1494 Federal Register / Vol. 74, No. 7 / Monday, January 12, 2009 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 422 and 423 

[CMS–4131–FC;–RIN 0938–AP24] 

Medicare Program; Medicare 

Advantage and Prescription Drug 

Benefit Programs: Negotiated Pricing 

and Remaining Revisions 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule with comment period. 

SUMMARY: This rule contains final 

regulations governing the Medicare 

Advantage (MA) program (Part C) and 

prescription drug benefit program (Part 

D), and interim final regulations 

governing certain aspects of the Retiree 

Drug Subsidy (RDS) Program, and 

reflecting new statutory definitions 

relating to Special Needs Plans under 

Part C. The final regulations revising the 

Part C and Part D regulations include 

provisions regarding medical savings 

account (MSA) plans, cost-sharing for 

dual eligible enrollees in the MA 

program, the prescription drug payment 

and novation processes in the Part D 

program, and the enrollment and 

appeals processes for both programs. 

This final rule with comment period 

also responds to public comments on 

the May 16, 2008 proposed rule and 

takes into account statutory revisions 

contained in the Medicare 

Improvements for Patients and 

Providers Act of 2008 (MIPPA). 

DATES: Effective Date: These regulations 

are effective on March 13, 2009. 

Applicability Date: The revisions to 

the definition of ‘‘negotiated prices’’ in 

§ 423.100, with the exception of the 

revision to include a reference to ‘‘other 

network dispensing provider,’’ which is 

applicable on March 13, 2009, are 

applicable for contract year 2010. The 

revisions to the definitions of 

‘‘administrative costs,’’ ‘‘allowable risk 

corridor costs,’’ and ‘‘gross covered 

prescription drug costs’’ in § 423.308 are 

also applicable for contract year 2010. 

Comment Period: We will consider 

comments on the provisions concerning 

the new statutory definitions relating to 

special needs plans (see section II.A.1 of 

the preamble to this final rule with 

comment period) and those concerning 

negotiated prices and retained rebates 

under the Retiree Drug Subsidy (RDS) 

program (see section II.B.5.e. of the 

preamble to this final rule with 

comment period), provided that they are 

received at one of the addresses 

provided below no later than March 13, 

2009. 

ADDRESSES: In commenting, please refer 

to file code CMS–4131–FC. 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– 

FC, P.O. Box 8013, Baltimore, MD 

21244–8013. 

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– 

FC, 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– 

7197 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: 

Change of Ownership: Scott Nelson, 

410–786–1038. 

Civil Money Penalties: Christine 

Reinhard, 410–786–2987. 

Definitions related to the Part D drug 

benefit, Subparts F and G: Deondra 

Moseley, 410–786–4577, or Meghan 

Elrington, 410–786–8675. 

Definitions related to the Part D drug 

benefit, Subpart R: David Mlawsky, 

410–786–6851. 

Enrollment: Jeff Maready, 415–744– 

3523. 

Low-Income Cost-Sharing: Christine 

Hinds, 410–786–4578. 

Medicare Medical Savings Account 

Plans: Anne Manley, 410–786–1096. 

Payment: Frank Szeflinski, 303–844– 

7119. 

Reconsiderations: John Scott, 410– 

786–3636, or Kathryn McCann Smith, 

410–786–7623. 

Special Needs Plans: LaVern Baty, 

410–786–5480. 

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. 


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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 

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 in the Federal Register on 

January 28, 2005 (70 FR 4588 through 

4741 and 70 FR 4194 through 4585, 

respectively). (For further discussion of 

these revisions, see the respective final 

rules (70 FR 4588 through 4741) and (70 

FR 4194 through 4585).) 

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 

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 both the 

MA, Part D, and RDS programs. Many 

of these proposed revisions were 

designed to clarify existing policies or 

codify current guidance for these 

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. In the same issue of the Federal 

Register (73 FR 54226), we also 

published a separate interim final rule 

that addressed the other provisions of 

MIPPA impacting the MA and Part D 

programs. 

This final rule responds to comments 

on the May 16, 2008 proposed rule and 

generally finalizes provisions of that 

rule that were not addressed in either of 

the rules published on September 18, 

2008. We received over 100 comments 

on the proposed rule. Commenters 

included managed care and prescription 

drug plans and their representatives, 

provider groups, and Medicare 

beneficiary advocates. The comments 

ranged from general support or 

opposition to the proposed provisions, 

to very specific questions or comments 

regarding a proposed change. 

Some of these comments have been 

addressed in the rules discussed above. 

All comments pertaining to the 

provisions set forth in this final rule are 

discussed below. We are providing brief 

summaries of each proposed provision, 

a summary of the public comments we 

received, and our responses to the 

comments. 

II. Analysis of and Response to Public 

Comments 

In the sections that follow, we discuss 

the changes to the regulations in parts 

422 and 423 governing the MA and 

prescription drug benefit programs that 

were proposed in our May 16, 2008 rule, 

and the comments we received on those 

provisions as well as conforming 

changes to the regulations to reflect two 

new statutory definitions affecting the 

MA program that were enacted in 

MIPPA. Several of the revisions and 

clarifications discussed below affect 

both the MA and prescription drug 

benefit programs. 

A. Changes to Part 422—Medicare 

Advantage Program 

1. Special Needs Plans 

The MMA first authorized special 

needs plans (SNP), a type of MA plan 

designed to exclusively, or 

disproportionately, enroll individuals 

with special needs. The three types of 

special needs individuals eligible for 

enrollment identified in the MMA 

include—(1) Institutionalized 

individuals (defined in 42 CFR 422.2 as 

an individual residing or expecting to 

reside for 90 days or longer in a long 

term care facility); (2) individuals 

entitled to medical assistance under a 

State plan under title XIX; and (3) other 

individuals with severe or disabling 

chronic conditions that would benefit 

from enrollment in a SNP. 

The number of SNPs approved as of 

January 2008, is 787. This figure 

includes 442 dual eligible SNPs, 256 

chronic care SNPs, and 89 institutional 

SNPs. 

a. Definitions: Institutional-Equivalent 

and Severe or Disabling Chronic 

Condition (§ 422.2) 

Section 164 of MIPPA contained two 

new statutory definitions that relate to 

eligibility for SNPs. Although these 

definitions were not included in our 

May 18 proposed rule, we are 

discussing these new definitions here in 

the context of the more general SNPeligibility provisions, and incorporating 

these new definitions in interim final 

regulations as part of this rule. 

Although the statute governing SNPs 

has always referred to individuals 

eligible to enroll in SNPs based on 

institutional status or on having a severe 

or disabling chronic condition, the 

statute previously did not define these 

terms. We believe that discussing these 

new definitions in this rule will both 

aid the understanding of the new 

statutory requirements and complement 

the eligibility requirements from the 

proposed rule that we are publishing as 

final regulations in this rule. In 

addition, because we received public 

comment on the May 2008 proposed 

rule closely related to eligibility for 

institutional-level and chronic care 

individuals, we believe that in order to 

fully respond to these comments it is 

important to discuss all of the 

provisions relating to chronic care and 


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1Henderickson, L. Kyzr-Sheeley, G. (2008). 

Determining Medicaid Nursing Home Eligibility: A 

Survey of State Level Care Assessment. Retrieved 

July 27, 2008 from http://www.hcbs.org/ 

moreInfo.php/nb/doc/2216/. 

institutional care eligibility. Public 

comments related to institutional and 

chronic care SNP eligibility are 

addressed below. 

(1) Institutional-Equivalent Individual 

Section 164 of MIPPA adds a new 

paragraph (2) to section 1859(f) of the 

Act related to eligibility requirements 

for institutional SNPs. Beginning on 

January 1, 2010, institutional SNPs that 

enroll a special needs individual who is 

living in the community but requires an 

institutional level of care (LOC) (i.e., an 

‘‘institutional-equivalent individual’’) 

must meet two new eligibility 

requirements. 

First, the determination of 

institutional LOC must be made using a 

State assessment tool. States have 

extensive experience in making LOC 

determinations, as demonstrated by a 

recently published survey 1 of State LOC 

assessment, which references several 

other investigative sources. The study 

describes varying State instruments and 

methodologies, and may be an 

important resource for institutional 

SNPs that are not already aware of 

existing State LOC assessment tools. In 

States and territories that have not 

designed a specific tool, SNPs must use 

the same LOC determination 

methodology employed in the 

respective State or territory in which the 

SNP is authorized to enroll eligible 

beneficiaries. 

Second, the SNP must arrange to have 

the LOC assessment conducted by an 

entity other than the respective MA 

organization. We believe this entity 

must be both impartial and have the 

requisite professional knowledge to 

accurately identify institutional LOC 

criteria. 

As a result of MIPPA provisions 

concerning institutionalized care, we 

have revised our definitions section in 

§ 422.2 to incorporate the new statutory 

definition of ‘‘institutional equivalent’’ 

set forth in MIPPA. 

(2) Severe or Disabling Chronic 

Condition 

Section 164 of MIPPA also adds a new 

clause to section 1859(b)(6)(B)(iii) of the 

Act to clarify the eligibility 

requirements for chronic condition 

SNPs. Beginning on January 1, 2010, 

chronic condition SNPs that enroll a 

special needs individual who has a 

severe or disabling chronic condition 

must determine that the individual has 

one or more co-morbid and medically 

complex chronic condition(s) that are 

substantially disabling or lifethreatening, has a high risk of 

hospitalization or other significant 

adverse health outcomes, and requires 

specialized delivery systems across 

domains of care. We have also updated 

our definitions in § 422.2 to incorporate 

this new statutory definition of severe or 

disabling chronic condition. 

We note that the statute also directs 

the Secretary to convene a panel of 

clinical advisors to determine which 

chronic conditions meet this clarified 

definition. We will issue separate 

guidance describing the operational 

process the Secretary will use to comply 

with this directive. 

b. Ensuring Special Needs Plans Serve 

Primarily Special Needs Individuals 

(§ 422.4) 

The MMA generally authorized SNPs 

that ‘‘exclusively’’ serve individuals 

with the above-described special needs. 

However, section 231(d) of MMA 

provided the Secretary with the 

‘‘authority’’ to designate MA plans as 

SNPs if the SNP only 

‘‘disproportionately serve[s] special 

needs individuals,’’ while also serving 

non-special needs enrollees. Section 

231(d) of the MMA provides that ‘‘the 

Secretary may provide’’ for such plans 

in regulations implementing the SNP 

provisions. In the final rule 

implementing this MMA provision, we 

exercised this discretion in 

§ 422.4(a)(iv)(B), providing that a SNP 

could be a plan that ‘‘[e]nrolls a greater 

proportion of special needs individuals 

than occur nationally in the Medicare 

population * * *.’’ 

In the May 16, 2008 proposed rule, we 

proposed to amend § 422.4(a) to require 

that MA organizations offering 

‘‘disproportionate share’’ SNPs ensure 

that at least 90 percent of new plan 

membership consist of individuals that 

fell into the appropriate special needs 

category for the plan in question, as 

defined in § 422.2. Thus, no more than 

10 percent of a plan’s new enrollees 

could be non-special needs individuals. 

Based on the comments received on this 

proposal, and in light of the fact that 

section 164 of MIPPA eliminates the 

authority for disproportionate share 

SNPs effective January 1, 2010, we are 

revising the regulations to specify that 

all new SNP enrollees must be special 

needs individuals. In other words, we 

are declining to permit disproportionate 

share SNPs as permitted, at our 

discretion, under section 231(d) of 

MMA. As discussed below, we are 

amending § § 422.2 and 422.4 to reflect 

these changes. 

Comment: All commenters agreed that 

the current regulation permitting an MA 

plan to be designated a SNP if it 

enrolled special needs individuals in a 

higher proportion than they exist in the 

Medicare population diminishes the 

intended focus of special needs plans on 

providing care and services to special 

needs individuals. Commenters 

generally supported our proposal that at 

least 90 percent of new enrollees consist 

of individuals with the targeted 

condition or status. Many commenters, 

however, argued for a higher threshold. 

Some commenters suggested 

establishing a 95 percent threshold, as 

recommended by the Medicare Payment 

Advisory Commission (MedPAC). Still 

others suggested requiring that entire 

plan membership (100 percent) be in the 

targeted special needs group, or at least 

that all new enrollees fall into the 

targeted category of individuals. These 

commenters correctly noted that 

although section 231(d) of MMA allows 

plans to enroll a certain portion of 

members from the non-targeted 

population, there is no requirement that 

non-special needs individuals be 

permitted to join an SNP. Many 

commenters also indicated that having 

to monitor the proportion of plan 

membership that fell into the 

appropriate category would pose an 

administrative challenge, and was 

unnecessarily complex. 

Response: After considering all 

comments, and in light of the fact that 

disproportionate share SNPs will no 

longer be authorized as of January 1, 

2010, we agree with the commenters 

who urged that SNPs should not be 

permitted to enroll individuals who do 

not meet the qualifying targeted 

conditions (dual eligibility for Medicare 

and Medicaid, institutional status, or 

severe or disabling chronic conditions). 

Thus, taking into consideration the 

MIPPA changes and the public 

comments described above, we are 

revising our proposal to prohibit the 

enrollment of nonqualifying members 

into all SNP plans. We believe that this 

change will emphasize the need for 

SNPs to focus on providing care and 

services to their targeted population. 

We recognize that this means that a 

spouse of an individual in a chronic 

care SNP generally will not be able to 

join the same plan (unless the spouse 

has the same condition), which has been 

presented in the past as a reason to 

permit some non-special need 

individuals to enroll in SNPs. Note that 

a plan may not disenroll a non-special 

needs individual who has already 

enrolled in the SNP consistent with the 

current disproportionate percentage 

methodology. Such individuals may 


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remain in their plans unless and until 

they choose to disenroll. Note that they 

would not be permitted to re-enroll in 

another SNP unless they had a 

qualifying condition. We are revising 

§ § 422.2 and 422.4 to reflect these 

changes. 

Comment: One commenter requested 

that the 90 percent disproportionate 

percentage requirement be measured on 

an aggregate basis for a given calendar 

year, rather than on a monthly or dayto-day basis. 

Response: Since we are eliminating 

use of any disproportionate percentage 

methodology in the future, this issue 

has become moot. 

Comment: Several commenters were 

confused by the wording of the 

proposed regulations and asked that 

CMS clarify whether the proposed 90 

percent rule applied only to new 

members, or applied to the overall 

membership in the plan. Given the 

current proportions of special needs 

individuals in many SNPs, they noted 

that establishing an overall target of 90 

percent would effectively require that 

all new enrollees be members of the 

appropriate category in any event. 

Response: We recognize that the 

wording of the proposed requirements 

left some room for confusion as to the 

precise intent of the provisions in 

question. Our proposal would only have 

applied to new enrollees, so regardless 

of how many current members were 

special needs individuals, 10 percent of 

new enrollees could have been nonspecial needs individuals under our 

proposal. However, as explained above, 

the final regulations clearly specify that 

the 100 percent requirement applies 

only to new members. 

c. Ensuring Eligibility To Elect an MA 

Plan for Special Needs Individuals 

(§ 422.52) 

We proposed in § 422.52 that MA 

organizations be required to establish a 

process approved by CMS to verify that 

potential SNP enrollees meet the SNP’s 

eligibility requirements. While this 

issue is addressed, to some degree, in 

our manual guidance (section 20.11 of 

Chapter 2 of the Medicare Managed Care 

Manual), we believe that it is important 

to set forth in regulations our explicit 

authority to establish verification 

requirements. The proposed regulations 

were also intended to ensure that plans 

were aware of, and met, their 

obligations to verify an applicant’s 

eligibility prior to enrolling individuals 

in a SNP. As discussed below, we are 

adopting these changes in final 

regulations as proposed and, as noted 

above, we are in interim final 

regulations codifying the related MIPPA 

eligibility requirements concerning 

institutional-level and chronic care 

SNP. We are also making a conforming 

change to § 422.52(f) by deleting the 

currently existing paragraph, which 

refers to SNPs serving 

disproportionately special needs 

individuals. 

Comment: Commenters did not object 

to our proposal to establish in 

regulations that SNPs must use a CMSapproved process to verify SNP 

eligibility. However, several 

commenters requested that we revise 

either the proposed regulations or 

manual guidance to specify that SNPs 

have 60 days to verify enrollment for 

individuals with special needs. 

Alternatively, the commenters suggested 

that CMS take into consideration the 

amount of time for verifying enrollment 

status when monitoring plan 

compliance with the SNP provisions. 

Another commenter recommended that 

CMS maintain the previous 

requirements (established in our May 

31, 2007 HPMS memo) for time frames 

and sources for verification of Chronic 

Care SNP enrollment qualifications. The 

commenter suggested that the 30-day 

timeframe now established in the 

manual is impractical, and they further 

recommended that sources other than 

providers be allowed for verification of 

chronic care SNP enrollees’ eligibility 

for the SNP. 

Response: We are strongly committed 

to ensuring that SNPs carry out proper 

verification of all eligibility criteria, 

consistent with the requirements 

discussed above concerning SNP 

enrollment requirements. Thus, we are 

adopting the proposed requirement that 

SNPs follow a CMS-approved 

verification process. Note that although 

we are not setting out specific 

verification requirements in the 

regulations, manual current guidance 

already requires that prompt verification 

take place (generally either before 

enrollment or no later than the end of 

the first month of enrollment). We 

continue to believe that prompt 

verification is necessary to prevent large 

numbers of subsequent, unnecessary 

disenrollments from SNPs of 

individuals who never should have 

been enrolled. 

As noted in the May 2008 proposed 

rule (73 FR 28559), we have given plans 

a number of options for meeting the 

verification requirements, including 

post-enrollment confirmation under 

certain circumstances (such as when a 

pre-enrollment qualification assessment 

tool is used, as opposed to direct contact 

with a provider). In addition, to assist 

SNP plans in obtaining timely 

verification from appropriate medical 

professional personnel, we have made 

clear in subregulatory guidance (Chapter 

2, Section 20–11, Medicare Advantage 

Manual) that for the purposes of 

verification of chronic care SNP 

eligibility, verification may be obtained 

through a provider or provider’s office. 

This includes any licensed health care 

professional in a position to validate 

and verify the beneficiary’s medical 

history and status, such as nurse 

practitioners or pharmacists. However, 

we are concerned that the use of 

organizational data alone, such as 

claims or medical records, may not 

always be sufficient to confirm SNP 

eligibility. Thus, we intend to continue 

to evaluate the issue of when and how 

data may be appropriately used to verify 

SNP eligibility and we are willing to 

consider reasonable alternative 

proposals presented by plans to verify 

eligibility. Still, given that the 

underlying intent of chronic care SNPs 

is to provide care services to a 

population with a need for carefully 

managed services, we do not believe it 

is unreasonable to expect early contact 

with a suitable health care professional. 

Comment: A commenter suggested 

that CMS include language addressing 

pre-enrollment qualification assessment 

tools and post-enrollment confirmation 

of eligibility procedures as aspects of 

the SNP eligibility verification process 

for all SNPs, not just chronic care SNPs. 

Response: We do not believe that such 

changes are warranted or necessary for 

non-chronic care SNPs, given the other 

available sources of eligibility 

verification. As discussed in our recent 

interim final rule (73 FR 54228), in 

accordance with the recent MIPPA 

legislation, dual-eligible SNPs and 

institutional SNPs must have 

arrangements with the appropriate 

entities to verify Medicaid eligibility or 

institutional status in an ongoing and 

routine manner. 

Comment: A commenter described 

our suggestion in the preamble of the 

proposed rule that dual-eligible SNPs be 

required to enter into an agreement with 

state agencies as ‘‘impractical.’’ The 

commenter further suggested that CMS 

establish a process similar to that used 

under the Part D low-income subsidy 

status for determining dual eligibility 

status for Part C dual-eligible SNP plans, 

or as an alternative establish a best 

available evidence policy for dualeligible SNP plans. Thus, rather than the 

SNP plan being responsible for 

obtaining Medicaid eligibility 

information, the commenter requested 

that CMS furnish the eligibility 

information to dual-eligible SNP plans. 

Response: The establishment of 

successful partnerships and processes to 


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2The solicitation may be found at http:// 

www.cms.hhs.gov/SpecialNeedsPlans. 

share information about dual status with 

State Medicaid agencies is a key aspect 

of the SNP’s ability to provide 

specialized services to this population, 

ensure beneficiary understanding of 

both programs’ benefits, and provide 

meaningful coordination between the 

Medicare and Medicaid programs. 

Furthermore, section 164 of MIPPA 

requires dual eligible SNPs to have a 

contract with a State Medicaid Agency 

effective as of January 1, 2010, to 

provide benefits (or arrange for benefits 

to be provided) that an individual is 

entitled to receive under the Medicaid 

program. 

With respect to the commenter’s 

suggestion that we establish a process 

similar to our current Part D ‘‘Best 

Available Evidence’’ policy to allow 

plans to provide evidence of dualeligibility status, we decline to establish 

such a process at this time. We believe 

that beneficiaries and SNPs would be 

better served by an arrangement with 

States to exchange eligibility 

information on a regular basis. Such 

arrangements could be incorporated into 

the contracts between SNPs and the 

appropriate State Medicaid Agency that 

will now be required as of January 1, 

2010. 

d. Model of Care (§ 422.101(f)) 

In order to ensure that SNPs were 

providing care targeted to such special 

needs beneficiaries, under our authority 

in section 1856(b)(1) of the Act to 

establish standards by regulation, we 

proposed that SNPs develop a model of 

care specific to the special needs 

population they are serving. In order to 

more clearly establish and clarify 

delivery of care standards for SNPs and 

to codify standards which we have 

included in other CMS guidance and 

instructions (the 2008 and 2009 Call 

Letters, ‘‘Special Needs Plan 

Solicitation’’ 2), we proposed to add new 

paragraph (f) to § 422.101. This 

proposed paragraph specified that SNPs 

have networks with clinical expertise 

specific to the special needs population 

of the plan; use performance measures 

to evaluate models of care; and be able 

to coordinate and deliver care targeted 

to the frail/disabled, and those near the 

end of life based on appropriate 

protocols. Section 164 of the MIPPA 

subsequently added care management 

requirements for all SNPs as directed in 

section 1859(f)(5) of the Act (42 U.S.C. 

1395w–28(f)). The new mandate 

required dual-eligible, institutional, and 

chronic condition SNPs to implement 

an evidence-based model of care having 

two explicit components. The first 

component was an appropriate network 

of providers and specialists to meet the 

specialized needs of the SNP target 

population. The second component was 

a battery of case management services 

that includes— (1) A comprehensive 

initial health risk assessment and 

annual reassessments; (2) an 

individualized plan of care having goals 

and measurable outcomes; and (3) an 

interdisciplinary team to manage care. 

This law laid a statutory foundation for 

much of our proposed regulatory 

standards for the model of care. 

Therefore, we address the comments we 

received on our proposals from both a 

statutory and regulatory basis. 

Comment: The overwhelming 

majority of commenters expressed 

support for a required SNP model of 

care. However, many argued that the 

proposed language was too weak to 

permit genuine oversight of SNPs or 

assure adequate protection for 

vulnerable beneficiaries. They urged us 

to require a more prescriptive model of 

care similar to the PACE program or 

state integrated care waiver 

demonstration projects. Among their 

recommendations were that we require 

that model of care include elements 

such as: Care coordination through an 

individualized care plan; at least one 

network physician with network 

hospital privileges and one network 

provider with access to diagnostics and 

ancillary health services; transition 

coverage across care settings, providers, 

and services to ensure continuity of 

care; a comprehensive risk assessment 

on which to base the individualized 

care plan; public reporting of 

performance data as evidence that 

remuneration pays for services actually 

delivered; a complaint/grievance 

process used in monitoring activities; 

SNP staff trained on the respective state 

Medicaid program; and mandatory 

publishing of the SNP model of care in 

marketing materials. One of these 

commenters specifically advocated that 

pharmacists be an integral member of a 

SNP provider network, but was 

countermanded by another commenter 

that who opposed prescribing the 

provider network composition. Finally, 

one commenter suggested that we 

require all MA organizations, not just 

SNPs, to serve enrollees that are frail/ 

disabled or near the end of life. 

Response: Over the past 2 years, we 

collected and reviewed models of care 

from existing SNPs. We also reviewed 

models of care such as medical home 

models and chronic care models 

published in healthcare books, peerreviewed journals, and advocacy group 

and industry reports. Based on our 

extensive review of models of care for 

vulnerable populations, we agree with 

the majority of commenters who 

indicated that a required SNP model of 

care that contains certain minimal 

elements is necessary to provide 

regulatory oversight and effective 

monitoring of SNPs. MIPPA 

demonstrated further support that care 

management required an organizational 

structure represented by the model of 

care. Specifically, MIPPA required SNPs 

to conduct initial and annual 

comprehensive health risk assessments, 

develop and implement an 

individualized plan of care, and 

implement an interdisciplinary care 

team for each beneficiary. We believe 

that combination of MIPPA’s statutory 

elements and our regulatory 

prescription for the SNP model of care 

establishes the standardized 

architecture for effective care 

management, yet gives plans the 

flexibility to design the unique services 

and benefits that enable them to meet 

the identified needs of their target 

population. To illustrate this balance 

between the model of care architecture 

and its plan-specific components, we 

present the following examples. All 

SNPs must have an interdisciplinary 

team to coordinate the delivery of 

services and benefits; however, one SNP 

may choose to contract with an 

interdisciplinary team to deliver care in 

community health clinics and another 

SNP may hire its team to deliver care in 

the home setting. Under our final 

regulations, all SNPs must coordinate 

the delivery of services and benefits 

through integrated systems of 

communication among plan personnel, 

providers, and beneficiaries; however, 

one SNP may coordinate care through a 

telephonic connection among all 

stakeholders and a second SNP may 

coordinate care through an electronic 

system using Web-based records and 

electronic mail accessed exclusively by 

the plan, network providers, and 

beneficiaries. All SNPs must coordinate 

the delivery of specialized benefits and 

services that meet the needs of their 

most vulnerable beneficiaries; however, 

dual-eligible SNPs may need to provide 

state-identified services while an 

institutional SNP may need to facilitate 

hospice care for its beneficiaries near 

the end of life. These examples 

demonstrate the variety of ways SNPs 

currently implement their systems of 

care. We will continue to study SNP 

models of care and issue guidance 

through our Call Letters and 

informational memoranda to facilitate 

improvement in the SNP model of care 

framework. 


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Comment: One commenter noted that 

our proposed language required the 

model of care to deliver services to 

targeted enrollees as well as those who 

are frail/disabled or near the end of life. 

The entity clarified that SNPs do not 

‘‘deliver’’ care, but provide access to 

care practitioners. 

Response: We acknowledge the 

distinction that most SNPs are not 

healthcare providers, but are entities 

that coordinate care through provider 

networks. We believe that our references 

to delivering care can reasonably be 

read as referring to delivering services 

through such networks. 

Comment: Several commenters 

supported a requirement for the use of 

evidence-based or nationally recognized 

clinical protocols in the delivery of care 

to special needs beneficiaries. One 

commenter argued that, if we were to 

prescribe specific disease management 

protocols for SNPs in the future, we 

should do so through published 

regulations that would permit the 

medical community to comment. A 

second commenter urged us to clarify 

‘‘protocols’’ to include process as well 

as clinical protocols because nationally 

recognized protocols do not exist for all 

clinical conditions. 

Response: We agree that SNPs must 

coordinate and deliver care with 

healthcare professionals that use 

protocols, whether clinical or 

administrative in nature, which are 

evidence-based or, where possible, 

derived from nationally recognized 

guidelines. We refer beneficiaries, plans, 

and providers to the Agency for 

Healthcare Research and Quality 

(http://www.ahrq.gov/) which provides 

public access to both an extensive 

repository of evidence-based protocols 

through its National Guidelines 

Clearinghouse, as well as discussions 

regarding ongoing research on clinical 

practice. If we propose future regulation 

related to the use of clinical or 

administrative protocols, we will elicit 

appropriate public comments from all 

stakeholders. Presently, we expect SNPs 

to have personnel (employed, 

contracted, or non-contracted) prepared 

to discuss their implemented protocols 

at monitoring visits or other oversight 

activities. Because we have not 

prescribed the use of specific protocols, 

the comment that we should do so 

through rulemaking does not apply. 

Comment: A few commenters 

proposed that we work with recognized 

standards organizations to develop 

better ways to monitor SNPs and inform 

the public about plan performance. 

However, one commenter cautioned 

that, in developing SNP-specific 

measures, we must address the broad 

range of special care needs and the 

limitations of available data sources. 

Response: We have contracted with 

the National Committee for Quality 

Assurance (NCQA) to develop, collect, 

analyze, and report on SNP-specific 

performance measures at the plan 

benefits package (PBP) level. We will 

continue to work with NCQA and other 

quality measurement experts such as the 

Geriatric Measurement Advisory Panel 

to explore valid and reliable ways to 

measure and improve SNP performance. 

As we identify new directions in quality 

measurement for vulnerable 

populations, we will elicit public, 

professional, and beneficiary comment 

to inform our regulatory and 

informational guidance to SNPs. 

e. Special Needs Plans and Other MA 

Plans With Dual Eligibles: 

Responsibility for Cost-Sharing 

(§ 422.504(g)(1)) 

In order to protect beneficiaries and 

ensure that providers do not bill for 

cost-sharing that is not the beneficiary’s 

responsibility, we proposed to amend 

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

that all MA organizations, including 

SNPs, with enrollees who are eligible 

for both Medicare and Medicaid specify 

in their contracts with providers that 

enrollees would not be held liable for 

Medicare Parts A and B cost sharing 

when the State is liable for the costsharing. Plans may not impose costsharing that exceeds the amount of costsharing that would be permitted with 

respect to the individual under title XIX 

if the individual were not in such plan. 

We also proposed therefore, that 

contracts with providers state that the 

provider will do this by either accepting 

the MA plan payment in full 

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

appropriate State source (for example, 

Medicaid) (§ 422.504(g)(1)(iii)(B)). 

Additionally, we proposed that all MA 

organizations with enrollees eligible for 

both Medicare and Medicaid must 

inform providers of the Medicare and 

Medicaid benefits and rules for 

enrollees eligible for Medicare and 

Medicaid (§ 422.504(g)(1)(iii)). Section 

165 of MIPPA only required that full 

benefit dual-eligible individuals and 

qualified Medicare beneficiaries in 

SNPs for dual-eligibles not be held 

liable for Medicare Parts A and B costsharing. Our proposal included all MA 

plans that have dual eligibles enrolled 

in their plan. 

The above proposals have been 

superseded in part by section 165 of 

MIPPA, ‘‘Limitation on Out-of-Pocket 

Costs for Dual Eligibles and Qualified 

Medicare Beneficiaries Enrolled in a 

Specialized Medicare Advantage Plan 

for Special Needs Individuals,’’ which 

establishes that for full benefit-dualeligible individuals or qualified 

Medicare beneficiaries enrolled in a 

special needs plan, an MA organization 

may not impose cost-sharing that 

exceeds the amount of cost-sharing that 

would be permitted if the individual 

were under title XIX and were not 

enrolled in a special needs plan. The 

effective date of this provision is 

January 1, 2010. 

After considering comments 

discussed below, we are finalizing our 

proposal to impose the requirement that 

MIPPA imposed in the case of dualeligible SNPs on duals in all MA plans, 

and on all dual Medicaid eligibility 

categories for which a State provides a 

zero cost-share. Consistent with the 

MIPPA requirements that apply to dualeligible SNPs, we are specifying in the 

regulations that these provisions are 

effective on January 1, 2010. 

Comment: Several commenters 

supported CMS’ effort to protect dual 

eligible individuals from being charged 

for cost sharing under Medicare Parts A 

and B when the state is responsible. 

However, many requested that CMS 

either allow MA plans to send a 

notification to the providers of this 

change or to allow MA organizations to 

amend contracts at the end of the 

contract term, in 2 years, or whenever 

the contracts are renegotiated. Some 

commenters requested that CMS 

establish a process for Medicare 

Advantage Organizations to work with 

CMS to develop and disseminate this 

information. Other commenters stated 

that CMS should go further by requiring 

all MA plans to provide to all of their 

physicians and other providers with 

specific information about when dual 

eligibles are not liable for cost-sharing 

and include the matrix CMS developed 

on cost-sharing and the dual eligibility 

types. 

Several commenters also stated that 

CMS should go further by requiring 

plans to have a designated contact 

person who is knowledgeable about the 

Medicaid programs who can answer 

cost sharing questions for providers and 

that plans should be required to refund 

any cost-sharing that has been 

inappropriately charged to dual eligible 

individuals. One commenter 

recommended that CMS require this of 

dual-eligible SNPs only and not all 

plans that serve dual eligible 

individuals. 

Response: We do not believe it would 

sufficiently protect dual-eligible 

enrollees to simply require notice to 

providers. We also do not believe that 

these protections should be delayed for 

up to 2 years, particularly when MIPPA 


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3HSAs are health insurance plans with a high 

deductible and a savings account for the under 65 

population and are administered by the U.S. 

Department of the Treasury. Medicare MSAs are a 

type of medical savings account, also with a high 

deductible and a savings account, designed for the 

Medicare population and are administered by the 

U.S. Department of Health and Human Services, 

Centers for Medicare & Medicaid Services. HSAs 

and MSAs are governed by different statutes, and 

while these health insurance products are similar 

in many ways, there are also important differences 

between them. For further information on HSAs, go 

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

hsa/. 

imposes them in the case of enrollees in 

dual eligible SNPs effective January 1, 

2010. However, we do not believe that 

it is necessary to require that SNPs 

necessarily designate a specific person 

to address dual-eligible issues. We 

believe that MA organizations should 

have flexibility in complying with these 

requirements. As noted above, we 

disagree with the commenter who 

believed that these requirements should 

only apply to dual SNPs as the MIPPA 

requirement did, because we believe 

that all dual eligibles need these 

protections. 

2. MA Medical Savings Accounts (MSA) 

Transparency (§ 422.103(e)) 

Consistent with the best practices of 

health savings accounts (HSAs) and 

other high-deductible health plans, we 

proposed in a new § 422.103(e) to 

require that all medical savings account 

(MSA) plans provide enrollees with 

information on the cost and quality of 

services and provide information to 

CMS on how they would provide this 

information to enrollees.3

Comment: We received a number of 

public comments on the proposed cost 

and quality transparency requirements 

for Medicare MSA plans. Several 

commented on the developing and 

pioneering nature of reporting on cost 

and quality of health care information. 

Some comments simply expressed 

general support for the proposal. One 

comment from a state government 

human services department expressed 

general support for this proposal. One 

comment from a pharmacy association 

expressed support for providing 

consumers with cost and quality 

information. 

Three comments were from health 

insurance plans with experience with 

Medicare MSAs, which also expressed 

support for this proposal, but requested 

flexibility for plans in development of 

cost and quality transparency 

information. One organization argued 

against separate standards for Internet 

vs. other forms of communication to 

allow flexibility in how information is 

communicated. Another comment from 

a health plan not currently participating 

as an Medicare MSA indicated its 

concern for the burden on health plans 

of transparency, and thought we 

intended to require that information be 

sent to all enrollees. 

Two comments from major physician 

organizations requested that providers 

and other stakeholders have input into 

the reporting of cost and quality 

reporting measures. The physician 

organizations specifically reference 

guidelines from the ConsumerPurchaser Disclosure Project’s ‘‘Patient 

Charter for Physician Performance 

Measurement, Reporting and Tiering 

Programs.’’ 

A number of consumer groups, 

including organizations representing the 

disabled, requested that cost and quality 

information be linked so that consumers 

can readily see where they meet, and so 

that consumers are not steered solely by 

price considerations. Consumer groups 

were also interested in information 

being posted on the out-of-pocket costs 

for enrollees in MSA plans, as well as 

on information for enrollees on how 

accounts operate and on any account 

fees or interest rates. 

Response: Public comments indicate 

support for the proposal, and also 

indicate interest in making information 

useful for enrollees and equitable to 

health care providers on whom the 

information is reported. We 

acknowledge these comments of general 

support. We also understand comments 

requesting that stakeholders and 

consumers be allowed input and their 

interest in making the information fully 

useful to consumers. 

As indicated in the proposed rule in 

the discussion of calculation of burden 

on health plans, we are expecting plans 

to provide the same level of information 

on cost and quality of services that they 

provide to commercial enrollees and to 

provide whatever information is 

available. Therefore, we are anticipating 

that the burden level would not be 

undue on health plans. We hope that 

consumers will also provide input 

because they are the parties intended to 

use the information, and so we expect 

that consumer demand will shape the 

design of reporting standards over time. 

Therefore, we agree with the comment 

that plans should have flexibility in 

design of transparency standards. We 

are not specifying standards for Internet 

or for other forms of communication at 

this time. It also makes sense for 

physicians and other providers and any 

interested stakeholders to provide input 

directly to plans or to CMS. 

We do not want to specify further 

requirements at this time for 

transparency and want primarily to 

allow plans to work with enrollees to 

develop that information. Note that the 

statutory exemption from quality 

improvement programs for MSAs at 

section 1852(e) of the Act was recently 

eliminated by section 163 of MIPPA. 

MSA and PFFS plans must participate 

in quality improvement programs 

beginning in 2010. This new quality 

improvement requirement implemented 

in regulations at § 422.152(a), will work 

in conjunction with transparency efforts 

and enable transmission of information 

directly to enrollees of these health care 

plans. 

B. Changes to Part 423—Medicare 

Prescription Drug Benefit Program 

1. Passive Election for Full Benefit Dual 

Eligible Individuals Who Are Qualifying 

Covered Retirees (§ 423.34) 

We proposed to revise § 423.34(d) to 

establish an exception to our normal 

auto-enrollment procedures for full 

benefit dual eligible individuals who we 

know to be enrolled in a qualifying 

employer group plan. Rather than autoenrolling these individuals into a PDP 

(no individuals are auto-enrolled into 

MA-PD), we proposed that such 

individuals would be deemed to decline 

Part D coverage if, following a notice of 

their options, they do not indicate that 

they wish to receive it. As discussed 

below, this final rule adopts the 

proposed regulatory changes to 

§ 423.34(d) in their entirety. 

Comment: All commenters supported 

the policy where full benefit dualeligible individuals (eligible for both 

Medicare and Medicaid), who are also 

qualifying covered retirees, would not 

be automatically enrolled in a Medicare 

Part D plan by CMS. Although 

commenters expressed no objections to 

the proposed regulatory changes, several 

commenters objected to a statement in 

the preamble to the proposed regulation 

(73 FR 28562) indicating that if a full 

benefit dual eligible individual with 

qualifying retiree coverage decided to 

enroll in a Part D plan at a later time, 

that enrollment could be made effective 

retroactively to the date of the dual 

eligibility. The commenters asserted 

that retroactive Part D coverage would 

inappropriately shift the liability for 

past drug spending to a Part D plan. 

Other commenters supported the option 

of retroactive coverage. 

Response: Consistent with our 

proposal, this final rule establishes that 

full benefit dual eligible individuals 

with qualified retiree coverage will not 

be automatically enrolled in a Medicare 

Part D plan. (That is, we will not autoenroll individuals for whom we have 

approved a group health plan sponsor to 

receive the Retiree Drug Subsidy (RDS) 


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described in 42 CFR Part 423, Subpart 

R for the period of time the automatic 

enrollment in Part D would otherwise 

cover.) Instead, we will send these 

individuals a notice informing them that 

they will be deemed to have declined 

such enrollment unless they take an 

affirmative action to choose a plan or 

opt for auto-enrollment. They may 

choose to enroll in a Medicare Part D 

plan at any time, as long as they retain 

that dual status, but we will not 

automatically enroll them in a Part D 

plan. 

In general, we believe that dual 

eligible individuals who decide to 

enroll in a Medicare Part D plan at a 

later time should do so on a prospective 

basis, like most other enrollment 

elections. These individuals have made 

an election initially to not enroll in a 

Medicare Part D plan and instead to 

remain in their current employer plan. 

Thus, there is no ‘‘coverage gap’’ 

involved, which obviates the usual 

premise for retroactive Medicare 

coverage for dual eligibles. We agree 

with commenters that retroactive 

coverage under Medicare Part D could 

lead to an inappropriate shift of 

beneficiary drug expenditures to the 

Medicare program. However, as 

currently occurs under both the MA and 

Part D programs, we acknowledge that 

special circumstances may arise which 

would justify a retroactive enrollment 

into Medicare Part D. We will issue 

clarifying guidance on the 

appropriateness for retroactive coverage 

and consider those requests on a caseby-case basis. 

Comment: Several commenters 

requested that other individuals who are 

automatically enrolled into a Medicare 

Part D plan, such as individuals eligible 

for one of the Medicare Savings 

Programs, also be exempted from 

automatic enrollment when they have 

qualified retiree coverage. 

Response: Other individuals with 

qualified retiree coverage, such as nondual eligible individuals who are also 

eligible for low-income subsidy 

assistance under the Medicare Savings 

Programs, are already excluded from 

automatic enrollment under Medicare 

Part D. 

Comment: Several commenters 

suggested that the regulations specify 

that the notice individuals receive 

advise them to discuss the impact of 

Medicare Part D coverage with their 

group health plan administrator or 

personnel office. They also suggested 

that we share the model beneficiary 

notice with beneficiary representatives 

for their review. 

Response: We do not believe it is 

necessary or appropriate to specify in 

the regulations the exact content of the 

notice that will be sent to the affected 

individuals, such as where individuals 

should turn to receive information to 

help them make a decision. However, in 

the notice that we send to beneficiaries, 

we will specify that individuals should 

discuss their drug benefits with the 

appropriate retiree staff who handle 

their coverage and benefits. We will be 

pleased to share the model beneficiary 

notice in draft with beneficiary 

representatives to obtain their input and 

guidance. 

Comment: Several commenters 

requested we revise the regulations to 

specify that the notice will be provided 

to the individual or their representatives 

to the extent that we are aware that the 

individual has someone acting on his/ 

her behalf. They expressed concern that 

some of the affected individuals may 

lack the capacity to understand the 

notice and the action to be taken. 

Response: We are not modifying the 

regulations to include this suggested 

change, because we have no way to 

collect and retain address information 

for an individual authorized to act on 

behalf of a beneficiary, or verify that 

someone asserting such status is in fact 

so authorized. 

Comment: Several commenters 

requested that CMS extend the process 

for non-automatic enrollment into 

Medicare Part D to full benefit dual 

eligible individuals with non-qualifying 

retiree coverage in addition to those 

individuals with qualifying retiree 

coverage. 

