20486 Federal Register / Vol. 73, No. 73 / Tuesday, April 15, 2008 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 423 

[CMS–4130–F] 

RIN 0938–AO74 

Medicare Program; Policy and 

Technical Changes to the Medicare 

Prescription Drug Benefit 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule codifies 

clarifications of existing policies 

associated with the Medicare 

Prescription Drug Benefit (also known 

as Medicare Part D), including the 

following: guidance that certain 

supplies associated with the 

administration of insulin are included 

in the definition of a Part D drug; 

guidance regarding the statutory 

exclusion from the definition of a Part 

D drug of any drug when used for the 

treatment of sexual or erectile 

dysfunction, unless that drug is used for 

an FDA-approved purpose other than 

sexual or erectile dysfunction; a recent 

statutory change that allows for the 

payment of vaccine administration 

under Part D for Part D covered 

vaccines; and guidance on plan-to-plan 

reconciliation and reconciliation with a 

payer other than the Part D plan of 

record. This final rule also codifies 

clarifications of existing policies 

associated with the Retiree Drug 

Subsidy (RDS) program, including 

guidance on aggregating plan options for 

purposes of meeting the net test for 

actuarial equivalence and guidance on 

applying the Medicare supplemental 

adjustment when calculating actuarial 

equivalence. 

In addition, new clarifications and 

modifications in this final rule include 

establishing standards with respect to 

the timely delivery of infusible drugs 

covered under Part D and modifications 

to the retiree drug subsidy regulations. 

This final rule also codifies certain 

technical corrections to our regulations 

and clarifies our intent with respect to 

certain preamble discussions in a prior 

final rule implementing the Medicare 

prescription drug benefit. 

EFFECTIVE DATES: These regulations are 

effective on June 9, 2008. 

FOR FURTHER INFORMATION CONTACT: 

Alissa DeBoy (410) 786–6041 ............................ General questions regarding the final rule. 

Vanessa Duran (410) 786–8697 ........................ Subpart B—approval of marketing and materials and enrollment forms; procedures to determine and document creditable status of prescription drug coverage; Subpart C—the definition of a long-term care facility; the definition of a contracted pharmacy network; the waiver 

or reduction of Part D cost-sharing by pharmacies; access to covered Part D drugs, including adequate access to home infusion pharmacies; Subpart E—organization compliance 

with State law and preemption by Federal law; and Subpart K—application procedures and 

contracts with Part D plan sponsors. 

Gregory Dill (312) 353–1754 .............................. Subpart C—definition of a Part D drug, including the exclusion of drugs used to treat erectile 

dysfunction, the exclusion of drugs related to morbid obesity, supplies associated with the 

delivery of insulin into the body, and vaccine administration fees. 

Meghan Elrington (410) 786–8675 ..................... Subpart F—timing of payments. 

Deondra Moseley (410) 786–4577 ..................... Subpart G—payment appeals; and Subpart P—low-income benchmark premium amount, and 

premium subsidy for late enrollment penalty. 

Deborah Larwood (410) 786–9500 .................... Subpart J—coordination of Part D plans with other prescription drug coverage.

John Scott (410) 786–3636 ................................ Subpart M—grievances, coverage determinations, and appeals. 

Christine Hinds (410) 786–4578 ......................... Subpart P—premiums and cost-sharing subsidies for low-income individuals. 

David Mlawsky (410) 786–6851 ......................... Subpart R—payments to sponsors of retiree prescription drug plans. 

Christine Hinds (410) 786–4578 ......................... Subpart S—special rules for States. 

SUPPLEMENTARY INFORMATION: 

Copies: To order copies of the Federal 

Register containing this document, send 

your request to: New Orders, 

Superintendent of Documents, P.O. Box 

371954, Pittsburgh, PA 15250–7954. 

Specify the date of the issue requested 

and enclose a check or money order 

payable to the Superintendent of 

Documents, or enclose your Visa or 

Master Card number and expiration 

date. Credit card orders can also be 

placed by calling the order desk at (202) 

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The cost for each copy is $10. As an 

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document at most libraries designated 

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libraries throughout the country that 

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Federal Register document is also 

available from the Federal Register 

online database through GPO Access, a 

service of the U.S. Government Printing 

Office. The Web site address is http:// 

www.access.gpo.gov/fr/. 

Table of Contents 

I. Background 

A. Requirements for Issuance of 

Regulations 

B. General Overview 

II. Provisions of the Proposed Rule With an 

Analysis and Response to Public 

Comments 

A. Subpart B—Eligibility and Enrollment 

1. Approval of Marketing Materials and 

Enrollment Forms (§ 423.50) 

2. Procedures To Determine Creditable 

Status of Prescription Drug Coverage 

(§ 423.56) 

B. Subpart C—Benefits and Beneficiary 

Protections 

1. Definitions (§ 423.100) 

a. Part D Drug 

(1) Erectile Dysfunction (ED) 

(2) Morbid Obesity 

(3) Insulin Inhalation Drugs and Supplies 

(4) Vaccine Administration Fee 

b. Long-Term Care Facilities 

c. Contracted Pharmacy Network 

2. Requirements Related to Qualified 

Prescription Drug Coverage (§ 423.104)— 

Waiver or Reduction of Part D Costsharing by Pharmacies 

3. Access to Covered Part D Drugs 

(§ 423.120) 

a. Applicability of Some Non-Retail 

Pharmacies to Standards for Convenient 

Access 

b. Adequate Access to Home Infusion 

Pharmacies 

C. Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums: Plan 

Approval—Timing of Payments 

(§ 423.293(a)) 

D. Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription Drug 

Coverage: Payment Appeals 

(§ 423.350(b)) 

E. Subpart I—Organization Compliance 

With State Law and Preemption by 

Federal Law—Waiver of Certain 

Requirements to Expand Choice 

(§ 423.410) 

F. Subpart J—Coordination of Part D With 

Other Prescription Drug Coverage 

1. Application of Part D Rules to Certain 

Part D Plans on and After January 1, 

2006 (§ 423.458) 

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2. Coordination of Benefits With Other 

Providers of Prescription Drug Coverage 

§ (§ 423.464) 

a. Coordination of Benefits With Rural 

Health Clinics 

b. Coordination of Benefits With Part D 

Plans and Other Payers 

G. Subpart K—Application of Procedures 

and Contracts with Part D Plan Sponsors 

1. General Provisions (§ 423.504)—

Submission of Bids 

2. Contract Provisions (§ 423.505) 

3. Failure To Comply With the 

Dissemination of Information 

Requirements Grounds for Contract 

Termination (§ 423.509(a)(9)) 

H. Subpart M—Grievances, Coverage 

Determinations, and Appeals 

1. Definitions (§ 423.560) 

2. Expediting Certain Coverage 

Determinations (§ 423.570) 

3. Expediting Certain Redeterminations 

(§ 423.584) 

4. Right to an ALJ Hearing (§ 423.610) 

I. Subpart P—Premiums and Cost-Sharing 

Subsidies for Low-Income Individuals 

1. Premium Subsidy Amount (§ 423.780) 

a. Low-Income Benchmark Premium 

Amount 

b. Premium Subsidy for Late Enrollment 

Penalty 

J. Subpart R—Payments to Sponsors of 

Retiree Prescription Drug Plans 

1. Requirements for Qualified Retiree 

Prescription Drug Plans (§ 423.884) 

a. Application Timing 

b. Data Match 

c. Actuarial Equivalence 

(1) Medicare Supplemental Adjustment 

(2) Noncalendar Year Plans 

(3) Benefit Options 

(4) Submission of Actuarial Attestations 

Upon Material Change 

K. Subpart S—Special Rules for States 

Eligibility 

1. General Payment Provisions—

Coordination With Medicare 

Prescription Drug Benefits (§ 423.906) 

2. States’ Contribution to Drug Benefit 

Costs Assumed by Medicare (§ 423.910) 

L. Out-of-Scope Comments 

III. Collection of Information Requirements 

IV. Regulatory Impact Analysis 

A. Overall Impact 

B. Anticipated Effects on Health Plans and 

Pharmacy Benefit Managers (PBMs) 

C. Alternatives Considered 

D. Accounting Statement 

E. Conclusion 

Regulations Text 

I. Background 

A. Requirements for Issuance of 

Regulations 

Section 902 of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) (Pub. 

L. 108–173) amended section 1871(a)(3) 

of the Social Security Act (the Act) and 

requires the Secretary, in consultation 

with the Director of the Office of 

Management and Budget, to establish 

and publish timelines for the 

publication of Medicare final 

regulations based on the previous 

publication of a Medicare proposed or 

interim final regulation. Section 

1871(a)(3)(B) of the Act also states that 

the timelines for these regulations may 

vary, but shall not exceed 3 years after 

publication of the preceding proposed 

or interim final regulation, except under 

exceptional circumstances. This final 

rule finalizes provisions set forth in the 

May 25, 2007 proposed rule (72 FR 

29403), hereinafter referred to as the 

May 2007 proposed rule. In addition, 

this final rule has been published 

within the 3-year time limit imposed by 

section 1871(a)(3)(B) of the Act. 

Therefore, we believe our final rule is in 

accordance with the Congress’ intent to 

ensure timely publication of final 

regulations. 

B. General Overview 

The Medicare Prescription Drug 

Benefit (also known as Part D) is a 

voluntary prescription drug benefit 

program enacted into law on December 

8, 2003 in section 101 of title I of the 

MMA. The Retiree Drug Subsidy (RDS) 

program, which provides payments to 

employer and union sponsors of 

qualified retiree prescription drug plans 

for Part D drug costs within certain 

limits, was also enacted as part of MMA. 

The final rule implementing the 

provisions of Part D appeared in the 

Federal Register on January 28, 2005, 

and these provisions became effective 

March 22, 2005. We hereinafter refer to 

this rule as the January 2005 final rule. 

Since publication of the January 2005 

final rule, we have issued several 

clarifications or interpretations of the 

final rule by way of interpretive 

guidance documents. In addition, we 

have issued guidance explaining how 

we will interpret a change to the Act 

that excludes drugs used in the 

treatment of erectile dysfunction from 

Part D, with a certain exception. In 

order to ensure public awareness of our 

policies, as well as to avoid potential 

confusion regarding them, we explained 

many of the respective clarifications or 

interpretations in the May 2007 

proposed rule. We also proposed to 

codify some of these clarifications in 

regulation, as well as to make certain 

technical corrections. Finally, due to 

our experience to date in implementing 

the Part D program, we proposed several 

new clarifications of our policy for Part 

D plans on which we specifically 

invited public comment. 

II. Provisions of the Proposed Rule 

With an Analysis of and Response to 

Public Comments 

We received approximately 60 items 

of timely correspondence containing 

comments on the May 2007 proposed 

rule. Commenters included health plans 

and health plan associations, 

pharmacies and pharmacist 

associations, prescription benefit 

managers (PBMs), physicians and other 

health care professionals, beneficiary 

advocacy groups, representatives of 

hospitals, Part D beneficiaries, and 

others. 

In this final rule, we address all 

relevant comments we received 

regarding the provisions of our 

proposed rule with the exception of the 

provisions on what may be included in 

the drug costs Part D sponsors use as the 

basis for calculating beneficiary cost 

sharing and reporting drug costs to CMS 

for the purposes of reinsurance 

reconciliation and risk sharing, as well 

as submitting bids to CMS. We are not 

finalizing these provisions at this time. 

We intend to revisit this issue in future 

rulemaking and will address the 

comments at that time. We appreciate 

the comments and will take them under 

consideration as we continue to assess 

the underlying policy and its associated 

impact. 

Most of the comments addressed 

multiple issues. The areas of our 

proposed rule that we are finalizing that 

received the most comment include the 

provisions on ensuring adequate access 

to home infusion pharmacies and the 

provisions addressing the coordination 

of Part D plans with other prescription 

drug coverage. Generally, the vast 

majority of commenters expressed 

strong support for the provisions of our 

proposed rule, declaring them essential 

to the success and continued operation 

of the Medicare Part D program. This 

was especially true with regard to our 

proposal to establish a standard for the 

timely delivery of home infusion drugs. 

A significant subset of the comments 

regarding home infusion access 

suggested even more rigorous standards 

for ensuring the timely delivery of Part 

D infusible drugs. 

We also received a significant number 

of comments that addressed our 

proposed clarifications on permissible 

activities vis-a`-vis provider marketing 

and the coverage of drugs when used to 

treat morbid obesity. In general, 

commenters supported our clarifications 

or technical corrections. However, on 

some issues, commenters asked for 

reinterpretations of the statute. 

In this final rule, we address 

comments received on the May 2007 

proposed rule largely in the numerical 

order of the related regulation sections. 

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20488 Federal Register / Vol. 73, No. 73 / Tuesday, April 15, 2008 / Rules and Regulations 

A. Subpart B—Eligibility and 

Enrollment 

1. Approval of Marketing Materials and 

Enrollment Forms (§ 423.50) 

In our May 2007 proposed rule (70 FR 

4223), we clarified that when we used 

the term ‘‘market’’ in the preamble to 

the January 2005 final rule in the 

context of our discussion of the 

approval process for marketing 

materials and enrollment forms, we 

used it in a more general sense to mean 

assisting in enrollment or education 

directed at beneficiaries, and not 

marketing per se as the term is 

understood to mean in the commercial 

context. This clarification was necessary 

to distinguish our preamble discussion 

and our narrower definition of the term 

‘‘marketing’’ in the Medicare Marketing 

Guidelines, which were issued 

subsequent to our publication of that 

final rule. (See Centers for Medicare & 

Medicaid Services, Medicare Marketing 

Guidelines for Medicare Advantage 

Plans (MAs); Medicare Advantage 

Prescription Drug Plans (MA–PDs); 

Prescription Drug Plans (PDPs); 1876 

Cost Plans http://www.cms.hhs.gov/ 

PrescriptionDrugCovContra/Downloads/ 

FinalMarketingGuidelines.pdf (last 

updated July 25, 2006).) The Guidelines 

define ‘‘marketing’’ as ‘‘[s]teering, or 

attempting to steer, an undecided 

potential enrollee towards a plan, or 

limited number of plans, and for which 

the individual or entity performing 

marketing activities expects 

compensation directly or indirectly 

from the plan for such marketing 

activities.’’ (Medicare Marketing 

Guidelines, page 8.) This definition 

further clarifies that neither ‘‘[a]ssisting 

in enrollment’’ nor ‘‘education’’

constitute ‘‘marketing’’ as those terms 

are defined in The Guidelines (Medicare 

Marketing Guidelines, page 8). The 

Medicare Marketing Guidelines specify 

that ‘‘assisting in enrollment’’ consists 

of assisting a potential enrollee with the 

completion of an application and 

objectively discussing characteristics of 

different plans to assist a potential 

enrollee with appraising the relative 

merits of all available individual plans, 

based solely on the potential enrollee’s 

needs; further, the individual or entity 

performing these activities may not 

receive compensation directly or 

indirectly from a plan for such 

assistance in enrollment (Medicare 

Marketing Guidelines, page 6). 

‘‘Education’’ is defined in the Medicare 

Marketing Guidelines as informing a 

potential enrollee about Medicare 

Advantage or other Medicare programs, 

generally or specifically, but not 

steering, or attempting to steer, a 

potential enrollee towards a specific 

plan or limited number of plans 

(Medicare Marketing Guidelines, page 

6). Thus, our intent in the preamble of 

the January 2005 final rule was to 

acknowledge that providers and 

pharmacies are free to engage in either 

‘‘assisting in enrollment’’ or 

‘‘education,’’ including provider 

promotional activities as permitted 

under the Medicare Marketing 

Guidelines, but not to ‘‘market’’ to 

beneficiaries, as the term is defined in 

the Medicare Marketing Guidelines. We 

maintain this clarification in the final 

rule, as noted in our response to 

comment. 

Additionally, we proposed to clarify 

the provision that currently states that 

in conducting marketing activities, a 

Part D plan may not ‘‘[u]se providers, 

provider groups, or pharmacies to 

distribute printed information 

comparing the benefits of different Part 

D plans unless the providers, provider 

groups or pharmacies accept and 

display materials from all Part D plan 

sponsors (70 FR 4532).’’ We believed it 

was necessary to clarify this provision 

because it was possible to infer from it 

that when a Part D plan used providers, 

provider groups, or pharmacies to 

distribute printed information 

comparing the benefits of the Part D 

plans with which they contracted, they 

would also have to accept and display 

printed information comparing the 

benefits of different plans with which 

they did not contract. Our concern was 

that this interpretation could lead to 

situations in which a beneficiary made 

a plan selection and realized too late 

that the provider or pharmacist from 

whom they obtained printed 

information about a particular plan was 

not in fact contracted with that plan. 

Therefore, in the proposed rule, we 

clarified that a Part D plan could use 

providers, provider groups, or 

pharmacies to distribute printed 

information comparing the benefits of 

different Part D plans, provided those 

providers, provider groups, or 

pharmacies accepted and displayed 

printed information comparing the 

benefits of all the different Part D plans 

with which they contract. However, the 

providers, provider groups, or 

pharmacies were not obliged to accept 

and display any comparative 

information regarding those Part D plans 

with which they did not contract. We 

stipulated that this clarification would 

apply to comparative marketing 

materials and was in accord with the 

Medicare Marketing Guidelines 

(Medicare Marketing Guidelines, page 

125). In this final rule, we codify this 

policy by revising § 423.50(f)(1)(v). 

Comment: A large number of 

commenters supported our clarification 

that providers and pharmacies that are 

contracted with plan sponsors may not 

market to beneficiaries but may assist in 

enrollment, including participating in 

provider promotion activities within the 

parameters established in the Marketing 

Guidelines, and educate enrollees. 

However, two commenters believed that 

CMS should withdraw this clarification 

given that it is based on a term we use 

in the Medicare Marketing Guidelines, 

which is not a regulatory document. 

Further, these commenters questioned 

the validity and utility of the Medicare 

Marketing Guidelines in the long-term 

care setting. 

Response: The two commenters who 

asked us to withdraw this clarification 

did so based on arguments about the 

validity of the Medicare Marketing 

Guidelines, which we believe are 

outside the scope of this regulation. In 

the proposed rule and in this final rule, 

we are merely clarifying our policy so 

as to avoid any confusion arising from 

the broader use of the term ‘‘market’’ in 

a response to comment in the January 

2005 final rule. 

Comment: Several commenters 

supported our proposed revision to 

§ 423.50(f)(1) allowing Part D plans to 

use providers, provider groups and 

pharmacies to distribute printed 

information comparing the benefits of 

different plans only if those providers, 

provider groups or pharmacies accept 

and display materials from all Part D 

plan sponsors with which they contract. 

Two of these commenters were 

especially pleased with our clarification 

that providers, provider groups, or 

pharmacies are not obliged to accept 

and display any comparative 

information regarding those Part D plans 

with which they do not contract. 

