Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed Rules 29403 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 423 

[CMS–4130–P] 

RIN 0938–A074 

Medicare Program; Policy and 

Technical Changes to the Medicare 

Prescription Drug Benefit 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

both codify prior clarifications of our 

policies associated with the Medicare 

Prescription Drug Benefit (also known 

as Medicare Part D) and propose certain 

clarifications of these policies. These 

clarifications include the following: 

Codifying our expectations of Part D 

sponsors regarding providing adequate 

access to home infusion pharmacies for 

infused covered Part D drugs and 

proposing standards with respect to 

timeliness of delivery of drugs; 

codifying our guidance that certain 

supplies associated with the inhalation 

of insulin are included in the definition 

of Part D drug; refining our definition of 

what may be included in the drug costs 

Part D sponsors use as the basis for 

calculating beneficiary cost sharing, 

reporting drug costs to CMS for the 

purposes of reinsurance reconciliation 

and risk sharing, as well submitting bids 

to CMS; reiterating our previous 

guidance explaining how we interpret 

the statutory exclusion from the 

definition of a Part D drug for any drug 

when used for the treatment of sexual or 

erectile dysfunction, unless that drug 

was used for an FDA-approved purpose 

other than sexual or erectile 

dysfunction; and codifying our guidance 

on plan-to-plan reconciliation and 

reconciliation to a payer other than the 

Part D of record. In addition, we are 

correcting the regulations to ensure that 

they reflect the appropriate subsidy for 

partial subsidy individuals subject to a 

late enrollment penalty. We also 

propose changes to the retiree drug 

subsidy regulations, including 

permitting non-calendar year plans to 

choose between the current year’s or the 

subsequent year’s Part D cost limits in 

certain circumstances and codifying our 

previous guidance on aggregating plan 

options for purposes of meeting the net 

test for actuarial equivalence. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on July 24, 2007. 

ADDRESSES: In commenting, please refer 

to file code CMS–4130–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking. Click 

on the link ‘‘Submit electronic 

comments on CMS regulations with an 

open comment period.’’ (Attachments 

should be in Microsoft Word, 

WordPerfect, or Excel; however, we 

prefer Microsoft Word.) 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–4130–

P, P.O. Box 8014, Baltimore, MD 21244–

8014. 

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–4130–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786–

7195 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHS Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: For 

overall questions about this proposed 

rule, please contact Alissa DeBoy, (410) 

786–6041. For other detailed questions 

on clarifications and/or proposed 

changes herein, please contact the 

following individuals for the applicable 

subpart. 

Subpart B—James Slade, (410) 786–

1073. 

Subpart C—Vanessa Duran, (410) 786–

8697 or Gregory Dill, (312) 353–1754. 

Subparts F and G—Deondra Moseley, 

(410) 786–4577 or Meghan Elrington, 

(410) 786 8675. 

Subpart I—James Slade, (410) 786–1073. 

Subpart J—Deborah Larwood, (410) 

786–9500 or Vanessa Duran, (410) 

786–8697. 

Subpart K—Mark Smith, (410) 786–

8015. 

Subpart P—Deondra Moseley, (410) 

786–4577 or Christine Hinds, (410) 

786–4578. 

Subpart R—Adam Shaw, (410) 786–

1091. 

Subpart S—Christine Hinds, (410) 786–

4578. 

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–4130–P 

and the specific ‘‘issue identifier’’ that 

precedes the section on which you 

choose to comment. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://www.cms.hhs.gov/ 

eRulemaking. Click on the link 

‘‘Electronic Comments on CMS 

Regulations’’ on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

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

appointment to view public comments, 

phone 1–800–743–3951. 


ycherry on PROD1PC64 with PROPOSALS2
29404 Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed Rules 

I. Background 

The Medicare Prescription Drug 

Benefit (also known as Part D) is a 

voluntary prescription drug benefit 

program enacted into law on December 

8, 2003 in section 101 of title I of the 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173). In the 

January 28, 2005 Federal Register (70 

FR 4194), we published a final rule 

implementing the provisions of Part D, 

and these provisions became effective 

March 22, 2005. 

Since publication of the January 28, 

2005 final rule, we have issued several 

clarifications or interpretations of the 

final rule by way of interpretive 

guidance documents. In addition, we 

have issued guidance explaining how 

we will interpret a change to the Social 

Security Act (‘‘Act’’) that excludes drugs 

used in the treatment of erectile 

dysfunction from Part D, with a certain 

exception. In order to ensure public 

awareness of our policies, as well as to 

avoid potential confusion regarding 

them, in this preamble, we explain 

many of the respective clarifications or 

interpretations. Relatedly, we are 

proposing to codify some of these 

clarifications in regulation through this 

proposed rule, as well as making certain 

technical corrections to the January 28, 

2005 final rule. 

In addition, due to our experience to 

date in implementing Part D, we are 

proposing several new clarifications of 

our policy for Part D plans, to be 

implemented in contract year 2009, on 

which we specifically invite public 

comment. 

II. Provisions of the Proposed Rule 

A. Subpart B—Eligibility and 

Enrollment 

1. Approval of Marketing Materials and 

Enrollment Forms (§ 423.50) 

In the preamble of the January 28, 

2005 final rule, we discussed the 

approval of marketing materials and 

enrollment forms, to correspond with 

the regulations text at § 423.50. (70 FR 

4223) In our response to public 

comments, we stated that it was 

‘‘appropriate to allow providers and 

pharmacies to market to beneficiaries.’’

(emphasis added). (70 FR 4223) When 

we used the term ‘‘market’’ in the final 

rule, we used the term ‘‘market’’ in a 

more general sense, to mean assisting in 

enrollment or education directed at 

beneficiaries. 

Subsequent to our publication of the 

final rule, we issued the Medicare 

Marketing Guidelines (‘‘The 

Guidelines’’). (See Centers for Medicare 

& Medicaid Services, Medicare 

Marketing Guidelines for: Medicare 

Advantage Plans (MAs); Medicare 

Advantage Prescription Drug Plans 

(MA-PDs); Prescription Drug Plans 

(PDPs); 1876 Cost Plans http:// 

www.cms.hhs.gov/ 

PrescriptionDrugCovContra/Downloads/ 

FinalMarketingGuidelines.pdf (last 

updated July 25, 2006).) The Guidelines 

contain a specific definition of the term, 

‘‘marketing.’’ The Guidelines define 

‘‘marketing’’ as ‘‘[s]teering, or 

attempting to steer, an undecided 

potential enrollee towards a plan, or 

limited number of plans, and for which 

the individual or entity performing 

marketing activities expects 

compensation directly or indirectly 

from the plan for such marketing 

activities.’’ (The Guidelines, page 8.) 

This definition further clarifies that 

neither ‘‘[a]ssisting in enrollment’’ nor 

‘‘education’’ constitute ‘‘marketing.’’

(The Guidelines, page 8.) The 

Guidelines require Part D plan sponsors 

to ensure that their contracted providers 

agree to refrain from ‘‘marketing’’ to 

beneficiaries, as that term is defined by 

The Guidelines (that is, steering or 

attempting to steer an undecided 

beneficiary toward a plan based on the 

provider’s financial interest). Thus, our 

intent in the preamble was to 

acknowledge that providers and 

pharmacies are free to engage in either 

‘‘assisting in enrollment’’ or 

‘‘education’’ (as those terms are defined 

on page 6 of The Guidelines), including 

provider promotional activities as 

permitted under The Guidelines. We 

believe that the context of our 

discussion in the preamble 

demonstrates that we were discussing 

providers and pharmacies assisting in 

beneficiary enrollment, based on the 

beneficiary’s needs, and education. This 

is consistent with The Guidelines, 

which encourage providers to assist 

beneficiaries in objective assessments of 

the beneficiaries’ needs and potential 

plan options that may meet those needs. 

Given that the Guidelines’ definition of 

‘‘market’’ was not issued until after 

publication of the final rule, we wish to 

emphasize our consistent policy: 

providers and pharmacies that are 

contracted with plan sponsors may not 

‘‘market’’ to beneficiaries, as the term is 

defined in The Guidelines. However, 

providers and pharmacies may assist in 

enrollment, including participating in 

provider promotion activities within the 

parameters established in The 

Guidelines, and educate beneficiaries. 

We clarify this policy here in this 

proposed rule so as to avoid any 

confusion arising from our inaccurate 

use of the term ‘‘market’’ in our 

discussion of the approval of marketing 

materials and enrollment forms in the 

January 28, 2005 final rule. 

Section 423.50(f)(1)(v) states that in 

conducting marketing activities, a Part D 

plan may not ‘‘[u]se providers, provider 

groups, or pharmacies to distribute 

printed information comparing the 

benefits of different Part D plans unless 

the providers, provider groups or 

pharmacies accept and display materials 

from all Part D plan sponsors.’’ (70 FR 

4532) One might infer from this 

language that when a Part D plan uses 

providers, provider groups, or 

pharmacies to distribute printed 

information comparing the benefits of 

different Part D plans, that the 

providers, provider groups, or 

pharmacies must not only accept and 

display printed information comparing 

the benefits of the Part D plans with 

whom they contract, but that they also 

must accept and display printed 

information comparing the benefits of 

different Part D plans with whom they 

do not contract. This interpretation 

would likely lead to beneficiary 

confusion because if a provider were 

required, per its contract with Part D 

plan sponsors, to display materials for 

plans with which the provider does not 

contract, beneficiaries, who may want to 

continue using the applicable provider 

because the provider has a history with 

the beneficiary, may mistakenly believe 

that he or she may continue to use the 

applicable non-contracted provider and 

receive the maximum amount of benefit. 

Even though we are requiring that plan 

sponsors only require their contracted 

providers to accept and display 

comparative materials from plans with 

which the provider contracts, the 

Guidelines require that providers in a 

health care setting inform prospective 

enrollees where they can obtain 

information on the full range of plan 

options, including referring 

beneficiaries to 1–800–MEDICARE, 

http://www.medicare.gov, State Health 

Insurance Assistance Programs. (The 

Guidelines, page 124.) We clarify here 

that a Part D plan can use providers, 

provider groups, or pharmacies to 

distribute printed information 

comparing the benefits of different Part 

D plans, so long as the providers, 

provider groups, or pharmacies accept 

and display printed information 

comparing the benefits of different Part 

D plans with whom they contract; the 

providers, provider groups, or 

pharmacies are not obliged to accept 

and display any comparative 

information regarding those Part D plans 

with whom they do not contract. This 


ycherry on PROD1PC64 with PROPOSALS2
Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed Rules 29405 

clarification applies to comparative 

marketing materials and is in accord 

with The Guidelines. (The Guidelines, 

page 125.) We are codifying the policy 

in regulation by revising § 423.50(f)(1) to 

indicate a Part D plan may use 

providers, provider groups and 

pharmacies to distribute printed 

information comparing the benefits of 

different plans, so long as the providers, 

provider groups or pharmacies accept 

and display materials from all Part D 

plan sponsors with which the providers, 

provider groups or pharmacies contract. 

2. Procedures To Determine and 

Document Creditable Status of 

Prescription Drug Coverage (§ 423.56) 

In the regulation text of the January 

28, 2005 final rule, we have identified 

a typographical error in § 423.56(b)(6). 

As published, § 423.56(b)(6) directs the 

reader to reference § 423.205 for a 

definition of the term ‘‘Medicare 

supplemental policy’’. (70 FR 4532) 

However, the proper reference for the 

definition of the term ‘‘Medicare 

supplemental policy’’ is § 403.205. 

Therefore, we are revising the regulation 

text accordingly to state the correct 

reference; that is, § 403.205. 

B. Subpart C—Benefits and Beneficiary 

Protections 

1. Definitions 

a. Part D Drug 

(1) Erectile Dysfunction 

In the preamble of the January 28, 

2005 final rule (70 FR 4228 et seq.), we 

addressed the regulatory definition of 

the term ‘‘Part D drug’’ in § 423.100. (70 

FR 4534) We stated that in accordance 

with section 1860D–2(e)(2) of the Act, 

the definition of a Part D drug would 

specifically exclude drugs or classes of 

drugs, or their medical uses, which may 

be excluded from coverage or otherwise 

restricted under Medicaid under section 

1927(d)(2) of the Act, with the exception 

of smoking cessation agents. On October 

26, 2005, section 1860D–2(e)(2)(A) of 

the Act was amended to exclude from 

the statutory definition of a Part D drug 

‘‘a drug when used for the treatment of 

sexual or erectile dysfunction, unless 

such drug were used to treat a 

condition, other than sexual or erectile 

dysfunction, for which the drug has 

been approved by the Food and Drug 

Administration.’’ Consequently, 

beginning January 1, 2007, erectile 

dysfunction (ED) drugs will not be 

classified as Part D drugs under 

§ 423.100 when they are used for the 

treatment of sexual or erectile 

dysfunction, unless they are used to 

treat a condition, other than sexual or 

erectile dysfunction, for which the drug 

has been approved by the FDA. We note 

here that ED drugs will also not meet 

the definition of a Part D drug for offlabel uses that by definition are not 

approved by the FDA. This includes 

non-FDA-approved uses contained in 

one of the compendia listed in section 

1927(g)(1)(B)(i) of the Act: American 

Hospital Formulary Service Drug 

Information, United States 

Pharmacopeia-Drug Information (or its 

successor publications), and the 

DRUGDEX Information System. 

This ED exclusion is cited in 

1927(d)(2)(K), and because our 

definition of a Part D drug in 

§ 423.100(2)(ii) excludes drugs which 

may be excluded under section 

1927(d)(2) of the Act, no regulation text 

change is required. Similar to other 

excluded drugs contained in section 

1927(d)(2) of the Act, those plans that 

wish to continue coverage of ED drugs 

may do so as a supplemental benefit 

through enhanced alternative coverage, 

consistent with existing policy. To 

ensure adequate notice of this new ED 

exclusion, we issued a question and 

answer (Q&A) notice to plans 

throughout our Healthcare Plan 

Management System (HPMS) on July 10, 

2006 (Q&A 7682 http:// 

questions.cms.hhs.gov/cgi-bin/ 

cmshhs.cfg/php/enduser/ 

std_alp.php?p_sid=F*VR*Ygi). We 

believe that this Q&A, coupled with a 

considerable amount of media attention 

on the topic, has provided the industry 

a significant amount of notice regarding 

the implementation of this ED 

exclusion. Our provider and beneficiary 

outreach programs are also including 

the new ED exclusion in their broader 

education program to ensure all groups 

are prepared for the implementation of 

the ED exclusion on January 1, 2007. 

(2) Morbid Obesity 

Section 423.100 defines the term 

‘‘Part D drug’’ and excludes from that 

definition ‘‘[d]rugs or classes of drugs, 

or their medical uses, which may be 

excluded from coverage or otherwise 

restricted under Medicaid under 

sections 1927(d)(2) or (d)(3) of the Act, 

except for smoking cessation agents.’’

(70 FR 4534) In the corresponding 

preamble of the January 28, 2005 final 

rule, we explained that this list of 

excluded drugs included agents when 

used for anorexia, weight loss, or weight 

gain and agents when used for cosmetic 

purposes or hair growth. (70 FR 4228) 

However, in the preamble we 

erroneously asserted that to the extent 

that a drug was dispensed for a 

‘‘medically accepted indication’’ (70 FR 

4230) as described in section 1860D–

2(e)(1) of the Act, weight loss agents 

could be covered for the treatment of 

morbid obesity. Therefore, we clarify 

here that agents, when used for 

anorexia, weight loss, or weight gain, 

are specifically excluded from the 

definition of Part D drugs. Thus, a 

weight loss agent, even when not used 

for cosmetic purposes, is still ‘‘an agent 

used for anorexia, weight loss, or weight 

gain,’’ for purposes of the exclusion 

from the definition of Part D drug. 

Similar to other excluded drugs 

contained in section 1927(d)(2) of the 

Act, those plans that wish to continue 

coverage of weight loss agents may do 

so as a supplemental benefit through 

enhanced alternative coverage, 

consistent with existing policy. 