Response: Currently, we receive 

information only for individuals who 

have qualifying retiree prescription drug 

coverage, and for whom we have 

approved a group health sponsor to 

receive the RDS. The information we 

receive, among other data, specifies that 

the individual’s retiree drug coverage is 

at least equal to the actuarial value of 

the Medicare Part D defined standard 

prescription drug coverage, and records 

are maintained for audit purposes 

(§ 423.884). We do not have similar 

information for non-qualifying retiree 

prescription drug coverage, and thus 

would be unable to extend the nonautomatic enrollment process to cover 

those situations. To accomplish the 

request would require soliciting 

information on the other coverage, 

verifying its authenticity, and entering it 

into the database which includes 

creditable coverage information. Should 

this information become readily 

available, we would consider this 

proposal. However, we note that we 

would not be certain, in the case of 

other retiree coverage, whether the 

coverage had a value to beneficiaries at 

least as good as that they would get if 

defaulted to a Part D plan. This would 

also be a factor for us to consider. 

Comment: Several commenters 

requested that CMS establish a special 

enrollment period for retroactive 

disenrollment from Medicare Part D 

plans for any beneficiary who was autoenrolled in a plan that conflicted with 

a retiree plan. 

Response: Our current Medicare 

Prescription Drug Plan guidance permits 

full benefit dual eligible individuals to 

opt out of Medicare Part D coverage at 

any time. If the beneficiary makes the 

request prior to the effective date of 

auto-enrollment, then the enrollment is 

cancelled and the individual is 

considered not enrolled. If the effective 

date of the auto-enrollment is 

retroactive, the beneficiary may request 

a retroactive cancellation as long as the 

request is made by the 15th of the 

month after the month in which autoenrollment occurred. If the request 

occurs after those dates, then the 

disenrollment would be effective with 

the last day of the month in which the 

request is made. With the retroactive 

cancellations, we caution individuals or 

their representatives to be careful to 

ensure individuals do not have a gap in 

prescription drug coverage, given that 

we have no authority to require that 

employer plans accept re-enrollments 

from former members of such plans. We 

also caution that such a disenrollment 

would not necessarily retroactively 

restore eligibility under an employer 

plan if that eligibility is lost as the result 

of an enrollment in a Part D plan. 

2. Part D Late Enrollment Penalty 

(§ 423.46) 

Under section 1860D–13(b) of the Act, 

a Part D late enrollment penalty (LEP) 

generally applies when a Medicare 

beneficiary has a continuous period of 

63 days or longer without creditable 

prescription drug coverage subsequent 

to the beneficiary’s initial enrollment 

period. This requirement is codified in 

regulations at § 423.46. Although 

§ 423.46 describes which individuals 

are subject to a penalty, it does not 

specify the role of the Part D plan in the 

LEP determination process. We have 

subsequently outlined plan 

responsibilities in our existing guidance 

(Chapters 4 and 18 § 80.7.1, of the 

Medicare Prescription Drug Benefit 

Manual), and in our May 16, 2008 

proposed rule we proposed to clarify the 

general responsibilities of Part D plans 

in the regulations. 

First, we proposed to clarify under 

§ 423.46(b) that Part D plans must obtain 

information on prior creditable coverage 

from all enrolled or enrolling 


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1502 Federal Register / Vol. 74, No. 7 / Monday, January 12, 2009 / Rules and Regulations 

beneficiaries. Under this process, plans 

must first query CMS systems for 

previous plan enrollment information, 

which is a standard part of the 

beneficiary enrollment process. When 

there is a qualifying gap in creditable 

coverage, however, the process for 

obtaining creditable coverage 

information must also include plan 

interaction with the beneficiary. This is 

due in large part to the limited 

information available in CMS’ systems 

about forms of creditable coverage other 

than Part D coverage or coverage 

through an employer group under the 

retiree drug subsidy (RDS). Therefore, it 

is critical that plans obtain historical 

creditable coverage information from 

the beneficiary in order to determine the 

number of uncovered months, if any, 

and retain any information collected 

concerning that determination (as 

specified under proposed § 423.46(d)). 

The related requirement that we 

proposed under § 423.46(b) is that plans 

must then report creditable coverage 

information in a manner specified by 

CMS. Specifically, plans would report 

the number of uncovered months to 

CMS, which would then calculate the 

penalty and report the penalty back to 

the plan. The plan would then notify 

the beneficiary of the determination of 

the LEP amount and of their ability to 

request a reconsideration of this 

determination. 

We also proposed under § 423.46(c) 

that, consistent with section 1860(D)– 

13(b) of the Act, individuals who are 

determined to have a late enrollment 

penalty have the opportunity to ask for 

a reconsideration of this determination. 

(Note that existing § 423.56(g) briefly 

references the ability to ‘‘apply to CMS’’ 

when an individual believes that he or 

she was not adequately informed that 

his or her prescription drug coverage 

was not creditable, and we would crossreference that section here.) We believe 

that the statute clearly intends that 

individuals have an opportunity to 

provide CMS with additional 

information related to prior prescription 

drug coverage in support of a request for 

reconsideration of a late enrollment 

penalty determination. While the statute 

expressly provides for this opportunity 

only with respect to an argument that 

proper notice was not given concerning 

whether existing coverage was 

creditable, we believe that the same 

rationale could apply to other 

arguments that the penalty should not 

apply (for example, an argument that 

the individual had prior creditable 

prescription drug coverage that the 

enrollee believes may not have been 

considered). 

Finally, we proposed to specify that a 

beneficiary would not have the right to 

further administrative review of the 

reconsideration decision of CMS, or the 

independent review entity acting under 

CMS’ authority. However, we would, 

have the discretion to reopen, review, 

and revise such a decision. 

Comment: Several commenters 

support the regulatory changes 

proposed; several other commenters, 

however, raised concerns about the role 

of Medicare Part D plan sponsors in the 

creditable coverage period 

determination process associated with 

the Part D LEP. Two of these 

commenters stated that having plans 

obtain and validate the required 

information could create inconsistencies 

in acceptable documentation, possible 

errors in reports to the government, and 

additional burden to plans. These two 

respondents suggested that CMS be 

responsible for the creditable coverage 

period determination, and one of them 

stated that the reporting process should 

be the same as the one for the Medicare 

Part B premium surcharge. 

Additionally, one of these commenters 

also suggested that, at the very least, and 

until such time as CMS is able to 

conduct this verification process 

without plan involvement, CMS should 

enhance its current Beneficiary 

Eligibility Query (BEQ) to provide the 

number of uncovered months rather 

than covered months. The commenter 

suggests that plans would then be able 

to simply transfer this information to 

the attestation form that must be sent to 

the beneficiary rather than have to 

convert it. 

Response: The structure of the 

Medicare Part D program differs 

significantly from the Supplementary 

Medical Insurance program (Medicare 

Part B) in that beneficiaries interact 

directly with Part D plan sponsors to 

enroll in Part D coverage. In contrast, 

the majority of beneficiaries are 

automatically enrolled in Part B, while 

the rest apply at the Social Security 

Administration. Moreover, since we do 

not have information about all of the 

possible forms of creditable coverage for 

individual beneficiaries, this 

information has to come directly from 

beneficiaries. Since Part D plans 

correspond directly with their members 

at various times (for example, when the 

enrollment request is submitted and 

accepted by the plan), they are better 

able to determine whether the 

beneficiary is enrolling late and, if so, 

whether the beneficiary had creditable 

coverage. Thus, we continue to believe 

that plans are the appropriate entity to 

administer the initial stages of the LEP 

process. 

With respect to the commenter’s 

request that we enhance our BEQ to 

provide the number of uncovered 

months rather than covered months, we 

modified its system to include 

information about prior creditable 

coverage so that plans could query our 

data through the BEQ mentioned above. 

During this modification, we opted to 

include the date ranges that correspond 

to the months in which the individual 

has, or had, Part D coverage or when the 

retiree drug subsidy (RDS) is being 

claimed by an employer for that 

individual. This creditable coverage 

history that we provide in the BEQ is 

based on information we can confirm 

(that is, Part D or RDS coverage). 

Therefore, when there is a qualifying 

gap outside of these covered months, we 

are unable to determine whether an 

individual had other creditable coverage 

during the period in question. Since 

Part D plan sponsors correspond 

directly with their members when the 

enrollment request is submitted and 

accepted by the plan, they are better 

able to obtain creditable coverage 

information from the beneficiary about 

these uncovered months. Therefore, we 

decline to change the query at this time. 

Additionally, we have developed 

operational procedures and policies that 

are intended to be as simple and 

straightforward as possible and impose 

minimal administrative burden on plans 

and beneficiaries. Most recently, on 

April 11, 2008, we released a 

memorandum, ‘‘Updated Guidance on 

Creditable Coverage Determinations and 

the Late Enrollment Penalty’’ via our 

Health Plan Management System 

(HPMS). This memorandum further 

clarified and expanded operational and 

policy guidance in a number of areas 

based on our experience implementing 

this policy and in response to questions 

and concerns raised. One significant 

change we made was to allow Part D 

plan sponsors to accept telephonic 

attestations in place of a missing or 

incomplete written attestation. We also 

expanded the existing timeframes that 

Part D plan sponsors have to report the 

creditable coverage information to us, 

thus affording Part D plan sponsors 

more time to follow up with 

beneficiaries to obtain the appropriate 

information. 

Comment: Several commenters 

suggested that we simplify our 

creditable coverage documentation 

requirements for beneficiaries who 

change plans. For example, enrollees 

should be able to simply state on their 

enrollment application that they have 

had drug coverage, and CMS should 

then be responsible for verifying this 

information, since CMS should have 


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records of all the drug plans in which 

they were enrolled. 

Response: We have already limited 

the scope of the plans’ review when 

there is prior Part D plan or RDS 

enrollment in order to further simplify 

documentation requirements for plans 

and beneficiaries. If the beneficiary has 

prior Part D or RDS plan coverage, the 

plan only needs to determine whether 

the member has any months without 

creditable coverage since the date that 

he or she disenrolled from his or her 

prior Part D or RDS plan. That is, the 

current plan does not have to repeat the 

work done by the prior plan, and 

beneficiaries do not need to attest again 

to prior coverage when they simply 

change plans. 

Additionally, if the individual, on 

his/her own initiative, includes 

creditable coverage information or 

documentation or both with the 

enrollment form, the plan must take that 

information into account when 

determining whether there has been a 

gap in coverage. As mentioned 

previously, we believe plans are in the 

best position to make creditable 

coverage determinations and report 

such determinations to CMS. We will 

continue to improve the process in 

response to comments and concerns 

from plans and beneficiaries. 

Comment: One commenter stated that, 

although information about an 

individual’s LEP is sent to the 

beneficiary, many beneficiaries do not 

open or read their mail. The commenter 

suggested that the beneficiary’s LEP 

status be included in the Plan Finder, so 

that the beneficiary (and others assisting 

the beneficiary) could access such 

information. The commenter suggests 

that the Plan Finder include an 

indication as to whether or not an LEP 

has been assessed; the percentage of the 

penalty; and where applicable, LEP 

exempt status due to low income 

subsidy (LIS) eligibility. 

Response: We appreciate the 

commenter’s suggestion for using the 

Plan Finder as a tool to display 

information about a beneficiary’s late 

enrollment penalty, and will consider 

whether this is viable in the future. 

However, no changes in the Plan Finder 

are possible in 2008. In the meantime, 

we have developed a ‘‘Tip Sheet’’ for 

Partners that provides key points for 

those assisting beneficiaries to use when 

answering questions from beneficiaries 

about the penalty. We are also 

developing another ‘‘Tip Sheet’’ that 

will focus on beneficiaries’ role in 

responding to information received from 

their Part D plan sponsor, such as the 

attestation form. We have also 

simplified the current attestation form 

and included a new checklist designed 

to focus beneficiaries’ attention on the 

form and emphasize the urgency of 

completing the attestation process. We 

expect these changes will improve 

beneficiaries’ understanding of the 

importance of providing information 

about prior creditable coverage to their 

Part D plan sponsor. 

Comment: Several commenters urged 

that the regulations include waiver of 

the LEP for individuals receiving the 

low income subsidy (LIS). 

Response: Section 114 of the MIPPA 

eliminates the penalty for these 

individuals. Therefore, we have 

amended our regulations at § 423.46(a) 

and § 423.780(e) in a separate interim 

final rule to reflect this change. (See the 

September 15, 2008 interim final rule 

with comment period (73 FR 54226)). 

(Note that, under an existing Part D 

payment demonstration, CMS has not 

imposed an LEP on LIS beneficiaries.) 

Comment: Several commenters urged 

that individuals have the full array of 

appeal rights available with respect to a 

decision subject to the Part D 

beneficiary appeals process, including 

ALJ hearings, and should not be limited 

to the reconsideration level of review. 

These commenters also believed that the 

regulation should contain more 

information about the reconsideration 

process, such as procedures and 

required timeframes for requesting a 

reconsideration, and that the regulation 

should at least set out a simple 

procedure whereby a beneficiary can 

submit evidence at any time to 

eliminate or reduce a late enrollment 

penalty. One commenter asked that 

members be provided LEP 

reconsideration rights when they are 

informed of their LEP. Another 

commenter indicated support for the 

existing process, with beneficiaries 

being permitted to seek reconsideration 

of their LEP. 

Response: We have carefully 

considered this issue and believe that 

the current independent review process 

is sufficient and appropriate. Thus, we 

do not believe we need to offer 

beneficiaries expanded LEP appeal 

rights for several reasons. 

First, we are offering significantly 

more due process to enrollees to dispute 

the imposition of an LEP than the law 

requires. The Part D beneficiary appeals 

process does not by its own terms apply 

to a decision on the applicability of an 

LEP, but only to decisions on whether 

drugs are covered, or how much a 

beneficiary is required to pay for 

covered drugs. With respect to the 

imposition of an LEP, the statute only 

provides individuals with an 

opportunity to apply to CMS to have 

their coverage treated as creditable upon 

establishing to CMS that they were not 

adequately informed that their 

prescription drug coverage was not 

creditable. (See section 1860D– 

13(b)(6)(C) of the Act.) Providing a 

reconsideration process to resolve other 

LEP-related matters, such as the 

question of whether an individual was 

enrolled in another plan offering 

creditable prescription drug coverage, is 

not required by the statute and is an 

added beneficiary protection under our 

current process. 

Second, Chapter 18, § 80.7.1 of the 

Medicare Prescription Drug Benefit 

Manual and CMS’ April 11, 2008 

memorandum (cited above) provide 

beneficiaries with numerous added 

protections that are intended to help 

reduce the need for beneficiaries to seek 

reconsideration of their LEP. For 

example, plans must submit corrections 

when they receive a late attestation form 

that indicates the member had 

creditable coverage for the period in 

question if the plan has already reported 

uncovered months to CMS. 

As described above, we have 

improved the attestation process by 

simplifying the creditable coverage 

attestation form, adding a new model 

checklist, and permitting Part D plan 

sponsors to allow beneficiaries or their 

representatives to complete the entire 

attestation process over the telephone. 

In addition, CMS guidance now affords 

Part D plan sponsors additional time to 

attempt to obtain information missing 

from the creditable coverage attestation 

form and to report their creditable 

coverage determinations to CMS. 

Finally, as we noted in the proposed 

rule, we have the discretion to reopen, 

review and revise an LEP 

reconsideration decision. Reopenings 

are discretionary but may be granted, for 

example, upon presentation of new and 

material evidence. Given the flexibility 

afforded plans in making corrections to 

previously reported uncovered months 

if an enrollee submits an untimely 

attestation or other evidence of prior 

creditable prescription drug coverage, 

there should be a minimal need to look 

at decisions again. 

Additionally, we disagree with the 

comment that we should detail all 

aspects of the reconsideration process in 

the regulation. We believe it is more 

practical to establish timeframes and 

other specific procedural and 

operational requirements related to LEP 

reconsiderations in CMS guidance so 

that necessary revisions can be made to 

ensure the needs of beneficiaries and 

plans are met in a timely manner. 

Updates to Chapters 4 and 18, § 80.7.1 

of the Medicare Prescription Drug 


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Benefit Manual will be incorporated, as 

needed. 

Lastly, we agree with the comment 

that member reconsideration rights 

should be provided to a beneficiary who 

is informed of his or her LEP. Plans now 

are required to provide both the LEP 

reconsideration notice and LEP 

reconsideration request form at the time 

they notify the enrollee of his/her LEP. 

See Chapters 4 and 18 § 80.7.1 of the 

Medicare Prescription Drug Benefit 

Manual for additional information. 

Comment: A number of commenters 

suggested that the regulations confirm 

that CMS has the ultimate authority to 

determine whether previous coverage is 

creditable, thereby obviating the 

imposition of the late enrollment 

penalty. One commenter urged CMS to 

monitor the implementation of the 

proposed regulations to ensure that 

plans adequately inform beneficiaries of 

the importance of providing evidence of 

creditable coverage and work with 

beneficiaries to ensure an adequate 

timeframe to do so. 

Response: We have retained the 

ability to deem coverage creditable in 

certain situations, and has defined the 

procedures for documenting such 

coverage at § 423.56. Therefore, we 

decline to take additional steps to 

address this comment in this regulation. 

With respect to the commenter’s request 

that we ensure that plans adequately 

inform beneficiaries of the importance 

of providing evidence of creditable 

coverage and work with the 

beneficiaries to ensure they have 

adequate time to do so, we have already 

modified our attestation form and 

process, which addresses concerns such 

as these. For example, as previously 

described, our updated guidance allows 

Part D plan sponsors more time to 

follow up with beneficiaries when plans 

do not receive the beneficiaries’ 

attestation or the attestation form is 

incomplete. This extended timeframe is 

in addition to the 30 calendar days 

beneficiaries already have to attest to 

prior creditable coverage. Also, if a 

beneficiary attests to having creditable 

coverage beyond the prescribed 

timeframe, again, we require Part D plan 

sponsors to accept the late attestation 

and make any corrections to the number 

of uncovered months previously 

reported to CMS. Lastly, as with other 

requirements, we will continue to 

monitor plans’ compliance in this area 

and will follow up with those when 

problem areas are identified. 

3. Subpart C—Benefits and Beneficiary 

Protections (Definitions) 

a. Incurred Costs 

In our May 16, 2008 proposed rule, 

we proposed to amend the definition of 

‘‘incurred costs’’ to reflect our current 

policy that certain nominal co-payments 

assessed by manufacturer Patient 

Assistance Programs (PAPs) can be 

applied toward an enrollee’s true out-ofpocket costs (TrOOP) balance or total 

drug spend (the accumulated total 

prices for covered Part D drugs paid by 

the plan or by or on behalf of the 

beneficiary). We allow PAPs to provide 

assistance for covered Part D drugs to 

Part D enrollees outside the Part D 

benefit. This means that payments made 

by PAPs do not count toward enrollees’ 

TrOOP or total drug spend balances. 

However, if a PAP requires their 

enrollees—including those enrolled in a 

Part D plan—to pay a nominal 

copayment when they fill a prescription 

for a covered Part D drug for which the 

PAP provides assistance, such amounts 

would count toward TrOOP if the plan 

is notified of the copayment. As 

explained in Appendix C of Chapter 14 

(Coordination of Benefits) of the 

Prescription Drug Benefit Manual, these 

nominal PAP copayment amounts, 

when paid by or on behalf of a Part D 

enrollee, are applicable to the enrollee’s 

TrOOP and total drug spend balances, 

provided the enrollee submits 

appropriate documentation to their Part 

D plan. 

Based on the numerous comments we 

received, we are finalizing the proposed 

definition of incurred costs to indicate 

that nominal PAP copayments are 

included in ‘‘incurred costs.’’ This 

revision to the definition of ‘‘incurred 

costs’’ in § 423.100 is consistent with 

the proposed changes to the definition 

of ‘‘gross covered prescription drug 

costs’’, which is also being revised to 

ensure that nominal PAP copayments 

are included in ‘‘gross covered 

prescription drug costs’’ and allowable 

reinsurance costs. 

Comment: Several commenters 

expressed strong support for this 

proposed change to the definition of 

‘‘incurred costs,’’ saying it would ensure 

that nominal PAP copayments are 

included in TrOOP and total drug spend 

balances. However, many of these 

commenters also expressed concern 

about the potential burden for 

beneficiaries in submitting these claims 

to their Part D plans. Some commenters 

asked us to draft a model form for 

submitting these claims, and asked us to 

encourage all Part D sponsors to adopt 

this model form. In addition, we were 

asked to provide this model form to 

SHIPs and other organizations that 

provide aid to LIS beneficiaries. Other 

commenters recommended that we 

require or encourage PAPs to provide 

one standard form to Part D 

beneficiaries. We were also asked to 

encourage pharmacies to fill out the 

required forms for Part D beneficiaries. 

Response: We will consider 

developing a model form which Part D 

sponsors could provide to their 

enrollees. We would make this form 

available to PAPs, pharmacies, SHIPs, 

and other organizations as appropriate. 

Comment: Some commenters asked us 

to require Part D sponsors to include 

instructions regarding the process for 

submitting the appropriate 

documentation of nominal PAP copayments in the Evidence of Coverage 

(EOC) and other membercommunications with Part D 

beneficiaries. One commenter 

recommended that we set uniform 

timelines for plans to include 

instructions for submitting this 

documentation in the EOC. This 

commenter also asked us to give 

sponsors broad authority for setting 

timeframes for the submission of PAP 

claims. 

Response: Currently Part D sponsors 

are required to provide information on 

how to submit a paper claim to have 

beneficiary copayments that are paid 

under a PAP outside the Part D benefit 

accrue toward an enrollee’s TrOOP and 

gross drug spend balances. Part D 

sponsors have flexibility in setting 

reasonable timeframes for the 

submission of such paper claims, 

keeping in mind CMS deadlines for 

submission of prescription drug event 

(PDE) records for purposes of the Part D 

payment reconciliation process. 

Comment: We received one comment 

asking us to encourage PAPs to develop 

a means for transmitting the appropriate 

documentation electronically—in order 

to reduce the burden for beneficiaries. 

Response: Currently, the Health 

Insurance Portability and 

Accountability Act (HIPAA) standard 

for claims submission does not 

accommodate the e-transmission of this 

claim information by PAPs or network 

pharmacies. We would support any 

industry efforts to streamline the 

submission of these and other paper 

claims. 

Comment: One commenter asked that 

we provide a definition of a Patient 

Assistance Program (PAP) in order to 

help differentiate a PAP from a 

manufacturer sponsored pharmacy 

benefits card program. 

Response: We use the term PAP with 

respect to pharmaceutical manufacturer 

sponsored patient assistance programs 


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that provide free products or assistance 

through in kind product donations to 

low income patients—particularly those 

with incomes below 200 percent of the 

Federal poverty level (FPL)—with no or 

insufficient prescription drug coverage. 

Manufacturer PAPs operate outside of 

the Medicare Part D program. 

Comment: One commenter expressed 

concern that PAPs tend to promote 

brand drugs which is inconsistent with 

the efforts of Part D sponsors to promote 

generics. 

Response: We appreciate the 

commenter’s concern but note that we 

do not have any regulatory authority 

over PAPs. To the extent that Part D 

sponsors learn that their enrollees are 

purchasing brand drugs outside of the 

Medicare prescription drug benefit 

through a PAP, the sponsors may 

undertake efforts to promote any generic 

equivalents or therapeutically 

equivalent drugs available on Part D 

plan formularies. 

Comment: We received a few 

comments regarding the automation of 

‘‘true out-of-pocket costs’’ (TrOOP) 

reporting. One commenter asked that we 

continue to address challenges 

associated with TrOOP tracking. 

Another commenter recommended that 

we work with the National Council for 

Prescription Drug Programs (NCPDP) to 

update HIPAA Standards in order to 

automate TrOOP reporting and help 

pharmacies better support the Medicare 

Part D program. 

Response: We are currently working 

with the industry to implement an 

automated TrOOP balance transfer 

process to better facilitate the tracking of 

TrOOP. Additional guidance regarding 

this effort will be provided at a future 

date. 

Comment: One commenter noted that 

in the case of LIS enrollees, it is possible 

that the nominal PAP co-pay will 

exceed the LIS cost sharing due from the 

beneficiary. The commenter asked that 

we clarify that in such cases, Part D 

sponsors should reflect the cost sharing 

due as the LIS cost sharing amount and 

that we require the Part D sponsors to 

send the LIS beneficiary a check for the 

difference between the PAP co-payment 

and LIS cost sharing amount. 

Response: We disagree with this 

recommendation. LIS beneficiaries do 

not receive the low-income cost sharing 

subsidy for drugs they obtain through 

PAPs because these programs operate 

outside of the Medicare Part D program. 

Therefore, there is no coordination of 

benefits between a PAP and Part D 

sponsors. Sponsors cannot make 

adjustments through refund or 

otherwise to nominal co-payments 

assessed by PAPs to LIS eligible 

enrollees. The proposed change to the 

definition of ‘‘incurred costs’’ simply 

allows affected beneficiaries to have 

their nominal PAP co-payments 

included in their TrOOP and gross drug 

spend balances. 

b. Negotiated Prices 

In order to address questions that 

have arisen since the Prescription Drug 

Benefit final rule was issued, we 

proposed to amend the definition of 

‘‘negotiated prices’’ (to be effective for 

Part D contract year 2010) to require that 

Part D sponsors base beneficiary cost 

sharing and price reporting to CMS on 

the price ultimately received by the 

pharmacy or other dispensing provider, 

also known as the pass-through price. 

We received questions regarding 

whether Part D sponsors of prescription 

drug plans (PDPs) and Medicare 

Advantage prescription drug plans 

(MA–PDs) who utilize the lock-in 

pricing approach when contracting with 

a pharmacy benefit manager (PBM) may 

base beneficiary cost sharing on the 

price paid to the PBM, also known as 

the lock-in price. The lock-in pricing 

approach is a contract method by which 

the sponsor agrees to pay the PBM a set 

rate for a particular drug and the PBM 

negotiates with pharmacies to achieve 

the best possible price, which may vary 

from the rate paid to the PBM. Under 

the lock-in pricing approach, the price 

paid to the PBM or lock-in price is often 

greater than the price paid by the PBM 

to the pharmacy (the pass-through price) 

due to the inclusion of a ‘‘risk 

premium’’ which the Part D sponsor 

pays to the PBM to mitigate market risk 

and shield the Part D sponsor from price 

variability between pharmacies. This 

‘‘risk premium’’ is analogous to the cost 

of drug utilization management, drug 

price negotiation, and other 

administrative costs incurred by Part D 

sponsors. Therefore, the lock-in price 

includes an administrative fee paid to 

the PBM by the Part D sponsor. 

Beneficiary cost sharing is a function 

of the negotiated price, either directly as 

in coinsurance percentages of the 

negotiated price, or indirectly, as copayments which are ultimately tied to 

actuarial equivalence requirements 

based on negotiated prices. We believe 

that it is important to ensure that 

negotiated prices are based upon the 

actual drug price paid at the point-ofsale and do not include any of the 

administrative fees paid by Part D 

sponsors to their intermediary 

contracting organizations because 

higher negotiated prices advance 

beneficiaries through the phases of the 

Part D benefit more quickly such that a 

greater number of beneficiaries reach 

the coverage gap phase of the benefit. In 

addition, using lock-in prices to 

determine negotiated prices increases 

the low-income cost sharing and 

reinsurance subsidy payments made by 

the Federal government. The lowincome cost sharing subsidy is 

calculated based on the difference 

between the maximum cost sharing 

amounts for LIS beneficiaries as defined 

by the statute and, if greater, the 

beneficiary cost sharing charged under 

the Part D plan. Thus, higher beneficiary 

cost sharing leads to higher low-income 

cost sharing subsidy amounts. The 

reinsurance subsidy, which is 

calculated as 80 percent of allowable 

reinsurance costs, is increased as 

negotiated prices, and therefore, 

allowable reinsurance costs increase. 

We believe that continuing to permit 

Part D sponsors to use lock-in prices as 

the basis for determining beneficiary 

cost sharing, and reporting drug costs to 

CMS could also have the following 

undesirable results: 

• Cost shifting from the government 

to beneficiaries in the form of higher 

beneficiary out-of-pocket costs. 

• Interference with market 

competition among Part D sponsors. 

• Beneficiary confusion over actual 

drug prices. 

• Difficulties for pharmacies in 

explaining drug prices to customers and 

managing cash transfers to Part D 

sponsors or their intermediary 

contracting organizations. 

• Government risk sharing on 

amounts that reflect administrative 

costs, contrary to Congressional intent 

to exclude risk-sharing on 

administrative expenses. 

Please see the preamble to the May 16, 

2008 proposed rule for a more detailed 

discussion of the potential impact of 

using lock-in prices to determine 

negotiated prices and beneficiary cost 

sharing. 

For these reasons, we proposed to 

revise § 423.100 so that the first part of 

the definition of ‘‘negotiated prices’’ 

would state that negotiated prices are 

prices that the Part D sponsor (or other 

intermediary contracting organization) 

and the network dispensing pharmacy, 

or other network dispensing provider, 

have negotiated as the amount the 

network dispensing pharmacy or other 

network dispensing provider, will 

receive, in total, for a particular drug. 

The term ‘‘intermediary contracting 

organization’’ refers to organizations 

such as PBMs that contract with plan 

sponsors to perform one or both of the 

following functions: (1) Pay pharmacies 

and other dispensers of Part D drugs 

provided to enrollees in the Part D 


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sponsor’s plan, regardless of whether 

the intermediary contracting 

organization negotiates pharmacy 

contracts on behalf of the plan sponsor 

or on its own behalf; or (2) negotiate 

rebates or other price concessions with 

manufacturers for Part D drugs provided 

to enrollees in the Part D sponsor’s plan, 

regardless of whether the intermediary 

contracting organization negotiates on 

behalf of the plan sponsor or on its own 

behalf. 

Under this proposed definition, Part D 

sponsors who utilize the lock-in pricing 

approach when contracting with a PBM 

would no longer be permitted to base 

beneficiary cost sharing on the price 

paid to the PBM (the lock-in price). 

Thus, our proposed definition would 

exclude any differential between the 

price paid to the pharmacy and the 

price paid to the PBM or other 

intermediary contracting organization, 

and instead would treat that differential 

(or ‘‘risk premium’’) as an 

administrative cost paid to the PBM or 

intermediary contracting organization 

rather than as a drug cost under Part D. 

We also proposed to revise the 

definition of ‘‘negotiated prices’’ (to be 

effective upon the effective date of the 

final rule) to include prices for covered 

Part D drugs negotiated between the Part 

D sponsor (or its intermediary 

contracting organization) and other 

network dispensing providers. Part D 

sponsors can contract with providers 

other than a pharmacy to dispense 

covered Part D drugs by including them 

in their network. Therefore, we 

proposed to amend the definition of 

negotiated prices to reflect the prices for 

covered Part D drugs that Part D 

sponsors (or their intermediary 

contracting organizations) negotiate 

with all of their network dispensing 

providers. 

Our proposed changes to the 

definition of negotiated prices would 

not interfere with the negotiations 

between Part D sponsors, pharmacy 

benefit managers, and pharmacies for 

covered Part D drugs. Rather, Part D 

sponsors would be required to use the 

price ultimately received by the 

pharmacy (or other dispensing provider) 

as the basis for calculating beneficiary 

cost sharing, total drug spend, and cost 

reporting to CMS. The proposed 

definition would not require a Part D 

sponsor to use a particular pricing 

approach in its contracting agreements 

with PBMs. Part D sponsors could 

continue to use either the pass-through 

or lock-in pricing approach when 

contracting with a PBM—provided that 

beneficiary cost sharing, total drug 

spend, and the drug costs reported to 

CMS are based on the price ultimately 

received by the pharmacy, or other 

dispensing providers. To the extent that 

Part D sponsors believe that the lock-in 

pricing approach reduces their total 

costs, we indicated that we expected 

that they would continue to use it when 

contracting with a PBM. 

While we did receive some comments 

in opposition to the proposed changes 

to the definition of negotiated prices, 

most of the comments received were in 

strong support of our proposals. Based 

on the comments received and the 

responses provided below, we are 

finalizing the revisions to the definition 

of ‘‘negotiated prices’’ in § 423.100 as 

proposed. The change to the definition 

of ‘‘negotiated prices’’ to include prices 

for covered Part D drugs negotiated 

between the Part D sponsor (or its 

intermediary contracting organization) 

and other network dispensing providers 

is effective upon the effective date of 

this final rule. The revision to the 

definition of ‘‘negotiated prices’’ to 

require Part D sponsors to base 

beneficiary cost sharing on the price 

paid to the pharmacy or other 

dispensing provider will be effective for 

Contract Year 2010. 

Comment: Several commenters agreed 

with our assertion that the proposed 

changes to the definition of negotiated 

prices would increase transparency. 

One commenter supported the proposed 

change because it would improve 

transparency but still allow Part D 

sponsors to utilize the lock-in pricing 

approach. Another commenter indicated 

that the increased transparency would 

serve as an effective tool for helping to 

control prescription drug costs. Another 

commenter indicated that the benefits of 

transparency and the enhanced ability 

of beneficiaries to manage their benefit 

that would result from the proposed 

changes would outweigh the advantages 

of lock-in pricing for Part D sponsors. A 

commenter stated that often plan 

sponsors are not fully aware of the 

‘‘PBM spread.’’ This commenter and 

other commenters recommended that 

we require PBMs to be compliant and 

fully transparent with Part D sponsors 

about pricing structures, rebating, 

formulary management incentives, 

marketing, and compliance 

requirements. 

Response: We agree with commenters 

that the proposed revision to the 

definition of ‘‘negotiated prices’’ would 

increase transparency by ensuring that 

the drug prices paid to pharmacies are 

transparent to beneficiaries and Part D 

sponsors. We believe that this 

transparency will help Part D sponsors 

to better manage their drug costs and 

negotiate lower drug costs and 

administrative fees by making them 

fully aware of the ‘‘PBM spread’’ or 

‘‘risk premium’’ which they are paying 

to their PBMs. This transparency will 

also be helpful to beneficiaries as they 

evaluate and choose among Part D 

plans. While we understand the final 

commenter’s concern about 

transparency, we do not have the 

authority to regulate Part D sponsors’ 

first tier, downstream and related 

entities to this degree. We contract with 

Part D sponsors, not with first tier, 

downstream and related entities, such 

as a sponsor’s PBM, for the provision of 

the Medicare prescription drug benefit. 

Therefore, we do not have the direct 

authority to require PBMs and other 

intermediary contracting organizations 

to be fully transparent regarding their 

pricing structures. However, we strongly 

encourage Part D sponsors to include 

provisions in their contracts with first 

tier, downstream and related entities 

that ensure compliance with our 

reporting requirements and enhance 

transparency. We note that all plan 

contracts with PBMs must include 

provisions that allow us to review their 

financial statements, books, and records. 

Comment: Some commenters asserted 

that the Medicare Part D program 

currently has transparency in the form 

of ‘‘price transparency,’’ where the 

prices paid by Part D sponsors are fully 

known to sponsors and beneficiaries 

and are also listed on the CMS Medicare 

Web site. The commenters asserted that 

the proposed changes to the definition 

of negotiated prices would instead 

create ‘‘cost transparency.’’ The 

commenters stated that there are several 

studies concluding that ‘‘cost 

transparency’’ increases prices because, 

when aware of one another’s costs or 

discount agreements, competitors no 

longer offer special or deep discounts 

that are unnecessary to win the 

competition. 

Response: We disagree. The use of 

lock-in prices reduces ‘‘price 

transparency’’ for Part D sponsors by 

combining the administrative fees 

charged by PBMs with the drug price. 

The proposed changes to the definition 

of negotiated prices would increase 

‘‘price transparency’’ by ensuring that 

only the actual drug price is used to 

determine beneficiary cost sharing and 

report drug costs to CMS. We believe 

that the competitive nature of the Part 

D program will continue to provide 

incentives for Part D sponsors and their 

contracted PBMs to negotiate with 

pharmacies and other dispensing 

providers for lower drug prices. In 

addition, the revised definition of 

negotiated prices will provide an 

additional incentive for Part D sponsors 


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to negotiate with PBMs for lower 

administrative fees. 

Comment: One commenter stated that 

under pass-through pricing, Part D 

sponsors have less transparency 

regarding their ultimate drug costs 

because the drug prices are not fixed. 

The commenter asserted that this makes 

it difficult for Part D sponsors to predict 

their drug costs, which could lead to 

higher risk sharing payments by the 

Federal government. 

Response: We disagree. We do not 

believe that requiring Part D sponsors to 

develop their Part D bids and report 

drug costs to CMS using pass-through 

prices will make it significantly more 

difficult for Part D sponsors to predict 

their drug costs, such that risk sharing 

will be higher. In addition, Part D 

sponsors may take several steps to 

alleviate this concern, including 

negotiating their drug prices prior to 

developing their Part D bids and using 

the lock-in pricing approach when 

contracting with a PBM. 

Comment: Several commenters 

indicated that the proposed changes to 

the definition of ‘‘negotiated prices’’ 

would achieve beneficiary cost savings. 

One commenter indicated that these 

beneficiary cost savings would ensure 

improved access to prescription drugs 

for beneficiaries. In addition, 

commenters stated that the proposed 

changes would protect beneficiaries 

from being prematurely advanced into 

the coverage gap. However, several 

commenters stated that elimination of 

the ‘‘risk premium’’ received by PBMs 

would not decrease out-of-pocket costs 

for beneficiaries. These commenters 

stated the ‘‘risk premium’’ provides 

incentives for PBMs to control costs and 

negotiate deep discounts on 

prescription drugs that are then passed 

on by Part D plans to beneficiaries. 

Response: We agree with those 

commenters who believe that the 

proposed changes would create cost 

savings for beneficiaries. We believe 

that lock-in prices are generally higher 

than the prices paid to pharmacies due 

to the inclusion of the ‘‘risk premium’’ 

paid to the PBM for shielding the Part 

D sponsor from price variability. These 

higher drug prices lead to higher cost 

sharing for Part D beneficiaries. In 

addition, beneficiaries are advanced 

more quickly through the Part D benefit 

such that a greater number of 

beneficiaries enter the coverage gap 

phase where they pay 100 percent of the 

higher drug price. As a result, we 

believe that beneficiaries enrolled in 

Part D plans which currently utilize the 

lock-in pricing approach generally will 

experience cost savings under the 

proposed revision to the definition of 

‘‘negotiated prices’’ that would require 

Part D sponsors to base negotiated 

prices and beneficiary cost sharing on 

the price paid to the pharmacy, which 

is generally lower than the lock-in price. 

We acknowledge that the ‘‘risk 

premium’’ may provide an incentive for 

PBMs to negotiate for lower drug prices 

which would reduce drug costs. Under 

the revised definition of ‘‘negotiated 

prices,’’ Part D sponsors may continue 

to pay ‘‘risk premiums’’ to PBMs 

provided that the amount of these risk 

premiums is appropriately categorized 

as administrative cost and not drug cost. 

In addition, Part D sponsors may 

include other incentives in their 

contracts with PBMs whereby PBMs 

would receive higher administrative 

fees for better managing drug 

expenditures and reducing overall drug 

costs. We also note that the increased 

transparency created under the 

proposed changes to the definition of 

negotiated prices would provide Part D 

sponsors with information regarding 

administrative fees and the cost of drugs 

that they can use to negotiate more 

effectively with PBMs to further reduce 

the cost of providing the prescription 

drug benefit. 

Comment: One commenter asserted 

that lock-in pricing is more equitable to 

beneficiaries than pass-through pricing 

because it protects beneficiaries who 

live in less competitive or underserved 

areas by providing uniform pricing to 

beneficiaries irrespective of where they 

live. 

Response: While we acknowledge that 

the uniform pricing provided under the 

lock-in pricing approach may provide 

lower cost sharing for some 

beneficiaries, we believe that using lockin prices to determine beneficiary cost 

sharing generally results in higher cost 

sharing for most beneficiaries. As a 

result, we believe that requiring plans to 

determine beneficiary cost sharing 

based upon the pass-through price paid 

to the pharmacy or other dispensing 

provider will reduce out-of-pocket costs 

for most beneficiaries and slow their 

advance through the initial coverage 

phase of the benefit. 

Comment: Another commenter agreed 

with our assertion that Part D premiums 

may be lower under the lock-in pricing 

approach. The commenter indicated 

that these lower premiums result in a 

more robust benefit that covers more 

beneficiaries and therefore, results in a 

healthier population at an overall lower 

cost to the government. 

Response: We agree that lower 

beneficiary premiums may help to 

encourage healthier beneficiaries to 

enroll in Medicare Part D. However, we 

do not think that it is appropriate to 

inflate the cost sharing paid by 

beneficiaries with higher drug 

utilization in order to reduce premiums 

for healthier beneficiaries. The goal of 

the Medicare Prescription Drug Benefit 

is to make prescription drugs more 

affordable for all Part D beneficiaries, 

not just those who are healthier and 

have lower drug utilization. The 

proposed revision to the definition of 

‘‘negotiated prices’’ will lead to higher 

Part D bids and therefore, higher 

premiums, for Part D plans which 

currently utilize the lock-in pricing 

approach. This increase in Part D bids 

will increase the direct subsidy 

payments made by the Federal 

government as well as the premiums 

paid by beneficiaries. However, these 

additional costs to the Federal 

government would be partially offset by 

reductions in the low-income cost 

sharing and reinsurance subsidy 

payments made by the Federal 

government. A reduction in low-income 

cost sharing subsidy payments is 

expected due to lower beneficiary cost 

sharing. The reinsurance subsidy, which 

is calculated as 80 percent of allowable 

reinsurance costs, is expected to 

decrease due to lower negotiated prices 

and therefore, lower allowable 

reinsurance costs. Moreover, while the 

beneficiary premiums will increase for 

plans using the ‘‘lock-in’’ pricing 

methodology, cost sharing would be 

lower for all beneficiaries enrolled in 

these plans. 

Comment: Some commenters 

indicated that they agreed with our 

assertion that the lock-in pricing 

approach currently creates an uneven 

playing field for Part D sponsors. They 

explained that generally beneficiaries 

tend to weigh premiums more than cost 

sharing so that plans utilizing the lockin pricing approach may appear more 

cost effective to some beneficiaries. 

However, these commenters stated that, 

in the end, such plans cost enrollees 

considerably more than plans using the 

pass through pricing approach as a 

result of increased cost sharing. 

Response: We agree with the 

commenter that plans which have lower 

beneficiary premiums due to the lock-in 

pricing approach may ultimately be 

more costly for beneficiaries due to 

higher beneficiary cost sharing. To 

ensure that beneficiaries have the 

resources necessary to assess the 

premiums and cost sharing of different 

plan options and make informed plan 

choices, we will continue our current 

outreach and education efforts, 

including the plan comparison 

information available on the plan finder. 

Comment: A few commenters 

indicated that they would prefer that 


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CMS retain the current flexibility for 

Part D sponsors to choose either the 

pass-through or lock-in pricing 

approach, and the continued flexibility 

to reflect lock-in prices as part of drug 

costs. Commenters indicated that 

maintaining this flexibility would 

preserve the competitive nature of the 

Part D program. 

