[Federal Register Volume 73, Number 73 (Tuesday, April 15, 2008)]
[Rules and Regulations]
[Pages 20486-20509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1120]



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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; Policy and Technical Changes to the Medicare 
Prescription Drug Benefit; Final Rule

Federal Register / Vol. 73, No. 73 / Tuesday, April 15, 2008 / Rules 
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 423

[CMS-4130-F]
RIN 0938-AO74


Medicare Program; Policy and Technical Changes to the Medicare 
Prescription Drug Benefit

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

ACTION: Final rule.

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SUMMARY: This final rule codifies clarifications of existing policies 
associated with the Medicare Prescription Drug Benefit (also known as 
Medicare Part D), including the following: guidance that certain 
supplies associated with the administration of insulin are included in 
the definition of a Part D drug; guidance regarding the statutory 
exclusion from the definition of a Part D drug of any drug when used 
for the treatment of sexual or erectile dysfunction, unless that drug 
is used for an FDA-approved purpose other than sexual or erectile 
dysfunction; a recent statutory change that allows for the payment of 
vaccine administration under Part D for Part D covered vaccines; and 
guidance on plan-to-plan reconciliation and reconciliation with a payer 
other than the Part D plan of record. This final rule also codifies 
clarifications of existing policies associated with the Retiree Drug 
Subsidy (RDS) program, including guidance on aggregating plan options 
for purposes of meeting the net test for actuarial equivalence and 
guidance on applying the Medicare supplemental adjustment when 
calculating actuarial equivalence.
    In addition, new clarifications and modifications in this final 
rule include establishing standards with respect to the timely delivery 
of infusible drugs covered under Part D and modifications to the 
retiree drug subsidy regulations. This final rule also codifies certain 
technical corrections to our regulations and clarifies our intent with 
respect to certain preamble discussions in a prior final rule 
implementing the Medicare prescription drug benefit.

Effective Dates: These regulations are effective on June 9, 2008.

FOR FURTHER INFORMATION CONTACT:

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------------------------------------------------------------------------
Alissa DeBoy (410) 786-6041..  General questions regarding the final
                                rule.
Vanessa Duran (410) 786-8697.  Subpart B--approval of marketing and
                                materials and enrollment forms;
                                procedures to determine and document
                                creditable status of prescription drug
                                coverage; Subpart C--the definition of a
                                long-term care facility; the definition
                                of a contracted pharmacy network; the
                                waiver or reduction of Part D cost-
                                sharing by pharmacies; access to covered
                                Part D drugs, including adequate access
                                to home infusion pharmacies; Subpart E--
                                organization compliance with State law
                                and preemption by Federal law; and
                                Subpart K--application procedures and
                                contracts with Part D plan sponsors.
Gregory Dill (312) 353-1754..  Subpart C--definition of a Part D drug,
                                including the exclusion of drugs used to
                                treat erectile dysfunction, the
                                exclusion of drugs related to morbid
                                obesity, supplies associated with the
                                delivery of insulin into the body, and
                                vaccine administration fees.
Meghan Elrington (410) 786-    Subpart F--timing of payments.
 8675.
Deondra Moseley (410) 786-     Subpart G--payment appeals; and Subpart
 4577.                          P--low-income benchmark premium amount,
                                and premium subsidy for late enrollment
                                penalty.
Deborah Larwood (410) 786-     Subpart J--coordination of Part D plans
 9500.                          with other prescription drug coverage.
John Scott (410) 786-3636....  Subpart M--grievances, coverage
                                determinations, and appeals.
Christine Hinds (410) 786-     Subpart P--premiums and cost-sharing
 4578.                          subsidies for low-income individuals.
David Mlawsky (410) 786-6851.  Subpart R--payments to sponsors of
                                retiree prescription drug plans.
Christine Hinds (410) 786-     Subpart S--special rules for States.
 4578.
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Table of Contents

I. Background
    A. Requirements for Issuance of Regulations
    B. General Overview
II. Provisions of the Proposed Rule With an Analysis and Response to 
Public Comments
    A. Subpart B--Eligibility and Enrollment
    1. Approval of Marketing Materials and Enrollment Forms (Sec.  
423.50)
    2. Procedures To Determine Creditable Status of Prescription 
Drug Coverage (Sec.  423.56)
    B. Subpart C--Benefits and Beneficiary Protections
    1. Definitions (Sec.  423.100)
    a. Part D Drug
    (1) Erectile Dysfunction (ED)
    (2) Morbid Obesity
    (3) Insulin Inhalation Drugs and Supplies
    (4) Vaccine Administration Fee
    b. Long-Term Care Facilities
    c. Contracted Pharmacy Network
    2. Requirements Related to Qualified Prescription Drug Coverage 
(Sec.  423.104)--Waiver or Reduction of Part D Cost-sharing by 
Pharmacies
    3. Access to Covered Part D Drugs (Sec.  423.120)
    a. Applicability of Some Non-Retail Pharmacies to Standards for 
Convenient Access
    b. Adequate Access to Home Infusion Pharmacies
    C. Subpart F--Submission of Bids and Monthly Beneficiary 
Premiums: Plan Approval--Timing of Payments (Sec.  423.293(a))
    D. Subpart G--Payments to Part D Plan Sponsors for Qualified 
Prescription Drug Coverage: Payment Appeals (Sec.  423.350(b))
    E. Subpart I--Organization Compliance With State Law and 
Preemption by Federal Law--Waiver of Certain Requirements to Expand 
Choice (Sec.  423.410)
    F. Subpart J--Coordination of Part D With Other Prescription 
Drug Coverage
    1. Application of Part D Rules to Certain Part D Plans on and 
After January 1, 2006 (Sec.  423.458)

[[Page 20487]]

    2. Coordination of Benefits With Other Providers of Prescription 
Drug Coverage Sec.  (Sec.  423.464)
    a. Coordination of Benefits With Rural Health Clinics
    b. Coordination of Benefits With Part D Plans and Other Payers
    G. Subpart K--Application of Procedures and Contracts with Part 
D Plan Sponsors
    1. General Provisions (Sec.  423.504)--Submission of Bids
    2. Contract Provisions (Sec.  423.505)
    3. Failure To Comply With the Dissemination of Information 
Requirements Grounds for Contract Termination (Sec.  423.509(a)(9))
    H. Subpart M--Grievances, Coverage Determinations, and Appeals
    1. Definitions (Sec.  423.560)
    2. Expediting Certain Coverage Determinations (Sec.  423.570)
    3. Expediting Certain Redeterminations (Sec.  423.584)
    4. Right to an ALJ Hearing (Sec.  423.610)
    I. Subpart P--Premiums and Cost-Sharing Subsidies for Low-Income 
Individuals
    1. Premium Subsidy Amount (Sec.  423.780)
    a. Low-Income Benchmark Premium Amount
    b. Premium Subsidy for Late Enrollment Penalty
    J. Subpart R--Payments to Sponsors of Retiree Prescription Drug 
Plans
    1. Requirements for Qualified Retiree Prescription Drug Plans 
(Sec.  423.884)
    a. Application Timing
    b. Data Match
    c. Actuarial Equivalence
    (1) Medicare Supplemental Adjustment
    (2) Noncalendar Year Plans
    (3) Benefit Options
    (4) Submission of Actuarial Attestations Upon Material Change
    K. Subpart S--Special Rules for States Eligibility
    1. General Payment Provisions--Coordination With Medicare 
Prescription Drug Benefits (Sec.  423.906)
    2. States' Contribution to Drug Benefit Costs Assumed by 
Medicare (Sec.  423.910)
    L. Out-of-Scope Comments
III. Collection of Information Requirements
IV. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects on Health Plans and Pharmacy Benefit 
Managers (PBMs)
    C. Alternatives Considered
    D. Accounting Statement
    E. Conclusion
Regulations Text

I. Background

A. Requirements for Issuance of Regulations

    Section 902 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) amended section 
1871(a)(3) of the Social Security Act (the Act) and requires the 
Secretary, in consultation with the Director of the Office of 
Management and Budget, to establish and publish timelines for the 
publication of Medicare final regulations based on the previous 
publication of a Medicare proposed or interim final regulation. Section 
1871(a)(3)(B) of the Act also states that the timelines for these 
regulations may vary, but shall not exceed 3 years after publication of 
the preceding proposed or interim final regulation, except under 
exceptional circumstances. This final rule finalizes provisions set 
forth in the May 25, 2007 proposed rule (72 FR 29403), hereinafter 
referred to as the May 2007 proposed rule. In addition, this final rule 
has been published within the 3-year time limit imposed by section 
1871(a)(3)(B) of the Act. Therefore, we believe our final rule is in 
accordance with the Congress' intent to ensure timely publication of 
final regulations.

B. General Overview

    The Medicare Prescription Drug Benefit (also known as Part D) is a 
voluntary prescription drug benefit program enacted into law on 
December 8, 2003 in section 101 of title I of the MMA. The Retiree Drug 
Subsidy (RDS) program, which provides payments to employer and union 
sponsors of qualified retiree prescription drug plans for Part D drug 
costs within certain limits, was also enacted as part of MMA. The final 
rule implementing the provisions of Part D appeared in the Federal 
Register on January 28, 2005, and these provisions became effective 
March 22, 2005. We hereinafter refer to this rule as the January 2005 
final rule. Since publication of the January 2005 final rule, we have 
issued several clarifications or interpretations of the final rule by 
way of interpretive guidance documents. In addition, we have issued 
guidance explaining how we will interpret a change to the Act that 
excludes drugs used in the treatment of erectile dysfunction from Part 
D, with a certain exception. In order to ensure public awareness of our 
policies, as well as to avoid potential confusion regarding them, we 
explained many of the respective clarifications or interpretations in 
the May 2007 proposed rule. We also proposed to codify some of these 
clarifications in regulation, as well as to make certain technical 
corrections. Finally, due to our experience to date in implementing the 
Part D program, we proposed several new clarifications of our policy 
for Part D plans on which we specifically invited public comment.

II. Provisions of the Proposed Rule With an Analysis of and Response to 
Public Comments

    We received approximately 60 items of timely correspondence 
containing comments on the May 2007 proposed rule. Commenters included 
health plans and health plan associations, pharmacies and pharmacist 
associations, prescription benefit managers (PBMs), physicians and 
other health care professionals, beneficiary advocacy groups, 
representatives of hospitals, Part D beneficiaries, and others.
    In this final rule, we address all relevant comments we received 
regarding the provisions of our proposed rule with the exception of the 
provisions on what may be included in the drug costs Part D sponsors 
use as the basis for calculating beneficiary cost sharing and reporting 
drug costs to CMS for the purposes of reinsurance reconciliation and 
risk sharing, as well as submitting bids to CMS. We are not finalizing 
these provisions at this time. We intend to revisit this issue in 
future rulemaking and will address the comments at that time. We 
appreciate the comments and will take them under consideration as we 
continue to assess the underlying policy and its associated impact.
    Most of the comments addressed multiple issues. The areas of our 
proposed rule that we are finalizing that received the most comment 
include the provisions on ensuring adequate access to home infusion 
pharmacies and the provisions addressing the coordination of Part D 
plans with other prescription drug coverage. Generally, the vast 
majority of commenters expressed strong support for the provisions of 
our proposed rule, declaring them essential to the success and 
continued operation of the Medicare Part D program. This was especially 
true with regard to our proposal to establish a standard for the timely 
delivery of home infusion drugs. A significant subset of the comments 
regarding home infusion access suggested even more rigorous standards 
for ensuring the timely delivery of Part D infusible drugs.
    We also received a significant number of comments that addressed 
our proposed clarifications on permissible activities vis-[agrave]-vis 
provider marketing and the coverage of drugs when used to treat morbid 
obesity. In general, commenters supported our clarifications or 
technical corrections. However, on some issues, commenters asked for 
reinterpretations of the statute.
    In this final rule, we address comments received on the May 2007 
proposed rule largely in the numerical order of the related regulation 
sections.

[[Page 20488]]

A. Subpart B--Eligibility and Enrollment

1. Approval of Marketing Materials and Enrollment Forms (Sec.  423.50)
    In our May 2007 proposed rule (70 FR 4223), we clarified that when 
we used the term ``market'' in the preamble to the January 2005 final 
rule in the context of our discussion of the approval process for 
marketing materials and enrollment forms, we used it in a more general 
sense to mean assisting in enrollment or education directed at 
beneficiaries, and not marketing per se as the term is understood to 
mean in the commercial context. This clarification was necessary to 
distinguish our preamble discussion and our narrower definition of the 
term ``marketing'' in the Medicare Marketing Guidelines, which were 
issued subsequent to our publication of that final rule. (See Centers 
for Medicare & Medicaid Services, Medicare Marketing Guidelines for 
Medicare Advantage Plans (MAs); Medicare Advantage Prescription Drug 
Plans (MA-PDs); Prescription Drug Plans (PDPs); 1876 Cost Plans http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/FinalMarketingGuidelines.pdf (last updated July 25, 2006).) The 
Guidelines define ``marketing'' as ``[s]teering, or attempting to 
steer, an undecided potential enrollee towards a plan, or limited 
number of plans, and for which the individual or entity performing 
marketing activities expects compensation directly or indirectly from 
the plan for such marketing activities.'' (Medicare Marketing 
Guidelines, page 8.) This definition further clarifies that neither 
``[a]ssisting in enrollment'' nor ``education'' constitute 
``marketing'' as those terms are defined in The Guidelines (Medicare 
Marketing Guidelines, page 8). The Medicare Marketing Guidelines 
specify that ``assisting in enrollment'' consists of assisting a 
potential enrollee with the completion of an application and 
objectively discussing characteristics of different plans to assist a 
potential enrollee with appraising the relative merits of all available 
individual plans, based solely on the potential enrollee's needs; 
further, the individual or entity performing these activities may not 
receive compensation directly or indirectly from a plan for such 
assistance in enrollment (Medicare Marketing Guidelines, page 6). 
``Education'' is defined in the Medicare Marketing Guidelines as 
informing a potential enrollee about Medicare Advantage or other 
Medicare programs, generally or specifically, but not steering, or 
attempting to steer, a potential enrollee towards a specific plan or 
limited number of plans (Medicare Marketing Guidelines, page 6). Thus, 
our intent in the preamble of the January 2005 final rule was to 
acknowledge that providers and pharmacies are free to engage in either 
``assisting in enrollment'' or ``education,'' including provider 
promotional activities as permitted under the Medicare Marketing 
Guidelines, but not to ``market'' to beneficiaries, as the term is 
defined in the Medicare Marketing Guidelines. We maintain this 
clarification in the final rule, as noted in our response to comment.
    Additionally, we proposed to clarify the provision that currently 
states that in conducting marketing activities, a Part D plan may not 
``[u]se providers, provider groups, or pharmacies to distribute printed 
information comparing the benefits of different Part D plans unless the 
providers, provider groups or pharmacies accept and display materials 
from all Part D plan sponsors (70 FR 4532).'' We believed it was 
necessary to clarify this provision because it was possible to infer 
from it that when a Part D plan used providers, provider groups, or 
pharmacies to distribute printed information comparing the benefits of 
the Part D plans with which they contracted, they would also have to 
accept and display printed information comparing the benefits of 
different plans with which they did not contract. Our concern was that 
this interpretation could lead to situations in which a beneficiary 
made a plan selection and realized too late that the provider or 
pharmacist from whom they obtained printed information about a 
particular plan was not in fact contracted with that plan. Therefore, 
in the proposed rule, we clarified that a Part D plan could use 
providers, provider groups, or pharmacies to distribute printed 
information comparing the benefits of different Part D plans, provided 
those providers, provider groups, or pharmacies accepted and displayed 
printed information comparing the benefits of all the different Part D 
plans with which they contract. However, the providers, provider 
groups, or pharmacies were not obliged to accept and display any 
comparative information regarding those Part D plans with which they 
did not contract. We stipulated that this clarification would apply to 
comparative marketing materials and was in accord with the Medicare 
Marketing Guidelines (Medicare Marketing Guidelines, page 125). In this 
final rule, we codify this policy by revising Sec.  423.50(f)(1)(v).
    Comment: A large number of commenters supported our clarification 
that providers and pharmacies that are contracted with plan sponsors 
may not market to beneficiaries but may assist in enrollment, including 
participating in provider promotion activities within the parameters 
established in the Marketing Guidelines, and educate enrollees. 
However, two commenters believed that CMS should withdraw this 
clarification given that it is based on a term we use in the Medicare 
Marketing Guidelines, which is not a regulatory document. Further, 
these commenters questioned the validity and utility of the Medicare 
Marketing Guidelines in the long-term care setting.
    Response: The two commenters who asked us to withdraw this 
clarification did so based on arguments about the validity of the 
Medicare Marketing Guidelines, which we believe are outside the scope 
of this regulation. In the proposed rule and in this final rule, we are 
merely clarifying our policy so as to avoid any confusion arising from 
the broader use of the term ``market'' in a response to comment in the 
January 2005 final rule.
    Comment: Several commenters supported our proposed revision to 
Sec.  423.50(f)(1) allowing Part D plans to use providers, provider 
groups and pharmacies to distribute printed information comparing the 
benefits of different plans only if those providers, provider groups or 
pharmacies accept and display materials from all Part D plan sponsors 
with which they contract. Two of these commenters were especially 
pleased with our clarification that providers, provider groups, or 
pharmacies are not obliged to accept and display any comparative 
information regarding those Part D plans with which they do not 
contract. However, another commenter believed that instead of requiring 
providers to accept and display information for every plan with which 
they have contracted, we should allow them to accept and display 
materials from a reasonable cross-section of contracted plans, as long 
as the provider posts a notice informing beneficiaries that the 
displayed material describes the benefits of only a subset of 
contracted plans and explains where beneficiaries may obtain 
information on the full array of benefits available to them.
    Response: Our goal is to ensure that beneficiaries receive the 
information they need to make a plan selection that is based on their 
particular needs. We disagree with the commenter who believes that we 
should allow Part D

[[Page 20489]]

plan contracted providers, provider groups, and pharmacies to accept 
and display materials from only a subset of plans with which they 
contract--even if they direct beneficiaries to resources for obtaining 
information on all plans. We believe the proposed requirement strikes a 
balance between allowing providers and pharmacies contracted with Part 
D plans to provide enrollment assistance and education, while ensuring 
that beneficiaries are provided with information about the full array 
of plans with which that provider or pharmacy contracts--not on a 
limited subset that may reflect the provider's financial interest--and 
can make a plan selection that best meets their needs. Accordingly, we 
have adopted the revision to Sec.  423.50(f)(1) as set forth in the 
proposed rule. However, we note that plans must provide contracted 
pharmacies with materials in order for pharmacies to display their plan 
information along with any other materials received from other 
contracted plans.
2. Procedures To Determine and Document Creditable Status of 
Prescription Drug Coverage (Sec.  423.56)
    The regulation text of the January 2005 final rule (70 FR 4532) 
contained a typographical error in Sec.  423.56(b)(6) that referenced 
Sec.  423.205 for a definition of the term ``Medicare supplemental 
policy.'' However, the proper reference for the definition of the term 
``Medicare supplemental policy'' is Sec.  403.205. Therefore, we 
proposed revising the regulation text accordingly to state the correct 
reference--that is, Sec.  403.205. We received no comments with regard 
to our proposed revision. Therefore, this final rule adopts this 
revision without change.

