Friday, 

November 16, 2007 

Part IV 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Part 423 

Medicare Program; Proposed Standards 

for E-Prescribing Under Medicare Part D; 

Proposed Rule 

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64900 Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 423 

[CMS–0016–P] 

RIN 0938–AO66 

Medicare Program; Proposed 

Standards for E-Prescribing Under 

Medicare Part D 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This rule proposes the 

adoption of final uniform standards for 

an electronic prescription drug program 

as required by section 1860D–4(e)(4)(D) 

of the Social Security Act (the Act). It 

also proposes the adoption of a standard 

identifier for providers and dispensers 

for use in e-prescribing transactions 

under sections 1860D–4(e)(3) and 

1860D–4(e)(4)(C)(ii), and section 1102 of 

the Social Security Act. The standards 

proposed under section 1860D– 

4(e)(4)(D) have been pilot tested and 

evaluated, and the findings indicate that 

the proposed standards meet the 

requirements for final standards that can 

be used for the Medicare Part D eprescribing programs. The standards 

proposed in this rule, in addition to the 

foundation standards that were already 

adopted as final standards (see 70 FR 

67568), represent an ongoing approach 

to adopting standards that are consistent 

with the Medicare Prescription Drug, 

Improvement and Modernization Act of 

2003 (MMA) objectives of patient safety, 

quality of care, and efficiencies and cost 

saving in the delivery of care. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on January 15, 2008. 

ADDRESSES: In commenting, please refer 

to file code CMS–0016–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking. Click 

on the link ‘‘Submit electronic 

comments on CMS regulations with an 

open comment period.’’ (Attachments 

should be in Microsoft Word, 

WordPerfect, or Excel; however, we 

prefer Microsoft Word). 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention CMS–0016– 

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

8014. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: Centers for Medicare 

and Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–0016–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses: If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

9994 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHS Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the close of the comment 

period. 

Submission of comments on 

paperwork requirements: You may 

submit comments on this document’s 

paperwork requirements by mailing 

your comments to the addresses 

provided at the end of the ‘‘Collection 

of Information Requirements’’ section in 

this document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Denise M. Buenning, (410) 786–6711. 

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this rule to assist us in fully 

considering issues and developing 

policies. Comments will be most useful 

if they are organized by the section of 

the proposed rule to which they apply. 

You can assist us by referencing the file 

code (CMS–0016–P) and the specific 

‘‘issue identifier’’ that precedes the 

section on which you choose to 

comment. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. After the close of the 

comment period, CMS posts all 

electronic comments received before the 

close of the comment period on its 

public website. Comments received 

timely will 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, please call (800) 

743–3951. 

Copies: To order copies of the Federal 

Register containing this document, send 

your request to: New Orders, 

Superintendent of Documents, P.O. Box 

371954, Pittsburgh, PA 15250–7954. 

Specify the date of the issue requested 

and enclose a check or money order 

payable to the Superintendent of 

Documents, or enclose your Visa or 

Master Card number and expiration 

date. Credit card orders also can be 

placed by calling the order desk at (202) 

512–1800 (or toll-free at (888) 293–6498) 

or by sending a fax to (202) 512–2250. 

As an alternative, you can view and 

photocopy the Federal Register 

document at most libraries designated 

as Federal Depository Libraries and at 

many other public and academic 

libraries throughout the country that 

receive the Federal Register. 

This Federal Register document is 

also available from the Federal Register 

online database through GPO Access, a 

service of the U.S. Government Printing 

Office. The Web site address is http:// 

www.gpoaccess.gpo.gov/fr/index.html. 

I. Background 

A. Legislative History 

Section 101 of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) (Pub. 

L. 108–173) amended title XVIII of the 

Social Security Act (the Act) to establish 

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a voluntary prescription drug benefit 

program. 

Prescription Drug Plan (PDP) sponsors 

and Medicare Advantage (MA) 

organizations offering Medicare 

Advantage-Prescription Drug Plans 

(MA–PD), are required to establish 

electronic prescription drug programs to 

provide for electronic transmittal of 

certain information to the prescribing 

provider and dispensing pharmacy and 

pharmacist. This would include 

information about eligibility, benefits 

(including drugs included in the 

applicable formulary, any tiered 

formulary structure and any 

requirements for prior authorization), 

the drug being prescribed or dispensed 

and other drugs listed in the medication 

history, as well as the availability of 

lower cost, therapeutically appropriate 

alternatives (if any) for the drug 

prescribed. The MMA directed the 

Secretary to promulgate uniform 

standards for the electronic 

transmission of such data. 

There is no requirement that 

prescribers or dispensers implement eprescribing. However, prescribers and 

dispensers who electronically transmit 

prescription and certain other 

information for covered drugs 

prescribed for Medicare Part D eligible 

beneficiaries, directly or through an 

intermediary, would be required to 

comply with any applicable final 

standards that are in effect. 

Section 1860D–4(e)(4) of the Act 

generally required the Secretary to 

conduct a pilot project to test initial 

standards recognized under 1860D–

4(e)(4)(A) of the Act, prior to issuing the 

final standards in accordance with 

section 1860D–4(e)(4)(D) of the Act. The 

initial standards were recognized by the 

Secretary in 2005 and then tested in a 

pilot project during calendar year (CY) 

2006. The MMA created an exception to 

the requirement for pilot testing of 

standards where, after consultation with 

the National Committee on Vital and 

Health Statistics (NCVHS), the Secretary 

determined that there already was 

adequate industry experience with the 

standard(s). The first set of such 

standards, the ‘‘foundation standards,’’

were recognized and adopted through 

notice and comment rulemaking as final 

standards without pilot testing. See 70 

FR 67568. 

Based upon the evaluation of the pilot 

project, and not later than April 1, 2008, 

the Secretary is required to issue final 

uniform standards under section 

1860D–4(e)(4)(D). These final standards 

must be effective not later than 1 year 

after the date of their issuance. 

In the e-prescribing final rule at 70 FR 

67589, we also discussed the estimated 

start-up costs for e-prescribing for 

providers and/or dispensers. Based on 

industry input, we cited approximately 

$3,000 for annual support, maintenance, 

infrastructure and licensing costs. 

Physicians at that time reported paying 

user-based licensing fees ranging from 

$80 to $400 per month. For further 

discussion of the start-up costs 

associated with e-prescribing, see the 

regulatory impact analysis section of 

this proposed regulation, and the eprescribing final rule at 70 FR 67589. 

For a further discussion of the 

statutory basis for this proposed rule 

and the statutory requirements at 

section 1860D–4(e) of the Act, please 

refer to section I. (Background) of the EPrescribing and the Prescription Drug 

Program proposed rule, published 

February 4, 2005 (70 FR 6256). 

B. Regulatory History 

In the e-prescribing final rule at 70 FR 

67589, we also discussed the estimated 

start-up costs for e-prescribing for 

providers and/or dispensers. Based on 

industry input, we cited approximately 

$3,000 for annual support, maintenance, 

infrastructure and licensing costs. 

Physicians at that time reported paying 

user-based licensing fees ranging from 

$80 to $400 per month. For further 

discussion of the start-up costs 

associated with e-prescribing, see the 

regulatory impact analysis section of 

this proposed regulation, and the eprescribing final rule at 70 FR 67589. 

In the November 7, 2005 final rule, we 

addressed the issues of privacy and 

security relative to e-prescribing in 

general. We noted that disclosures of 

protected health information (PHI) in 

connection with e-prescribing 

transactions would have to meet the 

minimum necessary requirements of the 

Privacy Rule if the entity is a covered 

entity (70 FR 6161). It is important to 

note that health plans, prescribers, and 

dispensers are HIPAA covered entities, 

and that these covered entities under 

HIPAA must continue to abide by the 

applicable HIPAA standards including 

these for privacy and security. Eprescribing provisions do not affect or 

alter the applicability of the Privacy Act 

to a particular entity. Entities which are 

covered by the Privacy Act and the 

HIPAA Privacy Rule must comply with 

provisions of both. Entities are 

responsible for determining whether 

they fall under the Privacy Act. 

We continue to agree that privacy and 

security are important issues related to 

e-prescribing. Achieving the benefits of 

e-prescribing require the prescriber and 

dispenser to have access to patient 

medical information that may not have 

been previously available to them. 

Section 1860–D(e)(2)(C) of the Act 

requires that disclosure of patient data 

in e-prescribing must, at a minimum, 

comply with HIPAA’s privacy and 

security requirements. 

Although HIPAA standards for 

privacy and security are flexible and 

scalable to each entity’s situation, they 

provide comprehensive protections. We 

will continue to evaluate additional 

standards for consideration as adopted 

e-prescribing standards. For further 

discussion of privacy and security and 

e-prescribing, refer to the final rule at 70 

FR 67581 through 82. 

1. Foundation Standards 

After consulting with the NCVHS, the 

Secretary found that there was adequate 

industry experience with several 

potential e-prescribing standards. Upon 

adoption through notice and comment 

rulemaking, these standards were called 

‘‘foundation’’ standards, because they 

would be the first set of final standards 

adopted for an electronic prescription 

drug program. Three standards were 

adopted for purposes of e-prescribing in 

the E-Prescribing and the Prescription 

Drug Program final rule, published 

November 7, 2005 (70 FR 67568). Two 

of these standards, Accredited 

Standards Committee (ASC) X12N 270/ 

271; and The National Council for 

Prescription Drug Programs (NCPDP) 

Telecommunication Standard 

Specification, Version 5, Release 1 

(Version 5.1), were previously adopted 

under the Health Insurance Portability 

and Accountability Act of 1996 (HIPAA) 

and have been in effect since 2001. 

These foundation standards are as 

follows: 

For the exchange of eligibility 

information between prescribers and 

Medicare Part D sponsors: Accredited 

Standards Committee (ASC) X12N 270/ 

271—Health Care Eligibility Benefit 

Inquiry and Response, Version 4010, 

May 2000, Washington Publishing 

Company, 004010X092 and Addenda to 

Health Care Eligibility Benefit Inquiry 

and Response, Version 4010A1, October 

2002, Washington Publishing Company. 

004010X092A1 (hereafter referred to as 

the ASC X12N 270/271 standard). 

For the exchange of eligibility 

inquiries and responses between 

dispensers and Medicare Part D 

sponsors: The National Council for 

Prescription Drug Programs (NCPDP) 

Telecommunication Standard 

Specification, Version 5, Release 1 

(Version 5.1), September 1999, and 

equivalent NCPDP Batch Standard 

Batch Implementation Guide, Version 1, 

Release 1 (Version 1.1), January 2000 

supporting Telecommunications 

Standard Implementation Guide Version 

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5, Release 1 (Version 5.1) for NCPDP 

Data Record in the Detail Data Record 

(hereafter referred to as the NCPDP 

Telecommunications Standard). 

For the exchange of new 

prescriptions, changes, renewals, 

cancellations and certain other 

transactions between prescribers and 

dispensers: NCPDP SCRIPT Standard, 

Implementation Guide, Version 5, 

Release 0 (Version 5.0), May 12, 2004, 

excluding the Prescription Fill Status 

Notification Transaction (and its three 

business cases; Prescription Fill Status 

Notification Transaction—Filled, 

Prescription Fill Status Notification 

Transaction—Not Filled, and 

Prescription Fill Status Notification 

Transaction—Partial Fill), hereafter 

referred to as NCPDP SCRIPT 5.0. 

a. Exemptions to Foundation Standard 

Requirement for Nonprescribing 

Providers 

In 42 CFR 423.160(a)(3)(iii) we 

exempt entities transmitting 

prescriptions or prescription-related 

information where the prescriber is 

required by law to issue a prescription 

for a patient to a non-prescribing 

provider (such as a nursing facility) that 

in turn forwards the prescription to a 

dispenser from the requirement to use 

the NCPDP SCRIPT Standard 5.0 

adopted by this section in transmitting 

such prescriptions or prescriptionrelated information. 

Industry comments indicated that 

while the e-prescribing standards we 

proposed were proven to have adequate 

industry experience in the ambulatory 

setting, the NCPDP SCRIPT Standard 

was not proven to support the 

workflows and legal responsibilities in 

the long-term care setting. As such, we 

exempted entities from the requirement 

to use the NCPDP SCRIPT standard 

when that entity is required by law to 

issue a prescription for a patient to a 

non-prescribing provider (such as a 

nursing facility) that in turn forwards 

the prescription to a dispenser. The CY 

2006 pilot project tested for such 

entities’ use of the foundation standards 

in ‘‘three-way prescribing 

communications’’ between facility, 

physician, and pharmacy. (For a more 

detailed discussion see the November 7, 

2005 final rule (70 FR 67583). 

b. Use of HL7 or NCPDP SCRIPT 

Standard To Conduct Internal Electronic 

Transmittals for Specified NCPDP 

SCRIPT Transactions 

In the E-Prescribing and the 

Prescription Drug Program final rule, 

published November 7, 2005 (70 FR 

67568), we responded to comments on 

whether Medicare Part D plans should 

be required to use the standards for eprescribing transactions taking place 

within their own enterprises. In the 

final rule we stated that entities may use 

either HL7 or NCPDP SCRIPT standards 

to conduct internal electronic 

transmittals for the specified NCPDP 

SCRIPT transactions. However, entities 

are required to use the NCPDP SCRIPT 

Standard if they electronically send 

prescriptions for Medicare beneficiaries 

outside the organizations, such as to a 

non-network pharmacy. Any pharmacy 

that already accepts e-prescriptions, 

even if only as a part of a larger legal 

entity, must be able to receive electronic 

prescription transmittals for Medicare 

beneficiaries via NCPDP SCRIPT from 

outside the enterprise. 

c. Exemption for Computer-Generated 

Facsimiles 

The November 7, 2005 final rule also 

exempted entities that transmit 

prescriptions or prescription-related 

information by means of computergenerated facsimile (faxes) from the 

requirement to use the adopted NCPDP 

SCRIPT standard. ‘‘Electronic media’’

was already defined by regulations 

issued pursuant to the Health Insurance 

Portability and Accountability Act of 

1996 (HIPAA), so e-prescribing utilized 

the same definition. As a result, faxes 

that were generated by a prescriber’s 

computer and sent to a dispenser’s 

computer or fax machine which prints 

out a hard copy of the original 

computer-generated fax (that is, 

‘‘computer-generated’’ faxes) fell within 

the definition of ‘‘electronic media’’ for 

e-prescribing. Absent an exemption, 

computer-generated faxes would be 

required to comply with the adopted 

foundation standards. The November 7, 

2005 final rule exempted computergenerated faxes from having to comply 

with the NCPDP SCRIPT standard. 

