[Federal Register Volume 70, Number 169 (Thursday, September 1, 2005)]
[Rules and Regulations]
[Pages 52019-52023]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-17424]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 403

[CMS-4063-F]
RIN 0938-AN97


Medicare Program; Medicare Prescription Drug Discount Card; 
Revision of Marketing Rules for Endorsed Drug Card Sponsors

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

ACTION: Final rule.

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SUMMARY: This final rule will revise the current limitations 
prohibiting an endorsed drug card sponsor from marketing its Part D 
plans to its drug card enrollees. This revised rule will give the 
current drug card sponsors the ability to market to their enrollees 
Part D plans that are either offered by the same endorsed drug card 
sponsor or an affiliated organization of the same endorsed drug card 
sponsor. We are making these changes after considering the public 
comments received regarding the need to ensure a smooth transition from 
the drug card to the Medicare Prescription Drug Benefit.

DATES: Effective Date: These regulations are effective on October 1, 
2005.

FOR FURTHER INFORMATION CONTACT: Jennifer Shapiro, (410) 786-7407.

SUPPLEMENTARY INFORMATION:

Availability of Final Rule

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I. Background

    The Medicare drug discount card program was established by section 
101, subpart 4, of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 and is codified in section 1860D-31 of the 
Social Security Act (the ``Act''). On December 15, 2003, in accordance 
with section 105(c)(1)(C) of the Act, we published the interim final 
rule with comment period (hereafter referred to as ``interim final 
rule'') for the Medicare drug discount card program on December 15, 
2003 (68 FR 69840).
    The interim final rule at Sec.  403.813(a) addresses marketing 
limitations applicable to endorsed discount card sponsors in accordance 
with section 1860D-31(h)(7)(B) of the Act. Under these marketing 
limitations, an endorsed sponsor may only market those products and 
services offered under its endorsed program that are inside the scope 
of endorsement and permitted under the HIPAA Privacy Rule.
    After considering the public comments on these issues we agree with 
the commenters that this policy does not comply with the intent of the 
Medicare Modernization Act which directs the Secretary to facilitate 
efficient enrollment into Part D plans. This final rule allows an 
endorsed card sponsor to market information to its Medicare drug card 
enrollees concerning its Part D plans offered by the endorsed card 
sponsor or an affiliated organization. This change will increase 
Medicare beneficiaries' awareness and knowledge of Part D plans, 
thereby facilitating a smooth transition from the Medicare Prescription 
Drug Discount Card Program to the Medicare Prescription Drug Benefit.

Requirements for Issuance of Regulations

    Section 902 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) amended section 1871(a) of the Act and 
requires, in part, that the Secretary, in consultation with the 
Director of the Office of Management and Budget establish and publish 
timelines for the publication of Medicare final regulations based on 
the previous

[[Page 52020]]

publication of a Medicare proposed or interim final regulation. Section 
902(a)(1) of the MMA also states that the timelines for these 
regulations may vary but shall not exceed 3 years after publication of 
the preceding proposed or interim final regulation except under 
exceptional circumstances.
    Therefore, we believe that the final rule is in accordance with the 
Congress's intent to ensure timely publication of final regulations.

