[Federal Register Volume 77, Number 71 (Thursday, April 12, 2012)]
[Rules and Regulations]
[Pages 22072-22175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-8071]



[[Page 22071]]

Vol. 77

Thursday,

No. 71

April 12, 2012

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 417, 422 and 423





Medicare Program; Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs for Contract Year 2013 and Other 
Changes; Final Rule

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

[[Page 22072]]


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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.

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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 Sec.  423.2305 and 
``supplemental benefits'' at Sec.  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 (Sec.  423.100, Sec.  423.505, 
Sec.  423.1000, Sec.  423.1002, and Subpart W (Sec.  423.2300-
423.2410))
    a. Scope (Sec.  423.2300)
    b. Definitions (Sec.  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 (Sec.  423.2305)
    d. Medicare Coverage Gap Discount Program Agreement (Sec.  
423.2315)
    (1) Obligations of the Manufacturer
    (2) Timing and Length of Agreement
    e. Payment Processes for Part D Sponsors (Sec.  423.2320)
    (1) Interim Payments
    (2) Coverage Gap Discount Reconciliation
    f. Provision of Applicable Discounts (Sec.  423.2325)
    (1) Obligations of Part D Sponsors; Point-of-Sale Discounts

[[Page 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 
(Sec.  423.2330)
    (1) Third Party Administrator Audits
    (2) Manufacturer Audits
    (3) Dispute Resolution
    h. Beneficiary Dispute Resolution (Sec.  423.2335)
    i. Compliance Monitoring and Civil Money Penalties (Sec.  
423.2340)
    j. Termination of Agreement (Sec.  423.2345)
    2. Inclusion of Benzodiazepines and Barbiturates as Part D 
Covered Drugs (Sec.  423.100)
    3. Pharmacy Benefit Manager's Transparency Requirements (Sec.  
423.501 and Sec.  423.514)
    B. Strengthening Beneficiary Protections
    1. Good Cause and Reinstatement Into a Cost Plan (Sec.  417.460)
    2. Requiring MA Plans to Issue ID Cards (Sec.  422.111)
    3. Determination of Actuarially Equivalent Creditable 
Prescription Drug Coverage (Sec.  423.56)
    4. Who May File Part D Appeals With the Independent Review 
Entity (Sec.  423.600 and Sec.  423.602)
    5. Independence of LTC Consultant Pharmacists
    C. Excluding Poor Performers
    1. CMS Termination of Health Care Prepayment Plans (Sec.  
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 (Sec. Sec.  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 
(Sec. Sec.  422.502 and 423.503)
    D. Improving Program Efficiencies
    1. Cost Contract Plan Public Notification Requirements in Cases 
of Non-Renewal (Sec.  417.492)
    2. New Benefit Flexibility for Certain Dual Eligible Special 
Needs Plans (D-SNPs) (Sec.  422.102)
    3. Application of the Medicare Hospital-Acquired Conditions and 
Present on Admission Indicator Policy to MA Organizations
    4. Clarifying Coverage of Durable Medical Equipment (Sec. Sec.  
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 Non-Preferred 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 (Sec. Sec.  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 (Sec. Sec.  423.100, 423.104, and 423.153)
    E. Clarifying Program Requirements
    1. Technical Corrections to Enrollment Provisions (Sec. Sec.  
417.422, 417.432, 422.60, and 423.56)
    2. Extending MA and Part D Program Disclosure Requirements to 
Section 1876 Cost Contract Plans (Sec.  417.427)
    3. Clarification of, and Extension to Local Preferred Provider 
Plans, of Regional Preferred Provider Organization Plan Single 
Deductible Requirement (Sec.  422.101)
    4. Technical Change to Private Fee-For-Service Plan Explanation 
of Benefits Requirements (Sec.  422.216)
    5. Application Requirements for Special Needs Plans (Sec. Sec.  
422.500, 422.501, 422.502, 422.641, and 422.660)
    6. Timeline for Resubmitting Previously Denied MA Applications 
(Sec.  422.501)
    7. Clarification of Contract Requirements for First Tier and 
Downstream Entities (Sec. Sec.  422.504 and 423.505)
    8. Valid Prescriptions (Sec. Sec.  423.100 and 423.104)
    9. Medication Therapy Management Comprehensive Medication 
Reviews and Beneficiaries in LTC Settings (Sec.  423.153)
    10. Employer Group Waiver Plans Requirement to Follow All Part D 
Rules Not Explicitly Waived (Sec.  423.458)
    11. Access to Covered Part D Drugs Through Use of Standardized 
Technology and National Provider Identifiers (Sec.  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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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 (Sec.  423.100, Sec.  423.505(b), 
Sec.  423.1002, and Subpart W (Sec.  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 (Sec.  423.501 
and Sec.  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 
(Sec.  423.600 and Sec.  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 (Sec. Sec.  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

[[Page 22075]]

that CMS must use, pursuant to section 1857(c)(2) of the Act, to make a 
contract termination decision.
e. New Benefit Flexibility for Fully-Integrated Dual Eligible Special 
Needs Plans (FIDE SNPs) (Sec.  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 long-term 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 (Sec. Sec.  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 
(Sec. Sec.  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 cost-sharing 
rates upon request until January 1, 2014.
h. Access to Covered Part D Drugs Through Use of Standardized 
Technology and National Provider Identifiers (Sec.  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         Provision         Total 6 year       Total 6 year
    section         description           costs             benefits
------------------------------------------------------------------------
II.A.1.........  Coverage Gap       $1.3 billion:      $29.7 billion in
                  Discount Program   Cost to Federal    manufacturer
                  (Sec.  Sec.        government $76     discounts for
                  423.100,           M: Cost to Part    Part D
                  423.505(b),        D sponsors.        enrollees.
                  423.1002, and      $29.8 billion:     Provides
                  Subpart W (Sec.    Cost to            additional
                  Sec.   423.2300-   manufacturers.     health benefits
                  423.2410)).                           through
                                                        increased
                                                        adherence to
                                                        medication
                                                        regimens; and
                                                        allows
                                                        beneficiaries to
                                                        reach the
                                                        catastrophic
                                                        coverage phase
                                                        more quickly.
II.A.3.........  Pharmacy Benefit   N/A (Nearly all    Promotes PBM
                  Manager's          data elements      transparency to
                  Transparency       are already        Part D sponsors
                  Requirements       collected for      and Medicare.
                  (Sec.  Sec.        other purposes).
                  423.501 and
                  423.514).
II.B.4.........  Who May File Part  $5.84 million:     Improves
                  D Appeals with     Cost to Federal    beneficiary
                  the Independent    government.        access to the
                  Review Entity      $450,000: Cost     Part D appeals
                  (Sec.   423.600).  to Part D          process.
                                     sponsors.
II.C.2.........  Plan Performance   N/A..............  For
                  Ratings as a                          beneficiaries:
                  Measure of                            Provides
                  Administrative                        assurance that
                  and Management                        they are making
                  Arrangements and                      a plan election
                  as a Basis for                        from among only
                  Termination or                        those sponsors
                  Non-Renewal of a                      that demonstrate
                  Medicare                              a commitment to
                  Contract (Sec.                        providing high
                  Sec.   422.510,                       quality service.
                  423.505, and                         For CMS:
                  423.509).                             Emphasizes
                                                        further CMS'
                                                        commitment to
                                                        driving
                                                        improvement in
                                                        the health care
                                                        and prescription
                                                        drug benefit
                                                        markets.
II.D.2.........  New Benefit        $0.36 million to   For
                  Flexibility for    MA organizations.  beneficiaries:
                  Certain Dual                          The flexibility
                  Eligible Special                      for certain D-
                  Needs Plans                           SNPs to offer
                  (D[dash]SNPs)                         additional
                  (Sec.   422.102).                     supplemental
                                                        benefits is in
                                                        keeping with our
                                                        objective of
                                                        keeping Medicare-
                                                        Medicaid (``dual
                                                        eligible'')
                                                        beneficiaries
                                                        who are at risk
                                                        of
                                                        institutionaliza
                                                        tion 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.

