[Federal Register Volume 72, Number 221 (Friday, November 16, 2007)]
[Proposed Rules]
[Pages 64900-64918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-5681]



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Part IV





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 423



Medicare Program; Proposed Standards for E-Prescribing Under Medicare 
Part D; Proposed Rule

  Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / 
Proposed Rules  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 423

[CMS-0016-P]
RIN 0938-AO66


Medicare Program; Proposed Standards for E-Prescribing Under 
Medicare Part D

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

ACTION: Proposed rule.

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SUMMARY: This rule proposes the adoption of final uniform standards for 
an electronic prescription drug program as required by section 1860D-
4(e)(4)(D) of the Social Security Act (the Act). It also proposes the 
adoption of a standard identifier for providers and dispensers for use 
in e-prescribing transactions under sections 1860D-4(e)(3) and 1860D-
4(e)(4)(C)(ii), and section 1102 of the Social Security Act. The 
standards proposed under section 1860D-4(e)(4)(D) have been pilot 
tested and evaluated, and the findings indicate that the proposed 
standards meet the requirements for final standards that can be used 
for the Medicare Part D e-prescribing programs. The standards proposed 
in this rule, in addition to the foundation standards that were already 
adopted as final standards (see 70 FR 67568), represent an ongoing 
approach to adopting standards that are consistent with the Medicare 
Prescription Drug, Improvement and Modernization Act of 2003 (MMA) 
objectives of patient safety, quality of care, and efficiencies and 
cost saving in the delivery of care.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on January 15, 2008.

ADDRESSES: In commenting, please refer to file code CMS-0016-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word).
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention 
CMS-0016-P, P.O. Box 8014, Baltimore, MD 21244-8014.
    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 (one 
original and two copies) to the following address ONLY: Centers for 
Medicare and Medicaid Services, Department of Health and Human 
Services, Attention: CMS-0016-P, 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 (one original and two copies) before the 
close of the comment period to one of the following addresses: 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. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHS 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.)

    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the close of the 
comment period.
    Submission of comments on paperwork requirements: You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Denise M. Buenning, (410) 786-6711.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. Comments will be most useful if they are 
organized by the section of the proposed rule to which they apply. You 
can assist us by referencing the file code (CMS-0016-P) and the 
specific ``issue identifier'' that precedes the section on which you 
choose to comment.
    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. After the close of the 
comment period, CMS posts all electronic comments received before the 
close of the comment period on its public website. Comments received 
timely will be 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, please call (800) 743-3951.
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Government Printing Office. The Web site address is http://www.gpoaccess.gpo.gov/fr/index.html.

I. Background

A. Legislative History

    Section 101 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) amended title XVIII 
of the Social Security Act (the Act) to establish

[[Page 64901]]

a voluntary prescription drug benefit program.
    Prescription Drug Plan (PDP) sponsors and Medicare Advantage (MA) 
organizations offering Medicare Advantage-Prescription Drug Plans (MA-
PD), are required to establish electronic prescription drug programs to 
provide for electronic transmittal of certain information to the 
prescribing provider and dispensing pharmacy and pharmacist. This would 
include information about eligibility, benefits (including drugs 
included in the applicable formulary, any tiered formulary structure 
and any requirements for prior authorization), the drug being 
prescribed or dispensed and other drugs listed in the medication 
history, as well as the availability of lower cost, therapeutically 
appropriate alternatives (if any) for the drug prescribed. The MMA 
directed the Secretary to promulgate uniform standards for the 
electronic transmission of such data.
    There is no requirement that prescribers or dispensers implement e-
prescribing. However, prescribers and dispensers who electronically 
transmit prescription and certain other information for covered drugs 
prescribed for Medicare Part D eligible beneficiaries, directly or 
through an intermediary, would be required to comply with any 
applicable final standards that are in effect.
    Section 1860D-4(e)(4) of the Act generally required the Secretary 
to conduct a pilot project to test initial standards recognized under 
1860D-4(e)(4)(A) of the Act, prior to issuing the final standards in 
accordance with section 1860D-4(e)(4)(D) of the Act. The initial 
standards were recognized by the Secretary in 2005 and then tested in a 
pilot project during calendar year (CY) 2006. The MMA created an 
exception to the requirement for pilot testing of standards where, 
after consultation with the National Committee on Vital and Health 
Statistics (NCVHS), the Secretary determined that there already was 
adequate industry experience with the standard(s). The first set of 
such standards, the ``foundation standards,'' were recognized and 
adopted through notice and comment rulemaking as final standards 
without pilot testing. See 70 FR 67568.
    Based upon the evaluation of the pilot project, and not later than 
April 1, 2008, the Secretary is required to issue final uniform 
standards under section 1860D-4(e)(4)(D). These final standards must be 
effective not later than 1 year after the date of their issuance.
    In the e-prescribing final rule at 70 FR 67589, we also discussed 
the estimated start-up costs for e-prescribing for providers and/or 
dispensers. Based on industry input, we cited approximately $3,000 for 
annual support, maintenance, infrastructure and licensing costs. 
Physicians at that time reported paying user-based licensing fees 
ranging from $80 to $400 per month. For further discussion of the 
start-up costs associated with e-prescribing, see the regulatory impact 
analysis section of this proposed regulation, and the e-prescribing 
final rule at 70 FR 67589.
    For a further discussion of the statutory basis for this proposed 
rule and the statutory requirements at section 1860D-4(e) of the Act, 
please refer to section I. (Background) of the E-Prescribing and the 
Prescription Drug Program proposed rule, published February 4, 2005 (70 
FR 6256).

B. Regulatory History

    In the e-prescribing final rule at 70 FR 67589, we also discussed 
the estimated start-up costs for e-prescribing for providers and/or 
dispensers. Based on industry input, we cited approximately $3,000 for 
annual support, maintenance, infrastructure and licensing costs. 
Physicians at that time reported paying user-based licensing fees 
ranging from $80 to $400 per month. For further discussion of the 
start-up costs associated with e-prescribing, see the regulatory impact 
analysis section of this proposed regulation, and the e-prescribing 
final rule at 70 FR 67589.
    In the November 7, 2005 final rule, we addressed the issues of 
privacy and security relative to e-prescribing in general. We noted 
that disclosures of protected health information (PHI) in connection 
with e-prescribing transactions would have to meet the minimum 
necessary requirements of the Privacy Rule if the entity is a covered 
entity (70 FR 6161). It is important to note that health plans, 
prescribers, and dispensers are HIPAA covered entities, and that these 
covered entities under HIPAA must continue to abide by the applicable 
HIPAA standards including these for privacy and security. E-prescribing 
provisions do not affect or alter the applicability of the Privacy Act 
to a particular entity. Entities which are covered by the Privacy Act 
and the HIPAA Privacy Rule must comply with provisions of both. 
Entities are responsible for determining whether they fall under the 
Privacy Act.
    We continue to agree that privacy and security are important issues 
related to e-prescribing. Achieving the benefits of e-prescribing 
require the prescriber and dispenser to have access to patient medical 
information that may not have been previously available to them. 
Section 1860-D(e)(2)(C) of the Act requires that disclosure of patient 
data in e-prescribing must, at a minimum, comply with HIPAA's privacy 
and security requirements.
    Although HIPAA standards for privacy and security are flexible and 
scalable to each entity's situation, they provide comprehensive 
protections. We will continue to evaluate additional standards for 
consideration as adopted e-prescribing standards. For further 
discussion of privacy and security and e-prescribing, refer to the 
final rule at 70 FR 67581 through 82.
1. Foundation Standards
    After consulting with the NCVHS, the Secretary found that there was 
adequate industry experience with several potential e-prescribing 
standards. Upon adoption through notice and comment rulemaking, these 
standards were called ``foundation'' standards, because they would be 
the first set of final standards adopted for an electronic prescription 
drug program. Three standards were adopted for purposes of e-
prescribing in the E-Prescribing and the Prescription Drug Program 
final rule, published November 7, 2005 (70 FR 67568). Two of these 
standards, Accredited Standards Committee (ASC) X12N 270/271; and The 
National Council for Prescription Drug Programs (NCPDP) 
Telecommunication Standard Specification, Version 5, Release 1 (Version 
5.1), were previously adopted under the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA) and have been in effect since 
2001.
    These foundation standards are as follows:
    For the exchange of eligibility information between prescribers and 
Medicare Part D sponsors: Accredited Standards Committee (ASC) X12N 
270/271--Health Care Eligibility Benefit Inquiry and Response, Version 
4010, May 2000, Washington Publishing Company, 004010X092 and Addenda 
to Health Care Eligibility Benefit Inquiry and Response, Version 
4010A1, October 2002, Washington Publishing Company. 004010X092A1 
(hereafter referred to as the ASC X12N 270/271 standard).
    For the exchange of eligibility inquiries and responses between 
dispensers and Medicare Part D sponsors: The National Council for 
Prescription Drug Programs (NCPDP) Telecommunication Standard 
Specification, Version 5, Release 1 (Version 5.1), September 1999, and 
equivalent NCPDP Batch Standard Batch Implementation Guide, Version 1, 
Release 1 (Version 1.1), January 2000 supporting Telecommunications 
Standard Implementation Guide Version

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5, Release 1 (Version 5.1) for NCPDP Data Record in the Detail Data 
Record (hereafter referred to as the NCPDP Telecommunications 
Standard).
    For the exchange of new prescriptions, changes, renewals, 
cancellations and certain other transactions between prescribers and 
dispensers: NCPDP SCRIPT Standard, Implementation Guide, Version 5, 
Release 0 (Version 5.0), May 12, 2004, excluding the Prescription Fill 
Status Notification Transaction (and its three business cases; 
Prescription Fill Status Notification Transaction--Filled, Prescription 
Fill Status Notification Transaction--Not Filled, and Prescription Fill 
Status Notification Transaction--Partial Fill), hereafter referred to 
as NCPDP SCRIPT 5.0.
a. Exemptions to Foundation Standard Requirement for Nonprescribing 
Providers
    In 42 CFR 423.160(a)(3)(iii) we exempt entities transmitting 
prescriptions or prescription-related information where the prescriber 
is required by law to issue a prescription for a patient to a non-
prescribing provider (such as a nursing facility) that in turn forwards 
the prescription to a dispenser from the requirement to use the NCPDP 
SCRIPT Standard 5.0 adopted by this section in transmitting such 
prescriptions or prescription-related information.
    Industry comments indicated that while the e-prescribing standards 
we proposed were proven to have adequate industry experience in the 
ambulatory setting, the NCPDP SCRIPT Standard was not proven to support 
the workflows and legal responsibilities in the long-term care setting. 
As such, we exempted entities from the requirement to use the NCPDP 
SCRIPT standard when that entity is required by law to issue a 
prescription for a patient to a non-prescribing provider (such as a 
nursing facility) that in turn forwards the prescription to a 
dispenser. The CY 2006 pilot project tested for such entities' use of 
the foundation standards in ``three-way prescribing communications'' 
between facility, physician, and pharmacy. (For a more detailed 
discussion see the November 7, 2005 final rule (70 FR 67583).
b. Use of HL7 or NCPDP SCRIPT Standard To Conduct Internal Electronic 
Transmittals for Specified NCPDP SCRIPT Transactions
    In the E-Prescribing and the Prescription Drug Program final rule, 
published November 7, 2005 (70 FR 67568), we responded to comments on 
whether Medicare Part D plans should be required to use the standards 
for e-prescribing transactions taking place within their own 
enterprises. In the final rule we stated that entities may use either 
HL7 or NCPDP SCRIPT standards to conduct internal electronic 
transmittals for the specified NCPDP SCRIPT transactions. However, 
entities are required to use the NCPDP SCRIPT Standard if they 
electronically send prescriptions for Medicare beneficiaries outside 
the organizations, such as to a non-network pharmacy. Any pharmacy that 
already accepts e-prescriptions, even if only as a part of a larger 
legal entity, must be able to receive electronic prescription 
transmittals for Medicare beneficiaries via NCPDP SCRIPT from outside 
the enterprise.
c. Exemption for Computer-Generated Facsimiles
    The November 7, 2005 final rule also exempted entities that 
transmit prescriptions or prescription-related information by means of 
computer-generated facsimile (faxes) from the requirement to use the 
adopted NCPDP SCRIPT standard. ``Electronic media'' was already defined 
by regulations issued pursuant to the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA), so e-prescribing utilized the same 
definition. As a result, faxes that were generated by a prescriber's 
computer and sent to a dispenser's computer or fax machine which prints 
out a hard copy of the original computer-generated fax (that is, 
``computer-generated'' faxes) fell within the definition of 
``electronic media'' for e-prescribing. Absent an exemption, computer-
generated faxes would be required to comply with the adopted foundation 
standards. The November 7, 2005 final rule exempted computer-generated 
faxes from having to comply with the NCPDP SCRIPT standard.
    In June 2007, CMS proposed to eliminate this exemption. See 72 FR 
38195 through 38196 for a discussion of the elimination of this 
exemption.
2. Updating e-Prescribing Standards
    In the November 7, 2005 final rule (70 FR 67579), we discussed the 
means for updating e-prescribing standards. If an e-prescribing 
transaction standard has also been adopted under 45 CFR parts 160 
through 162 (that is, as HIPAA transaction standards), the updating 
process for the e-prescribing transaction standard must be coordinated 
with the maintenance and modification of the applicable HIPAA 
transaction standard. As the final rule adopted and incorporated by 
reference the relevant HIPAA transaction standards (the ASC X12N 270/
271 and the NCPDP Telecommunication Standard), the e-prescribing 
standards can be modified through a parallel rulemaking whenever the 
HIPAA transaction standards are modified. A streamlined process was 
created for updating adopted e-prescribing standards that were not also 
HIPAA transaction standards. This is done by identifying backward 
compatible later versions of the standards. This version updating and 
maintenance of the implementation specifications for the adopted non-
HIPAA e-prescribing standards will allow for the correction of 
technical errors, the elimination of technical inconsistencies, and the 
addition of functions that support the specified e-prescribing 
transaction. To do this, we adopted a process for the Secretary to 
identify a subsequent version(s) of a standard where the new version(s) 
are backwards compatible with the adopted standard. Use of such 
subsequent versions of an adopted standard is voluntary. Because HIPAA 
transaction standards are presently not backward compatible and the 
HIPAA transactions standards regulation does not currently address the 
use of subsequent versions of adopted standards that are backward 
compatible to the adopted standards, the streamlined process cannot 
presently be used for those HIPAA transactions standards that are also 
e-prescribing standards.
    Subsequent industry input indicated that the adopted NCPDP SCRIPT 
5.0, should be updated with a later version of the standard NCPDP 
SCRIPT Standard, Implementation Guide, Version 8, Release 1 (Version 
8.1), October 2005, excluding the Prescription Fill Status Notification 
Transaction (and its three business cases; Prescription Fill Status 
Notification Transaction--Filled, Prescription Fill Status Notification 
Transaction--Not Filled, and Prescription Fill Status Notification 
Transaction--Partial Fill), hereafter referred to as NCPDP SCRIPT 8.1.
    Using the streamlined process, HHS published an Interim Final Rule 
on June 23, 2006 (71 FR 36020) updating the adopted NCPDP SCRIPT 
standard, thereby permitting either version to be used. For more 
information, see the June 23, 2006 interim final rule with comment (71 
FR 36020).
3. National Provider Identifier (NPI)
    In the November 7, 2005 final rule (70 FR 67578), we discussed the 
use of the National Provider Identifier (NPI) for the Medicare Part D 
e-prescribing program once it became available. The NPI is the standard 
that was adopted in the final rule published on January 23, 2004 (69

