22072 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 417, 422, and 423 

[CMS–4157–FC] 

RIN 0938–AQ86 

Medicare Program; Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs for 

Contract Year 2013 and Other Changes 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule with comment period. 

SUMMARY: This final rule with comment 

period revises the Medicare Advantage 

(MA) program (Part C) regulations and 

prescription drug benefit program (Part 

D) regulations to implement new 

statutory requirements; strengthen 

beneficiary protections; exclude plan 

participants that perform poorly; 

improve program efficiencies; and 

clarify program requirements. It also 

responds to public comments regarding 

the long-term care facility conditions of 

participation pertaining to pharmacy 

services. 

DATES: Effective dates: These regulations 

are effective on June 1, 2012 unless 

otherwise specified in section I.B. of 

this final rule with comment period (see 

Table 1). Amendments to the definitions 

of ‘‘other health or prescription drug 

coverage’’ at § 423.2305 and 

‘‘supplemental benefits’’ at § 423.100 are 

effective January 1, 2013. 

Comment date: We will only consider 

public comments on the issues specified 

in section II.B.5 of this final rule with 

comment period, Independence of LTC 

Consultant Pharmacists, if we receive 

them at one of the addresses specified 

in the ADDRESSES section of this final 

rule with comment period, on June 11, 

2012. 

Applicability dates: In section I.B. of 

the preamble of this final rule with 

comment period, we provide a table 

(Table 1) which lists revisions that have 

an applicability date other than the 

effective date of this final rule with 

comment period. 

ADDRESSES: In commenting, please refer 

to file code CMS–4157–FC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (Fax) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the ‘‘Submit a comment’’ instructions. 

2. By regular mail. You may mail 

written comments to the following 

address Only: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–4157–FC, P.O. Box 8013, 

Baltimore, MD 21244–8013. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address only: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–4157–FC, 

Mail Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments only to the 

following addresses prior to the close of 

the comment period: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, call 

telephone number (410) 786–1066 in 

advance to schedule your arrival with 

one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Christian Bauer, (410) 786–6043, and 

Kathryn Jansak, (410) 786–9364, General 

information. 

Christopher McClintick, (410) 786– 

4682, Part C issues. 

Deborah Larwood, (410) 786–9500, 

Part D issues. 

Kristy Nishimoto, (206) 615–2367, 

Part C and D enrollment and appeals 

issues. 

Deondra Moseley, (410) 786–4577, 

Part C payment issues. 

Ilina Chaudhuri, (410) 786–8628, Part 

D payment issues. 

SUPPLEMENTARY INFORMATION: 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.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 

8:30 a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

Table of Contents 

I. Executive Summary, Effective and 

Applicability Dates, and Background 

A. Executive Summary 

B. Effective and Applicability Dates 

C. Background 

II. Provisions of the Final Regulation and 

Analysis of and Responses to Public 

Comments 

A. Implementing Statutory Provisions 

1. Coverage Gap Discount Program 

(§ 423.100, § 423.505, § 423.1000, 

§ 423.1002, and Subpart W (§ 423.2300– 

423.2410)) 

a. Scope (§ 423.2300) 

b. Definitions (§ 423.2305) 

(1) Applicable Beneficiary 

(2) Applicable Drug 

(3) Incurred Costs 

(4) Manufacturer 

(5) Medicare Part D Discount Information 

(6) Negotiated Price 

(7) Other Health or Prescription Drug 

Coverage 

c. Condition for Coverage of Drugs Under 

Part D (§ 423.2305) 

d. Medicare Coverage Gap Discount 

Program Agreement (§ 423.2315) 

(1) Obligations of the Manufacturer 

(2) Timing and Length of Agreement 

e. Payment Processes for Part D Sponsors 

(§ 423.2320) 

(1) Interim Payments 

(2) Coverage Gap Discount Reconciliation 

f. Provision of Applicable Discounts 

(§ 423.2325) 

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

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 22073 

(2) Collection of Data 

(3) Other Health or Prescription Drug 

Coverage 

(4) Supplemental Benefits 

(5) Pharmacy Prompt Payment 

g. Manufacturer Discount Payment Audit 

and Dispute Resolution (§ 423.2330) 

(1) Third Party Administrator Audits 

(2) Manufacturer Audits 

(3) Dispute Resolution 

h. Beneficiary Dispute Resolution 

(§ 423.2335) 

i. Compliance Monitoring and Civil Money 

Penalties (§ 423.2340) 

j. Termination of Agreement (§ 423.2345) 

2. Inclusion of Benzodiazepines and 

Barbiturates as Part D Covered Drugs 

(§ 423.100) 

3. Pharmacy Benefit Manager’s 

Transparency Requirements (§ 423.501 

and § 423.514) 

B. Strengthening Beneficiary Protections 

1. Good Cause and Reinstatement Into a 

Cost Plan (§ 417.460) 

2. Requiring MA Plans to Issue ID Cards 

(§ 422.111) 

3. Determination of Actuarially Equivalent 

Creditable Prescription Drug Coverage 

(§ 423.56) 

4. Who May File Part D Appeals With the 

Independent Review Entity (§ 423.600 

and § 423.602) 

5. Independence of LTC Consultant 

Pharmacists 

C. Excluding Poor Performers 

1. CMS Termination of Health Care 

Prepayment Plans (§ 417.801) 

2. Plan Performance Ratings as a Measure 

of Administrative and Management 

Arrangements and as a Basis for 

Termination or Non-Renewal of a 

Medicare Contract (§§ 422.504, 422.510, 

423.505, and 423.509) 

3. Denial of Applications Submitted by 

Part C and D Sponsors With a Past 

Contract Termination or CMS-Initiated 

Non-Renewal (§§ 422.502 and 423.503) 

D. Improving Program Efficiencies 

1. Cost Contract Plan Public Notification 

Requirements in Cases of Non-Renewal 

(§ 417.492) 

2. New Benefit Flexibility for Certain Dual 

Eligible Special Needs Plans (D–SNPs) 

(§ 422.102) 

3. Application of the Medicare HospitalAcquired Conditions and Present on 

Admission Indicator Policy to MA 

Organizations 

4. Clarifying Coverage of Durable Medical 

Equipment (§§ 422.100 and 422.111) 

a. Access to Preferred DME Items and 

Supplies 

b. Medical Necessity Requirements for 

DME Items and Supplies 

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

d. Midyear Changes to Preferred DME 

Items and Supplies 

e. Appeals 

f. Disclosure of DME Coverage Limitations 

5. Broker and Agent Requirements 

(§§ 422.2274 and 423.2274) 

6. Establishment and Application of Daily 

Cost-Sharing Rate as Part of Drug 

Utilization Management and Fraud, 

Abuse, and Waste Control Program 

(§§ 423.100, 423.104, and 423.153) 

E. Clarifying Program Requirements 

1. Technical Corrections to Enrollment 

Provisions (§§ 417.422, 417.432, 422.60, 

and 423.56) 

2. Extending MA and Part D Program 

Disclosure Requirements to Section 1876 

Cost Contract Plans (§ 417.427) 

3. Clarification of, and Extension to Local 

Preferred Provider Plans, of Regional 

Preferred Provider Organization Plan 

Single Deductible Requirement 

(§ 422.101) 

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

Requirements (§ 422.216) 

5. Application Requirements for Special 

Needs Plans (§§ 422.500, 422.501, 

422.502, 422.641, and 422.660) 

6. Timeline for Resubmitting Previously 

Denied MA Applications (§ 422.501) 

7. Clarification of Contract Requirements 

for First Tier and Downstream Entities 

(§§ 422.504 and 423.505) 

8. Valid Prescriptions (§§ 423.100 and 

423.104) 

9. Medication Therapy Management 

Comprehensive Medication Reviews and 

Beneficiaries in LTC Settings (§ 423.153) 

10. Employer Group Waiver Plans 

Requirement to Follow All Part D Rules 

Not Explicitly Waived (§ 423.458) 

11. Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (§ 423.120) 

III. Collection of Information Requirements 

IV. Regulatory Impact Analysis 

Regulations Text 

Acronyms 

AO Accrediting Organization 

ADS Automatic Dispensing System 

AEP Annual Enrollment Period 

AHFS American Hospital Formulary 

Service 

AHFS–DI American Hospital Formulary 

Service-Drug Information 

AHRQ Agency for Health Care Research 

and Quality 

ALJ Administrative Law Judge 

ANOC Annual Notice of Change 

AOR Appointment of Representative 

BBA Balanced Budget Act of 1997 (Pub. L. 

105–33) 

BBRA [Medicare, Medicaid and State Child 

Health Insurance Program] Balanced 

Budget Refinement Act of 1999 (Pub. L. 

106–113) 

BIPA [Medicare, Medicaid, and SCHIP] 

Benefits Improvement Protection Act of 

2000 (Pub. L. 106–554) 

BLA Biologics License Application 

CAHPS Consumer Assessment Health 

Providers Survey 

CAP Corrective Action Plan 

CCIP Chronic Care Improvement Program 

CC/MCC Complication/Comorbidity and 

Major Complication/Comorbidity 

CCS Certified Coding Specialist 

CDC Centers for Disease Control 

CHIP Children’s Health Insurance Programs 

CMR Comprehensive Medication Review 

CMS Centers for Medicare & Medicaid 

Services 

CMS–HCC CMS Hierarchal Condition 

Category 

CTM Complaints Tracking Module 

COB Coordination of Benefits 

CORF Comprehensive Outpatient 

Rehabilitation Facility 

CPC Certified Professional Coder 

CY Calendar year 

DEA Drug Enforcement Administration 

DIR Direct and Indirect Remuneration 

DME Durable Medical Equipment 

DMEPOS Durable Medical Equipment, 

Prosthetic, Orthotics, and Supplies 

D–SNPs Dual Eligible SNPs 

DOL U.S. Department of Labor 

DRA Deficit Reduction Act of 2005 (Pub. L. 

109–171) 

DUM Drug Utilization Management 

EGWP Employer Group/Union-Sponsored 

Waiver Plan 

EOB Explanation of Benefits 

EOC Evidence of Coverage 

ESRD End-Stage Renal Disease 

FACA Federal Advisory Committee Act 

FDA Food and Drug Administration 

FEHBP Federal Employees Health Benefits 

Plan 

FFS Fee-for-Service 

FIDE Fully-Integrated Dual Eligible 

FIDE SNPs Fully-Integrated Dual Eligible 

Special Needs Plans 

FMV Fair Market Value 

FY Fiscal year 

GAO Government Accountability Office 

HAC Hospital-Acquired Conditions 

HCPP Health Care Prepayment Plans 

HEDIS HealthCare Effectiveness Data and 

Information Set 

HHS [U.S. Department of] Health and 

Human Services 

HIPAA Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104– 

191) 

HMO Health Maintenance Organization 

HOS Health Outcome Survey 

HPMS Health Plan Management System 

ICD–9–CM Internal Classification of 

Disease, 9th, Clinical Modification 

Guidelines 

ICEP Initial Coverage Enrollment Period 

ICL Initial Coverage Limit 

ICR Information Collection Requirement 

ID Identification 

IPPS [Acute Care Hospital] Inpatient 

Prospective Payment System 

IRE Independent Review Entity 

IVC Initial Validation Contractor 

LEP Late Enrollment Penalty 

LIS Low Income Subsidy 

LPPO Local Preferred Provider 

Organization 

LTC Long Term Care 

MA Medicare Advantage 

MAAA Member of the American Academy 

of Actuaries 

MA–PD Medicare Advantage-Prescription 

Drug Plan 

MIPPA Medicare Improvements for Patients 

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

275) 

MOC Medicare Options Compare 

MOOP Maximum Out-of-Pocket 

MPDPF Medicare Prescription Drug Plan 

Finder 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (Pub. L. 108–173) 

MS–DRG Medicare Severity Diagnosis 

Related Group 

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22074 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

MSA Metropolitan Statistical Area 

MSAs Medical Savings Accounts 

MSP Medicare Secondary Payer 

MTM Medication Therapy Management 

MTMP Medication Therapy Management 

Program 

NAIC National Association Insurance 

Commissioners 

NCPDP National Council for Prescription 

Drug Programs 

NCQA National Committee for Quality 

Assurance 

NDA New Drug Application 

NDC National Drug Code 

NGC National Guideline Clearinghouse 

NIH National Institutes of Health 

NOMNC Notice of Medicare Non-Coverage 

NPI National Provider Identifier 

OIG Office of Inspector General 

OMB Office of Management and Budget 

OPM Office of Personnel Management 

OTC Over the Counter 

Part C—Medicare Advantage 

Part D—Medicare Prescription Drug Benefit 

Program 

PBM Pharmacy Benefit Manager 

PDE Prescription Drug Event 

PDP Prescription Drug Plan 

PFFS Private Fee For Service Plan 

POA Present on Admission (Indicator) 

POS Point-of-Sale 

PPO Preferred Provider Organization 

PPS Prospective Payment System 

P&T Pharmacy & Therapeutics 

QIO Quality Improvement Organization 

QRS Quality Review Study 

PACE Programs of All Inclusive Care for the 

Elderly 

RADV Risk Adjustment Data Validation 

RAPS Risk Adjustment Payment System 

RHIA Registered Health Information 

Administrator 

RHIT Registered Health Information 

Technician 

RPPO Regional Preferred Provider 

Organization 

SEP Special Enrollment Periods 

SHIP State Health Insurance Assistance 

Programs 

SNF Skilled Nursing Facility 

SNP Special Needs Plan 

SPAP State Pharmaceutical Assistance 

Programs 

SSA Social Security Administration 

SSI Supplemental Security Income 

TPA Third Party Administrator 

TrOOP True Out-of-Pocket 

U&C Usual and Customary 

UPIN Uniform Provider Identification 

Number 

USP U.S. Pharmacopoeia 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose 

a. Need for Regulatory Action 

We are publishing this final rule with 

comment period for the Medicare 

Advantage (Part C) and prescription 

drug (Part D) programs to make changes 

as required by statute, including the 

Affordable Care Act, as well as improve 

the program through modifications that 

reflect experience we have obtained in 

administering the Part C and Part D 

programs and/or address requests for 

clarification received from stakeholders 

such as health plans and Part D 

sponsors. The five different sections of 

the preamble cover the specific means 

by which we believe the final rule will: 

(1) Implement statutory provisions; (2) 

strengthen beneficiary protections; (3) 

exclude plan participants that perform 

poorly; (4) improve program 

efficiencies; and (5) clarify program 

requirements. 

b. Legal Authority 

Our authority for this final regulation 

stems from the Social Security Act (the 

Act). As is discussed in more detail in 

section I.C. of this final rule with 

comment period, the Balanced Budget 

Act of 1997 (BBA) and the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) 

created, respectively, the Medicare 

Advantage (MA) program (Part C) and 

the Medicare Prescription Drug Benefit 

Program (Part D). Congress continues to 

amend the Act and change both Parts C 

and D, and this final regulation includes 

modifications required by, for instance, 

the Medicare Improvements for Patients 

and Providers Act of 2008 (MIPPA) and 

the Affordable Care Act. 

2. Summary of the Major Provisions 

a. Coverage Gap Discount Program 

(§ 423.100, § 423.505(b), § 423.1002, and 

Subpart W (§ 423.2300 Through 

423.2410)) 

The Affordable Care Act made several 

amendments to Part D of Title XVIII of 

the Act, including adding sections 

1860D–43 and 1860D–14A of the Act, 

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

Act. Beginning on January 1, 2011, these 

amendments started phasing out the 

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

Medicare beneficiaries who do not 

already receive low-income subsidies 

from CMS by establishing the Medicare 

Coverage Gap Discount Program 

(Discount Program). We implemented 

the Discount Program through program 

instructions due to the January 1, 2011 

implementation deadline. Although not 

required, we are codifying most of the 

existing Discount Program requirements 

(that is, those that we have previously 

implemented through the relevant 

Agreements and guidance) through full 

notice and comment rulemaking to 

provide additional transparency and a 

formal framework for operating the 

Discount Program and enforcing its 

requirements. 

b. Pharmacy Benefit Manager’s 

Transparency Requirements (§ 423.501 

and § 423.514) 

Section 1150A of the Act, as amended 

by section 6005 of the Affordable Care 

Act, requires Part D sponsors and 

entities that provide pharmacy benefits 

management services to report various 

data elements. The statute further 

specifies that this information is 

confidential and generally shall not be 

disclosed by the government or by a 

plan receiving the information, with 

certain exceptions that allow the 

government to disclose the information 

in a non-identifiable form. There are 

penalties for those that fail to meet the 

requirements of this provision. We are 

codifying the reporting requirements, 

confidentiality protections, and penalty 

provision in this final rule with 

comment period. 

c. Who May File Part D Appeals With 

the Independent Review Entity 

(§ 423.600 and § 423.602) 

This change to our regulations allows 

prescribers to request a reconsideration 

on an enrollee’s behalf without 

obtaining an appointed representative 

form. We believe this change will make 

the Part D appeals process more 

accessible to beneficiaries. The legal 

authority for this policy is section 

1860D–4(g) of the Act. 

d. Plan Performance Ratings as a 

Measure of Administrative and 

Management Arrangements and as a 

Basis for Termination or Non-Renewal 

of a Medicare Contract (§§ 422.510, 

423.505, and 423.509) 

Each year, we issue performance 

quality ratings, using a 5-star system 

where 5 stars indicates the highest 

quality, of Part C and D plan sponsors. 

The plan ratings are based on a series 

of measures that correspond to 

operational requirements of the Part C 

and D programs. We have established 

that 3 stars reflects an average level of 

performance and is the lowest 

acceptable rating for plan sponsors. 

Sponsors that fail for three consecutive 

years to achieve at least a 3-star rating 

have demonstrated that they have 

substantially failed to meet the 

requirements of the Part C and D 

programs and failed to take timely and 

effective corrective action. Therefore, 

we are adopting the authority to 

terminate the contracts of Part C and D 

sponsors that fail to achieve at least a 3- 

star plan rating for 3 consecutive years. 

The data used to calculate the plan 

ratings is plan performance data that 

serves as evidence that the sponsor has 

reached the substantial failure standard 

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that CMS must use, pursuant to section 

1857(c)(2) of the Act, to make a contract 

termination decision. 

e. New Benefit Flexibility for FullyIntegrated Dual Eligible Special Needs 

Plans (FIDE SNPs) (§ 422.102) 

This provision specifies that, subject 

to CMS approval, and as specified 

annually by CMS, certain dual eligible 

SNPs (D–SNPs) that meet integration 

and performance standards may offer 

additional supplemental benefits 

beyond those CMS currently allows 

other MA plans to offer, where CMS 

finds that the offering of such benefits 

could better integrate care for the dual 

eligible population. Such benefits may 

include nonskilled nursing services, 

personal care services, and other longterm care services and supports 

designed to keep dual eligible 

beneficiaries out of institutions. We 

would require D–SNPs that offer these 

additional supplemental benefits to do 

so at no additional cost to the 

beneficiary. We believe that providing 

certain D–SNPs that meet integration 

and performance standards the 

flexibility to offer additional 

supplemental benefits could better 

integrate care for the dual eligible 

population, help prevent health status 

decline, and reduce the quantity and 

cost of future health care needs. 

f. Clarifying Coverage of Durable 

Medical Equipment (§§ 422.100 and 

422.111) 

This provision permits a Medicare 

Advantage plan to limit durable medical 

equipment (DME) to specific 

‘‘preferred’’ brands and manufacturers 

as long as the plan complies with 

several requirements intended to ensure 

that the enrollee continues to have 

access to all categories of DME specified 

in the Social Security Act. Beneficiary 

protections include access to all 

preferred brands, a transition period 

permitting enrollees to retain DME 

when changing plans, exceptions to 

plan limitations based on medical 

necessity, the ability to appeal a plan’s 

denial of DME based on brand/ 

manufacturer, and plan disclosure of 

DME limitations to enrollees. 

g. Establishment and Application of 

Daily Cost-Sharing Rate as Part of Drug 

Utilization Management and Fraud, 

Abuse, and Waste Control Program 

(§§ 423.104 and 423.153) 

The daily cost-sharing rate 

requirement provides a financial 

incentive to Medicare Part D 

beneficiaries to ask their prescribers 

whether less than a month’s supply of 

a drug would be appropriate because, if 

so, the Part D sponsor will apply lower, 

pro-rated cost sharing when the 

prescription is dispensed, which also 

reduces costs and waste. Sponsors will 

not be required to provide daily costsharing rates upon request until January 

1, 2014. 

h. Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (§ 423.120) 

Part D sponsors must include an 

active and valid prescriber National 

Provider Identifier (NPI) on prescription 

drug event records (PDEs) that they 

submit to CMS, which will assist the 

Federal government in fighting possible 

fraudulent activity in the Part D 

program, because prescribers will be 

consistently and uniformly identified. 

This policy will not interfere with 

beneficiary access to needed 

medications because Part D sponsors 

must validate the NPI at point of sale, 

and if this is not possible, permit the 

prescription to be dispensed and obtain 

the valid NPI afterwards. 

3. Summary of Costs and Benefits 

Preamble 

section Provision description Total 6 year costs Total 6 year benefits 

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

(§§ 423.100, 423.505(b), 423.1002, and 

Subpart W (§§ 423.2300–423.2410)).

$1.3 billion: Cost to Federal government 

$76 M: Cost to Part D sponsors. $29.8 

billion: Cost to manufacturers.

$29.7 billion in manufacturer discounts for 

Part D enrollees. Provides additional 

health benefits through increased adherence to medication regimens; and 

allows beneficiaries to reach the catastrophic coverage phase more quickly. 

II.A.3 ........ Pharmacy Benefit Manager’s Transparency Requirements (§§ 423.501 and 

423.514).

N/A (Nearly all data elements are already 

collected for other purposes).

Promotes PBM transparency to Part D 

sponsors and Medicare. 

II.B.4 ........ Who May File Part D Appeals with the 

Independent Review Entity (§ 423.600).

$5.84 million: Cost to Federal government. $450,000: Cost to Part D sponsors.Improves beneficiary access to the Part D 

appeals process. 

II.C.2 ........ Plan Performance Ratings as a Measure 

of Administrative and Management Arrangements and as a Basis for Termination or Non-Renewal of a Medicare 

Contract (§§ 422.510, 423.505, and 

423.509).

N/A ............................................................. For beneficiaries: Provides assurance that 

they are making a plan election from 

among only those sponsors that demonstrate a commitment to providing 

high quality service. 

For CMS: Emphasizes further CMS’ commitment to driving improvement in the 

health care and prescription drug benefit markets. 

II.D.2 ........ New Benefit Flexibility for Certain Dual Eligible Special Needs Plans (D-SNPs) 

(§ 422.102).

$0.36 million to MA organizations ............. For beneficiaries: The flexibility for certain 

D–SNPs to offer additional supplemental benefits is in keeping with our 

objective of keeping Medicare-Medicaid 

(‘‘dual eligible’’) beneficiaries who are at 

risk of institutionalization in the community. 

For CMS: $135.1 million in savings that 

accrue to the Federal Medicaid program 

and the Medicare program. 

For States: 

$2.62 million in savings to the State Medicaid program. 

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22076 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

Preamble 

section Provision description Total 6 year costs Total 6 year benefits 

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

Equipment (§§ 422.100 and 422.111).

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

II.D.6 ........ Establishment and Application of Daily 

Cost-Sharing Rate as Part of Drug Utilization Management and Fraud, Abuse, 

and Waste Control Program 

(§§ 423.100, 423.104 and 423.153).

$0.5 million: cost to Part D sponsors ........ Over $1.8 billion in estimated savings to 

the Part D program. 

Savings to beneficiaries who take advantage of option in consultation with their 

prescribers through lower cost-sharing 

for prescriptions. 

Reduction of medication waste. 

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

Use of Standardized Technology and 

National Provider Identifiers (§ 423.120).

$30.7 million: cost to Part D sponsors ...... Improved capability to fight fraud in the 

Medicare Part D program. 

B. Effective and Applicability Dates 

We note that these regulations will be 

effective 60 days after the publication of 

this final rule with comment period, 

except for two regulations whose 

effective dates are mandated by statute 

and one regulation whose effective date 

we are choosing to delay. Section 175(b) 

of MIPPA provides that barbiturates for 

specified health conditions and 

benzodiazepines be considered as Part D 

drugs for prescriptions dispensed on or 

after January 1, 2013. Similarly, section 

10328 of the Affordable Care Act 

requires that, for plan years beginning 

on or after 2 years after the date of its 

enactment, Part D sponsors offer to 

targeted beneficiaries annual 

comprehensive medication reviews 

(CMRs). The Affordable Care Act was 

enacted on March 23, 2010; accordingly, 

the revision regarding CMRs in LTC 

settings will become effective January 1, 

2013. Additionally, we have delayed the 

effective date of the change to the policy 

on who may file Part D appeals with the 

Independent Review Entity to clarify 

that physicians and other prescribers 

may not request reconsiderations on 

behalf of beneficiaries until the 

beginning of the 2013 plan year (unless 

they are the beneficiary’s authorized 

representative). 

Unless specified in this final rule with 

comment period, the effective date and 

the applicability date are the same. 

There are some instances in which they 

may vary. For instance, because the 

health and drug plans under the Part C 

and D programs operate under contracts 

with CMS that are applicable on a 

calendar year basis, some provisions 

will not be applicable prior to contract 

year January 1, 2013. In Table 1 we 

provide a list of revisions whose 

applicable dates vary from the effective 

date of 60 days after publication of this 

final rule with comment period. 

TABLE 2—FINALIZED REVISIONS WITH EFFECTIVE AND/OR APPLICABLE DATES OTHER THAN 60 DAYS AFTER PUBLICATION

Preamble 

section Section title Effective date applicability date 

II.A.1 ................. Coverage Gap Discount Program ............................................. The definition of ‘‘other health or prescription drug coverage’’ 

under § 423.2305 and change to the existing definition of 

‘‘supplemental benefits’’ under § 423.100 are: 

effective 60 days after date of publication applicable 01/01/13 

Note: All remaining regulations related to the Coverage Gap 

Discount Program remain: 

Effective 60 days after date of publication 

applicable 60 days after date of publication 

II.A.2 ................. Inclusion of Benzodiazepines and Barbiturates as Part D 

Covered Drugs.

effective 01/01/13 

applicable 01/01/13 

II.B.1 ................. Good Cause and Reinstatement into a Cost Plan ................... effective 60 days after date of publication 

applicable 01/01/13 

II.B.2 ................. Requiring MA plans to disclose Member ID cards ................... effective 60 days after date of publication 

applicable 01/01/13 

II.B.4 ................. Clarifying Who May File Part D Appeals with the Independent 

Review Entity.

effective and 

applicable 01/01/13 

II.C.1 ................. CMS Termination of Health Care Prepayment Plans ............... effective 60 days after date of publication 

applicable 01/01/13 

II.D.1 ................. Cost Contract Plan Public Notification Requirements in Cases 

of Non-Renewal.

effective 60 days after date of publication 

applicable 01/01/13 

II.D.2 ................. Flexibilities for Certain Fully-Integrated Dual Eligible Special 

Needs Plans.

effective 60 days after date of publication 

applicable 01/01/13 

II.D.4 ................. Clarifying Coverage of Durable Medical Equipment ................. effective 60 days after date of publication 

applicable 01/01/13 

II.D.5 ................. Broker and Agent Requirements .............................................. effective 60 days after date of publication 

applicable 01/01/13 

II.E.6 ................. Establishment and Application of Daily Cost-Sharing Rate as 

Part of Drug Utilization Management and Fraud, Abuse, 

and Waste Control Program.

effective 60 days after date of publication 

applicable 01/01/14 

II.E.2 ................. Extending MA and Part D Program Disclosure Requirements 

to Section 1876 Cost Contract Plans.

effective 60 days after date of publication 

applicable 01/01/13 

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TABLE 2—FINALIZED REVISIONS WITH EFFECTIVE AND/OR APPLICABLE DATES OTHER THAN 60 DAYS AFTER

PUBLICATION—Continued 

Preamble 

section Section title Effective date applicability date 

II.E.3 ................. Clarification of, and Extension of Regional Preferred Provider 

Organization Plan Single Deductible Requirements to, 

Local Preferred Provider Plans.

effective 60 days after date of publication 

applicable 01/01/13 

II.E.4 ................. Technical Change to Private Fee-For-Service Plan Explanation of Benefits Requirements.effective 60 days after date of publication 

applicable sometime after 2013 application cycle (when EOB 

model for all MA plans are finalized) 

II.E.5 ................. Application Requirements for Special Needs Plans ................. effective 60 days after date of publication 

applicable 01/01/13 

II.E.6 ................. Timeline for Resubmitting Previously Denied MA Applications effective 60 days after date of publication 

applicable 01/01/13 

II.E.7 ................. Clarification of Contract Requirements for First Tier and 

Downstream Entities.

effective 60 days after date of publication 

applicable 01/01/13 

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

Reviews and Beneficiaries in LTC Settings.

effective 01/01/13 

applicable 01/01/13 

II.E.11 ............... Access to Covered Part D Drugs Through Use of Standardized Technology and National Provider Identifiers.effective 60 days after date of publication 

applicable 01/01/13 

C. Background 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) created a new 

‘‘Part C’’ in the Medicare statute 

(sections 1851 through 1859 of the Act) 

which established what is now known 

as the Medicare Advantage (MA) 

program. The Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003 (MMA) (Pub. L. 108–173), 

enacted on December 8, 2003, added a 

new ‘‘Part D’’ to the Medicare statute 

(sections 1860D–1 through 1860D–42 of 

the Act) entitled the Medicare 

Prescription Drug Benefit Program, and 

made significant changes to the existing 

Part C program. The MMA directed that 

important aspects of the Part D program 

be similar to, and coordinated with, 

regulations for the MA program. 

Generally, the provisions enacted in the 

MMA took effect January 1, 2006. The 

final rules implementing the MMA for 

the MA and Part D prescription drug 

programs appeared in the January 28, 

2005 Federal Register (70 FR 4588 

through 4741 and 70 FR 4194 through 

4585, respectively). 

Since the inception of both Parts C 

and D, we have periodically revised our 

regulations either to implement 

statutory directives or to incorporate 

knowledge obtained through experience 

with both programs. For instance, in 

September 2008 and January 2009, we 

issued Part C and D regulations (73 FR 

54226 and 74 FR 1494, respectively) to 

implement provisions in the Medicare 

Improvement for Patients and Providers 

Act (MIPPA) (Pub. L. 110–275). We 

promulgated a separate interim final 

rule in January 2009 to address MIPPA 

provisions related to Part D plan 

formularies (74 FR 2881). In April 2010, 

we issued Part C and D regulations (75 

FR 19678) which strengthened various 

program participation and exit 

requirements; strengthened beneficiary 

protections; ensured that plan offerings 

to beneficiaries included meaningful 

differences; improved plan payment 

rules and processes; improved data 

collection for oversight and quality 

assessment; implemented new policies; 

and clarified existing program policy. 

In a final rule that appeared in the 

April 15, 2011 Federal Register (76 FR 

21432), we continued our process of 

implementing improvements in policy 

consistent with those included in the 

April 2010 final rule, and also 

implemented changes to the Part C and 

Part D programs made by then-recent 

legislative changes. 

The Patient Protection and Affordable 

Care Act (Pub. L. 111–148) was enacted 

on March 23, 2010. The Health Care and 

Education Reconciliation Act (Pub. L. 

111–152), which was enacted on March 

30, 2010, modified a number of 

Medicare provisions in Pub. L. 111–148 

and added several new provisions. The 

Patient Protection and Affordable Care 

Act (Pub. L. 111–148) and the Health 

Care and Education Reconciliation Act 

(Pub. L. 111–152) are collectively 

referred to as the Affordable Care Act. 

The Affordable Care Act included 

significant reforms to both the private 

health insurance industry and the 

Medicare and Medicaid programs. 

Provisions in the Affordable Care Act 

concerning the Part C and D programs 

largely focused on beneficiary 

protections, MA payments, and 

simplification of MA and Part D 

program processes. These provisions 

affected implementation of our policies 

regarding beneficiary cost-sharing, 

assessing bids for meaningful 

differences, and ensuring that costsharing structures in a plan are 

transparent to beneficiaries and not 

excessive. In the April 2011 final rule, 

we revised regulations on a variety of 

issues based on provisions enacted in 

the Affordable Care Act and our 

experience in administering the MA and 

Part D programs. The rule covered areas 

such as marketing, including agent/ 

broker training; payments to MA 

organizations based on quality ratings; 

standards for determining if 

organizations are fiscally sound; low 

income subsidy policy under the Part D 

program; payment rules for non-contract 

health care providers; extending current 

network adequacy standards to 

Medicare medical savings account 

(MSA) plans that employ a network of 

providers; establishing limits on out-ofpocket expenses for MA enrollees; and 

several revisions to the special needs 

plan requirements, including changes 

concerning SNP approvals. 

In the October 11, 2011 Federal 

Register (76 FR 63018), we published a 

proposed rule with proposed revisions 

to the Medicare Advantage (MA) 

program (Part C) and prescription drug 

benefit program (Part D). The goals of 

this proposed rule were to: Implement 

provisions from the Affordable Care Act 

(ACA) and the Medicare Improvements 

for Patients and Providers Act of 2008 

(MIPPA); strengthen beneficiary 

protections; exclude plan participants 

that perform poorly; improve program 

efficiencies; and clarify program 

requirements for contract year 2013. The 

proposed rule also included 

consideration of changes to the long 

term care facility (LTC) conditions of 

participation relating to pharmacy 

services. 

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22078 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

II. Provisions of the Proposed Rule and 

Analysis and Response to Public 

Comments 

We received approximately 516 items 

of timely correspondence containing 

comments on the proposed rule 

published in the October 11, 2011 

Federal Register (76 FR 63018). 

Commenters included health and drug 

plan organizations, insurance industry 

trade groups, provider associations, 

pharmacists (including consultant 

pharmacists) and pharmacy 

associations, representatives of hospital 

and long term care institutions, 

pharmacy benefit managers, drug 

manufacturers, mental health and 

disease specific advocacy groups, 

beneficiary advocacy groups, private 

citizens, ombudsmen, and others. 

In this final rule with comment 

period, we address all comments and 

concerns regarding the policies 

included in the proposed rule. We also 

reference, in the comment and response 

sections of this final rule with comment 

period, some comments that were 

outside the scope of the revisions we 

proposed in October 2011. We present 

a summary of public comments, as well 

as our responses to them in the 

applicable subject-matter sections of 

this final rule with comment period. 

In the sections that follow, we discuss 

finalized revisions to the regulations in 

42 CFR parts 417, 422, and 423 which 

govern the MA and prescription drug 

benefit programs. We also considered— 

but for the present decided against— 

making changes to the regulations 

setting forth the Medicare conditions of 

participation for long-term care 

facilities, which are currently codified 

at 42 CFR part 483. The preamble for the 

final rule will follow the structure of the 

October 2011 proposed rule and cover 

issues by topic area. Accordingly, our 

proposals address the following five 

specific goals: 

• Implementing provisions of MIPPA 

and the Affordable Care Act. 

• Strengthening beneficiary 

protections. 

• Excluding poor performers. 

• Improving program efficiencies. 

• Clarifying program requirements. 

Several of the proposed revisions and 

clarifications affect both the MA and 

prescription drug programs, while a few 

affect cost contracts under section 1876 

of the Act. Within each of the five major 

sections of the preamble to this final 

rule with comment period, we discuss 

provisions in order of appearance in the 

associated regulations; a chart at the 

beginning of each of the five sections 

provides subsection numbers and titles 

and the associated regulatory citations. 

Although we are not finalizing all the 

revisions proposed, discussion 

(including comments and responses) of 

non-finalized proposals will still appear 

in the same order as was the case in the 

October 2011 proposed rule. 

A. Implementing Statutory Provisions 

We are finalizing all three provisions 

in this section, two of which implement 

sections of the Affordable Care Act and 

one which implements a MIPPA 

mandate. In this final rule with 

comment period, we consolidate and 

codify previous guidance regarding the 

Coverage Gap Discount Program 

mandated by the Affordable Care Act. 

We believe this consolidation will 

provide stakeholders a central, clear 

source of direction. We are also 

finalizing regulations under a MIPPA 

provision which will provide treatment 

for beneficiaries who require 

benzodiazepines and, as specified, 

barbiturates. Lastly, we are finalizing 

regulations implementing section 6005 

of the Affordable Care Act, which 

contains several reporting requirements 

for Part D sponsors and entities that 

provide pharmacy benefits management 

services to Part D sponsors. The changes 

based on provisions in the Affordable 

Care Act and MIPPA are detailed in 

Table 2. 

TABLE 2—PROVISIONS TO IMPLEMENT STATUTORY PROVISIONS

Preamble 

section Provision 

Part 423 

Subpart Section(s) 

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

Subpart K .........

Subpart T .........

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

Subpart W 

(new) 

423.100 

423.505 

423.1000 

423.1002 

423.2300– 

423.2345 

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

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

423.514 

1. Coverage Gap Discount Program 

(§§ 423.100, 423.505(b), 423.1000, 

423.1002, and 423.2300 Through 

423.2345 (Subpart W)) 

Section 3301 of the Affordable Care 

Act made several amendments to Part D 

of Title XVIII of the Act, including 

adding sections 1860D–43 and 1860D– 

14A of the Act, and amending section 

1860D–2(b) of the Act. Beginning on 

January 1, 2011, these amendments 

started phasing out the Part D coverage 

gap, or ‘‘donut hole’’ for Medicare 

beneficiaries who do not already receive 

low-income subsidies from CMS by 

establishing the Medicare Coverage Gap 

Discount Program (Discount Program) 

and gradually increasing coverage in the 

coverage gap for both generic drugs 

(beginning in 2011) and brand name 

drugs and biological products 

(beginning in 2013). By 2020, 

beneficiary cost-sharing for applicable 

beneficiaries for all covered brand-name 

and generic drugs and biological 

products after the deductible will equal 

25 percent until they reach catastrophic 

coverage. 

The Discount Program makes 

manufacturer discounts available at the 

point-of-sale to applicable Medicare 

beneficiaries receiving applicable drugs 

while in the coverage gap. In general, 

the discount on each applicable drug is 

50 percent of an amount equal to the 

negotiated price of the drug (less any 

dispensing fee). In general, 

manufacturers must agree to provide 

these discounts by signing an agreement 

with CMS in order for their applicable 

drugs to continue to be covered under 

Medicare Part D. We note that we have 

authority under section 1860D–43(c) of 

the Act to make an exception that 

allows coverage without an agreement, 

but based on the current level of 

participation by manufacturers and the 

breadth of applicable drugs covered by 

Discount Program Agreements, we do 

not anticipate needing to exercise such 

authority. 

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 22079 

While manufacturer discounts under 

the Discount Program must be made 

available at point-of-sale, the Affordable 

Care Act does not specify how this 

should be done. At the same time, it 

prohibits us from receiving or 

distributing any funds of the 

manufacturer under the program. In 

order to provide point-of-sale discounts, 

we determined that an entity must have 

the information necessary to determine 

at that point in time that the drug is 

discountable, the beneficiary is eligible 

for the discount, the claim is wholly or 

partly in the coverage gap, and the 

amount of the discount, taking into 

consideration negotiated plan prices 

and that plan supplemental benefits 

must pay before the discount amount 

can be determined. We determined that 

the only entities that have the 

information necessary to provide pointof-sale discounts under the Discount 

Program are Part D sponsors. Only the 

Part D sponsor knows which Part D 

drugs are on its formulary and which 

enrollees have obtained an exception to 

receive a non-formulary Part D drug. 

The Part D sponsor has the low-income 

subsidy (LIS) information for 

beneficiaries that is necessary to 

exclude such claims from the Discount 

Program. The Part D sponsor tracks 

gross drug spend and TrOOP costs, 

which are necessary for determining 

when the beneficiary enters and exits 

the coverage gap. In addition, only the 

Part D sponsor knows which portion of 

the claim is in the coverage gap. For 

these reasons, we have determined that 

the Part D sponsor can accurately 

provide the discount at point-of-sale. 

Section 1860D–14A(d)(5) of the Act 

authorizes us to implement the Discount 

Program through program instruction. 

We used this authority to issue program 

guidance to Part D sponsors on May 21, 

2010, with an abbreviated notice and 

comment period, instructing them to 

provide applicable discounts on 

applicable drugs to applicable 

beneficiaries at point-of-sale beginning 

on January 1, 2011. The guidance also 

specified that Part D sponsors would 

report discount amounts to us, that we 

would invoice manufacturers on a 

quarterly basis for these discounts, and 

that the manufacturers would repay 

each Part D sponsor directly for the 

invoiced discount provided on the 

manufacturers’ behalf. We determined 

that this model was necessary because 

Part D sponsors needed to provide the 

discounts at point-of-sale (as explained 

previously) and we needed to 

coordinate the discount payments 

between manufacturers and Part D 

sponsors to ensure discounts were 

appropriately provided by the Part D 

sponsors and reimbursed by the 

manufacturers without directly 

receiving or distributing manufacturer 

funds (which we are prohibited from 

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

the Act). 

We implemented the Discount 

Program through program instruction 

due to the January 1, 2011 

implementation deadline. Although not 

required, we are codifying most of 

existing Discount Program requirements 

(that is, those that we have previously 

implemented through the relevant 

Agreements and guidance) through full 

notice and comment rulemaking to 

provide additional transparency and a 

formal framework for operating the 

Discount Program and enforcing its 

requirements. 

a. Scope (§ 423.2300) 

Subpart W of part 423 implements 

provisions included in sections 1860D– 

14A and 1860D–43 of the Act. This 

subpart sets forth requirements as 

follows: 

• Condition of coverage of drugs 

under Part D. 

• The Medicare Coverage Gap 

Discount Program Agreement. 

• Coverage gap discount payment 

processes for Part D sponsors. 

• Provision of applicable discounts 

on applicable drugs for applicable 

beneficiaries. 

• Manufacturer audit and dispute 

resolution processes. 

• Resolution of beneficiary disputes 

involving coverage gap discounts. 

• Compliance monitoring and civil 

money penalties. 

• The termination of the Discount 

Program Agreement. 

In this section, we summarize the 

provisions of subpart W and respond to 

public comments. 

b. Definitions (§ 423.2305) 

Proposed § 423.2305 included 

definitions for terms that are frequently 

used in this subpart. Those terms we 

believe need additional clarification are 

described separately in this section of 

the final rule with comment period. 

(1) Applicable Beneficiary 

Applicable beneficiary is defined in 

§ 423.100. We clarify that enrollees in 

employer-sponsored group prescription 

drug plans (as defined in § 423.454) may 

qualify as applicable beneficiaries. 

(2) Applicable Drug 

Applicable drug is defined in 

§ 423.100. We clarify that applicable 

drugs include all covered Part D drugs 

marketed under a new drug application 

(NDA) or biologics license application 

(BLA) (other than a product licensed 

under section 351(k) of the Public 

Health Service Act). This means that 

such drugs and biological products 

would be subject to an applicable 

discount in the coverage gap even if a 

Part D sponsor otherwise treats the 

product as a generic under its benefit. 

Conversely, covered Part D drugs that 

are marketed under trade names and 

generally thought of as brand-name 

drugs or biological products, but are not 

approved under an NDA or licensed 

under a BLA (other than a product 

licensed under section 351(k) of the 

Public Health Service Act), are not 

applicable drugs that would be subject 

to an applicable discount in the 

coverage gap. Finally, drugs excluded 

from Part D under section 1860D– 

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

D drugs and therefore, such drugs 

would not be applicable drugs subject to 

an applicable discount even if covered 

by the Part D sponsor under an 

enhanced benefit. Part D sponsors 

would need to make these 

determinations on a National Drug Code 

(NDC) by NDC basis. 

The second part of the definition 

provides that an applicable drug is 

either available on-formulary if a Part D 

sponsor uses a formulary, or available 

under the benefits provided by a Part D 

sponsor that does not use a formulary, 

or available to a particular beneficiary 

through an exception or appeal for that 

particular beneficiary. Applicable drugs 

covered under transition requirements 

and emergency fill policies are 

considered covered through an 

exception and, therefore, would be 

subject to applicable discounts. 

In addition, we interpret the 

definition of an applicable drug for 

purposes of the Discount Program to 

exclude Part D compounds. While Part 

D sponsors may cover compounds with 

at least one Part D drug ingredient, and 

that ingredient would be an applicable 

drug if dispensed on its own, in light of 

the operational difficulty in accurately 

determining which portion(s) of a Part 

D compound represents the Part D drug, 

we believe that the applicable drug 

determination must be made with 

respect to the compound as a whole. 

Given that a compound as a whole is 

not approved under an NDA or BLA, a 

compound does not meet the definition 

of an applicable drug. 

(3) Incurred Costs 

Section 3301 of the Affordable Care 

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

Act by adding subparagraph (E) when 

applying subparagraph (A) to include 

the negotiated price (as defined in 

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22080 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

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

of the Act) of an applicable drug of a 

manufacturer that is furnished to an 

applicable beneficiary under Medicare 

Coverage Gap Discount Program 

regardless of whether part of such costs 

were paid by a manufacturer under such 

program, except that incurred costs 

shall not include the portion of the 

negotiated price that represents the 

reduction in coinsurance resulting from 

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

is, gap coverage). Therefore, we 

proposed to revise the definition of 

incurred costs in § 423.100 by adding 

the following language to paragraph 

(2)(ii) of such definition—‘‘or by a 

manufacturer as payment for an 

applicable discount (as defined 

§ 423.2305) under the Medicare 

Coverage Gap Discount Program (as 

defined in § 423.2305)’’. This would 

mean that all applicable discounts paid 

by manufacturers would be treated as 

incurred costs for purposes of 

calculating the beneficiary’s TrOOP. 

(4) Manufacturer 

Section 1860D–14A(g)(5) of the Act 

defines manufacturer under the 

Discount Program as any entity which is 

engaged in the production, preparation, 

propagation, compounding, conversion 

or processing of prescription drug 

products, either directly or indirectly, 

by extraction from substances of natural 

origin, or independently by means of 

chemical synthesis, or by a combination 

of extraction and chemical synthesis. 

Such term does not include a wholesale 

distributor of drugs or a retail pharmacy 

licensed under State law. We proposed 

to adopt this statutory language in 

§ 423.2305 and also add the following 

clarifying language ‘‘but includes 

entities otherwise engaged in 

repackaging or changing the container, 

wrapper, or labeling of any applicable 

drug product in furtherance of the 

distribution of the applicable drug from 

the original place of manufacture to the 

person who makes the final delivery or 

sale to the ultimate consumer for use.’’ 

We proposed adding this language to 

the definition to track the defined term 

in the Discount Program Agreement, 

and because we believe this is the only 

practical way to define manufacturer 

under the Discount Program so that we 

can accurately assign responsibility for 

the discounts. While applicable drugs 

may actually be made by a limited 

number of companies, many more 

companies commonly label, relabel or 

repackage drug products and market 

them with unique labeler codes. It 

would be very difficult, if not 

impossible, to track all labeled, 

relabeled or repackaged products back 

to the original maker of the drug if we 

limited the definition of manufacturer to 

the original maker. Therefore, for 

purposes of the Discount Program, we 

interpret the definition of 

‘‘manufacturer’’ in § 423.2305 to mean 

any company associated with a unique 

labeler code included in the NDCs of the 

applicable drugs dispensed by 

pharmacies. 

Applicable drugs are generally 

marketed with labels that include the 

product’s NDC number. In any NDC, the 

labeler code segment uniquely 

corresponds to a single company. While 

the same applicable drug may be 

marketed by multiple companies, only 

one company is linked to a unique 

labeler code. All manufacturers of 

applicable drugs, meaning all 

companies that label applicable drugs 

with unique labeler codes, would be 

required to sign an agreement for any 

applicable drugs with such labeler 

codes to be covered under Medicare Part 

D as of January 1, 2011. Only one 

manufacturer would be identified with 

each labeler code and, therefore, only 

one manufacturer would be responsible 

for paying applicable discounts 

associated with that labeler code at any 

given time. 

(5) Medicare Part D Discount 

Information 

In accordance with section 1860D– 

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

TPA to provide adequate and timely 

information to manufacturers, 

consistent with the Discount Program 

Agreement with the manufacturers, as 

necessary for the manufacturer to fulfill 

its obligations under the Discount 

Program. Accordingly, we require the 

TPA to invoice each manufacturer each 

quarter on behalf of Part D sponsors for 

the applicable discounts advanced by 

the Part D sponsors to applicable 

beneficiaries and reported to CMS on 

the prescription drug event (PDE) 

records. The TPA also provides 

information to the manufacturer along 

with each quarterly invoice that is 

derived from applicable data elements 

available on PDE records as determined 

by CMS. We proposed to define this 

information in § 423.2305 as Medicare 

Part D Discount Information. 

Generally, the Medicare Part D 

Discount Information would include 

certain claim-level detail derived from 

the PDE record. Information such as 

applicable drug NDC, dispensing 

pharmacy, quantity dispensed, date of 

service, days supply, prescription and 

fill number, and reported gap discount 

would be provided. We would provide 

this information so that a manufacturer 

could evaluate the accuracy of claimed 

discounts and resolve disputes 

concerning the manufacturer’s payment 

obligations under the Discount Program. 

Under the current Medicare Coverage 

Gap Discount Program Agreement with 

manufacturers, ‘‘Medicare Part D 

Discount Information’’ refers to the 

information derived from applicable 

data elements available on PDEs and set 

forth in Exhibit A of the Agreement that 

will be sent from the TPA to the 

manufacturer along with each quarterly 

invoice. However, we proposed to apply 

CMS’s cell-size suppression policy to 

the information we would release to 

manufacturers when 10 or fewer 

beneficiaries with the same applicable 

drug (identified as having the same first 

2 segments of NDC) have claims at the 

same pharmacy (‘‘low-volume claims’’). 

Specifically, we proposed to withhold 

the pharmacy identifier information for 

these claims as an additional safeguard 

for preventing manufacturers from 

receiving information that could 

potentially be used to identify 

beneficiaries. 

(6) Negotiated Price 

We proposed to define negotiated 

price for purposes of the Discount 

Program consistent with section 1860D– 

14A(g)(6) of the Act, which defines 

‘‘negotiated price’’ in terms of its 

meaning in § 423.100 as of the date of 

enactment of the section (that is, as of 

March 23, 2010), except that such 

definition does not include dispensing 

fees. Part D vaccine administration fees 

would be excluded from the definition 

of negotiated price for purposes of the 

Discount Program because we believe 

that, for purposes of the Discount 

Program, they are analogous to 

dispensing fees, which are explicitly 

excluded from the definition of 

negotiated price for purposes of 

determining the applicable discount. 

Unlike sales tax, dispensing fees and 

vaccine administration fees pay for 

services apart from the applicable drug 

itself. This is made clear by the fact that 

a vaccine administration fee may be 

billed separately from the dispensing of 

the vaccine. Sales tax remains included 

in the definition of negotiated price 

under the Discount Program. Thus, we 

proposed to define ‘‘negotiated price’’ 

for purposes of the Discount Program 

and this subpart as: the price for a 

covered Part D drug that—(1) The Part 

D sponsor (or other intermediary 

contracting organization) and the 

network dispensing pharmacy or other 

network dispensing provider have 

negotiated as the amount such network 

entity will receive, in total, for a 

particular drug; (2) is reduced by those 

discounts, direct or indirect subsidies, 

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rebates, other price concessions, and 

direct or indirect remuneration that the 

Part D sponsor has elected to pass 

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

fee or vaccine administration fee for the 

applicable drug. 

Further, although the statutory 

definition speaks only to the negotiated 

price with respect to a network 

pharmacy, given that there is no 

limitation on an applicable beneficiary’s 

entitlement to applicable discounts on 

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

intended to exclude these discounts 

from the Discount Program. Therefore, 

we proposed to specify in § 423.2305 

that the negotiated price also means, for 

purposes of out-of-network claims, the 

plan allowance as determined under 

§ 423.124, less any dispensing fee and 

vaccine administration fee. 

(7) Other Health or Prescription Drug 

Coverage 

Section 1860D–14A(c)(1)(A)(v) of the 

Act requires that the applicable 

discount get applied before any 

coverage or financial assistance under 

other health benefit plans or programs 

that provide coverage or financial 

assistance for the purchase or provision 

of prescription drug coverage on behalf 

of applicable beneficiaries. Section 

423.2305 of the proposed rule would 

define the term ‘‘other health or 

prescription drug coverage’’ as any 

coverage or financial assistance under 

other health benefit plans or programs 

that provide coverage or financial 

assistance for the purchase or provision 

of prescription drug coverage on behalf 

of applicable beneficiaries. This would 

include any programs that provide 

coverage or financial assistance outside 

of Part D. Thus, the applicable discount 

would apply before any ‘‘other health or 

prescription drug coverage’’ such as 

state pharmaceutical assistance 

programs (SPAPs), Aids Drug Assistance 

Programs (ADAPs), Indian Health 

Service, or supplemental coverage 

required by the Commonwealth of 

Puerto Rico. 

In addition, we proposed to include 

in the definition of ‘‘other health or 

prescription drug coverage’’ any 

coverage offered through employer 

group health or waiver plans (EGWPs) 

other than basic prescription drug 

coverage as defined in § 423.100. We 

also proposed to make a conforming 

change to the definition of supplemental 

benefits in § 423.100 to exclude benefits 

offered by EGWPs. With respect to 

EGWPs, this would mean that a 

manufacturer discount always would be 

applied before any additional coverage 

beyond Part D, whether offered by the 

EGWP itself or by another party. We 

believe a clear standard in this regard is 

necessary to ensure we can properly 

administer the Discount Program for 

EGWP enrollees in light of our existing 

policies and procedures with respect to 

EGWPs. 

Comment: A commenter 

recommended that we allow the 

determination of ‘‘applicable drug’’ 

status to be based upon plan formulary 

categorization as ‘‘brand name’’ or 

‘‘generic’’ as opposed to being based 

upon the FDA approved marketing 

category. 

Response: We disagree with this 

commenter. Section 1860D–14A(g)(2) of 

the Act clearly defines an applicable 

drug based upon its FDA marketing 

category as approved under a new drug 

application or licensed under a 

biologics license application. The 

definition proposed in § 423.2305 is 

consistent with the statute, and we do 

not have the authority to define it 

differently based upon formulary 

categorization. 

Comment: A commenter supported 

our exclusion of Part D compounds from 

the definition of an applicable drug. 

However, another commenter stated that 

our exclusion of compounds from the 

definition of applicable drug was 

inconsistent with including compounds 

in the definition of a Part D drug. 

Response: We disagree with the 

commenter that stated our exclusion of 

compounds from the definition of 

‘‘applicable drug’’ was inconsistent with 

including compounds in the definition 

of a Part D drug. Whereas Part D 

sponsors can accurately determine that 

a compound has at least one Part D 

ingredient and the costs associated with 

such ingredient(s), we believe there are 

additional complexities associated with 

trying to accurately determine and 

validate discounts on an ingredientlevel basis that require us to consider 

the compound as a whole for purposes 

of the Discount Program. Moreover, 

because a compound as a whole is not 

approved by the FDA under a new drug 

application or licensed under a 

biologics license application, a 

compound does not meet the definition 

of an applicable drug. 

Comment: A few commenters 

supported our proposal to withhold 

specific data elements from the 

Medicare Part D Discount Information 

for low-volume claims. However, 

several commenters opposed our 

proposal. These commenters 

emphasized that the Medicare Part D 

Discount Information does not include 

any identifying beneficiary information 

and that under the Discount Program 

Agreement, manufacturers cannot: (1) 

link Medicare Part D Discount 

Information to any other data; or (2) use 

Medicare Part D Discount Information 

for purposes unrelated to the Coverage 

Gap Discount Program, such as to 

identify beneficiaries. They believe that 

all of the Medicare Part D Discount 

information is necessary to accurately 

validate claims and to determine that a 

drug was appropriately covered under 

Medicare Part D as opposed to Medicare 

Part B. 

Response: We appreciate all of the 

comments and have decided not to 

finalize the proposal to withhold 

additional data elements for low-volume 

claims. This proposal was intended to 

codify a prior CMS policy to withhold 

certain data elements on low-volume 

claims that has since changed and is no 

longer applicable. 

Comment: A number of commenters 

requested that CMS change the 

definition of negotiated price under the 

Coverage Gap Discount Program to 

include dispensing and vaccine 

administration fees so that it is 

consistent with the other phases of the 

benefit. Further, they recommended that 

if the definition is not changed, we 

require point-of-sale notice that the 

dispensing fee or vaccine administration 

fee is not discounted and also include 

similar language on the explanation of 

benefits. 

Response: Section 1860D–14A(g)(6) of 

the Affordable Care Act defines 

‘‘negotiated price’’ for purposes of the 

Coverage Gap Discount Program and gap 

coverage in terms of its meaning in 

§ 423.100 as of the date of enactment of 

the section (that is, as of March 23, 

2010), except that such definition does 

not include dispensing fees. Since the 

statute clearly excludes dispensing fee 

from the definition, we do not have the 

authority to include it in the definition. 

As for vaccine administration fees, we 

continue to believe that, for purposes of 

the Discount Program, they are 

analogous to dispensing fees and, 

therefore, do not fall within the 

definition of ‘‘negotiated price.’’ 

We also believe it is neither necessary 

nor practical to require beneficiary 

notification on every discounted claim 

that the beneficiary is responsible for 

paying the entire dispensing fee or 

vaccine administration fee. Electronic 

pharmacy transactions processed under 

the Health Insurance Portability and 

Accountability (HIPAA) approved 

National Council for Prescription Drug 

Programs electronic standard do not 

provide pharmacies with sufficient 

information at point-of-sale to know 

whether the beneficiary is paying the 

dispensing fee on a claim. Nevertheless, 

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we understand there is a need for more 

clarification with respect to beneficiary 

liability for dispensing and vaccine 

administration fees for applicable drugs 

in the coverage gap and thus have 

provided guidance in the 2013 Advance 

Notice clarifying how manufacturer, 

beneficiary, and Part D sponsor 

liabilities, including dispensing fee 

liabilities, for coverage gap claims must 

be determined beginning in 2013. 

Comment: Several commenters 

supported our proposal to define all 

supplemental benefits offered by 

employer group waiver plans (EGWPs) 

as other health or prescription drug 

coverage that are not Part D benefits. 

However, a few commenters opposed 

the proposal and contend that CMS does 

not have the authority to adopt this 

proposal and that it would be 

imprudent to adopt the proposal even if 

CMS had the authority to do so. They 

state that CMS cannot use its waiver 

authority under section 1860D–22(b) of 

the Act because it is not a waiver of a 

requirement that hinders the design of, 

the offering of, or the enrollment in 

employer sponsored coverage. 

Response: We disagree with the 

commenters who believe that we do not 

have the authority to exclude any 

coverage offered through EGWPs, other 

than basic prescription drug coverage as 

defined in § 423.100, from the definition 

of Part D supplemental benefits and, 

therefore, treat them as other health or 

prescription drug coverage. Under 

current waivers authorized by section 

1860D–22(b) of the Act, EGWP sponsors 

submit only one formulary and a 

standard-defined benefit package for 

review by CMS. We waived the 

requirement for EGWPs to submit final 

benefit packages and formularies 

because we believe upholding the 

requirement would hinder the design, 

offering, or enrollment in employersponsored coverage given the additional 

complexity and level of effort that 

would be required of EGWPs to submit 

all applicable information on all such 

benefit packages. Consequently, we 

have never reviewed any supplemental 

benefits offered through EGWPs as Part 

D benefits nor have we provided 

guidance that such benefits are 

Medicare or non-Medicare benefits. In 

the absence of such guidance, we are 

aware that some EGWPs previously may 

have considered these supplemental 

benefits to be Medicare benefits while 

others may have considered them to be 

non-Medicare benefits. 

As discussed in the proposed rule, the 

Discount Program now makes it crucial 

to be able to distinguish Part D benefits 

(which apply before the applicable 

discount) from non-Medicare benefits 

(which apply after the applicable 

discount). In order to make this 

distinction consistently and accurately, 

we believe it is necessary to define all 

such supplemental benefits as other 

health or prescription drug coverage 

because requiring submission of benefit 

packages would hinder the design of, 

the offering of, or the enrollment in 

employer-sponsored coverage for the 

same reasons that we currently waive 

the requirement for EGWPs to submit 

final benefit packages and formularies 

as well as a high probability that many 

of these supplemental benefits are also 

governed by other non-Medicare rules 

(for example ERISA) and collective 

bargaining agreements that could make 

it difficult to comply with Part D rules. 

Moreover, while the submission 

requirement itself would be a 

hindrance, the effort required to 

restructure benefits to provide all 

additional gap coverage as other 

coverage in order to maximize 

discounts, which we could not prevent, 

would add costs and complexity to the 

provision of EGWP coverage and, 

therefore, additionally hinder the design 

and offering of employer sponsored 

coverage. Accordingly, we believe it is 

necessary to use the waiver authority 

under section 1860D–22(b) of the Act to 

explicitly exclude any supplemental 

benefits offered through EGWPs (which 

we do not review and have never 

reviewed) from Part D supplemental 

benefits and define them as other health 

or prescription drug coverage. 

Comment: Several commenters 

requested that we clarify the effective 

date for defining any coverage offered 

through EGWPs, other than basic 

prescription drug coverage as defined in 

§ 423.100, as other health or 

prescription drug coverage is January 1, 

2013. 

Response: We clarify that, beginning 

on January 1, 2013, EGWP supplemental 

benefits over basic Part D coverage must 

be treated as other health or prescription 

drug coverage. We are designating 

January 1, 2013 as the applicable date of 

this requirement in order to avoid 

midyear disruptions of operations for 

any EGWPs that currently treat 

supplemental benefits as Medicare 

benefits and therefore, calculate the 

discount after applying such benefits. 

This will provide them time to align 

their systems to meet the January 1, 

2013 requirements. 

Comment: A commenter requested 

that CMS clarify that coverage offered 

through EGWPs, other than basic 

prescription drug coverage as defined in 

§ 423.100, will be defined as other 

health or prescription drug coverage 

only for purposes of the Coverage Gap 

Discount Program but not for other 

purposes such as appeals and 

grievances. 

Response: Beginning January 1, 2013, 

any coverage offered through EGWPs, 

other than basic prescription drug 

coverage as defined in § 423.100, will be 

defined as other health or prescription 

drug coverage and not considered 

Medicare benefits. This definition 

applies to all of Medicare Part D and is 

not limited to the Discount Program. 

While the Discount Program triggered 

our decision to explicitly exclude 

supplemental coverage offered through 

EGWPs from Part D supplemental 

benefits, we believe it is necessary to 

apply the exclusion more broadly for 

the same reasons it is necessary under 

the Discount Program. Specifically, 

because we do not receive and review 

these benefits we cannot appropriately 

oversee their provision and requiring 

submission of these benefits needs to be 

waived because we believe it would 

hinder the design of, offering, or 

enrollment in employer sponsored 

coverage. Therefore, other Medicare Part 

D requirements, such as those related to 

appeals and grievances, will not apply 

to these non-Medicare benefits. 

After consideration of the public 

comments received, we are finalizing 

these definitions with one modification. 

We are not finalizing our proposal to 

withhold some of the Medicare Part D 

Discount Information from 

manufacturers on low-volume claims. 

All definitions will be effective and 

applicable 60 days after publication of 

the rule, except for the definition of 

‘‘other health or prescription drug 

coverage’’ found in § 423.2305 and the 

conforming change to the definition of 

supplemental benefits in § 423.100 to 

exclude benefits offered by EGWPs, 

which definition and change to an 

existing definition will on January 1, 

2013. 

c. Condition for Coverage of Drugs 

Under Part D (§ 423.2310) 

Section 1860D–43(a) of the Act 

specifies that in order for coverage 

under Part D to be available for the 

covered Part D drugs (as defined in 

section 1860D–2(e) of the Act)) of a 

manufacturer, that manufacturer must 

agree to participate in the Discount 

Program, enter into a Discount Program 

Agreement, and enter into an agreement 

with the TPA. Although the statute 

contemplates that all manufacturers of 

covered Part D drugs must sign Discount 

Program Agreements in order for 

coverage under Part D to be available for 

such drugs, when read in context with 

the other provisions governing the 

Discount Program, we believe the 

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plainest reading of section 1860D–43(a) 

of the Act is both inappropriate and 

infeasible. Thus, in implementing the 

Discount Program last year, we specified 

in program guidance that the exclusion 

from Part D coverage applies only to the 

applicable drugs of a manufacturer that 

fails to sign the Agreement and 

participate in the Discount Program. We 

currently apply the exclusion from Part 

D coverage only to a manufacturer’s 

applicable drugs. Other Part D drugs, 

such as generic drugs (as defined in 

§ 423.4) of a manufacturer continue to 

be covered under Medicare Part D 

irrespective of the manufacturer’s 

participation in the Discount Program. 

We proposed to codify this policy in 

regulations. 

Section 1860D–43(c)(1) of the Act 

authorizes us to allow coverage for 

drugs that are not covered by Discount 

Program Agreements if we have made a 

determination that the availability of the 

drug is essential to the health of 

beneficiaries under this part, and we 

proposed to codify this requirement in 

§ 423.2310(b) of our proposed rule. 

However, we believe it is highly 

unlikely that we will need to exercise 

this authority given the strong 

participation by manufacturers in the 

Discount Program since 2011 and the 

likely availability of therapeutic 

alternatives for any Part D drugs. 

Comment: Many commenters 

supported our proposal to exclude only 

applicable drugs that are not covered by 

a signed manufacturer agreement from 

Medicare Part D and continue to allow 

coverage of other Part D drugs, such as 

generic drugs, irrespective of a 

manufacturer’s participation in the 

Coverage Gap Discount Program. 

However, a commenter recommended 

that we delay codifying this proposal 

until the Discount Program is fully 

implemented and until evidence exists 

that manufacturers plan to continue 

participating in the Discount Program. 

Response: We agree with commenters 

that supported our proposal and do not 

believe it is necessary to delay codifying 

it until there has been more experience 

with the Discount Program. We believe 

it is important to codify this provision 

now to provide certainty about our 

policy. 

After consideration of the public 

comments received, we are finalizing 

the policies in this section without 

modification except for the technical 

correction to § 423.2315(b)(7) that 

clarifies manufacturers must provide 

timely information about discontinued 

drugs to enable the publication of 

accurate information regarding what 

drugs, identified by NDC, are in current 

distribution. 

d. Medicare Coverage Gap Discount 

Program Agreement (§ 423.2315) 

Section 1860D–14A of the Act 

requires us to enter into agreements 

with manufacturers that participate in 

the Discount Program and to establish a 

model agreement in accordance with 

terms specified under section 1860D– 

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

performance of duties required under 

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

consultation with manufacturers, we 

established the model agreement on 

August 1, 2010 and proposed to codify 

in § 423.2315 provisions that we believe 

must be included in the model 

agreement in order to meet the statutory 

requirements in these sections. 

(1) Obligations of the Manufacturer 

Section 1860D–14(A)(b)(1) of the Act 

specifies that the Discount Program 

Agreement between CMS and the 

manufacturers shall require 

manufacturers to provide applicable 

beneficiaries access to applicable 

discounts for applicable drugs of the 

manufacturer at the point-of-sale. In 

light of how the Discount Program has 

been structured (see the discussion in 

section II.A.1. of the October 11, 2011 

proposed rule) (76 FR 63018) we 

proposed to implement this requirement 

as set forth in the current Discount 

Program Agreement. That is, we 

proposed in § 423.2315(b)(2) to require 

manufacturers to reimburse all 

applicable discounts provided by Part D 

sponsors on behalf of the manufacturer 

for all applicable drugs having NDCs 

with the manufacturer’s FDA-assigned 

labeler code(s) that were invoiced to the 

manufacturer within a maximum of 3 

years of the date of dispensing based 

upon information reported to CMS by 

Part D sponsors and used by the TPA to 

calculate the invoice. 

In order for CMS and Part D sponsors 

to determine which applicable drugs are 

covered by Discount Program 

Agreements, the manufacturers must 

provide CMS in advance with the FDAassigned labeler code(s) for all 

applicable drug NDCs covered by their 

Discount Program Agreement. Under the 

current Discount Program Agreement, 

manufacturers must provide all of their 

labeler codes to CMS and must 

promptly update CMS with any 

additional labeler codes for applicable 

drugs no later than 3 business days after 

learning of a new code assigned by the 

FDA. We included this requirement in 

the Discount Program Agreement 

because, for the reasons previously 

described, it is the most efficient and 

accurate way to track which 

manufacturer is responsible for paying 

the applicable discount for an 

applicable drug and to assist Part D 

sponsors in determining which drugs 

are applicable drugs. We maintain an 

up-to-date listing of the labeler codes 

covered under the Discount Program 

Agreements on the CMS Web site so that 

Part D sponsors can determine which 

labeler codes are covered by a Discount 

Program Agreement. To ensure that we 

have up-to-date information for this 

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

manufacturers to provide CMS with all 

labeler codes for all the manufacturer’s 

applicable drugs and promptly update 

CMS with additional labeler codes for 

applicable drugs no later than 3 

business days after learning of a new 

code assigned by the FDA. 

To permit CMS and Part D sponsors 

to accurately identify applicable drugs, 

we proposed to codify the requirement 

set forth in the Discount Program 

Agreement that manufacturers 

electronically list and maintain an upto-date electronic listing of all NDCs of 

the manufacturer, including the timely 

removal of discontinued NDCs, in the 

FDA NDC Directory. We believe this 

requirement will help ensure that all 

currently marketed applicable drugs are 

subject to the applicable discount and 

that only currently marketed applicable 

drugs are subject to the discount. 

Because manufacturers know the 

regulatory and marketing status of their 

products, they are in the best position 

to make this information available to 

Part D sponsors and CMS. We believe 

maintaining an up-to-date FDA 

electronic listing provides the most 

efficient, timely, and authoritative 

mechanism to accomplish this purpose 

while placing little additional burden 

on manufacturers that already must use 

the FDA electronic registration and 

listing system to comply with other FDA 

requirements. In this final rule with 

comment period, we are making a 

technical correction to this requirement 

by specifying that manufacturers 

provide timely information about 

discontinued drugs to enable the 

publication of accurate information 

regarding what drugs, identified by 

NDC, are in current distribution. This 

language replaces the requirement that 

manufacturers timely remove 

discontinued NDCs in the FDA NDC 

Directory because we realized that it is 

the FDA that makes the determination 

to remove NDCs based upon 

information provided by the 

manufacturer. 

We also proposed to require 

manufacturers to maintain up-to-date 

NDC listings with the electronic 

database vendors for which they 

provide their NDCs for pharmacy claims 

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22084 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

processing. Part D sponsors and the rest 

of the pharmacy industry rely upon 

these databases for adjudication of 

pharmacy claims at the point-of-sale, 

including discounting applicable drugs, 

and, therefore it is imperative that the 

information in these databases is 

accurate and up-to-date. Our proposal 

would require manufacturers to ensure 

that electronic database vendors are 

prospectively notified of expiration 

dates for NDCs of products that are no 

longer available on the market. We 

believe this requirement will benefit 

manufacturers because it will ensure 

that applicable discounts cease being 

applied as of the last lot expiration date 

of an applicable drug that is no longer 

on the market. 

In implementing the Discount 

Program Agreement, we required 

manufacturers to pay each Part D 

sponsor in the manner specified by us 

within 38 calendar days of receipt of an 

invoice and Medicare Part D Discount 

Information for the quarterly applicable 

discounts included on the invoice. As 

previously described, we implemented 

the Discount Program such that Part D 

sponsors pay applicable discounts on 

behalf of manufacturers in order to 

comply with the statutory mandate that 

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

manufacturers to reimburse Part D 

sponsors promptly because it is the 

manufacturers that are financially 

responsible for payment of applicable 

discounts. Given this structure, we 

proposed to codify this requirement at 

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

§ 423.2315(b)(10) to require that 

manufacturers pay the quarterly 

invoices to accounts established by Part 

D sponsors via electronic funds transfer, 

unless otherwise specified by CMS, and 

within 5 business days of the transfer 

provide the TPA with electronic 

documentation of payment in a manner 

specified by CMS. We believe these 

requirements are appropriate because 

they provide sufficient time for 

manufacturers to process the 

information in order to make the 

payments and are generally consistent 

with manufacturer obligations under the 

Medicaid Drug Rebate Program. 

Moreover, § 423.2315(b)(2) would 

prohibit manufacturers from 

withholding discount payments for their 

applicable drugs pending dispute 

resolution and, therefore, the 38-day 

requirement applies even if the 

manufacturer decides to dispute 

discount payments. As noted in our 

May 21, 2010 guidance, we believe this 

requirement is necessary to ensure that 

the manufacturer discounts are paid to 

Part D sponsors in a timely manner and 

are not delayed due to disputed 

amounts. We address our proposals 

with respect to manufacturers’ disputes 

later in this section of the final rule with 

comment period. 

Section 1860D–14A(b)(2) of the Act 

requires each manufacturer with an 

executed Discount Program Agreement 

in effect to collect and have available 

appropriate data, as determined by 

CMS, to ensure that it can demonstrate 

to CMS compliance with the 

requirements under the Discount 

Program. In § 423.2315(b)(5), we would 

codify this requirement by specifying 

that such information would include 

data related to manufacturer labeler 

codes, FDA drug approvals, FDA NDC 

Directory listings, NDC last lot 

expiration dates, utilization and pricing 

information relied on by the 

manufacturer to dispute quarterly 

invoices and any other data we 

determine are necessary to carry out the 

Discount Program. In addition, 

manufacturers must collect, have 

available and maintain such information 

for a period of not less than 10 years 

from the date of payment of the invoice. 

The minimum 10-year retention 

requirement aligns with the standard 

Part D record retention requirement for 

Part D sponsors, thereby ensuring that 

applicable information would be 

maintained by manufacturers for the 

same time period. 

Section 423.2315(b)(6) would require 

manufacturers to comply with the audit 

and the dispute resolution requirements 

proposed in § 423.2330, which are 

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

final rule with comment period. 

Section 1860D–43(a)(3) of the Act 

requires manufacturers to enter into and 

have in effect, under terms and 

conditions specified by CMS, a contract 

with a third party that CMS contracted 

with under subsection (d)(3) of section 

1860D–14A of the Act. We proposed to 

codify this requirement in 

§ 423.2315(b)(9) by requiring the 

manufacturer to enter into and have in 

effect, under terms and conditions 

specified by CMS, an agreement with 

the TPA that has a contract under 

section 1860D–14A(d)(3) of the Act. 

Finally, proposed § 423.2315(b)(11) 

would restrict the use of information 

disclosed to the manufacturer on the 

invoice, as part of the Medicare Part D 

Discount Information, or upon audit or 

dispute such that the manufacturer 

could use such information only for 

purposes of paying the discount under 

the Discount Program. This means that 

manufacturers would be allowed to use 

the information only as necessary to 

evaluate the accuracy of invoiced 

discounts and resolve disputes 

concerning the manufacturer’s payment 

obligations under the Discount Program. 

We believe this is an important 

limitation because we are making claimlevel detail available to manufacturers 

that is not otherwise available to the 

public and therefore, should not be used 

for reasons beyond which it is being 

made available. As specified in the Data 

Use Provisions in Exhibit C of the 

Discount Program Agreement, the 

manufacturer would be prohibited from 

using the information to perform any 

functions not governed by the Discount 

Program Agreement, including, but not 

limited to, determination of nonCoverage Gap Discount payments to Part 

D sponsors and their subcontractors, 

payments to other providers of health 

and drug benefits under any Federal 

health care program or for marketing 

activities. Nevertheless, we recognize 

that manufacturers need to account for 

the discounts for financial statement 

forecasting and accounting purposes 

and therefore, these restrictions would 

not apply to the use of aggregated, 

summary-level data (that is, not 

prescription or claim-level data) for 

such purposes. 

(2) Timing and Length of Agreement 

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

states that in order for an agreement 

with a manufacturer to be in effect 

under this section with respect to the 

period beginning on January 1, 2011, 

and ending on December 31, 2011, the 

manufacturer shall enter into such 

agreement not later than 30 days after 

the date of establishment of a model 

agreement. It also states that for 2012 

and subsequent years the manufacturer 

shall enter into such agreement (or such 

agreement shall be renewed) not later 

than January 30 of the preceding year. 

We proposed to codify these 

requirements in § 423.23.15(c)(1) and 

(c)(2). 

Section 1860D–14A(b)(4)(A) of the 

Act also states that an agreement shall 

be effective for an initial period of not 

less than 18 months and shall 

automatically be renewed for a period of 

not less than 1 year unless terminated 

under section 1860D–14A(b)(4)(B) of the 

Act. To ensure that the end of the initial 

term of each Discount Program 

Agreement corresponds to the end of a 

calendar year, § 423.2315(c)(3) would 

specify that all Discount Program 

Agreements have an initial period of 24 

months, with automatic renewal for a 

period of 1 year each January 1 

thereafter, unless the agreement is 

terminated in accordance with 

§ 423.2345. 

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 22085 

Comment: A commenter requested 

that CMS clearly state that the Discount 

Program Agreement cannot be modified 

through rulemaking. The commenter 

argued that the Discount Program 

Agreement predates the regulations and 

already states, ‘‘the Manufacturer’s full 

compliance with the responsibilities 

listed * * * in Section II shall 

constitute satisfaction of the 

Manufacturer’s responsibilities under 

the Discount Program.’’ They point out 

that the proposed rule generally tracks 

the manufacturers obligations set forth 

in the Discount Program Agreement but 

are not identical in a number of ways. 

The commenter recommended that CMS 

reaffirm that manufacturers’ obligations 

are limited to those listed in Section II 

of the Discount Program Agreement. 

Response: We disagree with the 

commenter that we cannot modify the 

Discount Program Agreement through 

rulemaking. The Affordable Care Act 

required us to establish a model 

Discount Program Agreement, in 

consultation with manufacturers, and 

allow for comment on such model 

agreement. Section IX (g) of the model 

agreement specifies that CMS retains the 

authority to amend the model agreement 

after consulting with manufacturers and 

allowing for comment on such 

amendments. While formal rulemaking 

is not the only mechanism for 

consulting with manufacturers, we 

believe the notice and comment 

rulemaking process clearly meets the 

requirement for consultation with 

manufacturers and allowing for 

comment. 

In some instances we proposed new 

requirements. For example, we 

proposed to amend the Discount 

Program Agreement by adding a 

requirement that manufacturers 

maintain up-to-date NDC listings with 

the electronic database vendors for 

which manufacturers provide NDCs for 

pharmacy claims processing. In other 

instances, the proposed language was 

intended to mirror the current model 

Discount Program Agreement 

requirement even if the language is not 

identical. We will review the language 

in the model Discount Program 

Agreement and make conforming 

changes if we believe it is necessary to 

remove any ambiguity between the 

regulation and the model agreement. 

This is consistent with our approach to 

amending Medicare Part C/D 

agreements with Part D sponsors 

whereby we generally codify 

requirements and amend the agreements 

during the next contracting cycle, which 

in this case will be for calendar year 

2014. Nevertheless, these codified 

requirements become effective 60 days 

after the date of publication of this final 

rule with comment period in the 

Federal Register. Finally, we stated in 

the proposed rule that we were not 

codifying all of the provisions in the 

model Discount Program Agreement; we 

therefore do not intend to make further 

changes to any such provisions without 

first consulting with the manufacturers. 

Comment: A few commenters 

supported our proposal to codify the 

requirement that manufacturers 

electronically list and maintain up-todate electronic listings of all national 

drug codes (NDCs) of the manufacturer, 

including the timely removal of 

discontinued NDCs, in the FDA NDC 

Directory. These commenters also 

supported our proposal to require 

manufacturers to maintain up-to-date 

NDC listings with the electronic 

database vendors for which they 

provide their NDCs for pharmacy claims 

processing. However, these commenters 

do not believe our proposal goes far 

enough because it does not specify that 

the manufacturer must ensure their 

listings are accurate and therefore 

recommend that we impose monetary 

penalties and sanctions on 

manufacturers for inaccurate or out-ofdate information. 

