63018 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 417, 422, 423, and 483 

[CMS–4157–P] 

RIN 0938–AQ86 

Medicare Program; Proposed Changes 

to the Medicare Advantage and the 

Medicare Prescription Drug Benefit 

Programs for Contract Year 2013 and 

Other Proposed Changes; Considering 

Changes to the Conditions of 

Participation for Long Term Care 

Facilities 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: The proposed rule would 

revise the Medicare Advantage (MA) 

program (Part C) regulations and 

prescription drug benefit program (Part 

D) regulations to implement new 

statutory requirements; strengthen 

beneficiary protections; exclude plan 

participants that perform poorly; 

improve program efficiencies; and 

clarify program requirements. We are 

also considering changes to the long 

term care facility conditions of 

participation pertaining to pharmacy 

services. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on December 12, 2011. 

ADDRESSES: In commenting, please refer 

to file code CMS–4157–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Click on 

the link ‘‘Submit electronic comments 

on CMS regulations with an open 

comment period.’’ (Attachments should 

be in Microsoft Word, WordPerfect, or 

Excel; however, we prefer Microsoft 

Word.) 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–4157– 

P, P.O. Box 8013, Baltimore, MD 21244– 

8013. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–4157– 

P, Mail Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) to one of the following 

addresses prior to the close of the 

comment period: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, call 

telephone number (410) 786–1066 in 

advance to schedule your arrival with 

one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Christian Bauer, (410) 786–6043, and 

Kathryn Jansak, (410) 786–9364, General 

information. 

Christopher McClintick, (410) 786– 

4682, Part C issues. 

Deborah Larwood, (410) 786–9500, Part 

D issues. 

Kristy Nishimoto, (206) 615–2367, Part 

C and D enrollment and appeals 

issues. 

Deondra Moseley, (410) 786–4577, Part 

C and D payment issues. 

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this rule to assist us in fully 

considering issues and developing 

policies. You can assist us by 

referencing the file code CMS–4157–P. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received at: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone at 1–800–743–3951. 

Table of Contents 

I. Background 

II. Provisions of the Proposed Regulation 

A. Implementing Statutory Provisions 

1. Coverage Gap Discount Program 

(§ 423.100, § 423.505, § 423.1000, 

§ 423.1002, and Subpart W (§ 423.2300– 

423.2410)) 

a. Scope (§ 423.2300) 

b. Definitions (§ 423.2305) 

(1) Applicable Beneficiary 

(2) Applicable Drug 

(3) Incurred Costs 

(4) Manufacturer 

(5) Medicare Part D Discount Information 

(6) Negotiated Price 

(7) Other Health or Prescription Drug 

Coverage 

c. Condition for Coverage of Drugs under 

Part D (§ 423.2305) 

d. Medicare Coverage Gap Discount 

Program Agreement (§ 423.2315) 

(1) Obligations of the Manufacturer 

(2) Length of Agreement 

e. Payment Processes for Part D Sponsors 

(§ 423.2320) 

(1) Interim Payments 

(2) Coverage Gap Discount Reconciliation 

f. Provision of Applicable Discounts on 

Applicable Drugs for Applicable 

Beneficiaries (§ 423.2325) 

(1) Obligations of Part D Sponsors; Pointof-Sale Discounts 

(2) Collection of Data 

(3) Other Health or Prescription Drug 

Coverage 

(4) Supplemental Benefits 

(5) Pharmacy Prompt Payment 

g. Manufacturer Discount Payment Audit 

and Dispute Resolution (§ 423.2330) 

(1) Third Party Administrator Audits 

(2) Manufacturer Audits 


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(3) Dispute Resolution 

h. Beneficiary Dispute Resolution 

(423.2335) 

i. Compliance Monitoring and Civil Money 

Penalties (§ 423.2340) 

j. Termination of Agreement (§ 423.2345) 

2. Inclusion of Benzodiazepines and 

Barbiturates as Part D Covered Drugs 

(§ 423.100) 

3. Pharmacy Benefit Manager’s 

Transparency Requirements (§ 423.501 

and § 423.514) 

B. Strengthening Beneficiary Protections 

1. Good Cause and Reinstatement into a 

Cost Plan (§ 417.460) 

2. Requiring MA Plans to Issue ID Cards 

(§ 422.111) 

3. Determination of Actuarially Equivalent 

Creditable Prescription Drug Coverage 

(§ 423.56) 

4. Who May File Part D Appeals with the 

Independent Review Entity (§ 423.600 

and § 423.602) 

5. Independence of LTC Consultant 

Pharmacists (§ 483.60) 

C. Excluding Poor Performers 

1. CMS Termination of Health Care 

Prepayment Plans (§ 417.801) 

2. Plan Performance Ratings as a Measure 

of Administrative and Management 

Arrangements and as a Basis for 

Termination or Non-Renewal of a 

Medicare Contract (§ 422.504, § 422.510, 

§ 423.505, and § 423.509) 

3. Denial of Applications Submitted by 

Part C and D Sponsors with a Past 

Contract Termination or CMS-Initiated 

Non-Renewal (§ 422.502 and § 423.503) 

D. Improving Program Efficiencies 

1. Cost Contract Plan Public Notification 

Requirements in Cases of Non-Renewal 

(§ 417.492) 

2. New Benefit Flexibility for FullyIntegrated Dual Eligible Special Needs 

Plans (FIDE SNPs) (§ 422.102) 

3. Application of the Medicare HospitalAcquired Conditions and Present on 

Admission Indicator Policy to MA 

Organizations (§ 422.504) 

4. Clarifying Coverage of Durable Medical 

Equipment (§ 422.100 and § 422.111) 

a. Access to Preferred DME Items and 

Supplies 

b. Medical Necessity Requirements for 

DME Items and Supplies 

c. Transition Period for Coverage of NonPreferred DME Items and Supplies 

d. Midyear Changes to Preferred DME 

Items and Supplies 

e. Appeals 

f. Disclosure of DME Coverage Limitations 

5. Broker and Agent Requirements 

(§ 422.2274 and § 423.2274) 

6. Establishment and Application of Daily 

Cost-Sharing Rate as Part of Drug 

Utilization Management and Fraud, 

Abuse, and Waste Control Program 

(§ 423.104 and § 423.153) 

E. Clarifying Program Requirements 

1. Technical Corrections to Enrollment 

Provisions (§ 417.422, § 417.432, 

§ 422.60, and § 423.56) 

2. Extending MA and Part D Program 

Disclosure Requirements to Section 1876 

Cost Contract Plans (§ 417.427) 

3. Clarification of, and Extension to Local 

Preferred Provider Plans, of Regional 

Preferred Provider Organization Plan 

Single Deductible Requirement 

(§ 422.101) 

4. Technical Change to Private Fee-ForService Plan Explanation of Benefits 

Requirements (§ 422.216) 

5. Application Requirements for Special 

Needs Plans (§ 422.500, § 422.501, 

§ 422.502, § 422.641, and § 422.660) 

6. Timeline for Resubmitting Previously 

Denied MA Applications (§ 422.501) 

7. Clarification of Contract Requirements 

for First Tier and Downstream Entities 

(§ 422.504 and § 423.505) 

8. Valid Prescriptions (§ 423.100 and 

§ 423.104) 

9. Medication Therapy Management 

Comprehensive Medication Reviews and 

Beneficiaries in LTC Settings (§ 423.153) 

10. Employer Group Waiver Plans 

Requirement to Follow All Part D Rules 

Not Explicitly Waived (§ 423.458) 

11. Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (§ 423.120) 

III. Collection of Information Requirements 

IV. Response to Public Comments 

V. Regulatory Impact Analysis 

Regulations Text 

Acronyms 

AO Accrediting Organization 

ADS Automatic Dispensing System 

AEP Annual Enrollment Period 

AHFS American Hospital Formulary 

Service 

AHFS–DI American Hospital Formulary 

Service-Drug Information 

AHRQ Agency for Health Care Research 

and Quality 

ALJ Administrative Law Judge 

ANOC Annual Notice of Change 

AOR Appointment of Representative 

BBA Balanced Budget Act of 1997 (Pub. L. 

105–33) 

BBRA [Medicare, Medicaid and State Child 

Health Insurance Program] Balanced 

Budget Refinement Act of 1999 (Pub. L. 

106–113) 

BIPA [Medicare, Medicaid, and SCHIP] 

Benefits Improvement Protection Act of 

2000 (Pub. L. 106–554) 

BLA Biologics License Application 

CAHPS Consumer Assessment Health 

Providers Survey 

CAP Corrective Action Plan 

CCIP Chronic Care Improvement Program 

CC/MCC Complication/Comorbidity and 

Major Complication/Comorbidity 

CCS Certified Coding Specialist 

CDC Centers for Disease Control 

CHIP Children’s Health Insurance Programs 

CMR Comprehensive Medical Review 

CMS Centers for Medicare & Medicaid 

Services 

CMS–HCC CMS Hierarchal Condition 

Category 

CTM Complaints Tracking Module 

COB Coordination of Benefits 

CORF Comprehensive Outpatient 

Rehabilitation Facility 

CPC Certified Professional Coder 

CY Calendar year 

DEA Drug Enforcement Administration 

DIR Direct and Indirect Remuneration 

DME Durable Medical Equipment 

DMEPOS Durable Medical Equipment, 

Prosthetic, Orthotics, and Supplies 

D–SNPs Dual Eligible SNPs 

DOL U.S. Department of Labor 

DRA Deficit Reduction Act of 2005 (Pub. L. 

109–171) 

DUM Drug Utilization Management 

EGWP Employer Group/Union-Sponsored 

Waiver Plan 

EOB Explanation of Benefits 

EOC Evidence of Coverage 

ESRD End-Stage Renal Disease 

FACA Federal Advisory Committee Act 

FDA Food and Drug Administration 

FEHBP Federal Employees Health Benefits 

Plan 

FFS Fee-For-Service 

FIDE Fully-integrated Dual Eligible 

FIDE SNPs Fully-integrated Dual Eligible 

Special Needs Plans 

FMV Fair Market Value 

FY Fiscal year 

GAO Government Accountability Office 

HAC Hospital-Acquired Conditions 

HCPP Health Care Prepayment Plans 

HEDIS HealthCare Effectiveness Data and 

Information Set 

HHS [U.S. Department of] Health and 

Human Services 

HIPAA Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104– 

191) 

HMO Health Maintenance Organization 

HOS Health Outcome Survey 

HPMS Health Plan Management System 

ICD–9–CM Internal Classification of 

Disease, 9th, Clinical Modification 

Guidelines 

ICEP Initial Coverage Enrollment Period 

ICL Initial Coverage Limit 

ICR Information Collection Requirement 

ID Identification 

IPPS [Acute Care Hospital] Inpatient 

Prospective Payment System 

IRE Independent Review Entity 

IVC Initial Validation Contractor 

LEP Late Enrollment Penalty 

LIS Low Income Subsidy 

LPPO Local Preferred Provider 

Organization 

LTC Long Term Care 

MA Medicare Advantage 

MAAA Member of the American Academy 

of Actuaries 

MA–PD Medicare Advantage-Prescription 

Drug Plan 

MIPPA Medicare Improvements for Patients 

and Providers Act of 2008 (Pub. L. 110– 

275) 

MOC Medicare Options Compare 

MOOP Maximum Out-of-Pocket 

MPDPF Medicare Prescription Drug Plan 

Finder 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (Pub. L. 108–173) 

MS–DRG Medicare Severity Diagnosis 

Related Group 

MSA Metropolitan Statistical Area 

MSAs Medical Savings Accounts 

MSP Medicare Secondary Payer 

MTM Medication Therapy Management 

MTMP Medication Therapy Management 

Program 


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NAIC National Association Insurance 

Commissioners 

NCPDP National Council for Prescription 

Drug Programs 

NCQA National Committee for Quality 

Assurance 

NDA New Drug Application 

NDC National Drug Code 

NGC National Guideline Clearinghouse 

NIH National Institutes of Health 

NOMNC Notice of Medicare Non-coverage 

NPI National Provider Identifier 

OIG Office of Inspector General 

OMB Office of Management and Budget 

OPM Office of Personnel Management 

OTC Over the Counter 

PART C Medicare Advantage 

PART D Medicare Prescription Drug Benefit 

Program 

PBM Pharmacy Benefit Manager 

PDE Prescription Drug Event 

PDP Prescription Drug Plan 

PFFS Private Fee for Service Plan 

POA Present on Admission (Indicator) 

POS Point-of-Sale 

PPO Preferred Provider Organization 

PPS Prospective Payment System 

P&T Pharmacy & Therapeutics 

QIO Quality Improvement Organization 

QRS Quality Review Study 

PACE Programs of All Inclusive Care for the 

Elderly 

RADV Risk Adjustment Data Validation 

RAPS Risk Adjustment Payment System 

RHIA Registered Health Information 

Administrator 

RHIT Registered Health Information 

Technician 

RPPO Regional Preferred Provider 

Organization 

SEP Special Enrollment Periods 

SHIP State Health Insurance Assistance 

Programs 

SNF Skilled Nursing Facility 

SNP Special Needs Plan 

SPAP State Pharmaceutical Assistance 

Programs 

SSA Social Security Administration 

SSI Supplemental Security Income 

TPA Third Party Administrator 

TrOOP True Out-of-Pocket 

U&C Usual and Customary 

UPIN Uniform Provider Identification 

Number 

USP U.S. Pharmacopoeia 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) created a new 

‘‘Part C’’ in the Medicare statute 

(sections 1851 through 1859 of the 

Social Security Act (the Act)) which 

established what is now known as the 

Medicare Advantage (MA) program. The 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173), enacted 

on December 8, 2003, added a new ‘‘Part 

D’’ to the Medicare statute (sections 

1860D–1 through 1860D–42 of the Act) 

entitled the Medicare Prescription Drug 

Benefit Program, and made significant 

changes to the existing Part C program, 

which it named the Medicare Advantage 

(MA) Program. The MMA directed that 

important aspects of the Part D program 

be similar to, and coordinated with, 

regulations for the MA program. 

Generally, the provisions enacted in the 

MMA took effect January 1, 2006. The 

final rules implementing the MMA for 

the MA and Part D prescription drug 

programs appeared in the January 28, 

2005 Federal Register (70 FR 4588 

through 4741 and 70 FR 4194 through 

4585, respectively). 

Since the inception of both Parts C 

and D, we have periodically revised our 

regulations either to implement 

statutory directives or to incorporate 

knowledge obtained through experience 

with both programs. For instance, in 

September 2008 and January 2009, we 

issued Part C and D regulations (73 FR 

54226 and 74 FR 1494, respectively) to 

implement provisions in the Medicare 

Improvement for Patients and Providers 

Act (MIPPA) (Pub. L. 110–275). We 

promulgated a separate interim final 

rule in January 2009 to address MIPPA 

provisions related to Part D plan 

formularies (74 FR 2881). In April 2010, 

we issued Part C and D regulations (75 

FR 19678) which strengthened various 

program participation and exit 

requirements; strengthened beneficiary 

protections; ensured that plan offerings 

to beneficiaries included meaningful 

differences; improved plan payment 

rules and processes; improved data 

collection for oversight and quality 

assessment; implemented new policies; 

and clarified existing program policy. 

In a final rule that appeared in the 

April 15, 2011 Federal Register (76 FR 

21432), we continued our process of 

implementing improvements in policy 

consistent with those included in the 

April 2010 final rule, and also 

implemented changes to the Part C and 

Part D programs made by recent 

legislative changes. The Patient 

Protection and Affordable Care Act 

(Pub. L. 111–148) was enacted on March 

23, 2010, as passed by the Senate on 

December 24, 2009, and the House on 

March 21, 2010. The Health Care and 

Education Reconciliation Act (Pub. L. 

111–152), which was enacted on March 

30, 2010, modified a number of 

Medicare provisions in Pub. L. 111–148 

and added several new provisions. The 

Patient Protection and Affordable Care 

Act (Pub. L. 111–148) and the Health 

Care and Education Reconciliation Act 

(Pub. L. 111–152) are collectively 

referred to as the Affordable Care Act. 

The Affordable Care Act included 

significant reforms to both the private 

health insurance industry and the 

Medicare and Medicaid programs. 

Provisions in the Affordable Care Act 

concerning the Part C and D programs 

largely focused on beneficiary 

protections, MA payments, and 

simplification of MA and Part D 

program processes. These provisions 

affected implementation of our policies 

regarding beneficiary cost-sharing, 

assessing bids for meaningful 

differences, and ensuring that costsharing structures in a plan are 

transparent to beneficiaries and not 

excessive. In the April 2011 final rule, 

we revised regulations on a variety of 

issues based on the Affordable Care Act 

and our experience in administering the 

MA and Part D programs. The rule 

covered areas such as marketing, 

including agent/broker training; 

payments to MA organizations based on 

quality ratings; standards for 

determining if organizations are fiscally 

sound; low income subsidy policy 

under the Part D program; payment 

rules for non-contract health care 

providers; extending current network 

adequacy standards to Medicare 

medical savings account (MSA) plans 

that employ a network of providers; 

establishing limits on out-of-pocket 

expenses for MA enrollees; and several 

revisions to the special needs plan 

requirements, including changes 

concerning SNP approvals. 

II. Provisions of the Proposed 

Regulations 

In the sections that follow, we discuss 

the proposed changes to the regulations 

in 42 CFR parts 417, 422, and 423 

governing the MA and prescription drug 

benefit programs. We also are 

considering changes to the regulations 

setting forth Medicare conditions of 

participation for long-term care 

facilities, which are currently codified 

at 42 CFR part 483. To better frame the 

discussion, we have structured the 

overall preamble narrative by topic area 

rather than by subpart order. 

Accordingly, our proposals address the 

following five specific topic areas: 

• Implementing provisions of MIPPA 

and the Affordable Care Act. 

• Strengthening beneficiary 

protections. 

• Excluding poor performers. 

• Improving program efficiencies. 

• Clarifying program requirements. 

Several of the proposed revisions and 

clarifications affect both the MA and 

prescription drug programs, while a few 

affect cost contracts under section 1876 

of the Act. Within each topic area, we 

provide a chart that lists the associated 

regulatory citations and we discuss the 

provisions in order of appearance in the 

proposed regulations. We are also 

considering changing the long term care 

facility conditions of participation 


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pertaining to pharmacy services and, 

accordingly, cover that issue under the 

appropriate topic in the preamble 

section, in order of regulation location 

under consideration. 

We note that these regulations would 

be effective 60 days after the publication 

of the final rule that would finalize the 

proposed changes discussed in this 

proposed rule, except where otherwise 

noted in the preamble. Only one 

proposed item would have a different 

effective date: section 175(b) of MIPPA 

provides that the proposed amendments 

requiring that benzodiazepines and, for 

specified health conditions, barbiturates 

be considered as Part D drugs apply to 

prescriptions dispensed on or after 

January 1, 2013. 

A. Implementing Statutory Provisions 

This section contains three 

provisions, two of which would 

implement sections of the Affordable 

Care Act and one which would 

implement a MIPPA mandate. We 

propose to consolidate and codify 

previous guidance regarding the 

Coverage Gap Discount Program 

mandated by the Affordable Care Act. 

Through this consolidation we aim to 

provide stakeholders a central, clear 

source of direction. Regulations under a 

MIPPA provision would provide first 

line treatment for beneficiaries with 

certain health conditions who require 

benzodiazepines and, as specified, 

barbiturates. We believe that 

implementing section 6005 of the 

Affordable Care Act, which requires us 

to collect Pharmacy Benefit Manager 

(PBM) spread amounts, would establish 

necessary transparency related to 

entities that provide pharmacy benefits 

management services to Part D sponsors. 

The changes based on provisions in the 

Affordable Care Act and MIPPA are 

detailed in Table 1. 

TABLE 1—PROVISIONS TO IMPLEMENT STATUTORY PROVISIONS

Preamble section Provision 

Part 423 

Subpart Section(s) 

II.A.1. ................... Coverage Gap Discount Program .............................................................. Subpart C ..................

Subpart K ..................

Subpart T ..................

Subpart T ..................

Subpart W (new) .......

§ 423.100 

§ 423.505 

§ 423.1000 

§ 423.1002 

§ 423.2300–§ 423.2345 

II.A.2. ................... Inclusion of Benzodiazepines and Barbiturates as Part D Covered Drugs Subpart C .................. § 423.100 

II.A.3. ................... Pharmacy Benefit Manager’s Transparency Requirements ...................... Subpart K .................. § 423.501 

§ 423.514 

1. Coverage Gap Discount Program 

(§ 423.100, § 423.505(b), § 423.1000, 

§ 423.1002, and § 423.2300 through 

§ 423.2345 (Subpart W)) 

The Medicare Prescription Drug 

Benefit was enacted into law on 

December 8, 2003, in section 101 of the 

MMA and codified in sections 1860D– 

1 through 1860D–42 of the Act. Section 

101 of the MMA amended Title XVIII of 

the Act by redesignating Part D as Part 

E and inserting new Part D, which 

establishes the voluntary Prescription 

Drug Benefit Program (Part D). The Part 

D program is available to individuals 

who are entitled to Medicare Part A or 

enrolled in Medicare Part B. We 

contract with private companies 

referred to as Part D sponsors to 

administer the Part D program via stand 

alone prescription drug plans (PDPs) 

and prescription drug plans offered by 

Medicare Advantage Organizations 

(MA–PDs). The Part D program became 

effective January 1, 2006. 

The MMA established standard Part D 

prescription drug coverage that consists 

of coverage subject to an annual 

deductible, 25 percent coinsurance (or 

an actuarially equivalent cost-sharing 

design) up to the initial coverage limit 

(ICL), and catastrophic coverage for 

individuals who exceed the annual 

maximum true out-of-pocket (TrOOP) 

threshold with cost-sharing equal to the 

greater of a $2/$5 copayment or 

coinsurance of 5 percent. Prior to the 

enactment of the Affordable Care Act, 

under standard coverage, individuals 

that did not receive additional costsharing subsidies from CMS or 

additional coverage by other secondary 

payers (for example, State 

Pharmaceutical Assistance Programs) 

were responsible for paying one 

hundred percent of the Part D 

negotiated price for covered Part D 

claims above the ICL until their TrOOP 

costs exceed the annual threshold 

amount. 

The Affordable Care Act made several 

amendments to Part D of Title XVIII of 

the Act, including adding sections 

1860D–43 and 1860D–14A of the Act, 

and amending section 1860D–2(b) of the 

Act. Beginning on January 1, 2011, these 

amendments started phasing out the 

Part D coverage gap, or ‘‘donut hole’’ for 

Medicare beneficiaries who do not 

already receive low-income subsidies 

from CMS by establishing the Medicare 

Coverage Gap Discount Program 

(Discount Program) and gradually 

increasing coverage in the coverage gap 

for both generic drugs (beginning in 

2011) and brand name drugs and 

biological products (beginning in 2013). 

By 2020, beneficiary cost-sharing for all 

covered brand-name and generic drugs 

and biological products will equal 25 

percent until they reach catastrophic 

coverage. 

The Discount Program makes 

manufacturer discounts available at the 

point-of-sale to applicable Medicare 

beneficiaries receiving applicable drugs 

while in the coverage gap. In general, 

the discount on each applicable drug is 

50 percent of an amount equal to the 

negotiated price of the drug (less any 

dispensing fee). Manufacturers must 

agree to provide these discounts by 

signing an agreement with CMS in order 

for their applicable drugs to continue to 

be covered under Medicare Part D, 

unless we use our authority under 

section 1860D–43(c) of the Act to make 

an exception that allows coverage 

without an agreement. 

While manufacturer discounts under 

the Discount Program must be made 

available at point-of-sale, the Affordable 

Care Act does not specify how this 

should be done. At the same time, it 

prohibits us from receiving or 

distributing any funds of the 

manufacturer under the program. In 

order to provide point-of-sale discounts, 

we determined that an entity must have 

the information necessary to determine 

at that point in time that the drug is 

discountable, the beneficiary is eligible 

for the discount, the claim is wholly or 

partly in the coverage gap, and the 

amount of the discount, taking into 

consideration negotiated plan prices 

and that plan supplemental benefits 

must pay before the discount amount 

can be determined. We determined that 


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63022 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

the only entities that have the 

information necessary to provide pointof-sale discounts under the Discount 

Program are Part D sponsors. Only the 

Part D sponsor knows which Part D 

drugs are on its formulary and which 

enrollees have obtained an exception to 

receive a non-formulary Part D drug. 

The Part D sponsor has the low-income 

subsidy (LIS) information for 

beneficiaries that is necessary to 

exclude such claims from the Discount 

Program. The Part D sponsor tracks 

gross drug spend and TrOOP costs, 

which are necessary for determining 

when the beneficiary enters and exits 

the coverage gap. In addition, only the 

Part D sponsor knows which portion of 

the claim is in the coverage gap. For 

these reasons, we believe only the Part 

D sponsor can accurately provide the 

discount at point-of-sale. 

We explored the viability of a model 

whereby a third party administrator 

(TPA) could directly adjudicate the 

discount payment to pharmacies. In this 

hypothetical model, the pharmacy 

would submit the Part D claim to the 

Part D sponsor and receive information 

on the response that would direct the 

pharmacy to bill the third party for 

applicable claims. While this model 

initially showed promise, our 

discussions with industry through 

National Council of Prescription Drug 

Program (NCPDP) workgroups revealed 

that neither the current Health 

Insurance Portability and 

Accountability Act (HIPAA) electronic 

pharmacy claims billing standard nor 

the next HIPAA approved version of the 

billing standard could support the 

transfer of information from the Part D 

sponsor that would be necessary to 

specify the appropriate claims and 

appropriate discount amounts to be 

billed to the third party administrator, 

or allow for accurate coordination of 

benefits among payers. Consequently, 

we determined that this model cannot 

be used to implement the Discount 

Program in the foreseeable future. 

Section 1860D–14A(d)(5) of the Act 

authorizes us to implement the Discount 

Program through program instruction. 

We used this authority to issue program 

guidance to Part D sponsors, with an 

abbreviated notice and comment period, 

instructing them to provide applicable 

discounts on applicable drugs to 

applicable beneficiaries at point-of-sale 

beginning on January 1, 2011. The 

guidance also specified that Part D 

sponsors would report discount 

amounts to us, that we would invoice 

manufacturers on a quarterly basis for 

these discounts, and that the 

manufacturers would repay each Part D 

sponsor directly for the invoiced 

discount provided on the 

manufacturers’ behalf. We determined 

that this model was necessary because 

Part D sponsors needed to provide the 

discounts at point-of-sale (as explained 

previously) and we needed to 

coordinate the discount payments 

between manufacturers and Part D 

sponsors to ensure discounts were 

appropriately provided by the Part D 

sponsors and reimbursed by the 

manufacturers without directly 

receiving or distributing manufacturer 

funds (which we are prohibited from 

doing by section 1860D–14A(d)(2)(A) of 

the Act). 

We needed to implement the Discount 

Program through program instruction 

because of the January 1, 2011 

implementation deadline. Although not 

required, we are now proposing to 

codify most existing Discount Program 

requirements (that is, those that we have 

previously implemented through the 

relevant Agreements and guidance) 

through full notice and comment 

rulemaking to provide additional 

transparency and a formal framework 

for operating the Discount Program and 

enforcing its requirements. 

a. Scope (§ 423.2300) 

Subpart W of part 423 implements 

provisions included in sections 1860D– 

14A and 1860D–43 of the Act. This 

subpart sets forth requirements as 

follows: 

• Condition of coverage of drugs 

under Part D. 

• The Medicare Coverage Gap 

Discount Program Agreement. 

• Coverage gap discount payment 

processes for Part D sponsors. 

• Provision of applicable discounts 

on applicable drugs for applicable 

beneficiaries. 

• Manufacturer audit and dispute 

resolution processes. 

• Resolution of beneficiary disputes 

involving coverage gap discounts. 

• Compliance monitoring and civil 

money penalties. 

• The termination of the Discount 

Program Agreement. 

b. Definitions (§ 423.2305) 

Proposed § 423.2305 includes 

definitions for terms that are frequently 

used in this subpart. Those terms we 

believe need additional clarification are 

described separately in this section of 

the proposed rule. 

(1) Applicable Beneficiary 

Applicable beneficiary is defined in 

§ 423.100. We clarify that enrollees in 

employer-sponsored group prescription 

drug plans (as defined in § 423.454) may 

qualify as applicable beneficiaries. 

(2) Applicable Drug 

Applicable drug is defined in 

§ 423.100. We clarify that applicable 

drugs include all covered Part D drugs 

marketed under a new drug application 

(NDA) or biologics license application 

(BLA) (other than a product licensed 

under section 351(k) of the Public 

Health Service Act). This means that 

such drugs and biological products 

would be subject to an applicable 

discount in the coverage gap even if a 

Part D sponsor otherwise considers the 

product to be generic under its benefit. 

Conversely, covered Part D drugs that 

are marketed under trade names and 

generally thought of as brand-name 

drugs or biological products, but are not 

approved under an NDA or licensed 

under a BLA (other than a product 

licensed under section 351(k) of the 

Public Health Service Act), are not 

applicable drugs that would be subject 

to an applicable discount in the 

coverage gap. Finally, drugs excluded 

from Part D under section 1860D– 

2(e)(2)(A) of the Act are not covered Part 

D drugs and therefore, such drugs 

would not be applicable drugs subject to 

an applicable discount even if covered 

by the Part D sponsor under an 

enhanced benefit. Part D sponsors 

would need to make these 

determinations on a National Drug Code 

(NDC) by NDC basis. 

The second part of the definition 

provides that an applicable drug is 

either available on-formulary if a Part D 

sponsor uses a formulary, or available 

under the benefits provided by a Part D 

sponsor that does not use a formulary, 

or available to a particular beneficiary 

through an exception or appeal for that 

particular beneficiary. Applicable drugs 

covered under transition and emergency 

fill policies are considered covered 

through an exception and, therefore, 

would be subject to applicable 

discounts. 

In addition, we interpret the 

definition of an applicable drug for 

purposes of the Discount Program to 

exclude Part D compounds. While Part 

D sponsors may cover compounds with 

at least one Part D drug ingredient, and 

that ingredient would be an applicable 

drug if dispensed on its own, in light of 

the operational difficulty in accurately 

determining which portion(s) of a Part 

D compound represents the Part D drug, 

we believe that the applicable drug 

determination must be made with 

respect to the compound as a whole. 

Given that a compound as a whole is 

not approved under an NDA or BLA, a 

compound does not meet the definition 

of an applicable drug. 


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(3) Incurred Costs 

Section 3301 of the Affordable Care 

Act amends section 1860D–2(b)(4) of the 

Act by adding subparagraph (E) when 

applying subparagraph (A) to include 

the negotiated price (as defined in 

paragraph (6) of section 1860D–14A(g) 

of the Act) of an applicable drug of a 

manufacturer that is furnished to an 

applicable beneficiary under Medicare 

Coverage Gap Discount Program 

regardless of whether part of such costs 

were paid by a manufacturer under such 

program, except that incurred costs 

shall not include the portion of the 

negotiated price that represents the 

reduction in coinsurance resulting from 

the application of paragraph (2)(D) (that 

is, gap coverage). Therefore, we propose 

to revise the definition of incurred costs 

in § 423.100 by adding the following 

language to paragraph (2)(ii) of such 

definition—‘‘or by a manufacturer as 

payment for an applicable discount (as 

defined § 423.2305) under the Medicare 

Coverage Gap Discount Program (as 

defined in § 423.2305)’’. This would 

mean that all applicable discounts paid 

by manufacturers would be treated as 

incurred costs for purposes of 

calculating the beneficiary’s TrOOP. 

(4) Manufacturer 

Section 1860D–14A(g)(5) of the Act 

defines manufacturer under the 

Discount Program as any entity which is 

engaged in the production, preparation, 

propagation, compounding, conversion 

or processing of prescription drug 

products, either directly or indirectly, 

by extraction from substances of natural 

origin, or independently by means of 

chemical synthesis, or by a combination 

of extraction and chemical synthesis. 

Such term does not include a wholesale 

distributor of drugs or a retail pharmacy 

licensed under State law. We propose to 

adopt this statutory language in 

§ 423.2305 and also add the following 

clarifying language ‘‘but includes 

entities otherwise engaged in 

repackaging or changing the container, 

wrapper, or labeling of any applicable 

drug product in furtherance of the 

distribution of the applicable drug from 

the original place of manufacture to the 

person who makes the final delivery or 

sale to the ultimate consumer for use.’’ 

We propose adding this language to the 

definition to be consistent with the 

definition of the term ‘‘manufacturer’’ in 

section 510 for the Federal Food Drug 

and Cosmetic Act as well as to track the 

defined term in the Discount Program 

Agreement. 

Moreover, we believe this is the only 

practical way to define manufacturer so 

that we can accurately assign 

responsibility for the discounts. While 

applicable drugs may actually be made 

by a limited number of companies, 

many more companies commonly 

repackage or relabel drug products and 

market them with their own labeler 

codes. Registered drug establishments 

are required by law to provide the FDA 

with a current list of all drugs 

manufactured, prepared, propagated, 

compounded, or processed by it for 

commercial distribution. (See section 

510 of the Federal Food, Drug, and 

Cosmetic Act 921 U.S.C. 360.) Each 

listed product is identified by a unique 

NDC, which identifies the labeler, 

product, and trade package size. The 

first segment, the labeler code, identifies 

the firm that manufactures (including 

repackers and relabelers) or distributes 

(under its own name) the drug. 

Therefore, we can accurately identify 

the company responsible for labeling 

the product and require this company to 

pay the discount. Alternatively, it 

would be very difficult, if not 

impossible, to track such relabeled or 

repackaged products back to the original 

maker of the drug if we limited the 

definition of manufacturer to the 

original maker. We would interpret 

‘‘entities otherwise engaged in 

repackaging or changing the container, 

wrapper, or labeling * * *’’ to mean the 

companies associated with the unique 

labeler codes that are included in the 

NDCs of the applicable drugs dispensed 

by pharmacies, therefore these 

companies would be considered 

manufacturers under the Discount 

Program. 

Applicable drugs are marketed with 

labels that include a labeler code 

identifying the company that labels the 

product. While the same applicable 

drug may be marketed by multiple 

companies, only one company is linked 

to a unique labeler code. All 

manufacturers of applicable drugs, 

meaning all companies that label 

applicable drugs with unique labeler 

codes, would be required to sign an 

agreement for any applicable drugs with 

such labeler codes to be covered under 

Medicare Part D as of January 1, 2011. 

Only one manufacturer would be 

identified with each labeler code and, 

therefore, only one manufacturer would 

be responsible for paying applicable 

discounts associated with that labeler 

code at any given time. 

(5) Medicare Part D Discount 

Information 

In accordance with section 1860D– 

14A(d)(3)(C) of the Act, we require the 

TPA to provide adequate and timely 

information to manufacturers, 

consistent with the Discount Program 

Agreement with the manufacturers, as 

necessary for the manufacturer to fulfill 

its obligations under the Discount 

Program. Accordingly, we require the 

TPA to invoice each manufacturer each 

quarter on behalf of Part D sponsors for 

the applicable discounts advanced by 

the Part D sponsors to applicable 

beneficiaries and reported to CMS on 

the prescription drug event (PDE) 

records. The TPA also provides 

information to the manufacturer along 

with each quarterly invoice that is 

derived from applicable data elements 

available on PDE records as determined 

by CMS. We propose to define this 

information in § 423.2305 as Medicare 

Part D Discount Information. 

Generally, the Medicare Part D 

Discount Information would include 

certain claim-level detail derived from 

the PDE record. Information such as 

applicable drug NDC, dispensing 

pharmacy, quantity dispensed, date of 

service, days supply, prescription and 

fill number, and reported gap discount 

would be provided. We would provide 

this information so that a manufacturer 

could evaluate the accuracy of claimed 

discounts and resolve disputes 

concerning the manufacturer’s payment 

obligations under the Discount Program. 

Under the current Medicare Coverage 

Gap Discount Program Agreement with 

manufacturers, ‘‘Medicare Part D 

Discount Information’’ refers to the 

information derived from applicable 

data elements available on PDEs and set 

forth in Exhibit A of the Agreement that 

will be sent from the TPA to the 

manufacturer along with each quarterly 

invoice. However, section III(f) of the 

Agreement generally prohibits us from 

disclosing any identifying beneficiary 

information under the Discount 

Program. Although the ‘‘Medicare Part D 

Discount Information’’ does not include 

specific beneficiary identifiers, an issue 

arises when the volume of claims for an 

applicable drug is so low that the data 

provided as ‘‘Medicare Part D Discount 

Information’’ could be used to identify 

a Medicare beneficiary. 

In order to protect the identity of 

Medicare beneficiaries, we have a cellsize suppression policy that prohibits 

disclosure of data if the data cell 

contains 10 or fewer individuals. In 

applying this policy to the Discount 

Program, CMS would be unable to 

disclose all the data elements currently 

specified as ‘‘Medicare Part D Discount 

Information’’ when 10 or fewer 

beneficiaries with the same applicable 

drug (identified as having the same first 

two segments of NDC) have claims at 

the same pharmacy. This threshold is 

based on all Part D claims for an 

applicable drug (identified as having the 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
63024 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

same first two segment of the NDC) at 

the same pharmacy, not 10 or fewer 

applicable beneficiaries with coverage 

gap claims. 

When we agreed to provide the data 

elements specified in Exhibit A of the 

current Medicare Coverage Gap 

Discount Program Agreement, we did 

not take into consideration this issue 

that arises if claims volume is so low 

that this information could reasonably 

be used to identify a beneficiary. 

Consequently, we believe we would 

need to further limit the information 

that could be provided to manufacturers 

based upon the prohibition on releasing 

beneficiary identifying information. We 

propose withholding the Service 

Provider Identifier information when a 

claim qualifies as low volume (that is, 

10 or fewer beneficiaries receiving the 

same drug product at the same 

pharmacy). This would mean that the 

remaining claims-level detail would be 

provided, but it would not specify the 

service provider for each claim. By 

doing this, we would comply with the 

CMS cell size suppression policy while 

still providing claims-level detail that 

would be helpful to manufacturers for 

evaluating the accuracy of the invoiced 

discount payments. We seek comments 

on this proposal. 

(6) Negotiated Price 

We propose to define negotiated price 

for purposes of the Discount Program 

consistent with section 1860D– 

14A(g)(6), which defines ‘‘negotiated 

price’’ in terms of its meaning in 

§ 423.100 as of the date of enactment of 

the section (that is, as of March 23, 

2010), except that such definition does 

not include dispensing fees. Part D 

vaccine administration fees would be 

excluded from the definition of 

negotiated price for purposes of the 

Discount Program because we believe 

that, for purposes of the Discount 

Program, they are analogous to 

dispensing fees, which are explicitly 

excluded from the definition of 

negotiated price for purposes of 

determining the applicable discount. 

Unlike sales tax, dispensing fees and 

vaccine administration fees pay for 

services apart from the applicable drug 

itself. This is made clear by the fact that 

a vaccine administration fee may be 

billed separately from the dispensing of 

the vaccine. Sales tax remains included 

in the definition of negotiated price 

under the Discount Program. Thus, we 

are proposing to define ‘‘negotiated 

price’’ for purposes of the Discount 

Program and this subpart as: the price 

for a covered Part D drug that— (1) the 

Part D sponsor (or other intermediary 

contracting organization) and the 

network dispensing pharmacy or other 

network dispensing provider have 

negotiated as the amount such network 

entity will receive, in total, for a 

particular drug; (2) is reduced by those 

discounts, direct or indirect subsidies, 

rebates, other price concessions, and 

direct or indirect remuneration that the 

Part D sponsor has elected to pass 

through to Part D enrollees at the pointof-sale; and (3) excludes any dispensing 

fee or vaccine administration fee for the 

applicable drug. 

Further, although the statutory 

definition speaks only to the negotiated 

price with respect to a network 

pharmacy, given that there is no 

limitation on an applicable beneficiary’s 

entitlement to applicable discounts on 

applicable drugs obtained out-ofnetwork, we do not believe Congress 

intended to exclude these discounts 

from the Discount Program. Therefore, 

we propose to specify in § 423.2305 that 

the negotiated price also means, for 

purposes of out-of-network claims, the 

plan allowance as determined under 

§ 423.124, less any dispensing fee and 

vaccine administration fee. 

(7) Other Health or Prescription Drug 

Coverage 

Section 1860D–14A(c)(1)(A)(v) of the 

Act requires that the applicable 

discount get applied before any 

coverage or financial assistance under 

other health benefit plans or programs 

that provide coverage or financial 

assistance for the purchase or provision 

of prescription drug coverage on behalf 

of applicable beneficiaries. Section 

423.2305 of the proposed rule would 

define the term ‘‘other health or 

prescription drug coverage’’ as any 

coverage or financial assistance under 

other health benefit plans or programs 

that provide coverage or financial 

assistance for the purchase or provision 

of prescription drug coverage on behalf 

of applicable beneficiaries. This would 

include any programs that provide 

coverage or financial assistance outside 

of Part D. Thus, the applicable discount 

would apply before any ‘‘other health or 

prescription drug coverage’’ such as 

state pharmaceutical assistance 

programs (SPAPs), Aids Drug Assistance 

Programs (ADAPs), Indian Health 

Service, or supplemental coverage 

required by the Commonwealth of 

Puerto Rico. 

In addition, we propose to include in 

the definition of ‘‘other health or 

prescription drug coverage’’ any 

coverage offered through employer 

group health or waiver plans (EGWPs) 

other than basic prescription drug 

coverage as defined in § 423.100. We 

would also propose to make a 

conforming change to the definition of 

supplemental benefits in § 423.100 to 

exclude benefits offered by EGWPs. Our 

proposal with respect to EGWPs would 

mean that a manufacturer discount 

always would be applied before any 

additional coverage beyond Part D, 

whether offered by the EGWP itself or 

by another party. We believe a clear 

standard in this regard is necessary to 

ensure we can properly administer the 

Discount Program for EGWP enrollees in 

light of our existing policies and 

procedures with respect to EGWP plans. 

Under current waivers authorized by 

section 1860D–22(b) of the Act, EGWP 

sponsors submit only one formulary and 

standard-defined benefit package for 

review by CMS. EGWP sponsors may 

then customize actual formularies and 

benefit packages for specific employer 

or union clients, for example, by adding 

drugs to their formularies that are not 

covered under the basic benefit and/or 

reducing enrollee cost-sharing. Until 

now, we have allowed EGWP sponsors 

to determine whether any benefits 

offered under the EGWPs were Medicare 

(Part D) or non-Medicare (non-Part D) 

benefits because we did not collect 

information about or otherwise oversee 

specific EGWP benefit packages. 

However, with the implementation of 

the Discount Program, determining 

whether such benefits are supplemental 

Part D benefits (which would be applied 

before the applicable discount) or nonMedicare benefits (which would apply 

after the discount) is significant. We 

believe that many EGWP sponsors have 

already restructured their benefits so 

that the EGWP provides only basic Part 

D coverage (with full coverage gap) and 

considers any additional benefits as 

non-Medicare benefits. Given that we do 

not receive or review the final benefit 

packages and formularies offered to 

EGWP enrollees, we propose to exercise 

our waiver authority under section 

1860D–22(b) of the Act to exclude all 

benefits offered by EGWPs from the 

definition of supplemental benefits and, 

therefore, these benefits, other than 

basic prescription drug coverage (as 

defined in § 423.100), would be 

considered ‘‘other health or prescription 

drug coverage’’ for purposes of the 

Discount Program. We seek comments 

on this proposal. 

As an alternative to this proposal, we 

considered requiring EGWP sponsors to 

submit their final benefit packages for 

review and approval. Under this option, 

we would have limited EGWPs to 

offering only supplemental benefits that 

meet the requirements of 

§ 423.104(f)(1)(ii). However, in addition 

to the significant challenges associated 

with expanding our review process to 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63025 

accommodate another 25,000 to 50,000 

benefit packages, this ultimately would 

not prevent employers or unions from 

offering separate benefits that would not 

be overseen or regulated by us; and 

therefore, would not provide the clear 

standard for distinguishing 

supplemental benefits from other health 

or prescription drug coverage for 

purposes of determining the applicable 

discount. Moreover, this alternative 

approach could adversely affect EGWP 

enrollees to the extent it would require 

EGWPs to make significant changes in 

order to bring their supplemental 

benefits in line with Part D rules— 

because it might prompt EGWPs to drop 

those supplemental benefits altogether 

or otherwise reduce coverage. 

Consequently, we believe it is better to 

clearly remove all employer sponsored 

benefits, other than basic prescription 

drug coverage as defined in § 423.100, 

from our purview, which we believe 

would leave EGWP enrollees in the 

same place they are today, while, as 

noted above, providing all participants 

in the Discount Program a bright line 

test for determining when the applicable 

discount applies. 

c. Condition for Coverage of Drugs 

Under Part D (§ 423.2310) 

Section 1860D–43(a) of the Act 

specifies that in order for coverage 

under Part D to be available for the 

covered Part D drugs (as defined in 

section 1860D–2(e) of the Act)) of a 

manufacturer, that manufacturer must 

agree to participate in the Discount 

Program, enter into a Discount Program 

Agreement, and enter into an agreement 

with the TPA. Although the statute 

appears to plainly contemplate that all 

manufacturers of covered Part D drugs 

must sign Discount Program Agreements 

in order for coverage under Part D to be 

available for such drugs, when read in 

context with the other provisions 

governing the Discount Program, we 

believe the plainest reading of section 

1860D–43(a) is both inappropriate and 

infeasible. Thus, in implementing the 

Discount Program last year, we specified 

in program guidance that the exclusion 

from Part D coverage applies only to the 

applicable drugs of a manufacturer that 

fails to sign the Agreement and 

participate in the Program. We currently 

apply the exclusion from Part D 

coverage only to a manufacturer’s 

applicable drugs. Other Part D drugs, 

such as generic drugs (as defined in 

§ 423.4) of a manufacturer continue to 

be covered under Medicare Part D 

irrespective of the manufacturer’s 

participation in the Discount Program. 

We propose to codify this policy in 

regulations. 

The rationale for our narrower 

interpretation of section 1860D–43(a) of 

the Act is based on concern about 

beneficiary access to generic drugs and 

consideration of other contemporaneous 

provisions governing the Discount 

Program. First, given that the purpose of 

the Discount Program is to reduce 

financial burdens on beneficiaries in the 

coverage gap, we do not think that the 

requirements of section 1860D–43(a) of 

the Act were intended to potentially 

limit the availability of less expensive 

generic Part D drugs (which would 

occur if the generic products of a nonparticipating manufacturer were 

excluded). Rather, they were intended 

to ensure that manufacturers of brand 

name drugs had a strong incentive to 

participate in the Discount Program. 

When we were implementing the 

Discount Program last year, we were 

particularly concerned, in light of the 

short timeframe provided by the 

Affordable Care Act for collecting 

signed agreements from participating 

manufacturers for 2011, that a strict 

reading of the exclusion would have 

had the unintended consequence of 

negatively affecting the availability of 

generic drugs under Part D beginning 

January 1, 2011. 

As noted above, we further believe 

that section 1860D–43(a) of the Act 

must be read in its proper context—in 

other words, it must coexist with all of 

the other requirements of the Discount 

Program, which are set forth in section 

1860D–14A of the Act. Section 1860–D– 

14A of the Act requires manufacturers 

to provide discounts on applicable 

drugs at the point-of-sale, to provide 

appropriate data to CMS, and to comply 

with other requirements imposed by us 

or the TPA. Further, as described in 

more detail below, manufacturers with 

an agreement are subject to periodic 

audits by CMS and civil money 

penalties. Finally, section 1860D–14A of 

the Act specifies that, beginning with 

2012, a manufacturer must enter into a 

Discount Program Agreement for a year 

no later than January 30 of the previous 

year—in other words, for a 

manufacturer to participate in the 

Discount Program for 2012, it would 

have had to have signed a Discount 

Program Agreement by January 30, 

2011. In addition to these statutory 

requirements, there are administrative 

aspects of the Discount Program that 

include, but are not limited to, 

establishing connectivity with the TPA 

and with CMS, establishing electronic 

fund transfer accounts with more than 

700 Part D sponsors, maintaining labeler 

code information with CMS, and 

reviewing file layouts and records for 

quarterly invoicing and payment 

reconciliation. 

None of these statutory or 

administrative requirements is relevant 

to manufacturers of non-applicable 

drugs. Indeed, it would be impossible 

for a manufacturer with no applicable 

drugs to ‘‘participate’’ in the Discount 

Program (as a strict reading of section 

1860D–43(a)(1) would require). Further, 

it would be wasteful and burdensome to 

require manufacturers of non-applicable 

drugs to undertake all of the 

administrative requirements set forth in 

the Discount Program Agreement with 

respect to drugs that are not subject to 

the requirements of section 1860D–14A 

of the Act. 

With that in mind, we next turn to the 

issue of manufacturers with applicable 

drugs that also have non-applicable 

drugs. In our view, the same rationale 

applies to these manufacturers— 

although they can participate in the 

Discount Program with respect to their 

applicable drugs, they cannot do so with 

respect to their non-applicable drugs. 

We believe it would be both unfair and 

potentially very disruptive to 

beneficiaries to treat manufacturers of 

non-applicable drugs differently based 

on whether they also happen to make 

applicable drugs. For example, suppose 

that a manufacturer with no applicable 

drugs declines to participate in the 

Discount Program because it is literally 

unable to comply with the statutory 

requirements of section 1860D–14A of 

the Act. This manufacturer then 

acquires or begins to manufacture an 

applicable drug on February 1. If this 

manufacturer then was subject to the 

broader exclusion in section 1860D– 

43(a) of the Act arguably all of its 

drugs—both generic and applicable— 

would be non-covered for a period of 

almost two years. We do not believe that 

Congress intended such a disruptive 

result. Rather, we believe it is more 

appropriate to consider section 1860D– 

43(a) of the Act as excluding the 

applicable drugs of a manufacturer that 

fails to participate in the Discount 

Program. 

In light of all of these considerations, 

we believe the a reasonable 

interpretation of 1860D–43(a) of the 

Act—one that preserves Congressional 

intent both to ensure manufacturer 

participation in the Discount Program 

and to alleviate financial burden for 

beneficiaries—is that the exclusion from 

Part D coverage applies only to the 

applicable drugs of manufacturers that 

fail to enter into a Discount Program 

Agreement and participate in the 

Discount Program. We seek comments 

on this proposal. 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
63026 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

Section 1860D–43(c)(1) of the Act 

authorizes CMS to allow coverage for 

drugs that are not covered by Discount 

Program Agreements if CMS has made 

a determination that the availability of 

the drug is essential to the health of 

beneficiaries under this part, and we 

propose to codify this requirement in 

§ 423.2310(b) of our proposed rule. 

However, we believe it is highly 

unlikely that we will need to exercise 

this authority given the strong 

participation by manufacturers in the 

Discount Program since 2011 and the 

likely availability of therapeutic 

alternatives for any Part D drugs. 

d. Medicare Coverage Gap Discount 

Program Agreement (§ 423.2315) 

Section 1860D–14A of the Act 

requires us to enter into agreements 

with manufacturers that participate in 

the Discount Program and to establish a 

model agreement in accordance with 

terms specified under section 1860D– 

14A(b) of the Act that provides for the 

performance of duties required under 

section 1860D–14A(c)(1) of the Act. We 

established the model agreement on 

August 1, 2010 and propose to codify in 

§ 423.2315 those provisions that we 

believe must be included in the model 

agreement in order to meet the statutory 

requirements in these sections. 

(1) Obligations of the Manufacturer 

Section 1860D–14(A)(b)(1) of the Act 

specifies that the Discount Program 

Agreement between CMS and the 

manufacturers shall require 

manufacturers to provide applicable 

beneficiaries access to applicable 

discounts for applicable drugs of the 

manufacturer at the point-of-sale. In 

light of how the Discount Program has 

been structured (see the discussion 

section II.A.1. of this proposed rule), we 

would propose to implement this 

requirement as set forth in the current 

Discount Program Agreement; that is, 

we would propose in § 423.2315(b)(2) to 

require manufacturers to reimburse all 

applicable discounts provided by Part D 

sponsors on behalf of the manufacturer 

for all applicable drugs having NDCs 

with the manufacturer’s FDA-assigned 

labeler code(s) that were invoiced to the 

manufacturer within a maximum of 3 

years of the date of dispensing based 

upon information reported to CMS by 

Part D sponsors and used by CMS or the 

TPA to calculate the invoice. 

In order for CMS and Part D sponsors 

to determine which applicable drugs are 

covered by Discount Program 

Agreements, the manufacturers must 

provide CMS with the FDA-assigned 

labeler code(s) for all applicable drug 

NDCs covered by their Discount 

Program Agreement. Under the current 

Discount Program Agreement, 

manufacturers must provide all of their 

labeler codes to CMS and must 

promptly update CMS with any 

additional labeler codes for applicable 

drugs no later than three business days 

after having received written 

notification of the codes from the FDA. 

We included this requirement in the 

Discount Program Agreement because, 

for the reasons previously described, it 

is the most efficient and accurate way to 

track which manufacturer is responsible 

for paying the applicable discount for an 

applicable drug and to assist plan 

sponsors in determining which drugs 

are applicable drugs. We maintain an 

up-to-date listing of the labeler codes 

covered under the Discount Program 

Agreements on the CMS website so that 

Part D sponsors can determine which 

labeler codes are covered by a Discount 

Program Agreement. To ensure that we 

have up-to-date information for this 

purpose, § 423.2315(b)(4) would require 

manufacturers to provide CMS with all 

labeler codes for all the manufacturer’s 

applicable drugs and promptly update 

CMS with additional labeler codes for 

applicable drugs no later than three 

business days after having received 

written notification of the codes from 

the FDA. 

To permit CMS and Part D sponsors 

to accurately identify applicable drugs, 

we propose to codify the requirement 

set forth in the Discount Program 

Agreement that manufacturers 

electronically list and maintain up-todate electronic listing of all NDCs of the 

manufacturer, including the timely 

removal of discontinued NDCs, in the 

FDA NDC Directory. We believe this 

requirement will help ensure that all 

currently marketed applicable drugs are 

subject to the applicable discount and 

that only currently marketed applicable 

drugs are subject to the discount. 

Because manufacturers know the 

regulatory and marketing status of their 

products, they are in the best position 

to make this information available to 

Part D sponsors and CMS. We believe 

maintaining an up-to-date FDA 

electronic listing provides the most 

efficient, timely, and authoritative 

mechanism to accomplish this purpose 

while placing little additional burden 

on manufacturers that already must use 

the FDA electronic registration and 

listing system to comply with other FDA 

requirements. 

We also propose to require 

manufacturers to maintain up-to-date 

NDC listings with the electronic 

database vendors for which they 

provide their NDCs for pharmacy claims 

processing. Part D sponsors rely upon 

these databases for adjudication of 

pharmacy claims at the point-of-sale, 

including discounting applicable drugs, 

and, therefore it is imperative that the 

information in these databases is 

accurate and up-to-date. Our proposal 

would require manufacturers to ensure 

that electronic database vendors are 

prospectively notified of NDCs for 

products that no longer are available on 

the market. We believe this requirement 

will benefit manufacturers because it 

will ensure that applicable discounts 

cease being applied as of the last lot 

expiration date of an applicable drug 

that is no longer on the market. 

In implementing the Discount 

Program Agreement, we required 

manufacturers to pay each Part D 

sponsor in the manner specified by us 

within 38 calendar days of receipt of an 

invoice and Medicare Part D Discount 

Information for the quarterly applicable 

discounts included on the invoice. As 

previously described, we implemented 

the Discount Program such that Part D 

sponsors pay applicable discounts on 

behalf of manufacturers in order to 

comply with the statutory mandate that 

discounts be provided at the point-ofsale; and therefore, we require 

manufacturers to reimburse plan 

sponsors promptly because it is the 

manufacturers that are financially 

responsible for payment of applicable 

discounts. Given this structure, we 

propose to codify this requirement at 

§ 423.2315(b)(3). We further propose in 

§ 423.2315(b)(10) to require that 

manufacturers pay the quarterly 

invoices to accounts established by Part 

D sponsors via electronic funds transfer, 

unless otherwise specified by CMS, and 

within 5 business days of the transfer 

provide the TPA with electronic 

documentation in a manner specified by 

CMS. We believe these requirements are 

appropriate because they provide 

sufficient time for manufacturers to 

process the information in order to 

make the payments and are generally 

consistent with manufacturer 

obligations under the Medicaid Drug 

Rebate Program. Moreover, 

§ 423.2315(b)(2) would prohibit 

manufacturers from withholding 

discount payments for their applicable 

drugs pending dispute resolution and, 

therefore, the 38-day requirement 

applies even if the manufacturer decides 

to dispute discount payments. As noted 

in our May 21, 2010 guidance, we 

believe this requirement is necessary to 

ensure that the manufacturer discounts 

are paid to Part D sponsors in a timely 

manner and are not delayed due to 

disputed amounts. We address our 

proposals with respect to 


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Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63027 

manufacturers’ disputes later in this 

section of the proposed rule. 