However, another commenter believed 

that instead of requiring providers to 

accept and display information for every 

plan with which they have contracted, 

we should allow them to accept and 

display materials from a reasonable 

cross-section of contracted plans, as 

long as the provider posts a notice 

informing beneficiaries that the 

displayed material describes the 

benefits of only a subset of contracted 

plans and explains where beneficiaries 

may obtain information on the full array 

of benefits available to them. 

Response: Our goal is to ensure that 

beneficiaries receive the information 

they need to make a plan selection that 

is based on their particular needs. We 

disagree with the commenter who 

believes that we should allow Part D 

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Federal Register / Vol. 73, No. 73 / Tuesday, April 15, 2008 / Rules and Regulations 20489 

plan contracted providers, provider 

groups, and pharmacies to accept and 

display materials from only a subset of 

plans with which they contract—even if 

they direct beneficiaries to resources for 

obtaining information on all plans. We 

believe the proposed requirement 

strikes a balance between allowing 

providers and pharmacies contracted 

with Part D plans to provide enrollment 

assistance and education, while 

ensuring that beneficiaries are provided 

with information about the full array of 

plans with which that provider or 

pharmacy contracts—not on a limited 

subset that may reflect the provider’s 

financial interest—and can make a plan 

selection that best meets their needs. 

Accordingly, we have adopted the 

revision to § 423.50(f)(1) as set forth in 

the proposed rule. However, we note 

that plans must provide contracted 

pharmacies with materials in order for 

pharmacies to display their plan 

information along with any other 

materials received from other contracted 

plans. 

2. Procedures To Determine and 

Document Creditable Status of 

Prescription Drug Coverage (§ 423.56) 

The regulation text of the January 

2005 final rule (70 FR 4532) contained 

a typographical error in § 423.56(b)(6) 

that referenced § 423.205 for a definition 

of the term ‘‘Medicare supplemental 

policy.’’ However, the proper reference 

for the definition of the term ‘‘Medicare 

supplemental policy’’ is § 403.205. 

Therefore, we proposed revising the 

regulation text accordingly to state the 

correct reference—that is, § 403.205. We 

received no comments with regard to 

our proposed revision. Therefore, this 

final rule adopts this revision without 

change. 

B. Subpart C—Benefits and Beneficiary 

Protections 

1. Definitions (§ 423.100) 

a. Part D Drug 

(1) Erectile Dysfunction (ED) 

On October 20, 2005, Congress 

amended section 1860D–2(e)(2)(A) of 

the Act to exclude erectile dysfunction 

(ED) drugs from the statutory definition 

of a Part D drug. Section 

1860D(2)(e)(2)(A) of the Act excludes 

from the definition of Part D drugs those 

drugs or classes of drugs, or their 

medical uses, set forth under section 

1927(d)(2) of the Act (other than 

subparagraph (E)). The ED drug 

exclusion is cited in section 

1927(d)(2)(K) of the Act. 

In the May 2007 proposed rule, we 

reiterated that beginning January 1, 

2007, ED drugs would not be classified 

as Part D drugs under § 423.100 when 

they are used for the treatment of sexual 

or erectile dysfunction, unless they are 

used to treat a condition, other than 

sexual or erectile dysfunction, for which 

the drug has been approved by the Food 

and Drug Administration (FDA). We 

noted that ED drugs would also not 

meet the definition of a Part D drug for 

off-label uses that by definition are not 

approved by the FDA. This includes 

non-FDA-approved uses—including the 

treatment of a condition other than 

sexual or erectile dysfunction contained 

in one of the compendia listed in 

section 1927(g)(1)(B)(i) of the Act: 

American Hospital Formulary Service 

Drug Information, United States 

Pharmacopeia-Drug Information (or its 

successor publications), and the 

DRUGDEX Information System. Because 

our definition of a Part D drug in 

§ 423.100(2)(ii) excludes drugs which 

may be excluded under section 

1927(d)(2) of the Act, we also noted that 

no regulation text change is required to 

implement this new statutory exclusion. 

Comment: One commenter asked that 

we share our interpretation of the 

statutory ED drug exclusion with our 

independent review entity (IRE). 

Response: Since October 20, 2005, we 

have provided information about the ED 

drug exclusion in our outreach efforts to 

beneficiaries, advocates, and our own 

contractors. Our guidance to Part D 

sponsors on the ED drug exclusion was 

included in Chapter 6 (‘‘Part D Drugs 

and Formulary Requirements’’) of our 

Prescription Drug Benefit Manual, 

which is posted on the CMS Web site at 

http://www.cms.hhs.gov/Prescription

DrugCovContra/Downloads/PDBM

Chap6FormularyReqrmts_03.09.07.pdf. 

As a result of our efforts, we believe 

stakeholders are now well aware of this 

statutory change. 

(2) Morbid Obesity 

Section 423.100 defines the term 

‘‘Part D drug’’ and excludes from that 

definition ‘‘[d]rugs or classes of drugs, 

or their medical uses, which may be 

excluded from coverage or otherwise 

restricted under Medicaid under 

sections 1927(d)(2) or (d)(3) of the Act, 

except for smoking cessation agents (70 

FR 4534).’’ In the corresponding 

preamble of the January 2005 final rule 

(70 FR 4228), we explained that this list 

of excluded drugs included agents when 

used for anorexia, weight loss, or weight 

gain and agents when used for cosmetic 

purposes or hair growth. However, in 

response to comment, we had 

erroneously asserted that to the extent 

that a drug was dispensed for a 

‘‘medically accepted indication’’ as 

described in section 1860D–2(e)(1) of 

the Act, the drug could be covered for 

the treatment of morbid obesity (70 FR 

4230). Both in the May 2007 proposed 

rule and in this final rule, we clarify that 

agents, when used for anorexia, weight 

loss, or weight gain, are specifically 

excluded from the definition of Part D 

drugs. A weight loss agent, even when 

not used for cosmetic purposes, is still 

‘‘an agent used for anorexia, weight loss, 

or weight gain’’ for purposes of the 

exclusion from the definition of Part D 

drug. 

Comment: We received several 

comments asserting that the clarification 

we made in the proposed rule regarding 

Part D coverage of drugs used to treat a 

medically accepted indication of obesity 

was a reversal of current Part D coverage 

policy. 

Response: We disagree with these 

commenters. The clarification in our 

proposed rule did not expand or change 

our current policy regarding the 

exclusion from the definition of Part D 

drugs or agents used for anorexia, 

weight loss, or weight gain. Our policy 

with regard to coverage of these drugs 

has remained consistent since well 

before the Part D benefit was 

implemented on January 1, 2006 and is 

in accord with the statutory exclusion of 

such drugs from the definition of Part D 

drug as provided in section 1860D–

2(e)(2) of the Act. In the May 2007 

proposed rule, we simply clarified that 

we had made an error in the preamble 

of the January 2005 final rule by 

asserting that weight loss drugs could be 

potentially covered under the Part D 

program as part of a Part D basic 

prescription drug benefit. As discussed 

in the May 2007 proposed rule, we 

corrected this error via guidance to Part 

D sponsors and other stakeholders in 

July 2005. 

Comment: A number of commenters 

asserted that our interpretation of the 

statutory exclusion of weight loss drugs 

was too narrow and that CMS was not 

appropriately distinguishing ‘‘cosmetic’’

weight loss from those clinical 

circumstances in which drugs are being 

specifically prescribed for an indication 

of obesity or significant weight 

management. Other commenters 

maintained that Congress intended for 

reimbursement of weight loss drugs 

when they were used in the treatment 

of defined disease states; that given the 

potential impact of obesity on American 

health care, as well as Medicare Part A 

coverage of obesity treatments, drugs 

when used to treat obesity should also 

be covered under Part D; and that Part 

D coverage of drugs used to treat obesity 

would be consistent with guidance and 

decision-making about these drugs by 

other DHHS agencies (for example, the 

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20490 Federal Register / Vol. 73, No. 73 / Tuesday, April 15, 2008 / Rules and Regulations 

National Institute of Health’s (NIH) 

treatment guidelines regarding obesity 

drugs and the Food and Drug 

Administration’s (FDA) approval of 

drugs indicated for the treatment of 

obesity). 

Response: Section 1860D–2(e)(2) of 

the Act specifically excludes from the 

definition of a Part D drug agents when 

used to treat anorexia, weight loss, or 

weight gain. Therefore, drugs when 

used to treat a medical indication of 

morbid obesity are not considered Part 

D drugs. While this statutory exclusion 

may create an inconsistency with regard 

to treatment approaches for morbid 

obesity under different parts of the 

Medicare program, Part D coverage 

policy is based on completely distinct 

statutory authority than Parts A and B. 

We note that similar to other drugs 

contained in section 1927(d)(2) of the 

Act that are excluded from the 

definition of Part D drugs (other than 

over-the-counter drugs), those Part D 

plans wishing to provide coverage of 

weight loss agents may do so as a 

supplemental benefit under enhanced 

alternative coverage, consistent with 

§ 423.104(f). 

Comment: A number of commenters 

asked that CMS clearly state that the 

Part D exclusion of weight loss drugs 

will not affect Part D coverage of drugs 

that may cause weight loss, but whose 

primary indication is not for obesity. A 

few other commenters noted that our 

exclusion of obesity drugs is 

inconsistent with CMS policy regarding 

Part D coverage of weight loss drugs 

under certain clinical situations (for 

example, Part D and Medicaid coverage 

for drugs when used to treat cachexia or 

AIDS wasting). 

Response: Drugs that are excluded 

from coverage under Part D when used 

as agents for certain conditions may be 

considered covered when used to treat 

other conditions not specifically 

excluded by section 1927(d)(2) of the 

Act, provided they otherwise meet the 

requirements of section 1860D–2(e)(1) of 

the Act and are not otherwise excluded 

under section 1860D–2(e)(2)(B) of the 

Act. A Part D drug’s clinical side effect 

of weight loss would not permit its 

exclusion via section 1927(d)(2) of the 

Act since the drug’s use was not 

prescribed for that purpose. 

We have previously stated that we do 

not consider prescription drug products 

being used to treat AIDS wasting and 

cachexia as either agents used for 

weight gain or agents used for cosmetic 

purposes. Given the clinical 

complexities associated with AIDS 

wasting and cachexia, and the 

documented therapeutic action of these 

drugs to work beyond weight gain and 

prevent associated morbidity and 

mortality, the use of these products 

cannot be excluded from Part D by 

reference to section 1927(d)(2) of the 

Act. A summary of similar potential 

exclusions and their associated 

explanations can be found in Appendix 

B of Chapter 6 (Part D Drugs and 

Formulary Requirements of our 

Prescription Drug Benefit Manual), 

which is posted on the CMS Web Site 

at http://www.cms.hhs.gov/Prescription

DrugCovContra/Downloads/PDBM

Chap6FormularyReqrmts_03.09.07.pdf. 

(3) Insulin Inhalation Drugs and 

Supplies 

With the passage of the MMA, 

Congress included within the definition 

of ‘‘Part D drug’’ found in section 

1860D–2(e) of the Act ‘‘medical supplies 

associated with the injection of insulin 

(as defined in regulations of the 

Secretary).’’ In the January 2005 final 

rule, we interpreted the term ‘‘medical 

supplies associated with the injection of 

insulin’’ as comprising syringes, 

needles, alcohol swabs, gauze, and 

insulin delivery devices not otherwise 

covered by Part B, such as insulin pens, 

pen supplies, and needle-free syringes. 

On January 27, 2006, the FDA approved 

the first-ever inhaled insulin product. 

This inhaled medication is a dry 

powder inhaler (‘‘DPI’’) that requires a 

patient to place a small amount of 

powdered insulin into a hand-held 

chamber that permits inhalation of the 

insulin into the lungs. Subsequent to the 

FDA approval, we reviewed the issues 

surrounding inhaled insulin and 

concluded it would be appropriate to 

revise the definition of Part D drug to 

include certain supplies associated with 

the delivery of inhaled insulin. We 

proposed revising the definition of a 

Part D drug under § 423.100 to include 

‘‘[s]upplies that are directly associated 

with delivering insulin into the body 

through inhalation, such as the 

inhalation chamber used to deliver the 

insulin.’’ We also indicated that our 

proposed change to the definition of a 

Part D drug was crafted consistent with 

our intention to narrowly construe what 

constitutes medical supplies associated 

with the delivery of insulin into the 

body in order to avoid an inappropriate 

expansion of the Part D benefit. Thus, 

we stated in the preamble to our 

proposed rule that we would expect Part 

D sponsors to apply drug utilization 

management tools to ensure the 

appropriate use of these supplies. 

While we have learned since the 

publication of our May 2007 proposed 

rule that marketing of the first inhaled 

insulin product may be discontinued, 

the fact remains that this product is still 

approved for the U.S. market. 

Additionally, we received comments 

indicating that there are insulin 

products administered through routes 

other than injection in various stages of 

research and FDA approval. As a result, 

we believe our policy on inhaled insulin 

is still necessary and sound. 

Comment: Most commenters on this 

issue supported our proposal to expand 

the definition of a Part D drug to cover 

those supplies directly associated with 

inhaled insulin. However, other 

commenters opined that the proposed 

definition was too narrow and CMS 

should broaden the definition of a Part 

D drug to encompass other potential 

mechanisms or supplies used for 

delivery of insulin into the body, such 

as novel insulin dosage forms and 

delivery systems that are currently 

under review by the FDA. Some 

commenters noted developments in 

diabetes treatment including new 

transdermal, intranasal and aerosolized 

insulin delivery methods. These 

commenters held that by not broadening 

the Part D drug definition to include 

insulin delivery supplies that are 

currently in the research and 

development pipeline, but which might 

someday be FDA-approved, CMS would 

be burdened with future rulemaking to 

modify the definition of a Part D drug 

when new FDA-approved products 

came to market. As a result, CMS might 

provide a competitive advantage to 

manufacturers whose insulin-related 

supplies are currently encompassed 

within the definition of a Part D drug 

over other manufacturers whose insulin 

supplies are also related to the direct 

delivery of insulin into the body but 

would not be covered under Part D in 

the absence of a further broadening of 

the definition of a Part D drug under 

§ 423.100. 

Response: We agree that our proposed 

rule too narrowly construed what 

constitutes medical supplies associated 

with delivery of insulin into the body 

for purposes of the definition of a Part 

D drug under § 423.100. Moreover, we 

believe that Congress intended to ensure 

diabetics’ access to insulin by providing 

for coverage of the medical supplies 

directly associated with delivering 

insulin into the body. In light of 

continuing medical research and 

development of alternative mechanisms 

for insulin delivery, we believe it is 

consistent with Congressional intent 

that our definition of these supplies 

encompass all products that are directly 

associated with the delivery of insulin 

into the body, including future potential 

delivery mechanisms, and not limit 

coverage to supplies associated with the 

only two mechanisms of insulin 

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delivery (injection and inhalation) 

available to diabetics today. 

Consequently, we have removed our 

reference to the specific route of 

administration, ‘‘through inhalation,’’ in 

the definition of a Part D drug at 

§ 423.100(i)(iv). Instead, our definition 

of a Part D drug will encompass 

supplies that are directly associated 

with delivering insulin into the body, 

such as the inhalation chamber used to 

deliver the insulin. We believe this 

modification will obviate the need for 

continued future rulemaking to ensure 

coverage of supplies that are directly 

associated with delivery of insulin into 

the body. In addition, we believe that 

our revised definition of the term Part 

D drug will level the playing field for 

the manufacturers of novel 

administration insulin supplies while 

avoiding an inappropriate expansion of 

the Part D benefit to insulin-related 

supplies in which the relationship to 

delivery into the body is more indirect. 

We have retained the example of the 

inhalation chamber in the definition of 

a Part D drug under § 423.100 only as 

an example of a product that is directly 

associated with the delivery of insulin 

into the body. 

Comment: A few commenters 

suggested that we clarify that our 

proposed modification of the definition 

of a Part D drug excludes any insulin 

delivery device covered under the Part 

B durable medical equipment benefit. 

Response: Paragraph (2)(i) of our 

existing definition of a Part D drug 

already excludes from Part D coverage 

those drugs for which payment as so 

prescribed and dispensed or 

administered to an individual is 

available for that individual under Part 

A or Part B. We believe that further 

clarification of this exclusion is 

unnecessary. 

Comment: We received comments 

asking that CMS issue separate guidance 

indicating whether any novel insulinrelated product will be covered under 

Part D. 

Response: We disagree that we should 

issue product-specific Part D coverage 

guidance for all new FDA approvals. 

Part D sponsors and their Pharmacy and 

Therapeutics (P&T) Committees are 

required to evaluate new FDA-approved 

products and make timely coverage 

determinations that are consistent with 

the definition of a Part D drug under 

§ 423.100. While we provide Part D 

sponsors with tools to assist sponsors 

with their reviews of new products, 

coverage determinations are ultimately a 

Part D sponsor’s responsibility. 

Comment: A number of commenters 

asked that we retract the statement we 

made in our proposed rule that we 

would expect Part D sponsors to apply 

drug utilization management tools to 

inhaled insulin supplies. These 

commenters stated that the application 

of such pharmacy based edits would 

impede access to these inhaled insulin 

supplies for beneficiaries who are 

appropriately qualified for this insulin 

delivery mechanism. Many of these 

same commenters stated that inhaled 

insulin supplies should be provided free 

of any utilization management tools to 

maximize use of this new therapy. 

Response: We remind these 

commenters that all Part D sponsors, 

with the exception of Medicare 

Advantage private fee-for-service (PFFS) 

plans, are required under § 423.153(b) to 

establish reasonable and appropriate 

drug utilization management programs. 

As we stated in the May 2007 proposed 

rule, sponsors should ensure the 

appropriate and prudent use of all Part 

D drugs, including supplies associated 

with the direct delivery of insulin into 

the body and the use of drug utilization 

management tools, is appropriate to 

prevent inappropriate coverage and 

utilization of insulin-related supplies. In 

general, inhaled insulin supplies have 

either a specific life span based on the 

number of doses or actuations they 

deliver or, for more durable items, a 

manufacturer’s recommended life span 

ranging from a few months to a year or 

more with proper cleaning and 

maintenance. It is therefore appropriate 

for a sponsor to evaluate claims for 

inhaled insulin supplies that are 

submitted for a period less than their 

recommended life span or period of use. 

(4) Vaccine Administration Fee 

On December 20, 2006, the Tax Relief 

and Health Care Act of 2006 was signed 

into law. Section 202(b) of that 

legislation amended the definition of a 

Part D drug at section 1860D–2(e)(1)(B) 

of the Act to include a reference to 

vaccine administration on or after 

January 1, 2008. In the May 2007 

proposed rule (72 FR 29406) we 

indicated that we would amend the 

definition of Part D drug to conform to 

the statutory change. Accordingly, in 

this final rule, we have amended the 

definition of a Part D drug to include a 

reference to vaccine administration on 

or after January 1, 2008, consistent with 

the statute. 