Since publication of the January 28, 

2005 final rule, we have received 

requests for clarification about our 

preamble language regarding drugs used 

to treat morbid obesity. We clarified our 

policy in Q&A guidance to Part D plans 

released in Spring 2005. (Q&A 5279 

http://questions.cms.hhs.gov/cgi-bin/ 

cmshhs.cfg/php/enduser/ 

std_alp.php?p_sid=7KFqaChi.) There, 

we stated that weight loss agents 

prescribed for the treatment of morbid 

obesity are not Part D drugs covered 

under 1860D–2(e)(2) of the Act, because 

even though they are not used for other 

excluded purposes such as cosmetic or 

hair growth, they nevertheless remain 

agents for anorexia, weight loss, or 

weight gain that are excluded from the 

definition of Part D drugs under section 

1860D–2(e)(2) of the Act. We note that 

we are not expanding or changing 

current policy regarding the exclusion 

of agents used for weight loss from the 

definition of Part D drug. Rather, we are 

clarifying existing policy regarding the 

definition of a Part D drug that excludes 

agents used for weight loss, including in 

connection with morbid obesity. 

(3) Insulin Inhalation Drugs and 

Supplies 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘INSULIN INHALATION 

DRUGS AND SUPPLIES’’ at the 

beginning of your comments.] 

With the passage of the MMA, 

Congress included within the definition 

of ‘‘Part D drug’’ found in section 

1860D–2(e) of the Act ‘‘medical supplies 

associated with the injection of insulin 

(as defined in regulations of the 

Secretary)’’ as Part D drugs. We believe 

that Congress’ intent was to ensure that 

a beneficiary with diabetes had access to 

both the insulin and the supplies 

required to deliver insulin into the 

body. For example, in the conference 

report for the MMA, the conferees 


ycherry on PROD1PC64 with PROPOSALS2
29406 Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed Rules 

specifically stated that: ‘‘It is the intent 

of conferees that the definition of 

insulin, and medical supplies associated 

with the administration of insulin, as a 

covered prescription drug shall include 

medical supplies that the Secretary 

determines to be reasonable and 

necessary, such as insulin, insulin 

syringes, and insulin delivery devices 

that are not otherwise covered under the 

durable medical equipment benefit.’’

(H.R. Conf. Rep. 108–391, 108th Cong., 

1st Sess. at 442 (2003)) 

Administration of insulin by 

injection, especially since it involves 

multiple injections daily, has fueled 

constant research into the delivery of 

insulin by another route. While there 

have been promising developments of 

an alternative delivery method over the 

past 8 years, no other insulin delivery 

method had obtained FDA approval as 

of the time we were undertaking 

rulemaking to implement the Part D 

program. Thus, in the final rule, we 

interpreted the term ‘‘medical supplies 

associated with the injection of insulin’’

as comprising syringes, needles, alcohol 

swabs, gauze, and insulin delivery 

devices not otherwise covered by Part B, 

such as insulin pens, pen supplies, and 

needle-free syringes. In doing this, we 

provided greater detail to Part D 

sponsors on what exactly met the 

definition of a Part D drug, but, like 

Congress, we derived our definition 

based upon the only approved 

administration method available to 

diabetics at the time. 

On January 26, 2006, the FDA 

approved the first-ever inhaled insulin. 

This inhaled medication is a dry 

powder inhaler (‘‘DPI’’) that requires a 

patient to place a small amount of 

powdered insulin into a hand-held 

chamber that permits inhalation of the 

insulin into the lungs. 

Subsequent to the FDA approval, we 

began to receive questions regarding the 

reimbursement of this new product. For 

example, inquirers wanted to know 

whether the inhalation supplies 

associated with this new product would 

be included in the definition of a Part 

D drug, because while administration by 

inhalation offers the beneficiary an 

alternative method of receiving insulin 

for those appropriately qualified, the 

chamber and any associated accessories 

involved in inhalation are not 

specifically described in the definition 

of a Part D drug. 

Upon review of these issues, we 

concluded it was not Congress’

intention to prevent access to this novel 

insulin delivery method, as doing so 

would deny millions of Medicare 

beneficiaries an alternative way to 

manage diabetes. Thus, we have 

determined that, consistent with 

Congressional intent, supplies 

associated with the inhalation of insulin 

meet the definition of a Part D drug. We 

propose to codify our existing guidance 

(Q&A 7940 http:// 

questions.cms.hhs.gov/cgi-bin/ 

cmshhs.cfg/php/enduser/ 

std_alp.php?p_sid=sXyWmkki) and 

revise the definition of Part D drug to 

include ‘‘[s]upplies that are directly 

associated with delivering insulin into 

the body through inhalation, such as the 

inhalation chamber used to deliver the 

insulin.’’

While this new definition would 

make these insulin inhalation supplies 

eligible for reimbursement as a Part D 

drug, unless our formulary guidelines 

required otherwise, it would be the Part 

D sponsor’s decision (through its 

Pharmacy and Therapeutics Committee) 

whether to place these products on the 

formulary. Additionally, we would 

expect sponsors to apply drug 

utilization management tools to ensure 

the appropriate use of these supplies. 

We note that our extension of insulinrelated supplies extends only to those 

supplies that are directly associated 

with delivering the insulin into the 

body through inhalation, such as the 

inhalation chamber used to deliver the 

insulin. Where the relationship is more 

indirect, for example auxiliary supplies 

that might be used to hold the chamber, 

ease actuation or store the chamber, we 

would not consider such items to be an 

insulin delivery-related supply. We 

reiterate our statement in the final rule 

that our intention is to narrowly 

construe what constitutes these medical 

supplies in order to avoid an 

inappropriate expansion of the Part D 

benefit. 

(4) Vaccine Administration Fee 

We also propose to amend the 

definition of Part D drug to include a 

reference to vaccine administration on 

or after January 1, 2008, to conform to 

Section 1860D–2(e)(1)(B) of the Act, 

which was recently amended by Section 

202(b) of the Tax Relief and Health Care 

Act of 2006. We intend to reflect the 

statutory change in the final rule. 

b. Long-Term Care Facilities 

In the January 28, 2005 final rule, 

§ 423.100 defines the term ‘‘long term 

care facility’’ as a ‘‘skilled nursing 

facility as defined in section 1819(a) of 

the Act, or a medical institution or a 

nursing facility for which payment is 

made for an institutionalized individual 

under section 1902(q)(1)(B) of the Act.’’

(70 FR 4534) However, in our corollary 

discussion of that term in the preamble, 

we inadvertently omitted institutions 

for mental disease (IMDs) from the list 

of facilities that meet the definition of 

a long term care (LTC) facility. (70 FR 

4236) 

Since publication of the January 28, 

2005 final rule, we have received 

numerous requests for clarification 

regarding the status of IMDs in terms of 

our definition of the term ‘‘long term 

care facility’’. Consequently, we have 

clarified, in Q&A guidance to Part D 

plans released on October 21, 2005 

(http://www.cms.hhs.gov/ 

PrescriptionDrugCovContra/Downloads/ 

IMDICFPharmacyGuidance.pdf.), the 

status of IMDs. The definition of an LTC 

facility would include an IMD that is a 

nursing facility or other medical 

institution (which is a term defined at 

42 CFR 4435.1009) and receives 

Medicaid payment for its services to an 

institutionalized individual under 

section 1902(q)(1)(B) of the Act. In other 

words, to the extent that a nursing 

facility or medical institution that is an 

IMD has as an inpatient any 

institutionalized individual (which 

means any full benefit dual eligible 

individual for whom payment is made 

for IMD services under Medicaid 

throughout a month, as provided in 

section 1902(q)(1)(B) of the Act), that 

IMD will fall within the definition of an 

LTC facility in § 423.100. We are aware 

that there exists a statutory Federal 

financial participation exclusion under 

Medicaid affecting residents of IMDs 

between the ages of 22 and 64. However, 

the IMD exception to the definition of 

‘‘medical assistance’’ under section 

1902(q)(1)(B) of the Act does not apply 

to individuals who are age 65 and older. 

Thus, a State may elect to provide 

Medicaid coverage for services of an 

IMD to individuals over age 65. In these 

cases, all elderly full-benefit dual 

eligibles who are inpatients in an IMD 

for a full month are considered 

institutionalized individuals for that 

month. We note that we are not 

expanding or changing current policy 

regarding the definition of an LTC 

facility, but rather clarifying that IMDs 

are among the medical institutions that 

meet the definition of an LTC facility in 

§ 423.100. 

We also clarify that as medical 

institutions, hospitals, (including longterm care hospitals) that receive 

payments under section 1902(q)(1)(B) of 

the Act can meet the definition of an 

LTC facility. To the extent that 

inpatients in these hospitals exhaust 

their Part A inpatient days benefit, and 

payment is no longer available under 

Part A or Part B for drugs that would 

otherwise meet the definition of a Part 

D drug, such drugs are Part D drugs. 

Consequently, Part D sponsors must 


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ensure that they provide convenient 

access to network LTC pharmacies 

(which, in the case of a hospital, is 

typically the hospital’s in-house 

pharmacy) for all of their enrollees who 

are inpatients in a hospital where the 

hospital is a ‘‘medical institution’’

under 1902(q)(1)(B) and therefore would 

meet the Part D definition of an LTC 

facility and whose Part A benefits have 

been exhausted. 

c. Contracted Pharmacy Network 

Section 423.100 defines the 

‘‘contracted pharmacy network’’ as 

‘‘pharmacies, including retail, mailorder, and institutional pharmacies, 

under contract with a Part D sponsor to 

provide covered Part D drugs at 

negotiated prices to Part D enrollees.’’

(70 FR 4533) There, we made a 

technical error by inadvertently 

omitting clarifying language indicating 

that a pharmacy in a contracted 

pharmacy network must be licensed. We 

view this change as necessary in order 

to bring it in line with our term ‘‘retail 

pharmacy’’ which requires that a retail 

pharmacy be ‘‘licensed.’’ (70 FR 4535) 

Further, we believe this is an important 

clarification to be made, given our 

commitment to safeguard beneficiaries’

interests and health with respect to 

access to covered Part D drugs through 

network pharmacies, be they retail, 

home infusion, long-term care, I/T/U, or 

other types of pharmacies. Accordingly, 

we will revise the definition of 

‘‘contracted pharmacy network’’ to state 

that a pharmacy participating in a 

contracted pharmacy network must be 

licensed. 

d. Negotiated Prices 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘NEGOTIATED PRICES’’ at the 

beginning of your comments.] 

Under § 423.104(d)(2)(i), beneficiary 

cost sharing under the initial coverage 

limit is equal to 25 percent of ‘‘actual 

cost.’’ (70 FR 4535) In addition, in 

accordance with § 423.104(g)(1), a Part 

D sponsor is required to provide 

beneficiaries with ‘‘access to negotiated 

prices for covered Part D drugs * * * 

even if no benefits are payable to the 

beneficiary * * * because of the 

application of any deductible or 100 

percent coinsurance requirement.’’ (70 

FR 4536) In other words, even if a 

beneficiary is paying 100 percent of his 

or her costs, the beneficiary must be 

charged the same negotiated prices at a 

network pharmacy that would otherwise 

be used for calculating cost sharing. 

Actual cost is defined in § 423.100 as 

‘‘the negotiated price for a covered Part 

D drug when the drug is purchased at 

a network pharmacy, and the usual and 

customary price when a beneficiary 

purchases the drug at an out-of-network 

pharmacy consistent with § 423.124(a).’’

(70 FR 4533.) In § 423.100 ‘‘negotiated 

prices’’ means prices for covered Part D 

drugs that—

• Are available to beneficiaries at the 

point of sale at network pharmacies; 

• Are reduced by those discounts, 

direct or indirect subsidies, rebates, 

other price concessions, and direct or 

indirect remunerations that the Part D 

sponsor has elected to pass through to 

Part D enrollees at the point of sale; and 

• Includes any dispensing fees. (70 

FR 4534.) 

On July 20, 2006, we issued guidance 

to Part D sponsors stating that, in order 

to minimize disruption to plan 

operations, for 2006 and 2007, sponsors 

could, at their option, base beneficiary 

cost-sharing not on the price ultimately 

charged by the pharmacy for the drug, 

but on the price the sponsor paid a 

pharmacy benefit manager (PBM) or 

other intermediary for the drug. We also 

stated our intent to issue a proposed 

rule that would require a single 

approach for calculating beneficiary cost 

sharing, based upon the price ultimately 

received by the pharmacy. 

In order to resolve the confusion 

caused by the Prescription Drug Benefit 

final rule, we are now proposing to 

amend the definition of ‘‘negotiated 

prices’’ to be effective for Part D contract 

year 2009 to require that beneficiary 

cost sharing must be based upon the 

price ultimately received by the 

pharmacy or other dispensing provider. 

Therefore, we are proposing to revise 

§ 423.100 so that the first part of the 

definition of ‘‘negotiated prices’’ would 

state that negotiated prices are prices 

that the Part D sponsor (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount the 

network dispensing pharmacy or other 

network dispensing provider will 

receive, in total, for a particular drug. 

The term ‘‘intermediary contracting 

organization’’ refers to organizations 

such as pharmacy benefit managers that 

contract with plan sponsors to negotiate 

pharmacy contracts on their behalf. 

We would also revise the definition of 

‘‘negotiated prices’’ to include prices for 

covered Part D drugs negotiated 

between the Part D sponsor and other 

network dispensing providers. Part D 

sponsors can contract with providers 

other than a pharmacy to dispense 

covered Part D drugs, including them in 

their network. Therefore, we are 

amending the definition of negotiated 

prices to reflect the prices for covered 

Part D drugs that Part D sponsors 

negotiate with all of their network 

dispensing providers. 

In addition, although the definition of 

negotiated prices continues to state that 

these prices are reduced by discounts, 

rebates, and other direct and indirect 

remuneration that the Part D sponsor 

has elected to pass through to Part D 

enrollees at the point of sale, it is our 

understanding that in practice, Part D 

sponsors are unable to actually apply 

discounts, rebates, and other price 

concessions at the point of sale in order 

to reduce the price negotiated with the 

dispensing pharmacy or other 

dispensing provider. We recognize that 

negotiated prices would include only 

those price concessions actually passed 

through in order to result in a lower 

price to the beneficiary at the pharmacy 

(or other dispensing provider). To the 

extent no price concessions are passed 

through, of course, the negotiated prices 

would not be reduced. 

2. Requirements Related to Qualified 

Prescription Drug Coverage 

(§ 423.104)—Waiver of Reduction of 

Part D Cost-Sharing by Pharmacies 

In the January 28, 2005 final rule, we 

stated that we would allow waivers or 

reductions of cost-sharing by 

pharmacies to count as incurred costs. 

(70 FR 4240) Our statement, however, 

was limited only to pharmacies that are 

not also acting as other wrap-around 

coverage that generally would not count 

toward TrOOP. We did not intend to 

allow pharmacy waivers to count as 

incurred costs in cases where a 

pharmacy also met the definition of a 

group health plan, insurance or 

otherwise, or a third party payment 

arrangement, as those terms are defined 

in § 423.100. As provided in the 

definition of incurred costs in § 423.100 

(70 FR 4534), wraparound assistance 

with covered Part D drug costs by group 

health plans, insurance or otherwise, or 

a third party payment arrangement does 

not count as costs incurred toward a 

Part D enrollee’s annual out-of-pocket 

threshold. 

In response to numerous requests for 

clarification of our policy with regard to 

waiver or reduction of Part D costsharing by network pharmacies, 

particularly by safety-net pharmacies, 

we have clarified, in question-andanswer guidance to Part D plans 

released on June 27, 2005 (Q & A 

number 5115 http:// 

questions.cms.hhs.gov/cgi-bin/ 

cmshhs.cfg/php/enduser/ 

std_alp.php?p_sid=gIVVcxhi), that 

although we will generally allow 

waivers or reductions of Part D costsharing by pharmacies to count toward 


ycherry on PROD1PC64 with PROPOSALS2
29408 Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed Rules 

as incurred costs, this will not be the 

case for pharmacies affiliated with 

entities whose wraparound coverage 

does not count as an incurred cost. This 

includes pharmacies operated by 

entities that are group health plans, 

insurance, government-funded health 

programs, or third party payment 

arrangements with an obligation to pay 

for covered Part D drugs. As a result, 

many safety-net providers (who, 

because they are fully or partially 

funded through government grants are 

considered government-funded health 

programs as defined in § 423.100) will 

be unable to have any waiver or 

reduction of cost-sharing their 

pharmacies apply to Part D enrollees’

Part D cost-sharing count as an incurred 

cost. This clarification does not 

represent a change or expansion to 

current policy given that, consistent 

with the section 1860D–2(b)(4)(C) of the 

Act, our regulations have made 

abundantly clear that cost-sharing paid 

for or reimbursed by group health plans, 

insurance or otherwise, or other third 

party payment arrangements cannot be 

counted toward a Part D enrollee’s 

incurred cost total. 