In June 2007, CMS proposed to 

eliminate this exemption. See 72 FR 

38195 through 38196 for a discussion of 

the elimination of this exemption. 

2. Updating e-Prescribing Standards 

In the November 7, 2005 final rule (70 

FR 67579), we discussed the means for 

updating e-prescribing standards. If an 

e-prescribing transaction standard has 

also been adopted under 45 CFR parts 

160 through 162 (that is, as HIPAA 

transaction standards), the updating 

process for the e-prescribing transaction 

standard must be coordinated with the 

maintenance and modification of the 

applicable HIPAA transaction standard. 

As the final rule adopted and 

incorporated by reference the relevant 

HIPAA transaction standards (the ASC 

X12N 270/271 and the NCPDP 

Telecommunication Standard), the eprescribing standards can be modified 

through a parallel rulemaking whenever 

the HIPAA transaction standards are 

modified. A streamlined process was 

created for updating adopted eprescribing standards that were not also 

HIPAA transaction standards. This is 

done by identifying backward 

compatible later versions of the 

standards. This version updating and 

maintenance of the implementation 

specifications for the adopted nonHIPAA e-prescribing standards will 

allow for the correction of technical 

errors, the elimination of technical 

inconsistencies, and the addition of 

functions that support the specified eprescribing transaction. To do this, we 

adopted a process for the Secretary to 

identify a subsequent version(s) of a 

standard where the new version(s) are 

backwards compatible with the adopted 

standard. Use of such subsequent 

versions of an adopted standard is 

voluntary. Because HIPAA transaction 

standards are presently not backward 

compatible and the HIPAA transactions 

standards regulation does not currently 

address the use of subsequent versions 

of adopted standards that are backward 

compatible to the adopted standards, 

the streamlined process cannot 

presently be used for those HIPAA 

transactions standards that are also eprescribing standards. 

Subsequent industry input indicated 

that the adopted NCPDP SCRIPT 5.0, 

should be updated with a later version 

of the standard NCPDP SCRIPT 

Standard, Implementation Guide, 

Version 8, Release 1 (Version 8.1), 

October 2005, excluding the 

Prescription Fill Status Notification 

Transaction (and its three business 

cases; Prescription Fill Status 

Notification Transaction—Filled, 

Prescription Fill Status Notification 

Transaction—Not Filled, and 

Prescription Fill Status Notification 

Transaction—Partial Fill), hereafter 

referred to as NCPDP SCRIPT 8.1. 

Using the streamlined process, HHS 

published an Interim Final Rule on June 

23, 2006 (71 FR 36020) updating the 

adopted NCPDP SCRIPT standard, 

thereby permitting either version to be 

used. For more information, see the June 

23, 2006 interim final rule with 

comment (71 FR 36020). 

3. National Provider Identifier (NPI) 

In the November 7, 2005 final rule (70 

FR 67578), we discussed the use of the 

National Provider Identifier (NPI) for the 

Medicare Part D e-prescribing program 

once it became available. The NPI is the 

standard that was adopted in the final 

rule published on January 23, 2004 (69 

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FR 3434) as the unique health identifier 

for health care providers that are HIPAA 

covered entities for use in the health 

care system. Health plans, health care 

clearinghouses, and those health care 

providers who transmit any health 

information in electronic form in 

connection with a transaction for which 

the Secretary has adopted a standard 

(known as ‘‘covered health care 

providers’’) are considered ‘‘covered 

entities’’ which must use the identifier 

in connection with HIPAA standard 

transactions. For a discussion of the 

NPI, see the final rule published on 

January 23, 2004 (69 FR 3434). 

In the November 7, 2005 final rule (70 

FR 67578), in response to comments 

received in the February 4, 2005 

proposed rule, we indicated that we 

would include the NPI in the 2006 

pilots to determine how it worked with 

e-prescribing standards. However, we 

also noted that accelerating NPI usage 

for e-prescribing might not be possible, 

as we might not have had the capacity 

to issue NPIs to all providers involved 

in the e-prescribing program by January 

1, 2006. At the time the Request for 

Application was released, we had just 

begun to use the National Plan/Provider 

Enumeration System (NPPES) to process 

provider requests for NPIs. Upon 

reconsideration and in view of the short 

time period allowed for pilot testing, it 

was determined that the focus should be 

on standards testing and not on NPI as 

it would constitute a simple bench 

testing of the identifier and would have 

no substantive results. Therefore, NPI 

was not assessed during the pilots, 

which used other identifiers to 

accomplish their testing of the standards 

as outlined in the Request for 

Application. 

C. Pilot Testing of Initial Standards 

The MMA required the Secretary to 

develop, adopt, recognize or modify 

‘‘initial uniform standards’’ relating to 

the requirements for the e-prescribing 

programs in 2005. To ensure the 

efficient implementation of the eprescribing program requirements, the 

MMA called for pilot testing of these 

initial e-prescribing standards in 2006. 

To fulfill this requirement, the Secretary 

ultimately recognized (based on NCVHS 

input) six ‘‘initial’’ standards, which are 

discussed below. A Request for 

Applications (RFA) was issued in 

September 2005 that laid out the details 

for how these initial standards were to 

be pilot tested (Available through http: 

//www.grants.nih.gov/grants/guide/rfafiles/RFA-HS-06-001.html). The pilot 

test was conducted under four 

cooperative agreements and one 

contract that the Agency for Healthcare 

Research and Quality (AHRQ) entered 

into on behalf of CMS. The final pilot 

site reports are available at http:// 

www.healthit.ahrq.gov/erxpilots. 

1. Initial Standards 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Initial Standards’’ at the 

beginning of your comments.] 

As HHS had not yet published a final 

rule identifying the foundation 

standards at the time the RFA was 

published, it conditionally included the 

proposed foundation standards among 

the ‘‘initial standards’’ to be tested. Any 

proposed foundation standards that 

were not adopted as foundation 

standards were to be tested as initial 

standards in the pilot project. 

Furthermore, if the proposed foundation 

standards were ultimately adopted as 

foundation standards, those standards 

nevertheless were to be used in the pilot 

project to ensure interoperability with 

the initial standards. A summary of the 

initial standards follows: 

• Formulary and benefit 

information—The formulary and 

benefits standard, NCPDP Formulary 

and Benefits Standard, Implementation 

Guide, Version 1, Release 0 (version 

1.0), hereinafter referred to as the 

NCPDP Formulary and Benefits 

Standard 1.0, is intended to provide 

prescribers with information from a 

plan about a patient’s drug coverage at 

the point of care. 

• Exchange of medication history—

The medication history standard, 

included in the National Council for 

Prescription Drug Programs (NCPDP) 

Prescriber/Pharmacist Interface SCRIPT 

Standard, Version 8 Release 1 and its 

equivalent NCPDP Prescriber/ 

Pharmacist Interface SCRIPT 

Implementation Guide, Version 8, 

Release 1, is intended to provide a 

uniform means for prescribers and 

payers to communicate about the list of 

drugs that have been dispensed to a 

patient. 

• Structured and Codified SIG—The 

standard tested was NCPDP’s proposed 

Structured and Codified SIG Standard 

1.0. Structured and Codified SIG—

instructions for taking medications 

(such as ‘‘by mouth, three times a 

day’’)—that are currently expressed as 

free text at the end of a prescription. 

• Fill status notification function—

The Fill Status Notification, or RxFill, 

was included in the NCPDP SCRIPT 5.0, 

and the updated NCPDP SCRIPT 8.1 but 

it previously was not proposed as a 

foundation standard due to lack of 

industry experience. The dispenser uses 

the prescription fill status transaction to 

notify the prescriber if a patient has 

picked up a prescribed medication at 

the pharmacy. 

• Clinical drug terminology 

(RxNorm)—RxNorm, a standardized 

nomenclature for clinical drugs 

developed by the National Library of 

Medicine (NLM), provides standard 

names for clinical drugs (active 

ingredient + strength + dose form) and 

for dose forms as administered to a 

patient. 

• Prior authorization messages—The 

pilot sites tested to determine the 

functionality of new versions of the ASC 

X12N 275, Version 4010 with HL7 and 

ASC X12N 278, Version 4010A1 to 

obtain certification from the plan to a 

provider that the patient meets criteria 

for a drug to be covered. 

The RFA also specified that pilot sites 

would use NCPDP SCRIPT 5.0. With the 

Secretary’s recognition of the updated 

NCPDP SCRIPT 8.1, AHRQ, in its 

capacity as the administrator of the pilot 

project, gave pilot sites the option to 

voluntarily use NCPDP SCRIPT 8.1. 

Accordingly, all grantees/contractor in 

the pilot sites voluntarily employed the 

updated NCPDP SCRIPT 8.1 in their 

various testing modalities. 

2. Grantees/Contractor and Testing 

Criteria 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Grantees/Contractor and 

Testing Criteria’’ at the beginning of 

your comments.] 

The initial standards were tested in 

five healthcare/geographic settings to 

determine whether they were ready for 

broad adoption. Grantees/contractor 

tested whether the initial standards 

allowed participants to effectively 

communicate the necessary information 

between all participants in the 

transactions, such as the pharmacy, 

pharmacy benefits manager (PBM), 

router, plan and prescriber. They also 

tested how the initial standards worked 

with the foundation standards. Pilot 

sites also tracked generally anticipated 

e-prescribing outcomes, such as a 

reduction in medical errors. For more 

information on testing parameters and 

criteria, go to http:// 

www.grants.nih.gov/grants/guide/rfafiles/RFA-HS-06-001.html. 

One of the strengths of the pilot 

project was the diversity and 

uniqueness of the five grantees/ 

contractor. Grantees/contractor 

represented the spectrum of 

communities involved with eprescribing, including most practice 

settings, and focused on utilization by 

pharmacists, physicians, nurses, and 

technology vendors. Applications were 

considered based on specific 

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characteristics/criteria. Each pilot site 

focused on different perspectives of the 

functionality and impact of initial 

standards by evaluating them in 

different sectors of the healthcare 

system, different geographies, and 

different practice settings using different 

technology application vendors, 

pharmacies and other stakeholders in 

the e-prescribing industry. The grantees 

selected were Achieve Healthcare 

Information Technologies, L.L.P., Eden 

Prairie, Minnesota; Brigham and 

Women’s Hospital, Boston, 

Massachusetts; RAND Corporation, 

Santa Monica, California; SureScripts, 

L.L.C., Alexandria, Virginia. The 

contractor that was selected was the 

University Hospitals Health System, 

Cleveland, Ohio. For more information 

on the pilot project criteria, refer to the 

Request for Application at http:// 

www.grants.nih.gov/guide/RFA–HS–06– 

001.html. 

3. Pilot Test Findings 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Pilot test findings’’ at the 

beginning of your comments.] 

a. Standard for Formulary and Benefits 

In the February 4, 2005 proposed rule, 

we discussed how the adoption of the 

formulary and benefit standard would 

enhance e-prescribing capabilities under 

Medicare Part D by making it possible 

for the prescriber to obtain information 

on the patient’s benefits, including the 

formulary status of drugs that the 

physician is considering prescribing. At 

that time, we proposed characteristics 

for a formulary and benefit standard (for 

a more detailed discussion refer to 70 

FR 6262 through 6263). We proposed 

that if those characteristics for 

formulary were met by a standard and 

there was adequate industry experience 

with it, we would consider adopting it 

as a foundation standard. The NCVHS, 

in a September 2, 2004 letter to the 

Secretary (http://www.ncvhs.hhs.gov), 

had recommended the development of 

an NCPDP formulary and benefit 

standard, based on an RxHub protocol, 

to address the need for these desirable 

characteristics. RxHub submitted this 

protocol to NCPDP for approval and it 

was included in the October 2005 

release of NCPDP Formulary and Benefit 

standard 1.0. However, the timing of its 

release in October 2005 was too late for 

the Formulary and Benefit standard 1.0 

to be considered for approval as a 

foundation standard in the November 7, 

2005 final rule. Also, there was little to 

no industry experience with the 

standard. Because of this and other 

concerns about its interoperability with 

other standards, at that time we did not 

adopt NCPDP Formulary and Benefit 

standard 1.0 as a foundation standard, 

but agreed to include it in pilot testing. 

For more details, refer to 70 FR 67573. 

Formulary and benefits data standards 

must provide a uniform means for 

pharmacy benefit payers (including 

health plans and PBMs) to communicate 

a range of formulary and benefit 

information to prescribers via point-ofcare (POC) systems. These include: 

• General formulary data (for 

example, therapeutic classes and 

subclasses); 

• Formulary status of individual 

drugs (that is, which drugs are covered); 

• Preferred alternatives (including 

any coverage restrictions, such as 

quantity limits and need for prior 

authorization); and 

• Copayment (the copayments for one 

drug option versus another). 

The NCPDP Formulary and Benefits 

Standard 1.0 enables the prescriber to 

consider this information during the 

prescribing process, and make the most 

appropriate drug choice without 

extensive back-and-forth administrative 

activities with the pharmacy or the 

health plan. 

The NCPDP Formulary and Benefits 

Standard 1.0 was implemented live in 

all pilot sites, and technology vendors 

were certified prior to production. This 

standard works in tandem with the 

eligibility request and response (ASC 

X12N 270/271). Once the individual is 

identified, the appropriate drug benefit 

coverage is located and transmitted to 

the requestor. 

The pilot sites demonstrated that the 

NCPDP Formulary and Benefits 

Standard 1.0 can be successfully 

implemented between prescriber and 

plan. The NCPDP Formulary and 

Benefits Standard 1.0 is quite broad, and 

there are a number of complex data 

relationships supported by the standard. 

This complexity creates a certain level 

of confusion as to how to properly use 

the data and leads to implementation 

issues. While complex, the standard can 

support the transaction, and is ready for 

implementation as part of the eprescribing program under Medicare 

Part D. 