Response: We believe that 

manufacturers are already required to 

provide the FDA with accurate 

information. We continue to work with 

the FDA on improving the availability of 

Part D drug information and could 

potentially implement additional 

prescription drug event (PDE) measures 

in the future to ensure that we only 

accept PDEs with NDCs that represent 

currently marketed drug products. We 

do not believe we have the authority 

under the Discount Program to impose 

monetary penalties on manufacturers for 

inaccurate or out-of-date information 

listed with the FDA, but we will 

consider other compliance actions 

against manufacturers that fail to fulfill 

their obligations under the Discount 

Program Agreement. 

Comment: A commenter requested 

that we clarify what information 

proposed in § 423.2315(b)(5) would be 

required of manufacturers to maintain 

regarding FDA approval and NDC 

Directory listing information for 10 

years. Specifically, this commenter 

noted that these two categories are 

specified in preamble but are not 

specified in the regulatory text or 

Discount Program Agreement. 

Moreover, the commenter requests that 

we further specify precisely what data 

CMS believes should be collected, kept 

available, and maintained by providing 

illustrative examples. 

Response: We specified the FDA 

approval and NDC Directory listing 

information in the preamble to help 

clarify what data related to 

manufacturer labeler codes needs to be 

collected, kept available, and 

maintained. However, for further clarity 

we will specify these categories in the 

regulatory text. We also clarify that 

pertinent NDC expiration dates refers to 

last lot expiration dates and have made 

this change to the regulation text. We do 

not have other examples that further 

specify the data manufacturers must 

collect, keep available, and maintain 

except to specify that such data should 

include any information that would be 

useful to either dispute or support a 

manufacturer’s obligation to pay 

discounts for its applicable drug 

products under the Discount Program. 

Comment: Many commenters raised 

concerns with the requirement that a 

manufacturer must sign a Discount 

Program Agreement by January 30th of 

the preceding year because it could 

result in new drugs being unavailable 

under Medicare Part D for almost 2 

years if this deadline is missed. They 

point out that some manufacturers may 

not have been aware of the deadline 

because they previously did not 

manufacture any applicable drugs. 

These commenters recommend that we 

consider additional measures, such as 

allowing manufacturers to enter into 

provisional agreements to join the 

Discount Program pending FDA 

approval of a new drug so there would 

not be a waiting period before the drug 

could be covered. In addition, these 

commenters urge CMS to establish a 

process for using its authority under 

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

coverage for Part D drugs not covered 

under agreements if we determine that 

a drug is ‘‘essential to the health of 

beneficiaries.’’ 

Response: We appreciate the concerns 

raised by commenters that new drugs 

manufactured by companies without 

existing Discount Program Agreements 

could be excluded from Medicare Part D 

until the next opportunity to enter into 

the Discount Program. However, the 

deadline of January 30th of the 

preceding year is a statutory deadline. 

But we already allow, and encourage, 

manufacturers without drug products 

currently on the market to sign Discount 

Program Agreements in advance so that 

there would be no waiting period if they 

do begin marketing an applicable drug; 

a number of companies have done so. 

We are also aware that some 

manufacturers have been successful in 

working out licensing arrangements 

with other manufacturers that have 

existing Discount Program Agreements 

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to temporarily include drug products 

under such existing agreements and 

avoid any delay in access under Part D. 

Based on the current level of 

participation by manufacturers and the 

breadth of applicable drugs covered by 

Discount Program Agreements, we do 

not believe it is necessary at this time 

to establish a detailed process for using 

our authority under section 1860D–43(c) 

of the Act to allow coverage for 

applicable drugs not covered by 

Discount Program Agreements. 

After consideration of the public 

comments received, we are finalizing 

the proposals in this section with two 

modifications. We added FDA drug 

approval data and FDA NDC Directory 

listing data to the required information 

in § 423.2315(b)(5) and clarified in 

§ 423.2315(b)(5) that pertinent NDC 

expiration dates refers to NDC last lot 

expiration dates. 

e. Payment Processes for Part D 

Sponsors (§ 423.2320) 

We are finalizing our October 11, 

2011 proposed rule to provide monthly 

interim coverage gap payments to Part D 

sponsors in § 423.2320(a). The interim 

payments ensure that Part D sponsors 

will have the funds available to advance 

the manufacturer discounts to 

applicable beneficiaries at the point of 

sale. We also proposed, and are now 

finalizing, a process to reconcile the 

estimated interim coverage gap discount 

payments with actual Discount Program 

costs in § 423.2320(b). Coverage Gap 

Discount Reconciliation will occur after 

Part D payment reconciliation. 

Comment: A number of commenters 

raised the issue of dispensing fees and 

vaccine administration fees for 

applicable drugs in the coverage gap. 

One requested that CMS clarify plan 

sponsor responsibility in the gap for 

applicable drugs. Others noted that the 

definition of negotiated price is not the 

same in the coverage gap as it is in the 

other phases because it excludes the 

dispensing fee. Commenters noted that 

if beneficiaries must pay dispensing fees 

and vaccine administration fees for 

brand drugs in the gap, this would 

increase their out-of-pocket costs. 

Response: We issued proposed 

guidance on Part D plan sponsor 

liability for dispensing and vaccine 

administration fees in the Advance 

Notice of Methodological Changes for 

Calendar Year (CY) 2013 for Medicare 

Advantage (MA) Capitation Rates, Part C 

and Part D Payment Policies and 2013 

Call Letter, which was published on 

February 17, 2012. Based on comments 

received in response to the Advance 

Notice, we will finalize a policy in the 

Final Rate Announcement. 

f. Provision of Applicable Discounts 

(§ 423.2325) 

(1) Obligations of Part D Sponsors; 

Provision of Point-of-Sale Discounts 

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

Act requires the manufacturer discounts 

to be provided to beneficiaries at the 

point-of-sale. As discussed previously 

in this subpart, manufacturer discounts 

can be provided at point-of-sale only if 

the entity adjudicating the electronic 

pharmacy claim has the information 

necessary to determine at that point in 

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

(2) the beneficiary is an applicable 

beneficiary; (3) the claim is wholly or 

partly in the coverage gap; and (4) the 

amount of the discount, taking into 

consideration Part D supplemental 

benefits that pay first. Working with 

industry experts on electronic 

transactions, we have determined that 

the only entity capable of providing the 

discount at point-of-sale is the Part D 

sponsor because no other entity would 

have all four pieces of information at 

that time. Therefore, § 423.2325(a) 

would require Part D sponsors to 

provide applicable beneficiaries with 

applicable discounts on applicable 

drugs at point-of-sale on behalf of the 

manufacturer. Part D sponsors would be 

required by § 423.2325(b)(1) to 

determine that: (1) an enrollee is an 

applicable beneficiary (as defined in 

§ 423. 100); (2) a Part D drug is an 

applicable drug (as defined in 

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

applicable discount (as defined in 

§ 423.2305) in order to provide a 

discount at point-of-sale. 

Part D sponsors would use the date of 

dispensing for purposes of providing an 

applicable discount at point-of-sale and 

determining the amount of such 

discount. However, if later information 

changes the beneficiary’s eligibility for 

the applicable discount back to the date 

of dispensing (for example, retroactive 

low-income subsidy status changes, or 

retroactive changes resulting from 

automated TrOOP balance transfers 

between Part D sponsors via Financial 

Information Reporting (FIR) 

transactions), or changes the amount of 

the applicable discount or the 

applicable beneficiary’s cost sharing, we 

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

that Part D sponsors make retroactive 

adjustments to the applicable discount 

as necessary to reflect such changes. For 

example, if a claim for an applicable 

drug was originally adjudicated in the 

initial coverage phase but later moved 

into the coverage gap as a result of 

receipt of an automated TrOOP balance 

transfer amount from a previous Part D 

sponsor, the applicable discount and the 

corrected beneficiary cost-sharing 

would be reported on the adjusted PDE. 

Conversely, if an original claim was 

adjudicated in the coverage gap with an 

applicable discount but is later 

reprocessed in the catastrophic phase as 

a result of the receipt of an automated 

TrOOP balance transfer amount, the 

applicable discount reported on the 

adjusted PDE is the mechanism for 

refunding the manufacturer. 

If an applicable beneficiary has a 

claim for an applicable drug that 

straddles the coverage gap and another 

phase of the Part D benefit, section 

1860D14A-(g)(4)(C) of the Act requires 

that Part D sponsors only provide the 

discount on the portion of the 

negotiated price of the applicable drug 

that falls at or above the initial coverage 

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

definition of negotiated price for 

purposes of the Discount Program 

would exclude both the dispensing fee 

and vaccine administration fee, 

proposed § 423.2325(b)(3) would have 

required the dispensing fee and vaccine 

administration fee be included in the 

portion of the negotiated price that falls 

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

possible (that is, as much of the 

dispensing fee that can be included in 

the portion below the ICL or above the 

annual out-of-pocket threshold). 

However, as discussed later, we are not 

finalizing this proposal at 

§ 423.2325(b)(3). 

Section 423.2325(b)(4) would require 

Part D sponsors to first determine 

whether any affected beneficiaries need 

to be notified by the Part D sponsor that 

an applicable drug is eligible for Part D 

coverage whenever CMS specifies a 

retroactive effective date for a labeler 

code and then notify such beneficiaries. 

This situation could occur if 

participating manufacturers fail to 

timely notify CMS when a new labeler 

code becomes available or otherwise fail 

to provide us with all of their labeler 

codes as required. 

In § 423.2325(c) we proposed to 

require that Part D sponsors must 

provide an applicable discount for 

applicable drugs submitted by 

applicable beneficiaries via paper 

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

payable under the Part D plan. We do 

not believe the point-of-sale 

requirement was intended to exclude 

discount payments for claims that were 

not adjudicated by the Part D sponsor at 

point-of-sale: even though the statute 

requires provision of the discount at the 

point-of-sale, it does not state that 

applicable beneficiaries are not entitled 

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to the discount if it was not provided at 

the point-of-sale. Instead, we believe 

this requirement was meant to ensure 

the discount would be available at the 

point-of-sale when and if a claim is 

electronically adjudicated. Therefore, 

beneficiaries would still receive the 

discount in the limited circumstances 

when they submit claims for 

reimbursement that were not 

adjudicated at the point-of-sale, such as 

when they needed to obtain a 

prescription from an out-of-network 

pharmacy or on an emergency basis. 

(2) Collection of Data 

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

states that we may collect appropriate 

data from Part D sponsors in a 

timeframe that allows for applicable 

discounts to be provided for applicable 

drugs. Section 423.2325(d) of the 

proposed rule would require Part D 

sponsors to provide CMS with 

appropriate data on the applicable 

discount provided by the Part D 

sponsors in a manner specified by CMS. 

In implementing the Discount Program 

we determined that using the existing 

PDE reporting process to collect the 

necessary data would be most efficient 

and least burdensome for Part D 

sponsors. Thus, we would require Part 

D sponsors to report the applicable 

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

addition to the other claim-level detail 

that is reported on the PDE. We would 

also require Part D sponsors to report 

confirmation of payment from 

manufacturers during the quarterly 

invoice process. 

(3) Other Health or Prescription Drug 

Coverage 

Section 1860D–14A(c)(1)(A)(v) of the 

Act requires that applicable discounts 

for applicable drugs get applied before 

any coverage or financial assistance 

under other health benefit plans or 

programs that provide coverage or 

financial assistance for the purchase or 

provision of prescription drug coverage 

on behalf of applicable beneficiaries as 

the Secretary may specify. We proposed 

to codify the requirement in 

§ 423.2325(f) by specifying that an 

applicable discount must be applied to 

beneficiary cost-sharing when Part D is 

the primary payer before any other 

health or prescription drug coverage is 

applied. Since the Part D sponsor would 

provide the discount at the same time as 

it makes primary payment on the claim, 

this coordination generally would take 

place in real time as the claim is 

adjudicated by the pharmacy in 

accordance with existing Part D 

coordination of benefit requirements. 

We specify that this requirement would 

not apply to Medicare secondary payer 

claims because the beneficiary would 

not have a Medicare Part D coverage gap 

on the initial claim to the primary 

payer. However, this requirement would 

apply to coordination of benefit claims 

in which the Part D sponsor coordinates 

benefits post point-of-sale with another 

payer who paid primary in error and 

reimburses that payer and/or the 

beneficiary for amounts that the plan 

would have paid as the primary payer. 

(4) Supplemental Benefits 

Section 1860D–14A(c)(2) of the Act 

provides that if an applicable 

beneficiary has supplemental benefits 

under his or her Part D plan, the 

applicable discounts shall not be 

provided until after such supplemental 

benefits have been applied. 

Supplemental benefits offered under a 

Part D plan would have the meaning set 

forth in § 423.100 (see discussion of 

supplemental benefits under the 

proposed definition ‘‘other health or 

prescription drug coverage’’). Section 

423.2325(e)(1) would codify this 

requirement by specifying that an 

applicable discount is applied to 

beneficiary cost-sharing after 

supplemental benefits have been 

applied to the claim for an applicable 

drug, and paragraph (e)(2) would 

establish that no applicable discount is 

available if supplemental benefits 

eliminate the coverage gap so that a 

beneficiary has zero cost-sharing on a 

claim. 

If a Part D sponsor offers an 

individual market plan with 

supplemental benefits on applicable 

drugs covered between the plan’s initial 

coverage limit and the Medicare Part D 

catastrophic threshold using either 

coinsurance or fixed copay, the value of 

the supplemental benefits would need 

to be calculated first on any claim for an 

applicable drug as the difference 

between the proposed supplemental 

cost-sharing and the coinsurance under 

the basic benefit. For example, if the 

supplemental benefit for an applicable 

drug had a 60 percent coinsurance, the 

value of the supplemental benefits that 

would need to be applied first (plan 

liability) would be 40 percent (100 

percent coinsurance under basic minus 

60 percent coinsurance) of the 

negotiated price of the drug. The 

applicable discount would then be 

calculated as 50 percent of the 

negotiated price (as defined in 

§ 423.2305) less the supplemental 

benefit. Beneficiary cost-sharing would 

then be the remainder of the negotiated 

price after the plan liability and 

applicable discount had been applied. 

Thus, in the case of either a coinsurance 

or copay design for supplemental 

benefits, the amount the beneficiary 

pays at point-of-sale would generally be 

approximately 50 percent of his or her 

expected cost-sharing under the plan’s 

benefit package. This amount will 

change over time as the coinsurance 

level in the basic benefit for a 

beneficiary is reduced until it reaches 

25 percent in 2020. Proposed 

§ 423.2325(e)(3) would have required 

that the dispensing fee and the vaccine 

administration fee be included in the 

Part D sponsor liability portion of a 

claim with supplemental benefits. For 

the same reasons that we proposed to 

require the dispensing fee and the 

vaccine administration fee to be applied 

to the portion of a claim for an 

applicable drug that falls below the 

initial coverage limit or above the 

annual out-of-pocket threshold, to the 

extent possible, on straddle claims, we 

believed that including the dispensing 

fee and the vaccine administration fee 

in the plan liability supports the 

statutory goal of alleviating the burden 

of the coverage gap on applicable 

beneficiaries. 

(5) Pharmacy Prompt Payment 

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

Act requires procedures to ensure that, 

not later than the applicable number of 

calendar days after the dispensing of an 

applicable drug by a pharmacy or mail 

order service, the pharmacy or mail 

order service is reimbursed for an 

amount equal to the difference between: 

(1) the negotiated price of the applicable 

drug; and (2) the discounted price of the 

applicable drug. This amount would be 

equal to the amount of the applicable 

discount. The applicable number of 

calendar days with respect to claims for 

reimbursement submitted electronically 

is 14 days, and otherwise, is 30 days. 

We proposed to implement this 

requirement in § 423.2325(g) by 

specifying that Part D sponsors 

reimburse a pharmacy or mail order 

service the amount of the applicable 

discount no later than the applicable 

number of calendar days after the date 

of dispensing an applicable drug. This 

requirement would apply to all network 

pharmacies, including but not limited to 

long term care pharmacies and home 

infusion pharmacies. 

Finally, we proposed to add a new 

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

the requirements we are proposing in 

§ 423.2325 are included in all Part D 

sponsor contracts with us. 

Comment: A commenter requested 

that CMS clearly indicate how Part D 

sponsors implement the plan 

responsibility for reduced cost-sharing 

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in the coverage gap beginning in 2013 

when the phase-down of coverage gap 

brand drug cost-sharing will begin to 

take effect. 

Response: We agree that additional 

clarification is necessary to explain how 

plans need to determine both plan and 

beneficiary liabilities for brand-name 

drug coverage when the additional 

brand-name coverage in the coverage 

gap begins to phase in starting in 2013, 

but this is beyond the scope of this 

regulation. We addressed the issue in 

the 2013 Advance Notice by clarifying 

how manufacturer, beneficiary, and Part 

D sponsor liabilities, including 

dispensing fee liabilities, for coverage 

gap claims must be determined 

beginning in 2013. In light of that 

guidance, we will not be finalizing the 

requirements in proposed 

§ 423.2325(b)(3) and (e)(5) with respect 

to dispensing and vaccine 

administration fees, and have redesignated proposed § 423.2325(b)(4) as 

§ 423.2325(b)(3) in the final rule. 

Comment: A few commenters 

opposed the requirement under 

proposed § 423.2325(b)(4) (redesignated 

as § 423.2325(b)(3)) that would require 

Part D sponsors to notify affected 

beneficiaries whenever CMS specifies a 

retroactive effective date for a labeler 

code. They contend that such notice 

will be less likely to be beneficial to the 

beneficiary as the Discount Program 

matures. They also believe it often will 

be difficult for the Part D sponsor to 

accurately identify if an alternative 

product had been prescribed and 

covered after the initial denial and thus 

Part D sponsors will cause more 

enrollee confusion by ‘‘over notifying’’ 

enrollees. 

Response: We disagree with the 

commenters. We do not believe 

manufacturers should be excused from 

their obligation to pay a discount 

because they failed to timely report a 

labeler code for an applicable drug to 

CMS. Moreover, and more importantly, 

we do not believe the administrative 

burden on Part D sponsors, which we do 

not anticipate will be significant, 

justifies denying a beneficiary access to 

a discount for which they are entitled. 

As discussed in the proposed rule, Part 

D sponsors can minimize any 

beneficiary confusion by notifying only 

those beneficiaries that it determines 

likely still need the drug or who paid for 

the drug out-of-pocket. 

Comment: A commenter 

recommended that we require that the 

discount payment be calculated before 

any Part D supplemental benefits are 

applied by a Part D plan. 

Response: The requirement proposed 

under § 423.2325(e) is consistent with 

the statutory requirement under section 

1860D–14A(c)(2) of the Act. We do not 

have the authority to change the 

statutory requirement to require the 

discount payment to be calculated 

before Part D supplemental benefits are 

applied by a Part D plan. 

Comment: Several commenters 

supported our proposal to implement 

the pharmacy reimbursement 

requirements of section 1860D– 

14A(c)(1)(A)(iv) of the Act by specifying 

that Part D sponsors reimburse a 

pharmacy or mail order service the 

amount of the applicable discount no 

later than the applicable number of 

calendar days after the date of 

dispensing an applicable drug. The 

applicable number of calendar days 

with respect to claims for 

reimbursement submitted electronically 

is 14 days, and otherwise, is 30 days. 

We proposed that this requirement 

would apply to all network pharmacies 

including but not limited to long-term 

care and home infusion pharmacies. 

Other commenters recommended that 

we reconsider applying this requirement 

to long-term care and home infusion 

pharmacies because current billing 

practices in these pharmacy settings, 

such as once a month billing practices, 

could result in Part D sponsors being 

out of compliance with the 

requirements. 

Response: We acknowledge that 

current billing practices in long-term 

care and home infusion pharmacies 

could prevent Part D sponsors from 

complying with this provision if they 

are not billed by the pharmacy on the 

date of service. Therefore, we clarify in 

§ 423.2325(g) that for long-term care and 

home infusion pharmacies, the date of 

dispensing can be interpreted as the 

date the pharmacy submits the 

discounted claim for reimbursement 

and not the actual date the pharmacy 

dispensed the medication. After 

consideration of the public comments 

received, we are with the exception of 

the provisions at § 423.2325(b)(3) and 

(e)(3) finalizing the policies in this 

section with modification to 

§ 423.2325(g). We note that we are not 

finalizing the proposed provisions for 

§ 423.2325(b)(3) and (e)(3) and have 

redesignated proposed § 423.2325(b)(4) 

as § 423.2325(b)(3) in the final rule. 

g. Manufacturer Discount Payment 

Audit and Dispute Resolution 

(§ 423.2330) 

(1) Third Party Administrator Audits 

Section 1860D–14A (d)(3)(D) of the 

Act permits manufacturers to conduct 

periodic audits, directly or through 

contracts, of the data and information 

used by the TPA to determine discounts 

for applicable drugs of the manufacturer 

under the Discount Program. Section 

423.2330(a) would codify the provisions 

of the Discount Program Agreement 

governing these audits by specifying the 

requirements for requesting an audit 

and the rights of manufacturers 

associated with conducting audits. 

We proposed in § 423.2330(a)(1) that 

the term periodic be defined as no more 

often than annually. We believe that this 

standard would ensure that all 

manufacturers have an opportunity to 

conduct meaningful audits within 

available TPA resources. The proposed 

definition of periodic represents a 

balance between frequent audits that 

may provide the greatest level of detail 

and very infrequent audits that may be 

less costly to implement, but may not 

provide needed information in a timely 

manner. 

Section 1860D–14A(d)(3)(D) of the 

Act requires that our contract with the 

TPA permit audits by manufacturers of 

the data and information used by the 

TPA to determine discounts for 

manufacturer’s applicable drugs. 

Because the statute thus permits the 

manufacturer to audit data used by the 

TPA, and importantly, does not grant 

manufacturers a right to audit CMS or 

the Part D sponsors, we proposed to 

specify in regulations that the audit 

right is limited to information held by 

the TPA and used to calculate 

discounts. This means that the 

manufacturer would not have the ability 

to audit CMS records or the records of 

Part D sponsors. We believe the data 

provided from the TPA provides 

manufacturers with appropriate and 

sufficient information to conduct an 

audit because it provides the claim-level 

information specified in the Discount 

Program Agreement that is used to 

calculate the discounts. We believe that 

defining the data available for audit also 

requires balancing considerations 

between efficiently administering the 

Discount Program and providing 

manufacturers with an appropriate level 

of information to validate invoices. 

Section 423.2330(a)(3) would establish, 

consistent with the Discount Program 

Agreement, that manufacturers may 

audit a statistically significant sample of 

the database used by the TPA to 

calculate gap discounts. We believe that 

a statistically significant sample 

provides a balance between allowing an 

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

which would provide complete 

information, but would be unwieldy in 

terms of resources; and (2) a very small 

sample that would have insufficient 

information but be inexpensive to 

implement. Moreover, the use of a 

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statistically valid sample meets 

generally accepted auditing standards, 

would provide sufficient data to 

manufacturers to reach statistically 

valid conclusions that could be used to 

dispute discount payments, and is an 

efficient use of audit resources. 

Proposed § 423.2330(a)(3) also 

supports our obligation to protect the 

privacy of beneficiary medical 

information. This section proposed that, 

with the exception of work papers, audit 

data may not leave the room where the 

audit is conducted, which would further 

protect beneficiary privacy. Another 

measure to protect the confidentiality of 

beneficiary medical information is 

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

which would specify that the auditor 

may only release an opinion of the 

results of the audit and may not release 

any other information obtained from the 

audit, including its work papers, to its 

client, employer, or any other party. We 

believe these limitations on the 

distribution of data support beneficiary 

privacy, while addressing manufacturer 

need for access to data that are relevant 

to the calculation of the gap discounts. 

These regulations all would codify 

provisions in the current Discount 

Program Agreement. 

(2) Manufacturer Audits 

Section 1860D–14A(e)(1) of the Act 

specifies that each manufacturer with a 

Discount Program Agreement in effect 

shall be subject to periodic audit by 

CMS and we proposed to codify this 

requirement in § 423.2330(b). Similar to 

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

proposed to define the term periodic in 

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

annually. In § 423.2330(b)(3) we 

proposed that we would have the right 

to audit appropriate data of the 

manufacturer, including data related to 

a manufacturer’s FDA-assigned labeler 

codes, expiration date of NDCs, 

utilization, and pricing information 

relied on by the manufacturer to dispute 

quarterly invoices, as well as any other 

data CMS determines are necessary to 

carry out the Discount Program. 

(3) Dispute Resolution 

Section 1860D–14A(c)(1)(A)(vii) of 

the Act requires the Secretary to 

establish ‘‘a reasonable dispute 

resolution mechanism to resolve 

disagreements between manufacturers, 

applicable beneficiaries, and the third 

party with a contract * * *.’’ 

Therefore, we proposed in 

§ 423.2330(c) a multistage dispute 

resolution process consisting of: (1) An 

initial dispute stage; (2) an appeals stage 

for manufacturers that do not accept the 

findings of the dispute process; and (3) 

a final administrator review when either 

a manufacturer or CMS disagrees with 

the outcome of the initial appeals 

process. 

Section 423.2330(c) would include a 

timetable for the three-stage approach to 

manage the process most efficiently and 

to support equal treatment of each 

appeal. The timetable ensures that 

manufacturers’ disputes are resolved as 

quickly as possible, while allowing both 

parties to perform the necessary 

calculations and investigations to 

evaluate the gap discount invoice. The 

proposed timeframes were established 

by estimating the time required to 

analyze the data presented, by the 

volume of claims, and by considering 

the characteristics of the Discount 

Program compared to the other similar 

programs previously noted. 

Specifically, we proposed in 

§ 423.2330(c)(1) that manufacturers may 

dispute quarterly gap discount amounts 

by providing notice of the dispute to the 

TPA within 60 days of the receipt of 

information that is the subject of the 

dispute. The information is limited to 

data received from the TPA, or as a 

result of a manufacturer’s audit. 

Proposed § 423.2330(c)(2) also states 

that the notice of dispute be 

accompanied by supporting evidence 

that is material, specific, and related to 

the dispute. We proposed this 

requirement because the manufacturer 

bears the burden of proof that the PDE 

data is incorrect. We also proposed in 

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

Program Agreement provision that 

manufacturers may not withhold any 

invoiced amounts pending dispute 

resolution except for invoiced amounts 

for applicable drugs without labeler 

codes provided by the manufacturer to 

us. The proposition to generally bar the 

withholding of disputed invoice 

amounts is justified because gap 

discounts are owed by manufacturers 

but are paid by Part D sponsors to 

beneficiaries at the point-of-sale; we 

believe that the prohibition of 

withholding disputed invoices will 

minimize the risk to Part D sponsors for 

these discount-related incurred 

liabilities without significantly 

increasing the financial risk to a 

manufacturer because of the extensive 

quality assurance CMS performs on 

PDEs submitted by Part D sponsors. The 

PDE data used to calculate quarterly 

invoices are of high quality. The PDE 

data are derived from claims for each 

prescription submitted to Part D 

sponsors for payment. Part D sponsors 

validate each claim to comply with the 

False Claims Act and as part of their 

process to reimburse pharmacies for the 

cost of the drug. In addition, we 

implement multiple edits to validate the 

PDE data submitted by Part D sponsors. 

Those edits include identification and 

adjustment of outlier and other 

inappropriate entries for variables such 

as discount amount, beneficiary 

eligibility for the gap discount, incorrect 

NDCs, etc. Therefore, the burden of 

proof is on manufacturers to 

demonstrate that the data used to 

calculate the quarterly invoice are 

incorrect. 

Section 423.2330(c)(4) would allow 

manufacturers to request an additional 

adjudication by the Independent Review 

Entity (IRE), under contract with CMS, 

within 30 days of the receipt of an 

unfavorable determination from the 

TPA, or if no decision was received 

from the TPA, within 90 days of the 

receipt of the dispute submission. This 

section also proposed that the IRE be 

required to make a determination within 

ninety calendar days of receipt of the 

manufacturer request for an appeal. 

Section 423.2330(c)(6) establishes a 

final administrative step to support an 

equitable dispute resolution process. We 

proposed that both manufacturers and 

CMS would have the right to request a 

final review of the dispute by the 

Administrator. Since we administer the 

Discount Program and manufacturers 

have financial liability for the discounts, 

both parties have an interest in ensuring 

an equitable resolution to the dispute. 

We proposed that this request be made 

within 30 days after the manufacturer 

receives a decision from the IRE to 

facilitate a timely outcome. Finally, we 

proposed that the decision of the 

Administrator would be final and 

binding. 

We proposed to codify the policies as 

described and welcomed comments on 

the dispute and appeals process. 

Comment: A few commenters 

recommended that we include affected 

Part D sponsors in the disputes and 

appeals process, and that Part D 

sponsors be given appeal rights if 

disputes or appeals are upheld. 

Response: We do not believe it is 

necessary, nor would it be helpful, to 

insert Part D sponsors in every step of 

every manufacturer dispute and appeal. 

This process is specifically designed to 

address manufacturer disputes or 

appeals and manufacturers have the 

burden to demonstrate that an 

applicable discount advanced by the 

Part D sponsor likely is in error 

according to standards established in 

CMS guidance. If the manufacturer 

satisfies the threshold, the Part D 

sponsor will be given the opportunity to 

confirm the accuracy of the discount 

and if confirmed, the dispute or appeal 

will be denied. If the manufacturer 

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dispute or appeal does not meet the 

standard for demonstrating likely error 

in the first place, the dispute or appeal 

will be denied without needing Part D 

sponsor confirmation. In situations that 

involve the determination of applicable 

drug status for an NDC based upon its 

FDA approval status, CMS will make 

those determinations based upon the 

information that was available from the 

FDA on the date of dispensing. While 

Part D sponsors will not have the 

opportunity to appeal determinations 

that uphold manufacturer disputes or 

appeals under this process, Part D 

sponsors have appeal rights under the 

Part D payment reconciliation process to 

redress payment disputes, including 

those related to the Discount Program. 

After consideration of the public 

comments received, we are finalizing 

the policies in this section without 

modification. 

h. Beneficiary Dispute Resolution 

(§ 423.2335) 

Section 1860D–14A(c)(1)(A)(vii) of 

the Act requires CMS to provide a 

reasonable dispute mechanism to 

resolve disagreements between 

manufacturers, applicable beneficiaries, 

and the TPA. While § 423.2330(c) would 

address the disputes that could arise 

between the manufacturer and CMS or 

the TPA, § 423.2335 would provide the 

beneficiary dispute resolution 

requirements. Specifically, § 423.2335 

would provide that beneficiaries shall 

have access to the Part D coverage 

determination and appeals process as 

described in § 423.558 through 

§ 423.638 for disputes involving the 

availability and amount of applicable 

discounts under the Discount Program. 

Comment: Some commenters 

supported CMS’ proposal in § 423.2335 

to provide beneficiaries with access to 

the existing Part D coverage 

determination and appeals process as 

described in §§ 423.558 and 423.638 for 

disputes involving the availability and 

amount of applicable discounts under 

the Discount Program. However, a 

commenter raised concerns that the 

existing process is not well understood 

by beneficiaries and therefore we should 

require Part D plans to provide explicit, 

plain language information on how to 

file a dispute. 

Response: We agree with commenters 

that supported our proposal. The 

existing Part D coverage determination 

and appeals process provides the best 

and most efficient mechanism for 

resolving beneficiary disputes involving 

the availability and amount of 

applicable discounts. We do not believe 

it would be beneficial to anyone, most 

importantly beneficiaries, to establish 

an entirely separate and duplicative 

process. Moreover, we do not believe a 

new plain language requirement is 

necessary because Part D plans are 

already required to use a consumer 

tested model Evidence of Coverage 

(EOC) that is intended to explain the 

existing Part D coverage determination 

and appeals process in language that is 

appropriate for beneficiaries. 

After consideration of the public 

comments received, we are finalizing 

the policies in this section without 

modification. 

i. Compliance Monitoring and Civil 

Money Penalties (§ 423.2340) 

Section 1860D–14A(e)(2) of the Act 

requires us to impose a civil money 

penalty (CMP) on a manufacturer that 

fails to provide applicable beneficiaries 

applicable discounts for applicable 

drugs of the manufacturer in accordance 

with the Discount Program Agreement. 

The statute sets forth the formula for 

determining the CMP amount, which 

will equal the sum of the amount that 

the manufacturer would have paid with 

respect to such discounts under the 

agreement (which will then be used to 

pay the discounts which the 

manufacturer had failed to provide) plus 

25 percent of such amount. Section 

423.2340 would implement these 

requirements and establish the 

procedures for imposing and collecting 

the CMPs in accordance with subpart T 

of this part. Accordingly, we proposed 

to revise the definition of ‘‘affected 

party’’ in subpart T (as defined in 

§ 423.1002) by adding the term 

‘‘manufacturer’’ (as defined in 

§ 423.2305) to the definition and 

clarifying that we interpret the use of 

‘‘Part D sponsor’’ throughout subpart T 

to be synonymous with ‘‘affected party’’. 

In accordance with the Discount 

Program Agreement and proposed 

§ 423.2315(b)(3), manufacturers must 

pay each Part D sponsor within 38 

calendar days of receipt from the TPA 

of the electronic invoice and Medicare 

Part D Discount Information for the 

applicable discounts included on the 

invoice except as specified in 

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

a manufacturer to have failed to provide 

applicable beneficiaries applicable 

discounts for applicable drugs of the 

manufacturer in accordance with the 

Discount Program Agreement if it fails 

to comply with this requirement unless 

such failure is due to technical or other 

reasons beyond the control of the 

manufacturer, such as a natural disaster. 

Consequently, we would impose a civil 

money penalty whenever a 

manufacturer fails to make full payment 

on its invoice within 38 calendar days 

of receipt of the invoice and Medicare 

Part D Discount Information for the 

applicable discount included on the 

invoice unless such failure is due to 

technical or other reasons beyond the 

control of the manufacturer. We plan to 

add this provision to the Discount 

Program Agreement. 

Section 423.2340(c) codifies the 

methodology for determining the 

amount of the CMP as equal to the 

amount of applicable discount the 

manufacturer would have paid under 

the Discount Program Agreement, which 

will then be used to pay the applicable 

discount that the manufacturer had 

failed to provide, plus 25 percent of 

such amount. This amount may be 

reduced by any amount that the 

manufacturer has paid after the 38th 

calendar day but before the date the 

CMP is collected. We interpret this to 

mean that the CMP would be calculated 

based upon the outstanding invoiced 

amount that was not paid within 38 

calendar days of receipt as required 

under the Discount Program Agreement 

and proposed § 423.2315(b)(3) 

irrespective of any partial or late 

payments. In other words, a 

manufacturer’s failure to pay the entire 

invoice amount would trigger the CMP 

and late payments would not relieve the 

manufacturer of its obligation to pay an 

additional 25 percent of the unpaid 

amount from the invoice. In order to 

ensure consistency and transparency 

with the imposition of these civil money 

penalties, unless the exception applies 

(that is, the payment is late due to 

technical or other reasons beyond the 

control of the manufacturer), we would 

impose the additional 25 percent on all 

invoiced amounts not paid within 38 

calendar days of receipt, even, for 

example, if the payment is only 1 day 

late. 

Section 423.2340(d) specifies that if 

CMS makes a determination to impose 

a CMP, we would send a written notice 

of our decision to impose a CMP that 

includes a description of the basis for 

the determination, the basis for the 

penalty, the amount of the penalty, the 

date the penalty is due, the 

manufacturer’s right to a hearing (as 

specified under § 423.1006) and 

information about where to file the 

request for hearing. To ensure a 

consistent approach to CMPs, we 

proposed extending existing appeal 

procedures for CMPs in subpart T of this 

part to manufacturers appealing a CMP 

imposed under the Discount Program. 

We have utilized this appeals process 

for more than 20 years for various types 

of adverse agency determinations 

affecting an array of medical providers, 

MA organizations, and Part D sponsors. 

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We therefore proposed to use this well 

established process and infrastructure 

for CMP appeals from manufacturers 

that have contracted with the Discount 

Program and are delinquent in paying 

the discounts as required. To that end, 

we proposed to revise the definition of 

‘‘affected party’’ in § 423.1002 to 

include manufacturers participating in 

the Discount Program. Section 

423.2340(e) would provide that we 

would initiate collection of the CMP 

following expiration of the timeframe 

for requesting an ALJ hearing, which is 

60 calendar days from the CMP 

determination, as specified in 

§ 423.1020 if the manufacturer did not 

request a hearing; and CMS would 

initiate collection of the CMP once the 

administrative decision is final if a 

manufacturer requests a hearing and our 

decision to impose the CMP is upheld. 

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

states that the provisions of section 

1128A of the Act (except subsections (a) 

and (b)) apply to CMPs under this 

subpart to the same extent that they 

apply to a CMP or procedure under 

section 1128A(a) of the Act. We 

proposed to codify this requirement in 

§ 423.2340(f). We welcomed comments 

on this proposal. We did not receive any 

comments and we are finalizing these 

provisions as proposed. 

j. Termination of Agreement 

(§ 423.2345) 

Section 1860D–14A(b)(4)(B)(i) of the 

Act provides that we may terminate a 

Discount Program Agreement for a 

knowing and willful violation of the 

requirements of the agreement or other 

good cause shown. Such termination 

shall not be effective earlier than 30 

days after the date of notice to the 

manufacturer of such termination and 

CMS shall provide, upon request, a 

hearing concerning such termination, 

and such hearing shall take place prior 

to the effective date of the termination 

with sufficient time for such effective 

date to be repealed if CMS determines 

appropriate. Section 423.2345 would 

codify these requirements consistent 

with the termination provisions in the 

Discount Program Agreement. For 

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

that ‘‘good cause shown’’ must relate to 

the manufacturer’s participation in the 

Discount Program. Our proposed 

regulation would further specify that we 

must provide the manufacturer with an 

opportunity to cure any ground for 

termination within 30 calendar days of 

receipt of the written termination 

notice. In addition, we proposed, 

consistent with the statutory 

requirement as reflected in the Discount 

Program Agreement, that the 

manufacturer may request a hearing 

with a hearing officer concerning such 

termination if requested in writing 

within 15 calendar days of receiving 

notice of the termination, and such 

hearing must take place prior to the 

effective date of termination with 

sufficient time for such effective date to 

be repealed if we determine appropriate. 

In order to address potential timing 

issues with appeals during the 

termination process, we proposed to 

clarify in § 423.2345(a)(2) that 

termination must not be effective earlier 

than 30 days after the date of notice to 

the manufacturer of such termination 

and must not be effective prior to 

resolution of timely appeal requests 

received in accordance with paragraphs 

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

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

that CMS will provide a manufacturer 

with a hearing before the hearing officer 

about such termination if requested in 

writing within 15 calendar days of 

receiving notice of the termination. 

Further, CMS or a manufacturer that has 

received an unfavorable determination 

from the hearing officer may request 

review by the CMS Administrator 

within 30 calendar days of receipt of the 

notification of such determination. 

Therefore, a termination would not be 

effective until either the timeframes to 

pursue a hearing with the hearing 

officer or CMS Administrator have 

passed or a final decision has been 

issued by the hearing officer or CMS 

Administrator and there is no remaining 

opportunity to request further review. 

We also proposed in 

§ 423.2345(a)(5)(i) to specify that CMS 

or a manufacturer that has received an 

unfavorable determination from the 

hearing officer may request review by 

the CMS Administrator within 30 

calendar days of receipt of the 

notification of such determination. The 

Discount Program Agreement currently 

provides only that a manufacturer may 

request review of an unfavorable 

decision by the CMS Administrator. 

However, we believe that a fair appeals 

process must ensure that both parties 

have an opportunity for further review 

of a decision made by hearing officer. 

The decision of the CMS Administrator 

would be final and binding on either 

party. We requested comments on these 

termination requirements. 

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

Act provides that a manufacturer may 

terminate the Discount Program 

Agreement for any reason. Such 

termination shall be effective as of the 

day after the end of the calendar year if 

the termination occurs before January 30 

of a calendar year or as of the day after 

the end of the succeeding calendar year 

if the termination occurs on or after 

January 30 of a calendar year. We 

proposed to codify these requirements 

in § 423.2345(b). 

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

Act states that any termination shall not 

affect discounts for applicable drugs of 

the manufacturer that are due under the 

Discount Program Agreement before the 

effective date of the termination and we 

proposed to codify this requirement in 

§ 423.2345(c). However, upon the 

effective date of the Discount Program 

Agreement termination, the 

manufacturer’s drugs would no longer 

be covered under Medicare Part D. In 

addition, § 423.2345(d) would specify 

that we would cease releasing data to 

the manufacturer except as necessary to 

ensure the manufacturer reimburses 

applicable discounts for time periods in 

which the Discount Program Agreement 

was in effect and would notify the 

manufacturer to destroy data files 

provided by us under the Discount 

Program Agreement. 

Finally, § 423.2345(e) would restrict 

reinstatement of manufacturers that 

previously terminated their Discount 

Program Agreements or had them 

terminated by CMS to those 

manufacturers that pay any and all 

outstanding applicable discounts 

incurred during any previous periods 

under Discount Program Agreements. 

We did not receive any comments and 

we are finalizing these provisions as 

proposed. 

2. Inclusion of Benzodiazepines and 

Barbiturates as Part D Covered Drugs 

(§ 423.100) 

Section 175 of the Medicare 

Improvements for Patients and 

Providers Act of 2008 (MIPPA) amended 

section 1860D–2(e)(2)(A) of the Act to 

include barbiturates ‘‘used in the 

treatment of epilepsy, cancer, or a 

chronic mental health disorder’’ and 

benzodiazepines. MIPPA further 

specified that these amendments apply 

to prescriptions dispensed on or after 

January 1, 2013. Accordingly, we 

proposed to revise the definition of a 

Part D drug at § 423.100 to include 

barbiturates used for the three specified 

medical indications and 

benzodiazepines that are dispensed on 

or after January 1, 2013. Like any other 

prescription drugs under the Part D 

benefit program, barbiturates as 

specified and benzodiazepines must 

meet all other conditions for Part D 

drugs found in § 423.100. 

As in the proposed rule, we once 

again remind sponsors that it is their 

responsibility to use the tools (that is, 

system edits, quality assurance checks) 

at their disposal to ensure barbiturates 

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are covered for the conditions specified 

in the statute. Also, given the 

vulnerability of both barbiturates and 

benzodiazepines to misuse and abuse, it 

is recommended that Part D sponsors 

use their drug utilization review tools to 

identify and prevent waste and clinical 

abuses/misuses. 

Comment: A number of commenters 

endorsed the statutory inclusion of 

barbiturates as specified and 

benzodiazepines as covered Part D 

drugs. Some of these commenters 

anticipated that the change would result 

in better treatment of health conditions 

such as mental health conditions, with 

a commenter predicting lowered health 

care spending would stem from better 

quality of life and health care outcomes. 

Several supporters opined that the 

existing tools in the Part D program 

were sufficient to, for instance, address 

misuse and protect beneficiaries from 

harm. 

Response: We appreciate the 

commenter support of the statutory 

inclusion of these medications. 

Comment: Several commenters 

suggested that CMS restrict access to the 

drugs by, for instance, removing the 

medical indications requirements from 

the regulation, limiting benzodiazepines 

coverage to short-acting agents, or 

allowing barbiturates only for seizure 

disorders. 

Response: We lack the authority to 

restrict drugs through any of the 

modifications suggested by these 

commenters because of the clear 

statutory mandate found in section 175 

of MIPPA, which amends section 

1860D–2(e)(2)(A) of the Act to include 

as Part D drugs both barbiturates used 

in the ‘‘treatment of epilepsy, cancer, or 

a chronic mental condition’’ and 

benzodiazepines. Accordingly, our 

proposed revisions must include as Part 

D drugs barbiturates for the three 

medical indications, as well as 

benzodiazepines. 

That we track the statutory language 

does not, however, mean that there are 

no restrictions on the availability of 

barbiturates as specified and 

benzodiazepines—statutory and 

regulatory requirements apply to restrict 

availability. As is the case for all Part D 

drugs, a barbiturate as specified or a 

benzodiazepine may only be a Part D 

drug if it falls within the definition of 

Part D drug at § 423.100, which would 

mean that it must— 

• Be used for a medically accepted 

indication; 

• Be dispensed only upon a 

prescription; 

• Meet requirements described in 

section 1927(k)(2)(A)(i) through (iii) of 

the Act; and 

• Not be otherwise excluded from 

Part D coverage on the basis that 

payment for such drug, 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). 

Additionally, for any barbiturates as 

specified or benzodiazepines that meet 

the definition of an applicable drug 

under section 1860D–14A(g)(2) of the 

Act, in order for coverage to be available 

under Part D, the manufacturers of the 

brand drug must participate in the 

Medicare Coverage Gap Discount 

Program. 

Comment: A number of commenters, 

many of which endorsed the inclusion, 

voiced concerns with utilization control 

issues—with the vast majority of these 

commenters questioning whether the 

available Part D utilization tools would 

be effective enough in restricting access 

to barbiturates for the specified 

indications and benzodiazepines as to 

prevent misuse. In contrast, a few 

commenters voiced concern that CMS is 

‘‘encouraging’’ plans to apply utilization 

management tools to therapies for 

chronic conditions, such as mental 

illnesses. Stating that utilization 

management tools had impeded 

beneficiary access to medications in the 

past, these commenters requested that 

CMS remove the language about these 

tools from the preamble. 

Response: We do not agree with the 

commenters who suggested we remove 

language from the preamble of the 

proposed rule that discusses the 

availability of drug management tools. 

We see no justification to treat 

barbiturates and benzodiazepines any 

differently from how we treat all other 

Part D drugs. 

Comment: Many commenters 

requested more direction and 

instructions regarding the use of drug 

utilization tools. A commenter 

requested that CMS implement 

restrictions such as a specific quantity 

limit per year, while the two 

commenters requested that CMS 

provide instructions that would, for 

instance, prevent step therapy and fail 

first policies for individuals already on 

these medications. Several commenters 

indicated that they wanted to use prior 

authorization (PA) to ensure that 

barbiturates would be prescribed only 

when used in the treatment of epilepsy, 

cancer, or chronic mental health 

disorders. A few others indicated that 

when used for certain indications (for 

instance, barbiturates for uses listed in 

the statute and benzodiazepines for 

epilepsy), barbiturates and 

benzodiazepines might be part of a 

protected class—with a commenter 

stating that in such instances the drugs 

must be made available to members and 

another asserting that the drugs must be 

denied protected class status. 

Response: These comments are 

beyond the scope of the proposed rule. 

We did not propose to implement any 

special rules with regard to these drugs; 

rather, we proposed merely to codify the 

statutory requirement set forth in 

section 175 of MIPPA. To the extent we 

believe additional guidance about these 

products is necessary or appropriate, we 

will provide such guidance in the 

future. 

Comment: A commenter requested 

guidance on the issues as soon as 

possible, but no later than January 2012, 

to provide plans enough time for 

appropriate utilization management as 

part of the 2013 formulary submissions. 

Response: Although this comment is 

beyond the scope of the proposed rule, 

we would like to note that we believe 

our current formulary guidance 

provides Part D sponsors with the 

information they need to make such 

determinations. 

Comment: A commenter suggested 

that the inclusion would impact the 

accuracy of the current risk adjustment 

formula because the new drugs would 

be available only to members with the 

three specified medical conditions. The 

commenter accordingly requested that, 

after January 1, 2013, the risk 

adjustment factors associated with these 

specified conditions be increased to 

reflect the increased costs expected from 

covering these drugs. 

Response: In the calibration of the 

original Part D risk adjustment model 

and in subsequent versions, we 

reasoned that benzodiazepines and 

barbiturates were substitutable drugs 

and included the costs of these drugs as 

a proxy for their substitutes. Given that 

we never removed either barbiturates or 

benzodiazepines from our Part D model 

calibration, the mandated inclusion will 

not impact the accuracy of the current 

risk adjustment model. In a discussion 

in our 2006 Advanced Notice on 

removing non-covered Part D drugs 

from the calibration of the risk 

adjustment, we stated, ‘‘Other noncovered drugs, benzodiazepines and 

barbiturates, were intentionally left in 

the file because their costs proxy for the 

costs of substitutes. This was deemed 

preferable to removing the claims and 

costs altogether.’’ See Advance Notice of 

Methodological Changes for Calendar 

Year (CY) 2006 Medicare Advantage 

(MA) Payment Rates, Attachment II, 

Risk Adjustment Model, page 45. 

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Comment: A commenter questioned 

whether CMS had conducted an 

analysis to determine if all 

manufacturers of barbiturates and 

benzodiazepines were currently 

participating, or would be offered the 

opportunity to participate in the 

Coverage Gap Discount Program, 

because they may have not sought 

participation when the drugs were 

excluded. 

Response: Given that the Coverage 

Gap Discount Program only applies to 

brand drugs and that most barbiturates 

and benzodiazepines are available as 

generics, we believe that Part D coverage 

will be available for most—if not all— 

types of barbiturates that treat the 

specified indications and 

benzodiazepines. Indeed, at this time, 

we are not aware of any barbiturates as 

specified or benzodiazepines that will 

not be covered on the basis that a 

manufacturer is not participating in the 

program. 

Comment: Several commenters 

expressed concerns that, because the 

High Risk Medication (HRM) Part D 

Plan Rating measure incorporates the 

Beers list, which identifies 

benzodiazepines and barbiturates as 

potentially harmful for the elderly, plan 

ratings will suffer resulting in lower 

bonus payments. While a commenter 

requested that CMS deny Part D 

coverage of drugs on the Beers list, 

others requested changes to the rating 

system itself such as excluding the 

medications from the HRM measure 

calculation to give the industry time to 

understand the impact on the safety of 

beneficiaries or adjusting the 4-star 

threshold. 

Response: As we noted in our 

discussion of the Part D High-Risk 

Medication (HRM) measure in our draft 

2013 Call Letter published on February 

17, 2012 (page 63), we will continue to 

explore changes to this measure. 

Modifications may result from 

specification changes made by the 

Pharmacy Quality Alliance (PQA) or 

National Committee for Quality 

Assurance (NCQA) as they consider 

modifying the specifications and 

medication list based on the American 

Geriatrics Society’s (AGS) update to the 

Beers List. We will consider applying 

these updates to future Plan Ratings and 

changes to the measure medication list 

will not be retroactively applied for the 

2013 Plan Ratings. Rather, we will apply 

changes to the medication list when 

evaluating sponsors’ CY 2012 or CY 

2013 PDE data for the 2014 or 2015 Plan 

Ratings, respectively. At that time, we 

will also evaluate the inclusion or 

exclusion of benzodiazepines and 

specified barbiturates in the measure 

calculation. 

After considering the public 

comments received, we are finalizing 

the proposed language in § 423.100, 

with a grammatical clarifying 

modification. Pursuant to section 175(b) 

of MIPPA, this revision will be effective 

January 1, 2013. 

3. Pharmacy Benefit Manager’s 

Transparency Requirements (§§ 423.501 

and 423.514) 

We proposed implementing the 

provisions of section 1150A of the Act, 

as amended by section 6005 of the 

Affordable Care Act, with respect to Part 

D sponsors and the entities that manage 

prescription drug coverage under a 

contract with a Part D sponsor. We now 

codify the various reporting 

requirements from the proposed rule to 

promote transparency of financial 

transactions involving Part D sponsors 

and pharmacy benefits managers (PBMs) 

or other entities that provide pharmacy 

benefit management services at 

§ 423.514, with a minor, technical 

correction to the language of 

§ 423.514(e) regarding confidentiality of 

pharmacy benefits manager data. In 

addition, we are finalizing with 

modification the proposed definition of 

‘‘bona fide service fees’’ in our 

regulations at § 423.501. 

Comment: A commenter 

recommended that CMS define 

‘‘pharmacy benefits manager’’ to 

encompass any entity or division of an 

entity, including a Part D sponsor itself, 

that performs any of the functions or 

activities for which reporting is required 

in order to clarify the scope of the 

regulation. 

Response: We believe that we were 

clear in the proposed rule when we 

stated that this provision applies to both 

Part D sponsors and to entities that 

provide pharmacy benefits management 

services to Part D sponsors, for which 

we use the shorthand term of PBM. 

Further, section 1150A of the Act makes 

clear that a health benefits plan or any 

entity that provides pharmacy benefits 

management services on behalf of a 

health benefits plan is subject to all 

requirements and protections under this 

provision. Thus, we decline to 

introduce a definition of PBM in this 

regulation, but take this opportunity to 

emphasize that the entity’s function is 

more important than the form of its 

name. 

Comment: A number of commenters 

requested additional details regarding 

the proposed reporting requirements 

under paragraph (d)(3) of § 423.514. 

This provision would require reporting 

of the percentage of prescriptions for 

which a generic drug was available and 

dispensed by pharmacy type, which 

includes an independent, chain, 

supermarket, or mass merchandiser 

pharmacy that is licensed as a pharmacy 

by the State and that dispenses 

medication to the general public. Most 

commenters requested clarification on 

how to distinguish the various 

pharmacy types. A few commenters 

noted that neither plan sponsors, PBMs, 

nor pharmacy groups themselves 

differentiate among these pharmacy 

types. Several suggested ways for CMS 

either to provide crosswalks for PBMs 

and sponsors to help categorize the 

pharmacy types or to derive the data 

from available data sources. 

Response: We agree that consistent 

definitions of independent, chain, 

supermarket, and mass merchandiser 

pharmacies are necessary for accurate 

reporting of this data element. We 

explored the ideas commenters 

submitted for CMS to provide 

crosswalks or to derive the data from 

existing data sources and determined 

that we could crosswalk National 

Provider Identifiers with a file from the 

National Council for Prescription Drug 

Programs to determine the data element 

in § 423.514(d)(2) (the percentage of all 

prescriptions that were provided 

through retail pharmacies as compared 

to mail order pharmacies). However, 

this approach cannot be used to 

categorize independent, chain, 

supermarket, and mass merchandiser 

pharmacies because they are not 

standard pharmacy classifications 

captured in industry databases or files. 

Thus, while we are finalizing 

§ 423.514(d)(3) as proposed, we will 

issue further subregulatory guidance 

regarding this reporting requirement 

before requiring Part D sponsors to 

submit this information. 

Comment: We received a number of 

comments regarding § 423.514(d)(4), 

under which we proposed to require 

reporting of the aggregate amount and 

type of rebates, discounts, or price 

concessions (excluding bona fide 

service fees) that a PBM negotiates that 

are attributable to patient utilization 

under the plan. In the proposed rule, we 

sought comment regarding whether 

there are differences between direct and 

indirect remuneration (DIR) under the 

Part D program and rebates, discounts, 

and price concessions ‘‘attributable to 

patient utilization.’’ Most commenters 

believed that there is no difference, with 

a couple of commenters mentioning that 

DIR under the Part D program is already 

based on price concessions for 

prescription drugs that are provided to 

Medicare Part D beneficiaries. Another 

commenter suggested that DIR under the 

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22094 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

Part D program is broader than DIR 

attributable to patient utilization, and 

thus CMS should scale back the 

definition in the DIR reporting 

requirements. 

Response: We agree that there is no 

substantive difference between the 

aggregate amount of rebates, discounts, 

and price concessions ‘‘attributable to 

patient utilization’’ and DIR under the 

Part D program. Per § 423.308 and our 

annual DIR reporting guidance, DIR is 

any and all rebates, subsidies, or other 

price concessions from any source 

(including manufacturers, pharmacies, 

enrollees, or any other person) that 

serve to decrease the costs incurred by 

the Part D sponsor (whether directly or 

indirectly) for the Part D drug. Costs are 

incurred by the Part D sponsor when 

patients utilize Part D drugs, and thus 

we believe that ‘‘rebates, discounts, and 

price concessions that are attributable to 

patient utilization’’ are substantively the 

same as DIR under the Part D program. 

Further, rebates, discounts, and price 

concessions would not be negotiated 

unless Part D plan sponsors were 

purchasing prescription drugs from the 

manufacturer for use by their enrollees. 

Thus, we believe even rebates, 

discounts, and price concessions for 

things such as formulary placement for 

a particular product, administrative 

services, or generic dispensing 

incentives are indirectly attributable to 

patient utilization, such that they would 

be subject to the reporting requirements 

under § 423.514(d)(4). 

Comment: One commenter requested 

that we clarify the authority under 

which we collect DIR and that Part D 

sponsors have no additional reporting 

requirements for DIR attributable to 

patient utilization. 

Response: In the 2010 DIR reporting 

requirements, we collected PBM spread 

amounts aggregated to the plan benefit 

package level. We believe that with the 

addition of PBM spread amounts for 

retail pharmacies and PBM spread 

amounts for mail order pharmacies to 

the existing DIR reporting requirements, 

Part D sponsors will meet the 

requirements to report the elements in 

§ 423.514 (d)(4), (5), and (6). Beyond 

this change, no additional DIR reporting 

will be required to comply with section 

1150A of the Act. We clarify that 

sections 1150A and 1860D–15(f)(1)(A) 

of the Act provide us with the authority 

to collect DIR data. 

Comment: Several commenters 

recommended that instead of requiring 

the percentage of prescriptions for 

which a generic drug was available and 

dispensed (generic dispensing rate) by 

independent, chain, supermarket, and 

mass merchandiser pharmacy types, we 

allow the data to be reported by 

different and/or more general categories, 

such as mail order or retail pharmacy 

types. 

Response: Consistent with 

1150A(b)(1) of the Act, we believe that 

we must collect the percentage of 

prescriptions for which a generic drug 

was available and dispensed (generic 

dispensing rate) by independent, chain, 

supermarket, and mass merchandiser 

pharmacy types. Because reporting of 

this information is expressly required 

under the statute, we do not believe we 

have the authority to limit or change the 

scope of the reporting requirements. We 

note, however, that in implementing 

this requirement and all of the other 

reporting requirements under section 

1150A of the Act, we have sought to 

minimize administrative burden where 

possible by relying on existing reporting 

mechanisms and avoiding duplicative 

reporting. 

Comment: Some commenters favored 

greater transparency of prescription 

drug cost information than we 

proposed. Suggestions ranged from 

requesting that the proposed data 

elements under § 423.514(d) be reported 

with greater granularity to proposing 

additional reporting requirements 

beyond those proposed. Examples 

include requiring maximum allowable 

cost (MAC) lists for pharmacy 

reimbursement, requiring transparency 

regarding pharmacy network design, 

requiring reporting of a dispensing rate 

for when a lower cost drug could have 

appropriately been dispensed, requiring 

reporting of prompt payment rates, and 

requiring PBMs to report how patient 

data is used and disclosed. 

Response: These suggestions are 

beyond the scope of the current 

rulemaking, which implements the 

specific reporting requirements of 

section 1150A. We note that some of the 

commenters’ requests may be more 

appropriate as suggestions for revisions 

to prompt payment and pricing standard 

update requirements already codified at 

§§ 423.505(b)(21) and 423.520. Should 

we determine that the reporting of 

additional or more detailed information 

or disclosure of aggregated data is 

necessary and appropriate for the Part D 

program, we may consider some of the 

commenters’ suggestions in the future. 

Comment: Some commenters 

expressed concern about maintaining 

confidentiality of PBM-related data. 

Response: We agree that maintaining 

the confidentiality of PBM-related data 

is important and are finalizing 

§ 423.514(e) regarding the 

confidentiality of PBM data. The 

confidentiality protections under this 

provision are nearly identical to those in 

section 1150A, and specify that 

information disclosed by a Part D 

sponsor or PBM is confidential, and 

shall not be disclosed by the Secretary 

or by a plan receiving the information. 

The statute and the regulation recognize 

limited exceptions allowing the 

Secretary to disclose information 

disclosed by a Part D sponsor or PBM 

for certain limited purposes. These 

purposes are as the Secretary 

determines necessary to carry out 

section 1150A of the Act or Part D of 

Title XVIII, to permit the Comptroller 

General to review the information 

provided, or to permit the Director of 

the Congressional Budget Office to 

review the information provided. 

(Section 1150A of the Act also permits 

disclosure of the information to States to 

carry out section 1311 of the Affordable 

Care Act. We have not incorporated this 

exception into § 423.514(e) because it is 

applicable to qualified health benefits 

plans offered through an exchange 

established by a State under section 

1311 of the Affordable Care Act and is 

addressed in separate rulemaking.) 

Consistent with the statute, any 

disclosures pursuant to these 

exceptions, must be in a form which 

does not disclose the identity of a 

specific PBM, plan, or prices charged for 

drugs. 

Comment: A few commenters were 

concerned that the proposed definition 

of ‘‘bona fide service fee’’ in § 423.501 

was too broad; for example, a 

commenter thought that the term 

‘‘patient care programs’’ has no 

boundaries or limitations. Another 

suggested that we not qualify the 

definition of bona fide service fees with 

specific examples, while another would 

like us to provide not only examples of 

what is included in the definition of 

bona fide service fees but also examples 

of what is excluded from the definition. 

Response: After considering these 

comments, we are modifying the 

proposed definition of bona fide service 

fees in § 423.501 by omitting the 

examples of bona fide services listed in 

the proposed definition. Bona fide 

services are subject to change as new 

ones are developed or other bona fide 

services are discontinued. Thus, we 

believe it is appropriate to elaborate on 

the definition of bona fide service fees 

in subregulatory guidance, as we have 

typically done in our DIR reporting 

guidance. We expect to provide such 

guidance to help Part D plan sponsors 

determine what is included in or 

excluded from the definition of bona 

fide service fees. We also note that by 

not including specific examples of such 

fees in the regulation, the definition of 

bona fide service fees in § 423.501 is 

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 22095 

consistent with the definition of bona 

fide service fees used in the Medicare 

Part B and Medicaid programs. 

Comment: A few commenters 

questioned how CMS will monitor 

compliance with reporting requirements 

(for example, accurate reporting of bona 

fide service fees) and whether we intend 

to audit PBMs. A commenter asked for 

flexibility in CMS’ policy on collecting 

PBM transparency data until sponsors 

have completed their next contract 

negotiations with PBMs. 

Response: We intend to explore 

whether auditing PBMs will be 

necessary to ensure compliance with 

this provision. However, we do not 

believe it is necessary or appropriate to 

delay implementation of these reporting 

requirements because the statute, which 

was effective upon enactment, directs 

each PBM to provide to the Part D 

sponsor the data elements required by 

this rulemaking. 

Comment: A commenter urged CMS 

to differentiate between PBM-owned 

mail order pharmacies and PBMs that 

contract for mail order pharmacy 

services because they believe that the 

Affordable Care Act should not be 

interpreted as requiring PBMs that own 

mail order pharmacies to disclose drug 

acquisition costs. Another commenter 

recommended that CMS clarify the 

reporting requirement with respect to 

PBM-owned mail order facilities in 

which there is no aggregate difference in 

the amount collected and the amount 

paid to the pharmacy. A commenter 

claimed that Medicare contracts 

between PBMs and sponsors must be 

100 percent pass-through. 

Response: If there is no difference 

between the amount the Part D sponsor 

pays the PBM and the amount that the 

PBM pays mail order pharmacies (that 

is, if Part D sponsors use pass-through 

pricing for their mail order pharmacies), 

then the amount should be reported 

under § 423.514(d)(6) as zero. Thus, for 

the purpose of collecting this data 

element, we do not believe that PBMowned mail order pharmacies present 

unique challenges relative to PBMs that 

contract for mail order pharmacy 

services. Moreover, because only the 

aggregate amount of the difference 

between the amount the Part D sponsors 

pays the PBM and the amount the PBM 

pays retail pharmacies is reported, the 

PBM’s drug acquisition costs drugs will 

not be disclosed. 

Consistent with the discussion in our 

January 12, 2009 final rule, we also 

clarify that sponsors may use either the 

lock-in pricing or pass-through pricing 

approach when contracting with PBMs, 

but they must use the price ultimately 

received by the pharmacy (or other 

dispensing provider) as the basis for 

calculating beneficiary cost sharing, 

total drug spend, and cost reporting to 

CMS. (See § 423.100 for the definition of 

negotiated price and 74 FR 1505 

through 1511 for more details.) 

Comment: A commenter requested 

that CMS clarify whether the total 

number of prescriptions dispensed 

reported under § 423.514(d)(1) is based 

on PDEs or actual claims. If it is based 

on PDEs, the commenter believed CMS 

should clarify that it would still be the 

Part D sponsor’s responsibility to hire a 

data validation auditor to evaluate the 

validity of the reports, as opposed to 

passing this responsibility to the PBM. 

Response: We do not plan to institute 

a new requirement on plan sponsors or 

PBMs to collect this data element as 

they already report it on PDEs. We 

remind plan sponsors that they must 

maintain audit trails to PDE source data. 

We expect that the plan will be able to 

directly link any PDE to the individual 

claim transactions from which the PDE 

was extracted, and will conduct audits 

of PDE data to ensure the accuracy of 

payment. Part D sponsors have the 

discretion to negotiate terms with each 

PBM that obligate the PBM to 

participate in maintaining audit trails. 

Also, consistent with § 423.505(k), each 

year Part D sponsors must certify that 

their PDEs and DIR reports, among other 

data, are accurate, complete, and 

truthful. While Part D sponsors remain 

accountable for their certifications, they 

have the discretion to negotiate with 

their first tier and downstream entities 

concerning the entities’ participation in 

the data validation activities that must 

support each certification. 

Comment: A commenter suggested 

that CMS should provide an annual 

report on the best and worst plans with 

respect to the reporting requirements in 

paragraph (d). 

Response: We believe that this 

comment is out of scope as section 

1150A of the Act addresses PBM 

reporting requirements, confidentiality 

of PBM-related data, and penalties for 

failure to provide pharmacy benefits 

manager data. 

After considering the comments 

received, we are finalizing the policy as 

proposed with one modification to the 

definition of ‘‘bona fide service fees’’ in 

§ 423.501. We have also made a minor, 

technical correction to the language of 

§ 423.514(e). 

B. Strengthening Beneficiary Protections 

This section includes provisions 

aimed at strengthening beneficiary 

protections under Parts C and D. In our 

opinion, it is appropriate to provide for 

reinstatement of beneficiaries in the 

section 1876 cost plans from which they 

were disenrolled for failing to pay 

premiums when they can establish good 

cause for their failure to pay. We 

anticipate that finalizing this provision 

will result in uninterrupted plan 

coverage for eligible beneficiaries and 

thereby improve access to healthcare for 

individuals such as those with chronic 

conditions requiring continual 

monitoring and medication. Similarly, 

we expect that requiring sponsors to 

provide enrollees in MA plans with 

uniform ID cards which all providers 

will be able to easily recognize will 

facilitate access to health care for those 

beneficiaries. We also believe that 

calculating creditable coverage by 

excluding the value of additional 

coverage in the coverage gap and the 

manufacturers discount—the standard 

that qualifies retiree drug coverage for 

the retiree drug subsidy—will mean a 

beneficiary receiving retiree drug 

coverage will be less likely to be 

assessed a late enrollment penalty if he 

or she subsequently decides to enroll in 

a Part D plan. Enabling health care 

professionals to request Independent 

Review Entity (IRE) reconsiderations of 

Part D coverage determinations on 

behalf of enrollees without having to 

obtain signed appointment of 

representative forms will, in our 

opinion, lessen the burden faced by 

providers seeking to assist enrollees 

with appeals and will encourage more 

health care professionals to help 

beneficiaries access this level of the 

appeals process. The foregoing 

proposals and the changes considered 

are set forth in Table 3. 

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22096 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

TABLE 3—PROVISIONS TO STRENGTHEN BENEFICIARY PROTECTIONS

Preamble 

section Provision 

Part 417 Part 422 Part 423 Part 483 

Subpart Subpart Section Section Subpart Section Subpart Section 

II.B.1 ........ Good Cause and 

Reinstatement 

into a Cost 

Plan.

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

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

Plans to Issue 

Member ID 

cards.

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

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

Actuarially 

Equivalent 

Creditable Prescription Drug 

Coverage.

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

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

Part D Appeals 

with the Independent Review Entity.

N/A ........... N/A N/A ........... N/A Subpart M 423.600 

423.602 

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

1. Good Cause and Reinstatement Into a 

Cost Plan (§ 417.460) 

Current regulations at § 417.460(c) 

specify that an HMO or competitive 

medical plan may disenroll a member 

who fails to pay premiums or other 

charges imposed by the plan for 

deductible and coinsurance amounts. 

The cost plan must demonstrate that it 

made reasonable efforts to collect the 

unpaid amount (for example, the plan 

attempted to contact the member by 

phone or mail) and sent the enrollee 

written notice of the proposed 

disenrollment (including an explanation 

of the enrollee’s right to a hearing under 

the HMO’s or competitive medical 

plan’s grievance procedures). Cost plans 

also have the option of not disenrolling 

members who fail to pay their 

premiums or cost-sharing. A plan may 

adopt either policy and must apply it 

consistently to all members in the plan. 

Individuals who are disenrolled from 

an MA or Part D plan for failure to pay 

premiums are generally ineligible to 

regain MA or Part D coverage until the 

next Annual Election Period. However, 

in some of these cases, there may be 

extenuating circumstances that would 

make reinstatement appropriate. Thus, 

in the April 2011 final rule (76 FR 

21511), we established provisions at 

§§ 422.74 and 423.44 that allow 

individuals, who are disenrolled from 

MA and Part D plans for failure to pay 

premiums, to request reinstatement into 

their former plan based on good cause 

and the ability to pay all arrearages. 

These MA and Part D rules provide 

alignment with the existing Part B 

policy regarding delinquent Medicare 

Part B premium payments. 

In the October 11, 2011 proposed rule 

(76 FR 63036), we proposed to extend 

the right to request reinstatement for 

good cause to beneficiaries enrolled in 

cost plans. Specifically, we proposed to 

amend § 417.460(c) to allow 

reinstatement of enrollment for good 

cause following involuntary 

disenrollment, based on failure to pay 

premiums or other cost-sharing 

amounts, to a cost plan. Section 

417.460(c) provides that— 

• To be eligible for reinstatement, the 

enrollee would have to pay all 

outstanding arrearages, including 

premiums that accrued during the 

period of disenrollment; 

• The standard for good cause would 

be similar to the standard established 

under MA and Part D (for example, 

unexpected, prolonged hospitalization 

or loss of home or severe impact by fire); 

and 

• An individual who is involuntarily 

disenrolled within the same timeframe 

from both his or her cost plan and a 

standalone PDP (not affiliated with the 

cost plan), would have to seek separate 

good cause determinations for 

reinstatement into each plan. 

Comment: CMS received several 

comments on this proposal, all of which 

expressed broad support and 

concurrence with our intent to mirror 

the existing MA and Part D 

requirements. A commenter expressed 

regret with our determination that good 

cause would not exist if the sole basis 

for requesting reinstatement is a change 

in an individual’s financial 

circumstances. The commenter 

suggested that such an individual might 

eventually find the means to afford the 

plan’s premiums, in which case, she or 

he should not be prohibited from 

reinstatement and the opportunity to 

reestablish relationships with previous 

providers. In addition, the commenter 

believes that beneficiaries should be 

able to appeal a denial of reinstatement. 

Response: The intent behind this 

provision was to give cost plan enrollees 

the same protections that we currently 

extend to MA and Part D plan enrollees. 

As such, we do not believe that it would 

be appropriate to expand these 

protections to include either additional 

factors that meet the good cause 

standard or appeal rights when a request 

for reinstatement is denied. It is 

important to note that denying a 

beneficiary’s request for reinstatement 

does not result in the loss of Medicare 

coverage. Instead, individuals who are 

involuntarily disenrolled from a cost 

plan revert back to Original Medicare 

and are free to maintain their 

relationships with established 

providers. In addition, if an individual’s 

financial circumstances improve over 

time, she he can re-enroll during the 

cost plan’s next period of open 

enrollment. 

We appreciate the comments that 

were submitted on this provision and 

will be finalizing this proposal without 

modification. 

2. Requiring MA Plans to Issue ID Cards 

(§ 422.111) 

Pursuant to section 1860D–4(a)(1) of 

the Act and § 423.120(c), and consistent 

with, common industry practice as 

described in the Medicare Marketing 

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

ManagedCareMarketing/03_FinalPartC

MarketingGuidelines.asp), Part D 

sponsors must issue and re-issue as 

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appropriate a card or other technology 

that enrollees can use to access 

negotiated prices for Part D covered 

drugs. While we have made 

recommendations with respect to 

member identification (ID) cards for 

Medicare Advantage (MA) Preferred 

Provider Organization and Private Feefor-Service products through our 

Medicare Marketing Guidelines (http:// 

www.cms.gov/ManagedCareMarketing/), 

we have issued no related regulatory 

requirements. Many MA organizations 

issue ID cards to their enrollees, but, 

absent such a requirement in regulation, 

we cannot ensure that all MA 

organizations issue cards to their 

members or that the cards contain 

certain information at a minimum and 

other information necessary for 

consistency of information across such 

documents. Thus, we believe it is 

important to establish requirements for 

the MA member ID cards to ensure that 

key information (such as the plan’s 

customer service number and the 

member ID number) is on the card so 

that enrollees can access care. 

Specifically, we proposed to require that 

ID cards contain the following 

information: (1) For an MA PPO or PPFS 

plan, a statement that Medicare Limiting 

Charges apply; (2) an address for the 

plan’s Web site; (3) a customer service 

number; and (4) the individual 

identification number for each enrollee, 

to clearly identify that he or she is a 

member of the plan. 

We indicated that implementation of 

these provisions would ensure 

providers have easy access to the 

necessary information for verifying 

coverage and processing claims. 

Therefore, under our authority at 

section 1852(c) of the Act (to require 

that MA organizations disclose MA plan 

information upon request), at section 

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

standards by regulation) and section 

1857(e) of the Act (to specify additional 

contractual terms and conditions the 

Secretary may find necessary and 

appropriate), we proposed to amend 

§ 422.111 by adding a new paragraph (i) 

to expressly require that MA plans issue 

and re-issue, as necessary, a card that 

contains certain information and 

enables enrollees to access all covered 

services. 

Comment: Several commenters 

expressed support for the proposal to 

require MA plans to issue ID cards. 

Additionally, they offered suggestions 

for specific ID card requirements: (1) 

add an identifier to the card for 

individuals who receive Medicaid or are 

QMBs; and (2) adopt the Workgroup on 

Electronic Data Interchange (WEDI) 

standards for medical ID cards. In 

addition, one commenter said that we 

should exclude the Medicare Limiting 

Charges statement because of card 

crowding. 

Response: We appreciate the 

thoughtful comments. In light of the 

recommendations that we add more 

information to the ID card, and realizing 

that there is limited space in which to 

include such information, we will be 

issuing further guidance in this area 

based on accepted industry practice. In 

developing such guidance, we will also 

consider the commenter’s concern about 

the possible lack of space on the card if 

we were to include our proposed 

statement regarding Medicare Limiting 

Charges. 

Comment: A commenter questioned 

whether this requirement applies to 

section 1876 cost plans. 

Response: Yes. With the final 

publication of these regulations, 

§ 417.427 will be amended to require 

section 1876 cost plans to follow the 

disclosure requirements contained in 

§ 422.111. As the ID provision is part of 

these disclosure requirements, as of the 

publication of these regulations, section 

1876 cost plans will be required to issue 

ID cards. 

After consideration of the public 

comments received, we are finalizing 

the policy with the following 

modification: We are removing the 

specific information requirements from 

the ID card provision (§ 422.111(i)). 

3. Determination of Actuarially 

Equivalent Creditable Prescription Drug 

Coverage (§ 423.56) 

Section 1860D–22 of the Act outlines 

the special rules for employersponsored programs. Subsection 1860D– 

22(a) of the Act establishes that the 

Secretary shall provide payment to 

sponsors of qualified retiree 

prescription drug plans that provide 

equivalent or better coverage than the 

actuarial value of standard prescription 

drug coverage. The Affordable Care Act 

amended section 1860D–22(a)(2)(A) of 

the Act by adding a provision that 

changed the formula for determining the 

actuarial equivalence of retiree 

prescription drug coverage to the 

defined standard coverage. Consistent 

with this provision, qualified retiree 

prescription plans, in their attestation of 

actuarial equivalence, must disregard 

the value of any discount or coverage 

provided during the coverage gap 

provided under standard prescription 

drug coverage. Thus, in the April 2011 

final rule (76 FR 21478), we amended 

§ 423.884(d) to remove the value of any 

discount or coverage provided during 

the coverage gap from the valuation of 

standard prescription drug coverage 

when comparing the value of the retiree 

drug subsidy (RDS) calculation to 

determine valuation of the RDS 

coverage. 

Section 1860D–13(b)(4) of the Act 

defines creditable prescription drug 

coverage to include coverage that at 

least meets the actuarial equivalence 

requirements in 1860D–13(b)(5)(A) of 

the Act. This provision requires the cost 

of prescription drug coverage to have an 

actuarial value that equals or exceeds 

the actuarial value of the standard 

Medicare prescription drug benefit (as 

determined under section 1860D–11(c) 

of the Act). The Affordable Care Act 

established two standard Medicare 

prescription drug benefits. Thus, there 

are now two calculated actuarial values 

for the standard prescription drug 

benefit—one value that would apply for 

standard prescription drug coverage 

when establishing the low-income 

subsidy and another value that would 

apply to applicable beneficiaries. As a 

result, we needed to clarify which 

actuarial equivalence standard is used 

for the valuation of creditable 

prescription drug coverage. Retiree 

prescription drug coverage is the most 

common source of creditable coverage, 

therefore we proposed to align the 

actuarial value calculation we use for 

purposes of section 1860D–13(b) of the 

Act with the actuarial value calculation 

used to determine the value of the 

retiree drug subsidy. By using the same 

values for both determinations, we 

ensure that RDS individuals, who are 

enrolled in plans that meet the actuarial 

equivalence value of defined standard 

prescription drug coverage as provided 

under § 423.884(5)(iii)(C), are not 

subject to the LEP under § 423.46 if they 

subsequently enroll in a Part D plan. 

To this end, we proposed to amend 

§ 423.56(a) to exclude the value of gap 

discounts or coverage, so that the 

definition of creditable coverage is 

consistent with the calculation of the 

actuarial value of RDS coverage in 

§ 423.884(d). We also proposed to revise 

the reference to ‘‘CMS actuarial 

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

guidelines,’’ to provide additional 

flexibility in issuing interpretive 

guidance on the definition of creditable 

coverage. 

Comment: All commenters who 

addressed this issue were in favor of the 

proposal. Commenters indicated that 

CMS’ changes would ensure that more 

employer-sponsored plans will be 

determined creditable, so enrollees will 

not be subject to the Part D late 

enrollment penalty if they choose to 

switch from employer-sponsored 

coverage to Part D coverage. 

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22098 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

Response: We appreciate the 

commenters’ support of the proposal 

and agree with their position that this 

approach will enable beneficiaries who 

switch from employer-sponsored 

creditable prescription drug coverage to 

a Part D plan to do so without incurring 

a late enrollment penalty. 

Comment: A commenter indicated 

support to exclude the late enrollment 

penalty (LEP) from the calculation of 

creditable coverage and requested that 

CMS provide employer-sponsored plans 

with the LEP amounts to effectuate the 

proper calculation. 

Response: The calculation for 

creditable coverage for qualified retiree 

prescription drug plans does not 

include the LEP. Further, because the 

LEP is not part of the formula to 

determine and attest creditable 

coverage, we do not believe it is 

necessary to share the LEP amounts 

with employer-sponsored plans. 

We appreciate the comments that 

were submitted on this provision and 

will be finalizing this proposal without 

modification. 

4. Who May File Part D Appeals With 

the Independent Review Entity 

(§§ 423.600 and 423.602) 

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

the Secretary to establish a Part D 

appeals process that is similar to the 

appeals process used for MA appeals. 

The Parts C and D appeals procedures 

are set forth in Subpart M of Parts 422 

and 423 of our regulations, respectively. 

