medicare+Choice
organizations. We disagree with the commenter that Federal provisions
should not preempt State requirements for appeals. We believe that such
an approach is inconsistent with Sec. 232(a) of the MMA, which
preempts State appeal and grievance requirements and which is
incorporated into the Part D laws through section 1860D-12(g) of the
Act.
Under the grievance requirements, plans must notify enrollees of
decisions as expeditiously as the enrollee's case requires, but no
later than 30 calendar days after receiving a complaint. Plans may
extend the timeframe by up to 14 calendar days if the enrollee requests
the extension, or if the plan justifies a need for additional
information and the delay is in the interest of the enrollee. We
believe that the timeframes must be according to the enrollee's case as
opposed to the enrollee's health since not all grievances involve
medical care. For example, an enrollee may complain that a network
pharmacy does not offer convenient hours for getting prescriptions
filled. In addition, we believe that most plans will be able to respond
to most grievances within 30 days. If an enrollee makes a grievance
orally, the plan may respond to it orally or in writing, unless the
enrollee requests a written response. If an enrollee files a written
grievance, then the plan must respond in writing. In addition, a plan
must provide information to enrollees on their right to request a
review by a Quality Improvement Organization (QIO) if the grievance
involves a quality of care issue. For any complaint involving a QIO,
the plan must cooperate with the QIO in resolving the complaint. Plans
must establish a 72-hour expedited grievance process for complaints
involving certain procedural matters in the appeals process. Finally,
plans must create a system to track and maintain records on all
grievances.
We note that under MMA, enrollees will still have access to various
State remedies available in cases in which an issue is unrelated to the
plan's status as a PDP or MA-PD plan.
9. Employer Sponsored Prescription Drug Programs and Appeals
As explained above, MA-PDs and PDPs are subject to the requirements
of Part 423 for Part D benefits. In addition, when an employer, whether
by contracting with an MA-PD, PDP, or otherwise, provides prescription
drug benefits in addition to those covered under Part C and Part D of
Title XVIII of the Act to their retirees, such employer may have
established a group health plan governed by both Title I of the
Employee Retirement Income Security Act of 1974, as amended (ERISA),
and State law (to the extent such State law is not preempted by ERISA).
In drafting our Part C, MA rules, we consulted the Department of
Labor (DOL), employer groups, and the health plan industry in trying to
eliminate unnecessary Federal regulation of claims and appeals issues
that impact matters within the jurisdiction of both DOL and DHHS. Based
on our experience under Part C, we have reason to believe that some
Medicare eligible individuals may receive integrated prescription drug
benefits, that is, Part D benefits through an MA-PD or PDP and
supplemental benefits through an ERISA-covered plan. For example, an
ERISA-covered plan could pay all or part of the retiree's cost sharing
amount (for example, deductibles and coinsurance amounts specified in
subpart C of Part 423) for a covered Part D drug provided through an
MA-PD or PDP. Clearly, if the enrollee had a dispute about Part D
coverage, he or she could file an appeal under the provisions in
subpart M of Part 423. If the enrollee's dispute involved only the
amount of cost sharing paid by the ERISA plan, he or she would file an
appeal in accordance with the
[[Page 4363]]
procedures of the ERISA covered plan. In some cases, however, the
dispute might involve independent coverage decisions under both Part D
and the ERISA plan; possibly necessitating parallel appeal procedures
on the same case. In this regard, we solicited comments on whether, and
to what extent, the application of parallel procedures in this context
might be a problem for plans, employers, and eligible individuals. We
also solicited suggestions for addressing problems, if any, resulting
from the application of parallel procedures.
Comment: Generally, commenters supported utilizing only the
Medicare appeal procedures for claims involving integrated ERISA and
Part D benefits. One commenter stated that enrollees probably do not
distinguish between ERISA and CMS approved benefits when they are
integrated, and therefore, a single appeals process would be less
confusing. Another commenter agreed, recommending that to the extent
any benefits received by an individual are part of an underlying Part D
plan, including benefits separately negotiated between the Part D
sponsor or organization and an employer (or labor organization), those
benefits should be governed by the Part D regulations rather than by
two separate processes. One commenter suggested that, where possible,
we make our requirements consistent with the existing DOL final rule
that establishes standards for processing benefit claims under an
ERISA-covered plan.
Three commenters agreed that adopting and applying a single,
uniform appeals process for all benefits would be easier for the
enrollee to understand. Other commenters pointed out that parallel
appeal processes for enrollees with Medicare and ERISA benefits were
costly, redundant, and burdensome to administer, with the potential for
conflicting determinations. Only one commenter promoted Part D plans to
process appeals under an employer-sponsored plan.
Response: After reviewing the public comment and conferring with
representatives of DOL, we have concluded that changes (not only to our
regulations but also to the DOL regulations) are needed to properly
address this issue. Accordingly, we have added Sec. 423.562(d), which
is intended to give ERISA plans the option, pursuant to regulations of
the Secretary of Labor, of electing the Part D process rather than the
procedures under 29 CFR 2560.503-1 for claims involving supplemental
benefits provided by contract with a Part D plan. In this regard, DOL
has agreed to work with us to develop such regulations. We note that
the language in Sec. 423.562(d) is intended to demonstrate our
commitment to make the entire Part D process available in this context.
The provision in Sec. 423.562(d) will not take effect in the absence
of regulations by the Secretary of Labor.
10. Miscellaneous
Comment: Two commenters believed that there would be an additional
administrative workload for physicians and their staff in light of the
appeals and exceptions processes. They asked whether we would provide
reimbursement for these activities, as they are not currently reflected
on the physician fee schedule.
Response: We were mindful of any administrative burden that
physicians might encounter as they help enrollees pursue prescription
drugs through the exception and appeals processes. As a result, we
eliminated the requirement that a physician's supporting statement,
which the statute requires for tiering and non-formulary exceptions, be
in writing. We also provide that the IRE may solicit the view of the
prescribing physician orally or in writing. Thus, a prescribing
physician need not in all circumstances provide a written account of
the medical necessity or appropriateness of the prescription drug. We
anticipate that physicians and other healthcare providers will assist
enrollees with their Part D appeals to the same extent that they
currently help beneficiaries with Part A, Part B, and Part C appeals.
We do not pay physicians for their assistance with appeals under Part
A, B, or C. Likewise, we do not expect to pay physicians under Part D
for certifying and sharing their views on an enrollee's need for a
medication.
Comment: Some commenters expressed concern about the lack of
enrollee participation in the formulary development process. These
commenters felt that we should either include enrollees in the
formulary development process or alternatively, allow enrollees to
challenge the formulary development process.
Response: The formulary development process is outside the scope of
the grievance and appeals process. Additionally, section 1860D-4(h) of
the Act does not provide a mechanism for Part D eligible individuals to
challenge the formulary development process. Finally, the MMA intends
for plans to compete in regards to benefit package and premium, which
ensures that enrollees receive the best package for the lowest premium.
The competitive model contemplated by the MMA would be undermined if
enrollees are permitted to challenge the formulary development process.
We also believe that that permitting enrollees to challenge the
formulary development process is not necessary. Enrollees are aware of
a plan's formulary before they choose a plan. If an enrollee does not
agree with a plan's formulary, he or she is free to enroll in a
different plan. Once enrollees choose a plan, we have required plans to
provide significant protections that will ensure that enrollees either
receive the drug in dispute or are switched to an appropriate
alternative medication if a plan changes its formulary during the plan
year. In addition, enrollees have available to them an exceptions and
appeals processes under which they may request coverage of non-
formulary drugs. If enrollees continue to be unsatisfied with a plan,
they are able to change plans at the end of the plan year.
Comment: Another commenter suggested that we establish a drug
manufacturer appeals process to evaluate the discriminatory effect of a
plan's negative formulary inclusion decision and to review negative
formulary inclusion decisions.
Response: We are required by MMA to model the Part D grievance and
appeals procedures after the Part C grievance and appeals procedures.
Neither the MMA, nor the applicable provisions of the Act provide for
the type of appeals process suggested by the commenter. As a result, we
do not have the statutory authority to create an appeals process for
drug manufacturers. In addition, allowing manufacturers to challenge
how plans choose to place drugs on their formularies would also
undermine the competitive model since it would negate any benefit that
could be obtained by negotiating with plans.
Comment: We received many comments about the new notification
requirements established under Part D, particularly those regarding how
plans must communicate information about coverage determinations and
appeals. Several commenters recommended that enrollees, physicians, and
authorized representatives receive appeals notices giving the reason
for denial, right to appeal, and information about accessing the
appeals process. Another commenter suggested that denial notices be
written at a 6\th\ grade reading level, while another commenter
suggested that plans provide notices in alternative formats (for
example for the visually impaired and in different languages). Other
commenters requested that detailed appeals notices, like those provided
for coverage determinations,
[[Page 4364]]
be provided at the redetermination level.
In addition to the appeals notices, many commenters also made
recommendations about other important information they felt plans ought
to be required to provide to enrollees. First, many commenters
requested that we require plans to provide enrollees with written
information about the exceptions and grievance processes. Finally, we
received one comment suggesting that we require plans to notify
enrollees of their potential cost-sharing obligations if an appeal is
successful.
Response: We agree with many of the suggestions offered by the
commenters. Therefore, in Sec. 423.568(g) of the final rule, we
require plans to include specific types of information in denial
notices, including the reason for denial, the right to appeal, and
information about the appeals process. We also require denial notices
to be written in a readable and understandable form. These notices will
be developed or approved by us based on consumer-testing and marketing
guidelines. We agree that notices must be made available in alternative
formats, and expect that they will be made available in all the same
formats MA notices are currently offered. We also agree that plans must
include information about the potential cost-sharing obligation if an
exception regarding tiering is successful. As previously mentioned, we
specify that when an exception for a lower cost-sharing is approved,
the enrollee is entitled to the amount of cost-sharing that applies for
a preferred drug, but not for a generic drug. Finally, as mentioned
earlier, plans must provide written notices to enrollees 60 days in
advance when plans change their formularies. These advance notices must
contain information about the exceptions process. We also require plans
to provide written information about the grievance, exceptions, and
appeals processes in enrollment materials.
We agree with the commenters who suggested that we require detailed
notices at the redetermination level. Therefore, we added Sec.
423.590(g) to require plans to provide detailed written notices to
enrollees whenever plans make adverse redeterminations. The
redetermination notices must: be written in approved language that is
in a readable and understandable; state the specific reasons for the
denial; inform the enrollee of his or her right to a reconsideration
(including a description of the standard and expedited reconsideration
processes, and the enrollee's right to, and conditions for, obtaining
an expedited reconsideration and the rest of the appeals process); and
comply with any other notice requirements specified by us.
Finally, as previously mentioned, the final rule requires that
notice of any determination be sent to enrollees or their appointed or
authorized representative.
Comment: We received a few comments indicating that plans should be
required to track and report denial rates for the purpose of
identifying plans with high rates of inappropriate denials. One
commenter suggested using the IRE to evaluate the data submitted by the
plans.
Response: We appreciate the commenters' suggestions and share their
desire to have plans provide information on the disposition of their
decisions. We are in the process of developing an appeals system that
will capture case-specific appeals data. Because appeals are generated
as a result of coverage denials, we believe that the appeals
information will enable us to identify potential inappropriate denials.
Comment: We received one comment suggesting that we create a
special election period of 30 days during which enrollees who receive
unfavorable coverage determinations or responses to exceptions requests
may elect to enroll in a different plan.
Response: We strongly disagree with the commenters that enrollees
should be granted a special election period (SEP) to enroll in a
different plan when they receive unfavorable coverage determinations or
responses to exceptions requests. Although section 1860D-1(b)(3)(C) and
section 1851(e)(4) of the Act provides us with the authority to grant
SEPs for exceptional circumstances, we decline to establish an SEP for
enrollees who have received unfavorable determinations because we do
not view this as an exceptional circumstance under the Part D program.
The Congress anticipated that unfavorable determinations would be made,
and therefore required us to establish an extensive appeals process.
However, we do retain the authority to establish additional SEPs
through operational guidance if necessary.
Comment: A few commenters suggested that we require plans to assign
consumer advocates to enrollees who need assistance with the appeals
process. One commenter suggested that we make available the Medicare
Beneficiary Ombudsman to assist Part D enrollees, or provide the
telephone number of an appropriate ombudsman in coverage determinations
and appeal notices.
Response: The commenters raise a very valid point and we agree that
Part D enrollees must be permitted to obtain assistance with the
grievance and appeals processes, but we do not believe that we have the
authority to use Trust Fund dollars to pay for consumer advocates on
behalf beneficiaries accessing the appeals process.
The Medicare Ombudsman is designed to utilize most inquiry and
appeals processes in place, while providing enhancements and
efficiencies through monitored performance metrics, continuous quality
improvement feedback, and standardized data management. Fiscal
Intermediaries, Carriers, Regional Offices and SHIPs are all part of
the whole Ombudsman system. These entities, in addition to others, are
being trained in Part D enrollment, will handle most routine concerns,
and have the ability to forward any serious concerns to the Office of
the Ombudsman for resolution.
In addition to obtaining assistance from the Medicare Ombudsman, we
permit Part D enrollees who are in need of assistance to select an
individual or an entity to serve as their appointed representative.
Additionally, we recognize individuals who are authorized under State
or other applicable law to represent the enrollee. Both appointed and
authorized representatives may act on behalf of Part D enrollees in
obtaining coverage determinations or in dealing with any of the levels
of the appeals process, subject to the rules described in part 422,
subpart M.
Comment: One commenter suggested that we clarify the difference
between a ``non-preferred'' drug and a ``non-formulary'' drug since
there are different processes for requesting each and the differences
may not be apparent to enrollees.
Response: We have required plans to establish different exceptions
processes for handling exceptions requests involving tiered formulary
drugs and exceptions requests involving non-formulary drugs. Under a
tiered cost-sharing structure, drugs are assigned to different co-
payment tiers based on cost-sharing, clinical considerations, or both.
An enrollee's level of cost-sharing is based on the tier into which the
prescribed drug falls. Typically, drugs fall into one of three tiers--
generic drugs, preferred brand-name drugs, or non-preferred brand-name
drugs. All of a plan's cost-sharing tiers make up its formulary, and an
exceptions request that involves a drug covered under one of a plan's
tiers must be processed in accordance with Sec. 423.578(a). A non-
[[Page 4365]]
formulary drug is simply a drug that is not on a plan's formulary. An
exceptions request that involves a non-formulary drug must be processed
in accordance with Sec. 423.578(b). Alternatively, if a plan organizes
its drug benefits by providing coverage only for formulary drugs and
requires enrollees to pay for prescriptions out-of-pocket if they are
not on the formulary, the plan has established a closed formulary. A
drug that is not on a plan's formulary under this type of cost-sharing
arrangement is also considered a non-formulary drug and must be
processed in accordance with Sec. 423.578(b).
N. Medicare Contract Determinations and Appeals
1. Overview
Subpart N implements section 1860D-12(b)(3)(F) of the Act which
directs the ``procedures for termination'' in section 1857(h) of the
Act be incorporated into the requirements for PDP sponsors. As we
stated in the proposed rule, to enhance the flow of the rule, we have
separated the provisions of section 1857(h) of the Act into two
portions and addressed the two portions in separate subparts--subpart K
(Application Procedures and Contracts with PDP Sponsors) and this
subpart of the preamble and regulations.
2. Provisions of the Final Rule
Subpart N establishes administrative appeals procedures available
to an applicant or PDP sponsor in the event that we--
Determine that an entity is not qualified to contract with
us as a PDP sponsor under Part D of title XVIII of the Act.;
Determine that an entity is not authorized to renew its
contract as a PDP sponsor in accordance with Sec. 423.507(b); or
Make a determination to terminate the contract with a PDP
sponsor in accordance with Sec. 423.509.
We note that in subpart K, in response to comments, we have
explained that the contract application (or renewal) process and the
bid process under subpart F will run concurrently. In other words, we
could review and pre-approve a contract even though the bid process was
not yet complete. In this situation, the actual approval of the
contract would be dependent upon us and the sponsor reaching agreement
on the bid. We have revised our regulations at Sec. 423.506(d) to
reflect this change. As discussed in the subpart K preamble, we will
make determinations that an entity is qualified to contract as a PDP
sponsor or authorized to renew its PDP sponsor contract, and these
determinations will be subject to the procedures of subpart N. However,
although an entity may be determined qualified to enter into or renew
its contract, the contract might not be signed if we are unable to
reach agreement on the bid with the entity under subpart F. This
failure to reach an agreement on the bid will not be subject to the
procedures of subpart N. We revised our proposed regulation by adding
Sec. 423.502(c)(2) to subpart K in order to clarify this distinction.
We refer readers to subpart K for a full discussion of the concurrent
processes and an explanation of those policies.
In order to clarify the timeline for valid contracts, in the event
of a redetermination, we have added new Sec. 423.647(c) to subpart N.
This provision specifies that in the case of a favorable
redetermination, to include favorable decisions as the result of a
hearing or Administrative review, such determination must be made by
July 15 for the contract in question to be effective on January of the
following year. We have made a corresponding change to the MA
regulations by adding Sec. 422.654(c).
We had proposed that a single set of procedures relating to
contract determinations and appeals would apply to both MA and PDP
sponsor contractors and that the requirements in Sec. 423.641 through
Sec. 423.669 would mirror the requirements at Sec. 422.641 through
Sec. 422.698 for the MA program. We refer readers to the preamble of
the Medicare Prescription Drug Benefit proposed rule (69 FR 46723-4)
for a fuller discussion of our proposals.
Comment: We received one comment on this subpart. The commenter--
while acknowledging the provisions in this subpart duplicate those
relating to MA contractors in part 422, subpart N--asked that we state
in the final rule specifically that part 423, subpart N, applies only
to PDP sponsors, not to MA plans.
Response: We do not believe it is necessary to amend the regulation
text to make clear that the subpart N rules apply only to PDP sponsors,
since the MA organization contracts will, by definition, be subject to
the appeals procedures in part 422 and not part 423. We have, however,
clarified that because fallback prescription drug plan contracts are
entered into using a competitive process, except to the extent a
fallback contract is terminated, fallback entities will not be subject
to the procedures of subpart N. We thank the commenter for the
suggestion and do acknowledge that the subpart N procedures of part 423
would apply only to PDP sponsors or PDP sponsor applicants.
With the clarifying language noted above, in this final rule we
have adopted these proposed changes almost entirely without change.
O. Intermediate Sanctions (Sec. 423.750)
As required by 1860D-12(b)(3)(E) of the Act, Subpart O provides
that the provisions governing ``intermediate sanctions'' for MA
organizations, with two exceptions, will apply to contracts for Part D
Plan sponsors. Specifically, we would not impose sanctions on a Part D
Plan sponsor in the event it fails to enforce the limit on balance
billing under a private fee for service plan, as required at Sec.
422.216(a)(4), or fails to prohibit interference with practitioners'
advice to enrollees, as required at Sec. 422.206, since we do not
believe these provisions are applicable in the context of the Part D
drug benefit. We did not receive any comments regarding this proposal.
We also proposed that the requirements in Sec. 423.750 through Sec.
423.760 would mirror the requirements at Sec. 422.750 through Sec.
422.760. However, we recently discovered that these requirements do not
mirror each other and, further, that recent changes to the requirements
at Sec. 422.750 through Sec. 422.760 require us to make conforming
changes in this final rule. We learned that the regulation text, as
proposed, did not reflect revisions made to the requirements at Sec.
422.750 through Sec. 422.760 in the August 22, 2003 final rule for MA
plans entitled, ``Modifications to Medicare Rules'' (68 FR 50840).
However, several errors were made in modifying the regulation text in
the August 2003 final rule. Consequently, an interim final rule with a
comment period was published on December 30, 2004 to correct this
technical error. We are making changes to the provisions in Part 423 to
reflect the substance of changes to the regulations at Sec. 422.750
through Sec. 422.760 as corrected by the interim final rule published
on December 30, 2004. Additionally, we proposed, and asked, for
comments on our goal to have a consistent policy on how sanctions are
imposed. The MMA requires at least two qualified plans, at least one of
which is a Part D Plan per region. If we were to freeze the enrollment
or marketing of a Part D Plan sponsor, that is one of only two plans in
a region, beneficiaries would no longer have the breadth of choice the
MMA intended. If we are contemplating sanctioning a plan that is one of
only two Part D Plan sponsors in a region, we may have to consider
using other remedies including
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civil monetary penalties (CMPs) to maintain an adequate level of choice
for beneficiaries. However, we would like to have consistent policies
and procedures for Part D Plan sponsors and across all regions with
regard to sanctions. We received two comments asking us how we would
expect to preserve beneficiary choice if the above instance should
occur. In this final rule, we decided to adopt the proposed
requirements as final and rely on the number and kinds of sanctions
available to us under subpart O and deal with offending entities on a
case-by-case basis.
While we are adopting the substance of the proposed rule as final,
in reviewing and responding to comments we discovered a need for some
technical revisions in the interest of clarity. Consequently, we are
making the following changes in this final rule:
At Sec. 423.752 (Basis for imposing sanctions.),
paragraph (a), we clarified our authority to impose more than one
sanction at a time.
At Sec. 423.752, paragraph (a)(6), we added the word
``excluded'' for clarification.
Under Sec. 423.752, paragraph (b), we are deleting
references to Sec. 423.756(c)(1) and (c)(3) because they are listed
under procedures for imposing sanctions, and replacing them with Sec.
423.750(a)(2) and (a)(4) which fall under ``Kinds of Sanctions''. This
clarifies in this final rule that we are cross-referencing the basis
for sanctions with the kind of sanctions that could result and not the
procedure for imposing sanctions.
At Sec. 423.756(f)(2) a reference to ``part 1005 of this
chapter'' was incorrect. The reference should be to ``part 1003 of this
chapter'' since part 1003 includes the OIG procedures for imposing
sanctions, whereas part 1005 is appeal procedures.
At Sec. 423.756(f)(3), we have deleted a reference to
``part 1005 of this chapter,'' because this subparagraph discusses CMS'
authority to impose CMPs, as opposed to the OIG's authority.
At Sec. 423.758, we revised the language to better
clarify the basis for CMPs imposed by us.
1. Kinds of Sanctions (Sec. 423.750)
Comment: Several commenters requested that the final regulation
clarify how the imposition of the sanction of suspension of enrollment
of Medicare beneficiaries (Sec. 423.750(a)(1)) would impact the
statutory requirement that a consumer have a choice of at least two
Part D Plans. One commenter suggested that, in the event CMS imposes an
enrollment freeze on a Part D Plan sponsor which results in there being
only Part D Plan in a given region, that we add a fallback plan to the
region.
Response: While freezing marketing or enrollments has generally
been our first and most frequently used sanction authority, other kinds
of sanctions are available to us under Subpart O. These include
suspension of our payments to the Part D Plan sponsor and CMPs (or a
combination of both). The MMA intends for beneficiary choice to be
preserved and directs us to make every reasonable effort to preserve
that choice. We have the option of imposing these other sanctions if
the suspension of enrollment of one of only two Part D Plans in the
same region would eliminate beneficiary choice.
Comment: Several commenters suggested that CMS establish a range of
civil money penalties that vary according to the nature and extent of
the Part D Plan sponsor's noncompliance with legal requirements.
Response: Section 423.750 allows us to impose CMPs from $10,000 to
$100,000 depending on the offense.
2. Basis for Imposing Sanctions (Sec. 423.752)
Section 423.752(a) and (b) of this final rule lists the seven
violations for which sanctions may be imposed on a Part D Plan sponsor
organization. These violations are the same as those that warrant the
imposition of sanctions for MA organizations, with the exception of two
deletions we are proposing below. Specifically, sanctions are imposed
if the Part D Plan sponsor engages in any of the following:
Fails substantially to provide, to a Part D Plan enrollee,
medically necessary services that the organization is required to
provide (under law or under the contract) to a Part D Plan enrollee,
and that failure adversely affects (or is substantially likely to
adversely affect) the enrollee.
Imposes, on Part D Plan enrollees, premiums in excess of
the monthly basic and supplemental beneficiary premiums permitted under
section 1860D of the Act and subpart F of this final rule.
Acts to expel or refuses to reenroll a beneficiary in
violation of the provisions of subpart O of this final rule.
Engages in any practice that may reasonably be expected to
have the effect of denying or discouraging enrollment of individuals
whose medical condition or history indicates a need for substantial
future medical services (that is, health screening or ``cherry
picking'').
Misrepresents or falsifies information furnished to us,
any other entity, or individual under the Part D drug benefit program.
Employs or contracts with an individual or entity excluded
from participation in the Medicare program as specified under sections
1128 or 1128A of the Act (or with an entity that employs or contracts
with an excluded individual or entity) for the provision of certain
services.
Additionally, as an alternative to the sanctions listed above, we
would be able to decline to authorize renewal of the organization's
contract (or may elect to terminate the contract entirely in accordance
with Sec. 423.509). In addition, Sec. 423.509(a) will provide that a
Part D Plan sponsor organization may be sanctioned if it fails to carry
out the terms of its contract as specified under this section.
We will not impose sanctions on a Part D Plan sponsor in the event
it fails to enforce the limit on balance billing under a private-fee-
for-service plan as required at Sec. 422.216(a)(4), or fails to
prohibit interference with practitioners' advice to enrollees, as
required at Sec. 422.206, since we do not believe these provisions are
applicable in the context of the Part D drug benefit.
We received three comments asking us to detail our methodology for
imposing sanctions. As we have noted below, we believe that since the
law grants us the discretion to choose from multiple options on a case-
by-case basis we should retain this approach. We received other
comments asking that we explain how we determine if a Part D Plan
sponsor deserves to be sanctioned. Additionally, one comment suggested
that we amend Sec. 423.752(a) to clarify that CMS may impose more than
one sanction at a time. In this final rule, we clarify that one or more
sanctions may be imposed by us when a sanctionable offense as described
under Sec. 423.752 has been discovered.
Comment: Several commenters asked that CMS provide a methodology as
to what sanction, or sanctions, will be imposed on a Part D Plan
sponsor in response to a specific set of circumstance(s). Additionally,
the commenters note that it is their understanding that all of the
sanctions are permissive and they believe this increases the likelihood
that sanctions will not be imposed.
Response: We have intentionally retained discretion as to what
sanctions will be imposed on a Part D Plan. The rule lists a variety of
sanctions that may be imposed so as to permit us to tailor the sanction
to the particular offense. As a condition of contracting with Medicare,
we require that a Part D Plan sponsor agree to be subject to these
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sanctions. This approach has been successful in the Medicare managed
care program, and we believe it will also be successful in sanction
actions against Part D Plan sponsors. We should not be confined to only
one sanction option for a certain violation, since the law grants us
the discretion to choose from multiple options on a case-by-case basis.
We believe that this approach will improve the oversight of Part D Plan
sponsors and the protection of Medicare beneficiaries.
Comment: Three commenters state that it is not clear from the
proposed rule how CMS would determine that a Part D Plan sponsor is not
in compliance with legal requirements. The commenters also suggest that
CMS publicize, through press releases in the Federal Register, an
annual report, or other statements, citations against Part D Plan
sponsors and any sanctions imposed against Part D Plan sponsors.
Response: We will determine compliance by a variety of means. We
will be monitoring field reports, performing random periodic audits and
conducting enrollee surveys. In addition, we perform random audits
annually in order to ensure that those entities contracting with us are
in compliance. The corrective action plans of contractors are subject
to public disclosure under the Freedom of Information Act. Therefore,
we do not believe it is necessary to publicly disclose the compliance
status of each contracted organization. Some organizations that have
received sanctions have later become solid examples of compliant
contract administration. We believe that a public listing of sanctioned
Part D Plans may not portray the current level of compliance by
contracted organizations and could unfairly impede business
opportunities for fully compliant contractors that were sanctioned in
prior years. The purpose of a sanction is to protect beneficiaries and
public funds by improving the compliance of contracted organizations.
When an organization resumes compliant behavior, the sanction is ended.
Sanction authority is not designed to be punitive.
Comment: Two commenters recommend that we revise one of the bases
for sanctions under Sec. 423.752(a). Section 423.752(a)(1) currently
states that sanctions may be imposed if a Part D Plan sponsor ``[f]ails
to provide required medically necessary services with an adverse effect
on the enrollee.'' (emphasis added) The commenters recommend that we
remove the phrase ``adverse effect'' from this provision.
Response: The specific wording of this provision is based on the
language in the statute. We have not included the phrase ``adverse
effect'' in an attempt to impose an obstacle that prevents the
imposition of a sanction on a Part D Plan sponsor that fails to provide
a medically necessary service to an enrollee.
Comment: One commenter suggested we amend Sec. 423.752(a) to
clarify that CMS may impose more than one sanction at a time, as we
stated in the preamble to the proposed rule.
Response: We do have the authority to impose more than one sanction
at a time, but we have taken the commenter's suggestion and made this
authority explicit under Sec. 423.752(a).
3. Procedures for Imposing Sanctions (Sec. 423.756)
Section 423.756 details our procedures for imposing sanctions on
Part D Plan sponsor organizations. This process would mirror that used
for the MA program. A brief summary of the process is as follows:
We must send a timely written notification of the sanction
to the Part D Plan sponsor, outlining the nature and basis of the
proposed sanction, and copy OIG.
We must provide the Part D Plan sponsor with 15 days, or
if an extension is granted, 30 days to respond. If requested, an
uninvolved CMS official will conduct an informal reconsideration of the
determination with a written decision.
Non-monetary sanctions would be effective 15 days from the
organization's receipt of a final notice of sanction and remain in
effect until we determine that the violation is corrected. CMS or the
OIG, depending on the basis for the sanction, may impose civil money
penalties.
Comment: One commenter suggested that Sec. 423.756(e) be expanded
to allow CMS to impose civil money penalties when CMS declines to renew
or terminate a Part D Plan contract.
Response: We have authority to impose CMPs under the circumstances
described in Sec. 423.758. If we make a determination under Sec.
423.509(a) (except a determination under Sec. 423.509(a)(4)), we may
impose CMPs.
P. Premiums and Cost-Sharing Subsidies for Low-Income Individuals
Section 1860D-14 of the Act requires us to subsidize the monthly
beneficiary premium and cost-sharing amounts incurred under this Part
by Part D eligible individuals with lower income and resources. The
regulations in this subpart and regulations published by the Social
Security Administration (SSA) adding a subpart D to a new part 418 of
title 20 of the Code of Federal Regulations, implement section 1860D-14
of the Act.
The statute divides subsidy eligible individuals into two different
groups based on income and resources: (1) full subsidy eligible
individuals; and (2) other low-income subsidy eligible individuals. The
different groups are entitled to different amounts of premium
assistance and reductions in cost-sharing. Full-benefit subsidy
eligible individuals are entitled to further reductions if they are
eligible for full benefits under both Medicare/Medicaid and have income
below a certain income threshold or if they are institutionalized in
medical institutions or nursing facilities for which Medicaid will make
payment.
In the proposed regulation, we defined the eligibility criteria and
the amounts of subsidy assistance provided. We received several hundred
comments on subpart P. Below we summarize our proposed rule and respond
to comments. (For a detailed discussion of our proposals, please refer
to the August 2004 proposed rule.)
General
We received general comments related to delayed implementation of
the Part D program for full-benefit dual eligible individuals (as
defined under 423.772) as well as the transition of shifting coverage
for Part D drugs from the Medicaid program to the Medicare program for
full-benefit dual eligible individuals, as discussed below.
Comment: Many commenters suggested that we delay implementation of
the Part D program for full-benefit dual eligible individuals by at
least five or six months, and some recommended a year's delay, although
the commenters recognized that such a delay would require a legislative
change. The commenters also expressed concern about the feasibility of
identifying, educating and enrolling the population of full-benefit
dual eligible individuals in time for a smooth transition. Some
commenters pointed out the need to ensure adequate time for physicians
and patients to navigate administrative barriers and change medications
to comply with formularies. Others expressed concern that full-benefit
dual eligible individuals tend to have complex medical or mental health
problems, thus reinforcing the need for an appropriate transition from
coverage for Part D drugs under Medicaid to Medicare.
Response: As mentioned by the commenters themselves, such a delay
requires a legislative change. Absent
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such a change we cannot delay implementation of the Part D program for
dual eligibles.
Comment: Many commenters also expressed concern about the
transition of coverage for Part D drugs from Medicaid to Medicare for
the population of full-benefit dual eligible individuals. Commenters
were particularly concerned about identifying, educating, and enrolling
these individuals in Part D plans in a timely and efficient manner and
desire to avoid noncoverage on plan formularies of drugs currently used
for this vulnerable population, particularly those with AIDS or mental
illness.
Response: We recognize the special needs of the dual eligible
population and those with serious medical or mental health conditions.
We have addressed in Subpart B of this rule the efforts to be made to
avoid any interruption in coverage for this population by auto-
enrolling full-benefit dual eligible individuals in Part D plans no
later than January 1, 2006. Full-benefit dual eligible individuals and
those eligible for Medicare Savings Programs as QMBs, SLMBs, and QIs
are automatically deemed eligible for the low-income subsidy. We are
working with State Medicaid Directors to develop strategies to educate
dual eligible beneficiaries about the new Medicare prescription drug
benefit, how this new program impacts their coverage under Medicaid,
and the process to enroll in prescription drug plans.
We note that Subpart C addresses the steps that will be taken as
part of the formulary review process to provide safeguards that ensure
a drug coverage transition process for new enrollees taking a drug not
covered under a plan. We expect that our review of Part D plan
formularies and transition plans as outlined broadly under the
requirements in subpart C, and our review of the plan appeals process
as described in subpart G, will ensure that all Medicare beneficiaries,
including dual eligibles, have prompt access to the prescriptions they
need.
1. Definitions (Sec. 423.772)
In the proposed rule we discussed definitions relevant to the low-
income subsidy provisions of this subpart. These definitions were
explained in detail in the Preamble discussion related to Sec. 423.773
of the proposed rule. Comments related to these definitions are
addressed below.
2. Eligibility for the Low-Income Subsidy (Sec. 423.773)
The proposed rule provided that full subsidy eligible individuals
are eligible for the premium assistance and cost-sharing subsidies set
forth in Sec. 423.780 and Sec. 423.782 of the proposed rule. We have
added a definition of full subsidy at 423.772 of the final rule to mean
the premium assistance and cost-sharing subsidies for which full
subsidy eligible individuals are eligible for under Sec. 423.780(a)
and Sec. 423.782(a) of the final rule.
In order to qualify as a full subsidy eligible individual, an
individual must live in one of the fifty States or the District of
Columbia and have countable income below 135 percent of the Federal
poverty line for the individual's family size. For purposes of this
section, we said in the proposed rule that ``Federal poverty line''
(FPL) has the meaning given that term in section 673(2) of the
Community Services Block Grant Act (42 USC 9902(2)), including any
revision required by that section.
In addition, the proposed rule provided that to be considered a
full subsidy eligible individual, an individual must have resources
that do not exceed three times the resource limit under section 1613 of
the Act for applicants for Supplemental Security Income (SSI) under
title XVI, which in 2006 is $6,000 if single, or $9,000 if married.
Thereafter, this resource limit would be increased annually by the
percentage increase in the Consumer Price Index (all items, U.S. city
average) as of September for the year before, rounded to the nearest
multiple of $10.
Individuals not eligible as full subsidy eligible individuals may
be eligible as other low-income subsidy eligible individuals if they
live in one of the fifty States or the District of Columbia and have
income below 150 percent of the FPL for their family size, and have
resources in 2006 that do not exceed $10,000 if single, or $20,000 if
married. Beginning in 2007 and for each subsequent year, the resource
limit would be increased annually by the percentage increase in the
Consumer Price Index (all items, U.S. city average) as of September for
the year before, rounded to the nearest multiple of $10. The proposed
rule provided that other low-income subsidy eligible individuals are
entitled to the premium assistance and cost-sharing subsidies set forth
in Sec. 423.780 and Sec. 423.782 of the proposed rule.
Low-income Part D eligible individuals who reside in the
territories are not eligible to receive premium and cost-sharing
subsidies under this subpart. Subpart S of the proposed rule addressed
the provision of covered Part D drugs to low-income individuals
residing in the territories.
For making income and resource determinations for the low-income
subsidy for Part D, the statute refers to certain sections of the SSI
statute. For example, the MMA refers to income being determined in the
same manner as for Qualified Medicare Beneficiaries (QMBs) under the
Medicaid program, without use of the more liberal methodologies that
States are permitted to use. The QMB provisions reference the SSI
statutory provisions(specifically, section 1612 of the Act, which
applies to determining income under the SSI program). Our proposed
definition of income was consistent with the MMA in that it references
SSI statutory provisions.
The MMA provides that we will compare the individual's income to
the appropriate FPL applicable to ``the family of the size involved.''
As there is no reference in the MMA statute to using existing
definitions of family size, we proposed to define family size to
include the applicant, his or her spouse who lives in the same
residence, and the number of individuals related to the applicant who
live in the same residence and who depend on the applicant or the
applicant's spouse for at least one-half of their financial support.
We said in the proposed rule that we considered limiting family
size to 1 or 2 individuals to more closely resemble the SSI statutory
provisions, where family size is not actually defined but where
benefits are paid on the basis of an eligible individual or eligible
couple. This is the definition we use in determining eligibility for
Transitional Assistance under the Medicare-approved prescription drug
card program (See 42 CFR 402.802). The decision to limit family size
under the Medicare-approved prescription drug card program was based on
the short duration of that program (18 months), the limited benefit
($600 a year), and the fact that we would have to rely entirely on a
computer and systems-based process for determining Transitional
Assistance eligibility and verifying income and other information from
applicants. However, we did not believe it was the intent of the
Congress to similarly limit the definition for purposes of determining
eligibility for subsidies under the Part D program. Unlike the
provisions authorizing the Medicare-approved drug discount card
program, there are no provisions for the low-income subsidy program
that give the Secretary specific authority to define family size.
Instead, we believed that the term ``family of the size involved''
implies a definition that is greater than an individual or couple and
that includes other dependent relatives residing in the applicant's
household. In
[[Page 4369]]
addition, in order for the term ``family size'' to have meaning in the
context of subsidy determinations, the notion of dependency needs to
take into account the impact of a dependent on the relative need of the
applicant or the applicant's spouse in attaining the subsidy.
Accordingly, we specified that dependents included in the calculation
of family size are only those relatives residing in the residence who
are financially dependent on the applicant or the applicant's spouse
for one-half of their support.
In determining the income to be compared to the FPL for the size of
the family involved, we included income of the Medicare beneficiary and
spouse, if any. Thus, if a married individual applies, both the income
of the applicant and his or her spouse who lives in the same residence,
regardless of whether the spouse is also an applicant, is counted and
measured against the appropriate standard for the low-income subsidy.
In our view, this best comported with the statutory reference to
determining income in the manner described in section 1905(p)(1)(B) of
the Act (for QMBs). In making a standard QMB income determination,
States would consider the income of one spouse as available to the
other spouse. Moreover, since both spouses would be considered in the
family size determination, it would be illogical to count a spouse's
presence while not including that spouse's income. Other members who
meet the one-half support test would be counted in the family size
calculation, but income of these dependents will be ignored in the
eligibility determination. The one-half support test ensures that a
family member with sizable income is not erroneously counted as a
dependent while that person's income is ignored.
Section 1860D-14(a)(3)(D) of the Act provides that resources will
be determined according to section 1613 of the Act. The resource
standard depends upon whether the applicant is a single individual or a
member of a married couple and whether the resources will be measured
against the basic or alternative resources standards. See sections
1860D-14(a)(3)(D) and (E) of the Act and H.R. Conference Report No.
108-391 at 470.) However, section 1613 of the Act does not define
resources, but rather only defines what are not resources.
Sections 1860D-14(a)(3)(E)(ii) and (iii) of the Act also provides
for the development of a simplified application in which applicants
attest to their level of resources and submit only minimal
documentation. The implication of this provision is that the Congress
envisioned a simple process. In order to keep the process simple and
minimize administrative cost, we intended to only consider liquid
resources (that is, those that could be converted to cash within twenty
days) and real estate that is not an applicant's primary residence as
resources that are available to the applicant to pay for the Part D
premiums, deductibles and copayments. Thus, we would not consider other
non-liquid resources (for example, a second car) to be available to the
applicant for this purpose.
We did not believe this policy would have a significant impact on
program costs. We believed any program costs that would result from
counting only liquid resources and countable real estate would be
offset by the administrative savings resulting from a more simplified
program. As we indicated further in this section, we are working with
SSA on a quality assurance strategy that would strike an appropriate
balance between administrative costs and program goals and objectives.
Under Medicaid, the term ``dual eligibles'' generally refers to
low-income Medicare beneficiaries who qualify for some level of medical
assistance. Those entitled to full benefits under Medicaid generally
have most of their health care expenses, including prescription drugs,
paid for by a combination of Medicare and Medicaid. However, Federal
law also specifies several groups of dual eligibles who, while not
entitled to full Medicaid benefits, are entitled to more limited
medical assistance, specifically payment of Medicare Part A or Part B
premiums or cost sharing, such as payment of Medicare deductibles and
coinsurance. These groups are certain qualified Medicare beneficiaries
(QMBs), specified low-income Medicare beneficiaries (SLMBs), qualified
disabled and working individuals (QDWIs), and certain qualifying
individuals (QIs).
For purposes of the low-income subsidy under Part D, in the
proposed rule we proposed to define the term ``full-benefit dual
eligible individual'' as an individual who for any month has coverage
under a PDP or MA-PD plan and is determined eligible by the State for
medical assistance for full benefits under title XIX for the month
under any eligibility category covered under the State plan or
comprehensive benefits under a demonstration under Section 1115 of the
Act. We proposed that comprehensive benefits referred to in this
section do not include those benefits received under Pharmacy Plus
demonstrations authorized under section 1115 of the Act. For
individuals who become medically needy by ``spending down'' excess
income; that is, incurring medical expenses which are subtracted from
the individual's income, the individual is not eligible as medically
needy until he or she satisfies their spenddown obligation. This
requirement was reflected in the proposed regulations at Sec. 423.772.
Section 1860D-14(a)(3)(B)(v)(II) of the Act authorizes the
Secretary to treat QMBs, SLMBs, and QIs who are not full- benefit dual
eligible individuals as full subsidy eligible individuals. This
authority does not apply to QDWIs. As proposed at Sec. 423.773(c), the
Secretary elects to exercise this authority and treat these QMBs,
SLMBs, and QIs as being eligible for the full subsidy.
This decision was based on the fact that nearly all QMBs, SLMBs,
and QIs, by definition, would likely meet the requirements to be
considered a full subsidy eligible individual. Generally, QMB, SLMB,
and QI individuals have income below 135 percent of the FPL applicable
to their family size and resources that do not exceed twice the SSI
limit. The exception would be in the few States that have more
liberalized income and asset rules for these groups under section
1902(r)(2) of the Act. We did not believe that treating these groups as
full subsidy eligible individuals will have a large cost impact.
Further, we believed that it would ease the administrative burden of
having to educate these individuals on the need to apply for the
subsidy.
Finally, the statute gives the Secretary the option to permit a
State to make subsidy eligibility determinations by using the
methodology it uses under section 1905(p) of the Act if the Secretary
determines that this would not result in any significant difference in
the number of individuals who are made eligible for the subsidy. This
would permit a State to use the same resource methodologies that it
uses to determine Medicaid eligibility for QMBs, SLMBs, and QIs if the
Secretary determines that the use of those methodologies would not
result in any significant differences in the number of individuals who
are made eligible for a subsidy. This includes the less restrictive
methodologies the State uses under section 1902(r)(2) of the Act to
determine eligibility for QMBs, SLMBs, and QIs. In the proposed rule,
we chose not to exercise this option.
This means that when making eligibility determinations for other
low-income subsidy eligibles, all States would use the same resource
methodologies across the country. The rationale for not electing this
authority was twofold. First, uniformity in the
[[Page 4370]]
application process is a desired goal and having alternative resource
methodologies that would vary among States would detract from that
goal. Second, based on the administrative burden and complexity that
would be involved in administering this alternative process, we saw
very little benefit in terms of the number of individuals who would be
determined subsidy eligible.
Comment: A number of commenters supported our definition of family
size. Some of those supporting our definition further urged that the
regulations specify that applicants will be able to self-attest as to
the number of family members they claim without the need for further
documentation.
Response: As explained elsewhere in the preamble in our discussion
of the use of a simplified low-income subsidy application, we
anticipate that such things as income and resources will be verified to
the extent possible using automated data matches. This reduces both the
administrative cost of making eligibility determinations, and the
burden on applicants to provide documentation as to their income and
resources. Similarly, we anticipate that in most cases an applicant's
declaration of the size of his or her family will be accepted without
the need for further documentation from the applicant.
Comment: While a number of commenters supported our definition of
family size, a number of other commenters requested clarification or
objected to the definition. All of these commenters argued that our
definition did not follow SSI statutory rules, and therefore would make
it more difficult and complex to determine eligibility for a low-income
subsidy. Many of these commenters argued that since low-income subsidy
eligibility was supposed to be based on SSI statutory income and
resource rules, the rules under which SSI pays benefits to individuals
or couples should also be followed.
Response: We understand the concerns expressed by these commenters.
As explained previously, and in the preamble to the proposed
regulations, we did consider using the SSI statutory framework of
individual or couple. However, as we also explained, we do not believe
that the Congress intended the definition of family size to be so
restrictive for low-income subsidy eligibility purposes. Moreover, the
SSI statute does not include a definition of family size. Therefore, we
proposed to define family size to include the applicant, his or her
spouse who lives in the same residence, and any individuals related to
the applicant who live in the same residence and depend on the
applicant or the applicant's spouse for at least one-half of their
financial support.
While we recognize that our definition may result in some
additional complexity in making eligibility determinations, we believe
the definition we have adopted is necessary to take into account the
impact that supporting dependent family members may have on the need of
an applicant for a low-income subsidy.
Comment: A few commenters suggested that our definition of family
size should be revised to automatically include any children under the
age of 21 as members of the family, regardless of other considerations
such as whether the applicant was providing one-half of the child's
support. This commenter also suggested that a pregnant woman should be
counted as two family members.
Another commenter stated that the one-half child support test is
different than what is used for Medicaid and that there will be
additional burden placed on States to do this test.
Response: We do not agree with either of this commenter's
suggestions. We included relatives who are dependent on the applicant
for one-half of their support in the definition in recognition of the
impact supporting such relatives can have on the applicant's financial
situation. For this reason, we do not believe it is appropriate to
include all children in the applicant's household under age 21 even if
they are not dependent on the applicant, or to count a pregnant woman
as two family members.
Comment: One commenter said that the definition of family size is
vague as to whether relatives of the spouse of an applicant can count
toward family size, and suggested that the definition be revised to
make that explicit.
Response: We do not believe the definition is as vague as the
commenter suggests. Under our proposed definition, family size includes
the number of individuals living in the household who are related to
the applicant or applicants, and who are dependent on the applicant or
the applicant's spouse for at least one-half of their support. The
definition places no restrictions on what is meant by ``related'' to
the applicant other than that a recognized family relationship exists,
and further provides that dependence on the applicant's spouse will
allow a person to be counted as a family member. Therefore, we do not
believe the definition needs revision as suggested by the commenter.
Comment: We received two comments on our definition of ``full-
benefit dual eligible individuals'' in Sec. 423.772. One commenter
noted that the proposed regulation defines the term (in part) as
someone who has coverage for the month under a prescription drug plan
under Part D of title XVIII, or under an MA-PD plan under Part C of
title XVIII. The commenter believes this language creates a technical
problem with the auto-enrollment provisions set forth in Sec.
423.34(d) of the proposed regulations. That section provides that full-
benefit dual eligible individuals who fail to enroll in a PDP or MA-PD
during their initial enrollment period will be automatically enrolled
into a plan.
The commenter believes these two sections are inherently
contradictory because one requires a person to be enrolled in a PDP or
MA-PD to be considered a full-benefit dual eligible individual, while
the other provides for automatically enrolling someone who is
considered to be a full-benefit dual eligible individual in a PDP or
MA-PD, even though under the first section the person could not be a
full-benefit dual eligible individual because he or she was not already
enrolled in a PDP or MA-PD. The commenter suggests revising the
language in Sec. 423.772 to define (in part) a full-benefit dual
eligible individual as someone who has coverage, or who will have
coverage as a result of automatic enrollment for the month under a
prescription drug plan.
Response: We understand the commenter's concern. The definition of
a full-benefit dual eligible individual in Sec. 423.772 reflects the
statutory definition of that term found at section 1935(c)(6) of the
Act, which defines a full-benefit dual eligible individual to include
individuals who have coverage under a Part D plan. We do not believe we
have the authority to change our regulatory definition of ``full-
benefit dual eligible individual'' for purposes of this subpart.
However, we agree with the commenter that this definition of the term
``full-benefit dual eligible individual'' is problematic for
application of the auto-enrollment rules under Sec. 423.34. As
discussed more fully in subpart B, section 1860D-1(b)(1)(C) of the Act
requires CMS to auto-enroll into PDPs an individual ``who is a full-
benefit dual eligible individual'' who ``has failed to enroll in a
prescription drug plan or an MA-PD plan.'' Although this statutory
provision specifically references the statutory definition of ``full-
benefit dual eligible individual'' under section 1935(c)(6) of the Act,
if interpreted literally, section 1860D-1(b)(1)(C) of the Act would
require CMS to auto-enroll into Part D plans only individuals receiving
full-benefits under Medicaid who are already enrolled in
[[Page 4371]]
Part D but who have ``failed to enroll in'' a Part D plan, a patently
absurd result. We have an obligation to interpret the statute so as to
avoid an absurd result and give full effect to the Congress' intended
policy. We think it is clear that the Congress required CMS to
establish an auto-enrollment process to ensure that individuals who
currently receive coverage for Part D drugs under Medicaid continue to
receive coverage for such drugs through enrollment in Part D beginning
in 2006. Therefore, for purposes of implementing the auto-enrollment
process of full-benefit dual eligible individuals, at Sec. 423.34 of
subpart B the final rule we define ``full-benefit dual eligible
individuals'' as Part D eligible individuals who meet the conditions
under section 1935(c)(6)(A)(ii) of the Act but are not enrolled in a
Part D plan.
Comment: One commenter expressed concern about what the commenter
saw as a possible inequity in the definition of a full-benefit dual
eligible individual. Under that definition in our proposed rule, anyone
with coverage under a PDP or MA-PD plan who is determined by a State as
eligible for full Medicaid benefits under any eligibility group is a
full-benefit dual eligible individual. However, the commenter noted
that some eligibility groups in some States are not subject to an asset
test. The commenter believes this can lead to situations where some
persons receiving the full subsidy under Part D would be subject to an
asset test but others would not, depending on whether they were in an
eligibility group to which an asset test did not apply in a particular
State.
Response: While we understand the point the commenter is making, we
must note that the definition of a full-benefit dual eligible
individual as someone who has been determined eligible for Medicaid
under any eligibility group covered under a State's plan is a statutory
definition. Accordingly, we have no authority to change that definition
in the Part D low-income subsidy regulations.
Comment: One commenter argued that the definition of full-benefit
dual eligible individual should be interpreted to include persons
participating in that State's optional work incentives buy-in
eligibility group, as well as persons eligible because of the State's
use of more liberal income disregards under section 1902(r)(2) of the
Act. The commenter suggested that if this was not our intention, the
regulatory definition should be clarified. Another commenter suggested
we clarify the definition to include other protected classes of
Medicaid-covered individuals, specifically, individuals covered under
Medicaid pursuant to 1915(c) and 1619(b) of the Social Security Act.
Response: As we believe the definition makes clear, a full-benefit
dual eligible individual is a person who is eligible for full Medicaid
benefits under any group covered under a State's plan. Therefore, we do
not believe the definition needs further clarification.
Comment: One commenter noted that full-benefit dual eligible
individuals include all persons eligible for full Medicaid benefits
under a group covered under a State's plan even if they have income in
excess of 135 percent of the Federal poverty line applicable to the
individual's family size. The commenter asked if any analysis has been
done to determine whether tying eligibility for a low-income subsidy to
eligibility for Medicaid will lead to an increased use of qualifying
income (also known as Miller) trusts in States where the trusts are
recognized under Medicaid.
Response: We are not aware of any analysis that has been done on
that subject. Further, even if analysis were to indicate the
possibility of increased use of the trusts under these circumstances,
the statutory definition of a full-benefit dual eligible individual is
clear, and therefore is not subject to change under our regulations to
address the possibility.
Comment: We received one comment on the definition of ``full
subsidy eligible individuals'' in Sec. 423.772. That section provides
that a full subsidy eligible individual is an individual who meets the
eligibility requirements under Sec. 423.773(b). The commenter
suggested that the latter reference should be changed to Sec.
423.773(b) and (c) to avoid ambiguity.
Response: We do not agree with the commenter's suggestion. Section
423.773(b), as cited in section 423.772, defines a ``full subsidy
eligible'' individual, while Sec. 423.773(c), which is the reference
the commenter suggests adding, provides that certain individuals must
be treated as if they did meet the definition of full subsidy eligible
individuals as defined in Sec. 423.773(b). Section 423.773(c) does not
change the definition of a full subsidy eligible individual. We believe
that adding the reference the commenter suggests would create ambiguity
where none exists now.
Comment: One commenter indicated that for any subset of individuals
for whom States provide pharmacy-only benefits under a section 1115
demonstration, that subset be excluded from the definition of full-
benefit dual eligible, since these programs generally provide the same
benefits as offered under Pharmacy Plus Programs.
Response: We agree with this commenter and have further clarified
the definition of full-benefit dual eligible individual at Sec.
423.772 to exclude those individuals enrolled in 1115 demonstration
programs that provide pharmacy-only benefits to a portion of its
demonstration population.
Comment: We received some comments on our proposed definition of
income. One comment, which was submitted by several different
commenters, was that the definition of income should make it clear that
income not legally owned by the applicant, even if his or her name is
on the check, should not be counted. Another comment, submitted by two
commenters, was that the definition should exclude the same income
currently excluded under the Medicaid program when determining Medicaid
eligibility for American Indians and Alaska Natives. And finally, one
commenter asked if income of another family member from SSI and TANF
will be included.
Response: For these comments it is important to note that under the
Part D statute, income eligibility for a low-income subsidy is
determined using the statutory provisions of the Supplemental Security
Income (SSI) program. The statute does not give us the authority to
change the way those provisions apply to subsidy eligibility
determinations for the low-income subsidy under this subpart. Under the
SSI statutory provisions, some income may be counted even if the person
does not actually receive it, just as some income a person does receive
may not be counted. Similarly, SSI excludes certain types of income
received by American Indians and Alaska Natives. The Social Security
Administration (SSA), which operates the SSI program, is publishing its
own regulations which will explain how the SSI statutory provisions
will apply to eligibility determinations for the low-income subsidy. We
expect that SSA's regulations will explain in detail how income will be
counted when determining eligibility for a low-income subsidy.
Comment: Another commenter noted that under Sec. 423.772, income
is defined differently from Medicaid in two ways; the regulatory
definition does not include the use of more liberal income
methodologies under the authority of section 1902(r)(2) of the Act, and
eligibility is based on a family size that can be greater than the one
or two that Medicaid normally uses when determining eligibility for the
aged and
[[Page 4372]]
disabled. The commenter further noted that this means that if States
are making eligibility determinations for low-income subsidies, they
will have to use different rules than they use under their Medicaid
programs.
Response: While the commenter is correct on both points, we note
that section 1860D-14 (a)(3)(C) of the Act specifically precludes the
use of income disregards authorized under section 1902(r)(2) of the Act
in determining low-income subsidy eligibility. With regard to the
commenter's point about family size, as we explain elsewhere, we
believe the definition of family size we have adopted most closely
reflects the intent of the Congress with regard to low-income subsidy
eligibility. Therefore, we do not believe we can or should revise the
proposed regulations to accommodate the commenter's arguments.