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FR 3434) as the unique health identifier for health care providers that 
are HIPAA covered entities for use in the health care system. Health 
plans, health care clearinghouses, and those health care providers who 
transmit any health information in electronic form in connection with a 
transaction for which the Secretary has adopted a standard (known as 
``covered health care providers'') are considered ``covered entities'' 
which must use the identifier in connection with HIPAA standard 
transactions. For a discussion of the NPI, see the final rule published 
on January 23, 2004 (69 FR 3434).
    In the November 7, 2005 final rule (70 FR 67578), in response to 
comments received in the February 4, 2005 proposed rule, we indicated 
that we would include the NPI in the 2006 pilots to determine how it 
worked with e-prescribing standards. However, we also noted that 
accelerating NPI usage for e-prescribing might not be possible, as we 
might not have had the capacity to issue NPIs to all providers involved 
in the e-prescribing program by January 1, 2006. At the time the 
Request for Application was released, we had just begun to use the 
National Plan/Provider Enumeration System (NPPES) to process provider 
requests for NPIs. Upon reconsideration and in view of the short time 
period allowed for pilot testing, it was determined that the focus 
should be on standards testing and not on NPI as it would constitute a 
simple bench testing of the identifier and would have no substantive 
results. Therefore, NPI was not assessed during the pilots, which used 
other identifiers to accomplish their testing of the standards as 
outlined in the Request for Application.

C. Pilot Testing of Initial Standards

    The MMA required the Secretary to develop, adopt, recognize or 
modify ``initial uniform standards'' relating to the requirements for 
the e-prescribing programs in 2005. To ensure the efficient 
implementation of the e-prescribing program requirements, the MMA 
called for pilot testing of these initial e-prescribing standards in 
2006. To fulfill this requirement, the Secretary ultimately recognized 
(based on NCVHS input) six ``initial'' standards, which are discussed 
below. A Request for Applications (RFA) was issued in September 2005 
that laid out the details for how these initial standards were to be 
pilot tested (Available through http://www.grants.nih.gov/grants/guide/rfa-files/RFA-HS-06-001.html). The pilot test was conducted under 
four cooperative agreements and one contract that the Agency for 
Healthcare Research and Quality (AHRQ) entered into on behalf of CMS. 
The final pilot site reports are available at http://www.healthit.ahrq.gov/erxpilots.
1. Initial Standards
    [If you choose to comment on issues in this section, please include 
the caption ``Initial Standards'' at the beginning of your comments.]

    As HHS had not yet published a final rule identifying the 
foundation standards at the time the RFA was published, it 
conditionally included the proposed foundation standards among the 
``initial standards'' to be tested. Any proposed foundation standards 
that were not adopted as foundation standards were to be tested as 
initial standards in the pilot project. Furthermore, if the proposed 
foundation standards were ultimately adopted as foundation standards, 
those standards nevertheless were to be used in the pilot project to 
ensure interoperability with the initial standards. A summary of the 
initial standards follows:
     Formulary and benefit information--The formulary and 
benefits standard, NCPDP Formulary and Benefits Standard, 
Implementation Guide, Version 1, Release 0 (version 1.0), hereinafter 
referred to as the NCPDP Formulary and Benefits Standard 1.0, is 
intended to provide prescribers with information from a plan about a 
patient's drug coverage at the point of care.
     Exchange of medication history--The medication history 
standard, included in the National Council for Prescription Drug 
Programs (NCPDP) Prescriber/Pharmacist Interface SCRIPT Standard, 
Version 8 Release 1 and its equivalent NCPDP Prescriber/Pharmacist 
Interface SCRIPT Implementation Guide, Version 8, Release 1, is 
intended to provide a uniform means for prescribers and payers to 
communicate about the list of drugs that have been dispensed to a 
patient.
     Structured and Codified SIG--The standard tested was 
NCPDP's proposed Structured and Codified SIG Standard 1.0. Structured 
and Codified SIG--instructions for taking medications (such as ``by 
mouth, three times a day'')--that are currently expressed as free text 
at the end of a prescription.
     Fill status notification function--The Fill Status 
Notification, or RxFill, was included in the NCPDP SCRIPT 5.0, and the 
updated NCPDP SCRIPT 8.1 but it previously was not proposed as a 
foundation standard due to lack of industry experience. The dispenser 
uses the prescription fill status transaction to notify the prescriber 
if a patient has picked up a prescribed medication at the pharmacy.
     Clinical drug terminology (RxNorm)--RxNorm, a standardized 
nomenclature for clinical drugs developed by the National Library of 
Medicine (NLM), provides standard names for clinical drugs (active 
ingredient + strength + dose form) and for dose forms as administered 
to a patient.
     Prior authorization messages--The pilot sites tested to 
determine the functionality of new versions of the ASC X12N 275, 
Version 4010 with HL7 and ASC X12N 278, Version 4010A1 to obtain 
certification from the plan to a provider that the patient meets 
criteria for a drug to be covered.
    The RFA also specified that pilot sites would use NCPDP SCRIPT 5.0. 
With the Secretary's recognition of the updated NCPDP SCRIPT 8.1, AHRQ, 
in its capacity as the administrator of the pilot project, gave pilot 
sites the option to voluntarily use NCPDP SCRIPT 8.1. Accordingly, all 
grantees/contractor in the pilot sites voluntarily employed the updated 
NCPDP SCRIPT 8.1 in their various testing modalities.
2. Grantees/Contractor and Testing Criteria
    [If you choose to comment on issues in this section, please include 
the caption ``Grantees/Contractor and Testing Criteria'' at the 
beginning of your comments.]

    The initial standards were tested in five healthcare/geographic 
settings to determine whether they were ready for broad adoption. 
Grantees/contractor tested whether the initial standards allowed 
participants to effectively communicate the necessary information 
between all participants in the transactions, such as the pharmacy, 
pharmacy benefits manager (PBM), router, plan and prescriber. They also 
tested how the initial standards worked with the foundation standards. 
Pilot sites also tracked generally anticipated e-prescribing outcomes, 
such as a reduction in medical errors. For more information on testing 
parameters and criteria, go to http://www.grants.nih.gov/grants/guide/rfa-files/RFA-HS-06-001.html. 
    One of the strengths of the pilot project was the diversity and 
uniqueness of the five grantees/contractor. Grantees/contractor 
represented the spectrum of communities involved with e-prescribing, 
including most practice settings, and focused on utilization by 
pharmacists, physicians, nurses, and technology vendors. Applications 
were considered based on specific

[[Page 64904]]

characteristics/criteria. Each pilot site focused on different 
perspectives of the functionality and impact of initial standards by 
evaluating them in different sectors of the healthcare system, 
different geographies, and different practice settings using different 
technology application vendors, pharmacies and other stakeholders in 
the e-prescribing industry. The grantees selected were Achieve 
Healthcare Information Technologies, L.L.P., Eden Prairie, Minnesota; 
Brigham and Women's Hospital, Boston, Massachusetts; RAND Corporation, 
Santa Monica, California; SureScripts, L.L.C., Alexandria, Virginia. 
The contractor that was selected was the University Hospitals Health 
System, Cleveland, Ohio. For more information on the pilot project 
criteria, refer to the Request for Application at http://www.grants.nih.gov/guide/RFA-HS-06-001.html.
3. Pilot Test Findings
    [If you choose to comment on issues in this section, please include 
the caption ``Pilot test findings'' at the beginning of your comments.]
a. Standard for Formulary and Benefits
    In the February 4, 2005 proposed rule, we discussed how the 
adoption of the formulary and benefit standard would enhance e-
prescribing capabilities under Medicare Part D by making it possible 
for the prescriber to obtain information on the patient's benefits, 
including the formulary status of drugs that the physician is 
considering prescribing. At that time, we proposed characteristics for 
a formulary and benefit standard (for a more detailed discussion refer 
to 70 FR 6262 through 6263). We proposed that if those characteristics 
for formulary were met by a standard and there was adequate industry 
experience with it, we would consider adopting it as a foundation 
standard. The NCVHS, in a September 2, 2004 letter to the Secretary 
(http://www.ncvhs.hhs.gov), had recommended the development of an NCPDP 
formulary and benefit standard, based on an RxHub protocol, to address 
the need for these desirable characteristics. RxHub submitted this 
protocol to NCPDP for approval and it was included in the October 2005 
release of NCPDP Formulary and Benefit standard 1.0. However, the 
timing of its release in October 2005 was too late for the Formulary 
and Benefit standard 1.0 to be considered for approval as a foundation 
standard in the November 7, 2005 final rule. Also, there was little to 
no industry experience with the standard. Because of this and other 
concerns about its interoperability with other standards, at that time 
we did not adopt NCPDP Formulary and Benefit standard 1.0 as a 
foundation standard, but agreed to include it in pilot testing. For 
more details, refer to 70 FR 67573.
    Formulary and benefits data standards must provide a uniform means 
for pharmacy benefit payers (including health plans and PBMs) to 
communicate a range of formulary and benefit information to prescribers 
via point-of-care (POC) systems. These include:
     General formulary data (for example, therapeutic classes 
and subclasses);
     Formulary status of individual drugs (that is, which drugs 
are covered);
     Preferred alternatives (including any coverage 
restrictions, such as quantity limits and need for prior 
authorization); and
     Copayment (the copayments for one drug option versus 
another).
    The NCPDP Formulary and Benefits Standard 1.0 enables the 
prescriber to consider this information during the prescribing process, 
and make the most appropriate drug choice without extensive back-and-
forth administrative activities with the pharmacy or the health plan.
    The NCPDP Formulary and Benefits Standard 1.0 was implemented live 
in all pilot sites, and technology vendors were certified prior to 
production. This standard works in tandem with the eligibility request 
and response (ASC X12N 270/271). Once the individual is identified, the 
appropriate drug benefit coverage is located and transmitted to the 
requestor.
    The pilot sites demonstrated that the NCPDP Formulary and Benefits 
Standard 1.0 can be successfully implemented between prescriber and 
plan. The NCPDP Formulary and Benefits Standard 1.0 is quite broad, and 
there are a number of complex data relationships supported by the 
standard. This complexity creates a certain level of confusion as to 
how to properly use the data and leads to implementation issues. While 
complex, the standard can support the transaction, and is ready for 
implementation as part of the e-prescribing program under Medicare Part 
D.
    Formularies by their very nature are complex. They consist of 
hundreds of pages of drug names, dosages, etc., that frequently change 
due to updates in formulations, coverage decisions, etc. In addition, 
each drug plan has their own formulary that they use for coverage 
purposes. Coverage of benefits is sometimes a fluid issue; coverage can 
change from day to day, depending, for example, as to whether a 
Medicare Part D beneficiary has met out-of-pocket spending thresholds, 
or has experienced a life-changing situation that might affect their 
benefit delivery for example, entering a long-term care facility). 
Adoption of this standard for formulary and benefits transactions 
between plans and providers may deliver added value in approximating 
patients' drug coverage and lead to patient-specific, real-time benefit 
information.
b. Standard for Medication History
    A medication history standard provides a way for prescribers, 
dispensers, and payers to communicate about a listing of drugs that 
have been prescribed or claimed for a patient within a certain 
timeframe. It may provide information that would be of use in helping 
to identify drug interactions, including the dispensing pharmacy and 
the prescribing physician. This standard is relatively mature and 
widely adopted by the prescribing industry. It has been useful in 
preventing medication errors, as well as understanding medication 
management compliance. Results demonstrate there is a difference in how 
the standard is implemented based on the source of the medication 
history.
    In the February 4, 2005 proposed rule, we discussed how the 
adoption of the medication history standard would enhance e-prescribing 
capabilities under Medicare Part D by making it possible for the 
prescriber to obtain information on the medications the patient is 
already taking, including those prescribed by other providers. At that 
time, we proposed characteristics for a medication history standard 
(for a more detailed discussion refer to 70 FR 6262 through 6263). We 
proposed that if those characteristics for medication history were met, 
and there was adequate industry experience with them, we would consider 
adopting foundation standards. The NCVHS, in a September 2, 2004 letter 
to the Secretary (http://www.ncvhs.hhs.gov), had recommended the rapid 
development of an NCPDP medication history standard based on an RxHub 
protocol. The NCPDP SCRIPT standard 8.1, based on the RxHub protocol, 
was released in October 2005, featuring those desirable 
characteristics. However, the timing of its release in October 2005 was 
too late for the standard to be considered for approval as a foundation 
standard in the November 7, 2005 final rule, and there was little to no 
industry experience with the standard. Because of this and other 
concerns about its interoperability with other standards, at that time 
we did not adopt the NCPDP SCRIPT standard as a foundation standard for 
medication history, but agreed to include it in pilot