Formularies by their very nature are 

complex. They consist of hundreds of 

pages of drug names, dosages, etc., that 

frequently change due to updates in 

formulations, coverage decisions, etc. In 

addition, each drug plan has their own 

formulary that they use for coverage 

purposes. Coverage of benefits is 

sometimes a fluid issue; coverage can 

change from day to day, depending, for 

example, as to whether a Medicare Part 

D beneficiary has met out-of-pocket 

spending thresholds, or has experienced 

a life-changing situation that might 

affect their benefit delivery for example, 

entering a long-term care facility). 

Adoption of this standard for formulary 

and benefits transactions between plans 

and providers may deliver added value 

in approximating patients’ drug 

coverage and lead to patient-specific, 

real-time benefit information. 

b. Standard for Medication History 

A medication history standard 

provides a way for prescribers, 

dispensers, and payers to communicate 

about a listing of drugs that have been 

prescribed or claimed for a patient 

within a certain timeframe. It may 

provide information that would be of 

use in helping to identify drug 

interactions, including the dispensing 

pharmacy and the prescribing 

physician. This standard is relatively 

mature and widely adopted by the 

prescribing industry. It has been useful 

in preventing medication errors, as well 

as understanding medication 

management compliance. Results 

demonstrate there is a difference in how 

the standard is implemented based on 

the source of the medication history. 

In the February 4, 2005 proposed rule, 

we discussed how the adoption of the 

medication history standard would 

enhance e-prescribing capabilities under 

Medicare Part D by making it possible 

for the prescriber to obtain information 

on the medications the patient is 

already taking, including those 

prescribed by other providers. At that 

time, we proposed characteristics for a 

medication history standard (for a more 

detailed discussion refer to 70 FR 6262 

through 6263). We proposed that if 

those characteristics for medication 

history were met, and there was 

adequate industry experience with 

them, we would consider adopting 

foundation standards. The NCVHS, in a 

September 2, 2004 letter to the Secretary 

(http://www.ncvhs.hhs.gov), had 

recommended the rapid development of 

an NCPDP medication history standard 

based on an RxHub protocol. The 

NCPDP SCRIPT standard 8.1, based on 

the RxHub protocol, was released in 

October 2005, featuring those desirable 

characteristics. However, the timing of 

its release in October 2005 was too late 

for the standard to be considered for 

approval as a foundation standard in the 

November 7, 2005 final rule, and there 

was little to no industry experience with 

the standard. Because of this and other 

concerns about its interoperability with 

other standards, at that time we did not 

adopt the NCPDP SCRIPT standard as a 

foundation standard for medication 

history, but agreed to include it in pilot 

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testing. For more details, refer to 70 FR 

67573. 

The pilot sites found that the 

proposed medication history standard 

included as a transaction in the NCPDP 

SCRIPT 8.1 is well structured, supports 

the exchange of information, would not 

impose an undue administrative burden 

on prescribers and dispensers, is 

compatible with other health IT 

standards, and is ready to be used as 

part of the e-prescribing program under 

Medicare Part D. 

c. Standard for Structured and Codified 

SIG 

Patient instructions for taking 

medications are placed at the end of a 

prescription. These are called the 

signatura, commonly abbreviated SIG. 

Currently, the Food and Drug 

Administration (FDA) provides some 

terminology for SIGS, for example, route 

of administration and unit of 

presentation. However, there is no 

standardized format or vocabulary for 

SIGs, leaving room for misinterpretation 

and error. A standard structure and code 

set for expressing SIGs has the potential 

to enhance patient safety, although free 

text capability must be preserved for 

special circumstances. Pilot sites used a 

variety of approaches including review 

of the proposed NCPDP Structured and 

Codified SIG standard 1.0, identification 

of test cases, using live transactions and 

selecting samples of prescriptions with 

a wide variety of SIGs, recreating each 

test case in a laboratory environment, 

and then developing a test harness that 

would include functions of an 

electronic information exchange 

application. Another approach was to 

analyze an initial sample that would be 

statistically valid with an attempt to 

represent each distinct SIG using the 

proposed standard’s 128 data fields. 

The pilot sites found that the 

proposed Structured and Codified SIG 

format needs additional work with 

reference to field definitions and 

examples, field naming conventions and 

clarifications of field use. It is 

imperative that the prescriber’s 

instructions be translated exactly into eprescribing and pharmacy practice 

management systems to reduce 

medication errors, decrease healthcare 

costs and improve patient safety. 

Contradictions with other structured 

fields exist, and there are limitations on 

directions for topical drugs (such as the 

area of application). The pro re nata 

(PRN) or ‘‘as needed’’ designation could 

be interpreted as either ‘‘as needed’’ or 

‘‘as required’’, and the standard does not 

allow for quick revisions for new drug 

administration. Mistranslations and 

contradictions in dosage/timing 

directions leave room for 

misinterpretation and error. Analysis 

shows that the NCPDP’s proposed 

Structured and Codified SIG Standard 

1.0 is not sufficiently developed for use 

for Medicare Part D e-prescribing in its 

current state. 

d. Standard for Fill Status Notification 

The Fill Status Notification standard 

is a function within the NCPDP SCRIPT 

8.1, but it was not named a foundation 

standard due to lack of adequate 

industry experience. The standard 

enables a pharmacy to notify a 

prescriber when the prescription has 

been dispensed (medication picked up 

by patient), partially dispensed (partial 

amount of medication picked up by the 

patient), or not dispensed (medication 

not picked up by patient, resulting in 

the medication being returned to stock). 

Pilot sites found that the NCPDP 

SCRIPT 8.1 standard supports the 

activities of a pharmacy sending 

messages to the prescriber as to the 

status of a prescription. The challenges 

encountered were not related to the 

structure and format of the standard, but 

in its implementation. RxFill is 

intended to encourage adherence and 

compliance with medication therapy. 

Although the transaction is technically 

capable of performing that function, the 

pilot sites’ experiences and observations 

indicate there is no marketplace 

demand for this information, and may 

cause an unnecessary administrative 

burden on prescribers and dispensers. 

Prescribers expressed concerns about 

being inundated with data if they were 

informed every time a prescription was 

filled or not filled, and were unsure of 

the usefulness of the information. 

Moreover, implementing the Fill Status 

transaction would require significant 

business process changes at pharmacies 

as well as development of common 

rules for determining when a 

prescription becomes a ‘‘no-fill.’’ We 

question the marketplace demand for 

Fill Status Notification and solicit 

comments regarding both stakeholders’

and industry’s potential utilization of 

RxFill. 

e. Standard for Clinical Drug 

Terminology: RxNorm 

RxNorm is a vocabulary resulting 

from a collaboration between the Food 

and Drug Administration (FDA) and the 

National Library of Medicine (NLM) that 

provides standard names for clinical 

drugs (active ingredient + strength + 

dose form), and for dose forms as 

administered to a patient. These 

concepts are relevant to how a 

physician would order a drug. It 

provides links from clinical drugs, both 

branded and generic, to their active 

ingredients, drug components (active 

ingredient + strength), and related brand 

names. NDCs (National Drug Codes) for 

specific drug products (where there are 

often many NDC codes for a single 

product) are linked to that product in 

RxNorm. NDCs for specific drug 

products identify not only the drug but 

also the manufacturer and the size of the 

package from which it is dispensed. 

NDCs are relevant to how a pharmacy 

would dispense the drug. RxNorm links 

its names to many of the drug 

vocabularies commonly used in 

pharmacy management and drug 

interaction software. By providing links 

between these vocabularies, RxNorm 

can mediate messages between systems 

not using the same software and 

vocabulary. 

RxNorm terminology was evaluated in 

the context of the NCPDP SCRIPT 8.1 

for new prescriptions, renewals, and 

changes. RxNorm was included in the 

pilot to determine how well the RxNorm 

information can be translated from the 

prescriber’s system to the dispenser’s 

system while maintaining the 

prescriber’s intent. The grantees/ 

contractor tested this standard in a 

laboratory setting, specifically to gain 

understanding of the completeness and 

accuracy of RxNorm. 

The pilot sites demonstrated that 

RxNorm has significant potential to 

simplify e-prescribing, create 

efficiencies, and reduce dependence on 

NDCs among dispensers. It was able to 

represent both new prescriptions and 

renewal requests. In some testing, 

RxNorm erroneously linked some NDCs 

to lists of ingredients rather than to the 

drugs themselves. Testing also revealed 

cases in which the NDC codes linked by 

RxNorm did not match to a semantic 

clinical drug (SCD), which always 

contains the ingredient(s), strength and 

dose form, in that order. This indicates 

there was either an error in matching to 

the correct RxNorm concept, or an error 

with RxNorm itself, with more than one 

term being available for the same 

clinical drug concept (that is, 

unresolved synonymy). There is 

currently no central repository 

containing a list of all NDC codes, nor 

a reference guide that indicates all of the 

NDCs associated with a particular drug. 

(On August 29, 2006, FDA published a 

proposed rule [71 FR 51276] which 

would result in the creation of an 

electronic drug registration and listing 

system for which FDA would issue all 

NDCs, registrants would be required to 

keep information up to date, and there 

would be a centralized electronic 

repository for these NDCs. Through the 

Structured Product Labeling (SPL) for 

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each marketed drug product, the NDCs 

would be linked to the drug product 

code, proprietary name, established 

name of the active ingredients, Unique 

Ingredient Identifiers [UNII], active 

ingredient strengths and pharmaceutical 

dosage form.) As with other vocabulary 

standards, RxNorm will never cover 100 

percent of what is needed in every 

circumstance, so some provisions for 

exceptions will be needed. One example 

encountered in the pilots was the lack 

of standard names and identifiers for 

pharmacy-compounded drugs. Analysis 

shows that, as of December 2006, 

RxNorm was not sufficiently developed 

for effective and accurate use for 

Medicare Part D e-prescribing. 

f. Standard for Prior Authorization 

The prior authorization standard 

incorporates real-time prior 

authorization functionality in the ASC 

X12N 278 Version 4010A1 Health Care 

Services Review transaction. Originally 

there were two models that were to be 

considered, solicited (prescriber 

proactively solicits prior authorization 

criteria/forms from plan) and 

unsolicited (questions appear via 

prompts on a point-of-care software 

system). The solicited model is rarely 

used and usually results in a paperbased response, versus the unsolicited 

model which employs e-prescribing 

technology. Upon consultation between 

the pilot sites and AHRQ as the 

administrator of the pilot project, AHRQ 

advised that the pilot sites use the 

unsolicited model using the NCPDP 

Formulary and Benefits Standard 1.0 

specification as it would provide a 

better test of prior authorization in an eprescribing environment. 

Prior authorization is a very complex 

standard to implement, necessitating an 

understanding of four different 

standards and multiple payer 

requirements. The combination of ASC 

X12N 278, ASC X12N 275 and the HL7 

prior authorization (PA) attachment is 

cumbersome, confusing and requires 

expertise that may limit adoption. 

Because health plans typically require 

prior authorization only for a small 

subset of drugs, the pilot sites had 

limited live experience with this 

standard. Nevertheless, they pilot tested 

the ASC X12N 278 version 4010A1 and 

ASC X12N 275 version 4010 with the 

HL7 PA attachment and identified 

several issues that need to be addressed 

before this standard should be adopted 

as an e-prescribing final standard, 

including some inconsistencies between 

ASC X12N 278 Version 4010A1 and 

ASC X12N 275 Version 4010 that need 

to be addressed. Investigators agreed 

that the HIPAA-named prior 

authorization standard—the ASC X12N 

278 version 4010A1—was not adequate 

to support prior authorization because it 

was designed for service or procedure 

prior authorizations, not for medication 

prior authorization. One of the 

challenges of the ASC X12N 275 version 

4010 with the HL7 PA attachment is 

that it did not allow vendors to make 

questions mandatory, which would 

ensure that the information required is 

complete and reduce the need for backand-forth communication that takes 

place between plan prior authorization 

representatives and prescribers. 

Standards modifications would need to 

be made prior to adoption as a final 

standard for the Medicare Part D eprescribing program. 

g. Use of Standards in the Long-Term 

Care (LTC) Setting 

Healthcare Delivery in long-term care 

(LTC) settings is unique for several 

reasons. Nurses are frequently the 

primary caregivers, with off-site 

physicians who monitor care; 

specialized long-term care pharmacies 

are located off-site with drugs being 

delivered to the facility. While the 

participants in the Achieve study were 

drawn from a convenience sample, the 

setting provided a special opportunity 

for understanding e-prescribing’s impact 

on an entirely different patient 

population, provider type, and 

prescription delivery system. 

In long-term care, a prescription order 

typically remains an open order with no 

end date or a date far in the future. A 

prescriber may need to modify this 

order and notify the pharmacy. Changes 

might include dose, form, strength, 

route, modifications of frequency, or a 

minor change related to the order. Also, 

in the long-term care environment, there 

is a need to send a refill request from 

a facility to a pharmacy. An example is 

when a medication supply for a resident 

is running low (2–3 doses remaining), 

and a new supply is needed from the 

pharmacy. The facility needs a way to 

notify the pharmacy that a refill for the 

medication is needed. E-prescribing was 

evaluated within the unique context of 

long-term care workflow from facility to 

pharmacy. 

The primary purpose of the long-term 

care pilot site was to test the NCPDP 

SCRIPT 8.1 in the long-term care setting 

and found that modifications were 

required in order to ensure accurate 

transmission of the data. Through 

partner agreement, ‘‘work-arounds’’

were identified and implemented. These 

work-around requests were formally 

submitted by the pilot site grantee to 

NCPDP in the form of a DERF (Data 

Element Request Form) to modify the 

standard as needed. When an updated 

version of the NCPDP SCRIPT Standard 

becomes available that can 

accommodate the unique prescription 

workflow of the LTC setting, we will 

consider removing the current 

exemption. We solicit industry and 

other interested stakeholder comments 

on the impact and timing of lifting this 

exemption. 

II. Provisions of the Proposed Rule 

A. Proposed Retirement of NCPDP 

SCRIPT 5.0 and Adoption of NCPDP 

SCRIPT 8.1 as a Final Standard 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Adoption of NCPDP SCRIPT 

8.1’’ at the beginning of your 

comments.] 

We propose to revise § 423.160(b)(1) 

to replace the NCPDP SCRIPT 5.0 

standard with the NCPDP SCRIPT 8.1. 

Those providers and dispensers using eprescribing to provide for the electronic 

communication of a prescription or 

prescription-related information would 

be required to use the NCPDP SCRIPT 

8.1 for the following transactions: 

• Get message transaction. 

