[Federal Register Volume 74, Number 11 (Friday, January 16, 2009)]
[Rules and Regulations]
[Pages 2881-2888]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-783]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 423

[CMS 4138-IFC4]
RIN 0938-AP24


Medicare Program: Medicare Advantage and Prescription Drug 
Programs MIPPA Drug Formulary & Protected Classes Policies

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

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period revises the 
regulations governing the Medicare prescription drug benefit program 
(Part D). This regulation makes conforming changes to reflect revisions 
to the rules governing Part D that were made as a result of provisions 
in the Medicare Improvements for Patients and Providers Act (MIPPA), 
which became law on July 15, 2008. These MIPPA provisions change the 
definition of a covered Part D drug, and add new requirements that 
apply to Part D formularies.

DATES: Effective date: These regulations are effective January 16, 
2009.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on March 17, 2009.

ADDRESSES: In commenting, please refer to file code CMS-4138-IFC4. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed)
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.regulations.gov. Follow the 
instructions for ``Comment or Submission'' and enter the file code to 
find the document accepting comments.
    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-4138-IFC4, P.O. Box 8016, Baltimore, MD 21244-8016.
    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 & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-4138-IFC4, 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 either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201;
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Alissa DeBoy at (410) 786-6041)or 
Vanessa Duran at (410)786-8697.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have

[[Page 2882]]

been received: http://regulations.gov. Follow the search instructions 
on that Web site to view public comments.
    Comments received timely will be also available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background

    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) (Pub. L. 108-173) was enacted on December 8, 2003. 
Section 101 of title I of the MMA added a new ``Part D'' to title XVIII 
of the Social Security Act (the Act), creating the Medicare 
prescription drug benefit program. The prescription drug benefit 
program is one of the most significant changes to the Medicare program 
since its inception in 1965. The MMA also made revisions to the 
provisions in Medicare Part C, governing what is now called the 
Medicare Advantage (MA) program (formerly Medicare+Choice). The MMA 
directed that important aspects of the new Medicare prescription drug 
benefit program under Part D be similar to and coordinated with 
regulations for the MA program.
    A final rule implementing the Part D prescription drug program 
appeared in the Federal Register on January 28, 2005 (70 FR 4194). The 
provisions of that rule became effective on March 22, 2005.
    The Medicare Improvements for Patients and Providers Act (MIPPA) 
(Pub. L. 110-275) was enacted on July 15, 2008. MIPPA made a number of 
changes to the statutory provisions governing both the MA program under 
Part C and the prescription drug program under Part D. On September 18, 
2008, we published an interim final rule with comment period that made 
a wide array of revisions to regulations governing the Part C and Part 
D programs to reflect changes in the statutory provisions governing 
these programs made in MIPPA [see 73 FR 54226]. This interim final rule 
with comment period similarly makes conforming changes to the Part D 
regulations to reflect certain statutory changes made in MIPPA that 
were not addressed in the September 18, 2008 interim final rule.

II. Provisions of the Interim Final Rule

A. Medically Accepted Indication (Sec.  423.100 Definitions)

    Section 182 of MIPPA amends section 1860D-2(e)(1) of the Act to add 
a new definition for ``medically accepted indication,'' effective 
January 1, 2009, for Part D drugs used in anticancer chemotherapeutic 
regimens, specifically, and all other Part D drugs. Under new section 
1860D-2(e)(4) of the Act, a ``medically accepted indication'' for Part 
D drugs used in anticancer chemotherapeutic regimens has the meaning 
given in section 1861(t)(2)(B) of the Act, except that in applying the 
1861(t)(2)(B) definition, the terms ``prescription drug plan'' or ``MA-
PD plan'' are substituted for ``carrier,'' and the compendia described 
in section 1927(g)(1)(B)(i)(III) of the Act are added to those listed 
in section 1861(t)(2)(B)(ii)(I) of the Act. Also, on and after January 
1, 2010, this last requirement shall not apply unless the compendia 
described in section 1927(g)(1)(B)(i)(III) of the Act meets the 
requirement in the third sentence of section 1861(t)(2)(B) of the Act.
    Also under section 182 of MIPPA, for all Part D drugs not used in 
anticancer chemotherapeutic regimens, ``medically accepted indication'' 
has the meaning given in section 1927(k)(6) of the Act, except that in 
applying this provision, the Secretary shall revise the list of 
compendia described in section 1927(g)(1)(B)(i) of the Act as 
appropriate for identifying medically accepted indications for drugs, 
in a manner consistent with the process for revising compendia under 
section 1861(t)(2)(B) of the Act.
    Consistent with these new statutory requirements, we have amended 
Sec.  423.100 by revising the definition of a Part D drug at Sec.  
423.100 to incorporate the new definition of medically accepted 
indication in section 1860D-2(e)(4) of the Act.