[[Page 64905]]

testing. For more details, refer to 70 FR 67573.
    The pilot sites found that the proposed medication history standard 
included as a transaction in the NCPDP SCRIPT 8.1 is well structured, 
supports the exchange of information, would not impose an undue 
administrative burden on prescribers and dispensers, is compatible with 
other health IT standards, and is ready to be used as part of the e-
prescribing program under Medicare Part D.
c. Standard for Structured and Codified SIG
    Patient instructions for taking medications are placed at the end 
of a prescription. These are called the signatura, commonly abbreviated 
SIG. Currently, the Food and Drug Administration (FDA) provides some 
terminology for SIGS, for example, route of administration and unit of 
presentation. However, there is no standardized format or vocabulary 
for SIGs, leaving room for misinterpretation and error. A standard 
structure and code set for expressing SIGs has the potential to enhance 
patient safety, although free text capability must be preserved for 
special circumstances. Pilot sites used a variety of approaches 
including review of the proposed NCPDP Structured and Codified SIG 
standard 1.0, identification of test cases, using live transactions and 
selecting samples of prescriptions with a wide variety of SIGs, 
recreating each test case in a laboratory environment, and then 
developing a test harness that would include functions of an electronic 
information exchange application. Another approach was to analyze an 
initial sample that would be statistically valid with an attempt to 
represent each distinct SIG using the proposed standard's 128 data 
fields.
    The pilot sites found that the proposed Structured and Codified SIG 
format needs additional work with reference to field definitions and 
examples, field naming conventions and clarifications of field use. It 
is imperative that the prescriber's instructions be translated exactly 
into e-prescribing and pharmacy practice management systems to reduce 
medication errors, decrease healthcare costs and improve patient 
safety. Contradictions with other structured fields exist, and there 
are limitations on directions for topical drugs (such as the area of 
application). The pro re nata (PRN) or ``as needed'' designation could 
be interpreted as either ``as needed'' or ``as required'', and the 
standard does not allow for quick revisions for new drug 
administration. Mistranslations and contradictions in dosage/timing 
directions leave room for misinterpretation and error. Analysis shows 
that the NCPDP's proposed Structured and Codified SIG Standard 1.0 is 
not sufficiently developed for use for Medicare Part D e-prescribing in 
its current state.
d. Standard for Fill Status Notification
    The Fill Status Notification standard is a function within the 
NCPDP SCRIPT 8.1, but it was not named a foundation standard due to 
lack of adequate industry experience. The standard enables a pharmacy 
to notify a prescriber when the prescription has been dispensed 
(medication picked up by patient), partially dispensed (partial amount 
of medication picked up by the patient), or not dispensed (medication 
not picked up by patient, resulting in the medication being returned to 
stock).
    Pilot sites found that the NCPDP SCRIPT 8.1 standard supports the 
activities of a pharmacy sending messages to the prescriber as to the 
status of a prescription. The challenges encountered were not related 
to the structure and format of the standard, but in its implementation. 
RxFill is intended to encourage adherence and compliance with 
medication therapy. Although the transaction is technically capable of 
performing that function, the pilot sites' experiences and observations 
indicate there is no marketplace demand for this information, and may 
cause an unnecessary administrative burden on prescribers and 
dispensers. Prescribers expressed concerns about being inundated with 
data if they were informed every time a prescription was filled or not 
filled, and were unsure of the usefulness of the information. Moreover, 
implementing the Fill Status transaction would require significant 
business process changes at pharmacies as well as development of common 
rules for determining when a prescription becomes a ``no-fill.'' We 
question the marketplace demand for Fill Status Notification and 
solicit comments regarding both stakeholders' and industry's potential 
utilization of RxFill.
e. Standard for Clinical Drug Terminology: RxNorm
    RxNorm is a vocabulary resulting from a collaboration between the 
Food and Drug Administration (FDA) and the National Library of Medicine 
(NLM) that provides standard names for clinical drugs (active 
ingredient + strength + dose form), and for dose forms as administered 
to a patient. These concepts are relevant to how a physician would 
order a drug. It provides links from clinical drugs, both branded and 
generic, to their active ingredients, drug components (active 
ingredient + strength), and related brand names. NDCs (National Drug 
Codes) for specific drug products (where there are often many NDC codes 
for a single product) are linked to that product in RxNorm. NDCs for 
specific drug products identify not only the drug but also the 
manufacturer and the size of the package from which it is dispensed. 
NDCs are relevant to how a pharmacy would dispense the drug. RxNorm 
links its names to many of the drug vocabularies commonly used in 
pharmacy management and drug interaction software. By providing links 
between these vocabularies, RxNorm can mediate messages between systems 
not using the same software and vocabulary.
    RxNorm terminology was evaluated in the context of the NCPDP SCRIPT 
8.1 for new prescriptions, renewals, and changes. RxNorm was included 
in the pilot to determine how well the RxNorm information can be 
translated from the prescriber's system to the dispenser's system while 
maintaining the prescriber's intent. The grantees/contractor tested 
this standard in a laboratory setting, specifically to gain 
understanding of the completeness and accuracy of RxNorm.
    The pilot sites demonstrated that RxNorm has significant potential 
to simplify e-prescribing, create efficiencies, and reduce dependence 
on NDCs among dispensers. It was able to represent both new 
prescriptions and renewal requests. In some testing, RxNorm erroneously 
linked some NDCs to lists of ingredients rather than to the drugs 
themselves. Testing also revealed cases in which the NDC codes linked 
by RxNorm did not match to a semantic clinical drug (SCD), which always 
contains the ingredient(s), strength and dose form, in that order. This 
indicates there was either an error in matching to the correct RxNorm 
concept, or an error with RxNorm itself, with more than one term being 
available for the same clinical drug concept (that is, unresolved 
synonymy). There is currently no central repository containing a list 
of all NDC codes, nor a reference guide that indicates all of the NDCs 
associated with a particular drug. (On August 29, 2006, FDA published a 
proposed rule [71 FR 51276] which would result in the creation of an 
electronic drug registration and listing system for which FDA would 
issue all NDCs, registrants would be required to keep information up to 
date, and there would be a centralized electronic repository for these 
NDCs. Through the Structured Product Labeling (SPL) for

[[Page 64906]]

each marketed drug product, the NDCs would be linked to the drug 
product code, proprietary name, established name of the active 
ingredients, Unique Ingredient Identifiers [UNII], active ingredient 
strengths and pharmaceutical dosage form.) As with other vocabulary 
standards, RxNorm will never cover 100 percent of what is needed in 
every circumstance, so some provisions for exceptions will be needed. 
One example encountered in the pilots was the lack of standard names 
and identifiers for pharmacy-compounded drugs. Analysis shows that, as 
of December 2006, RxNorm was not sufficiently developed for effective 
and accurate use for Medicare Part D e-prescribing.
f. Standard for Prior Authorization
    The prior authorization standard incorporates real-time prior 
authorization functionality in the ASC X12N 278 Version 4010A1 Health 
Care Services Review transaction. Originally there were two models that 
were to be considered, solicited (prescriber proactively solicits prior 
authorization criteria/forms from plan) and unsolicited (questions 
appear via prompts on a point-of-care software system). The solicited 
model is rarely used and usually results in a paper-based response, 
versus the unsolicited model which employs e-prescribing technology. 
Upon consultation between the pilot sites and AHRQ as the administrator 
of the pilot project, AHRQ advised that the pilot sites use the 
unsolicited model using the NCPDP Formulary and Benefits Standard 1.0 
specification as it would provide a better test of prior authorization 
in an e-prescribing environment.
    Prior authorization is a very complex standard to implement, 
necessitating an understanding of four different standards and multiple 
payer requirements. The combination of ASC X12N 278, ASC X12N 275 and 
the HL7 prior authorization (PA) attachment is cumbersome, confusing 
and requires expertise that may limit adoption. Because health plans 
typically require prior authorization only for a small subset of drugs, 
the pilot sites had limited live experience with this standard. 
Nevertheless, they pilot tested the ASC X12N 278 version 4010A1 and ASC 
X12N 275 version 4010 with the HL7 PA attachment and identified several 
issues that need to be addressed before this standard should be adopted 
as an e-prescribing final standard, including some inconsistencies 
between ASC X12N 278 Version 4010A1 and ASC X12N 275 Version 4010 that 
need to be addressed. Investigators agreed that the HIPAA-named prior 
authorization standard--the ASC X12N 278 version 4010A1--was not 
adequate to support prior authorization because it was designed for 
service or procedure prior authorizations, not for medication prior 
authorization. One of the challenges of the ASC X12N 275 version 4010 
with the HL7 PA attachment is that it did not allow vendors to make 
questions mandatory, which would ensure that the information required 
is complete and reduce the need for back-and-forth communication that 
takes place between plan prior authorization representatives and 
prescribers. Standards modifications would need to be made prior to 
adoption as a final standard for the Medicare Part D e-prescribing 
program.
g. Use of Standards in the Long-Term Care (LTC) Setting
    Healthcare Delivery in long-term care (LTC) settings is unique for 
several reasons. Nurses are frequently the primary caregivers, with 
off-site physicians who monitor care; specialized long-term care 
pharmacies are located off-site with drugs being delivered to the 
facility. While the participants in the Achieve study were drawn from a 
convenience sample, the setting provided a special opportunity for 
understanding e-prescribing's impact on an entirely different patient 
population, provider type, and prescription delivery system.
    In long-term care, a prescription order typically remains an open 
order with no end date or a date far in the future. A prescriber may 
need to modify this order and notify the pharmacy. Changes might 
include dose, form, strength, route, modifications of frequency, or a 
minor change related to the order. Also, in the long-term care 
environment, there is a need to send a refill request from a facility 
to a pharmacy. An example is when a medication supply for a resident is 
running low (2-3 doses remaining), and a new supply is needed from the 
pharmacy. The facility needs a way to notify the pharmacy that a refill 
for the medication is needed. E-prescribing was evaluated within the 
unique context of long-term care workflow from facility to pharmacy.
    The primary purpose of the long-term care pilot site was to test 
the NCPDP SCRIPT 8.1 in the long-term care setting and found that 
modifications were required in order to ensure accurate transmission of 
the data. Through partner agreement, ``work-arounds'' were identified 
and implemented. These work-around requests were formally submitted by 
the pilot site grantee to NCPDP in the form of a DERF (Data Element 
Request Form) to modify the standard as needed. When an updated version 
of the NCPDP SCRIPT Standard becomes available that can accommodate the 
unique prescription workflow of the LTC setting, we will consider 
removing the current exemption. We solicit industry and other 
interested stakeholder comments on the impact and timing of lifting 
this exemption.

II. Provisions of the Proposed Rule

A. Proposed Retirement of NCPDP SCRIPT 5.0 and Adoption of NCPDP SCRIPT 
8.1 as a Final Standard

    [If you choose to comment on issues in this section, please include 
the caption ``Adoption of NCPDP SCRIPT 8.1'' at the beginning of your 
comments.]