• Status response transaction. 

• Error response transaction. 

• New prescription transaction. 

• Prescription change request 

transaction. 

• Prescription change response 

transaction. 

• Refill prescription request 

transaction. 

• Refill prescription response 

transaction. 

• Verification transaction. 

• Password change transaction. 

• Cancel prescription request 

transaction. 

• Cancel prescription response 

transaction. 

On June 23, 2006, we published an 

interim final rule with comment (71 FR 

30620) to solicit comments as to 

whether the NCPDP SCRIPT 8.1 was a 

backward compatible update to NCPDP 

SCRIPT 5.0. We received 5 timely 

public comments on this interim rule 

with comment. The comments came 

from a standards setting organization, 

two national industry associations, and 

two private corporations actively 

involved in e-prescribing. All 

commenters supported the voluntary 

use of the backward compatible Version 

8.1 of the NCPDP SCRIPT Standard. 

Four recommended that it be adopted as 

soon as reasonably possible, and that 

Version 5.0 be retired as soon as 

reasonably practical. They also 

indicated that Version 8.1 was already 

in widespread use throughout their 

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respective industries. One commenter 

indicated a concern with making 

backward compatibility ‘‘the criteria’’

for determining if a notice and comment 

rulemaking is required. That commenter 

felt that backward compatibility must be 

viewed as just one factor in making a 

determination to update, as opposed to 

modify, a standard. 

We continue to find that the NCPDP 

SCRIPT 8.1 is backward compatible to 

the adopted NCPDP SCRIPT 5.0. Both 

versions are the same, except that 

Version 8.1 contains the additional 

feature of medication history. One 

commenter expressed that it has been 

their experience that, while capable of 

processing Version 5.0, the industry is 

already implementing Version 8.1, and 

that few, if any, of their trading partners 

are using Version 5.0. This is supported 

by industry reports that numerous 

software systems now using Version 8.1 

have been certified for use by electronic 

prescribing networks. 

Regarding the comment that backward 

compatibility should not be the sole 

criterion for determining whether use of 

a subsequent version requires an update 

or a modification of an e-prescribing 

standard, we note that it is not the sole 

criterion. The ‘‘backward compatibility’’

of a subsequent version of an adopted 

standard simply indicates that entities 

may voluntarily upgrade their systems 

with the subsequent version that is 

‘‘backward compatible,’’ and still be 

compliant with the adopted standard. 

With the backward compatible version, 

entities may conduct transactions with 

other entities that continue to use the 

adopted version of the standard with no 

deleterious effect on the transmission of 

information or the transaction itself. We 

also note that we are required by law to 

employ notice and comment rulemaking 

to modify an adopted standard or when 

entities would be required to transition 

to a subsequent version. Through the 

rulemaking process, we must notify the 

public as to the proposed modifications, 

receive public comment on our 

proposals, and take into consideration 

an analysis of factors such as the 

modification’s impact on affected 

entities relative to cost, benefit 

projections, productivity, etc., as well as 

industry and stakeholder feedback 

provided by means of the written 

comment process. We are soliciting 

comments regarding the retirement of 

Version 5.0 and the adoption of Version 

8.1 as the adopted standard for the eprescribing functions outlined in 42 

CFR 423.160(b)(1), and based on the 

proposed compliance date described in 

section II.E. of this proposed rule. 

B. Proposed Adoption of an EPrescribing Standard for Medication 

History Transaction 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Medication History’’ at the 

beginning of your comments.] 

In the Foundation Standards final 

rule, 70 FR 67568, we discussed the 

need for medication history standards, 

and that we were unaware of any 

standard for these transactions that 

clearly met the criteria for adequate 

industry experience. As a result, a 

standard for medication history was 

tested in the 2006 pilot project. 

The NCVHS noted in its September 2, 

2004 letter to the Secretary that 

medication history information was 

communicated between payers and 

prescribers using proprietary messaging 

standards, frequently the Information 

File Transfer protocols established by 

RxHub, a national formulary and 

benefits information exchange. The 

NCVHS recommended that HHS 

actively participate in and support the 

rapid development of an NCPDP 

standard for formulary and medication 

history using the RxHub protocol as a 

basis. In September 2005, RxHub 

announced that its propriety data 

transaction format for Medication 

History which they had submitted to 

NCPDP, had been approved and 

incorporated into the NCPDP Script 

Standard, and approved by the 

American National Standard Institute 

(ANSI). NCVHS considered ANSI 

accreditation to be one criterion in their 

recommendation process for adoption of 

e-prescribing standards, and HHS 

adopted this as a criterion for 

determining adequate industry 

experience. (See 70 FR 67568, 67577 for 

a discussion of all the criterion 

considered by NCVHS.) The resulting 

NCPDP SCRIPT standard was 

recognized by the Secretary as an initial 

standard, then pilot tested in 

accordance with the MMA. 

The pilot sites demonstrated that the 

standard can be successfully 

implemented among a variety of eprescribing partners and, while 

complex, the standard can support the 

Medication History transaction, and is 

ready for implementation under 

Medicare Part D. 

If NCPDP SCRIPT 8.1 is adopted in 

place of NCPDP SCRIPT 5.0 at 

§ 423.160(b)(1) as proposed above, we 

also propose to add § 423.160(b)(3) to 

adopt the NCPDP SCRIPT 8.1 for 

electronic medication history 

transactions among the plan sponsor, 

prescriber, and the dispenser when eprescribing for covered Medicare Part D 

drugs for Medicare Part D eligible 

individuals. The medication history 

transaction in the NCPDP SCRIPT 8.1 

standard is based on the proprietary file 

transfer protocol developed by RxHub, 

which is currently being used to 

communicate this information in many 

e-prescribing products. 

Adoption of the NCPDP SCRIPT 8.1 

standard for the medication history 

transaction will provide a uniform 

communications mechanism for 

prescribers, dispensers and payers, 

support reconciliation of useful data 

from a large number of sources, and 

raise awareness of its availability and 

use among providers. Cost savings to the 

public will be generated based on 

reductions in the number of preventable 

adverse drug events (ADEs). 

Significantly, systems that utilize this 

proposed transaction in the NCPDP 

SCRIPT 8.1 standard will be 

substantially more effective at ADE 

reduction than those merely utilizing 

the original foundation standards by 

allowing prescribers to see what 

medications have been prescribed by 

other providers in the past. 

C. Proposed Adoption of an Eprescribing Standard for Formulary and 

Benefit Transactions 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘formulary and benefit 

transactions’’ at the beginning of your 

comments.] 

As a result of pilot testing, we are 

proposing to add § 423.160(b)(4) to 

adopt the NCPDP Formulary and Benefit 

Standard 1.0, for the transaction of 

communicating formulary and benefit 

information between the prescriber and 

the plan sponsor when e-prescribing for 

covered Medicare Part D drugs for 

Medicare Part D eligible individuals. 

This standard is based on a proprietary 

file transfer protocol developed by 

RxHub, which is currently being used to 

communicate this information in many 

e-prescribing products. The RxHub 

protocols were submitted to NCPDP for 

accreditation, and the resulting standard 

was recognized by the Secretary as an 

initial standard and pilot-tested in 

accordance with the MMA. 

The NCPDP Formulary and Benefits 

Standard 1.0 was implemented live in 

all pilot sites. This standard works in 

tandem with the eligibility request and 

response (ASC X12N 270/271). Once the 

individual is identified, the appropriate 

drug benefit coverage is located and 

transmitted to the requestor. 

The pilot sites demonstrated that the 

NCPDP Formulary and Benefits 

Standard 1.0 can be successfully 

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implemented among a variety of eprescribing partners, and while 

complex, the standard can support the 

transaction, and is ready for 

implementation under Medicare Part D. 

Adoption of this standard for 

formulary and benefits transactions 

between plan sponsors and prescribers 

may deliver added value in 

approximating patients’ drug coverage 

and lead to patient-specific, real-time 

benefit information. The NCPDP 

Formulary and Benefits Standard 1.0 

enables the prescriber to consider this 

information during the prescribing 

process, and make the most appropriate 

drug choice without extensive back-andforth administrative activities with the 

pharmacy or the plan sponsors. As 

prescribers prescribe based on the 

coverage offered by a patient’s plan 

formulary, plans will experience 

reduced costs through paying for drugs 

that are specific to their formularies for 

which they have negotiated favorable 

rates. Patients will see reduced costs in 

not having to pay increased out-ofpocket expenses for prescribed drugs 

that are not on their plan’s formularies. 

D. Adoption of the National Provider 

Identifier (NPI) as a Standard for Use in 

E-Prescribing Transactions 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Adoption of the National 

Provider Identifier’’ at the beginning of 

your comments.] 

We are proposing to add 

§ 423.160(b)(5) to adopt the National 

Provider Identifier as a standard for use 

in e-prescribing transactions among the 

plan sponsor, prescriber, and the 

dispenser. The NCPDP SCRIPT standard 

8.1, which we are proposing for 

adopting in this proposed rule, supports 

the use of NPI. 

While the NPI was not tested in the 

pilot project, we have reason to believe 

that there is adequate industry 

experience with the NPI which would 

support its use in e-prescribing 

transactions under section 1860D–

4(e)(4)(C)(ii). Use of the NPI is already 

required in order to conduct HIPAAcompliant transactions which require 

the identity of HIPAA covered health 

care providers; and the compliance date 

for the NPI, May 27, 2007, has already 

passed. The NPI is in widespread use by 

HIPAA covered entities in HIPAA 

transactions. Although the NCPDP 

SCRIPT transaction is not a HIPAA 

transaction, the prescribers and 

dispensers that conduct it would be 

HIPAA covered entities, and as such, 

they would already be using NPI as they 

conduct their HIPAA transactions. They 

would, therefore, already be familiar 

with the NPI, even though they may not 

currently use it in the NCPDP SCRIPT 

transaction. Furthermore, NPI meets the 

objectives and design criteria laid out at 

section 1860D–4(e)(3) of the Act, so 

adoption of the NPI for use in eprescribing standards is supported by 

section 1860D–4(e)(3)(A) of the Act as 

well. Finally, as uniform identifiers are 

necessary to conduct electronic 

transactions such as those in the eprescribing program, adoption of NPI is 

also supported by section 1102 of the 

Act. 

We generally solicit comments from 

the industry and other stakeholders on 

the adoption of NPI as an e-prescribing 

standard, and we specifically request 

comments as to whether use of the NPI 

in HIPAA-compliant transactions 

constitutes adequate industry 

experience for purposes of using NPI as 

a covered health care provider identifier 

in Medicare Part D e-prescribing 

transactions. 

E. Proposed Compliance Date 

In accordance with section 1860D–

4(e) of the Act, the Secretary must issue 

certain final uniform standards for eprescribing no later than April 1, 2008, 

to become effective not later than 1 year 

after the date of their promulgation. 

Therefore, in accordance with this 

requirement, the Secretary proposes a 

compliance date of 1 year after the 

publication of the final uniform 

standards. The Secretary also proposes 

adopting NCPDP SCRIPT 8.1 as the eprescribing standard for the transactions 

listed in section III. C. of this proposed 

rule, effective 1 year after the 

publication of the final uniform 

standards. We solicit comments 

regarding the impact of these proposed 

dates on industry and other interested 

stakeholders and whether an earlier 

compliance date should be adopted. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (PRA), agencies are required to 

provide a 30-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 PRA 

requires that we solicit comment on the 

following issues: 

• Whether the information collection 

is necessary and useful to carry out the 

proper functions of the agency. 

• The accuracy of the agency’s 

estimate of the information collection 

burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements. 

Standards for an Electronic Prescribing 

Program (§ 423.160) 

The emerging and increasing use of 

health care electronic data interchange 

(EDI) standards and transactions have 

raised the issue of the applicability of 

the PRA. It has been determined that a 

regulatory requirement mandating the 

use of a particular EDI standard 

constitutes an agency-sponsored thirdparty disclosure as defined under the 

PRA. 

As a third-party disclosure 

requirement subject to the PRA, 

Medicare Part D sponsors offering 

qualified prescription drug coverage 

must support and comply with 

electronic prescription standards 

relating to covered Medicare Part D 

drugs, for Medicare Part D enrolled 

individuals as would be required under 

§ 423.160. 

However, the requirement that 

Medicare Part D sponsors support 

electronic prescription drug programs in 

accordance with standards set forth in 

this section, as established by the 

Secretary, does not require that 

prescriptions be written or transmitted 

electronically by prescribers or 

dispensers. After the promulgation of 

this set of final standards, these entities 

will be required to comply with the 

proposed standards only if they transmit 

prescription information electronically 

as discussed in section 1860D–4(e)(1) 

and (2) of the Act. 

Testimony presented to the NCVHS 

indicates that most health plans/PBMs 

currently have e-prescribing capability 

either directly or by contracting with 

another entity. Therefore, we do not 

believe that conducting an electronic 

prescription drug program would be an 

additional burden for those plans. We 

solicit industry and other interested 

stakeholder comments and input on this 

issue. 

Since these standards are already 

familiar to industry, we believe the 

requirement to adopt them constitutes a 

usual and customary business practice 

and the burden associated with the 

requirements is exempt from the PRA as 

stipulated under 5 CFR 1320.3(b)(2). 

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Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / Proposed Rules 64909 

As required by section 3504(h) of the 

Paperwork Reduction Act of 1995, we 

have submitted a copy of this document 

to OMB for its review of these 

information collection requirements. 

If you comment on any of these 

information collection requirements, 

please mail copies directly to the 

following: Centers for Medicare & 

Medicaid Services, Office of Strategic 

Operations and Regulatory Affairs, 

Regulations Development and Issuances 

Group, Attn: William Parham, III, CMS–

0016–P, Room C5–14–03, 7500 Security 

Boulevard, Baltimore, MD 21244–1850; 

and Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, Room 10235, 

New Executive Office Building, 

Washington, DC 20503. Attn: Carolyn 

Lovett, CMS Desk Officer, CMS–0016–P, 

Carolyn_lovett@omb.eop.gov. Fax: (202) 

395–6974. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a final rule, we will respond to the 

comments in the preamble to that 

document. 

V. Regulatory Impact Analysis 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘Regulatory Impact Analysis’’ at 

the beginning of your comments.] 

