[Federal Register Volume 74, Number 7 (Monday, January 12, 2009)]
[Proposed Rules]
[Pages 1550-1553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-151]



Federal Register / Vol. 74, No. 7 / Monday, January 12, 2009 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 423

[CMS-4131-P2]
RIN 0938-AP64


Medicare Program; Prescription Drug Benefit Program: Payments to 
Sponsors of Retiree Prescription Drug Plans

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would make regulatory revisions based on a 
change in our interpretation of section 1860D-22(b) of the Social 
Security Act. We would interpret this provision as providing us with 
the authority to ``waive or modify'' statutory requirements pertaining 
to the Retiree Drug Subsidy (RDS) program in order to facilitate the 
offering of a prescription drug plan covering employees or retirees.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than March 13, 2009.

ADDRESSES: In commenting, please refer to file code CMS-4131-P2. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed).
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.regulations.gov. Follow the 
instructions under the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address only: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-4131-P2, P.O. Box 8010, 
Baltimore, MD 21244-8010.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-4131-P2, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses: a. Room 445-G, Hubert H. Humphrey 
Building, 200 Independence Avenue, SW., Washington, DC 20201; (Because 
access to the interior of the Hubert H. Humphrey (HHH) Building is not 
readily available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: David Mlawsky, 410-786-6851.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will be also available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background and Legislative History

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established 
a new ``Part C'' in the Medicare statute (sections 1851 through 1859 of 
the Social Security Act (the Act)) that established the Medicare+Choice 
(M+C) program. Under section 1851(a)(1) of the Act, every individual 
entitled to Medicare Part A and enrolled under Medicare Part B, except 
for most individuals with end-stage renal disease (ESRD), could elect 
to receive benefits either through the original Medicare program or an 
M+C plan, if one was offered where he or she lived.
    The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 (BBRA), (Pub. L. 106-111), amended the M+C provisions of the BBA. 
Further amendments were made to the M+C program by the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554), enacted December 21, 2000.
    Subsequently, the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) was enacted on 
December 8, 2003. This landmark legislation established the Medicare 
prescription drug benefit program (Part D) and made significant 
revisions to the provisions in Medicare Part C, governing what was 
renamed the Medicare Advantage (MA) program (formerly Medicare+Choice). 
The MMA directed that important aspects of the new Medicare 
prescription drug benefit program under Part D be similar to and 
coordinated with regulations for the MA program. The MMA also created a 
subsidy program involving payments to sponsors of retiree prescription 
drug programs, or the Retiree Drug Subsidy (RDS) program. This program 
allows for subsidy payments to sponsors of qualified retiree 
prescription drug plans for Part D drug costs for individuals who are 
eligible for, but not enrolled in, a Medicare Part D plan.
    The MMA also specified that implementation of the prescription drug 
benefit and revised MA program provisions take place by January 1, 
2006. Thus, we published final rules for the MA and Part D prescription 
drug programs, and the RDS Program, in the January 28, 2005 Federal 
Register. (For further discussion, see (70 FR 4588 through 4741) and 
(70 FR 4194 through 4585), respectively.) We subsequently published 
revisions to these regulations in an April 15, 2008 final rule (73 FR 
20486).
    Since the publication of these rules, we have gained a great deal 
of experience with all aspects of these programs. Based on this 
experience, as well as on recommendations from representatives of both 
the organizations that provide care and the Medicare beneficiaries that 
they serve, we determined that proposed changes to