[[Page 22076]]

 
II.D.4.........  Clarifying         N/A..............  N/A.
                  Coverage of
                  Durable Medical
                  Equipment (Sec.
                  Sec.   422.100
                  and 422.111).
II.D.6.........  Establishment and  $0.5 million:      Over $1.8 billion
                  Application of     cost to Part D     in estimated
                  Daily Cost-        sponsors.          savings to the
                  Sharing Rate as                       Part D program.
                  Part of Drug                         Savings to
                  Utilization                           beneficiaries
                  Management and                        who take
                  Fraud, Abuse,                         advantage of
                  and Waste                             option in
                  Control Program                       consultation
                  (Sec.  Sec.                           with their
                  423.100, 423.104                      prescribers
                  and 423.153).                         through lower
                                                        cost-sharing for
                                                        prescriptions.
                                                       Reduction of
                                                        medication
                                                        waste.
II.E.11........  Access to Covered  $30.7 million:     Improved
                  Part D Drugs       cost to Part D     capability to
                  Through Use of     sponsors.          fight fraud in
                  Standardized                          the Medicare
                  Technology and                        Part D program.
                  National
                  Provider
                  Identifiers
                  (Sec.   423.120).
------------------------------------------------------------------------

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
------------------------------------------------------------------------
                                                       Effective date
      Preamble  section           Section title      applicability date
------------------------------------------------------------------------
II.A.1......................  Coverage Gap          The definition of
                               Discount Program.     ``other health or
                                                     prescription drug
                                                     coverage'' under
                                                     Sec.   423.2305 and
                                                     change to the
                                                     existing definition
                                                     of ``supplemental
                                                     benefits'' under
                                                     Sec.   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          effective 01/01/13
                               Benzodiazepines and  applicable 01/01/13
                               Barbiturates as
                               Part D Covered
                               Drugs.
II.B.1......................  Good Cause and        effective 60 days
                               Reinstatement into    after date of
                               a Cost Plan.          publication
                                                    applicable 01/01/13
II.B.2......................  Requiring MA plans    effective 60 days
                               to disclose Member    after date of
                               ID cards.             publication
                                                    applicable 01/01/13
II.B.4......................  Clarifying Who May    effective and
                               File Part D Appeals  applicable 01/01/13
                               with the
                               Independent Review
                               Entity.
II.C.1......................  CMS Termination of    effective 60 days
                               Health Care           after date of
                               Prepayment Plans.     publication
                                                    applicable 01/01/13
II.D.1......................  Cost Contract Plan    effective 60 days
                               Public Notification   after date of
                               Requirements in       publication
                               Cases of Non-        applicable 01/01/13
                               Renewal.
II.D.2......................  Flexibilities for     effective 60 days
                               Certain Fully-        after date of
                               Integrated Dual       publication
                               Eligible Special     applicable 01/01/13
                               Needs Plans.
II.D.4......................  Clarifying Coverage   effective 60 days
                               of Durable Medical    after date of
                               Equipment.            publication
                                                    applicable 01/01/13
II.D.5......................  Broker and Agent      effective 60 days
                               Requirements.         after date of
                                                     publication
                                                    applicable 01/01/13
II.E.6......................  Establishment and     effective 60 days
                               Application of        after date of
                               Daily Cost-Sharing    publication
                               Rate as Part of      applicable 01/01/14
                               Drug Utilization
                               Management and
                               Fraud, Abuse, and
                               Waste Control
                               Program.
II.E.2......................  Extending MA and      effective 60 days
                               Part D Program        after date of
                               Disclosure            publication
                               Requirements to      applicable 01/01/13
                               Section 1876 Cost
                               Contract Plans.

[[Page 22077]]

 
II.E.3......................  Clarification of,     effective 60 days
                               and Extension of      after date of
                               Regional Preferred    publication
                               Provider             applicable 01/01/13
                               Organization Plan
                               Single Deductible
                               Requirements to,
                               Local Preferred
                               Provider Plans.
II.E.4......................  Technical Change to   effective 60 days
                               Private Fee-For-      after date of
                               Service Plan          publication
                               Explanation of       applicable sometime
                               Benefits              after 2013
                               Requirements.         application cycle
                                                     (when EOB model for
                                                     all MA plans are
                                                     finalized)
II.E.5......................  Application           effective 60 days
                               Requirements for      after date of
                               Special Needs Plans.  publication
                                                    applicable 01/01/13
II.E.6......................  Timeline for          effective 60 days
                               Resubmitting          after date of
                               Previously Denied     publication
                               MA Applications.     applicable 01/01/13
II.E.7......................  Clarification of      effective 60 days
                               Contract              after date of
                               Requirements for      publication
                               First Tier and       applicable 01/01/13
                               Downstream Entities.
II.E.9......................  Medication Therapy    effective 01/01/13
                               Management           applicable 01/01/13
                               Comprehensive
                               Medication Reviews
                               and Beneficiaries
                               in LTC Settings.
II.E.11.....................  Access to Covered     effective 60 days
                               Part D Drugs          after date of
                               Through Use of        publication
                               Standardized         applicable 01/01/13
                               Technology and
                               National Provider
                               Identifiers.
------------------------------------------------------------------------

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 cost-sharing 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-
of-pocket 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.

[[Page 22078]]

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:
    <bullet> Implementing provisions of MIPPA and the Affordable Care 
Act.
    <bullet> Strengthening beneficiary protections.
    <bullet> Excluding poor performers.
    <bullet> Improving program efficiencies.
    <bullet> 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
----------------------------------------------------------------------------------------------------------------
                                                                                    Part 423
     Preamble  section                  Provision             --------------------------------------------------
                                                                            Subpart                 Section(s)
----------------------------------------------------------------------------------------------------------------
II.A.1....................  Coverage Gap Discount Program....  Subpart C........................         423.100
                                                               Subpart K........................         423.505
                                                               Subpart T........................        423.1000
                                                               Subpart T........................        423.1002
                                                               Subpart W (new)..................       423.2300-
                                                                                                        423.2345
II.A.2....................  Inclusion of Benzodiazepines and   Subpart C........................         423.100
                             Barbiturates as Part D Covered
                             Drugs.
II.A.3....................  Pharmacy Benefit Manager's         Subpart K........................         423.501
                             Transparency Requirements.                                                  423.514
----------------------------------------------------------------------------------------------------------------

1. Coverage Gap Discount Program (Sec. Sec.  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.

[[Page 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 point-of-
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 (Sec.  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:
    <bullet> Condition of coverage of drugs under Part D.
    <bullet> The Medicare Coverage Gap Discount Program Agreement.
    <bullet> Coverage gap discount payment processes for Part D 
sponsors.
    <bullet> Provision of applicable discounts on applicable drugs for 
applicable beneficiaries.
    <bullet> Manufacturer audit and dispute resolution processes.
    <bullet> Resolution of beneficiary disputes involving coverage gap 
discounts.
    <bullet> Compliance monitoring and civil money penalties.
    <bullet> The termination of the Discount Program Agreement.
    In this section, we summarize the provisions of subpart W and 
respond to public comments.
b. Definitions (Sec.  423.2305)
    Proposed Sec.  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 Sec.  423.100. We clarify that 
enrollees in employer-sponsored group prescription drug plans (as 
defined in Sec.  423.454) may qualify as applicable beneficiaries.
(2) Applicable Drug
    Applicable drug is defined in Sec.  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

[[Page 22080]]

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 Sec.  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 Sec.  423.2305) under the Medicare Coverage Gap Discount 
Program (as defined in Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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,

[[Page 22081]]

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.
    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-of-network, we do 
not believe Congress intended to exclude these discounts from the 
Discount Program. Therefore, we proposed to specify in Sec.  423.2305 
that the negotiated price also means, for purposes of out-of-network 
claims, the plan allowance as determined under Sec.  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 Sec.  423.100. We also 
proposed to make a conforming change to the definition of supplemental 
benefits in Sec.  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 Sec.  
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 
ingredient-level 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 Sec.  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,

[[Page 22082]]

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 Sec.  
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 employer-sponsored 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 Sec.  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 Sec.  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 Sec.  
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 Sec.  423.2305 and the conforming 
change to the definition of supplemental benefits in Sec.  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 (Sec.  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

[[Page 22083]]

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 Sec.  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 Sec.  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 Sec.  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 (Sec.  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 Sec.  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 Sec.  
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 FDA-assigned labeler code(s) for 
all applicable drug NDCs covered by their Discount Program Agreement. 
Under the current Discount Program Agreement, manufacturers must 
provide all of their labeler codes to CMS and must promptly update CMS 
with any additional labeler codes for applicable drugs no later than 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, Sec.  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 up-to-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

[[Page 22084]]

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-of-sale, 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 Sec.  423.2315(b)(3). We further proposed in Sec.  
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, Sec.  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 Sec.  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 Sec.  
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 Sec.  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 Sec.  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 claim-level 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 non-Coverage 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 Sec.  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, Sec.  
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 Sec.  423.2345.