II. Discussion of the Provisions of the Final Rule

A. Provision of the Interim Final Rule

    Section 403.813(a)(1) of the December 15, 2003 interim final rule 
provides that an endorsed sponsor may only market those products and 
services offered under its endorsed program that are inside the scope 
of endorsement as defined in Sec.  403.806(h) and permitted under Sec.  
403.812(b) (pertaining to the HIPAA privacy requirements). Section 
403.806(h)(2) defines products and services inside the scope of the 
Medicare endorsement as products and services that are: (1) Directly 
related to covered discount card drugs or discounts for over-the-
counter drugs; and (2) offered for no additional fee (other than the 
enrollment fee).
    Section 403.813(a) of the interim final rule provides that an 
endorsed sponsor may not request that a drug card enrollee or an 
individual seeking to enroll in its endorsed discount card program 
authorize the endorsed sponsor to use or disclose individually 
identifiable health information for marketing other products or 
services not otherwise allowed under Sec.  403.813(a)(1) (Sec.  
403.813(a)(2)); that an endorsed sponsor may not commingle any 
materials related to the marketing of products or services allowed 
under Sec.  403.813(a)(1) with other marketing materials (Sec.  
403.813(a)(3)); and that following termination of an endorsed sponsor's 
endorsement under Sec.  403.820(c), (d) or (e) or termination of the 
Medicare Drug Discount Card and Transitional Assistance Program, a drug 
card enrollee's individually identifiable health information collected 
or maintained by an endorsed sponsor may not be used or disclosed for 
purposes of marketing any product or service (Sec.  403.813(a)(4)).
    These provisions on marketing limitations are based on section 
1860D-31(h)(7)(B) of the Act, which states that an endorsed sponsor may 
market a product or service under the program only if the product or 
service is directly related to a covered discount card drug or a 
discount price for a non-prescription drug, and on section 1860D-
31(h)(8) of the Act, which charges us with protecting and promoting the 
interests of discount card eligible individuals.
    In addition to the specific requirements of the Act that the 
product or services be directly related to a covered discount card drug 
or a discount on a non-prescription drug, Sec.  403.806(h)(2) of the 
interim final regulation further requires that products and services 
inside the scope of endorsement are limited to products or services 
offered for no additional charge because, as we stated in the preamble, 
we were concerned that beneficiaries would be unable to access 
negotiated prices and transitional assistance, as intended by the 
Congress, if endorsed sponsors required that they pay additional fees 
for optional products and services. Further, we believed that 
permitting endorsed sponsors to charge additional fees could be 
confusing to beneficiaries. Also, if we were to allow endorsed sponsors 
to charge additional fees, we believe beneficiaries might, in effect, 
be charged annual enrollment fees higher than the $30 limit mandated by 
section 1860D-31(c)(2)(B) of the Act, especially if endorsed sponsors 
were to condition enrollment in their endorsed programs on 
beneficiaries paying these additional fees.

III. Analysis of and Response to Public Comments

A. Overview of Comments

    We received 49 public comments concerning the Medicare drug 
discount card program. Of these comments, 8 timely comments were 
received that addressed issues on marketing and information and 
outreach in two separate areas. A summary of the major issues and our 
responses are as follows:
    Comment: Of the 8 comments related to marketing, 4 of the comments 
expressed the need to minimize the potential for beneficiary confusion 
and encouraged us to allow sponsors to provide enrollees with valuable 
health education and other information. One commenter encouraged us to 
ensure that the regulation reflect the intent of the conferees that 
there be a seamless transition between the drug card program and the 
Medicare Prescription Drug Benefit. The other commenters encouraged us 
to create guidelines concerning marketing materials and fairness in 
marketing. None of the comments were opposed to us issuing additional 
guidelines.
    Response: We agree with the commenters' concerns regarding the need 
to minimize beneficiary confusion by allowing endorsed sponsors to 
distribute certain important and valuable information to beneficiaries, 
including information which will promote a smoother transition for drug 
card enrollees from the Medicare-approved prescription drug discount 
card program to the Medicare Prescription Drug Benefit. The Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 
Conference Report clearly articulates this intent where the report 
discusses the history of the drug card program and its original purpose 
as an interim step toward prescription drug coverage for Medicare 
beneficiaries. Furthermore, a separate discussion appearing in the 
Conference Report addressing Part D emphasizes the need to facilitate 
outreach to beneficiaries to ensure participation in Medicare 
prescription drug coverage and to reduce barriers associated with 
marketing to minimize the potential for confusion and to facilitate 
enrollment into the Medicare Prescription Drug Benefit.
    We agree with the commenter that encouraged us to ensure that the 
regulation reflect the intent of the conferees that there be a seamless 
transition between the drug card program and the Medicare Prescription 
Drug Benefit. As we move toward implementation of the Medicare 
Prescription Drug Benefit, it has become evident that certain aspects 
of the interim final rule are creating unintended consequences for 
Medicare beneficiaries and endorsed card sponsors. Specifically the 
marketing limitations at Sec.  403.813(a) contradict Congressional 
intent for the Medicare prescription drug discount card program to 
serve as a transitional program to the Medicare Prescription Drug 
Benefit. As previously mentioned, the provisions in the interim final 
rule prevent an endorsed drug card sponsor from marketing its Part D 
plans to its drug card enrollees. Moreover, we agree that 
clarifications and modifications to the marketing limitation rules 
would reduce beneficiary confusion as the drug card program concludes 
and the Medicare Prescription Drug Benefit begins. Finally, it is 
crucial that Medicare beneficiaries have complete and accurate 
information on the forthcoming Medicare Prescription Drug Benefit. We 
agree with all comments that expressed an important aspect of ensuring 
that beneficiaries receive this information is by allowing a 
beneficiary's drug card sponsor, an entity with which the beneficiary 
is familiar and has an existing relationship to provide educational and 
related information