Section 1860D–14A(b)(2) of the Act 

requires each manufacturer with a 

Discount Program Agreement in effect to 

collect and have available appropriate 

data, as determined by CMS, to ensure 

that it can demonstrate to CMS 

compliance with the requirements 

under the Discount Program. In 

§ 423.2315 (b)(5), we would codify this 

requirement by specifying that such 

information would include data related 

to manufacturer labeler codes, FDA drug 

approvals, FDA NDC Directory listings, 

NDC expiration dates, utilization and 

pricing information relied on by the 

manufacturer to dispute quarterly 

invoices and any other data we 

determine are necessary to carry out the 

Discount Program, and that 

manufacturers must collect, have 

available and maintain such information 

for a period of not less than 10 years 

from the date of payment of the invoice. 

The minimum 10-year retention 

requirement aligns with the standard 

Part D record retention requirement for 

Part D sponsors, thereby ensuring that 

applicable information would be 

maintained by manufacturers for the 

same time period. 

Section 423.2315(b)(6) would require 

manufacturers to comply with the audit 

and the dispute resolution requirements 

proposed in § 423.2330, which are 

discussed in section II.A.1.g. of this 

proposed rule. 

Section 1860D–43(a)(3) of the Act 

requires manufacturers to enter into and 

have in effect, under terms and 

conditions specified by CMS, a contract 

with a third party that CMS contracted 

with under subsection (d)(3) of section 

1860D–14A of the Act. We propose to 

codify this requirement in 

§ 423.2315(b)(9) by requiring the 

manufacturer to enter into and have in 

effect, under terms and conditions 

specified by CMS, an agreement with 

the TPA that has a contract under 

section 1860D–14A(d)(3) of the Act. 

Finally, proposed § 423.2315(b)(11) 

would restrict the use of information 

disclosed to the manufacturer on the 

invoice, as part of the Medicare Part D 

Discount Information, or upon audit or 

dispute such that the manufacturer 

could use such information only for 

purposes of paying the discount under 

the Discount Program. This means that 

manufacturers would be allowed to use 

the information only as necessary to 

evaluate the accuracy of claimed 

discounts and resolve disputes 

concerning the manufacturer’s payment 

obligations under the Discount Program. 

We believe this is an important 

limitation because we are making claimlevel detail available to manufacturers 

that is not otherwise available to the 

public and therefore, should not be used 

for reasons beyond which it is being 

made available. As specified in the Data 

Use Provisions in Exhibit C of the 

Discount Program Agreement, the 

manufacturer would be prohibited from 

using the information to perform any 

functions not governed by the Discount 

Program Agreement, including, but not 

limited to, determination of nonCoverage Gap Discount payments to Part 

D sponsors and their subcontractors, 

payments to other providers of health 

and drug benefits under any Federal 

health care program or for marketing 

activities. Nevertheless, we recognize 

that manufacturers need to account for 

the discounts for financial statement 

forecasting and accounting purposes 

and therefore, these restrictions would 

not apply to the use of aggregated, 

summary-level data (that is, not 

prescription or claim-level data) for 

such purposes. 

(2) Length of Agreement 

Section 1860D–14A(b)(4)(A) of the 

Act states that an agreement shall be 

effective for an initial period of not less 

than 18 months and shall automatically 

be renewed for a period of not less than 

1 year unless terminated under section 

1860D–14A(b)(4)(B) of the Act. To 

ensure that the end of the initial term of 

each Discount Program Agreement 

corresponds to the end of a calendar 

year, § 423.2315(c)(3) would specify that 

all Discount Program Agreements have 

an initial period of 24 months, with 

automatic renewal for a period of one 

year each January 1 thereafter, unless 

the agreement is terminated in 

accordance with § 423.2345. 

e. Payment Processes for Part D 

Sponsors (§ 423.2320) 

(1) Interim Payments 

Section 1860D–14A(c)(1)(A)(ii) of the 

Act requires that manufacturer 

discounts be provided to applicable 

beneficiaries at the point-of-sale. To 

ensure that Part D sponsors have the 

funds available to advance the gap 

discounts at the point-of-sale, we are 

proposing to provide monthly interim 

coverage gap payments to Part D 

sponsors under § 423.2320(a). 

We propose to base these interim 

payments on a percentage of the 

coverage gap drug cost assumptions 

submitted with plan bids under 

§ 423.265 and negotiated and approved 

under § 423.272, adjusted as necessary 

to account for applicable drug costs for 

applicable beneficiaries. Recognizing 

that Part D sponsors receive payments 

from manufacturers for invoiced 

discount amounts during the quarterly 

invoice process, we seek to ensure that 

Part D sponsors do not receive duplicate 

Discount Program payments for the 

manufacturer discounts advanced to 

beneficiaries at the point-of-sale. Thus, 

we propose to offset the Part D 

payments made to the Part D sponsor for 

each Part D plan by the discount 

amounts invoiced to manufacturers for 

that Part D plan. 

EGWPs are not required to submit 

Part D bids. Thus, we do not have the 

information necessary to estimate the 

cost of manufacturer discounts for these 

Part D plans. Similar to our current 

policy for prospective low-income cost 

sharing subsidy and reinsurance 

subsidy payments, we propose not to 

provide interim payments to EGWPs. 

However, EGWPs will receive final 

reconciled coverage gap payments 

under the reconciliation process 

described in § 423.2320(b). 

Program of All-inclusive Care for the 

Elderly (PACE) plans would not receive 

interim coverage gap payments because 

their enrollees already have zero costsharing without any coverage gap. 

(2) Coverage Gap Discount 

Reconciliation 

Because the interim coverage gap 

payments are estimates, Part D sponsors 

may incur actual Discount Program 

costs that are greater or less than the 

interim coverage gap payments. We 

would perform a cost-based 

reconciliation to ensure that Part D 

sponsors are paid dollar for dollar for all 

manufacturer discount amounts as 

reported on invoiced PDE data 

submitted for Part D payment 

reconciliation. This process is termed 

‘‘Coverage Gap Discount 

Reconciliation’’ under § 423.2320(b) and 

will occur after Part D payment 

reconciliation. 

The purpose of the coverage gap 

discount reconciliation is to make Part 

D sponsors whole for the gap discount 

amounts provided to applicable 

beneficiaries at the point-of-sale. In 

general, we would calculate the 

Coverage Gap Discount Reconciliation 

amount by subtracting the interim 

coverage gap payments from all 

manufacturer discount amounts as they 

are reported on PDE records by Part D 

sponsors. If the difference is positive, 

we would pay the difference to Part D 

sponsors. If the interim coverage gap 

payments exceed the manufacturer 

discount amounts, we would recover 

the difference from Part D sponsors. 

Manufacturer discount amounts 

reported on PDE records submitted by 

the PDE submission deadline for Part D 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
63028 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

payment reconciliation are included in 

Coverage Gap Discount Reconciliation. 

We would continue to accept PDEs with 

manufacturer discount amounts for 37 

months following the end of the benefit 

year. Any manufacturer discount 

amounts reported on PDE records 

submitted after the PDE submission 

deadline for Part D payment 

reconciliation would continue to be 

invoiced to manufacturers and 

manufacturers would remit payments 

for invoiced coverage gap discount 

amounts to Part D sponsors. 

f. Provision of Applicable Discounts on 

Applicable Drugs for Applicable 

Beneficiaries (§ 423.2325) 

(1) Obligations of Part D Sponsors; 

Provision of Point-of-Sale Discounts 

Section 1860D–14A(c)(1)(A)(ii) of the 

Act requires the manufacturer discounts 

to be provided at the point-of-sale. As 

extensively discussed previously in this 

subpart, manufacturer discounts can be 

provided at point-of-sale only if the 

entity adjudicating the electronic 

pharmacy claim has the information 

necessary to determine at that point in 

time: (1) The drug is an applicable drug; 

(2) the beneficiary is an applicable 

beneficiary; (3) the claim is wholly or 

partly in the coverage gap; and (4) the 

amount of the discount, taking into 

consideration Part D supplemental 

benefits that pay first. We have 

determined that the only entity capable 

of providing the discount at point-ofsale is the Part D sponsor because no 

other entity would have all four pieces 

of information. Therefore, § 423.2325(a) 

would require Part D sponsors to 

provide applicable beneficiaries with 

applicable discounts on applicable 

drugs at point-of-sale. Part D sponsors 

would be required by § 423.2325(b)(1) to 

determine that: (1) An enrollee is an 

applicable beneficiary (as defined in 

§ 423.100); (2) a Part D drug is an 

applicable drug (as defined in 

§ 423.100); and (3) the amount of the 

applicable discount (as defined in 

§ 423.2305) in order to provide a 

discount at point-of-sale. 

Part D sponsors would use the date of 

dispensing for purposes of providing an 

applicable discount at point-of-sale and 

determining the amount of such 

discount. However, if later information 

changes the beneficiary’s eligibility for 

the applicable discount back to the date 

of dispensing (for example, retroactive 

low-income subsidy status changes, or 

retroactive changes resulting from 

automated TrOOP balance transfers 

between Part D sponsors via Financial 

Information Reporting (FIR) 

transactions), or changes the amount of 

the applicable discount or the 

applicable beneficiary’s cost sharing, we 

propose to require, in § 423.2325(b)(2), 

that Part D sponsors make retroactive 

adjustments to the applicable discount 

as necessary to reflect such changes. For 

example, if a claim for an applicable 

drug was originally adjudicated in the 

initial coverage phase but later moved 

into the coverage gap as a result of 

receipt of an automated TrOOP balance 

transfer from a previous Part D sponsor, 

the applicable discount and the 

corrected beneficiary cost-sharing 

would be reported on the adjusted PDE. 

Conversely, if an original claim was 

adjudicated in the coverage gap with an 

applicable discount but later 

reprocessed in the catastrophic phase as 

a result of an automated TrOOP balance 

transfer, the applicable discount 

reported on the adjusted PDE is the 

mechanism for refunding the 

manufacturer. 

If an applicable beneficiary has a 

claim for an applicable drug that 

straddles the coverage gap and another 

phase of the Part D benefit, section 

1860D–14A(g)(4)(C) of the Act requires 

Part D sponsors only provide the 

discount on the portion of the 

negotiated price of the applicable drug 

that falls at or above the initial coverage 

limit and below the annual out-ofpocket threshold. Because our proposed 

definition of negotiated price for 

purposes of the Discount Program 

would exclude both the dispensing fee 

and vaccine administration fee, 

§ 423.2325(b)(3) would require the 

dispensing fee and vaccine 

administration fee be included in the 

portion of the negotiated price that falls 

below the ICL or above the annual outof-pocket threshold, to the extent 

possible (that is, as much of the 

dispensing fee that can be included in 

the portion below the ICL or above the 

annual out-of-pocket threshold). If the 

portion of the negotiated price that falls 

below the ICL or above the annual outof-pocket threshold is less than the sum 

of the dispensing fee and vaccine 

administration fee, the dispensing fee 

must be included first in the portion 

that falls below the ICL or above the 

annual out-of-pocket threshold. The 

Affordable Care Act authorizes CMS to 

establish procedures to determine the 

discount at point-of-sale and is silent on 

the order in which negotiated price and 

non-negotiated price apply (as opposed 

to with supplemental and other health 

or prescription drug coverage) and thus, 

we propose this requirement in order to 

further support the statutory goal of 

alleviating the burden of the coverage 

gap on applicable beneficiaries. 

Section 423.2325(b)(4) would require 

Part D sponsors to determine whether 

any affected beneficiaries need to be 

notified by the Part D sponsor that an 

applicable drug is eligible for Part D 

coverage whenever CMS specifies a 

retroactive effective date for a labeler 

code and would require the Part D 

sponsors to notify such beneficiaries. 

This situation could occur if 

participating manufacturers fail to 

notify CMS when a new labeler code 

becomes available or otherwise fail to 

provide us with all of their labeler codes 

as required. As required in proposed 

§ 423.2315(b)(4), manufacturers 

participating in the Discount Program 

must submit to CMS all of their labeler 

codes. We make the participating labeler 

code information available to Part D 

sponsors so they can determine which 

drug products are covered by Discount 

Program Agreements. Part D sponsors 

cannot cover any applicable drugs 

marketed with labeler codes that are not 

specified by CMS as participating in the 

Discount Program. Consequently, a 

manufacturer’s failure to provide a 

labeler code to CMS could result in 

beneficiaries being denied access to 

both covered Part D drugs and 

applicable discounts. 

While we anticipate such occurrences 

will be very rare, we believe it is 

necessary that Part D sponsors 

determine whether affected 

beneficiaries need to be notified once 

CMS makes the labeler code and 

effective date information available to 

the Part D sponsor. For example, Part D 

sponsors generally would need to notify 

affected beneficiaries that had denied 

claims if their claims history reasonably 

indicates that the beneficiary either 

might still need the previously denied 

drug or paid for the drug out-of-pocket. 

If the claims history indicates that the 

beneficiary has not received an 

alternative replacement medication 

since the denied claim, it might 

reasonably be inferred that the 

beneficiary still needs (or should be 

reimbursed for) the denied drug. We 

recognize that this would place a 

burden on Part D sponsors through no 

fault of their own, but, in these rare 

instances, we believe it would help 

ensure the beneficiaries have 

appropriate access to Part D drugs and 

applicable discounts. It would also 

increase the likelihood that 

manufacturers would be held 

responsible for paying discounts that 

should have been paid previously. 

We do not believe the point-of-sale 

requirement was intended to exclude 

discount payments for claims that were 

not adjudicated by the Part D sponsor at 

point-of-sale: even though the statute 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63029 

requires provision of the discount at the 

point-of-sale, it does not state that 

applicable beneficiaries are not entitled 

to the discount if it was not provided at 

the point-of-sale. Instead, we believe 

this requirement was meant to ensure 

the discount would be available at the 

point-of-sale when and if a claim is 

electronically adjudicated. However, in 

limited circumstances beneficiaries 

submit claims for reimbursement that 

were not adjudicated at the point-ofsale, such as when they needed to 

obtain a prescription from an out-ofnetwork pharmacy. Therefore, our 

guidance and the Discount Program 

Agreement specify that Part D sponsors 

provide, and manufacturers reimburse, 

applicable discounts for applicable 

drugs submitted by applicable 

beneficiaries via paper claims, including 

out-of-network and in-network paper 

claims, if such claims are payable under 

Part D. In these situations, beneficiaries 

are still entitled to the discount and 

therefore, we propose to codify this 

requirement in § 423.2325(c). 

(2) Collection of Data 

Section 1860D–14A(c)(1)(C) of the Act 

states that we may collect appropriate 

data from Part D sponsors in a 

timeframe that allows for applicable 

discounts to be provided for applicable 

drugs. Section 423.2325(d) of the 

proposed rule would require Part D 

sponsors to provide CMS with 

appropriate data on the applicable 

discount provided by the Part D 

sponsors in a manner specified by CMS. 

In implementing the Discount Program 

we determined that using the existing 

PDE reporting process to collect the 

necessary data would be most efficient 

and least burdensome for Part D 

sponsors. Thus, we would require Part 

D sponsors to report the applicable 

discount that was provided at the pointof-sale as part of the PDE record in 

addition to the other claim-level detail 

that is reported on the PDE. We would 

also require Part D sponsors to report 

confirmation of payment from 

manufacturers during the quarterly 

invoice process. 

(3) Other Health or Prescription Drug 

Coverage 

Section 1860D–14A(c)(1)(A)(v) of the 

Act requires that applicable discounts 

for applicable drugs get applied before 

any coverage or financial assistance 

under other health benefit plans or 

programs that provide coverage or 

financial assistance for the purchase or 

provision of prescription drug coverage 

on behalf of applicable beneficiaries as 

the Secretary may specify. We propose 

to codify the requirement in 

§ 423.2325(f) by specifying that an 

applicable discount must be applied to 

beneficiary cost-sharing when Part D is 

the primary payer before any other 

health or prescription drug coverage is 

applied. Since the Part D sponsor would 

provide the discount at the same time as 

it makes primary payment on the claim, 

this coordination generally would take 

place in real time as the claim is 

adjudicated by the pharmacy in 

accordance with existing Part D 

coordination of benefit requirements. 

We specify that this requirement would 

not apply to Medicare secondary payer 

claims because the beneficiary would 

not have a Medicare Part D coverage gap 

on the initial claim to the primary 

payer. However, this requirement would 

apply to coordination of benefit claims 

in which the Part D sponsor coordinates 

benefits post point-of-sale with another 

payer who paid primary in error. 

(4) Supplemental Benefits 

Section 1860D–14A(c)(2) of the Act 

provides that if an applicable 

beneficiary has supplemental benefits 

under his or her Part D plan, the 

applicable discounts shall not be 

provided until after such supplemental 

benefits have been applied. 

Supplemental benefits offered under a 

Part D plan would have the meaning set 

forth in § 423.100 (see discussion of 

supplemental benefits under the 

proposed definition ‘‘other health or 

prescription drug coverage’’). Section 

423.2325(e)(1) would codify this 

requirement by specifying that an 

applicable discount is applied to 

beneficiary cost-sharing after 

supplemental benefits have been 

applied to the claim for an applicable 

drug, and paragraph (e)(2) would 

establish that no applicable discount is 

available if supplemental benefits 

eliminate the coverage gap so that a 

beneficiary has zero cost-sharing on a 

claim. 

If a Part D sponsor offers a plan with 

supplemental benefits on applicable 

drugs covered between the plan’s initial 

coverage limit and the Medicare Part D 

catastrophic threshold using either 

coinsurance or fixed copay, the value of 

the supplemental benefits would need 

to be calculated first on any claim for an 

applicable drug as the difference 

between the proposed supplemental 

cost-sharing and the coinsurance under 

the basic benefit. For example, if the 

supplemental benefit for an applicable 

drug had a 60 percent coinsurance, the 

value of the supplemental benefits that 

would need to be applied first (plan 

liability) would be 40 percent (100 

percent coinsurance under basic minus 

60 percent coinsurance) of the 

negotiated price of the drug. The 

applicable discount would then be 

calculated as 50 percent of the 

negotiated price (as defined in § 423. 

2305) less the supplemental benefit. 

Beneficiary cost-sharing would then be 

the remainder of the negotiated price 

after the plan liability and applicable 

discount had been applied. Thus, in the 

case of either a coinsurance or copay 

design for supplemental benefits, the 

amount the beneficiary pays at point-ofsale would generally be approximately 

50 percent of his or her expected costsharing under the plan’s benefit 

package. This amount will change over 

time as the coinsurance level for a 

beneficiary is reduced until it reaches 

25 percent in 2020. Section 

423.2325(e)(3) would require that the 

dispensing fee and the vaccine 

administration fee be included in the 

Part D sponsor liability portion of a 

claim with supplemental benefits. For 

the same reasons that we propose to 

require the dispensing fee and the 

vaccine administration fee to be applied 

to the portion of a claim for an 

applicable drug that falls below the 

initial coverage limit or above the 

annual out-of-pocket threshold, to the 

extent possible, on straddle claims, we 

believe including the dispensing fee and 

the vaccine administration fee in the 

plan liability supports the statutory goal 

of alleviating the burden of the coverage 

gap on applicable beneficiaries. 

(5) Pharmacy Prompt Payment 

Section 1860D–14A(c)(1)(A)(iv) of the 

Act requires procedures to ensure that, 

not later than the applicable number of 

calendar days after the dispensing of an 

applicable drug by a pharmacy or mail 

order service, the pharmacy or mail 

order service is reimbursed for an 

amount equal to the difference between: 

(1) The negotiated price of the 

applicable drug; and (2) the discounted 

price of the applicable drug. This 

amount would be equal to the amount 

of the applicable discount. The 

applicable number of calendar days 

with respect to claims for 

reimbursement submitted electronically 

is 14 days, and otherwise, is 30 days. 

We propose to implement this 

requirement in § 423.2325(g) by 

specifying that Part D sponsors 

reimburse a pharmacy or mail order 

service the amount of the applicable 

discount no later than the applicable 

number of calendar days after the date 

of dispensing an applicable drug. This 

requirement would apply to all network 

pharmacies, including but not limited to 

long term care pharmacies and home 

infusion pharmacies. 


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63030 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

We considered using the existing 

prompt pay requirements in § 423.520 

as the basis for implementing the 

discount payment prompt pay 

requirements because it seemed to make 

sense given that the discounts are 

included on the pharmacy claims and 

the timeframes are identical. However, 

unlike § 423.520, § 423.2325(g) does not 

exclude mail order or long term care 

pharmacies. Therefore, Part D sponsors 

that do not currently pay mail order or 

long term care pharmacies in 

accordance with the § 423.520 prompt 

pay requirements for other network 

pharmacies would need to establish 

another mechanism for reimbursing 

these pharmacies for discount payments 

in accordance with the § 423.2325(g). 

Finally, we propose to add a new 

paragraph (24) to § 423.505(b) so that 

the requirements we are proposing in 

§ 423.2325 are included in all Part D 

sponsor contracts with us. 

g. Manufacturer Discount Payment 

Audit and Dispute Resolution 

(§ 423.2330) 

(1) Third Party Administrator Audits 

Section 1860D–14A(d)(3)(D) of the 

Act permits manufacturers to conduct 

periodic audits, directly or through 

contracts, of the data and information 

used by the TPA to determine discounts 

for applicable drugs of the manufacturer 

under the Discount Program. Section 

423.2330(a) would codify the provisions 

of the Discount Program Agreement 

governing these audits by specifying the 

requirements for requesting an audit 

and the rights of manufacturers 

associated with conducting audits. 

We propose in § 423.2330(a)(1) that 

the term periodic be defined as no more 

often than annually. We believe that this 

standard would ensure that all 

manufacturers have an opportunity to 

conduct meaningful audits within 

available TPA resources. The proposed 

definition of periodic represents a 

balance between frequent audits that 

may provide the greatest level of detail 

and very infrequent audits that may be 

less costly to implement, but may not 

provide needed information in a timely 

manner. 

While we considered allowing 

quarterly audits, we do not believe that 

there will be significant quarter to 

quarter changes in data collection and 

invoice calculation procedures that 

would warrant such frequent audits. 

Given that the TPA will need to allow 

all participating manufacturers the 

opportunity to conduct audits, we 

believe that an annual audit strikes the 

right balance of providing meaningful 

and timely information to 

manufacturers that can reasonably be 

accommodated by the TPA. 

Section 1860D–14A(d)(3)(D) of the 

Act requires that our contract with the 

TPA permit audits by manufacturers of 

the data and information used by the 

TPA to determine discounts for 

manufacturer’s applicable drugs. 

Because the statute thus permits the 

manufacturer to audit data used by the 

TPA, and importantly, does not grant 

manufacturers a right to audit CMS or 

the Part D sponsors, we propose to 

specify in regulations that the audit 

right is limited to information held by 

the TPA and used to calculate 

discounts. This means that the 

manufacturer would not have the ability 

to audit CMS records or the records of 

Part D sponsors. We believe the data 

provided from the TPA provides 

manufacturers with appropriate and 

sufficient information to conduct an 

audit because it provides the claim-level 

information specified in the Discount 

Program Agreement that is used to 

calculate the discounts. We believe that 

defining the data available for audit also 

requires balancing considerations 

between efficiently administering the 

Discount Program and providing 

manufacturers with an appropriate level 

of information to validate invoices. 

Section 423.2330(a)(3) would establish, 

consistent with the Discount Program 

Agreement, that manufacturers may 

audit a statistically significant sample of 

the database used by the TPA to 

calculate gap discounts. We believe that 

a statistically significant sample 

provides a balance between allowing an 

audit to include: (1) All of the data, 

which would provide complete 

information, but would be unwieldy in 

terms of resources; and (2) a very small 

sample that would have insufficient 

information but be inexpensive to 

implement. Moreover, the use of a 

statistically valid sample meets 

generally accepted auditing standards, 

would provide sufficient data to 

manufacturers to reach statistically 

valid conclusions that could be used to 

dispute discount payments, and is an 

efficient use of audit resources. 

Proposed § 423.2330(a)(3) also 

supports our obligation to protect the 

privacy of beneficiary medical 

information. This section proposes that, 

with the exception of work papers, audit 

data may not leave the room where the 

audit is conducted, which would further 

protect beneficiary privacy. Another 

measure to protect the confidentiality of 

beneficiary medical information is 

contained in proposed § 423.2330(a)(4), 

which would specify that the auditor 

may only release an opinion of the 

results of the audit and may not release 

any other information obtained from the 

audit, including its work papers, to its 

client, employer, or any other party. We 

believe these limitations on the 

distribution of data support beneficiary 

privacy, while addressing manufacturer 

need for access to data that are relevant 

to the calculation of the gap discounts. 

These regulations all would codify 

provisions in the current Discount 

Program Agreement. 

(2) Manufacturer Audits 

Section 1860D–14A (e)(1) of the Act 

specifies that each manufacturer with a 

Discount Program Agreement in effect 

shall be subject to periodic audit by 

CMS and we propose to codify this 

requirement in § 423.2330(b). Similar to 

the limitation in § 423.2330(a)(1), we 

propose to define the term periodic in 

§ 423.2330(b)(1) as no more often than 

annually. In § 423.2330(b)(3) we 

propose that we would have the right to 

audit appropriate data of the 

manufacturer, including data related to 

a manufacturer’s FDA-assigned labeler 

codes, expiration date of NDCs, 

utilization, and pricing information 

relied on by the manufacturer to dispute 

quarterly invoices, as well as any other 

data CMS determines are necessary to 

carry out the Discount Program. 

(3) Dispute Resolution 

Section 1860D–14A(c)(1)(A)(vii) of 

the Act requires the Secretary to 

establish ‘‘a reasonable dispute 

resolution mechanism to resolve 

disagreements between manufacturers, 

applicable beneficiaries, and the third 

party with a contract * * * .’’ 

Therefore, we propose in 

§ 423.2330(c) a multi-stage dispute 

resolution process consisting of: (1) An 

initial dispute stage; (2) an appeals stage 

for manufacturers that do not accept the 

findings of the dispute process; and (3) 

a final administrator review when either 

a manufacturer or CMS disagree with 

the outcome of the initial appeals 

process. 

Before proposing this multistage 

dispute resolution process, we reviewed 

potentially analogous appeals 

mechanisms, both within the Medicare 

program and in other, similar 

government programs, such as Tricare 

and Medicaid. Within the Medicare Part 

D program we reviewed the appeals 

process for organizations seeking to 

become Part D sponsors and the appeals 

process for Medicare beneficiaries 

challenging denials of benefits. We also 

reviewed the appeals mechanism for the 

Department of Defense (DoD) Tricare 

program and Medicaid—two existing 

government programs that collect 

rebates from pharmaceutical 


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manufacturers. In each instance, we 

found a multistage dispute resolution 

program. We concluded that a multistage process results in balanced, 

equitable decisions because of the 

multiple perspectives that are available. 

Therefore, we are proposing a similar 

multistage process for the Medicare 

Coverage Gap dispute resolution 

process. 

Section 423.2330(c) would include a 

timetable for the three-stage approach to 

manage the process most efficiently and 

to support equal treatment of each 

appeal. The timetable ensures that 

manufacturers’ disputes are resolved as 

quickly as possible, while allowing both 

parties to perform the necessary 

calculations and investigations to 

evaluate the gap discount invoice. The 

proposed timeframes were established 

by estimating the time required to 

analyze the data presented, by the 

volume of claims, and by considering 

the characteristics of the Discount 

Program compared to the other similar 

programs previously noted. 

Specifically, we propose in 

§ 423.2330(c)(1) that manufacturers may 

dispute quarterly gap discount amounts 

by providing notice of the dispute to the 

TPA within 60 days of the receipt of 

information that is the subject of the 

dispute. The information is limited to 

data received from the TPA, or as a 

result of a manufacturer’s audit. 

We believe that the deadline for filing 

disputes will result in more prompt 

remuneration to manufacturers 

receiving positive decisions and more 

predictable workloads for the dispute 

infrastructure. 

Proposed § 423.2330(c)(2) also states 

that the notice of dispute be 

accompanied by supporting evidence 

that is material, specific, and related to 

the dispute. We propose this 

requirement because the manufacturer 

bears the burden of proof that the PDE 

data is incorrect. We also propose in 

§ 423.2330(c)(3) to codify the Discount 

Program Agreement provision that 

manufacturers may not withhold any 

invoiced amounts pending dispute 

resolution except for invoiced amounts 

for applicable drugs without labeler 

codes provided by the manufacturer to 

us. The proposition to generally bar the 

withholding of disputed invoice 

amounts is justified because gap 

discounts are owed by manufacturers 

but are paid by Part D sponsors to 

beneficiaries at the point-of-sale; we 

believe that the prohibition of 

withholding disputed invoices will 

minimize the risk to Part D sponsors for 

these discount-related incurred 

liabilities without significantly 

increasing the financial risk to a 

manufacturer because of the extensive 

quality assurance CMS performs on 

PDEs submitted by Part D sponsors. The 

PDE data used to calculate quarterly 

invoices are of high quality. The PDE 

data are derived from claims for each 

prescription submitted to Part D 

sponsors for payment. Part D sponsors 

validate each claim to comply with the 

False Claims Act and as part of their 

process to reimburse pharmacies for the 

cost of the drug. In addition, we 

implement multiple edits to validate the 

PDE data submitted by Part D sponsors. 

Those edits include identification and 

adjustment of outlier and other 

inappropriate entries for variables such 

as discount amount, beneficiary 

eligibility for the gap discount, incorrect 

NDCs, etc. Therefore, the burden of 

proof is on manufacturers to 

demonstrate that the data used to 

calculate the quarterly invoice are 

incorrect. 

Section 423.2330(c)(4) would allow 

manufacturers to request an additional 

adjudication by the Independent Review 

Entity (IRE), under contract with CMS, 

within 30 days of the receipt of an 

unfavorable determination from the 

TPA, or if no decision was received 

from the TPA, within 90 days of the 

receipt of the dispute submission. This 

section also proposes that the IRE be 

required to make a determination within 

ninety calendar days of receipt of the 

manufacturer request for an appeal. 

Section 423.2330(c)(6) establishes a 

final administrative step to support an 

equitable dispute resolution process. We 

are proposing that both manufacturers 

and CMS would have the right to 

request a final review of the dispute by 

the Administrator. Since we administer 

the Discount Program and 

manufacturers have financial liability 

for the discounts, both parties have an 

interest in ensuring an equitable 

resolution to the dispute. We propose 

that this request be made within 30 days 

after the manufacturer receives a 

decision from the IRE to facilitate a 

timely outcome. Finally, we propose 

that the decision of the Administrator 

would be final and binding. 

We propose to codify the policies as 

described and welcome comments on 

the dispute and appeals process. 

h. Beneficiary Dispute Resolution 

(§ 423.2335) 

Section 1860D–14A(c)(1)(A)(vii) of 

the Act requires CMS to provide a 

reasonable dispute mechanism to 

resolve disagreements between 

manufacturers, applicable beneficiaries, 

and the TPA. While § 423.2330(c) would 

address the disputes that could arise 

between the manufacturer and CMS or 

the TPA, § 423.2335 would provide the 

beneficiary dispute resolution 

requirements. Specifically, § 423.2335 

would provide that beneficiaries shall 

have access to the Part D coverage 

determination and appeals process as 

described in § 423.558 through 

§ 423.638 for disputes involving the 

availability and amount of applicable 

discounts under the Discount Program. 

As previously discussed in this 

preamble, we have determined that the 

Part D sponsor is the only entity capable 

of accurately providing applicable 

discounts at the point-of-sale because of 

its detailed knowledge of the drug, the 

beneficiary, and the claim. Part D 

sponsors would advance applicable 

discounts as part of their normal process 

for adjudicating Part D claims. Since we 

consider the discounts to be a Part D 

benefit we propose that the existing 

mechanism that Part D sponsors have in 

place to accommodate coverage 

determinations and appeals related to 

Part D sponsor decisions on the amount 

of cost-sharing for a drug be used for 

beneficiary disputes associated with the 

Discount Program (see § 423.558 

through § 423.638). 

Although section 1860D– 

14A(c)(1)(A)(vii) of the Act specifies 

disputes that could arise between 

manufacturers, applicable beneficiaries 

and the TPA, we believe that under the 

Discount Program model whereby Part 

D sponsors provide the discounts at 

point-of-sale, each Part D sponsor is the 

appropriate party to address any 

beneficiary disputes that would 

otherwise involve manufacturers or the 

TPA. We believe that the beneficiary 

would generally contact his or her plan 

with any questions about any coverage 

gap claims, including the availability or 

amount of an applicable discount. 

Currently a beneficiary who wishes to 

see how his or her claim amounts were 

calculated, including those affected by a 

manufacturer discount, would consult 

the Explanation of Benefit (EOB) form 

distributed by the Part D sponsor. For 

2011, we amended the model EOB to 

add coverage gap discounts as ‘‘other 

payments’’ that count toward a 

beneficiary’s out-of-pocket costs. 

Beneficiaries may not know at the pointof-sale whether a manufacturer discount 

has been applied to their claim, or if the 

discount has been applied correctly. 

Part D sponsors direct beneficiaries to 

their EOBs for information about claimspayment amounts. The EOB instructs 

beneficiaries to contact the Part D 

sponsor with any remaining concerns. 

Maintaining this consistent process for 

all member benefit payments would be 

the easiest for the beneficiaries to 

understand and follow, and, we believe, 


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63032 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

impose minimal additional burden on 

Part D sponsors. 

Although we could establish a 

separate mechanism for beneficiary 

disputes under the Discount Program, 

we decline to do so because we believe 

it would prove duplicative and 

inefficient for Part D sponsors, 

beneficiaries, and us. It also would be 

potentially more confusing for 

beneficiaries who would be unable to 

rely on a single process to resolve their 

benefit-related inquiries. For all of these 

reasons, we propose to designate the 

existing Part D coverage determination 

appeals process as the mechanism for 

beneficiary disputes about the Discount 

Program. 

i. Compliance Monitoring and Civil 

Money Penalties (§ 423.2340) 

Section 1860D–14A(e)(2) of the Act 

requires us to impose a civil money 

penalty (CMP) on a manufacturer that 

fails to provide applicable beneficiaries 

applicable discounts for applicable 

drugs of the manufacturer in accordance 

with the Discount Program Agreement. 

The statute sets forth the formula for 

determining the CMP amount, which 

will equal the sum of the amount that 

the manufacturer would have paid with 

respect to such discounts under the 

agreement (which will then be used to 

pay the discounts which the 

manufacturer had failed to provide) plus 

25 percent of such amount. Section 

423.2340 would implement these 

requirements and establish the 

procedures for imposing and collecting 

the CMPs in accordance with subpart T 

of this part. Accordingly, we propose to 

revise the definition of ‘‘affected party’’ 

in subpart T (as defined in § 423.1002) 

by adding the term ‘‘manufacturer’’ (as 

defined in § 423.2305) to the definition 

and clarifying that we interpret the use 

of ‘‘Part D sponsor’’ throughout subpart 

T to be synonymous with ‘‘affected 

party’’. In accordance with the Discount 

Program Agreement and proposed 

§ 423.2315(b)(3), manufacturers must 

pay each Part D sponsor within 38 

calendar days of receipt from the TPA 

of the electronic invoice and Medicare 

Part D Discount Information for the 

applicable discounts included on the 

invoice except as specified in 

§ 423.2330(c)(3). Therefore, we consider 

a manufacturer to have failed to provide 

applicable beneficiaries applicable 

discounts for applicable drugs of the 

manufacturer in accordance with the 

Discount Program Agreement if it fails 

to comply with this requirement unless 

such failure is due to technical or other 

reasons beyond the control of the 

manufacturer, such as a natural disaster. 

Consequently, we would impose a civil 

money penalty whenever a 

manufacturer fails to make full payment 

on its invoice within 38 calendar days 

of receipt of the invoice and Medicare 

Part D Discount Information for the 

applicable discount included on the 

invoice unless such failure is due to 

technical or other reasons beyond the 

control of the manufacturer. We plan to 

add this provision to the Discount 

Program Agreement. 

Section 423.2340(c) would codify the 

methodology for determining the 

amount of the CMP as equal to the 

amount of applicable discount the 

manufacturer would have paid under 

the Discount Program Agreement, which 

will then be used to pay the applicable 

discount that the manufacturer had 

failed to provide, plus 25 percent of 

such amount. This amount may be 

reduced by any amount that the 

manufacturer has paid after the 38th 

calendar day but before the date the 

CMP is collected. We interpret this to 

mean that the CMP would be calculated 

based upon the outstanding invoiced 

amount that was not paid within 38 

calendar days of receipt as required 

under the Discount Program Agreement 

and proposed § 423.2315(b)(3) 

irrespective of any partial or late 

payments. In other words, a 

manufacturer’s failure to pay the entire 

invoice amount would trigger the CMP 

and late payments would not relieve the 

manufacturer of its obligation to pay an 

additional 25 percent of the unpaid 

amount from the invoice. In order to 

ensure consistency and transparency 

with the imposition of these civil money 

penalties, unless the exception applies 

(that is, the payment is late due to 

technical or other reasons beyond the 

control of the manufacturer), we would 

impose the additional 25 percent on all 

invoiced amounts not paid within 38 

calendar days of receipt, even, for 

example, if the payment is only 1 day 

late. 

Section 423.2340(d) specifies that if 

CMS makes a determination to impose 

a CMP, we would send a written notice 

of our decision to impose a CMP that 

includes a description of the basis for 

the determination, the basis for the 

penalty, the amount of the penalty, the 

date the penalty is due, the 

manufacturer’s right to a hearing (as 

specified under § 423.1006) and 

information about where to file the 

request for hearing. To ensure a 

consistent approach to CMPs, we 

propose extending existing appeal 

procedures for CMPs in subpart T of this 

part to manufacturers appealing a CMP 

imposed under the Discount Program. 

We have utilized this appeals process 

for more than 20 years for various types 

of adverse agency determinations 

affecting an array of medical providers, 

MA organizations, and Part D sponsors. 

We therefore propose to use this well 

established process and infrastructure 

for CMP appeals from manufacturers 

that have contracted with the Discount 

Program and are delinquent in paying 

the discounts as required. To that end, 

we propose to revise the definition of 

‘‘affected party’’ in § 423.1002 to 

include manufacturers participating in 

the Discount Program. Section 

423.2340(e) would provide that we 

would initiate collection of the CMP 

following expiration of the timeframe 

for requesting an ALJ hearing, which is 

60 calendar days from the CMP 

determination, as specified in 

§ 423.1020 if the manufacturer did not 

request a hearing; and CMS would 

initiate collection of the CMP once the 

administrative decision is final if a 

manufacturer requests a hearing and our 

decision to impose the CMP is upheld. 

Section 1860D–14A(e)(2)(B) of the Act 

states that the provisions of section 

1128A of the Act (except subsections (a) 

and (b)) apply to CMPs under this 

subpart to the same extent that they 

apply to a CMP or procedure under 

section 1128A(a) of the Act. We propose 

to codify this requirement in 

§ 423.2340(f). We welcome comments 

on this proposal. 

j. Termination of Agreement 

(§ 423.2345) 

Section 1860D–14A(b)(4)(B)(i) of the 

Act provides that we may terminate a 

Discount Program Agreement for a 

knowing and willful violation of the 

requirements of the agreement or other 

good cause shown. Such termination 

shall not be effective earlier than 30 

days after the date of notice to the 

manufacturer of such termination and 

CMS shall provide, upon request, a 

hearing concerning such termination, 

and such hearing shall take place prior 

to the effective date of the termination 

with sufficient time for such effective 

date to be repealed if CMS determines 

appropriate. Section 423.2345 would 

codify these requirements consistent 

with the termination provisions in the 

Discount Program Agreement. For 

instance, § 423.2345(a)(1) would clarify 

that ‘‘good cause shown’’ must relate to 

the manufacturer’s participation in the 

Discount Program. Our proposed 

regulation would further specify that we 

must provide the manufacturer with an 

opportunity to cure any ground for 

termination within 30 calendar days of 

receipt of the written termination 

notice. In addition, we propose, 

consistent with the statutory 

requirement as reflected in the Discount 


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Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63033 

Program Agreement, that the 

manufacturer may request a hearing 

with a hearing officer concerning such 

termination if requested in writing 

within 15 calendar days of receiving 

notice of the termination, and such 

hearing must take place prior to the 

effective date of termination with 

sufficient time for such effective date to 

be repealed if we determine appropriate. 

In order to address potential timing 

issues with appeals during the 

termination process, we propose to 

clarify in § 423.2345(a)(2) that 

termination must not be effective earlier 

than 30 days after the date of notice to 

the manufacturer of such termination 

and must not be effective prior to 

resolution of timely appeal requests 

received in accordance with paragraphs 

(a)(4) and (a)(5) of this section. Proposed 

sections (a)(4) and (a)(5) state, in part, 

that CMS will provide a manufacturer 

with a hearing before the hearing officer 

about such termination if requested in 

writing within 15 calendar days of 

receiving notice of the termination. 

Further, CMS or a manufacturer that has 

received an unfavorable determination 

from the hearing officer may request 

review by the CMS Administrator 

within 30 calendar days of receipt of the 

notification of such determination. 

Therefore, a termination would not be 

effective until either the timeframes to 

pursue a hearing with the hearing 

officer or CMS Administrator have 

passed or a final decision has been 

issued by the hearing officer or CMS 

Administrator and there is no remaining 

opportunity to request further review. 

We also propose in § 423.2345(a)(5)(i) 

to specify that CMS or a manufacturer 

that has received an unfavorable 

determination from the hearing officer 

may request review by the CMS 

Administrator within thirty calendar 

days of receipt of the notification of 

such determination. The Discount 

Program Agreement currently provides 

only that a manufacturer may request 

review of an unfavorable decision by the 

CMS Administrator. However, we 

believe that a fair appeals process must 

ensure that both parties have an 

opportunity for further review of a 

decision made by an independent 

review entity. The decision of the CMS 

Administrator would be final and 

binding on either party. We request 

comments on these termination 

requirements. 

Section 1860D–14A(b)(4)(B)(ii) of the 

Act provides that a manufacturer may 

terminate the Discount Program 

Agreement for any reason. Such 

termination shall be effective as of the 

day after the end of the calendar year if 

the termination occurs before January 30 

of a calendar year or as of the day after 

the end of the succeeding calendar year 

if the termination occurs on or after 

January 30 of a calendar year. We 

propose to codify these requirements in 

§ 423.2345(b). 

Section 1860D–14A(b)(4)(B)(iii) of the 

Act states that any termination shall not 

affect discounts for applicable drugs of 

the manufacturer that are due under the 

Discount Program Agreement before the 

effective date of the termination and we 

propose to codify this requirement in 

§ 423.2345(c). However, upon the 

effective date of the Discount Program 

Agreement termination, the 

manufacturer’s drugs would no longer 

be covered under Medicare Part D. In 

addition, § 423.2345(d) would specify 

that we would cease releasing data to 

the manufacturer except as necessary to 

ensure the manufacturer reimburses 

applicable discounts for time periods in 

which the Discount Program Agreement 

was in effect and would notify the 

manufacturer to destroy data files 

provided by us under the Discount 

Program Agreement. 

Finally, § 423.2345(e) would restrict 

reinstatement of manufacturers that 

previously terminated their Discount 

Program Agreements or had them 

terminated by CMS to those 

manufacturers that pay any and all 

outstanding applicable discounts 

incurred during any previous periods 

under Discount Program Agreements. 

2. Inclusion of Benzodiazepines and 

Barbiturates as Part D Covered Drugs 

(§ 423.100) 

Section 175 of the Medicare 

Improvements for Patients and 

Providers Act of 2008 (MIPPA), 

amended section 1860D–2(e)(2)(A) of 

the Act to include barbiturates, when 

used for the medical indications of 

epilepsy, cancer, or a chronic mental 

health disorder and to include 

benzodiazepines. These amendments 

apply to prescriptions dispensed on or 

after January 1, 2013. Accordingly, we 

propose to revise the definition of Part 

D drug at § 423.100, by including 

barbiturates (when used for the 

previously noted medical indications) 

and benzodiazepines that are dispensed 

on or after January 1, 2013. Like any 

covered prescription drugs under the 

Part D benefit program, benzodiazepines 

and barbiturates must meet all other 

conditions as defined in § 423.100 of a 

Part D covered drug such as: FDA 

approved for safety and effectiveness as 

a prescription drug under section 505 of 

the Federal Food, Drug, and Cosmetic 

Act; used and sold in the United States; 

not otherwise covered by Medicare Part 

A or Part B; and used only for medically 

accepted indications. 

We remind plans that it is their 

responsibility to use the tools (that is, 

system edits, quality assurance checks) 

at their disposal to ensure barbiturates 

are covered for the conditions specified 

in statute. Also, given the vulnerability 

of these drugs to misuse and abuse, it is 

recommended that Part D sponsors use 

their Drug Utilization Report tools to 

identify and prevent waste and clinical 

abuses/misuses. 

3. Pharmacy Benefit Manager’s 

Transparency Requirements (§ 423.501 

and § 423.514) 

Under section 6005 of the Affordable 

Care Act, Part A of Title XI of the Act 

was amended by inserting after section 

1150 of the Act a new section: ‘‘SEC. 

1150A. Pharmacy Benefit Manager’s 

Transparency Requirements.’’ Section 

1150A of the Act contains several new 

reporting requirements for Part D 

sponsors under Part D of title XVIII, 

qualified health benefits plans (QHBP) 

offered through an exchange established 

by a State under section 1311 of the 

Affordable Care Act, and entities that 

provide pharmacy benefits management 

services, referred to in this section as 

pharmacy benefit managers (PBMs). The 

purpose of these new reporting 

requirements is to promote transparency 

of financial transactions involving Part 

D sponsors, QHBPs, and PBMs. Under 

section 1150A, the information is 

required to be reported to the Secretary 

by the Part D sponsor or QHBP and, in 

the case of a PBM, to the Part D sponsor 

or QHBP. In accordance with this 

authority, we propose to codify various 

reporting requirements in our regulation 

at § 423.514. In addition, we propose to 

add a definition for ‘‘bona fide service 

fees’’ to our regulations at § 423.501. 

Under the authority of section 1860D– 

15 of the Act, we collect from Part D 

sponsors cost data necessary to 

determine payments under the Part D 

program. Currently, we collect from Part 

D sponsors PDE data that provide 

detailed information on each drug 

dispensed under Part D. In addition, we 

collect direct and indirect remuneration 

(DIR) information that indicates the 

amount of remuneration received by the 

sponsor or its PBM from pharmaceutical 

manufacturers and other sources. Part D 

sponsors are required to report these 

cost data to CMS within 6 months of the 

end of the coverage year. 

We propose to amend our regulations 

to implement the provisions of section 

1150A of the Act with respect to Part D 

sponsors and the PBMs that manage 

prescription drug coverage under a 

contract with a Part D sponsor. The 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
63034 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

provisions of section 1150A of the Act 

with respect to QHBPs and their PBMs 

will be addressed in separate 

rulemaking. 

The specific information that is 

required to be collected and reported 

under Section 1150A of the Act by each 

Part D sponsor and PBM for a contract 

year is the following: 

• The percentage of all prescriptions 

that were provided through retail 

pharmacies compared to mail order 

pharmacies. 

• The percentage of prescriptions for 

which a generic drug was available and 

dispensed (generic dispensing rate), by 

pharmacy type (which includes an 

independent pharmacy, chain 

pharmacy, supermarket pharmacy, or 

mass merchandiser pharmacy that is 

licensed as a pharmacy by the State and 

that dispenses medication to the general 

public), that is paid by the Part D 

sponsor or PBM under the contract. 

• The aggregate amount and the type 

of rebates, discounts, or price 

concessions (excluding bona fide 

service fees) that the PBM negotiates 

that are attributable to patient 

utilization under the plan, the aggregate 

amount of the rebates, discounts, or 

price concessions that are passed 

through to the plan sponsor, and the 

total number of prescriptions that were 

dispensed. 

• The aggregate amount of the 

difference between the amount the Part 

D sponsor pays the PBM and the 

amount that the PBM pays retail 

pharmacies, and mail order pharmacies, 

and the total number of prescriptions 

that were dispensed. 

Under section 1150A(c) of the Act, 

information disclosed by a Part D 

sponsor or PBM is confidential and 

generally shall not be disclosed by the 

Secretary or by a plan receiving the 

information. Consistent with the statute 

as applied to Part D sponsors and PBMs 

that provide pharmacy benefits 

management services on behalf of Part 

D sponsors, we propose to add language 

listing the following exceptions, which 

allow the Secretary to disclose the 

information in a form which does not 

disclose the identity of a specific PBM, 

plan, or prices charged for drugs, for the 

following purposes: 

• As the Secretary determines 

necessary to carry out section 1150A or 

Part D of Title XVIII. 

• To permit the Comptroller General 

to review the information provided. 

• To permit the Director of the 

Congressional Budget Office to review 

the information provided. 

We believe the exception allowing 

disclosure to States to carry out section 

1311 of the Act is relevant in the context 

of QHBPs but is not relevant to the Part 

D sponsors and their PBMs. Thus, this 

exception will be addressed in separate 

rulemaking regarding the provisions of 

1150A of the Act with respect to QHBPs 

and their PBMs. 

As required by section 1150A(d) of 

the Act, the provisions of section 

1927(b)(3)(C) of the Act shall apply to a 

Part D sponsor or PBM that fails to 

provide the required information on a 

timely basis or knowingly provides false 

information ‘‘in the same manner as 

such provisions apply to a manufacturer 

with an agreement under that section.’’ 

Consistent with the statute, we are 

implementing this new reporting 

requirement by updating the regulations 

to specify reporting requirements for 

pharmacy benefits manager data. Each 

entity that provides pharmacy benefits 

management services must provide to 

the Part D sponsor, and each Part D 

sponsor must provide to CMS, the data 

elements required by this rulemaking. 

Accordingly, in § 423.514, we propose 

to add language requiring that each 

entity that provides pharmacy benefits 

management services must provide to 

the Part D sponsor, and that each 

sponsor of a Part D plan provide to 

CMS, all of the following information in 

a manner specified by CMS: 

• The total number of prescriptions 

that were dispensed. 

• The percentage of all prescriptions 

that were provided through retail 

pharmacies compared to mail order 

pharmacies. 

• The percentage of prescriptions for 

which a generic drug was available and 

dispensed (generic dispensing rate), by 

pharmacy type (which includes an 

independent pharmacy, chain 

pharmacy, supermarket pharmacy, or 

mass merchandiser pharmacy that is 

licensed as a pharmacy by the State and 

that dispenses medication to the general 

public), that is paid by the Part D 

sponsors or PBM under the contract. 

• The aggregate amount and type of 

rebates, discounts, or price concessions 

(excluding bona fide service fees) that 

the PBM negotiates that are attributable 

to patient utilization under the plan. 

• The aggregate amount of the 

rebates, discounts or price concessions 

that are passed through to the plan 

sponsor. 

• The aggregate amount of the 

difference between the amount the Part 

D sponsor pays the PBM and the 

amount that the PBM pays retail 

pharmacies, and mail order pharmacies. 

The information submitted under this 

regulation would be subject to the 

confidentiality requirements under 

section 1150A(c) of the Act, and the 

provisions of section 1927(b)(3)(C) of 

the Act are applicable to any Part D 

sponsor or PBM that fails to provide this 

information on a timely basis or that 

knowingly provides false information in 

the same manner as those provisions 

apply to a manufacturer with an 

agreement under section 1927 of the 

Act. 

We believe that we already collect 

much of the above listed information. 

For example, we can tally the total 

number of prescription dispensed from 

PDE records. Other information can be 

collected by modifying existing 

reporting mechanisms. For example, the 

aggregate amount of the difference 

between the amount the Part D sponsor 

pays the PBM and the amount the PBM 

pays pharmacies (that is, the PBM 

spread) is available from the DIR data 

reported to CMS by Part D sponsors on 

the 2010 DIR Report for Payment 

Reconciliation: Summary Report. We 

plan to add to the DIR reporting 

requirements PBM spread amounts for 

retail pharmacies and PBM spread 

amounts for mail order pharmacies in 

order to meet section 1150A of the Act 

reporting requirements. 

In the interests of administrative 

simplicity and to minimize reporting 

burden on Part D sponsors, we would 

like to further leverage existing data 

sources and reporting mechanisms. 

Thus, we solicit comment on whether 

any of the following data elements can 

be collected using existing data sources 

such as PDE records and/or added to 

existing reporting mechanisms, and 

whether any may require a separate 

reporting mechanism: 

• Number of retail prescriptions. 

• Number of mail order prescriptions. 

• Number of prescriptions dispensed 

by independent pharmacies. 

• Number of prescriptions dispensed 

by chain pharmacies. 

• Number of prescriptions dispensed 

by supermarket pharmacies. 

• Number of prescriptions dispensed 

by state-licensed mass merchandisers to 

the general public. 

We note that the provisions regarding 

DIR under the Part D program do not 

mention DIR attributable to patient 

utilization, whereas section 1150A of 

the Act references rebates, discounts, 

and price concessions that are 

attributable to patient utilization. We 

are soliciting comments regarding 

whether there are differences between 

DIR under the Part D program and DIR 

attributable to patient utilization. If 

there are any such differences, we also 

seek comments regarding whether we 

should establish additional reporting 

requirements for DIR attributable to 

patient utilization. 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63035 

Consistent with the requirement 

under section 1150A of the Act that 

plans exclude bona fide service fees 

when they report the aggregate amount 

and type of rebates, discounts or price 

concessions, we also propose to amend 

the regulations at § 423.501 to add the 

following definition for bona fide 

service fees: 

Bona fide service fees means fees paid by 

a manufacturer to an entity that represent fair 

market value for a bona fide, itemized service 

actually performed on behalf of the 

manufacturer that the manufacturer would 

otherwise perform (or contract for) in the 

absence of the service arrangement, and that 

are not passed on in whole or in part to a 

client or customer of an entity, whether or 

not the entity takes title to the drugs. Bona 

fide service fees include, but are not limited 

to, distribution service fees, inventory 

management fees, product stocking 

allowances, and fees associated with 

administrative services agreements and 

patient care programs (such as medication 

compliance programs and patient education 

programs). 

We are soliciting comment on this 

definition, which is taken without 

modification from section 1150A of the 

Act and is consistent with the 

definitions used in Medicare FFS and 

Medicaid. We intend to monitor the 

reported bona fide service fees reported 

by Part D sponsors to ensure compliance 

with program requirements. 

B. Strengthening Beneficiary Protections 

This section includes provisions 

aimed at strengthening beneficiary 

protections under Parts C and D. We are 

also considering changes under the long 

term care (LTC) conditions of 

participation. In our opinion, it is 

appropriate to provide for reinstatement 

of beneficiaries in the section 1876 cost 

plans from which they were disenrolled 

for failing to pay premiums when they 

can establish good cause for their failure 

to pay. We anticipate that this would 

result in uninterrupted plan coverage 

for eligible beneficiaries thereby 

improving access to healthcare for 

individuals such as those with chronic 

conditions requiring continual 

monitoring and medication. Similarly, 

we expect that requiring enrollees in 

MA plans to be provided with uniform 

ID cards that all providers can easily 

recognize would facilitate access to 

health care for those beneficiaries. We 

also think that calculating creditable 

coverage by excluding the value of 

additional coverage in the coverage gap 

and the manufacturer’s discount—the 

standard that qualifies retiree drug 

coverage for the retiree drug subsidy— 

would mean a beneficiary receiving 

retiree drug coverage would be less 

likely to be assessed a late enrollment 

penalty if he or she decided to enroll in 

a Part D plan. Enabling health care 

professionals to request Independent 

Review Entity (IRE) reconsiderations of 

Part D coverage determinations on 

behalf of enrollees without having to 

obtain signed authorized representative 

forms would, in our opinion, lessen the 

burden faced by providers seeking to 

assist enrollees with appeals and would 

encourage more health care 

professionals to step forward and help 

beneficiaries access this level of the 

appeals process. Lastly, the various 

arrangements that exist involving LTC 

facilities, LTC pharmacies and the LTC 

consultant pharmacists these 

pharmacies provide to LTC facilities, 

and pharmaceutical manufacturers and/ 

or distributors have raised concerns 

regarding the quality of the consultant 

pharmacist reviews and the potential 

impact on resident health and safety. 

We believe these concerns may be 

addressed by changes we are 

considering that would require LTC 

consultant pharmacists be independent 

of the LTC facility pharmacy, 

pharmaceutical manufacturers or 

distributors, or any affiliate of these 

entities. The foregoing proposals and 

the change under consideration are set 

forth in Table 2. 

TABLE 2—PROVISIONS TO STRENGTHEN BENEFICIARY PROTECTIONS

Preamble 

section Provision 

Part 417 Part 422 Part 423 Part 483 

Subpart Subpart Subpart Section Subpart Section Subpart Section 

II.B.1 ........... Good 

Cause 

and Reinstatement 

into a 

Cost Plan.

