28556 Federal Register / Vol. 73, No. 96 / Friday, May 16, 2008 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 422 and 423 

[CMS 4131–P] 

RIN 0938–AP24 

Medicare Program; Revisions to the 

Medicare Advantage and Prescription 

Drug Benefit Programs 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

make revisions to the Medicare 

Advantage (MA) program (Part C) and 

prescription drug benefit program (Part 

D). The regulation contains new 

regulatory provisions regarding special 

needs plans, medical savings accounts 

(MSA) plans, and cost-sharing for dual 

eligible enrollees in the MA program, 

the prescription drug payment and 

novation processes in the Part D 

program, and the enrollment, appeals, 

and marketing processes for both 

programs. We are proposing these 

changes based on lessons learned since 

2006, the initial year of the prescription 

drug program and the revised MA 

program. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

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

ADDRESSES: In commenting, please refer 

to file code CMS–4131–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions for ‘‘Comment or 

Submission’’ and enter the filecode to 

find the document accepting comments. 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–4131– 

P, P.O. Box 8016, Baltimore, MD 21244– 

8016. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–4131–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to either of the 

following addresses: a. Room 445–G, 

Hubert H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

b. 7500 Security Boulevard, 

Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by following 

the instructions at the end of the 

‘‘Collection of Information 

Requirements’’ section in this 

document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Special Needs Plans—LaVern Baty, 

410–786–5480. 

Contracts with MA Organizations— 

Chris McClintick, 410–786–4682. 

Medicare Medical Savings Account 

Plans—Anne Manley, 410–786–1096. 

Enrollment—Lynn Orlosky, 410–786– 

9064. 

Payment—Frank Szeflinski, 303–844– 

7119. 

Civil Money Penalties—Christine 

Reinhard, 410–786–2987. 

Reconsiderations— 

• John Scott, 410–786–3636. 

• Kathryn McCann Smith, 410–786– 

7623. 

Marketing—Elizabeth Jacob, 410–786– 

8658. 

Change of Ownership—Scott Nelson, 

410–786–1038. 

Low-income Cost-Sharing—Christine 

Hinds, 410–786–4578. 

Definitions related to the Part D drug 

benefit. Subparts F and G—Deondra 

Moseley, (410) 786–4577 or Meghan 

Elrington, (410) 786–8675. Subpart R— 

David Mlawsky, (410) 786–6851. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

I. Background 

A. Overview of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 

The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173) was 

enacted on December 8, 2003. The 

MMA established the Medicare 

prescription drug benefit program (Part 

D) and made revisions to the provisions 

in Medicare Part C, governing what is 

now called the Medicare Advantage 

(MA) program (formerly 

Medicare+Choice). The MMA directed 

that important aspects of the new 

Medicare prescription drug benefit 

program under Part D be similar to and 

coordinated with regulations for the MA 

program. 

The MMA also directed 

implementation of the prescription drug 

benefit and revised MA program 

provisions by January 1, 2006. The final 

rules for the MA and Part D prescription 

drug programs appeared in the Federal 

Register on January 28, 2005 (70 FR 

4588 through 4741 and 70 FR 4194 

through 4585, respectively). Many of the 

provisions relating to applications, 

marketing, contracts, and the new 

bidding process, for the MA program, 

became effective on March 22, 2005, 60 


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days after publication of the rule, so that 

the requirements for both programs 

could be implemented by January 1, 

2006. All of the provisions regarding the 

new Part D prescription drug program 

became effective on March 22, 2005. 

As we have gained more experience 

with the MA program and the 

prescription drug benefit program, we 

are proposing to revise areas of both 

programs. Many of these revisions 

clarify existing policies or codify 

current guidance for both programs. We 

believe that these changes would help 

plans understand and comply with our 

policies for both programs and aid MA 

organizations and Part D plan sponsors 

in implementing their health care and 

prescription drug benefit plans. 

B. Relevant Legislative History and 

Overview 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) established a 

new ‘‘Part C’’ in the Medicare statute 

(sections 1851 through 1859 of the 

Social Security Act (the Act)) which 

provided for a Medicare+Choice (M+C) 

program. Under section 1851(a)(1) of the 

Act, every individual entitled to 

Medicare Part A and enrolled under 

Medicare Part B, except for most 

individuals with end-stage renal disease 

(ESRD), could elect to receive benefits 

either through the original Medicare 

program or an M+C plan, if one was 

offered where he or she lived. The 

primary goal of the M+C program was 

to provide Medicare beneficiaries with a 

wider range of health plan choices. 

The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999 (BBRA), Public Law 106–111, 

amended the M+C provisions of the 

BBA. Further amendments were made 

to the M+C program by the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

2000 (BIPA) (Pub. L. 106–554), enacted 

December 21, 2000. 

As noted above, the MMA was 

enacted on December 8, 2003. Title I of 

the MMA added a new ‘‘Part D’’ to the 

Medicare statute (sections 1860D–1 

through 1860D–42) creating the 

Medicare Prescription Drug Benefit 

Program, the most significant change to 

the Medicare program since its 

inception in 1965. 

Sections 201 through 241 of Title II of 

the MMA made significant changes to 

the M+C program which was 

established by the Balanced Budget Act 

of 1997 (BBA) (Pub. L. 105–33). Title II 

of the MMA renamed the M+C program 

the MA program and included new 

payment and bidding provisions, new 

regional MA plans and special needs 

plans, reestablished authority for 

medical savings account (MSA) plans 

that had been provided in the BBA on 

a temporary basis, and other changes. 

Title I of the MMA created prescription 

drug benefits under Medicare Part D, 

and a new retiree drug subsidy program. 

Both the MA and prescription drug 

benefit regulations were published 

separately, as proposed and final rules, 

though their development and 

publication were closely coordinated. 

On August 3, 2004, we published in the 

Federal Register proposed rules for the 

MA program (69 FR 46866 through 

46977) and the prescription drug benefit 

program (69 FR 46632 through 46863). 

In response to public comments on the 

proposed rules, we made several 

revisions to the proposed policies for 

both programs. For further discussion of 

these revisions, see the respective final 

rules (70 FR 4588–4741) and (70 FR 

4194–4585). 

II. Provisions of the Proposed 

Regulations 

In the sections that follow, we discuss 

the proposed changes to the regulations 

in parts 422 and 423 governing the MA 

and prescription drug benefit programs. 

Several of the proposed revisions and 

clarifications affect both programs. In 

our discussion, we note when a 

provision would affect both the MA and 

prescription drug benefit and include in 

section II C, a table comparing the 

proposed Part C and D program changes 

by specifying each issue and the 

sections of the Code of Federal 

Regulations that we propose to revise 

for both programs. 

A. Proposed Changes to Part 422— 

Medicare Advantage Program 

1. Special Needs Plans 

The Congress first authorized special 

needs plans (SNP) to exclusively or 

disproportionately serve individuals 

with special needs. The three types of 

special needs individuals eligible for 

enrollment identified by the Congress 

include (1) institutionalized individuals 

(defined in 42 CFR 422.2 as an 

individual residing or expecting to 

reside for 90 days or longer in a long 

term care facility), (2) individuals 

entitled to medical assistance under a 

State plan under title XIX, and (3) other 

individuals with severe or disabling 

chronic conditions that would benefit 

from enrollment in a SNP. 

The number of SNPs approved as of 

January 2008, is 787. This figure 

includes 442 dual eligible SNPs, 256 

chronic care SNPs, and 89 institutional 

SNPs. 

a. Ensuring Special Needs Plans Serve 

Primarily Special Needs Individuals 

(§ 422.4) 

Section 231 of the MMA authorized 

MA organizations to offer a specialized 

MA plan that ‘‘exclusively,’’ or 

‘‘disproportionately,’’ ‘‘serves’’ one of 

three categories of ‘‘special needs’’

individuals: Individuals dually-eligible 

for both Medicare and Medicaid, 

institutionalized individuals, and 

individuals with severe or disabling 

chronic conditions that the Secretary 

determines would benefit from 

enrollment in a SNP. 

As noted above, the final rule 

implementing the MMA changes to the 

MA program, including these SNP 

provisions, was issued on January 28, 

2005 (70 FR 4588). In the preamble to 

the proposed rule we proposed to 

interpret the term ‘‘serves’’ special 

needs individuals to mean markets to, 

and enrolls, special needs individuals. 

This was intended to permit an MA 

Plan with existing non-special needs 

enrollees to be designated a SNP if it 

prospectively, exclusively, or 

disproportionately enrolled special 

needs individuals. 

We also proposed to interpret the 

statutory phrase, ‘‘disproportionately 

serve[s] special needs individuals’’ to 

refer to a SNP that enrolls special needs 

individuals in a proportion greater than 

such individuals exist in the area served 

by the plan (69 FR 46874). We asked for 

public comments regarding whether we 

should specify a percentage, such as 50 

percent or more, as the minimum 

enrollment for a plan to be considered 

a SNP. 

We did not receive any comments on 

this proposed provision. Therefore, in 

the final rule we established the 

disproportionate percentage 

methodology based on the test we 

proposed in the proposed rule, that is, 

a comparison of the proportion of the 

special needs individuals the plan 

enrolls relative to non-special needs 

enrollees and the proportion of special 

needs individuals in the plan’s service 

area. If the proportion of special needs 

to non-special needs individuals being 

enrolled in the plan was greater than the 

proportion in the plan’s service area, the 

plan could be considered a 

disproportionate share SNP. Our 

expectation was that only a limited 

number of non-special needs 

individuals would be likely to enroll in 

a SNP, such as spouses or children of 

special needs individuals who wish to 

enroll in the same MA plan as the 

spouse or parent. However, such plans 

may be attractive to other non-special 

needs individuals because they may 


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offer additional benefits beyond what 

Medicare covers. Also, individuals who 

are in the early stages of one of the 

chronic conditions covered by a 

disproportionate percentage, chronic 

care SNP may find the benefits or the 

network of participating specialists 

attractive. 

Disproportionate percentage SNPs 

have proliferated since the 

implementation of the Part D program, 

due, in part, to the fact that both dual 

eligible individuals and 

institutionalized individuals are 

permitted to enroll in MA plans year 

round, and dual eligible and 

institutional SNPs are thus permitted to 

market year round. CMS’ information 

shows that a significant number of the 

dual-eligible disproportionate 

percentage SNPs may have between 25 

percent and 40 percent of their 

enrollment composed of non-special 

needs individuals. As a result, we are 

concerned that disproportionate 

percentage SNPs are enrolling 

significant numbers of non-special 

needs individuals, thus diluting the 

focus on serving those individuals with 

special needs. 

Therefore, in order to ensure that 

existing and future SNPs maintain a 

primary focus on individuals with 

special needs, we are proposing to 

amend our regulations at 

§ 422.4(a)(1)(iv)(B) to require that MA 

organizations offering SNPs limit new 

enrollment of non-special needs 

members to no more than 10 percent of 

new enrollees, and that 90 percent of 

new enrollees must be special needs 

individuals as defined in § 422.2. We 

believe this threshold would continue to 

allow the small number of non-SNP 

eligible spouses and children to 

continue to enroll in the same MA plan 

as their SNP eligible spouse or parent 

while ensuring that the SNP retains its 

focus on serving the special needs 

individuals for which it is specifically 

designed. 

We understand that the majority of 

SNPs that currently enroll both special 

needs and non-special needs 

individuals have current enrollments of 

non-special needs individuals that 

exceed 10 percent. Because the new 

limitation only applies to new enrollees, 

these plans would be able to continue 

to serve their existing membership. 

Organizations offering disproportionate 

enrollment SNPs would not be 

permitted to enroll new non-special 

needs individuals, however, without 

first enrolling enough special needs 

individuals to ensure that the 

percentage of new non-special needs 

enrollees remains below 10 percent. 

Furthermore, as specified in § 422.4, 

those enrollees deemed continuously 

eligible per § 422.52(d) are considered 

special needs individuals for the 

purpose of determining the 

disproportionate percentage. 

On an ongoing basis plans would 

need to monitor their enrollment to 

ensure that the 10 percent limit on new 

enrollments is met. This means that 

plans would need to monitor their 

enrollment to ensure that they were 

enrolling nine special needs individuals 

for every non-special needs individual 

to keep the ratio of new enrollees who 

were non-special needs individuals 

below 10 percent of new enrollees. MA 

organizations offering disproportionate 

SNPs would have to have a mechanism 

to ensure that a non-special needs 

individual could not enroll until a 

sufficient number of special needs 

individuals were enrolled to keep new 

enrollment of non-special needs 

individuals below 10 percent of new 

enrollments. For example, if a SNP 

receives completed enrollment elections 

from non-special needs individuals 

when such an enrollment would push 

the percentage of new enrollees over 10 

percent, it could—(1) deny the 

enrollment due to the onset of the limit; 

or (2) place the enrollment on a waiting 

list to be processed after a sufficient 

number of special needs individuals 

have been enrolled. The plan would 

need to ensure that once enrollments are 

accepted for non-special needs 

individuals, that this is done on a nondiscriminatory basis. We believe that 

this approach will encourage SNPs to 

design benefit packages that best serve 

the certain special needs populations for 

which they have been created. 

We welcome comments on the 

appropriateness of the 10 percent 

standard for new enrollees, as well as 

the most effective and least burdensome 

ways for plans to monitor the 

proportions of new enrollments. 

b. Ensuring Eligibility To Elect an MA 

Plan for Special Needs Individuals 

(§ 422.52) 

In order to elect a SNP, an individual 

must meet the eligibility requirements 

for the specific type of SNP in which the 

individual wishes to enroll. For 

example, to enroll in a dual eligible 

SNP, the individual must be eligible for 

both Medicare and Medicaid. It is the 

responsibility of the MA organization 

offering the SNP to verify eligibility 

during the enrollment process. 

We are concerned that some dual 

eligible SNPs may not be appropriately 

verifying Medicaid eligibility of 

applicants for enrollment, and therefore 

may be enrolling beneficiaries who are 

not eligible for both Medicare and 

Medicaid. Similarly, some chronic care 

SNPs may encounter difficulties having 

providers verify that the applicants have 

the condition(s) established as the focus 

of the chronic care SNP. 

We propose to clarify in our 

regulations that MA organizations must 

establish a process to verify that 

potential SNP enrollees meet the SNP’s 

specific eligibility requirements. While 

this issue is addressed, to some degree, 

in our manual guidance (section 20.11 

of Chapter 2 of the Medicare Managed 

Care Manual), we believe that it is 

important to ensure that plans are aware 

of and meet their obligations to verify an 

applicant’s eligibility prior to enrolling 

individuals in a SNP through rule 

making. 

Therefore, we are proposing in 

§ 422.52(g) that MA organizations 

offering SNPs for dual eligible 

beneficiaries establish a process 

approved by CMS to obtain information 

from the State about the applicant’s 

Medicaid status and that this 

verification must be obtained prior to 

enrollment. This would likely require 

the SNP to enter into an agreement with 

the State to obtain this information on 

a routine and timely basis. We address 

the issue of a relationship with the State 

Medicaid program in the case of a dual 

eligible SNP in more detail in section II, 

below. Those organizations offering 

chronic care SNPs must attempt to 

obtain verifying information directly 

from the beneficiary’s provider or the 

organization may use the diseasespecific pre-qualification assessment 

questions developed by, and available 

from CMS (model language) as an 

alternative methodology. 

In the 2008 MA application 

solicitation, we required SNPs to 

identify their processes for verifying a 

beneficiary’s chronic condition before 

enrollment. Specifically, each applicant 

was required to contact the enrollee’s 

physician to verify eligibility for the 

specific chronic condition SNP. We 

subsequently received industry 

comments that SNP staff sometimes 

experience significant delays in 

obtaining physician verification of the 

beneficiary’s chronic condition and, as 

a consequence, there was delay in 

enrolling an eligible beneficiary. 

In response to this information, we 

developed an additional option to 

facilitate chronic condition verification. 

In a May 31, 2007 memorandum, we 

notified chronic condition SNPs that 

they could develop a pre-enrollment 

qualification assessment tool to expedite 

verification that beneficiaries had the 

chronic condition for which they were 

enrolled (see https://32.90.191.19/

hpms/upload_area/NewsArchive_


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1The solicitation may be found at http:// 

www.cms.hhs.gov/SpecialNeedsPlans. 

MassEmail/000001696/

CHVHPMS%20v2.pdf). We 

simultaneously posted an example of an 

acceptable verification tool for coronary 

artery disease, congestive heart failure, 

and/or cerebrovascular accident (stroke) 

on HPMS (see https://32.90.191.19/

hpms/upload_area/NewsArchive_

MassEmail/000001696/Draft%20preQual%for%20chronic%20SNP%

20verification%205%2007%20(2).pdf). 

The notification memorandum 

instructed SNPs to draft a verification 

tool, complete an attestation form 

asserting compliance with CMS 

conditions listed on the form, and to 

submit the tool to CMS for review and 

approval prior to using the tool. 

Concurrently, we collaborated with 

physician experts in chronic disease 

management to develop a series of 

questions related to several chronic 

conditions listed in HPMS as of January 

2, 2007, representing potentially severe 

or disabling primary chronic conditions. 

Questions similar to the above example 

were developed for chronic obstructive 

pulmonary disease, diabetes mellitus, 

hypertension, chronic renal failure, 

depression, schizophrenia, bipolar 

disorder, dementia, and chronic alcohol 

or drug dependence. 

Because chronic condition SNPs 

request CMS approval for their 

proposed pre-enrollment qualification 

assessment tools, we use the diseasespecific questions to guide the SNP in 

the design of an appropriate tool. 

Having the additional option of using a 

pre-enrollment qualification assessment 

tool gives SNPs three means of meeting 

the verification requirement—written 

documentation from the beneficiary’s 

former physician, telephonic 

confirmation by the beneficiary’s former 

physician, or use of the verification tool 

followed by post-enrollment 

confirmation by any physician. 

Similarly, organizations offering a 

SNP for institutionalized individuals 

must verify each enrollee’s institutional 

status with the facility or appropriate 

State agency. 

c. Model of Care (422.101(f)) 

As noted above, the MMA permitted 

MA organizations to offer care targeted 

to beneficiaries with special health care 

needs through SNPs. The MMA 

specified that a special needs individual 

was an individual who was 

‘‘institutionalized’’ (as defined by the 

Secretary), is entitled to medical 

assistance under a State plan under title 

XIX (Medicaid), or ‘‘meets such 

requirements as the Secretary may 

determine would benefit from 

enrollment’’ in a SNP for individuals 

‘‘with severe or disabling chronic 

conditions.’’ In order to ensure that 

SNPs are providing care targeted to such 

special needs beneficiaries, under our 

authority in section 1856(b)(1) of the 

Act to establish standards by regulation, 

we are proposing that SNPs develop a 

model of care specific to the special 

needs population they are serving. In 

order to more clearly establish and 

clarify delivery of care standards for 

SNPs and to codify standards which we 

have included in other CMS guidance 

and instructions (the 2008 and 2009 Call 

Letters, ‘‘Special Needs Plan 

Solicitation 1’’), we propose to add new 

paragraph (f) to § 422.101. Section 

422.101(f) would specify that SNPs 

must have networks with clinical 

expertise specific to the special needs 

population of the plan; use performance 

measures to evaluate models of care; 

and be able to coordinate and deliver 

care targeted to the frail/disabled, and 

those near the end of life based on 

appropriate protocols. We believe that 

these measures are critical to providing 

care to the types of special needs 

populations served by SNPs. 

For example, CMS anticipates that a 

chronic condition SNP serving 

beneficiaries having severe or disabling 

diabetes mellitus would establish a 

provider network that afforded access to 

diabetes experts such as 

endocrinologists who consult on 

pharmacotherapy for the fragile 

diabetic, vitreo-retinal ophthalmologists 

for diabetic retinopathy management, 

nephrologists for diabetic nephropathy 

management, neurologists having 

diabetic neuropathy expertise, nurses 

having specialized training in diabetes 

education, and nutritionists with 

expertise in diabetic counseling. 

The SNP might enroll diabetic 

beneficiaries who develop chronic renal 

failure related to diabetic nephropathy 

and require dialysis. The SNP might 

choose to contract or partner with these 

specialized diabetes experts and/or 

dialysis facilities, but, as a special needs 

plan targeting beneficiaries with 

specialized diabetic needs, the SNP is 

obligated to provide services to manage 

the expected disease-specific 

complications of a diabetic with severe 

or disabling disease progression. We 

also expect that the chronic condition 

SNP serving diabetic beneficiaries 

would develop diabetes-specific 

performance measures to evaluate its 

own systems, experts, and health 

outcomes related to its diabetes 

management. 

The SNP’s own internal quality 

assurance and performance 

improvement program should examine 

the effectiveness of its model of care for 

diabetes management. For example, if 

the SNPs provider network applied the 

American Diabetes Association’s 

clinical practice guideline for reducing 

the risk of or slowing the progression of 

diabetic nephropathy by optimizing 

glucose control (see National Guidelines 

Clearinghouse, 2008; http:// 

www.guideline.gov/summary/ 

summary.aspx?doc_id=10401), an 

appropriate performance measure to 

evaluate management of diabetic 

beneficiaries would be a process 

measure to determine the percentage of 

diabetics having glycosylated 

hemoglobin (Hgb A1C) measured in the 

last 6 months or an outcome measure to 

determine how many diabetics had an 

A1C measuring less than 7 percent (see 

National Quality Measures 

Clearinghouse, 2008; http:// 

www.guideline.gov/browse/ 

xrefnqmc.aspx). 

We recognize there is a broad range of 

chronic disease management systems 

and evidence-based clinical practice 

guidelines available to SNPs; 

consequently, we have deliberately 

guided SNPs toward the conceptual 

framework of a model of care without 

being prescriptive about the specific 

staff structure, provider network, 

clinical protocols, performance 

improvement, and communication 

systems. We also expect that within the 

target population of beneficiaries having 

severe or disabling diabetes mellitus, 

SNPs would have a subpopulation of 

diabetics who are frail, near the end of 

life, or disabled by other morbidities (for 

example, neurological disorders, mental 

disorders, etc.) that would need 

additional specialized benefits and 

services that should be addressed in the 

model of care. For example, the diabetic 

beneficiary with diabetic complications 

who is near the end of life might require 

assisted living or institutional services 

for which the SNP would develop 

different goals, expanded specialty 

services and facilities in their provider 

network, different performance 

measures, and additional protocols. 

d. Dual Eligible SNPs and Arrangements 

With States (§ 422.107) 

CMS’ review of SNPs targeting 

beneficiaries eligible for both Medicare 

and Medicaid (dual eligible SNPs) over 

the past few years suggests to us that for 

such SNPs to serve this population of 

beneficiaries, a plan should have a 

documented relationship with the State 

Medicaid agency in the State in which 

its members reside. Dual eligible SNPs 

that have not established a working 

relationship with the State may 


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encounter difficulties verifying 

eligibility for Medicaid prior to 

enrollment in a SNP and, thus, may 

inappropriately enroll members who are 

not eligible for Medicaid. Also, without 

an arrangement with the State, SNPs 

may not have the information necessary 

to guide beneficiaries to providers that 

can deliver both Medicare and Medicaid 

services. Further, Medicaid often 

provides additional health services not 

covered by Medicare through the SNP. 

Medicare Advantage organizations (MA 

organization) with no State relationship 

may be advising dual eligible members 

that services are not covered at all 

because they are not covered under the 

SNP, even though the services are 

covered through Medicaid. 

Consequently, if the MA organization is 

not aware of the benefits available to its 

members through other sources, such as 

Medicaid, it cannot ensure that the 

model of care it delivers offers adequate 

coordination of the essential services. 

In order to ensure that beneficiaries 

are able to access essential services that 

are available through Medicaid in 

addition to those benefits available 

through the SNP, we propose to add a 

new § 422.107 which would require that 

an MA organization seeking to offer a 

SNP to serve the dual eligible 

population must have, at a minimum, a 

documented relationship, such as a 

contract, memorandum of 

understanding (MOU), data exchange 

agreement, or some other agreed upon 

arrangement with the State Medicaid 

agency for the State in which the dual 

eligible SNP is operating, in an effort to 

improve Medicare and Medicaid 

integration. 

We propose in § 422.107(a) that all 

SNPs, whether entering the market or 

already established at the time these 

regulations become effective, must have 

in place a dual eligibility verification 

arrangement and information sharing on 

Medicaid providers and benefits. 

We also propose in § 422.107(b) that 

within 3 years of the effective date of 

these regulations, all dual eligible SNPs 

already offering contracts are required to 

develop additional formal arrangements 

with States, and that new SNPs offering 

contracts after these regulations are 

effective, are required to have formal 

arrangements by their third contract 

year. CMS is allowing 3 years because 

we understand that it may take this long 

for contractual arrangements between 

the State and an MA plan to be 

implemented, particularly if Medicaid 

capitation and a request for proposal 

(RFP) are involved. We believe that by 

providing States and MA organizations 

with the maximum amount of flexibility 

for having a documented relationship, it 

will encourage States to actively 

participate in the development of 

integrated Medicare and Medicaid 

products with MA organizations. We 

believe 3 years is a reasonable and 

sufficient amount of time for MA 

organizations to develop documented 

arrangements with their respective 

States. We understand that some States 

are not yet ready to engage and 

participate in providing health care 

through MA organizations for their 

Medicaid-eligible populations and, are, 

therefore, providing a 3-year window for 

development and implementation. 

Examples of additional formal 

arrangements range from documentation 

of a cooperative arrangement with the 

State to coordinate benefits to a 

contractual arrangement between the 

State Medicaid agency and the MA 

organization offering the SNP, under an 

RFP process, or under a Medicaid 

capitation arrangement. 

e. Special Needs Plans and Other MA 

Plans With Dual Eligibles: 

Responsibility for Cost-Sharing 

(§ 422.504(g)(1)) 

CMS’ review of MA plans serving 

dual eligible beneficiaries over the past 

few years has identified that a number 

of providers are charging the 

beneficiaries Medicare Parts A and B 

cost sharing that is the responsibility of 

the State. Additionally, many dual 

eligible enrollees are unclear about the 

Medicare and Medicaid rules and 

benefits. Some new enrollees have 

experienced interruptions in treatment, 

resulting in a negative impact on their 

health. These experiences suggest that 

additional requirements are needed to 

ensure that both providers and 

beneficiaries understand Medicare and 

Medicaid rules and that beneficiaries do 

not pay cost-sharing for which they are 

not responsible. 

In order to protect beneficiaries and 

ensure that providers do not bill for 

cost-sharing that is not the beneficiary’s 

responsibility, we have amended 

§ 422.504(g)(1)(i) and (g)(1)(ii) to require 

that all MA organizations, including 

SNPs, with enrollees who are eligible 

for both Medicare and Medicaid specify 

in their contracts with providers that 

enrollees will not be held liable for 

Medicare Parts A and B cost sharing 

when the State is liable for the costsharing. We are proposing, therefore, 

that contracts with providers state that 

the provider will do this by either 

accepting the MA plan payment in full 

(§ 422.504(g)(1)(iii)(A)) or by billing the 

appropriate State source (for example, 

Medicaid) (§ 422.504(g)(1)(iii)(B)). 

Additionally, we are proposing that all 

MA organizations with enrollees eligible 

for both Medicare and Medicaid must 

inform providers of the Medicare and 

Medicaid benefits and rules for 

enrollees eligible for Medicare and 

Medicaid (§ 422.504(g)(1)(iii)). 

Medicare Advantage organizations 

have flexibility in establishing 

arrangements with States. The 

arrangements could include discussing 

and identifying both the Medicare and 

Medicaid benefits and rules. A list of 

the services, as well as the rules 

applicable to enrollees eligible for 

Medicare and Medicaid could be 

disseminated to providers and updated 

as necessary. A contact person or liaison 

could be identified for each MA plan 

who could assist with questions and 

with the maintenance of current 

information. 

2. MA MSA Transparency (§ 422.103(e)) 

As noted above, the MMA restored 

authority for ‘‘Medical Savings 

Account’’ (MSA) plans that had been 

provided for in the BBA on a temporary 

basis, but which expired without any 

such plan ever being offered. MSA plans 

are MA plans under which a portion of 

the total MA capitation rate is paid to 

the MA organization for a highdeductible policy that covers Medicare 

covered services after the high 

deductible is met. The remainder of the 

amount is placed into a savings account 

to be used to cover health care costs 

until the deductible is met. Any 

amounts not used in a given year 

accumulate for use in a future year. 

As noted, under the original BBA 

authority, no MA organization chose to 

offer an MSA plan. We believe that this 

might be attributable in part to 

differences between the rules for MSA 

plans and the more popular health 

savings account (HSA) arrangements 

available for non-Medicare 

beneficiaries. In order to encourage the 

offering of MSA plans, and to test 

whether changing some rules would be 

beneficial, we initiated an ‘‘MSA 

demonstration’’ under which some MSA 

rules were waived. As part of this 

demonstration, we required that 

participating MA organizations provide 

MSA plan enrollees with cost and 

quality information that they could use 

to make informed choices as to where 

they would get health care. 

Consistent with the best practices of 

HSAs and other high-deductible health 

plans, we propose in new § 422.103(e) 

to require that all MSA plans provide 

enrollees with information on the cost 

and quality of services as specified by 

CMS and provide information to CMS 


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2HSAs are health insurance plans with a high 

deductible and a savings account for the under 65 

population and are administered by the U.S. 

Department of the Treasury. Medicare MSAs are a 

type of medical savings account, also with a high 

deductible and a savings account, designed for the 

Medicare population and are administered by the 

U.S. Department of Health and Human Services, 

Centers for Medicare & Medicaid Services. HSAs 

and MSAs are governed by different statutes, and 

while these health insurance products are similar 

in many ways, there are also important differences 

between them. For further information on HSAs, go 

to http://www.ustreas.gov/offices/public-affairs/ 

hsa/. 

on how they would provide this 

information to enrollees.2

The purpose of reporting cost/quality 

information to consumers, a practice 

known as ‘‘transparency,’’ is to permit 

plan enrollees to compare costs for 

specific services and to compare 

providers on cost and quality, with the 

high deductible acting as an added 

incentive to shop around. This proposal 

would implement a basic tenet of highdeductible health plans, the availability 

of useful cost and quality information to 

support consumer shopping. 

We recognize that the Congress 

exempted MSA plans from the quality 

improvement program requirements in 

section 1852(e)(1) of the Act, and thus 

from the data collection and reporting 

requirements in section 1852(e)(3) of the 

Act. We would not, under this 

requirement, be mandating the same 

level of data collection required under 

those provisions, or the reporting of 

quality data to CMS. Rather, we are 

presuming that MA organizations in the 

business of offering an MSA product are 

committed to facilitating the intended 

benefits of this model—that consumers 

make informed choices as to their health 

care purchases during the deductible 

period and beyond. We would expect 

that such organizations already have 

mechanisms in place, in connection 

with their commercial lines of business, 

for providing their beneficiaries with 

cost or quality information. Indeed, in 

the case of Medicare participating 

providers, such information is available 

from CMS through our own 

transparency initiatives. 

Our view that quality and cost 

information would be available, or 

reasonably accessible, to organizations 

in the business of offering an MSA plan 

is supported by the fact that the MA 

organizations participating in the MSA 

demonstration have agreed to provide 

the information to their enrollees. We 

invite public comments on this issue. 

We are proposing to revise the 

regulations to require that MA 

organizations offering MSA plans 

provide their enrollees with quality and 

cost information, to the extent available, 

concerning services in the plan’s service 

area, and to report to CMS on its 

approach to providing this information. 

Below are examples of what a plan 

could be expected to address: 

• How the organization will provide 

cost and quality information to 

enrollees, including screenshots for any 

Web-based tools used to meet this 

requirement. 

• If they will use a Web-based 

product to meet this requirement, how 

they will provide this information to 

enrollees that do not have access to the 

Internet. 

• How their organization will obtain 

information regarding cost and quality 

in the requested service area and 

whether this information will be 

personalized to the member. 

B. Proposed Changes to Part 423—

Medicare Prescription Drug Benefit 

Program 

1. Passive Election for Full Benefit Dual 

Eligible Individuals Who Are Qualifying 

Covered Retirees (§ 423.34) 

Section 1860D–1(b)(1)(C) of the Act, 

and implementing regulations at 42 CFR 

423.34(d), require that CMS 

automatically enroll a full-benefit dual 

eligible (FBDE) individual who has (1) 

failed to enroll in a prescription drug 

plan (PDP) or MA–PD into a PDP at or 

below the premium subsidy amount, 

and, per the last sentence in section 

1860D–1(b)(1)(C) of the Act, (2) has not 

declined Part D enrollment, into a PDP 

with a premium at or below the full 

premium subsidy amount. Further, the 

statute requires that if there is more than 

one such plan the ‘‘Secretary shall 

enroll such an individual on a random 

basis among all such plans in the PDP 

region.’’ Our general policy in 

implementing these provisions is to 

notify individuals in advance about 

their pending auto-enrollment, and to 

include in that notice information about 

other plans available to the individual 

and about how to decline Part D 

coverage, and thus opt out of the default 

enrollment process. 

For the overwhelming majority of 

FBDE individuals, default enrollment 

into a PDP is a favorable outcome that 

ensures that they receive prescription 

drug coverage without costs for 

premiums and deductibles, and with 

only nominal costs for cost sharing. In 

many cases, the Part D enrollment is 

also beneficial for FBDE individuals 

with retiree coverage, since the Part D 

drug coverage may well be available at 

a lower cost than the coverage offered 

through the employer plan. However, 

for a significant number of FBDE 

individuals with drug coverage through 

an employer group plan—especially 

those with full health care coverage—

automatic enrollment into a PDP can 

have serious and sometimes irreversible 

negative consequences, either for the 

beneficiary and/or for family members. 

For example, under the terms of a 

particular employer group plan, an 

individual may lose employer group 

retiree medical coverage upon 

enrollment in a Part D plan, or worse, 

an individual’s automatic enrollment in 

a PDP can result not only in the 

individual’s disenrollment from the 

employer plan, but the disenrollment of 

a spouse or other family member. 

Although we were aware of this 

possibility at the outset of the program, 

we had no information about the extent 

to which FBDE individuals might 

already have retiree group coverage, and 

we believed that to the extent there were 

individuals in this situation, the number 

would be extremely small. Thus, we did 

not make any special rules for this 

population. 

Since January 2006, however, we have 

received a relatively small, but steady, 

series of complaints about this issue. We 

have attempted to work with employers 

to resolve individual situations as they 

arose, but have not had complete 

success. A recent survey of large 

employers found that 36 percent of the 

firms indicated retirees would lose all 

retiree medical coverage upon 

enrollment in a Part D plan, and another 

32 percent specified the retirees would 

lose their employer group drug coverage 

only. More importantly, 82 percent of 

employers indicated that if a retiree is 

enrolled in a Medicare Part D plan, the 

spouse of that individual would not be 

allowed to keep employer sponsored 

coverage. Finally, 57 percent of the 

firms surveyed indicated that they 

would not allow retirees to rejoin the 

company’s coverage in the future, 

should they decide that they would 

prefer the employer coverage to the Part 

D coverage in which they were 

automatically enrolled based on their 

FBDE status. (See December 13, 2006, 

Kaiser/Hewitt Survey Report of Large 

Employers at http://www.kff.org/ 

medicare/med121306nr.cfm). 

To address those concerns, we 

propose to revise § 423.34(d)(1), and add 

new § 423.34(d)(3), to establish a 

process under which FBDE individuals 

who we know to be enrolled in a 

qualifying employer group plan would 

be deemed to decline Part D coverage if, 

following a notice of their options, they 

do not indicate that they wish to receive 

it. As a result, these individuals would 

not be part of the group that is subject 

to default auto-enrollment. In order to 

ensure that only individuals with 

creditable employer coverage would be 


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included in this process, we would limit 

the applicability of this process to 

individuals enrolled in a plan for which 

CMS is paying an employer subsidy. 

Under our proposal, the individuals 

would be notified in advance by CMS of 

their prospective auto-enrollment, and 

of the need to carefully consider the 

possible repercussions of such an 

enrollment, including the impact that 

enrollment into Medicare Part D would 

have on their retiree coverage for 

themselves and other family members. 

We would recommend contacting the 

sponsor or administrator of the retiree 

group plan to discuss the effect of 

enrollment in Medicare Part D on the 

retiree coverage. 

Individuals would further be 

informed that by taking no action, they 

will be deemed to have elected to 

decline enrollment into a Part D plan. 

We would further inform them that they 

could enroll in a Part D plan at any time 

in the future if they wish to do so, and 

that the enrollment could be made 

retroactive. Thus, absent a confirmation 

of the individual’s desire to be autoenrolled into a Part D plan, he or she 

would retain the employer group 

coverage. 

In considering whether to adopt this 

approach, we recognized that to the 

extent that declining Part D could 

possibly have any negative 

consequences for FBDE individuals who 

are not auto-enrolled, CMS has the 

discretionary authority to make 

retroactive enrollment changes that can 

address such problems. In contrast, 

CMS has no authority to insist that a 

retiree plan sponsor allow individuals 

back into its plan should the retirees or 

their family members be adversely 

affected by auto enrollment. Given that 

56 percent of employers surveyed have 

specifically stated that they would not 

allow re-enrollment into their retiree 

plans after an individual began Part D 

coverage, we believe that our proposed 

change in policy would clearly be in the 

best interests of the FBDE population 

with retiree coverage. 

2. Part D Late Enrollment Penalty 

(§ 423.46) 

Section 1860D–22(b) of the Act 

established a Part D late enrollment 

penalty (LEP) for beneficiaries who have 

a continuous period of 63 days or longer 

following the end of an individual’s Part 

D initial enrollment period without 

creditable prescription drug coverage. 

This requirement is codified in § 423.46. 