[[Page 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-to-
date 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-of-date 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 Sec.  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

[[Page 22086]]

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 Sec.  423.2315(b)(5) and clarified in Sec.  
423.2315(b)(5) that pertinent NDC expiration dates refers to NDC last 
lot expiration dates.
e. Payment Processes for Part D Sponsors (Sec.  423.2320)
    We are finalizing our October 11, 2011 proposed rule to provide 
monthly interim coverage gap payments to Part D sponsors in Sec.  
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 Sec.  
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 (Sec.  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, Sec.  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 Sec.  
423.2325(b)(1) to determine that: (1) an enrollee is an applicable 
beneficiary (as defined in Sec.  423. 100); (2) a Part D drug is an 
applicable drug (as defined in Sec.  423.100); and (3) the amount of 
the applicable discount (as defined in Sec.  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 Sec.  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-of-pocket 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 Sec.  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 out-of-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 Sec.  
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 Sec.  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 
in-network 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

[[Page 22087]]

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 
point-of-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 
Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  
423.505(b) so that the requirements we are proposing in Sec.  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

[[Page 22088]]

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 Sec.  423.2325(b)(3) and (e)(5) with respect to dispensing and 
vaccine administration fees, and have re-designated proposed Sec.  
423.2325(b)(4) as Sec.  423.2325(b)(3) in the final rule.
    Comment: A few commenters opposed the requirement under proposed 
Sec.  423.2325(b)(4) (redesignated as Sec.  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 Sec.  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 Sec.  
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 Sec.  
423.2325(b)(3) and (e)(3) finalizing the policies in this section with 
modification to Sec.  423.2325(g). We note that we are not finalizing 
the proposed provisions for Sec.  423.2325(b)(3) and (e)(3) and have 
redesignated proposed Sec.  423.2325(b)(4) as Sec.  423.2325(b)(3) in 
the final rule.
g. Manufacturer Discount Payment Audit and Dispute Resolution (Sec.  
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 Sec.  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

[[Page 22089]]

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 Sec.  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 Sec.  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 
Sec.  423.2330(b). Similar to the limitation in Sec.  423.2330(a)(1), 
we proposed to define the term periodic in Sec.  423.2330(b)(1) as no 
more often than annually. In Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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

[[Page 22090]]

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 (Sec.  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 Sec.  
423.2330(c) would address the disputes that could arise between the 
manufacturer and CMS or the TPA, Sec.  423.2335 would provide the 
beneficiary dispute resolution requirements. Specifically, Sec.  
423.2335 would provide that beneficiaries shall have access to the Part 
D coverage determination and appeals process as described in Sec.  
423.558 through Sec.  423.638 for disputes involving the availability 
and amount of applicable discounts under the Discount Program.
    Comment: Some commenters supported CMS' proposal in Sec.  423.2335 
to provide beneficiaries with access to the existing Part D coverage 
determination and appeals process as described in Sec. Sec.  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 (Sec.  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 Sec.  423.1002) by adding the term ``manufacturer'' (as 
defined in Sec.  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 Sec.  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 
Sec.  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 Sec.  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 Sec.  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.

[[Page 22091]]

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 Sec.  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 Sec.  
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 Sec.  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 (Sec.  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, Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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, Sec.  
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, Sec.  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 (Sec.  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 Sec.  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 Sec.  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

[[Page 22092]]

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 Sec.  423.100, 
which would mean that it must--
    <bullet> Be used for a medically accepted indication;
    <bullet> Be dispensed only upon a prescription;
    <bullet> Meet requirements described in section 1927(k)(2)(A)(i) 
through (iii) of the Act; and
    <bullet> 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 non-covered 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.

[[Page 22093]]

    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 Sec.  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 (Sec. Sec.  
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 Sec.  423.514, with a minor, 
technical correction to the language of Sec.  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 Sec.  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 
Sec.  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 Sec.  
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 Sec.  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 Sec.  
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

[[Page 22094]]

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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec. Sec.  
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 Sec.  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 Sec.  
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 Sec.  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 Sec.  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 Sec.  423.501 is

[[Page 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 
Sec.  423.514(d)(6) as zero. Thus, for the purpose of collecting this 
data element, we do not believe that PBM-owned 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 Sec.  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 Sec.  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 Sec.  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 Sec.  423.501. We have also made a minor, 
technical correction to the language of Sec.  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.

[[Page 22096]]



                                                Table 3--Provisions To Strengthen Beneficiary Protections
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Part 417                      Part 422                      Part 423                     Part 483
    Preamble         Provision     ---------------------------------------------------------------------------------------------------------------------
    section                             Subpart        Subpart        Section        Section        Subpart       Section        Subpart       Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
II.B.1.........  Good Cause and     Subpart K......      417.460  N/A............          N/A  N/A...........          N/A  N/A...........          N/A
                  Reinstatement
                  into a Cost Plan.
II.B.2.........  Requiring MA       N/A............          N/A  Subpart A......      422.111  N/A...........          N/A  N/A...........          N/A
                  Plans to Issue
                  Member ID cards.
II.B.3.........  Determination of   N/A............          N/A  Subpart K......       422.56  N/A...........          N/A  N/A...........          N/A
                  Actuarially
                  Equivalent
                  Creditable
                  Prescription
                  Drug Coverage.
II.B.4.........  Who May File Part  N/A............          N/A  N/A............          N/A  Subpart M.....      423.600  N/A...........          N/A
                  D Appeals with                                                                                    423.602
                  the Independent
                  Review Entity.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Good Cause and Reinstatement Into a Cost Plan (Sec.  417.460)
    Current regulations at Sec.  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 Sec. Sec.  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 Sec.  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--
    <bullet> To be eligible for reinstatement, the enrollee would have 
to pay all outstanding arrearages, including premiums that accrued 
during the period of disenrollment;
    <bullet> 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
    <bullet> 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 (Sec.  422.111)
    Pursuant to section 1860D-4(a)(1) of the Act and Sec.  423.120(c), 
and consistent with, common industry practice as described in the 
Medicare Marketing Guidelines (http://www.cms.gov/ManagedCareMarketing/03_FinalPartCMarketingGuidelines.asp), Part D sponsors must issue and 
re-issue as

[[Page 22097]]

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 
Fee-for-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 Sec.  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, 
Sec.  417.427 will be amended to require section 1876 cost plans to 
follow the disclosure requirements contained in Sec.  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 (Sec.  
422.111(i)).
3. Determination of Actuarially Equivalent Creditable Prescription Drug 
Coverage (Sec.  423.56)
    Section 1860D-22 of the Act outlines the special rules for 
employer-sponsored 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 Sec.  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 Sec.  
423.884(5)(iii)(C), are not subject to the LEP under Sec.  423.46 if 
they subsequently enroll in a Part D plan.
    To this end, we proposed to amend Sec.  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 Sec.  423.884(d). We also proposed to revise 
the reference to ``CMS actuarial guidelines'' in Sec.  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.

[[Page 22098]]

    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 
(Sec. Sec.  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 Sec.  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 Sec.  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 
Sec.  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 Sec.  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 auto-
forwarding 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, case-by-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 Sec.  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 Sec. Sec.  422.582 and 423.580, prescribers must notify 
enrollees whenever they request IRE review on

[[Page 22099]]

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 Sec.  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

[[Page 22100]]

current processes for enrollee-initiated reconsiderations.
    Comment: Several commenters recommended that CMS require auto-
forwarding 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 Sec.  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 Sec.  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 (Sec.  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

[[Page 22101]]

requirement is codified in regulations at Sec.  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 
pharmacy-related 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 well-being 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:

[[Page 22102]]

    <bullet> 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.
    <bullet> 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.
    <bullet> 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.
    <bullet> Many commenters stated that they had first-hand knowledge 
that LTC pharmacies continue to charge below-market 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.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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

[[Page 22103]]

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

[[Page 22104]]

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 Sec.  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

[[Page 22105]]

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

[[Page 22106]]

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-of-interest 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

[[Page 22107]]

medication management and quality in LTC. Specifically, we solicit 
comment related to the following three issues:
    <bullet> 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?
    <bullet> 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?
    <bullet> 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 non-renew 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

[[Page 22108]]