We have examined the impacts of this 

rule as required by Executive Order 

12866 of September 30, 1993, as further 

amended; the Regulatory Flexibility Act 

(RFA) (September 16, 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); and 

Executive Order 13132 of August 4, 

1999. 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties, and further amended by 

Executive Order 13422) directs agencies 

to assess all costs and benefits of 

available regulatory alternatives and, if 

regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). According to Executive 

Order 12866, a regulatory action may 

reasonably be ‘‘significant’’ if it meets 

any one of a number of specified 

conditions, including if the action may 

reasonably be anticipated to lead to: 

• An annual effect on the economy of 

$100 million or more, adversely 

affecting in a material way the economy, 

a sector of the economy, productivity, 

competition, jobs, the environment, 

public health or safety, or State, local, 

or tribal governments or communities; 

• A serious inconsistency or 

otherwise interfering with an action 

taken or planned by another agency; 

• Material alteration in the budgetary 

impact of entitlements, grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or 

• Novel legal or policy issues arising 

out of legal mandates, the President’s 

priorities, or the principles set forth in 

Executive Order 12866. 

This proposed rule is anticipated to 

have an annual benefit on the economy 

of $100 million or more and will have 

‘‘economically significant effects.’’ We 

believe that prescribers and dispensers 

that are now e-prescribing have already 

largely invested in the hardware, 

software and connectivity necessary to 

e-prescribe. We do not anticipate that 

the proposed modification of the 

NCPDP SCRIPT 5.0 to the NCPDP 

SCRIPT 8.1 at § 423.160(b)(1), the 

adoption of NCPDP SCRIPT 8.1 for the 

Medication History transaction, the 

adoption of the NCPDP Formulary and 

Benefit Standard 1.0 for formulary and 

benefit transactions, and the adoption of 

NPI for use in e-prescribing transactions 

will result in significant costs. We 

solicit industry and other interested 

stakeholder comments and input on this 

issue. We anticipate that the ability to 

utilize electronic formulary and benefit 

inquiries will result in administrative 

efficiencies and increased prescribing of 

generic drugs versus brand name drugs, 

and the access to medication history at 

the point of care will result in reduced 

adverse drug events (ADEs). The 

benefits accruing from these 

transactions will have an economically 

significant effect on Medicare Part D 

program costs and patient safety. As this 

is a significant rule under Executive 

Order 12866, we are required to prepare 

a regulatory impact analysis (RIA) for 

this rule. 

The Regulatory Flexibility Act (RFA) 

requires agencies to analyze options for 

regulatory relief of small entities. For 

purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and small governmental 

jurisdictions. Most hospitals and most 

other providers and suppliers are small 

entities, either by nonprofit status or by 

qualifying as small businesses under the 

Small Business Administration’s size 

standards (revenues of $6.5 million to 

$31.5 million in any 1 year for the 

health care industry). States and 

individuals are not included in the 

definition of a small entity. For details, 

see the Small Business Administration’s 

regulation that set forth the current size 

standards for health care industries at 

http://sba.gov/idc/groups/public/ 

documents/sba_homepage/ 

serv_sstd_tablepdf.pdf (refer to the 

620000 series). 

Based on our initial analysis, we 

expect this proposed rule will not have 

a significant impact on a substantial 

number of small entities because, while 

many prescribing physician practices 

and independent pharmacies would be 

small entities, e-prescribing is voluntary 

for prescribers and pharmacies. For 

prescribers and dispensers that have 

already implemented e-prescribing, the 

adoption of NCPDP SCRIPT 8.1 would 

in most cases be accommodated through 

software upgrades whose cost would 

already be included in annual 

maintenance fees. Medicare Part D 

sponsors are required to support eprescribing, and would incur some costs 

to support the NCPDP Formulary and 

Benefit Standard 1.0 and the NCPDP 

SCRIPT 8.1 medication history 

transaction. However, using the SBA 

revenue guidelines, the majority of 

Medicare Part D plan sponsors would 

not be considered small entities as they 

represent major insurance companies 

with annual revenues of over $31.5 

million. We also do not anticipate that 

the proposed requirement to use NPI in 

e-prescribing would have any effect on 

Medicare Part D plans, providers or 

dispensers as they are already using the 

NPI in HIPAA-covered transactions. 

Section 1102(b) of the Act requires us 

to prepare a regulatory impact analysis 

if a rule may have a significant impact 

on the operations of a substantial 

number of small rural hospitals. This 

analysis must conform to the provisions 

of section 603 of the RFA. For purposes 

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

a small rural hospital as a hospital that 

is located outside of a core-bed 

Metropolitan Statistical Area and has 

fewer than 100 beds. This proposed rule 

would not affect small rural hospitals 

because the program will be directed at 

outpatient prescription drugs covered 

under Medicare Part D and not drugs 

provided during a hospital stay. 

Prescription drugs provided during 

hospital stays are covered under 

Medicare as part of Medicare payments 

to hospitals. Therefore, for purposes of 

our obligations under section 1102(b) of 

the Act, we are not providing an 

analysis. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

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1Catizone, Carmen A., National Association of 

Boards of Pharmacy, Testimony before the NCVHS, 

July 29, 2004. 

2See Davies Warehouse Co. v. Bowles, 321 U.S. 

144, 153, 64, S.Ct. 474, 88 L.Ed. 635 (1944), 

Pharmaceutical Research and Manufacturers of 

America v. Walsh, 538 U.S. 644, 661, 123 S.Ct. 

1855, 1867, 155 L.Ed.2d 889 (2003). 

Federal agencies to prepare written 

statements before promulgating any 

general notice of proposed rulemaking 

of any rule that includes a Federal 

mandate that could result in 

expenditure in any one year by State, 

local, or tribal governments, in the 

aggregate, or by the private sector, of 

$110 million. Since only Medicare Part 

D plan sponsors are required to support 

e-prescribing, this proposed rule does 

not include any mandate that would 

result in this spending by State, local or 

tribal governments. We acknowledge 

that there may be transaction costs 

borne by payers and pharmacy benefit 

managers (PBMs), but, based on our 

analysis, they would fall below the $110 

million threshold. We would expect that 

many Medicare Part D plan sponsors 

already support the exchange of 

formulary, benefits and medication 

history data, because the standards we 

are proposing are based on proprietary 

transactions developed by Rx-Hub, 

which are already in use in the current 

e-prescribing environment. 

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 

costs on State and local governments, 

preempts State law, or otherwise has 

Federalism implications. Every State 

allows for the electronic transmission of 

prescriptions. In recent years, many 

States have more actively legislated in 

this area. The scope and substance of 

this State activity, however, varies 

widely among the States.1 The MMA 

addresses preemption of State laws at 

section 1860D–4(e)(5) of the Act as 

follows: 

(5) Relation to State Laws. The 

standards promulgated under this 

subsection shall supercede any State 

law or regulation that—

(A) Is contrary to the standards or 

restricts the ability to carry out this part; 

and 

(B) Pertains to the electronic 

transmission of medication history and 

of information on eligibility, benefits, 

and prescriptions with respect to 

covered part D drugs under this part. 

In the final rule (70 FR 67568 through 

67594), we interpreted this section of 

the Act as preempting State law 

provisions that conflicted with Federal 

electronic prescription program drug 

requirements that are adopted under 

Medicare Part D. We viewed it as 

mandating Federal preemption of State 

laws and regulations that are either 

contrary to the Federal standards, or 

that restrict the ability to carry out (that 

is, stand as an obstacle to) the electronic 

prescription drug program 

requirements, and that also pertain to 

the electronic transmission of 

prescriptions or certain information 

regarding covered Medicare Part D 

drugs for Medicare Part D enrolled 

individuals. 

Consequently, for a State law or 

regulation to be preempted under this 

express preemption provision, the State 

law or regulation would have to meet 

the requirements of both paragraphs (A) 

and (B). Furthermore, there would have 

to be a Federal standard adopted 

through rulemaking that creates a 

conflict for a State law to be preempted. 

This interpretation closely reflected the 

language of the statute, and it is 

consistent with the presumption against 

Federal preemption of State law 2 and 

with the fundamental Federalism 

principles set forth in section 2 of 

Executive Order 13132. It is also 

consistent with the Department of 

Health and Human Service’s (HHS) 

general position of deferring to State 

laws regulating the practice of pharmacy 

and the practice of medicine. 

In the final rule at 70 FR 67568 

through 67594, we acknowledged that 

some industry representatives believed 

that the Congress intended this 

preemption provision to be much 

broader. For instance, some expressed 

the position that this statutory provision 

preempts all State laws that would in 

any way restrict the development of eprescribing for all providers and payors. 

This position was based on the belief 

that the Congress intended to preempt 

the field of e-prescribing through this 

provision in the MMA. It would have 

required an interpretation that the word 

‘‘and’’ between paragraphs (A) and (B) 

was disjunctive, that is, that ‘‘and’’

means ‘‘or’’ in this context. Under this 

interpretation, the operative language 

would be ‘‘restricts the ability to carry 

out this part’’ in paragraph (A), which 

arguably would have enabled the 

standards and requirements adopted for 

the Federal electronic prescription drug 

program to preempt all State laws and 

regulations that restricted the 

Secretary’s ability to carry out the goals 

of an electronic prescription drug 

program, even if they were not related 

to covered Medicare Part D drugs, or 

Medicare Part D covered individuals. 

They contended that some States had 

existing statutory or regulatory barriers 

that could impede the success of eprescribing; for example, laws and 

regulations that were drafted with only 

paper prescriptions in mind, which may 

not be well-suited to e-prescribing 

applications. 

We determined that this 

interpretation did not comport with the 

use of the word ‘‘contrary’’ in the 

statutory language which generally 

establishes ‘‘conflict preemption.’’ This 

interpretation would seem to render 

paragraph (B) virtually meaningless and 

serve to establish ‘‘field preemption.’’

We invited public comment on our 

proposed interpretation of the scope of 

preemption, particularly with respect to 

relevant State statutes and regulations 

which commenters believe should be 

preempted, but would not under our 

proposed interpretation. We specifically 

asked for comment on whether this 

preemption provision applied only to 

transactions and entities that are part of 

an electronic prescription drug program 

under Medicare Part D or to a broader 

set of transactions and entities. We also 

asked for comment on whether this 

preemption provision applied to only 

electronic prescription transactions or to 

paper transactions as well. For the same 

reasons given above, we have 

determined that States would not incur 

any direct costs as a result of this 

proposed rule. However, as mandated 

by section 1860D–4(e) of the Act, and 

under the Executive Order, we are 

required to minimize the extent of 

preemption, consistent with achieving 

the objectives of the Federal statute, and 

to meet certain other conditions. We 

believe that, taken as a whole, this 

proposed rule would meet these 

requirements. We do seek comments 

from States and other entities on 

possible problems and on ways to 

minimize conflicts, consistent with 

achieving the objectives of the MMA, 

and will be undertaking outreach to 

States on these issues. 

We have consulted with the National 

Association of Boards of Pharmacy 

directly and through participation in 

NCVHS hearings and we believe that the 

approach we suggested provides both 

States and other affected entities the 

best possible means of addressing 

preemption issues. We will consult 

further with States before issuing the 

final rule. This section constitutes the 

Federalism summary impact statement 

required under the Executive Order. 

The objective of this regulatory 

impact analysis is to summarize the cost 

and benefits of implementing the 

standards we are proposing in this rule 

for the conversion from NCPDP SCRIPT 

5.0 to NCPDP SCRIPT 8.1 at 

§ 423.160(b)(1), the adoption of 

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Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / Proposed Rules 64911 

standards for the electronic 

communication of formulary and benefit 

and medication history information, and 

the adoption of NPI for use in eprescribing transactions. These 

proposed actions build upon the eprescribing requirements published as a 

final rule on November 7, 2005 (70 FR 

67568) which included adoption of 

three foundation standards for eprescribing. The final rule contained an 

impact analysis that addressed the cost 

of those foundation standards, and it 

also discussed in concept the benefits of 

e-prescribing in general. In the eprescribing final rule at 70 FR 67589, we 

noted that commenters suggested that 

the estimated start-up costs for eprescribing could be at least $1,500 and 

perhaps exceed $2,000. For average eprescribing software implementation, 

according to a 2003 CITL Report, ‘‘The 

Value of Computerized Provider Order 

Entry,’’ a basic-e-prescribing system cost 

$1,248 plus $1,690 for annual support, 

maintenance, infrastructure and 

licensing costs. The total first year cost 

averaged approximately $3,000. The 

Journal of Healthcare Information 

Management has published that 

physicians reported paying user-based 

licensing fees ranging from $80 to $400 

per month, although we believe through 

anecdotal information that these 

licensing fees have decreased over time 

to between $300 and $800 annually. For 

further discussion of the start-up costs 

associated with e-prescribing, see the eprescribing final rule at 70 FR 67589. 

This proposed rule builds on the final 

rule analysis, and we refer to it to assure 

that costs and benefits are not counted 

twice. We solicit industry and other 

interested stakeholder comment and 

input on this issue. 

A. Overall Impact 

According to 2006 CMS data, 

approximately 24 million beneficiaries 

were enrolled in a Medicare Part D plan, 

(either a stand-alone Prescription Drug 

Plan or a Medicare Advantage Drug 

Plan). Another 7 million retirees were 

enrolled in employer or unionsponsored retiree drug coverage 

receiving the Retiree Drug Subsidy 

(RDS); 3 million in Federal retiree 

programs such as TRICARE and the 

Federal Employees Health Benefits 

Plans (FEHBP) and 5 million receiving 

drug coverage from alternative sources, 

including 2 million who have coverage 

through the Veterans’ Administration. 

The breadth of Medicare’s coverage 

suggests that e-prescribing under 

Medicare Part D could impact virtually 

every pharmacy and a large percentage 

of the physician practices in the 

country. Standards established for 

Medicare Part D beneficiaries will, as a 

matter of economic necessity, be 

adopted by vendors of e-prescribing and 

pharmacy software, and as a result, 

would extend to other populations 

unless they are manifestly unsuited for 

the purpose. However, we note again 

that e-prescribing is voluntary for both 

prescribers and dispensers under the 

Medicare Part D electronic prescribing 

program. 

