Friday,

February 4, 2005

Part V

Department of 

Health and Human 

Services

Centers for Medicare & Medicaid Services 

42 CFR Part 423

Medicare Program; E-Prescribing and the 

Prescription Drug Program; Proposed 

Rule

6256 Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 423 

[CMS–0011–P] 

RIN 0938–AN49 

Medicare Program; E-Prescribing and 

the Prescription Drug Program

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

SUMMARY: This rule proposes to adopt 

standards for an electronic prescription 

drug program under Title I of the 

Medicare Prescription Drug, 

Improvement and Modernization Act of 

2003 (MMA). These proposed standards 

would be the foundation standards or 

the first set of final uniform standards 

for an electronic prescription drug 

program under the MMA, and represent 

the first step in our incremental 

approach to adopting final uniform 

standards that are consistent with the 

MMA objectives of patient safety, 

quality of care, and efficiencies and cost 

savings 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 April 5, 2005.

ADDRESSES: In commenting, please refer 

to file code CMS–0011–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

three ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments to http://

www.cms.hhs.gov/regulations/

ecomments (attachments should be in 

Microsoft Word, WordPerfect, or Excel; 

however, we prefer Microsoft Word). 

2. By 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–0011–P, PO 

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 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 (800) 743–

3951 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 

HHH 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:

Gladys Wheeler, (410) 786–0273.

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–0011–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.access.gpo.gov/fr/index.html.

I. Background 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘BACKGROUND’’ at the beginning of 

your comments.] 

A. Statutory Basis 

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 

the Voluntary Prescription Drug Benefit 

Program. Included in the provisions at 

section 1860D–4(e) of the Act is the 

requirement that prescriptions and 

certain other information for covered 

Part D drugs prescribed for Part D 

eligible individuals that are transmitted 

electronically comply with final 

uniform standards adopted by the 

Secretary under an electronic 

prescription drug program. 

On January 28, 2005, we published 

the Medicare Prescription Drug Benefit 

final rule that establishes the 

Prescription Drug Benefit Program and 

cost control and quality improvement 

requirements for prescription drug 

benefit plans. One of the provisions in 

that final rule requires Prescription Drug 

Plan (PDP) sponsors, Medicare 

Advantage (MA) Organizations offering 

Medicare Advantage-Prescription Drug 

(MA–PD) plans, and other Part D 

sponsors to support and comply with 

electronic prescribing standards once 

Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 6257

final standards are in effect, including 

any standards that are in effect before 

the drug benefit begins in 2006. 

Although there is no requirement that 

providers write prescriptions 

electronically, in the Medicare 

Prescription Drug Benefit final rule, we 

stated that Part D sponsors that 

participate in the Part D program are 

required to support and comply with 

electronic prescribing. Providers that 

prescribe or dispense Part D drugs 

would be required to comply with the 

final standards only when prescription 

information or certain other related 

information is electronically transmitted 

once the final standards for those 

transactions are effective, which we 

anticipate will be in 2006, for this first 

set of final standards. 

Section 1860D–4(e) of the Act 

specifies that initial standards, which 

are to be used in a pilot project that is 

to be conducted in calendar year 2006, 

must be adopted not later than 

September 1, 2005. This section of the 

Act also provides, however, that pilot 

testing is not required for those 

standards for which the Secretary, after 

consultation with affected standard 

setting organizations and industry users, 

determines there is ‘‘adequate industry 

experience.’’ Subsequent to the pilot 

project, the Secretary must promulgate 

final uniform standards not later than 

April 1, 2008. Those final uniform 

standards must become effective not 

later than 1 year after the date of 

promulgation of those final uniform 

standards. In addition, the Secretary is 

required to provide a report to the 

Congress by April 1, 2007 on his 

evaluation of the pilot project. 

In the context of the Health Insurance 

Portability and Accountability Act of 

1996 (HIPAA) transactions and code 

sets (TCS) requirements, a covered 

entity that conducts a covered 

transaction using electronic media must 

comply with the applicable transaction 

standard. Electronic media is defined 

under HIPAA to include both electronic 

storage media and transmission media, 

including the ‘‘internet (wide-open), 

extranet (using internet technology to 

link a business with information 

accessible only to collaborating parties), 

leased lines, dial-up lines, private 

networks, and the physical movement of 

removable/transportable electronic 

storage media.’’ (45 CFR 160.103). 

However, given the development of new 

technologies, we invite public comment 

on applying this definition to determine 

when prescribers and dispensers are 

electronically transmitting prescription 

and certain other information, and 

therefore, should be required to comply 

with the e-prescribing standards.

Section 1860D–4(e)(1) of the Act 

states that the final e-prescribing 

standards will govern ‘‘prescriptions 

and other information described in 

paragraph (2)(A) for covered part D 

drugs prescribed for part D eligible 

individuals that are transmitted 

electronically. * * *’’ We believe the 

best reading of this language, as well of 

the intent of the Congress, is that the eprescribing standards apply only to 

information regarding Part D eligible 

individuals enrolled in Part D plans—

that is, enrollees of prescription drug 

plans (PDPs) (including employersponsored PDPs); fallback PDPs; 

Medicare Advantage Prescription Drug 

plans (MA-PD plans); and private fee for 

service plans, Medicare cost 

reimbursement plans, or PACE 

programs receiving Part D 

reimbursement. We believe this 

interpretation realizes the intent of the 

Congress, which in the Conference 

Report for the MMA, stated that eprescribing standards are standards that 

apply to information, transmitted 

‘‘under an electronic prescription drug 

program conducted by a PDP or MA 

plan.’’ (H.R. Conf. Rep. 108–391, 108th 

Cong., 1st Sess. at 455 (2003)) This 

statement contemplates that the eprescribing standards would apply 

solely to information regarding Part D 

enrolled individuals, not simply to 

information regarding Part D eligible 

individuals who are not enrolled in a 

Part D plan. We have attempted to 

clarify the scope of these standards in 

the proposed definition of ‘‘electronic 

prescription drug program’’ in proposed 

§ 423.159, and the ‘‘General Rules’’ in 

proposed § 423.160. 

The requirements of the statute are as 

follows:

‘‘(2) Program Requirements.—Consistent 

with uniform standards established under 

paragraph (3)—

‘‘(A) Provision of Information to 

Prescribing Health Care Professional and 

Dispensing Pharmacies and Pharmacists.—

An electronic prescription drug program 

shall provide for the electronic transmittal to 

the prescribing health care professional and 

to the dispensing pharmacy and pharmacist 

of the prescription and information on 

eligibility and benefits (including the drugs 

included in the applicable formulary, any 

tiered formulary structure, and any 

requirements for prior authorization) and of 

the following information with respect to the 

prescribing and dispensing of a covered Part 

D drug: 

‘‘(i) Information on the drug being 

prescribed or dispensed and other drugs 

listed on the medication history, including 

information on drug-drug interactions, 

warnings or cautions, and, when indicated, 

dosage adjustments. 

‘‘(ii) Information on the availability of 

lower cost, therapeutically appropriate 

alternatives (if any) for the drug prescribed. 

‘‘(B) Application to Medical History 

Information.—Effective on and after such 

date as the Secretary specifies and after the 

establishment of appropriate standards to 

carry out this subparagraph, the program 

shall provide for the electronic transmittal in 

a manner similar to the manner under 

subparagraph (A) of information that relates 

to the medical history concerning the 

individual and related to a covered Part D 

drug being prescribed or dispensed, upon 

request of the professional or pharmacist 

involved. 

‘‘(C) Limitations.—Information shall only 

be disclosed under subparagraph (A) or (B) 

if the disclosure of such information is 

permitted under the Federal regulations 

(concerning the privacy of individually 

identifiable health information) promulgated 

under section 264(c) of the Health Insurance 

Portability and Accountability Act of 1996. 

‘‘(D) Timing.—To the extent feasible, the 

information exchanged under this paragraph 

shall be on an interactive, real-time basis.

Section 1860D–4(e)(4)(B) of the Act 

also requires the National Committee on 

Vital and Health Statistics (NCVHS) to 

develop recommendations for 

standards, in consultation with specific 

groups of organizations and entities. 

Section 1860D–4(e)(4)(A) of the Act 

requires the Secretary to take these 

recommendations into consideration 

when developing, adopting, 

recognizing, or modifying initial 

uniform standards according to the 

schedule set forth above. The NCVHS 

process for developing and providing 

recommendations to the Secretary is 

detailed below at section B of this 

proposed rule. 

In order to provide for efficient 

implementation of the requirements, 

section 1860D–4(e)(4)(C) of the Act 

requires the Secretary to conduct a pilot 

project to test initial standards 

developed under section 1860D–

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

final standards that are promulgated in 

accordance with section 1860D–

4(e)(4)(D) of the Act. Section 1860D–

4(e)(4)(C)(ii) of the Act also permits an 

exception to the pilot testing 

requirement for standards for which 

there already is adequate industry 

experience, as determined by the 

Secretary after consultation with 

affected standard setting organizations 

and industry users. Under this 

exception, standards can be proposed 

and adopted through rulemaking as 

final standards without pilot testing, 

and would then become final standards 

under MMA. 

In the preamble of the Medicare 

Prescription Drug Benefit proposed rule, 

published in the Federal Register

August 3, 2004 (69 FR 46632–46863), 

6258 Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 

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).

we solicited comments to help us 

identify consensus on e-prescribing 

standards ahead of the statutory 

timeframe and to help us identify and 

evaluate whether there is adequate 

industry experience with those 

standards. Concurrently, the NCVHS 

held hearings with various groups of 

constituencies on e-prescribing 

standards while identifying and 

examining standards for possible 

adoption by the Secretary. We attended 

each of these hearings as an active 

participant.

Under the MMA, proposed standards 

can be adopted as final standards prior 

to the dates specified in the statute 

because section 1860D–4(e)(1) of the Act 

provides for adoption ‘‘as of such date 

as the Secretary may specify.’’ The 

statute, moreover, only requires pilot 

testing for initial standards for which 

adequate industry experience is lacking 

and calls for final standards ‘‘no later 

than April 1, 2008.’’ Some comments 

submitted in response to the Medicare 

Prescription Drug Benefit proposed rule 

supported an accelerated timetable 

based on adequate industry experience 

with certain standards, while others 

advocated pilot testing of all standards 

because they felt adequate industry 

experience did not exist with any 

standard. We considered all public 

comments on this issue submitted in 

response to the Medicare Prescription 

Drug Benefit proposed rule, along with 

the NCVHS observations and associated 

recommended actions. Despite 

comments to the contrary, we believe 

that there is adequate industry 

experience for certain standards and 

have proposed those standards in this 

rule. The rationale for our preliminary 

conclusion that adequate industry 

experience exists is discussed later in 

this preamble. Finally, we believe that 

we have met the statutory requirement 

for industry consultation because we 

actively participated in the NCVHS 

process, and we requested and received 

industry comments on adequate 

industry experience with existing 

standards through the Medicare 

Prescription Drug Benefit proposed rule. 

We are also requesting comments in this 

proposed rule. The need for pilot testing 

of future standards will be determined 

when additional standards are 

recommended. 

1. Initial Standards Versus Final 

Standards 

It is important to emphasize that in 

section 1860D–4(e) of the Act there are 

distinct provisions for initial standards 

and final standards. Initial standards are 

standards for an electronic prescription 

drug program that the Secretary would 

adopt, develop, recognize, or modify 

before September 1, 2005, taking into 

consideration recommendations from 

the NCVHS. These standards will be 

subject to pilot testing that would occur 

during the 2006 calendar year. The 

results of the pilot project will be 

evaluated and, based upon those results, 

final standards would be published not 

later than April 1, 2008. In order to 

conduct the pilot project, the Secretary 

will enter into agreements with 

physicians, physician groups, 

pharmacies, hospitals, PDP sponsors, 

MA organizations, and other 

appropriate entities under which health 

care professionals will electronically 

transmit prescriptions to dispensing 

pharmacies and pharmacists in 

accordance with these standards. The 

Secretary will conduct an evaluation of 

the pilot project, and will submit a 

report to the Congress on the evaluation, 

not later than April 1, 2007. 

Final standards are standards that 

would be adopted in regulations 

through the rulemaking process. 

Compliance with those final standards 

will be required when prescription 

information or certain other related 

information is electronically transmitted 

among Part D sponsors (as this term is 

defined in the Medicare Prescription 

Drug Benefit final rule) and prescribing 

health care professionals and dispensing 

pharmacies and pharmacists as 

specified at section 1860 D–4(e)(1) of 

the Act for covered Part D drugs 

prescribed for Part D enrolled 

individuals. 

Final standards may be adopted by 

the Secretary as a result of the pilot 

project. However, if the Secretary, after 

consultation with affected standard 

setting organizations and industry users, 

determines that pilot testing is not 

required because there is adequate 

industry experience with the standards, 

those standards may be adopted as final 

without pilot testing. 