B. Access to Covered Part D Drugs (Sec.  423.120)

    Section 176 of MIPPA added a new section 1860D-4(b)(3)(G)(i) to the 
Act requiring, effective for plan year 2010, that CMS identify, as 
appropriate, certain categories or classes of drugs which meet the 
following two pronged test: (1) Restricted access to the drugs in the 
category or class would have major or life threatening clinical 
consequences for individuals who have a disease or disorder treated by 
drugs in such category or class; and (2) there is a significant need 
for such individuals to have access to multiple drugs within a category 
or class due to unique chemical actions and pharmacological effects of 
the drugs within the category or class, such as drugs used in the 
treatment of cancer.
    Under a new section 1860D-4(b)(3)(G)(ii) of the Act, subject to the 
authority in section 1860D-4(b)(3)(G)(iii) of the Act to provide for 
exceptions, Part D formularies must include all covered Part D drugs in 
each class identified under section 1860D-4(b)(3)(G)(i) of the Act. 
Section 1860D-4(b)(3)(G)(iii), in turn, provides CMS the discretion to 
establish exceptions permitting sponsors of a prescription drug plan to 
exclude from their formularies, or to otherwise limit access to 
(including through prior authorization or other utilization management 
restrictions), certain Part D drugs from the protected categories and 
classes established consistent with section 1860D-4(b)(3)(G)(i) of the 
Act. As provided in section 1860D-4(b)(3)(G)(iii)(I) of the Act, any 
such exception must be based on scientific evidence and medical 
standards of practice (and, in the case of antitretroviral medications, 
be consistent with the Department of Health and Human Services 
Guidelines for the Use of Antitretroviral Agents in HIV-1-Infected 
Adults and Adolescents). In addition, as provided in section 1860D-
4(b)(3)(G)(iii)(II) of the Act, such exceptions must be provided under 
a process that includes an opportunity for public notice and comment. 
We have added Sec.  423.120(b)(2)(v) to reflect the new formulary 
requirements in section 1860D-4(b)(3)(G) of the Act.
    Based on our program experience, and consistent with our formulary 
review process, we plan to conduct an examination, described below, of 
widely used treatment guidelines in order to establish protected 
categories and classes for Part D sponsors that meet the requirements 
established by section 1860D-4(b)(3)(G) of the Act. Additionally, 
consistent with section 1860D-4(b)(3)(G)(iii) of the Act and Sec.  
423.120(b)(2)(v) of this interim final rule, we may establish 
exceptions to the requirement that Part D sponsors include all Part D 
drugs in the protected categories and classes. Given the complexity 
involved in modern medicine and changes in drug therapies with 
availability of new information reaching providers almost daily, we 
anticipate that exceptions to our regulatory requirements will be 
necessary. For example, we believe that in certain circumstances the 
application of prior authorization may be appropriate to ensure use of 
Part D drugs in line with medically necessary

[[Page 2883]]