Our pilot testing and industry 

collaboration activities were partially 

intended to prevent the development of 

multiple, ‘‘parallel’’ e-prescribing 

environments, with their attendant 

incremental costs. In general, we 

attempted to avoid imposing an undue 

administrative burden on prescribing 

health care professionals, dispensing 

pharmacies and pharmacists. The 

standards we are proposing here, like 

the foundation standards adopted 

previously, are maintained by an 

accredited standards development 

organization. These proposed standards 

have been shown through pilot testing 

to work effectively with the foundation 

standards. 

B. Costs 

Because e-prescribing is voluntary, we 

anticipate that entities who currently do 

not now e-prescribe and who will not 

implement e-prescribing during the 

period reflected in the regulatory impact 

analysis will incur neither costs nor 

benefits. 

Entities that do not now e-prescribe, 

but that will implement e-prescribing 

during the period reflected in the 

regulatory impact analysis will incur the 

costs and benefits associated with the 

foundation standards (which we 

discussed in the final rule at 70 FR 

67568), but we do not claim either in 

this analysis. We assume that 

implementation of the NCPDP SCRIPT 

standards would not significantly affect 

the implementation cost; that is, the cost 

to implement the foundation standards 

and these two standards is not 

significantly higher than the cost of 

implementing the foundation standards 

alone. However, these entities could 

incur some additional costs for the 

purchase of new e-prescribing products 

that include these two transactions in 

the standard format. They would also 

incur the benefits of the two proposed 

standards. We solicit industry and other 

interested stakeholder comment and 

input on these issues. 

We assume that since these standards 

are new and not currently deployed and 

implemented in vendor products, that 

entities do not exist that e-prescribe 

now and who have software that 

conducts these two transactions using 

the NCPDP SCRIPT standards. 

Entities that e-prescribe now using a 

software product that cannot conduct 

the two transactions and cannot be 

upgraded to conduct them (for example, 

stand-alone Microsoft Word-based 

prescription writers) are not required to 

conduct the two new transactions, and 

if they decide not to conduct them, they 

would incur neither cost nor benefit. 

However, if they decide to upgrade their 

entire e-prescribing system to take 

advantage of the benefits of these new 

transactions, they would incur costs. 

However, we have no clear sense of how 

many entities would fall into this 

category. 

Entities that e-prescribe now using a 

product that could be upgraded to 

conduct the two transactions would 

incur no cost or benefit if they decide 

not to upgrade. This would also apply 

to entities that e-prescribe now using a 

product that can conduct the two 

transactions using nonstandard (Non 

NCPDP SCRIPT) formats, but the 

functionality is not used. Based on our 

research, this category likely is the one 

in which most current e-prescribers fall. 

If they decide to upgrade, they would 

incur the cost of the upgrade (unless the 

upgrade is included in their 

maintenance agreement) and any testing 

costs, and would incur the benefits of 

the two transactions. 

Entities that e-prescribe now using a 

product that can conduct the two 

transactions using nonstandard formats, 

and who use the transactions would 

have to upgrade. They would not enjoy 

all the benefits of the two new 

transactions since they would have 

already been performing them in some 

manner, but definitely would incur cost 

savings due to the increased 

interoperability of using the NCPDP 

SCRIPT standards. In fact, any entity 

engaging in e-prescribing would incur 

benefits due to increased 

interoperability, as the existence of 

standards simplifies data exchange 

product selection and testing. We solicit 

industry and other interested 

stakeholder comment and input on 

these issues. 

In the e-prescribing final rule at 70 FR 

67589, we also discussed the estimated 

start-up costs for e-prescribing for 

providers and/or dispensers. Based on 

industry input, we cited approximately 

$3,000 for annual support, maintenance, 

infrastructure and licensing costs. 

Physicians at that time reported paying 

user-based licensing fees ranging from 

$80 to $400 per month. For further 

discussion of the start-up costs 

associated with e-prescribing, see the 

regulatory impact analysis section of 

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3E-Prescribing and the Prescription Drug Program 

final rule, published November 7, 2005 (70 FR 

67568). 

this proposed regulation, and the eprescribing final rule at 70 FR 67589. 

In the November 7, 2005 final rule, we 

addressed the issues of privacy and 

security relative to e-prescribing in 

general. We noted that disclosures of 

protected health information (PHI) in 

connection with e-prescribing 

transactions would have to meet the 

minimum necessary requirements of the 

Privacy Rule if the entity is a covered 

entity (70 FR 6161). It is important to 

note that health plans, prescribers, and 

dispensers are HIPAA covered entities, 

and that these covered entities under 

HIPAA must continue to abide by the 

applicable HIPAA standards including 

these for privacy and security. 

We continue to agree that privacy and 

security are important issues related to 

e-prescribing. Achieving the benefits of 

e-prescribing require the prescriber and 

dispenser to have access to patient 

medical information that may not have 

been previously available to them. 

Section 1860–D(e)(2)(C) of the Act 

requires that disclosure of patient data 

in e-prescribing must, at a minimum, 

comply with HIPAA’s privacy and 

security requirements. 

Although HIPAA standards for 

privacy and security are flexible and 

scalable to each entity’s situation, they 

provide comprehensive protections. We 

will continue to evaluate additional 

standards for consideration as adopted 

e-prescribing standards. For further 

discussion of privacy and security and 

e-prescribing, refer to the final rule at 70 

FR 67581 through 67582. 

1. Retail Pharmacy 

Because e-prescribing is voluntary for 

pharmacies, dispensers who do not 

currently conduct e-prescribing would 

not incur any costs related to any of the 

provisions of this rule. However, we 

recognize that costs would be incurred 

by those dispensers that currently 

conduct e-prescribing transactions, as 

well as those who voluntarily 

implement e-prescribing during the 

period reflected in our regulatory 

impact analysis. Industry estimates are 

that close to 100 percent of the nation’s 

retail chain pharmacies are connected 

live to an e-prescribing network, with 

over 95 percent of those connected to 

networks capable of receiving and 

exchanging formulary and benefit and 

medication history data. This is in 

contrast to only 20 percent of 

independent pharmacies that are 

connected to e-prescribing networks. 

The transaction using the NCPDP 

Formulary and Benefit Standard 1.0 is 

carried out between the plan and 

prescriber and, therefore, pharmacies 

will not incur any cost related to this 

transaction. 

While the NCPDP SCRIPT 8.1 

Medication History transaction supports 

communication between the dispenser 

and prescriber, its use is, nonetheless, 

voluntary for both. We assume for 

purposes of this analysis that the 

Medication History transaction will be 

carried out between the plan and 

prescriber, and therefore preliminarily 

conclude that pharmacies will not incur 

costs related to this transaction. We 

solicit industry and other interested 

stakeholder comment and input on this 

issue. 

The modification of the NCPDP 

SCRIPT 5.0 foundation standard to 

NCPDP SCRIPT 8.1 at § 423.160(b)(1) 

will impact pharmacies. Pharmacies 

will have to assure that their software 

can accept prescription transactions 

using the 8.1 standard, and they will 

need to test with prescribers to assure 

that their electronic transactions are 

being received and can be processed. 

We believe there is little, if any, 

incremental costs associated with these 

activities. Software vendors are already 

implementing version 8.1 in their 

products, and we believe that any 

needed upgrades will be included in 

routine version upgrades. The number 

of current e-prescribers per pharmacy is 

small, and the testing process is not 

complicated. We believe that the 

implementation of the NPI will be 

accomplished as part of this transition. 

Prescribers and dispensers already use 

the NPI to conduct retail pharmacy drug 

claim transactions. 

2. Medical Practices 

Medical practices, compared to 

pharmacies, face a different set of costs 

in implementing information systems 

for clinical care and financial 

management. Unlike pharmacies, where 

technology has become an important 

part of operations (especially for larger 

retail chains), many providers have been 

cautious in their adoption of health 

information technology. We assume 

that, based on industry estimates, 

anywhere from 5 to 18 percent of 

physicians are e-prescribing today3. 

Because e-prescribing is voluntary for 

prescribers, medical practices that do 

not currently conduct e-prescribing 

would not incur any costs related to any 

of the provisions of this rule. However, 

we recognize that costs would be 

incurred by those prescribers currently 

e-prescribing, as well as those who 

voluntarily begin to e-prescribe during 

the period reflected in our regulatory 

impact analysis. If a practice decides to 

implement e-prescribing at a later time, 

we anticipate that the software products 

on the market would be compliant with 

these standards and, therefore, no 

additional cost would be incurred. In 

assessing the cost to prescribers that are 

currently e-prescribing, many of the eprescribing software products generally 

already contain some capability to 

communicate formulary and benefit and 

medication history information because 

they incorporate the RxHub proprietary 

format on which the proposed standards 

were based. We expect that any changes 

that might be necessary as a result of 

this rulemaking would likely be 

included in routine version upgrades 

that are covered by annual maintenance 

and/or subscription fees. We solicit 

industry and other interested 

stakeholder comment and input on this 

issue. For e-prescribers whose software 

products are not able to generate NCPDP 

SCRIPT 8.1 transactions, they will not 

have the capability to conduct the 

proposed NCPDP Formulary and Benefit 

Standard 1.0 and NCPDP SCRIPT 8.1 

medication history transaction. Costs 

would be incurred if they were to 

replace such software with software that 

generates transactions that comply with 

the proposed standards. We anticipate 

that the NCPDP SCRIPT 8.1 will be 

accommodated in later software version 

upgrades where that standard is not 

already utilized. We believe that the 

implementation of the NPI will be 

accomplished as part of this transition. 

Prescribers and dispensers already 

should be using the NPI to conduct 

retail pharmacy drug claim transactions. 

3. Medicare Part D Plan Sponsors and 

Pharmacy Benefit Managers (PBMs) 

Plan sponsors will be required to 

support NCPDP SCRIPT 8.1 for the 

transactions listed at § 423.160(b)(1), the 

NCPDP Formulary and Benefit Standard 

1.0, and the NCPDP SCRIPT 8.1 

Medication History transaction. They 

will need to assure that their software 

can receive and create NCPDP 

Formulary and Benefit Standard 1.0 and 

NCPDP SCRIPT 8.1 Medication History 

transaction queries and responses, and 

that their internal systems and databases 

can supply the information needed to 

build the transaction. For example, they 

will need to be able to extract 

prescription claims history and format it 

according to the Medication History 

transaction in the NCPDP SCRIPT 8.1 

Standard. We believe that many plans 

will have already implemented this 

functionality because the standards we 

are proposing are based on proprietary 

file transfer protocols developed by Rxmstockstill on PROD1PC66 with PROPOSALS2

Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / Proposed Rules 64913 

4RxHub Announces 2006 e-Prescribing Results 

and Highlights Milestones for 2007, St. Paul, MN, 

February 23, 2007, http://www.rxhub.com. 

Hub that have been included in many eprescribing products. Plans may need to 

restructure systems to assure that the 

data output is in the proper format, but, 

for the most part, the needed 

functionality is in place. We recognize that some Medicare Part 

D plans may need to make additional 

investments to support these standards, 

and we solicit industry and other 

interested stakeholder comment and 

input on this issue. Because plans typically pay the per 

transaction network fees for eligibility 

transactions, which likely includes 

providing a formulary and benefit 

response as well as a medication history 

response, Medicare Part D plans will 

incur increased transaction costs for 

formulary and benefit and medication 

history transactions as the frequency in 

which these transactions are conducted 

electronically increases. Through information provided by 

SureScripts and industry consultants, 

this transaction fee appears to range 

from 6 cents to 25 cents per transaction, 

with the midpoint being 15 cents. In 

2006, RxHub, one of the nation’s largest 

electronic prescription and prescriptionrelated information routing networks, 

estimated that their transaction volume 

increased 50 percent, from 29 million in 

2005 to more than 43 million in 2006. 

These transactions were real-time 

requests for patient eligibility and 

benefits, formulary and medication 

history information.4

Based on CMS data we estimate that 

approximately 24 million Medicare 

beneficiaries received Medicare Part D 

benefits in 2006. (This figure excludes 

beneficiaries covered under the Retiree 

Drug Subsidy [RDS] program.) 

Approximately 825,000,000 claims 

(prescription drug events) were 

finalized and accepted for 2006 

payment. Based on CMS data, we estimate that 

approximately 24 million Medicare 

beneficiaries received Medicare Part D 

benefits in 2006. This figure reflects 

those Medicare beneficiaries enrolled in 

a Medicare Prescription Drug Plan (PDP) 

and/or a Medicare Advantage plan with 

Prescription Drug coverage (MA–PD), 

for which CMS has prescription drug 

event data. Approximately 825,000,000 

claims (prescription drug events) were 

finalized and accepted for 2006 

payment. 

The annual percentage increase in the 

number of Medicare Part D 

prescriptions is estimated by CMS at 4.6 

percent based on industry estimates 

(http://www.imshealth.com/ims/portal/ 

front/articleC/ 

0,2777,6599_3665_80415465,00.html). 

So that impact comparisons can be 

made equally across all years, inflation 

was removed from the price effects. 

Conservatively, we calculate the 

increase in the number of Medicare Part 

D prescriptions and apply the current 

estimates of 5 and 18 percent electronic 

prescribing adoption rates to arrive at 

the number of Medicare Part D 

electronic transactions, and cost them 

out at a range of a low of 6 cents per 

transaction to a high of 25 cents per 

transaction. We estimate costs for 

Medicare Part D plans of between $2 

million to $46 million per year. 

TABLE 1.—TRANSACTION COSTS FOR MEDICARE PART D PLANS

Year 2009 2010 2011 2012 2013 

Number of Medicare Rxs ..................... 862,950,000 902,645,700 944,167,402 987,599,102 1,033,028,660 

Expected % of e-prescriptions ............. 5% 18% 5% 18% 5% 18% 5% 18% 5% 18% 

E-Rx Transaction Cost at $0.06 ........... $2,588,850 $9,319,860 $2,707,937 $9,748,573 $2,832,502 $10,197,997 $2,962,797 $10,666,070 $3,099,085 $11,156,709 

E-Rx Transaction Cost at $0.25 ........... $10,786,875 $38,832,750 $11,283,071 $40,619,056 $11,802,092 $42,487,533 $12,344,498 $44,441,959 $12,912,858 $46,486,289 

Medicare Part D plan sponsors may 

negotiate the cost of e-prescribing 

transactions as part of the dispensing 

fees included in their pharmacy 

contracts, and account for these costs in 

their annual bids to participate in the 

Medicare Part D program. In these 

instances, inclusion of these costs may 

increase the cost of their Medicare Part 

D bids. However, we anticipate that 

these costs would be negated by the 

savings from an increased rate of 

conversion from brand name to generic 

prescriptions realized through 

utilization of the formulary and benefit 

transaction, which would more than 

offset the transaction costs, and solicit 

comments on this assumption. 

