[Federal Register Volume 76, Number 196 (Tuesday, October 11, 2011)]
[Proposed Rules]
[Pages 63018-63091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-25844]



[[Page 63017]]

Vol. 76

Tuesday,

No. 196

October 11, 2011

Part V





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 417, 422, 423 et al.





Medicare Program; Proposed Changes to the Medicare Advantage and the 
Medicare Prescription Drug Benefit Programs for Contract Year 2013 and 
Other Proposed Changes; Considering Changes to the Conditions of 
Participation for Long Term Care Facilities; Proposed Rule

  Federal Register / Vol. 76 , No. 196 / Tuesday, October 11, 2011 / 
Proposed Rules  

[[Page 63018]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 417, 422, 423, and 483

[CMS-4157-P]
RIN 0938-AQ86


Medicare Program; Proposed Changes to the Medicare Advantage and 
the Medicare Prescription Drug Benefit Programs for Contract Year 2013 
and Other Proposed Changes; Considering Changes to the Conditions of 
Participation for Long Term Care Facilities

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

ACTION: Proposed rule.

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SUMMARY: The proposed rule would revise the Medicare Advantage (MA) 
program (Part C) regulations and prescription drug benefit program 
(Part D) regulations to implement new statutory requirements; 
strengthen beneficiary protections; exclude plan participants that 
perform poorly; improve program efficiencies; and clarify program 
requirements. We are also considering changes to the long term care 
facility conditions of participation pertaining to pharmacy services.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on December 12, 
2011.

ADDRESSES: In commenting, please refer to file code CMS-4157-P. 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 this 
regulation to http://www.regulations.gov. 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 to the following 
address ONLY:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-4157-P, P.O. Box 8013, Baltimore, MD 
21244-8013.
    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-4157-P, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments (one original and two copies) to one of 
the following addresses prior to the close of the comment period:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey 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. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-1066 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously 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: Christian Bauer, (410) 786-6043, and 
Kathryn Jansak, (410) 786-9364, General information.

Christopher McClintick, (410) 786-4682, Part C issues.
Deborah Larwood, (410) 786-9500, Part D issues.
Kristy Nishimoto, (206) 615-2367, Part C and D enrollment and appeals 
issues.
Deondra Moseley, (410) 786-4577, Part C and D payment issues.

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. You can assist us by referencing the file code 
CMS-4157-P.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received at: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also 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, 
phone at 1-800-743-3951.

Table of Contents

I. Background
II. Provisions of the Proposed Regulation
    A. Implementing Statutory Provisions
    1. Coverage Gap Discount Program (Sec.  423.100, Sec.  423.505, 
Sec.  423.1000, Sec.  423.1002, and Subpart W (Sec.  423.2300-
423.2410))
    a. Scope (Sec.  423.2300)
    b. Definitions (Sec.  423.2305)
    (1) Applicable Beneficiary
    (2) Applicable Drug
    (3) Incurred Costs
    (4) Manufacturer
    (5) Medicare Part D Discount Information
    (6) Negotiated Price
    (7) Other Health or Prescription Drug Coverage
    c. Condition for Coverage of Drugs under Part D (Sec.  423.2305)
    d. Medicare Coverage Gap Discount Program Agreement (Sec.  
423.2315)
    (1) Obligations of the Manufacturer
    (2) Length of Agreement
    e. Payment Processes for Part D Sponsors (Sec.  423.2320)
    (1) Interim Payments
    (2) Coverage Gap Discount Reconciliation
    f. Provision of Applicable Discounts on Applicable Drugs for 
Applicable Beneficiaries (Sec.  423.2325)
    (1) Obligations of Part D Sponsors; Point-of-Sale Discounts
    (2) Collection of Data
    (3) Other Health or Prescription Drug Coverage
    (4) Supplemental Benefits
    (5) Pharmacy Prompt Payment
    g. Manufacturer Discount Payment Audit and Dispute Resolution 
(Sec.  423.2330)
    (1) Third Party Administrator Audits
    (2) Manufacturer Audits

[[Page 63019]]

    (3) Dispute Resolution
    h. Beneficiary Dispute Resolution (423.2335)
    i. Compliance Monitoring and Civil Money Penalties (Sec.  
423.2340)
    j. Termination of Agreement (Sec.  423.2345)
    2. Inclusion of Benzodiazepines and Barbiturates as Part D 
Covered Drugs (Sec.  423.100)
    3. Pharmacy Benefit Manager's Transparency Requirements (Sec.  
423.501 and Sec.  423.514)
    B. Strengthening Beneficiary Protections
    1. Good Cause and Reinstatement into a Cost Plan (Sec.  417.460)
    2. Requiring MA Plans to Issue ID Cards (Sec.  422.111)
    3. Determination of Actuarially Equivalent Creditable 
Prescription Drug Coverage (Sec.  423.56)
    4. Who May File Part D Appeals with the Independent Review 
Entity (Sec.  423.600 and Sec.  423.602)
    5. Independence of LTC Consultant Pharmacists (Sec.  483.60)
    C. Excluding Poor Performers
    1. CMS Termination of Health Care Prepayment Plans (Sec.  
417.801)
    2. Plan Performance Ratings as a Measure of Administrative and 
Management Arrangements and as a Basis for Termination or Non-
Renewal of a Medicare Contract (Sec.  422.504, Sec.  422.510, Sec.  
423.505, and Sec.  423.509)
    3. Denial of Applications Submitted by Part C and D Sponsors 
with a Past Contract Termination or CMS-Initiated Non-Renewal (Sec.  
422.502 and Sec.  423.503)
    D. Improving Program Efficiencies
    1. Cost Contract Plan Public Notification Requirements in Cases 
of Non-Renewal (Sec.  417.492)
    2. New Benefit Flexibility for Fully-Integrated Dual Eligible 
Special Needs Plans (FIDE SNPs) (Sec.  422.102)
    3. Application of the Medicare Hospital-Acquired Conditions and 
Present on Admission Indicator Policy to MA Organizations (Sec.  
422.504)
    4. Clarifying Coverage of Durable Medical Equipment (Sec.  
422.100 and Sec.  422.111)
    a. Access to Preferred DME Items and Supplies
    b. Medical Necessity Requirements for DME Items and Supplies
    c. Transition Period for Coverage of Non-Preferred DME Items and 
Supplies
    d. Midyear Changes to Preferred DME Items and Supplies
    e. Appeals
    f. Disclosure of DME Coverage Limitations
    5. Broker and Agent Requirements (Sec.  422.2274 and Sec.  
423.2274)
    6. Establishment and Application of Daily Cost-Sharing Rate as 
Part of Drug Utilization Management and Fraud, Abuse, and Waste 
Control Program (Sec.  423.104 and Sec.  423.153)
    E. Clarifying Program Requirements
    1. Technical Corrections to Enrollment Provisions (Sec.  
417.422, Sec.  417.432, Sec.  422.60, and Sec.  423.56)
    2. Extending MA and Part D Program Disclosure Requirements to 
Section 1876 Cost Contract Plans (Sec.  417.427)
    3. Clarification of, and Extension to Local Preferred Provider 
Plans, of Regional Preferred Provider Organization Plan Single 
Deductible Requirement (Sec.  422.101)
    4. Technical Change to Private Fee-For-Service Plan Explanation 
of Benefits Requirements (Sec.  422.216)
    5. Application Requirements for Special Needs Plans (Sec.  
422.500, Sec.  422.501, Sec.  422.502, Sec.  422.641, and Sec.  
422.660)
    6. Timeline for Resubmitting Previously Denied MA Applications 
(Sec.  422.501)
    7. Clarification of Contract Requirements for First Tier and 
Downstream Entities (Sec.  422.504 and Sec.  423.505)
    8. Valid Prescriptions (Sec.  423.100 and Sec.  423.104)
    9. Medication Therapy Management Comprehensive Medication 
Reviews and Beneficiaries in LTC Settings (Sec.  423.153)
    10. Employer Group Waiver Plans Requirement to Follow All Part D 
Rules Not Explicitly Waived (Sec.  423.458)
    11. Access to Covered Part D Drugs Through Use of Standardized 
Technology and National Provider Identifiers (Sec.  423.120)
III. Collection of Information Requirements
IV. Response to Public Comments
V. Regulatory Impact Analysis

Regulations Text

Acronyms

AO Accrediting Organization
ADS Automatic Dispensing System
AEP Annual Enrollment Period
AHFS American Hospital Formulary Service
AHFS-DI American Hospital Formulary Service-Drug Information
AHRQ Agency for Health Care Research and Quality
ALJ Administrative Law Judge
ANOC Annual Notice of Change
AOR Appointment of Representative
BBA Balanced Budget Act of 1997 (Pub. L. 105-33)
BBRA [Medicare, Medicaid and State Child Health Insurance Program] 
Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)
BIPA [Medicare, Medicaid, and SCHIP] Benefits Improvement Protection 
Act of 2000 (Pub. L. 106-554)
BLA Biologics License Application
CAHPS Consumer Assessment Health Providers Survey
CAP Corrective Action Plan
CCIP Chronic Care Improvement Program
CC/MCC Complication/Comorbidity and Major Complication/Comorbidity
CCS Certified Coding Specialist
CDC Centers for Disease Control
CHIP Children's Health Insurance Programs
CMR Comprehensive Medical Review
CMS Centers for Medicare & Medicaid Services
CMS-HCC CMS Hierarchal Condition Category
CTM Complaints Tracking Module
COB Coordination of Benefits
CORF Comprehensive Outpatient Rehabilitation Facility
CPC Certified Professional Coder
CY Calendar year
DEA Drug Enforcement Administration
DIR Direct and Indirect Remuneration
DME Durable Medical Equipment
DMEPOS Durable Medical Equipment, Prosthetic, Orthotics, and 
Supplies
D-SNPs Dual Eligible SNPs
DOL U.S. Department of Labor
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171)
DUM Drug Utilization Management
EGWP Employer Group/Union-Sponsored Waiver Plan
EOB Explanation of Benefits
EOC Evidence of Coverage
ESRD End-Stage Renal Disease
FACA Federal Advisory Committee Act
FDA Food and Drug Administration
FEHBP Federal Employees Health Benefits Plan
FFS Fee-For-Service
FIDE Fully-integrated Dual Eligible
FIDE SNPs Fully-integrated Dual Eligible Special Needs Plans
FMV Fair Market Value
FY Fiscal year
GAO Government Accountability Office
HAC Hospital-Acquired Conditions
HCPP Health Care Prepayment Plans
HEDIS HealthCare Effectiveness Data and Information Set
HHS [U.S. Department of] Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191)
HMO Health Maintenance Organization
HOS Health Outcome Survey
HPMS Health Plan Management System
ICD-9-CM Internal Classification of Disease, 9th, Clinical 
Modification Guidelines
ICEP Initial Coverage Enrollment Period
ICL Initial Coverage Limit
ICR Information Collection Requirement
ID Identification
IPPS [Acute Care Hospital] Inpatient Prospective Payment System
IRE Independent Review Entity
IVC Initial Validation Contractor
LEP Late Enrollment Penalty
LIS Low Income Subsidy
LPPO Local Preferred Provider Organization
LTC Long Term Care
MA Medicare Advantage
MAAA Member of the American Academy of Actuaries
MA-PD Medicare Advantage-Prescription Drug Plan
MIPPA Medicare Improvements for Patients and Providers Act of 2008 
(Pub. L. 110-275)
MOC Medicare Options Compare
MOOP Maximum Out-of-Pocket
MPDPF Medicare Prescription Drug Plan Finder
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MS-DRG Medicare Severity Diagnosis Related Group
MSA Metropolitan Statistical Area
MSAs Medical Savings Accounts
MSP Medicare Secondary Payer
MTM Medication Therapy Management
MTMP Medication Therapy Management Program

[[Page 63020]]

NAIC National Association Insurance Commissioners
NCPDP National Council for Prescription Drug Programs
NCQA National Committee for Quality Assurance
NDA New Drug Application
NDC National Drug Code
NGC National Guideline Clearinghouse
NIH National Institutes of Health
NOMNC Notice of Medicare Non-coverage
NPI National Provider Identifier
OIG Office of Inspector General
OMB Office of Management and Budget
OPM Office of Personnel Management
OTC Over the Counter
PART C Medicare Advantage
PART D Medicare Prescription Drug Benefit Program
PBM Pharmacy Benefit Manager
PDE Prescription Drug Event
PDP Prescription Drug Plan
PFFS Private Fee for Service Plan
POA Present on Admission (Indicator)
POS Point-of-Sale
PPO Preferred Provider Organization
PPS Prospective Payment System
P&T Pharmacy & Therapeutics
QIO Quality Improvement Organization
QRS Quality Review Study
PACE Programs of All Inclusive Care for the Elderly
RADV Risk Adjustment Data Validation
RAPS Risk Adjustment Payment System
RHIA Registered Health Information Administrator
RHIT Registered Health Information Technician
RPPO Regional Preferred Provider Organization
SEP Special Enrollment Periods
SHIP State Health Insurance Assistance Programs
SNF Skilled Nursing Facility
SNP Special Needs Plan
SPAP State Pharmaceutical Assistance Programs
SSA Social Security Administration
SSI Supplemental Security Income
TPA Third Party Administrator
TrOOP True Out-of-Pocket
U&C Usual and Customary
UPIN Uniform Provider Identification Number
USP U.S. Pharmacopoeia

SUPPLEMENTARY INFORMATION: 

I. Background

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) created a 
new ``Part C'' in the Medicare statute (sections 1851 through 1859 of 
the Social Security Act (the Act)) which established what is now known 
as the Medicare Advantage (MA) program. The Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173), 
enacted on December 8, 2003, added a new ``Part D'' to the Medicare 
statute (sections 1860D-1 through 1860D-42 of the Act) entitled the 
Medicare Prescription Drug Benefit Program, and made significant 
changes to the existing Part C program, which it named the Medicare 
Advantage (MA) Program. The MMA directed that important aspects of the 
Part D program be similar to, and coordinated with, regulations for the 
MA program. Generally, the provisions enacted in the MMA took effect 
January 1, 2006. The final rules implementing the MMA for the MA and 
Part D prescription drug programs appeared in the January 28, 2005 
Federal Register (70 FR 4588 through 4741 and 70 FR 4194 through 4585, 
respectively).
    Since the inception of both Parts C and D, we have periodically 
revised our regulations either to implement statutory directives or to 
incorporate knowledge obtained through experience with both programs. 
For instance, in September 2008 and January 2009, we issued Part C and 
D regulations (73 FR 54226 and 74 FR 1494, respectively) to implement 
provisions in the Medicare Improvement for Patients and Providers Act 
(MIPPA) (Pub. L. 110-275). We promulgated a separate interim final rule 
in January 2009 to address MIPPA provisions related to Part D plan 
formularies (74 FR 2881). In April 2010, we issued Part C and D 
regulations (75 FR 19678) which strengthened various program 
participation and exit requirements; strengthened beneficiary 
protections; ensured that plan offerings to beneficiaries included 
meaningful differences; improved plan payment rules and processes; 
improved data collection for oversight and quality assessment; 
implemented new policies; and clarified existing program policy.
    In a final rule that appeared in the April 15, 2011 Federal 
Register (76 FR 21432), we continued our process of implementing 
improvements in policy consistent with those included in the April 2010 
final rule, and also implemented changes to the Part C and Part D 
programs made by recent legislative changes. The Patient Protection and 
Affordable Care Act (Pub. L. 111-148) was enacted on March 23, 2010, as 
passed by the Senate on December 24, 2009, and the House on March 21, 
2010. The Health Care and Education Reconciliation Act (Pub. L. 111-
152), which was enacted on March 30, 2010, modified a number of 
Medicare provisions in Pub. L. 111-148 and added several new 
provisions. The Patient Protection and Affordable Care Act (Pub. L. 
111-148) and the Health Care and Education Reconciliation Act (Pub. L. 
111-152) are collectively referred to as the Affordable Care Act. The 
Affordable Care Act included significant reforms to both the private 
health insurance industry and the Medicare and Medicaid programs. 
Provisions in the Affordable Care Act concerning the Part C and D 
programs largely focused on beneficiary protections, MA payments, and 
simplification of MA and Part D program processes. These provisions 
affected implementation of our policies regarding beneficiary cost-
sharing, assessing bids for meaningful differences, and ensuring that 
cost-sharing structures in a plan are transparent to beneficiaries and 
not excessive. In the April 2011 final rule, we revised regulations on 
a variety of issues based on the Affordable Care Act and our experience 
in administering the MA and Part D programs. The rule covered areas 
such as marketing, including agent/broker training; payments to MA 
organizations based on quality ratings; standards for determining if 
organizations are fiscally sound; low income subsidy policy under the 
Part D program; payment rules for non-contract health care providers; 
extending current network adequacy standards to Medicare medical 
savings account (MSA) plans that employ a network of providers; 
establishing limits on out-of-pocket expenses for MA enrollees; and 
several revisions to the special needs plan requirements, including 
changes concerning SNP approvals.

II. Provisions of the Proposed Regulations

    In the sections that follow, we discuss the proposed changes to the 
regulations in 42 CFR parts 417, 422, and 423 governing the MA and 
prescription drug benefit programs. We also are considering changes to 
the regulations setting forth Medicare conditions of participation for 
long-term care facilities, which are currently codified at 42 CFR part 
483. To better frame the discussion, we have structured the overall 
preamble narrative by topic area rather than by subpart order. 
Accordingly, our proposals address the following five specific topic 
areas:
     Implementing provisions of MIPPA and the Affordable Care 
Act.
     Strengthening beneficiary protections.
     Excluding poor performers.
     Improving program efficiencies.
     Clarifying program requirements.
    Several of the proposed revisions and clarifications affect both 
the MA and prescription drug programs, while a few affect cost 
contracts under section 1876 of the Act. Within each topic area, we 
provide a chart that lists the associated regulatory citations and we 
discuss the provisions in order of appearance in the proposed 
regulations. We are also considering changing the long term care 
facility conditions of participation

[[Page 63021]]

pertaining to pharmacy services and, accordingly, cover that issue 
under the appropriate topic in the preamble section, in order of 
regulation location under consideration.
    We note that these regulations would be effective 60 days after the 
publication of the final rule that would finalize the proposed changes 
discussed in this proposed rule, except where otherwise noted in the 
preamble. Only one proposed item would have a different effective date: 
section 175(b) of MIPPA provides that the proposed amendments requiring 
that benzodiazepines and, for specified health conditions, barbiturates 
be considered as Part D drugs apply to prescriptions dispensed on or 
after January 1, 2013.

A. Implementing Statutory Provisions

    This section contains three provisions, two of which would 
implement sections of the Affordable Care Act and one which would 
implement a MIPPA mandate. We propose to consolidate and codify 
previous guidance regarding the Coverage Gap Discount Program mandated 
by the Affordable Care Act. Through this consolidation we aim to 
provide stakeholders a central, clear source of direction. Regulations 
under a MIPPA provision would provide first line treatment for 
beneficiaries with certain health conditions who require 
benzodiazepines and, as specified, barbiturates. We believe that 
implementing section 6005 of the Affordable Care Act, which requires us 
to collect Pharmacy Benefit Manager (PBM) spread amounts, would 
establish necessary transparency related to entities that provide 
pharmacy benefits management services to Part D sponsors. The changes 
based on provisions in the Affordable Care Act and MIPPA are detailed 
in Table 1.

                              Table 1--Provisions To Implement Statutory Provisions
----------------------------------------------------------------------------------------------------------------
                                                                                 Part 423
        Preamble section                Provision        -------------------------------------------------------
                                                                     Subpart                    Section(s)
----------------------------------------------------------------------------------------------------------------
II.A.1.........................  Coverage Gap Discount    Subpart C....................           Sec.   423.100
                                  Program.                Subpart K....................           Sec.   423.505
                                                          Subpart T....................          Sec.   423.1000
                                                          Subpart T....................          Sec.   423.1002
                                                          Subpart W (new)..............     Sec.   423.2300-Sec.
                                                                                                        423.2345
II.A.2.........................  Inclusion of             Subpart C....................           Sec.   423.100
                                  Benzodiazepines and
                                  Barbiturates as Part D
                                  Covered Drugs.
II.A.3.........................  Pharmacy Benefit         Subpart K....................           Sec.   423.501
                                  Manager's Transparency                                          Sec.   423.514
                                  Requirements.
----------------------------------------------------------------------------------------------------------------

1. Coverage Gap Discount Program (Sec.  423.100, Sec.  423.505(b), 
Sec.  423.1000, Sec.  423.1002, and Sec.  423.2300 through Sec.  
423.2345 (Subpart W))
    The Medicare Prescription Drug Benefit was enacted into law on 
December 8, 2003, in section 101 of the MMA and codified in sections 
1860D-1 through 1860D-42 of the Act. Section 101 of the MMA amended 
Title XVIII of the Act by redesignating Part D as Part E and inserting 
new Part D, which establishes the voluntary Prescription Drug Benefit 
Program (Part D). The Part D program is available to individuals who 
are entitled to Medicare Part A or enrolled in Medicare Part B. We 
contract with private companies referred to as Part D sponsors to 
administer the Part D program via stand alone prescription drug plans 
(PDPs) and prescription drug plans offered by Medicare Advantage 
Organizations (MA-PDs). The Part D program became effective January 1, 
2006.
    The MMA established standard Part D prescription drug coverage that 
consists of coverage subject to an annual deductible, 25 percent 
coinsurance (or an actuarially equivalent cost-sharing design) up to 
the initial coverage limit (ICL), and catastrophic coverage for 
individuals who exceed the annual maximum true out-of-pocket (TrOOP) 
threshold with cost-sharing equal to the greater of a $2/$5 copayment 
or coinsurance of 5 percent. Prior to the enactment of the Affordable 
Care Act, under standard coverage, individuals that did not receive 
additional cost-sharing subsidies from CMS or additional coverage by 
other secondary payers (for example, State Pharmaceutical Assistance 
Programs) were responsible for paying one hundred percent of the Part D 
negotiated price for covered Part D claims above the ICL until their 
TrOOP costs exceed the annual threshold amount.
    The Affordable Care Act made several amendments to Part D of Title 
XVIII of the Act, including adding sections 1860D-43 and 1860D-14A of 
the Act, and amending section 1860D-2(b) of the Act. Beginning on 
January 1, 2011, these amendments started phasing out the Part D 
coverage gap, or ``donut hole'' for Medicare beneficiaries who do not 
already receive low-income subsidies from CMS by establishing the 
Medicare Coverage Gap Discount Program (Discount Program) and gradually 
increasing coverage in the coverage gap for both generic drugs 
(beginning in 2011) and brand name drugs and biological products 
(beginning in 2013). By 2020, beneficiary cost-sharing for all covered 
brand-name and generic drugs and biological products will equal 25 
percent until they reach catastrophic coverage.
    The Discount Program makes manufacturer discounts available at the 
point-of-sale to applicable Medicare beneficiaries receiving applicable 
drugs while in the coverage gap. In general, the discount on each 
applicable drug is 50 percent of an amount equal to the negotiated 
price of the drug (less any dispensing fee). Manufacturers must agree 
to provide these discounts by signing an agreement with CMS in order 
for their applicable drugs to continue to be covered under Medicare 
Part D, unless we use our authority under section 1860D-43(c) of the 
Act to make an exception that allows coverage without an agreement.
    While manufacturer discounts under the Discount Program must be 
made available at point-of-sale, the Affordable Care Act does not 
specify how this should be done. At the same time, it prohibits us from 
receiving or distributing any funds of the manufacturer under the 
program. In order to provide point-of-sale discounts, we determined 
that an entity must have the information necessary to determine at that 
point in time that the drug is discountable, the beneficiary is 
eligible for the discount, the claim is wholly or partly in the 
coverage gap, and the amount of the discount, taking into consideration 
negotiated plan prices and that plan supplemental benefits must pay 
before the discount amount can be determined. We determined that

[[Page 63022]]

the only entities that have the information necessary to provide point-
of-sale discounts under the Discount Program are Part D sponsors. Only 
the Part D sponsor knows which Part D drugs are on its formulary and 
which enrollees have obtained an exception to receive a non-formulary 
Part D drug. The Part D sponsor has the low-income subsidy (LIS) 
information for beneficiaries that is necessary to exclude such claims 
from the Discount Program. The Part D sponsor tracks gross drug spend 
and TrOOP costs, which are necessary for determining when the 
beneficiary enters and exits the coverage gap. In addition, only the 
Part D sponsor knows which portion of the claim is in the coverage gap. 
For these reasons, we believe only the Part D sponsor can accurately 
provide the discount at point-of-sale.
    We explored the viability of a model whereby a third party 
administrator (TPA) could directly adjudicate the discount payment to 
pharmacies. In this hypothetical model, the pharmacy would submit the 
Part D claim to the Part D sponsor and receive information on the 
response that would direct the pharmacy to bill the third party for 
applicable claims. While this model initially showed promise, our 
discussions with industry through National Council of Prescription Drug 
Program (NCPDP) workgroups revealed that neither the current Health 
Insurance Portability and Accountability Act (HIPAA) electronic 
pharmacy claims billing standard nor the next HIPAA approved version of 
the billing standard could support the transfer of information from the 
Part D sponsor that would be necessary to specify the appropriate 
claims and appropriate discount amounts to be billed to the third party 
administrator, or allow for accurate coordination of benefits among 
payers. Consequently, we determined that this model cannot be used to 
implement the Discount Program in the foreseeable future.
    Section 1860D-14A(d)(5) of the Act authorizes us to implement the 
Discount Program through program instruction. We used this authority to 
issue program guidance to Part D sponsors, with an abbreviated notice 
and comment period, instructing them to provide applicable discounts on 
applicable drugs to applicable beneficiaries at point-of-sale beginning 
on January 1, 2011. The guidance also specified that Part D sponsors 
would report discount amounts to us, that we would invoice 
manufacturers on a quarterly basis for these discounts, and that the 
manufacturers would repay each Part D sponsor directly for the invoiced 
discount provided on the manufacturers' behalf. We determined that this 
model was necessary because Part D sponsors needed to provide the 
discounts at point-of-sale (as explained previously) and we needed to 
coordinate the discount payments between manufacturers and Part D 
sponsors to ensure discounts were appropriately provided by the Part D 
sponsors and reimbursed by the manufacturers without directly receiving 
or distributing manufacturer funds (which we are prohibited from doing 
by section 1860D-14A(d)(2)(A) of the Act).
    We needed to implement the Discount Program through program 
instruction because of the January 1, 2011 implementation deadline. 
Although not required, we are now proposing to codify most existing 
Discount Program requirements (that is, those that we have previously 
implemented through the relevant Agreements and guidance) through full 
notice and comment rulemaking to provide additional transparency and a 
formal framework for operating the Discount Program and enforcing its 
requirements.
a. Scope (Sec.  423.2300)
    Subpart W of part 423 implements provisions included in sections 
1860D-14A and 1860D-43 of the Act. This subpart sets forth requirements 
as follows:
     Condition of coverage of drugs under Part D.
     The Medicare Coverage Gap Discount Program Agreement.
     Coverage gap discount payment processes for Part D 
sponsors.
     Provision of applicable discounts on applicable drugs for 
applicable beneficiaries.
     Manufacturer audit and dispute resolution processes.
     Resolution of beneficiary disputes involving coverage gap 
discounts.
     Compliance monitoring and civil money penalties.
     The termination of the Discount Program Agreement.
b. Definitions (Sec.  423.2305)
    Proposed Sec.  423.2305 includes definitions for terms that are 
frequently used in this subpart. Those terms we believe need additional 
clarification are described separately in this section of the proposed 
rule.
(1) Applicable Beneficiary
    Applicable beneficiary is defined in Sec.  423.100. We clarify that 
enrollees in employer-sponsored group prescription drug plans (as 
defined in Sec.  423.454) may qualify as applicable beneficiaries.
(2) Applicable Drug
    Applicable drug is defined in Sec.  423.100. We clarify that 
applicable drugs include all covered Part D drugs marketed under a new 
drug application (NDA) or biologics license application (BLA) (other 
than a product licensed under section 351(k) of the Public Health 
Service Act). This means that such drugs and biological products would 
be subject to an applicable discount in the coverage gap even if a Part 
D sponsor otherwise considers the product to be generic under its 
benefit. Conversely, covered Part D drugs that are marketed under trade 
names and generally thought of as brand-name drugs or biological 
products, but are not approved under an NDA or licensed under a BLA 
(other than a product licensed under section 351(k) of the Public 
Health Service Act), are not applicable drugs that would be subject to 
an applicable discount in the coverage gap. Finally, drugs excluded 
from Part D under section 1860D-2(e)(2)(A) of the Act are not covered 
Part D drugs and therefore, such drugs would not be applicable drugs 
subject to an applicable discount even if covered by the Part D sponsor 
under an enhanced benefit. Part D sponsors would need to make these 
determinations on a National Drug Code (NDC) by NDC basis.
    The second part of the definition provides that an applicable drug 
is either available on-formulary if a Part D sponsor uses a formulary, 
or available under the benefits provided by a Part D sponsor that does 
not use a formulary, or available to a particular beneficiary through 
an exception or appeal for that particular beneficiary. Applicable 
drugs covered under transition and emergency fill policies are 
considered covered through an exception and, therefore, would be 
subject to applicable discounts.
    In addition, we interpret the definition of an applicable drug for 
purposes of the Discount Program to exclude Part D compounds. While 
Part D sponsors may cover compounds with at least one Part D drug 
ingredient, and that ingredient would be an applicable drug if 
dispensed on its own, in light of the operational difficulty in 
accurately determining which portion(s) of a Part D compound represents 
the Part D drug, we believe that the applicable drug determination must 
be made with respect to the compound as a whole. Given that a compound 
as a whole is not approved under an NDA or BLA, a compound does not 
meet the definition of an applicable drug.

[[Page 63023]]

(3) Incurred Costs
    Section 3301 of the Affordable Care Act amends section 1860D-
2(b)(4) of the Act by adding subparagraph (E) when applying 
subparagraph (A) to include the negotiated price (as defined in 
paragraph (6) of section 1860D-14A(g) of the Act) of an applicable drug 
of a manufacturer that is furnished to an applicable beneficiary under 
Medicare Coverage Gap Discount Program regardless of whether part of 
such costs were paid by a manufacturer under such program, except that 
incurred costs shall not include the portion of the negotiated price 
that represents the reduction in coinsurance resulting from the 
application of paragraph (2)(D) (that is, gap coverage). Therefore, we 
propose to revise the definition of incurred costs in Sec.  423.100 by 
adding the following language to paragraph (2)(ii) of such definition--
``or by a manufacturer as payment for an applicable discount (as 
defined Sec.  423.2305) under the Medicare Coverage Gap Discount 
Program (as defined in Sec.  423.2305)''. This would mean that all 
applicable discounts paid by manufacturers would be treated as incurred 
costs for purposes of calculating the beneficiary's TrOOP.
(4) Manufacturer
    Section 1860D-14A(g)(5) of the Act defines manufacturer under the 
Discount Program as any entity which is engaged in the production, 
preparation, propagation, compounding, conversion or processing of 
prescription drug products, either directly or indirectly, by 
extraction from substances of natural origin, or independently by means 
of chemical synthesis, or by a combination of extraction and chemical 
synthesis. Such term does not include a wholesale distributor of drugs 
or a retail pharmacy licensed under State law. We propose to adopt this 
statutory language in Sec.  423.2305 and also add the following 
clarifying language ``but includes entities otherwise engaged in 
repackaging or changing the container, wrapper, or labeling of any 
applicable drug product in furtherance of the distribution of the 
applicable drug from the original place of manufacture to the person 
who makes the final delivery or sale to the ultimate consumer for 
use.'' We propose adding this language to the definition to be 
consistent with the definition of the term ``manufacturer'' in section 
510 for the Federal Food Drug and Cosmetic Act as well as to track the 
defined term in the Discount Program Agreement.
    Moreover, we believe this is the only practical way to define 
manufacturer so that we can accurately assign responsibility for the 
discounts. While applicable drugs may actually be made by a limited 
number of companies, many more companies commonly repackage or relabel 
drug products and market them with their own labeler codes. Registered 
drug establishments are required by law to provide the FDA with a 
current list of all drugs manufactured, prepared, propagated, 
compounded, or processed by it for commercial distribution. (See 
section 510 of the Federal Food, Drug, and Cosmetic Act 921 U.S.C. 
360.) Each listed product is identified by a unique NDC, which 
identifies the labeler, product, and trade package size. The first 
segment, the labeler code, identifies the firm that manufactures 
(including repackers and relabelers) or distributes (under its own 
name) the drug. Therefore, we can accurately identify the company 
responsible for labeling the product and require this company to pay 
the discount. Alternatively, it would be very difficult, if not 
impossible, to track such relabeled or repackaged products back to the 
original maker of the drug if we limited the definition of manufacturer 
to the original maker. We would interpret ``entities otherwise engaged 
in repackaging or changing the container, wrapper, or labeling * * *'' 
to mean the companies associated with the unique labeler codes that are 
included in the NDCs of the applicable drugs dispensed by pharmacies, 
therefore these companies would be considered manufacturers under the 
Discount Program.
    Applicable drugs are marketed with labels that include a labeler 
code identifying the company that labels the product. While the same 
applicable drug may be marketed by multiple companies, only one company 
is linked to a unique labeler code. All manufacturers of applicable 
drugs, meaning all companies that label applicable drugs with unique 
labeler codes, would be required to sign an agreement for any 
applicable drugs with such labeler codes to be covered under Medicare 
Part D as of January 1, 2011. Only one manufacturer would be identified 
with each labeler code and, therefore, only one manufacturer would be 
responsible for paying applicable discounts associated with that 
labeler code at any given time.
(5) Medicare Part D Discount Information
    In accordance with section 1860D-14A(d)(3)(C) of the Act, we 
require the TPA to provide adequate and timely information to 
manufacturers, consistent with the Discount Program Agreement with the 
manufacturers, as necessary for the manufacturer to fulfill its 
obligations under the Discount Program. Accordingly, we require the TPA 
to invoice each manufacturer each quarter on behalf of Part D sponsors 
for the applicable discounts advanced by the Part D sponsors to 
applicable beneficiaries and reported to CMS on the prescription drug 
event (PDE) records. The TPA also provides information to the 
manufacturer along with each quarterly invoice that is derived from 
applicable data elements available on PDE records as determined by CMS. 
We propose to define this information in Sec.  423.2305 as Medicare 
Part D Discount Information.
    Generally, the Medicare Part D Discount Information would include 
certain claim-level detail derived from the PDE record. Information 
such as applicable drug NDC, dispensing pharmacy, quantity dispensed, 
date of service, days supply, prescription and fill number, and 
reported gap discount would be provided. We would provide this 
information so that a manufacturer could evaluate the accuracy of 
claimed discounts and resolve disputes concerning the manufacturer's 
payment obligations under the Discount Program.
    Under the current Medicare Coverage Gap Discount Program Agreement 
with manufacturers, ``Medicare Part D Discount Information'' refers to 
the information derived from applicable data elements available on PDEs 
and set forth in Exhibit A of the Agreement that will be sent from the 
TPA to the manufacturer along with each quarterly invoice. However, 
section III(f) of the Agreement generally prohibits us from disclosing 
any identifying beneficiary information under the Discount Program. 
Although the ``Medicare Part D Discount Information'' does not include 
specific beneficiary identifiers, an issue arises when the volume of 
claims for an applicable drug is so low that the data provided as 
``Medicare Part D Discount Information'' could be used to identify a 
Medicare beneficiary.
    In order to protect the identity of Medicare beneficiaries, we have 
a cell-size suppression policy that prohibits disclosure of data if the 
data cell contains 10 or fewer individuals. In applying this policy to 
the Discount Program, CMS would be unable to disclose all the data 
elements currently specified as ``Medicare Part D Discount 
Information'' when 10 or fewer beneficiaries with the same applicable 
drug (identified as having the same first two segments of NDC) have 
claims at the same pharmacy. This threshold is based on all Part D 
claims for an applicable drug (identified as having the

[[Page 63024]]

same first two segment of the NDC) at the same pharmacy, not 10 or 
fewer applicable beneficiaries with coverage gap claims.
    When we agreed to provide the data elements specified in Exhibit A 
of the current Medicare Coverage Gap Discount Program Agreement, we did 
not take into consideration this issue that arises if claims volume is 
so low that this information could reasonably be used to identify a 
beneficiary. Consequently, we believe we would need to further limit 
the information that could be provided to manufacturers based upon the 
prohibition on releasing beneficiary identifying information. We 
propose withholding the Service Provider Identifier information when a 
claim qualifies as low volume (that is, 10 or fewer beneficiaries 
receiving the same drug product at the same pharmacy). This would mean 
that the remaining claims-level detail would be provided, but it would 
not specify the service provider for each claim. By doing this, we 
would comply with the CMS cell size suppression policy while still 
providing claims-level detail that would be helpful to manufacturers 
for evaluating the accuracy of the invoiced discount payments. We seek 
comments on this proposal.
(6) Negotiated Price
    We propose to define negotiated price for purposes of the Discount 
Program consistent with section 1860D-14A(g)(6), which defines 
``negotiated price'' in terms of its meaning in Sec.  423.100 as of the 
date of enactment of the section (that is, as of March 23, 2010), 
except that such definition does not include dispensing fees. Part D 
vaccine administration fees would be excluded from the definition of 
negotiated price for purposes of the Discount Program because we 
believe that, for purposes of the Discount Program, they are analogous 
to dispensing fees, which are explicitly excluded from the definition 
of negotiated price for purposes of determining the applicable 
discount. Unlike sales tax, dispensing fees and vaccine administration 
fees pay for services apart from the applicable drug itself. This is 
made clear by the fact that a vaccine administration fee may be billed 
separately from the dispensing of the vaccine. Sales tax remains 
included in the definition of negotiated price under the Discount 
Program. Thus, we are proposing to define ``negotiated price'' for 
purposes of the Discount Program and this subpart as: the price for a 
covered Part D drug that-- (1) the Part D sponsor (or other 
intermediary contracting organization) and the network dispensing 
pharmacy or other network dispensing provider have negotiated as the 
amount such network entity will receive, in total, for a particular 
drug; (2) is reduced by those discounts, direct or indirect subsidies, 
rebates, other price concessions, and direct or indirect remuneration 
that the Part D sponsor has elected to pass through to Part D enrollees 
at the point-of-sale; and (3) excludes any dispensing fee or vaccine 
administration fee for the applicable drug.
    Further, although the statutory definition speaks only to the 
negotiated price with respect to a network pharmacy, given that there 
is no limitation on an applicable beneficiary's entitlement to 
applicable discounts on applicable drugs obtained out-of-network, we do 
not believe Congress intended to exclude these discounts from the 
Discount Program. Therefore, we propose to specify in Sec.  423.2305 
that the negotiated price also means, for purposes of out-of-network 
claims, the plan allowance as determined under Sec.  423.124, less any 
dispensing fee and vaccine administration fee.
(7) Other Health or Prescription Drug Coverage
    Section 1860D-14A(c)(1)(A)(v) of the Act requires that the 
applicable discount get applied before any coverage or financial 
assistance under other health benefit plans or programs that provide 
coverage or financial assistance for the purchase or provision of 
prescription drug coverage on behalf of applicable beneficiaries. 
Section 423.2305 of the proposed rule would define the term ``other 
health or prescription drug coverage'' as any coverage or financial 
assistance under other health benefit plans or programs that provide 
coverage or financial assistance for the purchase or provision of 
prescription drug coverage on behalf of applicable beneficiaries. This 
would include any programs that provide coverage or financial 
assistance outside of Part D. Thus, the applicable discount would apply 
before any ``other health or prescription drug coverage'' such as state 
pharmaceutical assistance programs (SPAPs), Aids Drug Assistance 
Programs (ADAPs), Indian Health Service, or supplemental coverage 
required by the Commonwealth of Puerto Rico.
    In addition, we propose to include in the definition of ``other 
health or prescription drug coverage'' any coverage offered through 
employer group health or waiver plans (EGWPs) other than basic 
prescription drug coverage as defined in Sec.  423.100. We would also 
propose to make a conforming change to the definition of supplemental 
benefits in Sec.  423.100 to exclude benefits offered by EGWPs. Our 
proposal with respect to EGWPs would mean that a manufacturer discount 
always would be applied before any additional coverage beyond Part D, 
whether offered by the EGWP itself or by another party. We believe a 
clear standard in this regard is necessary to ensure we can properly 
administer the Discount Program for EGWP enrollees in light of our 
existing policies and procedures with respect to EGWP plans.
    Under current waivers authorized by section 1860D-22(b) of the Act, 
EGWP sponsors submit only one formulary and standard-defined benefit 
package for review by CMS. EGWP sponsors may then customize actual 
formularies and benefit packages for specific employer or union 
clients, for example, by adding drugs to their formularies that are not 
covered under the basic benefit and/or reducing enrollee cost-sharing. 
Until now, we have allowed EGWP sponsors to determine whether any 
benefits offered under the EGWPs were Medicare (Part D) or non-Medicare 
(non-Part D) benefits because we did not collect information about or 
otherwise oversee specific EGWP benefit packages. However, with the 
implementation of the Discount Program, determining whether such 
benefits are supplemental Part D benefits (which would be applied 
before the applicable discount) or non-Medicare benefits (which would 
apply after the discount) is significant. We believe that many EGWP 
sponsors have already restructured their benefits so that the EGWP 
provides only basic Part D coverage (with full coverage gap) and 
considers any additional benefits as non-Medicare benefits. Given that 
we do not receive or review the final benefit packages and formularies 
offered to EGWP enrollees, we propose to exercise our waiver authority 
under section 1860D-22(b) of the Act to exclude all benefits offered by 
EGWPs from the definition of supplemental benefits and, therefore, 
these benefits, other than basic prescription drug coverage (as defined 
in Sec.  423.100), would be considered ``other health or prescription 
drug coverage'' for purposes of the Discount Program. We seek comments 
on this proposal.
    As an alternative to this proposal, we considered requiring EGWP 
sponsors to submit their final benefit packages for review and 
approval. Under this option, we would have limited EGWPs to offering 
only supplemental benefits that meet the requirements of Sec.  
423.104(f)(1)(ii). However, in addition to the significant challenges 
associated with expanding our review process to

[[Page 63025]]

accommodate another 25,000 to 50,000 benefit packages, this ultimately 
would not prevent employers or unions from offering separate benefits 
that would not be overseen or regulated by us; and therefore, would not 
provide the clear standard for distinguishing supplemental benefits 
from other health or prescription drug coverage for purposes of 
determining the applicable discount. Moreover, this alternative 
approach could adversely affect EGWP enrollees to the extent it would 
require EGWPs to make significant changes in order to bring their 
supplemental benefits in line with Part D rules--because it might 
prompt EGWPs to drop those supplemental benefits altogether or 
otherwise reduce coverage. Consequently, we believe it is better to 
clearly remove all employer sponsored benefits, other than basic 
prescription drug coverage as defined in Sec.  423.100, from our 
purview, which we believe would leave EGWP enrollees in the same place 
they are today, while, as noted above, providing all participants in 
the Discount Program a bright line test for determining when the 
applicable discount applies.
c. Condition for Coverage of Drugs Under Part D (Sec.  423.2310)
    Section 1860D-43(a) of the Act specifies that in order for coverage 
under Part D to be available for the covered Part D drugs (as defined 
in section 1860D-2(e) of the Act)) of a manufacturer, that manufacturer 
must agree to participate in the Discount Program, enter into a 
Discount Program Agreement, and enter into an agreement with the TPA. 
Although the statute appears to plainly contemplate that all 
manufacturers of covered Part D drugs must sign Discount Program 
Agreements in order for coverage under Part D to be available for such 
drugs, when read in context with the other provisions governing the 
Discount Program, we believe the plainest reading of section 1860D-
43(a) is both inappropriate and infeasible. Thus, in implementing the 
Discount Program last year, we specified in program guidance that the 
exclusion from Part D coverage applies only to the applicable drugs of 
a manufacturer that fails to sign the Agreement and participate in the 
Program. We currently apply the exclusion from Part D coverage only to 
a manufacturer's applicable drugs. Other Part D drugs, such as generic 
drugs (as defined in Sec.  423.4) of a manufacturer continue to be 
covered under Medicare Part D irrespective of the manufacturer's 
participation in the Discount Program. We propose to codify this policy 
in regulations.
    The rationale for our narrower interpretation of section 1860D-
43(a) of the Act is based on concern about beneficiary access to 
generic drugs and consideration of other contemporaneous provisions 
governing the Discount Program. First, given that the purpose of the 
Discount Program is to reduce financial burdens on beneficiaries in the 
coverage gap, we do not think that the requirements of section 1860D-
43(a) of the Act were intended to potentially limit the availability of 
less expensive generic Part D drugs (which would occur if the generic 
products of a non-participating manufacturer were excluded). Rather, 
they were intended to ensure that manufacturers of brand name drugs had 
a strong incentive to participate in the Discount Program. When we were 
implementing the Discount Program last year, we were particularly 
concerned, in light of the short timeframe provided by the Affordable 
Care Act for collecting signed agreements from participating 
manufacturers for 2011, that a strict reading of the exclusion would 
have had the unintended consequence of negatively affecting the 
availability of generic drugs under Part D beginning January 1, 2011.
    As noted above, we further believe that section 1860D-43(a) of the 
Act must be read in its proper context--in other words, it must coexist 
with all of the other requirements of the Discount Program, which are 
set forth in section 1860D-14A of the Act. Section 1860-D-14A of the 
Act requires manufacturers to provide discounts on applicable drugs at 
the point-of-sale, to provide appropriate data to CMS, and to comply 
with other requirements imposed by us or the TPA. Further, as described 
in more detail below, manufacturers with an agreement are subject to 
periodic audits by CMS and civil money penalties. Finally, section 
1860D-14A of the Act specifies that, beginning with 2012, a 
manufacturer must enter into a Discount Program Agreement for a year no 
later than January 30 of the previous year--in other words, for a 
manufacturer to participate in the Discount Program for 2012, it would 
have had to have signed a Discount Program Agreement by January 30, 
2011. In addition to these statutory requirements, there are 
administrative aspects of the Discount Program that include, but are 
not limited to, establishing connectivity with the TPA and with CMS, 
establishing electronic fund transfer accounts with more than 700 Part 
D sponsors, maintaining labeler code information with CMS, and 
reviewing file layouts and records for quarterly invoicing and payment 
reconciliation.
    None of these statutory or administrative requirements is relevant 
to manufacturers of non-applicable drugs. Indeed, it would be 
impossible for a manufacturer with no applicable drugs to 
``participate'' in the Discount Program (as a strict reading of section 
1860D-43(a)(1) would require). Further, it would be wasteful and 
burdensome to require manufacturers of non-applicable drugs to 
undertake all of the administrative requirements set forth in the 
Discount Program Agreement with respect to drugs that are not subject 
to the requirements of section 1860D-14A of the Act.
    With that in mind, we next turn to the issue of manufacturers with 
applicable drugs that also have non-applicable drugs. In our view, the 
same rationale applies to these manufacturers--although they can 
participate in the Discount Program with respect to their applicable 
drugs, they cannot do so with respect to their non-applicable drugs. We 
believe it would be both unfair and potentially very disruptive to 
beneficiaries to treat manufacturers of non-applicable drugs 
differently based on whether they also happen to make applicable drugs. 
For example, suppose that a manufacturer with no applicable drugs 
declines to participate in the Discount Program because it is literally 
unable to comply with the statutory requirements of section 1860D-14A 
of the Act. This manufacturer then acquires or begins to manufacture an 
applicable drug on February 1. If this manufacturer then was subject to 
the broader exclusion in section 1860D-43(a) of the Act arguably all of 
its drugs--both generic and applicable--would be non-covered for a 
period of almost two years. We do not believe that Congress intended 
such a disruptive result. Rather, we believe it is more appropriate to 
consider section 1860D-43(a) of the Act as excluding the applicable 
drugs of a manufacturer that fails to participate in the Discount 
Program.
    In light of all of these considerations, we believe the a 
reasonable interpretation of 1860D-43(a) of the Act--one that preserves 
Congressional intent both to ensure manufacturer participation in the 
Discount Program and to alleviate financial burden for beneficiaries--
is that the exclusion from Part D coverage applies only to the 
applicable drugs of manufacturers that fail to enter into a Discount 
Program Agreement and participate in the Discount Program. We seek 
comments on this proposal.