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-to-understand 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Part 417                            Part 422                           Part 423
   Preamble section           Provision        ---------------------------------------------------------------------------------------------------------
                                                       Subpart           Section           Subpart          Section           Subpart          Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
II.C.1...............  CMS Termination of       Subpart U............      417.801  N/A.................          N/A  N/A.................          N/A
                        Health Care Prepayment
                        Plans.
II.C.2...............  Plan Performance         N/A..................          N/A  Subpart K...........      422.504  Subpart K...........      423.505
                        Ratings as a Measure                                                                  422.510                            423.509
                        of Administrative and
                        Management
                        Arrangements and as a
                        Basis for Termination
                        or Non-Renewal of a
                        Medicare Contract.
II.C.3...............  Denial of Applications   N/A..................          N/A  N/A.................      422.502  Subpart K...........      423.503
                        Submitted by Part C
                        and D Sponsors with a
                        Past Contract
                        Termination or
                        CMS[dash]Initiated
                        Non[dash]Renewal.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. CMS Termination of Health Care Prepayment Plans (Sec.  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 Sec.  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 Sec.  
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 Sec.  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 Sec.  417.806, which cross 
references financial records requirements at Sec.  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 Sec.  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 (Sec.  422.504, Sec.  422.510, Sec.  423.505, 
and Sec.  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

[[Page 22109]]

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 Sec.  422.503(b)(4) and Sec.  
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 Sec.  
422.503(b)(4)(ii) and Sec.  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 Sec.  422.504(a)(17) and Sec.  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 Sec.  422.504(a)(18) and Sec.  
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 Sec.  422.504(a)(17) and Sec.  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 Sec.  422.504(a)(18) and 
adding paragraph Sec.  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

[[Page 22110]]

terminate an MA organization or Part D sponsor contract under Sec.  
422.510(a) and Sec.  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 Sec.  
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 Sec.  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 Sec.  422.152(a)(2).
    The ``Managing Chronic (Long Term) Conditions'' domain most closely 
mirrors the requirements at Sec.  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 Sec.  
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 Sec.  
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 Sec.  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

[[Page 22111]]

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 Sec.  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 Sec.  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 Sec.  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 Sec.  423.128, 
that it disseminate information about its Part D plans, and that it 
provide benefits through a point of claims adjudication system (per 
Sec.  423.505(b)(17)) operated through a contracted pharmacy network 
that meets Part D access requirements (per Sec.  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 Sec.  
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 Sec.  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 Sec.  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 standard-based 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 Sec.  422.504(m)(2) and 
Sec.  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 non-compliance, 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

[[Page 22112]]

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 re-enter 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

[[Page 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 CMS-approved 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

[[Page 22114]]

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 look-back 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.
---------------------------------------------------------------------------

    \1\ CMS conducted this analysis based on plan enrollment data 
available at https://www.cms.gov/PrescriptionDrugCovGenIn/06_PerformanceData.asp and plan rating data available at https://www.cms.gov/MCRAdvPartDEnrolData/.
---------------------------------------------------------------------------

    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

[[Page 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 (Sec.  422.502 
and Sec.  423.503)
    In accordance with Sec.  422.502(b) and Sec.  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 Sec.  422.502(b)(2) and 
Sec.  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 non-renewed 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 Sec.  422.510 and Sec.  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 non-renewal are specified in Sec.  
422.506(b) and Sec.  423.507(b), and include the same list of 
violations, plus several others. Nevertheless, despite the seriousness 
of termination and CMS-initiated non-renewal 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 Sec.  422.502(b)(1) and Sec.  
423.503(b)(2) to determine whether an application from a previously 
terminated or CMS-non-renewed 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 Sec.  422.506(a)(4), Sec.  422.508(c), 
Sec.  422.512(e), Sec.  423.507(a)(3), Sec.  423.508(e), and Sec.  
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 non-renewal should be no less 
than in the case of a voluntary termination or non-renewal. 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

[[Page 22116]]

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 Sec.  422.502(b)(3) and at Sec.  
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 re-contracting 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 Sec.  422.502(b)(4) and at 
Sec.  423.503(b)(4) to replicate the existing language concerning 
covered persons as currently exists for voluntarily non-renewing 
organizations. Specifically, the newly proposed language states that in 
implementing the 38-month provision, we may deny an application where 
the applicant's covered persons also served as covered persons for the 
terminated or 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 non-compliance 
(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 non-renewals 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 non-renewals. 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 CMS-terminated 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.

[[Page 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Part 417                            Part 422                           Part 423
   Preamble section           Provision        ---------------------------------------------------------------------------------------------------------
                                                       Subpart           Section           Subpart          Section           Subpart          Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
II.D.1...............  Cost Contract Plan       Subpart L............      417.492  N/A.................          N/A  N/A.................          N/A
                        Public Notification
                        Requirements in Cases
                        of Non-Renewal.
II.D.2...............  New Benefit Flexibility  N/A..................          N/A  Subpart C...........      422.102  N/A.................          N/A
                        for Certain Dual
                        Eligible Special Needs
                        Plans (D-SNPs).
II.D.4...............  Clarifying Coverage of   N/A..................          N/A  Subpart C...........      422.100  N/A.................          N/A
                        Durable Medical                                                                       422.111
                        Equipment.
II.D.5...............  Broker and Agent         N/A..................          N/A  Subpart V...........     422.2274  Subpart V...........     423.2274
                        Requirements.
II.D.6...............  Establishment and        N/A..................          N/A  N/A.................          N/A  Subpart D...........      423.100
                        Application of Daily                                                                                                     423.104
                        Cost-Sharing Rate as                                                                                                     423.153
                        Part of Drug
                        Utilization Management
                        and Fraud, Abuse and
                        Waste Control Program.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Cost Contract Plan Public Notification Requirements in Cases of Non-
Renewal (Sec.  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 Sec.  417.492, 
which sets forth rules that apply to non-renewal 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 Sec.  
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 Sec.  417.492(a)(1)(iii) and (b)(1)(iii) 
for non-renewing cost-contracting plans (in voluntary non-renewal 
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) (Sec.  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 Sec.  422.2, 
Sec.  422.100(c)(1), and Sec.  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 Sec.  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

[[Page 22118]]

dual eligible population. All such benefits would also have to 
otherwise be consistent with the rules for supplemental benefits under 
Part 422, including Sec.  422.2, Sec.  422.100(c)(1), and Sec.  
422.102.
    We proposed limiting the new supplemental benefits flexibility 
offered under this provision to FIDE SNPs defined at Sec.  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 
Sec.  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 Sec.  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 Sec.  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 
Medicare-Medicaid 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

[[Page 22119]]

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 full-
benefit 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 cost-sharing 
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 Sec.  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 Sec.  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 Sec.  
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 Sec.  422.102(e).

[[Page 22120]]

3. Application of the Medicare Hospital-Acquired Conditions and Present 
on Admission Indicator Policy to MA Organizations (Sec.  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 Sec.  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 healthcare-
associated 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

[[Page 22121]]

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 Sec.  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 higher-quality 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 (Sec.  422.100 and 
Sec.  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 cost-sharing 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 cost-sharing levels 
(that is, tiers) for DME items, supplies, and Part B drugs, provided 
that: (1) The highest cost-sharing tier is at or below the relevant 
cost-sharing threshold established by CMS for DME and Part B drugs; and 
(2) plans ensure access to all products through the 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

[[Page 22122]]

their contracts with their network of DME suppliers. We reflected this 
change in proposed Sec.  422.100(l)(2)(i). We received no comments on 
this proposal.
b. Medical Necessity Requirements for DME Items and Supplies
    In accordance with Sec.  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 Sec.  
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 non-preferred manufacturers. We 
reflected this change in proposed Sec.  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 Sec.  422.112(a)(6)(ii) and Sec.  
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 medical-necessity 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 
Sec.  422.112(a)(6)(ii), Sec.  422.562(a)(4) and, more generally, the 
requirements for organizational determinations at Sec.  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 Sec.  
422.112(a)(6)(ii) and Sec.  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 Sec.  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 Sec.  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 Sec.  
422.100(l)(2)(iii)(A) and Sec.  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 non-preferred 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

[[Page 22123]]

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 Sec.  
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 Sec.  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 Sec.  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 Sec.  
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 Sec.  
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 Sec.  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 Sec.  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 Sec.  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

[[Page 22124]]

benefits. This requirement has been operationalized as the annual 
notice of change/evidence of coverage (ANOC/EOC). We would require, 
under proposed Sec.  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 Sec.  422.111(b)(2) and under Sec.  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 Sec.  422.111(b)(2) and Sec.  
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

[[Page 22125]]