indications. As described below, we will therefore establish exceptions 
to the protected categories and classes through notice-and-comment 
rulemaking to ensure that they are established in a manner that 
provides for meaningful public input, in a fully transparent manner (in 
which we will formally respond to the public comments), that also 
enables us to meet operational timeframes.
    We note that Part D sponsors may apply edits to make appropriate 
coverage determinations for drugs included in the protected classes 
that may be covered under Medicare Part B. Until the Part D sponsor is 
able to affirm there is no Part B reimbursement, we do not consider the 
definition of a Part D drug to be satisfied. Furthermore, the 
limitation of drug utilization management relating to drugs in the 
protected classes does not extend to the application of safety edits. 
Part D sponsors and their subcontracted network pharmacies must apply 
established safety edits to drugs from the protected classes to ensure 
their enrollees are not harmed by inadvertent medication errors.
    We also note that, as stated in our January 28, 2005 Part D final 
rule (70 FR 4194, 4260), inclusion of ``all covered Part D drugs'' from 
a protected class or category does not extend to inclusion of all 
brand-name drugs and generic versions of the covered drug in question. 
Under our longstanding interpretation of the term ``covered Part D 
drug,'' Part D sponsors will only be required to include on their 
formularies all chemically distinct drugs from the protected classes or 
categories in order to the meet the provisions of Sec.  
423.120(b)(2)(v). We have consistently held that two drug products that 
are determined to be therapeutic equivalents by the Food and Drug 
Administration (FDA) and identified as such in the FDA's Orange Book 
are considered to be the same Part D ``drug.'' (According to the Orange 
Book: ``Drug products are considered to be therapeutic equivalents only 
if they are pharmaceutical equivalents and if they can be expected to 
have the same clinical effect and safety profile when administered to 
patients under the conditions specified in the labeling.'') Thus, 
therapeutic equivalents are not counted twice for purposes of 
satisfying the CMS minimum formulary requirements.
    In planning for the implementation of section 1860D-4(b)(3)(G) of 
the Act, we note that we have gained valuable experience since 2006 in 
evaluating various drug classification systems and ensuring that 
Medicare beneficiaries reliant on drugs contained in certain categories 
or classes are neither substantially discouraged from enrolling in a 
Part D plan nor experience unnecessary complications related to 
accessing these drugs. Our experience has provided insight into the 
type of evaluation process that will be required to ensure that the 
classes and categories of drugs we are protecting are appropriate. In 
this rule, below, we describe our current thinking on the process we 
believe will allow us to most appropriately identify the classes and 
categories of drugs that should be protected. We would welcome comments 
on this process.
    We believe that it is necessary to establish a multi-level review 
process to ensure that we are appropriately identifying classes or 
categories that meet the criteria set forth in section 1860D-
4(b)(3)(G)(i) of the Act. Under this multi-level process, we are 
planning on conducting an initial analysis that is predominantly 
research and data driven, followed by a secondary clinical analysis 
that will serve as a validation review. Both processes will involve the 
identification of potential exceptions to the protected categories or 
classes provision.
    We plan on initiating the first-level review by selecting a 
contractor familiar with our CMS Part D formulary process. This 
contractor will review all the widely used treatment guidelines and 
generate a list highlighting those categories or classes in which 
multiple drugs within classes or categories are typically used to treat 
a specific disorder. Simultaneously, CMS will provide information to 
the contractor on beneficiary utilization of multiple drugs within 
categories and classes based on analysis of prescription drug event 
(PDE) data. The contractor will relate these findings to the 
information obtained from the examination of widely used treatment 
guidelines.
    For the second level validation, an expert panel of physicians and 
pharmacists will be organized to review the initial data developed from 
the contractor and offer recommendations based on a consensus opinion 
on the identification of protected categories and classes under the 
statute. Information regarding the independence, potential conflicts of 
interest, expertise, and balance of the individuals chosen to 
participate in this expert panel will be made publicly available.
    We firmly believe an expert panel can assist us in appropriately 
weighing the data derived from the initial analysis against the 
statutory requirements to identify protected categories or classes of 
drugs in which ``access to multiple drugs within a category or class'' 
is needed and in which ``major or life threatening clinical 
consequences'' may arise if access is restricted. Furthermore, we 
believe the expert panel will be well positioned to consider the data 
suggesting possible exceptions and overlay this with the protected 
categories or classes in order to identify exceptions that are based 
upon available scientific evidence and medical standards of practice. 
These exceptions will be subject to notice and comment as previously 
described.
    The results from the panel on the protected classes and exceptions 
will then be published in the Federal Register in a notice of proposed 
rulemaking seeking public comment, to be followed by the issuance of a 
final rule that responds to the public's comments. We believe that 
reliance on the rulemaking process will better facilitate openness and 
transparency of the process for identifying, as appropriate, classes 
and categories of drugs that meet the MIPPA criteria.
    Given the contracting activities and subsequent extensive analysis 
necessary for reviewing all widely used treatment guidelines relative 
to the requirements of section 1860D-4(b)(3)(G)(i) of the Act, as well 
as commonly-used drug classification systems, we have determined that 
we will be unable to complete a full evaluation of what constitutes a 
protected category or class under the criteria set forth in section 
1860D-4(b)(3)(G)(i) of the Act in time for the 2010 plan year, as this 
would require that we hire a contractor, convene an expert panel, and 
go through notice of proposed and final rulemaking prior to April 2009, 
when Part D sponsors are required to submit their formularies. 
Therefore, although the new regulation text at 42 CFR 423.120(b)(2)(v) 
states that ``Effective contract year 2010,'' formularies must include 
all Part D drugs in the categories or classes CMS has identified as 
meeting the MIPPA criteria, in practice, CMS will not have identified 
any such categories or classes for the contract year 2010.
    Rather, for 2010, given the timeframes discussed above, as well as 
the need to ensure consistency in formulary coverage as we complete our 
analysis to implement the requirements of section 1860D-4(b)(3)(G)(i) 
of the Act, in the meantime we will retain our existing six classes of 
clinical concern contained in Chapter 6 of the Medicare Prescription 
Drug Benefit Manual (section 30.2.5), which were incorporated into the 
Manual under the statutory authority set out in section 1860D-
11(e)(2)(D)(i) of

