[Federal Register Volume 70, Number 37 (Friday, February 25, 2005)]
[Notices]
[Pages 9360-9362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-3621]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-4088-N]


Medicare Program; Part D Reinsurance Payment Demonstration

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

ACTION: Notice.

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SUMMARY: This notice informs interested Prescription Drug Plan (PDP) 
sponsors and Medicare Advantage (MA) organizations of an opportunity to 
participate in the Part D Reinsurance Payment Demonstration beginning 
in contract year 2006.

FOR FURTHER INFORMATION CONTACT: Mark Newsom, (410) 786-3198; 
[email protected]. Jennifer Harlow, (410) 786-4549; 
[email protected].
    Application Requirements: Organizations intending to offer a stand 
alone prescription drug plan must submit an application in accordance 
with the instructions found in the Solicitation for Applications from 
Prescription Drug Plans posted on the CMS website on January 21, 
2005.\1\ Organizations intending to offer a prescription drug benefit 
in combination with a Medicare Advantage plan must submit a completed 
Medicare Advantage Prescription Drug application in accordance with the 
Solicitation for Applications from Medicare Advantage Sponsors posted 
on the CMS Web site on January 21, 2005.\2\ Applications are due to CMS 
on or before March 23, 2005.
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    \1\ See http://www.cms.hhs.gov/pdps/. See section 2 of the 
application.
    \2\ Id.
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    Eligible Organizations: All PDP sponsors may participate in option 
one as described below.\3\ Medicare Advantage organizations offering 
Prescription Drug Plans (MA-PD plans) are eligible to participate in 
options one and two (as described below) \4\ with the exception of the 
following: Program of All Inclusive Care for the Elderly (PACE), MA 
employer only plans, and employer direct contract plans.
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    \3\ See II(A) Demonstration Design--Two Part D Reinsurance 
Options.
    \4\ Id.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Legislative Authority

    Section 402(a)(1)(A) of the Social Security Amendments of 1967 
authorizes the Secretary to conduct demonstrations designed to test 
whether methods of payment or reimbursement will have the effect of 
increasing the efficiency and economy of programs without adversely 
affecting the quality of those programs' services.
    Section 402(b) of the Social Security Amendments of 1967 authorizes 
the Secretary to waive requirements in title XVIII that relate to 
reimbursement and payment in order to carry out demonstrations 
authorized under section 402(a). Section 1860D-42(b) of the Act 
provides that the provisions of section 402 of the Social Security 
Amendments of 1967 apply with respect to Part D and Part C in the same 
manner as they apply to Parts A and B, except that any reference with 
respect to a trust fund in relation to an experiment or demonstration 
project relating to prescription drug coverage under this part will be 
deemed a reference to the Medicare Prescription Drug Account within the 
Federal Supplementary Medical Insurance Trust Fund.

B. Issue

    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) Conference Report notes that provisions of the new Part D 
benefit

[[Page 9361]]

that relate to the out-of-pocket (OOP) threshold established in section 
1860D-2(b)(4)(B) of the Social Security Act (the Act) may create a 
disincentive for Part D plans to provide supplemental prescription drug 
benefits through the enhanced alternative coverage option. Reinsurance 
benefits provided for in the MMA are not available until this OOP 
threshold is reached. The provision of supplemental coverage thus might 
prevent Sponsors or MA organizations offering Part D benefits from 
benefiting from reinsurance. This concern was also strongly voiced 
among the commenters to the proposed rule.
    The reinsurance demonstration proposal allows for a budget neutral 
alternative payment approach, over a 5-year period, that may provide an 
incentive for private sector plans to offer supplemental prescription 
drug coverage to Medicare beneficiaries.

C. MMA Part D Reinsurance

    Reinsurance begins at the annual OOP threshold, defined by section 
1860D-2(b)(4)(B) of the Act and Sec.  423.104(d)(5)(ii) of 42 CFR as 
$3,600 for 2006 (which, under the defined standard benefit, would equal 
$5,100 in total drug expenditures). The enhanced alternative benefit 
with supplemental coverage, as defined by 1860D-2(a)(2) of the Act and 
Sec.  423.104(f)(1)(ii) of the regulation, could have the effect of 
changing the catastrophic attachment point for reinsurance, or 
preventing it from attaching altogether.