(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--
    <bullet> Comments on the proposed rule;
    <bullet> Discussions with DMEPOS staff;
    <bullet> Advice from the Chief Medical Officer Center for Medicare, 
CMS and DME MAC medical directors; and
    <bullet> 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 Sec.  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 Sec.  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 non-preferred 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 
cost-sharing 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

[[Page 22126]]

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 non-preferred 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 (Sec.  422.2274 and Sec.  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 Sec.  422.2274 and Sec.  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 Sec.  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 
(Sec.  423.100, Sec.  423.104, and Sec.  423.153)
    Pursuant to our authority under section 1860D-4(c) of the Act, 
which requires PDP sponsors to have cost-effective 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 
Sec.  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

[[Page 22127]]

criminal activities and substance abuse \3\ caused by diversion of 
unused medications, all of which are growing concerns in the United 
States.
---------------------------------------------------------------------------

    \2\ See 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.
    \3\ See 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.
---------------------------------------------------------------------------

    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 two-
prescriptions 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 Sec.  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

[[Page 22128]]

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 cost-sharing 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 
cost-savings and waste reduction in the Part D program. We have taken 
the

[[Page 22129]]

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 
cost-sharing 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 cost-sharing 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 cost-
sharing 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 Sec.  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 
cost-sharing 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 cost-sharing 
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 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 the prescriptions are so dispensed. This will 
obviate the need for health plans, PBMs, pharmacies, physicians, and 
beneficiaries to communicate the reasons for the less-than-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.

[[Page 22130]]

    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 Sec.  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 cost-sharing 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 cost-sharing, 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

[[Page 22131]]

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 cost-sharing 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 cost-sharing 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 cost-sharing 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 cost-sharing 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

[[Page 22132]]

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 cost-sharing 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 cost-sharing 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-than-month'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 
cost-sharing 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

[[Page 22133]]

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 Sec.  423.100 and Sec.  
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 cost-sharing 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 Sec.  423.100 (definition of daily cost-sharing rate) to 
establish a daily cost-sharing rate in case of a copayment. With 
respect to coinsurance, Sec.  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 cost-sharing 
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 cost-sharing 
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 Sec.  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 Sec.  423.104 by adding a paragraph (i) 
to state that a Part D sponsor is required to provide its

[[Page 22134]]

enrollees access to a daily cost-sharing rate in accordance with Sec.  
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 Sec.  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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Part 417                            Part 422                           Part 423
   Preamble Section           Provision        ---------------------------------------------------------------------------------------------------------
                                                       Subpart           Section           Subpart          Section           Subpart          Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
II.E.1...............  Technical Corrections    Subpart K............      417.422  Subpart B...........       422.60  Subpart B...........       423.56
                        to Enrollment                                      417.432
                        Provisions.
II.E.2...............  Extending MA and Part D  Subpart K............      417.427  N/A.................          N/A  N/A.................          N/A
                        Program Disclosure
                        Requirements to
                        Section 1876 Cost
                        Contract Plans.
II.E.3...............  Clarification of, and    N/A..................          N/A  Subpart C...........      422.101  N/A.................          N/A
                        Extension to Local
                        Preferred Provider
                        Plans, of Regional
                        Preferred Provider
                        Organization Plan
                        Single Deductible
                        Requirement.
II.E.4...............  Technical Change to      N/A..................          N/A  Subpart E...........      422.216  N/A.................          N/A
                        Private
                        Fee[dash]For[dash]Serv
                        ice Plan Explanation
                        of Benefits
                        Requirements.
II.E.5...............  Application              N/A..................          N/A  Subpart K...........      422.500  N/A.................          N/A
                        Requirements for                                                                      422.501
                        Special Needs Plans.                                                                  422.502
                                                                                    Subpart N...........      422.641
                                                                                                              422.660
II.E.6...............  Timeline for             N/A..................          N/A  Subpart K...........      422.501  N/A.................          N/A
                        Resubmitting
                        Previously Denied MA
                        Applications.
II.E.7...............  Clarification of         N/A..................          N/A  Subpart K...........      422.504  Subpart K...........      423.505
                        Contract Requirements
                        for First Tier and
                        Downstream Entities.
II.E.8...............  Valid Prescriptions.     N/A..................          N/A  N/A.................          N/A  Subpart C...........      423.100
                                                                                                                                                 423.104
II.E.9...............  Medication Therapy       N/A..................          N/A  N/A.................          N/A  Subpart D...........      423.153
                        Management
                        Comprehensive
                        Medication Reviews and
                        Beneficiaries in LTC
                        Settings.
II.E.10..............  Employer Group Waiver    N/A..................          N/A  N/A.................          N/A  Subpart J...........      423.458
                        Plans Requirement to
                        Follow All Part D
                        Rules Not Explicitly
                        Waived.
II.E.11..............  Access to Covered Part   N/A..................          N/A  N/A.................          N/A  Subpart C...........      423.120
                        D Drugs Through Use of
                        Standardized
                        Technology and
                        National Provider
                        Identifiers.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Technical Corrections to Enrollment Provisions (Sec.  417.422, Sec.  
417.432, Sec.  422.60, and Sec.  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:
    <bullet> At Sec.  417.422(d) (Eligibility to enroll in an HMO or 
CMP) and Sec.  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.
    <bullet> At Sec.  422.60(c) (Election process) we proposed to 
revise an outdated cross-reference.
    <bullet> At Sec.  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 (Sec.  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

[[Page 22135]]

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 Sec.  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 Sec.  422.111 and Sec.  
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 Sec.  422.111 and Sec.  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 Sec.  422.111 and Sec.  423.128 to cost contract plans 
by adding a new Sec.  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 Sec.  422.111(b)(7), which states that non-contract 
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 (Sec.  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 Sec.  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 Sec.  
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

[[Page 22136]]

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 
Sec.  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 Sec.  
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 Sec.  422.101(d)(1) to add paragraphs 
(i) through (iii) clarifying that an RPPO or LPPO that chooses to apply 
a deductible may both--
    <bullet> 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
    <bullet> 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 plan-established 
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 Medicare-covered preventive benefits at zero cost sharing. 
As provided under Sec.  422.100(k), MA organizations, including those 
offering PPO plans, may not charge deductibles, copayments, or 
coinsurance for in-network Medicare-covered preventive services 
specified in Sec.  410.152(l). Therefore, we will now require both LPPO 
and RPPO plans to exclude preventive services from the single 
deductible at Sec.  422.101(d)(1), and will add a new paragraph Sec.  
422.101(d)(1)(iv) that explicitly requires LPPO and RPPO plans to 
exclude certain Medicare-covered preventive services (as defined in 
Sec.  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-for-Service Plan Explanation of 
Benefits Requirements (Sec.  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 Sec.  
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 Sec.  422.216(d)(1) already require PFFS plans to provide an 
EOB to enrollees. Our current regulations at Sec.  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 Sec.  422.216(d)(1) to state that the EOB requirement for PFFS 
plans will be consistent with the MA EOB requirements of Sec.  
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 Sec.  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 Sec.  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 (Sec.  422.500, 
Sec.  422.501, Sec.  422.502, Sec.  422.641, and Sec.  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 Sec.  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 Sec.  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 
Sec.  422.152(g) that SNPs conduct a quality improvement program. SNP 
applicants follow the same process in accordance with the

[[Page 22137]]

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 Sec.  422.500(a) and Sec.  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 Sec.  
422.501(c)(1) to specify the documentation SNP applicants must provide 
to complete an application. Furthermore, we proposed to revise Sec.  
422.502(a) and Sec.  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 Sec.  
422.641, a new paragraph (a)(5) to Sec.  422.660, and a new paragraph 
(b)(5) to Sec.  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 (Sec.  
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 Sec.  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 Sec.  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 (Sec.  422.504 and Sec.  423.505)
    The regulations at Sec.  422.504(i) and Sec.  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 Sec.  422.504(i) 
and Sec.  423.505(i) required that all contracts governing the 
relationships among a sponsor and all of its delegated entities (that 
is, those between the

[[Page 22138]]

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 Sec.  422.504(i) and Sec.  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 Sec.  422.504(i) and 
Sec.  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 Sec.  422.504(i) and Sec.  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 Sec.  
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 Sec.  422.504(i) and Sec.  
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 Sec.  422.504(i) and 
Sec.  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 Sec.  
422.504(i) and Sec.  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 Sec.  422.504(i) and Sec.  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-Drug-Plan-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

[[Page 22139]]