We refer to the final standards 

proposed in this rule as foundation 

standards because they would be the 

first set of final standards adopted for an 

electronic prescription drug program. 

As mentioned above and discussed 

further below, we believe that adequate 

industry experience exists with respect 

to the standards proposed in this rule 

which allows us to propose and adopt 

these foundation standards as final 

standards without pilot testing. 

2. State Preemption

Nearly 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.

We propose to interpret this section of 

the Act as preempting State law 

provisions that conflict with Federal 

electronic prescription program drug 

requirements that are adopted under 

Part D. We view 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 Part D 

drugs for 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 reflects 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.

We understand that some industry 

representatives believe 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 e-prescribing for all 

providers and payors. This position is 

based on the belief that the Congress 

Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 6259

intended to preempt the field of eprescribing through this provision in the 

MMA. It would require an interpretation 

that the word ‘‘and’’ between 

paragraphs (A) and (B) is 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 

enable the standards and requirements 

adopted for the Federal electronic 

prescription drug program to preempt 

all State laws and regulations that 

restrict the Secretary’s ability to carry 

out the goals of an electronic 

prescription drug program, even if they 

are not related to covered Part D drugs, 

or Part D covered individuals. They 

contend that some States have 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. 

This interpretation, however, does not 

appear to 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 invite 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 

ask for comment on whether this 

preemption provision applies only to 

transactions and entities that are part of 

an electronic prescription drug program 

under Part D or to a broader set of 

transactions and entities. We also ask 

for comment on whether this 

preemption provision applies to only 

electronic prescription transactions or to 

paper transactions as well.

3. Anti-kickback Statute Safe Harbor 

and Stark Exception 

Section 1860D–4(e)(6) of the Act 

requires the Secretary to promulgate 

regulations that provide for a ‘‘safe 

harbor’’ under the anti-kickback statute 

(section 1128B(b) of the Act) and an 

‘‘exception’’ under the physician selfreferral statute (section 1877 of the Act) 

for certain nonmonetary remuneration 

related to e-prescribing information 

technology items and services. The 

statute states that—

The Secretary, in consultation with the 

Attorney General, shall promulgate 

regulations that provide for a safe harbor 

from sanctions under paragraphs (1) and (2) 

of section 1128(b) [of the Social Security Act] 

and an exception to the prohibition under 

sub-section (a)(1) of section 1877 [of the 

Social Security Act] with respect to the 

provision of nonmonetary remuneration (in 

the form of hardware, software, or 

information technology and training services) 

necessary and used solely to receive and 

transmit electronic prescription information 

in accordance with the standards 

promulgated under this subsection—

(A) In the case of a hospital, by the hospital 

to members of its medical staff; 

(B) In the case of a group practice (as 

defined in section 1877(h)(4), by the practice 

to prescribing health care professionals who 

are members of such practice; and 

(C) In the case of a PDP sponsor or MA 

organization, by the sponsor or organization 

to pharmacists and pharmacies participating 

in the network of such sponsor or 

organization and to prescribing health care 

professionals.

We will propose the new Stark 

exception for electronic prescribing in a 

separate rulemaking to be published in 

the near future. The new safe harbor 

under the anti-kickback statute will be 

proposed by the Office of the Inspector 

General. In the meantime, where 

relevant, arrangements involving 

nonmonetary remuneration related to 

electronic prescription hardware, 

software, information technology and 

training must comply with an existing 

Stark exception (such as the exception 

for non-monetary compensation, 42 CFR 

411.357(k), or the new community-wide 

health information technology 

exception, 42 CFR 411.357(u)) and must 

not violate the anti-kickback statute. 

They must also comply with similar 

state laws. 

B. The NCVHS Process 

Section 1860D–4(e)(4)(A) of the Act 

requires the Secretary to develop, adopt, 

recognize or modify initial uniform 

standards relating to the requirements 

for an electronic prescription drug 

program, not later than September 1, 

2005, taking into consideration the 

recommendations from the NCVHS (as 

established under section 306(k) of the 

Public Health Service Act (43 U.S.C. 

242k (k)) under subparagraph (B)). In 

particular, the role of the NCVHS in 

recommending uniform standards 

relating to the requirements for an 

electronic prescription drug program is 

outlined in section 1860D–4(e)(4)(B)(i) 

through (x) of the Act. It requires that in 

developing the recommendations, the 

NCVHS consult with the following: 

• Standard setting organizations (as 

defined in section 1171(8) of the Act).

• Practicing physicians. 

• Hospitals. 

• Pharmacies. 

• Practicing Pharmacists. 

• Pharmacy Benefit Managers. 

• State Boards of Pharmacy. 

• State Boards of Medicine. 

• Experts on e-prescribing. 

• Other appropriate Federal agencies. 

In response to the requirements of the 

Act for electronic prescription drug 

program standards, the NCVHS 

increased its number of meetings and 

held public hearings at which 

representatives of physicians, 

pharmacists, and experts on eprescribing, among others, testified. The 

NCVHS also consulted with standardsetting organizations and accelerated the 

process for developing 

recommendations for the Secretary well 

in advance of the statutory requirement. 

At the July 21, 2004 Health Information 

Technology Summit, we announced our 

intent to accelerate the implementation 

of e-prescribing by proposing a first set 

of well-established standards for 

implementation by January 2006, when 

the Medicare Part D benefit begins. 

To fulfill its responsibilities under the 

MMA’s amendments to the Act, the 

NCVHS’ Subcommittee on Standards 

and Security held public hearings on 

issues related to e-prescribing on March 

30 and 31, 2004; May 25, 26, and 27, 

2004; July 28–30, 2004; and August 17–

19, 2004. These hearings included 

testimony from e-prescribing networks, 

providers, software vendors, and 

industry experts on patient safety, drug 

knowledge databases, and standards 

currently in use by the industry. 

Industry experts involved in eprescribing studies and initiatives also 

presented information on the progress 

and findings of these studies. Following 

the hearings by the NCVHS 

Subcommittee on Standards and 

Security, the Subcommittee developed 

observations and associated 

recommended actions and presented 

them to the full NCVHS Committee for 

consideration. On September 2, 2004, 

the NCVHS sent a letter to the Secretary 

containing the observations and 

associated recommended actions for an 

electronic prescription drug program. 

The document included 

recommendations for the foundation 

standards that we are proposing and 

other long-term recommendations 

regarding pilot testing of other 

standards. For specific details, refer to 

the letter, available at http://

www.ncvhs.hhs.gov/040902lt2.htm. 

In order to develop and provide future 

recommendations to the Secretary, the 

NCVHS Subcommittee on Standards 

and Security plans to hold additional 

hearings on the state-of-the-art in eprescribing, including testimony from a 

broad range of stakeholders. The 

NCVHS will be developing 

6260 Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 

3Hutchison, Kevin, SureScripts. Testimony 

before the NCVHS Subcommittee on Standards and 

Security, May 25, 2004.

4Center for Information Technology (CITL, a 

research organization chartered in 2002) http://

www.citl.org, Wellesley, MA (781–416–9200) 2003 

report: ‘‘The Value of Computerized Order Entry in 

ambulatory Care.’’

5 Institute of Medicine, Committee on Quality in 

Healthcare in America. To Err is Human: Building 

a Safer Health System. Washington, DC, National 

Academy Press: 1999.

6Ennis K., Maus R. Kokomo Family Care: 

Automating the Clinical Practice. MGM Journal, 

2001 (July/August): p. 8–11.

recommendations for additional 

standards for consideration by the 

Secretary for testing and ultimate 

adoption through the rulemaking 

process. Readers interested in the 

NCVHS’ hearing schedule, testimony 

presented at the hearings, and standards 

recommendations should consult the 

NCVHS Web site at http://

www.ncvhs.hhs.gov. 

C. Standards Design Criteria 

Section 1860D–4(e)(3)(C) of the Act, 

specifies that the design criteria for 

electronic prescription drug program 

standards require that—

• The standards be designed so that, 

to the extent practicable, they do not 

impose an undue administrative burden 

on prescribing healthcare professionals 

and dispensing pharmacies and 

pharmacists; 

• The standards be compatible with 

standards established under Part C of 

Title XI, standards established under 

section 1860D–4(b)(2)(B)(i) of the Act, 

and with general health information 

technology standards; and 

• The standards be designed so that 

they permit the electronic exchange of 

drug labeling and drug listing 

information maintained by the Food and 

Drug Administration (FDA) and the 

National Library of Medicine (NLM). 

D. Current Prescribing Environment 

According to 2002 data from the 

National Center for Health Statistics, 

Americans made more than 823 million 

visits to physicians’ offices in 2000 and, 

according to the National Association of 

Chain Drug Stores (NACDS), four out of 

five patients leave a doctor visit with at 

least one prescription. More than 3 

billion prescriptions are written in the 

United States (U.S.), and prescription 

medications are used by 65 per cent of 

the U.S. public in a given year, 

according to an Agency for Healthcare 

Research and Quality (AHRQ) 1999 

report. Given this volume, even small 

improvements in quality that are 

attributable to e-prescribing may 

translate into significant cost benefits. 

Today, physicians and other health 

care providers make their drugprescribing decisions using whatever 

medical, medication, and eligibility 

information that is known or available 

to them. Then they give a handwritten 

prescription to the patient or fax it to 

the patient’s pharmacy of choice. At the 

pharmacy, tasks are somewhat more 

automated. Through electronic claims, 

eligibility, and benefits submission, the 

dispensing pharmacist may learn about 

drug interactions, disease management 

concerns, the need for prior 

authorization, or lower cost alternatives. 

The pharmacist may then contact the 

prescriber by phone for approval of 

changes, refills, or renewals. This 

process can be very repetitive and time 

consuming for both the pharmacist’s 

and the prescriber’s office staff. 

According to some estimates, almost 30 

percent of prescriptions require 

pharmacy call backs, resulting in 900 

million prescription-related telephone 

calls that are placed annually.3

Many witnesses before the NCVHS 

have stated that the current prescribing 

process is prone to errors. Prescribers 

may not have access to the latest drug 

knowledge. They often do not have a 

completely accurate medication list or 

even medical history for their patient, 

and, as a result, may be unaware of 

potential drug-drug or drug-disease 

interactions or duplicate therapies. 

Pharmacists often have difficulty 

reading handwritten prescriptions and 

frequently have little or no information 

about the patient’s condition for which 

the prescription is written. Contacting 

the prescriber by phone to clarify what 

is ordered and to make changes often 

results in delays for the patient and is 

time consuming for the prescriber and 

the pharmacist. There are disconnects 

between the prescriber and patient in 

the medication process, and little or no 

feedback is given to the prescriber on 

whether a prescription was filled or 

refilled. These disconnects can lead to 

preventable adverse drug events (ADEs) 

that are common and can be serious. 

According to the Center for Information 

Technology Leadership, more than 8.8 

million ADEs occur each year in 

ambulatory care, of which over three 

million are preventable.4 Medication 

errors account for one out of 131 

ambulatory deaths.5 In addition, the 

current system results in numerous and 

pervasive administrative and workflow 

inefficiencies, which affect costs and 

quality of care.

E. Current E-Prescribing Environment 

E-prescribing is a complex process 

that usually involves a number of 

stakeholders, including prescribers, 

pharmacists and associated staff, 

vendors, hospitals and health systems, 

patients, health plans, and Pharmacy 

Benefit Managers (PBMs), among others. 

In a basic e-prescribing system, 

clinicians review, enter, manage, and 

sign prescriptions using a computerized 

system, instead of writing them on 

paper. The prescription is then 

electronically transmitted to a 

pharmacy. Currently, e-prescribing 

systems are available in a variety of 

graduated levels of technology with 

associated benefits for each level. The 

levels range in sophistication from a 

basic electronic drug information 

reference with dosing calculators and 

formulary information to medication 

ordering that is automatically linked to 

an electronic health record. 

The value of e-prescribing in 

preventing medication errors is that 

each prescription can be electronically 

checked at the time of prescribing for 

dosage, interactions with other 

medications, and therapeutic 

duplication. E-prescribing could 

potentially improve quality, efficiency, 

and reduce costs by—

• Actively promoting appropriate 

drug usage, such as following a 

medication regimen for a specific 

condition; 

• Providing information about 

formulary-based drug coverage, 

including formulary alternatives and copay information; 

• Speeding up the process of 

renewing medications. An article 

reported that in a large primary care 

practice in Kokomo, Indiana, of 206 

daily prescription-related calls, 97 calls 

were renewal requests; 6 and

• Providing instant connectivity 

between the health care provider, the 

pharmacy, health plans/PBMs, and 

other entities, improving the speed and 

accuracy of prescription dispensing, 

pharmacy callbacks, renewal requests, 

eligibility checks, and medication 

history. 