B. Subpart C--Benefits and Beneficiary Protections

1. Definitions (Sec.  423.100)
a. Part D Drug
(1) Erectile Dysfunction (ED)
    On October 20, 2005, Congress amended section 1860D-2(e)(2)(A) of 
the Act to exclude erectile dysfunction (ED) drugs from the statutory 
definition of a Part D drug. Section 1860D(2)(e)(2)(A) of the Act 
excludes from the definition of Part D drugs those drugs or classes of 
drugs, or their medical uses, set forth under section 1927(d)(2) of the 
Act (other than subparagraph (E)). The ED drug exclusion is cited in 
section 1927(d)(2)(K) of the Act.
    In the May 2007 proposed rule, we reiterated that beginning January 
1, 2007, ED drugs would not be classified as Part D drugs under Sec.  
423.100 when they are used for the treatment of sexual or erectile 
dysfunction, unless they are used to treat a condition, other than 
sexual or erectile dysfunction, for which the drug has been approved by 
the Food and Drug Administration (FDA). We noted that ED drugs would 
also not meet the definition of a Part D drug for off-label uses that 
by definition are not approved by the FDA. This includes non-FDA-
approved uses--including the treatment of a condition other than sexual 
or erectile dysfunction contained in one of the compendia listed in 
section 1927(g)(1)(B)(i) of the Act: American Hospital Formulary 
Service Drug Information, United States Pharmacopeia-Drug Information 
(or its successor publications), and the DRUGDEX Information System. 
Because our definition of a Part D drug in Sec.  423.100(2)(ii) 
excludes drugs which may be excluded under section 1927(d)(2) of the 
Act, we also noted that no regulation text change is required to 
implement this new statutory exclusion.
    Comment: One commenter asked that we share our interpretation of 
the statutory ED drug exclusion with our independent review entity 
(IRE).
    Response: Since October 20, 2005, we have provided information 
about the ED drug exclusion in our outreach efforts to beneficiaries, 
advocates, and our own contractors. Our guidance to Part D sponsors on 
the ED drug exclusion was included in Chapter 6 (``Part D Drugs and 
Formulary Requirements'') of our Prescription Drug Benefit Manual, 
which is posted on the CMS Web site at http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBMChap6FormularyReqrmts_03.09.07.pdf. As a result of our efforts, we believe stakeholders are 
now well aware of this statutory change.
(2) Morbid Obesity
    Section 423.100 defines the term ``Part D drug'' and excludes from 
that definition ``[d]rugs or classes of drugs, or their medical uses, 
which may be excluded from coverage or otherwise restricted under 
Medicaid under sections 1927(d)(2) or (d)(3) of the Act, except for 
smoking cessation agents (70 FR 4534).'' In the corresponding preamble 
of the January 2005 final rule (70 FR 4228), we explained that this 
list of excluded drugs included agents when used for anorexia, weight 
loss, or weight gain and agents when used for cosmetic purposes or hair 
growth. However, in response to comment, we had erroneously asserted 
that to the extent that a drug was dispensed for a ``medically accepted 
indication'' as described in section 1860D-2(e)(1) of the Act, the drug 
could be covered for the treatment of morbid obesity (70 FR 4230). Both 
in the May 2007 proposed rule and in this final rule, we clarify that 
agents, when used for anorexia, weight loss, or weight gain, are 
specifically excluded from the definition of Part D drugs. A weight 
loss agent, even when not used for cosmetic purposes, is still ``an 
agent used for anorexia, weight loss, or weight gain'' for purposes of 
the exclusion from the definition of Part D drug.
    Comment: We received several comments asserting that the 
clarification we made in the proposed rule regarding Part D coverage of 
drugs used to treat a medically accepted indication of obesity was a 
reversal of current Part D coverage policy.
    Response: We disagree with these commenters. The clarification in 
our proposed rule did not expand or change our current policy regarding 
the exclusion from the definition of Part D drugs or agents used for 
anorexia, weight loss, or weight gain. Our policy with regard to 
coverage of these drugs has remained consistent since well before the 
Part D benefit was implemented on January 1, 2006 and is in accord with 
the statutory exclusion of such drugs from the definition of Part D 
drug as provided in section 1860D-2(e)(2) of the Act. In the May 2007 
proposed rule, we simply clarified that we had made an error in the 
preamble of the January 2005 final rule by asserting that weight loss 
drugs could be potentially covered under the Part D program as part of 
a Part D basic prescription drug benefit. As discussed in the May 2007 
proposed rule, we corrected this error via guidance to Part D sponsors 
and other stakeholders in July 2005.
    Comment: A number of commenters asserted that our interpretation of 
the statutory exclusion of weight loss drugs was too narrow and that 
CMS was not appropriately distinguishing ``cosmetic'' weight loss from 
those clinical circumstances in which drugs are being specifically 
prescribed for an indication of obesity or significant weight 
management. Other commenters maintained that Congress intended for 
reimbursement of weight loss drugs when they were used in the treatment 
of defined disease states; that given the potential impact of obesity 
on American health care, as well as Medicare Part A coverage of obesity 
treatments, drugs when used to treat obesity should also be covered 
under Part D; and that Part D coverage of drugs used to treat obesity 
would be consistent with guidance and decision-making about these drugs 
by other DHHS agencies (for example, the

[[Page 20490]]

National Institute of Health's (NIH) treatment guidelines regarding 
obesity drugs and the Food and Drug Administration's (FDA) approval of 
drugs indicated for the treatment of obesity).
    Response: Section 1860D-2(e)(2) of the Act specifically excludes 
from the definition of a Part D drug agents when used to treat 
anorexia, weight loss, or weight gain. Therefore, drugs when used to 
treat a medical indication of morbid obesity are not considered Part D 
drugs. While this statutory exclusion may create an inconsistency with 
regard to treatment approaches for morbid obesity under different parts 
of the Medicare program, Part D coverage policy is based on completely 
distinct statutory authority than Parts A and B. We note that similar 
to other drugs contained in section 1927(d)(2) of the Act that are 
excluded from the definition of Part D drugs (other than over-the-
counter drugs), those Part D plans wishing to provide coverage of 
weight loss agents may do so as a supplemental benefit under enhanced 
alternative coverage, consistent with Sec.  423.104(f).
    Comment: A number of commenters asked that CMS clearly state that 
the Part D exclusion of weight loss drugs will not affect Part D 
coverage of drugs that may cause weight loss, but whose primary 
indication is not for obesity. A few other commenters noted that our 
exclusion of obesity drugs is inconsistent with CMS policy regarding 
Part D coverage of weight loss drugs under certain clinical situations 
(for example, Part D and Medicaid coverage for drugs when used to treat 
cachexia or AIDS wasting).
    Response: Drugs that are excluded from coverage under Part D when 
used as agents for certain conditions may be considered covered when 
used to treat other conditions not specifically excluded by section 
1927(d)(2) of the Act, provided they otherwise meet the requirements of 
section 1860D-2(e)(1) of the Act and are not otherwise excluded under 
section 1860D-2(e)(2)(B) of the Act. A Part D drug's clinical side 
effect of weight loss would not permit its exclusion via section 
1927(d)(2) of the Act since the drug's use was not prescribed for that 
purpose.
    We have previously stated that we do not consider prescription drug 
products being used to treat AIDS wasting and cachexia as either agents 
used for weight gain or agents used for cosmetic purposes. Given the 
clinical complexities associated with AIDS wasting and cachexia, and 
the documented therapeutic action of these drugs to work beyond weight 
gain and prevent associated morbidity and mortality, the use of these 
products cannot be excluded from Part D by reference to section 
1927(d)(2) of the Act. A summary of similar potential exclusions and 
their associated explanations can be found in Appendix B of Chapter 6 
(Part D Drugs and Formulary Requirements of our Prescription Drug 
Benefit Manual), which is posted on the CMS Web Site at http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBMChap6FormularyReqrmts_03.09.07.pdf.
(3) Insulin Inhalation Drugs and Supplies
    With the passage of the MMA, Congress included within the 
definition of ``Part D drug'' found in section 1860D-2(e) of the Act 
``medical supplies associated with the injection of insulin (as defined 
in regulations of the Secretary).'' In the January 2005 final rule, we 
interpreted the term ``medical supplies associated with the injection 
of insulin'' as comprising syringes, needles, alcohol swabs, gauze, and 
insulin delivery devices not otherwise covered by Part B, such as 
insulin pens, pen supplies, and needle-free syringes. On January 27, 
2006, the FDA approved the first-ever inhaled insulin product. This 
inhaled medication is a dry powder inhaler (``DPI'') that requires a 
patient to place a small amount of powdered insulin into a hand-held 
chamber that permits inhalation of the insulin into the lungs. 
Subsequent to the FDA approval, we reviewed the issues surrounding 
inhaled insulin and concluded it would be appropriate to revise the 
definition of Part D drug to include certain supplies associated with 
the delivery of inhaled insulin. We proposed revising the definition of 
a Part D drug under Sec.  423.100 to include ``[s]upplies that are 
directly associated with delivering insulin into the body through 
inhalation, such as the inhalation chamber used to deliver the 
insulin.'' We also indicated that our proposed change to the definition 
of a Part D drug was crafted consistent with our intention to narrowly 
construe what constitutes medical supplies associated with the delivery 
of insulin into the body in order to avoid an inappropriate expansion 
of the Part D benefit. Thus, we stated in the preamble to our proposed 
rule that we would expect Part D sponsors to apply drug utilization 
management tools to ensure the appropriate use of these supplies.
    While we have learned since the publication of our May 2007 
proposed rule that marketing of the first inhaled insulin product may 
be discontinued, the fact remains that this product is still approved 
for the U.S. market. Additionally, we received comments indicating that 
there are insulin products administered through routes other than 
injection in various stages of research and FDA approval. As a result, 
we believe our policy on inhaled insulin is still necessary and sound.
    Comment: Most commenters on this issue supported our proposal to 
expand the definition of a Part D drug to cover those supplies directly 
associated with inhaled insulin. However, other commenters opined that 
the proposed definition was too narrow and CMS should broaden the 
definition of a Part D drug to encompass other potential mechanisms or 
supplies used for delivery of insulin into the body, such as novel 
insulin dosage forms and delivery systems that are currently under 
review by the FDA. Some commenters noted developments in diabetes 
treatment including new transdermal, intranasal and aerosolized insulin 
delivery methods. These commenters held that by not broadening the Part 
D drug definition to include insulin delivery supplies that are 
currently in the research and development pipeline, but which might 
someday be FDA-approved, CMS would be burdened with future rulemaking 
to modify the definition of a Part D drug when new FDA-approved 
products came to market. As a result, CMS might provide a competitive 
advantage to manufacturers whose insulin-related supplies are currently 
encompassed within the definition of a Part D drug over other 
manufacturers whose insulin supplies are also related to the direct 
delivery of insulin into the body but would not be covered under Part D 
in the absence of a further broadening of the definition of a Part D 
drug under Sec.  423.100.
    Response: We agree that our proposed rule too narrowly construed 
what constitutes medical supplies associated with delivery of insulin 
into the body for purposes of the definition of a Part D drug under 
Sec.  423.100. Moreover, we believe that Congress intended to ensure 
diabetics' access to insulin by providing for coverage of the medical 
supplies directly associated with delivering insulin into the body. In 
light of continuing medical research and development of alternative 
mechanisms for insulin delivery, we believe it is consistent with 
Congressional intent that our definition of these supplies encompass 
all products that are directly associated with the delivery of insulin 
into the body, including future potential delivery mechanisms, and not 
limit coverage to supplies associated with the only two mechanisms of 
insulin

[[Page 20491]]

delivery (injection and inhalation) available to diabetics today. 
Consequently, we have removed our reference to the specific route of 
administration, ``through inhalation,'' in the definition of a Part D 
drug at Sec.  423.100(i)(iv). Instead, our definition of a Part D drug 
will encompass supplies that are directly associated with delivering 
insulin into the body, such as the inhalation chamber used to deliver 
the insulin. We believe this modification will obviate the need for 
continued future rulemaking to ensure coverage of supplies that are 
directly associated with delivery of insulin into the body. In 
addition, we believe that our revised definition of the term Part D 
drug will level the playing field for the manufacturers of novel 
administration insulin supplies while avoiding an inappropriate 
expansion of the Part D benefit to insulin-related supplies in which 
the relationship to delivery into the body is more indirect. We have 
retained the example of the inhalation chamber in the definition of a 
Part D drug under Sec.  423.100 only as an example of a product that is 
directly associated with the delivery of insulin into the body.
    Comment: A few commenters suggested that we clarify that our 
proposed modification of the definition of a Part D drug excludes any 
insulin delivery device covered under the Part B durable medical 
equipment benefit.
    Response: Paragraph (2)(i) of our existing definition of a Part D 
drug already excludes from Part D coverage those drugs for which 
payment as so prescribed and dispensed or administered to an individual 
is available for that individual under Part A or Part B. We believe 
that further clarification of this exclusion is unnecessary.
    Comment: We received comments asking that CMS issue separate 
guidance indicating whether any novel insulin-related product will be 
covered under Part D.
    Response: We disagree that we should issue product-specific Part D 
coverage guidance for all new FDA approvals. Part D sponsors and their 
Pharmacy and Therapeutics (P&T) Committees are required to evaluate new 
FDA-approved products and make timely coverage determinations that are 
consistent with the definition of a Part D drug under Sec.  423.100. 
While we provide Part D sponsors with tools to assist sponsors with 
their reviews of new products, coverage determinations are ultimately a 
Part D sponsor's responsibility.
    Comment: A number of commenters asked that we retract the statement 
we made in our proposed rule that we would expect Part D sponsors to 
apply drug utilization management tools to inhaled insulin supplies. 
These commenters stated that the application of such pharmacy based 
edits would impede access to these inhaled insulin supplies for 
beneficiaries who are appropriately qualified for this insulin delivery 
mechanism. Many of these same commenters stated that inhaled insulin 
supplies should be provided free of any utilization management tools to 
maximize use of this new therapy.
    Response: We remind these commenters that all Part D sponsors, with 
the exception of Medicare Advantage private fee-for-service (PFFS) 
plans, are required under Sec.  423.153(b) to establish reasonable and 
appropriate drug utilization management programs. As we stated in the 
May 2007 proposed rule, sponsors should ensure the appropriate and 
prudent use of all Part D drugs, including supplies associated with the 
direct delivery of insulin into the body and the use of drug 
utilization management tools, is appropriate to prevent inappropriate 
coverage and utilization of insulin-related supplies. In general, 
inhaled insulin supplies have either a specific life span based on the 
number of doses or actuations they deliver or, for more durable items, 
a manufacturer's recommended life span ranging from a few months to a 
year or more with proper cleaning and maintenance. It is therefore 
appropriate for a sponsor to evaluate claims for inhaled insulin 
supplies that are submitted for a period less than their recommended 
life span or period of use.
(4) Vaccine Administration Fee
    On December 20, 2006, the Tax Relief and Health Care Act of 2006 
was signed into law. Section 202(b) of that legislation amended the 
definition of a Part D drug at section 1860D-2(e)(1)(B) of the Act to 
include a reference to vaccine administration on or after January 1, 
2008. In the May 2007 proposed rule (72 FR 29406) we indicated that we 
would amend the definition of Part D drug to conform to the statutory 
change. Accordingly, in this final rule, we have amended the definition 
of a Part D drug to include a reference to vaccine administration on or 
after January 1, 2008, consistent with the statute.
    Comment: One commenter suggested we increase our outreach efforts 
regarding the availability of vaccine administration under Part D.
    Response: We agree with this comment and have employed a number of 
methods to ensure that beneficiaries and providers are aware of this 
statutory change. We have updated our beneficiary outreach materials 
with specific information on Part D vaccine administration 
reimbursement, including the addition of a section to the annual 
evidence of coverage (EOC) notice that was mailed to all currently 
enrolled beneficiaries in advance of the 2008 Part D contract year. We 
have also incorporated information regarding Part D vaccine 
administration into our provider programs and have conducted a number 
of national level outreach programs addressing the availability of 
reimbursement under Part D for this new benefit in 2008. We have 
generated MedLearn Matters Articles on Part D vaccines and vaccine 
administration for display on the CMS Web site (http://www.cms.hhs.gov/MLNMattersArticles/downloads/SE0727.pdf). We have also issued guidance 
to Part D sponsors on vaccine administration so they can prepare for 
covering these services and address beneficiary questions. We plan on 
continuing various tiers of communication on Part D vaccine 
administration into 2008 and subsequent years.
    Comment: One commenter asked that we monitor billing and payment 
for Part D vaccine administration over the next several months to 
identify and resolve issues that may arise with implementation of this 
new benefit under Part D.
    Response: We agree with this comment. We intend to work very 
closely with our Part D sponsors on resolving any issues that arise 
with covering Part D vaccine administration in 2008 and subsequent 
years. We have developed a number of communication channels to solicit 
feedback from various stakeholders regarding the ongoing implementation 
of this new benefit, and we will take appropriate actions to address 
any issues with our Part D sponsors as they occur.
    Comment: One commenter specifically suggested that we amend Sec.  
423.100 to add the following language to the definition of a Part D 
drug under paragraph (1)(v) of that definition: ``and for vaccine 
administration on or after January 1, 2008, its administration.''
    Response: We agree with this comment. We are changing the 
definition of a Part D drug at Sec.  423.100 to conform to the 
statutory change made by the Tax Relief and Health Care Act of 2006 to 
section 1860D-2(e)(1)(b) of the Act. Accordingly, we are modifying 
Sec.  423.100 to include vaccine administration for Part D-covered 
vaccines on or after January 1, 2008.
b. Long-Term Care Facilities
    In the January 2005 final rule (70 FR 4534), the term ``long-term 
care facility''