Response: We agree that competition 

is an important aspect of the Part D 

program. We believe that this 

competition will be retained under our 

proposed approach as Part D sponsors 

will continue to have the incentive to 

negotiate for the lowest possible drug 

prices in order to keep their premiums 

low and encourage beneficiaries to 

enroll in their plans. We note that Part 

D sponsors will continue to have the 

option to use either pricing approach 

when contracting with a PBM. However, 

we believe that the advantages for 

beneficiaries under the proposed 

revision to the definition of ‘‘negotiated 

prices’’ outweigh the possible benefits 

Part D sponsors would receive from 

continuing to use the lock-in pricing 

approach. 

Comment: One commenter asserted 

that Part D sponsors are fully aware of 

the potential that drug costs under the 

lock-in pricing approach include a risk 

premium paid to the PBM and 

understand the value this premium 

brings in reducing their drug costs. 

Response: To the extent that this 

statement is true, we would expect Part 

D sponsors to continue providing this 

risk premium to their contracted PBMs. 

Even if Part D sponsors are aware that 

there is a potential for risk premium 

under the lock-in pricing approach, 

however, it is unlikely they know the 

actual amount of the risk premium they 

are paying if they are not made aware 

of the price actually paid to the 

pharmacy. This incomplete information 

makes it difficult for a Part D sponsor to 

fully quantify the value of paying this 

risk premium to a contracted PBM in 

the first place. The proposed revision to 

the definition of ‘‘negotiated prices’’ 

would provide Part D sponsors with the 

increased transparency they need to 

fully quantify the value of paying the 

risk premium. We believe that this 

transparency will provide Part D 

sponsors with the information needed to 

more effectively negotiate with PBMs to 

reduce their risk premiums as well as 

other administrative fees. 

Comment: One commenter indicated 

that the proposed changes violate the 

non-interference requirement of the 

MMA at Section 1860D–11(i)(2), which 

prohibits CMS interference with 

negotiations between sponsors and 

manufacturers or pharmacies and the 

institution of a price structure for the 

reimbursement of covered Part D drugs. 

Response: Our proposed changes to 

the definition of negotiated prices do 

not interfere with the negotiations 

between Part D sponsors and 

pharmaceutical manufacturers and 

pharmacies, nor do they institute a price 

structure for reimbursement of covered 

Part D drugs. While Part D sponsors will 

be required to use the price ultimately 

received by the pharmacy (or other 

dispensing provider) as the basis for 

calculating beneficiary cost sharing and 

reporting drug costs, Part D sponsors 

will not be required to use a particular 

pricing approach in their contractual 

agreements with PBMs. Part D sponsors 

may continue to use the pass-through or 

lock-in pricing approach when 

contracting with a PBM, provided that 

beneficiary cost sharing and the drug 

costs reported to us are based on the 

price ultimately received by the 

pharmacy or other dispensing provider. 

Comment: We received a few 

comments indicating that the proposed 

changes essentially mandate a price 

structure because it is not feasible to 

compensate PBMs under the lock-in 

pricing approach and yet price drugs 

using pass-through pricing. The 

commenters assert that this dichotomy 

would require PBMs to build parallel 

claims adjudication modules and keep 

track of a parallel universe of claims. 

Response: While we understand that 

the proposed revisions to the definition 

of negotiated prices may require some 

PBMs to implement certain system 

changes in order to accommodate the 

requirement to report the price paid to 

the pharmacy, it is unclear to us why 

this would not be feasible. Currently, 

PBMs that offer the lock-in pricing 

approach have the capacity for dual 

pricing as they must track both the price 

they paid to the pharmacy and the lockin price they received from the Part D 

sponsor. The proposed changes to the 

definition of ‘‘negotiated prices’’ would 

simply change which of these two 

prices is reported to CMS. 

Comment: Several commenters 

indicated that it was not Congress’ 

intent to permit plans to charge higher 

prices under the lock-in pricing 

approach as a result of the PBM spread. 

We received a few comments indicating 

that the lack of transparency in the 

spread allows the intermediary to 

manipulate the spread amount to its 

advantage which ultimately works 

against beneficiaries. One commenter 

recommended that we consider 

requiring that Part D plans use a fiscal 

intermediary which will have no 

personal interest in what the pharmacy 

is paid. 

Response: We agree that a lack of 

transparency may lead PBMs to charge 

plans a higher drug price under the 

lock-in pricing approach in order to 

generate greater profit for the PBM, and 

that these higher prices are passed on to 

beneficiaries and the Medicare program. 

We believe that the proposed changes to 

the definition of ‘‘negotiated prices’’ 

would increase transparency for Part D 

sponsors and enhance their ability to 

negotiate with PBMs for lower 

administrative costs by ensuring that 

they are informed of the actual drug 

price (the price paid to the pharmacy) 

and the administrative fees paid to the 

PBM. Thus, this increase in 

transparency could affect drug costs. 

However, we acknowledge that the 

direct subsidy paid by the Medicare 

program and the premiums paid by 

beneficiaries may be somewhat higher 

under the pass through pricing 

approach than under the lock-in 

approach. CMS does not have the 

authority to require Part D sponsors to 

use a specific fiscal intermediary or 

approach when negotiating prices and 

contracts with pharmacies. 

Furthermore, in response to the 

suggestion that we consider requiring 

Part D plans to use a fiscal intermediary 

with no personal interest in the amount 

paid to the pharmacy, we note that it 

may not be beneficial to the Medicare 

Part D program to require Part D 

sponsors to use fiscal intermediaries 

with no personal interest in the price 

paid to the pharmacy. 

Comment: One commenter indicated 

that the ‘‘PBM spread’’ represents an 

additional profit for PBMs which will be 

reduced with greater transparency in 

pricing. However, we received a few 

comments which stated that the 

proposed changes could increase 

program costs for Medicare Part D by 

increasing Part D sponsors’ 

administrative costs. One commenter 

expressed concerns that the proposed 

changes would require Part D sponsors 

to re-negotiate their contracts with 

PBMs. As a result of these negotiations, 

the commenter stated, PBMs could 

charge Part D sponsors higher 

administrative fees, which would lead 

to higher beneficiary premiums. 

Response: While we acknowledge that 

the administrative fees paid by Part D 

sponsors to PBMs will be higher as a 

result of the proposed changes, we 

believe that when the ‘‘risk premium’’ 

that is currently included in drug prices 

under the lock-in model is taken into 

account, overall the administrative fees 

paid by Part D sponsors will not change 

significantly. We also believe that the 

increased transparency would help Part 

D sponsors negotiate more effectively 


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with PBMs. In addition, the competitive 

nature of the Medicare Part D program 

will continue to provide ample 

incentives for Part D sponsors to 

minimize their costs in order to keep 

their beneficiary premiums low. 

Comment: Two commenters indicated 

that the proposed changes may not 

reduce costs for the Medicare Part D 

program, but may in fact increase costs. 

The commenters explained that the 

proposed changes would not permit 

PBMs to utilize all of the tools and 

incentives needed to provide 

prescription drug trend management 

programs, which are benefit 

management tools designed to keep 

drug costs down while maintaining and 

improving beneficiary health outcomes. 

Response: It is unclear to us how the 

proposed changes to the definition of 

‘‘negotiated prices’’ would prohibit 

PBMs from providing services to help 

Part D sponsors manage drug costs. The 

proposed changes would in no way 

prohibit Part D sponsors from paying 

PBMs for these services. To the extent 

that prescription drug trend 

management programs provide an 

important and valued resource for 

managing and reducing drug costs, CMS 

would expect Part D sponsors to 

continue paying administrative fees to 

PBMs for the provision of such services. 

The proposed changes to the definition 

of ‘‘negotiated prices’’ would simply 

ensure that Part D sponsors 

appropriately report these fees as 

administrative costs and not as drug 

costs. 

Comment: In the preamble to the 

proposed rule, we explained that an 

argument could be made that the lockin model is discriminatory to the extent 

it may favor low drug utilizers over high 

drug utilizers. One commenter asserted 

that a plan should not be considered 

discriminatory if it affects certain 

utilizers more than others. If such plans 

were considered discriminatory, the 

commenter argued, any plan type other 

than defined standard coverage could be 

considered discriminatory. The 

commenter stated that Congressional 

intent was to allow for choice in this 

regard. Another commenter indicated 

that differences in plan design and cost 

sharing cannot be equated with 

discrimination. There is no 

discrimination, this commenter stated, 

against a beneficiary because each 

beneficiary may make an informed plan 

choice with all relevant information 

available. 

Response: We continue to believe that 

certain differences in plan design and 

cost-sharing can be discriminatory. 

While it is important to maintain a 

variety of drug plan choices in Medicare 

Part D, it is also important for CMS to 

review plan designs to ensure that they 

do not inappropriately discourage the 

enrollment of less healthy beneficiaries 

or high drug utilizers in certain plans in 

order to maintain a robust risk pool and 

preserve the concept of community 

rating in the Medicare Part D program. 

It is also of paramount importance for 

CMS to ensure that there is a level 

playing field so that true competition 

can occur that benefits all parties—the 

taxpayer, beneficiaries, and plans. The 

actuarial equivalence test for basic Part 

D coverage is intended to ensure that 

there is a level playing field between 

plan types. However, currently two 

different price bases (pass-through 

prices and lock-in prices) may be used 

when determining actuarial 

equivalence. Furthermore, because Part 

D plan sponsors that use the lock-in 

methodology are paying a ‘‘risk 

premium’’ as part of drug costs, they 

often can negotiate a lower 

administrative fee with their PBMs. As 

a result, these plans can submit lower 

bids in order to receive lower 

premiums. These lower bids may 

increase the likelihood that a plan’s 

premium will be below the regional 

low-income subsidy benchmarks such 

that the plan will qualify for autoenrollment and facilitated enrollment of 

LIS-eligible individuals. As a result, we 

continue to believe that providing Part 

D sponsors with the option to develop 

their Part D bids using either the passthrough approach or the lock-in 

approach creates an uneven playing 

field for Part D sponsors who utilize the 

pass-through pricing approach. 

Comment: One commenter indicated 

that it was unclear why we believed that 

lock-in pricing would shift costs from 

the government to beneficiaries in the 

form of higher beneficiary out-of-pocket 

costs. The commenter explained that in 

their observation, the lock-in model has 

been the dominant pricing model in the 

commercial market. The ‘‘risk 

premium’’ allows PBMs to carry out a 

broad spectrum of services which 

favorably influence overall drug 

spending trends. The commenter also 

stated that this pricing model is 

preferred in the commercial market 

because it holds PBMs accountable for 

the drug costs incurred. The commenter 

indicated that the ‘‘regulated 

transparency’’ resulting from the 

proposed changes would be less 

effective in reducing drug costs than 

vigorous PBM competition. Another 

commenter indicated that the lock-in 

pricing approach may generate deeper 

discounts than the pass-through pricing 

approach. 

Response: The use of lock-in prices to 

develop Part D bids shifts 

administrative costs that would be paid 

primarily by the Federal government as 

part of the direct subsidy to drug costs 

paid by beneficiaries through higher 

cost sharing. The proposed revision to 

the definition of ‘‘negotiated prices’’ 

would ensure that these administrative 

costs are not paid by beneficiaries 

through beneficiary cost sharing. We 

note that Part D sponsors will continue 

to have the option to utilize the lock-in 

pricing approach in their contracts with 

PBMs, provided that the pass-through 

price is used to determine beneficiary 

cost sharing and to report drug costs to 

CMS. To the extent that the lock-in 

pricing approach generates deeper 

discounts or reduces total drug costs, we 

would expect Part D sponsors to 

continue using this pricing approach 

when contracting with PBMs. 

Comment: In the preamble to the 

proposed rule, we requested comments 

regarding the impact of the proposed 

changes on pharmacies, particularly 

small independent pharmacies. We 

received comments from several 

pharmacist associations as well as 

pharmacies. The commenters were 

generally very supportive of the 

proposed changes and noted that the 

proposed changes will not have a 

negative effect on pharmacies. One 

commenter indicated that lock-in 

pricing negatively impacts the ability of 

pharmacies to serve beneficiaries. 

Another commenter indicated that the 

additional transparency created by the 

proposed changes to the definition of 

‘‘negotiated prices’’ would likely make 

competition more difficult for small 

pharmacies although these pharmacies 

would not be removed from Part D 

sponsors’ networks due to CMS’ 

pharmacy access standards. Another 

commenter indicated that small 

independent pharmacies do not tend to 

receive higher reimbursement rates and 

therefore, would not be negatively 

impacted by the proposed change. The 

commenter explained that independent 

pharmacies are often forced to accept 

whatever price is offered by the PBM. 

However, because of their size, chain 

pharmacies are often able to negotiate 

higher reimbursement rates. One 

commenter indicated that the proposed 

change would not have an adverse effect 

or increased burden on LTC pharmacies. 

Another commenter expressed concern 

that the decrease in beneficiary cost 

sharing resulting from the proposed 

changes could reduce the operational 

cash-flow for pharmacies. This 

commenter recommended developing 

guidance regarding prompt payment to 


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pharmacies to help alleviate this 

concern. 

Response: Based on the comments 

received from pharmacies and 

pharmacists’ associations, which were 

very supportive of the proposed 

changes, we have concluded that the 

proposed changes would not negatively 

impact pharmacies, including small 

independent pharmacies. Rather, we 

believe that the proposed changes will 

help pharmacies by reducing the 

administrative burden associated with 

tracking lock-in prices and addressing 

beneficiary confusion resulting from 

discrepancies between the pass-through 

price charged by the pharmacy and the 

lock-in price reflected on the 

beneficiary’s EOB. With respect to the 

comment suggesting that CMS develop 

guidance regarding prompt payment to 

pharmacies, we note that section 171 of 

MIPPA establishes timely claims 

payment requirements for Part D plans 

that will become effective for plan years 

beginning 2010. CMS is currently 

developing and implementing guidance 

to ensure prompt payment to 

pharmacies. 

Comment: One commenter expressed 

concern that Part D sponsors may 

believe that the proposed revisions to 

the definition of ‘‘negotiated prices’’ 

will require Part D sponsors to set 

negotiated prices equal to 340B prices 

for 340B-participating Part D network 

pharmacies. The commenter explained 

that making drugs available to non-340B 

patients at 340B prices will create 

significant losses for 340B pharmacies, 

which must obtain these drugs at prices 

above 340B levels. Therefore, the 

commenter asked CMS to clarify that 

Part D sponsors may not require 340B 

providers to provide 340B prices to Part 

D plans under § 423.104(g)(1). 

Response: The proposed definition of 

negotiated prices does not require Part 

D sponsors to set negotiated prices at 

340B prices for 340B-participating Part 

D network pharmacies. While we 

understand the commenter’s concern 

that Part D plans may try to require 

pharmacies to make drugs available to 

Part D beneficiaries at 340B prices, we 

note that we generally do not interfere 

in plan-pharmacy contract negotiations 

or opine on the reasonableness or 

relevancy of specific contractual terms. 

Instead, we use our oversight authority 

to ensure that Part D sponsors abide by 

our rules and allow appropriate access 

to their pharmacy networks. A Part D 

sponsor offering less than satisfactory or 

unclear contract terms to a pharmacy 

would likely find it difficult to retain 

enough pharmacies to meet our network 

requirements, and would therefore be 

unable to renew its Medicare Part D 

contract. We urge pharmacies to ensure 

that they understand and agree with all 

terms of a pharmacy network contract 

before contracting with a Part D 

sponsor. 

Comment: In the proposed rule, we 

asked for comments regarding the lack 

of transparency and the potential for 

beneficiary confusion as a result of lockin prices. We received several 

comments indicating that the proposed 

changes to the definition of negotiated 

prices would create greater transparency 

for beneficiaries. Commenters also 

expressed concern that lock-in prices 

may lead to beneficiary confusion. One 

commenter explained that pharmacies 

are often unable to customize receipts to 

reflect the lock-in price. The 

discrepancy between the lock-in price 

reflected in the Explanation of Benefits 

(EOB) and the pharmacy price reflected 

on the receipt often leads to beneficiary 

anger and confusion. The commenter 

asserted that as a result of the additional 

time spent with beneficiaries to explain 

the discrepancy, pharmacies’ 

administrative costs have increased. 

Other commenters stated that lock-in 

prices do not generate more beneficiary 

confusion than pass-through prices. 

These other commenters asserted that 

pass-through pricing generates greater 

beneficiary confusion than lock-in 

pricing by establishing different prices 

from pharmacy to pharmacy. In 

addition, these commenters stated that 

the full retail price is not usually shown 

on the customer receipt, rather, just the 

amount due from the beneficiary is 

shown. As a result, it is rare that the 

pharmacy receipt would reflect a drug 

price that conflicts with a lock-in price 

on the EOB. 

Response: We acknowledge that passthrough pricing may result in different 

prices at different pharmacies, which 

could create some confusion for Part D 

beneficiaries. However, it is customary 

for different pharmacies to charge 

different drug prices. We believe that 

the use of lock-in prices may lead to 

more significant beneficiary confusion 

due to the discrepancy between the 

pass-through price charged by the 

pharmacy and the lock-in price reflected 

on the beneficiary’s EOB. We are aware 

of a number of cases where beneficiaries 

have received pharmacy receipts which 

show prices that differ from the prices 

indicated on their EOB due to lock-in 

prices. We also understand the burden 

this discrepancy places on pharmacies 

that must try to address beneficiary 

confusion. We believe implementing the 

proposed changes to the definition of 

negotiated prices will help to alleviate 

this burden. 

Comment: One commenter indicated 

that pharmacies incur significant 

administrative costs tracking the lock-in 

price collected from the beneficiary and 

transferring the additional amounts to 

the PBM. This burden is exacerbated by 

the fact that pharmacies are often forced 

to sell drugs to PBMs at prices below 

their acquisition cost. Another 

commenter indicated that the lock-in 

pricing approach does not require 

pharmacies to expend more staff 

resources than the pass-through pricing 

approach. This commenter explained 

that pharmacies are required to have 

accounting processes and the capability 

to conduct ongoing reconciliations 

under any pricing approach. 

Furthermore, the commenter indicated 

that typically pharmacies are not 

required to remit payments to PBMs 

since the amounts owed by the 

pharmacy are generally offset by the far 

greater amounts owed to the pharmacy 

by the PBM. 

Response: We agree with the second 

commenter that pharmacies would not 

incur additional administrative costs 

under the lock-in pricing approach from 

transferring additional amounts to PBMs 

because generally pharmacies are 

required to conduct ongoing 

reconciliations with PBMs and plan 

sponsors under either pricing approach. 

However, we believe that pharmacies do 

incur additional administrative costs 

from tracking the lock-in price, ensuring 

that this is the price conveyed to the 

beneficiary (rather than the price 

actually paid to the pharmacy by the 

PBM), and addressing beneficiary 

confusion regarding the drug price. We 

believe that the proposed changes to the 

definition of ‘‘negotiated prices’’ would 

help alleviate some of this 

administrative burden for pharmacies 

by ensuring that beneficiary cost sharing 

is based on the price negotiated with the 

pharmacy. 

Comment: Several commenters 

recommended that until the proposed 

changes are made effective in 2010, 

CMS should require Part D sponsors 

that utilize the lock-in pricing approach 

to indicate this policy in their marketing 

materials in order to create greater 

transparency for Part D beneficiaries. In 

addition, they recommended that we 

require Part D sponsors to inform their 

enrollees whenever they purchase a 

drug that is more highly priced because 

of lock-in prices, and that we require 

Part D sponsors to advise enrollees of 

their right to pay a lower cash price 

during all phases of the benefit. 

Response: We agree with the 

commenters’ desire to provide greater 

transparency for beneficiaries and 

believe that the changes to the 


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definition of ‘‘negotiated prices’’ to 

require the reporting of pass through 

prices effective in 2010 will achieve that 

result. However, the commenters’ 

recommendations would require Part D 

sponsors using the lock-in approach to 

incur significant administrative costs for 

plan year 2009. Given that these 

requirements would only be applicable 

for one year, we do not believe that it 

would be worthwhile to implement the 

commenters’ recommendations. 

Comment: A commenter expressed 

concern that the proposed changes to 

the definition of ‘‘negotiated prices’’ 

would make calculating the negotiated 

price too complicated and therefore 

requested clarification that the 

negotiated price does not include posthoc rebates, price concessions, or other 

adjustments to prices. 

Response: Under the proposed 

definition of ‘‘negotiated prices’’, Part D 

sponsors would only apply the price 

concessions that they elect to pass 

through at the point of sale. We 

understand the difficulty in applying 

price concessions that are received after 

the point of sale purchase to the 

negotiated price at the point of sale. Part 

D sponsors would not be required to 

apply post-hoc rebates or price 

concessions to the negotiated price at 

the point of sale. Rather, these post-hoc 

rebates or price concessions must be 

reported to CMS outside the drug claim, 

consistent with our DIR reporting 

instructions, ‘‘Medicare Part D DIR 

Reporting Requirements for Payment 

Reconciliation’’. 

Comment: Several commenters 

expressed concern that the proposed 

definition of negotiated prices would 

not prevent retail or mail order 

pharmacies that are wholly-owned by 

Part D sponsors from charging inflated 

drug prices under the Part D sponsors’ 

plans. It was recommended that CMS 

and OIG exercise oversight over related 

parties to ensure that they are charging 

prices that are reasonable relative to the 

underlying drug cost. 

Response: We appreciate these 

concerns and will continue reviewing 

the prices charged by pharmacies that 

are wholly-owned by Part D sponsors 

and other related parties to ensure that 

their prices are comparable to those 

offered under other Part D plans, 

particularly when reviewing Part D bids. 

Comment: Several commenters 

indicated that the proposed definition 

fails to protect Part D beneficiaries from 

higher drug prices by not requiring Part 

D sponsors to pass through rebates and 

price concessions at the point of sale. 

They asserted that allowing Part D 

sponsors not to pass through rebates at 

the point of sale dilutes the insurance 

principle of the Part D program by 

shifting cost to the sickest beneficiaries 

and not giving these beneficiaries the 

benefit of the rebates which they 

generated through their higher volume 

of drug purchases. 

Response: As stated in the January 

2005 final rule (70 FR 4244), we 

interpret the definition of the term 

negotiated prices in section 1860D– 

2(d)(1)(B) of the Act as requiring Part D 

sponsors to pass through some, but not 

necessarily all, price concessions to Part 

D beneficiaries at the point of sale. 

Section 1860D–2(d)(1)(B) of the Act 

specifically requires that negotiated 

prices ‘‘shall take into account 

negotiated price concessions, such as 

discounts, direct or indirect subsidies, 

rebates, and direct or indirect 

remunerations * * *’’ A phrase other 

than ‘‘take into account’’ would have 

been used, had the intent been to 

include all price concessions in the 

negotiated prices made available to Part 

D beneficiaries at the point of sale. The 

plain language of this provision 

demonstrates Congress’ intent to be 

permissive—that Part D sponsors are 

permitted to choose how much of their 

negotiated price concessions to pass 

through to Part D beneficiaries at the 

point of sale. Generally speaking, 

however, rebates and certain price 

concessions are determined after the 

point of sale purchase, making it 

difficult for Part D sponsors to always 

apply these amounts to the negotiated 

price at the point of sale. 

Comment: One commenter 

recommended that we delay the 

implementation date for this proposed 

definition until 2011 in order to provide 

PBMs with sufficient time to adapt their 

information systems. This delay would 

especially help sponsors that wish to 

continue using the lock-in pricing 

approach. Another commenter 

supported the proposed effective date 

because it would provide sufficient time 

for Part D sponsors and PBMs to make 

any appropriate adjustments in 

reimbursement to pharmacies. 

Response: We understand that the 

proposed definition may require PBMs 

to implement some changes in their 

information systems. However, we 

believe the effective date of 2010 will 

provide sufficient time for PBMs to 

implement any necessary systems 

changes. 

Comment: One commenter asked 

whether Part D sponsors would be 

permitted to apply a negative 

adjustment to their administrative costs 

in cases where the lock-in price is lower 

than the pass-through price, rather than 

being higher. 

Response: Part D sponsors would be 

permitted to adjust their administrative 

cost estimates appropriately for the PBM 

spread when developing their Part D 

bids. However, we note that it is 

unlikely that overall lock-in prices will 

be lower than the pass-through prices. 

Comment: One commenter indicated 

that the proposed changes to the 

definition of ‘‘negotiated prices’’ would 

increase overall program costs, 

sponsors’ ’’ administrative costs, Part D 

bids, and beneficiary premiums. The 

commenter asserted that these cost 

increases would defeat the purpose of 

the Medicare Part D program, which is 

to keep prescription drugs affordable for 

Medicare beneficiaries. 

Response: The goal of the Medicare 

Part D program is to serve Medicare 

beneficiaries and make prescription 

drugs affordable for them. The proposed 

changes will generally reduce cost 

sharing for beneficiaries, particularly 

those who have high drug utilization 

and, as a result, are most in need of 

assistance in purchasing prescription 

medications. We also believe that the 

increase in Federal costs due to higher 

plan bids will be balanced by the 

reduction in costs for Medicare Part D 

beneficiaries. 

Comment: A commenter indicated 

that the proposed changes to the 

definition of ‘‘negotiated prices’’ should 

apply equally to prices negotiated with 

network retail pharmacies and network 

mail order pharmacies. 

Response: We agree. The proposed 

definition of negotiated prices does not 

make a distinction between network 

retail pharmacies and network mail 

order pharmacies. Thus, the revised 

definition of ‘‘negotiated prices’’, as 

implemented, would apply to all 

network pharmacies and other 

dispensing providers, including 

network mail order pharmacies. 

Comment: One commenter 

recommended revising the proposed 

definition of negotiated prices by adding 

‘‘any’’ before the term ‘‘other network 

dispensing provider’’ to indicate that 

the term ‘‘negotiated prices’’ includes 

prices negotiated with all network 

dispensing providers. 

Response: We agree that negotiated 

prices include prices negotiated with all 

network dispensing providers. However, 

we believe that the proposed definition 

appropriately conveys this policy. 

Therefore, we do not believe that the 

change proposed by the commenter is 

necessary. Thus, we are finalizing the 

proposed revisions to the definition 

‘‘negotiated prices’’ without 

modification. 


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4. Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage (Definitions and 

Terminology, § 423.308) 

a. Actually Paid (§ 423.308) 

In the proposed rule, we proposed to 

include language in the definition of 

‘‘actually paid’’ that would codify and 

clarify our previous guidance, and 

provide that direct or indirect 

remuneration includes discounts, 

chargebacks or rebates, cash discounts, 

free goods contingent on a purchase 

agreement, up-front payments, coupons, 

goods in kind, free or reduced-price 

services, grants, or other price 

concessions or similar benefits from 

manufacturers, pharmacies or similar 

entities obtained by an intermediary 

contracting organization with which the 

Part D sponsor has contracted for 

administrative services, regardless of 

whether the intermediary contracting 

organization retains all or a portion of 

the direct and indirect remuneration or 

passes on the entire direct and indirect 

remuneration to the Part D sponsor. 

Similarly, we proposed to clarify that 

this definition of ‘‘actually paid’’ would 

apply regardless of the terms of the 

contract between the plan sponsor and 

any intermediary contracting 

organization. 

After reviewing the comments we 

received regarding this proposal, which 

are discussed below, we are 

implementing the clarifications to the 

definition of ‘‘actually paid’’ as 

proposed with one change. 

Comment: A commenter expressed 

concern that the term ‘‘intermediary 

contracting organization’’ as described 

in the preamble of the notice of 

proposed rulemaking is too broad. The 

commenter stated that the proposed rule 

seems to suggest that all contractors that 

provide administrative services to a Part 

D sponsor could be considered 

‘‘intermediary contracting 

organizations.’’ Based on this 

interpretation of the term, the 

commenter stated, remuneration 

received by entities with which Part D 

sponsors have contracted for audit 

services, as well as pharmacies that 

provide administrative services such as 

utilization management, could be 

considered to contribute to DIR which 

must be excluded from a sponsor’s 

allowable costs. The commenter 

recommended limiting the term 

‘‘intermediary contracting organization’’ 

to only those organizations that provide 

administrative services, negotiate drug 

prices, and also make payments to 

dispensing entities on behalf of Part D 

sponsors. 

Response: We agree with some of the 

concerns expressed by the commenter. 

It is not our intent to use the term 

‘‘intermediary contracting organization’’ 

to refer to all organizations with which 

Part D sponsors may contract for 

administrative services. The term 

‘‘intermediary contracting organization’’ 

encompasses any entity that contracts 

with a plan sponsor to perform one or 

both of the following functions: (1) Pay 

pharmacies and other dispensers of Part 

D drugs provided to enrollees in the Part 

D sponsor’s plan, regardless of whether 

the intermediary contracting 

organization negotiates pharmacy 

contracts on behalf of the plan sponsor 

or on its own behalf; or (2) negotiate 

rebates or other price concessions with 

manufacturers for Part D drugs provided 

to enrollees in the Part D sponsor’s plan, 

regardless of whether the intermediary 

contracting organization negotiates on 

behalf of the plan sponsor or on its own 

behalf. We have revised the proposed 

definition of ‘‘actually paid’’ to reflect 

this clarification. Specifically, we are 

removing the phrase ‘‘for administrative 

services’’ from the second sentence of 

the proposed definition of ‘‘actually 

paid’’ such that it now states that 

‘‘Direct and indirect remuneration 

includes discounts, chargebacks or 

rebates, cash discounts, free goods 

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

free or reduced-price services, grants, or 

other price concessions or similar 

benefits from manufacturers, 

pharmacies or similar entities obtained 

by an intermediary contracting 

organization with which the Part D plan 

sponsor has contracted, regardless of 

whether the intermediary contracting 

organization retains all or a portion of 

the direct and indirect remuneration or 

passes the entire direct and indirect 

remuneration to the Part D plan sponsor 

and regardless of the terms of the 

contract between the plan sponsor and 

the intermediary contracting 

organization’’. 

Comment: We received several 

comments in support of the proposed 

changes to the definition of ‘‘actually 

paid.’’ One commenter agreed that 

rebates retained by PBMs and price 

concessions received from 

manufacturers should be treated as part 

of the true drug cost. Another 

commenter expressed support for this 

change as a logical follow-on to our 

guidance in the April 2006 Call Letter 

on rebates retained by PBMs. Another 

commenter stated that the proposed 

clarification would reduce the overall 

cost of the Medicare prescription drug 

benefit and facilitate future efforts to 

reduce or eliminate the coverage gap 

from the Part D benefit design. 

Response: We appreciate the support 

received for this clarification. This 

clarification will help to ensure that all 

of each sponsor’s administrative costs 

are excluded from allowable 

reinsurance costs and allowable risk 

corridor costs as required by sections 

1860D–15(b)(3) and 1860D–15(e)(1) of 

the Act. In addition, this clarification 

will preserve the competitive nature of 

the Part D program by ensuring a level 

playing field for Part D sponsors 

regardless of their contractual 

arrangements with PBMs. 

Comment: A commenter requested 

that we delay the effective date of the 

proposed change until the 2010 contract 

year to provide Part D sponsors with 

sufficient time to identify any 

contractors, other than PBMs, that are 

covered by the new language in the rule 

and to allow them to revise their 

contracts accordingly. 

Response: The proposed change to the 

definition of ‘‘actually paid’’ reflects 

current Part D policy regarding the 

reporting of rebates retained by PBMs. 

Therefore, we do not believe that a 

delay in the effective date of this 

clarification is warranted. 

Comment: One commenter requested 

clarification regarding whether bona 

fide service fees are considered direct 

and indirect remuneration. 

Response: All rebates, grants, 

settlement amounts, or other price 

concessions received directly or 

indirectly from pharmaceutical 

manufacturers (with the exception of 

bona fide service fees) are considered 

price concessions that serve to reduce 

the drug costs incurred by the Part D 

sponsor and, therefore, must be reported 

to CMS as direct and indirect 

remuneration (DIR). Bona fide service 

fees are fees paid by a manufacturer to 

an entity, such as a Part D sponsor or 

the subcontractor of a Part D sponsor, 

that represent fair market value for a 

bona fide, itemized service actually 

performed on behalf of the manufacturer 

that the manufacturer would perform (or 

contract for) in the absence of the 

service arrangement and that are not 

passed on, in whole or in part, to a 

client or customer, whether or not the 

entity takes title to the drug. As a result, 

bona fide service fees do not reduce the 

drug costs incurred by the Part D 

sponsor and therefore, are not 

considered DIR. 

Comment: A commenter 

recommended changing the definition 

of ‘‘actually paid’’ to reflect the fact that 

PBMs are actually a source of 

remuneration. 


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Response: We disagree with this 

recommendation. While Part D sponsors 

may in fact receive remuneration from 

a PBM, we do not think that it is 

necessary to revise the definition of 

‘‘actually paid’’ to reflect this. The 

definition of ‘‘actually paid’’ already 

indicates that Part D sponsors may 

receive remuneration from any source. 

Comment: One commenter stated that 

it is widely believed that PBMs collect 

more in rebates than they report. The 

commenter stated that PBM-retained 

rebates may provide incentives for less 

cost-effective drugs to be placed on 

preferred formulary lists. This works 

against both beneficiaries and plan 

sponsors by increasing their drug costs. 

Response: We agree with the 

commenter that the additional 

transparency created by the proposed 

changes to the definition of ‘‘actually 

paid’’ would allow Part D sponsors to 

better identify the most cost effective 

drugs for inclusion on preferred 

formulary lists. By providing Part D 

sponsors with additional cost 

information, the additional transparency 

will help Part D sponsors in their 

negotiations with manufacturers and 

PBMs. 

Comment: A commenter asked that 

we limit the proposed definition of 

‘‘actually paid’’ so that it would only 

apply to basic Part D coverage and not 

to enhanced alternative benefits. 

Response: We disagree with this 

request. The definition of ‘‘actually 

paid’’ must be applied uniformly across 

the Part D benefit to ensure the accurate 

and consistent reporting of drug costs 

for Medicare Part D. 

Comment: A commenter asked for 

clarification regarding the appropriate 

classification of rebates retained by a 

PBM. 

Response: Rebates received from a 

manufacturer, whether directly or 

indirectly through a PBM, are price 

concessions that reduce the drug costs 

incurred by the Part D sponsor and 

therefore, are considered direct and 

indirect remuneration (DIR). To the 

extent that rebates are retained by a 

PBM, the dollar amount retained by the 

PBM represents an administrative fee 

which the Part D sponsor has paid to the 

PBM. Thus, the Part D sponsor 

essentially uses the remuneration from 

the manufacturer that the PBM retains 

to pay a portion of the Part D plan’s 

administrative costs. As a result, when 

developing Part D bids, Part D sponsors 

should report this amount as an 

administrative cost. 

Comment: A commenter stated that 

manufacturer rebates negotiated and 

earned by a PBM are not earned or 

received by the plan sponsor. The 

commenter stated that the proposed 

definition of ‘‘actually paid’’ is too 

narrow in that it defines ‘‘price 

concessions’’ to include amounts, such 

as PBM-retained rebates, that the plan 

neither receives nor is entitled to 

receive, and therefore, cannot properly 

be viewed as reducing the amount the 

plan ‘‘actually paid’’ for drug costs. 

Thus, the commenter stated, the 

proposed changes are inconsistent with 

the statute and are beyond the scope of 

authority granted by Congress. The 

commenter concluded that Congress did 

not authorize CMS to force a Part D plan 

to account for rebates earned by a thirdparty intermediary. 

Response: We do not agree. While 

sponsors may not directly receive such 

remuneration from the manufacturer, 

sponsors do receive the amount 

indirectly through reduced 

administrative costs. Congress requires 

CMS to exclude all rebates from 

allowable costs, including those rebates 

that are received indirectly. See sections 

1860D–15(b)(2) and 1860D–15(e)(1) of 

the Act. Similarly, we are also required 

to exclude administrative costs from 

allowable costs. See sections 1860D– 

15(b)(3) and 1860D–15(e)(1) of the Act. 

Thus, in order to calculate accurately 

the costs ‘‘actually paid’’ by a plan, the 

costs incurred by a plan must be 

adjusted to reflect any rebates retained 

by an intermediary in exchange for 

reduced administrative costs. 

b. Administrative Costs (§ 423.308) 

In the May 16, 2008 proposed rule, we 

proposed adding a definition for the 

term ‘‘administrative costs’’ in order to 

clarify what costs we consider 

‘‘administrative’’ as well as to provide 

additional transparency to Part D plan 

pricing. We proposed to define 

‘‘administrative costs’’ as the Part D 

sponsor’s costs other than those costs 

incurred to purchase or reimburse the 

purchase of Part D drugs under the Part 

D plan. Any costs incurred by Part D 

plans on drug claims that differ from the 

price charged by a dispensing entity for 

covered Part D drugs would be included 

in the definition of ‘‘administrative 

costs.’’ We received several comments 

on this proposed definition. However, 

most of the comments received 

(including those opposed to the 

proposed definition) and our responses 

to them are discussed in the Negotiated 

Prices section of this final rule, as the 

policies are closely related. Comments 

that are related solely to the proposed 

definition of ‘‘administrative costs’’ are 

summarized below along with our 

responses. While we did receive some 

comments in opposition to the proposed 

definition (see below), several of the 

comments received were in support of 

the proposed definition. For the reasons 

discussed in the preamble to the 

proposed rule and in our responses to 

comments, we continue to believe that 

in order to ensure a level playing field 

for all Part D plan sponsors, the 

administrative costs reported by Part D 

plan must include any risk premium 

that is paid to an intermediary 

contracting organization. Therefore, we 

are implementing the new definition of 

‘‘administrative costs’’ as proposed, to 

be effective for Part D contract year 

2010. 

Comment: We received several 

comments in support of adding the 

proposed definition for the term 

‘‘administrative costs’’. One commenter 

agreed with our assertion that the 

proposed definition would create 

transparency and reduce beneficiary 

cost sharing. Another commenter 

expressed support for including the 

difference between the lock-in price and 

the price paid to the pharmacy in 

administrative costs, provided that CMS 

allowed Part D sponsors to continue 

using the lock-in pricing approach when 

contracting with a PBM. 

Response: We agree that the proposed 

definition of ‘‘administrative costs’’ 

would increase transparency and reduce 

beneficiary cost sharing by requiring 

Part D plan sponsors to report the 

difference between the lock-in price 

paid to the PBM and the price paid to 

the dispensing pharmacy as an 

‘‘administrative cost.’’ Thus, beneficiary 

cost sharing and reinsurance and risk 

sharing payments by the Federal 

government under the Medicare Part D 

program will be computed based solely 

upon actual drug costs. As we stated in 

the discussion of ‘‘Negotiated Prices’’ 

above and in the proposed rule, Part D 

sponsors may continue to use the lockin pricing approach when contracting 

with a PBM provided that the price paid 

to the pharmacy or other dispensing 

provider is used to develop the Part D 

bid, determine beneficiary cost sharing, 

and report drug costs to CMS. We 

appreciate the support received for this 

clarification. 

Comment: One commenter expressed 

concern that certain aspects of the 

proposed definition of ‘‘administrative 

costs’’ are ambiguous and overly broad. 

Specifically, the commenter asked that 

we define the term ‘‘drug costs’’ in the 

regulations and clarify whether 

dispensing fees would constitute 

‘‘administrative costs’’ under the 

proposed definition. The commenter 

also requested clarification regarding 

whether there are any other categories of 

Part D costs, other than ‘‘drug costs’’ 

and ‘‘administrative costs’’. 


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1514 Federal Register / Vol. 74, No. 7 / Monday, January 12, 2009 / Rules and Regulations 

Response: ‘‘Drug costs’’ consist of the 

ingredient cost, dispensing fee, and 

sales tax paid to a pharmacy or other 

dispensing provider for a prescription 

drug. We do not believe that it is 

necessary to include a definition for the 

term ‘‘drug costs’’ in the regulation at 

this time, as the definitions of ‘‘gross 

covered prescription drug costs’’ and 

‘‘allowable risk corridor costs’’ already 

provide sufficient context for this term. 

Since dispensing fees are already 

considered drug costs under these 

definitions, such amounts are not 

considered ‘‘administrative costs’’. Any 

cost incurred by a Part D sponsor under 

the Medicare Part D program which 

does not represent ‘‘gross covered 

prescription drug cost’’ incurred by the 

sponsor to purchase or reimburse the 

purchase of Part D drugs is considered 

an ‘‘administrative cost’’. Therefore, 

there is currently no additional category 

of Part D costs. 

Comment: One commenter expressed 

concern that the proposed definition 

could lead Part D sponsors to reduce 

their administrative costs and 

Medication Therapy Management 

(MTM). The commenter stated that the 

proposed definition would shift the 

‘‘PBM spread’’ (the difference between 

the lock-in price and the price received 

by the pharmacy) from drug cost to 

administrative cost. This change would 

potentially increase the Part D bids for 

sponsors who utilize the lock-in pricing 

approach. The commenter stated that 

Part D sponsors may elect to reduce 

their MTM services in order to keep 

their Part D premiums competitive. The 

commenter asked that we remind Part D 

sponsors of MTM program 

requirements. 

Response: We appreciate the concerns 

expressed by the commenter. The 

proposed definition may increase Part D 

bids for sponsors who utilize the lockin pricing approach by shifting the 

‘‘PBM spread’’ from drug cost to 

administrative cost. However, these 

potential increases may be offset 

partially by reductions in Part D 

sponsors’ costs due to sponsors 

negotiating lower drug prices and 

administrative costs as a result of 

increased transparency. Furthermore, 

the proposed change is necessary in 

order to ensure that these administrative 

costs are not included in sponsors’ 

allowable reinsurance and risk corridor 

costs as required by sections 1860D– 

15(b)(3) and 1860D–15(e)(1) of the Act. 

We note that the proposed definition 

does not change the MTM program 

requirements in any way. Part D 

sponsors must continue to comply with 

the MTM program requirements. 

Comment: A commenter indicated 

that the proposed definition of 

‘‘administrative costs’’ inappropriately 

includes the PBM spread as an 

administrative cost. The commenter 

asserted that the cost to purchase drugs 

(versus paying for a service) is a drug 

cost, regardless of from whom the drug 

is purchased. Generally, the commenter 

stated, the profit retained by the seller 

is not considered an administrative cost 

but rather a part of the drug cost. The 

commenter explained that regardless of 

whether PBMs actually take title to 

prescription drugs, they incur many of 

the risks of ownership of these drugs. 

Their role in the supply chain cannot be 

considered merely ‘‘administrative’’ in 

nature. The commenter indicated that 

the profit retained by the PBM should 

be considered a drug cost, just as the 

profit retained by pharmacies and 

wholesalers is considered a part of the 

Part D sponsor’s drug cost. 