The use of e-prescribing shows 

promise for improving Medicare 

operations by creating efficiencies in the 

administration of the Part D drug 

benefit, by decreasing costs in 

facilitating patient eligibility checks, 

promoting generic drug use, and 

creating timely interface with 

formularies. This also allows enhanced 

patient safety benefits through the 

prevention of medication errors 

resulting from illegible handwriting on 

paper prescriptions. 

According to industry surveys, usage 

rates for e-prescribing vary in number 

and in the level of sophistication of the 

electronic prescription system used. 

Somewhere between 5 percent and 18 

Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 6261

percent of physicians are estimated to 

be using e-prescribing of one sort or 

another, although usage is slowly 

increasing. Some of the barriers to 

increased usage of e-prescribing by 

physicians are the costs of buying and 

installing a system, the training 

involved, time and workflow impact, 

lack of reimbursement for costs and 

resources, and lack of knowledge about 

the benefits related to quality of care. 

F. Evolution and Implementation of an 

Electronic Prescription Drug Program 

In this regulation, we propose to 

adopt foundation standards (that is, 

standards that do not need to be pilot 

tested because adequate industry 

experience with those standards already 

exists). While the statute includes an 

exception to the pilot testing 

requirement for standards with adequate 

industry experience, it does not define 

the term. The concept was discussed 

throughout the NCVHS hearings, as 

industry participants debated whether 

specific standards should be 

recommended as foundation standards. 

We propose to use the following criteria 

to assess adequate industry experience, 

based on testimony presented to the 

NCVHS and on some of the NCVHS 

discussions, and we solicit comments 

on these criteria:

• The standard is American National 

Standards Institute (ANSI) accredited. 

We propose this criterion because the 

ANSI accreditation process is open and 

based upon consensus, so accredited 

standards are more likely to adequately 

address, and effectively respond to, 

industry needs. 

• The standard generally has been 

implemented by entities to which the 

final standard will be applied in 

multiple e-prescribing programs with 

more than one external health care 

partner. We propose this criterion 

because it demonstrates that the 

standard can be successfully 

implemented, the experience can be 

replicated, and the standard is 

interoperable between organizations as 

well as within an organization. 

• The standard is recognized by key 

industry stakeholders as the industry 

standard. We propose this criterion so 

that we do not adopt a standard in a 

situation where there are competing 

industry standards and the industry is 

divided over which one should be 

selected. 

The Secretary has determined that 

pilot testing is not required for the 

standards proposed in this regulation 

because they meet the criteria for 

adequate industry experience. The need 

for pilot testing of future standards will 

be determined when additional 

standards are recommended. 

Standards for e-prescribing must not 

only meet the specific requirements in 

section 1860D–4(e)(2) of the Act, but 

must also be compatible with standards 

adopted under Part C of Title XI (the 

Administrative Simplification 

provisions of HIPAA), and technology 

and general standards adopted under 

section 1860D–4(b)(2)(B)(i) of the Act. 

The standards should be vendor neutral 

and technology independent, and 

developed by Standards Development 

Organizations (SDOs) that are accredited 

by the ANSI. 

The standards proposed in this 

regulation are important foundation 

standards, but do not represent the full 

set of standards that will be necessary 

to implement effectively an electronic 

prescription drug program. Further, at 

least one of the standards with which 

we are proposing to address basic eprescribing functionality could be 

refined in the future ultimately to 

support more advanced functions. For 

example, the National Council for 

Prescription Drug Programs (NCPDP) 

SCRIPT Standard contains a segment 

that supports free text patient dosage 

instruction which could be enhanced to 

structure the patient instructions. 

These proposed foundation standards 

are a first step toward a more complete 

set of standards required for an 

electronic prescription drug program 

under the MMA. Additional final 

standards will be identified, pilot tested, 

and proposed through separate 

processes in accordance with the time 

frames set forth in the statute and will 

build on these foundation standards. 

In its September 2, 2004 letter to the 

Secretary, the NCVHS recommended 

that HHS work with the industry 

through the rulemaking process to 

determine how best to afford flexibility 

in keeping current the adopted 

standards and those adopted in the 

future. We invite public comment on 

how to establish a process that will be 

used to evolve currently adopted and 

additional standards and to determine 

an appropriate implementation 

sequence, consistent with the 

Administrative Procedures Act and 

other applicable legal requirements. We 

specifically invite comment regarding 

the role of industry standard setting 

organizations and the NCVHS. 

G. Electronic Prescription Drug Program 

Section 1860D–4(e)(2) of the Act 

specifies that an electronic prescription 

drug program for covered Part D drugs 

for Part D enrolled individuals shall 

provide for the electronic transmittal to 

the prescribing health care professional 

and to the dispensing pharmacy and 

pharmacist of the—

• Prescription; 

• Information on eligibility and 

benefits (including the drugs included 

in the applicable formulary, any tiered 

formulary structure, and any 

requirements for prior authorization);

• Information on the drug being 

prescribed or dispensed and other drugs 

listed on the medication history; 

• Information on drug-drug 

interactions, warnings or cautions, and, 

when indicated, dosage adjustments; 

• Information on the availability of 

lower cost, therapeutically appropriate 

alternatives (if any) for the drug 

prescribed; and 

• Information that relates to the 

medical history concerning the 

individual and related to a covered Part 

D drug being prescribed or dispensed, 

upon request of the professional or 

pharmacist involved. 

While it is important to note that, to 

the extent Part D sponsors, prescribers, 

and dispensers are covered entities 

under HIPAA, they must continue to 

abide by the applicable HIPAA 

standards, including those for privacy 

and security. All Part D Plans are 

covered entities under HIPAA, and we 

assume that many of the providers 

participating in Part D will likewise be 

covered entities. Providers are HIPAA 

covered entities if they engage in 

electronic transactions for which there 

are HIPAA standards. In general terms, 

under HIPAA, a covered entity is a 

health plan, a health care clearinghouse, 

and a health care provider who 

transmits any health information in 

electronic form in connection with a 

standard transaction. A standard 

transaction is defined as a transaction 

that complies with the applicable 

standards at § 162.1101 through 

§ 162.1802. Two of the eight 

Administrative Simplification Standard 

Transactions conducted between 

providers and health plans at § 162.1101 

through § 162.1802 (the NCPDP 

Telecommunication Standard for Health 

Care Claims, and the ASC X12N 270/

271 Eligibility Inquiry and Response 

Standard for eligibility for a health plan 

queries), are proposed in this rule for eprescribing foundation standards. The 

NCPDP Telecommunication Standard is 

proposed for eligibility inquiries and 

responses between pharmacies and 

health plans, and the ASC X12N 270/

271 is proposed for eligibility inquiries 

between prescribers and health plans. 

Complete definitions for HIPAA covered 

entities and standard transactions are 

available at 45 CFR 160.103 and 45 CFR 

162.103. 

6262 Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 

If a provider is not otherwise a 

covered entity under HIPAA, it would 

become a covered entity if it conducts 

an e-prescribing transaction that is also 

a HIPAA transaction, such as the 270/

271 eligibility and response 

transactions. It should also be noted that 

disclosures of protected health 

information (PHI) in connection with an 

e-prescribing transaction that is not a 

HIPAA transaction would have to meet 

the minimum necessary requirements of 

the Privacy Rule if the entity is a 

covered entity. The Privacy Rule 

excludes from the minimum necessary 

requirements those disclosures that are 

required to comply with a HIPAA 

transaction standard. However, this 

exclusion would not apply to eprescribing standards that are not also 

HIPAA standards, making compliance 

with minimum necessary a requirement, 

unless another exception applies. 

The MMA requires the Secretary to 

develop, adopt, recognize or modify 

initial uniform standards related to the 

requirements of an electronic 

prescription drug program taking into 

consideration any recommendations 

from the NCVHS. The standards must be 

designated to enable transmission of 

basic prescription data to and from 

prescribers and dispensers, as well as 

the transmission of information about 

the patient’s drug utilization history, 

possible drug interactions, the drug 

plan, and cost information. The design 

of the standards for an electronic 

prescription drug program must be 

consistent with the objectives of 

improving patient safety, quality of care, 

efficiencies and cost savings in the 

delivery of care, and meet the standards 

design criteria outlined in this section. 

The standards also must permit the use 

of appropriate messaging, according to 

section 1860D–4(e)(2)(d) of the Act, as it 

relates to the prescribing of drugs and 

permit patients to designate a 

dispensing pharmacy. 

In its September 2, 2004 letter, the 

NCVHS provided its observations and 

associated recommended actions related 

to the standards needed for the 

interoperable electronic exchange of 

information for most of the categories of 

information enumerated in section 

1860D–4(e)(2) of the Act. The key 

NCVHS recommendations concerning 

these functions and whether they are 

included in the NPRM are summarized 

in the table below:

Function NCVHS Standards Recommendations—

HHS Should: Standard in NPRM 

Provider and Dispenser Identifiers ........... Adopt NPI when it becomes available ...................................... No. 

Prescription (Clinical drug) ....................... Include in the 2006 pilot tests the RxNorm terminology in the 

NCPDP SCRIPT Standard.

No. 

Drug order for new, renewals, cancellations, and change orders.Recognize, as a foundation standard, the most current 

version of NCPDP SCRIPT for new prescriptions, prescription renewals, cancellations, and changes between prescribers and dispensers.

Yes. 

Drug orders for fill status notification ....... Should include the fill status notification function of the 

NCPDP SCRIPT Standard in the 2006 pilot tests.

No. 

Patient instructions (SIG) ......................... Support NCPDP, HL7, and others (especially including the 

prescriber community) in addressing SIG (patient instruction) components in their standards.

No. 

Medication history ..................................... Participate in and support rapid development of an NCPDP 

standard for a medication history message for communication from a payer/PBM to a prescriber.

Standard functionality identified. 

Formulary and benefit coverage information.Participate in and support the rapid development of an 

NCPDP standard for formulary and benefit information file 

transfer.

Standard functionality identified. 

Eligibility inquiry and response ................. Recognize, as a foundation standard, the NCPDP Telecommunication Standard and the ASC X12N 270/271–

Health Care Eligibility Benefit Inquiry and Response.

Yes. 

Prior authorization .................................... Support ASC X12N in their efforts to incorporate functionality 

for real-time prior authorization messages for drugs in the 

ASC X12N 278 Health Care Services Review.

No. 

Drug-drug Interaction ................................ No recommendations advanced. Subject to future NCVHS 

hearings.

No. 

Medical History ......................................... No recommendations advanced. Subject to future NCVHS 

hearings.

No. 

Exchange of medication history, and 

medical history for e-prescribing program.

No recommendations advanced. Subject to future NCVHS 

hearings.

No. 

Electronic signature .................................. No recommendations advanced. Subject to future NCVHS 

hearings.

No. 

In section II of this proposed rule 

(Provisions of the Proposed Regulation), 

we describe the proposed requirements 

related to the use of the most current 

version of NCPDP SCRIPT for new 

prescriptions, prescription renewals, 

cancellations, changes between 

prescribers and dispensers, and 

ancillary messaging and administrative 

transactions, the NCPDP 

Telecommunication Standard, and the 

ASC X12N 270/271 transaction, for 

transmitting eligibility data between 

dispensers and Part D sponsors and 

between prescribers and Part D 

sponsors, respectively. 

The NCVHS also observed that ‘‘there 

are several areas in the foundation 

standards that do not support all the 

MMA requirements.’’ As can be seen 

from the Table above, additional 

standards will be required to implement 

many of the functions of an electronic 

prescription drug program as envisioned 

by the MMA. Examples of some of the 

needed standards and associated issues 

are as follows: 

• Provider and Dispenser Identifiers. 

The MMA does not expressly direct the 

Secretary to require the use of unique 

identifiers for prescribers and 

dispensers in e-prescribing transactions. 

However, the NCVHS found that it was 

important to address the issue of 

provider identifiers for various eVerDate jul<14>2003 19:26 Feb 03, 2005 Jkt 205001 PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 E:\FR\FM\04FEP5.SGM 04FEP5
Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 6263

prescribing standards it reviewed and, 

more generally, for an electronic 

prescription drug program. We agree. 

After assessing a number of candidate 

identifiers, the NCVHS further 

recommended the use of the National 

Provider Identifier (NPI) as the primary 

identifier for dispensers and prescribers, 

once it becomes available. 

HHS is considering requiring the use 

of the NPI as the provider identifier for 

an electronic prescription program 

under Medicare Part D. We believe that 

it is necessary to have a unique 

identifier for these transactions. The NPI 

is the preferred option, because it is a 

standard that many entities will be 

required to use under HIPAA. If use of 

the NPI is required for e-prescribing 

transactions involving Medicare Part D 

drugs at the time the benefit is available 

in January 2006, prescribers, 

pharmacies, pharmacists, Part D 

sponsors and potentially other entities 

would be required to implement the NPI 

for e-prescribing transactions earlier 

than the current compliance date for the 

HIPAA covered transactions. 

