[Federal Register Volume 70, Number 23 (Friday, February 4, 2005)]
[Proposed Rules]
[Pages 6256-6274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-1773]



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Part V





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 423



Medicare Program; E-Prescribing and the Prescription Drug Program; 
Proposed Rule

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

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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.

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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 
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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

[[Page 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 e-prescribing standards apply only to 
information regarding Part D eligible individuals enrolled in Part D 
plans--that is, enrollees of prescription drug plans (PDPs) (including 
employer-sponsored 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 e-prescribing 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 e-prescribing 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 
Sec.  423.159, and the ``General Rules'' in proposed Sec.  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),

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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:
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    \1\ Catizone, Carmen A. National Association of Boards of 
Pharmacy. Testimony before the NCVHS, July 29, 2004.

    (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.
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    \2\ See 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).
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    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

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intended to preempt the field of e-prescribing 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 e-prescribing; 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 self-referral 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:
    <bullet> Standard setting organizations (as defined in section 
1171(8) of the Act).
    <bullet> Practicing physicians.
    <bullet> Hospitals.
    <bullet> Pharmacies.
    <bullet> Practicing Pharmacists.
    <bullet> Pharmacy Benefit Managers.
    <bullet> State Boards of Pharmacy.
    <bullet> State Boards of Medicine.
    <bullet> Experts on e-prescribing.
    <bullet> 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 e-prescribing, among others, 
testified. The NCVHS also consulted with standard-setting 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 e-prescribing 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 e-prescribing, 
including testimony from a broad range of stakeholders. The NCVHS will 
be developing

[[Page 6260]]

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--
    <bullet> 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;
    <bullet> 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
    <bullet> 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 drug-
prescribing 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\
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    \3\ Hutchison, Kevin, SureScripts. Testimony before the NCVHS 
Subcommittee on Standards and Security, May 25, 2004.
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    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.
---------------------------------------------------------------------------

    \4\ Center 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.
---------------------------------------------------------------------------

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--
    <bullet> Actively promoting appropriate drug usage, such as 
following a medication regimen for a specific condition;
    <bullet> Providing information about formulary-based drug coverage, 
including formulary alternatives and co-pay information;
    <bullet> 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
---------------------------------------------------------------------------

    \6\ Ennis K., Maus R. Kokomo Family Care: Automating the 
Clinical Practice. MGM Journal, 2001 (July/August): p. 8-11.
---------------------------------------------------------------------------

    <bullet> 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

[[Page 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:
    <bullet> 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.
    <bullet> 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.
    <bullet> 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 e-prescribing 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--
    <bullet> Prescription;
    <bullet> Information on eligibility and benefits (including the 
drugs included in the applicable formulary, any tiered formulary 
structure, and any requirements for prior authorization);
    <bullet> Information on the drug being prescribed or dispensed and 
other drugs listed on the medication history;
    <bullet> Information on drug-drug interactions, warnings or 
cautions, and, when indicated, dosage adjustments;
    <bullet> Information on the availability of lower cost, 
therapeutically appropriate alternatives (if any) for the drug 
prescribed; and
    <bullet> 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 Sec.  
162.1101 through Sec.  162.1802. Two of the eight Administrative 
Simplification Standard Transactions conducted between providers and 
health plans at Sec.  162.1101 through Sec.  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 e-prescribing 
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.

[[Page 6262]]

    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 e-prescribing 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:

----------------------------------------------------------------------------------------------------------------
                                         NCVHS Standards
              Function                Recommendations--  HHS                   Standard in NPRM
                                             Should:
----------------------------------------------------------------------------------------------------------------
Provider and Dispenser Identifiers.  Adopt NPI when it        No.
                                      becomes available.
Prescription (Clinical drug).......  Include in the 2006      No.
                                      pilot tests the RxNorm
                                      terminology in the
                                      NCPDP SCRIPT Standard.
Drug order for new, renewals,        Recognize, as a          Yes.
 cancellations, and change orders.    foundation standard,
                                      the most current
                                      version of NCPDP
                                      SCRIPT for new
                                      prescriptions,
                                      prescription renewals,
                                      cancellations, and
                                      changes between
                                      prescribers and
                                      dispensers.
Drug orders for fill status          Should include the fill  No.
 notification.                        status notification
                                      function of the NCPDP
                                      SCRIPT Standard in the
                                      2006 pilot tests.
Patient instructions (SIG).........  Support NCPDP, HL7, and  No.
                                      others (especially
                                      including the
                                      prescriber community)
                                      in addressing SIG
                                      (patient instruction)
                                      components in their
                                      standards.
Medication history.................  Participate in and       Standard functionality identified.
                                      support rapid
                                      development of an
                                      NCPDP standard for a
                                      medication history
                                      message for
                                      communication from a
                                      payer/PBM to a
                                      prescriber.
Formulary and benefit coverage       Participate in and       Standard functionality identified.
 information.                         support the rapid
                                      development of an
                                      NCPDP standard for
                                      formulary and benefit
                                      information file
                                      transfer.
Eligibility inquiry and response...  Recognize, as a          Yes.
                                      foundation standard,
                                      the NCPDP
                                      Telecommunication
                                      Standard and the ASC
                                      X12N 270/271-Health
                                      Care Eligibility
                                      Benefit Inquiry and
                                      Response.
Prior authorization................  Support ASC X12N in      No.
                                      their efforts to
                                      incorporate
                                      functionality for real-
                                      time prior
                                      authorization messages
                                      for drugs in the ASC
                                      X12N 278 Health Care
                                      Services Review.
Drug-drug Interaction..............  No recommendations       No.
                                      advanced. Subject to
                                      future NCVHS hearings.
Medical History....................  No recommendations       No.
                                      advanced. Subject to
                                      future NCVHS hearings.
Exchange of medication history, and  No recommendations       No.
 medical history for e-prescribing    advanced. Subject to
 program.                             future NCVHS hearings.
Electronic signature...............  No recommendations       No.
                                      advanced. Subject to
                                      future NCVHS hearings.
----------------------------------------------------------------------------------------------------------------

    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:
    <bullet> 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 e-

[[Page 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 e-prescribing, 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 
e-prescribing 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[reg] 
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.
    <bullet> 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 ANSI-accredited 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:
    <bullet> The standards are accredited by an ANSI-accredited 
standards development organization.
    <bullet> The standards permit interface with multiple product, 
router, and point-of-care (POC) vendors.
    <bullet> 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.
    <bullet> 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:
    <bullet> The standards are accredited by an ANSI-accredited 
standards development organization.
    <bullet> The standards permit interface with multiple product, 
router, and POC vendors.
    <bullet> 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.
    <bullet> 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.
    <bullet> Drug Information. Section 1860D-4(e)(2) of the Act 
specifies that an electronic prescription drug program

[[Page 6264]]

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.
    <bullet> 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, MA-organizations, and PDPs engaged 
in e-prescribing 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:
    <bullet> The NCPDP SCRIPT Standard Version 5, Release 0 (Version 
5.0), May 12, 2004 (hereafter referred to as the NCPDP SCRIPT 
Standard).
    <bullet> 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).
    <bullet> 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 
Sec.  423.150(c) to state expressly that this subpart sets forth 
requirements relating to electronic prescription drug programs

[[Page 6265]]

for prescribers, dispensers, and Part D sponsors.

B. Proposed Definitions

    We propose to amend Sec.  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:
    <bullet> 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.
    <bullet> Electronic media shall have the same meaning as this term 
defined for purposes of HIPAA, in 45 CFR 160.103.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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 staff-model HMOs, currently conduct 
e-prescribing 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 e-prescribing standards.

D. Proposed Requirements for Prescribers and Dispensers

    Part D sponsors would be required to comply with the applicable 
proposed standards in new Sec.  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 Sec.  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 Sec.  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:
    <bullet> New prescription transaction
    <bullet> Prescription refill request and response transactions
    <bullet> Prescription change request and response transactions
    <bullet> Cancel prescription request and response transactions
    <bullet> 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

[[Page 6266]]

Standard meet our proposed criteria for adequate industry experience 
for the following reasons:
    <bullet> 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 ANSI-Accredited 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.
    <bullet> Second, the NCPDP SCRIPT Standard transactions proposed 
for adoption have been used in multiple e-prescribing 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.
    <bullet> Third, the NCPDP SCRIPT Standard transactions we propose 
for adoption are recognized as the industry standard. Over 25 e-
prescribing vendors (stand-alone 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 Sec.  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:
    <bullet> First, the ASC X12N 270/271 are ANSI-accredited standards.
    <bullet> 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 Sec.  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:
    <bullet> First, these standards adhere to EDI for EDIFACT and ASC 
standards. As previously stated, NCPDP is a not-for-profit 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, 
consensus-based standards that were developed by NCPDP, and approved by 
full ballot voting in accordance with ANSI's procedures for due 
process, openness and consensus.
    <bullet> 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.