[[Page 63026]]

    Section 1860D-43(c)(1) of the Act authorizes CMS to allow coverage 
for drugs that are not covered by Discount Program Agreements if CMS 
has made a determination that the availability of the drug is essential 
to the health of beneficiaries under this part, and we propose to 
codify this requirement in Sec.  423.2310(b) of our proposed rule. 
However, we believe it is highly unlikely that we will need to exercise 
this authority given the strong participation by manufacturers in the 
Discount Program since 2011 and the likely availability of therapeutic 
alternatives for any Part D drugs.
d. Medicare Coverage Gap Discount Program Agreement (Sec.  423.2315)
    Section 1860D-14A of the Act requires us to enter into agreements 
with manufacturers that participate in the Discount Program and to 
establish a model agreement in accordance with terms specified under 
section 1860D-14A(b) of the Act that provides for the performance of 
duties required under section 1860D-14A(c)(1) of the Act. We 
established the model agreement on August 1, 2010 and propose to codify 
in Sec.  423.2315 those provisions that we believe must be included in 
the model agreement in order to meet the statutory requirements in 
these sections.
(1) Obligations of the Manufacturer
    Section 1860D-14(A)(b)(1) of the Act specifies that the Discount 
Program Agreement between CMS and the manufacturers shall require 
manufacturers to provide applicable beneficiaries access to applicable 
discounts for applicable drugs of the manufacturer at the point-of-
sale. In light of how the Discount Program has been structured (see the 
discussion section II.A.1. of this proposed rule), we would propose to 
implement this requirement as set forth in the current Discount Program 
Agreement; that is, we would propose in Sec.  423.2315(b)(2) to require 
manufacturers to reimburse all applicable discounts provided by Part D 
sponsors on behalf of the manufacturer for all applicable drugs having 
NDCs with the manufacturer's FDA-assigned labeler code(s) that were 
invoiced to the manufacturer within a maximum of 3 years of the date of 
dispensing based upon information reported to CMS by Part D sponsors 
and used by CMS or the TPA to calculate the invoice.
    In order for CMS and Part D sponsors to determine which applicable 
drugs are covered by Discount Program Agreements, the manufacturers 
must provide CMS with the FDA-assigned labeler code(s) for all 
applicable drug NDCs covered by their Discount Program Agreement. Under 
the current Discount Program Agreement, manufacturers must provide all 
of their labeler codes to CMS and must promptly update CMS with any 
additional labeler codes for applicable drugs no later than three 
business days after having received written notification of the codes 
from the FDA. We included this requirement in the Discount Program 
Agreement because, for the reasons previously described, it is the most 
efficient and accurate way to track which manufacturer is responsible 
for paying the applicable discount for an applicable drug and to assist 
plan sponsors in determining which drugs are applicable drugs. We 
maintain an up-to-date listing of the labeler codes covered under the 
Discount Program Agreements on the CMS website so that Part D sponsors 
can determine which labeler codes are covered by a Discount Program 
Agreement. To ensure that we have up-to-date information for this 
purpose, Sec.  423.2315(b)(4) would require manufacturers to provide 
CMS with all labeler codes for all the manufacturer's applicable drugs 
and promptly update CMS with additional labeler codes for applicable 
drugs no later than three business days after having received written 
notification of the codes from the FDA.
    To permit CMS and Part D sponsors to accurately identify applicable 
drugs, we propose to codify the requirement set forth in the Discount 
Program Agreement that manufacturers electronically list and maintain 
up-to-date electronic listing of all NDCs of the manufacturer, 
including the timely removal of discontinued NDCs, in the FDA NDC 
Directory. We believe this requirement will help ensure that all 
currently marketed applicable drugs are subject to the applicable 
discount and that only currently marketed applicable drugs are subject 
to the discount. Because manufacturers know the regulatory and 
marketing status of their products, they are in the best position to 
make this information available to Part D sponsors and CMS. We believe 
maintaining an up-to-date FDA electronic listing provides the most 
efficient, timely, and authoritative mechanism to accomplish this 
purpose while placing little additional burden on manufacturers that 
already must use the FDA electronic registration and listing system to 
comply with other FDA requirements.
    We also propose to require manufacturers to maintain up-to-date NDC 
listings with the electronic database vendors for which they provide 
their NDCs for pharmacy claims processing. Part D sponsors rely upon 
these databases for adjudication of pharmacy claims at the point-of-
sale, including discounting applicable drugs, and, therefore it is 
imperative that the information in these databases is accurate and up-
to-date. Our proposal would require manufacturers to ensure that 
electronic database vendors are prospectively notified of NDCs for 
products that no longer are available on the market. We believe this 
requirement will benefit manufacturers because it will ensure that 
applicable discounts cease being applied as of the last lot expiration 
date of an applicable drug that is no longer on the market.
    In implementing the Discount Program Agreement, we required 
manufacturers to pay each Part D sponsor in the manner specified by us 
within 38 calendar days of receipt of an invoice and Medicare Part D 
Discount Information for the quarterly applicable discounts included on 
the invoice. As previously described, we implemented the Discount 
Program such that Part D sponsors pay applicable discounts on behalf of 
manufacturers in order to comply with the statutory mandate that 
discounts be provided at the point-of-sale; and therefore, we require 
manufacturers to reimburse plan sponsors promptly because it is the 
manufacturers that are financially responsible for payment of 
applicable discounts. Given this structure, we propose to codify this 
requirement at Sec.  423.2315(b)(3). We further propose in Sec.  
423.2315(b)(10) to require that manufacturers pay the quarterly 
invoices to accounts established by Part D sponsors via electronic 
funds transfer, unless otherwise specified by CMS, and within 5 
business days of the transfer provide the TPA with electronic 
documentation in a manner specified by CMS. We believe these 
requirements are appropriate because they provide sufficient time for 
manufacturers to process the information in order to make the payments 
and are generally consistent with manufacturer obligations under the 
Medicaid Drug Rebate Program. Moreover, Sec.  423.2315(b)(2) would 
prohibit manufacturers from withholding discount payments for their 
applicable drugs pending dispute resolution and, therefore, the 38-day 
requirement applies even if the manufacturer decides to dispute 
discount payments. As noted in our May 21, 2010 guidance, we believe 
this requirement is necessary to ensure that the manufacturer discounts 
are paid to Part D sponsors in a timely manner and are not delayed due 
to disputed amounts. We address our proposals with respect to

[[Page 63027]]

manufacturers' disputes later in this section of the proposed rule.
    Section 1860D-14A(b)(2) of the Act requires each manufacturer with 
a Discount Program Agreement in effect to collect and have available 
appropriate data, as determined by CMS, to ensure that it can 
demonstrate to CMS compliance with the requirements under the Discount 
Program. In Sec.  423.2315 (b)(5), we would codify this requirement by 
specifying that such information would include data related to 
manufacturer labeler codes, FDA drug approvals, FDA NDC Directory 
listings, NDC expiration dates, utilization and pricing information 
relied on by the manufacturer to dispute quarterly invoices and any 
other data we determine are necessary to carry out the Discount 
Program, and that manufacturers must collect, have available and 
maintain such information for a period of not less than 10 years from 
the date of payment of the invoice. The minimum 10-year retention 
requirement aligns with the standard Part D record retention 
requirement for Part D sponsors, thereby ensuring that applicable 
information would be maintained by manufacturers for the same time 
period.
    Section 423.2315(b)(6) would require manufacturers to comply with 
the audit and the dispute resolution requirements proposed in Sec.  
423.2330, which are discussed in section II.A.1.g. of this proposed 
rule.
    Section 1860D-43(a)(3) of the Act requires manufacturers to enter 
into and have in effect, under terms and conditions specified by CMS, a 
contract with a third party that CMS contracted with under subsection 
(d)(3) of section 1860D-14A of the Act. We propose to codify this 
requirement in Sec.  423.2315(b)(9) by requiring the manufacturer to 
enter into and have in effect, under terms and conditions specified by 
CMS, an agreement with the TPA that has a contract under section 1860D-
14A(d)(3) of the Act.
    Finally, proposed Sec.  423.2315(b)(11) would restrict the use of 
information disclosed to the manufacturer on the invoice, as part of 
the Medicare Part D Discount Information, or upon audit or dispute such 
that the manufacturer could use such information only for purposes of 
paying the discount under the Discount Program. This means that 
manufacturers would be allowed to use the information only as necessary 
to evaluate the accuracy of claimed discounts and resolve disputes 
concerning the manufacturer's payment obligations under the Discount 
Program. We believe this is an important limitation because we are 
making claim-level detail available to manufacturers that is not 
otherwise available to the public and therefore, should not be used for 
reasons beyond which it is being made available. As specified in the 
Data Use Provisions in Exhibit C of the Discount Program Agreement, the 
manufacturer would be prohibited from using the information to perform 
any functions not governed by the Discount Program Agreement, 
including, but not limited to, determination of non-Coverage Gap 
Discount payments to Part D sponsors and their subcontractors, payments 
to other providers of health and drug benefits under any Federal health 
care program or for marketing activities. Nevertheless, we recognize 
that manufacturers need to account for the discounts for financial 
statement forecasting and accounting purposes and therefore, these 
restrictions would not apply to the use of aggregated, summary-level 
data (that is, not prescription or claim-level data) for such purposes.
(2) Length of Agreement
    Section 1860D-14A(b)(4)(A) of the Act states that an agreement 
shall be effective for an initial period of not less than 18 months and 
shall automatically be renewed for a period of not less than 1 year 
unless terminated under section 1860D-14A(b)(4)(B) of the Act. To 
ensure that the end of the initial term of each Discount Program 
Agreement corresponds to the end of a calendar year, Sec.  
423.2315(c)(3) would specify that all Discount Program Agreements have 
an initial period of 24 months, with automatic renewal for a period of 
one year each January 1 thereafter, unless the agreement is terminated 
in accordance with Sec.  423.2345.
e. Payment Processes for Part D Sponsors (Sec.  423.2320)
(1) Interim Payments
    Section 1860D-14A(c)(1)(A)(ii) of the Act requires that 
manufacturer discounts be provided to applicable beneficiaries at the 
point-of-sale. To ensure that Part D sponsors have the funds available 
to advance the gap discounts at the point-of-sale, we are proposing to 
provide monthly interim coverage gap payments to Part D sponsors under 
Sec.  423.2320(a).
    We propose to base these interim payments on a percentage of the 
coverage gap drug cost assumptions submitted with plan bids under Sec.  
423.265 and negotiated and approved under Sec.  423.272, adjusted as 
necessary to account for applicable drug costs for applicable 
beneficiaries. Recognizing that Part D sponsors receive payments from 
manufacturers for invoiced discount amounts during the quarterly 
invoice process, we seek to ensure that Part D sponsors do not receive 
duplicate Discount Program payments for the manufacturer discounts 
advanced to beneficiaries at the point-of-sale. Thus, we propose to 
offset the Part D payments made to the Part D sponsor for each Part D 
plan by the discount amounts invoiced to manufacturers for that Part D 
plan.
    EGWPs are not required to submit Part D bids. Thus, we do not have 
the information necessary to estimate the cost of manufacturer 
discounts for these Part D plans. Similar to our current policy for 
prospective low-income cost sharing subsidy and reinsurance subsidy 
payments, we propose not to provide interim payments to EGWPs. However, 
EGWPs will receive final reconciled coverage gap payments under the 
reconciliation process described in Sec.  423.2320(b).
    Program of All-inclusive Care for the Elderly (PACE) plans would 
not receive interim coverage gap payments because their enrollees 
already have zero cost-sharing without any coverage gap.
(2) Coverage Gap Discount Reconciliation
    Because the interim coverage gap payments are estimates, Part D 
sponsors may incur actual Discount Program costs that are greater or 
less than the interim coverage gap payments. We would perform a cost-
based reconciliation to ensure that Part D sponsors are paid dollar for 
dollar for all manufacturer discount amounts as reported on invoiced 
PDE data submitted for Part D payment reconciliation. This process is 
termed ``Coverage Gap Discount Reconciliation'' under Sec.  423.2320(b) 
and will occur after Part D payment reconciliation.
    The purpose of the coverage gap discount reconciliation is to make 
Part D sponsors whole for the gap discount amounts provided to 
applicable beneficiaries at the point-of-sale. In general, we would 
calculate the Coverage Gap Discount Reconciliation amount by 
subtracting the interim coverage gap payments from all manufacturer 
discount amounts as they are reported on PDE records by Part D 
sponsors. If the difference is positive, we would pay the difference to 
Part D sponsors. If the interim coverage gap payments exceed the 
manufacturer discount amounts, we would recover the difference from 
Part D sponsors.
    Manufacturer discount amounts reported on PDE records submitted by 
the PDE submission deadline for Part D

[[Page 63028]]

payment reconciliation are included in Coverage Gap Discount 
Reconciliation. We would continue to accept PDEs with manufacturer 
discount amounts for 37 months following the end of the benefit year. 
Any manufacturer discount amounts reported on PDE records submitted 
after the PDE submission deadline for Part D payment reconciliation 
would continue to be invoiced to manufacturers and manufacturers would 
remit payments for invoiced coverage gap discount amounts to Part D 
sponsors.
f. Provision of Applicable Discounts on Applicable Drugs for Applicable 
Beneficiaries (Sec.  423.2325)
(1) Obligations of Part D Sponsors; Provision of Point-of-Sale 
Discounts
    Section 1860D-14A(c)(1)(A)(ii) of the Act requires the manufacturer 
discounts to be provided at the point-of-sale. As extensively discussed 
previously in this subpart, manufacturer discounts can be provided at 
point-of-sale only if the entity adjudicating the electronic pharmacy 
claim has the information necessary to determine at that point in time: 
(1) The drug is an applicable drug; (2) the beneficiary is an 
applicable beneficiary; (3) the claim is wholly or partly in the 
coverage gap; and (4) the amount of the discount, taking into 
consideration Part D supplemental benefits that pay first. We have 
determined that the only entity capable of providing the discount at 
point-of-sale is the Part D sponsor because no other entity would have 
all four pieces of information. Therefore, Sec.  423.2325(a) would 
require Part D sponsors to provide applicable beneficiaries with 
applicable discounts on applicable drugs at point-of-sale. Part D 
sponsors would be required by Sec.  423.2325(b)(1) to determine that: 
(1) An enrollee is an applicable beneficiary (as defined in Sec.  
423.100); (2) a Part D drug is an applicable drug (as defined in Sec.  
423.100); and (3) the amount of the applicable discount (as defined in 
Sec.  423.2305) in order to provide a discount at point-of-sale.
    Part D sponsors would use the date of dispensing for purposes of 
providing an applicable discount at point-of-sale and determining the 
amount of such discount. However, if later information changes the 
beneficiary's eligibility for the applicable discount back to the date 
of dispensing (for example, retroactive low-income subsidy status 
changes, or retroactive changes resulting from automated TrOOP balance 
transfers between Part D sponsors via Financial Information Reporting 
(FIR) transactions), or changes the amount of the applicable discount 
or the applicable beneficiary's cost sharing, we propose to require, in 
Sec.  423.2325(b)(2), that Part D sponsors make retroactive adjustments 
to the applicable discount as necessary to reflect such changes. For 
example, if a claim for an applicable drug was originally adjudicated 
in the initial coverage phase but later moved into the coverage gap as 
a result of receipt of an automated TrOOP balance transfer from a 
previous Part D sponsor, the applicable discount and the corrected 
beneficiary cost-sharing would be reported on the adjusted PDE. 
Conversely, if an original claim was adjudicated in the coverage gap 
with an applicable discount but later reprocessed in the catastrophic 
phase as a result of an automated TrOOP balance transfer, the 
applicable discount reported on the adjusted PDE is the mechanism for 
refunding the manufacturer.
    If an applicable beneficiary has a claim for an applicable drug 
that straddles the coverage gap and another phase of the Part D 
benefit, section 1860D-14A(g)(4)(C) of the Act requires Part D sponsors 
only provide the discount on the portion of the negotiated price of the 
applicable drug that falls at or above the initial coverage limit and 
below the annual out-of-pocket threshold. Because our proposed 
definition of negotiated price for purposes of the Discount Program 
would exclude both the dispensing fee and vaccine administration fee, 
Sec.  423.2325(b)(3) would require the dispensing fee and vaccine 
administration fee be included in the portion of the negotiated price 
that falls below the ICL or above the annual out-of-pocket threshold, 
to the extent possible (that is, as much of the dispensing fee that can 
be included in the portion below the ICL or above the annual out-of-
pocket threshold). If the portion of the negotiated price that falls 
below the ICL or above the annual out-of-pocket threshold is less than 
the sum of the dispensing fee and vaccine administration fee, the 
dispensing fee must be included first in the portion that falls below 
the ICL or above the annual out-of-pocket threshold. The Affordable 
Care Act authorizes CMS to establish procedures to determine the 
discount at point-of-sale and is silent on the order in which 
negotiated price and non-negotiated price apply (as opposed to with 
supplemental and other health or prescription drug coverage) and thus, 
we propose this requirement in order to further support the statutory 
goal of alleviating the burden of the coverage gap on applicable 
beneficiaries.
    Section 423.2325(b)(4) would require Part D sponsors to determine 
whether any affected beneficiaries need to be notified by the Part D 
sponsor that an applicable drug is eligible for Part D coverage 
whenever CMS specifies a retroactive effective date for a labeler code 
and would require the Part D sponsors to notify such beneficiaries. 
This situation could occur if participating manufacturers fail to 
notify CMS when a new labeler code becomes available or otherwise fail 
to provide us with all of their labeler codes as required. As required 
in proposed Sec.  423.2315(b)(4), manufacturers participating in the 
Discount Program must submit to CMS all of their labeler codes. We make 
the participating labeler code information available to Part D sponsors 
so they can determine which drug products are covered by Discount 
Program Agreements. Part D sponsors cannot cover any applicable drugs 
marketed with labeler codes that are not specified by CMS as 
participating in the Discount Program. Consequently, a manufacturer's 
failure to provide a labeler code to CMS could result in beneficiaries 
being denied access to both covered Part D drugs and applicable 
discounts.
    While we anticipate such occurrences will be very rare, we believe 
it is necessary that Part D sponsors determine whether affected 
beneficiaries need to be notified once CMS makes the labeler code and 
effective date information available to the Part D sponsor. For 
example, Part D sponsors generally would need to notify affected 
beneficiaries that had denied claims if their claims history reasonably 
indicates that the beneficiary either might still need the previously 
denied drug or paid for the drug out-of-pocket. If the claims history 
indicates that the beneficiary has not received an alternative 
replacement medication since the denied claim, it might reasonably be 
inferred that the beneficiary still needs (or should be reimbursed for) 
the denied drug. We recognize that this would place a burden on Part D 
sponsors through no fault of their own, but, in these rare instances, 
we believe it would help ensure the beneficiaries have appropriate 
access to Part D drugs and applicable discounts. It would also increase 
the likelihood that manufacturers would be held responsible for paying 
discounts that should have been paid previously.
    We do not believe the point-of-sale requirement was intended to 
exclude discount payments for claims that were not adjudicated by the 
Part D sponsor at point-of-sale: even though the statute

[[Page 63029]]

requires provision of the discount at the point-of-sale, it does not 
state that applicable beneficiaries are not entitled to the discount if 
it was not provided at the point-of-sale. Instead, we believe this 
requirement was meant to ensure the discount would be available at the 
point-of-sale when and if a claim is electronically adjudicated. 
However, in limited circumstances beneficiaries submit claims for 
reimbursement that were not adjudicated at the point-of-sale, such as 
when they needed to obtain a prescription from an out-of-network 
pharmacy. Therefore, our guidance and the Discount Program Agreement 
specify that Part D sponsors provide, and manufacturers reimburse, 
applicable discounts for applicable drugs submitted by applicable 
beneficiaries via paper claims, including out-of-network and in-network 
paper claims, if such claims are payable under Part D. In these 
situations, beneficiaries are still entitled to the discount and 
therefore, we propose to codify this requirement in Sec.  423.2325(c).
(2) Collection of Data
    Section 1860D-14A(c)(1)(C) of the Act states that we may collect 
appropriate data from Part D sponsors in a timeframe that allows for 
applicable discounts to be provided for applicable drugs. Section 
423.2325(d) of the proposed rule would require Part D sponsors to 
provide CMS with appropriate data on the applicable discount provided 
by the Part D sponsors in a manner specified by CMS. In implementing 
the Discount Program we determined that using the existing PDE 
reporting process to collect the necessary data would be most efficient 
and least burdensome for Part D sponsors. Thus, we would require Part D 
sponsors to report the applicable discount that was provided at the 
point-of-sale as part of the PDE record in addition to the other claim-
level detail that is reported on the PDE. We would also require Part D 
sponsors to report confirmation of payment from manufacturers during 
the quarterly invoice process.
(3) Other Health or Prescription Drug Coverage
    Section 1860D-14A(c)(1)(A)(v) of the Act requires that applicable 
discounts for applicable drugs get applied before any coverage or 
financial assistance under other health benefit plans or programs that 
provide coverage or financial assistance for the purchase or provision 
of prescription drug coverage on behalf of applicable beneficiaries as 
the Secretary may specify. We propose to codify the requirement in 
Sec.  423.2325(f) by specifying that an applicable discount must be 
applied to beneficiary cost-sharing when Part D is the primary payer 
before any other health or prescription drug coverage is applied. Since 
the Part D sponsor would provide the discount at the same time as it 
makes primary payment on the claim, this coordination generally would 
take place in real time as the claim is adjudicated by the pharmacy in 
accordance with existing Part D coordination of benefit requirements. 
We specify that this requirement would not apply to Medicare secondary 
payer claims because the beneficiary would not have a Medicare Part D 
coverage gap on the initial claim to the primary payer. However, this 
requirement would apply to coordination of benefit claims in which the 
Part D sponsor coordinates benefits post point-of-sale with another 
payer who paid primary in error.
(4) Supplemental Benefits
    Section 1860D-14A(c)(2) of the Act provides that if an applicable 
beneficiary has supplemental benefits under his or her Part D plan, the 
applicable discounts shall not be provided until after such 
supplemental benefits have been applied. Supplemental benefits offered 
under a Part D plan would have the meaning set forth in Sec.  423.100 
(see discussion of supplemental benefits under the proposed definition 
``other health or prescription drug coverage''). Section 423.2325(e)(1) 
would codify this requirement by specifying that an applicable discount 
is applied to beneficiary cost-sharing after supplemental benefits have 
been applied to the claim for an applicable drug, and paragraph (e)(2) 
would establish that no applicable discount is available if 
supplemental benefits eliminate the coverage gap so that a beneficiary 
has zero cost-sharing on a claim.
    If a Part D sponsor offers a plan with supplemental benefits on 
applicable drugs covered between the plan's initial coverage limit and 
the Medicare Part D catastrophic threshold using either coinsurance or 
fixed copay, the value of the supplemental benefits would need to be 
calculated first on any claim for an applicable drug as the difference 
between the proposed supplemental cost-sharing and the coinsurance 
under the basic benefit. For example, if the supplemental benefit for 
an applicable drug had a 60 percent coinsurance, the value of the 
supplemental benefits that would need to be applied first (plan 
liability) would be 40 percent (100 percent coinsurance under basic 
minus 60 percent coinsurance) of the negotiated price of the drug. The 
applicable discount would then be calculated as 50 percent of the 
negotiated price (as defined in Sec.  423. 2305) less the supplemental 
benefit. Beneficiary cost-sharing would then be the remainder of the 
negotiated price after the plan liability and applicable discount had 
been applied. Thus, in the case of either a coinsurance or copay design 
for supplemental benefits, the amount the beneficiary pays at point-of-
sale would generally be approximately 50 percent of his or her expected 
cost-sharing under the plan's benefit package. This amount will change 
over time as the coinsurance level for a beneficiary is reduced until 
it reaches 25 percent in 2020. Section 423.2325(e)(3) would require 
that the dispensing fee and the vaccine administration fee be included 
in the Part D sponsor liability portion of a claim with supplemental 
benefits. For the same reasons that we propose to require the 
dispensing fee and the vaccine administration fee to be applied to the 
portion of a claim for an applicable drug that falls below the initial 
coverage limit or above the annual out-of-pocket threshold, to the 
extent possible, on straddle claims, we believe including the 
dispensing fee and the vaccine administration fee in the plan liability 
supports the statutory goal of alleviating the burden of the coverage 
gap on applicable beneficiaries.
(5) Pharmacy Prompt Payment
    Section 1860D-14A(c)(1)(A)(iv) of the Act requires procedures to 
ensure that, not later than the applicable number of calendar days 
after the dispensing of an applicable drug by a pharmacy or mail order 
service, the pharmacy or mail order service is reimbursed for an amount 
equal to the difference between: (1) The negotiated price of the 
applicable drug; and (2) the discounted price of the applicable drug. 
This amount would be equal to the amount of the applicable discount. 
The applicable number of calendar days with respect to claims for 
reimbursement submitted electronically is 14 days, and otherwise, is 30 
days. We propose to implement this requirement in Sec.  423.2325(g) by 
specifying that Part D sponsors reimburse a pharmacy or mail order 
service the amount of the applicable discount no later than the 
applicable number of calendar days after the date of dispensing an 
applicable drug. This requirement would apply to all network 
pharmacies, including but not limited to long term care pharmacies and 
home infusion pharmacies.

[[Page 63030]]

    We considered using the existing prompt pay requirements in Sec.  
423.520 as the basis for implementing the discount payment prompt pay 
requirements because it seemed to make sense given that the discounts 
are included on the pharmacy claims and the timeframes are identical. 
However, unlike Sec.  423.520, Sec.  423.2325(g) does not exclude mail 
order or long term care pharmacies. Therefore, Part D sponsors that do 
not currently pay mail order or long term care pharmacies in accordance 
with the Sec.  423.520 prompt pay requirements for other network 
pharmacies would need to establish another mechanism for reimbursing 
these pharmacies for discount payments in accordance with the Sec.  
423.2325(g).
    Finally, we propose to add a new paragraph (24) to Sec.  423.505(b) 
so that the requirements we are proposing in Sec.  423.2325 are 
included in all Part D sponsor contracts with us.
g. Manufacturer Discount Payment Audit and Dispute Resolution (Sec.  
423.2330)
(1) Third Party Administrator Audits
    Section 1860D-14A(d)(3)(D) of the Act permits manufacturers to 
conduct periodic audits, directly or through contracts, of the data and 
information used by the TPA to determine discounts for applicable drugs 
of the manufacturer under the Discount Program. Section 423.2330(a) 
would codify the provisions of the Discount Program Agreement governing 
these audits by specifying the requirements for requesting an audit and 
the rights of manufacturers associated with conducting audits.
    We propose in Sec.  423.2330(a)(1) that the term periodic be 
defined as no more often than annually. We believe that this standard 
would ensure that all manufacturers have an opportunity to conduct 
meaningful audits within available TPA resources. The proposed 
definition of periodic represents a balance between frequent audits 
that may provide the greatest level of detail and very infrequent 
audits that may be less costly to implement, but may not provide needed 
information in a timely manner.
    While we considered allowing quarterly audits, we do not believe 
that there will be significant quarter to quarter changes in data 
collection and invoice calculation procedures that would warrant such 
frequent audits. Given that the TPA will need to allow all 
participating manufacturers the opportunity to conduct audits, we 
believe that an annual audit strikes the right balance of providing 
meaningful and timely information to manufacturers that can reasonably 
be accommodated by the TPA.
    Section 1860D-14A(d)(3)(D) of the Act requires that our contract 
with the TPA permit audits by manufacturers of the data and information 
used by the TPA to determine discounts for manufacturer's applicable 
drugs. Because the statute thus permits the manufacturer to audit data 
used by the TPA, and importantly, does not grant manufacturers a right 
to audit CMS or the Part D sponsors, we propose to specify in 
regulations that the audit right is limited to information held by the 
TPA and used to calculate discounts. This means that the manufacturer 
would not have the ability to audit CMS records or the records of Part 
D sponsors. We believe the data provided from the TPA provides 
manufacturers with appropriate and sufficient information to conduct an 
audit because it provides the claim-level information specified in the 
Discount Program Agreement that is used to calculate the discounts. We 
believe that defining the data available for audit also requires 
balancing considerations between efficiently administering the Discount 
Program and providing manufacturers with an appropriate level of 
information to validate invoices. Section 423.2330(a)(3) would 
establish, consistent with the Discount Program Agreement, that 
manufacturers may audit a statistically significant sample of the 
database used by the TPA to calculate gap discounts. We believe that a 
statistically significant sample provides a balance between allowing an 
audit to include: (1) All of the data, which would provide complete 
information, but would be unwieldy in terms of resources; and (2) a 
very small sample that would have insufficient information but be 
inexpensive to implement. Moreover, the use of a statistically valid 
sample meets generally accepted auditing standards, would provide 
sufficient data to manufacturers to reach statistically valid 
conclusions that could be used to dispute discount payments, and is an 
efficient use of audit resources.
    Proposed Sec.  423.2330(a)(3) also supports our obligation to 
protect the privacy of beneficiary medical information. This section 
proposes that, with the exception of work papers, audit data may not 
leave the room where the audit is conducted, which would further 
protect beneficiary privacy. Another measure to protect the 
confidentiality of beneficiary medical information is contained in 
proposed Sec.  423.2330(a)(4), which would specify that the auditor may 
only release an opinion of the results of the audit and may not release 
any other information obtained from the audit, including its work 
papers, to its client, employer, or any other party. We believe these 
limitations on the distribution of data support beneficiary privacy, 
while addressing manufacturer need for access to data that are relevant 
to the calculation of the gap discounts. These regulations all would 
codify provisions in the current Discount Program Agreement.
(2) Manufacturer Audits
    Section 1860D-14A (e)(1) of the Act specifies that each 
manufacturer with a Discount Program Agreement in effect shall be 
subject to periodic audit by CMS and we propose to codify this 
requirement in Sec.  423.2330(b). Similar to the limitation in Sec.  
423.2330(a)(1), we propose to define the term periodic in Sec.  
423.2330(b)(1) as no more often than annually. In Sec.  423.2330(b)(3) 
we propose that we would have the right to audit appropriate data of 
the manufacturer, including data related to a manufacturer's FDA-
assigned labeler codes, expiration date of NDCs, utilization, and 
pricing information relied on by the manufacturer to dispute quarterly 
invoices, as well as any other data CMS determines are necessary to 
carry out the Discount Program.
(3) Dispute Resolution
    Section 1860D-14A(c)(1)(A)(vii) of the Act requires the Secretary 
to establish ``a reasonable dispute resolution mechanism to resolve 
disagreements between manufacturers, applicable beneficiaries, and the 
third party with a contract * * * .''
    Therefore, we propose in Sec.  423.2330(c) a multi-stage dispute 
resolution process consisting of: (1) An initial dispute stage; (2) an 
appeals stage for manufacturers that do not accept the findings of the 
dispute process; and (3) a final administrator review when either a 
manufacturer or CMS disagree with the outcome of the initial appeals 
process.
    Before proposing this multistage dispute resolution process, we 
reviewed potentially analogous appeals mechanisms, both within the 
Medicare program and in other, similar government programs, such as 
Tricare and Medicaid. Within the Medicare Part D program we reviewed 
the appeals process for organizations seeking to become Part D sponsors 
and the appeals process for Medicare beneficiaries challenging denials 
of benefits. We also reviewed the appeals mechanism for the Department 
of Defense (DoD) Tricare program and Medicaid--two existing government 
programs that collect rebates from pharmaceutical

[[Page 63031]]

manufacturers. In each instance, we found a multistage dispute 
resolution program. We concluded that a multi-stage process results in 
balanced, equitable decisions because of the multiple perspectives that 
are available. Therefore, we are proposing a similar multistage process 
for the Medicare Coverage Gap dispute resolution process.
    Section 423.2330(c) would include a timetable for the three-stage 
approach to manage the process most efficiently and to support equal 
treatment of each appeal. The timetable ensures that manufacturers' 
disputes are resolved as quickly as possible, while allowing both 
parties to perform the necessary calculations and investigations to 
evaluate the gap discount invoice. The proposed timeframes were 
established by estimating the time required to analyze the data 
presented, by the volume of claims, and by considering the 
characteristics of the Discount Program compared to the other similar 
programs previously noted.
    Specifically, we propose in Sec.  423.2330(c)(1) that manufacturers 
may dispute quarterly gap discount amounts by providing notice of the 
dispute to the TPA within 60 days of the receipt of information that is 
the subject of the dispute. The information is limited to data received 
from the TPA, or as a result of a manufacturer's audit.
    We believe that the deadline for filing disputes will result in 
more prompt remuneration to manufacturers receiving positive decisions 
and more predictable workloads for the dispute infrastructure.
    Proposed Sec.  423.2330(c)(2) also states that the notice of 
dispute be accompanied by supporting evidence that is material, 
specific, and related to the dispute. We propose this requirement 
because the manufacturer bears the burden of proof that the PDE data is 
incorrect. We also propose in Sec.  423.2330(c)(3) to codify the 
Discount Program Agreement provision that manufacturers may not 
withhold any invoiced amounts pending dispute resolution except for 
invoiced amounts for applicable drugs without labeler codes provided by 
the manufacturer to us. The proposition to generally bar the 
withholding of disputed invoice amounts is justified because gap 
discounts are owed by manufacturers but are paid by Part D sponsors to 
beneficiaries at the point-of-sale; we believe that the prohibition of 
withholding disputed invoices will minimize the risk to Part D sponsors 
for these discount-related incurred liabilities without significantly 
increasing the financial risk to a manufacturer because of the 
extensive quality assurance CMS performs on PDEs submitted by Part D 
sponsors. The PDE data used to calculate quarterly invoices are of high 
quality. The PDE data are derived from claims for each prescription 
submitted to Part D sponsors for payment. Part D sponsors validate each 
claim to comply with the False Claims Act and as part of their process 
to reimburse pharmacies for the cost of the drug. In addition, we 
implement multiple edits to validate the PDE data submitted by Part D 
sponsors. Those edits include identification and adjustment of outlier 
and other inappropriate entries for variables such as discount amount, 
beneficiary eligibility for the gap discount, incorrect NDCs, etc. 
Therefore, the burden of proof is on manufacturers to demonstrate that 
the data used to calculate the quarterly invoice are incorrect.
    Section 423.2330(c)(4) would allow manufacturers to request an 
additional adjudication by the Independent Review Entity (IRE), under 
contract with CMS, within 30 days of the receipt of an unfavorable 
determination from the TPA, or if no decision was received from the 
TPA, within 90 days of the receipt of the dispute submission. This 
section also proposes that the IRE be required to make a determination 
within ninety calendar days of receipt of the manufacturer request for 
an appeal.
    Section 423.2330(c)(6) establishes a final administrative step to 
support an equitable dispute resolution process. We are proposing that 
both manufacturers and CMS would have the right to request a final 
review of the dispute by the Administrator. Since we administer the 
Discount Program and manufacturers have financial liability for the 
discounts, both parties have an interest in ensuring an equitable 
resolution to the dispute. We propose that this request be made within 
30 days after the manufacturer receives a decision from the IRE to 
facilitate a timely outcome. Finally, we propose that the decision of 
the Administrator would be final and binding.
    We propose to codify the policies as described and welcome comments 
on the dispute and appeals process.
h. Beneficiary Dispute Resolution (Sec.  423.2335)
    Section 1860D-14A(c)(1)(A)(vii) of the Act requires CMS to provide 
a reasonable dispute mechanism to resolve disagreements between 
manufacturers, applicable beneficiaries, and the TPA. While Sec.  
423.2330(c) would address the disputes that could arise between the 
manufacturer and CMS or the TPA, Sec.  423.2335 would provide the 
beneficiary dispute resolution requirements. Specifically, Sec.  
423.2335 would provide that beneficiaries shall have access to the Part 
D coverage determination and appeals process as described in Sec.  
423.558 through Sec.  423.638 for disputes involving the availability 
and amount of applicable discounts under the Discount Program.
    As previously discussed in this preamble, we have determined that 
the Part D sponsor is the only entity capable of accurately providing 
applicable discounts at the point-of-sale because of its detailed 
knowledge of the drug, the beneficiary, and the claim. Part D sponsors 
would advance applicable discounts as part of their normal process for 
adjudicating Part D claims. Since we consider the discounts to be a 
Part D benefit we propose that the existing mechanism that Part D 
sponsors have in place to accommodate coverage determinations and 
appeals related to Part D sponsor decisions on the amount of cost-
sharing for a drug be used for beneficiary disputes associated with the 
Discount Program (see Sec.  423.558 through Sec.  423.638).
    Although section 1860D-14A(c)(1)(A)(vii) of the Act specifies 
disputes that could arise between manufacturers, applicable 
beneficiaries and the TPA, we believe that under the Discount Program 
model whereby Part D sponsors provide the discounts at point-of-sale, 
each Part D sponsor is the appropriate party to address any beneficiary 
disputes that would otherwise involve manufacturers or the TPA. We 
believe that the beneficiary would generally contact his or her plan 
with any questions about any coverage gap claims, including the 
availability or amount of an applicable discount. Currently a 
beneficiary who wishes to see how his or her claim amounts were 
calculated, including those affected by a manufacturer discount, would 
consult the Explanation of Benefit (EOB) form distributed by the Part D 
sponsor. For 2011, we amended the model EOB to add coverage gap 
discounts as ``other payments'' that count toward a beneficiary's out-
of-pocket costs. Beneficiaries may not know at the point-of-sale 
whether a manufacturer discount has been applied to their claim, or if 
the discount has been applied correctly. Part D sponsors direct 
beneficiaries to their EOBs for information about claims-payment 
amounts. The EOB instructs beneficiaries to contact the Part D sponsor 
with any remaining concerns. Maintaining this consistent process for 
all member benefit payments would be the easiest for the beneficiaries 
to understand and follow, and, we believe,

[[Page 63032]]

impose minimal additional burden on Part D sponsors.
    Although we could establish a separate mechanism for beneficiary 
disputes under the Discount Program, we decline to do so because we 
believe it would prove duplicative and inefficient for Part D sponsors, 
beneficiaries, and us. It also would be potentially more confusing for 
beneficiaries who would be unable to rely on a single process to 
resolve their benefit-related inquiries. For all of these reasons, we 
propose to designate the existing Part D coverage determination appeals 
process as the mechanism for beneficiary disputes about the Discount 
Program.
i. Compliance Monitoring and Civil Money Penalties (Sec.  423.2340)
    Section 1860D-14A(e)(2) of the Act requires us to impose a civil 
money penalty (CMP) on a manufacturer that fails to provide applicable 
beneficiaries applicable discounts for applicable drugs of the 
manufacturer in accordance with the Discount Program Agreement. The 
statute sets forth the formula for determining the CMP amount, which 
will equal the sum of the amount that the manufacturer would have paid 
with respect to such discounts under the agreement (which will then be 
used to pay the discounts which the manufacturer had failed to provide) 
plus 25 percent of such amount. Section 423.2340 would implement these 
requirements and establish the procedures for imposing and collecting 
the CMPs in accordance with subpart T of this part. Accordingly, we 
propose to revise the definition of ``affected party'' in subpart T (as 
defined in Sec.  423.1002) by adding the term ``manufacturer'' (as 
defined in Sec.  423.2305) to the definition and clarifying that we 
interpret the use of ``Part D sponsor'' throughout subpart T to be 
synonymous with ``affected party''. In accordance with the Discount 
Program Agreement and proposed Sec.  423.2315(b)(3), manufacturers must 
pay each Part D sponsor within 38 calendar days of receipt from the TPA 
of the electronic invoice and Medicare Part D Discount Information for 
the applicable discounts included on the invoice except as specified in 
Sec.  423.2330(c)(3). Therefore, we consider a manufacturer to have 
failed to provide applicable beneficiaries applicable discounts for 
applicable drugs of the manufacturer in accordance with the Discount 
Program Agreement if it fails to comply with this requirement unless 
such failure is due to technical or other reasons beyond the control of 
the manufacturer, such as a natural disaster. Consequently, we would 
impose a civil money penalty whenever a manufacturer fails to make full 
payment on its invoice within 38 calendar days of receipt of the 
invoice and Medicare Part D Discount Information for the applicable 
discount included on the invoice unless such failure is due to 
technical or other reasons beyond the control of the manufacturer. We 
plan to add this provision to the Discount Program Agreement.
    Section 423.2340(c) would codify the methodology for determining 
the amount of the CMP as equal to the amount of applicable discount the 
manufacturer would have paid under the Discount Program Agreement, 
which will then be used to pay the applicable discount that the 
manufacturer had failed to provide, plus 25 percent of such amount. 
This amount may be reduced by any amount that the manufacturer has paid 
after the 38th calendar day but before the date the CMP is collected. 
We interpret this to mean that the CMP would be calculated based upon 
the outstanding invoiced amount that was not paid within 38 calendar 
days of receipt as required under the Discount Program Agreement and 
proposed Sec.  423.2315(b)(3) irrespective of any partial or late 
payments. In other words, a manufacturer's failure to pay the entire 
invoice amount would trigger the CMP and late payments would not 
relieve the manufacturer of its obligation to pay an additional 25 
percent of the unpaid amount from the invoice. In order to ensure 
consistency and transparency with the imposition of these civil money 
penalties, unless the exception applies (that is, the payment is late 
due to technical or other reasons beyond the control of the 
manufacturer), we would impose the additional 25 percent on all 
invoiced amounts not paid within 38 calendar days of receipt, even, for 
example, if the payment is only 1 day late.
    Section 423.2340(d) specifies that if CMS makes a determination to 
impose a CMP, we would send a written notice of our decision to impose 
a CMP that includes a description of the basis for the determination, 
the basis for the penalty, the amount of the penalty, the date the 
penalty is due, the manufacturer's right to a hearing (as specified 
under Sec.  423.1006) and information about where to file the request 
for hearing. To ensure a consistent approach to CMPs, we propose 
extending existing appeal procedures for CMPs in subpart T of this part 
to manufacturers appealing a CMP imposed under the Discount Program. We 
have utilized this appeals process for more than 20 years for various 
types of adverse agency determinations affecting an array of medical 
providers, MA organizations, and Part D sponsors. We therefore propose 
to use this well established process and infrastructure for CMP appeals 
from manufacturers that have contracted with the Discount Program and 
are delinquent in paying the discounts as required. To that end, we 
propose to revise the definition of ``affected party'' in Sec.  
423.1002 to include manufacturers participating in the Discount 
Program. Section 423.2340(e) would provide that we would initiate 
collection of the CMP following expiration of the timeframe for 
requesting an ALJ hearing, which is 60 calendar days from the CMP 
determination, as specified in Sec.  423.1020 if the manufacturer did 
not request a hearing; and CMS would initiate collection of the CMP 
once the administrative decision is final if a manufacturer requests a 
hearing and our decision to impose the CMP is upheld.
    Section 1860D-14A(e)(2)(B) of the Act states that the provisions of 
section 1128A of the Act (except subsections (a) and (b)) apply to CMPs 
under this subpart to the same extent that they apply to a CMP or 
procedure under section 1128A(a) of the Act. We propose to codify this 
requirement in Sec.  423.2340(f). We welcome comments on this proposal.
j. Termination of Agreement (Sec.  423.2345)
    Section 1860D-14A(b)(4)(B)(i) of the Act provides that we may 
terminate a Discount Program Agreement for a knowing and willful 
violation of the requirements of the agreement or other good cause 
shown. Such termination shall not be effective earlier than 30 days 
after the date of notice to the manufacturer of such termination and 
CMS shall provide, upon request, a hearing concerning such termination, 
and such hearing shall take place prior to the effective date of the 
termination with sufficient time for such effective date to be repealed 
if CMS determines appropriate. Section 423.2345 would codify these 
requirements consistent with the termination provisions in the Discount 
Program Agreement. For instance, Sec.  423.2345(a)(1) would clarify 
that ``good cause shown'' must relate to the manufacturer's 
participation in the Discount Program. Our proposed regulation would 
further specify that we must provide the manufacturer with an 
opportunity to cure any ground for termination within 30 calendar days 
of receipt of the written termination notice. In addition, we propose, 
consistent with the statutory requirement as reflected in the Discount

[[Page 63033]]

Program Agreement, that the manufacturer may request a hearing with a 
hearing officer concerning such termination if requested in writing 
within 15 calendar days of receiving notice of the termination, and 
such hearing must take place prior to the effective date of termination 
with sufficient time for such effective date to be repealed if we 
determine appropriate.
    In order to address potential timing issues with appeals during the 
termination process, we propose to clarify in Sec.  423.2345(a)(2) that 
termination must not be effective earlier than 30 days after the date 
of notice to the manufacturer of such termination and must not be 
effective prior to resolution of timely appeal requests received in 
accordance with paragraphs (a)(4) and (a)(5) of this section. Proposed 
sections (a)(4) and (a)(5) state, in part, that CMS will provide a 
manufacturer with a hearing before the hearing officer about such 
termination if requested in writing within 15 calendar days of 
receiving notice of the termination. Further, CMS or a manufacturer 
that has received an unfavorable determination from the hearing officer 
may request review by the CMS Administrator within 30 calendar days of 
receipt of the notification of such determination. Therefore, a 
termination would not be effective until either the timeframes to 
pursue a hearing with the hearing officer or CMS Administrator have 
passed or a final decision has been issued by the hearing officer or 
CMS Administrator and there is no remaining opportunity to request 
further review.
    We also propose in Sec.  423.2345(a)(5)(i) to specify that CMS or a 
manufacturer that has received an unfavorable determination from the 
hearing officer may request review by the CMS Administrator within 
thirty calendar days of receipt of the notification of such 
determination. The Discount Program Agreement currently provides only 
that a manufacturer may request review of an unfavorable decision by 
the CMS Administrator. However, we believe that a fair appeals process 
must ensure that both parties have an opportunity for further review of 
a decision made by an independent review entity. The decision of the 
CMS Administrator would be final and binding on either party. We 
request comments on these termination requirements.
    Section 1860D-14A(b)(4)(B)(ii) of the Act provides that a 
manufacturer may terminate the Discount Program Agreement for any 
reason. Such termination shall be effective as of the day after the end 
of the calendar year if the termination occurs before January 30 of a 
calendar year or as of the day after the end of the succeeding calendar 
year if the termination occurs on or after January 30 of a calendar 
year. We propose to codify these requirements in Sec.  423.2345(b).
    Section 1860D-14A(b)(4)(B)(iii) of the Act states that any 
termination shall not affect discounts for applicable drugs of the 
manufacturer that are due under the Discount Program Agreement before 
the effective date of the termination and we propose to codify this 
requirement in Sec.  423.2345(c). However, upon the effective date of 
the Discount Program Agreement termination, the manufacturer's drugs 
would no longer be covered under Medicare Part D. In addition, Sec.  
423.2345(d) would specify that we would cease releasing data to the 
manufacturer except as necessary to ensure the manufacturer reimburses 
applicable discounts for time periods in which the Discount Program 
Agreement was in effect and would notify the manufacturer to destroy 
data files provided by us under the Discount Program Agreement.
    Finally, Sec.  423.2345(e) would restrict reinstatement of 
manufacturers that previously terminated their Discount Program 
Agreements or had them terminated by CMS to those manufacturers that 
pay any and all outstanding applicable discounts incurred during any 
previous periods under Discount Program Agreements.
2. Inclusion of Benzodiazepines and Barbiturates as Part D Covered 
Drugs (Sec.  423.100)
    Section 175 of the Medicare Improvements for Patients and Providers 
Act of 2008 (MIPPA), amended section 1860D-2(e)(2)(A) of the Act to 
include barbiturates, when used for the medical indications of 
epilepsy, cancer, or a chronic mental health disorder and to include 
benzodiazepines. These amendments apply to prescriptions dispensed on 
or after January 1, 2013. Accordingly, we propose to revise the 
definition of Part D drug at Sec.  423.100, by including barbiturates 
(when used for the previously noted medical indications) and 
benzodiazepines that are dispensed on or after January 1, 2013. Like 
any covered prescription drugs under the Part D benefit program, 
benzodiazepines and barbiturates must meet all other conditions as 
defined in Sec.  423.100 of a Part D covered drug such as: FDA approved 
for safety and effectiveness as a prescription drug under section 505 
of the Federal Food, Drug, and Cosmetic Act; used and sold in the 
United States; not otherwise covered by Medicare Part A or Part B; and 
used only for medically accepted indications.
    We remind plans that it is their responsibility to use the tools 
(that is, system edits, quality assurance checks) at their disposal to 
ensure barbiturates are covered for the conditions specified in 
statute. Also, given the vulnerability of these drugs to misuse and 
abuse, it is recommended that Part D sponsors use their Drug 
Utilization Report tools to identify and prevent waste and clinical 
abuses/misuses.
3. Pharmacy Benefit Manager's Transparency Requirements (Sec.  423.501 
and Sec.  423.514)
    Under section 6005 of the Affordable Care Act, Part A of Title XI 
of the Act was amended by inserting after section 1150 of the Act a new 
section: ``SEC. 1150A. Pharmacy Benefit Manager's Transparency 
Requirements.'' Section 1150A of the Act contains several new reporting 
requirements for Part D sponsors under Part D of title XVIII, qualified 
health benefits plans (QHBP) offered through an exchange established by 
a State under section 1311 of the Affordable Care Act, and entities 
that provide pharmacy benefits management services, referred to in this 
section as pharmacy benefit managers (PBMs). The purpose of these new 
reporting requirements is to promote transparency of financial 
transactions involving Part D sponsors, QHBPs, and PBMs. Under section 
1150A, the information is required to be reported to the Secretary by 
the Part D sponsor or QHBP and, in the case of a PBM, to the Part D 
sponsor or QHBP. In accordance with this authority, we propose to 
codify various reporting requirements in our regulation at Sec.  
423.514. In addition, we propose to add a definition for ``bona fide 
service fees'' to our regulations at Sec.  423.501.
    Under the authority of section 1860D-15 of the Act, we collect from 
Part D sponsors cost data necessary to determine payments under the 
Part D program. Currently, we collect from Part D sponsors PDE data 
that provide detailed information on each drug dispensed under Part D. 
In addition, we collect direct and indirect remuneration (DIR) 
information that indicates the amount of remuneration received by the 
sponsor or its PBM from pharmaceutical manufacturers and other sources. 
Part D sponsors are required to report these cost data to CMS within 6 
months of the end of the coverage year.
    We propose to amend our regulations to implement the provisions of 
section 1150A of the Act with respect to Part D sponsors and the PBMs 
that manage prescription drug coverage under a contract with a Part D 
sponsor. The

[[Page 63034]]

provisions of section 1150A of the Act with respect to QHBPs and their 
PBMs will be addressed in separate rulemaking.
    The specific information that is required to be collected and 
reported under Section 1150A of the Act by each Part D sponsor and PBM 
for a contract year is the following:
     The percentage of all prescriptions that were provided 
through retail pharmacies compared to mail order pharmacies.
     The percentage of prescriptions for which a generic drug 
was available and dispensed (generic dispensing rate), by pharmacy type 
(which includes an independent pharmacy, chain pharmacy, supermarket 
pharmacy, or mass merchandiser pharmacy that is licensed as a pharmacy 
by the State and that dispenses medication to the general public), that 
is paid by the Part D sponsor or PBM under the contract.
     The aggregate amount and the type of rebates, discounts, 
or price concessions (excluding bona fide service fees) that the PBM 
negotiates that are attributable to patient utilization under the plan, 
the aggregate amount of the rebates, discounts, or price concessions 
that are passed through to the plan sponsor, and the total number of 
prescriptions that were dispensed.
     The aggregate amount of the difference between the amount 
the Part D sponsor pays the PBM and the amount that the PBM pays retail 
pharmacies, and mail order pharmacies, and the total number of 
prescriptions that were dispensed.
    Under section 1150A(c) of the Act, information disclosed by a Part 
D sponsor or PBM is confidential and generally shall not be disclosed 
by the Secretary or by a plan receiving the information. Consistent 
with the statute as applied to Part D sponsors and PBMs that provide 
pharmacy benefits management services on behalf of Part D sponsors, we 
propose to add language listing the following exceptions, which allow 
the Secretary to disclose the information in a form which does not 
disclose the identity of a specific PBM, plan, or prices charged for 
drugs, for the following purposes:
     As the Secretary determines necessary to carry out section 
1150A or Part D of Title XVIII.
     To permit the Comptroller General to review the 
information provided.
     To permit the Director of the Congressional Budget Office 
to review the information provided.
    We believe the exception allowing disclosure to States to carry out 
section 1311 of the Act is relevant in the context of QHBPs but is not 
relevant to the Part D sponsors and their PBMs. Thus, this exception 
will be addressed in separate rulemaking regarding the provisions of 
1150A of the Act with respect to QHBPs and their PBMs.
    As required by section 1150A(d) of the Act, the provisions of 
section 1927(b)(3)(C) of the Act shall apply to a Part D sponsor or PBM 
that fails to provide the required information on a timely basis or 
knowingly provides false information ``in the same manner as such 
provisions apply to a manufacturer with an agreement under that 
section.''
    Consistent with the statute, we are implementing this new reporting 
requirement by updating the regulations to specify reporting 
requirements for pharmacy benefits manager data. Each entity that 
provides pharmacy benefits management services must provide to the Part 
D sponsor, and each Part D sponsor must provide to CMS, the data 
elements required by this rulemaking.
    Accordingly, in Sec.  423.514, we propose to add language requiring 
that each entity that provides pharmacy benefits management services 
must provide to the Part D sponsor, and that each sponsor of a Part D 
plan provide to CMS, all of the following information in a manner 
specified by CMS:
     The total number of prescriptions that were dispensed.
     The percentage of all prescriptions that were provided 
through retail pharmacies compared to mail order pharmacies.
     The percentage of prescriptions for which a generic drug 
was available and dispensed (generic dispensing rate), by pharmacy type 
(which includes an independent pharmacy, chain pharmacy, supermarket 
pharmacy, or mass merchandiser pharmacy that is licensed as a pharmacy 
by the State and that dispenses medication to the general public), that 
is paid by the Part D sponsors or PBM under the contract.
     The aggregate amount and type of rebates, discounts, or 
price concessions (excluding bona fide service fees) that the PBM 
negotiates that are attributable to patient utilization under the plan.
     The aggregate amount of the rebates, discounts or price 
concessions that are passed through to the plan sponsor.
     The aggregate amount of the difference between the amount 
the Part D sponsor pays the PBM and the amount that the PBM pays retail 
pharmacies, and mail order pharmacies.
    The information submitted under this regulation would be subject to 
the confidentiality requirements under section 1150A(c) of the Act, and 
the provisions of section 1927(b)(3)(C) of the Act are applicable to 
any Part D sponsor or PBM that fails to provide this information on a 
timely basis or that knowingly provides false information in the same 
manner as those provisions apply to a manufacturer with an agreement 
under section 1927 of the Act.
    We believe that we already collect much of the above listed 
information. For example, we can tally the total number of prescription 
dispensed from PDE records. Other information can be collected by 
modifying existing reporting mechanisms. For example, the aggregate 
amount of the difference between the amount the Part D sponsor pays the 
PBM and the amount the PBM pays pharmacies (that is, the PBM spread) is 
available from the DIR data reported to CMS by Part D sponsors on the 
2010 DIR Report for Payment Reconciliation: Summary Report. We plan to 
add to the DIR reporting requirements PBM spread amounts for retail 
pharmacies and PBM spread amounts for mail order pharmacies in order to 
meet section 1150A of the Act reporting requirements.
    In the interests of administrative simplicity and to minimize 
reporting burden on Part D sponsors, we would like to further leverage 
existing data sources and reporting mechanisms. Thus, we solicit 
comment on whether any of the following data elements can be collected 
using existing data sources such as PDE records and/or added to 
existing reporting mechanisms, and whether any may require a separate 
reporting mechanism:
     Number of retail prescriptions.
     Number of mail order prescriptions.
     Number of prescriptions dispensed by independent 
pharmacies.
     Number of prescriptions dispensed by chain pharmacies.
     Number of prescriptions dispensed by supermarket 
pharmacies.
     Number of prescriptions dispensed by state-licensed mass 
merchandisers to the general public.
    We note that the provisions regarding DIR under the Part D program 
do not mention DIR attributable to patient utilization, whereas section 
1150A of the Act references rebates, discounts, and price concessions 
that are attributable to patient utilization. We are soliciting 
comments regarding whether there are differences between DIR under the 
Part D program and DIR attributable to patient utilization. If there 
are any such differences, we also seek comments regarding whether we 
should establish additional reporting requirements for DIR attributable 
to patient utilization.

