[Federal Register Volume 70, Number 214 (Monday, November 7, 2005)]
[Rules and Regulations]
[Pages 67568-67595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-22026]



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Part III





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; 
Final Rule

Federal Register / Vol. 70, No. 214 / Monday, November 7, 2005 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 423

[CMS-0011-F]
RIN 0938-AN49


Medicare Program; E-Prescribing and the Prescription Drug Program

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule adopts standards for an electronic 
prescription drug program under Title I of the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA). These standards 
will 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 foundation 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: These regulations are effective on January 1, 2006. The 
incorporation by reference of certain publications listed in this final 
rule is approved by the Director of the Federal Register as of January 
1, 2006.

FOR FURTHER INFORMATION CONTACT: Gladys Wheeler, (410) 786-0273.

SUPPLEMENTARY INFORMATION:

I. Background

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 the electronic 
transmission of prescriptions and certain other information for covered 
Part D drugs prescribed for Part D eligible individuals comply with 
final uniform standards adopted by the Secretary.
    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 (CY) 2006, must be developed, adopted, recognized, or 
modified by the Secretary not later than September 1, 2005. These were 
publicized in a Request for Application for the pilot project announced 
on September 14, 2005 (Available through grants.nih.gov/grants/guide/rfa-files/RFA-HS-06-001.html). Not later than April 1, 2008, the 
Secretary must promulgate final uniform standards, which must become 
effective not later than 1 year after the date of their promulgation. 
In addition, the Secretary is required to provide a report to the 
Congress by April 1, 2007 on his evaluation of the pilot project.
    On January 28, 2005, we published the Medicare Prescription Drug 
Benefit final rule (70 FR 4193-4585) that established 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 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, providers that prescribe or dispense Part D drugs would 
be required to comply with any applicable final standards that are in 
effect when they conduct electronic prescription transactions, or seek 
or transmit prescription information or certain other related 
information electronically.
    For a complete discussion of the statutory basis for this final 
rule and the statutory requirements at section 1860D-4 of the Act, 
please refer to section I. (Background) of the E-Prescribing and the 
Prescription Drug Program proposed rule, published February 4, 2005 (70 
FR 6256-6264). We requested and received comments on the statutory 
requirement for industry consultation, adequate industry experience for 
certain standards, and pilot testing, among other things. Those 
comments and our responses are addressed in section III. of this final 
rule.
1. Initial Standards Versus Final Standards
    In the proposed rule, we discussed the provisions of section 1860D-
4(e) of the Act that distinguish initial standards from final 
standards. Final standards must be adopted by the Secretary based upon 
the evaluation of pilot testing or without pilot testing if the 
Secretary determines there is adequate industry experience for the 
final standards. The final standards adopted in this rule have not been 
subject to pilot testing under MMA, due to the determination by the 
Secretary that there is adequate industry experience with these 
standards. We refer to them as ``foundation standards'' because they 
provide a foundation for e-prescribing implementation. Based on 
industry consensus and recommendations from the National Committee on 
Vital and Health Statistics (NCVHS), these standards were likely 
candidates for establishing a foundation for future standards and 
interoperability. A more detailed discussion of this distinction is 
available in the E-Prescribing and Prescription Drug Program proposed 
rule, published February 4, 2005 proposed rule (70 FR 6259).
2. State Preemption
    In section I of the proposed rule, we discussed State preemption 
and the meaning of the statutory language in section 1860D-4(e)(5) of 
the Act. A more detailed discussion is available in the proposed rule 
at 70 FR 6258-6259. We solicited and received comments on our proposed 
interpretation. Those comments and our responses are addressed in 
section III. of this final rule.
3. Anti-Kickback Statute Safe Harbor and Stark Exception
    In the proposed rule, we indicated that we would be proposing a new 
electronic prescribing (e-prescribing) exception under the physician 
self-referral law (also known as the Stark law) and a new e-prescribing 
safe harbor under the anti-kickback statute. We also indicated that, in 
the meantime, compliance with existing State and Federal laws is 
required. We solicited comments on the nature and extent of incentives 
being offered to encourage prescribers to conduct e-prescribing or 
incentives likely to be offered after rulemaking for the Stark 
exception and anti-kickback statute. For a more detailed discussion of 
the Stark exceptions and violation of the anti-kickback statute for e-
prescribing please refer to 70 FR 6259.

B. The NCVHS Process

    In the proposed rule, we discussed HHS's requirement to consider 
recommendations of the NCVHS according to section 1860D-4(e)(4)(A) of 
the Act, and the role of the NCVHS in recommending standards relating 
to the requirements for an electronic prescription drug program, as 
outlined in section 1860D-4(e)(4)(B) of the Act.
    Section 1860D-4(e)(4)(A) of the Act requires the Secretary to 
develop, adopt,

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recognize or modify initial uniform standards relating to the 
requirements for an electronic prescription drug program, taking into 
consideration the recommendations from the NCVHS. 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 order to fulfill its responsibilities, the NCVHS's 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, 29, and 30, 2004; and August 17, 18, and 19, 2004. These hearings 
included testimony from e-prescribing networks, providers, software 
vendors, and industry experts on patient safety, drug knowledge data 
bases, 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 adopting 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.
    For a more complete discussion of the NCVHS Process for e-
prescribing standards, please refer to the proposed rule (70 FR 6259-
6260).

C. Standards Design Criteria

    In the proposed rule, we discussed the design criteria for 
electronic prescription drug program standards specified in section 
1860D-4(e)(3)(C) of the Act. 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

    The proposed rule described the processes currently used for 
writing prescriptions based upon statistical data that is available and 
information presented in testimony to the NCVHS. For a more detailed 
discussion of the current process and the reported workflow and 
administrative inefficiencies that affect costs and quality of care, 
please refer to section I. of the proposed rule at 70 FR 6260.

E. Current E-Prescribing Environment

    In the proposed rule, we discussed the values of e-prescribing in 
preventing medication errors, statistics concerning certain usage of e-
prescribing, and barriers to expanded use of e-prescribing.
    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; and
    <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.
    E-prescribing rates vary somewhere between 5 percent and 18 percent 
for physicians, 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. For 
more details of this discussion, please refer to the proposed rule (70 
FR 6260-6261).

F. Evolution and Implementation of an Electronic Prescription Drug 
Program

    In the proposed rule, we discussed our proposal to adopt foundation 
standards, which are standards that do not need pilot testing because 
adequate industry experience already exists for these standards. We 
also proposed criteria that standards must meet to be considered as 
having ``adequate industry experience.'' For a more detailed 
discussion, please refer to the proposed rule (70 FR 6261). We invited 
and received public comments on ``adequate industry experience'', the 
roles of Standards Development Organizations (SDOs) and the NCVHS in 
the adoption of e-prescribing standards, and a process for updating 
existing standards and adopting new standards. Those comments and our 
responses are addressed in section III. of this final rule.

G. Electronic Prescription Drug Program

    In the proposed rule, we discussed the standards that are required 
for an electronic prescription drug program as required by section 
1860D-4(e)(2) of the Act and the standards that we were proposing. We 
also discussed which standards would be subject to pilot testing, and 
which standards would be proposed as future standards. For a more 
detailed discussion of those standards and the table that summarizes 
the NCVHS recommendations, please refer to the proposed rule (70 FR 
6261-6262). We invited and received public comments on the proposed 
standards as well as on standards that are currently being used in the 
industry. Those comments and our responses to those comments are 
addressed in section III. of this final rule.

H. Summary of Status of Standards for an Electronic Prescription Drug 
Program

    In the proposed rule, we acknowledged that the foundation standards 
we proposed did not address all of the functions required under section 
1860D-4(e)(2) of the Act. For a more detailed discussion, please refer 
to section I. of the proposed rule (70 FR 6264). We requested comments 
on the proposed standards, as well as our

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proposed phased implementation for electronic prescription drug program 
requirements. We also requested comments on considerations for 
interoperability and industry-adopted standards for electronic health 
records (EHRs). The comments, on both these issues, and our responses 
to those comments are addressed in section III. of this final rule.

II. General Overview of the Provisions of the Proposed Rule

    As stated earlier, on February 4, 2005, we published the E-
Prescribing and the Prescription Drug Program proposed rule (70 FR 
6256-6274), which discussed our proposal to adopt the first set of 
final uniform standards (or foundation standards) for an electronic 
prescription drug program under the MMA. In the proposed rule, we 
stated that these proposed foundation standards would not be subject to 
pilot testing because they meet the criteria for adequate industry 
experience. These standards included the National Council for 
Prescription Drug Programs (NCPDP) SCRIPT version 5.0 for transactions 
for new prescriptions, prescription renewals, cancellations, changes 
between prescribers and dispensers, ancillary messages and 
administrative transactions; the Accredited Standards Committee (ASC) 
X12N 270/271, version 4010 and version 4010 A1, for eligibility queries 
between prescribers and Part D sponsors; and the NCPDP 
Telecommunications Standard, version 5.1, and the NCPDP Batch Standard 
Batch Implementation Guide version 1.1 supporting the 
telecommunications standard implementation guide for eligibility 
inquiries between dispensers and Part D sponsors.
    Also, in the proposed rule, we discussed the need for formulary and 
medication history standards, and that we were not aware of any 
standards for these transactions that clearly met the criteria for 
adequate industry experience. Standards for formulary and medication 
history will be tested in the 2006 pilot project.
    In the proposed rule, we proposed to broaden the scope of 42 CFR 
Part 423, Subpart D for requirements that relate to electronic 
prescription drug programs for prescribers, dispensers, and Part D 
sponsors. We also proposed a number of definitions that are pertinent 
to the e-prescribing process. We also proposed a compliance date of 
January 1, 2006 for the foundation standards.

III. Analysis of, and Responses to, Public Comments on the Proposed 
Rule

    We received approximately 84 timely items of correspondence 
containing multiple comments on the proposed rule. Some of the major 
issues we received comments on included preemption of State laws, the 
foundation standards, the appropriateness of the implementation date 
for the foundation standards, and a process for modifying and updating 
the foundation standards. We also received unsolicited comments, 
comments not submitted timely, and comments outside the scope of the 
proposed rule. The relevant and timely comments within the scope of the 
proposed rule that we received are discussed in the following sections.

Comments and Responses on Provisions of Proposed Rule

    As we state in section II. of this final rule, in the February 4, 
2005 proposed rule, we discussed--
    <bullet> Our proposal to adopt foundation standards for an 
electronic prescription drug program under the MMA;
    <bullet> Our proposal to broaden the scope of Subpart D, part 423 
of the MMA to set forth requirements relating to electronic 
prescription drug programs for prescribers, dispensers, and Part D 
sponsors; and
    <bullet> Our proposal to adopt a number of definitions that are 
pertinent to the e-prescribing process.
    The comments that we received on those proposed provisions and our 
responses to those comments are outlined in the following sections.

A. Proposed Modification of the Title to Subpart D in 42 CFR Part 423

    In the February 4, 2005 proposed rule, we proposed modifying the 
title of subpart D in 42 CFR Part 423 to read ``Cost Control and 
Quality Improvement Requirements'' and revising the description of the 
scope at Sec.  423.150(c).
    We received no comments on this proposed modification and, 
therefore, are changing the title of Subpart D of part 423 to read, 
``Cost Control and Quality Improvement Requirements'' in this final 
rule.

B. Proposed Revision to Sec.  423.150 (Scope)

    In the February 4, 2005 proposed rule, we also discussed our 
proposed revision to 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 for prescribers, dispensers, 
and Part D sponsors. We did not receive any comments regarding this 
proposed change and, therefore, we are making this revision in this 
final rule.

C. Proposed Amendment of Sec.  423.159(a) (Definitions)

    In the February 4, 2005 proposed rule, we proposed to amend Sec.  
423.159 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 proposed to define 
below. The proposed definitions and the comments we received are as 
follows:
    <bullet> Dispenser Definition Proposal--In the proposed rule, we 
defined a ``dispenser'' as 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.
    Comment: Most of the commenters supported our proposed definition 
of ``dispenser,'' but some wanted it modified to address explicitly 
non-dispensing pharmacy activities involved in providing services, such 
as medication therapy management services required by MMA.
    Response: We believe that our definition of ``dispenser'' 
adequately encompasses dispensing and non-dispensing activities and 
that it is not necessary to add language to distinguish pharmacist 
roles within the scope of an e-prescribing environment. Therefore, in 
this final rule, we are adopting the proposed definition as final.
    <bullet> Electronic Media Definition Proposal--In the proposed 
rule, we defined ``electronic media'' as having the same meaning as 
this term is defined for purposes of the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA). In 45 CFR 160.103, electronic 
media means--
    <bullet> Electronic storage media including memory devices in 
computers (hard drives), and any removable/transportable digital memory 
medium, such as magnetic tape or disk, optical disk, or digital memory 
card; or
    <bullet> Transmission media used to exchange information already in 
electronic storage media. Transmission media include, for example, the 
internet (wide open), extranet (using internet technology to link a 
business with information only accessible to collaborating parties), 
leased lines, dial-up lines, private networks, and the physical 
movement of removable/transportable electronic storage media. Certain 
transmissions, including of paper, via facsimile, and of voice, via 
telephone, are not considered to be transmissions via electronic media, 
because the information being

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exchanged did not exist in electronic form before the transmission.
    Comment: The majority of commenters supported the proposed 
definition of ``electronic media''. Some of the commenters recommended 
that the definition be broadened to include secure wireless 
communications technologies and other technologies implementing current 
best practices.
    Response: We believe that the term ``electronic media,'' as defined 
in 45 CFR 160.103, is sufficiently broad to encompass a range of 
technology advances, including secure wireless technologies. Moreover, 
our definition is not intended to establish a comprehensive list of, 
nor intended to identify best practices for, transmission media. 
Therefore, we do not intend to change our definition to reflect these 
additions.
    Comment: One commenter requested clarification as to whether the 
term electronic media, for purposes of the proposed rule, includes 
prescriptions sent by ``electronic facsimile'' to a pharmacy. The 
commenter believed that including them in the definition would 
establish uniformity and would make electronic facsimiles subject to 
the same standards as other electronic prescription transmissions. In 
addition, several commenters proposed adding a new definition of ``non-
EDI message,'' which they defined as being a message that leaves or 
enters a system (including long-term care facilities and/or pharmacies) 
as an image, either via fax or e-mail, that is not included in the 
electronic prescribing standards.
    Response: The proposed definition of electronic media for an e-
prescribing program is the same definition set forth in 45 CFR 160.103 
for HIPAA's transactions and code sets. We have already clarified, by 
means of HIPAA guidance in a Frequently Asked Question (FAQ) on the CMS 
Web site (http://www.cms.hhs.gov/hipaa/hipaa2), that paper faxes are 
not considered ``electronic media,'' while computer-generated faxes 
constitute use of ``electronic media.'' As a result, faxes that are 
generated by one computer and electronically transmitted to another 
computer (commonly referred to as computer-generated faxes) would be 
included under the definition of electronic media for e-prescribing 
that we proposed.
    While we have determined that the NCPDP SCRIPT standard meets the 
test of adequate industry experience in many e-prescribing 
applications, in light of the comments received, we now recognize that 
prescribers using computer-generated faxes to transmit prescriptions to 
a dispenser's fax machine that prints a hard copy of the original 
computer-generated fax merits separate consideration. Because this 
computer-generated transmission started as an electronic version, it 
would constitute a transmission using electronic media as defined in 
the proposed rule, and, as a result, would be required to comply with 
adopted e-prescribing standards.
    In some cases, the prescriber's software can generate SCRIPT 
transactions, but the ability is ``turned off'' because electronic 
communication with the pharmacy has not yet been established. In other 
cases, the prescriber uses software (such as a word processing program) 
that creates and faxes the prescription document, but does not have 
true e-prescribing capabilities.
    In the first case, the prescriber is already conducting e-
prescribing, and should do so after the compliance date using the 
foundation standards. We would expect that the prescriber will 
establish electronic communication and begin to use the SCRIPT standard 
with little difficulty.
    However, the prescriber in the second case is not actually capable 
of conducting e-prescribing using the standards being adopted by this 
rule. That prescriber is merely using word processing software and the 
computer's fax capabilities in lieu of faxing paper. Requiring these 
prescribers to convert to e-prescribing using the foundation standards 
would likely result in their simply reverting to faxing paper. 
Consequently, requiring these entities to comply with the NCPDP SCRIPT 
Standard would force the vast majority of them to revert to paper 
faxes, and, thus, it would impose a significant burden on those 
entities presently using computer-generated faxing, and would be 
counterproductive to achieving standardized use of non-fax electronic 
data interchange for prescribing. Moreover, we believe prescribers 
using computer fax capabilities will migrate to e-prescribing in time, 
possibly at the same time as they implement electronic health record 
systems. Therefore, we adopt an exemption which exempts those using 
computer-generated faxes from using the NCPDP SCRIPT Standard for 
transmitting prescriptions and prescription-related information.
    We believe this approach is consistent with the statutory direction 
that the Secretary has to issue uniform standards with the specific 
objective of improving efficiencies, including cost savings, in the 
delivery of care, and designed so that the standards, to the extent 
practicable, do not impose an undue administrative burden on 
prescribing health care professionals and dispensing pharmacies and 
pharmacists. We interpret these statutory objectives as enabling us to 
ensure that existing functionalities and workflow are not disrupted for 
a large number of prescribers and dispensers. We believe this 
interpretation is appropriate given the burden that adherence to the 
statutory requirements would create and based on the requests in 
comments received in response to the proposed e-prescribing rule. As 
indicated above, we anticipate that many prescribers and dispensers 
would revert to handwritten paper prescriptions or computer-generated 
prescriptions that are printed in hard copy and manually faxed to the 
dispenser. This practice would stand as a significant obstacle to the 
broader statutory goals of the electronic prescription drug program 
provisions, as well as limit the ability of Medicare beneficiaries and 
the Medicare program to benefit from the patient safety and cost 
savings anticipated from e-prescribing drugs under Part D of Title 
XVIII of the Act. However, we encourage all prescribers using fax 
technology to move as quickly as possible to the use of electronic data 
interchange via the SCRIPT standard.
    <bullet> E-prescribing Definition Proposal--In the proposed rule, 
we defined ``e-prescribing'' to mean the transmission, using electronic 
media, of prescription or prescription-related information, between a 
prescriber, dispenser, PBM, or health plan, either directly or through 
an intermediary, including an e-prescribing network.
    Comment: Most commenters supported the proposed ``e-prescribing'' 
definition. One commenter recommended that the definition of e-
prescribing specifically cite ``nursing facility.'' Some commenters 
recommended the definition be amended to distinguish between the direct 
entry of prescribers and the direct entry of non-prescribers, such as 
clerical staff. Concerns were expressed that the definition does not 
include activities related to electronic claims adjudication. One 
commenter suggested that the definition for e-prescribing also be 
clarified to include two-way transmissions between the point-of-care 
(POC) and the dispenser.
    Response: We believe that the term ``e-prescribing'' is broad 
enough in its scope to effectively encompass multiple transaction 
processes and participants, which exchange prescription or 
prescription-related transmissions, whether or not the transmission is 
conducted directly or through an intermediary. We realize that the 
business model that is typical in the