Comment: One commenter suggested 

we increase our outreach efforts 

regarding the availability of vaccine 

administration under Part D. 

Response: We agree with this 

comment and have employed a number 

of methods to ensure that beneficiaries 

and providers are aware of this statutory 

change. We have updated our 

beneficiary outreach materials with 

specific information on Part D vaccine 

administration reimbursement, 

including the addition of a section to 

the annual evidence of coverage (EOC) 

notice that was mailed to all currently 

enrolled beneficiaries in advance of the 

2008 Part D contract year. We have also 

incorporated information regarding Part 

D vaccine administration into our 

provider programs and have conducted 

a number of national level outreach 

programs addressing the availability of 

reimbursement under Part D for this 

new benefit in 2008. We have generated 

MedLearn Matters Articles on Part D 

vaccines and vaccine administration for 

display on the CMS Web site (http:// 

www.cms.hhs.gov/MLNMattersArticles/ 

downloads/SE0727.pdf). We have also 

issued guidance to Part D sponsors on 

vaccine administration so they can 

prepare for covering these services and 

address beneficiary questions. We plan 

on continuing various tiers of 

communication on Part D vaccine 

administration into 2008 and 

subsequent years. 

Comment: One commenter asked that 

we monitor billing and payment for Part 

D vaccine administration over the next 

several months to identify and resolve 

issues that may arise with 

implementation of this new benefit 

under Part D. 

Response: We agree with this 

comment. We intend to work very 

closely with our Part D sponsors on 

resolving any issues that arise with 

covering Part D vaccine administration 

in 2008 and subsequent years. We have 

developed a number of communication 

channels to solicit feedback from 

various stakeholders regarding the 

ongoing implementation of this new 

benefit, and we will take appropriate 

actions to address any issues with our 

Part D sponsors as they occur. 

Comment: One commenter 

specifically suggested that we amend 

§ 423.100 to add the following language 

to the definition of a Part D drug under 

paragraph (1)(v) of that definition: ‘‘and 

for vaccine administration on or after 

January 1, 2008, its administration.’’

Response: We agree with this 

comment. We are changing the 

definition of a Part D drug at § 423.100 

to conform to the statutory change made 

by the Tax Relief and Health Care Act 

of 2006 to section 1860D–2(e)(1)(b) of 

the Act. Accordingly, we are modifying 

§ 423.100 to include vaccine 

administration for Part D-covered 

vaccines on or after January 1, 2008. 

b. Long-Term Care Facilities 

In the January 2005 final rule (70 FR 

4534), the term ‘‘long-term care facility’’

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is defined in § 423.100 as a ‘‘skilled 

nursing facility as defined in section 

1819(a) of the Act, or a medical 

institution or a nursing facility for 

which payment is made for an 

institutionalized individual under 

section 1902(q)(1)(B) of the Act.’’

However, in our corollary discussion of 

that term in the preamble of the January 

2005 final rule (70 FR 4236), we 

inadvertently omitted institutions for 

mental disease (IMDs) from the list of 

facilities that meet the definition of a 

long term care (LTC) facility. 

In the May 2007 proposed rule, we 

clarified that the definition of an LTC 

facility would include an IMD that is a 

nursing facility or other medical 

institution (which is a term defined at 

42 CFR 4435.1009) and receives 

Medicaid payment for its services to an 

institutionalized individual under 

section 1902(q)(1)(B) of the Act. In other 

words, to the extent that a nursing 

facility or medical institution that is an 

IMD has as an inpatient any 

institutionalized individual (which 

means any full benefit dual-eligible 

individual for whom payment is made 

for IMD services under Medicaid 

throughout a month, as provided in 

section 1902(q)(1)(B) of the Act), that 

IMD will fall within the definition of a 

LTC facility in § 423.100. 

We also clarified that as medical 

institutions, hospitals (including longterm care hospitals) that receive 

payments under section 1902(q)(1)(B) of 

the Act can meet the definition of an 

LTC facility. To the extent that 

inpatients in these hospitals exhaust 

their Part A inpatient days benefit, and 

payment is no longer available under 

Part A or Part B for drugs that would 

otherwise meet the definition of a Part 

D drug, such drugs are Part D drugs. 

Consequently, we indicated that Part D 

sponsors must ensure that they provide 

convenient access to network LTC 

pharmacies (which, in the case of a 

hospital, is typically the hospital’s inhouse pharmacy) for all of their 

enrollees who: (1) Need drugs for which 

payment is no longer available under 

Part A or Part B and otherwise meet the 

definition of a Part D drug; and (2) are 

inpatients in a hospital where the 

hospital is a ‘‘medical institution’’

under section 1902(q)(1)(B) of the Act 

and therefore would meet the Part D 

definition of an LTC facility. 

Comment: Several commenters 

supported our clarification that an IMD 

may meet our definition of a long-term 

care facility and that, consequently, Part 

D plans must provide convenient access 

to a network long-term care pharmacy to 

the residents of such facilities. One 

commenter supported our proposed 

policy clarification but noted that there 

were significant practical implications. 

For example, plans might not receive 

notice that their members are IMD 

patients until after prescriptions have 

been filled and claims are submitted. 

Both this and the fact that most of these 

facilities use only in-house, State-run 

pharmacies to fill prescriptions often 

prevent plans from anticipating the 

need for contracts with these 

institutional LTC pharmacies. Another 

commenter echoed this statement, 

noting that Part D sponsors have 

experienced difficulty contracting with 

certain LTC pharmacies. One 

commenter asked us to clarify that we 

would determine a Part D plan to be in 

compliance with our convenient access 

requirements if it limited itself to 

pursuing contracts only with 

institutional LTC pharmacies that 

proactively sought inclusion in a plan’s 

pharmacy network, consistent with the 

‘‘any willing pharmacy’’ requirement. 

Another commenter asked us to clarify 

that plans would be considered 

compliant with the convenient access 

requirements even if they did not come 

to terms with an institutional LTC 

pharmacy, provided they made a good 

faith effort to contract. 

Response: The fact that a Part D plan 

has met our LTC pharmacy network 

submission requirements as part of the 

application approval process does not 

preclude it from continuing its 

contracting efforts with LTC pharmacies 

as needed. In fact, continued contracting 

likely will be necessary in order for 

plans to meet the convenient access 

standard articulated at § 423.120(a)(5). 

This is particularly true as plans 

continue to identify LTC facilities and 

LTC pharmacies, and as they examine 

their auto-enrollment assignments and 

incoming enrollments. To the extent 

that a beneficiary is enrolled in a plan 

that does not have a contract with a LTC 

pharmacy that can serve the LTC facility 

in which he or she resides, the 

appropriate action for a plan to take is 

to contract with the facility’s contracted 

LTC pharmacy or—if that pharmacy will 

not sign a contract—with another LTC 

pharmacy that can serve that facility. In 

some cases, a retroactive contract may 

be necessary to ensure coverage for 

enrollees in a particular facility. For 

example, if a Part D sponsor becomes 

aware that one or more of its enrollees 

resides in a LTC facility that is not 

serviced by one of its network LTC 

pharmacies and cannot immediately 

either identify a network LTC pharmacy 

that can serve this particular facility or 

negotiate a contract with the facility’s 

contracted LTC pharmacy, a retroactive 

contract might be necessary to ensure 

convenient access for the enrollees in 

question. This would particularly be the 

case if the facility’s contracted 

pharmacy makes a good faith effort to 

negotiate but the sponsor does not 

quickly finalize a contract. We 

emphasize that plans will not be 

compliant with our LTC convenient 

access standard if they do not provide 

access to covered Part D drugs via a LTC 

pharmacy in their network for all of 

their enrollees who reside in LTC 

facilities. 

We understand that there sometimes 

may be issues associated with 

contracting with the in-house, and often 

State-run and operated, pharmacies that 

many ICFs/MR, IMDs, and LTC 

hospitals use to provide drugs and 

pharmacy services to their patients—for 

example, multiple claim formats, postconsumption billing, and potential 

delays in billing due to systems and 

other start-up issues—that could delay 

or complicate contracting negotiations. 

In some States, licensing laws preclude 

facilities from obtaining prescription 

drugs and LTC services for their 

residents from anywhere but the 

facility’s in-house pharmacy. Further, 

States may not be able to agree to certain 

standard clauses in some LTC standard 

contracts because of constitutional and 

legal restraints on States. For example, 

contractual provisions that require 

arbitration may be problematic for 

States that are legally precluded from 

going to arbitration. In these situations, 

Part D plans should be prepared to 

readily negotiate with States to address 

these issues. To the extent that plan 

contracting efforts involve 

communication with State-run and 

operated pharmacies, we have 

consistently encouraged sponsors to 

coordinate their efforts through a single 

point of contact at the State level. We 

provide lists of State contacts for IMDs 

and ICFs/MR on the CMS Web site at 

http://www.cms.hhs.gov/ 

PrescriptionDrugCovContra/ 

11_PartDContacts.asp#TopOfPage. 

Comment: Several commenters 

supported our clarification that plans 

must provide convenient access to a 

LTC pharmacy to inpatients in hospitals 

who have exhausted their Part A 

inpatient days benefit and whose drugs 

qualify as Part D drugs given that 

coverage is not available under Part A 

or Part B. One commenter expressed 

concern that our policy clarification was 

confusing and could create an 

unintended expansion of the Part D 

benefit. This commenter urged CMS to 

provide more specific guidance, 

consistent with the Part D statutory and 

regulatory framework, regarding the 

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circumstances under which Part D 

coverage would be available to patients 

who have exhausted their Part A 

inpatient days and for whom Part B 

coverage is not available. 

Response: Section 1860D–2(e)(2)(B) of 

the Act requires the exclusion of 

coverage under Part D of any drug for 

which, as prescribed and dispensed or 

administered to an individual, payment 

would be available under Parts A or B 

of Medicare for that individual. In the 

preamble to January 2005 final rule, we 

clarified that this requirement meant 

that if payment could be available under 

Part A or Part B to that individual for 

such drug, then it would not be covered 

under Part D. This means that if an 

individual could sign up for Parts A or 

B, payment could be available under 

Part A or Part B, regardless of whether 

they actually enrolled. All individuals 

who are entitled to premium-free Part A 

are eligible to enroll in Part B. All 

individuals who are entitled to Part B 

only are almost never eligible for 

premium-free Part A but are eligible to 

buy into Part A for a premium. 

Consequently, for all Part D eligible 

individuals, drugs covered under Parts 

A and B are available if they choose to 

pay the appropriate premiums. 

However, drugs provided in an 

inpatient setting to an individual who 

has exhausted his or her lifetime 

inpatient hospital benefit under Part A 

are not drugs that could be covered 

under Part A for that individual. Unlike 

a beneficiary who, for example, chooses 

not to buy into Part B, there is no way 

for an individual who has exhausted his 

or her Part A inpatient stay benefit to 

obtain coverage under Part A for his or 

her drugs. Thus, once a Part D enrollee 

exhausts his or her Part A inpatient days 

benefit, any drugs that cannot be 

covered under Part B are Part D drugs 

provided they otherwise meet the 

definition of a Part D drug at § 423.100. 

The LTC convenient access standard is 

implicated when these individuals 

reside in hospitals that meet our 

definition of a LTC facility. However, 

because we envision it will be rare (and 

typically unforeseen) that an individual 

exhausts his or her inpatient Part A 

hospital benefit and remains 

hospitalized—and that the hospital 

meets the definition of a LTC facility—

we expect that the need to contract with 

hospital pharmacies to provide Part D 

drugs to these individuals will be quite 

rare, and that contracting will be 

undertaken only on an as-needed basis. 

As discussed elsewhere in this 

preamble, to the extent that a 

beneficiary is enrolled in a plan that 

does not have a contract with a LTC 

pharmacy that can serve the LTC facility 

in which he or she resides, the 

appropriate action for a plan to take is 

to contract with the facility’s contracted 

pharmacy or—if that pharmacy will not 

sign a contract—with another network 

LTC pharmacy that can serve that 

facility. In some cases, a retroactive 

contract may be necessary to ensure 

coverage for enrollees in a particular 

facility. Part D plans will not be 

compliant with our LTC convenient 

access standard if they do not provide 

access to covered Part D drugs via a LTC 

pharmacy in their network for all of 

their enrollees who reside in LTC 

facilities. We will take appropriate 

compliance action if LTC enrollees’

access to covered Part D drugs is 

compromised due to the unavailability 

of a network LTC pharmacy. 

c. Contracted Pharmacy Network 

Section 423.100 defines the 

‘‘contracted pharmacy network’’ as 

‘‘pharmacies,’’ including retail, mailorder, and institutional pharmacies, 

under contract with a Part D sponsor to 

provide covered Part D drugs at 

negotiated prices to Part D enrollees. In 

the January 2005 final rule (70 FR 4535), 

we made a technical error by 

inadvertently omitting clarifying 

language indicating that a pharmacy in 

a contracted pharmacy network must be 

licensed. We view this change as 

necessary in order to bring it in line 

with our term ‘‘retail pharmacy’’ which 

requires that a retail pharmacy be 

‘‘licensed.’’ We proposed revising the 

definition of ‘‘contracted pharmacy 

network’’ to state that a pharmacy 

participating in a contracted pharmacy 

network must be licensed. 

We received only one comment on 

this clarification, which supported our 

proposed revision. Accordingly, we are 

adopting the revised definition of 

‘‘contracted pharmacy network’’ as set 

forth in the proposed rule without 

change. 

2. Requirements Related to Qualified 

Prescription Drug Coverage 

(§ 423.104)—Waiver or Reduction of 

Part D Cost-Sharing by Pharmacies 

In the January 2005 final rule (70 FR 

4240), we stated that we would allow 

waivers or reductions of cost-sharing by 

pharmacies to count as incurred costs. 

However, our statement was limited to 

pharmacies that are not also acting as 

other wrap-around coverage that 

generally would not count toward 

incurred costs (or true-out-of-pocket, 

(TrOOP) costs). We did not intend to 

allow pharmacy waivers to count as 

incurred costs in cases where a 

pharmacy also meets the definition of a 

group health plan, insurance or 

otherwise, or a third party payment 

arrangement, as those terms are defined 

in § 423.100. 

In response to numerous requests for 

clarification of our policy with regard to 

waiver or reduction of Part D costsharing by network pharmacies, 

particularly by safety-net pharmacies, 

we clarified in the proposed rule that 

although we will generally allow 

waivers or reductions of Part D costsharing by pharmacies to count as 

incurred costs, this will not be the case 

for pharmacies affiliated with entities 

whose wrap-around coverage does not 

count as an incurred cost. This includes 

pharmacies operated by entities that are 

group health plans, insurance, 

government-funded health programs, or 

third party payment arrangements with 

an obligation to pay for covered Part D 

drugs. As noted in our response to 

comments below, we maintain our 

position in this final rule. 

Comment: One commenter disagreed 

with our proposed clarification 

regarding the applicability to TrOOP of 

pharmacy waivers or reductions of Part 

D cost-sharing made by certain entities. 

This commenter believes that our 

clarification penalizes Part D sponsors 

that, as non-profit organizations, have 

historically and responsibly provided 

financial assistance (and now pharmacy 

waivers) to financially needy members 

as part of their mission. The commenter 

recommended that CMS either allow all 

or no pharmacy waived cost-sharing to 

count toward TrOOP, since every 

pharmacy is affiliated with one or more 

Part D sponsors and any pharmacy 

waiver can serve the economic interests 

of both the pharmacy and the sponsor. 

The commenter believes it is preferable 

for CMS to develop standards under 

which Part D sponsors could—through 

cost-sharing waivers granted by 

affiliated network pharmacies—assist 

non-LIS eligible enrollees with a 

demonstrated financial need and have 

that waived cost-sharing count toward 

TrOOP. 

Response: We disagree with this 

commenter’s recommendation. While 

we appreciate the fact that some Part D 

sponsors are non-profit entities with 

charitable missions, we note that a 

pharmacy owned and operated by an 

insurer is acting on behalf of an insurer. 

Because a Part D drug costs paid or 

reimbursed by an insurer, as that term 

is defined in § 423.100, cannot count as 

an incurred cost, per the definition of 

the term ‘‘incurred cost’’ in § 423.100, 

allowing pharmacy waivers funded by 

an insurer to count toward an enrollee’s 

TrOOP balance would essentially be an 

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end run around our rules regarding 

incurred costs. 

Comment: Two commenters did not 

support our policy clarification 

regarding the applicability to TrOOP of 

pharmacy waivers or reductions of Part 

D cost-sharing made by safety-net 

pharmacies, including Federallyqualified health centers (FQHCs). Given 

that many safety-net providers are fully 

or partially funded through government 

grants, their waivers or reductions of 

cost-sharing may leave many lowincome individuals unable to reach the 

catastrophic coverage portion of their 

Part D benefits. These commenters 

assert that although safety-net providers 

rely on a variety of revenue sources—

both public and private—to provide 

health care services, unlike other 

programs identified as ‘‘governmentfunded health programs’’ in the 

preamble to the January 2005 final rule, 

FQHCs do not necessarily use 

government funds to pay the cost of Part 

D drugs and should not necessarily be 

categorized as government-funded 

health programs. One of these 

commenters believes that recent 

operational guidance released by CMS 

indicating that DSH funds could count 

toward TrOOP further supports its 

position that health center-subsidized 

cost-sharing should count toward 

TrOOP. The commenter asserts that the 

receipt of any source of Federal funding 

should not automatically result in 

excluding health center cost-sharing 

from TrOOP expenditures. 

Response: Payments made for Part D 

enrollees’ Part D cost-sharing by any 

entity—including an FQHC or other 

safety-net pharmacy—that has an 

obligation to pay for covered Part D 

drugs on behalf of Part D enrollees, or 

which voluntarily elects to use public 

funds, in whole or in part, for that 

purpose, will not count toward that 

beneficiary’s TrOOP expenditures. We 

understand that safety-net providers use 

a mix of private and public revenue 

sources to provide health care services 

and prescription drugs. As we stated in 

the January 2005 final rule, to the extent 

that an entity pays for the cost of drugs 

using a mix of private and public funds, 

the entity is considered a governmentfunded health program, and all of its 

Part D drug spending is excluded from 

TrOOP. However, if an entity can 

demonstrate to a Part D sponsor that it 

uses only non-public funds to pay for 

the cost of Part D drugs, that sponsor 

may allow for cost-sharing waivers or 

reductions in cost-sharing paid for by 

that entity’s pharmacies to count toward 

TrOOP. Part D sponsors remain 

ultimately accountable for correctly 

tracking their enrollees’ TrOOP 

expenditures. 