3. Access to Covered Part D Drugs 

(§ 423.120) 

a. Applicability of Some Nonretail 

Pharmacies to Standards for Convenient 

Access (§ 423.120(a)(2)) 

In § 423.120(a)(2), we made a 

technical error by inadvertently 

referring to ‘‘rural health clinics’’ as 

‘‘rural health centers.’’ (70 FR 4537) In 

fact, there is no such entity as a ‘‘rural 

health center’’ for purposes of the 

Medicare statute or regulations. Our 

intent was to reference facilities 

described in section 1861(aa)(2) of the 

Act, as demonstrated by our reference in 

§ 423.464(f)(1)(vii) to ‘‘Rural health 

centers as defined under section 

1861(aa)(2) of the Act.’’ The correct 

terminology for those facilities is ‘‘rural 

health clinics.’’ Accordingly, we are 

revising the regulatory text to correctly 

reference these entities in 

§ 423.120(a)(2) by removing the phrase 

‘‘rural health centers’’ and adding in its 

place ‘‘rural health clinics.’’

b. Adequate Access to Home Infusion 

Pharmacies (§ 423.120(a)(4)) 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘ADEQUATE ACCESS TO 

HOME INFUSION PHARMACIES’’ at 

the beginning of your comments.] 

We are proposing to codify in 

regulation, at § 423.120(a)(4) (70 FR 

4537), guidance that we have already 

issued with regard to access to home 

infusion pharmacies by Part D sponsors. 

This codification would ensure that the 

regulations provide specificity to our 

requirement that Part D enrollees 

receive adequate access to Part Dcovered home infusion therapy. In 

addition, we propose one change to the 

regulations, on which we invite 

comments. This modification would 

require that Part D sponsors provide 

covered home infusion drugs within 24 

hours of discharge from an acute setting. 

In the January 28, 2005 final rule, we 

used our authority under section 

1860D–4(b)(1)(C) of the Act to require 

Part D plans to provide adequate access 

to home infusion pharmacies. Given 

coverage of home infusion drugs under 

Part D, we did not believe it was an 

option for Part D plans not to include 

at least some home infusion pharmacies 

in their networks in order to provide 

enrollees with meaningful access to 

those drugs. As we stated in the 

preamble to the final rule (70 FR 4250), 

we were particularly concerned in 

regard to prescription drug plans which, 

unlike other Part D plans options, do 

not benefit from reduced medical costs 

associated with home infusion and may 

therefore have little incentive to 

contract with home infusion 

pharmacies. Therefore, we added a 

provision to our final regulations at 

§ 423.120(a)(4) which requires Part D 

plans to demonstrate to us that they 

provide adequate access to home 

infusion pharmacies consistent with 

CMS operational guidance to Part D 

plans. In the preamble to our final rule, 

we also set forth our expectation that 

Part D plans would demonstrate 

adequate access based in part on the 

number of enrollees in their service 

areas and the geographic distribution 

and capacity of home infusion 

pharmacies in those service areas. 

As we have gained experience with 

the Part D program, the need to clarify 

our expectations with regard to the 

provision of Part D-covered home 

infusion drugs became necessary. To 

this end, we issued a clarification of our 

expectations regarding adequate access 

to home infusion pharmacies to Part D 

plans on March 10, 2006. (http:// 

www.cms.hhs.gov/ 

PrescriptionDrugCovContra/downloads/ 

HomeInfusionReminder_03.10.06.pdf.) 

That policy memorandum clarified that, 

while we do not expect Part D plans to 

provide or pay for supplies, equipment, 

or the professional services needed for 

home infusion therapy, we do expect 

Part D sponsors’ contracted pharmacy 

networks to deliver home infused drugs 

in a form that can be administered in a 

clinically appropriate fashion. 

In addition, we clarified that home 

infusion networks must have contracted 

pharmacies capable of providing 

infusible Part D drugs for both short 

term acute care (for example, IV 

antibiotics) and long term chronic care 

(for example, alpha1 protease inhibitor) 

therapies. While the same network 

pharmacy does not necessarily need to 

be capable of providing the full range of 

home infusion Part D drugs, the home 

infusion network, in the aggregate, must 

have a sufficient number of pharmacies 

capable of providing the full range of 

home infusion Part D drugs to ensure 

enrollees have adequate access to 

medically necessary home infusion 

therapies when needed. 

In addition, we clarified that Part D 

plans must require their contracted 

network pharmacies that deliver home 

infusion drugs to ensure that the 

necessary professional services and 

ancillary supplies required for home 

infusion therapy are in place before 

dispensing home infusion drugs. In 

addition, we believe that plans must 

require the delivery of home infusion 

drugs within a reasonable time period 

based on these assurances. We note that, 

generally, facility discharge planners, in 

collaboration with a patient’s physician, 

are responsible for ensuring that the 

components needed to safely administer 

a drug at home are present upon a 

patient’s discharge. However, we expect 

the Part D plan’s in-network contracted 

pharmacy vendors—particularly those 

that do not supply the necessary 

ancillary services (which are not a 

Medicare Part D benefit)—to receive 

assurances that another entity, such as 

a home health entity, can arrange for the 

provision of these services. We further 

clarified that we consider the action of 

obtaining assurances a minimum quality 

assurance requirement on Part D plans 

under § 423.153(c). 

With respect to the timely delivery of 

home infusion drugs under Part D, we 

invite comments on the specification of 

a reasonable timeframe for delivery. In 

our ongoing discussions with home 

infusion providers we have learned that 

best practices involve the availability of 

infusion services upon discharge from a 

hospital either by the next required dose 

or within twenty-four hours of the 

discharge. Consequently, we are 

proposing a requirement that Part D 

plan sponsors provide covered home 

infusion drugs within 24 hours of 

discharge from an acute setting. We note 

that home infusion therapy may serve as 

a vehicle to promote early hospital 

discharge. Given that the need for home 

infusion therapy is often of an urgent 

nature, we believe that delivery of home 

infusion drugs should occur within 24 


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hours, provided that all necessary 

assurances have been received by the 

Part D plan sponsor that all ancillary 

services and professional services have 

been arranged. 

Accordingly, in order to codify our 

previous guidance, we are proposing to 

revise § 423.120(a)(4) to expressly 

require that a Part D plan’s contracted 

pharmacy network provide adequate 

access to home infusion pharmacies 

through a contracted pharmacy network 

that, at a minimum: (1) Is capable of 

delivering home infused drugs in a form 

that can be administered in a clinically 

appropriate fashion; (2) is capable of 

providing infusible Part D drugs for both 

short-term acute care and long-term 

chronic care therapies; and (3) ensures 

that the professional services and 

ancillary supplies necessary for home 

infusion therapy are in place before 

dispensing home infusion drugs. In 

addition, we propose to add a new 

requirement that a Part D plan’s 

contracted pharmacy network also 

provide delivery of home infusion drugs 

within 24 hours. These proposed 

changes would codify our existing 

operational policies and impose a new 

requirement that Part D plans provide 

adequate access to home infusion 

therapy through their contracted 

pharmacy networks within 24 hours. 

C. Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums: Plan 

Approval—Timing of Payments 

(§ 423.293(a)) 

We are making a technical correction 

to § 423.293(a) (70 FR 4546) to reflect 

the statutory requirement that all the 

provisions of section 1854(d) of the Act 

apply in the same manner as they apply 

under Part C of Title XVIII of the Act. 

Section 1860D–13(c)(1) of the Act states 

that, with two exceptions not 

particularly relevant to this discussion, 

the provisions of ‘‘section 1854(d) shall 

apply to PDP sponsors and premiums 

(and any late enrollment penalty) under 

this part in the same manner as they 

apply to MA organizations and 

beneficiary premiums under part C, 

except that any reference to a Trust 

Fund is deemed for this purpose a 

reference to the Medicare Prescription 

Drug Account.’’ Section 1854(d)(1) of 

the Act requires an organization to 

permit the payment of both basic and 

supplemental premiums on a monthly 

basis. This concept is reflected in the 

Part C regulations at § 422.262(e). In 

accordance with the statutory mandate, 

we have already required plans to 

permit beneficiaries to pay their 

premiums on a monthly basis. We are 

now making a technical correction to 

§ 423.293(a) to cite both § 422.262(f) and 

§ 422.262(e). This change reflects both 

our current policy as well as the 

statutory requirement. 

D. Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage 

1. Definitions and Terminology 

(§ 423.308) 

a. Administrative Costs (§ 423.308) 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘ADMINISTRATIVE COSTS’’ at 

the beginning of your comments.] 

The statute requires CMS to exclude 

administrative costs from the 

calculation of gross covered prescription 

drug costs and allowable risk corridor 

costs. However, administrative costs are 

not defined in either the statute or the 

January 28, 2005 final rule. Therefore, to 

explain this term and clarify which 

costs are included in administrative 

costs, we are adding a definition for the 

term ‘‘administrative costs’’. In the 

definition, we define ‘‘administrative 

costs’’ as the Part D sponsor’s costs 

other than those incurred to purchase or 

reimburse the purchase of Part D drugs 

under the Part D plan. Included in the 

definition of administrative costs are 

costs incurred by Part D plans that 

exceed the price charged by a 

dispensing entity for covered Part D 

drugs. For example, the profit retained 

by a PBM that negotiates prices with 

pharmacies on behalf of a Part D 

sponsor is considered an administrative 

cost and not a drug cost. 

The policy refines our interpretation 

of the statutory and regulatory 

definitions of ‘‘allowable reinsurance 

costs’’ and ‘‘allowable risk corridor 

costs,’’ which in both cases exclude any 

administrative costs of the sponsor. By 

statute, ‘‘allowable reinsurance costs’’

are a subset of ‘‘gross covered 

prescription drug costs,’’ and Congress 

specifically defined these gross costs as 

‘‘not including administrative costs.’’

(See sections 1860D–15(b)(2) and 

1860D–15(b)(3) of the Act.) Similarly, 

Congress defined ‘‘allowable risk 

corridor costs’’ as ‘‘not including 

administrative costs.’’ (See section 

1860D–15(e)(1)(B) of the Act.) In the 

January 28, 2005 final rule, we adopted 

these definitions. (70 FR 4547.) We 

interpret administrative costs to include 

any profit or loss incurred by an 

intermediary contracting organization 

(for example, a pharmacy benefit 

manager (PBM)) as a result of lock-in 

pricing. Therefore, this profit or loss 

must not be included in the reinsurance 

and risk corridor payments made by the 

government, as these payments exclude 

administrative fees. Thus, the Ingredient 

Cost, Dispensing Fee, Sales Tax, Gross 

Drug Cost below the Out of Pocket 

Threshold, and Gross Drug Cost above 

the Out of Pocket Threshold fields 

would need to reflect the final amount 

ultimately received by the pharmacy at 

the point of sale. 

b. Gross Covered Prescription Drug 

Costs (§ 423.308) 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘GROSS COVERED 

PRESCRIPTION DRUG COSTS’’ at the 

beginning of your comments.] 

Part D sponsors are required to report 

drug costs to CMS for the purposes of 

reconciliation and risk sharing. We are 

required by statute to calculate 

reinsurance payments using ‘‘allowable 

reinsurance costs,’’ a subset of ‘‘gross 

covered prescription drug costs,’’ which 

Congress specifically defined as ‘‘not 

including administrative costs.’’ (See 

sections 1860D–15(b)(2) and 1860D–

15(b)(3) of the Act). Risk sharing 

payments are calculated using 

‘‘allowable risk corridor costs,’’ which 

are also defined as ‘‘not including 

administrative costs.’’ (See section 

1860D–15(e)(1)(B)of the Act.) 

There have been several questions 

regarding the appropriate drug costs to 

report, particularly when a Part D 

sponsor has contracted with a PBM. The 

January 28, 2005 final rule defines 

‘‘gross covered prescription drug costs’’

as ‘‘those actually paid costs incurred 

under a Part D plan, excluding 

administrative costs * * * [equal to:] (1) 

All reimbursement paid by a Part D 

sponsor to a pharmacy (or other 

intermediary) * * * plus (2) All 

amounts paid under the Part D plan by 

or on behalf of an enrollee (such as the 

deductible, coinsurance, cost sharing, or 

amounts between the initial coverage 

limit and the out-of-pocket threshold) in 

order to obtain drugs covered under the 

Part D plan.’’ (70 FR 4547) 

The January 28, 2005 final rule 

definition of ‘‘gross covered prescription 

drug costs’’ specifically recognizes that 

reimbursement may be paid by a Part D 

sponsor ‘‘to a pharmacy (or other 

intermediary).’’ (70 FR 4547) Many 

interpreted the term ‘‘intermediary’’ to 

mean PBM (rather than agent). Using 

this definition, many plan sponsors 

reported the prices they negotiated with 

their PBMs, rather than the prices that 

were agreed upon as the amount to be 

received by the pharmacies. 

We propose rectifying these 

conflicting definitions to require the 

plan sponsor to include the profit or 

loss retained or incurred by a PBM as 

part of lock-in pricing to be part of the 

administrative costs of the plan sponsor. 


ycherry on PROD1PC64 with PROPOSALS2
29410 Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed Rules 

This would require the amount 

ultimately received by the pharmacy 

(minus any point-of-sale price 

concessions) to be used in calculating 

cost-sharing for plan years 2009 and 

beyond. Specifically, we propose 

amending the definition of ‘‘gross 

covered prescription drug costs’’ to 

eliminate the parenthetical ‘‘or other 

intermediary’’ to require that all plan 

sponsors report the amount ultimately 

received by the pharmacy, other 

dispensing provider, or agent (as 

opposed to the amount paid to an 

intermediary contracting organization 

that does not serve as an agent, such as 

a PBM). We propose that the amount 

ultimately received by the pharmacy or 

other dispensing provider (whether 

directly or indirectly) for the particular 

drug will be the basis for— (1) 

calculating beneficiary cost sharing; (2) 

accumulating gross covered drug costs; 

(3) reporting drug costs on the 

Prescription Drug Event (PDE) records, 

and (4) developing bids submitted to 

CMS. 

Similarly, we propose clarifying our 

definition of ‘‘allowable risk corridor 

costs’’ so that it is clear that these costs 

are only based upon the amounts 

received directly by the pharmacy or 

other dispensing provider. This is 

because we would consider any profit 

(or loss) earned by a PBM or other entity 

negotiating contracts with pharmacies to 

constitute an administrative cost, and 

therefore would be exempt from the 

definition of allowable risk corridor 

costs, as well as gross covered 

prescription drug costs. Thus, for 

example, if a Part D sponsor pays a PBM 

a certain amount for a particular drug, 

and then the PBM negotiates a different 

price with the pharmacy, any 

differential retained or lost by the PBM 

would be considered administrative, 

and could not be reported as part of 

drug costs. 

We propose revising the definitions of 

‘‘gross covered prescription drug costs’’

and ‘‘allowable risk corridor costs’’ to 

establish that the amount received by 

the dispensing pharmacy or other 

dispensing provider (whether directly or 

through an intermediary contracting 

organization) rather than just the 

amount paid by the Part D sponsor is 

the basis for drug cost that must be 

reported to CMS and used as the basis 

to calculate beneficiary cost sharing. 

Accordingly, we are revising § 423.308 

to incorporate these changes. 