Although § 423.46 describes which 

individuals would be subject to a 

penalty, it does not specify the role of 

the Part D plan in the LEP 

determination process. We have 

subsequently outlined plan 

responsibilities in our existing guidance 

(Chapter 4 of the Medicare Prescription 

Drug Benefit Manual) and now propose 

to clarify the general responsibilities of 

Part D plans in our regulations. 

First, we would clarify under 

§ 423.46(b) that Part D plans must obtain 

information on prior creditable coverage 

from all enrolled or enrolling 

beneficiaries. Under this process, plans 

first query CMS systems for previous 

plan enrollment information, which is a 

standard part of the beneficiary 

enrollment process. When no previous 

enrollment information exists, however, 

the process for obtaining creditable 

coverage information must also include 

plan interaction with the beneficiary. 

This is due in large part to the limited 

information available in CMS’ systems 

about forms of creditable coverage other 

than Part D coverage or coverage 

through an employer group under the 

retiree drug subsidy (RDS). Therefore, it 

is critical that plans obtain historical 

creditable coverage information from 

the beneficiary in order to determine the 

number of uncovered months, if any, 

and retain any information collected 

concerning that determination (as 

specified under proposed § 423.46(d)). 

The related requirement that we are 

proposing under § 423.46(b) is that 

plans must then report creditable 

coverage information in a manner 

specified by CMS. Specifically, that 

would entail reporting the number of 

uncovered months to CMS, which will 

then calculate the penalty and report the 

penalty back to the plan. The plan then 

notifies the beneficiary of the 

determination of the LEP amount and of 

their ability to request a reconsideration 

of this determination. 

Thus, we would also establish under 

§ 423.46(c) that, consistent with section 

1860(D)–22(b)(6)(C) of the Act, 

individuals who are determined to have 

a late enrollment penalty, have the 

opportunity to ask for a reconsideration 

of this determination. (Note that existing 

§ 423.56(g) briefly references the ability 

to ‘‘apply to CMS’’ when an individual 

believes that he or she was not 

adequately informed that his or her 

prescription drug coverage was not 

creditable, and we would crossreference that section here.) We believe 

that the statute clearly intends that 

individuals have an opportunity to 

provide CMS, or an independent review 

entity acting under CMS’ authority, with 

additional information related to prior 

prescription drug coverage in support of 

a request for reconsideration of a late 

enrollment penalty determination. 

While the statute expressly provides for 

this opportunity only with respect to an 

argument that proper notice was not 

given concerning whether existing 

coverage was creditable, we believe that 

the same rationale could apply to other 

arguments that the penalty should not 

apply (for example, an argument that 

the individual is eligible for a waiver of 

the penalty under a demonstration 

project). 

Finally, we would specify that a 

beneficiary would not have the right to 

further review of the reconsideration 

decision of CMS, or the independent 

review entity acting under CMS’

authority. CMS would, however, have 

the discretion to reopen, review, and 

revise such a decision. 

3. Medicare Prescription Drug Benefit 

Program Definitions 

These proposed clarifications to our 

policies associated with the Medicare 

Prescription Drug Benefit (also known 

as Medicare Part D) include refining our 

definitions related to what may be 

included in the drug costs Part D 

sponsors use as the basis for calculating 

beneficiary cost sharing, reporting drug 

costs to CMS for the purposes of 

reinsurance reconciliation and risk 

sharing, as well as submitting bids to 

CMS. We also propose a new definition 

for administrative costs in order to 

further clarify costs that must not be 

included in Part D drug costs. We also 

propose to create corollary definitions 

for drug cost reporting for purposes of 

the Retiree Drug Subsidy (RDS). We 

propose that the effective date of these 

changes be the effective date of a final 

rule with the exception of specific 

changes to the Part D definition of 

‘‘negotiated prices’’, ‘‘gross covered 

prescription drug costs’’, and ‘‘allowable 

risk corridor costs’’ related to the use of 

pass-through versus lock-in prices, 

which we propose to be effective for 

coverage year 2010. We propose that the 

effective date of the RDS definitions be 

the effective date of a final rule, that is, 

for all plan years beginning after the 

effective date of a final rule. 

a. Subpart C—Benefits and Beneficiary 

Protections (Definitions) 

i. Incurred Costs 

CMS is proposing to amend the 

definition of ‘‘incurred costs’’ to reflect 

our current policy that certain nominal 

co-payments assessed by manufacturer 

Patient Assistance Programs (PAPs) can 

be applied toward an enrollee’s TrOOP 

balance or total drug spend (the 

accumulated total prices for covered 

Part D drugs paid by the plan or by or 

on behalf of the beneficiary). CMS 

allows PAPs to provide assistance for 

covered Part D drugs to Part D enrollees 


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outside the Part D benefit. This means 

that payments made by PAPs do not 

count toward enrollees’ TrOOP or total 

drug spend balances. However, if a PAP 

requires their enrollees—including 

those enrolled in a Part D plan—to pay 

a nominal copayment when they fill a 

prescription for a covered Part D drug 

for which the PAP provides assistance, 

such amounts would count toward 

TrOOP if the plan is notified of the 

copayment. As explained in Appendix 

C of Chapter 14 (Coordination of 

Benefits) of the Prescription Drug 

Benefit Manual, these nominal PAP 

copayment amounts, when paid by or 

on behalf of a Part D enrollee, are 

applicable to the enrollee’s TrOOP and 

total drug spend balances, provided the 

enrollee submits appropriate 

documentation to their Part D plan. We 

are proposing to revise the definition of 

incurred costs to clearly indicate that 

these nominal PAP copayments are 

included in incurred costs. This 

revision to the definition of ‘‘incurred 

costs’’ in § 423.100 is consistent with 

the proposed changes to the definition 

of ‘‘gross covered prescription drug 

costs’’, which has also been revised to 

ensure that these nominal PAP 

copayments are included in gross 

covered prescription drug costs and 

allowable reinsurance costs. 

ii. Negotiated Prices 

In the January 2005 final rule, CMS 

defined a number of terms related to 

drug prices and costs in order to 

identify the costs that should be used to 

calculate beneficiary cost sharing, to 

advance the beneficiary through the 

benefit, and to calculate final plan 

payments for reinsurance subsidies and 

risk sharing during payment 

reconciliation. For instance, under 

§ 423.104(d)(2)(i), beneficiary cost 

sharing under the initial coverage limit 

is equal to 25 percent of ‘‘actual cost.’’

(70 FR 4535) ‘‘Actual cost’’ is defined in 

§ 423.100 as ‘‘the negotiated price for a 

covered Part D drug when the drug is 

purchased at a network pharmacy, and 

the usual and customary price when a 

beneficiary purchases the drug at an 

out-of-network pharmacy consistent 

with § 423.124(a).’’ (70 FR 4533) And in 

§ 423.100, the term ‘‘negotiated prices’’

is defined as ‘‘prices for covered Part D 

drugs that (1) are available to 

beneficiaries at the point of sale at 

network pharmacies; (2) are reduced by 

those discounts, direct or indirect 

subsidies, rebates, other price 

concessions, and direct or indirect 

remunerations that the Part D sponsor 

has elected to pass through to Part D 

enrollees at the point of sale; and (3) 

includes any dispensing fees. (70 FR 

4534) 

Since that time, we have received 

questions over what we meant in this 

last definition when we refer to prices 

for covered Part D drugs that are 

available to beneficiaries at the point of 

sale. These questions are particularly 

important because beneficiary cost 

sharing is a function of the negotiated 

price, either directly as in coinsurance 

percentages of negotiated price, or 

indirectly, as copayments are ultimately 

tied to actuarial equivalence 

requirements based on negotiated 

prices. That is, for instance, the higher 

the negotiated prices, the higher the 

fixed copayments must be to result in 

actuarial equivalence to 25 percent in 

the aggregate in the initial coverage 

phase. 

The ‘‘total drug spend’’ (the 

accumulated total prices for covered 

Part D drugs paid at the point of sale by 

the plan or by or on behalf of the 

beneficiary) also is a function of the 

negotiated price. Because the total drug 

spend is used to determine when the 

beneficiary advances through the 

deductible and the initial coverage 

phases of the Part D benefit, higher 

negotiated drug prices would cause the 

beneficiary to more quickly advance 

through those various phases. 

Accordingly, because higher negotiated 

prices would advance the beneficiary 

through the initial coverage phase more 

quickly, fewer prescriptions on average 

would be subsidized by the plan 

through the initial coverage period. 

Also, a beneficiary enrolled in basic 

prescription drug coverage (as defined 

in § 423.100) would reach the coverage 

gap more quickly, with the costs of 

covered Part D drugs purchased during 

the coverage gap phase financed entirely 

by the beneficiary. In addition, since 

beneficiaries must have access to the 

same negotiated prices during the 

coverage gap, the higher the negotiated 

prices, the higher the amounts paid by 

beneficiaries for drugs in the coverage 

gap may be. Similarly, higher negotiated 

prices would mean higher cost-sharing 

for beneficiaries who reach the 

catastrophic threshold. Because costsharing for the catastrophic phase of the 

benefit generally is based on 5 percent 

of the negotiated price, the higher the 

negotiated price, the higher the costsharing at the catastrophic level. 

For all these same reasons, higher 

negotiated prices would mean higher 

low-income cost sharing subsidies paid 

by the government. Under the lowincome cost sharing subsidy, lowincome subsidy eligible individuals pay 

reduced or no cost sharing for covered 

Part D drugs. The government 

subsidizes the cost sharing for these 

beneficiaries by reimbursing Part D 

sponsors for the difference between the 

cost sharing paid by other Part D 

beneficiaries and the cost sharing paid 

by low-income subsidy (LIS) eligible 

individuals. Higher negotiated prices 

would result in higher cost sharing paid 

by other Part D beneficiaries and 

therefore, higher low-income cost 

sharing subsidies paid by the 

government to plan sponsors. 

Because higher negotiated prices (and 

therefore, higher total drug spend) will 

advance beneficiaries through the 

phases of the Part D benefit more 

quickly, a greater number of 

beneficiaries will reach the catastrophic 

phase of the benefit more quickly. In 

addition, higher negotiated prices 

generally will result in higher covered 

Part D drug costs during the 

catastrophic phase. As a result, the 

reinsurance subsidies paid by the 

government to Part D sponsors to 

reimburse 80 percent of the covered Part 

D drug costs in the catastrophic phase 

of the benefit will be higher. 

We believe that, in a competitive 

market, negotiated prices would be 

minimized when such prices are fully 

transparent to plan sponsors and 

beneficiaries. Consequently we strove to 

base our guidance on the principle of 

limiting drug costs to the price paid at 

the pharmacy (meaning any pharmacy, 

including mail-order pharmacies). In the 

preamble to the final rule we explained 

that drug costs include: Ingredient cost, 

dispensing fee, and sales tax (70 FR 

4307). These three terms refer to specific 

fields on the automated prescription 

drug claim transaction that 

unambiguously indicate the amounts 

paid to the pharmacy by the payer of the 

claim. Therefore, by using these terms, 

CMS intended to refer to the price paid 

at the pharmacy and not the price paid 

by the sponsor to the PBM. 

Furthermore, the preamble states that 

‘‘we assume that ingredient cost and 

dispensing fee reflect point of sale price 

concessions in accordance with 

purchase contracts between plans (or 

their agents, such as PBMs) and 

pharmacies * * *’’ (70 FR 4307), and 

that ingredient cost and dispensing fee 

reflect the drug price paid to the 

pharmacy and should reflect any pointof-sale price concessions from the 

pharmacy whether they are provided 

directly to the Part D sponsor or 

indirectly through a contracted PBM. 

Thus, we intended to define the term 

‘‘negotiated prices’’ consistent with 

‘‘pass-through’’ prices, an industry term 

for the prices negotiated with and paid 

to the pharmacy (either directly by the 

sponsor or indirectly through an 


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intermediary contracting organization, 

such as a PBM on the sponsor’s behalf). 

With ‘‘pass-through’’ prices, the price 

paid to the pharmacy is the price passed 

on to the beneficiary (and, in the case 

of LIS eligible individuals, to the 

government) at the point of sale. 

However, after publication of the final 

rule and issuance of clarifying 

subregulatory guidance in Spring 2006, 

CMS received comments that the notice 

and comment rulemaking had not made 

this point clearly, and that the 

regulation could be read to allow an 

alternative interpretation of the price 

paid at the point of sale. Specifically, 

these comments asserted that the ‘‘lockin’’ pricing approach, a contract method 

by which a plan sponsor agrees to pay 

a PBM a set rate for a particular drug 

which may vary from the price that the 

PBM negotiates with each pharmacy, 

also met the definition of negotiated 

prices issued in the regulation. 

Under such pricing arrangements, the 

PBM consistently bills one ‘‘lock-in’’

price negotiated with the sponsor for a 

drug (often based on AWP), but may pay 

a variety of different prices to network 

pharmacies based on varying 

contractual terms. On any given drug 

purchase, the PBM may pay the 

pharmacy a higher or lower price than 

it will bill the plan sponsor. However, 

we assume that the prices billed to the 

plan sponsor are generally higher than 

the prices paid to pharmacies, resulting 

in an overall net profit to the PBM that 

is marketed as a ‘‘risk premium’’ earned 

for shielding the sponsor from price 

variability. We welcome comments on 

this assumption. Commenters argued 

that these stable prices negotiated 

between the sponsor and the PBM also 

met the definition of ‘‘negotiated prices’’

in the final rule. (We note that when the 

negotiated price under the plan is the 

lock-in price, if the pharmacy price is 

lower than the lock-in price, the 

pharmacy will still have to collect the 

higher lock-in price from the beneficiary 

during the deductible or coverage gap 

and transfer the excess amount to the 

PBM in some manner.) On the basis of 

that alternative interpretation, some Part 

D sponsor applicants who held network 

contracts through PBMs based on the 

lock-in pricing methodology had based 

their 2006 and 2007 bids on such prices 

and could not renegotiate such contracts 

easily. 

Consequently, on July 20, 2006, we 

issued guidance to Part D sponsors 

stating that, in order to minimize 

disruption to plan operations, for 2006 

and 2007, sponsors could, at their 

option, base beneficiary cost-sharing not 

on the price ultimately charged by the 

pharmacy for the drug, but on the ‘‘lockin’’ price, the price the sponsor paid a 

pharmacy benefit manager (PBM) or 

other intermediary for the drug. We also 

stated our intent to issue a proposed 

rule that would require a single 

approach for calculating beneficiary cost 

sharing, based upon the price ultimately 

received by the pharmacy. 

Therefore, we are now proposing to 

amend our definition of negotiated 

prices. We previously proposed to 

amend this definition in the notice of 

proposed rule making, Policy and 

Technical Changes to the Medicare 

Prescription Drug Benefit (72 FR 29403–

29423). However, we chose not to 

finalize this proposed definition in the 

final rule (73 FR 20486–20509) in order 

to further examine the impact of this 

proposal and provide the public with an 

additional opportunity to comment on 

this proposed definition. We have noted 

below, some of the impact concerns for 

which we would like to receive 

additional comments. We will consider 

the comments received on this 

definition from the previous proposed 

rule, as well as comments received on 

this proposed rule when determining 

whether to finalize this policy. 

In order to resolve the confusion 

caused by the Prescription Drug Benefit 

final rule, we are now proposing to 

amend the definition of ‘‘negotiated 

prices’’ (to be effective for Part D 

contract year 2010) to require that Part 

D sponsors base beneficiary cost sharing 

on the price ultimately received by the 

pharmacy or other dispensing provider. 

Specifically, we are proposing to revise 

§ 423.100 so that the first part of the 

definition of ‘‘negotiated prices’’ would 

state that negotiated prices are prices 

that the Part D sponsor (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount the 

network dispensing pharmacy or other 

network dispensing provider will 

receive, in total, for a particular drug. 

The term ‘‘intermediary contracting 

organization’’ refers to organizations 

such as pharmacy benefit managers 

(PBMs) that contract with plan sponsors 

to provide one or more of a variety of 

administrative functions on the 

sponsor’s behalf, such as negotiating 

pharmacy contracts, negotiating rebates 

and other price concessions from 

manufacturers, and/or providing drug 

utilization management or benefit 

adjudication services. The term 

‘‘intermediary contracting organization’’

encompasses any entity that contracts 

with a plan sponsor to pay pharmacies 

and other dispensers for Part D drugs 

provided to enrollees in the Part D 

sponsor’s plan, regardless of whether 

the intermediary contracting 

organization negotiates pharmacy 

contracts on behalf of the plan sponsor 

or on its own behalf. Similarly, the term 

‘‘intermediary contracting organization’’

encompasses any entity that negotiates 

rebates or other price concessions with 

manufacturers for Part D drugs provided 

to enrollees in the Part D sponsor’s plan, 

regardless of whether the intermediary 

contracting organization negotiates the 

rebate agreements explicitly on behalf of 

the plan sponsor or on its own behalf. 

Our proposed definition excludes any 

differential between the price paid to 

the pharmacy and the price paid to the 

PBM or other intermediary contracting 

organization, and instead treats that 

differential (or ‘‘risk premium’’) as an 

administrative cost paid to the PBM or 

intermediary contracting organization 

rather than a drug cost under Part D. We 

elaborate on our reasons for in effect 

proposing to require the reporting of 

‘‘pass-through’’ versus ‘‘lock-in’’ prices 

for Part D drug costs further below, as 

well as solicit specific comments from 

multiple stakeholders to ensure we are 

aware of all of the ramifications of this 

proposed policy. 

We would also revise the definition of 

‘‘negotiated prices’’ (to be effective upon 

the effective date of a final rule) to 

include prices for covered Part D drugs 

negotiated between the Part D sponsor 

(or its intermediary contracting 

organization) and other network 

dispensing providers. Part D sponsors 

can contract with providers other than 

a pharmacy to dispense covered Part D 

drugs, including them in their network. 

Therefore, we are amending the 

definition of negotiated prices to reflect 

the prices for covered Part D drugs that 

Part D sponsors (or their intermediary 

contracting organizations) negotiate 

with all their network dispensing 

providers. 

There are a number of reasons for our 

decided preference for drug costs at the 

point of sale to be based on the amount 

actually paid to the pharmacy or other 

dispensing provider (hereafter referred 

to as pass-through prices) as opposed to 

the amount paid to the PBM (hereafter 

referred to as lock-in prices). In addition 

to our original intentions discussed 

above, we believe that continuing to 

allow lock-in prices to be used for Part 

D drug cost calculations and reporting 

could have several undesirable results: 

1. Continued and probably increased 

cost shifting from the government to 

beneficiaries in the form of higher 

beneficiary out-of-pocket costs. 

2. Interference with market 

competition among Part D sponsors. 

3. Beneficiary confusion over actual 

drug prices. 


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4. Difficulties for pharmacies in 

explaining drug prices to customers and 

managing cash transfers to Part D 

sponsors or their intermediary 

contracting organizations contracting. 

5. Continued and possibly increased 

risk of government risk-sharing on 

amounts that reflect administrative 

costs, contrary to Congressional intent 

to exclude risk-sharing on 

administrative expenses. 

First, relative to pass-through prices, 

lock-in prices result in a cost shift from 

costs that would otherwise be fully paid 

by the government in the administrative 

cost portion of the basic Part D bid to 

costs that are paid in full or in part by 

the beneficiary. When the differential 

between the price paid to the pharmacy 

and the price paid to the PBM 

(sometimes referred to as ‘‘PBM spread’’

or ‘‘risk premium’’) is treated as a drug 

cost, this amount is part of the cost basis 

on which beneficiary cost sharing is 

calculated. This is true whether the 

beneficiary is paying the total cost of the 

drug in the deductible or coverage gap 

in a basic plan, or whether cost sharing 

is structured as coinsurance or fixed 

copayments. Again, cost sharing for the 

basic portion of a Part D plan is based 

on the negotiated prices either directly, 

as a coinsurance percentage of the price 

of the drug, or indirectly, as a fixed 

copayment derived to result in actuarial 

equivalence in the aggregate to 25 

percent of drug prices in the initial 

coverage phase or to approximately 5 

percent in the catastrophic phase. Thus, 

when the PBM spread is added to the 

pharmacy’s price in computing cost 

sharing, a beneficiary who utilizes drugs 

will generally pay more in cost sharing 

both during covered benefit intervals 

and during deductible and coverage gap 

periods for their drugs when the 

negotiated price is based on lock-in 

prices rather than pass-through prices, 

resulting in higher out-of-pocket 

beneficiary costs. 

On the other hand, when the PBM 

spread is included in the administrative 

costs component of a Part D sponsor’s 

bid, as opposed to being treated as a 

drug cost, the plan sponsor’s bid would 

be increased by these amounts. 

Consequently, all other things being 

equal, the sponsor’s bid must be higher 

with pass-through prices than with lockin prices. While a higher bid increases 

premiums for the beneficiary and direct 

subsidy costs for the government, 

because of the formulas for calculating 

premiums and federal subsidies, the 

beneficiary only pays about 25 percent 

of this increase and the government 

pays the other approximately 75 

percent. 

Under the pass-through approach, 

therefore, for the vast majority of 

beneficiaries who utilize Part D drugs, 

total out-of-pocket costs, including both 

monthly Part D premiums and costsharing, are lower because (1) cost 

sharing per script is lower, (2) the lower 

drug costs advance the beneficiary 

through the benefit more slowly—

allowing in general more scripts to be 

subsidized in the initial coverage phase, 

and (3) increased premium costs are 

principally borne by the government. 

On net, beneficiaries who utilize their 

drug benefits pay less under our 

proposed approach with negotiated 

prices based on pass-through prices 

because out-of-pocket costs are 100% 

borne by the beneficiary, but the 

beneficiary only pays about 25% of the 

premium. 

We believe that the beneficiary is 

almost always better off paying the 

lowest possible point-of-sale price. 

Under the lock-in pricing approach, the 

lock-in prices that some plan sponsors 

pay to their PBMs are uniform for each 

drug across multiple network 

pharmacies. However, the pass-through 

prices paid to the pharmacy may differ 

across network pharmacies. Some plan 

sponsors may perceive value in the use 

of lock-in prices to define negotiated 

prices, so that beneficiaries may pay a 

uniform price across different network 

pharmacies. However, we believe that 

beneficiaries receive no value from 

paying more for drugs in return for 

always paying a uniform stable price. 

Therefore, we believe that beneficiaries 

who utilize their Part D benefits are 

almost always better off paying passthrough prices under our proposed 

approach. 

We would acknowledge that lower 

premiums at the expense of higher outof-pocket costs would advantage some 

Part D beneficiaries who are non- or 

very low utilizers of the benefit. 

However, from a public policy 

perspective, lowering premiums at the 

expense of higher cost sharing for those 

individuals who most need the benefit 

dilutes the insurance principle. The 

drug purchases of those beneficiaries 

who utilize their Part D benefits are 

subsidized in part by those who do not 

need the benefit. Shifting costs from 

premiums to cost sharing would reduce 

the sharing of risk and drug costs across 

beneficiaries by shifting a greater 

percentage of the drug costs to those 

beneficiaries who use more prescription 

drugs and, therefore, pay more cost 

sharing. Those beneficiaries who use 

fewer prescription drugs are more likely 

to enroll in those plans with lower 

premiums and higher cost sharing (for 

example, plans that utilize lock-in 

prices). Less healthy beneficiaries who 

use more prescription drugs are more 

likely to enroll in those plans with 

higher premiums and lower cost sharing 

(for example, plans that use passthrough prices). This would distort the 

risk pool for those plans using passthrough prices and drive their costs up 

as those enrollees who use fewer 

prescription drugs disenroll from these 

plans as the premiums increase to 

reflect the increased percentage of high 

utilizers in the plan. It is important to 

create and maintain the most robust risk 

pool possible under the Medicare Part D 

to maintain program stability. 

In addition, as noted in the preamble 

to the final rule: ‘‘[a]s required under 

section 1860D–11(e)(2)(D)(i) of the Act 

and in § 423.272(b)(2), the structure of 

the benefit design (including cost 

sharing provisions and formulary 

design) must not be discriminatory; that 

is, it must not discourage enrollment by 

any Part D enrollee on the basis of 

health status * * *’’. (70 FR 4297) We 

could argue that a business model and 

resulting benefit structure that by design 

shifts costs from the premium (where 

they would be paid by all) to cost 

sharing (where they are paid only by 

benefit utilizers) is per se 

discriminatory. That is, knowledgeable 

beneficiaries who seek to minimize their 

costs, who must utilize numerous 

prescription drugs due to their health 

status, and who use a tool such as the 

Medicare Prescription Drug Plan Finder, 

will determine that their costs are never 

minimized in a plan that bases their 

costs on lock-in prices—despite the 

lower premiums—and they will elect 

not to join that plan. Only non- or low 

utilizers of drug benefits might find that 

this plan design minimizes their costs. 

We believe that Congress instructed 

CMS to review Part D benefits in order 

to prohibit just this sort of 

systematically discriminatory benefit 

design. 

All other things being equal then, 

requiring that those amounts paid by 

sponsors to PBMs (or other intermediary 

contracting organizations) that exceed 

the amounts paid by PBMs (or other 

intermediary contracting organizations) 

to pharmacies be treated as 

administrative costs will increase the 

basic Part D bid for any plan sponsor 

that previously based its bid on lock-in 

prices, shifting the majority of the cost 

to the direct subsidy paid by the 

government. This increase in direct 

subsidy costs will be offset somewhat by 

other payment impacts on the 

government. Specifically, reinsurance 

payments will be lower because (1) 

reinsurance payments are based on drug 

costs which generally are lower using 


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pass-through prices, and (2) fewer 

beneficiaries will reach catastrophic 

coverage due to being advanced through 

the earlier phases of the benefit more 

slowly. Similarly, the government’s 

payments for low-income subsidy cost 

sharing are lower, as these subsidies are 

based on the negotiated price, which as 

previously explained is generally lower 

when based on pass-through prices. 

Thus, overall, a change from lock-in to 

pass-through prices will result in a cost 

shift from the beneficiaries who need 

the benefit most to the government—a 

result that, as we have argued above, is 

more consistent with the insurance 

principle. 

The second potential undesirable 

impact of lock-in prices being used for 

drug cost calculations and reporting 

under the Part D program is interference 

with market competition. Because the 

cost shift from the government to the 

beneficiary lowers the bid, it also causes 

the plan’s bid to become relatively more 

competitive. In fact, utilizing lock-in 

prices would seem to provide a 

competitive advantage to plans relative 

to other comparable plans that use passthrough prices, since premium levels 

are tied to the relationship between the 

plan’s bid and the national average bid 

amount. The lower the plan’s bid, the 

lower the difference between the plan’s 

bid and the national average bid 

amount, and therefore, the lower the 

plan’s premium. Unlike sponsors who 

do not use PBMs or other intermediary 

contracting organizations and, therefore, 

must base their bids on pass-through 

prices, those using PBMs or other 

intermediary contracting organizations 

currently have the option of using either 

pass-through or lock-in prices as the 

basis for their bids. This greater 

flexibility may give the latter a 

competitive advantage over the former. 

For example, to the extent a sponsor 

believes a lower premium rather than 

lower cost-sharing makes its plan more 

marketable, a sponsor contracting with 

a PBM may decide to use lock-in prices 

in its bid in order to obtain a lower 

premium. In addition, a sponsor may 

use lock-in prices in its bid to increase 

the likelihood that its plan qualifies for 

auto-enrollment and facilitated 

enrollment of LIS eligible individuals. 

To qualify for auto-enrollment and 

facilitated enrollment, a plan’s premium 

must be at or below the low-income 

premium subsidy amount. A sponsor 

that is trying to gain or retain 

enrollment of LIS eligible individuals 

may use lock-in prices to help ensure 

that its plan premium is below the lowincome premium subsidy amount. Thus, 

CMS believes that allowing both pricing 

approaches creates an unlevel playing 

field among plan sponsors. We 

specifically solicit comments on the 

economic and public policy impacts of 

this differential and whether it does in 

fact create an undesirable unlevel 

playing field, as between Part D 

sponsors contracting with PBMs or 

other intermediary contracting 

organizations and those who do not. We 

also solicit comments on each of the 

potential undesirable results discussed 

above. 

In the discussion above we assumed 

that all other things were equal, and that 

the shift from one pricing methodology 

to the other only resulted in a shift in 

costs between the government and the 

beneficiary. That is, that overall 

program costs remained the same under 

either policy. However, arguments can 

be made that costs, both administrative 

as well as drug costs, would not remain 

the same under our proposed single 

approach. 

On the one hand, some proponents of 

the lock-in approach have expressed 

concerns that our proposal would 

increase drug costs over time by 

discouraging the risk premium inherent 

in the lock-in method. They assert that 

the resultant pressure for downward 

pricing from the Part D sponsor would 

create a disincentive for PBMs to enter 

into this type of payment arrangement 

with plan sponsors. They are concerned 

that the demise of the lock-in model 

would result in the PBMs’ role being 

reduced to one of mere claims 

processing agents with less incentive to 

negotiate the lowest possible network 

pharmacy discounts. In contrast, they 

contend that the risk premium 

incentives inherent in the lock-in 

approach result in significantly lower 

drug costs for Part D sponsors than other 

contractual models, and that the loss of 

this model could potentially increase 

drug costs, bids, premiums, and Part D 

program costs. 

On the other hand, however, in 

response to the contention that the risk 

premium payment results in lower drug 

prices in the long run, we could argue 

that in a competitive market any 

potential increase in administrative fees 

(from transferring the spread to 

administrative costs) would be 

negotiated away in whole or in part 

with more perfect information in a fully 

transparent environment. For instance, 

our proposed changes do not prohibit 

Part D sponsors from contracting with 

PBMs for drug utilization management 

services and paying administrative 

incentive fees for reducing costs through 

such services. In a transparent 

environment, plans would be 

negotiating on lowest possible drug 

prices, as well as minimizing 

administrative costs, and these would 

be more clearly comparable among 

PBMs (or other intermediaries). It is not 

clear to us why PBMs would compete 

any less vigorously for the same level of 

profits included in administrative fees, 

or for the lowest possible network 

pharmacy negotiated prices in order to 

earn those fees. Therefore, we are more 

persuaded by the counterargument that 

the PBM spread is in fact an additional 

profit earned due to asymmetry in 

market information that might well be 

reduced with more transparency in 

pricing. Under these assumptions, 

leaving the additional costs in 

administrative costs would reduce bids, 

premiums, and total Part D program 

costs over time. 

Moreover, nothing in our proposed 

rule prohibits the payment of a risk 

premium to the PBM by the plan 

sponsor. Our proposed changes to the 

definition of negotiated prices do not 

interfere with the negotiations between 

Part D sponsors, pharmacy benefit 

managers, and pharmacies for covered 

Part D drugs. Rather, we propose that 

Part D sponsors would be required to 

use the price ultimately received by the 

pharmacy (or other dispensing provider) 

as the basis for calculating beneficiary 

cost sharing, total drug spend, and cost 

reporting to CMS. We do not require a 

Part D sponsor to use a particular 

pricing approach in its contracting 

agreements with PBMs. Part D sponsors 

may continue to use either the passthrough or lock-in pricing approach 

when contracting with a PBM—

provided that beneficiary cost sharing, 

total drug spend, and the drug costs 

reported to us are based on the price 

ultimately received by the pharmacy. To 

the extent that Part D sponsors believe 

that the lock-in pricing contracting 

approach reduces their total costs, we 

expect that they will continue to use it 

when contracting with a PBM. We 

solicit comments on whether Part D 

sponsors and PBMs would use the lockin pricing contracting approach in 

certain cases if the proposed policy 

were finalized. 

We solicit comments from plan 

sponsors, other industry contracting 

experts, benefit consultants, and market 

analysts on the impact of our proposed 

change on aggregate pricing exhibited 

between plans and PBMs, as well as on 

the prevalence of and trends in lock-in 

pricing arrangements between plan 

sponsors and PBMs. In particular, we 

are soliciting comments on whether 

lock-in pricing truly offers benefits to 

sponsors equal to the value of the risk 

premium, or whether the existence of 

the risk premium is in effect a higher 


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price exacted from sponsors without the 

leverage to negotiate lower costs or due 

to asymmetry in market information as 

between PBMs and sponsors. We also 

solicit comments on whether 

stakeholders consider the proposed 

definition of ‘‘negotiated prices’’ to 

represent strictly a change in reporting 

requirements for Part D plan sponsors. 

We solicit comments on how 

contractual relationships and 

requirements may change between and 

among Part D plan sponsors and their 

first-tier, downstream, and related 

entities. 

Our third concern with lock-in 

pricing involves the confusion that may 

be caused for beneficiaries whenever 

they see the difference between the 

price paid to the pharmacy and the 

price charged to the plan sponsor. While 

we understand that the intent is for the 

beneficiary to see the same information 

on drug prices on the pharmacy’s 

receipt, on the Medicare Prescription 

Drug Plan Finder, and on the plan’s 

Explanation of Benefits (EOB), this does 

not always happen. Under lock-in 

pricing, the EOB which the beneficiary 

receives from the plan may currently 

reflect the price the plan sponsor pays 

its PBM (the lock-in price) instead of the 

price negotiated with the pharmacy. We 

understand that pharmacies generally 

do not customize receipts for payers, 

and those that print total amounts paid 

on their receipts will not always be able 

to alter those amounts to correspond to 

the prices the plan sponsor pays its 

PBM. Even for cases in which the 

pharmacy does not print out total 

amounts received on its receipt, the 

same issues may occur in the deductible 

or coverage gap when the patient pay 

amount may equal the lock-in price, 

which could be higher than the price 

paid to the pharmacy. Whenever the 

pharmacy receipt does display the 

pharmacy’s price, the beneficiary may 

see the discrepancy in price between the 

receipt and the plan’s EOB. Even when 

receipts display the plan’s price, the 

beneficiary may see discrepancies 

between the price they pay and 

pharmacy advertised specials or prices 

offered to a friend and believe the price 

they paid was wrong. Beneficiaries may 

perceive these discrepancies in drug 

prices as fraud and place complaints or 

inquiries. Reviewing and addressing 

these types of inquiries serves to 

increase administrative costs for 

pharmacies, plan sponsors, and the 

government. Moreover, if pharmacies 

were to err and charge pass-through 

prices during the coverage gap instead 

of the lock-in prices, actual beneficiary 

true out-of-pocket (TrOOP) expenses 

might diverge from the amounts 

reported on the plan’s EOB, possibly 

leading to an overstatement of TrOOP 

costs in plan (PBM) claims payment 

systems. We solicit comments, 

particularly from beneficiary advocates, 

on the extent to which they are hearing 

of beneficiary concerns around such 

discrepancies. 

The fourth potential undesirable 

impact concerns difficulties that may be 

caused for pharmacies in explaining 

apparent price discrepancies to 

customers, as well as the additional 

administrative burden of managing the 

resulting cash transfers between the 

beneficiary and the PBM. If a 

beneficiary notices an apparent price 

discrepancy as described above, the 

beneficiary is likely to ask the pharmacy 

for an explanation. We believe the 

pharmacy must then expend scarce staff 

resources on explaining the discrepancy 

and managing the beneficiary’s reaction. 

Moreover, whenever the additional 

amount that exceeds the price 

negotiated between the PBM and 

pharmacy has been collected from the 

beneficiary, the pharmacy must have in 

place and manage accounting processes 

to transfer the additional amounts to the 

PBM and support ongoing 

reconciliations. We solicit comments 

from both chain and independent 

pharmacies on the extent to which these 

or any other impacts from lock-in prices 

have been incurred. 

We are not aware of any advantages 

to pharmacies from lock-in prices. We 

have heard the argument that the 

proposed changes would have a 

disproportionately negative impact on 

small independent pharmacies. Under 

the lock-in pricing approach, Part D 

sponsors negotiate a single rate with 

their contracted PBMs and, therefore, 

are generally not aware of the different 

rates paid by the PBMs to each 

pharmacy. This argument suggests that 

under the revised definition of 

negotiated prices, Part D sponsors 

would be made aware of the different 

rates paid to each pharmacy, and, in 

particular, Part D sponsors would 

become aware of higher-cost pharmacy 

providers, which are generally small 

independent pharmacies that are unable 

to offer the more aggressive drug prices 

provided by retail chain pharmacies. 

This argument presupposes that in their 

efforts to reduce drug costs, Part D 

sponsors would then remove these 

higher-cost pharmacies from their 

pharmacy networks, leading to a 

significant impact on the financial 

viability of these pharmacies. 

We are not persuaded by this 

argument at this time. First, as 

discussed above, we believe that under 

the revised definition of negotiated 

prices Part D sponsors may still use 

either the pass-through or lock-in 

pricing approach in their contracts with 

PBMs if sponsors continue to place 

value on being shielded from price 

variations. Moreover, even under 

transparent pricing arrangements, we 

expect that Part D sponsors would 

continue to contract with small 

independent pharmacies in order to 

satisfy our pharmacy access standards 

as outlined in § 423.120. In order to 

meet these rigorous pharmacy access 

standards, Part D sponsors would have 

to continue to contract with many if not 

most of these independent pharmacies 

and include them in their pharmacy 

networks. Moreover, we expect that Part 

D sponsors likely will determine that 

the proportion of their utilization that 

comes through independent pharmacies 

with the leverage to negotiate 

significantly higher reimbursements is 

generally not sufficiently large to 

significantly affect aggregate drug costs. 

Therefore, we are unable to conclude at 

this time that these proposed changes 

would have any adverse effects on 

pharmacies, including small 

independent pharmacies, and we solicit 

comments from all pharmacies on this 

question. 