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Long-Term Care (LTC) environment, where both the prescriber and the 
facility personnel are customarily involved in the prescribing process, 
is atypical of e-prescribing in the ambulatory setting. During the 
pilot project, we are planning to review the business process for e-
prescribing in the LTC setting. For further discussion about e-
prescribing and LTC and the comments we received, please refer to 
section F.1. of this final rule.
    Electronic claims adjudication and other related administrative 
functions are outside the scope of e-prescribing as specified in 
section 1860D-4(e) of the Act. Moreover, a number of transactions 
standards for these administrative functions have already been adopted 
in the August 17, 2000 HIPAA Standards for Electronic Transactions and 
Code Sets Final Rule (HIPAA final rule) (65 FR 50312-50372) and 
modified in the February 20, 2003 Health Insurance Reform: 
Modifications to Electronic Data Transactions Standards and Code Sets 
(68 FR 8381-8399).
    <bullet> Electronic Prescription Drug Program Definition Proposal--
In the proposed rule, we defined ``electronic prescription drug 
program'' to mean 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.
    Comment: The commenters generally supported the proposed electronic 
prescription drug program definition, but recommended the definition be 
written in more generic terms without the reference to Part D.
    Response: Based on these comments and our interpretation of our 
statutory authority, we have decided to expand the scope of our 
definition of electronic prescription drug program to include all Part 
D eligible individuals, whether or not they are enrolled in a Part D 
plan. This group is identical to the universe of persons who 
participate in Medicare (Parts A or B or both). We revised the 
definition for the electronic prescription drug program at Sec.  
423.159 to broaden the scope of an electronic prescription drug program 
to include Part D eligible individuals, not just Part D enrolled 
individuals. This is consistent with our interpretation of the statute 
to expand the scope of preemption of State laws to include, at a 
minimum, all Part D eligible individuals, as described in section E.1. 
of this final rule. Therefore, we are adopting the revised definition 
in this final rule.
    <bullet> Prescriber Definition Proposal--In the proposed rule, we 
defined ``prescriber'' to mean 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.
    Comment: Commenters generally supported the proposed definition. 
One commenter recommended the definition of prescriber remain as 
defined in the proposed rule so long as the final definition 
encompasses providers, including Certified Registered Nurse 
Anesthetists (CRNAs) and others who are not physician providers, but 
who are granted prescriptive authority through the State in which he/
she practices. One commenter recommended that the definition of 
``prescriber'' specifically require prescriber order entry, including 
electronic signature by the actual prescriber. Several commenters 
recommended that the definition of ``prescriber'' be expanded to 
include those who prescribe drugs for animal use.
    Response: The proposed definition does encompass individuals who 
are non-physicians, but who are permitted to issue prescriptions for 
drugs for human use. These non-physician providers could include CRNAs, 
nurse practitioners, and others. We also believe that it is 
inappropriate to include specific references to prescribing functions, 
such as electronic signatures, within this basic definition. We do not 
believe that there is statutory basis in the MMA to include prescribers 
of drugs for animal use, as the requirements specified section 1860D-
4(e) of the Act, as amended by section 101 of the MMA, expressly 
provide for e-prescribing for covered Part D drugs for Part D eligible 
beneficiaries. We are not aware of any authority under which a 
prescriber of drugs for animal use would be writing prescriptions for 
part D drugs for Part D eligible beneficiaries, or under which animals 
were Part D eligible beneficiaries. Therefore, in this final rule, we 
are adopting the proposed definition as final.
    <bullet> Prescription-related information Definition Proposal--We 
proposed that ``prescription-related information'' would mean 
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.
    Comment: Several commenters recommended amendments to the proposed 
definition. One commenter recommended that non-dispensing pharmacists 
(for example, those providing medication therapy management program 
services) be identified in the e-prescribing program. Several 
commenters recommended that the definition be written in more generic 
terms without the reference to Part D, which they felt could be 
addressed in the definition for electronic prescription drug program. 
According to these commenters, the additional language would capture 
Medicaid and other plans that would voluntarily implement e-prescribing 
efforts based on the proposed regulations. One commenter recommended 
the ``prescription-related information'' definition be expanded to 
include drug allergies and personal allergies.
    Response: We believe that the proposed definition of 
``prescription-related information'' adequately defines different types 
of information within the scope of the e-prescribing environment 
intended by the MMA statute. We also believe that the e-prescribing 
provisions of section 1860D-4(e) of the Act, as amended by section 101 
of the MMA apply to pharmacists, both dispensing and non-dispensing, 
who electronically transmit prescription and certain other information 
for covered drugs prescribed for Medicare Part D eligible individuals. 
The statute broadly includes medication history, eligibility, related 
health or drug information. Furthermore, we believe that ``medication 
history or related health or drug information'' is sufficient to 
include drug allergies and personal allergies.
    Comment: Some commenters suggested expanding the definition of 
prescription-related information as discussed in our proposed rule, 
which limits the scope of prescription information regarding 
eligibility for drug benefits, medication history or related health or 
drug information to a Part D eligible individual enrolled in a Part D 
plan. Some commenters proposed expanding the definition to include all 
Medicare beneficiaries. Other commenters suggested dropping the 
reference to Part D to expand the definition to all e-prescribing.
    Response: As indicated previously in this final rule, based on the 
comments we received and our interpretation of our statutory authority, 
we have decided to expand the scope of our definition to include all 
Part D eligible individuals, whether or not they are enrolled in a Part 
D plan. Accordingly, we are revising our definition of prescription-
related information to mean information regarding eligibility for drug 
benefits, medication history or related health or drug information for 
Part D eligible individuals.

D. Revision to Sec.  423.160 (Standards)

1. General Rules
    In the February 4, 2005 proposed rule, we proposed that Part D 
sponsors would

[[Page 67573]]

be required to establish and maintain an electronic prescription drug 
program that complies with the applicable standards in Sec.  423.160(b) 
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.
    Although we did not receive specific comments on this general rule 
for Part D sponsors, we did receive many comments related to its scope. 
In particular, many commenters wanted to expand the scope of e-
prescribing in this final rule to include all Medicare beneficiaries 
and all payers. As indicated previously in this final rule, based on 
the comments we received and our interpretation of our statutory 
authority, we have decided to expand the scope of e-prescribing in this 
final rule to include all Part D eligible individuals, whether or not 
they are enrolled in a Part D plan. Accordingly, we are revising our 
general rule for Part D sponsors to state that Part D sponsors must 
establish and maintain an electronic prescription drug program that 
complies with the applicable standards in Sec.  423.160(b) 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.
    In the February 4, 2005 proposed rule, we also proposed a general 
rule for prescribers and dispensers. We proposed that 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 Sec.  423.160(b) 
when e-prescribing for covered Part D drugs for Part D eligible 
individuals enrolled in a Part D plan. Although we did not receive 
specific comments on this general rule for prescribers and dispensers, 
we did receive many comments related to its scope. In particular, many 
commenters wanted to expand the scope of e-prescribing in this final 
rule to all Medicare beneficiaries and beyond the Part D program. As 
indicated previously in this final rule, based on the comments we 
received and our interpretation of our statutory authority, we have 
decided to expand the scope of e-prescribing in this final rule to 
include all Part D eligible individuals, whether or not they are 
enrolled in a Part D plan. Accordingly, we are revising our general 
rule for prescribers and dispensers to state that 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.
2. Standards
    As stated in the February 4, 2005 proposed rule, the Secretary had 
tentatively concluded that the proposed foundation standards are not 
subject to pilot testing because adequate industry experience with 
those proposed foundation standards already exists. We received 
numerous comments on the proposed foundation standards. Those comments 
and our responses are discussed below.
a. Prescription Proposal
    In the proposed rule, we proposed to adopt, as a foundation 
standard, the transactions and administrative messages included in the 
National Council for Prescription Drug Programs (NCPDP) SCRIPT 
Standard, Version 5, Release 0 (except for the Prescription Fill Status 
Notification Transaction), to provide for communication of a 
prescription or prescription-related information between prescribers 
and dispensers.
    Comment: Many commenters supported the adoption of NCPDP SCRIPT as 
a foundation standard in 2006. NCPDP SCRIPT is the current industry 
standard for electronically transmitting prescription information from 
the prescriber to the dispenser.
    Although the majority of commenters supported adoption of the NCPDP 
SCRIPT Standard, some commenters suggested that the foundation 
standards be included in the pilot project and some recommended a delay 
in implementation until pilot testing was completed.
    Response: We agree that the following transactions of the NCPDP 
SCRIPT should be one of the foundation standards:
    <bullet> Get message transaction.
    <bullet> Status response transaction.
    <bullet> Error response transaction.
    <bullet> New prescription transaction.
    <bullet> Prescription change request and response transactions.
    <bullet> Prescription refill request and response transactions.
    <bullet> Verification transaction.
    <bullet> Password change transaction.
    <bullet> Cancel prescription request and response transactions.
    We are adopting this standard for these specified transactions to 
be effective on January 1, 2006. We also plan to include it in the 
pilot project in order to ensure interoperability with the standards 
being pilot tested.
b. Eligibility Proposal (ASC X12N 270/271 Transaction Version 4010, 
4010A1)
    In the February 4, 2005 proposed rule, we proposed to adopt, as 
part of the proposed foundation standards, the ASC X12N 270/271 
Transaction Version 4010, 4010A1 (the 270/271 standards) for conducting 
eligibility and benefits inquiries between prescribers and Part D 
sponsors.
    Comment: The majority of commenters supported the adoption of the 
ASC X12N 270/271 transaction standard for eligibility inquiries where 
appropriate. Commenters agreed that the version adopted should be 
consistent with the version adopted under HIPAA.
    A number of commenters suggested pilot testing this standard and 
delaying implementation of the 270/271 standards to evaluate and test 
the impact of this transaction on the e-prescribing environment. 
Comments that supported adoption of the 270/271 standards also stressed 
the need to provide complete responses on the 271 response.
    A few of the commenters opposed adoption of the 270/271 standards 
because they believe it currently does not accommodate enough of the 
kinds of information that would be necessary to complete the 
transaction, such as patient enrollment information that may be 
required for Part D beneficiaries.
    Response: We agree that the 270/271 standards should be one of the 
foundation standards and we are adopting it in this final rule to be 
effective on January 1, 2006. We considered the potential shortcomings 
of the 270/271 standards that a few commenters identified, such as the 
standards not being sufficiently robust for returning pharmacy-related 
eligibility information. However, the majority of commenters indicated 
that the 270/271 standards are adequate and have been successfully 
implemented in e-prescribing programs. In addition, the 270/271 
standards are HIPAA standards and are already in widespread industry 
use, including in e-prescribing programs. We also will work with Part D 
plans to assure appropriate implementation of the 270/271 standards.
c. Eligibility Proposal (NCPDP Telecommunication Standard, Version 5.1)
    In the February 4, 2005 proposed rule, we also proposed to adopt 
the NCPDP Telecommunication Standard, version 5.1, for conducting 
eligibility

[[Page 67574]]

transactions between dispensers and Part D sponsors.
    Comment: Many commenters agreed that the NCPDP Telecommunications 
Standard, Version 5.1 should be adopted as a foundation standard. Some 
stipulated that this version should be adopted as a foundation standard 
as long as newer versions may be utilized. Other commenters suggested 
that the implementation of this standard be made voluntary until pilot 
tested. A few commenters alleged that the standard is not in widespread 
use within the e-prescribing industry.
    Response: The majority of commenters supported the adoption of the 
NCPDP Telecommunications Standard, Version 5.1. as a foundation 
standard because it had been successfully implemented in e-prescribing 
programs. We agree that the standard should be one of the foundation 
standards, and we are adopting it in this final rule to be effective on 
January 1, 2006. In addition, the NCPDP Telecommunications Standard v 
5.1 is a HIPAA standard that must be used for the relevant electronic 
transactions and already has adequate industry experience. The use of 
later versions will be addressed with the comments on version updating 
and maintenance.
3. Formulary and Medication History
    In the February 4, 2005 proposed rule, we discussed how the 
adoption of formulary representation and medication history would 
enhance e-prescribing capabilities under Part D by making it possible 
for the prescriber to obtain information on the patient's benefits, 
including the formulary status of drugs that the physician is 
considering prescribing, as well as information on medications the 
patient is already taking, including those prescribed by other 
providers. We also discussed the potential for cost savings and quality 
improvements that could result from the use of formulary and medication 
history standards. Proprietary file transfer protocols developed by 
RxHub are currently being used to communicate this information in many 
e-prescribing programs. The RxHub protocols have been submitted to 
NCPCP for accreditation, and this process is ongoing. We did not 
specifically propose adoption of these formats as foundation standards 
because they did not meet the accreditation criteria. However, we 
proposed characteristics for formulary and medication history 
standards, and noted that, if those characteristics were met and there 
was adequate industry experience with them, we would consider adopting 
foundation standards for formulary and medication history.
    In the interim, the RxHub protocols have taken different routes in 
terms of accreditation. The medication history protocol is no longer a 
discrete standard; rather, it was incorporated into the latest version 
of NCPDP SCRIPT (v. 8.0) as a transaction. This is in NCPDP's formal 
review process. The formulary and benefits protocol is a discrete 
standard and is also undergoing NCPDP formal review and ANSI 
accreditation.
    Comment: Commenters generally opposed adoption of the RxHub 
protocols, even if they became accredited standards. The commenters 
recommended that those standards be pilot tested. A few commenters 
supported adoption of the RxHub protocols. No other foundation 
standards for these functions were proposed by commenters.
    Response: In response to many comments about the need for pilot 
testing the formulary and benefits standard and concerns about its 
interoperability with other standards, we will not adopt it as a 
foundation standard, but will include it in pilot testing. However, the 
transactions may be used voluntarily in the meantime.
    We are not adopting the RxHub medication history protocol as a 
foundation standard because it is included as a transaction in NCPDP 
SCRIPT v. 8.0, which does not meet the criterion for adequate industry 
experience. We plan to include that version of NCPDP SCRIPT, including 
the medication history functionality, in the pilot project.