Response: We disagree. The PBM 

spread represents an amount paid by 

Part D sponsors to PBMs as a service fee 

for negotiating prices on behalf of the 

Part D sponsor or providing other 

administrative services, and thus 

represents an administrative cost and 

not a drug cost paid to a seller. 

c. Gross Covered Prescription Drug 

Costs and Allowable Risk Corridor Costs 

(§ 423.308) 

We proposed revising the definitions 

of ‘‘gross covered prescription drug 

costs’’ and ‘‘allowable risk corridor 

costs’’ to establish that the amount 

received by the dispensing pharmacy or 

other dispensing provider (whether 

directly or through an intermediate 

contracting organization) and not the 

amount paid by the Part D sponsor to 

the PBM, is the basis for determining 

the drug costs that must be reported to 

CMS. This change will ensure that all 

administrative costs incurred by Part D 

sponsors, including the ‘‘risk premium’’ 

paid to PBMs to mitigate market risk 

around the cost of drugs, are excluded 

from the drug costs used to determine 

reinsurance and risk sharing payments. 

In addition, we proposed revising the 

definition of ‘‘gross covered prescription 

drug costs’’ to clarify that when a 

beneficiary is responsible for 100 

percent of the cost for a covered Part D 

drug (as in any applicable deductible or 

coverage gap of a basic plan), and the 

beneficiary obtains that covered Part D 

drug at a network pharmacy for a price 

below the plan’s negotiated price, the 

beneficiary’s out-of-pocket costs that are 

considered ‘‘incurred costs’’ for covered 

Part D drugs count toward both TrOOP 

and total drug spend. 

We received several comments in 

support of the proposed changes to the 

definitions of ‘‘gross covered 

prescription drug costs’’ and ‘‘allowable 

risk corridor costs.’’ In addition, we 

received some comments which 

opposed the proposed changes. Most of 

the comments received also included 

comments on our related proposal 

regarding the definition of ‘‘negotiated 

prices’’, and, as a result, these 

comments and our responses to them 

are discussed in the Negotiated Prices 

section of this final rule. Comments that 

relate solely to the definitions of ‘‘gross 

covered prescription drug costs’’ and 

‘‘allowable risk corridor costs’’ are 

summarized below along with our 

responses. Based on our review of all of 

the comments received on this issue, we 

are implementing the changes to the 

definitions of ‘‘gross covered 

prescription drug costs’’ and ‘‘allowable 

risk corridor costs’’ as they appeared in 

the May 2008 proposed rule to be 

effective for Part D contract year 2010. 

Comment: We received several 

comments in support of the proposed 

changes to the definitions of ‘‘gross 

covered prescription drug costs’’ and 

‘‘allowable risk corridor costs.’’ These 

commenters indicated that the revised 

definitions along with the revised 

definition of ‘‘negotiated prices’’ would 

increase transparency and decrease 

beneficiary cost sharing. 

Response: We appreciate the 

comments received in support of the 

proposed changes. We agree that the 

proposed changes to the definitions of 

‘‘gross covered prescription drug costs’’ 

and ‘‘allowable risk corridor costs’’ 

would increase transparency by 

ensuring that CMS and Part D sponsors 

are aware of actual Part D drug costs. In 

addition, Part D sponsors would be 

made aware of the administrative fees 

which they pay to their PBMs as part of 

the ‘‘risk premium’’. 

Comment: Two commenters 

recommended that CMS take additional 

actions to improve transparency and 

ensure that the appropriate drug costs 

are reported to CMS. Specifically, one 

commenter suggested that CMS require 

Part D sponsors to identify hidden fees 

which are taken back from pharmacies 

by PBMs during check cycle payments, 

such as transaction fees and pharmacy 

network fees. Another commenter 

expressed continued concern that the 

proposed changes may require Part D 

sponsors that utilize the lock-in pricing 

approach to depend on information 

traditionally held exclusively by PBMs. 

This commenter urged CMS to work 

with Part D sponsors to ensure 

compliance from PBMs. One commenter 

recommended that CMS sample 


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pharmacy payments and compare them 

to the prices reported by PBMs on the 

PDE records to ensure that PBMs are 

accurately reporting the pass-through 

price paid to the pharmacy and not the 

lock-in price. 

Response: We will consider what 

further changes may be necessary to 

address concerns regarding 

transparency in the Medicare 

Prescription Drug Benefit. In addition, 

we will continue to provide information 

regarding the appropriate amounts to 

include in the reporting of drug costs 

and direct and indirect remuneration 

(DIR) in subregulatory guidance, such as 

the Medicare Part D DIR Reporting 

Requirements for Payment 

Reconciliation, and the Prescription 

Drug Event Data Training Participant’s 

Guide. We currently conduct audits of 

plans’ PDE data to ensure that drug 

costs are accurately reported to us. In 

the future, these audits will help us to 

identify discrepancies between the 

amount paid to the pharmacy and the 

drug costs reported on the PDE records. 

We will determine the appropriate 

corrective actions or penalties for Part D 

sponsors in cases where inaccurate or 

incorrect data have been provided. As 

indicated in the proposed rule, 

however, we contract with Part D 

sponsors, not with sponsors’ first tier, 

downstream and related entity(ies), for 

the provision of the Medicare 

prescription drug benefit. Under 

§ 423.505(i)(4)(ii), a Part D sponsor is 

required to include in its contract with 

downstream contractors and related 

entities a provision that either revokes 

the delegation of a Part D reporting 

responsibility or specifies other 

remedies if either CMS or the Part D 

sponsor determines that the 

downstream contractor or related entity 

has not performed satisfactorily. CMS 

may seek revocation of a delegation of 

the reporting responsibility or any other 

remedy provided for in the contract 

between the Part D sponsor and the 

PBM for non-compliance with delegated 

reporting responsibilities. 

Nevertheless, the Part D sponsor has 

ultimate responsibility for compliance 

with the terms of its contract with us, 

including reporting accurate Part D data. 

While we will continue to work with 

Part D sponsors to ensure that the data 

submitted to us is accurate, we reiterate 

that Part D sponsors that choose to 

contract with a PBM or any other third 

party administrator must take steps 

necessary to ensure that the data 

submitted to us on their behalf is 

accurate and timely. 

In the May 16, 2008 proposed rule (73 

FR 28571), we also noted that § 423.308 

includes a definition of the term ‘‘target 

amount.’’ Due to a technical formatting 

error, this definition appears to be the 

second paragraph of the definition of 

‘‘gross covered prescription drug costs.’’ 

To clarify that the definition of ‘‘target 

amount’’ is not a component of the 

definition of ‘‘gross covered prescription 

drug costs’’, but is a separate definition 

of a different term, we proposed to 

revise the current discussion of ‘‘target 

amount’’ and to provide an amendatory 

instruction to add the definition in 

§ 423.308. We also proposed to make 

technical edits to this definition to 

ensure that the structure of the 

definition is similar to that of other 

definitions in this section. We proposed 

no substantive changes to the definition. 

We received no comments on the 

proposed technical edits to the 

definition of ‘‘target amount.’’ 

Therefore, we are finalizing the 

technical edits to this definition as 

proposed. 

5. Subpart R: Payments to Sponsors of 

Retiree Prescription Drug Programs 

(Definitions, § 423.882) 

We proposed to make the following 

additions and revisions to regulations at 

§ 423.882 governing the retiree drug 

subsidy (RDS) program in order to be 

consistent with the corresponding 

existing and proposed Part D definitions 

under § 423.100 and § 423.308. The 

proposed definitions under § 423.882 

included codification of some of our 

existing guidance for the RDS program. 

a. Actually Paid 

We proposed to add this definition to 

the RDS regulations in order to mirror 

the proposed revised Part D definition 

under § 423.308, with the exception of 

technical changes and clarifications to 

reflect its application to the RDS 

program. Specifically, we proposed to 

define actually paid to mean that the 

costs must be actually incurred by the 

qualified retiree prescription drug plan 

(and/or the qualifying covered retiree) 

and must be net of any direct or indirect 

remuneration from any source 

(including manufacturers, pharmacies, 

qualifying covered retirees, or any other 

person) that would serve to decrease the 

costs incurred under the qualified 

retiree prescription drug plan. Similarly, 

we also proposed including language in 

this definition that would provide that 

direct or indirect remuneration includes 

discounts, chargebacks or rebates, cash 

discounts, free goods contingent on a 

purchase agreement, up-front payments, 

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

concessions or similar benefits from 

manufacturers, pharmacies or similar 

entities obtained by an intermediary 

contracting organization with which the 

sponsor of the qualified retiree 

prescription drug plan has contracted 

for administrative services, regardless of 

whether the intermediary contracting 

organization retains all or a portion of 

the direct and indirect remuneration or 

passes the entire direct and indirect 

remuneration to the sponsor of the 

qualified retiree prescription drug plan. 

Similarly, we clarified that this 

definition of actually paid applies 

regardless of the terms of the contract 

between the sponsor of the qualified 

retiree prescription drug plan and any 

intermediary contracting organization. 

b. Administrative Costs 

We proposed to add this definition to 

the RDS regulations in order to mirror 

the proposed revised Part D definition 

under § 423.308, with the exception of 

minimal changes to reflect the RDS 

terminology. Specifically, we proposed 

to define administrative costs to mean 

costs incurred by a qualified retiree 

prescription drug plan that are not drug 

costs incurred to purchase or reimburse 

the purchase of Part D drugs and that 

differ from the amount paid by or on 

behalf of the plan to a pharmacy or 

other entity that is the final dispenser of 

the drug. Similarly, we proposed to 

include language in this definition that 

any profit or loss retained by the 

intermediary contracting organization 

(through discounts, rebates, or other 

direct or indirect price concessions) 

when negotiating prices with dispensing 

entities is considered an administrative 

cost. 

c. Allowable Retiree Costs 

We proposed to make changes to the 

existing RDS definition of allowable 

retiree costs to mirror the relevant 

portions of the existing Part D definition 

of ‘‘allowable reinsurance costs’’ under 

§ 423.308. Specifically, we proposed to 

revise the definition of allowable retiree 

costs under § 423.882 by clarifying that 

allowable retiree costs are the subset of 

gross covered retiree plan-related 

prescription drug costs actually paid by 

the qualified retiree prescription drug 

plan or by or on behalf of a qualifying 

covered retiree. 

d. Gross Covered Retiree Plan-Related 

Prescription Drug Costs 

We proposed to revise the existing 

definition of ‘‘gross covered retiree planrelated prescription drug costs’’ (or 

‘‘gross retiree costs’’) to mirror the 

proposed Part D definition of ‘‘gross 

covered prescription drug costs’’ under 

§ 423.308, with the exception of 

minimal changes to reflect the RDS 

terminology. Specifically, we proposed 


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to revise our RDS program definition of 

gross retiree costs to clarify that these 

costs equate to the sum of the negotiated 

prices (as defined in the definition) 

actually paid by the qualified retiree 

prescription drug plan (and/or 

qualifying covered retirees) and 

received by the dispensing pharmacy (or 

other dispensing entity), or received by 

other entities pursuant to the plan’s 

coordination of benefits (COB) 

activities. As with our existing 

definition of gross retiree costs, our 

proposed definition excluded 

administrative costs from gross retiree 

costs. 

e. Negotiated Prices 

We proposed to add this definition to 

the RDS regulations in order to mirror 

the Part D definition of negotiated prices 

under § 423.100, with the exception of 

minimal changes to reflect RDS 

terminology. Specifically, we proposed 

to define negotiated prices for Part D 

drugs as the prices that the qualified 

retiree prescription drug plan (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount such 

network entity will receive, in total, for 

a particular drug, net of discounts, 

direct or indirect subsidies, rebates, 

other price concessions, and direct or 

indirect remuneration that the qualified 

retiree prescription drug plan has 

elected to pass through to qualifying 

covered retirees at the point of sale. 

Similarly, we proposed that negotiated 

prices include any dispensing fees. 

Under the foregoing proposed 

definitions, payments made to RDS plan 

sponsors of qualified retiree 

prescription drug plans (or ‘‘RDS 

sponsors’’) would be reported based 

upon ‘‘pass-through’’ prices and not the 

‘‘lock-in’’ prices that the RDS plan 

sponsor pays to a PBM or other 

intermediary contracting organization. 

Comment: Two commenters 

supported the requirement to report 

negotiated (that is, pass-through) prices 

for purposes of the RDS program 

(‘‘negotiated price policy’’). Two other 

commenters objected to extending this 

negotiated price policy to the RDS 

program. One of these latter commenters 

contended that mandating that costs be 

reported only based on pass-through 

pricing could cause RDS sponsors to 

leave the RDS program and place their 

retirees in the Medicare Part D program. 

The other commenter objecting to 

applying the negotiated price policy to 

the RDS program predicted that doing 

so would likely result in employers and 

unions dropping retiree health coverage 

of drugs altogether. One of these 

commenters noted that large employers 

constitute a majority of RDS sponsors, 

and that they are sophisticated 

purchasers with a great amount of 

leverage, and are in the best negotiating 

position to decide which pricing 

structure is most appropriate for them. 

The other commenter reported that such 

large employers have been using the 

lock-in approach for many years. Both 

of these commenters also believed that 

many employers seek to keep health 

benefits the same for active employees 

and retirees, and that requiring 

reporting based on pass-through prices 

only would effectively be imposing this 

one model on active employee plans as 

well. 

Response: As stated in the preamble 

to the proposed rule (73 FR 28571), the 

rule requiring reporting based on passthrough costs was proposed for RDS 

sponsors for many of the same policy 

considerations that underlie our 

revisions to the Part D definitions of 

‘‘negotiated prices,’’ ‘‘administrative 

costs’’, ‘‘allowable risk corridor costs’’, 

and ‘‘gross prescription drug costs’’. 

Specifically, the RDS payment is 

calculated based on allowable retiree 

costs, which in turn are a subset of gross 

retiree costs. The statute requires us to 

exclude administrative costs from the 

calculation of gross covered retiree planrelated prescription drug costs. 

Subsidizing the portion of the lock-in 

price that as a practical matter amounts 

to an administrative cost paid to the 

PBM or intermediary contracting 

organization would therefore arguably 

be inconsistent with the statutory 

requirement to exclude administrative 

costs from the calculation of gross 

covered retiree plan-related prescription 

drug costs. 

However, we share the commenters’ 

concern about the possible impact of 

applying the Part D negotiated price 

policy to the RDS program, particularly 

about the possibility that this could 

cause employers currently participating 

in the RDS program to either move their 

retirees to Part D, or drop coverage 

altogether. In response to these and 

other concerns expressed by 

commenters discussed below, we are 

considering the question of whether we 

have the statutory discretion to adopt a 

different policy for the RDS program 

than the policy we are finalizing in this 

final rule for the Part D program, and are 

hereby re-opening the comment period 

with respect to our proposal to apply 

this Part D negotiated price policy to the 

RDS program. Specifically, we are 

inviting comments on the question of 

whether we have discretion under the 

statute to retain the current policy for 

the RDS program (that is, reporting of 

lock-in or pass-through prices) while 

adopting the new negotiated price 

policy being finalized in this final rule 

for the Part D program. We discuss three 

possible legal theories below that, if one 

or more are found to be valid, would 

provide us with discretion to maintain 

the status quo under the RDS program, 

while making the changes made in this 

final rule to the Part D program. We 

accordingly are deferring a final 

decision on our proposal to apply the 

new Part D policy to the RDS program 

pending the outcome of our 

consideration of comments we receive 

on our legal authority. 

We specifically invite comment from 

the public on the following three legal 

theories under which it might be argued 

that we have discretion to adopt a 

different policy for RDS than for Part D 

with respect to the way drug costs are 

reported: 

(1) Legal Theory 1: Interpretation of 

‘‘Actually Paid’’ 

The first legal theory on which we 

invite public comment is the argument 

that we could interpret ‘‘actually paid,’’ 

as used in the RDS statutory definition 

of ‘‘allowable retiree costs’’ at section 

1860D–22(a)(3)(C)(i) of the Act, to 

exclude any difference between the 

lock-in and pass-through amount, so 

that either the lock-in or the passthrough amount can be reported. The 

RDS subsidy payment is paid based on 

‘‘the portion of the retiree’s gross 

covered retiree plan-related prescription 

drug costs’’ that exceeds a specified cost 

threshold amount and does not exceed 

a specified cost limit amount for a given 

year. The actual payment is ‘‘an amount 

equal to 28 percent of the allowable 

retiree costs * * * attributable to such 

gross covered prescription drug costs.’’ 

section 1860D–22(a)(3)(A) of the Act. 

The statute defines ‘‘gross covered 

retiree plan-related prescription drug 

costs’’ as ‘‘the costs incurred under the 

plan, not including administrative costs, 

but including costs directly related to 

the dispensing of part D drugs. * * *’’ 

Id. at subsection (a)(3)(C)(ii). The statute 

defines the term ‘‘allowable retiree 

costs’’ to mean ‘‘with respect to gross 

covered prescription drug costs under a 

qualified retiree prescription drug plan 

by a plan sponsor, the part of such costs 

that are actually paid (net of discounts, 

chargebacks, and average percentage 

rebates) by the sponsor. * * *’’ Id. at 

subsection (a)(3)(C)(i). While section 

1860D–22 of the Act does not itself 

define the term ‘‘gross covered 

prescription drug costs,’’ this term is 

defined in section 1860D–15 of the Act, 

however, which describes subsidy 

payments to Part D plan sponsors. For 


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purposes of that section, ‘‘gross covered 

prescription drug costs’’ are defined as 

‘‘the costs incurred under the plan, not 

including administrative costs, but 

including costs directly related to the 

dispensing of covered part D drugs. 

* * *’’ section 1860D–15(b)(3) of the 

Act. 

Under the legal theory upon which 

we are inviting comment, it would be 

argued that when an RDS plan sponsor 

makes a payment to an entity (such as 

a PBM) that includes amounts for Part 

D drug ingredient and dispensing costs 

and amounts to manage the sponsor’s 

drug benefit plan, the amount of that 

payment is the ‘‘costs that are actually 

paid * * * by the sponsor’’ for purposes 

of calculating the subsidy. Under this 

argument, we would not need to look 

behind the payment to the PBM to 

determine how the cost of drugs was 

determined under the arrangement; 

rather, it would be sufficient for CMS to 

calculate the subsidy payment based 

upon the RDS plan sponsor’s payment 

to the PBM, excluding discounts, 

chargebacks and average percentage 

rebates. Under this approach, RDS plan 

sponsors would be able to use either the 

‘‘lock-in’’ or ‘‘pass-through’’ price for 

reporting drug costs for purposes of 

subsidy payments. 

A potential problem with this theory 

is that it arguably reads out of the 

statute the phrase ‘‘for the portion of the 

retiree’s gross covered retiree planrelated prescription drug costs.’’ As 

noted, the definition of ‘‘gross covered 

retiree plan-related prescription drug 

costs’’ makes clear that such costs do 

not include administrative costs, and 

the ‘‘lock-in’’ price may well effectively 

include administrative costs, since any 

difference between that amount and the 

negotiated amount could be retained to 

cover administrative expenses. 

(2) Legal Theory 2: Prohibition on 

Interference With Benefit Design of 

Retiree Drug Coverage 

The second legal theory on which we 

invite public comment is the argument 

that the RDS statute prohibits CMS from 

interfering in the benefit design of 

retiree drug coverage, and that, as 

suggested by a commenter below, 

requiring use of the ‘‘pass-through’’ 

methodology to report drug costs would 

interfere with the benefit design of 

qualified retiree prescription drug plans. 

Section 1860D–22(a)(6) of the Act 

provides a rule of construction for 

interpreting the RDS section of the 

statute. Subparagraph (D) of that section 

provides that ‘‘[n]othing in this section 

shall be construed as * * * preventing 

employers to provide for flexibility in 

benefit design * * * so long as the 

actuarial equivalence requirement 

* * * is met.’’ It has been suggested by 

a commenter (see comment below) that 

a CMS mandate that an RDS plan 

sponsor report drug costs using the 

‘‘pass-through’’ methodology interferes 

with the ability of employers ‘‘to 

provide for flexibility in benefit design’’ 

of an RDS plan. Under this argument, 

requiring reporting of the ‘‘passthrough’’ price would be 

administratively burdensome, create an 

incentive for employers to redesign their 

RDS plans and their contractual 

arrangements with PBMs, and perhaps 

encourage employers to opt out of the 

RDS Program entirely. 

This argument rests on the 

assumption that—(1) Contractual 

arrangements between an RDS plan 

sponsor and a PBM are ‘‘benefit 

design[s]’’; and (2) requiring an RDS 

plan sponsor to report the ‘‘passthrough’’ price for purposes of the 

subsidy would ‘‘prevent’’ employers 

from providing flexibility in those 

benefit designs. Again, there is a 

potential problem with this legal theory. 

Arguably, section 1860D–22(a)(6)(D) of 

the Act is most reasonably interpreted to 

prohibit CMS from mandating a certain 

benefit package in retiree drug plans, 

and not to prohibit CMS from 

mandating requirements that relate only 

to reporting costs to CMS. The context 

of the rule of construction in paragraph 

(6) suggests that Congress was 

concerned only that CMS not restrict the 

ability of RDS-covered individuals to 

enroll in part D; of having their part D 

premiums paid by an RDS plan sponsor; 

or from receiving coverage that is more 

generous than part D. All of these things 

relate to the benefit design of a retiree 

drug plan itself, and not to the 

relationships between an RDS plan 

sponsor and a contracting partner. 

Further, even if such contractual 

relationships could be construed as 

‘‘benefit design[s],’’ by requiring RDS 

plan sponsors to report the ‘‘passthrough’’ price for drug costs, we 

arguably would not be preventing RDS 

plan sponsors from adopting any 

particular contractual relationship with 

intermediaries. RDS plan sponsors 

would still be able to use either the 

‘‘lock-in’’ or ‘‘pass-through’’ 

arrangement with PBMs, however, they 

would be required to report the ‘‘passthrough’’ price for purposes of subsidy 

payments. 

(3) Legal Theory 3: Change in 

Interpretation of Waiver Authority 

The third legal theory on which we 

are inviting public comment would 

involve a change in our interpretation of 

waiver authority in section 1860D–22(b) 

of the Act, and the use of that authority 

to modify requirements for RDS plan 

sponsors. If we were to adopt this 

theory, we would need to do so through 

notice and comment rulemaking, as it 

would change the interpretation of 

section 1860D–22(b) of the Act that is 

set forth in current regulations. 

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 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,’’ an argument 

might be made as a matter of statutory 

construction that in this case the term 

‘‘prescription drug plan’’ was intended 

to encompass both a Part D 

‘‘prescription drug plan’’ and a qualified 

retiree ‘‘prescription drug plan’’ (that is, 

this waiver authority extends both to 

PDPs and QRPDPs), as long as the plan 

is offered ‘‘in relation to employmentbased retiree health coverage’’ in either 

case. 

As noted above, however, 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 regulation in 

§ 423.458 of Subpart J, which governs 

PDPs and MA–PDs, rather than subpart 

R, which governs QRPDPs under the 


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RDS program. The final rule preamble 

discussion of Subpart J 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. 

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, § 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 a result, if after 

considering public comments we 

wished to adopt the interpretation of 

section 1860D–22(b) of the Act 

discussed above, we would need to do 

so through notice and comment 

rulemaking. In order to preserve our 

option of implementing this third legal 

theory, today’s Federal Register also 

contains a separate notice of proposed 

rulemaking seeking public comment as 

to whether we should adopt the change 

in our interpretation of section 1860D– 

22(b) set forth above. 

Comment: In objecting to the 

proposed requirement that RDS 

sponsors report drug prices by using the 

pass-through method, one commenter 

stated: ‘‘As a threshold matter, we do 

not believe that the administration and 

operation of drug programs offered in 

the commercial market are subject to 

CMS’ purview.’’ The commenter 

believes that among the objectives of the 

RDS program is to allow RDS sponsors 

flexibility and the ability to maintain 

their current plan designs (provided the 

plan is actuarially equivalent to 

standard Medicare Part D coverage). 

Response: We agree with the 

commenter that among the objectives of 

the RDS program is to allow RDS 

sponsors flexibility and the ability to 

maintain their current plan designs, and 

share the commenter’s concern that 

requiring reporting on a ‘‘pass-through’’ 

basis could result in sponsors believing 

that they have to change existing 

arrangements or possibly leaving the 

RDS program. As discussed above, for 

this reason we are exploring the issue of 

whether we have statutory authority to 

allow RDS sponsors to continue to 

report either on a lock-in or passthrough basis, and are specifically 

inviting comment on whether the rule of 

construction in section 1860D– 

22(a)(6)(D) of the Act could be 

interpreted to allow us to not mandate 

the Part D negotiated price policy for the 

RDS program, under the theory that 

doing so would inhibit employer 

flexibility in violation of section 1860D– 

22(a)(6)(D) of the Act, as suggested by 

the commenter. 

Comment: One commenter suggested 

that RDS sponsors should have at least 

1 year lead time for implementation of 

any changes to the RDS program, while 

another commenter suggested that CMS 

grandfather any pre-existing contractual 

relationships that utilize the ‘‘lock-in’’ 

pricing method until they are 

renegotiated after the rule becomes 

effective. Another commenter urged that 

the ‘‘pass through’’ reporting provisions 

of the proposed rule, as they apply to 

the RDS Program, not apply to plan 

years that begin before January 1, 2011. 

‘‘This will allow plans [presumably 

insurers] * * * to become familiar with 

and renegotiate their commercial 

business insurance contracts with PBMs 

so that they can submit the required 

data.’’ This commenter stated that 

‘‘Plans and their respective employers 

will need time to make the necessary 

revisions to these business 

relationships.’’ 

Response: We acknowledge that 

entities such as RDS sponsors and 

insurers may need to change the terms 

of their contracts with PBMs to 

accommodate the pass-through 

reporting requirement. As discussed, we 

are deferring finalizing the Part D 

negotiated price policy for RDS, so no 

such changes will have to be made in 

the short term. 

Comment: A commenter supported all 

the proposed revisions to the RDS 

provisions of the regulations, including 

the provisions on reporting rebates 

retained by a PBM or other intermediary 

contracting organization. 

Response: While we appreciate the 

commenter’s support for our proposal, 

as noted above, we share concerns 

expressed by other commenters about 

the possible implications of applying 

the Part D policies in question to the 

RDS program, and are considering 

whether we have the statutory 

discretion to adopt a different approach 

for the RDS program than that adopted 

in this final rule for the Part D program. 

Comment: A commenter objected to 

the definition of ‘‘actually paid’’ in the 

proposed regulations. Specifically, the 

commenter objected to the fact that the 

definition states that this amount is net 

of any direct or indirect remuneration 

obtained by an intermediary contracting 

organization with which the RDS 

sponsor has contracted for 

administrative services, regardless of 

whether the intermediary contracting 

organization retains all or a portion of 

the direct or indirect remuneration or 

passes it along to the RDS sponsor, and 

regardless of the terms of the contract 

between the RDS sponsor and the 

intermediary contracting organization. 

The commenter stated that the 

requirement for the RDS sponsor to 

report retained direct or indirect 

remuneration should not apply in 

instances where the intermediary 

contracting organization negotiates such 

remuneration (or price concessions) on 

its own behalf, and not on behalf of the 

RDS sponsor. In such cases, the 

commenter states, the RDS sponsor has 

no rights in, or to, the price concessions, 

and only has a right to any price 

concessions the intermediary 

contracting organization agrees to 


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provide the RDS sponsor in its contract 

with the sponsor. The commenter states 

that ‘‘CMS assumes that the rebates and 

other price concessions received by an 

intermediary organization reduce the 

plan’s drug costs’’. (Emphasis in 

original.) 

Response: We believe that the policy 

on retained rebates and the policy on 

negotiated price are linked, and that the 

same approach should be applied in 

both cases. In both cases, the policy 

does not recognize the structure of the 

arrangements made between the parties, 

and requires that costs be reported as if 

a different arrangement were in place. In 

both cases, amounts available to a third 

party (in the difference between the 

negotiated price and lock-in price in one 

case, and the difference between the 

total rebate and the amount passed on 

in the other) are treated as 

administrative costs when there are 

arguments that the amounts are different 

in nature and CMS should not require 

that they be treated as administrative 

fees. Also in both cases, there is a 

question as to whether CMS has the 

discretion under the statute to adopt one 

rule for Part D and another for the RDS 

program. 

We believe that the three legal 

theories discussed above in connection 

with negotiated price could also have 

applicability to the issue of rebate 

amounts that are retained and not 

directly passed on to a sponsor. We 

therefore invite comment on whether 

these arguments would provide CMS 

with the discretion to adopt a different 

rule for RDS than for Part D with respect 

to retained rebate amounts, and if so 

whether we should do so. As in the case 

of the negotiated price policy, we will 

defer our adoption of the Part D retained 

rebate policy in the RDS regulations 

pending our consideration of these 

comments. Again, this will require 

changes to the proposed regulations text 

that ensure that the regulatory changes 

that we are finalizing in Part D regarding 

retained rebates are not applicable to 

RDS. 

Comment: One commenter observed 

that CMS indicated in the proposed rule 

that certain provisions clarify existing 

guidance. To the extent any such 

provisions in fact clarify existing 

guidance, and apply retroactively, the 

commenter asserts that CMS has 

violated the prior notice and comments 

requirements of the Administrative 

Procedure Act. 

Response: As noted above, we are 

reconsidering our proposed rule 

applying the Part D policy on the 

treatment of retained rebate amounts to 

the RDS program. This also extends to 

our existing guidance. The commenter’s 

concerns are now moot, as we will make 

any final decision on our approach for 

RDS through rulemaking after 

consideration of public comments. 

f. Subpart R Changes Adopted in the 

Final Regulations 

As previously mentioned, we are 

deferring finalizing the proposed 

requirements that would have required 

RDS sponsors to report negotiated 

prices, and to report direct or indirect 

remuneration retained by a PBM or 

other intermediary contracting 

organization, pending the receipt of 

comments on the legal arguments 

previously mentioned. However, to 

otherwise make RDS regulatory 

definitions more consistent with Part D 

regulatory definitions and to ensure that 

the changes in the Part D regulatory 

provisions regarding negotiated prices 

and retained rebates do not affect RDS, 

we are making the following changes to 

definitions in Subpart R: 

• Adding a definition of ‘‘actually 

paid’’ that includes portions of the 

proposed RDS definition, but excludes 

the portion that would operate to 

require the reporting of direct or 

indirect remuneration retained by a 

PBM or other intermediary contracting 

organization. 

• Adding a definition of 

‘‘administrative costs’’ that includes 

portions of the proposed RDS definition, 

but that excludes, from the definition, 

the difference between the amounts 

paid by the sponsor to an intermediary 

contracting organization for Part D drugs 

dispended to qualifying covered 

retirees, and the amount paid by the 

intermediary contracting organization to 

the pharmacy or other entity that is the 

final dispenser of the Part D drugs. 

• Revising the definition of 

‘‘allowable retiree costs’’ as proposed 

without modification. 

• Revising the definition of ‘‘gross 

covered retiree plan-related prescription 

drug costs, or gross retiree costs,’’ to 

include portions of the proposed RDS 

definition, but to exclude the reference 

to ‘‘negotiated prices.’’ This revised 

definition includes the term 

‘‘intermediary contracting 

organization,’’ which for purposes of the 

revised definition is intended to 

encompass any entity that contracts 

with an RDS sponsor to perform one or 

both of the following functions: (1) Pays 

pharmacies and other dispensers of Part 

D drugs provided to qualifying covered 

retirees in the sponsor’s plan; or (2) 

negotiates rebates or other price 

concessions with manufacturers for Part 

D drugs provided to qualifying covered 

retirees in the sponsor’s plan. 

Additionally, we are slightly revising 

§ 423.888(b)(5)(i) so that it references 

the term ‘‘gross covered plan-related 

retiree prescription drug costs,’’ which 

is a term defined in Subpart R, rather 

than ‘‘gross prescription drug costs,’’ 

which is not. 

6. Limiting Copayments to a Part D 

Plan’s Negotiated Price (§ 423.104) 

In our May 16, 2008 proposed rule, 

we proposed to revise the requirements 

related to qualified prescription drug 

coverage at § 423.104(g) to make clear 

that Part D sponsors must provide 

enrollees with access to, or make 

available at the point-of-sale, their 

negotiated prices for covered Part D 

drugs when the covered Part D drugs’ 

cost share is more than the Part D 

sponsor’s negotiated price. The final 

rule adopts the revisions to 

§ 423.104(g)(1) set forth in our proposed 

rule. 

Comment: A number of commenters 

supported our clarification that the 

negotiated price for a covered Part D 

drug be made available to Part D 

enrollees when that price is less than a 

plan’s applicable cost-sharing. Most of 

these commenters emphasized that CMS 

should monitor negotiated pricing 

issues and take corrective action against 

plans that do not assess their enrollees 

the negotiated price per the revision. 

One commenter in particular 

recommended that the policy be clearly 

explained in the Medicare handbook 

and all other materials that are 

distributed to beneficiaries by CMS and 

Part D plan sponsors related to their Part 

D coverage. 

Several commenters noted concerns 

with this policy given that pharmacies’ 

reimbursements may be lowered when 

the negotiated price for a drug is less 

than a Part D plan’s applicable costsharing. While these commenters 

supported beneficiary access to 

negotiated prices, they believed it was 

equally important that pharmacies be 

adequately compensated for the drugs 

they dispense. They argued that 

pharmacies may experience net losses if 

the total revenue received from Part D 

enrollees is not sufficient to cover the 

costs of participating in the program— 

particularly given the average cost of 

dispensing prescriptions and the fact 

that the dispensing fee does not vary 

regardless of the negotiated price. They 

also asserted that implementing this 

policy could result in higher costs for 

plans and beneficiaries in the form of 

higher premiums, and could ultimately 

threaten pharmacy participation in 

some sponsors’ networks. Two 

commenters, therefore, recommended 

that CMS modify the changes to 


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§ 423.104(g)(1) and instead clarify that 

Part D sponsors and their network 

pharmacies should be able to freely 

negotiate patient copayment obligations 

in order to allow for lower overall 

patient spending. 

Response: We believe that a policy 

under which the plan sponsor charges 

the beneficiary the lesser of the 

applicable cost-sharing amount or the 

negotiated price for a covered Part D 

drug is most consistent with the intent 

of section 1860D–2(d)(1) of the Act, 

which requires Part D sponsors to offer 

their enrollees access to negotiated 

prices for covered Part D drugs. 

Although we have previously given Part 

D sponsors the option of applying either 

the applicable copayment (if the 

sponsor elected to charge a flat copayment rather than coinsurance as part 

of its benefit design) or the actual 

negotiated price of a formulary drug 

when that amount is lower than the 

copayment, we have actually found that 

the majority of Part D sponsors have 

administered the benefit such that they 

apply the lesser of the co-payment or 

the negotiated price to the enrollee at 

the point of sale. Therefore, we disagree 

that our revision at § 423.104(g) will 

result in undermining the utilization 

effects of tiered cost-sharing benefit 

structures, increasing Part D program 

costs, or significant changes in Part D 

sponsor pharmacy network 

participation. 

We will monitor beneficiary 

complaints on this issue, and will take 

appropriate corrective action against 

sponsors to the extent that we learn they 

are not limiting cost-sharing to 

negotiated prices as required under 

§ 423.104(g)(1). In addition, we will 

assess our current CMS beneficiary 

materials, including the Medicare & You 

handbook, and Part D sponsor 

marketing models to ensure that this 

information is clearly and accurately 

conveyed to Part D enrollees. 

Comment: A commenter expressed 

concern about requiring a 340B 

pharmacy to charge a 340B drug’s price 

as patient cost-sharing when the 340B 

price is lower than a plan’s cost-sharing. 

This commenter asserted that when 

patients know that certain brand-name 

drugs can be obtained for nominal 

amounts, they are more likely to request 

normally more expensive brand name 

drugs in all cases. The commenter asked 

that CMS clarify the application of this 

rule to specify that Part D sponsors may 

not require 340B providers to provide 

the 340B price to Part D plans under 

§ 423.104(g)(1). 

Response: CMS generally does not 

interfere in plan-pharmacy contract 

negotiations or opine on the 

reasonableness or relevancy of specific 

terms. Instead, we use our oversight 

authority to ensure that Part D sponsors 

abide by our rules and allow 

appropriate access to their pharmacy 

networks. A Part D sponsor offering less 

than satisfactory or unclear contract 

terms to a pharmacy would likely find 

it difficult to retain enough pharmacies 

to meet our network requirements, and 

would therefore be unable to renew its 

Medicare Part D contract. We urge 

pharmacies to ensure that they 

understand all terms of a pharmacy 

network contract before contracting 

with a Part D sponsor. 

7. Timeline for Providing Written 

Explanation of Plan Benefits (§ 423.128) 

In our May 16, 2008 proposed rule, 

we proposed to revised § 423.128(e)(6) 

to require sponsors to provide an 

explanation of benefits (EOB) no later 

than the end of the month following the 

month in which an enrollee uses his or 

her Part D benefits. We believe that our 

proposed revision to § 423.128(e)(6), 

which we are finalizing in this rule, 

strikes a reasonable balance between 

Part D sponsor production constraints 

and the timely provision of claims 

information to Part D enrollees. Below 

are public comments we received on our 

proposal and our responses. 

Comment: Many of the comments 

received on the EOB timeline suggested 

that plans continue to be required to 

send the EOB no later than the 15th of 

the month following the month in 

which an enrollee uses Part D benefits. 

Response: We have reviewed this 

comment and have concluded that plan 

sponsors need the additional time in the 

month following to process claims from 

the month in which the beneficiary 

utilized prescription drug services. 

Therefore, to ensure that plan sponsors 

are able to furnish accurate information 

to beneficiaries for drug benefits utilized 

within a particular month, CMS 

clarified that the EOB must be sent no 

later than the end of the month 

following any month when prescription 

drug benefits are provided. 

8. Low-Income Subsidy Provisions 

a. Low-Income Cost-Sharing and 

Payment Adjustments for Qualified 

Prescription Drug Coverage (§ 423.329) 

In the May 16, 2008 proposed rule, we 

stated that we currently make 

prospective payments to Part D plan 

sponsors of the low-income cost sharing 

subsidy (LICS) based solely on estimates 

provided as part of the annual bidding 

process. When LICS estimates are too 

high, excessive prospective payments 

are made that (under our current 

process) are not recovered until the year 

end reconciliation. We proposed to add 

to the end of § 423.329(d)(2)(i) the 

following qualifying statement: ‘‘or by 

an alternative method that CMS 

determines.’’ In its report ‘‘Medicare 

Part D Sponsors: Estimated 

Reconciliation Amounts for 2006’’ 

released October 2007, the HHS Office 

of the Inspector General recommended 

that CMS explore other payment 

methodologies to recoup excessive LICS 

payments earlier. This revision would 

afford CMS additional flexibility to 

make mid-year LICS payment 

adjustments or other modifications to 

the LICS interim payment methodology, 

as appropriate. After reviewing and 

responding to comments (below) we 

will implement this provision. A 

summary of the comments and 

responses are provided below. 

Comment: Many commenters 

supported the change, as it will result in 

more accurate payments during the 

actual plan year. 

Response: We appreciate the 

commenters support. 

Comment: Many commenters wanted 

more information on the methodology 

that CMS will use for mid-year LICS 

payment adjustments and other 

modifications to the LICS interim 

payment methodology that might arise 

due to the proposed change. 

Commenters asked that CMS involve 

stakeholders in any changes it makes to 

the methodology. Commenters believed 

interim payment reconciliation would 

be burdensome to plans and CMS. 

Others offered suggestions for the 

methodology such as adjusting 

payments to Part D plan sponsors in the 

event that the agency determines 

interim payments are too low. 

Response: This change will correct a 

technical error in the existing 

regulation. We are making this change 

in order to establish a parallel between 

this section and that relating to the 

reinsurance subsidy described at 

§ 423.329(c)(2). The language of 

§ 423.329(d)(2)(i) regarding interim 

payments of the LICS subsidies as 

currently written has proven overly 

restrictive and has had the unintended 

effect of requiring us to make payments 

to Part D plan sponsors that are 

subsequently determined to have been 

significantly different from their actual 

costs. Some overpayments have not 

been recovered until payment 

reconciliation is completed, some years 

later. In some cases there have also been 

administrative delays in recognizing or 

reconciling underpayments. We also 

recognize, however, that as the program 

matures, actual costs in this area will 

come closer to the bid amount. We agree 


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with the commenter that stakeholder 

input is necessary. 

b. Lesser of Policy for Low-Income 

Subsidy Individuals (§ 423.782) 

To ensure low-income subsidy 

eligible beneficiaries are not harmed 

when the statutory low-income subsidy 

cost-sharing amounts are higher than 

the cost-sharing imposed under their 

plan’s benefit package, we proposed in 

the May 16, 2008 proposed rule to 

codify our existing guidance on this 

situation in regulation. Specifically, we 

proposed adding a new paragraph (c) to 

§ 423.782 which would clarify that the 

cost-sharing subsidy under § 423.782(a) 

and (b) is not available when an 

individual’s out-of-pocket costs, under 

his or her Part D sponsor’s plan benefit 

package, are less than the amounts 

described in § 423.782(a) and (b). After 

considering public comments on our 

proposal, we are adopting § 423.782(c) 

without further modification into this 

final rule. 

Comment: A number of commenters 

supported our proposal that would 

require a Part D sponsor to charge the 

‘‘lesser of’’ the low-income subsidy cost 

sharing amount or the beneficiary’s outof-pocket costs under the plan. 

However, one commenter wanted CMS 

to more explicitly provide that 

beneficiaries entitled to the low-income 

subsidy be charged the plan’s costsharing amount when that amount is 

less than the statutory low-income 

subsidy cost-sharing amount. 

Response: We believe our regulatory 

language is sufficiently clear and 

decline to further amend it. The 

language in section § 423.782(c) 

stipulates that out-of-pocket costs for a 

covered Part D drug under a Part D 

sponsor’s plan benefit package be less 

than the maximum allowable 

copayment, coinsurance or deductible 

amounts under 423.782(a) and (b). Outof-pocket costs include any cost-sharing 

amounts (copayment, coinsurance or 

deductible) the beneficiary would incur 

under the plan’s benefit package. 

Comment: Several commenters 

disagreed with our regulatory revision 

that would require a Part D sponsor to 

charge the ‘‘lesser of’’ low-income 

subsidy cost sharing or beneficiary’s 

out-of-pocket costs. The commenters 

argue that altering statutory cost-sharing 

rules and their application would 

undermine a sponsor’s ability to limit 

inappropriate utilization and may 

discourage the use of generics or certain 

other low-cost medications. In addition, 

they assert that pharmacies would be 

forced to accept reimbursement that 

could be below cost of dispensing the 

drug. 

Response: We disagree with these 

commenters. The low-income subsidy 

cost sharing amounts established in 

regulation at § 423.782 are maximum 

amounts charged to beneficiaries 

eligible for the low-income subsidy. 