The final potential undesirable impact 

we attribute to lock-in prices is the 

continued, and possibly increased, risk 

of government risk-sharing on costs that 

may be better treated as administrative 

expenses. The payment of risk-sharing 

on those portions of ‘‘drug costs’’ under 

the lock-in methodology that are 

retained by the PBM or other 

intermediary appears contrary to 

Congressional intent. For both 

reinsurance and risk-sharing payments 

CMS is required to exclude 

‘‘administrative costs’’ from the 

calculations. In accordance with 

§ 1860D–15(b)(2) of the statute, and as 

codified at § 423.308, ‘‘allowable 

reinsurance costs’’ are defined as a 

subset of ‘‘gross covered prescription 

drug costs.’’ ‘‘Gross covered prescription 

drug costs’’ are defined as ‘‘ * * * the 

costs incurred under the plan, not 

including administrative costs, but 

including costs directly related to the 

dispensing of covered Part D drugs 

***’’ (§ 1860D–15(b)(3)). Similarly, 

definitions of ‘‘allowable risk corridor 

costs’’, at § 1860D–15(e)(1)(B) of the 

statute and § 423.308 of the regulations, 

exclude administrative costs. We 

believe that any ‘‘risk premium’’ paid to 

the PBM to smooth actual drug expenses 

should be considered an administrative 

contracting cost, or like a drug 

utilization management program cost to 


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the plan. Thus, in order to exclude those 

amounts from being included in the 

reinsurance and risk-sharing 

calculations, we believe CMS should 

treat these costs as administrative costs 

and not as drug costs. 

While there is no question that 

reinsurance costs to the government 

increase with lock-in prices (since per 

claim drug costs are higher and a greater 

number of beneficiaries will reach 

catastrophic coverage), it is possible that 

there would be no significant difference 

between the lock-in and pass-through 

prices with respect to government risk 

sharing under certain constraints. Very 

simply stated, risk sharing involves 

comparing the sum of drug costs 

anticipated in the plan sponsor’s bid 

and paid prospectively through 

government and beneficiary monthly 

premiums (the ‘‘target amount’’) to the 

drug costs actually incurred, with the 

government then paying or recouping a 

portion of the difference. As long as the 

drug costs reflected in the bid are 

calculated in precisely the same way as 

the drug costs submitted to CMS as 

allowable costs, the target amount and 

the allowable costs will rise together. 

However, if a plan were to submit bids 

based on one level of PBM spread, but 

then submit costs to CMS reflecting a 

higher level of spread, then the 

difference between prospective costs 

and incurred costs would be increased. 

In the long run we believe lack of 

transparency could allow plans to game 

risk sharing and include extra 

administrative costs in the allowable 

drug cost reporting. If this would 

happen, and the plans used lower drug 

costs in the bid but included additional 

administrative costs in the allowable 

costs submitted in reconciliation, then 

the government risk sharing costs would 

increase. We solicit comments on the 

issues identified above concerning 

government risk sharing on costs that 

may more appropriately be considered 

administrative expenses. 

b. Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage (Definitions and 

Terminology, § 423.308) 

i. Actually Paid (§ 423.308) 

In the April 2006 Call Letter, CMS 

stated that Part D sponsors must report 

100 percent of the rebates and price 

concessions they receive, including the 

portion of manufacturer rebates retained 

by PBMs. In other words, in defining 

price concessions that must be netted 

from drug costs, CMS does not make a 

distinction between a price concession 

that is passed fully through to the plan 

sponsor by the PBM (or any other 

intermediary contracting organization) 

and a price concession that is partially 

passed on and partially retained by the 

PBM (or any other intermediary 

contracting organization). When a PBM 

retains rebate amounts associated with 

drugs being purchased for enrollees in 

a Part D plan with which the PBM 

contracts, this revenue permits the PBM 

to charge the Part D sponsor a lower 

amount in administrative fees and still 

make the same income on the 

transaction. When a rebate of x amount 

is paid to the PBM, the Part D sponsor 

benefits from that rebate whether it is 

passed on to the sponsor in its entirety, 

or it is available as revenue to the PBM. 

Thus, regardless of whether the PBM 

passes through 100% of rebates and the 

Part D sponsor in turn writes a check for 

100% of administrative fees owed the 

PBM, or whether the PBM retains a 

portion of rebates and the Part D 

sponsor benefits from the fact that this 

revenue permits the PBM to charge a 

lower administrative fee for the 

transaction—the result is the same. The 

total amount of rebates received by the 

PBM for the Part D drugs dispensed 

under the Part D sponsor’s contract 

must be reported as a price concession 

through DIR reporting to CMS. If we did 

not adopt this approach, a PBM and a 

Part D sponsor would be able to 

manipulate the amount reported in 

amounts actually paid simply by 

recasting administrative fees, which 

must be excluded, as rebates retained by 

the PBM that would not have to be 

reported as rebates to the PDP sponsor 

that benefits from the PBM’s receipt of 

this revenue. 

Therefore, we are proposing to 

include language in the definition of 

‘‘actually paid’’ that codifies and 

clarifies our previous guidance, and 

provides that direct or indirect 

remuneration includes discounts, 

chargebacks or rebates, cash discounts, 

free goods contingent on a purchase 

agreement, up-front payments, coupons, 

goods in kind, free or reduced-price 

services, grants, or other price 

concessions or similar benefits from 

manufacturers, pharmacies or similar 

entities obtained by an intermediary 

contracting organization with which the 

Part D sponsor has contracted for 

administrative services, regardless of 

whether the intermediary contracting 

organization retains all or a portion of 

the direct and indirect remuneration or 

passes the entire direct and indirect 

remuneration to the Part D sponsor. 

Similarly, we are clarifying that this 

definition of actually paid applies 

regardless of the terms of the contract 

between the plan sponsor and any 

intermediary contracting organization. 

We solicit comment on this proposed 

clarification. 

We believe that the above analysis has 

equal applicability in the Retiree Drug 

Subsidy (RDS) context, when a qualified 

retiree prescription drug plan contracts 

with a PBM, and the PBM retains rebate 

amounts associated with drugs obtained 

for a qualifying covered retiree. Again, 

the qualified retiree prescription drug 

plan benefits from the fact that revenue 

attributable to drugs purchased for its 

retirees is available to the PBM, because 

the PBM would not need to charge the 

sponsor of the qualified retiree 

prescription drug plan as much in 

administrative fees to make the same 

revenue on the transaction. As in the 

case of a Part D sponsor, if rebate 

amounts retained by a PBM were not 

deducted from the qualified retiree 

prescription drug plan’s costs, the plan 

and the PBM could ensure higher RDS 

payments simply by recasting 

administrative costs as retained rebates. 

Therefore, as discussed below, we are 

proposing to make similar amendments 

to the definitions in Subpart R that 

apply to the RDS program. 

ii. Administrative Costs (§ 423.308) 

The statute requires CMS to exclude 

administrative costs from the 

calculation of gross covered prescription 

drug costs and allowable risk corridor 

costs. However, administrative costs are 

not defined in either the statute or the 

January 28, 2005 final rule. Therefore, to 

explain this term and clarify which 

costs are included in administrative 

costs, we are proposing to add a 

definition for the term ‘‘administrative 

costs’’. We previously proposed to add 

this definition in the notice of proposed 

rule making, Policy and Technical 

Changes to the Medicare Prescription 

Drug Benefit (72 FR 29403 through 

29423). However, we chose not to 

finalize this proposed definition in 

order to further examine the impact of 

this proposal and provide the public 

with an additional opportunity to 

comment on this proposed definition. 

We will consider the comments 

received on this definition from the 

previous proposed rule, as well as 

comments received on this proposed 

rule when finalizing this rule. 

In this definition, we propose to 

define ‘‘administrative costs’’ as the Part 

D sponsor’s costs other than those 

incurred to purchase or reimburse the 

purchase of Part D drugs under the Part 

D plan. Included in the definition of 

administrative costs are any costs 

incurred by Part D plans on drug claims 

that differ from the price charged by a 

dispensing entity for covered Part D 

drugs. As discussed above in the section 


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on Negotiated Prices, any net profit (or 

‘‘risk premium’’) retained by a PBM that 

is added to the prices paid to 

pharmacies and billed to a Part D 

sponsor would be considered an 

administrative cost and not a drug cost. 

As discussed above, we believe this is 

because such amounts are more 

appropriately considered costs the plan 

chooses to incur to mitigate its market 

risk around the costs of drugs, rather 

than the cost of the drugs itself, and 

should be viewed as analogous to the 

cost of drug utilization management 

programs and similar services 

purchased from PBMs to manage drug 

costs. In order to create a level playing 

field around the treatment of all such 

related costs, we propose to clearly 

categorize this ‘‘net profit’’, ‘‘risk 

premium’’, or ‘‘PBM spread’’ as an 

administrative cost to the Part D plan 

sponsor. 

The proposed policy would also 

refine our interpretation of the statutory 

and regulatory definitions of ‘‘allowable 

reinsurance costs’’ and ‘‘allowable risk 

corridor costs,’’ which in both cases 

exclude any administrative costs of the 

sponsor. By statute, ‘‘allowable 

reinsurance costs’’ are a subset of ‘‘gross 

covered prescription drug costs,’’ and 

Congress specifically defined these 

gross costs as ‘‘not including 

administrative costs.’’ (See sections 

1860D–15(b)(2) and 1860D–15(b)(3) of 

the Act.) Similarly, Congress defined 

‘‘allowable risk corridor costs’’ as ‘‘not 

including administrative costs.’’ (See 

section 1860D–15(e)(1)(B) of the Act.) In 

the January 28, 2005 final rule, we 

adopted these definitions. (70 FR 4547.) 

As noted above, we interpret 

administrative costs to include any net 

profit (or loss) incurred by an 

intermediary contracting organization 

(for example, a pharmacy benefit 

manager (PBM)) as a result of lock-in 

pricing. Therefore, this net profit or loss 

must not be included in the reinsurance 

and risk corridor payments made by the 

government, as these payments exclude 

administrative fees. Thus, the Ingredient 

Cost, Dispensing Fee, Sales Tax, Gross 

Drug Cost below the Out of Pocket 

Threshold, and Gross Drug Cost above 

the Out of Pocket Threshold fields on 

Prescription Drug Event (PDE) records 

submitted to CMS would need to reflect 

the final amount ultimately received by 

the pharmacy at the point of sale. 

We are aware of concerns that the 

proposed definition of administrative 

costs would indirectly prohibit the 

purchase of drugs from certain entities 

such as PBMs. In addition, it has been 

argued that any costs incurred to buy 

drugs should be considered drug costs 

regardless of the party from whom the 

drug is purchased. However, the 

proposed definition for administrative 

costs would not directly or indirectly 

require Part D sponsors to purchase 

drugs from dispensing providers only. 

Part D sponsors would continue to have 

the option to contract or purchase drugs 

from other entities such as PBMs. 

However, to the extent that the amounts 

paid to a PBM for administrative 

services provided to a Part D sponsor 

are included in the cost of the drug 

under the lock-in pricing approach, Part 

D sponsors would be required to report 

this spread amount as an administrative 

cost. These administrative costs would 

be excluded from the Part D sponsor’s 

allowable reinsurance and allowable 

risk corridor costs as required by statute. 

The proposed definition of 

administrative cost does not include 

administrative fees or other 

remuneration that a PBM receives on 

behalf of a plan from pharmaceutical 

manufacturers or biotechnology 

companies. CMS considers these 

amounts price concessions which 

directly or indirectly reduce the Part D 

sponsor’s costs under its Part D plan. 

Therefore, Part D sponsors would 

continue to report these administrative 

fees as DIR to ensure that they are 

excluded from allowable reinsurance 

costs and allowable risk corridor costs. 

Again, this same analysis applies in 

the RDS context to amounts a PBM 

retains in connection with price 

concessions that reduce the qualified 

retiree prescription drug plan’s drug 

costs. 

iii. Gross Covered Prescription Drug 

Costs and Allowable Risk Corridor Costs 

(§ 423.308) 

Part D sponsors are required to report 

drug costs to CMS for the purposes of 

reconciliation and risk sharing. We are 

required by statute to calculate 

reinsurance payments using ‘‘allowable 

reinsurance costs,’’ a subset of ‘‘gross 

covered prescription drug costs,’’ which 

Congress specifically defined as ‘‘not 

including administrative costs.’’ (See 

sections 1860D–15(b)(2) and 1860D–

15(b)(3)of the Act). Risk sharing 

payments are calculated using 

‘‘allowable risk corridor costs,’’ which 

are also defined as ‘‘not including 

administrative costs.’’ (See section 

1860D–15(e)(1)(B) of the Act.) 

There have been several questions 

regarding the appropriate drug costs to 

report, particularly when a Part D 

sponsor has contracted with a PBM. The 

January 28, 2005 final rule defines 

‘‘gross covered prescription drug costs’’

as ‘‘those actually paid costs incurred 

under a Part D plan, excluding 

administrative costs * * * [equal to:] (1) 

All reimbursement paid by a Part D 

sponsor to a pharmacy (or other 

intermediary) * * * plus (2) All 

amounts paid under the Part D plan by 

or on behalf of an enrollee (such as the 

deductible, coinsurance, cost sharing, or 

amounts between the initial coverage 

limit and the out-of-pocket threshold) in 

order to obtain drugs covered under the 

Part D plan.’’ (70 FR 4547) 

The January 28, 2005 final rule 

definition of ‘‘gross covered prescription 

drug costs’’ specifically recognizes that 

reimbursement may be paid by a Part D 

sponsor ‘‘to a pharmacy (or other 

intermediary).’’ (70 FR 4547) Many 

interpreted the term ‘‘intermediary’’ to 

mean PBM (rather than an agent of the 

pharmacy or other dispensing provider). 

Using this definition, many plan 

sponsors reported as gross covered 

prescription drug costs the prices they 

negotiated with their PBMs, rather than 

the prices that were agreed upon as the 

amount to be received by the 

pharmacies. 

We propose rectifying these 

conflicting definitions to require the 

plan sponsor to include the net profit or 

loss retained or incurred by a PBM as 

part of lock-in pricing to be part of the 

administrative costs of the plan sponsor. 

This would require the amount 

ultimately received by the pharmacy 

(minus any other point-of-sale price 

concessions) to be used in calculating 

cost sharing for plan years 2010 and 

beyond. We previously proposed to 

amend this definition in the notice of 

proposed rule making, Policy and 

Technical Changes to the Medicare 

Prescription Drug Benefit (72 FR 29403–

29423). However, we chose not to 

finalize this proposed definition in the 

final rule (73 FR 20486–20509) in order 

to further examine the impact of this 

proposal and provide the public with an 

additional opportunity to comment on 

this proposed definition. We will 

consider the comments received on this 

definition from the previous proposed 

rule, as well as comments received on 

this proposed rule when determining 

whether to finalize this policy. 

Specifically, we are proposing to amend 

the definition of ‘‘gross covered 

prescription drug costs’’ to eliminate the 

parenthetical ‘‘or other intermediary’’ to 

require that all plan sponsors report the 

amount ultimately received by the 

pharmacy or other dispensing provider. 

We propose that the amount ultimately 

received by the pharmacy or other 

dispensing provider (whether directly or 

indirectly) for the particular drug will 

be the basis for accumulating gross 

covered drug costs and reporting drug 

costs on the Prescription Drug Event 

(PDE) records. 


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28570 Federal Register / Vol. 73, No. 96 / Friday, May 16, 2008 / Proposed Rules 

Similarly, we propose clarifying our 

definition of ‘‘allowable risk corridor 

costs’’ so that it is clear that these costs 

are only based upon the amounts 

received directly by the pharmacy or 

other dispensing provider. This is 

because we would consider any net 

profit (or loss) earned by a PBM or other 

entity negotiating contracts with 

pharmacies to constitute an 

administrative cost, and therefore, to be 

exempt from the definition of allowable 

risk corridor costs, as well as gross 

covered prescription drug costs. Thus, 

for example, if a Part D sponsor pays a 

PBM a certain amount for a particular 

drug, and then the PBM negotiates a 

different price with the pharmacy, any 

differential retained or lost by the PBM 

would be considered an administrative 

cost, and could not be reported as part 

of drug costs. As discussed above in the 

section on Negotiated Prices, the net 

profit or loss (or ‘‘risk premium’’) 

retained by a PBM that is added to the 

prices paid to pharmacies and billed to 

a Part D sponsor under the lock-in 

pricing approach would be considered 

an administrative cost. As argued above, 

such amounts are more appropriately 

considered costs that the plan chooses 

to incur to mitigate its market risk 

around the costs of drugs, rather than 

the cost of the drugs itself, and should 

be viewed as analogous to the cost of 

drug utilization management programs 

and similar services purchased from 

PBMs to manage drug costs. In order to 

create a level playing field around the 

treatment of all such related costs, we 

propose to clearly categorize this 

‘‘profit’’, ‘‘risk premium’’, or ‘‘PBM 

spread’’ as an administrative cost to the 

Part D plan sponsor and to explicitly 

disallow it from gross covered 

prescription drug costs, allowable 

reinsurance costs (a subset of gross 

covered prescription drug costs), and 

allowable risk corridor costs. 

We, therefore, propose revising the 

definitions of ‘‘gross covered 

prescription drug costs’’ and ‘‘allowable 

risk corridor costs’’ to establish that the 

amount received by the dispensing 

pharmacy or other dispensing provider 

(whether directly or through an 

intermediary contracting organization) 

is the basis for drug cost that must be 

reported to CMS, and not the amount 

paid by the Part D sponsor to the PBM. 

Accordingly, we are revising § 423.308 

to incorporate these changes. 

We are aware of concerns that these 

proposed changes to the definitions of 

gross covered drug costs and allowable 

risk corridor costs may require Part D 

sponsors to depend heavily on 

information traditionally held 

exclusively by PBMs. For the sponsor’s 

convenience, or for other reasons, such 

as to protect the privacy of beneficiary 

personal health information data, a Part 

D sponsor’s contractor may submit drug 

cost data on the Part D sponsor’s behalf 

to CMS directly rather than through the 

Part D sponsor. Therefore, some have 

argued, the Part D sponsor cannot attest 

to the validity of drug cost data it does 

not see. However, because we contract 

with Part D sponsors for the provision 

of the Medicare prescription drug 

benefit, Part D sponsors, and not their 

subcontractors, are ultimately 

responsible for the quality of data 

submitted to us. Part D sponsors that 

choose to contract with a PBM or any 

other third party administrator, 

therefore, must take reasonable steps to 

ensure that the data submitted to us on 

their behalf is accurate and timely. For 

example, the sponsor may engage an 

independent auditor to audit the data 

prior to its submission to us. 

We also propose amending the 

definition of ‘‘gross covered prescription 

drug costs’’ and ‘‘allowable risk corridor 

costs’’ to ensure that when entities other 

than pharmacies dispense Part D drugs 

and receive payment for Part D drugs, 

these expenditures also are reflected in 

gross covered prescription drug costs 

and allowable reinsurance costs, as well 

as allowable risk corridor costs. For 

instance, reimbursement for a vaccine 

that must be administered in a 

physician’s office and reimbursement 

made to a third party payer in 

accordance with our coordination of 

benefits (COB) requirements are both 

legitimate drug costs that have been 

incurred through the payments 

indicated. In addition, in accordance 

with § 423.464, the Part D sponsor must 

coordinate benefits with other Part D 

plans as the result of any reconciliation 

process developed by CMS under 

§ 423.464, such as when another Part D 

plan mistakenly paid for a prescription 

drug on the beneficiary’s behalf based 

on an erroneous belief that the 

beneficiary was actually enrolled in its 

plan. In these cases, when the 

enrollment error is corrected, the 

beneficiary’s true plan generally will 

reconcile payments with the original 

payer. The drug costs paid by Part D 

plans (as well as by the beneficiary) 

under these reconciliation processes 

reflect drug costs incurred by the plan’s 

enrollees that a payer other than the 

correct Part D plan of record paid as 

primary. As drug costs paid for Part D 

covered drugs under Part D plans, these 

costs are included in the calculations of 

reinsurance costs and risk corridor 

costs. Therefore, we have amended the 

definition of ‘‘gross covered prescription 

drug costs’’ and ‘‘allowable risk corridor 

costs’’ in § 423.308 to include all these 

drug costs. 

We also propose amending the 

definition of ‘‘gross covered prescription 

drug costs’’ to ensure that when a 

beneficiary is responsible for 100 

percent of the cost for a covered Part D 

drug (as in any applicable deductible or 

coverage gap of a basic plan), and the 

beneficiary obtains that covered Part D 

drug at a network pharmacy for a price 

below the plan’s negotiated price, the 

beneficiary’s out-of-pocket costs that are 

considered ‘‘incurred costs’’ for covered 

Part D drugs count toward both TrOOP 

and total drug spending. This is 

consistent with guidance released via 

Q&A 7944 (issued May 9, 2006 http:// 

questions.cms.hhs.gov/cgi-bin/ 

cmshhs.cfg/php/enduser/ 

std_alp.php?p_sid=gIVVcxhi.) For 

example, when an enrollee is in an 

applicable coverage gap or deductible 

phase of the Part D benefit, the enrollee 

may be able to obtain a better cash price 

for a covered Part D drug at a network 

pharmacy than the plan offers via its 

negotiated price. The enrollee may take 

advantage of a special cash price or 

discount being offered to all pharmacy 

customers for the covered Part D drug 

or, alternatively, use a discount card. In 

such cases, the enrollee purchases a 

covered Part D drug without using the 

membership card for his or her Part D 

plan. If that purchase price is lower than 

the Part D plan’s negotiated price, it will 

count toward TrOOP and total drug 

spend balances, provided the Part D 

plan finds out about the purchase. 

When the enrollee chooses not to use 

his/her membership card at a network 

pharmacy, that enrollee must take 

responsibility for submitting the 

appropriate documentation to the 

enrollee’s Part D plan, consistent with 

plan-established processes and 

instructions for submitting that 

information, in order to have that 

amount aggregated to the beneficiary’s 

TrOOP and total drug spend balances. 

We are aware of concerns that it is 

overly burdensome to require 

beneficiaries to submit claims for these 

reduced price purchases. However, we 

cannot require in-network pharmacies 

to submit these claims to Part D 

sponsors electronically, because at this 

time the HIPAA standard for claims 

submission does not accommodate the 

electronic transmission of this claim 

information by network pharmacies. To 

the extent that a future revision of the 

HIPAA standard does accommodate 

such transactions, we would support 

minimizing the submission of paper 

claims by beneficiaries. 


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The applicability of beneficiary outof-pocket expenditures made outside 

the Part D benefit to TrOOP and total 

drug spend also extends to any nominal 

copayments assessed by manufacturer 

patient assistance programs (PAPs) that 

provide assistance with covered Part D 

drug costs to Part D enrollees outside 

the Part D benefit. Consistent with 

guidance provided via Q&A 7942 

(http://questions.cms.hhs.gov/cgi-bin/ 

cmshhs.cfg/php/enduser/ 

std_alp.php?p_sid=gIVVcxhi), providing 

assistance with covered Part D drug 

costs to Part D enrollees outside the Part 

D benefit does not preclude a PAP 

sponsor from requiring its enrollees 

(including those enrolled in a Part D 

plan) from paying a nominal copayment 

when they fill a prescription for a 

covered Part D drug for which they 

provide assistance. We note that any 

copayments assessed by PAPs operating 

outside the Part D benefit should be 

nominal, since only nominal beneficiary 

cost-sharing is consistent with the 

concept of operating outside Part D. 

Moreover, given that copayments are 

typically assessed for purposes of 

minimizing drug over-utilization, the 

assessment of anything but nominal 

cost-sharing by PAPs is seemingly 

inconsistent with the mission of a 

charitable organization structured to 

provide assistance with prescription 

drug costs to low-income patients. 

Although PAP payments made for 

covered Part D drugs outside the Part D 

benefit do not count toward enrollees’

TrOOP or total drug spend balances, 

nominal PAP copayment amounts paid 

by affected Part D enrollees can be 

applied to their TrOOP and total drug 

spend balances, provided the enrollees 

submit the appropriate documentation 

to their plan consistent with planestablished processes and instructions 

for submitting the information. We are 

proposing to revise the definition of 

‘‘gross covered prescription drug costs’’, 

as well as the definition of ‘‘incurred 

costs’’ in § 423.100, to include these 

drug costs and to reflect this subregulatory guidance. 

We also note that § 423.308 includes 

a definition of the term ‘‘target’’ amount. 

Due to a technical formatting error, this 

definition appears to be the second 

paragraph of the definition of gross 

covered prescription drug costs. To 

clarify that the definition of ‘‘target 

amount’’ is not part or a component of 

the definition of gross covered 

prescription drug costs, but is a separate 

definition of a different term, we are 

proposing to revise the current 

discussion of ‘‘target amount’’ and are 

providing an amendatory instruction to 

add the definition in § 423.308. We are 

proposing technical edits to this 

definition to ensure that the structure of 

the definition is similar to that of other 

definitions in this section. We are 

proposing no substantive changes to the 

definition. 

c. Subpart R: Payments to Sponsors of 

Retiree Prescription Drug Programs 

(Definitions, § 423.882) 

Section 423.882 codifies existing 

guidance. Given the similarities 

between the statutory definitions of 

‘‘gross covered prescription drug costs’’

under section 1860D–15(b)(3) of the Act 

and ‘‘gross covered retiree plan-related 

prescription drug costs’’ under section 

1860D–22(a)(3)(C)(ii) of the Act, we 

have consistently stated our intent to 

determine gross covered retiree planrelated prescription drug costs in a 

manner corresponding to our 

determination of gross covered 

prescription drug costs. Additionally, 

given the similarities between the 

statutory definitions of ‘‘allowable 

reinsurance costs’’ under section 

1860D–15(b)(2) of the Act and 

‘‘allowable retiree costs’’ under section 

1860D–22(a)(3)(C)(i) of the Act, we 

determine allowable retiree costs in a 

manner parallel to how we determine 

allowable reinsurance costs. For 

example, for terminology not 

specifically defined under § 423.882, we 

generally utilize the relevant Part D 

definitions to the extent that they are 

consistent with the statutory provisions 

under section 1860D–22 of the Act. In 

addition, our RDS guidance related to 

the calculation of gross covered retiree 

plan-related prescription drug costs (or 

‘‘gross retiree costs’’) and allowable 

retiree costs generally corresponds with 

the Part D guidance on the calculation 

of gross covered prescription drug costs 

and allowable reinsurance costs. 

In order to ensure continued 

consistency between the RDS program 

and Part D, and because, as noted above, 

we believe the same policy arguments in 

favor of the Part D definitions apply to 

similar arrangements under the RDS 

program, we believe that the regulatory 

definitions under § 423.882 applicable 

to the RDS program should mirror the 

corresponding Part D definitions under 

§ 423.100 and § 423.308. Accordingly, 

we propose to make the following 

additions and revisions to § 423.882 to 

be consistent with the corresponding 

existing and proposed definitions under 

§ 423.100 and § 423.308. The proposed 

definitions under § 423.882 include 

codification of existing CMS guidance. 

• Actually Paid: We propose to add 

this definition to mirror the proposed 

revised definition under § 423.308, with 

the exception of technical changes and 

clarifications to reflect its application to 

the RDS program. Specifically, we 

propose to define actually paid to mean 

that the costs must be actually incurred 

by the qualified retiree prescription 

drug plan (and/or the qualifying covered 

retiree) and must be net of any direct or 

indirect remuneration from any source 

(including manufacturers, pharmacies, 

qualifying covered retirees, or any other 

person) that would serve to decrease the 

costs incurred under the qualified 

retiree prescription drug plan. Similarly, 

we are also proposing to include 

language in this definition that provides 

that direct or indirect remuneration 

includes discounts, chargebacks or 

rebates, cash discounts, free goods 

contingent on a purchase agreement, upfront payments, coupons, goods in kind, 

free or reduced-price services, grants, or 

other price concessions or similar 

benefits from manufacturers, 

pharmacies or similar entities obtained 

by an intermediary contracting 

organization with which the sponsor of 

the qualified retiree prescription drug 

plan has contracted for administrative 

services, regardless of whether the 

intermediary contracting organization 

retains all or a portion of the direct and 

indirect remuneration or passes the 

entire direct and indirect remuneration 

to the sponsor of the qualified retiree 

prescription drug plan. Similarly, we 

are clarifying that this definition of 

actually paid applies regardless of the 

terms of the contract between the 

sponsor of the qualified retiree 

prescription drug plan and any 

intermediary contracting organization. 

• Administrative costs: We propose to 

add this definition to mirror the 

proposed revised definition under 

§ 423.308 with the exception of minimal 

changes to reflect the RDS terminology. 

Specifically, we propose to define 

administrative costs to mean costs 

incurred by a qualified retiree 

prescription drug plan that are not drug 

costs incurred to purchase or reimburse 

the purchase of Part D drugs and that 

differ from the amount paid by or on 

behalf of the plan to a pharmacy or 

other entity that is the final dispenser of 

the drug. Similarly, we are proposing to 

include language in this definition that 

any profit or loss retained by the 

intermediary contracting organization 

(through discounts, rebates, or other 

direct or indirect price concessions) 

when negotiating prices with dispensing 

entities is considered an administrative 

cost. 

• Allowable Retiree Costs: We 

propose to make changes to the existing 

definition to mirror the relevant 

portions of the existing definition of 

‘‘allowable reinsurance costs’’ under 


rwilkins on PROD1PC63 with PROPOSALS2
28572 Federal Register / Vol. 73, No. 96 / Friday, May 16, 2008 / Proposed Rules 

§ 423.308. Specifically, we propose to 

revise the definition of allowable retiree 

costs under § 423.882 by clarifying that 

allowable retiree costs are the subset of 

gross covered retiree plan-related 

prescription drug costs actually paid by 

the qualified retiree prescription drug 

plan or by or on behalf of a qualifying 

covered retiree. 

• Gross covered retiree plan-related 

prescription drug costs: We propose to 

revise the existing definition of ‘‘gross 

covered retiree plan-related prescription 

drug costs’’ (or ‘‘gross retiree costs’’) to 

mirror the proposed definition of ‘‘gross 

covered prescription drug costs’’ under 

§ 423.308, with the exception of 

minimal changes to reflect the RDS 

terminology. Specifically, we propose to 

revise our definition of gross retiree 

costs to clarify that these costs equate to 

the sum of the negotiated prices (as 

defined in the proposed definition) 

actually paid by the qualified retiree 

prescription drug plan (and/or 

qualifying covered retirees) and 

received by the dispensing pharmacy (or 

other dispensing entity), or received by 

other entities pursuant to the plan’s 

coordination of benefits (COB) 

activities. As with our existing 

definition of gross retiree costs, our 

proposed definition would exclude 

administrative costs from gross retiree 

costs. 

• Negotiated Prices: We propose to 

add this definition to mirror the 

proposed definition of negotiated prices 

under § 423.100 with the exception of 

minimal changes to reflect RDS 

terminology. Specifically, we propose to 

define negotiated prices for Part D drugs 

as the prices that the qualified retiree 

prescription drug plan (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount such 

network entity will receive, in total, for 

a particular drug, net of discounts, 

direct or indirect subsidies, rebates, 

other price concessions, and direct or 

indirect remuneration that the qualified 

retiree prescription drug plan has 

elected to pass through to qualifying 

covered retirees at the point of sale. 

Similarly, we are proposing that 

negotiated prices include any 

dispensing fees. 

Under these proposed definitions, 

payments made to RDS plan sponsors of 

qualified retiree prescription drug plans 

(or ‘‘RDS sponsors’’) would be based 

upon ‘‘pass-through’’ prices and not 

‘‘lock-in’’ prices that the RDS plan 

sponsor pays to a PBM or other 

intermediary contracting organization. 

We elaborate on our reasons for 

requiring ‘‘pass-through’’ versus ‘‘lockin’’ prices for RDS plan drug costs 

further below, as well as solicit specific 

comments from stakeholders to ensure 

we are aware of all of the ramifications 

of this proposed policy. 

The ‘‘pass through’’ vs. ‘‘lock in’’

approach is being proposed for RDS 

plan sponsors for many of the same 

policy considerations that, as discussed 

in section II.B.4 of this proposed rule, 

underlie our proposed modifications to 

the Part D definitions of ‘‘negotiated 

prices,’’ ‘‘administrative costs,’’

‘‘allowable risk corridor costs,’’ and 

‘‘gross prescription drug costs’’ under 

§ 423.100 and § 423.308. Specifically, 

the RDS payment is calculated based on 

allowable retiree costs, which in turn is 

a subset of gross retiree costs. (See 

sections 1860D–22(a)(3)(A),(C)(i), and 

(C)(ii) of the Act.) The statute requires 

CMS to exclude administrative costs 

from the calculation of gross covered 

retiree plan-related prescription drug 

costs and subsidizing these costs would 

therefore be contrary to Congressional 

intent. (See section 1860D–

22(a)(3)(C)(ii) of the Act.) As explained 

in section II.B.3.a.ii of this proposed 

rule, discussing the proposed Part D 

definition of Negotiated Prices, we 

believe any net profit (or ‘‘risk 

premium’’) retained by a PBM that is 

added to the prices paid to pharmacies 

and billed to a Part D sponsor should be 

considered an administrative cost and 

not a drug cost. This same principle 

equally applies to the RDS program. 

Because we believe any net profit or risk 

premium retained by a PBM or similar 

intermediary contracting organization 

should be considered administrative 

costs and not drugs costs, we believe 

including these costs in gross retiree 

costs and allowable retiree costs would 

be contrary to Congressional intent that 

the RDS payment not subsidize an RDS 

sponsor’s administrative costs. To 

ensure that these amounts are excluded 

from gross and allowable retiree costs, 

we, therefore, propose to define 

administrative costs as including any 

profit or loss retained by an 

intermediary contracting organization 

contracting with an RDS sponsor that 

differs from the amount paid to a 

pharmacy or other entity that is the final 

dispenser for drugs dispensed to 

qualifying covered retirees. We solicit 

comments on all proposed definitions 

discussed above. 

We note that our proposed definition 

of administrative costs would not 

directly or indirectly require RDS plan 

sponsors to purchase drugs from 

dispensing providers only, and RDS 

plan sponsors would continue to have 

the option to contract or purchase drugs 

from other entities such as PBMs. 

However, to the extent that the amounts 

paid to a PBM or similar intermediary 

contracting organization for 

administrative services provided to a 

RDS plan sponsor are included in the 

cost of the drug under the lock-in 

pricing approach, RDS plan sponsors 

would be required to treat this spread 

amount as an administrative cost and 

these administrative costs would be 

excluded from the RDS plan sponsor’s 

allowable retiree costs. 

Our proposal would not require an 

RDS plan sponsor to use a particular 

pricing approach in its contracting 

agreements with PBMs. RDS plan 

sponsors may continue to use either the 

pass-through or lock-in pricing 

approach when contracting with a 

PBM—provided that drug costs reported 

to us are based on the price ultimately 

received by the pharmacy. 

There may be concerns that these 

proposed changes may require RDS plan 

sponsors to depend heavily on 

information traditionally held 

exclusively by PBMs. To protect the 

privacy of beneficiary personal health 

information data, an RDS sponsor’s 

PBM or other intermediary contracting 

organization may submit drug cost data 

on the RDS sponsor’s behalf to CMS 

directly rather than through the RDS 

sponsor. However, RDS plan sponsors, 

and not the intermediary contracting 

organizations, are ultimately responsible 

for the data submitted to us, and those 

that choose to contract with a PBM or 

other third party to submit data to CMS, 

therefore, must take reasonable steps to 

ensure that the data submitted to us on 

their behalf is accurate and timely. 

4. Limiting Copayments to a Part D 

Plan’s Negotiated Price (§ 423.104) 

Section 1860D–2(d)(1) of the Act 

requires Part D sponsors to offer their 

enrollees access to negotiated prices 

used for payment for covered Part D 

drugs. In previous operational guidance, 

Part D sponsors were advised that it was 

optional when administering a Part D 

plan’s benefit to apply either a 

copayment (if the sponsor elected to 

charge a flat copayment in lieu of 

coinsurance) or the actual negotiated 

price of the drug when that amount was 

lower than the copayment as outlined in 

the plan benefit package. Although we 

expected that very few Part D sponsors 

would choose to impose a cost sharing 

charge higher than the negotiated price 

of the drug, we allowed the option 

consistent with commercial practices. In 

practice, CMS found that the majority of 

Part D sponsors administer the benefit 

in such a way that the lesser of a cost 

sharing charge or the negotiated price of 


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the drug is applied to the beneficiary at 

the point of sale. 

Based on our experience in 

implementing the benefit, we believe 

that a policy where the plan sponsor 

charges the beneficiary the lesser of the 

cost sharing amount or the negotiated 

prices is more consistent with the intent 

of section 1860D–2(d) of the Act. 

Accordingly, we propose to revise our 

policy so that, for example, a beneficiary 

who is subject to a $5 copayment during 

the coverage gap cannot be required to 

pay more than the negotiated price of 

the covered Part D drug, if the 

negotiated price is less than $5. 

Specifically, we propose to revise the 

requirements related to qualified 

prescription drug coverage at 

§ 423.104(g) to make clear that Part D 

sponsors must provide enrollees with 

access to, or make available at the pointof-sale, its negotiated prices of covered 

Part D drugs when the covered Part D 

drugs’ cost-share is more than the Part 

D sponsor’s negotiated price. In other 

words, if the negotiated price for a 

covered Part D drug under a Part D 

sponsor’s benefit package is less than 

the applicable cost-sharing before the 

application of any deductible, before 

any initial coverage limit, before the 

annual out-of-pocket threshold, and 

after the annual out-of-pocket threshold. 

5. Timeline for Providing Written 

Explanation of Plan Benefits (§ 423.128) 

In accordance with the requirements 

of section 1860D–4(a)(4) of the Act, 

§ 423.128(e) of our final rule 

implementing the provisions of the Part 

D program (which appeared in the 

Federal Register on January 28, 2005, 

and the provisions of which became 

effective March 22, 2005), requires Part 

D sponsors to furnish to enrollees who 

receive covered Part D drugs an 

explanation of benefits (EOB) when 

prescription drug benefits are provided. 