E. Comments and Responses on Related Issues

    In the proposed rule, we requested comments on various issues 
related to the e-prescribing process. We received numerous comments on 
those issues and we discuss those comments and our responses in the 
following section:
1. State Preemption
    The MMA addresses preemption of State laws at section 1860D-4(e)(5) 
of the Act as follows:
    ``(5) Relation to State laws. The standards promulgated under this 
subsection shall supersede 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 the eligibility, benefits, and prescriptions with 
respect to covered Part D drugs under this part.''
    In the February 4, 2005 proposed rule, we proposed to interpret 
this language as preempting State law provisions that conflict with 
Federal electronic prescription drug program requirements that are 
adopted under Part D. This interpretation allows Federal preemption of 
State laws that are either contrary to the Federal standards or that 
restrict the ability to carry out (or stand as an obstacle to) the 
electronic prescription drug program requirements, and that pertain to 
the electronic transmission of prescriptions or certain information 
regarding covered Part D drugs (such as medication history) for Part D 
enrolled individuals.
    This is an important issue because there is wide variation among 
the State laws regarding the extent to which electronic prescribing can 
be done, what information e-prescriptions must contain, how that 
information is worded and represented, and whether and how this 
information can be received into or transmitted from that State. As a 
result, Part D sponsors may face significant operational barriers and 
costs in implementing their e-prescribing programs.
    We invited public comment on our proposed interpretation of the 
scope of preemption, particularly with respect to relevant contrary 
State statutes that commenters believe should be preempted, beyond 
those that would be preempted under our proposed interpretation. We 
specifically asked for comment on whether this preemption provision 
pertains 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 asked for comment on whether this 
preemption provision pertains to only electronic prescription 
transactions or to paper transactions as well. The comments that we 
received in response to our requests and our response to those comments 
are as follows:
    Comment: Some commenters agreed that the MMA's preemption provision 
would pertain only to electronic prescriptions for Part D enrolled 
Medicare beneficiaries for drugs covered under Part D, as set forth in 
our proposed rule. However, many other commenters argued for a broader 
interpretation of the statute. Some commenters suggested preempting 
State laws concerning e-prescribing for all drugs that are prescribed 
for all Medicare beneficiaries. The commenters believed that the 
narrower interpretation would be unworkable because it would create one 
set of rules for Part D enrolled beneficiaries and another set for 
other Medicare

[[Page 67575]]

beneficiaries. Since prescribers may not know at the point-of-care 
whether a Medicare beneficiary is enrolled in Part D, or whether the 
drug being prescribed would be covered under Part D, they would not 
know whether State law applied, or was preempted.
    Response: Based on these comments, we agree that the preemption 
provision can be read more broadly than proposed in the February 4, 
2005 proposed rule. The scope of preemption includes all Part D-
eligible individuals, whether or not they are enrolled in a Part D 
plan. This group is identical to the universe of persons who 
participate in Medicare (Parts A or B or both). Since Medicare A or B 
status is virtually always known or immediately ascertainable by a 
prescriber, this interpretation will minimize both confusion and 
mistakes. This is particularly important because the patients 
themselves may not always know whether they are enrolled in Part D 
(beneficiaries often know the plan name, but not their enrollment 
status), but will have a Medicare card and number if they are enrolled 
in Parts A or B.
    The preemption provision and other language in the e-prescribing 
statute give the Federal government the ability to preempt those State 
laws that ``restrict the ability to carry out this part'' and ``pertain 
to the electronic transmission of medication history and of information 
on eligibility, benefits, and prescriptions with respect to part D 
drugs under this part'' (section 1860D-4(e)(5) of the Act). This 
language permits preemption to pertain to more than Part D enrolled 
individuals. Therefore, we are interpreting section 1860D-4(e)(5) of 
the Act to preempt all contrary State laws that are applicable to a 
prescription that is transmitted electronically not only for those 
individuals who are enrolled in Part D, but for all Part D eligible 
individuals.
    As to our proposal to limit preemption to ``covered Part D drugs,'' 
we agree with commenters that it will not always be possible for a 
prescriber to know, in advance, which category a particular drug falls. 
Indeed, some drugs, such as immunosuppressive drugs, may be reimbursed 
under either Part D or Part B depending not only on which coverage the 
patient has, but also on whether the transplant occurred before or 
after turning age 65. We do not believe that the States have any 
plausible interest in applying different rules in these situations, or 
that prescribers should face such uncertainty. Accordingly, we 
interpret the MMA preemption provision as preempting State laws that 
restrict the Department of Health and Human Services' (DHHS) ability to 
carry out electronic prescribing, as specified at section 1860D-4(e) of 
the Act, and pertain to the electronic prescribing, for Part D eligible 
individuals, of drugs that may be covered by Part D in at least some 
circumstances, whether or not that particular prescription is covered 
under Part D in those specific circumstances.
    We have codified the statutory preemption provision found at 
section 1860D-4(e) of the Act in this final rule. This addition, found 
at Sec.  423.160(a)(4), is essentially identical to the statutory 
language.
    Comment: Some commenters proposed an even broader interpretation, 
arguing that preemption should pertain to all e-prescribing, not just 
to e-prescribing in the Medicare context. They stated that limiting 
preemption to Medicare would create a ``Medicare silo'' with 
significantly different rules than for other payers, which would be 
costly for PBMs, plans, and pharmacies to address and administer. Those 
commenters believe that one set of rules for all payers would 
facilitate the adoption of e-prescribing outside the Medicare program. 
They contend that some States have existing statutory or regulatory 
barriers that could impede the success of e-prescribing. For example, 
some State laws were drafted with only paper prescriptions in mind and, 
thus, may not be well-suited to e-prescribing applications.
    Response: We agree that broadening our interpretation of State 
preemption to include all Medicare beneficiaries and drugs that may be 
covered by Part D, in at least some circumstances, whether or not that 
particular prescription is covered under Part D, is consistent with our 
statutory authority. It also would reduce confusion for prescribers 
and, therefore, would likely encourage expanded use of e-prescribing 
and the adopted standards. Therefore, we interpret the MMA's State 
preemption provision to preempt State laws that are contrary to the e-
prescribing standards or restricts the ability to carry out this part 
for drugs that may be covered under Part D, in at least some 
circumstances, whether or not that particular prescription is covered 
under Part D, and that are e-prescribed for any Part D eligible 
beneficiaries. We also urge States to enact legislation consistent with 
and complementary to the goals of the MMA's e-prescribing provisions 
and to remove existing barriers to e-prescribing.
    Comment: Several commenters proposed that the preemption should be 
applied to any State laws that could be considered a barrier to e-
prescribing. Some commenters noted that this interpretation would be 
consistent with their view of the Congress' intent to enable e-
prescribing. The commenters suggested preempting a variety of laws, 
such as those that--
    <bullet> Prohibit or fail to allow for e-prescribing;
    <bullet> Establish requirements or standards for e-prescribing 
content and formats that are inconsistent with current e-prescribing 
practices in other jurisdictions; and
    <bullet> Prevent e-prescribing across State lines.
    One commenter stressed that State laws also can afford patient 
safety and quality of care protections and that preempting those laws 
could adversely affect patient safety and quality.
    Response: While these commenters suggested categories of laws that 
might be preempted, few specific examples emerged. Under our 
interpretation of the statutory preemption provision, State laws that 
restrict the ability of entities to electronically prescribe covered 
Part D drugs for Part D eligible individuals in accordance with the 
Federal provisions would be preempted. While we agree that some State 
laws preempted under our interpretation of the statute may have had 
health or safety objectives, the statutory test is whether those laws 
are contrary to the standards we adopt or restrict the ability to carry 
out e-prescribing under Part D, and also pertain to the electronic 
transmission of prescription-related information. We also note that for 
a law to ``pertain'' to e-prescribing, it need not specifically single 
out e-prescribing. Our strategy is to define a general preemption rule 
in this final rule and identify several specific categories of laws 
that would be preempted. Preemption of these State laws is necessary 
because they restrict the ability of entities to electronically 
prescribe covered Part D drugs for Part D eligible individuals. 
Further, this preemption is necessary at a minimum in order for Part D 
sponsors and the providers and pharmacies that choose to e-prescribe 
covered Part D drugs for Part D eligible individuals to conduct e-
prescribing beginning on January 1, 2006. Of course, under the 
statutory provisions, preemption of State laws that are contrary to 
these standards, or otherwise restrict the ability to carry out e-
prescribing, will be effective upon the effective date of this 
regulation.
    We also anticipate that, as problems are identified with particular 
State laws or practices, some States will enact laws to address 
specific patient safety or confidentiality concerns that will not be 
contrary to, or restrict the ability to

[[Page 67576]]

carry out, the requirements of this final rule. We encourage States to 
consider the impact on Federal e-prescribing standards of laws that 
could directly or indirectly impede the adoption of e-prescribing 
technology and standards on a statewide and national basis. We also 
urge States to enact legislation consistent with and complementary to 
the goals of the MMA's e-prescribing provisions. This includes removing 
existing barriers to e-prescribing. We believe that, under this 
approach, we can achieve national uniformity in e-prescribing standards 
and practices, while preserving the maximum reasonable autonomy for 
State-specific practices that do not consequentially hamper e-
prescribing. If other State laws also stand as an obstacle to 
Congress's goal of implementing uniform e-prescribing standards that 
are to be used in electronic prescribing of Part D covered drugs for 
Part D eligible individuals, we can reevaluate the scope of preemption 
that is warranted when we adopt additional standards or in future 
rulemaking.
    At this time, we have identified several categories of State laws 
that are preempted, in whole or in part, upon the effective date of 
this final rule. These categories are intended to be examples and do 
not constitute an exhaustive list. However, they are illustrative of 
the examples identified through NCVHS testimony and comments received 
in response to our proposed rule; our application of the MMA's 
preemption provisions to those State laws are based on our 
interpretation of the statute, in which State laws would be preempted 
if they restrict the ability of entities to electronically prescribe 
covered Part D drugs for Part D eligible individuals in accordance with 
Federal provisions. It is important to note that those State laws are 
preempted to the extent that they pertain to covered Part D drugs that 
are electronically prescribed for Part D eligible individuals. A State 
law, whether or not it includes an e-prescribing standard, can be 
preempted if it is contrary to the adopted standards or restricts the 
ability to carry out Part D standards, and pertains to electronic 
transmission of prescription-related information. Those categories of 
State laws are as follows:
    <bullet> State laws that expressly prohibit electronic prescribing.
    <bullet> State laws that prohibit the transmission of electronic 
prescriptions through intermediaries, such as networks and switches or 
PBMs, or that prohibit access to such prescriptions by plans or their 
agents or other duly authorized third parties.
    <bullet> State laws that require certain language to be used, such 
as dispense as written, to indicate whether generic drugs may or may 
not be substituted, insofar as such language is not consistent with the 
adopted standard.
    <bullet> State laws that require handwritten signatures or other 
handwriting on prescriptions.
    We interpret the MMA preemption provision to preempt State laws 
that prohibit e-prescribing. Such laws would clearly restrict the 
Department's ability to carry out the e-prescribing program for Part D, 
and they pertain to the electronic transmission of prescription and 
prescription-related information for covered Part D drugs. The 
application of this preemption provision is necessary for e-prescribing 
to occur for covered Part D drugs for Part D eligible individuals.
    We interpret the MMA preemption to preempt laws that prohibit 
transmission of electronic prescriptions through intermediaries because 
they would effectively preclude e-prescribing since establishing direct 
connectivity between each prescriber and each pharmacy is impractical, 
according to NCVHS testimony and information from other sources. In 
addition, this is current industry practice, and Part D plans may in 
many cases use software systems that rely on third party processing e-
prescriptions either simultaneously or before they reach pharmacies. 
Without preemption, this type of law would restrict the ability to 
carry out e-prescribing for Medicare Part D because prescribers would 
be unable to e-prescribe covered Part D drugs for Part D eligible 
individuals.
    We interpret the preemption provision to preempt State laws that 
establish specific generic substitution language to the extent that 
such a requirement is not consistent with an adopted standard--that is, 
where an adopted standard does not permit use of specific generic 
substitution language or where the State requires that the language be 
placed at a specific location on the prescription. Such requirements 
would be contrary to adopted standards and restrict the ability of Part 
D sponsors to conduct e-prescribing in accordance with the adopted 
standards.
    Lastly, we interpret the preemption provision to preempt State laws 
that require handwritten signatures or other handwriting on 
prescriptions. Those laws restrict e-prescribing for Part D covered 
drugs for Part D eligible individuals because they introduce manual 
requirements and a resulting paper product into the electronic 
prescribing process, which effectively prevents the prescription from 
being transmitted electronically from the prescriber to the pharmacy as 
required by this final rule. As a result, these State laws restrict the 
ability of entities to electronically prescribe covered Part D drugs 
for Part D eligible individuals in accordance with Federal provisions.
    Comment: Several commenters suggested that the MMA e-prescribing 
provision should preempt State laws that affect the security of 
prescription information and patient privacy.
    Response: The security of electronic prescriptions and the 
protection of electronic prescription information must meet the 
requirements set forth under HIPAA's administrative simplification 
provisions for the protection of protected health information (PHI) and 
electronic protected health information (EPHI) (see 45 CFR Parts 160 
and 164) since, so far as we can determine, entities that conduct e-
prescribing transactions under this final rule will be covered entities 
under HIPAA and the information contained in these transactions is PHI 
and EPHI.
    Because HIPAA's privacy requirements are a floor, some States have 
additional privacy requirements that remain in effect, such as those 
laws requiring electronic or digital signatures and prescriber 
authentication, and those restricting the release of medication 
information for certain sensitive medical diagnoses, such as substance 
abuse disorders and HIV/AIDS, without patient consent. State privacy 
laws that are not contrary to the HIPAA Privacy Rule will also be in 
effect. Because it is not clear that all variations in State privacy 
laws negatively impact e-prescribing, no preemption determination can 
be made categorically at this time. Variations in privacy laws within 
and among States will be assessed in the broader context of EHRs. When 
specific State privacy laws are identified, we will be able to assess 
their impact on e-prescribing under this or any other preemption 
analysis.
    Comment: Several commenters requested preemption of State laws 
affecting electronic transmission of prescriptions for controlled 
substances. Other commenters urged HHS to work with the Drug 
Enforcement Administration (DEA) to develop guidance on electronic 
signature requirements for controlled substances.
    Response: HHS and the DEA are working together to address the 
intersection of the Controlled Substances Act and regulations issued 
thereunder and rules regarding e-prescribing issued pursuant to the 
MMA.