[[Page 63035]]

    Consistent with the requirement under section 1150A of the Act that 
plans exclude bona fide service fees when they report the aggregate 
amount and type of rebates, discounts or price concessions, we also 
propose to amend the regulations at Sec.  423.501 to add the following 
definition for bona fide service fees:

    Bona fide service fees means fees paid by a manufacturer to an 
entity that represent fair market value for a bona fide, itemized 
service actually performed on behalf of the manufacturer that the 
manufacturer would otherwise perform (or contract for) in the 
absence of the service arrangement, and that are not passed on in 
whole or in part to a client or customer of an entity, whether or 
not the entity takes title to the drugs. Bona fide service fees 
include, but are not limited to, distribution service fees, 
inventory management fees, product stocking allowances, and fees 
associated with administrative services agreements and patient care 
programs (such as medication compliance programs and patient 
education programs).

    We are soliciting comment on this definition, which is taken 
without modification from section 1150A of the Act and is consistent 
with the definitions used in Medicare FFS and Medicaid. We intend to 
monitor the reported bona fide service fees reported by Part D sponsors 
to ensure compliance with program requirements.

B. Strengthening Beneficiary Protections

    This section includes provisions aimed at strengthening beneficiary 
protections under Parts C and D. We are also considering changes under 
the long term care (LTC) conditions of participation. In our opinion, 
it is appropriate to provide for reinstatement of beneficiaries in the 
section 1876 cost plans from which they were disenrolled for failing to 
pay premiums when they can establish good cause for their failure to 
pay. We anticipate that this would result in uninterrupted plan 
coverage for eligible beneficiaries thereby improving access to 
healthcare for individuals such as those with chronic conditions 
requiring continual monitoring and medication. Similarly, we expect 
that requiring enrollees in MA plans to be provided with uniform ID 
cards that all providers can easily recognize would facilitate access 
to health care for those beneficiaries. We also think that calculating 
creditable coverage by excluding the value of additional coverage in 
the coverage gap and the manufacturer's discount--the standard that 
qualifies retiree drug coverage for the retiree drug subsidy--would 
mean a beneficiary receiving retiree drug coverage would be less likely 
to be assessed a late enrollment penalty if he or she decided to enroll 
in a Part D plan. Enabling health care professionals to request 
Independent Review Entity (IRE) reconsiderations of Part D coverage 
determinations on behalf of enrollees without having to obtain signed 
authorized representative forms would, in our opinion, lessen the 
burden faced by providers seeking to assist enrollees with appeals and 
would encourage more health care professionals to step forward and help 
beneficiaries access this level of the appeals process. Lastly, the 
various arrangements that exist involving LTC facilities, LTC 
pharmacies and the LTC consultant pharmacists these pharmacies provide 
to LTC facilities, and pharmaceutical manufacturers and/or distributors 
have raised concerns regarding the quality of the consultant pharmacist 
reviews and the potential impact on resident health and safety. We 
believe these concerns may be addressed by changes we are considering 
that would require LTC consultant pharmacists be independent of the LTC 
facility pharmacy, pharmaceutical manufacturers or distributors, or any 
affiliate of these entities. The foregoing proposals and the change 
under consideration are set forth in Table 2.

                                                                    Table 2--Provisions To Strengthen Beneficiary Protections
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Part 417                            Part 422                            Part 423                            Part 483
       Preamble section             Provision    -----------------------------------------------------------------------------------------------------------------------------------------------
                                                       Subpart           Subpart           Subpart           Section           Subpart           Section           Subpart           Section
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
II.B.1........................  Good Cause and    Subpart K.......  Sec.   417.460..  N/A.............  N/A.............  N/A.............  N/A.............  N/A.............  N/A.
                                 Reinstatement
                                 into a Cost
                                 Plan.
II.B.2........................  Requiring MA      N/A.............  N/A.............  Subpart A.......  Sec.   422.111..  N/A.............  N/A.............  N/A.............  N/A.
                                 Plans to Issue
                                 Member ID cards.
II.B.3........................  Determination of  N/A.............  N/A.............  Subpart K.......  Sec.   422.56...  N/A.............  N/A.............  N/A.............  N/A.
                                 Actuarially
                                 Equivalent
                                 Creditable
                                 Prescription
                                 Drug Coverage.
II.B.4........................  Who May File      N/A.............  N/A.............  N/A.............  N/A.............  Subpart M.......  Sec.   423.600,   N/A.............  N/A.
                                 Part D Appeals                                                                                              Sec.   423.602.
                                 with the
                                 Independent
                                 Review Entity.

[[Page 63036]]

 
II.B.5........................  Independence of   N/A.............  N/A.............  N/A.............  N/A.............  N/A.............  N/A.............  Subpart B.......  Sec.   483.60.
                                 LTC Consultant
                                 Pharmacists.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1. Good Cause and Reinstatement Into a Cost Plan (Sec.  417.460)
    Current regulations at Sec.  417.460(c) specify that an HMO or 
competitive medical plan may disenroll a member who fails to pay 
premiums or other charges imposed by the HMO or competitive medical 
plan for deductible and coinsurance amounts. The cost plan must 
demonstrate that it made reasonable efforts to collect the unpaid 
amount (for example, attempted to contact the member by phone or mail) 
and sent the enrollee written notice of the proposed disenrollment 
(including an explanation of the enrollee's right to a hearing under 
the HMO's or competitive medical plan's grievance procedures). Cost 
plans also have the option of not disenrolling members who fail to pay 
their premiums or cost-sharing. Whichever policy they choose, it must 
be applied consistently to all members in the plan.
    In the April 2011 final rule (76 FR 21511), we established rules 
that allowed beneficiaries disenrolled from MA and Part D plans for 
failure to pay premiums the ability to request reinstatement into the 
plan from which they were involuntarily disenrolled provided they could 
establish good cause and pay all arrearages. We established these rules 
at Sec.  422.74 and Sec.  423.44 not only because they were consistent 
with the policy for delinquent Medicare Part B premium payments, but 
because beneficiaries who were disenrolled from an MA or Part D plan 
for failure to pay premiums generally were not eligible for a special 
enrollment period. We believed there may be situations where 
individuals had extenuating circumstances that prevented them from 
paying their premiums timely and that reinstatement would be 
appropriate.
    We received broad support for this regulatory change for MA and 
Part D plans, and stated at the time that we would consider expanding 
the scope of this provision to section 1876 cost enrollees in the 
future. Based on feedback we have received from partners, we are 
proposing to amend Sec.  417.460(c) regarding disenrollment for non-
payment of premiums to allow for the reinstatement of enrollment for 
good cause subsequent to an involuntary disenrollment associated with 
the failure to pay premiums or other cost-sharing amounts. In order to 
be eligible for reinstatement, the beneficiary would have to pay all 
outstanding arrearages, including premiums that accrued during the 
period of disenrollment. We believe this is an important protection to 
provide beneficiaries enrolled in cost plans because even though 
members of cost plans do not have the same election period restrictions 
as those in MA and Part D plans, a reinstatement of enrollment would 
remove the involuntary disenrollment and result in continuous coverage.
    We propose that the requirements for reinstatement be similar to 
those established under Part C and Part D. That is, the reinstatement 
must be requested, good cause determined and payment made of all 
premium or cost sharing arrearages, including amounts that would have 
been due since the disenrollment, within 3 months of the disenrollment 
date. Examples of good cause would be similar to those established for 
individuals disenrolled from MA or Part D plans and may include, but 
are not limited to: (1) An unexpected, prolonged hospitalization; (2) 
an error by a Federal government employee or plan representative; or 
(3) loss of home or severe impact by fire, or other exceptional 
circumstance outside the beneficiary's control. We also propose that 
good cause would not exist if the only basis for requesting 
reinstatement was a change in the individual's circumstances subsequent 
to the involuntary disenrollment resulting in his or her ability to pay 
the premiums.
    We would note that an individual who is involuntarily disenrolled 
within the same timeframe from both his or her cost plan and a separate 
prescription drug plan (not affiliated with the cost plan) would need 
to seek separate good cause determinations for reinstatement into both 
plans. This is because the two plans may have different grace periods 
and arrearage amounts.
2. Requiring MA Plans To Issue ID Cards (Sec.  422.111)
    Pursuant to section 1860D-4(a)(1) of the Act and Sec.  423.120(c), 
and consistent with standards established by CMS, Part D sponsors must 
issue and re-issue as appropriate a card or other technology that 
enrollees can use to access negotiated prices for Part D covered drugs. 
While we have made recommendations through sub-regulatory guidance 
(http://www.cms.gov/ManagedCareMarketing/) with respect to member 
identification (ID) cards for Medicare Advantage (MA) Preferred 
Provider Organization and Private Fee-for-Service products, we have 
issued no related requirements. Many MA organizations issue ID cards to 
their enrollees, though absent regulation, there is no way to ensure 
consistency of information across such documents. We believe it is 
important to establish requirements for the MA member ID card to ensure 
that information such as the plan's customer service number, link to 
the plan's website and member ID number are disclosed to enrollees for 
access to care. Specifically, we propose to require that ID cards 
contain the following information: (1) For an MA PPO or PPFS plan, a 
statement that Medicare Limiting Charges apply; (2) an address for the 
plan's website; (3) a customer service number; and (4) the individual 
identification number for each enrollee, to clearly identify that he or 
she is a member of the plan.
    Implementation of these provisions will ensure providers have easy 
access to the necessary information for verifying coverage and 
processing claims. Therefore, under our authority at section 1852(c) of 
the Act to require that MA organizations disclose MA plan information 
upon request, as well as our authority under section 1856(b)(1) to 
establish standards by regulation and section 1857(e) of the Act to 
specify additional contractual terms and conditions the Secretary may 
find

[[Page 63037]]

necessary and appropriate, we propose to amend Sec.  422.111 by adding 
a new paragraph (i) to expressly require MA plans issue and re-issue, 
as necessary, a card that contains certain information and enables 
enrollees to access all covered services. Additionally, in an effort to 
protect beneficiaries from misuse of personal information, we will 
explicitly prohibit plan sponsors from disclosing social security 
numbers or health insurance claim numbers on the member ID cards. We 
will provide further instructions in the Medicare Marketing Guidelines.
3. Determination of Actuarially Equivalent Creditable Prescription Drug 
Coverage (Sec.  423.56)
    Section 1860D-22 of the Act outlines the special rules for 
employer-sponsored programs. Subsection 1860D-22(a) of the Act 
establishes that the Secretary shall provide payment to sponsors of 
qualified retiree prescription drug plans that provide equivalent or 
better coverage than the actuarial value of standard prescription drug 
coverage. The Affordable Care Act amended section 1860D-22(a)(2)(A) of 
the Act by adding a provision with regard to the actuarial equivalence 
of retiree prescription drug coverage to the defined standard coverage. 
The new provision requires that when attesting to the actuarial 
equivalence of the plan's prescription drug coverage to the defined 
standard coverage, qualified retiree prescription drug plans not take 
into account the value of any discount or coverage provided during the 
gap between the initial coverage limit during the year and the out-of-
pocket threshold for the defined standard coverage under Part D. This 
change was intended to carve-out coverage provided during the gap when 
determining the actuarial equivalence of retiree prescription drug 
coverage for the purpose of qualifying for the retiree drug subsidy 
payment under section 1860D-22(a)(2) of the Act. In addition, section 
1860D-14A(g)(1) of the Act expressly excludes enrollees in RDS plans 
from the definition of ``applicable beneficiary.'' Thus, these Part D 
eligible individuals are not entitled to gap coverage or any applicable 
discount on drugs. In accordance with these legislative changes, we 
revised the retiree drug subsidy calculation by amending Sec.  
423.884(d) to remove the value of any discount or coverage provided 
during the coverage gap from the valuation of the RDS coverage. In 
other words, the calculation of the actuarial value of defined standard 
Part D coverage for the purposes of the RDS attestation excludes 
discounts provided to applicable beneficiaries in the gap by the 
discount program under 1860D-14A of the Act and the decreases in gap 
coinsurance for applicable beneficiaries under 1860D-2(b) of the Act.
    Section 1860D-13(b)(4) of the Act defines creditable prescription 
drug coverage to include coverage that at least meets the actuarial 
equivalence requirements in 1860D-13(b)(5)(A) of the Act. Section 
1860D-13(b)(5)(A) of the Act further states that an individual's 
prescription drug coverage meets the actuarial equivalence requirements 
only if the coverage is determined (in a manner specified by the 
Secretary) to provide coverage of the cost of prescription drugs the 
actuarial value of which (as defined by the Secretary) to the 
individual equals to or exceeds the actuarial value of the standard 
prescription drug coverage (as determined under section 1860D-11(c) of 
the Act). The Affordable Care Act, as amended, establishes two types of 
standard prescription drug coverage. Specifically, the standard defined 
benefit now includes provisions that apply only for applicable 
beneficiaries (see sections 1860D-2(b)(2)(C) and (D) of the Act), while 
the rest of the standard defined benefit applies for other enrollees. 
Thus, we calculate two actuarial values for standard prescription drug 
coverage--one value that would apply to applicable beneficiaries, and 
another value for standard prescription drug coverage when establishing 
the low-income subsidy. As a result of these changes, we need to 
clarify which actuarial equivalence standard is used for the valuation 
of creditable prescription drug coverage when determining whether an 
individual is subject to the late enrollment penalty (LEP) under 1860D-
13(b) of the Act.
    We believe the value of the defined standard benefit, as it applies 
to the valuation of creditable coverage, should be consistent with the 
regulation change for the valuation of the retiree drug subsidy 
calculation. Retiree prescription drug coverage is a primary source of 
creditable coverage. This being the case, we are proposing to align the 
actuarial value calculation we use for purposes of section 1860D-13(b) 
of the Act with the actuarial value calculation used to determine the 
value of the retiree drug subsidy. By using the same value for both 
determinations, we will be ensuring that the individuals who are 
enrolled in retiree drug plans that have met and attested to the 
actuarial equivalence value of defined standard prescription drug 
coverage as provided under Sec.  423.884(5)(iii)(C) are not subject to 
the LEP under Sec.  423.46.
    To this end, we are proposing to amend Sec.  423.56(a) to exclude 
the value of gap discounts or coverage, so that it is consistent with 
the calculation of the actuarial value of qualified retiree 
prescription drug coverage found at Sec.  423.884(d). We also propose 
to revise the reference to ``CMS actuarial guidelines'' in Sec.  
423.56(a) to read ``CMS guidelines.'' We believe this revision would 
allow CMS additional flexibility to provide interpretive guidance on 
the definition of creditable coverage for reasons beyond those relating 
to actuarial principles.
4. Who May File Part D Appeals With the Independent Review Entity 
(Sec.  423.600 and Sec.  423.602)
    Section 1860D-4(h) of the Act directs the Secretary to establish a 
Part D appeals process that is similar to the appeals process used for 
MA appeals. The Parts C and D appeals procedures are set forth in 
Subpart M of Parts 422 and 423 of our regulations, respectively. In our 
January 12, 2009 final rule (74 FR 1494), we amended both these sets of 
regulations to strengthen enrollee access to the Part C and Part D 
appeals process. Specifically, we amended the MA appeals regulations at 
Sec.  422.582 to permit physicians to request standard plan 
reconsiderations of pre-service requests on behalf of MA enrollees. 
Consistent with section 1860D-4(g) of the Act, we made a corresponding 
change to the Part D regulations at Sec.  423.580, allowing physicians 
and other prescribers to request standard redeterminations on behalf of 
enrollees. Allowing prescribers to request coverage determinations and 
plan level appeals on behalf of enrollees has significantly enhanced 
enrollee access to these processes.
    Subsequent program experience has taught us that these changes to 
the Part D appeal process may not go far enough in terms of improving 
access to the Part D appeals process, as explained in this section. 
Consequently, we are proposing to revise the Part D regulations at 
Sec.  423.600 to allow physicians and other prescribers to request 
Independent Review Entity (IRE) reconsiderations on behalf of 
enrollees. We are also proposing to make a corresponding change to the 
notice provisions at Sec.  423.602(a).
    Currently, the Part D IRE reports that approximately 46 percent of 
the cases it dismisses lack a valid appointment of representative (AOR) 
form, and that the overwhelming majority of these dismissed appeals 
(close to 90 percent) are initiated by prescribers. Such dismissals 
impede prescribers from assisting enrollees in obtaining timely

[[Page 63038]]

independent review of their cases which creates the potential for 
delays in prescription drug access. Furthermore, given a prescribers' 
ability to act on behalf of an enrollee in requesting Part D plan level 
appeals, prescribers frequently express dissatisfaction with not being 
able to also assist patients with IRE level appeals and the perceived 
burden associated with becoming the enrollee's appointed 
representative. Clearly, this proposal would significantly reduce the 
number of requests for review that the Part D IRE dismisses due to the 
lack of an AOR form. In addition, because the IRE will no longer have 
to seek an AOR form, it will be able to immediately initiate 
substantive review of these cases. Thus, we believe this change would 
enhance beneficiary access to the appeals process and better ensure 
prompt IRE decisions on whether requested drugs should be covered under 
Part D.
    Under this proposal, the regulations would continue to require a 
Part D enrollee, or a prescriber acting on his/her behalf, to request 
an IRE review; adverse redeterminations would not be automatically 
forwarded to the IRE. We have considered requiring auto-forwarding of 
adverse redetermination requests under the Part D program, but we 
continue to believe that the statute supports the position that in 
order to obtain IRE review the enrollee (or someone acting on the 
enrollee's behalf) must request such review. (See the January 28, 2005 
final rule (70 FR 4193) for a discussion of this issue.) Although 
section 1860D-4(h) of the Act states that only the Part D eligible 
individual shall be entitled to bring an appeal to the IRE, we do not 
interpret this language as precluding a prescriber from acting on a 
Part D enrollee's behalf in requesting IRE review. As required by 
section 1860D-4(h) of the Act, this proposed change makes the MA and 
prescription drug benefit programs' appeals processes more similar, by 
giving Part D prescribers a mechanism to assist enrollees in accessing 
IRE review. In the MA program, the regulatory requirement that adverse 
plan reconsiderations be auto-forwarded to the IRE essentially gives 
physicians acting on behalf of enrollees direct access to the IRE 
reconsideration process. Also, as explained in our January 2009 final 
rule, allowing prescribers to request IRE appeals on behalf of 
enrollees does not present a conflict of interest because Part D 
prescribers are generally not entitled to payment from the enrollee, 
pharmacy, or plan for the prescribed drug, and therefore, do not have a 
financial interest in the outcome of appeals in the same manner as 
physicians requesting appeals under the MA program. Furthermore, we 
believe that an enrollee's prescriber has already been selected by the 
enrollee and occupies a position of trust. A prescriber is in a good 
position to know whether an independent review is warranted and is in 
the best interest of his or her patient.
    This proposal should reduce administrative burdens under the IRE 
appeal process by eliminating the need for prescribers to routinely 
obtain AOR forms from enrollees and permitting prescribers to assist 
their patients in the appeals process without taking on the added 
responsibilities attendant to being an appointed representative. In 
contrast to the ongoing authority of appointed representatives, this 
proposal would allow a prescriber to act on an enrollee's behalf on an 
as-needed, case-by-case basis. A completed AOR form is not necessary or 
advisable for prescribers who are only seeking to assist Part D 
enrollees in exercising their own appeal rights under the statute. 
Prescribers will not have the same authority as an appointed 
representative, such as the right to bring appeals at any level, the 
right to obtain information on appeals, etc. Instead, we envision that 
from the time of the initial IRE appeal request, the prescriber's role 
will remain what it has been--providing a supporting statement or the 
clinical information necessary to approve coverage, if appropriate. 
Accordingly, we believe that this proposal will promote enrollee access 
to the Part D appeals process, reduce the burden on the prescriber 
community, and allow a more efficient use of appeals resources.
    We are proposing a corresponding change to Sec.  423.602(a) to 
specify that the IRE is responsible for notifying the prescriber of its 
decision when the prescriber makes the request on behalf of the 
enrollee. The enrollee will receive a written decision notice from the 
IRE, ensuring that enrollees are fully informed about the review 
process and able to participate if they choose to do so. We intend to 
issue additional manual guidance regarding the specifics of prescriber 
notice requirements.
    As in Sec.  422.582 and Sec.  423.580, we are proposing that 
prescribers must notify enrollees whenever they request IRE review on 
their behalf, and we intend to issue additional operational guidance 
with respect to how this requirement may be satisfied. Finally, we want 
to make clear that this proposal addresses only the right of a 
prescriber to file an appeal on behalf of an enrollee at the IRE level. 
Other individuals who wish to act on behalf of an enrollee in filing an 
appeal must continue to do so as the enrollee's representative.
5. Independence of LTC Consultant Pharmacists (Sec.  483.60)
    Under sections 1819(b)(4) and 1919(b)(4) of the Act, long term care 
(LTC) facilities must provide, either directly or under arrangements 
with others, for the provision of pharmaceutical services to meet the 
needs of each resident. This requirement is codified in regulations at 
Sec.  483.60, which require LTC facilities to employ or obtain the 
services of a licensed pharmacist to provide consultation on all 
aspects of the provision of pharmacy services in the facility, 
including a drug regimen review at least once a month for each facility 
resident.
    In the process of performing the drug regimen reviews, if the 
consultant pharmacist recommends a modification of a resident's drug 
treatment regimen, he/she notates the resident's medical record with 
the recommendation to the prescribing physician. The prescribing 
physician must respond to the recommendation and, based on our 
experience, the physician generally follows it because the consultant 
pharmacist is considered to be an unbiased expert of pharmacology in 
the LTC setting. As a result of their role in LTC facilities, LTC 
consultant pharmacists have significant influence over the drugs that 
LTC facility residents receive.
    In accordance with section 1860D-4(b)(1) of the Act, as codified in 
our regulations at Sec.  423.120(a)(5), Part D sponsors are required to 
provide LTC facility residents who are plan enrollees convenient access 
to LTC pharmacies. We expect that each LTC facility would select one, 
or possibly more than one, eligible network LTC pharmacy to provide 
Medicare drug benefits to its residents. We have specified minimum 
performance and service criteria in the Medicare Prescription Drug 
Benefit Manual, Chapter 5 (``Benefits and Beneficiary Protections''), 
section 50.5.2 (available on the CMS Web site at: http://www.cms.gov/PrescriptionDrugCovContra/Downloads/Chapter5.pdf).
    Commonly, nursing homes contract with a single LTC pharmacy for 
prescription drugs for facility residents. Very often the same LTC 
pharmacy then also contracts with the facility to provide consultant 
pharmacists for required consultation on all aspects of the provision 
of pharmacy services in the facility, including the monthly resident 
drug regimen reviews. In verbal conversations with industry 
representatives, we have been informed

[[Page 63039]]

that LTC pharmacies typically provide the consultant pharmacists to 
nursing homes at rates that are well below the LTC pharmacy's cost and 
below fair market value.
    We have been concerned with the potential effect on patient safety 
and quality of care of various contractual arrangements involving LTC 
facilities, LTC pharmacies, the LTC consultant pharmacists these 
pharmacies provide to LTC facilities, and pharmaceutical manufacturers 
and/or distributors. These arrangements may take many forms. The 
practice of LTC pharmacies' providing consultant pharmacists to nursing 
homes at below cost or fair market value is one such type of 
arrangement. We are concerned that these arrangements may be used to 
entice nursing homes to enter into contracts with the LTC pharmacy for 
pharmacy dispensing services and the purchase of prescription drugs. We 
are greatly concerned with financial arrangements that involve payments 
from pharmaceutical manufacturers directly or indirectly to LTC 
pharmacies and LTC consultant pharmacists for encouraging physicians to 
prescribe the manufacturer's drug(s) for residents. The impact of these 
financial incentives is heightened when, as permitted under State law 
or by the State Pharmacy Board, LTC facilities sign agreements with LTC 
pharmacies permitting the consultant pharmacists to make medication 
switches. These types of arrangements may result in incentives for the 
LTC consultant pharmacist to make recommendations that conflict with 
the best interests of nursing home residents, as well as with Part D 
sponsors' formularies and/or drug utilization management (DUM) 
programs. Any such arrangements have the potential to directly or 
indirectly influence consultant pharmacist drug regimen 
recommendations. As a result, the arrangements bring into question the 
ability of the LTC consultant pharmacists to provide impartial reviews 
of the residents' drug regimens, which in turn raises concerns 
regarding the quality of those reviews and potential impact on resident 
health and safety.
    Industry estimates indicate that three LTC pharmacy organizations 
have 90 percent of the market. Based on these estimates, the LTC 
pharmacy industry is highly concentrated, and we believe, therefore, 
these arrangements are widespread. As a result, we are concerned that 
the lack of independence of the consultant pharmacist from the 
interests of the LTC pharmacy or other LTC pharmacy-related 
organization may lead to recommendations that steer nursing home 
residents to certain drugs. This steering could result in the 
overprescribing of medications, the prescribing of drugs that are 
inappropriate for LTC residents, or the use of unnecessary or 
inappropriate therapeutic substitutions. Such potential outcomes can 
pose serious jeopardy to nursing home residents' health and safety. 
Although we have no evidence directly linking these arrangements to 
adverse outcomes, we believe a requirement under consideration that LTC 
consulting pharmacists be independent would be appropriate and prudent 
because it would ensure that financial arrangements did not influence 
the consultant pharmacist's clinical decision making to the detriment 
of LTC residents. Our concerns are not merely theoretical. We are aware 
of claims brought by qui tam relators under the False Claims Act 
alleging that, for instance, an LTC pharmacy received quarterly 
payments styled as rebates from the pharmaceutical manufacturer to 
engage in an active intervention program to convince physicians to 
prescribe a manufacturer's antipsychotic agent to the physicians' 
nursing home patients and to authorize all competitive products only 
after the failure of the manufacturer's product. In 2005, the Food and 
Drug Administration (FDA) issued warnings of the increasing death rate 
associated with the use of antipsychotic agents for behavioral symptoms 
for older persons with dementia. In reporting the results of 17 
clinical trials, FDA noted an approximately 1.6 to 1.7 fold increase in 
mortality, compared to placebo-treated patients, in these studies.\1\ 
Thus, any financial arrangements that encourage consultant pharmacists 
to prescribe these drugs to older LTC residents with dementia contrary 
to FDA warnings may detrimentally affect those residents' health and 
safety.
---------------------------------------------------------------------------

    \1\ FDA, Public Health Advisory: Deaths with Antipsychotics in 
Elderly Patients with Behavioral Disturbances, April 2005. Accessed 
online at http://www.fda.gov/Drugs/DrugSafety/PublicHealthAdvisories/UCM053171 on May 26, 2010.
---------------------------------------------------------------------------

    Recent research suggests the use of antipsychotic drugs in nursing 
homes remains high--higher, in fact, than the percentage of residents 
diagnosed with psychoses. Despite the serious safety concerns, 
researchers reported nearly 1 in 3 nursing home residents in the U.S. 
received antipsychotic drugs in 2007.\2\ Prior research examining 
potentially inappropriate prescription drugs among nursing home 
residents found half of the almost 3,400 study residents were 
prescribed a potentially inappropriate prescription medication. Forty 
percent of these residents had medication that was identified as both 
inappropriate and generally to be avoided among older LTC residents; a 
third of these medications posed a potential for severe harm. The 
therapeutic class most prevalent was antipsychotic agents.\3\
---------------------------------------------------------------------------

    \2\ Chen, Y, Briesacher, BA, Field, TS Tjia, J Lau, DT, Gurwitz, 
JH. Unexplained Variation across US Nursing Homes in Antipsychotic 
Prescribing Rates. Archives of Internal Medicine. 2010:170(11):89-
95.
    \3\ Lau, DT, Kasper, JD, Potter, DE and Lyles, A. Potentially 
Inappropriate Medication Prescriptions among Elderly Nursing Home 
Residents: Their Scope and Associated Resident and Facility 
Characteristics. Health Services Research. 2004:39(5):1257-1276.
---------------------------------------------------------------------------

    More recently, a review by the HHS Office of Inspector General of 
Medicare Part D claims for atypical antipsychotics for elderly nursing 
home residents in the first half of 2007 found that 22 percent of those 
drugs were not administered in accordance with CMS standards for 
unnecessary drug use in nursing homes. The OIG also found a very high 
incidence of atypical antipsychotic prescribing for elderly nursing 
home patients with dementia despite the presence of an FDA black box 
warning that such prescribing is associated with increased mortality.
    In addition to research findings, nursing home survey and 
certification data reported in the CMS online survey and certification 
reporting system indicate unnecessary drug use in nursing homes 
continues to be a problem. In 2006, we issued updated guidance for LTC 
survey and certification reviews of the use of potentially unnecessary 
medications.\4\ The guidance, providing specific information on 
medications that are problematic to the nursing home population, was 
implemented in December 2006. In the 7 years prior to the 
implementation, the percent of surveys with a citation for unnecessary 
drug use ranged from 12.6 to 14.0 percent. Since implementation, 
however, the percent of surveys with these citations has increased 
yearly from 18.2 percent in 2007 to 19.4 percent in 2009.
---------------------------------------------------------------------------

    \4\ CMS, Guidance for Unnecessary Drugs Sec.  483.25(l), 
September 2006. Accessed online at http://cms.gov/manuals/Downloads/som107ap_pp_guidelines_ltcf.pdf on June 3, 2010.
---------------------------------------------------------------------------

    The research and our survey and certification data indicate that 
the use of unnecessary medications, particularly antipsychotics, is 
problematic in LTC facilities. Although our findings do not directly 
connect LTC pharmacy relationships with consultant pharmacists to these 
research findings and survey results, we believe it is reasonable to 
presume that the

[[Page 63040]]

incentives present in the relationships among consultant pharmacist, 
LTC pharmacies and drug manufacturers can influence the prescribing 
practices reflected in these data.
    As a result, we believe requiring the independence of consultant 
pharmacists is necessary and appropriate and are considering making 
such a change. We solicit comments on our understanding in this matter, 
as well as on our changes under consideration discussed in this 
section.
    We note further that, although Federal regulations at Sec.  
483.25(l) require LTC facilities to avoid unnecessary drugs, our 
experience indicates that this responsibility generally is delegated to 
the consultant pharmacist who is, for the most part, provided by the 
facility's contracted LTC pharmacy. According to a June 2008 report of 
a study by the HHS Office of Inspector General (OIG) regarding Part D 
drugs and LTC facility residents, about 80 percent of the 128 nursing 
home administrators interviewed for the study indicated the consultant 
pharmacists performing their facility's drug regimen reviews were 
employed by the nursing home's LTC pharmacy.\5\ Further, this report 
states that 54 percent of the 79 pharmacy directors interviewed for the 
study reported that their pharmacy receives rebates from pharmaceutical 
manufacturers that are frequently based on market share or volume. 
However, only three of the pharmacy directors reported providing rebate 
information to the LTC facility. Thus, in delegating responsibility for 
avoiding use of unnecessary drugs to consultant pharmacists, nursing 
homes generally are unaware of any financial interests that can bias 
the pharmacist's drug recommendations.
---------------------------------------------------------------------------

    \5\ HHS, Office of Inspector General, ``Availability of Medicare 
Part D Drugs to Dual-Eligible Nursing Home Residents,'' June 2008. 
Available online at http://oig.hhs.gov/oei/reports/oei-02-06-00190.pdf. Accessed on June 28, 2010.
---------------------------------------------------------------------------

    Consultant pharmacists perform monthly drug regimen reviews for all 
LTC facility residents. During this review, the consultant pharmacist 
may recommend a medication change. In making a decision whether to 
accept the recommended change, prescribing physicians are likewise 
generally unaware of the LTC pharmacy rebate arrangements with 
pharmaceutical manufacturers that may influence the recommendation. In 
the previously cited report, the OIG noted that when a consultant 
pharmacist recommended a medication change during the drug regimen 
review, the recommendation was accepted by the prescribing physician 
about 74 percent of the time.\6\ We believe severing the relationship 
between the consultant pharmacist and the LTC pharmacy, pharmaceutical 
manufacturers and distributors, and any affiliated entities would 
further protect the safety of LTC residents because it will ensure that 
financial arrangements do not influence the consultant pharmacist's 
clinical decision making to the detriment of LTC residents.
---------------------------------------------------------------------------

    \6\ HHS, Office of Inspector General, ``Availability of Medicare 
Part D Drugs to Dual-Eligible Nursing Home Residents,'' June 2008. 
Available online at http://oig.hhs.gov/oei/reports/oei-02-06-00190.pdf. Accessed on June 28, 2010.
---------------------------------------------------------------------------

    Therefore, we are considering requiring that LTC consultant 
pharmacists be independent of any affiliations with the LTC facilities' 
LTC pharmacies, pharmaceutical manufacturers and distributors, or any 
affiliates of these entities. For the reasons described in this 
section, we believe such a requirement is necessary to ensure that 
consultant pharmacist decisions are objective and unbiased. That is, 
LTC facilities must use a qualified professional pharmacist to conduct 
drug regimen reviews and make medication recommendations based solely 
on what is in the best interests of the resident. We believe this can 
be achieved only if the consultant pharmacist is working without the 
influence of conflicting financial interests that might otherwise 
encourage overprescribing and overutilization, which creates health and 
safety risks for residents. We note that some arrangements we are 
addressing here may also implicate the fraud and abuse laws for which 
the HHS OIG and the Department of Justice (DOJ) have jurisdiction.
    The changes we are considering would use the authority available 
under sections 1819(d)(4)(B) and 1919(d)(4)(B) of the Act to require 
that LTC consultant pharmacists be independent. The cited statutory 
provision gives the Secretary authority to establish ``such other 
requirements relating to the health, safety, and well-being of 
residents * * *.''
    We are considering requiring that long term care facilities employ 
or directly or indirectly contract the services of a licensed 
pharmacist who is independent. We also are considering including a 
definition of the term ``independence'' to mean that the licensed 
pharmacist must not be employed, under contract, or otherwise 
affiliated with the facility's pharmacy, a pharmaceutical manufacturer 
or distributor, or any affiliate of these entities. Our changes would 
also prohibit nursing homes from contracting for the provision of 
consultant pharmacy services with entities (such as a subsidiary of an 
LTC pharmacy) that have been created for the purpose of providing 
reorganized consultant pharmacist services.
    We do not believe it necessary to define the terms ``affiliate'' or 
``affiliated'' as we believe the meaning should be broadly interpreted 
to cover all relationships that incent overprescribing and 
inappropriate prescribing in LTC facilities. We do not intend, however, 
for any of the changes under consideration to prohibit any 
relationships that would be inherently free of conflict of interest. 
Thus, we solicit comment on the specific relationships that should be 
permitted.
    We are aware that some Indian Tribes and Tribal organizations own 
LTC facilities that serve their members and that the Tribe may also own 
the pharmacy that serves the facility. We believe that the Tribal-owned 
LTC facility may employ the services of a pharmacist to provide 
consultation and perform drug regimen reviews who is also employed by 
the facility's pharmacy without violating the independence requirement. 
In these instances, because the LTC facility and pharmacy are commonly 
owned by the Tribe, the consultant pharmacist's incentives for 
prescribing are aligned with the best interests of not only the Tribal 
members who are LTC residents, but also the Tribe. We believe a similar 
alignment of interests would exist in Indian Health Services (IHS) 
owned facilities and Tribal facilities that are serviced by IHS 
pharmacies. We expect there are other LTC providers or systems in which 
the incentives for prescribing are similarly aligned to sufficiently 
limit the risk of conflicts of interest and ensure the best interests 
of the LTC residents are served. Therefore, we are thinking of 
including an exception for Tribal owned LTC facilities and pharmacies. 
We also solicit comment from the public on our interpretation that in 
these unique situations independence is not an issue because the risk 
of conflicts of interest is sufficiently limited.
    We anticipate that if we were to require that LTC facilities engage 
independent consultant pharmacists, this would cause consultant 
pharmacists to reorganize to achieve independence from the parties 
(facility pharmacies, pharmaceutical manufacturers and distributors, 
and affiliated entities) with which the consultant pharmacists are 
currently affiliated. That is, we believe the consultant pharmacists 
currently assigned to LTC facilities would seek to

[[Page 63041]]

retain relationships with those facilities, either through direct 
employment or by banding together with other consultant pharmacists, 
for instance, in professional corporations. We believe that if the 
changes under consideration were to take effect beginning January 2013, 
such a time frame would provide sufficient time for implementation of 
the requirement. However, we recognize that there may be some areas 
where certain conditions or extenuating circumstances might argue for a 
longer implementation period. Specifically, we anticipate that LTC 
facilities in rural areas would face the greatest challenges in 
recruiting qualified consultant pharmacists, particularly if the 
consultant pharmacists currently serving the rural facilities do not 
reorganize in order to continue to provide services. Therefore, the 
requirements under consideration may need to be modified to assist 
these facilities. One way to assist would be to extend the time period 
for implementation. Thus, we are soliciting comment on whether to 
provide for a later effective date for rural facilities as opposed to 
other LTC facilities or to make other accommodations for the unique 
circumstances in which rural facilities operate. While we do not 
believe that any consultant pharmacist should have a conflict of 
interest, we are also soliciting comments on whether it would make 
sense to waive the independence requirement to permit alternative 
approaches. In describing these other approaches, comments should 
address the protections that would be implemented to reduce the risk of 
conflict of interest due to the lack of independence of the consultant 
pharmacists.
    It is our understanding that LTC consultant pharmacists commonly 
perform approximately 60 drug regimen reviews in a day. We suspect that 
this rate may be too high given our expectation that independent 
consultant pharmacists would conduct more thorough drug regimen 
reviews, monitoring for drug side effects and efficacy. Therefore, 
although we are not proposing in this rule to codify changes to the 
drug regimen review requirements, we are soliciting public comment on 
best practices related to the conduct of drug regimen reviews. We will 
use these comments to inform possible future rulemaking regarding the 
drug regimen review requirements.

C. Excluding Poor Performers

    This section includes three proposals designed to strengthen our 
ability to remove poor performers. We believe we could protect 
beneficiaries through the proposal that would enable us to terminate 
health care prepayment plans (HCPPs) whose administration does not meet 
specified financial, reporting, and access requirements.
    A second proposal would enable us to look at the plan rating 
system, which we developed to provide beneficiaries with information 
about the quality and performance of health and drug plans to assist in 
plan selection during the open enrollment period. The plan ratings 
include process measures that focus on whether good medical care or 
drug care was provided, outcome measures that address the result of 
that care, and measures that relate to administrative processes that 
support and direct the provision of care. It is our view that the star 
rating system not only provides beneficiaries/consumers with easy-to-
understand information critical for making choices among sponsors, but 
provides a powerful tracking tool that enables us to continue to 
administer the Part C and D programs with the best interests of the 
beneficiaries in mind.
    We propose to give CMS the authority to terminate MAOs and Part D 
sponsors that have failed to provide, over a course of 3-years, service 
meriting at least 3-star ratings. A second proposal would give CMS the 
authority to deny applications submitted by MAOs and Part D sponsors 
that have performed poorly in the past. We anticipate that this 
proposal would directly enable us to protect beneficiaries from poor 
care. Both these provisions, in our opinion, would give entities that 
want to administer benefits to Medicare beneficiaries a strong 
incentive to pay attention to the star rating criteria and provide for 
better quality health care if they wish to stay in or join the program. 
See Table 3 for details of these proposals.

                                                     Table 3--Provisions To Exclude Poor Performers
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                                                              Part 417                            Part 422                          Part 423
       Preamble section            Provision    --------------------------------------------------------------------------------------------------------
                                                      Subpart           Section           Subpart          Section          Subpart          Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
II.C.1.......................  CMS Termination   Subpart U.......  Sec.   417.801..  N/A.............  N/A............  N/A............  N/A.
                                of Health Care
                                Prepayment
                                Plans.
II.C.2.......................  Plan Performance  N/A.............  N/A.............  Subpart K.......  Sec.   422.504.  Subpart K......  Sec.   423.505.
                                Ratings as a                                                           Sec.   422.510.                   Sec.   423.509.
                                Measure of
                                Administrative
                                and Management
                                Arrangements
                                and as a Basis
                                for Termination
                                or
                                Non[dash]Renewa
                                l of a Medicare
                                Contract.