[[Page 20492]]

is defined in Sec.  423.100 as a ``skilled nursing facility as defined 
in section 1819(a) of the Act, or a medical institution or a nursing 
facility for which payment is made for an institutionalized individual 
under section 1902(q)(1)(B) of the Act.'' However, in our corollary 
discussion of that term in the preamble of the January 2005 final rule 
(70 FR 4236), we inadvertently omitted institutions for mental disease 
(IMDs) from the list of facilities that meet the definition of a long 
term care (LTC) facility.
    In the May 2007 proposed rule, we clarified that the definition of 
an LTC facility would include an IMD that is a nursing facility or 
other medical institution (which is a term defined at 42 CFR 4435.1009) 
and receives Medicaid payment for its services to an institutionalized 
individual under section 1902(q)(1)(B) of the Act. In other words, to 
the extent that a nursing facility or medical institution that is an 
IMD has as an inpatient any institutionalized individual (which means 
any full benefit dual-eligible individual for whom payment is made for 
IMD services under Medicaid throughout a month, as provided in section 
1902(q)(1)(B) of the Act), that IMD will fall within the definition of 
a LTC facility in Sec.  423.100.
    We also clarified that as medical institutions, hospitals 
(including long-term care hospitals) that receive payments under 
section 1902(q)(1)(B) of the Act can meet the definition of an LTC 
facility. To the extent that inpatients in these hospitals exhaust 
their Part A inpatient days benefit, and payment is no longer available 
under Part A or Part B for drugs that would otherwise meet the 
definition of a Part D drug, such drugs are Part D drugs. Consequently, 
we indicated that Part D sponsors must ensure that they provide 
convenient access to network LTC pharmacies (which, in the case of a 
hospital, is typically the hospital's in-house pharmacy) for all of 
their enrollees who: (1) Need drugs for which payment is no longer 
available under Part A or Part B and otherwise meet the definition of a 
Part D drug; and (2) are inpatients in a hospital where the hospital is 
a ``medical institution'' under section 1902(q)(1)(B) of the Act and 
therefore would meet the Part D definition of an LTC facility.
    Comment: Several commenters supported our clarification that an IMD 
may meet our definition of a long-term care facility and that, 
consequently, Part D plans must provide convenient access to a network 
long-term care pharmacy to the residents of such facilities. One 
commenter supported our proposed policy clarification but noted that 
there were significant practical implications. For example, plans might 
not receive notice that their members are IMD patients until after 
prescriptions have been filled and claims are submitted. Both this and 
the fact that most of these facilities use only in-house, State-run 
pharmacies to fill prescriptions often prevent plans from anticipating 
the need for contracts with these institutional LTC pharmacies. Another 
commenter echoed this statement, noting that Part D sponsors have 
experienced difficulty contracting with certain LTC pharmacies. One 
commenter asked us to clarify that we would determine a Part D plan to 
be in compliance with our convenient access requirements if it limited 
itself to pursuing contracts only with institutional LTC pharmacies 
that proactively sought inclusion in a plan's pharmacy network, 
consistent with the ``any willing pharmacy'' requirement. Another 
commenter asked us to clarify that plans would be considered compliant 
with the convenient access requirements even if they did not come to 
terms with an institutional LTC pharmacy, provided they made a good 
faith effort to contract.
    Response: The fact that a Part D plan has met our LTC pharmacy 
network submission requirements as part of the application approval 
process does not preclude it from continuing its contracting efforts 
with LTC pharmacies as needed. In fact, continued contracting likely 
will be necessary in order for plans to meet the convenient access 
standard articulated at Sec.  423.120(a)(5). This is particularly true 
as plans continue to identify LTC facilities and LTC pharmacies, and as 
they examine their auto-enrollment assignments and incoming 
enrollments. To the extent that a beneficiary is enrolled in a plan 
that does not have a contract with a LTC pharmacy that can serve the 
LTC facility in which he or she resides, the appropriate action for a 
plan to take is to contract with the facility's contracted LTC pharmacy 
or--if that pharmacy will not sign a contract--with another LTC 
pharmacy that can serve that facility. In some cases, a retroactive 
contract may be necessary to ensure coverage for enrollees in a 
particular facility. For example, if a Part D sponsor becomes aware 
that one or more of its enrollees resides in a LTC facility that is not 
serviced by one of its network LTC pharmacies and cannot immediately 
either identify a network LTC pharmacy that can serve this particular 
facility or negotiate a contract with the facility's contracted LTC 
pharmacy, a retroactive contract might be necessary to ensure 
convenient access for the enrollees in question. This would 
particularly be the case if the facility's contracted pharmacy makes a 
good faith effort to negotiate but the sponsor does not quickly 
finalize a contract. We emphasize that plans will not be compliant with 
our LTC convenient access standard if they do not provide access to 
covered Part D drugs via a LTC pharmacy in their network for all of 
their enrollees who reside in LTC facilities.
    We understand that there sometimes may be issues associated with 
contracting with the in-house, and often State-run and operated, 
pharmacies that many ICFs/MR, IMDs, and LTC hospitals use to provide 
drugs and pharmacy services to their patients--for example, multiple 
claim formats, post-consumption billing, and potential delays in 
billing due to systems and other start-up issues--that could delay or 
complicate contracting negotiations. In some States, licensing laws 
preclude facilities from obtaining prescription drugs and LTC services 
for their residents from anywhere but the facility's in-house pharmacy. 
Further, States may not be able to agree to certain standard clauses in 
some LTC standard contracts because of constitutional and legal 
restraints on States. For example, contractual provisions that require 
arbitration may be problematic for States that are legally precluded 
from going to arbitration. In these situations, Part D plans should be 
prepared to readily negotiate with States to address these issues. To 
the extent that plan contracting efforts involve communication with 
State-run and operated pharmacies, we have consistently encouraged 
sponsors to coordinate their efforts through a single point of contact 
at the State level. We provide lists of State contacts for IMDs and 
ICFs/MR on the CMS Web site at http://www.cms.hhs.gov/PrescriptionDrugCovContra/11_PartDContacts.asp#TopOfPage.
    Comment: Several commenters supported our clarification that plans 
must provide convenient access to a LTC pharmacy to inpatients in 
hospitals who have exhausted their Part A inpatient days benefit and 
whose drugs qualify as Part D drugs given that coverage is not 
available under Part A or Part B. One commenter expressed concern that 
our policy clarification was confusing and could create an unintended 
expansion of the Part D benefit. This commenter urged CMS to provide 
more specific guidance, consistent with the Part D statutory and 
regulatory framework, regarding the

[[Page 20493]]

circumstances under which Part D coverage would be available to 
patients who have exhausted their Part A inpatient days and for whom 
Part B coverage is not available.
    Response: Section 1860D-2(e)(2)(B) of the Act requires the 
exclusion of coverage under Part D of any drug for which, as prescribed 
and dispensed or administered to an individual, payment would be 
available under Parts A or B of Medicare for that individual. In the 
preamble to January 2005 final rule, we clarified that this requirement 
meant that if payment could be available under Part A or Part B to that 
individual for such drug, then it would not be covered under Part D. 
This means that if an individual could sign up for Parts A or B, 
payment could be available under Part A or Part B, regardless of 
whether they actually enrolled. All individuals who are entitled to 
premium-free Part A are eligible to enroll in Part B. All individuals 
who are entitled to Part B only are almost never eligible for premium-
free Part A but are eligible to buy into Part A for a premium. 
Consequently, for all Part D eligible individuals, drugs covered under 
Parts A and B are available if they choose to pay the appropriate 
premiums. However, drugs provided in an inpatient setting to an 
individual who has exhausted his or her lifetime inpatient hospital 
benefit under Part A are not drugs that could be covered under Part A 
for that individual. Unlike a beneficiary who, for example, chooses not 
to buy into Part B, there is no way for an individual who has exhausted 
his or her Part A inpatient stay benefit to obtain coverage under Part 
A for his or her drugs. Thus, once a Part D enrollee exhausts his or 
her Part A inpatient days benefit, any drugs that cannot be covered 
under Part B are Part D drugs provided they otherwise meet the 
definition of a Part D drug at Sec.  423.100. The LTC convenient access 
standard is implicated when these individuals reside in hospitals that 
meet our definition of a LTC facility. However, because we envision it 
will be rare (and typically unforeseen) that an individual exhausts his 
or her inpatient Part A hospital benefit and remains hospitalized--and 
that the hospital meets the definition of a LTC facility--we expect 
that the need to contract with hospital pharmacies to provide Part D 
drugs to these individuals will be quite rare, and that contracting 
will be undertaken only on an as-needed basis. As discussed elsewhere 
in this preamble, to the extent that a beneficiary is enrolled in a 
plan that does not have a contract with a LTC pharmacy that can serve 
the LTC facility in which he or she resides, the appropriate action for 
a plan to take is to contract with the facility's contracted pharmacy 
or--if that pharmacy will not sign a contract--with another network LTC 
pharmacy that can serve that facility. In some cases, a retroactive 
contract may be necessary to ensure coverage for enrollees in a 
particular facility. Part D plans will not be compliant with our LTC 
convenient access standard if they do not provide access to covered 
Part D drugs via a LTC pharmacy in their network for all of their 
enrollees who reside in LTC facilities. We will take appropriate 
compliance action if LTC enrollees' access to covered Part D drugs is 
compromised due to the unavailability of a network LTC pharmacy.
c. Contracted Pharmacy Network
    Section 423.100 defines the ``contracted pharmacy network'' as 
``pharmacies,'' including retail, mail-order, and institutional 
pharmacies, under contract with a Part D sponsor to provide covered 
Part D drugs at negotiated prices to Part D enrollees. In the January 
2005 final rule (70 FR 4535), we made a technical error by 
inadvertently omitting clarifying language indicating that a pharmacy 
in a contracted pharmacy network must be licensed. We view this change 
as necessary in order to bring it in line with our term ``retail 
pharmacy'' which requires that a retail pharmacy be ``licensed.'' We 
proposed revising the definition of ``contracted pharmacy network'' to 
state that a pharmacy participating in a contracted pharmacy network 
must be licensed.
    We received only one comment on this clarification, which supported 
our proposed revision. Accordingly, we are adopting the revised 
definition of ``contracted pharmacy network'' as set forth in the 
proposed rule without change.
2. Requirements Related to Qualified Prescription Drug Coverage (Sec.  
423.104)--Waiver or Reduction of Part D Cost-Sharing by Pharmacies
    In the January 2005 final rule (70 FR 4240), we stated that we 
would allow waivers or reductions of cost-sharing by pharmacies to 
count as incurred costs. However, our statement was limited to 
pharmacies that are not also acting as other wrap-around coverage that 
generally would not count toward incurred costs (or true-out-of-pocket, 
(TrOOP) costs). We did not intend to allow pharmacy waivers to count as 
incurred costs in cases where a pharmacy also meets the definition of a 
group health plan, insurance or otherwise, or a third party payment 
arrangement, as those terms are defined in Sec.  423.100.
    In response to numerous requests for clarification of our policy 
with regard to waiver or reduction of Part D cost-sharing by network 
pharmacies, particularly by safety-net pharmacies, we clarified in the 
proposed rule that although we will generally allow waivers or 
reductions of Part D cost-sharing by pharmacies to count as incurred 
costs, this will not be the case for pharmacies affiliated with 
entities whose wrap-around coverage does not count as an incurred cost. 
This includes pharmacies operated by entities that are group health 
plans, insurance, government-funded health programs, or third party 
payment arrangements with an obligation to pay for covered Part D 
drugs. As noted in our response to comments below, we maintain our 
position in this final rule.
    Comment: One commenter disagreed with our proposed clarification 
regarding the applicability to TrOOP of pharmacy waivers or reductions 
of Part D cost-sharing made by certain entities. This commenter 
believes that our clarification penalizes Part D sponsors that, as non-
profit organizations, have historically and responsibly provided 
financial assistance (and now pharmacy waivers) to financially needy 
members as part of their mission. The commenter recommended that CMS 
either allow all or no pharmacy waived cost-sharing to count toward 
TrOOP, since every pharmacy is affiliated with one or more Part D 
sponsors and any pharmacy waiver can serve the economic interests of 
both the pharmacy and the sponsor. The commenter believes it is 
preferable for CMS to develop standards under which Part D sponsors 
could--through cost-sharing waivers granted by affiliated network 
pharmacies--assist non-LIS eligible enrollees with a demonstrated 
financial need and have that waived cost-sharing count toward TrOOP.
    Response: We disagree with this commenter's recommendation. While 
we appreciate the fact that some Part D sponsors are non-profit 
entities with charitable missions, we note that a pharmacy owned and 
operated by an insurer is acting on behalf of an insurer. Because a 
Part D drug costs paid or reimbursed by an insurer, as that term is 
defined in Sec.  423.100, cannot count as an incurred cost, per the 
definition of the term ``incurred cost'' in Sec.  423.100, allowing 
pharmacy waivers funded by an insurer to count toward an enrollee's 
TrOOP balance would essentially be an

[[Page 20494]]