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the existing Part C, Part D, and RDS regulations were warranted. We 
believed that these changes would help plans understand and comply with 
our policies for all three programs, and aid MA organizations and Part 
D and RDS plan sponsors in implementing their health care and 
prescription drug benefit plans in ways that will better serve the 
Medicare population.
    Thus, on May 16, 2008, we published a proposed rule (73 FR 28556) 
that would revise certain aspects of the MA, Part D, and RDS programs. 
Many of these proposed revisions would clarify existing policies or 
codified current guidance for all three programs. Subsequent to the 
publication of that proposed rule, the Medicare Improvements for 
Patients and Providers Act (MIPPA) (Pub. L. 110-275) was enacted on 
July 15, 2008. MIPPA included a number of provisions that addressed the 
same requirements that we had addressed in the proposed rule. In some 
cases, the MIPPA provisions paralleled our proposed requirements and in 
other instances they complemented or superseded them. Thus, in order to 
implement both the new MIPPA provisions and those proposed in our May 
2008 proposed rule, we have published a series of rules to set forth 
the appropriate regulatory changes.
    In the September 18, 2008 Federal Register (73 FR 54208), we 
published a final rule that finalized certain marketing provisions, 
effective October 1, 2008, that paralleled provisions in MIPPA that are 
not effective until January 1, 2009. In the same issue of the Federal 
Register (73 FR 54226), we published an interim final rule that 
addressed the other remaining provisions of MIPPA that impacted the MA 
and Part D programs and were not previously addressed in the May 2008 
proposed rule.
    Elsewhere in this Federal Register, we are publishing final 
regulations that respond to comments on the May 16, 2008 proposed rule 
and finalize Part C and Part D regulations from that proposed rule that 
either were not impacted by MIPPA or that complement MIPPA provisions. 
In the same rule published today containing the foregoing final 
regulations, we are publishing interim final regulations, with a 
comment period, that respond to the comments we received on the RDS 
provisions proposed in the May 16, 2008 proposed rule. In the preamble 
discussion of these interim final regulations, we indicate that we 
agree with concerns expressed by commenters regarding the application 
to the RDS program of two Part D policies that are being finalized. 
These interim final regulations preserve the status quo for the RDS 
program with respect to these policies while we invite comment on three 
different legal theories under which we could potentially apply these 
policies (a requirement to report pass-through pricing (as opposed to 
lock-in pricing)) and a requirement to report rebates and other price 
concessions that are retained by a pharmacy benefit management company 
or other intermediary contracting organization to Medicare Part D 
plans, but not to RDS plan sponsors. Specifically, we solicit comments 
on the possibility of applying one or more of those legal theories. 
However, one of these legal theories involves interpreting the waiver 
authority under section 1860D-22(b) of the Act (which incorporates 
waiver authority under section 1857(i) of the Act) to give us the 
authority to modify RDS regulations in order to permit to issue a final 
rule that preserves the status quo in the RDS program with respect to 
the two policies in question. In our current regulations, however, we 
have interpreted section 1860D-22(b) of the Act to apply only to 
Medicare Part D plans, and not RDS plan sponsors. In order for us to 
implement this legal theory, therefore, we would have to revise the 
regulations to establish our interpretation that the statutory waiver 
provision applies to RDS plan sponsors as well. Thus, to enable us 
potentially to adopt this legal theory (if in fact we choose to do so), 
we are publishing this proposed rule inviting public comment on this 
proposed change. Once we have reviewed the comments received on this 
proposed rule and the RDS interim final regulations published today, we 
will determine whether to adopt any of the legal theories discussed in 
the preamble discussion of the RDS interim final regulations, and 
whether to finalize the regulatory revisions based on our change in 
interpretation of section 1860D-22(b) of the Act set forth in this 
proposed rule.