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 (Sec.  423.100 and Sec.  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 Sec.  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 Sec.  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

[[Page 22140]]

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 (Sec.  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 Sec.  
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 Sec.  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 in-house 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

[[Page 22141]]

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 <a href="/cdn-cgi/l/email-protection#f18190838595ae9c859cb1929c82df999982df969e87"><span class="__cf_email__" data-cfemail="a2d2c3d0d6c6fdcfd6cfe2c1cfd18ccacad18cc5cdd4">[email protected]</span></a>.
    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 Sec.  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

[[Page 22142]]

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 Sec.  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 non-interactive 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 Sec.  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 
Sec.  423.153(d)(1)(vii)(B)(2). We are also revising Sec.  
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 Sec.  
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 (Sec.  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

[[Page 22143]]

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 Sec.  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 
<a href="/cdn-cgi/l/email-protection#84d4e5f6f0c0c6e1eae1e2edf0cde9f4e8c4e7e9f7aaececf7aae3ebf2"><span class="__cf_email__" data-cfemail="46162734320204232823202f320f2b362a06252b35682e2e3568212930">[email protected]</span></a>.
    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 Sec.  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 (Sec.  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 cross-reference 
multiple databases that update on different schedules to be certain of 
the precise prescribers involved, when multiple identifiers were used, 
would necessitate several additional steps of data pre-analysis and 
also would

[[Page 22144]]

introduce potential errors in correctly matching prescribers among 
databases.
    In light of the foregoing, we proposed to amend Sec.  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

[[Page 22145]]

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

[[Page 22146]]

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-of-sale 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

[[Page 22147]]

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 beneficiary-submitted 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

[[Page 22148]]

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:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> 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 (Sec.  423.100, 
Sec.  423.505(b), Sec.  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 (Sec.  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 Sec.  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 
(Sec.  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 Sec.  
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

[[Page 22149]]

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 Sec.  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 Sec.  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 (Sec.  
417.460)

    Our proposal in Sec.  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 (Sec.  
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 (Sec.  423.56)

    We are amending a calculation at Sec.  423.56 to be consistent with 
the calculation of the actuarial value of qualified retiree 
prescription drug coverage found at Sec.  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 (Sec.  423.600 and Sec.  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 
(Sec.  417.801)

    This section does not impose any new information collection 
requirements.

I. ICRs Regarding Termination or Non-Renewal of a Medicare Contract 
Based on Consistent Poor Plan Performance Ratings (Sec.  422.510 and 
Sec.  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 
(Sec.  422.502 and Sec.  423.503)

    We have modified the past performance review period described in 
Sec.  422.502(b) and Sec.  423.503(b) (by adding new paragraphs at 
Sec.  422.502(b)(3) and at Sec.  423.503(b)(3) as well as Sec.  
422.502(b)(4) and at Sec.  423.503(b)(4)) to include among the factors 
that may support a CMS denial of a contract application those CMS-
initiated terminations or non-renewals 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) (Sec.  422.102)

    Under Sec.  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 <greek-i>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

[[Page 22150]]

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 
Hospital-Acquired Conditions (HACs) (Sec.  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 Sec.  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 
(Sec.  422.101(a) and Sec.  422.112(a))

    Under Sec.  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 Sec.  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 (Sec.  422.2274 and 
Sec.  423.2274)

    At Sec.  422.2274 and Sec.  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 (Sec.  423.100, Sec.  423.104 and Sec.  
423.153)

    In accordance with section 1860D-4(c) of the Act, we are revising 
Sec.  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

[[Page 22151]]

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 (Sec.  423.100, Sec.  423.104 
and Sec.  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 (Sec.  
417.422, Sec.  417.432, Sec.  422.60, and Sec.  423.56)

    At Sec.  417.422, Sec.  417.432, Sec.  422.60, and Sec.  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 cross-references 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 (Sec.  417.427)

    We proposed to extend the disclosure requirements in Sec.  422.111 
and Sec.  423.128 to cost contract plans. Our regulations at Sec.  
422.111 and Sec.  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 Sec.  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 Sec.  
422.111(a)(2) of the MA program regulations and Sec.  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 (Sec.  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 (Sec.  422.216(d)(1))

    Section 1852(k)(2)(c) of the Act and Sec.  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 Sec.  422.216(d)(1) to state that the EOB requirement for PFFS 
plans would be consistent with the MA EOB requirements of Sec.  
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 Sec.  
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 Sec.  
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 Sec.  
422.111(b)(12).

T. ICRs Regarding Authority To Deny SNP Applications and SNPs Appeal 
Rights (Sec.  422.500)

    Our proposed amendments to Sec.  422.500(a), Sec.  422.501(a), 
Sec.  422.501(c)(1)(iii), Sec.  422.502(a) and Sec.  422.502(c) would 
give CMS the authority to deny SNP applications that fail to 
demonstrate that the MA organization meets the requirements of Sec.  
422.2, Sec.  422.4(a)(1)(iv); Sec.  422.101(f); Sec.  422.107, if 
applicable; and Sec.  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 Sec.  422.641 provide the procedures for 
making and reviewing certain contract determinations, while our 
proposed amendments to Sec.  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

[[Page 22152]]

appealed. Taking the average of the last 2 years, we estimate that 
approximately 4 denied applicants would appeal the denial of the SNP 
application. We further estimate that one attorney working for 8 hours 
could complete the documentation to be submitted for each application 
denial, resulting in a total burden estimate of 32 hours (8 hours x 4 
SNP application denials = 32 hours). The estimated annual cost to 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 x $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 (Sec.  422.501)

    This section does not impose any new information collection 
requirements.

V. ICRs Regarding Contract Requirements for First Tier and Downstream 
Entities (Sec.  422.504 and Sec.  423.505)

    We proposed to modify the regulations at Sec.  422.504(i) and Sec.  
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 (Sec.  423.100 and Sec.  423.104)

    Our proposed definition of ``valid prescription'' in Sec.  423.100 
and requirement of a ``valid prescription'' in Sec.  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 (Sec.  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 Sec.  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 x 0.583 hours/CMR x $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 (Sec.  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 (Sec.  
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 (Sec.  423.120). However, we are not modifying these ICRs 
since, again, no new collection of information burden is imposed by 
this requirement.

[[Page 22153]]



                                        Table 7--Estimated Fiscal Year Reporting, Recordkeeping and Cost Burdens
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Hourly
                                             OMB                               Burden per     Total      labor cost     Total       Total
          Regulation sections              control   Respondents   Responses    response      annual         of      labor cost    capital/   Total cost
                                             No.                                (hours)       burden     reporting       ($)     maintenance      ($)
                                                                                             (hours)        ($)                   costs  ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
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

[[Page 22154]]

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 Hospital-Acquired 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

[[Page 22155]]

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 out-of-pocket threshold. The costs to the 
Federal government associated with these provisions, as scored in the 
April 15, 2011 final rule (76 FR 21432), were estimated to total $3.6 
billion during FY 2011 through FY 2016.
b. Other Manufacturer Costs
    We believe that manufacturers 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 x 
0.5 FTE x 240 manufacturers x 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 x 
0.5 FTE per Part D sponsor x 270 Part D sponsors x 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 x 270 Part D sponsors x 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

[[Page 22156]]

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 Sec.  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 Sec.  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 Sec.  423.56 to define 
creditable prescription drug coverage consistent with the calculation 
of the actuarial value of qualified retiree prescription drug coverage 
found at Sec.  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 Sec.  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 Sec.  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 prescriber-initiated IRE appeals, which would 
be partially offset by a decrease in enrollee-initiated 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 
x 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.

