1550 Federal Register / Vol. 74, No. 7 / Monday, January 12, 2009 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 423 

[CMS–4131–P2] 

RIN 0938–AP64 

Medicare Program; Prescription Drug 

Benefit Program: Payments to 

Sponsors of Retiree Prescription Drug 

Plans 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

make regulatory revisions based on a 

change in our interpretation of section 

1860D–22(b) of the Social Security Act. 

We would interpret this provision as 

providing us with the authority to 

‘‘waive or modify’’ statutory 

requirements pertaining to the Retiree 

Drug Subsidy (RDS) program in order to 

facilitate the offering of a prescription 

drug plan covering employees or 

retirees. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than March 13, 2009. 

ADDRESSES: In commenting, please refer 

to file code CMS–4131–P2. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed). 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.regulations.gov. Follow the 

instructions under the ‘‘More Search 

Options’’ tab. 

2. By regular mail. You may mail 

written comments to the following 

address only: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–4131–P2, P.O. Box 8010, 

Baltimore, MD 21244–8010. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address only: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–4131–P2, 

Mail Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments before the close 

of the comment period to either of the 

following addresses: a. Room 445–G, 

Hubert H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201; (Because access 

to the interior of the Hubert H. 

Humphrey (HHH) Building is not 

readily available to persons without 

Federal Government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. 7500 Security Boulevard, 

Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

9994 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

David Mlawsky, 410–786–6851. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://regulations.gov. 

Follow the search instructions on that 

Web site to view public comments. 

Comments received timely will be 

also available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

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

appointment to view public comments, 

phone 1–800–743–3951. 

I. Background and Legislative History 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) established a 

new ‘‘Part C’’ in the Medicare statute 

(sections 1851 through 1859 of the 

Social Security Act (the Act)) that 

established the Medicare+Choice (M+C) 

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

Act, every individual entitled to 

Medicare Part A and enrolled under 

Medicare Part B, except for most 

individuals with end-stage renal disease 

(ESRD), could elect to receive benefits 

either through the original Medicare 

program or an M+C plan, if one was 

offered where he or she lived. 

The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999 (BBRA), (Pub. L. 106–111), 

amended the M+C provisions of the 

BBA. Further amendments were made 

to the M+C program by the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

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

December 21, 2000. 

Subsequently, the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) (Pub. 

L. 108–173) was enacted on December 8, 

2003. This landmark legislation 

established the Medicare prescription 

drug benefit program (Part D) and made 

significant revisions to the provisions in 

Medicare Part C, governing what was 

renamed the Medicare Advantage (MA) 

program (formerly Medicare+Choice). 

The MMA directed that important 

aspects of the new Medicare 

prescription drug benefit program under 

Part D be similar to and coordinated 

with regulations for the MA program. 

The MMA also created a subsidy 

program involving payments to 

sponsors of retiree prescription drug 

programs, or the Retiree Drug Subsidy 

(RDS) program. This program allows for 

subsidy payments to sponsors of 

qualified retiree prescription drug plans 

for Part D drug costs for individuals 

who are eligible for, but not enrolled in, 

a Medicare Part D plan. 

The MMA also specified that 

implementation of the prescription drug 

benefit and revised MA program 

provisions take place by January 1, 

2006. Thus, we published final rules for 

the MA and Part D prescription drug 

programs, and the RDS Program, in the 

January 28, 2005 Federal Register. (For 

further discussion, see (70 FR 4588 

through 4741) and (70 FR 4194 through 

4585), respectively.) We subsequently 

published revisions to these regulations 

in an April 15, 2008 final rule (73 FR 

20486). 

Since the publication of these rules, 

we have gained a great deal of 

experience with all aspects of these 

programs. Based on this experience, as 

well as on recommendations from 

representatives of both the organizations 

that provide care and the Medicare 

beneficiaries that they serve, we 

determined that proposed changes to 


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Federal Register / Vol. 74, No. 7 / Monday, January 12, 2009 / Proposed Rules 1551 

the existing Part C, Part D, and RDS 

regulations were warranted. We 

believed that these changes would help 

plans understand and comply with our 

policies for all three programs, and aid 

MA organizations and Part D and RDS 

plan sponsors in implementing their 

health care and prescription drug 

benefit plans in ways that will better 

serve the Medicare population. 