    We propose to revise Sec.  423.160(b)(1) to replace the NCPDP 
SCRIPT 5.0 standard with the NCPDP SCRIPT 8.1. Those providers and 
dispensers using e-prescribing to provide for the electronic 
communication of a prescription or prescription-related information 
would be required to use the NCPDP SCRIPT 8.1 for the following 
transactions:
     Get message transaction.
     Status response transaction.
     Error response transaction.
     New prescription transaction.
     Prescription change request transaction.
     Prescription change response transaction.
     Refill prescription request transaction.
     Refill prescription response transaction.
     Verification transaction.
     Password change transaction.
     Cancel prescription request transaction.
     Cancel prescription response transaction.
    On June 23, 2006, we published an interim final rule with comment 
(71 FR 30620) to solicit comments as to whether the NCPDP SCRIPT 8.1 
was a backward compatible update to NCPDP SCRIPT 5.0. We received 5 
timely public comments on this interim rule with comment. The comments 
came from a standards setting organization, two national industry 
associations, and two private corporations actively involved in e-
prescribing. All commenters supported the voluntary use of the backward 
compatible Version 8.1 of the NCPDP SCRIPT Standard. Four recommended 
that it be adopted as soon as reasonably possible, and that Version 5.0 
be retired as soon as reasonably practical. They also indicated that 
Version 8.1 was already in widespread use throughout their

[[Page 64907]]

respective industries. One commenter indicated a concern with making 
backward compatibility ``the criteria'' for determining if a notice and 
comment rulemaking is required. That commenter felt that backward 
compatibility must be viewed as just one factor in making a 
determination to update, as opposed to modify, a standard.
    We continue to find that the NCPDP SCRIPT 8.1 is backward 
compatible to the adopted NCPDP SCRIPT 5.0. Both versions are the same, 
except that Version 8.1 contains the additional feature of medication 
history. One commenter expressed that it has been their experience 
that, while capable of processing Version 5.0, the industry is already 
implementing Version 8.1, and that few, if any, of their trading 
partners are using Version 5.0. This is supported by industry reports 
that numerous software systems now using Version 8.1 have been 
certified for use by electronic prescribing networks.
    Regarding the comment that backward compatibility should not be the 
sole criterion for determining whether use of a subsequent version 
requires an update or a modification of an e-prescribing standard, we 
note that it is not the sole criterion. The ``backward compatibility'' 
of a subsequent version of an adopted standard simply indicates that 
entities may voluntarily upgrade their systems with the subsequent 
version that is ``backward compatible,'' and still be compliant with 
the adopted standard. With the backward compatible version, entities 
may conduct transactions with other entities that continue to use the 
adopted version of the standard with no deleterious effect on the 
transmission of information or the transaction itself. We also note 
that we are required by law to employ notice and comment rulemaking to 
modify an adopted standard or when entities would be required to 
transition to a subsequent version. Through the rulemaking process, we 
must notify the public as to the proposed modifications, receive public 
comment on our proposals, and take into consideration an analysis of 
factors such as the modification's impact on affected entities relative 
to cost, benefit projections, productivity, etc., as well as industry 
and stakeholder feedback provided by means of the written comment 
process. We are soliciting comments regarding the retirement of Version 
5.0 and the adoption of Version 8.1 as the adopted standard for the e-
prescribing functions outlined in 42 CFR 423.160(b)(1), and based on 
the proposed compliance date described in section II.E. of this 
proposed rule.

B. Proposed Adoption of an E-Prescribing Standard for Medication 
History Transaction

    [If you choose to comment on issues in this section, please include 
the caption ``Medication History'' at the beginning of your comments.]

    In the Foundation Standards final rule, 70 FR 67568, we discussed 
the need for medication history standards, and that we were unaware of 
any standard for these transactions that clearly met the criteria for 
adequate industry experience. As a result, a standard for medication 
history was tested in the 2006 pilot project.
    The NCVHS noted in its September 2, 2004 letter to the Secretary 
that medication history information was communicated between payers and 
prescribers using proprietary messaging standards, frequently the 
Information File Transfer protocols established by RxHub, a national 
formulary and benefits information exchange. The NCVHS recommended that 
HHS actively participate in and support the rapid development of an 
NCPDP standard for formulary and medication history using the RxHub 
protocol as a basis. In September 2005, RxHub announced that its 
propriety data transaction format for Medication History which they had 
submitted to NCPDP, had been approved and incorporated into the NCPDP 
Script Standard, and approved by the American National Standard 
Institute (ANSI). NCVHS considered ANSI accreditation to be one 
criterion in their recommendation process for adoption of e-prescribing 
standards, and HHS adopted this as a criterion for determining adequate 
industry experience. (See 70 FR 67568, 67577 for a discussion of all 
the criterion considered by NCVHS.) The resulting NCPDP SCRIPT standard 
was recognized by the Secretary as an initial standard, then pilot 
tested in accordance with the MMA.
    The pilot sites demonstrated that the standard can be successfully 
implemented among a variety of e-prescribing partners and, while 
complex, the standard can support the Medication History transaction, 
and is ready for implementation under Medicare Part D.
    If NCPDP SCRIPT 8.1 is adopted in place of NCPDP SCRIPT 5.0 at 
Sec.  423.160(b)(1) as proposed above, we also propose to add Sec.  
423.160(b)(3) to adopt the NCPDP SCRIPT 8.1 for electronic medication 
history transactions among the plan sponsor, prescriber, and the 
dispenser when e-prescribing for covered Medicare Part D drugs for 
Medicare Part D eligible individuals. The medication history 
transaction in the NCPDP SCRIPT 8.1 standard is based on the 
proprietary file transfer protocol developed by RxHub, which is 
currently being used to communicate this information in many e-
prescribing products.
    Adoption of the NCPDP SCRIPT 8.1 standard for the medication 
history transaction will provide a uniform communications mechanism for 
prescribers, dispensers and payers, support reconciliation of useful 
data from a large number of sources, and raise awareness of its 
availability and use among providers. Cost savings to the public will 
be generated based on reductions in the number of preventable adverse 
drug events (ADEs). Significantly, systems that utilize this proposed 
transaction in the NCPDP SCRIPT 8.1 standard will be substantially more 
effective at ADE reduction than those merely utilizing the original 
foundation standards by allowing prescribers to see what medications 
have been prescribed by other providers in the past.

C. Proposed Adoption of an E-prescribing Standard for Formulary and 
Benefit Transactions

    [If you choose to comment on issues in this section, please include 
the caption ``formulary and benefit transactions'' at the beginning of 
your comments.]

    As a result of pilot testing, we are proposing to add Sec.  
423.160(b)(4) to adopt the NCPDP Formulary and Benefit Standard 1.0, 
for the transaction of communicating formulary and benefit information 
between the prescriber and the plan sponsor when e-prescribing for 
covered Medicare Part D drugs for Medicare Part D eligible individuals. 
This standard is based on a proprietary file transfer protocol 
developed by RxHub, which is currently being used to communicate this 
information in many e-prescribing products. The RxHub protocols were 
submitted to NCPDP for accreditation, and the resulting standard was 
recognized by the Secretary as an initial standard and pilot-tested in 
accordance with the MMA.
    The NCPDP Formulary and Benefits Standard 1.0 was implemented live 
in all pilot sites. This standard works in tandem with the eligibility 
request and response (ASC X12N 270/271). Once the individual is 
identified, the appropriate drug benefit coverage is located and 
transmitted to the requestor.
    The pilot sites demonstrated that the NCPDP Formulary and Benefits 
Standard 1.0 can be successfully

[[Page 64908]]

implemented among a variety of e-prescribing partners, and while 
complex, the standard can support the transaction, and is ready for 
implementation under Medicare Part D.
    Adoption of this standard for formulary and benefits transactions 
between plan sponsors and prescribers may deliver added value in 
approximating patients' drug coverage and lead to patient-specific, 
real-time benefit information. The NCPDP Formulary and Benefits 
Standard 1.0 enables the prescriber to consider this information during 
the prescribing process, and make the most appropriate drug choice 
without extensive back-and-forth administrative activities with the 
pharmacy or the plan sponsors. As prescribers prescribe based on the 
coverage offered by a patient's plan formulary, plans will experience 
reduced costs through paying for drugs that are specific to their 
formularies for which they have negotiated favorable rates. Patients 
will see reduced costs in not having to pay increased out-of-pocket 
expenses for prescribed drugs that are not on their plan's formularies.

D. Adoption of the National Provider Identifier (NPI) as a Standard for 
Use in E-Prescribing Transactions

    [If you choose to comment on issues in this section, please include 
the caption ``Adoption of the National Provider Identifier'' at the 
beginning of your comments.]

    We are proposing to add Sec.  423.160(b)(5) to adopt the National 
Provider Identifier as a standard for use in e-prescribing transactions 
among the plan sponsor, prescriber, and the dispenser. The NCPDP SCRIPT 
standard 8.1, which we are proposing for adopting in this proposed 
rule, supports the use of NPI.
    While the NPI was not tested in the pilot project, we have reason 
to believe that there is adequate industry experience with the NPI 
which would support its use in e-prescribing transactions under section 
1860D-4(e)(4)(C)(ii). Use of the NPI is already required in order to 
conduct HIPAA-compliant transactions which require the identity of 
HIPAA covered health care providers; and the compliance date for the 
NPI, May 27, 2007, has already passed. The NPI is in widespread use by 
HIPAA covered entities in HIPAA transactions. Although the NCPDP SCRIPT 
transaction is not a HIPAA transaction, the prescribers and dispensers 
that conduct it would be HIPAA covered entities, and as such, they 
would already be using NPI as they conduct their HIPAA transactions. 
They would, therefore, already be familiar with the NPI, even though 
they may not currently use it in the NCPDP SCRIPT transaction. 
Furthermore, NPI meets the objectives and design criteria laid out at 
section 1860D-4(e)(3) of the Act, so adoption of the NPI for use in e-
prescribing standards is supported by section 1860D-4(e)(3)(A) of the 
Act as well. Finally, as uniform identifiers are necessary to conduct 
electronic transactions such as those in the e-prescribing program, 
adoption of NPI is also supported by section 1102 of the Act.
    We generally solicit comments from the industry and other 
stakeholders on the adoption of NPI as an e-prescribing standard, and 
we specifically request comments as to whether use of the NPI in HIPAA-
compliant transactions constitutes adequate industry experience for 
purposes of using NPI as a covered health care provider identifier in 
Medicare Part D e-prescribing transactions.

E. Proposed Compliance Date

    In accordance with section 1860D-4(e) of the Act, the Secretary 
must issue certain final uniform standards for e-prescribing no later 
than April 1, 2008, to become effective not later than 1 year after the 
date of their promulgation. Therefore, in accordance with this 
requirement, the Secretary proposes a compliance date of 1 year after 
the publication of the final uniform standards. The Secretary also 
proposes adopting NCPDP SCRIPT 8.1 as the e-prescribing standard for 
the transactions listed in section III. C. of this proposed rule, 
effective 1 year after the publication of the final uniform standards. 
We solicit comments regarding the impact of these proposed dates on 
industry and other interested stakeholders and whether an earlier 
compliance date should be adopted.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), agencies are 
required to provide a 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 PRA requires 
that we solicit comment on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency.
     The accuracy of the agency's 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.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements.
Standards for an Electronic Prescribing Program (Sec.  423.160)
    The emerging and increasing use of health care electronic data 
interchange (EDI) standards and transactions have raised the issue of 
the applicability of the PRA. It has been determined that a regulatory 
requirement mandating the use of a particular EDI standard constitutes 
an agency-sponsored third-party disclosure as defined under the PRA.
    As a third-party disclosure requirement subject to the PRA, 
Medicare Part D sponsors offering qualified prescription drug coverage 
must support and comply with electronic prescription standards relating 
to covered Medicare Part D drugs, for Medicare Part D enrolled 
individuals as would be required under Sec.  423.160.
    However, the requirement that Medicare Part D sponsors support 
electronic prescription drug programs in accordance with standards set 
forth in this section, as established by the Secretary, does not 
require that prescriptions be written or transmitted electronically by 
prescribers or dispensers. After the promulgation of this set of final 
standards, these entities will be required to comply with the proposed 
standards only if they transmit prescription information electronically 
as discussed in section 1860D-4(e)(1) and (2) of the Act.
    Testimony presented to the NCVHS indicates that most health plans/
PBMs currently have e-prescribing capability either directly or by 
contracting with another entity. Therefore, we do not believe that 
conducting an electronic prescription drug program would be an 
additional burden for those plans. We solicit industry and other 
interested stakeholder comments and input on this issue.
    Since these standards are already familiar to industry, we believe 
the requirement to adopt them constitutes a usual and customary 
business practice and the burden associated with the requirements is 
exempt from the PRA as stipulated under 5 CFR 1320.3(b)(2).

[[Page 64909]]

    As required by section 3504(h) of the Paperwork Reduction Act of 
1995, we have submitted a copy of this document to OMB for its review 
of these information collection requirements.
    If you comment on any of these information collection requirements, 
please mail copies directly to the following: Centers for Medicare & 
Medicaid Services, Office of Strategic Operations and Regulatory 
Affairs, Regulations Development and Issuances Group, Attn: William 
Parham, III, CMS-0016-P, Room C5-14-03, 7500 Security Boulevard, 
Baltimore, MD 21244-1850; and Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503. Attn: Carolyn Lovett, CMS Desk 
Officer, CMS-0016-P, [email protected]. 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 final rule, we will respond to the comments 
in the preamble to that document.

V. Regulatory Impact Analysis

    [If you choose to comment on issues in this section, please include 
the caption ``Regulatory Impact Analysis'' at the beginning of your 
comments.]