In our January 12, 2009 final rule (74 FR 

1494), we amended both sets of 

regulations to strengthen enrollee access 

to the Part C and Part D appeals 

processes. Specifically, we amended the 

MA appeals regulations at § 422.582 to 

permit physicians to request standard 

plan reconsiderations of pre-service 

requests on behalf of MA enrollees. 

Consistent with section 1860D–4(g) of 

the Act, we made a corresponding 

change to the Part D regulations at 

§ 423.580, allowing prescribing 

physicians and other prescribers to 

request standard redeterminations on 

behalf of enrollees. Allowing prescribers 

to request coverage determinations and 

plan level appeals on behalf of enrollees 

has significantly enhanced enrollee 

access to these processes. 

Subsequent program experience has 

taught us that these changes to the Part 

D appeal process may not go far enough 

in terms of improving access to the Part 

D appeals process, as explained later in 

this section. Consequently, we proposed 

to revise the Part D regulations at 

§ 423.600 to allow prescribing 

physicians and other prescribers to 

request Independent Review Entity 

(IRE) reconsiderations on behalf of 

enrollees. We also proposed making a 

corresponding change to the notice 

provisions at § 423.602(a). 

Currently, the Part D IRE reports that 

approximately 46 percent of the cases it 

dismisses lack a valid appointment of 

representative (AOR) form, and that the 

overwhelming majority of these 

dismissed appeals (close to 90 percent) 

are initiated by prescribers. Such 

dismissals impede prescribers from 

assisting enrollees in obtaining timely 

independent review of their cases which 

creates the potential for delays in 

prescription drug access. Furthermore, 

given a prescriber’s ability to act on 

behalf of an enrollee in requesting Part 

D plan level appeals, prescribers 

frequently express dissatisfaction with 

not being able to also assist patients 

with IRE level appeals and the 

perceived burden associated with 

becoming the enrollee’s appointed 

representative. Clearly, this rule will 

significantly reduce the number of 

requests for review that the Part D IRE 

dismisses due to the lack of an AOR 

form. In addition, because the IRE will 

no longer have to seek an AOR form, it 

will be able to immediately initiate 

substantive review of these cases. Thus, 

we believe this change will enhance 

beneficiary access to the appeals process 

and better ensure prompt IRE decisions 

on whether requested drugs are covered 

under Part D. 

Under this final rule with comment 

period, the regulations will continue to 

require a Part D enrollee, or a prescriber 

acting on his/her behalf, to request IRE 

review; adverse redeterminations will 

not be automatically forwarded to the 

IRE. We considered requiring autoforwarding of adverse redetermination 

requests under the Part D program, but 

we continue to believe that in order to 

obtain IRE review, the statute requires 

the enrollee (or someone acting on the 

enrollee’s behalf) to request such 

review. (See the January 28, 2005 final 

rule (70 FR 4193) for a discussion of this 

issue.) Although section 1860D–4(h) of 

the Act states that only the Part D 

eligible individual shall be entitled to 

bring an appeal to the IRE, we do not 

interpret this language as precluding a 

prescriber from acting on a Part D 

enrollee’s behalf in requesting IRE 

review. As required by section 1860D– 

4(h) of the Act, this change makes the 

MA and prescription drug benefit 

programs’ appeals processes more 

similar, by giving Part D prescribers a 

mechanism to assist enrollees in 

accessing IRE review. In the MA 

program, the regulatory requirement 

that adverse plan reconsiderations be 

auto-forwarded to the IRE essentially 

gives physicians acting on behalf of 

enrollees direct access to the IRE 

reconsideration process. Also, as 

explained in our January 2009 final rule, 

allowing prescribers to request IRE 

appeals on behalf of enrollees does not 

present a conflict of interest because 

Part D prescribers are generally not 

entitled to payment from the enrollee, 

pharmacy, or plan for the prescribed 

drug, and therefore, do not have a 

financial interest in the outcome of 

appeals in the same manner as 

physicians requesting appeals under the 

MA program. Furthermore, we believe 

that an enrollee’s prescriber has already 

been selected by the enrollee and 

occupies a position of trust. A prescriber 

is in a good position to know whether 

an independent review is warranted and 

is in the best interest of his or her 

patient. 

This change should reduce 

administrative burdens under the IRE 

appeal process by eliminating the need 

for prescribers to routinely obtain AOR 

forms from enrollees and permitting 

prescribers to assist their patients in the 

appeals process without taking on the 

added responsibilities attendant to 

being an appointed representative. In 

contrast to the ongoing authority of 

appointed representatives, this change 

will allow a prescriber to act on an 

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

not necessary or advisable for 

prescribers who are only seeking to 

assist Part D enrollees in exercising their 

own appeal rights under the statute. 

Prescribers will not have the same 

authority as an appointed 

representative, including the right to 

bring appeals at any level. Instead, we 

envision that from the time of the initial 

IRE appeal request, the prescriber’s role 

will remain what it has been, providing 

a supporting statement or the clinical 

information necessary to approve 

coverage, if appropriate. Accordingly, 

we believe that this change will promote 

enrollee access to the Part D appeals 

process, reduce the burden on the 

prescriber community, and allow a more 

efficient use of appeals resources. 

We are also making a corresponding 

change to § 423.602(a) to specify that the 

IRE is responsible for notifying the 

prescriber of its decision when the 

prescriber makes the request on behalf 

of the enrollee. The enrollee will also 

receive a written decision notice from 

the IRE, thereby ensuring that enrollees 

are fully informed about the review 

process and able to participate if they 

choose to do so. 

As in §§ 422.582 and 423.580, 

prescribers must notify enrollees 

whenever they request IRE review on 

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their behalf. We intend to issue 

additional operational guidance with 

respect to how this requirement may be 

satisfied. Finally, we make clear that 

this final rule with comment period 

addresses only the right of a prescriber 

to file an appeal on behalf of an enrollee 

at the IRE level. Other individuals who 

wish to act on behalf of an enrollee in 

filing an appeal must continue to do so 

as the enrollee’s representative. 

Comment: Most commenters 

expressed support for the proposal, 

noting that allowing prescribers to file 

IRE appeal requests on behalf of 

enrollees without becoming that 

enrollee’s appointed representative 

would reduce administrative burdens 

on prescribers, limit dismissals of 

reconsideration requests, make the 

appeals processes under Parts C and D 

more similar, and enhance beneficiary 

access to the Part D appeals process. 

Response: We appreciate the 

commenters’ support and are finalizing 

the proposed revisions without 

modification. 

Comment: A few commenters 

expressed concerns that the proposed 

change may negatively affect plan 

sponsors’ quality ratings because it will 

likely result in an increase in the 

number of IRE appeal requests and 

potentially result in a higher IRE 

overturn rate. 

Response: We agree that this change 

is likely to increase the number of IRE 

reconsideration requests, as discussed 

in the regulatory impact analysis for this 

provision. To the extent that a plan 

sponsor’s IRE reversal rate increases as 

a result of this change, plan sponsors 

may wish to review their internal 

policies and procedures to ensure 

compliance with CMS subregulatory 

guidance instructing them to conduct 

reasonable and diligent outreach efforts 

to prescribers and enrollees when 

supporting statements or clinical 

information necessary to make a 

coverage decision are absent or 

incomplete. 

Comment: A few commenters believe 

that allowing prescribers to file IRE 

appeals may violate section 1860D–4(h) 

of the Act, which specifically states that 

only the enrollee can bring an appeal to 

the IRE. The commenters note that the 

statutory language differs from the 

language related to Part C IRE appeals, 

and further suggest that Congressional 

intent was to limit the Part D IRE 

appeals process to individuals acting on 

behalf of enrollees, disallowing 

individuals other than the enrollee from 

initiating IRE appeals absent an AOR 

form. 

Response: We disagree with the 

commenters. This provision does not 

give prescribers appeal rights; it merely 

allows them to file an appeal with the 

IRE on behalf of an enrollee. We believe 

that an enrollee’s prescribing physician 

or other prescriber is in the best position 

to provide the necessary medical 

rationale and documentation to support 

a favorable coverage decision. As we 

stated in the proposed rule, the revised 

regulation will require prescribers to 

notify enrollees that the request is being 

made. We intend to issue additional 

operational guidance with respect to 

how this requirement may be satisfied 

in a manner similar to the notification 

requirements for prescriber-initiated 

redeterminations. 

Comment: A few commenters 

recommended that CMS limit IRE 

review to include only the information 

provided by the prescriber at the 

coverage determination and 

redetermination levels. These 

commenters believe that prescribers 

often delay providing full clinical 

information until an appeal reaches the 

IRE level and the IRE solicits it. 

Commenters note that if plans received 

the same information they may reach 

the same conclusion as the IRE in less 

time and at a lower cost. 

Response: We strongly disagree with 

the commenters. The proposed rule was 

not intended to modify the IRE review 

process itself in any way; it only 

proposed to modify who may initiate an 

IRE appeal. We are retaining existing 

regulatory and subregulatory guidance 

regarding the requirement that the IRE 

solicit the views of the prescriber and 

retain a written account of those views 

in the IRE’s record. 

Additionally, we have not seen any 

indication that prescribers are 

intentionally withholding applicable 

clinical information in either the Part D 

coverage determination or appeals 

processes. As we noted in the proposed 

rule, prescribers do not have 

independent standing in Part D appeals, 

and generally are not entitled to 

payment from the enrollee, pharmacy, 

or plan for the drug being requested and 

therefore do not have a financial interest 

in the outcome of Part D appeals. In 

these cases, the prescriber is merely 

trying to assist the enrollee in obtaining 

coverage for a drug the prescriber 

believes is medically necessary. 

Prescribers have no incentive to 

withhold information that would 

support coverage. To the extent that the 

IRE routinely solicits and obtains 

information from a prescriber that was 

not provided during the initial coverage 

determination or redetermination, plan 

sponsors may wish to review their 

internal policies and procedures to 

ensure compliance with our 

subregulatory guidance, which instructs 

plan sponsors to conduct reasonable 

and diligent outreach efforts to 

prescribers and enrollees when 

necessary supporting statements or 

clinical information are absent or 

incomplete. 

Comment: CMS received several 

comments related to enrollee 

notification of a prescriber-initiated IRE 

appeal requests. Some commenters 

recommended that CMS issue guidance 

requiring prescribers to notify enrollees 

when they file an appeal on the 

enrollee’s behalf. One commenter 

expressed a belief that, under the 

proposed change, plan sponsors would 

need to exercise additional oversight 

such as contacting enrollees to ensure 

that prescribers are appropriately 

notifying enrollees and review any form 

or document the prescriber uses to make 

the IRE appeal request. Another 

commenter recommended that CMS not 

require plan sponsors or the IRE to 

obtain proof from the prescriber that the 

enrollee was notified of the requested 

IRE review made on their behalf. 

Finally, one commenter stated that a 

prescriber must obtain the enrollee’s 

consent in order to file an appeal with 

the IRE. 

Response: We do not require and do 

not expect plan sponsors to conduct any 

type of review or oversight to determine 

whether prescribers have notified 

enrollees that they are initiating an IRE 

appeal on their behalf. We intend to 

issue guidance to the IRE with respect 

to making a reasonable determination of 

whether the enrollee has notice of the 

prescriber’s request for a 

reconsideration on the enrollee’s behalf. 

This provision merely eliminates the 

requirement that a prescriber obtain an 

enrollee’s express consent (through a 

properly executed AOR form) in order 

to initiate an IRE appeal on behalf of the 

enrollee. 

Comment: A commenter requested 

that plan sponsors be informed of all 

IRE submissions and determinations so 

that they can evaluate their internal 

processes and provide oversight of 

delegated entities. 

Response: We agree with the 

commenter. In accordance with current 

processing requirements, the IRE will 

continue to request the plan sponsors’ 

case files subsequent to all valid 

requests for IRE reconsideration. The 

proposed change to § 423.602(a) does 

not change the requirement that the IRE 

notify all parties, including the plan 

sponsor, of the reconsideration decision. 

Thus, processes for communication 

with and notification to plan sponsors 

with respect to prescriber-initiated 

reconsiderations will be identical to the 

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current processes for enrollee-initiated 

reconsiderations. 

Comment: Several commenters 

recommended that CMS require autoforwarding of all adverse 

redeterminations to the Part D IRE, as is 

currently done with adverse plan 

reconsiderations in the MA program. 

Response: While we understand that 

auto-forwarding all adverse 

redeterminations to the IRE would 

enhance enrollee access to the Part D 

appeals process, we believe that this 

practice would be inconsistent with the 

statute. As we stated in the proposed 

rule, we interpret the statutory language 

related to Part D appeals to require the 

enrollee (or someone acting on his or 

her behalf) to affirmatively request IRE 

review. 

Comment: A commenter 

recommended that CMS include 

information on who may file appeals 

with the IRE on the Medicare Web site, 

in Medicare & You and in plan 

communications to increase awareness 

of appeal options. 

Response: We agree with the 

commenter and will ensure that all 

relevant CMS materials are updated to 

reflect this change after the final rule 

has been published. Part D plan 

sponsors are also required to maintain 

current information regarding the Part D 

appeals process on their plan Web sites 

and in annual enrollment materials. 

Comment: A commenter requested 

that notification of IRE decisions for 

appeals initiated by prescribers be 

provided to the enrollee either by the 

provider or the IRE. 

Response: We agree with the 

commenter that enrollees must receive 

written notification of IRE appeal 

decisions. As stated previously, we are 

finalizing the proposed corresponding 

change to § 423.602(a), which specifies 

that in all cases the IRE is responsible 

for notifying the enrollee (as well as the 

prescriber) of its decision, including 

when a prescriber makes a request on 

behalf of the enrollee. 

Comment: A commenter sought 

clarification on whether a prescriber 

still needs to be appointed by the 

enrollee to file a request for IRE 

reconsideration. 

Response: The purpose of the 

proposed change is to eliminate the 

need for a prescriber to obtain 

representative status in order to initiate 

an IRE appeal on the enrollee’s behalf. 

Therefore, we are finalizing the 

proposed regulation text to state that, 

upon providing notice to the enrollee, 

the prescribing physician or other 

prescriber may request an IRE 

reconsideration on behalf of the 

enrollee. An ‘‘appointment’’ is no longer 

required. 

Comment: A commenter noted that a 

prescription may be denied by a Part D 

plan at the point of sale for a variety of 

reasons, and that a coverage 

determination should be required before 

proceeding to the IRE as a majority of 

appeals could be resolved through plan 

adjudication. 

Response: We agree with the 

commenter. The proposed change 

allowing prescribers to file IRE appeals 

on behalf of an enrollee does not 

eliminate the requirement to exhaust 

plan level reviews before requesting IRE 

review. Under the proposed change, 

enrollees, their representatives and 

physicians or other prescribers may 

make a request for IRE review only after 

the Part D plan sponsor has made an 

adverse redetermination decision. 

Comment: A commenter requested 

clarification that ‘‘prescriber’’ refers 

only to the physician, PA or NP who 

wrote the order for the drug in dispute. 

Response: Under our proposed change 

to § 423.600, the ‘‘prescribing physician 

or other prescriber’’—the individual 

who wrote the order for the drug in 

dispute—will be the only person 

authorized to make an IRE appeal 

request on behalf of an enrollee (absent 

an authorized or appointed 

representative). 

Comment: A commenter 

recommended that IRE appeal requests 

be limited to prescribing physicians and 

not to a physician designee. 

Response: We agree that the proposed 

change only allows prescribing 

physicians and other prescribers to 

initiate IRE appeals on behalf of 

enrollees. However, we understand that 

medical and administrative staffs 

perform various functions for 

physicians (such as calling in 

prescriptions or responding to requests 

for medical records) these same staff 

should be allowed to assist prescribers 

in submitting Part D IRE appeal requests 

and providing any necessary clinical 

documentation. We will develop 

additional subregulatory guidance 

around this process. 

Comment: A commenter stated that 

allowing prescribers to initiate IRE 

appeals on behalf of enrollees will 

contribute to the increasing problem of 

overutilization of medications caused by 

prescribers who continue to prescribe 

drugs that are not medically necessary. 

Response: We understand the 

commenters concerns, but disagree with 

the suggestion that the proposed 

provision will lead to overutilization. 

We are only allowing prescribers to 

request coverage at the IRE level. The 

decision whether to overturn the 

adverse redetermination will continue 

to be made by the IRE based on statutory 

and regulatory guidelines and 

applicable clinical documentation. 

Comment: A commenter encouraged 

CMS to ensure that prescriber requests 

for IRE reconsideration are consistent 

throughout the Part D and MA 

programs. 

Response: We are seeking to make the 

Part D and MA programs more similar 

through this regulatory change. 

However, as noted previously, we 

believe the statutory differences with 

respect to IRE reconsiderations do not 

allow for these processes to be identical. 

Comment: CMS received a number of 

comments related to fees charged by 

prescribers who assist enrollees with 

Part D appeals. Several commenters 

urged CMS to reexamine the policy 

surrounding ‘‘allowable extra fees,’’ 

stating that Part D and MA program 

appeals are rarely successful without 

physician support and allowing 

physicians to charge fees for providing 

letters of medical necessity or producing 

medical records creates an unnecessary 

tension in the doctor-patient 

relationship. Some commenters 

requested that CMS prohibit physicians 

or other prescribers who file IRE appeals 

on behalf of enrollees, from charging 

enrollees any fee for assistance unless 

an enrollee has agreed to the fee in 

writing. Other commenters requested 

that CMS issue guidance related to 

reasonable fees. A number of 

commenters also noted that CMS rules 

related to appointment of 

representatives include a provision that 

a physician representative may waive a 

fee for representing a beneficiary. 

Response: Subpart M does not address 

fees charged by physicians or other 

prescribers; therefore, we believe these 

comments are outside the scope of the 

proposed regulation. 

As stated previously, we are finalizing 

the proposed changes without 

modification. However, we are, 

changing the effective date of this 

provision from 60 days after the 

publication of this rule to January 1, 

2013, to clarify that prescribers may not 

begin requesting reconsiderations on 

behalf of the beneficiary until the 2013 

plan year. 

5. Independence of LTC Consultant 

Pharmacists (§ 483.60) 

In our October 11, 2011 proposed rule 

(76 FR 63038), we noted that under 

sections 1819(b)(4) and 1919(b)(4) of the 

Act, long term care (LTC) facilities must 

provide, either directly or under 

arrangements with others, for the 

provision of pharmaceutical services to 

meet the needs of each resident. This 

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requirement is codified in regulations at 

§ 483.60, which require LTC facilities to 

employ or obtain the services of a 

licensed pharmacist to provide 

consultation on all aspects of the 

provision of pharmacy services in the 

facility, including a drug regimen 

review at least once a month for each 

facility resident. We explained that, as 

a result of their role in LTC facilities, 

LTC consultant pharmacists may 

exercise significant influence over the 

drugs that LTC facility residents receive. 

We noted that nursing homes 

commonly contract with a single LTC 

pharmacy for prescription drugs for 

facility residents. Very often the same 

LTC pharmacy then also contracts with 

the facility to provide consultant 

pharmacists for required consultation 

on all aspects of the provision of 

pharmacy services in the facility, 

including the monthly resident drug 

regimen reviews. We indicated that, in 

verbal conversations with industry 

representatives, we had been informed 

that some LTC pharmacies provide the 

consultant pharmacists to nursing 

homes at rates that may be below the 

LTC pharmacy’s cost and below fair 

market value. 

We expressed our concern with the 

potential effect on patient safety and 

quality of care for nursing home 

residents regarding the various 

contractual arrangements involving LTC 

facilities, LTC pharmacies, 

pharmaceutical manufacturers and/or 

distributors, and the LTC consultant 

pharmacists that may be provided 

through LTC pharmacies directly or 

indirectly to LTC facilities. We noted 

these arrangements may take many 

forms and mentioned the practice of 

LTC pharmacies’ providing consultant 

pharmacists to nursing homes at below 

cost or fair market value as one such 

type of arrangement. We noted also that 

any such arrangements have the 

potential to directly or indirectly 

influence consultant pharmacist drug 

regimen recommendations. We 

indicated our concern that the lack of 

independence of the consultant 

pharmacist from the interests of the LTC 

pharmacy or other LTC pharmacyrelated organization may lead to 

recommendations that steer nursing 

homes to recommend or use certain 

drugs for their residents. We noted this 

could result in the overprescribing of 

medications, the prescribing of drugs 

that may be inappropriate for LTC or 

geriatric residents, or the use of 

unnecessary or inappropriate 

therapeutic substitutions. We remarked 

that such potential outcomes could pose 

serious health-related consequences to 

some nursing home residents’ health 

and safety. 

In our October 11, 2011 proposed rule 

(76 FR 63039), we referenced the claims 

brought by qui tam relators under the 

False Claims Act and cited research 

findings, HHS Office of Inspector 

General review findings, and nursing 

home survey and certification data to 

demonstrate that our concerns were not 

merely theoretical. We acknowledged 

that our findings did not directly 

connect LTC pharmacy relationships 

with consultant pharmacists to the 

research findings and survey results; 

however, we believed it was reasonable 

to presume that the incentives present 

in the relationships among some 

consultant pharmacists, LTC 

pharmacies, and drug manufacturers 

could influence the prescribing 

practices reflected in the data. As a 

result, we expressed our belief that 

requiring the independence of 

consultant pharmacists was necessary 

and appropriate and were considering 

making such a change. We solicited 

comments on our understanding in this 

matter. 

In our October 11, 2011 proposed rule 

(76 FR 63040), we stated that we 

believed severing the relationship 

between the consultant pharmacist and 

the LTC pharmacy, pharmaceutical 

manufacturers and distributors, and any 

affiliated entities would further protect 

the safety of LTC residents because it 

would ensure that financial 

arrangements would not influence the 

consultant pharmacist’s clinical 

decision making to the detriment of LTC 

residents. Therefore, we indicated that 

we were considering requiring that LTC 

consultant pharmacists be independent 

of any affiliations with the LTC 

facilities’ LTC pharmacies, 

pharmaceutical manufacturers and 

distributors, or any affiliates of these 

entities and believed such a requirement 

would be necessary to ensure that 

consultant pharmacist decisions were 

objective, unbiased, and in the best 

interest of nursing home residents. LTC 

facilities would use a qualified 

professional pharmacist to conduct drug 

regimen reviews and make medication 

recommendations based on the best 

interests of the resident. We expressed 

our belief that this could be achieved 

only if the consultant pharmacist were 

working without the influence of 

conflicting financial interests that might 

otherwise encourage overprescribing 

and overutilization, which creates 

health and safety risks for residents. 

We noted the changes we were 

considering would use the authority 

available under sections 1819(d)(4)(B) 

and 1919(d)(4)(B) of the Act to require 

that LTC consultant pharmacists be 

independent. The cited statutory 

provision gives the Secretary authority 

to establish ‘‘such other requirements 

relating to the health, safety, and wellbeing of residents * * *.’’ We stated we 

were considering requiring that LTC 

facilities employ or directly or 

indirectly contract the services of a 

licensed pharmacist who is 

independent. We also noted we were 

considering including a definition of the 

term ‘‘independence’’ to mean that the 

licensed pharmacist must not be 

employed, under contract, or otherwise 

affiliated with the facility’s pharmacy, a 

pharmaceutical manufacturer or 

distributor, or any affiliate of these 

entities. 

Finally, we noted our understanding 

that some LTC consultant pharmacists 

may perform approximately 60 drug 

regimen reviews in a day. We indicated 

we suspect that this rate may be too 

high, given our expectation that 

independent consultant pharmacists 

would conduct more thorough drug 

regimen reviews, monitoring for drug 

side effects and efficacy. Therefore, 

although we did not propose to codify 

changes to the drug regimen review 

requirements, we solicited public 

comment on best practices related to the 

conduct of drug regimen reviews and 

stated we would use these comments to 

inform possible future rulemaking 

regarding the drug regimen review 

requirements. 

Comment: CMS received many 

responses to our request for comment on 

our understanding of the problems 

associated with conflict of interest 

involving LTC consultant pharmacists. 

A significant number of commenters 

who identified themselves as current or 

former consultant pharmacists either 

acknowledged they had experienced 

conflict of interest in the past or 

confirmed our understanding that 

conflict of interest were an on-going 

problem. Several of these commenters 

claimed that conflicts of interest have 

been widespread and alleged that 

patient care suffers because of it. A 

number of these commenters wrote 

anonymously stating they feared 

retribution from their pharmacy 

employers. A commenter asserted that 

the rules LTC pharmacies placed on 

their employee consultant pharmacists 

strongly influenced utilization. This, 

they note, often resulted in a higher 

number of medications per resident and 

use of inappropriate drugs. Commenters 

who had witnessed or experienced 

conflict of interest described practices 

associated with it that included the 

following: 

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• Several commenters indicated their 

LTC pharmacy gave consultant 

pharmacists a list of ‘‘preferred’’ drugs; 

that is, drugs for which the LTC 

pharmacy receives preferred pricing or 

higher rebates from the pharmaceutical 

manufacturer, to be used for making 

their medication recommendations. 

• A few commenters described their 

LTC pharmacy’s therapeutic interchange 

program, which involves the consultant 

pharmacist recommending a change 

from a prescribed non-preferred drug to 

one of the pharmacy’s preferred drugs. 

A commenter characterized therapeutic 

interchange to rebated drugs as ‘‘big 

business’’ for the pharmacy. Another 

commenter explained that, once a 

change recommendation was made by 

the consultant pharmacist, the LTC 

pharmacy automatically generated a fax 

notice to the prescriber requesting the 

he or she sign the notice to approve the 

therapeutic interchange. An additional 

commenter indicated that the consultant 

pharmacists’ medication change 

recommendations were communicated 

in the form of letters to the prescriber 

prepared by the corporate clinical 

department of the pharmacy. 

• Several commenters explained that 

consultant pharmacists’ performance 

evaluations and bonuses were based on 

the market share of particular brand 

name drugs in the LTC facility. Thus, as 

the commenters noted, consultant 

pharmacists had financial incentives to 

make medication recommendations that 

enabled the facility market-share targets 

to be met. 

• Many commenters stated that they 

had first-hand knowledge that LTC 

pharmacies continue to charge belowmarket rates for the LTC consultant 

services as a means of acquiring the LTC 

facility’s pharmacy business, noting that 

this remains a common practice. Some 

of these commenters charged that the 

pharmacies recovered their costs for the 

consultant pharmacist services by 

requiring the consultant pharmacists to 

recommend drugs that generated the 

highest profit for the pharmacy. 

• Many commenters charged that the 

consultant pharmacists’ drug regimen 

review quotas were so high that 

sufficient time was not available to 

perform a thorough review of the 

residents’ medication regimens and 

make good recommendations. One 

commenter cited a minimum drug 

regimen review quota of 1,500 reviews 

per month. Another commenter 

reported that, when a large LTC 

pharmacy organization acquired the 

pharmacy at which the commenter had 

been employed, the new management 

required that the commenter perform 

the same number of drug regimen 

reviews as the commenter had been 

performing previously, but also that the 

commenter spend 2 days per week 

dispensing. As a result, the time 

available for the commenter to perform 

the same number of medication reviews 

was decreased by 40 percent. 

• Some commenters asserted that by 

limiting the time available to conduct 

them, the drug regimen reviews were 

perfunctory. Others described how the 

drug regimen review requirements were 

subverted. For example, a commenter 

contended that the consultant 

pharmacists employed by an LTC 

pharmacy were performing the 

medication reviews at the pharmacy 

rather than the facility and, thus, had no 

access to medication administration 

records, physician and nursing 

assessment notes, lab results, or other 

information available in the residents’ 

medical records. Another asserted that 

an LTC pharmacy organization had its 

consultant pharmacists review the 

residents’ medication administration 

records, not the entire medical record, 

thus missing lab values and other 

assessments and notes. 

• Many commenters agreed that 

consultant pharmacists should be free 

from conflict of interest and their 

medication recommendations should be 

based solely on the residents’ best 

interests. Finally, however, many other 

commenters stated that they never 

experienced any pressure in the conduct 

of their consultant pharmacist activities, 

nor had they seen others pressured, and 

thus they believed that conflict of 

interest is not an issue for consultant 

pharmacists. 

Response: We appreciate the 

confirmation of our understanding that 

conflict of interest may be a problem for 

many LTC consultant pharmacists. We 

recognize that a significant number of 

commenters disagreed with our 

understanding and, thus, the problem 

may not be universal. We believe the 

comments suggest that the problem has 

been addressed in some places and not 

in others, is more widespread in some 

places and therefore more evident, or is 

associated with a particular LTC 

pharmacy or pharmacies, particular LTC 

facilities or chains or pharmaceutical 

manufacturers or manufacturer 

representatives. 

However, the reports of conflict of 

interest are sufficient to indicate it 

continues to exist and our concerns 

regarding its impact on the quality of 

care in LTC facilities are well-founded. 

We believe that this demonstrates that 

change is necessary to ensure that all 

LTC consultant pharmacists are free 

from conflicts of interest, are able to 

base their professional medication 

recommendations on the best interest 

and clinical needs of LTC facility 

residents, and are able to advocate for 

the Medicare beneficiary. 

Comment: CMS received a large 

number of comments from advocates 

and advocacy organizations, long term 

care ombudsmen, LTC consultant 

pharmacists, and others supporting a 

requirement for LTC consultant 

pharmacists to be independent and 

noting that such a policy was needed 

and long overdue. These commenters 

asserted that independence is essential 

to ensure that drug regimen reviews are 

impartial and the consultant pharmacist 

is able to act as an advocate for the 

resident without fear of financial 

repercussions. A commenter agreed 

with an independence requirement, 

noting that removing the financial 

incentives between the consultant 

pharmacists and the LTC pharmacy 

would increase transparency. 

CMS also received many comments 

opposing a requirement that would 

separate LTC pharmacy consulting from 

dispensing services. Many of these 

commenters claimed the requirement 

would be seriously disruptive, asserting 

that communication and collaboration 

between the dispensing pharmacy and 

the consultant pharmacist would be 

diminished, consultant pharmacists 

would be deprived of access to 

proprietary LTC pharmacy systems, data 

and other resources critical to the 

performance of consultant pharmacists’ 

activities. Opposing commenters noted 

the requirement would also deprive 

consultant pharmacists of the significant 

advantages derived from pharmacy 

employment, including health, 

retirement and other benefits, and 

would increase costs to both the LTC 

facilities and consultant pharmacists. A 

significant number of these commenters 

expressed concern that independence 

would decrease the quality of patient 

care accordingly. 

Many commenters requested that we 

finalize the requirement and not yield to 

those who argued against it. CMS 

received several comments from 

independent consultant pharmacists 

noting that, although others have argued 

otherwise, working independently has 

neither hindered access to residents’ 

prescription or medical information, nor 

diminished the residents’ quality of 

care. 

Response: We appreciate these 

comments, as well as the concerns 

expressed by those commenters 

opposed to the requirement for 

independent consultant pharmacists. 

The comments supporting the 

independence requirement have 

sustained our concerns about conflict of 

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interest and its impact on the quality of 

long term care. Also, the significant 

advantages associated with employment 

described in the opposing comments 

serve to highlight the strong influence 

such financial ties can exert on 

pharmacy-employed consultant 

pharmacists and reinforce the 

importance of an independence 

requirement to ensure unbiased 

medication reviews. As a result, we 

remain convinced of the need for 

changes to ensure that the consultant 

pharmacists’ recommendations are 

based solely on the residents’ best 

interests and clinical needs. However, 

we acknowledge that an independence 

requirement could be highly disruptive 

to the industry overall, including the 

LTC facilities and those consultant 

pharmacists with current industry 

affiliations, and would result in higher 

costs to the facilities and consultant 

pharmacists. 

Comment: A few commenters claimed 

we do not have the statutory authority 

to impose an independence 

requirement. These commenters 

asserted that we cannot use the 

Secretary’s authority under sections 

1819(d)(4)(B) and 1919(d)(4)(B) of the 

Act, because consultant pharmacist 

independence has no direct relationship 

to resident health and safety. Therefore, 

for us to require consultant pharmacists 

to be independent would require 

Congressional authorization. 

Response: We disagree. We believe 

that the conflict of interest inherent in 

the employment relationship between a 

consultant pharmacist and an LTC 

facility’s pharmacy undermines the 

ability of the consultant pharmacist to 

make unbiased medication 

recommendations that are solely in the 

best interests of the residents. Many of 

the comments previously discussed 

corroborate our belief. 

Recommendations made on other bases, 

such as those reflecting the financial 

interests of the consultant pharmacist or 

the consultant pharmacist’s employer, 

pose health and safety risks for the 

residents. Even in those situations in 

which the consultant pharmacist is able 

to make unbiased medication 

recommendations because there are no 

pressures to do otherwise, if the drug 

regimen review quota established by the 

consultant pharmacist’s employer is so 

high as to permit the consultant 

pharmacist to perform only the most 

perfunctory medication reviews, then 

resident health and safety are at risk. 

Comment: Many commenters agreed 

with the definition of ‘‘independence’’ 

we indicated we were considering. 

Some commenters disagreed with the 

definition, indicating that consultant 

pharmacists should not be permitted to 

be employees of the LTC facility in 

order to avoid the potential conflict of 

interest inherent in an employment 

relationship. Other commenters 

requested that consultant pharmacists 

be permitted to affiliate with 

pharmaceutical manufacturers and 

distributors. These commenters argued 

that affiliations with these entities 

permit the exchange of scientific and 

educational information on topics, such 

as medications and product benefits and 

risks, and much of this exchange occurs 

at educational programs supported by 

the industry at professional meetings 

and trade shows. They noted that 

consultant pharmacists frequently serve 

on industry advisory boards and are 

engaged as speakers and researchers 

with industry financial support and 

contended that HHS Office of Inspector 

General guidance for pharmaceutical 

manufacturers and industry guidelines 

related to the healthcare professionals’ 

decision-making provide sufficient 

oversight. One other commenter 

requested that we define the terms 

‘‘affiliates’’ and ‘‘affiliated.’’ 

Response: We acknowledge that there 

may be potential conflicts of interest in 

an employment relationship between 

consultant pharmacists and LTC 

facilities, but note that both the LTC 

facility and its residents have a common 

interest in the facility meeting CMS 

standards for unnecessary drug use in 

the facility. We do not agree with the 

commenters who advocated that we 

allow consultant pharmacist 

relationships with pharmaceutical 

manufacturers and distributors. The 

relationships that these commenters 

describe cause us substantial concern, 

as we believe they represent a basis for 

the conflicts of interest that we seek to 

eliminate. We believe that consultant 

pharmacists who receive remuneration 

from pharmaceutical manufacturers/ 

distributors for activities, such as 

research and speaking engagements or 

for serving on advisory boards, may be 

influenced by these relationships in the 

performance of their consultant 

pharmacist activities. Thus, if the 

consultant pharmacists’ 

recommendations are to be based solely 

on the LTC residents’ best interests, 

these affiliations should be prohibited. 

Comment: We received many 

comments from those supporting the 

independence requirement for LTC 

consultant pharmacists as well as from 

those opposing it, noting that consultant 

pharmacist independence would not 

solve the entire problem of conflict of 

interest, because other agents contribute 

to drug overutilization and 

inappropriate drug use in LTC facilities. 

Contributors specifically cited by 

commenters were LTC facility medical 

directors, nurse practitioners and 

physician assistants and the residents’ 

attending physicians. A few 

commenters noted that family members, 

influenced by pharmaceutical 

advertisements, could request 

antipsychotics as adjuncts for 

depression and the prescriber could 

accede to these requests. Other 

commenters noted the LTC facilities’ 

role citing serious understaffing, high 

staff turnover, and the lack of 

specialized staff trained in meeting the 

needs of dementia patients as factors 

contributing to inappropriate drug use 

in LTC facilities. Another commenter 

observed that others also play a 

contributing role, noting that a 

considerable number of residents 

admitted into LTC facilities from their 

homes, hospitals, and assisted living 

facilities are already on potentially 

unnecessary drugs. 

Many commenters pointed out that 

the ultimate decision regarding what 

medications to prescribe and whether to 

accept or reject a consultant 

pharmacist’s recommendation lies with 

the physician. Therefore, the 

commenters asserted prescribers, not 

consultant pharmacists, should be held 

accountable for overuse or inappropriate 

use of drugs in LTC facilities. 

Commenters claimed LTC residents’ 

physicians, as well as the facility’s 

medical director, rarely see or examine 

the residents and medications are 

reordered without the physician 

reviewing the residents’ condition. 

According to another commenter, if a 

resident’s behavior problem escalates, 

such as in the case of a resident with 

dementia, facility staff would call the 

physician to increase the medication 

dosage, and the physician would 

commonly comply without seeing the 

resident. Several other commenters 

noted that prescribers, aware of 

potential bias, ignore the consultant 

pharmacists’ recommendations due to 

uncertainty that the recommendations 

are in the residents’ best interests. 

Many of the commenters in 

opposition to the consultant pharmacist 

independence requirement noted that 

conflicts of interest pervade the LTC 

industry, affecting the facility (which 

imposes its own formulary requirement 

to contain costs for the drugs it covers), 

facility staff (who can encourage the use 

of chemical restraints to manage 

residents with behavioral problems), 

and the residents’ physicians and LTC 

facility-based prescribers (who may 

have their own financial ties to the 

pharmaceutical industry). For these 

reasons, the commenters objected to a 

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requirement that would single out only 

one group of actors that contribute to 

this problem. Several commenters 

recommended that we require that all 

clinicians in an LTC facility be 

independent, or that we at least 

consider the role of the physicians who 

prescribe medications when 

determining how best to solve the 

problem. Other commenters agreed with 

the independence requirement, but 

indicated that it was only a partial 

solution and a more comprehensive 

approach would be necessary to 

respond effectively to the whole 

problem. 

Response: We appreciate the many 

comments noting that others in the LTC 

industry, including facility staff and 

residents’ attending physicians, 

contribute significantly to 

overutilization. Commenters not only 

implicated others as contributing to 

overuse of drugs in LTC facilities, but 

also described other factors that 

contribute to the problem. Therefore, we 

recognize that requiring consultant 

pharmacists to be independent will not 

solve the entire problem. As a result of 

these comments, we are better aware 

that the independence requirement we 

specifically described in the October 11, 

2011 proposed rule would 

disproportionately target consultant 

pharmacists and leave the other actors 

to continue to operate as they do 

currently. This suggests that, unless the 

industry on its own implements steps to 

curtail overutilization and inappropriate 

drug use in LTC facilities, we must 

consider requiring broader changes than 

independence only for consultant 

pharmacists and propose those changes 

in future notice and comment 

rulemaking. 

Comment: Several commenters 

mentioned the recent investigations of 

nursing homes conducted by the 

California Department of Public Health 

which found that LTC consultant 

pharmacists failed to identify and report 

the misuse of antipsychotic medications 

in 90 percent of the cases identified by 

investigators as involving inappropriate 

and potentially lethal doses of these 

drugs. We also received comments from 

an LTC pharmacy reporting that over 

the past 5 years its consultant 

pharmacists have made over 700,000 

recommendations to prescribers 

regarding antipsychotic drug use and 

that more than 99 percent were 

recommendations to reduce dosage, 

discontinue or question use or 

recommend monitoring for side effects. 

(We note this commenter did not 

provide information on whether these 

recommendations were followed.) 

Citing these data from the LTC 

pharmacy, another commenter noted 

that, if (as the level of antipsychotic 

drug use suggests) prescribers are 

ignoring the consultant pharmacist 

recommendations, it raises the question 

of the effectiveness of the drug regimen 

reviews. A commenter suggested that, 

over time, conflict of interest can 

diminish prescribers’ confidence in the 

consultant pharmacists, eroding their 

effectiveness. This suggestion was 

supported in the comments of another 

who claimed that prescribers who have 

been practicing in LTC facilities are 

sensitive to the ethical conflicts faced by 

consultant pharmacists and are 

skeptical of their recommendations 

because of the prescribers’ uncertainty 

as to whether the recommendations are 

in the residents’ best interests. 

Response: These comments and the 

data reported by the commenters 

suggest that the required monthly drug 

regimen reviews are not yielding the 

intended outcomes nor are they 

providing the expected beneficiary 

protections. If perceived conflict of 

interest has potentially eroded 

confidence in the recommendations of 

the consultant pharmacists that 

prescribers are ignoring them and the 

reviews have become merely 

perfunctory exercises, then we may 

consider changing the requirements in 

§ 483.60(c) and explore alternative 

requirements and approaches. In 

determining whether a regulatory 

change is necessary, we will continue to 

evaluate the number of deficiency 

citations for unnecessary medication 

use and will monitor two new 

performance measures on the use of 

antipsychotics in LTC facilities. These 

new performance measures, based on 

resident assessment information 

reported in the Minimum Data Set (MDS 

3.0), will reflect antipsychotic drug use 

by short-term stay and by long-term stay 

facility residents and will be available 

later in 2012 on the CMS nursing home 

compare Web site at http://www.

medicare.gov/NHcompare/home.asp. 

Comment: We received extensive 

comments expressing serious concerns 

about the level of overuse and 

inappropriate use of antipsychotic drugs 

in LTC facilities. A commenter stated 

that, ‘‘On any given day, over 350,000 

nursing home residents receive 

powerful antipsychotics, despite FDA 

warnings that the drugs increase the risk 

of death and studies that show the drugs 

do not work and have terrible side 

effects.’’ Many commenters noted the 

vast majority of those receiving these 

drugs are residents with dementia who 

are being chemically restrained when 

there are safe, effective, and less 

expensive nonpharmacological methods 

to care for these residents. Another 

commenter stated that studies show that 

compassionate, person-centered care 

can minimize anxiety and depression 

and minimize the need for psychotropic 

medications. 

Response: We share the grave 

concerns expressed by the commenters 

concerning the level of antipsychotic 

drug use in LTC facilities. We believe 

these comments also call into question 

the effectiveness of the consultant 

pharmacists’ drug regimen reviews in 

curtailing the use and misuse of 

antipsychotic drugs, regardless of 

whether the ineffectiveness is caused by 

inadequate medication reviews by 

consultant pharmacists or prescribing 

physicians ignoring the recommended 

changes. As we indicated previously, 

we agree that consultant pharmacist 

independence will not solve the whole 

problem. Therefore, we challenge the 

entire LTC industry to do what is in the 

best interests of our most vulnerable 

beneficiaries and implement the 

necessary and appropriate changes to 

address this serious situation. 

We expect that through the 

implementation of changes, such as 

placement of greater emphasis on the 

use of nonpharmacological methods of 

care as an alternative to 

pharmacological treatment for the 

behaviors associated with dementia, the 

industry will achieve substantial 

improvement in the appropriate use of 

these medications. Although not all 

non-pharmacological treatments are 

appropriate for all patients, some 

nonpharmacological interventions may 

have potential benefits for residents 

with the behavior symptoms associated 

with dementia, such as agitation or 

aggression, wandering and sleeping 

disturbances. These interventions 

include, for example, music therapy, 

massage therapy, behavior management 

techniques, and animal-assisted 

therapy. 

Comment: A number of commenters 

offered recommendations for increasing 

transparency in order to address 

conflicts of interest issues in LTC 

facilities. Some commenters 

recommended that we require LTC 

facilities to separate contracts for LTC 

consulting services from contracts for 

other services, including drug 

dispensing, and require LTC facilities 

pay a fair market rate for consultant 

pharmacist services. Some commenters 

suggested either that we require 

consultant pharmacists to disclose to 

the facility any affiliations that would 

pose a potential conflict of interest or 

require consultant pharmacists to sign 

an integrity agreement. Several 

commenters recommended that LTC 

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pharmacies ensure that consultant 

pharmacists are empowered to make 

independent judgments and affirm this 

in a statement to the facility. One 

commenter suggested that, should the 

implementation of a requirement for 

consultant pharmacists to be 

independent be delayed, we require 

consultant pharmacists to disclose their 

affiliations and potential conflicts of 

interest. 

Response: We continue to believe that 

requiring independent consultant 

pharmacists is part of the right approach 

to address our concerns regarding 

conflict of interest and quality of care in 

LTC facilities. It is an approach that was 

strongly supported by some consultant 

pharmacists who confirmed our belief 

that LTC pharmacies do exert pressure 

on the consultant pharmacists in their 

employ to influence the medication 

recommendations. It was also supported 

by individual commenters, advocates 

and advocacy organizations, Part D plan 

sponsors and PBMs, and consultant 

pharmacist organizations. However, we 

acknowledge that others in the industry, 

including LTC facility staff and 

prescribers, are likewise implicated in 

the problem of overprescribing and 

inappropriate drug use. Thus, an 

independence requirement solely for 

consultant pharmacists would not solve 

overutilization and would single out 

one party, but leave the others to 

continue unaffected. We agree with 

commenters that the requirement would 

be highly disruptive to both LTC 

facilities and consultant pharmacists 

with current industry affiliations. 

Because the proposed requirement does 

not address the role of facility staff and 

prescribers in driving overutilization 

and inappropriate use, it is unlikely to 

result in substantially reducing these 

problems that would, in our view, 

outweigh the costs of industry 

disruption. 

Comment: We received several 

comments that noted the lack of 

empirical evidence linking 

overutilization of drugs in LTC facilities 

to consultant pharmacists’ possible 

conflicts of interest. Numerous 

commenters suggested that we study the 

recommendations, drug utilization and 

outcomes data for independent and 

pharmacy employed consultant 

pharmacists and many of these 

commenters also recommended that we 

consult with stakeholders to better 

define and scope the problem and 

formulate a more appropriate approach 

for addressing it. 

Response: If, as suggested by other 

commenters, consultant pharmacist 

recommendations are rarely acted upon, 

this calls into question the very purpose 

of the consultant pharmacists’ 

medication reviews. We expect the 

industry to demonstrate the value of 

these reviews to the LTC residents’ 

quality of care. Therefore, we believe 

the industry should collect data on the 

number and type of interventions 

recommended by the consultant 

pharmacists and on the outcomes of 

those recommendations. We expect 

some, if not all, of these data are already 

being collected and we recommend the 

industry work with such entities as the 

Pharmacy Quality Alliance (PQA) and 

other consensus gathering organizations, 

to develop performance measures to 

assess consultant pharmacist 

effectiveness. Further, since the 

consultant pharmacists are not the only 

group with responsibility for ensuring 

the safety and efficacy of care in the 

LTC facility, we expect the LTC 

provider and medical industry to also 

implement changes to address the 

problem of overuse and misuse of 

medications in LTC so that we will see 

inappropriate prescribing of all 

medications, but particularly 

antipsychotics, decrease. Should 

marked improvement not occur, we will 

use future notice and comment 

rulemaking to propose requirements to 

address our concerns. In determining 

whether marked improvement has been 

made, we will continue to evaluate the 

number of deficiency citations for 

unnecessary medication use and will 

monitor the two new performance 

measures on the use of antipsychotics in 

LTC facilities. 

Comment: We received comments 

recommending that LTC pharmacies be 

required to disclose their rebates and 

several other comments recommending 

the elimination of manufacturer rebates 

to LTC pharmacies based on utilization. 

Response: Although we agree that 

market-share-moving rebates may 

provide incentives that are not in the 

LTC residents’ best interests, we believe 

that these suggestions are beyond the 

scope of this proposal, and we are not 

in a position to respond to these 

recommendations at this time. 

Comment: Several commenters 

recommended a requirement that 

facilities use qualified professional 

consultant pharmacists for LTC 

consulting services and strictly enforce 

compliance with that requirement. 

Another commenter suggested that, as 

an alternative, we establish an audit or 

other oversight process to review and 

evaluate all medication changes 

recommended by LTC consultant 

pharmacists and all contractual 

agreements that pose potential conflict 

of interest risk. 

Response: We appreciate these 

comments and will consider the 

recommendations in the process of 

future rulemaking on this issue. 

However, as noted above, we believe the 

LTC industry should collect data on the 

number and type of interventions 

recommended by the consultant 

pharmacists and on the outcomes of 

those recommendations and we 

recommend the industry work with 

such entities as the PQA and other 

consensus gathering groups, to develop 

performance measures to assess 

consultant pharmacist effectiveness. 

Since the consultant pharmacists are not 

the only group with responsibility for 

ensuring the safety and efficacy of care 

in the LTC facility, we expect the LTC 

provider and medical industry to also 

implement changes to address the 

problem of overuse and misuse of 

medications in LTC so that we will see 

inappropriate prescribing of all 

medication. 

Comment: Many commenters 

responded to our request for comment 

on permitting exceptions for unique 

situations involving minimal conflict of 

interest risk or waiving the 

independence requirement to permit 

other alternate approaches. Some 

commenters recommended that we 

grant no waivers or exceptions, arguing 

that there should be a level playing field 

and that no employment relationship 

was free from conflicts of interest. Other 

commenters agreed with allowing 

exceptions or waivers for alternate 

approaches for IHS/Tribal facilities and 

facilities in rural or other ‘‘hardship 

areas’’. Several commenters suggested 

we monitor the exception and waiver 

processes to ensure they are fair and 

equitable. Other commenters requested 

either exceptions or alternate 

approaches for facilities with in-house 

pharmacies, VA, and State Veterans 

nursing homes, and various other 

situations. 

Response: We appreciate these 

comments and will consider them in the 

process of future rulemaking on this 

issue. 

Comment: Several commenters 

recommended either coordination 

between consultant pharmacists’ drug 

regimen reviews and medication 

therapy management (MTM) services in 

order to eliminate overlap/duplication 

between the two reviews. 

Response: We agree that the potential 

overlap between the drug regimen 

reviews required in LTC and Part D 

MTM reviews could possibly result in 

conflicting reviews. As a result, in the 

provision on MTM in LTC facilities 

discussed elsewhere in this rule, we 

encourage plan sponsors to consider 

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making arrangements that include the 

LTC consultant pharmacist in 

conducting Part D MTM services for 

targeted beneficiaries in LTC facilities. 

We note such arrangements could 

include direct contracts between the 

sponsor and consultant pharmacists (or 

their intermediaries), or indirect 

contracts between the sponsor’s MTM 

vendor or PBM and consultant 

pharmacists (or their intermediaries). 

Comment: Several commenters 

recommended we establish a January 1, 

2013 effective date, and other 

commenters requested either a delay in 

implementation or suggested a later 

effective date. Commenters provided 

recommendations for phasing in the 

requirement and for implementing the 

requirement initially as a demonstration 

program. Commenters also noted that 

these latter approaches would enable us 

to benefit from lessons learned and 

identify best practices for future 

implementation. 

Response: We appreciate these 

comments, but, as discussed further 

later in this section, we are not 

finalizing this provision at this time. 

Comment: We received numerous 

comments in response to our request for 

information concerning best practices in 

the conduct of drug regimen reviews. A 

few commenters suggested that we 

require consultant pharmacists be 

afforded adequate time for the monthly 

drug regimen reviews. Another 

suggested that we refer to the American 

Society of Consultant Pharmacists 

‘‘Guidelines for Assessing the Quality of 

Drug Regimen Review in Long Term 

Care Facilities’’ which the commenter 

noted provides standards to evaluate the 

quality of the drug regimen review and 

to improve the process. Several other 

commenters asserted that establishing a 

specific rate would be inappropriate 

because the facility’s case-mix could 

affect the rate. However, other 

commenters specified what they 

believed would be the optimal rate per 

day; the suggested rates varied from a 

low of 20 to a high of 64 per day. 

Response: We appreciate the 

comments and suggestions and will use 

them to inform possible future 

rulemaking regarding the drug regimen 

review requirements. 

Comment: Many commenters noted 

that the services performed by LTC 

consultant pharmacists are more 

extensive than the drug regimen reviews 

and include activities, such as 

destroying unused medications, 

checking storage areas, conducting exit 

conferences, providing in-service 

education to nursing staff, observing 

medication distribution, and attending 

meetings. Commenters stated all the full 

range of consultant pharmacist services 

need to be considered in evaluating the 

impact of any new requirements. 

Response: We appreciate these 

comments and, as we indicated in the 

October 11, 2011 proposed rule, we will 

use them to inform possible future 

rulemaking regarding the LTC 

consultant pharmacist requirements. 

As a result of considering the 

comments we received on this issue, we 

now believe a more targeted and less 

disruptive approach, at least initially, is 

warranted. We considered the 

possibility of finalizing several of the 

requirements recommended by these 

commenters to increase transparency 

around current contractual 

arrangements and incentives. We agree 

with the recommendation that LTC 

facilities pay a fair market rate for 

consultant pharmacist services; we note 

that the OIG has stated that provision of 

consultant pharmacists’ services by LTC 

pharmacies at below market rates 

‘‘present[s] a heightened risk of fraud 

and abuse’’ (OIG Supplemental 

Guidance Program for Nursing 

Facilities, 73 FR 56832, 56838, note 53, 

September 30, 2008). However, we do 

not believe it is within our statutory 

authority to require provision of such 

services at market rates. We also 

considered requiring that LTC facilities 

separately contract for consultant 

pharmacist services from other 

pharmacy services and that consultant 

pharmacists disclose to the LTC facility, 

the medical director, ombudsmen, and 

residents upon request any affiliations 

that would pose a potential conflict-ofinterest risk. 

However, due to the notice and 

comment provisions of the 

Administrative Procedure Act (5 U.S.C. 

553) and section 1871(a)(4) of the Act, 

and their respective requirements that a 

final rule be the logical outgrowth of a 

proposed rule, we believe that any such 

requirements cannot be finalized in this 

final rule with comment period, since 

we did not propose them initially. As a 

result, since a requirement for 

independent consultant pharmacists 

will not solve the entire problem, but 

would be significantly disruptive for 

much of the LTC industry, we are not 

finalizing this provision at this time. 

Instead, we are soliciting additional 

comments to help us determine a more 

comprehensive approach to eliminate 

overprescribing and the use of chemical 

restraints in LTC. 

In the meantime, given our continuing 

conflict of interest concerns, we strongly 

encourage the LTC industry in general 

to voluntarily adopt the following 

changes to increase transparency: 

separate contracting for LTC consulting 

services from dispensing and other 

pharmacy services; payment by LTC 

facilities of a fair market rate for 

consultant pharmacist services; and 

disclosure by the consultant 

pharmacists to the LTC facility of any 

affiliations that would pose potential 

conflicts of interest; or the execution by 

the consultant pharmacists of an 

integrity agreement. We expect the 

industry to use this opportunity to 

collect data on the number and type of 

interventions recommended by the 

consultant pharmacists and on the 

outcomes of those recommendations. 

We believe that LTC pharmacies may 

already collect some, if not all, of these 

data and would be able to work with 

such entities as the Pharmacy Quality 

Alliance (PQA) and other consensus 

gathering organizations, to develop 

performance measures to assess 

consultant pharmacist effectiveness. 

Until the next opportunity for us to 

propose a regulatory change, we will 

closely evaluate the number of 

deficiency citations for unnecessary 

drug use and will monitor the two new 

performance measures to track the use 

of antipsychotics in LTC facilities and 

expect to see significant improvement. 

We will also continue to participate in 

a Department of Health and Human 

Services (DHHS) initiative focused on 

the use of antipsychotics for persons 

with Alzheimer’s disease. As part of this 

effort, we are seeking to eliminate the 

inappropriate use of antipsychotic drugs 

in LTC facilities for residents with 

Alzheimer’s disease through updated 

guidance on the use of these 

medications and stricter enforcement of 

current requirements. In partnership 

with the Alzheimer’s Disease Education 

and Referral Center, we will work to 

better educate LTC facilities, prescribers 

and the resident’s families. We believe 

that effort focused on eliminating the 

use of inappropriate chemical restraints 

for LTC facility residents with 

Alzheimer’s disease may also serve to 

improve the quality of care for the LTC 

facility residents with the behavior 

symptoms associated with dementia. 

Our expectation is that the industry 

will implement changes to address the 

problem and we will see inappropriate 

prescribing decrease. Should marked 

improvement in inappropriate 

utilization not occur, we will use future 

notice and comment rulemaking to 

propose requirements to address these 

concerns. After considering the public 

comments received, we are not 

finalizing this provision. However, we 

are soliciting further comment to assist 

us to better define the problem and 

frame a more comprehensive solution to 

address our concerns regarding 

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medication management and quality in 

LTC. Specifically, we solicit comment 

related to the following three issues: 

• Enhancing medication management 

and the effectiveness of medication 

review. 

We noted in the previous comment 

summary and responses that many 

commenters pointed out that besides 

consultant pharmacists, other parties 

and factors contribute to overprescribing 

and inappropriate drug use in LTC 

facilities. These commenters charged 

that prescribers, including facility 

medical directors, nurse practitioners 

and physician assistants as well as the 

residents’ attending physicians, are 

major contributors. Others described 

how pharmaceutical representatives and 

advertising, family members, and the 

LTC facility’s understaffing, high staff 

turnover, and lack of specialized staff 

trained in meeting the needs of 

dementia patients contribute to the 

problem. We noted, too, that 

commenters questioned the 

effectiveness of the consultant 

pharmacists’ medication reviews, 

charging that drug regimen review 

quotas were so high that the reviews 

had become perfunctory and that others 

had described how the review 

requirements were subverted. Other 

commenters suggested that the 

consultant pharmacists’ 

recommendations were being ignored by 

prescribers due to their lack of 

confidence that the recommendations 

were in the best interests of the 

residents. As a result of these 

comments, we are not only aware that 

requiring consultant pharmacists to be 

independent will not solve the entire 

problem, but also that the drug regimen 

reviews may not be yielding the 

intended outcomes or providing the 

expected beneficiary protections, 

Therefore, we seek comment in 

response to the following questions: 

++ What actions/steps should be 

taken to strengthen attending physician 

(and other prescribers) medication 

management and prescribing practices 

to ensure the best quality of care for the 

nursing home resident? 

++ What is and should be the role of 

the nursing home medical director in 

overseeing the attending physician (or 

other prescribers) medication 

management activities? 

++ What actions, if any, should the 

medical director take when attending 

physicians (or other prescribers) fail to 

engage in appropriate/adequate 

medication management activities? 

++ What actions/steps could be 

undertaken to establish and ensure the 

independence and effectiveness of a 

consultant pharmacist in conducting 

their medication reviews on behalf of 

nursing home residents? 

++ What training and best practice 

models would assist all nursing home 

staff to better understand behavior signs 

and symptoms and respond 

appropriately and effectively in 

assisting and caring for nursing home 

residents? 

• Data collection and use. 

As we indicated previously, in 

commenting on this provision, several 

commenters noted the lack of empirical 

evidence linking overuse and 

inappropriate use of drugs in LTC 

facilities to consultant conflict of 

interest. Numerous commenters 

recommended CMS conduct further 

study and consult with stakeholders to 

better define the problem and formulate 

a more appropriate approach for 

addressing it. As a result, we solicit 

comment in response to the following 

questions: 

++ What data are needed to enable 

and support the Medicare and Medicaid 

programs and others in monitoring the 

appropriateness and adequacy of 

medication management activities, 

including the use of antipsychotics 

drugs? 

++ What data are needed to enable 

CMS to study the effectiveness of 

consultant pharmacist medication 

reviews? 

++ What data are needed to create 

public performance metrics regarding 

the independence of consultant 

pharmacists and prescribers from 

pharmacies and drug manufacturers/ 

distributors? 

++ Are data needed on the number 

and type of interventions recommended 

by consultant pharmacists and on the 

outcomes of those recommendations? If 

so, how could such data be used and by 

whom? 

• Increasing transparency. 

Finally, as noted previously, a 

number of commenters offered 

recommendations for increasing 

transparency in order to address conflict 

of interest in LTC. Many commenters on 

this provision charged that conflict of 

interest was pervasive in LTC, affecting 

the facility which imposed its own 

formulary requirements to contain costs 

for the drugs it covered, facility staff 

who encouraged the use of chemical 

restraints to manage residents with 

behavioral problems, and residents’ 

attending physicians and facility 

prescribers who may have had their 

own ties to the pharmaceutical industry. 

We expressed our interest in several of 

the recommendations, but due to the 

notice and comment provisions of the 

Administrative Procedure Act and 

section 1871(a)(4) of the Act, and their 

respective requirements regarding 

logical outgrowth, we believe that any 

such requirements cannot be finalized 

in this rule. Thus, we solicit comment 

in response to the following questions: 

++ What specific details regarding the 

financial (and other) arrangements 

between LTC facilities, consultant 

pharmacists, and LTC pharmacies 

providing consulting and/or dispensing 

services should be disclosed, and to 

whom should this information be 

available? 

++ Should the public be informed of 

the financial and other arrangements 

between LTC facilities, consultant 

pharmacists, and LTC pharmacies 

providing consulting and/or dispensing 

services? If so, what metrics could be 

used? 

++ What information is needed to 

assess the independence and adequacy 

of physician (and other prescriber) 

medication management and oversight 

on behalf of nursing home patients? 

What metrics could be used to assess 

the adequacy and appropriateness of 

prescriber response to consultant 

pharmacist recommendations? 

++ What metrics could be used to 

describe the adequacy and 

appropriateness of a LTC facility’s 

medication management program? 

++ Describe the incentives and other 

arrangements that create the conflict of 

interest in LTC that contributes to 

overutilization and inappropriate drug 

use in LTC facilities. How can the 

conflict of interest stemming from these 

incentives and arrangements be 

contained or eliminated? 

C. Excluding Poor Performers 

We are finalizing three proposals 

designed to strengthen our ability to 

remove poor performers from 

participation in the Part C and D 

Medicare programs. Beneficiaries will 

be protected through the first provision, 

which enables CMS to terminate or nonrenew any health care prepayment plan 

(HCPP) which does not adhere to 

specified financial, reporting, and 

access requirements. 

The next two regulatory changes we 

are finalizing give entities that want to 

administer benefits to Medicare 

beneficiaries strong incentives to pay 

attention to the star rating criteria and 

provide for better quality health care if 

they wish to stay in or join the program. 

See Table 4 for details of these 

proposals. Specifically, we are finalizing 

a regulation which will provide CMS 

the authority to terminate MA 

organizations and Part D sponsors that 

have failed to achieve, over a period of 

3 years, at least a 3-star plan rating. This 

authority will enable us to utilize the 

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plan rating system, which we developed 

to provide beneficiaries with 

information about the quality and 

performance of health and drug plans to 

assist in plan selection during the open 

enrollment period. The plan ratings 

include process measures that focus on 

whether good medical care or drug care 

was provided, outcome measures that 

address the result of that care, and 

measures that relate to administrative 

processes that support and direct the 

provision of care. It is our view that the 

star rating system not only provides 

beneficiaries/consumers with easy-tounderstand information critical for 

making choices among sponsors, but 

provides a powerful tracking tool that 

enables us to continue to administer the 

Part C and D programs with the best 

interests of the beneficiaries in mind. 

We are also finalizing a regulation 

that provides CMS the authority to deny 

applications submitted by MA 

organizations and Part D sponsors that 

have performed so poorly that CMS has 

terminated or non-renewed a contract 

with the organization in the past. We 

anticipate that this regulation will 

directly enable us to protect 

beneficiaries from poor care. 

TABLE 4—PROVISIONS TO EXCLUDE POOR PERFORMERS

Preamble 

section Provision 

Part 417 Part 422 Part 423 

Subpart Section Subpart Section Subpart Section 

II.C.1 ........ CMS Termination of Health Care Prepayment 

Plans.

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

II.C.2 ........ Plan Performance Ratings as a Measure of 

Administrative and Management Arrangements and as a Basis for Termination or 

Non-Renewal of a Medicare Contract.

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

422.510 

Subpart K 423.505 

423.509 

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

and D Sponsors with a Past Contract Termination or CMS-Initiated Non-Renewal.

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

1. CMS Termination of Health Care 

Prepayment Plans (§ 417.801) 

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

authorizes arrangements with HCPPs, 

but specifies only what type of benefits 

are to be provided (Part B), the method 

of payment (reasonable cost), and limits 

on cost-sharing (20 percent of 

reasonable cost). In implementing 

section 1833(a)(1)(A) of the Act, we 

have in regulations set forth 

requirements relating to these three 

areas that parallel those imposed under 

section 1876 cost contracts. In addition, 

since section 1833(a)(1)(A) of the Act 

does not address appeals, and the 

appeals procedures in section 1869 of 

the Act involve specific claims 

payments that do not exist for HCPP 

enrollees, in our January 2005 final rule 

(70 FR 4588 through 4741), we extended 

fundamental features of the MA appeals 

process to HCPPs. 

Although our current regulations at 

§ 417.801(d) permit us to terminate a 

contract with an HCPP for specified 

reasons, we proposed to codify 

additional specified grounds for HCPP 

termination in § 417.801(d) to 

strengthen our oversight and 

enforcement capabilities. Section 

417.801(d) currently provides that we 

may terminate or not renew a contract 

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

meets the requirements for participation 

and reimbursement as an HCPP; (2) is 

not in substantial compliance with the 

provisions of the agreement or 

applicable statutory or regulatory 

requirements; or (3) undergoes a change 

in ownership. We proposed to retain 

these bases for termination but to 

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

specific circumstances in which 

‘‘substantial non-compliance,’’ that 

relate to the CMS contract, applicable 

CMS regulations, or applicable 

provision of the Act may be found. As 

we stated in the proposed rule, we 

believe that specifying instances of 

substantial non-compliance through 

notice-and-comment rulemaking will 

ensure that all HCPPs are aware that 

their failure to comply with such 

requirements may lead to termination of 

their contracts. 

First, in their agreements with us, 

HCPPs agree to provide adequate access 

to providers and to document such 

access. Accordingly, we proposed that 

failure to provide adequate access to 

providers, and provide CMS with 

documentation of such access, is a basis 

for determining that an HCPP is not in 

substantial compliance with applicable 

regulatory requirements. We proposed 

to expressly identify this violation as an 

adequate justification for termination or 

non-renewal in a new paragraph 

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

required to provide data to us and to 

maintain financial records and statistics 

related to costs payable by CMS for CMS 

audit or review. This requirement is 

currently captured in § 417.806, which 

cross references financial records 

requirements at § 417.568 of the section 

1876 cost contract plan regulations. We 

stated in the proposed rule that we 

would specify, in new paragraph 

(d)(1)(ii)(B), that failure to provide such 

data and/or to maintain records 

appropriately is another violation 

indicating that an HCPP is not in 

substantial compliance. Third, HCPPs 

must report costs to us in addition to 

maintaining financial records and 

following other financial requirements 

specified at § 417.568 of the cost 

contract program regulations. Currently, 

these requirements are also referenced 

in HCPPs’ agreements with CMS. We 

proposed that a new paragraph at 

(d)(1)(ii)(C) would specify that failure to 

report costs to CMS will constitute yet 

another basis for determining that an 

HCPP is not in substantial compliance. 

Comment: A commenter supported 

the provision as specified in our 

proposed rule. 

Response: We thank the commenter 

for their support. 

After consideration of the public 

comment received, we are finalizing the 

policy without modification. We would 

also clarify that this new list is not 

exhaustive and CMS may still make a 

determination that a HCPP is not in 

substantial compliance absent the 

existence of any of these individual 

violations. 

2. Plan Performance Ratings as a 

Measure of Administrative and 

Management Arrangements and as a 

Basis for Termination or Non-Renewal 

of a Medicare Contract (§ 422.504, 

§ 422.510, § 423.505, and § 423.509) 

Since 2007, we have developed and 

published annual performance ratings 

for all stand-alone Medicare PDPs. In 

2008, we began issuing ratings for MA 

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plans as well. The ratings are based on 

measures that address a range of health 

and drug plan performance categories, 

including access to care, 

communication with members, and 

clinical quality of care. The scores in 

each performance category are based on 

data reported by MA organizations and 

PDP sponsors, member satisfaction, and 

monitoring conducted by CMS and its 

contractors. We rate MA organizations 

and Part D sponsors on a 5-star scale, 

with the best performers receiving a 

rating of 5 stars. The organizations 

receive a score for each performance 

measure, a summary score each for Part 

C and Part D, as well as an overall 

rating. Under the methodology 

developed and applied by CMS for its 

star rating process, a rating of 3 or more 

stars is an indication of sponsors with 

‘‘average’’ or better performance. By 

contrast, organizations receiving a 

summary or overall score below 3 stars 

are among the weakest performers in the 

Medicare Part C and D programs. 

The Medicare regulations at 

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

that, to qualify as an MA organization or 

Part D sponsor, an organization must 

have administrative and management 

arrangements satisfactory to CMS, 

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

§ 423.504(b)(4)(ii), personnel and 

systems sufficient for the organization to 

implement, control, and evaluate the 

activities associated with the delivery of 

Part C and D benefits. Once under 

contract with CMS as an MA 

organization or Part D sponsor, an 

organization remains obligated to 

maintain satisfactory administrative and 

management arrangements, a point we 

proposed to clarify by adding 

paragraphs § 422.504(a)(17) and 

§ 423.505(b)(25) to the list of required 

elements in CMS’ contracts with MA 

organizations and Part D sponsors. Also, 

as explained later in this section, we 

believe that the plan ratings are a direct 

indicator of the ongoing effectiveness of 

a contracting organization’s 

administrative and management 

arrangements. Therefore, we proposed 

adding paragraphs § 422.504(a)(18) and 

§ 423.505(b)(26) to require an 

organization to demonstrate that it 

maintains satisfactory administrative 

and management arrangements by 

achieving a summary plan rating of at 

least 3 stars each year. 

We also proposed to establish the 

failure to achieve a 3-star summary 

rating consistently as a basis for contract 

termination. As the measures in the star 

ratings are based largely on Part C and 

D program requirements, and the plan 

ratings are a reflection of a sponsor’s 

performance across a range of program 

areas, we believe that a sponsor with a 

low Part C or Part D summary star rating 

has failed in a significant way to meet 

its obligations as an MA organization or 

Part D sponsor. (As we calculate the 

summary rating score by taking an 

average of the measure-level stars, 

sponsors can receive scores on 

individual measures of less than 3 stars 

but still achieve a summary rating of at 

least 3 stars.) A sponsor that fails to 

achieve at least an ‘‘average’’ rating for 

3 consecutive years has demonstrated 

consistently that it is unable or 

unwilling to take corrective action to 

improve its Part C or D performance. 

As noted previously, to qualify as an 

MA organization or Part D sponsor, an 

organization must have effective 

administrative and management 

arrangements. Such arrangements 

involve the allocation and coordination 

of an organization’s resources to ensure 

that it can fulfill the entire range of its 

obligations related to the delivery of 

Medicare benefits. Of course, the 

importance of these arrangements only 

increases once an organization has 

entered into an MA organization or Part 

D contract as the quality of the 

arrangements is tested repeatedly by the 

process of actually delivering Medicare 

benefits in a timely and effective 

manner during the term of the contract. 

Because of the critical role 

administrative and management 

arrangements play in ensuring an 

organization’s compliance with its 

Medicare obligations, we believe it is 

necessary to make clear, by adding to 

the set of required CMS contract 

elements, that organizations must 

continue to maintain effective 

administrative and management 

arrangements even after they have 

entered into Medicare contracts. 

Accordingly, we proposed adding 

paragraphs § 422.504(a)(17) and 

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

maintenance of effective administrative 

and management arrangements is a 

material term of the MA organization 

and Part D sponsor contracts. The 

summary rating for a plan sponsor is 

calculated according to the 

methodologies outlined in the Plan Star 

Ratings technical notes, and is based on 

a formula that factors in a sponsor’s 

scores on all measures pertaining to Part 

C to calculate the Part C summary rating 

and pertaining to Part D to calculate the 

Part D summary rating. (The Part C and 

D technical notes may be found on the 

CMS Web site at https://www.cms.gov/ 

PrescriptionDrugCovGenIn/ 

06_PerformanceData.asp.) 

Organizations that offer both Part C and 

Part D benefits receive an overall rating 

that combines the Part C and D star 

ratings results. To evaluate an 

organization’s administration and 

management capabilities accurately, it is 

necessary to review its performance 

across a range of operational areas. 

Because the summary Plan Rating scores 

are based on a sponsor’s performance of 

a wide range of Medicare requirements 

within each of the MA and Part D 

programs, the scores are a reliable 

measure of the quality of an 

organization’s administrative and 

management arrangements. Therefore, 

to articulate the standard by which we 

would measure compliance with that 

obligation, we proposed to establish as 

a requirement that organizations must 

achieve a summary plan rating of at 

least three stars for each of Part C and 

Part D each year by adding paragraphs 

§ 422.504(a)(18) and adding paragraph 

§ 423.505(b)(26). It would not be 

appropriate to use the overall rating for 

this purpose, as organizations that offer 

both Part C and Part D benefits must 

fully meet the requirements of each 

program independently. It is 

conceivable that if we exclusively rely 

upon the overall measure, strong 

performance within one program could 

mask poor performance in the other 

program, which would not be an 

acceptable outcome thus giving CMS an 

inaccurate picture of the effectiveness of 

a sponsor’s administrative and 

management arrangements. 

The star ratings may also be used as 

a basis for contract enforcement actions 

(for example, termination/non-renewal 

or intermediate sanctions). We have the 

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

Act to terminate CMS’ contract with an 

MA organization or a Part D sponsor 

when we determine that the 

organization has failed substantially to 

carry out the contract or is carrying out 

the contract in a manner inconsistent 

with the efficient and effective 

administration of the Part C or D 

programs. A summary rating of less than 

3 stars can be achieved only when a 

sponsor demonstrates poor performance 

across a range of measures. Therefore, 

we believe that sponsors that 

consistently achieve poor plan ratings 

have demonstrated a substantial failure 

to comply with the terms of their 

Medicare contracts. Also, low-rated 

sponsors interfere with the efficient and 

effective administration of the MA and 

Part D programs as beneficiaries rely on 

us to ensure that the array of plan 

choices only includes offerings from 

sponsors that have demonstrated that 

they can provide at least ‘‘average’’ or 

better quality services to their members. 

Accordingly, we proposed to amend 

the bases upon which CMS may 

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terminate an MA organization or Part D 

sponsor contract under § 422.510(a) and 

§ 423.509(a) to include a sponsor’s 

failure to achieve at least a 3-star 

summary plan performance rating for 3 

consecutive contract years. We believe 

that 3 years is sufficient time for a 

sponsor to develop and implement 

corrective action and for improved 

performance to be reflected in the star 

ratings issued at the conclusion of the 

3-year period. 

We base our determinations that good 

plan ratings are indicative of the 

strength of an organization’s 

administrative and management 

arrangements and that consistently poor 

plan ratings are a basis for contract 

termination on the fact that the elements 

of the plan ratings correlate to Part C 

and D requirements described in 

applicable statutes and regulations. 

While the exact measures may vary 

slightly from year to year, each year’s 

plan ratings are based on similar 

elements from previous years, as they 

are developed in consultation with a 

workgroup of industry stakeholders and 

based on a review of stated Part C and 

D program requirements. The plan 

ratings issued in September 2010 

(referred to as the CY 2011 plan ratings) 

provide a useful template for 

demonstrating the correlation between 

program requirements and the 

performance measured. (See 2011 Part C 

Technical Notes and 2011 Part D Plan 

Ratings Technical Notes: September 

2010.) 

The CY 2011 Part C plan ratings were 

organized into five domains—‘‘Staying 

Healthy: Screenings Tests, and 

Vaccines;’’ ‘‘Managing Chronic (Long 

Term) Conditions;’’ ‘‘Ratings of Health 

Plan Responsiveness and Care;’’ ‘‘Health 

Plan Members’ Complaints and 

Appeals;’’ and ‘‘Health Plan Telephone 

Customer Service.’’ The Part C 

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

MA organizations must conduct quality 

improvement projects that can be 

expected to have a favorable effect on 

health outcomes and enrollee 

satisfaction and address areas identified 

by CMS. The Staying Healthy measures 

evaluated the extent to which MA 

organizations provided screenings to 

their members for conditions such as 

breast cancer, colorectal cancer, 

elevated cholesterol, glaucoma, and 

osteoporosis, as well as monitoring to 

patients with long term medication and 

flu vaccines to plan members. As these 

measures have been consistently 

included in the Part C plan ratings over 

a period of several years, it is fair to say 

that MA organizations have known over 

that same timeframe that we would rate 

them on quality improvement projects 

designed to address the identified 

conditions and that they should take 

action to improve their scores for this 

measure. Moreover, we have clearly 

fulfilled our obligation under 

§ 422.152(a)(2) to identify areas that MA 

organizations need to address for this 

purpose by annually publishing the 

methodology, providing private 

previews for MA organizations to 

review their own results, and releasing 

the results publicly through the CMS 

Web site. As a result, an MA 

organization’s score in the ‘‘Staying 

Healthy’’ domain is a fair measure of the 

extent to which it is complying with 

§ 422.152(a)(2). 

The ‘‘Managing Chronic (Long Term) 

Conditions’’ domain most closely 

mirrors the requirements at 

§ 422.152(a)(1) which obligate MA 

organizations to have a chronic care 

improvement program that addresses 

populations identified by us based on a 

review of current quality performance. 

The measures in this domain concern 

the management of conditions such as 

osteoporosis, diabetes, and high blood 

pressure. Again, the measures have 

remained largely constant for a number 

of years, so MA organizations have had 

effective notice that we had identified 

beneficiaries with those conditions as 

the populations for which we would 

expect sponsors to implement effective 

chronic care improvement programs. 

The measures related to the ‘‘Health 

Plan Responsiveness and Access to 

Care’’ domain demonstrate an MA 

organization’s compliance with its 

obligations under § 422.112(a)(1) to 

maintain a provider network sufficient 

to ensure its enrollees’ access to covered 

services. The measures ‘‘Getting Needed 

Care’’ and ‘‘Getting Appointments and 

Care Quickly’’ are both based on the 

results of beneficiary surveys 

concerning their experiences in being 

able to get timely appointments with 

plan-contracted providers. The measure 

‘‘Doctors Who Communicate Well’’ 

reflects enrollees’ responses to a series 

of questions concerning the quality of 

their interaction with plan-contracted 

physicians, including the amount of 

time the physicians spent with an 

enrollee and the care with which the 

physicians conducted appointments, all 

of which indicate the extent to which 

those services are provided in a manner 

consistent with professionally 

recognized standards of health care, per 

§ 422.504(a)(3)(iii). 

In the ‘‘Health Plan Member’s 

Complaints and Appeals’’ domain, we 

provide a rating of the extent to which 

an MA organization affords its members 

their coverage determination appeal 

rights under the Part C program. The 

Part C regulations at Part 422, Subpart 

M, require MA organizations to adhere 

to standards and timeframes for issuing 

timely and accurate determinations 

concerning the coverage of health 

services for their members as well as the 

processing of their appeals of such 

determinations. The ‘‘Makes Timely 

Decisions about Appeals’’ rating 

measures the extent to which an MA 

organization meets the regulatory 

deadlines for issuing responses to 

member appeals while the ‘‘Reviewing 

Appeals Decisions’’ rating measures the 

frequency with which the MA 

organization determinations were 

overturned by the Independent Review 

Entity (IRE). The analysis for these 

measures was conducted by Maximus, 

Inc., with which we contracted as an 

IRE for Part C appeals. The remaining 

measures under this domain, 

‘‘Complaints about the Health Plan’’ and 

‘‘Corrective Action Plans’’ (CAPs) 

provide a more general view of an MA 

organization’s performance from two 

different perspectives. The 

‘‘Complaints’’ measure is based on a 

calculation of the rate (that is, 

complaints per 1,000 members) at 

which we receive complaints from 

beneficiaries, providers, or others 

affected by the MA organization’s 

operations. The CAP measure reflects 

the number and type of findings made 

by us during an audit of an MA 

organization’s performance. Thus, these 

two measures provide a snapshot of the 

MA organization’s compliance with a 

range of requirements from the 

perspective of the members it must 

serve as well as CMS. 