We view Medicare and Medicaid DSH 

funds essentially as adjustments to the 

Medicare and Medicaid reimbursements 

these facilities already receive for 

covered services. In other words, receipt 

of Medicaid or Medicare DSH payments 

by a hospital does not, in and of itself, 

render a DSH facility (and any Part D 

network pharmacy it owns or operates) 

a ‘‘government-funded health program.’’

Even though DSH funds are not 

considered government funding streams 

that would render an entity a 

government-funded health program, 

DSH hospitals may be governmentfunded health programs given other 

government funding streams they 

receive. An entity that receives DSH 

funds but uses non-DSH government 

funding streams to provide to or pay on 

behalf of an individual the costs of Part 

D drugs will still meet our definition of 

a government-funded health program, 

and any reduction or waiver of Part D 

cost-sharing that it offers will not count 

toward a Part D enrollee’s TrOOP 

balance. The same logic applies to 

FQHC pharmacies, meaning that costsharing waivers or reductions applied 

by an FQHC or other safety-net provider 

pharmacy that uses government funding 

streams to provide or pay on behalf of 

an individual the costs of Part D drugs, 

the costs of these drugs will not count 

toward a beneficiary’s TrOOP balance. 

Comment: One commenter asked us 

to clarify that only cost-sharing 

reductions that are in fact paid for by 

group health plans, government-funded 

health programs, or other third party 

payment arrangements will not count 

toward ‘‘incurred costs’’ and that costsharing waivers by a pharmacy, even if 

the pharmacy is affiliated with a payer, 

will count toward incurred costs. This 

commenter is particularly concerned 

that this language could be 

misconstrued to disallow waivers by 

pharmacies that are affiliated with Part 

D sponsors providing supplemental 

benefits under enhanced alternative 

coverage. The commenter also stated 

that this prohibition should apply only 

if the reduction or waiver is part of the 

coverage provided by a health plan or 

other third party payment arrangement, 

and not a waiver funded by the 

affiliated pharmacy itself. 

Response: As we have previously 

stated, pharmacy waivers or reductions 

of Part D cost-sharing will count toward 

TrOOP when the pharmacy waiving or 

reducing the Part D cost-sharing does 

not meet the definition of a group health 

plan, insurance, government-funded 

health program, or party to a third party 

payment. A pharmacy is not subject to 

this prohibition simply because it is 

contracted with a Part D sponsor as a 

network pharmacy. We note that any 

cost-sharing associated with non-Part D 

drugs covered under a supplemental 

benefit does not meet the definition of 

an incurred cost per the definition of 

that term in § 423.100 and, therefore, 

any pharmacy waiver or reduction of 

such cost-sharing would have no impact 

on a beneficiary’s TrOOP balance in any 

case. 

3. Access to Covered Part D Drugs 

(§ 423.120) 

a. Applicability of Some Non-Retail 

Pharmacies to Standards for Convenient 

Access (§ 423.120(a)(2)) 

In the January 2005 final rule (70 FR 

4537), we made a technical error in 

§ 423.120(a)(2) by inadvertently 

referring to ‘‘rural health clinics’’ as 

‘‘rural health centers.’’ The correct 

terminology for those facilities is ‘‘rural 

health clinics.’’ Accordingly, we 

proposed to revise the regulatory text to 

correctly reference these entities in 

§ 423.120(a)(2) by removing the phrase 

‘‘rural health centers’’ and adding in its 

place ‘‘rural health clinics.’’ We 

received no comments with regard to 

this proposed revision. Therefore, this 

final rule adopts the proposed revision 

to § 423.120(a)(2) without change. 

b. Adequate Access to Home Infusion 

Pharmacies (§ 423.120(a)(4)) 

We proposed to codify in regulation, 

at § 423.120(a)(4) (70 FR 4537), guidance 

that we issued with regard to access to 

home infusion pharmacies by Part D 

sponsors subsequent to our publication 

of the January 2005 final rule. This 

codification would ensure that our 

regulations provide specificity to the 

requirement that Part D enrollees 

receive adequate access to Part Dcovered home infusion therapy. We 

specifically proposed to revise 

§ 423.120(a)(4) to expressly require that 

a Part D plan’s contracted pharmacy 

network provide adequate access to 

home infusion pharmacies through a 

contracted pharmacy network that, at a 

minimum: (1) Is capable of delivering 

home infused drugs in a form that can 

be administered in a clinically 

appropriate fashion; (2) is capable of 

providing infusible Part D drugs for both 

short-term acute care and long-term 

chronic care therapies; and (3) ensures 

that the professional services and 

ancillary supplies necessary for home 

infusion therapy are in place before 

dispensing home infusion drugs. 

In addition, we invited comments on 

the specification of a reasonable 

timeframe for the timely delivery of 

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home infusion drugs under Part D. We 

proposed a new requirement, at 

§ 423.120(a)(4)(iv) of the proposed rule, 

that Part D plan sponsors provide 

covered home infusion drugs within 24- 

hours of discharge from an acute care 

setting. Except as otherwise noted 

below, this final rule adopts the 

requirements related to ensuring 

adequate home infusion access set forth 

in our proposed rule. Although the 

requirement for the timely delivery of 

home infusion drugs covered under Part 

D will be effective within 60 days of this 

final rule’s appearance in the Federal 

Register, Part D sponsors will not be 

expected to implement this provision 

until January 1, 2009. 

Comment: A number of commenters 

supported our proposal to codify in 

regulation how Part D sponsors were to 

ensure that enrollees have adequate 

access to home infusion pharmacies. 

Commenters specifically expressed 

support for our proposals to codify 

requirements that Part D plans ensure 

that their network pharmacies are 

capable of delivering home infused 

drugs in a manner than can be 

administered in a clinically appropriate 

fashion; provide infusible Part D drugs 

for both short-term and long-term 

chronic care therapies; and ensure that 

the professional services and ancillary 

supplies necessary for home infusion 

therapy are in place before dispensing 

Part D home infusion drugs. However, 

several other commenters requested 

clarification regarding our proposed 

language at § 423.120(a)(4)(iii), which 

would require Part D plans to ensure 

that their network pharmacies receive 

assurances that the professional services 

and ancillary supplies necessary for 

home infusion therapy be in place prior 

to delivery of a Part D home infusion 

drug. Some of these commenters 

recommended that we clarify that Part 

D plans—and not their network 

pharmacies—are ultimately responsible 

for ensuring this requirement is met. 

One commenter believed it was 

incumbent upon us to clarify that 

contracted pharmacies providing Part D 

enrollees with home infusion drugs 

need not make arrangements for the 

ancillary supplies and professional 

services themselves and that, instead, 

could meet the requirement by seeking 

and relying upon assurances from the 

discharging entity that infusion therapy 

supplies and services had been 

arranged. Another commenter believed 

that this proposed requirement fell 

outside the scope of the responsibilities 

of both Part D sponsors and their 

contracted pharmacies. This commenter 

pointed to the definition of dispensing 

fees at § 423.100, which does not 

encompass professional services, 

supplies, or equipment related to the 

administration of home infusion drugs, 

to bolster its argument that the 

professional services and ancillary 

supplies are not Part D-covered and, as 

such, outside the scope of benefits Part 

D sponsors are responsible for providing 

or even coordinating. Instead, this 

coordination should be the clinical 

responsibility of those health care 

providers—including hospitals, home 

health agencies, outpatient facilities, 

and physician offices—that are 

responsible for the implementation of 

continued care following a patient’s 

discharge from an acute care setting. 

Response: Although the Part D benefit 

does not cover equipment, supplies, and 

professional services associated with 

home infusion therapy, it does cover the 

ingredient costs and dispensing fees 

associated with infused Part D drugs. 

We disagree with the position that, 

because coverage under the Part D 

benefit is limited to the ingredient cost 

and dispensing fees associated with a 

Part D infusible drug, it is not within the 

scope of a Part D sponsor’s 

responsibilities (or its home infusion 

network pharmacies’ responsibilities) to 

ensure that the items and services that 

are necessary for providing home 

infusion therapy are in place prior to 

delivery of a home infusion drug. It is 

poor clinical practice to simply deliver 

a drug to an enrollee without assurances 

that these items and services—

regardless of their source of coverage—

have been arranged for prior to 

dispensing a Part D home infusion drug. 

We clarify that neither Part D plans nor 

their network pharmacies must directly 

make arrangements for the provision of 

the components needed to safely 

administer home infusion drugs (save 

for delivery of the drug itself) prior to 

an enrollee’s discharge from an acute 

care setting; generally, facility discharge 

planners, in collaboration with a 

patient’s physician, are responsible for 

ensuring that those components have 

been arranged for upon a patient’s 

discharge. However, when plans’ home 

infusion network pharmacies do not 

themselves supply the necessary 

supplies and services (which, again, are 

not covered under the Medicare Part D 

benefit), the Part D sponsor through its 

home infusion network pharmacy 

delivering the infusible Part D drug 

must, at a minimum, ensure that 

another entity, such as a home health 

agency, DME supplier, or the 

discharging hospital, has arranged for 

the provision of these supplies and 

services. In order for sponsors to comply 

with this requirement, their home 

infusion network pharmacies may seek 

and rely upon assurances from another 

entity (such as a home health agency, 

DME supplier, or discharging hospital) 

that the supplies and services in 

question have been arranged. Under our 

regulations at § 423.153(c), a Part D 

sponsor must have established quality 

assurance measures and systems to 

reduce medication errors and adverse 

drug interactions, and to improve 

medication use. We consider the followup to ensure that home infusion 

supplies and services are in place 

essential to ensuring that home infused 

drugs are administered in a clinically 

appropriate manner. Because this 

follow-up improves the use of home 

infusion medications and facilitates 

home infusion therapy more generally, 

we believe it is a minimum quality 

assurance standard under § 423.153(c). 

As specified in § 423.120(a)(4), we 

expect that Part D sponsors will meet 

the requirements for ensuring adequate 

home infusion access through their 

contracted home infusion pharmacies. 

However, we clarify that, as provided in 

§ 423.505(i), Part D sponsors remain 

ultimately responsible for compliance 

with all Part D requirements, even when 

they delegate services or activities to a 

contractor such as a network pharmacy, 

and that delegation of any of their Part 

D responsibilities must be consistent 

with the requirements of § 423.505(i)(4). 

Coverage under the Part D benefit is 

limited to the ingredient cost and 

dispensing fees associated with a Part D 

infusible drug. Although the Part D 

benefit does not cover equipment, 

supplies, and professional services 

associated with home infusion therapy, 

there are instances in which some of the 

supplies and professional services can 

be covered under Part A or Part B. If a 

Medicare beneficiary is under an active 

home health plan of care and is 

receiving Medicare home health 

services, the cost of some of the infusion 

supplies (if the infusion is provided via 

gravity feed method) and the 

professional services are included in the 

Medicare home health 60-day episode 

payment. A list of supplies consolidated 

under the home health prospective 

payment system (HH PPS) is available 

on the CMS home health Web site at 

http://www.cms.hhs.gov/ 

HomeHealthPPS/ 

03_coding&billing.asp#TopOfPage. 

Comment: We received a significant 

number of comments regarding our 

proposed requirement in 

§ 423.120(a)(4)(iv) of the proposed rule 

that Part D plans provide covered home 

infusion drugs within 24 hours of 

discharge from an acute care setting. 

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Many commenters supported this 

proposed new requirement. Two 

commenters expressed concern that the 

proposed requirement is unfair and 

burdensome to the extent that it applies 

directly to the Part D plan itself. 

Because these commenters contend that 

our proposed requirement would result 

in plans having to build costly reporting 

processes and protocols to ensure 

compliance by contracted pharmacies, 

they recommend that we clarify that 

Part D sponsors will be in compliance 

with this provision if they include a 

requirement in their network pharmacy 

contracts that pharmacies provide 

covered home infusion drugs within the 

timeframes established by CMS. 

A number of other commenters 

recommended that CMS strengthen its 

proposed requirement such that plans 

must provide covered home infusion 

drugs by the next required dose because 

patients that are discharged on home 

infusion therapy that is administered 

more frequently than at 24-hour 

intervals may not receive their drugs in 

a clinically acceptable timeframe. These 

commenters believe that modification of 

this requirement would bring it in line 

with industry best practices to make 

infusion drugs available by either the 

next required dose or within 24 hours. 

Another commenter expressed concern 

that the establishment of a 24-hour 

requirement is arbitrary and could 

create situations in which a contracted 

pharmacy is required to deliver 

products well in advance of the next 

scheduled dose. This commenter 

recommended that we modify our 

proposed requirement such that plans 

must ensure that the prescribed infusion 

drugs are delivered at the later of 24 

hours after discharge or the time the 

product is required for the first postdischarge dose. Finally, several 

commenters asked us to clarify that the 

provision of home infusion drugs within 

24-hours of discharge from an acute care 

setting should be contingent on the 

pharmacy being notified of the 

discharge by the enrollee or acute care 

provider prior to the discharge. 

Response: We recognize that home 

infusion therapy may serve as a vehicle 

to promote early hospital discharge. 

Although we have learned—in our 

discussions with home infusion 

providers—that best practices involve 

the availability of infusion services 

upon discharge from an acute care 

setting either by the next required dose 

or within 24 hours of the discharge, we 

deliberately chose to phrase our 

proposed requirement at 

§ 423.120(a)(4)(iv) such that home 

infusion drugs were to be provided 

within 24 hours of discharge from an 

acute care setting, and not by either the 

next required dose or within 24 hours 

of discharge. We believe our proposed 

timely delivery requirement struck a 

reasonable balance between ensuring 

the timely delivery of drugs needed for 

home infusion therapy and ensuring 

plan compliance with our standard. 

Because the timing of the next required 

dose post-discharge will vary by 

beneficiary and by drug, monitoring 

compliance with a ‘‘next available dose’’

requirement would be very difficult. For 

this reason, we are maintaining our 

proposed requirement that plans 

provide delivery of home infusion drugs 

within 24 hours of discharge. However, 

we did find some merit to the point 

raised by one commenter that the next 

required dose could be later than within 

24 hours after discharge from an acute 

care setting and that it would be unfair 

to penalize a plan that did not deliver 

the necessary home infusion drug until 

sometime after the 24 hours postdischarge have elapsed, even if such 

delivery is consistent with the 

prescription as written. For this reason, 

our final rule modifies our proposed 

requirement by requiring delivery 

within 24 hours after discharge, unless 

the next required dose, as prescribed, is 

required to be administered later than 

24 hours after discharge. Plans may 

contractually delegate the responsibility 

for ensuring timely delivery of home 

infusion drugs to their network 

pharmacies provided they meet the 

requirements of § 423.505(i) regarding 

relationships with pharmacies or other 

providers, related entities, contractors, 

subcontractors, and first tier and 

downstream entities. We also clarify 

that in order to comply with 

§ 423.120(a)(4)(iv), a Part D plan or one 

of its home infusion network 

pharmacies must receive notification 

from a facility discharge planner or a 

similar entity of an acute care discharge 

and the need for home infusion therapy. 

However, we do not believe that Part D 

sponsors must build ‘‘costly reporting 

processes and protocols’’ to comply 

with our requirement at 

§ 423.120(a)(4)(iv). 

Comment: Two commenters urged us 

to ensure that Part D sponsors do not 

implement policies that could 

potentially delay or restrict beneficiary 

access to home infusion therapies, such 

as imposing prior authorization or 

utilization management edits on home 

infusion therapies, in order to facilitate 

a timely and efficient hospital 

discharge. Another commenter asked us 

to instruct plans to make available 

through their network pharmacies home 

infusion drugs in manufacturerprepared, ready-to-use premixed 

formats or pharmacy filled single-use 

infusion devices, as these formats 

promote enhanced patient safety. 

Response: We agree that Part D 

sponsors should not implement 

coverage restrictions that unduly limit 

access to infusible Part D drugs. CMS, 

in conjunction with industry partners, 

has identified a list of acute care drugs 

that are most commonly utilized in the 

home infusion setting. This list is 

available as part of our formulary 

guidance to Part D sponsors in Chapter 

6 of our Prescription Drug Benefit 

Manual (see http://www.cms.hhs.gov/

PrescriptionDrugCovContra/Downloads/

PDBMChap6FormularyReqrmts_03.09.

07.pdf). The use of these drugs or drug 

classes often results in an earlier 

hospital discharge and reduced health 

care costs, and rapid access to these 

agents is imperative to these health care 

transitions. It is our expectation that 

Part D sponsors will not implement 

policies that could potentially delay or 

restrict beneficiary access to these 

important agents. In general, should 

prior authorization or other utilization 

management edits apply to any of these 

agents, we expect Part D sponsors to 

handle these edits in an expedited 

manner in order to facilitate hospital 

discharge within appropriate 

timeframes. To the extent that we 

receive complaints from plan enrollees 

or providers indicating that this is not 

the case, we will investigate and followup with plans to ensure they are 

complying with our requirements. We 

note, as well, that we expect Part D 

plans to include multiple strengths and 

dosage forms, when available, for each 

drug included in each drug category or 

class on their formularies. This includes 

those dosage forms commonly used in 

long term care and home infusion 

settings. 

Comment: One commenter 

encouraged CMS to conduct a study on 

Part D enrollees’ access to home 

infusion drugs and their out-of-pocket 

expenditures. 

Response: Access to home infusion 

drugs is important. We plan to continue 

to assess the adequacy of home infusion 

pharmacy access based on an evaluation 

of plans’ home infusion pharmacy 

networks. We also plan to aggressively 

respond to beneficiary and provider 

complaints alleging compromised 

access. As we continue to implement 

the Part D benefit, we will consider 

other ways of monitoring access to 

home infusion drugs to ensure it is 

adequate. 

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C. Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums: Plan 

Approval—Timing of Payments 

(§ 423.293(a)) 

We proposed a technical correction to 

§ 423.293(a) (70 FR 4546) to reflect the 

statutory requirement that all the 

provisions of section 1854(d) of the Act 

apply in the same manner as they apply 

under Part C of Title XVIII of the Act. 

Section 1860D–13(c)(1) of the Act states 

that, with two exceptions not 

particularly relevant to this discussion, 

the provisions of ‘‘section 1854(d) shall 

apply to PDP sponsors and premiums 

(and any late enrollment penalty) under 

this part in the same manner as they 

apply to MA organizations and 

beneficiary premiums under part C, 

except that any reference to a Trust 

Fund is deemed for this purpose a 

reference to the Medicare Prescription 

Drug Account.’’ Section 1854(d)(1) of 

the Act requires an organization to 

permit the payment of both basic and 

supplemental premiums on a monthly 

basis. This concept is reflected in the 

Part C regulations at § 422.262(e). In 

accordance with the statutory mandate, 

we have already required plans to 

permit beneficiaries to pay their 

premiums on a monthly basis. We 

proposed to make a technical correction 

to § 423.293(a) to cite both § 422.262(f) 

and § 422.262(e). We did not receive any 

comments on the proposed changes to 

§ 423.293(a) and therefore adopt the 

changes as final without modification. 

D. Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage: Payment Appeals 

(§ 423.350(b)) 

In the January 2005 final rule (70 FR 

4550), we made a technical error in 

§ 423.350(b). In this paragraph, we 

inadvertently used the phrase ‘‘notice of 

the adverse determination’’ when we 

said that the request for reconsideration 

for a payment determination must be 

filed within 15 days from the date of the 

notice of the adverse determination. The 

term ‘‘notice of the adverse 

determination’’ is not relevant here. We 

proposed to revise the regulation text to 

instead cite to the notice of final 

payment for risk adjustment, 

reinsurance, low-income cost sharing 

subsidies, or risk-sharing payments 

under §§ 423.343(b), 423.343(c), 

423.343(d) or 423.336, respectively. We 

did not receive any comments on the 

proposed changes to § 423.350(b), and 

therefore, adopt the changes as final 

without modification. 

E. Subpart I—Organization Compliance 

With State Law and Preemption by 

Federal Law—Waiver of Certain 

Requirements To Expand Choice 

(§ 423.410) 

In accordance with section 1860D–

12(c)(2)(B) of the Act, which describes 

the special waivers available for the 

2006 and 2007 plan years, we proposed 

to revise § 423.410(d) to correct an error. 

We believe that the statute requires only 

a substantially complete (rather than a 

fully complete) application to have been 

submitted to the applicable state in 

order for an applicant to be granted the 

special waiver for 2006 and 2007. 

Therefore, we proposed to correct the 

regulatory language to require that an 

applicant submit a substantially 

completed application to the state in 

order for the applicant to be eligible for 

the § 423.410(d) waiver. We received no 

comments regarding our proposed 

change. Therefore, this final rule adopts 

the proposed revision to § 423.410(d) 

without change. 

F. Subpart J—Coordination of Part D 

Plans With Other Prescription Drug 

Coverage 

1. Application of Part D Rules to Certain 

Part D Plans on and After January 1, 

2006 (§ 423.458) 

We proposed to revise 

§ 423.458(d)(2)(ii) because we 

inadvertently omitted a reference to 

section 1894 of the Act in describing the 

statutory authority for the benefits 

offered by a Program of All Inclusive 

Care for the Elderly (PACE) 

organization. As published in the 

January 2005 final rule (70 FR 4552), 

§ 423.458(d)(2)(ii) referenced only 

section 1934 of the Act when describing 

benefits provided by PACE 

organizations. In fact, PACE operates 

under both the Medicare and Medicaid 

statutes, and all descriptions to PACE 

benefits should refer to both sections 

1894 and 1934 of the Act. We therefore 

proposed to revise § 423.458(d)(2)(ii) so 

that it refers to benefits offered by a 

PACE organization under both sections 

1894 and 1934 of the Act. We received 

no comments on our proposed revision 

to § 423.458(d)(2)(ii) and are therefore 

adopting it as proposed. 

2. Coordination of Benefits With Other 

Providers of Prescription Drug Coverage 

(§ 423.464) 

a. Coordination of Benefits With Rural 

Health Clinics 

In the January 2005 final rule (70 FR 

4553), we made a technical error in 

§ 423.464(f)(1)(vii) by inadvertently 

referring to rural health clinics as rural 

health centers. In fact, our intent was to 

reference facilities described in section 

1861(aa)(2) of the Act, and the correct 

terminology for those facilities is rural 

health clinics. Accordingly, we 

proposed to correct the reference to 

these entities in § 423.464(f)(1)(vii) by 

removing the phrase rural health centers 

and adding in its place rural health 

clinics. We did not receive any public 

comments on our proposed correction to 

§ 423.464(f)(1)(vii) and are therefore 

adopting the correction as proposed. 

b. Coordination of Benefits With Part D 

Plans and Other Payers 

We proposed to codify in § 423.464(f) 

guidance we have already issued to Part 

D sponsors addressing coordination of 

benefits requirements in cases that 

involve another Part D plan that is not 

the correct Part D plan of record or 

another payer that has incorrectly paid 

as primary for a covered Part D drug for 

an enrolled beneficiary. In accordance 

with sections 1860D–24(a)(1) and (b) of 

the Act, § 423.464(a) of the regulations 

extends the coordination of benefits 

requirements in section 1860D–23 of the 

Act applicable to Part D plans vis-a`-vis 

State Pharmaceutical Assistance 

Programs (SPAPs) to other entities 

providing prescription drug coverage. 

We proposed to clarify § 423.464(f)(1) to 

state that included among the entities 

providing other prescription drug 

coverage with which Part D plans must 

coordinate are other Part D plans. 

Although Part D plans are already 

obligated to coordinate with group 

health plans, as provided in 

§ 423.464(f)(1)(ii), we believed this 

revision formalizes our implicit 

recognition of other Part D plans as 

other entities providing prescription 

drug coverage with which a 

beneficiary’s correct Part D plan of 

record must coordinate. 

We also proposed to amend 

§ 423.464(f) by adding a fifth paragraph 

that clarifies that Part D plans 

coordinate benefits with other Part D 

plans through the reconciliation process 

we have developed for 2006, which 

involves making payments to other Part 

D plans on the basis of the covered planpaid and low-income cost-sharing 

subsidy amounts reported to them by 

CMS with respect to transferred 

enrollees. Payments made by the Part D 

plans as part of this reconciliation 

process would be made without regard 

to the plan’s formulary or drug 

utilization review edits. 

In addition, we proposed modifying 

§ 423.464(f) by adding a sixth paragraph 

that would require Part D sponsors to 

coordinate benefits on a timely basis 

with other third parties and use CMSdeveloped reconciliation processes, 

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when established, in situations in which 

a payer other than the correct Part D 

plan of record pays for covered Part D 

drug costs as a primary payer. Except as 

otherwise provided below, the final rule 

adopts the revisions to § 423.464(f) set 

forth in our proposed rule. 

Comment: Many commenters 

supported our proposed clarification 

and codification of previously issued 

guidance on Part D plan sponsor 

coordination of benefits with other 

payers. Several commenters, in 

expressing their support, noted the 

importance of the reconciliation 

processes in avoiding pharmacy reversal 

and claims re-adjudication. One 

commenter agreed with the proposed 

codification, but requested that the 

provision specifically address the 

reconciliation of inaccurate costsharing amounts withheld from 

pharmacy payments by Part D plan 

sponsors. 

Response: We are pleased with the 

extent of the support expressed for the 

proposed changes. However, we believe 

the coordination of benefits (COB) 

provisions at section 1860D–24 of the 

Act do not permit expanding § 423.464 

to address the reconciliation of 

inaccurate cost sharing withheld from 

pharmacy payments. The reconciliation 

process provision is specific to other 

entities providing prescription drug 

coverage and the inclusion of 

pharmacies would be inconsistent with 

section 1860D–24(b) of the Act. 

Paragraph (5) of this section of the Act 

extends the COB requirements to ‘‘other 

health benefit plans or programs that 

provide coverage or financial assistance 

for the purchase or provision’’ of drugs; 

it does not apply to providers holding 

accounts receivables resulting from 

incorrect cost sharing or otherwise. 

Further, the requested extension of 

the reconciliation process to include 

pharmacies cannot be construed as a 

logical extension of the proposed rule 

and therefore its inclusion would 

violate the requirements of the 

Administrative Procedures Act 

concerning adequate public notice. 

Although we are not extending the 

provision as requested, existing CMS 

policy requires Part D plan sponsors to 

pay for covered Part D drugs provided 

during the retroactive enrollment 

periods. We have clarified in our policy 

issuances that this requirement includes 

both out-of-network pharmacies holding 

receivable balances for covered Part D 

drug costs, and network pharmacies 

holding receivable balances for covered 

Part D drug claims incurred during a 

beneficiary’s period of retroactive Part D 

enrollment. 

Comment: Another commenter agreed 

with our proposed clarification, but 

recommended that CMS require that 

reconciliation processes with non-Part D 

sponsors include the submission of 

claims-level data to the Part D plan 

sponsors. The commenter notes that 

claims-level data is required for the 

accurate calculation of beneficiary true 

out-of-pocket costs, prescription drug 

event data reporting, and payment 

reconciliation with CMS. 

Response: While we appreciate the 

importance of claims-level data to 

reconciliation with non-Part D payers, 

we do not have the authority to regulate 

the activities of non-Part D payers. Also, 

we do not believe it would be 

appropriate to include the detail 

recommended by the commenter when 

it concerns as-yet-to-be developed CMS 

reconciliation processes. 

Comment: Two commenters 

expressed concern that the proposed 

provision does not address the payment 

reconciliation process or adjustments 

for claims Part D plans receive after the 

coverage year. The commenters noted 

that this non-point-of-sale claims 

volume is not insignificant and 

therefore recommended that CMS 

extend the periods of time for 

submission of claims and data reporting 

so that these claims may be included in 

the payment reconciliation process. 

Response: The established deadlines 

for submission of claims and data 

reporting are necessary in order to 

ensure a timely payment reconciliation 

process. However, we understand and 

appreciate the concern that some claims 

will not be available for submission 

until after these deadlines, and 

therefore, will not be included in the 

payment reconciliation process. Per 

§ 423.346, we have discretion to reopen 

and revise initial or reconsidered final 

Part D payment determinations. One of 

the grounds for finding good cause to 

reopen a final payment determination is 

the furnishing of new and material 

evidence that was not readily available 

at the time the final determination was 

made. Thus, in cases where claims data 

becomes available after the submission 

deadlines which would have a material 

impact on the final Part D payments, we 

will determine whether a reopening of 

the final Part D payments is appropriate. 

G. Subpart K—Application Procedures 

and Contracts With Part D Plan 

Sponsors 

1. General Provisions (§ 423.504)—

Submission of Bids 

In § 423.504, we inadvertently made 

reference to § 423.265(a)(1) rather than 

§ 423.265. Section 423.265(a) gives only 

the most narrow and rudimentary of 

information concerning the bidding 

process, our intent was to cite in its 

entirety the much broader list found 

under § 423.265 (Submission of bids 

and related information). Accordingly, 

we proposed to correct the reference in 

§ 423.504(a) to cite all of § 423.265 (72 

FR 29412). We received no comments 

regarding our proposed correction. 

Therefore, the final rule adopts the 

revision to § 423.504 set forth in our 

proposed rule. 

2. Contract Provisions (§ 423.505) 

We proposed to correct the citation 

for the False Claims Act in § 423.505. 

The correct reference to the False 

Claims Act is 31 U.S.C. 3729 et seq. 

Accordingly, we proposed to correct the 

reference found under § 423.505 (h)(1) 

by replacing 32 U.S.C. 3729 et seq. with 

31 U.S.C. 3729 et seq. (72 FR 29412). We 

received no comments regarding our 

proposed correction. Therefore, the final 

rule adopts the revision to § 423.505 

(h)(1) set forth in our proposed rule. 

3. Failure To Comply With the 

Dissemination of Information 

Requirements Grounds for Contract 

Termination (§ 423.509(a)(9)) 

In § 423.509(a)(9), we indicate that 

CMS may terminate a plan’s contract if 

the plan substantially fails to comply 

with the Part D marketing requirements 

(70 FR 4559). This provision cites the 

marketing requirements at § 423.128, 

which is an incorrect citation. Section 

423.128 deals with the dissemination of 

Part D plan information, not with plans’

marketing requirements, per se. 

Therefore, we proposed to revise the 

regulation text, consistent with our 

original intent, to reflect that a plan 

contract may be terminated if a plan 

sponsor substantially fails to comply 

with the marketing requirements in 

§ 423.50 or the dissemination of Part D 

plan information requirements in 

§ 423.128. (72 FR 29412). We received 

no comments regarding our proposed 

correction. Therefore, the final rule 

adopts the revision to § 423.509(a)(9) as 

proposed without change. 

H. Subpart M—Grievances, Coverage 

Determinations, and Appeals 

1. Definitions (§ 423.560) 

We proposed to make technical 

changes to the definitions of ‘‘appointed 

representative’’ and ‘‘projected value,’’

and to add language to the definition of 

appointed representative indicating that 

an enrollee’s appointed representative 

may request a grievance on the 

enrollee’s behalf. We also proposed to 

revise the definition of projected value 

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in § 423.560 to be consistent with the 

definition of projected value provided 

in the preamble of the January 2005 

final rule (70 FR 4360) and in the 

regulation text at § 423.610(b). 

Comment: We received a comment 

suggesting that we grant appointed 

representative status to long-term care 

(LTC) facility staff. 

Response: We agree with the 

commenter that LTC caregivers should 

be able to represent resident enrollees in 

the Part D appeals process. However, 

the decision to have a representative is 

left with the enrollee, and we neither 

encourage nor discourage 

representation. If a Part D enrollee 

chooses to appoint an LTC caregiver as 

his or her representative in the Part D 

appeals process, the current regulations 

allow the enrollee to do so. 

Comment: Another commenter asked 

that the appointed representative policy 

operate consistent with State family and 

surrogate laws. 

Response: We agree with the 

commenter’s recommendation and 

believe that the regulations already 

address the commenter’s suggestion. 

Section 423.560 defines appointed 

representative as any person properly 

appointed by an enrollee, or any person 

authorized to act as an enrollee’s 

representative under a State or other 

applicable law. Thus, both individuals 

appointed by enrollees and individuals 

authorized under State or other 

applicable law may act on behalf of Part 

D enrollees in obtaining coverage 

determinations or in dealing with any of 

the levels of the appeals process, subject 

to the rules described in part 423, 

subpart M. 

Comment: We received one comment 

recommending that we modify the 

definition of projected value in 

§ 423.610(b) to comply with the 

definition in § 423.560 instead of 

revising the definition of projected 

value in § 423.560 to comply with the 

definition in § 423.610(b). 

Response: We disagree with the 

commenter. As noted in the May 2007 

proposed rule, the definition of 

projected value in § 423.560 is not 

consistent with the definitions of 

projected value in the January 2005 final 

rule (70 FR 4360) and in § 423.610(b) of 

the regulations. Both of those 

definitions limit projected value to 

benefits incurred within a plan year. 

Limiting projected value to benefits 

incurred within a plan year is consistent 

with sections of the regulation that limit 

exception approvals to a plan year and 

permit enrollees to switch plans at the 

beginning of each plan year. (See 

§ 423.38 and § 423.578(c).) 

2. Expediting Certain Coverage 

Determinations (§ 423.570) 

We proposed to amend the regulation 

text of § 423.570(d)(3) by requiring a 

Part D sponsor to deliver written notice 

to an enrollee within 3 calendar days 

after it denies a request to expedite a 

coverage determination. 

Comment: We received one comment 

suggesting that we require plans to 

deliver notice of a decision not to 

expedite a coverage determination to a 

dispensing pharmacy when an enrollee 

is a resident of a LTC facility. 

Response: We disagree with the 

commenter. Section 423.570(d)(2) of the 

regulations requires plan sponsors to 

deliver oral notice of a decision not to 

expedite a coverage determination to the 

enrollee (or the enrollee’s appointed 

representative) and the enrollee’s 

prescribing physician. Section 

423.570(d)(3) requires the plan sponsor 

to send an equivalent written notice, but 

it does not indicate if the notice must be 

sent to the enrollee (or the enrollee’s 

appointed representative), the 

prescribing physician, or both. Our 

proposal simply corrects this omission. 

The commenter’s recommendation to 

add a new party to the list of recipients 

would create a new regulatory 

requirement that is not directly related 

to our proposed clarification. However, 

it is worth noting that an employee of 

a pharmacy could receive this and other 

notices if he or she were an enrollee’s 

appointed representative. 

Comment: Another commenter 

recommended requiring plans to deliver 

notice of a decision not to expedite a 

coverage determination both to the 

enrollee and to his or her appointed 

representative, if one is on record. 

Response: We do not agree with the 

commenter’s suggestion. We require 

notices to be delivered to an enrollee or 

an enrollee’s appointed representative, 

but not to both. If a representative is 

acting on behalf of an enrollee in the 

Part D appeals process, he or she is 

standing in the shoes of the enrollee and 

must inform the enrollee of the status of 

a coverage determination or appeal and 

the results of any actions taken on 

behalf of the enrollee. It could be 

confusing for an enrollee to receive a 

notice that is also sent to his or her 

appointed representative since the 

enrollee is relying on that person to 

resolve any issues related to his or her 

Part D appeal. 

3. Expediting Certain Redeterminations 

(§ 423.584) 

We proposed to revise the regulation 

text of § 423.584(b) to include the 

procedures for filing and withdrawing a 

request for an expedited 

redetermination. We did not receive any 

comments on the proposed change to 

§ 423.584(b) and therefore adopt this 

change as final without modification. 

4. Right to an ALJ Hearing (§ 423.610) 

We proposed revising the regulation 

text of § 423.610(c)(2) by numbering the 

three requirements listed under 

§ 423.610(c)(2) with (i), (ii), and (iii). We 

did not receive any comments on the 

proposed change to § 423.610(c)(2) and 

therefore adopt this change as final 

without modification. 

I. Subpart P—Premium and CostSharing Subsidies for Low-Income 

Individuals 

1. Premium Subsidy Amount (§ 423.780) 

a. Low-Income Benchmark Premium 

Amount 

Section 1860D–14 of the Act requires 

us to subsidize the monthly beneficiary 

premium and cost-sharing amounts 

incurred under Part D by Part D eligible 

individuals with income and resources 

below certain thresholds. Our rules 

mirror the statute’s structure, which 

divides low-income subsidy eligible 

individuals into two different groups, 

based on income and resources: (1) Full 

subsidy eligible individuals (as defined 

at § 423.772); and (2) other low-income 

subsidy eligible individuals (as defined 

at § 423.772). The different groups are 

entitled to different amounts of 

premium assistance and reductions in 

cost sharing. 

As stated in the May 2007 proposed 

rule, we became aware that certain 

sections of part 423 subpart P need to 

be corrected to accurately reflect the 

statutory language in section 1860D–14 

of the Act. Specifically, in the January 

2005 final rule (70 FR 4574) there is an 

error in § 423.780(b), which sets forth 

the methodology for determining the 

premium subsidy amount. In 

accordance with section 1860D–14(b)(1) 

of the Act, § 423.780(b)(1) of the 

regulation provides that the premium 

subsidy amount for a full low-income 

subsidy eligible individual is equal to 

the lesser of— (1) the portion of his or 

her plan’s monthly beneficiary premium 

attributable to basic coverage; or (2) the 

greater of the low-income benchmark 

premium amount or the lowest monthly 

beneficiary premium for a PDP offering 

basic prescription drug coverage in the 

PDP region where the individual 

resides. The low-income benchmark 

premium amount, as defined in the 

statute at section 1860D–14 of the Act, 

specifically describes how to calculate 

the low-income subsidy for regions with 

only one PDP sponsor. At section 

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1860D–14(b)(2)(A)(i) of the Act, the 

statute indicates that ‘‘the term ‘lowincome benchmark premium amount’

means, with respect to a PDP region in 

which all prescription drug plans are 

offered by the same PDP sponsor, the 

weighted average of the amounts 

described in subparagraph (B)(i) for 

such plans.’’ However, while 

§ 423.780(b)(2)(i) accurately describes 

the low-income benchmark premium 

amount calculation for PDP regions with 

multiple PDP sponsors, it omits the 

methodology for determining the lowincome benchmark premium amount in 

a PDP region with any number of MA–

PD plans but only one PDP sponsor 

(although the preamble of the January 

2005 final rule correctly describes this 

methodology). We proposed to correct 

this error in the current rule to comport 

with the statute and our intent as 

outlined in the preamble of the January 

2005 final rule by adding a new 

subparagraph (A) to § 423.780(b)(2)(i) to 

correctly reflect the methodology for 

situations where there is only one PDP 

sponsor. We note that in 2006, all PDP 

regions included multiple PDP 

sponsors. 