Comment: We received a number of comments about the definition of
an institutionalized individual as it applies to cost-sharing subsidies
under Sec. 423.782 of the proposed regulation. That section provides
that institutionalized individuals have no cost-sharing for covered
Part D drugs under their Part D plans. The term ``institutionalized
individual'' is defined in Sec. 423.772 of the proposed rule as a
full-benefit dual eligible individual who is an inpatient in a medical
institution or nursing facility for which payment is made under
Medicaid throughout a month, as defined in section 1902(q)(1)(B) of the
Act.
Almost all of the commenters urged that persons receiving home and
community-based waiver services under the waiver authority under
section 1915(c) of the Act be treated as institutionalized individuals
for purposes of Sec. 423.782 so that they would not be subject to
cost-sharing. Several commenters also suggested that institutions for
the mentally retarded (ICFs/MR) be specifically included in the
regulations as meeting the definition of a medical institution for
purposes of this section. At least one commenter believed that persons
in other living arrangements such as assisted living facilities,
residential care homes, and boarding homes should be treated as
institutionalized individuals under Sec. 423.782. One commenter urged
that persons receiving PACE services also be treated as
institutionalized individuals for purposes of this Subpart.
The commenters' rationale was that in most of the situations cited
in the various comments, the individuals were receiving services in the
community as an alternative to institutionalization. Individuals
eligible for Medicaid under a waiver under section 1915(c) of the Act
are often eligible for waiver services using rules that normally apply
in institutions. Therefore, the commenters believe these persons should
also be treated as institutionalized individuals for Part D cost-
sharing purposes. Some commenters also cited the Olmstead U.S. Supreme
Court decision, which requires States to place persons with disability
in community rather than institutional settings when possible, as a
basis for the commenters' position.
Response: For comments suggesting that ICFs/MR be specifically
included in the regulations meeting the definition of a medical
institution, we do not believe such inclusion is either necessary or
desirable. If we state that ICFs/MR in general meet the definition of a
medical institution it could be misleading because one ICF/MR could
meet the various certification and service provision requirements set
forth in current regulations while others would not. Therefore, we
would not want to give the erroneous impression that all ICFs/MR would
meet the definition of a medical institution for purposes of the
provision under discussion.
For comments urging that persons receiving waiver services, PACE
services, or those in various living arrangements such as assisted
living facilities and residential care homes be treated as
institutionalized individuals for purposes of cost-sharing under Sec.
423.782, we understand why the commenters believe such treatment would
be to the advantage of those persons. However, the regulatory
provisions under discussion are based on specific statutory language,
and we do not believe that language contains the latitude necessary to
treat persons in the various situations described by the commenters as
institutionalized individuals.
Section 1860D-14(a)(1)(D)(i) of the Act provides that for purposes
of cost-sharing, an institutionalized individual is one who meets the
definition of that term in section 1902(q)(1)(B) of the Act. That
section in turn defines an institutionalized individual as someone who
is an inpatient in a medical institution or nursing facility for which
payments are made under the Medicaid program throughout a month, and
who is determined to be eligible for medical assistance under the State
plan. An inpatient is someone who is physically in a medical
institution. However, assisted living facilities, boarding homes,
residential care homes, etc., do not meet the general definition of
medical institutions under the Medicaid or Medicare programs.
Individuals receiving services under the waiver authority provided by
section 1915(c) of the Act, or under the PACE program, are not
inpatients of a medical institution since they are living in the
community. When the Congress intends to include such individuals, or
give States the option of including such individuals, within the
definition of ``institutionalized individuals'', it does so explicitly
in the statute. In the absence of such explicit inclusion in the Part D
statute, we cannot consider the persons to whom the commenters refer to
be institutionalized individuals for Part D cost-sharing purposes. We
believe the Congress intended this provision to address the fact that
dual-eligible persons residing as inpatients in medical institutions
are permitted to retain only a small personal needs allowance, which
preclude payment of even nominal copayments. For PACE enrollees, we
refer commenters to Subpart T.
Comment: Three commenters objected to the language in the
definition of institutionalized individual concerning payment being
made under the Medicaid program throughout a month, arguing that an
individual could be a full-benefit dual eligible individual recently
returned from a hospital stay whose nursing facility stay would be paid
for by Medicare Part A for the entire month.
Response: While we understand the commenters' concern, the language
in question is a specific statutory requirement under section
1902(q)(1)(B) of the Act. Therefore, we do not believe we can eliminate
or even revise that requirement in the regulations. It is worth noting
that that if Medicare Part A is paying for the nursing home stay, an
individual's drug costs will in all likelihood be covered through
Medicare Part A payment, and so the issue of Part D cost-sharing
liability does not apply.
Comment: We received several comments on our proposed definition of
a personal representative in Sec. 423.772. In the proposed rule we
defined a personal representative as someone who is (1) authorized to
act on behalf of the applicant; (2) someone acting responsibly on
behalf of the applicant if the applicant is incapacitated or
incompetent, or (3) an individual of the applicant's choice who is
requested by the applicant to act as his or her representative in the
application process.
One commenter urged that ``authorized'' to act on behalf of the
applicant be defined to mean authorized under State law, and that
``State law'' in turn be defined as including a constitution, statute,
regulation, rule,
[[Page 4373]]
common law, or other State action having the force and effect of law.
Response: While we understand the commenter's concern, we do not
believe that the term ``authorized'' should be restricted in the manner
suggested. The intent of this portion of our proposed definition was to
enable applicants to designate someone whom they trust to act on their
behalf in filing an application for a low-income subsidy. Defining the
term ``authorized'' to mean only persons who meet State law-based
requirements could effectively restrict an applicant's choice of
personal representative to someone with what could amount to a
guardianship relationship with the applicant, even if the applicant is
not in need of a formal guardian. This could make it very difficult if
not impossible for an applicant to even find a qualified personal
representative.
Comment: Several commenters suggested that the term ``acting
responsibly'' needed further clarification as to who would determine
that a personal representative is acting responsibly, and under what
circumstances a conflict of interest could be presumed to exist. Two
commenters suggested that certain entities for whom the commenters
apparently believe a conflict of interest can be presumed to exist,
such as insurance agents, Medicare and PDP marketing representatives,
and anyone charging a fee for assistance, should be prohibited from
acting as a personal representative.
Response: We understand the commenters' concerns about the
possibility of personal representatives not acting in the best
interests of the applicant. However, we do not believe it is
appropriate to establish rules that effectively prohibit entire classes
of individuals from acting as personal representatives for applicants
based solely on a possibility. If, based on actual program experience,
we find that personal representatives are abusing the trust placed in
them by applicants and the low-income subsidy program, we will refer
for investigation these potential program abuses and publish guidelines
to address any specific patterns of abuse that emerge. In the absence
of evidence to the contrary, however, we believe that at this time we
should assume that personal representatives will for the most part act
in the best interests of the applicants who appoint them.
Comment: One commenter expressed concern about a requirement in
Sec. 423.904(d)(2)(ii) of the proposed regulations that when taking a
low-income subsidy application, States must require a personal
representative to certify under penalty of perjury as to the accuracy
of the information provided. The commenter believes this requirement
will greatly inhibit outreach and enrollment activities by social
workers and community service organizations. The commenter believes
this requirement would expose any agency, volunteer, SHIP program
staff, friend or neighbor to legal liability.
Response: We do not believe this requirement will have the dire
consequences the commenter fears. The requirement the commenter cites
is a standard part of most if not all applications for Federal
benefits, and in all likelihood the majority of State benefits as well.
This requirement is intended to deter applicants or their
representatives from knowingly falsifying applications for low-income
subsidies, and thus only requires the applicants or their
representatives to the best of their knowledge. It is not intended to
lead to, nor would it be used for the purpose of, prosecuting
applicants or representatives for simple errors or inadvertent
omissions.
Comment: One commenter indicated that the definition of personal
representative should also include an SPAP when the SPAP is functioning
as an authorized representative.
Response: Our definition would encompass an SPAP when the SPAP is
functioning as an authorized representative. In such a case, the SPAP
as an authorized representative, can exercise all the rights of the
applicant including completing the low-income subsidy application.
Comment: We received a number of comments on our proposed
definition of ``resources'' in Sec. 423.772, and referenced elsewhere
in the proposed regulations. In that section we proposed defining the
term ``resources'' to mean liquid resources of the individual (and if
living in the same household, his or her spouse if the individual is
married), such as checking and savings accounts, stocks, bonds, and
other resources that can be readily converted to cash within 20 days,
that are not excluded from resources in section 1613 of the Act, and
real estate that is not the applicant's primary residence or the land
on which the residence is located. We included this definition of
resources because individuals are subsidy eligible individuals only if
they have resources (or assets) below certain limits established under
section 1860D-14(a)(3)(D) and (E).
Several commenters urged that the asset test eligibility for the
low-income subsidy be eliminated entirely. Eligibility would then be
based solely on an applicant's income.
Response: An asset test for low-income subsidy eligibility is
specifically required under section 1860D-14(a)(3)(D) and (E). In view
of this clear statutory requirement, we have no authority to eliminate
the asset test in its regulations.
It should be noted that the Social Security Administration (SSA),
which operates the SSI program, is publishing its own regulations which
will explain how the SSI statutory provisions, including those
pertaining to resources, will apply to low-income subsidy eligibility.
We expect that SSA's regulations will explain in detail how resources
will be counted when determining eligibility for a low-income subsidy.
Comment: Several commenters suggested that if the asset test could
not be eliminated entirely, at least certain specific assets should be
excluded from being counted when determining eligibility for a low-
income subsidy. Specifically mentioned by commenters were any life
insurance, including the cash surrender value of life insurance, burial
funds and burial plots, all officially designated retirement funds such
as IRAs and 401(k) plans, and vehicles.
Response: We note that of the specific assets mentioned by
commenters, burial plots are already excluded from being counted as
assets under the SSI program, and vehicles are also excluded from being
counted for low-income subsidy purposes because they are not considered
liquid assets. For the other assets mentioned, we do not agree that
they should be eliminated from the resource test. Section 1860D-
14(a)(3)(D) provides that resources will be determined according to
section 1613 of the Act, which designates the exclusions from resources
for the SSI program. As we explain in the preamble to the proposed
rule, we believe that we have some flexibility to narrow our definition
of resources to exclude non-liquid resources that would be counted
under the SSI program, since the section 1860D-14(a)(3)(E)(ii) of the
Act also provides for the development of a simplified application in
which applicants attest to their level of resources and submit only
minimal documentation. We believe that the implication of this
provision is that the Congress envisioned a simple process. Therefore,
in order to keep the process simple and minimize administrative cost,
we will only consider liquid resources (that is, those that could be
converted to cash within twenty days) and real estate that is not an
applicant's
[[Page 4374]]
primary residence as resources that are available to the applicant to
pay for the Part D premiums, deductibles and copayments. While, in the
interest of simplicity, we were willing to exclude certain non-liquid
resources, we do not believe that the Congress intended to authorize a
wholesale departure from SSI resource rules in making subsidy
eligibility determinations. Therefore, for purposes of counting liquid
resources, we believe it is important to adhere to the resource rules
of the SSI program. These include counting items such as the cash
surrender value of life insurance and the value of IRAs and 401(k)
plans.
Comment: Some commenters suggested that if the assets discussed
above could not be excluded entirely from being counted, any disregards
applying to them should be substantially increased.
Response: For the reasons explained in the previous discussion, we
will not increase disregards for these or any other assets beyond
whatever disregards are applicable under the SSI program.
Comment: Many commenters said that the examples of countable
resources we included in the proposed definition of resources under
Sec. 423.772 was not detailed enough. They urged that the final rule
provide a specific list of the resources that would be counted (or,
alternatively, that would not be counted) in determining low-income
subsidy eligibility. Many commenters also expressed concerns about the
provision that resources that can be readily converted to cash within
20 days would be counted. These commenters said the 20-day conversion
rule was vague, and needed to be clarified. Another commenter suggested
that we exclude resources if liquidating that resource would result in
a financial loss or penalty.
Response: For these comments, and as we explain in our discussion
of the definition of income elsewhere in this section of the preamble,
it is important to note that under sections 1860D-14(a)(3)(D) and (E)
of the Act , the resource component of the eligibility determinations
for a low-income subsidy is generally determined using the statutory
rules of the Supplemental Security Income (SSI) program which govern
resource exclusions under that program. As noted earlier, the Social
Security Administration (SSA), which operates the SSI program, is
publishing its own regulations which will explain how the SSI statutory
provisions, including those pertaining to resources, will apply to
eligibility determinations for the low-income subsidy. We expect that
SSA's regulations will explain in detail how resources will be counted
when determining eligibility for a low-income subsidy.
Comment: A few commenters suggested that the rules for counting
resources for making eligibility determinations of the low-income
subsidy be exactly the same rules as are used by the SSI program when
counting resources. These commenters argued that any deviation from the
standard SSI rules would make it more difficult for States to determine
low-income subsidy eligibility.
Response: As we explained in the preamble to the proposed
regulations, the rules for counting resources for low-income subsidy
determination purposes are for the most part the same as the standard
SSI resource rules. The primary difference is that most non-liquid
resources will not be counted when determining eligibility for the low-
income subsidy, whereas many such non-liquid resources would be counted
under SSI. We believe that rather than making eligibility for a subsidy
more difficult to determine, not counting most non-liquid resources
will actually make the eligibility determination process easier.
Comment: Several commenters noted that under the Part D statute,
the Secretary has the option of allowing States to use the more liberal
resource rules that the States may use to determine resource
eligibility for QMBs, SLMBs, and QIs when determining low-income
subsidy eligibility. These commenters urged that we exercise that
option and allow States to use their more liberal resource rules rather
than require States to use only the SSI statutory resource provisions,
as we have proposed.
Response: As we explained in the preamble to the proposed
regulations, a primary goal under the low-income subsidy program is to
have nationally uniform standards and rules for determining eligibility
for a subsidy. We believe national uniformity is desirable because the
low-income subsidy is a national program, and thus to the greatest
extent possible should be operated under the same rules regardless of
where in the country an applicant lives. Allowing States to use
resource rules that would vary from State to State would compromise
that uniformity. Also, as we explained in the preamble, we do not
believe allowing States to use different resource rules to determine
low-income subsidy eligibility would significantly change the number of
persons who might be found to be eligible for the low-income subsidy.
This is because the option to allow States to use more liberal resource
rules could be exercised only in cases where the Secretary found, in a
particular State, that use of those rules would not materially increase
the number of individuals who would be subsidy-eligible individuals.
Comment: One commenter suggested that in addition to allowing
States to use more liberal resource rules, we should require SSA to use
a State's more liberal rules as well when making low-income subsidy
eligibility determinations.
Response: As explained above, we are not exercising the option to
allow States to use more liberal resource rules. However, even if we
were to exercise that option, the option applies only to eligibility
determinations for the low-income subsidy by a State. The Part D
statute contains no authority under which a requirement such as the
commenter suggests could be imposed on SSA.
Comment: One commenter suggested that we apply the low-income
subsidy resource rules across the board to the Medicare Savings Program
groups (that is, the QMBs, SLMBs, and QIs). The commenter believes this
would make more people eligible for the Medicare Savings Program
because the basic subsidy resource rules count fewer resources than the
basic Medicare Savings Program rules.
Response: We would note that to a large degree individual States
already have the option to do as the commenter suggests. Under the
authority of section 1902(r)(2) of the Act, States can elect to count
fewer resources, or disregard greater amounts of resources, for
Medicare Savings Program groups than they would otherwise under the
basic resource rules. However, while this is an option for States, we
do not have the statutory authority to impose the low-income subsidy
rules on States' Medicare Savings Programs.
Comment: A few commenters urged that we consider not applying
transfers of resources for less than fair market value penalties to
low-income subsidy applicants, as we have proposed in our regulations.
Response: For purposes of determining eligibility for the low-
income subsidy, we will not be considering the value of assets
transferred for less than fair market value. We do not believe that
penalties associated with transfers translate into an appropriate
method of counting resources for the low-income subsidy.
Comment: We received at least one comment that our definition of
resources should exclude the same resources currently excluded under
the Medicaid program when determining
[[Page 4375]]
Medicaid eligibility for American Indians and Alaska Natives.
Response: As we have explained previously in this section of the
preamble, under section 1860D-14(a)(3)(D) and (E) of the Act, resource
eligibility for a low-income subsidy is determined using the statutory
provisions of section 1613 of the Social Security Act, which governs
resource exclusions under the SSI program. Under the SSI program, a
number of types and amounts of resources belonging to American Indians
and Alaska Natives are already excluded. If they are excluded under SSI
statutory provisions, they will also be excluded when determining low-
income subsidy eligibility.
Comment: One commenter objected to the provision under which the
low-income subsidy resource standards will be increased each year by
the percentage increase in the Consumer Price Index, rounded to the
nearest multiple of $10. The commenter believes this adds complexity to
administering the low-income subsidy program, and suggested that
resource standards be consistent across all poverty-level-based Federal
programs.
Response: While we understand the commenter's concern, we must note
that the process for increasing the resource standards is mandated by
section 1860D-14(a)(3)(D) and (E) of the Act. Therefore, we do not have
authority to change or eliminate that process under its regulations.
Comment: Several commenters suggested that we clarify the
regulations to reflect that an individual can apply and be determined a
subsidy eligible individual before enrolling in a Part D plan. Other
commenters remarked that the proposed rule implies that an individual
must be enrolled in a Part D plan in order to apply for low-income
subsidies. They assert that the final regulations should make clear
that determinations could be made both before and after enrollment in a
Part D plan, and specify the effective date of that coverage. Other
commenters suggest that we clarify how information verifying enrollment
in a plan is provided to States and how States will be notified if an
individual disenrolls from a plan.
Response: Determinations for the low-income subsidy program can be
made in advance of a person enrolling in a Part D plan. We believe that
fact is clearly articulated in the proposed regulation which requires
States to take subsidy applications starting July 1, 2005, well in
advance of the open enrollment period for the new Part D benefit, a
requirement we retain in the final rule. Therefore, we do not believe
we need to make further clarifications in the final rule.
We believe it is important to emphasize here that while
determinations may be made in advance of the initial enrollment period
beginning on July 1, 2005, a subsidy eligible individual is not
entitled to the subsidy until such time as the person's enrollment in a
plan is effective. Up until that time, there are no premiums or cost
sharing obligations under Part D for which we must subsidize payment
under the low-income subsidy. Accordingly, States need only to send us
information on whether a person is eligible for the low-income income
subsidy. We will provide information on subsidy eligible individuals to
Part D plans and will reimburse plans for enrollees who are subsidy
eligible individuals as provided under Sec. 423.329(d). We acknowledge
that States may require plan enrollment information for purposes of
coordination of benefits, but we do not believe that such information
is necessary for purposes of determining whether a beneficiary is
eligible for the low-income subsidy. Therefore, we will not share
enrollment data with the States on a routine basis for the purpose of
determining eligibility for the low-income subsidy. In Subpart J, we
address the need for this information sharing for coordination of
benefit purposes.
Comment: One commenter indicated that the proposed rule
disadvantages Social Security Title II beneficiaries who receive
Medicare and will receive low-income subsidies. The proposed regulation
provides that low-income Medicare beneficiaries will pay little or
nothing for prescriptions, while those earning over 150 percent of the
Federal poverty line applicable to the individual's family size may
have to pay as much as 50 percent of the cost of their prescription for
covered Part D drugs, giving them a financial disincentive to return to
work if they incur significant prescription expenses. The commenter
urges us to consult with SSA about these changes.
Response: The income threshold of 150 percent of the Federal
poverty line for low-income subsidy eligibility is established by
section 1860D-14(a)3)(E) of the Act, and cannot be changed without a
change in the law itself. However, while eligibility for the low-income
subsidy is based on income, it is important to be aware that income can
be earned income or unearned income. Under the statutory rules of the
supplemental Security Income (SSI) program, which are used to determine
low-income subsidy eligibility, there are significant disregards for
earned income. Under those rules, the first $85 of earned income, plus
one-half of any remaining earned income, will not be counted when
determining low-income subsidy eligibility. Other earned income
disregards may also apply, depending on each applicant's personal
situation. Thus, those Social Security Title II beneficiaries who
choose to return to work will have the potential for total income that
is actually higher than 150 percent of the Federal poverty line as a
result of the earned income disregards that will be applied in
determining low-income subsidy eligibility.
Comment: Several commenters suggested that our regulations should
indicate that the indexing of resources would be rounded up in
multiples of $10.
Response: We do not have authority to make this change in the final
rule. The reference in sections 1860D-14(a)(3)(D) and (E) of the Act to
the ``nearest multiple of $10'' does not provide the discretion to
always round up or to always round down. For purposes of indexing, the
nearest multiple will be rounded up if it is equal to or greater than
$5 and down if it is less than $5.
Comment: Several commenters suggested that we needed to clarify
that individuals deemed to be subsidy eligible do not have to take any
further action for the low-income subsidy; rather, they only need to
enroll in a Part D plan.
Response: We have further clarified in the final rule that
individuals deemed subsidy eligible individuals do not need to apply
for the low-income subsidy.
Comment: Several commenters expressed support for the proposed
deeming of Medicare Savings Program individuals as full subsidy
eligible individuals, but expressed concern that SSA will not apply
more generous income and asset eligibility rules under Medicaid for
individuals potentially eligible for Medicare Savings programs. These
commenters indicated that the requirements should be the same for all
subsidy-eligible individuals in a State, regardless of where and how
they apply.
Response: While States may use more liberalized methodologies under
Medicaid for purposes of determining eligibility for Medicare Savings
Programs, they may not employ more liberal methodologies under the
Medicare Part D low-income subsidy eligibility should an individual
apply and request a State eligibility determination. (However, if the
State determines the individual is Medicare Savings Program-eligible
under its rules
[[Page 4376]]
(that is, as a QMB, SLMB, or QI), the individual is deemed eligible for
the subsidy) The requirements for counting income and assets are the
same under the low-income subsidy program regardless of whether an
individual applies at a State office or an SSA field office. These
requirements are based on the statutory provisions of the SSI program.
For counting income, States and the SSA are specifically precluded from
using the more liberalized methodologies permitted under Medicaid under
section 1902(r)(2) of the Act. For counting resources, we acknowledge
in the proposed rule that we could have permitted States to use the
same resources standards that States employ under Medicaid for purposes
of determining eligibility for Medicare Savings Programs. However, we
elected not to exercise this discretion since this authority does not
extend to SSA and we believe national uniformity for purposes of
eligibility determinations is a desirable goal.
Comment: Some commenters expressed concern that the proposed rule
does not address eligibility issues for Medicaid beneficiaries who
become eligible after a spenddown period, either under a medically
needy program or in a 209(b) State (that is, a State which does not
provide Medicaid automatically to all of its SSI recipients but which
uses more restrictive rules than those of the SSI program). They
suggested that these beneficiaries should be informed of their
eligibility for the low-income subsidy and given an opportunity to
apply for the subsidy. When they have met their spenddown, they should
be informed of their entitlement to the low-income subsidy as a full-
benefit dual eligible individuals.
Response: We agree that the eligibility rules may be confusing for
Medicare beneficiaries who become eligible for Medicaid after a
spenddown period. In the final rule, we have clarified that individuals
treated as full-subsidy eligible individuals will be deemed eligible
for a period up to one year. Thus, individuals who have met their
spenddown obligation and are eligible for full Medicaid coverage will
be notified that they are eligible for a full subsidy under Part D for
up to one year without interruption. If the individuals periodically go
off Medicaid because they have to meet a new spenddown budget, they
will still be ``deemed'' full subsidy eligible individuals for the
remaining period of subsidy eligibility. We have specified ``a period
up to one year'' to allow us the operational flexibility to deem full
subsidy eligible individuals for a period less than 12 months during a
calendar year if they are newly identified to us in a month later than
January. Thus, an individual may be deemed subsidy eligible for 9
months if they are reported by the State as a full-benefit dual
eligible individual in March, for example. If the same person continues
to be a full-benefit dual eligible individual in the fall of the same
year, he or she will be deemed a full subsidy eligible the next year
for the full calendar year.
Comment: We received several comments that proposed Sec.
423.773(c), which requires the State to notify full-benefit dual
eligible individuals that they are full subsidy eligible, should
conform to proposed Sec. 423.904(c)(3) in subpart S which requires
States to notify all individuals deemed full subsidy eligible
individuals of their eligibility for the full subsidy. These commenters
suggested that the notice be given by July 1, 2005, for those eligible
at that time, or at the time they attain eligibility for the Medicaid
program that enables them to be treated as full subsidy eligible, if
after July 1, 2005. Further, the commenters suggested that the notice
should make clear the actions required of individuals treated as full
subsidy eligible individuals, should direct individuals to information
sources where they may gather additional information, counseling and
assistance; and apprise individuals of appeal rights for loss of
Medicaid coverage and appeal rights associated with the determination
on the level of subsidy. They also suggest that we should develop model
notices based on input from beneficiaries and encourage States to
include a reminder in their notice letter of the need to recertify
their eligibility under the applicable benefits program.
Other commenters suggest that we should modify its final rule to
clarify that States will notify full-benefit dual eligible individuals
and low-income Medicaid beneficiaries participating in the Medicare
Savings Program that they qualify for a full subsidy under the new drug
benefit. In addition, we should develop a similar notification with the
SSA, or require States to coordinate with SSA, for to SSI recipients in
209(b) States and non-1634 States (that is, a non-209(b) State which
requires SSI recipients to file a separate Medicaid application) since
there could be SSI recipients in these States who are not receiving
Medicaid and who would not appear under the States' eligibility
systems.
Response: We have clarified in the final rule that we will send
notices of eligibility to all deemed full subsidy eligible individuals.
We believe that if we send the notices to all the individuals rather
than States, it will ensure more uniformity in the content of and
timeliness of the notices. Additionally, our sending the notices to
individuals deemed eligible for the full subsidy will ensure we reach
people States may not be able to identify, namely Medicare
beneficiaries receiving SSI benefits in States where SSI does not
automatically entitle a person to Medicaid. Our goal is to begin
sending notices to individuals deemed to be subsidy eligible in the
Spring of 2005, before the start of taking applications for individuals
who are not deemed eligible for the low-income subsidy. We will ensure
that the notices clarify that individuals deemed eligible for a full
subsidy need not apply to receive the subsidy.
Comment: One commenter suggested that we explain how Part D plans
are notified of an enrollees' eligibility for a low-income subsidy.
Response: Once a subsidy individual enrolls in a Part D plan, CMS,
through a data match, will inform Part D plans that the individual
qualifies for a low-income subsidy.
Comment: One State commenter remarked that the draft regulation
does not specify which agency is financially responsible for sending
notices to individuals deemed eligible for the full subsidy. The
commenter pointed to section 1860D-14(a)(3)(B)(i) of the Act, which
references funds to be appropriated to the SSA necessary for the
determination of the low-income eligibility determinations. Some
commenters asked if the SSA would provide an appropriation to each
State to enable States to provide notices to dual eligibles as
specified in the proposed rules. The commenters also wondered which
entity had responsibility for explaining to full-benefit dual eligible
individuals how coverage of Part D drugs in Part D plans work and how
such coverage will differ from the coverage they received under the
State's Medicaid program.
Response: For reasons discussed above, we have clarified in the
final rule that we will send notices of eligibility to all individuals
deemed full subsidy eligible individuals. This should relieve States of
the financial burden of sending notices to these individuals. We will
also educate Medicare beneficiaries, including full-benefit dual
eligible individuals, through a variety of methods about prescription
drug coverage under the new Part D benefit. (See discussion in Subpart
B). However, we expect that States will have an important role in
educating Medicare beneficiaries, particularly full-benefit
[[Page 4377]]
dual eligible individuals, about the low-income subsidy program and the
new Medicare drug benefit. We also note that during Federal Fiscal
Years 2005 and 2006, a total of $125 million in grants are made
available under 1860D-23(d) of the Act to States with SPAPs to assist
in the outreach and education of SPAP enrollees transitioning to
Medicare Part D.
Comment: A few commenters suggested that proposed Sec. 423.773(c)
should be edited to replace the term ``full-benefit dual eligible''
with ``full subsidy eligible,'' where appropriate. They specifically
reference the requirement on States to notify full-benefit dual
eligible individuals that they are eligible for full subsidy premiums
and deductible, noting that in subpart S a similar requirement is
imposed on States to notify full subsidy eligible individuals. The
commenters suggest that this inconsistency represents an error in the
proposed rule.
Response: We agree that this inconsistency is an error. For reasons
previously addressed, we have clarified the final rule to correct this
inconsistency and to indicate that we (not States) will send notices to
all individuals deemed to be full subsidy eligible individuals.
Comment: Some commenters suggest that SSA should screen
applications to identify individuals who appear to have excess assets
or income for the subsidy but who may qualify for Medicare Savings
Programs in States that use more liberal eligibility rules for such
programs. Alternatively, the commenters suggest SSA forward such
applications to State offices or use State-specific income and asset
rules to determine eligibility.
The commenters noted that by qualifying for Medicare Savings
Programs, an individual will automatically be eligible for the low-
income subsidy, despite the fact that if the same individual applied,
he or she may not have qualified for the subsidy as a result of excess
income or resources. The commenters suggest that individuals who
qualify should be automatically enrolled by States in Medicare Savings
Programs with an opt-out provision. Further, we should make benefit
counseling available to these beneficiaries since enrollment in a
Medicare Savings Program can affect the amount of assistance a
beneficiary may receive through other public assistance programs.
Finally, the commenters suggest that individuals who do not enroll in a
Medicare Savings Program but who qualify for such a program should
still be considered automatically eligible for the subsidy.
Response: We acknowledge that some individuals who apply and
qualify for a Medicare Savings Program (as a QMB, SLMB, or QI) with a
State's Medicaid office will be considered automatically eligible for
the full subsidy, despite the fact that if the same individual applied
for a low-income subsidy at the State or SSA, they may not have
qualified for the full subsidy as a result of excess income or
resources. This scenario is more a function of Medicaid rules
permitting States to use more liberalized income and asset
methodologies than a lack of uniformity for the rules of the low-income
subsidy program. In those States that use more liberalized income and
asset methodologies under section 1902(r)(2) of the Act for purposes of
determining eligibility for Medicare Savings Programs, individuals may
find it more advantageous to apply for Medicare Savings Programs rather
than applying for the low-income subsidy directly with States or SSA.
We are working with SSA to design a process that will provide high-
level information which does not include income or resource information
but will provide the outcome of the subsidy determinations to States
for purposes of identifying individuals who apply at SSA and who may
also qualify for full Medicaid benefits or Medicare Savings Programs.
With this process, we hope to avoid situations in which an individual
applies for a low-income subsidy at an SSA office, finds out that he or
she has excess income or resources to qualify for the full subsidy or
even the subsidy available to other low-income subsidy eligible
individuals, and remains unaware that he or she may automatically
qualify for a full subsidy if the individual chooses to enroll in a
State's Medicare Savings Program (as a QMB, SLMB, or QI).
Comment: We received one comment that SSA needs to use information
provided from beneficiaries applying for low-income subsidies to better
target the mailings that SSA is required to do under section 1144 of
the Act. Commenters note that this provision requires SSA to annually
identify beneficiaries potentially eligible for Medicare Savings
programs, notify them about the programs, and send copies of the list
of individuals identified as potentially eligible for the Medicare
Savings Programs to the appropriate State agencies. In addition to
using the data on income and assets for the section 1144 of the Act
mailings, the commenters suggest that SSA could provide States the
income and resource data for determining eligibility for Medicare
Savings Program eligibles. Providing this information could reduce the
burden on beneficiaries from having to submit this information twice
(that is, to SSA for the low-income subsidy and to States for
enrollment in Medicare Savings Programs). The commenters suggest that
while privacy issues may be of concern, one option to address those
concerns would be to allow applicants to consent to sharing information
with their State agency to assist the State in determining whether they
are eligible for Medicare Savings Programs.
Response: Again, we are working with SSA to design a process to
provide subsidy determinations to States for purposes of identifying
individuals who apply at SSA and who may also qualify for a Medicare
Savings Program in the State. We expect that States will use the
determination to contact individuals who may qualify and to assist them
in the application process. As the commenter suggests, SSA is unable to
provide income and resource information directly to States for privacy
reasons. Therefore, the information provided to States will be limited
to high-level information on the outcome of the subsidy determination.
Comment: Some State commenters noted that States lack a practical
way to determine whether applicants have also applied for the low-
income subsidy through SSA. They note that if SSA and States make
separate determinations that do not agree some form of reconciliation
will be needed. They further note that this need for reconciliation
will further complicate processing and add to administrative burden and
costs.
Other commenters requested clarification on the data exchange
process. The commenters assert that they cannot envision a data
exchange process that would be fast enough to prevent an applicant from
receiving a denial from SSA and subsequently applying at the State
office. They noted that this could result in duplicative work for the
State and SSA. The commenters ask that the rule be clarified for this
coordination.
Response: We agree that it will be important to design a process in
which States can determine if an individual has already filed an
application with SSA, and vice versa. We expect to provide further
information on this process through operational guidance. We also note
that, based on comments, we have clarified in the final rule that
multiple applications will not be permitted in cases where an
individual has received a positive determination from either SSA or the
State. In other words, an individual may not file a second application
for the remainder of the eligibility period with the alternate
[[Page 4378]]
agency if he or she has received a positive determination from the
State or SSA. This requirement is not intended to preclude an
individual from reporting subsidy changing events in accordance with
the determining agency's rules, but rather to prevent confusion that
could arise if a State and SSA process determinations for the same
individual.
3. Eligibility Determinations, Redeterminations and Applications (Sec.
423.774)
In accordance with section 1860D-14(a)(3)(B)(i) of the Act, an
application for subsidy assistance may be filed with either a State's
Medicaid program office or SSA. Inquiries made by individuals to Part D
plans concerning application or eligibility for the low-income subsidy
should be referred to State agencies or SSA. Eligibility determinations
would then be made by the State for applications filed with the State
Medicaid agency or by the Commissioner of Social Security for those
filed with SSA.
While our goal is to provide a single application and determination
process for the low-income subsidy, we recognize that the statute
provides that redeterminations and appeals of eligibility
determinations are to be made in the same manner as for medical
assistance for those individuals who are determined eligible by the
State Medicaid agency. Similarly, the Commissioner will decide how to
conduct redeterminations and appeals for those subsidy determinations
made by Social Security.
In the proposed rule we noted that eligibility determinations for
low-income subsidies would be effective beginning with the first day of
the month in which the individual applies for a subsidy, but no earlier
than January 1, 2006, provided the applicant meets the requirements for
eligibility when he or she applies and has enrolled with a Part D plan
. Initial eligibility determinations would remain in effect for a
period not to exceed 1 year, beginning no earlier than January 1, 2006.
Because States and Social Security offices will be performing
subsidy determinations, States and SSA would need to share data with
us. We would then use the data to notify the Part D plan in which the
individual is enrolled of the individual's eligibility for the low-
income subsidy. We would also use the data to provide information on
the individual's income bracket so that Part D plans may identify the
cost-sharing amounts and, in the case of other subsidy eligible
individuals, the monthly beneficiary premiums that may be charged to a
subsidy eligible individual as discussed later in this subpart of the
preamble.
Section 1860D-14(a)(3)(E)(ii) of the Act directs the Secretary and
the Commissioner of SSA to develop a model simplified application form
for the determination and verification of Part D eligible individual's
assets or resources. We believe it is important to develop a simplified
application for income as well as resources and to develop an
application that will address both the full and the other low-income
subsidy provisions. Therefore, we have been working with SSA to develop
a model application form to be used to determine eligibility for all
subsidies. The application will reflect the definitions of income and
resources discussed earlier in this subpart.
For the method and degree to which income and resources will be
verified, our general policy is to not spend more on verification than
the expected return in terms of benefit savings to the Medicare program
from such verification. Therefore, as stated in the proprosed rule, we
intend to use the most efficient and cost-effective process that will
balance the need for program integrity with the goal of reducing the
paperwork burden and cost.
We envisioned a process based on an operations research strategy
whereby States and SSA would build on existing verification processes
used for other programs. We planned on maximizing the use of automated
data matches for verification of income and certain liquid resources
(which minimize both paperwork burden and cost), and relying on
specific targeting or profiling criteria derived from a database that
would identify a subset of applications for purposes of in-depth
verification. This in-depth verification process would enable SSA and
States to focus on elements attested to by the applicant that do not
lend themselves to verification by electronic means (that is, countable
real estate). By developing a targeted approach, we believed we could
strike an appropriate balance between administrative costs and program
goals and objectives. We requested comments on this approach.
In developing a simplified application, we also considered a number
of other issues in order to streamline the application process. For
example, the proposed rule permits a personal representative to assist
in the application process. We proposed to define personal
representative as an individual who is authorized to act on behalf of
the applicant, an individual acting responsibly on behalf of an
applicant who is incapacitated or incompetent, or an individual of the
applicant's choice who is requested by the applicant to act as his or
her representative in the application process.
In addition, we would permit the use of a proxy signature process
to allow applications to be taken over the phone or by an Internet
process. Under a proxy signature process, an individual attests to the
accuracy of the information provided under penalty of perjury prior to
submitting the information for processing. Our proposed requirements
specify that the individual applying for the low-income subsidy, or a
personal representative on his or her behalf complete the application
for the low-income subsidy, and certify as to the accuracy of the
information provided. Section 1860D-14(a)(3)(E)(iii)(II) of the Act
provides that statements from financial institutions shall accompany
applications in support of the information provided therein. We believe
States and SSA will be able to verify information through data matches
with other sources that will substantially eliminate the need for the
beneficiaries to bring statements from financial institutions with them
when they apply.
As a result, we would reduce an applicant's burden in producing
financial statements by not requiring paper copies except when
specifically requested. For example, SSA and States may verify some
resources for the low-income subsidy through data matches with 1099
files from the IRS, which show the annual amount of interest earned on
interest bearing accounts. If the data from the 1099 files indicate the
applicant's interest is below a threshold amount relating to the
resource limit and the applicant has no countable real estate, the
State or SSA could decide that no further information is needed from
the applicant relating to certain types of resources. When the
threshold is exceeded, additional information may be requested of the
individual to support the application. Use of this process would ease
the burden on individuals preparing to file an application and will
reduce the administrative burden on States and SSA in handling paper
verification. Accordingly, Sec. 423.774(d) required the submission of
statements from financial institutions only if requested by the State
or SSA.
Comment: Some commenters suggested that the regulations should
specify that a determination notice be sent to the applicant no later
than 30 days after the application is filed. Additionally, they
suggested that SSA and States should be required to notify
[[Page 4379]]
CMS within 24 hours of an individual being determined eligible for the
subsidy. Other commenters questioned whether the State Medicaid agency
is required to complete determinations within 45 days as is required
for most Medicaid eligibility determinations under Sec. 435.911. These
commenters argue that the regulations should specify a time standard
that would apply to determinations made by either the State or SSA.
Response: We do not have authority to direct SSA to determine
subsidy eligibility within a given time period, and have decided not to
impose a specified period on States through regulation. Instead, we
will provide operational guidance to States, monitor the time period
for determining subsidy eligibility, and take action as appropriate. As
general guidance, we expect that States will determine subsidy
eligibility within time periods that are at least consistent with the
processing of State Medicaid applications.
Comment: Some commenters suggested that in order to avoid delays in
beneficiaries being able to use their subsidy benefits while their
application is pending, the final rule should offer beneficiaries the
option of applying through a presumptive eligibility system. Commenters
suggested that the system could be designed in a manner whereby an
applicant can complete a form at a provider's office or other location
where they declare their family size, income and assets. If the
individual's income and resources are below the eligibility levels,
they could be found presumptively eligible. The individual could then
have the obligation placed on him or her to fill out the complete
application within a prescribed period of time. The commenters argue
that such a system would encourage beneficiaries to apply since they
would see the benefits of the system.
Response: We appreciate that it is important for subsidy
determinations to be made as quickly as possible so that individuals
will be able to receive extra help with the payment of cost sharing and
premiums when enrolled in a Part D plan. We are working with States and
SSA on an outreach strategy to try to encourage individuals potentially
eligible for the low-income subsidy to apply for the subsidy as early
as possible, starting July 1, 2005. Under this outreach strategy, we
will encourage individuals to apply and ``pre-qualify'' for the low-
income subsidy before enrolling in a Part D plan so that they will know
ahead of time whether or not they are eligible for extra assistance
with the payment of premiums and cost sharing. However, the subsidy
will not be effective until the start of the program when the
individual is actually enrolled in a Part D plan.
At this time, we decline to implement a presumptive eligibility
process for individuals not deemed to be subsidy eligible individuals.
We believe our streamlined process that relies on self-attestation of
the information on the application with such verification as SSA or the
States determine is appropriate will ensure that individuals quickly
receive subsidy determinations from SSA or States, so that they can get
the extra help they need. It is worth noting that the simplified
application being developed in consultation with SSA will be available
on the Internet and will be available to providers if they choose to
offer them at their locations. In addition, it is important to note
that individuals do not need to apply at State offices or SSA field
offices in person. They may apply over the phone via SSA's 1-800
number, they may send applications via the mail or over the internet,
and they may have individuals assist them in completing the
applications on their behalf.
Comment: Some commenters suggest that we clarify whether
individuals who currently receive benefits as a full-benefit dual
eligible individual, SSI recipient or under the Medicare Savings
Program (as a QMB, SLMB, or QI) are required to undergo a separate and
new eligibility determination in order to qualify as a full subsidy
eligible individual. The commenters suggested that these individuals
should be required to recertify their eligibility under these programs
in accordance with existing requirements pertaining to recertification
or redetermination.
Response: Individuals who currently receive benefits as a full-
benefit dual eligible, SSI recipient or under the Medicare Savings
Program are not required to undergo a separate eligibility
determination in order to qualify as a full subsidy eligible. They are
``deemed'' or treated as full subsidy eligible individuals without
having to complete a separate application. We have clarified this in
the final rule at Sec. 423.773(c).
As part of our yearly notice to deemed subsidy eligibiles, we will
explain that the loss of Medicaid near the end of the calendar year
could impact an individual's status as a full subsidy eligible
individual in the next year. Thus if someone loses Medicaid and does
not regain eligibility during a year, he or she will retain subsidy
eligibility during the remainder of the calendar year, but will no
longer be automatically deemed for the full subsidy in the next
calendar year.
Comment: Some commenters would like us to better define eligibility
determination periods for the low-income subsidy. The commenters
suggest that the eligibility determination should be defined as one
year. Further, it should not be associated with either a State Medicaid
program redetermination or an SSA redetermination.
Another commenter suggested that we should interpret the ``month of
application'' for a low-income subsidy individual to mean the first day
of the month a Part D plan is notified by us of the individual's
eligibility for the low-income subsidy. Alternatively, the commenter
suggests that the application processing timeframes be developed and
implemented in such a way as to avoid administrative burden and
beneficiary confusion. For example, we should specify that the
application processing timeframes would start beginning with the month
in which the State agency received a ``complete'' application. The
commenter asserts that incomplete applications must be rendered
``complete'' or rejected within 30 days. Further, complete applications
should be processed no later than 30 days from the date the application
was rendered complete, meaning Part D plans should be notified within
30 days of the date the application was rendered complete that an
individual is eligible for a low-income subsidy. Once notified, these
individuals would be moved into the appropriate internal plan and cost-
sharing would be appropriately reflected for that individual sooner
rather than later.
Response: We do not have the authority to accept the first
commenters' suggestion. Under section 1860D-14(a)(3)(B)(ii) of the Act,
the statute, initial determinations for individuals who apply for the
subsidy are effective beginning with the month the individual applies,
but no earlier than January 1, 2006. These initial determinations shall
remain in effect for a period specified by the Secretary, but not to
exceed one year, regardless of whether the determination is made by a
State or SSA. Redeterminations of eligibility for those applications
processed by States are to be made in accordance with the frequency and
manner in which the State makes Medicaid redeterminations, which must
be conducted at least annually. Redeterminations made by SSA may be of
a frequency determined by the Commissioner.
We will address the issue associated with the completeness and
timeframe
[[Page 4380]]
for processing an application through operational guidance. It is
important to note that we do not have authority to direct SSA to
determine subsidy eligibility within a given time period, and we have
decided not to impose a specified period on States through
codification.
Comment: Some commenters question whether retroactive eligibility
will be allowed for full-benefit dual eligible individuals. They
suggest that the regulations be clarified for that possibility.
Response: Retroactive eligibility for the low-income subsidy is
only an issue if a full-benefit dual eligible individual is already
enrolled in a Part D plan. For instance, if a person is enrolled in a
Part D plan and decides not to apply for the subsidy, he or she may
have retroactive subsidy eligibility if the individual later qualifies
for Medicaid. By extension of being entitled to full benefits under
Medicaid, the individual will automatically be eligible for the low-
income subsidy. In this case, subsidy eligibility will extend back to
the start date of Medicaid eligibility, which could be up to three
months earlier if the individual would have qualified for Medicaid
during the three month retroactive period. As such, the individual will
be reimbursed by the plan for any extra cost sharing he or she
otherwise would not have paid as a full subsidy eligible individual.
This would also apply to individuals eligible under a Medicare Savings
Program as a SLMB or a QI(but not as QMB, because QMBs cannot receive
retroactive benefits under Medicaid statute). For QMBs and other, non-
dual eligible individuals who are enrolled in a Part D plan, and later
apply and are determined eligible for low income subsidy assistance,
their eligibility, consistent with the statute, would be effective on
the first day of the month in which they applied for the low income
subsidy.
Comment: One commenter indicated that the proposed regulations do
not address whether eligibility determinations in one State are
transferable to another State. The commenter also noted that there is
no discussion of the transfer of information between the State agency
and SSA, or the transfer of information between States.
Response: If the eligibility determination for an individual not
deemed to be a full subsidy eligible individual was processed by SSA,
then SSA ``owns'' the beneficiary for redeterminations and appeals.
Since SSA is a national agency applying uniform national standards,
redeterminations and appeals will be processed even if a beneficiary
moves between States. However, if the beneficiary no longer resides in
a State and the State processed the subsidy determination under its own
system, the State can no longer reasonably be expected to be held
liable for the subsidy redeterminations and appeals, consistent with
the manner and frequency a State would redetermine eligibility under
Medicaid. The beneficiary in this instance would need to apply in the
new State of residence, or could apply with SSA unless otherwise deemed
eligible for the full subsidy.
Comment: Several commenters question whether changes in
circumstances, such as increases or decreases in income, need to be
reported by the beneficiary.
Response: For individuals who apply for the low-income subsidy,
changes in financial circumstances that could impact the individual's
eligibility for the low-income subsidy should be reported to the agency
that processed the subsidy application in accordance with that agency's
rules.
SSA will be publishing rules regarding subsidy changing events that
could impact low-income subsidy eligibility. For individuals who are
deemed eligible for the full subsidy, changes in circumstances that
would impact eligibility for Medicaid or SSA should be reported as
required under those programs. However, it is important to note that,
for administrative ease, we will deem individuals as subsidy eligible
for a period not to exceed one year, even if changes in circumstances
may cause someone to lose Medicaid or SSI for a period of time. If the
person is no longer eligible for Medicaid or SSI after the period of
deemed subsidy eligibility, he or she will no longer be automatically
eligible for the low-income subsidy and must apply in order to continue
receiving the benefit.
Comment: One commenter believes that we should provide prompt
identification of an individual's institutional status for the purpose
of overriding the cost sharing at the point of sale.
Response: States will be providing information on a full-benefit
dual eligible individual's institutional status on a monthly basis to
us. We will provide this information to Part D plans. We will address
through operational guidance how plans should address situations in
which an enrollee's institutional status is different than the
information provided to them from us.
Comment: One commenter makes an argument that the statute permits
SSA to contract with SPAPs to make determinations of eligibility for
financial assistance in accordance with SSA's procedures. In addition,
the commenter argues that there is no legal impediment to a State's
designation of its SPAP as the State enrollment agency, so long as
eligibility determinations and redeterminations are made in the same
manner as for Medicaid recipients. The commenters assert there is
precedent for this practice. One commenter said that we should ensure
that any arrangements with SPAPs to make eligibility determinations are
considered for Federal matching funds. Finally, the commenters suggest
that SPAPs have direct on-line access to on-line reporting systems to
facilitate the SPAP's ability to determine a person's eligibility for
the low-income subsidy. They suggest that we clarify in the final
regulations and in guidance that State Medicaid programs have the
option to permit SPAPS to make initial eligibility determination and
redeterminations for subsidies for low-income persons who apply for
benefits through an SPAP.
Response: By statute, eligibility for the low-income subsidy
program must be determined by the State Medicaid agency or the Social
Security Administration. While it cannot be the entity ultimately
responsible for determining eligibility, SPAPs can serve as an intake
point for low-income subsidy applications. SPAP offices will be able to
access the SSA application from the Internet in order to assist
individuals in applying for a subsidy. We also note that entities other
than SPAPs, including community organizations and other non-Medicaid
State offices, can provide assistance to individuals in completing the
SSA application.
Comment: Some commenters note that the enrollment process for Part
D plans is separate from the application process for the low-income
subsidy. They note that there is no mechanism in the proposed rule to
permit a beneficiary to apply for the low-income subsidy at the time of
enrollment in a Part D plan. They also note that Part D plans are not
required to inform beneficiaries that a subsidy may be available to
them. They suggest that SPAPs should be allowed to make determinations
and redeterminations of subsidy eligibility in order to facilitate
applications for SPAP enrollees.
Response: Again, while SPAPs may serve as an intake point for low-
income subsidy applications the State Medicaid agency or the Social
Security Administration retains ultimately responsible for eligibility
determinations. For the comment that
[[Page 4381]]
Part D plans are not required to inform beneficiaries that a subsidy
may be available, we agree. However, we believe many Part D plans will
encourage their enrollees to apply if they indicate they are low-income
and need extra assistance with premiums and cost sharing. We also
encourage SPAPs to inform their members of the availability of the low-
income subsidy to provide extra assistance with premiums and cost
sharing under Medicare Part D, and to assist their members in
completing the SSA application.
Comment: Many State commenters suggest that States should be
allowed to meet their statutory obligation for the low-income subsidy
by receiving applications and passing them to SSA for the determination
process. They assert that use by States of a streamlined low-income
subsidy application process through SSA would reduce the burden on
States of doing separate determinations. They also suggest that the
process include use of web-based applications accessed with Federally
funded computers at Medicaid eligibility sites, paper applications that
are batched and sent to SSA by the eligibility sites, and phone
applications conducted directly with SSA. Another commenter suggested
that States that only collect applications and forward them to SSA
should not be responsible for redeterminations and appeals for these
applications. This commenter also believes these States should not be
responsible for screening applications for Medicare buy-in programs.
A few State commenters also assert that we have made contradictory
statements with regard to the role of SSA and States in taking
applications for the low-income subsidy. They indicate that we have
issued guidance that States could batch up applications and ship them
to SSA for processing, and that SSA would make the determinations, send
the notifications, and conduct the appeals for the low-income subsidy
program. However, the commenters point out that the regulations in
Sec. 423.774 and Sec. 423.904(a), and the statute at section 1935 of
the Act, direct States to make eligibility determinations and
redeterminations for low-income premium and subsidies.
Finally, several State commenters seek clarification on whether
States could be required to perform administrative functions such as
providing personnel resources for answering questions and assisting
applicants, making determinations and redeterminations, making systems
changes to record determinations and redeterminations made by the
State, printing applications, conducting appeals, sending notices to
clients, coordinating with financial institutions for verification and
developing and sending reports to us.
Response: The statute clearly sets forth the requirement that
eligibility for the low-income subsidy program will be determined by
either State Medicaid agencies or by the Social Security
Administration. As such, States must have the ability to determine
eligibility if someone requests a ``State'' subsidy determination. As
part of this obligation, States are required to send notices of subsidy
determinations, process redeterminations, and handle appeals.
We encourage States to consider using the SSA application form and
process as their default process for processing low-income subsidy
applications. Under this process, States would assist individuals who
agree to complete an SSA application. Once completed, States would
submit the applications to SSA for processing. While States would still
have to develop a process to determine eligibility for an individual
who specifically requests a ``State'' determination as opposed to an
``SSA'' determination, States could offer the SSA low-income subsidy
application process to individuals in order to reduce the
administrative burden associated with sending notices, processing
appeals and redeterminations, and verifying information reported on
subsidy eligibility applications. Again, States should be mindful that
the statute does not permit States to refuse to accept and act on
subsidy eligibility applications if the applicants insist on having
them treated as applications with the State agency.
We will be working with SSA to provide operational guidance to
States on how they may utilize the SSA process for those applicants who
agree to use the SSA application. The SSA process includes an internet-
based application that may also be accessed in paper form. Under this
process, individuals need not apply in person with the SSA or States;
however, if they do apply in person at a State office, the State would
be obligated to assist individuals in completing the application and to
screen individuals for Medicare Savings Program eligibility.
Comment: Some State commenters expressed concern that, should the
States process determinations, redeterminations, and appeals, as well
as SSA, it is not possible to create equal systems for clients,
resulting in two competing processes in an already complex system. They
note that in some States, beneficiaries have limited access to field
offices compared to State offices. They also argue that, even if the
State follows the Federal guidelines, it does not seem likely that a
beneficiary following the State process will experience the same
procedure as a client using the SSA process. The commenters ask for
reconsideration of this issue, or alternatively, clarification about
how continuity would be assured.
Response: For individuals who apply for the subsidy, one notable
area of inconsistency could be the timing and manner of
redeterminations of subsidy eligibility. This process, by statute, is
dependent on which entity processed the application. If SSA processed
the application, SSA will determine the manner and frequency of the
redeterminations. If a State processed the application through its own
subsidy eligibility determination system, the manner and frequency of
the redetermination will be consistent with how the State redetermines
eligibility for Medicaid. For individuals deemed eligible for the full
subsidy, the redetermination process will be based on the underlying
program that automatically qualified the individual for the subsidy,
for example, Medicaid or SSI.
Comment: Some State commenters indicated that they did not believe
States would be able to achieve the degree of automation at the start
of the program as envisioned by CMS in the preamble of the proposed
rule for purposes of verifying an applicants' income and resources.
They also noted that existing State eligibility systems are not easily
modified or adapted without considerable State expense. Finally, a few
commenters suggested that the regulation implies that States may be
able to access other agencies' databases to verify income and
resources. The commenters suggest that such databases be listed or
otherwise specified.
Response: We recognize that existing State eligibility systems are
not easily modified or adapted without considerable State expense;
however, the law is clear that States must be able to determine low-
income subsidy eligibility. States therefore need to develop a process
to support the determinations when specifically requested of them.
We strongly recommend that States consider using the SSA
application as their default application for processing low-income
subsidy applications and encourage States to assist applicants in
filing their applications with SSA. While States would still have to
develop a process to determine eligibility for an
[[Page 4382]]
individual who requests a ``State'' determination as opposed to an
``SSA'' determination, States may use the SSA low-income subsidy
application and process in order to reduce the administrative burden
associated with sending notices, processing appeals and
redeterminations, and verifying information reported on subsidy
applications. States could focus most of their attention on assisting
individual with completing the SSA application, and screening and
enrolling individuals in the Medicare Savings Program.
Comment: One commenter asks that we keep the period of comment on
the proposed rule open until comments are due on the SSA's regulation.
Response: We cannot keep the comment period open on this proposed
rule until the comments are due on the SSA regulation regarding low-
income subsidy determinations. We are working closely with SSA during
the regulations process to ensure consistent rules regarding low-income
subsidy are put in place by both agencies.
Comment: Since generally only 50 percent Federal financial
participation (FFP) is provided for the State's role in the
administration of the low-income subsidy program, several State
commenters asserted that the cost associated with administration of the
Medicare program could prohibit the provision of other State services.
States noted that they would have to use a significant amount of
resources from their general fund and asked us to consider reducing the
State's responsibilities due of the lack of funding for the costs
associated with implementation of the low-income subsidy program. The
State commenters suggest that FFP associated with the State role in
this program should be derived from a cost allocation methodology that
attributes 100 percent to the Medicare program.
Response: While we sympathize with the commenters' concerns, we do
not have the authority to change the Federal financial participation
rate available to States. The statute specifies that States are to be
reimbursed according to the normal Federal match for administrative
costs, which is generally 50 percent.