The ratings in the last Part C domain, 

‘‘Health Plan Customer Service,’’ are the 

product of a series of measures related 

to the requirement that MA 

organizations operate a customer service 

call center that is responsive to the 

needs of Medicare beneficiaries. In 

particular, the domain rating is based on 

the results obtained by a CMS contractor 

that conducts test calls to MA 

organization customer service lines to 

assess the extent to which the call 

centers provide accurate plan 

information, in languages spoken by 

beneficiaries residing in the plan’s 

service area, and with limited hold 

times consistent with the standards 

stated in the Medicare Marketing 

Guidelines we have issued pursuant to 

§ 422.111(g). 

The four domains of the CY 2011 Part 

D Plan Ratings similarly correspond to 

the requirements with which Part D 

plan sponsors must comply. The Part D 

domains are ‘‘Drug Plan Customer 

Service;’’ ‘‘Drug Plan Member 

Complaints and Medicare Audit 

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Findings;’’ ‘‘Member Experience with 

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

Patient Safety.’’ The domain ‘‘Drug Plan 

Customer Service’’ includes measures 

concerning hold times, accuracy of 

information, and foreign language 

interpretation services and are the Part 

D equivalents of the measures used in 

the Part C plan rating. They reflect the 

Part D sponsor’s compliance with the 

customer service call center 

requirements described in the Medicare 

Marketing Guidelines issued in 

accordance with § 423.128(d)(1). The 

measure related to hold times for 

pharmacists’ calls to the sponsor are 

evidence of the sponsor’s compliance 

with the requirement, stated at 

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

a call center to provide technical 

assistance to pharmacists concerning 

their plan operations. This domain also 

contains three measures related to plan 

performance of its obligations related to 

the issuance of coverage determinations 

and processing of members’ appeal 

requests, per Part 423, Subpart M. The 

last measure in this domain indicates 

the extent to which a sponsor is 

complying with CMS processes for 

ensuring that the data used by 

pharmacists to determine a customer’s 

Part D plan enrollment is accurate and 

up to date. The provision of this data, 

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

D sponsors’ obligation, stated at 

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

in a manner consistent with the 

requirements stated in Part 423, 

Subpart B. 

The second domain, ‘‘Drug Plan 

Member Complaints and Medicare 

Audit Findings,’’ consists largely of the 

same kind of measures related to 

beneficiary satisfaction and CMS audit 

findings as included in the Part C plan 

ratings, and the discussion provided 

above of their bearing on a 

determination of a sponsor’s compliance 

with program requirements is applicable 

to the Part D ratings as well. 

The ‘‘Member Experience with Drug 

Plan’’ domain consists of measures 

related to plan members’ experience in 

getting access to information about their 

Part D plan or getting prescriptions 

filled easily when using the plan. These 

measures provide evidence of a 

sponsor’s compliance with the 

requirement, stated at § 423.128, that it 

disseminate information about its Part D 

plans, and that it provide benefits 

through a point of claims adjudication 

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

through a contracted pharmacy network 

that meets Part D access requirements 

(per § 423.120). 

The ‘‘Drug Pricing and Patient Safety’’ 

domain consists, in part, of measures 

related to a sponsor’s ability to maintain 

and transmit accurate information 

related to its members’ LIS eligibility 

status and the information concerning 

drug prices available at network 

pharmacies. Under this domain, CMS 

assesses, by comparing its data with that 

of Part D sponsors, the accuracy of a 

sponsor’s records concerning the LIS 

status of its members a significant part 

of its obligation under § 423.800 to 

participate in the administration of the 

low-income subsidy portion of the Part 

D benefit program. With respect to drug 

pricing, we compare sponsors’ data 

reported to us, pursuant to 

§ 423.505(f)(2), with other data sources, 

including prescription drug event data 

and data from commercially available 

drug pricing reference files. The 

remaining two measures in this domain 

assess the sponsor’s efforts to ensure 

that its members are being directed 

away from drugs with a high risk of side 

effects and that those members with 

diabetes are treating their high blood 

pressure with medication appropriate 

for their condition. Both of these 

measures are indications of a sponsor’s 

compliance with its obligation under 

§ 423.150(c) to develop and implement 

drug utilization review systems that 

identify patterns of inappropriate care 

among its enrollees. 

The thresholds we have established 

for the star ratings in each category are 

based on regulatory standards or our 

review of industry performance over 

several years. From that systematic 

review, for each regulatory standardbased measure we consider the actual 

contract scores in relation to a 

theoretical distribution of all possible 

measures with the regulatory standard 

considered a 3-star rating. (For example, 

in 2008 CMS announced to Part D 

sponsors that, after a review of industry 

performance during the first 2 years of 

the Part D program, we had established 

that sponsors would be required to 

submit 4Rx data for 99 percent of their 

enrollment transactions to be 

considered compliant with Part D 

enrollment processing requirements.) 

When an absolute performance standard 

has not yet been established, we assign 

stars for measures based on evaluating 

the maximum score possible for that 

measure, and testing initial percentile 

star thresholds with the actual data. The 

contract-level scores are grouped using 

statistical techniques to minimize the 

distance between scores within a 

grouping (or ‘‘cluster’’) and maximize 

the distance between scores in different 

groupings. Most databases that are 

utilized are not normally distributed, 

requiring further adjustments to the star 

thresholds to account for gaps in the 

data. CMS does not force the Plan 

Ratings data into 5-star categories for 

every measure. For some measures, 

based on the distribution of the data, 

there may only be 3. 4, or 5 stars, while 

for other measures there may only be 1, 

2, or 3 stars. In developing that 

methodology, we reserved 1- and 2-star 

ratings for performance that was 

significantly below what a review of 

industry-wide performance would show 

to be acceptable and achievable by 

competently administered sponsors. 

This establishment of compliance 

standards through the analysis of all 

Medicare contractors’ performance to 

identify outliers is consistent with our 

regulatory authority at § 422.504(m)(2) 

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

issued guidance (for example, CY 2012 

Call Letter, page 119, issued April 4, 

2011) to MA organizations and Part D 

sponsors indicating that we considered 

organizations with 3 consecutive years 

of less than 3-star Plan Ratings to be out 

of compliance with Medicare program 

requirements. We stated there that 

organizations with such a Plan Rating 

history should expect that, prior to 

initiating a termination action, we 

would confirm that the data used to 

calculate the Plan Ratings did reflect an 

organization’s substantial failure to 

comply with Part C or D requirements. 

In essence, we noted that poor Plan 

Rating scores were a strong indication, 

but not conclusive evidence, of 

substantial non-compliance. In applying 

that policy, we include Plan Ratings 

issued in years prior to the issuance of 

the guidance to identify organizations 

whose performance may warrant 

contract termination. 

With the elevation of low Plan Ratings 

from the status of likely indicator to 

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

prospective Plan Ratings is more 

appropriate in our application of this 

authority. Therefore, we proposed that 

we would not begin calculating the 3- 

year period until after organizations 

have received notice through the 

rulemaking process of the new basis for 

contract termination. As we plan on this 

proposal to be issued as part of a final 

rule in the spring 2012, we expect to use 

only those Plan Ratings issued after the 

publication of the final rule. That is, we 

would use the contract year 2013 Plan 

Ratings, which we expect to issue in 

September 2012, as the first set of 

ratings in the calculation of any 

sponsor’s 3 consecutive years of Plan 

Ratings. The issuance of the 2015 

ratings, expected in September 2014, 

will present the first opportunity for 

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22112 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

sponsors to have accumulated three 

consecutive years of low plan ratings 

that could subject them to contract 

termination. We invited public 

comment on our proposal for 

identifying the first set of Plan Ratings 

we would use in determining whether a 

sponsor’s performance during 3 

consecutive years supported a CMS 

decision to terminate its Medicare 

contract. 

Comment: Several commenters 

expressed opposition to the proposed 

addition of the failure to achieve 3 stars 

for 3 consecutive years to the list of 

bases upon which CMS may terminate 

an MA organization or PDP sponsor 

contract. They maintain that the plan 

rating system is not sufficiently mature 

or stable to provide a reliable basis for 

determining that an organization has 

substantially failed to comply with its 

contract. The commenters maintain that 

the number and type of measures have 

changed each year that CMS has 

released plan ratings. These annual 

changes undermine the proposed 

termination authority in two ways. First, 

the variable measures and weighting 

over a 3-year period mean that CMS 

cannot fairly evaluate a sponsor’s plan 

rating performance over 3 years because 

it has not applied a consistent standard 

of review during that period. Second, 

low-rated sponsors’ efforts to take 

corrective action to raise their ratings 

over 3 years are impeded by CMS’ 

annual changes to its methodology for 

calculating those ratings. 

Response: The Medicare plan rating 

system and its component measures 

have been in place for a sufficient 

period of time for plan sponsors to 

become familiar with the correlation 

between their operations and the plan 

ratings they have achieved. MA 

organizations have been measured on a 

star system since 2008 and Part D plans 

since 2007. In addition, the vast 

majority of measures, which come from 

HEDIS and CAHPS, have been required 

of MA organizations since the late 

1990s. 

While we have made some changes in 

each of the past 3 years to the plan 

rating methodologies, these changes 

have been relatively minor and have not 

affected sponsors’ ability to achieve and 

maintain at least a 3-star summary 

rating over a 3-year period. This history 

suggests that organizations have had 

ample time to adjust their efforts toward 

achieving higher quality outcomes. For 

the 2010 Part C ratings through the 2012 

ratings, 30 of the measures remained 

constant, while the 2010 ratings 

featured a total of 33 measures, 37 in 

2011, and 36 in 2012. For the Part D 

ratings during the same period, 13 

measures remained constant, out of 19 

total in 2010 and 2011 and 17 total for 

2012. We have also made low-rated 

sponsors aware, through the issuance of 

compliance notices beginning in 2010, 

of the risk their low plan ratings pose to 

their status as Medicare Part C and D 

sponsoring organizations and the urgent 

need for them to take corrective action. 

Comment: Several commenters 

expressed their strong support for the 

proposed provision. They also suggested 

ways to strengthen the termination 

authority by making it effective 

immediately upon publication of the 

final rule rather than after the release of 

the CY 2015 plan ratings in late 2014 as 

we had proposed. They also 

recommended that any reinstatement of 

a sponsor’s contract be accompanied by 

a probationary period during which the 

sponsor’s contract could be terminated 

if it fails in one year to achieve a 3-star 

rating. The commenters also urged CMS 

to apply our existing sanction and 

termination authority against low-rated 

plans, improve outreach to beneficiaries 

about the meaning and usefulness of the 

plan rating system to encourage their 

participation in HEDIS and CAHPS 

surveys, and to conduct ongoing 

evaluations of performance measures to 

make sure they truly drive improvement 

in areas important to beneficiaries. 

Response: We appreciate the 

expressions of support for our proposal. 

We also appreciate the advocates’ 

recommendation that we strengthen the 

termination authority, but we believe 

that our draft provision allows for a 

reasonable transition period during 

which sponsors can take steps, in light 

of the increased consequences of low 

plan ratings (that is, contract 

termination), to focus their attention 

and resources on quality improvement. 

Of course, as we have stated in recent 

call letters, during the transition period 

(that is, from the date on which this rule 

becomes final until CMS’ publication of 

the CY 2015 plan ratings in late 2014) 

we will continue to apply a heightened 

scrutiny to consistently low rated 

contracts to determine whether they are 

substantially failing to meet Part C or D 

program requirements. 

We appreciate the concern expressed 

by the commenters that sponsors that reenter the Part C and D programs after a 

termination for consistently low plan 

ratings not be permitted to ‘‘game’’ the 

system by immediately repeating their 

previous poor level of performance. We 

believe, however, that our proposal 

already provides a sufficient safeguard 

against that type of conduct without 

requiring re-entering sponsors to operate 

under a probationary period during 

which even one year of poor 

performance would be a sufficient basis 

for termination. In section II.C.3. of the 

proposed rule, we stated our intent to 

adopt the regulatory authority to 

disapprove an application for 

qualification as a Part C or D contract 

submitted by an organization for which 

CMS had terminated a Medicare 

contract within the previous 3 years. 

This authority, which we finalize in this 

rule, will apply to all terminated 

sponsors, including those terminated 

based on consistently low plan ratings. 

We believe the 3-year period of 

ineligibility for Part C or D program 

participation, combined with the 

forfeiture of their entire set of plan 

members, is sufficient to provide an 

incentive for returning sponsors to 

achieve 3-star ratings upon their return 

to the Medicare program. We also note 

that consistently low plan ratings will 

not become the exclusive basis for 

contract termination. We retain the 

authority to terminate a sponsor based 

on its performance within only one year 

if its performance during that period 

fails substantially to meet Medicare 

requirements, and we will exercise that 

authority where justified. 

The comments concerning outreach to 

beneficiaries discussing participation in 

the survey tools whose results are used 

to calculate plan ratings are outside the 

scope of this proposal. We believe this 

is also true of the comments concerning 

the need for CMS to continue to review 

plan rating measures to make certain 

they truly evaluate plan quality. We 

nonetheless agree that these efforts will 

receive our continued attention. 

Comment: Several commenters 

suggested that Congress did not intend 

for the plan ratings to be used as a basis 

for contract termination. One 

commenter also stated that the plan 

rating system was not designed to 

measure compliance, and it is more 

effective as a plan comparison and 

beneficiary education tool. 

Response: While the plan ratings were 

originally developed by CMS as a 

beneficiary comparison tool, and 

Congress has authorized the awarding of 

bonus payments based on plan rating 

performance, those facts do not 

preclude the use of plan ratings as an 

indicator of contract compliance. To the 

extent that the ratings provide reliable 

evidence of compliance with program 

requirements, they may be used as a 

basis for contract termination. Our 

preamble discussion in the proposed 

rule and this final rule with comment 

period describes the connections 

between each plan measure and a Part 

C or D requirement, noting that the 

measures are an effective tool for 

capturing information on the 

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 22113 

effectiveness of a sponsor’s 

administrative and management 

arrangements as opposed to whether the 

arrangements are merely in place. Thus, 

a sponsor’s failure to meet minimal 

performance thresholds for 3 straight 

years can reasonably be said to be 

evidence of substantial failure to meet 

contract requirements. 

Comment: A stand-alone PDP sponsor 

commented that Part D sponsors are not 

required by statute to ensure their 

members’ compliance with oral 

diabetes, hypertension, and cholesterol 

medication regimens. The commenter 

also noted that CMS announced the 

measures related to drug regimen 

compliance too late in the year for 

sponsors to focus their efforts on the 

new measures. Finally, the commenter 

stated that PDP sponsors are at a 

disadvantage in these measures because 

they do not coordinate care with 

prescribers as health plans can. 

Response: All Part D sponsors are 

required to administer medication 

therapy management programs, which 

may be focused on beneficiaries with 

diabetes, hypertension, or high 

cholesterol. We agree that sponsors 

would have benefitted from an earlier 

announcement of the new measures, but 

we believe that the 3-year phase in of 

the plan rating-based termination 

authority will give PDP sponsors 

sufficient time to make improvements to 

their performance in these areas. Also, 

according to our plan rating 

methodology, a high score on these 

three measures is not critical to 

achieving a 3-star summary plan rating. 

Therefore, these measures do not 

impose a meaningful obstacle for PDP 

sponsors to maintain the required 

minimum plan rating. 

Comment: A law firm that represents 

clients in Medicare-related matters 

commented that CMS does not have the 

authority to impose a conclusive 

presumption of a basis for contract 

termination when doing so eliminates 

the affected sponsor’s opportunity for a 

hearing prior to the termination taking 

effect. The commenter also asserted that 

the use of plan ratings as a basis for 

termination would relieve CMS of its 

statutory obligation to prove that the 

sponsor’s conduct has met the statutory 

criteria for contract termination and 

presented a regulatory construct 

analogous to that struck down by the 

U.S. Supreme Court in Ragsdale v. 

Wolverine World Wide, Inc., 535 U.S. 81 

(2002). Finally, the commenter stated 

that the proposed termination authority 

violates the requirements of the per se 

rule as discussed by the Court in 

Johnson v. California, 543 U.S. 499 

(2005) and Arizona v. Maricopa County 

Medical Society, 457 U.S. 332 (1982). 

Response: The new termination 

authority as finalized in this rule has no 

impact on the administrative appeal 

rights currently afforded any plan 

sponsor under Subpart N of 42 CFR 

Parts 422 and 423. 

We do not find the Supreme Court 

opinions cited by the commenter to be 

applicable in any way to our proposal. 

In Ragsdale, the Court held that the 

Department of Labor could not enforce 

regulations that had the effect of 

eliminating one of the elements that an 

individual must prove when appealing 

a denial of leave from work requested 

under the Family and Medical Leave 

Act. Our use of low plan ratings as a 

basis for contract termination does not 

relieve us of our obligation to prove at 

least one of the three statutory bases for 

termination. Rather, the plan ratings are 

a tool that we will use to establish, 

consistent with the Part C and D 

statutes, that a sponsor has substantially 

failed to meet the requirements of its 

Part C or D contract. As noted 

previously and in the proposed rule, the 

data used to calculate the plan ratings 

are derived directly from a sponsor’s 

performance of its Medicare program 

obligations. 

The Johnson and Arizona opinions 

are similarly inapplicable to the 

proposed termination authority. The 

Johnson matter was a civil rights case 

involving the California Department of 

Corrections’ (CDC) policy of segregating 

inmates by race. The Court there held 

that the lower courts should use strict 

scrutiny in reviewing whether the CDC 

policy violated prisoners’ rights under 

the Equal Protection Clause of the 14th 

Amendment. The majority opinion of 

the Court makes no reference to a per se 

rule or to any set of criteria governing 

its use. The opinion involves an 

analysis of the law as it applies 

uniquely to allegations of racial 

discrimination and cannot be said to 

provide any framework for the analysis 

of the contract termination process in 

the Medicare program. Arizona is an 

antitrust case where the Court’s majority 

opinion provides a discussion of the 

meaning of the per se rule as it applies 

to price fixing agreements (that is, 

certain practices are deemed to violate 

antitrust law without regard to 

surrounding circumstance or intent). 

The opinion provides no principles for 

assessing the legality of per se rules in 

general, nor does it state that the 

legitimacy of a per se rule is dependent 

on the maintenance of the exact same 

evaluation standards from year to year, 

as the commenter maintains. 

Comment: Several commenters noted 

that plan ratings rely too much on 

beneficiary survey information to be 

used as an indicator of contract 

compliance because the results of the 

surveys may reflect factors other than a 

sponsor’s non-compliance with program 

requirements (for example, high 

beneficiary complaints based on CMSapproved changes to plan benefit 

packages). 

Response: In certain instances, 

beneficiary satisfaction is the most 

effective measure of an organization’s 

contract performance. That effectiveness 

outweighs the risk of the measure’s 

inaccuracy as a compliance measure 

presented by those rare instances when 

beneficiary dissatisfaction may result 

from factors outside the organization’s 

control. Moreover, only a small portion 

of the Part C and D measures are 

focused on beneficiary satisfaction. In 

2012, 5 of 36 total Part C measures, and 

3 of 17 Part D measures, were based on 

beneficiaries’ satisfaction with their 

plans. Therefore, low beneficiary 

satisfaction scores, while meaningful, 

will not by themselves cause an 

organization to receive a low summary 

plan rating. 

Comment: Several commenters stated 

that plan ratings are an unreliable tool 

for measuring contract compliance 

because the stars are calculated based 

on relative performance among all Part 

C and D contracts. Therefore, every year, 

some sponsors will be rated below 3 

stars regardless of the actual quality of 

their performance. 

Response: The majority of plan rating 

measures are based on fixed 4-star 

thresholds, or 3-star thresholds for 

measures when an absolute regulatory 

standard has been established. For CY 

2012, 28 of 36 Part C measures, and 9 

of the 17 Part D measures, had fixed 3- 

or 4-star thresholds. Having a set 

threshold means that any entity meeting 

the established threshold will receive at 

least a 3 or 4 star rating for the measure. 

We determine the star cut points below 

4-star (or 3-star) ratings in those 

measures with fixed thresholds as well 

as the entire range of ratings for the 

remaining measures through the use of 

statistical techniques that take into 

consideration the relative distribution of 

the data as well as the how the data 

clusters. For survey measures, 

significance testing is also used to 

determine the star ratings. Given the 

fixed thresholds for the majority of the 

measures, there is nothing in the Plan 

Ratings methodology that would 

prevent all sponsors achieving 4 or more 

stars on measures that have fixed 4-star 

thresholds or achieving 3 stars for 

measures when an absolute regulatory 

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22114 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

1CMS conducted this analysis based on plan 

enrollment data available at https://www.cms.gov/

PrescriptionDrugCovGenIn/06_Performance

Data.asp and plan rating data available at https:// 

www.cms.gov/MCRAdvPartDEnrolData/. 

standard has been set. Additionally, 

while some of the cut points for the 

individual measures may be determined 

by examining the distribution of 

collected data, for the most part, those 

data sets are not normally distributed, 

where some number of contracts would 

have to be assigned 1- or 2-star ratings. 

Indeed, in any given year, it is possible 

for all Part C and D sponsors to achieve 

at least three-star summary ratings 

under the scoring methodology. 

Furthermore, a review of the summary 

plan ratings over the past 3 years would 

reveal that there are very few 1-star 

contracts and that a 3-star rating or 

better was achieved by a strong majority 

of contracts. 

Comment: Several commenters stated 

that the annual plan ratings are a flawed 

mechanism for determining contract 

compliance because the measures used 

to calculate the ratings are based on data 

from different timeframes. That is, the 

measures do not provide a consistent 

‘‘snapshot’’ of performance over a 

uniform evaluation period. 

Response: We use the most recent 

data available to calculate the summary 

plan ratings each year, and a broad 

range of measures are necessary to 

provide a comprehensive picture of a 

sponsor’s performance. In fact, the 

majority of plan ratings posted in 

October of a given year reflect findings 

from the most recent completed contract 

year (that is, there is a gap of only about 

9 months between completion of a 

measure and the posting of the star 

rating). However, for some performance 

measures there is necessarily some 

greater lag time between data collection 

and analysis. The 3 consecutive year 

requirement should afford sponsors 

sufficient time to make operational 

changes that would be reflected in data 

used to calculate plan ratings by the end 

of the 3-year period. 

We also note that in August 2010, the 

CMS Hearing Officer issued an opinion 

in favor of an organization that appealed 

CMS’ denial of its contract qualification 

application based on a review of the 

organization’s contract performance 

(including its plan ratings) during the 14 

months preceding the application 

submission date. (In the Matter of 

United Healthcare Insurance Company, 

Docket No. 2011 C/D App 1–10.) Among 

its arguments, the organization asserted 

that CMS should not include plan 

ratings as a factor in assessing past 

contract performance because the 

ratings were based on conduct that 

occurred prior to the 14-month lookback period. The Hearing Officer 

addressed this argument in a footnote to 

the opinion where he stated that, 

* * * in future similar circumstances 

* * * CMS could reasonably consider an 

organization out of compliance for failure to 

meet established performance metrics, even 

if a portion of the data used to evaluate 

compliance is technically derived from 

instances outside the 14 month window. 

Comment: Several commenters stated 

that CMS should provide advanced 

notice of each year’s plan rating 

measures so that plan sponsors can 

develop and implement operational 

policies that will allow the sponsor to 

successfully meet the performance 

standards of each measure. A 

commenter noted that CMS released the 

measures for the CY 2012 plan ratings 

in late 2011, just prior to posting the 

results of the CY 2012 ratings. 

Response: We have already informed 

sponsors that we will release the plan 

rating measures at the start of each 

calendar year. For example, on 

December 20, 2011, CMS issued, 

through the Health Plan Management 

System (HPMS), a request to drug and 

health plan sponsors for comments on 

our proposed measures for the CY 2013 

plan ratings. In the memorandum we 

stated that we expected to publish the 

final set of CY 2013 measures in April 

2012 along with a discussion of 

proposed measures for the CY 2014 

ratings. 

Comment: A number of commenters 

noted that CMS should take into 

consideration the characteristics (for 

example, income, age, health) of each 

sponsor’s enrollees when assessing 

performance. For example, CMS should 

develop measures specifically tailored 

to account for the unique populations 

served by SNP plans. 

Response: We have frequently 

considered the adoption of modifying 

the plan rating standards to account for 

unique differences in the characteristics 

of certain plan membership profiles. 

However, we have not yet found any 

statistical support for the special 

treatment of certain plans under the 

plan rating methodology. 

The 2011 Part C and D plan rating 

results, for example, provide no support 

for the argument that MA organizations 

offering SNPs face special challenges in 

achieving good star ratings. The plan 

rating results for all Part D contracts, 

when broken down into three categories 

by percentage of SNP enrollment per 

contract (SNP enrollment less than 50 

percent, SNP enrollment greater than 50 

percent, and SNP enrollment 100 

percent of total contract enrollment) 

show that approximately 15 percent to 

18 percent in each category receive less 

than 3 stars. The Part C results are 

slightly more mixed but still show that 

contracts with SNP enrollment receiving 

less than 3 stars are decidedly in the 

minority relative to their peers. Among 

the same enrollment percentage 

categories described for Part D, the 

percentage of Part C contracts with low 

star ratings ranged from approximately 

15 percent to 29 percent. Interestingly, 

the rate of less than 3 star performers 

drops when SNP enrollment increases 

from 50 percent or more to exactly 100 

percent. That is, contracts with only 

SNP members tend to have strong 

performance, equal to contracts with 

fewer than 50 percent SNP members.1

Therefore, we can easily conclude based 

on these data that having SNP members 

in a contract does not pull down 

summary plan rating results for either 

the Part C or Part D ratings. 

Comment: A few commenters noted 

that the regulation should exempt from 

termination those sponsors that are 

showing improvement but have not yet 

reached 3 stars in the third year. 

Response: Such an interpretation is 

unworkable as sponsors could avoid 

termination for as long they can 

demonstrate improvement without 

meeting the 3-star standard. 

Comment: A commenter stated that 

CMS should provide midyear reports to 

sponsors of their progress on plan 

ratings. 

Response: The data collection for 

several of the measures are only once a 

year, so it is not possible to make 

midyear assessments of a sponsor’s plan 

rating performance. Sponsors should 

consider the plan ratings CMS issues 

each year to be interim reports during 

the 3-year period preceding possible 

contract termination. 

Comment: A commenter stated that 

CMS should release plan ratings before 

bids are due so that sponsors about to 

be terminated do not expend resources 

on preparation for upcoming plan year. 

Response: We cannot adjust our plan 

rating analysis and publication schedule 

solely to accommodate sponsors with 

two consecutive years of low ratings. 

Those organizations should review their 

operations and make their own 

assessment of the likelihood of 

achieving a rating of at least 3 stars after 

the submission of a contract 

qualification application. 

Comment: A few commenters 

supported this provision, but also 

expressed their concern that its 

application will reduce the availability 

of low premium plans which are often 

low-rated. The commenters also 

referenced a study by Avalere Health 

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 22115 

(released on October 19, 2011; http:// 

www.avalerehealth.net/wm/show.php?

c=&id=890) that found that 52 percent 

of the stand-alone PDPs eligible for LIS 

auto assignment and reassignment have 

a 2 or 2.5-star rating during 2012. None 

of those plans has a 5-star rating and 16 

have a 4-star rating. 

Response: We have analyzed the 2012 

contracts rated below 3 stars and found 

no correlation between low rated plans 

and low premiums. However, to the 

extent that the Avalere study suggests 

that Part D plans to which LIS 

beneficiaries are assigned tend to 

achieve disproportionately lower 

ratings, we believe that the threat of 

termination provides the correct 

incentive to these plan sponsors. That 

is, we can force sponsors that might 

otherwise ignore their plan ratings, 

content to compete solely on price or 

operate in Medicare markets with little 

or no competition, to dedicate the 

resources and attention necessary to 

provide at least a satisfactory level of 

services to their members. For LIS plans 

in particular, this new authority makes 

it clear that focusing solely on bidding 

below the annual benchmark to keep 

LIS enrollment high is no longer a 

viable long-term Part D business 

strategy. 

Comment: A commenter stated that 

CMS should add a measure based on 

how often the sponsor makes exceptions 

and appeals determinations in favor of 

the beneficiary. 

Response: The plan ratings already 

include measures, based on sponsors’ 

IRE results, of how often the IRE agrees 

with a sponsor’s decision to deny a 

claim. We believe this measure is 

effective in achieving the same goal 

suggested by the comment; measuring 

the extent to which the plan sponsor is 

making correct decisions about its 

members’ Part D drug coverage. 

Comment: A commenter stated that 

CMS should assign dual-eligible 

beneficiaries only to plans rated at more 

than 3 stars. 

Response: This comment concerns 

CMS’ process for automatically 

assigning and reassigning dual-eligible 

beneficiaries to stand-alone PDPs with 

premiums set at or below the regional 

benchmark. It does not concern the use 

of the establishment of the plan ratings 

as a contract requirement or as a basis 

for contract termination and therefore is 

outside the scope of the proposed 

regulatory change. 

Comment: A commenter stated that 

CMS should provide information on 

how it monitors 4Rx data and LIS status 

for beneficiaries. 

Response: We have provided and will 

continue to provide this information to 

sponsors through the Health Plan 

Management System (HPMS) related to 

our monitoring of 4Rx data and LIS 

status accuracy. 

Comment: A commenter stated that it 

supports the inclusion of measures 

related to enrollment, LIS, and MTM. 

Response: This comment is a 

recommendation for the inclusion of 

certain measures in the Part D plan 

rating methodology. As it does not have 

a bearing on the use of the current plan 

ratings as administrative and 

management requirements under the 

Part C and D programs or as a basis for 

contract termination, the comment is 

outside the scope of the proposed 

regulatory change. 

After consideration of the public 

comments received, we are finalizing 

the policy without modification. 

3. Denial of Applications Submitted by 

Part C and D Sponsors With a Past 

Contract Termination or CMS-Initiated 

Non-Renewal (§ 422.502 and § 423.503) 

In accordance with § 422.502(b) and 

§ 423.503(b), applicants with current or 

prior contracts with CMS are subject to 

denial of their applications if they fail 

to comply with the requirements of the 

Part C or D programs during the 

preceding 14 months, even if the 

applications otherwise demonstrate that 

they meet all of the Part C or D sponsor 

qualifications. In the April 2011 final 

rule (76 FR 21432), we added provisions 

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

concerning the treatment of entities 

submitting applications to us when the 

entity has operated its contract(s) with 

CMS for less than 14 months at the time 

it submits a new application or service 

area expansion request. In the interest of 

ensuring that new entrants to the Part C 

or Part D programs can fully manage 

their current contracts and books of 

business before further expanding, we 

added a provision that in the absence of 

14 months’ performance history, we 

may deny an application based on a lack 

of information available to determine an 

applicant’s capacity to comply with the 

requirements of the Part C or Part D 

program, respectively. 

We proposed to further refine our 

approach to using past performance in 

making application determinations. 

Specifically, we are concerned about 

entities submitting applications to us 

when the entity has had a previous 

Medicare contract terminated or nonrenewed by CMS. We initiate 

termination or non-renewal of a contract 

only when the MA organization or Part 

D sponsor has committed extremely 

serious violations of the Part C or Part 

D program. In the past, these contract 

actions by CMS have been rare. The 

bases for a termination are specified in 

§ 422.510 and § 423.509, and include 

such serious violations as substantially 

failing to carry out the terms of its 

Medicare contract; committing fraud; 

and failing to carry out the requirements 

for beneficiary access to services by, for 

instance, not implementing required 

appeals and grievance processes or not 

establishing provider and pharmacy 

networks that meet our requirements. 

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

and § 423.507(b), and include the same 

list of violations, plus several others. 

Nevertheless, despite the seriousness of 

termination and CMS-initiated nonrenewal actions, and the underlying 

noncompliance that would have led to 

such a drastic step, the regulation is 

silent concerning when these 

organizations may re-enter the Part C 

and Part D programs. As such, we 

currently rely upon the past 

performance provisions in 

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

determine whether an application from 

a previously terminated or CMS-nonrenewed organization is approvable. 

These provisions limit the period of 

time we can review for purposes of 

assessing past performance to 14 

months. Fourteen months is a 

reasonable amount of time to review the 

performance of organizations with 

current and ongoing Medicare Part C 

and Part D contracts. In the case of 

organizations whose performance was 

so poor as to have their contract(s) 

terminated or non-renewed by CMS, we 

believe that a 14-month look-back is an 

inadequate amount of time. 

In contrast to the regulation’s silence 

on a ‘‘waiting period’’ for organizations 

whose contracts have been terminated 

or non-renewed by CMS, long-standing 

provisions at § 422.506(a)(4), 

§ 422.508(c), § 422.512(e), 

§ 423.507(a)(3), § 423.508(e), and 

§ 423.510(e) require that organizations 

that have voluntarily non-renewed or 

terminated their contracts must wait 

2 years before they may reenter the 

program. We believe that the interval 

between the effective date of a contract’s 

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

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

2 years is appropriate, for these entities 

have broken faith with the program in 

a more significant way than in the case 

of a voluntary non-renewal. 

As such, we proposed to modify the 

past performance review period to 

capture CMS-initiated terminations or 

non-renewals that became effective 

within the 38 months preceding the 

submission of a new application. The 

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selection of 38 months accounts for a 

3-year period, plus the 2 months of the 

year during which applications are 

being prepared for submission to CMS. 

Three years represents 1 additional year 

compared to the 2 years of waiting time 

for voluntary non-renewals. To make 

this change, we proposed adding new 

paragraphs at § 422.502(b)(3) and at 

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

terminated or non-renewed an MA 

organization’s or Part D sponsor’s 

contract, effective within the 38 months 

preceding the deadline established by 

CMS for the submission of contract 

qualification applications, we may deny 

an application based on the applicant’s 

substantial failure to comply with the 

requirements of the Part C or Part D 

program even if the applicant currently 

meets all of the requirements of this 

part. 

Additionally, in the April 2011 final 

rule, we defined ‘‘covered persons’’ for 

the purpose of determining which 

organizations are prohibited from recontracting with CMS for the two years 

following a voluntary non-renewal. 

Specifically, we codified that the 2-year 

ban on new Part C or Part D sponsor 

contracts to which non-renewing 

organizations are subject under the 

regulation be expanded to include 

organizations owned or managed by an 

individual (referred to as a covered 

person) who served in a similar capacity 

for a previously non-renewed Part C or 

Part D organization. The requirement 

assists us in prohibiting and preventing 

each such organization from 

manipulating the Medicare program by 

reapplying for a contract as a new 

organization during the 2-year ban, 

when the applying organization has 

common ownership and management 

control with the previous non-renewing 

organization. In essence, this 

requirement helps ensure that the 

provisions of the 2-year application 

prohibition are given full effect. 

For consistency and to prevent the 

same sort of manipulation by 

organizations whose contracts have 

been terminated or non-renewed by 

CMS, we proposed to add new 

paragraphs at § 422.502(b)(4) and at 

§ 423.503(b)(4) to replicate the existing 

language concerning covered persons as 

currently exists for voluntarily nonrenewing organizations. Specifically, 

the newly proposed language states that 

in implementing the 38-month 

provision, we may deny an application 

where the applicant’s covered persons 

also served as covered persons for the 

terminated or non-renewed contract. As 

with the voluntary non-renewal 

provisions, in this instance ‘‘covered 

person’’ would mean one of the 

following: (1) All owners of terminated 

organizations who are natural persons, 

other than shareholders who have an 

ownership interest of less than 5 

percent; (2) an owner in whole or part 

interest in any mortgage, deed of trust, 

note or other obligation secured (in 

whole or in part) by the organization, or 

any of the property or assets thereof, 

which whole or part interest is equal to 

or exceeds 5 percent of the total 

property and assets of the organization; 

(3) a member of the board of directors 

or board of trustees of the entity, if the 

organization is organized as a 

corporation. 

The combined effect of these 

proposals is to ensure appropriate 

requirements exist concerning program 

re-entry subsequent to all types of 

terminations and non-renewals, and to 

strengthen the past performance review 

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

terminations and non-renewals) for a 

more reasonable period of time. 

Comment: Some commenters 

recommended that CMS delete the 

proposed language authorizing CMS to 

deny applications from entities whose 

covered persons had also served as 

covered persons for a contract 

terminated or non-renewed in the prior 

3 years. Commenters stated that the 

provision is overly broad and may 

unfairly cover individuals who, for 

example, join the board shortly before 

CMS terminates or nonrenews a 

contract. 

Response: We appreciate commenters’ 

concerns. However, it is incumbent on 

prospective directors and shareholders 

to conduct proper due diligence 

concerning a sponsor’s Part C and D 

compliance history prior to accepting a 

board appointment or purchasing a 

substantial number of shares of stock. 

Also, as discussed in the preamble to 

the proposed rule, the ‘‘covered person’’ 

definition was adopted previously 

under the two-year ban that follows a 

contract’s voluntary non-renewal. It is 

important to apply the same standard to 

CMS-initiated terminations and nonrenewals in order to maintain 

consistency and prevent entities from 

manipulating the Part C and D contract 

application process. 

Comment: Many commenters 

expressed general support for the 

proposed language, including the 

language related to ‘‘covered persons’’. 

However, several expressed concern 

that the 3-year look back period is too 

short. They suggested a 10-year look 

back period instead. 

Response: We appreciate the 

commenters’ support. However, we 

believe that extending the look back 

period to 10 years would be unduly 

punitive, as that would effectively 

exclude a terminated or non-renewed 

sponsor from the Part C or D programs 

for 10 years. Our intent in adopting this 

provision was in part to remedy the 

disparity in consequences between 

sponsor-initiated non-renewals and 

CMS-initiated terminations or nonrenewals. As discussed in the proposed 

rule, we believe that the 3-year ban on 

Part C or D program participation 

created by the 38-month past 

performance look-back period meets 

that goal by imposing some 

administrative penalty where none 

existed for operating a Medicare 

contract so poorly. It also makes certain 

that the penalty was greater than that 

associated with voluntary non-renewal. 

Three years is also a reasonable period 

of time during which a terminated or 

non-renewed sponsor could make 

improvements to its organization in 

preparation for providing quality 

services should it elect to re-enter the 

Part C and D markets. We believe that 

a 10-year exclusion period goes well 

beyond what is necessary to achieve our 

policy goals and could be viewed as 

excessively harsh by health and drug 

plan sponsors and the communities they 

serve. 

Comment: Several commenters 

remarked that the 14-month look back 

period for past performance analysis 

was too short. 

Response: The 14-month look back 

period for the past performance analysis 

of all Part C and D contract applicants 

was established through previous 

rulemaking. As the regulatory change 

described here concerns a modification 

to the length of the look back period 

only for applicants with previous CMSterminated contracts, comments 

concerning all other types of applicants 

are outside the scope of the proposed 

rule. 

Comment: A few commenters 

expressed concern that entities would 

attempt to get around the 3-year look 

back period for contracts terminated or 

non-renewed by CMS by voluntarily 

non-renewing their contracts before 

CMS terminates them. 

Response: We appreciate commenters’ 

concerns. We will be mindful of 

organizations attempting to avoid the 

consequences of the new provision by 

voluntarily non-renewing. However, we 

believe that this type of manipulation is 

unlikely because voluntary non-renewal 

already carries with it a 2-year ban. 

After consideration of the public 

comments received, we are finalizing 

these provisions as proposed. 

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 22117 

D. Improving Program Efficiencies 

We believe that finalizing the 

regulations discussed in this section 

will reduce regulatory burdens for MA 

organizations, Part D sponsors, and cost 

contractors; lower transaction costs; and 

reduce waste and unnecessary 

spending—all of which will, in turn, 

help keep costs down and improve the 

quality of care received by Medicare 

beneficiaries. Non-renewing cost 

contractors will also save money 

because we are finalizing a rule that 

eliminates the regulatory requirement to 

purchase print advertising announcing 

their non-renewals. We are also 

finalizing more flexible rules regarding 

agent/broker compensation, which 

means MA organizations and Part D 

sponsors will no longer be tied to 

historic agent/broker compensation 

amounts and may save transaction and 

other costs. Finalized regulations that 

enable daily cost-sharing of prescription 

drugs will not only save money for the 

Part D Program and those beneficiaries 

who discover during their initial fills 

that certain drugs do not work for them, 

but will also result in fewer unwanted 

drugs that create problems of disposal or 

safekeeping. 

The finalized proposals mentioned 

previously and others are outlined in 

Table 5. 

TABLE 5—PROVISIONS TO IMPROVE PROGRAM EFFICIENCIES

Preamble 

section Provision 

Part 417 Part 422 Part 423 

Subpart Section Subpart Section Subpart Section 

II.D.1 ........ Cost Contract Plan Public Notification Requirements in Cases of Non-Renewal.Subpart L 417.492 N/A ........... N/A N/A ........... N/A 

II.D.2 ........ New Benefit Flexibility for Certain Dual Eligible Special Needs Plans (D–SNPs).N/A ........... N/A Subpart C 422.102 N/A ........... N/A 

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

Equipment.

N/A ........... N/A Subpart C 422.100 

422.111 

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

II.D.5 ........ Broker and Agent Requirements ..................... N/A ........... N/A Subpart V 422.2274 Subpart V 423.2274 

II.D.6 ........ Establishment and Application of Daily CostSharing Rate as Part of Drug Utilization 

Management and Fraud, Abuse and Waste 

Control Program.

N/A ........... N/A N/A ........... N/A Subpart D 423.100 

423.104 

423.153 

1. Cost Contract Plan Public Notification 

Requirements in Cases of Non-Renewal 

(§ 417.492) 

Section 1876 of the Act provides the 

Secretary with the authority to enter 

into contracts with HMOs on a cost 

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

Act precludes the Secretary from 

entering into new cost contracts after 

the establishment of Part C, existing 

contracts are grandfathered, and subject 

to regulations, including § 417.492, 

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

In the event that such a contract is 

non-renewed, the cost plan or CMS 

must notify both the enrollees of the 

organization and the general public of 

the non-renewal. As specified in current 

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

must include ‘‘notice in one or more 

newspapers of general circulation in 

each community or county located in 

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

We proposed removing the current 

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

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

CMS-initiated non-renewal situations) 

to notify the general public concerning 

the impending non-renewal. Our 

proposed removal of this requirement 

was motivated by the cost of newspaper 

advertisements and the declining rate of 

newspaper circulation. In addition, we 

believe that the requirement that cost 

plans provide personalized non-renewal 

information is sufficient to ensure 

adequate non-renewal notice. 

Comment: A commenter wrote that 

waiving the requirement for printing a 

public non-renewal notice would have 

virtually no cost savings to a plan. 

Response: Although we do believe 

there will be some savings associated 

with not having to print a public notice, 

we also believe that the provision will 

reduce unnecessary burden on plans. 

Comment: A commenter stated that 

retaining the public notification 

requirement could help ensure that 

beneficiaries have more knowledge 

about plan changes. 

Response: Because plans are still 

required to contact each enrollee when 

non-renewing a plan for the upcoming 

year, we believe that beneficiaries will 

continue to have sufficient notification. 

After consideration of the public 

comments received, we are finalizing 

the policy without modification. 

2. New Benefit Flexibility for Certain 

Dual Eligible Special Needs Plans (D– 

SNPs) (§ 422.102) 

Section 2602(c) of the Affordable Care 

Act charged us with making Medicare 

and Medicaid work together more 

effectively to improve patient care and 

lower costs. In our October 11, 2011 

proposed rule (76 FR 63018), we 

proposed to give certain SNPs 

additional flexibility with respect to 

plan design as a means of furthering this 

goal of better integrating care for dual 

eligible beneficiaries. 

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

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

and § 422.102 allow us considerable 

discretion in deciding what benefits 

beyond those covered under Medicare 

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

enrollees as a ‘‘mandatory supplemental 

benefit’’ that is included in an MA plan 

for every enrollee who joins the plan, as 

opposed to optional supplemental 

benefits which are offered to all 

enrollees, but for which coverage is only 

provided to enrollees who choose to pay 

for the optional benefit. In our October 

11, 2011 proposed rule, we proposed 

providing certain fully integrated dual 

eligible SNPs (FIDE–SNPs) with the 

flexibility to offer additional 

supplemental benefits because we are 

interested in assessing whether certain 

supplemental benefits could help 

prevent health status decline in the dual 

eligible population and reduce the 

quantity and cost of future health care 

needs. In order to implement this 

proposal, we proposed amending 

§ 422.102 to add a new paragraph (e) 

specifying that, subject to our approval, 

and as specified annually by us, certain 

fully integrated dual eligible SNPs (FIDE 

SNPs) may offer additional 

supplemental benefits beyond those 

other MA plans may offer, where CMS 

finds that the offering of such benefits 

could better integrate care provided 

under Medicare and Medicaid for the 

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dual eligible population. All such 

benefits would also have to otherwise be 

consistent with the rules for 

supplemental benefits under Part 422, 

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

§ 422.102. 

We proposed limiting the new 

supplemental benefits flexibility offered 

under this provision to FIDE SNPs 

defined at § 422.2 that are currently 

operational, operated in the previous 

contract year, and meet certain CMS 

criteria including, but not limited to, 

being of high quality (as defined by 

CMS in future guidance). We believed 

that this approach would be most 

consistent with the objective of keeping 

beneficiaries at risk of 

institutionalization in their homes and 

preventing health status decline that 

results in additional utilization of health 

services, and lowering costs for the 

Medicaid and Medicare programs. We 

also proposed to further limit the 

additional benefit flexibility under the 

proposed rule to those qualified SNPs 

that serve only full-benefit dual eligible 

beneficiaries. We requested comment on 

whether extending supplemental benefit 

flexibilities under our proposed 

§ 422.102(e) to eligible SNPs that are 

SNP types other than FIDE SNPs could 

measurably reduce unnecessary 

utilization and improve beneficiary 

outcomes in an equivalent manner. 

In our proposed rule, we also 

requested comment on what specific 

categories and types of supplemental 

benefits we should consider for the 

purposes of extending benefit flexibility 

to qualified FIDE SNPs that would be 

participating in this initiative, as well as 

on the circumstances under which plans 

should be permitted to offer these 

additional supplemental benefits. We 

also requested comment on additional 

restrictions that should govern plans’ 

ability to offer these additional benefits, 

and how we might be able to expand the 

scope of approved supplemental 

benefits in a manner that allows plans 

to serve their dual eligible enrollees 

effectively and efficiently. We 

additionally requested comment on 

ways to minimize this proposed 

provision’s cost impact on dual eligible 

beneficiaries, while ensuring that States, 

SNPs, and providers can feasibly 

provide additional supplemental 

benefits to a dual eligible population. 

No commenters opposed our overall 

policy proposal to offer new 

supplemental benefits flexibility to 

certain SNPs. We also received no 

comments on our planned approach to 

further implement this policy through 

guidance in our final Annual Call Letter 

and in Chapter 4 of the Medicare 

Managed Care Manual. 

Comment: In our proposed rule, we 

requested comment on whether the 

benefit flexibility under this provision 

should be limited to FIDE SNPs, as 

defined at 42 CFR 422.2, or whether we 

should extend it to other SNP types. 

Most of the comments that we received 

on this issue recommended that we 

extend this flexibility to all SNP types 

so that SNPs could target additional 

supplemental benefits to special needs 

individuals enrolled in chronic SNPs 

(C–SNPs) and institutional SNPs (I– 

SNPs). Some commenters recommended 

that we extend this benefit flexibility to 

all dual eligible SNPs (D–SNPs) so that 

a larger number of dual eligible 

beneficiaries, including those dual 

eligible beneficiaries residing in 

geographic areas without an operational 

FIDE SNP, could access additional 

supplemental benefit offerings. A few 

commenters supported our proposal to 

limit this new supplemental benefit 

flexibility to FIDE SNPs only, because 

they believed that FIDE SNPs were best 

positioned to deliver integrated services 

that prevent enrollee 

institutionalization. 

Response: After considering the 

comments we received, we are 

finalizing our proposed provision with 

modification to allow new supplemental 

benefit flexibility for certain D–SNPs 

that meet a high standard of integration 

and minimum performance and quality 

based standards, where CMS finds that 

the offering of such benefits would 

better integrate care for the dual eligible 

population. We outline these 

integration, contract design, 

performance, and quality-based criteria 

for a D–SNP that would meet this 

standard in the final CY 2013 Annual 

Call Letter. We plan to update these 

criteria annually, as necessary. We 

believe that expanding the new 

supplemental benefit flexibility to a 

larger pool of D–SNPs that meet certain 

standards in accordance with State 

policies is consistent with our goal of 

better integrating care for dual-eligible 

beneficiaries. By expanding this 

supplemental benefit flexibility beyond 

FIDE SNPs, more dual eligible 

beneficiaries will have access to 

additional supplemental benefits that 

are designed to bridge the gap between 

Medicare and Medicaid services. By 

limiting this flexibility to qualified D– 

SNPs—all of which must contract with 

the State starting in 2013—rather than 

allowing the flexibility for all SNP 

types, we can better ensure that plans 

will use this benefits flexibility to 

increase integration and care 

coordination. 

Furthermore, we believe that, because 

D–SNPs must adhere to the State 

contract requirements at § 422.107, 

limiting this new benefit flexibility to 

D–SNPs rather than extending it to all 

SNP types (C–SNPs and I–SNPs) would 

not provide an incentive to MA 

organizations to create SNPs for the 

purposes of qualifying for this new 

benefit flexibility. Therefore, we are 

finalizing our proposed rule with 

modification to afford all D–SNP types 

that meet a high standard of integration 

and meet minimum performance and 

quality-based standards the opportunity 

to qualify for this new supplemental 

benefit flexibility, even if they are not 

FIDE SNPs. We are modifying our 

regulations at § 422.102 to add a new 

paragraph (e) specifying that, subject to 

CMS approval, D–SNPs that meet a high 

standard of integration and minimum 

performance and quality-based 

standards may offer additional 

supplemental benefits beyond those 

other MA plans may offer where CMS 

finds that the offering of such benefits 

would better integrate care for the dual 

eligible population. 

Comment: The majority of comments 

we received on our supplemental 

benefit flexibility proposal related to the 

types and categories of supplemental 

benefits that plans would be permitted 

to offer under this flexibility. A large 

number of commenters requested that 

we include adult day care services as a 

category of supplemental benefits that 

plans would be permitted to offer under 

this new supplemental benefit 

flexibility. The commenters noted that 

adult day care services are not covered 

by either Medicare or Medicaid in most 

states. They further noted that many 

plans that have experienced reduced 

utilization of long-term care services 

attribute this reduction to their 

enrollees’ use of adult day care services. 

Other commenters suggested that we 

include assistive devices, nutritional 

supplements, incontinence supplies, 

and primary and secondary prevention 

services as permissible types of 

supplementary benefits under this 

provision. 

Response: We appreciate the 

commenters’ suggestions. We believe 

that the additional supplemental 

benefits that will be available under this 

provision may be appropriate to the 

extent that they assist MedicareMedicaid beneficiaries with activities of 

daily living, (ADLs), (for example, 

eating, drinking, dressing, bathing, 

grooming, toileting, transferring, and 

mobility) and/or instrumental activities 

of daily living, (IADLs), (for example, 

managing a home, transportation, 

grocery shopping, preparing food, 

financial management, and medication 

management). Additionally, we believe 

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that the additional supplemental 

benefits afforded under this provision 

should be those benefits that bridge the 

gap between Medicare and Medicaid 

services and that have the potential to 

decrease unnecessary utilization of 

health care services by the dual eligible 

population. We have considered 

comments that we received in response 

to our proposed rule according to the 

standard we describe previously. We 

outline supplemental benefit categories 

that plans may offer under this 

provision, as well as guidance on the 

scope of these additional supplemental 

benefits, in our final CY 2013 Annual 

Call Letter. We also note that we will 

provide qualified D–SNPs with 

operational guidance on the bid 

submission process in future guidance. 

Comment: In the proposed rule, CMS 

requested comment on whether it 

should limit this benefit flexibility to D– 

SNPs that only enroll dual eligible 

beneficiaries with full Medicaid 

benefits. A few commenters supported 

the limitation to full-benefit dual 

eligibles, noting that these individuals 

would receive the most benefit from 

additional supplemental benefits that 

are designed to enhance Medicare and 

Medicaid service integration. A 

significant number of commenters felt 

that limiting the additional 

supplemental benefit flexibility to fullbenefit dual eligibles was needlessly 

restrictive, and would not allow plans to 

offer supplemental benefits designed to 

prevent partial dual eligibles (that is, 

dual eligible beneficiaries that do not 

qualify for full Medicaid benefits) from 

declining to full-benefit status. 

Response: We agree with commenters’ 

statements that the additional 

supplemental benefits that we will 

allow D–SNPs to offer under this 

provision could help prevent partial 

dual eligible beneficiaries from 

spending down to full dual status. We 

also recognize the potential value of 

supplemental benefits for dual eligibles 

that cycle in and out of full Medicaid 

eligibility during the year. We believe 

that allowing plans to offer additional 

supplemental benefits to partial duals 

would further our goal of aligning 

Medicare and Medicaid benefits to 

prevent health status decline and 

prevent unnecessary utilization of acute 

and long term care services. 

Consequently, as noted previously, we 

are permitting certain, D–SNPs to offer 

additional supplemental benefits even if 

they are not FIDE SNPs. 

Comment: In our proposed rule, we 

requested comment on how our 

proposal would impact costs for dual 

eligible beneficiaries. All commenters 

that commented on this issue 

recommended that we require SNPs that 

offer new supplemental benefits under 

this provision to provide these benefits 

to dual eligible enrollees at zero costsharing and with no increase in 

premium. Many commenters also 

recommended that we prohibit plans 

from creating new supplemental 

benefits offerings that duplicate 

Medicaid services because plans that 

offer supplemental benefits that are 

identical to Medicaid benefits could 

modify their supplemental benefits in a 

manner that would leave enrollees 

liable for higher cost-sharing. These 

commenters suggested that CMS require 

SNPs to describe how the new Medicare 

supplemental benefits and existing 

Medicaid benefits will differ and work 

together, as a condition of participating 

in this new benefit flexibility initiative. 

Response: We share commenters’ 

concerns that duplication of Medicaid 

benefits in plans’ supplemental benefit 

offerings has the potential to put dual 

eligible beneficiaries at risk for higher 

cost-sharing. We do not intend for the 

new supplemental benefits offered 

under this provision to duplicate or 

supplant Medicaid benefits. In response 

to such concerns and comments 

received on the draft CY 2013 Call 

Letter, our final CY 2013 Call Letter 

requires qualifying D–SNPs, to attest, at 

the time of bid submission, that the 

additional supplemental benefit(s) that 

the SNP describes in its plan benefit 

package (PBP) do not inappropriately 

duplicate an existing service(s) that 

enrollees are eligible to receive under a 

waiver, the State Medicaid plan, 

Medicare Part A or B, or through the 

local jurisdiction in which they reside. 

Additionally, in order to evaluate how 

D–SNPs are implementing this new 

benefit flexibility, we indicate that we 

will require D–SNPs that participate in 

this new benefit flexibility initiative to 

submit a mandatory quality 

improvement project (QIP) under 

§ 422.152(a)(2) on measures related to 

the goals of this initiative, as 

determined by CMS. Finally, in 

response to the previous comments 

urging that benefits offered under the 

new benefit flexibility be made available 

without cost sharing or additional 

premium charges, we have added 

language to § 422.102(e) requiring that 

benefits be offered to the beneficiary at 

no additional cost (that is, zero-cost 

sharing and with no attributable 

premium increase). 

Comment: Several commenters 

recommended that CMS establish a 

means of assessing whether the new 

supplemental benefits offered under this 

provision lower costs, reduce 

unnecessary utilization, and improve 

integration of Medicare and Medicaid 

services. 

Response: We agree with commenters’ 

recommendations. CMS will develop a 

means for evaluating the effectiveness of 

this new supplemental benefit 

flexibility and will detail our evaluative 

methodology in future guidance. We 

will also provide qualified D–SNPs with 

operational guidance at that time. 

Comment: A commenter requested 

clarification on the years that SNPs 

must have a State contract in order to 

qualify under the definition of 

‘‘currently operational,’’ as discussed in 

the CY 2012 Annual Call Letter and the 

preamble to our proposed rule. Another 

commenter suggested that we revise our 

requirement that SNPs must have 

operated in the previous contract year, 

in order to allow new SNPs to qualify 

for this new supplemental benefit 

flexibility. 

Response: We reject the commenter’s 

suggestion that SNPs that have not 

operated in the previous contract year 

should qualify for this new 

supplemental benefit flexibility. We are 

maintaining our requirement that D– 

SNPs must have operated in CY 2012 

and be operating in CY 2013 in order to 

qualify to participate in this 

supplemental benefit flexibility 

initiative because, without a record of 

operation in the prior contract year, 

CMS would be unable to determine 

whether a D–SNP would meet the 

minimum eligibility requirements (that 

is, contract design, integration, 

performance, and quality-based 

requirements) for this new benefit 

flexibility. We are updating our 

regulations at § 422.102(e) to reflect the 

prior year operation requirement. 

Furthermore, we believe that D–SNPs 

that have not operated for at least one 

year would lack the experience 

necessary to identify supplemental 

benefits that would effectively serve the 

specific needs of their dual eligible 

enrollees. D–SNPs must have a State 

contract in order to qualify to 

participate in this initiative. In our final 

2013 Annual Call Letter, we clarify 

additional operational and contract 

design requirements for D–SNPs 

participating in this benefits flexibility 

initiative. Unless otherwise stated, these 

contract design requirements apply to 

the specific SNP plan (that is, SNP plan 

benefit package), and not the larger MA 

contract. 

Based on our review of the public 

comments, we have modified our 

proposal as discussed in the previous 

responses and we have also modified 

§ 422.102(e). 

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3. Application of the Medicare HospitalAcquired Conditions and Present on 

Admission Indicator Policy to MA 

Organizations (§ 422.504) 

In the October 11, 2011 proposed rule 

(76 FR 63049 and 63050), we proposed 

to require by regulation that MA 

organizations provide in their contracts 

with hospitals that they will reduce 

payments for Part A hospital services for 

serious events that could be prevented 

through evidence-based guidelines, in 

accordance with the hospital-acquired 

conditions (HACs) and present on 

admission indicator (POA) policy that is 

currently required for hospitals paid 

under the Original Medicare Acute Care 

Hospital Inpatient Prospective Payment 

System (IPPS). We believed this 

proposed change was appropriate in 

order to bring MA requirements in line 

with current HAC–POA policy in the 

original Medicare program, as well as— 

in the near future—to the Medicaid 

program. 

The HAC–POA policy aims to reduce 

medical errors, improve quality of care 

for beneficiaries, and reduce Medicare 

expenditures for poor quality care. We 

proposed to specifically apply the HAC– 

POA policy in the MA program by 

requiring MA organizations to include 

appropriate payment provisions in their 

contracts with hospital providers. We 

believed this would be consistent with 

the agency goal to further align the MA 

and original Medicare programs and the 

ACA requirements to expand the HAC– 

POA policy further to Medicaid and 

Medicare and to continue development 

of value-based purchasing programs. 

We proposed to amend § 422.504(i)(3) 

by adding a new paragraph (iv) to 

require that, beginning in CY 2013, MA 

organizations provide in their contracts 

with hospitals that payment will not be 

made to contracting hospitals in the 

case of serious preventable events and 

hospital-acquired conditions in 

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

the Act and all applicable Medicare 

policies. We solicited comments and 

recommendations on what other issues 

to consider in finalizing our proposal to 

require a payment reduction where 

payment would be reduced under the 

current IPPS HAC–POA policy to MA 

plans. 

Comment: We received 17 comments 

on the proposal. All commenters 

expressed support for the goals of the 

policy, that is, to ensure quality within 

hospitals and reduce costs for 

unnecessary or poor care. However, 

reactions were mixed to the proposal to 

implement this goal through the 

contracting process. 

Several commenters representing 

beneficiaries and health care 

professionals expressed support for the 

proposal and encouraged CMS to 

continue efforts to more closely align 

the MA program with original Medicare 

and other public program initiatives 

consistent with the National Quality 

Strategy. A commenter discussed 

specific HAC conditions and requested 

that CMS remove healthcare-associated 

infections from the existing HAC policy. 

Several commenters representing the 

MA industry supported the proposal, 

stating that implementation would not 

be burdensome and expressed their 

belief that their organization’s existing 

contract provisions would be sufficient 

to implement the policy for CY 2013 as 

proposed. A commenter requested 

affirmation of the sufficiency of their 

plan’s specific contract language. A 

commenter also recommended that the 

HAC–POA payment adjustment should 

also apply to non-contract hospital 

providers. 

Response: We thank all commenters 

for expressing their support and their 

concerns and raising important 

questions for CMS to consider. We agree 

with commenters that reducing costs, 

while striving for high-quality 

healthcare for seniors is an important 

goal of this agency and for the DHHS. 

We appreciate the encouragement for 

CMS to continue efforts to more closely 

align the MA program with original 

Medicare and other public program 

initiatives consistent with the National 

Quality Strategy. We also recognize that, 

while many plans may already have 

payment systems or contract provisions 

in place that would accommodate 

immediate application of this policy, 

other payment models, and contractual 

structures may not, and would have to 

be amended to implement a reduction 

in payment for occurrences of HAC. 

With regard to the comment 

requesting that CMS remove healthcareassociated infections from the existing 

HAC policy, we note that this comment 

is not within the scope of this rule. 

Specific HAC conditions are considered 

through public comment annually in the 

IPPS rule. 

With regard to the comment that the 

HAC–POA policy should also apply to 

non-contract providers, we indicated in 

the October 11, 2011 proposed rule (76 

FR 63049 and 63050), that the payment 

reduction is already required for 

payments to non-contract providers. MA 

plans must pay non-contract acute care 

hospital claims the same rate that they 

would be paid under the IPPS, and this 

includes adjustments for HACs and any 

other IPPS payment adjustments. This is 

specified in the MA Payment Guide for 

Out-of-Network Payments, available at: 

https://www.cms.gov/

MedicareAdvtgSpecRateStats/

Downloads/oon-payments.pdf. 

Comment: Some commenters 

supported application of the policy with 

extra time allowed to understand 

requirements, modify contracts, 

redesign payment approaches, and 

incorporate POA reporting into claims 

processing systems. Several commenters 

requested that CMS set the deadline for 

implementation at January 1, 2014. 

Response: We appreciate the support 

for the policy and fully recognize 

concerns about the additional time that 

would be needed in order to implement 

the policy. However, we are also 

cognizant of concerns expressed by 

other commenters regarding the 

operational implications of the policy, 

given, for example, the varied payment 

structures in place, and the need to 

modify and execute new contracts. We 

will need to fully understand such 

implications before we are able to 

establish a reasonable timeframe for 

implementing the policy. Therefore, at 

this time, we will not finalize the policy 

as proposed with a definitive 

implementation date. Instead, we intend 

to further study the implications of 

extending the HAC–POA policy to the 

MA program and, potentially, consider 

other ways to achieve the goals of the 

policy. 

Comment: Several commenters were 

concerned about their ability to 

reasonably apply these requirements to 

non-DRG or fee schedule-based payment 

approaches, such as capitated, per diem 

or percentage-based models. They were 

concerned about the burden of 

‘‘dissecting’’ every claim in order to 

calculate a payment and were 

concerned that every claim payment 

would be subject to negotiation with 

hospitals. Similarly, a commenter urged 

CMS to allow MA organizations 

flexibility to implement the policy in a 

way that would not require significant 

additional resources. 

A commenter stated that MA 

organizations should not have to 

negotiate with hospitals on 

methodology, (that is, the methodology 

should instead be industry standard). 

Another commenter requested 

clarification that this policy would only 

apply to acute care inpatient hospitals. 

A few commenters expressed concerns 

with ensuring hospital compliance with 

reporting of serious adverse events and 

HACs. 

Some commenters requested that 

plans with capitated payment models be 

exempt, stating that, under the capitated 

payment structure, the risk has already 

been placed on providers to reduce 

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costly medical errors. A commenter 

stated that this proposal would stifle 

innovation of creative payment 

arrangements that the private healthcare 

industry uses to promote quality and 

efficiency and could result in increased 

costs for beneficiaries. A few 

commenters claimed to have specific 

recommendations for applying the 

HAC–POA policy goals to these types of 

payment structures, but did not provide 

them in their comments. 

Response: We appreciate the thorough 

responses from commenters. As we 

indicated in the proposed rule, we 

recognize that there may be operational 

challenges to implementing the HAC– 

POA policy under varied payment 

models, which is why we requested 

specific suggestions and ideas to 

consider in order to find the best 

approach within the MA program to 

reduce the occurrence of HAC 

conditions and encourage efforts by 

hospitals to increase quality of care. We 

believe that exempting some MA 

organizations based on their existing 

payment structures with hospitals 

would result in inconsistent application 

of the policy and, consequently, failure 

to advance the goal of reducing these 

preventable medical errors. However, 

we do recognize the operational 

concerns expressed by the commenters. 

Therefore, we believe that the most 

prudent approach at this time is to 

continue to study the implications of 

extending the HAC–POA policy to the 

MA program in order to determine how 

best to incorporate the HAC–POA policy 

and other quality initiatives into the MA 

program. 

Comment: With respect to the 

proposal to add this policy as a 

contractual requirement through 

§ 422.504(i)(3), a commenter requested 

greater transparency and full disclosure 

to the public with respect to the types 

of contractual flexibility that CMS 

would allow. Other commenters were 

concerned about CMS over-regulating 

MA contracts, setting precedent for 

regulating MA financial arrangements 

and the burden of contract negotiations. 

Several commenters stated that hospital 

contracting is a multi-year process and 

that opening the contract for one 

provision would subject the entire 

contract to renegotiation, potentially 

resulting in increased costs to MA 

organizations, enrollees, and CMS. A 

commenter was concerned that smaller 

MA organizations might be 

disadvantaged in negotiating this 

payment reduction with hospitals. 

A few commenters recommended that 

we revise the proposed rule to effectuate 

the policy goals through NCDs or other 

coverage requirements, rather than 

contracting/payment provisions. They 

argued that this would allow MA 

organizations to implement in a manner 

that is most appropriate to their 

provider networks without requiring 

MA organizations to make changes to 

their existing contracts, (for example 

through manual provisions). A 

commenter requested a model notice for 

MA plans to issue to hospitals 

describing the revised coverage policy 

for HACs and POA indicator reporting. 

Several other commenters requested 

that CMS withdraw the proposal and 

engage in a collaborative effort with MA 

organizations to develop alternative 

approaches to achieve the policy goal of 

reducing HACs and securing higherquality hospital care for beneficiaries in 

the MA program. 

Response: We thank commenters who 

offered alternative solutions and we 

appreciate the comments expressing 

concern about opening up potentially 

lengthy and costly contract negotiations. 

We also understand, based on 

comments received, that some MA 

organizations may already have 

sufficient contract provisions in place to 

implement the policy without further 

negotiations. However, we agree with 

commenters that the proposal requires 

further consideration and discussion. 

Therefore, after consideration of the 

public comments received, we are not 

finalizing the proposed policy at this 

time. However, we will continue to 

explore alternative approaches to 

achieve a reduction in HACs, reduce 

costs for unnecessary medical care and 

ensure high-quality hospital care for 

beneficiaries in the MA program. 

4. Clarifying Coverage of Durable 

Medical Equipment (§ 422.100 and 

§ 422.111) 

MA organizations and other 

stakeholders have asked for our 

guidance on whether MA organizations 

can limit enrollees to specified durable 

medical equipment (DME) 

manufacturers and brands. Some MA 

organizations have also asked us 

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

brands versus ‘‘non-preferred’’ DME 

products or brands. In section 50.1 of 

Chapter 4 of the Medicare Managed Care 

Manual, ‘‘Benefits and Beneficiary 

Protections’’ (see http://www.cms.gov/

manuals/downloads/mc86c04.pdf), we 

specified that, beginning in CY 2011, 

plans could establish several costsharing levels (that is, tiers) for DME 

items, supplies, and Part B drugs, 

provided that: (1) The highest costsharing tier is at or below the relevant 

cost-sharing threshold established by 

CMS for DME and Part B drugs; and (2) 

plans ensure access to all products 

through the established network of 

providers. However, we have not 

specified in regulation or guidance 

whether network-based MA plans may, 

within a specified category of DME, 

limit coverage to the DME brands, items 

and supplies of specific (preferred) 

manufacturers. 

Since we understand that some MA 

organizations are currently limiting 

DME coverage to certain brands and 

manufacturers, we believe it is 

important to establish a regulatory 

framework for the protection of 

beneficiaries by ensuring appropriate 

and adequate MA enrollee access to 

DME brands, items, and supplies. 

Additionally, we believe that MA plans 

working with MA clinicians are 

positioned to increase MA program 

efficiencies by allowing plans to 

negotiate bulk discounts for high-quality 

items. 

Accordingly, under our authority in 

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

establish MA standards by regulation, 

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

specify additional contractual terms and 

conditions the Secretary may find 

necessary and appropriate, we proposed 

the requirements discussed later in this 

final rule with comment period, 

followed by a discussion of any 

applicable comments we received on 

the proposal. 

We received 43 comments in response 

to our proposed requirements. 

Commenters included MA organizations 

and other industry representatives, 

beneficiary advocacy groups, DME 

manufacturers and representatives of 

DME manufacturers, and certain 

pharmacy groups. The majority of the 

comments focused on our proposed 

beneficiary protections. We have 

provided a brief summary of each of the 

proposed beneficiary protections to be 

required of MA plans that elect to limit 

provision of DME to specific brands and 

manufacturers. Each proposed 

beneficiary protection is followed by a 

discussion of applicable comments on 

that proposal, if any. Subsequent to this 

discussion, we address several 

additional comments associated with 

more general issues related to the 

proposed rule. 

a. Access to Preferred DME Items and 

Supplies 

We proposed requiring that MA 

organizations wishing to limit coverage 

within a specific category of DME to 

specific brands, items and supplies of 

‘‘preferred’’ manufacturers take 

necessary steps to ensure that enrollees 

have access to all preferred 

manufacturer items and brands through 

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22122 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

their contracts with their network of 

DME suppliers. We reflected this change 

in proposed § 422.100(l)(2)(i). We 

received no comments on this proposal. 

b. Medical Necessity Requirements for 

DME Items and Supplies 

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

of the MA program regulations, MA 

organizations must have established 

policies and procedures that allow for 

individual medical necessity 

determinations if there is a question 

about whether a service or item, 

considered medically necessary by an 

enrollee’s provider, should be covered. 

MA organizations making medical 

necessity determinations must have a 

medical director, who is a physician, 

ensuring the accuracy of organization 

determinations and reconsiderations as 

per § 422.562(a)(4). Therefore, we 

proposed requiring MA organizations— 

to the extent that they elect to limit 

coverage of DME brands, items and 

supplies to preferred manufacturers—to 

provide coverage of any DME brands, 

items and supply deemed medically 

necessary, including DME brands, 

items, and supplies made by nonpreferred manufacturers. We reflected 

this change in proposed 

§ 422.100(l)(2)(ii). 

Comment: Several commenters were 

concerned about the burden of the 

medical necessity process for enrollees 

and their providers. A commenter 

pointed to our mention of 

§ 422.112(a)(6)(ii) and § 422.562(a)(4) 

which requires MA organizations to 

have a medical director and established 

policies and procedures that allow for 

individual medical necessity 

determinations at the MA organizational 

level. These citations suggested that a 

formal petition from the plan is required 

for medical necessity. Several 

commenters explicitly asked that the 

enrollee’s provider have the right to 

determine medical necessity. Several 

commenters requested clarification on 

the specific process for a medicalnecessity determination; for example, 

whether the enrollee petitions the plan 

for a non-preferred brand and, if so, 

within what timeframe response can be 

expected. 

Response: We wish to clarify that the 

medical necessity process concerning 

brand/manufacturer of DME items is the 

same as that for any health care service 

offered by a plan. As we stated in the 

proposed rule, we are not adding an 

exceptions process for DME similar to 

the Part D formulary exceptions process. 

While medical necessity requests are the 

same for DME as any other health care 

service offered by a plan (that is, they 

must follow the requirements for 

medical necessity at § 422.112(a)(6)(ii), 

§ 422.562(a)(4) and, more generally, the 

requirements for organizational 

determinations at § 422.566), we do 

want to clarify that medical-necessity 

status may be initiated by the enrollee’s 

provider if the provider believes that a 

particular brand of DME is medically 

necessary. Our purpose in citing 

§ 422.112(a)(6)(ii) and § 422.562(a)(4) 

was to clarify that plans are not 

unconditionally bound by an enrollee 

provider’s medical-necessity 

declaration. That is, plans have the right 

to deny medical-necessity requests 

made by the enrollee’s provider. 

However, the enrollee has the right to an 

appeal or expedited appeal if the plan 

denies the provider’s medical-necessity 

determination. We are also reinforcing 

that, as specified in § 422.112(a)(6)(i), 

requests for medically-necessary items 

must be responded to in a timely 

fashion. 

c. Transition Period for Coverage of 

Non-Preferred DME Items and Supplies 

As provided under § 423.120(b)(3), 

MA organizations offering an MA–PD 

plan and Part D sponsors are required to 

provide for an appropriate process for 

enrollees transitioning from other 

coverage who are currently prescribed 

Part D drugs not on the new Part D 

plan’s formulary. The purpose of this 

period is to transition the new enrollee 

to a therapeutically-substitutable 

formulary drug or, alternatively, to 

obtain a formulary exception whereby 

the new Part D plan would continue to 

cover the non-formulary drug for the 

remainder of the plan year for reasons 

of medical necessity. 

Similarly, we proposed requiring MA 

organizations to continue to ensure 

access to DME brands, items and 

supplies of non-preferred 

manufacturers—such as diabetic test 

strips—for a transition period 

comprising the first 90 days of coverage 

under the plan, as specified by CMS. 

Similar to the Part D transition process, 

we expect that MA organizations would 

provide one refill during the 90-day 

transition period. We also propose 

requiring that, during this 90-day 

transition period, MA organizations 

cover repairs to DME brands, items, and 

supplies of non-preferred manufacturers 

such as wheelchairs, feeding pumps, 

and hospital beds. More specifically, the 

enrollee, during this 90-day transition 

period, could elect to have the MA plan 

continue to provide the DME brand, 

item or supply from the non-preferred 

manufacturer as well as provide all 

necessary repairs to DME items, 

including providing a loaner. 

Alternatively, the enrollee could 

immediately switch to a brand, item, or 

supply of a preferred manufacturer. We 

reflected this change in proposed 

§ 422.100(l)(2)(iii)(A) and 

§ 422.100(l)(2)(iii)(B). 

Comment: In the proposed rule we 

recommended a 90-day transition 

period to enable beneficiaries who had 

used one brand of DME and had to 

change brands because their current 

plan no longer supplies this brand, to 

adjust to the change. We solicited 

comments on the duration of the 

transition period. While we received 

comments that indicated no transition 

period was necessary, other commenters 

agreed with the 90-day transition 

period, others suggested durations of 

120 days and 6 months. 

Response: We believe that the 

proposed 90-day transition period, 

similar to the transition period in the 

Part D program, strikes the appropriate 

balance between ensuring an enrollee’s 

smooth transition to a new plan while 

taking into account the ability of the 

plan to offer preferred DME items for its 

enrollees. 

Comment: We also received several 

comments on the appropriateness of a 

transition period. A commenter pointed 

out that it should not be required for 

enrollees to continue a former DME 

brand if new brands were more 

efficacious. Another commenter asked if 

the use of a brand, item, or supply from 

a non-preferred manufacturer based on 

a medical-necessity determination only 

applies to the transition period. 

Response: Our requirement that plans 

continue to furnish non-preferred DME 

brands that they had formerly was not 

intended to prevent a plan enrollee from 

switching to a different brand, should 

she or he so desire. If the enrollee wants 

to continue using the former brand, 

item, or supply, the new plan must 

furnish it for 90 days. Alternately, the 

enrollee may decide to change brands 

immediately. We also note that the 

medical necessity exception and the 

transition exception are independent of 

one another. An enrollee is permitted a 

90-day transition period for a currently 

non-preferred brand that was used in 

the former plan year even if that nonpreferred brand is not considered 

medically necessary for that individual. 

Furthermore, if deemed medically 

required, the new plan is required to 

furnish the specific DME brand, item, or 

supply regardless of whether the 

product was used previously. 

d. Midyear Changes to Preferred DME 

Items and Supplies 

We proposed prohibiting MA 

organizations from making ‘‘negative 

changes,’’ that is, eliminating coverage 

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of a Medicare-covered DME brand, item 

or supply of a preferred manufacturer, 

midyear. However, plans would not be 

responsible for involuntary negative 

changes such as those due to supplier 

terminations or sanctions. We also 

proposed allowing MA organizations to 

make ‘‘positive changes,’’ that is, adding 

coverage of Medicare-covered DME 

brands, items or supplies, midyear. 

Examples of allowable positive midyear 

changes include: Adding new 

manufacturers’ products, providing 

substitute DME brands, items and 

supplies for DME products that are no 

longer available, considering new DME 

technologies, and complying with 

national and local coverage 

determinations for new DME brands, 

items and supplies. Plans could also 

add suppliers midyear. We believe this 

strikes the appropriate balance between 

allowing flexibility for plans to 

designate preferred products, while 

ensuring that changes to the list of DME 

brands, items and supplies of preferred 

manufacturers are not disruptive to 

enrollees. We reflected this change in 

proposed § 422.100(l)(2)(iv). 

Comment: We received several 

comments on midyear changes to DME. 

A number of commenters criticized the 

proposed rule on the grounds that it 

would not be sensitive to midyear 

changes in technology. Other 

commenters raised the issue of the effect 

of supplier termination or supplier 

sanctions. Still other commenters asked 

if suppliers as well as products could be 

added midyear. 

Response: In the proposed rule we 

allow the addition, but not the deletion, 

of brands and manufacturers midyear. 

Consequently: (1) Plans may add DME 

with innovative new technologies 

midyear; and; (2) plans may add 

midyear suppliers as this would 

increase brands and manufacturers 

available to enrollees. Note, that if a 

midyear supplier termination or 

supplier sanction deprives enrollees of 

access to certain brands, items or 

supplies of preferred manufacturers, the 

plan has an obligation to add suppliers 

midyear in order to maintain enrollee 

access. 

Comment: A commenter requested 

that plans be allowed to withdraw 

midyear brands and manufacturers 

based on safety issues. 

Response: We agree that plans must 

exclude items from their preferred DME 

list if recalled by a Federal agency, for 

example, the FDA, or if CMS determines 

there is a safety concern. Additionally, 

if a plan has concerns regarding the 

safety of a certain brand or 

manufacturer, it should immediately 

contact the FDA’s Center for Devices 

and Radiological Health Ombudsman to 

whom such concerns should be 

directed. 

e. Appeals 

As indicated previously, a medical 

necessity determination is initiated by 

the enrollee’s provider. The plan’s 

subsequent denial could then lead to an 

appeal or expedited appeal. We 

proposed to clarify at § 422.100(l)(2)(v) 

that a plan’s non-coverage of a 

particular manufacturer’s product or 

brand of a DME constitutes an 

organization determination under 

§ 422.566. 

Comment: Several commenters 

requested that to ensure a proper 

balance between costs and access, CMS 

must incorporate safeguards around the 

use of DME formularies similar to those 

of Part D drug formularies. These 

commenters specifically identified the 

following Part D safeguards as examples 

of safeguards that should apply to DME: 

(1) Annual review and approval of DME 

formularies established by Medicare 

Advantage Plans by the plans’ 

respective Pharmacy and Therapeutics 

Committees; (2) a formal exceptions 

process for non-formulary DME items 

deemed medically necessary for a 

particular patient, similar to that 

employed for Part D drugs pursuant to 

§ 423.578; and, (3) the right of patients 

to seek review of adverse 

determinations related to requested 

DME brands, items or supplies by an 

independent review entity in a manner 

similar to that utilized for adverse 

determinations made by Part D Plans 

related to Part D drugs. 