As articulated in the preamble to our 

January 2005 final rule, our intent was 

to ensure that an EOB was provided to 

Part D enrollees at least monthly if they 

used their prescription drug benefits in 

a given month. Section 423.128(e)(6) 

specifically requires that an EOB be 

provided ‘‘during any month when 

prescription drug benefits are provided 

* * *.’’. This was an inadvertent error 

given that, operationally, it is not 

feasible for Part D sponsors to mail their 

members an EOB during the same 

month in which they used their 

prescription drug benefits. 

Sponsors must build into their EOB 

mailing cycles sufficient time to not 

only process each member’s EOB, but 

also to produce and mail an EOB to each 

member with activity in a given month. 

Since the implementation of the Part D 

program in January 2006, it has become 

clear that a more reasonable timeframe 

for the provision of an EOB is warranted 

given the operational impossibility of 

providing an EOB for a month in which 

a member used his or her benefits 

during that same month. We therefore 

propose a revision to § 423.128(e)(6) to 

require sponsors to provide an EOB no 

later than the end of the month 

following the month in which an 

enrollee uses his or her Part D benefits. 

We believe that our proposed revision to 

§ 423.128(e)(6) strikes a reasonable 

balance between Part D sponsor 

production constraints and the timely 

provision of claims information to Part 

D enrollees. 

6. Low-Income Subsidy Provisions 

a. Low-Income Cost-Sharing and 

Payment Adjustments for Qualified 

Prescription Drug Coverage (§ 423.329) 

CMS currently makes prospective 

payments to Part D plan sponsors of the 

low-income cost sharing subsidy (LICS) 

based solely on estimates provided as 

part of the annual bidding process. 

When LICS estimates are too high, 

excessive prospective payments are 

made that (under our current process) 

are not recovered until the year end 

reconciliation. In its report ‘‘Medicare 

Part D Sponsors: Estimated 

Reconciliation Amounts for 2006,’’

released October 2007, the HHS Office 

of the Inspector General recommended 

that CMS explore other payment 

methodologies to recoup excessive LICS 

payments earlier. 

Section 1860D–14(c)(1)(C) of the Act, 

when providing for administration of 

the subsidy program, gives the Secretary 

flexibility in determining a process for 

payment of the LICS subsidies as long 

as plan sponsors are reimbursed 

‘‘periodically and on a timely basis.’’

The Part D program regulations at 42 

CFR 423.329(d)(2) state that payments of 

the LICS subsidy under this section are 

based on a method that CMS 

determines. However, in paragraph 

(d)(2)(i) we also stated that LICS interim 

payments are to be made based on the 

low-income cost-sharing assumptions 

submitted with plan bids under 

§ 423.265(d)(2)(iv) and negotiated and 

approved under § 423.272. 

The language of § 423.329(d)(2)(i) 

regarding interim payments of the LICS 

subsidies has proven overly restrictive 

and has had the unintended effect of 

requiring CMS to make payments to Part 

D plan sponsors that are subsequently 

determined to have been significantly 

different from their actual costs, and 

which will not be recovered until 

payment reconciliation is completed. In 

contrast, the regulation governing 

interim payment of Part D reinsurance 

affords greater flexibility to CMS to 

determine the most appropriate interim 

payment methodology. The regulation at 

§ 423.329(c)(2)(i) states that, ‘‘CMS 

establishes a payment method by which 

payments of [reinsurance] are made on 

a monthly basis during the year, based 

on either estimated or incurred 

allowable reinsurance costs.’’ Therefore, 

we propose to add to the end of 

§ 423.329(d)(2)(i) the following 

qualifying statement: ‘‘or by an 

alternative method that CMS 

determines.’’ This proposed revision 

would afford CMS additional flexibility 

to make mid-year LICS payment 

adjustments or other modifications to 

the LICS interim payment methodology, 

as appropriate. 

b. Lesser of Policy for Low-Income 

Subsidy Individuals (§ 423.782) 

Section 1860D–14 of the Act 

establishes the low-income subsidy 

program available to Part D sponsors to 

provide low-income individuals 

assistance with their Part D plan costsharing amounts and premiums. The 

amount of a Part D sponsor’s lowincome cost-sharing subsidy is based 

upon the difference between the amount 

the non-subsidized beneficiary pays for 

his/her Part D covered drug under the 

plan’s benefit package and the 

maximum cost-sharing amounts 

established in statute at section 1860D–

14(a) of the Act. For calendar year 2008, 

full subsidy eligible individuals (as 

defined in the current regulation at 42 

CFR 423.773(b)) are not subject to any 

deductible and cannot be charged cost 

sharing above the maximum cost 

sharing amounts of $1.05/$2.25 for 

generics and preferred multi-source 

brand name drugs; and $3.10/$5.60 for 

other brand name drugs in 2008. Other 

low-income subsidy eligible 

individuals, as defined at 42 CFR 

423.780(d), cannot be charged more 

than $56 towards a Part D sponsor’s 

deductible, and cannot be charged more 

per prescription than an amount equal 

to 15 percent coinsurance. 

When we originally drafted the 

regulations, we assumed that the Part D 

sponsor benefit packages would 

routinely result in higher cost sharing 

amounts for non-subsidized 

beneficiaries than the maximum lowincome subsidy deductible and cost 

sharing amounts. However, when Part D 

sponsors offer benefit packages that 

already provide beneficiaries with a 

deductible and cost sharing less than 

the low-income deductible and cost 

sharing maximum amounts established 


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in statute (such as for zero dollar 

generics), this turns out not to always be 

the case. There are also instances when 

the Part D sponsor’s negotiated prices 

used for payment for covered Part D 

drugs are less than the low-income cost 

sharing amounts. In these cases, our 

operational guidance (Prescription Drug 

Event or PDE training guide http:// 

www.medicaretraining.net/ 

federalemployees/ParticipantGuide.pdf) 

has instructed that Part D sponsors 

charge low-income beneficiaries the 

lesser of (1) its plan benefit package’s 

prescribed cost-sharing, (2) the 

sponsor’s negotiated rate for the drug, or 

(3) the LIS cost sharing amount 

established in statute. If the Part D 

sponsor’s plan deductible was either 

less than the maximum low-income 

subsidy deductible amount or zero, the 

beneficiary should not be charged more 

than the plan’s actual deductible. 

The basis of our PDE guidance is 

found both in regulation and in statute. 

Section 1860D–14(a) of the Act provides 

that a beneficiary is eligible for a 

‘‘reduction in the annual deductible’’

and ‘‘reduction in cost-sharing [above or 

below] the out-of-pocket threshold.’’ We 

believe the statute does not require that 

the low-income subsidy beneficiary be 

charged the statutorily-defined costsharing amounts if the approved cost 

sharing for a specific drug under a plan 

is less than that amount. Nor does the 

statute require that the low-income 

subsidy beneficiary be subject to a 

defined deductible when a Part D 

sponsor’s plan benefit structure does not 

include a deductible. Thus, our 

previously issued guidance is consistent 

with the statutory parameters outlining 

the reductions in beneficiary out-ofpocket cost sharing amounts. The 

statute at 1860D–2(d)(1) of the Act also 

requires Part D sponsors to offer their 

enrollees access to negotiated prices 

used for payment for covered Part D 

drugs. We believe a Part D sponsor that 

imposes the statutory low-income cost 

sharing amounts on low-income subsidy 

beneficiaries when the PDP sponsor’s 

negotiated prices are less than the lowincome cost sharing amounts, violates 

1860D–2(d) of the Act with regard to an 

enrollee’s access to negotiated drug 

prices. 

Furthermore, our current regulations 

at 42 CFR 423.104(b) sets forth the 

requirement that Part D sponsors must 

offer the same drug plan to all Part D 

eligible beneficiaries residing in their 

plan service area. We commonly refer to 

this section of the regulation as the 

uniform benefit rule. This section 

prohibits Part D sponsors from varying 

plan benefits to beneficiaries in a 

service region and further supports the 

policy that low-income subsidy 

beneficiaries not be charged more than 

what they, or other non-LIS 

beneficiaries would be charged under 

the Part D sponsor’s plan benefit 

package. For an extensive discussion of 

the statutory basis for 42 CFR 

423.104(b), see 70 FR 4245 of the 

preamble to the final Medicare 

Prescription Drug Benefit Rule 

published January 28, 2005. 

To ensure low-income subsidy 

eligible beneficiaries are not harmed 

when the statutory low-income subsidy 

cost-sharing amounts are in excess of 

cost-sharing imposed under their plan’s 

benefit package, we propose to codify 

our existing guidance in regulation. We 

propose adding a new paragraph (c) to 

§ 423.782 which would clarify that the 

cost-sharing subsidy under § 423.782(a) 

and (b) is not available when an 

individual’s out-of-pocket costs, under 

his or her Part D sponsor’s plan benefit 

package, are less than the amounts 

described in § 423.782(a) and (b). 

c. Using Best Available Evidence to 

Determine Low-Income Subsidy 

Eligibility Status (§§ 423.772, 423.800) 

Section 1860D–14(a)(3)(B)(v) of the 

Act requires the Secretary to treat Part 

D eligible individuals who are fullbenefit dual eligible individuals (as 

defined under 1935(c)(6)) or recipients 

of supplemental security income under 

title XVI as full low-income subsidy 

eligible individuals. Section 1860D–

14(c)(1) of the Act further requires that 

the Secretary provide for a process 

under which (1) the Secretary notifies 

the PDP sponsor that an individual is 

eligible for a low income subsidy, and 

(2) the PDP sponsor is required to 

reduce the premiums and cost sharing 

for such individuals to the amount a 

low-income subsidy eligible individual 

is required to pay. 

The primary process CMS has 

employed to implement these 

requirements is for CMS to identify lowincome subsidy-eligible individuals 

based upon information from the States 

on Medicaid eligibility and Social 

Security on SSI eligibility and the 

eligibility of LIS applicants. Because we 

do not always have timely or up-to-date 

information from these sources, 

however, we developed a process under 

which sponsors accept and use reliable 

documentation, known as ‘‘best 

available evidence,’’ to establish a 

beneficiary’s low-income subsidy 

eligibility status and communicate this 

information to the Secretary. 

This ‘‘best available evidence’’ policy 

derives from the fact that, while section 

1860D–14(c)(1)(A) of the Act provides 

for CMS to inform sponsors of lowincome subsidy eligibility, the sponsor’s 

obligation under section 1860D–

14(c)(1)(B) of the Act to reduce 

premiums and cost-sharing for all such 

individuals is not contingent upon CMS 

doing so. While CMS attempts to 

identify all subsidy eligible individuals 

to the full extent possible, experience 

has shown that this does not necessarily 

result in every such individual being 

successfully identified. CMS believes, 

therefore, that the Sponsors have an 

obligation to take reasonable steps to 

respond to documentation that 

identifies such individuals when they 

have not been identified by CMS, in 

order to fulfill their statutory obligation 

to reduce premiums and cost-sharing for 

such individuals. 

Given the importance of this policy, 

we propose to codify it in § 423.800(b) 

and (d). Specifically, we propose to 

include in regulations text guidance 

(Part D Guidance—Low-Income Subsidy 

(LIS) Status Corrections Based on Best 

Available Evidence, dated June 27, 

2007, available at: http:// 

www.cms.hhs.gov/

PrescriptionDrugCovContra/Downloads/ 

Final%20Sponsor%20Guidance%

20on%20BAE%20062707.zip) we have 

issued to Part D sponsors concerning 

our best available evidence (BAE) 

policy. 

These revisions to § 423.800 reflect 

our current policy that Part D sponsors 

must accept and use BAE in those 

instances when this evidence, submitted 

by the beneficiary or another person on 

the beneficiary’s behalf, substantiates 

that the beneficiary’s information in 

CMS systems is not accurate. To ensure 

the appropriateness of corrections based 

on BAE, CMS policy requires sponsors 

to maintain for 10 years the original 

documentation used to substantiate 

requests for manual updating of the 

CMS system to accommodate 

subsequent periodic government audits. 

In addition, we plan to establish a 

feedback mechanism to the States to 

confirm the LIS corrections based on 

BAE and identify and address any 

problems in State to CMS reporting. 

As noted above, this policy is 

necessary because the monthly files 

from the States and Social Security CMS 

uses to establish an individual’s lowincome subsidy eligibility pursuant to 

section 1860D–14(c)(1)(A) of the Act do 

not always accurately reflect an 

individual’s true eligibility status. In 

certain cases, for example, the State has 

not yet reported the individual as 

Medicaid eligible, or has not reported 

him/her as institutionalized. As a result, 

CMS systems do not reflect a 

beneficiary’s correct low-income 

subsidy (LIS) status at that point in 


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time. As a result, accurate subsidy 

information on these individuals has 

not been communicated to the Part D 

plan. 

In these circumstances, beneficiaries, 

advocates or pharmacies have brought 

such errors to the Part D sponsor’s 

attention. CMS believes that the Part D 

sponsor is in the best position to 

address such errors and appropriately 

apply the subsidy as it is required by 

statute to do under section 1860D–

14(c)(1)(B) of the Act. This led to CMS’s 

development of the best available 

evidence (BAE) policy that we are 

proposing to incorporate in this 

proposed rule. 

Specifically, we are proposing to 

amend the regulations to require that 

Part D sponsors use BAE to substantiate 

a beneficiary’s eligibility for a reduction 

in premiums and or cost-sharing in the 

case of individuals who indicate they 

are eligible for the low-income subsidy. 

These include full-benefit dual eligible 

individuals, partial dual eligible 

individuals (that is, those who are 

enrolled in a Medicare Savings Program 

as a Qualified Medicare Beneficiary, 

Specified Low-Income Medicare 

Beneficiary or Qualifying Individual), 

people who receive Supplemental 

Security Income (SSI) benefits but not 

Medicaid, and people who apply for 

and are determined eligible for a 

subsidy. Under the BAE policy we 

propose to incorporate in this proposed 

rule, sponsors are required to accept and 

use BAE to correct the beneficiary’s lowincome subsidy data in the sponsor’s 

system and, as applicable, document 

requests for CMS to correct the 

beneficiary’s low-income subsidy data 

in our system when the change has not 

occurred as a result of the routine 

reporting. 

CMS continues to work to improve 

low-income subsidy data reporting. 

Such improvements would include, for 

example, permitting more frequent State 

submission of data files to CMS, more 

frequent CMS processing of data files 

and improved communication of the 

information to Part D sponsors. 

Nevertheless, we anticipate that the 

BAE policy will remain in place for the 

indefinite future. As a result, we are 

proposing to modify § 423.800 by 

adding a fourth paragraph, consistent 

with our current policy, that would 

require Part D sponsors to use the CMSdeveloped BAE process to establish the 

appropriate cost-sharing for low-income 

beneficiaries whose information in CMS 

systems is not correct. By adding this 

provision to the regulation, we are 

ensuring that our best available 

evidence policy and its requirements are 

clear to all parties and, in so doing, that 

the administration of the low-income 

subsidy program takes advantage of all 

data currently available to the Part D 

sponsors to ensure low-income 

beneficiaries are not burdened by 

unnecessary cost sharing at the point of 

sale. We also believe we will be in a 

stronger position from a compliance 

perspective, as it will strengthen our 

ability to take action against plans that 

fail to implement our best available 

evidence process. 

We expect that CMS guidance 

implementing the BAE policy will be 

updated as necessary to reflect 

appropriate process modifications as 

they become warranted, based on 

changes in technology and the types of 

documents that could in the future 

prove to reliably verify a beneficiary’s 

status as an individual eligible for a full 

low-income subsidy. 

We propose to define best available 

evidence at § 423.772 as documentation 

or information that is directly tied to 

authoritative sources, confirms that an 

individual meets the requirements for 

the low-income subsidy, and is used to 

support a change in an individual’s lowincome subsidy status. We are not 

proposing to specify in the regulation 

the specific documents that would meet 

these criteria, as there may be 

documents that meet these criteria in 

the future that do not currently exist. 

Currently, however, evidence 

sufficient to make a change to a 

beneficiary’s low-income status 

includes any one of the following: 

• A copy of the member’s Medicaid 

card which includes the member’s name 

and an eligibility date during the 

discrepant period or no later than July 

of the preceding year. 

• A report of contact including the 

date a verification call was made to the 

State Medicaid Agency and the name, 

title and telephone number of the state 

staff person who verified the Medicaid 

status during the discrepant period; 

• A copy of a state document that 

confirms active Medicaid status during 

the discrepant period; 

• A print out from the State electronic 

enrollment file showing Medicaid status 

during the discrepant period; 

• A screen print from the State’s 

Medicaid systems showing Medicaid 

status during the discrepant period; or 

• Other documentation provided by 

the State showing Medicaid status 

during the discrepant period. 

In addition, evidence to establish that 

a beneficiary is institutionalized and 

qualifies for zero cost-sharing includes 

any one of the following: 

• A remittance from the facility 

showing Medicaid payment for a full 

calendar month for that individual 

during the discrepant period; 

• A copy of a state document that 

confirms Medicaid payment to the 

facility for a full calendar month on 

behalf of the individual; or 

• A screen print from the State’s 

Medicaid systems showing that 

individual’s institutional status based 

on at least a full calendar month stay for 

Medicaid payment purposes during the 

discrepant period. 

Again, the proposed changes 

described in this portion of the 

proposed rule would not change current 

BAE policy. Rather they would codify 

existing operational processes and 

reflect our historic policy that Part D 

sponsors use BAE when this evidence 

substantiates that the beneficiary’s 

information in CMS systems is not 

accurate. We invite comment on 

methods by which we can improve this 

policy in the future. 

7. Certification of Allowable Costs 

(§ 423.505) 

We propose, by revising 

§ 423.505(k)(5), to clarify that the 

certification of allowable costs for risk 

corridor and reinsurance information 

includes direct and indirect 

remuneration that serves to decrease the 

costs incurred by a Part D sponsor for 

a Part D drug. The submission of 

accurate and complete data regarding 

direct and indirect remuneration that 

reduces a Part D sponsor’s costs for Part 

D drugs under the Medicare 

prescription drug benefit is necessary to 

ensure accurate reinsurance and risk 

corridor payments. 

8. Change of Ownership Provisions 

(§ 423.551) 

We propose to amend the change of 

ownership provisions in 42 CFR 

423.551, by adding paragraph (g) to 

clarify that PDP sponsors may not sell 

or transfer individual beneficiaries or 

groups of beneficiaries enrolled in any 

of their plan benefit packages (PBPs). 

This new provision is simply a 

clarification of an existing restriction on 

PDP sponsors’ ability to sell portions of 

their Part D lines of business. 

This proposed restriction on the sale 

of beneficiaries is based on two CMS 

determinations. First, in the preamble to 

the current Part D rule that published in 

the Federal Register January 28, 2005 

(70 FR 4341), CMS stated that we would 

recognize the sale of PDP lines of 

business as asset transfers that 

constitute a change ownership which 

CMS may recognize through the 

execution of an agreement to novate the 

selling sponsor’s PDP sponsor contract 

to a second qualified sponsor. Using a 


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common understanding of the phrase 

‘‘line of business’’ as referring to a 

company’s set of products or services, 

CMS maintains that a ‘‘PDP line of 

business’’ includes a PBP as well as the 

beneficiaries enrolled in that PBP. 

Therefore, there can be no sale of a line 

of business consisting solely of a set of 

beneficiaries without the accompanying 

transfer to the succeeding sponsor of the 

obligation to continue to provide the 

PBP services the beneficiaries have 

already elected. 

Second, the sale of individual 

beneficiaries would allow PDP sponsors 

effectively to make enrollment elections 

on behalf of beneficiaries when the Part 

D statute grants that authority 

exclusively to beneficiaries (see section 

1860D–1(a)(1)(A) of the Act) and, in the 

case of full-benefit dual eligible 

beneficiaries, CMS (see section 1860D–

1(b)(1)(C) of the Act). The change of 

ownership provisions of subpart L may 

not be read as a grant of enrollment 

election authority to PDP sponsors. 

We propose to add § 423.551(g) to 

provide necessary clarification on this 

change of ownership issue. During the 

first 2 years of the Part D program, 

several PDP sponsors have requested 

CMS approval of transactions involving 

the sale of beneficiaries. This 

clarification will minimize the number 

of sponsors that mistakenly begin 

negotiations on such sale agreements. 

C. Proposed Changes to the MA and 

Prescription Drug Benefit Programs 

In order to assist readers in 

understanding how the proposed 

provisions we discuss in this section 

would apply to both programs, we are 

including Table 1, which highlights the 

provisions affecting both programs and 

the pertinent Part 422 and Part 423 CFR 

sections. 

TABLE 1.—PROVISIONS AFFECTING BOTH THE PART C AND PART D PROGRAMS

Provision Part 422 

Subpart 

Part 422 

CFR section 

Part 423 

Subpart 

Part 423 

CFR section 

Passive enrollment procedures ................................... Subpart B ......................... 422.60 Subpart B ......................... 423.32 

Involuntary disenrollment and non-payment of premium.Subpart B ......................... 422.74 Subpart B ......................... 423.44 

Disclosure of plan information ..................................... Subpart C ........................ 422.111 Subpart C ........................ 423.128 

Retroactive premium collection and beneficiary repayment options.Subpart F ......................... 422.262 Subpart F ......................... 423.293 

Prohibiting improper billing of monthly premiums ....... Subpart F ......................... 422.262 Subpart F ......................... 423.293 

Non-renewal notification timelines .............................. Subpart K ......................... 422.506 Subpart K ......................... 423.507 

Reconsiderations ......................................................... Subpart M ........................ 422.578, 

422.582 

Subpart M ........................ 423.560, 

423.580, 

423.582 

Civil money penalties .................................................. Subpart O ........................ 422.760 Subpart O ........................ 423.760 

Marketing: Definitions .................................................. Subpart V (all marketing 

sections).

422.2260 Subpart V (all marketing 

sections.

423.2260 

Marketing: Review and distribution of marketing materials........................................... 422.2262 .......................................... 423.2262 

Marketing: Guidelines for CMS review ....................... .......................................... 422.2264 .......................................... 423.2264 

Marketing: Deemed approval ...................................... .......................................... 422.2266 .......................................... 423.2266 

Marketing: Standards for MA/Part D marketing .......... .......................................... 422.2268 .......................................... 423.2268 

Marketing: Licensing of marketing representatives 

and confirmation of marketing resources.

.......................................... 422.2272 .......................................... 423.2272 

Marketing: Broker and agent commissions ................. .......................................... 422.2274 .......................................... 423.2274 

Marketing: Employer and group retiree marketing 

(MA provision only).

.......................................... 422.2276 .......................................... 423.2276 

1. Authorization of Automatic or 

Passive Enrollment Procedures 

(§§ 422.60 and 423.32) 

Section 1851(c)(1) of the Act directs 

the Secretary to establish a process 

through which an individual makes an 

‘‘election’’ to receive Medicare coverage 

through an MA plan or original 

Medicare, or to change from one MA 

plan to another, including the form and 

manner in which such elections are 

made. Section 1860D–1(b)(1)(A) of the 

Act similarly directs the Secretary to 

establish a process for enrolling in or 

disenrolling from a PDP, or changing 

enrollment from one PDP to another. 

This authority is implemented for MA 

plans in §§ 422.60, 422.62, 422.66, and 

422.74, and for Medicare prescription 

drug plans in §§ 423.32 and 423.36, as 

well as in CMS manuals. 

In rare instances, CMS is faced with 

situations in which organizations 

become insolvent, or are determined to 

have such serious compliance issues 

that immediate plan terminations may 

become necessary. Normally, an 

organization that elects to non-renew its 

contract for the following year is 

required to notify CMS in July of the 

contract year, several months before the 

non-renewal takes effect. All 

beneficiaries enrolled in that plan are 

required to be notified in early October, 

providing individuals at least 3 months 

to evaluate other plan options, and 

make a plan election for the subsequent 

year. Consistent with existing 

regulations and guidance, such elections 

would normally entail ‘‘active’’

measures, such as signing an enrollment 

form, submitting an on-line enrollment 

request or calling a plan to enroll. 

However, when CMS identifies a 

situation that requires an immediate 

plan termination, or other situations in 

which CMS determines plan members 

might be harmed by remaining in their 

current plan, CMS believes that it is in 

the best interests of beneficiaries to 

protect those that may not have 

adequate time to elect a plan due to 

emergency terminations as well as those 

unable to, or who otherwise do not, 

focus on their plan options. In these 

circumstances, our primary goal is to 

ensure that minimal harm comes to the 

beneficiary who fails to act on his or her 

election options. To achieve this goal, 

we have determined that it is sometimes 

appropriate to use ‘‘passive’’ enrollment 

procedures under which an individual 

is notified that he or she can make an 

enrollment ‘‘election’’ by taking no 

action. Under these procedures, we 

strive, when possible, to select plans for 

individuals that will maintain a level of 

coverage equal to or better than their 

current coverage, without incurring 


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additional costs. We also generally 

assume that individuals who are 

currently enrolled in a particular type of 

coverage, such as prescription drug 

coverage, would want to maintain this 

type of coverage. Similarly, we assume 

that LIS-eligible individuals would 

prefer a plan where their premiums and 

deductibles were fully subsidized. 

In addition to termination situations, 

we have provided for ‘‘passive’’

enrollment in cases in which a failure 

to elect the enrollment in question 

would harm the beneficiary. For 

example, we have employed passive 

enrollment in the case of employer 

group members who would lose 

employer benefits if they were not 

passively enrolled. We also have 

provided for passive enrollment in 

which the particular plan in which the 

beneficiary is enrolled was being 

terminated by CMS due to compliance 

and insolvency issues, as well as 

instances when a beneficiary was 

enrolled in a terminating plan but a 

similar plan was offered by the same 

organization with which the beneficiary 

had already chosen to enroll. 

We are proposing to incorporate our 

current passive enrollment policies in 

the regulations in a new § 422.60(g) and 

§ 423.32(g). These new provisions 

would set forth in the regulations that 

CMS may authorize plans to carry out 

‘‘passive’’ enrollment procedures in 

situations involving immediate plan 

terminations or potential beneficiary 

harm from remaining enrolled in the 

beneficiary’s current plan. Under these 

enrollment procedures, individuals will 

be notified that they will be deemed to 

have elected the MA or PDP plan 

selected for them by CMS if they take 

no action to cancel such enrollment. In 

conjunction with these provisions, we 

would set forth several key beneficiary 

protections that would be required any 

time such an enrollment would occur. 

Such protections would include 

requiring that the organization that is 

receiving the enrollment notify all 

prospective enrollees of the passive 

enrollment prior to the effective date of 

the passive enrollment or as soon as 

possible after the enrollment effective 

date if prior notification is not possible 

under the circumstances. The notices to 

the enrollees would be approved by 

CMS and would explain their right to 

choose another plan, and describe the 

costs and benefits of the new plan and 

how to access care under the plan, as 

well and any other conditions of 

enrollment established by CMS. 

We would also specify that affected 

individuals would be entitled to a 

special enrollment period after their 

new enrollment took effect, as permitted 

under §§ 422.62(b)(4) and 

423.38(c)(8)(ii). 

2. Involuntary Disenrollment for 

Nonpayment of Premium (§§ 422.74 and 

423.44) 

The MMA provides individuals with 

the option to choose to have their 

premiums for either MA or PDP 

membership withheld from their Social 

Security benefit, as described in 42 CFR 

422.262(f) and 423.293, respectively. 

Section 1851(g)(3)(A) of the Act 

provides Medicare Advantage 

organizations the option to disenroll 

members who fail to pay basic and 

supplemental monthly premiums, as set 

forth at 42 CFR 422.74(d)(1). Section 

1860D–1(b)(1)(B)(v) of the Act makes 

this provision applicable to PDP 

sponsors. See 42 CFR 423.44(d)(1). 

Although MA organizations and PDP 

sponsors may disenroll individuals for 

failing to pay premiums in a timely 

manner, we believe that such 

disenrollments should be an option only 

in cases where individuals pay their 

required premiums directly to the plan, 

as opposed to individuals who have 

chosen to have their premiums 

automatically withheld from their 

Social Security benefits. In cases where 

MA organizations or PDP sponsors are 

not receiving premiums on a timely 

basis from members who have chosen 

the premium withhold option, the 

member is clearly not at fault if the 

premium for some reason is not being 

deducted or paid to the plan properly. 

Thus, we do not believe that the 

organization or sponsor should have the 

option to disenroll a member in that 

situation. Similarly, individuals who 

have elected the premium withhold 

option also should not be subject to 

disenrollment during the time needed to 

initially establish premium withhold 

status on an individual account. 

Therefore, we are revising the MA and 

Part D regulations in § 422.74(d)(1) and 

§ 423.44(d)(1) by adding the cross 

reference to paragraph (d)(1)(iv) to 

prohibit plans from disenrolling 

individuals for failure to pay premiums 

if they have either requested the 

premium withhold option or if they are 

already in premium withhold status. 

Plans may initiate disenrollments for 

failure to pay premium only after an 

individual in ‘‘direct bill’’ status has 

been notified of the premium owed and, 

in the case of MA plans, provided the 

grace period required under 

§ 422.74(d)(1)(i)(B), as currently 

outlined in the MA and Part D 

regulations discussed above. 

3. Disclosure of Plan Information 

(§§ 422.111 and 423.128) 

As provided in section 1852(c)(1) of 

the Act, MA organizations and 

prescription drug benefit plan (PDP) 

sponsors must disclose detailed 

information about the plans they offer to 

their enrollees. This detailed 

information is specified in section 

1852(c)(1) of the Act and §§ 422.111(b) 

and 423.128(b) of the Part C and Part D 

program regulations, respectively. 

Sections 422.111(a)(3) and 

423.128(a)(3), as well as our Marketing 

Guidelines require that this information 

be disclosed at the time of enrollment 

and at least annually thereafter. In 

addition, the Marketing Guidelines 

specify that current enrollees must 

receive the annual notice of change 

(ANOC) by October 31 and the evidence 

of coverage (EOC) annually. 

We propose clarifying in 

§§ 422.111(a)(3) and 423.128(a)(3) that 

plans must disclose the information 

specified in §§ 422.111(b) and 

423.128(b) of the MA and Part D 

program regulations, respectively, both 

at the time of enrollment and at least 

annually thereafter, 15 days before the 

annual coordinated election period. 

Making this clarification is essential to 

ensuring that current enrollees receive 

comprehensive information necessary 

for making an informed decision 

regarding their health care options prior 

to the annual coordinated election 

period. 

4. Retroactive Premium Collections and 

Beneficiary Repayment Options 

(§§ 422.262 and 423.293) 

Routine changes in a beneficiary’s 

plan status (for example, plan 

switching) or systems issues can result 

in a need for retroactive premium 

collections. Many beneficiaries can be 

financially harmed when required to 

pay the full amount of a retroactivelydue premium in addition to their 

current month’s premium in a single 

lump sum. Section 1860D–13(c)(1) of 

the Act states that ‘‘the provisions of 

§ 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.’’ Section 1854(d)(1) and 

(2) of the Act direct MA organizations 

to permit the payment of MA ‘‘monthly 

basic, prescription drug, and 

supplemental beneficiary premiums on 

a monthly basis’’ and ‘‘in accordance 

with regulations, an MA organization 

shall permit each enrollee, at the 

enrollee’s option, to make payment of 

premiums (if any) under this part to the 


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organization through’’ withholding, 

electronic funds transfer, or ‘‘such other 

means as the Secretary may specify.’’

We believe it would be consistent 

with these provisions to provide 

beneficiaries with the option of 

prorating past due premiums over a 

period of monthly payments when the 

reason for the premium arrearage is 

other than a member’s willful refusal to 

remit the premium. Specifically, we 

believe that beneficiaries should be able 

to spread out their obligation over at 

least the same period for which the 

premiums were due. That is, if 7 months 

of premiums are due, the member 

should have at least 7 months to repay. 

Accordingly, we propose to amend the 

MA regulations at § 422.262 by adding 

new paragraph (h) and the Part D 

regulations at § 423.293 by revising 

paragraph (a) to expressly provide for 

this option. 

5. Prohibiting Improper Billing of 

Monthly Premiums (§§ 422.262 and 

423.293) 

Under some circumstances 

operational failures cause CMS payment 

delays with respect to premiums 

collected by Social Security 

withholding. When this has happened, 

some PDP sponsors and MA 

organizations have erroneously opted to 

directly bill members for premiums that 

the members have requested be 

withheld from their Social Security 

payments. Sections 1860D–13(a) (for 

Part D) and 1854(b) (for Part C) of the 

Act establish specific formulas (based 

on annual bidding) for calculation of 

monthly premiums. Members who have 

submitted a request that premiums be 

withheld under section 1860D–13(c) of 

the Act for Part D or section 1854(d) of 

the Act for Part C have the right to have 

their premiums taken only out of their 

Social Security payments. Therefore, it 

is impermissible to bill a member for 

such premiums. Accordingly, we are 

proposing to revise the MA regulations 

by adding new paragraph (g) to 

§ 422.262 and the Part D regulations by 

adding new paragraph (e) to § 423.293, 

to explicitly prohibit such improper 

billing. Note that under circumstances 

when CMS cannot effectuate the 

premium withhold option for 

beneficiaries, we will set beneficiaries 

back to direct bill. In those cases, plans 

will be able to directly bill beneficiaries 

for premium amounts owed. 

6. Non-Renewal Notification Timelines 

(§§ 422.506 and 423.507) 

Non-renewals of MA or prescription 

drug plan contracts require the MA 

organization, the Part D sponsor, or 

CMS to notify both the enrollees of the 

organization or sponsor and the general 

public of the non-renewal. Existing 

regulations require notification 90 days 

prior to the effective date of the nonrenewal for notification to enrollees and 

90 days prior to the end of the calendar 

year to the general public. The effective 

date of contract non-renewals in the MA 

and prescription drug plan programs is 

January 1st of each calendar year. 

Currently, CMS regulations 

concerning contract non-renewals 

require that CMS notify an MA 

organization or a prescription drug plan 

sponsor (PDP sponsor) of a non-renewal 

by August 1 of the current contract 

calendar year. In cases where CMS 

announces its intention to non-renew an 

MA organization or a PDP sponsor, the 

MA organization or PDP sponsor has 

certain contract appeal rights. Note that 

in instances where an MA organization 

or PDP sponsor announces its intent to 

non-renew its contract with CMS, there 

is no similar contract appeals process 

available. Should an MA organization or 

PDP sponsor decide to pursue an appeal 

of CMS’ decision to non-renew the 

organization or sponsor’s contract, we 

believe it is appropriate that the appeals 

process be concluded in time for there 

to be a final decision on the nonrenewal, and for there to be sufficient 

time for the enrollees and the general 

public to be notified of a contract nonrenewal prior to January 1 of the 

following year. Presently, the 90 day 

notice requirement requires contract 

non-renewal appeals process to be 

completed in only 60 days (from August 

1st which is the date of notification of 

non-renewal, until October 1st,in order 

for the notice period to have run prior 

to January 1st). Our experience is that 

the contract non-renewal appeals 

process is likely to extend beyond 60 

days. For this reason, we propose 

revising § 422.506(a)(2)(ii), (a)(2)(iii), 

(b)(2)(ii), and (b)(2)(iii) of the MA 

regulations and § 423.507(a)(2)(ii), 

(a)(2)(iii), (b)(2)(ii) and (b)(2)(iii) of the 

Part D regulations, to change the 

beneficiary and public notice 

requirement from at least 90 days to at 

least 60 days, thus allowing more time 

for the contract non-renewal process to 

conclude, while still allowing for a 

sufficient beneficiary notice period, 

prior to January 1st. This change will 

help ensure that all termination 

decisions are final, prior to the start of 

marketing and enrollment activities. 

CMS also believes that a 60 day 

notification requirement better aligns 

itself with other important CMS 

notification and election requirements. 

For example, CMS currently requires 

that all MA organizations and PDP 

sponsors provide annual notice of 

change (ANOC) documents to enrollees 

of Medicare private health plans by 

October 31st of each year. As mentioned 

previously, the annual election period 

runs from November 15th to December 

31st of each year. By changing the 

enrollee notification timeframe from 90 

to 60 days, beneficiaries will receive 

notice of a pending contract nonrenewal during the same time period 

when beneficiaries are making 

important Medicare coverage decisions 

for the upcoming calendar year. A 60 

day notification period is a sufficient 

amount of time for enrollees to review 

other plan options and to make an 

election for enrollment into a plan for 

the following calendar year. 

7. Reconsiderations (§§ 422.578, 

422.582, 423.560, 423.580) 

We are proposing changes to the 

reconsideration process for both the MA 

and prescription drug benefit programs. 

The overall changes to the first level 

appeal process will be the same for both 

programs. However, we discuss the 

proposed revisions for each program 

separately because the proposed 

revisions would vary slightly due to 

program differences. 

a. Medicare Advantage Program 

(§§ 422.578 and 422.582) 

Under section 1852(g)(3)(A)(ii) of the 

Act and §§ 422.578 and 422.584 of the 

regulations, a physician, without regard 

as to whether the physician is treating 

the enrollee, is permitted to request an 

expedited plan reconsideration on 

behalf of an enrollee without having to 

be appointed by the enrollee as his or 

her representative. However, in order to 

request a standard pre-service plan 

reconsideration under §§ 422.578 and 

422.582, a physician must have been 

appointed as the enrollee’s 

representative, or be authorized by State 

law or other applicable law to act on 

behalf of the enrollee. We are proposing 

to revise § 422.578 and 422.582 to 

permit an enrollee’s treating physician 

to request a standard plan 

reconsideration of a pre-service request 

on an enrollee’s behalf without having 

been appointed by the enrollee as his or 

her representative. 

Section 1852(g)(2) of the Act states 

that an MA organization ‘‘shall provide 

for reconsideration of a determination 

described in paragraph (1)(B) upon 

request by the enrollee involved.’’