Comment: A few commenters expressed concern that the eligibility
process for the low-income subsidy is different than the process the
State uses to determine eligibility for Medicaid. The commenter
indicated that by having different methodologies, States will be more
error prone in making determinations. The commenters also noted that
they would incur programming costs and additional staff training to
incorporate this new method, and suggested that Federal financial
participation be increased to 100 percent to account for these costs.
Response: The process for determining eligibility for the low-
income subsidy is based on statutory provisions that specifically
preclude States and SSA from using the more liberalized methodologies
permitted under Medicaid for purposes of counting income. For counting
resources, we acknowledge in the proposed rule that we could have
permitted States to use the same resources standards that States employ
under Medicaid for purposes of determining eligibility for Medicare
Savings Programs, if such standards would not significantly increase
the numbers of individuals who are eligible for the low-income subsidy.
However, as we noted in the preamble to the proposed rule, we elected
not to exercise this discretion since, as we noted in responses to
previous comments, we believe national uniformity for purposes of
eligibility determinations is a desirable goal.
For the suggestion that the Federal financial participation rate
should be 100 percent, we note that we do not have the authority to
change the Federal financial participation rate available to States.
The statute specifies that States are to be reimbursed according to the
normal Federal match for administrative costs, which is generally 50
percent.
Comment: Some commenters believe that it is unclear whether the
Federal government will require subsidy applicants to show proof of
Medicare enrollment in order to apply for the subsidy. If not, the
commenters expect that States will have coordination problems, as they
are reliant on periodic, and not real-time, data matches to assess
Medicare enrollment.
Response: We are exploring options for States to verify Medicare
eligibility if the applicant cannot provide proof.
Comment: Some commenters suggested that low-income subsidy
applicants, no matter where they apply, should have the opportunity to
be considered for full Medicaid eligibility. They suggest that the
simplified application form should include an option for persons to
have their application reviewed for Medicaid eligibility.
Response: The statute specifies that, in addition to determining
eligibility for the low-income subsidy, States are directed to screen
for eligibility for medical assistance programs for the payment of
Medicare cost sharing, and to offer enrollment to eligible individuals
for such programs. As a practical matter, we believe States will
identify individuals with limited income and resources who may qualify
for full Medicaid benefits as part of this process. In addition, it is
important to emphasize that we are working with SSA to design a process
to provide subsidy eligibility determinations to States for purposes of
identifying individuals who apply at SSA and who may also qualify for a
Medicare Savings Program in the State. We expect that States will use
this information to contact individuals who may qualify for assistance
with Medicare cost sharing and to assist them in the application
process for the Medicare Savings Programs.
Comment: Some commenters suggest that the verification process for
information provided on low-income subsidy applications should not
impose an undue burden on applicants. They argue that the need to
provide documentation of income and assets is one of the most
significant barriers to enrollment in Medicare Savings Programs. They
suggest that States should have access to SSA's automated systems to
verify financial eligibility information for the low-income subsidy
program. Further, States should only be permitted to ask for one bank
statement and only in such cases where an applicant refuses to sign an
authorization form to permit the eligibility worker to obtain the
information directly from the financial institution. Some commenters
also suggest that documentation should be produced as a last possible
resort.
Response: Individuals will not have to bring volumes of information
with them when they apply using the SSA application process. The
simplified application developed by SSA, in consultation with CMS, is
based on the principle of self-attestation. While some information may
be requested from applicants on an exception basis, based on responses
to certain questions or based on inconsistencies from electronic data
matches, the majority of applicants will not need to provide additional
information beyond what is submitted and attested to in the application
form.
As we have indicated in other responses, we recommend that States
encourage and assist applicants in applying for the low-income subsidy
using the SSA application (that is, assist applicants in completing the
SSA application and forward it to the SSA to make the determination).
In such cases, SSA would verify income and resources for the low-income
subsidy utilizing its automated systems. For individuals who prefer a
``State'' rather than ``SSA'' determination, we encourage States to use
an application form similar to the
[[Page 4383]]
one utilized by SSA and also to find ways to streamline the
verification process by utilizing electronic data matches to the
greatest degree possible. However, we recognize that States may not be
able to achieve the same verification process utilized by SSA. This may
encourage some applicants to apply using the SSA process rather than
the State process.
Comment: Some commenters encourage CMS and SSA to retain the
strategy to devise a uniform application that reflects uniform
eligibility requirements. The commenters suggest that the application
be designed to serve as the Medicare Savings Program application and
full Medicaid application as well. The commenters also suggest that the
combined form should reflect our proposed definition of countable
assets in Sec. 443.772 and be at least as streamlined as the model
Medicare Savings Program application adopted by CMS and States. The
commenters assert that the draft SSA application includes questions on
life insurance, burial accounts, in-kind support and maintenance, and
transfers of assets that do not appear on the model Medicare Savings
Program application.
Response: While nothing prevents a State from developing a special
addendum to the low-income subsidy application to address questions
specific to Medicaid or Medicare Savings Programs eligibility, the
application for the low-income subsidy program must reflect the
definition of countable income and resources outlined in this final
rule. For reasons we have previously explained, the definition of
income and resources used for purposes of the low-income subsidy
program could vary from the definitions used by State Medicaid programs
for purposes of determining eligibility for full Medicaid or for
programs that provide assistance with Medicare cost sharing. Some
States may use more liberalized methodologies than the basic SSI
statutory rules for counting income and resources, on which the low-
income subsidy application is based. For these reasons, questions on
life insurance, burial accounts, and in-kind support and maintenance
need to be clearly articulated in the application in order to determine
income and resources for the low-income subsidy. Questions regarding
transfers of assets for less than fair market value will not be
included on the application as we do not believe that penalties
associated with such transfers are appropriate when counting resources
for the low-income subsidy.
Comment: A few commenters suggest that Sec. 423.774 be
strengthened and revised to ensure that eligible older adults and
persons with disabilities remain enrolled in the low-income subsidy
from year to year. They suggest that we rewrite the final rule to
define the eligibility period as one year, regardless of which entity
made the determination. They argue that the statute and Congressional
intent support an interpretation giving the Secretary of HHS the
authority to determine the term of the eligibility determination period
and the Commissioner and the States the authority to determine the
manner in which redetermination or appeals are made. They argue that
redeterminations in this context are meant to convey reconsiderations,
not renewals of eligibility. Commenters further suggest the Secretary
use his discretion to establish an annual, passive reenrollment process
that would apply regardless of whether the initial determination was
made under a State Medicaid plan or by the Commissioner of SSA. They
suggest that the process should entail the use of a pre-printed renewal
post-card with instructions to return the card only if there are
corrections about eligibility status.
Response: We do not agree that we have the discretion outlined by
the commenter. Consistent with the statute, the proposed and final
regulations state that the initial determination is effective for up to
a year. Thereafter, the timing of redeterminations of eligibility
depends on which entity processed the application. If SSA processed the
application, SSA will determine the manner and frequency of the
redetermination. If a State processed the application under its own
subsidy eligibility determination system, the manner and frequency of a
redetermination will be consistent with how the State redetermines
eligibility for Medicaid.
Comment: One commenter questioned whether the proxy signature
process discussed in the preamble meant that we are relaxing its
requirement for signatures on applications.
Another commenter suggested that the regulation clearly set limits
as to how telephonic proxy designations are made and acted upon. Also,
proxy certification should only apply to the accuracy of the proxy's
transcription, and not to the accuracy of the underlying information.
Response: Under a proxy signature process, an applicant verbally
attests under penalty of perjury that the information provided in an
application is correct and valid. As specified in the preamble to the
proposed rule, we permit the use of proxy signatures for the low-income
subsidy application. SSA plans to use a proxy signature for the
application it is developing to allow individuals to attest to their
income and resources when applying over the telephone and Internet. If
States develop their own application, we encourage them to consider a
similar signature proxy process. We do not agree that we need to
provide further specificity in the regulation on this issue. This
process does not alter our position on requirements for signatures in
any other contexts.
Comment: Some commenters suggest that the Commissioner of SSA
should handle all appeals in order to ensure uniformity in the appeals
process. One commenter suggested that requiring the States to handle
Medicare appeals would require an investment in additional staff and
resources and represent an unfair burden on States because only one-
half the costs would be covered by the Federal government. Another
commenter recommends that the redetermination and appeals process be
consistent among SSA and Medicaid agencies to eliminate confusion among
applicants.
A few other commenters request clarification in the final rule as
to whether fair hearing rights under State Medicaid programs apply to
adverse eligibility or renewal decisions made by the State. Similarly,
they request clarification as to whether decisions made by the State or
SSA to reduce or terminate a subsidy upon renewal triggers continued
coverage at the pre-reduction levels pending the appeal. One commenter
argued that this right derives from Supreme Court precedent which
established the absolute right to a pre-determination hearing pending
the loss of welfare of Medicaid benefits.
Response: Appeals of subsidy eligibility determinations will be
handled by the entity that made the underlying decision. If SSA
processed the initial application or redetermination, SSA will handle
the appeal based on procedures established by the Commissioner. If a
State processed the application or redetermination, the appeal will be
consistent with the process the State uses for appeals under Medicaid.
Consistent with the statute, States will receive normal administrative
match for activities associated with appeals of eligibility for the
low-income subsidy.
For the question of continued coverage, we agree with the commenter
that decisions made by the State or SSA to reduce or terminate a
subsidy would trigger a right to continued coverage at the pre-
reduction levels pending the appeal. This is based on the fact that the
subsidy program, unlike the Medicare
[[Page 4384]]
drug benefit itself, is a needs-based program. This is also consistent
with how States process appeals under Medicaid.
Comment: Some commenters assert that there should be a provision
for prompt reconsideration of a subsidy eligibility determination for
beneficiaries who believe that they have been erroneously denied
eligibility or approved for the wrong subsidy category.
Other commenters suggest that we need to clarify that all aspects
of subsidy determinations, including eligibility, calculation of
subsidy or copayment categories, the premium subsidy amount, or the
amount of any late enrollment penalty, are subject to appeal.
Response: As indicated earlier, subsidy eligibility determinations
or appeals are acted upon by the entity that made the underlying
decision. We will be implementing operational guidance regarding when
someone does not agree with the premium subsidy amount or late
enrollment penalty.
4. Premium Subsidy (Sec. 423.780) and Cost-Sharing Subsidy (Sec.
423.782)
In accordance with section 1860D-14 of the Act, the proposed
regulations specified the Part D premium subsidy and the Part D cost-
sharing subsidy amounts available to subsidy eligible individuals, with
the specific subsidy amounts varying depending upon the individual's
income and resources/assets level.
a. Full Subsidy Eligible Individuals
In accordance with section 1860D-14(a)(1)(A) of the Act, full
subsidy eligible individuals are entitled to a full premium subsidy
equal to 100 percent of the ``premium subsidy amount,'' not to exceed
the monthly beneficiary premium for a Part D plan (other than an MA-PD
plan) offering basic prescription drug coverage, that portion of the
monthly beneficiary premium attributable to basic prescription drug
coverage for a Part D plan (other than an MA-PD plan) offering enhanced
alternative coverage, or the MA monthly prescription drug beneficiary
premium (as defined in section 1854(b)(2)(B) of the Act) for a MA-PD
plan selected by the beneficiary.
Under section 1860D-14(b)(2) of the Act, the premium subsidy amount
for a PDP region is equal to the greater of the low-income benchmark
premium or the lowest monthly beneficiary premium for a prescription
drug plan that offers basic prescription drug coverage in the region.
Further, under section 1860D-14(b)(2) of the Act, the low-income
benchmark premium amount for a PDP region equals either the weighted
average of the monthly beneficiary premiums for all basic prescription
drug plans (if all prescription drug plans in the PDP region are
offered by the same PDP sponsor), or if the PDPs in the region are
offered by more than one PDP sponsor, the weighted average of (i) the
monthly beneficiary premiums for all PDPs in the region (including any
fallback plans) consisting of basic prescription drug coverage, (ii)
the monthly beneficiary premiums attributable to basic prescription
drug coverage for all PDPs in the region offering alternative
prescription drug coverage, and (iii) the MA monthly prescription drug
beneficiary premium for MA-PD plans. Because section 1860D-
14(b)(2)(A)(ii) of the Act references section 1851(a)(2)(a)(i) of the
Act, the premiums of cost plans under section 1876 of the Act, PACE
plans, and private fee-for-service plans are excluded for purposes of
determining the weighted average in the region. This is because section
1851(a)(2)(a)(i) of the Act refers only to MA coordinated care plans.
Table P-I below is an illustration of the premium subsidy
determination.
Table P-1
Determination of the Premium Subsidy Amount
----------------------------------------------------------------------------------------------------------------
Plan Options in Region Low-Income Premium Subsidy (Full)
----------------------------------------------------------------------------------------------------------------
Maximum Premium
Monthly Percentage of Premium times Subsidy for
Plans Beneficiary Part D enrollees Percentage Eligible
Premium 1 in each plan 2 (weighted average) Individual
Enrolling in Plan
----------------------------------------------------------------------------------------------------------------
.................. ................. .................. ..................
PDP 1 Offered by Sponsor A 40.00 15% 6.00 36.00
.................. ................. .................. ..................
MA-PD Plan 1 38.00 5% 1.90 36.00
.................. ................. .................. ..................
PDP 2 Offered by Sponsor B 36.00 40% 14.40 36.00
.................. ................. .................. ..................
MA-PD Plan 2 20.00 15% 3.00 20.00
.................. ................. .................. ..................
MA-PD Plan 3 0.00 25% 0.00 0.00
----------------------------------------------------------------------------------------------------------------
Weighted Average Basic Premium in Region = 25.30
The greater of the Low Income Premium Benchmark Amount (25.30) or the lowest PDP premium in the region (36.00)
equals 36.00, so the maximum premium subsidy is the lower of 36.00 or the actual plan premium for basic
coverage.
1 Assumes no supplemental premium or late enrollment penalties, and for MA-PD plans, any reduction in premium
due to application of a credit against the premium of a rebate under 42 CFR 422.266(b).
2 Assumes enrollment weights from the prior year's reference month (not first year of program)
----------------------------------------------------------------------------------------------------------------
Table P-1 illustrates the determination of the premium subsidy
amount in a hypothetical region in which there are 2 PDPs, each offered
by different sponsors, and 3 MA-PD plans. Because there are PDPs
offered by more than one sponsor, the maximum premium subsidy amount is
the greater of 2 amounts: the low-income premium benchmark amount or
the lowest PDP premium in the region. The former is calculated by
summing the products of the plan monthly beneficiary premium for basic
prescription drug coverage and the plan percentage of Part D enrollment
in the region, and equals $25.30. The lowest monthly beneficiary
premium for a PDP in the region, however, is $36.00. Therefore, in this
exhibit, the full monthly premium subsidy amount for the region is
determined to be $36.00. Consequently, a full subsidy eligible
individual would have a choice of 3 zero-premium plans in which to
enroll
[[Page 4385]]
(PDP 2, MA-PD plan 2, and MA-PD plan 3), because the maximum premium
subsidy amount equals or exceeds the monthly beneficiary premiums for
these plans. However, if a full subsidy eligible individual chose to
enroll in PDP 1 or MA-PD plan 1 , he or she would be obligated to pay
the difference between the plan premium and the premium subsidy amount
($4 or $2, respectively) each month.
We also stated in the proposed rule that fallback plan premiums
would be treated the same as those for risk-bid plans in the
calculation of the low-income benchmark premium amount.
In accordance with section 1860D-14(b)(2) of the Act, the low-
income benchmark premium amounts are determined without the addition of
any amounts attributable to late enrollment penalties.
Individuals eligible for the full premium subsidy who are subject
to late enrollment penalties under proposed Sec. 423.46 would also be
entitled to an additional subsidy equal to 80 percent of any late
enrollment penalty for the first 60 months in which the penalties are
imposed, and 100 percent of any penalties in any subsequent month, in
accordance with section 1860D-14(a)(1)(A)(ii) of the Act and proposed
Sec. 423.780(c).
Section 423.782 of the proposed rule incorporates the provisions of
sections 1860D-14(a)(1)(B), 1860D-14(a)(1)(C), 1860D-14(a)(1)(D), and
1860D-14(a)(1)(E) of the Act relating to the elimination of the
deductible, continuation of coverage above the initial coverage limit
(that is, no coverage gap), and reductions in cost-sharing.
Specifically, full subsidy eligible individuals have no deductible. In
addition, these individuals have continuation of coverage from the
initial coverage limit (under paragraph (3) of section 1860D-2(b) of
the Act and Sec. 423.104(d)(5)) through the out-of-pocket threshold
(under paragraph (5) of the same section and Sec. 423.104(d)(5)(iii)).
In other words, there is no coverage gap, for these individuals and
Medicare pays for the full benefit once the catastrophic level is
reached. In addition, the cost-sharing subsidies paid by CMS under this
subpart will count toward the application of the out-of-pocket
threshold.
In accordance with section 1860D-14(a)(1)(D)(i) of the Act,
institutionalized full-benefit dual eligible individuals have no cost-
sharing below, or above, the out-of-pocket threshold. We proposed to
define ``institutionalized individual'' for this subpart as a full-
benefit dual eligible individual who is an institutionalized individual
as defined in section 1902(q)(1)(B) of the Act.
Under section 1860D-14(a)(1)(D)(ii) of the Act, non-institutional
full-benefit dual eligible individuals in 2006 with incomes that do not
exceed 100 percent of the Federal poverty line for their family size
will pay no more than $1 for generic drugs or preferred drugs that are
multiple source drugs (as defined in section 1927(k)(7)(A)(i) of the
Act),$3 for any other drug, or, if less, the amount charged to other
full subsidy eligible individuals (other than institutionalized full-
benefit dual eligible individuals) for costs below the out-of-pocket
threshold. These $1 and $3 copayment amounts are increased beginning in
2007 by the percentage increase in the CPI (all items, U.S. city
average), rounded to the nearest multiple of 5 cents.
In accordance with section 1860D-14(a)(1)(D)(iii) of the Act, all
other full subsidy eligible individuals and full-benefit dual eligible
individuals with income above 100 percent of the FPL for their family
size in 2006 will pay copayment amounts of $2 for a generic drug or
preferred drugs that are multiple source drugs (as defined in section
1927(k)(7)(A)(i) of the Act) and $5 for any other drug, for costs up to
the out-of-pocket threshold. In accordance with section 1860D-2(b)(4)
and 1860D-2(b)(6) of the Act, these copayments are indexed based on an
annual percentage increase in average per capita aggregate expenditures
for covered Part D drugs, rounded to the nearest multiple of 5 cents
(see Sec. 423.104(e)(5) of this proposed rule).
In the proposed rule we noted that a question had been raised
concerning whether an MA-PD plan could choose to reduce or eliminate
copayments for full-benefit dual eligible individuals. We stated that
specialized MA plans (under section 231 of the MMA, as defined in
proposed Title II regulations at Sec. 422.2) offering benefits only to
dual eligible individuals could choose to reduce or eliminate
copayments for their members as a supplemental benefit. Otherwise, the
Part D copayments stipulated by the MMA for low-income individuals
cannot be reduced or eliminated. This is because any reduction of the
copayments must apply to all plan members under the uniformity of
benefits provisions, set forth in Sec. 423.265(c) of the proposed
rule. Accordingly, MA-PD plans other than special MA-PD plans for dual
eligibles may not offer their members who are dual eligible lower co-
payments or co-insurance than those paid by its other plan members.
b. Other Low-Income Subsidy Eligible Individuals
In accordance with section 1860D-14(a)(2)(A) of the Act, for other
low-income subsidy eligible individuals who do not qualify for the full
subsidy, we proposed and in the final rule set a scale for the premium
subsidy in a stepped fashion. The sliding scale premium subsidy will
range from 100 percent of the benchmark premium amount for individuals
at or below 135 percent of the FPL for their family size, to no subsidy
for individuals at 150 percent of the FPL for their family size. In
contrast to full subsidy eligible individuals, other low-income subsidy
eligible individuals subject to the late enrollment penalties under
Sec. 423.46 will be responsible for 100 percent of the penalties. In
the proposed rule we invited comments concerning the manner in which
the sliding scale premium subsidy would be calculated for individuals
with income from 135 percent up to 150 percent of the FPL for their
family sizeOther low-income subsidy eligible individuals will have
their annual deductible reduced from $250 to $50 in 2006. This $50 is
indexed to grow in accordance with section 1860D-2(b)(6) of the Act
beginning in 2007 based on the annual percentage increase in average
per capita aggregate expenditures for Part D drugs, rounded to the
nearest multiple of $1. Other subsidy eligible individuals will have
continuation of coverage from the initial coverage limit (under
paragraph (3) of section 1860D-2(b) of the Act and 423.104(d)(4)
through the out-of-pocket threshold (under paragraph (4) of that
section and 423.104(d)(5)), meaning no coverage gap or ``donut hole.''
For coverage through the out-of-pocket threshold, these individuals
would pay cost sharing that would not exceed the 15 percent
coinsurance, substituting for the higher beneficiary coinsurance
described in section 1860D-2(b)(2) of the Act (see Sec. 423.104(d)(2)
of this proposed rule). The cost-sharing subsidies will count toward
the application of the out-of-pocket threshold. After the out-of-pocket
threshold is reached, these individuals' cost-sharing will be limited
to the copayment or coinsurance amount specified under section 1860D
2(b)(4)(A)(i)(I) of the Act (see Sec. 423.104(d)(5)), which, in 2006,
means co-payment amounts of $2 for a generic drug or preferred multiple
source (as defined in section 1927(k)(7)(A)(i) of the Act) and $5 for
any other drug. In accordance with sections 1860D-2(b)(4) and 1860D-
2(b)(6) of the Act, the $2 and $5 copayments will be indexed based on
[[Page 4386]]
an annual percentage increase in average per capita aggregate
expenditures for covered Part D drugs, rounded to the nearest multiple
of 5 cents.
Premium Subsidy (Sec. 423.780)
Comment: Some commenters were interested in what types of data
interfaces we envisioned so that States would know coverage details.
Response: We are working through the data system requirements and
will address these issues in further operational guidance.
Comment: Several commenters requested clarification on how we plan
to arrive at the weighted average required to calculate the premium
subsidy amount for a given region. Some were concerned that the term
``weighted average'' is not defined in the context of calculating the
low-income premium benchmark.
Response: In response to public comment on this methodology, we are
including new language in regulatory text to clarify our policy on how
the weighted average will be determined for the low-income benchmark
premium. We intend to use the same methodology for determining the
weighted average for the low-income premium benchmark as is used in
Sec. 423.279(b) for determining the weighted average for the national
average monthly bid amount. The low-income benchmark premium amount for
a region is a weighted average of the monthly beneficiary premiums for
plans, with the weight for each plan equal to a percentage with the
numerator equal to the number of Part D eligible individuals enrolled
in the plan in the reference month (as defined in Sec. 422.258(c)(1))
and the denominator equal to the total number of Part D eligible
individuals enrolled in all Part D plans in a PDP region included in
the calculation of the low-income benchmark premium amount in the
reference month.
For purposes of calculating the low-income benchmark premium amount
for 2006, we assign equal weighting to PDP sponsors (including fallback
entities) and assigns MA-PD plans a weight based on prior enrollment.
New MA-PD plans are assigned a zero weight. Again, PACE, private fee-
for-service plans and 1876 cost plans are not included.
Comment: One commenter recommends that PDP premium amounts be
regulated to ensure that subsidy eligible individuals may enroll in any
PDP and be assured a fully subsidized premium. Another commenter
suggested that full- benefit dual eligible individuals not pay
additional amounts over the premium subsidy amount. The commenter
argued that if a dual enrolls with a higher premium plan, that is the
fault of the enrollment system. Another commenter also suggests that
CMS or the Part D plans provide clear notice to consumers about set
premium standards, ``benchmark premiums,'' so consumers can evaluate
plans with full understanding of their premium options and liability.
Response: We disagree with the first two comments. Subsidy eligible
individuals, including full subsidy eligible individuals, may choose to
pay a higher premium in order to enroll in the Part D plan of his or
her choice, and we do not have the authority under the statute to limit
these individuals' choices. The Part D plan with the higher premium may
provide a richer benefit package that better meets the individual's
prescription needs than other plans. We will ensure that beneficiaries
are provided complete information in which to evaluate their options,
including understanding premium liability, if any.
Comment: Several commenters requested certain clarifications in the
regulations regarding American Indian and Alaska Native (AI/AN)
Medicare beneficiaries. The Indian Health Service (IHS), Indian Tribes
and Tribal organizations, and urban Indian organizations (collectively,
I/T/Us) provide various services and other benefits to AI/ANs,
including operating pharmacies and sometimes paying premiums, cost
sharing, and similar charges for those AI/ANs who are eligible for
various public and private health insurance and health care programs.
Commenters requested that the regulations clarify that I/T/U pharmacies
may pay Part D premium amounts, either in full for non-subsidy
eligibles, or amounts remaining after application of low-income
subsidies, for AI/AN Medicare beneficiaries that they also serve.
Response: The clarification requested by the commenters is a matter
for the Indian Health Service rather than for CMS and we therefore will
not address this issue in this regulation.
Comment: Commenters asked for clarification in the regulations as
to how the requirement to apply the ``greater'' premium calculation
(for example, premium subsidy amount) options will be applied and
enforced.
Response: We are working through the data system and collections
requirements and will address these issues in further operational
guidance.
Comment: Some commenters requested clarification about the linear
sliding scale for the premium subsidy and whether this will be for
ranges of percentages of the Federal poverty level or by individual
percentages. The commenters prefer the simplest methodology to
implement the scale and request guidance from us on how this should be
calculated. We received comments suggesting that there should be as few
as possible different premiums reductions for low-income beneficiaries
between 135 percent and 150 percent of FPL (that is, as few ``steps''
as possible). Commenters said the administrative burden of tracking and
implementing a multitude of different premiums for these other low-
income beneficiaries would vastly outweigh any perceived equity
achieved by setting the premium in many steps carefully calibrated to
relate directly to the individual's income level.
Response: We requested comments on this issue and had proposed the
breakdown be in 5 percent increments. Given the comments received, we
will be implementing the sliding scale premium in four groups as
follows: beneficiaries with incomes at 135 percent of the FPL will
receive a 100 percent premium subsidy; beneficiaries with income
greater than 135 percent but at or below 140 percent of the Federal
poverty level will receive a 75 percent premium subsidy; beneficiaries
with incomes greater than 140 percent but at or below 145 percent of
Federal poverty level will receive a 50 percent premium subsidy; and
beneficiaries with incomes greater than 145 percent but below 150
percent of Federal poverty level will receive a 25 percent premium
subsidy.
Comment: One commenter indicated that there should be no late
penalty, or at most a minimum late penalty, if an SPAP is paying for an
individual's premiums for Part D.
Response: We do not have the legal authority to make the changes
requested by this commenter. In addition, SPAPs are not obligated to
pay a late penalty fee on behalf of the subsidy eligible individual.
Comment: Some commenters requested that the premium subsidy for any
late enrollment penalty should be 100 percent for at least the first
year in which a beneficiary is enrolled in the Part D program.
Other commenters argued that imposing any late enrollment premium
penalties on individuals eligible for the low-income subsidies is
overly punitive. They suggested that we delay the late enrollment
penalties for those eligible for the low-income subsidies or waive any
late enrollment penalties for this population.
Some commenters suggested that we should allow the 100 percent
subsidy of
[[Page 4387]]
the late enrollment penalty as soon as a beneficiary becomes eligible
for the full premium subsidy just as it now proposes to do after month
60.
Comments were also received requesting that the reduced late
enrollment penalty under Sec. 423.780(c) apply for beneficiaries for
whom SPAPs pay premium costs, including the late enrollment penalties.
Response: We recognize the concern of the commenters for the needs
of low-income beneficiaries. However, this change would require a
legislative change as Sec. 1860D-14(a)(1)(A) of the Social Security
Act requires late enrollment penalties. Section 1860D-13(b) of the Act
imposes the same late penalty on all beneficiaries; section 1860D-
14(a)(1)(A)(ii) of the Act however, provides that full subsidy eligible
individuals will only be responsible for paying 20 percent of any late
enrollment penalty imposed for the first 60 months during which these
beneficiaries are enrolled in a Part D plan and no late enrollment
penalty thereafter. Late enrollment penalties for full subsidy eligible
individuals enrolled in SPAPs are subsidized in the same manner as full
subsidy eligible individuals who are not enrolled in an SPAP.
Comment: Some commenters asked for operational clarification as to
how we will determine that the enrollee is subject to a late enrollment
penalty. Clarification was requested as to who will ask for information
and documentation; how the information would get to us; and, how the
enrollee can question or appeal the imposition of the penalty.
Response: We will issue further operational guidance on these
processes.
Cost-sharing subsidy (Sec. 423.782)
Comment: Many commenters expressed concern that the cost-sharing
requirement would impose a burden on full-benefit dual eligible
individuals and were particularly concerned that a beneficiary could be
forced to choose between paying for medications and meeting other
needs. Under the Medicaid statute, an individual cannot be denied
medication for failure to pay a copayment, and commenters urged
inclusion of the same standard for full-benefit dual eligible
individuals under the Medicare prescription drug program.
Response: Requiring providers to give prescriptions to individuals
who cannot meet copayment requirements would necessitate a legislative
change because the MMA does not include the same prohibition that is
contained in the Medicaid statute. Therefore, we are unable to make
this recommended change.
We note that institutionalized full-benefit dual eligible
individuals have no cost-sharing responsibilities. For the remaining
full-benefit dual eligible individuals with income below 100 percent of
the Federal poverty level, the law specifies a ceiling in 2006 of
copayments that do not exceed $1 for a generic drug or a preferred drug
that is a multiple source drug, and $3 for any other drug. Copayment
amounts are increased on an annual basis from these base amounts, as
required by Sec. 1860D-14(a)(4)(A) of the Act.
Additionally, under the law, specialized MA plans offering drug
benefits to dual eligible individuals and pharmacies may exercise the
option of reducing or eliminating copayments for dual eligible
beneficiaries. Alternatively, States may elect to pay such copayments
on behalf of these individuals.
Specifically, specialized MA plans (as defined in Sec. 1859(b)(6)
of the Act) offering benefits only to dual eligible individuals may
choose to reduce or eliminate copayments for their members as a
supplemental benefit. For all other plans, Part D copayments cannot be
reduced or eliminated for dual eligible individuals by a non-
specialized MA-PD plan unless reduced or eliminated for all other plan
enrollees. However, we note that sections 1894(b)(1)(A)(i) and
1934(b)(1)(A)(i) of the Act preclude beneficiary cost sharing,
including copayments, for PACE enrollees. We have included discussion
of the conflicting MMA and PACE statutory copayment provisions in
subpart T preamble language of this regulation.
Further, pharmacies may also waive or reduce cost-sharing
requirements on behalf of a subsidy eligible individual, provided the
waiver is not offered as part of any advertisement or solicitation, as
specified in section 1128(B)(3) of the Social Security Act, as amended
by section 101(e)(2) of the MMA.
Finally, the new Medicare drug benefit will replace significant
State spending on dual eligible individuals' drug costs. States, in
turn, may choose to use State dollars to pay for cost-sharing and
provide supplemental drug coverage, although they will not receive a
Federal match under Medicaid if they choose to do so.
Comment: One commenter questioned whether reduction of cost-sharing
obligations by specialized MA plans (using premium rebate dollars)
violates the uniformity of benefits provision.
Response: The reduction of cost-sharing obligations by specialized
MA plans does not constitute a violation of the uniformity of benefits
provision in the law, as long as the reduction is applied uniformly to
all enrollees in the plan.
Comment: One commenter requested, for full-benefit dual eligible
individuals, clearer guidance on ensuring that plans are providing the
lesser of a copayment amount of $1 for a generic drug or preferred
multiple source drug of $3 for any other drug, or the amount charged to
other individuals with income below 135 percent of the FPL and
resources not greater than 3 times the amount an individual may have
and still be eligible for benefits under the SSI program. Specifically,
the commenter requested guidance on dealing with noncompliance by plans
and ensuring that non-institutionalized dual eligibles are informed of
this provision.
Response: The regulation does clarify the first point raised by the
commenter. In addition, we are currently working on an oversight
process for noncompliance and will release further operational guidance
on this issue.
Comment: One commenter suggested that adjustments made to cost-
sharing amounts be rounded down to the nearest multiple of 5 cents or
10 cents (of the percentage increase in CPI), rather than rounded
upward. The commenter cites that it is illogical to round upward and
charge consumers more than their estimated spending limit.
Response: Rounding downward to the nearest multiple of 5 cents or
10 cents for any adjustment made to cost-sharing amounts would
necessitate a legislative change because the methodology for making
adjustments is stated in Sec. 1860D-14(a)(4)(A)(ii) of the Social
Security Act as ``adjustments in $1 and $3 cost-sharing amounts be
rounded to the nearest multiple of 5 cents and 10 cents,
respectively.'' Therefore, this change cannot be adopted.
Comment: One commenter sought clarification on the definition of
out-of-pocket limits/thresholds, particularly if subsidy eligible are
subject to copayments after reaching the out-of-pocket limit.
Response: For 2006, the premium and cost-sharing subsidy amounts
for various subsidy eligible groups are as follows (Preamble, subpart
P, Table P-2):
For 2006, the premium and cost-sharing subsidy amounts for various
subsidy eligible groups are as follows (Table P-2):
[[Page 4388]]
------------------------------------------------------------------------
Percentage Copayment Copayment
of Premium up to out- above out-
FPL & Assets Subsidy Deductible of-pocket of-pocket
Amount (1) limit limit
------------------------------------------------------------------------
Full-benefit dual 100%* $0 $0 $0
eligible--institutionaliz
ed individual
------------------------------------------------------------------------
Full-benefit dual eligible- 100%* $0 The $0
Income at or below 100% lesser
FPL (non- of: (1)
institutionalized an
individual) amount
that
does not
exceed
$1-
generic/
preferre
d
multiple
source
and $3-
other
drugs,
or (2)
the
amount
charged
to other
full
subsidy
eligible
individu
als who
are not
full-
benefit
dual
eligible
individu
als or
whose
incomes
exceed
100% of
the FPL
------------------------------------------------------------------------
Full-benefit dual eligible- 100%* $0 An amount $0
Income above 100% FPL that
(non-institutionalized does not
individual) exceed
$2-
generic/
preferre
d
multiple
source
and $5-
other
drugs
------------------------------------------------------------------------
Non-full benefit dual 100%* $0 An amount $0
eligible beneficiary with that
income below 135% FPL and does not
with assets that do not exceed
exceed $6,000 $2-gener
(individuals) or $9,000 ic/
(couples) preferre
d
multiple
source
and $5-
other
drugs
------------------------------------------------------------------------
Non-full benefit dual 100%* $50 15% An amount
eligible beneficiary with coinsura that
income below 135% FPL and nce does not
with assets that exceed exceed
$6,000 but do not exceed $2-gener
$10,000 (individuals) or ic/
with assets that exceed preferre
$9,000 but do not exceed d
$20,000 (couples) multiple
source
drug or
$5-other
drugs
------------------------------------------------------------------------
Non-full benefit dual Sliding $50 15% An amount
eligible beneficiary with scale coinsura that
income at or above 135% premium nce does not
FPL but below 150% FPL, subsidy exceed
and with assets that do (100%-0%) $2-gener
not exceed $10,000 See ic/
(individuals) or $20,000 attached preferre
(couples) chart d
multiple
source
drug or
$5-other
drugs
------------------------------------------------------------------------
(1) Premium subsidy amount as defined in Sec. 423.780(b)
*The percentage shown in the table is the greater of the low income
benchmark premium amount or the lowest PDP premium for basic coverage
in the region.
For 2006, the sliding scale premium and cost-sharing subsidy amounts
for other subsidy eligible individuals are as follows:
------------------------------------------------------------------------
Percentage of Premium Subsidy
FPL & Assets Amount(1)
------------------------------------------------------------------------
Income at 135% FPL, and with assets 100%
that do not exceed $10,000
(individuals) or $20,000 (couples)
------------------------------------------------------------------------
Income above 135% FPL but at or 75%
below 140% FPL, and with assets
that do not exceed $10,000
(individuals) or $20,000 (couples)
------------------------------------------------------------------------
Income above 140% FPL but at or 50%
below 145% FPL, and with assets
that do not exceed $10,000
(individuals) or $20,000 (couples)
------------------------------------------------------------------------
[[Page 4389]]
Income above 145% FPL but below 150% 25%
FPL, and with assets that do not
exceed $10,000 (individuals) or
$20,000 (couples)
------------------------------------------------------------------------
(1) Premium subsidy amount as defined in Sec. 423.780(b)
Comment: One commenter requested that MA organizations be allowed
to obtain OIG advisory opinions that expressly permit them to reduce or
waive premiums and cost-sharing for low-income members enrolled in MA
plans.
Response: The law does not permit general/nonspecialized MA
organizations to reduce or waive premiums and cost-sharing because
these actions will violate bid integrity and uniform premium
requirements.
Comment: A few commenters questioned whether a non-specialized MA
plan can reduce cost sharing for its enrollees, as long as the
reduction applies uniformly to all of its enrollees.
Response: The reduction would be classified as a supplemental
benefit and cannot be included in the basic bid. The non-specialized MA
plan may buy down the supplemental premium with beneficiary or rebate
dollars. Reduction through the use of subsidy dollars is prohibited and
inclusion of reduction costs in the basic bid or in allowable costs for
purposes of reinsurance or risk sharing is also not permitted.
Comment: One commenter requested specification that plans cannot
use an alternative benefit design to charge cost-sharing to low-income
beneficiaries that exceeds the amounts set out in the regulation.
Response: Plans may not use alternative benefit designs to charge
cost-sharing that exceeds the applicable $1/$3 and $2/$5 amounts set in
the law. In the case of the other subsidy eligible individuals, they
may not be charged cost sharing that exceeds 15 percent coinsurance for
covered part D drugs obtained between the deductible and out-of-pocket
threshold. The Part D plans may establish an alternative cost sharing
structure with cost-sharing tiers based on an expected coinsurance of
25 percent. If a subsidy eligible individual enrolls in the plan with
an alternative cost sharing structure, the beneficiary is responsible
for the cost-sharing under the plan for a particular drug up to 15
percent, with our paying the difference if any. For example, if under a
plan a covered part D drug has coinsurance of 10 percent, the
beneficiary is responsible for the full 10 percent. If under a plan a
covered part D drug has coinsurance of 20 percent, the beneficiary is
responsible for 15 percent and CMS for 5 percent, provided this design
is actuarially equivalent.
5. Administration of Subsidy Program (Sec. 423.800)
In the proposed rule we discussed establishing a process to notify
the Part D sponsor that an individual is both eligible for the subsidy
and the amount of the subsidy. Because we had not yet developed such a
process, comments were invited concerning notification to the Part D
sponsor that an individual is eligible for a subsidy and the amount of
the subsidy.
Similarly, we requested comments on the proposed requirement that
the Part D sponsor notify us that premiums or cost-sharing have been
reduced and the amount of the reduction. We were also considering the
process for reimbursing the Part D sponsor for the amount of the
premium or cost-sharing reductions. Finally, we requested comments on
how to best reimburse subsidy eligible individuals for out-of-pocket
costs relating to excess premiums and cost-sharing incurred before the
date the individual was notified of his or her subsidy eligibility but
after the effective date the individual became a subsidy eligible.
We also requested comments on how to deal with premiums and cost
sharing paid by charities or other programs, for example, the Ryan
White program or State Pharmacy Assistance Programs, on behalf of an
individual during a period when he or she is determined to be subsidy
eligible. We specifically requested comments on whether Medicare should
treat these programs for purposes of premium or cost sharing
reimbursement as we would other employer-sponsored insurance programs
in which Medicare is a primary payer for purposes of coordination of
benefits. In addition, we requested comments on whether beneficiaries
should be responsible for reimbursing any cost sharing or premiums paid
on their behalf by another program or charity.
In accordance with section 1860D-14(c)(2) of the Act, reimbursement
to Part D plans may be computed on a capitated basis, taking into
account the actuarial value of the subsidies and with appropriate
adjustments to reflect differences in the risks actually involved.
(Refer to Subpart G of this rule for a discussion of interim payments
and final reconciliation payments.)
Subsidy amounts under section 1860D-14 of the Act are counted
toward the out-of-pocket threshold at section 1860D-2(b)(4)(C)(ii) of
the Act. Part D plans will be responsible for tracking the application
of the low-income subsidy amounts as described in Sec. 423.100.
Comment: Many commenters expressed concern about the lack of a
specified timeframe in which we must notify plans that enrollees are
eligible for a subsidy, raising concerns that if there were lengthy
periods between enrollment in a Part D plan and notification of subsidy
eligibility, low-income beneficiaries would have to pay prohibitive
costs and they may not use their Part D benefits. Some commenters
suggested that we be required to notify plans within 24 hours after an
application for the subsidy is approved. One commenter suggested that
we should provide a daily tape match to Part D plans that provides the
low-income subsidy enrollee identifier. One commenter expressed concern
about retroactive determinations of low-income subsidy eligibility and
the burden this could place on a MA organization that would have to
refund premium and cost-sharing amounts paid by a member before either
the member or the MA organization was informed of the member's low-
income subsidy eligibility. The commenter suggested that we limit the
period of retroactivity of low-income subsidy eligibility determination
to no more than three months. One commenter asked for specific guidance
on the data exchange requirements for a Part D plan. One commenter
believed that the proposed rule did not adequately explain how Part D
plans are to determine which beneficiaries are enrolled in the low-
income subsidy. One commenter asked if the notification of the Part D
plan would occur after a full-benefit dual eligible individual enrolls
in a plan. Finally, one commenter asked if we could also notify SPAPs
when notification is sent to Part D plans about low-income subsidy
eligibility.
Response: We do not have authority to direct SSA to determine an
individual's eligibility for the low-income subsidy within a given time
period. In further operational guidance,
[[Page 4390]]
we will work with States to ensure timely State determinations of
subsidy eligibility. As general guidance, we expect that States will
determine subsidy eligibility within time periods that are at least
consistent with the processing of State Medicaid applications.
Retroactive eligibility is only an issue if an individual is enrolled
in a Part D plan, and subsequently applies for and is determined
eligible as a full-benefit dual eligible individual. For instance, if
an individual is enrolled in a Part D plan and decides not to apply for
the low-income subsidy, he or she may have retroactive subsidy
eligibility if the individual later qualifies for Medicaid. By virtue
of being entitled to full benefits under Medicaid, the individual will
automatically be eligible for the low-income subsidy. In this case,
subsidy eligibility will extend back to the start date of Medicaid
eligibility, which could be three months earlier if the individual
would have qualified for Medicaid during the three-month retroactive
period. In such cases, the individual will be reimbursed for the extra
cost sharing he or she otherwise would not have paid as a full subsidy
eligible individual. This would also apply to individuals under a
Medicare Savings Program as a SLMB or QI (but not as a QMB, because
QMBs cannot receive retroactive benefits under the Medicaid statute).
In further operational guidance, we will specify how these
reimbursements will be made. For QMBs and other individuals who are
enrolled in a Part D plan, and later apply and are determined eligible
for low-income subsidy assistance, consistent with the statute, their
eligibility would be effective on the first day of the month in which
they applied for the low-income subsidy.
We will address the method of notification of Part D plans and will
explore issues involving notification to SPAPs in future operational
guidance.
Comment: Two commenters suggested the need for additional
clarification about the manner in which plans must notify us on the
amount of the subsidy reductions received by beneficiaries. One of
these two commenters suggested we provide a methodology while the other
commenter suggested that Part D sponsors have up to 60 days to inform
us that the reduction in premium and cost-sharing has been implemented
and that implementation should be effective no later than the first day
of the second month following the month in which the low-income
determination was sent by us to the Part D sponsor. The commenter
further suggested that there should not be any special or separate
notice that the Part D sponsor must send to CMS to indicate that the
reduction in premium or cost-sharing has been implemented noting that
this notification will be part of the monthly membership transaction
file that Part D providers send to us.
Response: We will issue further operational guidance on the
notification methodology that Part D plans must use. However, we will
expedite notification to plans that its enrollee is a subsidy eligible
individual. In addition, we similarly expect Part D plans to confirm
that the reductions in premiums and cost-sharing have been implemented
by plans in a timely fashion.
Comment: One commenter expressed concern that the rule does not
explain how reimbursements will be made to Part D plans. Another
commenter expressed concern that pharmacies will impose the cost-
sharing reduction at the point-of-sale for low-income subsidy
individuals. The commenter suggested we develop an explicit regulatory
requirement to ensure such reductions occur at the point-of-sale. The
commenter suggested we add a pass-through requirement to the final
regulation.
Response: This comment is addressed by the regulation at Sec.
423.329(d)(2). The interim payments referenced in section Sec.
423.329(d)(2)(i) are made in anticipation of low income subsidies that
will reduce beneficiary cost-sharing at the point of sale. The final
payments in Sec. 423.329(d)(2)(ii) will reimburse plans for
adjustments made at the point of sale. There is no need for an
additional pass-through requirement, since plans will only be
reimbursed for subsidies that actually were used to reduce beneficiary
cost sharing at the point of sale.
Comment: Commenters expressed concern about the methodology that
will be developed to implement reimbursement for cost-sharing on a
capitated basis. One commenter asked that Part D plans have the
opportunity to work with us as it develops a methodology, while another
commenter noted that reimbursement for low-income subsidies on an
aggregated capitation basis--rather than on an individual member
basis--would make calculation of individual subsidies difficult for
purposes of counting them toward TROOP as required by the statute. One
commenter recommended that Part D sponsors offering Part D plans that
serve a significant number of American Indians/Alaska Natives not have
available to them the option of having the cost-sharing subsidies
reimbursed to them on a capitated basis.
Response: Subsection (d) of Sec. 423.800 was inadvertently
included in the proposed rule and has been removed. This is addressed
in Sec. 423.329(d)(2). Plans will be reimbursed for subsidies that
actually were incurred to reduce beneficiary cost sharing at the point
of sale. Interim estimated payments related to plan assumptions may be
included with monthly capitated payments to assist plans with cash
flow, and later reconciled to actual incurred costs. Although we
initially will pay the low-income subsidy on a claims-paid basis, we
reserve the right to pay on a capitated basis as allowed by 1860D-
14(c)(2). Further information on payment methodology will be issued in
separate guidance.
Comment: Commenters raised concerns about the reimbursement of
cost-sharing expenses incurred by subsidy eligible individuals before
they have been notified of their eligibility but after the date the
subsidy eligibility is effective. Several commenters expressed concern
that low-income enrollees cannot afford to pay cost-sharing even with
the expectation that these out-of-pocket costs will eventually be
reimbursed and recommended, as an alternative, that we adopt a
presumptive eligibility system. Alternatively, these commenters
suggested that the regulations provide that beneficiaries may present
their notice of approval for the subsidy to their pharmacy and that
pharmacies would accept this notice as adequate to relieve the
beneficiary from making a copayment. One commenter expressed concern
that plans would violate the requirement to reimburse these costs
unless more stringent compliance requirements are adopted in the
regulations, including a requirement that plans have a 10-day period
for reimbursement after the date a beneficiary's subsidy is effective.
Another commenter suggested strengthening the reimbursement requirement
by explicitly stating that Part D plans must make these reimbursements
on their own initiative without requiring beneficiaries to
affirmatively seek the reimbursement and that these reimbursements must
be made 15 days after the eligibility has been received by the plans.
One commenter requested that we permit SPAPs, which may pay the cost-
sharing for individuals who are subsequently determined to be subsidy
eligible, to be reimbursed for their contributions.
Response: Individuals may incur out-of-pocket costs from premiums
and cost-sharing before eligibility determinations and notification to
plans are made.
The rule requires plans to directly reimburse the beneficiary,
according to
[[Page 4391]]
the data it has kept on the beneficiary's incurred and paid expenses.
We will then reimburse the plan for these expenses. We will have in
place a mechanism to pay plans directly for the incurred and paid
expenses. We will issue further operational guidance on this issue.
Programs like the Ryan White AIDS Drug Assistance Program or SPAPs
may pay the premiums and cost-sharing for beneficiaries until the low-
income subsidy eligibility determinations are made. The rule requires
plans to reimburse these programs for payments made after the effective
date of the eligibility determination. Therefore, we have revised Sec.
423.800, new subsection (d), to reflect this change.
Comment: One commenter recommends that Part D plans be required to
reimburse State programs and charitable organizations that pay cost
sharing on behalf of the Part D beneficiaries who are later found to be
low-income subsidy eligible individuals.
Response: We have clarified in the final rule that plans must
reimburse organizations paying cost-sharing on behalf of such
individuals, any out-of-pocket costs relating to excess premiums and
cost-sharing paid before the date the individual is notified of subsidy
eligibility and after the date subsidy eligibility is effective.
Q. Guaranteeing Access to a Choice of Coverage
1. Overview (Sec. 423.851)
Subpart Q implements the provisions of sections 1860D-3, 1860D-
11(g), 1860D-12(b)(2), 1860D-13(c)(3) and 1860D-15(g) of the Act. In
this section, we address a beneficiary's right to have access to a
choice of at least two Medicare options for prescription drug coverage;
the requirements and limitations on fallback plan bidding; review and
approval of fallback prescription drug plans; contract requirements
specific to fallback plans; and the determination of fallback plan
enrollee premiums and CMS payments to those plans.
2. Terminology (Sec. 423.855)
a. Eligible Fallback Entity
In Sec. 423.855 we state that an eligible fallback entity is
defined for a given contract period and is an entity that meets all the
requirements to be a PDP sponsor, (except that it does not have to be a
risk-bearing entity) and does not submit a risk bid under Sec. 423.265
for any prescription drug plan for any PDP region for the first year of
that contract period. We also state that an entity will be treated as
submitting a risk bid if that particular legal entity is acting as a
subcontractor for an integral part of the drug benefit management
activities of a PDP sponsor (or an entity applying to become a non-
fallback PDP sponsor) that is submitting a risk bid; however, the same
is not true if the entity is a subcontractor to an MA organization
offering an MA-PD plan (or a subcontractor to an entity applying to
offer an MA-PD plan).
Comment: A commenter asks that we not allow under any circumstances
for the pharmacy benefits management (PBM) component of the fallback
plan to be the same entity contracted with either as an MA-PD or a risk
PDP in the same area. The commenter stated that to do so would reduce
competition in the area, which could ultimately reduce beneficiary
choice and access to drugs. Another related comment stated that under
the current definition and contracting requirements described in the
preamble and proposed regulation that it may be possible for two
legally independent, but affiliated PDP sponsors to submit bids in the
same region and undercut the clear intent of the statute requiring that
plans be offered by different organizations in order to meet the access
requirements.
Response: Section 1860D-3(a) of the Act requires that each Part D
eligible individual have access to a choice of at least two plans in
the area in which they reside. Additionally, the statute makes it clear
that the beneficiary access requirement is not satisfied for an area if
only one entity offers all the qualifying plans in the area. We will be
closely monitoring PDP sponsors, MA organizations and their
subcontractors to ensure that the same legal entity is not operating
both plans in a fallback area. We note that there is no prohibition
against a PBM operating as a subcontractor to an MA-PD plan as well as
being a sponsor of a fallback PDP. We also note that a PBM can operate
as a subcontractor to all kinds of PDPs, including fallback PDPs, and
to MA-PDs in any region. There is also no prohibition against an MA
organization offering both an MA-PD plan and a fallback plan in the
same region.
In the proposed rule we incorrectly stated at 69 FR 46670 that MA
organizations offering MA-PD plans could not simultaneously offer
fallbacks. We clarify in this final rule our belief that such a reading
would not comply with the clear language of sections 1860D-12(b)(2) of
the Act which governs contracts with PDP sponsors and not MA
organizations offering MA-PDs or with section 1860D-11(g)(2)(B) of the
Act which speaks only in terms of prescription drug plans, and not MA-
PD plans. We will be diligent in reviewing applications in order to
exclude entities that have been set up to serve no other function than
to circumvent the statute. An entity will not be considered separate
and distinct if it is merely the instrumentality, agency, conduit, or
adjunct of the other entity. However, to the extent that other
legitimate legal arrangements are negotiated in the marketplace to
facilitate the offering of Part D risk plans, we will not preclude such
arrangements. We have not made any further changes to the definitions
of PDP sponsors or eligible fallback entities to further restrict
qualifications in response to these comments.
Comment: Many commenters asked that governmental entities be able
to sponsor fallback PDPs in order to provide for a smooth transition of
prescription drug coverage from Medicaid or other Federally-matched
programs. Some asked that Medicaid agencies be considered as potential
fallback plan sponsors. Several commenters asked whether the definition
of an eligible fallback entity should be modified so that an SPAP can
serve as the fallback plan for SPAP clients in the event that the
fallback option must be implemented because not enough PDPs or MA-PD
plans express interest in service in a State (all other beneficiaries
would enroll with the Part D fallback provider).
Response: We are unable to accept these suggestions because under
section 1860D-41(a)(13) of the MMA, governmental entities are not
eligible to become PDP sponsors. This is consistent with the MMA
transfer of responsibility for providing prescription drug benefits for
dual eligibles from State programs to the Medicare program (under Sec.
1935(d)(1) of the Act), and is set up for the most part so as not to
supplant other government funding for prescription drug benefits (under
section 1860D-24(c)(2) of the Act). As modified in Sec. 423.4 and
discussed in subpart A of this preamble, the definition of PDP sponsors
includes sponsors of fallback plans.
Comment: One commenter suggested that in order to encourage
traditional PBMs to serve as ``risk bearing'' entities, we should only
allow pharmacy benefit administrators (PBA) to serve as fallback plans.
According to the commenter, these entities serve as traditional
administrators of prescription drug programs, rather than the PBM
entities that have evolved from the PBA model, and this PBA model for
the fallback plans would prevent the conflict of interest that exists
today when a PBM
[[Page 4392]]
owns and operates its own mail order facility.
Response: Although we appreciate the intent behind this comment to
avoid conflicts of interest that could theoretically result in higher
costs for the Part D program, we believe that restricting eligible
fallback plan entities to only pharmacy benefit administrators would be
unnecessarily restrictive and inconsistent with the statutory
definition provided in section 1860D-11(g)(2) and described in Sec.
423.855. The statute does not limit the type of entities that can apply
to meet the requirements to be either PDPs or MA-PDs, and we do not
think there is any benefit to doing so. On the contrary, our goal is to
do everything possible to maximize participation in the Part D program
by any and all qualified entities in order to maximize beneficiary
access to a choice of private plans and competition among these plans.
Therefore, we have not modified the definition of eligible fallback
entity, other than to clarify that it is a form of PDP plan, and have
adopted it as proposed.
In the preamble to the proposed rule we interpreted the bidding
restrictions to mean that if an organization wins the fallback bidding,
that is, signs a fallback contract, it is effectively barred under
Sec. 423.265(a)(2) from bidding as a risk plan in that region for 4
years--for the 3-year contract term, it is barred everywhere, and in
the 4\th\ year, it is barred from bidding as a risk plan in that
region. As we described in the proposed rule, this is because eligible
fallback entities are restricted to only those entities that have not
submitted an at-risk bid, or agreed to serve as a subcontractor to an
entity that has submitted an at-risk bid to sponsor a PDP. As a result
of this restriction in bidding, eligible fallback entities must decide
not to submit either a full-risk, or limited-risk bid in any region
(either as a primary sponsor or as a subcontractor for a PDP sponsor)
in order to be eligible to be a fallback prescription drug plan in any
region. If an organization is awarded a fallback contract and ``offers
a fallback plan'', it is effectively barred under Sec. 423.265(a)(2)
from bidding as a risk plan in that region for 4 years--for the 3-year
contract term, it is barred everywhere, and in the 4\th\ year, it is
barred from bidding as a risk plan in any region in which it offered a
fallback plan. A fallback contractor is arguably offering a fallback
plan even if it is only ``on standby'' to do so.
In the proposed rule we also suggested an alternative
interpretation of what it means to ``offer a fallback plan'' in a
region for purposes of section 1860D-12(b)(2)(C) of the Act, that is,
not just signing the contract, but also actually offering prescription
drug benefits to enrollees after a fallback service area has been
identified. With the second interpretation, if the fallback contract
was not activated and no plan was offered during year 3, the entity
could be eligible to bid at risk for year 4.