Thus, on May 16, 2008, we published 

a proposed rule (73 FR 28556) that 

would revise certain aspects of the MA, 

Part D, and RDS programs. Many of 

these proposed revisions would clarify 

existing policies or codified current 

guidance for all three programs. 

Subsequent to the publication of that 

proposed rule, the Medicare 

Improvements for Patients and 

Providers Act (MIPPA) (Pub. L. 110– 

275) was enacted on July 15, 2008. 

MIPPA included a number of provisions 

that addressed the same requirements 

that we had addressed in the proposed 

rule. In some cases, the MIPPA 

provisions paralleled our proposed 

requirements and in other instances 

they complemented or superseded 

them. Thus, in order to implement both 

the new MIPPA provisions and those 

proposed in our May 2008 proposed 

rule, we have published a series of rules 

to set forth the appropriate regulatory 

changes. 

In the September 18, 2008 Federal 

Register (73 FR 54208), we published a 

final rule that finalized certain 

marketing provisions, effective October 

1, 2008, that paralleled provisions in 

MIPPA that are not effective until 

January 1, 2009. In the same issue of the 

Federal Register (73 FR 54226), we 

published an interim final rule that 

addressed the other remaining 

provisions of MIPPA that impacted the 

MA and Part D programs and were not 

previously addressed in the May 2008 

proposed rule. 

Elsewhere in this Federal Register, 

we are publishing final regulations that 

respond to comments on the May 16, 

2008 proposed rule and finalize Part C 

and Part D regulations from that 

proposed rule that either were not 

impacted by MIPPA or that complement 

MIPPA provisions. In the same rule 

published today containing the 

foregoing final regulations, we are 

publishing interim final regulations, 

with a comment period, that respond to 

the comments we received on the RDS 

provisions proposed in the May 16, 

2008 proposed rule. In the preamble 

discussion of these interim final 

regulations, we indicate that we agree 

with concerns expressed by commenters 

regarding the application to the RDS 

program of two Part D policies that are 

being finalized. These interim final 

regulations preserve the status quo for 

the RDS program with respect to these 

policies while we invite comment on 

three different legal theories under 

which we could potentially apply these 

policies (a requirement to report passthrough pricing (as opposed to lock-in 

pricing)) and a requirement to report 

rebates and other price concessions that 

are retained by a pharmacy benefit 

management company or other 

intermediary contracting organization to 

Medicare Part D plans, but not to RDS 

plan sponsors. Specifically, we solicit 

comments on the possibility of applying 

one or more of those legal theories. 

However, one of these legal theories 

involves interpreting the waiver 

authority under section 1860D–22(b) of 

the Act (which incorporates waiver 

authority under section 1857(i) of the 

Act) to give us the authority to modify 

RDS regulations in order to permit to 

issue a final rule that preserves the 

status quo in the RDS program with 

respect to the two policies in question. 

In our current regulations, however, we 

have interpreted section 1860D–22(b) of 

the Act to apply only to Medicare Part 

D plans, and not RDS plan sponsors. In 

order for us to implement this legal 

theory, therefore, we would have to 

revise the regulations to establish our 

interpretation that the statutory waiver 

provision applies to RDS plan sponsors 

as well. Thus, to enable us potentially 

to adopt this legal theory (if in fact we 

choose to do so), we are publishing this 

proposed rule inviting public comment 

on this proposed change. Once we have 

reviewed the comments received on this 

proposed rule and the RDS interim final 

regulations published today, we will 

determine whether to adopt any of the 

legal theories discussed in the preamble 

discussion of the RDS interim final 

regulations, and whether to finalize the 

regulatory revisions based on our 

change in interpretation of section 

1860D–22(b) of the Act set forth in this 

proposed rule. 