We also propose amending the 

definition of ‘‘gross covered prescription 

drug costs’’ and ‘‘allowable risk corridor 

costs’’ to ensure that when entities other 

than pharmacies dispense Part D drugs 

and receive payment for Part D drugs, 

these expenditures are also reflected in 

gross drug costs and allowable 

reinsurance costs, as well as allowable 

risk corridor costs. For instance, 

reimbursement for a vaccine that must 

be administered in a physician’s office, 

payments made to other Part D plans 

due to reconciliation, and 

reimbursement made to a third party 

payer for COB error are all legitimate 

drug costs that have been incurred 

through the payments indicated. In 

some cases, a Part D plan, other than the 

plan in which the beneficiary is 

correctly enrolled, may pay for a 

prescription drug on the beneficiary’s 

behalf (because of an erroneous belief 

that the beneficiary was actually 

enrolled in its plan). In these cases, 

when the enrollment error is corrected, 

the beneficiary’s true plan generally will 

reconcile payments with the original 

payer. The drug costs paid by Part D 

plans (as well as by the beneficiary) 

under these reconciliation processes 

reflect drug costs incurred by the plan’s 

enrollees that a payer other than the 

correct Part D plan of record paid as 

primary. As drug costs paid for Part D 

covered drugs under Part D plans, these 

costs are included in the calculations of 

reinsurance costs and risk corridor 

costs. Therefore, we have amended the 

definition of ‘‘gross covered prescription 

drug costs’’ and ‘‘allowable risk corridor 

costs’’ in § 423.308 to include all these 

drug costs. 

We also propose amending the 

definition of ‘‘gross covered prescription 

drug costs’’ to ensure that when a 

beneficiary is paying 100 percent cost 

sharing (for example, in any applicable 

deductible or coverage gap) and the 

beneficiary obtains a covered Part D 

drug at a network pharmacy for a lower 

price than the plan’s negotiated price, 

the beneficiary’s out-of-pocket costs are 

counted toward both incurred costs 

(TrOOP) and total drug spending. This 

is consistent with guidance released via 

Q&A 7944 (issued May 9, 2006 http:// 

questions.cms.hhs.gov/cgi-bin/ 

cmshhs.cfg/php/enduser/ 

std_alp.php?p_sid=gIVVcxhi.) For 

example, if an enrollee in any 

applicable coverage gap or deductible 

phase of the Part D benefit is able to 

obtain a better cash price for a covered 

Part D drug at a network pharmacy than 

the plan offers via its negotiated price, 

and the enrollee takes advantage of the 

special cash price or discount being 

offered to all pharmacy customers or, 

alternatively, by using a discount card, 

the enrollee may purchase that covered 

Part D drug without using the Part D 

benefit or a supplemental card. If that 

purchase price is lower than the Part D 

plan’s negotiated price, it will count 

toward TrOOP and total drug spend 

balances, provided the Part D plan finds 

out about the purchase. This means that 

the enrollee must take responsibility for 

submitting the appropriate 

documentation to the enrollee’s Part D 

plan, consistent with plan-established 

processes and instructions for 

submitting that information, in order to 

have that amount aggregated to the 

beneficiary’s TrOOP and total drug 

spend balances. 

The applicability of beneficiary outof-pocket expenditures made outside 

the Part D benefit to TrOOP and total 

drug spend also extends to any nominal 

copayments assessed by patient 

assistance programs (PAPs) that provide 

assistance with covered Part D drug 

costs to Part D enrollees outside the Part 

D benefit. Consistent with guidance 

provided via Q&A 7942 (http:// 

questions.cms.hhs.gov/cgi-bin/ 

cmshhs.cfg/php/enduser/ 

std_alp.php?p_sid=gIVVcxhi), operating 

outside the Part D benefit does not 

preclude a PAP sponsor from requiring 

its enrollees (including those enrolled in 

a Part D plan) from paying a nominal 

copayment when they fill a prescription 

for a covered Part D drug for which they 

provide assistance. We note that any 

copayments assessed by PAPs operating 

outside the Part D benefit should be 

nominal, since only nominal beneficiary 

cost-sharing is consistent with the 

concept of operating outside Part D. 

Moreover, given that copayments are 

typically assessed for purposes of 

minimizing drug overutilization, the 

assessment of anything but nominal 

cost-sharing by PAPs is seemingly 

inconsistent with the mission of a 

charitable organization structured to 

provide assistance with prescription 

drug costs to low-income patients. 

Although PAP payments made for 

covered Part D drugs outside the Part D 

benefit do not count toward enrollees’

TrOOP or total drug spend balances, 

nominal PAP copayment amounts paid 

by affected Part D enrollees can be 

aggregated to their TrOOP and total drug 

spend balances, provided the enrollees 

submit the appropriate documentation 

to their plan consistent with planestablished processes and instructions 

for submitting the information. The 

definition of ‘‘gross covered prescription 

drug costs’’ has been revised to include 

these drug costs and to reflect this subregulatory guidance. 

2. Payment Appeals (§ 423.350(b)) 

In the January 28, 2005 final rule, we 

made a technical error in § 423.350(b). 

(70 FR 4550) In this paragraph, we 

inadvertently used the phrase ‘‘notice of 


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the adverse determination’’ when we 

said that the request for reconsideration 

for a payment determination must be 

filed within 15 days from the date of the 

notice of the adverse determination. The 

term ‘‘notice of the adverse 

determination’’ is a term that was 

inadvertently copied here from a fee-forservice policy, and is not relevant here. 

We are revising the regulation text to 

instead cite to the notice of final 

payment for risk adjustment, 

reinsurance, low-income cost sharing 

subsidies, or risk-sharing payments 

under §§ 423.343(b), 423.343(c), 

423.343(d) or 423.336, respectively. 

E. Subpart I—Organization Compliance 

With State Law and Preemption by 

Federal Law—Waiver of Certain 

Requirements To Expand Choice 

(§ 423.410) 

In accordance with section 1860D–

12(c)(2)(B) of the Act, which describes 

the special waivers available for the 

2006 and 2007 plan years, we are 

revising section 423.410(d) of the 

January 28, 2005 final rule (70 FR 4551). 

We believe that the statute requires only 

a substantially complete (rather than a 

fully complete) application to have been 

submitted to the applicable state in 

order for an applicant to be granted the 

special waiver for 2006 and 2007. 

Therefore, we are correcting the 

regulatory language to require that an 

applicant submit a substantially 

completed application to the state, in 

order for the applicant to be eligible for 

the § 423.410(d) waiver. 

F. Subpart J—Coordination of Part D 

Plans With Other Prescription Drug 

Coverage 

1. Application of Part D Rules to Certain 

Part D Plans On and After January 1, 

2006 (§ 423.458). 

Application of Part D Rules to Certain 

Part D Plans On and After January 1, 

2006 (§ 423.458). 

We are revising the regulation text of 

§ 423.458(d)(2)(ii), because we 

inadvertently omitted a reference to 

section 1894 of the Act in describing the 

statutory authorization for the benefits 

offered by a Program for All Inclusive 

Care For the Elderly (PACE) 

organization (70 FR 4552). Under 

§ 423.458(d)(2)(ii), a PACE organization 

may request a waiver of a Part D 

requirement if the waiver would 

improve the coordination of benefits 

between Part D and the benefits offered 

by the PACE organization. As provided 

in section 1860D–21(f)(1) of the Act, 

Part D provisions will apply to PACE 

organizations electing to offer qualified 

prescription drug coverage in a manner 

that is similar to the manner in which 

those provisions apply to an MA–PD 

local plan. In addition, section 1860D–

21(f) provides that a PACE organization 

may be deemed to be an MA–PD local 

plan. Section 1860D–21(f) of the Act 

specifically refers to ‘‘a PACE program 

under section 1894.’’ As published in 

§ 423.458(d)(2)(ii), we reference only 

section 1934 of the Act when describing 

benefits provided by PACE 

organizations. In fact, PACE operates 

under both the Medicare and Medicaid 

statutes, and all descriptions of PACE 

benefits should refer to both sections 

1894 and 1934 of the Act. We are 

therefore revising § 423.458(d)(2)(ii) so 

that it refers to benefits offered by a 

PACE organization under both sections 

1894 and 1934 of the Act. 

2. Coordination of Benefits With Rural 

Health Clinics (§ 423.464) 

a. Coordination of Benefits With Rural 

Health Clinics 

In § 423.464(f)(1)(vii), we made a 

technical error by inadvertently 

referring to rural health clinics as rural 

health centers (70 FR 4553). In fact, our 

intent was to reference facilities 

described in section 1861(aa)(2) of the 

Act, and the correct terminology for 

those facilities is rural health clinics. 

Accordingly, we are correcting the 

reference to these entities in 

§ 423.464(f)(1)(vii) by removing the 

phrase rural health centers and adding 

in its place rural health clinics. 

b. Coordination of Benefits With Part D 

Plans and Other Payers 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘COORDINATION OF 

BENEFITS WITH PART D PLANS AND 

OTHER PAYERS’’ at the beginning of 

your comments.] 

We are codifying in § 423.464(f) 

guidance we have already issued to Part 

D sponsors addressing coordination of 

benefits requirements in cases that 

involve another Part D plan that is not 

the correct Part D plan of record or 

another payer that has incorrectly paid 

as primary for a covered Part D drug for 

an enrolled beneficiary. These revisions 

to § 423.464(f) reflect our historic policy 

that Part D plans must effectively 

coordinate benefits with other entities 

providing prescription drug coverage. 

In accordance with sections 1860D–

24(a)(1) and (b) of the Act, § 423.464(a) 

of the regulations extends the 

coordination of benefits requirements in 

section 1860D–23 of the Act applicable 

to Part D plans vis-a`-vis State 

Pharmaceutical Assistance Programs 

(SPAPs) to other entities providing 

prescription drug coverage. As provided 

in § 423.464(f)(1), these entities include 

Medicaid (including a plan operating 

under a waiver under section 1115 of 

the Act), group health plans, the Federal 

Employees Health Benefits Program 

(FEHBP), military coverage (including 

TRICARE), the Indian Health Service, 

Federally qualified health centers, rural 

health clinics, and other health benefit 

plans or programs that provide coverage 

or financial assistance for the purchase 

or provision of Part D drugs on behalf 

of Part D eligible individuals as CMS 

specifies. Consistent with section 

1860D–23(a)(2) of the Act, § 423.464(a) 

specifies that the elements to be 

coordinated with entities providing 

prescription drug coverage include 

enrollment file sharing, the processing 

of claims (including electronic 

processing), claims payment, claims 

reconciliation reports, application of 

incurred costs, and other administrative 

processes and requirements we specify. 

A number of issues associated with 

the implementation of Part D (including 

the presence of multiple payers, payer 

order, and retroactive eligibility) have 

created challenges for Part D plans in 

coordinating benefits with other entities 

providing prescription drug coverage. 

Since the publication of the January 28, 

2005 Medicare Prescription Drug benefit 

final rule, we have developed, in 

cooperation with industry stakeholders, 

additional processes and requirements 

to address these challenges to Part D 

plan coordination of benefits. 

Because of program start-up issues in 

2006, lags in the information available 

to pharmacies at the point-of-sale 

regarding which Part D plan to bill may 

have resulted in the pharmacies’ having 

access to outdated or incomplete 

information. Because pharmacies 

generally relied in good faith on this 

information, in some cases the wrong 

payer paid for a prescription. Given the 

volume of drug claims that pharmacies 

would need to re-adjudicate as a result 

of incorrect Part D enrollment 

information available at the point-ofsale, re-adjudication would have 

imposed a significant administrative 

and financial burden on pharmacies. 

Therefore, payer-to-payer reconciliation 

procedures were developed by CMS and 

a workgroup of industry representatives, 

including industry trade groups, Part D 

plans, and pharmacies to mitigate the 

administrative and financial burden 

involved with re-adjudication of claims. 

This payer-to-payer process was 

designed initially to be a temporary 

measure during Part D’s start-up phase. 

However, because many beneficiaries 

have the opportunity (through special 

election periods) to change their Part D 


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plan enrollment during the coverage 

year, there continues to be lag time 

associated with enrollment and 

information systems updates. Therefore, 

the Part D plan from which a beneficiary 

has transferred may make payment for 

covered prescription drug costs incurred 

after the effective date of the 

beneficiary’s enrollment in the new Part 

D plan of record. As a result, while CMS 

continues to explore the plan-to-plan 

reconciliation and reimbursement 

procedures, we are requiring that plans 

continue to use the special prescription 

drug event submission and 

reimbursement processes established in 

2006 as part of the plan-to-plan 

reconciliation process. In this proposed 

rule, we are merely codifying the 

already-existing procedures. (It is 

important to note that an essential 

element of the plan-to-plan 

reconciliation process as designed 

precludes plan use of claim denials or 

edits in the transition period. That is, 

the process’s design reflects the 

consensus of Part D plans that it is 

necessary to prevent disclosure of 

proprietary pricing information by 

masking the NDC coding.) 

In addition, unforeseeable future 

events may create further need for 

processes to reconcile payments when a 

payer other than the correct Part D plan 

of record pays as primary for a covered 

Part D drug for an enrolled beneficiary. 

These other reconciliation processes 

may be developed by CMS to 

accomplish payment reconciliation 

without involving pharmacy reversal 

and re-adjudication of claims or the 

public release of a payer’s proprietary 

information, such as negotiated rates. 

Therefore we are proposing to clarify 

§ 423.464(f)(1) to state that included 

among the entities providing other 

prescription drug coverage with which 

Part D plans must coordinate are other 

Part D plans. Although Part D plans are 

already obligated to coordinate with 

group health plans, as provided in 

§ 423.464(f)(1)(ii), we believe this 

revision formalizes our implicit 

recognition of other Part D plans as 

other entities providing prescription 

drug coverage with which a 

beneficiary’s correct Part D plan of 

record must coordinate. 

We also are clarifying § 423.464(f) to 

clearly specify additional elements of 

Part D plans’ coordination of benefits 

requirements in order to address the 

reconciliation issues detailed in the 

preceding discussion. Section 1860D–

23(a)(2)(F) of the Act gives the Secretary 

the discretion to identify other 

administrative processes that may be 

included in the required elements for 

coordination of benefits by Part D plans. 

Consistent with this authority, we 

propose revising § 423.464(f) to add a 

fifth paragraph that clarifies that Part D 

plans coordinate benefits with other 

Part D plans through the reconciliation 

process we have developed for 2006, 

which involves making payments to 

other Part D plans on the basis of the 

covered plan-paid and low-income costsharing subsidy amounts reported to 

them by CMS with respect to transferred 

enrollees. Payments made by the Part D 

plans as part of this reconciliation 

process would be made without regard 

to the plan’s formulary or drug 

utilization review edits. 

In addition, we propose modifying 

§ 423.464(f) by adding a sixth paragraph 

that would require Part D sponsors to 

coordinate benefits on a timely basis 

with other third parties and use CMSdeveloped reconciliation processes, 

when established, in situations in which 

a payer other than the correct Part D 

plan of record pays for covered Part D 

drug costs as a primary payer. This was 

the case in 2006 with respect to the 

State-to-Plan Reconciliation Project in 

which some States made drug payments 

for dual eligible beneficiaries and lowincome subsidy entitled beneficiaries 

enrolled in Part D and were 

subsequently reimbursed by CMS 

through a special demonstration 

authority. Processes similar to those 

employed in 2006 may need to be 

developed by CMS in lieu of requesting 

pharmacy claims reversals and readjudications or the public release of a 

payer’s proprietary information (such as 

negotiated prices). 

The proposed changes described in 

this portion of this proposed rule would 

not change current coordination benefits 

policy. Rather, they would codify 

existing operational processes and 

reflect our historic policy that Part D 

plans must effectively coordinate 

benefits with entities providing other 

prescription drug coverage. We seek 

comment on our proposals regarding the 

plan-to-plan coordination process and 

CMS-developed reconciliation process. 

G. Subpart K—Application Procedures 

and Contracts With Part D Plan 

Sponsors 

1. General Provisions (§ 423.504) 

a. Submission of Bids 

In § 423.504, we inadvertently made 

reference to § 423.265(a)(1) rather than 

§ 423.265 (70 FR 4555). Section 

423.265(a) gives only the most narrow 

and rudimentary of information 

concerning the bidding process; that is, 

that an applicant may submit a bid to 

become a Part D plan sponsor. In fact, 

our intent was to cite in its entirety the 

much broader list found under 

§ 423.265 (Submission of bids and 

related information) that provides 

comprehensive and essential 

information for a Part D Plan sponsor to 

successfully contract with CMS (70 FR 

4544). Accordingly, we are correcting 

the reference found under § 423.504(a) 

to cite all of § 423.265. 