[[Page 63042]]

 
II.C.3.......................  Denial of         N/A.............  N/A.............  N/A.............  Sec.   422.502.  Subpart K......  Sec.   423.503.
                                Applications
                                Submitted by
                                Part C and D
                                Sponsors with a
                                Past Contract
                                Termination or
                                CMS[dash]Initia
                                ted
                                Non[dash]Renewa
                                l.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. CMS Termination of Health Care Prepayment Plans (Sec.  417.801)
    Section 1833(a)(10)(A) of the Act authorizes payment to HCPPs, but 
does not specify program requirements. Consequently, we have 
incorporated features of both section 1876 of the Act cost contract 
plan, and MA program regulations to establish benefit, enrollment, 
appeals, and other HCPP program features. For example, in our January 
2005 final rule (70 FR 4588 through 4741), we extended fundamental 
features of the MA appeals process to HCPPs.
    Although our current regulations at Sec.  417.801(d) permit us to 
terminate a contract with an HCPP, we propose to codify specific 
reasons for HCPP termination in Sec.  417.801(d) to strengthen our 
oversight and enforcement capability. In addition, specifying 
additional elements through notice-and-comment rulemaking would ensure 
that all HCPPs are aware that their failure to comply with such 
requirements may lead to termination of their contracts with us. 
Section 417.801(d) currently provides that we may terminate or not 
renew a contract with an HCPP if the HCPP: (1) No longer meets the 
requirements for participation and reimbursement as an HCPP; (2) is not 
in substantial compliance with the provisions of the agreement or 
applicable statutory or regulatory requirements; or (3) undergoes a 
change in ownership. We propose to retain the bases for termination but 
to modify Sec.  417.801(d)(ii) to include three specific elements of 
substantial non-compliance with the CMS contract, applicable CMS 
regulations, or applicable provision of the Act as a basis for CMS 
termination of an HCPP.
    First, in their agreements with us, HCPPs agree to provide adequate 
access to providers and to document such access. Accordingly, we would 
specify that failure to provide adequate access to providers, or 
documentation of such access, is a basis for determining that an HCPP 
is not in substantial compliance with applicable regulatory 
requirements. We propose to include this basis for termination in new 
paragraph (d)(1)(ii)(A). Second, HCPPs are required to provide data to 
us and to maintain financial records and statistics related to costs 
payable by CMS for CMS audit or review. This requirement is currently 
captured in Sec.  417.806, which cross references financial records 
requirements at Sec.  417.568, of the section 1876 cost contract plan 
regulations. We would specify, in new paragraph (d)(1)(ii)(B), that 
failure to provide such data and/or to maintain records appropriately 
is a basis for determining that an HCPP is not in substantial 
compliance. Third, HCPPs must report costs to us in addition to 
maintaining financial records and following other financial 
requirements specified at Sec.  417.568 of the cost contract program 
regulations. Currently, these requirements are also referenced in 
HCPPs' agreements with CMS. We propose that a new paragraph at 
(d)(1)(ii)(C) would specify that a failure to report costs to CMS will 
constitute a basis for determining that an HCPP is not in substantial 
compliance.
2. Plan Performance Ratings as a Measure of Administrative and 
Management Arrangements and as a Basis for Termination or Non-Renewal 
of a Medicare Contract (Sec.  422.504, Sec.  422.510, Sec.  423.505, 
and Sec.  423.509)
    Since 2007, we have developed and published annual performance 
ratings for all stand-alone Medicare PDPs. In 2008, we began issuing 
ratings for MA plans as well. The ratings are based on measures that 
address a range of health and drug plan performance categories, 
including access to care, communication with members, and clinical 
quality of care. The scores in each performance category are based on 
data reported by MA organizations and PDP sponsors, beneficiary survey 
responses, and monitoring conducted by CMS and its contractors. We rate 
MA organizations and Part D sponsors on a 5-star scale, with the best 
performers receiving a rating of 5 stars. The organizations receive a 
score for each performance measure, a summary score each for Part C and 
Part D, as well as an overall rating. Under the methodology developed 
and applied by CMS for its star rating process, a rating of 3 or more 
stars is an indication of sponsors with ``average'' or better 
performance. By contrast, organizations receiving a summary or overall 
score below 3 stars are among the weakest performers in the Medicare 
Part C and D programs.
    The Medicare regulations at Sec.  422.503(b)(4) and Sec.  
423.504(b)(4) state that, to qualify as an MAO or Part D sponsor, an 
organization must have administrative and management arrangements 
satisfactory to CMS, including, per Sec.  422.503(b)(4)(ii) and Sec.  
423.504(b)(4)(ii), personnel and systems sufficient for the 
organization to implement, control, and evaluate the activities 
associated with the delivery of Part C and D benefits. Once under 
contract with CMS as an MAO or Part D sponsor, an organization remains 
obligated to maintain satisfactory administrative and management 
arrangements, a point we propose to clarify by adding paragraphs Sec.  
422.504(a)(17) and Sec.  423.505(b)(25) to the list of required 
elements in CMS' contracts with MAOs and Part D sponsors. Also, as 
explained later in this section, we believe that the plan ratings are a 
direct indicator of the ongoing effectiveness of a contracting 
organization's administrative and management arrangements. Therefore, 
we propose adding paragraphs Sec.  422.504(a)(18) and Sec.  
423.505(b)(26) to require an organization to demonstrate that it 
maintains satisfactory administrative and management

[[Page 63043]]

arrangements by achieving a summary plan rating of at least 3 stars 
each year.
    We also propose to establish the failure to achieve a 3-star 
summary rating consistently as a basis for contract termination. As the 
measures in the star ratings are based largely on Part C and D program 
requirements, and the plan ratings are a reflection of a sponsor's 
performance across a range of program areas, we believe that a sponsor 
with a low Part C or Part D summary star rating has failed in a 
significant way to meet its obligations as an MAO or Part D sponsor. 
(As we calculate the summary rating score by taking an average of the 
measure-level stars, sponsors can receive scores on individual measures 
of less than 3 stars but still achieve a summary rating of at least 3 
stars.) A sponsor that fails to achieve a good rating for 3 consecutive 
years has demonstrated consistently that it is unable or unwilling to 
take corrective action to improve its Part C or D performance.
    As noted previously, to qualify as an MAO or Part D sponsor, an 
organization must have effective administrative and management 
arrangements. Such arrangements involve the allocation and coordination 
of an organization's resources to ensure that it can fulfill the entire 
range of its obligations related to the delivery of Medicare benefits. 
Of course, the importance of these arrangements only increases once an 
organization has entered into an MAO or Part D sponsor contract as the 
quality of the arrangements is tested repeatedly by the process of 
actually delivering Medicare benefits in a timely and effective manner 
during the term of the contract. Because of the critical role 
administrative and management arrangements play in ensuring an 
organization's compliance with its Medicare obligations, we believe it 
is necessary to make clear, by adding to the set of required CMS 
contract elements, that organizations must continue to maintain 
effective administrative and management arrangements even after they 
have entered into Medicare contracts. Accordingly, we propose adding 
paragraphs Sec.  422.504(a)(17) and Sec.  423.505(b)(25) which state 
that the maintenance of effective administrative and management 
arrangements is a material term of the MAO and Part D sponsor 
contracts. The summary rating for a plan sponsor is calculated 
according to the methodologies outlined in the Plan Star Ratings 
technical notes, and is based on a formula that factors in a sponsor's 
scores on all measures pertaining to Part C to calculate the Part C 
summary rating and pertaining to Part D to calculate the Part D summary 
rating. Organizations that offer both Part C and Part D benefits 
receive an overall rating that combines the Part C and D star ratings 
results. To evaluate an organization's administration and management 
capabilities accurately, it is necessary to review its performance 
across a range of operational areas. Because the summary Plan Rating 
scores are based on a sponsor's performance of a wide range of Medicare 
requirements within each of the MA and Part D programs, the scores are 
a reliable measure of the quality of an organization's administrative 
and management arrangements. Therefore, to articulate the standard by 
which we would measure compliance with that obligation, we propose to 
establish as a requirement that organizations must achieve a summary 
plan rating of at least 3 stars for each of Part C and Part D each year 
by adding paragraph Sec.  422.504(a)(18) and adding paragraph Sec.  
423.505(b)(26). It would not be appropriate to use the overall rating 
for this purpose, as organizations that offer both Part C and Part D 
benefits must fully meet the requirements of each program 
independently. It is conceivable that if we exclusively rely upon the 
overall measure, strong performance within one program could mask poor 
performance in the other program, which would not be an acceptable 
outcome.
    The star ratings may also be used as a basis for contract 
enforcement actions. We have the authority under section 1857(c)(2) of 
the Act to terminate CMS' contract with an MAO or a Part D sponsor when 
we determine that the organization has failed substantially to carry 
out the contract or is carrying out the contract in a manner 
inconsistent with the efficient and effective administration of the 
Part C or D programs. A summary rating of less than 3 stars can be 
achieved only when a sponsor demonstrates poor performance across a 
range of measures. Therefore, we believe that sponsors that 
consistently achieve poor plan ratings have demonstrated a substantial 
failure to comply with the terms of their Medicare contracts. Also, 
low-rated sponsors interfere with the efficient and effective 
administration of the MA and Part D programs as beneficiaries rely on 
us to ensure that the array of plan choices only includes offerings 
from sponsors that have demonstrated that they can provide at least 
good quality services to their members.
    Accordingly, we propose to amend the bases upon which CMS may 
terminate an MAO or Part D sponsor contract under Sec.  422.510(a) and 
Sec.  423.509(a) to include a sponsor's failure to achieve at least a 
3-star summary plan performance rating for three consecutive contract 
years. We believe that 3 years is sufficient time for a sponsor, once 
it has received notice of its low star rating, to develop and implement 
corrective action and for improved performance to be reflected in the 
star ratings issued at the conclusion of the 3-year period.
    We base our determinations that good plan ratings are indicative of 
the strength of an organization's administrative and management 
arrangements and that consistently poor plan ratings are a basis for 
contract termination on the fact that the elements of the plan ratings 
correlate to Part C and D requirements described in applicable statutes 
and regulations. While the exact measures may vary slightly from year 
to year, each year's plan ratings are based on similar elements from 
previous years, as they are developed in consultation with a workgroup 
of industry stakeholders and based on a review of stated Part C and D 
program requirements. The most recent plan ratings, issued in September 
2010, provide a useful template for demonstrating the correlation 
between program requirements and the performance measured. (See 2011 
Part C Technical Notes and 2011 Part D Plan Ratings Technical Notes: 
September 2010.)
    The 2010 Part C plan ratings were organized into five domains--
``Staying Healthy: Screenings Tests, and Vaccines''; ``Managing Chronic 
(Long Term) Conditions''; ``Ratings of Health Plan Responsiveness and 
Care''; ``Health Plan Members' Complaints and Appeals''; and ``Health 
Plan Telephone Customer Service.'' The Part C regulations at Sec.  
422.152(a)(2) state that MAOs must conduct quality improvement projects 
that can be expected to have a favorable effect on health outcomes and 
enrollee satisfaction and address areas identified by CMS. The Staying 
Healthy measures evaluated the extent to which MAOs provided screenings 
to their members for conditions such as breast cancer, colorectal 
cancer, elevated cholesterol, glaucoma, and osteoporosis, as well as 
providing monitoring to patients with long term medication, and flu 
vaccines to plan members. As these measures have been consistently 
included in the Part C plan ratings over a period of several years, it 
is fair to say that MAOs have known over that same timeframe that we 
would rate them on quality improvement projects designed to address the 
identified conditions and that they should take action to improve

[[Page 63044]]

their scores for this measure. Moreover, we have clearly fulfilled our 
obligation under Sec.  422.152(a)(2) to identify areas that MAOs need 
to address for this purpose by annually publishing the methodology and 
results both publicly on the CMS Web site and in the form of private 
previews for MAOs to review their own results. As a result, an MAO's 
score in the ``Staying Healthy'' domain is a fair measure of the extent 
to which it is complying with Sec.  422.152(a)(2).
    The ``Managing Chronic (Long Term) Conditions'' domain most closely 
mirrors the requirements at Sec.  422.152(a)(1) which obligate MAOs to 
have a chronic care improvement program that addresses populations 
identified by us based on a review of current quality performance. The 
measures in this domain concern the management of conditions such as 
osteoporosis, diabetes, and high blood pressure. Again, the measures 
have remained largely constant for a number of years, so MAOs have had 
effective notice that we had identified beneficiaries with those 
conditions as the populations for which we would expect sponsors to 
implement effective chronic care improvement programs. The measures 
related to the ``Health Plan Responsiveness and Access to Care'' domain 
demonstrate an MAO's compliance with its obligations under Sec.  
422.112(a)(1) to maintain a provider network sufficient to ensure its 
enrollees' access to covered services. The measures ``Getting Needed 
Care'' and ``Getting Appointments and Care Quickly'' are both based on 
the results of beneficiary surveys concerning their experiences in 
being able to get timely appointments with plan-contracted providers. 
The measure ``Doctors Who Communicate Well'' reflects enrollees' 
responses to a series of questions concerning the quality of their 
interaction with plan-contracted physicians, including the amount of 
time the physicians spent with an enrollee and the care with which the 
physicians conducted appointments, all of which indicate the extent to 
which those services are provided in a manner consistent with 
professionally recognized standards of health care, per Sec.  
422.504(a)(3)(iii).
    In the ``Health Plan Member's Complaints and Appeals'' domain, we 
provide a rating of the extent to which an MAO affords its members 
their coverage determination appeal rights under the Part C program. 
The Part C regulations at Part 422, Subpart M, require MAOs to adhere 
to standards and timeframes for issuing timely and accurate 
determinations concerning the coverage of health services for their 
members as well as the processing of their appeals of such 
determinations. The ``Makes Timely Decisions about Appeals'' rating 
measures the extent to which an MAO meets the regulatory deadlines for 
issuing responses to member appeals while the ``Reviewing Appeals 
Decisions'' rating measures the frequency with which the MAO 
determinations were overturned by the Independent Review Entity (IRE). 
The analysis for these measures was conducted by Maximus, Inc., which 
we contracted as an IRE for Part C appeals. The remaining measures 
under this domain, ``Complaints about the Health Plan'' and 
``Corrective Action Plans'' (CAPs) provide a more general view of an 
MAO's performance from two different perspectives. The ``Complaints'' 
measure is based on a calculation of the rate (that is, complaints per 
1,000 members) at which we receive complaints from beneficiaries, 
providers, or others affected by the MAO's operations. The CAP measure 
reflects the number and type of findings made by us during an audit of 
an MAO's performance. Thus, these two measures provide a snapshot of 
the MAO's compliance with range of requirements from the perspective of 
the members it must serve as well as CMS.
    The ratings in the last Part C domain, ``Health Plan Customer 
Service,'' are the product of a series of measures related to the 
requirement that MAOs operate a customer service call center that is 
responsive to the needs of Medicare beneficiaries. In particular, the 
domain rating is based on the results obtained by a CMS contractor that 
conducts test calls to MAO customer service lines to assess the extent 
to which the call centers provide accurate plan information, in 
languages spoken by beneficiaries residing in the plan's service area, 
and with limited hold times consistent with the standards stated in the 
Medicare Marketing Guidelines we have issued pursuant to Sec.  
422.111(g).
    The four domains of the Part D Plan Ratings similarly correspond to 
the requirements with which Part D plan sponsors must comply. The Part 
D domains are ``Drug Plan Customer Service;'' ``Drug Plan Member 
Complaints and Medicare Audit Findings;'' ``Member Experience with the 
Drug Plan;'' and ``Drug Pricing and Patient Safety.'' The domain ``Drug 
Plan Customer Service'' includes measures concerning hold times, 
accuracy of information, and foreign language interpretation services 
are the Part D equivalents of the measures used in the Part C plan 
rating. They reflect the Part D sponsor's compliance with the customer 
service call center requirements described in the Medicare Marketing 
Guidelines issued in accordance with Sec.  423.128(d)(1). The measure 
related to hold times for pharmacists' calls to the sponsor are 
evidence of the sponsor's compliance with the requirement, stated at 
Sec.  423.128(d)(1) that the sponsor operate a call center to provide 
technical assistance to pharmacists concerning their plan operations. 
This domain also contains three measures related to plan performance of 
its obligations related to the issuance of coverage determinations and 
processing of members' appeal requests, per Part 423, Subpart M. The 
last measure in this domain indicates the extent to which a sponsor is 
complying with CMS processes for ensuring that the data used by 
pharmacists to determine a customer's Part D plan enrollment is 
accurate and up to date. The provision of this data, referred to as 
``4Rx data'' is part of Part D sponsors' obligation, stated at Sec.  
423.505(b)(2), to process enrollments in a manner consistent with the 
requirements stated in Part 423, Subpart B.
    The second domain, ``Drug Plan Member Complaints and Medicare Audit 
Findings,'' consists largely of the same kind of measures related to 
beneficiary satisfaction and CMS audit findings as included in the Part 
C plan ratings, and the discussion provided above of their bearing on a 
determination of a sponsor's compliance with program requirements is 
applicable to the Part D ratings as well.
    The ``Member Experience with Drug Plan'' domain consists of 
measures related to plan members' experience in getting access to 
information about their Part D plan or getting prescriptions filled 
easily when using the plan. These measures provide evidence of a 
sponsor's compliance with the requirement, stated at Sec.  423.128, 
that it disseminate information about its Part D plans, and that it 
provide benefits through a point of claims adjudication system (per 
Sec.  423.505(b)(17)) operated through a contracted pharmacy network 
that meets Part D access requirements (per Sec.  423.120).
    The ``Drug Pricing and Patient Safety'' domain consists, in part, 
of measures related to a sponsor's ability to maintain and transmit 
accurate information related to its members' LIS eligibility status and 
the information concerning drug prices available at network pharmacies. 
Under this domain, CMS assesses, by comparing its data with that of 
Part D sponsors, the accuracy of a sponsor's records concerning the LIS 
status of its members, a significant part

[[Page 63045]]

of their obligation under Sec.  423.800 to participate in the 
administration of the low-income subsidy portion of the Part D benefit 
program. With respect to drug pricing, we compare sponsors' data 
reported to us with other data sources, including prescription drug 
event data and data from commercially available drug pricing reference 
files. The remaining two measures in this domain assess the sponsor's 
efforts to ensure that its members are being directed away from drugs 
with a high risk of side effects and that those members with diabetes 
are treating their high blood pressure with medication appropriate for 
their condition. Both of these measures are indications of a sponsor's 
compliance with its obligation under Sec.  423.150(c) to develop and 
implement drug utilization review systems that identify patterns of 
inappropriate care among its enrollees.
    The thresholds we have established for the star ratings in each 
category are based on regulatory standards or our review of industry 
performance over several years. From that systematic review, for each 
regulatory standard-based measure we consider the actual contract 
scores in relation to a theoretical distribution of all possible 
measures with the regulatory standard considered a 3-star rating. (For 
example, in 2008 CMS announced to Part D sponsors that, after a review 
of industry performance during the first 2 years of the Part D program, 
we had established that sponsors would be required to submit 4Rx data 
for 99 percent of their enrollment transactions to be considered 
compliant with Part D enrollment processing requirements.) When an 
absolute performance standard has not yet been established, we look at 
a contract's performance on a measure relative to all other contracts' 
performance on the same measure. In either case we usually segment the 
range of the actual contract scores for each measure into one of the 5-
star groupings. The segmentation of the scores into groups is based on 
statistical techniques that minimize the distance between scores within 
a grouping (or ``cluster'') and maximize the distance between scores in 
different groupings. There may not be clusters in each grouping, 
therefore there could be as many as 5 or as few as one rating in the 
final data. In developing that methodology, we reserved 1- and 2-star 
ratings for performance that was significantly below what a review of 
industry-wide performance would show to be acceptable and achievable by 
competently administered sponsors. This establishment of compliance 
standards through the analysis of all Medicare contractors' performance 
to identify outliers is consistent with our regulatory authority at 
Sec.  422.504(m)(2) and Sec.  423.505(n)(2). We have previously issued 
guidance (for example, CY 2012 Call Letter, page 119, issued April 4, 
2011) to MAOs and Part D sponsors indicating that we considered 
organizations with 3 consecutive years of less than 3-star Plan Ratings 
to be out of compliance with Medicare program requirements. We stated 
there that organizations with such a Plan Rating history should expect 
that, prior to initiating a termination action, we would confirm that 
the data used to calculate the Plan Ratings did reflect an 
organization's substantial failure to comply with Part C or D 
requirements. In essence, we noted that poor Plan Rating scores were a 
strong indication, but not conclusive evidence, of substantial non-
compliance. In applying that policy, we include Plan Ratings issued in 
years prior to the issuance of the guidance to identify organizations 
whose performance may warrant contract termination.
    With the elevation of low Plan Ratings from the status of likely 
indicator to conclusive evidence of substantial non-compliance, we 
believe that the use of prospective Plan Ratings is more appropriate in 
our application of this authority. Therefore, we propose that we would 
not begin calculating the 3-year period until after organizations have 
received notice through the rulemaking process of the new basis for 
contract termination. As we plan on this proposal to be issued as part 
of a final rule in the spring 2012, we expect to use only those Plan 
Ratings issued after the publication of the final rule. That is, we 
would use the contract year 2013 Plan Ratings, which we expect to issue 
in September 2012, as the first set of ratings in the calculation of 
any sponsor's 3 consecutive years of Plan Ratings. We invite public 
comment on our proposal for identifying the first set of Plan Ratings 
we would use in determining whether a sponsor's performance during 3 
consecutive years supported a CMS decision to terminate its Medicare 
contract.
3. Denial of Applications Submitted by Part C and D Sponsors With a 
Past Contract Termination or CMS-Initiated Non-Renewal (Sec.  422.502 
and Sec.  423.503)
    In accordance with Sec.  422.502(b) and Sec.  423.503(b) applicants 
with current or prior contracts with CMS are subject to our denial of 
their applications if they fail during the preceding 14-months to 
comply with the requirements of the Part C or D programs even if the 
applications otherwise demonstrate that they meet all of the Part C or 
D sponsor qualifications. In the April 2011 final rule (76 FR 21432), 
we added provisions at Sec.  422.502(b)(2) and Sec.  423.503(b)(2) 
concerning the treatment of entities submitting applications to us when 
the entity has operated its contract(s) with CMS for less than 14-
months at the time it submits a new application or service area 
expansion request. In the interest of ensuring that new entrants to the 
Part C or Part D programs can fully manage their current contracts and 
books of business before further expanding, we added a provision that 
in the absence of 14-months performance history, we may deny an 
application based on a lack of information available to determine an 
applicant's capacity to comply with the requirements of the Part C or 
Part D program, respectively.
    At this time, we are proposing to further refine our intended 
approach to using past performance in making application 
determinations. Specifically, we are concerned about entities 
submitting applications to us when the entity has had a previous 
Medicare contract terminated or non-renewed by CMS. We initiate 
termination or non-renewal of a contract only when the MA organization 
or Part D sponsor has committed extremely serious violations of the 
Part C or Part D program. In the past, these contract actions by CMS 
have been rare. The bases for a termination are specified in Sec.  
422.510 and Sec.  423.509, and include such serious violations as 
substantially failing to carry out the terms of its Medicare contract; 
committing fraud; and failing to carry out the requirements for 
beneficiary access to services by, for instance, not implementing 
required appeals and grievance processes or not establishing provider 
and pharmacy networks that meet our requirements. The bases for a CMS-
initiated non-renewal are specified in Sec.  422.506(b) and Sec.  
423.507(b), and include the same list of violations, plus several 
others. Nevertheless, despite the seriousness of termination and CMS-
initiated non-renewal actions, and the underlying noncompliance that 
would have led to such a drastic step, the regulation is silent 
concerning when these organizations may re-enter the Part C and Part D 
programs. As such, we currently rely upon the past performance 
provisions in Sec.  422.502(b)(1) and Sec.  423.503(b)(2) to determine 
whether an application from a previously terminated or CMS-non-renewed 
organization is approvable. These provisions limit the period of time 
we can review for purposes of

[[Page 63046]]

assessing past performance to 14-months. Fourteen months is a 
reasonable amount of time to review the performance of organizations 
with current and ongoing Medicare Part C and Part D contracts. In the 
case of organizations whose performance was so poor as to have their 
contract(s) terminated or non-renewed by CMS, we believe that a 14-
month look-back is an inadequate amount of time.
    In contrast to the regulation's silence on a ``waiting period'' for 
organizations whose contracts have been terminated or non-renewed by 
CMS, long-standing provisions at Sec.  422.506(a)(4), Sec.  422.508(c), 
Sec.  422.512(e), Sec.  423.507(a)(3), Sec.  423.508(e), and Sec.  
423.510(e) require that organizations that have voluntarily non-renewed 
or terminated their contracts must wait 2 years before they may reenter 
the program. We believe that the interval between the effective date of 
a contract's CMS-initiated termination or non-renewal should be no less 
than in the case of a voluntary termination or non-renewal. Indeed, a 
period of greater than 2 years is appropriate, for these entities have 
broken faith with the program in a more significant way than in the 
case of a voluntary non-renewal.
    As such, we are proposing to modify the past performance review 
period to capture CMS-initiated terminations or non-renewals that 
became effective within the 38 months preceding the submission of a new 
application. The selection of 38 months accounts for a 3-year period, 
plus the 2 months of the year during which applications are being 
prepared for submission to CMS. Three years represents 1 additional 
year compared to the 2 years of waiting time for voluntary non-
renewals. To make this change, we propose adding new paragraphs at 
Sec.  422.502(b)(3) and at Sec.  423.503(b)(3) to state that if CMS has 
terminated or non-renewed an MA organization's or Part D sponsor's 
contract, effective within the 38 months preceding the deadline 
established by CMS for the submission of contract qualification 
applications, we may deny an application based on the applicant's 
substantial failure to comply with the requirements of the Part C or 
Part D program even if the applicant currently meets all of the 
requirements of this part.
    Additionally, in the April 2011 final rule, we defined ``covered 
persons'' for the purpose of determining which organizations are 
prohibited from re-contracting with CMS for the two years following a 
voluntary non-renewal. Specifically, we codified that the 2-year ban on 
new Part C or Part D sponsor contracts to which non-renewing 
organizations are subject under the regulation be expanded to include 
organizations owned or managed by an individual (referred to as a 
covered person) who served in a similar capacity for a previously non-
renewed Part C or Part D organization. The requirement assists CMS in 
prohibiting and preventing each such organization from gaming the 
Medicare program by reapplying for a contract as a new organization 
during the 2-year ban, when the applying organization has common 
ownership and management control. In essence, this requirement helps 
ensure that the provisions of the 2-year application prohibition are 
given full effect.
    For consistency and to prevent the same sort of gaming by 
organizations whose contracts have been terminated or non-renewed by 
CMS, we propose to add new paragraphs at Sec.  422.502(b)(4) and at 
Sec.  423.503(b)(4) to replicate the existing language concerning 
covered persons as currently exists for voluntarily-non-renewing 
organizations. Specifically, the newly proposed language states that in 
implementing the 38-month provision, we may deny an application where 
the applicant's covered persons also served as covered persons for the 
terminated or non-renewed contract. As with the voluntary non-renewal 
provisions, in this instance ``covered person'' would mean one of the 
following: (1) All owners of terminated organizations who are natural 
persons, other than shareholders who have an ownership interest of less 
than 5 percent; (2) an owner in whole or part interest in any mortgage, 
deed of trust, note or other obligation secured (in whole or in part) 
by the organization, or any of the property or assets thereof, which 
whole or part interest is equal to or exceeds 5 percent of the total 
property and assets of the organization; (3) a member of the board of 
directors or board of trustees of the entity, if the organization is 
organized as a corporation.
    The combined effect of these proposals is to ensure appropriate 
requirements exist concerning program re-entry subsequent to all types 
of terminations and non-renewals, and to strengthen the past 
performance review to capture the most serious types of non-compliance 
(resulting in CMS-initiated terminations and non-renewals) for a more 
reasonable period of time.

D. Improving Program Efficiencies

    By reducing regulatory burdens for MA Organizations, Part D 
sponsors, and cost contractors, lowering transaction costs, and 
reducing waste and unnecessary spending, we believe we can improve 
program efficiency and keep costs down and improve the quality of care 
received by Medicare beneficiaries. Non-renewing cost contractors would 
save money if we eliminated the current regulatory requirement to 
purchase print advertising announcing their non-renewals. Implementing 
the hospital-acquired conditions (HACs) and present on admission 
indicator policy that is currently required under the Original Medicare 
Inpatient Hospital Prospective Payment system (IPPS) for MA plans would 
continue our efforts to enhance quality and efficiency of care, and 
promote incentives for hospitals to eliminate medical errors and reduce 
Medicare expenditures for poor quality or unnecessary care. MAOs and 
Part D sponsors that are no longer tied to particular agent/broker 
compensation amounts would save transaction and other costs if rules 
regarding agent/broker compensation were made more flexible. Cost-
sharing tailored to a trial fill of a prescription drug would not only 
save money for each beneficiary who found that the drug did not work 
for him or her, but would also lessen the problems of disposal or 
diversion of unused drugs.
    These proposals and others are outlined in Table 4.

[[Page 63047]]



                                                   Table 4--Provisions To Improve Program Efficiencies
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Part 417                            Part 422                           Part 423
       Preamble section            Provision    --------------------------------------------------------------------------------------------------------
                                                      Subpart           Section           Subpart           Section           Subpart         Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
II.D.1.......................  Cost Contract     Subpart L.......  Sec.   417.492..  N/A.............  N/A.............  N/A.............  N/A
                                Plan Public
                                Notification
                                Requirements in
                                Cases of Non-
                                Renewal.
II.D.2.......................  New Benefit       N/A.............  N/A.............  Subpart C.......  Sec.   422.102..  N/A.............  N/A
                                Flexibility for
                                Fully-
                                Integrated Dual
                                Eligible
                                Special Needs
                                Plans (FIDE
                                SNPs).
II.D.3.......................  Application of    N/A.............  N/A.............  Subpart C.......  Sec.   422.504..  N/A.............  N/A
                                the Medicare
                                Hospital-
                                Acquired
                                Conditions and
                                Present on
                                Admission
                                Indicator
                                Policy to MA
                                Organizations.
II.D.4.......................  Clarifying        N/A.............  N/A.............  Subpart C.......  Sec.   422.100,   N/A.............  N/A
                                Coverage of                                                             Sec.   422.111.
                                Durable Medical
                                Equipment.
II.D.5.......................  Broker and Agent  N/A.............  N/A.............  Subpart V.......  Sec.   422.2274.  Subpart V.......  Sec.
                                Requirements.                                                                                               423.2274
II.D.6.......................  Establishment     N/A.............  N/A.............  N/A.............  N/A.............  Subpart D.......  Sec.
                                and Application                                                                                             423.104,
                                of Daily Cost-                                                                                              Sec.
                                Sharing Rate as                                                                                             423.153
                                Part of Drug
                                Utilization
                                Management and
                                Fraud, Abuse
                                and Waste
                                Control Program.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Cost Contract Plan Public Notification Requirements in Cases of Non-
Renewal (Sec.  417.492)
    Section 1876 of the Act provided the Secretary with the authority 
to enter into contracts with HMOs on a cost basis. While section 
1876(k)(1)(A) of the Act precludes the Secretary from entering into new 
cost contracts after the establishment of Part C, existing contracts 
are grandfathered, and subject to regulations, including Sec.  417.492, 
which sets forth rules that apply to non-renewal of a cost contract.
    In the event that such a contract is non-renewed, the cost plan or 
CMS must notify both the enrollees of the organization and the general 
public of the non-renewal. As specified in Sec.  417.492(a)(1)(iii), 
public notification must include ``notice in one or more newspapers of 
general circulation in each community or county located in the HMO's or 
CMP's geographic area.'' We propose removing the current requirements 
at Sec.  417.492(a)(1)(iii) and (b)(1)(iii) for non-renewing cost-
contracting plans (in voluntary non-renewal situations) and for CMS (in 
CMS-initiated non-renewal situations) to notify the general public 
concerning the impending non-renewal. Our proposed removal of this 
requirement is motivated by the cost of newspaper advertisements and 
the declining rate of newspaper circulation. In addition, we believe 
that the requirement that cost plans provide personalized non-renewal 
information is sufficient to ensure adequate non-renewal notice.
2. New Benefit Flexibility for Fully-Integrated Dual Eligible Special 
Needs Plans (FIDE SNPs) (Sec.  422.102)
    Congress established dual eligible SNPs (D-SNPs) under the Medicare 
Modernization Act of 2003 (MMA) with the intention of better 
integrating care for individuals eligible for both Medicare and 
Medicaid (``dual eligible'' beneficiaries). The Affordable Care Act 
created a subset of D-SNPs, fully-integrated dual eligible SNPs (FIDE 
SNPs), which CMS further defined in our April 2011 final rule (76 FR 
21443 and 76 FR 21444) at Sec.  422.2 as D-SNPs that: (1) Provide dual 
eligible beneficiaries access to Medicare and Medicaid benefits under a 
single managed care organization; (2) coordinate delivery of covered 
Medicare and Medicaid health and long-term care services; (3) possess a 
valid capitated contract with the State for specified primary, acute, 
and long-term care benefits consistent with State policy; and (4) 
comply with CMS and State policy regarding marketing, appeals, quality 
assurance, and enrollment communication procedures.
    Section 2602(c) of the Affordable Care Act also charged us with 
making Medicare and Medicaid work together more effectively to improve 
patient care and lower costs. Thus, we are implementing initiatives 
aimed at improving quality and access to care for dual eligible 
beneficiaries, simplifying processes, and eliminating regulatory 
conflicts and cost-shifting that occurs between the Medicare and 
Medicaid

[[Page 63048]]

programs, States, and the Federal government. (For more information on 
this initiative, see our CY 2012 Call Letter, at http://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/Announcement2012.pdf.) To further 
these goals, we propose to give certain SNPs additional flexibility 
with respect to plan design, as discussed in detail later in this 
section. Under this proposed rule, FIDE SNPs that are currently 
operational, that have operated in the previous contract year, and that 
meet certain CMS criteria including, but not limited to, being of high-
quality (as defined by CMS in the calendar year 2013 draft/final call 
letter), would be afforded this benefit flexibility.
    Section 1852(a)(3) of the Act and our regulations at Sec.  422.2, 
Sec.  422.100(c)(1), and Sec.  422.102 allow us considerable discretion 
in deciding what benefits beyond those covered under Medicare Parts A, 
B, or D can be offered to MA enrollees as a ``supplemental benefit'' 
that is included in an MA plan for every enrollee who joins the plan 
(other benefits may be offered at the enrollee's option). We are 
interested in assessing whether certain supplemental benefits could 
help prevent health status decline in the dual eligible population, and 
reduce the quantity and cost of future health care needs. To this end, 
and as described in this section, we propose amending our regulations 
at Sec.  422.102(e) to allow certain FIDE SNPs that CMS deems eligible 
the flexibility to offer supplemental benefits beyond those that we 
currently allow for MA plans.
    We currently apply the same guidance as to what can be offered as a 
supplemental benefit to all MA plans, regardless of plan type. In 
recent years, we have used guidance (see Sec.  30.1 of Chapter 4 of the 
Medicare Managed Care Manual, ``Benefits and Beneficiary Protections,'' 
http://www.cms.gov/manuals/downloads/mc86c04.pdf) to clarify that 
supplemental benefits must be items and services that are--
     Primarily health related, meaning that an item or service 
is directly health-related, not for comfort or cosmetic or daily 
maintenance purposes, and has a use that is either national typical 
usage or part of a community pattern of care;
     Have a cost--that is, a non-zero direct medical cost 
associated with their provision; and
     Not Part A- or B-covered benefits.
    This guidance was based on concerns that competitive pressures were 
leading some MA organizations to spend Medicare rebate dollars (MA 
organizations with ``bid'' amounts for covering A and B services below 
the A and B ``benchmark'' amount for their county may use a percentage 
of the difference to offer additional benefits) on items that were more 
focused on providing marketing and enrollment incentives than on 
delivering quality, cost effective health care. We also were concerned 
that MA organizations could attempt to offer supplemental benefits that 
discriminate against certain enrollees and thereby violate the anti-
discrimination prohibition in section 1852(a)(3) of the Act.
    While these concerns still prevail, we believe that allowing 
certain SNPs greater flexibility in offering supplemental benefits 
beginning contract year 2013 would advance our overall goal of better 
integrating care for dual eligible beneficiaries. In addition, by 
limiting benefit flexibilities to those plans that are qualified to 
participate in this initiative, we reduce the likelihood that States 
could shift costs to the Medicare program by cutting Medicaid services 
and benefits from their State Medicaid plans.
    We propose limiting the flexibility that would be offered under 
this proposed rule to FIDE SNPs. Because FIDE SNPs are required to 
offer LTC supports and services, we believe that an approach that 
limits benefits flexibility to FIDE SNPs, as opposed to all D-SNP 
types, would be more consistent with the objective of keeping 
beneficiaries at risk of institutionalization in their homes, 
preventing health status decline that triggers additional utilization 
of health services, and lowering costs for the Medicaid and Medicare 
programs. We request comment on whether extending supplemental benefit 
flexibilities under our proposed Sec.  422.102(e) to eligible SNPs that 
are SNP types other than FIDE SNPs could measurably reduce unnecessary 
utilization and improve beneficiary outcomes in an equivalent manner.
    We are also proposing to further limit the benefit flexibility 
under this proposed rule to those qualified SNPs that serve only full-
benefit dual eligible beneficiaries. We believe that dual eligible 
beneficiaries who receive full State Medicaid benefits would have the 
most to gain from fully-integrated Medicare-Medicaid plan benefit 
offerings that include additional Medicare supplemental benefits. 
Furthermore, in circumstances where a State reduces coverage of a 
Medicaid benefit, we believe that the ability to offer additional 
Medicare supplemental benefits to full-benefit dual eligible enrollees 
is particularly critical in order to ensure continuity of care.
    We are particularly interested in assessing whether certain 
supplemental benefits could prevent health status decline in the dual 
eligible population and reduce the quantity and cost of future health 
care needs. Examples of benefits that could be offered under this 
proposed rule would include--
     Personal care services in the home;
     Non-skilled nursing activities in the home;
     Custodial care; and
     In-home food delivery for vulnerable beneficiaries. (We 
note that our current guidance on supplemental benefits permits in-home 
food delivery on a limited basis--that is, for a limited duration and 
only in certain circumstances.)
    We would review each qualified SNP's proposed supplemental benefit 
offerings for conformance to the SNP's model of care (MOC), and we 
would approve additional supplemental benefit offerings for these 
qualified SNPs as we deem necessary.
    We request comment on what specific categories and types of 
supplemental benefits we should consider for the purposes of extending 
benefits flexibility to qualified FIDE SNPs participating in this 
initiative, as well as on the circumstances under which plans should be 
permitted to offer these additional supplemental benefits. We also 
request comment on additional restrictions that should govern plans' 
ability to offer these additional benefits, and how we might be able to 
expand the scope of approved supplemental benefits in a manner that 
allows plans to serve their dual eligible enrollees effectively and 
efficiently.
    We also recognize that the services, Medicare Part C premium 
coverage, and out-of-pocket (OOP) cost-sharing benefits that dual 
eligible beneficiaries receive vary according to their Medicaid 
eligibility category and the State where they reside. We request 
comments on ways to minimize this proposed provision's cost impact on 
dual eligible beneficiaries, while ensuring that States, SNPs, and 
providers can feasibly provide additional supplemental benefits to a 
full benefit dual eligible population.
    In order to implement this proposal, we propose amending Sec.  
422.102 to add a new paragraph (e) specifying that, subject to CMS 
approval, and as specified annually by CMS, certain FIDE SNPs may offer 
additional supplemental benefits beyond those other MA plans may offer 
where CMS finds that the offering of such benefits could better 
integrate care for the dual eligible population. All such benefits 
would be consistent with the rules for supplemental benefits under Part 
422, including Sec.  422.2, Sec.  422.100(c)(1), and

[[Page 63049]]

Sec.  422.102. Assuming that this proposal is finalized, we would issue 
guidance in our annual Call Letter and in Chapter 4 of the Medicare 
Managed Care Manual--to provide guidance on the applicability of this 
provision, as well as examples of the specific additional supplemental 
benefits flexibilities that could be afforded under this initiative. We 
solicit comments on this approach.
3. Application of the Medicare Hospital-Acquired Conditions and Present 
on Admission Indicator Policy to MA Organizations (Sec.  422.504)
    We propose to require by regulation that MA organizations provide 
in their contracts with hospitals that they will reduce payments for 
Part A hospital services for serious events that could be prevented 
through evidence-based guidelines, in accordance with the hospital-
acquired conditions (HACs) and present on admission indicator (POA) 
policy that is currently required for hospitals paid under the Original 
Medicare Acute Care Hospital Inpatient Prospective Payment System 
(IPPS). We believe this proposed change is necessary to bring MA 
requirements in line with current HAC-POA policy in the fee-for-service 
Medicare program, as well as--in the near future--to the Medicaid 
program.
    Section 5001(c) of the Deficit Reduction Act of 2005 (DRA) added 
section 1886(d)(4)(D) of the Act to require a quality adjustment in 
Medicare Severity Diagnosis Related Group (MS-DRG) payments for certain 
hospital-acquired conditions. We have titled the provision ``Hospital-
Acquired Conditions and Present on Admission Indicator Reporting'' (HAC 
& POA). For discharges occurring on or after October 1, 2008, IPPS 
hospitals do not receive the higher payment for cases when one of the 
selected conditions is acquired during hospitalization (that is, was 
not present on admission). The case is paid as though the secondary 
diagnosis is not present. We periodically revise the list of 
conditions, in consultation with the Centers for Disease Control (CDC), 
in accordance with the Act. There are currently 10 HAC categories, 
including conditions such as air embolism, blood incompatibility, 
various types of falls and trauma, and certain types of surgical site 
infections. The FY 2012 IPPS final rule (76 FR 51476) contains a full 
discussion of the current HAC-POA policy as well as final changes for 
FY 2012. The final policy includes the addition of several new ICD-9-CM 
diagnosis codes to current HAC categories, and a revision of one 
subcategory title from ``Electric Shock'' to ``Other Injuries.'' In 
addition, section II.F.3. of the FY 2012 IPPS final rule includes 
updates and findings from the Research Triangle Institute, 
International (RTI) evaluation on CMS' Hospital-Acquired Conditions and 
Present on Admission Indicator. This is an intra-agency project with 
funding and technical support coming from CMS, OPHS, AHRQ, and CDC. The 
RTI evaluation includes the impact of the Hospital-Acquired Condition-
Present on Admission (HAC-POA) provisions on the changes in the 
incidence of selected conditions, effects on Medicare payments, impacts 
on coding accuracy, unintended consequences, and infection and event 
rates. The evaluation will also examine the implementation of the 
program and evaluate additional conditions for future selection. (For a 
complete discussion of the current HAC-POA policy, changes to the HAC-
POA policy for FY 2012, and current RTI report see the FY 2012 IPPS 
final rule (August 18, 2011 (76 FR 51504 through 51522).)
    Additionally, section 1886(d)(4)(D)(iii) of the Act requires that 
hospitals, effective with discharges occurring on or after October 1, 
2007, submit information on Medicare claims specifying whether 
diagnoses were POA. Collection of POA indicator data is necessary to 
identify which conditions were acquired during hospitalization for the 
HAC payment provision as well as for broader public health uses of 
Medicare data. We have implemented a payment policy for the IPPS to pay 
the CC/MCC MS-DRGs for those HACs with POA codes indicating that the 
diagnosis was either present on admission or clinically undetermined if 
the secondary diagnosis was present on admission. We will not pay the 
complication/comorbidity and major complication/comorbidity (CC/MCC) 
MS-DRGs for those HACs coded with POA codes indicating that the 
secondary diagnosis was not present on admission or that it was unknown 
if the secondary diagnosis was present on admission (73 FR 48486 and 
48487, August 19, 2008).
    The HAC and POA web page at http://www.cms.gov/HospitalAcqCond 
provides further information. In addition, specific instructions for 
providers on how to select the correct POA indicator for each diagnosis 
code were included in the ICD-9-CM Official Guidelines for Coding and 
Reporting, available on the CDC Web site at: http://www.cdc.gov/nchs/data/icd9/icdguide10.pdf. Additional information regarding POA 
indicator reporting and original Medicare application of the POA 
reporting options is available on the CMS Web site at: http://www.cms.gov/HospitalAcqCond/.
    Looking toward the future of Medicare and Medicaid, Congress set 
forth in the Affordable Care Act requirements to further Medicare's 
development of value-based purchasing programs (VBP), health care 
provider quality reporting, and expansion of the HAC program to 
encourage further incentives to improve quality and affordability of 
care and increase public transparency. Section 3008(b) of the 
Affordable Care Act requires the Secretary to undertake a study and 
report to Congress by January 1, 2012 on extending HAC-POA payment 
policy for IPPS hospitals to other facilities providing medical care to 
Medicare beneficiaries, such as hospital outpatient departments, non-
IPPS hospitals, skilled nursing facilities, and others.
    In addition, section 3008(a) of the Affordable Care Act requires us 
to implement for the IPPS, a rate-based payment policy to reduce 
payments to hospitals in the lowest quartile of performance on risk-
adjusted quality measures HACs, effective beginning FY 2015. The amount 
of payment will be 99 percent of the amount of payment that would 
otherwise apply to such discharges. This section also requires us to 
make information available to the public regarding HACs of each 
applicable hospital on the Hospital Compare Internet website.
    Finally, section 2702 of the Affordable Care Act requires the 
Secretary to identify current State practices that prohibit payment for 
HACs and incorporate the practices identified, or elements of such 
practices, which the Secretary determines appropriate for application 
to the Medicaid program in regulations. The new regulations will 
prohibit payments to States under section 1903 of the Act for any 
amounts expended for providing medical assistance for health care-
acquired conditions specified in the regulations. In addition, section 
2702 of the Affordable Care Act requires the Secretary to apply to 
State plans (or waivers) under title XIX of the Act the regulations 
promulgated pursuant to section 1886(d)(4)(D) of the Act relating to 
the HAC-POA payment policy, as appropriate for the Medicaid program. 
Final regulations implementing these requirements were published in the 
June 6, 2011 Federal Register (76 FR 32816). The final rule was 
effective July 1, 2011 but gives States the option to implement between 
July 1, 2011 and July 1, 2012.
    It is important to us to continue to align these incentives between 
the fee-

[[Page 63050]]

for-service and MA programs and, as noted above, with the Medicaid 
program. Section 1856(b)(1) of the Act authorizes the Secretary to 
establish MA standards by regulation. In addition, section 1857(e)(1) 
of the Act authorizes the Secretary to impose additional terms and 
conditions found necessary and appropriate. Based on this general 
authority in the Act, we propose to require MA organizations to 
implement policies and procedures to reduce reimbursements to 
contracted hospitals for Part A inpatient hospital services for serious 
events that could be prevented through evidence-based guidelines, in 
accordance with the HAC-POA policy that is required for hospitals paid 
under the IPPS. Consistent with practice under the IPPS, MAOs should 
not reimburse hospitals the higher payment for cases when one of the 
selected conditions is acquired during hospitalization (that is, was 
not POA). Any such case would be paid as though the secondary diagnosis 
is not present. We note that MA organizations are already required to 
pay non-contract provider hospitals the amount that they would receive 
for services under Original Medicare, including any applicable 
reductions for HACs. This requirement is outlined in the MA Payment 
Guide for out of Network Payments, available at https://www.cms.gov/MedicareAdvtgSpecRateStats/downloads/oon-payments.pdf.
    The HAC-POA policy promotes increased quality, efficiency of care, 
and incentives for hospitals to eliminate medical errors and reduce 
Medicare expenditures for poor quality or unnecessary care. It is one 
of several VBP tools the agency uses; others include measuring 
performance, using payment incentives, publicly reporting performance 
results, applying national and local coverage policy decisions, and 
enforcing conditions of participation.
    We believe that with robust input and participation of MA 
organizations and other stakeholders, we can achieve these goals for 
efficiency and quality in the MA program while implementing the 
policies in a way that takes into account the varying models, access, 
and payment features of the MA program. We understand that MA 
organizations may pay hospitals on a capitated basis or through other 
payment systems that may not be similar to that of the IPPS and also 
may not currently incorporate the POA indicator policy. We want to 
allow flexibility for MA organizations to determine the best 
methodology within their contract structures with hospitals for 
reporting these serious conditions and events, determining whether the 
condition was present on admission or caused during the inpatient 
hospital stay, and paying hospitals appropriately. However, we also 
believe that plans already have some operational systems in place to 
facilitate implementation of the requirement. For example, MA 
organizations must already pay noncontract providers the amount that 
they would receive under Original Medicare, which includes reducing the 
payment for HACs that were not present on admission. Also, beginning 
January 3, 2012, MA organizations will be required to collect and 
submit encounter data for each item and service provided to MA 
enrollees in accordance with risk adjustment policies required in Sec.  
422.310(d) (Form Number: CMS-10340 (OMB: 0938-New). We would 
collect the encounter data electronically from Medicare Advantage 
Organizations via the Health Insurance Portability and Accountability 
Act (HIPAA) compliant standard Health Care Claims transactions for 
professional data and institutional data. The HIPAA 5010 claim form 
used for this transaction is the same claim form that hospital 
providers use to submit claims under Original Medicare, including 
specific fields for POA information. In addition, the current MA plan 
rating system includes measures related to some of these serious 
events. Therefore, we believe that these distinct policies can be 
aligned to produce all of the intended results, including net savings 
to MA organizations and Medicare by avoiding unnecessary costs in the 
delivery of care.
    We propose to amend Sec.  422.504(i)(3) by adding a new paragraph 
(iv) to require that, beginning in CY 2013, MA organizations provide in 
their contracts with hospitals that payment will not be made to 
contracting hospitals in the case of serious preventable events and 
hospital-acquired conditions in accordance with section 1886(d)(4)(D) 
of the Act and all applicable Medicare policies. We solicit comments 
and recommendations on what other issues to consider in finalizing our 
proposal to apply the current fee-for-service HAC-POA policy to MA 
plans.
4. Clarifying Coverage of Durable Medical Equipment (Sec.  422.100 and 
Sec.  422.111)
    Medicare beneficiaries not enrolled in an MA plan may obtain their 
Medicare-covered durable medical equipment (DME) items and supplies 
from any Medicare-certified DME supplier. If a DME supplier does not 
stock a particular manufacturer's product or brand of DME, the 
beneficiary may obtain that product or brand from another supplier or 
request his or her supplier of choice order the particular product or 
brand he or she uses or which his or her physician has ordered. While 
sections 1852(a)(1)(A) and (B) of the Act require MA plans to provide 
Parts A and B-covered items and services (with the exception of hospice 
care), including DME items and supplies, network-based MA plans may 
maintain networks of appropriate providers sufficient to provide 
adequate access to covered services for their members (see Sec.  
422.112(a)(1) and Sec.  422.114(a)). In other words, network-based MA 
plans may limit access to Medicare-covered items and services via 
networks, as long as those networks provide adequate enrollee access to 
services consistent with standards established by CMS.
    Medicare Advantage organizations and other stakeholders have asked 
for our guidance with respect to limitations DME coverage that result 
from MA organizations limiting enrollees to specified DME providers, or 
to specified DME manufacturers. Specifically, some MA organizations 
have asked us whether they could offer lower cost-sharing for 
``preferred'' DME products or brands versus ``non-preferred'' DME 
products or brands, as well as whether they could limit coverage of 
certain DME items and supplies to specific manufacturers' products or 
brands. In guidance in section 50.1 of Chapter 4 of the Medicare 
Managed Care Manual, ``Benefits and Beneficiary Protections'' (see 
http://www.cms.gov/manuals/downloads/mc86c04.pdf), we specified that, 
beginning in CY 2011, plans could establish several cost-sharing levels 
(that is, tiers) for DME items, supplies, and Part B drugs, provided 
that: (1) The highest cost sharing tier is at or below the relevant 
cost sharing threshold established by CMS for DME and Part B drugs; and 
(2) plans ensure access to all products through the network of 
providers. However, we have not specified in regulation or guidance 
whether network-based MA plans may, within a specified category of DME, 
limit coverage to specific manufacturers' DME products or brands. While 
we do not collect information on this type of coverage limitation in 
our plan benefit package (PBP) software, we are aware anecdotally that 
some MA organizations employ this practice to some extent. For example, 
one MA organization limits coverage of diabetic test strips and 
monitors to those manufactured by certain entities.
    Although some organizations thus are already limiting DME to 
specific brands, we believe that our proposal would help ensure that MA 
organizations maximize