[[Page 67577]]

    Comment: One commenter pointed out that many States require that 
Medicaid prescriptions must have a prescriber's handwritten statement 
across the prescription, if a brand name prescription is required when 
a generic drug is available. Even the wording is dictated.
    Response: The MMA transfers payment responsibility for the 
prescription drugs of dually eligible Medicaid and Medicare enrollees 
from Medicaid to Medicare. However, some States will provide additional 
prescription drug coverage for other Part D beneficiaries for drugs 
that would otherwise be paid out-of-pocket. If any State law or 
regulation prohibited a brand name drug prescription for prescriptions 
for these Part D eligible beneficiaries without a ``handwritten'' 
statement, the requirement that the statement be handwritten (but not 
the requirement for a written statement) would be preempted.
2. Anti-Kickback Statute Safe Harbor and Stark Exception
    As stated earlier in this preamble, in the proposed rule, we 
indicated that we would be proposing an e-prescribing exception under 
the Stark law and an e-prescribing safe harbor under the anti-kickback 
statute. We also indicated that, in the meantime, compliance with 
existing provisions is required. We also solicited comments on the 
nature and extent of incentives being offered to encourage prescribers 
to conduct e-prescribing or incentives likely to be offered after 
rulemaking for a Stark exception and an anti-kickback safe harbor. We 
received many comments on this issue.
    Comment: Commenters requested this regulatory guidance and noted 
that the lack of it is a barrier to adoption of e-prescribing.
    Response: We agree that guidance is needed and two proposed rules 
have been issued. The Physicians' Referrals to Health Care Entities 
with which They Have Financial Relationships--E-Prescribing Exceptions 
proposed rule, which proposed new exceptions to the Stark law for e-
prescribing and electronic medical records, published in the Federal 
Register on October 11, 2005. The Medicare and State Health Care 
Programs; Fraud and Abuse: Safe Harbor for Certain Electronic 
Prescribing Arrangements under the Anti-Kickback Statute proposed rule, 
published in the Federal Register on October 11, 2005, proposed new 
safe harbors under the anti-kickback statute for e-prescribing and 
electronic medical records.
3. Three Criteria for Assessing Adequate Industry Experience
    In the February 4, 2005 proposed rule, we discussed adopting the 
following three criteria for assessing adequate industry experience:
    <bullet> Approval by an ANSI-accredited SDO to assure consideration 
of industry requirements.
    <bullet> Implementations among multiple partners to assure 
interoperability.
    <bullet> Recognition by key stakeholders to assure industry 
recognition of a single standard.
    Comment: One commenter proposed that standards meeting some, but 
not all, of the criteria be recognized as ``draft standards for trial 
use'' (DSTU) on a voluntary basis. Some SDOs use the concept of DSTU to 
permit interested parties to test new standards prior to their final 
voting process.
    Response: This suggestion presumes a category of standards that 
would fall outside the structure of the MMA and we, therefore, cannot 
accommodate it. The MMA does not recognize the concept of DSTUs, and 
for purposes of standards development and implementation, it 
characterizes standards as either final (to be implemented) or initial 
(to be pilot tested). The standards adopted in this final rule are the 
first set of final standards. In addition, NCPDP's procedures, unlike 
those of other SDOs, do not recognize DSTUs. However, we encourage the 
voluntary adoption of e-prescribing standards that are not adopted as 
final standards.
    Comment: Several commenters generally supported the proposed 
criteria. Many of the commenters specifically favored the requirement 
for ANSI accreditation, although a few commenters indicated that this 
requirement was unnecessary and that the remaining two requirements 
were adequate. Some commenters felt that the criteria were not strong 
enough to demonstrate widespread utilization throughout the health care 
industry and thus were not an adequate substitute for pilot testing, 
particularly in light of the short implementation deadline for the Part 
D benefit.
    Response: Based on the majority of comments we received in response 
to the proposed rule, we believe the proposed criteria for assessing 
adequate industry experience are valid, and will assure that foundation 
standards adopted in this final rule are consistent with them. 
Therefore, we will continue to use these criteria to assess adequate 
industry experience for future standards.
4. Medical History
    Medical history broadly relates to information about a patient's 
health care and health status. We did not propose standards for 
communicating medical history in the February 4, 2005 proposed rule. 
Section 1860D-4(e)(2)(B) of the Act treats the electronic transmission 
of medical history differently from the electronic transmission of 
other information in an electronic prescription drug program in that it 
explicitly states that the medical history provision shall be effective 
``on and after such date as the Secretary specifies and after the 
establishment of appropriate standards.''
    Comment: A few commenters suggested that POC checking should 
include allergy/intolerance checking, validation of patient, and 
confirmation that a prescription is linked to a patient problem list. 
Moreover, the commenters recommended that an e-prescribing system 
provide physicians with information needed to discuss drug therapy with 
the patient at the POC.
    Response: Because we currently are not aware of any medical history 
standards, we are, therefore, not adopting any at this time. However, 
we welcome industry suggestions for those standards that we might 
consider at a future time.
5. RxNorm
    RxNorm is a standardized nomenclature for clinical drugs that is 
produced by the National Library of Medicine. While RxNorm was not 
explicitly discussed in the February 4, 2005 proposed rule, it was 
referenced in the table of potential standards contained in section G. 
of that proposed rule (70 FR 6262) because the NCVHS recommended that 
the 2006 pilot project include the RxNorm terminology. Efforts to map 
RxNorm to other terminologies are currently underway.
    Comment: While many commenters recognized the potential advantages 
of RxNorm, they recommended pilot testing the RxNorm terminology 
because it is not established as a recognized industry standard and 
needs to be tested in a variety of practice settings. Several 
commenters recommended accelerating the RxNorm project. One commenter 
reported that two commercial database vendors are concerned that RxNorm 
may be incomplete. They suggested that RxNorm's content be validated 
for completeness and to assure that the code set accurately conveys the 
drug that the prescriber intends to prescribe, and that a translation 
table between

[[Page 67578]]

RxNorm and the commercial database publishers be developed.
    Response: We plan to include RxNorm in the 2006 pilot project to 
determine its interaction with commercial data bases and certain drug 
labeling initiatives, to determine whether it translates to the 
National Drug Code (NDC) for new prescriptions, renewals and changes; 
and to test RxNorm's completeness and interoperability in the e-
prescribing environment.
6. Provider Identifier
    In the February 4, 2005 proposed rule, we discussed the salient 
issues regarding provider identifiers for the Medicare e-prescribing 
program. NCVHS recommended the use of the National Provider Identifier 
(NPI) as the primary identifier for dispensers and prescribers once it 
becomes available. CMS began issuing NPIs on May 23, 2005. However, the 
use of the NPI in HIPAA standard transactions is not required by 
regulation until May 23, 2007 (May 23, 2008 for small health plans). We 
indicated that we were considering requiring the use of the NPI in an 
electronic prescription drug program as of January 1, 2006, well in 
advance of the HIPAA regulatory requirements. We noted that 
accelerating NPI usage for e-prescribing may not be possible, as we may 
not have the capacity to issue NPIs to all providers involved in the e-
prescribing program by January 1, 2006. We also solicited comments on 
the availability of alternative identifiers that could be adopted as a 
standard.
    Comment: Most of the commenters agreed that the NPI should 
eventually be the standard provider identifier for use in e-prescribing 
transactions. There also were some commenters who felt that the NPI 
needed to establish a proven track record, and should be included in 
the 2006 pilot project.
    Response: We agree that the NPI should be the standard identifier 
for e-prescribing. It already is a HIPAA standard identifier that must 
be used in standard transactions, which means that covered entities 
(including Medicare, Medicaid, private insurers, clearinghouses, and 
other covered entities) must accept and use NPIs for covered HIPAA 
transactions by May 23, 2007, and May 23, 2008 for small health plans. 
Because the NPI is a new identifier and has not been used in the e-
prescribing context, we will include it in the 2006 pilot project to 
determine how it works with e-prescribing standards that will be 
assessed. This also will allow for provider testing and phase-in.
    Comment: The majority of commenters said that the NPI should not be 
required for use until the May 2007 (or May 2008 for small health 
plans) HIPAA regulatory compliance dates. They indicated that there is 
a need for sufficient time for all providers to obtain NPIs since 
enumeration began on May 23, 2005. They stated that the industry has 
been preparing for the 2007 (and 2008 for small health plans) 
compliance dates, and any change to those dates will cause major 
disruption.
    Response: We agree that a transition period is needed. CMS will 
transition to the NPI when compliance for most covered entities is 
mandated in May 2007 (May 2008 for small health plans). The NPI will 
not be required for use in e-prescribing transactions until the May 
2007 date (May 2008 for small health plans). As a result, we will not 
adopt a specific standard identifier for prescribers or pharmacies 
conducting e-prescribing for Medicare beneficiaries prior to the NPI 
dates. The NPI will be tested in the 2006 pilot project.
    Comment: Commenters had a variety of suggestions for alternative 
identifiers that could be used in Medicare e-prescribing on an interim 
basis. These included the NCPDP provider number, the HCIdea number, 
Medicare provider identifiers, the DEA number, and proprietary numbers. 
However, not one of these identifiers is assigned to all pharmacies and 
prescribers in the United States.
    Response: Until May 2007, entities that want to e-prescribe for 
Medicare beneficiaries may use other identifiers as specified by CMS in 
program instructions. Details are in CMS' ``Instructions: Requirements 
for Submitting Prescription Drug Event Data'' (June 24, 2005) available 
at http://www.cms.hhs.gov/pdps/revisedinstrs062305.pdf.
7. Prior Authorization
    Prior authorization is the protocol used between a prescriber and 
payer to determine, in advance, if a particular treatment medication, 
procedure, service, or device will be covered. Numerous drugs, 
supplies, and medical services are only covered for certain conditions 
or under special circumstances, and require coverage authorization by a 
health plan prior to administration.
    Because we are not aware of a prior authorization standard that 
incorporates real-time prior authorization functionality with messages 
for drugs, we did not propose adopting a prior authorization foundation 
standard.
    However, in the February 4, 2005 proposed rule, the table that 
summarized the NCVHS recommendations indicated that we should support 
the ASC X12N efforts to incorporate real-time prior authorization 
functionality in the ASC X12N 278 Health Care Services Review 
transaction (70 FR 6262).
    Comment: All of the comments that we received on this subject 
supported pilot testing a proposed formulary and benefit standard that 
includes some measure of electronic prior authorization support. Also, 
the commenters suggested that electronic prior authorization 
information should include specific clinical requirements or rules, so 
that the prescriber would know what information was needed prior to 
submitting an authorization request. A number of the comments stressed 
the importance of a prior authorization standard to an electronic 
prescribing system for improving workflows and ensuring appropriate 
drug utilization.
    Response: We agree with the comments that supported adoption of a 
prior authorization standard. We also are aware of further development 
of the ASC X12N 278 Health Care Services Review Transaction and will be 
pilot testing it for e-prescribing prior authorization in 2006. We will 
not adopt a standard for prior authorization transactions at this time.
8. Fill Status Notification
    While fill status notification was not discussed at length in the 
proposed rule, it was mentioned in the discussion of the NCPDP SCRIPT 
standard (70 FR 6265-6266). In addition, because the NCVHS recommended 
that it be included in the 2006 pilot project, fill status notification 
was referenced in the table in section I.G. of the proposed rule (70 FR 
6262).
    Comment: A commenter expressed their disappointment that we decided 
not to include the NCPDP SCRIPT fill status notification transaction in 
the 2006 pilot project as this standard has the potential of 
significantly improving the health of Medicare beneficiaries.
    Response: As we mentioned, while we do not think there exists 
adequate industry experience for this transaction to meet the criteria 
for a foundation standard, we will be testing the standard in the 2006 
pilot project.
9. Pilot Testing
    Section 1860D-4(e) of the Act includes an exception to the pilot 
testing requirement for standards with adequate industry experience.
    Comment: Many commenters recommended that all standards be pilot 
tested to ensure that standards work in multiple environments including

[[Page 67579]]

settings where there are three-way transactions. Other reasons cited 
for pilot testing all standards include the following:
    <bullet> To determine that an undue burden is not imposed on 
specific entities.
    <bullet> To ensure that standards are useful and efficient for the 
e-prescribing process.
    <bullet> To ensure that standards function in a manner that 
enhances the prescribing process.
    <bullet> To determine if standards are functional and 
interoperable.
    Other commenters warned that if standards are implemented without 
pilot testing, there will be more electronic errors, less effective 
prescribing safeguards, or increased system vulnerability and 
instability. Another commenter added that if the functionalities of the 
standards are not perfected, frustration could lead to a reduction or 
cessation of e-prescribing.
    Response: We agree that pilot testing all of the standards may 
provide useful information for the implementation and operation of a 
multifunctional e-prescribing system. We note that, while we will be 
including the foundation standards in the pilot project, we do not 
consider them to be initial standards to be tested. We are including 
them solely to ensure their interoperability with the various other 
standards, including both the initial standards and other foundation 
standards. Moreover, because of interoperability concerns, the pilot 
project will include both new and emerging standards, as well as 
established standards for additional functionalities that are not in 
widespread use. If the standards testing is unsuccessful, we will work 
with the industry to correct any outstanding issues.
10. Version Updating and Maintenance
    In the February 4, 2005 proposed rule, we proposed to adopt 
specific versions of the foundation standards. However, we also 
proposed that if standards are updated and newer versions are 
developed, HHS would evaluate the changes and consider how and when to 
adopt new updates to the standards. HHS anticipates, as appropriate, 
updating adopted standards through the incorporation by reference 
update process, which provides for publishing an amendment to the Code 
of Federal Regulations (CFR).
    When updating a standard, we will look at a variety of factors to 
consider how the update should occur. If the Department intends to 
impose new requirements on the public, we would go through 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 under an Administrative Procedure Act exception to the 
requirement for notice and comment rulemaking. In the latter case, we 
would likely adopt the version that was previously adopted as well as 
the new version. This would mean that compliance with either version 
for a covered transaction 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. Backward compatible means 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 transaction with entities that 
continue to use the previous version.
    We noted, however, that if an e-prescribing transaction standard 
had also been adopted under the 45 CFR parts 160 through 162, the 
updating process for the e-prescribing transaction standard would have 
to be coordinated with the maintenance and modification of the 
applicable HIPAA transaction standard. In the proposed rule, we also 
sought comment on whether we should simply reference the relevant HIPAA 
standards so that the e-prescribing standards would be updated 
automatically in concert with any HIPAA standard modification. In 
addition, we invited public comment on how to establish a process to 
assess new and modified standards consistent with the Administrative 
Procedures Act and other applicable legal requirements, and 
specifically invited comment regarding the role of industry SDOs and 
the NCVHS. This final rule adopts and incorporates by reference the 
relevant HIPAA transactions standards (the X12N 270/271 and the NCPDP 
Telecommunication Standard). In doing so, whenever these HIPAA 
transactions standards are modified, the parallel e-prescribing 
standards would likewise be modified through a separate rulemaking.
    Comment: Many commenters recommended that the process of 
maintenance and modification of standards should not be hindered by 
extensive rulemaking. They cited industry experience with HIPAA, and 
pointed out that the update process precludes even voluntary adoption 
of newer versions, which stifles progress and innovation. They also 
supported our proposal of permitting voluntary implementation of later 
versions if they are backward compatible. Some commenters advocated 
permitting use of older standards for a period of time after new 
versions are adopted, while a few commenters recommended that all 
revisions be accomplished through notice and comment rulemaking.
    Response: We agree with the majority of commenters who stressed 
that the process for adopting new versions of standards must keep pace 
with industry needs. We also recognize the need to maintain an open 
process for assessing changes to assure that various viewpoints are 
considered. However, we are bound by law to comply with the 
Administrative Procedure Act. Therefore, we will establish a review 
process to determine--
    <bullet> Whether a standard should be updated with a new version; 
and
    <bullet> Whether the update would necessitate notice and comment 
rulemaking.
    Where it is determined that the notice and comment rulemaking is 
not required, the new version will be adopted by incorporating the new 
version by reference, through a Federal Register notice. In that case, 
use of either the new version or the older version would be considered 
compliant. We would subsequently conduct a rulemaking prior to 
requiring the use of the newer version and retiring the older version 
on a specific date.
    Where notice and comment rulemaking is required, compliance with 
the new version will be mandated only after notice and comment 
rulemaking. We anticipate that such a regulation will provide for an 
implementation period during which either version of the standard may 
be used. After that period and on a date specified in the subsequent 
final rule, only use of the new version would be considered compliant.
    Comment: Several commenters wanted to know details concerning the 
process by which new versions would be assessed to determine whether 
rulemaking would be waived. Some of the commenters suggested that HHS 
should make this determination, while others stated that the relevant 
SDOs were best equipped to make this assessment. Still others suggested 
that NCVHS facilitate this discussion.
    Response: Under the Administrative Procedure Act, only the 
Secretary may make the decision to waive notice and comment rulemaking. 
Additionally, the

[[Page 67580]]