Comment: We received several comments on our interpretation of our
authority in this area. One commenter asserted that we do not have the
statutory authority to bar a fallback entity from at risk bidding for
up to 4 years. Another commenter supported the alternative
interpretation of what it means to ``offer a fallback plan'' in a
region. This commenter agreed with CMS that the alternative
interpretation is ``reasonable and consistent'' with the statutory
intent ``to prevent plans from converting their enrollment under a
fallback contract to enrollment under an at-risk plan''. They also
suggested that if a fallback plan were not activated in year one or
year two of the contract cycle, it should be able to submit a risk bid
for years two and three, respectively. They encouraged us to adopt this
interpretation in the final rule--believing it to be in the best
interests of the program in that it will provide for better competition
if more entities are encouraged to participate in Part D, whether as
potential fallback plans or PDPs.
Response: We appreciate this comment and agree that this
interpretation furthers the goal of facilitating competition by
allowing former fallback contractors to enter the risk bidding a year
sooner (assuming they did not actually provide a fallback plan in year
3 of the contract cycle). We do not agree, however, that a fallback
contractor should be released from its three-year contract and,
therefore, free to submit a risk bid any earlier than year 4. If we
were to permit this, we would be undermining the safety net provided by
the three-year contract cycle that exists to ensure timely access to
fallback coverage in the event that a sufficient number of risk plans
were to withdraw from the market to create a fallback service area
during or after years 1 or 2. Moreover, we would also be undermining
the attractiveness of risk bidding by eliminating an important
disincentive to stay out of the market in year one. Thus, an entity
that is awarded a fallback contract--even if it is only on standby--may
not submit a risk bid for the 3 years that it maintains its fallback
contract. For example, a fallback contractor for the period 2006-2008
may not submit a risk bid for any of those years (even if the fallback
contractor is merely on standby for that entire period). In addition,
if the sponsor offers a fallback plan in regions 1 and 2 for 2008, then
such sponsor is prohibited from risk bidding in such regions for 2009.
The sponsor may, however, submit risk bids for regions other than
regions 1 and 2 for 2009 (although if it does so, it may not seek a
fallback contract for the period 2009-2011). In addition, if the
sponsor was on standby for all of 2008, but never actually offered a
fallback plan in 2008, the sponsor may submit a risk bid for any region
for 2009 (but again, if it does so, it is prohibited from seeking to
become a fallback contractor for the period 2009-2011). Therefore, we
have adopted the provisions in Sec. 423.855 and Sec. 423.265(a)(2)
that provide these limitations as proposed.
Comment: Numerous commenters asserted that the contracting
restrictions and other (unspecified) requirements to become an eligible
fallback plan are too severe, and that they believe we will not have
any organizations stepping forward to become fallback plans.
Response: We agree the requirements for fallback plans are more
severe than for full risk plans. We have intentionally made these
requirements stricter than for risk-bearing plans because we believe
this is an important strategy to maximizing participation in the
competitive bidding program and to limit the attractiveness of
participating as a fallback PDP for those plans that could participate
on an at-risk basis. Our goal is to have either full or limited risk
plans provide MA-PD and PDP prescription drug coverage in all regions.
To that end, one of our selection criteria will likely be an appraisal
of whether the fallback entity's pharmacy benefit management
subcontractor is also participating as a subcontractor under risk plan
offerings. The implementation of the fallback plan is viewed as a last
resort--as its name implies--a plan to ``fall back'' on in the event a
choice of two qualifying drug prescription plans is unavailable in a
service area or region. We are aiming to design our bidding process so
that fallback plans are not required at all, that is, to do everything
possible to facilitate full-risk plans and to provide for limited-risk
plans in a particular region if full-risk plans are not available. In
fact, if any fallback plans are needed, the Congress requires us to
submit an annual report with recommendations for further limiting the
need for such plans and maximizing future participation by limited risk
plans.
b. Fallback Prescription Drug Plan (Fallback Plan)
[[Continued on page 4393]]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
]
[[pp. 4393-4442]] Medicare Program; Medicare Prescription Drug Benefit
[[Continued from page 4392]]
[[Page 4393]]
In the proposed rule under Sec. 423.855 we stated that a fallback
prescription drug plan is a PDP offered by an eligible fallback entity
that provides only actuarially equivalent standard prescription drug
coverage, as well as access to negotiated prices, including discounts
from manufacturers, and that meets other requirements as specified by
CMS.
Comment: Several commenters stated that we should amend the phrase
`actuarially equivalent standard prescription drug coverage'' with the
phrase `defined standard coverage' to reflect the clear intent of the
Congress to limit the benefit offered by a fallback plan. Others urged
us to make sure the final regulation is clear about what structures
such as premiums or cost sharing can be different and about what
protections must be in place to ensure that consumers are clearly
informed of the differences and are protected against unfair practices.
Response: We agree that the statute requires fallback plans to
offer standard coverage, but we point out that it makes a distinction
between two types of coverage that are both considered ``standard''.
For purposes of administering the Part D benefit we must maintain the
distinction between defined standard coverage and actuarially
equivalent standard coverage as described in Sec. 423.100. We continue
to think that beneficiaries and taxpayers may be able to get better
value from actuarially equivalent packages that employ all of the cost
and utilization management tools, particularly co-payment tiering, to
drive to the most cost-effective utilization on the part of
beneficiaries and the best price concessions from manufacturers, so we
certainly will not preclude such offerings. However, we cannot say with
impunity that PDPs offering defined standard coverage could not offer
equal value through other formulary management tools and competitive
negotiations with manufacturers. Consequently, we have modified Sec.
423.855 to reflect that fallback PDPs may offer either defined or
actuarially equivalent standard benefits. We do not believe this
flexibility in any way impedes PDP plans from offering competitive
plans that beneficiaries would prefer. We also note that we will be
closely reviewing fallback plan formularies and benefit designs, as
well as cost, quality and utilization management programs to ensure
that they are reasonable and appropriate for a region in which
beneficiaries do not have alternative plans from which to choose.
Comment: Several commenters recommended that we require that all
price concessions be passed through to the beneficiary. One commenter
also recommended that we not allow any pricing differentials on what is
paid to pharmacies for reimbursement of the dispensing fee or
ingredient costs. They also believe the fallback plan should be
required to adequately reimburse pharmacies with appropriate dispensing
fees and an appropriate product cost reimbursement.
Response: We agree with the commenters that fallback plans must
pass through all price concessions that are known and available at
point-of-sale to the beneficiary and, furthermore, must operate under
conditions of complete price transparency in general. All other price
concessions obtained (as discussed in detail in subpart G) must be
reported to CMS and subtracted from paid claim amounts upon
reconciliation. We note that some portion of these latter price
concessions are passed through to the beneficiary in the form of lower
premiums, but another portion is not and is passed through solely to
the Medicare program in the form of lower program expenditures. It
would be impractical to require that all price concessions be passed
through to the beneficiary at the point of sale because certain price
concessions can only be calculated retrospectively.
Nonetheless, we require that fallback plans pass through all price
concessions that are known at the time of the sale in the point-of-sale
price, because we do not believe that section 1860D-11(g)(5)(A)(i) of
the Act allows us to reimburse fallback plans for any amount in excess
of actual costs incurred. Therefore, fallback plans may not claim any
amount in excess of the discounts and dispensing fees obtained from
participating pharmacies as drug claim costs. All returns on investment
must be negotiated as part of the management fees and performance
measures. We note that this policy differs somewhat from our
requirements for risk plans. We believe that risk plans will be
motivated to pass through as much discount as practicable at the point-
of-sale due to price competition, and we will encourage this through
our Price Compare website. Even if they do not, however, they are paid
prospectively and are in compliance with Sec. 1860D-2(d)(1)(B) of the
Act and Sec. 423.104(g)(1) of this rule, so long as all price
concessions are reported and deducted from claims costs in the
reinsurance and risk corridor final payment processes. Fallback plans,
on the other hand, are paid on the basis of 1860D-11(g)(5)(A)(i) of the
Act and Sec. 423.871(e)(1) of this rule, and our payments must be
limited to the actual costs of covered Part D drugs provided to the
fallback plan enrollees. Since fallback plans will submit their claim
costs to us for direct reimbursement, we require that these claims
represent actual point-of-sale costs. We have added a definition of
actual costs to Sec. 423.855 and modified Sec. 423.871(e)(1) to
clarify this interpretation.
As for the recommendation to prohibit pricing differentials among
fallback plan contracts with network pharmacies, we do not believe that
such a requirement would be consistent with the goal of creating a
competitive market for prescription drugs and obtaining the best
possible prices for beneficiaries and the Medicare program. We also do
not believe that there is any prohibition on fallback plans contracting
with subset(s) of preferred pharmacies, just as risk plans may; such
subsets of preferred pharmacies may indeed have different pricing
arrangements. Although we agree with the commenter that fallback plans
should adequately reimburse pharmacies through appropriate dispensing
fees and product cost reimbursement, we note that this result must be
obtained through competitive price negotiations and that we may not
interfere in such negotiations by attempting to define or require
``appropriate'' fees.
Comment: Several commenters asked that certain PDP requirements be
extended to fallback plans. For instance, one commenter argued that the
same out-of-network requirements applicable to PDPs should apply to
fallback plans, and others suggested that they should be required by
regulation to coordinate benefits with SPAP's in the same manner as
must PDPs, or that they should comply with all the access and quality
standards applicable to PDPs and MA-PD plans, including all grievances
and appeal procedures.
Response: We agree and wish to clarify that a fallback plan is a
special type of PDP and as such must meet all of the requirements
established for Part D plans, including prescription drug plans, in
these regulations, except as otherwise specified by CMS in this subpart
or in separate guidance. In some cases, the statutory provisions
applying to fallbacks will be such that to apply the requirements of
PDPs to fallbacks would create a conflict in the statute. For example,
fallback plans obviously could not be required to submit bids under
section 1860D-11(b) of the Act, since fallbacks are paid on a different
basis from risk contractors. Similarly, fallback contractors will not
be required
[[Page 4394]]
to report information necessary for calculating reinsurance, because
fallbacks do not receive any reinsurance payments. In these cases,
where there is an apparent conflict in the statute, this subpart, or in
our guidance, we would not require fallback plans to meet the
requirements of PDPs. However, where there is no conflict, we believe
that fallback plans should be considered PDPs and have amended the
definition of PDP in subpart A to include a fallback plan. Thus, for
example, a fallback plan will be required to meet all of the
requirements for beneficiary protections under subpart C that apply to
other Part D plans. In addition, fallbacks would be subject to most of
the provisions in subpart K governing the terms of the contract and
procedures for termination. However, a fallback plan would not be
subject to the same licensure and solvency requirements that apply to
PDP sponsors under subpart I. Fallback plans would be required to have
regional networks that meet the access requirements specified in Sec.
423.120, including meeting the Tricare standards for retail pharmacies
at the State level, but they would not necessarily have to meet the
Tricare standards at the local level of the eventual fallback service
area, as this particular area could not have been foreseen. We have
amended the definition of fallback plan in Sec. 423.855, and the
definitions of PDP and PDP sponsor in Sec. 423.4, accordingly.
c. Qualifying Plan
Under Sec. 423.855, a qualifying plan is defined as either a full-
risk or limited risk prescription drug plan (PDP) or an MA-PD plan that
provides basic coverage, or an MA-PD plan that provides supplemental
coverage for no additional charge to the beneficiary. Specifically, if
the MA-PD plan coverage includes supplemental prescription drug
coverage, then in order to meet the definition of a ``qualified plan''
the MA-PD must be able to apply a premium rebate under Part C of
Medicare as a credit against the supplemental coverage premium, leaving
no cost to the beneficiary for the supplemental coverage. MA-PD plans
must also be open for enrollment and not operating under a capacity
waiver in order to be counted as a qualifying plan in an area.
Similarly, we have modified Sec. 423.855 to clarify that a PDP must
not be operating under a restricted enrollment waiver, such as those
that may be granted to special needs plans or employer group plans, in
order to be counted as a qualifying plan in an area. No comments were
received on these provisions, and they will be adopted as proposed.
3. Assuring Access to a Choice of Coverage (Sec. 423.859)
a. Access Standards
In Sec. 423.859(a) we state that we will ensure that each Part D
eligible individual has available a choice of enrollment in at least
two qualifying plans offered by different entities in the geographic
area in which he or she resides. Therefore, beneficiaries in an area
must have a choice of two plans that provide basic coverage (or an MA-
PD plan that provides supplemental coverage for no additional charge to
the beneficiary). However, to meet the access test, different sponsors
must offer the two qualifying plans, and at least one of the plans must
be a PDP. There were no comments on these statutorily-based
requirements and we are adopting Sec. 423.859(a) as proposed.
b. Fallback Service Area
In Sec. 423.859(b) we state that if before the start of a contract
year (or at any other time) we determine that Part D eligible
individuals in a PDP region do not have available a choice of
enrollment in a minimum of two qualified plans as described in Sec.
423.859(a), we will establish a ``fallback service area.'' Thus, a
fallback service area is any area within a PDP region in which we have
determined that Part D eligible individuals do not have available a
choice of enrollment in two qualified plans, at least one of which is a
prescription drug plan. Three examples of the application of a fallback
service area follow:
Example 1--We would establish a fallback service area in
an area where an MA regional PPO plan is offered but no PDP is offered
in the region. Since beneficiaries in the region would only have the
choice of a MA-PD and not a stand-alone PDP, we would define the area
as a fallback service area.
Example 2--A fallback service area would also be
designated if only one PDP is offered in a region, but in some or all
parts of the region neither a regional (PPO) MA-PD plan nor a local MA-
PD plan are available to beneficiaries. Since beneficiaries would not
have a choice of two qualifying plans, we would define the areas within
the region that only have access to the PDP, and not an MA-PD plan, as
fallback service areas. As a result, it would be possible for only
certain areas (counties) within a region to be designated as fallback
service areas.
Example 3--A fallback service area would also be
designated in any area in which only one entity offered all qualifying
plans, even if that sponsor offered two PDPs, or one PDP and one MA-PD
plan with basic coverage, covering the entire region.
Comment: One commenter stated that a fallback plan should at a
minimum be Statewide.
Response: In the MMA the Congress directed CMS to form Medicare
Advantage regions of not less than 10 and no more than 50 encompassing
the 50 States and the District of Columbia, and to create PDP regions
that are consistent with these to the extent practicable. Discussion of
the analysis and comments on the PPO and PDP regions has been published
separately. However, in the event that we determine that only sections
of a region are fallback service areas, we are prohibited by law from
allowing the fallback plan to service the entire region, no matter its
size. We recognize that this policy may result in fallback service
areas that are much smaller than the regions on which the contracts are
based. Our compensatory strategy is to encourage national or other
large-scale fallback contracts in order to maximize operational
efficiencies while operating under this sort of uncertainty.
c. Waivers for Territories
Section Sec. 423.859(c) of this regulation makes Medicare
beneficiaries residing in the U.S. territories--which include American
Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Puerto
Rico, and the U. S. Virgin Islands--eligible to enroll in Part D. We
have the authority to waive any Part D requirements, including the
requirement that access to two qualifying plans is available in each
service area, as required to ensure access to qualified prescription
drug coverage for Part D eligible individuals residing in the U.S.
territories. In addition, entities wishing to become prescription drug
plans in the territories may request waivers or modifications of Part D
requirements that facilitate their operation in those areas.
In the proposed rule we suggested a number of Part D requirements
that we were considering waiving and requested comments on these and
any other potential waivers that would facilitate the offering of Part
D coverage in the territories. The only comments received for the
territories concerned the design of the regions, and these have been
addressed in separate guidance. As a result, we retained the broad
waiver authority in Sec. 423.859(c) without modification, and will
continue to conduct research to determine how best to facilitate Part D
coverage in the territories. For risk-based applicants, we anticipate
we would provide a table identifying requirements for waivers, and
applicants would have to provide a
[[Page 4395]]
rationale for how a waiver would facilitate risk-based access in the
territories. We would review each waiver, and if it is approved, it
will apply to all similarly situated risk plans in the territories.
Waivers of the bid requirements will not be entertained. Similarly for
Fallback applicants, if there is a need for any of these, we would
entertain waiver requests. Additionally, we will modify the payment
incentive and performance guarantee arrangements as may be necessary to
ensure fallback participation in the territories.
4. Submission and Approval of Bids (Sec. 423.863)
In Sec. 423.863 we establish a separate bidding process for
fallback plans distinct from the risk bidding process addressed in
Sec. 423.265 of our regulations, and state that the solicitation,
timing and format requirements for this process will be provided in
separate guidance.
Comment: A commenter asserts that neither the MMA nor the proposed
rule address whether a PDP applicant approved by CMS may withdraw its
application without any adverse consequences to the PDP applicant if a
fallback plan is invoked in the same region. The commenter recommends
that this option should be available if a plan does not wish to compete
against a fallback plan.
Response: We fundamentally do not think that risk plans need to be
concerned about competing against a fallback plan. Risk plans will have
the competitive advantages of corporate marketing and brand recognition
and the ability to offer more varied benefit designs (including
supplemental benefits), as well as being offered to all enrollees in a
region--not just to those in fallback service areas. We are also
anticipating that efficient risk plans may have the opportunity to earn
higher levels of profit. While there is a possibility that a fallback
plan could enter a region if there is only one PDP risk plan, our
strategic approach to encourage the offering of risk plans should also
make them attractive to beneficiaries relative to fallback plans. And
while we do not believe we have the authority to prevent a risk bidder
from withdrawing its bid prior to entering into a PDP contract, we
expect risk-based applicants to participate in the solicitation process
in good faith, with the full expectation of participating in the
regions for which they apply regardless of the anticipated presence of
a fallback in that region. Accordingly, we intend to scrutinize
applications and bids.
In Sec. 423.863(b) we state that, except as otherwise noted, the
provisions of Sec. 423.272 apply for the negotiation and approval of
fallback PDP contracts. We state that if access requirements have not
been met after applying Sec. 423.272(c), we will contract for the
offering of a fallback PDP in that area, and that all fallback service
areas in any PDP region for a contract period must be served by the
same fallback plan. Fallback plans must be prepared to provide Part D
services at the same time as risk plans, and in the event of mid-year
changes, we will approve a fallback PDP for any new fallback service
areas in a PDP region in a manner so that the fallback plan is offered
within 90 days of notice. Under no circumstances may we contract for
only one fallback PDP for all fallback service areas in the 50 States,
the District of Columbia, and the territories.
Comment: One commenter pointed out that according to Sec.
423.863(b)(5), in the event of mid-year changes we must approve a
fallback prescription drug plan so that the fallback is offered within
90 days of notice. The commenter is concerned that this leaves open the
possibility that beneficiaries could be without a PDP for a period of
up to 90 days, and urges us to clarify that fallback plans must enter
into a mid-year market as soon as practicable.
Response: We share the commenter's concern with ensuring access and
continuity of care for beneficiaries in the unlikely event of either a
risk plan or fallback prescription drug plan failure. We will make
every effort to eliminate this possibility through our selection
criteria that will involve scrutiny of financial and business
stability, and will favor firms with national capacity. In addition, we
will select fallback plans, in part, on their operational capability to
be up and running quickly. We believe it would be a very rare
occurrence to need a fallback plan in mid-year for a reason that could
not be foreseen in time to have an alternate fallback plan in place,
and thus we cannot foresee a circumstance in which there would be the
possibility of a gap in access to a PDP. (Contract provisions in Sec.
423.509 and Sec. 423.510 require a 90-day notice of intent to
terminate a plan. In 423.508, if a contract is terminated by mutual
consent, the sponsor and CMS will work out an appropriate time frame to
ensure time to secure a fallback plan.) In cases where a new fallback
would be invoked mid-year due to plan withdrawal, beneficiaries might
face different cost sharing and different formularies, but they would
be eligible for an SEP and would be allowed to choose the MA-PD or PDP
in the area (if there is one) instead of the new fallback plan. In the
unlikely event of this occurrence, our goals will be to explain any
differences to affected beneficiaries, and to limit disruption as much
as possible.
Comment: One commenter stated that our suggestion in the proposed
rule that we expected to award two fallback contracts for the entire
country, assuming fallback contracts are needed, is arbitrary and does
not serve the best interests of either beneficiaries or CMS.
Response: Because we now believe that two may not be sufficient to
competitively provide for fallback coverage should it be necessary, we
plan to award as many contracts as needed to provide potential fallback
services. However, we still plan to have only a very limited number. We
anticipate awarding a sufficient number of fallback contracts to ensure
that any designated fallback area(s) are provided for at the start of
the program, as well as later in the event of plan closure or failure.
However, we do not anticipate awarding so many as to dampen the
incentive for potential fallback plans to offer excellent customer
service and competitive drug prices. We also plan to pursue every
opportunity to ensure the option of at least two risk plans in every
area, and do not anticipate the need to activate fallback plans.
In the preamble to the proposed rule we stated that in general we
would enter into contracts with fallback plans using Federal
acquisition rules on a timetable ensuring that such contracts were in
place at the same time as prescription drug plans would otherwise be
offered. However, in regulation we more correctly stated that we would
use competitive procedures (as defined in section 4(5) of the Office of
Federal Procurement Policy Act (41 USC 403(5)) to enter into a contract
under this paragraph, and that the provisions of section 1874A(d) of
the Act with regard to limitation of liability for Medicare contractors
for payments on behalf of Medicare would apply. Thus the fallback plans
must be competed, and their terms and conditions may be negotiated.
Because fallback plans will be subject to competitive procedures, we
have clarified subpart N to make clear that those appeals procedures
would not apply to fallback plans or fallback entities.
Comment: We received comments asking that an alternative to the
``indefinite delivery'' type contracting be considered, including the
use of cost plus fixed fee contracts.
Response: We do not believe the fallback contracts will be Federal
Acquisition Regulations (FAR) contracts
[[Page 4396]]
per se, even though we plan to use the FAR competitive procedures to
enter into fallback contracts. Section 1857(c)(5) of the Act, which is
incorporated by section 1860D-12(b)(2)(B) of the Act, authorizes us to
exercise the authority granted to the Secretary under Part D of Title
XVIII without regard to provisions of law or regulations relating to
the making, performance, amendment, or modification of contracts of the
United States, as we determine is inconsistent with the furtherance of
the purposes of Title XVIII.
Based on this authority, we proposed that for risk contractors, the
contracts would not be written or entered into in accordance with the
FAR or the Departmental acquisition regulations set forth in title 48
of the CFR. In addition, in the Medicare Advantage context, the MA
contracts have not been considered to be FAR contracts and have not
contained FAR provisions within them. We believe that it would be in
furtherance of the purposes of Title XVIII to maintain consistency
among the Medicare Advantage, risk, and fallback contracts to the
extent possible. Therefore, as with both the risk and Medicare
Advantage contracts, the fallback contracts will not contain many of
the FAR or HHS-specific provisions automatically included in many
government contracts.
In addition, because the contracts would not be written under the
FAR or 48 CFR provisions, we do not believe it is accurate to refer to
the standby contracts as indefinite duration, indefinite quantity
(IDIQ) contracts--which is a term used under the FAR. Nonetheless, we
expect to have umbrella provisions, which provide the necessary
flexibility to deploy a fallback plan during a contract year in the
event of a risk plan failure. Although the fallback contracts will not
be written in accordance with the provisions of the FAR or 48 CFR, and
will not look like typical ``FAR contracts,'' as we stated in the
proposed rule at 69 Fed. Reg.46734, unlike both risk and MA contracts,
we will enter into fallback contracts using the Federal acquisition
rules on a timetable to ensure that the contracts are in place on time
(that is, at the same time as the risk plans would otherwise be
offered).
In anticipation of the approach discussed above, we intend to time
the fallback solicitation process so that we can actively encourage
participation in risk contracting and minimize the need for fallback
plans while ensuring they are available if necessary. To this end, we
intend to begin the fallback solicitation process after the risk plan
solicitation process. We may also conduct a second risk plan
solicitation (for applications) only for areas we determine to be
likely fallback areas. Final fallback bids under this process would be
due shortly after the risk bids are due with fallback contracts awarded
in the fall. Further details on the fallback plan solicitation process
will be provided in separate guidance.
In the preamble to the proposed rule we referred to the non-
interference provision of the MMA and noted, for our negotiations with
potential fallback plan sponsors, that we could not interfere with
negotiations between drug manufacturers and pharmacies and PDP
sponsors, and could not require a particular formulary or institute a
price structure for the reimbursement of covered Part D drugs. However,
we noted that at the same time the revenue requirements standard in 5
USC 8902(i), discussed in subpart F of the preamble, require us to
ascertain that the bid ``reasonably and accurately reflects the revenue
requirements for benefits provided under that plan.'' Therefore, we
concluded that while we may not set the price of any particular drug,
or require an average discount in the aggregate on any group of drugs
(such as single-source brand-name drugs, multiple-source brand name
drugs, or generic drugs), we will take appropriate steps to evaluate
whether the bid is reasonably justified. As specified in 5 USC 8902(i),
we have the authority to take steps to ensure that benefits are
``consistent with the group health benefit plans issued to large
employers,'' in order to ensure that the bid amounts submitted are
comparable to those available on the private market. For example, if
the price reference points appear to be particularly high (or low), we
may request an explanation of the bidders' pricing structure, and the
nature of their arrangements with manufacturers to ensure that there is
no conflict of interest leading to higher bids. We also proposed to
negotiate price-related performance targets with fallback plans,
consistent with current market practices in which commercial plan
sponsors negotiate price-related reference points with PBMs. We said we
would also consider potential contractors based on their bids for
administrative functions like claims processing.
Comment: We received a few comments that did not support our
analysis of our negotiating authority. One commenter specifically
recommended that we clearly indicate in the final rule that we will not
set price benchmarks, create incentive payments, or otherwise interfere
with the price structures for Part D drugs, whether provided through
fallback plans or not.
Response: As stated in the proposed rule, we believe that section
1860D-11(g)(5)(B)(i) of the Act makes clear that the Congress
contemplated taking prices into account in calculating incentive
payments for fallback entities. Moreover, even though the performance
measures and the potential incentive payments will be defined in
advance, the determination of actual incentive payments will be made at
the end of the contract period, and thus does not represent
interference in the bidding process.
As is the case with risk bids, we continue to believe we have the
authority to negotiate for fallback plans in four broad areas:
administrative costs, aggregate costs, benefit structure, and plan
management. We will evaluate administrative costs for reasonableness in
comparison to other bidders. We will examine aggregate costs to
determine whether the revenue requirements for the defined standard or
actuarially equivalent standard prescription drug coverage as defined
in Sec. 423.100 are reasonable and equitable. We will be interested in
steps that the plan is taking to control costs, such as through
measures to encourage use of generic drugs, therapeutic interchange to
preferred brand-name drugs, and formulary compliance. We will be
interested in reviewing the formulary to ensure that it is appropriate
for a region in which beneficiaries do not have alternative plans from
which to choose. We will examine and discuss any proposed benefit
structures or changes to benefits in later years, particularly with
regard to any potentially discriminatory features. Finally, we will
review performance metrics and discuss any identified issues with
regard to plan management, such as customer service. No changes will be
made to Sec. 423.871 in response to these comments.
Comment: One commenter supported our position that we have the
authority to negotiate with plans to ensure a good price for
beneficiaries, and if the price reference points appear to be
particularly high (or low), to request an explanation of the bidders'
pricing structure, and the nature of their arrangements with
manufacturers to ensure that there is no conflict of interest leading
to higher bids. The commenter urged us to apply these same authorities
to plans in non-fallback situations, as well as to fallback plans, and
notes these ``pricing dangers'' may also occur in areas where there is
no fallback plan, but just one MA-PD and one at-risk PDP.
[[Page 4397]]
Response: We appreciate the support of our position and agree that
similar, although not identical, controls are required for evaluation
of risk plan bidding. Since risk plans are by definition at risk for
ineffective cost management, there is less need for us to set targets
in order to incentivize reasonable and appropriate cost controls.
Please refer to our discussion of risk plan bid negotiation in subpart
F, as well as to our guidelines on risk bid submission published
separately.
Comment: Numerous commenters wrote in about performance measures
for fallback plans. Some expressed their approval of our intent to base
incentives on various performance measures. Some commenters suggested
specific measures such as: using cost per days supply instead of cost
per prescription to ensure an apples-to-apples comparison, and
including more specific measures of customer service such as: speed and
efficiency in handling enrollee calls, timeliness and accuracy of
communication materials to enrollees, comprehensiveness and accuracy of
business support to pharmacies, prescribers and CMS, retail pharmacy
network access, and mail service pharmacy performance.
However, the majority of commenters had serious doubts about the
number, and kinds of performance measures we proposed. Some were
worried there were too many proposed performance plan measures, and
several believed that we were suggesting that the final rule was going
to allow negotiated discounts for prescription drugs to be the sole
performance measure for a fallback plan. Other commenters said they
believed that fallback plans should not be expected to put their
management fees at risk due to factors beyond their control, or for
measures that are not mutually agreed upon with CMS, and others said
that drug price discounts should not be used as a performance measure
at all.
Response: We appreciate the supportive comments, and especially the
suggestions for specific performance metrics we could utilize. We also
agree that fallback plans should not have their management fees put at
risk due to factors beyond their control. We have identified a number
of performance measures that are used in the private sector as
performance guarantees for which management fees are put at risk and we
intend to adopt these practices to ensure best practices in benefit
management.
Despite the comments arguing against the use of performance
incentives tied to price discounts, we will be placing performance
clauses in the contracts with fallback entities that tie performance
payments to the fallback plan's ability to secure lower drug prices for
beneficiaries and lower costs for Medicare. We note that in the absence
of performance guarantees or incentives, fallback plans are no-risk
cost-based arrangements that are reimbursed by Medicare for costs
(including administrative fees and negotiated profit) incurred. In
future guidance we will provide a number of measures that would
encourage an efficient entity to bid on a fallback plan contract
(because it believes it can meet the performance metrics), and also
give a successful bidder an incentive to provide quality services to
its beneficiaries at the best possible price (because it would have the
opportunity to earn greater profits). We note that this increased
profit opportunity is the result of performance incentive payments and
not the retention of any spread between negotiated prices with
pharmacies and the target pricing proposed in the fallback contract
bid.
As stated in Sec. 423.871(d), as part of the payment process for
fallback plans authorized by section 1860D-11(g)(5) of the Act, we will
assess the performance of plans with regard to specific performance
measures and tie this performance to an incentive payment. Incentive
payments may be either performance guarantees (with downside risk to
management fees) or performance incentives (with upside potential for
additional profit). These measures will include, but are not limited
to, measures for cost containment, quality programs, customer service,
and benefit administration (including claims adjudication). ``Cost
containment'' refers to processes in place to ensure that costs to the
Medicare Prescription Drug Account and to enrollees are minimized
through mechanisms such as generic substitution. The term ``quality
programs'' refers to drug utilization review processes in place to
avoid occurrences such as adverse drug reactions, drug over utilization
and medical errors. The term ``customer service'' refers to processes
in place to ensure that the entity provides timely and accurate filling
of prescriptions and delivery of pharmacy and beneficiary support
services. We will be surveying enrollees of fallback plans to assess
customer satisfaction with plan services. The terms ``benefit
administration and claims adjudication'' refer to processes in place to
ensure that the entity provides efficient and effective benefit
administration and claims adjudication, such as accurately programming
and updating its benefit administration information systems, and
providing timely and accurate claims adjudication.
We believe the suggested performance standards are reasonable and
largely consistent with private sector best practices. As the potential
performance guarantees and incentives mentioned above illustrate, we
will select (and will continue to refine) measures that focus on key
indicators of the many aspects of prescription drug benefit management
that are important to us and to beneficiaries. These measures will be
updated and revised to reflect opportunities to ensure that best
practice is reflected in each fallback PDP contract year.
Comment: One commenter indicated support for the concept of paying
for performance, but expressed concern that the proposed regulations
would subject only fallback plans (and not at-risk PDPs or MA-PDs) to
performance standards that would rate these plans on their success at
cost containment. The commenter argued that under this approach the
fallback plans would have a greater incentive to make formulary choices
based on the amount of discount they receive from manufacturers, rather
than on the most appropriate and cost-effective clinical treatments. If
this were to occur, it could put beneficiaries enrolled in fallback
plans--including those who have no other real options--at a significant
disadvantage. The commenter recommended that performance standards for
all Part D plans need to balance both cost containment and access to
clinically appropriate medications.
Response: The MMA was designed in large part to foster a
competitive market place by making every effort to encourage at-risk
plans to contract with us, thereby creating competition among plans and
choice for beneficiaries. We believe that both cost containment and
quality performance will be logical outgrowths of plans competing for
beneficiaries in the same area. Contract provisions outlined under
(subpart K) Sec. 423.505 and performance measures provided under Sec.
423.871(d) are all designed to protect the beneficiary and are a
condition of contracting with CMS. Nonetheless, we too believe that
fallback PDPs, which are paid costs, may not always have the same
incentives as at-risk plans to negotiate aggressive discounts and
otherwise minimize net costs, as opposed to net reimbursement.
Consequently, the point of the performance guarantees is to bolster the
incentives to undertake those activities aggressively. We understand,
for instance, that if we were to base performance incentives on rebates
[[Page 4398]]
obtained, this would create an incentive to steer patients toward drugs
that receive higher rebates from manufacturers, rather than toward drug
choices that optimize both therapeutic outcomes and cost effectiveness
for the patient and the payer. Consequently, when evaluating costs, we
will avoid metrics such as average rebate level or average rebate per
script (as we suggested in the proposed rule) in favor of better
measures of net cost to the program.
Comment: We received several comments regarding fallback plan
quality programs. One suggested we change the language from over- and
under-utilization to ``appropriate use''. One commenter wanted us to
include a statistically significant sample of MTMP enrollees to
identify medication management. Another suggested that in addition to
reducing medication errors and avoiding adverse drug events, fallback
PDPs should offer quality programs on prescription drug therapy that
include adherence and persistency programs.
Response: We appreciate these comments and share the commenters'
goals of ensuring comparable and appropriate quality assurance programs
in fallback plans. As noted already, fallback plans are subject to all
of the requirements for PDPs and other Part D plans (except as
otherwise noted in this subpart or in separate guidance) and readers
are referred to subpart D for discussion of related comments and
responses on quality requirements and initiatives. We have modified
Sec. 423.871(d)(1)(ii) to reflect the requirements to monitor for
appropriate utilization.
In the preamble to the proposed rule we stated that in contrast to
plans that contract on a risk basis, fallback entities will be paid for
covered Part D drugs on the basis of cost, and thus these entities will
have less of an incentive to negotiate low drug prices. Consequently,
because the statute directs us to pay management fees that are tied to
performance measures, and directs that there must be a measure for
costs, we said we were considering tying the performance payments of
fallback entities to the average discounts they are able to negotiate,
including discounts from manufacturers. We noted that this type of
incentive contracting is found in the commercial pharmacy benefit
management market today. We requested comments on alternative reference
points or alternative methodologies that could promote competitive
pricing.
Comment: We received a number of comments around using AWP as the
price reference point for negotiated prices. Numerous commenters
supported our use of a price benchmark and believe it represents due
diligence on the part of the agency to ensure that beneficiaries and
the Medicare program are not penalized with high prices in areas in
which there are no choices among plans. Some recommended that we use
AWP as a reference point to measure the cost containment by fallback
plans. Others agreed with our expressed concern that the use of a
fluctuating benchmark like AWP was in some ways problematic.
Response: Despite its frequent fluctuations and inherent
vulnerability to manipulation, the AWP remains the primary measuring
stick for drug costs. We will therefore be incorporating it into our
performance targets, but we will also be looking at other indicators or
proxies for financial performance, such as rates of generic
substitution, that will provide other perspectives on cost management.
Comment: One commenter recommended that we clarify that ``actual
costs'' incurred to provide the drug benefit include administrative
costs, and not simply actual drug costs.
Response: We appreciate the recommendation to clarify these terms
in regulation. The actual costs referenced in Sec. 423.871(e)(1) refer
to the actual costs incurred by the fallback plan for the acquisition
of drugs, and are net of administrative expenses. Administrative costs,
including return on investment, should be included in the computation
and negotiation of management fees. We have added the definition of
actual costs to Sec. 423.855 and modified Sec. 423.871(e)(1) to
clarify these terms.
Comment: Several commenters urged us to eliminate the requirement
that fallback entities apply direct or indirect remuneration as an
``offset'' to actual costs incurred by the fallback entity.
Response: We do not believe that we have the authority to reimburse
fallback contractors for costs at a rate above their actual acquisition
costs. In Sec. 423.308 we state that ``Actually paid means that the
costs must be actually incurred by the sponsor and must be net of any
direct or indirect remuneration (including discounts, chargebacks or
average percentage rebates, cash discounts, free goods contingent on a
purchase agreement, up-front payments, coupons, goods in kind, free or
reduced-price services, grants, or other price concessions or similar
benefits offered to some or all purchasers) from any source (including
manufacturers, pharmacies, enrollees, or any other person) that would
serve to decrease the costs incurred by the sponsor for the drug.'' In
the proposed rule we also explained (for allowable costs for risk
plans) that we understand that today a significant volume of price
concessions are not applied in the context of point of sale claims
data, but rather in periodic accounting adjustments, and that they are
frequently reported along with administrative fees paid by the
manufacturer. We are aware and concerned that, in some cases, plan
sponsors may accept lower administrative costs or receive services at
less than market value in lieu of some or all of the price concessions.
We are concerned that this practice may result in improper shifting of
costs in order to inappropriately maximize cost reimbursements. We
intend to monitor these arrangements closely to ensure that actual
costs are not improperly inflated. We are also concerned that these
accounting and business practices would be incompatible with the
requirement to disclose all price concessions for purposes of
determining actual costs and we, therefore, are proposing to require
that the true cost of all price concessions be segregated from
administrative fees in all records. We require that all price
concessions passed through to the plan sponsor or beneficiary in any
form be subtracted when calculating actual costs. Again, we have added
the definition of actual costs to Sec. 423.855 and modified Sec.
423.871(e)(1) to clarify this policy.
Comment: One commenter requested that we extend the confidentiality
protections of the Medicaid rebate statute to all negotiated pricing
information submitted to, or reviewed by, CMS under Part D, including
information obtained under subparts F, G, K, Q, and R of the proposed
rule.
Response: We received several comments regarding extending the
confidentiality provisions of the Medicaid rebate statute to Part D. As
discussed in subpart F of this preamble, Part D bid information that
determines payment is protected under section 1860D-15, since the bid
information is used to actually pay the sponsors (if, for example, it
is an estimate of reinsurance, or it supports the actuarial value of
the bid). We believe this same protection applies to the information
submitted in response to a fallback plan solicitation or as part of the
cost reconciliation process. We also do not believe we have the
authority to extend the confidentiality provisions of the Medicaid
rebate statute where the Congress has not authorized us to do so. The
Congress has been quite clear when it wishes the Medicaid rebate
statute to apply. For example, in section 1860D-
[[Page 4399]]
2(d)(2) of the Act, the Congress specifically stated that certain
aggregate negotiated price concessions described in that provision
would be protected under section 1927(b)(3)(D)--the Medicaid rebate
confidentiality provisions to which the commenter refers. Similarly,
section 1860D-4(c)(2)(E) of the Act applies the Medicaid rebate
confidentiality provisions to disclosures made under that provision.
Finally, section 101(e)(4) of the MMA amended section 1927(b)(3)(D) to
specifically add to that section the information disclosed under
sections 1860D-2(d)(2) or 1860D-4(c)(2)(E). Therefore, we do not
believe the Medicaid rebate confidentiality provisions would apply,
except where the Congress specifically indicated they should. For
further information regarding the Disclosure of Information provision,
please refer to subpart G, Sec. 423.322. Please refer to subparts F
and G for discussion of comments and responses related to
confidentiality of pricing information submitted with the bid and upon
reconciliation.
Section 423.871(f) of the regulation implements section 1860D-15(d)
and (f) of the Act. Under these provisions the Secretary is authorized
to collect any information necessary to carry out section 1860D-15 of
the Act, but information ``disclosed or obtained pursuant to the
provisions of [section 1860D-15] 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].'' We have clarified that information disclosed to
determine Medicare payment or reimbursement to the fallback entity may
be used by the officers, employees and contractors of HHS (including
OIG) only for the purposes of, and to the extent necessary in,
determining payment or reimbursement, and we have modified Sec.
423.871(f) accordingly. We also note, however, that this restriction
does not limit CMS or OIG authority to conduct audits and evaluations
necessary to ensure accurate and correct payment and to otherwise
oversee Medicare reimbursement to fallback entities, or to conduct
other statutorily-authorized quality, research, and oversight
functions. Nor does this restriction necessarily limit the ability of
others with independent authority to collect data using their own
authority. As we did in subpart D of this preamble, we 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. We refer readers to subpart D for a more extensive discussion of
this issue.
5. Rules Regarding Premiums (Sec. 423.867)
In Sec. 423.867 we proposed that the monthly beneficiary premium
charged under a fallback prescription drug plan offered in all fallback
service areas in a PDP region must be uniform (except as provided with
regard to any enrollment penalty, low-income assistance, or employer
group waivers under Sec. 423.458(c). It must equal 25.5 percent of an
amount equal to our estimate of the average monthly per capita
actuarial cost, including administrative expenses as calculated by the
Chief Actuary, under the fallback prescription drug plan of providing
coverage in the region. In calculating administrative expenses, we said
we would use a factor based on similar expenses of prescription drug
plans that are not fallback prescription drug plans. No comments were
received on these statutorily determined provisions and they will be
adopted as proposed.
In Sec. 423.867(b) we proposed that fallback plans would not
receive any applicable late enrollment penalties since they do not bear
risk for increased expenses attributable to individuals to whom the
penalty applies. We required that monthly beneficiary premiums for
enrollees in fallback prescription drug plans be deducted from Social
Security benefits (as provided in Sec. 422.262(f)(1)) or in any other
manner provided under section 1840 of the Act. Both Sec. 422.262(f)(1)
(as provided under sections 1854(d)(2)(A) and 1840 of the Act provide
for the collection of monthly premium through the withholding of
benefit payments. For those beneficiaries for whom Federally based
monies are not available, section 1840(e) allows for premiums to be
``paid to the Secretary at such times, and in such manner, as the
Secretary shall by regulations prescribe''.
In the proposed rule we interpreted the reference to section
1840(e) as requiring direct payment to us when Federal benefit
withholds were not available. We stated: ``Premiums from beneficiaries
enrolled in fallback plans would not be collected by the plan. Instead,
these premiums would be withheld from social security checks (or from
other benefits as permitted under section 1840 of the Act).
Beneficiaries who do not receive social security checks or otherwise
have premiums deducted from other benefits or annuities would pay us
directly.'' We have clarified that we have the authority to require
that premiums be collected by fallback plans, and to deduct such
amounts from payments due to fallback plans in the case of any
individual who does not receive such benefits or annuities, or who
receives insufficient benefits or annuities to cover the monthly
premium. We believe this procedure is more familiar to beneficiaries
and to plans, and allows the plan to be in closer touch with the
beneficiary's enrollment status. Therefore, we have modified Sec.
423.867(b) to reflect this clarification.
6. Contract Terms and Conditions (Sec. 423.871)
In Sec. 423.871 we state that the terms and conditions of
contracts with eligible fallback entities offering fallback
prescription drug plans will be the same as the terms and conditions of
contracts for other Part D plan sponsors, with the following
exceptions:
The contract term for a fallback prescription drug plan
will be for a period of 3 years (except as may be renewed after a
subsequent bidding process). However, a fallback prescription drug plan
may be offered for any year within the contract period only if that
area is a fallback service area for that year.
An eligible fallback entity with a contract under this
part may not engage in any marketing or branding of a fallback
prescription drug plan. This refers to marketing activities promoting
the plan and its sponsor to Part D eligible beneficiaries as addressed
in Sec. 423.50 of this rule. Section 423.50 includes in the definition
of marketing materials: membership communication materials, such as
membership rules, subscriber agreements, handbooks and wallet card
instructions, letters about contractual changes, changes in premiums,
benefits, plan procedures, and membership or claims processing
activities. It also refers to required dissemination of information on
approved plan characteristics to enrollees as required in Sec. 423.128
of our proposed rule. The prohibition on marketing and branding means
that in none of these required activities or materials may the fallback
plan sponsor
[[Page 4400]]
use its corporate identity to brand the fallback plan; only references
to the approved name of the fallback plan or Medicare may be used.
Beneficiary education and outreach to employers potentially interested
in providing supplemental coverage will remain solely our
responsibility.
Payment will be based on reimbursement for actual costs
(taking into account price concessions) of covered Part D drugs
provided to Part D eligible individuals enrolled in the plan, and
management fees tied to the performance measures that we establish
including but not limited to those for cost containment, quality
programs, customer service, and benefit administration (including
claims adjudication).
Each contract for a fallback prescription drug plan must
require an eligible fallback entity offering a fallback prescription
drug plan to provide us with the information that we determine is
necessary to carry out the fallback plan payment provisions, and
calculate accurate payments, including, but not limited to, all
documentation relating to including 100 percent of drug claims, costs,
rebates and discounts, and disclosure of all direct and indirect
remuneration as offsets to the claim costs.
We can amend the contract at any time, as needed, to
reflect the exact regions or counties to be included in the fallback
service area(s).
Competitive procedures (as defined in section 4(5) of the
Office of Federal Procurement Policy Act (41 U.S.C. 403(5)) will be
used in fallback plan contracting.
Other contract terms will be specified during the bid
solicitation process.
We note that like all Part D plans, fallback prescription drug
plans must abide by all Federal and State laws regarding
confidentiality and disclosure of beneficiary health information,
including the obligation of fallback prescription drug plans as HIPAA
covered entities to comply with the HIPAA Privacy Rule.
Comment: One commenter asked us to clarify that the service area of
a fallback plan will not be changed except by mutual agreement of the
parties.
Response: Under umbrella contracts, service area applies to two
different aspects of the contract: one is where the fallback plan is
actually operating a plan in any given year, and the other is the
service area to which the umbrella provisions pertain, meaning the
total potential service area. A fallback plan would be required to
provide service as determined necessary by CMS in any additional area
covered under the umbrella terms but not beyond that service area.
Comment: One commenter recommended that we publish in advance of
bidding any proposed performance standards that we intend to use under
the proposed fallback contract. The commenter also recommended that
provisions be included in Sec. 423.871 to ensure that any performance
standards, as well as the requirements and process to establish that
the standards have been met, cannot change during the term of a
contract.
Response: In accordance with Sec. 423.871, we may specify other
contract terms during the bid solicitation process. The performance
standards we intend to use under contracts will be provided in the
fallback solicitation documentation prior to bidding. [Competitive
procedures (as defined in section 4(5) of the Office of Federal
Procurement Policy Act (41 U.S.C. 403(5)] will be used in fallback plan
contracting and potential fallback plan sponsors will need to compete
on these performance measures. Under Part D plan contract terms and
conditions, as described in Sec. 423.516, we agree not to implement
any significant regulatory requirements for a Part D plan other than at
the beginning of the year.
7. Payment to Fallback Plans (Sec. 423.875)
As provided in Sec. 423.875, the amount payable under approved
fallback prescription drug contracts would be the amount determined
under the specific contract negotiated for each such plan under Sec.
423.871(e). In the proposed rule we proposed some alternative payment
mechanisms, including draw down accounts and prospective payments, as
well prospective or retrospective rebate allocation methodologies.
Comment: One commenter recommended that we use a prospective
payment approach, and asked for more detail on how that system would
work.
Response: We published separately the proposed guidelines on
payment methodologies to Part D plans. Further guidance will be
included in the fallback plan solicitation documentation. Our goals are
to avoid any undue burden to fallback plans and at the same time
develop a method of payment that requires a limited amount of
adjustment.
R. Payments to Sponsors of Retiree Prescription Drug Plans
1. Introduction
Subpart R implements section 1860D-22 of the Act, which provides
for subsidy payments to sponsors of qualified retiree prescription drug
plans. Sponsors of qualified plans can receive an annual subsidy equal
to 28 percent of specified retiree drug costs.
We received 87 comments on subpart R in response to the August 2004
proposed rule. Below we summarize the major proposed provisions in the
subpart and respond to public comments. (For a detailed discussion of
our proposals, please refer to the proposed rule (69 FR 46736).)
2. Options for Sponsors of Retiree Prescription Drug Programs
The enactment of Title I of the MMA has provided sponsors of
retiree prescription drug plans with multiple options for providing
drug coverage to their retirees. In the preamble of the proposed rule,
we reviewed the various options available to sponsors. We believe the
availability of these various options will encourage sponsors to
continue to assist their retirees in having access to prescription drug
coverage. For the benefit of the sponsors, we again summarize the
options below.
Generally, employers and unions who offer drug benefits to their
retirees (and their dependents) who are eligible for Medicare Part D
can choose to:
(1) Continue to provide prescription drug coverage through
employment-based retiree health coverage. If such coverage is at least
actuarially equivalent to the standard prescription drug coverage under
Part D (as defined in Sec. 423.104 of the final rule), the sponsor is
eligible for a special Federal subsidy for each individual enrolled in
the sponsor's plan who is eligible for Part D but elects not to enroll
in Part D;
(2) Contract with a prescription drug plan (PDP) or Medicare
Advantage-prescription drug (MA-PD) plan to offer prescription drug
benefits to retirees who are eligible for Medicare. Alternatively, the
retiree plan sponsor itself could apply to be a Part D plan for its
retirees. Such plan may consist of ``enhanced alternative coverage''
(as defined under Sec. 423.104(f) of the final rule), offering drug
coverage that is more generous than the standard prescription drug
coverage under Part D (as defined under Sec. 423.104 of the final
rule); or
(3) Provide separate prescription drug coverage that supplements,
or ``wraps around,'' the coverage offered under Part D plans in which
the retirees (and their Medicare eligible dependents) enroll.
The first option is the subject of this subpart R. The latter two
options, which involve the employer or union's retirees (and their
dependents) enrolling in Part
[[Page 4401]]
D, were discussed in the preamble of the proposed rule for subpart J,
Sec. 423.454(b)
We note that if employers or unions elect to sponsor enhanced
alternative coverage under Part D or provide separate supplemental
coverage that wraps around Part D, this will affect the point at which
their retirees (and their dependents) are eligible for catastrophic
drug coverage, which will have consequences for the participants, the
sponsors, the plans, and the Medicare program. As specified in subpart
C of the final rule, individuals enrolled in a Part D plan are eligible
for catastrophic drug coverage after they incur out-of-pocket drug
costs in the amount specified under Sec. 423.104(d)(5)(iii) of the
final rule. Under the reinsurance provisions at Sec. 423.329(c),
Medicare will reimburse Part D sponsors 80 percent of their gross costs
for providing catastrophic coverage (excluding administrative costs and
reduced by any discounts, rebates, and similar price concessions). Only
drug costs paid by a Part D enrollee, or on behalf of a Part D enrollee
by another individual, a charitable organization or a qualified State
Pharmacy Assistance Program but excluding insurers, government-funded
health care programs, group health plans, and similar third party
arrangements, would count toward the annual out-of-pocket threshold. We
refer to those drug expenditures that count toward the out-of-pocket
threshold as ``true out-of-pocket (TrOOP) expenditures.''
Under these rules, sponsors who provide retirees (and their
dependents) enhanced alternative coverage in effect delay the point at
which an individual's total drug spending will trigger catastrophic
coverage, since participants in the plan will have lower cost-sharing,
and thus have lower out-of-pocket costs. Similarly, when employers or
unions sponsor supplemental coverage that wraps around Part D coverage,
there will be an increase in drug expense that must be incurred before
catastrophic coverage is triggered, since drug costs paid for by such
plans do not count toward the out-of-pocket annual limit. By delaying
the provision of catastrophic coverage, these plans lower the cost of
Part D to the Federal government by lowering our reinsurance payments.
As discussed above, under MMA, sponsors of retiree prescription
drug plans can provide coverage that supplements or ``wraps around''
the Part D standard benefit in two ways. First, plan sponsors can
purchase integrated supplemental coverage directly from a specific
Medicare prescription drug plan (PDP) or Medicare Advantage plan that
includes prescription drugs (MA-PD). Second, plan sponsors can maintain
a free-standing plan which is not tied to a specific PDP or MA-PD and
is meant to supplement any of the Part D plans that Medicare-eligible
retiree plan participants enroll in.
We also note that the choice between integrated and separate
supplemental coverage has operational implications for plan sponsors.
If the sponsor purchases integrated coverage through a PDP or MA-PD,
the enrollment of retirees in Medicare Part D will be handled by the
PDP or MA-PD. Under this approach, the dispensing pharmacy will only
need to undertake one transaction to the PDP or MA-PD; there would not
be separate standard Part D and supplemental coverage transactions. In
contrast, when sponsors provide coverage through a separate plan, they
(or their plan administrator) will only handle enrollment for their
free-standing coverage; retirees will be responsible for enrolling in
Part D coverage of their choice. We are sensitive to the concerns of
plan sponsors regarding the operational challenges of coordinating
separate plans with Part D plans. Therefore, we are exploring
approaches that stakeholders may be able to use to coordinate benefits
at point-of-sale among these plans through the use of a single point of
contact for coordination of benefits and facilitation of TrOOP
calculation at the Part D plan..
CMS has a program that can assist plan sponsors and administrators
with identifying Medicare eligible individuals covered under their
plans. This is a process called the Voluntary Data Sharing Agreement
(VDSA) process. Plan sponsors that enter into VDSAs will be better
prepared for enrolling their retirees into either integrated
supplemental coverage through a Part D plan, establishing a separate
plan to supplement or ``wrap around'' Part D coverage, or applying for
the retiree drug subsidy. There is no requirement that any employer
enter into a VDSA; it is strictly a voluntary process. (For more
information on VDSAs, go to the website at http://www.cms.hhs.gov/medicare/cob/employers/emp_vdsa.asp
). Other existing CMS programs
permit group health plans and other secondary payers to sign agreements
to receive Medicare paid claims data for the purpose of calculating
their secondary payment liability.
When an employer or union elects to sponsor retiree coverage
through a Part D plan, the employer, union or entity seeking to offer
or administer such coverage may submit written requests to us for
permission to waive requirements under Part D that hinder the design
of, offering of, or enrollment in an employer-sponsored group
prescription drug plan (as defined under Sec. 423.454) or a MA-PD plan
offered exclusively to the sponsor's retirees and their spouses and
dependents. We believe these waivers will facilitate efficient
administration and integration of sponsor-provided enhanced alternative
coverage with other retiree health benefits offered by the sponsor. For
example, the PDP or MA organization could request permission to
restrict enrollment in its Part D plan to the retiree plan sponsor's
retirees (and their dependents). Similarly, should the plan sponsor
wish to enroll its retirees (and their dependents) in its own plan,
with enrollment limited to such individuals, the sponsor could apply to
be a Part D plan sponsor organization offering a PDP or MA-PD plan, and
request such waivers as necessary. Further guidance on waivers will be
provided to assist sponsors in evaluating this option.
We encourage plan sponsors to carefully review each option and
determine which one is most beneficial to the sponsor and its retirees.
We believe that the variety of options will encourage sponsors to
retain drug coverage for their retirees.
3. Definitions (Sec. 423.882)
The final subpart R rules provide definitions that are critical to
understanding how the retiree drug subsidy functions. We received
comments regarding only a few of the proposed definitions under subpart
R: group Health Plan, qualifying covered retiree, allowable retiree
costs, and sponsor. We also amended the definition of gross covered
retiree plan-related prescription drug costs based upon comments
received in response to the definition of a covered Part D drug in
Sec. 423.100 in subpart C, and added a definition of sponsor agreement
in response to comments received on the proposed rule.
A. Group Health Plan: In general, the subsidy is paid for allowable
retiree costs in a sponsor's group health plan. The statute and the
proposed regulations incorporated the definition of Group Health Plan
that appears in section 607(1) of the Employee Retirement Income
Security Act (ERISA), 29 U.S.C. 1167(1). (This is also the definition
used in the health care continuation of coverage provisions of ERISA,
as added by the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA).) The statutory definition, incorporated in the proposed
regulations, also specifically includes
[[Page 4402]]
plans maintained for their employees by the Federal Government, plans
maintained by State or local governments, and church plans exempt from
Federal taxes, even if they are not subject to ERISA or COBRA
requirements.