2. Contract Provisions (§ 423.505) 

In § 423.505(h)(1), we are correcting 

the citation for the False Claims Act, 

from 32 U.S.C. 3729 et seq., to 31 U.S.C. 

3729 et seq (70 FR 4556). 

3. Failure To Comply With the 

Dissemination of Information 

Requirements Grounds for Contract 

Termination (§ 423.509(a)(9)) 

In § 423.509(a)(9), we indicate that 

CMS may terminate a plan’s contract if 

the plan substantially fails to comply 

with the Part D marketing requirements 

(70 FR 4559). This provision cites the 

marketing requirements at § 423.128, 

which is an incorrect citation. Section 

423.128 deals with the dissemination of 

Part D plan information, not with plans’

marketing requirements, per se. 

Therefore, we are revising the regulation 

text, consistent with our original intent, 

to reflect that a plan contract may be 

terminated if a plan sponsor 

substantially fails to comply with the 

marketing requirements in § 423.50 or 

the dissemination of Part D plan 

information requirements in § 423.128. 

H. Subpart M—Grievances, Coverage 

Determinations, and Appeals 

1. Definitions (§ 423.560) 

a. Appointed Representative 

We are revising the regulation text of 

§ 423.560 by making a technical change 

to the definition of ‘‘appointed 

representative.’’ (70 FR 4562) In the 

Medicare Prescription Drug Benefit final 

rule, we inadvertently omitted language 

indicating that an enrollee’s appointed 

representative may request a grievance 

on the enrollee’s behalf. Current policy 

as reflected in Chapter 18 of the 

Prescription Drug Plan Manual permits 

an enrollee’s appointed representative 

to request a grievance, obtain a coverage 

determination, or deal with any of the 

levels of the appeals process on the 

enrollee’s behalf. We are codifying this 

already existing policy by amending the 

regulation text. The definition for 

appointed representative will state: 

‘‘Appointed representative means an 

individual either appointed by an 

enrollee or authorized under State or 

other applicable law to act on behalf of 

the enrollee in filing a grievance, 

obtaining a coverage determination, or 


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in dealing with any of the levels of the 

appeals process. Unless otherwise stated 

in this subpart, the appointed 

representative has all of the rights and 

responsibilities of an enrollee in filing a 

grievance, obtaining a coverage 

determination, or in dealing with any of 

the levels of the appeals process, subject 

to the rules described in part 422, 

subpart M of this chapter.’’

b. Projected Value 

In addition, we are making a technical 

change to the definition of ‘‘projected 

value’’ in § 423.560 because it is not 

consistent with the definition of 

projected value provided on page 4360 

of the preamble and in the regulation 

text at § 423.610(b). (70 FR 4568) The 

definition of ‘‘projected value’’ in 

§ 423.560 includes ‘‘future charges that 

will be incurred within 12 months from 

the date the request for coverage 

determination or exception is received 

by the plan’’ as part of the projected 

value formula. However, the projected 

value formulas on page 4360 of the 

preamble to the final rule and 

§ 423.610(b) of the regulations include 

‘‘any costs the enrollee could incur 

based on the number of refills 

prescribed for the drug(s) in dispute 

during the plan year.’’ Our policy 

regarding how to calculate projected 

value is consistent with the definition of 

projected value provided on page 4360 

of the preamble to the final rule and in 

the regulation text at § 423.610(b). 

Therefore, we are revising the definition 

of projected value in § 423.560 to state: 

‘‘Projected value of a Part D drug or 

drugs includes any costs the enrollee 

could incur based on the number of 

refills prescribed for the drug(s) in 

dispute during the plan year. Projected 

value includes enrollee co-payments, all 

expenditures incurred after an enrollee’s 

expenditures exceed the initial coverage 

limit, and expenditures paid by other 

entities.’’

2. Expediting Certain Coverage 

Determinations (§ 423.570) 

We are amending the regulation text 

of § 423.570(d)(3) because we 

inadvertently omitted language 

indicating who is entitled to receive 

written notice of a plan sponsor’s denial 

of a request to expedite a coverage 

determination. (70 FR 4564) Our policy 

requires a plan sponsor to send written 

notice to the enrollee when it denies a 

request to expedite a coverage 

determination. We believe the 

regulation text of § 423.570(d)(3) must 

be revised to accurately reflect our 

policy. Accordingly, we propose to 

codify in the regulation text of 

§ 423.570(d)(3) the requirement that 

when a Part D sponsor denies a request 

to expedite a coverage determination, it 

must ‘‘subsequently deliver to the 

enrollee, within 3 calendar days, 

equivalent written notice.’’

3. Expediting Certain Redeterminations 

(§ 423.584) 

We are revising the regulation text of 

§ 423.584(b) because we inadvertently 

omitted regulatory language regarding 

the procedures for filing and 

withdrawing a request for an expedited 

redetermination. (70 FR 4566) Sections 

423.582(b), (c), and (d) explain the 

process for filing and withdrawing a 

request for a standard redetermination. 

These procedures also apply to requests 

for expedited redeterminations. We are 

revising the regulation text of 

§ 423.584(b) to accurately reflect our 

policy that the provisions in 

§ 423.582(b), (c), and (d) would also 

apply to § 423.584(b). We are revising 

§ 423.584(b) by adding ‘‘(3) The 

provisions set forth in § 423.582(b), (c), 

and (d) also apply to expedited 

redeterminations.’’

4. Right to an ALJ Hearing (§ 423.610) 

We are revising the regulation text of 

§ 423.610(c)(2) due to typographical 

errors. (70 FR 4568) The three 

requirements listed under 

§ 423.610(c)(2) should have been 

numbered with (i), (ii), and (iii). We are 

revising § 423.610(c)(2) to reflect 

appropriate numeration. It will now 

read as follows: ‘‘Multiple enrollees. 

Two or more appeals may be aggregated 

by multiple enrollees to meet the 

amount in controversy for an ALJ 

hearing if—(1) the appeals have 

previously been reconsidered by an IRE; 

(2) the request for ALJ hearing lists all 

of the appeals to be aggregated and each 

aggregated appeal meets the filing 

requirement specified in § 423.612(b); 

and (3) the ALJ determines that the 

appeals the enrollees seek to aggregate 

involve the same prescription drug.’’

I. Subpart P—Premiums and CostSharing Subsidies for Low-Income 

Individuals 

1. Premium Subsidy Amount (§ 423.780) 

a. Low-Income Benchmark Premium 

Amount 

Section 1860D–14 of the Act requires 

CMS to subsidize the monthly 

beneficiary premium and cost-sharing 

amounts incurred under Part D by Part 

D eligible individuals with income and 

resources below certain thresholds. Our 

rules mirror the statute’s structure, 

which divides low-income subsidy 

eligible individuals into two different 

groups, based on income and resources: 

(1) Full subsidy eligible individuals; 

and (2) other low-income subsidy 

eligible individuals. The different 

groups are entitled to different amounts 

of premium assistance and reductions in 

cost sharing. 

Since the Part D benefit has become 

operational, we have become aware that 

certain sections of part 423 subpart P 

need to be corrected to accurately reflect 

the statutory language. Specifically, 

there is an error in § 423.780(b). (70 FR 

4574) As written, this section states that 

the premium subsidy amount is based 

upon the lesser of the plan’s premium 

or the low-income benchmark premium 

amount. The low-income benchmark 

premium amount, as defined in the 

statute at section 1860D–14 of the Act, 

specifically describes how to calculate 

the low-income subsidy for regions with 

only one PDP sponsor. At section 

1860D–14(b)(2)(A)(i) of the Act, the 

statute indicates that ‘‘* * * the term 

* * * ‘low-income benchmark premium 

amount’ means, with respect to a PDP 

region in which all prescription drug 

plans are offered by the same PDP 

sponsor, the weighted average of the 

amounts described in subparagraph 

(B)(i) for such plans.’’ However, while 

the final regulation described the lowincome benchmark premium amount 

calculation for regions with multiple 

drug plan sponsors, it did not describe 

the methodology for determining the 

low-income benchmark premium 

amount in a region with any number of 

MA–PD plans, but with only one PDP 

sponsor (although the preamble to the 

final rule did). We are correcting this 

error to comport with the statute and 

our intent as outlined in the preamble 

by adding a new subparagraph (A) to 

§ 423.780(b)(2)(i). The new text will 

make clear that when there is only one 

PDP sponsor in the region, the low 

income benchmark weighted average 

includes only the premiums of basic 

PDPs in the area. The weighted average 

does not count the premium amounts of 

PDP plans offering supplemental 

coverage or MA–PD plans. This is in 

contrast to the weighted average 

calculated when there are multiple PDP 

sponsors. In that situation, the 

benchmark calculation includes not just 

the premiums of basic PDPs; it also 

includes the portion of a premium 

attributable to basic coverage, when a 

PDP offers both basic and supplemental 

coverage. In addition, for multiple-PDP 

regions, the benchmark would also 

include the amount charged for Part D 

coverage by MA–PD plans. We note that 

in 2006, all PDP regions included 

multiple PDP sponsors. 

We also are revising 

§ 423.780(b)(2)(ii). We want to make 


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clear that in multiple-PDP sponsor 

regions, the MA–PDs included in the 

weighted average are coordinated care 

plans. 

b. Premiums Subsidy for Late 

Enrollment Penalty 

We need to correct an omission 

related to the subsidy of the late 

enrollment penalty for other lowincome subsidy individuals in the 

regulation text at § 423.780(e). In this 

paragraph, we inadvertently omitted a 

provision from the statute at section 

1860D–14(a)(2)(A) of the Act, which 

requires a late enrollment penalty 

subsidy for other low-income subsidy 

eligible individuals. This subsidy is 

based on a linear sliding scale, with a 

higher subsidy available to individuals 

with incomes at or below 135 percent of 

the FPL (but who do not meet the asset 

requirements of a full subsidy eligible 

individual), and the lowest level 

subsidy available to individuals with 

incomes below 150 percent of the FPL. 

Specifically, section 1860D–14(a)(2)(A) 

of the Act reads, ‘‘(2) OTHER 

INDIVIDUALS WITH INCOME BELOW 

150 PERCENT OF POVERTY LINE.—In 

the case of a subsidy eligible individual 

who is not described in paragraph (1), 

the individual is entitled under this 

section to the following: (A) SLIDING 

SCALE PREMIUM SUBSIDY.—An 

income-related premium subsidy 

determined on a linear sliding scale 

ranging from 100 percent of the amount 

described in paragraph (1)(A) for 

individuals with incomes at or below 

135 percent of such level to 0 percent 

of such amount for individuals with 

incomes at 150 percent of such level.’’

(emphasis added). The ‘‘amount 

described in paragraph (1)(A)’’

encompasses the subsidy for the late 

enrollment penalty. 

The current regulation does not 

include this sliding scale calculation. 

The regulation only cites the subsidy for 

the late enrollment penalty as 

something which is available only to 

full subsidy eligible individuals. 

Accordingly, we are proposing to revise 

§ 423.780(e) to accurately reflect the 

statute. The sliding scale for the late 

enrollment penalty subsidy will be 

calculated based on the linear sliding 

scale for the premium subsidy, which is 

described in paragraph (d) of the 

regulation. Beneficiaries with incomes 

on the sliding scale will receive a late 

enrollment penalty subsidy that will be 

equal to a percentage of the late 

enrollment penalty subsidy for full 

subsidy individuals, based on the same 

5 percent increment scale that applies 

for the premium subsidy in paragraph 

(d) (that is, 135, 140, 145 and 150 

percent of FPL). 

For the first 60 months the penalty is 

imposed, full subsidy individuals 

receive a late enrollment penalty 

subsidy equal to only 80 percent of the 

penalty amount. Therefore, the sliding 

scale premium subsidy percentages for 

each income level in paragraph (d) must 

be multiplied by 80 percent to arrive at 

the percentage of the late enrollment 

penalty that is subsidized for each 

income level for the first 60 months. For 

example, for individuals with incomes 

greater than 135 percent, but at or below 

140 percent of the FPL applicable to the 

family size, the late enrollment penalty 

subsidy will be equal to 60 percent of 

the late enrollment penalty for the first 

60 months during which the penalty is 

imposed. Sixty percent is equal to 75 

percent (the percentage of the premium 

subsidized for individuals with incomes 

greater than 135 percent, but at or below 

140 percent of the FPL applicable to the 

family size in accordance with 

paragraph (d)(2)) multiplied by 80 

percent (which, as stated, will be the 

amount of the late enrollment penalty 

that will be subsidized for full subsidy 

eligible individuals for the first 60 

months during which the penalty is 

imposed on them, as described in 

paragraph (e)). 

After the first 60 months the penalty 

is imposed, the sliding scale premium 

subsidy percentages for each income 

level in paragraph (d) will be multiplied 

by 100 percent, as 100 percent of the 

late enrollment penalty will be 

subsidized for full subsidy eligible 

individuals after the first 60 months. As 

stated, the resulting percentages will be 

the percent of the late enrollment 

penalty that will be subsidized and can 

therefore be multiplied by the 

individual’s late enrollment penalty to 

give the subsidy. The below table 

illustrates the penalty subsidy available 

to other low income subsidy 

individuals. 

Income level 

Percent of penalty 

subsidized during 

the first 60 months 

individual is 

subject to penalty 

Percent of penalty 

subsidized after 

the first 60 months 

individual is 

subject to penalty 

≤135% FPL .................................................................................................................................................. 80 100 

>135% and ≤140% FPL .............................................................................................................................. 60 75 

>140% and ≤145% FPL .............................................................................................................................. 40 50 

>145% and <150% FPL .............................................................................................................................. 20 25 

≥150% FPL .................................................................................................................................................. 0 0 

J. Subpart R—Payments to Sponsors of 

Retiree Prescription Drug Plans 

1. Requirements for Qualified Retiree 

Prescription Drug Plans (§ 423.884) 

a. Application Timing 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘APPLICATION TIMING’’ at the 

beginning of your comments.] 

The enactment of Title I of the MMA 

provides sponsors of retiree prescription 

drug plans with multiple options for 

providing drug coverage to their retirees 

who are Medicare beneficiaries. One of 

these is section 1860D–22(a) of the Act, 

which permits the sponsor of a qualified 

retiree prescription drug plan to receive 

a subsidy with respect to certain 

allowable prescription drug costs 

incurred by qualifying covered retirees, 

who must be eligible for, but not 

enrolled in, Part D. This is referred to in 

the regulations as the Retiree Drug 

Subsidy (RDS). 

In implementing the statute, the 

regulations at § 423.884(c) outline the 

application requirements for the Retiree 

Drug Subsidy. (70 FR 4577) Section 

423.884(c)(5)(i) requires a plan sponsor 

to file an application for the subsidy by 

no later than 90 days before the 

beginning of its plan year, unless an 

extension is requested and granted (for 

example, the deadline for 2007 calendar 

year plans under the regulation would 

be October 2, 2006). Upon further 

review of this requirement, we believe 

that an end-of-month deadline would be 

administratively simpler for both plan 

sponsors and CMS to track. For 

example, for the 2006 calendar year, the 

initial deadline for the RDS 

applications, as established in the 

regulation, was September 30, 2005, 

which is actually 92 days before the 


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start of the plan year. In order to 

establish an appropriate application 

date for each contract year, we can 

announce the date in published 

guidance in advance to allow 

stakeholders sufficient time to do the 

necessary preparation and filing. 

Accordingly, we are proposing to 

replace the 90 day requirement with the 

phrase ‘‘by a date specified by CMS in 

published guidance’’ in this provision of 

the final rule to allow us the discretion 

to specify an end-of-month deadline in 

the future through guidance. This will 

also give CMS the flexibility to take into 

account operational systems changes in 

determining the Retiree Drug Subsidy 

application deadline, while providing 

adequate advance notice to plan 

sponsors and their advisers. 

b. Data Match 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘DATA MATCH’’ at the 

beginning of your comments.] 

In order to properly administer the 

Retiree Drug Subsidy program, we must 

compare the retiree data that a plan 

sponsor submits to CMS records to 

ensure that sponsors are not claiming 

the subsidy for individuals that are 

enrolled in a Part D plan and are 

therefore not qualifying covered retirees. 