Secretary will ensure that any newer version that incorporates 
significant changes from the prior version undergoes notice and comment 
rulemaking before industry compliance is required. However, we 
acknowledge the need to elicit input from interested parties. 
Therefore, we will ask the NCVHS to assess new versions of standards as 
they are developed, obtain input from SDOs and other organizations, and 
provide recommendations to the Secretary regarding whether the new 
versions should be adopted. We do not anticipate that the Secretary 
would waive notice and comment rulemaking in any case where a new 
version is not backward compatible with the most recent prior adopted 
version. Additionally, the Secretary would ensure that any newer 
version that incorporates substantive changes from the prior version 
undergoes notice and comment rulemaking prior to the industry being 
required to comply with it. We believe that affected organizations will 
be adequately protected by this process because adoption of the new 
version would be voluntary in cases where rulemaking is waived.
    Comment: Several commenters requested that we explicitly state that 
entities that voluntarily adopt later versions of standards that are 
backward compatible must still accommodate the earlier version without 
modification. For example, a plan that adopts a later version could not 
require its trading partners to adopt the later version, and could not 
require its partners to modify their implementations of the earlier 
version.
    Response: We agree. Since in this situation both versions of the 
standard would be compliant, trading partners that voluntarily adopt 
the later version must continue to accept the earlier version without 
alteration until the older version is officially retired.
    Comment: Several commenters wanted to know who should participate 
in the process of assessing new versions of standards. A number of the 
commenters suggested collaboration between HHS and the SDOs, while 
others suggested that the NCVHS also be involved. Another commenter 
recommended that no update process be specified until we have 
additional experience with the e-prescribing standards.
    Response: We agree with the majority of the commenters that a 
process must be put into place now. We will, therefore, utilize the 
process described above, with the NCVHS providing recommendations to 
the Secretary for decision after obtaining industry input. We 
acknowledge that there may be a need for future revisions to the 
process.
    Comment: A number of commenters addressed the fact that several of 
our proposed foundation standards (the X12N 270/271 and the NCPDP 
Telecommunication Standard) had already been adopted as standards under 
HIPAA. They noted that the HIPAA modification process does not 
currently permit even voluntary adoption of newer versions of the 
standards without rulemaking. Some commenters advocated extending the 
ability to voluntarily adopt new versions of the final uniform 
foundation standards that are also HIPAA standards to provide the 
maximum benefit from this flexibility. Others recommended that the 
adoption of new versions be limited to final standards, including the 
foundation standards, to synchronize use around a single version.
    Response: We believe the first approach, which would permit 
voluntary use of newer versions, would be inconsistent with current 
HIPAA regulations, and, HIPAA covered entities may use only the 
versions of the 270/271 and NCPDP Telecommunications standards that are 
adopted under 45 CFR Part 162. We are assessing a number of proposals 
for making the HIPAA standards modification process more flexible.
    Comment: A number of commenters recommended developing a 
predictable cycle for the update process, and other commenters 
specifically recommended an annual cycle.
    Response: We agree that a predictable update cycle would facilitate 
planning and budgeting for plans and providers. To the extent possible, 
we will work with the SDOs and NCVHS to establish a timetable for such 
deliberations.
    Comment: While we did not propose a process for maintaining 
vocabulary and code set standards, commenters specifically favored an 
open updating process for vocabulary and code set standards similar to 
the process in place today for HIPAA standard code sets. Under this 
process, vocabulary and code set maintenance could be accomplished by 
their maintainers without respect to the version updating process. This 
process permits flexibility to respond quickly to new concepts.
    Response: We did not propose vocabulary and code sets in our 
proposed rule, nor are we adopting any in this final rule. When we do 
propose vocabulary and code sets, we will propose a process for their 
updating and maintenance.
11. Interoperability/EHR
    We proposed adopting foundation standards that are ANSI accredited 
and have adequate industry experience as a means of facilitating 
interoperability for Electronic Health Records (EHRs). We also asked 
for comment on how e-prescribing functionality and our incremental 
approach to implementing e-prescribing relates to a comprehensive EHR 
system and interoperates across software and hardware products.
    Comment: The majority of commenters supported our approach toward 
achieving interoperability by requiring ANSI accreditation and 
establishing criteria that demonstrate adequate industry experience. 
Some of the commenters suggested that we broaden our approach to 
include various settings, such as long-term care. One commenter did not 
support our approach because the proposed foundation standards 
allegedly have not been adequately tested together in a wide range of 
settings. This commenter also suggested that we conduct a pilot project 
to assess the overall impact of e-prescribing on Medicare and on other 
payers and patient populations.
    Response: We agree that e-prescribing functionality should be an 
essential component of a comprehensive EHR system and that it must 
interoperate across various software and hardware products and various 
care settings to be effective. Our incremental approach toward adoption 
of e-prescribing standards, along with the 2006 pilot project, will 
address interoperability across software and hardware products in a 
variety of care settings.
    Comment: We received several comments concerning timing. The 
commenters recommended that implementation of e-prescribing and EHR 
standards occur at various, independent stages without halting current 
e-prescribing development. Some commenters suggested postponing the 
establishment and adoption of standards for e-prescribing until a time 
when 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.
    Response: We believe that our incremental approach to adopting e-
prescribing standards for use in the Medicare Part D benefit will be 
viewed as an initial step and facilitate the development of EHR 
standards, thus, promoting interoperability in the short and long 
terms.
    Comment: One commenter recommended that the Federal government use 
the Integrating the

[[Page 67581]]

Healthcare Enterprise (IHE) process. This promotes the coordinated use 
of established standards, such as DICOM and HL7, to address specific 
clinical needs.
    Response: IHE is an initiative by healthcare professionals and the 
industry to improve the way computer systems in healthcare share 
information. IHE promotes the use of established standards to address 
specific clinical needs in support of optimal patient care. While we do 
not specifically participate in the IHE and we believe this comment is 
beyond the scope of the proposed rule, we nonetheless support and 
participate in projects that foster the coordination of standards 
across the health care enterprise such as through the SDO process.
12. Closed Enterprise
    In the February 4, 2005 proposed rule, we solicited comment on 
whether Part D plans should be required to use the standards for e-
prescribing transactions taking place within their own enterprises, 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. Under the HIPAA transactions rule, it 
is immaterial whether the transmissions are within a corporate HIPAA 
covered entity or between two different entities; compliance with the 
HIPAA transactions standard is required.
    Comment: One commenter recommended that both HL7 and NCPDP SCRIPT 
be allowed for any prescription transactions, with usage based on 
trading partner agreements. Several commenters recommended that HHS 
view the exchange of prescription transactions that occur ``within the 
same enterprise'' as being outside the scope of the MMA. Another 
requested that HHS clarify the definition of a ``closed enterprise'' 
for purposes of identifying prescription transactions within an 
enterprise that fall outside the scope of the MMA. One commenter did 
not believe that closed enterprises should be exempt from following the 
standards, noting that HIPAA applies to transactions in open and closed 
environments.
    Response: To clarify our use of the term ``closed enterprise'' in 
the February 4, 2005 proposed rule, we intended ``closed enterprise'' 
to mean a discrete legal entity that may serve as a closed network, 
such as a staff model HMO, which seeks to conduct e-prescribing within 
the confines of the enterprise. To avoid any confusion, we have steered 
away from using the term ``closed enterprise'' in this final rule and 
have stated explicitly that in line with the NCVHS recommendation and 
comments received, entities may use either HL7 or NCPDP SCRIPT Standard 
to conduct internal electronic transmittals for the specified NCPDP 
SCRIPT transactions. For example, there are many entities, such as 
staff model HMOs, in which all parties to the transaction, including 
the prescriber and the pharmacy, are employed by, and part of, the same 
legal entity. The NCVHS recommended that these organizations not be 
required to convert to the adopted standard (NCPDP SCRIPT) for 
prescription communications within their enterprise because these 
closed systems typically utilize HL7 messaging. However, if they send 
prescriptions outside the organization (for example, from an HMO to a 
non-HMO pharmacy) they would be required to use the adopted standards.
    We acknowledge the NCVHS recommendation. Thus, MA-PDs and PDPs 
continue to use HL7 messages for electronic prescriptions sent and 
received within the same legal entity. This requirement differs from 
the HIPAA requirement which sets the same standards for internal and 
external transactions and which will continue to apply to HIPAA 
transactions, even if the HIPAA transactions are used in e-prescribing. 
We will require entities to use NCPDP SCRIPT if they electronically 
send prescriptions for Medicare beneficiaries outside the organization, 
such as to a non-network pharmacy. Any pharmacy, even if it is part of 
a larger legal entity must be able to receive electronic prescription 
transmittals for Medicare beneficiaries via NCPDP SCRIPT from outside 
the enterprise.
    Comment: Another commenter suggested that the February 4, 2005 
proposed rule be modified to either allow for the use of both 
transactions by large institutions, or to allow for the use of an 
intermediary to translate the HL7 pharmacy order messages to the 
required NCPDP format that will reach the sponsor or dispenser.
    Response: Entities may use HL7 and NCPDP SCRIPT to conduct internal 
electronic prescription transmittals. We have, therefore, provided an 
exemption in this final rule for entities to conduct internal 
transactions using either the NCPDP SCRIPT or HL7, which would 
otherwise be required to comply with the NCPDP SCRIPT. However, 
electronic prescriptions sent to pharmacies for Medicare beneficiaries 
outside the institution or enterprise network must be converted to 
NCPDP SCRIPT; a clearinghouse or other intermediary may be used for 
translation purposes.
13. NCVHS Process
    The Secretary is required to develop, adopt, recognize or modify 
initial uniform standards relating to the requirements for an 
electronic prescription drug program taking into consideration 
recommendations, if any, from the NCVHS.
    Comment: Several commenters were in favor of the process used by 
the NCVHS in recommending e-prescribing standards to the Secretary and 
supported the criteria developed to determine whether a standard 
demonstrated adequate industry experience. There was general agreement 
among the commenters that the NCVHS has helped set the path for the e-
prescribing environment. Some of the commenters expressed support for 
the NCVHS process, and the opportunity to participate with the NCVHS 
and CMS on developing and adopting the standards required for an 
electronic prescription drug program. A number of commenters suggested 
that the NCVHS determine if an approved change to a standard is 
substantive and requires rulemaking. There also were some commenters 
that recommended that the NCVHS consult with CMS on when rulemaking can 
be waived for standard updates.
    Response: We agree with the commenters on the usefulness of the 
NCVHS process in recommending e-prescribing standards to the Secretary. 
The NCVHS will continue to conduct hearings on e-prescribing standards 
to ensure input and participation with industry stakeholders, and will 
continue to consult with CMS on the development and updates for e-
prescribing standards. We note, however, that the Secretary will 
determine what is required to comply with the law.
14. Privacy/Security
    In the February 4, 2005 proposed rule, we stated that it should be 
noted that disclosures of protected health information (PHI) in 
connection with an e-prescribing transaction would have to meet the 
minimum necessary requirements of the Privacy Rule if the entity is a 
covered entity (70 FR 6261). We also noted that entities that are 
covered entities under HIPAA must continue to abide by the applicable 
HIPAA standards, including those for privacy and security. Although we 
did not request comments on e-prescribing

[[Page 67582]]

privacy and security, we received several comments on the topics.
    Comment: Several commenters were concerned about the protection of 
patient privacy and the confidentiality of patient data, in both the 
patient care and research settings. The commenters also were concerned 
about assuring the security of, and authorized access to, transactions 
among prescribers, pharmacies and health plans. For example, some of 
the commenters suggested higher levels of security, such as digital and 
electronic signatures (including public key infrastructure, or PKI).
    Response: We agree that privacy and security are important issues 
related to e-prescribing. Achieving the benefits of e-prescribing 
requires the prescriber and dispenser to have access to medical history 
and other patient medical information that may not have been previously 
available to them. Section 1860D-4(e)(2)(C) of the Act requires that 
disclosure of patient data in e-prescribing must, at a minimum, comply 
with HIPAA's privacy and security requirements. Pharmacists generally 
are responsible under State laws for ensuring the authenticity and 
validity of prescriptions. Based upon extensive testimony and 
consultation with industry experts such as the National Institute of 
Standards and Technology (NIST), the American Society for Testing and 
Materials (ASTM), and leaders in the financial services industry, the 
NCVHS did not recommend any standards relating to e-prescribing 
security at this time. We agree that a standard for the security of 
prescriptions and related information is essential, but we are not 
adopting specific standards for security technology at this time 
because we are not aware of any such standards with adequate industry 
experience. It is important to note that health plans, prescribers, and 
dispensers are HIPAA covered entities, that must comply with the HIPAA 
security standards. Although those standards are flexible and scalable 
to each entity's situation, they provide comprehensive protections. We 
will continue to evaluate additional standards, including encryption 
standards, for consideration as adopted e-prescribing standards.
    Comment: One commenter recommended more aggressive educational 
programs for the public concerning privacy and security.
    Response: We agree that public education is important. The HHS 
Office for Civil Rights (OCR) and CMS will continue their ongoing 
national educational efforts related to HIPAA's privacy and security 
requirements, respectively. (OCR's Web site is http://www.hhs.gov/ocr/hipaa. CMS'' Web site is http://www.cms.hhs.gov/hipaa/hipaa2.)
    Comment: One commenter suggested that because of the need to ensure 
data security and privacy, health plans should be allowed to select 
their own POC vendors for e-prescribing.
    Response: All entities involved in e-prescribing are free to select 
any technology vendor. However, they should make this decision with 
consideration of their needs and compliance with internal policies and 
laws, including those for security and privacy.
15. Compliance Date
    In the February 4, 2005 proposed rule, we discussed the Secretary 
proposing January 1, 2006 as the compliance date for the foundation 
standards (70 FR 6267). We proposed that, beginning January 1, 2006, 
Part D sponsors, and prescribers and dispensers that conduct e-
prescribing transactions for which standards are adopted, would be 
required to use the standards adopted in this final rule for 
transactions involving prescriptions or prescription-related 
information regarding Part D enrolled individuals. Compliance is 
required whether the entity conducts e-prescribing transactions 
directly or through an intermediary.
    Comment: Many of the commenters were in support of the January 1, 
2006 compliance date. Some commenters suggested that the date be moved. 
Reasons to delay compliance included concerns that some pharmacies, 
such as those in rural areas, will be unable to comply by this 
deadline; doing so may create a competitive advantage for those 
pharmacies (primarily large chains) that could comply; and the deadline 
will provide insufficient time for PDPs and MA-PDs to communicate the 
required contractual requirements to downstream providers as well as 
complete the necessary contracting activities. A few commenters 
suggested that delaying the compliance date will increase the use of e-
prescribing as the extra time will allow physicians time to acquire the 
necessary technology as well as obtain financial assistance for doing 
so.
    Response: We will require the January 1, 2006, compliance date for 
all e-prescribing standards adopted in this final rule. We recognize 
that because e-prescribing is voluntary for pharmacies, not all will be 
ready to comply with NCPDP SCRIPT by January 1, 2006. As a result, 
plans may take more time to work with the pharmacies in their network. 
While e-prescribing will be a requirement for Part D plans, our goal is 
to work with plans to facilitate widespread compliance and avoid the 
need to impose program sanctions wherever possible.
    Comment: Some commenters supported delaying the compliance date 
because they believe that the NPI will not be ready in time, or on a 
sufficient scale to achieve wide-spread use by January 1, 2006. The 
commenters stated that many entities would not be ready for such 
accelerated implementation because they were working to meet the HIPAA 
implementation deadline for the NPI of May 2007 (May 2008 for small 
health plans).
    Response: We recognize that the NPI may not be ready for wide-
spread industry use by January 1, 2006. The use of the NPI in the e-
prescribing context will be pilot tested. However, entities 
participating in Part D that want to e-prescribe may use the NPI or 
other identifiers as specified by CMS, such as the NCPDP pharmacy 
identifier and the State license number for prescribers. Consequently, 
the availability of the NPI for use by January 1, 2006 will not affect 
the compliance date for the foundation standards. However, the NPI will 
be required for use in e-prescribing standards that are also HIPAA 
transactions as of the May 2007 HIPAA regulatory compliance date 
(except for small health plans for which the compliance date is May 
2008).