end run around our rules regarding incurred costs.
    Comment: Two commenters did not support our policy clarification 
regarding the applicability to TrOOP of pharmacy waivers or reductions 
of Part D cost-sharing made by safety-net pharmacies, including 
Federally-qualified health centers (FQHCs). Given that many safety-net 
providers are fully or partially funded through government grants, 
their waivers or reductions of cost-sharing may leave many low-income 
individuals unable to reach the catastrophic coverage portion of their 
Part D benefits. These commenters assert that although safety-net 
providers rely on a variety of revenue sources--both public and 
private--to provide health care services, unlike other programs 
identified as ``government-funded health programs'' in the preamble to 
the January 2005 final rule, FQHCs do not necessarily use government 
funds to pay the cost of Part D drugs and should not necessarily be 
categorized as government-funded health programs. One of these 
commenters believes that recent operational guidance released by CMS 
indicating that DSH funds could count toward TrOOP further supports its 
position that health center-subsidized cost-sharing should count toward 
TrOOP. The commenter asserts that the receipt of any source of Federal 
funding should not automatically result in excluding health center 
cost-sharing from TrOOP expenditures.
    Response: Payments made for Part D enrollees' Part D cost-sharing 
by any entity--including an FQHC or other safety-net pharmacy--that has 
an obligation to pay for covered Part D drugs on behalf of Part D 
enrollees, or which voluntarily elects to use public funds, in whole or 
in part, for that purpose, will not count toward that beneficiary's 
TrOOP expenditures. We understand that safety-net providers use a mix 
of private and public revenue sources to provide health care services 
and prescription drugs. As we stated in the January 2005 final rule, to 
the extent that an entity pays for the cost of drugs using a mix of 
private and public funds, the entity is considered a government-funded 
health program, and all of its Part D drug spending is excluded from 
TrOOP. However, if an entity can demonstrate to a Part D sponsor that 
it uses only non-public funds to pay for the cost of Part D drugs, that 
sponsor may allow for cost-sharing waivers or reductions in cost-
sharing paid for by that entity's pharmacies to count toward TrOOP. 
Part D sponsors remain ultimately accountable for correctly tracking 
their enrollees' TrOOP expenditures.
    We view Medicare and Medicaid DSH funds essentially as adjustments 
to the Medicare and Medicaid reimbursements these facilities already 
receive for covered services. In other words, receipt of Medicaid or 
Medicare DSH payments by a hospital does not, in and of itself, render 
a DSH facility (and any Part D network pharmacy it owns or operates) a 
``government-funded health program.'' Even though DSH funds are not 
considered government funding streams that would render an entity a 
government-funded health program, DSH hospitals may be government-
funded health programs given other government funding streams they 
receive. An entity that receives DSH funds but uses non-DSH government 
funding streams to provide to or pay on behalf of an individual the 
costs of Part D drugs will still meet our definition of a government-
funded health program, and any reduction or waiver of Part D cost-
sharing that it offers will not count toward a Part D enrollee's TrOOP 
balance. The same logic applies to FQHC pharmacies, meaning that cost-
sharing waivers or reductions applied by an FQHC or other safety-net 
provider pharmacy that uses government funding streams to provide or 
pay on behalf of an individual the costs of Part D drugs, the costs of 
these drugs will not count toward a beneficiary's TrOOP balance.
    Comment: One commenter asked us to clarify that only cost-sharing 
reductions that are in fact paid for by group health plans, government-
funded health programs, or other third party payment arrangements will 
not count toward ``incurred costs'' and that cost-sharing waivers by a 
pharmacy, even if the pharmacy is affiliated with a payer, will count 
toward incurred costs. This commenter is particularly concerned that 
this language could be misconstrued to disallow waivers by pharmacies 
that are affiliated with Part D sponsors providing supplemental 
benefits under enhanced alternative coverage. The commenter also stated 
that this prohibition should apply only if the reduction or waiver is 
part of the coverage provided by a health plan or other third party 
payment arrangement, and not a waiver funded by the affiliated pharmacy 
itself.
    Response: As we have previously stated, pharmacy waivers or 
reductions of Part D cost-sharing will count toward TrOOP when the 
pharmacy waiving or reducing the Part D cost-sharing does not meet the 
definition of a group health plan, insurance, government-funded health 
program, or party to a third party payment. A pharmacy is not subject 
to this prohibition simply because it is contracted with a Part D 
sponsor as a network pharmacy. We note that any cost-sharing associated 
with non-Part D drugs covered under a supplemental benefit does not 
meet the definition of an incurred cost per the definition of that term 
in Sec.  423.100 and, therefore, any pharmacy waiver or reduction of 
such cost-sharing would have no impact on a beneficiary's TrOOP balance 
in any case.
3. Access to Covered Part D Drugs (Sec.  423.120)
a. Applicability of Some Non-Retail Pharmacies to Standards for 
Convenient Access (Sec.  423.120(a)(2))
    In the January 2005 final rule (70 FR 4537), we made a technical 
error in Sec.  423.120(a)(2) by inadvertently referring to ``rural 
health clinics'' as ``rural health centers.'' The correct terminology 
for those facilities is ``rural health clinics.'' Accordingly, we 
proposed to revise the regulatory text to correctly reference these 
entities in Sec.  423.120(a)(2) by removing the phrase ``rural health 
centers'' and adding in its place ``rural health clinics.'' We received 
no comments with regard to this proposed revision. Therefore, this 
final rule adopts the proposed revision to Sec.  423.120(a)(2) without 
change.
b. Adequate Access to Home Infusion Pharmacies (Sec.  423.120(a)(4))
    We proposed to codify in regulation, at Sec.  423.120(a)(4) (70 FR 
4537), guidance that we issued with regard to access to home infusion 
pharmacies by Part D sponsors subsequent to our publication of the 
January 2005 final rule. This codification would ensure that our 
regulations provide specificity to the requirement that Part D 
enrollees receive adequate access to Part D-covered home infusion 
therapy. We specifically proposed to revise Sec.  423.120(a)(4) to 
expressly require that a Part D plan's contracted pharmacy network 
provide adequate access to home infusion pharmacies through a 
contracted pharmacy network that, at a minimum: (1) Is capable of 
delivering home infused drugs in a form that can be administered in a 
clinically appropriate fashion; (2) is capable of providing infusible 
Part D drugs for both short-term acute care and long-term chronic care 
therapies; and (3) ensures that the professional services and ancillary 
supplies necessary for home infusion therapy are in place before 
dispensing home infusion drugs.
    In addition, we invited comments on the specification of a 
reasonable timeframe for the timely delivery of

[[Page 20495]]

home infusion drugs under Part D. We proposed a new requirement, at 
Sec.  423.120(a)(4)(iv) of the proposed rule, that Part D plan sponsors 
provide covered home infusion drugs within 24-hours of discharge from 
an acute care setting. Except as otherwise noted below, this final rule 
adopts the requirements related to ensuring adequate home infusion 
access set forth in our proposed rule. Although the requirement for the 
timely delivery of home infusion drugs covered under Part D will be 
effective within 60 days of this final rule's appearance in the Federal 
Register, Part D sponsors will not be expected to implement this 
provision until January 1, 2009.
    Comment: A number of commenters supported our proposal to codify in 
regulation how Part D sponsors were to ensure that enrollees have 
adequate access to home infusion pharmacies. Commenters specifically 
expressed support for our proposals to codify requirements that Part D 
plans ensure that their network pharmacies are capable of delivering 
home infused drugs in a manner than can be administered in a clinically 
appropriate fashion; provide infusible Part D drugs for both short-term 
and long-term chronic care therapies; and ensure that the professional 
services and ancillary supplies necessary for home infusion therapy are 
in place before dispensing Part D home infusion drugs. However, several 
other commenters requested clarification regarding our proposed 
language at Sec.  423.120(a)(4)(iii), which would require Part D plans 
to ensure that their network pharmacies receive assurances that the 
professional services and ancillary supplies necessary for home 
infusion therapy be in place prior to delivery of a Part D home 
infusion drug. Some of these commenters recommended that we clarify 
that Part D plans--and not their network pharmacies--are ultimately 
responsible for ensuring this requirement is met. One commenter 
believed it was incumbent upon us to clarify that contracted pharmacies 
providing Part D enrollees with home infusion drugs need not make 
arrangements for the ancillary supplies and professional services 
themselves and that, instead, could meet the requirement by seeking and 
relying upon assurances from the discharging entity that infusion 
therapy supplies and services had been arranged. Another commenter 
believed that this proposed requirement fell outside the scope of the 
responsibilities of both Part D sponsors and their contracted 
pharmacies. This commenter pointed to the definition of dispensing fees 
at Sec.  423.100, which does not encompass professional services, 
supplies, or equipment related to the administration of home infusion 
drugs, to bolster its argument that the professional services and 
ancillary supplies are not Part D-covered and, as such, outside the 
scope of benefits Part D sponsors are responsible for providing or even 
coordinating. Instead, this coordination should be the clinical 
responsibility of those health care providers--including hospitals, 
home health agencies, outpatient facilities, and physician offices--
that are responsible for the implementation of continued care following 
a patient's discharge from an acute care setting.
    Response: Although the Part D benefit does not cover equipment, 
supplies, and professional services associated with home infusion 
therapy, it does cover the ingredient costs and dispensing fees 
associated with infused Part D drugs. We disagree with the position 
that, because coverage under the Part D benefit is limited to the 
ingredient cost and dispensing fees associated with a Part D infusible 
drug, it is not within the scope of a Part D sponsor's responsibilities 
(or its home infusion network pharmacies' responsibilities) to ensure 
that the items and services that are necessary for providing home 
infusion therapy are in place prior to delivery of a home infusion 
drug. It is poor clinical practice to simply deliver a drug to an 
enrollee without assurances that these items and services--regardless 
of their source of coverage--have been arranged for prior to dispensing 
a Part D home infusion drug. We clarify that neither Part D plans nor 
their network pharmacies must directly make arrangements for the 
provision of the components needed to safely administer home infusion 
drugs (save for delivery of the drug itself) prior to an enrollee's 
discharge from an acute care setting; generally, facility discharge 
planners, in collaboration with a patient's physician, are responsible 
for ensuring that those components have been arranged for upon a 
patient's discharge. However, when plans' home infusion network 
pharmacies do not themselves supply the necessary supplies and services 
(which, again, are not covered under the Medicare Part D benefit), the 
Part D sponsor through its home infusion network pharmacy delivering 
the infusible Part D drug must, at a minimum, ensure that another 
entity, such as a home health agency, DME supplier, or the discharging 
hospital, has arranged for the provision of these supplies and 
services. In order for sponsors to comply with this requirement, their 
home infusion network pharmacies may seek and rely upon assurances from 
another entity (such as a home health agency, DME supplier, or 
discharging hospital) that the supplies and services in question have 
been arranged. Under our regulations at Sec.  423.153(c), a Part D 
sponsor must have established quality assurance measures and systems to 
reduce medication errors and adverse drug interactions, and to improve 
medication use. We consider the follow-up to ensure that home infusion 
supplies and services are in place essential to ensuring that home 
infused drugs are administered in a clinically appropriate manner. 
Because this follow-up improves the use of home infusion medications 
and facilitates home infusion therapy more generally, we believe it is 
a minimum quality assurance standard under Sec.  423.153(c).
    As specified in Sec.  423.120(a)(4), we expect that Part D sponsors 
will meet the requirements for ensuring adequate home infusion access 
through their contracted home infusion pharmacies. However, we clarify 
that, as provided in Sec.  423.505(i), Part D sponsors remain 
ultimately responsible for compliance with all Part D requirements, 
even when they delegate services or activities to a contractor such as 
a network pharmacy, and that delegation of any of their Part D 
responsibilities must be consistent with the requirements of Sec.  
423.505(i)(4).
    Coverage under the Part D benefit is limited to the ingredient cost 
and dispensing fees associated with a Part D infusible drug. Although 
the Part D benefit does not cover equipment, supplies, and professional 
services associated with home infusion therapy, there are instances in 
which some of the supplies and professional services can be covered 
under Part A or Part B. If a Medicare beneficiary is under an active 
home health plan of care and is receiving Medicare home health 
services, the cost of some of the infusion supplies (if the infusion is 
provided via gravity feed method) and the professional services are 
included in the Medicare home health 60-day episode payment. A list of 
supplies consolidated under the home health prospective payment system 
(HH PPS) is available on the CMS home health Web site at http://www.cms.hhs.gov/HomeHealthPPS/03_coding&billing.asp#TopOfPage.
    Comment: We received a significant number of comments regarding our 
proposed requirement in Sec.  423.120(a)(4)(iv) of the proposed rule 
that Part D plans provide covered home infusion drugs within 24 hours 
of discharge from an acute care setting.

[[Page 20496]]

Many commenters supported this proposed new requirement. Two commenters 
expressed concern that the proposed requirement is unfair and 
burdensome to the extent that it applies directly to the Part D plan 
itself. Because these commenters contend that our proposed requirement 
would result in plans having to build costly reporting processes and 
protocols to ensure compliance by contracted pharmacies, they recommend 
that we clarify that Part D sponsors will be in compliance with this 
provision if they include a requirement in their network pharmacy 
contracts that pharmacies provide covered home infusion drugs within 
the timeframes established by CMS.
    A number of other commenters recommended that CMS strengthen its 
proposed requirement such that plans must provide covered home infusion 
drugs by the next required dose because patients that are discharged on 
home infusion therapy that is administered more frequently than at 24-
hour intervals may not receive their drugs in a clinically acceptable 
timeframe. These commenters believe that modification of this 
requirement would bring it in line with industry best practices to make 
infusion drugs available by either the next required dose or within 24 
hours. Another commenter expressed concern that the establishment of a 
24-hour requirement is arbitrary and could create situations in which a 
contracted pharmacy is required to deliver products well in advance of 
the next scheduled dose. This commenter recommended that we modify our 
proposed requirement such that plans must ensure that the prescribed 
infusion drugs are delivered at the later of 24 hours after discharge 
or the time the product is required for the first post-discharge dose. 
Finally, several commenters asked us to clarify that the provision of 
home infusion drugs within 24-hours of discharge from an acute care 
setting should be contingent on the pharmacy being notified of the 
discharge by the enrollee or acute care provider prior to the 
discharge.
    Response: We recognize that home infusion therapy may serve as a 
vehicle to promote early hospital discharge. Although we have learned--
in our discussions with home infusion providers--that best practices 
involve the availability of infusion services upon discharge from an 
acute care setting either by the next required dose or within 24 hours 
of the discharge, we deliberately chose to phrase our proposed 
requirement at Sec.  423.120(a)(4)(iv) such that home infusion drugs 
were to be provided within 24 hours of discharge from an acute care 
setting, and not by either the next required dose or within 24 hours of 
discharge. We believe our proposed timely delivery requirement struck a 
reasonable balance between ensuring the timely delivery of drugs needed 
for home infusion therapy and ensuring plan compliance with our 
standard. Because the timing of the next required dose post-discharge 
will vary by beneficiary and by drug, monitoring compliance with a 
``next available dose'' requirement would be very difficult. For this 
reason, we are maintaining our proposed requirement that plans provide 
delivery of home infusion drugs within 24 hours of discharge. However, 
we did find some merit to the point raised by one commenter that the 
next required dose could be later than within 24 hours after discharge 
from an acute care setting and that it would be unfair to penalize a 
plan that did not deliver the necessary home infusion drug until 
sometime after the 24 hours post-discharge have elapsed, even if such 
delivery is consistent with the prescription as written. For this 
reason, our final rule modifies our proposed requirement by requiring 
delivery within 24 hours after discharge, unless the next required 
dose, as prescribed, is required to be administered later than 24 hours 
after discharge. Plans may contractually delegate the responsibility 
for ensuring timely delivery of home infusion drugs to their network 
pharmacies provided they meet the requirements of Sec.  423.505(i) 
regarding relationships with pharmacies or other providers, related 
entities, contractors, subcontractors, and first tier and downstream 
entities. We also clarify that in order to comply with Sec.  
423.120(a)(4)(iv), a Part D plan or one of its home infusion network 
pharmacies must receive notification from a facility discharge planner 
or a similar entity of an acute care discharge and the need for home 
infusion therapy. However, we do not believe that Part D sponsors must 
build ``costly reporting processes and protocols'' to comply with our 
requirement at Sec.  423.120(a)(4)(iv).
    Comment: Two commenters urged us to ensure that Part D sponsors do 
not implement policies that could potentially delay or restrict 
beneficiary access to home infusion therapies, such as imposing prior 
authorization or utilization management edits on home infusion 
therapies, in order to facilitate a timely and efficient hospital 
discharge. Another commenter asked us to instruct plans to make 
available through their network pharmacies home infusion drugs in 
manufacturer-prepared, ready-to-use premixed formats or pharmacy filled 
single-use infusion devices, as these formats promote enhanced patient 
safety.
    Response: We agree that Part D sponsors should not implement 
coverage restrictions that unduly limit access to infusible Part D 
drugs. CMS, in conjunction with industry partners, has identified a 
list of acute care drugs that are most commonly utilized in the home 
infusion setting. This list is available as part of our formulary 
guidance to Part D sponsors in Chapter 6 of our Prescription Drug 
Benefit Manual (see http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBMChap6FormularyReqrmts_03.09.07.pdf). The use of these 
drugs or drug classes often results in an earlier hospital discharge 
and reduced health care costs, and rapid access to these agents is 
imperative to these health care transitions. It is our expectation that 
Part D sponsors will not implement policies that could potentially 
delay or restrict beneficiary access to these important agents. In 
general, should prior authorization or other utilization management 
edits apply to any of these agents, we expect Part D sponsors to handle 
these edits in an expedited manner in order to facilitate hospital 
discharge within appropriate timeframes. To the extent that we receive 
complaints from plan enrollees or providers indicating that this is not 
the case, we will investigate and follow-up with plans to ensure they 
are complying with our requirements. We note, as well, that we expect 
Part D plans to include multiple strengths and dosage forms, when 
available, for each drug included in each drug category or class on 
their formularies. This includes those dosage forms commonly used in 
long term care and home infusion settings.
    Comment: One commenter encouraged CMS to conduct a study on Part D 
enrollees' access to home infusion drugs and their out-of-pocket 
expenditures.
    Response: Access to home infusion drugs is important. We plan to 
continue to assess the adequacy of home infusion pharmacy access based 
on an evaluation of plans' home infusion pharmacy networks. We also 
plan to aggressively respond to beneficiary and provider complaints 
alleging compromised access. As we continue to implement the Part D 
benefit, we will consider other ways of monitoring access to home 
infusion drugs to ensure it is adequate.

[[Page 20497]]

C. Subpart F--Submission of Bids and Monthly Beneficiary Premiums: Plan 
Approval--Timing of Payments (Sec.  423.293(a))

    We proposed a technical correction to Sec.  423.293(a) (70 FR 4546) 
to reflect the statutory requirement that all the provisions of section 
1854(d) of the Act apply in the same manner as they apply under Part C 
of Title XVIII of the Act. Section 1860D-13(c)(1) of the Act states 
that, with two exceptions not particularly relevant to this discussion, 
the provisions of ``section 1854(d) shall apply to PDP sponsors and 
premiums (and any late enrollment penalty) under this part in the same 
manner as they apply to MA organizations and beneficiary premiums under 
part C, except that any reference to a Trust Fund is deemed for this 
purpose a reference to the Medicare Prescription Drug Account.'' 
Section 1854(d)(1) of the Act requires an organization to permit the 
payment of both basic and supplemental premiums on a monthly basis. 
This concept is reflected in the Part C regulations at Sec.  
422.262(e). In accordance with the statutory mandate, we have already 
required plans to permit beneficiaries to pay their premiums on a 
monthly basis. We proposed to make a technical correction to Sec.  
423.293(a) to cite both Sec.  422.262(f) and Sec.  422.262(e). We did 
not receive any comments on the proposed changes to Sec.  423.293(a) 
and therefore adopt the changes as final without modification.

D. Subpart G--Payments to Part D Plan Sponsors for Qualified 
Prescription Drug Coverage: Payment Appeals (Sec.  423.350(b))

    In the January 2005 final rule (70 FR 4550), we made a technical 
error in Sec.  423.350(b). In this paragraph, we inadvertently used the 
phrase ``notice of the adverse determination'' when we said that the 
request for reconsideration for a payment determination must be filed 
within 15 days from the date of the notice of the adverse 
determination. The term ``notice of the adverse determination'' is not 
relevant here. We proposed to revise the regulation text to instead 
cite to the notice of final payment for risk adjustment, reinsurance, 
low-income cost sharing subsidies, or risk-sharing payments under 
Sec. Sec.  423.343(b), 423.343(c), 423.343(d) or 423.336, respectively. 
We did not receive any comments on the proposed changes to Sec.  
423.350(b), and therefore, adopt the changes as final without 
modification.