[[Page 52021]]

about the transition to the Medicare prescription drug benefit and the 
Part D plans that will be offered by the endorsed sponsor or its 
affiliated organizations. Allowing endorsed sponsors to provide 
information to their members about certain Part D plans available to 
them is a component of the Secretary's strategy for meeting his 
obligation under sections 1851(d)(1) and 1860D-1(c) of the Act to 
promote an active, informed selection by beneficiaries among their 
Medicare coverage options.
    As a result, this final rule amends Sec.  403.813(a)(1) to allow an 
endorsed card sponsor to market to its drug card enrollees not only 
items and products offered within the scope of endorsement, but also 
Part D plans offered by the endorsed sponsor or an affiliated 
organization of the endorsed sponsor.
    Section 1860D-31(h)(7)(B) of the Act provides that endorsed 
sponsors may only market products or services ``under the program'' if 
they directly relate to either a covered discount card drug or discount 
prices available for over-the-counter drugs. We believe products or 
services marketed ``under the program'' include not only those within 
the scope of endorsement, but also Part D plans. Because information 
about Part D plans offered by an endorsed sponsor or its affiliated 
organizations would reinforce the purpose of the Medicare prescription 
drug discount card program to serve as a transitional program to the 
Medicare prescription drug benefit, we believe marketing of such Part D 
plans constitutes marketing of a product or service under the Medicare 
prescription drug discount card program. In addition, we believe Part D 
plans are directly related to covered discount card drugs, as evidenced 
by the fact that the statutory definition of a covered drug under 
section 1860D-31(a)(4)(a) of the Act cross-references the definition of 
covered Part D drug under section 1860D-2(e) of the Act, and thus is 
identical to the definition of covered Part D drug.
    Therefore, we amend the marketing limitations in Sec.  
403.813(a)(1) by explicitly stating that Part D plans offered by an 
endorsed sponsor or its affiliated organization may be directly 
marketed by the endorsed sponsor to its enrollees. We will not 
otherwise change the marketing limitation provisions of the interim 
final rule because we maintain that section 1860D-31(h)(8) of the Act 
charges us with protecting and promoting the interests of Medicare 
beneficiaries who may be unable to access negotiated prices and 
transitional assistance, as intended by the Congress, if endorsed 
sponsors require that they pay additional fees for optional products 
and services, such as Part B supplies. Furthermore, permitting endorsed 
sponsors to charge additional fees for products and services outside 
the scope of the endorsement could be confusing to beneficiaries. Also, 
if we were to allow endorsed sponsors to charge additional fees, we 
believe beneficiaries might, in effect, be charged annual enrollment 
fees higher than the $30 limit mandated by section 1860D-31(c)(2)(B) of 
the Act, especially if endorsed sponsors were to condition enrollment 
in their endorsed programs on beneficiaries paying these additional 
fees. The amendment to allow marketing of Part D plans makes sense in 
this instance because in this context it does not negate the intent or 
practice of the original restriction (for example, regarding Part B 
supplies). We believe that this amendment is consistent with the intent 
of the Congress, which would reduce confusion and facilitate a smooth 
transition to the Medicare Prescription Drug Benefit which protects and 
promotes interests of all Medicare beneficiaries. Also, this exception 
will not affect the enrollment fee.
    We will require information and outreach (marketing) materials 