Subpart K .. § 417.460 ... N/A ............ N/A ............ N/A ............ N/A ............ N/A ............ N/A. 

II.B.2 ........... Requiring 

MA Plans 

to Issue 

Member 

ID cards.

N/A ............ N/A ............ Subpart A .. § 422.111 ... N/A ............ N/A ............ N/A ............ N/A. 

II.B.3 ........... Determination of 

Actuarially 

Equivalent Creditable 

Prescription Drug 

Coverage.

N/A ............ N/A ............ Subpart K .. § 422.56 ..... N/A ............ N/A ............ N/A ............ N/A. 

II.B.4 ........... Who May 

File Part 

D Appeals with 

the Independent 

Review 

Entity.

N/A ............ N/A ............ N/A ............ N/A ............ Subpart M .. § 423.600, 

§ 423.602.

N/A ............ N/A. 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
63036 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

TABLE 2—PROVISIONS TO STRENGTHEN BENEFICIARY PROTECTIONS—Continued 

Preamble 

section Provision 

Part 417 Part 422 Part 423 Part 483 

Subpart Subpart Subpart Section Subpart Section Subpart Section 

II.B.5 ........... Independence of 

LTC Consultant 

Pharmacists.

N/A ............ N/A ............ N/A ............ N/A ............ N/A ............ N/A ............ Subpart B .. § 483.60. 

1. Good Cause and Reinstatement Into a 

Cost Plan (§ 417.460) 

Current regulations at § 417.460(c) 

specify that an HMO or competitive 

medical plan may disenroll a member 

who fails to pay premiums or other 

charges imposed by the HMO or 

competitive medical plan for deductible 

and coinsurance amounts. The cost plan 

must demonstrate that it made 

reasonable efforts to collect the unpaid 

amount (for example, attempted to 

contact the member by phone or mail) 

and sent the enrollee written notice of 

the proposed disenrollment (including 

an explanation of the enrollee’s right to 

a hearing under the HMO’s or 

competitive medical plan’s grievance 

procedures). Cost plans also have the 

option of not disenrolling members who 

fail to pay their premiums or costsharing. Whichever policy they choose, 

it must be applied consistently to all 

members in the plan. 

In the April 2011 final rule (76 FR 

21511), we established rules that 

allowed beneficiaries disenrolled from 

MA and Part D plans for failure to pay 

premiums the ability to request 

reinstatement into the plan from which 

they were involuntarily disenrolled 

provided they could establish good 

cause and pay all arrearages. We 

established these rules at § 422.74 and 

§ 423.44 not only because they were 

consistent with the policy for 

delinquent Medicare Part B premium 

payments, but because beneficiaries 

who were disenrolled from an MA or 

Part D plan for failure to pay premiums 

generally were not eligible for a special 

enrollment period. We believed there 

may be situations where individuals 

had extenuating circumstances that 

prevented them from paying their 

premiums timely and that reinstatement 

would be appropriate. 

We received broad support for this 

regulatory change for MA and Part D 

plans, and stated at the time that we 

would consider expanding the scope of 

this provision to section 1876 cost 

enrollees in the future. Based on 

feedback we have received from 

partners, we are proposing to amend 

§ 417.460(c) regarding disenrollment for 

non-payment of premiums to allow for 

the reinstatement of enrollment for good 

cause subsequent to an involuntary 

disenrollment associated with the 

failure to pay premiums or other costsharing amounts. In order to be eligible 

for reinstatement, the beneficiary would 

have to pay all outstanding arrearages, 

including premiums that accrued during 

the period of disenrollment. We believe 

this is an important protection to 

provide beneficiaries enrolled in cost 

plans because even though members of 

cost plans do not have the same election 

period restrictions as those in MA and 

Part D plans, a reinstatement of 

enrollment would remove the 

involuntary disenrollment and result in 

continuous coverage. 

We propose that the requirements for 

reinstatement be similar to those 

established under Part C and Part D. 

That is, the reinstatement must be 

requested, good cause determined and 

payment made of all premium or cost 

sharing arrearages, including amounts 

that would have been due since the 

disenrollment, within 3 months of the 

disenrollment date. Examples of good 

cause would be similar to those 

established for individuals disenrolled 

from MA or Part D plans and may 

include, but are not limited to: (1) An 

unexpected, prolonged hospitalization; 

(2) an error by a Federal government 

employee or plan representative; or 

(3) loss of home or severe impact by fire, 

or other exceptional circumstance 

outside the beneficiary’s control. We 

also propose that good cause would not 

exist if the only basis for requesting 

reinstatement was a change in the 

individual’s circumstances subsequent 

to the involuntary disenrollment 

resulting in his or her ability to pay the 

premiums. 

We would note that an individual 

who is involuntarily disenrolled within 

the same timeframe from both his or her 

cost plan and a separate prescription 

drug plan (not affiliated with the cost 

plan) would need to seek separate good 

cause determinations for reinstatement 

into both plans. This is because the two 

plans may have different grace periods 

and arrearage amounts. 

2. Requiring MA Plans To Issue ID 

Cards (§ 422.111) 

Pursuant to section 1860D–4(a)(1) of 

the Act and § 423.120(c), and consistent 

with standards established by CMS, Part 

D sponsors must issue and re-issue as 

appropriate a card or other technology 

that enrollees can use to access 

negotiated prices for Part D covered 

drugs. While we have made 

recommendations through subregulatory guidance (http:// 

www.cms.gov/ManagedCareMarketing/) 

with respect to member identification 

(ID) cards for Medicare Advantage (MA) 

Preferred Provider Organization and 

Private Fee-for-Service products, we 

have issued no related requirements. 

Many MA organizations issue ID cards 

to their enrollees, though absent 

regulation, there is no way to ensure 

consistency of information across such 

documents. We believe it is important to 

establish requirements for the MA 

member ID card to ensure that 

information such as the plan’s customer 

service number, link to the plan’s 

website and member ID number are 

disclosed to enrollees for access to care. 

Specifically, we propose to require that 

ID cards contain the following 

information: (1) For an MA PPO or PPFS 

plan, a statement that Medicare Limiting 

Charges apply; (2) an address for the 

plan’s website; (3) a customer service 

number; and (4) the individual 

identification number for each enrollee, 

to clearly identify that he or she is a 

member of the plan. 

Implementation of these provisions 

will ensure providers have easy access 

to the necessary information for 

verifying coverage and processing 

claims. Therefore, under our authority 

at section 1852(c) of the Act to require 

that MA organizations disclose MA plan 

information upon request, as well as our 

authority under section 1856(b)(1) to 

establish standards by regulation and 

section 1857(e) of the Act to specify 

additional contractual terms and 

conditions the Secretary may find 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63037 

necessary and appropriate, we propose 

to amend § 422.111 by adding a new 

paragraph (i) to expressly require MA 

plans issue and re-issue, as necessary, a 

card that contains certain information 

and enables enrollees to access all 

covered services. Additionally, in an 

effort to protect beneficiaries from 

misuse of personal information, we will 

explicitly prohibit plan sponsors from 

disclosing social security numbers or 

health insurance claim numbers on the 

member ID cards. We will provide 

further instructions in the Medicare 

Marketing Guidelines. 

3. Determination of Actuarially 

Equivalent Creditable Prescription Drug 

Coverage (§ 423.56) 

Section 1860D–22 of the Act outlines 

the special rules for employersponsored programs. Subsection 1860D– 

22(a) of the Act establishes that the 

Secretary shall provide payment to 

sponsors of qualified retiree 

prescription drug plans that provide 

equivalent or better coverage than the 

actuarial value of standard prescription 

drug coverage. The Affordable Care Act 

amended section 1860D–22(a)(2)(A) of 

the Act by adding a provision with 

regard to the actuarial equivalence of 

retiree prescription drug coverage to the 

defined standard coverage. The new 

provision requires that when attesting to 

the actuarial equivalence of the plan’s 

prescription drug coverage to the 

defined standard coverage, qualified 

retiree prescription drug plans not take 

into account the value of any discount 

or coverage provided during the gap 

between the initial coverage limit 

during the year and the out-of-pocket 

threshold for the defined standard 

coverage under Part D. This change was 

intended to carve-out coverage provided 

during the gap when determining the 

actuarial equivalence of retiree 

prescription drug coverage for the 

purpose of qualifying for the retiree 

drug subsidy payment under section 

1860D–22(a)(2) of the Act. In addition, 

section 1860D–14A(g)(1) of the Act 

expressly excludes enrollees in RDS 

plans from the definition of ‘‘applicable 

beneficiary.’’ Thus, these Part D eligible 

individuals are not entitled to gap 

coverage or any applicable discount on 

drugs. In accordance with these 

legislative changes, we revised the 

retiree drug subsidy calculation by 

amending § 423.884(d) to remove the 

value of any discount or coverage 

provided during the coverage gap from 

the valuation of the RDS coverage. In 

other words, the calculation of the 

actuarial value of defined standard Part 

D coverage for the purposes of the RDS 

attestation excludes discounts provided 

to applicable beneficiaries in the gap by 

the discount program under 1860D–14A 

of the Act and the decreases in gap 

coinsurance for applicable beneficiaries 

under 1860D–2(b) of the Act. 

Section 1860D–13(b)(4) of the Act 

defines creditable prescription drug 

coverage to include coverage that at 

least meets the actuarial equivalence 

requirements in 1860D–13(b)(5)(A) of 

the Act. Section 1860D–13(b)(5)(A) of 

the Act further states that an 

individual’s prescription drug coverage 

meets the actuarial equivalence 

requirements only 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 to or 

exceeds the actuarial value of the 

standard prescription drug coverage (as 

determined under section 1860D–11(c) 

of the Act). The Affordable Care Act, as 

amended, establishes two types of 

standard prescription drug coverage. 

Specifically, the standard defined 

benefit now includes provisions that 

apply only for applicable beneficiaries 

(see sections 1860D–2(b)(2)(C) and (D) 

of the Act), while the rest of the 

standard defined benefit applies for 

other enrollees. Thus, we calculate two 

actuarial values for standard 

prescription drug coverage—one value 

that would apply to applicable 

beneficiaries, and another value for 

standard prescription drug coverage 

when establishing the low-income 

subsidy. As a result of these changes, we 

need to clarify which actuarial 

equivalence standard is used for the 

valuation of creditable prescription drug 

coverage when determining whether an 

individual is subject to the late 

enrollment penalty (LEP) under 1860D– 

13(b) of the Act. 

We believe the value of the defined 

standard benefit, as it applies to the 

valuation of creditable coverage, should 

be consistent with the regulation change 

for the valuation of the retiree drug 

subsidy calculation. Retiree prescription 

drug coverage is a primary source of 

creditable coverage. This being the case, 

we are proposing to align the actuarial 

value calculation we use for purposes of 

section 1860D–13(b) of the Act with the 

actuarial value calculation used to 

determine the value of the retiree drug 

subsidy. By using the same value for 

both determinations, we will be 

ensuring that the individuals who are 

enrolled in retiree drug plans that have 

met and attested to the actuarial 

equivalence value of defined standard 

prescription drug coverage as provided 

under § 423.884(5)(iii)(C) are not subject 

to the LEP under § 423.46. 

To this end, we are proposing to 

amend § 423.56(a) to exclude the value 

of gap discounts or coverage, so that it 

is consistent with the calculation of the 

actuarial value of qualified retiree 

prescription drug coverage found at 

§ 423.884(d). We also propose to revise 

the reference to ‘‘CMS actuarial 

guidelines’’ in § 423.56(a) to read ‘‘CMS 

guidelines.’’ We believe this revision 

would allow CMS additional flexibility 

to provide interpretive guidance on the 

definition of creditable coverage for 

reasons beyond those relating to 

actuarial principles. 

4. Who May File Part D Appeals With 

the Independent Review Entity 

(§ 423.600 and § 423.602) 

Section 1860D–4(h) of the Act directs 

the Secretary to establish a Part D 

appeals process that is similar to the 

appeals process used for MA appeals. 

The Parts C and D appeals procedures 

are set forth in Subpart M of Parts 422 

and 423 of our regulations, respectively. 

In our January 12, 2009 final rule (74 FR 

1494), we amended both these sets of 

regulations to strengthen enrollee access 

to the Part C and Part D appeals process. 

Specifically, we amended the MA 

appeals regulations at § 422.582 to 

permit physicians to request standard 

plan reconsiderations of pre-service 

requests on behalf of MA enrollees. 

Consistent with section 1860D–4(g) of 

the Act, we made a corresponding 

change to the Part D regulations at 

§ 423.580, allowing physicians and 

other prescribers to request standard 

redeterminations on behalf of enrollees. 

Allowing prescribers to request coverage 

determinations and plan level appeals 

on behalf of enrollees has significantly 

enhanced enrollee access to these 

processes. 

Subsequent program experience has 

taught us that these changes to the Part 

D appeal process may not go far enough 

in terms of improving access to the Part 

D appeals process, as explained in this 

section. Consequently, we are proposing 

to revise the Part D regulations at 

§ 423.600 to allow physicians and other 

prescribers to request Independent 

Review Entity (IRE) reconsiderations on 

behalf of enrollees. We are also 

proposing to make a corresponding 

change to the notice provisions at 

§ 423.602(a). 

Currently, the Part D IRE reports that 

approximately 46 percent of the cases it 

dismisses lack a valid appointment of 

representative (AOR) form, and that the 

overwhelming majority of these 

dismissed appeals (close to 90 percent) 

are initiated by prescribers. Such 

dismissals impede prescribers from 

assisting enrollees in obtaining timely 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
63038 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

independent review of their cases which 

creates the potential for delays in 

prescription drug access. Furthermore, 

given a prescribers’ ability to act on 

behalf of an enrollee in requesting Part 

D plan level appeals, prescribers 

frequently express dissatisfaction with 

not being able to also assist patients 

with IRE level appeals and the 

perceived burden associated with 

becoming the enrollee’s appointed 

representative. Clearly, this proposal 

would significantly reduce the number 

of requests for review that the Part D IRE 

dismisses due to the lack of an AOR 

form. In addition, because the IRE will 

no longer have to seek an AOR form, it 

will be able to immediately initiate 

substantive review of these cases. Thus, 

we believe this change would enhance 

beneficiary access to the appeals process 

and better ensure prompt IRE decisions 

on whether requested drugs should be 

covered under Part D. 

Under this proposal, the regulations 

would continue to require a Part D 

enrollee, or a prescriber acting on his/ 

her behalf, to request an IRE review; 

adverse redeterminations would not be 

automatically forwarded to the IRE. We 

have considered requiring autoforwarding of adverse redetermination 

requests under the Part D program, but 

we continue to believe that the statute 

supports the position that in order to 

obtain IRE review the enrollee (or 

someone acting on the enrollee’s behalf) 

must request such review. (See the 

January 28, 2005 final rule (70 FR 4193) 

for a discussion of this issue.) Although 

section 1860D–4(h) of the Act states that 

only the Part D eligible individual shall 

be entitled to bring an appeal to the IRE, 

we do not interpret this language as 

precluding a prescriber from acting on 

a Part D enrollee’s behalf in requesting 

IRE review. As required by section 

1860D–4(h) of the Act, this proposed 

change makes the MA and prescription 

drug benefit programs’ appeals 

processes more similar, by giving Part D 

prescribers a mechanism to assist 

enrollees in accessing IRE review. In the 

MA program, the regulatory requirement 

that adverse plan reconsiderations be 

auto-forwarded to the IRE essentially 

gives physicians acting on behalf of 

enrollees direct access to the IRE 

reconsideration process. Also, as 

explained in our January 2009 final rule, 

allowing prescribers to request IRE 

appeals on behalf of enrollees does not 

present a conflict of interest because 

Part D prescribers are generally not 

entitled to payment from the enrollee, 

pharmacy, or plan for the prescribed 

drug, and therefore, do not have a 

financial interest in the outcome of 

appeals in the same manner as 

physicians requesting appeals under the 

MA program. Furthermore, we believe 

that an enrollee’s prescriber has already 

been selected by the enrollee and 

occupies a position of trust. A prescriber 

is in a good position to know whether 

an independent review is warranted and 

is in the best interest of his or her 

patient. 

This proposal should reduce 

administrative burdens under the IRE 

appeal process by eliminating the need 

for prescribers to routinely obtain AOR 

forms from enrollees and permitting 

prescribers to assist their patients in the 

appeals process without taking on the 

added responsibilities attendant to 

being an appointed representative. In 

contrast to the ongoing authority of 

appointed representatives, this proposal 

would allow a prescriber to act on an 

enrollee’s behalf on an as-needed, caseby-case basis. A completed AOR form is 

not necessary or advisable for 

prescribers who are only seeking to 

assist Part D enrollees in exercising their 

own appeal rights under the statute. 

Prescribers will not have the same 

authority as an appointed 

representative, such as the right to bring 

appeals at any level, the right to obtain 

information on appeals, etc. Instead, we 

envision that from the time of the initial 

IRE appeal request, the prescriber’s role 

will remain what it has been—providing 

a supporting statement or the clinical 

information necessary to approve 

coverage, if appropriate. Accordingly, 

we believe that this proposal will 

promote enrollee access to the Part D 

appeals process, reduce the burden on 

the prescriber community, and allow a 

more efficient use of appeals resources. 

We are proposing a corresponding 

change to § 423.602(a) to specify that the 

IRE is responsible for notifying the 

prescriber of its decision when the 

prescriber makes the request on behalf 

of the enrollee. The enrollee will receive 

a written decision notice from the IRE, 

ensuring that enrollees are fully 

informed about the review process and 

able to participate if they choose to do 

so. We intend to issue additional 

manual guidance regarding the specifics 

of prescriber notice requirements. 

As in § 422.582 and § 423.580, we are 

proposing that prescribers must notify 

enrollees whenever they request IRE 

review on their behalf, and we intend to 

issue additional operational guidance 

with respect to how this requirement 

may be satisfied. Finally, we want to 

make clear that this proposal addresses 

only the right of a prescriber to file an 

appeal on behalf of an enrollee at the 

IRE level. Other individuals who wish 

to act on behalf of an enrollee in filing 

an appeal must continue to do so as the 

enrollee’s representative. 

5. Independence of LTC Consultant 

Pharmacists (§ 483.60) 

Under sections 1819(b)(4) and 

1919(b)(4) of the Act, long term care 

(LTC) facilities must provide, either 

directly or under arrangements with 

others, for the provision of 

pharmaceutical services to meet the 

needs of each resident. This 

requirement is codified in regulations at 

§ 483.60, which require LTC facilities to 

employ or obtain the services of a 

licensed pharmacist to provide 

consultation on all aspects of the 

provision of pharmacy services in the 

facility, including a drug regimen 

review at least once a month for each 

facility resident. 

In the process of performing the drug 

regimen reviews, if the consultant 

pharmacist recommends a modification 

of a resident’s drug treatment regimen, 

he/she notates the resident’s medical 

record with the recommendation to the 

prescribing physician. The prescribing 

physician must respond to the 

recommendation and, based on our 

experience, the physician generally 

follows it because the consultant 

pharmacist is considered to be an 

unbiased expert of pharmacology in the 

LTC setting. As a result of their role in 

LTC facilities, LTC consultant 

pharmacists have significant influence 

over the drugs that LTC facility 

residents receive. 

In accordance with section 1860D– 

4(b)(1) of the Act, as codified in our 

regulations at § 423.120(a)(5), Part D 

sponsors are required to provide LTC 

facility residents who are plan enrollees 

convenient access to LTC pharmacies. 

We expect that each LTC facility would 

select one, or possibly more than one, 

eligible network LTC pharmacy to 

provide Medicare drug benefits to its 

residents. We have specified minimum 

performance and service criteria in the 

Medicare Prescription Drug Benefit 

Manual, Chapter 5 (‘‘Benefits and 

Beneficiary Protections’’), section 50.5.2 

(available on the CMS Web site at: 

http://www.cms.gov/PrescriptionDrug

CovContra/Downloads/Chapter5.pdf). 

Commonly, nursing homes contract 

with a single LTC pharmacy for 

prescription drugs for facility residents. 

Very often the same LTC pharmacy then 

also contracts with the facility to 

provide consultant pharmacists for 

required consultation on all aspects of 

the provision of pharmacy services in 

the facility, including the monthly 

resident drug regimen reviews. In verbal 

conversations with industry 

representatives, we have been informed 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63039 

1FDA, Public Health Advisory: Deaths with 

Antipsychotics in Elderly Patients with Behavioral 

Disturbances, April 2005. Accessed online at http:// 

www.fda.gov/Drugs/DrugSafety/PublicHealth

Advisories/UCM053171 on May 26, 2010. 

2Chen, Y, Briesacher, BA, Field, TS Tjia, J Lau, 

DT, Gurwitz, JH. Unexplained Variation across US 

Nursing Homes in Antipsychotic Prescribing Rates. 

Archives of Internal Medicine. 2010:170(11):89–95. 

3Lau, DT, Kasper, JD, Potter, DE and Lyles, A. 

Potentially Inappropriate Medication Prescriptions 

among Elderly Nursing Home Residents: Their 

Scope and Associated Resident and Facility 

Characteristics. Health Services Research. 

2004:39(5):1257–1276. 

4CMS, Guidance for Unnecessary Drugs 

§ 483.25(l), September 2006. Accessed online at 

http://cms.gov/manuals/Downloads/som107ap_pp_

guidelines_ltcf.pdf on June 3, 2010. 

that LTC pharmacies typically provide 

the consultant pharmacists to nursing 

homes at rates that are well below the 

LTC pharmacy’s cost and below fair 

market value. 

We have been concerned with the 

potential effect on patient safety and 

quality of care of various contractual 

arrangements involving LTC facilities, 

LTC pharmacies, the LTC consultant 

pharmacists these pharmacies provide 

to LTC facilities, and pharmaceutical 

manufacturers and/or distributors. 

These arrangements may take many 

forms. The practice of LTC pharmacies’ 

providing consultant pharmacists to 

nursing homes at below cost or fair 

market value is one such type of 

arrangement. We are concerned that 

these arrangements may be used to 

entice nursing homes to enter into 

contracts with the LTC pharmacy for 

pharmacy dispensing services and the 

purchase of prescription drugs. We are 

greatly concerned with financial 

arrangements that involve payments 

from pharmaceutical manufacturers 

directly or indirectly to LTC pharmacies 

and LTC consultant pharmacists for 

encouraging physicians to prescribe the 

manufacturer’s drug(s) for residents. 

The impact of these financial incentives 

is heightened when, as permitted under 

State law or by the State Pharmacy 

Board, LTC facilities sign agreements 

with LTC pharmacies permitting the 

consultant pharmacists to make 

medication switches. These types of 

arrangements may result in incentives 

for the LTC consultant pharmacist to 

make recommendations that conflict 

with the best interests of nursing home 

residents, as well as with Part D 

sponsors’ formularies and/or drug 

utilization management (DUM) 

programs. Any such arrangements have 

the potential to directly or indirectly 

influence consultant pharmacist drug 

regimen recommendations. As a result, 

the arrangements bring into question the 

ability of the LTC consultant 

pharmacists to provide impartial 

reviews of the residents’ drug regimens, 

which in turn raises concerns regarding 

the quality of those reviews and 

potential impact on resident health and 

safety. 

Industry estimates indicate that three 

LTC pharmacy organizations have 90 

percent of the market. Based on these 

estimates, the LTC pharmacy industry is 

highly concentrated, and we believe, 

therefore, these arrangements are 

widespread. As a result, we are 

concerned that the lack of independence 

of the consultant pharmacist from the 

interests of the LTC pharmacy or other 

LTC pharmacy-related organization may 

lead to recommendations that steer 

nursing home residents to certain drugs. 

This steering could result in the 

overprescribing of medications, the 

prescribing of drugs that are 

inappropriate for LTC residents, or the 

use of unnecessary or inappropriate 

therapeutic substitutions. Such 

potential outcomes can pose serious 

jeopardy to nursing home residents’ 

health and safety. Although we have no 

evidence directly linking these 

arrangements to adverse outcomes, we 

believe a requirement under 

consideration that LTC consulting 

pharmacists be independent would be 

appropriate and prudent because it 

would ensure that financial 

arrangements did not influence the 

consultant pharmacist’s clinical 

decision making to the detriment of LTC 

residents. Our concerns are not merely 

theoretical. We are aware of claims 

brought by qui tam relators under the 

False Claims Act alleging that, for 

instance, an LTC pharmacy received 

quarterly payments styled as rebates 

from the pharmaceutical manufacturer 

to engage in an active intervention 

program to convince physicians to 

prescribe a manufacturer’s antipsychotic 

agent to the physicians’ nursing home 

patients and to authorize all competitive 

products only after the failure of the 

manufacturer’s product. In 2005, the 

Food and Drug Administration (FDA) 

issued warnings of the increasing death 

rate associated with the use of 

antipsychotic agents for behavioral 

symptoms for older persons with 

dementia. In reporting the results of 17 

clinical trials, FDA noted an 

approximately 1.6 to 1.7 fold increase in 

mortality, compared to placebo-treated 

patients, in these studies.1 Thus, any 

financial arrangements that encourage 

consultant pharmacists to prescribe 

these drugs to older LTC residents with 

dementia contrary to FDA warnings may 

detrimentally affect those residents’ 

health and safety. 

Recent research suggests the use of 

antipsychotic drugs in nursing homes 

remains high—higher, in fact, than the 

percentage of residents diagnosed with 

psychoses. Despite the serious safety 

concerns, researchers reported nearly 1 

in 3 nursing home residents in the U.S. 

received antipsychotic drugs in 2007.2

Prior research examining potentially 

inappropriate prescription drugs among 

nursing home residents found half of 

the almost 3,400 study residents were 

prescribed a potentially inappropriate 

prescription medication. Forty percent 

of these residents had medication that 

was identified as both inappropriate and 

generally to be avoided among older 

LTC residents; a third of these 

medications posed a potential for severe 

harm. The therapeutic class most 

prevalent was antipsychotic agents.3

More recently, a review by the HHS 

Office of Inspector General of Medicare 

Part D claims for atypical antipsychotics 

for elderly nursing home residents in 

the first half of 2007 found that 22 

percent of those drugs were not 

administered in accordance with CMS 

standards for unnecessary drug use in 

nursing homes. The OIG also found a 

very high incidence of atypical 

antipsychotic prescribing for elderly 

nursing home patients with dementia 

despite the presence of an FDA black 

box warning that such prescribing is 

associated with increased mortality. 

In addition to research findings, 

nursing home survey and certification 

data reported in the CMS online survey 

and certification reporting system 

indicate unnecessary drug use in 

nursing homes continues to be a 

problem. In 2006, we issued updated 

guidance for LTC survey and 

certification reviews of the use of 

potentially unnecessary medications.4

The guidance, providing specific 

information on medications that are 

problematic to the nursing home 

population, was implemented in 

December 2006. In the 7 years prior to 

the implementation, the percent of 

surveys with a citation for unnecessary 

drug use ranged from 12.6 to 14.0 

percent. Since implementation, 

however, the percent of surveys with 

these citations has increased yearly from 

18.2 percent in 2007 to 19.4 percent in 

2009. 

The research and our survey and 

certification data indicate that the use of 

unnecessary medications, particularly 

antipsychotics, is problematic in LTC 

facilities. Although our findings do not 

directly connect LTC pharmacy 

relationships with consultant 

pharmacists to these research findings 

and survey results, we believe it is 

reasonable to presume that the 


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63040 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

5HHS, Office of Inspector General, ‘‘Availability 

of Medicare Part D Drugs to Dual-Eligible Nursing 

Home Residents,’’ June 2008. Available online at 

http://oig.hhs.gov/oei/reports/oei-02-06-00190.pdf. 

Accessed on June 28, 2010. 

6HHS, Office of Inspector General, ‘‘Availability 

of Medicare Part D Drugs to Dual-Eligible Nursing 

Home Residents,’’ June 2008. Available online at 

http://oig.hhs.gov/oei/reports/oei-02-06-00190.pdf. 

Accessed on June 28, 2010. 

incentives present in the relationships 

among consultant pharmacist, LTC 

pharmacies and drug manufacturers can 

influence the prescribing practices 

reflected in these data. 

As a result, we believe requiring the 

independence of consultant pharmacists 

is necessary and appropriate and are 

considering making such a change. We 

solicit comments on our understanding 

in this matter, as well as on our changes 

under consideration discussed in this 

section. 

We note further that, although Federal 

regulations at § 483.25(l) require LTC 

facilities to avoid unnecessary drugs, 

our experience indicates that this 

responsibility generally is delegated to 

the consultant pharmacist who is, for 

the most part, provided by the facility’s 

contracted LTC pharmacy. According to 

a June 2008 report of a study by the 

HHS Office of Inspector General (OIG) 

regarding Part D drugs and LTC facility 

residents, about 80 percent of the 128 

nursing home administrators 

interviewed for the study indicated the 

consultant pharmacists performing their 

facility’s drug regimen reviews were 

employed by the nursing home’s LTC 

pharmacy.5 Further, this report states 

that 54 percent of the 79 pharmacy 

directors interviewed for the study 

reported that their pharmacy receives 

rebates from pharmaceutical 

manufacturers that are frequently based 

on market share or volume. However, 

only three of the pharmacy directors 

reported providing rebate information to 

the LTC facility. Thus, in delegating 

responsibility for avoiding use of 

unnecessary drugs to consultant 

pharmacists, nursing homes generally 

are unaware of any financial interests 

that can bias the pharmacist’s drug 

recommendations. 

Consultant pharmacists perform 

monthly drug regimen reviews for all 

LTC facility residents. During this 

review, the consultant pharmacist may 

recommend a medication change. In 

making a decision whether to accept the 

recommended change, prescribing 

physicians are likewise generally 

unaware of the LTC pharmacy rebate 

arrangements with pharmaceutical 

manufacturers that may influence the 

recommendation. In the previously 

cited report, the OIG noted that when a 

consultant pharmacist recommended a 

medication change during the drug 

regimen review, the recommendation 

was accepted by the prescribing 

physician about 74 percent of the time.6

We believe severing the relationship 

between the consultant pharmacist and 

the LTC pharmacy, pharmaceutical 

manufacturers and distributors, and any 

affiliated entities would further protect 

the safety of LTC residents because it 

will ensure that financial arrangements 

do not influence the consultant 

pharmacist’s clinical decision making to 

the detriment of LTC residents. 

Therefore, we are considering 

requiring that LTC consultant 

pharmacists be independent of any 

affiliations with the LTC facilities’ LTC 

pharmacies, pharmaceutical 

manufacturers and distributors, or any 

affiliates of these entities. For the 

reasons described in this section, we 

believe such a requirement is necessary 

to ensure that consultant pharmacist 

decisions are objective and unbiased. 

That is, LTC facilities must use a 

qualified professional pharmacist to 

conduct drug regimen reviews and make 

medication recommendations based 

solely on what is in the best interests of 

the resident. We believe this can be 

achieved only if the consultant 

pharmacist is working without the 

influence of conflicting financial 

interests that might otherwise encourage 

overprescribing and overutilization, 

which creates health and safety risks for 

residents. We note that some 

arrangements we are addressing here 

may also implicate the fraud and abuse 

laws for which the HHS OIG and the 

Department of Justice (DOJ) have 

jurisdiction. 

The changes we are considering 

would use the authority available under 

sections 1819(d)(4)(B) and 1919(d)(4)(B) 

of the Act to require that LTC consultant 

pharmacists be independent. The cited 

statutory provision gives the Secretary 

authority to establish ‘‘such other 

requirements relating to the health, 

safety, and well-being of residents 

* * *.’’ 

We are considering requiring that long 

term care facilities employ or directly or 

indirectly contract the services of a 

licensed pharmacist who is 

independent. We also are considering 

including a definition of the term 

‘‘independence’’ to mean that the 

licensed pharmacist must not be 

employed, under contract, or otherwise 

affiliated with the facility’s pharmacy, a 

pharmaceutical manufacturer or 

distributor, or any affiliate of these 

entities. Our changes would also 

prohibit nursing homes from contracting 

for the provision of consultant 

pharmacy services with entities (such as 

a subsidiary of an LTC pharmacy) that 

have been created for the purpose of 

providing reorganized consultant 

pharmacist services. 

We do not believe it necessary to 

define the terms ‘‘affiliate’’ or 

‘‘affiliated’’ as we believe the meaning 

should be broadly interpreted to cover 

all relationships that incent 

overprescribing and inappropriate 

prescribing in LTC facilities. We do not 

intend, however, for any of the changes 

under consideration to prohibit any 

relationships that would be inherently 

free of conflict of interest. Thus, we 

solicit comment on the specific 

relationships that should be permitted. 

We are aware that some Indian Tribes 

and Tribal organizations own LTC 

facilities that serve their members and 

that the Tribe may also own the 

pharmacy that serves the facility. We 

believe that the Tribal-owned LTC 

facility may employ the services of a 

pharmacist to provide consultation and 

perform drug regimen reviews who is 

also employed by the facility’s 

pharmacy without violating the 

independence requirement. In these 

instances, because the LTC facility and 

pharmacy are commonly owned by the 

Tribe, the consultant pharmacist’s 

incentives for prescribing are aligned 

with the best interests of not only the 

Tribal members who are LTC residents, 

but also the Tribe. We believe a similar 

alignment of interests would exist in 

Indian Health Services (IHS) owned 

facilities and Tribal facilities that are 

serviced by IHS pharmacies. We expect 

there are other LTC providers or systems 

in which the incentives for prescribing 

are similarly aligned to sufficiently limit 

the risk of conflicts of interest and 

ensure the best interests of the LTC 

residents are served. Therefore, we are 

thinking of including an exception for 

Tribal owned LTC facilities and 

pharmacies. We also solicit comment 

from the public on our interpretation 

that in these unique situations 

independence is not an issue because 

the risk of conflicts of interest is 

sufficiently limited. 

We anticipate that if we were to 

require that LTC facilities engage 

independent consultant pharmacists, 

this would cause consultant 

pharmacists to reorganize to achieve 

independence from the parties (facility 

pharmacies, pharmaceutical 

manufacturers and distributors, and 

affiliated entities) with which the 

consultant pharmacists are currently 

affiliated. That is, we believe the 

consultant pharmacists currently 

assigned to LTC facilities would seek to 


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retain relationships with those facilities, 

either through direct employment or by 

banding together with other consultant 

pharmacists, for instance, in 

professional corporations. We believe 

that if the changes under consideration 

were to take effect beginning January 

2013, such a time frame would provide 

sufficient time for implementation of 

the requirement. However, we recognize 

that there may be some areas where 

certain conditions or extenuating 

circumstances might argue for a longer 

implementation period. Specifically, we 

anticipate that LTC facilities in rural 

areas would face the greatest challenges 

in recruiting qualified consultant 

pharmacists, particularly if the 

consultant pharmacists currently 

serving the rural facilities do not 

reorganize in order to continue to 

provide services. Therefore, the 

requirements under consideration may 

need to be modified to assist these 

facilities. One way to assist would be to 

extend the time period for 

implementation. Thus, we are soliciting 

comment on whether to provide for a 

later effective date for rural facilities as 

opposed to other LTC facilities or to 

make other accommodations for the 

unique circumstances in which rural 

facilities operate. While we do not 

believe that any consultant pharmacist 

should have a conflict of interest, we are 

also soliciting comments on whether it 

would make sense to waive the 

independence requirement to permit 

alternative approaches. In describing 

these other approaches, comments 

should address the protections that 

would be implemented to reduce the 

risk of conflict of interest due to the lack 

of independence of the consultant 

pharmacists. 

It is our understanding that LTC 

consultant pharmacists commonly 

perform approximately 60 drug regimen 

reviews in a day. We suspect that this 

rate may be too high given our 

expectation that independent consultant 

pharmacists would conduct more 

thorough drug regimen reviews, 

monitoring for drug side effects and 

efficacy. Therefore, although we are not 

proposing in this rule to codify changes 

to the drug regimen review 

requirements, we are soliciting public 

comment on best practices related to the 

conduct of drug regimen reviews. We 

will use these comments to inform 

possible future rulemaking regarding the 

drug regimen review requirements. 

C. Excluding Poor Performers 

This section includes three proposals 

designed to strengthen our ability to 

remove poor performers. We believe we 

could protect beneficiaries through the 

proposal that would enable us to 

terminate health care prepayment plans 

(HCPPs) whose administration does not 

meet specified financial, reporting, and 

access requirements. 

A second proposal would enable us to 

look at the plan rating system, which we 

developed to provide beneficiaries with 

information about the quality and 

performance of health and drug plans to 

assist in plan selection during the open 

enrollment period. The plan ratings 

include process measures that focus on 

whether good medical care or drug care 

was provided, outcome measures that 

address the result of that care, and 

measures that relate to administrative 

processes that support and direct the 

provision of care. It is our view that the 

star rating system not only provides 

beneficiaries/consumers with easy-tounderstand information critical for 

making choices among sponsors, but 

provides a powerful tracking tool that 

enables us to continue to administer the 

Part C and D programs with the best 

interests of the beneficiaries in mind. 

We propose to give CMS the authority 

to terminate MAOs and Part D sponsors 

that have failed to provide, over a 

course of 3-years, service meriting at 

least 3-star ratings. A second proposal 

would give CMS the authority to deny 

applications submitted by MAOs and 

Part D sponsors that have performed 

poorly in the past. We anticipate that 

this proposal would directly enable us 

to protect beneficiaries from poor care. 

Both these provisions, in our opinion, 

would give entities that want to 

administer benefits to Medicare 

beneficiaries a strong incentive to pay 

attention to the star rating criteria and 

provide for better quality health care if 

they wish to stay in or join the program. 

See Table 3 for details of these 

proposals. 

TABLE 3—PROVISIONS TO EXCLUDE POOR PERFORMERS

Preamble section Provision 

Part 417 Part 422 Part 423 

Subpart Section Subpart Section Subpart Section 

II.C.1 .................. CMS Termination of 

Health Care 

Prepayment 

Plans.

Subpart U ........ § 417.801 ........ N/A .................. N/A .................. N/A .................. N/A. 

II.C.2 .................. Plan Performance Ratings 

as a Measure of Administrative and 

Management 

Arrangements and as 

a Basis for 

Termination 

or 

Non-Renewal 

of a Medicare 

Contract.

N/A .................. N/A .................. Subpart K ........ § 422.504 ........

§ 422.510 ........

Subpart K ........ § 423.505. 

§ 423.509. 


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63042 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

TABLE 3—PROVISIONS TO EXCLUDE POOR PERFORMERS—Continued 

Preamble section Provision 

Part 417 Part 422 Part 423 

Subpart Section Subpart Section Subpart Section 

II.C.3 .................. Denial of Applications Submitted by 

Part C and D 

Sponsors 

with a Past 

Contract Termination or 

CMS-Initiated 

Non-Renewal.

N/A .................. N/A .................. N/A .................. § 422.502 ........ Subpart K ........ § 423.503. 

1. CMS Termination of Health Care 

Prepayment Plans (§ 417.801) 

Section 1833(a)(10)(A) of the Act 

authorizes payment to HCPPs, but does 

not specify program requirements. 

Consequently, we have incorporated 

features of both section 1876 of the Act 

cost contract plan, and MA program 

regulations to establish benefit, 

enrollment, appeals, and other HCPP 

program features. For example, in our 

January 2005 final rule (70 FR 4588 

through 4741), we extended 

fundamental features of the MA appeals 

process to HCPPs. 

Although our current regulations at 

§ 417.801(d) permit us to terminate a 

contract with an HCPP, we propose to 

codify specific reasons for HCPP 

termination in § 417.801(d) to 

strengthen our oversight and 

enforcement capability. In addition, 

specifying additional elements through 

notice-and-comment rulemaking would 

ensure that all HCPPs are aware that 

their failure to comply with such 

requirements may lead to termination of 

their contracts with us. Section 

417.801(d) currently provides that we 

may terminate or not renew a contract 

with an HCPP if the HCPP: (1) No longer 

meets the requirements for participation 

and reimbursement as an HCPP; (2) is 

not in substantial compliance with the 

provisions of the agreement or 

applicable statutory or regulatory 

requirements; or (3) undergoes a change 

in ownership. We propose to retain the 

bases for termination but to modify 

§ 417.801(d)(ii) to include three specific 

elements of substantial non-compliance 

with the CMS contract, applicable CMS 

regulations, or applicable provision of 

the Act as a basis for CMS termination 

of an HCPP. 

First, in their agreements with us, 

HCPPs agree to provide adequate access 

to providers and to document such 

access. Accordingly, we would specify 

that failure to provide adequate access 

to providers, or documentation of such 

access, is a basis for determining that an 

HCPP is not in substantial compliance 

with applicable regulatory 

requirements. We propose to include 

this basis for termination in new 

paragraph (d)(1)(ii)(A). Second, HCPPs 

are required to provide data to us and 

to maintain financial records and 

statistics related to costs payable by 

CMS for CMS audit or review. This 

requirement is currently captured in 

§ 417.806, which cross references 

financial records requirements at 

§ 417.568, of the section 1876 cost 

contract plan regulations. We would 

specify, in new paragraph (d)(1)(ii)(B), 

that failure to provide such data and/or 

to maintain records appropriately is a 

basis for determining that an HCPP is 

not in substantial compliance. Third, 

HCPPs must report costs to us in 

addition to maintaining financial 

records and following other financial 

requirements specified at § 417.568 of 

the cost contract program regulations. 

Currently, these requirements are also 

referenced in HCPPs’ agreements with 

CMS. We propose that a new paragraph 

at (d)(1)(ii)(C) would specify that a 

failure to report costs to CMS will 

constitute a basis for determining that 

an HCPP is not in substantial 

compliance. 

2. Plan Performance Ratings as a 

Measure of Administrative and 

Management Arrangements and as a 

Basis for Termination or Non-Renewal 

of a Medicare Contract (§ 422.504, 

§ 422.510, § 423.505, and § 423.509) 

Since 2007, we have developed and 

published annual performance ratings 

for all stand-alone Medicare PDPs. In 

2008, we began issuing ratings for MA 

plans as well. The ratings are based on 

measures that address a range of health 

and drug plan performance categories, 

including access to care, 

communication with members, and 

clinical quality of care. The scores in 

each performance category are based on 

data reported by MA organizations and 

PDP sponsors, beneficiary survey 

responses, and monitoring conducted by 

CMS and its contractors. We rate MA 

organizations and Part D sponsors on a 

5-star scale, with the best performers 

receiving a rating of 5 stars. The 

organizations receive a score for each 

performance measure, a summary score 

each for Part C and Part D, as well as 

an overall rating. Under the 

methodology developed and applied by 

CMS for its star rating process, a rating 

of 3 or more stars is an indication of 

sponsors with ‘‘average’’ or better 

performance. By contrast, organizations 

receiving a summary or overall score 

below 3 stars are among the weakest 

performers in the Medicare Part C and 

D programs. 

The Medicare regulations at 

§ 422.503(b)(4) and § 423.504(b)(4) state 

that, to qualify as an MAO or Part D 

sponsor, an organization must have 

administrative and management 

arrangements satisfactory to CMS, 

including, per § 422.503(b)(4)(ii) and 

§ 423.504(b)(4)(ii), personnel and 

systems sufficient for the organization to 

implement, control, and evaluate the 

activities associated with the delivery of 

Part C and D benefits. Once under 

contract with CMS as an MAO or Part 

D sponsor, an organization remains 

obligated to maintain satisfactory 

administrative and management 

arrangements, a point we propose to 

clarify by adding paragraphs 

§ 422.504(a)(17) and § 423.505(b)(25) to 

the list of required elements in CMS’ 

contracts with MAOs and Part D 

sponsors. Also, as explained later in this 

section, we believe that the plan ratings 

are a direct indicator of the ongoing 

effectiveness of a contracting 

organization’s administrative and 

management arrangements. Therefore, 

we propose adding paragraphs 

§ 422.504(a)(18) and § 423.505(b)(26) to 

require an organization to demonstrate 

that it maintains satisfactory 

administrative and management 


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arrangements by achieving a summary 

plan rating of at least 3 stars each year. 

We also propose to establish the 

failure to achieve a 3-star summary 

rating consistently as a basis for contract 

termination. As the measures in the star 

ratings are based largely on Part C and 

D program requirements, and the plan 

ratings are a reflection of a sponsor’s 

performance across a range of program 

areas, we believe that a sponsor with a 

low Part C or Part D summary star rating 

has failed in a significant way to meet 

its obligations as an MAO or Part D 

sponsor. (As we calculate the summary 

rating score by taking an average of the 

measure-level stars, sponsors can 

receive scores on individual measures of 

less than 3 stars but still achieve a 

summary rating of at least 3 stars.) A 

sponsor that fails to achieve a good 

rating for 3 consecutive years has 

demonstrated consistently that it is 

unable or unwilling to take corrective 

action to improve its Part C or D 

performance. 

As noted previously, to qualify as an 

MAO or Part D sponsor, an organization 

must have effective administrative and 

management arrangements. Such 

arrangements involve the allocation and 

coordination of an organization’s 

resources to ensure that it can fulfill the 

entire range of its obligations related to 

the delivery of Medicare benefits. Of 

course, the importance of these 

arrangements only increases once an 

organization has entered into an MAO 

or Part D sponsor contract as the quality 

of the arrangements is tested repeatedly 

by the process of actually delivering 

Medicare benefits in a timely and 

effective manner during the term of the 

contract. Because of the critical role 

administrative and management 

arrangements play in ensuring an 

organization’s compliance with its 

Medicare obligations, we believe it is 

necessary to make clear, by adding to 

the set of required CMS contract 

elements, that organizations must 

continue to maintain effective 

administrative and management 

arrangements even after they have 

entered into Medicare contracts. 

Accordingly, we propose adding 

paragraphs § 422.504(a)(17) and 

§ 423.505(b)(25) which state that the 

maintenance of effective administrative 

and management arrangements is a 

material term of the MAO and Part D 

sponsor contracts. The summary rating 

for a plan sponsor is calculated 

according to the methodologies outlined 

in the Plan Star Ratings technical notes, 

and is based on a formula that factors in 

a sponsor’s scores on all measures 

pertaining to Part C to calculate the Part 

C summary rating and pertaining to Part 

D to calculate the Part D summary 

rating. Organizations that offer both Part 

C and Part D benefits receive an overall 

rating that combines the Part C and D 

star ratings results. To evaluate an 

organization’s administration and 

management capabilities accurately, it is 

necessary to review its performance 

across a range of operational areas. 

Because the summary Plan Rating scores 

are based on a sponsor’s performance of 

a wide range of Medicare requirements 

within each of the MA and Part D 

programs, the scores are a reliable 

measure of the quality of an 

organization’s administrative and 

management arrangements. Therefore, 

to articulate the standard by which we 

would measure compliance with that 

obligation, we propose to establish as a 

requirement that organizations must 

achieve a summary plan rating of at 

least 3 stars for each of Part C and Part 

D each year by adding paragraph 

§ 422.504(a)(18) and adding paragraph 

§ 423.505(b)(26). It would not be 

appropriate to use the overall rating for 

this purpose, as organizations that offer 

both Part C and Part D benefits must 

fully meet the requirements of each 

program independently. It is 

conceivable that if we exclusively rely 

upon the overall measure, strong 

performance within one program could 

mask poor performance in the other 

program, which would not be an 

acceptable outcome. 

The star ratings may also be used as 

a basis for contract enforcement actions. 

We have the authority under section 

1857(c)(2) of the Act to terminate CMS’ 

contract with an MAO or a Part D 

sponsor when we determine that the 

organization has failed substantially to 

carry out the contract or is carrying out 

the contract in a manner inconsistent 

with the efficient and effective 

administration of the Part C or D 

programs. A summary rating of less than 

3 stars can be achieved only when a 

sponsor demonstrates poor performance 

across a range of measures. Therefore, 

we believe that sponsors that 

consistently achieve poor plan ratings 

have demonstrated a substantial failure 

to comply with the terms of their 

Medicare contracts. Also, low-rated 

sponsors interfere with the efficient and 

effective administration of the MA and 

Part D programs as beneficiaries rely on 

us to ensure that the array of plan 

choices only includes offerings from 

sponsors that have demonstrated that 

they can provide at least good quality 

services to their members. 

Accordingly, we propose to amend 

the bases upon which CMS may 

terminate an MAO or Part D sponsor 

contract under § 422.510(a) and 

§ 423.509(a) to include a sponsor’s 

failure to achieve at least a 3-star 

summary plan performance rating for 

three consecutive contract years. We 

believe that 3 years is sufficient time for 

a sponsor, once it has received notice of 

its low star rating, to develop and 

implement corrective action and for 

improved performance to be reflected in 

the star ratings issued at the conclusion 

of the 3-year period. 

We base our determinations that good 

plan ratings are indicative of the 

strength of an organization’s 

administrative and management 

arrangements and that consistently poor 

plan ratings are a basis for contract 

termination on the fact that the elements 

of the plan ratings correlate to Part C 

and D requirements described in 

applicable statutes and regulations. 

While the exact measures may vary 

slightly from year to year, each year’s 

plan ratings are based on similar 

elements from previous years, as they 

are developed in consultation with a 

workgroup of industry stakeholders and 

based on a review of stated Part C and 

D program requirements. The most 

recent plan ratings, issued in September 

2010, provide a useful template for 

demonstrating the correlation between 

program requirements and the 

performance measured. (See 2011 Part C 

Technical Notes and 2011 Part D Plan 

Ratings Technical Notes: September 

2010.) 

The 2010 Part C plan ratings were 

organized into five domains—‘‘Staying 

Healthy: Screenings Tests, and 

Vaccines’’; ‘‘Managing Chronic (Long 

Term) Conditions’’; ‘‘Ratings of Health 

Plan Responsiveness and Care’’; ‘‘Health 

Plan Members’ Complaints and 

Appeals’’; and ‘‘Health Plan Telephone 

Customer Service.’’ The Part C 

regulations at § 422.152(a)(2) state that 

MAOs must conduct quality 

improvement projects that can be 

expected to have a favorable effect on 

health outcomes and enrollee 

satisfaction and address areas identified 

by CMS. The Staying Healthy measures 

evaluated the extent to which MAOs 

provided screenings to their members 

for conditions such as breast cancer, 

colorectal cancer, elevated cholesterol, 

glaucoma, and osteoporosis, as well as 

providing monitoring to patients with 

long term medication, and flu vaccines 

to plan members. As these measures 

have been consistently included in the 

Part C plan ratings over a period of 

several years, it is fair to say that MAOs 

have known over that same timeframe 

that we would rate them on quality 

improvement projects designed to 

address the identified conditions and 

that they should take action to improve 


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63044 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

their scores for this measure. Moreover, 

we have clearly fulfilled our obligation 

under § 422.152(a)(2) to identify areas 

that MAOs need to address for this 

purpose by annually publishing the 

methodology and results both publicly 

on the CMS Web site and in the form 

of private previews for MAOs to review 

their own results. As a result, an MAO’s 

score in the ‘‘Staying Healthy’’ domain 

is a fair measure of the extent to which 

it is complying with § 422.152(a)(2). 

The ‘‘Managing Chronic (Long Term) 

Conditions’’ domain most closely 

mirrors the requirements at 

§ 422.152(a)(1) which obligate MAOs to 

have a chronic care improvement 

program that addresses populations 

identified by us based on a review of 

current quality performance. The 

measures in this domain concern the 

management of conditions such as 

osteoporosis, diabetes, and high blood 

pressure. Again, the measures have 

remained largely constant for a number 

of years, so MAOs have had effective 

notice that we had identified 

beneficiaries with those conditions as 

the populations for which we would 

expect sponsors to implement effective 

chronic care improvement programs. 

The measures related to the ‘‘Health 

Plan Responsiveness and Access to 

Care’’ domain demonstrate an MAO’s 

compliance with its obligations under 

§ 422.112(a)(1) to maintain a provider 

network sufficient to ensure its 

enrollees’ access to covered services. 

The measures ‘‘Getting Needed Care’’ 

and ‘‘Getting Appointments and Care 

Quickly’’ are both based on the results 

of beneficiary surveys concerning their 

experiences in being able to get timely 

appointments with plan-contracted 

providers. The measure ‘‘Doctors Who 

Communicate Well’’ reflects enrollees’ 

responses to a series of questions 

concerning the quality of their 

interaction with plan-contracted 

physicians, including the amount of 

time the physicians spent with an 

enrollee and the care with which the 

physicians conducted appointments, all 

of which indicate the extent to which 

those services are provided in a manner 

consistent with professionally 

recognized standards of health care, per 

§ 422.504(a)(3)(iii). 

In the ‘‘Health Plan Member’s 

Complaints and Appeals’’ domain, we 

provide a rating of the extent to which 

an MAO affords its members their 

coverage determination appeal rights 

under the Part C program. The Part C 

regulations at Part 422, Subpart M, 

require MAOs to adhere to standards 

and timeframes for issuing timely and 

accurate determinations concerning the 

coverage of health services for their 

members as well as the processing of 

their appeals of such determinations. 

The ‘‘Makes Timely Decisions about 

Appeals’’ rating measures the extent to 

which an MAO meets the regulatory 

deadlines for issuing responses to 

member appeals while the ‘‘Reviewing 

Appeals Decisions’’ rating measures the 

frequency with which the MAO 

determinations were overturned by the 

Independent Review Entity (IRE). The 

analysis for these measures was 

conducted by Maximus, Inc., which we 

contracted as an IRE for Part C appeals. 

The remaining measures under this 

domain, ‘‘Complaints about the Health 

Plan’’ and ‘‘Corrective Action Plans’’ 

(CAPs) provide a more general view of 

an MAO’s performance from two 

different perspectives. The 

‘‘Complaints’’ measure is based on a 

calculation of the rate (that is, 

complaints per 1,000 members) at 

which we receive complaints from 

beneficiaries, providers, or others 

affected by the MAO’s operations. The 

CAP measure reflects the number and 

type of findings made by us during an 

audit of an MAO’s performance. Thus, 

these two measures provide a snapshot 

of the MAO’s compliance with range of 

requirements from the perspective of the 

members it must serve as well as CMS. 

The ratings in the last Part C domain, 

‘‘Health Plan Customer Service,’’ are the 

product of a series of measures related 

to the requirement that MAOs operate a 

customer service call center that is 

responsive to the needs of Medicare 

beneficiaries. In particular, the domain 

rating is based on the results obtained 

by a CMS contractor that conducts test 

calls to MAO customer service lines to 

assess the extent to which the call 

centers provide accurate plan 

information, in languages spoken by 

beneficiaries residing in the plan’s 

service area, and with limited hold 

times consistent with the standards 

stated in the Medicare Marketing 

Guidelines we have issued pursuant to 

§ 422.111(g). 

The four domains of the Part D Plan 

Ratings similarly correspond to the 

requirements with which Part D plan 

sponsors must comply. The Part D 

domains are ‘‘Drug Plan Customer 

Service;’’ ‘‘Drug Plan Member 

Complaints and Medicare Audit 

Findings;’’ ‘‘Member Experience with 

the Drug Plan;’’ and ‘‘Drug Pricing and 

Patient Safety.’’ The domain ‘‘Drug Plan 

Customer Service’’ includes measures 

concerning hold times, accuracy of 

information, and foreign language 

interpretation services are the Part D 

equivalents of the measures used in the 

Part C plan rating. They reflect the Part 

D sponsor’s compliance with the 

customer service call center 

requirements described in the Medicare 

Marketing Guidelines issued in 

accordance with § 423.128(d)(1). The 

measure related to hold times for 

pharmacists’ calls to the sponsor are 

evidence of the sponsor’s compliance 

with the requirement, stated at 

§ 423.128(d)(1) that the sponsor operate 

a call center to provide technical 

assistance to pharmacists concerning 

their plan operations. This domain also 

contains three measures related to plan 

performance of its obligations related to 

the issuance of coverage determinations 

and processing of members’ appeal 

requests, per Part 423, Subpart M. The 

last measure in this domain indicates 

the extent to which a sponsor is 

complying with CMS processes for 

ensuring that the data used by 

pharmacists to determine a customer’s 

Part D plan enrollment is accurate and 

up to date. The provision of this data, 

referred to as ‘‘4Rx data’’ is part of Part 

D sponsors’ obligation, stated at 

§ 423.505(b)(2), to process enrollments 

in a manner consistent with the 

requirements stated in Part 423, Subpart 

B. 

The second domain, ‘‘Drug Plan 

Member Complaints and Medicare 

Audit Findings,’’ consists largely of the 

same kind of measures related to 

beneficiary satisfaction and CMS audit 

findings as included in the Part C plan 

ratings, and the discussion provided 

above of their bearing on a 

determination of a sponsor’s compliance 

with program requirements is applicable 

to the Part D ratings as well. 