E. Subpart I--Organization Compliance With State Law and Preemption by 
Federal Law--Waiver of Certain Requirements To Expand Choice (Sec.  
423.410)

    In accordance with section 1860D-12(c)(2)(B) of the Act, which 
describes the special waivers available for the 2006 and 2007 plan 
years, we proposed to revise Sec.  423.410(d) to correct an error. We 
believe that the statute requires only a substantially complete (rather 
than a fully complete) application to have been submitted to the 
applicable state in order for an applicant to be granted the special 
waiver for 2006 and 2007. Therefore, we proposed to correct the 
regulatory language to require that an applicant submit a substantially 
completed application to the state in order for the applicant to be 
eligible for the Sec.  423.410(d) waiver. We received no comments 
regarding our proposed change. Therefore, this final rule adopts the 
proposed revision to Sec.  423.410(d) without change.

F. Subpart J--Coordination of Part D Plans With Other Prescription Drug 
Coverage

1. Application of Part D Rules to Certain Part D Plans on and After 
January 1, 2006 (Sec.  423.458)
    We proposed to revise Sec.  423.458(d)(2)(ii) because we 
inadvertently omitted a reference to section 1894 of the Act in 
describing the statutory authority for the benefits offered by a 
Program of All Inclusive Care for the Elderly (PACE) organization. As 
published in the January 2005 final rule (70 FR 4552), Sec.  
423.458(d)(2)(ii) referenced only section 1934 of the Act when 
describing benefits provided by PACE organizations. In fact, PACE 
operates under both the Medicare and Medicaid statutes, and all 
descriptions to PACE benefits should refer to both sections 1894 and 
1934 of the Act. We therefore proposed to revise Sec.  
423.458(d)(2)(ii) so that it refers to benefits offered by a PACE 
organization under both sections 1894 and 1934 of the Act. We received 
no comments on our proposed revision to Sec.  423.458(d)(2)(ii) and are 
therefore adopting it as proposed.
2. Coordination of Benefits With Other Providers of Prescription Drug 
Coverage (Sec.  423.464)
a. Coordination of Benefits With Rural Health Clinics
    In the January 2005 final rule (70 FR 4553), we made a technical 
error in Sec.  423.464(f)(1)(vii) by inadvertently referring to rural 
health clinics as rural health centers. In fact, our intent was to 
reference facilities described in section 1861(aa)(2) of the Act, and 
the correct terminology for those facilities is rural health clinics. 
Accordingly, we proposed to correct the reference to these entities in 
Sec.  423.464(f)(1)(vii) by removing the phrase rural health centers 
and adding in its place rural health clinics. We did not receive any 
public comments on our proposed correction to Sec.  423.464(f)(1)(vii) 
and are therefore adopting the correction as proposed.
b. Coordination of Benefits With Part D Plans and Other Payers
    We proposed to codify in Sec.  423.464(f) guidance we have already 
issued to Part D sponsors addressing coordination of benefits 
requirements in cases that involve another Part D plan that is not the 
correct Part D plan of record or another payer that has incorrectly 
paid as primary for a covered Part D drug for an enrolled beneficiary. 
In accordance with sections 1860D-24(a)(1) and (b) of the Act, Sec.  
423.464(a) of the regulations extends the coordination of benefits 
requirements in section 1860D-23 of the Act applicable to Part D plans 
vis-[agrave]-vis State Pharmaceutical Assistance Programs (SPAPs) to 
other entities providing prescription drug coverage. We proposed to 
clarify Sec.  423.464(f)(1) to state that included among the entities 
providing other prescription drug coverage with which Part D plans must 
coordinate are other Part D plans. Although Part D plans are already 
obligated to coordinate with group health plans, as provided in Sec.  
423.464(f)(1)(ii), we believed this revision formalizes our implicit 
recognition of other Part D plans as other entities providing 
prescription drug coverage with which a beneficiary's correct Part D 
plan of record must coordinate.
    We also proposed to amend Sec.  423.464(f) by adding a fifth 
paragraph that clarifies that Part D plans coordinate benefits with 
other Part D plans through the reconciliation process we have developed 
for 2006, which involves making payments to other Part D plans on the 
basis of the covered plan-paid and low-income cost-sharing subsidy 
amounts reported to them by CMS with respect to transferred enrollees. 
Payments made by the Part D plans as part of this reconciliation 
process would be made without regard to the plan's formulary or drug 
utilization review edits.
    In addition, we proposed modifying Sec.  423.464(f) by adding a 
sixth paragraph that would require Part D sponsors to coordinate 
benefits on a timely basis with other third parties and use CMS-
developed reconciliation processes,

[[Page 20498]]

when established, in situations in which a payer other than the correct 
Part D plan of record pays for covered Part D drug costs as a primary 
payer. Except as otherwise provided below, the final rule adopts the 
revisions to Sec.  423.464(f) set forth in our proposed rule.
    Comment: Many commenters supported our proposed clarification and 
codification of previously issued guidance on Part D plan sponsor 
coordination of benefits with other payers. Several commenters, in 
expressing their support, noted the importance of the reconciliation 
processes in avoiding pharmacy reversal and claims re-adjudication. One 
commenter agreed with the proposed codification, but requested that the 
provision specifically address the reconciliation of inaccurate cost- 
sharing amounts withheld from pharmacy payments by Part D plan 
sponsors.
    Response: We are pleased with the extent of the support expressed 
for the proposed changes. However, we believe the coordination of 
benefits (COB) provisions at section 1860D-24 of the Act do not permit 
expanding Sec.  423.464 to address the reconciliation of inaccurate 
cost sharing withheld from pharmacy payments. The reconciliation 
process provision is specific to other entities providing prescription 
drug coverage and the inclusion of pharmacies would be inconsistent 
with section 1860D-24(b) of the Act. Paragraph (5) of this section of 
the Act extends the COB requirements to ``other health benefit plans or 
programs that provide coverage or financial assistance for the purchase 
or provision'' of drugs; it does not apply to providers holding 
accounts receivables resulting from incorrect cost sharing or 
otherwise.
    Further, the requested extension of the reconciliation process to 
include pharmacies cannot be construed as a logical extension of the 
proposed rule and therefore its inclusion would violate the 
requirements of the Administrative Procedures Act concerning adequate 
public notice. Although we are not extending the provision as 
requested, existing CMS policy requires Part D plan sponsors to pay for 
covered Part D drugs provided during the retroactive enrollment 
periods. We have clarified in our policy issuances that this 
requirement includes both out-of-network pharmacies holding receivable 
balances for covered Part D drug costs, and network pharmacies holding 
receivable balances for covered Part D drug claims incurred during a 
beneficiary's period of retroactive Part D enrollment.
    Comment: Another commenter agreed with our proposed clarification, 
but recommended that CMS require that reconciliation processes with 
non-Part D sponsors include the submission of claims-level data to the 
Part D plan sponsors. The commenter notes that claims-level data is 
required for the accurate calculation of beneficiary true out-of-pocket 
costs, prescription drug event data reporting, and payment 
reconciliation with CMS.
    Response: While we appreciate the importance of claims-level data 
to reconciliation with non-Part D payers, we do not have the authority 
to regulate the activities of non-Part D payers. Also, we do not 
believe it would be appropriate to include the detail recommended by 
the commenter when it concerns as-yet-to-be developed CMS 
reconciliation processes.
    Comment: Two commenters expressed concern that the proposed 
provision does not address the payment reconciliation process or 
adjustments for claims Part D plans receive after the coverage year. 
The commenters noted that this non-point-of-sale claims volume is not 
insignificant and therefore recommended that CMS extend the periods of 
time for submission of claims and data reporting so that these claims 
may be included in the payment reconciliation process.
    Response: The established deadlines for submission of claims and 
data reporting are necessary in order to ensure a timely payment 
reconciliation process. However, we understand and appreciate the 
concern that some claims will not be available for submission until 
after these deadlines, and therefore, will not be included in the 
payment reconciliation process. Per Sec.  423.346, we have discretion 
to reopen and revise initial or reconsidered final Part D payment 
determinations. One of the grounds for finding good cause to reopen a 
final payment determination is the furnishing of new and material 
evidence that was not readily available at the time the final 
determination was made. Thus, in cases where claims data becomes 
available after the submission deadlines which would have a material 
impact on the final Part D payments, we will determine whether a 
reopening of the final Part D payments is appropriate.

G. Subpart K--Application Procedures and Contracts With Part D Plan 
Sponsors

1. General Provisions (Sec.  423.504)--Submission of Bids
    In Sec.  423.504, we inadvertently made reference to Sec.  
423.265(a)(1) rather than Sec.  423.265. Section 423.265(a) gives only 
the most narrow and rudimentary of information concerning the bidding 
process, our intent was to cite in its entirety the much broader list 
found under Sec.  423.265 (Submission of bids and related information). 
Accordingly, we proposed to correct the reference in Sec.  423.504(a) 
to cite all of Sec.  423.265 (72 FR 29412). We received no comments 
regarding our proposed correction. Therefore, the final rule adopts the 
revision to Sec.  423.504 set forth in our proposed rule.
2. Contract Provisions (Sec.  423.505)
    We proposed to correct the citation for the False Claims Act in 
Sec.  423.505. The correct reference to the False Claims Act is 31 
U.S.C. 3729 et seq. Accordingly, we proposed to correct the reference 
found under Sec.  423.505 (h)(1) by replacing 32 U.S.C. 3729 et seq. 
with 31 U.S.C. 3729 et seq. (72 FR 29412). We received no comments 
regarding our proposed correction. Therefore, the final rule adopts the 
revision to Sec.  423.505 (h)(1) set forth in our proposed rule.
3. Failure To Comply With the Dissemination of Information Requirements 
Grounds for Contract Termination (Sec.  423.509(a)(9))
    In Sec.  423.509(a)(9), we indicate that CMS may terminate a plan's 
contract if the plan substantially fails to comply with the Part D 
marketing requirements (70 FR 4559). This provision cites the marketing 
requirements at Sec.  423.128, which is an incorrect citation. Section 
423.128 deals with the dissemination of Part D plan information, not 
with plans' marketing requirements, per se. Therefore, we proposed to 
revise the regulation text, consistent with our original intent, to 
reflect that a plan contract may be terminated if a plan sponsor 
substantially fails to comply with the marketing requirements in Sec.  
423.50 or the dissemination of Part D plan information requirements in 
Sec.  423.128. (72 FR 29412). We received no comments regarding our 
proposed correction. Therefore, the final rule adopts the revision to 
Sec.  423.509(a)(9) as proposed without change.

H. Subpart M--Grievances, Coverage Determinations, and Appeals

1. Definitions (Sec.  423.560)
    We proposed to make technical changes to the definitions of 
``appointed representative'' and ``projected value,'' and to add 
language to the definition of appointed representative indicating that 
an enrollee's appointed representative may request a grievance on the 
enrollee's behalf. We also proposed to revise the definition of 
projected value

[[Page 20499]]

in Sec.  423.560 to be consistent with the definition of projected 
value provided in the preamble of the January 2005 final rule (70 FR 
4360) and in the regulation text at Sec.  423.610(b).
    Comment: We received a comment suggesting that we grant appointed 
representative status to long-term care (LTC) facility staff.
    Response: We agree with the commenter that LTC caregivers should be 
able to represent resident enrollees in the Part D appeals process. 
However, the decision to have a representative is left with the 
enrollee, and we neither encourage nor discourage representation. If a 
Part D enrollee chooses to appoint an LTC caregiver as his or her 
representative in the Part D appeals process, the current regulations 
allow the enrollee to do so.
    Comment: Another commenter asked that the appointed representative 
policy operate consistent with State family and surrogate laws.
    Response: We agree with the commenter's recommendation and believe 
that the regulations already address the commenter's suggestion. 
Section 423.560 defines appointed representative as any person properly 
appointed by an enrollee, or any person authorized to act as an 
enrollee's representative under a State or other applicable law. Thus, 
both individuals appointed by enrollees and individuals authorized 
under State or other applicable law may act on behalf of Part D 
enrollees in obtaining coverage determinations or in dealing with any 
of the levels of the appeals process, subject to the rules described in 
part 423, subpart M.
    Comment: We received one comment recommending that we modify the 
definition of projected value in Sec.  423.610(b) to comply with the 
definition in Sec.  423.560 instead of revising the definition of 
projected value in Sec.  423.560 to comply with the definition in Sec.  
423.610(b).
    Response: We disagree with the commenter. As noted in the May 2007 
proposed rule, the definition of projected value in Sec.  423.560 is 
not consistent with the definitions of projected value in the January 
2005 final rule (70 FR 4360) and in Sec.  423.610(b) of the 
regulations. Both of those definitions limit projected value to 
benefits incurred within a plan year. Limiting projected value to 
benefits incurred within a plan year is consistent with sections of the 
regulation that limit exception approvals to a plan year and permit 
enrollees to switch plans at the beginning of each plan year. (See 
Sec.  423.38 and Sec.  423.578(c).)
2. Expediting Certain Coverage Determinations (Sec.  423.570)
    We proposed to amend the regulation text of Sec.  423.570(d)(3) by 
requiring a Part D sponsor to deliver written notice to an enrollee 
within 3 calendar days after it denies a request to expedite a coverage 
determination.
    Comment: We received one comment suggesting that we require plans 
to deliver notice of a decision not to expedite a coverage 
determination to a dispensing pharmacy when an enrollee is a resident 
of a LTC facility.
    Response: We disagree with the commenter. Section 423.570(d)(2) of 
the regulations requires plan sponsors to deliver oral notice of a 
decision not to expedite a coverage determination to the enrollee (or 
the enrollee's appointed representative) and the enrollee's prescribing 
physician. Section 423.570(d)(3) requires the plan sponsor to send an 
equivalent written notice, but it does not indicate if the notice must 
be sent to the enrollee (or the enrollee's appointed representative), 
the prescribing physician, or both. Our proposal simply corrects this 
omission. The commenter's recommendation to add a new party to the list 
of recipients would create a new regulatory requirement that is not 
directly related to our proposed clarification. However, it is worth 
noting that an employee of a pharmacy could receive this and other 
notices if he or she were an enrollee's appointed representative.
    Comment: Another commenter recommended requiring plans to deliver 
notice of a decision not to expedite a coverage determination both to 
the enrollee and to his or her appointed representative, if one is on 
record.
    Response: We do not agree with the commenter's suggestion. We 
require notices to be delivered to an enrollee or an enrollee's 
appointed representative, but not to both. If a representative is 
acting on behalf of an enrollee in the Part D appeals process, he or 
she is standing in the shoes of the enrollee and must inform the 
enrollee of the status of a coverage determination or appeal and the 
results of any actions taken on behalf of the enrollee. It could be 
confusing for an enrollee to receive a notice that is also sent to his 
or her appointed representative since the enrollee is relying on that 
person to resolve any issues related to his or her Part D appeal.
3. Expediting Certain Redeterminations (Sec.  423.584)
    We proposed to revise the regulation text of Sec.  423.584(b) to 
include the procedures for filing and withdrawing a request for an 
expedited redetermination. We did not receive any comments on the 
proposed change to Sec.  423.584(b) and therefore adopt this change as 
final without modification.
4. Right to an ALJ Hearing (Sec.  423.610)
    We proposed revising the regulation text of Sec.  423.610(c)(2) by 
numbering the three requirements listed under Sec.  423.610(c)(2) with 
(i), (ii), and (iii). We did not receive any comments on the proposed 
change to Sec.  423.610(c)(2) and therefore adopt this change as final 
without modification.