Response: As indicated in the 

proposed rule, we studied the 

possibility of establishing an exceptions 

process for DME similar to the one 

established for non-formulary Part D 

drugs under § 423.578(b) and decided 

that the safeguards we proposed, along 

with the ability to appeal brand/ 

manufacturer decisions as coverage 

determinations, were the most efficient 

means to implement this provision in 

the context of the MA program. The Part 

D appeal process adds an additional 

level of review to the established appeal 

process under subpart M of Part 422 to 

account for the fact that Part D drugs in 

a category of prescription drugs are 

frequently prescribed based on the 

individual’s unique requirements and 

disputes about medical necessity are 

more likely. We believed such a process 

is unnecessary for DME brands, items 

and supplies because, unlike Part D 

drugs, DME is generally not specific to 

individuals and, as a result, appeal of 

coverage determinations based on 

brand/manufacturer are infrequent. 

Comment: A few commenters 

requested that, in addition to the right 

to appeal non-coverage of non-preferred, 

medically-necessary DME, CMS issue 

guidance on differential cost-sharing 

between preferred and non-preferred 

brands. 

Response: As specified in 

§ 422.100(f)(2), MA plans are already 

prohibited from designing cost-sharing 

structures that inhibit access. We 

annually publish detailed guidance on 

acceptable cost-sharing criteria. 

Comment: Several commenters 

requested that we provide guidance, 

similar to guidance in the Part D 

program, on the criteria for making an 

Independent Review Entity (IRE) 

determination. These commenters also 

recommended that access to DME and 

medical necessity be guiding principles 

as part of the IRE determination process. 

Response: We agree that access and 

medical necessity should be two 

primary principles guiding IREs in 

making determinations. For this reason, 

we strongly encourage MA plans when 

formulating their medical-necessity 

requirements, as specified at 

§ 422.112(a)(6), to specifically address 

how medical-necessity determinations 

by enrollee providers should be 

communicated and addressed. We do 

not believe it necessary, however, that 

IREs be given additional guidance 

regarding how to determine claims 

based on the brand/manufacturer of 

DME. 

Comment: In the proposed rule, CMS 

supported our decision not to have a 

formal exception process for DME 

denials by citing the following statistic: 

Of 12,500 appeals on wheelchairs 

reviewed by the IRE since the inception 

of the IRE appeals process in 2006, only 

seven related to brand-specific issues. A 

commenter suggested that the small 

number of brand-specific appeals could 

be due to our not formerly allowing 

plans to limit DME items, such as 

wheelchairs, by brand and 

manufacturer. 

Response: As indicated in the 

proposed rule, we have anecdotal 

evidence that plans are already limiting 

DME by brand and manufacturer. 

Consequently, we believe this statistic 

to be supportive of our proposal. 

f. Disclosure of DME Coverage 

Limitations 

As provided under § 422.111(b)(2), 

MA plans must notify enrollees—at the 

time of enrollment and annually 

thereafter—of the benefits offered under 

the plan, including applicable 

conditions and limitations, premiums, 

and cost-sharing, and any other 

conditions associated with receipt of 

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benefits. This requirement has been 

operationalized as the annual notice of 

change/evidence of coverage (ANOC/ 

EOC). We would require, under 

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

plans that choose to limit DME coverage 

to brands, items, and supplies of 

preferred manufacturers, be required to 

include, in the description of benefits 

required under § 422.111(b)(2) and 

under § 422.111(h)(2)—which requires 

the provision of specific information via 

a toll-free customer service call center 

and Internet Web site, and in writing 

upon request—disclosures about these 

DME coverage restrictions and enrollee 

rights to the Part C appeals process for 

requests to obtain medically necessary 

DME brands, items, and supplies from 

non-preferred manufacturers. 

Comment: Several commenters 

requested clarification on how MA 

organizations should disclose the list of 

DME brands, items, and supplies of 

preferred manufacturers. For example, 

several commenters asked whether they 

should be listed in the bid or EOC. 

These commenters pointed out that the 

EOC is a template and consequently a 

template change would be required for 

additional disclosures. Other 

commenters asked whether these 

materials should be listed on plan Web 

sites or in the plan finder. 

Response: As specified in 

§ 422.111(b)(2) and § 422.111(h)(2), MA 

plans must disclose all conditions, 

limitations, premiums, and cost-sharing 

for benefits they provide, including 

DME. There are already several vehicles 

for such disclosure in place. We propose 

modeling the disclosure requirements 

for DME by applying similar disclosure 

requirements currently used for the Part 

D formulary. More specifically, a plan 

choosing to limit certain DME products 

to specific brands and manufacturers 

would have to maintain a Web site with 

current information on DME access. We 

would also require that the list of DME 

brands, items, and supplies of preferred 

manufacturers be included in the EOC 

packet. We will issue guidance on these 

matters along with other guidance for 

proper bid submission. 

Comment: A commenter requested 

that disclosure requirements apply to 

any changes in provision of DME such 

as midyear changes. Another 

commenter asked if providing access to 

only two brands is a limitation for 

which notification is required. 

Response: We are modeling the 

disclosure requirements for DME on the 

disclosure requirements for the Part D 

formulary. Consequently, in addition to 

the list of brands, items, and supplies of 

preferred manufacturers that should be 

mailed in the EOC packet along with the 

Part D formulary, MA plans must have 

dedicated Web sites listing all current 

information on DME provision, 

including any midyear changes. Plans 

must notify enrollees of any contractual 

limitation in DME brands, items, 

supplies, and manufacturers. 

Comment: A commenter requested a 

60-day notification for any midyear 

changes. 

Response: The notification 

requirements for midyear changes 

specified in the Medicare Marketing 

Guidelines are applicable to midyear 

changes in DME. 

Comment: A commenter asked 

whether plans must submit their DME 

formularies, that is, their list of brands, 

items, and supplies of preferred 

manufacturers, to CMS for prior 

approval. 

Response: As indicated in the 

proposed rule, we are not applying the 

formulary requirements of the Part D 

program in our DME policies. 

Consequently, the submission of bids 

that includes all supporting 

documentation as part of the annual bid 

review cycle will suffice. 

g. Flexibility 

Based on comments we received on 

the proposed rule, and which we 

discuss later in this final rule with 

comment period, we are providing 

additional flexibility at 422.100(l)(2)(vii) 

for CMS to annually review DME 

categories. We would also review 

complaint data and appeals and 

grievances data. This would allow us to 

require full coverage of certain 

categories of DME without limitation in 

brand and manufacturer. Additionally, 

such flexibility would allow us to 

consider and respond to emerging new 

technologies, as well as to require full 

coverage of categories of DME items 

typically tailored to meet individual 

needs. 

Comment: Several commenters 

requested that we exclude orthotics and 

prosthetics from the items that MA 

organizations could limit purchase of to 

specific brands and manufacturers. 

Several commenters requested a general 

exclusion of orthotics and prosthetics 

while other commenters requested 

exclusion of specific orthotics and 

prosthetics. In particular, several 

commenters pointed to our use, in the 

proposed rule, of ostomy bags as an 

example of an item that could be subject 

to limitation based on brand or 

manufacturer. One of the commenters 

asked if we had intended to include 

ostomy bags, as they are actually 

prosthetics. The other commenters on 

this issue, while not identifying ostomy 

bags as prosthetics, stated that these are 

not, in fact, examples of items that are 

interchangeable and, thus, should not be 

subject to limitation based on brand or 

manufacturer. 

Response: When discussing the 

transition requirement, we mistakenly 

included ostomy bags, which are 

prosthetic devices, in our example of 

DME that would be subject to 

limitation—and thus the transition 

requirement—based on brand or 

manufacturer. In discussing the 

transition requirement, a better example 

would be diabetic supplies. In this final 

rule with comment period, we are 

clarifying that the ability of MA 

organizations to limit DME brands, 

items, and supplies to specific 

manufacturers does not apply to 

orthotics and prosthetics. Section 

1860(s) of the Act specifically 

distinguishes the authorities for 

provision of DME, prosthetics and 

orthotics. Consequently, our proposal to 

allow plans to limit provision of DME 

brands, items, and supplies to specific 

manufacturers would not affect 

prosthetics and orthotics. MA 

organizations must still provide to their 

enrollees all medically-necessary 

prosthetics and orthotics covered under 

Original Medicare, Part B. The principal 

reason for not including orthotics and 

prosthetics in the scope of this 

requirement is that the provision of 

orthotics and prosthetics requires 

clinical care by specially educated and 

trained practitioners who utilize those 

skills to design, fabricate, and fit custom 

orthoses and prosthesis. DME, however, 

primarily refers to equipment such as 

wheelchairs (manual and electric), 

walkers, scooters, canes, crutches, and 

home oxygen therapy. A standard cane 

from a supplier, for example, is 

qualitatively different from receiving a 

custom-fit orthotic brace molded 

specifically for the patient by a skilled 

provider. We already recognize this 

distinction between DME and 

prosthetics and orthotics in its quality 

and supplier standards. 

Comment: There was support for the 

notion that brands of certain DME such 

as canes are essentially interchangeable. 

However, over half the commenters 

mentioned specific categories of DME 

whose brands are less likely to be 

interchangeable in terms of quality, 

consistency in performance, and ease in 

repair. Among the 43 comments 

received, 7 categories of DME were 

identified for which commenters 

requested full coverage without plan 

limitation: (1) Wheelchairs; (2) diabetic 

supplies; (3) Continuous Positive 

Airway Pressure (CPAP) devices; (4) 

patient lifts; (5) speech generating 

devices; (6) oxygen; and (7) paddings 

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(such as foam mattresses). Additionally, 

a commenter questioned the 

classification of speech-generating 

devices as DME, rather than orthotics 

and prosthetics, citing the Department 

of Defense and VA classifications. 

Response: We agree that certain 

categories of DME include items which 

are tailored to the individual and are not 

interchangeable. For this reason, we 

intend to conduct an annual review to 

ascertain which categories or 

subcategories of DME require full 

coverage without allowance for plan 

limitation by brand or manufacturer. In 

making our decisions, we will identify 

categories of DME not subject to 

limitation, based on a variety of sources. 

Sources include, but are not limited to— 

• Comments on the proposed rule; 

• Discussions with DMEPOS staff; 

• Advice from the Chief Medical 

Officer Center for Medicare, CMS and 

DME MAC medical directors; and 

• Experience from the DMEPOS 

competitive bidding program and other 

Medicare programs. 

Based on our review of public 

comments, we have modified our 

proposal by adding new paragraph 

(l)(2)(vii) to § 422.100 to specify that 

plans must comply with CMS’ 

designation of DME items not subject to 

limitation based on brand or 

manufacturer. 

We have made two other changes to 

the regulatory text: (1) at 

422.100(l)(2)(iii) we have clarified that 

transition coverage changes are at the 

enrollee’s request; and (2) throughout 

the regulatory text we use the phrase 

‘‘DME brands, items, and supplies of 

preferred manufacturers.’’ The 

enrollee’s request for transition coverage 

is initiated when he or she fills a script 

and generates a claim for a particular 

brand. Our purpose in using the phrase 

‘‘DME brands, items, and supplies of 

preferred manufacturers,’’ is to 

emphasize that plans can limit both 

items and supplies and plans can limit 

by either: brand, manufacturer, or both. 

Following this discussion are several 

comments that address more general 

issues related to the proposed rule. 

Comment: A few commenters were 

opposed to the proposed rule on general 

grounds. They cite section 1801 of the 

Act which prohibits supervision over 

the practice of medicine and section 

1802 of the Act which guarantees basic 

freedom of choice. Another commenter 

disagreed with our authority to allow 

plans to limit brands and 

manufacturers, arguing that section 

1852(a)(1)(A) of the Act, allowing MA 

plans to contract with networks of 

providers, specifically applies to 

providers, not suppliers. 

Response: In the proposed rule—and 

as clarified further in this final rule with 

comment period—we have specifically 

indicated that a medical-necessity 

determination by the enrollee’s provider 

initiates a process that could allow 

enrollees access to DME brands, items, 

and supplies of non-preferred 

manufacturers. Hence, we have not 

interfered with the practice of medicine. 

Furthermore, section 1852(a)(1)(A) of 

the Act specifically allows plans in the 

MA program to limit the providers from 

which services may be obtained, 

provided adequate access is ensured. 

The statute is silent on limitations of 

supplier networks. As we stated in the 

proposed rule, we believe it is 

consistent with the goals of the statute 

to allow MA plans to contract with 

networks of suppliers and to restrict 

brands and manufacturers provided 

access is ensured and are thus 

exercising our authority under 

1856(b)(1) of the Act, to establish MA 

standards by regulations, and section 

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

additional terms and conditions found 

necessary and appropriate. 

Comment: A commenter believed that 

the proposed regulation had given plans 

arbitrary power and would 

unnecessarily limit beneficiary choices. 

The commenter also believed that MA 

plans do not have the necessary 

knowledge to make decisions about 

limits on brands, items, supplies, and 

manufacturers of DME. Another 

commenter asked how CMS would 

define access to non-preferred brands. 

Response: In developing our proposal, 

we took deliberate steps to ensure that 

an MA organization’s DME polices not 

be instituted arbitrarily and that such 

policies are fair and transparent to 

enrollees. In the proposed rule, we 

specifically mentioned our goal to strike 

‘‘the appropriate balance between 

allowing flexibility for plans to 

designate preferred products, while 

ensuring that changes to preferred DME 

products are not disruptive to 

enrollees.’’ Furthermore, we explicitly 

proposed at § 422.100(l)(2)(ii), that MA 

organizations—to the extent that they 

elect to limit coverage of DME items and 

supplies to specific manufacturers’ 

products or brands—ensure access to 

DME by providing coverage of any 

medically-necessary DME brand, item, 

and supply, including DME brands, 

items, and supplies made by nonpreferred manufacturers. Other 

requirements, such as the transition 

period and the prohibition on removing 

DME items midyear, also help ensure 

that enrollees will continue to have full 

access to DME. 

Comment: A few commenters 

requested that we offer the proposed 

rule as guidelines rather than 

regulations. These commenters 

suggested that, aside from specific 

requirements to ensure adequate access, 

we should not impose requirements or 

otherwise oversee functions that have 

traditionally been left to the discretion 

of plans. 

Response: We have already given 

plans much flexibility in choosing DME; 

we must also ensure that enrollees 

continue to have access to necessary 

DME. Plans must develop their own 

medical necessity criteria and methods 

for addressing provider determinations 

of medical necessity. However, the 

requirements delineated in the proposed 

rule, including disclosure, beneficiary 

appeal rights and access, have 

traditionally been regulatory areas and 

part of CMS’ oversight of plans. In the 

proposed rule, we proposed 

requirements in three other areas— 

medical necessity, transition periods, 

and midyear changes—and believe these 

to be important beneficiary protections. 

Comment: A commenter pointed out 

that, although the proposed rule focuses 

on reducing out-of-pocket costs for 

beneficiaries, this concept could also 

affect costs for plans. 

Response: In the proposed rule we 

pointed out that some organizations are 

already limiting DME to specific brands; 

consequently, our proposal would not 

adversely affect the costs incurred by 

these organizations. As we stated in the 

proposed rule, we believe this provision 

will give more flexibility to plans when 

making DME choices; if plans wish to 

offer multiple brands of DME in a 

category, this provision would in no 

way prohibit this. As we also stated in 

the proposed rule, we believe this 

additional flexibility may permit MA 

organizations to negotiate bulk 

discounts with preferred manufacturers. 

Comment: Several commenters 

pointed out that cost savings was the 

only reason mentioned in the proposed 

rule to allow plans the right to limit 

furnishing DME to specific brands and 

manufacturers. Another commenter 

mentioned an MA plan that is currently 

selecting manufacturers and brands of 

diabetic supplies, based on consultation 

with clinicians and, consequently, is 

able to offer products at zero costsharing to its enrollees. 

Response: We agree that a variety of 

factors—including cost, access, diverse 

patient needs, convenience, and 

medical necessity—should be part of 

benefit considerations and overall plan 

design. We believe the beneficiary 

protections we have specified 

concerning enrollee access to all 

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2See http://www.epa.gov/ppcp for information 

about Pharmaceuticals and Personal Care Products 

as Pollutants (PPCPs) on the Web site of the U.S. 

Environmental Protection Agency. 

categories of DME will help ensure that 

cost is not the sole driving factor of a 

plan’s DME choices. In addition, we 

believe that quality requirements, a 

robust appeals process, and plan 

oversight are important factors in 

ensuring that enrollees have continued 

access to necessary DME. 

Comment: Several commenters 

requested that if an individual requires 

multiple DME brands, items, or supplies 

and one brand, item, or supply that he 

or she requires is only available through 

a supplier of brands, items, and supplies 

from non-preferred manufacturers, the 

individual should be allowed to obtain 

all the medically-necessary brands, 

items, and supplies from the nonpreferred manufacturer. This would 

promote efficiency and ease of obtaining 

brands, items, and supplies. 

Response: The implication of this 

comment is that it is inconvenient for 

the enrollee to have to purchase brands, 

items, and supplies from multiple 

suppliers. We do not agree. 

Furthermore, since MA organizations 

contract with suppliers, they can 

communicate in advance the brands and 

manufacturers that are preferred and 

nonpreferred so that suppliers can stock 

up on these. 

Based on our review of public 

comments, we are finalizing our 

proposed provisions with the 

modifications previously discussed. 

5. Broker and Agent Requirements 

(§ 422.2274 and § 423.2274) 

Regulations setting forth rules for 

agent and broker compensation 

promulgated in our November 10, 2008 

interim final rule with comment (73 FR 

67406 through 67414) required MA 

organizations and Part D plan sponsors 

(‘‘plan sponsors’’) to submit historical 

agent/broker compensation data from 

years 2006 and 2007. In addition, we 

requested that plan sponsors submit 

information in 2008 that would indicate 

their 2009 compensation schedules for 

agents selling Medicare health plans on 

their behalf. We conducted an analysis 

of the historical compensation 

information submitted by plan sponsors 

and published fair market value cut-off 

(FMV) amounts during the spring of 

2009. Later that year, plan sponsors 

were given the opportunity to adjust 

their compensation amounts to any 

amount at or below the FMV. These 

adjusted 2009 amounts became the 

baseline amount for compensation 

adjustments in future years. Subsequent 

to our initial compensation guidance, 

plan sponsors have expressed concerns 

about the validity of continuing to base 

future compensation on amounts which 

were selected in 2009 and based on data 

from 2006 and 2007. 

We have also heard that current 

economic conditions have drastically 

changed local markets such that, even as 

adjusted, the 2009 compensation 

amounts do not accurately reflect the 

current market rates. We have been 

advised by plan sponsors that have been 

in the market since 2009 that they are 

at a competitive disadvantage as 

compared to newly entering plans as the 

new entrants may set compensation at 

current-day FMV rates and are not tied 

to 2009 compensation amounts. 

Therefore, we proposed to modify 

paragraph (a) and add a new paragraph 

(f) to § 422.2274 and § 423.2274 to allow 

plan sponsors to annually select their 

compensation amounts to reflect rates 

which are at or below FMV as annually 

established by CMS. Under these 

proposed changes, plan sponsors would 

also be required to report their 

intentions to use independent agents 

and/or brokers in the upcoming plan 

year, along with the amounts that they 

will be paid, if applicable. 

Comment: Many commenters 

expressed support for the proposal to 

allow sponsors to annually select agent/ 

broker compensation amounts which 

reflect rates at or below the CMS 

established FMV. 

Response: We appreciate the many 

comments received in support of this 

provision. 

Comment: A commenter asked 

whether this provision applies to 

section 1876 cost plans. 

Response: This provision does apply 

to section 1876 cost plans pursuant to 

§ 417.428, Marketing Activities, which 

states that the marketing regulations 

found in subpart V of part 422, which 

include this specific requirement, apply 

to section 1876 cost plans. 

Comment: A commenter expressed a 

concern that the compensation 

regulations were driving agents/brokers 

away from MA and encouraging them to 

sell Medigap. 

Response: We appreciate the 

comment and will consider it as we 

continue to refine and improve our 

managed care programs. However, this 

comment is beyond the scope of these 

regulations. 

Comment: Several commenters 

expressed a concern that CMS should be 

evaluating its current marketing rules 

against the Affordable Care Act and 

considering the impacts. 

Response: We appreciate the 

comment and will consider it as we 

implement the provisions under the 

Affordable Care Act. However, these 

comments are beyond the scope of this 

regulation. 

After consideration of the public 

comments received, we are finalizing 

the provision without modification. 

6. Establishment and Application of 

Daily Cost-Sharing Rate as Part of Drug 

Utilization Management and Fraud, 

Abuse and Waste Control Program 

(§ 423.100, § 423.104, and § 423.153) 

Pursuant to our authority under 

section 1860D–4(c) of the Act, which 

requires PDP sponsors to have costeffective drug utilization management 

and a fraud, abuse, and waste control 

program in place, we proposed that 

Medicare Part D sponsors be required to 

provide their enrollees access to a daily 

cost-sharing rate for prescriptions 

dispensed by a network pharmacy for 

less than a 30 days’ supply of certain 

covered Part D drugs that: (1) Are for an 

initial fill of a new medication; (2) are 

intended to allow the enrollee to 

synchronize refill dates of multiple 

drugs; or (3) are dispensed in 

accordance with § 423.154 (which sets 

forth the requirements placed on Part D 

sponsors with respect to dispensing of 

prescription drugs in long-term care 

facilities beginning January 1, 2013). 

As we explained in the proposed rule, 

current prescribing patterns and 

pharmacy benefit management (PBM) 

payment practices result in most 

prescriptions being written by 

providers, and dispensed by retail 

pharmacies, in 30-or-more days 

quantities. When the full amount 

dispensed is not utilized by a 

beneficiary due to adverse medication 

reaction or interaction, or due to failure 

of beneficiary therapeutic adherence 

because of cost, inconvenience, death, 

or other reason for discontinuation, it 

comes at an unnecessary and wasteful 

cost to the beneficiary, the Medicare 

program, Part D sponsors, and the 

environment. 

We believe that if Part D enrollees and 

their prescribers had the option of 

shorter days’ supplies of initial fills of 

new prescriptions, without the 

disincentive of the enrollee having to 

pay a full month’s (or longer) 

copayment or coinsurance, a significant 

portion of the current costs to the 

program of chronic medications 

discontinued after initial fills could be 

avoided. In addition, the avoidance of 

unused drugs would contribute to 

diminishing the environmental issues 2

caused by disposal of unused 

medications, and opportunities for 

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3See Office of National Drug Control Policy, 2008 

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

2009 National Drug Survey on Drug Use and Health 

(NSDUH), September 2010, for more information on 

the growing problem of nonmedical use of 

prescription drugs in the United States, particularly 

among teenagers. See also http:// 

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

information from the Drug Enforcement 

Administration about the problems associated with 

drug abuse resulting from legitimately made 

controlled substances being diverted from their 

lawful purpose into illicit drug traffic. 

criminal activities and substance abuse 3

caused by diversion of unused 

medications, all of which are growing 

concerns in the United States. 

We observed that, currently, Part D 

enrollees’ cost-sharing generally is the 

same whether they receive a 7, 14, or 30 

days’ supply of a medication. A daily 

cost-sharing rate requirement imposed 

on Part D sponsors would encourage 

enrollees and their prescribers to limit 

days’ supplies, when appropriate, by 

reducing the enrollees’ out-of-pocket 

costs. More specifically, under our 

proposal, Part D sponsors would be 

required to establish and apply a daily 

cost-sharing rate, such that an enrollee 

requesting a trial fill of a prescription 

for a new chronic medication, for 

example, would pay only a portion of 

the established cost-sharing amount 

under his or her Part D benefit plan that 

corresponds to the actual number of 

days supply that was dispensed. This 

would be the case whether it was for a 

7- or 14-days’ supply, or some other 

quantity less than 30 days, and this 

decision would primarily be at the 

discretion of the prescriber. Thus, 

although a daily cost-sharing rate 

requirement would be mandatory for 

Part D sponsors, actually taking 

advantage of it would be voluntary for 

enrollees and their prescribers. Neither 

sponsors nor the Federal government 

would determine whether a beneficiary 

should receive less than a month’s 

supply of a new medication. Rather, 

such a decision should be made solely 

by the beneficiary and his or her 

prescriber. 

Through the establishment and 

application of a daily cost-sharing rate 

requirement on Part D sponsors, we 

believe an enrollee would be especially 

incentivized to inquire of his or her 

prescriber whether a fill of less than a 

month’s supply would be appropriate 

when first prescribed a chronic 

medication. We also believe enrollees 

would be most likely to inquire about 

such a trial fill when faced with high 

cost-sharing for such a medication, due 

to the expense of the drug, such as when 

purchasing a drug in the deductible 

phase of the benefit or in the coverage 

gap. We further believe prescribers 

would be most likely to concur as to the 

appropriateness of a trial fill when the 

prescription is for a drug that has 

significant side effects and/or is 

frequently poorly tolerated. 

In such a case, we suggested that the 

prescriber could write either one 

prescription for the initial fill at the 

prescriber’s discretion, or two 

prescriptions (for example, one for an 

initial fill and a second prescription for 

a 30 or 90 days’ supply; the latter 

prescription would be utilized if the 

enrollee and the prescriber agreed the 

drug therapy should be continued after 

the trial period). Because the two 

prescriptions could be written during 

one office visit, or could be refilled by 

the prescriber directly with the 

beneficiary’s pharmacy after the trial 

period, as permitted by applicable law, 

additional visits to the prescriber would 

not necessarily be required and would 

not need to cause a burden to the 

beneficiary. We assumed the twoprescriptions option would be most 

convenient for the beneficiary and the 

prescriber (when appropriate), but 

sought specific comment on this 

assumption. If a beneficiary would have 

difficulty returning to the pharmacy, 

presumably he or she would not inquire 

about a trial fill. Furthermore, since 

prescribers would determine whether or 

not medication being prescribed should 

or could be dispensed in a trial fill, we 

stated that we would not expect our 

proposal to have any adverse effects on 

beneficiaries’ health. However, if the 

medication were discontinued after use 

of the initial fill, the enrollee, as well as 

the sponsor, would have avoided the net 

costs associated with the unused 

quantity that would be dispensed under 

current standard practices. 

While we envisioned, as described 

previously, beneficiaries primarily 

requesting less than a full month’s 

supply when prescribed a drug for the 

first time for a chronic condition that is 

known to have significant side effects, 

to be frequently poorly tolerated and 

expensive, we did not limit the 

requirement for Part D sponsors to 

establish and apply a daily cost-sharing 

rate to such medications. Rather, in the 

proposed rule, we also identified an 

additional benefit of a daily cost-sharing 

rate requirement, which is the ability to 

allow for synchronization of 

prescriptions. The ability to synchronize 

medications should assist beneficiaries 

in adhering to prescription treatment 

regimens that involve multiple 

medications, and we noted that at least 

one study supports this belief. In 

addition, we believe the ability to 

synchronize medications will be 

convenient for both those beneficiaries 

who take advantage of it and their 

prescribers by enabling fewer trips to 

the pharmacy and fewer prescription 

refill requests of prescribers from 

beneficiaries through the ability to 

consolidate pharmacy trips and 

prescriber office visits and phone calls. 

We also stated that daily cost-sharing 

rates also may permit pharmacies, as 

opposed to prescribers, to facilitate 

synchronization of a beneficiary’s 

medications upon his or her request, 

and we sought specific comment as to 

this possibility, as well as to any issues 

we may need to address to facilitate this 

possibility. 

We noted in the proposed rule that we 

do not expect long-term care (LTC) 

beneficiaries to request to synchronize 

medications, as this was not our 

understanding of the LTC environment 

with respect to prescribing, and the LTC 

dispensing rules at § 423.154 require 14 

days or less dispensing in LTC facilities 

in certain instances, beginning January 

1, 2013. However, as noted in the April 

2011 final rule (76 FR 21432), we 

expected the LTC dispensing 

requirements ‘‘would likely lead to a 

change in copayment methodology 

* * * [and] anticipate[d] the 

implementation of particular copayment 

methodologies will be dependent on the 

billing and dispensing methodologies 

used, and as a result * * * copayment 

methodologies within the same plan 

may vary depending on the LTC facility 

where the beneficiary resides. 

Copayment may be collected at the first 

dispensing event in a month, the last 

dispensing event in a month, or 

prorated based on the number of days a 

Part D drug was dispensed in a month. 

However, due to the relatively small 

copayments for low-income subsidy 

(LIS) beneficiaries, copayments for LIS 

beneficiaries should be billed with the 

first or last dispensing event of the 

month.’’ Because Part D sponsors would 

have to address copayment 

methodology in connection with the 

LTC dispensing requirements, we 

proposed to supersede our quoted 

guidance in the April 2011 final rule (76 

FR 21432), and thus proposed that the 

daily cost-sharing rate requirement 

would apply to prescriptions dispensed 

in LTC facilities, beginning January 1, 

2013. 

In the proposed rule, we urged the 

industry to develop coding to be used 

by network pharmacies to communicate 

to sponsors whether a less than month’s 

fill is to align refill dates, or for that 

matter, is an initial fill of a new 

medication, or in the case of the LTC 

setting, is to communicate the 

dispensing methodology employed. We 

stated such coding would allow 

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sponsors to be able to monitor the 

prevalence and appropriateness of the 

dispensing of prescriptions in shorter 

than a month’s supply to ensure that a 

pharmacy does not dispense a 

prescription for 30 days’ supply in 

stages in order to increase dispensing 

fees. 

We recognized in the proposed rule 

that establishing and applying a daily 

cost-sharing rate to the already small 

copayments for LIS beneficiaries would 

cause such copayments to be the same 

or even smaller. We also stated that, 

while there may be additional waste 

generated by multiple fills when 

medications are continued or 

synchronized (for example, more plastic 

bottles and paper inserts, additional 

trips to pharmacies), the harmful effects 

on the environment from unused drugs, 

particularly the biological implications, 

likely have a much greater impact on 

the environment than additional 

recyclables. 

We acknowledged in the proposed 

rule that realized savings from our daily 

cost-sharing rate proposal may be partly 

offset by additional dispensing fees, and 

that Part D sponsors would also incur 

some costs to program their systems to 

establish and apply a daily cost-sharing 

rate to prescriptions dispensed to 

enrollees for less than a 30 days’ supply. 

We cited in the proposed rule a 

previous review of 2009 PDE data by us 

that suggested that just under 32 percent 

of approximately 78.6 million first fills 

for chronic medications are not refilled 

by Medicare Part D enrollees. We 

assumed for purposes of estimating 

savings to the Part D program that the 

lack of refills indicates the prescribed 

medications were discontinued. The 

estimated total cost of these 

discontinued medications was 

approximately $1.6 billion (70 percent 

for brands and 30 percent for generics). 

However, since this review did not 

distinguish between community and 

institutional settings, to estimate the 

costs of discontinued medications in 

community settings only, we reduced 

the total costs by approximately 13 

percent in accordance with CMS data on 

gross drug costs in the Part D program 

in 2009 in the community and 

institutional settings to remove a 

proportion representing long-term care 

expenses. (We did not estimate the costs 

of discontinued medications in the LTC 

environment since the daily costsharing rate requirement proposed here 

does not further change the dispensing 

requirements in the long-term care 

setting, which are applicable January 1, 

2013). Consequently, we arrived at an 

adjusted total estimated cost of 2009 

community-based discontinued first 

fills of maintenance chronic 

medications was estimated at roughly 

$1.4 billion. 

As noted previously and in the 

proposed rule, potential savings of a 

daily cost-sharing requirement on Part D 

sponsors would come from a reduction 

of these costs which would be offset by 

some additional dispensing fees. In 

order to estimate the savings, we made 

assumptions about how many initial 

fills for new maintenance medications 

for chronic conditions will be dispensed 

in quantities of less than a 30 days’ 

supply, and what the average quantity 

of such initial fills will be. We pointed 

out that these assumptions were highly 

uncertain, because it is very difficult to 

predict beneficiaries’ behavioral 

response. Having noted this caveat, we 

assumed 20 percent of initial fills in 

2013 will be for a supply of less than 30 

days, trending to almost 50 percent by 

2018, and that the average of such fills 

will be for a 15 days’ supply. We also 

applied a dispensing fee rate of 

approximately $2 in our estimation. 

Assuming 32 percent of these first fills 

are discontinued, we estimated the 

potential savings to the Part D program 

to be $140 million in FY 2013 alone, 

and over $2.4 billion total by 2018. 

However, because we are revising the 

applicable date of this requirement to 

January 1, 2014, as explained later in 

this final rule with comment period, we 

are revising the cumulative savings in 

2018 to roughly $1.8 billion. 

We noted in the proposed rule that we 

considered proposing a requirement 

similar to the Fifteen Day Initial Script 

program introduced in Maine in the 

summer of 2009. In this program, 

specific medications that were 

identified by the MaineCare program 

with high side effect profiles, high 

discontinuation rates, or frequent dose 

adjustments, were phased in by class 

and required to be dispensed in a 15- 

day initial script to ensure cost 

effectiveness without wasting or 

discarding of dispensed, but unused, 

medications. We have learned through 

representatives of the program that 

MaineCare has achieved overall savings 

for 2 consecutive State fiscal years with 

respect to both brand and generic drugs 

through this program, despite the 

additional dispensing fees. The 

representatives have also reported that 

there has been very good acceptance of 

the program and very little confusion 

upon implementation. While we 

acknowledged the savings benefits of 

the mandatory MaineCare approach, we 

stated that leaving the decision to obtain 

less than a month’s supply of a 

prescription with the beneficiary and 

his or her prescriber and pharmacist is 

a better approach in light of the 

voluntary nature of the Medicare Part D 

program. 

We recognized in the proposed rule 

that certain medications are universally 

accepted in the health care community 

as not suitable to be dispensed in 

amounts less than a 30 days’ supply (for 

example, lotions and other drugs not in 

solid form). Therefore, we proposed to 

further limit the requirement that 

sponsors establish and apply a daily 

cost-sharing rate to solid oral doses of 

drugs, except antibiotics or drugs which 

are dispensed in their original 

containers as indicated in the Food and 

Drug Administration Prescribing 

Information or are customarily 

dispensed in their original packaging to 

assist patients with compliance (for 

example, steroid dose packs). However, 

unlike the long-term care dispensing 

requirements, we proposed that the 

daily cost-sharing rate requirement 

would apply to both brand and generic 

drugs. 

Comment: Some commenters were 

strongly supportive of our proposal, 

recognizing as we do that, for Part D 

plans that use a copayment structure, 

there is currently no direct cost 

incentive for enrollees to obtain a less 

than 30 days’ supply, and lauding the 

potential cost-savings to enrollees and 

the reductions of waste as a result of our 

proposal. A commenter fully endorsed 

our proposal, stating that its data led to 

the MaineCare program, and that after 

significant effort was put into 

addressing initial prescriber confusion, 

there were virtually no complaints by 

either prescribers or patients. This 

commenter disagreed, however, that a 

voluntary approach is the preferred 

method, asserting that clinical inertia 

for continuation of past prescribing 

habits and practices may erode our 

expectations on savings. A commenter 

estimated that our proposal could 

eliminate 1.5 billion pounds of 

pharmaceutical waste at its source (the 

preferred method for improving 

environmental health) and $1 million in 

waste management cost savings, in 

addition to improving dispensing 

efficiencies in terms of time spent. A 

commenter asserted that an analysis of 

our proposal regarding the harmful 

effects on the environment should 

include recognition that humans are 

part of the environment and are 

adversely affected by the diversion, 

misuse, and abuse of unused drugs. 

Response: We appreciate these 

supportive comments and estimates and 

agree that a daily cost-sharing 

requirement will lead to significant costsavings and waste reduction in the Part 

D program. We have taken the 

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comments on prescriber education 

under advisement, but we continue to 

believe that the voluntary method is the 

best way to approach less-than-30-days’ 

supply dispensing outside the LTC 

setting in the Part D program, although 

we acknowledge our opinion could 

change after experience with the 

voluntary method. We agree that 

reducing medication waste will reduce 

opportunities for medications to be 

diverted for misuse and abuse. 

Comment: Some commenters stated 

that we should complete a more 

thorough, and prospective assessment of 

the potential impact of our proposal to 

understand the tradeoffs and 

implications before we proceed with it. 

Several commenters, while supporting 

our proposal’s goal to reduce cost and 

waste, countered that it would increase 

dispensing fees and administrative and 

programming costs, some suggesting 

that these fees/costs would completely 

or more than offset any realized savings 

from the proposal. Another commenter 

stated that calculating the daily costsharing rate for each enrollee is 

tremendously burdensome by 

necessitating system changes at a 

substantial cost, stating that the 

administrative costs to Part D sponsors 

are the same regardless of whether the 

prescriber writes a prescription for a 

trial fill or a 30 days’ fill, such that 

administering a trial fill differently than 

a complete fill will double the cost to 

Part D sponsors. 

Response: We believe that we have 

sufficiently accounted for the tradeoffs 

and implications of the potential impact 

of our requirement, both in the 

proposed rule and in this final rule with 

comment period. In the preamble and 

the Regulatory Impact Analysis section 

of the proposed rule and this final rule 

with comment period, we specifically 

accounted for the additional dispensing 

fees, as well as the administrative and 

programming costs that we believe Part 

D sponsors will incur in implementing 

this requirement. Despite these costs, 

we continue to estimate savings in the 

hundreds of millions each year to the 

Part D program. 

Comment: Some commenters, while 

also supportive our of proposal’s goal to 

reduce fraud, waste and abuse in the 

Medicare Part D program, raised various 

operational concerns in implementing 

the proposal and requested a delay or 

phased-in approach. A commenter 

requested more clarification of what 

constitutes a trial fill. Some commenters 

recommended that we simplify our 

proposal by requiring the application of 

the daily cost-sharing rate whenever less 

than a month’s supply of a covered Part 

D drug is dispensed (unless an 

exception applies due to the type of 

drug involved), regardless of the reason, 

which would obviate the need to 

document the reason. Some commenters 

stated that applicable law permits 

pharmacists to dispense lesser 

quantities than written on certain 

prescription. Other commenters 

indicated that standard identifiers/fields 

would be needed for physicians, 

pharmacies, and plans to communicate 

regarding initial fills of new 

medications, beneficiary 

synchronization request and daily costsharing amounts. Some commenters 

pointed out that pharmacies have no 

reliable way to learn that a prescription 

is an initial trial supply of a new 

medication, since such information is 

not routinely conveyed on a 

prescription, and pharmacies would not 

be in a position to notify sponsors of 

this fact, even if coding were available. 

Another commenter believed that 

having to capture information from 

enrollees could be difficult to reliably 

implement. Some commenters thought 

that our proposal would result in more 

frequent ‘‘refill too soon’’ DUR edits, 

including additional PDEs identified as 

duplicate, requiring review and 

justifications, which would result in 

greater workload for Part D plans. 

Commenters also noted that daily costsharing is not an industry standard in 

prescription drug coverage, and 

complications could arise in 

coordinating benefits with other 

prescription drug plans, such as in the 

case of Employer Group Waiver Plans 

(EGWPs). A commenter stated that our 

proposal may result in multiple prior 

authorizations for the same medication. 

A commenter noted that our proposal 

may complicate partial fill straddle 

claims and have PDE and TrOOP 

implications. A few of these 

commenters noted that lessons may be 

learned from implementation of the 

long-term care dispensing requirements 

at § 423.154, which are effective January 

1, 2013. 

Response: We were persuaded by 

these commenters that more time is 

needed for Part D sponsors, PBMs, their 

network pharmacies, and industry 

standard development organizations to 

work through the details of 

implementation of our requirement. We 

believe that proper programming will be 

crucial to address the technical issues 

that the commenters referenced, such as 

how to calculate cost-sharing when 

multiple payers are involved. For these 

reasons, we have delayed 

implementation of the daily cost-sharing 

rate requirement until January 1, 2014. 

In addition, we will work with the 

industry to develop subregulatory 

guidance, if and as needed, to address 

technical questions arising upon 

implementation of the requirements, 

such as the implications for PDE 

submissions. 

However, to the extent Part D 

sponsors wish to implement daily costsharing rates for contract year 2013, they 

may do so on a voluntary basis before 

then, for instance, if such 

implementation would assist them in 

complying with the LTC dispensing 

requirements, rather than waiting for 

any lessons that may be learned from 

such implementation, since Part D 

sponsors will have to address costsharing with respect to LTC dispensing 

in 2013. 

In deciding to delay implementation 

of these requirements for 1 year, we 

were also persuaded by comments that 

we should simplify our requirement and 

apply it to all drugs dispensed for less 

than a month’s supply. Without this 

simplification of the requirement, we 

agree that extraordinary processes 

would have to be created to obtain 

information about the reasons less than 

a month’s supply is being dispensed. 

For instance, the parties involved in the 

prescription transaction (for example, 

health plans, PBMs and pharmacies) 

may not know when a prescription is an 

initial fill of a new medication, and this 

information is not necessarily readily 

available from the beneficiary or 

physician, whereas the days’ supply is 

available from the prescription. 

Therefore, we are revising our 

requirement such that Medicare Part D 

sponsors will be required to provide 

their enrollees access to a daily costsharing rate for prescriptions dispensed 

by a network pharmacy for less than a 

30-days’ supply of covered Part D drugs 

(unless an exception applies due to the 

type of drug involved) regardless of the 

reason the prescriptions are so 

dispensed. This will obviate the need 

for health plans, PBMs, pharmacies, 

physicians, and beneficiaries to 

communicate the reasons for the lessthan-30-day supply, and also make it 

unnecessary to specifically define ‘‘trial 

fill.’’ This revision also takes into 

account our understanding that 

pharmacists, under applicable law, can 

currently dispense a smaller quantity 

than is written on certain prescriptions 

at a customer’s request, and thus there 

may occasionally be other reasons for 

less than a month’s supply to be 

dispensed than the three reasons we 

identified in the proposed rule. To be 

clear, the industry can still decide to 

develop coding in order to best manage 

these transactions, but none is required 

by this final rule with comment period. 

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Comment: A few commenters 

suggested we adopt a ‘‘copayment by 

days’ supply’’ structure with respect to 

plans that have a copayment structure, 

whereby Part D enrollees would be 

charged a set copayment amount based 

on a range of days dispensed, for 

example, a $10 copayment for 1–10 

days, and a $20 copayment for 11–20 

days and so on. These commenters 

asserted that, for a variety of reasons, 

this structure would be simpler to 

implement, including: (1) It would 

dovetail with the LTC dispensing 

requirements at § 423.154; (2) it would 

not require the maintenance of an 

exception drug list; and (3) it would 

enable Part D plans to more accurately 

model and predict drug costs. 

Response: We decline to revise our 

requirement in the manner suggested by 

the commenters. We do not believe it 

would necessarily dovetail better with 

the LTC dispensing requirements than 

our requirement, as those requirements 

require the implementation of 14 days’ 

supply or less dispensing, and thus 

under the commenters’ suggested 

approach, copayments in an LTC facility 

could still vary. In addition, we do not 

believe our requirement will necessitate 

an exception drug list, as we discuss 

later in this section. Finally, we believe 

that creating additional multiple ‘‘copay 

tiers’’ based on the days’ supply 

dispensed, as suggested, would 

significantly increase beneficiary 

confusion in evaluating benefit 

packages, which already contain 

copayment tiers based on the type of 

drug. 

Comment: Some commenters stated 

that Part D sponsor and network 

pharmacy interests should be aligned in 

terms of quality of patient care, 

reduction of waste and the associated 

savings with our proposal, such that the 

stakeholders should be able to work 

together to ensure that certain 

pharmacies do not game our proposal. 

Other commenters stated that 

pharmacies may dispense a prescription 

in multiple stages, even when it is not 

so prescribed, to generate additional 

dispensing fees, and that the net value 

of any anticipated offsets should 

include such manipulation. 

Response: The proposed rule 

recognized the possibility of 

manipulation by network pharmacies to 

increase dispensing fees, and as noted 

previously, we urged the industry to 

develop appropriate coding so that the 

pharmacies could communicate the 

reason for dispensing less than a 

month’s supply, even though the reason 

is not required under our revised, 

simplified requirement, as described 

previously. Although we will not 

mandate such coding, we do not think 

it would be unreasonable for sponsors to 

ask pharmacies to attest as to why a 

prescription was dispensed for less than 

a month’s supply. We would also expect 

that sponsors will implement 

contractual terms and auditing and 

other internal controls to detect and 

prevent fraud, waste, and abuse and to 

ensure that pharmacies are not 

inappropriately splitting prescriptions 

to increase dispensing fees, and thus 

costs to beneficiaries and the program. 

We further note that if pharmacies 

dispense prescriptions in stages merely 

in order to increase dispensing fees, 

they would have to have the 

cooperation of the affected beneficiaries, 

and we do not anticipate beneficiaries 

desiring less than a month’s supply of 

a medication, absent the 

recommendation of their physicians, to 

any significant degree, particularly 

given the potential inconvenience 

involved. Additionally, engaging in this 

activity may constitute fraud by the 

network pharmacy against the Part D 

sponsors involved and the Federal 

government, and we would expect 

sponsors to take action appropriate 

against such activity, such as 

terminating the pharmacy from its 

network. Consequently, we agree with 

the commenter that stakeholders’ 

interests should be aligned under our 

requirement, and we do not agree that 

potential additional dispensing fees 

would completely or even significantly 

offset potential savings associated with 

this requirement. 

Comment: A commenter stated that 

the purpose of cost-sharing obligations 

is to provide beneficiaries with a 

financial connection with the health 

care service they receive, which assists 

in countering potential overutilization, 

and implied that reduced cost-sharing 

would be less effective in this regard. 

Response: While we agree that costsharing obligations create a financial 

connection between beneficiaries and 

the health care services they receive, we 

disagree that our requirement would 

engender overutilization. On the 

contrary, under our requirement as 

revised, a beneficiary will pay the same 

cost-sharing for a month’s supply of 

medication dispensed in multiple stages 

that the beneficiary would otherwise 

pay. 

Comment: Other commenters were 

concerned that Part D enrollees would 

be incentivized to obtain a lesser 

quantity of a medication than written by 

their physicians at the pharmacy 

counter in cases where the physician 

would not want the enrollee to take the 

medication on a trial basis, which 

would negatively affect the beneficiary’s 

medication adherence. A commenter 

acknowledged that plans that utilize 

coinsurance structures already 

accommodate the concept of assessing a 

lower cost share when less than a 

month’s supply is dispensed, and did 

not indicate that this causes problems 

with adherence today. 

Response: We are unclear what 

scenario the commenter is envisioning, 

but we presume it to be that a 

beneficiary who currently takes a 

medication will begin to take less 

because he or she will be able to pay 

lower cost-sharing for less than a 

month’s supply. We do not believe our 

requirement would cause more 

instances of this scenario than currently 

may be the case. As noted previously, it 

is our understanding that, if permitted 

under applicable law, pharmacists 

currently may dispense a lesser quantity 

than prescribed at a customer’s request, 

and we are not aware that this 

possibility negatively affects medication 

adherence today. In contrast to lower 

cost-sharing incentivizing beneficiaries 

to take less medication than they 

already do, we think lower cost-sharing 

is just as likely, if not more likely, to 

incentivize beneficiaries to begin taking 

medications they have avoided 

altogether due to cost-sharing. 

Comment: A commenter stated that 

physicians are currently allowed to 

write prescriptions for a less than a 

month’s supply, and that reducing Part 

D enrollees’ copayments for such 

prescriptions will not incentivize 

physicians to do so more frequently. 

Response: As noted previously, our 

requirement is directed at incentivizing 

beneficiaries, who actually pay the costsharing, to consider along with their 

prescribers, whether a less-than-30- 

days’ supply of a new medication would 

be appropriate. Indeed, we believe that 

prescribers are generally unaware of the 

copayments that their patients pay for 

prescriptions. To the extent that 

prescribers are aware of cost-sharing 

today, we would argue that prescribing 

patterns are currently influenced by the 

inflexible cost-sharing arrangements in 

prescription drug plans today, so it 

would not make sense for prescribers to 

write for shorter days’ supplies if the 

industry standard is to charge a whole 

month’s cost-sharing. 

Comment: A commenter noted that 

Part D plans currently have in place 

member-friendly provisions that permit 

members to pay the lesser of the 

copayment amount or the cost of the 

particular Part D covered drug. 

Accordingly, if a prescriber were to 

write a prescription for a less than a 

month’s supply and the total cost were 

less than the member’s copayment, the 

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member would only be responsible for 

the lesser amount. The commenter 

asserted such provisions are a more 

appropriate way to ensure that members 

receive the benefit of a less than a 

month’s supply option without 

increasing administrative burden to 

plans. 

Response: We see these policies as 

complementary, not alternatives. We 

believe the lesser of copayment or cost 

will generally result in lower costsharing than monthly copayments for 

relatively less expensive drugs. 

Comment: A commenter requested 

clarification on support in member 

documents, assuming that Plan Finder, 

Evidence of Coverage, and Summary of 

Benefits, would not include detailed 

information on daily cost-sharing rates, 

since they are not the norm. 

Response: We intend to include 

language in future Medicare & You and 

the Part D Evidence of Coverage (EOC) 

documents on availability of daily costsharing rates and on when beneficiaries 

should consider taking advantage of 

them. We are currently reviewing the 

level of detail that we think is 

appropriate to be included in 

Summaries of Benefits, as daily costsharing rates are optional for the 

beneficiary under this requirement. At 

this point, we do not think that Plan 

Finder needs to add this level of 

complexity, since its purpose is to help 

beneficiaries compare costs of their 

current medications in different plans— 

not to price shortened days’ supplies of 

new prescriptions. 

Comment: A commenter was 

concerned that the proposal would be 

very confusing to beneficiaries, and that 

it is predicated on the belief that 

prescribers have actual knowledge if 

patients fill or refill prescriptions, and 

that there is an opportunity for these 

parties to have meaningful 

conversations about a medication’s 

relative cost. 

Response: As we noted in the 

preamble to the proposed rule, the 

decision to try a medication for less 

than a month’s supply would generally 

be made by the Medicare Part D enrollee 

and his or her prescriber, and if an 

enrollee would have difficulty returning 

to the pharmacy, or even broaching the 

subject with his or her prescriber, then 

we believe he or she would not seek to 

obtain a smaller supply of a medication. 

Comment: Some commenters believed 

our proposal would result in better 

adherence, specifically referencing that 

our proposal would greatly facilitate 

current efforts by community 

pharmacists to achieve better adherence 

through refill synchronization. Other 

commenters believed that medication 

adherence would be negatively affected 

if Part D enrollees did not return to the 

pharmacy to pick up the next supply of 

a medication, when it was determined 

by their prescriber that the medication 

should be continued after an initial trial 

fill, for example. A commenter stated 

that our proposal seems to run counter 

to using adherence rates as a 5-star 

metric to measure the quality of a plan’s 

clinical services, and that there is data 

in the literature that shows patients may 

not return to the pharmacy to fill the 

remainder of a prescription under 

circumstances envisioned by our 

proposal. 

Response: We were persuaded by the 

comments that our requirement would 

assist pharmacists in synchronizing Part 

D medication refill dates. Also, as noted 

previously, the policy behind our 

requirement is to incentivize the 

appropriate elimination of unused 

medication that our data shows is 

already present in the Part D program. 

That is, a certain percentage of initial 

fills of maintenance medications for 

chronic conditions are not refilled by 

enrollees, and this indicates that the 

medications were not effective, 

tolerated, or continued, for whatever 

reason, and therefore presumably, a 

portion of the initial supply was not 

used, either. The commenter did not 

specify the referenced literature, so we 

are unable to review it, and we would 

note that, since daily cost-sharing rates 

are not the current industry standard, 

we are unclear on what data the 

literature would be based. We address 

star ratings later in this section. 

Comment: A commenter stated that 

the prescriber writing two prescriptions 

is the method generally employed by 

community pharmacists to assist 

patients in synchronizing the refill dates 

of multiple prescriptions and would 

work for trial fills, as well. 

Response: We appreciate the 

confirmation that this practice is already 

familiar to many prescribers and 

pharmacies. 

Comment: A commenter disputed that 

many beneficiaries would be willing to 

undertake the analysis necessary to 

synchronize multiple prescriptions and 

coordinate with their prescribers’ 

offices. Another commenter stated that 

beneficiaries can currently synchronize 

multiple medications over months, and 

that allowing refill-too-soon edits to be 

overridden could contribute to fraud, 

waste, and abuse. Another commenter 

requested additional clarification from 

CMS in terms of medications that 

beneficiaries are permitted to 

synchronize, how many times this may 

occur per year, what documentation 

would be needed, and what safeguards 

plans may implement at point-of-sale to 

review such claims for fraud, waste, and 

abuse issues, etc. 

Response: Our proposal 

acknowledged that Part D enrollees 

could take advantage of daily costsharing rates to synchronize multiple 

prescriptions on a voluntary basis, 

likely with pharmacists playing a role in 

assisting them, so we do not believe that 

our requirement should be modified 

because some enrollees will not take 

advantage of it to synchronize their 

medications. While beneficiaries may be 

able to synchronize medications 

currently, they are disincentivized from 

doing so under current cost-sharing 

structures that generally assume at least 

a month’s supply will be dispensed. 

Under our revised, simplified 

requirement, as described previously, 

Medicare Part D sponsors will be 

required to provide their enrollees 

access to a daily cost-sharing rate for 

prescriptions dispensed by a network 

pharmacy for less than a 30 days’ 

supply of covered Part D drugs (unless 

an exception applies due to the type of 

drug involved), regardless of the reason, 

unless fraud is suspected. We believe 

that beginning this requirement on 

January 1, 2014 will give sponsors 

sufficient time to appropriately program 

their systems to account for changes to 

refill-too-soon and other similar edits. 

Despite eliminating the requirement to 

apply a daily cost-sharing rate only in 

specific circumstances, such as for 

synchronization, we note that our policy 

does not prevent sponsors from 

developing coding requirements or 

other internal controls to ensure 

pharmacists are not splitting 

prescriptions to increase dispensing 

fees. 

Comment: A commenter requested 

that additional information should be 

provided on the methodology that will 

apply when prescribers take advantage 

of our proposal to synchronize the 

dispensing dates of multiple 

medications, as this would impact the 

Adherence Measure in the Patient 

Safety Reports because of the different 

dispensing dates and alterations in days’ 

supply of the medications, and classify 

a patient as not adherent, which would 

affect Star Rating Measures. 

Response: Comments about the star 

ratings are outside the scope of this 

rulemaking, but we do not believe a 

daily cost sharing rate requirement 

would have any negative impact on our 

ability to measure medication adherence 

because, for example, if a Part D 

enrollee does not return to the 

pharmacy for the second fill, he or she 

will not be captured in the measure 

calculation (which requires at least two 

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fills of a drug in the classes measured 

for adherence). Also, we account for 

multiple fills for the same drug when 

the days supply overlap. 

Comment: A commenter stated that 

our proposal should not apply to 

controlled substances because prorating 

cost-shares is not permitted. More 

specifically, this commenter stated that 

multiple prescriptions for the same 

controlled substance may not be 

permitted under state law, including 

post-dating one for future dispense, and 

that pharmacists cannot change 

quantities dispensed on prescriptions 

for controlled substances. 

Response: To the extent that 

applicable Federal and/or State law 

prohibits two prescriptions from being 

written simultaneously for the same 

medication, a prescription from being 

refilled by a physician directly with the 

pharmacy, and/or a lesser quantity than 

was prescribed from being dispensed, 

our requirement would not supersede 

such law. Therefore, we have revised 

the regulation text so that the daily costsharing rate requirement applies to a 

prescription presented by an enrollee at 

a network pharmacy for a covered Part 

D generic or brand drug that may be 

dispensed for a supply less than 30 days 

under applicable law. 

Comment: A commenter supported 

application of our proposal to LTC 

dispensing, asserting it would create 

consistency in the claims and billing 

processes, which could otherwise be 

chaotic if inconsistent approaches are 

adopted by Part D sponsors. Another 

commenter was opposed, stating strong 

concerns that LTC pharmacies would 

have to expend considerable staff time 

and cost creating paper invoices for 

extremely nominal amounts and 

collecting LIS fees, many of which go 

uncollected anyway. 

Response: As noted previously, based 

on comments received, this requirement 

will not begin until January 1, 2014. 

However, Part D sponsors can 

voluntarily choose to apply a daily costsharing rate in the LTC setting in 2013 

or not, or for that matter, in the retail 

setting or not. Beginning January 1, 

2014, under our revised, simplified 

requirement, as described previously, 

Medicare Part D sponsors will be 

required to provide their enrollees with 

access to a daily cost-sharing rate when 

the covered Part D drug may be 

dispensed by a network pharmacy for 

less than a 30 days’ supply (unless an 

exception applies due to the type of 

drug involved), regardless of the reason, 

unless fraud is suspected. Thus, there is 

no longer any reference to the LTC 

dispensing requirements in the 

regulation text. We note that, because 

Part D sponsors must offer a uniform 

benefit, we are unable to exempt Part D 

enrollees residing in LTC facilities from 

the requirement. Moreover, we agree 

with the commenter who stated that a 

consistent approach among Part D 

sponsors in the LTC setting with respect 

to cost-sharing is ideal and note that our 

requirement does not address when 

daily cost-sharing amounts would have 

to be collected from LTC beneficiaries. 

Thus, LTC pharmacies and facilities 

may implement consolidated monthly 

cost-sharing collection irrespective of 

the cost-sharing methodology assessed 

on claims. We also note that the 

majority of Part D enrollees in LTC have 

no copays. 

Comment: A commenter stated that 

LTC customers routinely request 

synchronization of patient medications 

for their residents and asked that we 

clarify that the ability to synchronize 

refills is available to LTC customers. 

Response: Under our revised, 

simplified requirement, as described 

previously, the ability to synchronize 

refills will be available in LTC settings. 

Comment: A commenter expressed 

support for LIS beneficiaries to continue 

making nominal copayments for 

prescriptions filled for less than a 

month and recommended that we 

consider capping total cost-sharing 

amounts for such beneficiaries who take 

multiple medications, since the 

combined cost of daily-cost-sharing 

could jeopardize the ability to comply 

with such prescription drugs regimens. 

Response: Under our requirement, LIS 

enrollees would not pay any more in 

cost-sharing for a month’s supply of 

medication than they would otherwise. 

However, we are revising our proposed 

definition of ‘‘daily cost-sharing rate’’ to 

make this clearer, as indicated by the 

underlining later in this final rule with 

comment period. Thus, with respect to 

copayments, ‘‘daily cost-sharing rate’’ is 

defined as ‘‘the established monthly 

copayment under the enrollee’s Part D 

plan, divided by 30 or 31 and rounded 

to the nearest lower dollar amount, if 

any, or to another amount, but in no 

event to an amount which would require 

the enrollee to pay more for a month’s 

supply of the prescription than would 

otherwise be the case.’’ We have added 

the ‘‘if any’’ language specifically in 

recognition that some daily cost-sharing 

rates may be below $1. We do not have 

authority under the statute to cap 

aggregate LIS cost-sharing, except as 

provided after the out-of-pocket 

threshold has been met. 

Comment: Some commenters 

expressed concern about the effect of 

our proposal on the already very low 

cost-sharing payments of some Part D 

enrollees. Commenters noted that, 

because many plans have cost-sharing 

on the preferred generic tier that is 

lower than the LIS brand cost-sharing, 

our proposal would cause the 

copayments of enrollees other than just 

LIS enrollees to be nominal, particularly 

with respect to generic medications, and 

with respect to some dual-eligibles, and 

the copayments might even round down 

to $0, depending upon on the days 

supply prescribed by the prescriber. 

Several commenters asserted that 

generics should be exempted from our 

proposal due to their low-cost-sharing 

and the cost associated with dispensing 

them. A commenter offered an alternate 

proposal for LIS enrollees, which was to 

require Part D sponsors to offer a 15 

days’ supply for half the normal 

copayment since dividing their already 

nominal copayments by 30 days could 

be impractical. 

Response: While we recognize that 

generics are generally associated with 

low cost-sharing, not all generics may 

be, and we believe our requirement 

should apply to all medications (unless 

an exception applies due to the type of 

drug involved). Moreover, the 

MaineCare program cited previously 

achieved savings even with the 

inclusion of generic drugs. We also 

remind stakeholders that our 

requirement applies to Part D sponsors, 

but beneficiaries are not required to 

avail themselves of this option. 

Therefore, if beneficiaries are not 

sufficiently incentivized by the lowered 

cost-sharing applicable to a less-thanmonth’s supply of medication, they 

presumably will not ask their 

prescribers to write a prescription for 

less than a month’s supply or their 

pharmacists to dispense one. Even if 

beneficiaries do ask in some instances, 

the volume of unused drugs that must 

be discarded will be reduced, even if the 

costs are not less. Nevertheless, we 

expect this requirement, even as 

revised, to be most attractive to 

enrollees when their drugs are relatively 

more expensive and for maintenance 

medications for chronic conditions. We 

do not believe that that these nominal 

cost-sharing scenarios would occur very 

often. However, recognizing that this 

requirement may result in nominal costsharing amounts for a less than month’s 

supply, or none, if Part D sponsors 

choose to round the applicable 

copayment down to $0, we have added, 

‘‘if any’’ after ‘‘rounded to the nearest 

lower dollar amount,’’ in the definition 

of ‘‘daily cost-sharing rate.’’ This change 

recognizes that, in the case of LIS 

enrollees, or other enrollees for that 

matter, there will not be a ‘‘lower dollar 

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amount’’ when making the calculation 

required by the definition if the 

‘‘established monthly copayment’’ is 

lower than the $30 to $31 range. 

Comment: A commenter stated that if 

a plan’s preferred generic cost share is 

$2, the pro-rated cost share would be 

$.46 for a 7 days’ supply of the 

medication, which would be rounded 

up to $1, so the enrollee would be 

paying half the regular cost-share for a 

1 week supply. 

Response: The commenter is not 

correct. Under our proposed definition 

of ‘‘daily cost-sharing rate,’’ as applied 

to a monthly copayment, $2 would be 

divided by 30 (or 31) and then rounded 

to the nearest lower dollar amount ($0), 

or to another amount (for example, 

$0.06), but in no event to an amount 

which would require the enrollee to pay 

more for a month’s supply than would 

otherwise be the case. In other words, 

the Part D sponsor can alternatively 

choose to round to $0.06 or $0, since 

another figure, for instance $0.07, is a 

daily cost-sharing rate (or any higher 

amount) that, when applied to a 30 

days’ supply, would cause the enrollee 

to pay $2.10 (or more) for a 30 days’ 

supply, which is not permitted under 

the proposed definition. Thus, the 

copayment for a 7-day supply in this 

example (based on 30 days being a 

month’s supply) would be $0.42 or $0. 

We note that this definition also does 

not allow for rounding to the higher 

dollar amount, as was done in the 

example given by the commenter. 

However, for further clarity, we have 

further revised the regulation text to add 

the word ‘‘lower.’’ 

Comment: Some commenters 

requested that we provide more 

rounding guidance. 

Response: We will consider 

addressing rounding in more detail in 

guidance, and we will consider 

suggestions from the industry as 

appropriate in the development of any 

such guidance. 

Comment: A commenter stated that 

including the coinsurance calculation in 

the definition of ‘‘daily cost-sharing 

rate’’ is incorrect and unnecessary, 

because a coinsurance percentage 

already applies to the allowed amount 

(for example, sum of ingredient cost, 

dispensing fee, vaccine administration 

fee, and sales tax). A commenter 

requested clarification that for drug tiers 

using coinsurance, the proposal would 

result in no change in the coinsurance 

percentage as enrollee cost-sharing 

would simply be determined via 

mathematics, as well as our 

expectations on ‘‘daily cost-sharing 

rates’’ for plan designs that include 

coinsurance with a minimum, 

maximum, or both. 

Response: We agree and have revised 

§ 423.100 and § 423.153(b) accordingly 

so that, with respect to coinsurance, 

‘‘daily cost-sharing rate’’ is defined as 

the established coinsurance percentage 

under the enrollee’s Part D plan, and so 

that it is not multiplied by the days 

supply actually dispensed. We also 

confirm that coinsurance percentages 

would not change under our 

requirement, nor would minimum or 

maximum coinsurance amounts be 

affected, if applicable to an enrollee’s 

Part D plan. 

Comment: A commenter asked for 

clarification on whether 30 or 90 days 

should be used to calculate the daily 

cost-sharing rate for copayments for Part 

D LIS enrollees. 

Response: Since a month’s supply is 

typically a 30 to 31 days’ supply, the 

proposed definition of ‘‘daily costsharing rate’’ is based on a month’s 

supply which consists of 30 or 31 days, 

regardless of whether the enrollee is an 

LIS enrollee or not. 

Comment: Several sponsors asked 

how dispensing fees would be prorated. 

Response: If the dispensing fee is 

included in the copayment, it will be 

‘‘prorated’’ by virtue of the copayment 

being divided under the calculation in 

§ 423.100 (definition of daily costsharing rate) to establish a daily costsharing rate in case of a copayment. 

With respect to coinsurance, § 423.100 

defines the daily cost-sharing rate as the 

established coinsurance percentage 

under the enrollee’s Part D plan. Thus, 

to the extent that the established 

coinsurance percentage is applied to the 

dispensing fee, the beneficiary will be 

liable for the specified coinsurance 

percentage of the dispensing fee for each 

fill. Therefore, beneficiaries may have a 

higher liability under a shorter fill for a 

given month if the beneficiary has to 

pay his/her share of a dispensing fee 

multiple times under a coinsurance 

arrangement. 

Comment: Several commenters asked 

how they should account for daily-cost 

sharing in their annual bids. 

Response: We believe that Part D 

sponsors have the requisite actuarial 

expertise to adequately estimate the 

potential effects on utilization and costs 

generated by our requirement for their 

annual bids. Previously, we stated that 

our savings assumptions were highly 

uncertain, because it is very difficult to 

predict beneficiaries’ behavioral 

response. However, we were able to 

estimate savings based on our data on 

first fills for chronic medications that 

are not refilled, removing costs 

associated with the LTC setting, and 

then making some assumptions about 

beneficiaries’ response to the daily costsharing rate requirement, while 

accounting for additional dispensing 

fees, which we described previously. 

We believe sponsors’ actuaries will 

undertake a similar analysis to account 

for the daily cost-sharing rate 

requirements in Part D plan bids. 

Comment: A few commenters 

requested that a list of drugs excepted 

from the daily cost-sharing rate 

requirement be provided by CMS or 

claims processors. 

Response: As we noted previously, we 

do not believe our requirement will 

cause the need for an exception drug 

list. The daily cost-sharing rate 

requirement would apply to solid oral 

doses of drugs that may be dispensed for 

a supply less than 30 days under 

applicable law, except antibiotics or 

drugs which are dispensed in their 

original containers as indicated in the 

Food and Drug Administration 

Prescribing Information or are 

customarily dispensed in their original 

packaging to assist patients with 

compliance (for example, steroid dose 

packs). However, unlike the long-term 

care dispensing requirements which 

apply only to brand drugs, we are 

proposing here that the daily costsharing rate requirement would apply to 

both brand and generic drugs. We 

believe the industry has the expertise to 

administer this policy without our 

assistance. 

Comment: A commenter stated that 

certain drug therapies in solid oral 

dosage forms are inappropriate for 

dispensing in less than 30 days’ 

supplies, because they take longer to be 

effective. 

Response: We believe prescribers will 

know when writing for a limited days 

supply is appropriate and will not do so 

when not clinically appropriate. 

After consideration of the public 

comments received, we are finalizing 

our daily cost-sharing rate proposal with 

the following modifications previously 

noted. Therefore, we have revised the 

definition of ‘‘daily cost-sharing rate’’ in 

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

means, as applicable, the established— 

(1) monthly copayment under the 

enrollee’s Part D plan, divided by 30 or 

31 and rounded to the nearest lower 

dollar amount, if any, or to another 

amount, but in no event to an amount 

that would require the enrollee to pay 

more for a month’s supply of the 

prescription than would otherwise be 

the case; or (2) coinsurance percentage 

under the enrollee’s Part D. 

In addition, we will revise § 423.104 

by adding a paragraph (i) to state that a 

Part D sponsor is required to provide its 

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enrollees access to a daily cost-sharing 

rate in accordance with § 423.153(b)(4). 

Section 423.153(b) currently requires a 

Part D sponsor to establish a reasonable 

and appropriate drug utilization 

management program. We will revise 

§ 423.153(b) by adding a new paragraph 

(4). Paragraph (4)(i) will require a drug 

utilization management program to 

establish and apply a daily cost-sharing 

rate to a prescription presented to a 

network pharmacy for a covered Part D 

drug that is dispensed for a supply of 

less than 30 days, and in the case of a 

monthly copayment, multiplied by the 

days supply actually dispensed. 

Paragraph (b)(4)(i)(A) would limit the 

requirement to drugs that are in the 

form of solid oral doses and may be 

dispensed for a supply less than 30 days 

under applicable law. Paragraph 

(b)(4)(i)(B) would state that the 

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

apply to antibiotics or drugs dispensed 

in their original container as indicated 

in the Food and Drug Administration 

Prescribing Information or are 

customarily dispensed in their original 

packaging to assist patients with 

compliance. 

E. Clarifying Program Requirements 

We have worked with MA 

organizations and Part D sponsors to 

implement the Medicare Advantage and 

Prescription Drug Benefit Programs 

since the inception of these programs. 

As part of this partnership, we have 

implemented operational and/or policy 

guidance via HPMS memoranda or 

manuals instruction to assist MA 

organizations and Part D sponsors in 

ensuring the proper and efficient 

administration of the Part C and D 

programs. In this section, we are 

finalizing provisions that codify some of 

that guidance and provide other 

definitive direction on policy issues in 

order to address requests from 

stakeholders. These proposals appear in 

Table 6. 

TABLE 6—PROVISIONS TO CLARIFY PROGRAM REQUIREMENTS

Preamble 

Section Provision 

Part 417 Part 422 Part 423 

Subpart Section Subpart Section Subpart Section 

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

417.432 

Subpart B 422.60 Subpart B 423.56 

II.E.2 ........ Extending MA and Part D Program Disclosure 

Requirements to Section 1876 Cost Contract Plans.

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

II.E.3 ........ Clarification of, and Extension to Local Preferred Provider Plans, of Regional Preferred 

Provider Organization Plan Single Deductible Requirement.

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

II.E.4 ........ Technical Change to Private Fee-For-Service 

Plan Explanation of Benefits Requirements.

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

II.E.5 ........ Application Requirements for Special Needs 

Plans.

N/A ........... N/A Subpart K 422.500 

422.501 

422.502 

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

Subpart N 422.641 

422.660 

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

MA Applications.

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

II.E.7 ........ Clarification of Contract Requirements for 

First Tier and Downstream Entities.

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

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

423.104 

II.E.9 ........ Medication Therapy Management Comprehensive Medication Reviews and Beneficiaries in LTC Settings.N/A ........... N/A N/A ........... N/A Subpart D 423.153 

II.E.10 ...... Employer Group Waiver Plans Requirement 

to Follow All Part D Rules Not Explicitly 

Waived.

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

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

Use of Standardized Technology and National Provider Identifiers.

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

1. Technical Corrections to Enrollment 

Provisions (§ 417.422, § 417.432, 

§ 422.60, and § 423.56) 

In our October 11, 2011 proposed rule 

we proposed a number of technical 

corrections to our enrollment 

regulations (76 FR 63056). Specifically 

we proposed the following changes: 

• At § 417.422(d) (Eligibility to enroll 

in an HMO or CMP) and § 417.432(d) 

(Conversion of enrollment) we proposed 

to remove references to signatures 

thereby ensuring that all of our 

regulations conform with allowing cost 

plans to utilize alternate enrollment 

mechanisms. 

• At § 422.60(c) (Election process) we 

proposed to revise an outdated crossreference. 

• At § 423.56 (Procedures to 

determine and document creditable 

status of prescription drug coverage) we 

proposed to remove an outdated 

reference to the Annual Coordinated 

Election Period. 

We received no comments on these 

proposals, and therefore, are finalizing 

this provision without modification. 

2. Extending MA and Part D Program 

Disclosure Requirements to Section 

1876 Cost Contract Plans (§ 417.427) 

In our April 2010 final rule (75 FR 

19783 through 19785), we exercised our 

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

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

the MA marketing requirements to 

section 1876 cost contract plans. Under 

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

regulate marketing of plans authorized 

under section 1876 of the Act to ensure 

that marketing material is not 

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

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Act gives the Secretary the authority to 

impose ‘‘other terms and conditions’’ 

under contracts authorized by the 

statute that the Secretary finds 

‘‘necessary and appropriate.’’ As a 

result, since contract year 2010, cost 

plan contractors have been required to 

follow all marketing requirements 

specified in Subpart V of Part 422, with 

the exception of § 422.2276, which 

permits an MA organization to develop 

marketing and informational materials 

specifically tailored to members of an 

employer group who are eligible for 

employer-sponsor benefits through the 

MA organization, and waives 

requirements to review such materials. 

In our April 2010 final rule (75 FR 

19785), in which we discuss extending 

MA marketing requirements to cost 

contracts, we note that the statutory 

authority under section 1857(i)(1) of the 

Act, which permits the Secretary to 

waive certain requirements for employer 

group plans under the MA program, 

does not apply to cost plans. 

In extending the marketing 

requirements to cost contract plans in 

our April 2010 final rule, we neglected 

to extend the MA organization and Part 

D sponsor disclosure requirements, at 

§ 422.111 and § 423.128, respectively, to 

cost contract plans. As we specified in 

the proposed rule, we believe that 

extending these provisions would also 

be appropriate, given the close 

relationship between the marketing 

requirements in Subpart V of Parts 422 

and 423 and the disclosure 

requirements at § 422.111 and § 423.128. 

These provisions require MA 

organizations and Part D sponsors to 

disclose to enrollees, at the time of 

enrollment and annually thereafter (in 

the form of an annual notice of change/ 

evidence of coverage, or ANOC/EOC 

mailing), certain detailed information 

about plan benefits, service area, 

provider and pharmacy access, 

grievance and appeal procedures, 

quality improvement programs, and 

disenrollment rights and 

responsibilities. They also require the 

provision of certain information and 

establish requirements with respect to: 

(1) The explanations of benefits notice, 

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

Internet Web sites. Thus, these 

requirements are closely tied to the 

marketing requirements of Subpart V of 

Parts 422 and 423. In order to ensure 

that cost contract plan enrollees have all 

the information they need about their 

health care benefits, we believe that cost 

contract plans should also be subject to 

all the same disclosure requirements as 

MA organizations and Part D sponsors. 

Therefore, we proposed to extend the 

disclosure requirements in § 422.111 

and § 423.128 to cost contract plans by 

adding a new § 417.427. 

Comment: A commenter supported 

the provision as specified in the 

proposed rule. 

Response: We thank the commenter 

for its support. 

Comment: A few commenters believe 

the effective date of 60 days after 

publication of the final rule does not 

allow enough time for Medicare cost 

contract plans to implement the new 

requirements and that the requirements 

instead should become effective no 

sooner than for the 2013 annual election 

period (that is, in the Fall of 2012). 

Response: Although the provisions of 

the rule are effective 60 days after 

publication of the rule, the disclosure 

requirements are primarily carried out 

through the ANOC/EOC, so we would 

indeed expect that the disclosure 

requirements would be implemented 

during the 2013 annual election period 

(Fall of 2012), the first such period after 

the effective date of the regulations. 

Comment: A commenter stated that 

changing the ANOC/EOC delivery date 

from December 1 to 15 days prior to the 

beginning of the annual election period 

would not be appropriate for cost 

contract plans that include only 

Medicare benefits, (that is, no 

supplemental benefits). The commenter 

stated that CMS may not have released 

the applicable deductible amounts for 

the following contract year at the time 

the ANOC is required to be distributed, 

which is a significant issue because 

some cost plans mirror Original 

Medicare cost-sharing amounts. 

Response: We will continue to require 

that cost plans not offering Part D send 

the ANOC for member receipt by 

December 1. It was not our intention to 

change this date for cost plans. We will 

clarify this in forthcoming plan 

guidance. All cost plans offering Part D 

must currently follow the MA ANOC 

timelines, and must send the ANOC for 

member receipt 15 days before the 

beginning of annual coordinated 

election period. 

Comment: A commenter notes that, 

contrary to the MA disclosure language 

at § 422.111(b)(7), which states that noncontract providers submit claims to the 

MA organization, non-contract 

providers would submit claims to the 

Medicare administrative contractor 

(MAC), not the cost contract plan. The 

commenter asks that we address this 

issue in the regulation by establishing a 

waiver process for MA provisions that 

do not apply to cost contract plans. 

Response: We will clarify in the cost 

contract plan EOC that, in most 

instances, non-contract providers 

should submit claims to the MAC, and 

not directly to the cost contract plan. 

Therefore, we do not believe that it is 

necessary to establish a general 

exceptions process to waive MA 

requirements. 

After consideration of the public 

comments received, we are finalizing 

the policy without modification. 

3. Clarification of, and Extension to 

Local Preferred Provider Plans, of 

Regional Preferred Provider 

Organization Plan Single Deductible 

Requirement (§ 422.101) 

Section 1858(b) of the Act provides 

that, to the extent RPPO plans use a 

deductible, any such deductible must be 

a single deductible, rather than separate 

deductibles for Parts A and Part B 

benefits. This single deductible may be 

applied differentially for in-network 

services and may be waived for 

preventive or other items and services. 

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

the language in the statute closely. They 

require that RPPO plans, to the extent 

they apply a deductible, apply only a 

single deductible related to combined 

Medicare Part A and Part B services. 

They also allow the single deductible to 

apply only to specific in-network 

services and to be waived for preventive 

services or other items and services, at 

the plan’s option. However, both the 

statute and our regulations are silent 

with respect to any deductible 

requirements for local preferred 

provider organization (LPPO) plans. 

Consequently, in practice, LPPO plans 

may have a variety of deductible 

designs, including separate in-network 

and out-of-network deductibles. 

We proposed to make three changes to 

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

clarify current requirements with 

respect to the application of a single 

deductible and to level the playing field 

between LPPO and RPPO plans by 

extending the RPPO rules to LPPOs. 

Specifically, we proposed to clarify the 

application of the single deductible 

differential for in-network services and 

modify our current regulations to take 

into account recent rulemaking under 

which MA plans must provide certain 

Medicare-covered preventive services at 

zero cost sharing. We proposed to rely 

upon our authority at section 1856(b)(1) 

of the Act to establish MA standards by 

regulation, and in section 1857(e)(1) of 

the Act to impose additional terms and 

conditions, found necessary and 

appropriate, to extend the RPPO single 

deductible requirements by regulation 

to LPPOs. We believe that having the 

same rules for LPPOs and RPPOs 

supports transparency and 

comparability of options for 

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beneficiaries when they evaluate and 

select plans for enrollment. In previous 

rulemaking, we took steps to align the 

plan design requirements for RPPOs and 

LPPOs. For example, in our April 2010 

final rule (76 FR 21507 through 21508) 

that made revisions to the MA and Part 

D programs for CY 2012, we extended 

the same maximum out-of-pocket 

(MOOP) and catastrophic limits we had 

previously codified for LPPOs (75 FR 

19709 through 19711) to RPPOs. In the 

interest of transparency, alignment in 

benefit design between RPPO and LPPO 

plans, and comparability for 

beneficiaries making health care 

coverage elections, we proposed to 

extend to LPPOs the single deductible 

requirements at § 422.101(d)(1). We 

would clarify the rules that would now 

apply to both LPPO and RPPO plans as 

set forth later in this section. 