[[Page 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.
    <bullet> 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 e-prescribing 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 e-prescribing transaction 
standard has also been adopted under 45 CFR parts 160 through 162, we 
would coordinate the updating process for the e-prescribing 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 e-prescribing 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 prescription-related information regarding Part D 
enrolled individuals. Compliance is required whether the entity 
conducts e-prescribing 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:
    <bullet> Whether the information collection is necessary and useful 
to carry out the proper functions of the agency.
    <bullet> The accuracy of the agency's estimate of the information 
collection burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    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 Sec.  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

[[Page 6268]]

Office Building, Washington, DC 20503, Attn: Christopher Martin, CMS 
Desk Officer, CMS-0011-P, <a href="/cdn-cgi/l/email-protection#befdd6ccd7cdcad1ced6dbcce1f3dfcccad7d0fed1d3dc90dbd1ce90d9d1c8"><span class="__cf_email__" data-cfemail="85c6edf7ecf6f1eaf5ede0f7dac8e4f7f1ecebc5eae8e7abe0eaf5abe2eaf3">[email protected]</span></a>. 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 
e-prescribing.\7\ However, some studies have indicated increased 
prescriber interest and plans to move to e-prescribing. 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--
---------------------------------------------------------------------------

    \7\ Howell, Investors Business Daily, September 15, 2003.
---------------------------------------------------------------------------

    <bullet> Publicity surrounding the Medicare Prescription Drug 
Program;
    <bullet> More publicity about the benefits of e-prescribing and the 
experience of prescribers who are participating;
    <bullet> Increased emphasis on health information technology in 
general;
    <bullet> Potential cost savings to providers using e-prescribing; 
and
    <bullet> 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. 
E-prescribing 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 e-prescribing 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. E-
prescribing 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

[[Page 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 e-prescribing 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 e-prescribing 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 e-prescribers. Only for Part D sponsors 
is use of these standards mandatory, and even then, only to receive or 
reply to e-prescribing 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 e-prescribing 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 
e-prescribing 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

[[Page 6270]]

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 
<greek-i>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 e-prescribing 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 e-prescribing 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 e-
prescribe 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--
    <bullet> Changing in the business practices of providers' offices.
    <bullet> Changing record systems from paper to electronic; and
    <bullet> 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 e-prescribing 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 anti-kickback 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 e-prescribing, in addition to the 
previously discussed health benefits to patients. The following 
examples of these benefits have been reported:
    <bullet> A 53 percent reduction in calls from, and a 62 percent 
reduction in calls to, the pharmacy.
    <bullet> Time savings of one hour per nurse and 30 minutes per file 
clerk per day by streamlining medication management processes.
    <bullet> 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.
    <bullet> Prior to implementation of e-prescribing, 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.
    <bullet> 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,

[[Page 6271]]

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 e-
prescribing 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 e-
prescribing, 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 e-prescribing for 
pharmacies:
    <bullet> Reduced time-consuming phone calls to physicians.
    <bullet> Improved accuracy and less time for refill authorizations.
    <bullet> Additional time available for patient contact and 
services.
    <bullet> Improved prescription communication between prescriber and 
dispenser (through, among other things, reduction in illegible 
handwritten paper prescriptions).
    <bullet> 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 e-prescribing 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.
---------------------------------------------------------------------------

    \8\ Hutchinson, Kevin, SureScripts. Testimony before the NCVHS 
Subcommittee on Standards and Security, May 25, 2004.
    \9\ National Community Pharmacists' Association, press release, 
June 29, 2004.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \10\ To 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.
---------------------------------------------------------------------------

    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 e-prescribing, 
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 e-prescribing 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

[[Page 6272]]

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 
cost-beneficial 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 e-prescribing.

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 e-prescribing, 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 
State-owned, 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

[[Page 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 
e-prescribing 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 Sec.  423.150, paragraph (c) is revised to read as follows:


Sec.  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:


Sec.  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 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.
* * * * *
    5. Section 423.160 is added to read as follows:


Sec.  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

[[Page 6274]]

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


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