The ‘‘Member Experience with Drug 

Plan’’ domain consists of measures 

related to plan members’ experience in 

getting access to information about their 

Part D plan or getting prescriptions 

filled easily when using the plan. These 

measures provide evidence of a 

sponsor’s compliance with the 

requirement, stated at § 423.128, that it 

disseminate information about its Part D 

plans, and that it provide benefits 

through a point of claims adjudication 

system (per § 423.505(b)(17)) operated 

through a contracted pharmacy network 

that meets Part D access requirements 

(per § 423.120). 

The ‘‘Drug Pricing and Patient Safety’’ 

domain consists, in part, of measures 

related to a sponsor’s ability to maintain 

and transmit accurate information 

related to its members’ LIS eligibility 

status and the information concerning 

drug prices available at network 

pharmacies. Under this domain, CMS 

assesses, by comparing its data with that 

of Part D sponsors, the accuracy of a 

sponsor’s records concerning the LIS 

status of its members, a significant part 


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Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63045 

of their obligation under § 423.800 to 

participate in the administration of the 

low-income subsidy portion of the Part 

D benefit program. With respect to drug 

pricing, we compare sponsors’ data 

reported to us with other data sources, 

including prescription drug event data 

and data from commercially available 

drug pricing reference files. The 

remaining two measures in this domain 

assess the sponsor’s efforts to ensure 

that its members are being directed 

away from drugs with a high risk of side 

effects and that those members with 

diabetes are treating their high blood 

pressure with medication appropriate 

for their condition. Both of these 

measures are indications of a sponsor’s 

compliance with its obligation under 

§ 423.150(c) to develop and implement 

drug utilization review systems that 

identify patterns of inappropriate care 

among its enrollees. 

The thresholds we have established 

for the star ratings in each category are 

based on regulatory standards or our 

review of industry performance over 

several years. From that systematic 

review, for each regulatory standardbased measure we consider the actual 

contract scores in relation to a 

theoretical distribution of all possible 

measures with the regulatory standard 

considered a 3-star rating. (For example, 

in 2008 CMS announced to Part D 

sponsors that, after a review of industry 

performance during the first 2 years of 

the Part D program, we had established 

that sponsors would be required to 

submit 4Rx data for 99 percent of their 

enrollment transactions to be 

considered compliant with Part D 

enrollment processing requirements.) 

When an absolute performance standard 

has not yet been established, we look at 

a contract’s performance on a measure 

relative to all other contracts’ 

performance on the same measure. In 

either case we usually segment the 

range of the actual contract scores for 

each measure into one of the 5-star 

groupings. The segmentation of the 

scores into groups is based on statistical 

techniques that minimize the distance 

between scores within a grouping (or 

‘‘cluster’’) and maximize the distance 

between scores in different groupings. 

There may not be clusters in each 

grouping, therefore there could be as 

many as 5 or as few as one rating in the 

final data. In developing that 

methodology, we reserved 1- and 2-star 

ratings for performance that was 

significantly below what a review of 

industry-wide performance would show 

to be acceptable and achievable by 

competently administered sponsors. 

This establishment of compliance 

standards through the analysis of all 

Medicare contractors’ performance to 

identify outliers is consistent with our 

regulatory authority at § 422.504(m)(2) 

and § 423.505(n)(2). We have previously 

issued guidance (for example, CY 2012 

Call Letter, page 119, issued April 4, 

2011) to MAOs and Part D sponsors 

indicating that we considered 

organizations with 3 consecutive years 

of less than 3-star Plan Ratings to be out 

of compliance with Medicare program 

requirements. We stated there that 

organizations with such a Plan Rating 

history should expect that, prior to 

initiating a termination action, we 

would confirm that the data used to 

calculate the Plan Ratings did reflect an 

organization’s substantial failure to 

comply with Part C or D requirements. 

In essence, we noted that poor Plan 

Rating scores were a strong indication, 

but not conclusive evidence, of 

substantial non-compliance. In applying 

that policy, we include Plan Ratings 

issued in years prior to the issuance of 

the guidance to identify organizations 

whose performance may warrant 

contract termination. 

With the elevation of low Plan Ratings 

from the status of likely indicator to 

conclusive evidence of substantial noncompliance, we believe that the use of 

prospective Plan Ratings is more 

appropriate in our application of this 

authority. Therefore, we propose that 

we would not begin calculating the 3- 

year period until after organizations 

have received notice through the 

rulemaking process of the new basis for 

contract termination. As we plan on this 

proposal to be issued as part of a final 

rule in the spring 2012, we expect to use 

only those Plan Ratings issued after the 

publication of the final rule. That is, we 

would use the contract year 2013 Plan 

Ratings, which we expect to issue in 

September 2012, as the first set of 

ratings in the calculation of any 

sponsor’s 3 consecutive years of Plan 

Ratings. We invite public comment on 

our proposal for identifying the first set 

of Plan Ratings we would use in 

determining whether a sponsor’s 

performance during 3 consecutive years 

supported a CMS decision to terminate 

its Medicare contract. 

3. Denial of Applications Submitted by 

Part C and D Sponsors With a Past 

Contract Termination or CMS–Initiated 

Non-Renewal (§ 422.502 and § 423.503) 

In accordance with § 422.502(b) and 

§ 423.503(b) applicants with current or 

prior contracts with CMS are subject to 

our denial of their applications if they 

fail during the preceding 14-months to 

comply with the requirements of the 

Part C or D programs even if the 

applications otherwise demonstrate that 

they meet all of the Part C or D sponsor 

qualifications. In the April 2011 final 

rule (76 FR 21432), we added provisions 

at § 422.502(b)(2) and § 423.503(b)(2) 

concerning the treatment of entities 

submitting applications to us when the 

entity has operated its contract(s) with 

CMS for less than 14-months at the time 

it submits a new application or service 

area expansion request. In the interest of 

ensuring that new entrants to the Part C 

or Part D programs can fully manage 

their current contracts and books of 

business before further expanding, we 

added a provision that in the absence of 

14-months performance history, we may 

deny an application based on a lack of 

information available to determine an 

applicant’s capacity to comply with the 

requirements of the Part C or Part D 

program, respectively. 

At this time, we are proposing to 

further refine our intended approach to 

using past performance in making 

application determinations. 

Specifically, we are concerned about 

entities submitting applications to us 

when the entity has had a previous 

Medicare contract terminated or nonrenewed by CMS. We initiate 

termination or non-renewal of a contract 

only when the MA organization or Part 

D sponsor has committed extremely 

serious violations of the Part C or Part 

D program. In the past, these contract 

actions by CMS have been rare. The 

bases for a termination are specified in 

§ 422.510 and § 423.509, and include 

such serious violations as substantially 

failing to carry out the terms of its 

Medicare contract; committing fraud; 

and failing to carry out the requirements 

for beneficiary access to services by, for 

instance, not implementing required 

appeals and grievance processes or not 

establishing provider and pharmacy 

networks that meet our requirements. 

The bases for a CMS-initiated nonrenewal are specified in § 422.506(b) 

and § 423.507(b), and include the same 

list of violations, plus several others. 

Nevertheless, despite the seriousness of 

termination and CMS-initiated nonrenewal actions, and the underlying 

noncompliance that would have led to 

such a drastic step, the regulation is 

silent concerning when these 

organizations may re-enter the Part C 

and Part D programs. As such, we 

currently rely upon the past 

performance provisions in 

§ 422.502(b)(1) and § 423.503(b)(2) to 

determine whether an application from 

a previously terminated or CMS-nonrenewed organization is approvable. 

These provisions limit the period of 

time we can review for purposes of 


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63046 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

assessing past performance to 14- 

months. Fourteen months is a 

reasonable amount of time to review the 

performance of organizations with 

current and ongoing Medicare Part C 

and Part D contracts. In the case of 

organizations whose performance was 

so poor as to have their contract(s) 

terminated or non-renewed by CMS, we 

believe that a 14-month look-back is an 

inadequate amount of time. 

In contrast to the regulation’s silence 

on a ‘‘waiting period’’ for organizations 

whose contracts have been terminated 

or non-renewed by CMS, long-standing 

provisions at § 422.506(a)(4), 

§ 422.508(c), § 422.512(e), 

§ 423.507(a)(3), § 423.508(e), and 

§ 423.510(e) require that organizations 

that have voluntarily non-renewed or 

terminated their contracts must wait 2 

years before they may reenter the 

program. We believe that the interval 

between the effective date of a contract’s 

CMS-initiated termination or nonrenewal should be no less than in the 

case of a voluntary termination or nonrenewal. Indeed, a period of greater than 

2 years is appropriate, for these entities 

have broken faith with the program in 

a more significant way than in the case 

of a voluntary non-renewal. 

As such, we are proposing to modify 

the past performance review period to 

capture CMS-initiated terminations or 

non-renewals that became effective 

within the 38 months preceding the 

submission of a new application. The 

selection of 38 months accounts for a 3- 

year period, plus the 2 months of the 

year during which applications are 

being prepared for submission to CMS. 

Three years represents 1 additional year 

compared to the 2 years of waiting time 

for voluntary non-renewals. To make 

this change, we propose adding new 

paragraphs at § 422.502(b)(3) and at 

§ 423.503(b)(3) to state that if CMS has 

terminated or non-renewed an MA 

organization’s or Part D sponsor’s 

contract, effective within the 38 months 

preceding the deadline established by 

CMS for the submission of contract 

qualification applications, we may deny 

an application based on the applicant’s 

substantial failure to comply with the 

requirements of the Part C or Part D 

program even if the applicant currently 

meets all of the requirements of this 

part. 

Additionally, in the April 2011 final 

rule, we defined ‘‘covered persons’’ for 

the purpose of determining which 

organizations are prohibited from recontracting with CMS for the two years 

following a voluntary non-renewal. 

Specifically, we codified that the 2-year 

ban on new Part C or Part D sponsor 

contracts to which non-renewing 

organizations are subject under the 

regulation be expanded to include 

organizations owned or managed by an 

individual (referred to as a covered 

person) who served in a similar capacity 

for a previously non-renewed Part C or 

Part D organization. The requirement 

assists CMS in prohibiting and 

preventing each such organization from 

gaming the Medicare program by 

reapplying for a contract as a new 

organization during the 2-year ban, 

when the applying organization has 

common ownership and management 

control. In essence, this requirement 

helps ensure that the provisions of the 

2-year application prohibition are given 

full effect. 

For consistency and to prevent the 

same sort of gaming by organizations 

whose contracts have been terminated 

or non-renewed by CMS, we propose to 

add new paragraphs at § 422.502(b)(4) 

and at § 423.503(b)(4) to replicate the 

existing language concerning covered 

persons as currently exists for 

voluntarily-non-renewing organizations. 

Specifically, the newly proposed 

language states that in implementing the 

38-month provision, we may deny an 

application where the applicant’s 

covered persons also served as covered 

persons for the terminated or nonrenewed contract. As with the voluntary 

non-renewal provisions, in this instance 

‘‘covered person’’ would mean one of 

the following: (1) All owners of 

terminated organizations who are 

natural persons, other than shareholders 

who have an ownership interest of less 

than 5 percent; (2) an owner in whole 

or part interest in any mortgage, deed of 

trust, note or other obligation secured 

(in whole or in part) by the organization, 

or any of the property or assets thereof, 

which whole or part interest is equal to 

or exceeds 5 percent of the total 

property and assets of the organization; 

(3) a member of the board of directors 

or board of trustees of the entity, if the 

organization is organized as a 

corporation. 

The combined effect of these 

proposals is to ensure appropriate 

requirements exist concerning program 

re-entry subsequent to all types of 

terminations and non-renewals, and to 

strengthen the past performance review 

to capture the most serious types of noncompliance (resulting in CMS-initiated 

terminations and non-renewals) for a 

more reasonable period of time. 

D. Improving Program Efficiencies 

By reducing regulatory burdens for 

MA Organizations, Part D sponsors, and 

cost contractors, lowering transaction 

costs, and reducing waste and 

unnecessary spending, we believe we 

can improve program efficiency and 

keep costs down and improve the 

quality of care received by Medicare 

beneficiaries. Non-renewing cost 

contractors would save money if we 

eliminated the current regulatory 

requirement to purchase print 

advertising announcing their nonrenewals. Implementing the hospitalacquired conditions (HACs) and present 

on admission indicator policy that is 

currently required under the Original 

Medicare Inpatient Hospital Prospective 

Payment system (IPPS) for MA plans 

would continue our efforts to enhance 

quality and efficiency of care, and 

promote incentives for hospitals to 

eliminate medical errors and reduce 

Medicare expenditures for poor quality 

or unnecessary care. MAOs and Part D 

sponsors that are no longer tied to 

particular agent/broker compensation 

amounts would save transaction and 

other costs if rules regarding agent/ 

broker compensation were made more 

flexible. Cost-sharing tailored to a trial 

fill of a prescription drug would not 

only save money for each beneficiary 

who found that the drug did not work 

for him or her, but would also lessen the 

problems of disposal or diversion of 

unused drugs. 

These proposals and others are 

outlined in Table 4. 


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TABLE 4—PROVISIONS TO IMPROVE PROGRAM EFFICIENCIES

Preamble section Provision 

Part 417 Part 422 Part 423 

Subpart Section Subpart Section Subpart Section 

II.D.1 ...................... Cost Contract 

Plan Public Notification Requirements in 

Cases of NonRenewal.

Subpart L ....... § 417.492 ....... N/A ................. N/A ................. N/A ................. N/A 

II.D.2 ...................... New Benefit Flexibility for FullyIntegrated Dual 

Eligible Special 

Needs Plans 

(FIDE SNPs).

N/A ................. N/A ................. Subpart C ...... § 422.102 ....... N/A ................. N/A 

II.D.3 ...................... Application of the 

Medicare Hospital-Acquired 

Conditions and 

Present on Admission Indicator Policy to 

MA Organizations.

N/A ................. N/A ................. Subpart C ...... § 422.504 ....... N/A ................. N/A 

II.D.4 ...................... Clarifying Coverage of Durable Medical 

Equipment.

N/A ................. N/A ................. Subpart C ...... § 422.100, 

§ 422.111.

N/A ................. N/A 

II.D.5 ...................... Broker and Agent 

Requirements.

N/A ................. N/A ................. Subpart V ...... § 422.2274 ..... Subpart V ...... § 423.2274 

II.D.6 ...................... Establishment and 

Application of 

Daily Cost-Sharing Rate as Part 

of Drug Utilization Management and 

Fraud, Abuse 

and Waste Control Program.

N/A ................. N/A ................. N/A ................. N/A ................. Subpart D ...... § 423.104, 

§ 423.153 

1. Cost Contract Plan Public Notification 

Requirements in Cases of Non-Renewal 

(§ 417.492) 

Section 1876 of the Act provided the 

Secretary with the authority to enter 

into contracts with HMOs on a cost 

basis. While section 1876(k)(1)(A) of the 

Act precludes the Secretary from 

entering into new cost contracts after 

the establishment of Part C, existing 

contracts are grandfathered, and subject 

to regulations, including § 417.492, 

which sets forth rules that apply to nonrenewal of a cost contract. 

In the event that such a contract is 

non-renewed, the cost plan or CMS 

must notify both the enrollees of the 

organization and the general public of 

the non-renewal. As specified in 

§ 417.492(a)(1)(iii), public notification 

must include ‘‘notice in one or more 

newspapers of general circulation in 

each community or county located in 

the HMO’s or CMP’s geographic area.’’ 

We propose removing the current 

requirements at § 417.492(a)(1)(iii) and 

(b)(1)(iii) for non-renewing costcontracting plans (in voluntary nonrenewal situations) and for CMS (in 

CMS-initiated non-renewal situations) 

to notify the general public concerning 

the impending non-renewal. Our 

proposed removal of this requirement is 

motivated by the cost of newspaper 

advertisements and the declining rate of 

newspaper circulation. In addition, we 

believe that the requirement that cost 

plans provide personalized non-renewal 

information is sufficient to ensure 

adequate non-renewal notice. 

2. New Benefit Flexibility for FullyIntegrated Dual Eligible Special Needs 

Plans (FIDE SNPs) (§ 422.102) 

Congress established dual eligible 

SNPs (D–SNPs) under the Medicare 

Modernization Act of 2003 (MMA) with 

the intention of better integrating care 

for individuals eligible for both 

Medicare and Medicaid (‘‘dual eligible’’ 

beneficiaries). The Affordable Care Act 

created a subset of D–SNPs, fullyintegrated dual eligible SNPs (FIDE 

SNPs), which CMS further defined in 

our April 2011 final rule (76 FR 21443 

and 76 FR 21444) at § 422.2 as D–SNPs 

that: (1) Provide dual eligible 

beneficiaries access to Medicare and 

Medicaid benefits under a single 

managed care organization; (2) 

coordinate delivery of covered Medicare 

and Medicaid health and long-term care 

services; (3) possess a valid capitated 

contract with the State for specified 

primary, acute, and long-term care 

benefits consistent with State policy; 

and (4) comply with CMS and State 

policy regarding marketing, appeals, 

quality assurance, and enrollment 

communication procedures. 

Section 2602(c) of the Affordable Care 

Act also charged us with making 

Medicare and Medicaid work together 

more effectively to improve patient care 

and lower costs. Thus, we are 

implementing initiatives aimed at 

improving quality and access to care for 

dual eligible beneficiaries, simplifying 

processes, and eliminating regulatory 

conflicts and cost-shifting that occurs 

between the Medicare and Medicaid 


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63048 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

programs, States, and the Federal 

government. (For more information on 

this initiative, see our CY 2012 Call 

Letter, at http://www.cms.gov/ 

MedicareAdvtgSpecRateStats/ 

Downloads/Announcement2012.pdf.) 

To further these goals, we propose to 

give certain SNPs additional flexibility 

with respect to plan design, as 

discussed in detail later in this section. 

Under this proposed rule, FIDE SNPs 

that are currently operational, that have 

operated in the previous contract year, 

and that meet certain CMS criteria 

including, but not limited to, being of 

high-quality (as defined by CMS in the 

calendar year 2013 draft/final call 

letter), would be afforded this benefit 

flexibility. 

Section 1852(a)(3) of the Act and our 

regulations at § 422.2, § 422.100(c)(1), 

and § 422.102 allow us considerable 

discretion in deciding what benefits 

beyond those covered under Medicare 

Parts A, B, or D can be offered to MA 

enrollees as a ‘‘supplemental benefit’’ 

that is included in an MA plan for every 

enrollee who joins the plan (other 

benefits may be offered at the enrollee’s 

option). We are interested in assessing 

whether certain supplemental benefits 

could help prevent health status decline 

in the dual eligible population, and 

reduce the quantity and cost of future 

health care needs. To this end, and as 

described in this section, we propose 

amending our regulations at § 422.102(e) 

to allow certain FIDE SNPs that CMS 

deems eligible the flexibility to offer 

supplemental benefits beyond those that 

we currently allow for MA plans. 

We currently apply the same guidance 

as to what can be offered as a 

supplemental benefit to all MA plans, 

regardless of plan type. In recent years, 

we have used guidance (see § 30.1 of 

Chapter 4 of the Medicare Managed Care 

Manual, ‘‘Benefits and Beneficiary 

Protections,’’ http://www.cms.gov/ 

manuals/downloads/mc86c04.pdf) to 

clarify that supplemental benefits must 

be items and services that are— 

• Primarily health related, meaning 

that an item or service is directly healthrelated, not for comfort or cosmetic or 

daily maintenance purposes, and has a 

use that is either national typical usage 

or part of a community pattern of care; 

• Have a cost—that is, a non-zero 

direct medical cost associated with their 

provision; and 

• Not Part A- or B-covered benefits. 

This guidance was based on concerns 

that competitive pressures were leading 

some MA organizations to spend 

Medicare rebate dollars (MA 

organizations with ‘‘bid’’ amounts for 

covering A and B services below the A 

and B ‘‘benchmark’’ amount for their 

county may use a percentage of the 

difference to offer additional benefits) 

on items that were more focused on 

providing marketing and enrollment 

incentives than on delivering quality, 

cost effective health care. We also were 

concerned that MA organizations could 

attempt to offer supplemental benefits 

that discriminate against certain 

enrollees and thereby violate the antidiscrimination prohibition in section 

1852(a)(3) of the Act. 

While these concerns still prevail, we 

believe that allowing certain SNPs 

greater flexibility in offering 

supplemental benefits beginning 

contract year 2013 would advance our 

overall goal of better integrating care for 

dual eligible beneficiaries. In addition, 

by limiting benefit flexibilities to those 

plans that are qualified to participate in 

this initiative, we reduce the likelihood 

that States could shift costs to the 

Medicare program by cutting Medicaid 

services and benefits from their State 

Medicaid plans. 

We propose limiting the flexibility 

that would be offered under this 

proposed rule to FIDE SNPs. Because 

FIDE SNPs are required to offer LTC 

supports and services, we believe that 

an approach that limits benefits 

flexibility to FIDE SNPs, as opposed to 

all D–SNP types, would be more 

consistent with the objective of keeping 

beneficiaries at risk of 

institutionalization in their homes, 

preventing health status decline that 

triggers additional utilization of health 

services, and lowering costs for the 

Medicaid and Medicare programs. We 

request comment on whether extending 

supplemental benefit flexibilities under 

our proposed § 422.102(e) to eligible 

SNPs that are SNP types other than 

FIDE SNPs could measurably reduce 

unnecessary utilization and improve 

beneficiary outcomes in an equivalent 

manner. 

We are also proposing to further limit 

the benefit flexibility under this 

proposed rule to those qualified SNPs 

that serve only full-benefit dual eligible 

beneficiaries. We believe that dual 

eligible beneficiaries who receive full 

State Medicaid benefits would have the 

most to gain from fully-integrated 

Medicare-Medicaid plan benefit 

offerings that include additional 

Medicare supplemental benefits. 

Furthermore, in circumstances where a 

State reduces coverage of a Medicaid 

benefit, we believe that the ability to 

offer additional Medicare supplemental 

benefits to full-benefit dual eligible 

enrollees is particularly critical in order 

to ensure continuity of care. 

We are particularly interested in 

assessing whether certain supplemental 

benefits could prevent health status 

decline in the dual eligible population 

and reduce the quantity and cost of 

future health care needs. Examples of 

benefits that could be offered under this 

proposed rule would include— 

• Personal care services in the home; 

• Non-skilled nursing activities in the 

home; 

• Custodial care; and 

• In-home food delivery for 

vulnerable beneficiaries. (We note that 

our current guidance on supplemental 

benefits permits in-home food delivery 

on a limited basis—that is, for a limited 

duration and only in certain 

circumstances.) 

We would review each qualified 

SNP’s proposed supplemental benefit 

offerings for conformance to the SNP’s 

model of care (MOC), and we would 

approve additional supplemental 

benefit offerings for these qualified 

SNPs as we deem necessary. 

We request comment on what specific 

categories and types of supplemental 

benefits we should consider for the 

purposes of extending benefits 

flexibility to qualified FIDE SNPs 

participating in this initiative, as well as 

on the circumstances under which plans 

should be permitted to offer these 

additional supplemental benefits. We 

also request comment on additional 

restrictions that should govern plans’ 

ability to offer these additional benefits, 

and how we might be able to expand the 

scope of approved supplemental 

benefits in a manner that allows plans 

to serve their dual eligible enrollees 

effectively and efficiently. 

We also recognize that the services, 

Medicare Part C premium coverage, and 

out-of-pocket (OOP) cost-sharing 

benefits that dual eligible beneficiaries 

receive vary according to their Medicaid 

eligibility category and the State where 

they reside. We request comments on 

ways to minimize this proposed 

provision’s cost impact on dual eligible 

beneficiaries, while ensuring that States, 

SNPs, and providers can feasibly 

provide additional supplemental 

benefits to a full benefit dual eligible 

population. 

In order to implement this proposal, 

we propose amending § 422.102 to add 

a new paragraph (e) specifying that, 

subject to CMS approval, and as 

specified annually by CMS, certain FIDE 

SNPs may offer additional supplemental 

benefits beyond those other MA plans 

may offer where CMS finds that the 

offering of such benefits could better 

integrate care for the dual eligible 

population. All such benefits would be 

consistent with the rules for 

supplemental benefits under Part 422, 

including § 422.2, § 422.100(c)(1), and 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
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§ 422.102. Assuming that this proposal 

is finalized, we would issue guidance in 

our annual Call Letter and in Chapter 4 

of the Medicare Managed Care 

Manual—to provide guidance on the 

applicability of this provision, as well as 

examples of the specific additional 

supplemental benefits flexibilities that 

could be afforded under this initiative. 

We solicit comments on this approach. 

3. Application of the Medicare HospitalAcquired Conditions and Present on 

Admission Indicator Policy to MA 

Organizations (§ 422.504) 

We propose to require by regulation 

that MA organizations provide in their 

contracts with hospitals that they will 

reduce payments for Part A hospital 

services for serious events that could be 

prevented through evidence-based 

guidelines, in accordance with the 

hospital-acquired conditions (HACs) 

and present on admission indicator 

(POA) policy that is currently required 

for hospitals paid under the Original 

Medicare Acute Care Hospital Inpatient 

Prospective Payment System (IPPS). We 

believe this proposed change is 

necessary to bring MA requirements in 

line with current HAC–POA policy in 

the fee-for-service Medicare program, as 

well as—in the near future—to the 

Medicaid program. 

Section 5001(c) of the Deficit 

Reduction Act of 2005 (DRA) added 

section 1886(d)(4)(D) of the Act to 

require a quality adjustment in 

Medicare Severity Diagnosis Related 

Group (MS–DRG) payments for certain 

hospital-acquired conditions. We have 

titled the provision ‘‘Hospital-Acquired 

Conditions and Present on Admission 

Indicator Reporting’’ (HAC & POA). For 

discharges occurring on or after October 

1, 2008, IPPS hospitals do not receive 

the higher payment for cases when one 

of the selected conditions is acquired 

during hospitalization (that is, was not 

present on admission). The case is paid 

as though the secondary diagnosis is not 

present. We periodically revise the list 

of conditions, in consultation with the 

Centers for Disease Control (CDC), in 

accordance with the Act. There are 

currently 10 HAC categories, including 

conditions such as air embolism, blood 

incompatibility, various types of falls 

and trauma, and certain types of 

surgical site infections. The FY 2012 

IPPS final rule (76 FR 51476) contains 

a full discussion of the current HAC– 

POA policy as well as final changes for 

FY 2012. The final policy includes the 

addition of several new ICD–9–CM 

diagnosis codes to current HAC 

categories, and a revision of one 

subcategory title from ‘‘Electric Shock’’ 

to ‘‘Other Injuries.’’ In addition, section 

II.F.3. of the FY 2012 IPPS final rule 

includes updates and findings from the 

Research Triangle Institute, 

International (RTI) evaluation on CMS’ 

Hospital-Acquired Conditions and 

Present on Admission Indicator. This is 

an intra-agency project with funding 

and technical support coming from 

CMS, OPHS, AHRQ, and CDC. The RTI 

evaluation includes the impact of the 

Hospital-Acquired Condition-Present on 

Admission (HAC–POA) provisions on 

the changes in the incidence of selected 

conditions, effects on Medicare 

payments, impacts on coding accuracy, 

unintended consequences, and infection 

and event rates. The evaluation will also 

examine the implementation of the 

program and evaluate additional 

conditions for future selection. (For a 

complete discussion of the current 

HAC–POA policy, changes to the HAC– 

POA policy for FY 2012, and current 

RTI report see the FY 2012 IPPS final 

rule (August 18, 2011 (76 FR 51504 

through 51522).) 

Additionally, section 

1886(d)(4)(D)(iii) of the Act requires that 

hospitals, effective with discharges 

occurring on or after October 1, 2007, 

submit information on Medicare claims 

specifying whether diagnoses were 

POA. Collection of POA indicator data 

is necessary to identify which 

conditions were acquired during 

hospitalization for the HAC payment 

provision as well as for broader public 

health uses of Medicare data. We have 

implemented a payment policy for the 

IPPS to pay the CC/MCC MS–DRGs for 

those HACs with POA codes indicating 

that the diagnosis was either present on 

admission or clinically undetermined if 

the secondary diagnosis was present on 

admission. We will not pay the 

complication/comorbidity and major 

complication/comorbidity (CC/MCC) 

MS–DRGs for those HACs coded with 

POA codes indicating that the 

secondary diagnosis was not present on 

admission or that it was unknown if the 

secondary diagnosis was present on 

admission (73 FR 48486 and 48487, 

August 19, 2008). 

The HAC and POA web page at 

http://www.cms.gov/HospitalAcqCond 

provides further information. In 

addition, specific instructions for 

providers on how to select the correct 

POA indicator for each diagnosis code 

were included in the ICD–9–CM Official 

Guidelines for Coding and Reporting, 

available on the CDC Web site at: 

http://www.cdc.gov/nchs/data/icd9/ 

icdguide10.pdf. Additional information 

regarding POA indicator reporting and 

original Medicare application of the 

POA reporting options is available on 

the CMS Web site at: http:// 

www.cms.gov/HospitalAcqCond/. 

Looking toward the future of 

Medicare and Medicaid, Congress set 

forth in the Affordable Care Act 

requirements to further Medicare’s 

development of value-based purchasing 

programs (VBP), health care provider 

quality reporting, and expansion of the 

HAC program to encourage further 

incentives to improve quality and 

affordability of care and increase public 

transparency. Section 3008(b) of the 

Affordable Care Act requires the 

Secretary to undertake a study and 

report to Congress by January 1, 2012 on 

extending HAC–POA payment policy 

for IPPS hospitals to other facilities 

providing medical care to Medicare 

beneficiaries, such as hospital 

outpatient departments, non-IPPS 

hospitals, skilled nursing facilities, and 

others. 

In addition, section 3008(a) of the 

Affordable Care Act requires us to 

implement for the IPPS, a rate-based 

payment policy to reduce payments to 

hospitals in the lowest quartile of 

performance on risk-adjusted quality 

measures HACs, effective beginning FY 

2015. The amount of payment will be 99 

percent of the amount of payment that 

would otherwise apply to such 

discharges. This section also requires us 

to make information available to the 

public regarding HACs of each 

applicable hospital on the Hospital 

Compare Internet website. 

Finally, section 2702 of the Affordable 

Care Act requires the Secretary to 

identify current State practices that 

prohibit payment for HACs and 

incorporate the practices identified, or 

elements of such practices, which the 

Secretary determines appropriate for 

application to the Medicaid program in 

regulations. The new regulations will 

prohibit payments to States under 

section 1903 of the Act for any amounts 

expended for providing medical 

assistance for health care-acquired 

conditions specified in the regulations. 

In addition, section 2702 of the 

Affordable Care Act requires the 

Secretary to apply to State plans (or 

waivers) under title XIX of the Act the 

regulations promulgated pursuant to 

section 1886(d)(4)(D) of the Act relating 

to the HAC–POA payment policy, as 

appropriate for the Medicaid program. 

Final regulations implementing these 

requirements were published in the 

June 6, 2011 Federal Register (76 FR 

32816). The final rule was effective July 

1, 2011 but gives States the option to 

implement between July 1, 2011 and 

July 1, 2012. 

It is important to us to continue to 

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srobinson on DSK4SPTVN1PROD with PROPOSALS3
63050 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

for-service and MA programs and, as 

noted above, with the Medicaid 

program. Section 1856(b)(1) of the Act 

authorizes the Secretary to establish MA 

standards by regulation. In addition, 

section 1857(e)(1) of the Act authorizes 

the Secretary to impose additional terms 

and conditions found necessary and 

appropriate. Based on this general 

authority in the Act, we propose to 

require MA organizations to implement 

policies and procedures to reduce 

reimbursements to contracted hospitals 

for Part A inpatient hospital services for 

serious events that could be prevented 

through evidence-based guidelines, in 

accordance with the HAC–POA policy 

that is required for hospitals paid under 

the IPPS. Consistent with practice under 

the IPPS, MAOs should not reimburse 

hospitals the higher payment for cases 

when one of the selected conditions is 

acquired during hospitalization (that is, 

was not POA). Any such case would be 

paid as though the secondary diagnosis 

is not present. We note that MA 

organizations are already required to 

pay non-contract provider hospitals the 

amount that they would receive for 

services under Original Medicare, 

including any applicable reductions for 

HACs. This requirement is outlined in 

the MA Payment Guide for out of 

Network Payments, available at https:// 

www.cms.gov/MedicareAdvtgSpec

RateStats/downloads/oonpayments.pdf. 

The HAC–POA policy promotes 

increased quality, efficiency of care, and 

incentives for hospitals to eliminate 

medical errors and reduce Medicare 

expenditures for poor quality or 

unnecessary care. It is one of several 

VBP tools the agency uses; others 

include measuring performance, using 

payment incentives, publicly reporting 

performance results, applying national 

and local coverage policy decisions, and 

enforcing conditions of participation. 

We believe that with robust input and 

participation of MA organizations and 

other stakeholders, we can achieve these 

goals for efficiency and quality in the 

MA program while implementing the 

policies in a way that takes into account 

the varying models, access, and 

payment features of the MA program. 

We understand that MA organizations 

may pay hospitals on a capitated basis 

or through other payment systems that 

may not be similar to that of the IPPS 

and also may not currently incorporate 

the POA indicator policy. We want to 

allow flexibility for MA organizations to 

determine the best methodology within 

their contract structures with hospitals 

for reporting these serious conditions 

and events, determining whether the 

condition was present on admission or 

caused during the inpatient hospital 

stay, and paying hospitals 

appropriately. However, we also believe 

that plans already have some 

operational systems in place to facilitate 

implementation of the requirement. For 

example, MA organizations must 

already pay noncontract providers the 

amount that they would receive under 

Original Medicare, which includes 

reducing the payment for HACs that 

were not present on admission. Also, 

beginning January 3, 2012, MA 

organizations will be required to collect 

and submit encounter data for each item 

and service provided to MA enrollees in 

accordance with risk adjustment 

policies required in § 422.310(d) (Form 

Number: CMS–10340 (OMB#: 0938– 

New). We would collect the encounter 

data electronically from Medicare 

Advantage Organizations via the Health 

Insurance Portability and 

Accountability Act (HIPAA) compliant 

standard Health Care Claims 

transactions for professional data and 

institutional data. The HIPAA 5010 

claim form used for this transaction is 

the same claim form that hospital 

providers use to submit claims under 

Original Medicare, including specific 

fields for POA information. In addition, 

the current MA plan rating system 

includes measures related to some of 

these serious events. Therefore, we 

believe that these distinct policies can 

be aligned to produce all of the intended 

results, including net savings to MA 

organizations and Medicare by avoiding 

unnecessary costs in the delivery of 

care. 

We propose to amend § 422.504(i)(3) 

by adding a new paragraph (iv) to 

require that, beginning in CY 2013, MA 

organizations provide in their contracts 

with hospitals that payment will not be 

made to contracting hospitals in the 

case of serious preventable events and 

hospital-acquired conditions in 

accordance with section 1886(d)(4)(D) of 

the Act and all applicable Medicare 

policies. We solicit comments and 

recommendations on what other issues 

to consider in finalizing our proposal to 

apply the current fee-for-service HAC– 

POA policy to MA plans. 

4. Clarifying Coverage of Durable 

Medical Equipment (§ 422.100 and 

§ 422.111) 

Medicare beneficiaries not enrolled in 

an MA plan may obtain their Medicarecovered durable medical equipment 

(DME) items and supplies from any 

Medicare-certified DME supplier. If a 

DME supplier does not stock a 

particular manufacturer’s product or 

brand of DME, the beneficiary may 

obtain that product or brand from 

another supplier or request his or her 

supplier of choice order the particular 

product or brand he or she uses or 

which his or her physician has ordered. 

While sections 1852(a)(1)(A) and (B) of 

the Act require MA plans to provide 

Parts A and B-covered items and 

services (with the exception of hospice 

care), including DME items and 

supplies, network-based MA plans may 

maintain networks of appropriate 

providers sufficient to provide adequate 

access to covered services for their 

members (see § 422.112(a)(1) and 

§ 422.114(a)). In other words, networkbased MA plans may limit access to 

Medicare-covered items and services via 

networks, as long as those networks 

provide adequate enrollee access to 

services consistent with standards 

established by CMS. 

Medicare Advantage organizations 

and other stakeholders have asked for 

our guidance with respect to limitations 

DME coverage that result from MA 

organizations limiting enrollees to 

specified DME providers, or to specified 

DME manufacturers. Specifically, some 

MA organizations have asked us 

whether they could offer lower costsharing for ‘‘preferred’’ DME products or 

brands versus ‘‘non-preferred’’ DME 

products or brands, as well as whether 

they could limit coverage of certain 

DME items and supplies to specific 

manufacturers’ products or brands. In 

guidance in section 50.1 of Chapter 4 of 

the Medicare Managed Care Manual, 

‘‘Benefits and Beneficiary Protections’’ 

(see http://www.cms.gov/manuals/ 

downloads/mc86c04.pdf), we specified 

that, beginning in CY 2011, plans could 

establish several cost-sharing levels 

(that is, tiers) for DME items, supplies, 

and Part B drugs, provided that: (1) The 

highest cost sharing tier is at or below 

the relevant cost sharing threshold 

established by CMS for DME and Part B 

drugs; and (2) plans ensure access to all 

products through the network of 

providers. However, we have not 

specified in regulation or guidance 

whether network-based MA plans may, 

within a specified category of DME, 

limit coverage to specific manufacturers’ 

DME products or brands. While we do 

not collect information on this type of 

coverage limitation in our plan benefit 

package (PBP) software, we are aware 

anecdotally that some MA organizations 

employ this practice to some extent. For 

example, one MA organization limits 

coverage of diabetic test strips and 

monitors to those manufactured by 

certain entities. 

Although some organizations thus are 

already limiting DME to specific brands, 

we believe that our proposal would help 

ensure that MA organizations maximize 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
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program efficiencies by driving enrollee 

utilization to specific DME products for 

which MA organizations may have 

negotiated bulk discounts. In addition, 

given that MA organizations are 

currently employing DME product or 

brand coverage limitations, we believe it 

is important to establish a regulatory 

framework for ensuring appropriate and 

adequate MA enrollee access to DME 

items and supplies. 

Therefore, and under our authority in 

section 1856(b)(1) of the Act to establish 

MA standards by regulation and in 

section 1857(e)(1) of the Act to impose 

additional terms and conditions found 

necessary and appropriate, we propose 

to add a new paragraph (l) to § 422.100 

that clarifies that MA organizations may 

limit coverage to specific manufacturers 

or brands, and imposes conditions on 

doing so. Specifically, in order to ensure 

that MA enrollees have adequate access 

to their DME benefits, proposed 

§ 422.100(l) would establish 

requirements with respect to access and 

medical necessity, require transition 

periods, address mid-year changes to 

preferred DME items and supplies, 

appeals, and require disclosure of DME 

coverage limitations to enrollees. 

We recognize that this is a complex 

issue. Therefore, we solicit comments 

on all aspects of these proposed changes 

and whether additional or strengthened 

beneficiary protections would be 

warranted under this policy. If we 

finalize this proposal, we intend to 

monitor and assess plans’ compliance 

with the new requirements—including 

through review of beneficiary 

complaints and grievances, and appeals 

data—to ensure MA enrollees have 

appropriate and adequate access to their 

Part B-covered DME items and supplies. 

a. Access to Preferred DME Items and 

Supplies 

We propose requiring that MA 

organizations wishing to limit coverage 

within a specific category of DME to 

specific manufacturers’ products or 

brands take necessary steps to ensure 

that enrollees have access to all 

preferred manufacturer products 

through their contracts with network 

DME suppliers. We recognize that not 

all DME suppliers in a network will 

always stock all preferred products or 

brands of DME items and supplies; 

however, we would expect contracted 

suppliers to make arrangements to 

special order products or brands of any 

preferred DME item or supply, as well 

as any non-preferred DME item or 

supply that is determined to be 

medically necessary. We would reflect 

this change in proposed 

§ 422.100(l)(2)(i). 

b. Medical Necessity Requirements for 

DME Items and Supplies 

In accordance with § 422.112(a)(6)(ii), 

MA organizations must have established 

policies and procedures that allow for 

individual medical necessity 

organization determinations if there is a 

question about whether a service or item 

should be covered. MA organizations 

making medical necessity 

determinations must have a medical 

director, who is a physician, ensuring 

the accuracy of organization 

determinations and reconsiderations as 

per § 422.562(a)(4). Within Subpart M, if 

the MA organization’s determination is 

contested, reconsideration by the 

organization, and an independent 

review entity of the determination are 

possible under § 422.578 and § 422.592, 

with administrative law judge and 

Medicare Appeal Council hearings/ 

reviews of unfavorable reconsiderations 

possible under § 422.600, and § 422.608. 

Therefore, we propose requiring MA 

organizations—to the extent that they 

elect to limit coverage of DME items and 

supplies to specific manufacturers’ 

products or brands—to provide coverage 

of any medically necessary DME item 

and supply, including DME items and 

supplies made by non-preferred 

manufacturers. We would reflect this 

change in proposed § 422.100(l)(2)(ii). 

c. Transition Period for Coverage of 

Non-Preferred DME Items and Supplies 

As provided under § 423.120(b)(3), 

MA organizations offering an MA–PD 

plan and Part D sponsors are required to 

provide for an appropriate transition 

process for enrollees transitioning from 

other coverage who are currently 

prescribed Part D drugs not on the new 

Part D plan’s formulary. The purpose of 

this transition period is to transition the 

new enrollee to a therapeutically 

substitutable formulary drug or, 

alternatively, to obtain a formulary 

exception whereby the Part D plan 

would continue to cover the nonformulary drug for the remainder of the 

plan year for reasons of medical 

necessity. 

Similarly, we propose requiring MA 

organizations to continue to ensure 

access to non-preferred brands of DME 

supplies—such as ostomy bags and 

diabetic test strips—for a transition 

period comprising the first 90 days of 

coverage under the plan, as specified by 

CMS. Similar to the Part D transition 

process, we expect that MA 

organizations would provide one refill 

during the 90-day transition period. We 

also propose requiring that, during this 

90-day transition period, MA 

organizations cover repairs to nonpreferred DME items, such as 

wheelchairs, feeding pumps, and 

hospital beds. That is, an MA 

organization would be required to 

service (including providing a loaner) 

DME items owned or rented by an 

enrollee needing repairs during the 90- 

day transition period. If, after the 

transition period ends such items 

needed repair, the plan could choose to 

pay for the repairs or instead provide its 

preferred brand of the item. We propose 

to add § 422.100(l)(2)(iii)(A) and 

§ 422.100(l)(2)(iii) (B) to reflect this 

proposed requirement. 

We solicit comments on the features 

of this transition process requirement, 

including whether such a transition 

period—modeled generally on that 

provided under the Part D program for 

non-formulary Part D drugs—is 

appropriate for DME items and supplies 

and whether there are additional 

transition requirements we should 

consider. 

d. Midyear Changes to Preferred DME 

Items and Supplies 

We propose prohibiting MA 

organizations from making ‘‘negative 

changes,’’ that is, eliminating preferred 

coverage of a Medicare-covered item of 

DME, midyear. Plans may add to their 

preferred DME products list—for 

example, to add new manufacturers’ 

products to their coverage lists, to 

provide substitute DME items and 

supplies for products that are no longer 

available, or to reflect national and local 

coverage determinations for new DME 

items and supplies. We believe this 

proposed policy—allowing positive 

changes and prohibiting negative 

changes—strikes the appropriate 

balance between allowing flexibility for 

plans to designate preferred products, 

while ensuring that changes to preferred 

DME products are not disruptive to 

enrollees. We propose to reflect this 

change in proposed § 422.100(l)(2)(iv). 

e. Appeals 

While we considered establishing an 

exceptions process for DME under this 

proposed policy similar to the one 

established for non-formulary Part D 

drugs under § 423.578(b), we do not 

believe that adding what is essentially 

an additional step to the appeals process 

under Subpart M of Part 422 is 

necessary for MA organization 

determinations concerning coverage of 

specific DME brands. The Part D 

exceptions process was conceived as an 

initial means of obtaining coverage of 

non-formulary Part D drugs for medical 

necessity reasons. Once that process is 

exhausted, the enrollee may appeal the 


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7See http://www.epa.gov/ppcp for information 

about Pharmaceuticals and Personal Care Products 

as Pollutants (PPCPs) on the website of the U.S. 

Environmental Protection Agency. 

8See Office of National Drug Control Policy, 2008 

‘‘Prescription for Danger’’, January 24, 2008, and 

2009 National Drug Survey on Drug Use and Health 

(NSDUH), September 2010, for more information on 

the growing problem of nonmedical use of 

prescription drugs in the United States, particularly 

among teenagers. See also http:// 

www.deadiversion.usdoj.gov/index.html for more 

information from the Drug Enforcement 

Administration about the problems associated with 

drug abuse resulting from legitimately made 

controlled substances being diverted from their 

lawful purpose into illicit drug traffic. 

decision under the rules of Subpart M 

of Part 423. 

There is evidence that beneficiary 

appeals of DME coverage decisions 

based on products or brands are not a 

significant problem in the MA program. 

For example, since the inception of the 

IRE appeals process in 2006, there have 

been 12,500 appeals related to 

wheelchairs. Of these appeals, only 7 

have concerned brand-specific issues. 

Because we have no evidence of 

enrollee grievances or appeals of brandspecific DME coverage issues, we 

believe that the current organization 

determination and appeals process in 

subpart M of part 422 is sufficient to 

ensure that MA enrollees have access to 

specific brands of DME items when 

medically necessary. We propose to 

clarify at § 422.100(l)(2)(v) that plan 

non-coverage of a particular 

manufacturer’s product or brand of a 

DME constitutes an organization 

determination under § 422.566. We 

solicit comments on whether the 

organization determination and appeals 

process currently required in subpart M 

of part 422 affords MA plan enrollees 

with sufficient protections for ensuring 

appropriate and adequate access to 

Medicare-covered DME in MA plans 

that choose to limit coverage, within a 

specified category of DME, to specific 

manufacturers’ products or brands. We 

would appreciate comments with 

respect to any additional protections 

that we should consider if we finalize 

this proposal. 

f. Disclosure of DME Coverage 

Limitations 

As provided under § 422.111(b)(2), 

MA plans must notify enrollees—at the 

time of enrollment and annually 

thereafter—of the benefits offered under 

the plan, including applicable 

conditions and limitations, premiums, 

and cost sharing, and any other 

conditions associated with receipt of 

benefits. This requirement has been 

operationalized as the annual notice of 

change/evidence of coverage (ANOC/ 

EOC). We would require, under 

proposed § 422.100(l)(2)(vi), that MA 

plans that choose to limit DME coverage 

to preferred products or brands, be 

required to include, in the description 

of benefits required under 

§ 422.111(b)(2) and under 

§ 422.111(h)(2)—which requires the 

provision of specific information via a 

toll-free customer service call center, 

and Internet website, and in writing 

upon request—disclosures about these 

DME coverage restrictions and their 

rights to the Part C appeals process for 

requests to obtain medically necessary, 

non-preferred DME products or brands. 

5. Broker and Agent Requirements 

(§ 422.2274 and § 423.2274) 

Regulations setting forth agent and 

broker compensation promulgated in 

our November 10, 2008 interim final 

rule with comment (73 FR 67406 

through 67414) required MA 

organizations and Part D plan sponsors 

(‘‘plan sponsors’’) to submit historical 

agent/broker compensation data from 

years 2006 and 2007. In addition, we 

requested that plan sponsors submit 

information in 2008 that would indicate 

their 2009 compensation schedules for 

agents selling Medicare health plans on 

their behalf. CMS conducted an analysis 

of the historical compensation 

information submitted by plan sponsors 

and published fair market value cut-off 

(FMV) amounts during the Spring of 

2009. Later that year, plan sponsors 

were given the opportunity to adjust 

their compensation amounts to any 

amount at or below the FMV. These 

adjusted 2009 amounts became the 

baseline amount for compensation 

adjustments in future years. Subsequent 

to our initial compensation guidance, 

plan sponsors have expressed concerns 

about the validity of continuing to base 

future compensation on amounts which 

were selected in 2009 and based on data 

from 2006 and 2007. We have further 

heard that the current economic 

conditions have drastically changed 

local markets such that, even as 

adjusted, the 2009 compensation 

amounts do not accurately reflect the 

current market rates. Lastly, we have 

been advised by plan sponsors that have 

been in the market since 2009 that they 

are at a competitive disadvantage as 

compared to newly entering plans as 

they may set compensation rates at 

current-day FMV rates and are not tied 

to 2009 compensation amounts. 

Therefore, we are proposing to modify 

paragraph (a), and add a new paragraph 

(f), to § 422.2274 and § 423.2274 to 

allow plan sponsors to annually select 

their compensation amounts to reflect 

rates which are at or below FMV 

annually established by CMS. Under 

these proposed changes, plan sponsors 

would also be required to report their 

intentions to use independent agents 

and/or brokers in the upcoming plan 

year, along with the amounts that they 

will be paid, if applicable. 

6. Establishment and Application of 

Daily Cost-Sharing Rate as Part of Drug 

Utilization Management and Fraud, 

Abuse and Waste Control Program 

(§ 423.104 and § 423.153) 

Pursuant to our authority under 

section 1860D–4(c) of the Act, which 

requires PDP sponsors to have costeffective drug utilization management 

and a fraud, abuse, and waste control 

program in place, we are proposing that 

Medicare Part D sponsors be required to 

provide their enrollees access to a daily 

prorated cost-sharing rate for 

prescriptions dispensed by a network 

pharmacy for less than a 30 days supply 

of certain covered Part D drugs that are 

for an initial fill of a new medication, 

are intended to allow the enrollee to 

synchronize refill dates of multiple 

drugs, or are dispensed in accordance 

with § 423.154 (which sets forth the 

requirements placed on Part D sponsors 

with respect to dispensing of 

prescription drugs in long-term care 

facilities effective January 1, 2013). If 

finalized as proposed, these provisions 

would be codified at § 423.104 and 

§ 423.153. 

Current prescribing patterns and 

pharmacy benefit management (PBM) 

payment practices result in most 

prescriptions for chronic medications 

being written by providers, and 

dispensed by retail pharmacies, in 30- 

or-more day quantities. When the full 

amount dispensed is not utilized by the 

enrollee due to adverse medication 

reaction or interaction, or due to failure 

of enrollee therapeutic adherence 

because of cost, inconvenience, death, 

or other reason for discontinuation, it 

comes at an unnecessary and wasteful 

cost to the enrollee, the Medicare 

program, Part D sponsors, and the 

environment. 

We believe that if Part D enrollees and 

their prescribers had the option of 

shorter days supplies of initial fills of 

new prescriptions without the 

disincentive of the enrollee having to 

pay a full month’s (or longer) 

copayment or coinsurance, a significant 

portion of the current costs of 

discontinued chronic medications could 

be avoided. In addition, the avoidance 

of unused drugs would contribute to 

diminishing the environmental issues 7

caused by disposal of unused 

medications, and opportunities for 

criminal activities and substance abuse 8

caused by diversion of unused 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63053 

medications, all of which are growing 

concerns in the United States. 

Currently, Part D enrollees’ costsharing is the same whether they receive 

a 7-, 14-, or 30-day supply of a first fill 

of a new medication. A daily costsharing rate requirement imposed on 

Part D sponsors would encourage 

enrollees and their prescribers to limit 

day’s supplies when appropriate by also 

reducing the enrollees’ out-of-pocket 

costs. More specifically, under our 

proposal, Part D sponsors would be 

required to establish and apply a daily 

cost-sharing rate, such that an enrollee 

seeking a trial fill of a prescription for 

a chronic medication, for example, 

would pay only a prorated portion of 

the established amount under his or her 

Part D benefit plan that corresponds to 

the actual amount of days supply that 

was prescribed and is dispensed, 

whether it be a 7- or 14-day supply, or 

some other quantity less than 30 days, 

which would be at the discretion of the 

prescriber. Thus, although our proposed 

daily cost-sharing rate requirement 

would be mandatory for Part D 

sponsors, actually taking advantage of it 

would be voluntary for enrollees and 

their prescribers. Neither sponsors nor 

the Federal government would 

determine whether an enrollee should 

receive a trial fill. Rather, the decision 

to try a new medication through a trial 

fill would be made by the enrollee and 

his or her prescriber. 

Through the establishment and 

application of a daily cost-sharing rate 

requirement on Part D sponsors, we 

believe an enrollee would be 

incentivized to inquire of his or her 

prescriber whether a trial fill would be 

appropriate when first prescribed a 

medication. We further believe enrollees 

would be most likely to inquire about a 

trial fill when faced with higher cost 

sharing for a new medication, due to the 

expense of the drug, such as when 

purchasing a drug in the deductible 

phase of the benefit or in the coverage 

gap. We further believe prescribers 

would be most likely to concur as to the 

appropriateness of a trial fill when the 

prescription is for an initial fill of a drug 

that has significant side effects and/or is 

frequently poorly tolerated. In such a 

case, the prescriber could write either 

one prescription for the trial fill for a 

period at the prescriber’s discretion, or 

two prescriptions (for example, one for 

the trial fill and a second prescription 

for a 30 or 90 day supply—the latter 

prescription would be utilized if the 

enrollee and the prescriber agreed the 

drug therapy should be continued after 

the trial period). If the medication were 

discontinued after use of a trial fill, the 

enrollee, as well as the sponsor, would 

have avoided the net costs associated 

with the unused quantity that would be 

dispensed under current standard 

practices. 

Because the prescriptions could be 

written during one office visit, or could 

be refilled by the prescriber directly 

with the enrollee’s pharmacy after a 

medication trial period, additional visits 

to the prescriber would not necessarily 

be required and would not need to 

cause a burden to the enrollee. We 

assume the two prescriptions option 

would be most convenient for the 

enrollee and the prescriber (when 

appropriate), but seek specific comment 

on this assumption. If an enrollee would 

have difficulty returning to the 

pharmacy, presumably he or she would 

not inquire about a trial fill. 

Furthermore, since prescribers would 

determine whether or not the 

medication being prescribed should or 

could be dispensed in a trial fill, we 

would not expect our proposal to have 

any adverse effects on enrollees’ health. 

Indeed, while we envision, as 

described above, enrollees primarily 

requesting less than a full month’s 

supply when prescribed a drug for the 

first time that is known to have 

significant side effects and to be 

frequently poorly tolerated, we are not 

limiting the requirement for Part D 

sponsors to establish and apply a daily 

cost-sharing rate to such medications. 

Rather, we have identified an additional 

benefit which is the ability to allow for 

synchronization of prescriptions. More 

specifically, if an enrollee already takes 

a prescription medication that is due for 

a refill in 10 days, the prescriber could 

write an initial prescription for a new 

medication for a 10-day supply, so that 

the enrollee could refill both 

prescriptions on an ongoing basis in one 

trip to the pharmacy (assuming the new 

medication is continued) and perhaps 

also achieve better medication 

compliance. Similarly, enrollees who 

currently take multiple medications that 

refill on different dates could request 

their prescribers to write prescriptions 

for less than 30 days (each one likely for 

a different days supply), but with 30- 

day refills, for all but one of those 

medications that is due for a refill, so 

that the enrollee could refill all 

prescriptions in one trip to the 

pharmacy, and could refill all the 

prescriptions for 30 days or more in one 

trip to the pharmacy thereafter on an 

ongoing a basis. 

The ability to synchronize 

medications should assist enrollees in 

adhering to prescription treatment 

regimens that involve multiple 

medications, and we note that at least 

one study supports this belief, and 

suggests intervention targeted at 

individuals who do not request refills of 

all medications. In addition, we believe 

the ability to synchronize medications 

will be convenient for both those 

enrollees who take advantage of it and 

their prescribers by enabling fewer trips 

to the pharmacy and fewer prescription 

requests of prescribers from enrollees 

through the ability to consolidate 

pharmacy trips and prescriber office 

visits and phone calls. 

We do not expect long-term care 

(LTC) enrollees to request trial fills to 

synchronize medications, as this is not 

our understanding of the LTC 

environment with respect to 

prescribing, and our April 2011 final 

rule (76 FR 21432) requires 14 day or 

less dispensing in LTC facilities 

effective January 1, 2013. However, as 

noted in that rule, we expected the LTC 

dispensing requirements ‘‘would likely 

lead to a change in copayment 

methodology * * * [and] anticipate[d] 

the implementation of particular 

copayment methodologies will be 

dependent on the billing and dispensing 

methodologies used, and as a result 

* * * copayment methodologies within 

the same plan may vary depending on 

the LTC facility where the beneficiary 

resides. Copayment may be collected at 

the first dispensing event in a month, 

the last dispensing event in a month, or 

prorated based on the number of days a 

Part D drug was dispensed in a month. 

However, due to the relatively small 

copayments for low-income subsidy 

(LIS) beneficiaries, copayments for LIS 

beneficiaries should be billed with the 

first or last dispensing event of the 

month.’’ The current proposed 

requirement on Part D sponsors to 

establish and apply a daily cost-sharing 

rate would supersede this quoted 

guidance in the preamble of the April 

2011 final rule. In other words, Part D 

sponsors would be required to establish 

and apply a prorated, uniform costsharing billing methodology for all their 

enrollees, including those in LTC 

facilities and those with LIS costsharing subsidies. 