[[Page 2884]]

the Act. Accordingly, Part D sponsors will continue to be expected to 
include all or substantially all drugs in the antidepressant, 
antipsychotic, and anticonvulsant classes, immunosuppressant (for 
prophylaxis of organ transplant rejection), antiretroviral, and 
antineoplastic (those not generally covered under Part B) drugs for 
coverage year 2010. We are retaining the policy providing for coverage 
of all or substantially all drugs in these six classes under our 
existing authority in section 1860D-11(e)(2)(D)(i) of the Act in order 
to ensure that Part D sponsors do not discriminate against any class of 
beneficiary by substantially discouraging enrollment.
    For contract years 2011 and beyond, any modifications we make to 
the protected categories and classes, whether under the existing MMA 
non-discrimination authority or new authority under MIPPA, will be made 
through notice-and-comment rulemaking. Specifically, prior to 
establishing the protected categories and classes under the new MIPPA 
authority, CMS will (i) engage in an identification and validation 
process, such as the process described above and (ii) engage in a 
process of notice and comment rulemaking for any modifications 
(including any additions, subtractions, or exceptions) to the protected 
categories and classes under the MIPPA authority. In such rulemaking, 
or a separate rulemaking, we may further articulate our interpretation 
of the new statutory criteria. We believe that asking for (and 
responding to) public comment on results from the contractor and expert 
panel will better facilitate openness and transparency of the process 
for identifying, as appropriate, classes and categories of drugs that 
meet the MIPPA criteria.
    Similarly, if CMS makes modifications to the existing protected 
categories and classes under the MMA authority (i.e., the existing six 
classes of clinical concern), we will (i) engage in an identification 
and validation process, such as the process described above and (ii) 
engage in notice and comment rulemaking for any such modifications 
(including any additions, subtractions, or exceptions). Any such 
rulemaking may also further articulate our interpretation of the 
statutory language at section 1860D-11(e)(2)(D)(i) of the Act. This 
process will mirror the process for establishing the protected 
categories and classes under the new MIPPA authority. Soliciting, and 
responding to, public comment on results from the contractor and expert 
panel will increase the openness and transparency of the process for 
protecting classes and categories of drugs under the MMA non-
discrimination authority.
    In the past, we have used annual Call Letters and other guidance 
memorandums to announce the policy of expecting plan sponsors to cover 
``all or substantially all'' drugs in the six classes of clinical 
concern. We announced the policy to ensure that enrollees had as smooth 
of a transition as possible into the Part D program. We also wanted to 
minimize potential beneficiary concern about access to drugs in the six 
protected classes and categories.
    However, we now have much more experience with Part D since the 
program started in January 2006. Thus, we are in a better position to 
consider drug categories and classes that should receive protection 
either under MIPPA or the MMA. Further, the public now has greater 
experience with a fully implemented Part D program and can provide more 
comprehensive comments on our continuing considerations about the 
program.
    Hence, CMS has decided that any modifications to the current six 
categories and classes, whether under MIPPA or the MMA authority, will 
go through the process described above that includes notice of proposed 
and final rulemaking. The rulemaking process will provide for more 
transparency in the process of identifying protected categories and 
classes, enabling the public to comment on how modifications to the 
current six classes will impact various stakeholders, including 
beneficiaries, beneficiary advocates, plan sponsors, contractors of 
plan sponsors, and governmental entities, among others.
    In addition, CMS believes that identifying protected classes and 
categories in the Code of Federal Regulations will provide greater 
clarity and transparency about those drug classes that are protected.

III. Waiver of Proposed Rulemaking and Delay in Effective Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived; however, if an agency 
finds good cause that a notice and comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued. We also 
usually provide for a delay in effective date under section 553(d) of 
the APA (5 U.S.C. 553(d), as well as section 801(a)(3) of the 
Congressional Review Act (5 U.S.C. 801(a)(3)) (when applicable). 
However, such delay in effective date may be waived for good cause, 
when such delay is impracticable, unnecessary, or contrary to the 
public interest, and the agency incorporates a statement of the finding 
and a brief statement of the reasons therefore in the notice. 5 U.S.C. 
553(d)(3), 808(2). Because this interim final rule simply makes 
conforming changes to the Code of Federal Regulations to reflect 
changes in the statute, we find it would be unnecessary and contrary to 
the public interest to seek public comment on these provisions. For the 
same reasons, we also find that it would be unnecessary and contrary to 
the public interest to delay the effective date of such provisions 
beyond January 16, 2009.