F. Additional E-Prescribing Related Topics

    We did not solicit comments on the following issues, however, we 
did receive several comments regarding long-term care pharmacy, and 
commercial messaging. We respond to those comments in this section.
1. Long Term Care (LTC) Pharmacy
    In the February 4, 2005 proposed rule we did not distinguish the 
flow of information for LTC pharmacies, home infusion pharmacies, or 
renal dialysis pharmacies from the pharmacies described in the section 
E of (Current E-Prescribing Environment) of the proposed rule (70 FR 
6260).
    Comment: Several commenters noted that e-prescribing is rarely 
conducted in LTC facilities today. They pointed out that while the 
foundation standards may be said to have adequate industry experience 
in the ambulatory setting, this is not the case in the LTC setting. 
They also indicated that the proposed foundation standards do not 
support the complexities of the prescribing process for patients in LTC 
facilities. They explained that, while the standard outpatient 
prescribing process involves a prescriber and a pharmacy,

[[Page 67583]]

prescribing in the LTC setting also involves the facility itself and 
its nursing staff. The patient's chart may be at the LTC facility, but 
the prescribing physician may not be, and frequently the facility 
nursing staff transmits the prescription to the pharmacy, annotates the 
medical record, and dispenses the drug to the patient.
    Some of the commenters requested that the foundation standards not 
be applied to the LTC setting, unless they are first pilot tested in 
that environment. They specifically suggested that the 2006 pilot 
project include LTC facilities and that they test the three-way 
communication between facility, physician and pharmacy.
    Response: We agree that the nursing home industry standard practice 
is not conducive to early application of e-prescribing standards. The 
foundation standards that have been adequately tested in the ambulatory 
setting may not be directly transferable to the LTC setting for several 
reasons. First, there are generally three parties in LTC prescribing: 
The provider, the nursing facility, and the LTC Pharmacy. The provider 
generally writes prescriptions on a 1 to 3 month cycle at the facility, 
or by phone contact with the nursing station on an as needed basis. 
There is generally no provision in standard practice for direct 
provider to pharmacy transmission; in fact, such transmission is 
considered a potential risk if the administering facility staff is out 
of the communication loop. Second, the facility has the legal 
responsibility for processing medication orders as written, before 
pharmacy transmission. There is also a Federal requirement for 
concurrent and retroactive Drug Regimen Review (DRR) on all residents, 
which is the responsibility of the nursing home rather than the 
provider or pharmacist. Finally, less than 30 percent of nursing homes 
have computer access at the nursing station. The current practice is 
for written orders to be faxed to the pharmacist as well as transcribed 
onto the Plan of Care at the nursing station. These intermediate steps 
would need to be developed separately in an e-prescribing system.
    The systems should be made compatible with a three party approach 
able to accommodate the LTC recording and DRR requirements, as well as 
changes due to the Part D benefit. Therefore, we do not require Part D 
plans to support e-prescribing when a facility, such as a LTC facility, 
is involved in the prescribing process in addition to the prescriber 
and the dispenser. Moreover, we exempt from the requirement to use the 
NCPDP SCRIPT Standard prescription transactions between prescribers and 
dispensers where a non-prescribing provider is required by law to be a 
part of the overall transaction process.
    We also agree with the commenters who requested that the 2006 pilot 
project include LTC facilities, and that the three-way prescribing 
communication between facility, physician, and pharmacy be tested using 
the standards. We expect to pilot test e-prescribing standards 
specifically in the LTC environment and welcome participation of LTC 
facilities.
2. Commercial Messaging
    The proposed rule did not address electronic prescribing messaging, 
which, under the MMA, is aimed at giving providers the appropriate 
information they need at the POC to make informed decisions for 
treating Medicare beneficiaries. Section 1860D-4(e)(3)(D) of the Act 
states that ``e-prescribing standards shall allow for the messaging of 
information only if it relates to the appropriate prescribing of drugs, 
including quality assurance measures and systems referred to in 
subsection (c)(1)(B).''
    Comment: Some of the commenters were concerned that standards for 
appropriate messaging were not included in the proposed rule.
    Response: We agree that there needs to be an appropriate balance 
between providing appropriate information at the POC with messaging 
that might steer the prescriber to use specific drugs and therapeutics 
as specified at section 1860D-4(e)(3)(D) of the Act. We also recognize 
the potential for inappropriate messaging to occur in e-prescribing and 
share concerns about how the provision of certain information may 
unduly influence physician prescribing patterns. For example, 
inappropriate messages include those that would steer the filling of a 
prescription to a particular mail order pharmacy, and electronic 
``detailing'' messages from a manufacturer promoting a particular brand 
or brand-name drug. Moreover, if a drug manufacturer engages in this 
practice to promote unapproved uses for a drug, this could be a 
violation of the Federal Food, Drug, and Cosmetic Act. We will monitor 
this as an operational issue and will provide guidance to plans at a 
future date and, if necessary, propose more specific standards for 
messaging. We intend to pilot test messaging standards when they are 
available for testing.
3. Diagnosis Codes
    Although we did not propose the use of diagnosis codes in 
electronic prescriptions or solicit comments on this subject, we 
received a number of comments requesting a requirement to report 
diagnosis codes on standard electronic prescription transactions.
    Comment: Some commenters requested the addition of diagnosis codes 
to the standards required for electronic prescriptions under the 
electronic prescription drug program. The commenters indicated that 
this information is helpful for drug utilization review, decision 
support, formulary compliance, and therapy choices. One commenter 
believed that requiring a diagnosis on the prescription supports the 
MMA requirements and objectives and complies with HIPAA.
    Response: We agree that diagnosis codes may provide useful 
information that could assist in improving patient safety and quality 
of care, and may be helpful in data collection. The diagnosis data 
field is an optional field in the NCPDP SCRIPT standard and is not in 
widespread use. Therefore, we are not requiring it for e-prescribing 
under Part D at this time and it is not part of this final rule.

G. Other Issues

    We received a number of unsolicited comments that included 
recommendations for CMS, and requests for additional functionality.
    Comment: Several commenters suggested that we conduct an analysis 
of formulary compliance, generic utilization, and their impact on 
patient care, health outcomes, and overall quality of care, and that 
health plans not be allowed to use financial incentives to influence 
physician's prescribing habits.
    Comment: Several commenters stated that there was no transaction 
for the alteration of the status of a requested refill.
    Comment: Some commenters suggested that CMS provide guidance to 
pharmacists on how drug product selection instructions may be 
separately transmitted in electronic prescriptions, an authentication 
process for end-to-end prescribing, information on whether a 
prescription was filled, allergy/tolerance checking and validation of 
patient and prescription, information for the physician to discuss drug 
therapy with the patient at POC, diagnosis on the prescription, 
security measures for internet flow of information, testing statistical 
interoperability, and drug dosage forms, units of measure, modifiers, 
and SIG with drug names in standards. One commenter also referenced the 
Joint Commission on Accreditation of Healthcare Organizations (JCAHO) 
requirement that

[[Page 67584]]

pharmacists review medication orders prior to the medication being 
dispensed.
    Comment: Several commenters offered suggestions for an e-
prescribing model such as one built with the patient and prescriber at 
the center; and a model designed to improve patient care and strengthen 
the physician-patient relationship, reduce costs, and provide 
information when it is needed. Also, it was suggested that an e-
prescribing model reflect that community pharmacies have significant 
patient clinical medication information. One commenter suggested that 
CMS, the NCVHS, the SDOs, and technology vendors collaborate to build 
an e-prescribing system to support the physician order set for home 
infusion therapy and be compatible with the X12 837P claim standard.
    Comment: Several commenters addressed specific codes for spinal 
surgery in an ASC setting, reimbursement for specific drugs, and 
limitations for manipulating a computer keyboard that were out of the 
scope for the February 4, 2005 proposed rule.
    Response: We acknowledge these comments and will take them into 
consideration in the future as we further develop the electronic 
prescription drug program. We view e-prescribing as an evolving process 
and will collaborate with the industry and key stakeholders to enhance 
and improve the standards for e-prescribing that meet the requirements 
outlined in the MMA for an electronic prescription drug program.

IV. Provisions of the Final Regulation

    For the most part, this final rule incorporates the provisions of 
the proposed rule. Those provisions of this final rule that differ from 
the proposed rule are as follows:
    <bullet> In Sec.  423.150(c), we are revising the description of 
the scope to state expressly that this subpart sets forth requirements 
relating to electronic prescription drug programs for prescribers, 
dispensers, and Part D sponsors.
    <bullet> In Sec.  423.159, we are revising the proposed definition 
for e-prescribing to further define e-prescribing to state that it 
includes, but is not limited to, two-way transmissions between the 
point-of-care (POC) and the dispenser. In Sec.  423.159, we are 
revising our definition of prescription-related information to mean 
information regarding eligibility for drug benefits, medication history 
or related health or drug information for Part D eligible individuals.
    <bullet> In Sec.  423.160(a)(1), we are revising our general rule 
for Part D sponsors to state that 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 Part D 
eligible individuals.
    <bullet> In Sec.  423.160(a)(2), we are revising our general rule 
for prescribers and dispensers to state that 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.
    <bullet> In response to comments received, we decided that an 
exemption would be appropriate for computer-generated faxes to comply 
with the adopted NCPDP SCRIPT Standard.

Therefore, in Sec.  423.160(a), we are adding a new paragraph (3)(i) 
that will permit an exemption for complying with the adopted NCPDP 
SCRIPT standard for transmitting prescription information between the 
prescriber's computer and the pharmacy's computers. In paragraph 
(3)(ii) of this section, we are providing entities with the option of 
using either HL7 or NCPDP SCRIPT Standard to conduct internal 
electronic prescription transmittals. In paragraph (3)(iii) of this 
section, we are including an exemption for complying with the adopted 
NCPDP SCRIPT Standard when a non-prescribing provider is required by 
law to be involved in the prescribing process in addition to the 
prescriber and the dispenser.
    <bullet> In Sec.  423.160(a), we will add a new paragraph (4) to 
state that, in accordance with section 1860D-4(e)(5) of the Act, the 
standards under this section supersede any State law or regulation that 
is contrary to the standards or restricts the ability to carry out Part 
D of Title XVIII of the Act and pertains to the electronic transmission 
of medication history and of information on eligibility, benefits, and 
prescriptions with respect to covered Part D drugs under Part D of 
Title XVIII of the Act.

V. Collection of Information Requirements

    Section 423.160 of this rule does contain information collection 
requirements as discussed below:

Section 423.160 Standards for an Electronic Prescribing Program

    As the government participates in the development of EDI standards, 
the question of whether the PRA is implicated has emerged. 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 eligible individuals as would be required 
under Sec.  423.160. 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.
    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, PDPs and MA-PDs will be required to comply with these 
adopted standards as discussed in section 1860D-4(e)(1) and (2) of the 
Act. E-prescribing is voluntary for prescribers and dispensers; but, if 
they electronically transmit prescriptions and other prescription-
related information, they are required to comply with the standards.
    Testimony presented to the NCVHS indicated that many health plans/
PBMs currently have e-prescribing capability either directly or by 
contracting with another entity. While we agree, we note that such 
capabilities (such as computer-generated faxes) may not be comparable 
to the functionality that will be required for electronic prescription 
drug programs under these regulations. 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).

VI. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this final 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), 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

[[Page 67585]]

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, 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 totaling $154 billion were 
written in the United States in 2003, with the average cost for a 
prescription ranging from $45 to $67. 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 (70 FR 4193-4585), available online at http://www.gpoaccess.gov) estimates that in CY 2006 about 29 million Medicare 
beneficiaries will receive drug coverage through a Medicare Part D 
plan. By CY 2010, estimates indicate that about 35 million Medicare 
beneficiaries will be receiving this drug coverage. (In addition, in CY 
2006 approximately 13 million others are Part D eligible, in most cases 
enrolled in the plans of former employers, and, therefore, will be 
covered by these rules.) While the Medicare drug benefit participation 
estimates are subject to uncertainty, changes in the rate or extent of 
adoption of Part D coverage would not affect the rate of adoption of e-
prescribing or the impact of these e-prescribing standards 
significantly. Virtually all prescribers and pharmacies who serve these 
beneficiaries now will find that the great majority of their elderly or 
severely disabled patients are eligible for and enrolled in Part D. To 
continue to serve any of these patients through Part D plans, and to 
use e-prescribing, these providers will be subject to these standards.
    This impact analysis discusses the overall impact of instituting e-
prescribing standards under the Medicare Prescription Drug Program. 
However, as indicated in the analysis, there are several major factors 
influencing the adoption of e-prescribing (including existing and 
future HIPAA rules, these final rules, and forthcoming Stark and anti-
kickback rules) and the attribution of effects among them cannot be 
accomplished with precision.
    The overall requirements for supporting e-prescribing and providing 
incentives were discussed in the Medicare Prescription Drug Benefit 
proposed and final rules. However, specific standards were not 
contained in the Medicare Prescription Drug Benefit 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. However, some studies have indicated increased 
prescriber interest and the likelihood of greater adoption of e-
prescribing. We anticipate that the use of the standards in this final 
rule and the fact that these standards will be available at the time of 
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 prevailing 
expert opinion, we think it likely that the proportion of prescribers 
using e-prescribing will increase by about 10 percent annually over the 
next 5 years. The 10 percent annual growth in prescriber participation 
is a rough estimate, based on our expectations of--
    <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. In the February 4, 2005 proposed rule, we invited public 
comment on our expectations for prescriber participation. We received 
the following comments in response to our request:
    Comment: Most of the commenters believe that CMS has appropriately 
estimated or even underestimated the annual rate of participation in 
electronic prescribing. An e-health management firm stated that ``the 
CMS estimate of 10 percent growth in electronic prescribing per year is 
reasonable, but only with proper incentives or sponsorships.'' One of 
the commenters that is a leading seller of e-prescribing systems stated 
that ``in order to achieve greater than 10 percent annual growth, cost 
savings from other stakeholders, particularly payers, must be shared 
with physicians.''
    A PBM commented that the CMS estimate of prescriber participation 
is too conservative based on two studies' results. A Pri-Med Research 
Group study showed 1 in 5 physicians report using electronic 
prescribing technology now and another 42 percent are planning to adopt 
it in 2005. A recent Medical Economics survey indicated 1 in 4 
physicians plan to purchase an EHR system soon, at least 70 percent of 
which already include e-prescribing capability.
    However, some commenters stated that expectations for provider 
participation must be seen in the context of increasing practice 
expenses. These commenters pointed out that CMS actuaries predict five 
percent reductions in Medicare physician reimbursement each year 
between 2006-2011. Also, physicians are under pressure to purchase EHR 
technology rather than e-prescribing stand-alone technology. In many 
cases EHR software does not yet contain e-prescribing modules, and 
physicians may be reluctant to invest in incompatible software. Many of 
the commenters stated that financial incentives and support for 
physicians and other prescribers who utilize e-prescribing technology 
should be readily available.
    Response: Based on these comments, we see no need to change our 
estimate of 10 percent annual growth in prescriber participation over 
the next 5 years. The interoperability between EHR and e-prescribing is 
particularly important, as mentioned above. We intend to monitor the 
progress of any future certification process of EHRs and recognize the 
enhanced value of e-prescribing with the availability of advanced 
decision support through an EHR. We plan to create incentives for 
adoption of full EHR through our forthcoming rules on exceptions to the 
Stark law and safe harbors to the anti-kickback statute.

[[Page 67586]]

B. Discussion of E-Prescribing Benefits

    According to the Center for Information Technology Leadership 
(CITL), more than 8.8 million adverse drug events (ADEs) occur each 
year in ambulatory care. (CITL, The Value of Computerized Order Entry 
in Ambulatory Settings, 2003. A summary is available at http://www.citl.org/research/CITL_ACPOE_Summary.pdf.) E-prescribing helps to 
deliver relevant patient information at the time of prescribing. The 
CITL estimates that nationwide adoption of e-prescribing will eliminate 
nearly 2.1 million ADEs per year in the U.S. This will prevent nearly 
1.3 million provider visits, more than 190,000 hospitalizations, and 
more than 136,000 life-threatening ADEs. These improvements will 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 and utilization of other health care 
services for certain groups of patients. E-prescribing will 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 Randomized 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 will be enhanced by e-prescribing. All of these are 
designed to improve medication use and reduce the risk of adverse 
events, including adverse drug interactions. 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 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 (or even if) 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 and EHRs, the adoption rate of e-
prescribing by prescribers and pharmacies (depending in turn on if 
savings are realized), the effectiveness and existence of various 
incentives provided by private vendors/health plans, 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 substantial. We received a 
few comments on our analysis of benefits for e-prescribing which is 
largely unchanged from the proposed rule.
    Comment: One commenter expressed skepticism regarding CITL's and 
IOM's findings that electronic prescribing can reduce morbidity and 
mortality rates through reductions in common errors as described.
    Response: We appreciate that the predictions as to what can be 
achieved are necessarily speculative to some degree, and that similar 
kinds of predictions sometimes are unduly optimistic. However, these 
data are derived from reputable sources and there is general agreement 
in the industry about the direction and potential magnitude of these 
benefits.