We recognize that establishing and 

applying a daily cost-sharing rate to the 

relatively small copayments for LIS 

enrollees would cause such copayments 

to be nominal. We seek specific 

comments as to alternatives to 

incentivize LIS enrollees to take 

advantage of trials fills and synchronize 

their medications when appropriate 

other than through the establishment 

and application of a daily cost-sharing 

rate requirement. 

Daily cost-sharing rates also may 

permit pharmacies, as opposed to 

prescribers, to facilitate synchronization 


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63054 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

of an enrollee’s medications upon his or 

her request, and we seek specific 

comment as to this possibility, as well 

as to any issues we may need to address 

to facilitate this possibility. For 

instance, in order for sponsors to be able 

to monitor the prevalence and 

appropriateness of the dispensing of 

prescriptions in shorter than 30 days 

supply to ensure that a pharmacy does 

not dispense a 30-day prescription in 

stages in order to increase dispensing 

fees, we urge the industry to develop 

coding to be used by network 

pharmacies to communicate to sponsors 

whether a less than 30 day fill is to align 

refill dates, or for that matter, is an 

initial fill of a new medication, or in the 

case of the LTC setting, is to 

communicate the dispensing 

methodology employed. 

We believe that realized savings from 

the daily cost-sharing rate requirement 

may be partly offset by additional 

dispensing fees, administrative and 

programming costs, and additional 

initial fills of more expensive drugs. We 

assume additional dispensing fees 

would result when a trial fill of a 

medication is dispensed and the 

enrollee returns to the pharmacy for the 

remainder of the month’s supply (or 

more) if the medication were successful, 

or when an enrollee chooses to 

synchronize medications. Thus, over a 

year, there would be up to 13 

dispensing events for a medication 

continued after a trial fill as opposed to 

up to 12. Part D sponsors may also incur 

some costs to program their systems to 

establish and apply a daily cost-sharing 

rate to prescriptions dispensed to 

enrollees with less than a 30-day 

supply, as well as administrative costs 

to administer the trial fill requirement 

we propose here. Finally, we expect 

some additional costs due to more 

initial fills of brand drugs that enrollees 

previously declined to try due to the 

cost of a full month’s supply when the 

brand drugs are known for significant 

side effects and/or to be frequently 

poorly tolerated. 

We considered proposing a 

requirement similar to the Fifteen Day 

Initial Script program introduced in 

Maine in the summer of 2009. In this 

program, specific medications that were 

identified by the MaineCare program 

with high side effect profiles, high 

discontinuation rates, or frequent dose 

adjustments, were phased in by class 

and must be dispensed in a 15-day 

initial script to ensure cost effectiveness 

without wasting or discarding of 

dispensed, but unused, medications. We 

have learned through representatives of 

the program that MaineCare has 

achieved overall savings for two 

consecutive State fiscal years with 

respect to both brand and generic drugs 

through this program, despite the 

additional dispensing fees. The 

representatives have also reported that 

there has been very good acceptance of 

the program and very little confusion 

upon implementation. While we 

acknowledge the savings benefits of the 

mandatory MaineCare approach, we 

believe that leaving the decision to 

obtain less than a month’s supply of a 

prescription with the enrollee and his or 

her prescriber and pharmacist may be a 

better approach in light of the voluntary 

nature of the Medicare Part D program. 

A previous review of 2009 PDE data 

by CMS suggested that just under 32 

percent of approximately 78.6 million 

first fills for maintenance medications 

are not refilled by Medicare Part D 

enrollees. Maintenance medications are 

used for diseases when the duration of 

therapy can reasonably be expected to 

exceed one year, and we assume for 

purposes of estimating savings to the 

Part D program that the lack of refills 

indicates the prescribed medications 

were discontinued. The estimated total 

cost of these discontinued medications 

was approximately $1.6 billion (70 

percent for brands and 30 percent for 

generics). However, this review did not 

distinguish between community and 

institutional settings. Thus, to estimate 

the costs of discontinued medications in 

community settings only, since the daily 

cost-sharing rate requirement proposed 

here does not further change the 

dispensing requirements in the longterm care setting effective January 1, 

2013, we reduced the total costs by 

approximately 13 percent in accordance 

with CMS data on gross drug costs in 

the Part D program in 2009 in the 

community and institutional settings to 

remove a proportion representing longterm care expenses. Consequently, the 

adjusted total estimated cost of 2009 

community-based discontinued first 

fills of chronic medications was 

estimated at roughly $1.4 billion. 

Potential savings of a daily costsharing requirement on Part D sponsors 

would come from a reduction of these 

costs which would be offset by some 

additional dispensing fees. In order to 

estimate the savings, we must make 

assumptions about how many first fills 

will be dispensed in quantities of less 

than a 30-day supply, and what the 

average quantity of such first fills will 

be. It should be pointed out that these 

assumptions are highly uncertain, 

because it is very difficult to predict 

enrollees’ behavioral response. Having 

noted this caveat, we assume 20 percent 

of first fills in 2013 will be for a supply 

of less than 30 days, trending to 50 

percent by 2018, and that the average of 

such fills will be for a 15-day supply. 

Assuming 32 percent of these first fills 

are discontinued, we estimate the 

potential savings to the Part D program 

to be $180 million in 2013 alone, and 

over $2.5 billion by 2018. 

We recognize that certain medications 

are universally accepted in the health 

care community as not suitable to be 

dispensed in amounts less than a 30-day 

supply (for example, lotions and other 

drugs not in solid form). Therefore, we 

propose to further limit the requirement 

that sponsors establish and apply a 

daily cost-sharing rate to drugs similar 

to those to which to the Medicare Part 

D long-term care dispensing 

requirements apply. That is, the daily 

cost-sharing rate requirement would 

apply to solid oral doses of drugs, 

except antibiotics or drugs which are 

dispensed in their original containers as 

indicated in the Food and Drug 

Administration Prescribing Information 

or are customarily dispensed in their 

original packaging to assist patients 

with compliance (for example, steroid 

dose packs). However, unlike the longterm care dispensing requirements 

which apply only to brand drugs, we are 

proposing here that the daily costsharing rate requirement would apply to 

both brand and generic drugs. 

We also understand that, while there 

may be additional waste generated by 

multiple fills when medications are 

continued or synchronized (for 

example, more plastic bottles and paper 

inserts, additional trips to pharmacies), 

the harmful effects on the environment 

from unused drugs, particularly the 

biological implications, likely have a 

much greater impact on the 

environment than additional 

recyclables. We seek specific comments 

as to this assumption. 

In light of the foregoing, we propose 

to define ‘‘daily cost-sharing rate’’ in 

§ 423.100. ‘‘Daily cost-sharing rate’’ 

would mean, as applicable, the 

established monthly— 

• Copayment under the enrollee’s 

Part D plan divided by 30 or 31 and 

rounded to the nearest lower dollar 

amount or to another amount but in no 

event to an amount which would 

require the enrollee to pay more for a 

month’s supply of the prescription than 

the enrollee would have paid if a 

month’s supply had been dispensed; or 

• Coinsurance rate under the 

enrollee’s Part D plan applied to the 

ingredient cost of the prescription for a 

month’s supply divided by 30 or 31. We 

solicit comment on whether we should 

establish specific rounding rules so that 

sponsors are consistently calculating 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63055 

daily cost-sharing rates with respect to 

enrollee and plan liabilities. 

In addition, we would revise 

§ 423.104 by adding a paragraph (i) to 

state that a Part D sponsor is required 

provide its enrollees access to a daily 

cost-sharing rate in accordance with 

§ 423.153(b)(4). Section 423.153(b) 

currently requires a Part D sponsor to 

establish a reasonable and appropriate 

drug utilization management program. 

We also propose to revise § 423.153(b) 

by adding a new paragraph (4). 

Paragraph (4)(i) would require a drug 

utilization management program to 

establish and apply a daily cost-sharing 

rate to a prescription presented by an 

enrollee at a network pharmacy for a 

covered Part D generic or brand drug 

that is dispensed for a supply of less 

than 30 days, multiplied by the days 

supply actually dispensed, plus any 

dispensing fee in the case of 

coinsurance. Paragraph (b)(4)(i)(A) 

would limit the requirement to drugs 

that are in the form of solid oral doses. 

Paragraph (b)(4)(i)(B) would further 

limit the requirement to a prescription 

that is for an initial fill of a new 

medication, is intended to allow the 

enrollee to synchronize refill dates of 

multiple drugs, or is dispensed in 

accordance with § 423.154 (which sets 

forth the requirements placed on Part D 

sponsors with respect to dispensing of 

prescription drugs in long-term care 

facilities effective January 1, 2013). 

Paragraph (b)(4)(ii) would state that the 

requirements of (b)(4)(i) would not 

apply to antibiotics or drugs dispensed 

in their original container as indicated 

in the Food and Drug Administration 

Prescribing Information or are 

customarily dispensed in their original 

packaging to assist patients with 

compliance. 

E. Clarifying Program Requirements 

We have worked with MA 

organizations and Part D sponsors to 

implement the Medicare Advantage and 

Prescription Drug Benefit Programs 

since the inception of these programs. 

As part of this partnership, we have 

implemented operational and/or policy 

guidance via HPMS memoranda or 

manual instruction to assist MA 

organizations and Part D sponsors in 

ensuring the proper and efficient 

administration of the Part C and D 

programs. We propose to codify some of 

that guidance and provide other 

definitive direction on policy issues in 

order to address requests from 

stakeholders. These proposals appear in 

Table 5. 

TABLE 5—PROVISIONS TO CLARIFY PROGRAM REQUIREMENTS

Preamble section Provision 

Part 417 Part 422 Part 423 

Subpart Section Subpart Section Subpart Section 

II.E.1 ...................... Technical Corrections to Enrollment Provisions.Subpart K ...... § 417.422 .......

§ 417.432 .......

Subpart B ...... § 422.60 ......... Subpart B ...... § 423.56 

II.E.2 ...................... Extending MA and 

Part D Program 

Disclosure Requirements to 

Section 1876 

Cost Contract 

Plans.

Subpart K ...... § 417.427 ....... N/A ................. N/A ................. N/A ................. N/A 

II.E.3 ...................... Clarification of, 

and Extension 

to Local Preferred Provider 

Plans, of Regional Preferred 

Provider Organization Plan Single Deductible 

Requirement.

N/A ................. N/A ................. Subpart C ...... § 422.101 ....... N/A ................. N/A 

II.E.4 ...................... Technical Change 

to Private 

Fee-For-Service 

Plan Explanation of Benefits Requirements.

N/A ................. N/A ................. Subpart E ...... § 422.216 ....... N/A ................. N/A 

II.E.5 ...................... Application Requirements for 

Special Needs 

Plans.

N/A ................. N/A ................. Subpart K ...... § 422.500, 

§ 422.501, 

§ 422.502.

N/A ................. N/A 

Subpart N ...... § 422.641, 

§ 422.660.

II.E.6 ...................... Timeline for Resubmitting Previously Denied 

MA Applications.

N/A ................. N/A ................. Subpart K ...... § 422.501 ....... N/A ................. N/A 

II.E.7 ...................... Clarification of 

Contract Requirements for 

First Tier and 

Downstream 

Entities.

N/A ................. N/A ................. Subpart K ...... § 422.504 ....... Subpart K ...... § 423.505 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
63056 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

TABLE 5—PROVISIONS TO CLARIFY PROGRAM REQUIREMENTS—Continued 

Preamble section Provision 

Part 417 Part 422 Part 423 

Subpart Section Subpart Section Subpart Section 

II.E.8 ...................... Valid Prescriptions N/A ................. N/A ................. N/A ................. N/A ................. Subpart C ...... § 423.100, 

§ 423.104 

II.E.9 ...................... Medication Therapy Management Comprehensive 

Medication Reviews and 

Beneficiaries in 

LTC Settings.

N/A ................. N/A ................. N/A ................. N/A ................. Subpart D ...... § 423.153 

II.E.10 .................... Employer Group 

Waiver Plans 

Requirement to 

Follow All Part 

D Rules Not Explicitly Waived.

N/A ................. N/A ................. N/A ................. N/A ................. Subpart J ....... § 423.458 

II.E.11 .................... Access to Covered Part D 

Drugs Through 

Use of Standardized Technology and National Provider 

Identifiers.

N/A ................. N/A ................. N/A ................. N/A ................. Subpart C ...... § 423.120 

1. Technical Corrections to Enrollment 

Provisions (§ 417.422, § 417.432, 

§ 422.60, and § 423.56) 

In our April 15, 2011 final rule (76 FR 

21442), we amended § 423.38(d) to 

codify changes to the Annual 

Coordinated Election Period (AEP) 

mandated by the Affordable Care Act. 

Specifically, section 3204 of the 

Affordable Care Act changed the AEP to 

October 15 through December 7 for 2011 

and future years. In making this change, 

we inadvertently neglected to revise a 

reference to the former AEP timeframe 

noted in § 423.56 (Procedures to 

determine and document creditable 

status of prescription drug coverage). 

This section requires the disclosure of 

creditable coverage to beneficiaries prior 

to the start of the AEP and specifically 

references the old date (that is, 

November 15). To make this section 

consistent with the statute, we are 

proposing to amend § 423.56(f)(3) to 

remove the outdated AEP reference. 

In the April 2011 final rule (76 FR 

21525), we also amended our 

regulations at § 417.430 to permit CMS 

approval of alternative enrollment 

mechanisms for cost plans in addition 

to paper forms, such as electronic 

enrollment. In making this revision, we 

unintentionally overlooked other 

sections in this subpart that referenced 

enrollment mechanisms for cost plans. 

Specifically, § 417.422 (Eligibility to 

enroll in an HMO or CMP) and 

§ 417.432 (Conversion of enrollment) 

specifically reference the requirement 

for a beneficiary signature on an 

enrollment form. Because it was our 

intent to broaden enrollment 

mechanisms for cost plans to go beyond 

paper enrollment forms, we believe we 

should have revised the sections above 

to remove requirements for signatures. 

Therefore, we are proposing to revise 

§ 417.422(d) and § 417.432(d) to remove 

references to signatures and state that 

individuals must complete an 

application form or ‘‘another CMSapproved election mechanism’’ in order 

to meet enrollment requirements. 

In addition, we are proposing to 

correct an outdated cross-reference at 

§ 422.60(c) (Election process). This 

paragraph currently references 

marketing rules formerly located at 

§ 422.80. These requirements were 

moved to § 422.2262 (Review and 

distribution of marketing materials) in 

previous rulemaking. 

2. Extending MA and Part D Program 

Disclosure Requirements to Section 

1876 Cost Contract Plans (§ 417.427) 

In our April 2010 final rule (75 FR 

19783 through 19785), we exercised our 

authority under sections 1876(c)(3)(C) 

and 1876(i)(3)(D) of the Act to extend 

the MA marketing requirements to 

section 1876 cost contract plans. Under 

section 1876(c)(3)(C) of the Act, we may 

regulate marketing of plans authorized 

under section 1876 of the Act to ensure 

that marketing material is not 

misleading. Section 1876(i)(3)(D) of the 

Act gives the Secretary the authority to 

impose ‘‘other terms and conditions’’ 

under contracts authorized by the 

statute that the Secretary finds 

‘‘necessary and appropriate.’’ As a 

result, since contract year 2010, cost 

plan contractors have been required to 

follow all marketing requirements 

specified in Subpart V of Part 422, with 

the exception of § 422.2276, which 

permits an MA organization to develop 

marketing and informational materials 

specifically tailored to members of an 

employer group who are eligible for 

employer-sponsor benefits through the 

MA organization, as well as waives 

requirements to review such materials. 

As we noted in our April 2010 final rule 

(75 FR 19785) extending MA marketing 

requirements to cost contracts, the 

statutory authority under section 

1857(i)(1) of the Act, which permits the 

Secretary to waive certain requirements 

for employer group plans under the MA 

program, does not apply to cost plans. 

In extending the marketing 

requirements to cost contract plans in 

our April 2010 final rule, we neglected 

to extend the MA organization and Part 

D sponsor disclosure requirements, at 

§ 422.111 and § 423.128, respectively, to 

cost contract plans. We believe that 

extending these provisions would also 

be appropriate, given the close 

relationship between the marketing 

requirements in Subpart V of Parts 422 

and 423 and the disclosure 

requirements at § 422.111 and § 423.128. 

These provisions require MA 

organizations and Part D sponsors to 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63057 

disclose to enrollees, at the time of 

enrollment and annually thereafter (in 

the form of an annual notice of change/ 

evidence of coverage, or ANOC/EOC 

mailing), certain detailed information 

about plan benefits, service area, 

provider and pharmacy access, 

grievance and appeal procedures, 

quality improvement programs, and 

disenrollment rights and 

responsibilities. They also require the 

provision of certain information and 

establish requirements with respect to: 

(1) the explanations of benefits notice; 

(2) customer service call centers; and (3) 

internet Web sites. Thus, these 

requirements are closely tied to the 

marketing requirements of Subpart V of 

Parts 422 and 423. In order to ensure 

that cost contract plan enrollees have all 

the information they need about their 

health care benefits, we believe that cost 

contract plans should also be subject to 

all the same disclosure requirements as 

MA organizations and Part D sponsors. 

Therefore, we propose to extend the 

disclosure requirements in § 422.111 

and § 423.128 to cost contract plans by 

adding a new § 417.427. 

3. Clarification of, and Extension to 

Local Preferred Provider Plans, of 

Regional Preferred Provider 

Organization Plan Single Deductible 

Requirement (§ 422.101) 

Section 1858(b) of the Act provides 

that, to the extent RPPO plans use a 

deductible, any such deductible must be 

a single deductible, rather than separate 

deductibles for Parts A and Part B 

benefits. This single deductible may be 

applied differentially for in-network 

services and may be waived for 

preventive or other items and services. 

Our regulations at § 422.101(d)(1) track 

the language in the statute closely. They 

require that RPPO plans, to the extent 

they apply a deductible, apply only a 

single deductible related to combined 

Medicare Part A and Part B services. 

They also allow the single deductible to 

be differential for specific in-network 

services and to be waived for preventive 

services or other items and services, at 

the plan’s option. However, both the 

statute and our regulations are silent 

with respect to any deductible 

requirements for local preferred 

provider organization (LPPO) plans. 

Consequently, in practice, LPPO plans 

may have a variety of deductible 

designs, including separate in-network 

and out of network deductibles. 

We propose to make three changes to 

our regulations at § 422.101(d)(1) to both 

clarify current requirements with 

respect to the application of a single 

deductible and to level the playing field 

between LPPO and RPPO plans by 

extending the RPPO rules to LPPOs. 

Specifically, we propose clarifying the 

application of the differential of the 

single deductible for in-network 

services, and modifying our current 

regulations to take into account recent 

rulemaking under which MA plans 

must provide certain Medicare-covered 

preventive services at zero cost sharing. 

We propose to rely upon our authority 

at section 1856(b)(1) of the Act to 

establish MA standards by regulation, 

and in section 1857(e)(1) of the Act to 

impose additional terms and conditions 

found necessary and appropriate, to 

extend the RPPO single deductible 

requirements by regulation to LPPOs. 

We believe that having the same rules 

for LPPOs and RPPOs supports 

transparency and comparability of 

options for beneficiaries when they 

evaluate and select plans for enrollment. 

In previous rulemaking, we have taken 

steps to align the plan design 

requirements for RPPOs and LPPOs. For 

example, in our April 2010 final rule (76 

FR 21507 through 21508) that made 

revisions to the MA and Part D 

programs for CY 2012, we extended the 

same maximum out-of-pocket (MOOP) 

and catastrophic limits we had 

previously codified for LPPOs (75 FR 

19709 through 19711) to RPPOs. In the 

interest of transparency, alignment in 

benefit design between RPPO and LPPO 

plans, and comparability for 

beneficiaries making health care 

coverage elections, we propose to 

extend to LPPOs the single deductible 

requirements at § 422.101(d)(1). We 

would clarify the rules that would now 

apply to both LPPO and RPPO plans as 

set forth late in this section. 

As discussed previously, we propose 

to clarify at § 422.101(d)(1) that an LPPO 

or RPPO single deductible ‘‘may be 

applied differentially for in-network 

services,’’ as provided under section 

1858(b) of the Act. We currently furnish 

interpretive guidance and examples of 

the application of the single deductible 

in section 50.3 of Chapter 4 of the 

Medicare Managed Care Manual, 

‘‘Benefits and Beneficiary Protections’’ 

http://www.cms.gov/manuals/ 

downloads/mc86c04.pdf). However, we 

believe there may still be confusion 

with respect to how these requirements 

are articulated in our regulations and 

therefore propose amending 

§ 422.101(d)(1) to add paragraphs (i) 

through (iii) clarifying that an RPPO or 

LPPO that chooses to apply a deductible 

may both— 

• Specify different deductibles for 

particular in-network Parts A and B 

services, provided that all of these 

service-specific deductibles are applied 

to the overall, single plan deductible; 

and 

• Choose to exempt specific plancovered items or services from the 

deductible—that is, the LPPO or RPPO 

may choose to always cover specific 

items or services at plan established 

cost-sharing levels whether or not the 

deductible has been met. For example, 

under our regulations, an LPPO or RPPO 

could establish a single combined 

deductible of $1,000 but limit the 

amount of the deductible that applies to 

in-network inpatient hospital services to 

$500, and the amount that applies to innetwork physician services to $100. 

This RPPO could also exempt 

application of the deductible to 

particular services—for example, all 

home health services (in- and out-ofnetwork). 

In our April 2011 final rule (76 FR 

21475 and 21476), we established a new 

requirement for MA organizations to 

provide certain in-network Medicarecovered preventive benefits at zero cost 

sharing. As provided under 

§ 422.100(k), MA organizations, 

including those offering PPO plans, may 

not charge deductibles, copayments, or 

coinsurance for in-network Medicarecovered preventive services specified in 

§ 410.152(l). We are therefore proposing 

to eliminate references to the option in 

both LPPO and RPPO plans to exclude 

preventive services from the single 

deductible at § 422.101(d)(1), and are 

proposing adding a new paragraph 

§ 422.101(d)(1)(iv) to explicitly require 

LPPO and RPPO plans to exclude 

certain Medicare-covered preventive 

services (as defined in § 410.152(l)) from 

the single, combined deductible for each 

plan. 

4. Technical Change to Private Fee-forService Plan Explanation of Benefits 

Requirements (§ 422.216) 

In our April 15, 2011 final rule (76 FR 

21504 through 21507) implementing 

changes to the MA and Medicare 

Prescription Drug Programs for Contract 

Year 2012, we finalized regulations at 

§ 422.111(b)(12) giving us the authority 

to require MA organizations to furnish 

directly to enrollees, in the manner 

specified by CMS and in a form easily 

understandable to such enrollees, a 

written explanation of benefits, when 

benefits are provided under this part. 

We expressed our intention to work 

with MA organizations, Part D sponsors, 

and beneficiary advocates to develop an 

EOB for Part C benefits and to test the 

EOB in CY 2012 through a small, 

voluntary pilot program. In our April 

2011 final rule (76 FR 21505), we also 

stated our intention to finalize a model 

EOB in the future, based on the results 


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of the pilot program and to require all 

MA organizations to periodically send 

an EOB to enrollees for Part C benefits. 

We did not specifically discuss 

private fee-for-service (PFFS) plans in 

our April 2010 final rule because 

section 1852(k)(2)(c) of the Act and 

§ 422.216(d)(1) already require PFFS 

plans to provide an EOB to enrollees. 

Our current regulations at 

§ 422.216(d)(1) specify that PFFS plans 

must provide an appropriate EOB to 

plan enrollees for each claim filed by 

the enrollee or the provider that 

furnished the service. The explanation 

must include a clear statement of the 

enrollee’s liability for deductibles, 

coinsurance, copayment, and balance 

billing. In the interest of consistency for 

beneficiaries and MA organizations, we 

propose to amend § 422.216(d)(1) to 

state that the EOB requirement for PFFS 

plans will be consistent with the MA 

EOB requirements of § 422.111(b)(12). 

The standard EOB that we are currently 

developing and piloting for most other 

MA plan types will include the same 

information as currently required for 

PFFS plans, as well as plan maximum 

out-of-pocket (MOOP) cost information. 

Adding this cross-reference to 

§ 422.216(d)(1) would provide 

consistency in EOB requirements as 

well as submission and approval of 

marketing materials across plan types. 

Since the pilot program is in progress 

during the CY 2013 rule development 

cycle and we would not have finalized 

EOB requirements based on the pilot 

prior to publication of the CY 2013 final 

rule, we propose that PFFS plans would 

continue to furnish EOBs as they have 

been, in accordance with 

§ 422.216(d)(1), until we finalize and 

implement EOB models for all MA 

plans. 

5. Application Requirements for Special 

Needs Plans (§ 422.500, § 422.501, 

§ 422.502, § 422.641, and § 422.660) 

Several of the regulations 

implementing section 1859(f) of the Act, 

including § 422.101(f), § 422.107, and 

§ 422.152(g), establish specific 

requirements for Special Needs Plans 

(SNPs). Specifically, § 422.101(f) 

requires that MAOs offering a SNP 

implement an evidence-based model of 

care to be evaluated by NCQA as part of 

the SNP approval requirement; 

§ 422.107 requires that Dual Eligible 

SNPs (D–SNPs) have a contract with the 

State Medicaid Agencies in the States in 

which they operate; and § 422.152(g) 

requires that SNPs conduct a quality 

improvement program. These SNPspecific requirements have been 

incorporated into the MA application 

for MAOs that wish to offer a SNP so 

that these MAOs can demonstrate that 

they meet CMS’ SNP specific 

requirements and are capable of serving 

the vulnerable special needs individuals 

who enroll in SNPs. 

Current regulations on application 

procedures for MAOs, found at: 

§ 422.500, § 422.501, and § 422.502, are 

specific only to an applicant that is 

seeking to contract as a MAO offering an 

MA plan, and do not specify the rights 

and responsibilities of an applicant that 

seeks to offer a SNP. Additionally, 

regulations on Medicare Contract 

Determinations and Appeals, found at 

§ 422.641 and § 422.644, also pertain 

only to applicants that have been 

determined unqualified to enter into an 

MA contract, and do not provide for 

appeal rights to applicants who have 

been determined unqualified to offer a 

SNP. Given that every applicant that 

seeks to offer a SNP engages in an 

intensive application process to 

demonstrate that it meets the 

requirements unique to SNPs in the 

same manner, according to the same 

processes and on the same timeline as 

applicants seeking to contract as MAOs, 

we believe it is important to provide 

SNP applicants with the same rights and 

responsibilities as applicants applying 

to contract as MAOs. We further believe 

it important to clarify that each 

applicant that has been determined 

unqualified to offer a SNP has the same 

right to an administrative review 

process to each applicant that has been 

determined unqualified to enter into an 

MA contract. 

Therefore, in accordance with section 

1859(f) of the Act, we propose to 

broaden our regulations on Application 

Requirements and Evaluation and 

Determination Procedures to also apply 

to SNP applicants. Specifically, we 

propose to revise the language in 

§ 422.500(a) and § 422.501(a) to specify 

that the scope of these provisions 

include the specific application 

requirements for SNPs. We also propose 

to add paragraph (iii) to § 422.501(c)(1) 

to specify the documentation SNP 

applicants must provide to complete an 

application. Furthermore, we propose to 

revise § 422.502(a) and § 422.502(c) to 

specify that our regulations on 

application evaluations and 

determinations apply to SNP 

applications. Additionally, in 

accordance with section 1859(f) of the 

Act, we propose to provide explicit 

appeal rights to each applicant that has 

been determined unqualified to offer a 

SNP for failure to meet the requirements 

in section 1859(f) of the Act and its 

implementing regulations. To do so, we 

propose adding a new paragraph (d) to 

§ 422.641, a new paragraph (a)(5) to 

§ 422.660, and a new paragraph (b)(5) to 

§ 422.660. We believe the proposed 

changes would ensure that only MA 

organizations capable of meeting the 

requirements to serve Special Needs 

Individuals are able to target their 

enrollment to this vulnerable 

population, while also affording each 

MA organization that has been 

determined unqualified to offer a SNP 

the opportunity to have this decision 

reviewed by an impartial hearing 

officer. 

6. Timeline for Resubmitting Previously 

Denied MA Applications (§ 422.501) 

Section 1857(a) of the Act requires 

organizations that wish to participate in 

the MA program enter into a contract 

with the Secretary, under which the 

organization agrees to comply with 

applicable MA program requirements 

and standards. In order for us to 

determine whether these program 

requirements and standards have been 

met, the organization must complete an 

application in the manner described at 

Subpart K of Part 422. Section 422.501 

sets forth the required elements of such 

an application. Under § 422.501(e), 

entities that are seeking to contract with 

the Secretary as an MA organization 

may not resubmit an application that 

has been denied by CMS for 4 months 

following CMS’ denial. This 4-month 

prohibition on resubmitting a 

previously-denied application is 

obsolete and inconsistent with current 

agency practices. Presently, we operate 

on an annual application cycle whereby 

the established submission date for new 

applications (February of each year) 

occurs well after the specified date by 

which we deny the previous contract 

year’s applications (May of the previous 

year). A literal reading of § 422.501(e) 

means that an application that is denied 

in May of 1 year could be resubmitted 

as early as September (4 months later), 

and well before the release of the 

application for the following contract 

year which typically occurs in 

December or January, in advance of the 

February submission deadline. In order 

to bring § 422.501 up to date, we 

propose revising paragraph (e) to clarify 

that every organization seeking to 

become an MA organization must wait 

until the application cycle for the 

following contract year to resubmit an 

application that has been denied in the 

current contract year’s application 

cycle. 


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7. Clarification of Contract 

Requirements for First Tier and 

Downstream Entities (§ 422.504 and 

§ 423.505) 

The regulations at § 422.504(i) and 

§ 423.505(i) require MA organizations 

and Part D sponsors to require all of the 

first tier, downstream, and related 

entities to which they have delegated 

the performance of certain Part C or D 

functions to agree to certain obligations. 

In particular, the regulations require 

sponsors to have ‘‘contracts or written 

arrangements’’ that provide, for 

example: (1) For the delegated entity to 

carry out its contract in a manner 

consistent with the sponsor’s Medicare 

contract obligations; (2) that the sponsor 

may revoke the contract if the sponsor 

determines that the delegated entity has 

not performed satisfactorily; and (3) that 

the sponsor on an ongoing basis 

monitors the performance of the 

delegated entity. We believed it was 

clear that the language of § 422.504(i) 

and § 423.505(i) required that all 

contracts governing the relationships 

among a sponsor and all of its delegated 

entities (that is, those between the 

sponsor and its first tier entity; those 

between the first tier entity and any 

downstream entity; and those between 

downstream entities) contain provisions 

specifically addressing each of the 

required elements stated in the 

respective paragraphs. That is, each 

contract was required to contain ‘‘flow 

down’’ clauses through which each 

delegated entity would become legally 

obligated to honor the provisions of 

§ 422.504(i) and § 423.505(i). 

In the solicitations for applications for 

qualification of MA organizations and 

Part D sponsors, we instructed 

applicants that all contracts with 

delegated entities provided for our 

review must include language 

addressing all of the elements stated in 

§ 422.504(i) and § 423.505(i). We took 

this position because: (1) We believed 

that the requirement was clearly stated 

in the regulation; and (2) as the sponsor 

cannot enforce a contract to which it is 

not a party (that is, it has no privity of 

contract with its downstream entities), 

the only way to give the provisions of 

§ 422.504(i) and § 423.505(i) full effect is 

to require that each subcontract 

specifically describe the delegated 

entity’s obligations to the sponsor. 

This interpretation was challenged in 

2010 by an organization whose Part D 

sponsor qualification application was 

denied when we determined, among 

other things, that the contract between 

the applicant’s first tier and downstream 

entities incorrectly made reference to 

the rights of the first tier entity, rather 

than the applicant, in the contract 

sections the applicant intended to meet 

the requirements of § 423.505(i). While 

the hearing officer upheld CMS’ denial 

of the application, in the interest of 

providing transparency and clarity for 

the healthcare industry, we have 

decided to amend the regulation. The 

changes to the regulation will help 

future applicants avoid confusion about 

the requirements related to contracts 

with first tier and downstream entities, 

thus helping to streamline the 

application process. 

We believe that the most legally 

effective and direct way to ensure that 

the MAOs and Part D sponsors retain 

the necessary control and oversight over 

their delegated entities is by requiring 

all contracts among those entities to 

specifically reference each party’s 

obligations to the sponsor, as 

enumerated in § 422.504(i) and 

§ 423.505(i). Documents or ‘‘written 

arrangements’’ other than contracts can 

be ambiguous as to the nature of an 

obligation and who has agreed to 

perform it. They are unreliable tools for 

the protection of the rights of sponsors 

with respect to the performance of their 

Medicare obligations by their delegated 

entities. Assurances from delegated 

entities that they will provide necessary 

instructions to other downstream 

entities should the need arise are 

equally ineffective as they provide no 

evidence that the downstream entity 

could be compelled to follow such 

instructions. Therefore, we propose to 

make explicit that sponsors can fulfill 

the requirements of § 422.504(i) and 

§ 423.505(i) only by providing evidence 

that the contract of every first tier or 

downstream entity contains provisions 

stating clearly that the parties have 

agreed to recognize and give effect to the 

sponsor’s rights as listed in those 

subsections. Accordingly, we propose to 

delete the term ‘‘written arrangements’’ 

throughout § 422.504(i) and § 423.505(i) 

and in each instance replace it with 

‘‘each and every contract.’’ 

8. Valid Prescriptions (§ 423.100 and 

§ 423.104) 

Since the inception of the Part D 

program, we have consistently 

maintained that drugs cannot be eligible 

for Part D coverage unless they are 

dispensed upon prescriptions that are 

valid under applicable State law. Using 

our authority in section 1860D– 

12(b)(3)(D), we propose to codify this 

policy to remove any doubt as to the 

appropriate source of law to consult 

when determining whether a 

prescription is valid. 

We propose, first, to add a definition 

of the term ‘‘valid prescription’’ to 

§ 423.100 to mean a ‘‘prescription that 

complies with all applicable State law 

requirements constituting a valid 

prescription.’’ This would make clear 

the need to consult State law to 

determine whether a prescription is 

valid. 

We would like to underscore that we 

do not intend to impose any State law 

requirements that do not otherwise 

apply. Rather, our proposal is that 

prescriptions must comply with 

applicable State law requirements; there 

is no need to comply with State law 

requirements to the extent that they do 

not apply. The two following examples 

illustrate our intent. Some States require 

that insulin syringes be dispensed upon 

prescription only, while other States do 

not. We would not require prescriptions 

for coverage of insulin syringes under 

Part D in those States that do not 

mandate prescriptions, but would 

require prescriptions for Part D coverage 

in States that require insulin be 

dispensed only upon prescription. The 

second example involves the Indian 

Health Care Improvement Act (IHCIA), 

which: (1) Provides that licensed health 

professionals employed by a tribal 

health program need not be licensed in 

the State in which the program performs 

services; and (2) exempts specified 

health facilities from obtaining State 

licenses provided they otherwise meet 

State law requirements. The proposed 

changes would not necessitate either 

that these licensed professionals obtain 

additional State licenses or that the 

specified facilities obtain initial State 

licenses. 

We also propose to add a new 

paragraph (h) to § 423.104 stating that, 

for every Part D drug that requires a 

prescription, Part D sponsors may only 

provide benefits when that drug is 

‘‘dispensed upon a valid prescription’’. 

In tandem with the proposed definition 

of the term valid prescription previously 

discussed, these changes would ensure 

that, for drugs and other items that must 

be prescribed (including biological 

products and some insulin and 

specified associated supplies), Part D 

coverage would be limited to those 

dispensed upon valid prescriptions 

under applicable State law. 

At this time, we are not aware of any 

State that requires that each electronic 

or written prescription include the 

prescriber’s individual NPI in order for 

that prescription to be valid. But as is 

discussed in section II.E.11. of this 

proposed rule, Access to Covered Part D 

Drugs through Use of Standardized 

Technology and National Provider 

Identifiers, we believe that linking 

individual NPIs to specific prescriptions 

may provide law enforcement agencies 


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with information that could be essential 

to identifying and prosecuting the 

particular individuals committing or 

abetting fraud, waste, or abuse. 

Accordingly, we are taking this 

opportunity to encourage States to 

require that every prescription include 

the individual NPI of the prescriber in 

order to be valid under State law. 

9. Medication Therapy Management 

Comprehensive Medication Reviews 

and Beneficiaries in LTC Settings 

(§ 423.153) 

Section 1860D–4(c)(2) of the Act 

requires medication therapy 

management (MTM) programs to be 

designed to ensure that, with respect to 

targeted beneficiaries described in 

section 1860D–4(c)(2)(A)(ii) of the Act, 

covered Part D drugs are appropriately 

used to optimize therapeutic outcomes 

through improved medication use and 

to reduce the risk of adverse events. 

Section 10328 of the Affordable Care 

Act further amended section 1860D– 

4(c)(2)(ii) of the Act to require 

prescription drug plan sponsors to 

perform at a minimum, an annual 

comprehensive medication review that 

may be furnished person-to-person or 

via telehealth technologies. The 

comprehensive medication review must 

include a review of the individual’s 

medications, which may result in the 

creation of a recommended medication 

action plan with a written or printed 

summary of the results of the review 

provided to the targeted individual. 

In the November 2010 proposed rule, 

we proposed to revise the regulations at 

§ 423.153 to require plan sponsors to 

offer an annual comprehensive medical 

review (CMR) for targeted beneficiaries, 

which must include an interactive, 

person-to-person, or telehealth 

consultation performed by a pharmacist 

or other qualified provider. In response 

to the proposal, a commenter indicated 

that LTC residents with cognitive 

impairments may not have the ability to 

interact appropriately with providers or 

pharmacists during the CMR when 

using telehealth technologies. In the 

April 2011 final rule, we responded by 

agreeing that the use of telehealth 

technologies for conducting CMRs may 

not be appropriate for all beneficiaries. 

We also recognized and agreed that 

beneficiaries residing in LTC facilities 

who have cognitive impairments may be 

unable to participate in an interactive 

CMR. The current regulations at 

§ 423.153(d)(1)(vii)(B) reflect this 

awareness by exempting sponsors from 

offering interactive CMRs to targeted 

beneficiaries in LTC settings; however, 

the Act, as amended by section 10328 of 

the Affordable Care Act, does not 

provide a basis for distinguishing the 

offering of MTM services based on 

settings. Since the Affordable Care Act 

provision for MTM programs was not 

effective until 2013, in the April 2011 

final rule, we indicated that we would 

undertake further rulemaking to clarify 

the requirements for MTM programs to 

offer CMRs to targeted beneficiaries in 

LTC settings. 

We generally agree with the 

commenter that it is likely that many 

patients in LTC settings may not be 

lucid enough to participate in the CMRs, 

nor might they be able to comprehend 

the resulting medication action plan 

that is provided as a result. However, 

we believe that consistent with 

section1860D–4(c)(2)(A)(i) all targeted 

beneficiaries in LTC settings must be 

offered the opportunity to participate in 

the annual CMR, since not all residents 

of LTC settings are cognitively impaired. 

We also believe that beneficiaries will 

still benefit from having a noninteractive CMR performed by a 

pharmacist or other qualified provider. 

Accordingly, we propose to revise the 

regulation at § 423.153 to require 

sponsors to offer the annual CMR to 

targeted beneficiaries in an LTC facility, 

but when the beneficiary cannot accept 

the offer to participate, the pharmacist 

or other qualified provider must 

perform the medication review without 

the beneficiary. This provision would 

give the pharmacist or provider the 

ability to perform the medication review 

without the encumbrance of attempting 

to communicate with a patient who 

cannot make decisions regarding their 

medical needs. In such cases, we 

recommend that the pharmacist, or 

qualified provider, reach out to the 

beneficiary’s prescriber, caregiver, or 

other authorized individual such as the 

residents’ health care proxy or legal 

guardian, to take part in the 

beneficiary’s CMR. 

10. Employer Group Waiver Plans 

Requirement To Follow All Part D Rules 

Not Explicitly Waived (§ 423. 458) 

The Secretary has the statutory 

authority to waive or modify 

requirements that hinder the design of, 

the offering of, or the enrollment in, 

employer/union sponsored prescription 

drug plans (PDPs). The statutory 

authority, set forth in section 1860D– 

22(b) of the Act, provides that the 

provisions of section 1857(i) of the Act 

shall apply with respect to prescription 

drug plans in relation to employmentbased retiree health coverage in a 

manner similar to the manner in which 

they apply to an MA plan in relation to 

employers, including authorizing the 

establishment of separate premium 

amounts for enrollees in a prescription 

drug plan by reason of such coverage 

and limitations on enrollment to Part D 

eligible individuals enrolled in such 

coverage. 

Under this statutory authority, in 

order to facilitate the offering of PDPs to 

employer/union group health plan 

sponsors, we may grant waivers and/or 

modifications to PDP sponsors. In 

general, each waiver or modification 

that we grant is conditioned upon the 

PDP sponsor meeting a set of defined 

circumstances and complying with a set 

of conditions. PDP sponsors offering 

EGWPs must comply with all Part D 

requirements unless those requirements 

have been specifically waived or 

modified. 

It has come to our attention that some 

EGWPs that provide Part D benefits to 

their members may not be affording 

their members appropriate Medicare 

beneficiary protections put in place by 

CMS regulations or guidance. Based 

upon discussions we have had with 

sponsors of EGWPs, some sponsors 

believe they are exempt from Part D 

requirements when providing Part D 

benefits because of the CMS waiver of 

the requirement that EGWP sponsors 

submit plan benefit packages for CMS 

review (see section 20.9 of Chapter 12 

of the Medicare Prescription Drug 

Benefit Manual). Regardless of whether 

plan benefit packages are submitted for 

review, Part D sponsors of EGWPs must 

meet all Part D requirements (regulatory 

or legislative) unless such requirements 

are specifically waived or modified by 

CMS. Therefore, in order to emphasize 

the importance of providing EGWP 

members with beneficiary protections 

put in place by Part D requirements, we 

propose to revise § 423.458 to clearly 

state that in the absence of a CMS 

approved waiver, all Part D 

requirements apply and in the case of a 

CMS approved waiver that modifies the 

application of Part D requirements, such 

requirements must be met as modified 

by the waiver. 

11. Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (§ 423.120) 

Every time a beneficiary fills a 

prescription under Medicare Part D, a 

sponsor must submit to CMS an 

electronic summary record called a 

prescription drug event (PDE). We 

require that Part D sponsors obtain and 

submit prescriber identifiers on PDE 

records. Every prescriber has at least 

one identifier that can be submitted. 

These identifiers include the National 

Provider Identifier (NPI), Drug 

Enforcement Administration (DEA) 


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number, uniform provider identification 

number (UPIN), or State license number. 

In a June 2010 report titled, ‘‘Invalid 

Prescriber Identifiers on Medicare Part 

D Drug Claims,’’ the OIG reported the 

findings of its review of prescriber 

identifiers on 2007 Part D PDE records. 

The OIG reported finding 18.4 million 

PDE records that contained 527,749 

invalid identifiers, including invalid 

NPIs, DEA registration numbers, and 

UPINs. Payments by Part D drug plans 

and enrollees for these PDE records 

totaled $1.2 billion. 

In light of this report, in the 

Announcement of Calendar Year (CY) 

2012 Medicare Advantage Capitation 

Rates and Medicare Advantage and Part 

D Payment Policies and Final Letter 

issued on April 4, 2011 (CY 2012 Call 

Letter), we stated that we will continue 

in 2012 to permit Medicare Part D 

sponsors to report on PDE records any 

one of the above four identifiers. 

However, sponsors were instructed to 

ensure these identifiers are active and 

valid, but not to reject a pharmacy claim 

solely on the basis of an invalid 

prescriber identifier in order to not 

impede Medicare beneficiary access to 

needed medications. Thus, if an active 

and valid prescriber ID is not included 

on the Part D claim for CY 2012, either 

the sponsor, or the pharmacy if in 

accordance with the contractual terms 

of the network pharmacy agreement, 

must follow up retrospectively to 

acquire a valid ID before the PDE is 

submitted to CMS. The only exception 

to this guidance is that a foreign 

prescriber identifier cannot be 

validated, and therefore sponsors are 

directed to use the license number 

assigned by the foreign jurisdiction and 

report it on the PDE without validation 

(when prescriptions written by such 

prescribers are valid under applicable 

State law). 

We also signaled in the CY 2012 Call 

Letter that we were considering a 

regulatory change in the Part D program 

that would limit acceptable prescriber 

identifiers on claims and PDE records in 

2013 to only the individual NPI. We 

indicated that since all practitioners 

who are authorized to prescribe Part D 

drugs under applicable U.S. State laws, 

which would include foreign 

prescribers whose prescriptions are 

valid in certain States, can acquire an 

individual NPI from HHS, we do not 

believe such a change would present a 

significant access barrier to needed Part 

D drugs for Medicare beneficiaries, as 

we explain more fully in this section of 

the proposed rule. 

As we noted in the CY 2012 Call 

Letter, the consistent use of a single 

validated identifier would enable us to 

provide better oversight over possible 

fraudulent activities. As a measurable 

indicator, we know that approximately 

90 percent of Medicare Part D claims as 

reported in prescription drugs events 

(PDEs) currently submitted to CMS 

contain valid individual prescriber 

NPIs—a single identifier—even though 

CMS permits alternate prescriber IDs at 

this time. Thus, while the vast majority 

of Medicare Part D claims contain 

individual NPIs, 10 percent still do not, 

and CMS believes it is important for 

prescribers to be identified in a 

consistent, verifiable manner in order to 

conduct appropriate oversight of the 

program. 

More specifically, CMS, MEDICs, and 

oversight agencies would be able to 

more efficiently identify patterns of 

unusual prescribing that may be 

associated with fraudulent activities. 

When multiple prescriber identifiers, 

not to mention dummy or invalid 

identifiers, are used, authorities must 

take an additional step in their data 

analysis before even achieving a refined 

data set to use for further analysis to 

identify possible fraud. For example, 

having to cross-reference multiple 

databases that update on different 

schedules to be certain of the precise 

prescribers involved when multiple 

identifiers were used, would necessitate 

several additional steps of data preanalysis and would also introduce 

potential errors in correctly matching 

prescribers among databases. 

Pursuant to HIPAA, HHS adopted the 

NPI as the standard for uniquely 

identifying health care providers in 

electronic transactions in the final rule 

published on January 23, 2004 (69 FR 

3434), which was effective May 23, 

2005, the date on which all health care 

providers, broadly defined in 45 CFR 

160.103, became eligible for NPIs. By 

Mary 23, 2008, all covered health care 

providers, defined in 45 CFR 162.402, 

must have obtained an NPI. Covered 

health care providers must disclose 

their NPI to other entities that need the 

NPI for use in standard transactions. 

Health care providers who are not 

covered entities are not required to 

obtain and disclose NPIs, but HHS 

encourages them to do so in the NPI 

final rule (69 FR 3445, January 23, 

2004). Therefore, we believe there are 

very few prescribers who do not already 

have an individual NPI that they will 

disclose to Part D sponsors and/or their 

network pharmacies who need it for 

standard transactions, with the 

exception of foreign prescribers, whom 

we discuss in greater detail later in this 

section of the proposed rule. In 

addition, for those health care providers 

who do not already have an NPI, 

obtaining one is not a burdensome 

endeavor and is free of charge. 

In light of the foregoing, we propose 

to amend § 423.120(c) to require, 

effective January 1, 2013, that Part D 

sponsors must submit an active and 

valid individual prescriber NPI on any 

PDE record submitted to CMS. This 

requirement would enhance our efforts 

to use claims data to identify fraud in 

furtherance of section 1893 of the Act, 

which established the Medicare 

Integrity Program and the Secretary’s 

obligations with respect thereto. In 

addition to supporting CMS fraud and 

abuse activities, accurate data on 

prescriptions through the consistent use 

of valid NPIs on PDEs allows CMS to 

serve beneficiaries when using data in 

various initiatives whose purpose is to 

foster higher quality and more efficient 

coordination of care for individuals and 

groups of individuals. 

In this regard, we are also proposing 

to codify our current guidance that 

sponsors may not reject a pharmacy 

claim solely on the basis of the lack of 

a valid prescriber NPI, unless the issue 

can be resolved at point-of-sale, in order 

to not impede Medicare beneficiary 

access to needed medications. In other 

words, Part D sponsors may not reject 

pharmacy claims at point of sale 

without prompt follow-up to ensure that 

the claim has been resubmitted with a 

corrected and valid individual 

prescriber NPI, or new information has 

been otherwise received to correct the 

sponsor’s information. Once a 

prescriber’s NPI is obtained and used in 

a Part D claim, it will be in the Part D 

sponsor’s and/or network pharmacy’s 

patient information database for ongoing 

use, so any efforts needed to obtain 

corrected or missing NPIs will decrease 

over time. 

Our proposal means that if a correct 

and valid individual prescriber NPI is 

not included in the pharmacy claim, 

and it is determined that the prescriber 

does not have one and the claim is 

otherwise payable (for example, no 

indication of fraud, the prescription is 

not written by a provider excluded from 

the Medicare program, or no question 

regarding coverage), the sponsor must 

pay the claim, but cannot submit the 

PDE to CMS. Thus, if an active and 

valid prescriber ID is not included on 

the Part D claim, either the sponsor, or 

the pharmacy if in accordance with the 

contractual terms of the network 

pharmacy agreement, must follow up 

retrospectively to acquire an active and 

valid ID before the PDE may be 

submitted to CMS. As noted previously, 

we believe prescribers’ NPIs will be 

widely available to Part D sponsors. 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
63062 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

We remind Part D sponsors that the 

requirements proposed here are on 

sponsors, whose responsibility it would 

be to be able to submit PDEs to CMS 

with individual prescriber NPIs. 

Therefore, we would expect that 

pharmacies will be permitted to correct 

any invalid data before payment for a 

claim is reversed whether or not a 

negotiated contract delegates any 

sponsor duties in this regard to the 

pharmacy. Additionally, we would 

expect that any requirement by a plan 

sponsor or its contracted PBM for a 

pharmacy to acquire and utilize its own 

automated validation capability will be 

arrived at only through mutual 

agreement, since such a requirement 

may be unaffordable for many smaller 

pharmacy organizations. 

With respect to requests for 

reimbursement submitted directly by 

Medicare beneficiaries, sponsors were 

instructed in the CY 2012 Call Letter 

that payment to a beneficiary could not 

be made dependent upon the sponsor’s 

acquisition of the prescriber ID itself. 

We are proposing to codify this 

guidance, so that requests for 

reimbursement from Medicare 

beneficiaries are handled in the same 

manner by Part D sponsors as claims 

from pharmacies. Thus, if the sponsor is 

unable to retrospectively acquire an 

active and valid NPI in connection with 

a request for reimbursement submitted 

by a beneficiary, the sponsor may not 

seek recovery of the payment from the 

beneficiary solely on that basis, unless 

there is an indication of fraud. 

We have learned from stakeholders 

through a contractor to CMS that a key 

barrier to improved NPI reporting on 

Part D PDEs is that CMS does not 

currently require NPI reporting, and this 

proposal is thus responsive to those 

observations. In addition, some 

pharmacy representatives have offered 

that certain States require or accept 

other prescriber identifiers, which 

impede NPI reporting at the pharmacy 

level. It is unclear to us whether the 

latter observation was in the context of 

States as regulators of prescriptions or 

as payers of claims or both, and which 

alternate identifiers are required or 

accepted by these States. For instance, 

it is our understanding that the Drug 

Enforcement Administration (DEA) has 

discouraged the use of DEA numbers as 

prescriber identifiers, and not every 

prescriber has one anyway. Therefore, 

we seek specific comment on this issue 

to assist us in understanding and 

confirming any State-imposed barriers 

to the standardization of prescriber 

identifiers to the individual NPI for the 

Medicare Part D program. 

We considered exercising the 

discretionary authority granted pursuant 

to section 6405(c) of the Affordable Care 

Act so that prescriber NPIs would be 

required on Part D claims and PDEs. 

However, such an approach would 

require prescribers to also enroll in the 

Medicare program, which is a provider 

credentialing process. Thus, we are 

concerned that requiring such 

enrollment could impede Part D 

beneficiary access to needed 

medications, because the process 

involves more effort on the part of 

prescribers, who are not reimbursed for 

prescriptions, compared to obtaining an 

NPI, which involves a 3-page 

application form that primarily seeks 

only identifying and location 

information and is free of charge. While 

we know that prescribers will also be 

concerned about beneficiary access to 

medications, we believe virtually all 

prescribers who do not already have an 

NPI would actually obtain one, but we 

are not certain this would be the case 

with respect to Medicare enrollment. 

Regarding foreign prescribers, we 

understand that seven States (Arizona, 

Florida, Maine, North Dakota, Texas, 

Vermont, and Washington) currently 

permit pharmacies to fill prescriptions 

from foreign prescribers, to varying 

degrees. We believe that foreign 

prescribers may not have sufficient 

incentives in terms of patient base or 

familiarity with health care 

reimbursement in the United States, 

particularly with respect to the 

Medicare program and Part D benefits, 

to obtain individual NPIs. Thus, unlike 

our guidance in the CY 2012 Call Letter, 

and unlike our proposal here with 

respect to non-foreign prescribers, we 

are not proposing to require drugs 

dispensed pursuant to prescriptions of 

foreign prescribers to be covered by Part 

D sponsors when the foreign prescribers 

decline to obtain an individual NPI if 

they do not already have one. The 

motivation for our individual prescriber 

NPI proposal stems in large part from 

our need for consistent data to conduct 

better oversight over possible fraudulent 

activities in the Medicare Part D 

program. Since the Federal government 

has no jurisdiction over foreign 

prescribers, we are proposing an 

exception to our proposal that the 

sponsor must pay a claim for a 

prescription, but cannot submit the PDE 

to CMS without an individual prescriber 

NPI, when the claim involves a foreign 

prescriber who does not have an 

individual NPI. Thus, a Part D sponsor 

could reject a claim involving a foreign 

prescriber who does not have an NPI at 

point-of-sale. 

In fact, in light of our lack of 

jurisdiction over foreign prescribers and 

our motivation to conduct better 

oversight over possible fraudulent 

activities, we are considering whether 

this proposal with respect to foreign 

prescribers is broad enough and 

whether we should instead revise the 

Medicare Part D rules to prohibit 

sponsors from paying claims that 

involve prescriptions written by foreign 

prescribers, regardless of whether the 

foreign prescribers obtain an individual 

NPI. In other words, while certain 

prescriptions of foreign prescribers may 

be valid under some State laws, 

medications dispensed pursuant to 

prescriptions written by foreign 

prescribers would not be payable under 

the Medicare Part D program. Such a 

policy would also be consistent with the 

direction we have taken with respect to 

medical directors, that is, that Part D 

sponsors must employ a physician with 

a current and unrestricted license to 

practice medicine in a State, Territory, 

Commonwealth of the United States 

(that is, Puerto Rico), or the District of 

Columbia. We note that we are not 

making such a proposal at this time, but 

solicit specific comments on foreign 

prescribers and the Part D program. 

Section 423.120(c) sets forth the 

responsibilities of Part D plan sponsors 

with regard to the use of standardized 

technologies and compliance with the 

HIPAA standards at 45 CFR 162.1102. 

We are proposing to add a new 

paragraph (5)(A) which would require 

Part D plan sponsors to submit to CMS 

only PDE records that contain an active 

and valid individual prescriber NPI. 

However, new paragraph (c)(5)(B) 

would codify current guidance and 

require that a Part D plan sponsor not 

reject a claim from a network pharmacy 

solely on the basis that it does not 

contain an active and/or valid NPI 

unless the issue can be resolved at 

point-of-sale, there is an indication of 

fraud, or the claim involves a 

prescription written by a foreign 

prescriber (where permitted by State 

law). New paragraph (5)(C) would 

prohibit a Part D sponsor, with respect 

to requests for reimbursement submitted 

directly by Medicare beneficiaries, from 

making payment to the beneficiary 

dependent upon the sponsor’s 

acquisition of the prescriber NPI and 

would further prohibit a Part D sponsor 

from seeking recovery of the payment 

from the beneficiary solely on the basis 

that the sponsor was unable to 

retrospectively acquire an active and 

valid individual prescriber NPI, unless 

there is an indication of fraud. 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63063 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (PRA), we are required to 

provide 60-day notice in the Federal 

Register and solicit public comment 

before a collection of information 

requirement is submitted to the Office of 

Management and Budget (OMB) for 

review and approval. In order to fairly 

evaluate whether an information 

collection should be approved by OMB, 

section 3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements 

(ICRs): 

The following sections of this 

document contain paperwork burden 

but not all of them are subject to the 

ICRs under the PRA for reasons noted. 