In the preamble to the proposed rule we said we intended to model
our rules on the COBRA regulations (26 CFR Sec. 54.4980B-2, Q.6) that
apply for determining the number of group health plans sponsored by an
employer or a union, which is important for purposes of applying the
actuarial equivalence test. Under the COBRA rules, all health benefits
provided by a single employer constitute one group health plan, unless
it is clear from the instruments governing an arrangement or
arrangements that health care benefits are being provided under
separate plans, and the arrangement or arrangements are operated
pursuant to such instruments as separate plans. The COBRA rules also
provide that if a principal purpose of establishing separate plans is
to evade any requirement of law, then the separate plans will be
considered a single plan to the extent necessary to prevent the
evasion. To the extent that the COBRA rules require that an arrangement
be considered a single group health plan, the sponsor must follow
special rules for determining actuarial equivalence described in
section 4(b)(3) of this subpart of the preamble below.
Comments: Several plan sponsors, health plans, and employer
advocacy groups suggested that we adopt the rules in the COBRA
regulations for determining the number of plans sponsored by an
employer or union, but remove the requirement that the arrangements be
operated as separate plans. Some plan sponsors wanted the flexibility
to differentiate between various groups of retirees within a single
plan without compromising their plan's eligibility status. (For
example, some sponsors separate their retirees according to years of
service, family status, location, retirement date, coverage level,
contribution structure, etc.) An actuarial association agreed that we
should give employers and unions the flexibility to define plans and
move away from a single plan definition to allow multiple benefit
options to be included within a plan.
An employer advocacy group discouraged us from requiring a separate
filing, other than the attestation of actuarial equivalence, to satisfy
any documentation requirement for plan definition purposes. A
beneficiary advocacy group approved the use of the COBRA rules for
determining the number of plans, but suggested limits on how actuarial
valuation rules should be applied if there are multiple drug benefit
options.
Response: For the purposes of subpart R, the term group health plan
will mean plans that meet the definition of group health plan in ERISA
section 607(1), 29 U.S.C. 1167(1), including plans established or
maintained for its employees by the Government of the United States, by
the government of any State or political subdivision, or by an agency
or instrumentality of the foregoing; plans established or maintained
under or pursuant to one or more collective bargaining agreements; and
plans established or maintained for its employees (or their
beneficiaries) by a church or by a convention of churches which is
exempt from tax under section 501 of the Internal Revenue Code.
Provided they meet the definition of group health plan in ERISA section
607(1), those arrangements are treated as group health plans even if
the plans are not subject to ERISA or COBRA. Sponsors should use the
rules in the COBRA regulations and other guidance issued by the
Treasury Department and Internal Revenue Service for determining the
number of group health plans offered by a plan sponsor. However, as
discussed in Sec. 423.884, the final rule generally gives a sponsor
with different benefit options (including different cost-sharing
arrangements) within a single group health plan a significant degree of
flexibility to choose whether to measure actuarial equivalence and
receive subsidy payments for aggregated benefit options or to apply the
rules separately for each benefit option.
Comments: A business advocacy group recommended that defined
contribution accounts such as Health Reimbursement Accounts (HRAs),
Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs)
and Flexible Spending Arrangements (FSAs) be considered group health
plans for purposes of qualifying for the retiree subsidy. In addition,
they recommended that sponsors establishing account-style plans that
credit amounts during an individual's active service toward retiree
benefits have the discretion to allocate payments between medical and
drug costs for purposes of the actuarial equivalence test.
Response: The final rule clarifies that Health Reimbursement
Arrangements (HRAs) (as defined in Internal Revenue Service Notice
2002-45, 2002-28 I.R.B. 93, and Internal Revenue Ruling 2002-41, 2002-
28 I.R.B. 75) and health Flexible Spending Arrangements (FSAs) (as
defined in Internal Revenue Code (IRC) section 106(c)(2)) are treated
as group health plans given the nature of these arrangements, including
that they generally are treated as health plans by employers and unions
subject to ERISA. The term group health plan generally will not include
health savings accounts (HSAs) (as defined in IRC section 223) or
Archer MSAs (as defined in IRC section 220), unless these accounts are
treated as part of a group health plan under ERISA rules. While HSAs
and Archer MSAs may not be group health plans, any high deductible
plans that sponsors provide in connection with HSAs and Archer MSAs are
group health plans.
However, regardless of whether an account-type arrangement is a
group health plan, the nature of such a plan raises certain challenging
questions for purposes of the retiree drug subsidy program. For
example, how should the value of the prescription drug coverage
available through an account be determined if the account can be used
to pay for prescription drug coverage and other benefits? Will
beneficiaries be able to adequately compare that arrangement to
benefits available through Part D, particularly if the account stands
alone and is not offered in conjunction with other types of coverage
(such as high-deductible plans)? How can it be determined whether these
arrangements are creditable coverage for purposes of implementing the
late enrollment penalty in Sec. 423.46?
We intend to offer further guidance on these issues and on what
types of account-based arrangements can be considered for the subsidy.
Drug costs paid or reimbursed from funds in an HRA, which is
generally funded solely by the employer, do not count as an incurred
drug cost for purposes of the True Out-of-Pocket (TrOOP) rules, while
drug costs paid or reimbursed from funds in other types of accounts,
which can be funded by the employee, do count towards TrOOP. (See
subparts C and J of this preamble (Coordination of Benefits), for a
more detailed explanation of the rules for calculating TrOOP
expenditures.)
B. Qualifying Covered Retiree: The statute defines qualifying
covered retirees as Part D eligible individuals, who are not enrolled
in a Part D plan but who are covered under a qualified retiree
prescription drug plan. The statute indicates that qualifying covered
retirees include Part D eligible individuals who are spouses and
dependents of covered retirees. The proposed rule used the statutory
definition without further clarification.
[[Page 4403]]
Comments: An association of actuaries requested that the final
regulations clarify whether a qualifying covered retiree, under the
retiree drug subsidy calculations, includes an employee who is
receiving coverage following a disability and who is also entitled to
Medicare Parts A or B on account of that disability (and therefore
eligible for Part D). One employer advocacy group suggested that
disabled Medicare-eligible individuals under age 65 be considered
retirees for subsidy purposes, and that employers might drop coverage
entirely if we decide not to allow it.
An employer advocacy group encouraged us to deem persons with End
Stage Renal Disease (ESRD) as qualified retirees for purposes of the
subsidy, because these individuals might receive lower drug coverage
without such designation.
A government association sought clarification on the status of
domestic partners who are Part D eligible individuals and their
eligibility as qualifying covered retirees' dependents, for purposes of
calculating the retiree drug subsidy.
Response: For the purposes of subpart R, the term qualifying
covered retiree means a Part D eligible individual who is: (1) a
participant or the spouse or dependent of a participant; (2) covered
under employment-based retiree health coverage that qualifies as a
qualified retiree prescription drug plan; and (3) not enrolled in a
Part D plan. In general, sponsors will have flexibility to determine
whether an individual is a retiree, and to determine who are dependents
of retirees based on the coverage rules under the plan. However, a
participant is presumed to not be a retiree if the person is receiving
health coverage based on current employment status as determined under
the Medicare Secondary Payer (MSP) rule (Sec. 411.104 of this chapter)
(regardless of whether such rules apply to the sponsor). We believe
this approach gives reasonable flexibility to sponsors in terms of
defining who is a retiree or dependent for purposes of the subsidy
provisions. Under this definition, for example, sponsors generally can
treat a person who is entitled to Medicare based on disability as a
retiree for these purposes; sponsors can treat as a dependent any
person to whom the sponsor is providing coverage in connection with a
qualified covered retiree even if the person is not the retiree's
dependent for Federal or State tax purposes; and they can treat as
retirees self-employed persons and other individuals who previously
provided services to the sponsor of the group health plan on a
contractual, rather than employment, basis.
End Stage Renal Disease (ESRD) beneficiaries who are not active
workers meet the definition of a qualifying covered retiree if they do
not enroll in Part D. Accordingly, sponsors can count for purposes of
the retiree drug subsidy the allowable retiree costs of ESRD
beneficiaries, including those costs incurred in the first 30 months of
eligibility when the sponsor's plan is primary to Medicare.
Comments: Comments from employers, employer advocates and
government entities informed us that the retiree drug subsidy program
not only affects retirees of the sponsors, but also the possible
dependents of non-Medicare eligible workers or retirees who will be
eligible for Medicare and therefore covered by the reporting
requirements.
Response: In response to the comments regarding non-Medicare
eligible, active employees who have dependents who are Medicare Part D
eligible individuals, the sponsor would not be eligible to claim the
subsidy for the dependents because the covered worker is not in a
retiree status. For covered retirees who are not themselves Part D
eligible individuals, but who have dependents who are Part D eligible
individuals, the sponsor would be able to claim the dependents'
eligible prescription drug expenses under the subsidy.
C. Gross covered retiree plan-related prescription drug costs: The
proposed rules defined this term as ``non-administrative costs incurred
under the plan for covered Part D drugs during the year ... including
costs directly related to the dispensing of covered Part D drug''.
Section 423.100 of the final rule now makes a distinction between a
``covered Part D drug'' and a ``Part D drug.'' A ``Part D drug'' is a
drug that may be covered under Part D pursuant to section 1860D-2(e) of
the Act and a ``covered Part D drug'' is a Part D drug that is in a
Part D plan formulary. For purposes of calculating the appropriate drug
costs for the retiree drug subsidy, sponsors of retiree prescription
drug plans may count costs incurred for any drug that can be covered
under Part D. Accordingly, we have changed the definition of gross
covered retiree plan-related prescription drug costs to mean non-
administrative costs incurred under the plan for Part D drugs during
the year ... including costs directly related to the dispensing of Part
D drugs.
D. Allowable Retiree Costs: The proposed rule defined Allowable
Retiree Costs as gross covered retiree plan-related prescription drug
costs between the cost threshold and cost limit that are actually paid
by either the qualified retiree prescription drug plan or the
qualifying covered retiree (or on the retiree's behalf), net of any
manufacturer or pharmacy discounts, chargebacks, rebates, and similar
price concessions.
Comments: Several beneficiary advocacy groups wanted us to adopt a
definition of allowable retiree costs that included only the employer's
financial contribution to retiree drug coverage, not any of the
payments made by the retiree. They believe that including contributions
from the retiree could result in ``improper cost shifting.''
Response: There is no statutory authority to exclude retirees'
payments in the definition of allowable retiree costs. The statute
specifies that retiree drug subsidy payments are made for gross covered
prescription drug costs paid by or on behalf of a qualified covered
retiree. Thus, as long as coverage meets the actuarial equivalence
standard, costs paid by the retiree will be included along with sponsor
payments under the plan in determining retiree drug subsidy payment
amounts.
Comment: An association of actuaries found it difficult to
understand what we are is defining as gross costs to be used in
determining allowable retiree costs, but this might be due to a simple
terminology difference, so they suggest we provide examples to clarify
what costs should be used.
Response: The statute indicates that gross covered retiree plan-
related prescription drug costs are costs incurred under the plan, not
including administrative costs but including the costs directly related
to the dispensing of Part D drugs. The final rule retains the basic
statutory definition. We may (if needed) issue further guidance to
clarify what costs constitute gross covered retiree plan-related
prescription drug costs.
Comment: A government entity found the term price concessions
problematic because, as used in its contract with a pharmacy benefit
manager (PBM), that term refers to confidential and proprietary
information. Also, rebates are included in the pricing quoted to the
PBM, and are not an identifiable line item that can be easily
subtracted to determine allowable retiree costs.
Employer groups requested that we distinguish what will be included
in the definition of price concessions for the purpose of calculating
allowable retiree costs.
Specifically, the groups provided a number of comments on why price
concessions relating to performance guarantees and point-of-sale
discounts
[[Page 4404]]
should not be included in allowable retiree costs.
They claim that including such price concessions when calculating
allowable retiree costs would require a large, nearly impossible
administrative burden. Performance guarantees or incentives, as well as
point of sale discounts, lower the price of the prescription drug in a
manner that would make it burdensome for the sponsor to determine the
gross allowable costs. Thus, the employer groups argue that, in the
instance where performance guarantees and point-of-sale discounts
occur, reporting the actual cost to the sponsor as the gross cost
should be sufficient.
Response: The statutory provisions of the MMA specify that
allowable retiree costs may include only costs actually paid by the
sponsor or by or on behalf of a qualifying covered retiree, and that
rebates, chargebacks and average percentage rebates must be subtracted
from those costs. To comply with the statute, the final regulation
retains the requirement that these and similar price concessions be
taken into account in determining allowable retiree costs.
We anticipate providing any additional clarification that is
required for price concessions in further guidance. However, pending
such guidance, performance guarantees that are not predicated on actual
drug costs incurred, but rather on matters such as customer service
performance standards or identification card delivery, are likely not
the types of price concessions that need to be taken into account in
determining allowable retiree costs. Moreover, to the extent point-of-
sale discounts and other price concessions are passed through to the
beneficiary and plan at the point-of-sale for a given drug expense, the
allowable retiree costs and gross covered retiree plan-related
prescription drug costs for the expense would be equal, and the point-
of-sale discounts and other price concessions would not have to be
further subtracted from these costs when a sponsor calculates allowable
retiree costs as defined in Sec. 423.882.
Comments: For sponsors with fully insured plans, a health industry
association and insurers ask that we provide sponsors with the
flexibility to have the retiree drug subsidy calculated based on the
sponsor's premiums, using reasonable actuarial methods to determine
what portion of the premium is allocated to gross covered prescription
drug costs of qualifying covered retirees within the cost threshold and
cost limits. Commenters support that position by arguing that employers
and unions purchasing insurance do not pay actual incurred drug costs;
they pay a premium based on expected costs, which may be pooled with a
broader group of employers and unions. In a given year, an employer's
or union's retirees may incur drug costs that are more than or less
than the premium paid. They expressed concern that if drug costs
actually paid by the insurer rather than premiums paid by the employer
or union were the measure for subsidy payments, for any given retiree
the employer or union would be getting a subsidy payment that is likely
higher or lower than the allowable cost actually incurred by the
employer or union (via the premium) for that retiree.
As noted, the commenters propose using reasonable actuarial methods
to determine a percentage of the premium that approximates what was
paid for Part D-eligible retirees within the cost thresholds and cost
limits. They also request being allowed to perform these calculations
on an aggregate basis for all employers and unions with a specific
retiree drug plan, since the experience for the employers and unions is
pooled when determining premiums.
Another fully insured plan sponsor recommended that if the plan
sponsor contracts with an at-risk health plan, the retiree drug subsidy
should be a flat payment based upon the amount paid instead of adjusted
for actual experience and requested clarification as to how we
anticipate the subsidy to be integrated with fully insured plans.
Response: The statute specifically requires that a subsidy payment
be based on allowable retiree costs attributable to gross covered
retiree plan-related prescription drug costs, which are actual
prescription drug costs incurred under the plan (not including
administrative costs but including costs directly related to the
dispensing of Part D drugs) for a qualifying covered retiree. In
general, we believe the statute envisions that the incurred costs are
costs actually paid by the insurer for each qualifying covered retiree.
However, we also recognize the concerns that were raised in the
comments. Therefore, in lieu of submission of the cost data under Sec.
423.888(b)(2), the sponsor and insurer may choose instead to have data
submitted in the following manner. If an sponsor chooses monthly,
quarterly or interim annual payments as described in Sec.
423.888(b)(5), the interim subsidy payments made during the year can be
based on a determination by the insurer using reasonable actuarial
principles that allocates a portion of the premium costs charged to the
sponsor (excluding administrative costs, risk charges, etc., but
including premium costs that the sponsor requires the retiree to pay)
to the gross covered prescription drug costs incurred for a sponsor's
qualifying covered retirees between the cost threshold and the cost
limit. If the insurer determines premiums based on the pooling of a
sponsor's experience in a given policy, the insurer will be permitted
to make such determination based on the aggregate experience incurred
under the policy for the sponsor's qualifying covered retirees.
However, a revised cost determination must be submitted to us (within
the same time frame that year-end data is required under Sec.
423.888(b)(4)) that reflects the actual allowable retiree costs
attributable to gross retiree plan-related prescription drug costs
within the cost limit and cost threshold that were incurred under the
plan for each of the sponsor's qualifying covered retirees. Thus, we
must receive data described in Sec. 423.888 that indicates the extent
to which actual gross costs and allowable costs for a sponsor's
qualifying covered retirees were more or less than the sponsor's
previously-allocated premium costs. We will accept data submitted
directly by the insurer. Upon receiving this data, we will adjust the
payments made for the plan year in question in a manner to be specified
by us.
Comment: Several plan sponsors wanted clarification that subsidy
payments go to the plan sponsor, not the insurer.
Response: The statutory language is clear that the retiree drug
subsidy is paid to the plan sponsor.
Comment: Commenters suggested that we provide guidance on whether
the prices negotiated with sponsors of qualified retiree prescription
drug plans are exempt from the Medicaid best price calculation.
Response: In section 1927(c)(1)(C) of the Act, best price is
defined as the lowest price available from the manufacturer during the
rebate period to any wholesaler, retailer, provider, health maintenance
organization, non-profit entity, or governmental entity within the
United States. Among the exemptions listed in the statute are any
prices charged which are negotiated by a qualified retiree prescription
drug plan as defined in section 1860D-22(a)(2) of the Act. Therefore,
prices negotiated between a qualified retiree prescription drug plan
sponsor and a manufacturer will not go into the Medicaid best price
calculation.
E. Sponsor:
The proposed regulations state that sponsor means plan sponsor as
defined in ERISA (29 U.S.C. 1002(16)(B)), which is an employer in the
case of an
[[Page 4405]]
employee benefit plan established or maintained by a single employer or
an employee organization (for example, trade union) in the case of a
plan established or maintained by an employee organization. In the case
of a plan established or maintained by two or more employers or jointly
by one or more employers and one or more employee organizations, ERISA
defines the sponsor as the association, committee, joint board of
trustees or other similar group of representatives of the parties who
establish or maintain the plan. The MMA modifies the definition when
the plan is maintained jointly by one employer and one employee
organization; if the employer is the primary financing source, sponsor
means only the employer.
Comments: A governmental organization indicated that plans such as
its own are exempt from ERISA and therefore may not fall within the
strict definition of an ERISA plan. This plan believes that
Congressional intent was to include plans like it, and requests that we
include a provision to allow governmental plans offering a qualified
retiree prescription drug plan to receive the retiree drug subsidy.
A State government entity expressed concern over the definition of
sponsor and whether or not it would be included under the Part D final
regulations even though it is not covered under ERISA. A national
association of public employee retirement systems indicated its
preference that the final regulations not contain a definition of plan
sponsor, or if they must, that the definition of plan sponsor defer to
applicable State and local laws and regulations. The association
suggested this because they think that imposing a definition in the
final regulations could have unintended impact on State and local laws.
Response: As noted above, the definition of a group health plan
includes plans sponsored by Federal and State government plans and
their political subdivisions, agencies and instrumentalities. Thus, we
agree that under the MMA, States and other governmental organizations
can potentially qualify as sponsors. We believe the definitions for
sponsor and for group health plan as stated in the proposed rule
clearly indicated this. We believe a more specific definition of a
sponsor in the final rule that takes into account the various types of
sponsor arrangements that may exist would be problematic. We will
consider issuing additional guidance to sponsors based on their
particular facts and circumstances.
F. Benefit option:
In response to comments we received on applying the actuarial
equivalence test to individual plans (summarized in the discussion of
actuarial equivalence in section 4(b)(3) of the preamble, below), we
have added in the final rule a definition of benefit option, which we
define as a particular benefit design, category of benefits, or cost-
sharing arrangement offered within a group health plan.
4. Requirements for qualified retiree prescription drug plans (Sec.
423.884)
(a) Overview
(1) General Requirements
In the proposed rule, we outlined the general requirements for
applying for the retiree drug subsidy, including the submission of an
attestation of actuarial equivalence and the disclosure notices to
beneficiaries. We requested comments on the most effective methods of
conducting outreach as well as prospective venues for conducting the
outreach.
Comments: Several commenters emphasized that it was critical that
we provide guidance on the retiree drug subsidy process as soon as
possible in light of the fact that enrollment is to begin in 2005.
Several comments requested that we publish the final rule by December
31, 2004 and issue guidance before that date.
Response: We respect the prospective sponsors' need to have
guidance on the retiree drug subsidy as soon as possible due to the
complexity and timing of the process. In addition to promulgating this
final rule and issuing other guidance as quickly as possible, we will
continue to conduct outreach to various groups to educate the
stakeholders on the requirements for applying for the retiree drug
subsidy.
(2) Privacy and Confidentiality
The HIPAA Privacy Rule at 45 CFR part 160 and subparts A and E of
part 164 (``Privacy Rule'') applies to ``covered entities,'' which
include group health plans and health insurance issuers, as defined in
45 CFR 160.103. Third party administrators would be business
associates, as defined in 45 CFR 160.103, of group health plans.
Sponsors would not become covered entities by sponsoring a plan.
Sponsors typically do not perform administrative activities for their
group health plans and therefore do not have access to the claims
information or similar protected health information (PHI) we require in
this regulation to support the retiree drug subsidy payment. Much of
the data that we would need to support the retiree drug subsidy
payments, as outlined above, would be PHI held by group health plans,
health insurance issuers, or third party administrators on behalf of
group health plans.
As indicated in the proposed rule, we believe that we have the
authority to mandate the disclosure of the PHI in accordance with our
oversight authority under section 1860D-22(a)(2)(B) of the MMA, and
covered entities on behalf of individuals eligible for benefits under
Part A or Part B can comply with the mandate (without first obtaining
specific authorization from individuals) pursuant to ``the required by
law'' provisions of the Privacy Rule (45 CFR 164.512(a)). We have added
a paragraph, Sec. 423.884(b) to clarify that a disclosure to us by a
group health plan or health insurance issuer is required by law when
necessary for the sponsor to comply with this subpart.
As noted above, typically group health plans and issuers or third
party administrators acting on behalf of group health plans, have PHI
that CMS requires for the submission of cost and claims data for
payment of the retiree drug subsidy pursuant to Sec. 423.888(b)(2) and
other sections. In these situations, it may be unlawful, under the
Privacy Rule, for PHI to be shared with the sponsors. Therefore, for
purposes of this subpart, the sponsor must have a written agreement
with the group health plan or health insurance issuer, as applicable,
regarding disclosure of records, and the plan or issuer must disclose
to us, on the sponsor's behalf, the information necessary for the
sponsor to comply with this subpart. Sponsors of self-funded plans with
access to such data will be able to either provide this data to us
themselves or have a group health plan or insurer provide the data to
us on their behalf. We asked for comments on the impact this transfer
of data will have on the plan sponsors, group health plans, issuers and
third party administrators.
Comments: An business consulting firm indicated that employers do
not collect Medicare information on their retirees because of HIPAA
privacy concerns and that requiring employers to store this data will
add a great deal of administrative complexity and cost. A
pharmaceutical company recommended that we require that only total
aggregate cost data (not broken out by individual retirees) be
submitted to us for payment purposes in order to protect patient
privacy. An employer advocacy group agreed that we have the authority
to mandate disclosure of PHI for retiree drug subsidy purposes and
requested that we clarify that individual authorization not be required
for such disclosure. A human resource
[[Page 4406]]
management association also agreed that we have the authority to
mandate disclosure of PHI and requested that we clarify that the
disclosures will not violate State privacy statutes.
Response: As noted above, employers will not be required to collect
or maintain Medicare data on their retirees for purposes of collecting
the retiree drug subsidy. They can direct their group health plans or
health insurance issuers, as well as third party administrators (or
other business associates), to submit the required protected data to us
on their behalf. We agree that individual authorization will not be
required for the disclosure of the data to us since the disclosure is
required by this regulation for purposes of payment of the retiree drug
subsidy.
The HIPAA Privacy Rule preempts a contrary provision of State law
except in specific circumstances, such as if the State law is more
stringent-that is, more protective of privacy-than the Privacy Rule.
(See 45 CFR Part 160, subpart B). Therefore a sponsor, or an issuer,
plan or third party administrator on behalf of a sponsor, may need to
comply with State privacy laws as well as the HIPAA Privacy Rule in
disclosing information to us.
Comments: Several pharmaceutical companies requested that we extend
the confidentiality protections under the Medicaid rebate law to data
submitted to us under Sec. 423.888.
Response: We agree that the rebate information being disclosed to
us is confidential. We believe that protections provided under other
sections of the regulation will ensure this. We anticipate issuing
further guidance regarding this issue.
(b) Actuarial Attestation
In order to be eligible for a subsidy, the coverage of a sponsor's
qualified retiree prescription drug plan must be at least actuarially
equivalent to the standard Part D coverage. The sponsor will have to
annually submit to us an attestation that its coverage meets this
requirement. We discuss below the methodology and the standards for the
sponsor submission of the actuarial attestation.
1. Timing, Who Can Submit, and Public Access to Data
(a) We proposed to require that the attestation be submitted to us
before September 30, 2005 for the calendar year 2006 and at least 90
days before the beginning of the calendar year (or plan year, depending
on whether the final rule used a plan year approach) for subsequent
years. We also proposed to require that an attestation be submitted to
us at least 90 days prior to the effective date of any material change
to the drug coverage of the plan that impacts the actuarial value of
the coverage.
Comments: Among the comments that we received, a business
consultant requested that we shorten the time period for submission of
the actuarial attestation to 30 days prior to the start of the year
because most employers and unions do not know their final plan design
90 days in advance. An actuarial consultant, on the other hand,
indicated that the 90 day timeframe was reasonable and sufficient to
accomplish the objectives of the MMA. We received comments from several
employer groups recommending that we not require subsequent annual
attestations from sponsors that had not implemented any changes in
their retiree drug coverage since the previous submission of the
attestation for the plan.
Response: In the final rule, we require that the attestation be
submitted 90 days before the start of the plan year and by September
30, 2005 for plan years ending in 2006 (see our discussion of plan year
vs. calendar year under Sec. 423.888), unless an extension request has
been filed by the date under rules specified by the Secretary. We also
require the filing of attestations 90 days prior to the effective date
of any material change. We believe this process provides us sufficient
time to review the attestation and to notify the sponsor of any
problems (for example, attestation not signed by a qualified actuary),
yet is flexible enough to permit extensions in necessary cases.
The final rule retains the requirement that sponsors submit a new
actuarial attestation on an annual basis, even if a sponsor has not
implemented any changes to its retiree coverage since the previous
submission of the attestation for the plan. The thresholds for Part D
coverage will change each year and this may impact whether the
sponsor's plan is actuarially equivalent.
Comment: A beneficiary advocacy group indicated that a requirement
of 90 day advance notice to beneficiaries of any change that will
render coverage no longer actuarially equivalent is an important
protection.
Response: To be consistent with the policy on creditable coverage
and reflect statutory requirements, the final rule requires that
sponsors provide notice to beneficiaries prior to any change that will
render coverage no longer creditable. See the discussion in subpart B
of the preamble for further guidance on creditable coverage notice
requirements. Advance notice regarding changes in actuarial equivalence
is not required by the MMA, and we decline to impose that requirement
in the final rule. See also our response to the following comment.
Comment: Several union and beneficiary advocacy groups recommended
that we provide public access to the assumptions and methods used by
sponsors for their attestations of actuarial equivalence. A union
suggested that we develop a form, similar to the Department of Labor's
5500 form (used for ERISA disclosures), for sponsors to file with their
attestations, which would then be accessible for public inspection. The
unions and beneficiary advocates indicated that public access to this
data would increase public confidence in the retiree drug subsidy
program and would permit the retirees to monitor the sponsors' filings
for accuracy. Business advocacy groups indicated that the Congress
neither required employers or unions to disclose their actuarial
equivalency calculations to anyone but us for audit purposes, nor gave
individuals the right to challenge an employer's or union's actuarial
equivalency determination. An actuarial consultant recommended that the
attestation of actuarial equivalence and the application for the
subsidy should be submitted and therefore disclosed to CMS only. The
consultant indicated that the data submission and the application may
have proprietary information embedded in it, as well as beneficiary
data subject to privacy concerns.
Response: While we understand the rationale for requiring public
disclosure of certain attestation data, we have concerns that requiring
public disclosure of the assumptions and methods used for the actuarial
attestation could inhibit the desire of sponsors and their service
providers to file for the subsidy and to maintain their retiree drug
benefits, for example, for fear of disclosure of proprietary data. We
want to further study this issue to determine if there is a level of
public disclosure of attestation data that will enhance beneficiary
confidence in the retiree drug subsidy program but will not deter
sponsors from filing for the subsidy and maintaining their retiree
coverage.
(b) In the proposed rule, we require that the attestation be
certified by the attesting actuary. We also required that the attesting
actuary be a member of the American Academy of Actuaries.
Comments: We received several comments from small employers stating
that we should accept attestations of actuaries with the insurance
carriers or with third party administrators who can attest on behalf of
the sponsor that the sponsor's retiree drug coverage is
[[Page 4407]]
actuarially equivalent to Part D. It was indicated that small employers
may not have the resources to hire an actuary for the attestation.
Response: We agree that sponsors can submit attestations of
actuaries employed by insurance carriers, pharmacy benefit managers or
the third party administrators of their retiree drug plans. The
attestation will be submitted in a form or forms approved by us in
additional guidance. We expect to require the attestation to solely
address the sponsor's plan and meet all requirements for the
attestation.
Comment: One health care industry organization requested that due
to the cost of an annual attestation, small employers should be allowed
to submit an application, their eligibility list and plan benefit
descriptions, provide us with two years of experience or premium data,
and have our actuaries perform the attestation on behalf of their plan.
Response: The statute states that, as a condition of receiving the
retiree drug subsidy, the sponsor must provide the attestation to us.
As indicated above, a sponsor can have an outside actuary do the
attestation and the attestation may be submitted directly by such
outside actuary or by the plan sponsor to us pursuant to the procedures
outlined in this final rule.
2. Establishing Actuarial Equivalency
In the proposed rule, we outlined three options for the actuarial
equivalence standard. The first option was a single prong gross value
test in which the plan design of the sponsor's retiree drug plan will
be compared with the plan design of standard prescription drug coverage
under Part D without taking into account the financing of the coverage.
This test would generally require that the expected amount of paid
claims (or plan payout) under the retiree prescription drug coverage be
at least equal to the expected amount of paid claims under the standard
Medicare Part D benefit. The second option involved using the ``gross
value'' test as in option one but restricting the subsidy payment to no
more than what the sponsor contributed towards the cost of the retiree
drug coverage. The third option was a two-prong test in which the first
prong is the gross value test as in option one, and the second prong is
a net value test which takes into account the sponsor's contribution
toward the financing of the retiree prescription drug coverage.
The proposed rule also discusses several variants for determining
the value of the second prong of option three, the net value test. The
lowest variant proposed is the average per capita amount that Medicare
will expect to pay for the retiree drug subsidy. A second variant was
the after-tax value of the retiree drug subsidy, since the subsidy is
not subject to Federal income tax. The highest variant stated in the
proposed rule would compare the gross value of the plan design reduced
to account for the level of benefits financed by the beneficiary (that
is, by subtracting out the retiree premiums) to the expected value of
paid claims under standard prescription drug coverage under Part D
minus the retiree's expected monthly beneficiary premium for the
coverage. As we indicated in the preamble to the proposed rule,
adopting a higher variant for the net value could arguably provide
greater protection for beneficiaries against cost-shifting but also
make it more difficult for sponsors to qualify for the subsidy.
Conversely, adopting a lower variant would allow more sponsors to
qualify for the subsidy but may discourage some employers and unions
from increasing their contributions to reach the higher threshold
level.
Comments: We received numerous comments on this standard. The vast
majority of the comments, including those from both the business groups
and beneficiary advocacy groups, supported the two-prong test (option
three) as best serving our stated goals of maximizing the number of
retirees that retain their employer and union retiree drug coverage and
not creating windfalls to the sponsors. Several comments supported the
single prong gross value test (option one) because they felt there was
no legislative authority to require any other test. The comments were
varied regarding the value of the second prong of option three, the net
value test. The beneficiary advocacy and union groups generally
supported the highest variant stated in the proposed rule, asserting
that lower values would allow sponsors to shift additional costs to
retirees while still qualifying for subsidy payments. They believe a
higher variant would give sponsors a disincentive for such cost-
shifting. Employer and business groups supported the lowest variant,
the expected per capita value of the retiree drug subsidy. They
expressed concern that higher thresholds would make fewer employers and
unions eligible for the subsidy, and thus conflict with the critical
goal of giving as many employers and unions as possible an incentive to
retain their retiree coverage.
Several employer groups proposed an additional variant for the net
value test. The subsidy provides an incentive to sponsors to continue
providing retiree drug coverage rather than reduce coverage and provide
benefits that supplement those provided under standard prescription
drug coverage under Part D. Therefore, in determining whether the drug
coverage provided under a sponsor's group health plan is of sufficient
value to qualify for the subsidy, the employer groups argued that the
sponsor's coverage should be compared to the value of the standard
prescription drug coverage that a retiree would receive if the retiree
had both the Part D coverage and the sponsor's supplemental coverage.
This approach will have the effect of delaying the point at which the
individual can qualify for catastrophic coverage under Part D, which is
only available when an individual's true out-of-pocket (TrOOP) expenses
exceed a specified threshold. Because beneficiary out-of-pocket drug
costs reimbursed through group health plans are excluded from TrOOP,
the existence of employer or union coverage that reimburses retirees
for some of their out-of-pocket drug costs would mean it would take
longer for the beneficiary to qualify for catastrophic coverage under
his or her Part D plan, and the value of the Part D coverage to the
retiree therefore would be less.
These same groups also proposed that we allow sponsors to use the
expected per capita value of the retiree drug subsidy as a proxy for
this test since, by their calculation, both tests result in
approximately the same value for Part D.
Response: While the single prong gross value test will maximize the
number of beneficiaries retaining their employer and union-based drug
coverage, it will be the most likely of all the options to create
windfalls to the sponsors. The second option raised in the proposed
rule using the gross value test as in option one but restricting the
subsidy payment to no more than what the sponsor paid into the retiree
drug coverage has the advantages of eliminating windfalls and being
simple to describe and operationalize. However, we had questions about
the adequacy of the legal basis underpinning that policy, and we did
not receive any comments that would help alleviate those legal
questions.
Accordingly, we agree with the majority of the comments that the
two-prong test (option three) accomplishes our goals of maximizing the
number of beneficiaries retaining employer and union-based retiree drug
coverage while not creating windfalls to sponsors. Thus, our final
regulations state that in order to qualify for the retiree drug
subsidy, a sponsor's plan must meet the gross value test (which is
equivalent to
[[Page 4408]]
the test used in determining whether coverage is creditable
prescription drug coverage under Sec. 423.56), and an additional test
that takes into account retiree premium payments.
Balancing the various policy goals and statutory restrictions in
determining the appropriate way of valuing standard prescription drug
coverage (to which sponsors should be comparing their coverage under
the net value test) is a difficult challenge. The more stringent we set
the standard, the fewer the number of sponsors that will qualify for
the subsidy, which will likely have an adverse impact on the future
availability of retiree drug coverage. However, a higher value is less
likely to create windfalls to sponsors. In addition, as noted above, we
believe the applicable statutory provisions under section 1860D-
22(a)(2)(A) of the Act impose some constraints on the methods that can
be used in determining actuarial values for this purpose.
We believe the most appropriate way of balancing these competing
issues is to establish in the final rule that employment-based retiree
drug coverage satisfies the actuarial equivalence standard if its
actuarial value (as determined after reducing the gross value of the
benefit by expected retiree premiums) is at least equal to the net
value of defined standard prescription drug coverage under Part D (as
determined after reducing the gross value of the benefit by the
expected monthly beneficiary premiums), with the net value of the
defined standard prescription drug coverage reflecting the impact of
employer or union-sponsored prescription drug coverage that would
supplement the beneficiary's defined standard prescription drug
coverage. As explained previously, the existence of coverage
supplemental to the standard prescription drug coverage would postpone
the point at which the retiree would receive catastrophic coverage
under defined standard prescription drug coverage (as defined under
Sec. 423.100). This would have the effect of decreasing the expected
amount of paid claims under the defined standard prescription drug
coverage, and thus would decrease the actuarial value of the coverage.
We agree with commenters that it is reasonable to take this
approach given that many employers and unions will be deciding between
continuing to provide retiree drug coverage as a primary payer for
retirees (and accept a subsidy), and coordinating their retiree drug
coverage with Part D (with the sponsor becoming a secondary payer for
Part D drugs). Sponsors are likely to consider the impact of their
supplemental coverage on the value of the Part D benefit for their
retirees (for example, reducing the value of the reinsurance subsidy
for catastrophic coverage) in their calculations. We believe that using
this approach will help maximize the number of Medicare beneficiaries
that retain their employment-based retiree coverage.
Because Sec. 423.100 defines the term ``standard prescription drug
coverage'' under Part D to mean either defined standard prescription
drug coverage or actuarially equivalent standard coverage, we clarify
that sponsors must use defined standard coverage (and not actuarially
equivalent standard coverage) as the fixed point of comparison for
applying the actuarial equivalence standard.
We disagree with commenters who suggested that we lack the legal
authority to adopt a two-prong net actuarial equivalence. We believe
our two-prong net actuarial equivalence best reflects Congressional
intent. Under section 1860D-22(a)(2)(A) of the Act, the sponsor of
employment-based retiree health coverage is entitled to the retiree
subsidy only if the sponsor provides us with an attestation that the
``actuarial value of the prescription drug coverage under the
[sponsor's] plan ... is at least equal to the actuarial value of
standard prescription drug coverage.'' As discussed above, were we to
interpret this statutory provision as only allowing an actuarial
equivalence standard that compares the gross value of the prescription
drug benefits provided under the sponsor's plan to the gross value of
the benefits provided under standard prescription drug coverage,
sponsors who contribute little or nothing toward the cost of their
retirees' prescription drug coverage would receive a windfall. We do
not believe the Congress intended to provide subsidies to sponsors when
the sponsor's retirees pay all or most of the plan premium for
prescription drug coverage. The conference report to the MMA explains
that the purpose of the retiree subsidy is to help employers retain and
enhance their prescription drug coverage so that the current erosion in
coverage would plateau or even improve. (See H.R. Conf. Rep. No. 108-
391, at 484 (2003)). This erosion in employer-sponsored prescription
drug coverage reflects the rising financial burden for sponsors who
finance, in substantial part or in whole, the cost of such coverage.
(See ``Current Trends and Future Outlook for Retiree Health Benefits:
Findings from the Kaiser/Hewitt 2004 Survey on Retiree Health
Benefits'') As suggested in the Conference report, providing a subsidy
to these sponsors would lower their financial cost of providing retiree
prescription drug coverage, thereby decreasing the likelihood a sponsor
will terminate such coverage. However, providing a subsidy to sponsors
that bear little or none of the cost of providing retiree prescription
drug coverage but instead shift the cost of such coverage to retirees
would do little to reverse this trend. We believe we have an obligation
to interpret the statute in a manner that would avoid the absurd result
of providing a windfall to sponsors that bear little or none of the
cost of their retiree prescription drug coverage, thereby giving effect
to the Congress' likely intent.
We also believe our interpretation reflects a permissible reading
of the statute. We believe the statute affords us significant
discretion in adopting a methodology to determine actuarial equivalence
under Part D, including for purposes of the retiree subsidy. First, we
interpret section 1860D-11 of the Act as allowing us to establish more
than one process for assessing the actuarial value of prescription drug
coverage. Section 1860D-11(c)(1) of the Act states that the Secretary
``shall establish processes and methods for determining the actuarial
valuation of prescription drug coverage, including--(A) an actuarial
valuation of standard prescription drug coverage under section 1860D-
2(b).'' We believe the use of the plural terms ``processes'' and
``methods'' authorizes us to adopt a methodology for determining
actuarial equivalence for purposes of the retiree subsidy that differs
from the methodologies used to determine actuarial equivalence under
other sections of this Part, such as the determination of whether
alternative coverage is creditable prescription drug coverage under
Sec. 423.56 of the final rule.
Second, we believe our interpretation of the actuarial equivalence
requirement under section 1860D-22(a)(2)(A) of the Act to take into
account the sponsor's financial contribution finds support under
section 1860D-2(c)(1) of the Act. Section 1860D-2(c)(1) of the Act
establishes a multi-step test for comparing the actuarial value of
alternative prescription drug coverage to standard prescription drug
coverage. In the first step under section 1860D-2(c)(1)(A) of the Act,
the Secretary looks only at plan design and ensures that the actuarial
value of the total coverage provided under the alternative prescription
drug coverage is at least equal to the actuarial value of standard
prescription drug coverage.'' In the second step under section 1860D-
2(c)(1)(B) of the Act, however,
[[Page 4409]]
government financing is taken into account. Section 1860D-2(c)(1)(B) of
the Act provides that the ``unsubsidized value of the [alternative]
coverage must be at least equal to the ``unsubsidized value of standard
prescription drug coverage.'' The unsubsidized value is determined by
subtracting the government reinsurance and direct subsidies provided
under section 1860D-15 of the Act from the total value of the
alternative prescription drug coverage. While this is the inverse of
how sponsors will determine the actuarial value of prescription drug
coverage provided under their plans and standard prescription drug
coverage for purposes of this subpart, it does demonstrate that the
Congress believed that a determination of the actuarial value of
prescription drug coverage could take into account the financing of the
coverage.
We also note that there is precedent for us taking into account
financing in determining the value of coverage. For example, in
accordance with section 1854(e) of the Act, currently premiums are
included in the comparison of beneficiary liability for cost sharing
under a MA plan to the cost-sharing required under original fee-for-
service Medicare, although we note that premiums will not be included
in this comparison beginning in 2006.
Comment: We received several comments from employer groups and
actuarial consultants requesting that we not issue a fixed numerical
value for the net value test and allow sponsors to calculate a value
based upon their own claims experience. Some commenters had requested
advance indication of safe harbors relating to minimum benefit designs
that would meet the requirements for actuarial equivalence to ease the
uncertainty associated with the various filing processes and increase
the likelihood of filing success.
Response: We agree with commenters requesting that we not issue a
fixed numerical value for the net value test and instead will require
sponsors to calculate the value of the prescription drug coverage
provided under the sponsor's plan and defined standard prescription
drug coverage under Part D based upon their own claims experience for
plan participants or their spouses or dependents who are Part D
eligible individuals. Section 1860D-22(a)(2) of the Act requires
sponsors to provide an attestation of actuarial equivalence ``with
respect to a Part D eligible individual who is a participant or
beneficiary under'' the sponsor's plan. We believe requiring sponsors
to base their actuarial valuation on these individuals' claims
experience best reflects the true value of the prescription drug
coverage under the plan, as compared to the defined standard
prescription drug benefit, for those individuals. However, we recognize
that not all sponsors will have sufficient claims data to support a
reasonable calculation of the actuarial value of prescription drug
coverage under the sponsor's plan and defined standard prescription
drug data based on actual claims data. We will allow these sponsors to
utilize alternative normative databases in accordance with CMS
guidance.
We will issue further guidelines on the appropriate methodology for
the actuarial equivalence test in line with the standard outlined
above. The guidelines will include simplified actuarial methods that
could be used to qualify for the retiree drug subsidy. We believe these
simplified methods will be particularly useful for sponsors that may
have difficulty measuring the impact of their benefit design on the
value of defined standard prescription drug coverage because the design
differs significantly from the defined standard prescription drug
coverage.
For example, we anticipate that if there is an out-of-pocket
maximum in the sponsor's plan (that is less than the out-of-pocket
threshold under Sec. 423.104(d)(5)), sponsors will be able to
disregard the value of Part D catastrophic coverage that would be
provided if participants enroll in defined standard prescription drug
coverage under Part D. We also anticipate developing and publishing
simplified actuarial methods for comparing a sponsor's plan with the
defined standard prescription drug benefit that includes the actuarial
impact of any supplemental employer or union coverage.
Comment: We received one comment from an association of church
plans stating that we should allow sponsors to use the single prong
gross value test to determine whether their coverage is actuarially
equivalent to Part D if the sponsors will certify that the retiree drug
subsidy payment will go into a trust for the benefit of the
beneficiaries in the plan.
Response: If we allowed certain sponsors to use the single prong
gross value test for the actuarial equivalence standard in applying for
the retiree drug subsidy, there would be no guarantees of prohibiting
windfalls to those sponsors. Accordingly, the two prong standard, as
defined in the final rule, shall apply to all sponsors who apply for
the retiree drug subsidy.
3. Applying the Actuarial Equivalence Test to Plans with Multiple
Benefit Designs and Cost Sharing
As noted above, the proposed rule proposed to use the COBRA
regulations as a model for determining how many group health plans a
sponsor provides and which benefit options are included within a single
health plan. Under those rules, all benefit options offered by a
sponsor would be treated as a single group health plan unless through
its documents and operations, the sponsor treats them as separate
plans. Under the proposed rule, sponsors would then be required to
determine actuarial equivalence for each plan as a whole. That is, a
plan would be actuarially equivalent if, on average, the actuarial
value of retiree drug coverage under the sponsor's employment-based
retiree health plan were at least equal to the actuarial value of
defined standard prescription drug coverage under the actuarial
standards described above.
Comments: While several employer groups agreed with our use of the
COBRA definition of a plan as a model for determining what benefit
options are included within an employer's group health plan, they
indicated that sponsors need additional flexibility to distinguish
among retirees with different arrangements within a single plan for the
purpose of determining actuarial equivalency. They felt that sponsors
should be given the discretion to aggregate all retirees in a single
plan as a whole or to apply the test to each individual benefit option
within a plan. An association of actuaries commented that, if we give
employers and unions the flexibility to define plans, then employers
and unions will presumably do so in a way that will maximize their
subsidy payment. However, a beneficiary advocacy group questioned
whether, if an aggregate average is allowed across multiple options for
purposes of the test, payment could be made on the basis of incurred
costs in a drug option that does not meet the actuarial equivalence
standard on its own. The same group suggested using the enrollment
numbers to determine a weighted average across multiple options in
order to protect retiree's interest.
Response: We believe section 1860D-22(a)(2)(A) of the Act is
subject to two reasonable interpretations: under the first
interpretation the actuarial equivalence standard would be applied to
the group health plan as a whole, and under the second interpretation
the actuarial equivalence standard would be applied for each benefit
option (including separate cost-sharing
[[Page 4410]]
arrangement) within a single group health plan. At this point in time,
we elect not to choose between these two reasonable interpretations of
the statute. The final rule provides sponsors with flexibility by
allowing them to choose whether to apply the net prong of the actuarial
equivalence test for each benefit option, or to apply the net prong of
the actuarial equivalence test on an aggregated basis for all benefit
options within a group health plan that satisfy the gross test and
creditable coverage standard of Sec. 423.56. This flexibility will
accommodate sponsors that have a wide variety of benefit options for
their retirees. However, each benefit option in the sponsor's plan must
independently satisfy the gross prong of the actuarial equivalence
test. The gross test is equivalent to the actuarial equivalent standard
applied for purposes of determining whether a group health plan is
creditable prescription drug coverage. As explained in subpart B, the
actuarial equivalence standard for creditable prescription drug
coverage is separately applied to each benefit option in the sponsor's
group health plan. We do not believe it would be appropriate to provide
sponsors a subsidy under this subpart for qualifying covered retirees
enrolled in a benefit option that is not creditable prescription drug
coverage. Therefore, the final rule provides that sponsors must apply
the gross prong of the actuarial equivalence standard to each benefit
option for which the employer seeks to receive a retiree drug subsidy.
4. Applying the net test to plans with integrated drug and non-drug
premiums.
Comments: One commenter noted that it was unlikely that retiree
health plans would include a separate identifiable premium for drug
benefits and that an estimate of the portion of the total premium
relating to the drug benefits would have to be made prior to doing a
net value calculation on actuarial equivalency. An employer consultant
firm commented that employers and unions should have wide latitude to
restructure, redesign, or otherwise limit or improve benefits and the
employer's or union's contribution thereto. A human resource management
association requested that the final rule clarify that employers and
unions may determine how such amounts are to be allocated based on
sound actuarial principles.
Response: We agree that sponsors (both those with insured benefits
and those with self-funded benefits) generally should have flexibility
to design premium structures that are most appropriate for their
employees and retirees. We also recognize that many employers and
unions offer medical and drug benefits as an integrated package
providing support to the beneficiaries and supplementing their current
Medicare Parts A and B coverage, and in addition have included the drug
benefit since Medicare has not previously provided coverage for
outpatient prescription drugs. Accordingly, in many respects for those
employers and unions that decide to take the retiree drug subsidy, this
subsidy will help maintain retiree health coverage, including both
medical and drug benefits.
The final rule provides maximum flexibility to sponsors in
allocating the premium between the medical and drug benefits for the
purpose of determining the actuarial equivalence of the drug benefit.
By doing so, we are not allowing for a windfall subsidy payment to the
sponsors since, in order to meet the net test for actuarial equivalence
test and qualify for the retiree drug subsidy, the sponsors will have
to make a substantial financial contribution towards the retiree health
coverage.
(c) Sponsor Application for Subsidy Payment and Required Information
In the proposed rule, we proposed to require that a plan sponsor
who wishes to be paid the retiree drug subsidy must annually submit to
us a subsidy application, actuarial attestation, and a list of
qualified covered retirees, no later than 90 days prior to the
beginning of the plan year. For a subsidy to be paid for 2006, we
proposed that the application be submitted no later than September 30,
2005. Plans that begin coverage in the middle of a year would have to
submit the application 90 days prior to the date the coverage begins.
Sponsors that establish new plans after September 30, 2005 would have
to submit the application no later than 150 days prior to the start of
the new plan.
Comments: Plan sponsors, actuarial consultants, business
consultants and health care industry advocates indicated that there was
a need for an extension beyond the September 30, 2005 due date for the
submission of the retiree drug subsidy application, attestation and the
list of qualifying covered retirees. Many felt that while they could
provide the application prior to September 30, 2005, they might not be
able to provide an attestation as they might not have made the final
plan design determination and have the final list of qualified
beneficiaries until 30 days prior to the start of the plan year.
Another comment from an employer advocacy association recommended that
we shorten the advance submission of an attestation for new plans from
150 days prior to the effective date of coverage to 90 days prior to
the effective date.
Response: We reviewed public comments on the effect that the
application data requirements and the impact that the timeframe of the
application deadlines will have on plan sponsors. In order for plan
sponsors to receive a subsidy payment for January 2006, the final rule
generally retains the requirement that all plan sponsors (regardless of
their plan year) apply for the subsidy payment no later than September
30, 2005. We believe this is necessary to reduce confusion and
uncertainty for retirees and for employers and unions that may be
claiming a subsidy for a retiree enrolling in Part D coverage when the
initial enrollment period for the new program opens in November 2005.
However, to accommodate sponsors that are unable to obtain all
necessary data in time, we will allow sponsors to obtain an extension
under procedures and conditions we establish. In general, the
procedures will include a requirement that sponsors file the extension
request prior to September 30, 2005, and have the extension application
include the names of retirees for whom the sponsor believes it may be
claiming subsidy payments in 2006. For future years we will require
that plan sponsors apply for the subsidy no later than 90 days prior to
the start of their plan year, unless an extension has been filed with
us and granted by us under procedures we establish. For sponsors that
institute retiree prescription drug coverage after September 30, 2005,
we will require that these sponsors submit an application, attestation,
and all of the necessary data as outlined in Sec. 423.884(c)(2) at
least 90 days prior to the start of the new plan for the first plan
year. (We agree that the advance attestation submission for new plans
need not be 150 days.)
We feel that we need this 90 day period to review the retiree drug
subsidy application and contact the sponsor if any further information
is needed. However, we will accept updates to the application up to the
beginning of the plan year. As provided for in Sec. 423.884(c)(6) and
discussed subsequently, additional periodic updates relating to
eligibility data are also required during the year.
We also intend to build in safeguards in the Part D application
process for beneficiaries to decrease the instances in which a sponsor
attempts to claim a subsidy payment for an individual who (unknown to
the sponsor) has enrolled in a Part D plan. We would expect such
safeguards to include a process that could enable retiree plans to
obtain
[[Page 4411]]
relevant information before the individual's Part D enrollment takes
effect. For further discussion on enrollment protections, see Sec.
423.36 of the subpart B preamble.
Comments: Plan sponsors, health plan advocates, carriers, insurers
and administrators raised numerous other issues regarding the retiree
drug subsidy application. They asked for clarification on who is
responsible for signing the subsidy application. Plan sponsors and an
employer advocacy association requested confirmation that the plan
sponsor may act with the assurance that the plan is qualified for the
subsidy upon submission of its signed completed application and a
signed attestation to us so that they may communicate plan information
to its retirees and their dependents sooner. A taxpayer advocacy
association felt that we need to enhance the certification requirements
of Sec. 423.884 and Sec. 423.888 to reflect what is required in Sec.
423.505(l). That provision requires certification by the CEO, CFO or an
individual delegated the authority to sign on behalf of one of these
officers, or who reports directly to the officer of the accuracy,
completeness and truthfulness of all the information related to the
enrollment data, claims data and payments.
Response: The final rule requires that the application be signed by
the sponsor or by an authorized representative of the sponsor. A
sponsor or its authorized representative must certify that the
information on the application is true and accurate to the best of its
knowledge and belief. The final rule does not specifically require that
certifications for subsidy payments meet the same standards as Sec.
423.505(l). However, we will be providing further guidance on the terms
and conditions of the application.
Comment: The proposed rule indicated that the application would
require the sponsor to comply with a number of specific requirements
(including the terms and conditions for receiving retiree drug subsidy
payments) and that the application would constitute an agreement
between the sponsor and CMS (the sponsor agreement). Several employer
advocacy groups requested clarification regarding whether, upon
submission of a signed application, the sponsor may act with the
assurance that the sponsor is qualified for the retiree drug subsidy.
Response: Although we intend to streamline the application process
as much as possible, the mere submission of a subsidy application does
not qualify an entity to receive subsidy payments. The sponsor cannot
assume it is eligible for a subsidy payment until we (or our subsidy
contractor) review the sponsor's application and provide written
notification regarding the sponsor's eligibility to receive a subsidy
payment. (We have clarified this in the regulation text by adding a
definition of ``sponsor agreement'' at Sec. 423.882.)
Comments: We were asked to clarify the application process for
those sponsors with multiple tax identification numbers.
Response: For a sponsor that includes separate entities with
multiple tax identification numbers, the final regulation allows them
to determine the appropriate tax identification number and other
appropriate information (such as contact data) to include as outlined
in the data requirements for that application.
Comments: Several plan sponsors, business consultants, insurers/
carriers and health care industry advocates indicated that they do not
collect the health insurance claim (HIC) or Social Security numbers of
their retirees and their dependents, which we proposed to require as
part of the application process in the proposed rule, due to privacy
issues and historical business practices. They said this requirement
could create an administrative burden for them. They also raised
concerns about the ability to identify qualifying covered retirees,
given uncertainty about whether some people (particularly dependents)
are entitled to Medicare Part A or B and not enrolled in Part D.
Response: We believe that it is necessary to require the data as
outlined in the proposed rule to establish the sponsor's eligibility
for the retiree drug subsidy and to verify the qualified retirees and
their dependents (as defined in Sec. 423.882) that are enrolled in the
sponsor's plan. Further, based on discussions with stakeholders, we
believe sponsors and their vendors should be able to track the data
elements that we require in this section. However, we understand that
some sponsors may not collect the HIC numbers of their Medicare
retirees; thus the final rule requires that either the HIC number or
the social security number of qualifying covered retirees be provided.
We strongly urge, however, that sponsors provide both the HIC and
social security numbers of their qualifying covered retirees if they
collect both in order to reduce the potential for error and to increase
the confidence range of the submitted data.