C. HIPAA Standards Impact

    The ASC X12N 270/271 Transaction and the NCPDP Telecommunication 
Standard adopted in this final rule, for e-prescribing transactions, 
are already adopted standards for HIPAA. Thus, any costs associated 
with the adoption of these transaction standards are already 
encompassed in the baseline. (The impact of implementing these 
standards was analyzed and adopted in the HIPAA final rule 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 final rule. In the HIPAA 
regulations, we knew that some of the electronic claims standards we 
were requiring were incompatible with many of those already in use for 
electronic billing of Medicare claims. We know that some prescribers 
and other entities are already using the standards we are adopting in 
this final rule. Thus, while the HIPAA Final Rule and this final rule 
share common goals and methods, they have different implementation 
consequences.
    This final rule involves both mandatory and voluntary elements, but 
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, transitioning to the foundation standards will be 
mandatory to continue e-prescribing (with the option of returning to 
paper or, for internal use, the option of continuing to use HL7 
provided that communication with external parties meets the adopted 
standards and that there is compliance with the HIPAA standards) 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. In the proposed 
rule, we requested comments and data on the impact of the proposed 
standards on prescribers, health plans, and pharmacies based upon our 
estimates.

[[Page 67587]]

    We received the following comments on the estimates used to 
determine the regulatory impact of the proposed rule and input on the 
data and issues presented in this impact analysis.
    Comment: One commenter urged us to clarify the policy for those 
PDPs that have pharmacies which are not in compliance with e-
prescribing standards by the deadline. The suggestion was made to allow 
a grace period and explain any repercussions.
    Response: Our regulations do not require pharmacies to implement e-
prescribing. Health plans must have that capability, but use of e-
prescribing by both pharmacies and physicians is elective. Accordingly, 
a grace period is unnecessary.
    Comment: One commenter suggested that CMS deal with policy 
considerations around how e-prescribing technology and standards will 
relate to Medicare Part B drugs, as well as the Competitive Acquisition 
Program (CAP).
    Response: The MMA only authorized us to impose an e-prescribing 
requirement on MA plans and free-standing prescription drug plans that 
pay for Part D drugs. This in no way precludes use of e-prescribing in 
other Medicare contexts, and likely encourages it, but does not force 
it. Since there are no separate e-prescribing requirements under Part B 
or the CAP program, there is no potential inconsistency problem.

D. Impact on Health Plans/PBMs

    The Medicare Prescription Drug Benefit final rule (70 FR 4194) 
estimated that 100 PDP sponsors and 350 MA organizations would submit 
applications on an annual basis for participation in the Medicare 
Prescription Drug Program. In fact, a substantially larger number of 
organizations applied and we approved contracts with 73 PDP sponsors 
and 416 MA-PD organizations on September 29, 2005.
    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 will 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. In the February 4, 2005 proposed rule, we requested comments 
on possible costs to plans, and on steps we could take to ameliorate 
any unnecessary costs. We also requested 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. We received the following comments in response to 
our request:
    Comment: Most of the commenters on the subject of financial impact 
agreed that health plans/PBMs stand to gain the most from savings 
generated by e-prescribing, but most of these commenters believe HHS 
has underestimated the cost of implementation and management, including 
the cost to health plans/PBMs. While most health plans/PBMs have e-
prescribing capability, start-up costs such as downloading formularies 
and medication histories, developing and standardizing acceptable 
medical terminology, as well as ongoing transaction costs, must not be 
overlooked.
    The commenters noted that PBMs may not have the incentive to 
continue paying for implementation and transaction fees and that other 
parties in the e-prescribing chain, in the past, have not been paying 
these fees. The commenters stated that HHS must recognize that costs, 
or the lack of knowledge of true costs, has been the primary barrier to 
implementation up to this point. Vendors' costs regarding the HIPAA 
standards upgrade process were not minimal and many of the commenters 
do not anticipate e-prescribing updating/systems creation to be 
negligible.
    The commenters stated that the cost for a health plan to have e-
prescribing capability, that is, the start-up operating cost, was 
estimated to be $250,000 by one e-health management firm. This is the 
cost of connecting to RxHub, the ``only viable option for broad-scale 
connectivity that enables eligibility-based formulary services and Rx 
claims history at POC.''
    One commenter concurred with HHS that the impact on health plans/
PBMs would be a minimal financial burden, but noted that health plans/
PBMs would have to pay for new transaction costs (for example, 
transactions between prescriber and PBM). The same commenter expressed 
skepticism that plans would incur a ``substantial financial benefit 
from just e-prescribing alone.'' The commenters mentioned savings from 
formulary and benefits compliance, improved patient outcomes and fewer 
adverse drug events/hospitalizations, better utilization management and 
increased use of generics. Additional benefits may include tax 
incentives to engage in e-prescribing, and/or improvements from 
implementation of more universal electronic health records systems 
(EHRs systems).
    Full sponsorship of a prescriber by a health plan was estimated to 
cost at least $1,500 per physician by several commenters. The cost 
would vary based on benefit design, market share, covered lives and 
local market competition. Health plans should see a complete return on 
investment within 12-18 months after full implementation, according to 
one commenter. A few commenters did not agree that costs to health 
plans would be minimal, and stated that systems upgrade requirements 
may be significant. One commenter stated that the costs associated with 
adoption are not merely the cost of provider incentives, but also 
operating costs. There are human, technical and project management 
resource costs as well. The same commenter recommended implementing a 
sliding scale for PDP compliance with foundation standards.
    An e-health management firm estimated health plan savings from e-
prescribing to be 1 to 4 percent over traditional prescribing through 
formulary and generic drug use improvements and 1 to 3 percent or more 
through improvements in mail order use.
    A commenter discussed the Council for Affordable Quality Healthcare 
(CAQH) e-prescribing pilot program that began in 2003 and in which 120 
area physicians participated. One participating health plan experienced 
a 35 percent net savings (average savings of $29.91 per prescription) 
in drug costs when a formulary warning was given. Savings for other 
health plans with fewer non-formulary warnings were lower.
    Response: We did not intend to suggest that there were no costs to 
health plans associated with the implementation of e-prescribing. We 
agree with commenters that there will be a variety of start-up and 
implementation costs to plans. Some types of costs will be one time 
(for example, downloading formulary and tiering categories for each 
drug) subject only to updates, and others will be

[[Page 67588]]

recurring and grow with use. Our belief, and one that most of these 
commenters implicitly or explicitly accept, is that over time plans may 
save substantially more than the costs they incur. Moreover, e-
prescribing is just one small element in the entire panoply of 
investments plans are making to participate in the new prescription 
drug benefit. For example, formulary development and the downloading of 
formulary and tiering information into several computer systems is 
necessary for purposes of payment, regardless of whether the 
prescriptions are made electronically.
    We did not accept the comment requesting a sliding scale of 
adoption for health plans. We are not persuaded that plans face 
substantial technical or financial barriers to establishing and 
maintaining the ability to support e-prescribing as would warrant such 
a delay. Moreover, the larger than expected number of organizations 
seeking and obtaining MA and PDP contracts indicates that health plans 
themselves do not see this as a significant impediment.
    We agree with commenters that it is likely to cost at least as much 
as, and perhaps much more than, we originally estimated for prescribers 
to adopt the new technology. Nonetheless, we continue to expect many 
plans to provide incentives to prescribers to offset at least some of 
the prescribers' initial cost of installing the hardware and software, 
thereby encouraging the adoption of e-prescribing.
    We expect that incentives to prescribers from Part D sponsors and 
other health care entities will represent a transfer of costs from 
prescribers to those entities that offer incentives. These transfers of 
electronic prescribing items and services should neither increase nor 
decrease the overall impact of implementing an electronic prescription 
drug program.
    We note that these incentives must not violate either anti-kickback 
prohibitions or the physician self-referral prohibitions. Section 
1860D-4(e)(6) of the Act requires the Secretary to publish regulations 
that provide for an exception to the Federal self-referral prohibition 
in section 1877 of the Act and a safe harbor under the Federal anti-
kickback statute (section 1128B(b) of the Act) for certain arrangements 
in which a physician receives necessary non-monetary remuneration that 
is used solely to receive and transmit electronic prescription drug 
information.
    Both the physician self-referral exception and the anti-kickback 
safe harbor would protect certain non-monetary remuneration in the form 
of hardware, software, or information technology and training services 
necessary and used solely to receive and transmit electronic 
prescription drug information. As discussed earlier in this preamble, 
we published two proposed rules that would implement these provisions 
and intend to publish final rules as soon as possible. They will both 
apply to hospitals, group practices, and PDP sponsors and MA 
organizations.
    Health plans have a substantial incentive to subsidize the cost of 
physicians' adoption of e-prescribing because the plans would share 
potential 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 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.

E. E-Prescribing Incentives

    In the proposed rule, we stated that 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 $1,500 per prescriber. At this time, a number of health 
plans are developing incentive packages for prescribers to initiate e-
prescribing. We received the following comments on the impact that this 
regulation will have on both prescribers and the likely costs of those 
incentives.
    Comments: In addition to the commenters previously mentioned, one 
health plan stated that it had spent $3 million to equip 700 physicians 
with hardware and installation, software, and training in their e-
prescribing initiative (an average of almost $4,300 per physician). To 
boost participation, the health plan is now piloting a program to grant 
honoraria (between $600 and $2,000) to physicians who write electronic 
prescriptions. The commenter believes that without the financial, 
hardware/software, and support incentives, the average physicians' 
practice would incur costs up to $2,500 per physician to adopt e-
prescribing.
    Another commenter cited a Massachusetts collaborative project that 
is partially funding physician adoption of e-prescribing and has 
reported only about 13 percent of targeted physicians (2,700 of 21,000) 
have adopted the technology. Wellpoint also offered e-prescribing and 
physician incentives. Among physicians participating in this 
initiative, only 12 percent adopted an e-prescribing system over an 
offer for a desktop-based practice management system.
    Response: These commenters illustrate both the difficulty of 
changing prescriber behavior and the potentially positive effects of 
relatively inexpensive incentives. It is clear that training and 
support, not just equipment and software, are necessary to foster e-
prescribing.

F. 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. As previously discussed in this analysis, 
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 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.
    As discussed earlier in the preamble of this final rule, once a 
prescriber decides to conduct e-prescribing for Part D drugs, for Part 
D eligible beneficiaries, the prescriber will be required to comply 
with the standards being adopted in this regulation. However, we

[[Page 67589]]

have no reason to believe that the use of these particular standards 
will 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. The February 4, 2005 proposed rule stated that we 
expected vendors to upgrade those systems at no or nominal cost as part 
of their normal version updating process.
    Comment: One commenter disputed this claim because, according to 
the commenter, this was not the case with HIPAA upgrades.
    Response: We are not sure what specific experience the commenter is 
referencing in relation to HIPAA upgrades. More importantly, if 
existing systems are not upgraded to meet adopted standards at low or 
nominal expense to current users, then those users will switch to newer 
systems that do not require costly investments to meet those standards. 
For example, as we stated in the February 4, 2005 proposed rule, a 
system that uses uniform standards will enable a prescriber to do 
business with multiple entities, and reduce costs compared to the 
alternative of having to deal with multiple incompatible systems.
    Comment: Several commenters stated that administrative 
professionals in medical settings, rather than prescribers themselves, 
may more readily adopt e-prescribing, particularly as a ``stand-alone'' 
tool.
    Response: We agree that support staff will often facilitate the 
adoption of e-prescribing, ease the transition, and manage the system.
    Comment: All of the commenters suggested estimated start-up costs 
for an individual physician to be at least $1,500 and perhaps exceeding 
$2,000. This estimate would vary based on benefit design, market share, 
covered lives and local market competition.
    Response: As previously discussed, the magnitude and timing of 
potential savings will first have to be demonstrated to many 
prescribers to induce them to make the ``up front investment'' in e-
prescribing technology. The purpose of this final rule is to adopt 
standards for electronic drug prescription programs for covered Part D 
drugs for Part D eligible individuals so that physicians, health plans/
PBMs, pharmacies and other stakeholders can plan for widespread 
adoption of this useful technology in a coordinated and uniform way. As 
to the cost of system implementation, the comments and information we 
received varied widely, though generally the estimated costs cited in 
these comments were not far above our initial estimates.
    For average e-prescribing software implementation, according to a 
2003 CITL report, ``The Value of Computerized Provider Order Entry'', a 
basic e-prescribing system costs $1248 plus $1690 for annual support, 
maintenance, infrastructure and licensing costs. The total first year 
cost averaged approximately $3000.
    The Journal of Healthcare Information Management has published that 
even though vendors nearly always provide free e-prescribing devices to 
physicians, physicians reported paying user-based licensing fees 
ranging from $80 to $400 per month. Physicians also reported that they 
had to invest in new or updated hardware, such as computer servers and 
networking infrastructure, to operate the e-prescribing system (the 
amount varied significantly by product).

G. Discussion of E-Prescribing Barriers

    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 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 of 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, those arrangements must not violate Federal and State 
laws prohibiting kickbacks and physician self-referrals). We invited 
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 potential cost savings experienced with e-prescribing 
will encourage prescriber acceptance.
    As we indicated in the proposed rule, 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 1 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> Before 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 expect that most 
if not all of them will apply equally well to smaller practices. We 
requested public comments and additional information on actual and 
potential savings, particularly in solo and small group practices. We 
received the following comments and information regarding this issue:
    Comment: A commenter stated that savings in the e-prescribing pilot 
conducted by the CAQH were not quantifiable because of the small size 
of the pilot (127,000 e-prescriptions were generated). However, 
prescribers did experience reduced call volume and time savings from 
easier access to medication lists. According to other commenters, 
McKesson Corporation has achieved similar time savings with partners in 
Illinois and Iowa. For example, improved clinical information access 
eliminated the need for chart pulls; 100 percent compliance with 
prescription requirements leading to reduced call volume regarding 
formulary questions; and 83 percent improvement in efficiency related 
to medication refills. While the results

[[Page 67590]]

have not been quantified in dollar savings, the initiative has 
generated a 26 percent increase in nursing time with patients. The 
Tufts Health Plan Pilot program and Newton-Wellesley Case Study also 
corroborated physician practice time savings, of approximately 2 hours 
per day.
    Response: These commenters provide additional information 
confirming that e-prescribing will provide significant savings. Some of 
the reported savings, such as daily savings measured in hours, would, 
if replicated, appear to be economically highly significant.
    Despite these supportive comments, we still 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.

H. 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. We note that pharmacies could benefit from the 
incentives permissible under both the physician self-referral exception 
and the anti-kickback safe harbor. These exceptions would protect 
certain non-monetary remuneration in the form of hardware, software, or 
information technology and training services necessary and used solely 
to receive and transmit electronic prescription drug information.
    The industry has provided information indicating that 75 percent of 
the approximately 57,000 pharmacies in the U.S. already have e-
prescribing capability which suggests that pharmacies already find this 
a beneficial investment (75 percent figure from testimony of Kevin 
Hutchinson of SureScripts before the NCVHS Subcommittee on Standards 
and Security, May 25, 2004; estimate of number of pharmacies from 
National Community Pharmacists' Association, press release of June 29, 
2004). 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 voluntary and 
only undertaken where it is likely to be profitable, we expect any net 
effects to be positive.
    In the February 4, 2005 proposed rule, we did, however, request 
additional information on pharmacy impacts. We received the following 
comments and information on pharmacy impacts:
    Comment: According to one commenter, e-prescribing will likely save 
time and money for pharmacies by automating the pre-authorization 
process between prescribers, third party payers and pharmacies. The 
commenter stated that it also will reduce calls to physicians and save 
time for refills. However, the commenter indicated that there also will 
be costs associated with implementation. There are training expenses 
associated with supporting inbound e-prescriptions. One commenter who 
agreed that the net effect on pharmacies will be positive noted that 
there may actually be a slight negative effect early in the process of 
implementation due to the learning curve. The number of prescriptions 
that actually reach pharmacies will likely increase, in part because 
patients other than Medicare beneficiaries will benefit from e-
prescribing. The increase in volume will create additional burden on 
staff time and the number of prescriptions that are not picked up will 
likely increase.
    According to one commenter (and inconsistent with the information 
we presented in the proposed rule), most pharmacies, especially small 
pharmacies, are not networked to exchange data with prescribers 
electronically. The number of pharmacies actually receiving computer-
to-computer prescription transactions is much smaller than CMS 
estimates. For example, according to this commenter, of 200,000 
prescriptions that prescribers using its system transmit electronically 
each month, 63 percent must be re-formatted for transmittal to a 
pharmacy's fax machine. CMS should not underestimate the costs, 
logistics and training required to migrate to true e-prescribing.
    The National Association of Chain Drug Stores (NACDS) stated that 
there should be incentives for pharmacy adoption of e-prescribing in 
addition to incentives for prescribers because pharmacies will need to 
invest in new technology and training as well as pay e-prescribing 
transaction fees. Another expert organization estimated e-prescribing 
transaction fees to be between $0.215 and $0.35. Therefore, the average 
community pharmacy may incur costs of between $4,000 and $5,000 per 
year in transaction fees.
    Response: While there are costs associated with e-prescribing 
technology adoption, it is clear that most pharmacies will benefit. The 
Tufts Health Plan Pilot Program found that pharmacists were very 
satisfied with e-prescribing (as defined by their Pilot Program but not 
``true'' e-prescribing as defined under this final rule) and saved 
almost one hour per day using relatively inefficient fax e-prescribing 
technology. While the standards being adopted do not accommodate the 
use of facsimile technology, which involves transmission of graphic 
image copies rather than fielded data, this relatively primitive 
modality illustrates potential cost-effectiveness. Broader use of 
``true'' e-prescribing would yield even better results.