A. ICRs Regarding the Coverage Gap 

Discount Program (§ 423.100, 

§ 423.505(b), § 423.1002, and Part 423 

Subpart W) 

Section 1860D–14A (d)(6) of the Act 

exempts this section from PRA 

requirements. 

B. ICRs Regarding the Inclusion of 

Benzodiazepines and Barbiturates as 

Part D Drugs (§ 423.100) 

In accordance with section 175 of 

MIPPA, which amended section 1860D– 

2(e)(2)(A) of the Act, we propose to 

revise the definition of Part D drug at 

§ 423.100, to include barbiturates when 

used for the medical indications of 

epilepsy, cancer, or a chronic mental 

health disorder, and benzodiazepines, 

effective January 1, 2013. 

Under this proposal, Part D plan 

sponsors would be required to submit 

information in their formulary files 

indicating that they will cover these 

drugs. The collection of information 

burden on Part D sponsors imposed by 

this proposed regulation is negligible. 

Any burden associated with the 

requirement on sponsors relates to the 

required data entry in the formulary file 

software, and would be included in the 

PRA package entitled, Formulary 

Submission for Medicare Advantage 

(MA) Plans and Prescription Drug Plans 

(PDP) for Contract Year (CY) 2013 (OCN 

0938–0763). 

C. ICRs Regarding Pharmacy Benefit 

Manager’s Transparency Requirements 

(§ 423.514) 

Consistent with the statutory 

requirements, our proposal adds an 

additional data element to the DIR data 

reporting: Aggregate amount of the 

difference between the amount the Part 

D sponsor pays the PBM and the 

amount the PBM pays retail and mail 

order pharmacies. This data element is 

already available to plans as they are 

aware of the amounts they pay to their 

contracted PBMs and they currently 

report to CMS the amounts paid to retail 

and mail order pharmacies on the PDE 

records. We do not believe that our 

proposal imposes any additional 

substantive burden on Part D sponsors 

and PBMs, and, therefore, have not 

incorporated a burden increase. 

We are soliciting comment on 

whether any of the following data 

elements can be collected using existing 

data sources, thereby alleviating 

additional reporting burden on Part D 

sponsors and PBMs: 

• Number of retail prescriptions. 

• Number of mail order prescriptions. 

• Number of prescriptions dispensed 

by independent pharmacies. 

• Number of prescriptions dispensed 

by chain pharmacies. 

• Number of prescriptions dispensed 

by supermarket pharmacies. 

• Number of prescriptions dispensed 

by state-licensed mass merchandisers to 

the general public. 

D. ICRs Regarding Good Cause and 

Reinstatement Into a Cost Plan 

(§ 417.460) 

Our proposal in § 417.460 extends 

reinstatement rights currently in place 

for members of MA and Part D plans to 

members of cost plans. Because good 

cause determinations would be made by 

CMS (or its contractor), we believe that 

this proposal would not impose any 

new information collection 

requirements. 

E. ICRs Regarding Requiring MA Plans 

Issuance of Member ID Cards 

(§ 422.111) 

Under our authority at section 1852(c) 

of the Act to require that MA 

organizations disclose MA plan 

information upon request, as well as our 

authority under section 1857(e) of the 

Act to specify additional contractual 

terms and conditions the Secretary may 

find necessary and appropriate, we 

propose to expressly require MA plans 

issue and re-issue as necessary a MA 

member ID card that enables enrollees 

to access all covered services. While this 

requirement is subject to the PRA, we 

believe this burden is exempt as defined 

in 5 CFR 1320.3(b)(2). That is, the time, 

effort, and financial resources necessary 

to comply with the requirement would 

be incurred by MA organizations in the 

normal course of their business 

activities. 

F. ICRs Regarding Determination of 

Actuarially Equivalent Creditable 

Prescription Drug Coverage (§ 423.56) 

Since we are proposing to amend a 

calculation at § 423.56 to be consistent 

with the calculation of the actuarial 

value of qualified retiree prescription 

drug coverage found at § 423.884(d) and 

to change the term ‘‘CMS actuarial 

guidelines’’ to read ‘‘CMS guidelines’’ to 

allow CMS further flexibility in issuing 

interpretive guidance on these 

requirements, there is no new 

information collection burden on 

organizations. 

G. ICRs Regarding Who May File Part D 

Appeals With the Independent Review 

Entity (§ 423.600 and § 423.602) 

The information collection 

requirements referenced in this section 

are exempt from the PRA in accordance 

with 5 CFR 1320.4(a)(2) which excludes 

collection activities during the conduct 

of administrative actions, such as 

redeterminations, reconsiderations, and/ 

or appeals. 

H. ICRs Regarding CMS Termination of 

Health Care Prepayment Plans 

(§ 417.801) 

This section does not impose any new 

information collection requirements. 

I. ICRs Regarding Termination or NonRenewal of a Medicare Contract Based 

on Consistent Poor Plan Performance 

Ratings (§ 422.510 and § 423.509) 

It is our position that 3 years’ worth 

of low-star ratings constitutes a 

sufficient basis for us to terminate a 

sponsor’s Part C or D contract under our 

authority under section 1857(c)(2) of the 

Act. The regulation has been changed to 

reflect that. 

Regarding ICRs, we are not imposing 

any new reporting requirements. We are 

merely harnessing and putting to use 

internal data that has already been 

collected. We do not believe that our 

proposal would result in an additional 

burden; therefore, we have not 

incorporated a burden increase. 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
63064 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

J. ICRs Regarding Denial of Applications 

Submitted by Part C and D Sponsors 

With a Past Contract Termination or 

CMS-Initiated Non-Renewal (§ 422.502 

and § 423.503) 

We have modified the past 

performance review period described in 

§ 422.502(b) and § 423.503(b) (by adding 

new paragraphs at § 422.502(b)(3) and at 

§ 423.503(b)(3) as well as § 422.502(b)(4) 

and at § 423.503(b)(4)) to include among 

the factors that may support a CMS 

denial of a contract application those 

CMS-initiated terminations or nonrenewals that became effective within 

the 38 months preceding the submission 

of a new application. 

We are not imposing any new 

reporting requirements. We are merely 

further refining our intended approach 

to using past performance in making 

application determinations. We do not 

believe that our proposal would result 

in an additional burden; therefore, we 

have not incorporated a burden 

increase. 

K. ICRs Regarding New Benefit 

Flexibility for Fully Integrated Dual 

Eligible Special Needs Plans (FIDE 

SNPs) (§ 422.102) 

Under proposed § 422.102(e) we 

would allow certain FIDE SNPs 

participating in the Medicare-Medicaid 

Integration Initiative, the flexibility to 

offer supplemental benefits beyond 

those that we allow for all other MA 

plans. We would review each qualified 

SNP’s proposed supplemental benefit 

offerings as part of our review of plan 

bids, and we would approve additional 

supplemental benefit offerings for these 

qualified SNPs as we deem necessary. 

The burden associated with this 

proposed requirement is the time and 

effort necessary for SNPs to submit their 

benefit designs, including cost-sharing 

amounts, via the PBP software. While 

this proposed requirement is subject to 

the PRA, the burden associated with it 

is currently approved under OCN 0938– 

0763 with a March 31, 2012 expiration 

date. 

L. ICRs Regarding Clarifying Payment to 

Providers in Instances of HospitalAcquired Conditions (HACs) (§ 422.504) 

We propose to require MAOs provide 

in their contracts with hospitals that 

payments for Part A hospital services 

will be reduced for serious events that 

could be prevented through evidencebased guidelines, in accordance with 

the HACs and POA policy that is 

currently required for hospitals paid 

under the Original Medicare IPPS. We 

believe that plans already have some 

operational systems in place to facilitate 

implementation of the requirement. For 

example, MAOs are already required to 

pay non-contract provider hospitals the 

amount that they would receive for 

services under original Medicare, 

including any applicable reductions for 

HACs. Also, beginning January 3, 2012, 

MA plans would be required to collect 

and submit encounter data for each item 

and service provided to MA enrollees in 

accordance with risk adjustment 

policies required in § 422.310(d). This 

information is collected using the 

HIPAA 5010, which already in use by 

hospital providers for FFS claims and 

contains fields for POA indicator 

reporting. While this proposed 

requirement is subject to the PRA, the 

diagnosis, POA indicator information, 

and other claims information are 

already collected as part of the 

encounter data collection process, and 

this burden is currently approved under 

OCN 0938–1054. 

Additionally, we believe that 

hospitals will already be familiar with 

POA reporting and would not require 

additional education. Therefore, the 

burden associated with this provision 

would be the time and effort necessary 

for MA plans to modify their claims 

processing to recognize the POA 

indicators, if they do not already do so, 

and to adjust payment to contracted 

hospitals for the HAC events 

accordingly. Plans usually update their 

claims processing systems regularly for 

changes such as, payment logic for new 

national and local coverage 

determinations, updating HCPCS code 

information, and other changes to their 

payment calculations. Therefore, we 

believe this burden is exempt from the 

PRA as defined in 5 CFR 1320.3(b)(2), 

because the time, effort, and financial 

resources necessary to comply with this 

requirement would be incurred by plans 

in the normal course of their business 

activities. 

M. ICRs Regarding Clarifying Coverage 

of Durable Medical Equipment 

(§ 422.101(a) and § 422.112(a)) 

Under § 422.100(l) we propose to 

permit MA plans to limit coverage of 

DME to specific manufacturers’ 

products or brands. Furthermore, in 

order to ensure that MA enrollees have 

adequate access to their DME benefits, 

our proposed regulatory changes 

establish requirements with respect to 

access, midyear changes to preferred 

DME items and supplies, appeals, and 

disclosure of DME coverage limitations 

to enrollees. The burden associated with 

this requirement is the time and effort 

necessary for MA organizations to 

submit their benefit designs via the PBP 

software. While this requirement is 

subject to the PRA, the burden 

associated with it is currently approved 

under OCN 0938–0763. With respect to 

disclosing DME coverage limitations, 

this requirement is captured in the 

burden associated with the annual 

notice of coverage/evidence of coverage 

which must be completed at the time of 

the beneficiary’s enrollment and at least 

annually thereafter. The MA program 

disclosure requirement is at § 422.111 

and the burden associated with it is 

currently approved under OCN 0938– 

0753. 

N. ICRs Regarding Broker and Agent 

Requirements (§ 422.2274 and 

§ 423.2274) 

At § 422.2274 and § 423.2274, we are 

proposing that plans can choose any 

agent/broker compensation amount at or 

below the fair market value amount 

annually. We require MA organizations 

to submit and/or update and attest to 

their compensation amount (or range) in 

the HPMS. This web-based system in 

HPMS allows new plans to submit 

information and, for existing plans, 

automatically updates, based on 

changes in MA payment rates, 

organization compensation information. 

We are proposing to allow plans to 

annually adjust their base compensation 

rates to reflect fair market value. Plans 

would continue to be required to 

annually submit and attest to this 

information to CMS through HPMS. 

While this proposed requirement is 

subject to the PRA, it does not impose 

any new information collection 

requirement on plans. The burden 

associated with the proposed 

requirement currently approved under 

OMB control number (OCN) 0938–0753. 

O. ICRs Regarding the Establishment 

and Application of Daily Cost-Sharing 

Rate as Part of Drug Utilization 

Management and Fraud, Abuse and 

Waste Control Program (§ 423.153) 

In accordance with section 1860D– 

4(c) of the Act, we propose revising 

§ 423.153 at paragraph (b)(4) to provide 

that a Medicare Part D sponsor’s drug 

utilization management program must 

establish and apply a daily cost-sharing 

rate to a prescription presented by an 

enrollee at a network pharmacy for a 

covered Part D generic or brand drug 

that is dispensed for a supply of less 

than 30 days. Under this proposal, the 

enrollee and his or her prescriber 

generally would decide if a medication 

supply of less than 30 days would be 

appropriate, and if so, the cost-sharing 

for the medication would be prorated by 

the Part D sponsor based on the days 

supply dispensed. 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 63065 

The collection of information burden 

on Part D sponsors imposed by this 

proposed regulation is negligible. Any 

burden associated with this proposal on 

sponsors related to the required data 

entry in the PBP software would be 

included in the revised PRA package 

entitled Plan Benefit Package (PBP) and 

Formulary Submission for Medicare 

Advantage (MA) Plans and Prescription 

Drug Plans (PDP) for Contract Year (CY) 

2013 (OCN 0938–0763). Since obtaining 

a supply of a medication for less than 

30 days is optional for the enrollee and 

his or her prescriber, there is no 

collection of information burden 

imposed by these proposed regulations 

on either Part Medicare D enrollees or 

their prescribers. 

P. ICRs Regarding Technical Corrections 

to Enrollment Provisions (§ 417.422, 

§ 417.432, § 422.60, and § 423.56) 

At § 417.422, § 417.432, § 422.60, and 

§ 423.56 we are proposing technical 

changes that correct cross-references 

that should have been updated in 

previous rulemaking. These proposals 

do not establish any new rules or 

requirements for cost or Part D plans. 

They merely update regulatory crossreferences that were overlooked in 

previous rulemaking. As a result, this 

proposal does not impose any new 

information collection requirements. 

Q. ICRs Regarding Applying MA and 

Part D Disclosure Requirements to Cost 

Contract Plans (§ 417.427) 

We are proposing to extend the 

disclosure requirements in § 422.111 

and § 423.128 to cost contract plans. 

Our regulations at § 422.111 and 

§ 423.128 require MA organizations and 

Part D sponsors to disclose to enrollees, 

at the time of enrollment and annually 

thereafter (in the form of an annual 

notice of change/evidence of coverage, 

or ANOC/EOC mailing), certain detailed 

information about plan benefits, service 

area, provider and pharmacy access, 

grievance and appeal procedures, 

quality improvement programs, and 

disenrollment rights and 

responsibilities. Sections 422.111 and 

423.128 also require the provision of 

certain information about requests and 

establish requirements with respect to 

dissemination of explanations of 

benefits, customer service call centers, 

and Internet websites. 

The burden associated with this 

requirement is the time and effort 

associated with completing an ANOC/ 

EOC at the time of a beneficiary’s 

enrollment and at least annually 

thereafter, as specified in § 422.111(a)(2) 

of the MA program regulations and 

§ 423.128(a)(3) of the Part D program 

regulations. For each entity, we estimate 

that it will take 12 hours to develop and 

submit the required information. This 

includes 1 hour to read CMS’ published 

instructions, 6 hours to generate the 

standardized document, 1 hour to 

submit the materials, 4 hours to print 

and disclose to the beneficiaries. This 

package is currently approved under 

OCN 0938–0753 with a November 30, 

2011 expiration date to account for this 

burden as detailed in Table 6. We 

estimate 20 cost contractors would be 

affected annually by this requirement, 

resulting in a total annual burden of 240 

hours. We estimate, based on a hourly 

wage of $29.88 (hourly salary for a 

compliance officer/cost estimator 

according to Bureau of Labor Statistics) 

plus 48 percent for fringe benefits and 

overhead, that this requirement will 

result in a total annual burden of 

$10,613 (240 burden hours multiplied 

by $44.22 per hour). We are revising the 

PRA package currently approved under 

OCN 0938–0753 with a November 30, 

2011. 

R. ICRs Regarding Clarification of and 

Extension of Regional Preferred Provider 

Organization Plan Single Deductible 

Requirements to Local Preferred 

Provider Plans (§ 422.101) 

This section does not impose any new 

information collection requirements. 

S. ICRs Regarding Modifying the Current 

PFFS Plan Explanation of Benefits 

(EOB) Requirements (§ 422.216(d)(1)) 

Section 1852(k)(2)(c) of the Act and 

§ 422.216(d)(1) require PFFS plans to 

provide an EOB to enrollees for each 

claim filed by the enrollee or the 

provider that furnished the service. In 

the interest of consistency for 

beneficiaries and MA organizations, we 

propose to amend § 422.216(d)(1) to 

state that the EOB requirement for PFFS 

plans would be consistent with the MA 

EOB requirements of § 422.111(b)(12). 

The standard EOB that we are currently 

developing and piloting in CY 2012 for 

most other MA plan types would 

include the same information as 

currently required for PFFS plans, as 

well as plan MOOP cost limit 

information. Adding this cross-reference 

to § 422.216(d)(1) would provide 

consistency in EOB requirements and 

submission and approval of marketing 

materials across plan types. Since the 

pilot program is in progress and we 

would not have finalized EOB 

requirements during this rulemaking, 

we propose that PFFS plans would 

continue to furnish EOBs as they have 

been, in accordance with 

§ 422.216(d)(1), until we finalize and 

implement EOB models for all MA 

plans. While this proposed requirement 

is subject to the PRA, the information 

collection has been approved under 

CMS form CMS–10349, the information 

collection approved for the Part C EOB 

at § 422.111(b)(12). 

T. ICRs Regarding Authority To Deny 

SNP Applications and SNPs Appeal 

Rights (§ 422.500) 

Our proposed amendments to 

§ 422.500(a), § 422.501(a), 

§ 422.501(c)(1)(iii), § 422.502(a) and 

§ 422.502(c) would give CMS the 

authority to deny SNP applications that 

fail to demonstrate that the MAO meets 

the requirements of § 422.2, 

§ 422.4(a)(1)(iv); § 422.101(f); § 422.107, 

if applicable; and § 422.152(g). The 

burden associated with this requirement 

is the time and effort required by an 

MAO offering a SNP to complete a SNP 

application. While these requirements 

are subject to the PRA, we do not expect 

the burden to change from the existing 

burden estimate, as currently approved 

under OCN 0938–0935, with a January 

31, 2012 expiration date. 

Our proposed amendments to 

§ 422.641 provide the procedures for 

making and reviewing certain contract 

determinations while our proposed 

amendments to § 422.660 establish the 

circumstances under which an MA 

organization may request a hearing 

before a CMS hearing officer. We are 

proposing these amendments to our 

existing regulations so that each 

applicant that we determine not to be 

qualified to offer a SNP has the right to 

request an administrative review of 

CMS’ determination. The burden 

associated with these requirements is 

the time and effort of the SNP applicant 

in developing and presenting their case 

to a CMS hearing official, and ultimately 

the CMS Administrator, to demonstrate 

that they qualify to offer a SNP. 

We expect the burden associated with 

this provision to be incurred by the 

small number of SNP applicants that we 

expect would receive application 

denials, and the small percentage of 

denied applicants that we expect would 

appeal our denial decision. We estimate 

that the total annual hourly burden for 

developing and presenting a case for us 

to review is equal to the number of 

organizations likely to request an appeal 

multiplied by the number of hours for 

the attorneys of each appealing SNP to 

research, draft, submit, and present their 

arguments to CMS. Based on SNP 

application denials from contract year 

2012, out of the approximately 400 SNP 

applications received, 8 of these 

applications were denied and all 8 

denials were appealed. In contract year 

2011, 8 SNP applications were denied 


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63066 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

and none of these denials were 

appealed. Taking the average of the last 

2 years, we estimate that approximately 

4 denied applicants would appeal the 

denial of the SNP application. We 

further estimate that one attorney 

working for 8 hours could complete the 

documentation to be submitted for each 

application denial, resulting in a total 

burden estimate of 32 hours (8 hours x 

4 SNP application denials = 32 hours). 

The estimated annual cost to an MA 

organization that has been denied to 

offer a SNP associated with this 

provision (assuming an attorney billing 

$250 per hour) is $8,000 (32 hours x 

$250 = $8,000) as detailed in Table 6. 

We are revising the PRA package 

currently approved under OCN 0938– 

0935, with a January 31, 2012 expiration 

date, to account for this burden. 

U. ICRs Regarding Timeline for 

Resubmitting Previously Denied MA 

Applications (§ 422.501) 

This section does not impose any new 

information collection requirements. 

V. ICRs Regarding Contract 

Requirements for First Tier and 

Downstream Entities (§ 422.504 and 

§ 423.505) 

We proposed to modify the 

regulations at § 422.504(i) and 

§ 423.505(i) by deleting the term 

‘‘written arrangements’’ throughout and 

in each instance replacing it with ‘‘each 

and every contract,’’ thus ensuring that 

the MAOs and Part D sponsors retain 

the necessary control and oversight over 

their delegated entities by requiring that 

all contracts among those entities 

specifically reference their obligations 

to the sponsor. 

Regarding ICRs, we are not imposing 

any new reporting requirements. We are 

simply clarifying a requirement with 

which MAOs and Part D sponsors must 

already comply concerning their 

contracts with first tier and downstream 

entities. We do not believe that our 

proposal would result in an additional 

burden; therefore, we have not 

incorporated a burden increase in the 

PRA section. 

W. ICRs Regarding Valid Prescriptions 

(§ 423.100 and § 423.104) 

Our proposed definition of ‘‘valid 

prescription’’ in § 423.100 and 

requirement of a ‘‘valid prescription’’ in 

§ 423.104 would codify our 

longstanding policy of deferring to State 

laws when applicable to determine 

whether a prescription is valid such that 

the drug may be eligible for Part D 

coverage. We are not imposing any new 

reporting requirements. Prescribers and 

pharmacies remain subject to applicable 

State laws regarding valid prescriptions. 

Furthermore, private contracts regarding 

Part D drugs (such as those between 

MAOs or Part D sponsors and 

pharmacies) likely also require valid 

prescriptions. Given these realities, we 

do not believe that codifying our 

practice of limiting Part D coverage to 

items dispensed upon applicable State 

law requirements for valid prescriptions 

could necessitate any more action than 

that already required on the part of 

stakeholders—be they prescribers taking 

steps to ensure they write valid 

prescriptions or MAOs, Part D sponsors, 

PBMs, or pharmacies trying to ascertain 

that prescriptions are valid. 

X. ICRs Regarding Medication Therapy 

Management Comprehensive 

Medication Reviews and Beneficiaries in 

LTC Settings (§ 423.153) 

Our current regulation requires that 

the comprehensive medication review 

must include an interactive, person-toperson, or telehealth consultation 

performed by a pharmacist or other 

qualified provider, and may result in a 

recommended medication action plan. 

The proposed change to § 423.153 

permits the sponsor to allow the 

pharmacist or other qualified provider 

to perform the medication review 

without the beneficiary in cases when 

the beneficiary is in an LTC facility and 

cannot accept the sponsor’s offer of a 

comprehensive medication review. 

The burden associated with the 

comprehensive medication reviews was 

reflected in the approved 0938–0964 

which is due to expire September 30, 

2012. We believe this minor revision to 

§ 423.153(d)(1)(vii)(B) has no effect on 

that burden estimate. 

Y. ICRs Regarding Coordination of Part 

D Plans with Other Prescription Drug 

Coverage (§ 423.458) 

Since we are proposing a change to 

simply strengthen our policy regarding 

EGWP sponsor responsibilities, there is 

no additional burden on the part of 

sponsors or other entities associated 

with the proposed regulation. This 

section does not impose any new 

information collection. 

Z. ICRs Regarding Access to Covered 

Part D Drugs Through Use of 

Standardized Technology and National 

Provider Identifiers (§ 423.120) 

Currently, Part D sponsors report any 

one of four prescriber identifiers on PDE 

records. However, the inconsistent use 

of identifiers that have not been 

validated has hindered efforts to combat 

fraud and abuse. Therefore, we 

proposed to require that effective 

January 1, 2013, Part D sponsors must 

include valid, individual prescriber 

NPIs as identifiers in PDEs submitted to 

CMS. Since Part D sponsors are already 

required to include a prescriber 

identifier on Part D PDEs submitted to 

CMS, there is no new collection of 

information burden imposed by this 

proposed regulation. Furthermore, this 

proposed regulation does not impose 

any new collection of information 

burden on Medicare beneficiaries 

enrolled in the Part D program with 

respect to requests for reimbursement 

they may submit. 

TABLE 6—ESTIMATED FISCAL YEAR REPORTING RECORDKEEPING AND COST BURDENS

Regulation 

sections 

OMB 

Control no. Respondents Responses 

Burden per 

response 

(hours) 

Total 

annual 

burden 

(hours) 

Hourly labor 

cost of 

reporting 

($) 

Total labor 

cost 

($) 

Total 

capital/ 

maintenance 

costs 

($) 

Total 

cost 

($) 

§ 417.427 ............ 0938–0753 20 20 12 240 44.22 10,613 N/A 10,613 

§ 422.500 ............ 0938–0935 4 4 8 32 250.00 8,000 N/A 8,000 

Total ............ .................... 24 24 .................. 272 .................... .................. N/A 18,613 

Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage 

data from the U.S. Department of Labor, Bureau of Labor Statistics. 


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Additional Information Collection 

Requirements 

This proposed rule imposes collection 

of information requirements as outlined 

in the regulation text and specified 

above. However, this proposed rule also 

makes reference to associated 

information collection requirements that 

are not discussed in the regulation text 

contained in this document. The 

following is a discussion of these 

information collection requirements. 

Independence of LTC Consultant 

Pharmacists 

As discussed in Section II.B.5, we are 

considering changes which would 

require each LTC facility to employ or 

obtain the services of a licensed 

pharmacist to provide consultation on 

all aspects of pharmacy services in a 

facility. These changes would further 

require an LTC facility to employ or 

directly or indirectly contract with a 

licensed pharmacist who was 

independent of the pharmacy located in 

or under contract with the facility. 

The changes under consideration 

would require an independent licensed 

pharmacist to review the drug regimen 

of each resident at least once a month 

and define independent to mean that 

the licensed pharmacist must not be 

employed, under contract, or otherwise 

affiliated with the facility’s pharmacy, a 

pharmaceutical manufacturer or 

distributor, or any affiliate of these 

entities 

LTC facilities commonly contract 

with an LTC pharmacy for consultant 

pharmacist services. Because the 

changes under consideration would 

specifically require LTC facilities to 

employ or directly or indirectly contract 

with licensed pharmacists who are 

independent of the pharmacy located in 

or under contract with the facility, any 

other pharmacy-related organization, or 

pharmaceutical manufacturer or 

distributor, each facility would need to 

engage an independent consultant 

pharmacist. The annual burden 

associated with this requirement would 

relate to developing and executing 

contracts with independent consultant 

pharmacists. Although all 15,713 LTC 

facilities would need to provide the 

services of an independent consultant 

pharmacist, factors, such as the 

existence of nursing home chains and 

group purchasing organizations (GPOs), 

would affect the actual number of 

entities that would be engaged in the 

process of employing or contracting the 

LTC consultant pharmacists. For 

purposes of determining the fiscal year 

burden, we will assume that LTC 

facilities would have a contract with 

one consultant pharmacist. 

Based on our experience with LTC 

facilities, we expect that complying 

with the requirement under 

consideration would primarily require 

the involvement of the LTC facility’s 

administrator with the assistance of a 

facility physician, and the director of 

nursing. We expect also that the 

facility’s attorney would assist with 

drafting the contract and reviewing any 

revisions. We estimate that complying 

with this requirement would require 16 

annual burden hours for each facility to 

execute a contract with an independent 

consultant pharmacist at an estimated 

cost of $1,466. Thus, although we 

expect that many contracts will be 

negotiated by the facilities’ parent 

organizations or through GPOs, were 

each LTC facility to directly engage in 

the contracting process, it would require 

251,408 burden hours per fiscal year (16 

annual burden hours per LTC facility × 

15,713 LTC facilities) for all 15,713 LTC 

facilities to comply with this 

requirement at an estimated cost of 

$23,035,258 ($1,466 estimated cost per 

LTC facility × 15,713 LTC facilities). 

After the first fiscal year, we estimate 

that continued compliance with the 

requirement under consideration would 

require 2 annual burden hours (1 hour 

each for the facility administrator and 

attorney) for each facility to review the 

contract and, if necessary execute an 

updated contract with an independent 

consultant pharmacist at an estimated 

cost of $192. Thus, it would require 

31,426 burden hours per fiscal year (2 

annual burden hours per LTC facility × 

15,713 LTC facilities) for all 15,713 LTC 

facilities to comply with this 

requirement at an estimated cost of 

$3,016,896 ($192 estimated cost per LTC 

facility × 15,713 LTC facilities). 

In addition to the LTC facility costs 

associated with the direct compensation 

of consultant pharmacists, facilities 

with existing LTC pharmacy contracts 

that include the pharmacy’s provision of 

consultant pharmacist services would 

potentially need to amend these 

contracts. However, we do not know 

and cannot estimate the number of LTC 

facilities that would need to amend 

their LTC pharmacy contracts. We 

believe that our consultant pharmacist 

contracting cost estimates are likely to 

be sufficiently overstated to cover these 

costs as well. 

Although it is currently common for 

LTC consultant pharmacists to perform 

approximately 60 drug regimen reviews 

in a day, we suspect that this rate may 

be too high given our expectation that 

independent consultant pharmacists 

would conduct more thorough drug 

regimen reviews, monitoring for drug 

side effects and effectiveness. Therefore, 

in the preamble, we are soliciting public 

comment on best practices related to the 

conduct of drug regimen reviews. 

Pending public response to our 

request for comment, we have estimated 

the following costs related to the 

requirement under consideration based 

on an average time of 20 minutes to 

perform a drug regimen review. Based 

on the total number of LTC facilities 

(15,713) and total beds (1.5 million), the 

average LTC facility would have 100 

residents. Therefore, we anticipate that 

it would take each facility’s consultant 

pharmacist 2,000 minutes (20 minutes 

per review × 100 residents) or 33 hours 

each month to perform the residents’ 

drug regimen reviews. Using an hourly 

rate of $51.53 for independent 

consultant pharmacist that includes 

fringe benefits, we estimate 396 (33 

hours per month × 12) annual burden 

hours per facility at an annual cost of 

$20,406 (396 × $51.53) for a total cost 

of $320,637,592 ($20,406 per facility × 

15,713 LTC facilities). (Hourly rate 

according to May 2010 wage data from 

Bureau of Labor Statistics estimates 

from the Occupational Employment 

Statistics Survey). 

V. Regulatory Impact Analysis 

A. Statement of Need 

The purpose of this final rule is to 

make revisions to the MA Part C and 

Part D programs to implement 

provisions specified in the statute and 

make other changes to the regulations 

based on our continued experience in 

the administration of the Parts C and 

Part D programs. The proposed rule 

would—(1) implement statutory 

provisions; (2) strengthen beneficiary 

protections; (3) exclude plan 

participants that perform poorly; (4) 

improve program efficiencies; and (5) 

clarify program requirements. 

B. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995, Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional 

Review Act (5 U.S.C. 804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
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benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. A 

regulatory impact analysis (RIA) must 

be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). This 

proposed rule has been designated an 

‘‘economically significant’’ rule under 

section 3(f)(1) of Executive Order 12866. 

Accordingly, we have prepared a 

regulatory impact analysis that details 

the anticipated effects (costs, savings, 

and expected benefits), and alternatives 

considered by proposed requirement. 

Details regarding the burden associated 

with the requirements of this proposed 

regulation are located in the Collection 

of Information section of this rule. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. The great 

majority of hospitals and most other 

health care providers and suppliers are 

small entities, either by being nonprofit 

organizations or by meeting the SBA 

definition of a small business (having 

revenues of less than $7.0 million to 

$34.5 million in any 1 year). Individuals 

and States are not included in the 

definition of a small entity. This 

proposed rule does not directly impact, 

health care providers, suppliers and 

State governments since it amends the 

current requirements for MA 

organizations and Parts D sponsors, and 

adds requirements for pharmaceutical 

manufacturers consistent with the 

statutory requirements of the new 

manufacturer drug discount program. 

Although this proposed rule requires 

MA organizations to extend the IPPS 

policy regarding non-payment for HACs 

from non-contracted provider hospitals 

to contracted and hospitals, we do not 

expect this requirement to significantly 

impact total hospital costs or revenues. 

Part D sponsors and pharmaceutical 

manufacturers, the entities that will 

largely be affected by the provisions of 

this rule, are not generally considered 

small business entities. Part D sponsors 

must meet minimum enrollment 

requirements (5,000 in urban areas and 

1,500 in nonurban areas) and because of 

the revenue from such enrollments, 

these entities are generally above the 

revenue threshold required for analysis 

under the RFA. We determined that 

there were very few Part D sponsors that 

fell below the size thresholds for 

‘‘’small’’ businesses established by the 

Small Business Administration (SBA). 

Currently, the SBA size threshold is $7 

million in total annual receipts for 

health insurers (North American 

Industry Classification System, or 

NAICS, Code 524114) and CMS has 

confirmed that most Part D sponsors 

have Part D receipts above the $7 

million threshold. We also determined 

that there were very few pharmaceutical 

manufacturers participating in the 

Medicare prescription program drug 

discount program that fell below the 

size thresholds for small businesses 

using the SBA size threshold of 750 

employees (NAICS code 32541). Total 

jobs data for manufacturers support the 

fact that the pharmaceutical industry is 

dominated by large businesses. 

While the NAICS lists 1,555 business 

in the United States that represent the 

pharmaceutical and medicine 

manufacturing industry only 237 brand 

manufacturers currently participate in 

the program, and most exceed the 750 

employee threshold. The majority of 

smaller manufacturers are either generic 

or specialty pharmaceutical 

manufacturers that are unlikely to 

participate in the Medicare discount 

program. We reviewed some of the 

employment statistics for the smaller 

specialty pharmaceutical manufacturers 

that participate in the discount program, 

and found that the number of employees 

typically exceeds the SBA threshold. 

While a very small rural plan could 

fall below the threshold, we do not 

believe that there are more than a 

handful of such plans. Similarly, 

manufacturers are not normally 

considered small business entities. 

However, there are manufacturers that 

have minimal revenue, primarily 

because their emphasis is on the 

development of products rather than 

sales or they are not focused on large 

markets. A fraction of MA organizations 

and sponsors are considered small 

businesses because of their non-profit 

status. HHS uses as its measure of 

significant economic impact on a 

substantial number of small entities, a 

change in revenue of more than 3 to 5 

percent. We do not believe that this 

threshold would be reached by the 

proposed requirements in this proposed 

rule because this proposed rule would 

have minimal impact on small entities. 

Therefore, an analysis for the RFA will 

not be prepared because the Secretary 

has determined that this proposed rule 

would not have a significant impact on 

a substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare an analysis if a 

rule may have a significant impact on 

the operations of a substantial number 

of small rural hospitals. This analysis 

must conform to the provisions of 

section 603 of the RFA. For purposes of 

section 1102(b) of the Act, we define a 

small rural hospital as a hospital that is 

located outside of a metropolitan 

statistical area and has fewer than 100 

beds. We are not preparing an analysis 

for section 1102(b) of the Act because 

the Secretary has determined that this 

proposed rule would not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year by State, 

local, or tribal governments, in the 

aggregate, or by the private sector of 

$100 million in 1995 dollars, updated 

annually for inflation. In 2011, that 

threshold is approximately $136 

million. This proposed rule is expected 

to reach this spending threshold. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

Based on CMS Office of the Actuary 

estimates, we do not believe that this 

proposed rule imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

In Table 7, we estimate total costs to 

the Federal government, States, Part D 

sponsors, MA organizations, 

pharmaceutical manufacturers and other 

private sector entities as a result of 

various provisions of this proposed rule. 

The provisions with the most significant 

costs (costs greater than $100 million 

from FY 2013 through FY 2018) in this 

proposed rule are the Medicare 

Coverage Gap Discount Program, and 

the Inclusion of Benzodiazepines, and 

Barbiturates as Covered Part D drugs. 

The total costs of the Medicare 

Coverage Discount Program for the 

periods beginning FY 2013 through FY 

2018 are estimated to be $32.7 billion, 

and the total costs of the inclusion of 

benzodiazepines and barbiturates is $1.9 

billion. 


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Tables 8, 9, and 10 detail the costs by 

cost-bearing entity. Specifically, Table 8 

describes costs and savings to the 

Federal government, Table 9 describes 

costs to MA organizations and/or PDP 

sponsors and third party entities, Table 

10 describes costs to pharmaceutical 

manufacturers, Table 11 describes 

savings to States, and Table 12 describes 

costs to LTC facilities. 

As a result, when considering both 

the costs and savings associated with 

the provisions of this proposed rule, we 

conclude with a net cost estimate of 

$32.5 billion for FY 2013 through FY 

2018. 

C. Anticipated Effects 

1. Medicare Coverage Gap Discount 

Program 

a. Required Payment of Gap Discounts 

We believe there is a cost to 

manufacturers to pay the discounts to 

beneficiaries who are in the coverage 

gap. We estimate that aggregate 

discounts from pharmaceutical 

manufacturers would be $31.3 billion 

during FY 2013 through FY 2018. That 

estimate is based upon historical 

patterns of claims dispensed during the 

coverage gap and the dollar amount of 

those claims trended forward by 

enrollment growth and price increase. 

In addition, the Discount Program 

will increase Medicare costs by 

additional use of more expensive brand 

name drugs because of improved 

beneficiary adherence as a result of the 

lower out-of-pocket costs and increased 

use of brand name rather than generic 

drugs. We estimate that the Discount 

Program would increase Medicare costs 

by $1.4 billion during FY 2013 through 

FY 2018. 

Note that these estimated Medicare 

costs do not include costs related to the 

ACA provisions that revised the Part D 

benefit structure to close the coverage 

gap. These provisions revised the 

coinsurance amount and reduced the 

growth in the annual out-of-pocket 

threshold. The costs to the Federal 

government associated with these 

provisions, as scored in the April 15, 

2011 final rule (76 FR 21432), were 

estimated to total $3.6 billion during FY 

2011 through FY 2016. 

b. Other Manufacturer Costs 

We believe that manufacturers would 

incur costs as a result of the 

Agreement’s requirements for 

manufacturers. For example, 

manufacturers would need to analyze 

and pay quarterly invoices, notify CMS 

about labeler code changes, notify FDA 

about NDC changes and maintain 

records for potential audit by CMS. 

However, manufacturers already have 

existing systems and perform these 

activities as a result of their experience 

with Medicaid and Tricare. We estimate 

that analyzing and paying the quarterly 

invoices would require 0.5 FTEs. We 

estimate that the cost to manufacturers 

would be $73,380 (annual salary for a 

Pharmaceutical Manufacturing 

Compliance Officer according to Bureau 

of Labor Statistics) plus 48 percent for 

fringe benefits and overhead × 0.5 FTE 

× 240 manufacturers × 6 years for a total 

cost of $78.2 million over the complete 

period FY 2013 through FY 2018. 

2. Payment Processes for Part D 

Sponsors 

We believe that there would be a 

minor impact on Part D sponsors from 

receiving and reconciling estimated 

rebates advanced by CMS with 

subsequent payments by manufacturers. 

Part D sponsors have experience and 

existing systems to accept and reconcile 

funds with CMS, including a LICS 

subsidy and a reinsurance subsidy. We 

believe that there would be a marginal 

increase in resources focused on 

accounting and computer system 

operations and maintenance. We 

estimate that the additional resources 

required would be 0.5 FTEs, on average, 

per Part D sponsor. We estimate that the 

total cost to Part D sponsors would be 

$63,360 (annual salary for insurance 

carrier compliance officer according to 

Bureau of Labor Statistics) plus 48 

percent for fringe benefits and overhead 

× 0.5 FTE per Part D sponsor × 270 Part 

D sponsors × 6 years for a total of $76.0 

million over the complete period FY 

2013 through FY 2018. 

3. Provision of Applicable Discounts for 

Applicable Drugs for Applicable 

Beneficiaries 

We believe that there would be a 

minor impact on Part D sponsors as a 

result of this provision. Part D sponsors 

already implement systems to 

adjudicate pharmacy claims. With the 

exception of calculating and accounting 

for gap discounts, those systems include 

similar, if not identical, tasks as the 

requirements in the proposed rule. 

Further, we believe that the carrying 

cost of distributing the discounts to 

beneficiaries would be offset by 

prospective payments from us as 

previously described. 

We believe that the additional 

workload associated with this proposed 

regulation would involve modifications 

to existing computer programming to 

account for the differences between the 

Discount-related systems and the 

traditional Part D program. In addition, 

we expect there to be additional 

reporting and recordkeeping. We 

estimate that Part D sponsors would 

increase resources the equivalent of 0.5 

additional FTEs to accomplish these 

tasks. We estimate the cost to Part D 

sponsors would be at $63,360 (annual 

salary for insurance carrier compliance 

officer according to Bureau of Labor 

Statistics) plus 48 percent for fringe 

benefits and overhead × 270 Part D 

sponsors × 6 years for a total cost of 

$76.0 million over the complete period 

FY 2013 through FY 2018. 

4. Manufacturer Discount Payment 

Audits and Dispute Resolution 

The proposed regulation would 

permit manufacturers to undertake 

audits of the data used to calculate 

quarterly invoices and to dispute the 

invoices themselves. We believe that the 

activities necessary for disputing 

invoices and conducting data audits 

would be accommodated by the 

additional resources that we earlier 

linked to the Medicare Coverage Gap 

Agreement. Therefore, we are not 

estimating an additional economic 

impact to manufacturers from this 

provision. 

5. Beneficiary Dispute Resolution 

The proposed rule would create the 

right of beneficiaries to dispute gap 

discounts using preexisting Part D 

sponsor beneficiary dispute resolution 

mechanisms. We believe that the 

potential increase in beneficiary dispute 

volume would not require additional 

Part D sponsor resources. We have made 

significant efforts to ensure that the data 

used to calculate the discounts are 

accurate. We believe that the accuracy 

of the data, coupled with the 

automation of the dispute calculation, 

would result in accurate discounts that 

would generate few beneficiary appeals 

and would be accommodated within 

existing resources. 

6. Compliance Monitoring and Civil 

Money Penalties 

The proposed regulations would 

allow CMS to impose penalties if a 

manufacturer does not pay gap 

discounts that are owed according to the 

terms of the Agreement. We believe that, 

in general, manufacturers would pay the 

quarterly invoice according to the terms 

within the agreement and other 

guidance. Therefore, we believe that 

there would be few instances where 

manufacturers are levied a civil money 

penalty. We assume that monetary 

penalties could be levied on 

approximately 0.03 percent of discounts 

with $9.64 million of penalties over the 

period FY 2013 through FY 2018. 


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7. Termination of Discount Program 

Agreement for Part D Program 

We believe that we would rarely find 

it necessary to terminate an agreement. 

Upon termination, covered Part D drugs 

of the manufacturers would be excluded 

from the Part D program and the 

manufacturer potentially would suffer a 

significant reduction in revenue. We 

have experience with similar programs 

and believe that the potential reduction 

of revenue would encourage 

manufacturers to resolve our concerns. 

This would tend to avoid terminations 

and the associated fiscal effects. 

Consequently, we estimate that there 

would be no material costs to 

manufactures due to potential 

agreement terminations during the 

period FYs 2013 through 2018. 

8. Inclusion of Benzodiazepines and 

Barbiturates as Part D Drugs 

In accordance with section 175 of the 

MIPPA that amended section 1860D– 

2(e)(2)(A) of the Act (42 U.S.C. 1395w– 

102(e)(2)(A)),we propose to revise the 

definition of Part D drug at § 423.100, by 

including barbiturates when used for 

the medical indications of epilepsy, 

cancer, or a chronic mental health 

disorder, and benzodiazepines class 

drugs as covered under Part D effective 

January 1, 2013. 

Under this proposal, Part D plan 

sponsors would be required to submit 

information in their formulary files 

indicating that they would cover these 

drugs. We estimate that the cost to the 

Federal Government to be $1.9 billion 

over the 2013 through 2018 period. We 

assumed the cost of benzodiazepines 

and barbiturates as 0.4 percent of total 

drug cost, and that the inclusion of both 

these drugs would increase proportional 

to the current overall Part D level. 

9. Good Cause and Reinstatement Into a 

Cost Plan 

At § 417.460(c)(3) we are proposing to 

allow beneficiaries enrolled in cost 

plans the opportunity to be reinstated 

into their plan if they can establish good 

cause for nonpayment of cost-sharing. 

CMS (or its contractor) would evaluate 

cost-plan enrollees’ requests for 

reinstatement based on good cause and 

make the ‘‘good cause’’ determinations. 

We anticipate that there would be no 

cost impact on cost plans. 

10. Determination of Actuarially 

Equivalent Creditable Prescription Drug 

Coverage 

We are proposing to clarify our 

regulations at § 423.884 to ensure that 

other insurers or organizations 

providing creditable prescription drug 

coverage to their members calculate the 

actuarial value in accordance with the 

RDS actuarial value calculation. Since 

this requirement is a clarification to an 

existing calculation already being 

utilized by organizations providing 

creditable coverage, we anticipate that 

there would be no cost impact on these 

organizations. 

11. Who May File Part D Appeals With 

the Independent Review Entity 

The proposed changes to § 423.600 

would allow prescribing physicians and 

other prescribers to request IRE 

reconsiderations on behalf of Part D 

plan enrollees and the corresponding 

proposed change to § 423.602(a) 

specifies that the IRE must also notify 

the prescribing physician or other 

prescriber of its decision when the 

prescriber makes the request on behalf 

of the enrollee. The quantifiable burden 

associated with these provisions is the 

cost of processing Part D 

reconsiderations (which includes 

providing notice of the decision). While 

this provision is expected to increase 

the number of reconsiderations 

processed and completed by the IRE, it 

would also significantly reduce the 

number of appeals that have to be 

dismissed because the AOR form would 

no longer be required in cases when a 

prescriber is requesting a 

reconsideration on behalf of an enrollee. 

In 2010, the IRE dismissed 

approximately 2,500 reconsideration 

requests submitted by prescribers due to 

the lack of a properly executed AOR 

form, at an estimated cost of $215,000. 

We estimate the cost of issuing a 

substantive reconsideration decision in 

cases that are currently subject to 

dismissal to be $540,000, assuming an 

estimated cost of about $216 per case. 

However, this added cost would be 

offset by the reduction in dismissed 

cases, for an estimated annual cost 

increase of $325,000 ($540,000 less 

$215,000). 

We also believe that eliminating the 

AOR requirement will result in about a 

15 percent increase in the total number 

of IRE reconsiderations requests. Based 

on the percentage of plan level appeals 

currently filed by prescribers on behalf 

of enrollees (approximately 85 percent), 

we estimate an increase in prescriberinitiated IRE appeals, which would be 

partially offset by a decrease in enrolleeinitiated IRE appeals. Based on 2010 

reconsideration data, we estimate there 

would be an additional 3,000 

reconsideration requests, with an 

estimated increase in annual costs of 

about $648,000. The estimated 

increased cost associated with issuing 

substantive reconsideration decisions 

(as opposed to dismissals) and the 

increased cost associated with the 

increase in the reconsideration 

workload, results in total estimated 

annual increased costs to the Federal 

government of approximately $973,000 

or a total of $5.84 million from FYs 2013 

through 2018. 

The increase in reconsideration 

requests would result in additional costs 

to plan sponsors based upon additional 

time and effort to assemble case files 

and documentation associated with 

these requests and shipping to the IRE 

for processing. We assume a cost of 

approximately $25.00 per 

reconsideration to print, copy, compile, 

and mail the case file to the IRE. This 

results in an additional annual cost to 

plan sponsors of approximately $75,000, 

or a total of $450,000 from FYs 2013 

through 2018. 

12. Termination for Continued LowerThan-3-Star-Ratings 

We have the authority under section 

1857(c)(2) of the Act to terminate 

contracts with a MAOs or a Medicare 

PDP sponsor when we determine that 

the organization has failed substantially 

to carry out the contract or is carrying 

out the contract in a manner 

inconsistent with the efficient and 

effective administration of the Part C or 

D program. We believe that a sponsor 

that fails to achieve a good rating for 3 

consecutive years has demonstrated 

consistently that it is unable or 

unwilling to take corrective action to 

improve its Part C or D performance. 

Therefore, we are proposing to revise 

the regulation to reflect our position that 

3 years’ worth of low star ratings 

constitutes a sufficient basis for CMS to 

terminate a sponsor’s Part C or D 

contract. 

The changes made to this regulation 

would not result in any additional costs. 

MA organizations and Part D sponsors 

already incur costs as a result of needing 

to be in compliance with existing 

regulatory requirements. This change 

merely clarifies our authority to use 

sustained poor performance rating 

results (which are already being 

produced annually) as a basis for 

termination. 

13. Exclusion for Sponsors of Contracts 

Terminated for Cause 

We have modified the past 

performance review period described in 

§ 422.502(b) and § 423.503(b) (by adding 

new paragraphs at § 422.502(b)(3) and at 

§ 423.503(b)(3) as well as § 422.502(b)(4) 

and at § 423.503(b)(4)) to include among 

the factors that may support a CMS 

denial of a contract application those 

CMS-initiated terminations or nonrenewals that became effective within 


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the 38 months preceding the submission 

of a new application. 

The changes made to this regulation 

would not result in any additional costs 

since we are not imposing any new 

requirements. Rather, we are merely 

extending the period of time that we can 

review for purposes of application 

qualification determinations when an 

organization has had a prior contract 

terminated or non-renewed by CMS. 

Thus, there are no additional costs 

involved. 

14. Independence of Long Term Care 

Consultant Pharmacists 

LTC facilities commonly contract 

with an LTC pharmacy for consultant 

pharmacist services, and it is our 

understanding that LTC pharmacies 

typically have been providing 

consultant pharmacists to LTC facilities 

at rates below fair market value. Because 

the changes we are considering would 

specifically require LTC facilities to 

employ or directly or indirectly contract 

with independent licensed pharmacists, 

each facility would need to engage an 

independent consultant pharmacist at 

market rates. We understand that the 

subsidized rates are typically $1 per 

resident per month for the conduct of 

each resident’s drug regimen review. 

The cost for the independent consultant 

pharmacists, therefore, would be 

substantially higher that the subsidized 

rates LTC facilities currently pay to the 

LTC pharmacies. As a result, the cost 

associated with complying with the 

requirement under consideration would 

be the increase in cost for the LTC 

facility to pay the full market value for 

an independent consultant pharmacist. 

However, the increased costs would 

be offset by the amount currently paid 

by the 15,713 facilities to the LTC 

pharmacies for the provision of 

consultant pharmacist services. Based 

on the rate of $1 per resident per month 

and 1.5 million beds, we estimate the 

total annual savings to be $18 million. 

We estimate that although all 15,713 

LTC facilities would need to provide the 

services of an independent consultant 

pharmacist, factors, such as the 

existence of nursing home chains and 

GPOs, would affect the actual number of 

entities that would be engaged in the 

process of employing or contracting the 

LTC consultant pharmacists. For 

purposes of determining the impact, we 

will assume that LTC facilities would 

have a contract with one consultant 

pharmacist. 

Based on our experience with LTC 

facilities, we expect that complying 

with the requirement under 

consideration would primarily require 

the involvement of the LTC facility’s 

administrator with the assistance of a 

facility physician, and the director of 

nursing. We expect also that the 

facility’s attorney would assist with 

drafting the contract and reviewing any 

revisions. We estimate that complying 

with this requirement would require 16 

annual burden hours for each facility to 

execute a contract with an independent 

consultant pharmacist at an estimated 

cost of $1,466. Thus, although we 

expect that many contracts would be 

negotiated by the facilities’ parent 

organizations or through GPOs, were 

each LTC facility to directly engage in 

the contracting process, it would require 

251,408 burden hours per fiscal year (16 

annual burden hours per LTC facility × 

15,713 LTC facilities) for all 15,713 LTC 

facilities to comply with the 

requirement under consideration at an 

estimated cost of $23,035,258 ($1,466 

estimated cost per LTC facility × 15,713 

LTC facilities). 

After the first fiscal year, we estimate 

that continued compliance with this 

requirement would require 2 annual 

burden hours (1 hour each for the 

facility administrator and attorney) for 

each facility to review the contract and, 

if necessary execute an updated contract 

with an independent consultant 

pharmacist at an estimated cost of $192. 

Thus, it would require 31,426 burden 

hours per fiscal year (2 annual burden 

hours per LTC facility × 15,713 LTC 

facilities) for all 15,713 LTC facilities at 

an estimated cost of $3,016,896 ($192 

estimated cost per LTC facility × 15,713 

LTC facilities). 

In addition to the LTC facility costs 

associated with the direct compensation 

of consultant pharmacists, facilities 

with existing LTC pharmacy contracts 

that include the pharmacy’s provision of 

consultant pharmacist services would 

potentially need to amend these 

contracts. However, we do not know 

and cannot estimate the number of LTC 

facilities that would need to amend 

their LTC pharmacy contracts. However, 

we believe that our consultant 

pharmacist contracting cost estimates 

are likely to be sufficiently overstated to 

cover these costs as well. 

Further, although it is currently 

common for LTC consultant 

pharmacists to perform approximately 

60 drug regimen reviews in a day, we 

suspect that this rate may be too high 

given our expectation that independent 

consultant pharmacists would conduct 

more thorough drug regimen reviews, 

monitoring for drug side effects and 

effectiveness. Therefore, earlier in the 

preamble, we solicited public comment 

on best practices related to the conduct 

of drug regimen reviews. 

Pending public response to our 

request for comment, we have estimated 

the following costs related to the 

requirement under consideration based 

on an average time of 20 minutes to 

perform a drug regimen review. Based 

on the total number of LTC facilities 

(15,713) and total beds (1.5 million), the 

average LTC facility would have 100 

residents. Therefore, we anticipate that 

it would take each facility’s consultant 

pharmacist 2,000 minutes (20 minutes 

per review × 100 residents) or 33 hours 

each month to perform the residents’ 

drug regimen reviews. Using an hourly 

rate of $51.53 for independent 

consultant pharmacist that includes 

fringe benefits, we estimate 396 (33 

hours per month × 12) annual burden 

hours per facility at an annual cost of 

$20,406 (396 × $51.53) for a total cost 

of $320,639,478 ($20,406 per facility × 

15,713 LTC facilities). (Hourly rate 

according to May 2010 wage data from 

Bureau of Labor Statistics estimates 

from the Occupational Employment 

Statistics Services). As noted 

previously, we expect that this amount 

would be reduced by the $18 million 

that the facilities would no longer pay 

to the LTC pharmacies for consultant 

pharmacist services. We recognize the 

limitations associated with these 

estimates and solicit public comment on 

more detailed costs for this provision. 

We expect that requiring independent 

consultant pharmacists would result in 

more appropriate prescribing, leading to 

reductions in all of the following: 

absolute number of drugs prescribed; 

unnecessary use of high price, brand 

name drugs; and use of antipsychotics 

and other drugs that should be generally 

avoided among older LTC residents. 

One outcome of the use of fewer drugs 

and fewer brand name drugs would be 

lower drugs costs for LTC residents. For 

residents whose cost of care is covered 

by Medicare Part A per diem payments, 

the lower drug costs would result in 

direct savings to the facility. For LTC 

residents whose drug costs are covered 

by Medicaid, the savings from lower 

drug costs would accrue to the Medicaid 

programs for drug costs reimbursed on 

a fee-for-service basis and/or to the 

facility if drug costs are included in the 

LTC per diem payment. For those 

residents enrolled in a Medicare Part D 

prescription drug plan, the savings 

would be realized by the Part D 

sponsors and Medicare. 

To estimate the potential savings, we 

used a comparison of the risk-adjusted 

costs for community and LTC 

beneficiaries. We found that LTC 

beneficiary costs were 23 percent higher 

than the costs for beneficiaries in the 

community. We believe some of the cost 


srobinson on DSK4SPTVN1PROD with PROPOSALS3
63072 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

9CMS, March 18, 2010 Part D Data Symposium 

Presentations, LTC Pharmacy Price Index. Accessed 

online at: http://www.cms.gov/PrescriptionDrugCov

GenIn/09_ProgramReports.asp#TopOfPage on June 

17, 2010. 

differential is related to factors, such as 

differences in dosage forms, which 

would contribute to legitimately higher 

LTC costs. However, we estimate that 50 

percent of the difference in cost is 

attributable to the overprescribing and 

unnecessary use of higher cost, brand 

name drugs resulting from the 

contractual arrangements between the 

LTC pharmacies and pharmaceutical 

manufacturers. An analysis of 2008 Part 

D data shows LTC beneficiary drug costs 

in that year averaged $4520.9 Using the 

23 percent differential, this average 

would be $845 higher than the average 

cost for a community beneficiary. We 

expect the regulatory change we are 

considering would reduce LTC costs by 

50 percent of the differential or $423 per 

beneficiary per year for a total reduction 

of $360,396,000 ($423 per beneficiary × 

852,000 LTC beneficiaries). 

Lower LTC drug costs would result in 

lower LTC pharmacy revenues. We 

would likewise expect that the LTC 

pharmacies would experience a 

reduction in rebates from the 

pharmaceutical manufacturers; 

however, we cannot quantify this loss. 

We believe it is reasonable to presume 

that the incentives present in nonindependent relationships with 

pharmacies can influence prescribing 

practices. As a result, we expect the 

independent drug regimen reviews 

under consideration would decrease 

unnecessary use of antipsychotic drugs 

and, therefore, save lives, although we 

cannot quantify the number of lives that 

would be saved. In addition to saving 

lives, we expect more appropriate 

prescribing and improved medication 

oversight would lead to fewer 

hospitalizations and treatments for 

drug-related problems (such as 

confusion, balance disorders and 

complications caused by 

pharmacological interactions), as well as 

improved quality of life for LTC facility 

residents. We cannot quantify the 

number of hospitalizations or treatments 

that would be averted or the associated 

savings that would be realized. 