[[Page 63051]]

program efficiencies by driving enrollee utilization to specific DME 
products for which MA organizations may have negotiated bulk discounts. 
In addition, given that MA organizations are currently employing DME 
product or brand coverage limitations, we believe it is important to 
establish a regulatory framework for ensuring appropriate and adequate 
MA enrollee access to DME items and supplies.
    Therefore, and under our authority in section 1856(b)(1) of the Act 
to establish MA standards by regulation and in section 1857(e)(1) of 
the Act to impose additional terms and conditions found necessary and 
appropriate, we propose to add a new paragraph (l) to Sec.  422.100 
that clarifies that MA organizations may limit coverage to specific 
manufacturers or brands, and imposes conditions on doing so. 
Specifically, in order to ensure that MA enrollees have adequate access 
to their DME benefits, proposed Sec.  422.100(l) would establish 
requirements with respect to access and medical necessity, require 
transition periods, address mid-year changes to preferred DME items and 
supplies, appeals, and require disclosure of DME coverage limitations 
to enrollees.
    We recognize that this is a complex issue. Therefore, we solicit 
comments on all aspects of these proposed changes and whether 
additional or strengthened beneficiary protections would be warranted 
under this policy. If we finalize this proposal, we intend to monitor 
and assess plans' compliance with the new requirements--including 
through review of beneficiary complaints and grievances, and appeals 
data--to ensure MA enrollees have appropriate and adequate access to 
their Part B-covered DME items and supplies.
a. Access to Preferred DME Items and Supplies
    We propose requiring that MA organizations wishing to limit 
coverage within a specific category of DME to specific manufacturers' 
products or brands take necessary steps to ensure that enrollees have 
access to all preferred manufacturer products through their contracts 
with network DME suppliers. We recognize that not all DME suppliers in 
a network will always stock all preferred products or brands of DME 
items and supplies; however, we would expect contracted suppliers to 
make arrangements to special order products or brands of any preferred 
DME item or supply, as well as any non-preferred DME item or supply 
that is determined to be medically necessary. We would reflect this 
change in proposed Sec.  422.100(l)(2)(i).
b. Medical Necessity Requirements for DME Items and Supplies
    In accordance with Sec.  422.112(a)(6)(ii), MA organizations must 
have established policies and procedures that allow for individual 
medical necessity organization determinations if there is a question 
about whether a service or item should be covered. MA organizations 
making medical necessity determinations must have a medical director, 
who is a physician, ensuring the accuracy of organization 
determinations and reconsiderations as per Sec.  422.562(a)(4). Within 
Subpart M, if the MA organization's determination is contested, 
reconsideration by the organization, and an independent review entity 
of the determination are possible under Sec.  422.578 and Sec.  
422.592, with administrative law judge and Medicare Appeal Council 
hearings/reviews of unfavorable reconsiderations possible under Sec.  
422.600, and Sec.  422.608. Therefore, we propose requiring MA 
organizations--to the extent that they elect to limit coverage of DME 
items and supplies to specific manufacturers' products or brands--to 
provide coverage of any medically necessary DME item and supply, 
including DME items and supplies made by non-preferred manufacturers. 
We would reflect this change in proposed Sec.  422.100(l)(2)(ii).
c. Transition Period for Coverage of Non-Preferred DME Items and 
Supplies
    As provided under Sec.  423.120(b)(3), MA organizations offering an 
MA-PD plan and Part D sponsors are required to provide for an 
appropriate transition process for enrollees transitioning from other 
coverage who are currently prescribed Part D drugs not on the new Part 
D plan's formulary. The purpose of this transition period is to 
transition the new enrollee to a therapeutically substitutable 
formulary drug or, alternatively, to obtain a formulary exception 
whereby the Part D plan would continue to cover the non-formulary drug 
for the remainder of the plan year for reasons of medical necessity.
    Similarly, we propose requiring MA organizations to continue to 
ensure access to non-preferred brands of DME supplies--such as ostomy 
bags and diabetic test strips--for a transition period comprising the 
first 90 days of coverage under the plan, as specified by CMS. Similar 
to the Part D transition process, we expect that MA organizations would 
provide one refill during the 90-day transition period. We also propose 
requiring that, during this 90-day transition period, MA organizations 
cover repairs to non-preferred DME items, such as wheelchairs, feeding 
pumps, and hospital beds. That is, an MA organization would be required 
to service (including providing a loaner) DME items owned or rented by 
an enrollee needing repairs during the 90-day transition period. If, 
after the transition period ends such items needed repair, the plan 
could choose to pay for the repairs or instead provide its preferred 
brand of the item. We propose to add Sec.  422.100(l)(2)(iii)(A) and 
Sec.  422.100(l)(2)(iii) (B) to reflect this proposed requirement.
    We solicit comments on the features of this transition process 
requirement, including whether such a transition period--modeled 
generally on that provided under the Part D program for non-formulary 
Part D drugs--is appropriate for DME items and supplies and whether 
there are additional transition requirements we should consider.
d. Midyear Changes to Preferred DME Items and Supplies
    We propose prohibiting MA organizations from making ``negative 
changes,'' that is, eliminating preferred coverage of a Medicare-
covered item of DME, midyear. Plans may add to their preferred DME 
products list--for example, to add new manufacturers' products to their 
coverage lists, to provide substitute DME items and supplies for 
products that are no longer available, or to reflect national and local 
coverage determinations for new DME items and supplies. We believe this 
proposed policy--allowing positive changes and prohibiting negative 
changes--strikes the appropriate balance between allowing flexibility 
for plans to designate preferred products, while ensuring that changes 
to preferred DME products are not disruptive to enrollees. We propose 
to reflect this change in proposed Sec.  422.100(l)(2)(iv).
e. Appeals
    While we considered establishing an exceptions process for DME 
under this proposed policy similar to the one established for non-
formulary Part D drugs under Sec.  423.578(b), we do not believe that 
adding what is essentially an additional step to the appeals process 
under Subpart M of Part 422 is necessary for MA organization 
determinations concerning coverage of specific DME brands. The Part D 
exceptions process was conceived as an initial means of obtaining 
coverage of non-formulary Part D drugs for medical necessity reasons. 
Once that process is exhausted, the enrollee may appeal the

[[Page 63052]]

decision under the rules of Subpart M of Part 423.
    There is evidence that beneficiary appeals of DME coverage 
decisions based on products or brands are not a significant problem in 
the MA program. For example, since the inception of the IRE appeals 
process in 2006, there have been 12,500 appeals related to wheelchairs. 
Of these appeals, only 7 have concerned brand-specific issues. Because 
we have no evidence of enrollee grievances or appeals of brand-specific 
DME coverage issues, we believe that the current organization 
determination and appeals process in subpart M of part 422 is 
sufficient to ensure that MA enrollees have access to specific brands 
of DME items when medically necessary. We propose to clarify at Sec.  
422.100(l)(2)(v) that plan non-coverage of a particular manufacturer's 
product or brand of a DME constitutes an organization determination 
under Sec.  422.566. We solicit comments on whether the organization 
determination and appeals process currently required in subpart M of 
part 422 affords MA plan enrollees with sufficient protections for 
ensuring appropriate and adequate access to Medicare-covered DME in MA 
plans that choose to limit coverage, within a specified category of 
DME, to specific manufacturers' products or brands. We would appreciate 
comments with respect to any additional protections that we should 
consider if we finalize this proposal.
f. Disclosure of DME Coverage Limitations
    As provided under Sec.  422.111(b)(2), MA plans must notify 
enrollees--at the time of enrollment and annually thereafter--of the 
benefits offered under the plan, including applicable conditions and 
limitations, premiums, and cost sharing, and any other conditions 
associated with receipt of benefits. This requirement has been 
operationalized as the annual notice of change/evidence of coverage 
(ANOC/EOC). We would require, under proposed Sec.  422.100(l)(2)(vi), 
that MA plans that choose to limit DME coverage to preferred products 
or brands, be required to include, in the description of benefits 
required under Sec.  422.111(b)(2) and under Sec.  422.111(h)(2)--which 
requires the provision of specific information via a toll-free customer 
service call center, and Internet website, and in writing upon 
request--disclosures about these DME coverage restrictions and their 
rights to the Part C appeals process for requests to obtain medically 
necessary, non-preferred DME products or brands.
5. Broker and Agent Requirements (Sec.  422.2274 and Sec.  423.2274)
    Regulations setting forth agent and broker compensation promulgated 
in our November 10, 2008 interim final rule with comment (73 FR 67406 
through 67414) required MA organizations and Part D plan sponsors 
(``plan sponsors'') to submit historical agent/broker compensation data 
from years 2006 and 2007. In addition, we requested that plan sponsors 
submit information in 2008 that would indicate their 2009 compensation 
schedules for agents selling Medicare health plans on their behalf. CMS 
conducted an analysis of the historical compensation information 
submitted by plan sponsors and published fair market value cut-off 
(FMV) amounts during the Spring of 2009. Later that year, plan sponsors 
were given the opportunity to adjust their compensation amounts to any 
amount at or below the FMV. These adjusted 2009 amounts became the 
baseline amount for compensation adjustments in future years. 
Subsequent to our initial compensation guidance, plan sponsors have 
expressed concerns about the validity of continuing to base future 
compensation on amounts which were selected in 2009 and based on data 
from 2006 and 2007. We have further heard that the current economic 
conditions have drastically changed local markets such that, even as 
adjusted, the 2009 compensation amounts do not accurately reflect the 
current market rates. Lastly, we have been advised by plan sponsors 
that have been in the market since 2009 that they are at a competitive 
disadvantage as compared to newly entering plans as they may set 
compensation rates at current-day FMV rates and are not tied to 2009 
compensation amounts. Therefore, we are proposing to modify paragraph 
(a), and add a new paragraph (f), to Sec.  422.2274 and Sec.  423.2274 
to allow plan sponsors to annually select their compensation amounts to 
reflect rates which are at or below FMV annually established by CMS. 
Under these proposed changes, plan sponsors would also be required to 
report their intentions to use independent agents and/or brokers in the 
upcoming plan year, along with the amounts that they will be paid, if 
applicable.
6. Establishment and Application of Daily Cost-Sharing Rate as Part of 
Drug Utilization Management and Fraud, Abuse and Waste Control Program 
(Sec.  423.104 and Sec.  423.153)
    Pursuant to our authority under section 1860D-4(c) of the Act, 
which requires PDP sponsors to have cost-effective drug utilization 
management and a fraud, abuse, and waste control program in place, we 
are proposing that Medicare Part D sponsors be required to provide 
their enrollees access to a daily prorated cost-sharing rate for 
prescriptions dispensed by a network pharmacy for less than a 30 days 
supply of certain covered Part D drugs that are for an initial fill of 
a new medication, are intended to allow the enrollee to synchronize 
refill dates of multiple drugs, or are dispensed in accordance with 
Sec.  423.154 (which sets forth the requirements placed on Part D 
sponsors with respect to dispensing of prescription drugs in long-term 
care facilities effective January 1, 2013). If finalized as proposed, 
these provisions would be codified at Sec.  423.104 and Sec.  423.153.
    Current prescribing patterns and pharmacy benefit management (PBM) 
payment practices result in most prescriptions for chronic medications 
being written by providers, and dispensed by retail pharmacies, in 30-
or-more day quantities. When the full amount dispensed is not utilized 
by the enrollee due to adverse medication reaction or interaction, or 
due to failure of enrollee therapeutic adherence because of cost, 
inconvenience, death, or other reason for discontinuation, it comes at 
an unnecessary and wasteful cost to the enrollee, the Medicare program, 
Part D sponsors, and the environment.
    We believe that if Part D enrollees and their prescribers had the 
option of shorter days supplies of initial fills of new prescriptions 
without the disincentive of the enrollee having to pay a full month's 
(or longer) copayment or coinsurance, a significant portion of the 
current costs of discontinued chronic medications could be avoided. In 
addition, the avoidance of unused drugs would contribute to diminishing 
the environmental issues \7\ caused by disposal of unused medications, 
and opportunities for criminal activities and substance abuse \8\ 
caused by diversion of unused

[[Page 63053]]

medications, all of which are growing concerns in the United States.
---------------------------------------------------------------------------

    \7\ See http://www.epa.gov/ppcp for information about 
Pharmaceuticals and Personal Care Products as Pollutants (PPCPs) on 
the website of the U.S. Environmental Protection Agency.
    \8\ See Office of National Drug Control Policy, 2008 
``Prescription for Danger'', January 24, 2008, and 2009 National 
Drug Survey on Drug Use and Health (NSDUH), September 2010, for more 
information on the growing problem of nonmedical use of prescription 
drugs in the United States, particularly among teenagers. See also 
http://www.deadiversion.usdoj.gov/index.html for more information 
from the Drug Enforcement Administration about the problems 
associated with drug abuse resulting from legitimately made 
controlled substances being diverted from their lawful purpose into 
illicit drug traffic.
---------------------------------------------------------------------------

    Currently, Part D enrollees' cost-sharing is the same whether they 
receive a 7-, 14-, or 30-day supply of a first fill of a new 
medication. A daily cost-sharing rate requirement imposed on Part D 
sponsors would encourage enrollees and their prescribers to limit day's 
supplies when appropriate by also reducing the enrollees' out-of-pocket 
costs. More specifically, under our proposal, Part D sponsors would be 
required to establish and apply a daily cost-sharing rate, such that an 
enrollee seeking a trial fill of a prescription for a chronic 
medication, for example, would pay only a prorated portion of the 
established amount under his or her Part D benefit plan that 
corresponds to the actual amount of days supply that was prescribed and 
is dispensed, whether it be a 7- or 14-day supply, or some other 
quantity less than 30 days, which would be at the discretion of the 
prescriber. Thus, although our proposed daily cost-sharing rate 
requirement would be mandatory for Part D sponsors, actually taking 
advantage of it would be voluntary for enrollees and their prescribers. 
Neither sponsors nor the Federal government would determine whether an 
enrollee should receive a trial fill. Rather, the decision to try a new 
medication through a trial fill would be made by the enrollee and his 
or her prescriber.
    Through the establishment and application of a daily cost-sharing 
rate requirement on Part D sponsors, we believe an enrollee would be 
incentivized to inquire of his or her prescriber whether a trial fill 
would be appropriate when first prescribed a medication. We further 
believe enrollees would be most likely to inquire about a trial fill 
when faced with higher cost sharing for a new medication, due to the 
expense of the drug, such as when purchasing a drug in the deductible 
phase of the benefit or in the coverage gap. We further believe 
prescribers would be most likely to concur as to the appropriateness of 
a trial fill when the prescription is for an initial fill of a drug 
that has significant side effects and/or is frequently poorly 
tolerated. In such a case, the prescriber could write either one 
prescription for the trial fill for a period at the prescriber's 
discretion, or two prescriptions (for example, one for the trial fill 
and a second prescription for a 30 or 90 day supply--the latter 
prescription would be utilized if the enrollee and the prescriber 
agreed the drug therapy should be continued after the trial period). If 
the medication were discontinued after use of a trial fill, the 
enrollee, as well as the sponsor, would have avoided the net costs 
associated with the unused quantity that would be dispensed under 
current standard practices.
    Because the prescriptions could be written during one office visit, 
or could be refilled by the prescriber directly with the enrollee's 
pharmacy after a medication trial period, additional visits to the 
prescriber would not necessarily be required and would not need to 
cause a burden to the enrollee. We assume the two prescriptions option 
would be most convenient for the enrollee and the prescriber (when 
appropriate), but seek specific comment on this assumption. If an 
enrollee would have difficulty returning to the pharmacy, presumably he 
or she would not inquire about a trial fill. Furthermore, since 
prescribers would determine whether or not the medication being 
prescribed should or could be dispensed in a trial fill, we would not 
expect our proposal to have any adverse effects on enrollees' health.
    Indeed, while we envision, as described above, enrollees primarily 
requesting less than a full month's supply when prescribed a drug for 
the first time that is known to have significant side effects and to be 
frequently poorly tolerated, we are not limiting the requirement for 
Part D sponsors to establish and apply a daily cost-sharing rate to 
such medications. Rather, we have identified an additional benefit 
which is the ability to allow for synchronization of prescriptions. 
More specifically, if an enrollee already takes a prescription 
medication that is due for a refill in 10 days, the prescriber could 
write an initial prescription for a new medication for a 10-day supply, 
so that the enrollee could refill both prescriptions on an ongoing 
basis in one trip to the pharmacy (assuming the new medication is 
continued) and perhaps also achieve better medication compliance. 
Similarly, enrollees who currently take multiple medications that 
refill on different dates could request their prescribers to write 
prescriptions for less than 30 days (each one likely for a different 
days supply), but with 30-day refills, for all but one of those 
medications that is due for a refill, so that the enrollee could refill 
all prescriptions in one trip to the pharmacy, and could refill all the 
prescriptions for 30 days or more in one trip to the pharmacy 
thereafter on an ongoing a basis.
    The ability to synchronize medications should assist enrollees in 
adhering to prescription treatment regimens that involve multiple 
medications, and we note that at least one study supports this belief, 
and suggests intervention targeted at individuals who do not request 
refills of all medications. In addition, we believe the ability to 
synchronize medications will be convenient for both those enrollees who 
take advantage of it and their prescribers by enabling fewer trips to 
the pharmacy and fewer prescription requests of prescribers from 
enrollees through the ability to consolidate pharmacy trips and 
prescriber office visits and phone calls.
    We do not expect long-term care (LTC) enrollees to request trial 
fills to synchronize medications, as this is not our understanding of 
the LTC environment with respect to prescribing, and our April 2011 
final rule (76 FR 21432) requires 14 day or less dispensing in LTC 
facilities effective January 1, 2013. However, as noted in that rule, 
we expected the LTC dispensing requirements ``would likely lead to a 
change in copayment methodology * * * [and] anticipate[d] the 
implementation of particular copayment methodologies will be dependent 
on the billing and dispensing methodologies used, and as a result * * * 
copayment methodologies within the same plan may vary depending on the 
LTC facility where the beneficiary resides. Copayment may be collected 
at the first dispensing event in a month, the last dispensing event in 
a month, or prorated based on the number of days a Part D drug was 
dispensed in a month. However, due to the relatively small copayments 
for low-income subsidy (LIS) beneficiaries, copayments for LIS 
beneficiaries should be billed with the first or last dispensing event 
of the month.'' The current proposed requirement on Part D sponsors to 
establish and apply a daily cost-sharing rate would supersede this 
quoted guidance in the preamble of the April 2011 final rule. In other 
words, Part D sponsors would be required to establish and apply a 
prorated, uniform cost-sharing billing methodology for all their 
enrollees, including those in LTC facilities and those with LIS cost-
sharing subsidies.
    We recognize that establishing and applying a daily cost-sharing 
rate to the relatively small copayments for LIS enrollees would cause 
such copayments to be nominal. We seek specific comments as to 
alternatives to incentivize LIS enrollees to take advantage of trials 
fills and synchronize their medications when appropriate other than 
through the establishment and application of a daily cost-sharing rate 
requirement.
    Daily cost-sharing rates also may permit pharmacies, as opposed to 
prescribers, to facilitate synchronization

[[Page 63054]]

of an enrollee's medications upon his or her request, and we seek 
specific comment as to this possibility, as well as to any issues we 
may need to address to facilitate this possibility. For instance, in 
order for sponsors to be able to monitor the prevalence and 
appropriateness of the dispensing of prescriptions in shorter than 30 
days supply to ensure that a pharmacy does not dispense a 30-day 
prescription in stages in order to increase dispensing fees, we urge 
the industry to develop coding to be used by network pharmacies to 
communicate to sponsors whether a less than 30 day fill is to align 
refill dates, or for that matter, is an initial fill of a new 
medication, or in the case of the LTC setting, is to communicate the 
dispensing methodology employed.
    We believe that realized savings from the daily cost-sharing rate 
requirement may be partly offset by additional dispensing fees, 
administrative and programming costs, and additional initial fills of 
more expensive drugs. We assume additional dispensing fees would result 
when a trial fill of a medication is dispensed and the enrollee returns 
to the pharmacy for the remainder of the month's supply (or more) if 
the medication were successful, or when an enrollee chooses to 
synchronize medications. Thus, over a year, there would be up to 13 
dispensing events for a medication continued after a trial fill as 
opposed to up to 12. Part D sponsors may also incur some costs to 
program their systems to establish and apply a daily cost-sharing rate 
to prescriptions dispensed to enrollees with less than a 30-day supply, 
as well as administrative costs to administer the trial fill 
requirement we propose here. Finally, we expect some additional costs 
due to more initial fills of brand drugs that enrollees previously 
declined to try due to the cost of a full month's supply when the brand 
drugs are known for significant side effects and/or to be frequently 
poorly tolerated.
    We considered proposing a requirement similar to the Fifteen Day 
Initial Script program introduced in Maine in the summer of 2009. In 
this program, specific medications that were identified by the 
MaineCare program with high side effect profiles, high discontinuation 
rates, or frequent dose adjustments, were phased in by class and must 
be dispensed in a 15-day initial script to ensure cost effectiveness 
without wasting or discarding of dispensed, but unused, medications. We 
have learned through representatives of the program that MaineCare has 
achieved overall savings for two consecutive State fiscal years with 
respect to both brand and generic drugs through this program, despite 
the additional dispensing fees. The representatives have also reported 
that there has been very good acceptance of the program and very little 
confusion upon implementation. While we acknowledge the savings 
benefits of the mandatory MaineCare approach, we believe that leaving 
the decision to obtain less than a month's supply of a prescription 
with the enrollee and his or her prescriber and pharmacist may be a 
better approach in light of the voluntary nature of the Medicare Part D 
program.
    A previous review of 2009 PDE data by CMS suggested that just under 
32 percent of approximately 78.6 million first fills for maintenance 
medications are not refilled by Medicare Part D enrollees. Maintenance 
medications are used for diseases when the duration of therapy can 
reasonably be expected to exceed one year, and we assume for purposes 
of estimating savings to the Part D program that the lack of refills 
indicates the prescribed medications were discontinued. The estimated 
total cost of these discontinued medications was approximately $1.6 
billion (70 percent for brands and 30 percent for generics). However, 
this review did not distinguish between community and institutional 
settings. Thus, to estimate the costs of discontinued medications in 
community settings only, since the daily cost-sharing rate requirement 
proposed here does not further change the dispensing requirements in 
the long-term care setting effective January 1, 2013, we reduced the 
total costs by approximately 13 percent in accordance with CMS data on 
gross drug costs in the Part D program in 2009 in the community and 
institutional settings to remove a proportion representing long-term 
care expenses. Consequently, the adjusted total estimated cost of 2009 
community-based discontinued first fills of chronic medications was 
estimated at roughly $1.4 billion.
    Potential savings of a daily cost-sharing requirement on Part D 
sponsors would come from a reduction of these costs which would be 
offset by some additional dispensing fees. In order to estimate the 
savings, we must make assumptions about how many first fills will be 
dispensed in quantities of less than a 30-day supply, and what the 
average quantity of such first fills will be. It should be pointed out 
that these assumptions are highly uncertain, because it is very 
difficult to predict enrollees' behavioral response. Having noted this 
caveat, we assume 20 percent of first fills in 2013 will be for a 
supply of less than 30 days, trending to 50 percent by 2018, and that 
the average of such fills will be for a 15-day supply. Assuming 32 
percent of these first fills are discontinued, we estimate the 
potential savings to the Part D program to be $180 million in 2013 
alone, and over $2.5 billion by 2018.
    We recognize that certain medications are universally accepted in 
the health care community as not suitable to be dispensed in amounts 
less than a 30-day supply (for example, lotions and other drugs not in 
solid form). Therefore, we propose to further limit the requirement 
that sponsors establish and apply a daily cost-sharing rate to drugs 
similar to those to which to the Medicare Part D long-term care 
dispensing requirements apply. That is, the daily cost-sharing rate 
requirement would apply to solid oral doses of drugs, except 
antibiotics or drugs which are dispensed in their original containers 
as indicated in the Food and Drug Administration Prescribing 
Information or are customarily dispensed in their original packaging to 
assist patients with compliance (for example, steroid dose packs). 
However, unlike the long-term care dispensing requirements which apply 
only to brand drugs, we are proposing here that the daily cost-sharing 
rate requirement would apply to both brand and generic drugs.
    We also understand that, while there may be additional waste 
generated by multiple fills when medications are continued or 
synchronized (for example, more plastic bottles and paper inserts, 
additional trips to pharmacies), the harmful effects on the environment 
from unused drugs, particularly the biological implications, likely 
have a much greater impact on the environment than additional 
recyclables. We seek specific comments as to this assumption.
    In light of the foregoing, we propose to define ``daily cost-
sharing rate'' in Sec.  423.100. ``Daily cost-sharing rate'' would 
mean, as applicable, the established monthly--
     Copayment under the enrollee's Part D plan divided by 30 
or 31 and rounded to the nearest lower dollar amount or to another 
amount but in no event to an amount which would require the enrollee to 
pay more for a month's supply of the prescription than the enrollee 
would have paid if a month's supply had been dispensed; or
     Coinsurance rate under the enrollee's Part D plan applied 
to the ingredient cost of the prescription for a month's supply divided 
by 30 or 31. We solicit comment on whether we should establish specific 
rounding rules so that sponsors are consistently calculating

[[Page 63055]]

daily cost-sharing rates with respect to enrollee and plan liabilities.
    In addition, we would revise Sec.  423.104 by adding a paragraph 
(i) to state that a Part D sponsor is required provide its enrollees 
access to a daily cost-sharing rate in accordance with Sec.  
423.153(b)(4). Section 423.153(b) currently requires a Part D sponsor 
to establish a reasonable and appropriate drug utilization management 
program. We also propose to revise Sec.  423.153(b) by adding a new 
paragraph (4). Paragraph (4)(i) would require a drug utilization 
management program to establish and apply a daily cost-sharing rate to 
a prescription presented by an enrollee at a network pharmacy for a 
covered Part D generic or brand drug that is dispensed for a supply of 
less than 30 days, multiplied by the days supply actually dispensed, 
plus any dispensing fee in the case of coinsurance. Paragraph 
(b)(4)(i)(A) would limit the requirement to drugs that are in the form 
of solid oral doses. Paragraph (b)(4)(i)(B) would further limit the 
requirement to a prescription that is for an initial fill of a new 
medication, is intended to allow the enrollee to synchronize refill 
dates of multiple drugs, or is dispensed in accordance with Sec.  
423.154 (which sets forth the requirements placed on Part D sponsors 
with respect to dispensing of prescription drugs in long-term care 
facilities effective January 1, 2013). Paragraph (b)(4)(ii) would state 
that the requirements of (b)(4)(i) would not apply to antibiotics or 
drugs dispensed in their original container as indicated in the Food 
and Drug Administration Prescribing Information or are customarily 
dispensed in their original packaging to assist patients with 
compliance.

E. Clarifying Program Requirements

    We have worked with MA organizations and Part D sponsors to 
implement the Medicare Advantage and Prescription Drug Benefit Programs 
since the inception of these programs. As part of this partnership, we 
have implemented operational and/or policy guidance via HPMS memoranda 
or manual instruction to assist MA organizations and Part D sponsors in 
ensuring the proper and efficient administration of the Part C and D 
programs. We propose to codify some of that guidance and provide other 
definitive direction on policy issues in order to address requests from 
stakeholders. These proposals appear in Table 5.

                                                   Table 5--Provisions To Clarify Program Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Part 417                            Part 422                           Part 423
       Preamble section            Provision    --------------------------------------------------------------------------------------------------------
                                                      Subpart           Section           Subpart           Section           Subpart         Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
II.E.1.......................  Technical         Subpart K.......  Sec.   417.422..  Subpart B.......  Sec.   422.60...  Subpart B.......  Sec.   423.56
                                Corrections to                     Sec.   417.432..
                                Enrollment
                                Provisions.
II.E.2.......................  Extending MA and  Subpart K.......  Sec.   417.427..  N/A.............  N/A.............  N/A.............  N/A
                                Part D Program
                                Disclosure
                                Requirements to
                                Section 1876
                                Cost Contract
                                Plans.
II.E.3.......................  Clarification     N/A.............  N/A.............  Subpart C.......  Sec.   422.101..  N/A.............  N/A
                                of, and
                                Extension to
                                Local Preferred
                                Provider Plans,
                                of Regional
                                Preferred
                                Provider
                                Organization
                                Plan Single
                                Deductible
                                Requirement.
II.E.4.......................  Technical Change  N/A.............  N/A.............  Subpart E.......  Sec.   422.216..  N/A.............  N/A
                                to Private
                                Fee[dash]For[da
                                sh]Service Plan
                                Explanation of
                                Benefits
                                Requirements.
II.E.5.......................  Application       N/A.............  N/A.............  Subpart K.......  Sec.   422.500,   N/A.............  N/A
                                Requirements                                                            Sec.   422.501,
                                for Special                                                             Sec.   422.502.
                                Needs Plans.
                                                                                     Subpart N.......  Sec.   422.641,
                                                                                                        Sec.   422.660.
II.E.6.......................  Timeline for      N/A.............  N/A.............  Subpart K.......  Sec.   422.501..  N/A.............  N/A
                                Resubmitting
                                Previously
                                Denied MA
                                Applications.
II.E.7.......................  Clarification of  N/A.............  N/A.............  Subpart K.......  Sec.   422.504..  Subpart K.......  Sec.
                                Contract                                                                                                    423.505
                                Requirements
                                for First Tier
                                and Downstream
                                Entities.

[[Page 63056]]

 
II.E.8.......................  Valid             N/A.............  N/A.............  N/A.............  N/A.............  Subpart C.......  Sec.
                                Prescriptions.                                                                                              423.100,
                                                                                                                                            Sec.
                                                                                                                                            423.104
II.E.9.......................  Medication        N/A.............  N/A.............  N/A.............  N/A.............  Subpart D.......  Sec.
                                Therapy                                                                                                     423.153
                                Management
                                Comprehensive
                                Medication
                                Reviews and
                                Beneficiaries
                                in LTC Settings.
II.E.10......................  Employer Group    N/A.............  N/A.............  N/A.............  N/A.............  Subpart J.......  Sec.
                                Waiver Plans                                                                                                423.458
                                Requirement to
                                Follow All Part
                                D Rules Not
                                Explicitly
                                Waived.
II.E.11......................  Access to         N/A.............  N/A.............  N/A.............  N/A.............  Subpart C.......  Sec.
                                Covered Part D                                                                                              423.120
                                Drugs Through
                                Use of
                                Standardized
                                Technology and
                                National
                                Provider
                                Identifiers.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Technical Corrections to Enrollment Provisions (Sec.  417.422, Sec.  
417.432, Sec.  422.60, and Sec.  423.56)
    In our April 15, 2011 final rule (76 FR 21442), we amended Sec.  
423.38(d) to codify changes to the Annual Coordinated Election Period 
(AEP) mandated by the Affordable Care Act. Specifically, section 3204 
of the Affordable Care Act changed the AEP to October 15 through 
December 7 for 2011 and future years. In making this change, we 
inadvertently neglected to revise a reference to the former AEP 
timeframe noted in Sec.  423.56 (Procedures to determine and document 
creditable status of prescription drug coverage). This section requires 
the disclosure of creditable coverage to beneficiaries prior to the 
start of the AEP and specifically references the old date (that is, 
November 15). To make this section consistent with the statute, we are 
proposing to amend Sec.  423.56(f)(3) to remove the outdated AEP 
reference.
    In the April 2011 final rule (76 FR 21525), we also amended our 
regulations at Sec.  417.430 to permit CMS approval of alternative 
enrollment mechanisms for cost plans in addition to paper forms, such 
as electronic enrollment. In making this revision, we unintentionally 
overlooked other sections in this subpart that referenced enrollment 
mechanisms for cost plans. Specifically, Sec.  417.422 (Eligibility to 
enroll in an HMO or CMP) and Sec.  417.432 (Conversion of enrollment) 
specifically reference the requirement for a beneficiary signature on 
an enrollment form. Because it was our intent to broaden enrollment 
mechanisms for cost plans to go beyond paper enrollment forms, we 
believe we should have revised the sections above to remove 
requirements for signatures. Therefore, we are proposing to revise 
Sec.  417.422(d) and Sec.  417.432(d) to remove references to 
signatures and state that individuals must complete an application form 
or ``another CMS-approved election mechanism'' in order to meet 
enrollment requirements.
    In addition, we are proposing to correct an outdated cross-
reference at Sec.  422.60(c) (Election process). This paragraph 
currently references marketing rules formerly located at Sec.  422.80. 
These requirements were moved to Sec.  422.2262 (Review and 
distribution of marketing materials) in previous rulemaking.
2. Extending MA and Part D Program Disclosure Requirements to Section 
1876 Cost Contract Plans (Sec.  417.427)
    In our April 2010 final rule (75 FR 19783 through 19785), we 
exercised our authority under sections 1876(c)(3)(C) and 1876(i)(3)(D) 
of the Act to extend the MA marketing requirements to section 1876 cost 
contract plans. Under section 1876(c)(3)(C) of the Act, we may regulate 
marketing of plans authorized under section 1876 of the Act to ensure 
that marketing material is not misleading. Section 1876(i)(3)(D) of the 
Act gives the Secretary the authority to impose ``other terms and 
conditions'' under contracts authorized by the statute that the 
Secretary finds ``necessary and appropriate.'' As a result, since 
contract year 2010, cost plan contractors have been required to follow 
all marketing requirements specified in Subpart V of Part 422, with the 
exception of Sec.  422.2276, which permits an MA organization to 
develop marketing and informational materials specifically tailored to 
members of an employer group who are eligible for employer-sponsor 
benefits through the MA organization, as well as waives requirements to 
review such materials. As we noted in our April 2010 final rule (75 FR 
19785) extending MA marketing requirements to cost contracts, the 
statutory authority under section 1857(i)(1) of the Act, which permits 
the Secretary to waive certain requirements for employer group plans 
under the MA program, does not apply to cost plans.
    In extending the marketing requirements to cost contract plans in 
our April 2010 final rule, we neglected to extend the MA organization 
and Part D sponsor disclosure requirements, at Sec.  422.111 and Sec.  
423.128, respectively, to cost contract plans. We believe that 
extending these provisions would also be appropriate, given the close 
relationship between the marketing requirements in Subpart V of Parts 
422 and 423 and the disclosure requirements at Sec.  422.111 and Sec.  
423.128. These provisions require MA organizations and Part D sponsors 
to

[[Page 63057]]

disclose to enrollees, at the time of enrollment and annually 
thereafter (in the form of an annual notice of change/evidence of 
coverage, or ANOC/EOC mailing), certain detailed information about plan 
benefits, service area, provider and pharmacy access, grievance and 
appeal procedures, quality improvement programs, and disenrollment 
rights and responsibilities. They also require the provision of certain 
information and establish requirements with respect to: (1) the 
explanations of benefits notice; (2) customer service call centers; and 
(3) internet Web sites. Thus, these requirements are closely tied to 
the marketing requirements of Subpart V of Parts 422 and 423. In order 
to ensure that cost contract plan enrollees have all the information 
they need about their health care benefits, we believe that cost 
contract plans should also be subject to all the same disclosure 
requirements as MA organizations and Part D sponsors. Therefore, we 
propose to extend the disclosure requirements in Sec.  422.111 and 
Sec.  423.128 to cost contract plans by adding a new Sec.  417.427.
3. Clarification of, and Extension to Local Preferred Provider Plans, 
of Regional Preferred Provider Organization Plan Single Deductible 
Requirement (Sec.  422.101)
    Section 1858(b) of the Act provides that, to the extent RPPO plans 
use a deductible, any such deductible must be a single deductible, 
rather than separate deductibles for Parts A and Part B benefits. This 
single deductible may be applied differentially for in-network services 
and may be waived for preventive or other items and services. Our 
regulations at Sec.  422.101(d)(1) track the language in the statute 
closely. They require that RPPO plans, to the extent they apply a 
deductible, apply only a single deductible related to combined Medicare 
Part A and Part B services. They also allow the single deductible to be 
differential for specific in-network services and to be waived for 
preventive services or other items and services, at the plan's option. 
However, both the statute and our regulations are silent with respect 
to any deductible requirements for local preferred provider 
organization (LPPO) plans. Consequently, in practice, LPPO plans may 
have a variety of deductible designs, including separate in-network and 
out of network deductibles.
    We propose to make three changes to our regulations at Sec.  
422.101(d)(1) to both clarify current requirements with respect to the 
application of a single deductible and to level the playing field 
between LPPO and RPPO plans by extending the RPPO rules to LPPOs. 
Specifically, we propose clarifying the application of the differential 
of the single deductible for in-network services, and modifying our 
current regulations to take into account recent rulemaking under which 
MA plans must provide certain Medicare-covered preventive services at 
zero cost sharing. We propose to rely upon our authority at section 
1856(b)(1) of the Act to establish MA standards by regulation, and in 
section 1857(e)(1) of the Act to impose additional terms and conditions 
found necessary and appropriate, to extend the RPPO single deductible 
requirements by regulation to LPPOs. We believe that having the same 
rules for LPPOs and RPPOs supports transparency and comparability of 
options for beneficiaries when they evaluate and select plans for 
enrollment. In previous rulemaking, we have taken steps to align the 
plan design requirements for RPPOs and LPPOs. For example, in our April 
2010 final rule (76 FR 21507 through 21508) that made revisions to the 
MA and Part D programs for CY 2012, we extended the same maximum out-
of-pocket (MOOP) and catastrophic limits we had previously codified for 
LPPOs (75 FR 19709 through 19711) to RPPOs. In the interest of 
transparency, alignment in benefit design between RPPO and LPPO plans, 
and comparability for beneficiaries making health care coverage 
elections, we propose to extend to LPPOs the single deductible 
requirements at Sec.  422.101(d)(1). We would clarify the rules that 
would now apply to both LPPO and RPPO plans as set forth late in this 
section.
    As discussed previously, we propose to clarify at Sec.  
422.101(d)(1) that an LPPO or RPPO single deductible ``may be applied 
differentially for in-network services,'' as provided under section 
1858(b) of the Act. We currently furnish interpretive guidance and 
examples of the application of the single deductible in section 50.3 of 
Chapter 4 of the Medicare Managed Care Manual, ``Benefits and 
Beneficiary Protections'' http://www.cms.gov/manuals/downloads/mc86c04.pdf). However, we believe there may still be confusion with 
respect to how these requirements are articulated in our regulations 
and therefore propose amending Sec.  422.101(d)(1) to add paragraphs 
(i) through (iii) clarifying that an RPPO or LPPO that chooses to apply 
a deductible may both--
     Specify different deductibles for particular in-network 
Parts A and B services, provided that all of these service-specific 
deductibles are applied to the overall, single plan deductible; and
     Choose to exempt specific plan-covered items or services 
from the deductible--that is, the LPPO or RPPO may choose to always 
cover specific items or services at plan established cost-sharing 
levels whether or not the deductible has been met. For example, under 
our regulations, an LPPO or RPPO could establish a single combined 
deductible of $1,000 but limit the amount of the deductible that 
applies to in-network inpatient hospital services to $500, and the 
amount that applies to in-network physician services to $100. This RPPO 
could also exempt application of the deductible to particular 
services--for example, all home health services (in- and out-of-
network).
    In our April 2011 final rule (76 FR 21475 and 21476), we 
established a new requirement for MA organizations to provide certain 
in-network Medicare-covered preventive benefits at zero cost sharing. 
As provided under Sec.  422.100(k), MA organizations, including those 
offering PPO plans, may not charge deductibles, copayments, or 
coinsurance for in-network Medicare-covered preventive services 
specified in Sec.  410.152(l). We are therefore proposing to eliminate 
references to the option in both LPPO and RPPO plans to exclude 
preventive services from the single deductible at Sec.  422.101(d)(1), 
and are proposing adding a new paragraph Sec.  422.101(d)(1)(iv) to 
explicitly require LPPO and RPPO plans to exclude certain Medicare-
covered preventive services (as defined in Sec.  410.152(l)) from the 
single, combined deductible for each plan.
4. Technical Change to Private Fee-for-Service Plan Explanation of 
Benefits Requirements (Sec.  422.216)
    In our April 15, 2011 final rule (76 FR 21504 through 21507) 
implementing changes to the MA and Medicare Prescription Drug Programs 
for Contract Year 2012, we finalized regulations at Sec.  
422.111(b)(12) giving us the authority to require MA organizations to 
furnish directly to enrollees, in the manner specified by CMS and in a 
form easily understandable to such enrollees, a written explanation of 
benefits, when benefits are provided under this part. We expressed our 
intention to work with MA organizations, Part D sponsors, and 
beneficiary advocates to develop an EOB for Part C benefits and to test 
the EOB in CY 2012 through a small, voluntary pilot program. In our 
April 2011 final rule (76 FR 21505), we also stated our intention to 
finalize a model EOB in the future, based on the results

[[Page 63058]]

of the pilot program and to require all MA organizations to 
periodically send an EOB to enrollees for Part C benefits.
    We did not specifically discuss private fee-for-service (PFFS) 
plans in our April 2010 final rule because section 1852(k)(2)(c) of the 
Act and Sec.  422.216(d)(1) already require PFFS plans to provide an 
EOB to enrollees. Our current regulations at Sec.  422.216(d)(1) 
specify that PFFS plans must provide an appropriate EOB to plan 
enrollees for each claim filed by the enrollee or the provider that 
furnished the service. The explanation must include a clear statement 
of the enrollee's liability for deductibles, coinsurance, copayment, 
and balance billing. In the interest of consistency for beneficiaries 
and MA organizations, we propose to amend Sec.  422.216(d)(1) to state 
that the EOB requirement for PFFS plans will be consistent with the MA 
EOB requirements of Sec.  422.111(b)(12). The standard EOB that we are 
currently developing and piloting for most other MA plan types will 
include the same information as currently required for PFFS plans, as 
well as plan maximum out-of-pocket (MOOP) cost information. Adding this 
cross-reference to Sec.  422.216(d)(1) would provide consistency in EOB 
requirements as well as submission and approval of marketing materials 
across plan types. Since the pilot program is in progress during the CY 
2013 rule development cycle and we would not have finalized EOB 
requirements based on the pilot prior to publication of the CY 2013 
final rule, we propose that PFFS plans would continue to furnish EOBs 
as they have been, in accordance with Sec.  422.216(d)(1), until we 
finalize and implement EOB models for all MA plans.
5. Application Requirements for Special Needs Plans (Sec.  422.500, 
Sec.  422.501, Sec.  422.502, Sec.  422.641, and Sec.  422.660)
    Several of the regulations implementing section 1859(f) of the Act, 
including Sec.  422.101(f), Sec.  422.107, and Sec.  422.152(g), 
establish specific requirements for Special Needs Plans (SNPs). 
Specifically, Sec.  422.101(f) requires that MAOs offering a SNP 
implement an evidence-based model of care to be evaluated by NCQA as 
part of the SNP approval requirement; Sec.  422.107 requires that Dual 
Eligible SNPs (D-SNPs) have a contract with the State Medicaid Agencies 
in the States in which they operate; and Sec.  422.152(g) requires that 
SNPs conduct a quality improvement program. These SNP-specific 
requirements have been incorporated into the MA application for MAOs 
that wish to offer a SNP so that these MAOs can demonstrate that they 
meet CMS' SNP specific requirements and are capable of serving the 
vulnerable special needs individuals who enroll in SNPs.
    Current regulations on application procedures for MAOs, found at: 
Sec.  422.500, Sec.  422.501, and Sec.  422.502, are specific only to 
an applicant that is seeking to contract as a MAO offering an MA plan, 
and do not specify the rights and responsibilities of an applicant that 
seeks to offer a SNP. Additionally, regulations on Medicare Contract 
Determinations and Appeals, found at Sec.  422.641 and Sec.  422.644, 
also pertain only to applicants that have been determined unqualified 
to enter into an MA contract, and do not provide for appeal rights to 
applicants who have been determined unqualified to offer a SNP. Given 
that every applicant that seeks to offer a SNP engages in an intensive 
application process to demonstrate that it meets the requirements 
unique to SNPs in the same manner, according to the same processes and 
on the same timeline as applicants seeking to contract as MAOs, we 
believe it is important to provide SNP applicants with the same rights 
and responsibilities as applicants applying to contract as MAOs. We 
further believe it important to clarify that each applicant that has 
been determined unqualified to offer a SNP has the same right to an 
administrative review process to each applicant that has been 
determined unqualified to enter into an MA contract.
    Therefore, in accordance with section 1859(f) of the Act, we 
propose to broaden our regulations on Application Requirements and 
Evaluation and Determination Procedures to also apply to SNP 
applicants. Specifically, we propose to revise the language in Sec.  
422.500(a) and Sec.  422.501(a) to specify that the scope of these 
provisions include the specific application requirements for SNPs. We 
also propose to add paragraph (iii) to Sec.  422.501(c)(1) to specify 
the documentation SNP applicants must provide to complete an 
application. Furthermore, we propose to revise Sec.  422.502(a) and 
Sec.  422.502(c) to specify that our regulations on application 
evaluations and determinations apply to SNP applications. Additionally, 
in accordance with section 1859(f) of the Act, we propose to provide 
explicit appeal rights to each applicant that has been determined 
unqualified to offer a SNP for failure to meet the requirements in 
section 1859(f) of the Act and its implementing regulations. To do so, 
we propose adding a new paragraph (d) to Sec.  422.641, a new paragraph 
(a)(5) to Sec.  422.660, and a new paragraph (b)(5) to Sec.  422.660. 
We believe the proposed changes would ensure that only MA organizations 
capable of meeting the requirements to serve Special Needs Individuals 
are able to target their enrollment to this vulnerable population, 
while also affording each MA organization that has been determined 
unqualified to offer a SNP the opportunity to have this decision 
reviewed by an impartial hearing officer.
6. Timeline for Resubmitting Previously Denied MA Applications (Sec.  
422.501)
    Section 1857(a) of the Act requires organizations that wish to 
participate in the MA program enter into a contract with the Secretary, 
under which the organization agrees to comply with applicable MA 
program requirements and standards. In order for us to determine 
whether these program requirements and standards have been met, the 
organization must complete an application in the manner described at 
Subpart K of Part 422. Section 422.501 sets forth the required elements 
of such an application. Under Sec.  422.501(e), entities that are 
seeking to contract with the Secretary as an MA organization may not 
resubmit an application that has been denied by CMS for 4 months 
following CMS' denial. This 4-month prohibition on resubmitting a 
previously-denied application is obsolete and inconsistent with current 
agency practices. Presently, we operate on an annual application cycle 
whereby the established submission date for new applications (February 
of each year) occurs well after the specified date by which we deny the 
previous contract year's applications (May of the previous year). A 
literal reading of Sec.  422.501(e) means that an application that is 
denied in May of 1 year could be resubmitted as early as September (4 
months later), and well before the release of the application for the 
following contract year which typically occurs in December or January, 
in advance of the February submission deadline. In order to bring Sec.  
422.501 up to date, we propose revising paragraph (e) to clarify that 
every organization seeking to become an MA organization must wait until 
the application cycle for the following contract year to resubmit an 
application that has been denied in the current contract year's 
application cycle.