discussing Part D plans that are disseminated by endorsed drug card 
sponsors or their affiliated organizations to the endorsed sponsors' 
drug card enrollees to be approved through the Medicare Prescription 
Drug Benefit review process as described under Sec.  423.50 as opposed 
to the drug card review process. This change addresses comments that 
CMS should create guidelines concerning marketing materials and 
fairness in marketing, and comments that we should endeavor to reduce 
beneficiary confusion. Using a single review process, with consistent 
guidelines specifically developed for Part D materials, is the optimal 
process for ensuring adherence to guidelines and reducing beneficiary 
confusion. Therefore, we are amending Sec.  403.806(g)(5) to state that 
all materials related to Part D plans being offered by the same 
endorsed sponsor or its affiliated organization must comply with the 
requirements described in Sec.  423.50.
    We are cognizant that constraints and clarifications must be made 
about whose products an endorsed card sponsor may provide marketing 
materials about to its drug card enrollees. An endorsed drug card 
sponsor may market a Part D plan offered by it or its affiliated 
organization. By allowing an endorsed card sponsor to market Part D 
plans offered by an affiliated organization of the endorsed sponsor, we 
are treating Part D plans offered by an affiliated organization of the 
endorsed sponsor as a product or service under the program. Allowing 
such treatment gives practical effect to the Congressional intent of a 
smooth transition between the drug card program and the Medicare 
Prescription Drug Benefit because it recognizes that rather than offer 
Part D plans through the same legal entity, organizations may have 
legitimate business and legal reasons for offering Part D plans through 
another legal entity, or may offer Part D plans through different legal 
entities based on geography (for example, Part D plans in region A 
offered through legal entity A, Part D plans in region B offered 
through legal entity B). We do not want to constrain an organization's 
ability to offer its Part D plans through the legal entities that make 
the most sense given other business and legal considerations. A Part D 
Plan is not offered under the program, however, if the plan is offered 
by an organization that is not the endorsed sponsor or an affiliated 
organization of the endorsed sponsor.
    Therefore, we are adding a definition of affiliated organization to 
Sec.  403.802. This definition would allow an endorsed drug card 
sponsor to market to its enrollees a Part D plan of an affiliated 
organization if the organization is legally separate and at least one 
of the following conditions is met:
    (1) Both the affiliated organization and the endorsed drug card 
sponsor are under common control (common control exists if another 
entity has the power, directly or indirectly, to significantly 
influence or direct the actions or policies of the affiliated 
organization and the endorsed drug card sponsor);
    (2) The affiliated organization is under the control of the 
endorsed drug card sponsor or the affiliated organization controls the 
endorsed drug card sponsor (control exists if an entity has the power, 
directly or indirectly, to significantly influence or direct the 
actions or policies of another entity); or
    (3) The affiliated organization possesses an ownership or equity 
interest of 5 percent or more in the endorsed drug card sponsor on 
both: The date on which the endorsed drug card sponsor markets the 
affiliated organization's Part D plan; and the date on which the 
endorsed drug card sponsor signed its endorsement contract with us. 
This is to ensure that the entity is currently affiliated with the 
endorsed sponsor and ensures that a Part D plan does not acquire a drug 
card sponsor