IV. Collection of Information Requirements

    This document does not impose any new information collection and 
recordkeeping requirements. Currently approved and forthcoming controls 
account for any collection of information burden relative to the 
provisions of this interim final rule, as outlined below.

Section 423.120 Formulary Requirements

    Section 423.120(b)(2)(v) requires Part D sponsors to include in 
their contract year 2010 formularies all drugs in certain protected 
categories of classes of drugs specified by CMS, with certain 
exceptions that CMS establishes.
    The burden associated with this requirement is the time and effort 
put forth by Part D sponsors to submit their formularies to CMS. These 
collection of information requirements are currently approved under the 
Office of Management and Budget (OMB) Control No. 0938-0763.

V. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993, as 
further amended), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), Executive Order 13132 on Federalism (August 4, 1999), and the

[[Page 2885]]

Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866, as amended, directs agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
We estimate that this interim final rule with comment is economically 
significant under the Executive Order 12866, as it contains impacts of 
$100 million or more in any one year, and hence also a major rule under 
the Congressional Review Act.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses, if a rule has a significant impact on a 
substantial number of small entities. For purposes of the RFA, small 
entities include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most hospitals and most other providers and 
supplies are small entities, either by nonprofit status or by having 
revenues of $7 million or less to $34.5 million in any 1 year. 
Individuals and States are not included in the definition of a small 
entity.
    We estimate that the coverage of all drugs by Part D sponsors from 
the CMS-established protected classes or categories to have a cost 
impact to the federal budget in an amount exceeding $100 million for 
any given calendar year (CY). Table 1 provides the costs associated 
with these provisions for CY 2010 through CY 2018. The assumptions 
underlying these cost estimates are explained later in this section.
    With respect to economic benefits, we have no reliable basis for 
estimating the effects of the proposals contained in this IFC. 
Accordingly, we estimate that while there could be economic benefits 
associated with these proposals, they are difficult to gauge at this 
time.
    The economically significant costs are reflected below in table 1.

                                                  Table 1--Projected Part D Costs for CY 2010--CY 2018
                                                                 [Amounts in $ millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               CY 2010-
                                    CY 2010     CY 2011     CY 2012     CY 2013     CY 2014     CY 2015     CY 2016     CY 2017     CY 2018      2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
Formulary requirements with               0         160         340         460         520         570         640         710         800        4200
 respect to certain categories
 or classes of drugs............
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We note that the change in the definition of a Part D drug to 
revise the meaning of the term ``medically accepted indication,'' as 
provided under section 1860D-2(e)(4) of the Act, was scored at zero 
additional cost to the program. Most of the anticancer chemotherapeutic 
regimens utilized by Medicare beneficiaries are covered under Part B, 
and while this new provision may extend coverage for anticancer 
therapeutic regimens under Part D, we believe the number of Part D 
drugs claims impacted by this change will be minimal. Therefore, we do 
not expect that this provision will significantly impact program costs.
a. Regulatory Flexibility Analysis
    Under the RFA, we are not required to conduct an initial regulatory 
flexibility analysis for interim final rules. However, it is our 
longstanding policy to provide an analysis whenever we believe it would 
aid in the understanding of the effects of the interim final rule with 
comment.
    The RFA requires agencies to determine whether a rule will have a 
``significant economic impact on a substantial number of small 
entities.'' Under the RFA, a ``small entity'' is defined as a small 
business (as determined by the Small Business Administration (SBA)), a 
non-profit entity of any size that is not dominant in its field, or a 
small government jurisdiction. HHS uses its measure of a significant 
economic impact on a substantial number of small entities to be a 
change in revenues of more than 3 to 5 percent.
    With respect to the provisions contained in this interim final 
rule, we believe only retail pharmacies which are small businesses will 
be impacted. Other small businesses, such as physicians in private 
practice or small businesses that deliver prescriptions to 
beneficiaries, will be unaffected by this interim final rule since 
there is no direct impact to their operations or profitability. For 
example, private physicians will generally continue to follow current 
prescribing practices regardless of Part D formularies. Small delivery 
businesses will continue to deliver the same number of prescriptions 
regardless of the drug name or formulary inclusion.
    The Small Business Administration (SBA) considers pharmacies with 
firm revenues less than $7 million to be small businesses. The 2004 
Business Census (the latest available detailed data) indicated that 
there were approximately 19,443 firms operating about 40,115 retail 
pharmacies and drug store establishments (NAICS code 44611). Of these 
firms, 17,835 had revenues under $7 million and operated a total of 
17,835 establishments. As a result, we estimate that more than 90 
percent of retail pharmacy firms are small businesses (as defined by 
the SBA size standards).
    We do not believe that retail pharmacies would be significantly 
impacted by the requirement for Part D sponsors to include all drugs in 
protected classes or categories specified by CMS. While the number of 
brand name drugs dispensed in these categories may increase, we do not 
think there will be a substantial increase in overall retail pharmacy 
profits. Retail pharmacies may incur some limited costs relative to 
this provision, since they may need to inventory more drugs within 
these classes given that Part D sponsors may not be able to concentrate 
volume on lower cost salts, esters and active moieties.
    As previously discussed, the other change contained in this interim 
final rule is not expected to affect small businesses in a significant 
manner, if at all. For example, section 182 of the MIPPA requires 
modification to the definition of a medically accepted indication for 
purposes of a Part D drug. While Part D sponsors will be expected to 
implement this new definition through their drug utilization management 
programs, small