    We have examined the impacts of this rule as required by Executive 
Order 12866 of September 30, 1993, as further amended; the Regulatory 
Flexibility Act (RFA) (September 16, 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); and 
Executive Order 13132 of August 4, 1999.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties, and further amended by 
Executive Order 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). According to Executive 
Order 12866, a regulatory action may reasonably be ``significant'' if 
it meets any one of a number of specified conditions, including if the 
action may reasonably be anticipated to lead to:
     An annual effect on the economy of $100 million or more, 
adversely affecting in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
     A serious inconsistency or otherwise interfering with an 
action taken or planned by another agency;
     Material alteration in the budgetary impact of 
entitlements, grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or
     Novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
Executive Order 12866.
    This proposed rule is anticipated to have an annual benefit on the 
economy of $100 million or more and will have ``economically 
significant effects.'' We believe that prescribers and dispensers that 
are now e-prescribing have already largely invested in the hardware, 
software and connectivity necessary to e-prescribe. We do not 
anticipate that the proposed modification of the NCPDP SCRIPT 5.0 to 
the NCPDP SCRIPT 8.1 at Sec.  423.160(b)(1), the adoption of NCPDP 
SCRIPT 8.1 for the Medication History transaction, the adoption of the 
NCPDP Formulary and Benefit Standard 1.0 for formulary and benefit 
transactions, and the adoption of NPI for use in e-prescribing 
transactions will result in significant costs. We solicit industry and 
other interested stakeholder comments and input on this issue. We 
anticipate that the ability to utilize electronic formulary and benefit 
inquiries will result in administrative efficiencies and increased 
prescribing of generic drugs versus brand name drugs, and the access to 
medication history at the point of care will result in reduced adverse 
drug events (ADEs). The benefits accruing from these transactions will 
have an economically significant effect on Medicare Part D program 
costs and patient safety. As this is a significant rule under Executive 
Order 12866, we are required to prepare a regulatory impact analysis 
(RIA) for this rule.
    The Regulatory Flexibility Act (RFA) requires agencies to analyze 
options for regulatory relief 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 qualifying as small businesses under the Small Business 
Administration's size standards (revenues of $6.5 million to $31.5 
million in any 1 year for the health care industry). States and 
individuals are not included in the definition of a small entity. For 
details, see the Small Business Administration's regulation that set 
forth the current size standards for health care industries at http://sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf (refer to the 620000 series).
    Based on our initial analysis, we expect this proposed rule will 
not have a significant impact on a substantial number of small entities 
because, while many prescribing physician practices and independent 
pharmacies would be small entities, e-prescribing is voluntary for 
prescribers and pharmacies. For prescribers and dispensers that have 
already implemented e-prescribing, the adoption of NCPDP SCRIPT 8.1 
would in most cases be accommodated through software upgrades whose 
cost would already be included in annual maintenance fees. Medicare 
Part D sponsors are required to support e-prescribing, and would incur 
some costs to support the NCPDP Formulary and Benefit Standard 1.0 and 
the NCPDP SCRIPT 8.1 medication history transaction. However, using the 
SBA revenue guidelines, the majority of Medicare Part D plan sponsors 
would not be considered small entities as they represent major 
insurance companies with annual revenues of over $31.5 million. We also 
do not anticipate that the proposed requirement to use NPI in e-
prescribing would have any effect on Medicare Part D plans, providers 
or dispensers as they are already using the NPI in HIPAA-covered 
transactions.
    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 core-bed 
Metropolitan Statistical Area and has fewer than 100 beds. This 
proposed rule would not affect small rural hospitals because the 
program will be directed at outpatient prescription drugs covered under 
Medicare Part D and not drugs provided during a hospital stay. 
Prescription drugs provided during hospital stays are covered under 
Medicare as part of Medicare payments to hospitals. Therefore, for 
purposes of our obligations under section 1102(b) of the Act, we are 
not providing an analysis.
    Section 202 of the Unfunded Mandates Reform Act of 1995 requires

[[Page 64910]]

Federal agencies to prepare written statements before promulgating any 
general notice of proposed rulemaking of any rule that includes a 
Federal mandate that could result in expenditure in any one year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $110 million. Since only Medicare Part D plan 
sponsors are required to support e-prescribing, this proposed rule does 
not include any mandate that would result in this spending by State, 
local or tribal governments. We acknowledge that there may be 
transaction costs borne by payers and pharmacy benefit managers (PBMs), 
but, based on our analysis, they would fall below the $110 million 
threshold. We would expect that many Medicare Part D plan sponsors 
already support the exchange of formulary, benefits and medication 
history data, because the standards we are proposing are based on 
proprietary transactions developed by Rx-Hub, which are already in use 
in the current e-prescribing environment.
    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 costs on State and local 
governments, preempts State law, or otherwise has Federalism 
implications. Every State allows for the electronic transmission of 
prescriptions. In recent years, many States have more actively 
legislated in this area. The scope and substance of this State 
activity, however, varies widely among the States.\1\ The MMA addresses 
preemption of State laws at section 1860D-4(e)(5) of the Act as 
follows:
---------------------------------------------------------------------------

    \1\ Catizone, Carmen A., National Association of Boards of 
Pharmacy, Testimony before the NCVHS, July 29, 2004.
---------------------------------------------------------------------------

    (5) Relation to State Laws. The standards promulgated under this 
subsection shall supercede any State law or regulation that--
    (A) Is contrary to the standards or restricts the ability to carry 
out this part; and
    (B) Pertains to the electronic transmission of medication history 
and of information on eligibility, benefits, and prescriptions with 
respect to covered part D drugs under this part.
    In the final rule (70 FR 67568 through 67594), we interpreted this 
section of the Act as preempting State law provisions that conflicted 
with Federal electronic prescription program drug requirements that are 
adopted under Medicare Part D. We viewed it as mandating Federal 
preemption of State laws and regulations that are either contrary to 
the Federal standards, or that restrict the ability to carry out (that 
is, stand as an obstacle to) the electronic prescription drug program 
requirements, and that also pertain to the electronic transmission of 
prescriptions or certain information regarding covered Medicare Part D 
drugs for Medicare Part D enrolled individuals.
    Consequently, for a State law or regulation to be preempted under 
this express preemption provision, the State law or regulation would 
have to meet the requirements of both paragraphs (A) and (B). 
Furthermore, there would have to be a Federal standard adopted through 
rulemaking that creates a conflict for a State law to be preempted. 
This interpretation closely reflected the language of the statute, and 
it is consistent with the presumption against Federal preemption of 
State law \2\ and with the fundamental Federalism principles set forth 
in section 2 of Executive Order 13132. It is also consistent with the 
Department of Health and Human Service's (HHS) general position of 
deferring to State laws regulating the practice of pharmacy and the 
practice of medicine.
---------------------------------------------------------------------------

    \2\ See Davies Warehouse Co. v. Bowles, 321 U.S. 144, 153, 64, 
S.Ct. 474, 88 L.Ed. 635 (1944), Pharmaceutical Research and 
Manufacturers of America v. Walsh, 538 U.S. 644, 661, 123 S.Ct. 
1855, 1867, 155 L.Ed.2d 889 (2003).
---------------------------------------------------------------------------

    In the final rule at 70 FR 67568 through 67594, we acknowledged 
that some industry representatives believed that the Congress intended 
this preemption provision to be much broader. For instance, some 
expressed the position that this statutory provision preempts all State 
laws that would in any way restrict the development of e-prescribing 
for all providers and payors. This position was based on the belief 
that the Congress intended to preempt the field of e-prescribing 
through this provision in the MMA. It would have required an 
interpretation that the word ``and'' between paragraphs (A) and (B) was 
disjunctive, that is, that ``and'' means ``or'' in this context. Under 
this interpretation, the operative language would be ``restricts the 
ability to carry out this part'' in paragraph (A), which arguably would 
have enabled the standards and requirements adopted for the Federal 
electronic prescription drug program to preempt all State laws and 
regulations that restricted the Secretary's ability to carry out the 
goals of an electronic prescription drug program, even if they were not 
related to covered Medicare Part D drugs, or Medicare Part D covered 
individuals. They contended that some States had existing statutory or 
regulatory barriers that could impede the success of e-prescribing; for 
example, laws and regulations that were drafted with only paper 
prescriptions in mind, which may not be well-suited to e-prescribing 
applications.
    We determined that this interpretation did not comport with the use 
of the word ``contrary'' in the statutory language which generally 
establishes ``conflict preemption.'' This interpretation would seem to 
render paragraph (B) virtually meaningless and serve to establish 
``field preemption.''
    We invited public comment on our proposed interpretation of the 
scope of preemption, particularly with respect to relevant State 
statutes and regulations which commenters believe should be preempted, 
but would not under our proposed interpretation. We specifically asked 
for comment on whether this preemption provision applied only to 
transactions and entities that are part of an electronic prescription 
drug program under Medicare Part D or to a broader set of transactions 
and entities. We also asked for comment on whether this preemption 
provision applied to only electronic prescription transactions or to 
paper transactions as well. For the same reasons given above, we have 
determined that States would not incur any direct costs as a result of 
this proposed rule. However, as mandated by section 1860D-4(e) of the 
Act, and under the Executive Order, we are required to minimize the 
extent of preemption, consistent with achieving the objectives of the 
Federal statute, and to meet certain other conditions. We believe that, 
taken as a whole, this proposed rule would meet these requirements. We 
do seek comments from States and other entities on possible problems 
and on ways to minimize conflicts, consistent with achieving the 
objectives of the MMA, and will be undertaking outreach to States on 
these issues.
    We have consulted with the National Association of Boards of 
Pharmacy directly and through participation in NCVHS hearings and we 
believe that the approach we suggested provides both States and other 
affected entities the best possible means of addressing preemption 
issues. We will consult further with States before issuing the final 
rule. This section constitutes the Federalism summary impact statement 
required under the Executive Order.
    The objective of this regulatory impact analysis is to summarize 
the cost and benefits of implementing the standards we are proposing in 
this rule for the conversion from NCPDP SCRIPT 5.0 to NCPDP SCRIPT 8.1 
at Sec.  423.160(b)(1), the adoption of

[[Page 64911]]

standards for the electronic communication of formulary and benefit and 
medication history information, and the adoption of NPI for use in e-
prescribing transactions. These proposed actions build upon the e-
prescribing requirements published as a final rule on November 7, 2005 
(70 FR 67568) which included adoption of three foundation standards for 
e-prescribing. The final rule contained an impact analysis that 
addressed the cost of those foundation standards, and it also discussed 
in concept the benefits of e-prescribing in general. In the e-
prescribing final rule at 70 FR 67589, we noted that commenters 
suggested that the estimated start-up costs for e-prescribing could be 
at least $1,500 and perhaps exceed $2,000. For average e-prescribing 
software implementation, according to a 2003 CITL Report, ``The Value 
of Computerized Provider Order Entry,'' a basic-e-prescribing system 
cost $1,248 plus $1,690 for annual support, maintenance, infrastructure 
and licensing costs. The total first year cost averaged approximately 
$3,000. The Journal of Healthcare Information Management has published 
that physicians reported paying user-based licensing fees ranging from 
$80 to $400 per month, although we believe through anecdotal 
information that these licensing fees have decreased over time to 
between $300 and $800 annually. For further discussion of the start-up 
costs associated with e-prescribing, see the e-prescribing final rule 
at 70 FR 67589. This proposed rule builds on the final rule analysis, 
and we refer to it to assure that costs and benefits are not counted 
twice. We solicit industry and other interested stakeholder comment and 
input on this issue.

A. Overall Impact

    According to 2006 CMS data, approximately 24 million beneficiaries 
were enrolled in a Medicare Part D plan, (either a stand-alone 
Prescription Drug Plan or a Medicare Advantage Drug Plan). Another 7 
million retirees were enrolled in employer or union-sponsored retiree 
drug coverage receiving the Retiree Drug Subsidy (RDS); 3 million in 
Federal retiree programs such as TRICARE and the Federal Employees 
Health Benefits Plans (FEHBP) and 5 million receiving drug coverage 
from alternative sources, including 2 million who have coverage through 
the Veterans' Administration. The breadth of Medicare's coverage 
suggests that e-prescribing under Medicare Part D could impact 
virtually every pharmacy and a large percentage of the physician 
practices in the country. Standards established for Medicare Part D 
beneficiaries will, as a matter of economic necessity, be adopted by 
vendors of e-prescribing and pharmacy software, and as a result, would 
extend to other populations unless they are manifestly unsuited for the 
purpose. However, we note again that e-prescribing is voluntary for 
both prescribers and dispensers under the Medicare Part D electronic 
prescribing program.
    Our pilot testing and industry collaboration activities were 
partially intended to prevent the development of multiple, ``parallel'' 
e-prescribing environments, with their attendant incremental costs. In 
general, we attempted to avoid imposing an undue administrative burden 
on prescribing health care professionals, dispensing pharmacies and 
pharmacists. The standards we are proposing here, like the foundation 
standards adopted previously, are maintained by an accredited standards 
development organization. These proposed standards have been shown 
through pilot testing to work effectively with the foundation 
standards.