I. Subpart P--Premium and Cost-Sharing Subsidies for Low-Income 
Individuals

1. Premium Subsidy Amount (Sec.  423.780)
a. Low-Income Benchmark Premium Amount
    Section 1860D-14 of the Act requires us to subsidize the monthly 
beneficiary premium and cost-sharing amounts incurred under Part D by 
Part D eligible individuals with income and resources below certain 
thresholds. Our rules mirror the statute's structure, which divides 
low-income subsidy eligible individuals into two different groups, 
based on income and resources: (1) Full subsidy eligible individuals 
(as defined at Sec.  423.772); and (2) other low-income subsidy 
eligible individuals (as defined at Sec.  423.772). The different 
groups are entitled to different amounts of premium assistance and 
reductions in cost sharing.
    As stated in the May 2007 proposed rule, we became aware that 
certain sections of part 423 subpart P need to be corrected to 
accurately reflect the statutory language in section 1860D-14 of the 
Act. Specifically, in the January 2005 final rule (70 FR 4574) there is 
an error in Sec.  423.780(b), which sets forth the methodology for 
determining the premium subsidy amount. In accordance with section 
1860D-14(b)(1) of the Act, Sec.  423.780(b)(1) of the regulation 
provides that the premium subsidy amount for a full low-income subsidy 
eligible individual is equal to the lesser of-- (1) the portion of his 
or her plan's monthly beneficiary premium attributable to basic 
coverage; or (2) the greater of the low-income benchmark premium amount 
or the lowest monthly beneficiary premium for a PDP offering basic 
prescription drug coverage in the PDP region where the individual 
resides. The low-income benchmark premium amount, as defined in the 
statute at section 1860D-14 of the Act, specifically describes how to 
calculate the low-income subsidy for regions with only one PDP sponsor. 
At section

[[Page 20500]]

1860D-14(b)(2)(A)(i) of the Act, the statute indicates that ``the term 
`low-income benchmark premium amount' means, with respect to a PDP 
region in which all prescription drug plans are offered by the same PDP 
sponsor, the weighted average of the amounts described in subparagraph 
(B)(i) for such plans.'' However, while Sec.  423.780(b)(2)(i) 
accurately describes the low-income benchmark premium amount 
calculation for PDP regions with multiple PDP sponsors, it omits the 
methodology for determining the low-income benchmark premium amount in 
a PDP region with any number of MA-PD plans but only one PDP sponsor 
(although the preamble of the January 2005 final rule correctly 
describes this methodology). We proposed to correct this error in the 
current rule to comport with the statute and our intent as outlined in 
the preamble of the January 2005 final rule by adding a new 
subparagraph (A) to Sec.  423.780(b)(2)(i) to correctly reflect the 
methodology for situations where there is only one PDP sponsor. We note 
that in 2006, all PDP regions included multiple PDP sponsors.
    We also proposed revisions to Sec.  423.780(b)(2)(i)(B). Our 
proposed change would make clear that in multiple-PDP sponsor regions, 
the MA-PD plans included in the calculation of the low income benchmark 
weighted average are coordinated care plans, as defined at Sec.  
422.4(a)(1)(iii). We did not receive any comments on the proposed 
changes Sec.  423.780(b)(1) and (2)(i). Therefore, we are adopting the 
changes to Sec.  423.780(b)(1) as final without modification. However, 
we are not finalizing the changes to Sec.  423.780(b)(2)(i) in this 
final rule; rather, we have revised this provision in the Modification 
to the Weighting Methodology Used to Calculate the Low-income Benchmark 
Amount final rule that published in the April 3, 2008 Federal Register 
(73 FR 18176).
b. Premium Subsidy for Late Enrollment Penalty
    We indicated in the May 2007 proposed rule that we needed to 
correct an omission in the regulation text at Sec.  423.780(e) related 
to the subsidy of any late enrollment penalty imposed on other low-
income subsidy individuals. In this paragraph, we omitted a provision 
from the statute at section 1860D-14(a)(2)(A) of the Act, which 
provides for a subsidy or any late enrollment penalty imposed on other 
low-income subsidy eligible individuals. Accordingly, we proposed to 
revise Sec.  423.780(e) to accurately reflect the statute. We proposed 
that this subsidy would be based on a linear sliding scale, with a 
higher subsidy available to other low income subsidy eligible 
individuals with incomes at or below 135 percent of the Federal poverty 
line (FPL), and the lowest level subsidy available to other low income 
subsidy eligible individuals with incomes below 150 percent of the FPL.
    The table below illustrates the penalty subsidy available to other 
low income subsidy individuals.

------------------------------------------------------------------------
                               Percent of penalty    Percent of penalty
                                subsidized during   subsidized after the
        Income level           the first 60 months     first 60 months
                                  individual is         individual is
                               subject to penalty    subject to penalty
------------------------------------------------------------------------
<=135% FPL..................                    80                   100
>135% and <=140% FPL........                    60                    75
>140% and <=145% FPL........                    40                    50
>145% and <150% FPL.........                    20                    25
>=150% FPL..................                     0                     0
------------------------------------------------------------------------

    Comment: Commenters supported the proposed changes to calculation 
of the low-income premium subsidies for other low income subsidy 
eligible individuals. However, they also indicated that other low-
income subsidy beneficiaries subject to the late enrollment penalty are 
still burdened with paying 20 percent of such penalty for the first 60 
months during which the penalty is imposed, and that this burden serves 
as a disincentive for low-income beneficiaries to enroll in Medicare 
Part D.
    Response: While we recognize the concern of the commenters for the 
needs of low-income beneficiaries, section 1860D-14(a)(1)(A) of the Act 
requires late enrollment penalties for the low-income subsidy 
population. Therefore, we are adopting these proposed revisions in the 
final rule. Please note, however, that we have used the Secretary's 
authority under section 402(a)(1)(A) of the Social Security Amendments 
of 1967, 42 U.S.C. 1395b-1(a)(1)(A) (expressly made applicable to Part 
D in section 1860D-42(b) of the Act) to implement the Medicare payment 
demonstration entitled ``Elimination of 2006 Late Enrollment Penalty.'' 
Under this demonstration, as amended in 2007, we will not collect the 
late enrollment penalty from individuals who receive a low-income 
subsidy and enroll in the Medicare Prescription Drug Program in 2006, 
2007, or 2008. As long as these individuals remain continuously 
enrolled in Medicare Part D, they will not be assessed a late 
enrollment penalty. This demonstration is of limited duration and is 
only applicable to low-income subsidy eligible individuals who enroll 
in Medicare Part D in 2006, 2007, or 2008. Following an evaluation of 
this Medicare payment demonstration, we will review the results of the 
evaluation and may consider recommending that Congress eliminate the 
late enrollment penalty for individuals who receive the low-income 
subsidy.

J. Subpart R--Payments to Sponsors of Retiree Prescription Drug Plans

1. Requirements for Qualified Retiree Prescription Drug Plans (Sec.  
423.884)
a. Application Timing
    Section 423.884(c) sets forth the application requirements for the 
retiree drug subsidy (RDS). Section 423.884(c)(5)(i) requires a plan 
sponsor to file an application for the subsidy by no later than 90 days 
before the beginning of its plan year, unless we grant the sponsor's 
request for an extension (for example, the deadline for 2007 calendar 
year plans under the regulation was October 2, 2006). As we stated in 
the proposed rule, we believe that an end-of-month deadline would be 
administratively simpler for both plan sponsors and CMS to track. 
Accordingly, we proposed to replace the 90-day requirement with the 
phrase ``by a date specified by CMS in published guidance'' to allow us 
the discretion to specify an end-of-month deadline in the future 
through guidance. We noted that

[[Page 20501]]

this would give us the flexibility to take into account operational 
systems changes in determining the RDS application deadline, while 
providing adequate advance notice to plan sponsors and their advisers. 
We did not receive any comments on the proposed change to Sec.  
423.884(c)(5)(i) and therefore adopt this change as final without 
modification.
b. Data Match
    In accordance with section 1860D-22(a)(1), employer and union 
sponsors of qualified retiree prescription drug plans may receive the 
RDS only for their enrollees who are eligible for, but not enrolled in, 
a Part D plan. In order to properly administer this requirement, we 
compare the retiree enrollment data that a plan sponsor submits to us 
with CMS enrollment records to ensure that sponsors are only receiving 
retiree drug subsidies for qualifying covered retirees, as defined in 
Sec.  423.882. In Sec.  423.884(c)(7)(i), we specifically referenced 
the Medicare Beneficiary Database (MBD) as the system of record for 
this data match (70 FR 4578). While the MBD is currently the system we 
use to verify retirees' Part D eligibility and enrollment status, we 
also may use other systems of record for purposes of the data match. 
Accordingly, we proposed to modify Sec.  423.884(c)(7)(i) by 
substituting a general reference to ``CMS database(s)'' for the 
``Medicare Beneficiary Database (MBD).'' We did not receive any 
comments on the proposed change to Sec.  423.884(c)(7)(i) and therefore 
are finalizing this change without modification.
c. Actuarial Equivalence
(1) Medicare Supplemental Adjustment
    Section 1860D-22(a)(2)(A) of the Act requires that a plan sponsor 
claiming the RDS provide an attestation that its qualified retiree 
prescription drug plan is actuarially equivalent to Medicare standard 
prescription drug coverage. Section 423.884(d)(5) sets forth a two-
prong test for determining the actuarial value of the defined standard 
prescription drug coverage under Part D against which the actuarial 
value of the retiree prescription coverage under the qualified retiree 
prescription drug plans is measured (70 FR 4578). The actuarial 
equivalence test includes a ``gross test'' and a ``net test.'' Section 
423.884(d)(5)(iii)(B)(2) states that the net test includes a ``Medicare 
supplemental adjustment'' which allows a plan sponsor that provides 
supplemental coverage for its retirees that elect Part D coverage to 
reflect the impact of the supplemental coverage on the net value of 
defined standard prescription drug coverage under Part D. Supplemental 
coverage for this purpose means drug coverage over and above defined 
standard prescription drug coverage under Part D for those retirees 
that enroll in Part D coverage. As stated in the preamble to the May 
2007 proposed rule, our intent, which we clarified in operational 
guidance to plan sponsors, was that a sponsor must actually provide 
employer or union-sponsored supplemental retiree drug coverage to its 
retirees who enroll in Part D in order to qualify for the Medicare 
supplemental adjustment. Therefore, we proposed to revise Sec.  
423.884(d)(5)(iii)(B)(2) to indicate that plan sponsors must actually 
provide supplemental drug coverage for their retirees that elect Part D 
in order to take advantage of the Medicare supplemental adjustment 
provided for in Sec.  423.884(d)(5)(iii)(B)(2). We view this revision 
as merely incorporating previously issued guidance, and not as a new 
policy proposal. We did not receive any comments on the proposed change 
to Sec.  423.884(d)(5)(iii)(B)(2) and therefore adopt this change as 
final without modification.
(2) Noncalendar Year Plans
    Section 1860D-22(a)(2)(A) of the Act requires a plan sponsor 
claiming the RDS to provide an attestation that its qualified retiree 
prescription drug plan is actuarially equivalent to the Medicare 
defined standard prescription drug coverage. The actuarial equivalence 
test requires that the actuarial value of the plan sponsor's retiree 
drug coverage under its qualified retiree prescription drug plan be 
compared to the actuarial value of the Medicare defined standard 
prescription drug coverage had the sponsor's Part D eligible 
individuals taken that coverage.
    Sections 423.884(d)(5)(iii)(C) and (D) state that for purposes of 
comparing the actuarial value of the retiree coverage under the 
sponsor's plan and the Medicare defined standard prescription drug 
coverage, the actuarial valuation of the latter is based on the initial 
coverage limit, cost sharing amounts, and annual out-of-pocket 
threshold in effect at the start of the plan year. However, the 
attestation must be submitted to us no later than 60 days after the 
publication of these coverage limits for the upcoming calendar year; 
otherwise, the valuation must be based on the initial coverage limit, 
cost sharing amounts, and annual out-of-pocket threshold for the 
upcoming plan year. The intent of this 60-day provision is to prevent 
actuaries from having to redo valuations for noncalendar year plans 
that were based on the current calendar year initial coverage limit, 
cost sharing amounts, and annual out-of-pocket threshold when, after 
doing their calculations but prior to submission of the RDS 
application, we publish the coverage limits for defined standard drug 
coverage for the upcoming calendar year.
    As we stated in the proposed rule, plan sponsors' actuaries have 
indicated to us that they believe they should have the flexibility for 
non-calendar year plans to use the initial coverage limit, cost-sharing 
amounts, and annual out-of-pocket threshold for defined standard drug 
coverage for the upcoming plan year, provided it does not impact their 
ability to meet the application deadline. We agreed that actuaries 
should have this flexibility, and proposed to amend Sec.  
423.884(d)(5)(iii)(C) to permit a noncalendar year plan's actuary to 
use either the current or subsequent year's coverage limits for defined 
standard prescription drug coverage when the attestation is submitted 
within 60 days of the publication of the following year's cost limits. 
We also proposed to make corresponding changes to Sec.  
423.884(d)(5)(iii)(D). We did not receive any comments on the proposed 
change to Sec. Sec.  423.884(d)(5)(iii)(C) and (D), and therefore are 
finalizing this change without modification.
(3) Benefit Options
    Employment-based retiree health coverage often has different plan 
design features or benefit options that apply to specific groups of 
retirees. Section 423.882 defines a benefit option as a particular 
benefit design, category of benefits, or cost sharing arrangement 
offered within a group health plan. Section 423.884(d)(5)(iv) states 
that a plan with more than one benefit option must pass the gross test 
separately on a disaggregated basis for each option, but that it may 
pass the net test on an aggregated or disaggregated basis. As we stated 
in the proposed rule and in guidance published previous to that rule, 
our intent was that a plan sponsor should also have the option of 
aggregating a subset of the benefit options in a group health plan for 
the actuarial equivalence net test in addition to aggregating all of 
the options or evaluating each option individually. If the sponsor 
combines two or more benefit options, the sponsor may not claim the 
subsidy for those benefit options excluded from the net value 
calculation, even if those options meet the gross test (unless the 
excluded benefit options each individually meet the net test). We 
proposed to amend the final rule to reflect this clarification of

[[Page 20502]]

our intent, which reflects policy that has been applied consistently 
since the rule was published. We did not receive any comments on the 
proposed change to Sec.  423.884(d)(5)(iv) and therefore are finalizing 
this change without modification.
(4) Submission of Actuarial Attestation Upon Material Change
    Section 1860D-22(a)(2)(A) of the Act requires that a plan sponsor 
submit an actuarial attestation annually or at another time as the 
Secretary may require. Section 423.884(d)(6)(ii) requires submission of 
an attestation no later than 90 days before the implementation of a 
material change to the coverage. While the term ``material change'' can 
be construed broadly to include any change to the value of a sponsor's 
plan, we indicated in the proposed rule that ``[w]e would not require 
submission of an attestation under Sec.  423.884(d)(6)(ii) where a plan 
sponsor still meets the actuarial equivalence test after the change, 
and there are no benefit options being added'' (72 FR 29416). We did 
not receive any comments on this clarification of our policy. However, 
as has always been the intent of the regulations, an attestation must 
be submitted only when coverage satisfies the actuarial equivalence 
standards in the regulations, and should not and must not be submitted 
when coverage fails to satisfy those standards. Therefore, in the text 
of the final regulation, we are articulating the clarification in the 
proposed regulation in a way that makes this distinction. Specifically, 
Sec.  423.884(d)(6)(ii) in the final regulation states that an 
attestation must be provided no later than 90 days before the 
implementation of a material change to the sponsor's drug coverage, and 
that the term ``material change'' means the addition of a benefit 
option that does not have the impact of causing the actuarial value of 
the retiree prescription drug coverage to fail the actuarial 
equivalence standards set forth in the regulations. (Regardless of 
whether there has been such an impact, a plan sponsor, upon deleting a 
benefit option for RDS purposes, must provide an update to CMS of its 
list of individuals for whom it is claiming RDS. (See Sec.  
423.884(c)(6)). The final regulation also adds Sec.  423.884(d)(7), 
which states that a sponsor must notify CMS, in a form and manner 
specified by CMS, no later than 90 days before the implementation of a 
change to the drug coverage that does have the impact of causing the 
actuarial value of the retiree prescription drug coverage to fail the 
actuarial equivalence standards set forth in the regulations.

K. Subpart S--Special Rules for States Eligibility

1. General Payment Provisions--Coordination With Medicare Prescription 
Drug Benefits (Sec.  423.906)
    Section 1935(d) of the Act contains specific provisions regarding 
Medicaid coordination with Medicare prescription drug benefits. In the 
case of a full benefit dual eligible individual, Federal Financial 
Participation (FFP) in State Medicaid expenditures is not available for 
Medicaid covered drugs that could be covered under Part D or for cost 
sharing related to these drugs. We proposed correcting Sec.  423.906(b) 
and (c) to make clear that, in accordance with the statutory 
requirement in section 1935(d)(2) of the Act, only drugs specifically 
excluded from the definition of Part D drugs may be covered by medical 
assistance. The effect of these changes is to make clear that FFP is 
not available to States for coverage of drugs that would be Part D 
covered drugs except that they are not on a plan's formulary. We also 
proposed adding a definition of ``noncovered drugs'' to Sec.  423.902. 
We did not receive comments regarding our proposed changes. Therefore, 
the final rule adopts the revisions to Sec.  423.906(b) and (c) and 
Sec.  423.902 set forth in the proposed rule.
2. States' Contribution to Drug Benefit Costs Assumed by Medicare 
(Sec.  423.910)
    Section 1935(b) of the Act, as amended by the MMA, requires States 
and the District of Columbia to be responsible for making monthly 
payments to the Federal government beginning in January 2006 to defray 
a portion of the Medicare drug expenditures for full-benefit dual 
eligible individuals. The statute further defines full benefit dual 
eligible individuals to mean ``for a State for a month an individual 
who has coverage for the month for covered part D drugs under a 
prescription drug plan under part D of title XVIII, or under an MA-PD 
plan under part C of such title and is determined eligible by the State 
for medical assistance for full benefits under this title * * *'' In 
the January 2005 final rule, we explained the calculation of the 
monthly State phased-down contributions. The calculation of the monthly 
state contribution is dependent upon the State's reporting of the total 
number of full-benefit dual eligible individuals for the State in the 
applicable month. States are required, in accordance with the Sec.  
423.910(d), to submit an electronic file, in a manner specified by CMS, 
identifying each full-benefit dual eligible individual enrolled in the 
State Medicaid program for each month. For States that do not submit an 
acceptable file by the end of the month, the phased down State 
contribution for that month is based on data deemed appropriate by CMS.
    In Sec.  423.910(b)(1) of the Medicare Prescription Drug Benefit 
final rule, section 423.910(b)(1) specified that ``[f]or States that do 
not meet the quarterly reporting requirement for the monthly enrollment 
reporting.'' The text should have read ``For States that do not meet 
the monthly reporting requirement for the monthly enrollment 
reporting,'' since there is no State quarterly reporting requirement 
referred to in either the statute or regulation when calculating the 
phased-down State contribution. Accordingly, we proposed to revise the 
text to be consistent with the statute. We did not receive comments 
regarding our proposed changes. Therefore, the final rule adopts the 
proposed revisions to Sec.  423.910(b)(1) without modification.