The NCVHS also urged HHS to 

accelerate the enumeration of all 

providers to support transition to the 

NPI for e-prescribing. We have been 

planning to enumerate HIPAA covered 

providers over the course of several 

years. 

Accelerated NPI usage for eprescribing, therefore, may not be 

possible, as HHS may not have the 

capacity to issue NPIs to all covered 

providers by January 1, 2006. 

Furthermore, there is a possibility that 

unforeseen system or budget concerns 

could delay provider enumeration, and, 

therefore, the date by which the NPI 

would be available for use in eprescribing under Medicare Part D. 

We invite public comments on the 

possible use of the NPI for Medicare 

Part D e-prescribing transactions; the 

earliest time when the NPI should be 

required for use in an electronic 

prescription drug program; the effect on 

industry of accelerating use of NPI in an 

electronic prescription drug program 

ahead of the HIPAA compliance dates; 

alternatives to the NPI, particularly in 

the short term; and options for phasing 

in use of the NPI in e-prescribing 

transactions or prioritizing budget 

concerns that could delay the 

enumeration process. 

NCVHS recommended that HHS 

permit the use of the NCPDP Provider 

Identifier Number for identifying 

dispensers and the NCPDP HCIdea for 

identifying prescribers in the event that 

the National Provider System (NPS) 

cannot enumerate these providers in 

time for Medicare Part D electronic 

prescription drug program 

implementation. We are looking at 

various options for an alternate 

identifier(s), including using provider 

identifiers currently in use in the 

Medicare program, in the event the NPI 

is not available for use, and we invite 

public comment on this, as well. 

• Formulary and Medication History 

Standards. Adoption of standards for 

formulary representation and 

medication history would clearly 

enhance e-prescribing capabilities under 

Part D. Such standards would make 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, as well as information on 

medications the patient is already taking 

including those prescribed by other 

providers. Significant quality 

improvement and cost savings could 

result from the use of formulary and 

medication history standards. 

The NCVHS noted that formulary and 

medication history information are 

currently communicated between 

payers and prescribers using proprietary 

messages, frequently the Information 

File Transfer protocols established by 

RxHub, a national formulary and 

benefits information exchange. In 

response to industry testimony, RxHub 

communicated to the NCVHS its intent 

to submit its protocols to NCPDP to be 

considered for adoption as an ANSIaccredited standard. NCVHS considered 

ANSI accreditation to be a criterion in 

their recommendations process, and 

HHS proposes to adopt this as a 

criterion for determining adequate 

industry experience. 

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, and indicated its belief that this 

appeared possible in time to adopt the 

standard as a foundation standard. 

We propose to adopt, as foundation 

standards in the final rule, formulary 

representation and medication history 

standards, if certain characteristics are 

met and there is adequate industry 

experience with the standards. We 

would consider adopting an NCPDP 

standard for formulary and medication 

history that are based on the RxHub 

protocol. 

We set out the characteristics we 

consider to be critical for formulary, 

benefit, and medication history 

messaging at the end of this section, and 

solicit comments on those 

characteristics. We further solicit 

comment on the extent to which any 

candidate standards, including the 

RxHub protocols, meet those 

characteristics and should be 

considered for adoption as foundation 

standards. We propose the following 

critical characteristics for formulary and 

benefit data standards: 

• The standards are accredited by an 

ANSI-accredited standards development 

organization. 

• The standards permit interface with 

multiple product, router, and point-ofcare (POC) vendors. 

• The standards 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 POC 

systems; and 

+ POC vendors to receive a range of 

formulary and benefit information 

through these services. 

• The standards cover a range of 

formulary and benefit data, including 

information on the—

+ Formulary (for example, 

therapeutic classes and subclasses); 

+ Formulary status (for example, 

drugs that the benefit plan considers to 

be ‘‘on formulary’’); 

+ Preferred alternatives (including, 

but not limited to restrictions that may 

impact whether the plan will cover a 

drug being considered, such as quantity 

limits and need for prior authorization); 

and 

+ Copayment (that is, not just the 

single copayment amount for the drug 

being considered, but the copayments 

for one drug option versus another). 

We propose the following critical 

characteristics for medication history 

standards: 

• The standards are accredited by an 

ANSI-accredited standards development 

organization. 

• The standards permit interface with 

multiple product, router, and POC 

vendors. 

• The standards provide a uniform 

means for a prescriber, dispenser, or 

payer to request from a payer, dispenser, 

or prescriber, a listing of drugs that have 

been prescribed or claimed for a patient 

within a certain timeframe. 

• The standards provide a uniform 

means for a Part D plan, dispenser, or 

prescriber to request from a prescriber, 

dispenser, or Part D plan, information to 

describe the patient’s medication 

history. This includes, for example, the 

drugs that were dispensed within a 

certain timeframe, and may include the 

pharmacy that filled the prescription 

and the physician that wrote the 

prescription. 

• Drug Information. Section 1860D–

4(e)(2) of the Act specifies that an 

electronic prescription drug program 

6264 Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 

will include information on drug-drug 

interactions, warnings or cautions, and 

when indicated, dosage adjustments. 

Given that relevant e-prescribing 

standards must permit electronic 

exchange of drug labeling and drug 

listing information maintained by the 

FDA and the NLM, medication history 

standards should be compatible with 

those standards when they are adopted 

by the Secretary. While drug 

information standards will not be 

foundation standards, they will be 

supported in the future by the 

structured product label. While 

standards for providing this type of 

information on drugs have not yet been 

considered by the NCVHS and are not 

yet proposed, we anticipate proposing 

standards in the future through 

rulemaking because they are required by 

MMA and we believe that providing this 

information is essential to improving 

the safety and quality of medication 

management. We invite public comment 

on standards that should be required to 

support an electronic prescription drug 

program required under the Part D 

benefit. 

• Medical History. Section 1860D–

4(e)(2)(B) of the Act specifies that an 

electronic prescription drug program 

includes the electronic transmittal of 

information that relates to the medical 

history concerning the individual and 

related to a covered Part D drug being 

prescribed or dispensed. ‘‘Medical 

history’’ differs from ‘‘medication 

history.’’ ‘‘Medication history’’ refers to 

drugs that have been prescribed to the 

individual, while ‘‘medical history’’

relates more broadly to information 

about the patient’s health care and 

health status (for example, allergies, 

laboratory test results, and chronic 

conditions). 

The statute treats the electronic 

transmission of medical history 

differently from the electronic 

transmission of other information in an 

electronic prescription drug program. 

Section 1860D–4(e)(2)(B) of the Act 

specifies that the medical history 

provision is only effective ‘‘on and after 

such date as the Secretary specifies and 

after the establishment of appropriate 

standards.’’ We intend to propose 

standards for communicating medical 

history at a future date. The NCVHS has 

not yet provided recommendations on 

these standards. This proposed rule 

does not address data collection and 

storage in terms of research. We will 

consider any NCVHS recommendations 

in our design of the pilot project for 

2006. 

H. Summary of Status of Standards for 

an Electronic Prescription Drug Program 

We recognize that the standards we 

are proposing do not provide all of the 

functions for which standards are 

required by section 1860D–4(e)(2) of the 

Act. At this time, we can only propose 

to adopt, as final standards, those 

standards with which there is adequate 

industry experience; otherwise, pilot 

testing is required by section 1860D–

4(e)(4)(c) of the Act prior to the 

adoption of a standard as a final 

standard. We invite public comment on 

these proposed standards, as well as on 

standards currently being used in the 

industry that meet the proposed 

functionalities for formulary and 

medication history and could serve as 

foundation standards. In addition, we 

invite public comment on the feasibility 

of, and alternatives to, the strategy we 

are proposing of phasing-in 

implementation of an electronic 

prescription drug program by requiring 

providers, dispensers, MAorganizations, and PDPs engaged in eprescribing to comply initially 

(beginning January 2006) with the 

following proposed standards by 

requiring, at a future date, compliance 

with other necessary standards as they 

are adopted in subsequent rulemaking. 

Pilot testing will be required unless the 

exception for adequate industry 

experience applies (followed by 

rulemaking to adopt the final 

standards.) In addition to the standards 

regarding formulary and medication 

history if certain characteristics are met, 

we are proposing to adopt, as 

foundation standards, the following:

• The NCPDP SCRIPT Standard 

Version 5, Release 0 (Version 5.0), May 

12, 2004 (hereafter referred to as the 

NCPDP SCRIPT Standard). 

• The 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 4010, October 2002, 

Washington Publishing Company, 

004010X092A1 (hereafter referred to as 

the ASC X12N 270/271 Transaction). 

• The NCPDP Telecommunication 

Standard Guide, 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 5, Release 1 (Version 5.1) for the 

NCPDP Data Record in the Detail Data 

Record (hereafter referred to as the 

NCPDP Telecommunication Standard). 

We acknowledge that an e-prescribing 

program (including drug-to-drug 

interaction checking, dosage 

adjustments and information on the 

availability of lower cost therapeutic 

alternatives for which standards will be 

adopted in the future) is one part of a 

comprehensive Electronic Health 

Record (EHR) system with decision 

support functionality and must be 

interoperable with other functions of an 

EHR. The need for interoperability 

between these systems will become 

even more critical in the future when 

patient medical history standards are 

adopted. While one option might be to 

postpone the establishment and 

adoption of standards for e-prescribing 

until such time as there are commonly 

accepted industry standards for EHRs, 

so that standards for the interoperability 

of e-prescribing and EHR systems could 

be established at the same time, this 

would postpone the implementation of 

any e-prescribing functionality, 

including the attendant benefits and is 

beyond the scope of the MMA. We are 

proposing foundation standards that are 

ANSI-accredited and have adequate 

industry experience, which we believe 

will facilitate interoperability with later 

industry-adopted standards for EHRs as 

well as interoperability across software 

and hardware products. In addition, 

consideration will be given to future 

requirements for interoperability. We 

solicit comment on this approach, as 

well as on other critical success factors 

for assuring interoperability. 

II. Provisions of the Proposed 

Regulation 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘PROVISIONS’’ at the beginning of your 

comments.] 

A. Proposed Change to Scope (Section 

423.150) 

Subpart D of part 423 implements 

provisions of several sections of the Act, 

including sections 1860D–4(c), 1860D–

4(d), 1860D–4(e), 1860D–4(j), and 

1860D–21(d)(3), as well as sections 

102(b) and 109 of Title I of the MMA. 

Because section 1860D–4(e) of the Act 

pertains to standards for electronic 

prescription drug programs which 

require compliance by e-prescribing 

entities other than Part D plans, we 

propose to explicitly broaden the scope 

of subpart D. Therefore, we are 

proposing to modify the title of subpart 

D to read, ‘‘Cost Control and Quality 

Improvement Requirements,’’ and revise 

the description of the scope at 

§ 423.150(c) to state expressly that this 

subpart sets forth requirements relating 

to electronic prescription drug programs 

Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 6265

for prescribers, dispensers, and Part D 

sponsors. 

B. Proposed Definitions 

We propose to amend § 423.159 of the 

Medicare Prescription Drug Benefit final 

rule to add definitions pertinent to the 

e-prescribing process and to amend the 

title of the section to be consistent with 

the term ‘‘Electronic Prescription Drug 

Program’’ which we are proposing to 

define below. The proposed definitions 

are as follows: 

• Dispenser means a person, or other 

legal entity, licensed, registered, or 

otherwise permitted by the jurisdiction 

in which the person practices or the 

entity is located, to provide drug 

products for human use on prescription 

in the course of professional practice. 

• Electronic media shall have the 

same meaning as this term defined for 

purposes of HIPAA, in 45 CFR 160.103.

• E-prescribing means the 

transmission, using electronic media, of 

a prescription or prescription-related 

information, between a prescriber, 

dispenser, PBM, or health plan, either 

directly or through an intermediary, 

including an e-prescribing network. 

• Electronic Prescription Drug 

Program means a program that provides 

for e-prescribing for covered Part D 

drugs prescribed for Part D eligible 

individuals who are enrolled in Part D 

plans. 

• Prescriber means a physician, 

dentist, or other person licensed, 

registered, or otherwise permitted by the 

U.S. or the jurisdiction in which he or 

she practices, to issue prescriptions for 

drugs for human use. 

• Prescription-related information 

means information regarding eligibility 

for drug benefits, medication history, or 

related health or drug information for a 

Part D eligible individual enrolled in a 

Part D plan. 

C. Proposed Requirements for Part D 

Plans 

The Medicare Prescription Drug 

Benefit final rule has specific language 

that requires Part D sponsors to support 

and comply with electronic prescription 

drug program standards relating to 

covered Part D drugs, for Part D enrolled 

individuals once final standards are 

effective. Effective January 1, 2006, Part 

D sponsors would be required to have 

an electronic prescription drug program 

and would be required to support 

electronic prescribing, once standards 

are in place. 