II. Provisions of the Proposed Rule 

The waiver authority in section 

1860D–22(b) of the Act appears in a 

section of the Act that is otherwise 

devoted entirely to provisions that 

apply to the RDS program. In this 

context, section 1860D–22(b) of the Act 

provides that the employer group 

waiver provisions in section 1857(i) of 

the Act (Medicare Part C) ‘‘shall apply 

with respect to prescription drug plans 

in relation to employment based retiree 

health coverage in a manner similar to 

the manner in which they apply to an 

MA plan in relation to employers. 

* * *’’ (Emphasis added.) It is 

noteworthy that this subsection uses the 

term ‘‘prescription drug plans’’ rather 

than ‘‘qualified retiree prescription drug 

plans,’’ since section 1860D–41(a)(8) of 

the Act defines ‘‘prescription drug plan’’ 

as a plan offered ‘‘under a policy 

contract or plan that has been approved 

under section 1860D–11(e)’’ and ‘‘by a 

PDP sponsor pursuant to, and in 

accordance with, a contract between the 

Secretary and the sponsor under section 

1860D–12(b).’’ This clearly describes a 

Part D plan, not an RDS plan, that is, a 

qualified retiree prescription drug plan 

(QRPDP). 

Under ordinary principles of statutory 

construction, when a term is defined in 

statute, that definition applies when the 

same statute employs that term. 

However, given the fact that this waiver 

authority appears in a section otherwise 

devoted to the RDS program, and that 

the term ‘‘qualified retiree prescription 

drug plan’’ includes the three words, 

‘‘prescription drug plan,’’ we believe 

that in this case the term ‘‘prescription 

drug plan’’ can be interpreted to 

encompass both a Part D ‘‘prescription 

drug plan’’ and a qualified retiree 

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

waiver authority arguably extends both 

to PDPs and QRPDPs), as long as the 

plan is offered ‘‘in relation to 

employment-based retiree health 

coverage’’ in either case. 

However as noted previously, we 

have already interpreted the waiver 

authority in section 1860D–22(b) of the 

Act as applying only to Part D 

prescription drug plans. The employer 

group waiver authority in section 

1860D–22(b) of the Act is set forth in 

part 423 subpart J (§ 423.458) of our 

regulations, which governs PDPs and 

MA–PDs, rather than subpart R, which 

governs QRPDPs under the RDS 

program. The preamble discussion of 

Subpart J in the January 28, 2005 final 

rule states that, for purposes of the 

discussion that follows in Subpart J, the 

term ‘‘employer sponsored group 

prescription drug plan’’ means ‘‘a 

prescription drug plan under a contract 

between a PDP sponsor or MA 

organization offering an MA–PD plan 

and employers, labor organizations, or 

the trustees of funds established by one 

or more employers or labor 

organizations (or combination thereof) 

to furnish prescription drug benefits 

under employment based retiree health 

coverage.’’ (See the January 28, 2005 

final rule (70 FR 4320)). In other words, 

the preamble expressly states in its 

discussion of ‘‘terminology’’ that when 

we use the term ‘‘employer sponsored 

group prescription drug plan,’’ it is 

referring to a PDP or MA–PD, and not 

to a QRPDP under the RDS program. 


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1552 Federal Register / Vol. 74, No. 7 / Monday, January 12, 2009 / Proposed Rules 

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 noted previously, in a related 

interim final rule with comment period 

elsewhere in this Federal Register, we 

are soliciting public comments on 

whether we should adopt an 

interpretation of section 1860D–22(b) of 

the Act that would extend the scope of 

that provision to QRPDPs, as well as 

PDPs and MA–PDs. In the event that, 

following the review of such comments, 

should we decide to adopt such an 

interpretation, we would like to issue 

that interpretation as part of the 

rulemaking process as soon as possible. 

For this reason, we are publishing this 

proposed rule. However, we wish to 

reiterate that the fact that we are 

publishing this proposed rule does not 

mean that we have already decided to 

make this interpretation. 

The proposed rule would adopt an 

interpretation of section 1860D–22(b) of 

the Act that would extend the scope of 

that provision to QRPDPs (as well as 

PDPs and MA–PDs) by revising the 

definition of ‘‘employer-sponsored 

group prescription drug plan’’ in 

§ 423.454 and by making conforming 

changes to § 423.458. 