[[Page 22157]]

12. Termination for Continued Lower-Than-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 
Sec.  422.502(b) and Sec.  423.503(b) (by adding new paragraphs at 
Sec.  422.502(b)(3) and at Sec.  423.503(b)(3) as well as Sec.  
422.502(b)(4) and at Sec.  423.503(b)(4)) to include among the factors 
that may support a CMS denial of a contract application those CMS-
initiated terminations or non-renewals 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) (Sec.  422.102)
    We estimate that our modification of Sec.  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 Medicare-Medicaid 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 short-stay nursing home 
admissions as compared to dual eligibles both within

[[Page 22158]]

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 Sec.  
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 Sec.  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 (Sec.  
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 community-based discontinued first fills 
of chronic medications was roughly $1.4 billion. In light of this cost, 
we proposed to revise Sec.  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 cost-sharing 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 x 
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 Sec.  
422.111 and Sec.  423.128 to cost contract plans. Our regulations at 
Sec.  422.111 and Sec.  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

[[Page 22159]]

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 x $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 Sec.  422.504(i) and Sec.  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 Sec.  
422.504(i) and Sec.  423.505(i). Thus, the regulation has been changed 
to address this need. Specifically, we deleted the term ``written 
arrangements'' throughout Sec.  422.504(i) and Sec.  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 Sec.  423.100 proposed definition of ``valid prescription'' 
and the Sec.  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 Sec.  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

[[Page 22160]]

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 x 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 x 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 x 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 (Sec.  
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Fiscal year  ($ in millions)                         Total ($ in
                    Provision(s)                      Regulation ------------------------------------------------------------------------  millions) FYs
                                                      section(s)     2013        2014        2015        2016        2017        2018        2013-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
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         423.100      200.00      280.00      300.00      330.00      360.00      390.00        1,860.00
 Part D Covered Drugs...............................
Who May File Part D Appeals with the Independent         423.600        1.05        1.05        1.05        1.05        1.05        1.05            6.30
 Review Entity......................................
Benefit Flexibility for Certain Dual Eligible            422.102      -30.71      -28.67      -21.71      -20.16      -17.99      -17.98         -137.22
 Special Needs Plans (SNPs).........................
Establishment and Application of Daily Cost-Sharing      423.100        0.50     -150.00     -260.00     -360.00     -460.00     -580.00       -1,809.50
 Rate as Part of Drug Utilization Management and         423.104  ..........  ..........  ..........  ..........  ..........  ..........  ..............
 Fraud, Abuse and Waste Control Program.............     423.153  ..........  ..........  ..........  ..........  ..........  ..........  ..............
Add language specific to SNP applications to give        422.500        0.01        0.01        0.01        0.01        0.01        0.01            0.06
 CMS the clear authority to deny SNP applications
 and to give SNPs appeal rights.....................
Apply MA and Part D disclosure requirements to cost      417.427        0.01        0.01        0.01        0.01        0.01        0.01            0.06
 contract plans.....................................
Access to covered Part D drugs through the use of        423.120        5.12        5.12        5.12        5.12        5.12        5.12           30.72
 standardized technology and NPIs...................
MTM Comprehensive Medication Reviews in LTC Settings     423.153        1.52        1.52        1.52        1.52        1.52        1.52            9.12
                                                     ---------------------------------------------------------------------------------------------------

[[Page 22161]]

 
    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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Fiscal year  ($ in millions)                         Total ($ in
                    Provision(s)                      Regulation ------------------------------------------------------------------------ millions) (FYs
                                                      section(s)     2013        2014        2015        2016        2017        2018       2013-2018)
--------------------------------------------------------------------------------------------------------------------------------------------------------
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         423.100      200.00      280.00      300.00      330.00      360.00      390.00        1,860.00
 Part D Covered Drugs...............................
Who May File Part D Appeals with the Independent         423.600        0.97        0.97        0.97        0.97        0.97        0.97            5.84
 Review Entity......................................
Establishment and Application of Daily Cost-Sharing      423.100        0.00     -150.00     -260.00     -360.00     -460.00     -580.00       -1,810.00
 Rate as Part of Drug Utilization Management and         423.104  ..........  ..........  ..........  ..........  ..........  ..........  ..............
 Fraud, Abuse and Waste Control Program.............     423.153  ..........  ..........  ..........  ..........  ..........  ..........  ..............
Benefit Flexibility for Certain Dual Eligible            422.102      -29.80      -27.63      -20.76      -19.08      -17.16      -17.13         -131.56
 Special Needs Plans (SNPs)--Medicare...............
Benefit Flexibility for Certain Dual Eligible            422.102       -0.67       -0.64       -0.59       -0.55       -0.52       -0.53           -3.50
 Special Needs Plans (SNPs)--Federal Medicaid.......
                                                     ---------------------------------------------------------------------------------------------------
    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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Costs per fiscal year ($ in millions)                    Total (FYs
                    Provision(s)                      Regulation ------------------------------------------------------------------------  2013-2018) ($
                                                      section(s)     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         423.600        0.08        0.08        0.08        0.08        0.08        0.08            0.45
 Review Entity......................................
Establishment and Application of Daily Cost-Sharing      423.100         0.5           0           0           0           0           0             0.5
 Rate as Part of Drug Utilization Management and         423.104  ..........  ..........  ..........  ..........  ..........  ..........  ..............
 Fraud, Abuse and Waste Control Program.............     423.153  ..........  ..........  ..........  ..........  ..........  ..........  ..............
Benefit Flexibility for Certain Dual Eligible            422.102        0.06        0.06        0.06        0.06        0.06        0.06            0.36
 Special Needs Plans (SNPs)--Medicare...............
Apply MA and Part D Disclosure Requirements to Cost      417.427        0.01        0.01        0.01        0.01        0.01        0.01            0.06
 Contract Plans.....................................
Add language specific to SNP applications to give         22.500        0.01        0.01        0.01        0.01        0.01        0.01            0.06
 CMS the clear authority to deny SNP applications
 and to give SNPs appeal rights.....................
Access to covered Part D drugs through the use of        423.120        5.12        5.12        5.12        5.12        5.12        5.12           30.72
 standardized technology and NPIs...................
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Costs per fiscal year ($ in millions)                    Total (FYs
                    Provision(s)                      Regulation ------------------------------------------------------------------------  2013-2018) ($
                                                      section(s)     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
                                                     ---------------------------------------------------------------------------------------------------

[[Page 22162]]

 
    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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  Savings per fiscal year ($ in millions)                  Total savings
                                                      Regulation ------------------------------------------------------------------------   (FYs 2013-
                    Provision(s)                      section(s)                                                                            2018) ($ in
                                                                     2013        2014        2015        2016        2017        2018        millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefit Flexibility for Certain Dual Eligible            422.102       -0.50       -0.48       -0.44       -0.41       -0.39       -0.40           -2.62
 Special Needs Plans................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 Sec.  423.600 and Sec.  423.602 will allow 
physicians and other prescribers to request IRE reconsiderations on 
behalf of Part D plan enrollees. These changes will

[[Page 22163]]

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-Three-Star-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 cost-sharing 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 Sec.  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 Sec.  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.

[[Page 22164]]

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 (Sec.  
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:
    <bullet> Inclusion of Benzodiazepines and Barbiturates
    <bullet> 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 Sec.  423.56 to define creditable 
prescription drug coverage consistent with the calculation of the 
actuarial value of qualified retiree prescription drug coverage found 
at Sec.  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 Sec.  423.600 and Sec.  
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

[[Page 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 (Sec.  
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]
----------------------------------------------------------------------------------------------------------------
                                                                                Transfers
                                                        --------------------------------------------------------
                        Category                                  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                      $32.2              $32.2      FYs 2013-2018
 Sponsors..............................................
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,

[[Page 22166]]

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

0
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.


0
2. Section Sec.  417.422 is amended by revising paragraph (d) to read 
as follows:


Sec.  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;
* * * * *

0
3. Subpart K is amended by adding Sec.  417.427 to read as follows:


Sec.  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 Sec.  
422.111 and Sec.  423.128 apply to Medicare contracts with HMOs and 
CMPs under section 1876 of the Act.
    (b) In applying the provisions of Sec. Sec.  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.


0
4. Section 417.432 is amended by revising paragraph (d) to read as 
follows:


Sec.  417.432  Conversion of enrollment.

* * * * *
    (d) Application form. The individual who is converting must 
complete an application form or another CMS-approved election mechanism 
as described in Sec.  417.430(a).
* * * * *

0
5. Section 417.460 is amended by adding paragraphs (c)(3) and (4) to 
read as follows:


Sec.  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.
* * * * *


Sec.  417.492  [Amended]


0
6. Section 417.492 is amended as follows:
0
A. In paragraph (a)(1)(i), ``;'' is removed and ``; and'' is added in 
its place.
0
B. In paragraph (a)(1)(ii), ``; and'' is removed and ``.'' is added in 
its place.
0
C. By removing paragraph (a)(1)(iii).
0
D. By removing paragraph (b)(1)(iii).
0
7. Section 417.801 is amended by revising paragraph (d)(1)(ii) to read 
as follows:


Sec.  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 
Sec.  417.806; or
* * * * *

PART 422--MEDICARE ADVANTAGE PROGRAM

0
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).