II. Provisions of the Proposed Rule

    The waiver authority in section 1860D-22(b) of the Act appears in a 
section of the Act that is otherwise devoted entirely to provisions 
that apply to the RDS program. In this context, section 1860D-22(b) of 
the Act provides that the employer group waiver provisions in section 
1857(i) of the Act (Medicare Part C) ``shall apply with respect to 
prescription drug plans in relation to employment based retiree health 
coverage in a manner similar to the manner in which they apply to an MA 
plan in relation to employers. * * *'' (Emphasis added.) It is 
noteworthy that this subsection uses the term ``prescription drug 
plans'' rather than ``qualified retiree prescription drug plans,'' 
since section 1860D-41(a)(8) of the Act defines ``prescription drug 
plan'' as a plan offered ``under a policy contract or plan that has 
been approved under section 1860D-11(e)'' and ``by a PDP sponsor 
pursuant to, and in accordance with, a contract between the Secretary 
and the sponsor under section 1860D-12(b).'' This clearly describes a 
Part D plan, not an RDS plan, that is, a qualified retiree prescription 
drug plan (QRPDP).
    Under ordinary principles of statutory construction, when a term is 
defined in statute, that definition applies when the same statute 
employs that term. However, given the fact that this waiver authority 
appears in a section otherwise devoted to the RDS program, and that the 
term ``qualified retiree prescription drug plan'' includes the three 
words, ``prescription drug plan,'' we believe that in this case the 
term ``prescription drug plan'' can be interpreted to encompass both a 
Part D ``prescription drug plan'' and a qualified retiree 
``prescription drug plan'' (that is, this waiver authority arguably 
extends both to PDPs and QRPDPs), as long as the plan is offered ``in 
relation to employment-based retiree health coverage'' in either case.
    However as noted previously, we have already interpreted the waiver 
authority in section 1860D-22(b) of the Act as applying only to Part D 
prescription drug plans. The employer group waiver authority in section 
1860D-22(b) of the Act is set forth in part 423 subpart J (Sec.  
423.458) of our regulations, which governs PDPs and MA-PDs, rather than 
subpart R, which governs QRPDPs under the RDS program. The preamble 
discussion of Subpart J in the January 28, 2005 final rule states that, 
for purposes of the discussion that follows in Subpart J, the term 
``employer sponsored group prescription drug plan'' means ``a 
prescription drug plan under a contract between a PDP sponsor or MA 
organization offering an MA-PD plan and employers, labor organizations, 
or the trustees of funds established by one or more employers or labor 
organizations (or combination thereof) to furnish prescription drug 
benefits under employment based retiree health coverage.'' (See the 
January 28, 2005 final rule (70 FR 4320)). In other words, the preamble 
expressly states in its discussion of ``terminology'' that when we use 
the term ``employer sponsored group prescription drug plan,'' it is 
referring to a PDP or MA-PD, and not to a QRPDP under the RDS program.

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    In the discussion of the regulatory provision implementing the 
waiver authority in section 1860D-22(b) of the Act specifically, the 
preamble expressly states that ``[s]ection 1860D-22(b) of the Act 
extends the waiver authority that is provided for MA organizations 
related to Part C under section 1857(i) of the Act * * * to 
prescription drug plans.'' (emphasis added.) (See the January 28, 2005 
final rule (70 FR 4323)). The next sentence states that ``[t]his waiver 
authority is intended to provide employment-based retiree health 
coverage an opportunity to furnish prescription drug benefits to its 
participants or beneficiaries through Part D in the most efficient and 
effective manner possible.'' Id. (emphasis added). Part D and the RDS 
program are mutually exclusive. An employer may either offer drug 
coverage through Part D, or receive an RDS payment for coverage it 
offers independent of Part D, but may not do both in the case of the 
same Medicare beneficiaries. We also discuss in the preamble only a 
``process'' for ``authorizing waivers for employer sponsored 
prescription drug plans.'' Id. (emphasis added). As noted above, this 
term was defined in the preamble as limited to a PDP or MA-PD.
    Finally, Sec.  423.454, defines an ``employer-sponsored group 
prescription drug plan'' as a plan ``approved by CMS as a prescription 
drug plan'' (a PDP). Section 423.458(c) specifically provides only for 
waiving provisions that hinder the design or offering of, or enrollment 
in, an ``employer-sponsored group prescription drug plan.'' Thus, we 
believe that the current regulations unambiguously construe the 
authority in section 1860D-22(b) of the Act as applying only to PDPs 
and MA-PDs, and not to QRPDPs participating in the RDS program.
    As noted previously, in a related interim final rule with comment 
period elsewhere in this Federal Register, we are soliciting public 
comments on whether we should adopt an interpretation of section 1860D-
22(b) of the Act that would extend the scope of that provision to 
QRPDPs, as well as PDPs and MA-PDs. In the event that, following the 
review of such comments, should we decide to adopt such an 
interpretation, we would like to issue that interpretation as part of 
the rulemaking process as soon as possible. For this reason, we are 
publishing this proposed rule. However, we wish to reiterate that the 
fact that we are publishing this proposed rule does not mean that we 
have already decided to make this interpretation.
    The proposed rule would adopt an interpretation of section 1860D-
22(b) of the Act that would extend the scope of that provision to 
QRPDPs (as well as PDPs and MA-PDs) by revising the definition of 
``employer-sponsored group prescription drug plan'' in Sec.  423.454 
and by making conforming changes to Sec.  423.458.