Many closed networks, such as staffmodel HMOs, currently conduct eprescribing within the confines of their 

enterprise. They typically use HL7 

messaging whether it is for 

computerized physician order-entry 

within a hospital or for a prescription 

transmitted to the organization’s own 

pharmacy. The e-prescribing standards 

that these ‘‘closed’’ enterprises should 

use were discussed by the NCVHS. The 

committee recommended that 

organizations that conduct e-prescribing 

transactions internally should not be 

required to convert to the adopted 

standards for prescription 

communications within their enterprise; 

however, if they send prescriptions 

outside the organization (for example, 

from an HMO to a non-HMO pharmacy), 

then they should use the adopted 

standards. 

It is important to note that the NCVHS 

recommendation differs from the 

HIPAA transaction requirements. The 

preamble for the Transactions Rule (65 

FR 50316–50317) discusses 

transmissions within a corporate entity 

requires covered entities to use the 

adopted transaction standards when 

conducting covered electronic 

transactions with other covered entities. 

The Transactions Rule also expressly 

states that if a covered entity conducts 

a covered transaction using electronic 

media within the same covered entity, 

it must conduct the transaction as a 

standard transaction (45 CFR 162.923). 

Consequently, whether the transaction 

is conducted within or outside the 

entity is immaterial with respect to 

whether compliance with the HIPAA 

transactions is required. 

This issue is relevant to Medicare Part 

D in situations where an MA-PD plan, 

for example, is a staff-model HMO using 

an internal pharmacy. We solicit 

comment on whether Part D plans 

should be required to use the standards 

for e-prescribing transactions within the 

enterprise, the potential implications 

(including timing) of required 

compliance with adopted standards for 

these transactions, the extent to which 

these entities exist, and the advantages 

and disadvantages associated with 

excluding these transactions from the 

requirement to comply with adopted eprescribing standards. 

D. Proposed Requirements for 

Prescribers and Dispensers 

Part D sponsors would be required to 

comply with the applicable proposed 

standards in new § 423.160(b) when 

electronically transmitting prescriptions 

and prescription-related information. If 

prescribers and dispensers 

electronically transmit prescriptions 

and prescription-related information, 

they also would be required to comply 

with the applicable proposed standards 

in proposed § 423.160(b). These entities 

would be required to comply with the 

standards whether they transmit 

prescriptions or prescription-related 

information using electronic media, 

either directly or through an 

intermediary, through, for example, an 

e-prescribing network.

E. Proposed Standards 

The Secretary has tentatively 

concluded that the proposed standards 

discussed below are not subject to pilot 

testing because adequate industry 

experience with these proposed 

standards already exists. Entities with 

electronic prescription drug programs 

would be required to comply with the 

proposed applicable standards no later 

than January 1, 2006. 

1. Prescription 

The NCPDP SCRIPT Standard 

contains a series of business processes, 

referred to as transactions, which are 

included in the NCPDP SCRIPT 

Standard. We propose to adopt, as part 

of the proposed foundation standards, 

the transactions included in the NCPDP 

SCRIPT Standard Implementation 

Guide, except for 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). This 

transaction will not be adopted at this 

time because, as discussed during the 

NCVHS hearings, we do not believe 

there is adequate industry experience 

with the standard. This transaction and 

its associated business cases are 

identified in sections 6.11 through 6.14 

and described on pages 40 through 45 

of the Implementation Guide, Version 

5.0. 

We propose, in new § 423.160(b)(1), to 

adopt the following transactions of the 

NCPDP SCRIPT Standard, for 

communication of prescription 

information between prescribers and 

dispensers, as part of an electronic 

prescription drug program: 

• New prescription transaction 

• Prescription refill request and 

response transactions 

• Prescription change request and 

response transactions 

• Cancel prescription request and 

response transactions 

• The following ancillary messaging 

and administrative transactions: 

+ Get message transaction 

+ Status response transaction 

+ Error response transaction 

+ Verification transaction 

+ Password change transaction 

We have determined that these 

transactions of the NCPDP SCRIPT 

6266 Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 

Standard meet our proposed criteria for 

adequate industry experience for the 

following reasons: 

• First, the ANSI recognizes NCPDP 

as an accredited standards organization. 

The NCPDP SCRIPT Standard adheres 

to Electronic Data Interchange (EDI) for 

Administration Commerce and 

Transport (EDIFACT) and Accredited 

Standards Committee (ASC) standards. 

NCPDP is a not-for-profit ANSIAccredited Standards Development 

Organization consisting of over 1,300 

members representing virtually every 

sector of the pharmacy services 

industry. With over 25 years’ experience 

in the pharmacy health care industry, 

NCPDP membership includes 

representatives from—

+ Chain and independent 

pharmacies; 

+ Consulting companies and 

pharmacists; 

+ Database management 

organizations; 

+ Federal and State agencies; 

+ Health insurers; 

+ Health maintenance organizations; 

+ Mail service pharmacy companies; 

+ Pharmaceutical manufacturers; 

+ Pharmaceutical services 

administration organizations; 

+ Prescription service organizations; 

+ Pharmacy benefit management 

companies; 

+ Professional and trade associations; 

+ Telecommunication and systems 

vendors; 

+ Wholesale drug distributors; and 

+ Other parties interested in 

electronic standardization within the 

pharmacy services sector of the health 

care industry.

The NCPDP SCRIPT Standard is a 

voluntary consensus-based standard 

that was developed by NCPDP, and 

approved by full ballot voting in 

accordance with ANSI’s procedures for 

due process, openness and consensus. 

More specifically, the NCPDP SCRIPT 

Standard transactions we propose for 

adoption have been used extensively for 

messaging between prescribers and 

retail pharmacies for new prescriptions, 

prescription refill requests, prescription 

fill status notifications, and cancellation 

notifications, as part of the Consolidated 

Health Informatics (CHI) Initiative. CHI 

is the health care component of 

President Bush’s eGov Initiatives 

created under the President’s 

Management Agenda. 

• Second, the NCPDP SCRIPT 

Standard transactions proposed for 

adoption have been used in multiple eprescribing programs. SureScripts, Inc. 

(SureScripts) selected the NCPDP 

SCRIPT Standard to serve as the 

foundation of their transaction engine 

software. SureScripts was founded by 

the National Community Pharmacists 

Association (NCPA) and the NACDS, 

which represent the interests of 55,000 

chain and independent pharmacies. To 

date, SureScripts has signed agreements 

with, and tested and certified the 

software of, pharmacies and pharmacy 

technology vendors representing more 

than 75 percent of U.S. pharmacies. In 

addition, SureScripts has signed 

contracts with software companies who 

supply electronic health record and 

electronic prescribing applications to 

physician offices representing more 

than 50,000 current physician users. 

• Third, the NCPDP SCRIPT Standard 

transactions we propose for adoption 

are recognized as the industry standard. 

Over 25 e-prescribing vendors (standalone and electronic health record 

integrated systems) which represent 80 

percent of the Nation’s covered lives are 

either using or actively programming to 

the NCPDP SCRIPT standard. 

We do include, as part of the 

proposed foundation standards, the 

previously identified ancillary 

messaging and administrative 

transactions. These transactions are an 

integral part of the NCPDP SCRIPT 

Standard, providing the administrative 

functions to assure that prescription 

transactions are accurately exchanged. 

Industry experience with the adopted 

HIPAA transactions has shown the need 

for standard acknowledgement and error 

reports transactions. During the NVCHS 

hearings, the only transaction 

specifically mentioned as lacking 

industry experience was the 

Prescription Fill Status Notification 

Transaction and, thus, it has not been 

included in this proposed rule. Because 

these ancillary messaging and 

administrative transactions are an 

integral part of the NCPDP SCRIPT 

Standard, we believe that the industry 

has adequate experience with them, so 

as to be able to forego pilot testing. We 

solicit public comment on the adoption 

of the ancillary messaging and 

administrative transactions in the 

NCPDP SCRIPT Standard as proposed 

foundation standards and whether there 

is adequate industry experience to 

forego pilot testing. 

2. Eligibility 

We are proposing, at new 

§ 423.160(b)(2)(i), to adopt the ASC 

X12N 270/271 Transaction, for 

conducting eligibility and benefits 

inquiries between prescribers and Part D 

sponsors. 

The ASC X12N 270/271 transaction 

standards were adopted in August 2000 

as the HIPAA standard for eligibility 

inquiry and response transactions 

between dentists, (medical) 

professionals, and institutions, on one 

hand, and health plans, or just between 

health plans. 

We have determined that the ASC 

X12N 270/271 transaction standard 

meets the criteria for adequate industry 

experience for the following reasons: 

• First, the ASC X12N 270/271 are 

ANSI-accredited standards. 

• Second, the standards are adopted 

HIPAA standards. Use of the ASC X12N 

270/271 transaction for conducting 

eligibility and response inquiries 

between providers and health plans and 

between two health plans has been 

required since October 16, 2003, at the 

latest. In May 1998, when adoption of 

this standard was proposed through 

notice and comment rulemaking, the 

majority of comments received 

expressed support for adopting this 

standard.

Currently, there are efforts by the 

NCPDP to create a guidance document 

that will map information on the 

Medicare Part D Pharmacy ID Card 

Standard to the appropriate fields on the 

ASC X12N 270/271 transaction. 

However, it is important to note that the 

level of detail returned on the 271 by 

the Part D sponsor must match the level 

of detail in the inquiry made by the 

prescriber in the 270 request, to the 

extent that the Part D sponsor’s system 

is capable of handling this request. 

We are proposing to adopt, at 

proposed § 423.160(b)(2)(ii), the NCPDP 

Telecommunication Standard, for 

conducting eligibility transactions 

between dispensers and Part D 

sponsors. We have determined that the 

NCPDP Telecommunication Standard 

meets our proposed criteria for adequate 

industry experience for the following 

reasons: 

• First, these standards adhere to EDI 

for EDIFACT and ASC standards. As 

previously stated, NCPDP is a not-forprofit ANSI-Accredited Standards 

Development Organization, with over 25 

years experience in the pharmacy health 

care industry, and its membership 

consists of over 1,300 members 

representing virtually every sector of the 

pharmacy services industry. These 

standards are voluntary, consensusbased standards that were developed by 

NCPDP, and approved by full ballot 

voting in accordance with ANSI’s 

procedures for due process, openness 

and consensus. 

• Second, these standards are 

adopted HIPAA standards. In addition 

to being required standards for 

eligibility inquiries and responses 

between retail pharmacy dispensers and 

health plans, they are also required for 

submitting retail pharmacy drug claims. 

Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 6267

According to the NACDS, over 4 billion 

claims were transmitted in 2003 using 

NCPDP standards. In May 1998, when 

adoption of these standards was 

proposed through notice and comment 

rulemaking, the majority of comments 

received expressed support for 

adoption. 

• Third, these standards are 

recognized as industry standards and 

are used by 99 percent of the retail 

pharmacies and 95 percent of all 

pharmacies in conducting eligibility 

transactions. 

If standards are updated and newer 

versions are developed, HHS would 

evaluate the changes and consider the 

necessity of requiring the adoption of 

new updates to the standards. This 

would be done through the 

incorporation by reference update 

approval process, which provides for 

publication in the Federal Register of an 

amendment to a standard in the Code of 

Federal Regulations. If the updates 

include substantive changes such as 

new functions that we consider 

necessary to be implemented for an eprescribing transaction, we would 

modify the required standards through 

subsequent notice and comment 

rulemaking. If, on the other hand, the 

updates or newer versions simply 

correct technical errors, eliminate 

technical inconsistencies, or add 

functions unnecessary for the specified 

e-prescribing transaction, the Secretary 

would consider waiving notice and 

comment. In the later case, we would 

likely adopt the version that was 

previously adopted as well as the new 

version. This means that compliance 

with either version would constitute 

compliance with the standard. 

When determining whether to waive 

notice and comment and whether to 

incorporate by reference multiple 

existing versions, we would consider 

the significance of any corrections or 

revisions to the standard as well as 

whether the newer version is ‘‘backward 

compatible’’ with the previously 

adopted version. In this context, we 

intend the term ‘‘backward compatible’’

to mean that the newer version would 

retain, at a minimum, the full 

functionality of the version previously 

adopted in regulation, and would 

permit the successful completion of the 

applicable e-prescribing transaction 

with entities that continue to use the 

previous version. We note that, if an eprescribing transaction standard has 

also been adopted under 45 CFR parts 

160 through 162, we would coordinate 

the updating process for the eprescribing transaction standard with 

the maintenance and modification of the 

applicable HIPAA transaction standard. 

We also seek comment on whether we 

should simply reference the relevant 

HIPAA standard so that this standard 

will be updated automatically in concert 

with any HIPAA standard modification.