Although the statute does not expressly 

give any individual other than the 

enrollee the right to request a standard 

plan reconsideration, we have long 

permitted an enrollee to appoint a 

representative (for example, an attorney 

or family member) to file a request on 


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behalf of an enrollee. In addition, when 

an individual is authorized under State 

law or other applicable law to act on the 

beneficiary’s behalf, such an individual 

is also permitted to request a plan 

reconsideration on the enrollee’s behalf. 

With respect to a physician’s request 

for a standard plan reconsideration, the 

current regulations draw a distinction 

between a physician who is requesting 

an organization determination on behalf 

of an enrollee regarding coverage of 

services that have not been provided, 

and a request involving services that the 

physician has furnished. In the latter 

case, under § 422.574(b), if the 

physician has furnished a service to an 

enrollee and formally waives any right 

to payment from the enrollee for that 

service, he or she becomes a ‘‘party’’ to 

the organization determination, and 

may, under § 422.578, request a 

standard plan reconsideration (1st level 

appeal) without being appointed by the 

enrollee as a representative. This is a 

third instance in which someone other 

than the enrollee can request a standard 

plan reconsideration. 

After a number of years experience 

with the Part C program, we believe it 

is appropriate to revise the regulations 

to add a fourth circumstance under 

which an individual other than an 

enrollee can request a standard plan 

reconsideration on the enrollee’s behalf. 

Specifically, we propose to allow the 

enrollee’s physician, who the enrollee 

has already selected to provide 

treatment, to request standard plan 

reconsiderations on his or her patient’s 

behalf without having been appointed 

as the enrollee’s representative. We 

believe that an enrollee’s treating 

physician already has been selected by 

the enrollee and occupies a position of 

trust. We also believe that as a treating 

physician, he or she is in a good 

position to know whether a request for 

plan reconsideration is warranted, and 

in the enrollee’s interests. We have 

found that in some cases, requiring that 

the physician take the step of being 

appointed by the enrollee is a burden 

that does not serve the enrollee’s 

interests. 

We are proposing that the physician 

must be able to demonstrate that he or 

she is treating the enrollee in question 

in order to request a plan 

reconsideration on the enrollee’s behalf, 

and would be required to notify the 

enrollee that he or she is taking this 

action. 

We are not proposing to allow 

physicians who are not acting as an 

enrollee’s representative to request 

appeals on behalf of enrollees beyond 

the plan level, as we believe that the 

enrollee should be directly involved in 

a decision to disclose his or her private 

health information to appeals 

adjudicators beyond the plan level of 

appeal because those adjudicators do 

not have the same relationship with the 

enrollee that the plan has. 

b. Prescription Drug Benefit Program 

i. Definitions (§ 423.560) 

We propose to revise the regulation 

text of § 423.560 by adding a new 

definition for ‘‘other prescriber.’’ This 

term encompasses health care 

professionals, other than physicians, 

with the requisite authority under State 

law or other applicable law to write 

prescriptions for Medicare beneficiaries. 

In conjunction with this proposed new 

definition, we propose to add ‘‘or other 

prescriber’’ after ‘‘prescribing 

physician’’ or ‘‘physician’’ throughout 

subpart M of part 423 in order to 

authorize these other prescribers to 

perform the same functions that 

prescribing physicians are allowed to 

perform with respect to the coverage 

determination and appeals processes as 

set out in subpart M of part 423. 

Sections 1860D–4(g) and (h) of the 

Act establish the role of the ‘‘prescribing 

physician’’ in the coverage 

determination and appeals processes. 

Specifically, under section 1860D–4(g) 

of the Act, an enrollee may request an 

exception to a tiered cost-sharing 

structure such that a non-preferred drug 

could be treated as a preferred drug if 

the prescribing physician ‘‘determines 

that the preferred drug for treatment of 

the same condition either would not be 

as effective for the individual or would 

have adverse effects for the individual, 

or both.’’ Section 1860D–4(h) of the Act 

provides that an enrollee may appeal a 

determination not to provide coverage 

for a Part D covered drug that is not on 

the plan’s formulary ‘‘only if the 

prescribing physician determines that 

all covered Part D drugs on any tier of 

the formulary for treatment of the same 

condition would not be as effective for 

the individual as the nonformulary 

drug, would have adverse effects for the 

individual, or both.’’ However, sections 

1860D–4(g) and (h) of the Act are silent 

on the role of other health care 

professionals who have prescribing 

authority under State law or other 

applicable law. 

As the statute reflects, the Congress 

recognized the important role a 

prescribing physician plays in the 

coverage determination and appeals 

processes. In particular, a prescribing 

physician is especially well qualified to 

assist Part D enrollees with certain 

aspects of the coverage determination 

and appeals processes. Because sections 

1860D–4(g) and (h) of the Act are silent 

on the role of other health professionals 

who have prescribing authority under 

State law or other applicable law, an 

enrollee who has his or her prescription 

written by a non-physician prescriber 

arguably does not currently have the 

same protections and assistance in the 

coverage determination and appeals 

processes as an enrollee whose 

prescription is written by a physician. 

Based on program experience gained 

since the inception of the Part D 

program, and recognizing that there are 

other categories of health care providers 

who are authorized under State law or 

other applicable law to prescribe drugs 

for Part D enrollees, we are proposing to 

allow non-physician prescribers to 

perform the same functions as 

physicians for purposes of subpart M of 

part 423. 

This proposed change would ensure 

that enrollees who have prescriptions 

written by non-physician prescribers are 

afforded all of the same protections and 

assistance in the coverage and appeals 

processes that are currently available to 

enrollees whose prescriptions are 

written by a physician. For example, 

under § 423.566(c), an enrollee’s 

prescribing physician is permitted to 

request an expedited or a standard 

coverage determination on the enrollee’s 

behalf without being his or her 

representative. Under this proposal, a 

nurse practitioner or other health care 

professional who is authorized under 

State law or other applicable law to 

write prescriptions would be able to 

request an expedited or standard 

coverage determination on behalf of the 

enrollee. We believe this proposal 

would ensure that all Part D enrollees 

have the same protections and access to 

assistance in the coverage determination 

and appeals processes, notwithstanding 

the type of health care professional who 

writes their prescription. 

ii. Right to a Redetermination 

(§ 423.580) 

We propose to revise the regulation 

text of § 423.580 to provide prescribing 

physicians and other prescribers with 

the ability to request standard 

redeterminations on behalf of enrollees, 

and require them to notify enrollees that 

they are taking this action. 

Section 1860D–4(g) of the Act 

requires Part D plan sponsors to ‘‘meet 

the requirements of paragraphs (1) 

through (3) of section 1852(g) with 

respect to covered benefits under the 

prescription drug plan it offers under 

this part in the same manner as such 

requirements apply to an MA 

organization with respect to benefits it 

offers under an MA plan under Part C.’’


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Sections 1852(g)(1) through (g)(3) 

discuss the requirements for standard 

and expedited organization 

determinations and plan 

reconsiderations by MA organizations. 

Under current §§ 423.580–423.584, an 

enrollee’s prescribing physician is 

permitted to file an expedited 

redetermination on the enrollee’s behalf 

without being his or her representative, 

but cannot request a standard 

redetermination without being the 

enrollee’s representative. In accordance 

with section 1860D–4(g) of the Act, this 

limitation was carried over from 

§§ 422.578 and 422.582 of the Medicare 

Advantage regulations. However, as 

discussed above, in this proposed rule, 

we are proposing to revise §§ 422.578 

and 422.582 of the regulations to allow 

non-representative physicians to request 

standard plan reconsiderations of preservice requests on behalf of enrollees in 

MA appeals. In conjunction with that 

proposed change, and consistent with 

the requirement under section 1860D–

4(g) of the Act that plan 

redeterminations under Part D be 

provided in the same manner as plan 

reconsiderations under Part C, we 

propose to revise §§ 423.580 and 

423.582 to be consistent with our 

proposed changes to §§ 422.578 and 

422.582. However, under Part D, we are 

not carrying over the limitation from 

proposed § 422.578 that would prevent 

a prescribing physician from requesting 

a standard plan-level appeal for 

payment. Unlike under Part C, 

prescribing physicians do not have a 

financial interest in the payment of Part 

D claims. Thus, we believe prescribing 

physicians may make requests for 

payment on behalf of enrollees under 

Part D. In addition, consistent with our 

proposal to afford non-physician 

prescribers the same authority to assist 

beneficiaries in the coverage 

determination process as prescribing 

physicians, we also propose to allow 

other prescribers to request plan 

redeterminations on behalf of enrollees. 

8. Civil Money Penalties (§§ 422.760 

and 423.760) 

CMS may impose civil money 

penalties (CMPs) on MA organizations 

and Part D sponsors for certain 

regulatory offenses, as described in 

subpart O of both 42 CFR 422 and 42 

CFR 423. Section 1857(g)(3)(A) and 

section 1860D–12(b)(3)(E) of the Act 

provides CMS with the ability to impose 

CMPs of up to $25,000 per 

determination (determinations are those 

which could otherwise support contract 

termination, pursuant to §§ 422.509 or 

423.510) when the deficiency on which 

the determination is based adversely 

affects or has the substantial likelihood 

of adversely affecting an individual 

covered under the organization’s 

contract. The current regulations 

essentially echo the Act’s wording with 

respect to the amount of the penalty that 

CMS may impose. However, the statute 

and the existing regulations shed little 

light on how to determine whether a 

series of incidents or events, or a single 

event that individually impacts multiple 

enrollees, constitutes a single 

determination or multiple 

determinations which could justify the 

calculation of a larger total penalty. 

It is possible that one incident could 

negatively affect multiple enrollees, 

which would provide a justification for 

the CMP amount to potentially be 

greater than a CMP based on an event 

that only affects a few beneficiaries. For 

example, the failure of an organization 

or sponsor to timely issue annual notice 

of change (ANOC) documents would be 

a one-time incident that has the 

potential to have adverse consequences 

for a large number of enrollees. CMS 

believes it is appropriate for the specific 

factors to be considered in calculating a 

total CMP, such as the number of 

enrollees affected or potentially 

affected, whether the ANOCs were 

significantly delayed (resulting in a 

substantial decrease in the amount of 

time an enrollee had to determine 

whether or not to stay in their plan), or 

an additional factor was involved that 

further adversely affected the enrollees. 

Similarly, one or a small group of 

marketing agents perpetrating similar 

misrepresentations over a period of time 

could constitute a series of incidents or 

events that CMS believes should be 

considered in calculating a total CMP. If 

one agent or several agents are 

misrepresenting plan benefits, the 

agent(s) may be repeating the same 

misrepresentation on multiple occasions 

and to multiple enrollees. Each time an 

agent misrepresents the plan’s benefits 

and the enrollee is adversely affected or 

potentially adversely affected by such 

inaccurate statements, a determination 

justifying a CMP could be made based 

on each enrollee affected by the agent’s 

actions. 

Given that the Act requires that the 

deficiency on which the determination 

is based must have adversely affected or 

have the substantial likelihood of 

adversely affecting an individual 

covered under the organization’s 

contract, CMS believes that a CMP may 

be calculated based on each enrollee 

covered under the organization’s 

contract adversely affected or 

potentially adversely affected by the 

organization’s conduct. The statute 

clearly specifies that CMPs may be 

levied at amounts up to but not 

exceeding $25,000 per determination. 

We propose to clarify our regulations 

relating to CMPs in both 42 CFR 422.760 

and 42 CFR 423.760 by adding 

paragraph (b)(2) of the respective 

sections to state that CMS may impose 

a penalty of not more than $25,000 for 

each enrollee covered under the 

organization’s contract that is adversely 

affected or substantially likely to be 

adversely affected by the organization’s 

deficiency (or deficiencies). When 

determining the amount of a penalty per 

determination, up to the $25,000 

maximum, we will continue to take into 

account factors such as the severity of 

the infraction, the evidence supporting 

the infraction, the amount of harm 

caused to the Medicare beneficiary, and 

the organization’s past conduct. These 

factors combined will assist us in 

determining the amount per affected 

beneficiary that the organization should 

be penalized. 

CMS believes this clarification is 

necessary for both MA organizations 

and Part D sponsors to fully appreciate 

the consequences of noncompliance 

with applicable program requirements. 

An MA organization or Part D sponsor’s 

conduct that adversely affects a 

significant number of Medicare 

beneficiaries may have a significant 

financial impact on the organization. 

Our proposed change is aimed at 

protecting enrollees by clarifying that 

penalties can be substantial for 

noncompliance. 

Adding the option of assessing CMPs 

at the level of each enrollee covered 

under the organization’s contract—to 

CMS’ existing authority, which enables 

the Agency to continue to levy CMPs at 

the ‘‘per contract’’ level—provides 

necessary flexibility for CMS to better 

match CMP amounts to the specific 

nature of the determination that 

warrants a CMP. However, we 

acknowledge that there may be 

alternative or additional approaches to 

the ‘‘per beneficiary’’ and ‘‘per contract’’

schema described here that would 

likewise meet the Agency’s goals of 

providing meaningful penalties that 

deter violations of Medicare program 

requirements and protect Medicare 

beneficiaries. For example, tying CMP 

amounts to the number of days that 

violations existed may likewise be an 

effective approach for assessing 

meaningful CMPs. We therefore seek 

comments on our proposed clarification 

as well as whether any other approaches 

would more effectively deter MA 

organizations and Part D sponsors from 

engaging in conduct which is in 

violation of CMS requirements. We also 

seek comment as to the appropriate 


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monetary range for CMPs imposed on 

MA organizations and Part D sponsors 

and as to whether some upper limit 

should exist on the total amount of a 

penalty imposed on an organization 

when a deficiency has adversely 

impacted a large number of enrollees 

covered by an MA organization or Part 

D sponsor. 

9. Medicare Advantage and Prescription 

Drug Program Marketing Requirements 

(Proposed New Subparts V) 

a. General 

Section 1851 of the Act sets forth 

provisions relating to beneficiaries 

making choices as to how they want to 

receive their Medicare benefits. 

Specifically, it addresses the provision 

of information to beneficiaries on their 

Medicare health care options, the 

marketing of such health care options, 

and the timing and method for making 

a choice among health care options, and 

enrollment in, disenrollment from, or a 

change in, the health care option of the 

beneficiary’s choice. 

Sections 1851(h)(1) through (5) of the 

Act govern the marketing of MA plans 

to Medicare beneficiaries by MA 

organizations. Section 1851(h)(1) of the 

Act requires that marketing material be 

submitted to CMS for approval before it 

is used, and provides for deemed 

approval after 45 days (or 10 days in 

certain cases) if CMS does not 

disapprove the material. Section 

1851(h)(2) provides for CMS to establish 

‘‘standards’’ for the review of marketing 

material, and requires that material be 

disapproved if it ‘‘is materially 

inaccurate or misleading or otherwise 

makes a material misrepresentation.’’

Section 1851(h)(3) of the Act provides 

that material approved for use in one 

geographic area is deemed approved in 

other areas except with respect to 

material specific to the area involved, 

and section 1851(h)(5) of the Act 

provides that if model language 

approved by CMS is used, it can be used 

only 10 days after submitting it to CMS 

for approval. Finally, section 1851(h)(4) 

of the Act requires that MA 

organizations conform to ‘‘fair 

marketing standards,’’ including those 

established by CMS by regulation, and 

requires that such standards prohibit an 

MA organization from providing for 

cash or rebates as an inducement to 

enroll, or otherwise, and may include a 

prohibition on an MA organization or its 

agent filling out an enrollment form for 

individuals. With respect to marketing 

by PDP sponsors, section 1860D–

1(B)(1)(vi) of the Act requires CMS to 

use rules ‘‘similar to (and coordinated 

with)’’ the foregoing marketing rules set 

forth in section 1851(h). Regulations at 

§§ 422.80 and 423.50 and detailed 

operational guidance found in ‘‘The 

Medicare Marketing Guidelines for 

Medicare Advantage plans, Medicare 

Advantage prescription drug plans, 

prescription drug plans, and 1876 cost 

plans,’’ second revision dated July 25, 

2006 (hereinafter referred to as 

‘‘Marketing Guidelines’’), are the current 

standards by which MA organizations 

and Part D sponsors must meet in their 

marketing to eligible individuals 

regarding their plan choices. In 

developing these standards, CMS 

recognized that establishing fair 

marketing standards encompasses more 

than CMS approval of marketing 

materials. It also includes the 

development of standards related to the 

dissemination of information through a 

wide variety of media forms (for 

example, advertisements and Web sites) 

and MA organization or Part D sponsor 

(or their agents’) conduct when 

attempting to persuade a beneficiary to 

enroll in a particular plan. Both the 

regulations and the Medicare Marketing 

Guidelines prohibit organizations from 

conducting marketing activities that 

would result in generating misleading 

information to Medicare beneficiaries. 

In order to implement standards 

consistent with ‘‘fair marketing’’

practices in accordance with sections 

1851(h) and 1860D–1(b)(1)(B)(vi) of the 

Act, and to ensure beneficiaries receive 

the necessary information to make 

informed choices during the annual 

election period, we propose to amend 

and expand our marketing regulations 

for both the MA and the Part D 

programs. Moreover, due to the 

proposed addition of new marketing 

provisions and the need to clarify 

current marketing regulations, we 

propose to remove §§ 422.80 and 423.50 

of subpart B, which currently specify 

the requirements related to the approval 

of marketing materials and instead 

include this core of our marketing 

requirements in a new subpart V of 42 

CFR 422 and 423 specific to the 

marketing regulations for each program. 

b. Marketing Materials and Marketing 

Requirements 

i. Definitions Concerning Marketing 

Materials (§§ 422.2260, 423.2260) 

We are making an organizational 

change for this section consistent with 

our proposal to create a new subpart V 

of 42 CFR 422 and 423 specific to 

marketing. We are moving the definition 

of marketing materials to §§ 422.2260 

and 423.2260 of the Part C and D 

program regulations, respectively. 

ii. Review and Distribution of Marketing 

Materials: File and Use (§§ 422.2262, 

423.2262) 

In addition to moving our 

requirements concerning the approval of 

marketing materials and election forms 

to §§ 422.2262 and 423.2262 of the Part 

C and D program regulations, 

respectively, we are proposing to 

modify the ‘‘file and use’’ review 

process. 

While the statute requires the 

submission of marketing materials to 

CMS for a 45-day period of CMS review, 

based on years of program experience 

CMS recognized that some MA 

organizations consistently met all 

marketing standards, and that their 

marketing materials warranted less 

scrutiny. CMS accordingly established a 

file and use policy that was designed to 

streamline the marketing materials 

approval process for these MA plans. 

Under this file and use policy, Medicare 

health plans that demonstrated to the 

satisfaction of CMS that they 

continually met a particular high 

standard of performance were able to 

publish and distribute certain marketing 

materials within 5 days of submission to 

CMS under section 1851(h)(1), without 

waiting for a response from CMS. 

In effect, these materials were deemed 

approved by CMS after 5 days based on 

CMS’s prior review of earlier materials. 

The criteria in order to be eligible for 

the original file and use policy were that 

a contracting entity had to have 

submitted at least eighteen months of 

marketing materials for CMS review, 

and at least ninety percent of the 

materials submitted within the past six 

months had to meet applicable 

marketing standards. 

In the regulations implementing the 

MMA, CMS adopted a separate file and 

use policy that was based on the nature 

of the marketing materials in question, 

rather than the track record of the MA 

organization or PDP sponsor. Under this 

policy, an MA organization or PDP 

sponsor certifies that it is using either 

model language already reviewed and 

approved by CMS, or types of marketing 

materials that CMS has identified as not 

containing substantive content. As with 

the original policy that focused on the 

organization, the materials covered by 

this new file and use certification policy 

could be used 5 days after submission, 

without any explicit approval from 

CMS. In the case of MA organizations, 

this certification is made at the time of 

submission, while PDP sponsors are 

permitted to so certify in their contracts. 

In order to level the playing field 

among contractors, eliminate 

redundancies, and focus resources on 


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materials that have content that 

warrants CMS scrutiny, we are 

proposing to eliminate file and use 

status based on an organization’s track 

record, and apply a uniform policy of 

applying the file and use policy to 

marketing materials that either use 

model language without substantive 

modification, or materials that are 

identified by CMS as not containing 

substantive content warranting CMS 

review. The same approach to certifying 

that these types of materials are being 

used would apply for both Part C and 

Part D contractors. We would include 

the proposed file and use provision in 

§ 422.2262(b) and § 423.2262 (b) of the 

MA and Part D programs, respectively. 

iii. Guidelines for CMS (§§ 422.2264, 

423.2264) 

We are making an organizational 

change for this section consistent with 

our proposal to create a new subpart V 

of 42 CFR 422 and 423 specific to 

marketing regulations. We are moving 

§§ 422.80(c) and 423.50(d), which 

describe specific guidelines for CMS 

review of marketing materials and 

election forms, to §§ 422.2264 and 

423.2264, respectively. 

iv. Deemed Approval (§§ 422.2266, 

423.2266) 

Consistent with our proposal to create 

a new subpart V of 42 CFR 422 and 423 

specific to marketing regulations, we are 

making an organizational change for this 

section. We are removing §§ 422.80(d) 

and 423.50(e) and creating §§ 422.2266 

and 423.2266, respectively. The 

provision concerns CMS’ deemed 

approval of the distribution of 

marketing materials. 

v. Standards for MA and PDP Marketing 

(§§ 422.2268, 423.2268) 

We are making an organizational 

change for this section consistent with 

our proposal to create a new subpart V 

of 42 CFR 422 and 423 specific to 

marketing regulations. We are removing 

§§ 422.80(e) and 423.50(f) and creating 

§§ 422.2268 and 423.2268, respectively. 

vi. Licensing of Marketing 

Representatives and Confirmation of 

Marketing Resources (§§ 422.2272, 

423.2272) 

In response to questions from the Part 

D industry regarding state licensure of 

marketing representatives, CMS adopted 

in its Marketing Guidelines the 

requirement that MA organizations and 

Part D sponsors that conduct marketing 

through independent agents use statelicensed, certified, or registered 

individuals to do so, if a state licenses 

such agents. The use of only statelicensed marketing representatives 

helps ensure that the marketing 

representatives meet minimum 

standards of integrity and 

professionalism in order to market to 

Medicare-eligible beneficiaries. This 

Medicare requirement permits Medicare 

to benefit from State efforts to deny 

licensure to under-educated, 

unscrupulous or otherwise substandard 

individuals, and helps ensure that 

Medicare beneficiaries are not the 

victims of substandard or inappropriate 

marketing activities. 

Based on the experience we have 

gained since the start of the Part D 

program, and continued experience 

with the Medicare Advantage program, 

we propose to codify in the regulation 

our existing requirement that MA 

organizations and Part D sponsors 

utilize only State-licensed marketing 

representatives to do marketing where 

they use independent agents in the 

States that license such agents. 

We further propose to add a 

regulatory requirement to §§ 422.2272 

and 423.2272 that MA organizations and 

PDP sponsors that market through 

independent agents not only be required 

to use licensed agents, but would be 

required to report to States that they are 

using such agents, in a manner 

consistent with State appointment laws. 

State appointment laws require MA and 

PDP sponsors to appoint marketing 

representatives before the agent can 

market a plan’s product. Appointment 

laws may require an insurance plan to 

maintain a registry of marketers who 

sell their plans, including maintaining a 

list of license numbers, dates the 

individual began selling policies for the 

insurance company, and stopped selling 

plans for the insurance company. While 

we previously required only that 

licensed agents be used, and did not 

require that the appointment of such 

agents be reported to the State agency 

that regulates agents, we believe this 

latter requirement would enable States 

to monitor the agents’ activities in 

connection with their Medicare 

marketing for the purpose of monitoring 

the agent’s fitness to engage in 

marketing in the State. We believe 

Medicare beneficiaries would benefit 

from this State monitoring. 

More specifically, we recognize that, 

under the preemption provisions in 

section 1856(b)(3) of the Act 

(incorporated for PDPs under section 

1860D–12(g)), States do not have the 

authority to regulate the marketing of 

Medicare Part C and D plans. However, 

as noted, any abuses by an agent in 

marketing such plans would have direct 

relevance to the State’s oversight of the 

agent generally, and implications for the 

agent’s marketing of products over 

which the state has jurisdiction, and 

Medicare beneficiaries would benefit 

from having the agents who engage in 

Medicare marketing subject to this state 

oversight. Because State laws requiring 

compliance with an appointment law 

with respect to Medicare Part C and Part 

D marketing are pre-empted, however, 

we do not believe that any fees that 

would be charged in connection with a 

State appointment law would apply. 

Rather, we would limit the requirement 

to complying with only those aspects of 

State appointment laws that provide for 

giving the state information about which 

agents are marketing the Part C and D 

plans. 

In the context of the requirement that 

MA organizations and Part D sponsors 

utilize only State-licensed marketing 

representatives, and report the 

appointment of such agents to States 

consistent with the procedures under 

State appointment laws, it is important 

to discuss the activities that would not 

trigger the need for using State-licensed 

marketing representatives. As standard 

practice, MA organizations and Part D 

sponsors employ customer service 

representatives who answer questions 

and accept enrollments on behalf of 

enrollees who have decided to enroll in 

a particular plan offered by the 

organization. We recognize that plan 

customer service representatives play an 

important role in disseminating 

information by answering factual 

questions posed by beneficiaries, and 

that such an activity is distinguishable 

from the act of steering to a plan 

(‘‘marketing,’’ as defined in the 

Medicare Marketing Guidelines). 

Additionally, taking demographic 

information from someone who has 

decided to enroll in the plan, in order 

to complete an application, is not 

steering in that the beneficiary has 

already made a choice to enroll in a 

plan. Accordingly, we believe providing 

factual information, fulfilling a request 

for materials, and taking demographic 

information in order to complete an 

enrollment application at the initiative 

of the enrollee by a customer service 

representative, are legitimate customer 

service activities that would not trigger 

the need for using State-licensed 

marketing representatives. 

In addition, we also propose to clarify 

in §§ 422.2268 and 423.2268 several 

standards for MA and PDP organization 

marketing. In §§ 422.2268(d) and 

423.2268(d) we clarify that the 

prohibition on door-to-door solicitation 

includes other unsolicited instances of 

direct contact, such as outbound calling 

without the beneficiary initiating 

contact. We believe this clarification 


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would help prevent inappropriate 

conduct on the part of agents in 

aggressively pursuing the marketing of 

Part C and D plans to beneficiaries (for 

example, approaching beneficiaries 

directly in parking lots) outside of 

approved common areas that may be 

used for marketing displays and 

presentations. We would also clarify in 

§§ 422.2268(l) and 423.2268(l) that 

plans may not engage in sales activities, 

including the distribution or collection 

of plan applications, at educational 

events. These events may be sponsored 

by plan(s) or by outside entities, and are 

events that are promoted to be 

educational in nature and have multiple 

vendors, such as health information 

fairs, conference expositions, state-or 

community-sponsored events, etc. In 

§§ 422.2268(k) and 423.2268(k) we 

clarify that sales activities are only 

permitted in common areas of health 

care settings (for example, hospital 

cafeterias or conference rooms), and 

would be prohibited in areas where 

patients primarily intend to receive 

health care services (for example, 

waiting rooms and pharmacy counter 

areas). The term ‘‘health care setting’’

refers to all settings where providers 

operate, including but not limited to 

pharmacies, physicians offices, 

hospitals, and long-term care facilities. 

We further propose several regulatory 

requirements in §§ 422.2268 and 

423.2268, providing additional 

protections to ensure beneficiaries are 

not the victims of inappropriate 

marketing techniques. These include a 

new requirement in §§ 422.2268(b) and 

423.2268(b) under which organizations 

would be required to limit the types of 

promotional items offered to potential 

enrollees (examples of acceptable items 

include pens, pill boxes and jar openers) 

and the value of such items to a nominal 

amount, established by CMS in 

operational guidance, and may not 

provide meals, regardless of value. 

(Refreshments are allowed, such as 

coffee, soft drinks, and snacks.) In 

§§ 422.2268(f) and 423.2268(f), we also 

propose to prohibit the cross-selling, in 

any MA or Part D sales activity or 

presentation, of non-health care-related 

products to a prospective enrollee. 

Marketing to current plan members of 

health care and non-health care-related 

products would also remain subject to 

HIPAA rules. In §§ 422.2268(g) and 

423.2268(g), we are proposing to limit 

any appointment with a beneficiary 

involving marketing of health carerelated products (for example, whether 

Medicare supplement, Medicare 

Advantage, stand-alone PDP will be 

discussed) to the scope agreed upon by 

the beneficiary. In advance of any 

marketing appointment, the beneficiary 

must have the opportunity to agree to 

the range of choices that will be 

discussed, and that agreement must be 

documented by the plan. Under 

proposed §§ 422.2268(h) and 

423.2268(h), additional lines of plan 

business not identified prior to the inhome appointment would require a 

separate appointment that could not be 

re-scheduled until 48 hours after the 

initial appointment. An additional 

beneficiary protection, proposed in 

§§ 422.2268(n) and 423.2268(n), would 

limit the use of names and/or logos of 

co-branded network providers on plan 

membership and marketing materials. 

This proposed requirement will reduce 

the tendency of members to mistakenly 

believe they must use the co-branded 

network provider in order to obtain plan 

benefits. 

vii. Broker and Agent Requirements 

(§§ 422.2274, 423.2274) 

Section 1851(h)(2) of the Act requires 

us to establish marketing standards for 

Medicare Advantage (MA) plans and 

under section 1860D–1(b)(1)(B)(vi) of 

the Act, Medicare prescription drug 

benefit plans (PDP), to ensure that 

beneficiaries are not misled or provided 

inaccurate information. Since the 

passage of the MMA, CMS has not 

specified standards in the regulation 

pertaining to the way brokers or agents 

(herein after referred to as ‘‘agents’’) 

who are used to market MA plans and 

PDPs are compensated. Currently, the 

Marketing Guidelines allow agent 

compensation to vary based on the level 

of effort and the plan product type. 

Agents selling MA and PDP products 

play a significant role in providing 

guidance and advice to beneficiaries 

when selecting health plan options. 

This unique position allows them to 

influence beneficiary choices. The 

current compensation structure in the 

Marketing Guidelines has the potential 

to create a financial incentive for agents 

to only market and enroll beneficiaries 

in some plan products and not others. 

Based on our experience since the 

passage of MMA, this compensation 

structure has lead some agents to 

encourage beneficiaries to enroll in 

products that may not meet the 

beneficiaries’ health needs but pays the 

agents the highest commission. In 

addition, there is a potential financial 

incentive for agents to encourage 

beneficiaries to change plans each year. 

Therefore, in order to prevent agents 

from unnecessarily moving beneficiaries 

from plan to plan and to ensure that 

beneficiaries are receiving the 

information and counseling necessary to 

select the best plan based on their 

needs, CMS intends to establish 

guidelines for agent compensation. 

We propose to add §§ 422.2274(a)(1) 

and (a)(2) and 423.2274(a)(1) and (a)(2) 

to include these requirements. 

Specifically CMS would require MA 

organizations and PDP sponsors to 

adopt a commission structure in which: 

• The commission or other 

compensation (collectively referred to as 

‘‘commission’’) to an agent or 

representative in the first year may not 

exceed the commission the agent would 

receive for selling or servicing the 

policy in all subsequent years. 

• The commission must be the same 

for all plans and all plan product types 

offered by the organization’s or 

sponsor’s parent. Each organization 

offering MA and MA–PD products must 

establish a single commission that may 

not vary based on the premium of the 

plan or any other measure and apply 

this flat fee commission to all products. 

Each sponsor offering PDP products 

must establish a single commission that 

may not vary based on the premium of 

the plan or any other measure and apply 

this flat fee commission to all products. 

Additionally, to ensure beneficiaries 

are getting the information necessary to 

make informed decisions, it is critical 

that agents are trained on Medicare 

rules, regulations and compliancerelated information on the plan 

products they intend to sell. In addition 

to the training, we propose to require 

that agents pass a written test to 

demonstrate their knowledge of the 

Medicare program and the plan specific 

products they intend to sell. We expect 

MA organizations and PDP sponsors to 

develop training modules and written or 

electronic tests based on CMS 

guidelines. MA organizations and PDP 

sponsors may also use or accept the 

training modules and written or 

electronic tests of third parties or other 

MA organizations or PDP sponsors. 

CMS has reviewed sophisticated 

training and testing software of two 

major entities offering third party 

testing. The testing software included 

important controls to ensure the 

integrity of the testing. The testing 

software includes questions developed 

by test development experts. In addition 

the software has the ability to generate 

new questions for agents that require retesting. CMS will review the training 

modules and tests during routine or 

focused monitoring visits. This will 

ensure that agents fully understand the 

products they are marketing and selling, 

that they are providing accurate plan 

information and are able to provide the 

best plan recommendations to 

beneficiaries. 


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We propose to establish guidelines for 

agent training and testing and require, at 

CMS request, the reporting of marketing 

related information. We propose to 

include these requirements at 

§§ 422.2274 and 423.2274. Specifically 

CMS would—

• In 422.2274(b) and 423.2274(b), 

require MA organizations and PDP 

sponsors to train all agents selling 

Medicare products on Medicare rules, 

regulations and compliance-related 

information. 

• In 422.2274(c) and 423.2274(c), 

require agents selling Medicare products 

to pass written or electronic tests on 

Medicare rules, regulations and 

information on the plan products they 

intend to sell. 

• In 422.2274(d) and 423.2274(d), 

require MA organizations and PDP 

sponsors to provide to CMS the 

information designated by CMS as 

necessary to conduct oversight of 

marketing activities. 

• In 422.2274(e) and 423.2274(e), 

require MA organizations and PDP 

sponsors to comply with State requests 

for information about the performance 

of licensed agents or brokers as part of 

a State investigation into the 

individual’s conduct. CMS will 

establish and maintain a memorandum 

of understanding (MOU) to share 

compliance and oversight information 

with States that agree to the MOU. 

We believe these proposed changes 

would enable beneficiaries to receive 

up-to-date information to help them 

select the best plan. In addition, the 

proposed changes would ensure that 

agents receive adequate training to 

market Medicare products, create a 

standard agent compensation structure 

and eliminate the financial incentives to 

encourage beneficiaries to enroll in a 

plan that may not be in the 

beneficiaries’ best interest. 

viii. Employer Group Retiree 

(§§ 422.2276, 423.2276) 

We are making an organizational 

change for this section consistent with 

our proposal to create a new subpart V 

of 42 CFR 422 and 423 specific to 

marketing regulations. We are removing 

§§ 422.80(f) and creating §§ 422.2276 

and, because the provision applies as 

well to the Part D program, adding new 

§ 423.2276 to Part 423. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements 

(ICRs): 

Section 422.4 Types of MA Plans 

Section 422.4(a)(1)(iv)(B) states that 

MA organizations offering 

disproportionate percentage SNPs must 

limit new enrollment of non-special 

needs members to no more than 10 

percent of new enrollees, and that at 

least 90 percent of new enrollees must 

be special needs individuals as defined 

in § 422.2. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to monitor 

the percentage of non-special needs 

individuals in the SNP and ensure that 

this level remains below the established 

threshold. It will take one MA 

organization an initial burden of 2 hours 

to comply with this requirement. 

Therefore, with 176 disproportionate 

percentage SNPs in the market, the 

initial burden associated with this 

requirement is 352 hours. 

We estimate it would take one MA 

organization an additional burden of 1 

hour/week to comply with this 

requirement on an ongoing basis for a 

total annual burden of 52 hours/year. 

We estimate 176 MA organizations 

would be affected annually by this 

requirement; therefore, the total annual 

burden associated with this requirement 

is 9152 hours. 

Section 422.52 Eligibility To Elect an 

MA Plan for Special Needs Individuals 

Section 422.52(g) requires a SNP to 

establish a process to verify the 

Medicaid eligibility and special needs 

status of an individual prior to enrolling 

the individual in a form and manner 

specified by CMS. This may require 

collaborative meetings between MA 

plan staff and State Medicaid staff to 

establish the process. This process 

could include calling the Medicaid 

eligibility verification system (EVS) and 

reviewing appropriate used to 

determine an individual’s special need. 

The burden associated with this 

requirement is the time and effort put 

forth by the SNP to establish a process 

and to verify eligibility. We estimate it 

would take one SNP approximately 

(4680 minutes/78 hours) to comply with 

this requirement. The total number of 

respondents affected would be 776 

SNPs; therefore, the total annual burden 

is estimated to be 60,000 hours. 

Section 422.60 Election Process 

Section 422.60(g)(2) requires the 

organization that receives the 

enrollment to provide notification that 

describes the costs and benefits of the 

plan and the process for assessing care 

under the plan. The notification must be 

provided to all potential enrollees prior 

to the enrollment effective date (or as 

soon as possible after the effective date 

if prior notice is not practical), in a form 

and manner determined by CMS. 

Providing notification may include 

mailing a brochure or fact sheet with the 

aforementioned information and 

contacting potential enrollees to 

respond to any questions regarding the 

mailer. 

The burden associated with this 

requirement is the time and effort put 

forth by the organization to provide 

notification that meets the requirements 

specified by CMS. We estimate it would 

take one MA (30 minutes/.5 hours) to 

comply with this requirement. The total 

number of organizations affected is 5; 

therefore, total annual burden hours 

associated with the requirement is 2.5 

hours. 

Section 422.101 Requirements 

Relating to Basic Benefits 

Section 422.101(f)(1) states that MA 

organizations offering special needs 

plans must have a model of care plan 

specifying how the plan will coordinate 

and deliver care designed for the plan’s 

enrollees. The model of care plan would 

be developed by the deliberations of the 

appropriate staff of the MA organization 

and maintained in a written document. 