[[Page 2886]]

businesses, such as retail pharmacies or physicians, will not require 
any changes to their existing operations. The application of drug 
utilization management is common in the commercial market, and small 
businesses already have processes (that is, administrative staff or 
pharmacy technicians) to supply the necessary information to address 
drug utilization management requirements. As a result, we do not 
anticipate any additional costs or burdens to be placed on other small 
businesses.
    Section 1102(b) of the Social Security Act requires us to prepare a 
regulatory flexibility impact analysis if a rule may have a significant 
impact on the operations of a substantial number of small rural 
hospitals. This analysis must conform to the provisions of section 604 
of the RFA. For purposes of section 1102(b) of the Act, we define a 
small rural hospital as a hospital that is located outside of a 
Metropolitan Statistical Area and has fewer than 100 beds. This interim 
final rule will not affect small rural hospitals since the program will 
be directed at outpatient prescription drugs, not drugs provided during 
a hospital stay. As required by law, prescription drugs provided during 
hospital stays are covered under a separate Medicare payment system. 
Therefore, we are not providing an analysis in this rule.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditure in any one year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $100 million. That threshold, updated for inflation, 
is currently approximately $130 million. We anticipate that this 
interim final rule will not impose costs above the $130 million UMRA 
threshold on State, local, tribal governments, in the aggregate, or by 
the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues a final rule that imposes substantial 
direct requirement costs on State and local governments, preempts State 
law, or otherwise has Federalism implications. The changes and 
additions contained in this interim final rule do not impose new costs 
on states or local governments.
    There are no anticipated Federalism implications because none of 
the provisions contained in this interim final rule place any 
requirements on States.

B. Anticipated Effects on Health Plans and Pharmacy Benefit Managers 
(PBMs)

    Part D sponsors will be significantly impacted by this IFC rule. 
For example, we believe that the new provision relative to the 
establishment of certain protected classes and categories of Part D 
drugs will have a significant impact on Part D sponsors, a class of 
beneficiaries and the Federal Government. This new provision requires 
that Part D sponsors include all drugs in protected classes and 
categories of drugs that CMS specifies as meeting both of the following 
conditions:
    1. Restricted access to drugs in the category or class would have a 
major or life threatening clinical consequence.
    2. A significant clinical need exists for individuals to have 
access to multiple drugs within a category or class due to unique 
chemical actions and pharmacological effects.