We recognize that determining whether a person (particularly a
dependent) is eligible for Part D may pose some difficulty for certain
sponsors. However, sponsors are able to enroll in voluntary data
sharing agreements (VDSAs) with us that would allow sponsors to submit
a list of retirees and covered dependents prior to submitting an
application for the retiree drug subsidy and have us determine which
retirees and dependents are qualified covered retirees. More
information about the CMS Employer Voluntary Data Sharing initiative
can be found at http://www.cms.hhs.gov/medicare/cob/employers/emp_vdsa.asp.
We may also explore other approaches that could be used to
provide necessary information to sponsors.
Comments: A health care industry association and outside vendors
who provide eligibility and claims data to plan sponsors and who will
be submitting data to us for enrollment and payment under the subsidy
stated their concerns about the False Claims Act. They requested that
we clarify their potential liability and possible relief from liability
for data submitted that was provided by them.
Response: The False Claims Act provides a remedy for false claims
submitted to the Federal government if a person or entity ``knowingly''
submits a false claim, or knowingly causes another to submit a false
claim. Section 901 of the MMA expressly states that nothing in the
title dealing with Medicare contractor reform shall be construed to
compromise or affect existing legal remedies for addressing fraud or
abuse, and we believe it is clear that the law is intended to apply for
the retiree drug subsidy program. However, innocent mistakes and errors
do not result in liability under the Act. Rather, the False Claims Act
imposes liability on a person or entity which acts with actual
knowledge of the false claim; acts in deliberate ignorance of the truth
or falsity of the information; or acts in reckless disregard of the
truth or falsity of the information (31 U.S.C. Sec. 3729(b)(1-3)).
Thus, the False Claims Act's liability provisions were not intended to
apply to a merely inadvertent reporting error or an innocent mistake by
a sponsor. We note that parties have a continuing obligation to
disclose to the government any new information indicating the falsity
of the original statement.
A sponsor, or its authorized representative requesting the subsidy
on behalf of the sponsor, must certify that the information on the
application is true and accurate to the best of its knowledge and
belief. Thus, as noted above, innocent mistakes in the application, as
opposed to intentional misstatements or statements made with deliberate
ignorance of or reckless
[[Page 4412]]
disregard for the truth, will not result in False Claims Act liability,
unless the sponsor (or its authorized representative) subsequently
fails to inform the government of information indicating the falsity of
the original statements.
Comments: Plan sponsors, business consultants, insurers/carriers
and plan administrators asked us to clarify the frequency and manner in
which updates will be required. They recommended that they provide
periodic enrollment updates to us as they identify qualified retirees
and their dependents that become eligible for Medicare. Additionally,
comments suggested allowing sponsors to file updated information during
the year following the September 30 deadline, and to allow sponsors to
submit new census data only if there are no material changes to the
plan.
Response: The final rule requires periodic updates of beneficiary
data as outlined in Sec. 423.884(c)(6) to keep our database accurate
and reduce the possibility of overpayments or underpayments.
To reduce the lag time between the occurrence of a change in the
enrollment and the adjustment of the subsidy payment, and to minimize
situations in which a sponsor is attempting to claim a subsidy payment
for someone who has enrolled in Part D, the final rule requires a
monthly update by all sponsors of the enrollment data, regardless of
the subsidy payment frequency (unless we specify a different frequency
in other guidance). Such data shall be provided in a manner we specify.
In general, sponsors will be expected to provide to us on a
periodic basis the changes, additions and deletions to their enrollment
data. To ensure development of a procedure that is most
administratively feasible for sponsors and CMS, we will consider the
possibility of permitting the submission of entire enrollment files. We
anticipate issuing further guidance on the frequency and the manner of
the enrollment updates.
Table R-1, containing the key dates involved in the sponsor retiree
drug subsidy application process is included at the end of this
section.
Table R-1
Key Dates
------------------------------------------------------------------------
Publication of Final Rule January 2005
------------------------------------------------------------------------
Application for Retiree Drug No later than September 30, 2005,
Subsidy Due Date for All Sponsors unless an extension request is
seeking the Retiree Drug Subsidy filed with CMS prior to the due
for plan years which end in 2006, date
regardless of whether they operate
on a calendar year
------------------------------------------------------------------------
Attestation of Actuarial No later than September 30, 2005,
Equivalence Due Date for all unless an extension request is
Sponsors seeking the Retiree Drug filed with CMS prior to the due
Subsidy for plan years which end date and granted by CMS
in 2006
------------------------------------------------------------------------
Retiree drug subsidy Program Begins January 1, 2006
------------------------------------------------------------------------
For plans operating on a non- 90 days prior to beginning of each
calendar year basis--Application plan year (that is, for plan years
for Retiree Drug Subsidy Due Date which begin in 2006 and end in
for Sponsors seeking the Retiree 2007 and for each plan year
Drug Subsidy for all subsequent thereafter), unless an extension
years request is filed with CMS and
granted by CMS.
------------------------------------------------------------------------
For plans operating on a calendar September 30, 2006 (for 2007) and
year basis--Application for each September 30 thereafter for
Retiree Drug Subsidy and subsequent years, unless an
Attestation of Actuarial Value Due extension request is filed with
Date for Sponsors seeking the CMS and granted by CMS
subsidy for all subsequent years
------------------------------------------------------------------------
Application for Sponsors that 90 days prior to the start of the
institute coverage after September new plan
30, 2005
------------------------------------------------------------------------
Notice to CMS of mid-year plan 90 days prior to the plan change
changes that materially affect
actuarial valuation
------------------------------------------------------------------------
Notice to enrollees of plan changes Prior to the plan change.
that result in the plan no longer
providing creditable coverage
------------------------------------------------------------------------
(d) Surety bond
We sought comment on whether to require a surety bond type of
instrument or preferred creditor status as part of the enrollment
process in order to address situations related to businesses that may
terminate or experience bankruptcy prior to completion of a final
reconciliation.
Comments: CMS received comments from private and governmental plan
sponsors that this will be an unnecessary cost and burden to them and
especially problematic for governmental entities.
Response: After review of the comments we have determined that
since all subsidy payments will be made by us after submission of cost
data, the degree of risk to us in connection with the year-end
reconciliation process is not significant enough to justify requiring a
surety bond type of instrument or preferred creditor status
certification, particularly given that many plan sponsors and
administrators are subject to other laws and contractual obligations
that should provide protections.
(e) Creditable Coverage and Notification
Section 1860D-22(a)(2)(C) of the Act specifies that in order for a
sponsor's plan to meet the definition of a qualified retiree
prescription drug plan, the sponsor must provide for disclosure of
whether coverage is creditable prescription drug coverage in accordance
with the proposed requirements set forth under proposed Sec. 423.56 of
the final rule. This includes, for example, providing advance notice to
beneficiaries in the plan of any material change that causes their
coverage to no longer be creditable prescription drug coverage. The
rules for providing notices of whether coverage is creditable
prescription drug coverage are described in subpart B, including the
rules for coverage sponsored by an employer or union not claiming the
subsidy.
[[Page 4413]]
5. Retiree drug subsidy amounts (Sec. 423.886)
As outlined in the final regulations, Sec. 423.886 governs the
subsidy amount a sponsor of a qualified retiree prescription drug plan
receives for each qualifying covered retiree that is enrolled with the
sponsor in a given year. The sponsor is eligible to receive a retiree
drug subsidy payment for each qualifying covered retiree equal to 28
percent of the allowable retiree costs that are attributable to the
gross costs that exceed the cost threshold and do not exceed the cost
limit. Section 1202 of the MMA amends the Internal Revenue Code of 1986
to provide that these subsidy payments will be exempt from Federal tax.
Further guidance on the Federal tax treatment of the subsidy will be
under the auspices of the U.S. Department of the Treasury.
Debts owed to us that are generated by an overpayment of the
subsidy to a sponsor, including collection of interest, administrative
costs, and late payment penalties will be governed by regulations at 45
CFR Part 30, subpart B.
Comments: Many tax-exempt plan sponsors including governmental
plans commented that the tax-exempt nature of the subsidy payments
means that taxable plan sponsors can receive a subsidy that is
approximately 35 percent higher in value than what the tax-exempt
sponsors can receive. They requested that we address this disparity in
the final rule for Part D to make sure all plan sponsors are treated
equally. An employer advocacy group also asked for clarification on how
the subsidy should be calculated for allowable costs that are
attributable to gross retiree costs that exceed the cost threshold and
do not exceed the cost limit.
Response: The statute does not allow us to provide additional
retiree drug subsidy payments based on tax-exempt status. As for the
calculation of subsidy payments, the final rule clarifies that the
statute requires the subsidy payment to be calculated by first
determining gross retiree costs between the cost threshold and cost
limit, and then determining allowable retiree costs attributable to
such gross retiree costs. As noted elsewhere, allowable retiree costs
are based on gross retiree costs actually paid under the plan (or by or
on behalf of the retiree), with rebates and other price concessions
subtracted from these gross retiree costs.
Comments: Employers and beneficiary advocacy groups also commented
on additional provisions regarding the plan sponsor's use of the
subsidy once received. Beneficiary advocacy groups suggested that since
employers and unions are allowed to shift costs of retiree plans to
retirees by way of premium contributions and cost-sharing,
beneficiaries should be entitled to a fair portion of the subsidy
amount received by the plan sponsor. Employer groups and business
consultants commented that once an employer or other plan sponsor
qualifies for the retiree drug subsidy, we have no authority to
regulate that employer's or union's or plan sponsor's utilization of
the subsidy.
Response: The statute does not impose restrictions on how the
sponsors use the subsidy. However, beneficiaries may have rights
provided under other laws or by contract.
6. Payment Methods, Including Provision of Necessary Information (Sec.
423.888)
a. Plan Year Versus Part D Coverage (Calendar) Year
Under section 1860D-22(a)(3)(B) of the Act, the cost threshold and
cost limits that determine the amount of the subsidy are calculated for
``plan years that end in'' 2006 and subsequent calendar years. However,
section 1860D-22(a)(3)(A) of the Act refers to the subsidy amount for a
qualifying covered retiree for a ``coverage year,'' that is defined as
calendar year. Thus, we believe that, in the context of section 1860D-
22 of the Act, we have the interpretive authority to require that the
subsidy determinations be made either on a calendar year or plan year
basis. In the proposed rule, we proposed to have the rules apply on a
calendar year basis because Medicare already operates on a calendar
year basis.
Comments: In considering whether sponsors will use plan year or
calendar year in calculating the retiree drug subsidy amount, comments
varied among private health care companies and health care industry
associations. One such entity commented in favor of utilizing a
calendar year schedule for simplicity. Others prefer having the
flexibility to choose between a calendar year and a plan year that a
sponsor may currently be operating in. Employer advocacy associations
and actuarial consulting groups suggested giving sponsors flexibility,
especially if it means allowing sponsors to choose between plan year
and calendar year. A government entity commented in favor of plan year,
and discussed utilizing a pro-rata method for determining the subsidy
amount for the initial year of a plan using a non-calendar year.
Response: In determining whether sponsors will be required to use
plan year or calendar year, we took into consideration the large number
of comments in favor of flexibility. We also recognized the costs that
plan administrators and sponsors might face if they maintain records
for plan purposes based on a period that differs from the calendar
year, but are forced to establish a different system that maintains
records on a calendar year basis solely for purposes or the retiree
drug subsidy program. Finally, we considered costs associated with
administering the program by CMS or a subsidy contractor. In response
to these considerations, the final rule uses the plan year approach.
Thus, if a plan's records are maintained on a calendar year basis, it
enables sponsors to calculate retiree drug subsidy payments on that
calendar year basis. If a plan's records are maintained based on a year
that differs from the calendar year, sponsors can determine those
calculations on the non-calendar year basis.
Sponsors of non-calendar plans will use the cost threshold and cost
limit for the calendar year in which the plan year ends for purposes of
determining subsidy payments. Thus, for example, a sponsor claiming
subsidy payments for the plan year running from July 1, 2007 through
June 30, 2008 would use the cost thresholds and cost limit amounts
published for 2008 in determining subsidy payments. If the sponsor
requests payments on a monthly or quarterly basis, adjustments and
reconciliations for prior payments will have to be made once the cost
threshold and cost limitation for the relevant year have been
published.
Subsidy payments are determined based on the plan year that ends in
a given calendar year, using the same rule in determining whether a
sponsor's plan is actuarially equivalent to Part D raises a challenge.
It might require that the sponsor submit an actuarial attestation for a
given plan year before the deductible, initial coverage limit, and
other elements of the defined standard prescription drug coverage have
been determined for the corresponding calendar year. To address that
concern, the final rule allow sponsors to use the actuarial value of
the standard prescription drug coverage under Part D for the calendar
year in which the sponsor's plan year begins, provided the attestation
is submitted to us no later than 60 days after the publication of the
coverage limits for defined standard prescription drug coverage for the
upcoming calendar year. If the attestation is submitted beyond 60 days
after the publication of the coverage limits for defined standard
prescription drug coverage for the upcoming year,
[[Page 4414]]
then the new coverage limits should be used for the attestation.
Note that our decision to allow sponsors to use non-calendar year
plans as the basis for the retiree drug subsidy payment should not have
an impact on, or impede, the timing of the beneficiaries' right to drop
their employer or union coverage in favor of Part D if they choose. For
example, beneficiaries should have the option to coordinate obtaining
Part D coverage during open enrollment periods and dropping their
retiree coverage in a way that avoids late enrollment penalties.
Beneficiaries may also have special enrollment periods relating to the
loss of creditable retiree coverage. (See Sec. 423.56.)
The use of a plan year approach also requires a transition rule for
plan years that begin in 2005 and end in calendar year 2006. The
proposed rule outlined three transition options. The first is to start
counting gross prescription drug costs for prescriptions filled after
January 1, 2006, and pay the subsidy only for claims incurred in 2006.
The second option is to determine the subsidy amount based on claims
incurred for the entire plan year but prorate subsidy payments to
reflect the number of months of the plan year that fall in 2006. The
third option is to determine subsidy amounts monthly for the entire
plan year and then pay the full subsidy payments, but only for claims
that are incurred in 2006.
Comments: Business advocacy groups recommended that the final rules
allow employer and union flexibility to select among the three proposed
transitions alternatives in determining the subsidy payment for 2006,
based on their administrative capabilities and other considerations.
Response: For administrative simplicity, and given the nature of
this rule, we believe it is reasonable to specify the particular
transition option to be used. Option 1 would require that sponsors meet
the cost threshold twice in 2006, a strict test that we believe is not
absolutely required under the statute. In comparing transition options
2 and 3, we have concluded that option 3 provides the most equitable
result that is consistent with the statute. Under Option 3, sponsors
determine claims incurred in all the months of the plan year, including
those that fall in 2005, for calculation of the cost threshold for a
plan year that ends in 2006. However, subsidy payments are based solely
on claims incurred on or after January 1, 2006.
b. Payment Methodology and Frequency
Section 1860D-22(a)(5) of the Act specifies that payments to plan
sponsors are to be made in a manner similar to the payment rules in
section 1860D-15(d) of the Act, which applies to payments made to PDP
sponsors and MA organizations under Part D. We proposed a preferred
approach to calculating and paying the subsidy. For each month starting
with January 2006, the plan sponsor would certify by the 15\th\ of the
following month the total amount by which actual retiree-beneficiary
gross drug spending exceeded the cost threshold yet remained below the
cost limit. Medicare would pay 28 percent of the certified amount to
the sponsor by the 30\th\ of that month. Not later than 45 days after
the end of the plan year, the plan sponsor would submit a final
reconciliation (except for outstanding rebates) to us for payment by
or, if applicable, to us. In the month in which they are received (or
recognized), the appropriate share of any discounts, rebates,
chargebacks, or other price concessions, along with any adjustments to
the actual expenditures for prior months, are reflected. Any amounts
owed the government would offset the subsidy payment for that month,
and to the extent that the amount owed to the government would exceed
any applicable monthly payment, the plan sponsor would pay this amount
to us.
We proposed three possible alternatives to this option. The first
alternative was for us to make a single payment after the close of the
year. Sponsors would submit their cost data, including rebate data, by
the start of the fourth month after the close of the plan year. A
second alternative would be to make interim payments throughout the
year based on the sponsor's estimate of claims, rebates and discounts
(determined based on historical data), with a settlement after the end
of the plan or calendar year. We would pay less than 100 percent of the
subsidy payments that would be calculated from these estimates, given
the uncertainties associated with these estimates. The third
alternative would be to make lagged payments based on actual claims
experience on a periodic basis throughout the year, with the subsidy
payments being reduced by a specified percentage to reflect the
sponsor's estimate of discounts, chargebacks and rebates. After the
year ends there would be a settlement limited to reconciling estimated
versus actual discounts, chargebacks and rebates. We also sought
comment on the use of bi-annual, quarterly or monthly payment periods
under these approaches.
Comments: Generally, comments supported a method that allows
flexibility to select the methodology and timing of retiree drug
subsidy payments and rebates each year. A number of commenters,
including employer consultants and government employers encouraged a
monthly payment system. Entities that supported alternative option 1
said that it would protect patient privacy, proprietary information
between plans and manufacturers would be kept from potential exposure,
and both administrative costs and data collection burdens would be
reduced.
One State commenter supported alternative option 2, stating this
method takes into account programs that are fully insured and use a
Health Maintenance Organization (HMO) that does not segregate actual
cost data by plan and is community rated. Additionally, advocates claim
that option 2 would be more reasonable for small business because of
the lighter administrative burden. Comments critical of the preferred
option stated that the 15 day turnaround time for submitting monthly
payment requests and the 45-day deadline for year-end reconciliation
seemed rather tight, even for employers and unions who have PBMs with
excellent administrative abilities.
A business consultant also commented that only the third
alternative proposal actually accounts for drug costs of the group
health plan on an accrual basis. The other methods appear to follow the
cash flow of the plan but fail to recognize accrual accounting required
for the plans. They felt that we neglected to consider more user-
friendly methods that are proposed for other cost based entities, for
example, fallback plans, which we proposed to pay through a debit
account system. They felt that the second approach is acceptable
because it sets prospective payments and provides for reconciliation,
even though it arbitrarily pays less than what the parties agree upon
as the prospective rebate.
Another employer advocacy association urged us to develop a point
of sale subsidy payment system, and in the interim, provide the
sponsors the flexibility to choose the payment methodology that is best
for them.
Response: Unless and until such time technology, resources and
other considerations would enable us to develop a point-of-sale payment
system for the retiree drug subsidy program, the final regulation will
provide other methods and frequency options to address the multiple
requests for payment flexibility.
A sponsor may annually elect during the application process whether
to receive payments monthly, quarterly, or
[[Page 4415]]
annually; that sponsor may change its election during the application
process of a subsequent year. A sponsor choosing an annual payment
method could avoid the need for interim data submissions, estimates and
reconciliations, (discussed in more detail below), and may limit the
administrative costs because data submissions are less frequent.
However, sponsors that do not want to make multiple data submissions
but also do not want to wait for subsidy payments until all rebate and
other data is received will be able to make an interim annual payment
request, with only one additional (final) reconciliation required at
year-end.
Sponsors who choose the periodic method of payment must submit
periodic requests for payment to us on the same schedule as the
payments are to be received, at a time and in a manner specified by us.
Final detailed cost data must be submitted no later than 15 months
following the end of the plan year. We will make payments to the
sponsor at a time and in a manner to be specified by us in future
guidance.
In the final rule, we reserved the right to restrict the payment
options available to sponsors in 2006 in case of any unforeseen
operational impediments.
Comments: Actuarial consultants suggested that we develop
approximate methods of determining individual drug spending, because of
the difficulty of determining the actual costs and assigning a rebate
to a specific person. An employer advocacy group suggested allowing
employers and unions to choose their own methodology for reflecting
rebates, in order to accommodate their own administrative capabilities
and restrictions. A health care industry consultant indicated that
group health plans would need to separate rebates by their
applicability (individual retirees or entire group). An employer was
concerned because they have a fully insured plan which factors rebates
into the premium; they suggested that we accept the insurance carrier's
attestation that the claims used in the subsidy calculation are net of
rebates and other discounts, rather than require them to provide
information the sponsor does not have. Another employer encouraged us
to allow sponsors and PBMs to freely contract regarding rebate terms,
and not require them to file PBM agreements of documentation of those
negotiations.
A health care industry consultant recommended that we allow
multiple methods for allocating rebates because a single method would
unduly constrain health plans in future negotiations with manufacturers
for price concessions. An employer suggested the most appropriate way
to recognize rebates is to determine the average amount per rebatable
prescription and apply it to the actual retiree drug utilization of the
plan sponsor. Actuarial consultants and a health care industry
association agreed with the suggestion to estimate rebates on a
periodic basis to be included in subsidy payments, and then reconcile
both rebates and subsidies at the end of the year. One industry
association suggested an ongoing accounting of rebates to eliminate the
need for reconciliation at the end of the year. They also asserted that
the proposed 4 month period after the end of the year was not enough
time to count the rebates.
An employer advocacy association proposed a two-phase settlement
process for rebates, which would include a preliminary estimate at the
end of the year and a final adjustment up to twelve months later; the
association states that such a system would provide maximum flexibility
and minimum administrative burden on the sponsor.
Response: If the sponsor chooses the monthly, quarterly or an
interim annual method of payment, then in addition to the data
requirements described below, the plan sponsor must provide an estimate
of rebates (based on historical data) upon submission of data for
payment. We believe the sponsor's submission of estimated rebates
limits the amount of reconciliation at year end; is consistent with
data capabilities of the sponsors; limits the extent to which we would
be making overpayments during the year; and allows for monthly and
quarterly subsidy payments in order to enhance cash flow of sponsors.
Sponsors choosing the monthly, quarterly or an interim annual
method of payment will be required to provide an annual reconciliation
to us that includes cost data segregated per qualifying covered retiree
and actual rebates, discounts, or other price concessions received for
the costs, unless we provide for different data requirements in future
guidance. If rebates and other price concessions for a plan are not
specifically allocated by a manufacturer to the drug spending of a
particular qualifying covered retiree, a sponsor (or its designee) will
be permitted to assign the price concessions to qualifying covered
retirees using reasonable actuarial principles or other methods we may
specify.
The reconciliation must take place within 15 months following the
end of the plan year. If gross covered retiree plan-related
prescription drug costs in a given plan year are reduced at the point-
of-sale to reflect rebates, discounts or other price concessions and no
additional price concessions for the costs are received for the year,
then allowable retiree costs will equal such gross costs for the year.
However, any rebates that are received retrospectively would have to be
subtracted when a sponsor calculates retiree costs. As a result of the
reconciliation, sponsors will, as applicable, repay any subsidy
overpayments or be paid any subsidy underpayments in a manner to be
specified by us.
If a sponsor chooses the annual payment method, the sponsor will be
required to submit cost data per individual retiree, including rebate
adjustment within 15 months following the end of the plan year.
However, as noted in Sec. 423.884 (c)(6), a sponsor who chooses the
annual payment option must still provide updates of enrollment
information to us on a monthly basis.
c. Data Collection
The plan sponsor will be required to submit cost data for each
qualifying covered retiree. Regardless of what payment methodology is
ultimately chosen for the retiree drug subsidy, we would need certain
data from the sponsors in order to accurately calculate the amount of
the subsidy to which the sponsor is entitled.
In the proposed rule, we requested comments on the level of detail
of the cost data that would be submitted to us in order to receive the
retiree drug subsidy payment. Option 1 would require that the sponsor
submit the aggregate total of all allowable drug costs of all of the
qualifying covered retirees in the plan for the time period in
question. This aggregate cost would not be broken down to each
qualifying covered retiree. Option 2 would require the sponsor to
submit the aggregate allowable costs for each qualifying covered
retiree for the time period in question. Option 3 would be to combine
various elements of the first two options. The sponsor would be
required to submit information with the specificity outlined in the
second option for each of the first two years of the subsidy's
availability. In the third and fourth years, the sponsor would submit
its cost data in accordance with the first option. Option 4 would have
been for the sponsor to submit the actual claims data for each
qualifying covered retiree, though the proposed rule specifically
rejected that option given privacy concerns.
Comments: Comments from employers, the healthcare industry,
employer advocates and government entities request that we make data
[[Page 4416]]
collection and reporting requirements reasonable for plan sponsors.
Commenters also stated that we must account for the fact that employers
and unions do not customarily record some of the data requested, and
third party administrators, insurers, PBMs and like entities also do
not maintain all of the data elements required under the proposed rule.
Further, comments suggested that we concentrate on attaining aggregate
claims data.
Response: We agree that the requirements for submission of cost
data should be reasonable and the least burdensome possible. At the
same time, we have an obligation to create rules aimed at providing
only the subsidy payments authorized by statute. As noted above, in
balancing these objectives, the final rule provides that unless we
imposes other data requirements in future guidance, when a sponsor
chooses either the monthly, quarterly, or interim annual payment
option, it must submit to us, at a time and in a manner specified by
us, the aggregate gross covered retiree plan-related prescription drug
cost data (as defined in Sec. 423.882), as outlined in option 1, along
with an estimate of the extent to which its expected aggregate
allowable retiree costs will differ from the aggregate gross cost data
(based upon expected rebates and other price concessions) for interim
payments. However, the aggregate data must be reconciled within 15
months after the end of the plan year, and the sponsor would have to
resubmit the total gross cost data segregated by individual retiree and
actual rebate/discount/other price concession data and repay any
subsidy overpayments (or be paid subsidy underpayments). (Specific
detail about each claim would not be required.) Likewise, all sponsors
who choose the annual payment option would have to submit the total
gross cost data segregated by individual retiree and actual rebate/
discount/other price concession data within 15 months after the end of
the plan year for payment. We believe that these requirements are
reasonable and least burdensome for the sponsors, yet provide the
additional information needed by us in assessing the accuracy of
payments. As outlined in our earlier discussion on allowable retiree
costs, in section 3(C) of this subpart of the preamble, we will provide
flexibility to sponsors of insured plans in the submission of interim
cost data.
d. Record Retention for Audits
In the proposed rule, we stated that a plan sponsor will be
required to maintain and provide access to sufficient records for our
audits or audits of the Office of Inspector General (OIG) to ensure the
accuracy of the attestation regarding actuarial value and the accuracy
of subsidy payments made under this subpart. All records must be
maintained for at least 6 years after the end of the plan year in which
the costs were incurred.
Comments: Employers, employer advocacy associations and an employer
business consultant commented that the data retention period should
match the IRS/SSA/CMS data match program period of 3 years to ease the
administrative burden on employers, unions, carriers and plan
administrators. Employers indicated that if they switched carriers or
administrators, it would be difficult to force them to retain records
for at least 6 years. A taxpayer advocacy association recommended a 10-
year time period, coinciding with the statute of limitations in False
Claims Act cases. A governmental employer wanted us to mandate that
carriers retain and provide the necessary data to the sponsor for the
required period of time. In discussions with sponsors and employer
advocacy groups, they indicated that they are required to retain 6
years of certain types of data for the Department of Labor (DOL) audits
under ERISA.
Response: The final rule retains the 6-year record retention rule.
We believe that 6 years is a reasonable because it is consistent with
the period for retaining certain ERISA records and certain information
related to the Health Insurance Portability and Accountability Act
(HIPAA) administrative simplification rules. However, consistent with
the commenters' concern that records would not be retained long enough,
we are modifying the regulation text to specify that a sponsor (or its
designee) must retain records longer than 6 years if they know that the
records are the subject of an ongoing investigation, litigation, or
negotiation regarding criminal or civil liability. In such cases, the
obligation to retain records need not arise solely through a formal
communication from CMS or OIG.
6. Appeals (Sec. 423.890)
Although the statute does not contain provisions for administrative
appeals of the retiree drug subsidy amount, we believe that it is
prudent policy to allow an opportunity for review of certain agency
decisions issued in relation to this subpart. Examples of these
decisions are as follows--
A retiree prescription drug plan is determined not to be
actuarially equivalent.
An enrollee in a retiree prescription drug plan is
determined not to be a qualifying covered retiree.
A determination of the subsidy amount to be paid to a
Sponsor.
Comments: Beneficiaries, beneficiary advocacy organizations and
labor organizations requested that they have the opportunity for review
and appeal of the retiree drug subsidy application and the payment
determination so that they could assist us in verifying that the
benefits provided and the payments made under the retiree drug subsidy
program were proper and fiscally responsible. Plan sponsors, business
advocates and health care industry vendors felt that only they should
be allowed appeal rights because the application to receive retiree
drug subsidy payments, the actuarial attestation and payment under the
retiree drug subsidy program would not affect the benefits provided to
beneficiaries under the plan. Plan sponsors and business advocates
indicated that third parties, including beneficiaries, should not have
standing to appeal our decisions. One employer advocacy association
requested that we consider an appeals process that provides plan
sponsors an opportunity to develop a detailed record concerning
disputes for which they request reconsideration. The employer
association also requested that if we determine that no such
opportunity needs to be provided, require that its factual
determinations relating to such disputes be decided on a de novo basis
upon judicial review. They also requested that if an employer or union
seeks to reopen a determination on its own, such a right should be
unfettered as long as it is made within one year of final
determination.
Response: We do not believe that the MMA gives participants or
other third parties standing to appeal to us regarding retiree drug
subsidy payment determinations. The MMA provides that the subsidy is to
be paid to the sponsors if the sponsors meet certain conditions imposed
on them. We recognize that participants and beneficiaries in a
sponsor's plan have an interest in knowing whether their retiree drug
coverage qualifies for the subsidy, and that we have audit
responsibilities to ensure the accuracy of payments. But given the
absence of any administrative appeals provisions in the statute and our
need to also consider the potential burdens that could be posed on
retiree health plan sponsors, we do not believe it would be prudent
policy to provide administrative appeal rights to individual
participants or third parties.
[[Page 4417]]
We believe that the appeals process that is outlined in the
preamble to the proposed rule provides sufficient due process to
protect the interests of the sponsors. To require that a detailed
record be developed on appeal or to require de novo judicial review of
the administrator's decision would create administrative costs for the
retiree drug subsidy program and would be burdensome for us. As we
indicated in the preamble of the proposed rule, there is no
constitutional property right to the retiree drug subsidy. Because the
subsidy payment is not an entitlement, there is no need to provide for
an extensive appellate process that includes judicial review.
We also have not accepted one commenter's request that an employer
receive an unfettered right to reopen a determination as long as it is
made within a year of the final determination. As we stated in the
proposed rule, at 69 FR 46750, the Supreme Court has ruled on reopening
in the context of cost reports. In that case, the Court stated that the
``right ... to seek reopening exists only by grace of the Secretary,''
Your Home Visiting Nurse Services, Inc. v. Shalala 525 U.S. 449, 454
(1999), and that a reopening by the Secretary is not a ``clear
nondiscretionary duty.'' Id. at 456-7. For these reasons we have
decided to retain the rule that while a reopening may be requested by a
sponsor, there is no right to reopening under the regulations. We have
also amended the regulations to reflect the policy announced in the
preamble of the proposed rule that a decision not to reopen is not
subject to further review.
7. Change of Ownership (Sec. 423.892)
Sponsors who apply for a retiree drug subsidy payment would be
required to comply with change of ownership requirements.
Comments: We received no public comments in this area that disputed
the proposed provisions of change in ownership.
Response: In Sec. 423.892, we would carry over the three
situations that constitute change of ownership (CHOW) in Sec. 423.551
of the final rule.
8. Construction (Sec. 423.894)
Sections 423.894(a) through Sec. 423.894(d) are based on section
1860D-22(a)(6) of the Act, which outlines the employer and union
options for providing retiree drug coverage and coordinating with
Medicare under the MMA.
Comments: Beneficiary advocacy organizations were concerned that
employers and unions will drop employer and union-based coverage if
beneficiaries enroll in Part D coverage. Plan sponsors want
clarification that if they file for the subsidy, they can tell
beneficiaries not to enroll in Part D coverage.
Response: The final rule adopts the provisions as outlined in the
proposed rule. Plan sponsors are not permitted to tell qualified
retirees and their eligible dependents that they cannot enroll in Part
D coverage. The MMA mandates that beneficiaries must be allowed to
freely choose whether or not to enroll in Part D.
However, plan sponsors claiming the retiree drug subsidy must offer
a prescription drug program that is actuarially equivalent to or better
than defined standard prescription drug coverage. If a sponsor elects
to apply for the retiree drug subsidy, it is also able to design its
eligibility rules under its employer or union-based plan so that
qualifying covered retirees and their dependents lose eligibility in
the sponsor's plan if they enroll in a Part D plan. The sponsor shall
give advance notice of this type of material change to plan
participants as required by other notification regulations that govern
their plan (that is, ERISA, State or local law).
S. Special Rules for States-Eligibility Determinations for Low-Income
Subsidies, and General Payment Provisions
1. Eligibility Determinations (Sec. 423.904)
The MMA added a new section 1935 to the Act, ``Special Provisions
Relating to Medicare Prescription Drug Benefit,'' which specifies the
requirements for States regarding low income subsidies under the new
part D benefit. In accordance with the statute, our proposed
regulations at Sec. 423.904(a) and (b) required States to make initial
eligibility determinations for premium and cost sharing subsidies based
on applications filed with the States, to conduct periodic
redeterminations consistent with the manner and frequency that
redeterminations are conducted under Medicaid, and to notify us of
eligibility determinations and redeterminations once they are made.
As proposed in Sec. 423.904(c), States would be directed to
identify individuals who apply for the low-income subsidy who may also
be eligible for programs under Medicaid that provide assistance with
Medicare cost sharing and to offer enrollment in these programs. This
requirement is consistent with existing obligations imposed on States
when they make eligibility determinations for Medicaid. In Sec.
423.904(d), we proposed requiring States to begin accepting application
forms for the low-income subsidy no later than July 1, 2005. In Sec.
423.904(d), we also proposed requiring States to make available
application forms, provide information on the nature of and
requirements for the subsidy program, and provide assistance in
completing subsidy applications.
We also proposed requiring that States ensure that applicants or
personal representatives attest to the accuracy of the information
provided. In verifying application information, we specified that
States may require the submission of statements from financial
institutions and may require that information on the application be
subject to verification in a manner the State determines to be most
cost-effective and efficient.
In addition, Sec. 423.904(d) directed States to provide us with
necessary information to carry out implementation of the Part D
program. This includes information such as income levels for other low-
income subsidy eligible individuals under Sec. 423.773 needed to
permit Part D plans to determine the amount of sliding scale premium
subsidy that a person will receive under Sec. 423.780(b).
We developed uniform criteria for determining resources, income,
and family size under the subsidy, which were reflected in the proposed
definitions at Sec. 423.772, and the proposed eligibility requirements
at Sec. 423.773.
We also stated that we were considering a number of options to ease
the burden on States and to ensure, to the degree permissible under the
MMA, a consistent eligibility determination process. We invited
comments from States on this issue.
Comment: Several commenters suggested that Sec. 423.904(a) be
cross-referred to the entire subpart P rules.
Response: We agree with the commenters and have done so in this
final rule.
Comment: Many commenters expressed concern that both SSA and States
would be making subsidy eligibility determinations and stressed the
need for coordinated policies and processes so that identical treatment
is ensured, no matter where the applicant goes to apply for the
subsidy. It was further suggested that CMS allow States to choose
whether to make the subsidy eligibility determinations themselves or
forward applications to SSA.
Response: As stated in our response to comments on Sec. 423.774,
the statute sets forth the requirement that eligibility for the low-
income subsidy program will be determined by either the State Medicaid
agencies or by SSA. Therefore, States
[[Page 4418]]
must have the ability to determine eligibility if someone requests a
``State'' subsidy determination.
While this obligation is imposed on States, States may encourage
applicants to use the SSA low-income subsidy application process in
order to reduce the administrative burden associated with sending
notices and processing appeals and redeterminations. In other words,
States may provide applicants with the SSA application which they will
forward to SSA or provide access to a terminal for accessing the SSA
application on line and SSA will perform the eligibility-processing
role for these applications. However, as we noted in responses to
comments in subpart P, States must have the ability to determine
eligibility if someone requests a ``State'' subsidy determination. As
part of this obligation, if the applicant files a ``State''
application, States are required to send notices of subsidy
determinations, process redeterminations, and handle appeals. We are
working on a process whereby States and SSA will be able to access
timely information on the status of a beneficiary's application filed
at either SSA or State offices. We expect to provide further
information on this process through operational guidance. We also note
that we have clarified the final rule in subpart P, based on similar
comments made in subpart P in response to the proposed rule. Section
423.774 now requires that multiple applications not be permitted in
cases where an individual has received a positive determination from
either SSA or the State. In other words, an individual may not file a
second application for the remainder of the eligibility period with the
alternate agency if he or she has received a positive determination
from the State or SSA. As stated in the response to comments in subpart
P, this requirement is not intended to preclude an individual from
reporting subsidy changing events in accordance with the determining
agency's rules, but rather to prevent confusion that could arise if a
State and SSA process duplicate determinations for the individual.
Comment: Some commenters stated that we should impose a time limit
on how long States have to notify CMS of eligibility or redetermined
eligibility determinations. Several commenters suggested we require
States to notify CMS within 24 hours of making such determinations.
Response: We have decided not to impose a specified period on
States to notify CMS of eligibility or redetermined eligibility
determinations through regulation. Instead we intend to provide
operational guidance to States, monitor the time period for determining
subsidy eligibility, and take action as appropriate. In general, we
expect that States will determine subsidy eligibility within time
periods that are at least consistent with the processing of State
Medicaid applications.
Comment: One commenter was concerned that States did not have the
opportunity to comment on the model application.
Response: SSA published notice of the model application in the
Federal Register on November 17, 2004 for public comment.
Comment: One commenter states that both SSA and the States should
be required to use the same application for the low-income subsidy.
Another commenter asked what form of application a State would be
required to accept.
Response: We cannot mandate use of the same application form by
States and SSA. Where a State finds that it can use the SSA application
for the State's low-income subsidy eligibility determination process,
we would encourage it to do so. However, as States might need to
implement different verification strategies when they actually make the
low-income subsidy determinations, they may have to design application
forms specific to their determination process. States have expertise in
the area of administering means-tested programs and will be developing
their application forms based on that expertise. In addition, we will
be working with States and SSA to assist States as they design and
develop the optimum eligibility process for making low-income subsidy
determinations.
Comment: One commenter was concerned about CMS' requirement for
States to begin taking low-income subsidy applications by July 1, 2005
due to State concerns about staffing needs and necessary support
systems.
Response: We continue to believe that allowing individuals to apply
by July 1, 2005, will allow a more seamless transition of prescription
drug coverage for individuals eligible for the low-income subsidy. If
an individual needs to consider coverage of specific drugs by a
particular Part D plan in making an enrollment decision, the greater
time in advance of the new plan's coverage effective date allows
individuals, doctors and other payers to assure a smooth transition of
drug coverage.
In addition, we have clarified in this final rule that CMS will
send notices of eligibility to all deemed subsidy eligible individuals.
This should relieve States of the financial burden of sending notices
to deemed subsidy eligible individuals. We will also educate Medicare
beneficiaries, including dual eligibles, through a variety of methods
about prescription drug coverage under the new Part D benefit.
Comment: One commenter also asked about the timeframe in which the
State is to make the low-income subsidy eligibility determination. This
same commenter also asked about the timeframe required for applications
taken as early as July 1, 2005, in which eligibility determinations
made after July 1\st\ and prior to November 15, 2005, may need to be
redone if there is a change in the applicant's circumstances.
Response: We expect that States will determine subsidy eligibility
within time periods that are at least consistent with the processing of
State Medicaid applications. Initial determinations of subsidy
eligibility shall remain in effect for a period of up to a year and can
be effective no earlier than January 1, 2006. As discussed in the
response to comments in subpart P, changes in financial circumstances
that could impact subsidy eligibility should be reported to the agency
that processed the subsidy application, according to that agency's
rules.
Comment: One commenter requested more detail on the process CMS
will use to collect data from State Medicaid agencies.
Response: We will provide the data collection process to State
agencies through operational guidance.
Comment: One commenter indicated its desire to avoid the need for
beneficiaries receiving assistance from a SPAP to submit the same
information on two different application forms: the SPAP eligibility
application and the low-income subsidy application. The commenter would
prefer to use only the low-income subsidy application for both the
subsidy and SPAP eligibility.
Response: SPAPs will be free to use the application designed for
the low-income subsidy, or a variation on the application, to determine
SPAP eligibility.
Comment: A number of commenters suggested that States should not be
permitted to impose additional documentation requirements on
beneficiaries over and above what SSA requires, and asked that the
language in Sec. 423.904(d)(3) be revised to indicate that statements
from financial institutions would be required ``only if the applicant
or personal representative is unwilling to authorize the agency to
contact the financial institution directly to obtain necessary
information.''
[[Page 4419]]
Response: The simplified application developed by SSA, in
consultation with CMS, is based on the principle of self-attestation.
While we expect some information may be requested from applicants on an
exception basis, based on responses to certain questions or based on
inconsistencies from electronic data matches, we believe the majority
of applicants who use the SSA form will not need to provide additional
information beyond what is submitted and attested to in the application
form.
We acknowledge that States may employ different verification
strategies than SSA, if States actually determine the eligibility for
the low-income subsidy. SSA has access to a variety of data sources to
enable it to verify within acceptable tolerances the majority of income
and resource information using electronic data matches. Again, we
encourage States to utilize the SSA application process to the greatest
extent possible. However, we cannot limit States' authority to require
statements from financial institutions by providing that they may do so
only if the applicant or personal representative is unwilling to
provide authorization to contact the institution. States have the
expertise necessary to determine what the best process is for obtaining
necessary information.
Comment: A number of commenters suggest that individuals who apply
at SSA offices for the low-income subsidy be screened and enrolled in
Medicare Savings Programs. They argue that the obligation to screen and
enroll should not be imposed solely on States. They also suggest that
joint applications be developed for both programs to avoid requesting
duplicate information and to streamline verification of income and
assets for eligibility purposes.
Response: We received similar comments in reference to Sec.
423.773 and Sec. 423.774. As we indicate in the responses to those
comments, we are working with SSA to design a process to provide
subsidy eligibility determination to States for purposes of identifying
individuals who apply at SSA and who may also qualify for Medicare
Savings Programs under the State's Medicaid program. With this process,
we hope to avoid situations in which an individual applies for a low-
income subsidy at an SSA office, finds out that he or she has excess
income or resources to qualify, and remains unaware that he or she may
automatically qualify for a subsidy if the individual chooses to enroll
in a State's Medicare Savings Program.
In addition, we also noted in response to other comments in Sec.
423.773 and Sec. 423.774 that the application for the low-income
subsidy program must reflect the definition of income and resources
outlined in this final rule. However, section 1935 (a)(3) of the Act
obligates States to make a determination of a subsidy applicant's
eligibility for Medicare Savings Programs and to offer them enrollment.
States may develop a special addendum to the low-income subsidy
application to address questions specific to Medicaid or Medicare
Savings Programs eligibility in order to streamline the application
process for these programs.
Comment: One commenter suggested that income and resources will not
be verified as rigidly for the subsidy programs as for Medicare Savings
Programs. The commenter indicated that the subsidy could be approved
and the State could later, due to verification requirements for QMB,
SLMB, or QIs, find that the subsidy was approved in error. The
commenter suggests that there are no provisions for resolving this
occurrence and argue for one standard to be used nationwide.
Response: Medicare Savings Programs represent a Medicaid benefit
designed to offer low-income Medicare beneficiaries assistance with
Medicare premiums and in some cases cost sharing. The low-income
subsidy program is a Medicare benefit under part D. While eligibility
for the two benefits may be based on similar methodologies for counting
income and resources, they are not identical. Moreover, eligibility for
the subsidy can be determined by SSA or States. While uniformity may be
a desirable goal, verification methods may differ between the two
programs. Verification for the low-income subsidy, for example, is
based on the principal of self-attestation. Automation will be utilized
by SSA, and we hope by States, to the greatest degree possible, with
additional information requested on an exception basis.
Comment: Some commenters suggest the proposed regulations regarding
State obligations to screen and offer enrollment in Medicare Savings
Programs is inadequate. The commenters suggest that CMS specify what
``offer enrollment'' means. They argue that it should not be
interpreted to imply that someone who presents himself at a State
office to apply for the subsidy is informed that he can return at a
later time to apply for a Medicare Savings Program.
A few commenters assert that the applicant must be offered the
opportunity to enroll in a Medicare Savings Program during the same
visit or contacted via phone or mail without having to provide further
documentation or compelling the completion of additional forms. The
commenters also suggest that it would be confusing if individuals first
receive notices that they are ineligible for the subsidy and later
receive notices from the State that they are eligible for a Medicare
Savings Program. Again, commenters suggest that CMS align the income
and resource rules for both programs under a single application.
Finally, a few commenters also suggest that CMS automatically
enroll individuals in Medicare Savings Programs, with an opt-out
provision.
Response: Section 1935(a)(3) of the Act specifically requires
States to screen individuals applying for the low-income subsidy for
eligibility for Medicaid Savings Programs and to ``offer enrollment''
to such individuals under the State plan. Under this provision, we
expect that States will perform an initial assessment of whether an
individual is likely to qualify for the State's Medicare Savings
Programs, either based on the individual's application for the low-
income subsidy taken at the State office or based on subsidy
eligibility information provided to the State by SSA. The State should
encourage the individual to complete the application and assist the
individual in doing so. Given the fact that States administer the
Medicaid program, and the fact that enrollment in Medicare Savings
Programs could trigger estate recovery implications, we are not
considering the commenters' suggestions for CMS to automatically enroll
individuals in Medicare Savings Programs with an opt-out provision.
Comment: Some commenters suggested that in order to align the
enrollment requirements between Medicare Savings Programs and the low-
income subsidy, States should not be permitted to pursue estate
recoveries against Medicare Savings Program beneficiaries.
Response: We do not have authority under the MMA to implement the
commenters' recommendation to prevent States from pursuing estate
recoveries against Medicare Savings Program beneficiaries.
Comment: Several commenters suggested that the low-income subsidy
application process represents an opportunity to connect Medicare
beneficiaries to food stamps and other programs that might provide
assistance to them. The commenters suggest that CMS set up an
eligibility process in the final regulation that allows low-income
Medicare beneficiaries to be enrolled as seamlessly as possible in food
stamps, as well as other State administered benefits for which they may
qualify. The commenters also remarked that setting
[[Page 4420]]
up such a system would likely entail that CMS work collaboratively with
SSA, USDA, and State agencies. A few commenters detail specific
opportunities such as providing information about food stamps and other
major benefit programs in any outreach materials that CMS, SSA and
State Medicaid programs distribute; designing procedures that allow
applicant information to be shared between SSA, State agencies, and
CMS; collaborating with other Federal agencies, primarily USDA and SSA,
on ways to enroll eligible applicants in all benefit programs;
developing coordinated redetermination processes that are simple as
possible for Medicare beneficiaries; and reimbursing SSA for the food
stamps program's share of any costs associated with efforts to inform
Social Security recipients of the availability of food stamps and other
programs.
A few other commenters suggested that CMS ensure that applicants be
given the choice of opting out of the other programs, noting that the
complex income calculations under the different programs such as food
stamps or Section 8 Housing could endanger an individual's ability to
enroll in other assistance programs.
Response: We agree that the application process for the low-income
subsidy represents an opportunity to improve coordination and awareness
of other programs designed to assist low-income individuals. As part of
outreach efforts for the low-income subsidy, we will consider
encouraging awareness of other programs. However, we do not have the
authority to align the eligibility systems of other programs in order
to design a single application process for benefits beyond the low-
income subsidy under Medicare Part D.
If SSA is the agency that determines subsidy eligibility, SSA's
response may include a paragraph regarding the individual's potential
eligibility for other programs like food stamps, SSI, and Medicaid,
based upon the information SSA received when determining the low-income
subsidy.
Comment: One commenter recommended CMS conduct a dynamic enrollment
campaign targeted toward beneficiaries who have been determined
eligible for subsidies during the pre-qualification process. CMS should
also develop a one-step application/enrollment process that requires
all prescription drug plans to include information about the
availability of subsidies in their marketing materials and requires
plans to include specific eligibility questions on enrollment forms.
Response: We will be working on a detailed education and outreach
strategy over the next few months. We note, as explained in detail in
subpart B, that while we encourage individuals to choose a plan that
best meets their needs, full- benefit dual eligible individuals who
apply and are found eligible for the low-income subsidy will be
enrolled automatically in Part D plans if they fail to choose one. We
will also facilitate enrollment in Part D plans of other subsidy-
eligible individuals.
Comment: A few commenters asked whether a person screened and found
eligible is required to enroll in a Medicare Savings Program as a QMB,
SLMB, or QIl. Additionally, the commenter asked whether such enrollment
is a condition of eligibility for the low-income subsidy program.
Response: Enrollment for those who qualify for a Medicare Savings
Program is optional. The State cannot condition eligibility for the
Part D low-income subsidy on the individual applying for the Medicare
Savings Program.
2. General Payment Provisions (Sec. 423.906)
Section 1935(d) of the Act contains provisions on Medicaid
coordination with Medicare prescription drug benefits. Specifically, in
the case of a person who is eligible for Part D and also eligible for
full Medicaid benefits, Federal Financial Participation (FFP) in State
Medicaid expenditures is not available for Medicaid covered drugs that
could be covered under Part D or for cost sharing related to such
drugs. As a result, no Federal payment should be made under Medicaid
for covered Part D prescription drugs for full-benefit dual eligible
individuals.
We proposed in Sec. 423.906(a) that States could receive the
regular Federal match for administrative costs in determining subsidy
eligibility. We also proposed, at Sec. 423.906(c), that States may
elect to provide coverage for outpatient drugs, other than Part D
covered drugs, in the same manner as provided for full-benefit dual
eligible individuals or through arrangements with the PDP sponsor or
MA-PD.
Comment: One commenter asked that Medicaid coverage not expire for
full-benefit dual eligible individuals until they voluntarily enroll in
a Part D plan or until CMS or the State has automatically enrolled them
in a plan. By changing the date on which Medicaid coverage ends, SPAPs
would not be obligated to provide drug coverage during such a period
without coverage.
Response: In accordance with section 1935(d) of the Act, in the
case of a person who is eligible for Part D and also eligible for full
Medicaid benefits, FFP is not available for Medicaid covered drugs that
could be covered under Part D or for cost sharing related to such
drugs. In these cases Medicare is the primary payer. We do not have the
authority to delay the end date of Medicaid prescription drug coverage
for such individuals. However, we will deem full-benefit dual eligible
individuals as eligible for Part D low-income subsidies, and assign
these individuals to a PDP, with the option to disenroll, so that there
will be no breaks in coverage between Medicaid and the implementation
of Medicare Part D in January 2006 for this population.
Comment: One commenter asked for clarification that FFP would also
be available to State Medicaid programs to conduct the periodic
eligibility redeterminations. The commenter also asked if work done by
States and SPAPs to enroll beneficiaries in the Part D program would be
claimable as Federal reimbursable services at the administrative FFP
rate under Medicaid program costs just as low-income subsidy
eligibility determinations costs are claimed. Finally, the commenter
asked about claiming FFP for all administrative expenses associated
with State Medicaid agencies or SPAPs administering a ``wrap around''
benefit.
Response: FFP is available to States at the normal Federal match
rate to conduct redeterminations. However, because neither States nor
SPAPs enroll beneficiaries in Part D plans no FFP is available in that
regard. In addition, the statute does not allow for reimbursement for
administering a State benefit that supplements, or ``wraps around''
Part D.
Comment: One commenter asked if a State could pay for and receive
FFP for non-covered Part D drugs when a Part D plan's enhanced
alternative coverage includes supplemental benefits such as coverage of
non-covered Part D drugs. In such a case, the commenter asked whether
the State Medicaid program wrap around coverage for dual eligible
beneficiaries in such plans could continue and whether the State could
receive FFP for these non-covered Part D drugs.
Response: In the scenario described, the plan's supplemental
coverage of non-covered Part D drugs does not preclude Medicaid from
wrapping around these non-covered drugs and receiving FFP for such
coverage. However, to the extent that the Part D plan provides coverage
for the non-covered Part D drugs, Medicaid could only wrap-around (pay
for amounts not covered by the plan for those non-
[[Page 4421]]
covered drugs) the plan's coverage. FFP would not be available for
amounts which the plan covers as supplemental coverage.
Comment: One commenter strongly recommends that CMS provide States
with a template to take into account changes to the State plan that
will result from implementation of Part D.
Response: We do not plan to create a template to take into account
changes to the Medicaid program because of the implementation of Part
D. However, States should be aware that any changes it makes to
Medicaid payment, eligibility, or coverage because of the impact of the
new benefit must be reflected in the State's plan. A State that does
not amend its Medicaid State plan to reflect changes to its Medicaid
program risks losing FFP.
3. Treatment of Territories (Sec. 423.907)
Low-income Part D eligible individuals residing in the territories
are not eligible for premium and cost-sharing subsidies. However, in
accordance with section 1935(e) of the Act, territories may submit a
plan to the Secretary under which medical assistance is to be provided
to low-income individuals for covered Part D drugs. Territories with
approved plans will receive increased grants under section 1935 (e)(3)
of the Act. Proposed Sec. 423.907 contained the provisions explaining
the territories' submittal of plans and the grant funding.
Comment: One commenter expressed concern that low-income Medicare
beneficiaries in Puerto Rico will have no incentive (due to the rich
prescription drug benefit through the Health Reform program), and no
means, to enroll in a PDP because the low-income subsidy program is not
available to the territories.
Response: While residents of the territories are not eligible for
the low-income subsidy, the MMA provides that the territories receive
an increase in the grants paid under section 1108 of the Act if the
territory has a plan approved by the Secretary for providing medical
assistance for Part D drugs. The territories may choose to use these
funds to pay Part D premiums and cost sharing for low-income residents.
The territories may also design their programs to wrap around the Part
D benefit, thus providing an incentive for Medicare beneficiaries to
enroll in the Part D program
Comment: One commenter asked that CMS not require the same
financial and statistical reporting for the funds provided to the
territories added to the grant under section 1108 of the Act so as not
to make the grant administratively burdensome.
Response: Reporting requirements are administrative in nature and
are not addressed in this regulation. We will work with the territories
to design reports that provide CMS with sufficient information to
establish accountability without creating overly burdensome reports.
Comment: One commenter believed that a multi-state PDP region
including Puerto Rico will compromise the viability of the Medicare
Part D program in that territory because of differences in language,
culture, income, and cost structure between Puerto Rico and States.
Response: We appreciate the commenter's concerns. The actual
designation of the regions has been announced by CMS and is listed on
our website.
4. State Contribution to Drug Benefit Costs Assumed by Medicare (Sec.
423.908 through Sec. 423.910)
Medicare will subsidize prescription drug costs for full benefit
dual eligible individuals. However, in accordance with section 1935(c)
of the Act, States and the District of Columbia will be responsible for
making monthly payments to the Federal government beginning in January
2006 to defray a portion of the Medicare drug expenditures for these
individuals. The percentage of State contributions to Medicare Part D
funding is reduced over a ten-year period.
The statute directs, and we specified, in Sec. 423.910(b)(2) that
State payments will be made in a manner similar to the mechanism
through which States pay Medicare Part B premiums on behalf of low-
income individuals who are eligible for both Medicare and Medicaid,
except that those payments will be deposited into the Medicare
Prescription Drug Account in the Federal Supplementary Medical
Insurance Trust Fund.
As we proposed in Sec. 423.908 through Sec. 423.910 to calculate
the monthly State contributions we would first calculate an amount we
refer to as the projected monthly per capita drug payment. This amount
is based in part on a State's Medicaid per capita expenditures for
covered Part D drugs for Medicare beneficiaries eligible for full
benefits under Medicaid for 2003, which is equal to the weighted
average of gross per capita Medicaid expenditures for prescription
drugs for 2003 for Medicaid recipients not receiving drugs through a
managed care plan and the estimated actuarial value of prescription
drugs benefits provided under a comprehensive Medicaid managed care
plan for these individuals in 2003. The weighted average would be based
on the proportion of individuals who, in 2003, did and did not receive
medical assistance for covered outpatient drugs through a comprehensive
Medicaid managed care plan.
The gross per capita Medicaid expenditures for prescription drugs
for 2003 is equal to the average (mean) per person expenditures
(including dispensing fees) for a State during 2003 for covered Part D
drugs provided to Medicare beneficiaries receiving full benefits under
Medicaid who are not receiving medical assistance for drugs through a
comprehensive Medicaid managed care plan, based on data from the
Medicaid Statistical Information System (MSIS) and other available
data, as adjusted by an adjustment factor.