Medicare Part D plan sponsors will 

not be affected by the proposals to 

modify the NCPDP SCRIPT 5.0 

foundation standard to adopt NCPDP 

SCRIPT 8.1 for the transactions listed at 

42 CFR 423.160(b)(1) because these 

transactions are conducted between 

prescribers and dispensers, and plans 

are not involved. 

Medicare Part D plan sponsors will 

not be significantly affected by the 

proposal to adopt the NPI as a standard 

for use in e-prescribing transactions 

among the plan sponsor, prescriber, and 

the dispenser because the plans already 

use the NPI in HIPAA transactions, such 

as the retail pharmacy drug claim. 

4. Vendors 

Vendors of e-prescribing software will 

incur costs to bring their products into 

compliance with these requirements. 

However, we consider the need to 

enhance functionality and comply with 

industry standards to be a normal cost 

of doing business that will be subsumed 

into normal version upgrade activities. 

Vendors may incur somewhat higher 

costs connected with testing activities 

but vendors should be able to address 

this potential workload on a flow basis. 

We believe these costs to be minimal, 

and solicit industry and other interested 

stakeholder comment and input on this 

issue. 

C. Benefits 

The benefits of the proposed adoption 

of standards for formulary and benefits 

and medication history transactions take 

place over a multi-year timeframe. The 

benefits come in the form of beneficiary 

cost savings realized by increases in 

formulary adherence and/or generic 

versus brand name prescribing by 

physicians as a result of real-time access 

to formulary and benefits information, 

administrative (time and labor cost) 

savings through reduced call-backs on 

the part of both physicians and 

pharmacists, and a reduction of the 

occurrence of preventable adverse drug 

events (ADEs) among Medicare 

beneficiaries, reducing resultant health 

care costs. 

1. Formulary and Benefit Standard—

Generic Drug Usage 

We assume that, based on industry 

estimates, approximately 5 percent to 18 

percent of group practices are eprescribing today, and use that range for 

our assumptions. The formulary and 

benefit transaction will allow the 

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64914 Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / Proposed Rules 

5http://www.nacds.org/ 

wmspage.cfm?parm1=5507. National Association of 

Chain Drug Stores data. 

6 2006 CMS Statistics, U.S. Department of Health 

and Human Services CMS Pub. No. 03470, July 

2006, Table 22. 

7Findings from the Evaluation of E-Prescribing 

Pilot Sites, http://www.healthit.ahrg.gov. 

prescriber to view formulary drugs, 

alternative preferred drugs in a given 

class that may offer savings to the 

patient, and/or to see in advance what 

other less costly drugs within a given 

drug classification and/or generic drugs 

can be substituted for a given brand 

name prescription drug. This can result 

in reducing calls to the plan, and/or 

reducing the number of callbacks from 

a pharmacy because a prescribed drug is 

not on a beneficiary’s drug plan 

formulary. 

In 2006, 60 percent of Medicare Part 

D prescriptions in the first two quarters 

of the program were for generic drugs, 

and the remaining 40 percent were 

brand name prescription drugs. During 

a Medco study of physicians using eprescribing technology (http:// 

medco.mediaroom.com/ 

index.php?s=43&item=100), physicians 

increased their generic substitution rates 

by over 15 percent. However, we 

recognize that not all beneficiaries will 

accept generic prescription drugs and 

there are some instances, especially 

when prescribing for mental health 

conditions, in which the brand name 

prescription drug has proven through 

physician experience to be the more 

effective drug, and therefore the drug of 

choice. Therefore, we apply a more 

conservative 7 percent annual increase 

in generic prescriptions. 

We again apply the previously used 5 

and 18 percent e-prescribing estimate 

range. Based on industry data, we 

assume the cost of a brand name 

prescription drug at $111.02 and the 

cost of a generic drug at $32.23.5

While Medicare beneficiaries will be 

the most direct recipients of the benefit 

realized by the conversion of brand 

name to generic prescription drugs, the 

Medicare program will benefit as well. 

The Medicare program will save money 

as it will be paying for an increased 

number of lower-cost generic 

prescriptions versus higher-cost, brandname prescription drugs, as outlined in 

Table 2, and we solicit comments on 

both beneficiary and Medicare program 

savings assumption. We calculate a cost 

savings of $95 million to $410 million. 

TABLE 2.—SAVINGS FROM SWITCH FROM BRAND NAME TO GENERIC DRUGS VIA FORMULARY & BENEFIT TRANSACTION

INFORMATION

Year 2009 2010 2011 2012 2013 

Number of Medicare Rxs 862,950,000 902,645,700 944,167,402 987,599,103 1,033,028,661 

Number of Medicare 

Rxs—BRAND Only ....... 345,180,000 361,058,280 377,666,961 395,039,641 413,211,465 

Expected % of E-Prescriptions ............................... 5% 18% 5% 18% 5% 18% 5% 18% 5% 18% 

Number of Medicare EPrescriptions ................. 17,259,000 62,132,400 18,052,914 64,990,490 18,883,348 67,980,053 19,751,982 71,107,135 20,660,573 74,378,064 

Brand to Generic Rx Conversions as a Result of 

E-Prescribing ................. 1,208,130 4,349,268 1,263,704 4,549,334 1,321,834 4,758,604 1,382,639 4,977,499 1,446,240 5,206,464 

Avg. Cost of Brand Name 

Drug × Total Elec. Generic Medicare Rxs ....... $134,126,593 $482,855,733 $140,296,416 $505,067,097 $146,750,051 $528,300,184 $153,500,553 $552,601,992 $160,561,579 $578,021,684 

Avg. Cost of Generic Drug 

× Total Elec. Generic 

Medicare Rxs ................ $38,938,030 $140,176,908 $40,729,179 $146,625,045 $42,602,722 $153,369,797 $44,562,447 $160,424,808 $46,612,319 $167,804,349 

Estimated Net Cost 

Savings (Reduction 

in Brand Drug Rx 

Payments) .............. $95,188,563 $342,678,826 $99,567,237 $358,442,052 $104,147,329 $374,930,386 $108,938,107 $392,177,184 $113,949,260 $410,217,334 

2. Formulary and Benefit Standard—

Administrative Savings 

a. Physician and Physician Office Staff 

The 2004 Medical Group Management 

Association (MGMA) survey entitled, 

‘‘Analyzing the Cost of Administrative 

Complexity’’ (http://www.mgma.com/ 

about/default.aspx?id=280) estimated 

the staff and physician time spent, on a 

per physician full time equivalent (FTE) 

basis, interacting with pharmacies on 

formulary questions and generic 

substitutions. Physician time on the 

phone discussing formulary issues was 

estimated at almost 16 hours a year; 

another 14 hours were spent per 

physician per year on generic 

substitution issues. Staff spent almost 

26 hours per FTE physician on 

formulary issues, and another 24 hours 

per FTE physician on generic 

substitution issues. 

Table 3 shows the administrative 

savings benefit to physicians and 

physician office staffs of performing 

formulary and benefit transactions 

electronically. CMS estimates the 

number of physicians in active practice 

who participated in the Medicare 

program in 2006 at 1,048,243.6 Based on 

the same CMS data from 2003 through 

2006, it indicates a percentage rise in 

the number of physicians participating 

in the Medicare program of .94 percent 

per year, so we have applied that 

percentage increase to arrive at an 

estimated number of Medicare 

physicians for 2009 through 2013. We 

also apply the previous assumption that 

from 5 to 18 percent of prescribers are 

e-prescribing today. Per the MGMA 

survey, we assume a physician labor 

cost of $100 per hour and an average 

staff labor cost of $22 per hour per 

physician FTE. 

Pilot site experience shows that, 

among prescribers or their agents who 

adopted e-prescribing, obtaining prior 

approvals, responding to refill requests, 

and resolving pharmacy callbacks were 

all done more efficiently with eprescribing than before. Both groups 

perceived a greater than 50 percent 

reduction in time to manage refill 

requests and significant time savings in 

managing pharmacy call backs.7

However, we are realistic in our 

assumption that full implementation 

would be difficult to achieve, and use 

an estimate of 25 percent. Our model 

calculates that physicians and staff 

would realize savings ranging from $55 

million to $206 million at a 25 percent 

implementation rate. 

mstockstill on PROD1PC66 with PROPOSALS2

Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / Proposed Rules 64915 

8Field TS, Gilman BH, Subramanian S, Fuller JC, 

Bates DW, Gurwitz JH. 2005. The costs associated 

with adverse drug events among older adults in the 

ambulatory setting. Medical Care 43(12):1171.1176. 

9Field TS, Gilman BH, Subramanian S, Fuller JC, 

Bates DW, Gurwitz JH. 2005. The costs associated 

with adverse drug events among older adults in the 

ambulatory setting. Medical Care 43(12):1171.1176. 

10 Institute of Medicine of the National 

Academies. Preventing Medication Errors. July, 

2006. Field TS, Gilman BH, Subramanian S, Fuller 

JC, Bates DW, Gurwitz JH. 2005. The costs 

associated with adverse drug events among older 

adults in the ambulatory setting. Medical Care 

43(12):1171.1176. 

11 2006 CMS Statistics, U.S. Department of Health 

and Human Services CMS Pub. No. 03470, July 

2006, Table 1. 

12Findings from the Evaluation of E-Prescribing 

Pilot Sites, http://www.healthit.ahrq.gov. 

TABLE 3.—ADMINISTRATIVE SAVINGS FOR PHYSICIANS AND MEDICAL OFFICE STAFF

Year 2009 2010 2011 2012 2013 

# of Medicare Physicians ..................... 1,078,081 1,078,081 1,088,215 1,088,215 1,098,444 1,098,444 1,108,769 1,108,769 1,119,191 1,119,191 

Expected % of e-rx prescribers ............ 5% 18% 5% 18% 5% 18% 5% 18% 5% 18% 

Estimated # of Medicare physicians eprescribing ......................................... 53,904 194,055 54,411 195,879 54,922 197,720 55,438 199,578 55,960 201,454 

Total MD hrs spent on formulary and 

generic substitution pharmacy calls 

(30 hrs) × labor cost ($100/hr) .......... $161,712,150 $582,163,740 $163,232,250 $587,636,100 $164,766,600 $593,159,760 $166,315,350 $598,735,260 $167,878,650 $604,363,140 

Total staff hrs spent on formulary and 

generic substitution pharmacy calls 

(50 hrs) × labor cost ($22/hr) ............ $59,294,455 $213,460,038 $59,851,825 $215,466,570 $60,414,420 $217,491,912 $60,982,295 $219,536,262 $61,555,505 $221,599,818 

Total Labor Costs .......................... $221,006,605 $795,623,778 $223,084,075 $803,102,670 $225,181,020 $810,651,672 $227,297,645 $818,271,522 $229,434,155 $825,962,958 

Total Anticipated Labor Savings (25%) .......................... $55,251,651 $198,905,945 $55,771,019 $200,775,668 $56,295,255 $202,662,918 $56,824,411 $204,567,881 $57,358,539 $206,490,740 

b. Pharmacists 

In Table 4, we draw a correlation from 

the potential administrative savings 

realized by physicians and staff for 

pharmacists. If each physician and their 

office staff save a total of 80 hours a year 

by using the formulary and benefit 

transaction and reducing the time spent 

on the phone with pharmacists, we 

assume that pharmacists are saving the 

equivalent amount of time by not 

making these calls. Since the MGMA 

survey assumes a pharmacist labor rate 

of $60 per hour, our model predicts that, 

at an annualized cost savings, 

pharmacists would realize an 

annualized cost benefit savings ranging 

from a low of $65 million to a high of 

$242 million at 25 percent 

implementation. 

TABLE 4.—ADMINISTRATIVE SAVINGS FOR PHARMACISTS

Year 2009 2010 2011 2012 2013 

# of Medicare Physicians ..................... 1,078,081 1,078,081 1,088,215 1,088,215 1,098,444 1,098,444 1,108,769 1,108,769 1,119,191 1,119,191 

Expected % of e-prescribers ................ 5% 18% 5% 18% 5% 18% 5% 18% 5% 18% 

Estimated # of Medicare physicians eprescribing ......................................... 53,904 194,055 54,411 195,879 54,922 197,720 55,438 199,578 55,960 201,454 

Total MD and staff hrs spent on formulary and generic substitution 

pharmacy calls (80 hrs) × pharmacist labor cost ($60/hr) ................. $258,739,440 $931,461,984 $261,171,591 $940,217,760 $263,626,613 $949,055,616 $266,104,650 $957,976,416 $268,605,943 $966,981,024 

Total Anticipated Labor Savings 

(25%) ......................................... $64,684,860 $232,865,496 $65,292,898 $235,054,440 $65,906,653 $237,263,904 $66,526,162 $239,494,104 $67,151,486 $241,745,256 

3. Medication History Standard—

Reduction of Adverse Drug Events 

(ADEs) 

Automating the transmission of 

medication history information will 

simplify medication reconciliation 

through transitions in care and, in so 

doing, provide a safer and more 

effective health care system. Consumers 

will benefit from a safer medication 

delivery system, and greater 

convenience. 

Although outpatient ADEs are 

difficult to estimate, current literature 

estimates that, as of 2005, there were 

530,000 preventable ADEs for Medicare 

beneficiaries.8 Moreover, the estimated 

cost per ADE ranges from $2,000 9 to 

upwards of $6,000 10 depending on the 

care setting. We chose to compute the 

benefits of medication history based on 

ADEs as a percentage of the total 

Medicare population. Based on CMS 

data from 1999 through 2006, the total 

Medicare population increased on 

average 1.13 percent per year.11 We 

calculated that of the total Medicare 

population, ADEs occur in about 1.24 

percent of that population each year. 

Brigham and Women’s Hospital 

discovered in their analysis of ADEs, 

conducted as part of the CMS eprescribing pilot project, that eprescribing could reduce the risk of 

ADEs by approximately 50 percent.12 As 

medication history is a transaction that 

most directly impacts ADEs (versus 

formulary and benefit, codified SIG, 

etc.), we assume that the reduction in 

the risk of ADEs can be attributed 

mostly to the use of medication history 

rather than to e-prescribing in general. 