However, we believe the benefits to 

Medicare, Medicaid, other payers, and 

the LTC residents that would result 

from these changes are clear. Although 

the specific information to reliably 

quantify the all the costs and savings 

associated with this requirement is not 

available, we believe the benefits and 

costs are offsetting. Again, given the 

uncertainty surrounding these 

estimates, we are soliciting comment 

regarding more detailed information on 

the costs and savings associated with 

this provision. 

15. New Benefit Flexibility for Fully 

Integrated Dual Eligible Special Needs 

Plans (FIDE SNPs) (§ 422.102) 

We estimate that our proposal 

proposed at § 422.102(e) to allow certain 

FIDE SNPs to offer additional 

supplemental benefits beyond those 

other MA plans—subject to CMS 

approval, and as specified annually by 

CMS—will result in aggregate savings to 

both States and the Federal government 

of approximately $19.0 million between 

FY 2013 and FY 2018. These Federal 

and State savings estimates are based on 

our assumption that based on the 

eligibility standards CMS establishes 

approximately 34 FIDE SNPs will 

qualify to participate in this initiative, 

representing a total of approximately 

115,000 enrollees in 2011. 

While we acknowledge that 

§ 1859(f)(1) of the Act extends the 

authority for all SNPs, including FIDE 

SNPs, to restrict enrollment to special 

needs individuals through the 2013 MA 

contract year, to be consistent with our 

scoring of other provisions in this rule, 

we report the impact of this proposed 

provision from FYs 2013 through 2018. 

We note that this impact may vary 

depending on Congressional action. 

We are basing our analysis of the 

potential cost impacts of the FIDE SNP 

benefit flexibility initiative on our 

experience with HMO integrated care 

model demonstrations for MedicareMedicaid dual eligibles and on our 

observation of enrollment increases that 

resulted from these demonstrations. 

From 1997 through 2006, we 

conducted demonstrations that pooled 

Medicare and Medicaid payments to the 

Minnesota Senior Health Options 

(MSHO), Wisconsin Health Partnership 

Program (WPP) and Massachusetts 

Senior Care Organization (MSCO) 

HMOs to deliver Medicare and 

Medicaid-covered primary, acute, and 

long-term care services to voluntarily 

enrolled elderly dual eligibles. The 

plans participating in the demonstration 

were responsible for delivering 

Medicaid community care services, 

developing managed care coordination 

models, and arranging for the delivery 

of the full range of acute and long-term 

care services and developing care 

coordination models—characteristics 

that we believe are essential for the 

provision of comprehensive, integrated 

care. The demonstrations also used 

Medicaid funds to cover community 

care services (for example, personal 

care, homemaking, transportation, 

personal emergency response systems, 

home-delivered meals, adaptive 

equipment, home modifications, 

incontinence supplies, and respite care 

that support independence and avoid 

inappropriate institutionalization). At 

the start of the demonstrations, concern 

that marketing additional supplemental 

benefit offerings would attract a 

significant number of new enrollees-led 

us to cap enrollment in the 

demonstration. However, States in the 

demonstration never came close to 

reaching this enrollment cap. The only 

major enrollment increase was in 2006, 

when the demonstration programs were 

converted to D–SNPs, and the D–SNPs 

were able to passively enroll enrollees. 

The MSHO program, the most 

extensively analyzed integrated care 

demonstration program for dual eligible 

enrollees, received a Medicare and a 

Medicaid capitation payment for the 

provision of acute and long-term care 

services, but reimbursed providers 

directly for nursing home services on a 

fee-for-service basis. Therefore, Federal 

and State government costs under this 

capitated program were not related to 

actual utilization, with the exception of 

fee-for-service nursing home costs. 

Utilization data from the MSHO 

demonstration show that MSHO 

enrollees had significantly fewer shortstay nursing home admissions as 

compared to dual eligibles both within 

and outside of the MSHO demonstration 

area. 

We believe that plans have incentives 

to generate higher rebates to fund these 

extra supplemental benefits and have 

assumed that they will reduce their 

margins by 1 percent. Taking into 

account expected growth rates in bids 

and benchmarks, and projected rebate 

shares, we expect that FIDE SNPs will 

reduce their bids by 2 percent on 

average—1 percent medical and 1 

percent margin—as a result of our 

proposed changes to § 422.102(e). 

Applying the per-capita savings to the 

projected FIDE SNP enrollment, we 

project $17.1 million savings to the 

Medicare program for the 6-year period 

between FY 2013 and FY 2018. 

We also believe that, when delivered 

in a prudent manner, the additional 

benefits that FIDE SNPs would be 

permitted to offer under our proposed 

changes to § 422.102(e) would allow 

some high risk patients to remain in 

their home and out of institutions. We 

estimate that the new flexibility will 

generate modest reductions in Medicare 

program expenditures, due to a 1 

percent savings of Medicare-covered 

medical benefits stemming from these 

enhanced flexibilities. 

Additionally, based on the evidence 

from the studies in Massachusetts, 


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Minnesota, and Wisconsin 

demonstrations, we believe that the 

flexibility for FIDE SNPs to offer 

additional supplemental benefits will 

modestly impact nursing facility 

utilization rates and Medicaid costs. 

Our assumptions regarding the 

effectiveness of these services in 

preventing nursing facility entry are 

consistent with assumptions we have 

used for other legislative and regulatory 

proposals aimed at reducing nursing 

facility use and encouraging home and 

community based long term care. 

Applying the per-capita savings to the 

projected FIDE SNP enrollment, we 

estimate Federal and State Medicaid 

savings of $1.79 million for the 6-year 

period between FY 2013 and FY 2018 as 

a result of this proposed provision. 

16. Application of the Medicare 

Hospital-Acquired Conditions and 

Present on Admission Indicator Policy 

to MA Organizations (§ 422.504) 

We propose to require MAOs to 

reduce reimbursements for Part A 

hospital services for contract provider 

hospitals for serious events that could 

be prevented through evidence-based 

guidelines, in accordance with the 

HACs and POA policy that is currently 

required for hospitals paid under the 

Original Medicare IPPS. MA 

organizations are already required to 

pay non-contract provider hospitals the 

amount that they would receive for 

services under Original Medicare, 

including any applicable reductions for 

HACs. This requirement is outlined in 

the MA Payment Guide for Out of 

Network Payments. We do not believe 

that extending this requirement would 

impose any new administrative burden 

on MA plans because plans already 

have the operational systems in place 

that would facilitate implementation of 

the requirement. In the FY 2009 IPPS 

final rule, published August 19, 2008 

(73 FR 49075), we estimated a total 

savings for Medicare of $21 million for 

FYs 2009, 2010 and 2011, and $22 

million for FYs 2012 and 2013. These 

estimates already included savings that 

would accrue to the MA program as a 

result of reductions in annual MA 

payment rates. We do not expect a 

significant amount of new savings to be 

derived as a result of the requirements 

under this proposed rule. Therefore, we 

estimate that this provision would have 

negligible impact. 

17. Establishment and Application of 

Daily Cost-Sharing Rate as Part of Drug 

Utilization Management and Fraud, 

Abuse, and Waste Control Program 

A previous review of 2009 PDE data 

suggested that just under 32 percent of 

approximately 78.6 million first fills for 

maintenance medications are not 

refilled by Medicare Part D enrollees. 

Maintenance medications are used for 

diseases when the duration of therapy 

can reasonably be expected to exceed 1 

year, and we assume for purposes of 

estimating savings to the Part D program 

that the lack of refills indicates the 

prescribed medications were 

discontinued. The estimated total cost 

of these discontinued medications was 

approximately $1.6 billion (70 percent 

for brands and 30 percent for generics). 

However, this analysis did not 

distinguish between community and 

institutional settings. Thus, to 

determine the costs of discontinued 

medications in community settings 

only, we reduced the total costs by 

approximately13 percent in accordance 

with CMS data on gross drug costs in 

the Part D program in 2009 in the 

community and institutional settings to 

remove a proportion representing longterm care expenses. Consequently, the 

adjusted total estimated cost of 2009 

community-based discontinued first 

fills of chronic medications was 

estimated at roughly $1.4 billion. 

In light of the cost of discontinued 

medications, and in accordance with 

section 1860D–4(c) of the Act, we are 

proposing to revise § 423.153(b)(4) to 

provide that a Medicare Part D sponsor’s 

drug utilization management program 

must establish and apply a daily costsharing rate . Under this proposal, the 

enrollee and his or her prescriber 

generally would decide if a medication 

supply of less than 30 days would be 

appropriate, and if so, the copayment 

for the medication would be prorated by 

the Part D sponsor based on the days 

supply dispensed. 

Specifically, we propose to define 

‘‘daily cost-sharing rate’’ in § 423.100. 

‘‘Daily cost-sharing rate’’ would mean, 

as applicable, the established monthly— 

• Copayment under the enrollee’s 

Part D plan divided by 30 or 31 and 

rounded to the nearest lower dollar 

amount or to another amount but in no 

event to an amount which would 

require the enrollee to pay more for a 

month’s supply of the prescription than 

the enrollee would have paid if a 

month’s supply had been dispensed; or 

• Coinsurance rate under the 

enrollee’s Part D plan applied to the 

ingredient cost of the prescription for a 

month’s supply divided by 30 or 31. 

In addition, we are specifically 

proposing to revise § 423.104 by adding 

a paragraph (i) to state that a Part D 

sponsor is required to provide its 

enrollees access to daily cost-sharing 

rate in accordance with § 423.154(b)(4). 

We also propose adding paragraph (4)(i) 

to § 423.153(b) to require a Part D 

sponsor to establish and apply a daily 

cost-sharing rate to a prescription 

presented by an enrollee at a network 

pharmacy for a covered Part D generic 

or brand drug that is dispensed for a 

supply of less than 30 days, multiplied 

by the days supply actually dispensed, 

plus any dispensing fee in the case of 

coinsurance. We further propose adding 

paragraph (4)(i)(A) to limit the 

requirement to drugs that are in the 

form of solid oral doses paragraph 

(b)(4)(i)(B) would further limit the 

requirement to a prescription that is for 

an initial fill of a new medication, is 

intended to allow the enrollee to 

synchronize refill dates of multiple 

drugs, or the prescription is dispensed 

in accordance with § 423.154 (which 

sets forth the requirements placed upon 

Part D sponsors with respect to 

dispensing of prescription drugs in 

long-term care facilities effective 

January 1, 2013). Paragraph (b)(4)(ii) 

would state that the requirements of 

(b)(4)(i) would not apply to antibiotics 

or drugs dispensed in their original 

container as indicated in the Food and 

Drug Administration Prescribing 

Information or are customarily 

dispensed in their original packaging to 

assist patients with compliance. 

Potential savings of a daily costsharing rate requirement on Part D 

sponsors would come from a reduction 

of the estimated $1.4 billion in costs 

previously noted which would be offset 

by some additional dispensing fees. In 

order to estimate the savings, we must 

make assumptions about how many first 

fills would be dispensed in quantities of 

less than a 30 day supply, and what the 

average quantity of such first fills would 

be. It should be pointed out that these 

assumptions are highly uncertain 

because it is very difficult to predict the 

beneficiaries’ behavioral response. 

Having noted this caveat, we assume 20 

percent of first fills in 2013 will be for 

a supply of less than 30 days, trending 

to 50 percent by 2018, and that the 

average of such fills would be for a 15 

day supply. Assuming 32 percent of 

these first fills are discontinued, we 

estimate the potential savings to the Part 

D program to be $140 million in 2013 

alone, and over $2.4 billion by 2018. 

The additional dispensing fees 

previously noted are associated with 

medications that begin with a trial fill 

and are continued therapeutically. For 

instance, an enrollee who receives less 

than a month’s supply, but continues 

taking the medication, would be 

expected to obtain ongoing refills of 30 

to 90 days. Over the course of a year, the 

expectation is that there will be up to 13 

dispensing events over a period of 1 


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year of refills related to such enrollee 

with respect to the medication initially 

begun with a trial fill. However, for 

those enrollees who discontinue a 

medication, there will be savings for the 

enrollee by not having paid the full 

monthly copayment for that particular 

medication, as well as for sponsors and 

the Federal government to the extent 

that a full month’s supply of medication 

was not covered by the Part D program. 

With respect to more initial fills of 

brand drugs, we believe there may be 

additional but less significant costs for 

more initial fills of brand drugs that 

enrollees previously declined to try due 

to the cost of a full month’s supply, 

when the brand drugs are known for 

significant side effects and/or to be 

frequently poorly tolerated. 

Aside from these additional costs, we 

expect the other regulatory impact costs 

imposed by the proposed provisions to 

be the one-time costs for the industry to 

reprogram PBM systems to apply a daily 

cost-sharing rate. In this regard, we 

estimate that the number of hours for 28 

PBMs and 12 plan organizations to 

reprogram their systems to establish and 

apply a daily copayment rate is 80 hours 

per processor or plan organization, for a 

total one-time burden of 3,200 hours (40 

× 80). The estimated cost associated 

with such reprogramming is the 

estimated number of hours multiplied 

by the estimated hourly rate of $145.37, 

which equals $465,184. 

18. Technical Corrections to Enrollment 

Provisions 

We are proposing technical changes 

that correct cross-references that should 

have been updated in previous 

rulemaking. These proposals are 

technical corrections and do not 

represent a burden for small businesses, 

rural hospitals, States, or the private 

sector. 

19. MA and Part D Disclosure 

Requirements to Cost Contract Plans 

We are proposing to extend the 

disclosure requirements in § 422.111 

and § 423.128 to cost contract plans. 

Our regulations at § 422.111 and 

§ 423.128 require MA organizations and 

Part D sponsors to disclose to enrollees, 

at the time of enrollment and annually 

thereafter (in the form of an annual 

notice of change/evidence of coverage, 

or ANOC/EOC mailing), certain detailed 

information about plan benefits, service 

area, provider and pharmacy access, 

grievance and appeal procedures, 

quality improvement programs, and 

disenrollment rights and 

responsibilities. They also require the 

provision of certain information about 

request and establish requirements with 

respect to dissemination of explanations 

of benefits, customer service call 

centers, and Internet websites. 

For each entity, we estimate that it 

will take 12 hours to develop and 

submit the required information. This 

includes 1 hour to read CMS’ published 

instructions, 6 hours to generate the 

standardized document, 1 hour to 

submit the materials, and 4 hours to 

print and disclose information to the 

beneficiaries. We estimate 20 cost 

contractors would be affected annually 

by this requirement, resulting in a total 

annual burden of 240 hours. We 

estimate, based on an hourly wage of 

$29.88 (hourly salary for a compliance 

officer/cost estimator according to 

Bureau of Labor Statistics) plus 48 

percent for fringe benefits and overhead, 

that this requirement would result in a 

total annual burden of $10,613 rounded, 

approximately $0.01 million per year. 

20. Denials of SNP Applications and 

SNP Appeal Rights 

We estimate that this proposed 

provision would have a minimal impact 

resulting from administrative costs 

incurred by the small number of SNP 

applicants that we expect will receive 

application denials and the small 

percentage of denied applicants that we 

expect would appeal our denial 

decision. For those organizations that do 

appeal the denial of their SNP 

application, a minimal number of 

professional staff working over a short 

period of time would be required to 

prepare and present the organization’s 

appeal. 

We estimate that the total annual 

hourly burden for developing and 

presenting a case for us to review is 

equal to the number of organizations 

likely to request an appeal multiplied by 

the number of hours for the attorneys of 

each appealing SNP to research, draft, 

submit, and present their arguments to 

CMS. Based on SNP application denials 

from contract year 2012, out of the 

approximately 400 SNP applications 

received, 8 of these applications were 

denied and all 8 denials were appealed. 

In contract year 2011, 8 SNP 

applications were denied and none of 

these denials were appealed. Taking the 

average of the last two years, we 

estimate that approximately 4 denied 

applicants would appeal the denial of 

the SNP application. We further 

estimate that 1 attorney working for 8 

hours could complete the 

documentation to be submitted for each 

application denial, resulting in a total 

burden estimate of 32 hours (8 hours × 

4 SNP application denials). The 

estimated annual cost to an MA 

organization that has been denied to 

offer a SNP associated with this 

provision (assuming an attorney billing 

$250 per hour) is $8,000 (32 hours × 

$250) or when rounded, to 

approximately $ 0.01 million per year. 

21. Contract Requirements for First Tier 

and Downstream Entities in 

Subcontracts 

The regulations at § 422.504(i) and 

§ 423.505(i) require MA organizations 

and Part D sponsors to require all of the 

first tier, downstream, and related 

entities to which they have delegated 

the performance of certain Part C or D 

functions to agree to certain obligations. 

We believe that the most legally 

effective and direct way to ensure that 

the MAOs and Part D sponsors retain 

the necessary control and oversight over 

their delegated entities is by requiring 

all contracts among those entities to 

specifically reference each party’s 

obligations to the sponsor, as 

enumerated in § 422.504(i) and 

§ 423.505(i). Thus, the regulation has 

been changed to address this need. 

Specifically, we deleted the term 

‘‘written arrangements’’ throughout 

§ 422.504(i) and § 423.505(i) and in each 

instance replace it with ‘‘each and every 

contract.’’ 

The proposed changes would not 

result in any additional costs since these 

types of contracts are already in use and 

required by regulation. Thus, the 

strengthening of the language to ensure 

that the sponsor is responsible for 

downstream entities is merely clarifying 

an existing requirement and eliminating 

potential loopholes. 

22. Valid Prescriptions 

In the § 423.100 proposed definition 

of ‘‘valid prescription’’ and the 

§ 423.104 requirement of a ‘‘valid 

prescription,’’ we would codify our 

longstanding policy of deferring, when 

applicable, to State law to determine 

whether a prescription is valid such that 

the prescribed drug may be eligible for 

Part D coverage. 

The changes made to this regulation 

would not result in any additional costs. 

Not only have we expected that 

prescriptions would be valid under 

applicable State law since the beginning 

of the Part D program, but also 

prescribers and pharmacies remain 

subject to applicable State laws 

regarding valid prescriptions. 

Furthermore, private contracts regarding 

Part D drugs (such as those between 

MAOs or Part D sponsors and 

pharmacies) likely also require valid 

prescriptions. In light of the above 

realities, it is not unreasonable to 

presume that MAOs, Part D sponsors, 

PBMs, and pharmacies are already 


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taking steps to write prescriptions that 

are valid under applicable State law. 

Accordingly, we do not believe 

codifying the valid prescription 

requirement would change current 

practices. 

23. Medication Therapy Management 

Comprehensive Medication Reviews 

and Beneficiaries in LTC Settings 

Current regulations require that 

unless a beneficiary is in an LTC setting, 

the comprehensive medication review 

must include an interactive, person-toperson, or telehealth consultation 

performed by a pharmacist or other 

qualified provider, and may result in a 

recommended medication action plan. 

Section 10328 of the Affordable Care 

Act amended section 1860D–4(c)(2) of 

the Act to require that all targeted 

beneficiaries be offered an interactive 

CMR. Accordingly, the proposed change 

to § 423.153 permits the sponsor to 

allow the pharmacist or other qualified 

provider to perform the medication 

review without the beneficiary in cases 

when the beneficiary is in an LTC 

facility and is cognitively impaired and 

thus, cannot accept the sponsor’s offer 

of an interactive CMR . We anticipate 

that the impact of this proposed revision 

will clarify the CMR process for 

sponsors by allowing pharmacists and 

other qualified providers to ascertain 

whether the patient is willing and able 

to participate in an interactive CMR 

before administering it. We do not 

anticipate any costs or savings 

associated with this change. 

24. Coordination of Part D Plans With 

Other Prescription Drug Coverage 

The proposed regulation would be 

explicit that sponsors, when providing 

Part D benefits to enrollees of EGWPs, 

are subject to the same requirements as 

sponsors providing Part D coverage in 

the individual market unless such 

requirements are explicitly waived. 

Since this change is being made to 

clarify an existing policy, we do not 

anticipate any effect on costs or savings 

on any specific entity. 

25. Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (NPIs) 

The inconsistent use of identifiers by 

prescribers on Part D claims has 

hindered some of our efforts to combat 

fraud and abuse activities. Therefore, we 

propose to require, effective January 1, 

2013, that Part D sponsors include only 

valid, individual prescriber NPIs as 

identifiers in PDEs submitted to CMS. 

Specifically, § 423.120(c) sets forth the 

responsibilities of Part D plan sponsors 

with regard to the use of standardized 

technologies and compliance with the 

HIPAA standards at 45 CFR 162.1102. 

We propose to add a new paragraph 

(5)(A) that would require Part D plan 

sponsors to submit PDE records to CMS 

that contain an active and valid 

individual prescriber NPI. Proposed 

new paragraph (c)(5)(B) would also 

codify current guidance and require that 

a Part D plan sponsor not reject a claim 

from a network pharmacy solely on the 

basis that it does not contain an active 

and/or valid NPI. With respect to 

requests for reimbursement submitted 

directly by Medicare beneficiaries, 

proposed paragraph (5)(C) would 

prohibit a Part D sponsor from making 

reimbursement payment to the 

beneficiary dependent upon the 

sponsor’s acquisition of the prescriber 

NPI, and would further prohibit a Part 

D sponsor from seeking recovery of the 

payment from the beneficiary if the 

sponsor were unable to retrospectively 

acquire an active and valid individual 

NPI. 

The impact associated with these 

proposed regulations is: (1) the annual 

cost for PBMs and plan organizations to 

conduct or contract with a commercial 

vendor or with network pharmacies to 

provide prescriber ID validation 

services; or (2) the annual cost required 

for PBMs and plan organizations to 

build their own databases of current, 

valid prescriber NPIs, and to recontract 

with network pharmacies to support 

retroactive review of the prescription to 

obtain the current, valid prescriber ID. 

We estimate a one-time burden for an 

estimated 28 PBMs and 12 plan 

organizations to negotiate and execute a 

contract with a commercial vendor to 

provide prescriber ID validation services 

to be negligible, particularly since PBMs 

and plan organizations typically have 

in-house counsel or law firms on 

retainer. The estimated annual cost of 

such a contract is $160,000, which is the 

mid-point of estimates we have seen for 

such a contract. Therefore, the estimated 

annual cost of such a contract for 40 

PBMs and plan organizations is 

$6,400,000 (40 × 160,000). However, 

preliminary results of an analysis of 

2011 PDEs submitted to date conducted 

by a contractor to CMS indicate that 

approximately 90 percent contain valid 

individual NPIs. Therefore, this 

estimation should be reduced to reflect 

that a certain amount of cost associated 

with prescriber ID validation has 

already been absorbed by the industry. 

Therefore, we assume that 80 percent of 

the industry needs to acquire additional 

prescriber ID validation capacity in 

order to submit only PDEs that contain 

active and valid individual prescriber 

NPIs to CMS. Thus, the estimated 

annual cost to PBMs and plan 

organizations of a contract with a 

commercial vendor to perform 

prescriber NPI validation services is 

$5,120,000 (6,400,000 × 0.8). 

With respect to PBMs and plan 

organizations that decide to contract 

with network pharmacies for prescriber 

validation services or build their own 

databases of valid prescriber NPIs, we 

assume that they will only do so if the 

cost is equal to or less than contracting 

with a commercial vendor for such 

services, and therefore, no estimation of 

the costs to do so is necessary. 

Since approximately 90 percent of 

PDEs currently submitted to CMS 

already contain valid individual NPIs, 

and an estimated 95 percent of 

physicians have an NPI, we estimate 

negligible costs associated with any PDE 

that cannot be submitted to CMS for 

lack of an NPI. 

TABLE 7—ESTIMATED AGGREGATED COSTS TO THE HEALTH CARE SECTOR BY PROVISION FOR FISCAL YEARS 2013 

THROUGH 2018 

Provision(s) Regulation 

section(s) 

Fiscal year ($ in millions) Total 

($ in millions) 

2013 2014 2015 2016 2017 2018 FYs 2013–2018 

Medicare Coverage Gap Agreement.§ 423.2315 ... 3,990.00 4,520.00 5,090.00 5,710.00 6,350.00 7,050.00 32,710.00 

Payment Processes for Part D 

Sponsors.

§ 423.2320 ... 12.66 12.66 12.66 12.66 12.66 12.66 75.96 

Provision of Applicable Discounts § 423.2325 ... 12.66 12.66 12.66 12.66 12.66 12.66 75.96 

Compliance and Civil Money Penalties.§ 423.2340 ... 1.18 1.32 1.48 1.67 1.88 2.11 9.64 


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TABLE 7—ESTIMATED AGGREGATED COSTS TO THE HEALTH CARE SECTOR BY PROVISION FOR FISCAL YEARS 2013 

THROUGH 2018—Continued 

Provision(s) Regulation 

section(s) 

Fiscal year ($ in millions) Total 

($ in millions) 

2013 2014 2015 2016 2017 2018 FYs 2013–2018 

Other Manufacturer Costs ............. § 423.2315 ... 13.03 13.03 13.03 13.03 13.03 13.03 78.18 

Inclusion of Benzodiazepines and 

Barbiturates as Part D Covered 

Drugs.

§ 423.100 ..... 200.00 280.00 310.00 340.00 370.00 410.00 1,910.00 

Who May File Part D Appeals with 

the Independent Review Entity.

§ 423.600 ..... 1.05 1.05 1.05 1.05 1.05 1.05 6.30 

Benefit Flexibility for Fully Integrated Dual Eligible Special 

Needs Plans (FIDE SNPs).

§ 422.102 ..... ¥5.97 ¥3.48 ¥2.30 ¥2.41 ¥2.32 ¥2.41 ¥18.89 

Establishment and Application of 

Daily Cost-Sharing Rate as Part 

of Drug Utilization Management 

and Fraud, Abuse and Waste 

Control Program.

§ 423.104 

§ 423.153.

¥139.50 ¥240.00 ¥330.00 ¥430.00 ¥550.00 ¥690.00 ¥2,379.50 

Add language specific to SNP applications to give CMS the clear 

authority to deny SNP applications and to give SNPs appeal 

rights.

§ 422.500 ..... 0.01 0.01 0.01 0.01 0.01 0.01 0.06 

Apply MA and Part D disclosure 

requirements to cost contract 

plans.

§ 417.427 ..... 0.01 0.01 0.01 0.01 0.01 0.01 0.06 

Access to covered Part D drugs 

through the use of standardized 

technology and NPIs.

§ 423.120 ..... 5.12 5.12 5.12 5.12 5.12 5.12 30.72 

Developing and executing contracts with independent consultant pharmacists.§ 483.60 ....... 23.03 3.02 3.02 3.02 3.02 3.02 38.13 

Total Impact ($ in millions) ..... ...................... 4,113.28 4,605.40 5,116.74 5,666.82 6,217.12 6,817.26 32,536.62 

Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage 

data from the U.S. Department of Labor, Bureau of Labor Statistics. 

TABLE 8—ESTIMATED COSTS AND SAVINGS TO THE FEDERAL GOVERNMENT BY PROVISION FOR FYS 2013 THROUGH

2018 

Provision(s) Regulation 

section(s) 

Fiscal year ($ in millions) Total 

($ in millions) 

2013 2014 2015 2016 2017 2018 (FYs 2013–2018) 

Medicare Coverage Gap Agreement.§ 423.2315 ... 180.00 200.00 230.00 270.00 280.00 280.00 1,440.00 

Inclusion of Benzodiazepines and 

Barbiturates as Part D Covered 

Drugs.

§ 423.100 ..... 200.00 280.00 310.00 340.00 370.00 410.00 1,910.00 

Who May File Part D Appeals with 

the Independent Review Entity.

§ 423.600 ..... 0.97 0.97 0.97 0.97 0.97 0.97 5.84 

Establishment and Application of 

Daily Cost-Sharing Rate as Part 

of Drug Utilization Management 

and Fraud, Abuse and Waste 

Control Program.

§ 423.104 

§ 423.153.

¥140.00 ¥240.00 ¥330.00 ¥430.00 ¥550.00 ¥690.00 ¥2,380.00 

Benefit Flexibility for Fully Integrated Dual Eligible Special 

Needs Plans (FIDE SNPs).

§ 422.102 ..... ¥5.85 ¥3.36 ¥2.17 ¥2.28 ¥2.18 ¥2.28 ¥18.12 

Total ($ in millions) ................. ...................... 235.12 237.61 208.8 178.69 98.79 ¥1.31 957.7 

Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage 

data from the U.S. Department of Labor, Bureau of Labor Statistics. 


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TABLE 9—ESTIMATED COSTS TO MA ORGANIZATIONS AND PART D SPONSORS BY PROVISION FOR FYS 2013 THROUGH

2018 

Provision(s) Regulation 

section(s) 

Costs per fiscal year ($ in millions) Total 

(FYs 2013–2018) 

2013 2014 2015 2016 2017 2018 ($ in millions) 

Payment Processes for Part D 

Sponsors.

§ 423.2320 ... 12.66 12.66 12.66 12.66 12.66 12.66 75.96 

Provision of Applicable Discounts § 423.2325 ... 12.66 12.66 12.66 12.66 12.66 12.66 75.96 

Who May File Part D Appeals with 

the Independent Review Entity.

§ 423.600 ..... 0.08 0.08 0.08 0.08 0.08 0.08 0.48 

Establishment and Application of 

Daily Cost-Sharing Rate as Part 

of Drug Utilization Management 

and Fraud, Abuse and Waste 

Control Program.

§ 423.104 

§ 423.153.

0.5 0 0 0 0 0 0.5 

Apply MA and Part D Disclosure 

Requirements to Cost Contract 

Plans.

§ 417.427 ..... 0.01 0.01 0.01 0.01 0.01 0.01 0.06 

Add language specific to SNP applications to give CMS the clear 

authority to deny SNP applications and to give SNPs appeal 

rights.

§ 422.500 ..... 0.01 0.01 0.01 0.01 0.01 0.01 0.06 

Access to covered Part D drugs 

through the use of standardized 

technology and NPIs.

§ 423.120 ..... 5.12 5.12 5.12 5.12 5.12 5.12 30.72 

Total ($ in millions) ................. ...................... 31.04 30.54 30.54 30.54 30.54 30.54 183.74 

Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage 

data from the U.S. Department of Labor, Bureau of Labor Statistics. 

TABLE 10—ESTIMATED COSTS TO MANUFACTURERS BY PROVISION FOR FISCAL YEARS 2013 THROUGH 2018 

Provision(s) Regulation 

section(s) 

Cost per fiscal year 

($ in millions) Total 

(FYs 2013–2018) 

($ in millions) 2013 2014 2015 2016 2017 2018 

Medicare Coverage Gap Agreement.§ 423.2315 ... 3,810.00 4,320.00 4,860.00 5,440.00 6,070.00 6,770.00 31,270.00 

Other Manufacturer Costs ............. § 423.2315 ... 13.03 13.03 13.03 13.03 13.03 13.03 78.19 

Compliance and Civil Money Penalties.§ 423.2340 ... 1.18 1.32 1.48 1.67 1.88 2.11 9.64 

Total ($ in millions) ................. ...................... 3,824.31 4,334.35 4,874.51 5,454.70 6,084.91 6,785.14 31,357.83 

Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage 

data from the U.S. Department of Labor, Bureau of Labor Statistics. 

TABLE 11—ESTIMATED SAVINGS TO STATES BY PROVISION FOR FISCAL YEARS 2013 THROUGH 2018 

Provision(s) Regulation 

section(s) 

Savings per fiscal year ($ in millions) Total Savings 

(FYs 2013–2018) 

2013 2014 2015 2016 2017 2018 ($ in millions) 

Benefit Flexibility for Fully Integrated Dual Eligible Special 

Needs Plans.

§ 422.102 ..... 0.12 0.12 0.13 0.13 0.14 0.13 0.77 

Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage 

data from the U.S. Department of Labor, Bureau of Labor Statistics. 

TABLE 12—ESTIMATED COSTS TO LTC FACILITIES BY PROVISION FOR FISCAL YEARS 2013 THROUGH 2018 

Provision(s) Regulation 

section(s) 

Cost per fiscal year ($ in millions) Total 

(FYs 2013–2018) 

2013 2014 2015 2016 2017 2018 ($ in millions) 

Developing and executing contracts with independent consultant pharmacists.§ 483.60 ....... 23.03 3.02 3.02 3.02 3.02 3.02 38.13 

Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage 

data from the U.S. Department of Labor, Bureau of Labor Statistics. 


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63078 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Proposed Rules 

D. Expected Benefits 

1. Medicare Coverage Gap Discount 

Program Agreement 

The proposed agreement would 

codify many of the operational 

parameters of the Discount Program. 

The intention of the agreement and the 

parameters within is to guide the 

distribution of an approximately 50 

percent discount in beneficiary OOP 

cost for prescriptions filled while the 

beneficiary is in the coverage gap. We 

believe that a well-implemented 

Discount Program would increase 

beneficiary adherence to medication 

regimens that can improve their health 

and lower their pharmaceutical costs. 

2. Payment Processes for Part D 

Sponsors 

The proposed rule would require 

CMS to facilitate distribution of the gap 

discount to beneficiaries by requiring 

that CMS provide an interim discount 

payment to Part D sponsors. That 

interim discount payment would be 

subsequently reconciled against 

manufacturer payments for discounts 

provided to beneficiaries. This 

provision would help Part D sponsors 

maintain operations with minimal, if 

any, effect on cash flow. This would 

help Part D sponsors distribute the gap 

discount to beneficiaries. 

3. Provision of Applicable Discounts on 

Applicable Drugs for Applicable 

Beneficiaries 

The proposed rule would require Part 

D sponsors to calculate the discount that 

should be provided to beneficiaries in 

the coverage gap. Beneficiaries would, 

therefore, have minimal need to 

determine when they qualify for the gap 

discount and when they are no longer 

in the gap. In addition, Part D sponsors 

would likely automate discount 

calculations, potentially reducing errors 

and the need for beneficiaries to file an 

appeal that challenges the discount 

amount. 

4. Manufacturer Discount Payment 

Audits and Dispute Resolution 

We believe that the audit and dispute 

programs would both contribute to the 

stable operation of the Discount 

Program. Both programs are intended to 

provide an equitable means to resolve 

manufacturer concerns, enhance 

program integrity and, therefore, 

program stability. A predictable 

discount program would help 

beneficiaries plan their finances and 

health care costs over time. 

5. Beneficiary Dispute Resolution 

The traditional Medicare program 

provides a means for beneficiaries to 

challenge Medicare decisions to ensure 

they receive needed benefits. We believe 

that beneficiaries would gain the same 

benefit from a dispute resolution 

program associated with the Discount 

Program. Further, extending the existing 

Part D beneficiary dispute resolution 

process to the Discount Program would 

reduce the need for beneficiaries to 

learn a new set of dispute procedures. 

6. Compliance Monitoring and Civil 

Money Penalties 

Our expectation is that manufacturers 

would generally comply with the terms 

of the agreement and the Discount 

Program. We understand that 

manufacturers may still err and that 

such errors can disrupt program 

operations. Our intention is to use 

compliance actions, including penalties, 

to encourage reduced manufacturer 

errors and maintain a predictable 

program for beneficiaries. 

7. Termination of Agreement 

We believe that CMS’ ability to 

terminate the Agreement upon extreme 

non-compliance by manufacturers will 

likely encourage manufacturers to 

address issues quickly. We believe that 

prompt resolution of significant 

concerns would create minimal 

disruption to the program and 

inconvenience of beneficiaries. 

8. Inclusion of Benzodiazepines and 

Barbiturates as Part D Covered Drugs 

Part D coverage of Benzodiazepines 

and Barbiturates potentially improves 

beneficiary access to these drugs and 

reduces beneficiary out-of-pocket costs 

for non-Part D covered drugs. In 

addition, State costs are reduced in 

those States that have been paying for 

these drugs. 

9. Determination of Actuarially 

Equivalent Creditable Prescription Drug 

Coverage 

By changing the actuarial value 

calculation for creditable coverage to 

not include the additional value of gap 

coverage consistent with the RDS 

actuarial value, this provision protects 

Medicare beneficiaries from being 

subject to a LEP when they leave RDS 

and other forms of prescription drug 

coverage and enroll into a Part D plan. 

10. Who May File Part D Appeals With 

the Independent Review Entity 

The proposed changes to § 423.600 

would allow physicians and other 

prescribers to request IRE 

reconsiderations on behalf of Part D 

plan enrollees. This provision would 

reduce the burden on enrollees and 

their prescribers because they will no 

longer have to submit a properly 

executed AOR form in cases where the 

prescriber wishes to request a 

reconsideration on behalf of a Part D 

plan enrollee. Additionally, physicians 

and prescribers are in the best position 

to anticipate and provide the 

appropriate medical documentation 

needed to support coverage for Part D 

enrollees’ medications. We believe that 

by allowing a physician or other 

prescriber to request a reconsideration 

on the enrollee’s behalf, it will further 

improve an enrollee’s access to the Part 

D appeals process and assist enrollees in 

obtaining coverage of medically 

necessary medications. 

11. Termination for Lower-Than-3-StarPerformance Ratings 

The benefit of this change is that we 

would leverage the annual performance 

ratings to remove from the MA and Part 

D programs poor performing 

organizations, thereby strengthening the 

programs and protecting Medicare 

beneficiaries. 

12. Exclusion for Sponsors of Contracts 

Terminated for Cause 

The benefit of this change is that we 

would ensure that organizations that 

demonstrated extremely poor 

performance have their performance 

history reviewed as part of the 

application process for an appropriate 

amount of time, thereby strengthening 

the programs and protecting Medicare 

beneficiaries. 

13. Independence of Long Term Care 

Consultant Pharmacists 

The various contractual arrangements 

that are common among LTC facilities, 

LTC pharmacies, LTC consultant 

pharmacists these pharmacies provide 

to nursing facilities, and pharmaceutical 

manufacturers and/or distributors may 

create incentives for the LTC consultant 

pharmacist to recommend 

overprescribing, thus creating health 

and safety risks for residents. We expect 

that an LTC consultant pharmacist who 

is independent of any affiliations with 

the nursing facilities’ LTC pharmacies, 

pharmaceutical manufacturers and 

distributors, or any affiliates of these 

entities would be better able to comply 

with the changes we are considering 

that would require objective and 

unbiased consultant pharmacist 

monitoring and evaluation. That is, 

nursing facilities would use a qualified 

professional pharmacist to conduct drug 

regimen reviews and make medication 

recommendations based solely on what 


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is in the best interests of the resident. 

We believe the change under 

consideration—severing the relationship 

between the consultant pharmacist and 

the LTC pharmacy, pharmaceutical 

manufacturers and distributors, and any 

affiliated entities—would protect the 

safety of all LTC residents and improve 

the quality of their care and their well 

being. 

We expect that the Medicare program, 

State Medicaid programs, as well as 

other payers, would realize savings as a 

result of independent pharmacists 

performing drug regimen reviews that 

would be uncompromised by any 

financial incentives. By reducing 

overprescribing and unnecessary use of 

high cost brand name drugs, the 

requirement we are considering would 

result in lower drug costs to Medicare, 

Medicaid and other payers. We 

anticipate that this requirement would 

likewise curb the use of drugs that are 

inappropriate and should generally be 

avoided among older LTC residents, 

leading to further savings to all payers 

from fewer hospitalizations and 

treatments for drug-related problems, 

such as pharmacologic interactions. 

14. Benefit Flexibility for Fully 

Integrated Dual Eligible Special Needs 

Plans (FIDE SNPs) 

Part D-SNPs that fully integrate all 

Medicare and Medicaid covered 

services, including long-term care 

services, can enable dual eligible 

beneficiaries to remain in their homes 

and avoid Medicaid-financed stays in 

LTC institutions. We believe that 

allowing certain FIDE SNPs to offer 

supplemental benefits beginning 

contract year 2013 would advance our 

overall goal of better integrating care for 

dual eligible beneficiaries, keeping 

beneficiaries at risk of 

institutionalization in their homes, 

lowering dual eligible beneficiaries’ 

utilization of health services, and 

lowering costs for the Medicaid and 

Medicare programs. 

15. Application of the Medicare 

Hospital-Acquired Conditions and 

Present on Admission Indicator Policy 

to MA Organizations 

Although we do not expect a 

significant amount of new savings to 

result from this requirement under this 

proposed rule, the benefit for Medicare 

Advantage enrollees and to Medicare 

will come from increased quality, 

efficiency of care, and continued 

incentives for hospitals to eliminate 

medical errors and reduce Medicare 

expenditures for poor quality or 

unnecessary care. 

16. Establishment and Application of 

Daily Cost-Sharing Rate as Part of Drug 

Utilization Management and Fraud, 

Abuse, and Waste Control Program 

Requiring Part D sponsors to establish 

and apply a daily cost-sharing rate as 

previously described facilitates the 

ability of Medicare Part D enrollees to 

obtain trial fills of medications, 

particularly those with higher costsharing and that are known to 

frequently be poorly tolerated. As noted 

previously, we believe trial fills would 

result in the avoidance of unused drugs, 

reduce drug costs, diminish the 

environmental issue caused by disposal 

of unused medications, and reduce 

opportunities for criminal and 

substance abuse caused by diversion of 

unused medications, all of which are 

growing concerns in the United States. 

While there may be additional waste 

generated by multiple fills when 

medications are continued after a trial 

fill or synchronized (for example, more 

plastic bottles and paper inserts, 

additional trips to pharmacies), we 

believe the harmful effects on the 

environment from unused drugs, 

particularly the biological implications, 

likely have a much greater impact on 

the environment than additional 

recyclables. 

With respect to synchronization of 

medication refills specifically, we also 

note that at least one study supports the 

notion that synchronization may assist 

enrollees in adhering to prescription 

treatment regimens that involve 

multiple prescriptions. In addition, we 

believe the ability to synchronize 

medications would be convenient for 

those enrollees who take advantage of 

the opportunity and their prescribers, by 

enabling fewer trips to the pharmacy 

and fewer prescription requests of 

prescribers by enrollees through the 

ability to consolidate pharmacy trips 

and prescriber office visits and phone 

calls. 

17. Apply MA and Part D Disclosure 

Requirements to Cost Contract Plans 

We believe that our requirement that 

cost contract plans disclose to enrollees, 

at the time of enrollment and annually 

thereafter (in the form of an annual 

notice of change/evidence of coverage, 

or ANOC/EOC mailing), certain detailed 

information about plan benefits, service 

area, provider and pharmacy access, 

grievance and appeal procedures, 

quality improvement programs, and 

disenrollment rights and 

responsibilities, and an explanation of 

benefits would ensure that the 

beneficiaries have information to help 

them make best choices for their health 

care needs. 

18. Denial of SNP Applications and 

SNPs Appeal Rights 

Our intent in proposing this provision 

is to give us the explicit authority to 

deny SNP applications that demonstrate 

that the applicant does not meet the 

requirements to operate a SNP, which 

have been incorporated into the MA 

application. This proposed change 

would ensure that the only MAOs that 

are able to offer a SNP are those that 

meet CMS’ SNP specific requirements 

and are capable of serving the 

vulnerable special needs individuals 

who enroll in SNPs, thereby 

strengthening the program and 

protecting Medicare beneficiaries. 

Additionally, to ensure a fair and 

comprehensive review of these SNP 

applications, we propose to allow 

applicants who have been determined 

unqualified to offer a SNP the right to 

an administrative review process. 

19. Clarification of Contract 

Requirements for First Tier and 

Downstream Entities 

This clarification ensures that the 

MAOs and Part D sponsors retain the 

necessary control and oversight over 

their delegated entities, thereby 

strengthening the programs and 

protecting Medicare beneficiaries. 

20. Valid Prescriptions 

By removing any doubt as to the 

appropriate source of law to consult 

when determining whether a 

prescription is valid, this regulation 

would benefit federal law enforcement 

agencies. We do not believe, however, 

that there is a quantifiable monetary 

value to easing prosecutions in this 

manner. 

21. Medication Therapy Management 

Comprehensive Medication Reviews 

and Beneficiaries in LTC Settings 

The expected benefits of the proposed 

revisions to § 423.153 are that Part D 

sponsors will continue to be required to 

offer all targeted beneficiaries in LTC 

facilities the opportunity to participate 

in an interactive CMR, but in the event 

the beneficiary is cognitively impaired 

and unable either to respond to the offer 

or to participate in an interactive CMR, 

the pharmacist or qualified provider 

may proceed with a CMR that is 

informative for the beneficiary’s 

prescriber and/or caregiver without 

interacting with the beneficiary . 


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22. Coordination of Part D Plans With 

Other Prescription Drug Coverage 

We are clarifying the regulation at 

§ 423.458 regarding the application of 

waivers to EGWPs. We expect that this 

clarification will benefit Medicare 

beneficiaries enrolled in such plans by 

ensuring the same protections as those 

Medicare beneficiaries enrolled in 

individual market Part D plans where 

such protections have not been 

explicitly waived. 

23. Access to covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (NPIs) 

In addition to supporting our fraud 

and abuse activities, accurate data on 

prescriptions through the consistent use 

of valid NPIs on PDEs allows us to serve 

beneficiaries when using data in various 

initiatives whose purpose is to foster 

higher quality and more efficient 

coordination of care for individuals and 

groups of individuals. 

E. Alternatives Considered 

1. Affordable Care Act and MIPPA 

Provisions 

We did not consider alternatives for 

the following provisions, as their 

implementation was mandated by the 

Affordable Care Act and MIPPA: 

• Inclusion of Benzodiazepines and 

Barbiturates 

• Pharmacy Benefit Manager’s 

Transparency Requirements 

2. Coverage Gap Discount Program 

The Affordable Care Act mandated 

implementation of the Coverage Gap 

Discount Program and further specified 

that the associated manufacturer 

discounts had to be made available at 

point-of-sale. An alternative model for 

point-of-sale administration of the 

discount would involve a third party 

administrator directly adjudicating the 

discount payment to pharmacies. In this 

model, the pharmacy would submit the 

Part D claim to the Part D sponsor and 

receive information on the response that 

would direct the pharmacy to bill the 

third party for applicable claims. 

However, while this model initially 

showed promise, neither the current 

HIPAA electronic pharmacy claims 

billing standard nor the next HIPAA 

approved version of the billing standard 

could support the transfer of 

information from the Part D sponsor that 

would be necessary to specify the 

appropriate claims and appropriate 

discount amounts to be billed to the 

third party administrator, or allow for 

accurate coordination of benefits among 

payers. 

3. Determination of Actuarially 

Equivalent Creditable Prescription Drug 

Coverage 

The alternative would be to continue 

to calculate the actuarial value of 

creditable prescription drug coverage 

including the value of additional 

coverage provided in the coverage gap. 

However, this approach would mean 

Medicare beneficiaries enrolled in 

programs receiving RDS may be subject 

to a late enrollment penalty because the 

value of their RDS coverage would be 

less than the actuarial value of 

creditable coverage that includes the 

value of additional coverage in the gap. 

4. Who May File Part D Appeals With 

the Independent Review Entity 

As previously mentioned, the 

proposed changes to § 423.600 and 

§ 423.602 would allow physicians and 

other prescribers to request IRE 

reconsiderations on behalf of Part D 

plan enrollees. We considered 

maintaining the status quo, which 

would require physicians and other 

prescribers to obtain an AOR form in 

order to request a reconsideration with 

the IRE on behalf of their enrollees. 

However, given our program experience 

since the inception of the Part D 

program, we realize that this approach 

results in an undue burden on both 

enrollees and their physicians or 

prescribers and can create an 

unintended barrier to enrollees 

accessing the appeals process. 

Consequently, we are proposing the 

change previously highlighted in this 

proposed rule. 

5. Termination or Non-Renewal of a 

Medicare Contract Based on Poor Plan 

Performance Ratings 

We did not consider alternatives for 

this regulation since it is necessary to 

ensure compliance. 

6. Exclusion for Sponsors of Contracts 

Terminated for Cause 

We considered keeping the look-back 

period at 14 months, but we determined 

it would be insufficient to accomplish 

our needs and thus a longer look-back 

period was necessary. We also 

considered longer look-back periods, 

but we deemed them to be to excessive. 

7. New Benefit Flexibility for Fully 

Integrated Dual Eligible Special Needs 

Plans (FIDE SNPs) 

We considered whether limiting the 

application of the flexibilities afforded 

under our proposed § 422.102(e) to FIDE 

SNPs would be the most appropriate 

way of implementing this proposed 

benefits flexibility, or whether we 

should extend the additional 

supplemental benefit flexibility to other 

SNP types. Because FIDE SNPs are 

required to offer LTC supports and 

services, a regulatory approach that 

limits benefits flexibility to FIDE SNPs, 

as opposed to all D–SNP types, may be 

more consistent with the objective of 

keeping beneficiaries in their homes and 

lowering costs for the Medicare and 

Medicaid programs. We also considered 

whether we should consider extending 

these flexibilities to all qualified FIDE 

SNPs, or whether we should limit these 

flexibilities to those qualified FIDE 

SNPs that currently enroll only fullbenefit dual eligible beneficiaries. We 

believe that dual eligible beneficiaries 

who receive full State Medicaid benefits 

would have the most to gain from fullyintegrated Medicare-Medicaid plan 

benefit offerings that include additional 

Medicare supplemental benefits. 

8. Establishment and Application of 

Daily Cost-Sharing Rates as Part of Drug 

Utilization Management and Fraud, 

Abuse, and Waste Control Program 

We considered proposing a 

requirement similar to the Fifteen Day 

Initial Script program introduced in 

Maine in the summer of 2009. In this 

program, specific medications that were 

identified by the MaineCare program 

with high side effect profiles, high 

discontinuation rates, or frequent dose 

adjustments, were phased in by class 

and must be dispensed in a 15-day 

initial script to ensure cost effectiveness 

without ‘‘wasting’’ or ‘‘discarding’’ of 

used medications. We have learned 

through representatives of the program 

that MaineCare has achieved overall 

savings for the two consecutive state 

fiscal years with respect to both brand 

and generic drugs through this program, 

despite the additional dispensing fees. 

The representatives have also reported 

that there was very good acceptance of 

the program and very little confusion 

upon implementation. While we 

acknowledge the savings benefits of the 

MaineCare approach, we believe that 

leaving the decision to obtain less than 

a month’s supply of a prescription with 

the enrollee and his or her prescriber 

and pharmacist may be better suited for 

the Medicare Part D program, but we 

seek specific comment on this belief. 

9. Clarification of Contract 

Requirements for First Tier and 

Downstream Entities 

We did not consider alternatives for 

this regulation since it is necessary to 

ensure compliance and is the most 

effective ‘‘no-cost’’ means to achieving 

it. 


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10. Valid Prescriptions 

We did not consider alternatives for 

this regulation as it reflects existing 

State laws. 

11. Medication Therapy Management 

Comprehensive Medication Reviews 

and Beneficiaries in LTC Settings 

The alternative to this revision would 

be to have the pharmacist or provider 

attempt to perform an interactive CMR 

with an LTC resident who is not capable 

of participating. However, by requiring 

an interactive CMR to be offered to all 

targeted beneficiaries residing in LTC 

our proposal gives these beneficiaries, 

who typically have chronic conditions 

that are managed by medication, the 

opportunity to participate in the CMR 

and comprehend the medication action 

plan as a result of the CMR. In cases 

when the beneficiary is unable to accept 

the offer of a non-interactive CMR, the 

beneficiary will still benefit from having 

a non-interactive CMR performed by a 

pharmacist or other qualified provider. 

12. Coordination of Part D Plans with 

Other Prescription Drug Coverage 

We considered the alternative, which 

was to remain silent in regulation. 

However, we believe that in order to 

facilitate beneficiary protections it is 

better to be clear that, unless waived, 

the same Medicare rules apply to 

sponsors of EWGPs as they do to 

sponsors of individual market plans. 

This ensures Medicare beneficiaries 

enrolled in EGWPs receive the same 

patient protections as beneficiaries 

enrolled in individual market plans. 

13. Access to Covered Part D drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (NPIs) 

We considered requiring prescribers 

to enroll in Medicare in order for their 

prescriptions to be covered by the Part 

D program, but are concerned about the 

potential impact of such a requirement 

on enrollee access to needed 

medications. We also considered 

permitting any 1 of 4 types of prescriber 

identifiers to be submitted on PDEs, but 

we believe this option as not in line 

with Congressional intent regarding the 

use of NPIs as provider identifiers. 

F. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 13, we have 

prepared an accounting statement 

showing the classification of the 

expenditures, costs, and savings 

associated with the provisions of this 

proposed rule for FY 2013 through 

2014. 

TABLE 13—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED COSTS AND SAVINGS, FROM FY 2013 TO FY 2018 

[$ in Millions] 

Category Year dollar 

Units discount rate 

Period covered 

7% 3% 

TRANSFERS 

Annualized Monetized Transfers ..................................................................... 2011 $168.6 $163.6 FYs 2013–2018. 

From Whom To Whom? .................................................................................. Federal Government to MA Organizations and Part D Sponsors 

Annualized Monetized Transfers ..................................................................... 2011 ¥$0.1 ¥$0.1 FYs 2013–2018. 

From Whom To Whom? .................................................................................. States to MA Organizations 

COSTS (All other provisions) 

Annualized Costs to MA organizations and Part D Sponsors ........................ 2011 $26.4 $25.9 FYs 2013–2018. 

Annualized Costs to Manufacturers ................................................................. 2011 4,162.1 4,126.6 FYs 2013–2018. 

Annualized Costs to LTC Facilities .................................................................. 2011 6.9 6.6 FYs 2013–2018.

In accordance with the provisions of 

Executive Order 12866, the Office of 

Management and Budget reviewed this 

proposed rule. 

List of Subjects 

42 CFR Part 417 

Administrative practice and 

procedure, Grant programs-health, 

Health care, Health insurance, Health 

maintenance organizations (HMO), Loan 

programs-health, Medicare, and 

Reporting and recordkeeping 

requirements. 

42 CFR Part 422 

Administrative practice and 

procedure, Health facilities, Health 

maintenance organizations (HMO), 

Medicare, Penalties, Privacy, and 

Reporting and recordkeeping 

requirements. 

42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Health 

professionals, Medicare, Penalties, 

Privacy, Reporting and record keeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR chapter IV as set forth below: 

PART 417—HEALTH MAINTENANCE 

ORGANIZATIONS, COMPETITIVE 

MEDICAL PLANS, AND HEALTH CARE 

PREPAYMENT PLANS 

1. The authority citation for part 417 

continues to read as follows: 

Authority: Sec. 1102 and 1871 of the Social 

Security Act (42 U.S.C. 1302 and 1395hh), 

secs. 1301, 1306, and 1310 of the Public 

Health Service Act (42 U.S.C. 300e, 300e–5, 

and 300e–9), and 31 U.S.C. 9701. 

Subpart K—Enrollment, Entitlement, 

and Disenrollment under Medicare 

Contract 

2. Section § 417.422 is amended by 

revising paragraph (d) to read as 

follows: 


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§ 417.422 Eligibility to enroll in an HMO or 

CMP. 

* * * * * 

(d) During an enrollment period of the 

HMO or CMP, completes the HMO’s or 

CMP’s application form or another 

CMS-approved election mechanism and 

gives whatever information is required 

for enrollment; 

* * * * * 

3. Subpart K is amended by adding a 

new § 417.427 to read as follows: 

§ 417.427 Extending MA and Part D 

Program Disclosure Requirements to 

Section 1876 Cost Contract Plans. 

(a) The procedures and requirements 

relating to disclosure in § 422.111 and 

§ 423.128 apply to Medicare contracts 

with HMOs and CMPs under section 

1876 of the Act. 

(b) In applying the provisions of 

§ 422.111 and § 423.128, references to 

part 422 and part 423 of this chapter 

must be read as references to this part, 

and references to MA organizations and 

Part D sponsors as references to HMOs 

and CMPs. 

4. Section 417.432 is amended by 

revising paragraph (d) to read as 

follows: 

§ 417.432 Conversion of enrollment. 

* * * * * 

(d) Application form. The individual 

who is converting must complete an 

application form or another CMSapproved election mechanism as 

described in § 417.430(a). 

* * * * * 

5. Section 417.460 is amended by 

adding new (c)(3) and (c)(4) to read as 

follows: 

§ 417.460 Disenrollment of beneficiaries 

by an HMO or CMP. 

* * * * * 

(c) * * * 

(3) Good cause and reinstatement. 

When an individual is disenrolled for 

failure to pay premiums or other charges 

imposed by the HMO or CMP for 

deductible and coinsurance amounts for 

which the enrollee is liable, CMS may 

reinstate enrollment in the plan, 

without interruption of coverage, if the 

individual shows good cause for failure 

to pay and pays all overdue premiums 

within 3 calendar months after the 

disenrollment date. The individual must 

establish by a credible statement that 

failure to pay premiums was due to 

circumstances for which the individual 

had no control, or which the individual 

could not reasonably have been 

expected to foresee. 