We would apply an adjustment factor to the gross per capita
Medicaid expenditures for prescription drugs. The adjustment factor for
a State would have to equal the ratio of the aggregate payments to the
State in 2003 under rebate agreements under section 1927 of the Act to
a State's 2003 gross expenditures for covered Part D drugs not received
through a Medicaid managed care plan, based on data contained in the
CMS-64 Medicaid expenditure report. We proposed to define 2003 as CY
2003 (January 1, 2003 through December 31, 2003). The gross per capita
Medicaid expenditures for prescription drugs for 2003 will be reduced
by this adjustment factor ratio.
The projected monthly per capita drug payment will be equal to 1/12
of the product of the State's Medicaid per capita expenditures for
covered Part D drugs for Medicare beneficiaries eligible for full
benefits under Medicaid for 2003 and a proportion equal to 100 percent
minus the Federal medical assistance percentage (as defined in section
1905(b) of the Act) applicable to the State for the year for the month
at issue. This amount will be increased by the growth factor for each
year beginning in 2004 through the year for the month at issue. The
growth factor for years 2004, 2005, and 2006 will be the average
percent change from the previous year of the per capita amount of
prescription drug expenditures (determined using the most recent
National Health Expenditure (NHE) projections). The growth factor for
2007 and succeeding years will equal the annual percentage increase in
average per capita aggregate expenditures for covered Part D drugs in
the United States for Part D eligible individuals for the 12-month
period ending in July of the previous year as described in
423.104(d)(5)(iv). We will provide
[[Page 4422]]
further detail regarding the sources of data to be used and how the
annual percentage increase will be determined via operational guidance
to States.
The monthly State contributions for each year, beginning in January
of 2006, will be the product of the projected monthly per capita drug
payment, the total number of full-benefit dual eligible individuals for
the State in the applicable month, and the applicable ten year phased-
down factor for the year (see Table S-1). As illustrated in Table S-1,
State contributions will decline each year until 2015, at which time
the applicable 10 year phased-down factor for each year will be fixed
at 75 percent.
As specified in proposed Sec. 423.910(b)(3), failure on the part
of a State to pay these State contribution amounts would result in
interest accruing on those payments at the rate provided under section
1903(d)(5) of the Act, in accordance with section 1935(c)(1)(C) of the
Act. In addition, as required by the statute, we would immediately
offset unpaid amounts and accrued interest against Federal Medicaid
matching payments due to the State under section 1903(a) of the Act. As
specified in Sec. 423.910(e), we would perform periodic data matches
to identify full-benefit dual eligibles for purposes of computing State
contributions. As we specified in Sec. 423.910(d), States would be
required to provide data on full- benefit dual eligible enrollees in
order to conduct the data match required under section 1935(c)(1)(D) of
the Act.
States will make contributions only on behalf of Medicare
beneficiaries who would otherwise be eligible for outpatient
prescription drug benefits under Medicaid. States will not make
contributions on behalf of individuals such as those QMBs who are not
otherwise eligible for Medicaid, SLMBs, and QIs for whom the State will
pay only Part B premiums or Medicare cost sharing on their behalf.
In order to give meaning to the term full-benefit dual eligible
individual for purposes of the baseline calculation, we needed to
define it in a manner that would permit the baseline calculation to
operate. Therefore, we proposed that Medicaid eligible individuals who
receive comprehensive benefits including drug coverage under Medicaid
and are also covered under Medicare Part A or Part B are to be full-
benefit dual eligible individuals for purposes of calculating the
baseline. The proposed definition of full-benefit dual eligible
individuals excluded Medicare beneficiaries who receive Medicaid drug
coverage under a section 1115 Pharmacy Plus demonstration.
As we specified in Sec. 423.910(g), to assist States in their
budget planning, we must notify States by October 15 each year of the
projected monthly per capita drug payment calculation for the next
calendar year.
The ten-year phased-down State contribution (PDSC) factors are
identified below in Table S-1.
Table S-1
Annual Phased--Down Percentages of State Contributions to Medicare Part
D Drug Benefit Costs
------------------------------------------------------------------------
Year State Percentage
------------------------------------------------------------------------
2006 90
------------------------------------------------------------------------
2007 88 1/3
------------------------------------------------------------------------
2008 86 2/3
------------------------------------------------------------------------
2009 85
------------------------------------------------------------------------
2010 83 1/3
------------------------------------------------------------------------
2011 81 2/3
------------------------------------------------------------------------
2012 80
------------------------------------------------------------------------
2013 78 1/3
------------------------------------------------------------------------
2014 76 2/3
------------------------------------------------------------------------
2015 and thereafter 75
------------------------------------------------------------------------
Comment: A few commenters expressed concern that the 2003 baseline
per full-benefit dual eligible drug cost would fail to reflect cost
containment measures by States. The commenters believed that the
legislative reference to the use of ``other available data'' provides
for a more expansive view of adjustments. Proposed changes included
allowing States to submit documentation of the effects of cost
containment measures to periodically re-base the cost, and the use of
2004 as a base year.
Response: The legislation specifies that we inflate the 2003 base
year full-benefit dual eligible per capita drug costs for use in 2006
using the NHE projections for the years involved. This inflation factor
should take into account changes in the rate of growth of per capita
drug costs. Any effort to measure the differential effect of State cost
containment against the specified inflation factor could be imprecise
and would introduce new reporting requirements. We do not support the
use of optional ad hoc State-reported data, which will be
inconsistently defined, and would be applied unevenly to States. The
use of a later base year, such as 2004, is precluded by the legislative
language.
Comment: One commenter recommends that the regulations allow State-
specific methods for the estimated actuarial value of capitated
prescription drug benefits, allowing States to use their data for the
dual eligible population.
Response: Since we believe the data available on managed care drug
costs will vary by State, the final rule provides for use of a range of
sources of managed care drug cost data.
Comment: One State commenter believes it may pay a disproportionate
share in its phase-down contribution for less comprehensive coverage
for its full-benefit dual eligible individuals.
Response: We believe that the Medicare drug benefit will pay, on
average, more than 96 percent of full-benefit dual eligible
individuals' drug costs. Additionally, about 1.5 million of these full-
benefit dual eligible individuals are institutionalized, meaning they
will not pay any premiums, deductibles or co-payments. While the
nominal cost sharing of the Medicare prescription program is slightly
higher than the cost-sharing under Medicaid, Medicare provides
catastrophic drug coverage, offering additional protection to this
vulnerable population. We further believe that Medicare Part D is
likely to result in more stable and consistent prescription drug
coverage for low-income Medicare beneficiaries since Medicaid is not a
secure source of drug coverage, as eligibility is subject to meeting
certain income and resource requirements. As a result of these
requirements, Medicaid may only provide intermittent drug coverage to
the full-benefit dual eligible individual.
Comment: One State commenter asked how member months are being
counted, how people in MA plans will be counted for the phased-down
payment, and whether individuals from their family planning waiver are
included.
Response: For the phase-down baseline, we expect to count every
MSIS reported enrollment for each month for individuals who are coded
as full-benefit dual eligible individuals. MA plans have no effect on
the baseline calculations, although we will distinguish between
Medicaid individuals in comprehensive plans and those not in
comprehensive plans. This distinction is necessary to establish the
weighting between the fee-for-service and capitated populations in the
baseline calculations. The only full-benefit dual eligible enrolled
individuals who are excluded are those in Pharmacy Plus demonstrations
and drug-only 1115 demonstrations. Those
[[Page 4423]]
in family planning demonstrations would not be excluded if they
received benefits beyond drug coverage.
Comment: One commenter requested clarification on the process to
inflate the baseline per-capita drug cost after 2006. The legislation
specifies the use of the actual Part D costs for the 12 months prior to
July of each year. For 2007 there will not be a 12-month history from
2006 available.
Response: We will provide further detail regarding the sources of
data to be used and how the annual percentage increase will be
determined via operational guidance to States.
Comment: A few commenters expressed concern about the use of the
NHE factor to inflate the baseline to 2003, and suggested that we use
either State-specific numbers, or the total public sector number.
Another commenter asked clarification as to which specific NHE
projection will be used for the phase-down calculation.
Response: The legislation is clear in directing the use of the NHE
estimate for the whole country as the basis for this inflation factor.
That source provides very limited options for use. We believe the
overall per capita drug cost numbers are the most consistent with the
intent of the law. The specific NHE projection factor to be used will
be discussed in operational guidance.
Comment: One commenter expressed concern that the 2003 base year
data may not be representative of drug utilization experience. The
commenter proposes using pooled data from 2001, 2002, and 2003 to
obtain a utilization estimate. The commenter also expressed concern
over the use of quarterly MSIS dual eligibility codes to establish
monthly spending and enrollment base numbers.
Response: We believe that this proposal would introduce significant
additional problems associated with the trending forward of that
significantly older base data. This proposal also conflicts with the
legislative language, which clearly specifies the use of the calendar
year 2003 data. We will address the use of quarterly dual eligibility
indicators in MSIS by applying an algorithm that incorporates both
prior and current quarter values.
Comment: A few commenters proposed that States be allowed to submit
drug rebate dollar amounts that reflect only the full-benefit dual
eligible population. They propose that these numbers be used instead of
the aggregate rebate and drug payment amounts reported on the CMS-64
report.
Response: While this proposal would allow the rebate adjustment to
correspond more closely to the population affected by the PDSC, this is
inconsistent with the legislative language, and would require that we
impose new and complex reporting requirements on the States. We do not
support the use of optional ad hoc State-reported data, which will be
inconsistently defined, and would be applied unevenly to States.
Comment: A few commenters proposed that we allow States to submit,
at their option, rebate collections after 2003 for rebate amounts
identified in 2003. These additional rebate amounts would be used to
reduce the base year drug costs in the baseline calculations.
Response: This comment presumes that the legislation intended that
we use base year data for rebates on an incurred, rather than paid,
basis. This is inconsistent with the definition of the CMS-64
referenced by the legislative language. Simply adding incremental
collections of 2003 incurred rebates would inappropriately inflate the
rebate totals, since the law does not provide for removal of 2003
rebate collections incurred in 2002. There is no standardized reported
data that would allow creation of an incurred rebate amount, and no
indication in the legislation that this was intended. We believe use of
optional State-reported post-2003 rebate collections would introduce
inconsistent treatment of States.
Comment: One commenter recommended that States that provide
pharmacy-only benefits under an 1115 demonstration to a subset of its
population be excluded from the definition of full- benefit dual
eligible individual, since these programs generally provide the same
benefits as offered by Pharmacy Plus Programs.
Response: We agree with this commenter and have clarified the
definition of full-benefit dual eligible individual at Sec. 423.902 to
specifically exclude those individuals enrolled in 1115 demonstration
programs that provide pharmacy-only benefits to a portion of its
demonstration population.
Comment: One State commenter did not object to including its
Medicare beneficiaries who are enrolled in its pharmacy assistance 1115
program in the baseline expenditures, but believes it is inappropriate
to count them as part of the future Medicaid enrolled population that
is multiplied by the trended per person cost as part of the formula.
Response: As indicated above, we will not be including these
populations in the baseline expenditures. In order to remain consistent
with the definition of the baseline and monthly billing counts, we
would also exclude this population from the future Medicaid enrolled
population.
Comment: One State commenter recommends CMS use the First Data Bank
generic sequence number in lieu of the NDC when determining the
excluded list of drugs used in establishing the State's phase-down
contribution.
Response: We are using the NDC because it is the only available
identifier on the MSIS drug claim record.
Comment: One commenter proposed that we allow States to submit
auditable reports of reductions in base year drug payments due to
judicial settlements with drug manufacturers and other accounting
adjustments to base year cost.
Response: This comment presumes that the legislation intended that
we use base year data on an incurred, rather than paid, basis. This is
inconsistent with the definition of the MSIS and CMS-64 data sources
referenced by the legislative language. Simply adding incremental
collections of 2003 settlements would improperly reduce the total
payments, since it does not provide for removal of 2003 settlements
incurred during 2002. There is no standardized reported data that would
allow creation of an incurred settlement amount, and no indication in
the legislation that this was intended. The legislation directs that we
derive the base year costs from the reported MSIS drug claims data, and
there is no viable way to associate these settlement amounts with those
individual drug claims; nor can these settlements be accurately
associated with the target population on an aggregate basis. We believe
use of optional State-reported post-2003 settlements would introduce
inconsistent treatment of States.
Comment: One commenter proposed that full-benefit dual eligible
individuals be enrolled in plans providing a formulary comparable to
the existing Medicaid coverage, and several commenters proposed that
that the PDSC payment exclude any payments for drugs outside the Part D
formulary.
Response: There is no provision in the legislative language to
ensure equivalency of drug formularies under Medicaid dual eligible and
Part D coverage. The PDSC payments are based on actual Medicaid program
payment levels, and are not linked to the Part D formularies.
Comment: One commenter proposed that 100 percent State funded drug
benefits for drugs not in the Part D
[[Page 4424]]
formulary be excluded from the PDSC payment.
Response: The baseline is specified to be the actual Medicaid drug
payment experience for each State based on MSIS data which does not
include State-only programs. The legislation does not provide for
adjustments based on subsequent State choices to offer drug coverage
that wraps around the Part D coverage. There is no provision for
Medicaid or other State programs to receive Federal matching or an
exclusion from PDSC payment for drugs provided beyond those excluded
drugs. The PDSC payments are based on the savings from historic State
utilization levels, and do not guarantee equivalence in coverage
formularies.
Comment: One commenter expressed concern about drugs to be excluded
from the baseline.
Response: We have developed a list of drug codes for drugs to be
excluded from the baseline based on the Part D exclusions in the
legislation.
Comment: A few commenters asked that we clarify the start date and
ongoing due dates for the PDSC payments.
Response: The final regulatory language includes this information.
The ongoing due dates will parallel those for the Medicare Part B
premium buy-in process.
Comment: One commenter requested that we move the due date for
State notification of baseline amounts from October 15 to August 15
prior to the payment year. This would allow States more budgetary lead
time.
Response: The legislation requires that the first year's baseline
data be provided to States no later than October 15, 2005 for the 2006
payment year. In order to help support State budgeting needs, it is our
intent to provide this information to States as soon as it can be
developed. However, the timing to produce preliminary numbers will be
contingent on timely State reporting of needed MSIS data.
In regard to years subsequent to 2006, the only changes to the base
number will be the inflation factor and the Federal matching rate.
States should be able to develop reasonably accurate estimates for
later years based on the prior year's base.
Comment: One commenter expressed concern that if we require State
payment by check or electronic funds transfer, payment could conflict
with State-legislated caps. The commenter proposed that we allow a
range of payment options comparable to the Medicare buy-in process.
Response: It is our intent, as evidenced by our clarification of
the final regulatory language, to mirror the payment process for the
buy-in process set forth in a Federal Register notice published on
September 30, 1985 at FR 39784. This process includes funds transfers,
with a provision that any late payments will be offset against the
Medicaid grant with appropriate interest accrual. In this case, the
Medicaid offset would be transferred to the Medicare Prescription Drug
Account to complete the transaction. Since failure to pay is covered in
this notice, we have removed text at Sec. 423.910(b)(3) that was
included in the proposed rule.
Comment: A few commenters requested that we include a process for
State appeal of the PDSC payment amount.
Response: The legislation does not contain a specific provision for
an appeal process. However, it requires CMS to disallow from the
Federal financial participation in the State's Medicaid expenditures
any amounts which the State should have paid under section 1935 of the
act. Because this is a disallowance of Medicaid funds, any State
disagreements with the phased-down billing would have to be handled
through the existing disallowance process under Sec. 430.42.
Comment: A few commenters expressed concerns about the need for
more specific instructions for reporting monthly enrollment to CMS, and
proposed the use of the MSIS.
Response: The final regulation includes more specific information
on this reporting process. CMS has evaluated this option and has
determined that the change of MSIS from quarterly to monthly reporting
would represent an undue hardship to States. The enrollment reporting
file would also require the addition of fields to address other program
needs, such as subsidy determinations.
Comment: One commenter requested more detail on the process to be
used to establish the actuarial value of the capitated prescription
drug benefits for full-benefit dual eligible individuals in
comprehensive managed care plans.
Response: We have provided clarification in the final regulation at
Sec. 423.902, based on feedback obtained from State workgroups
addressing this issue.
T. Part D Provisions Affecting Physician Self-Referral, Cost-Based HMO,
PACE, and Medigap Requirements
In the August 2004 proposed rule, subpart T discussed several other
regulatory areas affected by the provisions implementing the Medicare
prescription drug benefit. This section discussed the revised
requirements for physician self-referral prohibition, cost-based HMOs,
PACE organizations, and Medigap policies.
1. Definition of Outpatient Prescription Drugs for Purposes of
Physician Self-Referral Prohibition (Sec. 411.351)
Section 1877 of the Act, also known as the physician self-referral
law, prohibits a physician from making referrals for certain designated
health services (DHS) payable by Medicare to an entity with which the
physician (or an immediate family member of the physician) has a
financial relationship (ownership, investment, or compensation), unless
an exception applies. Section 1877 of the Act also prohibits the DHS
entity from submitting claims to Medicare for DHS furnished as a result
of a prohibited referral.
Outpatient prescription drugs are a DHS under section 1877 of the
Act. As a result of the Medicare prescription drug benefit provisions,
we proposed to amend the physician self-referral definition of
``outpatient prescription drugs'' at Sec. 411.351 to include the
additional outpatient drugs covered under the new Part D benefit. In
other words, under the proposed definition, physician referrals for
outpatient prescription drugs covered under Part D would be subject to
the physician self-referral prohibition. We have finalized this
proposal without substantive change because we believe that referrals
for Part D drugs are subject to the same risk of over-utilization and
anti-competitive behavior as referrals for Part B drugs when a
financial relationship exists between the referring physician and the
entity furnishing the drugs.
Comment: We received a number of comments, which supported our
proposal. Some of the commenters cited analyses, which supported our
proposed action.
Response: We appreciate the support given to our proposal. We
believe that applying the physician self-referral provision to
referrals for either Part B or Part D drugs will reduce the potential
for over-utilization and other program abuse.
2. Cost-Based HMOs and CMPs Offering Part D Coverage (Sec. 417.440 and
Sec. 417.534)
Section 1860D-21(e) of the Act provides that Part D rules will
generally apply to reasonable cost reimbursement HMOs and CMPs
(Competitive Medical Plans) that contract under section 1876 of the Act
and that offer qualified prescription drug coverage to Part D eligible
individuals in the same manner as such rules apply to the offering of
[[Page 4425]]
qualified prescription drug coverage under MA-PD local plans. As a
result, we proposed revising Sec. 417.440(b) of this chapter to
specify that a cost-based HMO or CMP may offer qualified prescription
drug coverage. We also proposed adding new Sec. 417.534(b)(4),
specifying that to the extent that a cost HMO or CMP chooses to
participate in the Part D program by offering qualified prescription
drug coverage to its members, any costs associated with the offering of
Part D benefits may not be claimed on its Medicare cost report. After
reviewing comments and responding (below), we are adopting the proposed
policy as final.
In the proposed rule, we incorrectly stated at 69 FR 46753 that
cost-based HMOs and CMPs would offer qualified prescription drug
coverage to Part D eligible enrollees under Sec. 417.440(b)(1)(iii) as
a basic benefit. We clarify in this final rule our belief that such a
reading would not comply with the clear language of section
1876(c)(2)(A)(ii)(I) of the Act which provides that cost-based HMOs and
CMPs may only offer non-Part A/B Medicare benefits as optional
supplemental benefits. In this final rule, we therefore amend Sec.
417.440(b)(2) to make the requirement clear that cost-based HMOs and
CMPs may offer qualified prescription drug coverage to Part D eligible
enrollees only as an optional supplemental benefit.
Section 1860D-21(e)(2) of the Act stipulates that section 1876
reasonable cost contractors offering qualified prescription drug
coverage may only offer such coverage to individuals enrolled in its
reasonable cost contract, or individuals who receive services covered
under Medicare Parts A and B through its reasonable cost contract.
After reviewing comments and responding (below), we are adopting the
proposed policy as final. However, it is important to note that the HMO
or CMP offering the cost plan is free to also apply to be a PDP sponsor
and may, if approved, then offer a separate Part D plan to Part D
eligible individuals enrolled in original Medicare who are not
enrollees of its cost plan.
Section 1860D-21(e)(3) of the Act provides that the Part D bids of
section 1876 reasonable cost contracts will not be included in the
computation of the national average monthly bid amount and the low-
income benchmark premium amount. We discuss the national average
monthly bid amount in the subpart F preamble and the low-income
benchmark premium amount in the subpart P preamble.
We proposed that the waiver authority provided in section 1860D-
21(c) of the Act would be available to section 1876 reasonable cost
HMOs and CMPs in the same manner as it is available to MA-PD local
plans, namely that we will waive any requirement otherwise applicable
under this part for section 1876 reasonable cost HMOs and CMPs to the
extent such requirement conflicts with or is duplicative of a
requirement under part 417, or such waiver is necessary to promote
coordination of the Part D benefits with the benefits offered under
part 417. We discuss section 1860D-21(c) of the Act and this waiver
authority in subpart J of the preamble. We invited comment on whether
there are any Part D requirements otherwise applicable to the offering
of qualified prescription drug coverage under MA-PD local plans that
would be uniquely problematic to implement for section 1876 reasonable
cost HMOs and CMPs. After reviewing and responding to comments (below),
we have not identified any additional Part D requirements that will be
uniquely problematic for section 1876 reasonable cost HMOs and CMPs to
implement. Nevertheless, in Sec. 423.458(d) of the final rule, we
provide for a process that will allow for waiver of Part D provisions
for cost HMOs and CMPs that offer qualified prescription drug coverage
under Part D to the extent that the provision duplicates, or is in
conflict with provisions otherwise applicable to the section 1876 cost
HMO/CMP under section 1876 of the Act, or when a waiver is necessary to
promote coordination of the Part D benefits with the benefits offered
under part 417.
Comment: Some commenters suggested that we make clear that once a
cost plan offers Part D that it becomes an MA-PD plan and that some (or
all) Part C provisions then supersede or replace section 1876 (and part
417 of title 42 CFR) provisions as controlling on such a cost plan. For
instance, some commenters suggested that the State preemption authority
in section 1856(b)(3) of the Act related to MA plans, and incorporated
by reference in section 1860D-12(g) of the Act, should be interpreted
to apply to the entire benefit package that a cost HMO/CMP offers and
not just the prescription drug coverage portion of the package.
Response: We do not agree. We interpret section 1860D-21(e)(1) of
the Act as providing that only those provisions of Part D and related
provisions of Part C pertaining to the offering of qualified
prescription drug coverage by a MA-PD local plan would apply to the
offering of such coverage by a cost HMO or CMP. Consequently, the
provisions of Parts C and D, including the preemption provisions under
sections 1860D-12(g) and 1856(b)(3) of the Act, would not apply to
benefits offered under a reasonable cost contract other than any
qualified prescription drug coverage. In other words, the section 1876
cost-based HMO/CMP does not gain preemption protection related to the
``entire benefit package'' it offers. Accordingly, the preemption
authority at section 1860D-12(g) of the Act does not, in and of itself,
``immunize'' the cost HMO/CMP from State laws with respect to the
benefits the cost HMO/CMP offers under the authority in section 1876 of
the Act.
Comment: One commenter said that section 1860D-21(e) of the Act
says that a cost HMO/CMP that offers qualified prescription drug
coverage to its members is deemed to be an MA-PD local plan. This
commenter suggested that CMS should allow a cost plan that elects to
offer qualified prescription drug coverage to its Part D eligible cost
enrollees to apply related Part C provisions to those members.
Response: We do not necessarily agree. Section 1860D-21(e) of the
Act extends to cost plans provisions of Part C applicable to MA-PD
local plans to the extent they relate to the offering of qualified
prescription drug coverage. Section 1860D-21(e) of the Act, however,
does not deem a reasonable cost contract offering qualified
prescription drug coverage a MA-PD local plan for all purposes.
Consequently, those provisions applicable to MA-PD local plans that are
unrelated to the offering of qualified prescription drug coverage would
not apply to reasonable cost contracts. In other words, it is only in
this limited way that a cost plan offering qualified Part D coverage is
deemed to be an MA-PD.
Comment: One commenter suggested modifying Sec. 417.436 to provide
that that the requirement at Sec. 417.436(a)(5) that a cost HMO or CMP
disclose to its enrollees that they may receive services through any
Medicare provider or supplier has no effect with respect to the
offering of qualified prescription drug coverage under the reasonable
cost contract.
Response: We believe that Sec. 423.458 is clear in providing that
rules related to Part D coverage, whether offered by a PDP or an MA-PD,
are provided in the part 423 regulations. Therefore, it is not
necessary to specifically say in the part 417 regulations that a
specific part 423 regulation applies. Section 423.128(b) describes the
specific information that PDPs and MA-PDs must disclose related to
their Part D benefit offerings, which includes ``a disclosure of out-
of-network
[[Page 4426]]
coverage consistent with Sec. 423.124(a)''--see Sec. 423.128(b)(6).
Comment: One commenter asked that we clarify that a legal entity
that operates a Medicare cost plan may operate as a PDP sponsor as long
as it meets all the relevant licensure and other requirements.
Response: We concur and have clarified this point in our preamble
discussion in this subpart.
Comment: One commenter asked us to clarify that the definition of
service area for cost HMOs/CMPs is found at Sec. 417.1, while the
definition for MA plans is found at Sec. 422.2. The commenter asked us
to clarify that the reference to service areas for MA-PD plans in Sec.
423.120(a) had no applicability to cost plans.
Response: We agree with the commenter that the reference to service
area of an MA-PD plan in Sec. 423.120(a) does not apply to cost HMOs/
CMPs that offer Part D coverage. The effect of section 1860D-21(e)(2)
of the Act is not to ``deem'' that a cost plan offering qualified Part
D coverage actually becomes an MA-PD local plan. Rather, it is that the
rule applicable to the provision of Part D coverage by the cost plan to
enrollees of the cost plan is similar to the provision of Part D
coverage by MA-PD local plans. As we provide in subpart J of this rule
at Sec. 423.458(d), we will waive provisions in Sec. 423.120(a) to
the extent they duplicate or conflict with section 1876 provisions
applicable to cost plans under section 1876 of the Act or part 417 of
title 42 CFR, or to the extent waiver is necessary to improve
coordination of Part D benefits offered under the plan with the other
benefits offered by the cost plan. Although we do not specifically
mention such a waiver at Sec. 423.120(a) for a cost HMO/CMP offering
qualified prescription drug coverage, such a waiver is available, to
the extent it would meet the conditions for waiver in Sec. 423.458(d).
Comment: One commenter asked if the disclosure requirements in
Sec. 423.128, to the extent they were more stringent than the
disclosure requirements under section 1876 of the Act and Sec. 417.436
of the title 42 CFR, would only apply to the Part D portion of a cost
plan's benefit offerings.
Response: To the extent that a ``coordination'' waiver has not been
granted under Sec. 423.458(d), the disclosure requirements in Sec.
423.128 would apply to the Part D portion of a cost plan's benefit
offering.
Comment: One commenter suggested that section 1860D-21(e) of the
Act provides to us clear authority to allow us to apply ``deeming''
authority in Sec. 423.165 to cost HMOs/CMPs offering qualified Part D
coverage to cost enrollees, which allows us to deem an entity as
meeting certain requirements under this part if the entity is fully
accredited (and periodically reaccredited) by a private national
accreditation organization approved by us.
Response: We agree that section 1860D-21(e) of the Act extends the
deeming authority under Sec. 423.165 to section 1876 cost HMOs/CMPs,
provided the provisions of Sec. 423.165 are not otherwise waived under
Sec. 423.458(d) with respect to section 1876 cost HMOs/CMPs.
Comment: One commenter asked us to clarify that the waiver
authority in Sec. 423.458(c), which permits us to waive or modify any
requirement under this part that hinders the design of, the offering
of, or the enrollment in an employer- or labor-sponsored group
prescription drug plan, would also apply to section 1876 cost HMOs/
CMPs.
Response: We responded to a similar comment in the subpart J
preamble. In short, we do not interpret the statute as permitting us to
apply our waiver authority related to employer- or labor-sponsored
group coverage as extending to the Medicare Part A and B benefits
offered by a Medicare cost plan.
Comment: A few commenters asked if section 1876 cost plans that did
not offer qualified prescription drug coverage would be permitted to
offer non-qualified prescription drug coverage. One commenter also
asked if such coverage would be creditable coverage under Part D
fearing that such cost members would be penalized for electing Part D
late.
Response: Section 1876 reasonable cost plans that do not offer
their members qualified prescription drug coverage may offer non-
qualified prescription drug coverage to their members, but only as an
optional supplemental benefit and in accordance with Sec.
417.440(b)(2). Such coverage will be considered creditable prescription
drug coverage only if it meets the standards set forth in Sec.
423.56(a) of the final rule.
Comment: One commenter asked if we would permit cost plans to waive
Part A/B and to apply this waiver to the Part D premium that would
otherwise be imposed on cost plan members.
Response: Such a waiver will not be permitted. A cost plan must
claim its reasonable costs for services provided under the plan that
are covered under Parts A and B in accordance with the applicable
requirements of part 417 of this chapter. If the cost plan elects to
provide its enrollees qualified prescription drug coverage under Part
D, payment for such benefits will be governed by the payment rules
under this part. In other words, the financing of services provided
under the cost plan that are covered under Parts A and B is separate
from the financing of any qualified prescription drug coverage provided
under the plan. Please see Sec. 417.534(c) where we clearly state that
``no costs related to the offering or provision of Part D benefits will
be reimbursed under this Part [417].'' To the extent that we permitted
waiver of A/B to apply to reduction in Part D premiums, dollars
applicable to part 417 would flow to Part D, and therefore such a
proposal cannot be allowed. If a cost plan wants to reduce cost-sharing
values for A/B services as currently permitted, it may continue to do
so. However, the revenue thus forgone related to benefits offered under
part 417 cannot be passed over to reduce premiums required under part
423.
Comment: One commenter asked if the waiver of State premium taxes
and the preemption authority granted under section 1860D-12(g) of the
Act to PDP sponsors and prescription drug plans would also apply to
cost plans offering qualified Part D. The commenter suggested that such
a waiver and such authority should also be extended to the cost plan's
A/B benefit offerings under part 417.
Response: We have previously provided guidance to cost plans
related to State premium taxes. As we have previously indicated, we do
not believe that States can impose a premium tax on the reasonable
costs that we reimburse cost plans for covered Medicare Part A and B
services. Such payments by us do not technically represent a premium so
much as they represent reimbursement, under the Medicare program, for
benefits to which Medicare enrollees are entitled. On the other hand,
we have also said that premiums changed to cost plan members for the
actuarial value of fee-for-service deductibles and coinsurance are
properly construed as premiums and would be correctly subject to State
taxes. On the other hand, for premiums related to the Part D offering
of a cost plan, there is specific preemption and waiver of State taxes.
See the subpart J preamble for an additional discussion on this issue.
3. PACE Organizations Offering Part D Coverage
a. Overview
Section 1860D-21(f)(1) of the Act provides that a PACE program may
elect to provide qualified prescription drug
[[Page 4427]]
coverage to its enrollees who are Part D eligible individuals.
Currently, sections 1894 and 1934 of the Act require PACE
organizations to provide enrollees with all medically necessary
services including prescription drugs, without any limitation or
condition as to amount, duration, or scope and without application of
deductibles, co-payments, coinsurance, or other cost sharing that would
otherwise apply under Medicare or Medicaid. Up until January 1, 2006,
payment for drugs covered under Medicare Parts A and B is included in
the monthly Medicare capitation rate paid to PACE organizations for
Medicare beneficiaries, while payment for outpatient prescription drugs
is included as either a portion of the monthly Medicaid capitation rate
paid to PACE organizations for Medicaid recipients, or as a portion of
the amount equal to the Medicaid premium paid by non-Medicaid
recipients.
The MMA alters the payment structure for Part D drugs for PACE
organizations by shifting the payer source for PACE enrollees who are
full-benefit dual eligible individuals (as defined under section
1935(c)(6) of the Act) from Medicaid to Medicare, and in part from the
beneficiary to Medicare in the case of non-full-benefit dual eligible
individuals who elect to enroll in Part D.
Consequently, in order for PACE organizations to continue to meet
the statutory requirement to provide prescription drug coverage to
their enrollees, and to ensure that they receive adequate payment for
the provision of Part D drugs, from January 1, 2006 forward, we
explained in the proposed rule that PACE organizations would need to
offer qualified prescription drug coverage to their enrollees who are
Part D eligible individuals. We also indicated that prescription drug
coverage for PACE enrollees who are ineligible for Part D (Medicaid-
only enrollees) would continue to be funded by the State in which each
PACE organization is located through its monthly capitation payment to
the PACE organization.
Section 1860D-21(f)(1) of the Act provides that in the case of a
PACE program that elects to provide qualified prescription drug
coverage to its enrollees who are Part D eligible individuals, the
requirements under this Part apply to the provision of the coverage in
a manner that is similar to the manner in which the requirements apply
to the provision of such coverage under MA-PD local plans. Furthermore,
the PACE organization may be deemed to be MA-PD local plan.
We believe that the Congress did not intend to alter the way in
which PACE services, including outpatient prescription drugs, are
currently being provided to enrollees. Therefore, we proposed that PACE
organizations not be deemed to be MA-PD local plans. Rather, we
proposed that PACE organizations would be treated in a manner that is
similar to an MA-PD local plan for purposes of payment under Part D for
qualified prescription drug coverage provided under their PACE plans.
We stated that we believed this approach was consistent with section
1894(d)(1) of the Act, which provides that payments will be made to
PACE organizations in the same manner and from the same sources as
payments are made to a MA organization.
PACE organizations have a longstanding history of providing
prescription drug coverage under the authority of sections 1894 and
1934 of the Act and 42 CFR part 460. Therefore, many of the new Part D
requirements are duplicative of, conflict with, or do not promote
coordination with, the PACE benefit. For these reasons, many of the
Part D requirements will be waived for PACE organizations. A background
of the PACE model is provided below, followed by a discussion of Part D
administrative and payment related requirements as they relate to PACE
organizations.
b. Background
Sections 4801 through 4803 of the Balanced Budget Act of 1997 (Pub.
L. 105-33) established PACE as a Medicare benefit category and a State
plan option under Medicaid. PACE organizations provide services to
frail, elderly individuals as an alternative to nursing home placement.
The PACE benefit currently includes all Medicare benefits under Parts A
and B, all services covered under the Medicaid State plan, and any
other service(s) deemed necessary by the PACE interdisciplinary team.
The PACE benefit also currently includes all outpatient
prescription drugs, as well as over-the-counter medications that are
indicated by the participant's care plan. Thus, all PACE organizations
currently provide at least the equivalent of qualified prescription
drug coverage as described under subpart C.
PACE organizations are risk-bearing entities that receive a
capitated monthly rate from Medicare for Medicare-covered services and
from Medicaid for Medicaid-covered services. As required by sections
1894(f)(2)(B) and 1934(f)(2)(B) of the Act, the PACE organization pools
payments received from all sources in order to provide all services
needed by its enrollees, including services covered by neither Medicare
nor Medicaid. Currently, most PACE enrollees are dually eligible for
Medicare and Medicaid; however, participants may be eligible for
Medicare only or Medicaid only. Sections 1894(b)(1)(A) and
1934(b)(1)(A) of the Act require the PACE organization to provide all
covered services to enrollees regardless of the source of payment.
Sections 1894(b)(1)(A)(i) and 1934(b)(1)(A)(i) further clarify that
PACE programs cannot charge deductibles, co-payments, coinsurance, or
other cost-sharing responsibilities to PACE participants. Consequently,
a PACE organization may not charge its participants any cost sharing.
The PACE Medicare and Medicaid regulations are located in 42 CFR
part 460. As directed by sections 1894 and 1934 of the Act, these
regulatory requirements are a blend of MA and Medicaid managed care
requirements, as well as requirements from the PACE Protocol that was
created by On Lok, Inc. under a demonstration waiver program with the
Secretary. Thus, although certain PACE requirements are the same or
similar to MA and Medicaid managed care requirements, many are unique
to PACE.
We received 11 formal letters of comment from industry
representatives, PACE organizations, States, and contractors. Most
commenters identified multiple concerns, regarding the Part D
administrative and payment related provisions in relation to PACE. Many
commenters also expressed support for the waivers we proposed, as well
as recommended that we waive additional Part D rules because they
conflict with, duplicate, or do not promote coordination with, the PACE
statute and regulations. We thank the commenters who submitted comments
on waiver issues, and we have summarized all of the comments below.
However, as explained below, we have chosen to finalize only our
proposed waiver of section 423.265(b), which would have required PACE
organizations planning to offer Part D prescription drug plans to
submit bids and supplemental information no later than the first Monday
in June of each year. We will issue further guidance that will list
additional Part D provisions that we will waive for PACE organizations.
In issuing such guidance, we will take into consideration all of the
comments we received regarding waivers.
c. Application of Payment Related Part D Requirements to PACE
Organizations
In using the term, payment related requirements, we are referring
to
[[Page 4428]]
subparts F, G, and P of this regulation concerning submission of bids
and monthly beneficiary premiums, plan approval, payments to PACE
organizations for qualified prescription drug coverage, and premium and
cost-sharing subsidies for low-income individuals.
In accordance with subpart F, we proposed that each organization
would submit a Part D bid that would reflect its average monthly
revenue requirements to provide qualified prescription drug coverage,
including enhanced alternative prescription drug coverage, for a Part D
eligible individual with a national average risk profile. This bidding
process would have occurred in a similar manner as for traditional Part
D plans. In accordance with Sec. 423.265(c)(3) of this regulation,
Part D bids were to be prepared according to CMS guidelines on
actuarial valuation and actuarially certified.
We also proposed that plans would use qualified actuaries to
prepare their bids in accordance with these principles. However, we
were concerned that requiring small PACE organizations to independently
contract with actuaries would be costly and burdensome. In order to
minimize their cost, we suggested that PACE organizations collectively
contract with an actuary to develop the methodology for establishing a
bid, but stated that each bid would need to be actuarially certified.
Finally, we indicated that since PACE organizations are required to
enroll Medicare-only individuals who meet PACE eligibility
requirements, all PACE organization bids would be required to include
the portion of the bid attributable to the cost of providing the
enhanced alternative prescription drug coverage.
In the proposed rule, we proposed policies addressing each of the
three primary categories of PACE enrollees: individuals enrolled in
Medicaid, but not Medicare (Medicaid-only); individuals enrolled in
Medicare and Medicaid (Dual eligible individuals); and individuals
enrolled in Medicare, but not Medicaid (Medicare-only).
First, we indicated that prescription drug coverage for Medicaid-
only enrollees would continue to be funded by Medicaid through a
portion of the monthly capitation rate paid to the PACE organization
because these enrollees are ineligible to receive Part D prescription
drug coverage.
For dual eligible and Medicare-only PACE enrollees, we proposed
that PACE organizations would offer enhanced alternative prescription
drug packages with no enrollee cost sharing.
For both dual eligible individuals and Medicare-only enrollees, we
proposed that we would pay PACE organizations the direct subsidy,
calculated under Sec. 423.329(a)(1). In addition, the PACE
organization would receive low-income premium and subsidy payments or
partial subsidy payments for those enrollees who qualify for the low-
income subsidy. We noted that dual eligible beneficiaries would be
deemed eligible for the full low-income subsidy under Sec. 423.773(c),
which included a premium subsidy not to exceed the basic premium for
coverage under the Part D plan selected by the beneficiary, but no more
than the greater of the low-income benchmark premium amount or the
lowest beneficiary premium amount for a PDP offering basic prescription
drug coverage in the PDP region where the beneficiary resides. To the
extent a discrepancy occurred between the low-income premium amount and
PDP or MA-PD plan's bid, Sec. 423.286(d)(1) of the proposed rule
required beneficiaries to pay this amount as a premium which would have
been established by the PDP or MA-PD plan during the bidding process.
The PACE regulations, however, conflict with this Part D provision
since they preclude a PACE organization from charging premiums to dual-
eligibles.
In addition, Medicare-only enrollees would have been required to
account for the additional cost of providing a prescription drug
package to enrollees without the application of cost sharing. This
amount would have represented the ``enhanced'' portion of the Part D
premium. Because PACE organizations are not precluded from charging
premiums to Medicare-only enrollees, it would have been permissible for
them to pass on the responsibility for any payment discrepancy and
enhanced alternative coverage to their Medicare-only enrollees in order
to comply with Part D requirements. The premium amounts actually paid
by enrollees would have varied depending on whether the enrollee was
eligible for both Medicare and Medicaid or only eligible for Medicare
and according to whether the enrollee qualified for the low-income
premium subsidy.
We were concerned about the impact on low-income dual eligible and
Medicare-only PACE enrollees and requested public comment on other
approaches to handling this premium differential.
We also indicated in the proposed rule that reinsurance and risk
corridor costs as defined in Sec. 423.308 would be applicable to PACE
organizations and that PACE organizations would be required to track
allowable costs for all Part D eligible PACE enrollees pertaining to
reinsurance payments and under Sec. 423.336(c) pertaining to risk
corridor amounts. Specifically, low-income subsidy amounts received by
the PACE organizations would count towards the annual out-of-pocket
threshold applicable to reinsurance.
Comment: We received many bidding related comments. Some commenters
requested that PACE organizations not be required to bid, others
requested that PACE organizations be permitted to delay their bid
submission until after the average benchmark premium and low income
subsidy amounts are set, and others requested that we grant a waiver of
the bidding requirements under subpart F of the proposed rule on behalf
of PACE organizations. Commenters viewed the bidding process as
administratively burdensome and costly to small scale PACE
organizations that are currently able to effectively provide
prescription drug coverage to enrollees under the authority of the PACE
statutes and regulations.
Commenters did not view the bidding approach outlined in the
proposed rule to be consistent with the unique attributes of PACE,
including existing PACE statutory and regulatory guidance for the
provision of prescription drugs which precludes cost sharing and small
PACE organization enrollment as compared with traditional Part D plans.
Some commenters proposed a transition period during which PACE
organizations would base their Part D bid on the amounts currently paid
to them by Medicaid for drug coverage. These commenters recommend that
we utilize the same data gathered under section 1935(c) of the Act as a
basis for paying PACE organizations for the prescription drug costs of
dually eligible individuals enrolled in PACE. Each State currently
providing PACE as an option under its State plan would be required to
reduce its capitation payment for dual eligible PACE enrollees by the
amount of Medicaid expenditures for Part D covered drugs beginning
January 2006. The difference between the old and new State payment
amounts would be the basis for the PACE organizations' bids.
Specifically, in States with more than one PACE organization, the bids
of all PACE organizations located in the same State would be equal.
These commenters indicate that this proposed bidding approach would
not only be consistent with the current cost of providing prescription
drug coverage to the PACE population, but it would be less
administratively burdensome to small organizations. In addition, a
transition approach would also allow
[[Page 4429]]
us, States, and the industry additional time to evaluate the impact of
Part D on PACE and develop a payment approach consistent with the PACE
model. The commenters proposed that the transition period continue
until an evaluation of the impact of the Part D program on PACE could
be completed or appropriate legislative or regulatory changes could be
made to reconcile the conflicting provisions of the PACE and Part D
requirements.
Response: Because the MMA shifts responsibility for prescription
drugs from Medicaid to Medicare for the full-benefit dual eligible
beneficiaries, it will no longer be possible for PACE organizations to
receive prescription drug payment on behalf of these beneficiaries from
Medicaid. In addition, section 1860D-21(f) of the Act indicates that to
the extent a PACE program elects to provide qualified prescription drug
coverage to Part D eligible individuals, Part D requirements apply to
the provisions of such coverage in a manner that is similar to that of
MA-PD local plans. As stated previously, PACE organizations will be
treated in a manner that is similar to that of MA-PD local plans,
including the bidding provisions of subpart F. We do not view the
proposed transition period as ``similar to'' the requirements under
which MA-PD plans will operate. In addition, section 1860D-21(f)(3) of
the Act implies that PACE organizations will submit bids by indicating
that PACE organizations bids will not be included in national average
benchmark amounts. We do not have the statutory authority to waive the
Part D bidding requirement. Thus, PACE organizations will be required
to submit bids in accordance with subpart F.
Comment: Many commenters expressed concern that requiring PACE
plans to bid, and basing premium and subsidies on MA-PD bids rather
than PACE bids will create an unlevel playing field for PACE.
Commenters were concerned that the small size of PACE organizations
will hinder their ability to achieve volume related price breaks from
drug manufacturers that may be available to the larger Part D plans.
Thus, PACE organization Part D bids will be higher than those of
traditional Part D plans. Because PACE organizations primarily serve
dual eligible individuals with the exception of a few low-income
Medicare-only enrollees, subsidy payments that accurately capture the
cost of providing prescription drugs will be critical to the continued
financial stability of PACE organizations. This importance is magnified
by existing PACE statutory and regulatory provisions that preclude PACE
organizations from imposing enrollee cost sharing upon any enrollee and
from imposing premiums upon any Medicaid eligible enrollee. Thus,
commenters believed that it was essential that the low-income premium
and subsidy payments paid by us to PACE organizations on behalf of low-
income enrollees be comparable to the cost of providing the benefit.
Response: We agree that PACE organizations differ from traditional
Part D plans in terms of the number of enrollees. Thus, we do not view
PACE organizations as closely comparable to traditional Part D plans
for purposes of competition.
We believe that the small size of PACE organizations will hinder
their ability to achieve volume related price breaks from drug
manufacturers that may be available to the larger Part D plans. Thus,
PACE organizations' Part D bids will be higher than those of
traditional Part D plans. The MMA addresses this key difference,
specifically as it relates to payment in section 1860D-21(f)(3) of the
Act by indicating that the bids of PACE organizations are not to be
included in determining the standardized bid amount. Ironically,
however, bids included in the computation of the standardized bid
amount are directly related to subsidy payments made to all plans,
including PACE organizations. Because PACE organizations primarily
serve dual eligible individuals, with the exception of a few low-income
Medicare-only enrollees, subsidy payments that accurately capture the
cost of providing prescription drugs will be critical to the continued
financial stability of PACE organizations. This importance is magnified
by existing PACE statutory and regulatory provisions that preclude PACE
organizations from imposing enrollee cost sharing upon any enrollee and
PACE regulatory provisions that preclude PACE organizations from
imposing premiums upon any Medicaid eligible enrollee. Thus, it is
essential that the direct subsidy, as well as the low-income premium
and subsidy payments paid by us to PACE organizations on behalf of low-
income, enrollees be comparable to the cost of providing the benefit.
The MMA did not amend sections 1894 and 1934 of the Act and it is
clear that Part D applies to PACE. We have determined that the
conflicting PACE and Part D requirements related to beneficiary cost
sharing and the PACE preclusion of charging any Medicaid eligible
enrollee a premium would result in a significant Part D payment
discrepancy to PACE organizations absent our intervention. As a result,
we are considering the application of section 1894(d)(2) of the Act and
Sec. 460.180(b)(5) of the PACE regulation authority which authorize
the Secretary to adjust payment to PACE organizations based on ``other
factors'' as appropriate. These adjustments will take into account the
PACE preclusion of and the preclusion of charging any Medicaid eligible
enrollee a premium. Additional CMS guidelines will be issued to PACE
organizations following publication of this rule. These guidelines will
outline the PACE/Part D payment methodology, including an appropriate
payment adjustment applicable to PACE organizations. We believe that
this guidance will minimize disruption to PACE organizations and their
enrollees.
Comment: We received public comment in support of our proposed
waiver on behalf of PACE organizations of the bid submission deadline
of no later than the first Monday in June for each Part D plan
intending to offer a Part D prescription drug plan in the subsequent
calendar year under Sec. 423.265(b).
Response: As indicated in the proposed rule, a new PACE
organization may take from 2.5 to 3 years to develop the capacity to
offer PACE services, including capital expenditures associated with
construction or renovating space for a PACE Center. In addition, as
required by sections 1894 and 1934 of the Act, many activities
associated with PACE involve the States. For example, PACE applications
are submitted to the State for review prior to our review and the PACE
program agreement is a 3-party contract; CMS, the State in which the
potential PACE program is located, and the PACE organization. Although
we originally proposed that the bid submission deadline be broadly
waived for all PACE organizations, we would like to clarify that we
expect PACE organizations that are operational prior to the first
Monday in June of each year to meet the bid submission deadline.
However to the extent they are unable, we will waive the bid submission
deadline for those organizations since PACE bids are not included in
the computation of any average benchmark amount or low-income benchmark
premium amount. In addition, we do not believe that it would be
appropriate for a potential PACE organization that contracts with us
after the June deadline to be unable to receive payment under Part D
until the following year's June deadline is met and the bid has been
approved. Therefore, the requirement of
[[Page 4430]]
Sec. 423.265(b) of this regulation will also be waived on behalf of
potential PACE organizations which are not operational by the first
Monday in June in order to promote coordination of benefits between
Part D and PACE. As a result, new PACE organizations will be permitted
to submit their Part D bids beyond the June deadline.
Further discussion of Part D waivers on behalf of PACE
organizations is included below.
d. Application of Administrative Related Part D Requirements to PACE
Organizations
In using the term, administrative related requirements, we are
referring to requirements that pertain to subparts A, B, C, D, I, J, K,
L, M, N, and O, of this regulation concerning general Part D
provisions, eligibility and enrollment, benefits and beneficiary
protections, cost control and quality improvement, compliance with
State law and preemption by Federal law, coordination under Part D with
other prescription drug coverage, application of procedures and
contracts, the effect of a change of ownership or the leasing of
facilities, grievances and appeals, coverage determinations, Medicare
contract determinations, and sanctions.
In the proposed rule we identified several administrative related
Part D provisions that we intended to waive on behalf of PACE
organizations.
(1) Sections 423.48 and 423.128 of the proposed rule specified
requirements for providing information about Part D and for the
dissemination of plan information. These sections also indicated that
plans would be required to provide information to CMS regarding
benefits, formularies, premiums, , and enrollee satisfaction. This
information would be published in Medicare's comparative plan brochures
and provide key information for beneficiaries to use in making informed
decisions about Part D prescription drug coverage. We indicated that
the differences between MA-PD plans/PDPs and PACE would complicate
comparison and confuse beneficiaries. In addition to specific
eligibility requirements for enrollment in PACE, PACE organizations
exist only in those States that elect to include PACE in their Medicaid
State plan. We indicated that including PACE information in the
comparative brochure would be misleading. As a result, we proposed that
the requirements for providing information about Part D and for the
dissemination of plan information be waived on behalf of PACE
organizations in order to promote the coordination of benefits between
Part D and PACE.
(2) Section 423.104(g) of the proposed rule would require MA-PD
plans and PDPs to provide enrollees with access to negotiated drug
prices. Since PACE enrollees receive the vast majority of their
prescription drugs directly from the PACE organization with no applied,
the negotiated price requirement is already accounted for under part
460. Therefore, we proposed a waiver of Sec. 423.104(g) in order to
promote better coordination of benefits between Part D and PACE.
(3) Section 423.120(a)(1) of the proposed rule would require that a
plan's contracted pharmacy network be located within specified
distances from enrollees. Because PACE enrollees receive their
prescription drugs directly from their PACE organization as opposed to
through a pharmacy, the distance between the enrollee and a network
pharmacy is irrelevant. We believe that requiring a PACE organization
to set up a pharmacy network would be burdensome, costly, and
unnecessary and diverts funds from patient care. Thus, we proposed to
waive this requirement in order to promote better coordination of
benefits between PACE and Part D.
(4) Section 423.120(c) of the proposed rule would require plans to
employ the use of a card or other type of standardized technology to
assist enrollees in accessing negotiated prices for Part D drugs. Since
PACE participants do not routinely acquire their prescription drugs
directly from pharmacies, requiring PACE organizations to develop
standardized technology would be burdensome, costly, and unnecessary
and diverts funds away from patient care. Therefore, we proposed to
waive proposed Sec. 423.120(c) under the authority of section 1860D-
21(c)(2) of the Act for PACE organizations to promote better
coordination of benefits between Part D and PACE.
(5) Section 423.124 of the proposed rule specified access
requirements for drugs obtained through out-of-network pharmacies.
These provisions would ensure that enrollees residing in long term care
facilities have access to drugs in an out-of-network long term care
pharmacy and AI/AN enrollees have access to an out-of-network I/T/U
pharmacy. Enrollees who obtain their Part D covered drugs from these
out-of-network pharmacies would be financially responsible for
deductibles or applicable under network pharmacies.
Under the current PACE regulations in Sec. 460.90(a) and Sec.
460.100, PACE organizations are responsible for all prescription drugs,
including those provided to any participants residing in long term care
facilities, AI/AN participants, and those associated with an emergency
health event or an approved urgent care need. As noted previously, PACE
participants are not responsible for deductibles, co-payments,
coinsurance, or other associated with prescription drugs. In the PACE
program, when participants are out of the service area and need
prescription drugs, the PACE organization would arrange payment in full
with the pharmacy.
As noted previously, PACE organizations are required to provide all
PACE enrollees with prescription drug coverage. Therefore, we view the
out of network pharmacy requirements as duplicative of PACE
regulations. Thus, we proposed to waive Sec. 423.124 of the proposed
rule for the reasons noted above.
(6) Section 423.104(g)(2) of the proposed rule specifies that a
plan may not offer enhanced alternative prescription drug coverage
unless it also offers basic prescription drug coverage. In this
instance, PACE organizations vary from MA-PD plans in that their
enrollees are exempt from . It would be impractical to offer basic
prescription drug coverage to PACE enrollees because stand-alone basic
prescription drug coverage assumes beneficiary. Thus, we proposed to
waive Sec. 423.104(g)(2) of the proposed rule to promote coordination
of benefits between Part D and PACE.
(7) Public disclosure requirements in proposed Sec. 423.132
provide that a PDP or MA-PD plan must ensure that its pharmacies inform
enrollees of any differential between the negotiated price for a
covered Part D drug and the lowest priced generic equivalent. This
requirement is inconsistent with the PACE model. PACE participants or
their caregivers work with the PACE interdisciplinary team in making
care planning decisions and have input into all aspects of their care,
including prescription drug use. For this reason, we proposed a waiver
of the public disclosure requirement in proposed Sec. 423.132 under
the authority of section 1860D-21(c)(2) of the Act for PACE
organizations in order to promote better coordination of benefits
between Part D and PACE.
(8) Requirements associated with privacy, confidentiality, and
accuracy of enrollees' records under Part D are included in Sec.
423.136 of the proposed rule. We view these requirements as duplicative
of Sec. 460.200(e) of the PACE regulation. We believe that the PACE
regulations are providing the same protections as would be provided
under
[[Page 4431]]
proposed Sec. 423.136. For the reasons noted above, we proposed to
waive Sec. 423.136. We note that we also believe the requirements of
Sec. 423.136 are duplicative of Sec. 460.210 of the PACE regulation.
(9) The medication therapy management program requirements in
proposed Sec. 423.150 would require MA-PDs and PDPs to employ
pharmacists to counsel beneficiaries who have chronic conditions and
use multiple drugs to ensure they are taking safe combinations of
prescription drugs and using the drugs properly. PACE enrollees
typically suffer from multiple health conditions that necessitate close
monitoring by their interdisciplinary team. Currently, PACE
organizations have pharmacists on staff or under contract, working with
PACE primary care physicians as they develop the participants' care
plans and monitor their drug regimens. In addition, the PACE
interdisciplinary team, through its daily interactions with PACE
participants and their caregivers, provides counseling to ensure that
medication regimens are followed. We believe that the existing PACE
regulations satisfy or exceed the medication therapy management program
requirements in proposed Sec. 423.150. For the reasons noted above, we
proposed to waive Sec. 423.150 for PACE organizations in order to
promote the coordination of benefits between Part D and PACE.