In § 423.884(c)(7)(i), we specifically 

referenced the Medicare Beneficiary 

Database (MBD) as the system of record 

for the data match. (70 FR 4578) While 

the MBD is currently the system by 

which the retirees’ status is verified, we 

also may use other systems of record for 

purposes of the data match. 

Accordingly, we propose to modify our 

language to be more suitable by 

substituting a general reference to ‘‘CMS 

database(s)’’ for the ‘‘Medicare 

Beneficiary Database (MBD)’’ in the 

regulation text at § 423.884(c)(7)(i). 

c. Actuarial Equivalence (§ 423.884) 

(1) Medicare Supplemental Adjustment 

Section 1860D–22(a)(2)(A) of the Act 

requires that a plan sponsor provide an 

attestation that its plan is actuarially 

equivalent to Medicare standard 

prescription drug coverage in order to 

claim RDS. Section 423.884(d)(5) sets 

forth a two-prong test for determining 

the actuarial value of the defined 

standard prescription drug coverage 

under Part D against which the actuarial 

value of the retiree coverage is 

measured. (70 FR 4578) The actuarial 

equivalence test includes a ‘‘gross test’’

and a ‘‘net test.’’ Section 

423.884(d)(5)(iii)(B)(2) states that the net 

test includes a ‘‘Medicare supplemental 

adjustment’’ which allows a plan 

sponsor that provides supplemental 

coverage for its retirees that elect Part D 

coverage to reflect the impact of the 

supplemental coverage on the net value 

of Part D coverage. Supplemental 

coverage for this purpose means drug 

coverage over and above Part D coverage 

for those retirees that enroll in Part D 

coverage. Our intent, which we clarified 

in operational guidance to plan 

sponsors, was that a sponsor must 

actually provide supplemental 

employer-provided retiree drug 

coverage in order to qualify for the 

Medicare supplemental adjustment. 

(See CMS Guidance on the Actuarial 

Equivalence Standard for the Retiree 

Drug Subsidy (April 7, 2005) available 

at http://www.cms.hhs.gov/ 

employerretireedrugsubsid.) In 

accordance with our existing guidance, 

we are therefore revising 

§ 423.884(d)(5)(iii)(B)(2) to indicate that 

plan sponsors must actually provide 

supplemental drug coverage for their 

retirees that elect Part D in order to do 

the adjustment to the net value of Part 

D in the actuarial equivalence test. We 

view this revision as merely 

incorporating previously issued 

guidance, and not as a new policy 

proposal. 

(2) Non-Calendar Year Plans 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘NON-CALENDAR YEAR 

PLANS’’ at the beginning of your 

comments.] 

Sec. 1860D–22(a)(2)(A) of the Act 

requires a plan sponsor to provide an 

attestation that its plan is actuarially 

equivalent to the Medicare defined 

standard prescription drug coverage in 

order to claim RDS. As explained above, 

our regulation at § 423.884(d)(5) sets 

forth a two-prong test for actuarial 

equivalence. The actuarial equivalence 

test requires that the value of the plan 

sponsor’s retiree drug coverage be 

compared to the hypothetical value of 

the Medicare defined standard 

prescription drug coverage had the 

sponsor’s Part D eligible individuals 

taken that coverage. 

Sections 423.884(d)(5)(iii)(C) and (D) 

state that the valuation of the Medicare 

defined standard prescription drug 

coverage for this purpose is based on the 

initial coverage limit, cost sharing 

amounts, and out-of-pocket threshold in 

effect at the start of the plan year. 

However, the attestation must be 

submitted to CMS no later than 60 days 

after the publication of the Part D 

coverage limits for the upcoming 

calendar year; otherwise, the valuation 

must be based on the initial coverage 

limit, cost sharing amounts, and out-ofpocket threshold for the upcoming plan 

year. The intent of this 60 day provision 

is to prevent actuaries from having to 

redo calculations for non-calendar year 

plans that were based on the current 

calendar year initial coverage limit, cost 

sharing amounts, and out-of-pocket 

threshold when, after doing their 

calculations, but before the RDS 

application is submitted, we publish the 

Part D coverage limits for the upcoming 

calendar year. 

Actuaries of plan sponsors have 

indicated to us that they believe they 

should have the flexibility for noncalendar year plans to use the Part D 

initial coverage limit, cost-sharing 

amounts, and out-of pocket-threshold 

for the upcoming plan year, provided it 

does not impact their ability to meet the 

application deadline. We agree that 

actuaries should have this flexibility, 

and so we are proposing to amend the 

§ 423.884(d)(5)(iii)(C) to permit a noncalendar year plan’s actuary to use 

either the current or subsequent year’s 

Part D cost limits when the attestation 

is submitted within 60 days of the 

publication of the following year’s cost 

limits. We also propose to make 

corresponding changes to 

§ 423.884(d)(5)(iii)(C). 

(3) Benefit Options 

Employment-based retiree health 

coverage often has different plan design 

features or benefit options that apply to 

specific groups of retirees. Section 

423.882 defines a benefit option as a 

particular benefit design, category of 

benefits, or cost sharing arrangement 

offered within a group health plan. 

Section 423.884(d)(5)(iv) states that a 

plan with more than one benefit option 

must pass the gross test separately on a 

disaggregated basis for each option, but 

that it may pass the net test on an 

aggregated or disaggregated basis. As we 

have indicated in subsequent guidance, 

our intent was that a plan sponsor 

should also have the option of 

aggregating a subset of the benefit 

options in a plan for the actuarial 

equivalence net test in addition to 

aggregating all of the options or 

evaluating each option individually. 

(See CMS Guidance on the Actuarial 

Equivalence Standard for the Retiree 

Drug Subsidy (April 7, 2005); available 

at www.cms.hhs.gov/ 

employerretireedrugsubsid.) If the 

sponsor combines two or more benefit 

options, the sponsor may not claim the 

subsidy for those benefit options 

excluded from the net value calculation, 

even if those options meet the gross test. 

We are amending the final rule to reflect 

this clarification of our intent, which 

reflects policy that has been applied 


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consistently since the rule was 

published. 

(4) Submission of Actuarial Attestation 

Upon Material Change 

Section 1860D–22(a)(2)(A) of the Act 

requires that a plan sponsor submit an 

actuarial attestation annually or at 

another time as the Secretary may 

require. Section 423.884(d)(6)(ii) 

requires submission of an attestation no 

later than 90 days before the 

implementation of a material change to 

the coverage. While the term ‘‘material 

change’’ can be construed broadly to 

include any change to the value of a 

sponsor’s plan, we have issued guidance 

indicating that a resubmission is not 

necessary when a plan remains 

actuarially equivalent and no benefit 

options are being added. In this 

preamble we are also reiterating this 

interpretation: We would not require 

submission of an attestation under 

§ 423.884(d)(6)(ii) where a plan sponsor 

still meets the actuarial equivalence test 

after the change, and there are no 

benefit options being added. 

K. Subpart S—Special Rules for States—

Eligibility 

1. General Payment Provisions—

Coordination With Medicare 

Prescription Drug Benefits (§ 423.906) 

Section 1935(d) of the Act contains 

specific provisions regarding Medicaid 

coordination with Medicare 

prescription drug benefits. In the case of 

a full benefit dual eligible individual, 

Federal Financial Participation in State 

Medicaid expenditures is not available 

for Medicaid covered drugs that could 

be covered under Part D or for cost 

sharing related to these drugs. We are 

correcting § 423.906(b) and (c) to make 

clear that, in accordance with the 

statutory requirement in section 

1935(d)(2) of the Act, only drugs 

specifically excluded from the 

definition of Part D drugs may be 

covered by medical assistance. 

Currently, §§ 423.906(b) and (c) 

includes the word ‘‘covered.’’ (70 FR 

4583) Since our regulatory definition of 

‘‘Covered Part D drugs’’ excludes drugs 

that are not on a plan’s formulary, States 

may have interpreted the regulation to 

allow States to provide additional 

medical assistance for coverage of drugs 

not on a Part D plan’s formulary. The 

effect of these changes is to make clear 

that Federal financial participation is 

not available to States for coverage of 

drugs that would be Part D covered 

drugs except that they are not on a 

plan’s formulary. We are also adding a 

definition of ‘‘non-covered drugs’’ to the 

§ 423.902. 

2. States’ Contribution to Drug Benefit 

Costs Assumed by Medicare (§ 423.910) 

Section 1935(b) of the Act, as 

amended by the MMA, requires States 

and the District of Columbia to be 

responsible for making monthly 

payments to the Federal government 

beginning in January 2006 to defray a 

portion of the Medicare drug 

expenditures for full benefit dual 

eligible individuals. The statute further 

defines full benefit dual eligible 

individuals to mean ‘‘for a State for a 

month an individual who has coverage 

for the month for covered part D drugs 

under a prescription drug plan under 

part D of title XVIII, or under an MA–

PD plan under part C of such title. 

***’’. In the January 28, 2005 final 

rule, we explained the calculation of the 

monthly State phased-down 

contributions. The calculation of the 

monthly state contribution is dependent 

upon the state’s reporting of the total 

number of full-benefit dual eligible 

individuals for the State in the 

applicable month. States are required, in 

accordance with the § 423.910(d), to 

submit an electronic file, in a manner 

specified by CMS, identifying each full 

benefit dual eligible individual enrolled 

in the State Medicaid program for each 

month. For States that do not submit an 

acceptable file by the end of the month, 

the phased down State contribution for 

that month is based on data deemed 

appropriate by CMS. 

In § 423.910(b)(1) of the Medicare 

Prescription Drug Benefit final rule, we 

made a typographical error. (70 FR 

4584) Section 423.910(b)(1) specified 

that ‘‘[f]or States that do not meet the 

quarterly reporting requirement for the 

monthly enrollment reporting, * * *’’. 

The text should have read ‘‘For States 

that do not meet the monthly reporting 

requirement for the monthly enrollment 

reporting, * * *’’, since there is no 

State quarterly reporting requirement 

referred to in either the statute or 

regulation when calculating the phaseddown State contribution. Accordingly, 

we are revising the text consistent with 

the statute. 

III. Collection of Information 

Requirements 

This document does not impose 

additional information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995. 

IV. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), and Executive Order 13132. 

With exception of the statutory change 

addressing the payment of vaccine 

administration under Part D beginning 

in 2008 for covered Part D vaccines, the 

impact of the policy supporting the 

clarifications in this proposed rule were 

addressed as part of a prior final rule 

and do not require further analysis. 

Specifically, a full regulatory impact 

analysis was performed for the January 

28, 2005 final rule (70 FR 4454) 

implementing the Part D provisions of 

the MMA. As we explain below, many 

of the provisions in this proposed rule 

are simply clarifications of that final 

rule. 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

Because of the addition of vaccine 

administration under Part D beginning 

in FY 2008, this rule meets the 

threshold to be economically 

significant; and is consequently a major 

rule. The RFA requires agencies to 

analyze options for regulatory relief of 

small businesses. For purposes of the 

RFA, small entities include small 

businesses, nonprofit organizations, and 

small governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $6 million or less to $29 million in 

any 1 year. Individuals and States are 

not included in the definition of a small 

entity. 

As stated previously the addition of 

vaccine administration under Part D is 

estimated to have a net impact to the 

fiscal year (FY) 2008 budget in the 

amount of $100 million. Since the 

relevant monetary threshold has been 

exceeded, the RFA requires us to 

conduct a regulatory flexibility analysis 


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in regard to the implementation of 

vaccine administration under Part D. 

Given the nature of immunization in the 

U.S. market and its relation to the Part 

D benefit, we believe only two small 

business areas merit discussion, retail 

pharmacy and physicians in private 

practice. 

The Small Business Administration 

(SBA) considers pharmacies with firm 

revenues of less than $6 million to be 

small businesses. The 2002 Business 

Census (the latest available detailed 

data) indicates that there were about 

19,488 firms operating about 40,152 

retail pharmacies and drug store 

establishments (NAICS code 44611). Of 

these firms, 17,332 had revenues under 

$5 million and operated a total of 19,488 

establishments. Because more than 89 

percent of retail pharmacy firms are 

small businesses (as defined by the SBA 

size standards), we expect that the 

inclusion of vaccine administration 

within the statutory definition of a 

covered Part D drug will have some 

effect on a substantial number of small 

retail pharmacies. However, we estimate 

that overall the revenue effect on the 

retail pharmacy industry, including 

small pharmacies, will be positive. In 

those states that permit pharmacists to 

administer vaccinations (currently 44 of 

50 states), we anticipate Medicare 

beneficiaries will consider receiving 

immunization of Part D vaccines in a 

pharmacy setting, given the real-time 

nature of the Part D benefit and the 

pharmacy’s ability to bill the Part D 

Sponsor without the beneficiary having 

to pay upfront for the vaccine and its 

administration, as he or she might in the 

physician’s office. Over the past few 

years the number of beneficiaries 

seeking to obtain immunizations from 

pharmacies has continued to increase. 

We expect this trend to continue, when, 

beginning in 2008, in-network 

pharmacies will be able to seek 

compensation for the administration of 

Part D vaccines under the Part D 

program. While there may be some 

additional cost for pharmacist time in 

administrating vaccines, these should be 

more than offset by the reimbursement 

of administration fees. Finally, a 

pharmacy could negotiate not to 

administer vaccine administration 

services and continue to participate in 

the Part D program, if it believed that 

the costs of providing vaccinations 

outweighed any potential benefits. 

Almost all physicians in private 

practice (or the practices of which they 

are members) are small businesses, and, 

therefore, small entities because their 

annual revenues do not meet the Small 

Business Administration’s threshold for 

‘‘small’’ physician practices. We expect, 

since a substantial number of 

vaccinations continue in the physician 

office setting, that physicians will 

benefit from the inclusion of vaccine 

administration in the statutory 

definition of a covered Part D drug 

because the administering physician 

will have a new source of 

reimbursement of Part D vaccine 

administration fees. We do not expect 

there will be any additional costs to the 

physicians practice. 

With the respect to the other changes 

in the proposed rule, the definitions of 

negotiated prices, gross covered drug 

costs, and allowable risk corridor costs 

will not have a significant impact on 

small businesses, such as small 

pharmacies. Instead, they will primarily 

impact which drug costs are reported to 

CMS and how plans calculate 

beneficiary cost sharing. Moreover, they 

will require minimal if any changes in 

health plan, PBM and pharmacy 

operational systems. Even with these 

proposed changes in beneficiary cost 

sharing, health plans will still be 

required to ensure that pharmacies 

receive their contracted rate. If there 

were any additional costs due to the 

change in beneficiary costs, health plans 

would account for them in their bids. 

The other technical corrections and 

substantive clarifications are not 

expected to affect small businesses in a 

significant manner, if at all. For 

example, although the substantive 

clarification relating to the delivery of 

home infusion medications may slightly 

increase the cost of delivering these 

medications for some plan sponsors 

because it may cost more for plan 

sponsors that do not currently have 

timeframe delivery provisions in their 

contracts with home infusion 

pharmacies, any increase will be 

accounted for in plan sponsors’ bids. 

However, this increase is expected to be 

minimal, and is not expected to affect 

all plan sponsors. As for home infusion 

pharmacies themselves, the requirement 

to meet performance timeframes should 

also have no cost impact. Our ongoing 

communications with the home 

infusion industry revealed that these 

timeframes were already an industry 

standard. Thus, incorporation of these 

new requirements does not place any 

new burdens on the pharmacy cost 

structure, as home infusion pharmacies 

have already been meeting these 

performance standards in advance of 

our rulemaking. 

Section 1102(b) of the Act requires us 

to prepare a regulatory impact analysis 

if a rule may have a significant impact 

on the operations of a substantial 

number of small rural hospitals. This 

analysis must conform to the standards 

of section 604 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. Because prescription drugs 

including Part D vaccines, are dispensed 

in hospitals to Medicare outpatients, 

this final rule could have an effect on 

small rural hospitals who decide to offer 

Part D vaccines. Since a number of rural 

hospitals offer vaccine administration 

on an outpatient basis, they too will 

benefit by being able to collect a Part D 

vaccine administration fee. Rural 

hospitals should already have the 

systems in place to handle, store and 

administer vaccines and consequently 

small rural hospitals should only benefit 

from the availability of this new 

administration fee and should not incur 

new costs as a result of this proposed 

rule. 