We also proposed revisions to 

§ 423.780(b)(2)(i)(B). Our proposed 

change would make clear that in 

multiple-PDP sponsor regions, the MA–

PD plans included in the calculation of 

the low income benchmark weighted 

average are coordinated care plans, as 

defined at § 422.4(a)(1)(iii). We did not 

receive any comments on the proposed 

changes § 423.780(b)(1) and (2)(i). 

Therefore, we are adopting the changes 

to § 423.780(b)(1) as final without 

modification. However, we are not 

finalizing the changes to 

§ 423.780(b)(2)(i) in this final rule; 

rather, we have revised this provision in 

the Modification to the Weighting 

Methodology Used to Calculate the 

Low-income Benchmark Amount final 

rule that published in the April 3, 2008 

Federal Register (73 FR 18176). 

b. Premium Subsidy for Late Enrollment 

Penalty 

We indicated in the May 2007 

proposed rule that we needed to correct 

an omission in the regulation text at 

§ 423.780(e) related to the subsidy of 

any late enrollment penalty imposed on 

other low-income subsidy individuals. 

In this paragraph, we omitted a 

provision from the statute at section 

1860D–14(a)(2)(A) of the Act, which 

provides for a subsidy or any late 

enrollment penalty imposed on other 

low-income subsidy eligible 

individuals. Accordingly, we proposed 

to revise § 423.780(e) to accurately 

reflect the statute. We proposed that this 

subsidy would be based on a linear 

sliding scale, with a higher subsidy 

available to other low income subsidy 

eligible individuals with incomes at or 

below 135 percent of the Federal 

poverty line (FPL), and the lowest level 

subsidy available to other low income 

subsidy eligible individuals with 

incomes below 150 percent of the FPL. 

The table below illustrates the penalty 

subsidy available to other low income 

subsidy individuals. 

Income level 

Percent of penalty 

subsidized during the 

first 60 months 

individual is subject to 

penalty 

Percent of penalty 

subsidized after the 

first 60 months 

individual is subject to 

penalty 

≤135% FPL ...................................................................................................................................... 80 100 

>135% and ≤140% FPL .................................................................................................................. 60 75

>140% and ≤145% FPL .................................................................................................................. 40 50

>145% and <150% FPL .................................................................................................................. 20 25 

≥150% FPL ...................................................................................................................................... 0 0 

Comment: Commenters supported the 

proposed changes to calculation of the 

low-income premium subsidies for 

other low income subsidy eligible 

individuals. However, they also 

indicated that other low-income subsidy 

beneficiaries subject to the late 

enrollment penalty are still burdened 

with paying 20 percent of such penalty 

for the first 60 months during which the 

penalty is imposed, and that this burden 

serves as a disincentive for low-income 

beneficiaries to enroll in Medicare Part 

D. 

Response: While we recognize the 

concern of the commenters for the needs 

of low-income beneficiaries, section 

1860D–14(a)(1)(A) of the Act requires 

late enrollment penalties for the lowincome subsidy population. Therefore, 

we are adopting these proposed 

revisions in the final rule. Please note, 

however, that we have used the 

Secretary’s authority under section 

402(a)(1)(A) of the Social Security 

Amendments of 1967, 42 U.S.C. 1395b–

1(a)(1)(A) (expressly made applicable to 

Part D in section 1860D–42(b) of the 

Act) to implement the Medicare 

payment demonstration entitled 

‘‘Elimination of 2006 Late Enrollment 

Penalty.’’ Under this demonstration, as 

amended in 2007, we will not collect 

the late enrollment penalty from 

individuals who receive a low-income 

subsidy and enroll in the Medicare 

Prescription Drug Program in 2006, 

2007, or 2008. As long as these 

individuals remain continuously 

enrolled in Medicare Part D, they will 

not be assessed a late enrollment 

penalty. This demonstration is of 

limited duration and is only applicable 

to low-income subsidy eligible 

individuals who enroll in Medicare Part 

D in 2006, 2007, or 2008. Following an 

evaluation of this Medicare payment 

demonstration, we will review the 

results of the evaluation and may 

consider recommending that Congress 

eliminate the late enrollment penalty for 

individuals who receive the low-income 

subsidy. 

J. Subpart R—Payments to Sponsors of 

Retiree Prescription Drug Plans 

1. Requirements for Qualified Retiree 

Prescription Drug Plans (§ 423.884) 

a. Application Timing 

Section 423.884(c) sets forth the 

application requirements for the retiree 

drug subsidy (RDS). Section 

423.884(c)(5)(i) requires a plan sponsor 

to file an application for the subsidy by 

no later than 90 days before the 

beginning of its plan year, unless we 

grant the sponsor’s request for an 

extension (for example, the deadline for 

2007 calendar year plans under the 

regulation was October 2, 2006). As we 

stated in the proposed rule, we believe 

that an end-of-month deadline would be 

administratively simpler for both plan 

sponsors and CMS to track. 

Accordingly, we proposed to replace the 

90-day requirement with the phrase ‘‘by 

a date specified by CMS in published 

guidance’’ to allow us the discretion to 

specify an end-of-month deadline in the 

future through guidance. We noted that 

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this would give us the flexibility to take 

into account operational systems 

changes in determining the RDS 

application deadline, while providing 

adequate advance notice to plan 

sponsors and their advisers. We did not 

receive any comments on the proposed 

change to § 423.884(c)(5)(i) and 

therefore adopt this change as final 

without modification. 

b. Data Match 

In accordance with section 1860D–

22(a)(1), employer and union sponsors 

of qualified retiree prescription drug 

plans may receive the RDS only for their 

enrollees who are eligible for, but not 

enrolled in, a Part D plan. In order to 

properly administer this requirement, 

we compare the retiree enrollment data 

that a plan sponsor submits to us with 

CMS enrollment records to ensure that 

sponsors are only receiving retiree drug 

subsidies for qualifying covered retirees, 

as defined in § 423.882. In 

§ 423.884(c)(7)(i), we specifically 

referenced the Medicare Beneficiary 

Database (MBD) as the system of record 

for this data match (70 FR 4578). While 

the MBD is currently the system we use 

to verify retirees’ Part D eligibility and 

enrollment status, we also may use 

other systems of record for purposes of 

the data match. Accordingly, we 

proposed to modify § 423.884(c)(7)(i) by 

substituting a general reference to ‘‘CMS 

database(s)’’ for the ‘‘Medicare 

Beneficiary Database (MBD).’’ We did 

not receive any comments on the 

proposed change to § 423.884(c)(7)(i) 

and therefore are finalizing this change 

without modification. 

c. Actuarial Equivalence 

(1) Medicare Supplemental Adjustment 

Section 1860D–22(a)(2)(A) of the Act 

requires that a plan sponsor claiming 

the RDS provide an attestation that its 

qualified retiree prescription drug plan 

is actuarially equivalent to Medicare 

standard prescription drug coverage. 

Section 423.884(d)(5) sets forth a twoprong test for determining the actuarial 

value of the defined standard 

prescription drug coverage under Part D 

against which the actuarial value of the 

retiree prescription coverage under the 

qualified retiree prescription drug plans 

is measured (70 FR 4578). The actuarial 

equivalence test includes a ‘‘gross test’’

and a ‘‘net test.’’ Section 

423.884(d)(5)(iii)(B)(2) states that the net 

test includes a ‘‘Medicare supplemental 

adjustment’’ which allows a plan 

sponsor that provides supplemental 

coverage for its retirees that elect Part D 

coverage to reflect the impact of the 

supplemental coverage on the net value 

of defined standard prescription drug 

coverage under Part D. Supplemental 

coverage for this purpose means drug 

coverage over and above defined 

standard prescription drug coverage 

under Part D for those retirees that 

enroll in Part D coverage. As stated in 

the preamble to the May 2007 proposed 

rule, our intent, which we clarified in 

operational guidance to plan sponsors, 

was that a sponsor must actually 

provide employer or union-sponsored 

supplemental retiree drug coverage to 

its retirees who enroll in Part D in order 

to qualify for the Medicare 

supplemental adjustment. Therefore, we 

proposed to revise 

§ 423.884(d)(5)(iii)(B)(2) to indicate that 

plan sponsors must actually provide 

supplemental drug coverage for their 

retirees that elect Part D in order to take 

advantage of the Medicare supplemental 

adjustment provided for in 

§ 423.884(d)(5)(iii)(B)(2). We view this 

revision as merely incorporating 

previously issued guidance, and not as 

a new policy proposal. We did not 

receive any comments on the proposed 

change to § 423.884(d)(5)(iii)(B)(2) and 

therefore adopt this change as final 

without modification. 

(2) Noncalendar Year Plans 

Section 1860D–22(a)(2)(A) of the Act 

requires a plan sponsor claiming the 

RDS to provide an attestation that its 

qualified retiree prescription drug plan 

is actuarially equivalent to the Medicare 

defined standard prescription drug 

coverage. The actuarial equivalence test 

requires that the actuarial value of the 

plan sponsor’s retiree drug coverage 

under its qualified retiree prescription 

drug plan be compared to the actuarial 

value of the Medicare defined standard 

prescription drug coverage had the 

sponsor’s Part D eligible individuals 

taken that coverage. 

Sections 423.884(d)(5)(iii)(C) and (D) 

state that for purposes of comparing the 

actuarial value of the retiree coverage 

under the sponsor’s plan and the 

Medicare defined standard prescription 

drug coverage, the actuarial valuation of 

the latter is based on the initial coverage 

limit, cost sharing amounts, and annual 

out-of-pocket threshold in effect at the 

start of the plan year. However, the 

attestation must be submitted to us no 

later than 60 days after the publication 

of these coverage limits for the 

upcoming calendar year; otherwise, the 

valuation must be based on the initial 

coverage limit, cost sharing amounts, 

and annual out-of-pocket threshold for 

the upcoming plan year. The intent of 

this 60-day provision is to prevent 

actuaries from having to redo valuations 

for noncalendar year plans that were 

based on the current calendar year 

initial coverage limit, cost sharing 

amounts, and annual out-of-pocket 

threshold when, after doing their 

calculations but prior to submission of 

the RDS application, we publish the 

coverage limits for defined standard 

drug coverage for the upcoming 

calendar year. 

As we stated in the proposed rule, 

plan sponsors’ actuaries have indicated 

to us that they believe they should have 

the flexibility for non-calendar year 

plans to use the initial coverage limit, 

cost-sharing amounts, and annual outof-pocket threshold for defined standard 

drug coverage for the upcoming plan 

year, provided it does not impact their 

ability to meet the application deadline. 

We agreed that actuaries should have 

this flexibility, and proposed to amend 

§ 423.884(d)(5)(iii)(C) to permit a 

noncalendar year plan’s actuary to use 

either the current or subsequent year’s 

coverage limits for defined standard 

prescription drug coverage when the 

attestation is submitted within 60 days 

of the publication of the following year’s 

cost limits. We also proposed to make 

corresponding changes to 

§ 423.884(d)(5)(iii)(D). We did not 

receive any comments on the proposed 

change to §§ 423.884(d)(5)(iii)(C) and 

(D), and therefore are finalizing this 

change without modification. 

(3) Benefit Options 

Employment-based retiree health 

coverage often has different plan design 

features or benefit options that apply to 

specific groups of retirees. Section 

423.882 defines a benefit option as a 

particular benefit design, category of 

benefits, or cost sharing arrangement 

offered within a group health plan. 

Section 423.884(d)(5)(iv) states that a 

plan with more than one benefit option 

must pass the gross test separately on a 

disaggregated basis for each option, but 

that it may pass the net test on an 

aggregated or disaggregated basis. As we 

stated in the proposed rule and in 

guidance published previous to that 

rule, our intent was that a plan sponsor 

should also have the option of 

aggregating a subset of the benefit 

options in a group health plan for the 

actuarial equivalence net test in 

addition to aggregating all of the options 

or evaluating each option individually. 

If the sponsor combines two or more 

benefit options, the sponsor may not 

claim the subsidy for those benefit 

options excluded from the net value 

calculation, even if those options meet 

the gross test (unless the excluded 

benefit options each individually meet 

the net test). We proposed to amend the 

final rule to reflect this clarification of 

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our intent, which reflects policy that has 

been applied consistently since the rule 

was published. We did not receive any 

comments on the proposed change to 

§ 423.884(d)(5)(iv) and therefore are 

finalizing this change without 

modification. 

(4) Submission of Actuarial Attestation 

Upon Material Change 

Section 1860D–22(a)(2)(A) of the Act 

requires that a plan sponsor submit an 

actuarial attestation annually or at 

another time as the Secretary may 

require. Section 423.884(d)(6)(ii) 

requires submission of an attestation no 

later than 90 days before the 

implementation of a material change to 

the coverage. While the term ‘‘material 

change’’ can be construed broadly to 

include any change to the value of a 

sponsor’s plan, we indicated in the 

proposed rule that ‘‘[w]e would not 

require submission of an attestation 

under § 423.884(d)(6)(ii) where a plan 

sponsor still meets the actuarial 

equivalence test after the change, and 

there are no benefit options being 

added’’ (72 FR 29416). We did not 

receive any comments on this 

clarification of our policy. However, as 

has always been the intent of the 

regulations, an attestation must be 

submitted only when coverage satisfies 

the actuarial equivalence standards in 

the regulations, and should not and 

must not be submitted when coverage 

fails to satisfy those standards. 

Therefore, in the text of the final 

regulation, we are articulating the 

clarification in the proposed regulation 

in a way that makes this distinction. 

Specifically, § 423.884(d)(6)(ii) in the 

final regulation states that an attestation 

must be provided no later than 90 days 

before the implementation of a material 

change to the sponsor’s drug coverage, 

and that the term ‘‘material change’’

means the addition of a benefit option 

that does not have the impact of causing 

the actuarial value of the retiree 

prescription drug coverage to fail the 

actuarial equivalence standards set forth 

in the regulations. (Regardless of 

whether there has been such an impact, 

a plan sponsor, upon deleting a benefit 

option for RDS purposes, must provide 

an update to CMS of its list of 

individuals for whom it is claiming 

RDS. (See § 423.884(c)(6)). The final 

regulation also adds § 423.884(d)(7), 

which states that a sponsor must notify 

CMS, in a form and manner specified by 

CMS, no later than 90 days before the 

implementation of a change to the drug 

coverage that does have the impact of 

causing the actuarial value of the retiree 

prescription drug coverage to fail the 

actuarial equivalence standards set forth 

in the regulations. 

K. Subpart S—Special Rules for States 

Eligibility 

1. General Payment Provisions—

Coordination With Medicare 

Prescription Drug Benefits (§ 423.906) 

Section 1935(d) of the Act contains 

specific provisions regarding Medicaid 

coordination with Medicare 

prescription drug benefits. In the case of 

a full benefit dual eligible individual, 

Federal Financial Participation (FFP) in 

State Medicaid expenditures is not 

available for Medicaid covered drugs 

that could be covered under Part D or 

for cost sharing related to these drugs. 

We proposed correcting § 423.906(b) 

and (c) to make clear that, in accordance 

with the statutory requirement in 

section 1935(d)(2) of the Act, only drugs 

specifically excluded from the 

definition of Part D drugs may be 

covered by medical assistance. The 

effect of these changes is to make clear 

that FFP is not available to States for 

coverage of drugs that would be Part D 

covered drugs except that they are not 

on a plan’s formulary. We also proposed 

adding a definition of ‘‘noncovered 

drugs’’ to § 423.902. We did not receive 

comments regarding our proposed 

changes. Therefore, the final rule adopts 

the revisions to § 423.906(b) and (c) and 

§ 423.902 set forth in the proposed rule. 

2. States’ Contribution to Drug Benefit 

Costs Assumed by Medicare (§ 423.910) 

Section 1935(b) of the Act, as 

amended by the MMA, requires States 

and the District of Columbia to be 

responsible for making monthly 

payments to the Federal government 

beginning in January 2006 to defray a 

portion of the Medicare drug 

expenditures for full-benefit dual 

eligible individuals. The statute further 

defines full benefit dual eligible 

individuals to mean ‘‘for a State for a 

month an individual who has coverage 

for the month for covered part D drugs 

under a prescription drug plan under 

part D of title XVIII, or under an MA–

PD plan under part C of such title and 

is determined eligible by the State for 

medical assistance for full benefits 

under this title * * *’’ In the January 

2005 final rule, we explained the 

calculation of the monthly State phaseddown contributions. The calculation of 

the monthly state contribution is 

dependent upon the State’s reporting of 

the total number of full-benefit dual 

eligible individuals for the State in the 

applicable month. States are required, in 

accordance with the § 423.910(d), to 

submit an electronic file, in a manner 

specified by CMS, identifying each fullbenefit dual eligible individual enrolled 

in the State Medicaid program for each 

month. For States that do not submit an 

acceptable file by the end of the month, 

the phased down State contribution for 

that month is based on data deemed 

appropriate by CMS. 

In § 423.910(b)(1) of the Medicare 

Prescription Drug Benefit final rule, 

section 423.910(b)(1) specified that 

‘‘[f]or States that do not meet the 

quarterly reporting requirement for the 

monthly enrollment reporting.’’ The text 

should have read ‘‘For States that do not 

meet the monthly reporting requirement 

for the monthly enrollment reporting,’’

since there is no State quarterly 

reporting requirement referred to in 

either the statute or regulation when 

calculating the phased-down State 

contribution. Accordingly, we proposed 

to revise the text to be consistent with 

the statute. We did not receive 

comments regarding our proposed 

changes. Therefore, the final rule adopts 

the proposed revisions to § 423.910(b)(1) 

without modification. 

L. Out-of-Scope Comments 

We received a number of comments 

that were beyond the scope of the 

clarifications in the proposed rule but, 

rather, addressed other policy areas or 

sought new clarifications that we did 

not propose to clarify in this final rule. 