They are not minimum amounts that 

must be charged even if the ordinary 

plan cost-sharing that would otherwise 

apply is lower. The intent of the revised 

regulation is to provide low-income 

subsidy beneficiaries access to covered 

Part D drugs consistent with the out-ofpocket costs incurred by members not 

eligible for the low-income subsidy and 

enrolled in the same prescription drug 

plan. To do otherwise would result in 

a Part D sponsor violating its contractual 

obligation to provide the benefit 

package approved by CMS as defined 

under § 423.100. We also believe that if 

the Part D sponsor did charge costsharing amounts above that provided 

under its basic (or when applicable, 

supplemental) prescription drug 

coverage, this would violate the uniform 

benefit requirements at § 423.104, which 

requires the sponsor offering the 

prescription drug plan to offer that plan 

to all Part D eligible beneficiaries in the 

plan’s service area. 

We also disagree with the commenter 

that because of this revision, pharmacies 

will be forced to accept reimbursement 

below the cost of dispensing the covered 

Part D prescription medication. This 

revision to the regulation in no way 

impedes the pharmacy’s ability to 

negotiate appropriate reimbursement for 

dispensing prescription medications 

directly with the Part D sponsors. 

Comment: One commenter in 

particular noted that this proposal 

would require 340B pharmacies to 

charge Part D plan sponsors the same 

drug price as is available under 340B. 

Response: We disagree. This rule does 

not require that 340B pharmacies charge 

the 340B drug price; this is an issue that 

should be the subject of negotiations 

between the pharmacy and the sponsor. 

However, as stated elsewhere in this 

preamble, we note that CMS generally 

does not interfere in plan-pharmacy 

contract negotiations or opine on the 

reasonableness or relevancy of specific 

terms. Rather, we use our oversight 

authority to ensure that Part D sponsors 

abide by our rules and allow 

appropriate access to their pharmacy 

networks. 

Comment: One commenter requested 

clarification that this rule applies to all 

phases of Part D drug coverage, 

including the pre-initial coverage 

(deductible) phase. The commenter 

asserts that individuals eligible for the 

low-income subsidy should not be 

required to pay low-income subsidy cost 

sharing when the approved cost sharing 

during a deductible phase is less. 

Response: The commenter’s 

assumption is correct. An LIS 

individual will not be required to pay 

the maximum low-income subsidy cost 

sharing amounts when the cost-sharing 

under the plan’s benefit package during 

the deductible period (presumably the 

negotiated price of the Part D covered 

drug) is less. 

c. Using Best Available Evidence To 

Determine Low-Income Subsidy 

Eligibility Status (§ § 423.772, 423.800) 

The ‘‘best available evidence’’ policy 

derives from the fact that, while section 

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

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

obligation under section 1860D– 

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

premiums and cost-sharing for all such 

individuals is not contingent upon CMS 

doing so. While we attempt to identify 

all subsidy eligible individuals to the 

full extent possible as soon as possible, 

experience has shown that this does not 

necessarily result in every such 

individual being successfully identified 

as subsidy eligible. We believe, 

therefore, that the sponsors have an 

obligation to take reasonable steps to 

respond to documentation that 

identifies such individuals as subsidy 

eligible when they have not yet been 

identified by us, in order to fulfill their 

statutory obligation to reduce premiums 

and cost-sharing for such individuals. 

Given the importance of this policy, 

we proposed in our May 16, 2008 

proposed rule to codify the policy 

derived from section 1860D–14(c) of the 

Act in § 423.800(b) and (d). Specifically, 

we proposed including in regulations 

text the guidance (Part D Guidance— 

Low-Income Subsidy (LIS) Status 

Corrections Based on Best Available 

Evidence, dated June 27, 2007), 

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

PrescriptionDrugCovContra/Downloads/ 

Final%20Sponsor%

20Guidance%20on%

20BAE%20062707.zip) that we have 

issued to Part D sponsors concerning 

our best available evidence (BAE) 

policy. 

We proposed amending the 

regulations to require that Part D 

sponsors use BAE to substantiate a 

beneficiary’s eligibility for a reduction 

in premiums and/or cost-sharing in the 

case of individuals who indicate they 

are eligible for the low-income subsidy. 

These include full-benefit dual eligible 

individuals, partial dual eligible 

individuals (that is, those who are 

enrolled in a Medicare Savings Program 

as a Qualified Medicare Beneficiary, 


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1522 Federal Register / Vol. 74, No. 7 / Monday, January 12, 2009 / Rules and Regulations 

Specified Low-Income Medicare 

Beneficiary or Qualifying Individual), 

people who receive Supplemental 

Security Income (SSI) benefits but not 

Medicaid, and people who apply for 

and are determined eligible for a 

subsidy. Under the BAE policy we 

proposed to incorporate into the 

regulations, sponsors are required to 

accept and use BAE to correct the 

beneficiary’s low-income subsidy data 

in the sponsor’s system and, as 

applicable, document requests for CMS 

to correct the beneficiary’s low-income 

subsidy data in our system or for CMS 

to work with the Social Security 

Administration (SSA) to correct the data 

in their systems, where appropriate, 

when the change has not occurred as a 

result of routine reporting. 

We anticipate that the BAE policy 

will remain in place for the indefinite 

future. As a result, we proposed to 

modify § 423.800 by adding a fourth 

paragraph, consistent with our current 

policy, that would require Part D 

sponsors to use the CMS-developed 

BAE process to establish the appropriate 

cost-sharing for low-income 

beneficiaries whose information in CMS 

systems is not correct. 

We proposed to define BAE at 

§ 423.772 as documentation or 

information that is directly tied to 

authoritative sources, confirms that an 

individual meets the requirements for 

the low-income subsidy, and is used to 

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

propose to specify in the regulation the 

specific documents that would meet 

these criteria, as there may be 

documents that meet these criteria in 

the future that do not currently exist. 

Comment: A number of commenters 

supported our best available evidence 

policy and our proposal to codify the 

policy in regulation. In expressing 

support for the policy, some 

commenters noted the importance of the 

BAE policy to low-income, subsidyeligible individuals and recommended 

that CMS strictly enforce sponsor 

compliance. 

Response: We appreciate the support 

expressed for our policy and the 

proposed provision. We also recognize 

its importance to the low-income 

subsidy eligible population and, as a 

result, will monitor beneficiary 

complaints on this issue and take 

appropriate corrective action against 

sponsors to the extent that we learn they 

are not compliant with the BAE policy 

as specified in § 423.800(d). 

Comment: Some commenters 

expressed agreement with the definition 

of ‘‘best available evidence’’ in 

§ 423.772. One commenter suggested we 

provide as specific information as 

possible on what is acceptable BAE. 

Two commenters, noting the difference 

between community and institutional 

pharmacy operations, recommended 

expanding the definition to specify that 

an attestation by a provider would 

qualify as documentation from an 

authoritative source. One commenter 

urged CMS to revise the definition to 

add that authoritative sources are those 

‘‘approved by CMS.’’ Another 

commenter believed the definition was 

unnecessarily restrictive and 

encouraged CMS to permit information 

from non-authoritative sources 

whenever possible. 

Response: As we have noted 

previously, we are not specifying in 

regulation the particular documents or 

types of information that meet the 

definitional criteria as there may be 

additional documents in the future that 

meet these criteria. However, we do 

believe that the definition would be 

clearer by specifying the sources of the 

documentation that we have determined 

are authoritative. Therefore, we have 

revised the definition to indicate that 

BAE documentation or other 

information must be tied directly to the 

State or SSA systems. 

Comment: We received a number of 

comments recommending that we add 

regulatory language to incorporate 

guidance that provides for Part D 

sponsors to assist individuals who claim 

to be subsidy eligible but cannot 

provide acceptable evidence of subsidy 

eligibility. 

Response: Since the intent behind the 

regulation, as stated in the proposed 

rule, is to codify our BAE policy, we 

agree with the commenters that the 

regulation should address the provision 

of assistance to individuals without 

documentation. However, under the 

process we established for the provision 

of this assistance, Part D sponsors do 

not directly assist beneficiaries in 

securing acceptable documentation. 

Instead, sponsors are to follow CMSestablished procedures, referring the 

request to the CMS Regional Office, and 

informing the beneficiary of the results 

of the CMS inquiry. Therefore, we have 

added a requirement for Part D sponsors 

to respond to requests for assistance in 

securing best available evidence from 

beneficiaries or the beneficiary’s 

pharmacist, advocate representative, 

family member or other individual 

acting directly on behalf of the 

beneficiary in accordance with the 

process established by CMS. As 

described in our memo entitled ‘‘Best 

Available Evidence Policy—UPDATE’’ 

(available at http://www.cms.hhs.gov/

PrescriptionDrugCovContra/Downloads/ 

MemoClarifiedBAEGuidance_

08%2004%2008_wROconts.pdf), by 

‘‘respond’’ we mean fulfilling a process 

specified by CMS to refer to CMS an 

individual beneficiary who claims 

subsidy eligibility status and 

specifically requests assistance 

obtaining required documentation. This 

process is intended to assist a 

beneficiary (or other individual on the 

beneficiary’s behalf) when a specific 

request for assistance is received by the 

plan, either directly via a call to plan 

member services, or indirectly via 

contact by a pharmacist to the plan’s 

pharmacy help desk line seeking to 

assist the beneficiary (or other 

individual on the beneficiary’s behalf) 

making this request at the point of sale. 

This process is not intended to serve as 

a general alternative to the subsidy 

eligibility confirmation process and 

does not permit pharmacy organizations 

or any other parties to send beneficiary 

records to the plan for research in the 

absence of a request for assistance from 

the beneficiary (or other individual on 

the beneficiary’s behalf) and in lieu of 

making reasonable efforts to acquire the 

documentation from or on behalf of the 

beneficiary. We note that this process 

should place virtually no additional 

burden on the Part D sponsors. 

Comment: One commenter 

recommended that CMS establish a 

mechanism for correcting CMS data for 

LIS applicants based on an LIS award 

letter from SSA presented by the 

beneficiary. 

Response: While we had previously 

expressed an intention to establish a 

mechanism for manually correcting the 

CMS data for beneficiaries awarded LIS 

based on an application for the subsidy, 

the establishment of a correction 

mechanism was not addressed in the 

proposed provision. We believe this is 

a topic more appropriately addressed in 

operational guidance. We are currently 

working with SSA to improve our data 

reporting processes and will discuss any 

process improvements, including a 

correction mechanism, if established, in 

future operational guidance. 

Comment: Two commenters 

recommended expanding the list of 

acceptable documentation for best 

available evidence to include SSA 

letters showing the beneficiary receives 

Supplemental Security Income (SSI). 

Response: We agree with these 

commenters. In addition, in listing the 

documentation that constitutes best 

available evidence in the preamble to 

the proposed rule, we neglected to 

include an award letter to a beneficiary 

who applied for the low-income 

subsidy. Therefore, we are including an 

amended list of evidence sufficient to 


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make a change to a beneficiary’s lowincome status. Currently, any one of the 

following forms of evidence must be 

accepted: 

• A copy of the beneficiary’s 

Medicaid card that includes the 

beneficiary’s name and an eligibility 

date during a month after June of the 

previous calendar year. 

• A copy of a State document that 

confirms active Medicaid status during 

a month after June of the previous 

calendar year. 

• A print-out from the State 

electronic enrollment file showing 

Medicaid status during a month after 

June of the previous calendar year. 

• A screen print from the State’s 

Medicaid systems showing Medicaid 

status during a month after June of the 

previous calendar year. 

• Other documentation provided by 

the State showing Medicaid status 

during a month after June of the 

previous calendar year. 

• A letter from SSA showing that the 

individual receives SSI. 

• For individuals who are not 

deemed eligible, but who apply and are 

found LIS eligible, a copy of the SSA 

award letter. 

Further, in order to establish that a 

beneficiary is institutionalized and 

qualifies for zero cost-sharing any one of 

the following forms of evidence must be 

accepted: 

• A remittance from the facility 

showing Medicaid payment for a full 

calendar month for that individual 

during a month after June of the 

previous calendar year. 

• A copy of a State document that 

confirms Medicaid payment on behalf of 

the individual to the facility for a full 

calendar month after June of the 

previous calendar year. 

• A screen print from the State’s 

Medicaid systems showing that 

individual’s institutional status based 

on at least a full calendar month stay for 

Medicaid payment purposes during a 

month after June of the previous 

calendar year. 

Comment: One commenter 

recommended that we clarify that, if a 

beneficiary has been auto-enrolled by 

CMS or was charged a low-income 

subsidy level cost-sharing level prior to 

being admitted to an institution, it is not 

necessary for the individual to provide 

BAE establishing Medicaid eligibility. 

The commenter also recommended that, 

under such circumstances, CMS not 

require BAE to establish the 

beneficiary’s eligibility for an 

institutional cost-sharing level since this 

could be determined from the date of 

admission to the facility. 

Response: We confirm BAE is not 

necessary to establish an 

institutionalized beneficiary’s Medicaid 

eligibility if that status is currently 

reflected in the CMS system, for 

example, as would be the case if the 

beneficiary had been auto-enrolled in a 

month after June of the previous year. 

However, documentation would be 

required to establish the beneficiary as 

an institutionalized individual as 

defined in § 423.772, and therefore 

qualified for a zero cost-sharing level. 

We disagree with the commenter that 

documentation should not be required 

to substantiate eligibility for the zero 

cost-sharing. 

Comment: Three commenters 

believed the provision represents an 

inappropriate transfer to Part D sponsors 

of responsibility for determining 

beneficiary low-income subsidy 

eligibility. These commenters 

recommended that if sponsors are to 

have this responsibility, the sponsors 

should be protected from liability when 

good faith efforts are made to determine 

low-income subsidy eligibility. Another 

commenter recommended that the 

regulation make it clear that the primary 

parties in the BAE process are CMS and 

the beneficiaries and the only role of the 

Part D sponsor is to update its system 

with the eligibility information 

provided by CMS. 

Response: We disagree with the 

commenters. We recognize that section 

1860D–14(c)(1) of the Act requires us to 

establish a process to notify the Part D 

sponsor when an individual is lowincome subsidy eligible. We have 

established such a process and we 

continue to work to improve the data 

reporting processes. However, we also 

recognize that the process we employ 

does not necessarily result in every 

individual being successfully identified. 

Therefore, we believe that sponsors 

have an obligation to take reasonable 

steps to respond to documentation that 

identifies such individuals when they 

have not yet been identified by CMS, in 

order that the sponsors fulfill their 

statutory obligation under section 

1860D–14(c)(1)(B) of the Act to reduce 

premiums and cost-sharing for lowincome subsidy eligible individuals. 

Comment: Several commenters 

recommended that CMS convene a 

workgroup of Part D sponsors, 

pharmacists, beneficiary advocates and 

State Medicaid representatives to refine 

and improve our BAE policy, including 

identifying other reliable evidence of 

Medicaid eligibility and institutional 

status. 

Response: Our BAE policy is 

important to ensure low-income subsidy 

eligible individuals have access to 

covered Part D drugs at a reduced costsharing level. Therefore, we will 

continue to aggressively respond to 

complaints from beneficiaries and 

others acting on their behalf alleging 

sponsor non-compliance with our 

policy. We will also consider other ways 

of monitoring our BAE policy to ensure 

appropriate access for low-income 

subsidy eligible beneficiaries. 

Comment: Another commenter 

recommended CMS implement 

educational outreach programs to 

augment the regulation. 

Response: We plan to undertake a 

number of initiatives to inform 

interested parties regarding the 

requirements associated with our BAE 

policy. For example, we recently created 

a BAE page on our Web site containing 

our policy guidance, and, pursuant to 

our memorandum mentioned above, 

Part D sponsors must establish a link to 

this page on their Web sites and make 

information about the BAE policy 

readily available for those who contact 

the plan’s call center. 

Comment: A few commenters urged 

CMS to extend the requirement in 

§ 422.52(g) that special needs plans 

verify an individual’s Medicaid 

eligibility to all Part D sponsors as a 

means of curtailing the need for BAE. 

Response: The requirement in 

§ 422.52(g) is specific to Medicare 

Advantage plans for special needs 

individuals and is intended to ensure 

that the individuals wishing to enroll in 

a dual eligible special needs plan are 

eligible for both Medicare and 

Medicaid. The verification of Medicaid 

eligibility is a required element of the 

plan’s enrollment process. The 

extension of this requirement for all Part 

D sponsors would be inappropriate as 

sponsors are required to accept BAE 

only in those situations in which CMS 

systems do not reflect a beneficiary’s 

correct low-income subsidy eligibility. 

Comment: One commenter noted the 

rule did not address situations in which 

a beneficiary’s Medicaid application is 

pending and recommended CMS 

reaffirm our guidance for handling 

claims and co-payments in these cases. 

Response: We recognize that many 

LTC pharmacies hold receivable 

balances in Medicaid-pending situations 

for cost sharing amounts that will be 

paid by the Part D sponsor once 

Medicaid eligibility is determined and 

we require sponsors to use the date of 

the Medicaid notification to establish a 

new timely claims filing period to 

ensure third party payers and other 

parties have the opportunity to request 

reimbursement for claims incurred 

during the retroactive period. 


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9. Certification of Allowable Costs 

(§ 423.505) 

We proposed to revise § 423.505(k)(5), 

to clarify that the certification of 

allowable costs for risk corridor and 

reinsurance information includes direct 

and indirect remuneration that serves to 

decrease the costs incurred by a Part D 

sponsor for a Part D drug. The 

submission of accurate and complete 

data regarding direct and indirect 

remuneration that reduces a Part D 

sponsor’s costs for Part D drugs under 

the Medicare prescription drug benefit 

is necessary to ensure accurate 

reinsurance and risk corridor payments. 

We received several comments on this 

provision, all of which expressed 

support for this proposed clarification. 

Therefore we are implementing this 

clarification, as proposed. 

Comment: Several commenters 

supported our proposed clarification. 

One commenter agreed with the policy 

that the Chief Executive Officer or Chief 

Financial Officer must certify that the 

data reported for the purposes of 

determining allowable costs is accurate. 

However, this commenter expressed 

concern that CMS would need to 

establish penalties for violations in 

order to ensure compliance with this 

policy. 

Response: We agree with the 

commenter’s concern. We are currently 

conducting audits of the data reported 

for determining allowable costs in order 

to evaluate whether the data submitted 

(and attested to by the CEO or CFO) by 

Part D sponsors are accurate, complete, 

and truthful. In cases where inaccurate 

or incomplete data have been provided, 

we will determine the appropriate 

corrective action or penalties for Part D 

sponsors. In cases where there were 

misrepresentations or omissions in the 

information provided to us for 

determining allowable costs, we may 

refer such cases to Federal law 

enforcement for potential Federal civil 

action or criminal prosecution or both. 

10. Change of Ownership Provisions 

(§ 423.551) 

We are amending the change of 

ownership provisions in § 423.551, by 

adding paragraph (g) to clarify that PDP 

sponsors may not sell or transfer 

individual beneficiaries or groups of 

beneficiaries enrolled in any of their 

plan benefit packages (PBPs). This new 

provision is simply a clarification of an 

existing restriction on PDP sponsors’ 

ability to sell portions of their Part D 

lines of business. 

We are adding § 423.551(g) to provide 

necessary clarification on this change of 

ownership issue. During the first 2 years 

of the Part D program, several PDP 

sponsors have requested our approval of 

transactions involving the sale of 

beneficiaries. This clarification will 

minimize the number of sponsors that 

mistakenly begin negotiations on such 

sale agreements. 

Comment: We received comments in 

support of this provision from several 

Medicare beneficiary advocacy 

organizations. A commenter from a Part 

D sponsor requesting a clarification that 

the provision does not prohibit a 

sponsor from transferring members from 

one wholly-owned subsidiary to another 

wholly-owned subsidiary (or from one 

contract to another contract) when a 

consolidation is required by CMSimposed limits on the number of 

offerings a sponsor may have. 

Response: The Part D sponsor’s 

comment is in reference to requests 

CMS has made to certain PDP sponsors 

to adjust their bid submissions for an 

upcoming contract year to ensure that 

the sponsor is offering only those Part 

D plans that afford beneficiaries a 

meaningful choice among the sponsor’s 

plan offerings. We advise that this 

change in the regulation will have no 

impact on our policies concerning the 

cross-walking, auto-enrollment, or 

reassignment of beneficiaries. 

Comment: A Part D sponsor noted 

that the regulation is not as clear as the 

preamble in stating CMS’ intent that we 

would recognize the sale of one or more 

plan benefit packages (PBPs) as a line of 

business rather than requiring a sponsor 

to sell all PBPs under a contract. Also, 

the regulation does not contain the 

condition that the sale cannot be apart 

from the rights and obligations related 

to the PBP. 

Response: We agree that we could 

make clearer, through regulatory 

language, our intention that 

beneficiaries may not be transferred to 

another sponsor’s plan pursuant to a 

novation without the acquiring sponsor 

assuming the selling sponsor’s PBP 

obligations as well. Accordingly, we are 

revising the language of this regulatory 

provision to incorporate this comment. 

We acknowledge the commenter’s 

suggestion regarding the qualification of 

the sale of fewer than all of a sponsor’s 

PBPs under a PDP sponsor contract as 

constituting an asset sale that we would 

recognize through the execution of a 

novation agreement. We believe this 

comment addresses an issue outside the 

scope of the regulation, which was 

intended solely to ensure that sponsors 

and potential sponsors understand that 

a sale of a Part D line of business must 

include the transfer of the seller’s PBP 

obligations to the acquiring sponsor. We 

indicated in the preamble of the January 

28, 2005 final rule (70 FR 4341), that we 

could not define all possible business 

arrangements and transactions and that 

the rules in Subpart N were intended as 

a framework, with guidance to be 

provided on a case-by-case basis. We 

continue that policy here by declining 

to accept the commenter’s suggestion. 

D. Changes to the MA and Prescription 

Drug Benefit Programs 

1. Authorization of Automatic or 

Passive Enrollment Procedures 

(§ § 422.60 and 423.32) 

In our May 16, 2008 proposed rule, 

we explained that there are some 

situations in which we have exercised 

our authority under section 1851(c)(1) of 

the Act to establish the method for 

electing to enroll in an MA plan by 

providing for ‘‘passive’’ enrollment 

procedures, under which an individual 

is notified that he or she can elect an 

enrollment into a particular plan by 

taking no action. We have done this 

only in cases in which we believed it 

was clear that enrollment in that plan 

was in the best interests of the average 

individual who did not focus on making 

an affirmative plan choice (generally in 

situations where the existing plan was 

being terminated or non-renewed). We 

proposed to revise the regulations to 

codify this practice in a new § 422.60(g) 

and § 423.32(g), in which the 

regulations would specify that CMS may 

authorize plans to carry out ‘‘passive’’ 

enrollment procedures in certain 

situations, including those involving 

immediate plan terminations, as well as 

those in which a failure to elect the 

enrollment in question would result in 

potential harm to beneficiaries. 

Comments on this passive enrollment 

provision are discussed below. 

Comment: Although some 

commenters supported the provision as 

proposed, most commenters objected to 

the policy reflected in our proposal. In 

particular, several commenters opposed 

aspects of any process that would 

passively enroll members of a 

terminating or non-renewing MA plan 

into another MA plan. They argued that 

the passive enrollment process violates 

section 1851(a)(1) of the Act, which 

provides for beneficiaries to choose to 

receive their care either under Original 

Medicare (fee-for-service Medicare) or 

with a Medicare Advantage plan. These 

commenters contended that 

beneficiaries that have chosen an MA 

plan have chosen that specific plan, and 

not necessarily the MA program 

generally. They expressed concerns 

with what they describe as a wide 

variation in MA plan quality, network, 

benefits, cost sharing and other plan 


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policies. They suggest that a beneficiary 

who fails to elect a specific MA plan 

should always be defaulted to Original 

Medicare. Additionally, the commenters 

expressed concern that some 

beneficiaries do not understand the 

information provided in notices about 

passive enrollments and therefore, such 

notices do not serve as an effective 

protection against possible beneficiary 

harm and confusion. 

The same commenters did agree that 

beneficiaries in a stand-alone PDP 

should be passively enrolled into 

another stand-alone PDP when their 

current PDP has been terminated or 

non-renewed, as these individuals 

would otherwise be left without 

prescription drug coverage. However, 

overall, the commenters argued that, in 

the event that an MA plan offering Part 

D benefits is terminated or nonrenewed, these individuals should be 

disenrolled from the terminating or nonrenewing MA plan, passively enrolled 

into a stand-alone PDP, and ‘‘defaulted’’ 

into Original Medicare, rather than 

being re-enrolled into another MA plan 

that offers Part D coverage. 

Response: We disagree that our policy 

is inconsistent with section 1851(a)(1) of 

the Act. As noted in the preamble to the 

proposed rule, section 1851(c)(1) of the 

Act grants the Secretary the authority to 

‘‘establish a process’’ for making the 

‘‘elections described in [section 1851(a)] 

are made and changed, including the 

form and manner in which such 

elections are made and changed.’’ Under 

normal circumstances, the manner in 

which elections are made is for the 

beneficiary affirmatively to elect a plan, 

and to default a beneficiary to original 

Medicare if they fail to do so. 

In some cases, however, a beneficiary 

could be substantially harmed by a 

failure to elect a particular MA plan, 

and it is clear that a reasonable 

beneficiary in such circumstances 

would elect that plan if they made an 

informed, affirmative choice. For 

example, a beneficiary with good 

employer wrap-around coverage may 

lose his or her wrap-around coverage if 

the employer plan changes the MA plan 

that it wraps around, and provides in its 

rules that an employee or retiree who 

fails to choose the new plan would lose 

his or her wrap-around benefits. In such 

cases, employees receive notice that 

they may elect the new MA plan under 

which they would keep their wraparound benefits by taking no action, and 

would need to make an affirmative 

choice to make an election that would 

result in them losing their employee 

coverage. Similarly, MA enrollees could 

be in plans that buy down their Part B 

premium or provide other key benefits 

that would remain available only 

through another, similar, MA plan. As 

discussed below, we would require 

appropriate notice in those situations as 

well. 

We view this as an appropriate 

exercise of our authority to establish the 

form and manner for electing an MA 

plan. In all cases in which this method 

is adopted, enrollees who determine 

that they do not, in fact, wish to make 

this election are permitted to decline 

this enrollment and enroll in an 

arrangement of their choice. 

As explained in the proposed rule, 

this process also has been applied in 

situations in which a beneficiary’s MA 

plan of choice has been suddenly 

terminated, and there is not adequate 

time to have a normal special election 

period. We expect these situations to 

continue to be limited in occurrence 

and scope. 

In these situations, we consider the 

plan options available to affected 

beneficiaries, including the type and 

cost of such coverage, and the provider 

networks, and how such coverage and 

networks compare to those in their 

current plan. In many such cases, if 

beneficiaries were to be ‘‘defaulted’’ to 

original Medicare, their costs for 

Medicare Part A and B services could 

increase dramatically to a level some of 

them could not afford. These 

beneficiaries were relying on the lower 

out-of-pocket costs and additional 

benefits provided by their MA plan, 

which they would lose if suddenly 

placed into Original Medicare. Rather 

than have such beneficiaries 

automatically face large, and in some 

cases possibly bankrupting, out of 

pocket costs, we have arranged for them 

to elect a comparable MA plan by taking 

no action. We have, where warranted, 

required that plan to cover services 

provided by their existing providers and 

pharmacies during a transition period 

that would allow them to take the time 

to make an informed choice of plan 

options. 

Organizations are required to notify 

affected beneficiaries of the ‘‘passive’’ 

enrollment prior to the effective date of 

the enrollment or as soon as possible 

after the enrollment effective date if 

prior notification is not possible under 

the circumstances. The notices are 

approved by CMS, explain the 

beneficiary’s right to choose another 

plan, describe the costs and benefits of 

the new plan and how to access care 

under the plan, and discuss any other 

conditions of enrollment established by 

CMS (such as the right to continue 

seeing non-network providers while 

paying network cost-sharing amounts). 

We may also require that the 

organization notify the affected 

beneficiaries through other means, such 

as by telephone, where appropriate. In 

addition, we also ensure that any form 

of notification includes important 

contact information for beneficiaries to 

use to obtain assistance or additional 

information. 

We believe the above process 

preserves the beneficiary choice 

provided for under section 1851(a)(1) of 

the Act, while also preserving the lower 

cost Part A and Part B benefits upon 

which MA plan beneficiaries have been 

relying in the case of those failing to 

make a choice, just as passively 

enrolling beneficiaries in a terminating 

PDP into another comparable PDP 

protects their Part D coverage. In both 

cases, the default is to a plan that we 

believe clearly would be in the average 

enrollee’s best interests. For these 

reasons, we are finalizing the proposed 

regulatory provision specifying our 

passive enrollment authority. 

Comment: Most commenters 

suggested that, when enrolling affected 

beneficiaries into a stand-alone PDP, 

CMS use existing Prescription Drug 

Event (PDE) data to ensure that 

beneficiaries are enrolled in the least 

expensive available PDP that covers all 

of their current medications. 

Response: As stated above, when 

contemplating passive enrollment, we 

consider all aspects of the various plan 

options available to affected 

beneficiaries, including the type and 

cost of such coverage, the provider 

networks, and how these items compare 

to those of the beneficiary’s current 

plan. Given the limited time typically 

available in those situations where 

passive enrollment is appropriate, we 

do not believe we would have sufficient 

time to incorporate beneficiary-specific 

PDE data into our analysis, particularly 

given the significant lag time between 

actual drug usage and the submission 

and analysis of such data. We will 

consider using such data in the future, 

if the circumstances allow. 

Comment: Most of the commenters 

advised that CMS grant a special 

enrollment period (SEP) to individuals 

who are passively enrolled, and that this 

SEP last 6 months or until the end of the 

next Annual Election Period (AEP), 

whichever is later. They also suggested 

that the SEP allow the beneficiary to 

choose to have coverage effective 

retroactively, but no earlier than the first 

day of the first month after plan 

termination, in order to minimize 

disruption of coverage. 

Response: We agree that individuals 

who are passively enrolled should be 

provided with an SEP, and already 

provide an SEP to these individuals. 


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Generally, this SEP begins the month in 

which the beneficiary is notified of the 

passive enrollment, and extends for an 

additional two months. Generally, we 

believe that such a 3-month SEP is 

sufficient and we do not believe it is 

appropriate or necessary to establish a 

6-month SEP in the regulation, as 

suggested by commenters. However, in 

keeping with our authority under the 

current regulations, we will retain the 

flexibility to extend the SEP based on 

the unique circumstances of each 

termination or non-renewal. We also 

decline to amend the regulations to 

allow affected beneficiaries to choose to 

have alternative plan coverage elected 

under an SEP begin retroactively. Our 

experience has been that retroactive 

enrollment changes often are not in the 

best interests of the beneficiary, given 

the potential adverse consequences of 

retroactive cost-sharing and premium 

liability; thus, we believe that 

permitting unfettered retroactive 

changes on a blanket basis could prove 

problematic. Instead, we will continue 

to allow retroactive enrollment changes 

on a case-by-case basis. 

Comment: A commenter suggested 

that, where passive enrollment is 

provided for, CMS launch an aggressive 

outreach and education campaign and 

provide special support to community 

based counseling organizations, such as 

local State Health Insurance Assistance 

Programs (SHIPs) and Area Agencies on 

Aging (AAA). Several commenters also 

advised that CMS notify local SHIPs in 

the affected area of the names and 

address of all enrollees in a terminating 

plan who will lose coverage and the 

effective date of the termination of this 

coverage. 

Response: We recognize that such 

organizations are important partners in 

our efforts to educate and reach out to 

affected beneficiaries, and will continue 

to work closely with our partners when 

such situations occur. We will continue 

to work to provide them with 

information about such situations as 

soon as possible, in order to ensure 

beneficiaries have access to the 

important counseling services provided 

by these organizations. However, we 

decline to commit to providing SHIPs 

with the names and addresses of all 

impacted individuals, as we believe that 

these individuals’ privacy concerns, and 

the administrative burden associated 

with collecting and disseminating such 

information, outweigh the potential 

benefits of sharing such information 

with these organizations. 

Comment: A commenter requested 

that the passive enrollment provisions 

be expanded to apply to dual eligible 

individuals who have actively chosen a 

plan if the plan premium of that plan is 

no longer below the amount in which 

CMS provides the full amount of extra 

help. 

Response: The commenter is actually 

referring to one aspect of our annual 

‘‘reassignment’’ process, whereby we 

reassign LIS-eligible individuals if they 

are in a plan that will no longer have a 

premium at or below the LIS 

benchmark. However, our policy is to 

reassign only individuals who remain in 

a plan to which they were auto-enrolled, 

as opposed to individuals who have 

actively chosen their existing plan. We 

considered reassigning these 

individuals (so-called ‘‘choosers’’) to 

another Part D plan, but decided to 

honor the individual’s choice and allow 

him or her to make a subsequent choice 

on his/her own. These individuals 

receive notice in October of every year 

from their current plan that advises 

them of any changes in the plan’s 

benefits and costs, and they have until 

the end of the calendar year to take 

action to change plans. Additionally, 

LIS-eligible individuals have an ongoing 

SEP that enables them to make changes 

at any time during the year; so, if an LISeligible individual is unaware that a 

premium will be owed and then decides 

to change plans upon receiving an 

unexpected bill for a plan premium, he 

or she is always free to do so. Note that 

even in this situation, the subsidized 

copayments would still apply and the 

premium due would represent only the 

difference between the LIS subsidy and 

the actual premium. 

Comment: A commenter 

recommended that CMS distribute the 

terminated membership equally among 

all plans available in the area. 

Response: When effectuating a 

passive enrollment, we review 

information about the available plans in 

the affected area, including their benefit 

packages, provider networks, and costsharing premium amounts, in an effort 

to ensure that beneficiaries who are 

passively enrolled maintain a level of 

coverage equal to or better than their 

current coverage, without incurring 

additional costs. In cases where these 

considerations are generally equal, our 

preference generally would be that 

affected beneficiaries are distributed 

equally among the remaining plans in 

the area. However, in other cases, only 

one plan may be available that meets 

these criteria. Therefore, we decline to 

adopt the commenter’s suggestion as a 

general rule, so that we can continue to 

exercise appropriate discretion to 

ensure that affected beneficiaries are 

enrolled in the most appropriate plans. 

2. Involuntary Disenrollment for 

Nonpayment of Premium (§ § 422.74 

and 423.44) 

We proposed revising the MA and 

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

§ 423.44(d)(1) by adding a new 

paragraph (d)(1)(iv) to each section to 

prohibit plans from disenrolling 

individuals for failure to pay premiums 

if they either have requested the 

premium withhold option, or if they are 

already in premium withhold status. 

Plans may initiate disenrollments for 

failure to pay premium only after an 

individual in ‘‘direct bill’’ status has 

been notified of the premium owed and, 

in the case of MA plans, provided the 

grace period required under 

§ 422.74(d)(1)(i)(B), as currently 

outlined in the MA and Part D 

regulations discussed above. For Part D, 

the plan must have made reasonable 

efforts to collect the unpaid amount, as 

provided in § 423.44(d)(1)(i), before 

disenrollment may be initiated. Based 

on the comments received on our 

proposal, we are revising the language 

in § 422.74(d)(1)(iv) and 

§ 423.44(d)(1)(iv) to conform with the 

changes made to § 422.262(g) and 

§ 422.293(e). 

Comment: Numerous commenters 

supported the provisions as an 

important beneficiary protection. 

However, several commenters also 

expressed concerns with the operational 

issues experienced with the 

implementation of the premium 

withhold option, and the subsequent 

beneficiary confusion that may arise 

from these issues. Several of these 

commenters recommend that CMS 

define a clear process to resolve 

withhold problems. 

Response: We continue to work in 

collaboration with the Social Security 

Administration and our contracting 

partners to refine the premium withhold 

process in order to ensure a more timely 

and equitable outcome for all. We 

continue to work on this process and 

have resolved most premium passthrough payment delays. To the extent 

that problems remain unresolved, 

however, we will consider what other 

steps we might take when member 

premiums are being withheld from SSA 

checks, but they are not being passed 

through to the appropriate plan. 

Comment: Several commenters 

proposed that any beneficiary who is in 

direct bill status despite having 

requested premium withhold be 

protected from disenrollment for failure 

to pay premiums for the duration of the 

plan year. 

Response: In some cases, a request for 

premium withhold is not implemented 


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properly when requested, and a 

beneficiary may be in direct bill status 

when he or she should be in withhold 

status. We believe that beneficiaries 

remain financially responsible for the 

premium amounts due to the plan. If 

these amounts are not being withheld 

from their checks, they remain 

responsible for payment. Members of an 

MA or Part D plan who are being billed 

for payment are subject to involuntary 

disenrollment (if plan uses that option), 

after being provided due process— 

including the opportunity to pay 

premiums within grace period. In 

operational guidance, we have asked 

that our contracting plans make good 

faith efforts to work with beneficiaries 

who owe back premiums and to allow 

members to arrange for repayment over 

time. That process was viewed as 

protective of both the beneficiary and 

plan financial interests. 

Comment: Many commenters 

expressed opposition to the prohibition 

on involuntary disenrollment due to 

non-payment of premium while 

premium withhold is in place. One 

commenter believed that it does not 

treat all members in the plan equally, 

requiring members in direct bill status 

to pay premiums timely, while those 

who have elected premium withhold are 

protected even when the plan does not 

receive payment. 

Response: We disagree that 

beneficiaries are treated unequally. All 

members are required to pay premiums 

timely. By choosing the premium 

withhold option, beneficiaries have 

demonstrated their commitment to meet 

their financial obligation to the plan. In 

either case, the beneficiary assumes the 

financial responsibility—whether 

through direct withholding from his/her 

Social Security benefit check, or by 

direct billing by the plan and remittance 

to the plan by the beneficiary. 

Comment: A commenter believed that 

the prohibition on disenrollments adds 

more administrative burden to the plan 

and dictates plan financial policies. 

Response: We do not believe this 

requirement places an undue additional 

burden on plans. We provide plans with 

critical information on its membership 

on a routine, ongoing basis. Plans are 

required to react to this information as 

part of the plans’ contractual 

obligations. Further, we disagree that 

this requirement dictates plan financial 

policies as these requirements to 

maintain enrollment for an individual 

who is in premium withhold status do 

not waive or otherwise eliminate plan 

premiums. 

Comment: A few commenters 

suggested that beneficiaries identified 

with withhold problems be moved to 

direct bill. One commenter suggested 

the same, but with a finer point that 

would allow plans to initiate a move to 

direct billing when the SSA withhold 

has not worked for a reasonable period 

(for example, 60 days). Another 

commenter recommended that we allow 

plans to send notices to beneficiaries to 

inform them that withholding is not 

working and that a balance is accruing. 

Response: We appreciate these 

suggestions and will take them into 

consideration as we continue to 

examine the extent and duration of 

withhold issues. 

Comment: A few commenters 

requested that CMS establish similar 

provisions to protect plans from a 

negative financial impact when the 

premium withhold process is not 

successful, since MA organizations 

sometimes experience delays in 

payment from CMS. One commenter 

recommended that CMS institute 

performance guarantees for SSA 

payments and/or requiring SSA to pay 

interest to MA plans for late payments. 

Response: As described previously, 

we continue to work with our internal 

processes, Social Security, and our 

contracting partners to refine the 

premium withhold system. We continue 

to discuss this process with our 

contracting partners and will develop 

operational strategies to successfully 

implement this process, including 

timely premium payment to plans. 

Comment: Another commenter did 

not agree with the CMS’ legal 

interpretation to exclude premium 

payment option from the nonpayment of 

premium provisions established in 

statute at section 1851(g)(3)(A) of the 

Act. The commenter further questions 

the Congressional intent of such a 

provision, since neither the statute, as 

established by the Balance Budget Act 

of 1997 (BBA), nor the supporting 

congressional interpretation of the BBA, 

provides specific exception to exclude 

premium withhold from this 

disenrollment provision. 

Response: We are not prohibiting 

involuntary disenrollment solely on the 

basis that the individual has selected 

his/her premiums to be withheld from 

an SSA, RRB, or OPM benefit check. 

Rather, we are prohibiting such 

disenrollment when that request has not 

yet been successfully processed due to 

a system processing issue within CMS 

or between CMS and SSA (or RRB and 

OPM, when that occurs in the future). 

We are simply establishing this 

provision to protect the individual 

beneficiary from negative consequences 

(involuntary disenrollment) based on a 

system’s issue that is beyond his or her 

control. This provision in no way 

relieves the individual of any premiums 

owed to the plan. The statutory 

authority at 1851(g)(3)(B)(i) of the Act 

provides Medicare Advantage 

organizations the option to disenroll 

individuals who fail to pay plan 

premiums, which is also applied to Part 

D plans—as directed by 1860– 

D1(b)(1)(A) of the Act to apply rules to 

Part D program similar to the ones 

established for the MA program. 

With regard to paying the premium, 

we have established that the individual, 

by selecting the premium withhold 

option, is deemed to have made a 

payment to the plan and therefore is not 

subject to this involuntary 

disenrollment for non-payment of 

premium provision. 

Comment: A commenter believed that 

all members should be treated the same 

for nonpayment of premium, regardless 

of the payment method chosen. 

Response: We agree and believe that 

the provision, as written, supports that 

all individuals are treated equitably. 

Comment: Several commenters 

requested that CMS expand this rule to 

include other automatic payment 

situations involving system issues, such 

as errors with electronic fund transfers 

or checking accounts. 

Response: We decline to extend this 

provision to include errors that may 

occur from other financial institutions 

and maintain that this provision is 

limited to the premium withhold 

option, as described at § 422.265(f) and 

§ 423.293. 

Comment: Several commenters urged 

CMS to include additional protections 

for low-income individuals, specifically, 

that plans would not be allowed to 

involuntarily disenroll low-income 

individuals who receive extra help from 

Medicare in paying all or part of their 

Part D plan premiums. In addition, 

commenters requested that we allow 

beneficiaries to provide evidence to the 

plan that supports their low-income 

status to prevent the disenrollment, if 

the plan is not aware that the individual 

receives extra help. 

Response: As explained above, 

section 1851(g)(3)(B)(i) of the Act 

provides MA plans the option to 

disenroll members who fail to pay 

premiums, and this option is also 

available to Part D plans, as directed by 

1860–D1(b)(1)(A) of the Act. Therefore, 

we cannot prohibit plans from 

exercising this option if they so choose. 

However, if a plan chooses to exercise 

this option, our existing enrollment 

guidance permits plans to exclude their 

low-income subsidy eligible members 

from this policy and allow them to 

remain enrolled in the plan. 