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. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993, as 
further amended), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999) and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 (as amended by Executive Orders 13258 and 
13422) 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). This proposed rule does not reach the 
economic threshold and thus is not considered a major rule.
    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 
$7.0 million to $34.5 million in any 1 year. Individuals and States are 
not included in the definition of a small entity. We are not preparing 
an analysis for the RFA because we have determined, and the Secretary 
certifies, that this proposed rule would not have a significant 
economic impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area for Medicare payment regulations and has fewer than 
100 beds. We are not preparing an analysis for section 1102(b) of the 
Act because we have determined, and the Secretary certifies, that this 
proposed rule would not have a significant impact on the operations of 
a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2008, that 
threshold is approximately $130 million. This proposed rule would have 
no consequential effect on State, local, or tribal governments or on 
the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Since this regulation does not impose any costs on State 
or local governments, the requirements of Executive Order 13132 are not 
applicable.
    We draw the above conclusions because this proposed rule would give 
us the authority to relieve RDS sponsors of requirements/costs, rather 
than imposing requirements/costs on such entities.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

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List of Subjects in 42 CFR Part 423

    Administrative practice and procedure, Emergency medical services, 
Health facilities, Health maintenance organizations (HMOs), Medicare, 
Penalties, Privacy, Reporting and recordkeeping.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR Part 423 as set forth 
below:

PART 423--VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT

    1. The authority citation for part 423 continues to read as 
follows:

    Authority: Secs. 1102, 1860D-1 through 1860D-42, and 1871 of the 
Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152, 
and 1395hh).

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

    2. Section 423.454 is amended by revising the definition 
``Employer-sponsored group prescription drug plan'' to read as follows:


Sec.  423.454  Definitions.

* * * * *
    Employer-sponsored group prescription drug plan means prescription 
drug coverage offered to retirees who are Part D eligible individuals 
under employment-based retiree health coverage. For purposes of this 
subpart, employment-based retiree health coverage is such coverage (as 
defined in Sec.  423.882) provided through a Medicare Part D plan, or 
for which a plan sponsor could qualify for payments under Subpart R of 
this part.
* * * * *
    3. Section 423.458 is amended by--
    A. Republishing the heading of paragraph (c).
    B. Revising paragraph (c)(1).
    C. Redesignating paragraph (c)(2) as paragraph (c)(3).
    D. Adding a new paragraph (c)(2).
    The revision and addition read as follows:


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

* * * * *
    (c) Employer group waiver. (1) General rule for employer-sponsored 
group prescription drug plans that are Medicare Part D plans. CMS may 
waive or modify any requirement under this part that hinders the design 
of, the offering of, or the enrollment in an employer-sponsored group 
prescription drug plan, including authorizing the establishment of 
separate premium amounts for enrollees of the employer-sponsored group 
prescription drug plan and limitations on enrollment in such plan to 
Part D eligible individuals participating in the sponsor's employment-
based retiree health coverage. Any entity seeking to offer, sponsor, or 
administer an employer-sponsored group prescription drug plan may 
request, in writing, a waiver or modification of additional 
requirements under this Part that hinder its design of, the offering 
of, or the enrollment in, such employer-sponsored group prescription 
drug plan.
    (2) General rule for employer-sponsored group prescription drug 
plans for which a sponsor could qualify for payments under Subpart R of 
this part. CMS may waive or modify any requirement under this Part that 
hinders the design of, the offering of, or the enrollment in an 
employer-sponsored group prescription drug plan.
* * * * *

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

    Dated: November 7, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 13, 2008.
Michael O. Leavitt,
Secretary.
[FR Doc. E9-151 Filed 1-6-09; 4:15 pm]
BILLING CODE 4120-01-P