We expect these conditions will likely expand access to drugs for 
certain classes or categories and provide greater inclusion of 
manufacturers' drugs associated with those classes or categories in the 
Part D program. If additional drug classes and categories are required 
to be included on Part D sponsor formularies, Part D sponsors' costs 
could increase, since more drugs could need to be covered. Conversely, 
if fewer classes and categories are required to be included on Part D 
sponsors' formularies, Part D sponsors' costs could decrease, since 
less drugs could require coverage. Since we are only now beginning our 
examination of widely used treatment guidelines in order to establish 
the protected classes or categories that meet the aforementioned 
requirements, we estimate that this provision will add an additional 
$160 million to the cost of the Part D program in CY 2011. We believe 
this will increase to $800 million in CY 2018, with total costs of 
approximately $4.2 billion dollars for the period CY 2010 through CY 
2018.
    To arrive at the cost estimate for the implementation of the 
protected categories and classes, we began by putting drug spending 
into 3 groupings: (1) Drugs that were already included in the six 
classes of clinical concern; (2) drugs with a greater likelihood of 
being affected by this statutory change; and (3) drugs with a lesser 
likelihood of being affected by this statutory change. For each of 
these categories, we estimated the likelihood that they would 
ultimately be included in the protected categories and classes. A very 
preliminary review of commonly used classification systems revealed 
that additional categories and classes of drugs may be included in the 
protected categories and classes based upon the statutory requirements 
in section 1860D-4(b)(3)(G)(i) of the Act. We assumed that it would 
take several years for the full impact of this policy to take effect as 
new formulary requirements are fully implemented and manufacturers 
discover their new negotiating positions. Finally, we estimated the 
impact on drug expenditures for those drugs that could potentially be 
moved into protected categories or classes of drugs based on the 
statutory requirements. These impacts reflect our best estimates of a 
range of possibilities that cannot be more accurately projected until 
actual decisions are made.
    There is a large amount of uncertainty in the cost impact presented 
above. As described above, the cost impact is calculated based on 
making a series of assumptions regarding potential classes that may 
become protected. It is possible that the actual number of classes that 
would be protected will be different than we've estimated. For example, 
if no classes beyond the current six become protected, there would be 
no cost impact at all. Alternatively, if a greater number of classes 
than we estimate become protected, the actual cost impact will be 
greater than presented above. Moreover, if this process only resulted 
in the elimination of the existing six classes, savings could accrue.
    If additional categories and classes are included on Part D sponsor 
formularies as a result of the new statutory provisions, we expect 
sponsors' negotiating power to be diminished. If this were to occur, 
Part D sponsors could incur higher drug costs and could be forced to 
raise their bids, which could result in higher premiums and co-pays to 
offset these increases. We also anticipate that Part D sponsors could 
have additional costs associated with managing a larger overall 
formulary--for example, increased Pharmacy and Therapeutics Committee 
oversight and increased expenses in marketing more products on 
comprehensive formularies. Alternatively, however, the number of 
protected classes and categories meeting the MIPPA requirement could 
decline relative to the current six protected under the MMA authority. 
If this were the case, we expect Part D sponsors' negotiating power to 
increase. As a result, Part D sponsors could incur lower drug costs and 
could lower their bids, which could result in lower premiums and co-
pays.
    We are also uncertain at this time what exceptions to the 
requirement that Part D sponsor formularies include all

[[Page 2887]]

drugs in the protected categories and classes of drugs will be 
established by CMS. We anticipate establishing exceptions similar to 
those available under our existing six classes of clinical concern 
policy. It is possible we will establish fewer exceptions, and Part D 
sponsors may have to include more drugs on their formularies than 
current policy. However, it is also possible that we may establish more 
exceptions than current policy. We are also uncertain how Part D 
sponsors will be permitted to apply drug utilization management to 
drugs in the protected classes until we finalize the exceptions to the 
protected categories and classes requirement. We believe that if we are 
unable to permit Part D sponsors to apply meaningful utilization 
management to these drugs--even if only for beneficiaries initiating 
therapy in these categories or classes--the result could be an 
increased use of brand-name or higher cost drugs and an increase in 
costs overall. These costs could be reflected in bids submitted to CMS 
by Part D sponsors and could result in increased premiums for Medicare 
beneficiaries. We plan on working closely with all of our Part D 
sponsors as our guidance in this area develops to ensure they have the 
information they need to negotiate as efficiently as possible and 
continue to provide high quality prescription drug coverage at the most 
economical price.
    Except for the potential impact of increased or decreased costs 
(that is, increased or decreased copayments and premiums) on 
beneficiaries, we do not believe that the implementation of the 
protected classes and categories requirement will negatively impact 
enrollment in Part D plans. We also do not believe that the provisions 
of this rule will lead to greater beneficiary confusion or any 
increased difficulty in making enrollment decisions. While increased 
copayments and premiums may dissuade some beneficiaries from enrolling 
in particular Part D plans, we continue to believe that overall 
enrollment will increase given demographic trends and the increasing 
cash prices for drugs. Accordingly, we believe Medicare beneficiaries 
will continue to find Part D to be a cost efficient method of obtaining 
robust drug coverage at a range of acceptable costs.
    We also believe that PBMs could experience higher administrative 
costs as a result of the provisions contained in this rule. The 
protected classes provision may increase a number of formulary 
maintenance expenses ranging from managing a larger formulary to 
increased support of technical call centers to address requests for 
assistance in processing a wider range of covered drugs. As a result, 
PBMs may increase their fees to Part D sponsors to offset these 
increased costs. We do not believe these additional costs will 
negatively impact the PBM industry given its ability to pass these onto 
the Part D sponsors. Similar to our ongoing communications with our 
Part D sponsors, we intend to work closely with the PBM industry to 
ensure as much efficiency as possible and minimize any resulting 
increases in beneficiary costs.