[[Page 63059]]

7. Clarification of Contract Requirements for First Tier and Downstream 
Entities (Sec.  422.504 and Sec.  423.505)
    The regulations at Sec.  422.504(i) and Sec.  423.505(i) require MA 
organizations and Part D sponsors to require all of the first tier, 
downstream, and related entities to which they have delegated the 
performance of certain Part C or D functions to agree to certain 
obligations. In particular, the regulations require sponsors to have 
``contracts or written arrangements'' that provide, for example: (1) 
For the delegated entity to carry out its contract in a manner 
consistent with the sponsor's Medicare contract obligations; (2) that 
the sponsor may revoke the contract if the sponsor determines that the 
delegated entity has not performed satisfactorily; and (3) that the 
sponsor on an ongoing basis monitors the performance of the delegated 
entity. We believed it was clear that the language of Sec.  422.504(i) 
and Sec.  423.505(i) required that all contracts governing the 
relationships among a sponsor and all of its delegated entities (that 
is, those between the sponsor and its first tier entity; those between 
the first tier entity and any downstream entity; and those between 
downstream entities) contain provisions specifically addressing each of 
the required elements stated in the respective paragraphs. That is, 
each contract was required to contain ``flow down'' clauses through 
which each delegated entity would become legally obligated to honor the 
provisions of Sec.  422.504(i) and Sec.  423.505(i).
    In the solicitations for applications for qualification of MA 
organizations and Part D sponsors, we instructed applicants that all 
contracts with delegated entities provided for our review must include 
language addressing all of the elements stated in Sec.  422.504(i) and 
Sec.  423.505(i). We took this position because: (1) We believed that 
the requirement was clearly stated in the regulation; and (2) as the 
sponsor cannot enforce a contract to which it is not a party (that is, 
it has no privity of contract with its downstream entities), the only 
way to give the provisions of Sec.  422.504(i) and Sec.  423.505(i) 
full effect is to require that each subcontract specifically describe 
the delegated entity's obligations to the sponsor.
    This interpretation was challenged in 2010 by an organization whose 
Part D sponsor qualification application was denied when we determined, 
among other things, that the contract between the applicant's first 
tier and downstream entities incorrectly made reference to the rights 
of the first tier entity, rather than the applicant, in the contract 
sections the applicant intended to meet the requirements of Sec.  
423.505(i). While the hearing officer upheld CMS' denial of the 
application, in the interest of providing transparency and clarity for 
the healthcare industry, we have decided to amend the regulation. The 
changes to the regulation will help future applicants avoid confusion 
about the requirements related to contracts with first tier and 
downstream entities, thus helping to streamline the application 
process.
    We believe that the most legally effective and direct way to ensure 
that the MAOs and Part D sponsors retain the necessary control and 
oversight over their delegated entities is by requiring all contracts 
among those entities to specifically reference each party's obligations 
to the sponsor, as enumerated in Sec.  422.504(i) and Sec.  423.505(i). 
Documents or ``written arrangements'' other than contracts can be 
ambiguous as to the nature of an obligation and who has agreed to 
perform it. They are unreliable tools for the protection of the rights 
of sponsors with respect to the performance of their Medicare 
obligations by their delegated entities. Assurances from delegated 
entities that they will provide necessary instructions to other 
downstream entities should the need arise are equally ineffective as 
they provide no evidence that the downstream entity could be compelled 
to follow such instructions. Therefore, we propose to make explicit 
that sponsors can fulfill the requirements of Sec.  422.504(i) and 
Sec.  423.505(i) only by providing evidence that the contract of every 
first tier or downstream entity contains provisions stating clearly 
that the parties have agreed to recognize and give effect to the 
sponsor's rights as listed in those subsections. Accordingly, we 
propose to delete the term ``written arrangements'' throughout Sec.  
422.504(i) and Sec.  423.505(i) and in each instance replace it with 
``each and every contract.''
8. Valid Prescriptions (Sec.  423.100 and Sec.  423.104)
    Since the inception of the Part D program, we have consistently 
maintained that drugs cannot be eligible for Part D coverage unless 
they are dispensed upon prescriptions that are valid under applicable 
State law. Using our authority in section 1860D-12(b)(3)(D), we propose 
to codify this policy to remove any doubt as to the appropriate source 
of law to consult when determining whether a prescription is valid.
    We propose, first, to add a definition of the term ``valid 
prescription'' to Sec.  423.100 to mean a ``prescription that complies 
with all applicable State law requirements constituting a valid 
prescription.'' This would make clear the need to consult State law to 
determine whether a prescription is valid.
    We would like to underscore that we do not intend to impose any 
State law requirements that do not otherwise apply. Rather, our 
proposal is that prescriptions must comply with applicable State law 
requirements; there is no need to comply with State law requirements to 
the extent that they do not apply. The two following examples 
illustrate our intent. Some States require that insulin syringes be 
dispensed upon prescription only, while other States do not. We would 
not require prescriptions for coverage of insulin syringes under Part D 
in those States that do not mandate prescriptions, but would require 
prescriptions for Part D coverage in States that require insulin be 
dispensed only upon prescription. The second example involves the 
Indian Health Care Improvement Act (IHCIA), which: (1) Provides that 
licensed health professionals employed by a tribal health program need 
not be licensed in the State in which the program performs services; 
and (2) exempts specified health facilities from obtaining State 
licenses provided they otherwise meet State law requirements. The 
proposed changes would not necessitate either that these licensed 
professionals obtain additional State licenses or that the specified 
facilities obtain initial State licenses.
    We also propose to add a new paragraph (h) to Sec.  423.104 stating 
that, for every Part D drug that requires a prescription, Part D 
sponsors may only provide benefits when that drug is ``dispensed upon a 
valid prescription''. In tandem with the proposed definition of the 
term valid prescription previously discussed, these changes would 
ensure that, for drugs and other items that must be prescribed 
(including biological products and some insulin and specified 
associated supplies), Part D coverage would be limited to those 
dispensed upon valid prescriptions under applicable State law.
    At this time, we are not aware of any State that requires that each 
electronic or written prescription include the prescriber's individual 
NPI in order for that prescription to be valid. But as is discussed in 
section II.E.11. of this proposed rule, Access to Covered Part D Drugs 
through Use of Standardized Technology and National Provider 
Identifiers, we believe that linking individual NPIs to specific 
prescriptions may provide law enforcement agencies

[[Page 63060]]

with information that could be essential to identifying and prosecuting 
the particular individuals committing or abetting fraud, waste, or 
abuse. Accordingly, we are taking this opportunity to encourage States 
to require that every prescription include the individual NPI of the 
prescriber in order to be valid under State law.
9. Medication Therapy Management Comprehensive Medication Reviews and 
Beneficiaries in LTC Settings (Sec.  423.153)
    Section 1860D-4(c)(2) of the Act requires medication therapy 
management (MTM) programs to be designed to ensure that, with respect 
to targeted beneficiaries described in section 1860D-4(c)(2)(A)(ii) of 
the Act, covered Part D drugs are appropriately used to optimize 
therapeutic outcomes through improved medication use and to reduce the 
risk of adverse events. Section 10328 of the Affordable Care Act 
further amended section 1860D-4(c)(2)(ii) of the Act to require 
prescription drug plan sponsors to perform at a minimum, an annual 
comprehensive medication review that may be furnished person-to-person 
or via telehealth technologies. The comprehensive medication review 
must include a review of the individual's medications, which may result 
in the creation of a recommended medication action plan with a written 
or printed summary of the results of the review provided to the 
targeted individual.
    In the November 2010 proposed rule, we proposed to revise the 
regulations at Sec.  423.153 to require plan sponsors to offer an 
annual comprehensive medical review (CMR) for targeted beneficiaries, 
which must include an interactive, person-to-person, or telehealth 
consultation performed by a pharmacist or other qualified provider. In 
response to the proposal, a commenter indicated that LTC residents with 
cognitive impairments may not have the ability to interact 
appropriately with providers or pharmacists during the CMR when using 
telehealth technologies. In the April 2011 final rule, we responded by 
agreeing that the use of telehealth technologies for conducting CMRs 
may not be appropriate for all beneficiaries. We also recognized and 
agreed that beneficiaries residing in LTC facilities who have cognitive 
impairments may be unable to participate in an interactive CMR. The 
current regulations at Sec.  423.153(d)(1)(vii)(B) reflect this 
awareness by exempting sponsors from offering interactive CMRs to 
targeted beneficiaries in LTC settings; however, the Act, as amended by 
section 10328 of the Affordable Care Act, does not provide a basis for 
distinguishing the offering of MTM services based on settings. Since 
the Affordable Care Act provision for MTM programs was not effective 
until 2013, in the April 2011 final rule, we indicated that we would 
undertake further rulemaking to clarify the requirements for MTM 
programs to offer CMRs to targeted beneficiaries in LTC settings.
    We generally agree with the commenter that it is likely that many 
patients in LTC settings may not be lucid enough to participate in the 
CMRs, nor might they be able to comprehend the resulting medication 
action plan that is provided as a result. However, we believe that 
consistent with section1860D-4(c)(2)(A)(i) all targeted beneficiaries 
in LTC settings must be offered the opportunity to participate in the 
annual CMR, since not all residents of LTC settings are cognitively 
impaired. We also believe that beneficiaries will still benefit from 
having a non-interactive CMR performed by a pharmacist or other 
qualified provider. Accordingly, we propose to revise the regulation at 
Sec.  423.153 to require sponsors to offer the annual CMR to targeted 
beneficiaries in an LTC facility, but when the beneficiary cannot 
accept the offer to participate, the pharmacist or other qualified 
provider must perform the medication review without the beneficiary. 
This provision would give the pharmacist or provider the ability to 
perform the medication review without the encumbrance of attempting to 
communicate with a patient who cannot make decisions regarding their 
medical needs. In such cases, we recommend that the pharmacist, or 
qualified provider, reach out to the beneficiary's prescriber, 
caregiver, or other authorized individual such as the residents' health 
care proxy or legal guardian, to take part in the beneficiary's CMR.
10. Employer Group Waiver Plans Requirement To Follow All Part D Rules 
Not Explicitly Waived (Sec.  423. 458)
    The Secretary has the statutory authority to waive or modify 
requirements that hinder the design of, the offering of, or the 
enrollment in, employer/union sponsored prescription drug plans (PDPs). 
The statutory authority, set forth in section 1860D-22(b) of the Act, 
provides that the provisions of section 1857(i) of the Act shall apply 
with respect to prescription drug plans in relation to employment-based 
retiree health coverage in a manner similar to the manner in which they 
apply to an MA plan in relation to employers, including authorizing the 
establishment of separate premium amounts for enrollees in a 
prescription drug plan by reason of such coverage and limitations on 
enrollment to Part D eligible individuals enrolled in such coverage.
    Under this statutory authority, in order to facilitate the offering 
of PDPs to employer/union group health plan sponsors, we may grant 
waivers and/or modifications to PDP sponsors. In general, each waiver 
or modification that we grant is conditioned upon the PDP sponsor 
meeting a set of defined circumstances and complying with a set of 
conditions. PDP sponsors offering EGWPs must comply with all Part D 
requirements unless those requirements have been specifically waived or 
modified.
    It has come to our attention that some EGWPs that provide Part D 
benefits to their members may not be affording their members 
appropriate Medicare beneficiary protections put in place by CMS 
regulations or guidance. Based upon discussions we have had with 
sponsors of EGWPs, some sponsors believe they are exempt from Part D 
requirements when providing Part D benefits because of the CMS waiver 
of the requirement that EGWP sponsors submit plan benefit packages for 
CMS review (see section 20.9 of Chapter 12 of the Medicare Prescription 
Drug Benefit Manual). Regardless of whether plan benefit packages are 
submitted for review, Part D sponsors of EGWPs must meet all Part D 
requirements (regulatory or legislative) unless such requirements are 
specifically waived or modified by CMS. Therefore, in order to 
emphasize the importance of providing EGWP members with beneficiary 
protections put in place by Part D requirements, we propose to revise 
Sec.  423.458 to clearly state that in the absence of a CMS approved 
waiver, all Part D requirements apply and in the case of a CMS approved 
waiver that modifies the application of Part D requirements, such 
requirements must be met as modified by the waiver.
11. Access to Covered Part D Drugs Through Use of Standardized 
Technology and National Provider Identifiers (Sec.  423.120)
    Every time a beneficiary fills a prescription under Medicare Part 
D, a sponsor must submit to CMS an electronic summary record called a 
prescription drug event (PDE). We require that Part D sponsors obtain 
and submit prescriber identifiers on PDE records. Every prescriber has 
at least one identifier that can be submitted. These identifiers 
include the National Provider Identifier (NPI), Drug Enforcement 
Administration (DEA)

[[Page 63061]]

number, uniform provider identification number (UPIN), or State license 
number. In a June 2010 report titled, ``Invalid Prescriber Identifiers 
on Medicare Part D Drug Claims,'' the OIG reported the findings of its 
review of prescriber identifiers on 2007 Part D PDE records. The OIG 
reported finding 18.4 million PDE records that contained 527,749 
invalid identifiers, including invalid NPIs, DEA registration numbers, 
and UPINs. Payments by Part D drug plans and enrollees for these PDE 
records totaled $1.2 billion.
    In light of this report, in the Announcement of Calendar Year (CY) 
2012 Medicare Advantage Capitation Rates and Medicare Advantage and 
Part D Payment Policies and Final Letter issued on April 4, 2011 (CY 
2012 Call Letter), we stated that we will continue in 2012 to permit 
Medicare Part D sponsors to report on PDE records any one of the above 
four identifiers. However, sponsors were instructed to ensure these 
identifiers are active and valid, but not to reject a pharmacy claim 
solely on the basis of an invalid prescriber identifier in order to not 
impede Medicare beneficiary access to needed medications. Thus, if an 
active and valid prescriber ID is not included on the Part D claim for 
CY 2012, either the sponsor, or the pharmacy if in accordance with the 
contractual terms of the network pharmacy agreement, must follow up 
retrospectively to acquire a valid ID before the PDE is submitted to 
CMS. The only exception to this guidance is that a foreign prescriber 
identifier cannot be validated, and therefore sponsors are directed to 
use the license number assigned by the foreign jurisdiction and report 
it on the PDE without validation (when prescriptions written by such 
prescribers are valid under applicable State law).
    We also signaled in the CY 2012 Call Letter that we were 
considering a regulatory change in the Part D program that would limit 
acceptable prescriber identifiers on claims and PDE records in 2013 to 
only the individual NPI. We indicated that since all practitioners who 
are authorized to prescribe Part D drugs under applicable U.S. State 
laws, which would include foreign prescribers whose prescriptions are 
valid in certain States, can acquire an individual NPI from HHS, we do 
not believe such a change would present a significant access barrier to 
needed Part D drugs for Medicare beneficiaries, as we explain more 
fully in this section of the proposed rule.
    As we noted in the CY 2012 Call Letter, the consistent use of a 
single validated identifier would enable us to provide better oversight 
over possible fraudulent activities. As a measurable indicator, we know 
that approximately 90 percent of Medicare Part D claims as reported in 
prescription drugs events (PDEs) currently submitted to CMS contain 
valid individual prescriber NPIs--a single identifier--even though CMS 
permits alternate prescriber IDs at this time. Thus, while the vast 
majority of Medicare Part D claims contain individual NPIs, 10 percent 
still do not, and CMS believes it is important for prescribers to be 
identified in a consistent, verifiable manner in order to conduct 
appropriate oversight of the program.
    More specifically, CMS, MEDICs, and oversight agencies would be 
able to more efficiently identify patterns of unusual prescribing that 
may be associated with fraudulent activities. When multiple prescriber 
identifiers, not to mention dummy or invalid identifiers, are used, 
authorities must take an additional step in their data analysis before 
even achieving a refined data set to use for further analysis to 
identify possible fraud. For example, having to cross-reference 
multiple databases that update on different schedules to be certain of 
the precise prescribers involved when multiple identifiers were used, 
would necessitate several additional steps of data pre-analysis and 
would also introduce potential errors in correctly matching prescribers 
among databases.
    Pursuant to HIPAA, HHS adopted the NPI as the standard for uniquely 
identifying health care providers in electronic transactions in the 
final rule published on January 23, 2004 (69 FR 3434), which was 
effective May 23, 2005, the date on which all health care providers, 
broadly defined in 45 CFR 160.103, became eligible for NPIs. By Mary 
23, 2008, all covered health care providers, defined in 45 CFR 162.402, 
must have obtained an NPI. Covered health care providers must disclose 
their NPI to other entities that need the NPI for use in standard 
transactions. Health care providers who are not covered entities are 
not required to obtain and disclose NPIs, but HHS encourages them to do 
so in the NPI final rule (69 FR 3445, January 23, 2004). Therefore, we 
believe there are very few prescribers who do not already have an 
individual NPI that they will disclose to Part D sponsors and/or their 
network pharmacies who need it for standard transactions, with the 
exception of foreign prescribers, whom we discuss in greater detail 
later in this section of the proposed rule. In addition, for those 
health care providers who do not already have an NPI, obtaining one is 
not a burdensome endeavor and is free of charge.
    In light of the foregoing, we propose to amend Sec.  423.120(c) to 
require, effective January 1, 2013, that Part D sponsors must submit an 
active and valid individual prescriber NPI on any PDE record submitted 
to CMS. This requirement would enhance our efforts to use claims data 
to identify fraud in furtherance of section 1893 of the Act, which 
established the Medicare Integrity Program and the Secretary's 
obligations with respect thereto. In addition to supporting CMS fraud 
and abuse activities, accurate data on prescriptions through the 
consistent use of valid NPIs on PDEs allows CMS to serve beneficiaries 
when using data in various initiatives whose purpose is to foster 
higher quality and more efficient coordination of care for individuals 
and groups of individuals.
    In this regard, we are also proposing to codify our current 
guidance that sponsors may not reject a pharmacy claim solely on the 
basis of the lack of a valid prescriber NPI, unless the issue can be 
resolved at point-of-sale, in order to not impede Medicare beneficiary 
access to needed medications. In other words, Part D sponsors may not 
reject pharmacy claims at point of sale without prompt follow-up to 
ensure that the claim has been resubmitted with a corrected and valid 
individual prescriber NPI, or new information has been otherwise 
received to correct the sponsor's information. Once a prescriber's NPI 
is obtained and used in a Part D claim, it will be in the Part D 
sponsor's and/or network pharmacy's patient information database for 
ongoing use, so any efforts needed to obtain corrected or missing NPIs 
will decrease over time.
    Our proposal means that if a correct and valid individual 
prescriber NPI is not included in the pharmacy claim, and it is 
determined that the prescriber does not have one and the claim is 
otherwise payable (for example, no indication of fraud, the 
prescription is not written by a provider excluded from the Medicare 
program, or no question regarding coverage), the sponsor must pay the 
claim, but cannot submit the PDE to CMS. Thus, if an active and valid 
prescriber ID is not included on the Part D claim, either the sponsor, 
or the pharmacy if in accordance with the contractual terms of the 
network pharmacy agreement, must follow up retrospectively to acquire 
an active and valid ID before the PDE may be submitted to CMS. As noted 
previously, we believe prescribers' NPIs will be widely available to 
Part D sponsors.

[[Page 63062]]

    We remind Part D sponsors that the requirements proposed here are 
on sponsors, whose responsibility it would be to be able to submit PDEs 
to CMS with individual prescriber NPIs. Therefore, we would expect that 
pharmacies will be permitted to correct any invalid data before payment 
for a claim is reversed whether or not a negotiated contract delegates 
any sponsor duties in this regard to the pharmacy. Additionally, we 
would expect that any requirement by a plan sponsor or its contracted 
PBM for a pharmacy to acquire and utilize its own automated validation 
capability will be arrived at only through mutual agreement, since such 
a requirement may be unaffordable for many smaller pharmacy 
organizations.
    With respect to requests for reimbursement submitted directly by 
Medicare beneficiaries, sponsors were instructed in the CY 2012 Call 
Letter that payment to a beneficiary could not be made dependent upon 
the sponsor's acquisition of the prescriber ID itself. We are proposing 
to codify this guidance, so that requests for reimbursement from 
Medicare beneficiaries are handled in the same manner by Part D 
sponsors as claims from pharmacies. Thus, if the sponsor is unable to 
retrospectively acquire an active and valid NPI in connection with a 
request for reimbursement submitted by a beneficiary, the sponsor may 
not seek recovery of the payment from the beneficiary solely on that 
basis, unless there is an indication of fraud.
    We have learned from stakeholders through a contractor to CMS that 
a key barrier to improved NPI reporting on Part D PDEs is that CMS does 
not currently require NPI reporting, and this proposal is thus 
responsive to those observations. In addition, some pharmacy 
representatives have offered that certain States require or accept 
other prescriber identifiers, which impede NPI reporting at the 
pharmacy level. It is unclear to us whether the latter observation was 
in the context of States as regulators of prescriptions or as payers of 
claims or both, and which alternate identifiers are required or 
accepted by these States. For instance, it is our understanding that 
the Drug Enforcement Administration (DEA) has discouraged the use of 
DEA numbers as prescriber identifiers, and not every prescriber has one 
anyway. Therefore, we seek specific comment on this issue to assist us 
in understanding and confirming any State-imposed barriers to the 
standardization of prescriber identifiers to the individual NPI for the 
Medicare Part D program.
    We considered exercising the discretionary authority granted 
pursuant to section 6405(c) of the Affordable Care Act so that 
prescriber NPIs would be required on Part D claims and PDEs. However, 
such an approach would require prescribers to also enroll in the 
Medicare program, which is a provider credentialing process. Thus, we 
are concerned that requiring such enrollment could impede Part D 
beneficiary access to needed medications, because the process involves 
more effort on the part of prescribers, who are not reimbursed for 
prescriptions, compared to obtaining an NPI, which involves a 3-page 
application form that primarily seeks only identifying and location 
information and is free of charge. While we know that prescribers will 
also be concerned about beneficiary access to medications, we believe 
virtually all prescribers who do not already have an NPI would actually 
obtain one, but we are not certain this would be the case with respect 
to Medicare enrollment.
    Regarding foreign prescribers, we understand that seven States 
(Arizona, Florida, Maine, North Dakota, Texas, Vermont, and Washington) 
currently permit pharmacies to fill prescriptions from foreign 
prescribers, to varying degrees. We believe that foreign prescribers 
may not have sufficient incentives in terms of patient base or 
familiarity with health care reimbursement in the United States, 
particularly with respect to the Medicare program and Part D benefits, 
to obtain individual NPIs. Thus, unlike our guidance in the CY 2012 
Call Letter, and unlike our proposal here with respect to non-foreign 
prescribers, we are not proposing to require drugs dispensed pursuant 
to prescriptions of foreign prescribers to be covered by Part D 
sponsors when the foreign prescribers decline to obtain an individual 
NPI if they do not already have one. The motivation for our individual 
prescriber NPI proposal stems in large part from our need for 
consistent data to conduct better oversight over possible fraudulent 
activities in the Medicare Part D program. Since the Federal government 
has no jurisdiction over foreign prescribers, we are proposing an 
exception to our proposal that the sponsor must pay a claim for a 
prescription, but cannot submit the PDE to CMS without an individual 
prescriber NPI, when the claim involves a foreign prescriber who does 
not have an individual NPI. Thus, a Part D sponsor could reject a claim 
involving a foreign prescriber who does not have an NPI at point-of-
sale.
    In fact, in light of our lack of jurisdiction over foreign 
prescribers and our motivation to conduct better oversight over 
possible fraudulent activities, we are considering whether this 
proposal with respect to foreign prescribers is broad enough and 
whether we should instead revise the Medicare Part D rules to prohibit 
sponsors from paying claims that involve prescriptions written by 
foreign prescribers, regardless of whether the foreign prescribers 
obtain an individual NPI. In other words, while certain prescriptions 
of foreign prescribers may be valid under some State laws, medications 
dispensed pursuant to prescriptions written by foreign prescribers 
would not be payable under the Medicare Part D program. Such a policy 
would also be consistent with the direction we have taken with respect 
to medical directors, that is, that Part D sponsors must employ a 
physician with a current and unrestricted license to practice medicine 
in a State, Territory, Commonwealth of the United States (that is, 
Puerto Rico), or the District of Columbia. We note that we are not 
making such a proposal at this time, but solicit specific comments on 
foreign prescribers and the Part D program.
    Section 423.120(c) sets forth the responsibilities of Part D plan 
sponsors with regard to the use of standardized technologies and 
compliance with the HIPAA standards at 45 CFR 162.1102. We are 
proposing to add a new paragraph (5)(A) which would require Part D plan 
sponsors to submit to CMS only PDE records that contain an active and 
valid individual prescriber NPI. However, new paragraph (c)(5)(B) would 
codify current guidance and require that a Part D plan sponsor not 
reject a claim from a network pharmacy solely on the basis that it does 
not contain an active and/or valid NPI unless the issue can be resolved 
at point-of-sale, there is an indication of fraud, or the claim 
involves a prescription written by a foreign prescriber (where 
permitted by State law). New paragraph (5)(C) would prohibit a Part D 
sponsor, with respect to requests for reimbursement submitted directly 
by Medicare beneficiaries, from making payment to the beneficiary 
dependent upon the sponsor's acquisition of the prescriber NPI and 
would further prohibit a Part D sponsor from seeking recovery of the 
payment from the beneficiary solely on the basis that the sponsor was 
unable to retrospectively acquire an active and valid individual 
prescriber NPI, unless there is an indication of fraud.

[[Page 63063]]

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 60-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 Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our 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 (ICRs):
    The following sections of this document contain paperwork burden 
but not all of them are subject to the ICRs under the PRA for reasons 
noted.

A. ICRs Regarding the Coverage Gap Discount Program (Sec.  423.100, 
Sec.  423.505(b), Sec.  423.1002, and Part 423 Subpart W)

    Section 1860D-14A (d)(6) of the Act exempts this section from PRA 
requirements.

B. ICRs Regarding the Inclusion of Benzodiazepines and Barbiturates as 
Part D Drugs (Sec.  423.100)

    In accordance with section 175 of MIPPA, which amended section 
1860D-2(e)(2)(A) of the Act, we propose to revise the definition of 
Part D drug at Sec.  423.100, to include barbiturates when used for the 
medical indications of epilepsy, cancer, or a chronic mental health 
disorder, and benzodiazepines, effective January 1, 2013.
    Under this proposal, Part D plan sponsors would be required to 
submit information in their formulary files indicating that they will 
cover these drugs. The collection of information burden on Part D 
sponsors imposed by this proposed regulation is negligible. Any burden 
associated with the requirement on sponsors relates to the required 
data entry in the formulary file software, and would be included in the 
PRA package entitled, Formulary Submission for Medicare Advantage (MA) 
Plans and Prescription Drug Plans (PDP) for Contract Year (CY) 2013 
(OCN 0938-0763).

C. ICRs Regarding Pharmacy Benefit Manager's Transparency Requirements 
(Sec.  423.514)

    Consistent with the statutory requirements, our proposal adds an 
additional data element to the DIR data reporting: Aggregate amount of 
the difference between the amount the Part D sponsor pays the PBM and 
the amount the PBM pays retail and mail order pharmacies. This data 
element is already available to plans as they are aware of the amounts 
they pay to their contracted PBMs and they currently report to CMS the 
amounts paid to retail and mail order pharmacies on the PDE records. We 
do not believe that our proposal imposes any additional substantive 
burden on Part D sponsors and PBMs, and, therefore, have not 
incorporated a burden increase.
    We are soliciting comment on whether any of the following data 
elements can be collected using existing data sources, thereby 
alleviating additional reporting burden on Part D sponsors and PBMs:
     Number of retail prescriptions.
     Number of mail order prescriptions.
     Number of prescriptions dispensed by independent 
pharmacies.
     Number of prescriptions dispensed by chain pharmacies.
     Number of prescriptions dispensed by supermarket 
pharmacies.
     Number of prescriptions dispensed by state-licensed mass 
merchandisers to the general public.

D. ICRs Regarding Good Cause and Reinstatement Into a Cost Plan (Sec.  
417.460)

    Our proposal in Sec.  417.460 extends reinstatement rights 
currently in place for members of MA and Part D plans to members of 
cost plans. Because good cause determinations would be made by CMS (or 
its contractor), we believe that this proposal would not impose any new 
information collection requirements.

E. ICRs Regarding Requiring MA Plans Issuance of Member ID Cards (Sec.  
422.111)

    Under our authority at section 1852(c) of the Act to require that 
MA organizations disclose MA plan information upon request, as well as 
our authority under section 1857(e) of the Act to specify additional 
contractual terms and conditions the Secretary may find necessary and 
appropriate, we propose to expressly require MA plans issue and re-
issue as necessary a MA member ID card that enables enrollees to access 
all covered services. While this requirement is subject to the PRA, we 
believe this burden is exempt as defined in 5 CFR 1320.3(b)(2). That 
is, the time, effort, and financial resources necessary to comply with 
the requirement would be incurred by MA organizations in the normal 
course of their business activities.

F. ICRs Regarding Determination of Actuarially Equivalent Creditable 
Prescription Drug Coverage (Sec.  423.56)

    Since we are proposing to amend a calculation at Sec.  423.56 to be 
consistent with the calculation of the actuarial value of qualified 
retiree prescription drug coverage found at Sec.  423.884(d) and to 
change the term ``CMS actuarial guidelines'' to read ``CMS guidelines'' 
to allow CMS further flexibility in issuing interpretive guidance on 
these requirements, there is no new information collection burden on 
organizations.

G. ICRs Regarding Who May File Part D Appeals With the Independent 
Review Entity (Sec.  423.600 and Sec.  423.602)

    The information collection requirements referenced in this section 
are exempt from the PRA in accordance with 5 CFR 1320.4(a)(2) which 
excludes collection activities during the conduct of administrative 
actions, such as redeterminations, reconsiderations, and/or appeals.

H. ICRs Regarding CMS Termination of Health Care Prepayment Plans 
(Sec.  417.801)

    This section does not impose any new information collection 
requirements.

I. ICRs Regarding Termination or Non-Renewal of a Medicare Contract 
Based on Consistent Poor Plan Performance Ratings (Sec.  422.510 and 
Sec.  423.509)

    It is our position that 3 years' worth of low-star ratings 
constitutes a sufficient basis for us to terminate a sponsor's Part C 
or D contract under our authority under section 1857(c)(2) of the Act. 
The regulation has been changed to reflect that.
    Regarding ICRs, we are not imposing any new reporting requirements. 
We are merely harnessing and putting to use internal data that has 
already been collected. We do not believe that our proposal would 
result in an additional burden; therefore, we have not incorporated a 
burden increase.

[[Page 63064]]

J. ICRs Regarding Denial of Applications Submitted by Part C and D 
Sponsors With a Past Contract Termination or CMS-Initiated Non-Renewal 
(Sec.  422.502 and Sec.  423.503)

    We have modified the past performance review period described in 
Sec.  422.502(b) and Sec.  423.503(b) (by adding new paragraphs at 
Sec.  422.502(b)(3) and at Sec.  423.503(b)(3) as well as Sec.  
422.502(b)(4) and at Sec.  423.503(b)(4)) to include among the factors 
that may support a CMS denial of a contract application those CMS-
initiated terminations or non-renewals that became effective within the 
38 months preceding the submission of a new application.
    We are not imposing any new reporting requirements. We are merely 
further refining our intended approach to using past performance in 
making application determinations. We do not believe that our proposal 
would result in an additional burden; therefore, we have not 
incorporated a burden increase.

K. ICRs Regarding New Benefit Flexibility for Fully Integrated Dual 
Eligible Special Needs Plans (FIDE SNPs) (Sec.  422.102)

    Under proposed Sec.  422.102(e) we would allow certain FIDE SNPs 
participating in the Medicare-Medicaid Integration Initiative, the 
flexibility to offer supplemental benefits beyond those that we allow 
for all other MA plans. We would review each qualified SNP's proposed 
supplemental benefit offerings as part of our review of plan bids, and 
we would approve additional supplemental benefit offerings for these 
qualified SNPs as we deem necessary. The burden associated with this 
proposed requirement is the time and effort necessary for SNPs to 
submit their benefit designs, including cost-sharing amounts, via the 
PBP software. While this proposed requirement is subject to the PRA, 
the burden associated with it is currently approved under OCN 0938-0763 
with a March 31, 2012 expiration date.

L. ICRs Regarding Clarifying Payment to Providers in Instances of 
Hospital-Acquired Conditions (HACs) (Sec.  422.504)

    We propose to require MAOs provide in their contracts with 
hospitals that payments for Part A hospital services will be reduced 
for serious events that could be prevented through evidence-based 
guidelines, in accordance with the HACs and POA policy that is 
currently required for hospitals paid under the Original Medicare IPPS. 
We believe that plans already have some operational systems in place to 
facilitate implementation of the requirement. For example, MAOs are 
already required to pay non-contract provider hospitals the amount that 
they would receive for services under original Medicare, including any 
applicable reductions for HACs. Also, beginning January 3, 2012, MA 
plans would be required to collect and submit encounter data for each 
item and service provided to MA enrollees in accordance with risk 
adjustment policies required in Sec.  422.310(d). This information is 
collected using the HIPAA 5010, which already in use by hospital 
providers for FFS claims and contains fields for POA indicator 
reporting. While this proposed requirement is subject to the PRA, the 
diagnosis, POA indicator information, and other claims information are 
already collected as part of the encounter data collection process, and 
this burden is currently approved under OCN 0938-1054.
    Additionally, we believe that hospitals will already be familiar 
with POA reporting and would not require additional education. 
Therefore, the burden associated with this provision would be the time 
and effort necessary for MA plans to modify their claims processing to 
recognize the POA indicators, if they do not already do so, and to 
adjust payment to contracted hospitals for the HAC events accordingly. 
Plans usually update their claims processing systems regularly for 
changes such as, payment logic for new national and local coverage 
determinations, updating HCPCS code information, and other changes to 
their payment calculations. Therefore, we believe this burden is exempt 
from the PRA as defined in 5 CFR 1320.3(b)(2), because the time, 
effort, and financial resources necessary to comply with this 
requirement would be incurred by plans in the normal course of their 
business activities.

M. ICRs Regarding Clarifying Coverage of Durable Medical Equipment 
(Sec.  422.101(a) and Sec.  422.112(a))

    Under Sec.  422.100(l) we propose to permit MA plans to limit 
coverage of DME to specific manufacturers' products or brands. 
Furthermore, in order to ensure that MA enrollees have adequate access 
to their DME benefits, our proposed regulatory changes establish 
requirements with respect to access, midyear changes to preferred DME 
items and supplies, appeals, and disclosure of DME coverage limitations 
to enrollees. The burden associated with this requirement is the time 
and effort necessary for MA organizations to submit their benefit 
designs via the PBP software. While this requirement is subject to the 
PRA, the burden associated with it is currently approved under OCN 
0938-0763. With respect to disclosing DME coverage limitations, this 
requirement is captured in the burden associated with the annual notice 
of coverage/evidence of coverage which must be completed at the time of 
the beneficiary's enrollment and at least annually thereafter. The MA 
program disclosure requirement is at Sec.  422.111 and the burden 
associated with it is currently approved under OCN 0938-0753.

N. ICRs Regarding Broker and Agent Requirements (Sec.  422.2274 and 
Sec.  423.2274)

    At Sec.  422.2274 and Sec.  423.2274, we are proposing that plans 
can choose any agent/broker compensation amount at or below the fair 
market value amount annually. We require MA organizations to submit 
and/or update and attest to their compensation amount (or range) in the 
HPMS. This web-based system in HPMS allows new plans to submit 
information and, for existing plans, automatically updates, based on 
changes in MA payment rates, organization compensation information. We 
are proposing to allow plans to annually adjust their base compensation 
rates to reflect fair market value. Plans would continue to be required 
to annually submit and attest to this information to CMS through HPMS. 
While this proposed requirement is subject to the PRA, it does not 
impose any new information collection requirement on plans. The burden 
associated with the proposed requirement currently approved under OMB 
control number (OCN) 0938-0753.

O. ICRs Regarding the Establishment and Application of Daily Cost-
Sharing Rate as Part of Drug Utilization Management and Fraud, Abuse 
and Waste Control Program (Sec.  423.153)

    In accordance with section 1860D-4(c) of the Act, we propose 
revising Sec.  423.153 at paragraph (b)(4) to provide that a Medicare 
Part D sponsor's drug utilization management program must establish and 
apply a daily cost-sharing rate to a prescription presented by an 
enrollee at a network pharmacy for a covered Part D generic or brand 
drug that is dispensed for a supply of less than 30 days. Under this 
proposal, the enrollee and his or her prescriber generally would decide 
if a medication supply of less than 30 days would be appropriate, and 
if so, the cost-sharing for the medication would be prorated by the 
Part D sponsor based on the days supply dispensed.

[[Page 63065]]

    The collection of information burden on Part D sponsors imposed by 
this proposed regulation is negligible. Any burden associated with this 
proposal on sponsors related to the required data entry in the PBP 
software would be included in the revised PRA package entitled Plan 
Benefit Package (PBP) and Formulary Submission for Medicare Advantage 
(MA) Plans and Prescription Drug Plans (PDP) for Contract Year (CY) 
2013 (OCN 0938-0763). Since obtaining a supply of a medication for less 
than 30 days is optional for the enrollee and his or her prescriber, 
there is no collection of information burden imposed by these proposed 
regulations on either Part Medicare D enrollees or their prescribers.

P. ICRs Regarding Technical Corrections to Enrollment Provisions (Sec.  
417.422, Sec.  417.432, Sec.  422.60, and Sec.  423.56)

    At Sec.  417.422, Sec.  417.432, Sec.  422.60, and Sec.  423.56 we 
are proposing technical changes that correct cross-references that 
should have been updated in previous rulemaking. These proposals do not 
establish any new rules or requirements for cost or Part D plans. They 
merely update regulatory cross-references that were overlooked in 
previous rulemaking. As a result, this proposal does not impose any new 
information collection requirements.

Q. ICRs Regarding Applying MA and Part D Disclosure Requirements to 
Cost Contract Plans (Sec.  417.427)

    We are proposing to extend the disclosure requirements in Sec.  
422.111 and Sec.  423.128 to cost contract plans. Our regulations at 
Sec.  422.111 and Sec.  423.128 require MA organizations and Part D 
sponsors to disclose to enrollees, at the time of enrollment and 
annually thereafter (in the form of an annual notice of change/evidence 
of coverage, or ANOC/EOC mailing), certain detailed information about 
plan benefits, service area, provider and pharmacy access, grievance 
and appeal procedures, quality improvement programs, and disenrollment 
rights and responsibilities. Sections 422.111 and 423.128 also require 
the provision of certain information about requests and establish 
requirements with respect to dissemination of explanations of benefits, 
customer service call centers, and Internet websites.
    The burden associated with this requirement is the time and effort 
associated with completing an ANOC/EOC at the time of a beneficiary's 
enrollment and at least annually thereafter, as specified in Sec.  
422.111(a)(2) of the MA program regulations and Sec.  423.128(a)(3) of 
the Part D program regulations. For each entity, we estimate that it 
will take 12 hours to develop and submit the required information. This 
includes 1 hour to read CMS' published instructions, 6 hours to 
generate the standardized document, 1 hour to submit the materials, 4 
hours to print and disclose to the beneficiaries. This package is 
currently approved under OCN 0938-0753 with a November 30, 2011 
expiration date to account for this burden as detailed in Table 6. We 
estimate 20 cost contractors would be affected annually by this 
requirement, resulting in a total annual burden of 240 hours. We 
estimate, based on a hourly wage of $29.88 (hourly salary for a 
compliance officer/cost estimator according to Bureau of Labor 
Statistics) plus 48 percent for fringe benefits and overhead, that this 
requirement will result in a total annual burden of $10,613 (240 burden 
hours multiplied by $44.22 per hour). We are revising the PRA package 
currently approved under OCN 0938-0753 with a November 30, 2011.

R. ICRs Regarding Clarification of and Extension of Regional Preferred 
Provider Organization Plan Single Deductible Requirements to Local 
Preferred Provider Plans (Sec.  422.101)

    This section does not impose any new information collection 
requirements.

S. ICRs Regarding Modifying the Current PFFS Plan Explanation of 
Benefits (EOB) Requirements (Sec.  422.216(d)(1))

    Section 1852(k)(2)(c) of the Act and Sec.  422.216(d)(1) require 
PFFS plans to provide an EOB to enrollees for each claim filed by the 
enrollee or the provider that furnished the service. In the interest of 
consistency for beneficiaries and MA organizations, we propose to amend 
Sec.  422.216(d)(1) to state that the EOB requirement for PFFS plans 
would be consistent with the MA EOB requirements of Sec.  
422.111(b)(12). The standard EOB that we are currently developing and 
piloting in CY 2012 for most other MA plan types would include the same 
information as currently required for PFFS plans, as well as plan MOOP 
cost limit information. Adding this cross-reference to Sec.  
422.216(d)(1) would provide consistency in EOB requirements and 
submission and approval of marketing materials across plan types. Since 
the pilot program is in progress and we would not have finalized EOB 
requirements during this rulemaking, we propose that PFFS plans would 
continue to furnish EOBs as they have been, in accordance with Sec.  
422.216(d)(1), until we finalize and implement EOB models for all MA 
plans. While this proposed requirement is subject to the PRA, the 
information collection has been approved under CMS form CMS-10349, the 
information collection approved for the Part C EOB at Sec.  
422.111(b)(12).

T. ICRs Regarding Authority To Deny SNP Applications and SNPs Appeal 
Rights (Sec.  422.500)

    Our proposed amendments to Sec.  422.500(a), Sec.  422.501(a), 
Sec.  422.501(c)(1)(iii), Sec.  422.502(a) and Sec.  422.502(c) would 
give CMS the authority to deny SNP applications that fail to 
demonstrate that the MAO meets the requirements of Sec.  422.2, Sec.  
422.4(a)(1)(iv); Sec.  422.101(f); Sec.  422.107, if applicable; and 
Sec.  422.152(g). The burden associated with this requirement is the 
time and effort required by an MAO offering a SNP to complete a SNP 
application. While these requirements are subject to the PRA, we do not 
expect the burden to change from the existing burden estimate, as 
currently approved under OCN 0938-0935, with a January 31, 2012 
expiration date.
    Our proposed amendments to Sec.  422.641 provide the procedures for 
making and reviewing certain contract determinations while our proposed 
amendments to Sec.  422.660 establish the circumstances under which an 
MA organization may request a hearing before a CMS hearing officer. We 
are proposing these amendments to our existing regulations so that each 
applicant that we determine not to be qualified to offer a SNP has the 
right to request an administrative review of CMS' determination. The 
burden associated with these requirements is the time and effort of the 
SNP applicant in developing and presenting their case to a CMS hearing 
official, and ultimately the CMS Administrator, to demonstrate that 
they qualify to offer a SNP.
    We expect the burden associated with this provision to be incurred 
by the small number of SNP applicants that we expect would receive 
application denials, and the small percentage of denied applicants that 
we expect would appeal our denial decision. We estimate that the total 
annual hourly burden for developing and presenting a case for us to 
review is equal to the number of organizations likely to request an 
appeal multiplied by the number of hours for the attorneys of each 
appealing SNP to research, draft, submit, and present their arguments 
to CMS. Based on SNP application denials from contract year 2012, out 
of the approximately 400 SNP applications received, 8 of these 
applications were denied and all 8 denials were appealed. In contract 
year 2011, 8 SNP applications were denied

[[Page 63066]]

and none of these denials were appealed. Taking the average of the last 
2 years, we estimate that approximately 4 denied applicants would 
appeal the denial of the SNP application. We further estimate that one 
attorney working for 8 hours could complete the documentation to be 
submitted for each application denial, resulting in a total burden 
estimate of 32 hours (8 hours x 4 SNP application denials = 32 hours). 
The estimated annual cost to an MA organization that has been denied to 
offer a SNP associated with this provision (assuming an attorney 
billing $250 per hour) is $8,000 (32 hours x $250 = $8,000) as detailed 
in Table 6. We are revising the PRA package currently approved under 
OCN 0938-0935, with a January 31, 2012 expiration date, to account for 
this burden.

U. ICRs Regarding Timeline for Resubmitting Previously Denied MA 
Applications (Sec.  422.501)

    This section does not impose any new information collection 
requirements.

V. ICRs Regarding Contract Requirements for First Tier and Downstream 
Entities (Sec.  422.504 and Sec.  423.505)

    We proposed to modify the regulations at Sec.  422.504(i) and Sec.  
423.505(i) by deleting the term ``written arrangements'' throughout and 
in each instance replacing it with ``each and every contract,'' thus 
ensuring that the MAOs and Part D sponsors retain the necessary control 
and oversight over their delegated entities by requiring that all 
contracts among those entities specifically reference their obligations 
to the sponsor.
    Regarding ICRs, we are not imposing any new reporting requirements. 
We are simply clarifying a requirement with which MAOs and Part D 
sponsors must already comply concerning their contracts with first tier 
and downstream entities. We do not believe that our proposal would 
result in an additional burden; therefore, we have not incorporated a 
burden increase in the PRA section.

W. ICRs Regarding Valid Prescriptions (Sec.  423.100 and Sec.  423.104)

    Our proposed definition of ``valid prescription'' in Sec.  423.100 
and requirement of a ``valid prescription'' in Sec.  423.104 would 
codify our longstanding policy of deferring to State laws when 
applicable to determine whether a prescription is valid such that the 
drug may be eligible for Part D coverage. We are not imposing any new 
reporting requirements. Prescribers and pharmacies remain subject to 
applicable State laws regarding valid prescriptions. Furthermore, 
private contracts regarding Part D drugs (such as those between MAOs or 
Part D sponsors and pharmacies) likely also require valid 
prescriptions. Given these realities, we do not believe that codifying 
our practice of limiting Part D coverage to items dispensed upon 
applicable State law requirements for valid prescriptions could 
necessitate any more action than that already required on the part of 
stakeholders--be they prescribers taking steps to ensure they write 
valid prescriptions or MAOs, Part D sponsors, PBMs, or pharmacies 
trying to ascertain that prescriptions are valid.

X. ICRs Regarding Medication Therapy Management Comprehensive 
Medication Reviews and Beneficiaries in LTC Settings (Sec.  423.153)

    Our current regulation requires that the comprehensive medication 
review must include an interactive, person-to-person, or telehealth 
consultation performed by a pharmacist or other qualified provider, and 
may result in a recommended medication action plan. The proposed change 
to Sec.  423.153 permits the sponsor to allow the pharmacist or other 
qualified provider to perform the medication review without the 
beneficiary in cases when the beneficiary is in an LTC facility and 
cannot accept the sponsor's offer of a comprehensive medication review.
    The burden associated with the comprehensive medication reviews was 
reflected in the approved 0938-0964 which is due to expire September 
30, 2012. We believe this minor revision to Sec.  423.153(d)(1)(vii)(B) 
has no effect on that burden estimate.

Y. ICRs Regarding Coordination of Part D Plans with Other Prescription 
Drug Coverage (Sec.  423.458)

    Since we are proposing a change to simply strengthen our policy 
regarding EGWP sponsor responsibilities, there is no additional burden 
on the part of sponsors or other entities associated with the proposed 
regulation. This section does not impose any new information 
collection.

Z. ICRs Regarding Access to Covered Part D Drugs Through Use of 
Standardized Technology and National Provider Identifiers (Sec.  
423.120)

    Currently, Part D sponsors report any one of four prescriber 
identifiers on PDE records. However, the inconsistent use of 
identifiers that have not been validated has hindered efforts to combat 
fraud and abuse. Therefore, we proposed to require that effective 
January 1, 2013, Part D sponsors must include valid, individual 
prescriber NPIs as identifiers in PDEs submitted to CMS. Since Part D 
sponsors are already required to include a prescriber identifier on 
Part D PDEs submitted to CMS, there is no new collection of information 
burden imposed by this proposed regulation. Furthermore, this proposed 
regulation does not impose any new collection of information burden on 
Medicare beneficiaries enrolled in the Part D program with respect to 
requests for reimbursement they may submit.

                                         Table 6--Estimated Fiscal Year Reporting Recordkeeping and Cost Burdens
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Hourly
                                                                                 Burden per     Total    labor  cost     Total        Total       Total
          Regulation  sections                OMB       Respondents   Responses   response     annual         of      labor cost    capital/      cost
                                          Control no.                              (hours)     burden     reporting       ($)      maintenance     ($)
                                                                                               (hours)       ($)                    costs ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   417.427..........................    0938-0753            20          20          12         240        44.22      10,613           N/A    10,613
Sec.   422.500..........................    0938-0935             4           4           8          32       250.00       8,000           N/A     8,000
                                         ---------------------------------------------------------------------------------------------------------------
    Total...............................  ...........            24          24  ..........         272  ...........  ..........           N/A    18,613
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage data from
  the U.S. Department of Labor, Bureau of Labor Statistics.