D. MMA Conference Committee

    The MMA Conference Committee noted that ``the conditions under 
which the government provides reinsurance subsidies may create 
significant disincentives for private sector plans to provide 
supplemental prescription drug coverage.'' \5\ To address this concern, 
the conferees suggested use of Medicare demonstration authority to 
``allow private sector plans maximum flexibility to design alternative 
prescription drug coverage.'' \6\
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    \5\ U.S. House of Representatives, 108th Congress (November 21, 
2003). Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003 Conference Report to accompany H.R. 1. Report 108-391. 
Washington DC: Government Printing Office. Available online at 
http://www.gpoaccess.gov/serialset/creports/index.html.
    \6\ Id.
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    Our authority to conduct Medicare demonstrations is provided in 
section 402 of the Social Security Amendments of 1967 (42 U.S.C. 1395b-
1). Under section 402(b), the Secretary is authorized to waive 
requirements in title XVIII that relate to reimbursement and payment. 
As noted above, this authority applies for Parts C and D in the same 
manner as Parts A and B under the provision of section 1860D-42(b) of 
the Act. The conferees specifically recommended that we demonstrate the 
effect of filling in the gap in coverage by reimbursing participating 
plans a capitated payment that is actuarially equivalent to the amount 
that plans would otherwise receive from the government in the form of 
specific reinsurance when an individual plan enrollee reaches the 
catastrophic attachment point ($3,600 in OOP costs for 2006).\7\
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    \7\ Id.
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    The conferees specified that we are not permitted to waive the 
minimum benefits provided by the plans.\8\
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    \8\ Id.
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    In summary, the MMA conference report urged CMS to conduct a 
demonstration for the purposes of creating an incentive for plans to 
offer supplemental benefits filling in the coverage gap. Consequently, 
in the proposed rule published on August 3, 2004 (69 FR 46633), we 
stated that we were considering establishing a demonstration to 
evaluate possible ways of achieving extended coverage. During the 
subsequent public comment period, we received support from key 
stakeholders for conducting a demonstration in this area, and in the 
final rule, we agreed to conduct this demonstration.

II. Provisions of the Notice

A. Demonstration Design

    This reinsurance demonstration proposal represents an alternative 
payment approach; however, unless specifically noted, all other Part D 
rules will apply. This demonstration will be limited to a 5-year 
period. Participation in this Part D reinsurance demonstration will 
require the provision of supplemental benefits through an enhanced 
alternative benefit package, as well as payment based on either one of 
the two reinsurance options described below.\9\
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    \9\ See Two Part D Reinsurance Options in this section.
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    Enhanced Alternative Coverage: Under this Part D reinsurance 
demonstration, eligible participants must provide supplemental benefits 
through enhanced alternative coverage. Under Part D rules, enhanced 
alternative coverage may include a supplemental benefit covering non-
Part D drugs, reducing cost sharing, increasing the initial coverage 
limit, reducing the deductible, or any combination of these actions. 
For this demonstration, however, the supplemental benefit may only fill 
in part or all of the coverage gap. To clarify, other supplemental 
benefits that are part of enhanced alternative coverage (as defined in 
Sec.  423.104(f)) are not included in this demonstration. Thus, a PDP 
Sponsor or MA organization offering an MA-PD plan under this 
demonstration would provide coverage between the initial coverage limit 
and the out of pocket threshold ($3,600 of True Out-of-Pocket (TrOOP) 
in 2006). The coverage gap may be filled in part or completely. The 
Sponsor or MA organization must provide catastrophic coverage.
    Two Part D Reinsurance Options: Under our demonstration authority, 
two Part D reinsurance options will be made available. Again, note that 
unless otherwise stated, all other Part D payment rules apply.
     Option One: Eligible PDP Sponsors, including organizations 
offering MA-PD plans, could offer an enhanced alternative drug benefit 
package and receive a capitated drug reinsurance payment, inaddition to 
the normal direct subsidy, low income subsidy, and risk sharing 
payments. This reinsurance payment would be capitated (instead of 
specific reinsurance payments of 80 percent of drug costs after the 
beneficiary incurred $3,600 in TrOOP drug costs). The plan specific 
capitated reinsurance payment will be negotiated during the bidding 
process.
     Option Two: For organizations offering MA-PD plans that 
use MA premium rebates to cover the additional cost of enhanced 
alternative drug coverage, this option would permit enrollees to count 
supplemental benefit payments toward meeting the TrOOP spending 
requirement for Part D catastrophic coverage. For this option, all the 
supplemental benefit must be funded by MA Part A and Part B rebate 
dollars. To clarify, MA-PD plans may not include a supplemental premium 
for the supplemental benefit under this option. This is because it is 
not possible to distinguish A and B rebate dollars that would count 
toward TrOOP under this option from beneficiary premium dollars that 
would not count toward TrOOP.
    For more details regarding the payment options one and two, please 
see the Part D Reinsurance Payment Demonstration Fact Sheet on the CMS 
Web sites http://www.cms.hhs.gov/pdps/ and http://www.cms.hhs.gov/researchers/demos/.
    Bid Submission Process: PDP sponsors or MA organizations wishing to 
participate will submit a bid following the bid submission protocol for 
the Part D benefit. The bidding