[[Page 52022]]

after publication of this rule in order to gain access to the sponsors' 
drug card enrollees.
    We will not permit endorsed sponsors to market to their drug card 
enrollees Part D plans offered by unaffiliated third parties (as 
described by this new section) because an endorsed sponsor's marketing 
of a Part D plan offered by a third party generally is prohibited by 
the HIPAA privacy rule absent authorization from the individual.
    As important, information that is provided by a drug card sponsor 
about its or its affiliate's Part D plan will, we believe, be more 
likely to promote a smoother transition to Part D since the beneficiary 
is familiar with the endorsed sponsor, and we anticipate that there 
will be similarities between the Medicare drug discount card and the 
Part D plan (for example, similar pharmacy network, similar formulary).
    Furthermore, under certain circumstances, HIPAA may prohibit an 
endorsed sponsor's marketing of Part D plans offered by certain 
affiliated entities. Thus, any use or disclosure of enrollee's 
protected health information by an endorsed card sponsor must comply 
with all Federal laws, including the HIPAA Privacy Rule.

IV. Provisions of the Final Regulations

    Except as mentioned below, this final rule incorporates the 
marketing and information and outreach provisions of the interim final 
rule. This rule creates a definition at section 403.802 pertaining to 
the requirements that must be met before an organization will be 
considered an affiliated organization to an endorsed drug card sponsor.
    We are also revising Sec.  403.813 to permit an endorsed card 
sponsor to market to its drug card enrollees a Part D plan offered by 
the endorsed sponsor or an affiliated organization of the endorsed 
sponsor.
    We will require information and outreach (marketing) materials 
provided by an endorsed drug card sponsor that are discussing Part D 
plan offerings to be approved through the Medicare Prescription Drug 
Benefit review process as described under Sec.  423.50.

V. Collection of Information Requirements

    This document does not impose 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 (44 U.S.C. 35).

VI. Regulatory 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) and Executive Order 13132.
    Executive Order 12866 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 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 
agencies. Most hospitals and most other providers and suppliers are 
small entities, either by nonprofit status or by having revenues of $6 
million to $29 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 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 we have determined 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 that may result in expenditure in any 1 year by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $110 million. This rule will have no consequential effect on 
the governments mentioned 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 E.O. 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was not reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 403

    Grant programs--health, Health insurance, Hospitals, 
Intergovernmental relations, Medicare, Reporting and recordkeeping 
requirements.


0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV, as set forth below:

PART 403--SPECIAL PROGRAMS AND PROJECTS

0
1. The authority citation for part 403 continues to read as follows:

    Authority: 42 U.S.C. 1359b-3 and secs. 1102 and 1871 of the 
Social Security Act (42 U.S.C. 1302 and 1395hh).


0
2. In Subpart H, Sec.  403.802 is amended by adding in alphabetical 
order the definitions of ``Affiliated organization'' and ``Part D 
plan'' to read as follows:

Subpart H--Medicare Prescription Drug Discount Card and 
Transitional Assistance Program


Sec.  403.802  Definitions.

* * * * *
    Affiliated organization means an organization that is a legally 
separate entity from the endorsed drug card sponsor and meets one of 
the following conditions:
    (1) The organization and the endorsed drug card sponsor are under 
common control. Common control exists if another entity has the power, 
directly or indirectly, to significantly influence or direct the 
actions or policies of the organization and the endorsed drug card 
sponsor.
    (2) The organization is under the control of the endorsed drug card 
sponsor or the organization controls the endorsed drug card sponsor. 
Control exists if an entity has the power, directly or indirectly, to 
significantly influence or direct the actions or policies of another 
entity.

[[Page 52023]]

    (3) The organization possesses an ownership or equity interest of 5 
percent or more in the endorsed drug card sponsor on both the date on 
which the endorsed drug card sponsor markets the organization's Part D 
plan, and the date on which the endorsed drug card sponsor signed its 
endorsement contract with CMS.
* * * * *
    Part D plan has the meaning given the term at Sec.  423.4.
* * * * *

0
3. Section 403.806(g)(5) is amended by--
0
A. Revising paragraph (g)(5)(i).
0
B. Revising paragraph (g)(5)(iii).
0
C. Adding paragraph (g)(5)(vi).
    The revisions and addition read as follows:


Sec.  403.806  Sponsor requirements for eligibility for endorsement.

* * * * *
    (g) * * *
    (5) * * *
    (i) Comply with the Information and Outreach Guidelines published 
by CMS except as provided in paragraph (g)(5)(vi) of this section.
* * * * *
    (iii) If CMS does not disapprove the initial submission of 
information and outreach materials within 30 days of receipt of these 
materials, the materials are deemed approved under paragraph (g)(5)(ii) 
of this section.
* * * * *
    (vi) All materials related to products and services that are Part D 
plans must comply with the requirements specified in Sec.  423.50 of 
this chapter.
* * * * *

0
4. Section 403.813 is amended by revising paragraph (a)(1) to read:


Sec.  403.813  Marketing limitations and record retention requirements.

    (a) Marketing limitations. (1) An endorsed sponsor may only market 
the following:
    (i) Those products and services offered under the endorsed program 
that are inside the scope of endorsement defined in Sec.  403.806(h) 
and permitted under Sec.  403.812(b).
    (ii) A Part D plan offered by the endorsed sponsor or an affiliated 
organization of the endorsed sponsor.
* * * * *

(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: July 8, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: August 10, 2005.
Michael O. Leavitt,
Secretary.
[FR Doc. 05-17424 Filed 8-29-05; 11:58 am]
BILLING CODE 4120-01-P