[[Page 63067]]

Additional Information Collection Requirements
    This proposed rule imposes collection of information requirements 
as outlined in the regulation text and specified above. However, this 
proposed rule also makes reference to associated information collection 
requirements that are not discussed in the regulation text contained in 
this document. The following is a discussion of these information 
collection requirements.
Independence of LTC Consultant Pharmacists
    As discussed in Section II.B.5, we are considering changes which 
would require each LTC facility to employ or obtain the services of a 
licensed pharmacist to provide consultation on all aspects of pharmacy 
services in a facility. These changes would further require an LTC 
facility to employ or directly or indirectly contract with a licensed 
pharmacist who was independent of the pharmacy located in or under 
contract with the facility.
    The changes under consideration would require an independent 
licensed pharmacist to review the drug regimen of each resident at 
least once a month and define independent to mean that the licensed 
pharmacist must not be employed, under contract, or otherwise 
affiliated with the facility's pharmacy, a pharmaceutical manufacturer 
or distributor, or any affiliate of these entities
    LTC facilities commonly contract with an LTC pharmacy for 
consultant pharmacist services. Because the changes under consideration 
would specifically require LTC facilities to employ or directly or 
indirectly contract with licensed pharmacists who are independent of 
the pharmacy located in or under contract with the facility, any other 
pharmacy-related organization, or pharmaceutical manufacturer or 
distributor, each facility would need to engage an independent 
consultant pharmacist. The annual burden associated with this 
requirement would relate to developing and executing contracts with 
independent consultant pharmacists. Although all 15,713 LTC facilities 
would need to provide the services of an independent consultant 
pharmacist, factors, such as the existence of nursing home chains and 
group purchasing organizations (GPOs), would affect the actual number 
of entities that would be engaged in the process of employing or 
contracting the LTC consultant pharmacists. For purposes of determining 
the fiscal year burden, we will assume that LTC facilities would have a 
contract with one consultant pharmacist.
    Based on our experience with LTC facilities, we expect that 
complying with the requirement under consideration would primarily 
require the involvement of the LTC facility's administrator with the 
assistance of a facility physician, and the director of nursing. We 
expect also that the facility's attorney would assist with drafting the 
contract and reviewing any revisions. We estimate that complying with 
this requirement would require 16 annual burden hours for each facility 
to execute a contract with an independent consultant pharmacist at an 
estimated cost of $1,466. Thus, although we expect that many contracts 
will be negotiated by the facilities' parent organizations or through 
GPOs, were each LTC facility to directly engage in the contracting 
process, it would require 251,408 burden hours per fiscal year (16 
annual burden hours per LTC facility x 15,713 LTC facilities) for all 
15,713 LTC facilities to comply with this requirement at an estimated 
cost of $23,035,258 ($1,466 estimated cost per LTC facility x 15,713 
LTC facilities).
    After the first fiscal year, we estimate that continued compliance 
with the requirement under consideration would require 2 annual burden 
hours (1 hour each for the facility administrator and attorney) for 
each facility to review the contract and, if necessary execute an 
updated contract with an independent consultant pharmacist at an 
estimated cost of $192. Thus, it would require 31,426 burden hours per 
fiscal year (2 annual burden hours per LTC facility x 15,713 LTC 
facilities) for all 15,713 LTC facilities to comply with this 
requirement at an estimated cost of $3,016,896 ($192 estimated cost per 
LTC facility x 15,713 LTC facilities).
    In addition to the LTC facility costs associated with the direct 
compensation of consultant pharmacists, facilities with existing LTC 
pharmacy contracts that include the pharmacy's provision of consultant 
pharmacist services would potentially need to amend these contracts. 
However, we do not know and cannot estimate the number of LTC 
facilities that would need to amend their LTC pharmacy contracts. We 
believe that our consultant pharmacist contracting cost estimates are 
likely to be sufficiently overstated to cover these costs as well.
    Although it is currently common for LTC consultant pharmacists to 
perform approximately 60 drug regimen reviews in a day, we suspect that 
this rate may be too high given our expectation that independent 
consultant pharmacists would conduct more thorough drug regimen 
reviews, monitoring for drug side effects and effectiveness. Therefore, 
in the preamble, we are soliciting public comment on best practices 
related to the conduct of drug regimen reviews.
    Pending public response to our request for comment, we have 
estimated the following costs related to the requirement under 
consideration based on an average time of 20 minutes to perform a drug 
regimen review. Based on the total number of LTC facilities (15,713) 
and total beds (1.5 million), the average LTC facility would have 100 
residents. Therefore, we anticipate that it would take each facility's 
consultant pharmacist 2,000 minutes (20 minutes per review x 100 
residents) or 33 hours each month to perform the residents' drug 
regimen reviews. Using an hourly rate of $51.53 for independent 
consultant pharmacist that includes fringe benefits, we estimate 396 
(33 hours per month x 12) annual burden hours per facility at an annual 
cost of $20,406 (396 x $51.53) for a total cost of $320,637,592 
($20,406 per facility x 15,713 LTC facilities). (Hourly rate according 
to May 2010 wage data from Bureau of Labor Statistics estimates from 
the Occupational Employment Statistics Survey).

V. Regulatory Impact Analysis

A. Statement of Need

    The purpose of this final rule is to make revisions to the MA Part 
C and Part D programs to implement provisions specified in the statute 
and make other changes to the regulations based on our continued 
experience in the administration of the Parts C and Part D programs. 
The proposed rule would--(1) implement statutory provisions; (2) 
strengthen beneficiary protections; (3) exclude plan participants that 
perform poorly; (4) improve program efficiencies; and (5) clarify 
program requirements.

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995, Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999), and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and

[[Page 63068]]

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). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, of 
reducing costs, of harmonizing rules, and of promoting flexibility. A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
This proposed rule has been designated an ``economically significant'' 
rule under section 3(f)(1) of Executive Order 12866. Accordingly, we 
have prepared a regulatory impact analysis that details the anticipated 
effects (costs, savings, and expected benefits), and alternatives 
considered by proposed requirement. Details regarding the burden 
associated with the requirements of this proposed regulation are 
located in the Collection of Information section of this rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, 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. The great majority of hospitals and most 
other health care providers and suppliers are small entities, either by 
being nonprofit organizations or by meeting the SBA definition of a 
small business (having revenues of less than $7.0 million to $34.5 
million in any 1 year). Individuals and States are not included in the 
definition of a small entity. This proposed rule does not directly 
impact, health care providers, suppliers and State governments since it 
amends the current requirements for MA organizations and Parts D 
sponsors, and adds requirements for pharmaceutical manufacturers 
consistent with the statutory requirements of the new manufacturer drug 
discount program. Although this proposed rule requires MA organizations 
to extend the IPPS policy regarding non-payment for HACs from non-
contracted provider hospitals to contracted and hospitals, we do not 
expect this requirement to significantly impact total hospital costs or 
revenues. Part D sponsors and pharmaceutical manufacturers, the 
entities that will largely be affected by the provisions of this rule, 
are not generally considered small business entities. Part D sponsors 
must meet minimum enrollment requirements (5,000 in urban areas and 
1,500 in nonurban areas) and because of the revenue from such 
enrollments, these entities are generally above the revenue threshold 
required for analysis under the RFA. We determined that there were very 
few Part D sponsors that fell below the size thresholds for ``'small'' 
businesses established by the Small Business Administration (SBA). 
Currently, the SBA size threshold is $7 million in total annual 
receipts for health insurers (North American Industry Classification 
System, or NAICS, Code 524114) and CMS has confirmed that most Part D 
sponsors have Part D receipts above the $7 million threshold. We also 
determined that there were very few pharmaceutical manufacturers 
participating in the Medicare prescription program drug discount 
program that fell below the size thresholds for small businesses using 
the SBA size threshold of 750 employees (NAICS code 32541). Total jobs 
data for manufacturers support the fact that the pharmaceutical 
industry is dominated by large businesses.
    While the NAICS lists 1,555 business in the United States that 
represent the pharmaceutical and medicine manufacturing industry only 
237 brand manufacturers currently participate in the program, and most 
exceed the 750 employee threshold. The majority of smaller 
manufacturers are either generic or specialty pharmaceutical 
manufacturers that are unlikely to participate in the Medicare discount 
program. We reviewed some of the employment statistics for the smaller 
specialty pharmaceutical manufacturers that participate in the discount 
program, and found that the number of employees typically exceeds the 
SBA threshold.
    While a very small rural plan could fall below the threshold, we do 
not believe that there are more than a handful of such plans. 
Similarly, manufacturers are not normally considered small business 
entities. However, there are manufacturers that have minimal revenue, 
primarily because their emphasis is on the development of products 
rather than sales or they are not focused on large markets. A fraction 
of MA organizations and sponsors are considered small businesses 
because of their non-profit status. HHS uses as its measure of 
significant economic impact on a substantial number of small entities, 
a change in revenue of more than 3 to 5 percent. We do not believe that 
this threshold would be reached by the proposed requirements in this 
proposed rule because this proposed rule would have minimal impact on 
small entities. Therefore, an analysis for the RFA will not be prepared 
because the Secretary has determined that this proposed rule would not 
have a significant impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare an 
analysis if a rule may have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must conform 
to the provisions of section 603 of the RFA. For purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital that 
is located outside of a metropolitan statistical area and has fewer 
than 100 beds. We are not preparing an analysis for section 1102(b) of 
the Act because the Secretary has determined that this proposed rule 
would not have a significant impact on the operations of a substantial 
number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector of $100 million in 1995 dollars, updated annually for 
inflation. In 2011, that threshold is approximately $136 million. This 
proposed rule is expected to reach this spending threshold.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Based on CMS Office of the Actuary estimates, we do not 
believe that this proposed rule imposes substantial direct requirement 
costs on State and local governments, preempts State law, or otherwise 
has Federalism implications.
    In Table 7, we estimate total costs to the Federal government, 
States, Part D sponsors, MA organizations, pharmaceutical manufacturers 
and other private sector entities as a result of various provisions of 
this proposed rule. The provisions with the most significant costs 
(costs greater than $100 million from FY 2013 through FY 2018) in this 
proposed rule are the Medicare Coverage Gap Discount Program, and the 
Inclusion of Benzodiazepines, and Barbiturates as Covered Part D drugs.
    The total costs of the Medicare Coverage Discount Program for the 
periods beginning FY 2013 through FY 2018 are estimated to be $32.7 
billion, and the total costs of the inclusion of benzodiazepines and 
barbiturates is $1.9 billion.

[[Page 63069]]

    Tables 8, 9, and 10 detail the costs by cost-bearing entity. 
Specifically, Table 8 describes costs and savings to the Federal 
government, Table 9 describes costs to MA organizations and/or PDP 
sponsors and third party entities, Table 10 describes costs to 
pharmaceutical manufacturers, Table 11 describes savings to States, and 
Table 12 describes costs to LTC facilities.
    As a result, when considering both the costs and savings associated 
with the provisions of this proposed rule, we conclude with a net cost 
estimate of $32.5 billion for FY 2013 through FY 2018.

C. Anticipated Effects

1. Medicare Coverage Gap Discount Program
a. Required Payment of Gap Discounts
    We believe there is a cost to manufacturers to pay the discounts to 
beneficiaries who are in the coverage gap. We estimate that aggregate 
discounts from pharmaceutical manufacturers would be $31.3 billion 
during FY 2013 through FY 2018. That estimate is based upon historical 
patterns of claims dispensed during the coverage gap and the dollar 
amount of those claims trended forward by enrollment growth and price 
increase.
    In addition, the Discount Program will increase Medicare costs by 
additional use of more expensive brand name drugs because of improved 
beneficiary adherence as a result of the lower out-of-pocket costs and 
increased use of brand name rather than generic drugs. We estimate that 
the Discount Program would increase Medicare costs by $1.4 billion 
during FY 2013 through FY 2018.
    Note that these estimated Medicare costs do not include costs 
related to the ACA provisions that revised the Part D benefit structure 
to close the coverage gap. These provisions revised the coinsurance 
amount and reduced the growth in the annual out-of-pocket threshold. 
The costs to the Federal government associated with these provisions, 
as scored in the April 15, 2011 final rule (76 FR 21432), were 
estimated to total $3.6 billion during FY 2011 through FY 2016.
b. Other Manufacturer Costs
    We believe that manufacturers would incur costs as a result of the 
Agreement's requirements for manufacturers. For example, manufacturers 
would need to analyze and pay quarterly invoices, notify CMS about 
labeler code changes, notify FDA about NDC changes and maintain records 
for potential audit by CMS. However, manufacturers already have 
existing systems and perform these activities as a result of their 
experience with Medicaid and Tricare. We estimate that analyzing and 
paying the quarterly invoices would require 0.5 FTEs. We estimate that 
the cost to manufacturers would be $73,380 (annual salary for a 
Pharmaceutical Manufacturing Compliance Officer according to Bureau of 
Labor Statistics) plus 48 percent for fringe benefits and overhead x 
0.5 FTE x 240 manufacturers x 6 years for a total cost of $78.2 million 
over the complete period FY 2013 through FY 2018.
2. Payment Processes for Part D Sponsors
    We believe that there would be a minor impact on Part D sponsors 
from receiving and reconciling estimated rebates advanced by CMS with 
subsequent payments by manufacturers. Part D sponsors have experience 
and existing systems to accept and reconcile funds with CMS, including 
a LICS subsidy and a reinsurance subsidy. We believe that there would 
be a marginal increase in resources focused on accounting and computer 
system operations and maintenance. We estimate that the additional 
resources required would be 0.5 FTEs, on average, per Part D sponsor. 
We estimate that the total cost to Part D sponsors would be $63,360 
(annual salary for insurance carrier compliance officer according to 
Bureau of Labor Statistics) plus 48 percent for fringe benefits and 
overhead x 0.5 FTE per Part D sponsor x 270 Part D sponsors x 6 years 
for a total of $76.0 million over the complete period FY 2013 through 
FY 2018.
3. Provision of Applicable Discounts for Applicable Drugs for 
Applicable Beneficiaries
    We believe that there would be a minor impact on Part D sponsors as 
a result of this provision. Part D sponsors already implement systems 
to adjudicate pharmacy claims. With the exception of calculating and 
accounting for gap discounts, those systems include similar, if not 
identical, tasks as the requirements in the proposed rule. Further, we 
believe that the carrying cost of distributing the discounts to 
beneficiaries would be offset by prospective payments from us as 
previously described.
    We believe that the additional workload associated with this 
proposed regulation would involve modifications to existing computer 
programming to account for the differences between the Discount-related 
systems and the traditional Part D program. In addition, we expect 
there to be additional reporting and recordkeeping. We estimate that 
Part D sponsors would increase resources the equivalent of 0.5 
additional FTEs to accomplish these tasks. We estimate the cost to Part 
D sponsors would be at $63,360 (annual salary for insurance carrier 
compliance officer according to Bureau of Labor Statistics) plus 48 
percent for fringe benefits and overhead x 270 Part D sponsors x 6 
years for a total cost of $76.0 million over the complete period FY 
2013 through FY 2018.
4. Manufacturer Discount Payment Audits and Dispute Resolution
    The proposed regulation would permit manufacturers to undertake 
audits of the data used to calculate quarterly invoices and to dispute 
the invoices themselves. We believe that the activities necessary for 
disputing invoices and conducting data audits would be accommodated by 
the additional resources that we earlier linked to the Medicare 
Coverage Gap Agreement. Therefore, we are not estimating an additional 
economic impact to manufacturers from this provision.
5. Beneficiary Dispute Resolution
    The proposed rule would create the right of beneficiaries to 
dispute gap discounts using preexisting Part D sponsor beneficiary 
dispute resolution mechanisms. We believe that the potential increase 
in beneficiary dispute volume would not require additional Part D 
sponsor resources. We have made significant efforts to ensure that the 
data used to calculate the discounts are accurate. We believe that the 
accuracy of the data, coupled with the automation of the dispute 
calculation, would result in accurate discounts that would generate few 
beneficiary appeals and would be accommodated within existing 
resources.
6. Compliance Monitoring and Civil Money Penalties
    The proposed regulations would allow CMS to impose penalties if a 
manufacturer does not pay gap discounts that are owed according to the 
terms of the Agreement. We believe that, in general, manufacturers 
would pay the quarterly invoice according to the terms within the 
agreement and other guidance. Therefore, we believe that there would be 
few instances where manufacturers are levied a civil money penalty. We 
assume that monetary penalties could be levied on approximately 0.03 
percent of discounts with $9.64 million of penalties over the period FY 
2013 through FY 2018.

[[Page 63070]]

7. Termination of Discount Program Agreement for Part D Program
    We believe that we would rarely find it necessary to terminate an 
agreement. Upon termination, covered Part D drugs of the manufacturers 
would be excluded from the Part D program and the manufacturer 
potentially would suffer a significant reduction in revenue. We have 
experience with similar programs and believe that the potential 
reduction of revenue would encourage manufacturers to resolve our 
concerns. This would tend to avoid terminations and the associated 
fiscal effects. Consequently, we estimate that there would be no 
material costs to manufactures due to potential agreement terminations 
during the period FYs 2013 through 2018.
8. Inclusion of Benzodiazepines and Barbiturates as Part D Drugs
    In accordance with section 175 of the MIPPA that amended section 
1860D-2(e)(2)(A) of the Act (42 U.S.C. 1395w-102(e)(2)(A)),we propose 
to revise the definition of Part D drug at Sec.  423.100, by including 
barbiturates when used for the medical indications of epilepsy, cancer, 
or a chronic mental health disorder, and benzodiazepines class drugs as 
covered under Part D effective January 1, 2013.
    Under this proposal, Part D plan sponsors would be required to 
submit information in their formulary files indicating that they would 
cover these drugs. We estimate that the cost to the Federal Government 
to be $1.9 billion over the 2013 through 2018 period. We assumed the 
cost of benzodiazepines and barbiturates as 0.4 percent of total drug 
cost, and that the inclusion of both these drugs would increase 
proportional to the current overall Part D level.
9. Good Cause and Reinstatement Into a Cost Plan
    At Sec.  417.460(c)(3) we are proposing to allow beneficiaries 
enrolled in cost plans the opportunity to be reinstated into their plan 
if they can establish good cause for nonpayment of cost-sharing. CMS 
(or its contractor) would evaluate cost-plan enrollees' requests for 
reinstatement based on good cause and make the ``good cause'' 
determinations. We anticipate that there would be no cost impact on 
cost plans.
10. Determination of Actuarially Equivalent Creditable Prescription 
Drug Coverage
    We are proposing to clarify our regulations at Sec.  423.884 to 
ensure that other insurers or organizations providing creditable 
prescription drug coverage to their members calculate the actuarial 
value in accordance with the RDS actuarial value calculation. Since 
this requirement is a clarification to an existing calculation already 
being utilized by organizations providing creditable coverage, we 
anticipate that there would be no cost impact on these organizations.
11. Who May File Part D Appeals With the Independent Review Entity
    The proposed changes to Sec.  423.600 would allow prescribing 
physicians and other prescribers to request IRE reconsiderations on 
behalf of Part D plan enrollees and the corresponding proposed change 
to Sec.  423.602(a) specifies that the IRE must also notify the 
prescribing physician or other prescriber of its decision when the 
prescriber makes the request on behalf of the enrollee. The 
quantifiable burden associated with these provisions is the cost of 
processing Part D reconsiderations (which includes providing notice of 
the decision). While this provision is expected to increase the number 
of reconsiderations processed and completed by the IRE, it would also 
significantly reduce the number of appeals that have to be dismissed 
because the AOR form would no longer be required in cases when a 
prescriber is requesting a reconsideration on behalf of an enrollee. In 
2010, the IRE dismissed approximately 2,500 reconsideration requests 
submitted by prescribers due to the lack of a properly executed AOR 
form, at an estimated cost of $215,000. We estimate the cost of issuing 
a substantive reconsideration decision in cases that are currently 
subject to dismissal to be $540,000, assuming an estimated cost of 
about $216 per case. However, this added cost would be offset by the 
reduction in dismissed cases, for an estimated annual cost increase of 
$325,000 ($540,000 less $215,000).
    We also believe that eliminating the AOR requirement will result in 
about a 15 percent increase in the total number of IRE reconsiderations 
requests. Based on the percentage of plan level appeals currently filed 
by prescribers on behalf of enrollees (approximately 85 percent), we 
estimate an increase in prescriber-initiated IRE appeals, which would 
be partially offset by a decrease in enrollee-initiated IRE appeals. 
Based on 2010 reconsideration data, we estimate there would be an 
additional 3,000 reconsideration requests, with an estimated increase 
in annual costs of about $648,000. The estimated increased cost 
associated with issuing substantive reconsideration decisions (as 
opposed to dismissals) and the increased cost associated with the 
increase in the reconsideration workload, results in total estimated 
annual increased costs to the Federal government of approximately 
$973,000 or a total of $5.84 million from FYs 2013 through 2018.
    The increase in reconsideration requests would result in additional 
costs to plan sponsors based upon additional time and effort to 
assemble case files and documentation associated with these requests 
and shipping to the IRE for processing. We assume a cost of 
approximately $25.00 per reconsideration to print, copy, compile, and 
mail the case file to the IRE. This results in an additional annual 
cost to plan sponsors of approximately $75,000, or a total of $450,000 
from FYs 2013 through 2018.
12. Termination for Continued Lower-Than-3-Star-Ratings
    We have the authority under section 1857(c)(2) of the Act to 
terminate contracts with a MAOs or a Medicare PDP sponsor when we 
determine that the organization has failed substantially to carry out 
the contract or is carrying out the contract in a manner inconsistent 
with the efficient and effective administration of the Part C or D 
program. We believe that a sponsor that fails to achieve a good rating 
for 3 consecutive years has demonstrated consistently that it is unable 
or unwilling to take corrective action to improve its Part C or D 
performance. Therefore, we are proposing to revise the regulation to 
reflect our position that 3 years' worth of low star ratings 
constitutes a sufficient basis for CMS to terminate a sponsor's Part C 
or D contract.
    The changes made to this regulation would not result in any 
additional costs. MA organizations and Part D sponsors already incur 
costs as a result of needing to be in compliance with existing 
regulatory requirements. This change merely clarifies our authority to 
use sustained poor performance rating results (which are already being 
produced annually) as a basis for termination.
13. Exclusion for Sponsors of Contracts Terminated for Cause
    We have modified the past performance review period described in 
Sec.  422.502(b) and Sec.  423.503(b) (by adding new paragraphs at 
Sec.  422.502(b)(3) and at Sec.  423.503(b)(3) as well as Sec.  
422.502(b)(4) and at Sec.  423.503(b)(4)) to include among the factors 
that may support a CMS denial of a contract application those CMS-
initiated terminations or non-renewals that became effective within

[[Page 63071]]

the 38 months preceding the submission of a new application.
    The changes made to this regulation would not result in any 
additional costs since we are not imposing any new requirements. 
Rather, we are merely extending the period of time that we can review 
for purposes of application qualification determinations when an 
organization has had a prior contract terminated or non-renewed by CMS. 
Thus, there are no additional costs involved.
14. Independence of Long Term Care Consultant Pharmacists
    LTC facilities commonly contract with an LTC pharmacy for 
consultant pharmacist services, and it is our understanding that LTC 
pharmacies typically have been providing consultant pharmacists to LTC 
facilities at rates below fair market value. Because the changes we are 
considering would specifically require LTC facilities to employ or 
directly or indirectly contract with independent licensed pharmacists, 
each facility would need to engage an independent consultant pharmacist 
at market rates. We understand that the subsidized rates are typically 
$1 per resident per month for the conduct of each resident's drug 
regimen review. The cost for the independent consultant pharmacists, 
therefore, would be substantially higher that the subsidized rates LTC 
facilities currently pay to the LTC pharmacies. As a result, the cost 
associated with complying with the requirement under consideration 
would be the increase in cost for the LTC facility to pay the full 
market value for an independent consultant pharmacist.
    However, the increased costs would be offset by the amount 
currently paid by the 15,713 facilities to the LTC pharmacies for the 
provision of consultant pharmacist services. Based on the rate of $1 
per resident per month and 1.5 million beds, we estimate the total 
annual savings to be $18 million.
    We estimate that although all 15,713 LTC facilities would need to 
provide the services of an independent consultant pharmacist, factors, 
such as the existence of nursing home chains and GPOs, would affect the 
actual number of entities that would be engaged in the process of 
employing or contracting the LTC consultant pharmacists. For purposes 
of determining the impact, we will assume that LTC facilities would 
have a contract with one consultant pharmacist.
    Based on our experience with LTC facilities, we expect that 
complying with the requirement under consideration would primarily 
require the involvement of the LTC facility's administrator with the 
assistance of a facility physician, and the director of nursing. We 
expect also that the facility's attorney would assist with drafting the 
contract and reviewing any revisions. We estimate that complying with 
this requirement would require 16 annual burden hours for each facility 
to execute a contract with an independent consultant pharmacist at an 
estimated cost of $1,466. Thus, although we expect that many contracts 
would be negotiated by the facilities' parent organizations or through 
GPOs, were each LTC facility to directly engage in the contracting 
process, it would require 251,408 burden hours per fiscal year (16 
annual burden hours per LTC facility x 15,713 LTC facilities) for all 
15,713 LTC facilities to comply with the requirement under 
consideration at an estimated cost of $23,035,258 ($1,466 estimated 
cost per LTC facility x 15,713 LTC facilities).
    After the first fiscal year, we estimate that continued compliance 
with this requirement would require 2 annual burden hours (1 hour each 
for the facility administrator and attorney) for each facility to 
review the contract and, if necessary execute an updated contract with 
an independent consultant pharmacist at an estimated cost of $192. 
Thus, it would require 31,426 burden hours per fiscal year (2 annual 
burden hours per LTC facility x 15,713 LTC facilities) for all 15,713 
LTC facilities at an estimated cost of $3,016,896 ($192 estimated cost 
per LTC facility x 15,713 LTC facilities).
    In addition to the LTC facility costs associated with the direct 
compensation of consultant pharmacists, facilities with existing LTC 
pharmacy contracts that include the pharmacy's provision of consultant 
pharmacist services would potentially need to amend these contracts. 
However, we do not know and cannot estimate the number of LTC 
facilities that would need to amend their LTC pharmacy contracts. 
However, we believe that our consultant pharmacist contracting cost 
estimates are likely to be sufficiently overstated to cover these costs 
as well.
    Further, although it is currently common for LTC consultant 
pharmacists to perform approximately 60 drug regimen reviews in a day, 
we suspect that this rate may be too high given our expectation that 
independent consultant pharmacists would conduct more thorough drug 
regimen reviews, monitoring for drug side effects and effectiveness. 
Therefore, earlier in the preamble, we solicited public comment on best 
practices related to the conduct of drug regimen reviews.
    Pending public response to our request for comment, we have 
estimated the following costs related to the requirement under 
consideration based on an average time of 20 minutes to perform a drug 
regimen review. Based on the total number of LTC facilities (15,713) 
and total beds (1.5 million), the average LTC facility would have 100 
residents. Therefore, we anticipate that it would take each facility's 
consultant pharmacist 2,000 minutes (20 minutes per review x 100 
residents) or 33 hours each month to perform the residents' drug 
regimen reviews. Using an hourly rate of $51.53 for independent 
consultant pharmacist that includes fringe benefits, we estimate 396 
(33 hours per month x 12) annual burden hours per facility at an annual 
cost of $20,406 (396 x $51.53) for a total cost of $320,639,478 
($20,406 per facility x 15,713 LTC facilities). (Hourly rate according 
to May 2010 wage data from Bureau of Labor Statistics estimates from 
the Occupational Employment Statistics Services). As noted previously, 
we expect that this amount would be reduced by the $18 million that the 
facilities would no longer pay to the LTC pharmacies for consultant 
pharmacist services. We recognize the limitations associated with these 
estimates and solicit public comment on more detailed costs for this 
provision.
    We expect that requiring independent consultant pharmacists would 
result in more appropriate prescribing, leading to reductions in all of 
the following: absolute number of drugs prescribed; unnecessary use of 
high price, brand name drugs; and use of antipsychotics and other drugs 
that should be generally avoided among older LTC residents. One outcome 
of the use of fewer drugs and fewer brand name drugs would be lower 
drugs costs for LTC residents. For residents whose cost of care is 
covered by Medicare Part A per diem payments, the lower drug costs 
would result in direct savings to the facility. For LTC residents whose 
drug costs are covered by Medicaid, the savings from lower drug costs 
would accrue to the Medicaid programs for drug costs reimbursed on a 
fee-for-service basis and/or to the facility if drug costs are included 
in the LTC per diem payment. For those residents enrolled in a Medicare 
Part D prescription drug plan, the savings would be realized by the 
Part D sponsors and Medicare.
    To estimate the potential savings, we used a comparison of the 
risk-adjusted costs for community and LTC beneficiaries. We found that 
LTC beneficiary costs were 23 percent higher than the costs for 
beneficiaries in the community. We believe some of the cost

[[Page 63072]]

differential is related to factors, such as differences in dosage 
forms, which would contribute to legitimately higher LTC costs. 
However, we estimate that 50 percent of the difference in cost is 
attributable to the overprescribing and unnecessary use of higher cost, 
brand name drugs resulting from the contractual arrangements between 
the LTC pharmacies and pharmaceutical manufacturers. An analysis of 
2008 Part D data shows LTC beneficiary drug costs in that year averaged 
$4520.\9\ Using the 23 percent differential, this average would be $845 
higher than the average cost for a community beneficiary. We expect the 
regulatory change we are considering would reduce LTC costs by 50 
percent of the differential or $423 per beneficiary per year for a 
total reduction of $360,396,000 ($423 per beneficiary x 852,000 LTC 
beneficiaries).
---------------------------------------------------------------------------

    \9\ CMS, March 18, 2010 Part D Data Symposium Presentations, LTC 
Pharmacy Price Index. Accessed online at: http://www.cms.gov/PrescriptionDrugCovGenIn/09_ProgramReports.asp#TopOfPage on June 
17, 2010.
---------------------------------------------------------------------------

    Lower LTC drug costs would result in lower LTC pharmacy revenues. 
We would likewise expect that the LTC pharmacies would experience a 
reduction in rebates from the pharmaceutical manufacturers; however, we 
cannot quantify this loss.
    We believe it is reasonable to presume that the incentives present 
in non-independent relationships with pharmacies can influence 
prescribing practices. As a result, we expect the independent drug 
regimen reviews under consideration would decrease unnecessary use of 
antipsychotic drugs and, therefore, save lives, although we cannot 
quantify the number of lives that would be saved. In addition to saving 
lives, we expect more appropriate prescribing and improved medication 
oversight would lead to fewer hospitalizations and treatments for drug-
related problems (such as confusion, balance disorders and 
complications caused by pharmacological interactions), as well as 
improved quality of life for LTC facility residents. We cannot quantify 
the number of hospitalizations or treatments that would be averted or 
the associated savings that would be realized. However, we believe the 
benefits to Medicare, Medicaid, other payers, and the LTC residents 
that would result from these changes are clear. Although the specific 
information to reliably quantify the all the costs and savings 
associated with this requirement is not available, we believe the 
benefits and costs are offsetting. Again, given the uncertainty 
surrounding these estimates, we are soliciting comment regarding more 
detailed information on the costs and savings associated with this 
provision.
15. New Benefit Flexibility for Fully Integrated Dual Eligible Special 
Needs Plans (FIDE SNPs) (Sec.  422.102)
    We estimate that our proposal proposed at Sec.  422.102(e) to allow 
certain FIDE SNPs to offer additional supplemental benefits beyond 
those other MA plans--subject to CMS approval, and as specified 
annually by CMS--will result in aggregate savings to both States and 
the Federal government of approximately $19.0 million between FY 2013 
and FY 2018. These Federal and State savings estimates are based on our 
assumption that based on the eligibility standards CMS establishes 
approximately 34 FIDE SNPs will qualify to participate in this 
initiative, representing a total of approximately 115,000 enrollees in 
2011.
    While we acknowledge that Sec.  1859(f)(1) of the Act extends the 
authority for all SNPs, including FIDE SNPs, to restrict enrollment to 
special needs individuals through the 2013 MA contract year, to be 
consistent with our scoring of other provisions in this rule, we report 
the impact of this proposed provision from FYs 2013 through 2018. We 
note that this impact may vary depending on Congressional action.
    We are basing our analysis of the potential cost impacts of the 
FIDE SNP benefit flexibility initiative on our experience with HMO 
integrated care model demonstrations for Medicare-Medicaid dual 
eligibles and on our observation of enrollment increases that resulted 
from these demonstrations.
    From 1997 through 2006, we conducted demonstrations that pooled 
Medicare and Medicaid payments to the Minnesota Senior Health Options 
(MSHO), Wisconsin Health Partnership Program (WPP) and Massachusetts 
Senior Care Organization (MSCO) HMOs to deliver Medicare and Medicaid-
covered primary, acute, and long-term care services to voluntarily 
enrolled elderly dual eligibles. The plans participating in the 
demonstration were responsible for delivering Medicaid community care 
services, developing managed care coordination models, and arranging 
for the delivery of the full range of acute and long-term care services 
and developing care coordination models--characteristics that we 
believe are essential for the provision of comprehensive, integrated 
care. The demonstrations also used Medicaid funds to cover community 
care services (for example, personal care, homemaking, transportation, 
personal emergency response systems, home-delivered meals, adaptive 
equipment, home modifications, incontinence supplies, and respite care 
that support independence and avoid inappropriate 
institutionalization). At the start of the demonstrations, concern that 
marketing additional supplemental benefit offerings would attract a 
significant number of new enrollees-led us to cap enrollment in the 
demonstration. However, States in the demonstration never came close to 
reaching this enrollment cap. The only major enrollment increase was in 
2006, when the demonstration programs were converted to D-SNPs, and the 
D-SNPs were able to passively enroll enrollees.
    The MSHO program, the most extensively analyzed integrated care 
demonstration program for dual eligible enrollees, received a Medicare 
and a Medicaid capitation payment for the provision of acute and long-
term care services, but reimbursed providers directly for nursing home 
services on a fee-for-service basis. Therefore, Federal and State 
government costs under this capitated program were not related to 
actual utilization, with the exception of fee-for-service nursing home 
costs. Utilization data from the MSHO demonstration show that MSHO 
enrollees had significantly fewer short-stay nursing home admissions as 
compared to dual eligibles both within and outside of the MSHO 
demonstration area.
    We believe that plans have incentives to generate higher rebates to 
fund these extra supplemental benefits and have assumed that they will 
reduce their margins by 1 percent. Taking into account expected growth 
rates in bids and benchmarks, and projected rebate shares, we expect 
that FIDE SNPs will reduce their bids by 2 percent on average--1 
percent medical and 1 percent margin--as a result of our proposed 
changes to Sec.  422.102(e). Applying the per-capita savings to the 
projected FIDE SNP enrollment, we project $17.1 million savings to the 
Medicare program for the 6-year period between FY 2013 and FY 2018.
    We also believe that, when delivered in a prudent manner, the 
additional benefits that FIDE SNPs would be permitted to offer under 
our proposed changes to Sec.  422.102(e) would allow some high risk 
patients to remain in their home and out of institutions. We estimate 
that the new flexibility will generate modest reductions in Medicare 
program expenditures, due to a 1 percent savings of Medicare-covered 
medical benefits stemming from these enhanced flexibilities.
    Additionally, based on the evidence from the studies in 
Massachusetts,

[[Page 63073]]

Minnesota, and Wisconsin demonstrations, we believe that the 
flexibility for FIDE SNPs to offer additional supplemental benefits 
will modestly impact nursing facility utilization rates and Medicaid 
costs. Our assumptions regarding the effectiveness of these services in 
preventing nursing facility entry are consistent with assumptions we 
have used for other legislative and regulatory proposals aimed at 
reducing nursing facility use and encouraging home and community based 
long term care. Applying the per-capita savings to the projected FIDE 
SNP enrollment, we estimate Federal and State Medicaid savings of $1.79 
million for the 6-year period between FY 2013 and FY 2018 as a result 
of this proposed provision.
16. Application of the Medicare Hospital-Acquired Conditions and 
Present on Admission Indicator Policy to MA Organizations (Sec.  
422.504)
    We propose to require MAOs to reduce reimbursements for Part A 
hospital services for contract provider hospitals for serious events 
that could be prevented through evidence-based guidelines, in 
accordance with the HACs and POA policy that is currently required for 
hospitals paid under the Original Medicare IPPS. MA organizations are 
already required to pay non-contract provider hospitals the amount that 
they would receive for services under Original Medicare, including any 
applicable reductions for HACs. This requirement is outlined in the MA 
Payment Guide for Out of Network Payments. We do not believe that 
extending this requirement would impose any new administrative burden 
on MA plans because plans already have the operational systems in place 
that would facilitate implementation of the requirement. In the FY 2009 
IPPS final rule, published August 19, 2008 (73 FR 49075), we estimated 
a total savings for Medicare of $21 million for FYs 2009, 2010 and 
2011, and $22 million for FYs 2012 and 2013. These estimates already 
included savings that would accrue to the MA program as a result of 
reductions in annual MA payment rates. We do not expect a significant 
amount of new savings to be derived as a result of the requirements 
under this proposed rule. Therefore, we estimate that this provision 
would have negligible impact.
17. Establishment and Application of Daily Cost-Sharing Rate as Part of 
Drug Utilization Management and Fraud, Abuse, and Waste Control Program
    A previous review of 2009 PDE data suggested that just under 32 
percent of approximately 78.6 million first fills for maintenance 
medications are not refilled by Medicare Part D enrollees. Maintenance 
medications are used for diseases when the duration of therapy can 
reasonably be expected to exceed 1 year, and we assume for purposes of 
estimating savings to the Part D program that the lack of refills 
indicates the prescribed medications were discontinued. The estimated 
total cost of these discontinued medications was approximately $1.6 
billion (70 percent for brands and 30 percent for generics). However, 
this analysis did not distinguish between community and institutional 
settings. Thus, to determine the costs of discontinued medications in 
community settings only, we reduced the total costs by approximately13 
percent in accordance with CMS data on gross drug costs in the Part D 
program in 2009 in the community and institutional settings to remove a 
proportion representing long-term care expenses. Consequently, the 
adjusted total estimated cost of 2009 community-based discontinued 
first fills of chronic medications was estimated at roughly $1.4 
billion.
    In light of the cost of discontinued medications, and in accordance 
with section 1860D-4(c) of the Act, we are proposing to revise Sec.  
423.153(b)(4) to provide that a Medicare Part D sponsor's drug 
utilization management program must establish and apply a daily cost-
sharing rate . Under this proposal, the enrollee and his or her 
prescriber generally would decide if a medication supply of less than 
30 days would be appropriate, and if so, the copayment for the 
medication would be prorated by the Part D sponsor based on the days 
supply dispensed.
    Specifically, we propose to define ``daily cost-sharing rate'' in 
Sec.  423.100. ``Daily cost-sharing rate'' would mean, as applicable, 
the established monthly--
     Copayment under the enrollee's Part D plan divided by 30 
or 31 and rounded to the nearest lower dollar amount or to another 
amount but in no event to an amount which would require the enrollee to 
pay more for a month's supply of the prescription than the enrollee 
would have paid if a month's supply had been dispensed; or
     Coinsurance rate under the enrollee's Part D plan applied 
to the ingredient cost of the prescription for a month's supply divided 
by 30 or 31.
    In addition, we are specifically proposing to revise Sec.  423.104 
by adding a paragraph (i) to state that a Part D sponsor is required to 
provide its enrollees access to daily cost-sharing rate in accordance 
with Sec.  423.154(b)(4). We also propose adding paragraph (4)(i) to 
Sec.  423.153(b) to require a Part D sponsor to establish and apply a 
daily cost-sharing rate to a prescription presented by an enrollee at a 
network pharmacy for a covered Part D generic or brand drug that is 
dispensed for a supply of less than 30 days, multiplied by the days 
supply actually dispensed, plus any dispensing fee in the case of 
coinsurance. We further propose adding paragraph (4)(i)(A) to limit the 
requirement to drugs that are in the form of solid oral doses paragraph 
(b)(4)(i)(B) would further limit the requirement to a prescription that 
is for an initial fill of a new medication, is intended to allow the 
enrollee to synchronize refill dates of multiple drugs, or the 
prescription is dispensed in accordance with Sec.  423.154 (which sets 
forth the requirements placed upon Part D sponsors with respect to 
dispensing of prescription drugs in long-term care facilities effective 
January 1, 2013). Paragraph (b)(4)(ii) would state that the 
requirements of (b)(4)(i) would not apply to antibiotics or drugs 
dispensed in their original container as indicated in the Food and Drug 
Administration Prescribing Information or are customarily dispensed in 
their original packaging to assist patients with compliance.
    Potential savings of a daily cost-sharing rate requirement on Part 
D sponsors would come from a reduction of the estimated $1.4 billion in 
costs previously noted which would be offset by some additional 
dispensing fees. In order to estimate the savings, we must make 
assumptions about how many first fills would be dispensed in quantities 
of less than a 30 day supply, and what the average quantity of such 
first fills would be. It should be pointed out that these assumptions 
are highly uncertain because it is very difficult to predict the 
beneficiaries' behavioral response. Having noted this caveat, we assume 
20 percent of first fills in 2013 will be for a supply of less than 30 
days, trending to 50 percent by 2018, and that the average of such 
fills would be for a 15 day supply. Assuming 32 percent of these first 
fills are discontinued, we estimate the potential savings to the Part D 
program to be $140 million in 2013 alone, and over $2.4 billion by 
2018.
    The additional dispensing fees previously noted are associated with 
medications that begin with a trial fill and are continued 
therapeutically. For instance, an enrollee who receives less than a 
month's supply, but continues taking the medication, would be expected 
to obtain ongoing refills of 30 to 90 days. Over the course of a year, 
the expectation is that there will be up to 13 dispensing events over a 
period of 1

[[Page 63074]]

year of refills related to such enrollee with respect to the medication 
initially begun with a trial fill. However, for those enrollees who 
discontinue a medication, there will be savings for the enrollee by not 
having paid the full monthly copayment for that particular medication, 
as well as for sponsors and the Federal government to the extent that a 
full month's supply of medication was not covered by the Part D 
program. With respect to more initial fills of brand drugs, we believe 
there may be additional but less significant costs for more initial 
fills of brand drugs that enrollees previously declined to try due to 
the cost of a full month's supply, when the brand drugs are known for 
significant side effects and/or to be frequently poorly tolerated.
    Aside from these additional costs, we expect the other regulatory 
impact costs imposed by the proposed provisions to be the one-time 
costs for the industry to reprogram PBM systems to apply a daily cost-
sharing rate. In this regard, we estimate that the number of hours for 
28 PBMs and 12 plan organizations to reprogram their systems to 
establish and apply a daily copayment rate is 80 hours per processor or 
plan organization, for a total one-time burden of 3,200 hours (40 x 
80). The estimated cost associated with such reprogramming is the 
estimated number of hours multiplied by the estimated hourly rate of 
$145.37, which equals $465,184.
18. Technical Corrections to Enrollment Provisions
    We are proposing technical changes that correct cross-references 
that should have been updated in previous rulemaking. These proposals 
are technical corrections and do not represent a burden for small 
businesses, rural hospitals, States, or the private sector.
19. MA and Part D Disclosure Requirements to Cost Contract Plans
    We are proposing to extend the disclosure requirements in Sec.  
422.111 and Sec.  423.128 to cost contract plans. Our regulations at 
Sec.  422.111 and Sec.  423.128 require MA organizations and Part D 
sponsors to disclose to enrollees, at the time of enrollment and 
annually thereafter (in the form of an annual notice of change/evidence 
of coverage, or ANOC/EOC mailing), certain detailed information about 
plan benefits, service area, provider and pharmacy access, grievance 
and appeal procedures, quality improvement programs, and disenrollment 
rights and responsibilities. They also require the provision of certain 
information about request and establish requirements with respect to 
dissemination of explanations of benefits, customer service call 
centers, and Internet websites.
    For each entity, we estimate that it will take 12 hours to develop 
and submit the required information. This includes 1 hour to read CMS' 
published instructions, 6 hours to generate the standardized document, 
1 hour to submit the materials, and 4 hours to print and disclose 
information to the beneficiaries. We estimate 20 cost contractors would 
be affected annually by this requirement, resulting in a total annual 
burden of 240 hours. We estimate, based on an hourly wage of $29.88 
(hourly salary for a compliance officer/cost estimator according to 
Bureau of Labor Statistics) plus 48 percent for fringe benefits and 
overhead, that this requirement would result in a total annual burden 
of $10,613 rounded, approximately $0.01 million per year.
20. Denials of SNP Applications and SNP Appeal Rights
    We estimate that this proposed provision would have a minimal 
impact resulting from administrative costs incurred by the small number 
of SNP applicants that we expect will receive application denials and 
the small percentage of denied applicants that we expect would appeal 
our denial decision. For those organizations that do appeal the denial 
of their SNP application, a minimal number of professional staff 
working over a short period of time would be required to prepare and 
present the organization's appeal.
    We estimate that the total annual hourly burden for developing and 
presenting a case for us to review is equal to the number of 
organizations likely to request an appeal multiplied by the number of 
hours for the attorneys of each appealing SNP to research, draft, 
submit, and present their arguments to CMS. Based on SNP application 
denials from contract year 2012, out of the approximately 400 SNP 
applications received, 8 of these applications were denied and all 8 
denials were appealed. In contract year 2011, 8 SNP applications were 
denied and none of these denials were appealed. Taking the average of 
the last two years, we estimate that approximately 4 denied applicants 
would appeal the denial of the SNP application. We further estimate 
that 1 attorney working for 8 hours could complete the documentation to 
be submitted for each application denial, resulting in a total burden 
estimate of 32 hours (8 hours x 4 SNP application denials). The 
estimated annual cost to an MA organization that has been denied to 
offer a SNP associated with this provision (assuming an attorney 
billing $250 per hour) is $8,000 (32 hours x $250) or when rounded, to 
approximately $ 0.01 million per year.
21. Contract Requirements for First Tier and Downstream Entities in 
Subcontracts
    The regulations at Sec.  422.504(i) and Sec.  423.505(i) require MA 
organizations and Part D sponsors to require all of the first tier, 
downstream, and related entities to which they have delegated the 
performance of certain Part C or D functions to agree to certain 
obligations. We believe that the most legally effective and direct way 
to ensure that the MAOs and Part D sponsors retain the necessary 
control and oversight over their delegated entities is by requiring all 
contracts among those entities to specifically reference each party's 
obligations to the sponsor, as enumerated in Sec.  422.504(i) and Sec.  
423.505(i). Thus, the regulation has been changed to address this need. 
Specifically, we deleted the term ``written arrangements'' throughout 
Sec.  422.504(i) and Sec.  423.505(i) and in each instance replace it 
with ``each and every contract.''
    The proposed changes would not result in any additional costs since 
these types of contracts are already in use and required by regulation. 
Thus, the strengthening of the language to ensure that the sponsor is 
responsible for downstream entities is merely clarifying an existing 
requirement and eliminating potential loopholes.
22. Valid Prescriptions
    In the Sec.  423.100 proposed definition of ``valid prescription'' 
and the Sec.  423.104 requirement of a ``valid prescription,'' we would 
codify our longstanding policy of deferring, when applicable, to State 
law to determine whether a prescription is valid such that the 
prescribed drug may be eligible for Part D coverage.
    The changes made to this regulation would not result in any 
additional costs. Not only have we expected that prescriptions would be 
valid under applicable State law since the beginning of the Part D 
program, but also prescribers and pharmacies remain subject to 
applicable State laws regarding valid prescriptions. Furthermore, 
private contracts regarding Part D drugs (such as those between MAOs or 
Part D sponsors and pharmacies) likely also require valid 
prescriptions. In light of the above realities, it is not unreasonable 
to presume that MAOs, Part D sponsors, PBMs, and pharmacies are already

[[Page 63075]]

taking steps to write prescriptions that are valid under applicable 
State law. Accordingly, we do not believe codifying the valid 
prescription requirement would change current practices.
23. Medication Therapy Management Comprehensive Medication Reviews and 
Beneficiaries in LTC Settings
    Current regulations require that unless a beneficiary is in an LTC 
setting, the comprehensive medication review must include an 
interactive, person-to-person, or telehealth consultation performed by 
a pharmacist or other qualified provider, and may result in a 
recommended medication action plan. Section 10328 of the Affordable 
Care Act amended section 1860D-4(c)(2) of the Act to require that all 
targeted beneficiaries be offered an interactive CMR. Accordingly, the 
proposed change to Sec.  423.153 permits the sponsor to allow the 
pharmacist or other qualified provider to perform the medication review 
without the beneficiary in cases when the beneficiary is in an LTC 
facility and is cognitively impaired and thus, cannot accept the 
sponsor's offer of an interactive CMR . We anticipate that the impact 
of this proposed revision will clarify the CMR process for sponsors by 
allowing pharmacists and other qualified providers to ascertain whether 
the patient is willing and able to participate in an interactive CMR 
before administering it. We do not anticipate any costs or savings 
associated with this change.
24. Coordination of Part D Plans With Other Prescription Drug Coverage
    The proposed regulation would be explicit that sponsors, when 
providing Part D benefits to enrollees of EGWPs, are subject to the 
same requirements as sponsors providing Part D coverage in the 
individual market unless such requirements are explicitly waived. Since 
this change is being made to clarify an existing policy, we do not 
anticipate any effect on costs or savings on any specific entity.
25. Access to Covered Part D Drugs Through Use of Standardized 
Technology and National Provider Identifiers (NPIs)
    The inconsistent use of identifiers by prescribers on Part D claims 
has hindered some of our efforts to combat fraud and abuse activities. 
Therefore, we propose to require, effective January 1, 2013, that Part 
D sponsors include only valid, individual prescriber NPIs as 
identifiers in PDEs submitted to CMS. Specifically, Sec.  423.120(c) 
sets forth the responsibilities of Part D plan sponsors with regard to 
the use of standardized technologies and compliance with the HIPAA 
standards at 45 CFR 162.1102. We propose to add a new paragraph (5)(A) 
that would require Part D plan sponsors to submit PDE records to CMS 
that contain an active and valid individual prescriber NPI. Proposed 
new paragraph (c)(5)(B) would also codify current guidance and require 
that a Part D plan sponsor not reject a claim from a network pharmacy 
solely on the basis that it does not contain an active and/or valid 
NPI. With respect to requests for reimbursement submitted directly by 
Medicare beneficiaries, proposed paragraph (5)(C) would prohibit a Part 
D sponsor from making reimbursement payment to the beneficiary 
dependent upon the sponsor's acquisition of the prescriber NPI, and 
would further prohibit a Part D sponsor from seeking recovery of the 
payment from the beneficiary if the sponsor were unable to 
retrospectively acquire an active and valid individual NPI.
    The impact associated with these proposed regulations is: (1) the 
annual cost for PBMs and plan organizations to conduct or contract with 
a commercial vendor or with network pharmacies to provide prescriber ID 
validation services; or (2) the annual cost required for PBMs and plan 
organizations to build their own databases of current, valid prescriber 
NPIs, and to recontract with network pharmacies to support retroactive 
review of the prescription to obtain the current, valid prescriber ID. 
We estimate a one-time burden for an estimated 28 PBMs and 12 plan 
organizations to negotiate and execute a contract with a commercial 
vendor to provide prescriber ID validation services to be negligible, 
particularly since PBMs and plan organizations typically have in-house 
counsel or law firms on retainer. The estimated annual cost of such a 
contract is $160,000, which is the mid-point of estimates we have seen 
for such a contract. Therefore, the estimated annual cost of such a 
contract for 40 PBMs and plan organizations is $6,400,000 (40 x 
160,000). However, preliminary results of an analysis of 2011 PDEs 
submitted to date conducted by a contractor to CMS indicate that 
approximately 90 percent contain valid individual NPIs. Therefore, this 
estimation should be reduced to reflect that a certain amount of cost 
associated with prescriber ID validation has already been absorbed by 
the industry. Therefore, we assume that 80 percent of the industry 
needs to acquire additional prescriber ID validation capacity in order 
to submit only PDEs that contain active and valid individual prescriber 
NPIs to CMS. Thus, the estimated annual cost to PBMs and plan 
organizations of a contract with a commercial vendor to perform 
prescriber NPI validation services is $5,120,000 (6,400,000 x 0.8).
    With respect to PBMs and plan organizations that decide to contract 
with network pharmacies for prescriber validation services or build 
their own databases of valid prescriber NPIs, we assume that they will 
only do so if the cost is equal to or less than contracting with a 
commercial vendor for such services, and therefore, no estimation of 
the costs to do so is necessary.
    Since approximately 90 percent of PDEs currently submitted to CMS 
already contain valid individual NPIs, and an estimated 95 percent of 
physicians have an NPI, we estimate negligible costs associated with 
any PDE that cannot be submitted to CMS for lack of an NPI.