Specifically, we received public 

comments recommending that we—

• Implement rules providing for 

consistency in utilization management 

requirements across Part D sponsors; 

• Establish rules requiring a universal 

prescription drug card; 

• Eliminate proposed rules removing 

the e-prescribing facsimile exemption; 

• Address beneficiary related 

concerns with the coverage gap or Part 

D drug coverage in general; 

• Codify the six classes of clinical 

concern; 

• Add cancer treatments to the six 

classes of clinical concern; 

• Change the cut-off date for the six 

classes of clinical concern to January 1, 

2008; 

• Limit expansion of the parameters 

for Agency Record Searches; 

• Allow tiering exceptions for 

specialty tier drugs; 

• Address lags in the transfer of 

information, particularly regarding 

beneficiary Medicaid eligibility, and 

Part D plan sponsor unwillingness to 

accept documentation of Medicaid as 

proof of a beneficiary’s dual status; 

• Address cases of retroactive 

Medicaid eligibility and Part D 

enrollment and direct Part D plan 

sponsors to not deny claims incurred 

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during the period of retroactive 

eligibility; 

• Direct Part D sponsors to provide 

disclosure instructions for the filing of 

claims incurred during periods of 

retroactive Part D enrollment; 

• Act on MedPAC recommendations 

on vaccine reimbursement; 

• Withdraw the Medicare Marketing 

Guidelines or, at a minimum, eliminate 

or loosen current restrictions contained 

in the Medicare Marketing Guidelines 

on provider marketing activities—

particularly when providers are acting 

independently of Part D plans or when 

there is no direct financial conflict of 

interest under the Federal anti-kickback 

statute. 

• Expand the definition of a longterm care facility under § 423.100 to 

include assisted living facilities; 

• Revise our policies to require Part D 

coverage of the professional services, 

supplies, and equipment associated 

with home infusion of Part D drugs; 

• Direct that appeals overturned by 

an administrative law judge are effective 

for a period of 12 months, not just the 

remainder of the plan year. 

Because these comments are beyond 

the scope of the proposed rule, we are 

not responding to them in this final 

rule. 

III. Collection of Information 

Requirements 

This document does not impose 

additional information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995. 

IV. Regulatory Impact Analysis 

A. Overall Impact 

We examined the impacts of our May 

2007 proposed rule as required by 

Executive Order 12866 (September 

1993, Regulatory Planning and Review), 

the Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act, the Unfunded Mandates Reform 

Act of 1995 (Pub. L. 104–4), and 

Executive Order 13132. We received 

only one comment with regard to our 

impact analysis concerning the 

definition of negotiated prices, which is 

not addressed in this final rule. As a 

result, we restate that impact analysis 

below. 

With the exception of the statutory 

change addressing the payment of 

vaccine administration under Part D 

beginning in 2008 for covered Part D 

vaccines, the impact of the policy 

clarifications in this final rule were 

addressed as part of a prior final rule 

and do not require further analysis. 

Specifically, we performed a full 

regulatory impact analysis (RIA) for the 

January 2005 final rule (70 FR 4454) 

implementing the Part D provisions of 

the Medicare Prescription Drug 

Improvement and Modernization Act of 

2003. Many of the provisions in this 

final rule are simply clarifications of 

provisions in the January 2005 final 

rule. 

Executive Order 12866 (as amended 

by Executive Order 13258) directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). The RFA requires 

agencies to analyze options for 

regulatory relief of small businesses. For 

purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and small governmental 

jurisdictions. Most hospitals and most 

other providers and suppliers are small 

entities, either by nonprofit status or by 

having revenues of $6 million or less to 

$29 million in any 1 year. Individuals 

and States are not included in the 

definition of a small entity. 

We estimate that the coverage of 

vaccine administration under Part D to 

have a net impact to the FY 2008 budget 

in the amount of $100 million and an 

impact for FY 2008 through 2017 in the 

amount of $340 million. Given this 

estimated net impact of vaccine 

administration coverage under Part D 

beginning in FY 2008, the final rule 

meets the threshold of being 

‘‘economically significant’’ and is 

consequently a major rule. Therefore, 

the RFA requires us to conduct a 

regulatory flexibility analysis with 

regard to the implementation of vaccine 

administration coverage under Part D. 

Table I provides the costs associated 

with vaccine administration for FYs 

2008 through 2017. 

TABLE 1.—VACCINE ADMINISTRATION COSTS FOR FY 2008–FY 2017 

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 

FYs 

2008–

2017 

Vaccine Administration 

Costs (in millions) ... $100 $80 $40 $20 $20 $20 $10 $10 $20 $20 $340 

In the proposed rule we made a 

technical error when we listed the Small 

Business Administration’s consideration 

of small business at $6 million and used 

an inappropriate census table. We have 

corrected these errors in this final rule. 

The corrected calculations did not have 

an impact on our analysis. The Small 

Business Administration (SBA) 

considers pharmacies with firm 

revenues of less than $6.5 million to be 

small businesses. The 2004 Business 

Census (the latest available detailed 

data) indicates that there were about 

19,443 firms operating about 40,115 

retail pharmacies and drug store 

establishments (NAICS code 44611). Of 

these firms, 17,835 had revenues under 

$6.5 million and operated a total of 

17,835 establishments. Because more 

than 90 percent of retail pharmacy firms 

are small businesses (as defined by the 

SBA size standards), we estimate that 

the inclusion of vaccine administration 

within the statutory definition of a Part 

D drug will have some effect on a 

substantial number of small retail 

pharmacies. However, we estimate that, 

overall, the revenue effect on the retail 

pharmacy industry, including small 

pharmacies, will be positive. Given the 

nature of immunization in the U.S. 

market and the nature of Part D coverage 

of vaccines, only two small business 

areas—retail pharmacy and physicians 

in private practice—merit analysis. 

Given the real-time nature of the Part 

D benefit and the fact that—unlike 

physician offices—pharmacies are 

network providers that can bill Part D 

sponsors for vaccines and vaccine 

administration costs at the point of sale, 

we anticipate that Medicare 

beneficiaries will consider receiving 

Part D vaccine immunization in a 

pharmacy setting in those States that 

permit pharmacists to administer 

vaccinations (currently 46 of 50 States—

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two more States since the publication of 

our May 2007 proposed rule). We expect 

this trend to continue, when, beginning 

in 2008, Part D plans’ network 

pharmacies are able to seek 

reimbursement for the administration of 

Part D vaccines. While there may be 

some additional cost associated with 

pharmacists’ time in administering 

vaccines, these costs should be more 

than offset by the reimbursement of 

vaccine administration costs. We note 

that network pharmacies can negotiate 

with Part D sponsors so that they do not 

administer vaccines if they believe that 

the costs of administering vaccines 

outweigh any potential benefits. 

Almost all physicians in private 

practice (or the practices of which they 

are members) are small businesses 

because their annual revenues do not 

meet the Small Business 

Administration’s threshold for ’’small’’

physician practices; therefore, they are 

small entities. Since we expect that a 

substantial number of Part D vaccines 

will continue to be administered in the 

physician office setting, we believe 

physicians will benefit from the 

inclusion of vaccine administration in 

the statutory definition of a Part D drug. 

Beginning in calendar year 2008, 

administering physicians will have a 

new source of reimbursement for Part D 

vaccine administration fees. As 

physicians will likely bill beneficiaries 

directly for Part D vaccines and its 

administration, we do not expect there 

will be any additional costs to the 

physicians in private practice as a result 

of this statutory change. 

The other technical corrections and 

substantive clarifications in this final 

rule are not expected to affect small 

businesses in a significant manner, if at 

all. For example, although the 

clarification relating to the delivery of 

home infusion medications may result 

in a slight increase to the cost of 

delivering these medications for some 

Part D sponsors given potential 

increased costs for sponsors that do not 

currently have timely delivery 

provisions in their contracts with home 

infusion pharmacies, any such increase 

will be accounted for in plan sponsors’

bids. However, we expect any such 

increase to be minimal and to affect 

only some sponsors. The final rule’s 

requirements regarding timely delivery 

of home infusion pharmacies should 

have no cost impact on network home 

infusion pharmacies. In our ongoing 

communications with the home 

infusion industry, we have learned that 

these delivery timeframes are already an 

industry standard. Thus, incorporation 

of these new requirements does not 

place any new burdens on the pharmacy 

cost structure, as home infusion 

pharmacies should already be meeting 

these performance standards. 

Section 1102(b) of the Act requires us 

to prepare a RIA if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the standards of section 604 of the RFA. 

For purposes of section 1102(b) of the 

Act, we define a small rural hospital as 

a hospital that is located outside of a 

Metropolitan Statistical Area and has 

fewer than 100 beds. Because 

prescription drugs, including Part D 

vaccines, are dispensed to Medicare 

outpatients in hospitals, the final rule’s 

change to the definition of a Part D drug 

to include vaccine administration could 

have an effect on small rural hospitals 

that administer Part D vaccines. Since a 

number of rural hospitals administer 

vaccines on an outpatient basis, they too 

would likely benefit from the ability to 

collect a Part D vaccine administration 

fee. Rural hospitals should already have 

the systems in place to handle, store, 

and administer vaccines. While some 

rural hospital pharmacies may become 

Part D network pharmacies, we do not 

expect the majority will do so. 

Consequently, small rural hospitals 

should only benefit from Part D 

sponsors’ coverage of Part D vaccine 

administration fees and should not 

incur new costs as a result of our final 

rule. Additionally, the other policy 

clarifications in our final rule are related 

to the Medicare Part D drug benefit and 

not to prescription drug coverage under 

Medicare Part A. Therefore, these 

additional proposals do not affect small 

rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

That threshold level is currently 

approximately $127 million. Many of 

the final rule’s provisions are either 

corrections to bring our regulations in 

line with statute or merely the formal 

proclamation of existing policies that 

are consistent with the statute and do 

not exceed the $127 million dollar 

threshold. For example, one 

clarification we made in our final rule 

to bring our regulations in line with 

statute prohibits States from covering 

Part D drugs for Medicaid recipients. 

This provision may save States the 

money they would have otherwise spent 

on these drugs, if they had chosen to 

cover the drugs at issue. Because the 

statute only allows States to cover 

excluded drugs, as opposed to 

noncovered Part D drugs, and we expect 

that most States complied with the 

statute, as opposed to the Part D 

regulation, we do not believe that this 

clarification will significantly affect 

States, local, or tribal governments. 

As stated above, many of the final 

rule’s provisions are either corrections 

to bring our regulations in line with 

statute or merely the formal 

proclamation of existing policies that 

are consistent with the statute. Although 

there may be added costs for Part D 

sponsors associated with the broadening 

of the definition of Part D drug to 

include ‘‘[s]upplies required to deliver 

insulin by inhalation[,]’’ sponsors are 

aware that new drugs and supplies 

come to market constantly and account 

for these potential formulary changes in 

their bids. Furthermore, only those 

sponsors that choose to cover inhaled 

insulin will be affected by the change to 

our final rule to broaden the definition 

of supplies associated with the delivery 

of insulin into the body encompassed 

within the definition of a Part D drug. 

We expect the costs to the private sector 

resulting from this change will be less 

than the $130 million threshold. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it issues a final rule 

that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

The changes and technical clarifications 

in this final rule will not have a 

substantial effect on State or local 

governments. For example, our 

clarification in the final rule concerning 

timing of State reporting for the 

purposes of calculating State phasedown contributions is not expected to 

affect State governments, since monthly 

reporting is consistent with the statute. 

In addition, although there is a 

provision in this final rule clarification 

that relates to waivers of State plan 

licensure, there are no anticipated 

Federalism implications because the 

clarification simply brings our 

regulations in line with existing statute. 

B. Anticipated Effects on Health Plans 

and Pharmacy Benefit Managers (PBM) 

Part D plans will incur costs in 

implementing the reimbursement of Part 

D vaccine administration fees, since this 

is a new Part D benefit established by 

Congress in the Tax Relief and Health 

Care Act of 2006. However, since 

Congress defined the Part D vaccine 

administration fee as a Part D drug cost, 

the impact of this statutory change will 

be no different than for any other new 

drug entering the market. Part D plans 

will need to factor Part D vaccine 

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administration into their benefit designs 

and resulting bids. We estimate the net 

cost of vaccine administration coverage 

for FY 2008 to be $100 million. This 

estimate takes into account the offset 

associated with beneficiary cost sharing 

and the Federal direct subsidy and risksharing. 

We believe that our other provisions 

of our final rule merely reflect existing 

policy and have no cost impact on 

health plans and PBMs. For example, 

the final rule’s changes associated with 

plan-to-plan reconciliation reflect 

current plan requirements. Even if this 

requirement were a new standard, we 

believe that all parties involved in the 

reconciliation will benefit, since the 

reconciliation process will be simpler 

than if pharmacies were required to 

reverse and re-adjudicate claims. 

We also do not believe our broadening 

of the definition of medical supplies 

associated with insulin administration 

or our clarification relating to the timely 

delivery of home infusion medications 

place any additional cost burden on Part 

D plans. We had initially estimated the 

gross costs of inhaled insulin for Fiscal 

Year 2008 would be $10 million. Given 

this product’s current status, we now 

believe it will be substantially lower in 

costs. As discussed elsewhere in this 

analysis, our requirement for the timely 

delivery of home infusion drugs is 

consistent with an existing standard 

with which sponsors should be familiar. 

Consequently, we do not believe it will 

increase sponsors’ costs. 

C. Alternatives Considered 

We considered not issuing regulations 

to address the policy clarifications and 

technical changes we proposed in our 

May 2007 proposed rule. However, we 

believed that in order to ensure public 

awareness of our policies, as well as to 

avoid potential confusion regarding 

those policies, we should codify our 

clarifications as well as make certain 

technical corrections to the January 

2005 final rule. In addition, we wished 

to codify a few new clarifications for 

Part D plans as a result of our 

experience in implementing Part D. 

Finally, we wanted to codify certain 

changes made by Congress to the 

statutory definition of a Part D drug 

since the publication of the January 

2005 final rule. 

D. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

index.html), in Table D1 below, we have 

prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this final rule. This table 

provides our best estimate of the 

increase in costs as a result of the 

changes presented in this final rule. All 

costs are classified as transfers by the 

Federal Government to Part D plans. 

TABLE D1.—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES FOR POLICY AND TECHNICAL

CHANGES TO THE MEDICARE PRESCRIPTION DRUG BENEFIT, FINAL RULE

Category Transfers 

($ millions) 

Vaccine Administration, FYs 2008–2017: 

Undiscounted Annualized Monetized Transfers .................................................................... 340. 

Annualized Monetized Transfers Using 7% Discount Rate .................................................. 387. 

Annualized Monetized Transfers Using 3% Discount Rate .................................................. 360. 

From Whom To Whom? ........................................................................................................ Federal Government To Part D Plans. 

E. Conclusion 

Given that we expect the cost of 

implementing vaccine administration 

under Part D will exceed the $100 

million threshold in FY 2008, we 

conducted an economic impact analysis 

with regard to those entities potentially 

involved in administering Part D 

vaccines. As we stated previously, we 

expect that entities such as private 

physician practices and pharmacies will 

benefit from this change in FY 2008, 

whereas other entities, such as Part D 

sponsors, will experience no or little 

difference in their costs as a result of the 

implementation of this statutory change. 

We conducted a full analysis of the 

impact of this final rule’s technical 

corrections and substantive 

clarifications for the final regulations 

implementing the Part D provisions of 

Medicare Prescription Drug 

Improvement and Modernization Act of 

2003, which were published on January 

28, 2005. For reasons cited previously, 

we believe that these additional 

clarifications either do not require 

further analysis or are in practice today 

and, as such, will not have an 

economically significant impact. 

In accordance with the provisions of 

Executive Order 12866, this final rule 

was reviewed by the Office of 

Management and Budget. 

List of Subjects in 42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Medicare, 

Penalties, Privacy, Reporting and 

recordkeeping. 

■ For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as set forth below: 

PART 423—MEDICARE PROGRAM; 

MEDICARE PRESCRIPTION DRUG 

PROGRAM 

■ 1. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

Act (42 U.S.C. 1302, 1395w–101 through 

1395w–152, and 1395hh). 

Subpart B—Eligibility and Enrollment 

■ 2. Section 423.50 is amended by 

revising paragraph (f)(1)(v) to read as 

follows: 

§ 423.50 Approval of marketing materials 

and enrollment forms. 

* * * * * 

(f) * * * 

(1) * * * 

(v) Use providers, provider groups or 

pharmacies to distribute printed 

information comparing the benefits of 

different Part D plans unless providers, 

provider groups or pharmacies accept 

and display materials from all Part D 

plan sponsors with which the providers, 

provider groups or pharmacies contract. 

* * * * * 

■ 3. Section § 423.56 is amended by 

revising paragraph (b)(6) to read as 

follows: 

§ 423.56 Procedures to determine and 

document creditable status of prescription 

drug coverage. 

* * * * * 

(b) * * * 

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(6) Coverage under a Medicare 

supplemental policy (Medigap policy) 

as defined at § 403.205 of this chapter. 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

■ 4. Section 423.100 is amended by 

revising the definitions of ‘‘contracted 

pharmacy network,’’ and ‘‘Part D drug’’

to read as follows: 

§ 423.100 Definitions. 

* * * * * 

Contracted pharmacy network means 

licensed pharmacies, including retail, 

mail-order, and institutional pharmacies 

under contract with a Part D sponsor to 

provide covered Part D drugs at 

negotiated prices to Part D enrollees. 

* * * * * 

Part D drug means—

(1) Unless excluded under paragraph 

(2) of this definition, any of the 

following if used for a medically 

accepted indication (as defined in 

section 1927(k)(6) of the Act): 

(i) A drug that may be dispensed only 

upon a prescription and that is 

described in sections 1927(k)(2)(A)(i) 

through (iii) of the Act. 

(ii) A biological product described in 

sections 1927(k)(2)(B)(i) through (iii) of 

the Act. 

(iii) Insulin described in section 

1927(k)(2)(C) of the Act. 

(iv) Medical supplies associated with 

the injection of insulin, including 

syringes, needles, alcohol swabs, and 

gauze. 

(v) A vaccine licensed under section 

351 of the Public Health Service Act and 

for vaccine administration on or after 

January 1, 2008, its administration. 

(vi) Supplies that are directly 

associated with delivering insulin into 

the body, such as an inhalation chamber 

used to deliver the insulin through 

inhalation. 

(2) Does not include—

(i) Drugs for which payment as so 

prescribed and dispensed or 

administered to an individual is 

available for that individual under Part 

A or Part B (even though a deductible 

may apply, or even though the 

individual is eligible for coverage under 

Part A or Part B but has declined to 

enroll in Part A or Part B); and 

(ii) Drugs or classes of drugs, or their 

medical uses, which may be excluded 

from coverage or otherwise restricted 

under Medicaid under sections 

1927(d)(2) or (d)(3) of the Act, except for 

smoking cessation agents. 