Sec.  422.60  [Amended]

0
9. In Sec.  422.60, paragraph (c)(1) is amended by removing the 
reference ``Sec.  422.80'' and adding in its place the reference 
``Sec.  422.2262''.
0
10. Section 422.100 is amended by adding paragraph (l) to read as 
follows:


Sec.  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 
non-preferred 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 Sec.  
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 Sec.  422.111(b)(2) and Sec.  422.111(h).
    (vii) It provides full coverage, without limitation on brand and 
manufacturer,

[[Page 22167]]

to all DME categories or subcategories annually determined by CMS to 
require full coverage.


0
11. Section 422.101 is amended by revising paragraph (d)(1) to read as 
follows:


Sec.  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-of-network 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 Sec.  410.152(l)) from the single deductible described 
paragraph (d)(1)(i) of this section.
* * * * *

0
12. Section 422.102 is amended by adding paragraph (e) to read as 
follows.


Sec.  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.


0
13. Section 422.111 is amended by adding paragraph (i) to read as 
follows:


Sec.  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.


0
14. Section 422.216 is amended by revising paragraph (d)(1) to read as 
follows:


Sec.  422.216  Special rules for MA private fee-for-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 
Sec.  422.111(b)(12).
* * * * *

0
15. Section 422.500 is amended by revising paragraph (a) to read as 
follows:


Sec.  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.
* * * * *

0
16. Section 422.501 is amended as follows:
0
A. By revising paragraph (a).
0
B. In paragraph (c)(1)(i) by removing ``; or'' and adding in its place 
``.''.
0
C. By adding paragraph (c)(1)(iii).
0
D. By revising paragraph (e).
    The addition and revisions read as follows:


Sec.  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 Sec. Sec.  
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.
* * * * *

0
17. Section 422.502 is amended as follows:
0
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''.
0
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''.
0
C. By adding paragraphs (b)(3) and (4).
0
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''.
0
E. By revising paragraphs (c)(2) and (c)(3)(i).
    The additions and revision read as follows:


Sec.  422.502  Evaluation and determination procedures.

    (b) * * *
    (3) If CMS has terminated, under Sec.  422.510, or non-renewed, 
under Sec.  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

[[Page 22168]]

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;
* * * * *

0
17. Section 422.504 is amended as follows:
0
A. By adding paragraphs (a)(17) and (18).
0
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:


Sec.  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.
* * * * *

0
18. Section 422.510 is amended by adding paragraph (a)(14) to read as 
follows:


Sec.  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.
* * * * *

0
19. Section 422.641 is amended by adding paragraph (d) to read as 
follows:


Sec.  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 
Sec. Sec.  422.2 and 422.4(a)(1)(iv).


0
20. Section Sec.  422.660 is amended by adding paragraphs (a)(5) and 
(b)(5) to read as follows:


Sec.  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 
Sec.  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 Sec. Sec.  422.2; 
422.4(a)(1)(iv); 422.101(f); 422.107, if applicable; and 422.152(g) of 
this part.
* * * * *

0
21. Section 422.2274 is amended as follows:
0
A. By revising paragraph (a)(1)(i).
0
B. By removing and reserving paragraph (a)(1)(ii).
0
C. By revising paragraph (a)(1)(iii).
0
D. By adding paragraph (f).
    The revisions and addition read as follows:


Sec.  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

0
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).


0
23. Section 423.56 is amended by revising paragraphs (a) and (f)(3) to 
read as follows:


Sec.  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

[[Page 22169]]

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 Sec.  423.38(b); and
* * * * *

0
24. Section 423.100 is amended as follows:
0
A. By adding in alphabetical order the definition of ``Daily cost-
sharing rate.''
0
B. By revising paragraph (2)(iii) of the definition of ``Incurred 
costs.''
0
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''.
0
D. By revising the definition of ``Supplemental benefits.''
0
E. By adding in alphabetical order the definition of ``Valid 
prescription.''
    The additions and revision read as follows:


Sec.  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 
Sec.  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 Sec.  423.2305) or under the Medicare Coverage 
Gap Discount Program (as defined in Sec.  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 Sec.  423.104(f)(1)(ii).
* * * * *
    Valid prescription means a prescription that complies with all 
applicable State law requirements constituting a valid prescription.

0
25. Section 423.104 is amended by adding paragraphs (h) and (i) to read 
as follows:


Sec.  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 Sec.  423.153(b)(4).

0
26. Section 423.120 is amended by adding paragraph (c)(5) to read as 
follows:


Sec.  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.
* * * * *

0
27. Section 423.153 is amended as follows:
0
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:''.
0
B. In paragraph (b)(1) by removing ``;'' and adding in its place ``.''.
0
C. In paragraph (b)(2) by removing ``; and'' and adding in its place 
``.''.
0
D. By adding paragraph (b)(4).
0
E. By revising paragraph (d)(1)(vii)(B).
    The addition and revision read as follows:


Sec.  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:

[[Page 22170]]

    (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.
* * * * *

0
28. Section 423.458 is amended by adding paragraph (c)(4) to read as 
follows:


Sec.  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.
* * * * *

0
29. Section 423.501 is amended by adding the definition of ``Bona fide 
service fees'' in alphabetical order to read as follows:


Sec.  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.
* * * * *

0
30. Section 423.503 is amended as follows:
0
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''.
0
B. Adding paragraphs (b)(3) and (4).
    The additions read as follows:


Sec.  423.503  Evaluation and determination procedures for applications 
to be determined qualified to act as a sponsor.

* * * * *
    (b) * * *
    (3) If CMS has terminated, under Sec.  423.509, or non-renewed, 
under Sec.  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.
* * * * *

0
31. Section 423.505 is amended as follows:
0
A. By adding paragraphs (b)(24) through (26).
0
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:


Sec.  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.
* * * * *

0
32. Section 423.509 is amended by adding paragraph (a)(13) to read as 
follows:


Sec.  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,

[[Page 22171]]

2012 are not included in the calculation of the 3-year period.
* * * * *

0
33. Section 423.514 is amended as follows:
0
A. By redesignating paragraphs (d) through (g) as paragraphs (g) 
through (j), respectively.
0
B. By adding new paragraphs (d), (e), and (f).
    The additions read as follows:


Sec.  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 Sec.  
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.
* * * * *

0
34. Section 423.600 is amended by revising paragraphs (a) through (c) 
to read as follows:


Sec.  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.
* * * * *

0
35. Section 423.602 is amended by revising paragraph (a) to read as 
follows:


Sec.  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.
* * * * *

0
36. Section 423.1000 is amended by adding paragraph (a)(3) to read as 
follows:


Sec.  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.
* * * * *

0
37. Section 423.1002 is amended by revising the definition of 
``Affected party'' to read as follows:


Sec.  423.1002  Definitions.

* * * * *
    Affected party means any Part D sponsor or manufacturer (as defined 
in Sec.  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.
* * * * *

0
38. Section Sec.  423.2274 is amended as follows:
0
A. By revising paragraph (a)(1)(i).
0
B. By removing and reserving paragraph (a)(1)(ii).
0
C. By revising paragraph (a)(1)(iii).
0
D. By adding paragraph (f).
    The revisions and addition read as follows:

[[Page 22172]]

Sec.  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.

0
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.


Sec.  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.


Sec.  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 Sec.  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 
out-of-network policies, the negotiated price means the plan allowance 
as set forth in Sec.  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 Sec.  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.


Sec.  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 
Sec.  423.2315(b).
    (3) Have entered into and have in effect, under terms and 
conditions specified by CMS, a contract with the TPA.

[[Page 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.


Sec.  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 Sec.  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 
Sec.  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 Sec.  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 Sec.  423.2305) for purposes of 
administering the program.


Sec.  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.


Sec.  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 
Sec.  423.100).
    (ii) Whether a Part D drug is an applicable drug (as defined in 
Sec.  423.100).
    (iii) The amount of the applicable discount (as defined in Sec.  
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 
in-network 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 Sec.  423.100) have been applied to the claim for an 
applicable drug.
    (2) No applicable discount is available if supplemental benefits 
(as defined in Sec.  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 Sec.  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

[[Page 22174]]

submits the discounted claim for reimbursement.


Sec.  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 Sec.  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.


Sec.  423.2335  Beneficiary dispute resolution.

    The Part D coverage determination and appeals process as described 
in Sec. Sec.  423.558 through 423.638 applies to beneficiary disputes 
involving the availability and amount of applicable discounts under the 
Discount Program.


Sec.  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 Sec.  
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 Sec.  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.


Sec.  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.

[[Page 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 Sec.  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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