B. Costs

    Because e-prescribing is voluntary, we anticipate that entities who 
currently do not now e-prescribe and who will not implement e-
prescribing during the period reflected in the regulatory impact 
analysis will incur neither costs nor benefits.
    Entities that do not now e-prescribe, but that will implement e-
prescribing during the period reflected in the regulatory impact 
analysis will incur the costs and benefits associated with the 
foundation standards (which we discussed in the final rule at 70 FR 
67568), but we do not claim either in this analysis. We assume that 
implementation of the NCPDP SCRIPT standards would not significantly 
affect the implementation cost; that is, the cost to implement the 
foundation standards and these two standards is not significantly 
higher than the cost of implementing the foundation standards alone. 
However, these entities could incur some additional costs for the 
purchase of new e-prescribing products that include these two 
transactions in the standard format. They would also incur the benefits 
of the two proposed standards. We solicit industry and other interested 
stakeholder comment and input on these issues.
    We assume that since these standards are new and not currently 
deployed and implemented in vendor products, that entities do not exist 
that e-prescribe now and who have software that conducts these two 
transactions using the NCPDP SCRIPT standards.
    Entities that e-prescribe now using a software product that cannot 
conduct the two transactions and cannot be upgraded to conduct them 
(for example, stand-alone Microsoft Word-based prescription writers) 
are not required to conduct the two new transactions, and if they 
decide not to conduct them, they would incur neither cost nor benefit. 
However, if they decide to upgrade their entire e-prescribing system to 
take advantage of the benefits of these new transactions, they would 
incur costs. However, we have no clear sense of how many entities would 
fall into this category.
    Entities that e-prescribe now using a product that could be 
upgraded to conduct the two transactions would incur no cost or benefit 
if they decide not to upgrade. This would also apply to entities that 
e-prescribe now using a product that can conduct the two transactions 
using nonstandard (Non NCPDP SCRIPT) formats, but the functionality is 
not used. Based on our research, this category likely is the one in 
which most current e-prescribers fall. If they decide to upgrade, they 
would incur the cost of the upgrade (unless the upgrade is included in 
their maintenance agreement) and any testing costs, and would incur the 
benefits of the two transactions.
    Entities that e-prescribe now using a product that can conduct the 
two transactions using nonstandard formats, and who use the 
transactions would have to upgrade. They would not enjoy all the 
benefits of the two new transactions since they would have already been 
performing them in some manner, but definitely would incur cost savings 
due to the increased interoperability of using the NCPDP SCRIPT 
standards. In fact, any entity engaging in e-prescribing would incur 
benefits due to increased interoperability, as the existence of 
standards simplifies data exchange product selection and testing. We 
solicit industry and other interested stakeholder comment and input on 
these issues.
    In the e-prescribing final rule at 70 FR 67589, we also discussed 
the estimated start-up costs for e-prescribing for providers and/or 
dispensers. Based on industry input, we cited approximately $3,000 for 
annual support, maintenance, infrastructure and licensing costs. 
Physicians at that time reported paying user-based licensing fees 
ranging from $80 to $400 per month. For further discussion of the 
start-up costs associated with e-prescribing, see the regulatory impact 
analysis section of

[[Page 64912]]

this proposed regulation, and the e-prescribing final rule at 70 FR 
67589.
    In the November 7, 2005 final rule, we addressed the issues of 
privacy and security relative to e-prescribing in general. We noted 
that disclosures of protected health information (PHI) in connection 
with e-prescribing transactions would have to meet the minimum 
necessary requirements of the Privacy Rule if the entity is a covered 
entity (70 FR 6161). It is important to note that health plans, 
prescribers, and dispensers are HIPAA covered entities, and that these 
covered entities under HIPAA must continue to abide by the applicable 
HIPAA standards including these for privacy and security.
    We continue to agree that privacy and security are important issues 
related to e-prescribing. Achieving the benefits of e-prescribing 
require the prescriber and dispenser to have access to patient medical 
information that may not have been previously available to them. 
Section 1860-D(e)(2)(C) of the Act requires that disclosure of patient 
data in e-prescribing must, at a minimum, comply with HIPAA's privacy 
and security requirements.
    Although HIPAA standards for privacy and security are flexible and 
scalable to each entity's situation, they provide comprehensive 
protections. We will continue to evaluate additional standards for 
consideration as adopted e-prescribing standards. For further 
discussion of privacy and security and e-prescribing, refer to the 
final rule at 70 FR 67581 through 67582.
1. Retail Pharmacy
    Because e-prescribing is voluntary for pharmacies, dispensers who 
do not currently conduct e-prescribing would not incur any costs 
related to any of the provisions of this rule. However, we recognize 
that costs would be incurred by those dispensers that currently conduct 
e-prescribing transactions, as well as those who voluntarily implement 
e-prescribing during the period reflected in our regulatory impact 
analysis. Industry estimates are that close to 100 percent of the 
nation's retail chain pharmacies are connected live to an e-prescribing 
network, with over 95 percent of those connected to networks capable of 
receiving and exchanging formulary and benefit and medication history 
data. This is in contrast to only 20 percent of independent pharmacies 
that are connected to e-prescribing networks.
    The transaction using the NCPDP Formulary and Benefit Standard 1.0 
is carried out between the plan and prescriber and, therefore, 
pharmacies will not incur any cost related to this transaction.
    While the NCPDP SCRIPT 8.1 Medication History transaction supports 
communication between the dispenser and prescriber, its use is, 
nonetheless, voluntary for both. We assume for purposes of this 
analysis that the Medication History transaction will be carried out 
between the plan and prescriber, and therefore preliminarily conclude 
that pharmacies will not incur costs related to this transaction. We 
solicit industry and other interested stakeholder comment and input on 
this issue.
    The modification of the NCPDP SCRIPT 5.0 foundation standard to 
NCPDP SCRIPT 8.1 at Sec.  423.160(b)(1) will impact pharmacies. 
Pharmacies will have to assure that their software can accept 
prescription transactions using the 8.1 standard, and they will need to 
test with prescribers to assure that their electronic transactions are 
being received and can be processed. We believe there is little, if 
any, incremental costs associated with these activities. Software 
vendors are already implementing version 8.1 in their products, and we 
believe that any needed upgrades will be included in routine version 
upgrades. The number of current e-prescribers per pharmacy is small, 
and the testing process is not complicated. We believe that the 
implementation of the NPI will be accomplished as part of this 
transition. Prescribers and dispensers already use the NPI to conduct 
retail pharmacy drug claim transactions.
2. Medical Practices
    Medical practices, compared to pharmacies, face a different set of 
costs in implementing information systems for clinical care and 
financial management. Unlike pharmacies, where technology has become an 
important part of operations (especially for larger retail chains), 
many providers have been cautious in their adoption of health 
information technology. We assume that, based on industry estimates, 
anywhere from 5 to 18 percent of physicians are e-prescribing today\3\. 
Because e-prescribing is voluntary for prescribers, medical practices 
that do not currently conduct e-prescribing would not incur any costs 
related to any of the provisions of this rule. However, we recognize 
that costs would be incurred by those prescribers currently e-
prescribing, as well as those who voluntarily begin to e-prescribe 
during the period reflected in our regulatory impact analysis. If a 
practice decides to implement e-prescribing at a later time, we 
anticipate that the software products on the market would be compliant 
with these standards and, therefore, no additional cost would be 
incurred. In assessing the cost to prescribers that are currently e-
prescribing, many of the e-prescribing software products generally 
already contain some capability to communicate formulary and benefit 
and medication history information because they incorporate the RxHub 
proprietary format on which the proposed standards were based. We 
expect that any changes that might be necessary as a result of this 
rulemaking would likely be included in routine version upgrades that 
are covered by annual maintenance and/or subscription fees. We solicit 
industry and other interested stakeholder comment and input on this 
issue. For e-prescribers whose software products are not able to 
generate NCPDP SCRIPT 8.1 transactions, they will not have the 
capability to conduct the proposed NCPDP Formulary and Benefit Standard 
1.0 and NCPDP SCRIPT 8.1 medication history transaction. Costs would be 
incurred if they were to replace such software with software that 
generates transactions that comply with the proposed standards. We 
anticipate that the NCPDP SCRIPT 8.1 will be accommodated in later 
software version upgrades where that standard is not already utilized. 
We believe that the implementation of the NPI will be accomplished as 
part of this transition. Prescribers and dispensers already should be 
using the NPI to conduct retail pharmacy drug claim transactions.
---------------------------------------------------------------------------

    \3\ E-Prescribing and the Prescription Drug Program final rule, 
published November 7, 2005 (70 FR 67568).
---------------------------------------------------------------------------

3. Medicare Part D Plan Sponsors and Pharmacy Benefit Managers (PBMs)
    Plan sponsors will be required to support NCPDP SCRIPT 8.1 for the 
transactions listed at Sec.  423.160(b)(1), the NCPDP Formulary and 
Benefit Standard 1.0, and the NCPDP SCRIPT 8.1 Medication History 
transaction. They will need to assure that their software can receive 
and create NCPDP Formulary and Benefit Standard 1.0 and NCPDP SCRIPT 
8.1 Medication History transaction queries and responses, and that 
their internal systems and databases can supply the information needed 
to build the transaction. For example, they will need to be able to 
extract prescription claims history and format it according to the 
Medication History transaction in the NCPDP SCRIPT 8.1 Standard. We 
believe that many plans will have already implemented this 
functionality because the standards we are proposing are based on 
proprietary file transfer protocols developed by Rx-

[[Page 64913]]

Hub that have been included in many e-prescribing products. Plans may 
need to restructure systems to assure that the data output is in the 
proper format, but, for the most part, the needed functionality is in 
place.
    We recognize that some Medicare Part D plans may need to make 
additional investments to support these standards, and we solicit 
industry and other interested stakeholder comment and input on this 
issue.
    Because plans typically pay the per transaction network fees for 
eligibility transactions, which likely includes providing a formulary 
and benefit response as well as a medication history response, Medicare 
Part D plans will incur increased transaction costs for formulary and 
benefit and medication history transactions as the frequency in which 
these transactions are conducted electronically increases.
    Through information provided by SureScripts and industry 
consultants, this transaction fee appears to range from 6 cents to 25 
cents per transaction, with the midpoint being 15 cents. In 2006, 
RxHub, one of the nation's largest electronic prescription and 
prescription-related information routing networks, estimated that their 
transaction volume increased 50 percent, from 29 million in 2005 to 
more than 43 million in 2006. These transactions were real-time 
requests for patient eligibility and benefits, formulary and medication 
history information.\4\
---------------------------------------------------------------------------

    \4\ RxHub Announces 2006 e-Prescribing Results and Highlights 
Milestones for 2007, St. Paul, MN, February 23, 2007, http://www.rxhub.com.
---------------------------------------------------------------------------

    Based on CMS data we estimate that approximately 24 million 
Medicare beneficiaries received Medicare Part D benefits in 2006. (This 
figure excludes beneficiaries covered under the Retiree Drug Subsidy 
[RDS] program.) Approximately 825,000,000 claims (prescription drug 
events) were finalized and accepted for 2006 payment.
    Based on CMS data, we estimate that approximately 24 million 
Medicare beneficiaries received Medicare Part D benefits in 2006. This 
figure reflects those Medicare beneficiaries enrolled in a Medicare 
Prescription Drug Plan (PDP) and/or a Medicare Advantage plan with 
Prescription Drug coverage (MA-PD), for which CMS has prescription drug 
event data. Approximately 825,000,000 claims (prescription drug events) 
were finalized and accepted for 2006 payment.
    The annual percentage increase in the number of Medicare Part D 
prescriptions is estimated by CMS at 4.6 percent based on industry 
estimates (http://www.imshealth.com/ims/portal/front/articleC/0,2777,6599_3665_80415465,00.html). So that impact comparisons can be 
made equally across all years, inflation was removed from the price 
effects. Conservatively, we calculate the increase in the number of 
Medicare Part D prescriptions and apply the current estimates of 5 and 
18 percent electronic prescribing adoption rates to arrive at the 
number of Medicare Part D electronic transactions, and cost them out at 
a range of a low of 6 cents per transaction to a high of 25 cents per 
transaction. We estimate costs for Medicare Part D plans of between $2 
million to $46 million per year.

                                                                      Table 1.--Transaction Costs for Medicare Part D Plans
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                        Year                                     2009
                                                                 2010
                                                                 2011
                                                                 2012
                                                                 2013
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Medicare Rxs..............................          862,950,000
                                                              902,645,700
                                                              944,167,402
                                                              987,599,102
                                                             1,033,028,660
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
Expected % of e-prescriptions.......................            5%           18%            5%           18%            5%           18%            5%           18%            5%           18%
E-Rx Transaction Cost at $0.06......................    $2,588,850    $9,319,860    $2,707,937    $9,748,573    $2,832,502   $10,197,997    $2,962,797   $10,666,070    $3,099,085   $11,156,709
E-Rx Transaction Cost at $0.25......................   $10,786,875   $38,832,750   $11,283,071   $40,619,056   $11,802,092   $42,487,533   $12,344,498   $44,441,959   $12,912,858   $46,486,289
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Medicare Part D plan sponsors may negotiate the cost of e-
prescribing transactions as part of the dispensing fees included in 
their pharmacy contracts, and account for these costs in their annual 
bids to participate in the Medicare Part D program. In these instances, 
inclusion of these costs may increase the cost of their Medicare Part D 
bids. However, we anticipate that these costs would be negated by the 
savings from an increased rate of conversion from brand name to generic 
prescriptions realized through utilization of the formulary and benefit 
transaction, which would more than offset the transaction costs, and 
solicit comments on this assumption.
    Medicare Part D plan sponsors will not be affected by the proposals 
to modify the NCPDP SCRIPT 5.0 foundation standard to adopt NCPDP 
SCRIPT 8.1 for the transactions listed at 42 CFR 423.160(b)(1) because 
these transactions are conducted between prescribers and dispensers, 
and plans are not involved.
    Medicare Part D plan sponsors will not be significantly affected by 
the proposal to adopt the NPI as a standard for use in e-prescribing 
transactions among the plan sponsor, prescriber, and the dispenser 
because the plans already use the NPI in HIPAA transactions, such as 
the retail pharmacy drug claim.
4. Vendors
    Vendors of e-prescribing software will incur costs to bring their 
products into compliance with these requirements. However, we consider 
the need to enhance functionality and comply with industry standards to 
be a normal cost of doing business that will be subsumed into normal 
version upgrade activities. Vendors may incur somewhat higher costs 
connected with testing activities but vendors should be able to address 
this potential workload on a flow basis. We believe these costs to be 
minimal, and solicit industry and other interested stakeholder comment 
and input on this issue.