The pilot project demonstrated that 50 

percent of preventable ADEs could be 

eliminated via e-prescribing, and 

possibly more as prescriber familiarity 

with the medication history function 

and full clinical decision support tools 

become available in all e-prescribing 

software. We also recognize that the 

Brigham and Women’s Hospital ADE 

analysis brings with it a degree of 

uncertainty, as it was a by-product of 

the pilot project itself, and may not 

accurately represent the experiences of 

all entities (that is, small rural settings). 

Given that, we conservatively assume 

that the number of ambulatory ADEs 

associated with Medicare Part D 

beneficiaries could be reduced by 25 

percent for the proportion of patients for 

whom prescriptions are written 

electronically; we use the same uptake 

e-prescribing estimates (5 to 18 percent) 

as earlier for e-prescribing adoption. 

Table 5 summarizes potential savings to 

the public based on these assumptions. 

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64916 Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / Proposed Rules 

TABLE 5.—POTENTIAL SAVINGS TO PUBLIC DUE TO REDUCTION IN PREVENTABLE ADVERSE DRUG EVENTS (ADES) 

Year 2009 2010 2011 2012 2013 

Total Medicare Population Estimates ... 44,577,662 44,577,662 45,081,390 45,081,390 45,590,809 45,590,809 46,105,985 46,105,985 46,626,983 46,626,983 

Potential Avoidable ADEs via E-Rx ..... 552,763 552,763 559,009 559,009 565,326 565,326 571,714 571,714 578,175 578,175 

% of E-Rx Adoption .............................. 5% 18% 5% 18% 5% 18% 5% 18% 5% 18% 

Avoided ADEs ...................................... 27,638 99,497 27,950 100,622 28,266 101,759 28,586 102,909 28,909 104,071 

Avoided ADEs Estimate (×25%) .......... 6,910 24,874 6,988 25,155 7,067 25,440 7,146 25,727 7,227 26,018 

Cost Avoided Estimate (25%×$2k) ...... $13,819,075 $49,748,671 $13,975,231 $50,310,831 $14,133,151 $50,879,343 $14,292,855 $51,454,280 $14,454,365 $52,035,713 

Cost Avoided Estimate (25%×$6k) ...... $41,457,226 $149,246,012 $41,925,692 $150,932,492 $42,399,453 $152,638,029 $42,878,566 $154,362,839 $43,363,094 $156,107,139 

Table 5 shows that the introduction of 

e-prescribing can potentially realize a 

cost savings of $13 million to $156 

million from avoided ADEs. We solicit 

industry and other interested 

stakeholder comment and input on this 

issue. Besides lower rates of ADEs, the 

public will also realize other benefits 

related to the medication history 

function of e-prescribing. Through 

improved collaboration and 

communication between physicians and 

plans, patients will be more likely to 

have greater access to information 

which will encourage them to become 

more involved in their own treatment, 

which studies show decreases the 

probability of experiencing an ADErelated error.8

C. Total Impact 

This analysis has focused on the costs 

and benefits of two new e-prescribing 

standards, and the adoption of NCPDP 

SCRIPT 8.1 in place of version 5.0. We 

conclude that the cost of implementing 

these proposals is minimal, with 

quantifiable benefits reaped by 

pharmacies, providers, and 

beneficiaries. Over time, we expect that 

these groups will see average benefits in 

a range from $218.0 million to $863.9 

million from the utilization of formulary 

and benefit and medication history 

transactions and the promulgation of 

these standards (Table 6). 

D. Alternatives Considered 

In developing this proposed rule, we 

considered a range of alternatives. 

While required by statute to issue a 

regulation, we were not required to 

issue standards for specific functionality 

if appropriate standards were not 

available. 

We considered not issuing an 

additional rule, and allowing the 

foundation standards to become the 

complete set. Since we had successful 

results from the pilot project, and the 

value added by the proposed additional 

standards is substantial, we chose to 

proceed. Given the existing foundation 

standards, our failure to proceed would 

not have averted many costs, but the 

lack of a medication history standard, 

for example, would have limited 

benefits, particularly for consumers. 

We considered proposing the prior 

authorization and RxNorm standards for 

adoption, and elected not to do so. In 

both cases, the decision was based on 

the results of the pilot project. We 

expect that both standards, in their 

current forms and given the current 

state of the industry, would impose 

substantial additional costs while 

delivering marginal additional benefits. 

In the case of prior authorization, much 

of the additional cost is likely to be on 

the health plan side. We expect that 

software vendors will explore adding 

this functionality to provider-based 

systems and that health plans will adopt 

it as doing so becomes feasible. 

In the case of the RxFill standard, we 

did not get a clear indication from the 

pilot project as to its added value. 

We considered not proposing 

adoption of the NPI as a standard for 

Medicare Part D e-prescribing 

transactions, but, given the need for an 

identifier in e-prescribing transactions 

and the fact that large portions of the 

health care industry are required to use 

NPI as a HIPAA standard, we felt that 

adoption at this time was feasible and 

desirable. 

TABLE 6.—COST/BENEFITS FOR THE ADOPTION OF STANDARDS FOR MEDICATION HISTORY AND FORMULARY AND

BENEFITS, 2009–2013 

[$ Millions] 

2009 2010 2011 2012 2013 Total 

BENEFITS: 

Expected % of E-Prescribing Adoption 5% 18% 5% 18% 5% 18% 5% 18% 5% 18% 5% 18% 

Generic versus Brand Name Drugs ...... $95.1 $342.6 $99.5 $358.4 $104.1 $374.9 $108.9 $392.1 $113.9 $410.2 $521.5 $1,878.2 

Administrative—Physician/Office Staff .. $55.2 $198.9 $55.7 $200.7 $56.2 $202.6 $56.8 $204.5 $57.3 $206.4 $281.2 $1,013.1 

Administrative—Pharmacies .................. $64.6 $232.8 $65.2 $235.0 $65.9 $237.2 $66.5 $239.4 $67.1 $241.7 $329.3 $1,186.1 

Reduction in ADEs ................................ $13.8 $49.7 $13.9 $50.3 $14.1 $50.8 $14.2 $51.4 $14.4 $52.0 $70.4 $254.2 

Total Benefits ......................................... $228.7 $824.0 $234.3 $844.4 $240.3 $865.5 $246.4 $887.4 $252.7 $910.3 $1,202.4 $4,331.6 

*COSTS: 

Transaction Costs .................................. $10.7 $38.8 $11.2 $40.6 $11.8 $42.4 $12.3 $44.4 $12.9 $46.4 $58.9 $212.6 

NET BENEFITS ............................................ $218.0 $785.2 $223.1 $803.8 $228.5 $823.1 $234.1 $843.0 $239.8 $863.9 $1,143.5 $4,119.0 

* These costs reflect only transaction costs as outlined in Table 1, and do not take into account the potential costs of systems and/or software upgrades, etc., for which stakeholder/industry information and input is being solicited. 

E. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 7 below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this proposed rule. This 

table provides our best estimate of the 

costs and benefits associated with the 

adoption of the two new e-prescribing 

standards, and the adoption of NCPDP 

SCRIPT 8.1 in place of version 5.0. Costs 

will be incurred by plans/PBMs paying 

transaction charges to networks. Generic 

versus brand name drug benefits will 

accrue from physicians to beneficiaries; 

administrative savings to physicians, 

physician offices and pharmacists; from 

pharmacists to physicians and 

physician offices; and from physicians 

to beneficiaries in the reduction in the 

number of ADEs. 

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Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / Proposed Rules 64917 

TABLE 7.—ACCOUNTING STATEMENT: ANNUALIZED MONETIZED TRANSACTION COSTS AND BENEFITS

[$ Millions/year] 

5% 

Expected 

annual E-Rx 

adoption rate 

18% 

Expected 

annual E-RX 

adoption rate 

COSTS: 

Transaction costs ..................................................................................................................................... $58.9 $212.6 

Annualized monetized costs: 

7% Discount rate ...................................................................................................................................... 11.7 42.2 

3% Discount rate ...................................................................................................................................... 11.7 42.3 

0% Discount rate ...................................................................................................................................... 11.8 42.5 

Paid by plans/PBMs to networks. 

BENEFITS: 

Generic versus brand name drugs, administrative for physicians and pharmacists, reduction in ADEs 1,202.4 4,331.6 

Annualized monetized benefits: 

7% Discount rate ...................................................................................................................................... 239.6 862.9 

3% Discount rate ...................................................................................................................................... 240.1 864.8 

0% Discount rate ...................................................................................................................................... 240.4 866.3 

Generated physicians to pharmacists, pharmacists to physicians, and physicians to beneficiaries. 

NET BENEFIT ................................................................................................................................... 1,143.5 4,119.0 

List of Subjects in 42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Health 

professions, Incorporation by reference, 

Medicare, Penalties, Privacy, Reporting 

and recordkeeping requirements. 

For the reasons set forth in the 

preamble in this proposed regulation, 

the Centers for Medicare & Medicaid 

Services proposes to amend 42 CFR part 

423 as follows: 

PART 423—VOLUNTARY MEDICARE 

PRESCRIPTION DRUG BENEFIT 

1. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

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

1395W–152, and 1395hh). 

2. Section 423.160 is amended by—

A. Revising paragraph (b)(1). 

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

(b)(4), and (b)(5). 

C. Revising paragraph (c). 

The revisions and additions read as 

follows: 

§ 423.160 Standards for electronic 

prescribing. 

* * * * * 

(b) Standards—(1) Prescription. The 

National Council for the Prescription 

Drug Programs Prescriber/Pharmacist 

Interface SCRIPT Standard, 

Implementation Guide Version 8, 

Release 1 (Version 8.1), October 2005 to 

provide for the communication of a 

prescription or prescription-related 

information between prescribers and 

dispensers, for the following: 

(i) Get message transaction. 

(ii) Status response transaction. 

(iii) Error response transaction. 

(iv) New prescription transaction. 

(v) Prescription change request 

transaction. 

(vi) Prescription change response 

transaction. 

(vii) Refill prescription request 

transaction. 

(viii) Refill prescription response 

transaction. 

(ix) Verification transaction. 

(x) Password change transaction. 

(xi) Cancel prescription request 

transaction. 

(xii) Cancel prescription response 

transaction. 

* * * * * 

(3) Medication history. The National 

Council for Prescription Drug Programs 

(NCPDP) Prescriber/Pharmacist 

Interface SCRIPT Standard, 

Implementation Guide, Version 8, 

Release 1 (Version 8.1), October 2005 to 

provide for the communication of 

Medicare Part D medication history 

information among Medicare Part D 

sponsors, prescribers, and dispensers. 

(4) Formulary and benefits. The 

National Council for Prescription Drug 

Programs (NCPDP) Formulary and 

Benefits Standard, Implementation 

Guide, Version 1, Release 0 (Version 

1.0), October 2005 for transmitting 

formulary and benefit information 

between prescribers and Medicare Part 

D sponsors. 

(5) Provider identifier. The National 

Provider Identifier (NPI), as defined at 

45 CFR 162.406, to identify a health care 

provider in Medicare Part D eprescribing or prescription-related 

transactions conducted among Medicare 

Part D plan sponsors, prescribers, and 

dispensers when a health care 

provider’s identifier is required. 

(c) Incorporation by reference. The 

Director of the Federal Register 

approves, in accordance with 5 U.S.C. 

552(a) and 1 CFR part 51, the 

incorporation by reference of certain 

publications into this section. You may 

inspect copies of these publications at 

the headquarters of the Centers for 

Medicare & Medicaid Services (CMS), 

7500 Security Boulevard, Baltimore, 

Maryland 21244, Monday through 

Friday from 8:30 a.m. to 4 p.m. or at the 

National Archives and Records 

Administration (NARA). For more 

information on the availability of this 

material at NARA, call 202–741–6030, 

or go to http://www.archives.gov/ 

federal_register/code_of_federal_ 

regulations/ibr_locations.html. 

The publications approved for 

incorporation by reference and their 

original sources are as follows: 

(1) National Council for Prescription 

Drug Programs, Incorporated, 9240 E. 

Raintree Drive, Scottsdale, AZ 85260–

7518; Telephone (480) 477–1000; and 

FAX (480) 767–1042 or http:// 

www.ncpdp.org. 

(i) National Council for Prescription 

Drug Programs Prescriber/Pharmacist 

Interface SCRIPT Standard, 

Implementation Guide, Version 8, 

Release 1, October 2005, excluding the 

Prescription Fill Status Notification 

Transactions (and its three business 

cases; Prescription Fill Status 

Notification Transaction—Filled, 

Prescription Fill Status Notification 

Transaction—Not Filled, and 

Prescription Fill Status Notification 

Transaction—Partial Fill). 

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64918 Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / Proposed Rules 

(ii) The National Council for 

Prescription Drug Programs Formulary 

and Benefits Standard, Implementation 

Guide, Version 1, Release 0, October 

2005. 

(iii) National Council for Prescription 

Drug Programs Telecommunication 

Standard Specification, Version 5, 

Release 1 (Version 5.1), September 1999 

and equivalent National Council for the 

Prescription Drug Program (NCPDP) 

Batch Standard Batch Implementation 

Guide, Version 1, Release 1 (Version 

1.1), January 2000 supporting 

Telecommunications Standard 

Implementation Guide, Version 5, 

Release 1 (Version 5.1) for the NCPDP 

Data Record in the Detail Data Record. 

(2) Accredited Standards Committee, 

7600 Leesburg Pike, Suite 430, Falls 

Church, VA 22043; Telephone (301) 

970–4488; and fax: (703) 970–4488 or 

http://www.x12.org. 

(i) Accredited Standards Committee 

(ASC) X12N 270/271–Health Care 

Eligibility Benefit Inquiry and Response, 

Version 4010, May 2000, Washington 

Publishing Company, 004010X092 and 

Addenda to Health Care Eligibility 

Benefit Inquiry and Response, Version 

4010A1, October 2002, Washington 

Publishing Company, 004010X092A1. 

(ii) [Reserved]. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: July 19, 2007. 

Leslie V. Norwalk, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: September 20, 2007. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. 07–5681 Filed 11–13–07; 10:00 am] 

BILLING CODE 4120–01–P 

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