The burden associated with this 

requirement is the time and effort put 

forth by the special needs plans to 

establish a model that meets the 

requirements specified under Section 

422.101(f)(1). We estimate it would take 

one special needs plan 24 hours for six 

months to meet this requirement. We 

estimate 335 special needs plans would 

be affected by this requirement 

annually; therefore, the total annual 

burden associated with the requirement 

is 8,040 hours. 


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Section 422.103 Benefits Under an MA 

MSA Plan 

Section 422.103(e) requires all MA 

organizations offering MSA plans to 

provide enrollees with available 

information on the cost and quality of 

services in their service area, and to 

submit to CMS for approval a proposed 

approach to providing such information. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization offering 

MSA plans to provide information to 

enrollees and to submit the proposed 

approach to providing such information 

to CMS. About 3,300 Medicare 

beneficiaries are enrolled in Medicare 

MSA plans in 2008. 

We expect that the burden upon 

health plans to develop cost and quality 

data for use by MSA enrollees would 

depend upon what data is available in 

their area. As stated in the preamble, we 

expect that organizations that already 

have mechanisms in place in 

connection with their commercial lines 

of business for providing their 

beneficiaries with cost or quality 

information could offer similar services 

to Medicare beneficiaries. We estimate 

that 20 MA plans may wish to 

participate as MSAs in 2009, which 

would be double the number 

participating in 2008. 

We estimate the burden associated 

with this requirement in term of time 

and effort necessary for the plan to 

develop the information and to submit 

this information to CMS as a start-up 

cost of 100 hours per plan to develop 

this information for a total of 2,000 

hours in the first year the plan 

participates as an MSA plan, with half 

of that cost occurring in subsequent 

years for plans to maintain and update 

this information. In addition, expected 

additional entry by plans in future years 

would add start-up costs in the initial 

year that plans enter. 

Section 422.107 Special Needs Plans 

and Dual Eligibles: Arrangements With 

States 

Section 422.107(a) states that an MA 

organization seeking to offer or 

currently offering a special needs plan 

primarily serving beneficiaries eligible 

for both Medicare and Medicaid (dual 

eligible SNPs) must have a documented 

relationship with the State Medicaid 

agency for the State in which the SNP 

is operating. At a minimum, 

documented arrangements must include 

the means to (1) verify enrollees’

eligibility for both Medicare and 

Medicaid, identify and share 

information on Medicaid provider 

participation, and (3) identify Medicaid 

benefits which are not covered by 

Medicare. Medicare Advantage 

organizations and the respective states 

may choose to document their 

relationship in a variety of ways, such 

as a memorandum of agreement (MOA), 

a memorandum of understanding 

(MOU), or a contract. 

The burden associated with this 

requirement is the time and effort put 

forth by each special needs plan to have 

a documented relationship. We estimate 

it would take one special needs plan 18 

hours for 6 months to comply with this 

requirement. We estimate 460 special 

needs plans would be affected annually 

by this requirement; therefore, the total 

annual burden associated with this 

requirement is 8,280 hours. 

Section 422.504 Contract Provisions 

Section 422.504(g)(1) states that each 

MA organization must adopt and 

maintain arrangements satisfactory to 

CMS to protect its enrollees from 

incurring liability for payment of fees 

that are the legal obligation of the MA 

organization. This may be done by the 

establishment of identified liaison staff 

of the MA plan and the State Medicaid 

agency, and by conducting regular 

meetings for the purpose of enrollee 

review. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA plan to adopt and 

maintain arrangements. We estimate it 

would take one MA plan 208 hours to 

comply with this requirement. We 

estimate 3400 plans would be affected 

annually by this requirement; therefore, 

the total annual burden associated with 

this requirement is 707,200 hours. 

Section 422.2260 Definitions 

Section 422.2260 defines the 

marketing materials that an MA 

organization must provide to Medicare 

beneficiaries. While there is burden 

associated with this requirement, we 

feel the burden associated with these 

requirements is exempt from the 

requirements of the Paperwork 

Reduction Act of 1995 (PRA) as defined 

in 5 CFR 1320.3(b)(2) because the time, 

effort, and financial resources necessary 

to comply with the requirement would 

be incurred by persons in the normal 

course of their activities. 

422.2262 Review and Distribution of 

Marketing Materials 

Section 422.2262(a)(1)(i) states that at 

least 45 days before the date of 

distribution the MA organization 

submits the material or form to CMS for 

review under guidelines in Section 

422.2264 of this Part. This may require 

the development of written marketing 

materials used to promote an 

organization, provide enrollment 

information, and explain benefits, rules 

or various membership operational 

policies. 

The burden associated with this is the 

time and effort put forth by the MA 

organization to submit the material to 

CMS for review. We estimate it would 

take one MA organization 720 minutes/ 

12 hours to comply with this 

requirement. We estimate 670 MA 

organizations would be affected 

annually by this requirement; therefore, 

the total annual burden associated with 

this requirement is 8,040 hours. 

Section 422.2262(b) requires the MA 

organization to certify that in the case of 

these certain marketing materials 

designated by CMS, it followed all 

applicable marketing guidelines when 

applicable or used model language 

specified by CMS without modification. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to provide 

such certification. While there is burden 

associated with this requirement, we 

feel the burden associated with these 

requirements is exempt from the 

requirements of the Paperwork 

Reduction Act of 1995 (PRA) as defined 

in 5 CFR 1320.3(h)(1). 

Section 422.2264 Guidelines for CMS 

Review and Notification 

Section 422.2264 states that in 

reviewing marketing material or election 

forms under § 422.2262 of this Part, 

CMS determines that the marketing 

materials provide, in a format (and, 

where appropriate, print size), and 

using standard terminology that may be 

specified by CMS, the following 

information to Medicare beneficiaries 

interested in enrolling: 

(a) Adequate written description of 

rules (including any limitations on the 

providers from whom services can be 

obtained), procedures, basic benefits 

and services, and fees and other charges. 

(b) Adequate written description of 

any supplemental benefits and services. 

(c) Adequate written explanation of 

the grievance and appeals process, 

including differences between the two, 

and when it is appropriate to use each. 

(d) Any other information necessary 

to enable beneficiaries to make an 

informed decision about enrollment. 

(e) Notify the general Public of its 

enrollment period in an appropriate 

manner, through appropriate media, 

throughout its service and if applicable, 

continuation areas. 

(f) Includes in the written materials 

notice that the MA organization is 

authorized by law to refuse to renew its 

contract with CMS, that CMS also may 


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refuse to renew the contract, and that 

termination or non-renewal may result 

in termination of the beneficiary’s 

enrollment in the plan. 

(g) Are not materially inaccurate or 

misleading or otherwise make material 

misrepresentations. 

(h) For markets with a significant nonEnglish speaking population, provide 

materials in the language of these 

individuals. 

The burden with these guidelines is 

the time and effort put forth by the MA 

organization to provide adequate 

written descriptions of rules, of any 

supplemental benefits and services, 

explanation of the grievance and 

appeals process, and any other 

information necessary to enable 

beneficiaries to make an informed 

decision about enrollment. It also 

requires the MA organization to notify 

the general public of its enrollment 

period in an appropriate manner and 

include in the written materials notice 

that the MA organization is authorized 

by law to refuse to renew its contract 

with CMS. While there is burden 

associated with this requirement, we 

feel the burden associated with these 

requirements is exempt from the 

requirements of the Paperwork 

Reduction Act of 1995 (PRA) as defined 

in 5 CFR 1320.3(b)(2) because the time, 

effort, and financial resources necessary 

to comply with the requirement would 

be incurred by persons in the normal 

course of their activities. 

Section 422.2268 Standards for MA 

Organization Marketing 

Section 422.2268(g) states MA 

organizations cannot market any health 

care related product during a marketing 

appointment beyond the scope agreed 

upon by the beneficiary, and 

documented by the plan, prior to the 

appointment. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to 

document a beneficiary’s signed 

acknowledgement confirming the 

specific types of choices that the 

marketing representative is authorized 

to discuss. While there is burden 

associated with this requirement, we 

feel the burden associated with these 

requirements is exempt from the 

requirements of the Paperwork 

Reduction Act of 1995 (PRA) as defined 

in 5 CFR 1320.3(b)(2) because the time, 

effort, and financial resources necessary 

to comply with the requirement would 

be incurred by persons in the normal 

course of their activities. 

Section 422.2272 Licensing of 

Marketing Representatives and 

Confirmation of Marketing Resources 

Section 422.2272(b) states that an MA 

organization must establish and 

maintain a system for confirming that 

enrolled beneficiaries have, in fact, 

enrolled in the MA plan and understand 

the rules applicable under the plan. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to 

establish and maintain such a system. 

While there is burden associated with 

this requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(b)(2) because 

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by 

persons in the normal course of their 

activities. 

Section 422.2274 Broker and Agent 

Commissions and Training of Sales 

Agents 

Section 422.2274(b) states that if a 

MA organization markets through 

independent brokers or agents, they 

must train and test agents selling 

Medicare products concerning Medicare 

rules and regulations specific to the 

plan products they intend to sell. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to provide 

training and test agents. While there is 

burden associated with this 

requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(b)(2) because 

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by 

persons in the normal course of their 

activities. 

Section 422.2274(d) states that upon 

CMS’s request, the MA organization 

must provide CMS the information 

necessary for it to conduct oversight of 

marketing activities. This may require 

producing information for CMS on 

marketing materials submitted for 

review or file and use of training and 

testing modules. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to produce 

the information requested by CMS. We 

estimate it would take one MA 

organization (480 minutes/8 hours) to 

comply with this requirement. We 

estimate 670 MA organizations would 

be affected annually by this 

requirement; therefore, the total annual 

burden associated with this requirement 

is 5,360 hours. 

Section 422.2274(e) states that MA 

organizations must comply with State 

requests for information about the 

performance of a licensed agent or 

broker as part of a state investigation 

into the individual’s conduct. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to comply 

with the State requests for information. 

While there is burden associated with 

this requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(b)(2) because 

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by 

persons in the normal course of their 

activities. 

Section 423.34 Enrollment of Fullbenefit Dual Eligible Individuals 

Section 423.34(g)(2) states that the 

organization that receives the 

enrollment must provide notification 

that describes the costs and benefits of 

the new plan and the process for 

accessing care under the plan and their 

ability to decline the enrollment or 

choose another plan. Such notification 

must be provided to all potential 

enrollees prior to the enrollment 

effective date, in a form and manner 

determined by CMS. 

The burden associated with this 

requirement is the time and effort put 

forth by the organization to provide 

such notification. We estimate it would 

take one organization 207 hours to 

comply with this requirement. We 

estimate 42 organizations would be 

affected annually by this requirement; 

therefore, the total annual burden 

associated with this requirement is 8700 

hours. 

Section 423.46 Late Enrollment 

Penalty 

Section 423.46(b) states that Part D 

sponsors must obtain information on 

prior creditable coverage from all 

enrolled or enrolling beneficiaries and 

report this information to CMS in a form 

and manner determined by CMS. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to obtain the 

required information. To comply with 

this requirement, Part D sponsors would 

expend 15 minutes per new Part D 

enrollee. We estimate that there will be 

approximately 500,000 new Part D 

enrollees. Therefore the total annual 

burden associated with this requirement 


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will be 125,000 hours/7,500,000 

minutes for all enrollees. 

Section 423.46(d) requires the Part D 

plan sponsor to retain all information 

collected concerning a credible coverage 

period determination in accordance 

with the enrollment records retention 

requirements described in subpart K, 

§ 423.505(e)(1)(iii). 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D plan sponsor to 

retain the required information. To 

comply with this requirement, Part D 

sponsors would expend 5 minutes per 

new Part D enrollee. There are 

approximately 500,000 enrollees. We 

estimate the total annual burden 

associated with this requirement will be 

41,667 hours/2,500,000 minutes for all 

new Part D enrollees. 

Section 423.505 Contract Provisions 

Section 423.505(k)(5) states that the 

Chief Executive Officer, Chief Financial 

Officer, or an individual delegated the 

authority to sign on behalf of one of 

these officers, and who reports directly 

to the officer, must certify that the 

information provided is accurate, 

complete, and truthful and fully 

conforms to the requirements in 

§§ 423.336 and 423.343 and 

acknowledge that this information will 

be used for the purposes of obtaining 

Federal reimbursement. While there is 

burden associated with this 

requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(h)(1). 

Section 423.580 Right to a 

Redetermination 

Section 423.580 provides information 

on the ways for an enrollee to seek a 

redetermination. The burden associated 

with a reconsideration is exempt from 

the PRA as stipulated under 5 CFR 

1320.4. 

Section 423.2262 Review and 

Distribution of Marketing Materials 

Section 423.2262(a)(1)(i) requires the 

Part D sponsor to submit the marketing 

material or form to CMS for review 

under the guidelines in § 423.2264. This 

may require the development of written 

marketing materials used to promote an 

organization, provide enrollment 

information, and explain benefits, rules 

or various membership operational 

policies. 

The burden associated with these 

requirements is the time and effort put 

forth by the Part D sponsor to submit the 

marketing materials to CMS and to 

provide certification. We estimate it 

would take one Part D sponsor (720 

minutes/12 hours) to comply with this 

requirement. We estimate 87 Part D 

sponsors would be affected annually by 

this requirement; therefore, the total 

annual burden associated with this 

requirement is 1044 hours. 

Section 423.2264 Guidelines for CMS 

Review and Notification 

Section 423.2264 reads that in 

reviewing marketing material or 

enrollment forms under § 423.2262, 

CMS determines (unless otherwise 

specified in additional guidance) that 

the marketing materials provide, in a 

format (and, where appropriate, print 

size), and using standard terminology 

that may be specified by CMS, the 

following information to Medicare 

beneficiaries interested in enrolling 

must consist of: 

(a) Adequate written description of 

rules (including any limitations on the 

providers from whom services can be 

obtained), procedures, basic benefits 

and services, and fees and other charges. 

(b) Adequate written explanation of 

the grievance and appeals process, 

including differences between the two, 

and when it is appropriate to use each. 

(c) Any other information necessary to 

enable beneficiaries to make an 

informed decision about enrollment. 

(d) Notify the general public of its 

enrollment period in an appropriate 

manner, through appropriate media, 

throughout its service area. 

(e) Include in the written materials 

notice that the Part D plan is authorized 

by law to refuse to renew its contract 

with CMS, that CMS also may refuse to 

renew the contract, and that termination 

or non-renewal may result in 

termination of the beneficiary’s 

enrollment in the Part D plan. In 

addition, the Part D plan may reduce its 

service area and no longer be offered in 

the area where a beneficiary resides. 

(f) Are not materially inaccurate or 

misleading or otherwise make material 

misrepresentations. 

(g) For markets with a significant nonEnglish speaking population, provide 

materials in the language of these 

individuals. 

The burden with these guidelines is 

the time and effort put forth by the Part 

D plan to provide adequate written 

descriptions of rules, of the grievance 

and appeals process, and any other 

information necessary to enable 

beneficiaries to make an informed 

decision about enrollment. It also 

requires the Part D plan to notify the 

general public of its enrollment period 

in an appropriate manner and include 

in the written materials notice that the 

Part D plan is authorized by law to 

refuse to renew its contract with CMS. 

While there is burden associated with 

this requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(b)(2) because 

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by 

persons in the normal course of their 

activities. 

Section 423.2272 Licensing of 

Marketing Representatives and 

Confirmation of Marketing Resources 

Section 423.2272(b) requires the Part 

D organization to establish and maintain 

a system for confirming that enrolled 

beneficiaries have in fact enrolled in the 

PDP and understand the rules 

applicable under the plan. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to establish 

and maintain such a system. While 

there is burden associated with this 

requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(b)(2) because 

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by 

persons in the normal course of their 

activities. 

Section 423.2268 Standards for Part D 

Marketing 

Section 423.2268(g) states Part D 

organizations cannot market any health 

care related product during a marketing 

appointment beyond the scope agreed 

upon by the beneficiary, and 

documented by the plan, prior to the 

appointment. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D organization to 

document a beneficiary’s signed 

acknowledgement confirming the 

specific types of choices that the 

marketing representative is authorized 

to discuss. While there is burden 

associated with this requirement, we 

feel the burden associated with these 

requirements is exempt from the 

requirements of the Paperwork 

Reduction Act of 1995 (PRA) as defined 

in 5 CFR 1320.3(b)(2) because the time, 

effort, and financial resources necessary 

to comply with the requirement would 

be incurred by persons in the normal 

course of their activities. 


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Section 423.2274 Broker and Agent 

Commissions and Training of Sales 

Agents 

Section 423.2274(b) requires the Part 

D sponsor to train and test agents selling 

Medicare products concerning Medicare 

rules and regulations specific to the 

plan products they intend to sell. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to provide 

training and test agents. While there is 

burden associated with this 

requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(b)(2) because 

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by 

persons in the normal course of their 

activities. 

Section 423.2274(d) states that upon 

CMS’s request, the Part D sponsor must 

provide CMS the information necessary 

for it to conduct oversight of marketing 

activities. This may require producing 

information for CMS on marketing 

materials submitted for review or file 

and use and training and testing 

modules. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to produce 

the information requested by CMS. We 

estimate it would take one Part D 

sponsor (480 minutes/8 hours) to 

comply with this requirement. We 

estimate 87 Part D sponsors would be 

affected annually by this requirement; 

therefore, the total annual burden 

associated with this requirement is 696 

hours. 

Section 423.2274(e) states that Part D 

organizations must comply with State 

requests for information about the 

performance of a licensed agent or 

broker as part of a state investigation 

into the individual’s conduct. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D organization to 

comply with the State requests for 

information. While there is burden 

associated with this requirement, we 

feel the burden associated with these 

requirements is exempt from the 

requirements of the Paperwork 

Reduction Act of 1995 (PRA) as defined 

in 5 CFR 1320.3(b)(2) because the time, 

effort, and financial resources necessary 

to comply with the requirement would 

be incurred by persons in the normal 

course of their activities. 

Please note, CMS will revise the 

currently OMB approved PRA packages 

that contain Part 422—Medicare 

Advantage Program and Part 423—

Voluntary Medicare Prescription Drug 

Benefit to include any new and/or 

revised burden requirements. The OMB 

approval numbers for those PRA 

packages are 0938–0753 and 0938–0964. 

As reflected in the table that follows, 

the aggregate annual burden associated 

with the collection of information 

section for this proposed rule totals 

985,527.5 hours. 

OMB No. Requirements Number of 

respondents Burden hours 

Total annual 

burden 

(in hours) 

422.4(a) .......................................................... 176 54 9,504 

0938–0753 ...................................................... 422.52(g) ........................................................ 776 78 60,000 

0938–0753 ...................................................... 422.60(g)(2) .................................................... 5 .5 2.5 

0938–0753 ...................................................... 422.101(f)(1) ................................................... 335 24 8,040 

0938–0753 ...................................................... 422.103(e) ...................................................... 20 100 2,000 

0938–0753 ...................................................... 422.107(a) ...................................................... 460 18 8,280 

0938–0753 ...................................................... 422.504(g)(1) .................................................. 3400 208 707,200 

None/Exempt .................................................. 422.2260 ........................................................ N/A N/A N/A 

0938–0753 ...................................................... 422.2262(a)(1)(i) ............................................ 670 12 8,040 

0938–0753 ...................................................... 422.2262(b) .................................................... N/A N/A N/A 

0938–0753 ...................................................... 422.2264(a–e) ................................................ N/A N/A N/A 

0938–0753 ...................................................... 422.2268(g) .................................................... N/A N/A N/A 

0938–0753 ...................................................... 422.2272(b) .................................................... N/A N/A N/A 

0938–0753 ...................................................... 422.2274(b)(e) ................................................ N/A N/A N/A 

0938–0753 ...................................................... 422.2274(d) .................................................... 670 8 5,360 

0938–0964 ...................................................... 423.34(g)(2) .................................................... 42 207 8,694 

0938–0964 ...................................................... 423.46(b) ........................................................ 500,000 (1)15 125,000 

0938–0964 ...................................................... 423.46(d) ........................................................ 500,000 (1)5 41,667 

None/Exempt .................................................. 423.505(k)(5) .................................................. N/A N/A N/A 

None/Exempt .................................................. 423.580 .......................................................... N/A N/A N/A 

0938–0964 ...................................................... 423.2262(a)(1)(i) ............................................ 87 12 1,044 

0938–0964 ...................................................... 423.2264(a–e) ................................................ N/A N/A N/A 

0938–0964 ...................................................... 423.2268(g) .................................................... N/A N/A N/A 

0938–0964 ...................................................... 423.2272(b) .................................................... N/A N/A N/A 

0938–0964 ...................................................... 423.2274(b)(e) ................................................ N/A N/A N/A 

0938–0964 ...................................................... 423.2274(d) .................................................... 87 8 696 

Total aggregate burden ........................... ......................................................................... ........................ ........................ 985,527.5 

1 In minutes. 

If you comment on these information 

collection and recordkeeping 

requirements, please do either of the 

following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this proposed rule; 

or 

2. Mail copies to the address specified 

in the ADDRESSES section of this 

proposed rule and to the Office of 

Information and Regulatory Affairs, 

Office of Management and Budget, 

Room 10235, New Executive Office 

Building, Washington, DC 20503, Attn: 

Carolyn Lovett, CMS Desk Officer, 

CMS–4131–P 

carolyn_lovett@omb.eop.gov. Fax (202) 

395–6974. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 


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3The hourly rates for the burden requirement 

were developed using the Department of Labor, 

Bureau of Labor Statistics for May 2006 (National 

Occupational Employment and Wage Estimates). 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Analysis 

We have examined the impact of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

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

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), Executive Order 13132 on 

Federalism, and the Congressional 

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

Executive Order 12866 (as amended) 

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). We 

estimate that this proposed rule is 

‘‘economically significant’’ as measured 

by the $100 million threshold, and 

hence a major rule under the 

Congressional Review Act. Accordingly, 

we have prepared a Regulatory Impact 

Analysis. The provisions in this 

proposed rule would require MA 

organizations and Part D sponsors to 

spend a total of approximately 

985,527.5 additional hours on the 

functions addressed, reflecting a cost of 

$45,940,906. In addition, the provisions 

associated with our proposed revision to 

the beneficiary cost sharing and 

reinsurance subsidy payments are 

estimated to cost $30 million for FY 

2010 and $530 million for FYs 2010 

through 2018. The provisions impacting 

which drug costs are reported to CMS 

under the Retiree Drug Subsidy (RDS) 

program and used as the basis for 

calculating RDS payments to RDS plan 

sponsors would result in estimated 

savings of $30 million for FY 2010 and 

$510 million for FYs 2010 through 2018. 

We solicit public comment on the 

regulatory impact analysis of this 

proposed rule. 

We use, as appropriate, the figures of 

$14.68 (based on the United States 

Department of Labor (DOL) statistics for 

the hourly wages of word processors 

and typists) and $37.15 (based on DOL 

statistics for a management analyst) 3

plus the added OMB figures of 12 

percent for overhead and 36 percent for 

benefits, respectively, to represent 

average costs to plans, sponsors and 

downstream entities for the provisions 

discussed in this proposed rule with 

comment period. (Note that the wages 

cited for the provisions below include 

the hourly wage + an additional 48 

percent to reflect overhead, benefit costs 

for total wages of $21.73 and $54.98, 

respectively). Using these figures the 

total net cost of our proposals would be 

approximately $45,940,906. This cost 

would be spread more or less evenly 

across participating plans, and hence 

would impose negligible burden on any 

plan in relation to existing 

administrative costs. 

In the Regulatory Impact Analysis of 

the January 28, 2005 final rule (70 FR 

4695) revising the Medicare Advantage 

program, we noted that costs associated 

with the MA program would be 

approximately $18.3 billion from 2004 

through 2009, 10 percent of which we 

estimated would be administrative 

costs. The rule establishing the 

prescription drug benefit program 

published on January 28, 2005 (70 FR 

4194) made a similar calculation in its 

Regulatory Impact Statement. 

Accordingly, the estimated cost of this 

proposed rule adds negligibly to the 

total administrative costs of the MA or 

Part D programs. 

With respect to economic benefits, we 

have no reliable basis for estimating the 

effects of these proposals. Many of the 

proposed changes clarify or codify 

existing policies though such 

clarification could contribute to greater 

plan efficiency and compliance with 

program regulations. Accordingly, we 

estimate that while there could be 

economic benefits associated with these 

proposals, they are difficult to gauge at 

this time. 

Because there are costs to plans and 

sponsors associated with several 

provisions of this proposed rule, 

however, we indicate general areas 

affected and specify the costs associated 

with these. For specific burden 

associated with the proposed 

requirements and the bases for our 

estimates, see section III, Collection of 

Information Requirements, of this rule. 

Note that we discuss separately, at the 

end of this section, provisions 

associated with our proposed revision to 

the Part D definitions (discussed in 

section II.B.3 of this proposed rule). 

Special Needs Plans 

Several of our proposed provisions 

concern special needs plans and 

strengthening coordination between 

plans and States to better coordinate 

care, verify that individuals in dual 

eligible SNPs are eligible for Medicare, 

and to ensure that enrollees are not 

charged for costs that are the 

responsibility of the State. In addition, 

we are proposing that MA plans develop 

models of care that are specifically 

targeted to the special needs individuals 

served by their plans. We estimate the 

total cost of these provisions as 

$2,718,104. Costs for each provision are 

as follows: 

• Verification of Medicaid eligibility 

or SNP status prior to beneficiary 

enrolling ($21.73 × 60,000 hours = 

$1,303,800). 

• Developing models of care ($54.98 

× 8,040 hours = $442,039). 

• Documenting arrangements with 

States ($54.98 × 8,280 hours = 

$455,234). 

• Monitoring enrollment to meet 

disproportionate share thresholds 

($54.98 × 9,404 hours = $517,031). 

Medicare Medical Savings Accounts 

(MSAs) 

Costs associated with this proposed 

provision are for reporting cost and 

quality information about the plans to 

enrollees. We estimate the total cost of 

these provisions as $109,960 ($54.98 × 

2,000 hours) for the first year a plan 

provides such information, and half that 

cost in subsequent years to maintain 

and update the information. 

Enrollment 

We are proposing requirements 

concerning Part D sponsor notification 

of full benefit dual eligible beneficiaries 

about enrollment options in addition to 

automatic enrollment, and would 

require that Part D sponsors obtain from 

Part D plan enrollees or those 

considering enrolling information 

concerning prior creditable coverage, 

and retain information collected 

concerning creditable coverage period 

determinations. We estimate the total 

cost of these provisions as $42,692,449. 

The costs for specific provisions are as 

follows: 

• Notifying dual eligible beneficiaries 

of enrollment options in addition to 

automatic enrollment ($21.73 × 8,694 

hours = $188,920). 

• Obtaining prior creditable coverage 

information ($21.73 × 125,000 hours = 

$2,716,250). 

• Retaining prior creditable coverage 

information ($21.73 × 41,667 hours = 

$905,423). 


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• Ensuring through provider contracts 

that dual eligible beneficiaries are not 

held liable for costs that are not their 

responsibility ($54.98 × 707,200 hours = 

$38,881,856). 

Marketing 

We are proposing several marketing 

provisions that would enhance our 

efforts to ensure that plans comply with 

all marketing requirements. The 

proposed provisions include requiring 

plans to submit marketing materials to 

CMS for review, and provide, for CMS 

oversight purpose, information to CMS 

concerning marketing activities. We 

estimate the total costs (MA and Part D 

programs) of these provisions as 

$530,353. Costs for each provision, in 

the context of each program, are as 

follows: 

• Submission of marketing materials, 

MA program ($21.73 × 8,040 hours = 

$174,709). 

• Training and testing of agents 

selling Medicare products, MA program 

($54.98 × 5,360 hours = $294,692). 

• Submission of marketing materials, 

Part D ($21.73 × 1,044 hours = $22,686). 

• Training and testing of agents 

selling Medicare products, Part D 

($54.98 × 696 hours = $38,266). 

The RFA requires that we discuss any 

alternatives considered. Many of the 

proposed provisions would clarify or 

codify current policy which we discuss 

in section II, Provisions of the Proposed 

Regulations. As such, we considered 

whether or not the cost to codify these 

policies outweighed the need to do so. 

With one possible exception, we 

determined that the cost to plans and 

sponsors to clarify and codify our 

policies would be minimal and 

outweighed the minimal costs to 

implement these. 

With respect to our proposed 

provisions concerning Medicare 

medical savings account plans, we 

considered the costs to plans of 

providing cost and quality information. 

As we discuss in more detail in section 

II, we believe that such information is 

readily available to most MSA plans and 

that, as a result, it would not be an 

undue burden on plans to provide such 

information. We would like more 

information on this subject, however, 

and have specifically asked for 

comments on this proposed provision. 

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 $6.5 million to $31.5 million in any 

1 year. Individuals and States are not 

included in the definition of a small 

entity. MA organizations and Part D 

sponsors, the only entities that would be 

affected by the proposed provisions, are 

not generally considered small business 

entities. They must follow minimum 

enrollment requirements (5,000 in urban 

areas and 1,500 in non-urban areas) and 

because of the revenue from such 

enrollments generally are above the 

revenue threshold required for analysis. 

While a very small rural plan could fall 

below the threshold, we do not believe 

that there are more than a handful of 

such plans. 

A fraction of MA organizations and 

sponsors are considered small 

businesses because of their non-profit 

status. For an analysis to be necessary, 

however, 3–5 percent of their revenue 

would have to be affected by the 

proposed provisions. We do not believe 

that any of these provisions rise to that 

threshold. Many of the provisions we 

are proposing, for example, are 

clarifications of existing policy or 

require minimal costs. Because MA 

organizations and Part D sponsors are 

the only entities that would be affected 

by the proposed provisions and because 

of the minimal costs necessary to 

implement the proposed provisions, we 

are not preparing an analysis for the 

RFA because we have determined, and 

the Secretary certifies, that this 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities. 

With respect to the proposed revision 

to the Part D definitions, we do not 

expect a significant impact on small 

businesses, such as small pharmacies, as 

a result of changes to the definitions 

under Part D of negotiated prices, gross 

covered drug costs, and allowable risk 

corridor costs in this proposed rule. 

These changes would primarily impact 

which drug costs are reported to us and 

how plans calculate beneficiary cost 

sharing. Moreover, we assume they 

would require minimal, if any, changes 

in health plan, PBM and pharmacy 

operational systems. We solicit 

comments on this assumption. Even 

with the changes to the way in which 

beneficiary cost sharing is calculated 

resulting from these definition changes, 

health plans will still be required to 

ensure that pharmacies receive their 

contracted rate. We believe that health 

plans would account for any additional 

costs associated with the change in the 

way beneficiary costs are calculated in 

their Part D bids. As a result, we expect 

that these changes would increase Part 

D bids and Federal Government 

payments such that the total impact for 

FY 2010 through 2018 is $530 million. 

However, we do not expect these 

changes to significantly increase health 

plan costs. Table 1 presents the costs 

associated with the change in the 

beneficiary costs for FYs 2010–2018. 

TABLE 1.—INCREASE IN SUBSIDY PAYMENTS FOR FY 2010–2018 

FY 

2010 

FY 

2011 

FY 

2012 

FY 

2013 

FY 

2014 

FY 

2015 

FY 

2016 

FY 

2017 

FY 

2018 

FYs 

2010–

18 

Increase in Subsidy Payments (millions) ......... $30 $40 $50 $50 $60 $60 $70 $80 $90 $530 

With respect to the proposed changes 

impacting which drug costs are reported 

to CMS and how Part D plans calculate 

beneficiary cost-sharing, we believe that 

the impact on pharmacies would be 

minimal, as the total compensation 

received by pharmacies should remain 

unaffected. However, Part D plans 

would need to include administrative 

costs paid to PBMs, which were 

previously included as drug costs, as 

administrative cost in their bids. They 

would also need to factor reductions in 

beneficiary cost sharing and reinsurance 

subsidy payments into their bids. The 

reductions in beneficiary cost sharing 

are expected to outweigh the estimated 

increase in costs to the Federal 

Government. The changes in beneficiary 

cost sharing and reinsurance subsidy 

payments are expected to increase Part 

D bids due to increased plan liability 

and therefore, would increase the direct 

subsidy payments made by the Federal 

Government to health plans. The 

proposed changes regarding which the 

reporting of drug costs are also expected 

to reduce the reinsurance payments and 

low-income cost sharing subsidy 

payments made by the Federal 

Government. We estimate the net cost of 

these changes to be $30 million for FY 

2010 and $530 million for FYs 2010 


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through 2018. These estimated costs 

reflect an increase in the direct subsidy 

payments made by the Federal 

Government and are net reductions in 

Federal reinsurance payments and lowincome cost sharing subsidy payments. 

These estimated costs are based on the 

assumption that overall program costs 

would remain the same. They do not 

include any potential reductions in plan 

administrative costs due to the ability of 

plan sponsors to negotiate lower 

administrative fees with PBMs as a 

result of increased transparency in drug 

prices. 

In addition, we expect that the 

proposed clarifications may require a 

small number of Part D sponsors to 

renegotiate their contracts with their 

PBMs to account for system changes to 

reflect the appropriate beneficiary cost 

sharing. We believe that most PBMs 

would be unaffected by the changes in 

the reporting drug costs reported and 

the calculation of beneficiary cost 

sharing. Thus, we expect that the 

financial impact of the proposed rule on 

PBMs would be minimal. 

With respect to the proposed changes 

impacting which drug costs are reported 

to CMS under the Retiree Drug Subsidy 

(RDS) program and used as the basis for 

calculating RDS payments to RDS plan 

sponsors, this will result in savings to 

the RDS program since gross costs and 

allowable retiree costs may, until this 

proposed regulation becomes effective, 

include amounts paid by the plan to a 

PBM for Part D drugs that differ from 

the amounts paid by the PBM to 

pharmacies for these drugs (typically 

called a ‘‘risk premium’’ or ‘‘PBM 

spread’’). The proposed revised 

definitions of administrative costs, gross 

retiree costs and allowable retiree costs 

would exclude these risk premium 

payments from the calculation of RDS 

payments. 

The estimated impact of applying the 

proposed changes is a savings of $510 

million for fiscal years 2010 through 

2018, as detailed in Table 2. To 

calculate these savings estimates, we 

multiplied our assumption for the 

number of affected beneficiaries in RDS 

by an estimated per capita drug cost 

impact and the statutorily-required 28 

percent RDS subsidy percentage. Our 

estimate for the number of affected 

beneficiaries in RDS is based on the 

number of RDS beneficiaries assumed to 

be enrolled in affected RDS plans. In 

addition, this estimate assumes that 

only those RDS beneficiaries with drug 

spending between the cost threshold 

and the cost limit would be impacted by 

the proposed change. The proposed 

change would not affect Plan Sponsors 

with regard to those individuals below 

the threshold. With regard to those 

above the cost limit, a Plan Sponsor 

generally is eligible for a set amount of 

subsidy based on the amount of drug 

costs between the threshold and the 

limit, regardless of how much above the 

limit the individual’s drug costs are, and 

regardless of whether pass through or 

lock in is used. Therefore, the proposed 

change generally would not affect Plan 

Sponsors with regard to individuals 

above the cost limit. We estimated the 

drug cost impact of switching from lockin pricing to pass through pricing based 

on current estimates for 2006 Part D 

plans. We used the estimated impact for 

Part D plans because RDS specific 

information is not currently available to 

develop this estimate. We welcome 

comments on the assumptions used to 

develop the savings estimates from 

applying the revised definitions to the 

RDS program. In addition, we expect 

that the proposed rule’s clarifications 

may result in some plan sponsors 

incurring nominal additional 

administrative costs in revising cost 

reporting methods. 

TABLE 2.—DECREASE IN RDS PAYMENTS FOR FY 2010–2018 

FY 

2010 

FY 

2011 

FY 

2012 

FY 

2013 

FY 

2014 

FY 

2015 

FY 

2016 

FY 

2017 

FY 

2018 

FYs 

2010–

2018 

Decrease in RDS Payments by the Federal 

Government (in millions) .............................. $30 $40 $50 $50 $60 $60 $70 $70 $80 $510 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined, 

and the Secretary certifies, that this 

proposed rule would not have a 

significant impact on the operations of 

a substantial number of 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 by State, local or tribal 

governments, in the aggregate, or by the 

private sector of $100 million in 1995 

dollars, updated annually for inflation. 

That threshold level is currently 

approximately $130 million. This rule 

would have no consequential effect on 

State, local, or tribal governments or on 

the private sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

This rule would not have a substantial 

direct effect on State or local 

governments, preempt States, or 

otherwise have a Federalism 

implication. 

Alternatives Considered 

As discussed earlier, many of the 

proposed provisions would clarify or 

codify current policy which we discuss 

in section II, Provisions of the Proposed 

Regulations. As such, we considered 

whether or not the cost to codify these 

policies outweighed the need to do so. 

With one possible exception, we 

determined that the cost to plans and 

sponsors to clarify and codify our 

policies would be minimal and 

outweighed the minimal costs to 

implement these provisions. 

With respect to our proposed 

provisions concerning Medicare 

medical savings account plans, we 

considered the costs to plans of 

providing cost and quality information. 

As we discuss in more detail in section 

II, we believe that the information is 

readily available to most MSA plans and 

that, as a result, it would not be an 

undue burden on plans to provide the 

information. We would like more 

information on this subject, however, 

and have specifically asked for 

comments on this proposed provision. 


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With respect to the proposed changes 

to the drug cost-related definitions in 

the Part D and Retiree Drug Subsidy 

(RDS) programs, we have discussed the 

two alternatives at length in the 

preamble section. The two alternatives 

are (1) the current approach of allowing 

both pass-through and lock-in prices, 

and (2) the proposed approach of 

permitting only pass-through prices as 

the basis for Part D and RDS costs. As 

we discuss in section II.B, we believe 

there may be significant negative 

impacts on beneficiaries, market 

competition, pharmacies, and 

government expenditures associated 

with maintaining the current dual 

pricing approach and, therefore, we 

propose to allow only the single ‘‘passthrough’’ pricing approach as originally 

intended in the final rule establishing 

the Part D prescription drug benefit. 