L. Out-of-Scope Comments

    We received a number of comments that were beyond the scope of the 
clarifications in the proposed rule but, rather, addressed other policy 
areas or sought new clarifications that we did not propose to clarify 
in this final rule. Specifically, we received public comments 
recommending that we--
    <bullet> Implement rules providing for consistency in utilization 
management requirements across Part D sponsors;
    <bullet> Establish rules requiring a universal prescription drug 
card;
    <bullet> Eliminate proposed rules removing the e-prescribing 
facsimile exemption;
    <bullet> Address beneficiary related concerns with the coverage gap 
or Part D drug coverage in general;
    <bullet> Codify the six classes of clinical concern;
    <bullet> Add cancer treatments to the six classes of clinical 
concern;
    <bullet> Change the cut-off date for the six classes of clinical 
concern to January 1, 2008;
    <bullet> Limit expansion of the parameters for Agency Record 
Searches;
    <bullet> Allow tiering exceptions for specialty tier drugs;
    <bullet> Address lags in the transfer of information, particularly 
regarding beneficiary Medicaid eligibility, and Part D plan sponsor 
unwillingness to accept documentation of Medicaid as proof of a 
beneficiary's dual status;
    <bullet> Address cases of retroactive Medicaid eligibility and Part 
D enrollment and direct Part D plan sponsors to not deny claims 
incurred

[[Page 20503]]

during the period of retroactive eligibility;
    <bullet> Direct Part D sponsors to provide disclosure instructions 
for the filing of claims incurred during periods of retroactive Part D 
enrollment;
    <bullet> Act on MedPAC recommendations on vaccine reimbursement;
    <bullet> Withdraw the Medicare Marketing Guidelines or, at a 
minimum, eliminate or loosen current restrictions contained in the 
Medicare Marketing Guidelines on provider marketing activities--
particularly when providers are acting independently of Part D plans or 
when there is no direct financial conflict of interest under the 
Federal anti-kickback statute.
    <bullet> Expand the definition of a long-term care facility under 
Sec.  423.100 to include assisted living facilities;
    <bullet> Revise our policies to require Part D coverage of the 
professional services, supplies, and equipment associated with home 
infusion of Part D drugs;
    <bullet> Direct that appeals overturned by an administrative law 
judge are effective for a period of 12 months, not just the remainder 
of the plan year.
    Because these comments are beyond the scope of the proposed rule, 
we are not responding to them in this final rule.

III. Collection of Information Requirements

    This document does not impose additional information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

IV. Regulatory Impact Analysis

A. Overall Impact

    We examined the impacts of our May 2007 proposed rule as required 
by Executive Order 12866 (September 1993, Regulatory Planning and 
Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. 
L. 96-354), section 1102(b) of the Social Security Act, the Unfunded 
Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132. 
We received only one comment with regard to our impact analysis 
concerning the definition of negotiated prices, which is not addressed 
in this final rule. As a result, we restate that impact analysis below.
    With the exception of the statutory change addressing the payment 
of vaccine administration under Part D beginning in 2008 for covered 
Part D vaccines, the impact of the policy clarifications in this final 
rule were addressed as part of a prior final rule and do not require 
further analysis. Specifically, we performed a full regulatory impact 
analysis (RIA) for the January 2005 final rule (70 FR 4454) 
implementing the Part D provisions of the Medicare Prescription Drug 
Improvement and Modernization Act of 2003. Many of the provisions in 
this final rule are simply clarifications of provisions in the January 
2005 final rule.
    Executive Order 12866 (as amended by Executive Order 13258) 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 any 1 year). The RFA requires agencies to analyze options for 
regulatory relief of small businesses. For purposes of the RFA, small 
entities include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of $6 million or less to $29 million in any 1 year. 
Individuals and States are not included in the definition of a small 
entity.
    We estimate that the coverage of vaccine administration under Part 
D to have a net impact to the FY 2008 budget in the amount of $100 
million and an impact for FY 2008 through 2017 in the amount of $340 
million. Given this estimated net impact of vaccine administration 
coverage under Part D beginning in FY 2008, the final rule meets the 
threshold of being ``economically significant'' and is consequently a 
major rule. Therefore, the RFA requires us to conduct a regulatory 
flexibility analysis with regard to the implementation of vaccine 
administration coverage under Part D. Table I provides the costs 
associated with vaccine administration for FYs 2008 through 2017.

                                               Table 1.--Vaccine Administration Costs for FY 2008-FY 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               FYs 2008-
                                  FY 2008    FY 2009    FY 2010    FY 2011    FY 2012    FY 2013    FY 2014    FY 2015    FY 2016    FY 2017      2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Vaccine Administration Costs         $100        $80        $40        $20        $20        $20        $10        $10        $20        $20       $340
 (in millions).................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In the proposed rule we made a technical error when we listed the 
Small Business Administration's consideration of small business at $6 
million and used an inappropriate census table. We have corrected these 
errors in this final rule. The corrected calculations did not have an 
impact on our analysis. The Small Business Administration (SBA) 
considers pharmacies with firm revenues of less than $6.5 million to be 
small businesses. The 2004 Business Census (the latest available 
detailed data) indicates that there were about 19,443 firms operating 
about 40,115 retail pharmacies and drug store establishments (NAICS 
code 44611). Of these firms, 17,835 had revenues under $6.5 million and 
operated a total of 17,835 establishments. Because more than 90 percent 
of retail pharmacy firms are small businesses (as defined by the SBA 
size standards), we estimate that the inclusion of vaccine 
administration within the statutory definition of a Part D drug will 
have some effect on a substantial number of small retail pharmacies. 
However, we estimate that, overall, the revenue effect on the retail 
pharmacy industry, including small pharmacies, will be positive. Given 
the nature of immunization in the U.S. market and the nature of Part D 
coverage of vaccines, only two small business areas--retail pharmacy 
and physicians in private practice--merit analysis.
    Given the real-time nature of the Part D benefit and the fact 
that--unlike physician offices--pharmacies are network providers that 
can bill Part D sponsors for vaccines and vaccine administration costs 
at the point of sale, we anticipate that Medicare beneficiaries will 
consider receiving Part D vaccine immunization in a pharmacy setting in 
those States that permit pharmacists to administer vaccinations 
(currently 46 of 50 States--

[[Page 20504]]

two more States since the publication of our May 2007 proposed rule). 
We expect this trend to continue, when, beginning in 2008, Part D 
plans' network pharmacies are able to seek reimbursement for the 
administration of Part D vaccines. While there may be some additional 
cost associated with pharmacists' time in administering vaccines, these 
costs should be more than offset by the reimbursement of vaccine 
administration costs. We note that network pharmacies can negotiate 
with Part D sponsors so that they do not administer vaccines if they 
believe that the costs of administering vaccines outweigh any potential 
benefits.
    Almost all physicians in private practice (or the practices of 
which they are members) are small businesses because their annual 
revenues do not meet the Small Business Administration's threshold for 
''small'' physician practices; therefore, they are small entities. 
Since we expect that a substantial number of Part D vaccines will 
continue to be administered in the physician office setting, we believe 
physicians will benefit from the inclusion of vaccine administration in 
the statutory definition of a Part D drug. Beginning in calendar year 
2008, administering physicians will have a new source of reimbursement 
for Part D vaccine administration fees. As physicians will likely bill 
beneficiaries directly for Part D vaccines and its administration, we 
do not expect there will be any additional costs to the physicians in 
private practice as a result of this statutory change.
    The other technical corrections and substantive clarifications in 
this final rule are not expected to affect small businesses in a 
significant manner, if at all. For example, although the clarification 
relating to the delivery of home infusion medications may result in a 
slight increase to the cost of delivering these medications for some 
Part D sponsors given potential increased costs for sponsors that do 
not currently have timely delivery provisions in their contracts with 
home infusion pharmacies, any such increase will be accounted for in 
plan sponsors' bids. However, we expect any such increase to be minimal 
and to affect only some sponsors. The final rule's requirements 
regarding timely delivery of home infusion pharmacies should have no 
cost impact on network home infusion pharmacies. In our ongoing 
communications with the home infusion industry, we have learned that 
these delivery timeframes are already an industry standard. Thus, 
incorporation of these new requirements does not place any new burdens 
on the pharmacy cost structure, as home infusion pharmacies should 
already be meeting these performance standards.
    Section 1102(b) of the Act requires us to prepare a RIA 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, including Part D vaccines, are dispensed to 
Medicare outpatients in hospitals, the final rule's change to the 
definition of a Part D drug to include vaccine administration could 
have an effect on small rural hospitals that administer Part D 
vaccines. Since a number of rural hospitals administer vaccines on an 
outpatient basis, they too would likely benefit from the ability to 
collect a Part D vaccine administration fee. Rural hospitals should 
already have the systems in place to handle, store, and administer 
vaccines. While some rural hospital pharmacies may become Part D 
network pharmacies, we do not expect the majority will do so. 
Consequently, small rural hospitals should only benefit from Part D 
sponsors' coverage of Part D vaccine administration fees and should not 
incur new costs as a result of our final rule. Additionally, the other 
policy clarifications in our final rule are related to the Medicare 
Part D drug benefit and not to prescription drug coverage under 
Medicare Part A. Therefore, these additional proposals do not affect 
small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $127 million. Many of the final rule's 
provisions are either corrections to bring our regulations in line with 
statute or merely the formal proclamation of existing policies that are 
consistent with the statute and do not exceed the $127 million dollar 
threshold. For example, one clarification we made in our final rule to 
bring our regulations in line with statute prohibits States from 
covering Part D drugs for Medicaid recipients. This provision may save 
States the money they would have otherwise spent on these drugs, if 
they had chosen to cover the drugs at issue. Because the statute only 
allows States to cover excluded drugs, as opposed to noncovered Part D 
drugs, and we expect that most States complied with the statute, as 
opposed to the Part D regulation, we do not believe that this 
clarification will significantly affect States, local, or tribal 
governments.
    As stated above, many of the final rule's provisions are either 
corrections to bring our regulations in line with statute or merely the 
formal proclamation of existing policies that are consistent with the 
statute. Although there may be added costs for Part D sponsors 
associated with the broadening of the definition of Part D drug to 
include ``[s]upplies required to deliver insulin by inhalation[,]'' 
sponsors are aware that new drugs and supplies come to market 
constantly and account for these potential formulary changes in their 
bids. Furthermore, only those sponsors that choose to cover inhaled 
insulin will be affected by the change to our final rule to broaden the 
definition of supplies associated with the delivery of insulin into the 
body encompassed within the definition of a Part D drug. We expect the 
costs to the private sector resulting from this change will be less 
than the $130 million threshold.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues a final rule that imposes substantial 
direct requirement costs on State and local governments, preempts State 
law, or otherwise has Federalism implications. The changes and 
technical clarifications in this final rule will not have a substantial 
effect on State or local governments. For example, our clarification in 
the final rule concerning timing of State reporting for the purposes of 
calculating State phase-down contributions is not expected to affect 
State governments, since monthly reporting is consistent with the 
statute. In addition, although there is a provision in this final rule 
clarification that relates to waivers of State plan licensure, there 
are no anticipated Federalism implications because the clarification 
simply brings our regulations in line with existing statute.

B. Anticipated Effects on Health Plans and Pharmacy Benefit Managers 
(PBM)

    Part D plans will incur costs in implementing the reimbursement of 
Part D vaccine administration fees, since this is a new Part D benefit 
established by Congress in the Tax Relief and Health Care Act of 2006. 
However, since Congress defined the Part D vaccine administration fee 
as a Part D drug cost, the impact of this statutory change will be no 
different than for any other new drug entering the market. Part D plans 
will need to factor Part D vaccine

[[Page 20505]]

administration into their benefit designs and resulting bids. We 
estimate the net cost of vaccine administration coverage for FY 2008 to 
be $100 million. This estimate takes into account the offset associated 
with beneficiary cost sharing and the Federal direct subsidy and risk-
sharing.
    We believe that our other provisions of our final rule merely 
reflect existing policy and have no cost impact on health plans and 
PBMs. For example, the final rule's changes associated with plan-to-
plan reconciliation reflect current plan requirements. Even if this 
requirement were a new standard, we believe that all parties involved 
in the reconciliation will benefit, since the reconciliation process 
will be simpler than if pharmacies were required to reverse and re-
adjudicate claims.
    We also do not believe our broadening of the definition of medical 
supplies associated with insulin administration or our clarification 
relating to the timely delivery of home infusion medications place any 
additional cost burden on Part D plans. We had initially estimated the 
gross costs of inhaled insulin for Fiscal Year 2008 would be $10 
million. Given this product's current status, we now believe it will be 
substantially lower in costs. As discussed elsewhere in this analysis, 
our requirement for the timely delivery of home infusion drugs is 
consistent with an existing standard with which sponsors should be 
familiar. Consequently, we do not believe it will increase sponsors' 
costs.

C. Alternatives Considered

    We considered not issuing regulations to address the policy 
clarifications and technical changes we proposed in our May 2007 
proposed rule. However, we believed that in order to ensure public 
awareness of our policies, as well as to avoid potential confusion 
regarding those policies, we should codify our clarifications as well 
as make certain technical corrections to the January 2005 final rule. 
In addition, we wished to codify a few new clarifications for Part D 
plans as a result of our experience in implementing Part D. Finally, we 
wanted to codify certain changes made by Congress to the statutory 
definition of a Part D drug since the publication of the January 2005 
final rule.

D. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/index.html), in Table D1 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this final rule. This 
table provides our best estimate of the increase in costs as a result 
of the changes presented in this final rule. All costs are classified 
as transfers by the Federal Government to Part D plans.

  Table D1.--Accounting Statement: Classification of Estimated Expenditures for Policy and Technical Changes to
                               the Medicare Prescription Drug Benefit, Final Rule
----------------------------------------------------------------------------------------------------------------
                 Category                                          Transfers ($ millions)
----------------------------------------------------------------------------------------------------------------
Vaccine Administration, FYs 2008-2017:
    Undiscounted Annualized Monetized      340.
     Transfers.
    Annualized Monetized Transfers Using   387.
     7% Discount Rate.
    Annualized Monetized Transfers Using   360.
     3% Discount Rate.
    From Whom To Whom?...................  Federal Government To Part D Plans.
----------------------------------------------------------------------------------------------------------------

E. Conclusion

    Given that we expect the cost of implementing vaccine 
administration under Part D will exceed the $100 million threshold in 
FY 2008, we conducted an economic impact analysis with regard to those 
entities potentially involved in administering Part D vaccines. As we 
stated previously, we expect that entities such as private physician 
practices and pharmacies will benefit from this change in FY 2008, 
whereas other entities, such as Part D sponsors, will experience no or 
little difference in their costs as a result of the implementation of 
this statutory change. We conducted a full analysis of the impact of 
this final rule's technical corrections and substantive clarifications 
for the final regulations implementing the Part D provisions of 
Medicare Prescription Drug Improvement and Modernization Act of 2003, 
which were published on January 28, 2005. For reasons cited previously, 
we believe that these additional clarifications either do not require 
further analysis or are in practice today and, as such, will not have 
an economically significant impact.
    In accordance with the provisions of Executive Order 12866, this 
final rule 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), Medicare, 
Penalties, Privacy, Reporting and recordkeeping.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 423--MEDICARE PROGRAM; MEDICARE PRESCRIPTION DRUG PROGRAM

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 B--Eligibility and Enrollment

0
2. Section 423.50 is amended by revising paragraph (f)(1)(v) to read as 
follows:


Sec.  423.50   Approval of marketing materials and enrollment forms.

* * * * *
    (f) * * *
    (1) * * *
    (v) Use providers, provider groups or pharmacies to distribute 
printed information comparing the benefits of different Part D plans 
unless providers, provider groups or pharmacies accept and display 
materials from all Part D plan sponsors with which the providers, 
provider groups or pharmacies contract.
* * * * *

0
3. Section Sec.  423.56 is amended by revising paragraph (b)(6) to read 
as follows:


Sec.  423.56   Procedures to determine and document creditable status 
of prescription drug coverage.

* * * * *
    (b) * * *

[[Page 20506]]

    (6) Coverage under a Medicare supplemental policy (Medigap policy) 
as defined at Sec.  403.205 of this chapter.
* * * * *

Subpart C--Benefits and Beneficiary Protections

0
4. Section 423.100 is amended by revising the definitions of 
``contracted pharmacy network,'' and ``Part D drug'' to read as 
follows:


Sec.  423.100   Definitions.

* * * * *
    Contracted pharmacy network means licensed pharmacies, including 
retail, mail-order, and institutional pharmacies under contract with a 
Part D sponsor to provide covered Part D drugs at negotiated prices to 
Part D enrollees.
* * * * *
    Part D drug means--
    (1) Unless excluded under paragraph (2) of this definition, any of 
the following if used for a medically accepted indication (as defined 
in section 1927(k)(6) of the Act):
    (i) A drug that may be dispensed only upon a prescription and that 
is described in sections 1927(k)(2)(A)(i) through (iii) of the Act.
    (ii) A biological product described in sections 1927(k)(2)(B)(i) 
through (iii) of the Act.
    (iii) Insulin described in section 1927(k)(2)(C) of the Act.
    (iv) Medical supplies associated with the injection of insulin, 
including syringes, needles, alcohol swabs, and gauze.
    (v) A vaccine licensed under section 351 of the Public Health 
Service Act and for vaccine administration on or after January 1, 2008, 
its administration.
    (vi) Supplies that are directly associated with delivering insulin 
into the body, such as an inhalation chamber used to deliver the 
insulin through inhalation.
    (2) Does not include--
    (i) Drugs for which payment as so prescribed and dispensed or 
administered to an individual is available for that individual under 
Part A or Part B (even though a deductible may apply, or even though 
the individual is eligible for coverage under Part A or Part B but has 
declined to enroll in Part A or Part B); and
    (ii) Drugs or classes of drugs, or their medical uses, which may be 
excluded from coverage or otherwise restricted under Medicaid under 
sections 1927(d)(2) or (d)(3) of the Act, except for smoking cessation 
agents.
* * * * *

0
5. Section 423.120 is amended by revising paragraphs (a)(2) and (a)(4) 
to read as follows:


Sec.  423.120   Access to covered Part D drugs.