(4) Exception for reinstatement. A 

beneficiary’s enrollment in the plan will 

not be reinstated if the only basis for 

such reinstatement is a change in the 

individual’s circumstances subsequent 

to the involuntary disenrollment for 

non-payment of premiums. 

* * * * * 

Subpart L—Medicare Contract 

Requirements 

§ 417.492 [Amended] 

6. Section 417.492 is amended as 

follows: 

A. In paragraph (a)(1)(i) the ‘‘;’’ is 

removed and a ‘‘; and’’ is added in its 

place. 

B. In paragraph (a)(1)(ii) the ‘‘;’’ is 

removed and a ‘‘.’’ is added in its place. 

C. Removing paragraph (a)(1)(iii). 

D. Removing paragraph (b)(1)(iii). 

Subpart U—Health Care Prepayment 

Plans 

7. Section 417.801 is amended by 

revising paragraph (d)(ii) to read as 

follows: 

§ 417.801 Agreements between CMS and 

health care prepayment plans. 

* * * * * 

(d) * * * 

(ii) The HCPP is not in substantial 

compliance with the provisions of the 

agreement, applicable CMS regulations, 

or applicable provisions of the Medicare 

law, including the following: 

(A) Provision and documentation of 

adequate access to providers. 

(B) Compliance with CMS 

requirements concerning provision of 

data and maintenance of records. 

(C) Compliance with financial 

requirements specified at § 417.806; or 

* * * * * 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

8. The authority citation for part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

Subpart B—Eligibility, Election, and 

Enrollment 

§ 422.60 [Amended] 

9. In § 422.60, paragraph (c)(1) is 

amended by removing the crossreference ‘‘§ 422.80’’ and adding in its 

place the cross-reference ‘‘§ 422.2262’’. 

Subpart C—Benefits and Beneficiary 

Protections 

10. Section 422.100 is amended by 

adding a new paragraph (l) to read as 

follows: 

§ 422.100 General requirements. 

* * * * * 

(l) Coverage of DME. MA 

organizations— 

(1) Must cover and ensure enrollees 

have access to all categories of DME 

covered under Part B; and 

(2) May, within specific categories of 

DME, limit coverage to certain preferred 

DME products or brands, provided the 

MA organization ensures all of the 

following: 

(i) Its contracts with DME suppliers 

ensure that enrollees have access to all 

preferred DME products or brands. 

(ii) Its enrollees have access to all 

medically necessary non-preferred DME 

products or brands. 

(iii) It provides for an appropriate 

transition process for new enrollees 

during the first 90 days of their coverage 

under its MA plan, during which time 

the MA organization will do the 

following: 

(A) Ensure the provision of a 

transition supply of non-preferred DMEsupplies. 

(B) Provide for the repair of nonpreferred DME-items. 

(iv) It makes no negative changes to 

its preferred DME products or brands 

during the plan year. 

(v) It treats denials of non-preferred 

DME products or brands as organization 

determinations subject to § 422.566. 

(vi) It discloses DME coverage 

limitations and beneficiary appeal rights 

in the case of a denial of a non-preferred 

DME product or brand as part of the 

description of benefits required under 

§ 422.111(b)(2) and § 422.111(h). 

11. Section 422.101 is amended by 

revising paragraph (d)(1) to read as 

follows: 

§ 422.101 Requirements relating to basic 

benefits. 

* * * * * 

(d) * * * 

(1) Single deductible. MA regional 

and local PPO plans, to the extent they 

apply a deductible as follows: 

(i) Must have a single deductible 

related to all in-network and out-ofnetwork Medicare Part A and Part B 

services. 

(ii) May specify separate deductible 

amounts for specific in-network 

Medicare Part A and Part B services, to 

the extent these deductible amounts 

apply to the single deductible amount 

specified in paragraph (d)(1)(i) of this 

section. 

(iii) May waive from the single 

deductible described in paragraph (i) for 

other plan-covered items and services. 

(iv) Must waive from the single 

deductible described paragraph (d)(1)(i) 

all Medicare-covered preventive 

services (as defined in § 410.152(l)). 

* * * * * 


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12. Section 422.102 is amended by 

adding a new paragraph (e) to read as 

follows. 

§ 422.102 Supplemental benefits. 

* * * * * 

(e) Supplemental benefits for certain 

fully-integrated dual eligible special 

needs plans. Subject to CMS approval, 

and as specified annually by CMS, 

certain fully-integrated dual eligible 

special needs plans may offer additional 

supplemental benefits, consistent with 

the requirements of this part, beyond 

those other MA plans may offer where 

CMS finds that the offering of such 

benefits could better integrate care for 

the dual eligible population. 

13. Section 422.111 is amended by 

adding a new paragraph (i) to read as 

follows: 

§ 422.111 Disclosure requirements. 

* * * * * 

(i) Provision of information required 

for access to covered services. MA plans 

must issue and reissue (as appropriate) 

a member identification card that its 

enrollees may use to access covered 

services under the plan. The card must 

comply with standards established by 

CMS, and must include, at a minimum 

the following: 

(1) For a MA PPO or PPFS plan, a 

statement that Medicare Limiting 

Charges apply. 

(2) Web link to plan’s website. 

(3) Customer service number. 

(4) Individual identification number 

for each enrollee, to clearly identify that 

they are a member of the plan. 

Subpart E—Relationships with 

Providers 

14. Section 422.216 is amended by 

revising paragraph (d)(1) to read as 

follows: 

§ 422.216 Special rules for MA private feefor-service plans. 

* * * * * 

(d) * * * 

(1) General information. An MA 

organization that offers an MA private 

fee-for-service plan must provide to 

plan enrollees, an appropriate 

explanation of benefits consistent with 

the requirements of § 422.111(b)(12). 

* * * * * 

Subpart K—Application Procedures 

and Contracts for Medicare Advantage 

Organizations 

15. Section 422.500 is amended by 

revising paragraph (a) to read as follows: 

§ 422.500 Scope and definitions. 

(a) Scope. This subpart sets forth 

application requirements for entities 

seeking a contract as a Medicare 

organization offering an MA plan, 

including MA organizations offering a 

specialized MA plan for special needs 

individuals. MA organizations offering 

prescription drug plans must, in 

addition to the requirements of this part, 

follow the requirements of part 423 of 

this chapter specifically related to the 

prescription drug benefit. 

* * * * * 

16. Section 422.501 is amended as 

follows: 

A. Revising paragraph (a). 

B. In paragraph (c)(1)(ii) removing ‘‘; 

or’’ and adding in its place ‘‘.’’. 

C. Adding new paragraph (c)(1)(iii). 

D. Revising paragraph (e). 

The addition and revision read as 

follows: 

§ 422.501 Application requirements. 

(a) Scope. This section sets forth 

application requirements for entities 

that seek a contract as an MA 

organization offering an MA plan and 

additional application requirements for 

MA organizations seeking to offer a 

Specialized MA Plan for Special Needs 

Individuals. 

* * * * * 

(c) * * * 

(1) * * * 

(iii) For Specialized MA Plans for 

Special Needs Individuals, 

documentation that the entity meets the 

requirements of § 422.2; 

§ 422.4(a)(1)(iv); § 422.101(f); § 422.107, 

if applicable; and § 422.152(g) of this 

part. 

* * * * * 

(e) Resubmittal of an application. An 

application that has been denied by 

CMS for a particular contract year may 

not be resubmitted until the beginning 

of the application cycle for the 

following contract year. 

* * * * * 

17. Section 422.502 is amended as 

follows: 

A. In paragraph (a)(1), removing the 

phrase ‘‘MA contract solely’’ and adding 

in its place the phrase ‘‘MA contract or 

for a Specialized MA Plan for Special 

Needs Individuals solely’’. 

B. In paragraph (b)(1), removing the 

phrase ‘‘If an MA organization’’ and 

adding in its place ‘‘Except as provided 

in paragraphs (b)(2) through (b)(4) of 

this section, if an MA organization’’. 

C. Adding paragraphs (b)(3) and 

(b)(4). 

D. In paragraph (c) introductory text, 

removing the phrase ‘‘MA contract 

under this part’’ and adding in its place 

the phrase ‘‘MA contract or to be 

designated a Specialized MA Plan for 

Special Needs Individuals under this 

part’’. 

E. Revising paragraphs (c)(2)(i) 

through (iii). 

F. Revising paragraph (c)(3)(i). 

The additions and revision read as 

follows: 

§ 422.502 Evaluation and determination 

procedures. 

* * * * * 

(b) * * * 

(3) If CMS has terminated, under 

§ 422.510, or non-renewed, under 

§ 422.506(b), an MA organization’s 

contract, effective within the 38 months 

preceding the deadline established by 

CMS for the submission of contract 

qualification applications, CMS may 

deny an application based on the 

applicant’s substantial failure to comply 

with the requirements of the Part C 

program even if the applicant currently 

meets all of the requirements of this 

part. 

(4) During the same 38-month period 

as specified in (b)(3) of this section, 

CMS may deny an application where 

the applicant’s covered persons also 

served as covered persons for the 

terminated or non-renewed contract. A 

’’covered person’’ as used in this 

paragraph means one of the following: 

(i) All owners of terminated 

organizations who are natural persons, 

other than shareholders who have an 

ownership interest of less than 5 

percent. 

(ii) An owner in whole or part interest 

in any mortgage, deed of trust, note or 

other obligation secured (in whole or in 

part) by the organization, or any of the 

property or assets thereof, which whole 

or part interest is equal to or exceeds 5 

percent of the total property, and assets 

of the organization. 

(iii) A member of the board of 

directors or board of trustees of the 

entity, if the organization is organized as 

a corporation. 

(c) * * * 

(2) Intent to deny. (i) If CMS finds that 

the applicant does not appear to be able 

to meet the requirements for an MA 

organization or Specialized MA Plan for 

Special Needs Individuals, CMS gives 

the applicant notice of intent to deny 

the application for an MA contract or for 

a Specialized MA Plan for Special 

Needs Individuals a summary of the 

basis for this preliminary finding. 

(ii) Within 10 days from the intent to 

deny, the applicant must respond in 

writing to the issues or other matters 

that were the basis for CMS’ preliminary 

finding and must revise its application 

to remedy any defects CMS identified. 

(iii) If CMS does not receive a revised 

application within 10 days from the 

date of the notice, or if after timely 

submission of a revised application, 


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CMS still finds that the applicant does 

not appear qualified or has not provided 

CMS enough information to allow CMS 

to evaluate the application, CMS will 

deny the application. 

(3) * * * 

(i) That the applicant is not qualified 

to contract as an MA organization under 

Part C of title XVIII of the Act and/or is 

not qualified to offer a Specialized MA 

Plan for Special Needs Individuals; 

* * * * * 

17. Section 422.504 is amended as 

follows: 

A. Adding new paragraphs (a)(17), 

(a)(18), and (i)(3)(iv). 

B. Revising paragraphs (i)(3) 

introductory text and (i)(3)(iii), (i)(4)(i) 

through (iv), and (i)(5). 

The additions and revisions red as 

follows: 

§ 422.504 Contract provisions. 

* * * * * 

(a) * * * 

(17) To maintain administrative and 

management capabilities sufficient for 

the organization to organize, implement, 

and control the financial, marketing, 

benefit administration, and quality 

improvement activities related to the 

delivery of Part C services. 

(18) To maintain a Part C summary 

plan rating score of at least 3 stars. A 

Part C summary plan rating is calculated 

by taking an average of a contract’s Part 

C performance measure scores. 

* * * * * 

(i) * * * 

(3) Each and every contract governing 

MA organizations and first tier, 

downstream, and related entities, must 

contain the following: 

* * * * * 

(iii) A provision requiring that any 

services or other activity performed by 

a first tier, downstream, and related 

entity in accordance with a contract are 

consistent and comply with the MA 

organization’s contractual obligations. 

(iv) A provision requiring that 

payment will not be made to hospitals 

for serious preventable events and 

hospital-acquired conditions in 

accordance with section 1886(d)(4)(D) of 

the Act and all applicable Medicare 

policies. 

* * * * * 

(4) * * * 

(i) Each and every contract must 

specify delegated activities and 

reporting responsibilities. 

(ii) Each and every contract must 

either provide for revocation of the 

delegation activities and reporting 

requirements or specify other remedies 

in instances where CMS or the MA 

organization determine that such parties 

have not performed satisfactorily. 

(iii) Each and every contract must 

specify that the performance of the 

parties is monitored by the MA 

organization on an ongoing basis. 

(iv) Each and every contract must 

specify that either— 

* * * * * 

(5) If the MA organization delegates 

selection of the providers, contractors, 

or subcontractor to another 

organization, the MA organization’s 

contract with that organization must 

state that the CMS-contracting MA 

organization retains the right to 

approve, suspend, or terminate any such 

arrangement. 

* * * * * 

Subpart K—Application Procedures 

and Contracts for Medicare Advantage 

Organizations 

18. Section 422.510 is amended by 

adding a new paragraph (a)(14) to read 

as follows: 

§ 422.510 Termination of contract by CMS. 

(a) * * * 

(14) Achieves a Part C summary plan 

rating of less than 3 stars for 3 

consecutive contract years. Plan ratings 

issued by CMS before September 1, 

2012 are not included in the calculation 

of the 3-year period. 

* * * * * 

Subpart N—Medicare Contract 

Determinations and Appeals 

19. Section 422.641 is amended by 

adding a new paragraph (d) to read as 

follows: 

§ 422.641 Contract determinations. 

* * * * * 

(d) A determination that an entity is 

not qualified to offer a Specialized MA 

Plan for Special Needs Individuals as 

defined in § 422.2 and § 422.4(a)(1)(iv). 

20. Section § 422.660 is amended by 

adding new paragraphs (a)(5) and (b)(5) 

to read as follows: 

§ 422.660 Right to a hearing, burden of 

proof, standard of proof, and standards of 

review. 

(a) * * * 

(5) An applicant that has been 

determined to be unqualified to offer a 

Specialized MA Plan for Special Needs 

Individuals. 

(b) * * * 

(5) During a hearing to review a 

determination as described at 

§ 422.641(d) of this subpart, the 

applicant has the burden of proving by 

a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 422.2; 

§ 422.4(a)(1)(iv); § 422.101(f); § 422.107, 

if applicable; and § 422.152(g) of this 

part. 

* * * * * 

Subpart V—Medicare Advantage 

Marketing Requirements 

21. Section 422.2274 is amended as 

follows: 

A. Revising paragraph (a)(1)(i). 

B. Removing and reserving paragraph 

(a)(1)(ii). 

C. Revising paragraph (a)(1)(iii). 

D. Adding a new paragraph (f). 

The revisions and addition read as 

follows: 

§ 422.2274 Broker and agent requirements. 

* * * * * 

(a) * * * 

(1) * * * 

(i) The compensation amount paid by 

plan sponsors to an independent broker 

or agent: 

(A) For an initial enrollment of a 

Medicare beneficiary into an MA plan, 

must be at or below the fair market 

value (FMV) cut-off amounts published 

annually by CMS. 

(B) For renewals, must be an amount 

equal to 50 percent of the initial 

compensation in paragraph (a)(1)(i)(A) 

of this section. 

(ii) [Reserved]. 

(iii) The independent broker or agent 

is paid a renewal compensation for each 

of the next 5 years that the enrollee 

remains in the plan in an amount equal 

to 50 percent of the initial year 

compensation amount (creating a 6-year 

compensation cycle). 

* * * * * 

(f) A plan sponsor must report 

annually, as directed by CMS— 

(1) Whether it intends to use 

independent agents or brokers or both in 

the upcoming plan year; and 

(2) If applicable, the specific amount 

or range of amounts independent agents 

or brokers or both will be paid. 

PART 423—MEDICARE PROGRAM; 

MEDICARE PRESCRIPTION DRUG 

PROGRAM 

22. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

Act (42 U.S.C. 1302, 1395w–101 through 

1395w–152, and 1395hh). 

Subpart B—Eligibility and Enrollment 

23. Section 423.56 is amended by 

revising paragraphs (a) and (f)(3) to read 

as follows: 


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§ 423.56 Procedures to determine and 

document creditable status of prescription 

drug coverage. 

(a) Definition. Creditable prescription 

drug coverage means any of the 

following types of coverage listed in 

paragraph (b) of this section only if the 

actuarial value of the coverage equals or 

exceeds the actuarial value of defined 

standard prescription drug coverage 

under Part D in effect at the start of such 

plan year, not taking into account the 

value of any discount or coverage 

provided during the coverage gap, and 

demonstrated through the use of 

generally accepted actuarial principles 

and in accordance with CMS guidelines. 

* * * * * 

(f) * * * 

(3) Prior to the commencement of the 

Annual Coordinated Election Period as 

defined in § 423.38(b); and 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

24. Section 423.100 is amended as 

follows: 

A. Adding the definition of ‘‘Daily 

cost-sharing rate.’’ 

B. Revising paragraph (2)(iii) of the 

definition of ‘‘Incurred costs.’’ 

C. In paragraph (2)(ii) of the definition 

of ‘‘Part D drug,’’ the phrase ‘‘smoking 

cessation agents’’ is removed and 

adding in its place the phrase ‘‘smoking 

cessation agents, benzodiazepines, and 

barbiturates when used to treat epilepsy, 

cancer, or chronic mental health 

disorder.’’ 

D. Revising the definition of 

‘‘Supplemental benefits’’. 

E. Adding the definition of ‘‘Valid 

prescription’’ 

The additions and revision read as 

follows: 

§ 423.100 Definitions. 

* * * * * 

Daily cost-sharing rate means, as 

applicable, the established monthly— 

(1) Copayment under the enrollee’s 

Part D plan divided by 30 or 31 and 

rounded to the nearest lower dollar 

amount or to another amount but in no 

event to an amount which would 

require the enrollee to pay more for a 

month’s supply of the prescription than 

the enrollee would have paid if a 

month’s supply had been dispensed; or 

(2) Coinsurance rate under the 

enrollee’s Part D plan applied to the 

ingredient cost of the prescription for a 

month’s supply divided by 30 or 31. 

* * * * * 

Incurred costs 

* * * * * 

(2) * * * 

(ii) Under State Pharmaceutical 

Assistance Program (as defined in 

§ 423.464); by the Indian Health Service, 

an Indian tribe or tribal organization, or 

urban Indian organization (as defined in 

section 4 of the Indian Health Care 

Improvement Act) or under an AIDS 

Drug Assistance Program (as defined in 

part B of title XXVI of the Public Health 

Service); or by a manufacturer as 

payment for an applicable discount (as 

defined in § 423.2305) or under the 

Medicare Coverage Gap Discount 

Program (as defined in § 423.2305); or 

* * * * * 

Supplemental benefits means benefits 

offered by Part D plans, other than 

employer group health or waiver plans, 

that meet the requirements of 

§ 423.104(f)(1)(ii). 

* * * * * 

Valid prescription means a 

prescription that complies with all 

applicable State law requirements 

constituting a valid prescription. 

* * * * * 

25. Section 423.104 is amended by 

adding new paragraphs (h) and (i) to 

read as follows: 

§ 423.104 Requirements related to 

qualified prescription drug coverage. 

* * * * * 

(h) Valid prescription. A Part D 

sponsor may only provide benefits for 

Part D drugs that require a prescription 

if those drugs are dispensed upon a 

valid prescription. 

(i) Daily cost-sharing rate. A Part D 

sponsor is required provide its enrollees 

access to a daily cost-sharing rate in 

accordance with § 423.153(b)(4). 

26. Section 423.120 is amended by 

adding a new paragraph (c)(5) to read as 

follows: 

§ 423.120 Use of standardized technology. 

* * * * * 

(c) * * * 

(5)(i) Part D sponsor must submit to 

CMS only a prescription drug event 

(PDE) record that contains an active and 

valid individual prescriber NPI. 

(ii) Notwithstanding paragraph 

(c)(5)(i) of this section, a Part D sponsor 

may not reject a claim from a network 

pharmacy solely on the basis that it does 

not contain an active and/or valid NPI 

unless the issue can be resolved at 

point-of-sale, there is an indication of 

fraud, the prescription was written by a 

provider excluded from the Medicare 

program or the claim involves a 

prescription written by a foreign 

prescriber (where permitted by State 

law). 

(iii) With respect to non-standard 

requests for reimbursement submitted 

by Medicare beneficiaries, a Part D 

sponsor may not make payment to a 

beneficiary dependent upon the 

sponsor’s acquisition of the prescriber 

NPI. If the sponsor is unable to 

retrospectively acquire an active and 

valid individual prescriber NPI, the 

sponsor may not seek recovery of the 

payment from the beneficiary solely on 

the basis that the non-standard request 

did not include a valid individual 

prescriber NPI. 

* * * * * 

Subpart D—Cost Control and Quality 

Improvement Requirements 

27. Section 423.153 is amended as 

follows: 

A. In the introductory text for 

paragraph (b), the phrase ‘‘that -’’ is 

removed and the phrase ‘‘that address 

all of the following:’’ is added in its 

place. 

B. In paragraph (b)(1) removing ‘‘;’’ 

and adding in its place ‘‘.’’. 

C. In paragraph (b)(2) removing ‘‘; 

and’’ and adding in its place ‘‘.’’. 

D. Adding a new paragraph (b)(4). 

E. Revising paragraphs (d)(1)(vii)(B), 

and (d)(2). 

The addition and revision read as 

follows: 

§ 423.153 Drug utilization management, 

quality assurance, and medication therapy 

management programs (MTMPs). 

* * * * * 

(b) * * * 

(4)(i) Establishes and applies a daily 

cost-sharing rate to a prescription 

dispensed by a network pharmacy for a 

covered Part D generic or brand drug 

that is dispensed for a supply less than 

30 days, multiplied by the days supply 

actually dispensed, plus any dispensing 

fee in the case of coinsurance— 

(A) If the drug is in the form of a solid 

oral dose, subject to paragraph (b)(4)(ii) 

of this section; and 

(B) The prescription is— 

(1) For an initial fill of a new 

medication; 

(2) Intended to allow the enrollee to 

synchronize refill dates of multiple 

drugs; or 

(3) Dispensed in accordance with 

§ 423.154. 

(ii) The requirements of paragraph 

(b)(4)(i) of this section do not apply to 

either of the following: 

(A) Solid oral doses of antibiotics. 

(B) Solid oral doses that are dispensed 

in their original container as indicated 

in the Food and Drug Administration 

Prescribing Information or are 

customarily dispensed in their original 

packaging to assist patients with 

compliance. 

* * * * * 


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(d) * * * 

(1) * * * 

(vii) * * * 

(B) Annual comprehensive 

medication review with written 

summaries. (1) The beneficiary’s 

comprehensive medication review— 

(i) Must include an interactive, 

person-to-person, or telehealth 

consultation performed by a pharmacist 

or other qualified provider; and 

(ii) May result in a recommended 

medication action plan. 

(2) If a beneficiary residing in an LTC 

setting is offered the annual 

comprehensive medication review and 

cannot accept the offer to participate, 

the pharmacist or other qualified 

provider must perform the medication 

review without the beneficiary’s 

participation. 

* * * * * 

Subpart J—Coordination of Part D 

Plans with Other Prescriptions Drug 

Coverage 

28. Section 423.458 is amended by 

adding a new paragraph (c)(3) to read as 

follows: 

§ 423.458 Application of Part D rules to 

certain Part D plans on or after January 1, 

2006. 

* * * * * 

(c) * * * 

(3) Employer-sponsored group 

prescription drug plans must comply 

with all applicable requirements under 

this part that are not specifically waived 

or modified in accordance with in 

paragraph (c)(2) of this section. 

* * * * * 

Subpart K—Application Procedures 

and Contracts with Part D Plan 

Sponsors 

29. Section 423.501 is amended by 

adding the definition of ‘‘Bona fide 

service fees’’ to read as follows: 

§ 423.501 Definitions. 

* * * * * 

Bona fide service fees means fees paid 

by a manufacturer to an entity that 

represent fair market value for a bona 

fide, itemized service actually 

performed on behalf of the manufacturer 

that the manufacturer would otherwise 

perform (or contract for) in the absence 

of the service arrangement, and that are 

not passed on in whole or in part to a 

client or customer of an entity, whether 

or not the entity takes title to the drugs. 

Bona fide service fees include, but are 

not limited to distribution service fees, 

inventory management fees, product 

stocking allowances, and fees associated 

with administrative services agreements 

and patient care programs (such as 

medication compliance programs and 

patient education programs). 

* * * * * 

30. Section 423.503 is amended as 

follows: 

A. In paragraph (b)(1), removing the 

phrase ‘‘If a Part D’’ and adding in its 

place ’’ Except as provided in 

paragraphs (b)(2), (b)(3), and (b)(4) of 

this section, if a Part D’’. 

B. Adding new paragraphs (b)(3) and 

(b)(4). 

The additions read as follows: 

§ 423.503 Evaluation and determination 

procedures for applications to be 

determined qualified to act as a sponsor. 

* * * * * 

(b) * * * 

(3) If CMS has terminated, under 

§ 423.509, or non-renewed, under 

§ 423.507(b), a Part D plan sponsor’s 

contract, effective within the 38 months 

preceding the deadline established by 

CMS for the submission of contract 

qualification applications, CMS may 

deny an application based on the 

applicant’s substantial failure to comply 

with the requirements of the Part D 

program even if the applicant currently 

meets all of the requirements of this 

part. 

(4) During the same 38-month period 

as specified in (b)(3) of this section, 

CMS may deny an application where 

the applicant’s covered persons also 

served as covered persons for the 

terminated or non-renewed contract. A 

‘‘covered person’’ as used in this 

paragraph means one of the following: 

(i) All owners of terminated 

organizations who are natural persons, 

other than shareholders who have an 

ownership interest of less than 5 

percent. 

(ii) An owner in whole or part interest 

in any mortgage, deed of trust, note or 

other obligation secured (in whole or in 

part) by the organization, or any of the 

property or assets thereof, which whole 

or part interest is equal to or exceeds 5 

percent of the total property, and assets 

of the organization. 

(iii) A member of the board of 

directors or board of trustees of the 

entity, if the organization is organized as 

a corporation. 

* * * * * 

31. Section 423.505 is amended to 

read as follows: 

A. Adding new paragraphs (b)(24) 

through (b)(26). 

B. Revising paragraphs (i)(3) 

introductory text, (i)(3)(iii), (i)(3)(v), and 

(i)(4)(i) through (iv). 

§ 423.505 Contract provisions. 

* * * * * 

(b) * * * 

(24) Provide applicable beneficiaries 

with applicable discounts on applicable 

drugs in accordance with the 

requirements in subpart W of Part 423. 

(25) Maintains administrative and 

management capabilities sufficient for 

the organization to organize, implement, 

and control the financial, marketing, 

benefit administration, and quality 

assurance activities related to the 

delivery of Part D services. 

(26) Maintains a Part D summary plan 

rating score of at least 3 stars. A Part D 

summary plan rating is calculated by 

taking an average of a contract’s Part C 

performance measure scores. 

* * * * * 

(i) * * * 

(3) Each and every contract governing 

Part D sponsors and first tier, 

downstream, and related entities, must 

contain the following: 

* * * * * 

(iii) A provision requiring that any 

services or other activity performed by 

a first tier, downstream, and related 

entity in accordance with a contract are 

consistent and comply with the Part D 

sponsor’s contractual obligations. 

* * * * * 

(v) Each and every contract must 

specify that first tier, downstream, and 

related entities must comply with all 

applicable Federal laws, regulations, 

and CMS instructions. 

* * * * * 

(4) * * * 

(i) Each and every contract must 

specify delegated activities and 

reporting responsibilities. 

(ii) Each and every contract must 

either provide for revocation of the 

delegation activities and reporting 

responsibilities described in paragraph 

(i)(4)(i) of this section or specify other 

remedies in instances when CMS or the 

Part D plan sponsor determine that the 

parties have not performed 

satisfactorily. 

(iii) Each and every contract must 

specify that the Part D plan sponsor on 

an ongoing basis monitors the 

performance of the parties. 

(iv) Each and every contract must 

specify that the related entity, 

contractor, or subcontractor must 

comply with all applicable Federal 

laws, regulations, and CMS instructions. 

* * * * * 

32. Section 423.509 is amended by 

adding a new paragraph (a)(13) to read 

as follows: 

§ 423.509 Termination of Contract by CMS. 

* * * * * 

(a) * * * 

(13) Achieves a Part D summary plan 

rating of less than 3 stars for 3 


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consecutive contract years. Plan ratings 

issued by CMS before September 1, 

2012 are not included in the calculation 

of the 3-year period. 

* * * * * 

33. Section 423.514 is amended as 

follows: 

A. Redesignating paragraphs (d) 

through (g) as paragraphs (g) through (j), 

respectively. 

B. Adding new paragraphs (d), (e), 

and (f). 

The additions read as follows: 

§ 423.514 Validation of Part D reporting 

requirements. 

* * * * * 

(d) Reporting requirements for 

pharmacy benefits manager data. Each 

entity that provides pharmacy benefits 

management services must provide to 

the Part D sponsor, and each Part D 

sponsor must provide to CMS, in a 

manner specified by CMS, the 

following: 

(1) The total number of prescriptions 

that were dispensed. 

(2) The percentage of all prescriptions 

that were provided through retail 

pharmacies compared to mail order 

pharmacies. 

(3) The percentage of prescriptions for 

which a generic drug was available and 

dispensed (generic dispensing rate), by 

pharmacy type (which includes an 

independent pharmacy, chain 

pharmacy, supermarket pharmacy, or 

mass merchandiser pharmacy that is 

licensed as a pharmacy by the State and 

that dispenses medication to the general 

public), that is paid by the Part D 

sponsor or PBM under the contract. 

(4) The aggregate amount and type of 

rebates, discounts, or price concessions 

(excluding bona fide service fees as 

defined in § 423.501) that the PBM 

negotiates that are attributable to patient 

utilization under the plan. 

(5) The aggregate amount of the 

rebates, discounts, or price concessions 

that are passed through to the plan 

sponsor, and the total number of 

prescriptions that were dispensed. 

(6) The aggregate amount of the 

difference between the amount the Part 

D sponsor pays the PBM and the 

amount that the PBM pays retail 

pharmacies, and mail order pharmacies. 

(e) Confidentiality of pharmacy 

benefits manager data. Information 

disclosed by a Part D sponsor or PBM 

as specified in paragraph (d) of this 

section is confidential must not be 

disclosed by the Secretary or by a plan 

receiving the information, except that 

the Secretary may disclose the 

information in a form which does not 

disclose the identity of a specific PBM, 

plan, or prices charged for drugs, for the 

following purposes: 

(1) As the Secretary determines 

necessary to carry out section 1150A of 

the Act or Part D of Title XVIII. 

(2) To permit the Comptroller General 

to review the information provided. 

(3) To permit the Director of the 

Congressional Budget Office to review 

the information provided. 

(f) Penalties for failure to provide 

pharmacy benefits manager data. The 

provisions of section 1927(b)(3)(C) of 

the Act are applicable to a Part D 

sponsor or PBM that fails to provide the 

required information on a timely basis 

or knowingly provides false information 

in the same manner as such provisions 

apply to a manufacturer with an 

agreement under section 1927 of the 

Act. 

* * * * * 

Subpart M—Grievances, Coverage 

Determinations, Redeterminations, and 

Reconsiderations 

34. Section 423.600 is amended by 

revising paragraphs (a) through (c) to 

read as follows: 

§ 423.600 Reconsideration by an 

independent review entity (IRE). 

(a) An enrollee who is dissatisfied 

with the redetermination of a Part D 

plan sponsor has a right to a 

reconsideration by an independent 

review entity that contracts with CMS. 

The prescribing physician or other 

prescriber (acting on behalf of an 

enrollee), upon providing notice to the 

enrollee, may request an IRE 

reconsideration. The enrollee, or the 

enrollee’s prescribing physician or other 

prescriber (acting on behalf of the 

enrollee) must file a written request for 

reconsideration with the IRE within 60 

calendar days of the date of the 

redetermination by the Part D plan 

sponsor. 

(b) When an enrollee, or an enrollee’s 

prescribing physician or other 

prescriber (acting on behalf of the 

enrollee) files an appeal, the IRE is 

required to solicit the views of the 

prescribing physician or other 

prescriber. The IRE may solicit the 

views of the prescribing physician or 

other prescriber orally or in writing. A 

written account of the prescribing 

physician’s or other prescriber’s views 

(prepared by either the prescribing 

physician, other prescriber, or IRE, as 

appropriate) must be contained in the 

IRE record. 

(c) In order for an enrollee or a 

prescribing physician or other 

prescriber (acting on behalf of an 

enrollee) to request an IRE 

reconsideration of a determination by a 

Part D plan sponsor not to provide for 

a Part D drug that is not on the 

formulary, the prescribing physician or 

other prescriber must determine 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. 

* * * * * 

35. Section 423.602 is amended by 

revising paragraph (a) to read as follows: 

§ 423.602 Notice of reconsideration 

determination by the independent review 

entity. 

(a) Responsibility for the notice. When 

the IRE makes its reconsideration 

determination, it is responsible for 

mailing a notice of its determination to 

the enrollee and the Part D plan 

sponsor, and for sending a copy to CMS. 

When the prescribing physician or other 

prescriber requests the reconsideration 

on behalf of the enrollee, the IRE is also 

responsible for notifying the prescribing 

physician or other prescriber of its 

decision. 

* * * * * 

Subpart T—Appeal Procedures for 

Civil Money Penalties 

36. Section 423.1000 is amended by 

adding paragraph (a)(3) to read as 

follows: 

§ 423.1000 Basis and scope. 

* * * * * 

(a) * * * 

(3) Section 1860D–14A(e)(2) of the 

Act specifies that the Secretary must 

impose a civil money penalty on a 

manufacturer that fails to provide 

applicable beneficiaries discounts for 

applicable drugs of the manufacturer in 

accordance with its Discount Program 

Agreement. Section 1860D–14A(e)(2)(B) 

of the Act makes certain provisions of 

section 1128A of the Act applicable to 

such civil money penalties imposed on 

manufacturers. 

37. Section 423.1002 is amended by 

revising the definition of ‘‘Affected 

party’’ to read as follows: 

§ 423.1002 Definitions. 

Affected party means any Part D 

sponsor or manufacturer (as defined in 

§ 423.2305) impacted by an initial 

determination or if applicable, by a 

subsequent determination or decision 

issued under this part, and ‘‘party’’ 

means the affected party or CMS, as 

appropriate. 


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Subpart V—Part D Marketing 

Requirements 

38. Section § 423.2274 is amended to 

read as follows: 

A. Revising paragraph (a)(1)(i). 

B. Removing and reserving paragraph 

(a)(1)(ii). 

C. Revising paragraph (a)(1)(iii). 

D. Adding a new paragraph (f). 

The revisions and addition read as 

follows: 

§ 423.2274 Broker and agent requirements. 

* * * * * 

(a) * * * 

(1) * * * 

(i) The compensation amount paid by 

plan sponsors to an independent broker 

or agent— 

(A) For an initial enrollment of a 

Medicare beneficiary into a PDP must be 

at or below the fair market value (FMV) 

cut-off amounts published annually by 

CMS; or 

(B) For renewals, must be an amount 

equal to 50 percent of the initial 

compensation in paragraph (a)(1)(i)(A) 

of this section. 

(ii) [Reserved]. 

(iii) The independent broker or agent 

is paid a renewal compensation for each 

of the next 5 years that the enrollee 

remains in the plan in an amount equal 

to 50 percent of the initial year 

compensation paid (creating a 6-year 

compensation cycle). 

* * * * * 

(f) Plan sponsor must report annually, 

as directed by CMS the following: 

(1) Whether it intends to use 

independent agents or brokers or both in 

the upcoming plan year. 

(2) If applicable, the specific amount 

or range of amounts independent agents 

or brokers or both will be paid. 

* * * * * 

39. Part 423 is amended by adding a 

new subpart W to read as follows: 

Subpart W—Medicare Coverage Gap 

Discount Program 

Sec. 

423.2300 Scope. 

423.2305 Definitions. 

423.2310 Condition for coverage of drugs 

under Part D. 

423.2315 Medicare Coverage Gap Discount 

Program Agreement. 

423.2320 Payment processes for Part D 

sponsors. 

423.2325 Provision of applicable discounts 

on applicable drugs for applicable 

beneficiaries. 

423.2330 Manufacturer discount payment 

audit and dispute resolution. 

423.2335 Beneficiary dispute resolution. 

423.2340 Compliance monitoring and civil 

money penalties. 

423.2345 Termination of Discount Program 

Agreement. 

Subpart W—Medicare Coverage Gap 

Discount Program 

§ 423.2300 Scope. 

This subpart implements provisions 

included in sections 1860D–14A and 

1860D–43 of the Act. This subpart sets 

forth requirements regarding the 

following: 

(a) Condition for coverage of 

applicable drugs under Part D. 

(b) The Medicare Coverage Gap 

Discount Program Agreement. 

(c) Coverage gap discount payment 

processes for Part D sponsors. 

(d) Provision of applicable discounts 

on applicable drugs for applicable 

beneficiaries. 

(e) Manufacturer audit and dispute 

resolution processes. 

(f) Resolution of beneficiary disputes 

involving coverage gap discounts. 

(g) Compliance monitoring and civil 

money penalties. 

(h) The termination of the Discount 

Program Agreement. 

§ 423.2305 Definitions. 

As used in this subpart, unless 

otherwise specified— 

Applicable discount means 50 percent 

of the portion of the negotiated price (as 

defined in § 423.2305) of the applicable 

drug of a manufacturer that falls within 

the coverage gap and that remains after 

such negotiated price is reduced by any 

supplemental benefits that are available. 

Applicable number of calendar days 

means, with respect to claims for 

reimbursement submitted electronically, 

14 days, and otherwise, 30 days. 

Date of dispensing means the date of 

service. 

Labeler code means the first segment 

of the Food and Drug Administration 

national drug code (NDC) that identifies 

a particular manufacturer. 

Manufacturer means any entity which 

is engaged in the production, 

preparation, propagation, compounding, 

conversion or processing of prescription 

drug products, either directly or 

indirectly, by extraction from 

substances of natural origin, or 

independently by means of chemical 

synthesis, or by a combination of 

extraction and chemical synthesis. For 

purposes of the Discount Program, such 

term does not include a wholesale 

distributor of drugs or a retail pharmacy 

licensed under State law, but includes 

entities otherwise engaged in 

repackaging or changing the container, 

wrapper, or labeling of any applicable 

drug product in furtherance of the 

distribution of the applicable drug from 

the original place of manufacture to the 

person who makes the final delivery or 

sale to the ultimate consumer or use. 

Medicare Coverage Gap Discount 

Program (or Discount Program) means 

the Medicare coverage gap discount 

program established under 

section1860D–14A of the Act. 

Medicare Coverage Gap Discount 

Program Agreement (or Discount 

Program Agreement) means the 

agreement described in section 1860D– 

14A(b) of the Act. 

Medicare Part D discount information 

means the information sent from CMS 

or the TPA to the manufacturer along 

with each quarterly invoice that is 

derived from applicable data elements 

available on prescription drug events as 

determined by CMS. 

National Drug Code (NDC) means the 

unique identifying prescription drug 

product number that is listed with the 

Food and Drug Administration (FDA) 

identifying the product and package 

size. 

Negotiated price for purposes of the 

Discount Program, means the price for 

a covered Part D drug that— 

(1) The Part D sponsor (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount such 

network entity will receive, in total, for 

a particular drug; 

(2) Is reduced by those discounts, 

direct or indirect subsidies, rebates, 

other price concessions, and direct or 

indirect remuneration that the Part D 

sponsor has elected to pass through to 

Part D enrollees at the point-of-sale; and 

(3) Excludes any dispensing fee or 

vaccine administration fee for the 

applicable drug. In connection with 

applicable drugs dispensed by an out-ofnetwork provider in accordance with 

the applicable beneficiary’s Part D plan 

out-of-network policies, the negotiated 

price means the plan allowance as set 

forth in § 423.124, less any dispensing 

fee or vaccine administration fee. 

Other health or prescription drug 

coverage means any coverage or 

financial assistance under other health 

benefit plans or programs that provide 

coverage or financial assistance for the 

purchase or provision of prescription 

drug coverage on behalf of applicable 

beneficiaries, including, in the case of 

employer group health or waiver plans, 

other than basic prescription drug 

coverage as defined in § 423.100. 

Third Party Administrator (TPA) 

means the CMS contractor responsible 

for administering the requirements 

established by the CMS to carry out 

section 1860D–14A of the Act. 


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§ 423.2310 Condition for coverage of 

drugs under Part D. 

(a) Covered Part D drug coverage 

requirement. Except as specified in 

paragraph (b) of this section, in order for 

coverage to be available under Medicare 

Part D for applicable drugs of a 

manufacturer, the manufacturer must do 

all of the following: 

(1) Participate in the Discount 

Program. 

(2) Have entered into and have in 

effect an agreement described in 

§ 423.2315(b). 

(3) Have entered into and have in 

effect, under terms and conditions 

specified by CMS, a contract with the 

TPA. 

(b) Exception to covered drug 

coverage requirement. Paragraph (a) of 

this section does not apply to an 

applicable drug if CMS has made a 

determination that the availability of the 

applicable drug is essential to the health 

of beneficiaries enrolled in Medicare 

Part D. 

§ 423.2315 Medicare Coverage Gap 

Discount Program Agreement. 

(a) General rule. The Medicare 

Coverage Gap Discount Program 

Agreement (or Discount Program 

Agreement) between the manufacturer 

and CMS must contain, the provisions 

specified in paragraph (b) of this 

section, and may contain such other 

provisions as are established in a model 

agreement consistent with section 

1860D–14A (a)(1) of the Act. 

(b) Agreement requirements. The 

manufacturer agrees to the following: 

(1) All the applicable requirements 

and conditions set forth in this part and 

general instructions. 

(2) Reimburse all applicable discounts 

provided by Part D sponsors on behalf 

of the manufacturer for all applicable 

drugs having NDCs with the 

manufacturer’s FDA-assigned labeler 

code(s) invoiced to the manufacturer 

within a maximum of 3 years of the date 

of dispensing based upon information 

reported to CMS by Part D sponsors. 

(3) Pay each Part D sponsor in the 

manner specified by CMS within 38 

calendar days of receipt of the invoice 

and Medicare Part D Discount 

Information for the applicable discounts 

included on the invoice, except as 

specified in § 423.2330(c)(3). 

(4) Provide CMS with all labeler codes 

for all the manufacturer’s applicable 

drugs and to promptly update such list 

with any additional labeler codes for 

applicable drugs no later than 3 

business days after having received 

written notification of the codes from 

the FDA. 

(5) Collect, have available, and 

maintain appropriate data, including 

data related to manufacturer’s labeler 

codes, NDC expiration dates, utilization 

and pricing information relied on by the 

manufacturer to dispute quarterly 

invoices and any other data CMS 

determines are necessary to carry out 

the Discount Program for a period of not 

less than 10 years from the date of 

payment of the invoice. 

(6) Comply with the audit and dispute 

resolution requirements in § 423.2330. 

(7) Electronically list and maintain 

up-to-date electronic FDA listings of all 

NDCs of the manufacturer, including the 

timely removal of discontinued NDCs in 

the FDA NDC Directory. 

(8) Maintain up-to-date NDC listings 

with the electronic database vendors for 

which the manufacturer provides NDCs 

for pharmacy claims processing. 

(9) Enter into and have in effect, 

under terms and conditions specified by 

CMS, an agreement with the TPA that 

has a contract with CMS under section 

1860D–14(A)(d)(3) of the Act. 

(10) Pay quarterly invoices directly to 

accounts established by Part D sponsors 

via electronic funds transfer, or other 

manner if specified by CMS, within the 

time period specified in paragraph (b)(3) 

and within 5 business days of the 

transfer to provide the TPA with 

electronic documentation of such 

payment in a manner specified by CMS. 

(11) Use information disclosed to the 

manufacturer on the invoice, as part of 

the Medicare Part D Discount 

Information, or upon audit or dispute 

only for purposes of paying the discount 

under the Discount Program. 

(c) Timing and length of agreement. 

(1) For 2011, a manufacturer must enter 

into a Discount Program Agreement not 

later than 30 days after the date of 

establishment of the model Discount 

Program Agreement. 

(2) For 2012 and subsequent years, for 

a Discount Program Agreement to be 

effective for a year, a manufacturer must 

enter into a Discount Program 

Agreement not later than January 30th 

of the preceding year. 

(3) Unless terminated in accordance 

with § 423.2345, the initial period of a 

Discount Program Agreement is 24 

months and the agreement is 

automatically renewed for a one year 

period on January first each year for a 

period of 1 year thereafter. 

(d) Compliance with requirements for 

administration of the Program. Each 

manufacturer with an agreement in 

effect under this subpart must comply 

with the requirements imposed by CMS 

or the third party administrator (as 

defined in § 423.2305) for purposes of 

administering the program. 

§ 423.2320 Payment processes for Part D 

sponsors. 

(a) Interim payments. CMS provides 

monthly interim coverage gap discount 

program payments as necessary for Part 

D sponsors to advance coverage gap 

discounts to beneficiaries. 

(b) Coverage Gap Discount 

Reconciliation. CMS reconciles interim 

payments with invoiced manufacturer 

discount amounts made available to 

each Part D plan’s enrollee under the 

Discount Program. 

§ 423.2325 Provision of applicable 

discounts on applicable drugs for 

applicable beneficiaries. 

(a) General rule. On behalf of the 

manufacturers, Part D sponsors must 

provide applicable beneficiaries with 

applicable discounts on applicable 

drugs at the point-of-sale. 

(b) Discount determination. (1) Part D 

sponsors must determine the following: 

(i) Whether an enrollee is an 

applicable beneficiary (as defined in 

§ 423.100). 

(ii) Whether a Part D drug is an 

applicable drug (as defined in 

§ 423.100). 

(iii) The amount of the applicable 

discount (as defined in § 423.2305) to be 

provided at the point-of-sale. 

(2) Part D sponsors must make 

retroactive adjustments to the applicable 

discount as necessary to reflect changes 

to the claim or beneficiary eligibility 

determined after the date of dispensing. 

(3) In determining whether an 

enrollee is entitled to an applicable 

discount and the amount of the 

applicable discount, the Part D sponsor 

must apply any dispensing fee or 

vaccine administration fee for a claim 

that straddles the coverage gap and 

either the initial coverage limit or 

annual out-of-pocket threshold (or both) 

such that the dispensing fee or vaccine 

administration fee is within the initial 

coverage limit or the catastrophic phase 

of coverage to the maximum extent 

possible, and then determines the 

amount of the applicable discount based 

on the negotiated price (as defined in 

§ 423.2305). 

(4) Part D sponsors must determine 

whether any affected beneficiaries need 

to be notified by the Part D sponsor that 

an applicable drug is eligible for Part D 

coverage whenever CMS specifies a 

retroactive effective date for a labeler 

code and notify such beneficiaries. 

(c) Exception to point-of-sale 

requirement. Part D sponsors must 

provide an applicable discount for 

applicable drugs submitted by 

applicable beneficiaries via paper 

claims, including out-of-network and innetwork paper claims, if such claims are 

payable under Part D. 


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(d) Collection of data. Part D sponsors 

must provide CMS with appropriate 

data on the applicable discounts 

provided by the Part D sponsors in a 

manner specified by CMS. 

(e) Supplemental benefits. (1) An 

applicable discount must be applied to 

beneficiary cost-sharing after 

supplemental benefits (as defined in 

§ 423.100) have been applied to the 

claim for an applicable drug. 

(2) No applicable discount is available 

if supplemental benefits (as defined in 

§ 423.100) eliminate the coverage gap so 

that a beneficiary has zero cost-sharing. 

(3) In determining whether an 

enrollee is entitled to an applicable 

discount and the amount of the 

applicable discount, the Part D sponsor 

applies any dispensing fee or vaccine 

administration fee for a claim such that 

the dispensing fee or vaccine 

administration fee is within the 

supplemental benefits to the maximum 

extent possible, and then determines the 

amount of the applicable discount based 

on the negotiated price (as defined in 

§ 423.2305). 

(f) Other health or prescription drug 

coverage. An applicable discount must 

be applied to beneficiary cost-sharing 

when Part D is the primary payer before 

any other health or prescription drug 

coverage is applied. 

(g) Pharmacy prompt payment. Part D 

sponsors must reimburse a network 

pharmacy (as defined in § 423.100) the 

amount of the applicable discount no 

later than the applicable number of 

calendar days after the date of 

dispensing of an applicable drug. 

§ 423.2330 Manufacturer discount 

payment audit and dispute resolution. 

(a) Third-party Administration (TPA) 

audits. (1) Manufacturers participating 

in the Discount Program may conduct 

periodic audits, no more often than 

annually, directly or through third 

parties as specified in this section. 

(2) The manufacturer must provide 

the TPA with 60 days notice of the 

reasonable basis for the audit and a 

description of the information required 

for the audit. 

(3) The manufacturer must have the 

right to audit a statistically significant 

sample of data and information held by 

the TPA that were used to determine 

applicable discounts for applicable 

drugs having NDCs with the 

manufacturer’s FDA-assigned labeler 

code(s). Such data and information will 

be made available on-site, and with the 

exception of work papers, such 

information cannot be removed from the 

audit site. 

(4) The auditor for the manufacturer 

may release only an opinion of the audit 

results and is prohibited from releasing 

other information obtained from the 

audit, including work papers, to its 

client, employer, or any other party. 

(b) Manufacturer audits. (1) A 

manufacturer is subject to periodic audit 

by CMS no more often than annually, 

directly or through third parties, as 

specified in this section. 

(2) CMS provides the manufacturer 

with 60 days notice of the audit and a 

description of the information required 

for the audit. 

(3) CMS has the right to audit 

appropriate data, including data related 

to a manufacturer’s FDA-assigned 

labeler codes, expiration date of NDCs, 

utilization, and pricing information 

relied on by the manufacturer to dispute 

quarterly invoices, and any other data 

CMS determines are necessary to carry 

out the Discount Program. 

(c) Dispute resolution. (1) 

Manufacturers may dispute applicable 

discounts invoiced to the manufacturer 

on quarterly invoices by providing 

notice of the dispute to the TPA in a 

manner specified by CMS within 60 

days of receipt of the information that 

is the subject of the dispute. 

(2) Such notice must be accompanied 

by supporting evidence that is material, 

specific, and related to the dispute in a 

manner specified by CMS. 

(3) The manufacturer must not 

withhold any invoiced discount 

payments pending dispute resolution 

with the sole exception of invoiced 

amounts for applicable drugs that do not 

have labeler codes provided by the 

manufacturer to CMS in accordance 

with § 423.2306(b)(4) of this subpart. If 

payment is withheld in accordance with 

this paragraph, the manufacturer must 

notify the TPA and applicable Part D 

sponsors within 38 days of receipt of the 

applicable invoice that payment is being 

withheld for this reason. 

(4) If the manufacturer receives an 

unfavorable determination from the 

TPA, or the dispute is not resolved 

within 60 calendar days of the TPA’s 

receipt of the notice of dispute, the 

manufacturer may request review by the 

independent review entity contracted by 

CMS within— 

(i) Thirty calendar days of the 

unfavorable determination; or 

(ii) Ninety calendar days after the 

TPA’s receipt of the notice of dispute if 

dispute is not resolved within 60 days, 

whichever is earlier. 

(5) The independent review entity 

must make a determination within 90 

calendar days of receipt of the 

manufacturer’s request for review. 

(6)(i) CMS or a manufacturer that 

receives an unfavorable determination 

from the independent review entity may 

request review by the CMS 

Administrator within 30 calendar days 

of receipt of the notification of such 

determination. 

(ii) The decision of the CMS 

Administrator is final and binding. 

(7) CMS adjusts future invoices (or 

implements an alternative 

reimbursement process if determined 

necessary by CMS) if the dispute is 

resolved in favor of the manufacturer. 

§ 423.2335 Beneficiary dispute resolution. 

The Part D coverage determination 

and appeals process as described in 

§ 423.558 through § 423.638 applies to 

beneficiary disputes involving the 

availability and amount of applicable 

discounts under the Discount Program. 

§ 423.2340 Compliance monitoring and 

civil money penalties. 

(a) General rule. CMS monitors 

compliance by a manufacturer with the 

terms of the Discount Program 

Agreement. 

(b) Basis for imposing civil money 

penalties. CMS imposes a civil money 

penalty (CMP) on a manufacturer that 

fails to provide applicable beneficiaries 

applicable discounts for applicable 

drugs of the manufacturer in accordance 

with the Discount Program Agreement. 

(c) Determination of the civil money 

penalty amounts. CMS imposes a CMP 

for each failure by a manufacturer to 

provide an applicable discount in 

accordance with the Discount Program 

Agreement equal to the sum of the 

following: 

(1) The amount of applicable discount 

the manufacturer would have paid 

under the Discount Program Agreement, 

which will then be used to pay the 

applicable discount that the 

manufacturer had failed to provide. 

(2) Twenty-five percent of such 

amount. 

(d) Procedures for imposing civil 

money penalties. (1) If CMS makes a 

determination to impose a CMP 

described in paragraph (c) of this 

section, CMS sends a written notice of 

its decision to impose a CMP to include 

the following: 

(i) A description of the basis for the 

determination. 

(ii) The basis for the penalty. 

(iii) The amount of the penalty. 

(iv) The date the penalty is due. 

(v) The manufacturer’s right to a 

hearing (as specified in § 423.1006). 

(vi) Information about where to file 

the request for hearing. 

(e) Collection of civil money penalties 

imposed by CMS. (1) When a 

manufacturer does not request a 

hearing, CMS initiates the collection of 

the CMP following the expiration of the 


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timeframe for requesting an ALJ hearing 

as specified in § 423.1020. 

(2) If a manufacturer requests a 

hearing and the Administrator upholds 

CMS’ decision to impose a CMP, CMS 

may initiate collection of the CMP once 

the Administrator’s decision is final. 

(f) Other applicable provisions. The 

provisions of section 1128A of the Act 

(except subsections (a) and (b)) apply to 

CMPs under this subpart to the same 

extent that they apply to a CMP or 

procedure under section 1128A(a) of the 

Act. 

§ 423.2345 Termination of Discount 

Program Agreement. 

(a)(1) CMS may terminate the 

Discount Program Agreement for a 

knowing and willful violation of the 

requirements of the agreement or other 

good cause shown in relation to the 

manufacturer’s participation in the 

Discount Program. 

(2) The termination must not be 

effective earlier than 30 days after the 

date of notice to the manufacturer of 

such termination and must not be 

effective prior to resolution of timely 

appeal requests received in accordance 

with paragraphs (a)(4) and (a)(5) of this 

section. 

(3)(i) CMS provides the manufacturer 

with an opportunity to cure any ground 

for termination for cause or to show the 

manufacturer is in compliance with the 

Discount Program Agreement within 30 

calendar days of receipt of the written 

termination notice. 

(ii) If the manufacturer cures the 

violation, or establishes that it was in 

compliance within the cure period, 

CMS repeals the termination notice by 

written notice. 

(4) CMS provides upon request a 

manufacturer with a hearing with the 

hearing officer concerning such 

termination if requested in writing 

within 15 calendar days of receiving 

notice of the termination. The hearing 

takes place prior to the effective date of 

the termination with sufficient time for 

such effective date to be repealed if 

CMS determines appropriate. 

(5)(i) CMS or a manufacturer that has 

received an unfavorable determination 

from the hearing officer may request 

review by the CMS Administrator 

within 30 calendar days of receipt of the 

notification of such determination. 

(ii) The decision of the CMS 

Administrator is final and binding. 

(b)(1) The manufacturer may 

terminate the Discount Program 

Agreement for any reason. 

(2) Such termination is effective as of 

the day after the end of the calendar 

year if the termination occurs before 

January 30 of a calendar year, or as of 

the day after the end of the succeeding 

calendar year if the termination occurs 

on or after January 30 of a calendar year. 

(c) Any termination does not affect 

the manufacturer’s responsibility to 

reimburse Part D sponsors for applicable 

discounts incurred before the effective 

date of the termination. 

(d) Upon the effective date of 

termination of the Discount Program 

Agreement, CMS ceases releasing data 

to the manufacturer except as necessary 

to ensure that the manufacturer 

reimburses applicable discounts for 

previous time periods in which the 

Discount Program Agreement was in 

effect, and notifies the manufacturer to 

destroy data files provided by CMS 

under the Discount Program Agreement. 

(e) Manufacturer reinstatement is 

available only upon payment of any and 

all outstanding applicable discounts 

incurred during any previous period 

under the Discount Program Agreement. 

The timing of any such reinstatement is 

consistent with the requirements for 

entering into a Discount Program 

Agreement under § 423.2315(c) of this 

subpart. 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: August 25, 2011. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: September 16, 2011. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2011–25844 Filed 10–3–11; 4:15 pm] 

BILLING CODE 4120–01–P 


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