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 

proposed changes. The costs are 

classified as either transfers by the 

Federal Government to Part D plans, or 

transfers from RDS sponsors to the 

Federal Government. 

TABLE 3.—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES

Category Transfers ($ millions) 

Increase in Federal Payments, FYs 2010–2018 

Annualized Monetized Transfers Using 7% Discount Rate ..................................................................... $55.8. 

Annualized Monetized Transfers Using 3% Discount Rate ..................................................................... $57.5. 

From Whom to Whom .............................................................................................................................. Federal Government to Part D Plans. 

Decrease in RDS Payments for FY 2010–2018 

Annualized Monetized Transfers Using 7% Discount Rate ..................................................................... $54.1. 

Annualized Monetized Transfers Using 3% Discount Rate ..................................................................... $55.5. 

From Whom to Whom .............................................................................................................................. RDS Sponsors to Federal Government. 

Cost for all Other Provisions Not Related to the Part D Definitions for FY 2010 

Undiscounted Annualized Monetized Transfers ...................................................................................... $45.94. 

Who Is Affected ........................................................................................................................................ MAOs/Part D Sponsors. 

Conclusion 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 422 

Administrative practice and 

procedure, Health facilities, Health 

maintenance organizations (HMO), 

Medicare, Penalties, Privacy, Reporting 

and recordkeeping requirements 

42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Medicare, 

Penalties, Privacy, Reporting and 

recordkeeping. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR chapter IV as set forth below: 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

1. The authority citation for part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

Subpart A—General Provisions 

2. Amend § 422.4 by revising 

paragraph (a)(1)(iv)(B) to read as 

follows: 

§ 422.4 Types of MA plans. 

(a) * * * 

(1) * * * 

(iv) * * * 

(B) Enrolls plan membership that 

consists of 90 percent or more special 

needs individuals as defined in § 422.2. 

(1) For purposes of meeting the 90 

percent threshold, the plan may not 

disenroll a member who does not meet 

the special needs individual definition 

in § 422.2 of this part. 

(2) Those enrollees deemed 

continuously eligible per § 422.52(d) of 

this part, are considered special needs 

individuals for the purpose of 

determining the 90 percent threshold. 

* * * * * 

Subpart B—Eligibility, Election, and 

Enrollment 

3. Amend § 422.52 by adding 

paragraph (g) to read as follows: 

§ 422.52 Eligibility to elect an MA plan for 

special needs individuals. 

* * * * * 

(g) Establishing eligibility prior to 

enrollment. A SNP must employ a 

process approved by CMS to verify the 

Medicaid eligibility or special needs 

status of an individual prior to enrolling 

the individual. 

4. Amend § 422.60 by adding 

paragraph (g) to read as follows: 

§ 422.60 Election process. 

* * * * * 

(g) Passive enrollment by CMS. In 

situations involving either immediate 

terminations as provided in 

§ 422.510(a)(5) or other situations in 

which CMS determines that remaining 

enrolled in a plan poses potential harm 

to the members, CMS may implement 

passive enrollment procedures. 

(1) Passive enrollment procedures. 

Individuals will be considered to have 

elected the plan selected by CMS unless 

they: 

(i) Decline the plan selected by CMS, 

in a form and manner determined by 

CMS, or 

(ii) Request enrollment in another 

plan. 

(2) Beneficiary notification. The 

organization that receives the 

enrollment must provide notification 

that describes the costs and benefits of 

the plan and the process for accessing 

care under the plan and clearly explains 

their ability to decline the enrollment or 

choose another plan. Such notification 

must be provided to all potential 


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enrollees prior to the enrollment 

effective date (or as soon as possible 

after the effective date if prior notice is 

not practical), in a form and manner 

determined by CMS. 

(3) Special election period. All 

individuals will be provided with a 

special election period, as described in 

§ 422.62(b)(4). 

5. Amend § 422.74 by revising 

paragraph (d)(1) introductory text and 

adding paragraph (d)(1)(iv) to read as 

follows: 

§ 422.74 Disenrollment by the MA 

organization. 

* * * * * 

(d) * * * 

(1) Except as specified in paragraph 

(d)(1)(iv) of this section, an MA 

organization may disenroll an 

individual from the MA plan for failure 

to pay basic and supplementary 

premiums under the following 

circumstances: 

* * * * * 

(iv) An MA organization may not 

disenroll an individual who has 

requested to have monthly premiums 

withheld per § 422.262(f)(1) or who is in 

premium withhold status. 

* * * * * 

6. Remove § 422.80. 

Subpart C—Benefits and Beneficiary 

Protections 

7. Amend § 422.101 by adding 

paragraph (f) to read as follows: 

§ 422.101 Requirements relating to basic 

benefits. 

* * * * * 

(f) Special needs plan model of care 

(1) MA organizations offering special 

needs plans must have a model of care 

plan specifying how the plan will 

coordinate and deliver care designed for 

the plan’s enrollees. The model of care 

plan must provide for the following: 

(i) Coordinate care for eligible 

beneficiaries. 

(ii) Include a network of providers/ 

services having relevant clinical 

expertise. 

(iii) Target a special needs population. 

(iv) Deliver care based on appropriate 

protocol for the target enrollees. 

(v) Deliver care to frail/disabled 

enrollees. 

(vi) Deliver care to enrollees who are 

at the end of life. 

(vii) Apply performance measures to 

evaluate processes and outcomes of the 

model. 

(2) [Reserved] 

8. Amend § 422.103 by adding new 

paragraph (e) to read as follows: 

§ 422.103 Benefits under an MA MSA plan. 

* * * * * 

(e) All MA organizations offering 

MSA plans must provide enrollees with 

available information on the cost and 

quality of services in their service area, 

and submit to CMS for approval a 

proposed approach to providing such 

information. 

9. Add new § 422.107 to read as 

follows: 

§ 422.107 Special needs plans and dual 

eligibles: arrangements with States. 

(a) General rule. An MA organization 

seeking to offer or currently offering a 

special needs plan primarily serving 

beneficiaries eligible for both Medicare 

and Medicaid (dual eligible SNPs) must 

have a documented relationship with 

the State Medicaid agency for the State 

in which the SNP is operating. At a 

minimum, documented arrangements 

must include the means to—

(1) Verify enrollees’ eligibility for both 

Medicare and Medicaid, 

(2) Identify and share information on 

Medicaid provider participation, and 

(3) Identify Medicaid benefits which 

are not covered by Medicare. 

(b) Date of Compliance. Current SNPs 

must be in compliance with § 422.107(a) 

within 3 years after the effective date of 

the final rule. 

10. Amend § 422.111 by revising 

paragraph (a)(3) to read as follows: 

§ 422.111 Disclosure requirements. 

(a) * * * 

(3) At the time of enrollment and at 

least annually thereafter, 15 days before 

the annual coordinated election period. 

* * * * * 

Subpart F—Submission of Bids, 

Premiums, and Related Information 

and Plan Approval 

11. Amend § 422.262 by—

A. Adding paragraph (g). 

B. Adding paragraph (h). 

The additions read as follows: 

§ 422.262 Beneficiary premiums. 

* * * * * 

(g) Prohibition on improper billing of 

premiums. MA organizations shall not 

bill an enrollee for a premium payment 

period if the enrollee has requested that 

premiums be withheld from his or her 

Social Security benefit. 

(h) Retroactive collection of 

premiums. In circumstances where 

retroactive collection of premium 

amounts is necessary and the enrollee is 

without fault in creating the premium 

arrearage, the Medicare Advantage 

organization shall offer the enrollee the 

option of payment either by lump sum 

or by equal monthly installment spread 

out over at least the same period for 

which the premiums were due. That is, 

if 7 months of premiums are due, the 

member would have at least 7 months 

to repay. 

Subpart K—Application Procedures 

and Contracts for Medicare Advantage 

Organizations 

12. Subpart K heading is revised to 

read as set forth above. 

13. Amend § 422.504 by revising 

paragraph (g)(1) to read as follows: 

§ 422.504 Contract provisions. 

* * * * * 

(g) * * * 

(1) Each MA organization must adopt 

and maintain arrangements satisfactory 

to CMS to protect its enrollees from 

incurring liability (for example, as a 

result of an organization’s insolvency or 

other financial difficulties) for payment 

of any fees that are the legal obligation 

of the MA organization. To meet this 

requirement, the MA organization 

must—

(i) Ensure that all contractual or other 

written arrangements with providers 

prohibit the organization’s providers 

from holding any enrollee liable for 

payment of any such fees; 

(ii) Indemnify the enrollee for 

payment of any fees that are the legal 

obligation of the MA organization for 

services furnished by providers that do 

not contract, or that have not otherwise 

entered into an agreement with the MA 

organization, to provide services to the 

organization’s enrollees; and 

(iii) For all MA organizations with 

enrollees eligible for both Medicare and 

Medicaid, specify in contracts with 

providers that such enrollees will not be 

held liable for Medicare Part A and B 

cost sharing when the State is 

responsible for paying such amounts, 

and inform providers of Medicare and 

Medicaid benefits, and rules for 

enrollees eligible for Medicare and 

Medicaid. The contracts must state that 

providers will—

(A) Accept the MA plan payment as 

payment in full, or 

(B) Bill the appropriate State source. 

* * * * * 

14. Amend § 422.506 by—

A. Revising paragraph (a)(2)(ii) and 

(a)(2)(iii). 

B. Revising paragraph (b)(2)(ii) and 

(b)(2)(iii). 

The revisions read as follows: 

§ 422.506 Non-renewal of contract. 

(a) * * * 

(2) * * * 

(ii) Each Medicare enrollee by mail at 

least 60 days before the date on which 

the non-renewal is effective. This notice 

must include a written description of 


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alternatives available for obtaining 

Medicare services within the service 

area, including alternative MA plans, 

Medigap options, and original Medicare 

and must receive CMS approval prior to 

issuance; and, 

(iii) The general public, at least 60 

days before the date on which the nonrenewal is effective, by publishing a 

notice in one or more newspapers of 

general circulation in each community 

or county located in the MA 

organization’s service area. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) To each of the MA organization’s 

Medicare enrollees by mail at least 60 

days before the date on which the nonrenewal is effective; and, 

(iii) To the general public, at least 60 

days before the date on which the nonrenewal is effective, by publishing a 

notice in one or more newspapers of 

general circulation in each community 

or county located in the MA 

organization’s service area. 

* * * * * 

Subpart M—Grievances, Organization 

Determinations and Appeals 

15. Revise § 422.578 to read as 

follows: 

§ 422.578 Right to a reconsideration. 

Any party to an organization 

determination (including one that has 

been reopened and revised as described 

in § 422.616) may request that the 

determination be reconsidered under 

the procedures described in § 422.582, 

which address requests for a standard 

reconsideration. A physician who is 

providing treatment to an enrollee may, 

upon providing notice to the enrollee, 

request a standard reconsideration of a 

pre-service request for reconsideration 

on the enrollee’s behalf as described in 

§ 422.582. An enrollee or physician 

(acting on behalf of an enrollee) may 

request an expedited reconsideration as 

described in § 422.584. 

16. Revise § 422.582 to read as 

follows: 

§ 422.582 Request for a standard 

reconsideration. 

(a) Method and place for filing a 

request. A party to an organization 

determination or, upon providing notice 

to the enrollee, a physician who is 

treating an enrollee and acting on the 

enrollee’s behalf, must ask for a 

reconsideration of the determination by 

making a written request to the MA 

organization that made the organization 

determination. The MA organization 

may adopt a policy for accepting oral 

requests. 

(b) Timeframe for filing a request. 

Except as provided in paragraph (c) of 

this section, a request for 

reconsideration must be filed within 60 

calendar days from the date of the 

notice of the organization 

determination. 

(c) Extending the time for filing a 

request—(1) General rule. If a party or 

physician acting on behalf of an enrollee 

shows good cause, the MA organization 

may extend the timeframe for filing a 

request for reconsideration. 

(2) How to request an extension of 

timeframe. If the 60-day period in which 

to file a request for reconsideration has 

expired, a party to the organization 

determination or a physician acting on 

behalf of an enrollee may file a request 

for reconsideration with the MA 

organization. The request for 

reconsideration and to extend the 

timeframe must—

(i) Be in writing; and 

(ii) State why the request for 

reconsideration was not filed on time. 

(d) Parties to the reconsideration. The 

parties to the reconsideration are the 

parties to the organization 

determination, as described in 

§ 422.574, and any other provider or 

entity (other than the MA organization) 

whose rights with respect to the 

organization determination may be 

affected by the reconsideration, as 

determined by the entity that conducts 

the reconsideration. 

(e) Withdrawing a request. The party 

or physician acting on behalf of an 

enrollee who files a request for 

reconsideration may withdraw it by 

filing a written request for withdrawal at 

one of the places listed in paragraph (a) 

of this section. 

Subpart O—Intermediate Sanctions 

17. Amend § 422.760 by—

A. Redesignating paragraphs (b)(2) 

and (b)(3) as paragraphs (b)(3) and 

(b)(4), respectively. 

B. Adding new paragraph (b)(2) to 

read as follows: 

§ 422.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

* * * * * 

(b) * * * 

(2) If the deficiency on which the 

determination is based has directly 

adversely affected (or has the substantial 

likelihood of adversely affecting) one or 

more MA enrollees, CMS may calculate 

a CMP of up to $25,000 for each MA 

enrollee directly adversely affected (or 

with the substantial likelihood of being 

adversely affected) by a deficiency. 

* * * * * 

Subpart U—[Added and Reserved] 

18. Subpart U is added and reserved. 

19. New subpart V is added to read as 

follows: 

Subpart V—Medicare Advantage Marketing 

Requirements 

Sec. 

422.2260 Definitions concerning marketing 

materials. 

422.2262 Review and distribution of 

marketing materials. 

422.2264 Guidelines for CMS review. 

422.2266 Deemed approval. 

422.2268 Standards for MA organization 

marketing. 

422.2272 Licensing of marketing 

representatives and confirmation of 

marketing resources. 

422.2274 Broker and agent commissions. 

422.2276 Employer group retiree marketing. 

Subpart V—Medicare Advantage 

Marketing Requirements 

§ 422.2260 Definitions concerning 

marketing materials. 

As used in this subpart—

Marketing materials. (1) Marketing 

materials include any informational 

materials targeted to Medicare 

beneficiaries which: 

(i) Promote the MA organization, or 

any MA plan offered by the MA 

organization. 

(ii) Inform Medicare beneficiaries that 

they may enroll, or remain enrolled in, 

an MA plan offered by the MA 

organization. 

(iii) Explain the benefits of enrollment 

in an MA plan, or rules that apply to 

enrollees. 

(iv) Explain how Medicare services 

are covered under an MA plan, 

including conditions that apply to such 

coverage. 

(2) Examples of marketing materials 

include, but are not limited to, the 

following: 

(i) General audience materials such as 

general circulation brochures, 

newspapers, magazines, television, 

radio, billboards, yellow pages, or the 

Internet. 

(ii) Marketing representative materials 

such as scripts or outlines for 

telemarketing or other presentations. 

(iii) Presentation materials such as 

slides and charts. 

(iv) Promotional materials such as 

brochures or leaflets, including 

materials for circulation by third parties 

(for example, physicians or other 

providers). 

(v) Membership communication 

materials such as membership rules, 

subscriber agreements, member 

handbooks and wallet card instructions 

to enrollees. 

(vi) Letters to members about 

contractual changes; changes in 


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providers, premiums, benefits, plan 

procedures etc. 

(vii) Membership or claims processing 

activities (for example, materials on 

rules involving non-payment of 

premiums, confirmation of enrollment 

or disenrollment, or annual notification 

information). 

§ 422.2262 Review and distribution of 

marketing materials. 

(a) CMS review of marketing 

materials. (1) Except as provided in 

paragraph (b) of this section an MA 

organization may not distribute any 

marketing materials (as defined in 

§ 422.2260 of this part), or election 

forms, or make such materials or forms 

available to individuals eligible to elect 

an MA organization unless—

(i) At least 45 days (or 10 days if using 

marketing materials that use, without 

modification, proposed model language 

as specified by CMS) before the date of 

distribution the MA organization has 

submitted the material or form to CMS 

for review under the guidelines in 

§ 422.2264 of this Part; and 

(ii) CMS does not disapprove the 

distribution of new material or form. 

(2) [Reserved] 

(b) File and use. The MA organization 

may distribute certain types of 

marketing materials, designated by 

CMS, 5 days following their submission 

to CMS if the MA organization certifies 

that in the case of these designated 

marketing materials it followed all 

applicable marketing guidelines and, 

when applicable, used model language 

specified by CMS without modification. 

§ 422.2264 Guidelines for CMS review. 

In reviewing marketing material or 

election forms under § 422.2262 of this 

part, CMS determines that the marketing 

materials—

(a) Provide, in a format (and, where 

appropriate, print size), and using 

standard terminology that may be 

specified by CMS, the following 

information to Medicare beneficiaries 

interested in enrolling: 

(1) Adequate written description of 

rules (including any limitations on the 

providers from whom services can be 

obtained), procedures, basic benefits 

and services, and fees and other charges. 

(2) Adequate written description of 

any supplemental benefits and services. 

(3) Adequate written explanation of 

the grievance and appeals process, 

including differences between the two, 

and when it is appropriate to use each 

and 

(4) Any other information necessary 

to enable beneficiaries to make an 

informed decision about enrollment. 

(b) Notify the general public of its 

enrollment period in an appropriate 

manner, through appropriate media, 

throughout its service and if applicable, 

continuation areas. 

(c) Include in written materials notice 

that the MA organization is authorized 

by law to refuse to renew its contract 

with CMS, that CMS also may refuse to 

renew the contract, and that termination 

or non-renewal may result in 

termination of the beneficiary’s 

enrollment in the plan. 

(d) Ensure that materials are not 

materially inaccurate or misleading or 

otherwise make material 

misrepresentations. 

(e) For markets with a significant nonEnglish speaking population, provide 

materials in the language of these 

individuals. 

§ 422.2266 Deemed approval. 

If CMS has not disapproved the 

distribution of marketing materials or 

forms submitted by an MA organization 

with respect to an MA plan in an area, 

CMS is deemed not to have disapproved 

the distribution in all other areas 

covered by the MA plan and 

organization except with regard to any 

portion of the material or form that is 

specific to the particular area. 

§ 422.2268 Standards for MA organization 

marketing. 

In conducting marketing activities, 

MA organizations may not—

(a) Provide for cash or other monetary 

rebates as an inducement for enrollment 

or otherwise. This does not prohibit 

explanation of any legitimate benefits 

the beneficiary might obtain as an 

enrollee of the MA plan, such as 

eligibility to enroll in a supplemental 

benefit plan that covers deductibles and 

coinsurance, or preventive services. 

(b) Offer gifts to potential enrollees, 

unless the gifts are of nominal (as 

defined in the CMS Marketing 

Guidelines) value, are offered to all 

eligible members without 

discrimination, and are not in the form 

of cash or other monetary rebates. 

Providing meals for potential enrollees 

is prohibited, regardless of value. 

(c) Engage in any discriminatory 

activity such as, for example, attempts 

to recruit Medicare beneficiaries from 

higher income areas without making 

comparable efforts to enroll Medicare 

beneficiaries from lower income areas. 

(d) Solicit door-to-door for Medicare 

beneficiaries or through other 

unsolicited means of direct contact, 

including calling a beneficiary without 

the beneficiary initiating the contact. 

(e) Engage in activities that could 

mislead or confuse Medicare 

beneficiaries, or misrepresent the MA 

organization. The MA organization may 

not claim that it is recommended or 

endorsed by CMS or Medicare or that 

CMS or Medicare recommends that the 

beneficiary enroll in the MA plan. It 

may, however, explain that the 

organization is approved for 

participation in Medicare. 

(f) Market non-health care related 

products to prospective enrollees during 

any MA or Part D sales activity or 

presentation. This is considered crossselling and is prohibited. 

(g) Market any health care related 

product during a marketing 

appointment beyond the scope agreed 

upon by the beneficiary, and 

documented by the plan, prior to the 

appointment. 

(h) Market additional health related 

lines of plan business not identified 

prior to an in-home appointment 

without a separate appointment that 

may not be scheduled until 48 hours 

after the initial appointment. 

(i) Distribute marketing materials for 

which, before expiration of the 45-day 

period, the MA organization receives 

from CMS written notice of disapproval 

because it is inaccurate or misleading, 

or misrepresents the MA organization, 

its marketing representatives, or CMS. 

(j) Use providers or provider groups to 

distribute printed information 

comparing the benefits of different 

health plans unless the materials have 

the concurrence of all MA organizations 

involved. 

(k) Conduct sales presentations or 

distribute and accept plan applications 

in provider offices or other places where 

health care is delivered. 

(l) Conduct sales presentations or 

distribute and accept plan applications 

at educational events. 

(m) Employ MA plan names that 

suggest that a plan is not available to all 

Medicare beneficiaries. This prohibition 

shall not apply to MA plan names in 

effect on July 31, 2000. 

(n) Display the names and/or logos of 

co-branded network providers on the 

organization’s member identification 

card. Other marketing materials that 

include names and/or logos of provider 

co-branding partners must clearly 

indicate that other providers are 

available in the network. 

(o) Engage in any other marketing 

activity prohibited by CMS in its 

marketing guidance. 

§ 422.2272 Licensing of marketing 

representatives and confirmation of 

marketing resources. 

In its marketing the MA organization 

must—

(a) Demonstrate to CMS’ satisfaction 

that marketing resources are allocated to 

marketing to disabled Medicare 


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population as well as beneficiaries age 

65 and over. 

(b) Establish and maintain a system 

for confirming that enrolled 

beneficiaries have, in fact, enrolled in 

the MA plan and understand the rules 

applicable under the plan. 

(c) Employ as marketing 

representatives only individuals who 

are licensed by the State to conduct 

marketing activities (as defined in the 

Medicare Marketing Guidelines) in that 

State, and whom the organization has 

informed that State it has appointed, 

consistent with the appointment process 

provided for under State law, except 

that any fees required under such 

appointment process do not apply. 

§ 422.2274 Broker and agent 

commissions. 

If a Medicare Advantage organization 

markets through independent brokers or 

agents—

(a)(1) In paying a commission or other 

compensation (collectively referred to as 

‘‘commission’’) to such agent or 

representative, the commission the 

agent would receive for selling or 

servicing the policy in the first year 

could not exceed the commission the 

agent receives for selling or servicing 

the policy in all subsequent years. 

(2) The commission must be the same 

for all plans and plan product types 

offered by the MA plan’s parent 

organization. 

(b) It must ensure agents selling 

Medicare products are trained on 

Medicare rules and regulations specific 

to the plan products they intend to sell. 

(c) It must ensure agents selling 

Medicare products are tested, as 

specified in CMS guidance. 

(d) Upon CMS’s request, the 

organization must provide to CMS the 

information necessary for it to conduct 

oversight of marketing activities. 

(e) It must comply with State requests 

for information about the performance 

of a licensed agent or broker as part of 

a state investigation into the 

individual’s conduct. CMS will 

establish and maintain a memorandum 

of understanding (MOU) to share 

compliance and oversight information 

with States that agree to the MOU. 

§ 422.2276 Employer group retiree 

marketing. 

MA organizations may develop 

marketing materials designed for 

members of an employer group who are 

eligible for employer-sponsored benefits 

through the MA organization, and 

furnish these materials only to the group 

members. These materials are not 

subject to CMS prior review and 

approval. 

PART 423—VOLUNTARY MEDICARE 

PRESCRIPTION DRUG BENEFIT 

20. 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 

21. Amend § 423.32 by adding 

paragraph (g) to read as follows: 

§ 423.32 Enrollment process. 

* * * * * 

(g) Passive enrollment by CMS. In 

situations involving either immediate 

terminations as provided in 

§ 423.509(a)(5) or § 422.510(a)(5), or 

other situations in which CMS 

determines that remaining enrolled in a 

plan poses potential harm to plan 

members, CMS may implement passive 

enrollment procedures. 

(1) Passive enrollment procedures. 

Individuals will be considered to have 

enrolled in the plan selected by CMS 

unless individuals—

(i) Decline the plan selected by CMS, 

in a form and manner determined by 

CMS, or 

(ii) Request enrollment in another 

plan. 

(2) Beneficiary notification. The 

organization that receives the 

enrollment must provide notification 

that describes the costs and benefits of 

the new plan and the process for 

accessing care under the plan and the 

beneficiary’s ability to decline the 

enrollment or choose another plan. 

Such notification must be provided to 

all potential enrollees prior to the 

enrollment effective date (or as soon as 

possible after the effective date if prior 

notice is not practical), in a form and 

manner determined by CMS. 

(3) Special election period. All 

individuals will be provided with a 

special enrollment period, as described 

in § 423.38(c)(8)(ii). 

22. Amend § 423.34 by—

A. Revising paragraph (d)(1). 

B. Adding paragraph (d)(3). 

The revision and addition reads as 

follows: 

§ 423.34 Enrollment of full-benefit dual 

eligible individuals. 

* * * * * 

(d) Automatic enrollment rules—(1) 

General rule. Except for full-benefit dual 

eligible individuals who are qualifying 

covered retirees as specified in 

paragraph (d)(3) of this section, CMS 

automatically enrolls full-benefit dual 

eligible individuals who fail to enroll in 

a Part D plan into a PDP offering basic 

prescription drug coverage in the area 

where the individual resides that has a 

monthly beneficiary premium amount 

(as defined in § 423.780(b)). In the event 

that there is more than one PDP in an 

area with a monthly beneficiary 

premium at or below the low-income 

premium subsidy amount, individuals 

are enrolled in such PDPs on a random 

basis. 

* * * * * 

(3) Exception for full-benefit dual 

eligible individuals who are qualifying 

covered retirees. Full-benefit dual 

eligible individuals who are qualifying 

covered retirees as defined in § 423.882 

also are automatically enrolled in a part 

D plan, consistent with this paragraph, 

unless they elect to decline that 

enrollment. Before effectuating such an 

enrollment, however, CMS will provide 

notice to such individuals of their 

choices and advise them to discuss the 

potential impact of Medicare Part D 

coverage on their group health plan 

coverage. This notice informs such 

individuals that they will be deemed to 

have declined to enroll in Part D unless 

they affirmatively enroll in a Part D plan 

or contact CMS and confirm that they 

wish to be auto-enrolled in a PDP. 

Individuals who elect not to be autoenrolled, may enroll in Medicare Part D 

at a later time if they choose to do so. 

* * * * * 

23. Amend § 423.44 by revising 

paragraph (d)(1) introductory text and 

adding paragraph (d)(1)(iv) as follows: 

§ 423.44 Involuntary disenrollment by the 

PDP. 

* * * * * 

(d) * * * 

(1) Except as specified in paragraph 

(d)(1)(iv) of this section, a PDP sponsor 

may disenroll an individual from the 

PDP for failure to pay any monthly 

premium under the following 

circumstances: 

* * * * * 

(iv) A PDP sponsor may not disenroll 

an individual who has requested to have 

monthly premiums withheld per 

§ 423.293(a) or who is in premium 

withhold status, as defined by CMS. 

* * * * * 

24. Amend § 423.46 by adding 

paragraph (b) through (d) to read as 

follows: 

§ 423.46 Late enrollment penalty. 

* * * * * 

(b) Role of Part D plan in 

determination of the penalty. Part D 

sponsors must obtain information on 

prior creditable coverage from all 

enrolled or enrolling beneficiaries and 

report this information to CMS in a form 

and manner determined by CMS. 


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(c) Reconsideration. Individuals 

determined to be subject to a late 

enrollment penalty may request 

reconsideration of this determination, 

consistent with § 423.56(g). Such review 

will be conducted by CMS, or an 

independent review entity contracted by 

CMS, in accordance with guidance 

issued by CMS. Decisions made through 

this review are not subject to appeal, but 

may be reviewed and revised at the 

discretion of CMS. 

(d) Record retention. Part D plan 

sponsors must retain all information 

collected concerning a creditable 

coverage period determination in 

accordance with the enrollment records 

retention requirements described in 

subpart K, § 423.505(e)(1)(iii). 

§ 423.50 [Removed] 

25. Remove § 423.50. 

Subpart C—Benefits and Beneficiary 

Protections 

26. Section 423.100 is amended by—

A. Revising the definition of 

‘‘incurred costs.’’

B. Revising the definition of 

‘‘negotiated prices.’’

The revision reads as follows: 

§ 423.100 Definitions. 

* * * * * 

Incurred costs means costs incurred 

by a Part D enrollee for—

(1)(i) Covered Part D drugs that are 

not paid for under the Part D plan as a 

result of application of any annual 

deductible or other cost-sharing rules 

for covered Part D drugs prior to the Part 

D enrollee satisfying the out-of-pocket 

threshold under § 423.104(d)(5)(iii), 

including any price differential for 

which the Part D enrollee is responsible 

under § 423.124(b); or 

(ii) Nominal cost-sharing paid by or 

on behalf of an enrollee, which is 

associated with drugs that would 

otherwise be covered Part D drugs, as 

defined in § 423.100, but are instead 

paid for, with the exception of said 

nominal cost-sharing, by a patient 

assistance program providing assistance 

outside the Part D benefit, provided that 

documentation of such nominal costsharing has been submitted to the Part 

D plan consistent with the plan 

processes and instructions for the 

submission of such information; and 

(2) That are paid for—

(i) By the Part D enrollee or on behalf 

of the Part D enrollee by another person, 

and the Part D enrollee (or person 

paying on behalf of the Part D enrollee) 

is not reimbursed through insurance or 

otherwise, a group health plan, or other 

third party payment arrangement, or the 

person paying on behalf of the Part D 

enrollee is not paying under insurance 

or otherwise, a group health plan, or 

third party payment arrangement; 

(ii) Under a State Pharmaceutical 

Assistance Program (as defined in 

§ 423.454 of this part); or 

(iii) Under § 423.782 of this part. 

* * * * * 

Negotiated prices means prices for 

covered Part D drugs that—

(1) The Part D sponsor (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount such 

network entity will receive, in total, for 

a particular drug; 

(2) Are reduced by those discounts, 

direct or indirect subsidies, rebates, 

other price concessions, and direct or 

indirect remuneration that the Part D 

sponsor has elected to pass through to 

Part D enrollees at the point of sale; and 

(3) Includes any dispensing fees. 

* * * * * 

27. Amend § 423.104 by revising 

paragraph (g)(1) to read as follows: 

§ 423.104 Requirements related to 

qualified prescription drug coverage. 

* * * * * 

(g) * * * 

(1) Access to negotiated prices. A Part 

D sponsor is required to provide its Part 

D enrollees with access to negotiated 

prices for covered Part D drugs included 

in its Part D plan’s formulary. 

Negotiated prices must be provided 

even if no benefits are payable to the 

beneficiary for covered Part D drugs 

because of the application of any 

deductible or 100 percent coinsurance 

requirement following satisfaction of 

any initial coverage limit. Negotiated 

prices must be provided when the 

negotiated price for a covered Part D 

drug under a Part D sponsor’s benefit 

package is less than the applicable costsharing before the application of any 

deductible, before any initial coverage 

limit, before the annual out-of-pocket 

threshold, and after the annual out-ofpocket threshold. 

* * * * * 

28. Amend § 423.128 as follows: 

A. Revise paragraph (a)(3). 

B. Revise paragraph (e)(6). 

§ 423.128 Dissemination of Part D Plan 

information. 

(a) * * * 

(3) At the time of enrollment and at 

least annually thereafter, 15 days before 

the annual coordinated election period. 

* * * * * 

(e) * * * 

(6) Be provided no later than the end 

of the month following any month when 

prescription drug benefits are provided 

under this part, including the covered 

Part D spending between the initial 

coverage limit described in 

§ 423.104(d)(3) and the out-of-pocket 

threshold described in 

§ 423.104(d)(5)(iii). 

Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums; Plan 

Approval 

29. Amend § 423.293 by—

A. Revising paragraph (a). 

B. Adding paragraph (e). 

The revision and addition read as 

follows: 

§ 423.293 Collection of monthly 

beneficiary premium. 

(a) General rule. Part D sponsors must 

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). Part D sponsors must also 

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 

§ 422.262(f) of this chapter. In 

circumstances where retroactive 

collection of premium is necessary and 

where the member is without fault in 

creating the premium arrearage, the Part 

D sponsor shall offer the member the 

option of payment either by lump sum 

or by equal monthly installment spread 

out over the same period for which the 

premiums were due, that is, if 7 months 

of premiums are due, the member 

would have at least 7 months to repay. 

* * * * * 

(e) Prohibition on improper billing of 

premiums. Part D plan sponsors shall 

not bill an enrollee for a premium 

payment period if the enrollee has 

requested that premiums be withheld 

from his or her Social Security benefit. 

Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage 

30. Section 423.308 is amended by—

A. Revising the definition of ‘‘actually 

paid.’’

B. Adding the definition of 

‘‘administrative costs.’’

C. Revising the definition of 

‘‘allowable risk corridor costs.’’

D. Revising the definition of ‘‘gross 

covered prescription drug costs.’’

E. Revising the definition of ‘‘target 

amount.’’

The addition and revisions read as 

follows: 


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§ 423.308 Definitions and terminology. 

* * * * * 

Actually paid means that the costs 

must be actually incurred by the Part D 

sponsor and must be net of any direct 

or indirect remuneration (including 

discounts, chargebacks or rebates, cash 

discounts, free goods contingent on a 

purchase agreement, up-front payments, 

coupons, goods in kind, free or reducedprice services, grants, or other price 

concessions or similar benefits offered 

to some or all purchasers) from any 

source (including manufacturers, 

pharmacies, enrollees, or any other 

person) that would serve to decrease the 

costs incurred under the Part D plan. 

Direct and indirect remuneration 

includes discounts, chargebacks or 

rebates, cash discounts, free goods 

contingent on a purchase agreement, upfront payments, coupons, goods in kind, 

free or reduced-price services, grants, or 

other price concessions or similar 

benefits from manufacturers, 

pharmacies or similar entities obtained 

by an intermediary contracting 

organization with which the Part D plan 

sponsor has contracted for 

administrative services, regardless of 

whether the intermediary contracting 

organization retains all or a portion of 

the direct and indirect remuneration or 

passes the entire direct and indirect 

remuneration to the Part D plan sponsor 

and regardless of the terms of the 

contract between the plan sponsor and 

the intermediary contracting 

organization. 

Administrative costs means costs 

incurred by a Part D sponsor in 

complying with the requirements of this 

Part for a coverage year and that are not 

drug costs incurred to purchase or 

reimburse the purchase of Part D drugs. 

Administrative costs include amounts 

paid by the Part D sponsor to an 

intermediary contracting organization 

for covered Part D drugs dispensed to 

enrollees in the sponsor’s Part D plan 

that differ from the amount paid by the 

intermediary contracting organization to 

a pharmacy or other entity that is the 

final dispenser of the covered Part D 

drugs. For example, any profit or loss 

retained by an intermediary contracting 

organization (through discounts, 

rebates, or other direct or indirect price 

concessions) when negotiating prices 

with dispensing entities is considered 

an administrative cost. 

* * * * * 

Allowable risk corridor costs means—

(1) The subset of costs incurred under 

a Part D plan (not including 

administrative costs, but including 

dispensing fees) that are attributable to 

basic prescription drug coverage only 

and that are incurred and actually paid 

by the Part D sponsor to—

(i) A dispensing pharmacy or other 

dispensing provider (whether directly or 

through an intermediary contracting 

organization) under the Part D plan; 

(ii) The parties listed in § 423.464(f)(1) 

with which the Part D sponsor must 

coordinate benefits, including other Part 

D plans, as the result of any 

reconciliation process developed by 

CMS under § 423.464 of this part; or 

(iii) An enrollee (or third party paying 

on behalf of the enrollee) to indemnify 

the enrollee when the reimbursement is 

associated with obtaining drugs under 

the Part D plan; and 

(2) These costs must be based upon 

imposition of the maximum amount of 

copayments permitted under § 423.782 

of this part. The costs for any Part D 

plan offering enhanced alternative 

coverage must be adjusted not only to 

exclude any costs attributable to 

benefits beyond basic prescription drug 

coverage, but also to exclude any 

prescription drug coverage costs 

determined to be attributable to 

increased utilization over standard 

prescription drug coverage as the result 

of the insurance effect of enhanced 

alternative coverage in accordance with 

CMS guidelines on actuarial valuation. 

* * * * * 

Gross covered prescription drug costs 

mean those actually paid costs incurred 

under a Part D plan, excluding 

administrative costs, but including 

dispensing fees, during the coverage 

year. They equal the sum of the 

following—

(1) The share of negotiated prices (as 

defined by § 423.100 of this chapter) 

actually paid by the Part D plan that is 

received as reimbursement by the 

pharmacy or other dispensing entity, 

reimbursement paid to indemnify an 

enrollee when the reimbursement is 

associated with an enrollee obtaining 

covered Part D drugs under the Part D 

plan, or payments made by the Part D 

sponsor to other parties listed in 

§ 423.464(f)(1) with which the Part D 

sponsor must coordinate benefits, 

including other Part D plans, or as the 

result of any reconciliation process 

developed by CMS under § 423.464 of 

this chapter. 

(2) Nominal cost-sharing paid by or 

on behalf of an enrollee which is 

associated with drugs that would 

otherwise be covered Part D drugs, as 

defined in § 423.100, but are instead 

paid for, with the exception of said 

nominal cost-sharing, by a patient 

assistance program providing assistance 

outside the Part D benefit, provided that 

documentation of such nominal costsharing has been submitted to the Part 

D plan consistent with the plan 

processes and instructions for the 

submission of such information. 