[[Page 9362]]

process will be the same as for Part D, with the exception of including 
information relating to the demonstration model selected. There will be 
no additional burden associated with the submission of a bid.

B. Demonstration Evaluation Design

    An evaluation of the CMS reinsurance demonstration will examine the 
impacts on beneficiaries, PDP sponsors, and MA organizations. From the 
beneficiary perspective, the analysis will focus on the availability 
of, and enrollment in, enhanced alternative benefit packages offered by 
PDP sponsors and MA organizations, as well as patterns of utilization 
of enrollees. The evaluation will also explore the advantages and 
disadvantages of participation from the organizations' perspectives.

C. Budget Neutrality

    This demonstration must be budget neutral. This means that the 
expected Medicare costs under the demonstration can be no more than 
expected costs to the Medicare program in the absence of the 
demonstration. In order to ensure budget neutrality, PDP sponsors and 
MA organizations participating in the demonstration will have their 
capitation payments offset. The amount will be dependent on the 
demonstration reinsurance payment option chosen by the plan.
    The CMS Office of the Actuary prepared an analysis of the 
demonstration for CY 2006 and determined that this demonstration is 
budget neutral if the capitated payments are reduced by at least $3.13 
per member per year for option one and at least $7.57 per member per 
year for option two. Budget neutrality could be at risk under this 
demonstration if employer groups are allowed to participate, because 
this demonstration could provide an incentive for employer groups to 
drop their provision of drug coverage and encourage individuals to seek 
coverage under Part D. Further, in order to ensure budget neutrality 
for this demonstration initiative, we will consider prior year(s) of 
data and bidding information in establishing capitation amounts. Note 
that CY 2006 offsets are based on first-year impacts. The amounts shown 
may increase annually in a similar manner as other Part D costs for the 
duration of the demonstration.

III. Collection of Information Requirements

    Other than a simple affirmation, as discussed below, no additional 
data will be collected from plans for the purpose of this 
demonstration.
    Pursuant to this demonstration, plans must affirm to CMS that any 
funding of premiums will not come from any respective employer or union 
with whom the plan conducts business.
    Whereas, this notice does not impose information collection and 
record-keeping requirements, it does not need to be reviewed by the 
Office of Management and Budget under the authority of the Paperwork 
Reduction Act of 1995 (PRA). Further, it is not subject to the PRA as 
stipulated under 5 CFR 1320.3(h)(1).

    Authority: Section 402 of the Social Security Amendments of 
1967.

    Dated: February 11, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
[FR Doc. 05-3621 Filed 2-18-05; 4:24 pm]
BILLING CODE 4120-01-P