As discussed previously, we proposed 

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

or RPPO single deductible ‘‘may be 

applied differentially for in-network 

services,’’ as provided under section 

1858(b) of the Act. We currently furnish 

interpretive guidance and examples of 

the application of the single deductible 

in section 50.3 of Chapter 4 of the 

Medicare Managed Care Manual, 

‘‘Benefits and Beneficiary Protections’’ 

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

downloads/mc86c04.pdf). However, we 

believe there may still be confusion 

with respect to how these requirements 

are articulated in our regulations and 

therefore proposed amending 

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

through (iii) clarifying that an RPPO or 

LPPO that chooses to apply a deductible 

may both— 

• Specify different deductibles for 

particular in-network Parts A and B 

services, provided that all of these 

service-specific deductibles are applied 

to the overall, single plan deductible; 

and 

• Choose to exempt, that is, exclude, 

specific plan-covered items or services 

from the deductible. That is, the LPPO 

or RPPO may choose to always cover 

specific items or services at planestablished cost-sharing levels 

regardless of whether the deductible has 

been met. For example, under our 

regulations, an LPPO or RPPO could 

establish a single combined deductible 

of $1,000 but limit the amount of the 

deductible that applies to in-network 

inpatient hospital services to $500, and 

the amount that applies to in-network 

physician services to $100. This LPPO 

or RPPO could also choose to exclude 

particular in-network services from 

application of the deductible altogether; 

for example, all in-network home health 

services would not be subject to the 

deductible. 

In our April 2011 final rule (76 FR 

21475 and 21476), we established a new 

requirement for MA organizations to 

provide certain in-network Medicarecovered preventive benefits at zero cost 

sharing. As provided under 

§ 422.100(k), MA organizations, 

including those offering PPO plans, may 

not charge deductibles, copayments, or 

coinsurance for in-network Medicarecovered preventive services specified in 

§ 410.152(l). Therefore, we will now 

require both LPPO and RPPO plans to 

exclude preventive services from the 

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

will add a new paragraph 

§ 422.101(d)(1)(iv) that explicitly 

requires LPPO and RPPO plans to 

exclude certain Medicare-covered 

preventive services (as defined in 

§ 410.152(l)) from the single, combined 

deductible. 

Comment: A commenter supported 

CMS’ proposed clarification of the rules 

for RPPO plans with a deductible. 

Response: We thank the commenter 

for its support. 

After consideration of the public 

comment received, we are finalizing the 

proposed clarifications of the RPPO 

deductible and extension of deductible 

rules to local PPO plans without 

modification. 

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

Requirements (§ 422.216) 

In our April 15, 2011 final rule (76 FR 

21504 through 21507) implementing 

changes to the MA and Medicare 

Prescription Drug Programs for Contract 

Year 2012, we finalized regulations at 

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

to require MA organizations to furnish 

directly to enrollees, in the manner 

specified by CMS and in a form easily 

understandable to such enrollees, a 

written explanation of benefits, when 

benefits are provided under this part. 

We expressed our intention to work 

with MA organizations, Part D sponsors, 

and beneficiary advocates to develop an 

Explanation of Benefits (EOB) for Part C 

benefits and to test the EOB in CY 2012 

through a small, voluntary pilot 

program. In our April 2011 final rule (76 

FR 21505), we also stated our intention 

to finalize a model EOB in the future, 

based on the results of the pilot program 

and to require all MA organizations to 

periodically send an EOB to enrollees 

for Part C benefits. 

We did not specifically discuss 

private fee-for-service (PFFS) plans in 

our April 2010 final rule because 

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

§ 422.216(d)(1) already require PFFS 

plans to provide an EOB to enrollees. 

Our current regulations at 

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

must provide an appropriate EOB to 

plan enrollees for each claim filed by 

the enrollee or the provider that 

furnished the service. The explanation 

must include a clear statement of the 

enrollee’s liability for deductibles, 

coinsurance, copayment, and balance 

billing. In the interest of consistency for 

beneficiaries and MA organizations, we 

proposed—in our October proposed 

rule—to amend § 422.216(d)(1) to state 

that the EOB requirement for PFFS 

plans will be consistent with the MA 

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

The standard EOB that we are currently 

developing and piloting for most of the 

other MA plan types will include the 

same information as currently required 

for PFFS plans, as well as plan 

maximum out-of-pocket (MOOP) cost 

information. Adding this cross-reference 

to § 422.216(d)(1) would provide 

consistency in EOB requirements as 

well as submission and approval of 

marketing materials across plan types. 

Since the pilot program is in progress 

during the CY 2013 rule development 

cycle and we would not have finalized 

EOB requirements based on the pilot 

prior to publication of the CY 2013 final 

rule, we proposed that PFFS plans 

would continue to furnish EOBs as they 

have been, in accordance with 

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

implement EOB models for all MA 

plans. 

We did not receive any comments on 

this provision in the proposed rule; 

therefore, we are finalizing this 

technical change as proposed. 

5. Application Requirements for Special 

Needs Plans (§ 422.500, § 422.501, 

§ 422.502, § 422.641, and § 422.660) 

Section 1859(f) of the Act and its 

implementing regulations specify 

several requirements for Special Needs 

Plans (SNPs). MA organizations that 

would like to offer a SNP are required 

to engage in an intensive application 

process to demonstrate that they meet 

these SNP specific requirements, 

including the requirement in 

§ 422.101(f) that MA organizations 

offering a SNP implement an evidence 

based model of care (MOC) to be 

evaluated by NCQA; the requirement in 

§ 422.107 that Dual Eligible SNPs (D– 

SNPs) have a contract with the State 

Medicaid Agencies in the States in 

which they operate; and the 

requirement in § 422.152(g) that SNPs 

conduct a quality improvement 

program. SNP applicants follow the 

same process in accordance with the 

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same timeline as applicants seeking to 

contract as MA organizations. 

Accordingly, we proposed to broaden 

the regulations on Medicare Advantage 

(MA) Application Requirements and 

Evaluation and Determination 

Procedures, in accordance with section 

1859(f) of the Act, to apply to SNP 

applicants. Specifically, we proposed to 

revise the language in § 422.500(a) and 

§ 422.501(a) to specify that the scope of 

these provisions include the specific 

application requirements for SNPs. We 

also proposed to add paragraph (iii) to 

§ 422.501(c)(1) to specify the 

documentation SNP applicants must 

provide to complete an application. 

Furthermore, we proposed to revise 

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

that our regulations on application 

evaluations and determinations apply to 

SNP applications. 

Additionally, in accordance with 

section 1859(f) of the Act, we proposed 

to provide explicit appeal rights to each 

applicant that has been determined 

unqualified to offer a SNP for failure to 

meet the requirements in section 1859(f) 

of the Act and its implementing 

regulations. To do so, we proposed 

adding a new paragraph (d) to § 422.641, 

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

a new paragraph (b)(5) to § 422.660. We 

believe these proposed changes will 

ensure that only MA organizations 

capable of meeting the requirements to 

serve Special Needs Individuals are able 

to target their enrollment to this 

vulnerable population, while also 

affording each MA organization that has 

been determined unqualified to offer a 

SNP the opportunity to have this 

decision reviewed by an impartial 

hearing officer. 

Comment: Commenters expressed 

their support for our proposals to ensure 

that SNP applicants have the same 

rights and responsibilities as other MA 

contract applicants. A commenter 

specifically noted its support for 

consistent rules for all MA options. 

Response: We appreciate the 

commenters’ support for this provision, 

which makes the rules and appeal rights 

for SNP applicants consistent with the 

rules governing the MA contract 

application and appeals process. 

Comment: A commenter 

recommended that we add language to 

our application regulations to ensure 

that an entity that has applied as a SNP 

is presumed to have applied as an MA 

plan. The commenter thought that such 

language would be necessary so that the 

MA organization could operate an MA 

plan in the event that the MA 

organization is not able to meet the SNP 

application requirements necessary to 

operate a SNP. 

Response: It has been CMS’ 

longstanding policy that, in order to 

offer a SNP, an MA organization must 

also apply and be approved to offer an 

MA Coordinated Care Plan (CCP) in the 

service area in which it would like to 

offer a SNP. (Please note that a prior 

year’s MA application approval is 

sufficient to meet this requirement. The 

plan is not required to submit a new MA 

application if it has been previously 

approved to offer a CCP in the service 

area in which it is applying to offer a 

SNP.) Accordingly, if an approved MA 

organization’s SNP application is 

denied, the plan is nonetheless still 

authorized to bid to offer an MA plan 

for the upcoming contract year. If an 

MA organization is applying to offer an 

MA CCP that is also a SNP, and the SNP 

application is denied, the MA 

organization’s MA application must still 

be approved. As such, the language 

requested by the commenter will not be 

added to the regulatory text and we will 

finalize the policy without modification. 

Comment: A commenter requested 

that we modify our substantive 

regulations on the SNP MOC approvals 

to specify that SNPs can be approved for 

multiple years. Another commenter 

encouraged CMS to provide States with 

operational support and regulatory 

guidance regarding the D–SNP State 

contract requirements. 

Response: While we appreciate these 

suggestions, the MOC approval 

regulations and D–SNP State contract 

requirements are outside the scope of 

this regulation. We will consider these 

suggestions as we develop future 

rulemakings and guidance. 

After review of the public comments, 

we are finalizing our proposal without 

modification. 

6. Timeline for Resubmitting Previously 

Denied MA Applications (§ 422.501) 

Section 1857(a) of the Act requires 

organizations that wish to participate in 

the MA program enter into a contract 

with the Secretary under which the 

organization agrees to comply with all 

applicable MA program requirements 

and standards. In order for us to 

determine whether these program 

requirements and standards have been 

met, the organization must complete an 

application in the manner described at 

Subpart K of part 422. Section 422.501 

sets forth the required elements of such 

an application. Under § 422.501(e), 

entities that are seeking to contract with 

the Secretary as an MA organization 

may not resubmit an application that 

has been denied by CMS for 4 months 

following CMS’ denial. This 4-month 

prohibition on resubmitting a 

previously-denied application is 

obsolete and inconsistent with current 

agency practices, as we presently 

operate on an annual application cycle. 

In order to align § 422.501 with current 

procedures, we proposed revising 

paragraph (e) to clarify that every 

organization seeking to become an MA 

organization must wait until the 

application cycle for the following 

contract year to resubmit an application 

that was previously denied in the 

current contract year’s application 

cycle. 

Comment: A commenter 

recommended that if a SNP application 

is denied, the plan should be presumed 

to have applied for an MA plan; thus, 

if the application meets MA 

requirements, the plan will not have to 

reapply as such. 

Response: We have addressed the 

commenter’s concern that a SNP 

application shall be presumed to be an 

MA application and approvable if it 

meets the MA requirements in the 

comment and response for our provision 

on applications for SNPs in section 

II.E.5. of this final rule with comment 

period. 

Comment: The commenter also 

expressed its support for extending 

appeal rights to denied SNP 

applications. 

Response: SNP application 

requirements and appeal rights are 

outside the scope of this provision. 

After consideration of the public 

comments received, we are finalizing 

the policy without modification. 

7. Clarification of Contract 

Requirements for First Tier and 

Downstream Entities (§ 422.504 and 

§ 423.505) 

The regulations at § 422.504(i) and 

§ 423.505(i) require MA organizations 

and Part D sponsors to require all of the 

first tier, downstream, and related 

entities to which they have delegated 

the performance of certain Part C or D 

functions to agree to certain obligations. 

In particular, the regulations require 

sponsors to have ‘‘contracts or written 

arrangements’’ that provide, for 

example: (1) For the delegated entity to 

carry out its contract in a manner 

consistent with the sponsor’s Medicare 

contract obligations; (2) that the sponsor 

may revoke the contract if the sponsor 

determines that the delegated entity has 

not performed satisfactorily; and (3) that 

the sponsor on an ongoing basis 

monitors the performance of the 

delegated entity. We believed it was 

clear that the language of § 422.504(i) 

and § 423.505(i) required that all 

contracts governing the relationships 

among a sponsor and all of its delegated 

entities (that is, those between the 

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sponsor and its first tier entity; those 

between the first tier entity and any 

downstream entity; and those between 

downstream entities) contain provisions 

specifically addressing each of the 

required elements stated in the 

respective paragraphs. That is, each 

contract was required to contain ‘‘flow 

down’’ clauses through which each 

delegated entity would become legally 

obligated to honor the provisions of 

§ 422.504(i) and § 423.505(i). 

In the solicitations for applications for 

qualification of MA organizations and 

Part D sponsors, we instructed 

applicants that all contracts with 

delegated entities provided for our 

review must include language 

addressing all of the elements stated in 

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

this position because: (1) We believed 

that the requirement was clearly stated 

in the regulation; and (2) as the sponsor 

cannot enforce a contract to which it is 

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

contract with its downstream entities), 

the only way to give the provisions of 

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

to require that each subcontract 

specifically describe the delegated 

entity’s obligations to the sponsor. 

This interpretation was challenged in 

2010 by an organization whose Part D 

sponsor qualification application was 

denied when we determined, among 

other things, that the contract between 

the applicant’s first tier and downstream 

entities incorrectly made reference to 

the rights of the first tier entity, rather 

than the applicant, in the contract 

sections the applicant intended to meet 

the requirements of § 423.505(i). While 

the hearing officer upheld CMS’ denial 

of the application, in the interest of 

providing transparency and clarity for 

the healthcare industry, we have 

decided to amend the regulation. The 

changes to the regulation will help 

future applicants avoid confusion about 

the requirements related to contracts 

with first tier and downstream entities, 

thus helping to streamline the 

application process. 

We believe that the most legally 

effective and direct way to ensure that 

the MA organizations and Part D 

sponsors retain the necessary control 

and oversight over their delegated 

entities is by requiring all contracts 

among those entities to specifically 

reference each party’s obligations to the 

sponsor, as enumerated in § 422.504(i) 

and § 423.505(i). Documents or ‘‘written 

arrangements’’ other than contracts can 

be ambiguous as to the nature of an 

obligation and who has agreed to 

perform it. They are unreliable tools for 

the protection of the rights of sponsors 

with respect to the performance of their 

Medicare obligations by their delegated 

entities. Assurances from delegated 

entities that they will provide necessary 

instructions to other downstream 

entities should the need arise are 

equally ineffective as they provide no 

evidence that the downstream entity 

could be compelled to follow such 

instructions. Therefore, we proposed to 

make explicit that sponsors can fulfill 

the requirements of § 422.504(i) and 

§ 423.505(i) only by providing evidence 

that the contract of every first tier or 

downstream entity contains provisions 

stating clearly that the parties have 

agreed to recognize and give effect to the 

sponsor’s rights as listed in those 

subsections. Accordingly, we proposed 

to delete the term ‘‘written 

arrangements’’ throughout § 422.504(i) 

and § 423.505(i) and in each instance 

replace it with ‘‘each and every 

contract.’’ 

Comment: An MA organization 

expressed its concern about the use of 

the term ‘‘contract’’ throughout the 

proposed regulatory change. The 

organization noted that the term was too 

narrow and appeared to exclude less 

formal arrangements that sponsors use 

to meet their Part C and D obligations. 

For example, some organizations use 

related parties (for example, another 

subsidiary of their parent organization) 

to perform delegated functions and 

those relationships may be governed by 

something other than a contract. 

Response: We believe that the term 

‘‘contract’’ best expresses the nature of 

the arrangements sponsors must have in 

place to meet the requirements of 

§ 422.504(i) and § 423.505(i). Therefore, 

we are retaining the proposed language 

in the final rule. Nonetheless, we 

acknowledge that organizations may 

meet the requirements through the use 

of documents that may not be expressly 

labeled as ‘‘contracts.’’ These may 

include letters of agreement or 

intercompany agreements. Sponsors 

must simply make certain that the 

documents they use to memorialize the 

functions delegated to their first tier, 

downstream, or related entities contain 

language that clearly describes an 

enforceable set of plan sponsor rights 

and subcontractor obligations to the 

sponsor, regardless of whether the 

sponsor is a party to the agreement. 

Comment: An MA organization asked 

that CMS provide more information 

about the deficiency that led to the 

application denial discussed in the 

proposed rule. 

Response: More discussion of the 

facts of the application denial appeal is 

provided in the CMS Hearing Officer’s 

opinion, In the Matter of Stonebridge 

Life Insurance Company, Inc., Denial of 

Application, S3502, Docket No. 2010 C/ 

D App. 7. The opinion is posted on the 

CMS Web site at https://www.cms.gov/ 

Medicare-Advantage-Prescription-DrugPlan-Decisions/downloads/ 

2010_CD_App_7.pdf. 

Comment: A commenter requested 

that CMS clarify that sponsors are not 

required to directly monitor the 

performance of all downstream entities 

to which they have delegated functions 

but with which they do not directly 

contract. 

Response: The commenter is 

technically correct that the regulations 

only require that the contracts that 

govern the delegated functions among 

the sponsor’s first tier, downstream, and 

related entities contain provisions 

expressly granting the sponsor the 

authority to perform oversight of the 

activities of the subcontractors. The 

regulations do not require the sponsor to 

exercise that authority. That said, we 

remind sponsors that the Part C and D 

regulations require them to adopt and 

implement an effective compliance 

program which provides for, among 

other things, the sponsor to establish an 

effective system for monitoring and 

auditing its first tier and downstream 

entities to ensure their compliance with 

our requirements. We encourages all 

sponsors to review their compliance 

program activities to make certain that 

their methods for oversight of their 

subcontractors are effective in holding 

them accountable for Part C and D 

functions performed on the sponsors’ 

behalf. 

Comment: A commenter requested 

that CMS provide model contracting 

language that meets the subcontracting 

requirements discussed in the proposed 

provision. 

Response: The arrangements between 

a plan sponsor and its first tier, 

downstream and related entities are 

subject to considerable variation from 

sponsor to sponsor. Accordingly, the 

contracts governing the arrangements 

must be tailored to reflect their 

particular features. For example, some 

arrangements may require a unique 

contract where the plan sponsor is 

specifically named in the document 

while others can be served through a 

contract template used by a 

subcontractor that serves multiple plan 

sponsors and the sponsors are identified 

by proper reference to another 

document. We believe that it would be, 

at best, not useful for CMS to provide 

model language and at worst, 

counterproductive as it could create the 

temptation for sponsors to use the 

model language in their contracts when 

a specially-tailored set of terms is 

needed to properly govern their unique 

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arrangements and to meet the Part C and 

D program requirements. 

Comment: A commenter requested 

that CMS require MA organizations to 

provide to their first tier and 

downstream entities a copy of the 

organization’s Part C contract with CMS. 

The commenter stated that such a 

requirement would be useful to 

subcontractors perform their delegated 

functions in a manner consistent with 

the MA organization’s contract with 

CMS. 

Response: The subject of this 

comment is technically outside the 

scope of our proposal. However, we 

note that our contracts with Part C and 

D sponsors consist of uniform terms and 

conditions for each type of plan 

offering. Therefore, we have already 

responded to this request by posting on 

our Web site all of the current Part C 

and D contract templates. 

Subcontractors can now obtain the 

Medicare plan sponsor contact terms 

and conditions directly from CMS. 

After consideration of the public 

comments received, we are finalizing 

the policy without modification. 

8. Valid Prescriptions (§ 423.100 and 

§ 423.104) 

Since the inception of the Part D 

program, we have consistently 

maintained that drugs cannot be eligible 

for Part D coverage unless they are 

dispensed upon prescriptions that are 

valid under applicable State law. Using 

our authority in section 1860D– 

12(b)(3)(D), we proposed in our October 

NPRM to codify this policy to remove 

any doubt as to the appropriate source 

of law to consult when determining 

whether a prescription is valid. 

We proposed, first, to add a definition 

of the term ‘‘valid prescription’’ to 

§ 423.100 to mean a ‘‘prescription that 

complies with all applicable State law 

requirements constituting a valid 

prescription.’’ This would make clear 

the need to consult State law to 

determine whether a prescription is 

valid. 

We underscore, as we did in the 

proposed rule, that we do not intend to 

impose any State law requirements that 

do not otherwise apply. Rather, our 

proposal is that prescriptions must 

comply with applicable State law 

requirements; there is no need to 

comply with State law requirements to 

the extent that they do not apply. The 

two following examples illustrate our 

intent. Some States require that insulin 

syringes be dispensed upon prescription 

only, while other States do not. We 

would not require prescriptions for 

coverage of insulin syringes under Part 

D in those States that do not mandate 

prescriptions, but would require 

prescriptions for Part D coverage in 

States that require insulin be dispensed 

only upon prescription. The second 

example involves the Indian Health 

Care Improvement Act (IHCIA), which: 

(1) Provides that licensed health 

professionals employed by a tribal 

health program need not be licensed in 

the State in which the program performs 

services; and (2) exempts specified 

health facilities from obtaining State 

licenses provided they otherwise meet 

State law requirements. The proposed 

changes would not necessitate either 

that these licensed professionals obtain 

additional State licenses or that the 

specified facilities obtain initial State 

licenses. 

We also proposed to add a new 

paragraph (h) to § 423.104 stating that, 

for every Part D drug that requires a 

prescription, Part D sponsors may only 

provide benefits when that drug is 

‘‘dispensed upon a valid prescription’’. 

In tandem with the proposed definition 

of the term valid prescription discussed 

previously, these changes would ensure 

that, for drugs and other items that must 

be prescribed (including biological 

products and some insulin and 

specified associated supplies), Part D 

coverage would be limited to those 

dispensed upon valid prescriptions 

under applicable State law. 

At this time, we are not aware of any 

State that requires that each electronic 

or written prescription include the 

prescriber’s individual NPI in order for 

that prescription to be valid. But as is 

discussed in section II.E.11. of this final 

rule with comment period (Access to 

Covered Part D Drugs through Use of 

Standardized Technology and National 

Provider Identifiers), we believe that 

linking individual NPIs to specific 

prescriptions may provide law 

enforcement agencies with information 

that could be essential to identifying 

and prosecuting the particular 

individuals committing or abetting 

fraud, waste, or abuse. Accordingly, we 

once again would like to take this 

opportunity to encourage States to 

require that every prescription include 

the individual NPI of the prescriber in 

order to be valid under State law. 

Comment: A few commenters 

indicated they supported or agreed with 

the provision. 

Response: We appreciate the 

commenters’ support of this codification 

of our long standing policy. 

Comment: A few commenters 

questioned whether the proposed 

regulation would change existing 

responsibilities and asked CMS to 

provide additional guidance. A 

commenter first pointed out that 

pharmacies, not plans, are required by 

State pharmacy laws to ensure that 

prescriptions meet minimum State 

requirements and should not be held 

accountable if a pharmacy fails to fill a 

prescription pursuant to applicable 

laws. The commenter then requested 

that CMS (1) ‘‘reiterate’’ that pharmacies 

must ensure that prescriptions are valid; 

and (2) direct pharmacies to ensure that 

CMS mandates like NPIs are included in 

prescription claims sent to plans. 

Response: This regulation does not in 

any way preempt existing State 

requirements or create new Federal 

requirements. Rather, our codification of 

longstanding policy merely specifies in 

regulation that applicable State law 

applies in determining whether a 

prescription is valid. Therefore, we 

disagree with the commenter’s 

suggestion that our policy takes any 

position with respect to which parties 

are responsible for ensuring 

prescriptions are valid under applicable 

State law—the parties should look to 

applicable State law on that issue. 

However, we would like to note, as has 

always been the case, that it is up to 

each Part D sponsor to determine 

through its contracting management 

how to best ensure that its network 

pharmacies are complying with the Part 

D requirement that prescriptions be 

valid under applicable State law. 

Comment: Several commenters asked 

CMS to clarify the limits on audits as 

related to this proposal. One of these 

commenters believed that prescriptions 

cannot be audited using more strict 

guidelines than State law requires and 

requested that CMS instruct sponsors to 

stop ‘‘egregious audit practices’’ against 

pharmacies for violations of 

requirements not found in State law. 

Requesting that CMS clarify that LTC 

pharmacies being audited should not be 

required to produce documentary proof 

of prescriptions under applicable State 

laws, another commenter expressed 

concern that LTC pharmacies would not 

be able to provide sponsors, auditors, 

and/or CMS with such proof valid 

under State law because such 

prescriptions are typically kept with 

patient charts at the LTC setting. 

Response: As discussed previously, 

our proposal was intended to codify our 

longstanding policy that applicable 

State law applies in determining what 

constitutes a valid prescription and that 

Part D benefits should be available only 

for otherwise covered drugs that are 

dispensed upon a valid prescription. We 

did not propose rules governing the 

conduct of audits by any entities— 

including plan sponsors. 

Comment: A commenter appreciated 

that CMS encouraged States to require 

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individual NPIs for valid prescriptions. 

But, after observing that no States 

required NPIs for valid prescriptions, 

the commenter indicated that 

pharmacists would be challenged by a 

large number of prescriptions lacking 

appropriate NPIs. 

Response: For a response addressing 

this issue, please see section II.E.11 of 

this final rule with comment period 

(Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers). 

We are finalizing this provision 

without modification. 

9. Medication Therapy Management 

Comprehensive Medication Reviews 

and Beneficiaries in LTC Settings 

(§ 423.153) 

Section 1860D–4(c)(2) of the Act 

requires medication therapy 

management (MTM) programs to be 

designed to ensure that, with respect to 

targeted beneficiaries described in 

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

(individuals as specified with multiple 

chronic diseases, taking multiple 

covered Part D drugs, and likely to incur 

certain annual Part D drugs costs), 

covered Part D drugs are appropriately 

used to optimize therapeutic outcomes 

through improved medication use and 

to reduce the risk of adverse events. 

Section 10328 of the Affordable Care 

Act further amended section 1860D– 

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

prescription drug plan sponsors as part 

of the MTM services furnished to 

targeted beneficiaries to offer, at a 

minimum, an annual comprehensive 

medication review (CMR) that must be 

furnished person-to-person or via 

telehealth technologies. The 

comprehensive medication review must 

include a review of the individual’s 

medications, which may result in the 

creation of a recommended medication 

action plan with a written or printed 

summary of the results of the review 

provided to the targeted individual. 

As we reiterated in the preamble to 

the October 11, 2011 proposed rule, we 

first explained in our April 2011 final 

rule (75 FR 21476 through 21478) that 

beneficiaries residing in long term care 

(LTC) facilities who have cognitive 

impairments may not be able to 

participate in CMRs. The current 

regulations at § 423.153(d)(1)(vii)(B), 

which were amended in the April 2011 

final rule to reflect certain requirements 

of the Affordable Care Act, continue to 

exempt sponsors from offering 

interactive, person-to-person 

consultations to targeted beneficiaries 

who reside in LTC settings. However, 

the Act, as amended by section 10328 of 

the Affordable Care Act, does not 

provide a basis for creating an exception 

to the requirement to offer a CMR based 

on the setting of care. Since the 

Affordable Care Act provision for MTM 

programs was not effective until January 

1, 2013, in the April 2011 final rule, we 

indicated that we would undertake 

further rulemaking to clarify the 

requirements for MTM programs to offer 

CMRs to targeted beneficiaries in LTC 

settings. 

In the October 11, 2011 proposed rule, 

we proposed to revise the regulation at 

§ 423.153 to require sponsors to offer the 

annual CMR to targeted beneficiaries in 

an LTC facility—but when the 

beneficiary cannot accept the offer to 

participate—the pharmacist or other 

qualified provider must perform a CMR 

without the beneficiary. When the 

beneficiary is cognitively impaired and 

cannot make decisions regarding his or 

her medical needs, we recommended 

that the pharmacist or qualified 

provider reach out to the beneficiary’s 

prescriber, caregiver, or other 

authorized individual, such as the 

resident’s health care proxy or legal 

guardian, to take part in the 

beneficiary’s CMR. 

Comment: Several commenters 

questioned how to determine whether a 

beneficiary residing in an LTC setting is 

cognitively impaired or able to 

participate in the CMR and suggested 

that this determination should be made 

by or coordinated with the LTC facility 

or LTC consultant pharmacist. One of 

these commenters questioned if 

documentation of this determination 

should be maintained and another 

suggested revising the Part D reporting 

requirements to require Part D sponsors 

to report the beneficiaries who opted 

out of the CMR due to cognitive 

impairment. 

Response: We agree that LTC 

consultant pharmacists are positioned to 

help plan sponsors work with the LTC 

facility staff to identify cognitively 

impaired beneficiaries in LTC settings 

and determine whether beneficiaries are 

capable of participating in a CMR. We 

recommend that plan sponsors 

coordinate with LTC consultant 

pharmacists to make these 

determinations. If asked, plan sponsors 

should be able to present 

documentation or a rationale for these 

determinations. Any changes to the Part 

D reporting requirements are outside the 

scope of this regulation. 

Comment: A few commenters are 

opposed to the proposed policy, and a 

commenter argued that the CMR 

requirement in the LTC setting should 

be the responsibility of the LTC facility, 

not plan sponsors, because LTC 

facilities are paid to provide care to 

their patients and have their own 

physicians and pharmacists who order 

and fill the drugs. 

Response: The statute specifies that 

‘‘prescription drug plan sponsors shall 

offer medication therapy management 

services to targeted beneficiaries’’ and 

requires interventions ‘‘to increase 

adherence to prescription medications 

or other goals deemed necessary’’ and 

includes at a minimum ‘‘an annual 

comprehensive medication review 

furnished person-to-person or using 

telehealth technologies.’’ Further, the 

Act, as amended by section 10328 of the 

Affordable Care Act, does not provide a 

basis for distinguishing the offering of a 

CMR based on the setting of care. 

Comment: Several commenters urged 

CMS that in order to maximize the 

efficient use of healthcare resources, the 

CMR should be performed in the LTC 

setting by an LTC consultant pharmacist 

or that plan sponsors should coordinate 

with the consultant pharmacists 

performing monthly drug regimen 

review (DRR) before intervening to 

resolve potential medication-related 

problems identified through the CMR or 

other MTM services. Other commenters 

requested clarification and additional 

guidance on the pharmacist or other 

qualified provider who will perform the 

CMR on behalf of the targeted 

beneficiary in LTC settings and how this 

would be implemented. Another 

commenter questioned if the pharmacist 

or other qualified provider performing 

the CMR is permitted to be employed by 

the sponsor or its Pharmacy Benefits 

Manager (PBM) and if it is common for 

the MTM provider to be the PBM, and 

not the plan sponsor. 

Response: Sponsors may utilize inhouse resources or make arrangements 

with other resources (such as PBMs, 

MTM vendors, or individual 

pharmacists or other qualified 

providers) to provide MTM services and 

administer their MTM program to 

targeted beneficiaries. We agree that 

LTC consultant pharmacists would be a 

valuable resource for the delivery of 

CMRs to targeted beneficiaries in LTC 

settings, and also acknowledge that the 

potential overlap between the DRR 

reviews required in LTC settings and 

Part D MTM reviews could possibly 

result in conflicting reviews. To 

maximize efficient use of healthcare 

resources, we encourage plan sponsors 

to consider making arrangements that 

include the LTC consultant pharmacist 

in conducting Part D MTM services for 

targeted beneficiaries in LTC. Such 

arrangements could include direct 

contracts between the sponsor and 

consultant pharmacists (or their 

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intermediaries), or indirect contracts 

between the sponsor’s MTM vendor or 

PBM and LTC consultant pharmacists 

(or their intermediaries). We would like 

to hear from any parties who may 

currently be doing this and how such 

arrangements have improved care 

coordination or created efficiencies. You 

may contact CMS at 

partd_mtm@cms.hhs.gov. 

Comment: A commenter argued that 

when the targeted beneficiary in the 

LTC setting is unable to participate in 

the CMR, there should be an exemption 

from the CMR standardized format 

requirements. 

Response: Section 

423.153(d)(1)(vii)(D) of the regulations 

requires standardized format action 

plans and summaries that comply with 

requirements as specified by CMS for 

the standardized format, to be provided 

following each CMR. This applies 

whether the CMR is provided to the 

beneficiary, or to the authorized 

representative or prescriber who may 

take part in the CMR if the beneficiary 

cannot participate. If the commenter 

meant to suggest that no written 

summary be provided, we would 

respond that the need for a CMR is 

certainly no less vital when individuals 

are cognitively impaired and these 

summaries can serve to coordinate care. 

Comment: A few commenters 

suggested that CMS consider alternative 

approaches to disseminating MTM 

recommendations in the LTC setting by, 

for instance, providing: (1) The findings 

or recommendations related to drug 

therapy to the attending physician and/ 

or nursing staff at the LTC facility; (2) 

CMR written summaries and 

standardized action plans to the LTC 

facility; or (3) medication review results 

to the beneficiary’s medical power of 

attorney, if applicable. 

Response: We appreciate these 

recommendations. Plan sponsors and 

MTM providers may, but are not 

required to, provide copies of the CMR 

written summaries and medication 

action plans to other HIPAA-covered 

entities to coordinate care. Also, a 

HIPAA covered entity may share a 

beneficiary’s health information (such 

as medication review results) with the 

beneficiary’s personal representative, 

which includes a person with medical 

power of attorney, where that 

information is relevant to such personal 

representation. 

Comment: Several commenters 

focused on outreach to individuals to 

participate in the CMR aside from the 

targeted beneficiary. A commenter 

suggested that, even when the 

beneficiary can participate, the provider 

conducting the CMR still should be able 

to reach out to individuals, such as the 

family caregiver, other authorized 

individual, and beneficiary’s prescriber, 

to participate in the CMR. A few 

commenters suggested that when 

impairment prevents a targeted LTC 

beneficiary from participating in the 

CMR, CMS should require the provider 

arranging the CMR to provide written 

notice to the individual’s health care 

proxy or legal representative, while 

another asked whether telephone or 

mail contact was acceptable. Another 

commenter recommended that if the 

targeted beneficiary in the LTC setting is 

unable to participate, the caregiver or 

surrogate should be engaged first, and 

then the prescriber, to ensure that the 

patient’s best interests are protected. 

Response: While we certainly 

appreciate an approach that would 

allow the beneficiary to be joined by, for 

instance, family members for a CMR, we 

believe it best, when a beneficiary is 

able to participate, to leave the decision 

as to whom he or she wishes to invite 

to his or her discretion. In these 

instances the pharmacist or other 

qualified provider may ask the 

beneficiary for permission to invite 

other individuals to the CMR. As to the 

form of the outreach, sponsors are 

responsible for choosing the outreach 

method, and are expected to use more 

than one approach when possible to 

reach all eligible targeted beneficiaries, 

regardless of setting, so they are able to 

receive MTM services and a CMR versus 

only reaching out via passive offers. 

These expectations also apply to any 

outreach to a beneficiary’s prescriber, 

caregiver, or other authorized 

individual. Lastly, we do not believe it 

would be appropriate to burden the 

pharmacist or qualified provider 

arranging the CMR by specifying the 

order in which to contact individuals to 

represent a beneficiary who cannot 

participate in the CMR. This decision 

should be at the discretion of the 

provider and is dependent on the 

individual beneficiary’s needs and 

situation. 

Comment: A commenter 

recommended that CMS recognize that 

MTM services focused on the use of the 

most appropriate and cost-effective 

medications should be the primary goal 

of MTM in the LTC population. 

Response: This comment is outside 

the scope of this rulemaking, and 

therefore, we will not address it in this 

rule. 

Comment: A few commenters 

suggested that beneficiaries in other 

settings may be cognitively impaired or 

unable to participate in the CMR (such 

as hospice patients, beneficiaries being 

cared for in an assisted living facility, or 

at home) and the proposed rule should 

not be limited to targeted beneficiaries 

in the LTC setting. 

Response: Targeted beneficiaries in 

other health care settings are not 

excluded from the Part D MTM 

requirements, and must be offered MTM 

services if eligible. The proposal to 

eliminate the exception to the 

requirement to offer a CMR for 

beneficiaries residing in LTC settings 

was necessary in order to bring the 

existing regulation into compliance with 

requirements of section 10328 of the 

Affordable Care Act. Accordingly, the 

proposed revisions to the language of 

§ 423.153(d) would require Part D 

sponsors to offer CMRs to all targeted 

beneficiaries in all settings. We 

acknowledge that beneficiaries in 

settings other than LTC may suffer 

cognitive impairments. Therefore, we 

encourage MTM programs to adopt 

similar approaches to furnishing MTM 

services to these beneficiaries who may 

be unable to accept an offer of a CMR 

and recommend outreach to the 

beneficiary’s prescriber, caregiver, or 

other authorized individual. 

Comment: A commenter questioned 

whom the plan sponsor can contact to 

act on behalf of the beneficiary if a call 

to an LTC facility results in the plan not 

being able to reach a beneficiary. The 

commenter questioned if the plan 

sponsor should assume that the 

prescriber and/or LTC consultant 

pharmacist on staff can be called and a 

CMR can be completed. 

Response: We recommend that when 

a targeted beneficiary moves to an LTC 

facility, Part D plan sponsors should 

identify the appropriate contact for each 

beneficiary, which could be the 

prescriber, caregiver, or authorized 

representative. Alternatively, sponsors 

could include this requirement in any 

arrangements that may be made with the 

LTC consultant pharmacist in the 

conduct of Part D MTM services. 

Comment: Several commenters 

requested clarification about 

distinguishing services provided 

through the existing LTC consultant 

pharmacist monthly DRR and those 

required for targeted LTC beneficiaries 

through Medicare Part D MTM and 

commented that the efforts are 

duplicative. Some commenters 

suggested that plan sponsors should rely 

on the consultant pharmacists’ review 

or, alternatively, sponsors should not be 

required to conduct CMRs for 

beneficiaries in the LTC setting. 

Response: As mandated by section 

10328 of the Affordable Care Act, 

sponsors are required to offer CMRs to 

all targeted beneficiaries, including 

those in LTC settings. While there is 

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some potential overlap between the LTC 

consultant pharmacist monthly DRR 

and MTM required for targeted LTC 

beneficiaries through Part D, Part D 

sponsors remain subject to the 

requirement to furnish MTM services to 

all targeted beneficiaries consistent with 

section 1860D–4(c)(2) and the 

regulations at § 423.153(d). Thus, 

services required for MTM, such as 

offering a CMR, which must include an 

interactive, person-to-person, or 

telehealth consultation, are required for 

all targeted beneficiaries, including 

those in LTC settings. In light of the 

potential overlap, and to maximize 

efficient use of healthcare resources, we 

encourage plan sponsors to consider 

making arrangements that include the 

LTC consultant pharmacist in the 

conduct of Part D MTM services for 

targeted beneficiaries in LTC settings. 

We will provide guidance on the 

implementation of the MTM 

requirements and set service level 

expectations where necessary. 

Comment: Several commenters felt 

that the recommendation that MTM 

providers reach out to the beneficiary’s 

prescriber, caregiver, or other 

authorized individual to participate in 

the CMRs is administratively 

burdensome and costly given that plan 

sponsors cannot easily identify the LTC 

resident’s health care proxy or 

authorized representative, or primary 

care physician (and their contact 

information), and question if this 

contact information is consistently 

captured or reported. 

Response: As indicated in an earlier 

response, we recommend but do not 

require that when a beneficiary moves 

to an LTC facility, Part D plans identify 

the appropriate contact for each 

beneficiary, which could be the 

prescriber, caregiver, or authorized 

representative. Alternatively, sponsors 

could include this requirement in any 

arrangements that may be made with the 

LTC consultant pharmacist regarding 

the conduct of Part D MTM services. 

LTC consultant pharmacists are 

positioned to help plan sponsors work 

with LTC facility staff to identify the 

resident’s authorized representative or 

prescriber, particularly in cases where 

this information is not part of the Part 

D enrollment information. We 

recommend that plan sponsors 

coordinate with LTC consultant 

pharmacists to obtain this information. 

Comment: A few commenters 

requested clarification to distinguish 

between an interactive and noninteractive CMR and how it differs from 

the current MTM and interactive CMR 

processes. 

Response: The October 11, 2011 

proposed rule inappropriately referred 

to ‘‘non-interactive CMRs.’’ By 

definition, a CMR is an interactive 

consultation with the beneficiary or an 

authorized individual, such as their 

prescriber or caregiver, to review the 

beneficiary’s medications and must be a 

real-time interaction. Per the regulation 

at § 423.153(d)(1)(vii)(B)(i), the annual 

comprehensive medication review with 

written summaries must include an 

interactive, person-to-person, or 

telehealth consultation performed by a 

pharmacist or other qualified provider. 

While providers are required to offer a 

CMR to all beneficiaries, regardless of 

setting, in the event the beneficiary is 

cognitively impaired, the MTM provider 

is encouraged to reach out to other 

appropriate parties to participate in a 

CMR. However, in the event the MTM 

provider is unable to identify another 

individual who is able to participate in 

the CMR, or a beneficiary in any setting 

refuses to participate in the CMR, a 

CMR cannot be performed, but sponsors 

are required to perform targeted 

medication reviews at least quarterly 

with follow-up interventions when 

necessary and perform prescriber 

interventions. To make the distinction 

clear, we are adding the word 

‘‘comprehensive’’ before ‘‘medication 

review’’ in § 423.153(d)(1)(vii)(B)(2). We 

are also revising 

§ 423.153(d)(1)(vii)(B)(2) to remove the 

reference to beneficiaries residing in 

LTC settings and to state that if a 

beneficiary is offered the annual CMR 

and is ‘‘unable to’’ accept the offer to 

participate, the pharmacist or other 

qualified provider ‘‘may’’ perform the 

CMR ‘‘with the beneficiary’s prescriber, 

caregiver, or other authorized 

individual’’ to clarify that a CMR is 

voluntary and that a CMR cannot be 

performed without participation by the 

beneficiary, or an individual authorized 

to represent the beneficiary. 

Comment: A commenter requested 

that we delay implementation due to 

potential bid and cost implications that 

would impact contract negotiations with 

LTC facilities or even the pharmacy 

providers for LTC facilities. 

Response: We cannot delay 

implementation of this requirement 

because the statute mandates that we 

implement section 10328 of the 

Affordable Care Act by January 1, 2013. 

Additionally, sponsors were put on 

notice regarding this deadline in our 

April 2011 final rule in which we stated 

our plans to undertake additional 

rulemaking to clarify the CMR 

requirements for targeted beneficiaries 

in LTC settings. However, we thank the 

commenter for highlighting that we 

incorrectly stated in the proposed rule 

that we did not anticipate any costs 

associated with this change. This was an 

oversight, and we have revised the 

regulatory impact and estimate to 

acknowledge that there will be a modest 

increase in costs to offer CMRs to 

beneficiaries residing in LTC settings 

with written summaries in a 

standardized format that complies with 

the requirements specified by CMS. 

After consideration of the comments 

received in response to this final rule 

with comment period, we are adopting 

the revisions to § 423.153(d)(1)(vii)(B) as 

proposed with the clarifying changes 

discussed previously. The revisions will 

become effective January 1, 2013. 

10. Employer Group Waiver Plans 

Requirement To Follow All Part D Rules 

Not Explicitly Waived (§ 423.458) 

The Secretary has the statutory 

authority to waive or modify 

requirements that hinder the design of, 

the offering of, or the enrollment in, 

employer/union sponsored prescription 

drug plans (PDPs). Both employers/ 

unions that contract directly with CMS, 

as well as PDP sponsors that contract 

with employers/unions and CMS, may 

offer customized employer group PDPs 

which are referred to collectively as 

employer/union-only group waiver 

plans (EGWPs). The statutory authority, 

set forth in section 1860D–22(b) of the 

Act, provides that the provisions of 

section 1857(i) of the Act shall apply 

with respect to prescription drug plans 

in relation to employment-based retiree 

health coverage in a manner similar to 

that in which they apply to an MA plan 

in relation to employers, including 

authorizing the establishment of 

separate premium amounts for enrollees 

in a prescription drug plan by reason of 

such coverage and limitations on 

enrollment to Part D eligible individuals 

enrolled in such coverage. 

Under this statutory authority, in 

order to facilitate the offering of PDPs to 

employer/union group health plan 

sponsors, we may grant waivers and/or 

modifications to PDP sponsors. In 

general, each waiver or modification 

that we grant is conditioned upon the 

PDP sponsor meeting a set of defined 

circumstances and complying with a set 

of conditions. PDP sponsors offering 

EGWPs must comply with all Part D 

requirements unless those requirements 

have been specifically waived or 

modified. 

It has come to our attention that some 

EGWPs that provide Part D benefits to 

their members may not be affording 

their members appropriate Medicare 

beneficiary protections put in place by 

CMS regulations or guidance. Based 

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upon discussions we have had with 

sponsors of EGWPs, some sponsors 

believe they are exempt from Part D 

requirements when providing Part D 

benefits because of the CMS waiver of 

the requirement that EGWP sponsors 

submit plan benefit packages for CMS 

review (see section 20.9 of Chapter 12 

of the Medicare Prescription Drug 

Benefit Manual). Regardless of whether 

plan benefit packages are submitted for 

review, Part D sponsors of EGWPs must 

meet all Part D requirements (regulatory 

or legislative) unless such requirements 

are specifically waived or modified by 

CMS. Therefore, in order to emphasize 

the importance of providing EGWP 

members with beneficiary protections 

put in place by Part D requirements, we 

proposed to revise § 423.458 by adding 

a new paragraph (paragraph (c)(3)) to 

clearly state that in the absence of a 

CMS approved waiver, all Part D 

requirements apply and, in the case of 

a CMS approved waiver that modifies 

the application of Part D requirements, 

such requirements must be met as 

modified by the waiver. 

Comment: While supporting the 

clarification, a commenter opined that 

significant operational challenges exist 

for EGWPs as they try to meet Part D 

requirements in areas including 

enrollment, formulary requirements, 

and transition fill policy. The 

commenter requested that CMS 

establish a forum and process for 

stakeholders such as EGWPs and 

employer groups to raise these issues 

and re-evaluate the current Part D 

requirements in consultation with 

stakeholders. In calling for transparency 

and efficiency, it further requested that 

CMS publish the outcome of waiver 

requests. 

Response: We thank the commenter 

for the support and appreciate that 

EGWPs and EGWP sponsors face unique 

operational issues. We have already 

established a forum for stakeholders to 

raise Part C and D concerns—the 

biweekly Part C & D user call—and we 

would welcome any questions or 

concerns that EGWPs, EGWP sponsors, 

employer groups, or other interested 

stakeholders might care to raise. 

Stakeholders can email inquiries to the 

Part C & D user call at 

PartDBenefitImpl@cms.hhs.gov. 

As to the suggestion that we publish 

the outcome of waiver requests, Chapter 

12 of the Prescription Drug Benefit 

Manual (and Chapter 9 of Medicare 

Managed Care Manual) describes 

approved waivers current as of the date 

of publication; we also post Part D 

waivers when approved by CMS 

through HPMS. We will take the 

suggestion to publish requests for 

waivers that are denied under 

consideration. 

We are finalizing the provision as 

proposed with one modification. In 

§ 423.458, the new paragraph will be 

designated as paragraph (c)(4) instead of 

(c)(3). 

11. Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (§ 423.120) 

Every time a beneficiary fills a 

prescription under Medicare Part D, a 

sponsor must submit to CMS an 

electronic summary record called a 

prescription drug event (PDE). We 

require that Part D sponsors obtain and 

submit a prescriber identifier on PDE 

records. Every prescriber has at least 

one identifier that can be submitted. 

These identifiers include the National 

Provider Identifier (NPI), Drug 

Enforcement Administration (DEA) 

number, uniform provider identification 

number (UPIN), or State license number. 

In a June 2010 report titled, ‘‘Invalid 

Prescriber Identifiers on Medicare Part 

D Drug Claims,’’ the OIG reported the 

findings of its review of prescriber 

identifiers on 2007 Part D PDE records. 

The OIG reported finding 18.4 million 

PDE records that contained 527,749 

invalid identifiers, including invalid 

NPIs, DEA registration numbers, and 

UPINs. Payments by Part D drug plans 

and enrollees for these PDE records 

totaled $1.2 billion. 

In light of this report, we signaled in 

the Announcement of Calendar Year 

(CY) 2012 Medicare Advantage 

Capitation Rates and Medicare 

Advantage and Part D Payment Policies 

and Final Letter issued on April 4, 2011 

(‘‘CY 2012 Call Letter’’) that we were 

considering a regulatory change in the 

Part D program that would limit 

acceptable prescriber identifiers on 

claims and PDE records in 2013 to only 

the individual NPI. We indicated that 

since all practitioners who are 

authorized to prescribe Part D drugs 

under applicable U.S. State laws, 

including foreign prescribers whose 

prescriptions are valid in certain States, 

can acquire an individual NPI from 

HHS, we do not believe such a change 

would present a significant access 

barrier to needed Part D drugs for 

Medicare beneficiaries. 

Not only can all practitioners who are 

authorized to prescribe Part D drugs 

under applicable U.S. State laws acquire 

an NPI from HHS, but most are required 

to do so. Pursuant to HIPAA, HHS 

adopted the NPI as the standard for 

uniquely identifying health care 

providers in electronic transactions in 

the final rule published on January 23, 

2004 (69 FR 3434), which was effective 

May 23, 2005, the date on which all 

health care providers, broadly defined 

in 45 CFR 160.103, became eligible for 

NPIs. By May 23, 2008, all covered 

health care providers, defined in 45 CFR 

162.402, must have obtained an NPI. 

Covered health care providers must 

disclose their NPI to other entities that 

need the NPI for use in standard 

transactions. 

Health care providers who are not 

covered entities are not required to 

obtain and disclose NPIs, but HHS 

encourages them to do so in the NPI 

final rule (January 23, 2004, 69 FR 

3445). Therefore, we believe there are 

very few prescribers who do not already 

have an individual NPI that they will 

disclose to Part D sponsors and/or their 

network pharmacies who need it for 

standard transactions, with the 

exception of foreign prescribers, whom 

we discussed in greater detail later in 

this section of the final rule with 

comment period. In addition, for those 

health care providers who do not 

already have an NPI, obtaining one is 

not a burdensome endeavor and is free 

of charge. 

As a measurable indicator, 

approximately 90 percent of Medicare 

Part D claims as reported in 2011 

prescription drugs events (PDEs) 

submitted to CMS contain valid 

individual prescriber NPIs—a uniform 

identifier—even though CMS permits 

alternate prescriber IDs at this time. 

However, while the vast majority of 

Medicare Part D claims contain 

individual NPIs as of coverage year 

2011, 10 percent still do not, and CMS 

believes it is important for prescribers to 

be identified in a consistent, verifiable 

manner in order to conduct appropriate 

oversight of the program. 

The consistent use of a single 

validated identifier would enable us to 

provide better oversight over possible 

fraudulent activities. More specifically, 

CMS, MEDICs, and oversight agencies 

would be able to more efficiently 

identify patterns of unusual prescribing 

that may be associated with fraudulent 

activities. When multiple prescriber 

identifiers, not to mention default, 

dummy or invalid identifiers, are used, 

authorities must take an additional step 

in their data analysis before even 

achieving a refined data set to use for 

further analysis to identify possible 

fraud. For example, having to crossreference multiple databases that update 

on different schedules to be certain of 

the precise prescribers involved, when 

multiple identifiers were used, would 

necessitate several additional steps of 

data pre-analysis and also would 

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introduce potential errors in correctly 

matching prescribers among databases. 

In light of the foregoing, we proposed 

to amend § 423.120(c) to require, 

effective January 1, 2013, that Part D 

sponsors must submit an active and 

valid individual prescriber NPI on any 

PDE record submitted to CMS. This 

requirement would enhance our efforts 

to use claims data to identify fraud in 

furtherance of section 1893 of the Act, 

which established the Medicare 

Integrity Program and the Secretary’s 

obligations with respect thereto. In 

addition to supporting CMS fraud and 

abuse activities, accurate data on 

prescriptions through the consistent use 

of valid NPIs on PDEs allows CMS to 

serve beneficiaries when using data in 

various initiatives whose purpose is to 

foster higher quality and more efficient 

coordination of care for individuals and 

groups of individuals. 

We also proposed that sponsors may 

not reject a pharmacy claim solely on 

the basis of the lack of a valid prescriber 

NPI, unless the issue can be resolved at 

point-of-sale (POS), in order not to 

impede Medicare beneficiary access to 

needed medications. In other words, we 

proposed that Part D sponsors may not 

reject pharmacy claims at point of sale 

without prompt follow-up to ensure that 

the claim has been resubmitted by the 

network pharmacy with a corrected and 

valid individual prescriber NPI, or new 

information has been otherwise received 

to correct the sponsor’s information. 

Our proposal meant that if a correct 

and valid individual prescriber NPI is 

not included in the pharmacy claim, 

and it is determined that the prescriber 

does not have one and the claim is 

otherwise payable (for example, no 

indication of fraud, such as a 

prescription written by a provider 

excluded from the Medicare program, or 

no question regarding coverage), the 

sponsor must pay the claim, but cannot 

submit the PDE to CMS. Thus, if an 

active and valid prescriber ID is not 

included on the Part D claim, either the 

sponsor, or the pharmacy if in 

accordance with the contractual terms 

of the network pharmacy agreement, 

must follow up retrospectively to 

acquire an active and valid ID before the 

PDE may be submitted to CMS. As 

noted previously, we believe 

prescribers’ NPIs will be widely 

available to Part D sponsors. 

We reminded Part D sponsors that the 

requirements proposed were on 

sponsors, whose responsibility it would 

be to submit PDEs to CMS with 

individual prescriber NPIs. Therefore, 

we stated that we would expect that 

network pharmacies will be permitted 

to correct any invalid data before 

payment for a claim is reversed, if the 

contract allows such a reversal. 

Additionally, we stated that we would 

expect that any requirement by a plan 

sponsor or its contracted PBM on a 

pharmacy to acquire and utilize its own 

automated validation capability will be 

arrived at only through mutual 

agreement, since such a requirement 

may be unaffordable for many smaller 

pharmacy organizations. For the reasons 

discussed in the following comment and 

response section, in response to 

comments, we are modifying the 

regulation text to better accomplish 

these policy goals. 

With respect to requests for 

reimbursement submitted directly by 

Medicare beneficiaries, we proposed 

that requests for reimbursement from 

Medicare beneficiaries be handled in 

the same manner by Part D sponsors as 

claims from pharmacies. Thus, we 

proposed that sponsors may not make 

payment to the beneficiary dependent 

upon the sponsor’s acquisition of an 

active and valid individual prescriber 

NPI, unless there is an indication of 

fraud. If the sponsor is unable to 

retrospectively acquire an active and 

valid NPI in connection with a request 

for reimbursement submitted by a 

beneficiary, we proposed that the 

sponsor may not seek recovery of the 

payment from the beneficiary solely on 

that basis, unless there is an indication 

of fraud. 

We had learned from stakeholders 

through a contractor to CMS that a key 

barrier to improved NPI reporting on 

Part D PDEs is that CMS does not 

currently require NPI reporting, and our 

proposal was thus responsive to those 

observations. In addition, some 

pharmacy representatives have offered 

that certain States require or accept 

other prescriber identifiers, which 

impedes NPI reporting at the pharmacy 

level. It is unclear to us whether the 

latter observation was in the context of 

States as regulators of prescriptions or 

as payers of claims or both, and which 

alternate identifiers are required or 

accepted by these States. Therefore, we 

sought specific comment on this issue to 

assist us in understanding and 

confirming any State-imposed barriers 

to the standardization of prescriber 

identifiers to the individual NPI for the 

Medicare Part D program. We did not 

receive any such comments. 

We stated that we considered 

exercising the discretionary authority 

granted pursuant to section 6405(c) of 

the Affordable Care Act so that 

prescriber NPIs would be required on 

Part D claims and PDEs. However, such 

an approach would require prescribers 

to also enroll in the Medicare program, 

which is a provider credentialing 

process. Thus, we were concerned that 

requiring such enrollment could impede 

Part D beneficiary access to needed 

medications, because the process 

involves more effort on the part of 

prescribers, who are not reimbursed for 

prescriptions, compared to obtaining an 

NPI, which involves a three page 

application form that primarily seeks 

only identifying and location 

information and is free of charge. We 

stated that since we know that 

prescribers will also be concerned about 

beneficiary access to medications, we 

believed virtually all prescribers who do 

not already have an NPI would actually 

obtain one, but we are not certain this 

would be the case with respect to 

Medicare enrollment. 

Regarding foreign prescribers, we 

stated our understanding that seven 

States (Arizona, Florida, Maine, North 

Dakota, Texas, Vermont, and 

Washington) currently permit 

pharmacies to fill prescriptions from 

foreign prescribers, to varying degrees. 

We stated our belief that foreign 

prescribers may not have sufficient 

incentives in terms of patient base or 

familiarity with health care 

reimbursement in the United States, 

particularly with respect to the 

Medicare program and Part D benefits, 

to obtain individual NPIs. Thus, unlike 

our guidance in the CY 2012 Call Letter, 

and in contrast to our proposal with 

respect to domestic prescribers, we did 

not propose to require Part D sponsors 

to cover claims involving foreign 

prescribers without an active and valid 

individual prescriber NPI. The 

motivation for our individual prescriber 

NPI proposal stems in large part from 

our need for consistent data to conduct 

better oversight over possible fraudulent 

activities in the Medicare Part D 

program. Since the Federal government 

has no jurisdiction over foreign 

prescribers, we proposed an exception 

to our proposal that the sponsor must 

pay an otherwise payable claim for a 

prescription, but cannot submit the PDE 

to CMS, without an individual 

prescriber NPI, when the claim involves 

a foreign prescriber who does not have 

an individual NPI. Thus, we proposed a 

Part D sponsor could reject a claim 

involving a foreign prescriber who does 

not have an NPI at point-of-sale without 

additional follow-up requirements. 

In fact, in light of our lack of 

jurisdiction over foreign prescribers and 

our motivation to conduct better 

oversight over possible fraudulent 

activities, we stated that we were 

considering whether the proposal with 

respect to foreign prescribers was broad 

enough and whether we should instead 

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revise the Medicare Part D rules to 

prohibit sponsors from paying claims 

that involve prescriptions written by 

foreign prescribers, regardless of 

whether the foreign prescribers obtain 

an individual NPI. We noted that we 

were not making such a proposal, but 

solicited specific comments on foreign 

prescribers and the Part D program. 

However, we received no comments on 

this alternative to the foreign prescriber 

issue, and therefore we are finalizing 

our original proposal as to foreign 

prescribers. 

Comment: Some commenters 

acknowledged the need for a single, 

validated prescriber identifier on PDEs. 

A commenter elaborated that our 

proposal would streamline prescriber 

identifier validation and enhance the 

ability to more effectively track and 

validate prescription activity at the 

individual prescriber level, which will 

assist in the identification of potentially 

fraudulent or inappropriate claims, as 

well as in improve the quality of 

patients’ therapeutic outcomes. 

Response: We agree with these 

comments. In addition to assisting us, 

we believe our proposal will result in a 

more streamlined prescriber validation 

process for Part D sponsors, PBMs, and 

network pharmacies. Routine use of a 

single identifier will minimize 

validation costs and efforts for all 

entities that collect, review and utilize 

this data. 

Comment: Some commenters 

reiterated our observation that not all 

prescribers have to obtain an NPI and 

use it, in particular medical interns and 

residents, and these commenters stated 

that interns and residents have often 

used group or supervisor NPIs on 

prescriptions. Other commenters stated 

it was unfair for Part D sponsors to 

shoulder the burden of claims for which 

there is not an active and valid 

prescriber NPI. Another commenter 

stated conversely that, due to the 

standards described in the CY 2012 Call 

Letter regarding prescriber identifiers, 

nearly all claims submitted by 

pharmacies to Part D sponsors will 

contain prescriber NPIs by 2013. 

Response: As part of our observations 

in the proposed rule, we stated that we 

believe there are actually very few 

prescribers who either do not have, or 

would be unwilling to obtain, an 

individual NPI that they will disclose to 

Part D sponsors and/or their network 

pharmacies who need it for standard 

transactions in order to facilitate their 

Medicare patients’ access to needed 

medications. Moreover, nothing 

prevents a sponsor from requesting a 

prescriber to obtain and disclose an NPI 

to facilitate a delayed submission of a 

PDE. Nevertheless, other strategies are 

being explored which would require 

prescribers who are not currently 

required to obtain NPIs to be required to 

obtain them. We agree with the 

commenter that there will be very few 

instances in which a Part D sponsor 

would not be able to submit a PDE to 

CMS due to the lack of an active and 

valid individual prescriber NPI. 

Comment: A commenter stated that 

our request that payers not reject a claim 

from a network pharmacy for lack of an 

active and valid NPI (unless the issue 

can be resolved at point of sale) and 

retrospectively obtain one, could result 

in a retroactive denial of the claim, and 

that this scenario would not adhere to 

NCPDP’s definition of a paid response. 

That is, if the sponsor has or should 

have had reason to believe that the 

identifier on the submitted claim is 

invalid or not active, but submits a paid 

response in such circumstances, this 

response would be inconsistent with 

HIPAA transaction standards, pursuant 

to which a paid response may be sent 

only when the claim satisfies the payer’s 

requirements for payment. Another 

commenter stated that the ‘‘unless the 

issue can be resolved at point-of-sale’’ 

standard is very unclear. 

Other commenters, while 

acknowledging the beneficiary access 

issue should still be considered, 

requested that we modify the final rule 

to allow Part D plans greater flexibility 

to implement measures to address 

claims lacking an active and valid NPI, 

such as claim rejection at POS, in order 

to alert the pharmacy of this fact, and to 

allow for two-way communication 

between the parties when there is an 

inconsistency between prescriber 

identifier databases at the time when the 

inconsistency is most readily resolved. 

Some commenters expressed 

appreciation and support for our 

statements regarding the fact that the 

requirement to obtain an active and 

valid NPI is imposed on sponsors and 

our expectation that sponsors would 

provide opportunities for network 

pharmacies to correct any invalid data 

before recouping any payment. These 

commenters also appreciated and 

supported our statements regarding any 

requirements by Part D sponsors/PBMs 

for the pharmacies to acquire automated 

validation capability to be mutually 

negotiated. However, these commenters 

stated that the practical effect of our 

proposal not to allow claims rejection at 

POS would be that network pharmacies 

will be forced to bear recoupment of 

claims paid by Part D sponsors, when 

active and valid NPIs cannot be 

obtained retrospectively, even when 

they have done nothing wrong. These 

commenters further stated that 

pharmacies must generally dispense a 

medication if the Part D plan provides 

coverage under their contact, and they 

are furthermore not in a position to 

refuse these Part D plan/PBM terms, nor 

terms requiring pharmacies to obtain a 

valid NPI for the claim to be payable, 

which will impose additional costs on 

many pharmacies, particularly smaller 

ones. A commenter stated that some 

Part D plans are already imposing 

requirements above and beyond current 

Federal regulations by recouping 

pharmacy reimbursement unless the 

underlying claims contain a valid 

individual NPI. 

Response: Our proposed policy that 

payers not reject a claim from a network 

pharmacy for lack of an active and valid 

NPI (unless the issue can be resolved at 

point of sale) and to retrospectively 

obtain one was to ensure beneficiary 

access to needed medications in cases 

when the NPI issue could not be 

resolved at point-of-sale. We believed 

this scenario would be rare, and that 

most NPI issues could and would be 

resolved at point-of-sale. We have been 

even more persuaded by commenters 

that real time notification of a possible 

NPI issue or error is the most efficient 

process, since the pharmacy is in the 

best position to acquire corrected 

information from the beneficiary and/or 

prescriber when filling the prescription. 

This is because we believe the 

pharmacy representative is most 

motivated to check available data or 

contact the prescriber in order to get the 

claim adjudicated. Similarly, a 

prescriber is most motivated to disclose 

a missing NPI when the pharmacy is 

trying to dispense the drug prescribed to 

his or her patient. 

In addition, in light of the comments 

received that our proposal did not allow 

for claim rejection at POS (even though 

this is a misunderstanding of our 

proposal), we are concerned that this 

proposed provision would be 

implemented by Part D sponsors in such 

a manner that sponsors will not 

undertake efforts at POS to resolve the 

NPI issue. We are concerned that 

sponsors will indicate to network 

pharmacies that claims lacking an active 

and valid individual prescriber NPI are 

payable, when the sponsors actually 

have reason to believe that the NPI is 

not active and valid, and then later 

recoup payment from the pharmacies 

pursuant to their agreements. We were 

especially persuaded by the commenter 

who stated that such a scenario would 

not adhere to NCPDP’s definition of a 

paid response. That is, if the sponsor 

has reason to believe that the identifier 

on the submitted claim is invalid or not 

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active, but submits a paid response in 

such circumstances, this response 

would be inconsistent with HIPAA 

transaction standards, pursuant to 

which a paid response may be sent only 

when the claim satisfies the payer’s 

requirements for payment. 

For these reasons, and in response to 

comments, we are revising our policy 

and the regulation text to require a Part 

D sponsor to ensure that the lack of an 

active and valid individual prescriber 

NPI on a network pharmacy claim does 

not unreasonably delay a beneficiary’s 

access to a covered Part D drug. 

Sponsors will be required to so ensure 

in the following manner: (1) A sponsor 

must communicate at point-of-sale 

whether or not the prescriber NPI is 

active and valid; (2) if the sponsor 

communicates that the prescriber NPI is 

not active and valid, the sponsor must 

permit the pharmacy to confirm that the 

NPI is active and valid, or in the 

alternative, to correct it; (3) if the 

pharmacy confirms that the prescriber 

NPI is active and valid or corrects it, the 

sponsor must pay the claim if it is 

otherwise payable; and (4) if the 

pharmacy cannot or does not correct or 

confirm that the prescriber NPI is active 

and valid, the sponsor must require the 

pharmacy to resubmit the claim (when 

necessary), which the sponsor must pay, 

if it is otherwise payable, unless there 

is an indication of fraud or the claim 

involves a prescription written by a 

foreign prescriber (where permitted by 

State law). 

We would expect the back-and-forth 

between a sponsor and network 

pharmacy described previously to take 

no more than 24 hours, which means 

that sponsors will have to have controls 

in place to make sure network 

pharmacies resubmit claims where the 

sponsor has communicated an issue 

with the NPI and a pharmacy cannot or 

does not correct or confirm that the NPI 

is active an valid. We note that in 

practice today, pharmacy customers are 

not infrequently asked to return to the 

store later the same day or the next to 

pick up a prescription to allow time to 

resolve a claim adjudication or stock 

replenishing issue. Thus, we would 

consider a 24-hour timeframe to be 

timely access to outpatient medications. 

We also note that it is standard retail 

pharmacy practice to dispense a few 

doses of medication when these delays 

occur if the customer needs immediate 

access to the drug. 

We believe these revisions preserve 

our policy that beneficiaries not be 

denied access to needed medications, 

while making it clearer that the 

requirement to obtain active and valid 

prescriber NPIs is imposed on Part D 

sponsors. At the same time, we believe 

these revisions respond to commenters’ 

concerns by clarifying what we meant 

when we stated that NPI issues must be 

resolved at point-of-sale. In addition, in 

response to commenters’ concerns that 

pharmacies will be unscrupulously 

subjected to payment recoupment for 

claims that do not contain an active and 

valid NPI when the requirement to 

obtain one is on sponsors, we are further 

revising the regulation text to state that 

a Part D sponsor must not later recoup 

payment from a network pharmacy for 

a claim that does not contain an active 

and valid individual prescriber NPI on 

the basis that it does not contain one, 

unless the sponsor: (1) Has complied 

with the POS requirements previously 

described ; (2) has verified that a 

submitted NPI was not in fact active and 

valid; and (3) the agreement between the 

parties explicitly permits such 

recoupment. We believe that this 

revision will further ensure that Part D 

sponsors engage in the point-of-sale NPI 

validation that we are requiring for the 

reasons stated previously. 

Comment: A commenter requested 

that we instruct Part D plans that they 

are not allowed to mandate the use of 

individual NPIs on Part D claims. Other 

commenters requested that CMS do just 

that. 

Response: Because this rule requires 

Part D sponsors to submit an active and 

valid prescriber NPI with a PDE, Part D 

sponsors may require that the NPI be 

submitted on claims by network 

pharmacies. However, as described 

previously, Part D sponsors will be 

required to communicate at the point-ofsale about the status of the NPI and will, 

under certain circumstances, be 

required to pay an otherwise payable 

claim, even if it does not contain an 

active and valid prescriber NPI. 

Comment: Some commenters stated 

that following up with prescribers to 

obtain NPIs creates an administrative 

burden on plans, especially when 

considering CMS PDE submission 

requirements. 

Response: We agree that this 

requirement imposes a new 

administrative burden on Part D 

sponsors. However, as we have stated 

previously, we believe that it is 

important to ensure that we have active 

and valid individual prescriber NPIs to 

allow us to better combat fraud and 

abuse. Therefore, we believe the benefit 

of this requirement outweighs the 

burden. Moreover, we expect that 

prescribers will readily respond to both 

pharmacy and sponsor activities to 

correct invalid data, and that any 

corrective action needed will 

substantially and rapidly decline over 

time, thus decreasing the burden on all 

parties. In light of the revision to our 

proposal to require NPI validation by 

sponsors at point-of-sale, as described 

previously, we believe there will be 

relatively little additional follow-up 

administration effort required on the 

part of sponsors that would interfere 

with timely PDE submission to CMS. 

Comment: A few commenters 

requested clarification of the meaning of 

‘‘active and valid.’’ 

Response: By an ‘‘active and valid’’ 

NPI, we mean that the NPI number is in 

the expected format/sequencing for such 

numbers and is listed as an active 

identifier in the National Plan and 

Provider Enumeration System (NPPES). 

Comment: A commenter stated that 

we should prohibit group NPIs from 

being used on Part D prescriptions. 

Other commenters stated that 

prescribers should have to use 

individual NPIs on their prescriptions. 

Response: Prescriptions are regulated 

by State law as noted in section II.E.8. 

of this final rule with comment period. 

We do not regulate prescriptions. At this 

time, we are not aware of any State that 

requires each electronic or written 

prescription to include the prescriber’s 

group or individual NPI in order for that 

prescription to be valid. However, we 

would again like to take this 

opportunity to encourage States to 

require that every prescription include 

the individual NPI of the prescriber in 

order to be valid under State law. 

Comment: Some commenters stated 

that CMS should notify all prescribers 

that pharmacies cannot fill Part D 

prescriptions unless they provide an 

active and valid individual NPI. 

Response: We encourage sponsors not 

to permit their network pharmacies to 

refuse to accept prescriptions when a 

prescriber has not disclosed an active 

and valid NPI, although we cannot 

prohibit a pharmacy from 

independently doing so. However, we 

do not anticipate that pharmacies will 

engage in this practice, as we have 

revised this requirement so that 

sponsors must provide information at 

POS regarding whether a submitted NPI 

is not active and valid, and to prohibit 

recoupment by the sponsor if it has not 

provided this information. Thus, since 

pharmacies will have an opportunity to 

correct or resolve apparent 

discrepancies concerning the validity of 

NPIs, and if they do, will not be subject 

to recoupment, we believe pharmacies 

will be able to manage the risk of 

nonpayment by sponsors and will not 

refuse prescriptions. Also, options are 

being explored to require NPIs for those 

few prescribers who are not currently 

required to obtain NPIs, and who do not 

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voluntarily do so, in order to facilitate 

their patient access to Part D drugs, even 

though we believe there are very few 

prescribers in this category. 

Comment: A commenter believed that 

our proposal would actually undermine 

its purpose to achieve better oversight 

over possible fraudulent activities, as 

well as other program oversight 

objectives, since PDE records would no 

longer constitute a comprehensive 

database of drugs covered under the Part 

D program. In other words, we 

understood this commenter to assert 

that plans will not submit significant 

numbers of PDEs for lack of an active 

and valid prescriber NPI. 

Response: We disagree. As noted 

previously, most prescribers already 

have and disclose NPIs, and we believe 

that number will increase after current 

efforts in 2012 to correct invalid 

prescriber identifiers on file with 

pharmacies. Also, options are being 

explored to require NPIs for those few 

prescribers who are not currently 

required to obtain NPIs, and who do not 

voluntarily do so, in order to facilitate 

their patient access to Part D drugs. 

Thus, we believe the commenter’s 

projected risk of sponsors not 

submitting PDE records due to missing 

or invalid NPIs, leading to incomplete 

Part D drug utilization records on file 

with CMS, will not materialize. 

Comment: Several commenters stated 

that there is no single, thorough, 

complete, and accurate database that 

contains up to date and validated 

prescriber NPIs, including NPPES, 

which also lacks all the data elements 

needed, such as DEA numbers, which 

causes editing issues in a real-time 

adjudication environment. One of the 

commenters stated that NPPES 

information should be disseminated and 

available to plans on a weekly basis, 

with deactivated NPIs noted, including 

the rationale for and date of 

deactivation. This commenter also 

stated that CMS should work with HHS 

Office of Inspector General (OIG) to 

ensure excluded individuals are 

identified in NPPES, as well as to create 

an NPI reference on the HHS–OIG 

excluded provider list. 

Response: The primary purpose of the 

NPPES is to collect information needed 

to uniquely identify individual and 

organization health care providers, 

assign NPIs to those health care 

providers, maintain and update the 

information about the health care 

providers, and disseminate the 

information according to the NPPES 

Data Dissemination Notice. NPPES data 

is available to the public via the NPI 

Registry and is updated daily. In 

addition to the NPI Registry, CMS 

provides a monthly NPPES 

downloadable file. 

NPPES was designed in a way to meet 

its intended purpose in the most 

feasible way and was not intended to be 

a one-stop database for all prescriber 

identifiers. Also, sanction data were not 

included in the data element list 

published in the final NPI rule 

published January 23, 2004, and 

therefore, are not included in the NPPES 

data element list today. However, we do 

acknowledge the advantages of the 

additional information desired by 

sponsors, such as the date and reason 

for deactivation of an NPI, and we are 

exploring the feasibility of improving 

the information available regarding the 

deactivated NPIs. 

Comment: A commenter stated that a 

grace period should be allowed to 

address the processing of claims with 

deactivated NPIs, such as when a 

prescriber has retired or passed away. 

This commenter suggested that rather 

than rejecting the claims, sponsors 

could send an information edit to notify 

pharmacies of the time period when it 

will begin to reject claims that contain 

the prescriber NPI, and pharmacies 

could then inform beneficiaries to find 

a new prescriber with an active 

individual NPI. 

Response: An informational edit 

during a grace period for an NPI 

deactivated due to death or retirement 

might be a prudent practice, since we 

understand some States permit refills 

when the prescription was written 

before the prescriber’s retirement or 

death. We will provide additional 

guidance in the future, if necessary on 

this point. We take no position on 

whether a pharmacy should encourage a 

beneficiary to find a new prescriber 

with an active NPI. 

Comment: A commenter supported 

the proposal to not permit recovery of 

beneficiary payment on beneficiarysubmitted requests for reimbursement 

when retroactive acquisition of the 

prescriber NPI has not been successful, 

as a means to protect beneficiary access 

to drug therapy prescribed by his or her 

physician. Another commenter was 

pleased that beneficiaries will not be 

negatively impacted by such lack of an 

NPI for a PDE. 

Response: We appreciate the support 

for our proposal. 

Comment: A commenter was pleased 

that we chose not to require Medicare 

Part D prescribers to enroll in Medicare 

which supports beneficiary access and 

obviates the need for physicians to 

engage in a credentialing process for 

which they are not compensated. 

Response: We appreciate the support 

for our proposal. 

Comment: A few commenters 

supported our proposal regarding 

foreign prescribers. Another commenter 

stated the proposal was essential for 

prohibiting claims payment on 

prescriptions involving foreign 

prescribers. One commenter noted that 

there is no database of foreign 

prescribers. 

Response: We thank the commenters 

for their support. Under our proposal, as 

revised in response to other comments, 

if a foreign prescriber has an active and 

valid NPI that is submitted on the claim, 

a Part D sponsor must pay the claim, if 

it is otherwise payable and applicable 

State law permits prescriptions from 

foreign prescribers. However, if the NPI 

is not active and valid and the 

pharmacy cannot correct the NPI for a 

foreign prescriber, then the sponsor 

does not have to require the pharmacy 

to resubmit the claim (when necessary) 

and is not required to pay it (if it is 

otherwise payable). This is consistent 

with our proposal that sponsors could 

not reject a claim lacking an active and 

valid NPI unless the claim involved a 

prescription written by a foreign 

prescriber. We acknowledge that there is 

no database of foreign prescribers; 

however, we do not believe the lack of 

such a database would hinder sponsors’ 

compliance. 

Comment: Some commenters 

requested a delay in the NPI 

requirement. 

Response: We were not persuaded by 

the comments we received that we 

should delay the prescriber NPI 

requirement for PDEs. In particular, we 

considered that ninety percent of PDEs 

as of coverage year 2011 already contain 

prescriber NPIs, according to CMS data, 

and weighed that against the importance 

of a single prescriber identifier to assist 

in fighting potential fraud in the Part D 

program. 

After consideration of the public 

comments received, we are finalizing 

our proposal with the modifications 

noted previously. 

Section 423.120(c) sets forth the 

responsibilities of Part D plan sponsors 

with regard to the use of standardized 

technologies and compliance with the 

HIPAA standards at 45 CFR 162.1102. 

We are adding a new paragraph (c)(5)(i) 

which requires Part D plan sponsors to 

submit to CMS only PDE records that 

contain an active and valid individual 

prescriber NPI. However, new paragraph 

(c)(5)(ii) will require a Part D plan 

sponsor to ensure that the lack of an 

active and valid individual prescriber 

NPI on a network pharmacy claim does 

not unreasonably delay a beneficiary’s 

access to a covered Part D drug by 

taking the steps described in a new 

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paragraph (c)(5)(iii). New paragraph 

(c)(5)(iii) requires that the sponsor 

communicate at point-of-sale whether or 

not a submitted NPI is active and valid; 

paragraph (c)(5)(iii)(A)(1) and (2) will 

require, if the sponsor communicated 

that the NPI is not active and valid, that 

the sponsor must permit the pharmacy 

to confirm that the NPI is active and 

valid, or in the alternative, to correct it. 

If the pharmacy confirms that the NPI is 

active and valid or corrects the NPI, 

paragraph (c)(5)(iii)(B)(1) will require 

the sponsor to pay the claim, if it is 

otherwise payable. Paragraph 

(c)(5)(iii)(B)(2) will require, if the 

pharmacy cannot or does not correct or 

confirm that NPI is active and valid, that 

the sponsor must require the pharmacy 

to resubmit the claim (when necessary), 

which claim the sponsor must pay, if it 

is otherwise payable, unless there is an 

indication of fraud or the claim involves 

a prescription written by a foreign 

prescriber (where permitted by State 

law). 

New paragraph (c)(5)(iv) will prohibit 

a Part D sponsor from later recouping 

payment to a network pharmacy for a 

claim that does not contain an active 

and valid individual prescriber NPI on 

the basis that it does not contain one 

unless the sponsor: (1) Complied with 

paragraph (c)(5)(ii) and (iii); (2) verified 

that a submitted NPI was not in fact 

active and valid; and (3) the agreement 

between the parties explicitly permits 

such recoupment. 

New paragraph (c)(5)(v) will prohibit 

a Part D sponsor, with respect to 

requests for reimbursement submitted 

by Medicare beneficiaries, from making 

payment to the beneficiary dependent 

upon the sponsor’s acquisition of an 

active and valid individual prescriber 

NPI, unless there is an indication of 

fraud. It will further prohibit a Part D 

sponsor from seeking recovery of any 

payment to the beneficiary on the basis 

that the sponsor was unable to 

retrospectively acquire an active and 

valid individual prescriber NPI, unless 

there is an indication of fraud. As noted 

previously, these changes would be 

effective for PDEs submitted by Part D 

sponsors on January 1, 2013 or later. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (PRA), we are required to 

provide 60-day notice in the Federal 

Register and solicit public comment 

before a collection of information 

requirement is submitted to the Office of 

Management and Budget (OMB) for 

review and approval. In order to fairly 

evaluate whether an information 

collection should be approved by OMB, 

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

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

The following sections of this 

document contain paperwork burden 

but not all of them are subject to the 

PRA for reasons noted. 

A. ICRs Regarding the Coverage Gap 

Discount Program (§ 423.100, 

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

Subpart W) 

Section 1860D–14(d)(6) of the Act 

exempts this section from PRA 

requirements. 

B. ICRs Regarding the Inclusion of 

Benzodiazepines and Barbiturates as 

Part D Drugs (§ 423.100) 

In accordance with section 175 of 

MIPPA, which amended section 1860D– 

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

revise the definition of Part D drug at 

§ 423.100 to include barbiturates when 

used for the medical indications of 

epilepsy, cancer, or a chronic mental 

health disorder, and benzodiazepines, 

effective January 1, 2013. 