C. Alternatives Considered

    All of the provisions in this interim final rule are a result of 
the recent passage of the MIPPA and are largely self-implementing. With 
the publication of this interim final rule, we desire to make our 
implementing regulations available to industry and the public as soon 
as possible to facilitate continued, efficient operation of the Parts C 
and D programs.

D. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/index.html), Table 2 below provides an 
accounting statement showing the classification of the expenditures 
associated with the provisions of this IFC rule. This table provides 
our best estimate of the increase in costs as a result of the changes 
presented in this final rule. All costs, including increases and 
reductions, are classified as transfers by the Federal Government to 
Part D plans or MAOs.

                     Table 2--Accounting Statement: Classification of Estimated Expenditures
----------------------------------------------------------------------------------------------------------------
                   Category                                          Transfers ($ millions)
----------------------------------------------------------------------------------------------------------------
Formulary requirements with respect to certain
 categories or classes of drugs, CYs 2010-
 2018:
    Undiscounted Annualized Monetized           466.7.
     Transfers.
    Annualized Monetized Transfers Using 7%     424.5.
     Discount Rate.
    Annualized Monetized Transfers Using 3%     448.3.
     Discount Rate.
    From Whom to Whom?........................  Federal Government to Part D Plans.
----------------------------------------------------------------------------------------------------------------

D. Conclusion

    Given that we expect the cost of implementing a number of the 
provisions contained in this IFC rule, as specified in Table 1, will 
exceed the $100 million threshold within a single year between CY 2010 
and CY 2018, we conducted an economic impact analysis with regard to 
those entities potentially impacted by these provisions. As we stated 
previously in this preamble, we expect that entities such as pharmacies 
will benefit from these changes, whereas other entities, such as Part D 
sponsors, will experience additional costs which they will pass on to 
CMS through direct subsidy payments and to beneficiaries through 
additional premiums as reflected in their bids. In accordance with the 
provisions of Executive Order 12866, this final rule was reviewed by 
the Office of Management and Budget.

List of Subjects in 42 CFR Part 423

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

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

PART 423--VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT

Subpart C--Benefits and Beneficiary Protections

0
1. The authority citation for part 423 continues to read as follows:

    Authority: Secs. 1102, 1106, 1860D-1 through 1860D-42, and 1871 
of the Social Security Act (42 U.S.C. 1302, 1306, 1395w-101 through 
1395w-152, and 1395hh).


0
2. Amend Sec.  423.100 by revising the introductory text of paragraph 
(1) under the definition of ``Part D drug'' to read as follows:

[[Page 2888]]

Sec.  423.100  Definitions.

* * * * *
    Part D drug means--
    (1) Unless excluded under paragraph (2) of this definition, any of 
the following if used for a medically accepted indication (as defined 
in section 1860D-2(e)(4) of the Act)--
* * * * *

0
3. Amend Sec.  423.120 by--
0
A. Revising (b)(2) introductory text.
0
B. Revising (b)(2)(i).
0
C. Adding (b)(2)(v).
    The revisions and additions to read as follows:


Sec.  423.120  Access to covered Part D drugs.

* * * * *
    (b) * * *
    (2) Provision of an Adequate Formulary. A Part D plan's formulary 
must--
    (i) Except as provided in paragraphs (b)(2)(ii) and (v) of this 
section, include within each therapeutic category and class of Part D 
drugs at least two Part D drugs that are not therapeutically equivalent 
and bioequivalent, with different strengths and dosage forms available 
for each of those drugs, except that only one Part D drug must be 
included in a particular category or class of covered Part D drugs if 
the category or class includes only one Part D drug.
* * * * *
    (v) Effective contract year 2010, a Part D Sponsor's formulary will 
include all Part D drugs in a category or class that CMS has identified 
as meeting the two conditions set forth in section 1860D-4(b)(3)(G)(i) 
of the Act. CMS may establish certain exceptions, which may include the 
application of drug utilization management under certain circumstances, 
through a process that provides for public notice and comment, and 
ensures that any exception to such requirements is based upon 
scientific evidence and medical standards of practice (and, in the case 
of antiretroviral medications, is consistent with the Department of 
Health and Human Services Guidelines for the Use of Antiretroviral 
Agents in HIV-1-Infected Adults and Adolescents).
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

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

    Dated: September 12, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: January 9, 2009.
Michael O. Leavitt,
Secretary.
 [FR Doc. E9-783 Filed 1-15-09; 8:45 am]
BILLING CODE 4120-01-P