(3) All amounts paid under the Part D 

plan by or on behalf of an enrollee (such 

as the deductible, coinsurance, cost 

sharing, or amounts between the initial 

coverage limit and the out-of-pocket 

threshold) in order to obtain Part D 

drugs that are covered under the Part D 

plan. If an enrollee who is paying 100 

percent cost sharing (as a result of 

paying a deductible or because the 

enrollee is between the initial coverage 

limit and the out-of-pocket threshold) 

obtains a covered Part D drug at a lower 

cost than is available under the Part D 

plan, such cost-sharing will be 

considered an amount paid under the 

plan by or on behalf of an enrollee 

under the previous sentence of this 

definition, if the enrollee’s costs are 

incurred costs as defined under 

§ 423.100 of this part and 

documentation of the incurred costs has 

been submitted to the Part D plan 

consistent with plan processes and 

instructions for the submission of such 

information. These costs are determined 

regardless of whether the coverage 

under the plan exceeds basic 

prescription drug coverage. 

Target amount means the total 

amount of payments (from both CMS 

and by or on behalf of enrollees) to a 

Part D plan for the coverage year for all 

standardized bid amounts as risk 

adjusted under § 423.329(b)(1), less the 

administrative expenses (including 

return on investment) assumed in the 

standardized bids. 

31. Amend § 423.329 by revising 

paragraph (d)(2)(i) to read as follows: 

§ 423.329 Determination of payments. 

* * * * * 

(d) * * * 

(2) * * * 

(i) Interim payments. CMS establishes 

a payment method by which interim 

payments of amounts under this section 

are made during a year based on the 

low-income cost-sharing assumptions 

submitted with plan bids under 

§ 423.265(d)(2)(iv) and negotiated and 

approved under § 423.272, or by an 

alternative method that CMS 

determines. 

* * * * * 

Subpart K—Application Procedures 

and Contracts With Part D Plan 

Sponsors 

32. Amend § 423.505 by revising 

paragraph (k)(5) to read as follows: 

§ 423.505 Contract provisions. 

* * * * * 


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(k) * * * 

(5) Certification of allowable costs for 

risk corridor and reinsurance 

information. The Chief Executive 

Officer, Chief Financial Officer, or an 

individual delegated the authority to 

sign on behalf of one of these officers, 

and who reports directly to the officer, 

must certify (based on best knowledge, 

information, and belief) that the 

information provided for purposes of 

supporting allowable costs as defined in 

§ 423.308, including data submitted to 

CMS regarding direct or indirect 

remuneration (DIR) that serves to reduce 

the costs incurred by the Part D sponsor 

for Part D drugs, is accurate, complete, 

and truthful and fully conforms to the 

requirements in § 423.336 and § 423.343 

and acknowledge that this information 

will be used for the purposes of 

obtaining Federal reimbursement. 

* * * * * 

33. Amend § 423.507 by—

A. Revising paragraphs (a)(2)(ii) and 

(a)(2)(iii). 

B. Revising paragraphs (b)(2)(ii) and 

(b)(2)(iii). 

The revisions read as follows: 

§ 423.507 Non-renewal of contract. 

(a) * * * 

(2) * * * 

(ii) Each Medicare enrollee by mail at 

least 60 days before the date on which 

the non-renewal is effective. This notice 

must include a written description of 

alternatives available for obtaining 

qualified prescription drug coverage 

within the PDP region, including MA–

PD plans, and other PDPs, and must 

receive CMS approval prior to issuance; 

and, 

(iii) The general public, at least 60 

days before the date on which the nonrenewal is effective, by publishing a 

notice in one or more newspapers of 

general circulation in each community 

or county located in the Part D plan 

sponsor’s service area. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) To each of the Part D plan 

sponsor’s Medicare enrollees by mail at 

least 60 days before the date on which 

the non-renewal is effective; and, 

(iii) To the general public, at least 60 

days before the date on which the nonrenewal is effective, by publishing a 

notice in one or more newspapers of 

general circulation in each community 

or county located in the Part D plan 

sponsor’s service area. 

* * * * * 

Subpart L—Effect of Change of 

Ownership or Leasing of Facilities 

During Term of Contract 

34. Amend § 423.551 by adding 

paragraph (g) to read as follows: 

§ 423.551 General provisions. 

* * * * * 

(g) Sale of beneficiaries not permitted: 

CMS will not recognize as a sale or 

transfer of a PDP line of business 

(qualifying as a change of ownership) a 

transaction that consists solely of the 

sale or transfer of individual 

beneficiaries or groups of beneficiaries 

enrolled in a pharmacy benefit package 

offered by a PDP sponsor. 

Subpart M—Grievances, Coverage 

Determinations, and Appeals 

35. Amend § 423.560 by adding, in 

alphabetical order, the definition for 

‘‘Other prescriber’’ as follows—

§ 423.560 Definitions. 

* * * * * 

Other prescriber means a health care 

professional other than a physician who 

is authorized under State law or other 

applicable law to write prescriptions. 

* * * * * 

36. Amend § 423.566 by revising 

paragraph (c)(3) to read as follows: 

§ 423.566 Coverage determinations. 

* * * * * 

(c) * * * 

(3) The prescribing physician or other 

prescriber, on behalf of the enrollee. 

37. Amend § 423.568 by revising 

paragraph (a) to read as follows: 

§ 423.568 Standard timeframe and notice 

requirements for coverage determinations. 

(a) Timeframe for requests for drug 

benefits. When a party makes a request 

for a drug benefit, the Part D plan 

sponsor must notify the enrollee (and 

the prescribing physician or other 

prescriber involved, as appropriate) of 

its determination as expeditiously as the 

enrollee’s health condition requires, but 

no later than 72 hours after receipt of 

the request, or, for an exceptions 

request, the physician’s or other 

prescriber’s supporting statement. 

* * * * * 

38. Amend § 423.570 by—

A. Revising paragraph (a). 

B. Revising paragraph (b). 

C. Revising paragraph (c)(1). 

D. Revising paragraph (c)(3) 

introductory text. 

E. Revising paragraph (c)(3)(ii). 

F. Republishing paragraph (d) 

introductory text. 

G. Revising paragraph (d)(1). 

H. Revising paragraph (d)(2) 

introductory text. 

I. Revising paragraph (d)(2)(iii). 

The revisions read as follows: 

§ 423.570 Expediting certain coverage 

determinations. 

(a) Request for expedited 

determination. An enrollee or an 

enrollee’s prescribing physician or other 

prescriber may request that a Part D 

plan sponsor expedite a coverage 

determination involving issues 

described in § 423.566(b). This does not 

include requests for payment of Part D 

drugs already furnished. 

(b) How to make a request. (1) To ask 

for an expedited determination, an 

enrollee or an enrollee’s prescribing 

physician or other prescriber on behalf 

of the enrollee must submit an oral or 

written request directly to the Part D 

plan sponsor or, if applicable, to the 

entity responsible for making the 

determination, as directed by the Part D 

plan sponsor. 

(2) A prescribing physician or other 

prescriber may provide oral or written 

support for an enrollee’s request for an 

expedited determination. 

(c) * * * 

(1) An efficient and convenient means 

for accepting oral or written requests 

submitted by enrollees, prescribing 

physicians, or other prescribers. 

* * * * * 

(3) A means for issuing prompt 

decisions on expediting a 

determination, based on the following 

requirements: 

* * * * * 

(ii) For a request made or supported 

by an enrollee’s prescribing physician or 

other prescriber, provide an expedited 

determination if the physician or other 

prescriber indicates that applying the 

standard timeframe for making a 

determination may seriously jeopardize 

the life or health of the enrollee or the 

enrollee’s ability to regain maximum 

function. 

(d) Actions following denial. If a Part 

D plan sponsor denies a request for 

expedited determination, it must take 

the following actions: 

(1) Make the determination within the 

72-hour timeframe established in 

§ 423.568(a) for a standard 

determination. The 72-hour period 

begins on the day the Part D plan 

sponsor receives the request for 

expedited determination, or, for an 

exceptions request, the physician’s or 

other prescriber’s supporting statement. 

(2) Give the enrollee and prescribing 

physician or other prescriber prompt 

oral notice of the denial that—

* * * * * 

(iii) Informs the enrollee of the right 

to resubmit a request for an expedited 


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determination with the prescribing 

physician’s or other prescriber’s support 

and 

* * * * * 

39. Amend § 423.572 by revising 

paragraph (a) to read as follows: 

§ 423.572 Timeframes and notice 

requirements for expedited coverage 

determinations. 

(a) Timeframe for determination and 

notification. Except as provided in 

paragraph (b) of this section, a Part D 

plan sponsor that approves a request for 

expedited determination must make its 

determination and notify the enrollee 

(and the prescribing physician or other 

prescriber involved, as appropriate) of 

its decision, whether adverse or 

favorable, as expeditiously as the 

enrollee’s health condition requires, but 

no later than 24 hours after receiving the 

request, or, for an exceptions request, 

the physician’s or other prescriber’s 

supporting statement. 

* * * * * 

40. Amend § 423.578 by—

A. Revising paragraph (a) introductory 

text. 

B. Revising paragraph (a)(2) 

introductory text. 

C. Revising paragraph (a)(2)(i). 

D. Revising paragraph (a)(3). 

E. Revising paragraph (a)(4) 

introductory text. 

F. Revising paragraph (a)(5). 

G. Revising paragraph (b) introductory 

text. 

H. Revising paragraph (b)(2) 

introductory text. 

I. Revising paragraph (b)(2)(i), (b)(4), 

(b)(5) introductory text, and (b)(6). 

J. Revising paragraph (c)(3)(i), (c)(4)(i) 

introductory text, and (c)(4)(i)(A). 

K. Revising paragraph (f). 

The revisions read as follows: 

§ 423.578 Exceptions process. 

(a) Request for exceptions to a plan’s 

tiered cost-sharing structure. Each Part 

D plan sponsor that provides 

prescription drug benefits for Part D 

drugs and manages this benefit through 

the use of a tiered formulary must 

establish and maintain reasonable and 

complete exceptions procedures subject 

to CMS’ approval for this type of 

coverage determination. The Part D plan 

sponsor grants an exception whenever it 

determines that the non-preferred drug 

for treatment of the enrollee’s condition 

is medically necessary, consistent with 

the physician’s or other prescriber’s 

statement under paragraph (a)(4) of this 

section. 

* * * * * 

(2) The exceptions criteria of a Part D 

plan sponsor must include, but are not 

limited to—

(i) A description of the criteria a Part 

D plan sponsor uses to evaluate a 

determination made by the enrollee’s 

prescribing physician or other 

prescriber under paragraph (a)(4) of this 

section. 

* * * * * 

(3) An enrollee or the enrollee’s 

prescribing physician or other 

prescriber may file a request for an 

exception. 

(4) A prescribing physician or other 

prescriber must provide an oral or 

written supporting statement that the 

preferred drug for the treatment of the 

enrollee’s conditions—

* * * * * 

(5) If the physician or other prescriber 

provides an oral supporting statement, 

the Part D plan sponsor may require the 

physician or other prescriber to 

subsequently provide a written 

supporting statement to demonstrate the 

medical necessity of the drug. The Part 

D plan sponsor may require the 

prescribing physician or other 

prescriber to provide additional 

supporting medical documentation as 

part of the written follow-up. 

* * * * * 

(b) Request for exceptions involving a 

non-formulary Part D drug. Each Part D 

plan sponsor that provides prescription 

drug benefits for Part D drugs and 

manages this benefit through the use of 

a formulary must establish and maintain 

exceptions procedures subject to CMS’

approval for receipt of an off-formulary 

drug. The Part D plan sponsor must 

grant an exception whenever it 

determines that the drug is medically 

necessary, consistent with the 

physician’s or other prescriber’s 

statement under paragraph (b)(5) of this 

section, and that the drug would be 

covered but for the fact that it is an offformulary drug. Formulary use includes 

the application of cost utilization tools, 

such as a dose restriction, including the 

dosage form, that causes a particular 

Part D drug not to be covered for the 

number of doses prescribed or a step 

therapy requirement that causes a 

particular Part D drug not to be covered 

until the requirements of the plan’s 

coverage policy are met, or a therapeutic 

substitution requirement. 

* * * * * 

(2) The exception criteria of a Part D 

plan sponsor must include, but are not 

limited to—

(i) A description of the criteria a Part 

D plan sponsor uses to evaluate a 

prescribing physician’s or other 

prescriber’s determination made under 

paragraph (b)(5) of this section; 

* * * * * 

(4) An enrollee, the enrollee’s 

appointed representative, or the 

prescribing physician or other 

prescriber (on behalf of the enrollee) 

may file a request for an exception. 

(5) A prescribing physician or other 

prescriber must provide an oral or 

written supporting statement that the 

requested prescription drug is medically 

necessary to treat the enrollee’s disease 

or medical condition because—

* * * * * 

(6) If the physician or other prescriber 

provides an oral supporting statement, 

the Part D plan sponsor may require the 

physician or other prescriber to 

subsequently provide a written 

supporting statement. The Part D plan 

sponsor may require the prescribing 

physician or other prescriber to provide 

additional supporting medical 

documentation as part of the written 

follow-up. 

(c) * * * 

(3) * * * 

(i) The enrollee’s prescribing 

physician or other prescriber continues 

to prescribe the drug. 

* * * * * 

(4) * * * 

(i) The Part D plan sponsor may not 

require the enrollee to request approval 

for a refill, or a new prescription to 

continue using the Part D prescription 

drug after the refills for the initial 

prescription are exhausted, as long as—

(A) The enrollee’s prescribing 

physician or other prescriber continues 

to prescribe the drug; 

* * * * * 

(f) Implication of the physician’s or 

other prescriber’s supporting statement. 

Nothing in this section should be 

construed to mean that the physician’s 

or other prescriber’s supporting 

statement required for an exceptions 

request will result in an automatic 

favorable decision. 

41. Revise § 423.580 to read as 

follows: 

§ 423.580 Right to a redetermination. 

An enrollee who has received a 

coverage determination (including one 

that is reopened and revised as 

described in § 423.634) may request that 

it be redetermined under the procedures 

described in § 423.582, which address 

requests for a standard redetermination. 

The prescribing physician or other 

prescriber (acting on behalf of an 

enrollee), upon providing notice to the 

enrollee, may request a standard 

redetermination under the procedures 

described in § 423.582. An enrollee or 

an enrollee’s prescribing physician or 

other prescriber (acting on behalf of an 

enrollee) may request an expedited 


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redetermination as specified in 

§ 423.584. 

42. Revise § 423.582 to read as 

follows: 

§ 423.582 Request for a standard 

redetermination. 

(a) Method and place for filing a 

request. An enrollee or an enrollee’s 

prescribing physician or other 

prescriber (acting on behalf of the 

enrollee) must ask for a redetermination 

by making a written request with the 

Part D plan sponsor that made the 

coverage determination. The Part D plan 

sponsor may adopt a policy for 

accepting oral requests. 

(b) Timeframe for filing a request. 

Except as provided in paragraph (c) of 

this section, a request for a 

redetermination must be filed within 60 

calendar days from the date of the 

notice of the coverage determination. 

(c) Extending the time for filing a 

request—(1) General rule. If an enrollee 

or prescribing physician or other 

prescriber acting on behalf of an 

enrollee shows good cause, the Part D 

plan sponsor may extend the timeframe 

for filing a request for redetermination. 

(2) How to request an extension of 

timeframe. If the 60-day period in which 

to file a request for a redetermination 

has expired, an enrollee or a prescribing 

physician or other prescriber acting on 

behalf of an enrollee may file a request 

for redetermination and extension of 

timeframe with the Part D plan sponsor. 

The request for redetermination and to 

extend the timeframe must—

(i) Be in writing; and 

(ii) State why the request for 

redetermination was not filed on time. 

(d) Withdrawing a request. The person 

who files a request for redetermination 

may withdraw it by filing a written 

request with the Part D sponsor. 

43. Amend § 423.584 by—

A. Revising paragraph (a). 

B. Revising paragraph (b). 

C. Revising paragraph (c)(2)(ii). 

D. Revising paragraph (d)(2)(iii). 

The revisions read as follows: 

§ 423.584 Expediting certain 

redeterminations. 

(a) Who may request an expedited 

redetermination. An enrollee or an 

enrollee’s prescribing physician or other 

prescriber may request that a Part D 

plan sponsor expedite a redetermination 

that involves the issues specified in 

§ 423.566(b). (This does not include 

requests for payment of drugs already 

furnished.) 

(b) How to make a request. (1) To ask 

for an expedited redetermination, an 

enrollee or a prescribing physician or 

other prescriber acting on behalf of an 

enrollee must submit an oral or written 

request directly to the Part D plan 

sponsor or, if applicable, to the entity 

responsible for making the 

redetermination, as directed by the Part 

D plan sponsor. 

(2) A prescribing physician or other 

prescriber may provide oral or written 

support for an enrollee’s request for an 

expedited redetermination. 

(c) * * * 

(2) * * * 

(ii) For a request made or supported 

by a prescribing physician or other 

prescriber, the Part D plan sponsor must 

provide an expedited redetermination if 

the physician or other prescriber 

indicates that applying the standard 

timeframe for conducting a 

redetermination may seriously 

jeopardize the life or health of the 

enrollee or the enrollee’s ability to 

regain maximum function. 

(d) * * * 

(2) * * * 

(iii) Informs the enrollee of the right 

to resubmit a request for an expedited 

redetermination with the prescribing 

physician’s or other prescriber’s 

support; and 

* * * * * 

44. Revise § 423.586 to read as 

follows: 

§ 423.586 Opportunity to submit evidence. 

The Part D plan sponsor must provide 

the enrollee or the prescribing physician 

or other prescriber, as appropriate, with 

a reasonable opportunity to present 

evidence and allegations of fact or law, 

related to the issue in dispute, in person 

as well as in writing. In the case of an 

expedited redetermination, the 

opportunity to present evidence is 

limited by the short timeframe for 

making a decision. Therefore, the Part D 

plan sponsor must inform the enrollee 

or the prescribing physician or other 

prescriber of the conditions for 

submitting the evidence. 

45. Amend § 423.590 by revising 

paragraphs (d)(1), (e), and (f)(2) to read 

as follows: 

§ 423.590 Timeframes and responsibility 

for making redeterminations. 

* * * * * 

(d) Expedited redetermination—(1) 

Timeframe. A Part D plan sponsor that 

approves a request for expedited 

redetermination must complete its 

redetermination and give the enrollee 

(and the prescribing physician or other 

prescriber involved, as appropriate), 

notice of its decision as expeditiously as 

the enrollee’s health condition requires 

but no later than 72 hours after 

receiving the request. 

* * * * * 

(e) Failure to meet timeframe for 

expedited redetermination. If the Part D 

plan sponsor fails to provide the 

enrollee or the prescribing physician or 

other prescriber, as appropriate, with 

the results of its expedited 

redetermination within the timeframe 

described in paragraph (d) of this 

section, the failure constitutes an 

adverse redetermination decision, and 

the Part D plan sponsor must forward 

the enrollee’s request to the IRE within 

24 hours of the expiration of the 

adjudication timeframe. 

(f) * * * 

(2) When the issue is the denial of 

coverage based on a lack of medical 

necessity (or any substantively 

equivalent term used to describe the 

concept of medical necessity), the 

redetermination must be made by a 

physician with expertise in the field of 

medicine that is appropriate for the 

services at issue. The physician making 

the redetermination need not, in all 

cases, be of the same specialty or 

subspecialty as the prescribing 

physician or other prescriber. 

* * * * * 

46. Amend § 423.600 by revising 

paragraphs (b), (c), and (e) to read as 

follows: 

§ 423.600 Reconsideration by an 

independent review entity (IRE). 

* * * * * 

(b) When an enrollee files an appeal, 

the IRE is required to solicit the views 

of the prescribing physician or other 

prescriber. The IRE may solicit the 

views of the prescribing physician or 

other prescriber orally or in writing. A 

written account of the prescribing 

physician’s or other prescriber’s views 

(prepared by either the prescribing 

physician, other prescriber, or IRE, as 

appropriate) must be contained in the 

IRE’s record. 

(c) In order for an enrollee to request 

an IRE reconsideration of a 

determination by a Part D plan sponsor 

not to provide for a Part D drug that is 

not on the formulary, the prescribing 

physician or other prescriber must 

determine that all covered Part D drugs 

on any tier of the formulary for 

treatment of the same condition would 

not be as effective for the individual as 

the non-formulary drug, would have 

adverse effects for the individual, or 

both. 

* * * * * 

(e) When the issue is the denial of 

coverage based on a lack of medical 

necessity (or any substantively 

equivalent term used to describe the 

concept of medical necessity), the 

reconsideration must be made by a 

physician with expertise in the field of 


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medicine that is appropriate for the 

services at issue. The physician making 

the reconsideration need not, in all 

cases, be of the same specialty or 

subspecialty as the prescribing 

physician or other prescriber. 

Subpart O—Intermediate Sanctions 

47. Amend § 423.760 by—

A. Redesignating paragraphs (b)(2) 

and (b)(3) as paragraphs (b)(3) and 

(b)(4), respectively. 

B. Adding new paragraph (b)(2) to 

read as follows: 

§ 423.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

* * * * * 

(b) * * * 

(2) If the deficiency on which the 

determination is based has directly 

adversely affected (or has the substantial 

likelihood of adversely affecting) one or 

more Part D enrollees, CMS may 

calculate a CMP of up to $25,000 for 

each Part D enrollee directly adversely 

affected (or with a substantial likelihood 

of being adversely affected) by a 

deficiency. 

* * * * * 

Subpart P—Premiums and CostSharing Subsidies for Low-Income 

Individuals 

48. Amend § 423.772 by adding the 

definition for ‘‘Best available evidence’’, 

in alphabetical order, to read as follows: 

§ 423.772 Definitions. 

* * * * * 

Best available evidence means 

evidence recognized by CMS as 

documentation or other information that 

is directly tied to authoritative sources 

that confirm an individual’s low-income 

subsidy eligibility status, and that must 

be accepted and used by the Part D 

sponsor to change low-income subsidy 

status. 

* * * * * 

49. Amend § 423.782 by adding new 

paragraph (c) to read as follows: 

§ 423.782 Cost-sharing subsidy. 

* * * * * 

(c) When the out-of-pocket cost for a 

covered Part D drug under a Part D 

sponsor’s plan benefit package is less 

than the maximum allowable 

copayment, coinsurance or deductible 

amounts under paragraphs (a) and (b) of 

this section, the Part D sponsor may 

only charge the lower benefit package 

amount. 

50. Amend § 423.800 by revising 

paragraph (b) and adding a new 

paragraph (d) to read as follows: 

§ 423.800 Administration of subsidy 

program. 

* * * * * 

(b) Reduction of premium or costsharing by PDP sponsor or organization. 

Based on information provided by CMS 

under paragraph (a) of this section, or 

obtained under paragraph (d) of this 

section, the Part D sponsor offering the 

Part D plan, in which a subsidy eligible 

individual is enrolled must reduce the 

individual’s premiums and cost-sharing 

as applicable, and provide information 

to CMS on the amount of those 

reductions, in a manner determined by 

CMS. The Part D sponsor must track the 

application of the subsidies under this 

subpart to be applied to the out-ofpocket threshold. 

* * * * * 

(d) Use of the best available evidence 

process to establish cost-sharing. Part D 

sponsors must accept best available 

evidence as defined in § 423.772 of this 

part, and update the subsidy eligible 

individual’s LIS status in accordance 

with a process established by CMS, and 

within a reasonable timeframe as 

determined by CMS. 

Subpart R—Payment to Sponsors of 

Retiree Prescription Drug Plans 

51. Section 423.882 is amended by—

A. Adding the definition of ‘‘actually 

paid’’. 

B. Adding the definition of 

‘‘administrative costs’’. 

C. Revising the definition of 

‘‘allowable retiree costs’’. 

D. Revising the definition of ‘‘gross 

covered retiree plan-related prescription 

drug costs’’, or ‘‘gross retiree costs’’. 

E. Adding the definition of 

‘‘negotiated prices’’. 

The additions and revisions read as 

follows: 

§ 423.882 Definitions. 

* * * * * 

Actually paid means that the costs 

must be actually incurred by the 

qualified retiree prescription drug plan 

and must be net of any direct or indirect 

remuneration (including discounts, 

chargebacks or rebates, cash discounts, 

free goods contingent on a purchase 

agreement, up-front payments, coupons, 

goods in kind, free or reduced-price 

services, grants, or other price 

concessions or similar benefits offered 

to some or all purchasers) from any 

source (including manufacturers, 

pharmacies, qualifying covered retirees, 

or any other person) that would serve to 

decrease the costs incurred under the 

qualified retiree prescription drug plan. 

Direct and indirect remuneration 

includes discounts, chargebacks or 

rebates, cash discounts, free goods 

contingent on a purchase agreement, upfront payments, coupons, goods in kind, 

free or reduced-price services, grants, or 

other price concessions or similar 

benefits from manufacturers, 

pharmacies or similar entities obtained 

by an intermediary contracting 

organization with which the sponsor of 

the qualified retiree prescription drug 

plan has contracted for administrative 

services, regardless of whether the 

intermediary contracting organization 

retains all or a portion of the direct and 

indirect remuneration or passes the 

entire direct and indirect remuneration 

to the sponsor of the qualified retiree 

prescription drug plan and regardless of 

the terms of the contract between the 

plan sponsor and the intermediary 

contracting organization. 

Administrative costs means costs 

incurred by a qualified retiree 

prescription drug plan that are not drug 

costs incurred to purchase or reimburse 

the purchase of Part D drugs. 

Administrative costs include amounts 

paid by the sponsor of a qualified retiree 

prescription drug plan to an 

intermediary contracting organization 

for Part D drugs dispensed to qualifying 

covered retirees in the sponsor’s plan 

that differ from the amount paid by the 

intermediary contracting organization to 

a pharmacy or other entity that is the 

final dispenser of the Part D drugs. For 

example, any profit or loss retained by 

an intermediary contracting 

organization (through discounts, 

rebates, or other direct or indirect price 

concessions) when negotiating prices 

with dispensing entities is considered 

an administrative cost. 

Allowable retiree costs means the 

subset of gross covered retiree planrelated prescription drug costs actually 

paid by the sponsor of the qualified 

retiree prescription drug plan or by (or 

on behalf of) a qualifying covered retiree 

under the plan. 

* * * * * 

Gross covered retiree plan-related 

prescription drug costs, or gross retiree 

costs, means those actually paid Part D 

drug costs incurred under a qualified 

retiree prescription drug plan, excluding 

administrative costs, but including 

dispensing fees, during the coverage 

year. They equal the sum of the 

following: 

(1) The share of negotiated prices (as 

defined in this section) actually paid by 

the qualified retiree prescription drug 

plan that is received as reimbursement 

by the pharmacy or other dispensing 

entity, and reimbursement paid to 

indemnify a qualifying covered retiree 

when the reimbursement is associated 


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with a qualifying covered retiree 

obtaining Part D drugs under the 

qualified retiree prescription drug plan. 

(2) All amounts paid under the 

qualified retiree prescription drug plan 

by or on behalf of a qualifying covered 

retiree (such as the deductible, 

coinsurance, or cost sharing) in order to 

obtain Part D drugs that are covered 

under the qualified retiree prescription 

drug plan. 

* * * * * 

Negotiated prices means prices for 

Part D drugs that—

(1) The qualified retiree prescription 

drug plan (or other intermediary 

contracting organization) and the 

network dispensing pharmacy or other 

network dispensing provider have 

negotiated as the amount such network 

entity will receive, in total, for a 

particular drug; 

(2) Are reduced by those discounts, 

direct or indirect subsidies, rebates, 

other price concessions, and direct or 

indirect remuneration that the qualified 

retiree prescription drug plan has 

elected to pass through to qualifying 

covered retirees at the point of sale; and 

(3) Includes any dispensing fees. 

* * * * * 

52. Add new subpart V to read as 

follows: 

Subpart V—Part D Marketing Requirements 

Sec. 

423.2260 Definitions concerning marketing 

materials. 

423.2262 Review and distribution of 

marketing materials. 

423.2264 Guidelines for CMS review. 

423.2266 Deemed approval. 

423.2268 Standards for Part D marketing. 

423.2272 Licensing of marketing 

representatives and confirmation of 

marketing resources. 

423.2274 Broker and agent commissions. 

423.2276 Employer group retiree marketing. 

Subpart V—Part D Marketing 

Requirements 

§ 423.2260 Definitions concerning 

marketing materials. 

As used in this subpart—

Marketing Materials. (1) Marketing 

Materials include any informational 

materials targeted to Medicare 

beneficiaries which—

(i) Promote the Part D plan. 

(ii) Inform Medicare beneficiaries that 

they may enroll, or remain enrolled in 

a Part D plan. 

(iii) Explain the benefits of enrollment 

in a Part D plan, or rules that apply to 

enrollees. 

(iv) Explain how Medicare services 

are covered under a Part D plan, 

including conditions that apply to such 

coverage. 

(2) Examples of marketing materials 

include, but are not limited to—

(i) General audience materials such as 

general circulation brochures, 

newspapers, magazines, television, 

radio, billboards, yellow pages, or the 

Internet. 

(ii) Marketing representative materials 

such as scripts or outlines for 

telemarketing or other presentations. 

(iii) Presentation materials such as 

slides and charts. 

(iv) Promotional materials such as 

brochures or leaflets, including 

materials for circulation by third parties 

(for example, physicians or other 

providers). 

(v) Membership communication 

materials such as membership rules, 

subscriber agreements, member 

handbooks and wallet card instructions 

to enrollees. 

(vi) Letters to members about 

contractual changes; changes in 

providers, premiums, benefits, plan 

procedures etc. 

(vii) Membership or claims processing 

activities. 

§ 423.2262 Review and distribution of 

marketing materials. 

(a) CMS review of marketing 

materials. (1) Except as provided in 

paragraph (a)(2) of this section a Part D 

plan may not distribute any marketing 

materials (as defined in § 423.2260 of 

this Part), or enrollment forms, or make 

such materials or forms available to Part 

D eligible individuals unless—

(i) At least 45 days (or 10 days if using 

certain types of marketing materials that 

use, without modification, proposed 

model language as specified by CMS) 

before the date of distribution, the Part 

D sponsor submits the material or form 

to CMS for review under the guidelines 

in § 423.2264; and 

(ii) CMS does not disapprove the 

distribution of new material or form. 

(2) [Reserved] 

(b) File and use. The Part D sponsor 

may distribute certain types of 

marketing materials, designated by 

CMS, 5 days following their submission 

to CMS if the Part D sponsor certifies 

that in the case of these marketing 

materials, it followed all applicable 

marketing guidelines and, when 

applicable, used model language 

specified by CMS without modification. 

§ 423.2264 Guidelines for CMS review. 

In reviewing marketing material or 

enrollment forms under § 423.2262, 

CMS determines (unless otherwise 

specified in additional guidance) that 

the marketing materials—

(a) Provide, in a format (and, where 

appropriate, print size), and using 

standard terminology that may be 

specified by CMS, the following 

information to Medicare beneficiaries 

interested in enrolling must consist of: 

(1) Adequate written description of 

rules (including any limitations on the 

providers from whom services can be 

obtained), procedures, basic benefits 

and services, and fees and other charges. 

(2) Adequate written explanation of 

the grievance and appeals process, 

including differences between the two, 

and when it is appropriate to use each. 

(3) Any other information necessary 

to enable beneficiaries to make an 

informed decision about enrollment. 

(b) Notify the general public of its 

enrollment period in an appropriate 

manner, through appropriate media, 

throughout its service area. 

(c) Include in the written materials 

notice that the Part D plan is authorized 

by law to refuse to renew its contract 

with CMS, that CMS also may refuse to 

renew the contract, and that termination 

or non-renewal may result in 

termination of the beneficiary’s 

enrollment in the Part D plan. In 

addition, the Part D plan may reduce its 

service area and no longer be offered in 

the area where a beneficiary resides. 

(d) Ensure that materials are not 

materially inaccurate or misleading or 

otherwise make material 

misrepresentations. 

(e) For markets with a significant nonEnglish speaking population, provide 

materials in the language of these 

individuals. 

§ 423.2266 Deemed approval. 

If CMS has not disapproved the 

distribution of marketing materials or a 

form submitted by a Part D sponsor for 

a Part D plan in a Part D region, CMS 

is deemed to not have disapproved the 

distribution of the marketing material or 

form in all other Part D regions covered 

by the Part D plan, with the exception 

of any portion of the material or form 

that is specific to the Part D region. 

§ 423.2268 Standards for Part D marketing. 

In conducting marketing activities, a 

Part D plan may not—

(a) Provide for cash or other 

remuneration as an inducement for 

enrollment or otherwise. This does not 

prohibit explanation of any legitimate 

benefits the beneficiary might obtain as 

an enrollee of the Part D plan. 

(b) Offer gifts to potential enrollees, 

unless the gifts are of nominal (as 

defined in the CMS Marketing 

Guidelines) value, are offered to all 

eligible members without 

discrimination, and are not in the form 

of cash or other monetary rebates. 

Providing meals for potential enrollees 

is prohibited, regardless of value. 


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(c) Engage in any discriminatory 

activity such as, including targeted 

marketing to Medicare beneficiaries 

from higher income areas without 

making comparable efforts to enroll 

Medicare beneficiaries from lower 

income areas. 

(d) Solicit door-to-door for Medicare 

beneficiaries or through other 

unsolicited means of direct contact, 

including calling a beneficiary without 

the beneficiary initiating the contact. 

(e) Engage in activities that could 

mislead or confuse Medicare 

beneficiaries, or misrepresent the Part D 

sponsor or its Part D plan. The Part D 

organization may not claim that it is 

recommended or endorsed by CMS or 

Medicare or the Department of Health 

and Human Services or that CMS or 

Medicare or the Department of Health 

and Human Services recommends that 

the beneficiary enroll in the Part D plan. 

The Part D organization may explain 

that the organization is approved for 

participation in Medicare. 

(f) Market non-health care related 

products to prospective enrollees during 

any Part D sales activity or presentation. 

This is considered cross-selling and is 

prohibited. 

(g) Market any health care related 

product during a marketing 

appointment beyond the scope agreed 

upon by the beneficiary, and 

documented by the plan, prior to the 

appointment. 

(h) Market additional health related 

lines of plan business not identified 

prior to an in-home appointment 

without a separate appointment that 

may not be scheduled until 48 hours 

after the initial appointment. 

(i) Distribute marketing materials for 

which, before expiration of the 45-day 

period, the PDP Sponsor receives from 

CMS written notice of disapproval 

because it is inaccurate or misleading, 

or misrepresents the PDP Sponsor, its 

marketing representatives, or CMS. 

(j) 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. 

(k) Conduct sales presentations or 

distribute and accept Part D plan 

enrollment forms in provider offices, 

pharmacies or other places where health 

care is delivered. 

(l) Conduct sales presentations or 

distribute and accept plan applications 

at educational events. 

(m) Employ Part D plan names that 

suggest that a plan is not available to all 

Medicare beneficiaries. 

(n) Display the names and/or logos of 

co-branded network providers on the 

organization’s member identification 

card. Other marketing materials that 

include names and/or logos of provider 

co-branding partners must clearly 

indicate that other providers are 

available in the network. 

(o) Engage in any other marketing 

activity prohibited by CMS in its 

marketing guidance. 

§ 423.2272 Licensing of marketing 

representatives and confirmation of 

marketing resources. 

In its marketing, the Part D 

organization must—

(a) Demonstrate to CMS’s satisfaction 

that marketing resources are allocated to 

marketing to the disabled Medicare 

population as well as beneficiaries age 

65 and over. 

(b) Establish and maintain a system 

for confirming that enrolled 

beneficiaries have in fact enrolled in the 

PDP and understand the rules 

applicable under the plan. 

(c) Employ as marketing 

representatives only individuals who 

are licensed by the State to conduct 

direct marketing activities (as defined in 

the Medicare Marketing Guidelines) in 

that State, and whom the sponsor has 

informed that State it has appointed, 

consistent with the appointment process 

provided for under State law, except 

that any fees required under such 

appointment process do not apply. 

§ 423.2274 Broker and agent 

commissions. 

If a Part D sponsor markets through 

independent brokers or agents—

(a)(1) In paying a commission or other 

compensation (collectively referred to as 

‘‘commission’’) to such agent or 

representative, the commission the 

agent would receive for selling or 

servicing the policy in the first year 

could not exceed the commission the 

agent receives for selling or servicing 

the policy in all subsequent years. 

(2) The commission must be the same 

for all plans and all plan product types 

offered by the sponsor’s parent 

organization. 

(b) It must ensure agents selling 

Medicare products are trained on 

Medicare rules and regulations specific 

to the plan products they intend to sell. 

(c) It must ensure agents selling 

Medicare products are tested, as 

specified in CMS guidance. 

(d) Upon CMS’s request, a sponsor 

must provide to CMS the information 

necessary for it to conduct oversight of 

marketing activities. 

(e) It must comply with State requests 

for information about the performance 

of a licensed agent or broker as part of 

a state investigation into the 

individual’s conduct. CMS will 

establish and maintain a memorandum 

of understanding (MOU) to share 

compliance and oversight information 

with States that agree to the MOU. 

§ 423.2276 Employer group retiree 

marketing. 

Part D sponsors may develop 

marketing materials designed for 

members of an employer group who are 

eligible for employer-sponsored benefits 

through the Part D sponsor, and furnish 

these materials only to the group 

members. These materials are not 

subject to CMS prior review and 

approval. 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.778, Medical 

Assistance Program) 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: January 17, 2008. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: February 19, 2008. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. 08–1244 Filed 5–8–08; 8:45 am] 

BILLING CODE 4120–01–P 


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