* * * * * 

■ 5. Section 423.120 is amended by 

revising paragraphs (a)(2) and (a)(4) to 

read as follows: 

§ 423.120 Access to covered Part D drugs. 

(a) * * * 

(2) Applicability of some non retail 

pharmacies to standards for convenient 

access. Part D plans may count I/T/U 

pharmacies and pharmacies operated by 

Federally Qualified Health Centers and 

Rural Health Clinics toward the 

standards for convenient access to 

network pharmacies in paragraph (a)(1) 

of this section. 

* * * * * 

(4) Access to home infusion 

pharmacies. A Part D plan’s contracted 

pharmacy network must provide 

adequate access to home infusion 

pharmacies consistent with CMS 

guidelines and instructions. A Part D 

plan must ensure that such network 

pharmacies, at a minimum—

(i) Are capable of delivering homeinfused drugs in a form that can be 

administered in a clinically appropriate 

fashion; 

(ii) Are capable of providing infusible 

Part D drugs for both short-term acute 

care and long-term chronic care 

therapies; 

(iii) Ensure that the professional 

services and ancillary supplies 

necessary for home infusion therapy are 

in place before dispensing Part D home 

infusion drugs; and 

(iv) Provide delivery of home infusion 

drugs within 24 hours of discharge from 

an acute care setting, or later if so 

prescribed. 

* * * * * 

Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums: Plan 

Approval 

■ 6. Section 423.293 is amended by 

revising paragraph (a) to read as follows: 

§ 423.293 Collection of monthly 

beneficiary premium. 

(a) General rules. Part D sponsors 

must—

(1) Charge enrollees a consolidated 

monthly Part D premium equal to the 

sum of the Part D monthly premium for 

basic prescription drug coverage (if any) 

and the premium for supplemental 

coverage (if any and if the beneficiary 

has enrolled in such supplemental 

coverage). 

(2) Permit payment of monthly Part D 

premiums (if any) under the timing of 

payments established in § 422.262(e) of 

this chapter; and 

(3) Permit each enrollee, at the 

enrollee’s option, to make payment of 

premiums (if any) under this part to the 

sponsor using any of the methods listed 

in § 422.262(f) of this chapter. 

* * * * * 

Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage 

■ 7. In § 423.350 paragraph (b)(1) is 

revised to read as follows: 

§ 423.350 Payment appeals. 

(b) * * * 

(1) Time for filing a request. The 

request for reconsideration must be filed 

within 15 days from the date of the final 

payment. For purposes of this 

paragraph, the date of final payment is 

one of the following: 

(i) For risk adjustment, the date of the 

final reconciled payment under 

§ 423.343(b) of this subpart. 

(ii) For reinsurance, the date of the 

final reconciled payment under 

§ 423.343(c) of this subpart; for lowincome cost sharing subsidies, the date 

of the final reconciled payment under 

§ 423.343(d) of this subpart. 

(iii) For risk-sharing payments, the 

date of the final payments under 

§ 423.336 of this subpart. 

* * * * * 

Subpart I—Organizational Compliance 

With State Law and Preemption by 

Federal Law 

■ 8. Section 423.410 is amended by 

revising paragraph (d) to read as 

follows: 

§ 423.410 Waiver of certain requirements 

to expand choice. 

* * * * * 

(d) Special waiver for plan years 

beginning before January 1, 2008. For 

plan years beginning before January 1, 

2008, if the State has a prescription drug 

plan or PDP sponsor licensing process 

in effect, CMS grants a waiver upon a 

demonstration that an applicant to 

become a PDP sponsor has submitted a 

substantially completed application for 

licensure to the State. 

* * * * * 

Subpart J—Coordination of Part D 

Plans With Other Prescription Drug 

Coverage 

■ 9. Section 423.458 is amended by 

revising paragraph (d)(2)(ii) to read as 

follows: 

§ 423.458 Application of Part D rules to 

certain Part D plans on and after January 

1, 2006. 

* * * * * 

(d) * * * 

(2) * * * 

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(ii) A waiver of a requirement under 

this part otherwise applicable to cost 

plans or PACE organizations, if such 

waiver improves coordination of 

benefits provided by the cost plan under 

section 1876 of the Act, or by the PACE 

organization under sections 1894 and 

1934 of the Act, with the benefits under 

Part D. 

■ 10. Section 423.464 is amended by—

■ (A) Revising paragraphs (f)(1)(vii) and 

(f)(1)(viii). 

■ (B) Adding new paragraphs (f)(1)(ix), 

(f)(5), and (f)(6). 

The revision and additions read as 

follows: 

§ 423.464 Coordination of benefits with 

other providers of prescription drug 

coverage. 

* * * * * 

(f) * * * 

(1) * * * 

(vii) Rural health clinics. Rural health 

clinics as defined under section 

1861(aa)(2) of the Act. 

(viii) Other Part D plans. 

(ix) Other prescription drug coverage. 

Other health benefit plans or programs 

that provide coverage or financial 

assistance for the purchase or provision 

of Part D drugs on behalf of Part D 

eligible individuals as CMS may 

specify. 

* * * * * 

(5) Plan-to-plan liability. In the 

process of coordinating benefits 

between Part D plans when a Part D 

plan from which a beneficiary has 

transferred has incorrectly made 

payment for covered prescription drug 

costs incurred after the effective date of 

the Part D enrollee’s enrollment in the 

new Part D plan of record, the new Part 

D plan of record must make the 

reconciling payments based on amounts 

reported to it by CMS without regard to 

the Part D plan’s own formulary or drug 

utilization review edits. 

(6) Use of other reconciliation 

processes. In the process of coordinating 

benefits between the correct Part D plan 

of record and another entity providing 

prescription drug coverage when that 

entity has incorrectly paid as primary 

payer for a covered Part D drug on 

behalf of a Part D enrollee, the correct 

Part D plan of record must achieve 

timely reconciliation through working 

directly with the other entity that 

incorrectly paid as primary payer, 

unless CMS has established 

reconciliation processes for payment 

reconciliation, rather than requesting 

pharmacy claims reversal and readjudication. 

Subpart K—Application Procedures 

and Contracts With Part D Sponsors 

■ 11. Section 423.504 is amended by 

revising paragraph (a) to read as follows: 

§ 423.504 General provisions. 

(a) General rule. Subject to the 

provisions at § 423.265 of this part 

concerning submission of bids, to enroll 

beneficiaries in any Part D drug plan it 

offers and be paid on behalf of Part D 

eligible individuals enrolled in those 

plans, a Part D plan sponsor must enter 

into a contract with CMS. The contract 

may cover more than one Part D plan. 

* * * * * 

■ 12. Section 423.505 is amended by 

revising paragraph (h)(1) to read as 

follows: 

§ 423.505 Contract provisions. 

* * * * * 

(h) * * * 

(1) Federal laws and regulations 

designed to prevent fraud, waste, and 

abuse, including, but not limited to 

applicable provisions of Federal 

criminal law, the False Claims Act (31 

U.S.C. 3729 et seq.), and the antikickback statute (section 1128B(b) of the 

Act). 

* * * * * 

■ 13. Section 423.509 is amended by 

revising paragraph (a)(9) to read as 

follows: 

§ 423.509 Termination of contract by CMS. 

(a) * * * 

(9) Substantially fails to comply with 

either of the following: 

(i) Marketing requirements in 

§ 423.50. 

(ii) Information dissemination 

requirements of § 423.128 of this part. 

* * * * * 

Subpart M—Grievances, Coverage 

Determinations, and Appeals 

■ 14. Section 423.560 is amended by 

revising the definitions of ‘‘appointed 

representative’’ and ‘‘projected value’’ to 

read as follows: 

§ 423.560 Definitions. 

* * * * * 

Appointed representative means an 

individual either appointed by an 

enrollee or authorized under State or 

other applicable law to act on behalf of 

the enrollee in filing a grievance, 

obtaining a coverage determination, or 

in dealing with any of the levels of the 

appeals process. Unless otherwise stated 

in this subpart, the appointed 

representative has all of the rights and 

responsibilities of an enrollee in filing a 

grievance, obtaining a coverage 

determination, or in dealing with any of 

the levels of the appeals process, subject 

to the rules described in part 422, 

subpart M of this chapter. 

* * * * * 

Projected value of a Part D drug or 

drugs includes any costs the enrollee 

could incur based on the number of 

refills prescribed for the drug(s) in 

dispute during the plan year. Projected 

value includes enrollee co-payments, all 

expenditures incurred after an enrollee’s 

expenditures exceed the initial coverage 

limit, and expenditures paid by other 

entities. 

* * * * * 

■ 15. Section 423.570 is amended by 

revising paragraph (d)(3) to read as 

follows: 

§ 423.570 Expediting certain coverage 

determinations. 

* * * * * 

(d) * * * 

(3) Subsequently deliver to the 

enrollee, within 3 calendar days, 

equivalent written notice. 

* * * * * 

■ 16. Section § 423.584 is amended by 

adding a new paragraph (b)(3) as to read 

as follows: 

§ 423.584 Expediting certain 

redeterminations. 

* * * * * 

(b) * * * 

(3) The provisions set forth in 

§ 423.582(b), (c), and (d) of this subpart 

also apply to expedited 

redeterminations. 

* * * * * 

■ 17. Section § 423.610 is amended by 

revising paragraph (c)(2) to read as 

follows: 

§ 423.610 Right to an ALJ hearing. 

* * * * * 

(c) * * * 

(2) Multiple enrollees. Two or more 

appeals may be aggregated by multiple 

enrollees to meet the amount in 

controversy for an ALJ hearing if—

(i) The appeals have previously been 

reconsidered by an IRE; 

(ii) The request for ALJ hearing lists 

all of the appeals to be aggregated and 

each aggregated appeal meets the filing 

requirement specified in § 423.612(b) of 

this part; and 

(iii) The ALJ determines that the 

appeals the enrollees seek to aggregate 

involve the same prescription drug. 

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20508 Federal Register / Vol. 73, No. 73 / Tuesday, April 15, 2008 / Rules and Regulations 

Subpart P—Premiums and Cost 

Sharing Subsidies for Low-Income 

Individuals 

■ 18. Section 423.780 is amended by 

revising paragraphs (b)(1) and (e) to read 

as follows: 

§ 423.780 Premium subsidy. 

* * * * * 

(b) * * * 

(1) The premium subsidy amount is 

equal to the lesser of—

(i) Under the Part D plan selected by 

the beneficiary, the portion of the 

monthly beneficiary premium 

attributable to basic coverage (for 

enrollees in PDPs) or the portion of the 

MA monthly prescription drug 

beneficiary premium attributable to 

basic prescription drug coverage (for 

enrollees in MA–PD plans); or 

(ii) The greater of the low-income 

benchmark premium amount 

(determined under paragraph (b)(2) of 

this section) for the PDP region in which 

the subsidy eligible individual resides 

or the lowest monthly beneficiary 

premium for a PDP that offers basic 

prescription drug coverage in the PDP 

region. 

* * * * * 

(e) Premium subsidy for late 

enrollment penalty. 

(1) Amount of premium subsidy for 

late enrollment penalty. Full subsidy 

eligible individuals who are subject to 

late enrollment penalties under § 423.46 

of this part are entitled to an additional 

premium subsidy equal to 80 percent of 

the late enrollment penalty for the first 

60 months during which the penalty is 

imposed and 100 percent of their late 

enrollment penalty thereafter. 

(2) Other low-income subsidy eligible 

individuals sliding scale premium 

subsidy for late enrollment penalty. 

Other low-income subsidy eligible 

individuals are entitled to a premium 

subsidy based on a linear sliding scale 

as follows: 

(i) For individuals with income at or 

below 135 percent of the FPL applicable 

to the family size, a premium subsidy 

equal to 80 percent of the late 

enrollment for the first 60 months 

during which the penalty is imposed 

and 100 percent of their late enrollment 

penalty thereafter. 

(ii) For individuals with income 

greater than 135 percent but at or below 

140 percent of the FPL applicable to the 

family size, a premium subsidy equal to 

60 percent of the late enrollment 

penalty for the first 60 months during 

which the penalty is imposed and 75 

percent of their late enrollment penalty 

thereafter. 

(iii) For individuals with income 

greater than 140 percent but at or below 

145 percent of the FPL applicable to the 

family size, a premium subsidy equal to 

40 percent of the late enrollment 

penalty for the first 60 months during 

which the penalty is imposed and 50 

percent of their late enrollment penalty 

thereafter. 

(iv) For individuals with income 

greater than 145 percent but below 150 

percent of the FPL applicable to the 

family size, a premium subsidy equal to 

20 percent of the late enrollment 

penalty for the first 60 months during 

which the penalty is imposed and 25 

percent of their late enrollment penalty 

thereafter. 

Subpart R—Payments to Sponsors of 

Retiree Prescription Drug Plans 

■ 19. Section § 423.884 is amended by—

■ A. Revising paragraphs (c)(5)(i), 

(c)(7)(i). 

■ B. Revising paragraphs 

(d)(5)(iii)(B)(2), (d)(5)(iii)(C), and 

(d)(5)(iii)(D). 

■ C. Revising the last sentence of 

paragraph (d)(5)(iv). 

■ D. Revising paragraph (d)(6)(ii). 

■ E. Adding a new paragraph (d)(7). 

The revisions and addition read as 

follows: 

§ 423.884 Requirements for qualified 

retiree prescription drug plans. 

* * * * * 

(c) * * * 

(5) * * * 

(i) General rule. An application for a 

given plan year must be submitted prior 

to the beginning of the plan year by a 

date specified by CMS in published 

guidance, unless a request for an 

extension has been filed and approved 

under procedures set forth in such 

guidance. 

* * * * * 

(7) * * * 

(i) Matches the names and identifying 

information for the individuals 

submitted as qualifying covered retirees 

with a CMS database(s) to determine 

which retirees are Part D eligible 

individuals who are not enrolled in a 

Part D plan. 

* * * * * 

(d) * * * 

(5) * * * 

(iii) * * * 

(B) * * * 

(2) An amount calculated to reflect 

the impact on the value of defined 

standard prescription drug coverage of 

supplemental coverage actually 

provided by the sponsor. Sponsors may 

use other actuarial approaches specified 

by CMS as an alternative to the actuarial 

valuation specified in this paragraph 

(d)(5)(iii)(B)(2). 

(C) The valuation of defined standard 

prescription drug coverage for a given 

plan year is based on the initial 

coverage limit, cost-sharing amounts, 

and out-of-pocket threshold for defined 

standard prescription drug coverage 

under Part D in effect either at the start 

of the plan year or that is announced for 

the upcoming calendar year. In order to 

use the coverage limits in effect at the 

beginning of the plan year, the 

attestation must be submitted to CMS no 

later than 60 days after the publication 

of the Part D coverage limits for the 

upcoming calendar year; otherwise, the 

valuation is based on the upcoming 

year’s initial coverage limit, cost-sharing 

amounts, and out-of-pocket threshold 

for defined standard prescription drug 

coverage under Part D. 

(D) Example: If a sponsor’s retiree 

prescription drug plan operates under a 

plan year that ends March 30, the 

sponsor has a choice of basing the 

attestation for the year April 1, 2007 

through March 30, 2008 on either the 

initial coverage limit, cost-sharing 

amounts, and out-of-pocket threshold 

amounts that apply to defined standard 

prescription drug coverage under Part D 

in CY 2007, or the amounts announced 

for CY 2008. However, in order to use 

the amounts applicable in CY 2007, the 

sponsor must submit the attestation 

within 60 days after the publication of 

the Part D coverage limits for CY 2008. 

If the attestation is submitted more than 

60 days after the 2008 coverage limits 

have been published, the CY 2008 

coverage limits would apply. 

(iv) * * * For the assurance required 

under paragraph (d)(1)(ii) of this 

section, the assurance may be provided 

either separately for each benefit option 

for which the sponsor provided 

assurances under paragraph (d)(1)(i) of 

this section, or in the aggregate for all 

benefit options (or for a subset of the 

benefit options). 

(6) * * * 

(ii) Submission following material 

change. The attestation must be 

provided no later than 90 days before 

the implementation of a material change 

to the drug coverage of the sponsor’s 

retiree prescription drug plan. For 

purposes of this clause, the term 

‘‘material change’’ means the addition of 

a benefit option that does not impact the 

actuarial value of the retiree 

prescription drug coverage under the 

sponsor’s plan such that it no longer 

meets the standards set forth in 

paragraph (d)(1)(i) or (ii) of this section. 

(7) Notice of failure to continue to 

satisfy the actuarial equivalence 

standards. A sponsor must notify CMS, 

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Federal Register / Vol. 73, No. 73 / Tuesday, April 15, 2008 / Rules and Regulations 20509 

in a form and manner specified by CMS, 

no later than 90 days before the 

implementation of a change to the drug 

coverage that impacts the actuarial 

value of the retiree prescription drug 

coverage under the sponsor’s plan such 

that it no longer meets the standards set 

forth in paragraph (d)(1)(i) or (ii) of this 

section. 

* * * * * 

Subpart S—Special Rules for StatesEligibility Determinations for Subsidies 

and General Payment Provisions 

■ 20. Section 423.902 is amended by 

adding the definition of ‘‘noncovered 

drugs’’ in alphabetical order to read as 

follows: 

§ 423.902 Definitions. 

* * * * * 

Noncovered drugs are those drugs 

specifically excluded from the 

definition of Part D drug, which may be 

excluded from coverage or otherwise 

restricted under Medicaid under 

sections 1927(d)(2) or (d)(3) of the Act, 

except for smoking cessation agents. 

* * * * * 

■ 21. Section 423.906 is amended by 

revising paragraphs (b)(1), (b)(2), and (c) 

to read as follows: 

§ 423.906 General payment provisions. 

* * * * * 

(b) * * * 

(1) Part D drugs; or 

(2) Any cost-sharing obligations under 

Part D relating to Part D drugs. 

* * * * * 

(c) Noncovered drugs. States may 

elect to provide coverage for outpatient 

drugs other than Part D drugs in the 

same manner as provided for non-full 

benefit dual eligible individuals or 

through an arrangement with a 

prescription drug plan or a MA-PD plan. 

■ 22. Section 423.910 is amended by 

revising paragraph (b)(1) introductory 

text to read as follows: 

§ 423.910 Requirements. 

(b) * * * 

(1) Calculation of payment. The State 

contribution payment is calculated by 

CMS on a monthly basis, as indicated in 

the following chart. For States that do 

not meet the monthly reporting 

requirement for the monthly enrollment 

reporting, the State contribution 

payment is calculated using a 

methodology determined by CMS. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: November 19, 2007. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: January 4, 2008. 

Michael O. Leavitt, 

Secretary. 

Editorial Note: This document was 

received at the Office of the Federal Register 

on April 9, 2008. 

[FR Doc. 08–1120 Filed 4–9–08; 11:45 am] 

BILLING CODE 4120–01–P 

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