(10) Proposed Sec. 423.401 specifies licensing requirements for
PDPs. A PDP must be organized and licensed under State law as a risk-
bearing entity eligible to offer health insurance or health benefits
coverage in each State in which it offers a prescription drug plan. A
similar requirement exists for MA-PDs. Organizations that are not
licensed under State law would obtain certification from the State that
the organization meets financial solvency and other standards required
by the State for it to operate.
We view these requirements as duplicative of PACE requirements.
First, sections 1894(e)(2)(iv) and 1943(e)(2)(iv) of the Act require
PACE organizations to meet applicable State and local laws and
requirements. In addition, sections 1894(f)(2)(B)(v) and
1934(f)(2)(B)(v) of the Act require PACE organizations to be at full
financial risk. Therefore, we believe PACE organizations are meeting
the intent of these MA requirements. For the reasons noted above, we
proposed to waive Sec. 423.401 for PACE because we believe this
section is duplicative of PACE requirements.
(11) Subpart M proposed process requirements for grievances,
coverage determinations, reconsiderations, and appeals under Part D. We
believe the PACE grievance and appeals processes under Sec. 460.120
and Sec. 460.122 meet the intent of the MMA since they would
accommodate complaints regarding prescription drug coverage. Therefore,
we proposed to waive Sec. 423.560 through Sec. 423.638 for PACE
organizations because we believe they are duplicative of PACE
requirements.
(12) Subpart K includes requirements governing the application
process, contracts with PDP sponsors, and reporting requirements.
Sections 1894 and 1934 of the Act, as well as PACE regulations in
subparts B and C specify application and contract (called a program
agreement in accordance with sections 1894 and 1934 of the Act)
requirements for PACE that duplicate requirements in subpart K. For
this reason, we proposed to waive the sections in subpart K that
address the application process and contract requirements.
We concluded by requesting comment on these proposed waivers
including any additional waivers that may be needed to integrate the
Medicare prescription drug benefit and the PACE benefit.
Commenters expressed support for all the administrative related
waivers on behalf of PACE organizations that were identified in the
proposed rule, requested clarification as to the breadth of specific
waivers, and identified additional waivers that would be necessary to
minimize disruptions to the PACE program in implementing Part D.
We proposed in Sec. 423.458(d) of the proposed rule to codify
section 1860D-21(c)(2) of the Act (as extended to PACE organizations
under section 1860D-21(f)(1) of the Act), which establishes authority
for us to waive Part D provisions for PACE organizations that: (1)
duplicate PACE requirements; (2) conflict with PACE provisions; or, (3)
as may be necessary to improve the coordination of benefits provided
under Part D and the PACE program. Thus, we begin with a discussion of
the administrative related Part D requirements.
Comment: One commenter requested confirmation as to whether PACE
organizations will be required to provide Part D coverage to its
enrollees who are Part D eligible individuals because section 1860D-
21(f)(1) of the Act indicates that PACE organizations have a degree of
discretion in whether or not to provide Part D coverage. Another
commenter stated that to require a PACE eligible individual to obtain
prescription drug coverage from a plan other than PACE (a PDP for
example) would fragment care coordination associated with PACE.
Response: Section 1860D-21(f)(1) of the Act provides that PACE
programs may elect to provide qualified prescription drug coverage to
Part D eligible individuals enrolled in the program. However, section
1935(c)(6) of the Act prohibits Medicaid from paying for Part D drugs
provided to full-benefit dual eligible individuals and requires that
these drugs be paid for under Medicare Part D. Due to this statutorily
mandated shift in payer from Medicaid to Medicare for full-benefit dual
eligible individuals, we believe that PACE organizations will elect to
provide Part D coverage to full-benefit Part D eligible individuals in
order to receive adequate payment for providing Part D drugs.
In addition, section 1894(a)(1)(B)(i) of the Act requires that PACE
enrollees receive Medicare benefits solely through the PACE program,
and, therefore, prohibits them from simultaneously enrolling in both a
PACE program and a separate Part D plan. As discussed elsewhere in this
preamble under subpart B, Part D eligible individuals who enroll in a
PACE plan offering qualified prescription drug coverage under Part D
will be deemed to have elected to receive their Part D benefits through
such PACE plan, and will be ineligible to enroll in another Part D
plan, including a PDP. In addition, Sec. 423.32(f) specifies that
enrollees of PACE organizations offering qualified prescription drug
coverage shall remain enrolled in that plan as of January 1, 2006 and
receive benefits offered by that plan until one of the conditions of
Sec. 423.32(e) is met.
Effective January 1, 2006, States will continue to include the cost
of prescription drugs in their monthly capitation payments to PACE
organizations on behalf of those individuals ineligible for Part D
coverage (Medicaid-only enrollees).
Comment: We received a comment indicating that there are cost
benefits of the PACE model as an alternative to nursing home care. The
commenter indicated that implementation of Part D should not place
excessive burdens on PACE organizations and recommended that we develop
a workgroup with the National PACE Association (NPA) and States in
order to work through the administrative related issues with
implementing Part D into PACE so as to minimize the administrative
burden on PACE organizations.
Response: We appreciate the potential burden associated with
implementing the Part D benefit into the existing PACE model. As a
result, we proposed to
[[Page 4432]]
utilize waiver authority under Sec. 423.458(d) of this rule: (1) in
instances where Part D requirements are duplicative of PACE
requirements; (2) in instances where Part D requirements conflict with
PACE requirements; or, (3) in order to promote coordination between
Part D and PACE. Under this authority, we are waiving section
423.265(b), which would have required PACE organizations planning to
offer a Part D prescription drug plan to submit bids and supplemental
information no later than the first Monday in June of each year. We
will also use this authority to issue further guidance regarding
additional Part D provisions that will be waived for PACE
organizations. We believe that these waivers will minimize the
administrative burden on PACE organizations that elect to provide Part
D coverage.
Comment: We received many comments supporting our proposal to
identify Part D provisions that we will waive on behalf of PACE
organizations without requiring individual waiver applications. One
commenter also requested that we outline a waiver application process
that could be followed by organizations to the extent additional
waivers are identified after publication of this final rule. As waivers
are granted through this process, the commenter requested that we apply
the waivers to other similarly situated organizations offering or
seeking to offer qualified prescription drug coverage as a PACE
organization that otherwise meets conditions of the waiver.
Other commenters requested that PACE waivers apply to other similar
health plans such as social HMOs, Massachusetts Senior Care Options
programs, or other plans that also serve significant numbers of full-
benefit dual-eligible individuals.
Response: We believe that the application of Sec. 423.458(d)
waivers will minimize disruption of the positive aspects of the
structure of PACE. However, to the extent a PACE organization
identifies a specific need for additional Part D waivers, the
organization may request such waivers from us under the authority of
Sec. 423.458(d) of this regulation. We will determine on a case-by-
case basis whether to grant the waiver. If we grant it, the waiver will
apply to all similarly situated PACE organizations, but will not apply
to non-PACE organizations.
The waiver submission and review process for PACE organizations
will be issued as additional CMS guidance. We will issue additional
guidance to these programs following publication of this rule.
The following list summarizes comments we received on waiver
issues. As stated previously, the only waiver we are finalizing at this
time is a waiver of the June bid submission deadline in section
423.265(b). We will take into consideration comments regarding other
waivers and issue further guidance on the Part D provisions that will
be waived for PACE organizations.
(1) Several commenters indicated that due to the differences
between traditional Part D plans and PACE, inclusion of PACE in a
comparison brochure would confuse beneficiaries. These commenters
supported our proposal to waive Sec. 423.48 and Sec. 423.128
concerning plan information. However, one commenter expressed concern
that those eligible for special programs such as PACE, should be
informed of all choices available under Part D. This information should
include differences between obtaining services from a traditional Part
D plan or PACE. The commenter believed that beneficiaries should also
be informed of what would occur if they disenrolled from PACE to obtain
benefits from a PDP. This commenter would like to work with us in
developing appropriate materials and distribution mechanisms.
(2) One commenter asked for clarification that PACE organizations
will not be required to share in the cost of enrollment related costs
under Sec. 423.6, reasoning that PACE organizations are neither
subject to MA requirements related to dissemination of annual
enrollment information, nor do PACE organizations contribute towards
their costs.
(3) Commenters indicated that to the extent requirements under
Sec. 423.44 are duplicative of requirements under Sec. 460.164
through Sec. 460.172 of the PACE regulation or impede coordination of
PACE and Part D benefits, these requirements should be waived, allowing
for continued coordination of the prescription drug benefit with all
other benefits provided by PACE organizations. One commenter
recommended that existing requirements governing disenrollment from
PACE organizations should apply in lieu of Sec. 423.44.
(4) We received a comment in support of our proposed waiver of
Sec. 423.104(g)(2) of the proposed rule (now identified as Sec.
423.104(f)(2) in the final rule) that indicates that a plan may not
offer enhanced coverage for purposes of reducing co-payments and
deductibles unless it also offers a plan with basic coverage. The
commenter agreed with our rationale indicating that it would be
impractical for a PACE organization to offer basic prescription drug
coverage to PACE enrollees because stand-alone basic prescription drug
coverage assumes beneficiary which is a PACE statutory preclusion.
(5) Commenters supported our proposal to waive the negotiated price
requirements of Sec. 423.104(h) of the proposed rule (now identified
as Sec. 423.104(g) in this final rule). One commenter pointed out that
we had incorrectly referred to this section as Sec. 423.104(g) on page
46756 of the proposed rule.
(6) Commenters concurred with our proposal to waive the pharmacy
access requirements under Sec. 423.120(a)(1). In addition, a commenter
recommended a waiver of Sec. 423.120(a)(4) of the proposed rule (now
identified as Sec. 423.120(a)(8) in the final rule) related to
pharmacy network contracting. PACE organizations generally have close
working relationships with a very limited number of pharmacies that can
respond to the specialized requirements of PACE enrollees, for example,
24/7 access and specialized dispensing requirements. Requiring PACE
organizations to contract with any willing pharmacy provider is not
consistent with the PACE model and could compromise the PACE
organizations' ability to negotiate favorable contract terms based on
volume with one or two suppliers.
(7) One commenter indicated that PACE organizations typically
provide an open formulary to the primary care physicians that allow
immediate access to a wide variety of covered Part D prescription drugs
in many different dosages and delivery forms. These open formularies do
not restrict access or result in co-payment amounts charged to
enrollees. Thus, the commenter does not believe the formularies used by
PACE organizations should be subject to the requirements of Sec.
423.120(b). This commenter also asked for clarification as to whether
``preferred drug lists'' utilized by PACE organizations would be
subject to the requirements of Sec. 423.120(b). These lists provide
prescribing physicians with current data on the relative costs of
various medications, such as name brand vs. generic alternatives.
Physicians are not restricted from prescribing alternatives that do not
appear on the preferred drug list, and the list does not result in co-
payment amounts charged to enrollees. The commenter recommended that
these preferred drug lists not be subject to the requirements of Sec.
423.120(b).
(8) Several commenters concurred with our proposal to waive the
standardized technology requirements of Sec. 423.120(c). One commenter
suggested that such technology be
[[Page 4433]]
limited to one card in order to avoid data sharing and coordination
requirements.
(9) Several commenters concurred with our proposal to waive the
out-of-network pharmacy requirements of Sec. 423.124.
(10) Several commenters concurred with our proposal to waive the
disclosure of price differences between the Part D drug and generic
equivalent requirement of Sec. 423.132.
(11) Several commenters concurred with our proposal to waive the
privacy, confidentiality, and accuracy of records requirements of Sec.
423.136.
(12) One commenter requested clarification regarding our proposal
to waive the MTMP requirements of Sec. 423.150 and whether we had
intended to list the additional provisions of this section including
cost and utilization management programs, quality assurance programs,
programs to control fraud, abuse, and waste, CMS consumer satisfaction
surveys, an electronic prescription program, and accreditation. The
commenter believes that the existing PACE requirements satisfy or
exceed each of these requirements.
(13) We received a comment requesting that consumer satisfaction
surveys administered to PACE enrollees under Sec. 423.156 take into
account the differences between PACE enrollees and traditional Part D
plan enrollees.
(14) We received a comment requesting that quality improvement
organization activities performed under Sec. 423.162 take into account
the differences between PACE enrollees and traditional Part D plan
enrollees.
(15) We received public comments concurring with our proposal to
waive the licensure requirements of Sec. 423.401 to reflect that PACE
organizations' fiscal soundness is governed by requirements under
sections 1894(e)(2)(iv) and 1934(e)(2)(iv) of the Act and Sec. 460.80
of the PACE regulation.
(16) We received public comments of concurrence of our proposal to
waive the application requirements of subpart K of this rule, agreeing
that these requirements are addressed under subparts B and C of Sec.
460. This commenter also requested that we utilize information already
available in PACE organizations provider applications and program
agreements to the greatest extent possible.
(17) One commenter requested clarification as to whether the
requirements of the following sections would be waived on behalf of
PACE organizations; Sec. 423.502, Sec. 423.503, Sec. 423.504, Sec.
423.505, Sec. 423.506, Sec. 423.507, Sec. 423.508, Sec. 423.509,
Sec. 423.510, and Sec. 423.514. The commenter indicated that these
requirements duplicate current PACE requirements.
(18) Commenters also indicated that the requirements of subpart K
would be burdensome for plans, providers, and pharmacies in terms of
tracking coverage issues. Adherence to these requirements would result
in significant new expenditures for plans, advocates, clinics,
pharmacies, long term care providers, and other providers in terms of
care coordination and advocacy for beneficiaries to access the correct
coverage. It will also be necessary to coordinate with other Part D
plans concerning low-income enrollees at risk for institutionalization.
The commenter suggests that we hire an outside facilitation contractor
to review and match data with mechanisms similar to sharing of
information on crossover claims. Yet, the commenter has concerns about
the ability of States, plans, providers, and others to gear up quickly
to handle the tracking and interface that working with these
contractors would require.
(19) In addition, one commenter indicated that the minimum
enrollment requirements of Sec. 423.512 of the proposed rule should be
waived on behalf of PACE organizations as such requirements do not
currently apply to PACE organizations.
(20) Several commenters concurred with our proposal to waive the
determinations and appeals processes of subpart M on behalf of PACE
organizations. Commenters agreed that these requirements are being met
by PACE organizations under Sec. 460.120 and Sec. 460.122 of the PACE
regulation.
The MMA did not amend sections 1894 and 1934 of the Act and it is
clear that Part D applies to PACE. As a result, we have determined that
in order to merge the PACE and the Part D statutory requirements,
waivers we identified in the proposed rule, as well as waivers beyond
those identified in the proposed rule and via public comments will be
necessary. Therefore, we are considering the application of Sec.
423.458(d) waiver authority for all administrative related Part D
requirements that duplicate or conflict with PACE requirements or do
not promote coordination between Part D and PACE. Additional CMS
guidelines will be issued to PACE organizations following publication
of this rule to include the waiver submission process and a
comprehensive listing of all Part D waivers applicable to PACE
organizations. We believe that this guidance will minimize disruption
to PACE organizations and their enrollees.
In accordance with Sec. 423.458(d) of this regulation, PACE
organizations will also be permitted to submit Part D waiver requests
beyond those identified in CMS guidelines on an individualized basis.
We received several comments regarding the application of subpart
S, which pertains to State eligibility determinations for subsidies and
general payment provisions.
Comment: One commenter recommended that we develop a workgroup with
the NPA and States to further discuss impacts related to the phased-
down State contribution and PACE capitation rates. The phased-down
State contribution is a percentage based on drug costs in the year
2003. Subpart T of the proposed rule indicates that States must
continue to include drug costs in the Medicaid monthly capitation
payment to PACE organizations on behalf of Medicaid-only PACE
enrollees. Thus, 2 commenters believe that States will be required to
develop two different PACE capitation rates; one for dual eligible
beneficiaries and one for Medicaid only enrollees. Given the small
percentage of Medicaid only PACE enrollees, the complexities in
developing a separate Medicaid-only PACE capitation rate may be
administratively cumbersome.
Response: The MMA shifts payment responsibility for prescription
drugs from Medicaid to Medicare for full-benefit dual eligible
beneficiaries. As a result, States will need to take into account the
Part D premium payments when calculating the PACE capitation rate for
full-benefit dual eligibles. The MMA does not change the prescription
drug payment scheme for Medicaid-only eligible beneficiaries. Thus, we
agree with the commenter that the States will need to establish
separate capitation rates for Medicaid eligible PACE enrollees,
including one for dual-eligible beneficiaries for whom the PACE
organization elects to provide Part D coverage, and one for non-dual
eligible (Medicaid-only) beneficiaries. In the case of full-benefit
dual eligible PACE enrollees for whom the PACE organization elects to
provide Part D coverage, the State in which the PACE organization is
located will pay a phased-down contribution to Medicare that defrays a
portion of the drug expenditures for these individuals assumed by
Medicare Part D. State Medicaid agencies will be required to
participate in this phased-down State contribution scheme under Sec.
423.910 of this regulation. This amount will capture the full extent of
a State Medicaid agency's responsibility for Part D prescription drug
expenditures
[[Page 4434]]
on behalf of full benefit dual-eligible beneficiaries for whom the PACE
organization elects to provide Part D coverage. In the case of Medicaid
eligible PACE enrollees whose drug costs continue to be funded by
Medicaid, States will continue to include a prescription drug cost
amount in their monthly capitation payment to PACE organizations.
4. Medicare Supplemental Policies
a. Overview and Background
In the proposed rule, we included two provisions related to
Medicare supplemental (Medigap) policies. As required under section
1882(v) of the Act, as added by section 104 of MMA, we set forth
standards for the written disclosure notice that Medigap issuers must
provide to their policyholders who have drug coverage. In addition, in
order to reflect the addition of the Medicare drug benefit by MMA, we
proposed to revise the definition of a Medigap policy.
Medicare Supplemental Policies
A Medigap policy is a health insurance policy sold by private
insurance companies to fill the ``gaps'' in original Medicare plan
coverage. A Medigap policy typically provides coverage for some or all
of the deductible and coinsurance amounts applicable to Medicare
covered services and sometimes covers items and services that are not
covered by Medicare. Under section 1882 of the Act, Medigap policies
generally may not be sold unless they conform to one of the 10
standardized benefit packages that have been defined, and designated as
plans A through J, by the NAIC. Three States (Massachusetts, Minnesota,
and Wisconsin) are permitted by the statute to have different
standardized Medigap plans and are sometimes referred to in this
context as the waiver States.
Three of the 10 standardized Medigap plans (Plans H, I, and J)
contain coverage for outpatient prescription drugs. In addition, there
are Medigap policies issued before the standardization requirements
went into effect (``prestandardized'' Medigap plans) that cover drugs,
as well as Medigap policies in the waiver States, some of which have
varying levels of coverage for outpatient prescription drugs.
Legislative Authority and Background
In connection with the addition of a prescription drug benefit to
Medicare, the MMA also prescribes changes to the law applicable to
Medigap policies. Among other requirements, section 1882(v) of the Act,
as added by section 104 of the MMA, requires Medigap issuers to provide
a written disclosure notice to individuals who currently have a policy
with prescription drug coverage. (Section 1882(v)(6)(A) of the Act
specifies that this is to be called a ``Medigap Rx policy.'') The MMA
also requires that the Secretary establish standards for this
disclosure notice in consultation with the NAIC.
The purpose of this disclosure notice is to inform an individual
who has a Medigap Rx policy about his or her Medigap choices once the
new Medicare Prescription Drug Benefit Program goes into effect on
January 1, 2006. Specifically, effective on that date, section 1882(v)
of the Act will prohibit the sale of new Medigap Rx policies, and
require the elimination of drug coverage from Medigap Rx policies held
by beneficiaries who enroll under Part D. The statute permits the
renewal of Medigap Rx policies if the policy was purchased prior to
January 1, 2006, and the individual does not enroll in Part D.
In addition, beneficiaries who do not enroll in Part D during the
Initial Enrollment Period, and choose to enroll later, will be charged
higher Part D premiums unless they can establish that they had
creditable prescription drug coverage prior to enrolling in Part D.
Under section 1860D-13(b)(4)(F) of the Act, and Sec. 423.56(a) of this
rule, Medigap policies meet the definition of creditable prescription
drug coverage if they also meet actuarial equivalence requirements.
Issuers of Medigap insurance policies are required to provide
disclosure notices to policyholders with Medigap Rx policies that
inform them of their options under the new legislation, as well as
informing them whether or not their policies constitute ``creditable
prescription drug coverage.'' As explained in the preamble to subpart B
of this rule, to be considered creditable prescription drug coverage,
the coverage must be determined (in a manner specified by the
Secretary) to provide prescription drug coverage the actuarial value of
which (as defined by the Secretary) equals or exceeds the actuarial
value of defined standard prescription drug coverage under Medicare
Part D. Subparts B and F of this rule provide additional detail on
creditable coverage and actuarial equivalence.
b. Definition of Medicare Supplemental Policy
Because of the importance of these disclosure notices to
beneficiaries, we believe it is necessary to clarify what comes within
the scope of a Medigap Rx policy. We proposed to revise and clarify the
definition of a Medicare supplement (Medigap) policy currently codified
at Sec. 403.205, to reflect the addition of the Medicare drug benefit
by MMA.
We proposed to revise the definition of a Medigap policy, effective
January 1, 2006, to include any insurance policies or riders that
contain a prescription drug benefit, and that are primarily designed
for, or are primarily marketed and sold to Medicare beneficiaries. We
also proposed to clarify that any rider attached to a Medigap policy is
an integral part of the policy. All the requirements that apply to the
base policy, such as guaranteed renewability or disclosure
requirements, would apply to the rider. Thus, for instance, if an
issuer offers an optional prescription drug rider that can be added to
any other policies, addition of the rider to a Medigap policy would
make the entire policy a Medigap prescription drug policy (Medigap Rx
policy) subject to the disclosure requirements for these policies in
section 1882(v) of the Act.
Moreover, we proposed that any stand-alone drug policies that were
not previously considered to meet the definition of a Medigap policy
will meet that definition as of January 1, 2006 when the prescription
drug benefit takes effect, if the policy is primarily designed for or
primarily marketed and sold to Medicare beneficiaries. New sales of
these policies would be prohibited after December 31, 2005.
c. Standards for the disclosure notice that Medicare Supplemental
(Medigap) issuers are required to provide to individuals who currently
hold policies with drug coverage
General
We believe that the statute is quite clear about the choices that
need to be made by beneficiaries who hold Medigap Rx policies.
Therefore, we proposed to establish standards for the disclosure notice
in the form of a required notice that sets forth those choices.
Timing and Content of the Disclosure Notice
The statute requires Medigap issuers to send a written disclosure
notice to each individual who is a policyholder or certificate holder
of a Medigap Rx policy at the most recent available address of that
individual. The issuers must send the disclosure notice during the 60-
day period immediately proceeding the initial Medicare Part D
enrollment period. The initial enrollment period (IEP) for Medicare
Part D runs from November 15, 2005 through May 15, 2006. Accordingly,
Medigap issuers must send the written disclosure notice between
September 16, 2005 and November 15, 2005.
[[Page 4435]]
The written disclosure notice must inform the individual of his or
her Medigap options if the individual does or does not enroll in
Medicare Part D. These include the following:
If the individual does enroll in Part D, he or she can
keep the Medigap policy but the drug coverage must be eliminated.
If the individual enrolls in a Medicare Part D PDP during
the IEP, the individual also has the right to buy another Medigap plan
from the same issuer that does not include drug coverage. The
individual has a guaranteed right to buy Plan A, B, C, or F (including
the high deductible Plan F) or one of the new Medigap benefit packages
mandated by section 104(b) of the MMA (which have been designated Plans
K and L), if these plans are offered by the issuer and available to new
enrollees. The issuer may also offer other Medigap plans on a
guaranteed issue basis.
If the individual does not enroll in Part D, he or she has
the option of keeping the Medigap policy with drug coverage.
If the individual does not enroll in Part D during the
IEP, the individual may continue enrollment in his or her current
Medigap plan without change, but the individual will lose the right to
buy another Medigap plan on a guaranteed issue basis. In addition, if
the current Medigap plan does not provide creditable prescription drug
coverage, there are limitations on the periods in a year in which the
individual may enroll in Medicare Part D and any such enrollment may be
subject to a late enrollment penalty (increased premium) if the current
Medigap plan does not provide creditable prescription drug coverage.
We also proposed to require that the disclosure notice contain
information on the potential impact of an individual's election on his
or her Medigap premiums.
It is important to note that the disclosure requirement in section
104 of the MMA that applies to Medigap issuers is separate from the
disclosure requirement contained in section 101 of the MMA (section
1860D-13 of the Act). The disclosure requirement in section 104 of the
MMA applies exclusively to issuers of Medigap policies and contains
very specific statutory criteria for the disclosure notice. The
disclosure requirement in section 101 of the MMA applies to various
forms of prescription drug coverage, including Medigap.
As discussed in subpart B of this preamble, section 101 of the MMA
requires that these entities, including Medigap issuers, disclose to
the Secretary, as well as to the Part D eligible individuals, whether
the coverage they provide currently meets the actuarial equivalence
requirement for creditable coverage. The entities must also notify the
individuals if the coverage changes so that it no longer meets the
actuarial equivalence requirement. Section 101 of the MMA directs the
Secretary to establish procedures for the documentation of creditable
prescription drug coverage by these entities.
Medigap Policies as Creditable Coverage
Medigap issuers will be responsible for determining whether the
drug coverage under their policies is creditable drug coverage in
accordance with subpart B of this final rule. We cannot offer guidance
for the likelihood that any particular pre-standardized policy, or
policy in a waiver State, will meet this test. However, for
standardized plans, the CMS actuaries determined that drug coverage in
standardized Medigap Plans H and I cannot meet this standard. Since
actuarial equivalence can be demonstrated using a group's experience,
it is possible to have a specific group for which the drug coverage in
standardized Medigap Plan J would be creditable prescription drug
coverage. However, based on the distributions of drug utilization that
the actuaries have seen so far, they believe that drug coverage in
standardized Medigap Plan J will be unlikely to meet the definition of
creditable prescription drug coverage based on this rule.
Required Disclosure Notice
Section 1882(v) of the Act requires us to establish standards for
the disclosure notice that issuers must provide to policyholders of
Medigap Rx policies. In the proposed rule, we proposed a model
disclosure notice with basic language that would be required to be
included in all disclosure notices sent by Medigap issuers for policies
that do not provide creditable coverage. We respond below to comments
we received on the proposed model disclosure notice. However, because
we have determined that the format and content of the notice could be
improved based on information gathered through consumer testing, we now
plan to publish the final model disclosure notice separately from this
final regulation. We also plan to publish a model disclosure notice for
policies that do provide creditable coverage.
Comment: We received numerous comments related to our proposed
clarifications to the definition of a Medigap policy. Many commenters
believe the proposed clarifications are too far-reaching and that all
limited health benefit plans would be considered Medigap policies under
the proposed clarifications to the definition. Many of these commenters
added that they do not believe that we have the authority to make the
proposed modifications to the definition of a Medigap policy.
One commenter supports our clarification that a rider to a Medigap
policy becomes an integral part of the policy. The commenter stated
that it is black-letter insurance law that a rider attached to an
insurance policy becomes a part of the policy.
Response: We believe that the addition of the Part D drug benefit
to Medicare makes it essential to clarify the definition of a Medigap
policy. There has been some confusion about whether a rider attached to
a Medigap policy is considered to be part of the policy, and therefore
subject to Medigap requirements such as guaranteed renewability.
Similarly, there was ambiguity in the past about whether a policy
that covered only prescription drugs, either as a separate, ``stand-
alone'' policy or as a rider to another policy, met the definition of a
Medicare supplement policy. The ambiguity was created by the fact that
there was no Medicare drug benefit to supplement, and it has been
resolved with the enactment of the Medicare drug benefit. With respect
to both of these situations, we believe that it is extremely important
to make clear which Medicare beneficiaries are entitled to receive a
notice about their rights under the MMA.
First, it is necessary to clarify that a rider to a Medigap policy
is not a separate insurance product, but rather is incorporated into,
and becomes an integral part of, the policy. In order to carry out the
intent of the MMA provisions, we believe that Medigap policies with
drug riders must be treated the same as Medigap plans H, I, and J;
prestandardized Medigap Rx plans; and Medigap plans with drug coverage
in the waiver States. Accordingly, if a beneficiary has an outpatient
prescription drug rider attached to his or her Medigap policy, that
beneficiary should receive the disclosure notice that MMA requires
Medigap issuers to send to their policyholders who have Medigap drug
coverage. In addition, because new sales of Medigap policies with drug
coverage are prohibited after December 31, 2005, the drug coverage
offered through a rider to a Medigap policy should be eliminated from
the policy (that is, the drug rider should be cancelled) as of the date
of the
[[Page 4436]]
individual's enrollment in Medicare Part D.
We also believe it is necessary to clarify that stand-alone,
limited benefit drug policies will be considered Medigap policies once
the Part D drug benefit is implemented, but only if the coverage
provided by the policy is primarily designed to supplement Medicare, or
if the policy is primarily marketed and sold to, Medicare
beneficiaries. Because these limited benefit drug polices will not be
considered Medigap policies until the Part D prescription drug benefit
is implemented on January 1, 2006, these plans are not subject to the
requirement in section 104 of MMA that Medigap issuers send a
disclosure notice to policyholders with drug coverage before that date.
However, we encourage issuers of these policies to send the notice
voluntarily, during the 60-day period immediately preceding the initial
Part D enrollment that begins in November 2005.
We reject the argument that we lack the statutory authority to
revise the regulation's definition of a Medigap policy. We are simply
clarifying the scope of the definition. The statutory definition of a
Medicare supplemental policy, set out in section 1882(g)(1) the Act
states, in part, that a Medicare Supplemental policy ``provides
reimbursement for expenses incurred for services and items for which
payment may be made [by Medicare] but which are not reimbursable by
reason of the applicability of deductibles, coinsurance amounts, or
other limitations imposed pursuant to [title XVIII].'' Section
1882(g)(1) of the Act specifically excludes a MA plan, or any policy or
plan sponsored by an employer or labor organization, from the
definition. However, the language quoted above could be read to include
any other policy that is not specifically excluded, if the policy pays
anything toward the cost of an item or service that is generally
covered under Medicare, but is not specifically reimbursable because of
the application of deductibles, coinsurance, or other limitations. As
of January 1, 2006, prescription drugs will be covered by Medicare, and
we are simply clarifying that stand-alone policies will meet the
definition.
As noted above, some commenters claim that the proposed
clarifications are so far-reaching that all limited benefit plans will
be considered Medigap policies. However, the definition also states
that a Medicare Supplemental policy is a health insurance policy or
other health benefit plan ``offered by a private entity to individuals
who are entitled to have payment made under [title XVIII].'' The
definition currently in the regulations essentially interprets this
language to mean that a Medicare supplement policy is a policy that is
offered to Medicare beneficiaries because they are Medicare
beneficiaries. In other words, it does not encompass policies that are
offered to a broader population, and happen to be purchased by a
Medicare beneficiary.
Accordingly, since 1982, the regulatory language at Sec.
403.205(a)(2) has specified that a Medigap policy means a policy or
plan that is primarily designed, or is advertised, marketed, or
otherwise purported to provide payment for expenses incurred for
services and items that are not reimbursed under Medicare because of
deductibles, coinsurance or other limitations under Medicare. Any
policy that is not primarily designed to supplement Medicare
reimbursements and that is not offered and sold primarily to Medicare
beneficiaries would not be considered a Medigap policy. Therefore, we
disagree that the proposed clarification of the definition in the
regulation could be interpreted to apply to any limited benefit policy
purchased by a Medicare eligible individual, regardless of how it is
marketed and designed.
Many commenters believed that the language in proposed Sec.
403.205(c) could be interpreted to mean that any individual or group
health insurance policy or rider could be considered a Medigap policy.
We have changed the regulatory language at Sec. 403.205(c) to clarify
that the individual or group health insurance policy or rider is a
Medigap policy if the policy otherwise meets the definition in Sec.
403.205.
Comment: One commenter asked that we clarify that the
antiduplication disclosure statements applicable to limited benefit
plans that are appended to the NAIC Model Regulation for Medicare
supplemental insurance do not apply to stand-alone limited health
benefit plans that are considered Medigap policies.
Response: The antiduplication statements that the commenter refers
to do not apply to Medigap policies. We believe it is necessary to
clarify that if a limited health benefit plan is considered a Medigap
policy because of the way it is designed, marketed and sold, the sale
of such a plan would be prohibited because it does not meet the
requirements for standardization of Medigap policies.
Comment: We received numerous comments related to the proposed
model disclosure notice that was published as part of the preamble to
the Title I regulation. Commenters expressed concern about the model
disclosure notice containing statements about the value of the Part D
drug benefit being greater than the value of outpatient prescription
drug coverage under a Medigap policy. Many commenters believe that the
concept of ``value'' is subjective and goes beyond the concept of
actuarial equivalence. Commenters stated that beneficiaries might
consider their Medigap drug coverage to be of greater overall value
than the Part D benefit for a number of reasons, including the fact
that the Medigap drug coverage is guaranteed renewable and does not use
drug formularies.
Commenters also stated that the proposed disclosure notice was too
long and complicated and contained unnecessary information related to
Part D benefit options. Commenters expressed concern about having any
statements in the disclosure notice that may be viewed as requiring
Medigap issuers to promote or advocate the competing alternative
coverage under the Part D benefit. These commenters believe that
information about the new Medicare drug benefit will be readily
available from a variety of other sources and that including such
information in the disclosure notice is confusing and is not required
by MMA. They believe that statements about the value of Part D benefits
and information concerning Part D enrollment are irrelevant for
purposes of this disclosure notice.
Many commenters believe that we should adopt NAIC's version of the
model disclosure notice as the disclosure notice that Medigap Rx
issuers must send to policyholders. The NAIC version of the model
disclosure notice was developed by a work group comprised of State
insurance regulators, consumer representatives and Medigap issuers.
Response: We disagree that information concerning Part D enrollment
options is irrelevant for purposes of this disclosure notice. The
statute requires that the disclosure notice provide information to
Medigap Rx policyholders explaining options in the event the individual
does or does not enroll in Part D during the IEP. Therefore, we believe
it is important to have some discussion about the Part D enrollment
process in order to provide meaningful context for the Medigap options.
For individuals who do not enroll in Part D during the IEP the statute
requires the disclosure notice to explain, among other things, that the
individual will be subject to a late enrollment penalty if his or her
current
[[Page 4437]]
coverage does not provide creditable drug coverage and he or she later
chooses to enroll in Part D. The test for creditable coverage is based
on whether the economic value of the coverage is actuarially equivalent
to the value of Part D coverage. Therefore, we believe it is
appropriate to address how the actuarial value of Part D compares to
the individual's current Medigap drug coverage.
As noted previously, we will publish the final standards for the
disclosure notices separately from this final rule. We will give due
consideration to the comments we received on the model disclosure
notice set forth in the proposed rule. In addition, we have conducted a
series of interviews with beneficiaries about the format and content of
the model disclosure notice. Once we have completed our evaluation, the
results of this consumer testing will also inform any changes we may
make to the disclosure notice. We appreciate the efforts of the NAIC in
developing a model disclosure notice and we intend to have further
consultations with the NAIC.
Comment: Commenters expressed concern that the period for
transition to Part D was too short and requested that we consider
options to provide beneficiaries with additional time to adjust to the
new changes. One commenter suggested that the Secretary use the
``exceptional circumstances'' authority to establish a special Part D
enrollment period lasting at least through 2007 for beneficiaries who
have Medigap drug coverage, thereby allowing for a longer period of
transition to Part D. The commenter stated that Medicare beneficiaries
may be reluctant to give up their Medigap drug coverage for a benefit
that is new and untested and that an SEP would permit a longer period
to enroll in Part D without a premium penalty. In the alternative, the
commenter suggested that Medigap Plan J be deemed actuarially
equivalent to Part D so that beneficiaries with Plan J who have the
most drug coverage could enroll in Part D without penalty after the
initial enrollment period.
Another commenter expressed concern about the possibility of a
beneficiary being initially notified of creditable coverage when the
coverage is no longer creditable or never was creditable. The commenter
suggested that, in these cases, an SEP into Part D be established,
along with a guaranteed issue right to a Medigap policy without drug
coverage.
Response: The statute establishes the IEP for Part D as November
15, 2005 through May 15, 2006. Beneficiaries with Medigap drug coverage
who enroll in Part D during the IEP have a guaranteed issue right to
buy a Medigap policy without drug coverage. We are sympathetic to the
complexity of the choices that beneficiaries must make during this time
period, but we believe there is a strong public policy value in
creating an incentive for immediate, widespread enrollment in this new,
heavily subsidized benefit in order to ensure the affordability of the
Part D benefit and the stability of the associated premium. It is our
goal to provide beneficiaries with information that will help them make
informed decisions about their health care options.
Since the statute clearly defines the IEP and provides a Medigap
guaranteed issue right for beneficiaries who have Medigap drug coverage
and who enroll in Part D during the IEP, we do not believe that it is
an appropriate use of the Secretary's authority to create a blanket SEP
for exceptional circumstances for these beneficiaries. We believe that
the Secretary's authority to establish SEPs for exceptional
circumstances should be reserved for situations that are not
specifically contemplated in the statute and that this authority should
be exercised on a case-by-case basis depending on the circumstances of
a particular situation.
Even in a case where we would create an SEP for exceptional
circumstances, there is no corresponding statutory authority to create
a Medigap guaranteed issue right. The classes of beneficiaries who have
Medigap guaranteed issue rights are clearly set out in section
1882(s)(3)(B) and section 1882(v)(3)(B) of the Act. We do not have
statutory authority to establish additional classes of beneficiaries
who would be entitled to buy a Medigap policy on a guarantee issue
basis.
We do not believe that the statute permits us to deem all Medigap
Plan J coverage as creditable coverage. Whether or not Plan J drug
coverage will be considered creditable coverage must be based on
whether the actuarial value of the coverage equals or exceeds the
actuarial value of defined standard prescription drug coverage as
demonstrated through the use of generally accepted actuarial principles
and in accordance with the requirements of Sec. 423.265(c)(3).
Moreover, as noted above, it is unlikely that Plan J policies could
meet this standard. Finally, for the concern about the possibility of a
beneficiary being initially notified of creditable coverage when the
coverage is no longer creditable or never was creditable, the
regulations at Sec. 423.38(c) permit the establishment of an SEP for
Part D in cases where an individual was never informed that the
coverage that he or she had was not creditable, or if current coverage
is reduced so that it is no longer creditable coverage. If an
individual establishes to CMS that he or she was not adequately
informed that his or her prescription drug coverage was not creditable,
the individual may apply to CMS to have such coverage treated as
creditable coverage for purposes of applying the late enrollment
penalty provisions at Sec. 423.46.
Comment: One commenter urged us to establish Medigap guaranteed
issue rights for individuals who lose partial benefits under a retiree
plan and for individuals who lose Medicaid eligibility.
Response: The classes of beneficiaries who have Medigap guaranteed
issue rights are clearly set out in section 1882(s)(3)(B) and section
1882(v)(3)(B) of the Act. We do not have statutory authority to
establish additional classes of beneficiaries who would be entitled to
buy a Medigap policy on a guaranteed issue basis. In limited cases, we
have the authority under section 1851(e)(4)(D) of the Act to establish
SEPs for MA enrollees that may trigger Medigap guaranteed issue rights
for MA enrollees. This authority applies if we determine that there are
exceptional circumstances that warrant an SEP, but it does not permit
us to establish new classes of beneficiaries who would have Medigap
guaranteed issue rights.
Comment: Comments were received suggesting that if a Medigap issuer
becomes a Part D sponsor that the sponsor be allowed to limit
enrollment in the Part D coverage to its Medigap policyholders.
Response: While the statute prohibits a Medigap issuer from
providing drug coverage that supplements the Part D benefit, a Medigap
issuer can choose to become a PDP or an MA-PD if the issuer wishes to
offer the Part D benefit. However, a PDP sponsor or MA-PD plan must
offer prescription drug coverage to all Part D eligible beneficiaries
residing in the plan's service area, unless a specific statutory waiver
authority applies. Examples include capacity or special needs waivers
under Part C of Medicare, or an employer waiver under section 1860D-
22(b) of the Act.
Comment: Comments were received requesting regulatory guidance on
the MMA provision that provides for the application of the
antiduplication penalties set out in section 1882(d)(3)(A)(ii) of the
Act in cases where a Medigap policy with drug coverage is renewed for a
Part D enrollee. The commenters expressed concern that a Medigap issuer
may be
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subject to penalties whether or not the issuer knows about the
individual's decision to enroll in Medicare Part D. The commenter's
request that the antiduplication provisions be enforced consistently
using a standard whereby only ``knowing'' violations would be subject
to penalty.
Response: Section 1882(v)(4)(A) of the Act, added by section 104 of
the MMA, states that the penalties described in section
1882(d)(3)(A)(ii) of the Act shall apply for a violation of the
prohibition on the sale, issuance, and renewal of a Medigap policy that
provides drug coverage in the case of an individual who is enrolled in
Medicare Part D. We are not incorporating the guidance suggested by the
commenter into these regulations because these provisions are under the
jurisdiction of the OIG of HHS. We recommend that Medigap issuers take
reasonable steps to determine the policyholder's Part D status at the
time the Medigap policy with drug coverage is due for renewal.
Comment: One commenter questioned whether HMO Medicare supplemental
plans offered to its members are considered to be Medigap plans and, if
so, whether these plans would be prohibited from offering prescription
drug benefits to retirees.
Response: Medicare managed care plans that offer supplemental
benefits are not Medicare supplemental (Medigap) policies. The
statutory definition of Medicare supplemental (Medigap) policies
contained in section 1882(g)(1) of the Act specifically excludes MA
plans. While Medigap plans are prohibited from supplementing Part D
drug coverage, MA plans will be permitted to offer coverage that
supplements Part D drug coverage.
Comment: One commenter suggested that a process be defined for
validating and approving a Medigap issuer's assessment whether the drug
coverage under its policies is creditable in accordance with the final
rule implementing the Part D drug benefit. This commenter also
suggested that the determination of creditable coverage should consider
the possibility that changes in Part D over time could cause a plan to
become creditable coverage over time. The commenter recommends that
proper advance notice of Part D changes be scheduled to allow time for
creditable coverage determinations, disclosure to beneficiaries and
decision-making time for beneficiaries. The commenter also suggested
that aggregation of data (combining all ages, gender, locations,
formularies) for a particular benefit design be allowed as reasonable
in determining creditable coverage.
Response: The issues raised by the commenter are applicable to all
forms of creditable coverage and are addressed at Sec. 423.56.
III. Provisions of the Final Rule
For the convenience of the reader, in this section, we briefly
summarize major provisions of the proposed rule on which we requested
public comments, and our final decisions. It is important to note that
this section is not intended as a comprehensive list of all changes to
the final rule. For a detailed discussion of a specific issue, see the
relevant portion of the preamble to this final rule.
Auto-enrollment
We requested comments on:
Responsibility for auto-enrollment: Should CMS or the
State perform the auto-enrollment function (or a contracted entity or
entities on their behalf)?
Timing of auto-enrollment.
Auto-enrollment of MA-onlys: How to provide Part D to
those full-benefit dual eligible individuals who are in an MA-only plan
and who have failed to enroll in a PDP or MA-PD plan?
How to provide Part D to a full-benefit dual eligible
individual enrolled in an MA-only plan when the premium for the MA-PD
plan(s) offered by the same MA organization exceeds the low-income
premium subsidy amount?
Final Decision: Our response seeks to balance the twin goals of
ensuring prescription drug coverage and respecting beneficiary choice.
We will:
Stipulate that CMS-not the States-will perform auto-
enrollment;
Perform the auto-enrollment in the fall of 2005 as soon as
eligible Part D plans are known, and auto-enrollment will be effective
January 1, 2006. After 2006, full-benefit dual eligible individuals
will be auto-enrolled into plans as soon as their Medicare Part D
eligibility is determined;
Auto-enroll on a random basis among available PDPs with
monthly beneficiary premiums at or below the low-income subsidy amount;
Reserve the ability to conduct re-auto-enrollment if we
find such action necessary to ensure adequate coverage for this
population;
Facilitate full-benefit dual eligible individuals who are
MA enrollees into the MA-PD with the lowest Part D premium offered by
their MA organization, and who are cost plan enrollees into their cost
plans Part D benefit (if any) with the lowest Part D premium, even if
the premium is not covered by the low-income premium subsidy amount.
May facilitate enrollment for all others deemed or
determined eligible for the low-income subsidy, that is, Qualified
Medicare Beneficiaries (QMBs), Specified Low-Income Medicare
Beneficiaries (SLMBs), Qualifying Individuals (QI-1s), and others who
qualify for low income subsidies.
Optional Involuntary Disenrollment for Disruptive Behavior
We solicited comments on the applicability of MA rules to PDPs for
involuntary disenrollment for disruptive behavior.
Final Decision: We developed policy to permit PDP sponsors to
disenroll individuals for disruptive behavior consistent with statutory
intent, while creating the necessary due process safeguards for
individuals who are subject to our disenrollment rules and may, as a
result, lose Part D coverage. In the final rule, we--
Removed the expedited process;
Required PDP sponsors to provide a reasonable
accommodation as determined by CMS and in exceptional circumstances we
deem necessary; and
Reserved the right to deny a request from a fallback
prescription drug plan to disenroll an individual for disruptive
behavior.
Enrollment and Disenrollment Processes
We envisioned a paper enrollment form process and requested
comments on other possible enrollment mechanisms that address data
security and integrity, privacy and confidentiality, authentication,
and other pertinent issues. We also asked if we should require PDPs to
disenroll individuals if they no longer reside in the service area.
Final Decision: We will maintain the flexibility to allow PDPs to
develop alternative mechanisms other than paper enrollment forms. We
will look to our recent experience with the drug card for other
mechanisms we may consider, such as enrollment over the telephone and
through the Internet. We will require plans to disenroll individuals
upon receipt of notification that they have moved outside of the plan
service area.
Release of Beneficiary Information for Marketing
Should we provide individual beneficiary information to Part D
sponsors for marketing purposes because Part D is an entirely new,
voluntary benefit that would not otherwise be available to
beneficiaries absent positive enrollment?
Final Decision: We will consider provision of such information
pending
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further research of the needs and capabilities of both organizations
and CMS. If/when we do provide such information to PDPs and MA
organizations, we will work with industry and advocates to develop
appropriate guidance.
Creditable Coverage
We asked for comment on the format, placement, and timing of
creditable coverage notices. We also asked whether there are more forms
of coverage that we should consider creditable coverage?
Final Decision: We support linking the notice of creditable status
to other required documents that sponsors must provided to plan
participants as an acceptable vehicle provided it is conspicuous and
includes standard information elements. We have revised Sec. 423.56(c)
and (d) to allow notices of creditable and non-creditable status to be
provided in the same manner other required documents.
To ensure beneficiaries are making informed choices, we require
that notice must be provided to all Part D eligible individuals prior
to the commencement of the Annual Coordinated Election Period (AEP),
which begins on November 15, 2005, and also prior to the AEP each year.
We also believe there are three other key times when notice must be
provided--(1) prior to the commencement of the individual's initial
enrollment period for Medicare Part D; (2) prior to the effective date
of enrollment in such coverage or any change in creditable status of
that coverage; and (3) upon request by the beneficiary. We revised
Sec. 423.56(f) to require that notice be provided, at minimum, at
these 4 times.
We revised Sec. 423.56(b) to include section 1876 cost plans and
coverage offered by State high risk pools as well as a provision
permitting us to recognize other types of coverage as potentially
creditable in guidance following publication of the final rule.
Marketing Multiple Products
Since companies frequently offer additional products that could
provide additional tools to help beneficiaries manage expenses and
financial security, we asked for comments on allowing such products to
be provided in conjunction with PDP services and the appropriate
limitations on such activities.
Final Decision: We will allow only additional health-related
products to be marketed to Medicare beneficiaries in compliance with
HIPAA. Additional non-health related marketing of products would need
written authorization by the beneficiary.
Incurred Costs (TrOOP)
We asked a number of questions on how to treat certain costs for
purposed of TrOOP accounting: How should we define group health plan
(GHP), insurance or otherwise, and other third party arrangements for
purposes of TrOOP? How should we treat HSAs (FSA, HRA, MSA) under
TrOOP: Can we treat HSAs, FSAs, and MSAs as beneficiary money, and
HRAs, as GHP? Should the price differential between the cost of an
extended supply of a drug purchased at a retail pharmacy versus a mail-
order pharmacy be counted as an incurred cost against the annual out-
of-pocket threshold? What is the status of financial assistance and
free goods and services from pharmaceutical manufacturers under the
anti-kickback provisions? (Sections 1128A(a)(5), 1128A(i)(6) of the
Act).
Final Decision: We included definitions in Sec. 423.100 that are
consistent with our goals of defining ``payments made by a beneficiary
or another person on their behalf'' as broadly as possible, while
maintaining the integrity of the exclusions of ``group health plan,
insurance or otherwise, and other third party arrangements'' intended
in the statute. These include:
treating HSAs, FSAs, and MSAs as beneficiary money, but
HRAs as a Group Health Plan for purposes of TrOOP accounting.
allowing beneficiary payment differentials to count toward
TrOOP in cases in which a beneficiary accesses a covered Part D drug
consistent with the out-of-network policy in Sec. 423.124(a) of this
final rule, and when a beneficiary purchases an extended supply of
covered Part D drugs at a retail rather than a mail-order pharmacy.
allowing appropriate waivers or reductions of Part D cost-
sharing by pharmacies to count toward TrOOP.
allowing financial assistance from pharmaceutical
manufacturers to count toward TrOOP.
Dispensing Fee
We invited comments on three definitions of ``dispensing fees''.
Final Decision: We will include only those activities related to
the transfer of possession of the covered Part D drug from the pharmacy
to the beneficiary, including charges associated with mixing drugs,
delivery, and overhead (Option 1).
Covered Part Drug Definition
Part B/D Issues: We solicited comments concerning any drugs that
may require specific guidance with regard to their coverage under Part
D, and any gaps that may exist in the combined ``Part D & B'' coverage
package.
Final Decision: We identify issues and discuss coverage of the
following with respect to the definition of Part D drug:
Vaccines.
Compounded Drugs.
Parenteral Nutrition.
Insulin Supplies.
Exclusion of A/B Drugs if individual could have enrolled
in A or B.
Tying Arrangements.
Long Term Care Facility Pharmacies
We requested comments regarding our definition of the term long-
term care facility in Sec. 422.100. We also solicited comments
regarding how we should guarantee ``convenient access'' to the pharmacy
benefit for Part D enrollees who reside in LTC facilities? We welcomed
comments regarding how to balance convenient access to long-term care
pharmacies with appropriate payment to long-term care pharmacies under
the provisions of the MMA.
Final Decision: We have expanded the definition of the term ``long-
term care facility'' in Sec. 423.100 of our final rule to encompass
not only skilled nursing facilities, as defined in section 1819(a) of
the Act, but also any medical institution or nursing facility for which
payment is made for institutionalized individuals under Medicaid, as
defined in section 1902(q)(1)(B) of the Act.
In addition, we are adopting an approach requiring Part D plans to
demonstrate ``convenient access'' to network long-term care pharmacies
that will inject competition into the long-term care pharmacy market,
but also allow the option of maintaining the relationships and levels
of service that long-term care facilities now enjoy vis-[agrave]-vis
their contracted long-term care pharmacies. We will require plans to
demonstrate (in their applications) ``convenient in-network access'' to
long-term care pharmacies and use of specialized any-willing-pharmacy
(AWP) contracts for long-term care pharmacies to inject competition
into the long-term care pharmacy market.
Network Access Standards--Home Infusion
In the proposed rule preamble, we stated that we were considering
using the authority in section 1860D-4(b)(1)(C) of the Act (which
establishes requirements regarding convenient access to network
pharmacies) to require that plans contract with a sufficient number of
home infusion pharmacies in their service areas to provide reasonable
access for Part D enrollees, as stand-alone drug plans may not have an
incentive to include home infusion pharmacies in their networks. We
solicited comments on whether we should use the authority in section
[[Page 4440]]
1860D-4(b)(1)(C) of the Act to require that both MA-PD plans and PDPs
contract with a sufficient number of home infusion pharmacies in their
service area to provide reasonable access for Part D enrollees? How
could such a requirement be structured?
Final Decision: We will require plans to provide adequate access to
home infusion pharmacies but do not specify requirements in the final
rule. Plans will be required to tell us how they will provide such
access in their service area.
Network Access Standards--Tricare Standards (Retail)
We proposed to apply these access standards such that a PDP or
regional MA-PD plan would have to meet or exceed the access standards
across each region in which it operates, and a local MA-PD plan would
have to meet or exceed the access in its local service area.
Final Decision: We will require plans to meet the TRICARE access
standards at the State level.
Network Access Standards--Non-Retail
We requested comments on whether we should allow plans to count
certain non-retail pharmacies, such as I/T/U pharmacies, toward the
pharmacy access standards in some (or all) cases. We also solicited
comments on permissible ways to ensure Part D enrollees' access to FQHC
and rural pharmacies.
Final Decision: We will allow plans to count I/T/U pharmacies and
other rural institutional pharmacies (for example, FQHCs, RHCs) toward
the pharmacy access requirements in all cases, provided such pharmacies
are under contract with the plan and do not substitute for available
retail access in their network.
Network Access--I/T/U Pharmacies
We asked: How will I/T/U pharmacies and IHS beneficiaries achieve
maximum participation in Part D benefits? What are the advantages and
disadvantages for AI/AN enrollees who are eligible to enroll in Part D?
Final Decision: We will require Part D plan sponsors to include I/
T/U pharmacies in their networks to the extent that those pharmacies
are present in their service areas. We will require that plans offer
any willing pharmacy (AWP) contracts to I/T/U pharmacies that include
an addendum addressing certain minimum terms and conditions specified
by us in separate guidance. We will require Part D plans to demonstrate
that they have contracts with a sufficient number of I/T/U pharmacies
to ensure ``convenient access'' to prescription drugs for AI/AN
enrollees within the service area.
Any Willing Pharmacy
We asked: Should we require that PDP sponsors and MA organizations
offering an MA-PD plan make available to all pharmacies a standard
contract for participation in their plans' networks? Should ``any
willing pharmacy'' provisions apply to non-retail--in particular mail
order--pharmacies, as well as to retail?
Final Decision: We will require plans to offer standard terms and
conditions to all pharmacies for purposes of ensuring that any
pharmacy, and any type of pharmacy, willing to accept the standard
contact terms and conditions can join the pharmacy network.
Out-of-Network (OON) Access
We requested comments on how emergency access standards should
work. In the proposed rule, we required plans to ensure that their
enrollees have adequate access to drugs dispensed at OON pharmacies
when they cannot reasonably be expected to obtain covered Part D drugs
at a network pharmacy. We requested comments on our proposed out-of-
network access requirements.
In the preamble to our proposed regulations, we specified that the
case of a Part D enrollee who is residing in a long-term care facility
whose long-term care pharmacy does not contract with that enrollee's
MA-PD plan or prescription drug plan is one in which we would expect
plans to provide out-of-network access to drugs as provided under Sec.
423.124 of our regulations.
Final Decision: We adopt the out-of-network access policy set forth
in the proposed rule and clarify that Sec. 423.124(c) of our final
rules requires plans to establish reasonable rules to ensure that
enrollees use out-of-network pharmacies in an appropriate manner. Plans
must ensure adequate access to out-of-network pharmacies on a non-
routine basis when enrollees cannot reasonably access network
pharmacies.
We have defined the beneficiary cost sharing in relation to the
total cost of the drug to the plan and the beneficiary. Therefore, in
cases where the total payment is not limited by the plan allowable due
to out-of-network status, the cost sharing should be defined as the
total paid by the beneficiary, or in the case of a low-income
individual, as the total cost sharing paid by both the beneficiary and
CMS. However, we changed our proposed policy of allowing out-of-network
access for long-term care pharmacies and now require Part D plans to
provide network access.
Formularies
We requested comments on many aspects of formulary management, such
as:
Does requiring a formulary to be ``developed and
reviewed'' by a P&T committee mean that a P&T committee's decisions
regarding the plan's formulary must be binding on the plan?