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Comment: Several commenters 

believed that this provision should be 

extended to beneficiaries whose 

premiums are paid by a third-party 

funding source, such as a State 

Pharmaceutical Assistance Program 

(SPAP). Further, if involuntary 

disenrollment occurs when there is such 

a funding source, one commenter 

recommends that the individual be 

reinstated into the plan once the plan is 

notified of the third-party payer. 

Response: We already have provisions 

in place to prohibit organizations from 

disenrolling or initiating the 

disenrollment process, if those 

organizations have been notified that 

the Part D portion of the premiums is 

being paid by an SPAP or other payer 

and the organization has not 

coordinated the receipt of the premium 

payment directly with the SPAP or 

other payer. Details of these 

requirements can be found in Chapter 

14 of the CMS Medicare Prescription 

Drug Benefit Manual. 

Comment: One commenter requested 

that disenrollment under the 

involuntary disenrollment for nonpayment of premium provision only 

occur if the premium in arrears is above 

a certain threshold, for example at least 

2 months premiums are past-due. 

Otherwise, the commenter believes that 

plans would be allowed to terminate 

these important benefits over what 

amounts to a very insignificant sum of 

money to the plan. 

Response: The commenter raises an 

interesting issue; however, small 

amounts, in aggregate, could prove 

substantial to the organization. To 

ensure that all beneficiaries are treated 

equitably, we have established in subregulatory guidance that if plans choose 

to implement this option to disenroll 

individuals for non-payment of past-due 

premiums, that they must apply the rule 

consistently to all similarly situated 

individuals and for any amount owed 

and not paid during the grace period. 

Comment: CMS should clarify that the 

prohibition to disenroll enrollees is 

applicable only to those premiums due 

after the date the enrollee requested 

premium withhold status. 

Response: We agree that the 

prohibition on disenrollment is 

applicable to individuals only for those 

premiums due after the individual 

selects the premium withhold option. If, 

prior to requesting premium withhold, 

and individual’s premiums are already 

in arrears, the plan can initiate 

involuntary disenrollment for nonpayment of premium related to the 

premiums that were already past-due at 

the time premium withhold was 

requested. 

Comment: Commenters urged CMS to 

add a provision allowing the plan to bill 

CMS for the amount of any premiums 

due, including reasonable interest, for 

the period in which the premiums are 

owed. 

Response: We disagree that we should 

pay the individual’s portion of the plan 

premium or interest on these premiums, 

and maintain that the individual is 

ultimately responsible for his/her 

premiums. 

3. Retroactive Premium Collections and 

Beneficiary Repayment Options 

(§ § 422.262 and 423.293) 

We proposed to amend the MA 

regulations at § 422.262 by adding new 

paragraph (h) and the Part D regulations 

at § 423.293 by revising paragraph (a) to 

expressly provide for the proration of 

past-due premiums over a period of 

monthly payments when the reason for 

the premium arrearage is other than a 

member’s willful refusal to remit the 

premium. In making this proposal, we 

stated that we believed that 

beneficiaries should be able to spread 

out their obligation in such cases over 

at least the same period as the one 

during which past-due premiums were 

accruing. That is, if 7 months of 

premiums are due, then the member 

should have at least 7 months to repay. 

The final rule adopts these revisions by 

adding a new paragraph (h) to § 422.262 

and in § 423.293 by revising paragraph 

(a) as set forth in our proposed rule. 

Based on comments, we modified our 

proposed language to clarify that other 

mutually acceptable means of 

repayment of past-due premiums are 

also permissible. 

Comment: Many commenters agreed 

with the proposed rule. One commenter 

agreed with the proposed rule, but 

suggested we clarify that failure to stay 

current with a repayment agreement 

would constitute grounds for 

involuntary disenrollment. 

Response: We believe § 422.74(b)(1)(i) 

already provides ample authority to 

initiate involuntary disenrollment 

procedures for a member that does not 

stay current with his or her repayment 

agreement. 

Comment: Some commenters stated 

that allowing enrollees to repay pastdue premiums over time would place a 

financial burden on plans. Some stated 

that direct billing is labor-intensive and 

that plans should be permitted to charge 

interest to members on past-due 

premiums to make up for the lost cashflow. 

Response: We do not have authority 

to permit plans to charge interest for 

past-due premiums. The recourse for 

plans established in statute and codified 

in regulation is that plans can initiate 

involuntary disenrollment of members 

that do not remit premium in a timely 

manner. Note that direct billing is 

already a member option, so the burden 

on plans will be mitigated by systems 

for direct billing that are already in use. 

Comment: Some commenters stated 

that determinations of ‘‘fault’’ would be 

difficult to make, and that enrollee 

complaints would increase, including 

complaints about the disparate 

treatment of members. Others stated that 

we should not establish a separate 

‘‘right’’ for individuals who ‘‘fail’’ 

premium withhold, while not providing 

the same ‘‘right’’ to others who have 

past-due premiums. Other commenters 

suggested requiring plans to ‘‘waive’’ 

premiums when the plan sponsor was 

‘‘at fault’’ in creating the premium 

arrearage. Some commenters suggested 

we include a definition of ‘‘without 

fault’’ and include all situations where 

the individual could not reasonably be 

expected to make premium payments, 

including hospitalizations or other 

situations beyond the beneficiary’s 

control. 

Response: We have not further 

defined ‘‘without fault’’ since we 

believe the language of the regulation is 

clear. To the extent the member has not 

been previously notified of proposed 

involuntary disenrollment for nonpayment of premium, the member is 

‘‘without fault’’ in creating the premium 

arrearage. In such cases, where the 

premium arrearage is for more than a 

single month, the sponsoring 

organization must permit installment 

payments. We do not believe this 

provision will cause disparate treatment 

of members. Rather, all members with 

premium arrearages of more than a 

month and who were not responsible for 

having created them by either failing to 

respond to a remittance notice, or by 

failing to use a coupon book to send in 

their monthly premium, will have the 

same ‘‘right’’ to installment payment of 

past-due amounts. We are not further 

enumerating the possible ‘‘without 

fault’’ situations at this time. That said, 

we do not believe that being 

hospitalized would necessarily, in and 

of itself, constitute a case of ‘‘without 

fault.’’ Note that premiums are due 

monthly. In the event a hospitalization 

or lengthy illness prevents timely 

payment of premium, we would want 

and expect plan sponsors to be 

reasonable in their collection efforts. 

Comment: Some commenters 

suggested that while ‘‘without fault’’ 

determinations are being made there 

should be no recourse against an 

enrollee. These commenters also 

suggested developing an appeal process 


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related to ‘‘without fault’’ 

determinations. 

Response: Disputes related to 

premium payments and involuntary 

disenrollment actions are already 

subject to the plan’s internal grievance 

process. 

Comment: One commenter stated that 

members are aware of their monthly 

premium liability upon enrollment in a 

plan and therefore should not be 

permitted to delay payment, when 

premium arrearages occur. Another 

commenter stated that extended 

payment plans are a hardship for 

beneficiaries. 

Response: In some cases members 

believe they owe no premium or that 

their premium is being paid through 

premium withhold or through some 

other mechanism. In such cases 

premium arrearages can accrue through 

no fault of the member. In other words, 

it is not always the case that knowing 

premium liability is tantamount to 

delaying payment. In the case where a 

member finds hardship in an extended 

payment plan, remittance by lump sum 

is also possible. 

Comment: Some commenters 

complained that extending repayment 

plans beyond the current plan year 

could result in members still owing 

past-due premiums at their renewal 

date. The commenter also stated that 

some members might disenroll from the 

plan during the Annual Election Period 

before they had completely repaid their 

premiums. Some commenters suggested 

that repayment plans, therefore, be 

limited to the number of months left in 

the current plan year. 

Response: All members are free to 

select a new plan during the Annual 

Election Period and therefore have an 

opportunity to stop paying premium 

toward the end of a plan year, especially 

if they are considering enrollment in a 

new plan. Therefore, we do not agree 

that the potential for selection of a new 

plan during the Annual Election Period 

provides a compelling argument that 

installment plans always guarantee 

repayment before the end of the current 

plan year. 

Comment: One commenter suggested 

adding additional options for members 

to repay past-due premiums, beyond the 

two mentioned in proposed regulation 

text. 

Response: We agree with this 

comment and in response to this 

comment now indicate in the final 

regulation text that other mutuallyagreeable repayment methods, beyond 

lump-sum and monthly installments, 

are acceptable. 

Comment: One commenter 

recommended allowing plan sponsors to 

require repayment of the full past-due 

amount if it represents less than 2 

months. 

Response: We agree with this 

comment. It was not our intention to 

allow repayment of past-due premium 

amounts over a greater period of time 

than the number of months during 

which the past-due premiums accrued. 

If the premium arrearage is for a single 

month, then the member must pay the 

entire amount in a single payment. 

Comment: One commenter suggested 

allowing the plan sponsor to exercise 

flexibility in working with members, 

that mandating specific member rights 

was inappropriate and that it might lead 

to premium payment abuses by 

members. 

Response: While we rely on and 

assume plan reasonableness, we also 

assume member integrity. We believe 

we have achieved the correct balance 

between a plan sponsor’s right to 

impose premium and a plan member’s 

responsibility for payment of such 

premium. 

Comment: One commenter stated that 

sections 1854(d)(1) and (2) of the Act 

did not support the interpretation that 

members should be permitted to pay 

past-due premiums over time. 

Response: We do not agree. Section 

1854(d)(1) of the Act is clear in 

requiring a plan sponsor to permit the 

payment of premium ‘‘on a monthly 

basis.’’ If, due to a system interface 

problem, or if, due to the failure, 

oversight or mistake of another party— 

for instance, a plan sponsor might 

neglect to provide a monthly billing 

statement to a member—and if a 

member’s premium arrearage exceeds a 

single month, then the member should 

nevertheless retain the right to pay 

premiums on a monthly basis. 

Comment: One commenter expressed 

concern that in cases where past-due 

premiums are owed but members are 

currently in premium withhold status, 

that computer systems would not 

currently support installment payments. 

Response: It was never our intent to 

permit installment payments of past-due 

premiums through premium withhold. 

Many premium arrearages are caused by 

‘‘failures’’ in the premium withhold 

system. It would be illogical to call on 

the premium withhold system to 

withhold past-due premiums that the 

premium withhold systems caused in 

the first place. 

Comment: Some commenters stated 

we should limit liability for past-due 

premiums to three months, where the 

plan sponsor made no prior effort to 

collect. Some suggested requiring 

‘‘waiver’’ of past-due premiums in cases 

of ‘‘hardship.’’ One commenter 

suggested having the Social Security 

Administration pay enrollee premiums 

during periods of temporary cessation of 

SSA checks—when, for instance, the 

enrollee is a resident of a State 

psychiatric institution. Finally, some 

commenters suggested limiting 

involuntary disenrollment to only cases 

where premium arrearages were for two 

months or more. 

Response: We have no authority to 

limit liability for past-due premiums to 

only 3 months, regardless of the 

circumstances surrounding a specific 

case. Similarly, CMS has no authority to 

‘‘waive’’ past-due premiums, nor can we 

require a plan sponsor to do so. Under 

Part D, there is the income-related 

subsidy program that would limit 

premium liability for most low-income 

individuals. However, there is no 

premium subsidy program under Part C. 

We also have no authority to require the 

Social Security Administration to pay 

premiums on enrollee’s behalf, where 

premiums have not first been deducted 

from enrollee’s Social Security checks. 

Finally, we have no authority to restrict 

involuntary disenrollment to only those 

cases where more than a single month’s 

premium is past-due. 

Comment: Some commenters 

suggested imposing fines or civil 

monetary penalties that would be 

payable to plan members on plan 

sponsors that send incorrect notices to 

members related to premiums. 

Response: We do not have the 

authority to require plan sponsors to 

pay plan members fines or civil 

monetary penalties for incorrect notices 

related to plan premiums. 

4. Prohibiting Improper Billing of 

Monthly Premiums (§ § 422.262 and 

423.293) 

We proposed to amend the MA 

regulations by adding new paragraph (g) 

to § 422.262, and the Part D regulations 

by adding new paragraph (e) to 

§ 423.293, to explicitly prohibit 

improper billing. We stated it was 

inappropriate for an MAO or Part D plan 

to double bill members who have 

submitted a request that premiums be 

withheld under section 1860D–13(c) of 

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

the Act for Part C, and who are already 

having their premiums taken out of their 

Social Security payments. The final rule 

adopts the revisions to § 422.262 and 

§ 423.293 with modifications based on 

comments. Specifically, based on 

comments we received, we have 

modified the language to clarify that we 

only intend to prohibit billing a 

beneficiary a second time for premiums 

that the beneficiary has already paid 

through premium withhold. 


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Comment: All commenters supported 

CMS’s position that members should 

not be billed for premiums that had 

already been paid through premium 

withhold. However, some commenters 

suggested that the plan should be paid 

interest by Social Security or CMS, 

when the premium was actually 

withheld from a member’s Social 

Security check, but the premium was 

not passed on to the plan sponsor in a 

timely manner. 

Response: We will continue to work 

with plans to ensure timely payment of 

amounts due. In the case of premium 

withhold, we are exploring additional 

systems implementation options that 

include more robust reporting of 

premium withhold data, as well as more 

timely reconciliation of premium passthrough issues. 

Comment: Some commenters 

suggested that when there is a premium 

withhold ‘‘failure’’ that members should 

be indemnified for the remainder of the 

plan year. 

Response: We do not have the 

authority to indemnify such members 

from responsibility for premiums that 

they actually owe. On the other hand, to 

the extent members have already paid 

premiums through premium 

withholding, we fully intend to protect 

them from double billing and, in 

another part of this rule, from improper 

involuntary disenrollment. 

Comment: Some commenters objected 

to the fact that a plan enrollee could 

simply request premium withhold and 

thereby avoid premium liability during 

the time it takes the plan to set-up 

premium withhold. 

Response: We agree with this 

comment, and in response to this 

comment have clarified the regulation 

text to state that it is only in cases where 

premiums have already been paid by the 

member through premium withhold that 

it is prohibited under this regulation for 

a plan to bill a member more than once 

for such premiums. 

5. Non-Renewal Notification Timelines 

(§ § 422.506 and 423.507) 

We proposed revising 

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

and (b)(2)(iii) of the MA regulations and 

§ 423.507(a)(2)(ii), (a)(2)(iii), (b)(2)(ii) 

and (b)(2)(iii) of the Part D regulations, 

to change the beneficiary and public 

notice requirement from at least 90 days 

to at least 60 days, thus allowing more 

time for the contract non-renewal 

process to conclude, and any 

administrative appeal to conclude, 

while still allowing for a sufficient 

beneficiary notice period, prior to 

January 1st. This change will help 

ensure that all non-renewal decisions 

are final, prior to the start of marketing 

and enrollment activities. 

Comment: Numerous comments 

opposed the reduction of the beneficiary 

and public notice period. The 

commenters stated that the reduction of 

days for beneficiaries to understand the 

impact of the non-renewal, evaluate 

their options, and make informed 

decisions would be difficult. The 

commenters urge CMS to maintain the 

90 day notice period. 

Response: The change in beneficiary 

and public notification timeframes was 

made to allow time for the notification 

process to conclude prior to the 

beginning of open enrollment, since the 

date for notifying plans regarding 

nonrenewals is now August 1 of each 

year. The 60-day beneficiary and public 

notification may not occur prior to the 

conclusion of the administrative appeal 

of a non-renewal determination. 

Shortening the notification period to 60 

days will also increase the likelihood 

that any administrative appeal and the 

notification period can conclude prior 

to the start of the new plan year on 

January 1. 

We believe a 60-day notice is 

sufficient for beneficiaries to make 

choices. Currently, beneficiaries cannot 

enroll, during the annual enrollment 

period, in a plan until November 15th 

of each year. The change in the 

notification timeframe does not limit the 

enrollment period for beneficiaries. The 

decrease in the beneficiary notification 

period only affects the amount of time 

plans may market to beneficiaries. We 

believe 60 days is a sufficient amount of 

time for beneficiaries to make a new 

health care choice. Therefore, we will 

not be making any changes based on 

this comment. 

6. Reconsiderations (§ § 422.578, 

422.582, 423.560, 423.580) 

a. Medicare Advantage Program 

(§ § 422.578 and 422.582) 

We proposed to revise § § 422.578 and 

422.582 to allow a beneficiary’s 

physician to request a standard plan 

reconsideration on the beneficiary’s 

behalf without having been appointed 

as his or her representative. The final 

rule adopts the revisions to § § 422.578 

and 422.582 as set forth in our proposed 

rule. 

Comment: Many commenters agreed 

with the proposed change allowing a 

treating physician, with the enrollee’s 

consent, to request a standard preservice reconsideration. In addition to 

supporting the proposed change, one 

commenter recommended further 

revising § 422.584 of the regulations to 

specify that the physician making an 

expedited request must be currently 

providing treatment to the enrollee. 

Response: We appreciate the 

commenters’ support for this provision, 

and believe that permitting physicians 

to request standard pre-service appeals 

on their patients’ behalf will help to 

make the appeals process more 

accessible to enrollees. However, we can 

not revise § 422.584 of the regulations to 

specify that the physician making an 

expedited request must be currently 

providing treatment to the enrollee 

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

Act permits any physician, regardless of 

his or her status as an enrollee’s treating 

physician, to request an expedited 

determination or reconsideration on an 

enrollee’s behalf. 

Comment: A commenter requested 

that CMS clarify in the regulations that 

only a primary care physician (PCP) 

would be allowed to request a standard 

reconsideration of a pre-service request 

on behalf of the enrollee, not a specialty 

care physician. 

Response: The term ‘‘physician’’, as 

used in subpart M, has the same 

meaning given to the term in section 

1861(r) of the Act. Thus, the term 

includes any physician who is 

providing treatment to the enrollee. 

Therefore, it would be inappropriate to 

allow only PCPs to request standard preservice reconsiderations. We continue to 

believe that any physician who is 

involved in providing care to an 

enrollee is in a good position to know 

whether a request for plan 

reconsideration is warranted and in the 

enrollee’s best interest. Accordingly, we 

are not adopting the commenter’s 

suggested revision. 

Comment: A commenter asked CMS 

to clarify in the MA regulations that an 

enrollee’s treating physician is limited 

to requesting a standard plan 

reconsideration of a pre-service request 

on an enrollee’s behalf without being 

the enrollee’s appointed representative. 

Response: As currently drafted, we 

believe § 422.578 of this final rule 

already makes this limitation clear. It 

states in relevant part that a physician 

is limited to requesting ‘‘a standard 

reconsideration of a pre-service request 

for reconsideration on the enrollee’s 

behalf.’’ (See 73 FR 28594). 

Comment: A commenter was 

concerned that removing the need for an 

enrollee to actively appoint a 

representative could have serious 

implications for beneficiary rights. This 

same commenter also noted that the 

proposed change would raise significant 

operational issues. For example, the 

commenter questioned what would 

happen in a situation where an enrollee 

objects to being represented by the 


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physician, and asked whether there are 

limits on the representation, and if the 

initial representation would enable the 

physician to continue the appeals 

process through additional levels of 

appeal. Finally, the commenter 

questioned whether such representation 

is limited to disputes relating to services 

provided by the appealing physician. 

Given these concerns, the commenter 

suggested that the proposal be given 

further review prior to implementation. 

Response: We appreciate the 

commenter raising these important 

issues concerning enrollee rights, 

limitations on physician representation 

of an enrollee, and the potential 

operational issues resulting from this 

policy. In the MA program, physicians 

have long been permitted to file 

coverage requests and plan level 

expedited appeals on their patients’ 

behalf. The proposed policy represents 

a modest expansion of that right, but 

still limits the physician’s ability to act 

on the enrollee’s behalf only to plan 

level appeals, unless the physician is 

the enrollee’s representative. As stated 

in the preamble to the proposed rule (73 

FR 28579), we believe that for any 

appeal beyond the plan level, the 

enrollee should be directly involved in 

a decision to disclose his or her private 

health information to adjudicators 

because those adjudicators do not have 

the same relationship with the enrollee 

that the plan has. Accordingly, if an 

enrollee wishes his or her physician to 

request higher levels of appeal on his or 

her behalf, the physician must also be 

the enrollee’s representative. If an 

enrollee does not want his or her 

physician to request an appeal, we 

believe the proposed rule addresses the 

commenter’s concern. Consistent with 

§ 422.578, the physician must notify the 

enrollee before filing the appeal request. 

We believe this policy will afford the 

enrollee sufficient opportunity to 

express any objections about the 

physician filing the appeal or to refuse 

the physician’s representation. Given 

our experience with the MA and Part D 

programs, it is reasonable to believe that 

in the overwhelming number of cases, 

the enrollee will welcome the 

physician’s willingness to pursue an 

appeal on the enrollee’s behalf. 

With respect to the commenter’s 

question about whether the 

representation is limited to disputes 

relating to services provided by that 

physician, § 422.578 states that a 

physician who is providing treatment to 

an enrollee may, upon providing notice 

to the enrollee, request a standard 

reconsideration of a pre-service request 

on the enrollee’s behalf. As the 

commenter notes, the regulation is not 

prescriptive about the relationship 

between the care the physician is 

providing to the enrollee and the need 

for the reconsideration request. 

However, we believe that given the 

treating physician’s knowledge of and 

access to the medical information 

needed to support such a request, it is 

reasonable to presume that, in most 

instances, the treating physician will be 

the physician requesting the pre-service 

reconsideration. Finally, we note the 

receipt of numerous comments from 

beneficiary advocacy groups and 

medical associations in support of this 

provision as an appropriate means of 

allowing physicians to assist enrollees 

with the MA and Part D appeals 

processes. Accordingly, we have 

finalized the provision as proposed. 

Comment: Many commenters asked 

CMS to clarify what type of 

documentation a physician would be 

required to produce to demonstrate that 

he or she is an enrollee’s treating 

physician. 

Response: Since the inception of the 

MA and Part D programs, we have 

received numerous comments asking us 

to make the appeals process more 

enrollee-friendly by allowing physicians 

to make initial determination and 

appeals requests on their patients’ 

behalf without going through the formal 

appointment of representation process. 

We developed the proposed policy in 

response to those requests, and the 

overwhelming number of comments we 

received were supportive. Our proposal 

is a very limited extension of a 

physician’s current appeal rights under 

the regulations (a physician currently 

has the right to request an initial 

determination or an expedited planlevel appeal on behalf of an enrollee 

without being his or her appointed 

representative). We merely proposed to 

extend this right to include standard 

pre-service plan-level appeals under 

MA and standard plan-level appeals 

under Part D. Thus, the process for 

handling physician-initiated plan-level 

appeal requests should be the same 

process that is currently being used to 

process and adjudicate expedited planlevel appeal requests. In addition, 

because we intended to make filing a 

standard plan-level appeal request 

easier for a physician than if he or she 

were filing as the enrollee 

representative, we expect the processes 

that plans to adopt for verifying a 

physician’s status as the treating 

physician to be much simpler and more 

flexible than the process used to verify 

appointed representative status. If 

necessary based on experience under 

this final rule, we believe the proper 

place to further address this issue is in 

operational guidance. As such, we will 

consider the commenters’ concerns as 

we develop future policy guidance, and 

will update Chapter 13 of the Managed 

Care Manual and Chapter 18 of the 

Prescription Drug Benefit Manual as 

appropriate. 

b. Prescription Drug Benefit Program 

(§ 423.560 and 423.580) 

(1) Definitions (§ 423.560) 

We proposed to revise the regulation 

text of § 423.560 by adding a new 

definition for ‘‘other prescriber’’ that 

encompasses health care professionals, 

other than physicians, with the requisite 

authority under State law or other 

applicable law to write prescriptions for 

Medicare beneficiaries. In conjunction 

with the proposed new definition, we 

proposed to add ‘‘or other prescriber’’ 

after ‘‘prescribing physician’’ or 

‘‘physician’’ throughout subpart M of 

part 423 in order to authorize these 

other prescribers to perform the same 

functions that prescribing physicians 

are allowed to perform with respect to 

the coverage determination and appeals 

processes as set out in subpart M of part 

423. This final rule with comment 

period adopts the revisions to § 423.560 

set forth in our proposed rule. 

Comment: A few commenters 

requested further clarification regarding 

who could qualify as an ‘‘other 

prescriber.’’ One commenter suggested 

CMS ensure the definition of other 

prescriber is consistent with the 

definitions of treating physician and 

treating practitioner used in section 

1861(r) of the Act. 

Response: As noted in the preamble to 

the proposed rule (73 FR 28579), we 

believe it is important to provide 

enrollees who have prescriptions 

written by health care professionals, 

other than physicians, with prescribing 

authority under State law or other 

applicable law the same protections and 

assistance in the coverage and appeals 

processes that are currently available to 

enrollees whose prescriptions are 

written by a physician. We believe it is 

appropriate to defer to State law or other 

applicable law to determine who is 

considered an ‘‘other prescriber’’ under 

subpart M of the regulations because 

States are responsible for licensing and 

regulating such professionals. Although 

we may provide examples of other 

health care professionals who have 

prescribing authority under State or 

other applicable law in our guidance, 

any such list would not be exhaustive. 

Thus, it is ultimately a Part D plan 

sponsor’s responsibility to ensure a 

health care professional making a 

request on behalf of an enrollee has 


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prescribing authority under State law or 

other applicable law. 

(2) Right to a Redetermination 

(§ 423.580) 

We proposed to revise the regulation 

text of § 423.580 to provide prescribing 

physicians and other prescribers with 

the ability to request standard 

redeterminations on behalf of enrollees, 

and require them to notify enrollees that 

they are taking this action. The final 

rule adopts the revisions to § 423.580 set 

forth in our proposed rule. 

Comment: Although many 

commenters supported our proposal to 

allow physicians and other prescribers 

to request, upon notice to the enrollee, 

a standard redetermination, we received 

one comment opposing the proposal. 

The corresponding change that was 

proposed, and is being finalized in this 

rule, for the MA program allows a 

treating physician to request a planlevel appeal (reconsideration) on behalf 

of the enrollee for a pre-service request, 

but does not allow a treating physician 

to request a standard plan-level appeal 

for payment. The distinction between 

pre-service claims and claims for 

payment in the MA program was made 

due to the financial interest a treating 

physician may have in a claim for 

payment under the MA program. Under 

existing § 422.574(b), if the physician or 

other provider that furnished a service 

to an enrollee formally waives any right 

to payment from the enrollee for that 

service, the physician or other provider 

becomes a party to the organization 

determination and may request a planlevel appeal. The commenter opposing 

the proposal disagreed with the 

statement made in the preamble to the 

proposed rule that prescribing 

physicians do not have a financial 

interest in the payment of Part D claims 

because a physician who has a 

relationship with a pharmaceutical 

manufacturer may be more likely to 

prescribe one of the manufacturer’s 

drugs. Finally, the commenter also 

believes that if an enrollee wants a 

physician or other prescriber to seek a 

redetermination on his or her behalf, 

then the enrollee should make that 

request to the provider in writing. 

Response: We appreciate the 

comments received in support of this 

provision. We believe a policy of 

allowing prescribing physicians and 

other prescribers to request standard 

redeterminations on behalf of enrollees 

will help to make the appeals process 

more accessible to enrollees. With 

respect to the comment opposing this 

provision, we understand the 

commenter’s concern about the 

potential for a prescriber to have some 

financial interest, but continue to 

believe that a physician or other 

prescriber requesting an appeal under 

Part D does not have a financial interest 

in the outcome of an appeal in the same 

manner as a physician requesting an 

appeal under the MA program. As noted 

in the preamble, the MA rules already 

allow a provider who has furnished a 

service to an enrollee to request a planlevel appeal if the provider waives any 

right to payment from the enrollee. 

Under the Part D program, a physician 

or other prescriber is generally not 

entitled to payment for the prescribed 

drug from either the enrollee or the plan 

and, therefore, is not in the same 

position as an MA provider with respect 

to a potential financial interest. Finally, 

we do not agree with the commenter’s 

suggestion that an enrollee should 

submit a written request to his or her 

provider asking the provider to 

represent him or her in the 

redetermination process. Adding this 

requirement would essentially create a 

process identical to the appointment of 

representative process, which would not 

serve to enhance beneficiaries’ access to 

the Part D appeals process. 

Comment: A few commenters asked 

CMS to clarify the process a physician 

must use to inform an enrollee that he 

or she is requesting a standard 

redetermination on the enrollee’s behalf. 

One commenter asked how the 

physician’s notice to the enrollee is 

communicated to the Part D plan 

sponsor, and how receipt of such 

information impacts the adjudication 

timeframe. 

Response: As noted previously, our 

intention is to make this process flexible 

for enrollees, providers, and plans. 

Thus, we have not included in 

regulation any requirements regarding 

the format of the physician’s notice to 

either the enrollee or the plan. We 

believe this approach will allow plans 

to determine how to best implement 

these requirements. However, we will 

take these comments into consideration 

when developing any necessary 

operational guidance. If we determine 

that additional clarification is necessary, 

we will include any appropriate 

information in our operational manuals. 

Therefore, any additional polices we 

develop related to the issues raised by 

the commenters above will be added to 

Chapter 18 of the Prescription Drug 

Benefit Manual. 

c. Miscellaneous Comments 

Comment: We received one comment 

suggesting the provision in § 423.582 

requiring prescribing physicians to 

submit written requests for 

redeterminations is an unnecessary 

formality that will frustrate the 

practitioner’s ability to provide the best 

care for his or her patient. 

Response: We believe the 

commenter’s suggestion is outside the 

scope of the proposed rule because we 

did not propose to modify the written 

request requirement in § 423.582. We 

note that, although the written request 

requirement in § 423.578 was carried 

over from § 422.578 in accordance with 

section 1860D–4(g) of the Act, nothing 

in the Act or regulations prohibits an 

MA organization or a Part D plan 

sponsor from also accepting verbal 

requests. Rather, the regulations 

explicitly provide that the MA 

organization or Part D plan sponsor may 

adopt a policy for accepting oral 

requests. (See § 422.582(a) and 

§ 423.582(a)). 

Comment: A commenter suggested 

that a physician in the same specialty or 

subspecialty as the prescribing 

physician must be responsible for 

reviewing a medical necessity denial 

under § § 423.590(f)(2) and 423.600(e). 

Response: The commenter’s 

suggestion is outside the scope of the 

changes proposed in this rule because 

we did not propose to modify 

§ 423.590(f)(2) or § 423.600(e). We note 

that the physician reviewer 

requirements contained in 

§ 423.590(f)(2) and § 423.600(e) are 

consistent with § 422.590(g) of the 

regulations, which requires the 

reviewing physician to have ‘‘expertise 

in the field of medicine that is 

appropriate for the services at issue’’ but 

‘‘need not, in all cases, be of the same 

specialty or subspecialty as the treating 

physician.’’ We continue to believe that 

the level of review provided by a 

physician having expertise in the field 

of medicine appropriate for the services 

at issue is sufficient for medical 

necessity denials under Part D. The 

regulatory language also makes it clear 

that a physician of the same specialty or 

subspecialty as the prescribing 

physician may need to review a Part D 

drug medical necessity denial in some 

situations. 

Comment: Several commenters 

provided comments on the MA 

reconsideration process at the 

independent review entity (IRE) level of 

review. The commenters stated that IRE 

reconsiderations are generally limited to 

evidence and arguments submitted to 

the IRE by the MA plan and that 

beneficiaries often have difficulty 

contacting the IRE and are discouraged 

from participating in the process. The 

commenters requested that § 422.592 be 

amended to include a provision giving 

beneficiaries the right to submit 

allegations of fact and law to the IRE 


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and that such information could be 

submitted by telephone, fax or 

electronic mail. 

Response: Amending § 422.592 of the 

MA appeals regulations is outside the 

scope of this final rule. However, we 

will consider the commenters’ remarks 

for future rulemaking that involves the 

MA appeals process. We would like to 

note that, under the existing standard 

reconsideration process, when the IRE 

receives a case file from an MA plan, it 

sends an acknowledgement letter to the 

enrollee. The acknowledgement letter 

informs the enrollee that his or her 

appeal is being reviewed by the IRE and 

includes a comprehensive explanation 

of the enrollee’s rights, including the 

right to provide the IRE with 

information that may help the enrollee’s 

case. 

Comment: We received comments 

urging CMS to revise § 423.578 to 

require uniform coverage determination 

and reconsideration procedures. In 

addition to making it easier for 

physicians, advocates, and beneficiaries 

to navigate the system, the commenters 

believe uniform requirements will make 

it easier for CMS to monitor plan 

performance. 

Response: We appreciate the 

commenters’ suggestion, however, 

amending § 423.578 as suggested is 

outside the scope of revisions contained 

in this rule. Moreover, we believe the 

Part D appeals process established in 

Subpart M of Part 423 largely 

establishes a uniform coverage 

determination and appeals process 

including, but not limited to, required 

adjudication timeframes for the plans 

and the IRE, requirements related to the 

timing, form and content of notices, and 

rules related to the exceptions process. 

Comment: We received comments 

urging CMS to amend the Part D 

regulations at § 423.590 to allow the 

enrollee to request IRE review if a plan 

fails to meet its adjudication timeframe 

and also fails to forward the enrollee’s 

request to the IRE within 24 hours of the 

expiration of the adjudication 

timeframe. 

Response: We appreciate the 

commenters’ suggestion, however, 

amending § 423.590 as suggested is 

outside the scope of this rule. However, 

we will consider this suggestion for 

future rulemaking regarding the Part D 

appeals process. 

Comment: We received a comment 

that expressed concern that, except for 

retrospective self-reporting by plans, 

there is no mechanism for the IRE or 

CMS to monitor whether plans are 

meeting their decisional deadlines. 

Beneficiaries not represented by 

persistent advocates who know the rules 

may face unacceptable delays. The 

commenter urged CMS to develop a 

mechanism whereby coverage 

determinations are tracked in real time 

so that beneficiary rights to timely 

action can be protected. 

Response: We concur that plans’ 

timely decision-making for coverage 

determinations and redeterminations 

are two important areas for monitoring; 

however, there may be operational 

barriers to monitoring these transactions 

in real-time. As the commenter stated, 

the Part D Plan Reporting Requirements 

Exceptions and Appeals reporting 

sections require plans to report data 

related to these processes, including 

failure to meet decision timeframes. We 

consider these plan-reported data, along 

with other information sources, 

important first indicators for Plans 

failing to meet these requirements. 

Comment: A commenter stated that to 

aid in monitoring, as well as to assist 

beneficiaries who are not receiving 

promised services, CMS should institute 

an effective complaint process for 

beneficiaries. The commenter also 

stated that complaints should be 

investigated and also used in CMS 

monitoring activities and reports. When 

available, beneficiaries should be 

allowed to have denied grievances 

appealed to state independent medical 

review processes. 

Response: The commenter’s 

suggestion to require that beneficiaries 

should be allowed to have denied 

grievances appealed to state 

independent medical review processes 

is beyond the scope of this rule. 

However, we note that we implemented 

a centralized Complaint Tracking 

Module (CTM) in 2006 in order to help 

capture and resolve complaints received 

from Medicare beneficiaries 

experiencing difficulties with their Part 

D benefit. The CTM allows CMS and 

Plan sponsors to work together to 

investigate and resolve complaints in a 

timely manner. Beneficiaries can also 

file a grievance directly with the plan 

sponsor. Plan sponsors, in turn, report 

grievance data to CMS as specified in 

the Part D Plan Reporting Requirements 

for CMS’ monitoring and oversight. 

In addition to contract monitoring and 

oversight, complaint data are 

incorporated in Part D plan ratings. Part 

D plan ratings include various 

operational and quality areas in which 

Plans’ performances are rated for 

display on the Medicare Options 

Compare and the Medicare Prescription 

Drug Plan Finder at http:// 

www.medicare.gov. These ratings 

empower beneficiaries to compare 

Medicare health and prescription drug 

plans in their geographic area. 

7. Civil Money Penalties (§ § 422.760 

and 423.760) 

We proposed to clarify our regulations 

relating to CMPs in both § 422.760 and 

§ 423.760 by adding paragraph (b)(2) of 

the respective sections to state that CMS 

may impose a penalty of not more than 

$25,000 for each enrollee covered under 

the organization’s contract that is 

adversely affected or substantially likely 

to be adversely affected by the 

organization’s deficiency (or 

deficiencies). When determining the 

amount of a penalty per determination, 

up to the $25,000 maximum, we will 

continue to take into account factors 

such as the severity of the infraction, the 

evidence supporting the infraction, the 

amount of harm caused to the Medicare 

beneficiary, and the organization’s past 

conduct. 

Our proposed change is aimed at 

protecting enrollees by clarifying that 

penalties can be substantial for 

noncompliance. CMS has the discretion 

to establish guidance on how CMPs will 

be calculated and the monetary limits of 

CMPs for violations. 

Assessing CMPs at the level of each 

enrollee covered under the 

organization’s contract—which enables 

the Agency to continue to levy CMPs at 

the ‘‘per contract’’ level—will help 

provide the necessary flexibility for 

CMS to better match CMP amounts to 

the specific violation underlying a CMP. 

However, we acknowledge that there 

may be alternative or additional 

approaches to the ‘‘per beneficiary’’ and 

‘‘per contract’’ schema described here 

that would likewise meet the Agency’s 

goals of providing meaningful penalties 

that deter violations of Medicare 

program requirements and protect 

Medicare beneficiaries. For example, 

tying CMP amounts to the number of 

days that violations existed may 

likewise be an effective approach for 

assessing meaningful CMPs. In our 

proposed rule, we therefore sought 

comments on our proposed clarification 

as well as whether any other approaches 

would more effectively deter MA 

organizations and Part D sponsors from 

engaging in conduct which violates 

CMS requirements. We also requested 

comments on the appropriate monetary 

range for CMPs imposed on MA 

organizations and Part D sponsors and 

whether some upper limit should exist 

on the total amount of a penalty 

imposed on an organization when a 

deficiency has adversely impacted a 

large number of enrollees covered by an 

MA organization or Part D sponsor. As 

discussed below, we received 

approximately 30 comments on CMPrelated issues, but we did not receive 


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substantive suggestions on approaches 

or monetary ranges for CMPs. 

Comment: One commenter supported 

CMS’ clarification to the term 

‘‘determination’’ when referring to 

CMPs. The commenter suggested that no 

upper limit for CMPs be specified. The 

commenter suggested that CMS have the 

flexibility to impose an appropriate 

monetary penalty without the constraint 

of an arbitrary cap. 

Response: We agree that we need the 

flexibility to impose meaningful CMPs 

on plans. We have decided not to 

impose an upper limit for CMPs at this 

time. 

Comment: One commenter stated that 

moving from calculating a penalty based 

on an organizational level to a 

membership level imposes significant 

increased business risk to plans that 

contract with CMS. This commenter 

also stated that this would allow CMPs 

to be levied not on the violation itself 

but on the membership. 

Response: The proposed regulation 

does not change the basis for the CMP. 

The basis of the violation remains the 

same. The proposed regulation clarifies 

how the penalty is assessed. That is, we 

proposed to clarify that under some 

circumstances, determinations can be 

based on the number of adversely 

affected, or potentially adversely 

affected, enrollees. In such instances, a 

CMP would only be assessed on the 

number of adversely affected, or 

potentially adversely affected, enrollees, 

not the total number of enrollees in the 

plan. We are not making any changes 

based on this comment. 

Comment: A few commenters stated 

that CMS’ proposal is not appropriate 

for violations that are unintentional 

and/or do no harm to beneficiaries. The 

commenters stated that this level of 

CMPs would only be appropriate in rare 

circumstances when an organization 

intentionally and deliberately violated 

program rules or where the violations 

are egregious, knowingly, or willfully 

undertaken. 

Response: The commenters were 

concerned about CMPs levied for an 

organization’s unintentional acts and/or 

acts that do not involve harm to 

members. The current regulations 

clearly state that to impose a CMP on an 

organization, we must make a 

determination that a violation adversely 

affects, or potentially adversely affects, 

one or more of the organization’s 

enrollees, regardless of whether such 

harm was intentional or not. The 

proposed regulations do not change this 

current requirement. As for violations 

that are found to be ‘‘egregious, 

knowingly, or willfully undertaken,’’ 

the statute and current regulations 

permit CMS to take into account such 

types of violations as one of, but not the 

sole governing factor when determining 

a civil money penalty. We are not 

making any changes to the proposed 

regulation based on these comments. 

Comment: A few comments 

concerning the phrase ‘‘substantial 

likelihood’’ were received. One 

commenter stated that they were not 

sure what criteria or standards we 

would apply to determine when there is 

a substantial likelihood of a violation 

adversely affecting members. Another 

commenter requested guidance on what 

is meant by ‘‘substantial likelihood of 

being adversely affected by a 

deficiency.’’ 

Response: The language of 

‘‘substantial likelihood of adversely 

affecting’’ comes directly from section 

1857(g) of the Act. We must have the 

discretion to interpret this language 

when evaluating whether to impose a 

CMP, since each case may present a 

different set of circumstances and any 

determination of likely adverse effects 

on enrollees could depend on the 

specific facts of the case. We are not 

making changes based on these 

comments. We will consider whether 

future guidance should incorporate 

criteria to help determine when a 

deficiency has a substantial likelihood 

of adversely affecting an organization’s 

members. 

Comment: A commenter requested 

clarification to determine what the 

threshold for willful and purposeful 

neglect was. 

Response: The term ‘‘willful and 

purposeful neglect’’ was not used in the 

proposed regulation with respect to civil 

money penalties. CMS is unsure what 

the commenter is referring to. 

Comment: A commenter stated that 

the regulation should list what types of 

recourse the MA organization or Part D 

sponsor has prior to CMS imposing a 

civil money penalty. 

Response: Civil money penalties are 

imposed for various violations. Some 

violations may be one time violations 

that have significant harmful effects on 

enrollees. In such cases, CMS may not 

consider it appropriate to offer recourse 

(such as a corrective action plan), given 

that the violation has already taken 

place and has significantly harmed 

enrollees, even if it is not likely to 

reoccur. We are not required to provide 

for recourse, such as a CAP prior to the 

issuance of a CMP. However, the 

regulations do provide for appeal rights 

for those organizations who believe we 

have inappropriately imposed a CMP. 

Therefore, we are not making any 

changes based on this comment. 

Comment: One commenter urged 

CMS to continue to take into account an 

organization’s past conduct when 

assessing the need for a CMP. 

Response: We agree with the 

commenter and will continue to take 

into account an organization’s past 

conduct when assessing the need for, or 

the amount of, a CMP. 

Comment: One commenter stated that 

the language allows for assessment at 

both the contract level and the enrollee 

level. 

Response: We developed the language 

to provide for discretion to impose a 

CMP at either the contract level or the 

enrollee level. This flexibility is 

necessary to ensure violations and 

penalties are appropriately matched. 

Comment: A commenter was 

uncertain whether the deficiency’s 

adverse effects are related only to those 

who are enrolled in a plan or also to 

individuals who have expressed interest 

in a plan. 