F. Compliance Date 

The Secretary proposes January 1, 

2006 as the compliance date for these 

proposed foundation standards. 

Beginning January 1, 2006, prescribers 

and dispensers that conduct eprescribing transactions for which 

standards are adopted, Part D sponsors 

would be required to use the standards 

proposed in this rule for transactions 

involving prescription or prescriptionrelated information regarding Part D 

enrolled individuals. Compliance is 

required whether the entity conducts eprescribing transactions directly or 

through an intermediary. The Secretary 

determined that compliance with these 

foundation standards should be 

consistent with and coincide with 

compliance for the Medicare 

Prescription Drug Program. In January 

2006 when entities begin participation 

in the Medicare Prescription Drug 

Program, these proposed standards will 

be available for them to use in their 

electronic prescription drug program 

transactions for Medicare Part D drugs 

for Part D enrolled individuals. 

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. 

Section 423.160 Standards for an 

Electronic Prescribing Program 

Discussion: The emerging and 

increasing use of health care EDI 

standards and transactions has 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 third-party disclosure 

as defined under the PRA. 

Therefore, as a third-party disclosure 

requirement subject to the PRA, Part D 

sponsors offering qualified prescription 

drug coverage must support and must 

comply with electronic prescription 

standards relating to covered Part D 

drugs, for Part D enrolled individuals as 

would be required under § 423.160. 

However, the requirement that 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 first set of final standards, these 

entities will be required to comply with 

the adopted final 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 

indicated 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. 

Since these standards are already in 

use, we believe the requirement to adopt 

these standards 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).

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: John Burke, 

CMS–0011–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 

6268 Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 

7Howell, Investors Business Daily, September 15, 

2003.

Office Building, Washington, DC 

20503, Attn: Christopher Martin, CMS 

Desk Officer, CMS–0011–P, 

Christopher_Martin@omb.eop.gov.

Fax (202) 395–6974. 

IV. Regulatory Impact Analysis 

[If you choose to comment on issues in 

this section, please include the caption 

‘‘IMPACT ANALYSIS’’ at the beginning 

of your comments.] 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

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

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4) and Executive Order 13132 on 

Federalism, and the Congressional 

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

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in costs and 

benefits in any 1 year). Our estimate is 

that this rulemaking has ‘‘economically 

significant’’ benefits as measured by the 

$100 million standard, and is also, 

therefore, a major rule under the 

Congressional Review Act. Accordingly, 

we have prepared a regulatory impact 

analysis. 

Statistics from the Henry J. Kaiser 

Family Foundation indicate that more 

than 3.1 billion retail prescriptions were 

written in the United States in 2003, 

with the average cost for a prescription 

ranging from $45 to $67, totaling $154 

billion. Individuals who are age 65 years 

and older average 26 prescriptions per 

year. The Medicare Prescription Drug 

Benefit final rule (published in the 

Federal Register on January 28, 2005, 

available online at http://

www.gpoaccess.gov) estimates that in 

calendar year (CY) 2006 about 29 

million Medicare beneficiaries will 

receive drug coverage through a 

Medicare Part D plan (that is, a PDP or 

MA–PD.) By CY 2010, with growth in 

the overall Medicare population, 

estimates indicate that about 35 million 

Medicare beneficiaries will be receiving 

this drug coverage. This impact analysis 

discusses the overall impact of 

instituting e-prescribing standards 

under the Medicare Prescription Drug 

Program. The overall requirements for 

supporting e-prescribing and providing 

incentives were discussed in the 

Medicare Prescription Drug Benefit 

proposed and final rules. However, the 

specific standards were not contained in 

that proposed rule and the impact 

analysis in that proposed rule did not 

analyze those requirements. The 

adoption of standards for the program 

will enhance the implementation and 

provide specific direction for providers, 

dispensers, plans, and vendors. 

According to testimony before the 

NCVHS and in the written comments in 

response to the Medicare Prescription 

Drug Benefit proposed rule (69 FR 

46632–46863), between 5 and 18 

percent of prescribers are conducting eprescribing.7 However, some studies 

have indicated increased prescriber 

interest and plans to move to eprescribing. We anticipate that the use 

of the standards proposed in this rule, 

and the fact that we are proposing that 

these standards be available for the 

January 2006 implementation of the 

Medicare Prescription Drug Program, 

will accelerate adoption of e-prescribing 

due to heightened awareness of the 

benefits, the variety of devices and 

connections available for prescribers, 

and the fact that the standards are 

already successfully being used. While 

there are no detailed models predicting 

specific rates of adoption for this 

technology, based on our sense of the 

likely expert consensus, we think it 

likely that the proportion of prescribers 

using e-prescribing will increase by 

about 10 percent annually over the next 

five years. The 10 percent annual 

growth in prescriber participation is a 

rough estimate, based on our 

expectations of—

• Publicity surrounding the Medicare 

Prescription Drug Program; 

• More publicity about the benefits of 

e-prescribing and the experience of 

prescribers who are participating; 

• Increased emphasis on health 

information technology in general;

• Potential cost savings to providers 

using e-prescribing; and 

• The availability of incentives for 

participation. 

We believe that as prescribers gain 

experience with e-prescribing, they will 

recognize the benefits and share those 

experiences with colleagues. We invite 

public comment on our expectations for 

prescriber participation. 

According to the Center for 

Information Technology Leadership 

(CITL), more than 8.8 million ADE 

occur each year in ambulatory care. Eprescribing helps to deliver relevant 

patient information at the time of 

prescribing. E-prescribing would allow a 

critical first level of safety checks to 

occur when a medication is prescribed 

(in addition to the patient safety 

software used at the point-of-service and 

the retrospective drug utilization 

reviews that are performed). The CITL 

estimates that nationwide adoption of eprescribing would eliminate nearly 2.1 

million ADEs per year in the U.S. This 

would prevent nearly 1.3 million 

provider visits, more than 190,000 

hospitalizations, and more than 136,000 

life-threatening ADEs. These 

improvements would result in improved 

care and safety for health plans’

members. 

There is also evidence suggesting that 

the use of specific drugs may reduce 

adverse health events, utilization of 

other health care services, and related 

costs for certain groups of patients. Eprescribing would promote efficient and 

effective use of drugs by ensuring that 

prescribers have up-to-date information 

regarding advances in drug therapies. 

For example, a recent study found that 

the use of statins in cholesterol-lowering 

drug therapy reduced the incidence of 

coronary disease-related deaths by 24 

percent in elderly men and women (ages 

70 to 82) with a history of, or risk factors 

for, vascular disease, and also reduced 

the incidence of non-fatal heart attacks 

and fatal or non-fatal strokes in these 

patients (‘‘Pravastatin in Elderly 

Individuals at Risk of Vascular Disease 

(PROSPER): A Randomised Controlled 

Trial,’’ Lancet 2002, 360:9346, 1623–

1630). 

In addition to the anticipated 

reductions in adverse health events 

associated with anticipated 

improvements in prescription drug 

compliance, we believe that many 

elements of the Medicare prescription 

drug benefit, including quality 

assurance, better information on drug 

costs (for example, through generic 

substitution), and medication therapy 

management which are designed to 

improve medication use and reduce the 

risk of adverse events, including adverse 

drug interactions, will be enhanced by 

e-prescribing. We believe that these 

improvements, enabled by e-prescribing 

programs, will occur through enhanced 

beneficiary education, health literacy 

and compliance programs; improved 

prescription drug-related quality and 

disease management efforts; and 

ongoing improvements in the 

information systems that are used to 

Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 6269

detect various kinds of prescribing 

errors, including duplicate 

prescriptions, drug-drug interactions, 

incorrect dosage calculations, and 

problems relating to coordination 

between pharmacies and health 

providers. We also believe that 

additional reductions in errors and 

additional improvements in 

prescription choices based on the latest 

available evidence will occur over time 

as the electronic prescription program 

provisions of the MMA are 

implemented. (To Err is Human: 

Building a Safer Health System, 

Institute of Medicine of the National 

Academies, 1999, pp. 191–193, http://

www.iom.edu or http://www.nap.edu.) 

At this time, we cannot predict how 

fast all of these savings will occur, nor 

their precise magnitude, as they are 

dependent on the rate at which we are 

able to adopt final standards for various 

aspects/functions of e-prescribing, the 

adoption of e-prescribing by prescribers, 

the quality of the systems implemented 

for e-prescribing, and the behavioral 

responses of prescribers, health care 

practitioners, dispensers, insurers (who 

help manage treatments), and patients. 

However, as indicated by the CITL 

report estimate, the potential is clearly 

very substantial. 

The ASC X12N 270/271 Transaction 

and the NCPDP Telecommunication 

Standard proposed in this rule for eprescribing transactions, are already 

adopted standards for HIPAA. Thus, any 

costs associated with adoption of these 

transaction standards are already 

encompassed in the baseline. (The 

impact of implementing these standards 

was analyzed and adopted in the Health 

Insurance Reform: Standards for 

Electronic Transactions final rule, 

published on August 17, 2000 in the 

Federal Register (65 FR 50312–50372) 

and available on the Web through

http://www.gpoaccess.gov.)

We note, however, that there is one 

very important difference between those 

HIPAA regulations and this proposal. In 

that rule, we knew that many of the 

electronic claims standards we were 

requiring were incompatible with many 

of those already in use for electronic 

billing of Medicare claims. In this 

proposed rule, we know that a 

substantial number of prescribers and 

other entities are already using the 

standards we are proposing. Thus, while 

the Transactions Rule and this proposed 

rule share common goals and methods, 

they have different implementation 

consequences. 

It is important to understand that this 

proposed rule involves both mandatory 

and voluntary elements, but that even 

the mandatory elements are enabling. 

For example, the statute might have 

encouraged e-prescribing by making it a 

required condition of participation in 

Medicare, through positive financial 

incentives, by reducing barriers to 

adoption, by increasing the value of eprescribing systems, or through other 

means. The primary method chosen by 

the Congress was to increase the value 

of e-prescribing systems by mandating 

uniform standards for e-prescribing. 

Uniform standards reduce barriers to 

adoption by reducing uncertainty in the 

marketplace regarding which standards 

will be the industry standards of the 

future. These incentives are created 

without imposing substantial costs. For 

potential new e-prescribers, whose 

choice to adopt e-prescribing is 

voluntary, these standards provide the 

advantages of uniformity and reduced 

uncertainty, and, hence, reduce costs or 

increase benefits of adoption. For those 

existing entities that currently engage in 

e-prescribing transactions whose 

systems are currently incompatible with 

these standards (if any), transitioning to 

the foundation standards will be 

mandatory to continue e-prescribing 

(with the option of returning to paper) 

and will come at some cost, but will 

also increase value of these systems in 

the long run as it will enable these 

entities to communicate with all other eprescribers. Only for Part D sponsors is 

use of these standards mandatory, and 

even then, only to receive or reply to eprescribing transactions initiated by 

other entities. 

We are soliciting public comment on 

the estimates used to determine the 

regulatory impact for this proposed rule. 

Because of the current lack of adequate 

data, we are unable to completely 

quantify the full costs and savings that 

may be achieved in implementing 

electronic prescription drug programs 

under the MMA. We are asking for 

public comment and input on the data 

and issues presented in this impact 

analysis. We plan to publish a more 

complete impact analysis in the final 

rule, including an assessment of impacts 

on the Medicare program, the effect on 

Part D spending, annual savings to 

Medicare, costs to plans and providers, 

and estimated costs and savings for the 

private sector and other Federal 

programs. 

B. Impact on Health Plans/PBMs 

The final rule on the Medicare 

Program Prescription Drug Benefit 

estimates that 100 PDP sponsors and 

350 MA organizations will submit 

applications on an annual basis for 

participation in the Medicare 

Prescription Drug Program. Testimony 

presented to the NCVHS (available on 

the Web at http://www.ncvhs.hhs.gov) 

indicated that because most health 

plans/PBMs currently have eprescribing capability, any additional 

costs associated with hardware/software 

connectivity would be minimal. Since 

the great majority of health plans 

contract with PBMs for pharmacy 

benefit administration, we do not 

consider the fees associated with these 

contracts to be an additional cost for 

plans conducting electronic prescription 

drug programs, although connectivity 

costs could increase based on volume. 

Although we believe that costs 

incurred by health plans will be 

minimal, even in those few cases where 

plans do not currently support eprescribing directly or through PBM 

contracts, it is possible that some plans 

will experience consequential costs that 

we have not foreseen. We request 

comments on possible costs to plans, 

and on steps we could take to 

ameliorate any unnecessary costs. We 

also request comment on our 

expectation, discussed below, that plans 

will experience substantial financial 

benefits from e-prescribing and that the 

new standards will be cost-beneficial to 

plans. 