Part D plan sponsors will be required 

to submit information in their formulary 

files indicating that they will cover 

these drugs. The collection of 

information burden on Part D sponsors 

imposed by this proposed regulation is 

negligible. Any burden associated with 

the requirement on sponsors relates to 

the required data entry in the formulary 

file software, and will be included in 

the PRA package entitled, Formulary 

Submission for Medicare Advantage 

(MA) Plans and Prescription Drug Plans 

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

0938–0763). 

Comment: A few commenters 

believed that they would be burdened 

because they would need to apply prior 

authorization to determine whether 

barbiturates covered specific 

indications. A commenter pointed to an 

increased number of appeals, while the 

other foresaw an increased number of 

documents related to indication 

determinations. A commenter also 

noted that the change would impact 

SNPs because these medications are 

typically available without prior 

authorization under their medical 

assistance benefit. 

Response: It is outside of the scope of 

this proposed rule to comment on the 

use of prior authorization for this 

purpose. However, we do not believe 

that this inclusion will increase the 

burden of any plan in any significant 

way because sponsors must always 

ensure that they cover drugs only when 

used for medically accepted indications. 

Making this determination is no 

different for barbiturates than for other 

drugs. As to the SNP concerns, we are 

complying with the statutory 

requirement, and because Part D 

coverage requirements for SNPs are not 

different from those for other MA–PDs, 

this requirement applies consistently 

across plan types. 

After considering the public 

comments received, we are finalizing 

the policy without modification. 

C. ICRs Regarding Pharmacy Benefit 

Manager’s Transparency Requirements 

(§ 423.514) 

Consistent with the statutory 

requirements under section 1150A(b)(3), 

we proposed to add an additional data 

element to the DIR data reporting 

requirements: aggregate amount of the 

difference between the amount the Part 

D sponsor pays the PBM and the 

amount the PBM pays retail and mail 

order pharmacies, also known as PBM 

spread. In the 2010 DIR reporting 

requirements, we collected PBM spread 

amounts aggregated to the plan benefit 

package level. We believe that with the 

addition of PBM spread amounts for 

retail pharmacies and PBM spread 

amounts for mail order pharmacies to 

the existing DIR reporting requirements, 

Part D sponsors will meet the 

requirements to report the elements in 

§ 423.514(d)(4) through (6). Beyond this 

change, no additional DIR reporting will 

be required pursuant to section 1150A 

of the Act. We did not receive any 

comments on increased burden due to 

reporting PBM spread. We are finalizing 

as proposed reporting of this data 

element, also known as PBM spread. 

In addition, section 1150A(b)(1) of the 

Act requires PBMs and Part D sponsors 

to report the percentage of all 

prescriptions that were provided 

through retail pharmacies compared to 

mail order pharmacies and the 

percentage of prescriptions for which a 

generic drug was available and 

dispensed (generic dispensing rate) by 

pharmacy type (which includes an 

independent pharmacy, chain 

pharmacy, supermarket pharmacy, or 

mass merchandiser pharmacy). We 

explored the ideas commenters 

submitted for CMS to provide 

crosswalks or derive the pharmacy type 

data from existing data sources and 

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determined that we could crosswalk 

National Provider Identifiers with a file 

from the National Council for 

Prescription Drug Programs to 

determine the percentage of all 

prescriptions that were provided 

through retail pharmacies as compared 

to mail order pharmacies as required 

under § 423.514(d)(2). However, this 

approach cannot be used to categorize 

independent, chain, supermarket, and 

mass merchandiser pharmacies because 

they are not standard pharmacy 

classifications captured in industry 

databases or files. Thus, while we are 

finalizing § 423.514(d)(3) as proposed, 

we will issue further subregulatory 

guidance regarding this reporting 

requirement before requiring Part D 

sponsors to submit this information. 

D. ICRs Regarding Good Cause and 

Reinstatement Into a Cost Plan 

(§ 417.460) 

Our proposal in § 417.460 extends 

reinstatement rights currently in place 

for members of MA and Part D plans to 

members of cost plans. Because good 

cause determinations would be made by 

CMS (or its contractor), we believe that 

this rule would not impose any new 

information collection requirements. We 

received no comments on the cost 

burden of the collection of information 

requirements related to this proposal 

and therefore are finalizing this 

provision without modification. 

E. ICRs Regarding Requiring MA Plans 

Issuance of Member ID Cards 

(§ 422.111) 

Under our authority at section 1852(c) 

of the Act to require that MA 

organizations disclose MA plan 

information upon request, as well as our 

authority under section 1857(e) of the 

Act to specify additional contractual 

terms and conditions the Secretary may 

find necessary and appropriate, we 

proposed to expressly require MA plans 

issue and re-issue as necessary a MA 

member ID card that enables enrollees 

to access all covered services. While this 

requirement is subject to the PRA, we 

believe this burden is exempt as defined 

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

effort, and financial resources necessary 

to comply with the requirement would 

be incurred by MA organizations in the 

normal course of their business 

activities. 

F. ICRs Regarding Determination of 

Actuarially Equivalent Creditable 

Prescription Drug Coverage (§ 423.56) 

We are amending a calculation at 

§ 423.56 to be consistent with the 

calculation of the actuarial value of 

qualified retiree prescription drug 

coverage found at § 423.884(d) and to 

change the term ‘‘CMS actuarial 

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

allow CMS further flexibility in issuing 

interpretive guidance on these 

requirement. There is no new 

information collection burden on 

organizations. 

We received no comments on the cost 

burden of the collection of information 

requirements related to this proposal 

and therefore are finalizing this 

provision without modification. 

G. ICRs Regarding Who May File Part D 

Appeals With the Independent Review 

Entity (§ 423.600 and § 423.602) 

The information collection 

requirements referenced in this section 

are exempt from the PRA in accordance 

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

collection activities during the conduct 

of administrative actions, such as 

redeterminations, reconsiderations, and/ 

or appeals. 

H. ICRs Regarding CMS Termination of 

Health Care Prepayment Plans 

(§ 417.801) 

This section does not impose any new 

information collection requirements. 

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

on Consistent Poor Plan Performance 

Ratings (§ 422.510 and § 423.509) 

It is our position that 3 years’ worth 

of low-star ratings constitutes a 

sufficient basis for us to terminate a 

sponsor’s Part C or D contract under 

our’ authority under section 1857(c)(2) 

of the Act. The regulation has been 

changed to reflect that. 

Regarding ICRs, we are not imposing 

any new reporting requirements. We are 

merely harnessing and putting to use 

internal data that has already been 

collected. We do not believe that our 

proposal would result in an additional 

burden; therefore, we have not 

incorporated a burden increase. 

J. ICRs Regarding Denial of Applications 

Submitted by Part C and D Sponsors 

With a Past Contract Termination or 

CMS-Initiated Non-Renewal (§ 422.502 

and § 423.503) 

We have modified the past 

performance review period described in 

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

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

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

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

the factors that may support a CMS 

denial of a contract application those 

CMS-initiated terminations or nonrenewals that became effective within 

the 38 months preceding the submission 

of a new application. 

We are not imposing any new 

reporting requirements. We are merely 

further refining our intended approach 

to using past performance in making 

application determinations. We do not 

believe that our proposal would result 

in an additional burden; therefore, we 

have not incorporated a burden 

increase. 

K. ICRs Regarding New Benefit 

Flexibility for Certain Dual Eligible 

Special Needs Plans (SNPs) (§ 422.102) 

Under § 422.102(e), we would allow 

certain dual SNPs meeting a high 

standard of integration and minimum 

performance and quality based 

standards, the flexibility to offer 

supplemental benefits beyond those that 

we allow for all other MA plans. We 

would review each qualified SNP’s 

proposed supplemental benefit offerings 

as part of our review of plan bids, and 

we would approve additional 

supplemental benefit offerings for these 

qualified SNPs as we deem necessary. 

The burden associated with this 

proposed requirement is the time and 

effort necessary for SNPs to submit their 

benefit designs, including cost-sharing 

amounts, via the PBP software. The 

collection of benefit design information 

via PBP software is currently approved 

under OCN 0938–0944. We are seeking 

to revise this control number to 

incorporate the additional use of this 

information that is described in this 

section of the final rule with comment 

period. 

Additionally, in order to evaluate how 

D–SNPs are implementing this new 

benefit flexibility, we indicate that we 

will require D–SNPs that participate in 

this new benefit flexibility initiative to 

submit a mandatory quality 

improvement project (QIP) on measures 

related to the goals of this initiative, as 

determined by CMS. The burden 

associated with this requirement is the 

time and effort that qualifying D–SNPs 

would put forth to develop and submit 

a QIP, which is currently approved 

under OCN 0938–1023 (CMS form 

#10209). We are assuming that this 

process would be completed by one MA 

organization staff person receiving a 

median hourly wage rate of $37.58, 

which is equivalent to the median 

hourly wage rate that the BLS currently 

reports for a management analyst. 

Adding the standard OMB figures of 12 

percent for overhead and 36 percent for 

benefits, respectively, we estimate an 

hourly cost of $55.61 to comply with 

this requirement. Based on our existing 

estimates of the QIP submission burden, 

we estimate that it would take each SNP 

approximately 15 hours to complete 

each QIP, resulting in an aggregate 

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22150 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

burden of 1,095 hours (15 hours 

multiplied by 73 D–SNPs) for the 73 D– 

SNPs that we believe may qualify to 

offer additional supplemental benefits 

under this new benefit flexibility 

initiative. Therefore, we estimate that 

D–SNPs participating in this initiative 

will incur an aggregate cost of $60,892 

($55.61 per hour multiplied by 1,065 

hours) in order to comply with this 

additional QIP submission requirement. 

We are seeking to revise our collection 

approved under OCN 0938–1023 to 

account for this new requirement for 

certain D–SNPs participating in this 

benefits flexibility initiative. 

L. ICRs Regarding Clarifying Payment to 

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

We proposed to require MA 

organizations provide in their contracts 

with hospitals that payments for Part A 

hospital services will be reduced for 

serious events that could be prevented 

through evidence based guidelines, in 

accordance with the HACs and POA 

policy that is currently required for 

hospitals paid under the Original 

Medicare IPPS. We believe that plans 

already have some operational systems 

in place to facilitate implementation of 

the requirement. For example, MA 

organizations are already required to 

pay non-contract provider hospitals the 

amount that they will receive for 

services under original Medicare, 

including any applicable reductions for 

HACs. Also, beginning January 3, 2012, 

MA plans will be required to collect and 

submit encounter data for each item and 

service provided to MA enrollees in 

accordance with risk adjustment 

policies required in § 422.310(d). This 

information is collected using the 

HIPAA 5010, which is already in use by 

hospital providers for FFS claims and 

contains fields for POA indicator 

reporting. While this requirement is 

subject to the PRA, the diagnosis, POA 

indicator information, and other claims 

information is already collected as part 

of the encounter data collection process, 

and this burden is currently approved 

under OCN 0938–1054. 

Additionally, we expressed our belief 

that hospitals will already be familiar 

with POA reporting and will not require 

additional education. Therefore, the 

burden associated with this provision 

would be the time and effort necessary 

for MA plans to modify their claims 

processing to recognize the POA 

indicators, if they do not already do so, 

and to adjust payment to contracted 

hospitals for the HAC events 

accordingly. Plans usually update their 

claims processing systems regularly for 

changes such as, payment logic for new 

national and local coverage 

determinations, updating HCPCS code 

information, and other changes to their 

payment calculations. Therefore, we 

believe this burden is exempt from the 

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

because the time, effort, and financial 

resources necessary to comply with this 

requirement will be incurred by plans in 

the normal course of their business 

activities. 

We received no comments on the 

information collection requirements 

associated with this proposal. However, 

based on the comments received on the 

proposed policy, we are not finalizing 

this proposal. We will continue to not 

only consider alternate strategies for 

reducing hospital-acquired conditions 

in hospitals that provide care to MA 

enrollees, but also strive toward aligning 

quality initiatives in the Medicare and 

Medicare Advantage programs. 

M. ICRs Regarding Clarifying Coverage 

of Durable Medical Equipment 

(§ 422.101(a) and § 422.112(a)) 

Under § 422.100(l), we proposed to 

permit MA plans to limit coverage of 

DME to specific manufacturers’ 

products or brands. Furthermore, in 

order to ensure that MA enrollees have 

adequate access to their DME benefits, 

our proposed regulatory changes 

establish requirements with respect to 

access, midyear changes to preferred 

DME items and supplies, appeals, and 

disclosure of DME coverage limitations 

to enrollees. The burden associated with 

this requirement is the time and effort 

necessary for MA organizations to 

submit their benefit designs via the PBP 

software. While this requirement is 

subject to the PRA, the burden 

associated with it is currently approved 

under OCN 0938–0763. With respect to 

disclosing DME coverage limitations, 

this requirement is captured in the 

burden associated with the annual 

notice of coverage/evidence of coverage 

which must be completed at the time of 

the beneficiary’s enrollment and at least 

annually thereafter. The MA program 

disclosure requirement is at § 422.111 

and the burden associated with it was 

formerly approved under OCN 0938– 

0753 which expired November 30, 2011. 

We are seeking to reinstate this 

collection in order to account for the 

new DME disclosure requirement. 

N. ICRs Regarding Broker and Agent 

Requirements (§ 422.2274 and 

§ 423.2274) 

At § 422.2274 and § 423.2274, we 

proposed that plans can choose any 

agent/broker compensation amount at or 

below the fair market value amount 

annually. We require MA organizations 

to submit and/or update and attest to 

their compensation amount (or range) in 

the HPMS. This web-based system in 

HPMS allows new plans to submit 

information and, for existing plans, 

automatically updates, based on 

changes in MA payment rates, 

organization compensation information. 

We proposed to allow plans to annually 

adjust their base compensation rates to 

reflect fair market value. Plans would 

continue to be required to annually 

submit and attest to this information to 

CMS through HPMS. While this 

proposed requirement is subject to the 

PRA, it does not impose any new 

information collection requirement on 

plans. The burden associated with the 

proposed requirement was formerly 

approved under OMB control number 

(OCN) 0938–0753 which expired 

November 30, 2011. We are seeking to 

reinstate this collection. 

O. ICRs Regarding the Establishment 

and Application of Daily Cost-Sharing 

Rate as Part of Drug Utilization 

Management and Fraud, Abuse and 

Waste Control Program (§ 423.100, 

§ 423.104 and § 423.153) 

In accordance with section 1860D– 

4(c) of the Act, we are revising § 423.153 

at paragraph (b)(4) to provide that a 

Medicare Part D sponsor’s drug 

utilization management program must 

establish and apply a daily cost-sharing 

rate, under certain circumstances, to a 

prescription presented by an enrollee at 

a network pharmacy for a covered Part 

D generic or brand drug that is 

dispensed for a supply of less than 30 

days. Under this requirement, the 

enrollee and his or her prescriber 

generally will decide if a medication 

supply of less than 30 days will be 

appropriate, and if so, the cost-sharing 

for the medication will be prorated by 

the Part D sponsor based on the days 

supply dispensed. Since obtaining a 

supply of a medication for less than 30 

days is optional for the enrollee and his 

or her prescriber, the collection of 

information burden imposed by these 

regulations on either Part Medicare D 

enrollees or their prescribers is 

negligible. Moreover, any burden 

associated with this proposal on 

sponsors related to the required data 

entry in the PBP software will be 

included in the revised PRA package 

entitled Plan Benefit Package (PBP) and 

Formulary Submission for Medicare 

Advantage (MA) Plans and Prescription 

Drug Plans (PDP) for Contract Year (CY) 

2014, since we are delaying the effective 

date of this requirement until January 1, 

2014. 

After consideration of the public 

comments received, none of which 

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specifically addressed this collection of 

information burden section, we are 

modifying this requirement as discussed 

in section II.D.6. of this final rule with 

comment period (Establishment and 

Application of Daily Cost-Sharing Rate 

as Part of Drug Utilization Management 

and Fraud, Abuse and Waste Control 

Program (§ 423.100, § 423.104 and 

§ 423.153)). However, we are not 

modifying these ICRs, since the 

collection of information burden 

imposed by this final rule with 

comment period will still be negligible, 

and any burden associated with it will 

still be captured elsewhere. 

P. ICRs Regarding Technical Corrections 

to Enrollment Provisions (§ 417.422, 

§ 417.432, § 422.60, and § 423.56) 

At § 417.422, § 417.432, § 422.60, and 

§ 423.56 we are proposed technical 

changes that correct cross-references 

that should have been updated in 

previous rulemaking. These changes do 

not establish any new rules or 

requirements for cost or Part D plans. 

They merely update regulatory crossreferences that were overlooked in 

previous rulemaking. As a result, these 

changes do not impose any new 

information collection requirements. 

Q. ICRs Regarding Applying MA and 

Part D Disclosure Requirements to Cost 

Contract Plans (§ 417.427) 

We proposed to extend the disclosure 

requirements in § 422.111 and § 423.128 

to cost contract plans. Our regulations at 

§ 422.111 and § 423.128 require MA 

organizations and Part D sponsors to 

disclose to enrollees, at the time of 

enrollment and annually thereafter (in 

the form of an annual notice of change/ 

evidence of coverage, or ANOC/EOC 

mailing), certain detailed information 

about plan benefits, service area, 

provider and pharmacy access, 

grievance and appeal procedures, 

quality improvement programs, and 

disenrollment rights and 

responsibilities. Sections 422.111 and 

§ 423.128 also require the provision of 

certain information about requests and 

establish requirements with respect to 

dissemination of explanations of 

benefits, customer service call centers, 

and Internet Web sites. 

The burden associated with this 

requirement is the time and effort 

associated with completing an ANOC/ 

EOC at the time of a beneficiary’s 

enrollment and at least annually 

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

of the MA program regulations and 

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

regulations. For each entity, we estimate 

that it will take 12 hours to develop and 

submit the required information. This 

includes 1 hour to read CMS’ published 

instructions, 6 hours to generate the 

standardized document, 1 hour to 

submit the materials, 4 hours to print 

and disclose to the beneficiaries. This 

package is currently approved under 

OCN 0938–0753 with a November 30, 

2011 expiration date to account for this 

burden as detailed in Table 7. We 

estimate 20 cost contractors would be 

affected annually by this requirement, 

resulting in a total annual burden of 240 

hours. We estimate, based on an hourly 

wage of $29.88 (hourly salary for a 

compliance officer/cost estimator 

according to Bureau of Labor Statistics) 

plus 48 percent for fringe benefits and 

overhead, that this requirement will 

result in a total annual burden of 

$10,613 (240 burden hours multiplied 

by $44.22 per hour). We are revising the 

PRA package currently approved under 

OCN 0938–0753 with a November 30, 

2011 expiration date. 

R. ICRs Regarding Clarification of and 

Extension of Regional Preferred Provider 

Organization Plan Single Deductible 

Requirements to Local Preferred 

Provider Plans (§ 422.101) 

This section does not impose any new 

information collection requirements. 

S. ICRs Regarding Modifying the Current 

PFFS Plan Explanation of Benefits 

(EOB) Requirements (§ 422.216(d)(1)) 

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

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

provide an EOB to enrollees for each 

claim filed by the enrollee or the 

provider that furnished the service. In 

the interest of consistency for 

beneficiaries and MA organizations, we 

proposed to amend § 422.216(d)(1) to 

state that the EOB requirement for PFFS 

plans would be consistent with the MA 

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

The standard EOB that we are currently 

developing and piloting in CY 2012 for 

most other MA plan types would 

include the same information as 

currently required for PFFS plans, as 

well as plan MOOP cost limit 

information. Adding this cross-reference 

to § 422.216(d)(1) would provide 

consistency in EOB requirements and 

submission and approval of marketing 

materials across plan types. Since the 

pilot program is in progress and we 

would not have finalized EOB 

requirements during this rulemaking, 

we proposed that PFFS plans would 

continue to furnish EOBs as they have 

been, in accordance with 

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

implement EOB models for all MA 

plans. While this proposed requirement 

is subject to the PRA, the information 

collection has been approved under 

CMS form CMS–10349, the information 

collection approved for the Part C EOB 

at § 422.111(b)(12). 

T. ICRs Regarding Authority To Deny 

SNP Applications and SNPs Appeal 

Rights (§ 422.500) 

Our proposed amendments to 

§ 422.500(a), § 422.501(a), 

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

§ 422.502(c) would give CMS the 

authority to deny SNP applications that 

fail to demonstrate that the MA 

organization meets the requirements of 

§ 422.2, § 422.4(a)(1)(iv); § 422.101(f); 

§ 422.107, if applicable; and 

§ 422.152(g). The burden associated 

with this requirement is the time and 

effort required by an MA organization 

offering a SNP to complete a SNP 

application. While these requirements 

are subject to the PRA, we do not expect 

the burden to change from the existing 

burden estimate, as currently approved 

under OCN 0938–0935, with a January 

31, 2012 expiration date. We are seeking 

to renew this collection. 

Our proposed amendments to 

§ 422.641 provide the procedures for 

making and reviewing certain contract 

determinations, while our proposed 

amendments to § 422.660 establish the 

circumstances under which an MA 

organization may request a hearing 

before a CMS hearing officer. We 

proposed these amendments to our 

existing regulations so that each 

applicant that we determine not to be 

qualified to offer a SNP has the right to 

request an administrative review of 

CMS’ determination. The burden 

associated with these requirements is 

the time and effort of the SNP applicant 

in developing and presenting their case 

to a CMS hearing official, and ultimately 

the CMS Administrator, to demonstrate 

that they qualify to offer a SNP. 

We expect the burden associated with 

this provision to be incurred by the 

small number of SNP applicants that we 

expect would receive application 

denials, and the small percentage of 

denied applicants that we expect would 

appeal our denial decision. We estimate 

that the total annual hourly burden for 

developing and presenting a case for us 

to review is equal to the number of 

organizations likely to request an appeal 

multiplied by the number of hours for 

the attorneys of each appealing SNP to 

research, draft, submit, and present their 

arguments to CMS. Based on SNP 

application denials from contract year 

2012, out of the approximately 400 SNP 

applications received, 8 of these 

applications were denied and all 8 

denials were appealed. In contract year 

2011, 8 SNP applications were denied 

and none of these denials were 

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appealed. Taking the average of the last 

2 years, we estimate that approximately 

4 denied applicants would appeal the 

denial of the SNP application. We 

further estimate that one attorney 

working for 8 hours could complete the 

documentation to be submitted for each 

application denial, resulting in a total 

burden estimate of 32 hours (8 hours × 

4 SNP application denials = 32 hours). 

The estimated annual cost to all MA 

organizations, in the aggregate, that have 

been denied to offer a SNP associated 

with this provision (assuming an 

attorney billing $250 per hour) is $8,000 

(32 hours × $250 = $8,000) as detailed 

in Table 7. We are revising the PRA 

package currently approved under OCN 

0938–0935, with a January 31, 2012 

expiration date, to account for this 

burden. We are seeking to renew this 

collection. 

U. ICRs Regarding Timeline for 

Resubmitting Previously Denied MA 

Applications (§ 422.501) 

This section does not impose any new 

information collection requirements. 

V. ICRs Regarding Contract 

Requirements for First Tier and 

Downstream Entities (§ 422.504 and 

§ 423.505) 

We proposed to modify the 

regulations at § 422.504(i) and 

§ 423.505(i) by deleting the term 

‘‘written arrangements’’ throughout and 

in each instance replacing it with ‘‘each 

and every contract,’’ thus ensuring that 

the MA organizations and Part D 

sponsors retain the necessary control 

and oversight over their delegated 

entities by requiring that all contracts 

among those entities specifically 

reference their obligations to the 

sponsor. 

Regarding ICRs, we are not imposing 

any new reporting requirements. We are 

simply clarifying a requirement with 

which MA organizations and Part D 

sponsors must already comply 

concerning their contracts with first tier 

and downstream entities. We do not 

believe that our proposal would result 

in an additional burden; therefore, we 

have not incorporated a burden 

increase. 

W. ICRs Regarding Valid Prescriptions 

(§ 423.100 and § 423.104) 

Our proposed definition of ‘‘valid 

prescription’’ in § 423.100 and 

requirement of a ‘‘valid prescription’’ in 

§ 423.104 would codify our 

longstanding policy of deferring to State 

laws when applicable to determine 

whether a prescription is valid such that 

the drug may be eligible for Part D 

coverage. We are not imposing any new 

reporting requirements. Prescribers and 

pharmacies remain subject to applicable 

State laws regarding valid prescriptions. 

Furthermore, private contracts regarding 

Part D drugs (such as those between MA 

organizations or Part D sponsors and 

pharmacies) likely also require valid 

prescriptions. Given these realities, we 

do not believe that codifying our 

practice of limiting Part D coverage to 

items dispensed upon applicable State 

law requirements for valid prescriptions 

could necessitate any more action than 

that already required on the part of 

stakeholders—be they prescribers taking 

steps to ensure they write valid 

prescriptions or MA organizations, Part 

D sponsors, PBMs, or pharmacies trying 

to ascertain that prescriptions are valid. 

X. ICRs Regarding Medication Therapy 

Management Comprehensive 

Medication Reviews and Beneficiaries in 

LTC Settings (§ 423.153) 

Current regulations require that 

unless a beneficiary is in a LTC setting, 

the comprehensive medication review 

(CMR) must include an interactive, 

person-to-person, or telehealth 

consultation performed by a pharmacist 

or other qualified provider, and may 

result in a recommended medication 

action plan. Section 10328 of the 

Affordable Care Act amended section 

1860D–4(c)(2) of the Act to require that 

all targeted beneficiaries be offered a 

CMR. Accordingly, we proposed a 

change to § 423.153 permitting the 

sponsor to allow the pharmacist or other 

qualified provider to perform the CMR 

without the beneficiary in cases when 

the beneficiary is in a LTC facility and 

is cognitively impaired and thus, cannot 

accept the sponsor’s offer of a CMR . We 

anticipated that the impact of this 

proposed revision would clarify the 

CMR process for sponsors by allowing 

pharmacists and other qualified 

providers to ascertain whether the 

patient is willing and able to participate 

in a CMR before administering it. 

We incorrectly stated in the proposed 

rule that we did not anticipate any costs 

or savings associated with this change. 

However, there will be a modest 

increase in costs based on the 

requirement to offer CMRs to 

beneficiaries residing in LTC settings 

with written summaries and provide the 

summaries and action plans for these 

beneficiaries in a standardized format 

that complies with the requirements 

specified by CMS. We estimate that 

215,000 beneficiaries in LTC settings are 

eligible for MTM services and 10 

percent (21,500) of those beneficiaries 

will receive an annual CMR. We also 

estimate that the average CMR requires 

35 minutes to complete and the average 

hourly compensation (including fringe 

benefits, overhead, general and 

administrative expenses and fee) of the 

MTM provider is $120. Therefore, the 

estimated total annual cost of providing 

CMRs in LTC settings is $1,504,140 

(21,500 CMRs × 0.583 hours/CMR × 

$120/hour). The estimate reflects costs 

previously calculated in the OCN 0938– 

1154. 

Y. ICRs Regarding Coordination of Part 

D Plans With Other Prescription Drug 

Coverage (§ 423.458) 

We proposed a change to simply 

strengthen our policy regarding EGWP 

sponsor responsibilities, there is no 

additional burden on the part of 

sponsors or other entities associated 

with the regulation. This section does 

not impose any new information 

collection. 

Z. ICRs Regarding Access to Covered 

Part D Drugs Through Use of 

Standardized Technology and National 

Provider Identifiers (§ 423.120) 

The inconsistent use of identifiers 

that have not been validated has 

hindered efforts to combat fraud and 

abuse. Therefore, we will require, 

effective January 1, 2013, that Part D 

sponsors must include active and valid 

individual prescriber NPIs as identifiers 

in PDEs submitted to CMS. Since Part 

D sponsors are already required to 

include a prescriber identifier on PDEs 

submitted to CMS, there is no new 

collection of information burden 

imposed by this proposed regulation. 

Furthermore, the change does not 

impose any new collection of 

information burden on Medicare 

beneficiaries enrolled in the Part D 

program with respect to requests for 

reimbursement they may submit, since 

the requirement is imposed on Part D 

sponsors. After consideration of the 

public comments received, none of 

which specifically addressed this 

collection of information burden 

section, we are modifying this 

requirement as discussed in section 

II.E.11. of this final rule with comment 

period, Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (§ 423.120). However, we are 

not modifying these ICRs since, again, 

no new collection of information burden 

is imposed by this requirement. 

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TABLE 7—ESTIMATED FISCAL YEAR REPORTING, RECORDKEEPING AND COST BURDENS

Regulation sections OMB 

control No. 

Respondents Responses 

Burden per 

response 

(hours) 

Total annual 

burden 

(hours) 

Hourly labor 

cost of 

reporting 

($) 

Total labor 

cost 

($) 

Total 

capital/ 

maintenance 

costs 

($) 

Total cost 

($) 

417.427 ................................................. 0938–0753 20 20 12 240 44 .22 10,613 N/A 10,613 

422.102 ................................................. 0938–1023 73 73 15 1,095 55 .61 60,893 N/A 60,893 

422.500 ................................................. 0938–0935 4 4 8 32 250 .00 8,000 N/A 8,000 

423.153 ................................................. .................. 21,500 21,500 0 .583 12,534 .5 120 .00 1,504,140 N/A 1,504,140 

Total ............................................... .................. 21,597 21,597 .................... 13,901 .5 .................... .................. N/A 1,583,646 

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

Department of Labor, Bureau of Labor Statistics. 

AA. Additional Information Collection 

Requirements—Independence of LTC 

Consultant Pharmacists 

In the proposed rule we imposed 

collection of information requirements 

as outlined in the regulation text and 

specified earlier in this section. 

However, we also made reference to 

associated information collection 

requirements that were not presented in 

the regulation text of the proposed rule. 

In our October 11, 2011 proposed rule 

(76 FR 63067), we discussed the 

information collection requirements 

related to the changes we considered 

that would require each LTC facility to 

employ or obtain the services of a 

consultant pharmacist who was not 

employed, under contract, or otherwise 

affiliated with the facility’s pharmacy, a 

pharmaceutical manufacturer or 

distributor, or any affiliate of these 

entities. 

Comment: Many commenters noted 

that the services performed by LTC 

consultant pharmacists are more 

extensive than the drug regimen reviews 

and include activities such as 

destroying unused medications, 

checking storage areas, conducting exit 

conferences, providing in-service 

education to nursing staff, observing 

medication distribution, and attending 

meetings. Commenters stated the full 

range of consultant pharmacist services 

need to be considered in determining 

the burden associated with the new 

requirements. 

Response: We appreciate these 

comments and will use them to inform 

possible future rulemaking regarding the 

LTC consultant pharmacist 

requirements. However, after 

considering the public comments 

received, we are not finalizing this 

provision at this time. 

V. Regulatory Impact Analysis 

A. Statement of Need 

The purpose of this final rule with 

comment period is to make revisions to 

the MA Part C and Part D programs to 

implement provisions specified in the 

statute and make other changes to the 

regulations based on our continued 

experience in the administration of the 

Parts C and Part D programs. The final 

rule with comment period will—(1) 

Implement statutory provisions; (2) 

strengthen beneficiary protections; (3) 

exclude plan participants that perform 

poorly; (4) improve program 

efficiencies; and (5) clarify program 

requirements. 

B. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

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

354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995, Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional 

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

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. A 

regulatory impact analysis (RIA) must 

be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). This 

final rule with comment period has 

been designated an ‘‘economically 

significant’’ rule under section 3(f)(1) of 

Executive Order 12866. Accordingly, we 

have prepared a regulatory impact 

analysis that details the anticipated 

effects (costs, savings, and expected 

benefits), and alternatives considered by 

proposed requirement. Details regarding 

the burden associated with the 

requirements of this final regulation are 

located in the Collection of Information 

section (section IV. of this final rule 

with comment period). 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. The great 

majority of hospitals and most other 

health care providers and suppliers are 

small entities, either by being nonprofit 

organizations or by meeting the SBA 

definition of a small business (having 

revenues of less than $7.0 million to 

$34.5 million in any 1 year). Individuals 

and States are not included in the 

definition of a small entity. This final 

rule does not directly impact, health 

care providers, suppliers and State 

governments since it amends the current 

requirements for MA organizations and 

Parts D sponsors, and adds requirements 

for pharmaceutical manufacturers 

consistent with the statutory 

requirements of the new manufacturer 

drug discount program. Part D sponsors 

and pharmaceutical manufacturers, the 

entities that will largely be affected by 

the provisions of this rule, are not 

generally considered small business 

entities. Part D sponsors must meet 

minimum enrollment requirements 

(5,000 in urban areas and 1,500 in 

nonurban areas) and because of the 

revenue from such enrollments, these 

entities are generally above the revenue 

threshold required for analysis under 

the RFA. We determined that there were 

very few Part D sponsors that fell below 

the size thresholds for ‘‘small’’ 

businesses established by the Small 

Business Administration (SBA). 

Currently, the SBA size threshold is $7 

million in total annual receipts for 

health insurers (North American 

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Industry Classification System, or 

NAICS, Code 524114) and CMS has 

confirmed that most Part D sponsors 

have Part D receipts above the $7 

million threshold. We also determined 

that there were very few pharmaceutical 

manufacturers participating in the 

Medicare prescription program drug 

discount program that fell below the 

size thresholds for small businesses 

using the SBA size threshold of 750 

employees (NAICS code 32541). Total 

jobs data for manufacturers support the 

fact that the pharmaceutical industry is 

dominated by large businesses. 

While the NAICS lists 1,555 business 

in the United States that represent the 

pharmaceutical and medicine 

manufacturing industry only 237 brand 

manufacturers currently participate in 

the program, and most exceed the 750 

employee threshold. The majority of 

smaller manufacturers are either generic 

or specialty pharmaceutical 

manufacturers that are unlikely to 

participate in the Medicare discount 

program. We reviewed some of the 

employment statistics for the smaller 

specialty pharmaceutical manufacturers 

that participate in the discount program, 

and found that the number of employees 

typically exceeds the SBA threshold. 

While a very small rural plan could 

fall below the threshold, we do not 

believe that there are more than a 

handful of such plans. Similarly, 

manufacturers are not normally 

considered small business entities. 

However, there are manufacturers that 

have minimal revenue, primarily 

because their emphasis is on the 

development of products rather than 

sales or they are not focused on large 

markets. A fraction of MA organizations 

and sponsors are considered small 

businesses because of their non-profit 

status. HHS uses as its measure of 

significant economic impact on a 

substantial number of small entities, a 

change in revenue of more than 3 to 5 

percent. We do not believe that this 

threshold will be reached by the 

requirements in this final rule because 

this final rule will have minimal impact 

on small entities. Therefore, an analysis 

for the RFA will not be prepared 

because the Secretary has determined 

that this final rule with comment period 

will not have a significant impact on a 

substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare an analysis if a 

rule may have a significant impact on 

the operations of a substantial number 

of small rural hospitals. This analysis 

must conform to the provisions of 

section 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. We are not preparing an analysis 

for section 1102(b) of the Act because 

the Secretary has determined that this 

final rule with comment period will not 

have a significant impact on the 

operations of a substantial number of 

small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year by State, 

local, or tribal governments in the 

aggregate, or by the private sector of 

$100 million in 1995 dollars, updated 

annually for inflation. In 2011, that 

threshold was approximately $136 

million. This final rule with comment 

period is expected to reach this 

spending threshold. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

Based on CMS Office of the Actuary 

estimates, we do not believe that this 

final rule with comment period imposes 

substantial direct requirement costs on 

State and local governments, preempts 

State law, or otherwise has Federalism 

implications. 

After considering the public 

comments received, we are not 

finalizing two of the provisions 

included in the proposed rule— 

Application of Medicare HospitalAcquired Conditions and Present on 

Admission Indicator Policy to MA 

organizations, and Independence of LTC 

Consultant Pharmacists. We estimated 

that the impact of the former provision 

would be negligible and received no 

comments on our estimate. We 

estimated the costs and savings 

associated with the consultant 

pharmacist independence provision and 

stated that we believed the costs and 

benefits would be offsetting. Some 

commenters disagreed with our 

estimates. However, we agree with the 

many commenters who claimed that the 

requirement for consultant pharmacists 

to be independent would be highly 

disruptive to the industry, but would 

not solve drug overutilization and 

inappropriate prescribing in LTC, 

because others, such as LTC facility staff 

and physicians, contribute significantly 

to the problem. Therefore, although we 

believe changes are necessary and a 

requirement for consultant pharmacist 

independence is part of the right 

approach, we are not finalizing the 

requirement in this rule. Since we are 

not finalizing these two provisions, they 

have no impact on this final rule with 

comment period. 

In Table 8, we estimate total costs to 

the Federal government, States, Part D 

sponsors, MA organizations, 

pharmaceutical manufacturers and other 

private sector entities as a result of 

various provisions of this final rule with 

comment period. The provisions with 

the most significant costs (costs greater 

than $100 million from FY 2013 through 

FY 2018) in this final rule with 

comment period are the Medicare 

Coverage Gap Discount Program 

(Discount Program), and the Inclusion of 

Benzodiazepines, and Barbiturates as 

Covered Part D drugs. 

The total costs of the Discount 

Program for the periods beginning FY 

2013 through FY 2018 are estimated to 

be $31.1 billion, and the total costs of 

the inclusion of benzodiazepines and 

barbiturates is $1.9 billion. 

Tables 9, 10, and 11 detail the costs 

by cost-bearing entity. Specifically, 

Table 9 describes costs and savings to 

the Federal government, Table 10 

describes costs to MA organizations 

and/or PDP sponsors and third party 

entities, Table 11 describes costs to 

pharmaceutical manufacturers, and 

Table 12 describes savings to States. 

As a result, when considering both 

the costs and savings associated with 

the provisions of this final rule with 

comment period, we conclude with a 

net cost estimate of $31.3 billion for FY 

2013 through FY 2018. 

C. Anticipated Effects 

1. Medicare Coverage Gap Discount 

Program 

The Discount Program makes 

manufacturer discounts available at the 

point-of-sale to applicable Medicare 

beneficiaries receiving applicable drugs 

while in the coverage gap. In general, 

the discount on each applicable drug is 

50 percent of an amount equal to the 

negotiated price of the drug (less any 

dispensing fee). In general, 

manufacturers must agree to provide 

these discounts by signing an agreement 

with CMS in order for their applicable 

drugs to continue to be covered under 

Medicare Part D. 

a. Required Payment of Gap Discounts 

We believe that there will be 

significant costs to manufacturers from 

paying the required discounts to 

beneficiaries while in the coverage gap. 

We estimate that aggregate discounts 

from pharmaceutical manufacturers will 

be $29.7 billion during FY 2013 through 

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FY 2018. That estimate is based upon 

historical patterns of claims dispensed 

during the coverage gap and the dollar 

amount of those claims trended forward 

by enrollment growth and price 

increase. 

In addition, the Discount Program 

will increase Medicare costs by 

inducing additional use of more 

expensive brand name drugs by 

improving beneficiary adherence as a 

result of the lower out-of-pocket costs 

by increasing use of brand name instead 

of generic drugs. The increased use of 

brand name drugs will increase 

Medicare costs by increasing the 

number of beneficiaries reaching the 

Part D catastrophic threshold and 

thereby, increasing the cost of plan 

benefits. We estimate that the Discount 

Program will increase Medicare costs by 

$1.3 billion during FY 2013 through FY 

2018. 

It is important to note that these 

estimated Medicare costs do not include 

costs related to the Affordable Care Act 

provisions that revised the Part D 

benefit structure to close the coverage 

gap. These provisions not only revised 

the coinsurance amount, but also 

reduced the growth in the annual outof-pocket threshold. The costs to the 

Federal government associated with 

these provisions, as scored in the April 

15, 2011 final rule (76 FR 21432), were 

estimated to total $3.6 billion during FY 

2011 through FY 2016. 

b. Other Manufacturer Costs 

We believe that manufacturers will 

also incur costs as a result of specific 

obligations under the Discount Program 

Agreement. The Discount Program 

Agreement must be signed by all 

participating manufacturers and 

provides the terms and conditions for 

timely payment of discounts, disputes 

and appeals, penalties, and termination 

of the Agreement. In order to comply 

with the Discount Program Agreement, 

manufacturers will need to analyze and 

pay quarterly invoices, notify CMS 

about labeler code changes, notify FDA 

about NDC changes and maintain 

records for potential audit by CMS. This 

will require them to establish 

connectivity with the Discount Program 

third party administrator (TPA) to 

receive quarterly invoices and file 

disputes, and obtain access to the CMS 

Health Plan Management System 

(HPMS) to update and maintain contact 

and labeler code information. However, 

manufacturers already have existing 

systems and perform similar activities 

as a result of their experience with 

Medicaid and Tricare. We estimate that 

analyzing and paying the quarterly 

invoices will require 0.5 FTEs. We 

estimate that the cost to manufacturers 

will be $73,380 (annual salary for a 

Pharmaceutical Manufacturing 

Compliance Officer according to Bureau 

of Labor Statistics) plus 48 percent for 

fringe benefits and overhead × 0.5 FTE 

× 240 manufacturers × 6 years for a total 

cost of $78.2 million over the complete 

period FY 2013 through FY 2018. 

2. Payment Processes for Part D 

Sponsors 

We believe that there will be a minor 

impact on Part D sponsors from 

receiving and reconciling estimated 

rebates advanced by CMS with 

subsequent payments by manufacturers. 

Part D sponsors have experience and 

existing systems to accept and reconcile 

funds with CMS, including a LICS 

subsidy and a reinsurance subsidy. We 

believe that there will be a marginal 

increase in resources focused on 

accounting and computer system 

operations and maintenance. We 

estimate that the additional resources 

required will be 0.5 FTEs, on average, 

per Part D sponsor. We estimate that the 

total cost to Part D sponsors will be 

$63,360 (annual salary for insurance 

carrier compliance officer according to 

Bureau of Labor Statistics) plus 48 

percent for fringe benefits and overhead 

× 0.5 FTE per Part D sponsor × 270 Part 

D sponsors × 6 years for a total of $76.0 

million over the complete period FY 

2013 through FY 2018. 

3. Provision of Applicable Discounts for 

Applicable Drugs for Applicable 

Beneficiaries 

We believe that there will be a minor 

impact on Part D sponsors as a result of 

this provision. Part D sponsors already 

implement systems to adjudicate 

pharmacy claims. With the exception of 

calculating and accounting for gap 

discounts, those systems include 

similar, if not identical, tasks as the 

requirements in the final rule. Further, 

we believe that the carrying cost of 

distributing the discounts to 

beneficiaries will be offset by 

prospective payments from us as 

previously described. 

We believe that the additional 

workload associated with this final 

regulation will involve modifications to 

existing computer programming to 

account for the differences between the 

Discount-related systems and the 

traditional Part D program. In addition, 

we expect there to be additional 

reporting and recordkeeping. We 

estimate that Part D sponsors will 

increase resources the equivalent of 0.5 

additional FTEs to accomplish these 

tasks. We estimate the cost to Part D 

sponsors will be $63,360 (annual salary 

for insurance carrier compliance officer 

according to Bureau of Labor Statistics) 

plus 48 percent for fringe benefits and 

overhead × 270 Part D sponsors × 6 

years for a total cost of $76.0 million 

over the complete period FY 2013 

through FY 2018. 

4. Manufacturer Discount Payment 

Audits and Dispute Resolution 

The final regulation will permit 

manufacturers to undertake audits of the 

data used to calculate quarterly invoices 

and to dispute the invoices themselves. 

We believe that the activities necessary 

for disputing invoices and conducting 

data audits will be accommodated by 

the additional resources that we earlier 

linked to the Discount Program 

Agreement. Therefore, we are not 

estimating an additional economic 

impact to manufacturers from this 

provision. 

5. Beneficiary Dispute Resolution 

The final rule will create the right of 

beneficiaries to dispute gap discounts 

using preexisting Part D sponsor 

beneficiary dispute resolution 

mechanisms. We believe that the 

potential increase in beneficiary dispute 

volume will not require additional Part 

D sponsor resources. We have made 

significant efforts to ensure that the data 

used to calculate the discounts are 

accurate. We believe that the accuracy 

of the data, coupled with the 

automation of the dispute calculation, 

will result in accurate discounts that 

will generate few beneficiary appeals 

and will be accommodated within 

existing resources. 

6. Compliance Monitoring and Civil 

Money Penalties 

The final regulations require CMS to 

impose penalties if a manufacturer does 

not pay gap discounts that are owed 

according to the terms of the Discount 

Program Agreement. We believe that, in 

general, manufacturers will pay the 

quarterly invoice according to the terms 

within the Discount Program Agreement 

and, therefore; we expect very few 

instances where manufacturers are 

levied a civil money penalty. 

Accordingly, we assume that monetary 

penalties will be levied on only a very 

small percent of all discount payments, 

estimated to be approximately 0.03 

percent, for a total of $9.64 million in 

civil money penalties imposed over the 

period FY 2013 through FY 2018. 

7. Termination of Discount Program 

Agreement for Part D Program 

We believe that we will rarely find it 

necessary to terminate an agreement. 

Upon termination, covered Part D drugs 

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of the manufacturers will be excluded 

from the Part D program and the 

manufacturer potentially will suffer a 

significant reduction in revenue. We 

have experience with similar programs 

and believe that the potential reduction 

of revenue will encourage 

manufacturers to resolve our concerns. 

This will tend to avoid terminations and 

the associated fiscal effects. 

Consequently, we estimate that there 

will be no material costs to 

manufacturers due to potential 

agreement terminations during the 

period FY 2013 through FY 2018. 

8. Inclusion of Benzodiazepines and 

Barbiturates as Part D Drugs 

In accordance with section 175 of the 

MIPPA that amended section 1860D– 

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

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

definition of Part D drug at § 423.100, by 

including barbiturates when used for 

the medical indications of epilepsy, 

cancer, or a chronic mental health 

disorder, and benzodiazepines class 

drugs as covered under Part D effective 

January 1, 2013. 

Under this provision, Part D plan 

sponsors will be required to submit 

information in their formulary files 

indicating that they will cover these 

drugs. We estimated that the cost to the 

Federal Government to be $1.9 billion 

over the 2013 through 2018 period. We 

assumed the cost of benzodiazepines 

and barbiturates as 0.4 percent of total 

drug cost, and that the inclusion of both 

these drugs will increase proportional to 

the current overall Part D level. 

9. Good Cause and Reinstatement Into a 

Cost Plan 

At § 417.460(c)(3) we proposed to 

allow beneficiaries who have been 

disenrolled from their cost plans for 

nonpayment of premium or other 

charges imposed by the plan for 

deductible and coinsurance amounts the 

opportunity to be reinstated into their 

plan if they can establish good cause for 

nonpayment of cost-sharing. CMS (or its 

designee) will evaluate cost-plan 

enrollees’ requests for reinstatement 

based on good cause and make the 

‘‘good cause’’ determinations. We 

anticipate that there would be no cost 

impact on cost plans. We received no 

comments on the regulatory impact 

analysis of this proposal and therefore 

are finalizing this provision without 

modification. 

10. Determination of Actuarially 

Equivalent Creditable Prescription Drug 

Coverage 

We are clarifying our regulations at 

§ 423.56 to define creditable 

prescription drug coverage consistent 

with the calculation of the actuarial 

value of qualified retiree prescription 

drug coverage found at § 423.884(d). 

Since this is a clarification to an existing 

calculation that is already being utilized 

by organizations providing creditable 

coverage, there will be no cost impact 

on these organizations. 

We received no comments on the 

regulatory impact analysis of this 

proposal and are finalizing this 

provision without modification. 

11. Who May File Part D Appeals With 

the Independent Review Entity 

The changes to § 423.600 will allow 

prescribing physicians and other 

prescribers to request IRE 

reconsiderations on behalf of Part D 

plan enrollees and the corresponding 

change to § 423.602(a) specifies that the 

IRE must also notify the prescribing 

physician or other prescriber of its 

decision when the prescriber makes the 

request on behalf of the enrollee. The 

quantifiable burden associated with 

these provisions is the cost of 

processing Part D reconsiderations 

(which includes providing notice of the 

decision). While this provision is 

expected to increase the number of 

reconsiderations processed and 

completed by the IRE, it will also 

significantly reduce the number of 

appeals that have to be dismissed 

because the AOR form would no longer 

be required in cases when a prescriber 

is requesting a reconsideration on behalf 

of an enrollee. In 2010, the IRE 

dismissed approximately 2,500 

reconsideration requests submitted by 

prescribers due to the lack of a properly 

executed AOR form, at an estimated cost 

of $215,000. We estimate the cost of 

issuing a substantive reconsideration 

decision in cases that are currently 

subject to dismissal to be $540,000, 

assuming an estimated cost of about 

$216 per case. However, this added cost 

would be offset by the reduction in 

dismissed cases, for an estimated annual 

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

$215,000). 

We also believe that eliminating the 

AOR requirement will result in about a 

15 percent increase in the total number 

of IRE reconsiderations requests. Based 

on the percentage of plan level appeals 

currently filed by prescribers on behalf 

of enrollees (approximately 85 percent), 

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

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

reconsideration data, we estimate there 

would be an additional 3,000 

reconsideration requests, with an 

estimated increase in annual costs of 

about $648,000. The estimated 

increased cost associated with issuing 

substantive reconsideration decisions 

(as opposed to dismissals) and the 

increased cost associated with the 

increase in the reconsideration 

workload, results in total estimated 

annual increased costs to the Federal 

government of approximately $973,000 

or a total of $5.84 million for FYs 2013 

through 2018. 

The increase in reconsideration 

requests would result in additional costs 

to plan sponsors based upon additional 

time and effort to assemble case files 

and documentation associated with 

these requests and shipping to the IRE 

for processing. We assume a cost of 

approximately $25.00 per 

reconsideration to print, copy, compile, 

and mail the case file to the IRE. This 

results in an additional annual cost to 

all Part D plan sponsors of 

approximately $75,000 ($25 per file × 

3,000 additional files = $75,000), or a 

total of $450,000 from FYs 2013 through 

2018. 

Comment: CMS received a few 

comments on the regulatory impact 

analysis of this proposal. A commenter, 

citing the greater number of IRE 

reconsideration requests under the MA 

program and linking that in part to 

providers’ ability to initiate appeals, 

urged CMS to consider additional 

administrative costs associated with this 

change. Another commenter specifically 

noted the increased burden placed on 

plan sponsors’ appeals departments as a 

result of having to prepare a larger 

number of case files for the IRE. 

Response: We agree that compared to 

the Part D program, the MA program has 

a significantly higher number of IRE 

appeal requests. However, this is not a 

result of provider appeals, because in 

the MA program, providers do not 

technically have a right to appeal an 

adverse plan reconsideration to the IRE. 

Instead, in MA, all adverse plan 

reconsiderations are auto-forwarded to 

the IRE for review. We are not proposing 

that all adverse redeterminations in the 

Part D program be auto-forwarded to the 

IRE. The burden estimate already 

includes a discussion of the burden 

associated with the increased number of 

reconsiderations as a result of the 

proposed change and the increased 

number of cases that plan sponsors will 

need to prepare for shipment to the IRE. 

Thus, we believe that we have 

accurately accounted for the estimated 

burden increase related to this 

provision, both for the government and 

plan sponsors, and are finalizing this 

provision without modification. 

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

We have the authority under section 

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

contracts with a MA organization or a 

Medicare PDP sponsor when we 

determine that the organization has 

failed substantially to carry out the 

contract or is carrying out the contract 

in a manner inconsistent with the 

efficient and effective administration of 

the Part C or D program. We believe that 

a sponsor that fails to achieve at least a 

3-star rating for 3 consecutive years has 

demonstrated consistently that it is 

unable or unwilling to take corrective 

action to improve its Part C or D 

performance. Therefore, we are 

proposing to revise the regulation to 

reflect our position that 3 years’ worth 

of low star ratings constitutes a 

sufficient basis for CMS to terminate a 

sponsor’s Part C or D contract. 

The changes made to this regulation 

will not result in any additional costs. 

MA organizations and Part D sponsors 

already incur costs as a result of needing 

to be in compliance with existing 

regulatory requirements. This change 

merely clarifies our authority to use 

sustained poor performance rating 

results (which are already being 

produced annually) as a basis for 

termination. 

13. Exclusion for Sponsors of Contracts 

Terminated for Cause 

We have modified the past 

performance review period described in 

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

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

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

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

the factors that may support a CMS 

denial of a contract application those 

CMS-initiated terminations or nonrenewals that became effective within 

the 38 months preceding the submission 

of a new application. 

The changes made to this regulation 

will not result in any additional costs 

since we are not imposing any new 

requirements. Rather, we are merely 

extending the period of time that we can 

review for purposes of application 

qualification determinations when an 

organization has had a prior contract 

terminated or non-renewed by CMS. 

Thus, there are no additional costs 

involved. 

14. Independence of Long Term Care 

Consultant Pharmacists 

In our October 11, 2011 proposed rule 

(76 FR 63071), we discussed the 

anticipated effects of the changes we 

considered that would require each LTC 

facility to employ or obtain the services 

of a consultant pharmacist who was not 

employed, under contract, or otherwise 

affiliated with the facility’s pharmacy, a 

pharmaceutical manufacturer or 

distributor, or any affiliate of these 

entities. 

Comment: Some commenters 

disagreed with our belief that the costs 

and benefits associated with this 

provision would be offsetting. Instead, 

they contended that the requirement for 

independent consultant pharmacists 

would create a financial burden for 

facilities and consultant pharmacists 

and that the requirement would cost, 

not save, money. 

Response: We are not finalizing the 

requirement for consultant pharmacists 

to be independent in this rule. However, 

we appreciate the comments on our 

impact analysis and will consider the 

information provided in the process of 

possible future rulemaking on this issue. 

15. New Benefit Flexibility for Certain 

Dual Eligible Special Needs Plans (D– 

SNPs) (§ 422.102) 

We estimate that our modification of 

§ 422.102(e) to allow certain D–SNPs to 

offer additional supplemental benefits 

beyond those other MA plans—subject 

to CMS approval, and as specified 

annually by CMS—will result in 

aggregate savings to both States and the 

Federal government of approximately 

$137.7 million between FY 2013 and FY 

2018. These Federal and State savings 

estimates are based on our assumption 

that, based on the eligibility standards 

we establish, approximately 73 D–SNPs 

will qualify to participate in this 

initiative, representing a total of 

approximately 507,000 enrollees in 

2011. We estimate that D–SNPs 

participating in this initiative will incur 

a small cost of approximately $0.07 

million annually in order to comply 

with the QIP reporting requirements 

that we are requiring for eligible D– 

SNPs as a condition of participating in 

this initiative. Accounting for these 

administrative costs to MA 

organizations, we estimate this 

provision will result in an aggregate 

savings to the health care sector of 

$137.22 million between FY 2013 and 

FY 2018. 

While we acknowledge that the 

current authority for all SNPs, including 

D–SNPs, to restrict enrollment to special 

needs individuals (under section 

1859(f)(1) of the Act), expires at the end 

of the 2013 contract year, we report the 

impact of this provision from FYs 2013 

through 2018, to be consistent with the 

scoring of other provisions of this rule. 

We note that this impact may vary based 

on Congressional action. 

We are basing our analysis of the 

potential cost impacts of the D–SNP 

benefit flexibility initiative on our 

experience with HMO integrated care 

model demonstrations for MedicareMedicaid dual eligibles and on our 

observation of enrollment increases that 

resulted from these demonstrations. 

From 1997 through 2006, we 

conducted demonstrations that pooled 

Medicare and Medicaid payments to the 

Minnesota Senior Health Options 

(MSHO), Wisconsin Health Partnership 

Program (WPP) and Massachusetts 

Senior Care Organization (MSCO) 

HMOs to deliver Medicare and 

Medicaid-covered primary, acute, and 

long-term care services to voluntarily 

enrolled elderly dual eligibles. The 

plans participating in the demonstration 

were responsible for delivering 

Medicaid community care services, 

developing managed care coordination 

models, and arranging for the delivery 

of the full range of acute and long-term 

care services and developing care 

coordination models—characteristics 

that we believe are essential for the 

provision of comprehensive, integrated 

care. The demonstrations also used 

Medicaid funds to cover community 

care services (for example, personal 

care, homemaking, transportation, 

personal emergency response systems, 

home-delivered meals, adaptive 

equipment, home modifications, 

incontinence supplies, and respite care 

that support independence and avoid 

inappropriate institutionalization). At 

the start of the demonstrations, concern 

that marketing additional supplemental 

benefit offerings would attract a 

significant number of new enrollees-led 

us to cap enrollment in the 

demonstration. However, States in the 

demonstration never came close to 

reaching this enrollment cap. The only 

major enrollment increase was in 2006, 

when the demonstration programs were 

converted to D–SNPs, and the D–SNPs 

were able to passively enroll enrollees. 

The MSHO demonstration, the most 

extensively analyzed integrated care 

demonstration program for dual eligible 

enrollees, received a Medicare and a 

Medicaid capitation payment for the 

provision of acute and long-term care 

services, but reimbursed providers 

directly for nursing home services on a 

fee-for-service basis. Therefore, Federal 

and State government costs under this 

capitated program were not related to 

actual utilization, with the exception of 

fee-for-service nursing home costs. 

Utilization data from the MSHO 

demonstration show that MSHO 

enrollees had significantly fewer shortstay nursing home admissions as 

compared to dual eligibles both within 

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and outside of the MSHO demonstration 

area. 

We believe that plans have incentives 

to generate higher rebates to fund these 

extra supplemental benefits and have 

assumed that they will reduce their 

margins by 1 percent. Taking into 

account expected growth rates in bids 

and benchmarks, and projected rebate 

shares, we expect that D–SNPs that 

participate in this benefit flexibility 

initiative will reduce their bids by 2 

percent on average—1 percent medical 

and 1 percent margin—as a result of our 

proposed changes to § 422.102(e). 

Applying the per-capita savings to the 

projected enrollment for these qualified 

D–SNPs, we project $131.6 million 

savings to the Medicare program for the 

6-year period between FY 2013 and FY 

2018. 

We also believe that, when delivered 

in a prudent manner, the additional 

benefits that qualified D–SNPs will be 

permitted to offer under our proposed 

changes to § 422.102(e) will allow some 

high-risk patients to remain in their 

home and out of institutions. We 

estimate that the new flexibility will 

generate modest reductions in Medicare 

program expenditures, due to a 1 

percent savings of Medicare-covered 

medical benefits stemming from these 

enhanced flexibilities. 

Additionally, based on the evidence 

from the studies in Massachusetts, 

Minnesota, and Wisconsin 

demonstrations, we believe that the 

flexibility for D–SNPs to offer additional 

supplemental benefits will modestly 

impact nursing facility utilization rates 

and Medicaid costs. Our assumptions 

regarding the effectiveness of these 

services in preventing nursing facility 

entry are consistent with assumptions 

we have used for other legislative and 

regulatory proposals aimed at reducing 

nursing facility use and encouraging 

home and community based long term 

care. Applying the per-capita savings to 

the projected enrollment for D–SNPs 

that would qualify to participate in this 

initiative, we estimate Federal and State 

Medicaid savings of $6.12 million for 

the 6-year period between FY 2013 and 

FY 2018 as a result of this provision. 

Finally, as detailed in the section III. 

Information Collection Requirements, of 

this final rule with comment period, we 

estimate an annual cost of $60,893 to 

MA organizations as a result of this 

provision’s requirements. This cost 

reflects the administrative cost, 

including burden hours and staff wage 

rates, that participating D–SNPs would 

incur in order to complete and submit 

the additional QIP that we are requiring 

as a condition of participating in this 

benefits flexibility initiative. We 

estimate that these requirements will 

cost MA organizations approximately 

$0.36 million from FYs 2013 through 

2018. 

16. Application of the Medicare 

Hospital-Acquired Conditions and 

Present on Admission Indicator Policy 

to MA Organizations (§ 422.504) 

We proposed to require MA 

organizations to reduce reimbursements 

for Part A hospital services for contract 

provider hospitals for serious events 

that could be prevented through 

evidence based guidelines, in 

accordance with the HACs and POA 

policy that is currently required for 

hospitals paid under the Original 

Medicare IPPS. MA organizations are 

already required to pay non-contract 

provider hospitals the amount that they 

will receive for services under Original 

Medicare, including any applicable 

reductions for HACs. This requirement 

is outlined in the MA Payment Guide 

for Out of Network Payments. 

Based on the comments received, we 

are not finalizing this proposal, but will 

continue to consider alternate strategies 

for reducing hospital-acquired 

conditions in hospitals that provide care 

to MA enrollees and strive toward 

aligning quality initiatives in the 

Medicare and Medicare Advantage 

programs. 

17. Establishment and Application of 

Daily Cost-Sharing Rate as Part of Drug 

Utilization Management and Fraud, 

Abuse, and Waste Control Program 

As discussed in section II.D.6. of this 

final rule with comment period, 

Establishment and Application of Daily 

Cost-Sharing Rate as Part of Drug 

Utilization Management and Fraud, 

Abuse and Waste Control Program, a 

previous review of 2009 PDE data 

suggested that the adjusted total 

estimated cost of 2009 communitybased discontinued first fills of chronic 

medications was roughly $1.4 billion. In 

light of this cost, we proposed to revise 

§ 423.153(b)(4) to provide that a 

Medicare Part D sponsor’s drug 

utilization management program must 

establish and apply a daily cost-sharing 

rate, under certain circumstances, to a 

prescription presented an enrollee at a 

network pharmacy for a covered Part D 

generic or brand drug that is dispensed 

for a supply of less than 30 days. Under 

this proposal, the enrollee and his or her 

prescriber generally will decide if a 

medication supply of less than 30 days 

will be appropriate, and if so, the daily 

cost-sharing rate for the medication will 

be applied by the Part D sponsor based 

on the days supply dispensed. 

Potential savings of a daily costsharing rate requirement on Part D 

sponsors will come from a reduction of 

the estimated $1.4 billion in costs noted 

above which will be offset by some 

additional dispensing fees. We 

previously estimated the potential 

savings to the Part D program to be $140 

million in 2013 alone, and over $2.4 

billion total by 2018 as described in 

section II.D.6. of this final rule with 

comment period. However, because we 

are revising the applicability date of this 

requirement to January 1, 2014, we have 

updated the cumulative savings in 2018 

to roughly $1.8 billion, as also noted in 

section II.D.6. of this final rule with 

comment period. 

Aside from the additional dispensing 

fees, we expect the other regulatory 

impact costs imposed by the proposed 

provisions to be the one-time costs for 

the industry to reprogram PBM systems 

to apply a daily cost-sharing rate. In this 

regard, we estimate that the number of 

hours for 28 PBMs and 12 plan 

organizations to reprogram their systems 

to establish and apply a daily 

copayment rate is 80 hours per 

processor or plan organization, for a 

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

× 80). The estimated cost associated 

with such reprogramming is the 

estimated number of hours multiplied 

by the estimated hourly rate of $145.37 

(Department of Labor, Bureau of Labor 

Statistics, Computer Software 

Engineers-Applications), which equals 

$465,184. 

We did not receive any comments on 

this specific section, and are finalizing 

the requirement as discussed in section 

II.D.6. of this final rule with comment 

period. 

18. Technical Corrections to Enrollment 

Provisions 

We proposed technical changes that 

correct cross-references that should 

have been updated in previous 

rulemaking. These changes are technical 

corrections and do not represent a 

burden for small businesses, rural 

hospitals, States, or the private sector. 

We received no comments on the 

regulatory impact analysis of this 

proposal and, therefore, are finalizing 

this provision without modification. 

19. MA and Part D Disclosure 

Requirements to Cost Contract Plans 

We are proposing to extend the 

disclosure requirements in § 422.111 

and § 423.128 to cost contract plans. 

Our regulations at § 422.111 and 

§ 423.128 require MA organizations and 

Part D sponsors to disclose to enrollees, 

at the time of enrollment and annually 

thereafter (in the form of an annual 

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notice of change/evidence of coverage, 

or ANOC/EOC mailing), certain detailed 

information about plan benefits, service 

area, provider and pharmacy access, 

grievance and appeal procedures, 

quality improvement programs, and 

disenrollment rights and 

responsibilities. They also require the 

provision of certain information about 

request and establish requirements with 

respect to dissemination of explanations 

of benefits, customer service call 

centers, and Internet Web sites. 

For each entity, we estimate that it 

will take 12 hours to develop and 

submit the required information. This 

includes 1 hour to read CMS’ published 

instructions, 6 hours to generate the 

standardized document, 1 hour to 

submit the materials, and 4 hours to 

print and disclose information to the 

beneficiaries. We estimate 20 cost 

contractors will be affected annually by 

this requirement, resulting in a total 

annual burden of 240 hours. We 

estimate, based on an hourly wage of 

$21.93 (hourly rate for a GS–10 step 1) 

plus 48 percent for fringe benefits and 

overhead, that this requirement will 

result in a total annual burden of $7,789 

rounded. We did not receive public 

comments on the regulatory impact for 

this provision but are revising it to more 

accurately reflect the labor associated 

with the provision. In the October 2011 

proposed rule, we based costs on the 

activities of a compliance officer instead 

of those of a GS–10 step 1. 

20. Denials of SNP Applications and 

SNP Appeal Rights 

We estimate that the proposed 

provision will have a minimal impact 

resulting from administrative costs 

incurred by the small number of SNP 

applicants that we expect will receive 

application denials and the small 

percentage of denied applicants that we 

expect will appeal our denial decision. 

For those organizations that do appeal 

the denial of their SNP application, a 

minimal number of professional staff 

working over a short period of time will 

be required to prepare and present the 

organization’s appeal. 

We estimate that the total annual 

hourly burden for developing and 

presenting a case for us to review is 

equal to the number of organizations 

likely to request an appeal multiplied by 

the number of hours for the attorneys of 

each appealing SNP to research, draft, 

submit, and present their arguments to 

CMS. Based on SNP application denials 

from contract year 2012, out of the 

approximately 400 SNP applications 

received, 8 of these applications were 

denied and all 8 denials were appealed. 

In contract year 2011, 8 SNP 

applications were denied and none of 

these denials were appealed. Taking the 

average of the last 2 years, we estimate 

that approximately 4 denied applicants 

will appeal the denial of the SNP 

application. We further estimate that 1 

attorney working for 8 hours could 

complete the documentation to be 

submitted for each application denial, 

The estimated annual cost to all of the 

MA organizations, the aggregate, that 

have been denied to offer a SNP 

associated with this provision 

(assuming an attorney billing $250 per 

hour) is $8,000 (32 hours × $250) or 

when rounded, to approximately $0.01 

million per year. 

21. Contract Requirements for First Tier 

and Downstream Entities in 

Subcontracts 

The regulations at § 422.504(i) and 

§ 423.505(i) require MA organizations 

and Part D sponsors to require all of the 

first tier, downstream, and related 

entities to which they have delegated 

the performance of certain Part C or D 

functions to agree to certain obligations. 

We believe that the most legally 

effective and direct way to ensure that 

the MA organizations and Part D 

sponsors retain the necessary control 

and oversight over their delegated 

entities is by requiring all contracts 

among those entities to specifically 

reference each party’s obligations to the 

sponsor, as enumerated in § 422.504(i) 

and § 423.505(i). Thus, the regulation 

has been changed to address this need. 

Specifically, we deleted the term 

‘‘written arrangements’’ throughout 

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

instance replace it with ‘‘each and every 

contract.’’ 

The proposed changes will not result 

in any additional costs since these types 

of contracts are already in use and 

required by regulation. Thus, the 

strengthening of the language to ensure 

that the sponsor is responsible for 

downstream entities is merely clarifying 

an existing requirement and eliminating 

potential loopholes. 

22. Valid Prescriptions 

In the § 423.100 proposed definition 

of ‘‘valid prescription’’ and the 

§ 423.104 requirement of a ‘‘valid 

prescription,’’ we will codify our 

longstanding policy of deferring, when 

applicable, to State law to determine 

whether a prescription is valid such that 

the prescribed drug may be eligible for 

Part D coverage. 

The changes made to this regulation 

will not result in any additional costs. 

Not only have we expected that 

prescriptions will be valid under 

applicable State law since the beginning 

of the Part D program, but also 

prescribers and pharmacies remain 

subject to applicable State laws 

regarding valid prescriptions. 

Furthermore, private contracts regarding 

Part D drugs (such as those between MA 

organizations or Part D sponsors and 

pharmacies) likely also require valid 

prescriptions. In light of the above 

realities, it is not unreasonable to 

presume that MA organizations, Part D 

sponsors, PBMs, and pharmacies are 

already taking steps to write 

prescriptions that are valid under 

applicable State law. Accordingly, we 

do not believe codifying the valid 

prescription requirement will change 

current practices. 

23. Medication Therapy Management 

Comprehensive Medication Reviews 

and Beneficiaries in LTC Settings 

Current regulations require that 

unless a beneficiary is in a LTC setting, 

the comprehensive medication review 

(CMR) must include an interactive, 

person-to-person, or telehealth 

consultation performed by a pharmacist 

or other qualified provider, and may 

result in a recommended medication 

action plan. Section 10328 of the 

Affordable Care Act amended section 

1860D–4(c)(2) of the Act to require that 

all targeted beneficiaries be offered a 

CMR. Accordingly, we proposed a 

change to § 423.153 to require that Part 

D sponsors offer a CMR to beneficiaries 

in LTC settings, but permitting the 

sponsor to allow the pharmacist or other 

qualified provider to perform the CMR 

without the beneficiary in cases when 

the beneficiary is in a LTC facility and 

is cognitively impaired and thus, cannot 

accept the sponsor’s offer of a CMR. We 

anticipated that the impact of this 

proposed revision would clarify the 

CMR process for sponsors by allowing 

pharmacists and other qualified 

providers to ascertain whether the 

patient is willing and able to participate 

in a CMR before administering it. We 

incorrectly stated in the October 2011 

proposed rule that we did not anticipate 

any costs or savings associated with this 

change. However, there will be a modest 

increase based on the requirement to 

offer CMRs to beneficiaries residing in 

LTC settings with written summaries 

and provide the summaries and action 

plans in a standardized format that 

complies with the requirements 

specified by CMS. We estimate that 

215,000 beneficiaries in LTC settings are 

eligible for MTM services and 10 

percent of those beneficiaries will 

receive an annual CMR. We also 

estimate that the average CMR requires 

35 minutes to complete and the average 

hourly compensation (including fringe 

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benefits, overhead, general and 

administrative expenses and fee) of the 

MTM provider is $120 (labor cost per 

CMR is $70), and that it costs $0.91 to 

print and mail a CMR summary in CMS’ 

standardized format. Therefore, the 

estimated total annual cost of providing 

CMRs in LTC settings is $1,524,565 

($70.91/CMR × 21,500 CMRs). The 

estimate reflects costs previously 

calculated in the OCN 0938–1154. 

24. Coordination of Part D Plans With 

Other Prescription Drug Coverage 

The regulation will be explicit that 

sponsors, when providing Part D 

benefits to enrollees of EGWPs, are 

subject to the same requirements as 

sponsors providing Part D coverage in 

the individual market unless such 

requirements are explicitly waived. 

Since this change is being made to 

clarify an existing policy, we do not 

anticipate any effect on costs or savings 

on any specific entity. 

25. Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (NPIs) 

The inconsistent use of identifiers by 

prescribers on Part D claims has 

hindered some of our efforts to combat 

fraud and abuse activities. Therefore, we 

proposed to require, effective January 1, 

2013, that Part D sponsors include only 

active and valid individual prescriber 

NPIs as identifiers in PDEs submitted to 

CMS. 

The impact associated with these 

proposed regulations is: (1) The annual 

cost for PBMs and plan organizations to 

contract with a commercial vendor or 

with network pharmacies to provide 

prescriber ID validation services; or (2) 

the annual cost required for PBMs and 

plan organizations to build their own 

databases of active and valid prescriber 

NPIs. We estimated a one-time burden 

for an estimated 28 PBMs and 12 plan 

organizations to negotiate and execute a 

contract with a commercial vendor to 

provide prescriber ID validation services 

to be negligible, particularly since PBMs 

and plan organizations typically have 

in-house counsel or law firms on 

retainer. The estimated annual cost of 

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

mid-point of estimates we have seen for 

such a contract. Therefore, the estimated 

annual cost of such a contract for 40 

PBMs and plan organizations is 

$6,400,000 (40 × 160,000). However, 

preliminary results of an analysis of 

coverage year 2011 PDEs submitted to 

date conducted by a contractor to CMS 

indicate that approximately 90 percent 

already contain valid individual NPIs. 

Therefore, this estimation should be 

reduced to reflect that a certain amount 

of cost associated with prescriber ID 

validation has already been absorbed by 

the industry. Therefore, we assume that 

80 percent of the industry needs to 

acquire additional prescriber ID 

validation capacity in order to submit 

only PDEs that contain active and valid 

individual prescriber NPIs to CMS. 

Thus, the estimated annual cost to 

PBMs and plan organizations of a 

contract with a commercial vendor to 

perform prescriber NPI validation 

services is $5,120,000 (6,400,000 × 0.8). 

With respect to PBMs and plan 

organizations that decide to build their 

own databases of active and valid 

prescriber NPIs (or to contract with 

network pharmacies for prescriber 

validation services), we assume that 

they will only do so if the cost is equal 

to or less than contracting with a 

commercial vendor for such services, 

and therefore, no estimation of the costs 

to do so is necessary. 

Since approximately 90 percent of 

PDEs for coverage year 2011 submitted 

to CMS already contain valid individual 

NPIs, an estimated 95 percent of 

physicians have an NPI, and prescribers 

may voluntarily obtain an NPI to 

facilitate coverage of their patients’ 

prescriptions, we estimate negligible 

costs associated with any PDE that 

cannot be submitted to CMS for lack of 

an NPI. 

After consideration of the public 

comments received, we are modifying 

this requirement as discussed in section 

II.E.11. of this final rule with comment 

period (Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (§ 423.120)). However, we are 

not modifying this regulatory impact 

analysis, since none of the comments 

received specifically addressed this 

analysis, and we believe our 

modifications do not necessitate a 

change to this analysis. 

TABLE 8—ESTIMATED AGGREGATED COSTS TO THE HEALTH CARE SECTOR BY PROVISION FOR FISCAL YEARS 2013 

THROUGH 2018 

Provision(s) Regulation 

section(s) 

Fiscal year 

($ in millions) 

Total 

($ in millions) 

FYs 2013– 

2013 2014 2015 2016 2017 2018 2018 

Medicare Coverage Gap Agreement .......................... 423.2315 3,760.00 4,260.00 4,810.00 5,440.00 6,050.00 6,730.00 31,050.00 

Payment Processes for Part D Sponsors ................... 423.2320 12.66 12.66 12.66 12.66 12.66 12.66 75.96 

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

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

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

Inclusion of Benzodiazepines and Barbiturates as 

Part D Covered Drugs ............................................. 423.100 200.00 280.00 300.00 330.00 360.00 390.00 1,860.00 

Who May File Part D Appeals with the Independent 

Review Entity ........................................................... 423.600 1.05 1.05 1.05 1.05 1.05 1.05 6.30 

Benefit Flexibility for Certain Dual Eligible Special 

Needs Plans (SNPs) ............................................... 422.102 ¥30.71 ¥28.67 ¥21.71 ¥20.16 ¥17.99 ¥17.98 ¥137.22 

Establishment and Application of Daily Cost-Sharing 

Rate as Part of Drug Utilization Management and 

Fraud, Abuse and Waste Control Program ............. 423.100 

423.104 

423.153 

0.50 ¥150.00 ¥260.00 ¥360.00 ¥460.00 ¥580.00 ¥1,809.50 

Add language specific to SNP applications to give 

CMS the clear authority to deny SNP applications 

and to give SNPs appeal rights .............................. 422.500 0.01 0.01 0.01 0.01 0.01 0.01 0.06 

Apply MA and Part D disclosure requirements to cost 

contract plans .......................................................... 417.427 0.01 0.01 0.01 0.01 0.01 0.01 0.06 

Access to covered Part D drugs through the use of 

standardized technology and NPIs ......................... 423.120 5.12 5.12 5.12 5.12 5.12 5.12 30.72 

MTM Comprehensive Medication Reviews in LTC 

Settings .................................................................... 423.153 1.52 1.52 1.52 1.52 1.52 1.52 9.12 

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TABLE 8—ESTIMATED AGGREGATED COSTS TO THE HEALTH CARE SECTOR BY PROVISION FOR FISCAL YEARS 2013 

THROUGH 2018—Continued 

Provision(s) Regulation 

section(s) 

Fiscal year 

($ in millions) 

Total 

($ in millions) 

FYs 2013– 

2013 2014 2015 2016 2017 2018 2018 

Total Impact ($ in millions) .................................. .................. 3,977.03 4,408.71 4,875.83 5,437.57 5,979.95 6,570.19 31,249.28 

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

Department of Labor, Bureau of Labor Statistics. 

TABLE 9—ESTIMATED COSTS AND SAVINGS TO THE FEDERAL GOVERNMENT BY PROVISION FOR FYS 2013 

THROUGH 2018 

Provision(s) Regulation 

section(s) 

Fiscal year 

($ in millions) 

Total 

($ in millions) 

(FYs 2013– 

2013 2014 2015 2016 2017 2018 2018) 

Medicare Coverage Gap Agreement .......................... 423.2315 160.00 190.00 210.00 260.00 260.00 260.00 1,340.00 

Inclusion of Benzodiazepines and Barbiturates as 

Part D Covered Drugs ............................................. 423.100 200.00 280.00 300.00 330.00 360.00 390.00 1,860.00 

Who May File Part D Appeals with the Independent 

Review Entity ........................................................... 423.600 0.97 0.97 0.97 0.97 0.97 0.97 5.84 

Establishment and Application of Daily Cost-Sharing 

Rate as Part of Drug Utilization Management and 

Fraud, Abuse and Waste Control Program ............. 423.100 

423.104 

423.153 

0.00 ¥150.00 ¥260.00 ¥360.00 ¥460.00 ¥580.00 ¥1,810.00 

Benefit Flexibility for Certain Dual Eligible Special 

Needs Plans (SNPs)—Medicare ............................. 422.102 ¥29.80 ¥27.63 ¥20.76 ¥19.08 ¥17.16 ¥17.13 ¥131.56 

Benefit Flexibility for Certain Dual Eligible Special 

Needs Plans (SNPs)—Federal Medicaid ................ 422.102 ¥0.67 ¥0.64 ¥0.59 ¥0.55 ¥0.52 ¥0.53 ¥3.50 

Total ($ in millions) .............................................. .................. 330.50 292.70 229.62 211.34 142.29 53.31 1,260.78 

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

Department of Labor, Bureau of Labor Statistics. 

TABLE 10—ESTIMATED COSTS TO MA ORGANIZATIONS AND PART D SPONSORS BY PROVISION FOR FYS 2013 

THROUGH 2018 

Provision(s) Regulation 

section(s) 

Costs per fiscal year 

($ in millions) 

Total 

(FYs 2013– 

2018) 

2013 2014 2015 2016 2017 2018 ($ in millions) 

Payment Processes for Part D Sponsors ................... 423.2320 12.66 12.66 12.66 12.66 12.66 12.66 75.96 

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

Who May File Part D Appeals with the Independent 

Review Entity ........................................................... 423.600 0.08 0.08 0.08 0.08 0.08 0.08 0.45 

Establishment and Application of Daily Cost-Sharing 

Rate as Part of Drug Utilization Management and 

Fraud, Abuse and Waste Control Program ............. 423.100 

423.104 

423.153 

0.5 0 0 0 0 0 0.5 

Benefit Flexibility for Certain Dual Eligible Special 

Needs Plans (SNPs)—Medicare ............................. 422.102 0.06 0.06 0.06 0.06 0.06 0.06 0.36 

Apply MA and Part D Disclosure Requirements to 

Cost Contract Plans ................................................ 417.427 0.01 0.01 0.01 0.01 0.01 0.01 0.06 

Add language specific to SNP applications to give 

CMS the clear authority to deny SNP applications 

and to give SNPs appeal rights .............................. 22.500 0.01 0.01 0.01 0.01 0.01 0.01 0.06 

Access to covered Part D drugs through the use of 

standardized technology and NPIs ......................... 423.120 5.12 5.12 5.12 5.12 5.12 5.12 30.72 

MTM Comprehensive Medication Reviews in LTC 

Settings .................................................................... 423.153 1.52 1.52 1.52 1.52 1.52 1.52 9.12 

Total ($ in millions) .............................................. .................. 32.62 32.12 32.12 32.12 32.12 32.12 193.19

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

Department of Labor, Bureau of Labor Statistics. 