III. Collection of Information 

Requirements 

This document does not impose 

additional information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and budget 

under the authority of the Paperwork 

Reduction Act of 1995. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Statement 

We have examined the impact of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993, as further 

amended), the Regulatory Flexibility 

Act (RFA) (September 19, 1980, Pub. L. 

96–354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995; Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999) and the Congressional 

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

Executive Order 12866 (as amended 

by Executive Orders 13258 and 13422) 

directs agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

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

This proposed rule does not reach the 

economic threshold and thus is not 

considered a major rule. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $7.0 million to $34.5 million in any 

1 year. Individuals and States are not 

included in the definition of a small 

entity. We are not preparing an analysis 

for the RFA because we have 

determined, and the Secretary certifies, 

that this proposed rule would not have 

a significant economic impact on a 

substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area for 

Medicare payment regulations and has 

fewer than 100 beds. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined, 

and the Secretary certifies, that this 

proposed rule would not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

In 2008, that threshold is approximately 

$130 million. This proposed rule would 

have no consequential effect on State, 

local, or tribal governments or on the 

private sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

Since this regulation does not impose 

any costs on State or local governments, 

the requirements of Executive Order 

13132 are not applicable. 

We draw the above conclusions 

because this proposed rule would give 

us the authority to relieve RDS sponsors 

of requirements/costs, rather than 

imposing requirements/costs on such 

entities. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 


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Federal Register / Vol. 74, No. 7 / Monday, January 12, 2009 / Proposed Rules 1553 

List of Subjects in 42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMOs), Medicare, 

Penalties, Privacy, Reporting and 

recordkeeping. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR Part 423 as set forth below: 

PART 423—VOLUNTARY MEDICARE 

PRESCRIPTION DRUG BENEFIT 

1. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

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

1395w–152, and 1395hh). 

Subpart J—Coordination of Part D 

Plans With Other Prescription Drug 

Coverage 

2. Section 423.454 is amended by 

revising the definition ‘‘Employersponsored group prescription drug 

plan’’ to read as follows: 

§ 423.454 Definitions. 

* * * * * 

Employer-sponsored group 

prescription drug plan means 

prescription drug coverage offered to 

retirees who are Part D eligible 

individuals under employment-based 

retiree health coverage. For purposes of 

this subpart, employment-based retiree 

health coverage is such coverage (as 

defined in § 423.882) provided through 

a Medicare Part D plan, or for which a 

plan sponsor could qualify for payments 

under Subpart R of this part. 

* * * * * 

3. Section 423.458 is amended by— 

A. Republishing the heading of 

paragraph (c). 

B. Revising paragraph (c)(1). 

C. Redesignating paragraph (c)(2) as 

paragraph (c)(3). 

D. Adding a new paragraph (c)(2). 

The revision and addition read as 

follows: 

§ 423.458 Application of Part D rules to 

certain Part D plans on and after January 

1, 2006. 

* * * * * 

(c) Employer group waiver. (1) 

General rule for employer-sponsored 

group prescription drug plans that are 

Medicare Part D plans. CMS may waive 

or modify any requirement under this 

part that hinders the design of, the 

offering of, or the enrollment in an 

employer-sponsored group prescription 

drug plan, including authorizing the 

establishment of separate premium 

amounts for enrollees of the employersponsored group prescription drug plan 

and limitations on enrollment in such 

plan to Part D eligible individuals 

participating in the sponsor’s 

employment-based retiree health 

coverage. Any entity seeking to offer, 

sponsor, or administer an employersponsored group prescription drug plan 

may request, in writing, a waiver or 

modification of additional requirements 

under this Part that hinder its design of, 

the offering of, or the enrollment in, 

such employer-sponsored group 

prescription drug plan. 

(2) General rule for employersponsored group prescription drug 

plans for which a sponsor could qualify 

for payments under Subpart R of this 

part. CMS may waive or modify any 

requirement under this Part that hinders 

the design of, the offering of, or the 

enrollment in an employer-sponsored 

group prescription drug plan. 

* * * * * 

Authority: Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program. 

Dated: November 7, 2008. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: November 13, 2008. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. E9–151 Filed 1–6–09; 4:15 pm] 

BILLING CODE 4120–01–P 


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