The only expense attributable to 

health plans by this impact analysis are 

those that would be incurred by plans/

PBMs for voluntarily providing 

financial incentives and technical 

assistance to participating physicians to 

conduct e-prescribing. We expect many 

plans to provide these incentives to 

prescribers to offset prescribers’ initial 

cost of installing the hardware and 

software, thereby encouraging the 

adoption of e-prescribing. We expect 

that this will be a transfer of costs from 

prescribers to health plans, and will 

neither increase nor decrease the overall 

impact of implementing an electronic 

prescription drug program. We note that 

such incentives must not and will not 

violate Federal or State laws prohibiting 

kickbacks and physician self-referrals. 

As stated earlier in the preamble, we 

will publish a proposed rule to create an 

exception under section 1877 of the Act, 

commonly called the Stark law, for 

incentives related to e-prescribing. Also, 

the Department’s Inspector General is 

considering how best to establish a safe 

harbor under the Anti-Kickback Statute.

Health plans have a substantial 

incentive to subsidize the cost of 

physicians’ adoption of E-prescribing 

because the plans would share in the 

likely savings in health care spending 

through reductions in adverse events 

and improved compliance. Thus, it is 

likely that the net effect on plans would 

be positive rather than negative. 

Moreover, there is no reason to expect 

6270 Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 

health plans to incur costs without the 

expectation of a positive return. 

However, we have no basis at this time 

for estimating the precise timing or 

magnitude of either gross or net savings. 

We request public comments and 

information on this topic that we can 

utilize when revising this analysis for 

the final rule. 

Health plans that have offered 

incentives to prescribers have estimated 

the hardware and software costs for 

implementing an E-prescribing system 

for a provider to be approximately 

$1500 per prescriber. At this time, a 

number of health plans are developing 

incentive packages for prescribers to 

initiate e-prescribing; however, we do 

not have figures to indicate the extent of 

these offerings, and invite public 

comment on the impact for both 

prescribers and health plans. Because 

we cannot estimate at this time the 

incentives that plans may provide, we 

do not know how costs will be shared 

between prescribers and plans. 

Therefore, at this time we are attributing 

all of the costs to prescribers, as 

discussed in the next section. 

C. Impact on Prescribers 

Current surveys estimate that between 

5 and 18 percent of physicians and 

other clinicians are using e-prescribing. 

According to the Agency for Healthcare 

Research and Quality, MEPS Highlights 

#11, more than 3 billion prescriptions 

are written annually. The ‘‘2003 CMS 

Statistics’’ publication reports the 

number of physicians in active practice 

at 888,061. We assume that all of these 

physicians are considered prescribers. 

However, the number of practicing 

physicians is not a direct measure of the 

volume or scope of potential eprescribing adoption. According to the 

2002 Economic Census, Health Care and 

Social Assistance industry publication 

(http://www.census.gov), there are about 

203,000 physician office establishments. 

This smaller number reflects the 

common use of group practices and 

other arrangements that allow 

physicians to share caseload, facilities, 

and costs. For these and other 

prescribers, the likely focus of a 

decision to adopt e-prescribing is the 

office, rather than the individual 

physician. 

Although physicians are encouraged 

to adopt e-prescribing technology, 

whether physicians prescribe 

electronically under the MMA is, 

nevertheless, voluntary. We expect eprescribing to reduce prescriber costs 

and produce net economic benefits to 

prescribers, but the magnitude and 

timing of savings first will have to be 

demonstrated to many prescribers to 

induce them to make the ‘‘up front’’

investment in new systems. Finally, an 

additional incentive for prescribers to eprescribe exists, which is the improved 

patient care that e-prescribing brings. 

Because we cannot determine the effect 

of these factors on prescribers at this 

time, we do not know how many 

prescribers will move to e-prescribing or 

when they will do so. 

After this proposed rule becomes 

final, once a prescriber decides to 

conduct e-prescribing for Part D drugs, 

for Part D enrolled beneficiaries, the 

prescriber would be required to comply 

with the standards being proposed in 

this regulation. However, we have no 

reason to believe that the use of these 

particular proposed standards would 

increase costs for new adopters, 

compared to what costs otherwise 

would have been. Even for those (and 

we think they are few) who are 

currently using systems that may be in 

some respects incompatible with these 

standards, we would expect vendors to 

upgrade those systems at no or nominal 

cost as part of their normal version 

updating process. Moreover, a system 

that uses uniform standards would 

enable a prescriber to do business with 

multiple entities, and reduce costs 

compared to the alternative of having to 

deal with multiple conflicting systems. 

We do, however, request comments on 

whether there are some transition costs 

attributable to these standards and 

whether there are steps that we could 

take to mitigate those costs.

One of the barriers to early adoption 

of e-prescribing by prescribers is the 

cost of buying and installing a system. 

Included in the overall costs of buying 

and installing systems are several 

factors including—

• Changing in the business practices 

of providers’ offices. 

• Changing record systems from 

paper to electronic; and 

• Training staff. 

Since these costs may be defrayed by 

the incentives that are being offered, or 

that may be offered, to prescribers, we 

expect a steady increase in the number 

electronic prescribers. We do not know 

all of the various incentives being 

offered, but are aware that some health 

plans have offered hardware and 

software for e-prescribing and 

reimbursement for the first year’s eprescribing subscription fees (as 

indicated above, such arrangements 

must not violate Federal and State laws 

prohibiting kickbacks and physician 

self-referrals). We invite public 

comments on the nature and extent of 

incentives being offered to encourage 

prescribers to conduct e-prescribing or 

likely to be offered subsequent to the 

publishing of regulations to create an 

exception to the Stark law and an antikickback safe harbor for e-prescribing. 

We also anticipate that increased 

communication regarding the safety 

improvements and cost savings 

experienced with e-prescribing will 

encourage prescriber acceptance. 

There is anecdotal evidence of direct 

economic benefits that accrue to 

prescribers that implement eprescribing, in addition to the 

previously discussed health benefits to 

patients. The following examples of 

these benefits have been reported: 

• A 53 percent reduction in calls 

from, and a 62 percent reduction in calls 

to, the pharmacy. 

• Time savings of one hour per nurse 

and 30 minutes per file clerk per day by 

streamlining medication management 

processes. 

• A large practice in Lexington, 

Kentucky estimates that e-prescribing 

saves the group $48,000 a year in 

decreased time spent handling 

prescription renewal requests. 

• Prior to implementation of eprescribing, a large practice in Kokomo, 

Indiana with 20 providers and 134,000 

annual patient office visits was 

receiving 370 daily phone calls, 206 of 

which were related to prescriptions. Of 

the 206 prescription-related calls, 97 

were prescription renewal requests. The 

remainder consisted of clarification 

calls from pharmacists or requests for 

new prescriptions. Staff time to process 

these calls included 28 hours per day of 

nurse time and 4 hours per day of 

physician time. Chart pulls were 

required in order to process half of the 

renewal requests. Implementation of an 

e-prescribing system produced dramatic 

time savings that permitted reallocation 

of nursing and chart room staff. 

• Potential reductions in malpractice 

insurance because of improvements in 

the quality of patient care resulting from 

better tracking of patients’ drug regimen 

and a reduction of ADEs, which may 

occur with e-prescribing. 

These examples come from large 

practices, but we would expect that 

most if not all of them would apply 

equally well to smaller practices. We 

request public comments and additional 

information on actual and potential 

savings, particularly in solo and small 

group practices. 

As can be seen from this discussion, 

there are both potential costs and 

potential benefits for providers that 

implement e-prescribing. The number of 

prescriptions that a provider writes is a 

critical issue for providers in 

determining whether an e-prescribing 

system will be cost beneficial to them. 

Although a cost of approximately $1500, 

Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 6271

8Hutchinson, Kevin, SureScripts. Testimony 

before the NCVHS Subcommittee on Standards and 

Security, May 25, 2004.

9National Community Pharmacists’ Association, 

press release, June 29, 2004.

10To Err is Human: Building a Safer Health 

System, Institute of Medicine of the National 

Academies, 1999, pp. 191–193, http://www.oim.edu

or http://www.nap.edu.

amortized over several years, would 

appear very small in the context of even 

a solo practitioner’s overall practice 

costs (and certainly far below the 

threshold of 3 to 5 percent of revenues 

that we normally use for economic 

significance determinations under the 

RFA), it is possible that some providers 

may be negatively affected. However, 

the voluntary nature of e-prescribing for 

prescribers makes this unlikely, since 

each is free to make its own business 

decision regarding whether and how to 

implement e-prescribing. Prescribers 

that have already implemented eprescribing are also unlikely to be 

negatively affected, because the 

standards we are proposing are 

currently used by most e-prescribing 

software products in use. 

At this time we do not have sufficient 

information on either the costs or 

benefits for a given type or size of 

provider to conduct a cost-benefit 

analysis for that provider type or size. 

We are requesting information on these 

factors to help us improve our analysis 

for the final rule. Additional examples 

of administrative savings from eprescribing, as well as costs of 

implementing such systems, would be 

particularly beneficial. 

D. Impact on Pharmacies and Other 

Dispensers 

Testimony from pharmacists and 

professional pharmacy organizations 

provided to the NCVHS (available on 

the Web at http://www.ncvhs.hhs.gov) 

reported the following benefits of eprescribing for pharmacies: 

• Reduced time-consuming phone 

calls to physicians. 

• Improved accuracy and less time for 

refill authorizations. 

• Additional time available for 

patient contact and services. 

• Improved prescription 

communication between prescriber and 

dispenser (through, among other things, 

reduction in illegible handwritten paper 

prescriptions).

• Improved turnaround time for refill 

authorizations. 

We do not expect to see a material 

change in the volume of prescriptions 

written for pharmacies to fill because of 

e-prescribing. While we expect to see 

the efficiencies (discussed at the 

beginning of this section) at pharmacies 

with some possible reductions in 

administrative staff time, we do not 

expect to see a significant economic 

effect from the implementation of eprescribing in the Medicare Part D 

program. The industry has provided 

information indicating that 75 percent 8

of the 57,208 pharmacies 9 in the U.S. 

already have e-prescribing capability 

which suggests that pharmacies already 

find this a beneficial investment. In this 

respect, we note that the great majority 

of pharmacies are already highly 

networked for other reasons, and, 

therefore, assume that the marginal 

costs of e-prescribing are likely to be 

small. For example, as indicated earlier 

in this preamble, we believe that over 95 

percent of pharmacy systems are already 

compatible with the NCPDP retail 

pharmacy drug claim standard. Since 

adoption is likely to be profitable, and 

voluntarily undertaken only where 

expected to be profitable, we would 

expect any net effects to be positive. We 

do, however, request additional 

information on pharmacy impacts.

E. Impact on Patients 

E-prescribing has the potential for 

improving beneficiary health outcomes. 

E-prescribing systems enable 

appropriate drug compliance 

management and improved medication 

use, and provide information to prevent 

adverse drug events. E-prescribing 

systems can improve patient safety by 

detecting various kinds of prescribing 

errors, including duplicate 

prescriptions; drug-drug, drug-allergy 

and drug-disease interactions; incorrect 

dosage strengths prescribed; and 

problems relating to coordination 

between health care providers and 

pharmacies. These reductions in errors 

and improvements in regimens would 

occur over time as more and more 

providers use the e-prescribing systems 

for the Medicare Prescription Drug 

Benefit.10 E-prescribing can also drive 

physicians to appropriate formulary 

choices, which can save money for the 

health plans, patients, and health care 

system.

Nothing in this system creates direct 

costs for patients. We believe that 

reductions in patient mortality and 

morbidity would be a substantial benefit 

resulting from the adoption of eprescribing, although we are unable at 

this time to provide quantitative 

estimates. Patient health benefits are 

likely to far exceed the other categories 

of benefits and direct costs.

F. Impact on Others 

We see the growth of e-prescribing as 

business potential for healthcare 

information technology vendors. Any 

costs associated with e-prescribing and 

potential business opportunities could 

be allocated toward new product 

development. We have no estimates for 

these types of costs, and invite public 

comment from healthcare information 

technology vendors and others on the 

impact of e-prescribing. 

E-prescribing is in widespread use 

among some segments of the industry 

such as pharmacies and PBMs; however, 

we have not determined the impact and 

extent of experience for other entities 

such as pharmaceutical and medical 

device manufacturers, public health 

organizations, research and academic 

institutions, and professional lay 

organizations. We invite public 

comment on the impact of e-prescribing 

for these entities. The Health 

Information Network Weekly Update 

(Volume VI, No. 49, November 15, 2004) 

stated that e-prescribing is at the top of 

the list of e-health applications that will 

see the greatest growth. Thirty-nine 

percent of participants predict eprescribing will be the most widely 

embraced e-health application. 