TABLE 11—ESTIMATED COSTS TO MANUFACTURERS BY PROVISION FOR FISCAL YEARS 2013 THROUGH 2018 

Provision(s) Regulation 

section(s) 

Costs per fiscal year 

($ in millions) 

Total 

(FYs 2013– 

2018) 

2013 2014 2015 2016 2017 2018 ($ in millions) 

Medicare Coverage Gap Agreement .......................... 423.2315 3,600.00 4,070.00 4,600.00 5,180.00 5,790.00 6,470.00 29,710.00 

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

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

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22162 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

TABLE 11—ESTIMATED COSTS TO MANUFACTURERS BY PROVISION FOR FISCAL YEARS 2013 THROUGH 2018—Continued 

Provision(s) Regulation 

section(s) 

Costs per fiscal year 

($ in millions) 

Total 

(FYs 2013– 

2018) 

2013 2014 2015 2016 2017 2018 ($ in millions) 

Total ($ in millions) .............................................. .................. 3,614.21 4,084.35 4,614.51 5,194.70 5,804.91 6,485.14 29,797.82 

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

Department of Labor, Bureau of Labor Statistics. 

TABLE 12—ESTIMATED SAVINGS TO STATES BY PROVISION FOR FISCAL YEARS 2013 THROUGH 2018 

Provision(s) Regulation 

section(s) 

Savings per fiscal year 

($ in millions) 

Total savings 

(FYs 2013– 

2018) 

2013 2014 2015 2016 2017 2018 ($ in millions) 

Benefit Flexibility for Certain Dual Eligible Special 

Needs Plans ............................................................ 422.102 ¥0.50 ¥0.48 ¥0.44 ¥0.41 ¥0.39 ¥0.40 ¥2.62 

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

Department of Labor, Bureau of Labor Statistics. 

D. Expected Benefits 

1. Medicare Coverage Gap Discount 

Program Agreement 

The rule codifies a number of 

requirements that must be included in 

the manufacturer Discount Program 

Agreement that generally must be 

signed by a manufacturer to allow Part 

D coverage of the manufacturers 

applicable drugs. These requirements 

are fundamental to ensuring that 

participating manufacturers pay all 

applicable discounts for applicable 

drugs received by applicable 

beneficiaries while in the coverage gap. 

We believe that a well-implemented 

Discount Program will increase 

beneficiary adherence to medication 

regimens that can improve their health 

by lowering their pharmaceutical costs 

at the point-of-sale. 

2. Payment Processes for Part D 

Sponsors 

The rule requires CMS to facilitate 

distribution of the applicable discount 

to beneficiaries by requiring that CMS 

provide an interim discount payment to 

Part D sponsors. That interim discount 

payment will be subsequently 

reconciled against manufacturer 

payments for discounts provided to 

beneficiaries. This provision will help 

Part D sponsors maintain operations 

with minimal, if any, effect on cash 

flow. This will help ensure that Part D 

sponsors provide the applicable 

discount to applicable beneficiaries at 

point-of-sale. 

3. Provision of Applicable Discounts on 

Applicable Drugs for Applicable 

Beneficiaries 

The rule requires Part D sponsors to 

calculate the applicable discount that 

should be provided to applicable 

beneficiaries in the coverage gap. 

Applicable beneficiaries will, therefore, 

have minimal need to determine when 

they qualify for the gap discount and 

when they are no longer in the gap. In 

addition, Part D sponsors will likely 

automate discount calculations, 

potentially reducing errors and the need 

for beneficiaries to file an appeal that 

challenges the discount amount. 

4. Manufacturer Discount Payment 

Audits and Dispute Resolution 

We believe that the audit and dispute 

programs will both contribute to the 

stable operation of the Discount 

Program. Both programs are intended to 

provide an equitable means to resolve 

manufacturer concerns, enhance 

program integrity and, therefore, 

program stability. A predictable and 

stable Discount Program will help 

beneficiaries plan their finances and 

health care costs over time. 

5. Beneficiary Dispute Resolution 

The traditional Medicare program 

provides a means for beneficiaries to 

challenge Medicare decisions to ensure 

they receive needed benefits. We believe 

that beneficiaries will gain the same 

benefit from a dispute resolution 

program associated with the Discount 

Program. Further, extending the existing 

Part D beneficiary dispute resolution 

process to the Discount Program will 

reduce the need for beneficiaries to 

learn a new set of dispute procedures. 

6. Compliance Monitoring and Civil 

Money Penalties 

Our expectation is that manufacturers 

will generally comply with the terms of 

the Discount Program Agreement and 

the Discount Program. We understand 

that manufacturers may still err and that 

such errors can disrupt program 

operations. Our intention is to use 

compliance actions, including penalties, 

to encourage reduced manufacturer 

errors and maintain a predictable 

program for beneficiaries. 

7. Termination of Agreement 

We believe that CMS’ ability to 

terminate the Agreement upon extreme 

non-compliance by manufacturers will 

likely encourage manufacturers to 

address issues quickly. We believe that 

prompt resolution of significant 

concerns will create minimal disruption 

to the program and inconvenience of 

beneficiaries. 

8. Inclusion of Benzodiazepines and 

Barbiturates as Part D Covered Drugs 

Part D coverage of benzodiazepines 

and barbiturates potentially improves 

beneficiary access to these drugs and 

reduces beneficiary out-of-pocket costs 

for non-Part D covered drugs. In 

addition, State costs are reduced in 

those States that have been paying for 

these drugs. 

9. Determination of Actuarially 

Equivalent Creditable Prescription Drug 

Coverage 

This final rule with comment period 

requirement to change the actuarial 

value calculation for creditable coverage 

to exclude the additional value of gap 

coverage consistent with the 

determination of the RDS actuarial 

value of prescription drug coverage will 

enable beneficiaries who switch from an 

RDS plan or other creditable 

prescription drug coverage to a Part D 

plan to do so without incurring a late 

enrollment penalty. 

10. Who May File Part D Appeals With 

the Independent Review Entity 

The changes to § 423.600 and 

§ 423.602 will allow physicians and 

other prescribers to request IRE 

reconsiderations on behalf of Part D 

plan enrollees. These changes will 

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reduce the burden on enrollees and 

their prescribers because they will no 

longer have to submit a properly 

executed AOR form in cases where the 

prescriber wishes to request a 

reconsideration on behalf of a Part D 

plan enrollee. Additionally, physicians 

and prescribers are in the best position 

to anticipate and provide the 

appropriate medical documentation 

needed to support coverage for Part D 

enrollees’ medications. We believe that 

by allowing a physician or other 

prescriber to request a reconsideration 

on an enrollee’s behalf, it will further 

improve the enrollee’s access to the Part 

D appeals process and assist enrollees in 

obtaining coverage of medically 

necessary medications. 

11. Termination for Lower-Than-ThreeStar-Performance Ratings 

The benefit of this change is that we 

will leverage the annual performance 

ratings to remove from the MA and Part 

D programs poor performing 

organizations, thereby strengthening the 

programs and protecting Medicare 

beneficiaries. 

12. Exclusion for Sponsors of Contracts 

Terminated for Cause 

The benefit of this change is that we 

will ensure that organizations that 

demonstrated extremely poor 

performance have their performance 

history reviewed as part of the 

application process for an appropriate 

amount of time, thereby strengthening 

the programs and protecting Medicare 

beneficiaries. 

13. Benefit Flexibility for Certain Dual 

Eligible Special Needs Plans (SNPs) 

We believe that allowing certain dual 

eligible SNPs that meet high integration 

and performance based standards to 

offer supplemental benefits beginning 

contract year 2013 will advance our 

overall goal of better integrating care for 

dual eligible beneficiaries, keeping 

beneficiaries at risk of 

institutionalization in their homes, 

lowering dual eligible beneficiaries’ 

utilization of health services, and 

lowering costs for the Medicaid and 

Medicare programs. 

14. Establishment and Application of 

Daily Cost-Sharing Rate as Part of Drug 

Utilization Management and Fraud, 

Abuse, and Waste Control Program 

Requiring Part D sponsors to establish 

and apply a daily cost-sharing rate as 

previously described facilitates the 

ability of Medicare Part D enrollees to 

obtain trial fills of chronic medications, 

particularly those with higher costsharing and that are known to 

frequently be poorly tolerated. As noted 

previously, we believe trial fills will 

result in the avoidance of unused drugs, 

reduce drug costs, diminish the 

environmental issues caused by 

disposal of unused medications, and 

reduce opportunities for criminal and 

substance abuse caused by diversion of 

unused medications, all of which are 

growing concerns in the United States. 

While there may be additional waste 

generated by multiple fills when 

medications are continued after a trial 

fill or synchronized (for example, more 

plastic bottles and paper inserts, 

additional trips to pharmacies), we 

believe the harmful effects on the 

environment from unused drugs, 

particularly the biological implications, 

likely have a much greater impact on 

the environment than additional 

recyclables. 

With respect to synchronization of 

medication refills specifically, we also 

note that at least one study supports the 

notion that synchronization may assist 

enrollees in adhering to prescription 

treatment regimens that involve 

multiple prescriptions. In addition, we 

believe the ability to synchronize 

medications will be convenient for 

those enrollees who take advantage of 

the opportunity and their prescribers, by 

enabling fewer trips to the pharmacy 

and fewer prescription requests of 

prescribers by enrollees through the 

ability to consolidate pharmacy trips 

and prescriber office visits and phone 

calls. 

We received no specific comments on 

this section. 

15. Apply MA and Part D Disclosure 

Requirements to Cost Contract Plans 

We believe that our requirement that 

cost contract plans disclose to enrollees, 

at the time of enrollment and annually 

thereafter (in the form of an annual 

notice of change/evidence of coverage, 

or ANOC/EOC mailing), certain detailed 

information about plan benefits, service 

area, provider and pharmacy access, 

grievance and appeal procedures, 

quality improvement programs, and 

disenrollment rights and 

responsibilities, and an explanation of 

benefits will ensure that the 

beneficiaries have information to help 

them make best choices for their health 

care needs. 

16. Denial of SNP Applications and 

SNPs Appeal Rights 

Our intent in proposing this provision 

is to give us the explicit authority to 

deny SNP applications that demonstrate 

that the applicant does not meet the 

requirements to operate a SNP, which 

have been incorporated into the MA 

application. This proposed change will 

ensure that the only MA organizations 

that are able to offer a SNP are those that 

meet CMS’ SNP specific requirements 

and are capable of serving the 

vulnerable special needs individuals 

who enroll in SNPs, thereby 

strengthening the program and 

protecting Medicare beneficiaries. 

Additionally, to ensure a fair and 

comprehensive review of these SNP 

applications, we propose to allow 

applicants who have been determined 

unqualified to offer a SNP the right to 

an administrative review process. 

17. Clarification of Contract 

Requirements for First Tier and 

Downstream Entities 

This clarification ensures that the MA 

organizations and Part D sponsors retain 

the necessary control and oversight over 

their delegated entities, thereby 

strengthening the programs and 

protecting Medicare beneficiaries. 

18. Valid Prescriptions 

By removing any doubt as to the 

appropriate source of law to consult 

when determining whether a 

prescription is valid, this regulation will 

benefit federal law enforcement 

agencies. We do not believe, however, 

that there is a quantifiable monetary 

value to easing prosecutions in this 

manner. 

19. Medication Therapy Management 

Comprehensive Medication Reviews 

and Beneficiaries in LTC Settings 

The expected benefits of the revisions 

to § 423.153 are that Part D sponsors 

will be required to offer all targeted 

beneficiaries in LTC facilities the 

opportunity to participate in a CMR, but 

in the event the beneficiary is 

cognitively impaired and unable either 

to respond to the offer or to participate 

in a CMR, the pharmacist or qualified 

provider may proceed with a CMR that 

is informative for the beneficiary’s 

prescriber and/or caregiver without 

interacting with the beneficiary. 

20. Coordination of Part D Plans With 

Other Prescription Drug Coverage 

We are clarifying the regulation at 

§ 423.458 regarding the application of 

waivers to EGWPs. We expect that this 

clarification will benefit Medicare 

beneficiaries enrolled in such plans by 

ensuring them the same protections as 

those afforded Medicare beneficiaries 

enrolled in individual market Part D 

plans where such protections have not 

been explicitly waived. 

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22164 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

21. Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (NPIs) 

In addition to supporting our fraud 

and abuse activities, accurate data on 

prescriptions through the consistent use 

of valid NPIs on PDEs allows us to serve 

beneficiaries when using data in various 

initiatives whose purpose is to foster 

higher quality and more efficient 

coordination of care for individuals and 

groups of individuals. 

We received no specific comments on 

this section, and therefore are not 

modifying our policy based on such 

comments. However, we are modifying 

our proposal, as described in section 

II.E.11. of the final rule with comment 

period, Access to Covered Part D Drugs 

through Use of Standardized 

Technology and National Provider 

Identifiers (§ 423.120), based on general 

comments we received. 

E. Alternatives Considered 

1. Affordable Care Act AND MIPPA 

Provisions 

We did not consider alternatives for 

the following provisions, as their 

implementation was mandated by the 

Affordable Care Act and MIPPA: 

• Inclusion of Benzodiazepines and 

Barbiturates 

• Pharmacy Benefit Manager’s 

Transparency Requirements 

2. Coverage Gap Discount Program 

The Affordable Care Act mandated 

implementation of the Coverage Gap 

Discount Program and further specified 

that the associated manufacturer 

discounts had to be made available at 

point-of-sale. An alternative model for 

point-of-sale administration of the 

discount will involve a third party 

administrator directly adjudicating the 

discount payment to pharmacies. In this 

model, the pharmacy will submit the 

Part D claim to the Part D sponsor and 

receive information on the response that 

will direct the pharmacy to bill the third 

party for applicable claims. However, 

while this model initially showed 

promise, neither the current HIPAA 

electronic pharmacy claims billing 

standard nor the next HIPAA approved 

version of the billing standard could 

support the transfer of information from 

the Part D sponsor that will be necessary 

to specify the appropriate claims and 

appropriate discount amounts to be 

billed to the third party administrator, 

or allow for accurate coordination of 

benefits among payers. 

3. Determination of Actuarially 

Equivalent Creditable Prescription Drug 

Coverage 

We clarified our regulations at 

§ 423.56 to define creditable 

prescription drug coverage consistent 

with the calculation of the actuarial 

value of qualified retiree prescription 

drug coverage found at § 423.884(d). 

This is a clarification to an existing 

calculation that is already being used by 

organizations providing creditable 

coverage, therefore, there is no cost 

impact on these organizations. 

4. Who May File Part D Appeals With 

the Independent Review Entity 

As previously mentioned, the changes 

to § 423.600 and § 423.602 will allow 

physicians and other prescribers to 

request IRE reconsiderations on behalf 

of Part D plan enrollees. We considered 

maintaining the status quo, which 

would require physicians and other 

prescribers to obtain an AOR form in 

order to request a reconsideration by the 

IRE on behalf of their patients. However, 

given our program experience since the 

inception of the Part D program, we 

realize that this approach results in an 

undue burden on both enrollees and 

their prescribing physicians or 

prescribers and can create an 

unintended barrier to enrollees 

accessing the appeals process. 

Consequently, we are finalizing the 

change previously highlighted in this 

rule. 

5. Termination or Non-Renewal of a 

Medicare Contract Based on Poor Plan 

Performance Ratings 

We did not consider alternatives for 

this regulation since it is necessary to 

ensure compliance. 

6. Exclusion for Sponsors of Contracts 

Terminated for Cause 

We considered keeping the look-back 

period at 14 months, but we determined 

it will be insufficient to accomplish our 

needs and thus a longer look-back 

period was necessary. We also 

considered longer look-back periods, 

but we deemed them to be to excessive. 

7. New Benefit Flexibility for Certain 

Dual Eligible Special Needs Plans 

(SNPs) 

In our proposed rule, we considered 

affording this benefit flexibility only to 

those plans that met the definition of a 

fully integrated dual eligible special 

needs plan (FIDE SNP) as defined at 42 

CFR 422.2. We also proposed limiting 

this benefit flexibility to only those 

FIDE SNPs that enrolled dual eligible 

beneficiaries that received full Medicaid 

benefits. In this final rule with comment 

period, we are not limiting this benefit 

flexibility to FIDE SNPs, but are instead 

allowing D–SNPs that meet integration 

and performance-based standards 

established by CMS to qualify for this 

benefit flexibility. We believe that 

expanding this flexibility to a larger 

pool of D–SNPs that are integrating care 

for dual eligible beneficiaries is still 

consistent with our overall objective of 

preventing institutionalization, and will 

give more dual eligible beneficiaries 

across the country access to these 

additional supplemental benefits. 

8. Establishment and Application of 

Daily Cost-Sharing Rates as Part of Drug 

Utilization Management and Fraud, 

Abuse, and Waste Control Program 

We considered proposing a 

requirement similar to the Fifteen Day 

Initial Script program introduced in 

Maine in the summer of 2009. In this 

program, specific medications that were 

identified by the MaineCare program 

with high side effect profiles, high 

discontinuation rates, or frequent dose 

adjustments, were phased in by class 

and must be dispensed in a 15-day 

initial script to ensure cost effectiveness 

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

used medications. We have learned 

through representatives of the program 

that MaineCare has achieved overall 

savings for the two consecutive state 

fiscal years with respect to both brand 

and generic drugs through this program, 

despite the additional dispensing fees. 

The representatives have also reported 

that there was very good acceptance of 

the program and very little confusion 

upon implementation. While we 

acknowledge the savings benefits of the 

MaineCare approach, we believe that 

leaving the decision to obtain less than 

a month’s supply of a prescription with 

the enrollee and his or her prescriber 

and pharmacist may be better suited for 

the Medicare Part D program, but we 

sought specific comment on this belief. 

Comment: A few commenters offered 

a ‘‘copayment by days supply’’ 

alternative. 

Response: For these reasons discussed 

in section II.D.6. of this final rule with 

comment period (Establishment and 

Application of Daily Cost-Sharing Rate 

as Part of Drug Utilization Management 

and Fraud, Abuse and Waste Control 

Program), we decline to adopt this 

alterative. 

9. Clarification of Contract 

Requirements for First Tier and 

Downstream Entities 

We did not consider alternatives for 

this regulation since it is necessary to 

ensure compliance and is the most 

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 22165 

effective ‘‘no-cost’’ means to achieving 

it. 

10. Valid Prescriptions 

We did not consider alternatives for 

this regulation as it reflects existing 

state laws. 

11. Medication Therapy Management 

Comprehensive Medication Reviews 

and Beneficiaries in LTC Settings 

Section 10328 of the Affordable Care 

Act requires that a CMR be offered to all 

targeted beneficiaries, regardless of 

setting. Thus, the only alternative to this 

revision would be to have the 

pharmacist or provider attempt to 

perform a CMR with a LTC resident who 

is not capable of participating. However, 

by requiring a CMR to be offered to all 

targeted beneficiaries residing in LTC 

our revisions to the regulations will give 

these beneficiaries, who typically have 

chronic conditions that are managed by 

medication, the opportunity to 

participate in the CMR and comprehend 

the medication action plan as a result of 

the CMR. In cases when the beneficiary 

is unable to accept the offer of a CMR, 

the beneficiary will still benefit from 

having a CMR performed by a 

pharmacist or other qualified provider 

with the beneficiary’s prescriber and/or 

caregiver without interacting with the 

beneficiary. 

12. Coordination of Part D Plans With 

Other Prescription Drug Coverage 

We considered the alternative, which 

was to remain silent in regulation. 

However, we believe that in order to 

facilitate beneficiary protections it is 

better to be clear that, unless waived, 

the same Medicare rules apply to 

sponsors of EWGPs as they do to 

sponsors of individual market plans. 

This ensures Medicare beneficiaries 

enrolled in EGWPs receive the same 

patient protections as beneficiaries 

enrolled in individual market plans. 

13. Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (NPIs) 

We considered requiring prescribers 

to enroll in Medicare in order for their 

prescriptions to be covered by the Part 

D program, but were concerned about 

the potential impact of such a 

requirement on enrollee access to 

needed medications. We also 

considered permitting any 1 of 4 types 

of prescriber identifiers to be submitted 

on PDEs, but we believe this option is 

not in line with Congressional intent 

regarding the use of NPIs as provider 

identifiers. 

Comment: A commenter supported 

our policy to not require physicians to 

enroll in Medicare in order for their 

prescriptions to be covered by the Part 

D program. 

Response: We appreciate the 

commenter’s support. 

After consideration of the other public 

comments received, we are modifying 

this requirement as discussed in section 

II.E.11. of this final rule with comment 

period, (Access to Covered Part D Drugs 

Through Use of Standardized 

Technology and National Provider 

Identifiers (§ 423.120)). 

F. Accounting Statement 

As required by OMB Circular A–4 

(available at http://www.whitehouse.

gov/omb/circulars/a004/a-4.pdf), in 

Table 13, we have prepared an 

accounting statement showing the 

classification of the expenditures, costs, 

and savings associated with the 

provisions of the proposed rule for FY 

2013 through 2018. 

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

[$ In millions] 

Category 

Transfers 

Units discount rate 

Period covered 

7% 3% 

Annualized Monetized Transfers ............................................................................... $220.3 $214.5 FYs 2013–2018 

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

Sponsors 

Annualized Monetized Transfers ............................................................................... ¥$0.44 ¥$0.44 FYs 2013–2018 

From Whom To Whom? ............................................................................................ States to Medicaid Providers 

Costs (All other provisions) 

Units discount rate 

Period covered 

7% 3% 

Annualized Costs to MA organizations and Part D Sponsors .................................. $32.2 $32.2 FYs 2013–2018 

Annualized Costs to Manufacturers .......................................................................... $4,853.7 $4,916.9 FYs 2013–2018 

(* Monetized figures in 2011 dollars.) 

In accordance with the provisions of 

Executive Order 12866, the Office of 

Management and Budget reviewed this 

final rule with comment period. 

List of Subjects 

42 CFR Part 417 

Administrative practice and 

procedure, Grant programs—health, 

Health care, Health insurance, Health 

maintenance organizations (HMO), Loan 

programs—health, Medicare, and 

Reporting and recordkeeping 

requirements. 

42 CFR Part 422 

Administrative practice and 

procedure, Health facilities, Health 

maintenance organizations (HMO), 

Medicare, Penalties, Privacy, and 

Reporting and recordkeeping 

requirements. 

42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Health 

professionals, Medicare, Penalties, 

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22166 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

Privacy, Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as set forth below: 

PART 417—HEALTH MAINTENANCE 

ORGANIZATIONS, COMPETITIVE 

MEDICAL PLANS, AND HEALTH CARE 

PREPAYMENT PLANS 

■ 1. The authority citation for part 417 

continues to read as follows: 

Authority: Sec. 1102 and 1871 of the 

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

1395hh), secs. 1301, 1306, and 1310 of the 

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

300e–5, and 300e–9), and 31 U.S.C. 9701. 

■ 2. Section § 417.422 is amended by 

revising paragraph (d) to read as 

follows: 

§ 417.422 Eligibility to enroll in an HMO or 

CMP. 

* * * * * 

(d) During an enrollment period of the 

HMO or CMP, completes the HMO’s or 

CMP’s application form or another 

CMS-approved election mechanism and 

gives whatever information is required 

for enrollment; 

* * * * * 

■ 3. Subpart K is amended by adding 

§ 417.427 to read as follows: 

§ 417.427 Extending MA and Part D 

program disclosure requirements to section 

1876 cost contract plans. 

(a) The procedures and requirements 

relating to disclosure in § 422.111 and 

§ 423.128 apply to Medicare contracts 

with HMOs and CMPs under section 

1876 of the Act. 

(b) In applying the provisions of 

§§ 422.111 and 423.128, references to 

part 422 and part 423 of this chapter 

must be read as references to this part, 

and references to MA organizations and 

Part D sponsors as references to HMOs 

and CMPs. 

■ 4. Section 417.432 is amended by 

revising paragraph (d) to read as 

follows: 

§ 417.432 Conversion of enrollment. 

* * * * * 

(d) Application form. The individual 

who is converting must complete an 

application form or another CMSapproved election mechanism as 

described in § 417.430(a). 

* * * * * 

■ 5. Section 417.460 is amended by 

adding paragraphs (c)(3) and (4) to read 

as follows: 

§ 417.460 Disenrollment of beneficiaries 

by an HMO or CMP. 

* * * * * 

(c) * * * 

(3) Good cause and reinstatement. 

When an individual is disenrolled for 

failure to pay premiums or other charges 

imposed by the HMO or CMP for 

deductible and coinsurance amounts for 

which the enrollee is liable, CMS may 

reinstate enrollment in the plan, 

without interruption of coverage, if the 

individual shows good cause for failure 

to pay and pays all overdue premiums 

within 3 calendar months after the 

disenrollment date. The individual must 

establish by a credible statement that 

failure to pay premiums was due to 

circumstances for which the individual 

had no control, or which the individual 

could not reasonably have been 

expected to foresee. 

(4) Exception for reinstatement. A 

beneficiary’s enrollment in the plan will 

not be reinstated if the only basis for 

such reinstatement is a change in the 

individual’s circumstances subsequent 

to the involuntary disenrollment for 

non-payment of premiums. 

* * * * * 

§ 417.492 [Amended] 

■ 6. Section 417.492 is amended as 

follows: 

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

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

place. 

■ B. In paragraph (a)(1)(ii), ‘‘; and’’ is 

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

■ C. By removing paragraph (a)(1)(iii). 

■ D. By removing paragraph (b)(1)(iii). 

■ 7. Section 417.801 is amended by 

revising paragraph (d)(1)(ii) to read as 

follows: 

§ 417.801 Agreements between CMS and 

health care prepayment plans. 

* * * * * 

(d) * * * 

(1) * * * 

(ii) The HCPP is not in substantial 

compliance with the provisions of the 

agreement, applicable CMS regulations, 

or applicable provisions of the Medicare 

law. This includes, but is not limited to, 

the following: 

(A) Failure to provide for and 

document adequate access to providers. 

(B) Failure to comply with CMS 

requirements concerning provision of 

data and maintenance of records. 

(C) Failure to comply with financial 

requirements specified at § 417.806; or 

* * * * * 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

■ 8. The authority citation for part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

§ 422.60 [Amended] 

■ 9. In § 422.60, paragraph (c)(1) is 

amended by removing the reference 

‘‘§ 422.80’’ and adding in its place the 

reference ‘‘§ 422.2262’’. 

■ 10. Section 422.100 is amended by 

adding paragraph (l) to read as follows: 

§ 422.100 General requirements. 

* * * * * 

(l) Coverage of DME. MA 

organizations— 

(1) Must cover and ensure enrollees 

have access to all categories of DME 

covered under Part B; and 

(2) May, within specific categories of 

DME, limit coverage to certain DME 

brands, items, and supplies of preferred 

manufacturers provided the MA 

organization ensures all of the 

following: 

(i) Its contracts with DME suppliers 

ensure that enrollees have access to all 

DME brands, items, and supplies of 

preferred manufacturers. 

(ii) Its enrollees have access to all 

medically-necessary DME brands, items, 

and supplies of non-preferred 

manufacturers. 

(iii) At the enrollees’ request, it 

provides for an appropriate transition 

process for new enrollees during the 

first 90 days of their coverage under its 

MA plan, during which time the MA 

organization will do the following: 

(A) Ensure the provision of a 

transition supply of DME brands, items, 

and supplies of non-preferred 

manufacturers. 

(B) Provide for the repair of DME 

brands, items, and supplies of nonpreferred manufacturers. 

(iv) It makes no negative changes to 

its DME brands, items, and supplies of 

preferred manufacturers during the plan 

year. 

(v) It treats denials of DME brands, 

items, and supplies of non-preferred 

manufacturers as organization 

determinations subject to § 422.566. 

(vi) It discloses DME coverage 

limitations and beneficiary appeal rights 

in the case of a denial of a DME brand, 

item, or supply of a non-preferred 

manufacturer as part of the description 

of benefits required under 

§ 422.111(b)(2) and § 422.111(h). 

(vii) It provides full coverage, without 

limitation on brand and manufacturer, 

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to all DME categories or subcategories 

annually determined by CMS to require 

full coverage. 

■ 11. Section 422.101 is amended by 

revising paragraph (d)(1) to read as 

follows: 

§ 422.101 Requirements relating to basic 

benefits. 

* * * * * 

(d) * * * 

(1) Single deductible. MA regional 

and local PPO plans, to the extent they 

apply a deductible as follows: 

(i) Must have a single deductible 

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

services. 

(ii) May specify separate deductible 

amounts for specific in-network 

Medicare Part A and Part B services, to 

the extent these deductible amounts 

apply to the single deductible amount 

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

section. 

(iii) May waive other plan-covered 

items and services from the single 

deductible described in paragraph 

(d)(1)(i) of this section. 

(iv) Must waive all Medicare-covered 

preventive services (as defined in 

§ 410.152(l)) from the single deductible 

described paragraph (d)(1)(i) of this 

section. 

* * * * * 

■ 12. Section 422.102 is amended by 

adding paragraph (e) to read as follows. 

§ 422.102 Supplemental benefits. 

* * * * * 

(e) Supplemental benefits for certain 

dual eligible special needs plans. 

Subject to CMS approval, dual eligible 

special needs plans that meet a high 

standard of integration and minimum 

performance and quality-based 

standards may offer additional 

supplemental benefits, consistent with 

the requirements of this part, where 

CMS finds that the offering of such 

benefits could better integrate care for 

the dual eligible population provided 

that the special needs plan— 

(1) Operated in the MA contract year 

prior to the MA contract year for which 

it is submitting its bid; and 

(2) Offers its enrollees such benefits 

without cost-sharing or additional 

premium charges. 

■ 13. Section 422.111 is amended by 

adding paragraph (i) to read as follows: 

§ 422.111 Disclosure requirements. 

* * * * * 

(i) Provision of information required 

for access to covered services. MA plans 

must issue and reissue (as appropriate) 

member identification cards that 

enrollees may use to access covered 

services under the plan. The cards must 

comply with standards established by 

CMS. 

■ 14. Section 422.216 is amended by 

revising paragraph (d)(1) to read as 

follows: 

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

* * * * * 

(d) * * * 

(1) General information. An MA 

organization that offers an MA private 

fee-for-service plan must provide to 

plan enrollees, an appropriate 

explanation of benefits consistent with 

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

* * * * * 

■ 15. Section 422.500 is amended by 

revising paragraph (a) to read as follows: 

§ 422.500 Scope and definitions. 

(a) Scope. This subpart sets forth 

application requirements for entities 

seeking a contract as a Medicare 

organization offering an MA plan, 

including MA organizations offering a 

specialized MA plan for special needs 

individuals. MA organizations offering 

prescription drug plans must, in 

addition to the requirements of this part, 

follow the requirements of part 423 of 

this chapter specifically related to the 

prescription drug benefit. 

* * * * * 

■ 16. Section 422.501 is amended as 

follows: 

■ A. By revising paragraph (a). 

■ B. In paragraph (c)(1)(i) by removing 

‘‘; or’’ and adding in its place ‘‘.’’. 

■ C. By adding paragraph (c)(1)(iii). 

■ D. By revising paragraph (e). 

The addition and revisions read as 

follows: 

§ 422.501 Application requirements. 

(a) Scope. This section sets forth 

application requirements for entities 

that seek a contract as an MA 

organization offering an MA plan and 

additional application requirements for 

MA organizations seeking to offer a 

Specialized MA Plan for Special Needs 

Individuals. 

* * * * * 

(c) * * * 

(1) * * * 

(iii) For Specialized MA Plans for 

Special Needs Individuals, 

documentation that the entity meets the 

requirements of §§ 422.2; 422.4(a)(1)(iv); 

422.101(f); 422.107, if applicable; and 

422.152(g) of this part. 

* * * * * 

(e) Resubmittal of an application. An 

application that has been denied by 

CMS for a particular contract year may 

not be resubmitted until the beginning 

of the application cycle for the 

following contract year. 

* * * * * 

■ 17. Section 422.502 is amended as 

follows: 

■ A. In paragraph (a)(1), by removing 

the phrase ‘‘MA contract solely’’ and 

adding in its place the phrase ‘‘MA 

contract or for a Specialized MA Plan 

for Special Needs Individuals solely’’. 

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

phrase ‘‘If an MA organization’’ and 

adding in its place ‘‘Except as provided 

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

this section, if an MA organization’’. 

■ C. By adding paragraphs (b)(3) and (4). 

■ D. In paragraph (c) introductory text, 

by removing the phrase ‘‘MA contract 

under this part’’ and adding in its place 

the phrase ‘‘MA contract or to be 

designated a Specialized MA Plan for 

Special Needs Individuals under this 

part’’. 

■ E. By revising paragraphs (c)(2) and 

(c)(3)(i). 

The additions and revision read as 

follows: 

§ 422.502 Evaluation and determination 

procedures. 

(b) * * * 

(3) If CMS has terminated, under 

§ 422.510, or non-renewed, under 

§ 422.506(b), an MA organization’s 

contract, effective within the 38 months 

preceding the deadline established by 

CMS for the submission of contract 

qualification applications, CMS may 

deny an application based on the 

applicant’s substantial failure to comply 

with the requirements of the Part C 

program even if the applicant currently 

meets all of the requirements of this 

part. 

(4) During the same 38-month period 

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

CMS may deny an application where 

the applicant’s covered persons also 

served as covered persons for the 

terminated or non-renewed contract. A 

‘‘covered person’’ as used in this 

paragraph means one of the following: 

(i) All owners of terminated 

organizations who are natural persons, 

other than shareholders who have an 

ownership interest of less than 5 

percent. 

(ii) An owner in whole or part interest 

in any mortgage, deed of trust, note or 

other obligation secured (in whole or in 

part) by the organization, or any of the 

property or assets thereof, which whole 

or part interest is equal to or exceeds 5 

percent of the total property, and assets 

of the organization. 

(iii) A member of the board of 

directors or board of trustees of the 

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entity, if the organization is organized as 

a corporation. 

(c) * * * 

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

the applicant does not appear to be able 

to meet the requirements for an MA 

organization or Specialized MA Plan for 

Special Needs Individuals, CMS gives 

the applicant notice of intent to deny 

the application for an MA contract or for 

a Specialized MA Plan for Special 

Needs Individuals a summary of the 

basis for this preliminary finding. 

(ii) Within 10 days from the intent to 

deny, the applicant must respond in 

writing to the issues or other matters 

that were the basis for CMS’ preliminary 

finding and must revise its application 

to remedy any defects CMS identified. 

(iii) If CMS does not receive a revised 

application within 10 days from the 

date of the notice, or if after timely 

submission of a revised application, 

CMS still finds that the applicant does 

not appear qualified or has not provided 

CMS enough information to allow CMS 

to evaluate the application, CMS will 

deny the application. 

(3) * * * 

(i) That the applicant is not qualified 

to contract as an MA organization under 

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

not qualified to offer a Specialized MA 

Plan for Special Needs Individuals; 

* * * * * 

■ 17. Section 422.504 is amended as 

follows: 

■ A. By adding paragraphs (a)(17) and 

(18). 

■ B. By revising paragraphs (i)(3)(iii), 

(i)(4)(i), (ii), (iii), (iv) introductory text 

and (i)(5). 

The additions and revisions read as 

follows: 

§ 422.504 Contract provisions. 

* * * * * 

(a) * * * 

(17) To maintain administrative and 

management capabilities sufficient for 

the organization to organize, implement, 

and control the financial, marketing, 

benefit administration, and quality 

improvement activities related to the 

delivery of Part C services. 

(18) To maintain a Part C summary 

plan rating score of at least 3 stars. A 

Part C summary plan rating is calculated 

by taking an average of a contract’s Part 

C performance measure scores. 

* * * * * 

(i) * * * 

(3) * * * 

(iii) A provision requiring that any 

services or other activity performed by 

a first tier, downstream, and related 

entity in accordance with a contract are 

consistent and comply with the MA 

organization’s contractual obligations. 

(4) * * * 

(i) Each and every contract must 

specify delegated activities and 

reporting responsibilities. 

(ii) Each and every contract must 

either provide for revocation of the 

delegation activities and reporting 

requirements or specify other remedies 

in instances where CMS or the MA 

organization determine that such parties 

have not performed satisfactorily. 

(iii) Each and every contract must 

specify that the performance of the 

parties is monitored by the MA 

organization on an ongoing basis. 

(iv) Each and every contract must 

specify that either— 

* * * * * 

(5) If the MA organization delegates 

selection of the providers, contractors, 

or subcontractor to another 

organization, the MA organization’s 

contract with that organization must 

state that the CMS-contracting MA 

organization retains the right to 

approve, suspend, or terminate any such 

arrangement. 

* * * * * 

■ 18. Section 422.510 is amended by 

adding paragraph (a)(14) to read as 

follows: 

§ 422.510 Termination of contract by CMS. 

(a) * * * 

(14) Achieves a Part C summary plan 

rating of less than 3 stars for 3 

consecutive contract years. Plan ratings 

issued by CMS before September 1, 

2012 are not included in the calculation 

of the 3-year period. 

* * * * * 

■ 19. Section 422.641 is amended by 

adding paragraph (d) to read as follows: 

§ 422.641 Contract determinations. 

* * * * * 

(d) A determination that an entity is 

not qualified to offer a Specialized MA 

Plan for Special Needs Individuals as 

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

■ 20. Section § 422.660 is amended by 

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

read as follows: 

§ 422.660 Right to a hearing, burden of 

proof, standard of proof, and standards of 

review. 

(a) * * * 

(5) An applicant that has been 

determined to be unqualified to offer a 

Specialized MA Plan for Special Needs 

Individuals. 

(b) * * * 

(5) During a hearing to review a 

determination as described at 

§ 422.641(d) of this subpart, the 

applicant has the burden of proving by 

a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of §§ 422.2; 

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

applicable; and 422.152(g) of this part. 

* * * * * 

■ 21. Section 422.2274 is amended as 

follows: 

■ A. By revising paragraph (a)(1)(i). 

■ B. By removing and reserving 

paragraph (a)(1)(ii). 

■ C. By revising paragraph (a)(1)(iii). 

■ D. By adding paragraph (f). 

The revisions and addition read as 

follows: 

§ 422.2274 Broker and agent requirements. 

* * * * * 

(a) * * * 

(1) * * * 

(i) The compensation amount paid by 

plan sponsors to an independent broker 

or agent: 

(A) For an initial enrollment of a 

Medicare beneficiary into an MA plan, 

must be at or below the fair market 

value (FMV) cut-off amounts published 

annually by CMS. 

(B) For renewals, must be an amount 

equal to 50 percent of the initial 

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

of this section. 

(ii) [Reserved]. 

(iii) The independent broker or agent 

is paid a renewal compensation for each 

of the next 5 years that the enrollee 

remains in the plan in an amount equal 

to 50 percent of the initial year 

compensation amount (creating a 6-year 

compensation cycle). 

* * * * * 

(f) A plan sponsor must report 

annually, as directed by CMS— 

(1) Whether it intends to use 

independent agents or brokers or both in 

the upcoming plan year; and 

(2) If applicable, the specific amount 

or range of amounts independent agents 

or brokers or both will be paid. 

PART 423—MEDICARE PROGRAM; 

MEDICARE PRESCRIPTION DRUG 

PROGRAM 

■ 22. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–43, and 1871 of the Social Security 

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

1395w–153, and 1395hh). 

■ 23. Section 423.56 is amended by 

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

as follows: 

§ 423.56 Procedures to determine and 

document creditable status of prescription 

drug coverage. 

(a) Definition. Creditable prescription 

drug coverage means any of the 

following types of coverage listed in 

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paragraph (b) of this section only if the 

actuarial value of the coverage equals or 

exceeds the actuarial value of defined 

standard prescription drug coverage 

under Part D in effect at the start of such 

plan year, not taking into account the 

value of any discount or coverage 

provided during the coverage gap, and 

demonstrated through the use of 

generally accepted actuarial principles 

and in accordance with CMS guidelines. 

* * * * * 

(f) * * * 

(3) Prior to the commencement of the 

Annual Coordinated Election Period as 

defined in § 423.38(b); and 

* * * * * 

■ 24. Section 423.100 is amended as 

follows: 

■ A. By adding in alphabetical order the 

definition of ‘‘Daily cost-sharing rate.’’ 

■ B. By revising paragraph (2)(iii) of the 

definition of ‘‘Incurred costs.’’ 

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

of ‘‘Part D drug,’’ by removing the 

phrase ‘‘smoking cessation agents’’ and 

adding in its place the phrase ‘‘smoking 

cessation agents; barbiturates when used 

to treat epilepsy, cancer, or a chronic 

mental health disorder; and 

benzodiazepines’’. 

■ D. By revising the definition of 

‘‘Supplemental benefits.’’ 

■ E. By adding in alphabetical order the 

definition of ‘‘Valid prescription.’’ 

The additions and revision read as 

follows: 

§ 423.100 Definitions. 

* * * * * 

Daily cost-sharing rate means, as 

applicable, the established— 

(1) Monthly copayment under the 

enrollee’s Part D plan, divided by 30 or 

31 and rounded to the nearest lower 

dollar amount, if any, or to another 

amount, but in no event to an amount 

that would require the enrollee to pay 

more for a month’s supply of the 

prescription than would otherwise be 

the case; or 

(2) Coinsurance percentage under the 

enrollee’s Part D. 

* * * * * 

Incurred costs * * * 

(2) * * * 

(ii) Under State Pharmaceutical 

Assistance Program (as defined in 

§ 423.464); by the Indian Health Service, 

an Indian tribe or tribal organization, or 

urban Indian organization (as defined in 

section 4 of the Indian Health Care 

Improvement Act) or under an AIDS 

Drug Assistance Program (as defined in 

part B of title XXVI of the Public Health 

Service); or by a manufacturer as 

payment for an applicable discount (as 

defined in § 423.2305) or under the 

Medicare Coverage Gap Discount 

Program (as defined in § 423.2305); or 

* * * * * 

Supplemental benefits means benefits 

offered by Part D plans, other than 

employer group health or waiver plans, 

that meet the requirements of 

§ 423.104(f)(1)(ii). 

* * * * * 

Valid prescription means a 

prescription that complies with all 

applicable State law requirements 

constituting a valid prescription. 

■ 25. Section 423.104 is amended by 

adding paragraphs (h) and (i) to read as 

follows: 

§ 423.104 Requirements related to 

qualified prescription drug coverage. 

* * * * * 

(h) Valid prescription. A Part D 

sponsor may only provide benefits for 

Part D drugs that require a prescription 

if those drugs are dispensed upon a 

valid prescription. 

(i) Daily cost-sharing rate. Beginning 

January 1, 2014, a Part D sponsor is 

required to provide its enrollees access 

to a daily cost-sharing rate in 

accordance with § 423.153(b)(4). 

■ 26. Section 423.120 is amended by 

adding paragraph (c)(5) to read as 

follows: 

§ 423.120 Access to covered Part D drugs. 

* * * * * 

(c) * * * 

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

CMS only a prescription drug event 

(PDE) record that contains an active and 

valid individual prescriber NPI. 

(ii) A Part D sponsor must ensure that 

the lack of an active and valid 

individual prescriber NPI on a network 

pharmacy claim does not unreasonably 

delay a beneficiary’s access to a covered 

Part D drug, by taking the steps 

described in paragraph (c)(5)(iii) of this 

section. 

(iii) The sponsor must communicate 

at point-of-sale whether or not a 

submitted NPI is active and valid in 

accordance with this paragraph 

(c)(5)(iii). 

(A) If the sponsor communicates that 

the NPI is not active and valid, the 

sponsor must permit the pharmacy to— 

(1) Confirm that the NPI is active and 

valid; or 

(2) Correct the NPI. 

(B) If the pharmacy— 

(1) Confirms that the NPI is active and 

valid or corrects the NPI, the sponsor 

must pay the claim if it is otherwise 

payable; or 

(2) Cannot or does not correct or 

confirm that the NPI is active and valid, 

the sponsor must require the pharmacy 

to resubmit the claim (when necessary), 

which the sponsor must pay, if it is 

otherwise payable, unless there is an 

indication of fraud or the claim involves 

a prescription written by a foreign 

prescriber (where permitted by State 

law). 

(iv) A Part D sponsor must not later 

recoup payment from a network 

pharmacy for a claim that does not 

contain an active and valid individual 

prescriber NPI on the basis that it does 

not contain one, unless the sponsor— 

(A) Has complied with paragraphs 

(c)(5)(ii) and (iii) of this section; 

(B) Has verified that a submitted NPI 

was not in fact active and valid; and 

(C) The agreement between the parties 

explicitly permits such recoupment. 

(v) With respect to requests for 

reimbursement submitted by Medicare 

beneficiaries, a Part D sponsor may not 

make payment to a beneficiary 

dependent upon the sponsor’s 

acquisition of an active and valid 

individual prescriber NPI, unless there 

is an indication of fraud. If the sponsor 

is unable to retrospectively acquire an 

active and valid individual prescriber 

NPI, the sponsor may not seek recovery 

of any payment to the beneficiary solely 

on that basis. 

* * * * * 

■ 27. Section 423.153 is amended as 

follows: 

■ A. In the introductory text for 

paragraph (b) by removing the phrase 

‘‘that -’’ and adding in its place the 

phrase ‘‘that address all of the 

following:’’. 

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

and adding in its place ‘‘.’’. 

■ C. In paragraph (b)(2) by removing ‘‘; 

and’’ and adding in its place ‘‘.’’. 

■ D. By adding paragraph (b)(4). 

■ E. By revising paragraph (d)(1)(vii)(B). 

The addition and revision read as 

follows: 

§ 423.153 Drug utilization management, 

quality assurance, and medication therapy 

management programs (MTMPs). 

* * * * * 

(b) * * * 

(4)(i) Establishes a daily cost-sharing 

rate and applies it to a prescription 

presented to a network pharmacy for a 

covered Part D drug that is dispensed 

for a supply less than 30 days, and in 

the case of a monthly copayment, 

multiplies the daily cost-sharing rate by 

the days supply actually dispensed— 

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

oral dose, subject to paragraph 

(b)(4)(i)(B) of this section and may be 

dispensed for a supply less than 30 days 

under applicable law; 

(B) The requirements of this 

paragraph (b)(4)(i) do not apply to either 

of the following: 

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(1) Solid oral doses of antibiotics. 

(2) Solid oral doses that are dispensed 

in their original container as indicated 

in the Food and Drug Administration 

Prescribing Information or are 

customarily dispensed in their original 

packaging to assist patients with 

compliance. 

(ii) [Reserved] 

* * * * * 

(d) * * * 

(1) * * * 

(vii) * * * 

(B) Annual comprehensive 

medication review with written 

summaries. (1) The beneficiary’s 

comprehensive medication review— 

(i) Must include an interactive, 

person-to-person, or telehealth 

consultation performed by a pharmacist 

or other qualified provider; and 

(ii) May result in a recommended 

medication action plan. 

(2) If a beneficiary is offered the 

annual comprehensive medication 

review and is unable to accept the offer 

to participate, the pharmacist or other 

qualified provider may perform the 

comprehensive medication review with 

the beneficiary’s prescriber, caregiver, or 

other authorized individual. 

* * * * * 

■ 28. Section 423.458 is amended by 

adding paragraph (c)(4) to read as 

follows: 

§ 423.458 Application of Part D rules to 

certain Part D plans on or after January 1, 

2006. 

* * * * * 

(c) * * * 

(4) Employer-sponsored group 

prescription drug plans must comply 

with all applicable requirements under 

this part that are not specifically waived 

or modified in accordance with in 

paragraph (c)(3) of this section. 

* * * * * 

■ 29. Section 423.501 is amended by 

adding the definition of ‘‘Bona fide 

service fees’’ in alphabetical order to 

read as follows: 

§ 423.501 Definitions. 

* * * * * 

Bona fide service fees means fees paid 

by a manufacturer to an entity that 

represent fair market value for a bona 

fide, itemized service actually 

performed on behalf of the manufacturer 

that the manufacturer would otherwise 

perform (or contract for) in the absence 

of the service arrangement, and that are 

not passed on in whole or in part to a 

client or customer of an entity, whether 

or not the entity takes title to the drug. 

* * * * * 

■ 30. Section 423.503 is amended as 

follows: 

■ A. In paragraph (b)(1), by removing 

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

its place ‘‘Except as provided in 

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

section, if a Part D’’. 

■ B. Adding paragraphs (b)(3) and (4). 

The additions read as follows: 

§ 423.503 Evaluation and determination 

procedures for applications to be 

determined qualified to act as a sponsor. 

* * * * * 

(b) * * * 

(3) If CMS has terminated, under 

§ 423.509, or non-renewed, under 

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

contract, effective within the 38 months 

preceding the deadline established by 

CMS for the submission of contract 

qualification applications, CMS may 

deny an application based on the 

applicant’s substantial failure to comply 

with the requirements of the Part D 

program even if the applicant currently 

meets all of the requirements of this 

part. 

(4) During the same 38-month period 

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

CMS may deny an application where 

the applicant’s covered persons also 

served as covered persons for the 

terminated or non-renewed contract. A 

‘‘covered person’’ as used in this 

paragraph means one of the following: 

(i) All owners of terminated 

organizations who are natural persons, 

other than shareholders who have an 

ownership interest of less than 5 

percent. 

(ii) An owner in whole or part interest 

in any mortgage, deed of trust, note or 

other obligation secured (in whole or in 

part) by the organization, or any of the 

property or assets thereof, which whole 

or part interest is equal to or exceeds 5 

percent of the total property, and assets 

of the organization. 

(iii) A member of the board of 

directors or board of trustees of the 

entity, if the organization is organized as 

a corporation. 

* * * * * 

■ 31. Section 423.505 is amended as 

follows: 

■ A. By adding paragraphs (b)(24) 

through (26). 

■ B. By revising paragraphs (i)(3) 

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

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

The addition and revisions read as 

follows: 

§ 423.505 Contract provisions. 

* * * * * 

(b) * * * 

(24) Provide applicable beneficiaries 

with applicable discounts on applicable 

drugs in accordance with the 

requirements in subpart W of Part 423. 

(25) Maintain administrative and 

management capabilities sufficient for 

the organization to organize, implement, 

and control the financial, marketing, 

benefit administration, and quality 

assurance activities related to the 

delivery of Part D services. 

(26) Maintain a Part D summary plan 

rating score of at least 3 stars. A Part D 

summary plan rating is calculated by 

taking an average of a contract’s Part D 

performance measure scores. 

* * * * * 

(i) * * * 

(3) Each and every contract governing 

Part D sponsors and first tier, 

downstream, and related entities, must 

contain the following: 

* * * * * 

(iii) A provision requiring that any 

services or other activity performed by 

a first tier, downstream, and related 

entity in accordance with a contract are 

consistent and comply with the Part D 

sponsor’s contractual obligations. 

* * * * * 

(v) Each and every contract must 

specify that first tier, downstream, and 

related entities must comply with all 

applicable Federal laws, regulations, 

and CMS instructions. 

* * * * * 

(4) * * * 

(i) Each and every contract must 

specify delegated activities and 

reporting responsibilities. 

(ii) Each and every contract must 

either provide for revocation of the 

delegation activities and reporting 

responsibilities described in paragraph 

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

remedies in instances when CMS or the 

Part D plan sponsor determine that the 

parties have not performed 

satisfactorily. 

(iii) Each and every contract must 

specify that the Part D plan sponsor on 

an ongoing basis monitors the 

performance of the parties. 

(iv) Each and every contract must 

specify that the related entity, 

contractor, or subcontractor must 

comply with all applicable Federal 

laws, regulations, and CMS instructions. 

* * * * * 

■ 32. Section 423.509 is amended by 

adding paragraph (a)(13) to read as 

follows: 

§ 423.509 Termination of contract by CMS. 

* * * * * 

(a) * * * 

(13) Achieves a Part D summary plan 

rating of less than 3 stars for 3 

consecutive contract years. Plan ratings 

issued by CMS before September 1, 

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2012 are not included in the calculation 

of the 3-year period. 

* * * * * 

■ 33. Section 423.514 is amended as 

follows: 

■ A. By redesignating paragraphs (d) 

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

respectively. 

■ B. By adding new paragraphs (d), (e), 

and (f). 

The additions read as follows: 

§ 423.514 Validation of Part D reporting 

requirements. 

* * * * * 

(d) Reporting requirements for 

pharmacy benefits manager data. Each 

entity that provides pharmacy benefits 

management services must provide to 

the Part D sponsor, and each Part D 

sponsor must provide to CMS, in a 

manner specified by CMS, the 

following: 

(1) The total number of prescriptions 

that were dispensed. 

(2) The percentage of all prescriptions 

that were provided through retail 

pharmacies compared to mail order 

pharmacies. 

(3) The percentage of prescriptions for 

which a generic drug was available and 

dispensed (generic dispensing rate), by 

pharmacy type (which includes an 

independent pharmacy, chain 

pharmacy, supermarket pharmacy, or 

mass merchandiser pharmacy that is 

licensed as a pharmacy by the State and 

that dispenses medication to the general 

public), that is paid by the Part D 

sponsor or PBM under the contract. 

(4) The aggregate amount and type of 

rebates, discounts, or price concessions 

(excluding bona fide service fees as 

defined in § 423.501) that the PBM 

negotiates that are attributable to patient 

utilization under the plan. 

(5) The aggregate amount of the 

rebates, discounts, or price concessions 

that are passed through to the plan 

sponsor, and the total number of 

prescriptions that were dispensed. 

(6) The aggregate amount of the 

difference between the amount the Part 

D sponsor pays the PBM and the 

amount that the PBM pays retail 

pharmacies, and mail order pharmacies. 

(e) Confidentiality of pharmacy 

benefits manager data. Information 

disclosed by a Part D sponsor or PBM 

as specified in paragraph (d) of this 

section is confidential and must not be 

disclosed by the Secretary or by a plan 

receiving the information, except that 

the Secretary may disclose the 

information in a form which does not 

disclose the identity of a specific PBM, 

plan, or prices charged for drugs, for the 

following purposes: 

(1) As the Secretary determines 

necessary to carry out section 1150A of 

the Act or Part D of Title XVIII. 

(2) To permit the Comptroller General 

to review the information provided. 

(3) To permit the Director of the 

Congressional Budget Office to review 

the information provided. 

(f) Penalties for failure to provide 

pharmacy benefits manager data. The 

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

the Act are applicable to a Part D 

sponsor or PBM that fails to provide the 

required information on a timely basis 

or knowingly provides false information 

in the same manner as such provisions 

apply to a manufacturer with an 

agreement under section 1927 of the 

Act. 

* * * * * 

■ 34. Section 423.600 is amended by 

revising paragraphs (a) through (c) to 

read as follows: 

§ 423.600 Reconsideration by an 

independent review entity (IRE). 

(a) An enrollee who is dissatisfied 

with the redetermination of a Part D 

plan sponsor has a right to a 

reconsideration by an independent 

review entity that contracts with CMS. 

The prescribing physician or other 

prescriber (acting on behalf of an 

enrollee), upon providing notice to the 

enrollee, may request an IRE 

reconsideration. The enrollee, or the 

enrollee’s prescribing physician or other 

prescriber (acting on behalf of the 

enrollee) must file a written request for 

reconsideration with the IRE within 60 

calendar days of the date of the 

redetermination by the Part D plan 

sponsor. 

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

prescribing physician or other 

prescriber (acting on behalf of the 

enrollee) files an appeal, the IRE is 

required to solicit the views of the 

prescribing physician or other 

prescriber. The IRE may solicit the 

views of the prescribing physician or 

other prescriber orally or in writing. A 

written account of the prescribing 

physician’s or other prescriber’s views 

(prepared by either the prescribing 

physician, other prescriber, or IRE, as 

appropriate) must be contained in the 

IRE record. 

(c) In order for an enrollee or a 

prescribing physician or other 

prescriber (acting on behalf of an 

enrollee) to request an IRE 

reconsideration of a determination by a 

Part D plan sponsor not to provide for 

a Part D drug that is not on the 

formulary, the prescribing physician or 

other prescriber must determine that all 

covered Part D drugs on any tier of the 

formulary for treatment of the same 

condition would not be as effective for 

the individual as the non-formulary 

drug, would have adverse effects for the 

individual, or both. 

* * * * * 

■ 35. Section 423.602 is amended by 

revising paragraph (a) to read as follows: 

§ 423.602 Notice of reconsideration 

determination by the independent review 

entity. 

(a) Responsibility for the notice. When 

the IRE makes its reconsideration 

determination, it is responsible for 

mailing a notice of its determination to 

the enrollee and the Part D plan 

sponsor, and for sending a copy to CMS. 

When the prescribing physician or other 

prescriber requests the reconsideration 

on behalf of the enrollee, the IRE is also 

responsible for notifying the prescribing 

physician or other prescriber of its 

decision. 

* * * * * 

■ 36. Section 423.1000 is amended by 

adding paragraph (a)(3) to read as 

follows: 

§ 423.1000 Basis and scope. 

* * * * * 

(a) * * * 

(3) Section 1860D–14A(e)(2) of the 

Act specifies that the Secretary must 

impose a civil money penalty on a 

manufacturer that fails to provide 

applicable beneficiaries discounts for 

applicable drugs of the manufacturer in 

accordance with its Discount Program 

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

of the Act makes certain provisions of 

section 1128A of the Act applicable to 

such civil money penalties imposed on 

manufacturers. 

* * * * * 

■ 37. Section 423.1002 is amended by 

revising the definition of ‘‘Affected 

party’’ to read as follows: 

§ 423.1002 Definitions. 

* * * * * 

Affected party means any Part D 

sponsor or manufacturer (as defined in 

§ 423.2305) impacted by an initial 

determination or, if applicable, by a 

subsequent determination or decision 

issued under this part, and ‘‘party’’ 

means the affected party or CMS, as 

appropriate. 

* * * * * 

■ 38. Section § 423.2274 is amended as 

follows: 

■ A. By revising paragraph (a)(1)(i). 

■ B. By removing and reserving 

paragraph (a)(1)(ii). 

■ C. By revising paragraph (a)(1)(iii). 

■ D. By adding paragraph (f). 

The revisions and addition read as 

follows: 

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22172 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

§ 423.2274 Broker and agent requirements. 

* * * * * 

(a) * * * 

(1) * * * 

(i) The compensation amount paid by 

plan sponsors to an independent broker 

or agent— 

(A) For an initial enrollment of a 

Medicare beneficiary into a PDP must be 

at or below the fair market value (FMV) 

cut-off amounts published annually by 

CMS; or 

(B) For renewals, must be an amount 

equal to 50 percent of the initial 

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

of this section. 

* * * * * 

(iii) The independent broker or agent 

is paid a renewal compensation for each 

of the next 5 years that the enrollee 

remains in the plan in an amount equal 

to 50 percent of the initial year 

compensation paid (creating a 6-year 

compensation cycle). 

* * * * * 

(f) Plan sponsor must report annually, 

as directed by CMS the following: 

(1) Whether it intends to use 

independent agents or brokers or both in 

the upcoming plan year. 

(2) If applicable, the specific amount 

or range of amounts independent agents 

or brokers or both will be paid. 

■ 39. Subpart W is added to read as 

follows: 

Subpart W—Medicare Coverage Gap 

Discount Program 

Sec. 

423.2300 Scope. 

423.2305 Definitions. 

423.2310 Condition for coverage of drugs 

under Part D. 

423.2315 Medicare Coverage Gap Discount 

Program Agreement. 

423.2320 Payment processes for Part D 

sponsors. 

423.2325 Provision of applicable 

discounts. 

423.2330 Manufacturer discount payment 

audit and dispute resolution. 

423.2335 Beneficiary dispute resolution. 

423.2340 Compliance monitoring and civil 

money penalties. 

423.2345 Termination of Discount Program 

Agreement. 

§ 423.2300 Scope. 

This subpart implements provisions 

included in sections 1860D–14A and 

1860D–43 of the Act. This subpart sets 

forth requirements regarding the 

following: 

(a) Condition for coverage of 

applicable drugs under Part D. 

(b) The Medicare Coverage Gap 

Discount Program Agreement. 

(c) Coverage gap discount payment 

processes for Part D sponsors. 

(d) Provision of applicable discounts 

on applicable drugs for applicable 

beneficiaries. 

(e) Manufacturer audit and dispute 

resolution processes. 

(f) Resolution of beneficiary disputes 

involving coverage gap discounts. 

(g) Compliance monitoring and civil 

money penalties. 

(h) The termination of the Discount 

Program Agreement. 

§ 423.2305 Definitions. 

As used in this subpart, unless 

otherwise specified— 

Applicable discount means 50 percent 

of the portion of the negotiated price (as 

defined in § 423.2305) of the applicable 

drug of a manufacturer that falls within 

the coverage gap and that remains after 

such negotiated price is reduced by any 

supplemental benefits that are available. 

Applicable number of calendar days 

means, with respect to claims for 

reimbursement submitted electronically, 

14 days, and otherwise, 30 days. 

Date of dispensing means the date of 

service. 

Labeler code means the first segment 

of the Food and Drug Administration 

national drug code (NDC) that identifies 

a particular manufacturer. 

Manufacturer means any entity which 

is engaged in the production, 

preparation, propagation, compounding, 

conversion or processing of prescription 

drug products, either directly or 

indirectly, by extraction from 

substances of natural origin, or 

independently by means of chemical 

synthesis, or by a combination of 

extraction and chemical synthesis. For 

purposes of the Discount Program, such 

term does not include a wholesale 

distributor of drugs or a retail pharmacy 

licensed under State law, but includes 

entities otherwise engaged in 

repackaging or changing the container, 

wrapper, or labeling of any applicable 

drug product in furtherance of the 

distribution of the applicable drug from 

the original place of manufacture to the 

person who makes the final delivery or 

sale to the ultimate consumer or user. 

Medicare Coverage Gap Discount 

Program (or Discount Program) means 

the Medicare coverage gap discount 

program established under 

section1860D–14A of the Act. 

Medicare Coverage Gap Discount 

Program Agreement (or Discount 

Program Agreement) means the 

agreement described in section 1860D– 

14A(b) of the Act. 

Medicare Part D discount information 

means the information sent from CMS 

or the TPA to the manufacturer along 

with each quarterly invoice that is 

derived from applicable data elements 

available on prescription drug events as 

determined by CMS. 

National Drug Code (NDC) means the 

unique identifying prescription drug 

product number that is listed with the 

Food and Drug Administration (FDA) 

identifying the product and package size 

and type. 

Negotiated price for purposes of the 

Discount Program, means the price for 

a covered Part D drug that— 

(1) The Part D sponsor (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount such 

network entity will receive, in total, for 

a particular drug; 

(2) Is reduced by those discounts, 

direct or indirect subsidies, rebates, 

other price concessions, and direct or 

indirect remuneration that the Part D 

sponsor has elected to pass through to 

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

(3) Excludes any dispensing fee or 

vaccine administration fee for the 

applicable drug. 

In connection with applicable drugs 

dispensed by an out-of-network 

provider in accordance with the 

applicable beneficiary’s Part D plan outof-network policies, the negotiated price 

means the plan allowance as set forth in 

§ 423.124, less any dispensing fee or 

vaccine administration fee. 

Other health or prescription drug 

coverage means any coverage or 

financial assistance under other health 

benefit plans or programs that provide 

coverage or financial assistance for the 

purchase or provision of prescription 

drug coverage on behalf of applicable 

beneficiaries, including, in the case of 

employer group health or waiver plans, 

other than basic prescription drug 

coverage as defined in § 423.100. 

Third Party Administrator (TPA) 

means the CMS contractor responsible 

for administering the requirements 

established by the CMS to carry out 

section 1860D–14A of the Act. 

§ 423.2310 Condition for coverage of 

drugs under Part D. 

(a) Covered Part D drug coverage 

requirement. Except as specified in 

paragraph (b) of this section, in order for 

coverage to be available under Medicare 

Part D for applicable drugs of a 

manufacturer, the manufacturer must do 

all of the following: 

(1) Participate in the Discount 

Program. 

(2) Have entered into and have in 

effect an agreement described in 

§ 423.2315(b). 

(3) Have entered into and have in 

effect, under terms and conditions 

specified by CMS, a contract with the 

TPA. 

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 22173 

(b) Exception to covered drug 

coverage requirement. Paragraph (a) of 

this section does not apply to an 

applicable drug if CMS has made a 

determination that the availability of the 

applicable drug is essential to the health 

of beneficiaries enrolled in Medicare 

Part D. 

§ 423.2315 Medicare Coverage Gap 

Discount Program Agreement. 

(a) General rule. The Medicare 

Coverage Gap Discount Program 

Agreement (or Discount Program 

Agreement) between the manufacturer 

and CMS must contain the provisions 

specified in paragraph (b) of this 

section, and may contain such other 

provisions as are established in a model 

agreement consistent with section 

1860D–14A (a)(1) of the Act. 

(b) Agreement requirements. The 

manufacturer agrees to the following: 

(1) All the applicable requirements 

and conditions set forth in this part and 

general instructions. 

(2) Reimburse all applicable discounts 

provided by Part D sponsors on behalf 

of the manufacturer for all applicable 

drugs having NDCs with the 

manufacturer’s FDA-assigned labeler 

code(s) invoiced to the manufacturer 

within a maximum of 3 years of the date 

of dispensing based upon information 

reported to CMS by Part D sponsors. 

(3) Pay each Part D sponsor in the 

manner specified by CMS within 38 

calendar days of receipt of the invoice 

and Medicare Part D Discount 

Information for the applicable discounts 

included on the invoice, except as 

specified in § 423.2330(c)(3). 

(4) Provide CMS with all labeler codes 

for all the manufacturer’s applicable 

drugs and to promptly update such list 

with any additional labeler codes for 

applicable drugs no later than 3 

business days after learning of a new 

code assigned by the FDA. 

(5) Collect, have available, and 

maintain appropriate data, including 

data related to manufacturer’s labeler 

codes, FDA drug approvals, FDA NDC 

Directory listings, NDC last lot 

expiration dates, utilization and pricing 

information relied on by the 

manufacturer to dispute quarterly 

invoices, and any other data CMS 

determines are necessary to carry out 

the Discount Program, for a period of 

not less than 10 years from the date of 

payment of the invoice. 

(6) Comply with the audit and dispute 

resolution requirements in § 423.2330. 

(7) Electronically list and maintain 

up-to-date electronic FDA listings of all 

NDCs of the manufacturer, including 

providing timely information about 

discontinued drugs to enable the 

publication of accurate information 

regarding what drugs, identified by 

NDC, are in current distribution. 

(8) Maintain up-to-date NDC listings 

with the electronic database vendors for 

which the manufacturer provides NDCs 

for pharmacy claims processing. 

(9) Enter into and have in effect, 

under terms and conditions specified by 

CMS, an agreement with the TPA that 

has a contract with CMS under section 

1860D–14(A)(d)(3) of the Act. 

(10) Pay quarterly invoices directly to 

accounts established by Part D sponsors 

via electronic funds transfer, or other 

manner if specified by CMS, within the 

time period specified in paragraph (b)(3) 

of this section and within 5 business 

days of the transfer to provide the TPA 

with electronic documentation of such 

payment in a manner specified by CMS. 

(11) Use information disclosed to the 

manufacturer on the invoice, as part of 

the Medicare Part D Discount 

Information, or upon audit or dispute 

only for purposes of paying the discount 

under the Discount Program. 

(c) Timing and length of agreement. 

(1) For 2011, a manufacturer must enter 

into a Discount Program Agreement not 

later than 30 days after the date of 

establishment of the model Discount 

Program Agreement. 

(2) For 2012 and subsequent years, for 

a Discount Program Agreement to be 

effective for a year, a manufacturer must 

enter into a Discount Program 

Agreement not later than January 30th 

of the preceding year. 

(3) Unless terminated in accordance 

with § 423.2345, the initial period of a 

Discount Program Agreement is 24 

months and the agreement is 

automatically renewed for a 1-year 

period on January first each year for a 

period of 1 year thereafter. 

(d) Compliance with requirements for 

administration of the Program. Each 

manufacturer with an agreement in 

effect under this subpart must comply 

with the requirements imposed by CMS 

or the third party administrator (as 

defined in § 423.2305) for purposes of 

administering the program. 

§ 423.2320 Payment processes for Part D 

sponsors. 

(a) Interim payments. CMS provides 

monthly interim coverage gap discount 

program payments as necessary for Part 

D sponsors to advance coverage gap 

discounts to beneficiaries. 

(b) Coverage Gap Discount 

Reconciliation. CMS reconciles interim 

payments with invoiced manufacturer 

discount amounts made available to 

each Part D plan’s enrollee under the 

Discount Program. 

§ 423.2325 Provision of applicable 

discounts. 

(a) General rule. On behalf of the 

manufacturers, Part D sponsors must 

provide applicable beneficiaries with 

applicable discounts on applicable 

drugs at the point-of-sale. 

(b) Discount determination. (1) Part D 

sponsors must determine the following: 

(i) Whether an enrollee is an 

applicable beneficiary (as defined in 

§ 423.100). 

(ii) Whether a Part D drug is an 

applicable drug (as defined in 

§ 423.100). 

(iii) The amount of the applicable 

discount (as defined in § 423.2305) to be 

provided at the point-of-sale. 

(2) Part D sponsors must make 

retroactive adjustments to the applicable 

discount as necessary to reflect changes 

to the claim or beneficiary eligibility 

determined after the date of dispensing. 

(3) Part D sponsors must determine 

whether any affected beneficiaries need 

to be notified by the Part D sponsor that 

an applicable drug is eligible for Part D 

coverage whenever CMS specifies a 

retroactive effective date for a labeler 

code and notify such beneficiaries. 

(c) Exception to point-of-sale 

requirement. Part D sponsors must 

provide an applicable discount for 

applicable drugs submitted by 

applicable beneficiaries via paper 

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

payable under the Part D plan. 

(d) Collection of data. Part D sponsors 

must provide CMS with appropriate 

data on the applicable discounts 

provided by the Part D sponsors in a 

manner specified by CMS. 

(e) Supplemental benefits. (1) An 

applicable discount must be applied to 

beneficiary cost-sharing after 

supplemental benefits (as defined in 

§ 423.100) have been applied to the 

claim for an applicable drug. 

(2) No applicable discount is available 

if supplemental benefits (as defined in 

§ 423.100) eliminate the coverage gap so 

that a beneficiary has zero cost-sharing. 

(f) Other health or prescription drug 

coverage. An applicable discount must 

be applied to beneficiary cost-sharing 

when Part D is the primary payer before 

any other health or prescription drug 

coverage is applied. 

(g) Pharmacy prompt payment. Part D 

sponsors must reimburse a network 

pharmacy (as defined in § 423.100) the 

amount of the applicable discount no 

later than the applicable number of 

calendar days after the date of 

dispensing of an applicable drug. For 

long-term care and home infusion 

pharmacies, the date of dispensing can 

be interpreted as the date the pharmacy 

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22174 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

submits the discounted claim for 

reimbursement. 

§ 423.2330 Manufacturer discount 

payment audit and dispute resolution. 

(a) Third-party Administration (TPA) 

audits. (1) Manufacturers participating 

in the Discount Program may conduct 

periodic audits, no more often than 

annually, directly or through third 

parties as specified in this section. 

(2) The manufacturer must provide 

the TPA with 60 days notice of the 

reasonable basis for the audit and a 

description of the information required 

for the audit. 

(3) The manufacturer must have the 

right to audit a statistically significant 

sample of data and information held by 

the TPA that were used to determine 

applicable discounts for applicable 

drugs having NDCs with the 

manufacturer’s FDA-assigned labeler 

code(s). Such data and information will 

be made available on-site, and with the 

exception of work papers, such 

information cannot be removed from the 

audit site. 

(4) The auditor for the manufacturer 

may release only an opinion of the audit 

results and is prohibited from releasing 

other information obtained from the 

audit, including work papers, to its 

client, employer, or any other party. 

(b) Manufacturer audits. (1) A 

manufacturer is subject to periodic audit 

by CMS no more often than annually, 

directly or through third parties, as 

specified in this section. 

(2) CMS provides the manufacturer 

with 60 days notice of the audit and a 

description of the information required 

for the audit. 

(3) CMS has the right to audit 

appropriate data, including data related 

to a manufacturer’s FDA-assigned 

labeler codes, NDC last lot expiration 

dates, utilization, and pricing 

information relied on by the 

manufacturer to dispute quarterly 

invoices, and any other data CMS 

determines are necessary to carry out 

the Discount Program. 

(c) Dispute resolution. (1) 

Manufacturers may dispute applicable 

discounts invoiced to the manufacturer 

on quarterly invoices by providing 

notice of the dispute to the TPA in a 

manner specified by CMS within 60 

days of receipt of the information that 

is the subject of the dispute. 

(2) Such notice must be accompanied 

by supporting evidence that is material, 

specific, and related to the dispute in a 

manner specified by CMS. 

(3) The manufacturer must not 

withhold any invoiced discount 

payments pending dispute resolution 

with the sole exception of invoiced 

amounts for applicable drugs that do not 

have labeler codes provided by the 

manufacturer to CMS in accordance 

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

payment is withheld in accordance with 

this paragraph, the manufacturer must 

notify the TPA and applicable Part D 

sponsors within 38 days of receipt of the 

applicable invoice that payment is being 

withheld for this reason. 

(4) If the manufacturer receives an 

unfavorable determination from the 

TPA, or the dispute is not resolved 

within 60 calendar days of the TPA’s 

receipt of the notice of dispute, the 

manufacturer may request review by the 

independent review entity contracted by 

CMS within— 

(i) Thirty calendar days of the 

unfavorable determination; or 

(ii) Ninety calendar days after the 

TPA’s receipt of the notice of dispute if 

dispute is not resolved within 60 days, 

whichever is earlier. 

(5) The independent review entity 

must make a determination within 90 

calendar days of receipt of the 

manufacturer’s request for review. 

(6)(i) CMS or a manufacturer that 

receives an unfavorable determination 

from the independent review entity may 

request review by the CMS 

Administrator within 30 calendar days 

of receipt of the notification of such 

determination. 

(ii) The decision of the CMS 

Administrator is final and binding. 

(7) CMS adjusts future invoices (or 

implements an alternative 

reimbursement process if determined 

necessary by CMS) if the dispute is 

resolved in favor of the manufacturer. 

§ 423.2335 Beneficiary dispute resolution. 

The Part D coverage determination 

and appeals process as described in 

§§ 423.558 through 423.638 applies to 

beneficiary disputes involving the 

availability and amount of applicable 

discounts under the Discount Program. 

§ 423.2340 Compliance monitoring and 

civil money penalties. 

(a) General rule. CMS monitors 

compliance by a manufacturer with the 

terms of the Discount Program 

Agreement. 

(b) Basis for imposing civil money 

penalties. CMS imposes a civil money 

penalty (CMP) on a manufacturer that 

fails to provide applicable beneficiaries 

applicable discounts for applicable 

drugs of the manufacturer in accordance 

with the Discount Program Agreement. 

(c) Determination of the civil money 

penalty amounts. CMS imposes a CMP 

for each failure by a manufacturer to 

provide an applicable discount in 

accordance with the Discount Program 

Agreement equal to the sum of the 

following: 

(1) The amount of applicable discount 

the manufacturer would have paid 

under the Discount Program Agreement, 

which will then be used to pay the 

applicable discount that the 

manufacturer had failed to provide. 

(2) Twenty-five percent of such 

amount. 

(d) Procedures for imposing civil 

money penalties. If CMS makes a 

determination to impose a CMP 

described in paragraph (c) of this 

section, CMS sends a written notice of 

its decision to impose a CMP to include 

the following: 

(1) A description of the basis for the 

determination. 

(2) The basis for the penalty. 

(3) The amount of the penalty. 

(4) The date the penalty is due. 

(5) The manufacturer’s right to a 

hearing (as specified in § 423.1006). 

(6) Information about where to file the 

request for hearing. 

(e) Collection of civil money penalties 

imposed by CMS. (1) When a 

manufacturer does not request a 

hearing, CMS initiates the collection of 

the CMP following the expiration of the 

timeframe for requesting an ALJ hearing 

as specified in § 423.1020. 

(2) If a manufacturer requests a 

hearing and the Administrator upholds 

CMS’ decision to impose a CMP, CMS 

may initiate collection of the CMP once 

the Administrator’s decision is final. 

(f) Other applicable provisions. The 

provisions of section 1128A of the Act 

(except subsections (a) and (b) of section 

of 1128A of the Act) apply to CMPs 

under this section to the same extent 

that they apply to a CMP or procedure 

under section 1128A(a) of the Act. 

§ 423.2345 Termination of Discount 

Program Agreement. 

(a)(1) CMS may terminate the 

Discount Program Agreement for a 

knowing and willful violation of the 

requirements of the agreement or other 

good cause shown in relation to the 

manufacturer’s participation in the 

Discount Program. 

(2) The termination must not be 

effective earlier than 30 days after the 

date of notice to the manufacturer of 

such termination and must not be 

effective prior to resolution of timely 

appeal requests received in accordance 

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

section. 

(3)(i) CMS provides the manufacturer 

with an opportunity to cure any ground 

for termination for cause or to show the 

manufacturer is in compliance with the 

Discount Program Agreement within 30 

calendar days of receipt of the written 

termination notice. 

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 22175 

(ii) If the manufacturer cures the 

violation, or establishes that it was in 

compliance within the cure period, 

CMS repeals the termination notice by 

written notice. 

(4) CMS provides upon request a 

manufacturer with a hearing with the 

hearing officer concerning such 

termination if requested in writing 

within 15 calendar days of receiving 

notice of the termination. The hearing 

takes place prior to the effective date of 

the termination with sufficient time for 

such effective date to be repealed if 

CMS determines appropriate. 

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

received an unfavorable determination 

from the hearing officer may request 

review by the CMS Administrator 

within 30 calendar days of receipt of the 

notification of such determination. 

(ii) The decision of the CMS 

Administrator is final and binding. 

(b)(1) The manufacturer may 

terminate the Discount Program 

Agreement for any reason. 

(2) Such termination is effective as of 

the day after the end of the calendar 

year if the termination occurs before 

January 30 of a calendar year, or as of 

the day after the end of the succeeding 

calendar year if the termination occurs 

on or after January 30 of a calendar year. 

(c) Any termination does not affect 

the manufacturer’s responsibility to 

reimburse Part D sponsors for applicable 

discounts incurred before the effective 

date of the termination. 

(d) Upon the effective date of 

termination of the Discount Program 

Agreement, CMS ceases releasing data 

to the manufacturer except as necessary 

to ensure that the manufacturer 

reimburses applicable discounts for 

previous time periods in which the 

Discount Program Agreement was in 

effect, and notifies the manufacturer to 

destroy data files provided by CMS 

under the Discount Program Agreement. 

(e) Manufacturer reinstatement is 

available only upon payment of any and 

all outstanding applicable discounts 

incurred during any previous period 

under the Discount Program Agreement. 

The timing of any such reinstatement is 

consistent with the requirements for 

entering into a Discount Program 

Agreement under § 423.2315(c) of this 

subpart. 

Authority: Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program. 

Dated: March 15, 2012. 

Marilyn Tavenner, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: March 28, 2012. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2012–8071 Filed 4–2–12; 4:15 pm] 

BILLING CODE 4120–01–P 

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