C. Benefits

    The benefits of the proposed adoption of standards for formulary 
and benefits and medication history transactions take place over a 
multi-year timeframe. The benefits come in the form of beneficiary cost 
savings realized by increases in formulary adherence and/or generic 
versus brand name prescribing by physicians as a result of real-time 
access to formulary and benefits information, administrative (time and 
labor cost) savings through reduced call-backs on the part of both 
physicians and pharmacists, and a reduction of the occurrence of 
preventable adverse drug events (ADEs) among Medicare beneficiaries, 
reducing resultant health care costs.
1. Formulary and Benefit Standard--Generic Drug Usage
    We assume that, based on industry estimates, approximately 5 
percent to 18 percent of group practices are e-prescribing today, and 
use that range for our assumptions. The formulary and benefit 
transaction will allow the

[[Page 64914]]

prescriber to view formulary drugs, alternative preferred drugs in a 
given class that may offer savings to the patient, and/or to see in 
advance what other less costly drugs within a given drug classification 
and/or generic drugs can be substituted for a given brand name 
prescription drug. This can result in reducing calls to the plan, and/
or reducing the number of callbacks from a pharmacy because a 
prescribed drug is not on a beneficiary's drug plan formulary.
    In 2006, 60 percent of Medicare Part D prescriptions in the first 
two quarters of the program were for generic drugs, and the remaining 
40 percent were brand name prescription drugs. During a Medco study of 
physicians using e-prescribing technology (http://medco.mediaroom.com/index.php?s=43&item=100), physicians increased their generic 
substitution rates by over 15 percent. However, we recognize that not 
all beneficiaries will accept generic prescription drugs and there are 
some instances, especially when prescribing for mental health 
conditions, in which the brand name prescription drug has proven 
through physician experience to be the more effective drug, and 
therefore the drug of choice. Therefore, we apply a more conservative 7 
percent annual increase in generic prescriptions.
    We again apply the previously used 5 and 18 percent e-prescribing 
estimate range. Based on industry data, we assume the cost of a brand 
name prescription drug at $111.02 and the cost of a generic drug at 
$32.23.\5\
---------------------------------------------------------------------------

    \5\ http://www.nacds.org/wmspage.cfm?parm1=5507. National 
Association of Chain Drug Stores data.
---------------------------------------------------------------------------

    While Medicare beneficiaries will be the most direct recipients of 
the benefit realized by the conversion of brand name to generic 
prescription drugs, the Medicare program will benefit as well. The 
Medicare program will save money as it will be paying for an increased 
number of lower-cost generic prescriptions versus higher-cost, brand-
name prescription drugs, as outlined in Table 2, and we solicit 
comments on both beneficiary and Medicare program savings assumption. 
We calculate a cost savings of $95 million to $410 million.

                                         Table 2.--Savings From Switch From Brand Name to Generic Drugs Via Formulary & Benefit Transaction Information
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
              Year                             2009
                                               2010
                                               2011
                                               2012
                                               2013
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Medicare Rxs..........            862,950,000
                                            902,645,700
                                            944,167,402
                                            987,599,103
                                           1,033,028,661
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Medicare Rxs--BRAND
 Only...........................            345,180,000
                                            361,058,280
                                            377,666,961
                                            395,039,641
                                            413,211,465
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Expected % of E-Prescriptions...              5%             18%              5%             18%              5%             18%              5%             18%              5%             18%
Number of Medicare E-                 17,259,000      62,132,400      18,052,914      64,990,490      18,883,348      67,980,053      19,751,982      71,107,135      20,660,573      74,378,064
 Prescriptions..................
Brand to Generic Rx Conversions        1,208,130       4,349,268       1,263,704       4,549,334       1,321,834       4,758,604       1,382,639       4,977,499       1,446,240       5,206,464
 as a Result of E-Prescribing...
Avg. Cost of Brand Name Drug x      $134,126,593    $482,855,733    $140,296,416    $505,067,097    $146,750,051    $528,300,184    $153,500,553    $552,601,992    $160,561,579    $578,021,684
 Total Elec. Generic Medicare
 Rxs............................
Avg. Cost of Generic Drug x          $38,938,030    $140,176,908     $40,729,179    $146,625,045     $42,602,722    $153,369,797     $44,562,447    $160,424,808     $46,612,319    $167,804,349
 Total Elec. Generic Medicare
 Rxs............................
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
    Estimated Net Cost Savings       $95,188,563    $342,678,826     $99,567,237    $358,442,052    $104,147,329    $374,930,386    $108,938,107    $392,177,184    $113,949,260    $410,217,334
     (Reduction in Brand Drug Rx
     Payments)..................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2. Formulary and Benefit Standard--Administrative Savings
a. Physician and Physician Office Staff
    The 2004 Medical Group Management Association (MGMA) survey 
entitled, ``Analyzing the Cost of Administrative Complexity'' (http://www.mgma.com/about/default.aspx?id=280) estimated the staff and 
physician time spent, on a per physician full time equivalent (FTE) 
basis, interacting with pharmacies on formulary questions and generic 
substitutions. Physician time on the phone discussing formulary issues 
was estimated at almost 16 hours a year; another 14 hours were spent 
per physician per year on generic substitution issues. Staff spent 
almost 26 hours per FTE physician on formulary issues, and another 24 
hours per FTE physician on generic substitution issues.
    Table 3 shows the administrative savings benefit to physicians and 
physician office staffs of performing formulary and benefit 
transactions electronically. CMS estimates the number of physicians in 
active practice who participated in the Medicare program in 2006 at 
1,048,243.\6\ Based on the same CMS data from 2003 through 2006, it 
indicates a percentage rise in the number of physicians participating 
in the Medicare program of .94 percent per year, so we have applied 
that percentage increase to arrive at an estimated number of Medicare 
physicians for 2009 through 2013. We also apply the previous assumption 
that from 5 to 18 percent of prescribers are e-prescribing today. Per 
the MGMA survey, we assume a physician labor cost of $100 per hour and 
an average staff labor cost of $22 per hour per physician FTE.
---------------------------------------------------------------------------

    \6\ 2006 CMS Statistics, U.S. Department of Health and Human 
Services CMS Pub. No. 03470, July 2006, Table 22.
---------------------------------------------------------------------------

    Pilot site experience shows that, among prescribers or their agents 
who adopted e-prescribing, obtaining prior approvals, responding to 
refill requests, and resolving pharmacy callbacks were all done more 
efficiently with e-prescribing than before. Both groups perceived a 
greater than 50 percent reduction in time to manage refill requests and 
significant time savings in managing pharmacy call backs.\7\ However, 
we are realistic in our assumption that full implementation would be 
difficult to achieve, and use an estimate of 25 percent. Our model 
calculates that physicians and staff would realize savings ranging from 
$55 million to $206 million at a 25 percent implementation rate.
---------------------------------------------------------------------------

    \7\ Findings from the Evaluation of E-Prescribing Pilot Sites, 
http://www.healthit.ahrg.gov.

[[Page 64915]]



                                                            Table 3.--Administrative Savings for Physicians and Medical Office Staff
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                        Year                                     2009
                                                                 2010
                                                                 2011
                                                                 2012
                                                                 2013
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 of Medicare Physicians....................     1,078,081     1,078,081     1,088,215     1,088,215     1,098,444     1,098,444     1,108,769     1,108,769     1,119,191     1,119,191
Expected % of e-rx prescribers......................            5%           18%            5%           18%            5%           18%            5%           18%            5%           18%
Estimated  of Medicare physicians e-               53,904       194,055        54,411       195,879        54,922       197,720        55,438       199,578        55,960       201,454
 prescribing........................................
Total MD hrs spent on formulary and generic           $161,712,150  $582,163,740  $163,232,250  $587,636,100  $164,766,600  $593,159,760  $166,315,350  $598,735,260  $167,878,650  $604,363,140
 substitution pharmacy calls (30 hrs) x labor cost
 ($100/hr)..........................................
Total staff hrs spent on formulary and generic         $59,294,455  $213,460,038   $59,851,825  $215,466,570   $60,414,420  $217,491,912   $60,982,295  $219,536,262   $61,555,505  $221,599,818
 substitution pharmacy calls (50 hrs) x labor cost
 ($22/hr)...........................................
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
    Total Labor Costs...............................  $221,006,605  $795,623,778  $223,084,075  $803,102,670  $225,181,020  $810,651,672  $227,297,645  $818,271,522  $229,434,155  $825,962,958
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
        Total Anticipated Labor Savings (25%).......   $55,251,651  $198,905,945   $55,771,019  $200,775,668   $56,295,255  $202,662,918   $56,824,411  $204,567,881   $57,358,539  $206,490,740
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

b. Pharmacists
    In Table 4, we draw a correlation from the potential administrative 
savings realized by physicians and staff for pharmacists. If each 
physician and their office staff save a total of 80 hours a year by 
using the formulary and benefit transaction and reducing the time spent 
on the phone with pharmacists, we assume that pharmacists are saving 
the equivalent amount of time by not making these calls. Since the MGMA 
survey assumes a pharmacist labor rate of $60 per hour, our model 
predicts that, at an annualized cost savings, pharmacists would realize 
an annualized cost benefit savings ranging from a low of $65 million to 
a high of $242 million at 25 percent implementation.

                                                                        Table 4.--Administrative Savings for Pharmacists
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                        Year                                     2009
                                                                 2010
                                                                 2011
                                                                 2012
                                                                 2013
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 of Medicare Physicians....................     1,078,081     1,078,081     1,088,215     1,088,215     1,098,444     1,098,444     1,108,769     1,108,769     1,119,191     1,119,191
Expected % of e-prescribers.........................            5%           18%            5%           18%            5%           18%            5%           18%            5%           18%
Estimated  of Medicare physicians e-               53,904       194,055        54,411       195,879        54,922       197,720        55,438       199,578        55,960       201,454
 prescribing........................................
Total MD and staff hrs spent on formulary and         $258,739,440  $931,461,984  $261,171,591  $940,217,760  $263,626,613  $949,055,616  $266,104,650  $957,976,416  $268,605,943  $966,981,024
 generic substitution pharmacy calls (80 hrs) x
 pharmacist labor cost ($60/hr).....................
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
    Total Anticipated Labor Savings (25%)...........   $64,684,860  $232,865,496   $65,292,898  $235,054,440   $65,906,653  $237,263,904   $66,526,162  $239,494,104   $67,151,486  $241,745,256
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3. Medication History Standard--Reduction of Adverse Drug Events (ADEs)
    Automating the transmission of medication history information will 
simplify medication reconciliation through transitions in care and, in 
so doing, provide a safer and more effective health care system. 
Consumers will benefit from a safer medication delivery system, and 
greater convenience.
    Although outpatient ADEs are difficult to estimate, current 
literature estimates that, as of 2005, there were 530,000 preventable 
ADEs for Medicare beneficiaries.\8\ Moreover, the estimated cost per 
ADE ranges from $2,000 \9\ to upwards of $6,000 \10\ depending on the 
care setting. We chose to compute the benefits of medication history 
based on ADEs as a percentage of the total Medicare population. Based 
on CMS data from 1999 through 2006, the total Medicare population 
increased on average 1.13 percent per year.\11\ We calculated that of 
the total Medicare population, ADEs occur in about 1.24 percent of that 
population each year.
---------------------------------------------------------------------------

    \8\ Field TS, Gilman BH, Subramanian S, Fuller JC, Bates DW, 
Gurwitz JH. 2005. The costs associated with adverse drug events 
among older adults in the ambulatory setting. Medical Care 
43(12):1171.1176.
    \9\ Field TS, Gilman BH, Subramanian S, Fuller JC, Bates DW, 
Gurwitz JH. 2005. The costs associated with adverse drug events 
among older adults in the ambulatory setting. Medical Care 
43(12):1171.1176.
    \10\ Institute of Medicine of the National Academies. Preventing 
Medication Errors. July, 2006. Field TS, Gilman BH, Subramanian S, 
Fuller JC, Bates DW, Gurwitz JH. 2005. The costs associated with 
adverse drug events among older adults in the ambulatory setting. 
Medical Care 43(12):1171.1176.
    \11\ 2006 CMS Statistics, U.S. Department of Health and Human 
Services CMS Pub. No. 03470, July 2006, Table 1.
---------------------------------------------------------------------------

    Brigham and Women's Hospital discovered in their analysis of ADEs, 
conducted as part of the CMS e-prescribing pilot project, that e-
prescribing could reduce the risk of ADEs by approximately 50 
percent.\12\ As medication history is a transaction that most directly 
impacts ADEs (versus formulary and benefit, codified SIG, etc.), we 
assume that the reduction in the risk of ADEs can be attributed mostly 
to the use of medication history rather than to e-prescribing in 
general. The pilot project demonstrated that 50 percent of preventable 
ADEs could be eliminated via e-prescribing, and possibly more as 
prescriber familiarity with the medication history function and full 
clinical decision support tools become available in all e-prescribing 
software. We also recognize that the Brigham and Women's Hospital ADE 
analysis brings with it a degree of uncertainty, as it was a by-product 
of the pilot project itself, and may not accurately represent the 
experiences of all entities (that is, small rural settings). Given 
that, we conservatively assume that the number of ambulatory ADEs 
associated with Medicare Part D beneficiaries could be reduced by 25 
percent for the proportion of patients for whom prescriptions are 
written electronically; we use the same uptake e-prescribing estimates 
(5 to 18 percent) as earlier for e-prescribing adoption. Table 5 
summarizes potential savings to the public based on these assumptions.
---------------------------------------------------------------------------

    \12\ Findings from the Evaluation of E-Prescribing Pilot Sites, 
http://www.healthit.ahrq.gov.