G. Impact on Small Businesses 

The RFA requires agencies to analyze 

options for regulatory relief for small 

businesses when proposed rules may 

create a significant impact on a 

substantial number of small entities. For 

purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and small governmental 

jurisdictions. Most hospitals and most 

other providers and suppliers are small 

entities, either by nonprofit status or by 

having revenues of less than $6 million 

a year. For purposes of the RFA, 

approximately 95 percent of pharmacy 

firms, which account for about 51 

percent of pharmacy establishments, are 

small business based upon 1997 Census 

data. There are 57,208 retail pharmacy 

establishments based upon ‘‘2004 

National Community Pharmacists 

Association Pfizer Digest.’’ Therefore, 

we estimate that more than 29,000 

pharmacy establishments would be 

considered small entities. Almost all 

physicians in private practice (or the 

practices of which they are members) 

are small entities because their annual 

revenues do not meet the Small 

Business Administration’s $8.5 million 

threshold for ‘‘small’’ physician 

practices. Individuals and States are not 

included in the definition of a small 

entity, and this proposed rule has no 

6272 Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 

effect on small governmental 

jurisdictions. 

We believe that this proposed rule 

would have an impact on a substantial 

number of small businesses due to the 

percentage of pharmacies and providers 

that are small businesses. We recognize 

that there will be a distribution of costs 

and benefits with proportionately higher 

costs incurred by smaller entities than 

by larger entities, primarily as a result 

of economies of scale. However, as 

indicated earlier in this section, as many 

as 75 percent of pharmacies already are 

conducting e-prescribing and 5 to 18 

percent of prescribers are using this 

technology. Clearly, these rates of 

voluntary adoption indicate that it 

provides net economic benefits. 

Furthermore, this proposed rule 

recognizes that e-prescribing remains 

voluntary for entities that are not Part D 

sponsors. That is, prescribers and 

dispensers are only required to comply 

with the standards under section 

1850D–4(e)(1) of the Act if they 

electronically transmit prescriptions or 

other information, with respect to Part 

D drugs for beneficiaries enrolled in Part 

D. Finally, we believe that the effects of 

adoption are economically beneficial to 

affected entities. 

We note that this conclusion differs 

from the impact of the HIPAA 

Transactions Rule. The HIPAA 

Transactions Rule, although voluntary 

for health care providers, was 

determined to have a significant impact. 

The basis for that determination was 

that a significant percentage of 

providers were already conducting the 

relevant transactions electronically in 

nonstandard form. For example, over 80 

percent of Medicare claims submitted 

by physicians were transmitted 

electronically. Those providers would 

have been required to switch to the 

HIPAA standards, which were not in 

widespread use, creating a burden on a 

large percentage of affected entities. By 

contrast, only 5 to 18 percent of 

prescriptions are conducted 

electronically, and the small number of 

providers who are doing so are very 

likely already using the standards we 

are proposing.

Accordingly, we conclude that this 

proposed rule would not have a 

significant economic impact upon a 

substantial number of small entities, 

and that an Initial Regulatory Flexibility 

Analysis is not required. We welcome 

comments on this conclusion and 

additional information on the small 

business effects of this proposed rule. 

Section 1102(b) of the Act requires us 

to prepare a regulatory impact analysis 

if a rule may have a significant impact 

on the operations of a substantial 

number of small rural hospitals. This 

analysis must conform to the standards 

of section 604 of the RFA. For purposes 

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

a small rural hospital as a hospital that 

is located outside of a Metropolitan 

Statistical Area and has fewer than 100 

beds. This proposed rule would not 

affect small rural hospitals because the 

program will be directed at outpatient 

prescription drugs 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, we are not 

providing an analysis. We further 

estimate that this proposed rule would 

not have a significant impact on small 

rural hospitals because the e-prescribing 

provisions are both voluntary and costbeneficial for prescribers. In-hospital 

pharmacy units and staff physicians 

should face the same benefit/cost 

calculus as their counterparts, and 

would, therefore, have no net costs 

imposed upon them by adoption of eprescribing. 

H. Effects on States and Federalism 

Statement 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies assess anticipated costs 

and benefits before issuing 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. The private sector would 

incur costs for hardware and software 

upgrades, and connectivity for 

implementation of e-prescribing. 

However, except for MA and PDP plans, 

this proposed rule does not include any 

mandate that would result in this 

spending because it only deals with the 

informational standards to be used in 

voluntarily adopted practices, and, 

therefore, that spending does not pertain 

to the thresholds of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4). Furthermore, we believe that the 

effects of adoption will be positive, 

rather than involve net expenditures. 

Regardless, even using our estimates of 

significant increases in the use of eprescribing, we do not believe annual 

expenditures on installing this 

capability will reach $110 million 

annually. Certainly, we would expect 

the only entities that are required to 

comply, Part D sponsors (and possibly 

a few existing e-prescribers), to incur 

only minimal costs, totaling no more 

than a small fraction of this threshold. 

With respect to States, nothing in this 

proposed rule mandates any 

expenditure by States. While some 

hospitals and other providers are Stateowned, our conclusions with respect to 

each type of affected entity are not 

affected by ownership status. 

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. 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 discussed 

previously in this preamble, and as 

mandated by section 1860D–4(e) of the 

Act, we are proposing to preempt State 

law. 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 suggest as to the scope 

of preemption discussed earlier in the 

preamble provide 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, 

together with the earlier preamble 

section entitled ‘‘State Preemption’’, 

constitute the Federalism summary 

impact statement required under the 

Executive Order. 

I. Conclusion and Alternatives 

Considered 

For the reasons given above, we are 

not preparing analyses under the RFA, 

section 1102(b) of the Act, or the 

Unfunded Mandates Reform Act. We 

have, nevertheless, considered the 

alternatives discussed below. We 

welcome comments on ways to lessen 

any unforeseen burden of our proposals, 

on alternatives that might be more 

effective or less costly, and on any other 

improvements we can make before 

issuing a final rule. 

Two sets of standards that we are 

proposing in this rule already are 

required standards under the 

Administrative Simplification 

provisions of HIPAA. The ASC X12N 

Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 6273

270/271—Health Care Eligibility Benefit 

Inquiry and Response and NCPDP 

Telecommunication Standard are 

adopted standards and required when 

conducting standard transactions. We 

are proposing these standards for eprescribing because they are already 

adopted standards for HIPAA 

transactions and meet some of the 

requirements specified in Title I, section 

1860D–4(e) of the Act, as amended by 

section 101 of the MMA. 

The NCPDP SCRIPT Standard is in 

widespread use and meets many of the 

e-prescribing requirements outlined in 

section 1860D–4(e) of the Act. Also, 

NCPDP is developing NCPDP SCRIPT 

transactions to meet other MMA 

requirements for future consideration or 

pilot testing. The NCVHS did not 

recommend any viable alternatives for 

e-prescribing foundation standards 

because testimony presented by the 

industry during the NCVHS hearings 

strongly supported the NCPDP SCRIPT 

Standard (available on the Web at

http://www.ncvhs.hhs.gov). 

An alternative to adopting these 

particular standards as final foundation 

standards for e-prescribing would be to 

pilot test the recommended standards. 

The NCVHS did not recommend pilot 

testing for these foundation standards 

because they are already adopted 

standards with adequate industry 

experience. 

Another alternative considered would 

be to adopt formulary and medical 

history standards based on proprietary 

standards that are not ANSI accredited. 

If the coalition developing these 

standards is successful with the 

accreditation process and there is 

evidence of adequate industry 

experience with these standards, the 

standards could be adopted in the final 

rule. We would consider including a 

functional equivalence standard in the 

final rule if a reasonable one could be 

devised. However, the standards 

proposed allow alternatives, as long as 

the informational content and format are 

comparable.

List of Subjects 42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations, (HMO), Health 

professions, Medicare, Penalties, 

Privacy, Reporting and recordkeeping 

requirements.

For reasons set forth in the preamble 

in this proposed regulation, the Centers 

for Medicare & Medicaid Services 

proposes to amend 42 CFR part 423 (to 

be published on January 28, 2005 and 

effective on March 22, 2005) 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).

Subpart D—Cost Control and Quality 

Improvement Requirements 

2. The title for subpart D is revised to 

read as set forth above. 

3. In § 423.150, paragraph (c) is 

revised to read as follows:

§ 423.150 Scope.

* * * * *

(c) Electronic prescription drug 

programs for prescribers, dispensers and 

Part D sponsors.

* * * * *

4. Section 423.159 is amended by 

revising the heading and adding a new 

paragraph (a) to read as follows:

§ 423.159 Electronic Prescription Drug 

Program. 

(a) Definitions. For purposes of this 

section, the following definitions apply: 

Dispenser means a person or other 

legal entity licensed, registered, or 

otherwise permitted by the jurisdiction 

in which the person practices or the 

entity is located to provide drug 

products for human use by prescription 

in the course of professional practice. 

Electronic media shall have the same 

meaning as this term is defined in 45 

CFR 160.103. 

E-prescribing means the transmission, 

using electronic media, of prescription 

or prescription-related information 

between a prescriber, dispenser, 

pharmacy benefit manager, or health 

plan, either directly or through an 

intermediary, including an e-prescribing 

network. 

Electronic Prescription Drug Program

means a program that provides for eprescribing for covered Part D drugs 

prescribed for Part D eligible 

individuals who are enrolled in Part D 

plans. 

Prescriber means a physician, dentist, 

or other person licensed, registered, or 

otherwise permitted by the U.S. or the 

jurisdiction in which he or she 

practices, to issue prescriptions for 

drugs for human use. 

Prescription-related information

means information regarding eligibility 

for drug benefits, medication history, or 

related health or drug information for a 

Part D eligible individual enrolled in a 

Part D plan.

* * * * *

5. Section 423.160 is added to read as 

follows:

§ 423.160 Standards for electronic 

prescribing. 

(a) General Rules. (1) Part D sponsors 

must establish and maintain an 

electronic prescription drug program 

that complies with the applicable 

standards in paragraph (b) of this 

section when transmitting, directly or 

through an intermediary, prescriptions 

and prescription-related information 

using electronic media for covered Part 

D drugs for Part D eligible individuals 

enrolled in a Part D plan. 

(2) Prescribers and dispensers that 

transmit, directly or through an 

intermediary, prescriptions and 

prescription-related information using 

electronic media must comply with the 

applicable standards in paragraph (b) of 

this section when e-prescribing for 

covered Part D drugs for Part D eligible 

individuals enrolled in a Part D plan. 

(b) Standards. (1) Prescription. The 

National Council for Prescription Drug 

Programs SCRIPT Standard, Version 5, 

Release 0, May 12, 2004, 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. 

(2) Eligibility. (i) The American 

Standards Committee 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 4010, October 2002, 

Washington Publishing Company, 

004010X092A1, for transmitting 

eligibility inquiries and responses 

between prescribers and Part D 

sponsors. 

(ii) The National Council for 

Prescription Drug Programs 

Telecommunication Standard Guide, 

Version 5, Release 1 (Version 5.1), 

September 1999, and equivalent NCPDP 

6274 Federal Register / Vol. 70, No. 23 / Friday, February 4, 2005 / Proposed Rules 

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, 

for transmitting eligibility inquiries and 

responses between dispensers and Part 

D sponsors. 

(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 the 

National Council for Prescription Drug 

Programs SCRIPT Standard, Version 5, 

Release 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); the American 

Standards Committee X12N 270/271—

Health Care Eligibility Benefit Inquiry 

and Response, Version 4010, May 2000, 

004010X092 and Addenda to Health 

Care Eligibility Benefit Inquiry and 

Response, Version 4010, October 2002, 

Washington Publishing Company, 

004010X092A1, and the National 

Council for Prescription Drug Programs 

Telecommunication Standard Guide, 

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 5, 

Release 1 (Version 5.1) for the NCPDP 

Data Record in the Detail Data Record. 

You may inspect copies of these 

materials 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 information on the availability of 

this material at CMS, call 410–786–

0273. For 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. You may 

obtain a copy of the National Council 

for Prescription Drug Programs SCRIPT 

Standard, Version 5, Release 0, May 12, 

2004, from the 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. You may 

obtain a copy of the American 

Standards Committee 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 4010, October 2002, 

Washington Publishing Company, 

004010X092A1 from the Washington 

Publishing Company, PMB 161, 5284 

Randolph Road, Rockville, MD, 20852–

2116; Telephone (301) 949–9740; and 

FAX: (301) 949–9742 or http://

www.wpc-edi.com/. You may obtain a 

copy of the National Council for 

Prescription Drug Programs 

Telecommunication Standard Guide, 

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 5, 

Release 1 (Version 5.1) for the NCPDP 

Data Record in the Detail Data Record, 

from the 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.

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program)

Dated: November 4, 2004. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services.

Approved: January 12, 2005. 

Tommy G. Thompson, 

Secretary.

[FR Doc. 05–1773 Filed 1–27–05; 11:04 am] 

BILLING CODE 4120–01–P