The additional clarification and 

proposed revisions related to the 

Medicare Part D drug benefit, which is 

the voluntary outpatient prescription 

drug benefit, not regulations relating to 

any drug benefit under Part A. Therefore 

these additional proposals do not affect 

small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

That threshold level is currently 

approximately $120 million. Many of 

the proposed changes are either 

corrections in the regulations to make 

the regulations comply with the statute, 

or the proposed changes are merely the 

formal proclamation of existing policies 

that are in line with the statute and do 

not cross the $120 million dollar 

threshold. For example, one 

clarification, which brings the 

regulation in line with the statute, that 

will prohibit States from covering Part 

D drugs for recipients of Medicaid may 

save States the money they would have 

otherwise spent on these drugs, if they 

had chosen to cover the drugs at issue. 

Because the statute only allows States to 

cover excluded drugs, as opposed to 

noncovered drugs, and we expect that 

most States complied with the statute, 

as opposed to the Part D regulation, we 

do not believe that this clarification will 

significantly affect States. Therefore we 

do not expect that it will affect State, 

local, or tribal governments. 

As stated previously, many of the 

proposed changes are either corrections 

in the regulations to make the 

regulations comply with the statute, or 

the proposed changes are merely the 


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29418 Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed Rules 

formal proclamation of existing policies 

that are in line with the statute. 

Although there may be added costs to 

plan sponsors with the broadening of 

the definition of Part D drug to include 

‘‘[s]upplies required to deliver insulin 

by inhalation[,]’’ plan sponsors are 

aware that new drugs and supplies 

become available on the market 

constantly and they account for these 

changes in their bids. Furthermore, only 

plan sponsors that choose to cover 

inhaled insulin will be affected. The 

expected costs to the private sector will 

be less than the $120 million threshold. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it issues 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. The proposed 

changes and technical clarifications will 

not have a substantial effect on State or 

local governments. For example, a 

clarification concerning timing of state 

reporting for the purposes of calculating 

State phase-down contributions is not 

expected to affect State governments, 

because monthly reporting is consistent 

with the statute. Although there is a 

provision in this proposal that relates to 

waivers of State plan licensure, there are 

no anticipated Federalism implications 

because the clarification to the 

applicable regulation makes the 

regulation comply with the existing 

statute. 

B. Anticipated Effects 

1. Effects on Health Plans, and 

Pharmacy Benefit Managers (PBM) 

Part D plans will incur costs in 

implementing the reimbursement of Part 

D vaccine administration fees, this is a 

new benefit passed by Congress in the 

Tax Relief and Health Care Act of 2006. 

However, since Congress defined the 

Part D vaccine administration fee as a 

Part D drug cost, the impact will be no 

different than any other new drug 

entering the market. Part D Plans will 

consider Part D vaccine administration 

as part of their overall benefit and 

resulting bid. We estimate a net cost for 

FY 2008 which considers the offset 

associated with beneficiary cost sharing 

and the direct Federal subsidy and 

risking sharing, to be $100 million. 

ACCOUNTING STATEMENT.—CLASSIFICATION OF ESTIMATED EXPENDITURES, FY 2008 

[In millions] 

Category Transfers 

Annualized Monetized Transfers ............................................................................................................. $100. 

From Whom To Whom? .......................................................................................................................... Federal Government To Part D Plans. 

Our other revisions to the regulation, 

such as the proposed plan-to-plan 

reconciliation, we believe, merely 

reflect already existing policy. 

Nevertheless, even if this requirement 

were a new standard, we believe that all 

parties involved in the reconciliation 

would benefit, because the 

reconciliation process will involve 

fewer tasks than if pharmacies were 

required to reverse and re-adjudicate 

claims. 

With respect to the proposed changes 

that will impact which drug costs are 

reported to CMS and how Part D plans 

calculate beneficiary cost sharing, we 

believe that the impact on pharmacies 

will be minimal, as the total 

compensation received by pharmacies 

should remain unaffected. The proposed 

changes may, however, require a small 

number of Part D sponsors to renegotiate 

their contracts with their PBMs to 

account for system changes to reflect the 

appropriate beneficiary cost sharing. We 

believe that most PBMs will be 

unaffected by the proposed changes in 

the drug costs reported and beneficiary 

cost sharing. Thus, the expected 

financial impact of these proposed 

changes on PBMs is minimal. 

We do not believe the inclusion of 

inhaled insulin supplies or the 

substantive clarification relating to the 

delivery of home infusion medications 

will place any additional costs onto Part 

D plans. We estimate the gross costs of 

inhaled insulin for FY 2008 will be $10 

million. The approval of inhaled insulin 

onto the U.S. market has been 

anticipated for years and should have 

been considered into the Part D 

Sponsor’s bid. As discussed earlier, the 

proposed home infusion delivery 

standard appears to be an existing 

standard that plans should be 

accustomed and consequently would 

not increase their costs in providing the 

benefit. 

C. Alternatives Considered 

We considered not proposing the 

regulation to address our policy 

clarifications and technical changes. 

However, we believed in order to ensure 

public awareness of our policies, as well 

as to avoid potential confusion 

regarding them, that we should codify 

our clarifications as well as make 

certain technical corrections to the 

January 28, 2005 final rule. In addition, 

we believe it is important to propose a 

few new clarifications for Part D plans 

as a result of our experience in 

implementing Part D. Finally, we 

believe it is important to acknowledge 

in this proposed rule changes made by 

the Congress to the statutory definition 

of a covered Part D drug. 

D. Conclusion 

Given that the cost of implementing 

vaccine administration under Part D is 

expected to exceed the $100 million 

threshold in FY 2008, we have 

performed an economic impact analysis 

on those entities potentially involved in 

providing Part D vaccine 

administration. Our analysis showed 

that entities such as physicians and 

pharmacies are situated to benefit from 

this change in 2008, whereas other 

entities such as Part D Sponsors will 

experience no or little difference in 

costs as a result of implementation. 

As for other technical corrections and 

substantive clarifications contained in 

this proposed rule, as stated earlier, a 

full analysis was performed for the final 

regulations implementing the Part D 

provisions of Medicare Prescription 

Drug Improvement and Modernization 

Act of 2003, and for the reasons cited, 

we believe these additional proposals 

either do not require further analysis or 

are in practice today and, as such, are 

not economically significant. 

V. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 


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List of Subjects 

42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Medicare, 

Penalties, Privacy, Reporting and 

recordkeeping. 

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 423—MEDICARE PROGRAM; 

MEDICARE PRESCRIPTION DRUG 

PROGRAM 

1. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

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

1395w–152, and 1395hh). 

Subpart B—Eligibility and Enrollment 

2. Section 423.50 is amended by 

revising paragraph (f)(1)(v) to read as 

follows: 

§ 423.50 Approval of marketing materials 

and enrollment forms. 

* * * * * 

(f) * * * 

(1) * * * 

(v) Use providers, provider groups, or 

pharmacies to distribute printed 

information comparing the benefits of 

different Part D plans unless providers, 

provider groups or pharmacies accept 

and display materials from all Part D 

plan sponsors with which the providers, 

provider groups or pharmacies contract. 

* * * * * 

3. Section § 423.56 is amended by 

revising paragraph (b)(6) to read as 

follows: 

§ 423.56 Procedures to determine and 

document creditable status of prescription 

drug coverage. 

* * * * * 

(b) * * * 

(6) Coverage under a Medicare 

supplemental policy (Medigap policy) 

as defined at 42 CFR 403.205. 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

4. Section 423.100 is amended by—

A. Revising the definition of 

‘‘contracted pharmacy network.’’

B. Revising the definition of 

‘‘negotiated prices.’’

C. Revising the definition of ‘‘part D 

drug.’’

The revisions read as follows: 

§ 423.100 Definitions. 

* * * * * 

Contracted pharmacy network means 

licensed pharmacies, including retail, 

mail-order, and institutional 

pharmacies, under contract with a Part 

D sponsor to provide covered Part D 

drugs at negotiated prices to Part D 

enrollees. 

* * * * * 

Negotiated prices means prices for 

covered Part D drugs 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) Are 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) Includes any dispensing fees. 

* * * * * 

Part D drug means—

(1) Unless excluded under paragraph 

(2) of this definition, any of the 

following if used for a medically 

accepted indication (as defined in 

section 1927(k)(6) of the Act): 

(i) A drug that may be dispensed only 

upon a prescription and that is 

described in sections 1927(k)(2)(A)(i) 

through (iii) of the Act. 

(ii) A biological product described in 

sections 1927(k)(2)(B)(i) through (iii) of 

the Act. 

(iii) Insulin described in section 

1927(k)(2)(C) of the Act. 

(iv) Medical supplies associated with 

the injection of insulin, including 

syringes, needles, alcohol swabs, and 

gauze. 

(v) A vaccine licensed under section 

351 of the Public Health Service Act. 

(vi) Supplies that are directly 

associated with delivering insulin into 

the body through inhalation, such as the 

inhalation chamber used to deliver the 

insulin. 

(2) Does not include—

(i) Drugs for which payment as so 

prescribed and dispensed or 

administered to an individual is 

available for that individual under Part 

A or Part B (even though a deductible 

may apply, or even though the 

individual is eligible for coverage under 

Part A or Part B but has declined to 

enroll in Part A or Part B); and 

(ii) Drugs or classes of drugs, or their 

medical uses, which may be excluded 

from coverage or otherwise restricted 

under Medicaid under sections 

1927(d)(2) or (d)(3) of the Act, except for 

smoking cessation agents. 

* * * * * 

5. Section 423.120 is amended by 

revising paragraphs (a)(2) and (a)(4) to 

read as follows: 

§ 423.120 Access to covered Part D drugs. 

(a) * * * 

(2) Applicability of some non-retail 

pharmacies to standards for convenient 

access. Part D plans may count I/T/U 

pharmacies and pharmacies operated by 

Federally Qualified Health Centers and 

Rural Health Clinics toward the 

standards for convenient access to 

network pharmacies in paragraph (a)(1) 

of this section. 

* * * * * 

(4) Access to home infusion 

pharmacies. A Part D plan’s contracted 

pharmacy network must provide 

adequate access to home infusion 

pharmacies consistent with CMS 

guidelines and instructions. A Part D 

plan must ensure that such network 

pharmacies, at a minimum—

(i) Are capable of delivering home 

infused drugs in a form that can be 

administered in a clinically appropriate 

fashion; 

(ii) Are capable of providing infusible 

Part D drugs for both short-term acute 

care and long-term chronic care 

therapies; 

(iii) Ensure that the professional 

services and ancillary supplies 

necessary for home infusion therapy are 

in place before dispensing Part D home 

infusion drugs; and 

(iv) Provide delivery of home infusion 

drugs within at least 24 hours of 

discharge from an acute setting. 

* * * * * 

Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums: Plan 

Approval 

6. Section 423.293 is amended by 

revising paragraph (a) to read as follows: 

§ 423.293 Collection of monthly 

beneficiary premium. 

(a) General rule. Part D sponsors must 

charge enrollees a consolidated monthly 

Part D premium equal to the sum of the 

Part D monthly premium for basic 

prescription drug coverage (if any) and 

the premium for supplemental coverage 

(if any and if the beneficiary has 

enrolled in such supplemental 

coverage). Part D sponsors must permit 

payment of monthly Part D premiums (if 

any) under the timing of payments 

established in 422.262(e) of this chapter. 

Part D sponsors must also permit each 

enrollee, at the enrollee’s option, to 

make payment of premiums (if any) 


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under this part to the sponsor using any 

of the methods listed in § 422.262(f) of 

this chapter. 

* * * * * 

Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage 

7. Section 423.308 is amended by—

A. Adding the definition of 

‘‘administrative costs.’’

B. Revising the definition of 

‘‘allowable risk corridor costs.’’

C. Revising the definition of ‘‘gross 

covered prescription drug costs.’’

The addition and revisions read as 

follows: 

§ 423.308 Definitions and terminology. 

* * * * * 

Administrative costs means costs 

incurred by a Part D sponsor in 

complying with the requirements of this 

Part for a coverage year and that are not 

drug costs incurred to purchase or 

reimburse the purchase of Part D drugs. 

Administrative costs include sponsor 

costs that exceed the amount paid by or 

on behalf of the Part D sponsor to a 

pharmacy or other entity that is the final 

dispenser of the drug for the provision 

of a covered Part D drug under the plan. 

When an intermediary acts on behalf of 

a Part D sponsor to negotiate prices with 

dispensing entities such as pharmacies, 

any profit retained by the intermediary 

contracting organization as a result of 

such negotiation (through discounts, 

manufacturer rebates, or other direct or 

indirect price concessions) is 

considered an administrative cost to the 

Part D sponsor and not a drug cost. 

* * * * * 

Allowable risk corridor costs means 

the subset of actually paid costs for Part 

D drugs (not including administrative 

costs, but including dispensing fees) 

that are attributable to basic prescription 

drug coverage only and that are incurred 

and actually paid by the Part D sponsor 

to—

(1) A dispensing pharmacy or other 

dispensing provider (whether directly or 

through an intermediary contracting 

organization) under the Part D plan; 

(2) The parties listed in § 423.464(f)(1) 

with whom the Part D sponsor must 

coordinate benefits, including other Part 

D plans, as the result of any 

reconciliation process developed by 

CMS under § 423.464; or 

(3) An enrollee (or third party paying 

on behalf of the enrollee) to indemnify 

the enrollee when the reimbursement is 

associated with obtaining drugs under 

the Part D plan. 

Costs must be based upon imposition of 

the maximum amount of copayments 

permitted under § 423.782. The costs for 

any Part D plan offering enhanced 

alternative coverage must be adjusted 

not only to exclude any costs 

attributable to benefits beyond basic 

prescription drug coverage, but also to 

exclude any prescription drug coverage 

costs determined to be attributable to 

increased utilization over standard 

prescription drug coverage as the result 

of the insurance effect of enhanced 

alternative coverage in accordance with 

CMS guidelines on actuarial valuation. 

* * * * * 

Gross covered prescription drug costs 

mean those actually paid costs incurred 

under a Part D plan to purchase or 

reimburse the purchase of Part D drugs, 

excluding administrative costs, but 

including dispensing fees, during the 

coverage year. They equal—

(1) The share of negotiated prices (as 

defined by § 423.100 of this chapter) 

actually paid by the Part D plan that is 

received as reimbursement by the 

pharmacy or other dispensing entity, 

reimbursement paid to indemnify an 

enrollee when the reimbursement is 

associated with an enrollee obtaining 

covered Part D drugs under the Part D 

plan, or payments made by the Part D 

sponsor to other parties listed in 

§ 423.464(f)(1) with whom the Part D 

sponsor must coordinate benefits, 

including other Part D plans, as the 

result of any reconciliation process 

developed by CMS under § 423.464 of 

this chapter; plus 

(2) All amounts paid under the Part D 

plan by or on behalf of an enrollee (such 

as the deductible, coinsurance, cost 

sharing, or amounts between the initial 

coverage limit and the out-of-pocket 

threshold) in order to obtain covered 

Part D drugs that are covered under the 

Part D plan. If an enrollee who is paying 

100 percent cost sharing (as a result of 

paying a deductible or because the 

enrollee is between the initial coverage 

limit and the out-of-pocket threshold) 

obtains a covered Part D drug at a lower 

cost than is available under the Part D 

plan, such cost-sharing will be 

considered an amount paid under the 

plan by or on behalf of an enrollee 

under the previous sentence of this 

definition, if the enrollee’s costs are 

incurred costs as defined under 

§ 423.100 of this chapter and 

documentation of the incurred costs has 

been submitted to the Part D plan 

consistent with plan processes and 

instructions for the submission of such 

information. These costs are determined 

regardless of whether the coverage 

under the plan exceeds basic 

prescription drug coverage. 