Response: The statute states that any 

adverse or substantial likelihood of 

adverse effect be on ‘‘an individual 

covered under the organization.’’ We 

believe that this language requires that 

the individual be an enrollee of the plan 

and not just one who has expressed 

interest in the plan. 

Comment: A few commenters were 

concerned that the proposed changes 

could result in massive penalties for 

relatively minor infractions if those 

infractions affect a large number of 

enrollees. 

Response: To impose a CMP, current 

regulations require us to make a 

determination that a violation adversely 

affects or has the likelihood of adversely 

affecting an enrollee. In addition, we 

may impose a CMP only for deficiencies 

that could lead to termination under 

§ 422.510(a) or § 423.509(a) (but not 

under § 422.510(a)(4) or § 423.509(a)(4)). 

Sections 422.510(a) and 423.509(a) do 

not contemplate a termination for a 

relatively minor infraction. 

Comment: One commenter supports 

CMS’ stated intention to consider the 

severity of the infraction and other 

extenuating circumstances in 

determining the amount of the penalty. 

The commenter also stated that CMS 

should recognize that PDP revenue is 

significantly lower than MA revenue 

and penalties should be tempered 

accordingly. 

Response: Our regulations currently 

permit us to consider additional factors, 

as appropriate, in determining the 

amount of a CMP. These factors include 

the nature of the conduct, the degree of 

culpability of the organization, the harm 

which resulted or could have resulted, 

the financial condition of the 


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organization, the history of prior 

offenses, and other matters as justice 

requires. Although we may consider the 

financial condition of an organization, 

the relative revenue of a PDP sponsor 

compared to an MA organization would 

have no bearing on CMS’ decision on a 

CMP. 

Comment: One commenter stated that 

penalties could be excessive for large 

plans. The commenter stated that CMS 

should reduce the amount proposed, 

revise the formula, or not have 

assessments on a per member per 

violation basis. The commenter stated 

that if CMS chooses to retain the per 

member per violation basis, then CMPs 

should only be assessed for the most 

egregious, deliberate, and willful 

violations of the law or regulations. 

Response: The formula to calculate a 

CMP based on $25,000 per violation is 

taken from section 1857(g) of the Act. 

Therefore, a statutory change would be 

required to change that dollar amount or 

formula. If an MA organization or Part 

D sponsor believes a CMP is excessive, 

the organization or sponsor has the right 

to request an appeal of the amount 

before an ALJ prior to paying a CMP. 

Comment: A commenter 

recommended modifying § 422.760(b)(2) 

and § 423.760(b)(2) to be consistent with 

§ 422.760(b)(1) and § 423.760(b)(1), 

which require that the deficiency 

adversely affects or has the substantial 

likelihood of adversely affecting one or 

more enrollees. 

Response: We did not revise nor 

intend to revise § 422.760(b)(2) and 

423.760(b)(2). We appreciate the 

comment and will consider it for future 

proposed regulations. We believe the 

general public should be provided an 

opportunity to comment on a change 

such as this. 

Comment: A few commenters stated 

that there should be a maximum penalty 

amount designated or that the proposal 

should indicate that CMS has the 

discretion to issue guidance establishing 

a range or a cap for the calculations 

under this provision. 

Response: At this time, we have not 

provided for maximum penalties. 

However, we have added language into 

the preamble stating that we may, if 

determined necessary, issue additional 

guidance for the range of penalties or 

caps associated with violations. 

Comment: A number of commenters 

supported CMS’ proposal, allowing 

CMS to calculate CMPs based upon each 

enrollee ‘‘directly adversely affected (or 

with a substantial likelihood of being 

adversely affected).’’ These commenters 

opposed upper limits on penalties and 

stated that the penalty should reflect the 

noncompliance of the organization. 

These commenters stated that the 

penalty should be more than the cost of 

compliance. 

Response: We appreciate your 

comments. CMS also believes that the 

penalty should better reflect the 

infractions and the number of 

beneficiaries affected by the infraction. 

Comment: A number of commenters 

stated that CMS should develop 

regulatory mechanisms to require 

Medicare Advantage and Part D plans to 

make financial compensation to 

beneficiaries who are harmed. 

Response: Currently, there is no 

statutory authority to permit us to 

require Part C and Part D plans to 

compensate beneficiaries who are 

harmed by MA organizations and Part D 

sponsors. Such a requirement to 

compensate beneficiaries could violate 

section 1854(d)(1) of the Act, which 

prohibits cash payments to 

beneficiaries. In addition, there is no 

statutory provision that permits 

premiums to be waived. Thus, we 

believe such a change would require 

statutory amendment. 

Comment: A number of commenters 

suggested that CMS repeal 

§ 423.760(b)(2), which limits the penalty 

for uncorrected deficiencies to no more 

than $10,000 per week. The commenters 

stated that this penalty is remarkably 

low for uncorrected deficiencies and 

that the amount must be large enough to 

encourage organizations to correct 

deficiencies. 

Response: We appreciate the 

comment and will consider it for future 

proposed regulations. CMS believes the 

general public should be provided an 

opportunity to comment on a change 

such as this. 

Comment: A number of commenters 

stated that CMS should repeal 

§ 423.760(b)(3), which limits the total 

penalty to $100,000. The commenters 

also stated that regulations at § 423.758 

authorize a penalty of $250 per enrollee, 

or $100,000, whichever is greater. The 

commenters also stated that there is no 

reason to create an upper limit for plans 

with large enrollees. 

Response: We believe that the 

commenters misunderstood the 

regulations. The regulations at 

§ 423.760(b)(3) provide for penalties of 

$250 per enrollee, or $100,000, 

whichever is greater. Therefore, no 

upper limit exists for penalties. 

Comment: Several commenters 

requested that CMS amend § 423.762 to 

set limitations on the settlement of 

CMPs. The commenters suggested that 

no more than 35 percent of the penalty 

may be deducted in any settlement. 

Response: We appreciate the 

comment and will consider it for future 

proposed regulations. We believe the 

general public should be provided an 

opportunity to comment on a change 

such as this. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

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

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

Listed below is the discussion of the 

information collection requirements 

contained in this rule. Previously, we 

solicited public comments on the 

requirements in the proposed rule that 

published on May 16, 2008 (73 FR 

28556). However, we are interested in 

receiving additional public comments 

pertaining to these requirements; 

therefore, we are re-soliciting public 

comments on the following: 

A. ICRs Regarding Eligibility To Elect an 

MA Plan for Special Needs Individuals 

(§ 422.52) 

Section 422.52(g) requires a SNP to 

establish a process to verify the 

Medicaid eligibility and special needs 

status of an individual prior to enrolling 

the individual in a form and manner 

specified by CMS. The associated cost 

with this provision is a time one time 

event in calendar year 2010, as the 

provision expires on December 31, 

2010. This may require collaborative 

meetings between MA plan staff and 

State Medicaid staff to establish the 

process. This process could include 

calling the Medicaid eligibility 

verification system (EVS) and reviewing 

appropriate used to determine an 

individual’s special need. 

The burden associated with this 

requirement is the time and effort put 

forth by the SNP to establish a process 

and to verify eligibility. We estimate it 

would take one SNP approximately 

(4680 minutes/78 hours) to comply with 


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this requirement. The total number of 

respondents affected would be 324 

organizations offering SNPs; therefore, 

the total annual burden is estimated to 

be 25,272 hours. 

B. ICRs Regarding the Election Process 

(§ 422.60) 

Section 422.60(g)(2) requires the 

organization that receives the 

enrollment to provide notification that 

describes the costs and benefits of the 

plan and the process for assessing care 

under the plan. The notification must be 

provided to all potential enrollees prior 

to the enrollment effective date (or as 

soon as possible after the effective date 

if prior notice is not practical), in a form 

and manner determined by CMS. 

Providing notification may include 

mailing a brochure or fact sheet with the 

aforementioned information and 

contacting potential enrollees to 

respond to any questions regarding the 

mailer. 

The burden associated with this 

requirement is the time and effort put 

forth by the organization to provide 

notification that meets the requirements 

specified by CMS. We estimate it would 

take one MA organization (30 minutes/ 

.5 hours) to comply with this 

requirement. The total number of 

organizations affected is 5; therefore, 

total annual burden hours associated 

with the requirement is 2.5 hours. 

C. ICR Regarding Benefits Under an MA 

MSA Plan (§ 422.103) 

Section 422.103(e) requires all MA 

organizations offering MSA plans to 

provide enrollees with available 

information on the cost and quality of 

services in their service area, and to 

submit to CMS for approval a proposed 

approach to providing such information. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization offering 

MSA plans to provide information to 

enrollees and to submit the proposed 

approach to providing such information 

to CMS. About 3,300 Medicare 

beneficiaries are enrolled in Medicare 

MSA plans in 2008. 

We expect that the burden upon 

health plans to develop cost and quality 

data for use by MSA enrollees would 

depend upon what data is available in 

their area. As stated in the preamble, we 

expect that organizations that already 

have mechanisms in place in 

connection with their commercial lines 

of business for providing their 

beneficiaries with cost or quality 

information could offer similar services 

to Medicare beneficiaries. 

We estimate the burden associated 

with this requirement in terms of time 

and effort necessary for the two 

organizations offering MSA plans to 

develop the information and to submit 

this information to CMS as a start-up 

cost of 100 hours per organization to 

develop this information, with half of 

that cost occurring in subsequent years 

for organizations to maintain and 

update this information. In addition, 

expected additional entry by 

organizations in future years would add 

start-up costs in the initial year that 

plans enter. The total burden would be 

200 hours in year 1 and 100 hours in 

subsequent years. While this burden is 

subject to the PRA, it is currently 

approved under OMB control number 

0938–0753 with an expiration date of 

November 30, 2011. 

D. ICRs Regarding Contract Provisions 

(§ 422.504) 

Section 422.504(g)(1)(iii) establishes 

requirements that MA organizations 

specify in contracts with providers that 

enrollees are protected from incurring 

liability for payment of fees that are the 

legal obligations of the State. CMS 

proposed in the May 16, 2008, NPRM 

(73 FR 28556–28604) that all MA 

organizations with enrollees eligible for 

both Medicare and Medicaid, specify in 

contracts with providers that these 

enrollees will not be held liable for 

Medicare Part A and B cost sharing 

when the State is responsible for paying 

such amounts. 

MIPPA established a limitation on 

cost sharing for full-benefit dual eligible 

individuals and qualified Medicare 

beneficiaries in dual eligible special 

needs plans. The MIPPA required that 

organizations offering these plans not 

impose cost-sharing that exceeds the 

amount of cost-sharing that would be 

permitted with respect to the individual 

under Title XIX if the individual were 

not enrolled in such a plan. The interim 

final rule with comment period that was 

published on September 18, 2008, (73 

FR 54225–54254) implemented the 

MIPPA provisions. The discussion of 

the burden hours associated with 

§ 422.504 in the interim final rule with 

comment period should have explained 

that the requirement was specific to MA 

organizations with special needs plans. 

The burden was imposed on the 269 

MA organizations offering a total of 436 

full-benefit and qualified Medicare 

beneficiary plans. The total burden 

associated with § 422.504 in the interim 

final rule with comment period should 

have been 90,688 hours for 2010. This 

final rule with comment period also 

imposes information collection 

requirements contained in § 422.504. 

The requirements associated with this 

rule affect the remaining 363 MA 

organizations with a total of 2,964 (nonSNP) plans that were not addressed in 

the interim final rule with comment 

period. The burden affecting the 363 

MA organizations is 616,512 hours for 

2010. 

The burden table at the end of this 

section reflects the burden imposed by 

§ 422.504 on non-SNP plans. While the 

burden is subject to the PRA, it is 

currently approved under OMB control 

number 0938–0753 with an expiration 

date of November 30, 2011. Moreover, 

the cost associated with this provision 

is a one time event in calendar year 

2010, as the provision expires on 

December 31, 2010. 

E. ICRs Regarding Right to a 

Reconsideration (§ 422.578) 

Section 422.578 states that any party 

to an organization determination may 

request that the determination be 

reconsidered under the procedures 

described in 422.582. 

While there is burden associated with 

this requirement, burden associated 

with reconsiderations is exempt as 

stated under the Paperwork Reduction 

Act of 1995. In particular, 5 CFR 1320.4 

excludes collection activities during the 

conduct of administrative actions such 

as redeterminations, reconsiderations, 

and/or appeals. Specifically, these 

actions are taken after the initial 

determination or a denial of payment. 

F. ICRs Regarding the Enrollment 

Process (§ 423.32) 

Section 423.32(g)(2) requires an 

organization that receives the 

enrollment to provide notification that 

describes the costs and benefits of the 

new plan and the process for assessing 

care under the plan and the 

beneficiary’s ability to decline the 

enrollment or choose another plan. 

Such notification must be provided to 

all potential enrollees prior to the 

enrollment effective date. 

The burden associated with this 

requirement is the time and effort put 

forth by the organization to provide 

such notification. We estimate it would 

take one organization 207 hours to 

comply with this requirement. We 

estimate 42 organizations would be 

affected annually by this requirement; 

therefore, the total annual burden 

associated with this requirement is 

8,694 hours. 

G. ICRs Regarding the Late Enrollment 

Penalty (§ 423.46) 

Section 423.46(b) states that Part D 

sponsors must obtain information on 

prior creditable coverage from all 

enrolled or enrolling beneficiaries and 


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report this information to CMS in a form 

and manner determined by CMS. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to obtain the 

required information. To comply with 

this requirement, Part D sponsors would 

expend 15 minutes per new Part D 

enrollee. We estimate that there will be 

approximately 500,000 new Part D 

enrollees. Therefore the total annual 

burden associated with this requirement 

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

minutes for all enrollees. 

Section 423.46(d) requires the Part D 

plan sponsor to retain all information 

collected concerning a credible coverage 

period determination in accordance 

with the enrollment records retention 

requirements described in subpart K, 

§ 423.505(e)(1)(iii). 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D plan sponsor to 

retain the required information. To 

comply with this requirement, Part D 

sponsors would expend 5 minutes per 

new Part D enrollee. There are 

approximately 500,000 enrollees. We 

estimate the total annual burden 

associated with this requirement will be 

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

new Part D enrollees. 

H. ICRs Regarding Contract Provisions 

(§ 423.505) 

Section 423.505(k)(5) states that the 

Chief Executive Officer, Chief Financial 

Officer, or an individual delegated the 

authority to sign on behalf of one of 

these officers, and who reports directly 

to the officer, must certify that the 

information provided is accurate, 

complete, and truthful and fully 

conforms to the requirements in 

§§ 423.336 and 423.343 and 

acknowledge that this information will 

be used for the purposes of obtaining 

Federal reimbursement. While there is 

burden associated with this 

requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

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

I. ICRs Regarding the Right to a 

Redetermination (§ 423.580) 

Section 423.580 provides information 

on the ways for an enrollee to seek a 

redetermination. We made minor 

changes to this section that would 

permit a non-physician prescriber to 

request a redetermination on behalf of a 

beneficiary. This change would not have 

any information collection effects, but 

in any case the burden associated with 

a redetermination is exempt from the 

PRA as stipulated under 5 CFR 1320.4. 

J. Burden Associated With the ICRs 

We received no public comments on 

the burden estimates associated with the 

information collections described above. 

However, we have eliminated the 

estimates associated with provisions 

that are no longer included in this final 

rule (such as marketing provisions, 

effective October 1, 2008, that paralleled 

provisions in MIPPA and were set forth 

in our September 18, 2008 final rule (73 

FR 54208)) and we have revised our 

estimates of the number of respondents 

who will be affected by some of the 

provisions in this rule, as detailed in the 

table below. We estimate that the 

aggregate annual burden associated with 

the collection of information section for 

this rule totals 200,835.5 hours for FY 

2010 and 175,463.5 hours for each of the 

years in FY 2011 through 2018: 

OMB No. Requirements Number of 

respondents Burden hours Total annual burden hours 

Total annual 

cost ** 

0938–0753 ............................. 422.52(g) .............................. 324 78 .......................................... 25,272 $549,161 

0938–0753 ............................. 422.60(g)(2) .......................... 5 .5 ........................................... 2.5 549,161 

0938–0753 ............................. 422.103(e) ............................ 2 100 ........................................ 200 10,996 

0938–0753 ............................. 422.504(g)(1) ........................ 363 208 ........................................ 616,512* 33,895,829* 

None/Exempt ......................... 422.578 ................................. N/A N/A ........................................ N/A N/A 

0938–0964 ............................. 423.32(g)(2) .......................... 42 207 ........................................ 8,694 188,920 

0938–0964 ............................. 423.46(b) .............................. 500,000 15 min ................................... 125,000 2,716,250 

0938–0964 ............................. 423.46(d) .............................. 500,000 5 min ..................................... 41,667 905,423 

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

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

* The burden associated with requirement 422.504(g)(1) is already accounted for in the regulation CMS–4138–IFC. 

** We provide more detail on how we estimate the cost burden associated with these provisions in the regulatory impact analysis section. 

If you comment on these information 

collection and recordkeeping 

requirements, please do either of the 

following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this rule; or 

2. Mail copies to the address specified 

in the ADDRESSES section of this rule 

and to the Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, Room 10235, 

New Executive Office Building, 

Washington, DC 20503, Attn: CMS Desk 

Officer, CMS–4131–FC @omb.eop.gov. 

Fax (202) 395–6974. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

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. Waiver of Proposed Rulemaking 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register and invite public comment on 

the proposed rule. The notice of 

proposed rulemaking includes a 

reference to the legal authority under 

which the rule is proposed, and the 

terms and substances of the proposed 

rule or a description of the subjects and 

issues involved. This procedure can be 

waived, however, if an agency finds 

good cause that a notice-and-comment 

procedure is impracticable, 

unnecessary, or contrary to the public 

interest and incorporates a statement of 

the finding and its reasons in the rule 

issued. Section II.A.1 of this final rule 

with comment period addresses section 

164 of the Medicare Improvements for 

Patients and Providers Act of 2008 

(MIPPA) (Pub. L. 110–275) which 

became law after publication of the May 

16, 2008 proposed rule. In this section 

of the final rule with comment period, 

we specify that we are adding 

definitions related to special needs 

plans to conform our regulations to 

section 164 of the MIPPA. Because these 

changes are in accordance with the 

statutory amendments, we find that it 

would be unnecessary and contrary to 

public interest to seek prior public 


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4The hourly rates for the burden requirement 

were developed using the Department of Labor, 

Bureau of Labor Statistics for May 2006 (National 

Occupational Employment and Wage Estimates). 

comment on these provisions. 

Therefore, we find good cause to waive 

the notice of proposed rulemaking and 

to issue these provisions on an interim 

basis. We are providing a 60-day public 

comment period. 

VI. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impact of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

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

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), Executive Order 13132 on 

Federalism, and the Congressional 

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

Executive Order 12866 (as amended) 

directs agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

Though we are not finalizing the 

changes originally proposed for the RDS 

program in the May 16, 2008 rule, we 

estimate that this rule will have 

economically significant effects: The 

provisions in this final rule, associated 

with our revision to the beneficiary cost 

sharing and reinsurance subsidy 

payments, are estimated to cost $30 

million in FY 2010 and a total cost of 

$530 million in FYs 2010 through 2018. 

Accordingly, we have prepared an RIA. 

We provide a separate estimate of the 

costs associated with the other 

provisions not related to the Part D 

definitions in this final rule. This 

estimate includes costs regarding: (1) 

Eligibility to elect an MA plan for 

special needs individuals (§ 422.52); (2) 

the election process (§ 422.60); (3) 

benefits under an MA MSA Plan 

(§ 422.103); (4) contract provisions 

(§ 422.504); (5) enrollment process 

(§ 423.32); and (6) the late enrollment 

penalty (§ 423.46). In estimating the cost 

of all the other provisions not related to 

the Part D definitions discussed in this 

final rule, we utilize, as appropriate, the 

figures of $14.68 (based on the United 

States Department of Labor (DOL) 

statistics for the hourly wages of word 

processors and typists) and $37.15 

(based on DOL statistics for a 

management analyst)4 plus the added 

OMB figures of 12 percent for overhead 

and 36 percent for benefits, respectively, 

to represent average costs to plans, 

sponsors and downstream entities. 

(Note that the wages cited for the 

provisions below include the hourly 

wage + an additional 48 percent to 

reflect overhead, benefit costs for total 

wages of $21.73 and $54.98, 

respectively). Using these figures the 

estimated total cost will be 

approximately $4,381,800 in fiscal year 

2010 and $3,821,643 per year in fiscal 

years 2011 through 2018. This cost will 

be spread more or less evenly across 

participating plans, and hence will 

impose negligible burden on any plan in 

relation to existing administrative costs. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. 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. MA organizations and Part D 

sponsors, the only entities that will be 

affected by the provisions of this rule, 

are not generally considered small 

business entities. They must follow 

minimum enrollment requirements 

(5,000 in urban areas and 1,500 in nonurban areas) and because of the revenue 

from such enrollments, these entities 

generally are above the revenue 

threshold required for analysis under 

the RFA. While a very small rural plan 

could fall below the threshold, we do 

not believe that there are more than a 

handful of such plans. 

A fraction of MA organizations and 

sponsors are considered small 

businesses because of their non-profit 

status. For an analysis to be necessary, 

however, 3 to 5 percent of their revenue 

would have to be affected by the 

provisions. We do not believe that any 

of these provisions rise to that 

threshold. Again, most of the provisions 

we are implementing are clarifications 

of existing policy or require minimal 

costs. Because MA organizations and 

Part D sponsors are the only entities that 

will be affected by the provisions and 

because of the minimal associated costs, 

we are not preparing an analysis for the 

RFA because the Secretary has 

determined, and we certify, that this 

rule will 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 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. We are not 

preparing an analysis for section 1102(b) 

of the Act because the Secretary has 

determined, and we certify, that this 

rule will not have a significant impact 

on the operations of a substantial 

number of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year by State, local or tribal 

governments, in the aggregate, or by the 

private sector of $100 million in 1995 

dollars, updated annually for inflation. 

That threshold level is currently 

approximately $130 million. This rule 

does not contain mandates that will 

impose spending costs on State, local, or 

tribal governments, in the aggregate, or 

on the private sector, of $130 million. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a final 

rule that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

This rule will not have a substantial 

direct effect on State or local 

governments, preempt States, or 

otherwise have a Federalism 

implication. 

With respect to economic benefits, we 

have no reliable basis for estimating the 

effects of these changes. Many of the 

changes clarify or codify existing 

policies though such clarification could 

contribute to greater plan efficiency and 

compliance with program regulations. 

Accordingly, we estimate that while 

there could be economic benefits 

associated with this final rule with 

comment period, they are difficult to 

gauge at this time. 

Because there are costs to plans and 

sponsors associated with several 

provisions of this rule, however, we 

indicate general areas affected and 

specify the costs associated with these. 

For specific burden associated with the 

requirements and the bases for our 


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estimates, see section III of this final 

rule with comment period. 

B. Specific Impacts 

1. Special Needs Plans 

Several of the provisions set forth in 

this final rule with comment period 

concern special needs plans, in 

particular the requirement that special 

needs plans enroll only the appropriate 

special needs individuals and that they 

verify that individuals are eligible for 

the plan into which they wish to enroll. 

We estimate the total cost of the 

provision requiring verification of 

Medicaid eligibility or SNP status prior 

to beneficiary enrollment as $549,161 

($21.73 × 25,272 hours = $549,161). 

This cost is only in fiscal year 2010. (As 

noted above, other proposed provisions 

related to SNPs, such as the State 

coordination requirement, are not part 

of this final rule with comment period 

and thus have no projected impact for 

purposes of this rule.) 

2. Medicare Medical Savings Account 

Plans (MSAs) 

Costs associated with this provision 

are for reporting cost and quality 

information about the plans to enrollees. 

We estimate the total cost of these 

provisions as $10,996 ($54.98 × 200 

hours) for the first year a plan provides 

such information, and half that cost in 

subsequent years to maintain and 

update the information. 

3. Enrollment 

We are setting forth requirements 

concerning Part D sponsor notification 

of full benefit dual eligible beneficiaries 

about enrollment options in addition to 

automatic enrollment. This provision 

requires that Part D sponsors obtain 

from Part D plan enrollees or those 

considering enrolling information 

concerning prior creditable coverage, 

and retain information collected 

concerning creditable coverage period 

determinations. We estimate the total 

cost of these provisions as $3,810,593. 

The annual costs for specific provisions 

are as follows: 

• Notifying dual-eligible beneficiaries 

of enrollment options in addition to 

automatic enrollment ($21.73 × 8,694 

hours = $188,920). 

• Obtaining prior creditable coverage 

information ($21.73 × 125,000 hours = 

$2,716,250). 

• Retaining prior creditable coverage 

information ($21.73 × 41,667 hours = 

$905,423). 

4. Marketing 

This rule no longer contains any 

marketing provisions and thus the 

projected impact is no longer applicable 

for purposes of this final rule with 

comment period. 

5. Part D Definitions 

With respect to the revisions to the 

Part D definitions, we do not expect a 

significant impact on small businesses, 

such as small pharmacies, as a result of 

changes to the definitions under Part D 

of negotiated prices, gross covered drug 

costs, and allowable risk corridor costs 

in this rule. These changes primarily 

impact which drug costs are reported to 

us and how plans calculate beneficiary 

cost sharing. Moreover, we assume they 

will require minimal, if any, changes in 

health plan, PBM and pharmacy 

operational systems. Even with the 

changes to the way in which beneficiary 

cost sharing is calculated resulting from 

these definition changes, health plans 

will still be required to ensure that 

pharmacies receive their contracted rate. 

We believe that health plans will 

account for any additional costs 

associated with the change in the way 

beneficiary costs are calculated in their 

Part D bids. As a result, we expect that 

these changes will increase Part D bids 

and Federal Government payments such 

that the total impact estimate for FYs 

2010 through 2018 is $530 million. 

However, we do not expect these 

changes to significantly increase health 

plan costs. 

With respect to the changes impacting 

which drug costs are reported to CMS 

and how Part D plans calculate 

beneficiary cost-sharing, we believe that 

the impact on pharmacies will be 

minimal, as the total compensation 

received by pharmacies should remain 

unaffected. However, Part D plans will 

need to include administrative costs 

paid to PBMs, which were previously 

included as drug costs, as 

administrative cost in their bids. They 

will also need to factor reductions in 

beneficiary cost sharing and reinsurance 

subsidy payments into their bids. The 

changes in beneficiary cost sharing and 

reinsurance subsidy payments are 

expected to increase Part D bids due to 

increased plan liability and therefore 

will increase the direct subsidy 

payments made by the Federal 

government to health plans. The 

changes regarding the reporting of drug 

costs are also expected to reduce the 

reinsurance payments and low-income 

cost sharing subsidy payments made by 

the Federal government. Specifically, 

the reinsurance subsidy, which is 

calculated as 80 percent of allowable 

reinsurance costs, is expected to 

decrease due to lower negotiated prices 

and therefore, lower allowable 

reinsurance costs. A reduction in the 

low-income cost sharing subsidy 

payments made by the Federal 

government is expected due to lower 

beneficiary cost sharing. We estimate 

the net cost of these changes to be $30 

million for FY 2010 and a total cost of 

$530 million for FYs 2010 through 2018. 

These estimated costs reflect an increase 

in the direct subsidy payments made by 

the Federal Government and are net of 

reductions in Federal reinsurance 

payments and low-income cost sharing 

subsidy payments. These estimated 

costs are based on the assumption that 

overall program costs will remain the 

same. They do not include any potential 

reductions in plan administrative costs 

due to the ability of plan sponsors to 

negotiate lower administrative fees with 

PBMs as a result of increased 

transparency in drug prices. 

In addition, we expect that the 

clarifications may require a small 

number of Part D sponsors to renegotiate 

their contracts with their PBMs to 

account for system changes to reflect the 

appropriate beneficiary cost sharing. We 

believe that most PBMs will be 

unaffected by the changes in reporting 

drug costs and the calculation of 

beneficiary cost sharing. Thus, we 

expect that the financial impact of the 

rule on PBMs will be minimal. 

However, certain PBMs that typically 

use the lock-in pricing approach could 

experience a financial impact from the 

drug cost reporting changes. 

The proposed rule would have 

resulted in a decrease of $510 million in 

payments under the Retiree Drug 

Subsidy Program over 10 years, due to 

the requirement in the proposed rule 

that RDS sponsors report, and receive 

subsidy based on, pass-through rather 

than lock-in pricing. Because that 

requirement is not being adopted in this 

final rule, this decrease does not apply. 

With respect to the changes impacting 

how Part D plans calculate beneficiary 

cost sharing, we believe that these 

changes will increase beneficiary 

premiums for plans that utilize the lockin pricing approach but this increase 

will be more than offset by a decrease 

in beneficiary cost sharing under these 

plans. As a result, we expect that certain 

beneficiaries enrolled in these plans 

with very low drug utilization will see 

some increase in the total costs they pay 

for their prescription drug coverage. 

However, we expect that most 

beneficiaries, particularly those with 

high drug utilization, will see a decrease 

in the total costs they pay for their 

prescription drug coverage as a result of 

reduced beneficiary cost sharing. 

C. Alternatives Considered 

We considered whether or not the 

cost to codify these policies outweighed 


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the need to do so. With one possible 

exception, we determined that the cost 

to plans and sponsors to clarify and 

codify our policies would be minimal 

and outweighed the minimal costs to 

implement these. 

With respect to the provisions 

concerning Medicare medical savings 

account plans, we considered the costs 

to plans of providing cost and quality 

information. We believe that such 

information is readily available to most 

MSA plans and that it will not be an 

undue burden on plans to provide such 

information. As discussed in detail in 

section II.A.2 of this final rule with 

comment period, commenters did not 

dispute this assessment and we have not 

made any changes to our impact 

assessment. 

As discussed previously, many of the 

provisions clarify or codify current 

policy which we discuss in section II. of 

the preamble to this final rule with 

comment period. As such, we 

considered whether or not the cost to 

codify these policies outweighed the 

need to do so. With one possible 

exception, we determined that the cost 

to plans and sponsors to clarify and 

codify our policies are minimal and 

outweigh the minimal costs to 

implement these provisions. 

With respect to the changes to the 

drug cost-related definitions in the Part 

D program, we have discussed the two 

alternatives at length in the preamble 

section of both the proposed and final 

rules. The two alternatives are—(1) The 

current approach of allowing both passthrough and lock-in prices, and (2) the 

approach of permitting only passthrough prices as the basis for Part D 

costs. As we discuss in section II.B, we 

believe there may be significant negative 

impacts on beneficiaries, market 

competition, pharmacies, and 

government expenditures associated 

with maintaining the current dual 

pricing approach and, therefore, we will 

allow only the single ‘‘pass-through’’ 

pricing approach as originally intended 

in the final rule establishing the Part D 

prescription drug benefit. 

D. Accounting Statement 

As required by OMB Circular A–4 

(available at http://www.whitehouse.

gov/omb/circulars/a004/a-4.pdf), in the 

Table 1 below, we have prepared an 

accounting statement showing the 

classification of the expenditures 

associated with the provisions of this 

final rule with comment period. This 

table provides our best estimate of the 

increase in costs as a result of the 

changes. The costs represent transfers 

by the Federal Government to Part D 

plans. Also, the cost for all other 

provisions not related to the Part D 

definitions is included in Table 1. 

TABLE 1—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES

Category Transfers 

(in millions) 

Increase in Federal Payments, FYs 2010—2018 

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

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

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

Category Costs 

($ Millions) 

Cost for All Other Provisions Not Related to the Part D Definitions for FY 2010–2018 

Annualized Monetized Costs Using the 7% Discount Rate ............................................ $3.9. 

Annualized Monetized Costs Using the 3% Discount Rate ............................................ 3.9. 

Who is Affected? .............................................................................................................. MAOs/Part D Sponsors. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 422 

Administrative practice and 

procedure, Health facilities, Health 

maintenance organizations (HMO), 

Medicare, Penalties, Privacy, Reporting 

and recordkeeping requirements. 

42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMOs), 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 422—MEDICARE ADVANTAGE 

PROGRAM 

■ 1. The authority citation for part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

Subpart A—General Provisions 

■ 2. Section 422.2 is amended by— 

■ A. Adding the definitions for 

‘‘Institutionalized-equivalent’’ and 

‘‘Severe or disabling chronic condition’’ 

in alphabetical order. 

■ B. Revising the definition of 

‘‘Specialized MA Plans for Special 

Needs Individuals’’. 

The additions and revision read as 

follows: 

§ 422.2 Definitions. 

* * * * * 

Institutionalized-equivalent means for 

the purpose of defining a special needs 

individual, an MA eligible individual 

who is living in the community but 

requires an institutional level of care. 

The determination that the individual 

requires an institutional level of care 

(LOC) must be made by— 

(1) The use of a State assessment tool 

from the State in which the individual 

resides; and 

(2) An assessment conducted by an 

impartial entity and having the requisite 

knowledge and experience to accurately 

identify whether the beneficiary meets 

the institutional LOC criteria. In States 

and territories that do not have an 

existing institutional level of care 

assessment tool, the individual must be 

assessed using the same methodology 

that State uses to determine institutional 

level of care for Medicaid nursing home 

eligibility. 

* * * * * 


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Severe or disabling chronic condition 

means for the purpose of defining a 

special needs individual, an MA eligible 

individual who has one or more comorbid and medically complex chronic 

conditions that are substantially 

disabling or life-threatening, has a high 

risk of hospitalization or other 

significant adverse health outcomes, 

and requires specialized delivery 

systems across domains of care. 

* * * * * 

Specialized MA Plans for Special 

Needs Individuals means an MA 

coordinated care plan that exclusively 

enrolls special needs individuals as set 

forth in § 422.4(a)(1)(iv) and that 

provides Part D benefits under Part 423 

of this chapter to all enrollees; and 

which has been designated by CMS as 

meeting the requirements of an MA SNP 

as determined on a case-by-case basis 

using criteria that include the 

appropriateness of the target population, 

the existence of clinical programs or 

special expertise to serve the target 

population, and whether the proposal 

discriminates against sicker members of 

the target population. 

■ 3. Amend § 422.4 by revising 

paragraph (a)(1)(iv) to read as follows: 

§ 422.4 Types of MA plans. 

(a) * * * 

(1) * * * 

(iv) A specialized MA plan for special 

needs individuals (SNP) includes any 

type of coordinated care plan that meets 

CMS’s SNP requirements and 

exclusively enrolls special needs 

individuals as defined in § 422.2 of this 

subpart. 

* * * * * 

Subpart B—Eligibility, Election, and 

Enrollment 

■ 4. Amend § 422.52 by revising 

paragraph (f) to read as follows: 

§ 422.52 Eligibility to elect an MA plan for 

special needs individuals. 

* * * * * 

(f) Establishing eligibility for 

enrollment. A SNP must employ a 

process approved by CMS to verify the 

eligibility of each individual enrolling 

in the SNP. 

■ 5. Amend § 422.60 by adding 

paragraph (g) to read as follows: 

§ 422.60 Election process. 

* * * * * 

(g) Passive enrollment by CMS. In 

situations involving either immediate 

terminations as provided in 

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

which CMS determines that remaining 

enrolled in a plan poses potential harm 

to the members, CMS may implement 

passive enrollment procedures. 

(1) Passive enrollment procedures. 

Individuals will be considered to have 

elected the plan selected by CMS unless 

they— 

(i) Decline the plan selected by CMS, 

in a form and manner determined by 

CMS, or 

(ii) Request enrollment in another 

plan. 

(2) Beneficiary notification. The 

organization that receives the 

enrollment must provide notification 

that describes the costs and benefits of 

the plan and the process for accessing 

care under the plan and clearly explains 

the beneficiary’s ability to decline the 

enrollment or choose another plan. 

Such notification must be provided to 

all potential enrollees prior to the 

enrollment effective date (or as soon as 

possible after the effective date if prior 

notice is not practical), in a form and 

manner determined by CMS. 

(3) Special election period. All 

individuals will be provided with a 

special election period, as described in 

§ 422.62(b)(4). 

■ 6. Section 422.74 is amended by— 

■ A. Revising paragraph (d)(1) 

introductory text. 

■ B. Adding a new paragraph (d)(1)(iv). 

The revision and addition read as 

follows: 

§ 422.74 Disenrollment by the MA 

organization. 

* * * * * 

(d) * * * 

(1) Except as specified in paragraph 

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

organization may disenroll an 

individual from the MA plan for failure 

to pay basic and supplementary 

premiums under the following 

circumstances: 

* * * * * 

(iv) An MA organization may not 

disenroll an individual who had 

monthly premiums withheld per 

§ 422.262(f)(1) and (g) of this part, or 

who is in premium withhold status, as 

defined by CMS. 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

■ 7. Amend § 422.101 by adding 

paragraph (f)(2) to read as follows: 

§ 422.101 Requirements relating to basic 

benefits. 

* * * * * 

(f) * * * 

* * * 

(2) MA organizations offering SNPs 

must also develop and implement the 

following model of care components to 

assure an effective management 

structure: 

(i) Target one of the three SNP 

populations defined in § 422.2 of this 

part. 

(ii) Have appropriate staff (employed, 

contracted, or non-contracted) trained 

on the SNP plan model of care to 

coordinate and/or deliver all services 

and benefits. 

(iii) Coordinate the delivery of care 

across healthcare settings, providers, 

and services to assure continuity of care. 

(iv) Coordinate the delivery of 

specialized benefits and services that 

meet the needs of the most vulnerable 

beneficiaries among the three target 

special needs populations as defined in 

§ 422.2 of this part, including frail/ 

disabled beneficiaries and beneficiaries 

near the end of life. 

(v) Coordinate communication among 

plan personnel, providers, and 

beneficiaries. 

■ 8. Amend § 422.103 by adding new 

paragraph (e) to read as follows: 

§ 422.103 Benefits under an MA MSA plan. 

* * * * * 

(e) All MA organizations offering 

MSA plans must provide enrollees with 

available information on the cost and 

quality of services in their service area, 

and submit to CMS for approval a 

proposed approach to providing such 

information. 

Subpart F—Submission of Bids, 

Premiums, and Related Information 

and Plan Approval 

■ 9. Amend § 422.262 by adding new 

paragraphs (g) and (h) to read as follows: 

§ 422.262 Beneficiary premiums. 

* * * * * 

(g) Prohibition on improper billing of 

premiums. MA organizations shall not 

bill an enrollee for a premium payment 

period if the enrollee has had the 

premium for that period withheld from 

his or her Social Security, Railroad 

Retirement Board or Office of Personnel 

Management check. 

(h) Retroactive collection of 

premiums. In circumstances where 

retroactive collection of premium 

amounts is necessary and the enrollee is 

without fault in creating the premium 

arrearage, the Medicare Advantage 

organization shall offer the enrollee the 

option of payment either by lump sum, 

by equal monthly installment spread out 

over at least the same period for which 

the premiums were due, or through 

other arrangements mutually acceptable 

to the enrollee and the Medicare 

Advantage organization. For monthly 


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installments, for example, if 7 months of 

premiums are due, the member would 

have at least 7 months to repay. 

Subpart K—Application Procedures 

and Contracts for Medicare Advantage 

Organizations 

■ 10. Subpart K heading is revised to 

read as set forth above. 

■ 11. Amend § 422.504 by revising 

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

§ 422.504 Contract provisions. 

* * * * * 

(g) * * * 

(1) Effective January 1, 2010, each MA 

organization must adopt and maintain 

arrangements satisfactory to CMS to 

protect its enrollees from incurring 

liability (for example, as a result of an 

organization’s insolvency or other 

financial difficulties) for payment of any 

fees that are the legal obligation of the 

MA organization. To meet this 

requirement, the MA organization 

must— 

(i) Ensure that all contractual or other 

written arrangements with providers 

prohibit the organization’s providers 

from holding any enrollee liable for 

payment of any such fees; 

(ii) Indemnify the enrollee for 

payment of any fees that are the legal 

obligation of the MA organization for 

services furnished by providers that do 

not contract, or that have not otherwise 

entered into an agreement with the MA 

organization, to provide services to the 

organization’s enrollees; and 

(iii) For all MA organizations with 

enrollees eligible for both Medicare and 

Medicaid, specify in contracts with 

providers that such enrollees will not be 

held liable for Medicare Part A and B 

cost sharing when the State is 

responsible for paying such amounts, 

and inform providers of Medicare and 

Medicaid benefits, and rules for 

enrollees eligible for Medicare and 

Medicaid. The MA plans may not 

impose cost-sharing that exceeds the 

amount of cost-sharing that would be 

permitted with respect to the individual 

under title XIX if the individual were 

not enrolled in such a plan. The 

contracts must state that providers 

will— 

(A) Accept the MA plan payment as 

payment in full, or 

(B) Bill the appropriate State source. 

* * * * * 

■ 12. Amend § 422.506 by revising 

paragraphs (a)(2)(ii), (a)(2)(iii), (b)(2)(ii), 

and (b)(2)(iii) to read as follows: 

§ 422.506 Non-renewal of contract. 

(a) * * * 

(2) * * * 

(ii) Each Medicare enrollee by mail at 

least 60 days before the date on which 

the non-renewal is effective. This notice 

must include a written description of 

alternatives available for obtaining 

Medicare services within the service 

area, including alternative MA plans, 

Medigap options, and original Medicare 

and must receive CMS approval prior to 

issuance; and, 

(iii) The general public, at least 60 

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

notice in one or more newspapers of 

general circulation in each community 

or county located in the MA 

organization’s service area. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) To each of the MA organization’s 

Medicare enrollees by mail at least 60 

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

(iii) To the general public, at least 60 

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

notice in one or more newspapers of 

general circulation in each community 

or county located in the MA 

organization’s service area. 

* * * * * 

Subpart M—Grievances, Organization 

Determinations and Appeals 

■ 13. Revise § 422.578 to read as 

follows: 

§ 422.578 Right to a reconsideration. 

Any party to an organization 

determination (including one that has 

been reopened and revised as described 

in § 422.616) may request that the 

determination be reconsidered under 

the procedures described in § 422.582, 

which address requests for a standard 

reconsideration. A physician who is 

providing treatment to an enrollee may, 

upon providing notice to the enrollee, 

request a standard reconsideration of a 

pre-service request for reconsideration 

on the enrollee’s behalf as described in 

§ 422.582. An enrollee or physician 

(acting on behalf of an enrollee) may 

request an expedited reconsideration as 

described in § 422.584. 

■ 14. Revise § 422.582 to read as 

follows: 

§ 422.582 Request for a standard 

reconsideration. 

(a) Method and place for filing a 

request. A party to an organization 

determination or, upon providing notice 

to the enrollee, a physician who is 

treating an enrollee and acting on the 

enrollee’s behalf, must ask for a 

reconsideration of the determination by 

making a written request to the MA 

organization that made the organization 

determination. The MA organization 

may adopt a policy for accepting oral 

requests. 