    (a) * * *
    (2) Applicability of some non retail pharmacies to standards for 
convenient access. Part D plans may count I/T/U pharmacies and 
pharmacies operated by Federally Qualified Health Centers and Rural 
Health Clinics toward the standards for convenient access to network 
pharmacies in paragraph (a)(1) of this section.
* * * * *
    (4) Access to home infusion pharmacies. A Part D plan's contracted 
pharmacy network must provide adequate access to home infusion 
pharmacies consistent with CMS guidelines and instructions. A Part D 
plan must ensure that such network pharmacies, at a minimum--
    (i) Are capable of delivering home-infused drugs in a form that can 
be administered in a clinically appropriate fashion;
    (ii) Are capable of providing infusible Part D drugs for both 
short-term acute care and long-term chronic care therapies;
    (iii) Ensure that the professional services and ancillary supplies 
necessary for home infusion therapy are in place before dispensing Part 
D home infusion drugs; and
    (iv) Provide delivery of home infusion drugs within 24 hours of 
discharge from an acute care setting, or later if so prescribed.
* * * * *

Subpart F--Submission of Bids and Monthly Beneficiary Premiums: 
Plan Approval

0
6. Section 423.293 is amended by revising paragraph (a) to read as 
follows:


Sec.  423.293   Collection of monthly beneficiary premium.

    (a) General rules. Part D sponsors must--
    (1) Charge enrollees a consolidated monthly Part D premium equal to 
the sum of the Part D monthly premium for basic prescription drug 
coverage (if any) and the premium for supplemental coverage (if any and 
if the beneficiary has enrolled in such supplemental coverage).
    (2) Permit payment of monthly Part D premiums (if any) under the 
timing of payments established in Sec.  422.262(e) of this chapter; and
    (3) Permit each enrollee, at the enrollee's option, to make payment 
of premiums (if any) under this part to the sponsor using any of the 
methods listed in Sec.  422.262(f) of this chapter.
* * * * *

Subpart G--Payments to Part D Plan Sponsors for Qualified 
Prescription Drug Coverage

0
7. In Sec.  423.350 paragraph (b)(1) is revised to read as follows:


Sec.  423.350   Payment appeals.

    (b) * * *
    (1) Time for filing a request. The request for reconsideration must 
be filed within 15 days from the date of the final payment. For 
purposes of this paragraph, the date of final payment is one of the 
following:
    (i) For risk adjustment, the date of the final reconciled payment 
under Sec.  423.343(b) of this subpart.
    (ii) For reinsurance, the date of the final reconciled payment 
under Sec.  423.343(c) of this subpart; for low-income cost sharing 
subsidies, the date of the final reconciled payment under Sec.  
423.343(d) of this subpart.
    (iii) For risk-sharing payments, the date of the final payments 
under Sec.  423.336 of this subpart.
* * * * *

Subpart I--Organizational Compliance With State Law and Preemption 
by Federal Law

0
8. Section 423.410 is amended by revising paragraph (d) to read as 
follows:


Sec.  423.410   Waiver of certain requirements to expand choice.

* * * * *
    (d) Special waiver for plan years beginning before January 1, 2008. 
For plan years beginning before January 1, 2008, if the State has a 
prescription drug plan or PDP sponsor licensing process in effect, CMS 
grants a waiver upon a demonstration that an applicant to become a PDP 
sponsor has submitted a substantially completed application for 
licensure to the State.
* * * * *

Subpart J--Coordination of Part D Plans With Other Prescription 
Drug Coverage

0
9. Section 423.458 is amended by revising paragraph (d)(2)(ii) to read 
as follows:


Sec.  423.458   Application of Part D rules to certain Part D plans on 
and after January 1, 2006.

* * * * *
    (d) * * *
    (2) * * *

[[Page 20507]]

    (ii) A waiver of a requirement under this part otherwise applicable 
to cost plans or PACE organizations, if such waiver improves 
coordination of benefits provided by the cost plan under section 1876 
of the Act, or by the PACE organization under sections 1894 and 1934 of 
the Act, with the benefits under Part D.

0
10. Section 423.464 is amended by--
0
(A) Revising paragraphs (f)(1)(vii) and (f)(1)(viii).
0
(B) Adding new paragraphs (f)(1)(ix), (f)(5), and (f)(6).
    The revision and additions read as follows:


Sec.  423.464   Coordination of benefits with other providers of 
prescription drug coverage.

* * * * *
    (f) * * *
    (1) * * *
    (vii) Rural health clinics. Rural health clinics as defined under 
section 1861(aa)(2) of the Act.
    (viii) Other Part D plans.
    (ix) Other prescription drug coverage. Other health benefit plans 
or programs that provide coverage or financial assistance for the 
purchase or provision of Part D drugs on behalf of Part D eligible 
individuals as CMS may specify.
* * * * *
    (5) Plan-to-plan liability. In the process of coordinating benefits 
between Part D plans when a Part D plan from which a beneficiary has 
transferred has incorrectly made payment for covered prescription drug 
costs incurred after the effective date of the Part D enrollee's 
enrollment in the new Part D plan of record, the new Part D plan of 
record must make the reconciling payments based on amounts reported to 
it by CMS without regard to the Part D plan's own formulary or drug 
utilization review edits.
    (6) Use of other reconciliation processes. In the process of 
coordinating benefits between the correct Part D plan of record and 
another entity providing prescription drug coverage when that entity 
has incorrectly paid as primary payer for a covered Part D drug on 
behalf of a Part D enrollee, the correct Part D plan of record must 
achieve timely reconciliation through working directly with the other 
entity that incorrectly paid as primary payer, unless CMS has 
established reconciliation processes for payment reconciliation, rather 
than requesting pharmacy claims reversal and re-adjudication.

Subpart K--Application Procedures and Contracts With Part D 
Sponsors

0
11. Section 423.504 is amended by revising paragraph (a) to read as 
follows:


Sec.  423.504  General provisions.

    (a) General rule. Subject to the provisions at Sec.  423.265 of 
this part concerning submission of bids, to enroll beneficiaries in any 
Part D drug plan it offers and be paid on behalf of Part D eligible 
individuals enrolled in those plans, a Part D plan sponsor must enter 
into a contract with CMS. The contract may cover more than one Part D 
plan.
* * * * *

0
12. Section 423.505 is amended by revising paragraph (h)(1) to read as 
follows:


Sec.  423.505  Contract provisions.

* * * * *
    (h) * * *
    (1) Federal laws and regulations designed to prevent fraud, waste, 
and abuse, including, but not limited to applicable provisions of 
Federal criminal law, the False Claims Act (31 U.S.C. 3729 et seq.), 
and the anti-kickback statute (section 1128B(b) of the Act).
* * * * *

0
13. Section 423.509 is amended by revising paragraph (a)(9) to read as 
follows:


Sec.  423.509  Termination of contract by CMS.

    (a) * * *
    (9) Substantially fails to comply with either of the following:
    (i) Marketing requirements in Sec.  423.50.
    (ii) Information dissemination requirements of Sec.  423.128 of 
this part.
* * * * *

Subpart M--Grievances, Coverage Determinations, and Appeals

0
14. Section 423.560 is amended by revising the definitions of 
``appointed representative'' and ``projected value'' to read as 
follows:


Sec.  423.560  Definitions.

* * * * *
    Appointed representative means an individual either appointed by an 
enrollee or authorized under State or other applicable law to act on 
behalf of the enrollee in filing a grievance, obtaining a coverage 
determination, or in dealing with any of the levels of the appeals 
process. Unless otherwise stated in this subpart, the appointed 
representative has all of the rights and responsibilities of an 
enrollee in filing a grievance, obtaining a coverage determination, or 
in dealing with any of the levels of the appeals process, subject to 
the rules described in part 422, subpart M of this chapter.
* * * * *
    Projected value of a Part D drug or drugs includes any costs the 
enrollee could incur based on the number of refills prescribed for the 
drug(s) in dispute during the plan year. Projected value includes 
enrollee co-payments, all expenditures incurred after an enrollee's 
expenditures exceed the initial coverage limit, and expenditures paid 
by other entities.
* * * * *

0
15. Section 423.570 is amended by revising paragraph (d)(3) to read as 
follows:


Sec.  423.570  Expediting certain coverage determinations.

* * * * *
    (d) * * *
    (3) Subsequently deliver to the enrollee, within 3 calendar days, 
equivalent written notice.
* * * * *

0
16. Section Sec.  423.584 is amended by adding a new paragraph (b)(3) 
as to read as follows:


Sec.  423.584  Expediting certain redeterminations.

* * * * *
    (b) * * *
    (3) The provisions set forth in Sec.  423.582(b), (c), and (d) of 
this subpart also apply to expedited redeterminations.
* * * * *

0
17. Section Sec.  423.610 is amended by revising paragraph (c)(2) to 
read as follows:


Sec.  423.610  Right to an ALJ hearing.

* * * * *
    (c) * * *
    (2) Multiple enrollees. Two or more appeals may be aggregated by 
multiple enrollees to meet the amount in controversy for an ALJ hearing 
if--
    (i) The appeals have previously been reconsidered by an IRE;
    (ii) The request for ALJ hearing lists all of the appeals to be 
aggregated and each aggregated appeal meets the filing requirement 
specified in Sec.  423.612(b) of this part; and
    (iii) The ALJ determines that the appeals the enrollees seek to 
aggregate involve the same prescription drug.

[[Page 20508]]

Subpart P--Premiums and Cost Sharing Subsidies for Low-Income 
Individuals

0
18. Section 423.780 is amended by revising paragraphs (b)(1) and (e) to 
read as follows:


Sec.  423.780  Premium subsidy.

* * * * *
    (b) * * *
    (1) The premium subsidy amount is equal to the lesser of--
    (i) Under the Part D plan selected by the beneficiary, the portion 
of the monthly beneficiary premium attributable to basic coverage (for 
enrollees in PDPs) or the portion of the MA monthly prescription drug 
beneficiary premium attributable to basic prescription drug coverage 
(for enrollees in MA-PD plans); or
    (ii) The greater of the low-income benchmark premium amount 
(determined under paragraph (b)(2) of this section) for the PDP region 
in which the subsidy eligible individual resides or the lowest monthly 
beneficiary premium for a PDP that offers basic prescription drug 
coverage in the PDP region.
* * * * *
    (e) Premium subsidy for late enrollment penalty.
    (1) Amount of premium subsidy for late enrollment penalty. Full 
subsidy eligible individuals who are subject to late enrollment 
penalties under Sec.  423.46 of this part are entitled to an additional 
premium subsidy equal to 80 percent of the late enrollment penalty for 
the first 60 months during which the penalty is imposed and 100 percent 
of their late enrollment penalty thereafter.
    (2) Other low-income subsidy eligible individuals sliding scale 
premium subsidy for late enrollment penalty. Other low-income subsidy 
eligible individuals are entitled to a premium subsidy based on a 
linear sliding scale as follows:
    (i) For individuals with income at or below 135 percent of the FPL 
applicable to the family size, a premium subsidy equal to 80 percent of 
the late enrollment for the first 60 months during which the penalty is 
imposed and 100 percent of their late enrollment penalty thereafter.
    (ii) For individuals with income greater than 135 percent but at or 
below 140 percent of the FPL applicable to the family size, a premium 
subsidy equal to 60 percent of the late enrollment penalty for the 
first 60 months during which the penalty is imposed and 75 percent of 
their late enrollment penalty thereafter.
    (iii) For individuals with income greater than 140 percent but at 
or below 145 percent of the FPL applicable to the family size, a 
premium subsidy equal to 40 percent of the late enrollment penalty for 
the first 60 months during which the penalty is imposed and 50 percent 
of their late enrollment penalty thereafter.
    (iv) For individuals with income greater than 145 percent but below 
150 percent of the FPL applicable to the family size, a premium subsidy 
equal to 20 percent of the late enrollment penalty for the first 60 
months during which the penalty is imposed and 25 percent of their late 
enrollment penalty thereafter.

Subpart R--Payments to Sponsors of Retiree Prescription Drug Plans

0
19. Section Sec.  423.884 is amended by--
0
A. Revising paragraphs (c)(5)(i), (c)(7)(i).
0
B. Revising paragraphs (d)(5)(iii)(B)(2), (d)(5)(iii)(C), and 
(d)(5)(iii)(D).
0
C. Revising the last sentence of paragraph (d)(5)(iv).
0
D. Revising paragraph (d)(6)(ii).
0
E. Adding a new paragraph (d)(7).
    The revisions and addition read as follows:


Sec.  423.884  Requirements for qualified retiree prescription drug 
plans.

* * * * *
    (c) * * *
    (5) * * *
    (i) General rule. An application for a given plan year must be 
submitted prior to the beginning of the plan year by a date specified 
by CMS in published guidance, unless a request for an extension has 
been filed and approved under procedures set forth in such guidance.
* * * * *
    (7) * * *
    (i) Matches the names and identifying information for the 
individuals submitted as qualifying covered retirees with a CMS 
database(s) to determine which retirees are Part D eligible individuals 
who are not enrolled in a Part D plan.
* * * * *
    (d) * * *
    (5) * * *
    (iii) * * *
    (B) * * *
    (2) An amount calculated to reflect the impact on the value of 
defined standard prescription drug coverage of supplemental coverage 
actually provided by the sponsor. Sponsors may use other actuarial 
approaches specified by CMS as an alternative to the actuarial 
valuation specified in this paragraph (d)(5)(iii)(B)(2).
    (C) The valuation of defined standard prescription drug coverage 
for a given plan year is based on the initial coverage limit, cost-
sharing amounts, and out-of-pocket threshold for defined standard 
prescription drug coverage under Part D in effect either at the start 
of the plan year or that is announced for the upcoming calendar year. 
In order to use the coverage limits in effect at the beginning of the 
plan year, the attestation must be submitted to CMS no later than 60 
days after the publication of the Part D coverage limits for the 
upcoming calendar year; otherwise, the valuation is based on the 
upcoming year's initial coverage limit, cost-sharing amounts, and out-
of-pocket threshold for defined standard prescription drug coverage 
under Part D.
    (D) Example: If a sponsor's retiree prescription drug plan operates 
under a plan year that ends March 30, the sponsor has a choice of 
basing the attestation for the year April 1, 2007 through March 30, 
2008 on either the initial coverage limit, cost-sharing amounts, and 
out-of-pocket threshold amounts that apply to defined standard 
prescription drug coverage under Part D in CY 2007, or the amounts 
announced for CY 2008. However, in order to use the amounts applicable 
in CY 2007, the sponsor must submit the attestation within 60 days 
after the publication of the Part D coverage limits for CY 2008. If the 
attestation is submitted more than 60 days after the 2008 coverage 
limits have been published, the CY 2008 coverage limits would apply.
    (iv) * * * For the assurance required under paragraph (d)(1)(ii) of 
this section, the assurance may be provided either separately for each 
benefit option for which the sponsor provided assurances under 
paragraph (d)(1)(i) of this section, or in the aggregate for all 
benefit options (or for a subset of the benefit options).
    (6) * * *
    (ii) Submission following material change. The attestation must be 
provided no later than 90 days before the implementation of a material 
change to the drug coverage of the sponsor's retiree prescription drug 
plan. For purposes of this clause, the term ``material change'' means 
the addition of a benefit option that does not impact the actuarial 
value of the retiree prescription drug coverage under the sponsor's 
plan such that it no longer meets the standards set forth in paragraph 
(d)(1)(i) or (ii) of this section.
    (7) Notice of failure to continue to satisfy the actuarial 
equivalence standards. A sponsor must notify CMS,

[[Page 20509]]

in a form and manner specified by CMS, no later than 90 days before the 
implementation of a change to the drug coverage that impacts the 
actuarial value of the retiree prescription drug coverage under the 
sponsor's plan such that it no longer meets the standards set forth in 
paragraph (d)(1)(i) or (ii) of this section.
* * * * *

Subpart S--Special Rules for States-Eligibility Determinations for 
Subsidies and General Payment Provisions

0
20. Section 423.902 is amended by adding the definition of ``noncovered 
drugs'' in alphabetical order to read as follows:


Sec.  423.902  Definitions.

* * * * *
    Noncovered drugs are those drugs specifically excluded from the 
definition of Part D drug, which may be excluded from coverage or 
otherwise restricted under Medicaid under sections 1927(d)(2) or (d)(3) 
of the Act, except for smoking cessation agents.
* * * * *

0
21. Section 423.906 is amended by revising paragraphs (b)(1), (b)(2), 
and (c) to read as follows:


Sec.  423.906  General payment provisions.

* * * * *
    (b) * * *
    (1) Part D drugs; or
    (2) Any cost-sharing obligations under Part D relating to Part D 
drugs.
* * * * *
    (c) Noncovered drugs. States may elect to provide coverage for 
outpatient drugs other than Part D drugs in the same manner as provided 
for non-full benefit dual eligible individuals or through an 
arrangement with a prescription drug plan or a MA-PD plan.

0
22. Section 423.910 is amended by revising paragraph (b)(1) 
introductory text to read as follows:


Sec.  423.910  Requirements.

    (b) * * *
    (1) Calculation of payment. The State contribution payment is 
calculated by CMS on a monthly basis, as indicated in the following 
chart. For States that do not meet the monthly reporting requirement 
for the monthly enrollment reporting, the State contribution payment is 
calculated using a methodology determined by CMS.
* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: November 19, 2007.

Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: January 4, 2008.
Michael O. Leavitt,
Secretary.

    Editorial Note: This document was received at the Office of the 
Federal Register on April 9, 2008.

[FR Doc. 08-1120 Filed 4-9-08; 11:45 am]
BILLING CODE 4120-01-P