[[Page 64916]]



                                                Table 5.--Potential Savings to Public Due to Reduction in Preventable Adverse Drug Events (ADEs)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                        Year                                     2009
                                                                 2010
                                                                 2011
                                                                 2012
                                                                 2013
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Medicare Population Estimates.................    44,577,662    44,577,662    45,081,390    45,081,390    45,590,809    45,590,809    46,105,985    46,105,985    46,626,983    46,626,983
Potential Avoidable ADEs via E-Rx...................       552,763       552,763       559,009       559,009       565,326       565,326       571,714       571,714       578,175       578,175
% of E-Rx Adoption..................................            5%           18%            5%           18%            5%           18%            5%           18%            5%           18%
Avoided ADEs........................................        27,638        99,497        27,950       100,622        28,266       101,759        28,586       102,909        28,909       104,071
Avoided ADEs Estimate (x25%)........................         6,910        24,874         6,988        25,155         7,067        25,440         7,146        25,727         7,227        26,018
Cost Avoided Estimate (25%x$2k).....................   $13,819,075   $49,748,671   $13,975,231   $50,310,831   $14,133,151   $50,879,343   $14,292,855   $51,454,280   $14,454,365   $52,035,713
Cost Avoided Estimate (25%x$6k).....................   $41,457,226  $149,246,012   $41,925,692  $150,932,492   $42,399,453  $152,638,029   $42,878,566  $154,362,839   $43,363,094  $156,107,139
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Table 5 shows that the introduction of e-prescribing can 
potentially realize a cost savings of $13 million to $156 million from 
avoided ADEs. We solicit industry and other interested stakeholder 
comment and input on this issue. Besides lower rates of ADEs, the 
public will also realize other benefits related to the medication 
history function of e-prescribing. Through improved collaboration and 
communication between physicians and plans, patients will be more 
likely to have greater access to information which will encourage them 
to become more involved in their own treatment, which studies show 
decreases the probability of experiencing an ADE-related error.\8\

C. Total Impact

    This analysis has focused on the costs and benefits of two new e-
prescribing standards, and the adoption of NCPDP SCRIPT 8.1 in place of 
version 5.0. We conclude that the cost of implementing these proposals 
is minimal, with quantifiable benefits reaped by pharmacies, providers, 
and beneficiaries. Over time, we expect that these groups will see 
average benefits in a range from $218.0 million to $863.9 million from 
the utilization of formulary and benefit and medication history 
transactions and the promulgation of these standards (Table 6).

D. Alternatives Considered

    In developing this proposed rule, we considered a range of 
alternatives. While required by statute to issue a regulation, we were 
not required to issue standards for specific functionality if 
appropriate standards were not available.
    We considered not issuing an additional rule, and allowing the 
foundation standards to become the complete set. Since we had 
successful results from the pilot project, and the value added by the 
proposed additional standards is substantial, we chose to proceed. 
Given the existing foundation standards, our failure to proceed would 
not have averted many costs, but the lack of a medication history 
standard, for example, would have limited benefits, particularly for 
consumers.
    We considered proposing the prior authorization and RxNorm 
standards for adoption, and elected not to do so. In both cases, the 
decision was based on the results of the pilot project. We expect that 
both standards, in their current forms and given the current state of 
the industry, would impose substantial additional costs while 
delivering marginal additional benefits. In the case of prior 
authorization, much of the additional cost is likely to be on the 
health plan side. We expect that software vendors will explore adding 
this functionality to provider-based systems and that health plans will 
adopt it as doing so becomes feasible.
    In the case of the RxFill standard, we did not get a clear 
indication from the pilot project as to its added value.
    We considered not proposing adoption of the NPI as a standard for 
Medicare Part D e-prescribing transactions, but, given the need for an 
identifier in e-prescribing transactions and the fact that large 
portions of the health care industry are required to use NPI as a HIPAA 
standard, we felt that adoption at this time was feasible and 
desirable.

                                       Table 6.--Cost/Benefits for the Adoption of Standards for Medication History and Formulary and Benefits, 2009-2013
                                                                                          [$ Millions]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      2009
                                                                      2010
                                                                      2011
                                                                      2012
                                                                      2013
                                                                      Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BENEFITS:
    Expected % of E-Prescribing Adoption....................         5%        18%         5%        18%         5%        18%         5%        18%         5%        18%         5%        18%
    Generic versus Brand Name Drugs.........................      $95.1     $342.6      $99.5     $358.4     $104.1     $374.9     $108.9     $392.1     $113.9     $410.2     $521.5   $1,878.2
    Administrative--Physician/Office Staff..................      $55.2     $198.9      $55.7     $200.7      $56.2     $202.6      $56.8     $204.5      $57.3     $206.4     $281.2   $1,013.1
    Administrative--Pharmacies..............................      $64.6     $232.8      $65.2     $235.0      $65.9     $237.2      $66.5     $239.4      $67.1     $241.7     $329.3   $1,186.1
    Reduction in ADEs.......................................      $13.8      $49.7      $13.9      $50.3      $14.1      $50.8      $14.2      $51.4      $14.4      $52.0      $70.4     $254.2
    Total Benefits..........................................     $228.7     $824.0     $234.3     $844.4     $240.3     $865.5     $246.4     $887.4     $252.7     $910.3   $1,202.4   $4,331.6
*COSTS:
    Transaction Costs.......................................      $10.7      $38.8      $11.2      $40.6      $11.8      $42.4      $12.3      $44.4      $12.9      $46.4      $58.9     $212.6
                                                             -----------------------------------------------------------------------------------------------------------------------------------
NET BENEFITS................................................     $218.0     $785.2     $223.1     $803.8     $228.5     $823.1     $234.1     $843.0     $239.8     $863.9   $1,143.5  $4,119.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* These costs reflect only transaction costs as outlined in Table 1, and do not take into account the potential costs of systems and/or software upgrades, etc., for which stakeholder/industry
  information and input is being solicited.

E. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 7 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this proposed rule. This 
table provides our best estimate of the costs and benefits associated 
with the adoption of the two new e-prescribing standards, and the 
adoption of NCPDP SCRIPT 8.1 in place of version 5.0. Costs will be 
incurred by plans/PBMs paying transaction charges to networks. Generic 
versus brand name drug benefits will accrue from physicians to 
beneficiaries; administrative savings to physicians, physician offices 
and pharmacists; from pharmacists to physicians and physician offices; 
and from physicians to beneficiaries in the reduction in the number of 
ADEs.

[[Page 64917]]



               Table 7.--Accounting Statement: Annualized Monetized Transaction Costs and Benefits
                                                [$ Millions/year]
----------------------------------------------------------------------------------------------------------------
                                                                                 5% Expected      18% Expected
                                                                                 annual E-Rx       annual E-RX
                                                                                adoption rate     adoption rate
----------------------------------------------------------------------------------------------------------------
COSTS:
    Transaction costs.......................................................             $58.9            $212.6
Annualized monetized costs:
    7% Discount rate........................................................              11.7              42.2
    3% Discount rate........................................................              11.7              42.3
    0% Discount rate........................................................              11.8              42.5
Paid by plans/PBMs to networks.
BENEFITS:
    Generic versus brand name drugs, administrative for physicians and                 1,202.4           4,331.6
     pharmacists, reduction in ADEs.........................................
Annualized monetized benefits:
    7% Discount rate........................................................             239.6             862.9
    3% Discount rate........................................................             240.1             864.8
    0% Discount rate........................................................             240.4             866.3
Generated physicians to pharmacists, pharmacists to physicians, and
 physicians to beneficiaries.
                                                                             -----------------------------------
        NET BENEFIT.........................................................           1,143.5           4,119.0
----------------------------------------------------------------------------------------------------------------

List of Subjects in 42 CFR Part 423

    Administrative practice and procedure, Emergency medical services, 
Health facilities, Health maintenance organizations (HMO), Health 
professions, Incorporation by reference, Medicare, Penalties, Privacy, 
Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble in this proposed 
regulation, the Centers for Medicare & Medicaid Services proposes to 
amend 42 CFR part 423 as follows:

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).

    2. Section 423.160 is amended by--
    A. Revising paragraph (b)(1).
    B. Adding new paragraphs (b)(3), (b)(4), and (b)(5).
    C. Revising paragraph (c).
    The revisions and additions read as follows:


Sec.  423.160  Standards for electronic prescribing.

* * * * *
    (b) Standards--(1) Prescription. The National Council for the 
Prescription Drug Programs Prescriber/Pharmacist Interface SCRIPT 
Standard, Implementation Guide Version 8, Release 1 (Version 8.1), 
October 2005 to provide for the communication of a prescription or 
prescription-related information between prescribers and dispensers, 
for the following:
    (i) Get message transaction.
    (ii) Status response transaction.
    (iii) Error response transaction.
    (iv) New prescription transaction.
    (v) Prescription change request transaction.
    (vi) Prescription change response transaction.
    (vii) Refill prescription request transaction.
    (viii) Refill prescription response transaction.
    (ix) Verification transaction.
    (x) Password change transaction.
    (xi) Cancel prescription request transaction.
    (xii) Cancel prescription response transaction.
* * * * *
    (3) Medication history. The National Council for Prescription Drug 
Programs (NCPDP) Prescriber/Pharmacist Interface SCRIPT Standard, 
Implementation Guide, Version 8, Release 1 (Version 8.1), October 2005 
to provide for the communication of Medicare Part D medication history 
information among Medicare Part D sponsors, prescribers, and 
dispensers.
    (4) Formulary and benefits. The National Council for Prescription 
Drug Programs (NCPDP) Formulary and Benefits Standard, Implementation 
Guide, Version 1, Release 0 (Version 1.0), October 2005 for 
transmitting formulary and benefit information between prescribers and 
Medicare Part D sponsors.
    (5) Provider identifier. The National Provider Identifier (NPI), as 
defined at 45 CFR 162.406, to identify a health care provider in 
Medicare Part D e-prescribing or prescription-related transactions 
conducted among Medicare Part D plan sponsors, prescribers, and 
dispensers when a health care provider's identifier is required.
    (c) Incorporation by reference. The Director of the Federal 
Register approves, in accordance with 5 U.S.C. 552(a) and 1 CFR part 
51, the incorporation by reference of certain publications into this 
section. You may inspect copies of these publications at the 
headquarters of the Centers for Medicare & Medicaid Services (CMS), 
7500 Security Boulevard, Baltimore, Maryland 21244, Monday through 
Friday from 8:30 a.m. to 4 p.m. or at the National Archives and Records 
Administration (NARA). For more information on the availability of this 
material at NARA, call 202-741-6030, or go to http://www.archives.gov/federal_register/code_of_federal_ regulations/ibr--locations.html.
    The publications approved for incorporation by reference and their 
original sources are as follows:
    (1) National Council for Prescription Drug Programs, Incorporated, 
9240 E. Raintree Drive, Scottsdale, AZ 85260-7518; Telephone (480) 477-
1000; and FAX (480) 767-1042 or http://www.ncpdp.org.
    (i) National Council for Prescription Drug Programs Prescriber/
Pharmacist Interface SCRIPT Standard, Implementation Guide, Version 8, 
Release 1, October 2005, excluding the Prescription Fill Status 
Notification Transactions (and its three business cases; Prescription 
Fill Status Notification Transaction--Filled, Prescription Fill Status 
Notification Transaction--Not Filled, and Prescription Fill Status 
Notification Transaction--Partial Fill).

[[Page 64918]]

    (ii) The National Council for Prescription Drug Programs Formulary 
and Benefits Standard, Implementation Guide, Version 1, Release 0, 
October 2005.
    (iii) National Council for Prescription Drug Programs 
Telecommunication Standard Specification, Version 5, Release 1 (Version 
5.1), September 1999 and equivalent National Council for the 
Prescription Drug Program (NCPDP) Batch Standard Batch Implementation 
Guide, Version 1, Release 1 (Version 1.1), January 2000 supporting 
Telecommunications Standard Implementation Guide, Version 5, Release 1 
(Version 5.1) for the NCPDP Data Record in the Detail Data Record.
    (2) Accredited Standards Committee, 7600 Leesburg Pike, Suite 430, 
Falls Church, VA 22043; Telephone (301) 970-4488; and fax: (703) 970-
4488 or http://www.x12.org.
    (i) Accredited Standards Committee (ASC) X12N 270/271-Health Care 
Eligibility Benefit Inquiry and Response, Version 4010, May 2000, 
Washington Publishing Company, 004010X092 and Addenda to Health Care 
Eligibility Benefit Inquiry and Response, Version 4010A1, October 2002, 
Washington Publishing Company, 004010X092A1.
    (ii) [Reserved].

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

    Dated: July 19, 2007.
Leslie V. Norwalk,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: September 20, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. 07-5681 Filed 11-13-07; 10:00 am]
BILLING CODE 4120-01-P