I. 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; mis-prescribing, 
and problems relating to coordination between health care providers and 
pharmacies (for example, early and late refills). These types of 
reductions in errors and improvements in regimens will occur 
increasingly as more and more providers use the e-prescribing systems 
for the Medicare Prescription Drug Benefit (To Err is Human: Building a 
Safer Health System, Institute of Medicine of the National Academies, 
1999, pp. 191-193, http://www.oim.eduhttp://www.ioim.edu or

[[Page 67591]]

http://www.nap.edu). E-prescribing can also inform physicians on 
appropriate formulary choices, which can save money for the health 
plans, patients, and health care system.
    Nothing in the e-prescribing system creates direct costs for 
patients. We believe that reductions in patient mortality and morbidity 
will be a substantial benefit resulting from the adoption of e-
prescribing, although we are unable at this time to provide 
quantitative estimates. The Department of Defense has an e-prescribing 
system, Pharmacy Data Transaction Service (PDTS), which uses a 
centralized repository of prescription and medication information to 
detect drug interactions (more than 117,000 were found over the last 
three years). However, this system is integrated with a full patient 
record.
    Comment: All of the commenters on this issue agreed that patients 
will benefit from e-prescribing. Positive effects include ameliorating 
care fragmentation; encouraging prescribers to prescribe less expensive 
drugs so that patients halve their medications less frequently in order 
to save money; improving accessibility of clinical and personal health 
history at the POC; eliminating duplicate and negative interaction 
prescriptions; improving patient compliance by making the process of 
filling prescriptions easier; and prescriber notification of 
prescriptions being filled.
    Response: We continue to agree that e-prescribing will have a 
substantial net positive impact on patient care, including improved 
outcomes, reductions in errors, and the ability for providers to 
monitor compliance. The previously cited CTIL report estimated in 2003 
that e-prescribing will eliminate nearly 2.1 million adverse drug 
events annually in the U.S. and also projected $2.7 billion in annual 
savings with widespread adoption.
    Although we did not receive negative comments, we do point out that 
there are two potentially negative effects of e-prescribing, both of 
which have been raised at NCVHS meetings. First, like the creation of 
any computer-based system that includes personal information, e-
prescribing creates new privacy risks. The problem is not that private 
information is not already available to authorized users, but that 
despite authentication procedures and other safeguards any electronic 
data base available to authorized users is potentially vulnerable to 
penetration by unauthorized users who, if they succeed, can potentially 
gain access to the records of many persons. Relatedly, increases in the 
number of authorized users increase the potential for unscrupulous 
users to sell or otherwise reveal private information. Second, there is 
the possibility that an e-prescribing system, like any system, can be 
programmed in ways that result in errors. We think that both potential 
problems are likely to be infrequent, small in scope, and unlikely to 
create significant costs.

J. 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 and would likely be recouped. We have no 
estimates for these types of costs and did not receive 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, especially health plans and PBMs and some pharmacies; 
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 invited 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.
    We received the following comments on the impact of e-prescribing 
on the entities discussed above:
    Comment: Commenters stated that the research community and public 
health professionals could also benefit from new, de-identified data 
that may become available.
    Response: We agree with the commenters. We are already undertaking 
initiatives to increase reporting on outcomes of new medical devices 
and drugs that have been approved conditionally or with circumscribed 
applicability through our coverage decisions. We expect that the 
records generated in implementing the new Part D drug benefit will 
provide substantially expanded data bases that, properly analyzed 
without violating individual patient privacy, will help establish the 
absolute or comparative effectiveness of pharmaceutical therapies in 
curing or alleviating diseases that affect Medicare beneficiaries, and 
help establish the incidence of adverse or positive side effects.

K. Impact on Small Businesses

    The RFA requires agencies to analyze options for regulatory relief 
for small entities when final rules may create a significant impact on 
a substantial number of small entities. For purposes of the RFA, small 
entities include small businesses whose revenues fall below specified 
thresholds, nonprofit organizations of any size, and small governmental 
jurisdictions (population under 50,000). 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 businesses based 
upon 1997 Census data. There are approximately 57,000 retail pharmacy 
establishments based upon the ``2004 National Community Pharmacists 
Association Pfizer Digest.'' We estimate that about 29,000 pharmacy 
establishments are considered small businesses, and, therefore, small 
entities. Almost all physicians in private practice (or the practices 
of which they are members) are small businesses, and, therefore, small 
entities because their annual revenues do not meet the Small Business 
Administration's threshold for ``small'' physician practices. 
Individuals and States are not included in the definition of a small 
entity, and this final rule has no effect on small governmental 
jurisdictions.
    We believe that this final rule will have an impact on a 
substantial number of small entities due to the large proportion 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 
final 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 adopted under section 1860D-
4(e)(1) of the Act if they

[[Page 67592]]

electronically transmit prescriptions or prescription-related 
information, with respect to covered Part D drugs for beneficiaries 
eligible for Part D. Small entity prescribers, therefore, are able to 
determine whether they incur costs of any kind. Finally, we believe 
that the effects of adoption are economically beneficial to affected 
entities.
    We note that this conclusion differs from the impact analysis of 
the HIPAA final rule which 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 that we are finalizing in this final rule.
    Accordingly, we conclude that this final rule will not have a 
significant economic impact upon a substantial number of small 
entities, and that neither an Initial nor Final Regulatory Flexibility 
Analysis is required. In the February 4, 2005 proposed rule, we 
welcomed comments on this conclusion and additional information on the 
effects this rule would have on small businesses. We received the 
following comments and information regarding effects of this regulation 
on small businesses:
    Comment: A number of commenters stated that very small businesses 
(such as some pharmacy chains, independent pharmacies, and physician 
offices) will incur disproportionately higher implementation costs than 
larger entities due to economies of scale. Furthermore, currently, most 
small pharmacies and physician offices are not currently networked to 
exchange prescription data electronically (many are only fax-equipped). 
The cost of implementing and maintaining electronic prescribing 
technology will be more difficult for small business entities to 
absorb. Implementation is not truly voluntary in the sense that lack of 
participation likely means going out of business. Small rural 
pharmacies, especially, may be less likely to contract with PDPs, thus, 
creating access issues.
    On the other hand, one commenter stated most small physician 
offices will not be impacted because electronic prescribing is still 
voluntary. For those that choose to implement electronic prescribing, 
their practice will experience a neutral or small impact. Another 
commenter believes CMS' estimates of prescriber participation are too 
conservative and cited a Pri-Med Research Group study which found 1 in 
5 physicians report using e-prescribing and another 42 percent planned 
on implementing the technology in 2005. Also, small computing firms and 
consultants may experience a positive impact in terms of increased 
demand for their services.
    Response: There are three kinds of costs associated with e-
prescribing--initial purchase of hardware and software; costs 
associated with daily use and maintenance, including on-line 
connectivity; and education and training.
    Although e-prescribing is voluntary for physicians and pharmacies, 
we agree that the cost of implementing and maintaining electronic 
prescribing technology will be more difficult for small business 
entities to absorb. However, we believe that those costs could be 
offset by the grants to physicians that will be made available in 2007, 
as authorized by section 108 of the MMA. We also believe that our one-
year phase-in period for moving from computer-generated prescription 
facsimiles to true computer-to-computer e-prescribing, as described 
earlier in section III.1.C. of this final rule, will give small 
providers and pharmacies the time needed to obtain both funding and 
acquisition of e-prescribing hardware and software. This also should 
help these entities better absorb the upfront costs associated with e-
prescribing adoption.
    In addition, physicians and pharmacies will be able to take 
advantage of incentives for adoption of e-prescribing technologies from 
hospitals, plans and other entities, which will be created under an e-
prescribing exception under the Stark law and an e-prescribing safe 
harbor under the anti-kickback statute as discussed earlier in the 
preamble of this final rule.
    Finally, small business entities do not conduct their operations in 
a vacuum and, as prudent business practice dictates, they should be 
upgrading their hardware and software on a regular basis. As a result, 
much of the costs of changing over to new e-prescribing technology 
should be absorbed as a usual cost of doing business, and may be 
additionally offset as allowable business-related, tax-deductible 
expenditures.
    A second kind of cost is the cost of daily operations and 
maintenance, including internet access. Some small providers and 
pharmacies already have internet capability for handling bills and 
claims. As the computerization of payment-related transactions become 
more and more common, small providers and pharmacies increasingly will 
acquire internet access. As a result, such costs may be sunk costs with 
respect to e-prescribing.
    Further, the costs of more sophisticated internet access, such as 
high-speed internet connectivity, are negligible in the context of 
annual costs and revenues of virtually any health care provider. Even 
in the most remote rural areas, satellite internet access is available 
at costs similar to those in the most ``connected'' urban areas. 
Internet access through power lines is on the verge of equally 
widespread and low cost access. For all practical purposes, the cost of 
wide-band ``Wi-Fi'' Internet access in a physician office or 
neighborhood pharmacy is under $1000 one time investment cost (assuming 
that a personal computer is not already used for correspondence, 
billing, or other purposes) and in most cases under $100. In fact, it 
is free in some municipalities or designated areas in certain cities. 
Annual connection costs for broadband access are several hundred 
dollars.
    Finally, in this context, software and training costs for e-
prescribing loom larger, but are still small. While a prescriber or 
pharmacist doing negligible levels of business will incur high costs 
per prescription at even these cost levels, we do not agree that a solo 
provider with a medical practice large enough to be a source of 
livelihood, or small pharmacy, faces consequential cost disadvantages 
in embarking on e-prescribing. Furthermore, nothing in current or 
reasonably foreseeable circumstances suggests that a provider or 
pharmacy unwilling to engage in e-prescribing will be forced out of 
business in the next decade.

L. Impact on Small Rural Hospitals

    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. Because prescription 
drugs are dispensed in hospitals to Medicare outpatients, this final 
rule will have an effect on small rural hospitals. When hospital 
pharmacies dispense non-Part B prescription drugs to Medicare

[[Page 67593]]

hospital outpatients, if the hospital pharmacy is participating in the 
patient's Part D plan, the hospital pharmacy will bill under Part D. 
Since the use of the standards adopted by this final rule is required 
for Part D plans and is voluntary for prescribers and dispensers, we 
estimate that this final rule will 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 will, therefore, have no net costs imposed 
upon them by adoption of e-prescribing.

M. 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 $100 million in 1995 dollars, 
updated for annual inflation (the current threshold is about $120 
million). The private sector will incur costs for hardware and software 
upgrades, and connectivity for implementation of e-prescribing. 
However, except for MA and PDP plans, this final rule does not include 
any mandate that will 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 $120 million annually. Certainly, we 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 final 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 will not incur any direct costs as a result of this final rule. 
However, as discussed extensively in this preamble, and as mandated by 
section 1860D-4(e) of the Act, some State laws will be preempted. 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 final rule will meet these requirements. We did 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. This section, together with the earlier preamble section 
entitled ``State Preemption,'' constitute the Federalism summary impact 
statement required under the Executive Order.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 423

    Administrative practice and procedure, Emergency medical services, 
Health facilities, Health maintenance organizations, (HMO), Health 
professions, Incorporation by reference, Medicare, Penalties, Privacy, 
Reporting and recordkeeping requirements.


0
For reasons set forth in the preamble in this final regulation, the 
Centers for Medicare & Medicaid Services amends 42 CFR part 423 as 
follows:

PART 423--VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT

0
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

0
2. The heading for subpart D is revised to read as set forth above.

0
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.
* * * * *

0
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 has the same meaning given this term 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. E-
prescribing includes, but is not limited to, two-way transmissions 
between the point of care and the dispenser.
    Electronic prescription drug program means a program that provides 
for e-prescribing for covered Part D drugs prescribed for Part D 
eligible individuals.
    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 Part D eligible individuals.
* * * * *

0
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

[[Page 67594]]

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.
    (2) Except as provided in paragraph (a)(3) of this section, 
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.
    (3) Exemptions. (i) Entities transmitting prescriptions or 
prescription-related information by means of computer-generated 
facsimile are exempt from the requirement to use the NCPDP SCRIPT 
Standard adopted by this section in transmitting such prescriptions or 
prescription-related information.
    (ii) Entities may use either HL7 messages or the NCPDP SCRIPT 
Standard to transmit prescriptions or prescription-related information 
internally when the sender and the recipient are part of the same legal 
entity. If an entity sends prescriptions outside the entity (for 
example, from an HMO to a non-HMO pharmacy), it must use the adopted 
NCPDP SCRIPT Standard or other applicable adopted standards. Any 
pharmacy within an entity must be able to receive electronic 
prescription transmittals for Medicare beneficiaries from outside the 
entity using the adopted NCPDP SCRIPT Standard. This exemption does not 
supersede any HIPAA requirement that may require the use of a HIPAA 
transaction standard within an organization.
    (iii) Entities transmitting prescriptions or prescription-related 
information where the prescriber is required by law to issue a 
prescription for a patient to a non-prescribing provider (such as a 
nursing facility) that in turn forwards the prescription to a dispenser 
are exempt from the requirement to use the NCPDP SCRIPT Standard 
adopted by this section in transmitting such prescriptions or 
prescription-related information.
    (4) In accordance with section 1860D-4(e)(5) of the Act, the 
standards under this paragraph (b) of this section supersede any State 
law or regulation that--
    (i) Is contrary to the standards or restricts the ability to carry 
out Part D of Title XVIII of the Act; and
    (ii) Pertains to the electronic transmission of medication history 
and of information on eligibility, benefits, and prescriptions with 
respect to covered Part D drugs under Part D of Title XVIII of the Act.
    (b) Standards. (1) Prescription. The National Council for 
Prescription Drug Programs SCRIPT Standard, Implementation Guide, 
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 Accredited 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, A1, 
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 Specification, Version 5, Release 1 (Version 
5.1), September 1999, and equivalent NCPDP Batch Standard Batch 
Implementation Guide, Version 1, Release 1 (Version 1.1), January 2000 
supporting Telecommunications Standard Implementation Guide, Version 5, 
Release 1 (Version 5.1), September 1999, 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, Implementation Guide, 
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 Accredited 
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 Specification, Version 5, Release 1 (Version 5.1), September 
1999, and equivalent NCPDP Batch Standard Batch Implementation Guide, 
Version 1, Release 1 (Version 1.1), January 2000 supporting 
Telecommunications Standard Implementation Guide, Version 5, Release 1 
(Version 5.1), September 1999, 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 Accredited 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, 004010X092A1, October 2002, from the Washington 
Publishing Company, 301 West North Bend Way, Suite 107, P.O. Box 15388, 
North Bend, WA 98045; Telephone (425) 831-4999; and FAX: (425) 831-3233 
or http://www.wpc-edi.com/. You may obtain a copy of the National 
Council for Prescription Drug Programs Telecommunication Standard

[[Page 67595]]

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), 
September 1999, 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: August 9, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: October 4, 2005.
Michael O. Leavitt,
Secretary.
[FR Doc. 05-22026 Filed 11-1-05; 3:17 pm]
BILLING CODE 4120-01-P