* * * * * 

8. In § 423.350 paragraph (b)(1) is 

revised to read as follows: 

§ 423.350 Payment appeals 

(b) * * * 

(1) Time for filing a request. The 

request for reconsideration must be filed 

within 15 days from the date of the final 

payment. For purposes of this 

paragraph, the date of final payment is: 

for risk adjustment, the date of the final 

reconciled payment under § 423.343(b); 

for reinsurance, the date of the final 

reconciled payment under § 423.343(c); 

for low-income cost sharing subsidies, 

the date of the final reconciled payment 

under § 423.343(d); or for risk-sharing 

payments, the date of the final payments 

under § 423.336. 

Subpart I—Organizational Compliance 

With State Law and Preemption by 

Federal Law 

9. Section 423.410 is amended by 

revising paragraph (d) to read as 

follows: 

§ 423.410 Waiver of certain requirements 

to expand choice. 

* * * * * 

(d) Special waiver for plan years 

beginning before January 1, 2008. For 

plan years beginning before January 1, 

2008, if the State has a prescription drug 

plan or PDP sponsor licensing process 

in effect, CMS grants a waiver upon a 

demonstration that an applicant to 

become a PDP sponsor has submitted a 

substantially completed application for 

licensure to the State. 

* * * * * 

Subpart J—Coordination of Part D 

Plans With Other Prescription Drug 

Coverage 

10. Section 423.458 is amended by 

revising paragraph (d)(2)(ii) to read as 

follows—

§ 423.458 Application of Part D rules to 

certain Part D plans on and after January 

1, 2006. 

* * * * * 

(d) * * * 

(2) * * * 

(ii) A waiver of a requirement under 

this part otherwise applicable to cost 

plans or PACE organizations, if such 

waiver improves coordination of 

benefits provided by the cost plan under 

section 1876 of the Act, or by the PACE 

organization under section 1894 and 

1934 of the Act, with the benefits under 

Part D. 

11. Section 423.464 is amended by—

(A) Revising paragraph (f)(1)(vii), and 

(f)(1)(viii). 

(B) Adding new paragraphs (f)(1)(ix) 

and (f)(5). 


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The revision and additions read as 

follows: 

§ 423.464 Coordination of benefits with 

other providers of prescription drug 

coverage. 

* * * * * 

(f) * * * 

(1) * * * 

(vii) Rural health clinics. Rural health 

clinics as defined under section 

1861(aa)(2) of the Act. 

(viii) Other Part D plans. 

(ix) Other prescription drug coverage. 

Other health benefit plans or programs 

that provide coverage or financial 

assistance for the purchase or provision 

of Part D drugs on behalf of Part D 

eligible individuals as CMS may 

specify. 

* * * * * 

(5) Plan-to-plan liability. In the 

process of coordinating benefits 

between Part D plans when a Part D 

plan from which a beneficiary has 

transferred has incorrectly made 

payment for covered prescription drug 

costs incurred after the effective date of 

the Part D enrollee’s enrollment in the 

new Part D plan of record, the new Part 

D plan of record must make the 

reconciling payments based on amounts 

reported to it by CMS without regard to 

the Part D plan’s own formulary or drug 

utilization review edits. 

(6) Use of other reconciliation 

processes. In the process of coordinating 

benefits between the correct Part D plan 

of record and another entity providing 

prescription drug coverage when that 

entity has incorrectly paid as primary 

payer for a covered Part D drug on 

behalf of a Part D enrollee, the correct 

Part D plan of record must achieve 

timely reconciliation through working 

directly with the other entity that 

incorrectly paid as primary payer, 

unless CMS has established 

reconciliation processes for payment 

reconciliation, rather than requesting 

pharmacy claims reversal and readjudication. 

Subpart K—Application Procedures 

and Contracts With Part D Sponsors 

12. Section 423.504 is amended by 

revising paragraph (a) to read as follows: 

§ 423.504 General provisions. 

(a) General rule. Subject to the 

provisions at § 423.265 concerning 

submission of bids, to enroll 

beneficiaries in any Part D drug plan it 

offers and be paid on behalf of Part D 

eligible individuals enrolled in those 

plans, a Part D plan sponsor must enter 

into a contract with CMS. The contract 

may cover more than one Part D plan. 

* * * * * 

13. Section 423.505 is amended by 

revising paragraph (h)(1) to read as 

follows: 

§ 423.505 Contract provisions. 

* * * * * 

(h) * * * 

(1) Federal laws and regulations 

designed to prevent fraud, waste, and 

abuse, including, but not limited to 

applicable provisions of Federal 

criminal law, the False Claims Act (31 

U.S.C. §§ 3729 et seq.), and the antikickback statute (section 1128B(b) of the 

Act). 

* * * * * 

14. Section 423.509 is amended by 

revising paragraph (a)(9) to read as 

follows: 

§ 423.509 Termination of contract by CMS. 

(a) * * * 

(9) Substantially fails to comply with 

the marketing requirements in § 423.50, 

or the information dissemination 

requirements of § 423.128. 

* * * * * 

Subpart M—Grievances, Coverage 

Determinations, and Appeals 

15. Section 423.560 is amended by 

A. Revising the definition for 

‘‘Appointed representative.’’

B. Revising the definition of 

‘‘Projected Value.’’

§ 423.560 Definitions. 

* * * * * 

Appointed representative means an 

individual either appointed by an 

enrollee or authorized under State or 

other applicable law to act on behalf of 

the enrollee in filing a grievance, 

obtaining a coverage determination, or 

in dealing with any of the levels of the 

appeals process. Unless otherwise stated 

in this subpart, the appointed 

representative has all of the rights and 

responsibilities of an enrollee in filing a 

grievance, obtaining a coverage 

determination, or in dealing with any of 

the levels of the appeals process, subject 

to the rules described in part 422, 

subpart M of this chapter. 

* * * * * 

Projected value of a Part D drug or 

drugs includes any costs the enrollee 

could incur based on the number of 

refills prescribed for the drug(s) in 

dispute during the plan year. Projected 

value includes enrollee co-payments, all 

expenditures incurred after an enrollee’s 

expenditures exceed the initial coverage 

limit, and expenditures paid by other 

entities. 

* * * * * 

16. Section 423.570 is amended by 

revising paragraph (d)(3) to read as 

follows: 

§ 423.570 Expediting certain coverage 

determinations. 

* * * * * 

(d) * * * 

(3) Subsequently deliver to the 

enrollee, within 3 calendar days, 

equivalent written notice. 

* * * * * 

17. Section § 423.584 is amended by 

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

as follows: 

§ 423.584 Expediting certain 

redeterminations. 

* * * * * 

(b) * * * 

(3) The provisions set forth in 

§ 423.582(b), (c), and (d) also apply to 

expedited redeterminations. 

* * * * * 

18. Section § 423.610 is amended by 

revising paragraph (c)(2) to read as 

follows: 

§ 423.610 Right to an ALJ hearing. 

* * * * * 

(c) * * * 

(2) Multiple enrollees. Two or more 

appeals may be aggregated by multiple 

enrollees to meet the amount in 

controversy for an ALJ hearing if—

(i) The appeals have previously been 

reconsidered by an IRE; 

(ii) The request for ALJ hearing lists 

all of the appeals to be aggregated and 

each aggregated appeal meets the filing 

requirement specified in § 423.612(b); 

and 

(iii) The ALJ determines that the 

appeals the enrollees seek to aggregate 

involve the same prescription drug. 

Subpart P—Premiums and Cost 

Sharing Subsidies for Low-Income 

Individuals 

19. Section 423.780 is amended by—

A. Revising paragraph 

(b)(1) introductory text, (b)(1)(i), 

(b)(1)(ii), and (b)(2)(i). 

B. Revising paragraph (e). 

The revisions read as follows: 

§ 423.780 Premium subsidy. 

* * * * * 

(b) * * * 

(1) The premium subsidy amount is 

equal to the lesser of—

(i) Under the Part D plan selected by 

the beneficiary, the portion of the 

monthly beneficiary premium 

attributable to basic coverage (for 

enrollees in PDPs) or the portion of the 

MA monthly prescription drug 

beneficiary premium attributable to 

basic prescription drug coverage (for 

enrollees in MA–PD plans) or 

(ii) The greater of the low-income 

benchmark premium amount 

(determined under paragraph (b)(2) of 


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this section) for the region in which the 

subsidy eligible individual resides or 

the lowest monthly beneficiary 

premium for a PDP that offers basic 

prescription drug coverage in the region. 

(2) * * * 

(i) The low-income benchmark 

premium amount for a PDP region 

equals either—

(A) The weighted average of the 

monthly beneficiary premiums for all 

basic prescription drug plans (if all 

PDPs in the region are offered by the 

same PDP sponsor), with the weight for 

each basic PDP equal to a percentage, 

the numerator being equal to the 

number of Part D eligible individuals 

enrolled in the plan in the reference 

month (as defined in § 422.258(c)(1) of 

this chapter) and the denominator equal 

to the total number of Part D eligible 

individuals enrolled in all basic PDPs in 

the PDP region in the reference month. 

(B) The weighted average of the 

premiums described in paragraph 

(b)(2)(ii) of this section (if the PDPs in 

the region are offered by more than one 

PDP sponsor). The average is weighted 

using a percentage for each PDP, as well 

as for each MA–PD that is described in 

§ 422.4(a)(1) of this chapter. Such 

percentage is calculated using a 

numerator equal to the number of Part 

D eligible individuals enrolled in each 

such plan in the reference month (as 

defined in § 422.258(c)(1) of this 

chapter) and the denominator equal to 

the total number of Part D eligible 

individuals enrolled in all such PDPs 

and MA–PD plans in the reference 

month. 

* * * * * 

(e) Premium subsidy for late 

enrollment penalty. (1) Amount of 

premium subsidy for late enrollment 

penalty. Full subsidy eligible 

individuals who are subject to late 

enrollment penalties under § 423.46 are 

entitled to an additional premium 

subsidy equal to 80 percent of the late 

enrollment penalty for the first 60 

months during which the penalty is 

imposed and 100 percent of their late 

enrollment penalty thereafter. 

(2) Other low-income subsidy eligible 

individuals— sliding scale premium 

subsidy for late enrollment penalty. 

Other low-income subsidy eligible 

individuals are entitled to a premium 

subsidy based on a linear sliding scale 

as follows: 

(i) For individuals with income at or 

below 135 percent of the FPL applicable 

to the family size, a premium subsidy 

equal to 80 percent of the late 

enrollment for the first 60 months 

during which the penalty is imposed 

and 100 percent of their late enrollment 

penalty thereafter. 

(ii) For individuals with income 

greater than 135 percent but at or below 

140 percent of the FPL applicable to the 

family size, a premium subsidy equal to 

60 percent of the late enrollment 

penalty for the first 60 months during 

which the penalty is imposed and 75 

percent of their late enrollment penalty 

thereafter. 

(iii) For individuals with income 

greater than 140 percent but at or below 

145 percent of the FPL applicable to the 

family size, a premium subsidy equal to 

40 percent of the late enrollment 

penalty for the first 60 months during 

which the penalty is imposed and 50 

percent of their late enrollment penalty 

thereafter. 

(iv) For individuals with income 

greater than 145 percent but below 150 

percent of the FPL applicable to the 

family size, a premium subsidy equal to 

20 percent of the late enrollment 

penalty for the first 60 months during 

which the penalty is imposed and 25 

percent of their late enrollment penalty 

thereafter. 

Subpart R—Payments to Sponsors of 

Retiree Prescription Drug Plans 

20. Section § 423.884 is amended by—

A. Revising paragraph (c)(5)(i). 

B. Revising paragraph (c)(7)(i). 

C. Revising paragraph (d)(5)(iii)(B)(2). 

D. Revising paragraphs (d)(5)(iii)(C) 

and (D). 

E. Revising the last sentence of 

paragraph (d)(5)(iv). 

The affected paragraphs are revised to 

read as follows: 

§ 423.884 Requirements for qualified 

retiree prescription drug plans. 

* * * * * 

(c) * * * 

(5) Timing. (i) General rule. An 

application for a given plan year must 

be submitted prior to the beginning of 

the plan year by a date specified by 

CMS in published guidance, unless a 

request for an extension has been filed 

and approved under procedures set 

forth in such guidance. 

* * * * * 

(7) * * * 

(i) Matches the names and identifying 

information for the individuals 

submitted as qualifying covered retirees 

with a CMS database(s) to determine 

which retirees are Part D eligible 

individuals who are not enrolled in a 

Part D plan. 

* * * * * 

(d) * * * 

(5) * * * 

(iii) * * * 

(B) * * * 

(2) An amount calculated to reflect 

the impact on the value of defined 

standard prescription drug coverage of 

supplemental coverage actually 

provided by the sponsor. Sponsors may 

use other actuarial approaches specified 

by CMS as an alternative to the actuarial 

valuation specified in this paragraph 

(d)(5)(iii)(B)(2). 

(C) The valuation of defined standard 

prescription drug coverage for a given 

plan year is based on the initial 

coverage limit, cost-sharing amounts, 

and out-of pocket threshold for defined 

standard prescription drug coverage 

under Part D in effect either at the start 

of the plan year or that is announced for 

the upcoming calendar year. In order to 

use the coverage limits in effect at the 

beginning of the plan year, the 

attestation must be submitted to CMS no 

later than 60 days after the publication 

of the Part D coverage limits for the 

upcoming calendar year; otherwise, the 

valuation is based on the upcoming 

year’s initial coverage limit, cost-sharing 

amounts, and out-of-pocket threshold 

for defined standard prescription drug 

coverage under Part D. 

(D) Example: If a sponsor’s retiree 

prescription drug plan operates under a 

plan year that ends March 30, the 

sponsor has a choice of basing the 

attestation for the year April 1, 2007–

March 30, 2008 on either: the initial 

coverage limit, cost-sharing amounts, 

and out-of-pocket threshold amounts 

that apply to defined standard 

prescription drug coverage under Part D 

in calendar year 2007, or the amounts 

announced for calendar year 2008. 

However, in order to use the amounts 

applicable in calendar year 2007, the 

sponsor must submit the attestation 

within 60 days after the publication of 

the Part D coverage limits for 2008. If 

the attestation is submitted more than 

60 days after the 2008 coverage limits 

have been published, the 2008 coverage 

limits would apply. 

(iv) * * *For the assurance required 

under paragraph (d)(1)(ii) of this 

section, the assurance may be provided 

either separately for each benefit option 

for which the sponsor provided 

assurances under paragraph (d)(1)(i)of 

this section, or in the aggregate for all 

benefit options (or for a subset of the 

benefit options). 

* * * * * 

Subpart S—Special Rules for StatesEligibility Determinations for Subsidies 

and General Payment Provisions 

21. Section 423.902 is amended by 

adding the definition of ‘‘non-covered 

drugs’’ in alphabetical order to read as 

follows: 


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§ 423.902 Definitions. 

* * * * * 

Non-covered drugs are those drugs 

specifically excluded from the 

definition of Part D drug, which may be 

excluded from coverage or otherwise 

restricted under Medicaid under 

sections 1927(d)(2) or (d)(3) of the Act, 

except for smoking cessation agents. 

* * * * * 

22. Section 423.906 is amended by—

A. Revising paragraphs (b)(1) and (2). 

B. Revising paragraph (c). 

The revisions read as follows: 

§ 423.906 General payment provisions. 

* * * * * 

(b) * * * 

(1) Part D drugs; or 

(2) Any cost-sharing obligations under 

Part D relating to Part D drugs. 

* * * * * 

(c) Non-covered drugs. States may 

elect to provide coverage for outpatient 

drugs other than Part D drugs in the 

same manner as provided for non-full 

benefit dual eligible individuals or 

through an arrangement with a 

prescription drug plan or a MA–PD 

plan. 

23. Section 423.910 is amended by 

revising paragraph (b)(1) introductory 

text to read as follows: 

§ 423.910 Requirements. 

(b) * * * 

(1) Calculation of payment. The State 

contribution payment is calculated by 

CMS on a monthly basis, as indicated in 

the following chart. For States that do 

not meet the monthly reporting 

requirement for the monthly enrollment 

reporting, the State contribution 

payment is calculated using a 

methodology determined by CMS. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: September 27, 2006. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: November 14, 2006. 

Michael O. Leavitt, 

Secretary. 

Editorial Note: This document was 

received by the Federal Register on May 21, 

2007. 

[FR Doc. 07–2577 Filed 5–21–07; 4:20 pm] 

BILLING CODE 4120–01–P 


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