(b) Timeframe for filing a request. 

Except as provided in paragraph (c) of 

this section, a request for 

reconsideration must be filed within 60 

calendar days from the date of the 

notice of the organization 

determination. 

(c) Extending the time for filing a 

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

physician acting on behalf of an enrollee 

shows good cause, the MA organization 

may extend the timeframe for filing a 

request for reconsideration. 

(2) How to request an extension of 

timeframe. If the 60-day period in which 

to file a request for reconsideration has 

expired, a party to the organization 

determination or a physician acting on 

behalf of an enrollee may file a request 

for reconsideration with the MA 

organization. The request for 

reconsideration and to extend the 

timeframe must— 

(i) Be in writing; and 

(ii) State why the request for 

reconsideration was not filed on time. 

(d) Parties to the reconsideration. The 

parties to the reconsideration are the 

parties to the organization 

determination, as described in 

§ 422.574, and any other provider or 

entity (other than the MA organization) 

whose rights with respect to the 

organization determination may be 

affected by the reconsideration, as 

determined by the entity that conducts 

the reconsideration. 

(e) Withdrawing a request. The party 

or physician acting on behalf of an 

enrollee who files a request for 

reconsideration may withdraw it by 

filing a written request for withdrawal at 

one of the places listed in paragraph (a) 

of this section. 

Subpart O—Intermediate Sanctions 

■ 15. Amend § 422.760 by— 

■ A. Redesignating paragraphs (b)(2) 

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

(b)(4), respectively. 

■ B. Adding new paragraph (b)(2) to 

read as follows: 

§ 422.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

* * * * * 

(b) * * * 

(2) If the deficiency on which the 

determination is based has directly 

adversely affected (or has the substantial 

likelihood of adversely affecting) one or 

more MA enrollees, CMS may calculate 


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

enrollee directly adversely affected (or 

with the substantial likelihood of being 

adversely affected) by a deficiency. 

* * * * * 

PART 423—VOLUNTARY MEDICARE 

PRESCRIPTION DRUG BENEFIT 

■ 16. 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 

■ 17. Amend § 423.32 by adding 

paragraph (g) to read as follows: 

§ 423.32 Enrollment process. 

* * * * * 

(g) Passive enrollment by CMS. In 

situations involving either immediate 

terminations as provided in 

§ 423.509(a)(5) or § 422.510(a)(5) of this 

chapter, or other situations in which 

CMS determines that remaining 

enrolled in a plan poses potential harm 

to plan members, CMS may implement 

passive enrollment procedures. 

(1) Passive enrollment procedures. 

Individuals will be considered to have 

enrolled in the plan selected by CMS 

unless individuals— 

(i) Decline the plan selected by CMS, 

in a form and manner determined by 

CMS; or 

(ii) Request enrollment in another 

plan. 

(2) Beneficiary notification. The 

organization that receives the 

enrollment must provide notification 

that describes the costs and benefits of 

the new plan and the process for 

accessing care under the plan and the 

beneficiary’s ability to decline the 

enrollment or choose another plan. 

Such notification must be provided to 

all potential enrollees prior to the 

enrollment effective date (or as soon as 

possible after the effective date if prior 

notice is not practical), in a form and 

manner determined by CMS. 

(3) Special election period. All 

individuals will be provided with a 

special enrollment period, as described 

in § 423.38(c)(8)(ii). 

■ 18. Amend § 423.34 by— 

■ A. Revising paragraph (d)(1). 

■ B. Adding paragraph (d)(3). 

The revision and addition reads as 

follows: 

§ 423.34 Enrollment of full-benefit dual 

eligible individuals. 

* * * * * 

(d) Automatic enrollment rules. (1) 

General rule. Except for full-benefit dual 

eligible individuals who are qualifying 

covered retirees with a group health 

plan sponsor as specified in paragraph 

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

enrolls full-benefit dual eligible 

individuals who fail to enroll in a Part 

D plan into a PDP offering basic 

prescription drug coverage in the area 

where the individual resides that has a 

monthly beneficiary premium amount 

(as defined in § 423.780(b) of this part). 

In the event that there is more than one 

PDP in an area with a monthly 

beneficiary premium at or below the 

low-income premium subsidy amount, 

individuals are enrolled in such PDPs 

on a random basis. 

* * * * * 

(3) Exception for full-benefit dual 

eligible individuals who are qualifying 

covered retirees. (i) Full-benefit dual 

eligible individuals who are qualifying 

covered retirees as defined in § 423.882, 

and for whom CMS has approved the 

group health plan sponsor to receive the 

Retiree Drug Subsidy described in 

Subpart R of this Part, also are 

automatically enrolled in a Part D plan, 

consistent with this paragraph, unless 

they elect to decline that enrollment. 

(ii) Before effectuating such an 

enrollment, however, CMS will provide 

notice to such individuals of their 

choices and advise them to discuss the 

potential impact of Medicare Part D 

coverage on their group health plan 

coverage. This notice informs such 

individuals that they will be deemed to 

have declined to enroll in Part D unless 

they affirmatively enroll in a Part D plan 

or contact CMS and confirm that they 

wish to be auto-enrolled in a PDP. 

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

at a later time if they choose to do so. 

* * * * * 

■ 19. Amend § 423.44 by revising 

paragraph (d)(1) introductory text and 

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

§ 423.44 Involuntary disenrollment by the 

PDP. 

* * * * * 

(d) * * * 

(1) Except as specified in paragraph 

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

may disenroll an individual from the 

PDP for failure to pay any monthly 

premium under the following 

circumstances: 

* * * * * 

(iv) A PDP sponsor may not disenroll 

an individual who had monthly 

premiums withheld per § 423.293(a) and 

(e) of this part or who is in premium 

withhold status, as defined by CMS. 

* * * * * 

■ 20. Amend § 423.46 by adding 

paragraph (b) through (d) to read as 

follows: 

§ 423.46 Late enrollment penalty. 

* * * * * 

(b) Role of Part D plan in 

determination of the penalty. Part D 

sponsors must obtain information on 

prior creditable coverage from all 

enrolled or enrolling beneficiaries and 

report this information to CMS in a form 

and manner determined by CMS. 

(c) Reconsideration. Individuals 

determined to be subject to a late 

enrollment penalty may request 

reconsideration of this determination, 

consistent with § 423.56(g) of this part. 

Such review will be conducted by CMS, 

or an independent review entity 

contracted by CMS, in accordance with 

guidance issued by CMS. Decisions 

made through this review are not 

subject to appeal, but may be reviewed 

and revised at the discretion of CMS. 

(d) Record retention. Part D plan 

sponsors must retain all information 

collected concerning a creditable 

coverage period determination in 

accordance with the enrollment records 

retention requirements described in 

§ 423.505(e)(1)(iii). 

Subpart C—Benefits and Beneficiary 

Protections 

■ 21. Section 423.100 is amended by— 

■ A. Revising the definition of 

‘‘incurred costs.’’ 

■ B. Revising the definition of 

‘‘negotiated prices.’’ 

The revision reads as follows: 

§ 423.100 Definitions. 

* * * * * 

Incurred costs means costs incurred 

by a Part D enrollee for— 

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

not paid for under the Part D plan as a 

result of application of any annual 

deductible or other cost-sharing rules 

for covered Part D drugs prior to the Part 

D enrollee satisfying the out-of-pocket 

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

including any price differential for 

which the Part D enrollee is responsible 

under § 423.124(b); or 

(ii) Nominal cost-sharing paid by or 

on behalf of an enrollee, which is 

associated with drugs that would 

otherwise be covered Part D drugs, as 

defined in § 423.100, but are instead 

paid for, with the exception of said 

nominal cost-sharing, by a patient 

assistance program providing assistance 

outside the Part D benefit, provided that 

documentation of such nominal costsharing has been submitted to the Part 

D plan consistent with the plan 


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processes and instructions for the 

submission of such information; and 

(2) That are paid for— 

(i) By the Part D enrollee or on behalf 

of the Part D enrollee by another person, 

and the Part D enrollee (or person 

paying on behalf of the Part D enrollee) 

is not reimbursed through insurance or 

otherwise, a group health plan, or other 

third party payment arrangement, or the 

person paying on behalf of the Part D 

enrollee is not paying under insurance 

or otherwise, a group health plan, or 

third party payment arrangement; 

(ii) Under a State Pharmaceutical 

Assistance Program (as defined in 

§ 423.454 of this part); or 

(iii) Under § 423.782 of this part. 

* * * * * 

Negotiated prices means prices for 

covered Part D drugs that— 

(1) The Part D sponsor (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount such 

network entity will receive, in total, for 

a particular drug; 

(2) Are reduced by those discounts, 

direct or indirect subsidies, rebates, 

other price concessions, and direct or 

indirect remuneration that the Part D 

sponsor has elected to pass through to 

Part D enrollees at the point of sale; and 

(3) Includes any dispensing fees. 

* * * * * 

■ 22. Amend § 423.104 by revising 

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

§ 423.104 Requirements related to 

qualified prescription drug coverage. 

* * * * * 

(g) * * * 

(1) Access to negotiated prices. A Part 

D sponsor is required to provide its Part 

D enrollees with access to negotiated 

prices for covered Part D drugs included 

in its Part D plan’s formulary. 

Negotiated prices must be provided 

even if no benefits are payable to the 

beneficiary for covered Part D drugs 

because of the application of any 

deductible or 100 percent coinsurance 

requirement following satisfaction of 

any initial coverage limit. Negotiated 

prices must be provided when the 

negotiated price for a covered Part D 

drug under a Part D sponsor’s benefit 

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

deductible, before any initial coverage 

limit, before the annual out-of-pocket 

threshold, and after the annual out-ofpocket threshold. 

* * * * * 

■ 23. Revise § 423.128(e)(6) to read as 

follows: 

§ 423.128 Dissemination of Part D plan 

information. 

* * * * * 

(e) * * * 

(6) Be provided no later than the end 

of the month following any month when 

prescription drug benefits are provided 

under this part, including the covered 

Part D spending between the initial 

coverage limit described in 

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

threshold described in 

§ 423.104(d)(5)(iii). 

Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums; Plan 

Approval 

■ 24. Amend § 423.293 by adding new 

paragraphs (a)(4) and (e) to read as 

follows: 

§ 423.293 Collection of monthly 

beneficiary premium. 

(a) * * * 

(4) Retroactive collection of 

premiums. In circumstances where 

retroactive collection of premium 

amounts is necessary and the enrollee is 

without fault in creating the premium 

arrearage, the Medicare Advantage 

organization shall offer the enrollee the 

option of payment by lump sum, by 

equal monthly installment spread out 

over at least the same period for which 

the premiums were due, or through 

other arrangements mutually acceptable 

to the enrollee and the Medicare 

Advantage organization. For monthly 

installments, for example, if 7 months of 

premiums are due, the member would 

have at least 7 months to repay. 

* * * * * 

(e) Prohibition on improper billing of 

premiums. Part D plan sponsors shall 

not bill an enrollee for a premium 

payment period if the enrollee has had 

the premium for that period withheld 

from his or her Social Security, Railroad 

Retirement Board or Office of Personnel 

Management check. 

Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage 

■ 25. Amend § 423.308 by— 

■ A. Revising the definition of ‘‘actually 

paid.’’ 

■ B. Adding the definition of 

‘‘administrative costs.’’ 

■ C. Revising the definitions of 

‘‘allowable risk corridor costs,’’ ‘‘gross 

covered prescription drug costs,’’ and 

‘‘target amount’’. 

The addition and revisions read as 

follows: 

§ 423.308 Definitions and terminology. 

* * * * * 

Actually paid means that the costs 

must be actually incurred by the Part D 

sponsor and must be net of any direct 

or indirect remuneration (including 

discounts, charge backs or rebates, cash 

discounts, free goods contingent on a 

purchase agreement, up-front payments, 

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

concessions or similar benefits offered 

to some or all purchasers) from any 

source (including manufacturers, 

pharmacies, enrollees, or any other 

person) that would serve to decrease the 

costs incurred under the Part D plan. 

Direct and indirect remuneration 

includes discounts, chargebacks or 

rebates, cash discounts, free goods 

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

free or reduced-price services, grants, or 

other price concessions or similar 

benefits from manufacturers, 

pharmacies or similar entities obtained 

by an intermediary contracting 

organization with which the Part D plan 

sponsor has contracted, regardless of 

whether the intermediary contracting 

organization retains all or a portion of 

the direct and indirect remuneration or 

passes the entire direct and indirect 

remuneration to the Part D plan sponsor 

and regardless of the terms of the 

contract between the plan sponsor and 

the intermediary contracting 

organization. 

Administrative costs means costs 

incurred by a Part D sponsor in 

complying with the requirements of this 

Part for a coverage year and that are not 

drug costs incurred to purchase or 

reimburse the purchase of Part D drugs. 

Administrative costs include amounts 

paid by the Part D sponsor to an 

intermediary contracting organization 

for covered Part D drugs dispensed to 

enrollees in the sponsor’s Part D plan 

that differ from the amount paid by the 

intermediary contracting organization to 

a pharmacy or other entity that is the 

final dispenser of the covered Part D 

drugs. For example, any profit or loss 

retained by an intermediary contracting 

organization (through discounts, 

rebates, or other direct or indirect price 

concessions) when negotiating prices 

with dispensing entities is considered 

an administrative cost. 

* * * * * 

Allowable risk corridor costs means— 

(1) The subset of costs incurred under 

a Part D plan (not including 

administrative costs, but including 

dispensing fees) that are attributable to 

basic prescription drug coverage only 

and that are incurred and actually paid 

by the Part D sponsor to— 


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(i) A dispensing pharmacy or other 

dispensing provider (whether directly or 

through an intermediary contracting 

organization) under the Part D plan; 

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

of this part with which the Part D 

sponsor must coordinate benefits, 

including other Part D plans, as the 

result of any reconciliation process 

developed by CMS under § 423.464 of 

this part; or 

(iii) An enrollee (or third party paying 

on behalf of the enrollee) to indemnify 

the enrollee when the reimbursement is 

associated with obtaining drugs under 

the Part D plan; and 

(2) These costs must be based upon 

imposition of the maximum amount of 

copayments permitted under § 423.782 

of this part. The costs for any Part D 

plan offering enhanced alternative 

coverage must be adjusted not only to 

exclude any costs attributable to 

benefits beyond basic prescription drug 

coverage, but also to exclude any 

prescription drug coverage costs 

determined to be attributable to 

increased utilization over standard 

prescription drug coverage as the result 

of the insurance effect of enhanced 

alternative coverage in accordance with 

CMS guidelines on actuarial valuation. 

* * * * * 

Gross covered prescription drug costs 

mean those actually paid costs incurred 

under a Part D plan, excluding 

administrative costs, but including 

dispensing fees, during the coverage 

year. They equal the sum of the 

following: 

(1) The share of negotiated prices (as 

defined by § 423.100 of this part) 

actually paid by the Part D plan that is 

received as reimbursement by the 

pharmacy, or other dispensing entity, 

reimbursement paid to indemnify an 

enrollee when the reimbursement is 

associated with an enrollee obtaining 

covered Part D drugs under the Part D 

plan, or payments made by the Part D 

sponsor to other parties listed in 

§ 423.464(f)(1) of this part with which 

the Part D sponsor must coordinate 

benefits, including other Part D plans, or 

as the result of any reconciliation 

process developed by CMS under 

§ 423.464 of this part. 

(2) Nominal cost-sharing paid by or 

on behalf of an enrollee which is 

associated with drugs that would 

otherwise be covered Part D drugs, as 

defined in § 423.100 of this part, but are 

instead paid for, with the exception of 

said nominal cost-sharing, by a patient 

assistance program providing assistance 

outside the Part D benefit, provided that 

documentation of such nominal costsharing has been submitted to the Part 

D plan consistent with the plan 

processes and instructions for the 

submission of such information. 

(3) All amounts paid under the Part D 

plan by or on behalf of an enrollee (such 

as the deductible, coinsurance, cost 

sharing, or amounts between the initial 

coverage limit and the out-of-pocket 

threshold) in order to obtain Part D 

drugs that are covered under the Part D 

plan. If an enrollee who is paying 100 

percent cost sharing (as a result of 

paying a deductible or because the 

enrollee is between the initial coverage 

limit and the out-of-pocket threshold) 

obtains a covered Part D drug at a lower 

cost than is available under the Part D 

plan, such cost-sharing will be 

considered an amount paid under the 

plan by or on behalf of an enrollee 

under the previous sentence of this 

definition, if the enrollee’s costs are 

incurred costs as defined under 

§ 423.100 of this part and 

documentation of the incurred costs has 

been submitted to the Part D plan 

consistent with plan processes and 

instructions for the submission of such 

information. These costs are determined 

regardless of whether the coverage 

under the plan exceeds basic 

prescription drug coverage. 

Target amount means the total 

amount of payments (from both CMS 

and by or on behalf of enrollees) to a 

Part D plan for the coverage year for all 

standardized bid amounts as risk 

adjusted under § 423.329(b)(1) of this 

part, less the administrative expenses 

(including return on investment) 

assumed in the standardized bids. 

■ 26. Amend § 423.329 by revising 

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

§ 423.329 Determination of payments. 

* * * * * 

(d) * * * 

(2) * * * 

(i) Interim payments. CMS establishes 

a payment method by which interim 

payments of amounts under this section 

are made during a year based on the 

low-income cost-sharing assumptions 

submitted with plan bids under 

§ 423.265(d)(2)(iv) of this part and 

negotiated and approved under 

§ 423.272 of this part, or by an 

alternative method that CMS 

determines. 

* * * * * 

Subpart K—Application Procedures 

and Contracts With Part D Plan 

Sponsors 

■ 27. Amend § 423.505 by revising 

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

§ 423.505 Contract provisions. 

* * * * * 

(k) * * * 

(5) Certification of allowable costs for 

risk corridor and reinsurance 

information. The Chief Executive 

Officer, Chief Financial Officer, or an 

individual delegated the authority to 

sign on behalf of one of these officers, 

and who reports directly to the officer, 

must certify (based on best knowledge, 

information, and belief) that the 

information provided for purposes of 

supporting allowable costs as defined in 

§ 423.308 of this part, including data 

submitted to CMS regarding direct or 

indirect remuneration (DIR) that serves 

to reduce the costs incurred by the Part 

D sponsor for Part D drugs, is accurate, 

complete, and truthful and fully 

conforms to the requirements in 

§ 423.336 and § 423.343 of this part and 

acknowledge that this information will 

be used for the purposes of obtaining 

Federal reimbursement. 

* * * * * 

■ 28. Amend § 423.507 by revising 

paragraphs (a)(2)(ii), (a)(2)(iii), (b)(2)(ii) 

and (b)(2)(iii) to read as follows: 

§ 423.507 Nonrenewal of contract. 

(a) * * * 

(2) * * * 

(ii) Each Medicare enrollee by mail at 

least 60 days before the date on which 

the non-renewal is effective. This notice 

must include a written description of 

alternatives available for obtaining 

qualified prescription drug coverage 

within the PDP region, including MA– 

PD plans, and other PDPs, and must 

receive CMS approval prior to issuance; 

and 

(iii) The general public, at least 60 

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

notice in one or more newspapers of 

general circulation in each community 

or county located in the Part D plan 

sponsor’s service area. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) To each of the Part D plan 

sponsor’s Medicare enrollees by mail at 

least 60 days before the date on which 

the non-renewal is effective; and 

(iii) To the general public, at least 60 

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

notice in one or more newspapers of 

general circulation in each community 

or county located in the Part D plan 

sponsor’s service area. 

* * * * * 


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Subpart L—Effect of Change of 

Ownership or Leasing of Facilities 

During Term of Contract 

■ 29. Amend § 423.551 by adding 

paragraph (g) to read as follows: 

§ 423.551 General provisions. 

* * * * * 

(g) Sale of beneficiaries not permitted: 

CMS will not recognize as a sale or 

transfer of a PDP line of business 

(qualifying as a change of ownership) a 

transaction that consists solely of the 

sale or transfer of individual 

beneficiaries or groups of beneficiaries 

enrolled in a pharmacy benefit package 

offered by a PDP sponsor apart from the 

rights and obligations related to the 

pharmacy benefit package (PBP). 

Subpart M—Grievances, Coverage 

Determinations, and Appeals 

■ 30. Amend § 423.560 by adding, in 

alphabetical order, the definition for 

‘‘Other prescriber’’ to read as follows: 

§ 423.560 Definitions. 

* * * * * 

Other prescriber means a health care 

professional other than a physician who 

is authorized under State law or other 

applicable law to write prescriptions. 

* * * * * 

■ 31. Amend § 423.566 by revising 

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

§ 423.566 Coverage determinations. 

* * * * * 

(c) * * * 

(3) The prescribing physician or other 

prescriber, on behalf of the enrollee. 

■ 32. Amend § 423.568 by revising 

paragraph (a) to read as follows: 

§ 423.568 Standard timeframe and notice 

requirements for coverage determinations. 

(a) Timeframe for requests for drugs 

benefits. When a party makes a request 

for a drug benefit, the Part D plan 

sponsor must notify the enrollee (and 

the prescribing physician or other 

prescriber involved, as appropriate) of 

its determination as expeditiously as the 

enrollee’s health condition requires, but 

no later than 72 hours after the receipt 

of the request, or, for an expedited 

request, the physician’s or other 

prescriber’s supporting statement. 

* * * * * 

■ 33. Amend § 423.570 by— 

■ A. Revising paragraph (a). 

■ B. Revising paragraph (b). 

■ C. Revising paragraph (c)(1). 

■ D. Revising paragraph (c)(3) 

introductory text. 

■ E. Revising paragraph (c)(3)(ii). 

■ F. Republishing paragraph (d) 

introductory text. 

■ G. Revising paragraph (d)(1). 

■ H. Revising paragraph (d)(2) 

introductory text. 

■ I. Revising paragraph (d)(2)(iii). 

The revisions read as follows: 

§ 423.570 Expediting certain coverage 

determinations. 

(a) Request for expedited 

determination. An enrollee or an 

enrollee’s prescribing physician or other 

prescriber may request that a Part D 

plan sponsor expedite a coverage 

determination involving issues 

described in § 423.566(b) of this part. 

This does not include requests for 

payment of Part D drugs already 

furnished. 

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

for an expedited determination, an 

enrollee or an enrollee’s prescribing 

physician or other prescriber on behalf 

of the enrollee must submit an oral or 

written request directly to the Part D 

plan sponsor or, if applicable, to the 

entity responsible for making the 

determination, as directed by the Part D 

plan sponsor. 

(2) A prescribing physician or other 

prescriber may provide oral or written 

support for an enrollee’s request for an 

expedited determination. 

(c) * * * 

(1) An efficient and convenient means 

for accepting oral or written requests 

submitted by enrollees, prescribing 

physicians, or other prescribers. 

* * * * * 

(3) A means for issuing prompt 

decisions on expediting a 

determination, based on the following 

requirements: 

* * * * * 

(ii) For a request made or supported 

by an enrollee’s prescribing physician or 

other prescriber, provide an expedited 

determination if the physician or other 

prescriber indicates that applying the 

standard timeframe for making a 

determination may seriously jeopardize 

the life or health of the enrollee or the 

enrollee’s ability to regain maximum 

function. 

(d) Actions following denial. If a Part 

D plan sponsor denies a request for 

expedited determination, it must take 

the following actions: 

(1) Make the determination within the 

72-hour timeframe established in 

§ 423.568(a) for a standard 

determination. The 72-hour period 

begins on the day the Part D plan 

sponsor receives the request for 

expedited determination, or, for an 

exceptions request, the physician’s or 

other prescriber’s supporting statement. 

(2) Give the enrollee and prescribing 

physician or other prescriber prompt 

oral notice of the denial that— 

* * * * * 

(iii) Informs the enrollee of the right 

to resubmit a request for an expedited 

determination with the prescribing 

physician’s or other prescriber’s support 

and 

* * * * * 

■ 34. Amend § 423.572 by revising 

paragraph (a) to read as follows: 

§ 423.572 Timeframes and notice 

requirements for expedited coverage 

determinations. 

(a) Timeframe for determination and 

notification. Except as provided in 

paragraph (b) of this section, a Part D 

plan sponsor that approves a request for 

expedited determination must make its 

determination and notify the enrollee 

(and the prescribing physician or other 

prescriber involved, as appropriate) of 

its decision, whether adverse or 

favorable, as expeditiously as the 

enrollee’s health condition requires, but 

no later than 24 hours after receiving the 

request, or, for an exceptions request, 

the physician’s or other prescriber’s 

supporting statement. 

* * * * * 

■ 35. Amend § 423.578 by— 

■ A. Revising paragraphs (a) 

introductory text and (a)(2) introductory 

text. 

■ B. Revising paragraphs (a)(2)(i) and 

(a)(3) 

■ C. Revising paragraphs (a)(4) 

introductory text and (a)(5). 

■ D. Revising paragraphs (b) 

introductory text and (b)(2) introductory 

text. 

■ E. Revising paragraphs (b)(2)(i), (b)(4), 

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

■ F. Revising paragraphs (c)(3)(i), 

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

(c)(4)(i)(A). 

■ G. Revising paragraph (f). 

The revisions read as follows: 

§ 423.578 Exceptions process. 

(a) Request for exceptions to a plan’s 

tiered cost-sharing structure. Each Part 

D plan sponsor that provides 

prescription drug benefits for Part D 

drugs and manages this benefit through 

the use of a tiered formulary must 

establish and maintain reasonable and 

complete exceptions procedures subject 

to CMS’ approval for this type of 

coverage determination. The Part D plan 

sponsor grants an exception whenever it 

determines that the non-preferred drug 

for treatment of the enrollee’s condition 

is medically necessary, consistent with 

the physician’s or other prescriber’s 


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statement under paragraph (a)(4) of this 

section. 

* * * * * 

(2) The exceptions criteria of a Part D 

plan sponsor must include, but are not 

limited to— 

(i) A description of the criteria a Part 

D plan sponsor uses to evaluate a 

determination made by the enrollee’s 

prescribing physician or other 

prescriber under paragraph (a)(4) of this 

section. 

* * * * * 

An enrollee or the enrollee’s 

prescribing physician or other 

prescriber may file a request for an 

exception. 

(4) A prescribing physician or other 

prescriber must provide an oral or 

written supporting statement that the 

preferred drug for the treatment of the 

enrollee’s conditions— 

* * * * * 

(5) If the physician or other prescriber 

provides an oral supporting statement, 

the Part D plan sponsor may require the 

physician or other prescriber to 

subsequently provide a written 

supporting statement to demonstrate the 

medical necessity of the drug. The Part 

D plan sponsor may require the 

prescribing physician or other 

prescriber to provide additional 

supporting medical documentation as 

part of the written follow-up. 

* * * * * 

(b) Request for exceptions involving a 

non-formulary Part D drug. Each Part D 

plan sponsor that provides prescription 

drug benefits for Part D drugs and 

manages this benefit through the use of 

a formulary must establish and maintain 

exceptions procedures subject to CMS’ 

approval for receipt of an off-formulary 

drug. The Part D plan sponsor must 

grant an exception whenever it 

determines that the drug is medically 

necessary, consistent with the 

physician’s or other prescriber’s 

statement under paragraph (b)(5) of this 

section, and that the drug would be 

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

the application of cost utilization tools, 

such as a dose restriction, including the 

dosage form, that causes a particular 

Part D drug not to be covered for the 

number of doses prescribed or a step 

therapy requirement that causes a 

particular Part D drug not to be covered 

until the requirements of the plan’s 

coverage policy are met, or a therapeutic 

substitution requirement. 

* * * * * 

(2) The exception criteria of a Part D 

plan sponsor must include, but are not 

limited to— 

(i) A description of the criteria a Part 

D plan sponsor uses to evaluate a 

prescribing physician’s or other 

prescriber’s determination made under 

paragraph (b)(5) of this section; 

* * * * * 

(4) An enrollee, the enrollee’s 

appointed representative, or the 

prescribing physician or other 

prescriber (on behalf of the enrollee) 

may file a request for an exception. 

(5) A prescribing physician or other 

prescriber must provide an oral or 

written supporting statement that the 

requested prescription drug is medically 

necessary to treat the enrollee’s disease 

or medical condition because— 

* * * * * 

(6) If the physician or other prescriber 

provides an oral supporting statement, 

the Part D plan sponsor may require the 

physician or other prescriber to 

subsequently provide a written 

supporting statement. The Part D plan 

sponsor may require the prescribing 

physician or other prescriber to provide 

additional supporting medical 

documentation as part of the written 

follow-up. 

(c) * * * 

(3) * * * 

(i) The enrollee’s prescribing 

physician or other prescriber continues 

to prescribe the drug. 

* * * * * 

(4) * * * 

(i) The Part D plan sponsor may not 

require the enrollee to request approval 

for a refill, or a new prescription to 

continue using the Part D prescription 

drug after the refills for the initial 

prescription are exhausted, as long as— 

(A) The enrollee’s prescribing 

physician or other prescriber continues 

to prescribe the drug; 

* * * * * 

(f) Implication of the physician’s or 

other prescriber’s supporting statement. 

Nothing in this section should be 

construed to mean that the physician’s 

or other prescriber’s supporting 

statement required for an exceptions 

request will result in an automatic 

favorable decision. 

■ 36. Revise § 423.580 to read as 

follows: 

§ 423.580 Right to a redetermination. 

An enrollee who has received a 

coverage determination (including one 

that is reopened and revised as 

described in § 423.634) may request that 

it be redetermined under the procedures 

described in § 423.582, which address 

requests for a standard redetermination. 

The prescribing physician or other 

prescriber (acting on behalf of an 

enrollee), upon providing notice to the 

enrollee, may request a standard 

redetermination under the procedures 

described in § 423.582. An enrollee or 

an enrollee’s prescribing physician or 

other prescriber (acting on behalf of an 

enrollee) may request an expedited 

redetermination as specified in 

§ 423.584. 

■ 37. Revise § 423.582 to read as 

follows: 

§ 423.582 Request for a standard 

redetermination. 

(a) Method and place for filing a 

request. An enrollee or an enrollee’s 

prescribing physician or other 

prescriber (acting on behalf of the 

enrollee) must ask for a redetermination 

by making a written request with the 

Part D plan sponsor that made the 

coverage determination. The Part D plan 

sponsor may adopt a policy for 

accepting oral requests. 

(b) Timeframe for filing a request. 

Except as provided in paragraph (c) of 

this section, a request for a 

redetermination must be filed within 60 

calendar days from the date of the 

notice of the coverage determination. 

(c) Extending the time for filing a 

request—(1) General rule. If an enrollee 

or prescribing physician or other 

prescriber acting on behalf of an 

enrollee shows good cause, the Part D 

plan sponsor may extend the timeframe 

for filing a request for redetermination. 

(2) How to request an extension of 

timeframe. If the 60-day period in which 

to file a request for a redetermination 

has expired, an enrollee or a prescribing 

physician or other prescriber acting on 

behalf of an enrollee may file a request 

for redetermination and extension of 

time frame with the Part D plan sponsor. 

The request for redetermination and to 

extend the timeframe must— 

(i) Be in writing; and 

(ii) State why the request for 

redetermination was not filed on time. 

(d) Withdrawing a request. The person 

who files a request for redetermination 

may withdraw it by filing a written 

request with the Part D sponsor. 

■ 38. Amend § 423.584 by revising 

paragraphs (a), (b), (c)(2)(ii), and 

(d)(2)(iii) to read as follows: 

§ 423.584 Expediting certain 

redeterminations. 

(a) Who may request an expedited 

redetermination. An enrollee or an 

enrollee’s prescribing physician or other 

prescriber may request that a Part D 

plan sponsor expedite a redetermination 

that involves the issues specified in 

§ 423.566(b). (This does not include 

requests for payment of drugs already 

furnished.) 


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

for an expedited redetermination, an 

enrollee or a prescribing physician or 

other prescriber acting on behalf of an 

enrollee must submit an oral or written 

request directly to the Part D plan 

sponsor or, if applicable, to the entity 

responsible for making the 

redetermination, as directed by the Part 

D plan sponsor. 

(2) A prescribing physician or other 

prescriber may provide oral or written 

support for an enrollee’s request for an 

expedited redetermination. 

(c) * * * 

(2) * * * 

(ii) For a request made or supported 

by a prescribing physician or other 

prescriber, the Part D plan sponsor must 

provide an expedited redetermination if 

the physician or other prescriber 

indicates that applying the standard 

timeframe for conducting a 

redetermination may seriously 

jeopardize the life or health of the 

enrollee or the enrollee’s ability to 

regain maximum function. 

(d) * * * 

(2) * * * 

(iii) Informs the enrollee of the right 

to resubmit a request for an expedited 

redetermination with the prescribing 

physician’s or other prescriber’s 

support; and 

* * * * * 

■ 39. Section 423.586 is revised to read 

as follows: 

§ 423.586 Opportunity to submit evidence. 

The Part D plan sponsor must provide 

the enrollee or the prescribing physician 

or other prescriber, as appropriate, with 

a reasonable opportunity to present 

evidence and allegations of fact or law, 

related to the issue in dispute, in person 

as well as in writing. In the case of an 

expedited redetermination, the 

opportunity to present evidence is 

limited by the short timeframe for 

making a decision. Therefore, the Part D 

plan sponsor must inform the enrollee 

or the prescribing physician or other 

prescriber of the conditions for 

submitting the evidence. 

■ 40. Amend § 423.590 by revising 

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

as follows: 

§ 423.590 Timeframes and responsibility 

for making redeterminations. 

* * * * * 

(d) Expedited redetermination. (1) 

Timeframe. A Part D plan sponsor that 

approves a request for expedited 

redetermination must complete its 

redetermination and give the enrollee 

(and the prescribing physician or other 

prescriber involved, as appropriate), 

notice of its decision as expeditiously as 

the enrollee’s health condition requires 

but no later than 72 hours after 

receiving the request. 

* * * * * 

(e) Failure to meet timeframe for 

expedited redetermination. If the Part D 

plan sponsor fails to provide the 

enrollee or the prescribing physician or 

other prescriber, as appropriate, with 

the results of its expedited 

redetermination within the timeframe 

described in paragraph (d) of this 

section, the failure constitutes an 

adverse redetermination decision, and 

the Part D plan sponsor must forward 

the enrollee’s request to the IRE within 

24 hours of the expiration of the 

adjudication timeframe. 

(f) * * * 

(2) When the issue is the denial of 

coverage based on a lack of medical 

necessity (or any substantively 

equivalent term used to describe the 

concept of medical necessity), the 

redetermination must be made by a 

physician with expertise in the field of 

medicine that is appropriate for the 

services at issue. The physician making 

the redetermination need not, in all 

cases, be of the same specialty or 

subspecialty as the prescribing 

physician or other prescriber. 

* * * * * 

■ 41. Amend § 423.600 by revising 

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

follows: 

§ 423.600 Reconsideration by an 

independent review entity (IRE). 

* * * * * 

(b) When an enrollee files an appeal, 

the IRE is required to solicit the views 

of the prescribing physician or other 

prescriber. The IRE may solicit the 

views of the prescribing physician or 

other prescriber orally or in writing. A 

written account of the prescribing 

physician’s or other prescriber’s views 

(prepared by either the prescribing 

physician, other prescriber, or IRE, as 

appropriate) must be contained in the 

IRE’s record. 

(c) In order for an enrollee to request 

an IRE reconsideration of a 

determination by a Part D plan sponsor 

not to provide for a Part D drug that is 

not on the formulary, the prescribing 

physician or other prescriber must 

determine that all covered Part D drugs 

on any tier of the formulary for 

treatment of the same condition would 

not be as effective for the individual as 

the non-formulary drug, would have 

adverse effects for the individual, or 

both. 

* * * * * 

(e) When the issue is the denial of 

coverage based on a lack of medical 

necessity (or any substantively 

equivalent term used to describe the 

concept of medical necessity), the 

reconsideration must be made by a 

physician with expertise in the field of 

medicine that is appropriate for the 

services at issue. The physician making 

the reconsideration need not, in all 

cases, be of the same specialty or 

subspecialty as the prescribing 

physician or other prescriber. 

Subpart O—Intermediate Sanctions 

■ 42. Amend § 423.760 by— 

■ A. Redesignating paragraphs (b)(2) 

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

(b)(4), respectively. 

■ B. Adding new paragraph (b)(2) to 

read as follows: 

§ 423.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

* * * * * 

(b) * * * 

(2) If the deficiency on which the 

determination is based has directly 

adversely affected (or has the substantial 

likelihood of adversely affecting) one or 

more Part D enrollees, CMS may 

calculate a CMP of up to $25,000 for 

each Part D enrollee directly adversely 

affected (or with a substantial likelihood 

of being adversely affected) by a 

deficiency . 

* * * * * 

Subpart P—Premiums and CostSharing Subsidies for Low-Income 

Individuals 

■ 43. Amend § 423.772 by adding the 

definition of ‘‘Best available evidence’’, 

in alphabetical order, to read as follows: 

§ 423.772 Definitions. 

* * * * * 

Best available evidence means 

evidence recognized by CMS as 

documentation or other information that 

is directly tied to State or Social 

Security Administration systems that 

confirm an individual’s low-income 

subsidy eligibility status, and that must 

be accepted and used by the Part D 

sponsor to change low-income subsidy 

status. 

* * * * * 

■ 44. Amend § 423.782 by adding new 

paragraph (c) to read as follows: 

§ 423.782 Cost-sharing subsidy. 

* * * * * 

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

covered Part D drug under a Part D 

sponsor’s plan benefit package is less 

than the maximum allowable 

copayment, coinsurance or deductible 

amounts under paragraphs (a) and (b) of 


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this section, the Part D sponsor may 

only charge the lower benefit package 

amount. 

■ 45. Amend § 423.800 by— 

■ A. Revising paragraph (b). 

■ B. Adding a new paragraph (d). 

The revision and addition read as 

follows: 

§ 423.800 Administration of subsidy 

program. 

* * * * * 

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

Based on information provided by CMS 

under paragraph (a) of this section, or 

obtained under paragraph (d) of this 

section, the Part D sponsor offering the 

Part D plan in which a subsidy eligible 

individual is enrolled must reduce the 

individual’s premiums and cost-sharing 

as applicable, and provide information 

to CMS on the amount of those 

reductions, in a manner determined by 

CMS. The Part D sponsor must track the 

application of the subsidies under this 

subpart to be applied to the out-ofpocket threshold. 

* * * * * 

(d) Use of the best available evidence 

process to establish cost-sharing. Part D 

sponsors must— 

(1) Accept best available evidence as 

defined in § 423.772 of this part 

received from beneficiaries or other 

individuals acting directly on their 

behalf; and 

(2) Update the subsidy eligible 

individual’s LIS status. and respond to 

requests for assistance in securing 

acceptable evidence of subsidy 

eligibility from beneficiaries or other 

individuals acting directly on their 

behalf in accordance with the 

process(es) established by CMS, and 

within the reasonable timeframe(s) as 

determined by CMS. 

Subpart R—Payment to Sponsors of 

Retiree Prescription Drug Plans 

■ 46. Section 423.882 is amended by— 

■ A. Adding the definition of ‘‘actually 

paid’’ in alphabetical order. 

■ B. Adding the definition of 

‘‘administrative costs’’ in alphabetical 

order. 

■ C. Revising the definition of 

‘‘allowable retiree costs’’. 

■ D. Revising the definition of ‘‘gross 

covered retiree plan-related prescription 

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

The additions and revisions read as 

follows: 

§ 423.882 Definitions. 

* * * * * 

Actually paid means that the costs 

must be actually incurred by the 

qualified retiree prescription drug plan 

and must be net of any direct or indirect 

remuneration (including discounts, 

charge backs or rebates, cash discounts, 

free goods contingent on a purchase 

agreement, up-front payments, coupons, 

goods in kind, free or reduced-price 

services, grants, or other price 

concessions or similar benefits offered 

to some or all purchasers) from any 

manufacturer or pharmacy that would 

serve to decrease the costs incurred 

under the qualified retiree prescription 

drug plan. 

Administrative costs means costs 

incurred by a qualified retiree 

prescription drug plan that are not drug 

costs incurred to purchase or reimburse 

the purchase of Part D drugs. 

Allowable retiree costs means the 

subset of gross covered retiree planrelated prescription drug costs actually 

paid by the sponsor of the qualified 

retiree prescription drug plan or by (or 

on behalf of) a qualifying covered retiree 

under the plan. 

* * * * * 

Gross covered retiree plan-related 

prescription drug costs, or gross retiree 

costs, means those Part D drug costs 

incurred under a qualified retiree 

prescription drug plan, excluding 

administrative costs, but including 

dispensing fees, during the coverage 

year. They equal the sum of the 

following: 

(1) The share of prices paid by the 

qualified retiree prescription drug plan 

that is received as reimbursement by the 

pharmacy or by an intermediary 

contracting organization, and 

reimbursement paid to indemnify a 

qualifying covered retiree when the 

reimbursement is associated with a 

qualifying covered retiree obtaining Part 

D drugs under the qualified retiree 

prescription drug plan. 

(2) All amounts paid under the 

qualified retiree prescription drug plan 

by or on behalf of a qualifying covered 

retiree (such as the deductible, 

coinsurance, or cost sharing) in order to 

obtain Part D drugs that are covered 

under the qualified retiree prescription 

drug plan. 

* * * * * 

■ 47. Revise § 423.888(b)(5)(i) to read as 

follows: 

§ 423.888 Payment methods, including 

provision of necessary information. 

* * * * * 

(b) * * * 

(5) Special rule for insured plans. (i) 

Interim Payments. Sponsors of group 

health plans that provide benefits 

through health insurance coverage (as 

defined in 45 CFR 144.103) and that 

choose either monthly payments, 

quarterly payments or an interim annual 

payment in paragraphs (b)(1) and (b)(2) 

of this section, may elect to determine 

gross covered plan-related retiree 

prescription drug costs for purposes of 

the monthly, quarterly or interim annual 

payments based on a portion of the 

premium costs paid by the sponsor (or 

by the qualifying covered retirees) for 

coverage of the covered retirees under 

the group health plan. Premium costs 

that are determined, using generally 

accepted actuarial principles, may be 

attributable to the gross covered planrelated retiree prescription drug costs 

incurred by the health insurance issuer 

(as defined in 45 CFR 144.103) for the 

sponsor’s qualifying covered retirees, 

except that administrative costs and risk 

charges must be subtracted from the 

premium. 

* * * * * 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.778, Medical 

Assistance Program) (Catalog of Federal 

Domestic Assistance Program No. 93.773, 

Medicare—Hospital Insurance; and Program 

No. 93.774, Medicare—Supplementary 

Medical Insurance Program) 

Dated: November 7, 2008. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: November 13, 2008. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. E9–148 Filed 1–6–09; 4:15 pm] 

BILLING CODE 4120–01–P 


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