                      Table 7--Estimated Aggregated Costs to the Health Care Sector by Provision for Fiscal Years 2013 Through 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Fiscal year ($ in millions)                       Total ($ in
              Provision(s)                   Regulation section(s)   ------------------------------------------------------------------   millions) FYs
                                                                         2013       2014       2015       2016       2017       2018        2013-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
Medicare Coverage Gap Agreement.........  Sec.   423.2315...........   3,990.00   4,520.00   5,090.00   5,710.00   6,350.00   7,050.00         32,710.00
Payment Processes for Part D Sponsors...  Sec.   423.2320...........      12.66      12.66      12.66      12.66      12.66      12.66             75.96
Provision of Applicable Discounts.......  Sec.   423.2325...........      12.66      12.66      12.66      12.66      12.66      12.66             75.96
Compliance and Civil Money Penalties....  Sec.   423.2340...........       1.18       1.32       1.48       1.67       1.88       2.11              9.64

[[Page 63076]]

 
Other Manufacturer Costs................  Sec.   423.2315...........      13.03      13.03      13.03      13.03      13.03      13.03             78.18
Inclusion of Benzodiazepines and          Sec.   423.100............     200.00     280.00     310.00     340.00     370.00     410.00          1,910.00
 Barbiturates as Part D Covered Drugs.
Who May File Part D Appeals with the      Sec.   423.600............       1.05       1.05       1.05       1.05       1.05       1.05              6.30
 Independent Review Entity.
Benefit Flexibility for Fully Integrated  Sec.   422.102............      -5.97      -3.48      -2.30      -2.41      -2.32      -2.41            -18.89
 Dual Eligible Special Needs Plans (FIDE
 SNPs).
Establishment and Application of Daily    Sec.   423.104 Sec.           -139.50    -240.00    -330.00    -430.00    -550.00    -690.00         -2,379.50
 Cost-Sharing Rate as Part of Drug         423.153.
 Utilization Management and Fraud, Abuse
 and Waste Control Program.
Add language specific to SNP              Sec.   422.500............       0.01       0.01       0.01       0.01       0.01       0.01              0.06
 applications to give CMS the clear
 authority to deny SNP applications and
 to give SNPs appeal rights.
Apply MA and Part D disclosure            Sec.   417.427............       0.01       0.01       0.01       0.01       0.01       0.01              0.06
 requirements to cost contract plans.
Access to covered Part D drugs through    Sec.   423.120............       5.12       5.12       5.12       5.12       5.12       5.12             30.72
 the use of standardized technology and
 NPIs.
Developing and executing contracts with   Sec.   483.60.............      23.03       3.02       3.02       3.02       3.02       3.02             38.13
 independent consultant pharmacists.
                                         ---------------------------------------------------------------------------------------------------------------
    Total Impact ($ in millions)........  ..........................   4,113.28   4,605.40   5,116.74   5,666.82   6,217.12   6,817.26         32,536.62
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage data from
  the U.S. Department of Labor, Bureau of Labor Statistics.


                          Table 8--Estimated Costs and Savings to the Federal Government by Provision for FYs 2013 Through 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Fiscal year ($ in millions)                      Total  ($ in
              Provision(s)                   Regulation section(s)   ------------------------------------------------------------------  millions)  (FYs
                                                                         2013       2014       2015       2016       2017       2018       2013-2018)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Medicare Coverage Gap Agreement.........  Sec.   423.2315...........     180.00     200.00     230.00     270.00     280.00     280.00          1,440.00
Inclusion of Benzodiazepines and          Sec.   423.100............     200.00     280.00     310.00     340.00     370.00     410.00          1,910.00
 Barbiturates as Part D Covered Drugs.
Who May File Part D Appeals with the      Sec.   423.600............       0.97       0.97       0.97       0.97       0.97       0.97              5.84
 Independent Review Entity.
Establishment and Application of Daily    Sec.   423.104 Sec.           -140.00    -240.00    -330.00    -430.00    -550.00    -690.00         -2,380.00
 Cost-Sharing Rate as Part of Drug         423.153.
 Utilization Management and Fraud, Abuse
 and Waste Control Program.
Benefit Flexibility for Fully Integrated  Sec.   422.102............      -5.85      -3.36      -2.17      -2.28      -2.18      -2.28            -18.12
 Dual Eligible Special Needs Plans (FIDE
 SNPs).
                                         ---------------------------------------------------------------------------------------------------------------
    Total ($ in millions)...............  ..........................     235.12     237.61      208.8     178.69      98.79      -1.31             957.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage data from
  the U.S. Department of Labor, Bureau of Labor Statistics.


[[Page 63077]]


                         Table 9--Estimated Costs to MA Organizations and Part D Sponsors by Provision for FYs 2013 Through 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Costs per fiscal year ($ in millions)               Total  (FYs 2013-
              Provision(s)                   Regulation section(s)   ------------------------------------------------------------------   2018)  ($ in
                                                                         2013       2014       2015       2016       2017       2018        millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Payment Processes for Part D Sponsors...  Sec.   423.2320...........      12.66      12.66      12.66      12.66      12.66      12.66             75.96
Provision of Applicable Discounts.......  Sec.   423.2325...........      12.66      12.66      12.66      12.66      12.66      12.66             75.96
Who May File Part D Appeals with the      Sec.   423.600............       0.08       0.08       0.08       0.08       0.08       0.08              0.48
 Independent Review Entity.
Establishment and Application of Daily    Sec.   423.104 Sec.               0.5          0          0          0          0          0               0.5
 Cost-Sharing Rate as Part of Drug         423.153.
 Utilization Management and Fraud, Abuse
 and Waste Control Program.
Apply MA and Part D Disclosure            Sec.   417.427............       0.01       0.01       0.01       0.01       0.01       0.01              0.06
 Requirements to Cost Contract Plans.
Add language specific to SNP              Sec.   422.500............       0.01       0.01       0.01       0.01       0.01       0.01              0.06
 applications to give CMS the clear
 authority to deny SNP applications and
 to give SNPs appeal rights.
Access to covered Part D drugs through    Sec.   423.120............       5.12       5.12       5.12       5.12       5.12       5.12             30.72
 the use of standardized technology and
 NPIs.
                                         ---------------------------------------------------------------------------------------------------------------
    Total ($ in millions)...............  ..........................      31.04      30.54      30.54      30.54      30.54      30.54            183.74
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage data from
  the U.S. Department of Labor, Bureau of Labor Statistics.


                               Table 10--Estimated Costs to Manufacturers by Provision for Fiscal Years 2013 Through 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Cost per fiscal year  ($ in millions)               Total  (FYs 2013-
              Provision(s)                  Regulation  section(s)   ------------------------------------------------------------------   2018)  ($ in
                                                                         2013       2014       2015       2016       2017       2018        millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Medicare Coverage Gap Agreement.........  Sec.   423.2315...........   3,810.00   4,320.00   4,860.00   5,440.00   6,070.00   6,770.00         31,270.00
Other Manufacturer Costs................  Sec.   423.2315...........      13.03      13.03      13.03      13.03      13.03      13.03             78.19
Compliance and Civil Money Penalties....  Sec.   423.2340...........       1.18       1.32       1.48       1.67       1.88       2.11              9.64
                                         ---------------------------------------------------------------------------------------------------------------
    Total ($ in millions)...............  ..........................   3,824.31   4,334.35   4,874.51   5,454.70   6,084.91   6,785.14         31,357.83
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage data from
  the U.S. Department of Labor, Bureau of Labor Statistics.


                                  Table 11--Estimated Savings to States by Provision for Fiscal Years 2013 Through 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Savings per fiscal year ($ in millions)                Total Savings
              Provision(s)                   Regulation section(s)   ------------------------------------------------------------------  (FYs 2013-2018)
                                                                         2013       2014       2015       2016       2017       2018     ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefit Flexibility for Fully Integrated  Sec.   422.102............       0.12       0.12       0.13       0.13       0.14       0.13              0.77
 Dual Eligible Special Needs Plans.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage data from
  the U.S. Department of Labor, Bureau of Labor Statistics.


                               Table 12--Estimated Costs to LTC Facilities by Provision for Fiscal Years 2013 Through 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Cost per fiscal year ($ in millions)                Total  (FYs 2013-
              Provision(s)                   Regulation section(s)   ------------------------------------------------------------------   2018)  ($ in
                                                                         2013       2014       2015       2016       2017       2018        millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Developing and executing contracts with   Sec.   483.60.............      23.03       3.02       3.02       3.02       3.02       3.02             38.13
 independent consultant pharmacists.
--------------------------------------------------------------------------------------------------------------------------------------------------------
 Note: Estimates of costs and savings reflect scoring by the Centers for Medicare and Medicaid Services, Office of the Actuary, and 2010 wage data from
  the U.S. Department of Labor, Bureau of Labor Statistics.


[[Page 63078]]

D. Expected Benefits

1. Medicare Coverage Gap Discount Program Agreement
    The proposed agreement would codify many of the operational 
parameters of the Discount Program. The intention of the agreement and 
the parameters within is to guide the distribution of an approximately 
50 percent discount in beneficiary OOP cost for prescriptions filled 
while the beneficiary is in the coverage gap. We believe that a well-
implemented Discount Program would increase beneficiary adherence to 
medication regimens that can improve their health and lower their 
pharmaceutical costs.
2. Payment Processes for Part D Sponsors
    The proposed rule would require CMS to facilitate distribution of 
the gap discount to beneficiaries by requiring that CMS provide an 
interim discount payment to Part D sponsors. That interim discount 
payment would be subsequently reconciled against manufacturer payments 
for discounts provided to beneficiaries. This provision would help Part 
D sponsors maintain operations with minimal, if any, effect on cash 
flow. This would help Part D sponsors distribute the gap discount to 
beneficiaries.
3. Provision of Applicable Discounts on Applicable Drugs for Applicable 
Beneficiaries
    The proposed rule would require Part D sponsors to calculate the 
discount that should be provided to beneficiaries in the coverage gap. 
Beneficiaries would, therefore, have minimal need to determine when 
they qualify for the gap discount and when they are no longer in the 
gap. In addition, Part D sponsors would likely automate discount 
calculations, potentially reducing errors and the need for 
beneficiaries to file an appeal that challenges the discount amount.
4. Manufacturer Discount Payment Audits and Dispute Resolution
    We believe that the audit and dispute programs would both 
contribute to the stable operation of the Discount Program. Both 
programs are intended to provide an equitable means to resolve 
manufacturer concerns, enhance program integrity and, therefore, 
program stability. A predictable discount program would help 
beneficiaries plan their finances and health care costs over time.
5. Beneficiary Dispute Resolution
    The traditional Medicare program provides a means for beneficiaries 
to challenge Medicare decisions to ensure they receive needed benefits. 
We believe that beneficiaries would gain the same benefit from a 
dispute resolution program associated with the Discount Program. 
Further, extending the existing Part D beneficiary dispute resolution 
process to the Discount Program would reduce the need for beneficiaries 
to learn a new set of dispute procedures.
6. Compliance Monitoring and Civil Money Penalties
    Our expectation is that manufacturers would generally comply with 
the terms of the agreement and the Discount Program. We understand that 
manufacturers may still err and that such errors can disrupt program 
operations. Our intention is to use compliance actions, including 
penalties, to encourage reduced manufacturer errors and maintain a 
predictable program for beneficiaries.
7. Termination of Agreement
    We believe that CMS' ability to terminate the Agreement upon 
extreme non-compliance by manufacturers will likely encourage 
manufacturers to address issues quickly. We believe that prompt 
resolution of significant concerns would create minimal disruption to 
the program and inconvenience of beneficiaries.
8. Inclusion of Benzodiazepines and Barbiturates as Part D Covered 
Drugs
    Part D coverage of Benzodiazepines and Barbiturates potentially 
improves beneficiary access to these drugs and reduces beneficiary out-
of-pocket costs for non-Part D covered drugs. In addition, State costs 
are reduced in those States that have been paying for these drugs.
9. Determination of Actuarially Equivalent Creditable Prescription Drug 
Coverage
    By changing the actuarial value calculation for creditable coverage 
to not include the additional value of gap coverage consistent with the 
RDS actuarial value, this provision protects Medicare beneficiaries 
from being subject to a LEP when they leave RDS and other forms of 
prescription drug coverage and enroll into a Part D plan.
10. Who May File Part D Appeals With the Independent Review Entity
    The proposed changes to Sec.  423.600 would allow physicians and 
other prescribers to request IRE reconsiderations on behalf of Part D 
plan enrollees. This provision would reduce the burden on enrollees and 
their prescribers because they will no longer have to submit a properly 
executed AOR form in cases where the prescriber wishes to request a 
reconsideration on behalf of a Part D plan enrollee. Additionally, 
physicians and prescribers are in the best position to anticipate and 
provide the appropriate medical documentation needed to support 
coverage for Part D enrollees' medications. We believe that by allowing 
a physician or other prescriber to request a reconsideration on the 
enrollee's behalf, it will further improve an enrollee's access to the 
Part D appeals process and assist enrollees in obtaining coverage of 
medically necessary medications.
11. Termination for Lower-Than-3-Star-Performance Ratings
    The benefit of this change is that we would leverage the annual 
performance ratings to remove from the MA and Part D programs poor 
performing organizations, thereby strengthening the programs and 
protecting Medicare beneficiaries.
12. Exclusion for Sponsors of Contracts Terminated for Cause
    The benefit of this change is that we would ensure that 
organizations that demonstrated extremely poor performance have their 
performance history reviewed as part of the application process for an 
appropriate amount of time, thereby strengthening the programs and 
protecting Medicare beneficiaries.
13. Independence of Long Term Care Consultant Pharmacists
    The various contractual arrangements that are common among LTC 
facilities, LTC pharmacies, LTC consultant pharmacists these pharmacies 
provide to nursing facilities, and pharmaceutical manufacturers and/or 
distributors may create incentives for the LTC consultant pharmacist to 
recommend overprescribing, thus creating health and safety risks for 
residents. We expect that an LTC consultant pharmacist who is 
independent of any affiliations with the nursing facilities' LTC 
pharmacies, pharmaceutical manufacturers and distributors, or any 
affiliates of these entities would be better able to comply with the 
changes we are considering that would require objective and unbiased 
consultant pharmacist monitoring and evaluation. That is, nursing 
facilities would use a qualified professional pharmacist to conduct 
drug regimen reviews and make medication recommendations based solely 
on what

[[Page 63079]]

is in the best interests of the resident. We believe the change under 
consideration--severing the relationship between the consultant 
pharmacist and the LTC pharmacy, pharmaceutical manufacturers and 
distributors, and any affiliated entities--would protect the safety of 
all LTC residents and improve the quality of their care and their well 
being.
    We expect that the Medicare program, State Medicaid programs, as 
well as other payers, would realize savings as a result of independent 
pharmacists performing drug regimen reviews that would be uncompromised 
by any financial incentives. By reducing overprescribing and 
unnecessary use of high cost brand name drugs, the requirement we are 
considering would result in lower drug costs to Medicare, Medicaid and 
other payers. We anticipate that this requirement would likewise curb 
the use of drugs that are inappropriate and should generally be avoided 
among older LTC residents, leading to further savings to all payers 
from fewer hospitalizations and treatments for drug-related problems, 
such as pharmacologic interactions.
14. Benefit Flexibility for Fully Integrated Dual Eligible Special 
Needs Plans (FIDE SNPs)
    Part D-SNPs that fully integrate all Medicare and Medicaid covered 
services, including long-term care services, can enable dual eligible 
beneficiaries to remain in their homes and avoid Medicaid-financed 
stays in LTC institutions. We believe that allowing certain FIDE SNPs 
to offer supplemental benefits beginning contract year 2013 would 
advance our overall goal of better integrating care for dual eligible 
beneficiaries, keeping beneficiaries at risk of institutionalization in 
their homes, lowering dual eligible beneficiaries' utilization of 
health services, and lowering costs for the Medicaid and Medicare 
programs.
15. Application of the Medicare Hospital-Acquired Conditions and 
Present on Admission Indicator Policy to MA Organizations
    Although we do not expect a significant amount of new savings to 
result from this requirement under this proposed rule, the benefit for 
Medicare Advantage enrollees and to Medicare will come from increased 
quality, efficiency of care, and continued incentives for hospitals to 
eliminate medical errors and reduce Medicare expenditures for poor 
quality or unnecessary care.
16. Establishment and Application of Daily Cost-Sharing Rate as Part of 
Drug Utilization Management and Fraud, Abuse, and Waste Control Program
    Requiring Part D sponsors to establish and apply a daily cost-
sharing rate as previously described facilitates the ability of 
Medicare Part D enrollees to obtain trial fills of medications, 
particularly those with higher cost-sharing and that are known to 
frequently be poorly tolerated. As noted previously, we believe trial 
fills would result in the avoidance of unused drugs, reduce drug costs, 
diminish the environmental issue caused by disposal of unused 
medications, and reduce opportunities for criminal and substance abuse 
caused by diversion of unused medications, all of which are growing 
concerns in the United States. While there may be additional waste 
generated by multiple fills when medications are continued after a 
trial fill or synchronized (for example, more plastic bottles and paper 
inserts, additional trips to pharmacies), we believe the harmful 
effects on the environment from unused drugs, particularly the 
biological implications, likely have a much greater impact on the 
environment than additional recyclables.
    With respect to synchronization of medication refills specifically, 
we also note that at least one study supports the notion that 
synchronization may assist enrollees in adhering to prescription 
treatment regimens that involve multiple prescriptions. In addition, we 
believe the ability to synchronize medications would be convenient for 
those enrollees who take advantage of the opportunity and their 
prescribers, by enabling fewer trips to the pharmacy and fewer 
prescription requests of prescribers by enrollees through the ability 
to consolidate pharmacy trips and prescriber office visits and phone 
calls.
17. Apply MA and Part D Disclosure Requirements to Cost Contract Plans
    We believe that our requirement that cost contract plans disclose 
to enrollees, at the time of enrollment and annually thereafter (in the 
form of an annual notice of change/evidence of coverage, or ANOC/EOC 
mailing), certain detailed information about plan benefits, service 
area, provider and pharmacy access, grievance and appeal procedures, 
quality improvement programs, and disenrollment rights and 
responsibilities, and an explanation of benefits would ensure that the 
beneficiaries have information to help them make best choices for their 
health care needs.
18. Denial of SNP Applications and SNPs Appeal Rights
    Our intent in proposing this provision is to give us the explicit 
authority to deny SNP applications that demonstrate that the applicant 
does not meet the requirements to operate a SNP, which have been 
incorporated into the MA application. This proposed change would ensure 
that the only MAOs that are able to offer a SNP are those that meet 
CMS' SNP specific requirements and are capable of serving the 
vulnerable special needs individuals who enroll in SNPs, thereby 
strengthening the program and protecting Medicare beneficiaries. 
Additionally, to ensure a fair and comprehensive review of these SNP 
applications, we propose to allow applicants who have been determined 
unqualified to offer a SNP the right to an administrative review 
process.
19. Clarification of Contract Requirements for First Tier and 
Downstream Entities
    This clarification ensures that the MAOs and Part D sponsors retain 
the necessary control and oversight over their delegated entities, 
thereby strengthening the programs and protecting Medicare 
beneficiaries.
20. Valid Prescriptions
    By removing any doubt as to the appropriate source of law to 
consult when determining whether a prescription is valid, this 
regulation would benefit federal law enforcement agencies. We do not 
believe, however, that there is a quantifiable monetary value to easing 
prosecutions in this manner.
21. Medication Therapy Management Comprehensive Medication Reviews and 
Beneficiaries in LTC Settings
    The expected benefits of the proposed revisions to Sec.  423.153 
are that Part D sponsors will continue to be required to offer all 
targeted beneficiaries in LTC facilities the opportunity to participate 
in an interactive CMR, but in the event the beneficiary is cognitively 
impaired and unable either to respond to the offer or to participate in 
an interactive CMR, the pharmacist or qualified provider may proceed 
with a CMR that is informative for the beneficiary's prescriber and/or 
caregiver without interacting with the beneficiary .

[[Page 63080]]

22. Coordination of Part D Plans With Other Prescription Drug Coverage
    We are clarifying the regulation at Sec.  423.458 regarding the 
application of waivers to EGWPs. We expect that this clarification will 
benefit Medicare beneficiaries enrolled in such plans by ensuring the 
same protections as those Medicare beneficiaries enrolled in individual 
market Part D plans where such protections have not been explicitly 
waived.
23. Access to covered Part D Drugs Through Use of Standardized 
Technology and National Provider Identifiers (NPIs)
    In addition to supporting our fraud and abuse activities, accurate 
data on prescriptions through the consistent use of valid NPIs on PDEs 
allows us to serve beneficiaries when using data in various initiatives 
whose purpose is to foster higher quality and more efficient 
coordination of care for individuals and groups of individuals.

E. Alternatives Considered

1. Affordable Care Act and MIPPA Provisions
    We did not consider alternatives for the following provisions, as 
their implementation was mandated by the Affordable Care Act and MIPPA:
     Inclusion of Benzodiazepines and Barbiturates
     Pharmacy Benefit Manager's Transparency Requirements
2. Coverage Gap Discount Program
    The Affordable Care Act mandated implementation of the Coverage Gap 
Discount Program and further specified that the associated manufacturer 
discounts had to be made available at point-of-sale. An alternative 
model for point-of-sale administration of the discount would involve a 
third party administrator directly adjudicating the discount payment to 
pharmacies. In this model, the pharmacy would submit the Part D claim 
to the Part D sponsor and receive information on the response that 
would direct the pharmacy to bill the third party for applicable 
claims. However, while this model initially showed promise, neither the 
current HIPAA electronic pharmacy claims billing standard nor the next 
HIPAA approved version of the billing standard could support the 
transfer of information from the Part D sponsor that would be necessary 
to specify the appropriate claims and appropriate discount amounts to 
be billed to the third party administrator, or allow for accurate 
coordination of benefits among payers.
3. Determination of Actuarially Equivalent Creditable Prescription Drug 
Coverage
    The alternative would be to continue to calculate the actuarial 
value of creditable prescription drug coverage including the value of 
additional coverage provided in the coverage gap. However, this 
approach would mean Medicare beneficiaries enrolled in programs 
receiving RDS may be subject to a late enrollment penalty because the 
value of their RDS coverage would be less than the actuarial value of 
creditable coverage that includes the value of additional coverage in 
the gap.
4. Who May File Part D Appeals With the Independent Review Entity
    As previously mentioned, the proposed changes to Sec.  423.600 and 
Sec.  423.602 would allow physicians and other prescribers to request 
IRE reconsiderations on behalf of Part D plan enrollees. We considered 
maintaining the status quo, which would require physicians and other 
prescribers to obtain an AOR form in order to request a reconsideration 
with the IRE on behalf of their enrollees. However, given our program 
experience since the inception of the Part D program, we realize that 
this approach results in an undue burden on both enrollees and their 
physicians or prescribers and can create an unintended barrier to 
enrollees accessing the appeals process. Consequently, we are proposing 
the change previously highlighted in this proposed rule.
5. Termination or Non-Renewal of a Medicare Contract Based on Poor Plan 
Performance Ratings
    We did not consider alternatives for this regulation since it is 
necessary to ensure compliance.
6. Exclusion for Sponsors of Contracts Terminated for Cause
    We considered keeping the look-back period at 14 months, but we 
determined it would be insufficient to accomplish our needs and thus a 
longer look-back period was necessary. We also considered longer look-
back periods, but we deemed them to be to excessive.
7. New Benefit Flexibility for Fully Integrated Dual Eligible Special 
Needs Plans (FIDE SNPs)
    We considered whether limiting the application of the flexibilities 
afforded under our proposed Sec.  422.102(e) to FIDE SNPs would be the 
most appropriate way of implementing this proposed benefits 
flexibility, or whether we should extend the additional supplemental 
benefit flexibility to other SNP types. Because FIDE SNPs are required 
to offer LTC supports and services, a regulatory approach that limits 
benefits flexibility to FIDE SNPs, as opposed to all D-SNP types, may 
be more consistent with the objective of keeping beneficiaries in their 
homes and lowering costs for the Medicare and Medicaid programs. We 
also considered whether we should consider extending these 
flexibilities to all qualified FIDE SNPs, or whether we should limit 
these flexibilities to those qualified FIDE SNPs that currently enroll 
only full-benefit dual eligible beneficiaries. We believe that dual 
eligible beneficiaries who receive full State Medicaid benefits would 
have the most to gain from fully-integrated Medicare-Medicaid plan 
benefit offerings that include additional Medicare supplemental 
benefits.
8. Establishment and Application of Daily Cost-Sharing Rates as Part of 
Drug Utilization Management and Fraud, Abuse, and Waste Control Program
    We considered proposing a requirement similar to the Fifteen Day 
Initial Script program introduced in Maine in the summer of 2009. In 
this program, specific medications that were identified by the 
MaineCare program with high side effect profiles, high discontinuation 
rates, or frequent dose adjustments, were phased in by class and must 
be dispensed in a 15-day initial script to ensure cost effectiveness 
without ``wasting'' or ``discarding'' of used medications. We have 
learned through representatives of the program that MaineCare has 
achieved overall savings for the two consecutive state fiscal years 
with respect to both brand and generic drugs through this program, 
despite the additional dispensing fees. The representatives have also 
reported that there was very good acceptance of the program and very 
little confusion upon implementation. While we acknowledge the savings 
benefits of the MaineCare approach, we believe that leaving the 
decision to obtain less than a month's supply of a prescription with 
the enrollee and his or her prescriber and pharmacist may be better 
suited for the Medicare Part D program, but we seek specific comment on 
this belief.
9. Clarification of Contract Requirements for First Tier and Downstream 
Entities
    We did not consider alternatives for this regulation since it is 
necessary to ensure compliance and is the most effective ``no-cost'' 
means to achieving it.

[[Page 63081]]

10. Valid Prescriptions
    We did not consider alternatives for this regulation as it reflects 
existing State laws.
11. Medication Therapy Management Comprehensive Medication Reviews and 
Beneficiaries in LTC Settings
    The alternative to this revision would be to have the pharmacist or 
provider attempt to perform an interactive CMR with an LTC resident who 
is not capable of participating. However, by requiring an interactive 
CMR to be offered to all targeted beneficiaries residing in LTC our 
proposal gives these beneficiaries, who typically have chronic 
conditions that are managed by medication, the opportunity to 
participate in the CMR and comprehend the medication action plan as a 
result of the CMR. In cases when the beneficiary is unable to accept 
the offer of a non-interactive CMR, the beneficiary will still benefit 
from having a non-interactive CMR performed by a pharmacist or other 
qualified provider.
12. Coordination of Part D Plans with Other Prescription Drug Coverage
    We considered the alternative, which was to remain silent in 
regulation. However, we believe that in order to facilitate beneficiary 
protections it is better to be clear that, unless waived, the same 
Medicare rules apply to sponsors of EWGPs as they do to sponsors of 
individual market plans. This ensures Medicare beneficiaries enrolled 
in EGWPs receive the same patient protections as beneficiaries enrolled 
in individual market plans.
13. Access to Covered Part D drugs Through Use of Standardized 
Technology and National Provider Identifiers (NPIs)
    We considered requiring prescribers to enroll in Medicare in order 
for their prescriptions to be covered by the Part D program, but are 
concerned about the potential impact of such a requirement on enrollee 
access to needed medications. We also considered permitting any 1 of 4 
types of prescriber identifiers to be submitted on PDEs, but we believe 
this option as not in line with Congressional intent regarding the use 
of NPIs as provider identifiers.

F. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 13, we have 
prepared an accounting statement showing the classification of the 
expenditures, costs, and savings associated with the provisions of this 
proposed rule for FY 2013 through 2014.

     Table 13--Accounting Statement: Classification of Estimated Costs and Savings, From FY 2013 to FY 2018
                                                 [$ in Millions]
----------------------------------------------------------------------------------------------------------------
                                                       Units discount rate
               Category                Year dollar --------------------------           Period covered
                                                         7%           3%
----------------------------------------------------------------------------------------------------------------
                                                    TRANSFERS
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers.......         2011       $168.6       $163.6  FYs 2013-2018.
----------------------------------------------------------------------------------------------------------------
From Whom To Whom?...................          Federal Government to MA Organizations and Part D Sponsors
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers.......         2011        -$0.1        -$0.1  FYs 2013-2018.
----------------------------------------------------------------------------------------------------------------
From Whom To Whom?...................                          States to MA Organizations
----------------------------------------------------------------------------------------------------------------
                                          COSTS (All other provisions)
----------------------------------------------------------------------------------------------------------------
Annualized Costs to MA organizations          2011        $26.4        $25.9  FYs 2013-2018.
 and Part D Sponsors.
Annualized Costs to Manufacturers....         2011      4,162.1      4,126.6  FYs 2013-2018.
Annualized Costs to LTC Facilities...         2011          6.9          6.6  FYs 2013-2018.
----------------------------------------------------------------------------------------------------------------

    In accordance with the provisions of Executive Order 12866, the 
Office of Management and Budget reviewed this proposed rule.

List of Subjects

42 CFR Part 417

    Administrative practice and procedure, Grant programs-health, 
Health care, Health insurance, Health maintenance organizations (HMO), 
Loan programs-health, Medicare, and Reporting and recordkeeping 
requirements.

42 CFR Part 422

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

42 CFR Part 423

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

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

PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL 
PLANS, AND HEALTH CARE PREPAYMENT PLANS

    1. The authority citation for part 417 continues to read as 
follows:

    Authority: Sec. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public 
Health Service Act (42 U.S.C. 300e, 300e-5, and 300e-9), and 31 
U.S.C. 9701.

Subpart K--Enrollment, Entitlement, and Disenrollment under 
Medicare Contract

    2. Section Sec.  417.422 is amended by revising paragraph (d) to 
read as follows:

[[Page 63082]]

Sec.  417.422  Eligibility to enroll in an HMO or CMP.

* * * * *
    (d) During an enrollment period of the HMO or CMP, completes the 
HMO's or CMP's application form or another CMS-approved election 
mechanism and gives whatever information is required for enrollment;
* * * * *
    3. Subpart K is amended by adding a new Sec.  417.427 to read as 
follows:


Sec.  417.427  Extending MA and Part D Program Disclosure Requirements 
to Section 1876 Cost Contract Plans.

    (a) The procedures and requirements relating to disclosure in Sec.  
422.111 and Sec.  423.128 apply to Medicare contracts with HMOs and 
CMPs under section 1876 of the Act.
    (b) In applying the provisions of Sec.  422.111 and Sec.  423.128, 
references to part 422 and part 423 of this chapter must be read as 
references to this part, and references to MA organizations and Part D 
sponsors as references to HMOs and CMPs.
    4. Section 417.432 is amended by revising paragraph (d) to read as 
follows:


Sec.  417.432  Conversion of enrollment.

* * * * *
    (d) Application form. The individual who is converting must 
complete an application form or another CMS-approved election mechanism 
as described in Sec.  417.430(a).
* * * * *
    5. Section 417.460 is amended by adding new (c)(3) and (c)(4) to 
read as follows:


Sec.  417.460  Disenrollment of beneficiaries by an HMO or CMP.

* * * * *
    (c) * * *
    (3) Good cause and reinstatement. When an individual is disenrolled 
for failure to pay premiums or other charges imposed by the HMO or CMP 
for deductible and coinsurance amounts for which the enrollee is 
liable, CMS may reinstate enrollment in the plan, without interruption 
of coverage, if the individual shows good cause for failure to pay and 
pays all overdue premiums within 3 calendar months after the 
disenrollment date. The individual must establish by a credible 
statement that failure to pay premiums was due to circumstances for 
which the individual had no control, or which the individual could not 
reasonably have been expected to foresee.
    (4) Exception for reinstatement. A beneficiary's enrollment in the 
plan will not be reinstated if the only basis for such reinstatement is 
a change in the individual's circumstances subsequent to the 
involuntary disenrollment for non-payment of premiums.
* * * * *

Subpart L--Medicare Contract Requirements


Sec.  417.492  [Amended]

    6. Section 417.492 is amended as follows:
    A. In paragraph (a)(1)(i) the ``;'' is removed and a ``; and'' is 
added in its place.
    B. In paragraph (a)(1)(ii) the ``;'' is removed and a ``.'' is 
added in its place.
    C. Removing paragraph (a)(1)(iii).
    D. Removing paragraph (b)(1)(iii).

Subpart U--Health Care Prepayment Plans

    7. Section 417.801 is amended by revising paragraph (d)(ii) to read 
as follows:


Sec.  417.801  Agreements between CMS and health care prepayment plans.

* * * * *
    (d) * * *
    (ii) The HCPP is not in substantial compliance with the provisions 
of the agreement, applicable CMS regulations, or applicable provisions 
of the Medicare law, including the following:
    (A) Provision and documentation of adequate access to providers.
    (B) Compliance with CMS requirements concerning provision of data 
and maintenance of records.
    (C) Compliance with financial requirements specified at Sec.  
417.806; or
* * * * *

PART 422--MEDICARE ADVANTAGE PROGRAM

    8. The authority citation for part 422 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart B--Eligibility, Election, and Enrollment


Sec.  422.60  [Amended]

    9. In Sec.  422.60, paragraph (c)(1) is amended by removing the 
cross-reference ``Sec.  422.80'' and adding in its place the cross-
reference ``Sec.  422.2262''.

Subpart C--Benefits and Beneficiary Protections

    10. Section 422.100 is amended by adding a new paragraph (l) to 
read as follows:


Sec.  422.100  General requirements.

* * * * *
    (l) Coverage of DME. MA organizations--
    (1) Must cover and ensure enrollees have access to all categories 
of DME covered under Part B; and
    (2) May, within specific categories of DME, limit coverage to 
certain preferred DME products or brands, provided the MA organization 
ensures all of the following:
    (i) Its contracts with DME suppliers ensure that enrollees have 
access to all preferred DME products or brands.
    (ii) Its enrollees have access to all medically necessary non-
preferred DME products or brands.
    (iii) It provides for an appropriate transition process for new 
enrollees during the first 90 days of their coverage under its MA plan, 
during which time the MA organization will do the following:
    (A) Ensure the provision of a transition supply of non-preferred 
DME-supplies.
    (B) Provide for the repair of non-preferred DME-items.
    (iv) It makes no negative changes to its preferred DME products or 
brands during the plan year.
    (v) It treats denials of non-preferred DME products or brands as 
organization determinations subject to Sec.  422.566.
    (vi) It discloses DME coverage limitations and beneficiary appeal 
rights in the case of a denial of a non-preferred DME product or brand 
as part of the description of benefits required under Sec.  
422.111(b)(2) and Sec.  422.111(h).
    11. Section 422.101 is amended by revising paragraph (d)(1) to read 
as follows:


Sec.  422.101  Requirements relating to basic benefits.

* * * * *
    (d) * * *
    (1) Single deductible. MA regional and local PPO plans, to the 
extent they apply a deductible as follows:
    (i) Must have a single deductible related to all in-network and 
out-of-network Medicare Part A and Part B services.
    (ii) May specify separate deductible amounts for specific in-
network Medicare Part A and Part B services, to the extent these 
deductible amounts apply to the single deductible amount specified in 
paragraph (d)(1)(i) of this section.
    (iii) May waive from the single deductible described in paragraph 
(i) for other plan-covered items and services.
    (iv) Must waive from the single deductible described paragraph 
(d)(1)(i) all Medicare-covered preventive services (as defined in Sec.  
410.152(l)).
* * * * *

[[Page 63083]]

    12. Section 422.102 is amended by adding a new paragraph (e) to 
read as follows.


Sec.  422.102  Supplemental benefits.

* * * * *
    (e) Supplemental benefits for certain fully-integrated dual 
eligible special needs plans. Subject to CMS approval, and as specified 
annually by CMS, certain fully-integrated dual eligible special needs 
plans may offer additional supplemental benefits, consistent with the 
requirements of this part, beyond those other MA plans may offer where 
CMS finds that the offering of such benefits could better integrate 
care for the dual eligible population.
    13. Section 422.111 is amended by adding a new paragraph (i) to 
read as follows:


Sec.  422.111  Disclosure requirements.

* * * * *
    (i) Provision of information required for access to covered 
services. MA plans must issue and reissue (as appropriate) a member 
identification card that its enrollees may use to access covered 
services under the plan. The card must comply with standards 
established by CMS, and must include, at a minimum the following:
    (1) For a MA PPO or PPFS plan, a statement that Medicare Limiting 
Charges apply.
    (2) Web link to plan's website.
    (3) Customer service number.
    (4) Individual identification number for each enrollee, to clearly 
identify that they are a member of the plan.

Subpart E--Relationships with Providers

    14. Section 422.216 is amended by revising paragraph (d)(1) to read 
as follows:


Sec.  422.216  Special rules for MA private fee-for-service plans.

* * * * *
    (d) * * *
    (1) General information. An MA organization that offers an MA 
private fee-for-service plan must provide to plan enrollees, an 
appropriate explanation of benefits consistent with the requirements of 
Sec.  422.111(b)(12).
* * * * *

Subpart K--Application Procedures and Contracts for Medicare 
Advantage Organizations

    15. Section 422.500 is amended by revising paragraph (a) to read as 
follows:


Sec.  422.500  Scope and definitions.

    (a) Scope. This subpart sets forth application requirements for 
entities seeking a contract as a Medicare organization offering an MA 
plan, including MA organizations offering a specialized MA plan for 
special needs individuals. MA organizations offering prescription drug 
plans must, in addition to the requirements of this part, follow the 
requirements of part 423 of this chapter specifically related to the 
prescription drug benefit.
* * * * *
    16. Section 422.501 is amended as follows:
    A. Revising paragraph (a).
    B. In paragraph (c)(1)(ii) removing ``; or'' and adding in its 
place ``.''.
    C. Adding new paragraph (c)(1)(iii).
    D. Revising paragraph (e).
    The addition and revision read as follows:


Sec.  422.501  Application requirements.

    (a) Scope. This section sets forth application requirements for 
entities that seek a contract as an MA organization offering an MA plan 
and additional application requirements for MA organizations seeking to 
offer a Specialized MA Plan for Special Needs Individuals.
* * * * *
    (c) * * *
    (1) * * *
    (iii) For Specialized MA Plans for Special Needs Individuals, 
documentation that the entity meets the requirements of Sec.  422.2; 
Sec.  422.4(a)(1)(iv); Sec.  422.101(f); Sec.  422.107, if applicable; 
and Sec.  422.152(g) of this part.
* * * * *
    (e) Resubmittal of an application. An application that has been 
denied by CMS for a particular contract year may not be resubmitted 
until the beginning of the application cycle for the following contract 
year.
* * * * *
    17. Section 422.502 is amended as follows:
    A. In paragraph (a)(1), removing the phrase ``MA contract solely'' 
and adding in its place the phrase ``MA contract or for a Specialized 
MA Plan for Special Needs Individuals solely''.
    B. In paragraph (b)(1), removing the phrase ``If an MA 
organization'' and adding in its place ``Except as provided in 
paragraphs (b)(2) through (b)(4) of this section, if an MA 
organization''.
    C. Adding paragraphs (b)(3) and (b)(4).
    D. In paragraph (c) introductory text, removing the phrase ``MA 
contract under this part'' and adding in its place the phrase ``MA 
contract or to be designated a Specialized MA Plan for Special Needs 
Individuals under this part''.
    E. Revising paragraphs (c)(2)(i) through (iii).
    F. Revising paragraph (c)(3)(i).
    The additions and revision read as follows:


Sec.  422.502  Evaluation and determination procedures.

* * * * *
    (b) * * *
    (3) If CMS has terminated, under Sec.  422.510, or non-renewed, 
under Sec.  422.506(b), an MA organization's contract, effective within 
the 38 months preceding the deadline established by CMS for the 
submission of contract qualification applications, CMS may deny an 
application based on the applicant's substantial failure to comply with 
the requirements of the Part C program even if the applicant currently 
meets all of the requirements of this part.
    (4) During the same 38-month period as specified in (b)(3) of this 
section, CMS may deny an application where the applicant's covered 
persons also served as covered persons for the terminated or non-
renewed contract. A ''covered person'' as used in this paragraph means 
one of the following:
    (i) All owners of terminated organizations who are natural persons, 
other than shareholders who have an ownership interest of less than 5 
percent.
    (ii) An owner in whole or part interest in any mortgage, deed of 
trust, note or other obligation secured (in whole or in part) by the 
organization, or any of the property or assets thereof, which whole or 
part interest is equal to or exceeds 5 percent of the total property, 
and assets of the organization.
    (iii) A member of the board of directors or board of trustees of 
the entity, if the organization is organized as a corporation.
    (c) * * *
    (2) Intent to deny. (i) If CMS finds that the applicant does not 
appear to be able to meet the requirements for an MA organization or 
Specialized MA Plan for Special Needs Individuals, CMS gives the 
applicant notice of intent to deny the application for an MA contract 
or for a Specialized MA Plan for Special Needs Individuals a summary of 
the basis for this preliminary finding.
    (ii) Within 10 days from the intent to deny, the applicant must 
respond in writing to the issues or other matters that were the basis 
for CMS' preliminary finding and must revise its application to remedy 
any defects CMS identified.
    (iii) If CMS does not receive a revised application within 10 days 
from the date of the notice, or if after timely submission of a revised 
application,

[[Page 63084]]

CMS still finds that the applicant does not appear qualified or has not 
provided CMS enough information to allow CMS to evaluate the 
application, CMS will deny the application.
    (3) * * *
    (i) That the applicant is not qualified to contract as an MA 
organization under Part C of title XVIII of the Act and/or is not 
qualified to offer a Specialized MA Plan for Special Needs Individuals;
* * * * *
    17. Section 422.504 is amended as follows:
    A. Adding new paragraphs (a)(17), (a)(18), and (i)(3)(iv).
    B. Revising paragraphs (i)(3) introductory text and (i)(3)(iii), 
(i)(4)(i) through (iv), and (i)(5).
    The additions and revisions red as follows:


Sec.  422.504  Contract provisions.

* * * * *
    (a) * * *
    (17) To maintain administrative and management capabilities 
sufficient for the organization to organize, implement, and control the 
financial, marketing, benefit administration, and quality improvement 
activities related to the delivery of Part C services.
    (18) To maintain a Part C summary plan rating score of at least 3 
stars. A Part C summary plan rating is calculated by taking an average 
of a contract's Part C performance measure scores.
* * * * *
    (i) * * *
    (3) Each and every contract governing MA organizations and first 
tier, downstream, and related entities, must contain the following:
* * * * *
    (iii) A provision requiring that any services or other activity 
performed by a first tier, downstream, and related entity in accordance 
with a contract are consistent and comply with the MA organization's 
contractual obligations.
    (iv) A provision requiring that payment will not be made to 
hospitals for serious preventable events and hospital-acquired 
conditions in accordance with section 1886(d)(4)(D) of the Act and all 
applicable Medicare policies.
* * * * *
    (4) * * *
    (i) Each and every contract must specify delegated activities and 
reporting responsibilities.
    (ii) Each and every contract must either provide for revocation of 
the delegation activities and reporting requirements or specify other 
remedies in instances where CMS or the MA organization determine that 
such parties have not performed satisfactorily.
    (iii) Each and every contract must specify that the performance of 
the parties is monitored by the MA organization on an ongoing basis.
    (iv) Each and every contract must specify that either--
* * * * *
    (5) If the MA organization delegates selection of the providers, 
contractors, or subcontractor to another organization, the MA 
organization's contract with that organization must state that the CMS-
contracting MA organization retains the right to approve, suspend, or 
terminate any such arrangement.
* * * * *

Subpart K--Application Procedures and Contracts for Medicare 
Advantage Organizations

    18. Section 422.510 is amended by adding a new paragraph (a)(14) to 
read as follows:


Sec.  422.510  Termination of contract by CMS.

    (a) * * *
    (14) Achieves a Part C summary plan rating of less than 3 stars for 
3 consecutive contract years. Plan ratings issued by CMS before 
September 1, 2012 are not included in the calculation of the 3-year 
period.
* * * * *

Subpart N--Medicare Contract Determinations and Appeals

    19. Section 422.641 is amended by adding a new paragraph (d) to 
read as follows:


Sec.  422.641  Contract determinations.

* * * * *
    (d) A determination that an entity is not qualified to offer a 
Specialized MA Plan for Special Needs Individuals as defined in Sec.  
422.2 and Sec.  422.4(a)(1)(iv).
    20. Section Sec.  422.660 is amended by adding new paragraphs 
(a)(5) and (b)(5) to read as follows:


Sec.  422.660  Right to a hearing, burden of proof, standard of proof, 
and standards of review.

    (a) * * *
    (5) An applicant that has been determined to be unqualified to 
offer a Specialized MA Plan for Special Needs Individuals.
    (b) * * *
    (5) During a hearing to review a determination as described at 
Sec.  422.641(d) of this subpart, the applicant has the burden of 
proving by a preponderance of the evidence that CMS' determination was 
inconsistent with the requirements of Sec.  422.2; Sec.  
422.4(a)(1)(iv); Sec.  422.101(f); Sec.  422.107, if applicable; and 
Sec.  422.152(g) of this part.
* * * * *

Subpart V--Medicare Advantage Marketing Requirements

    21. Section 422.2274 is amended as follows:
    A. Revising paragraph (a)(1)(i).
    B. Removing and reserving paragraph (a)(1)(ii).
    C. Revising paragraph (a)(1)(iii).
    D. Adding a new paragraph (f).
    The revisions and addition read as follows:


Sec.  422.2274  Broker and agent requirements.

* * * * *
    (a) * * *
    (1) * * *
    (i) The compensation amount paid by plan sponsors to an independent 
broker or agent:
    (A) For an initial enrollment of a Medicare beneficiary into an MA 
plan, must be at or below the fair market value (FMV) cut-off amounts 
published annually by CMS.
    (B) For renewals, must be an amount equal to 50 percent of the 
initial compensation in paragraph (a)(1)(i)(A) of this section.
    (ii) [Reserved].
    (iii) The independent broker or agent is paid a renewal 
compensation for each of the next 5 years that the enrollee remains in 
the plan in an amount equal to 50 percent of the initial year 
compensation amount (creating a 6-year compensation cycle).
* * * * *
    (f) A plan sponsor must report annually, as directed by CMS--
    (1) Whether it intends to use independent agents or brokers or both 
in the upcoming plan year; and
    (2) If applicable, the specific amount or range of amounts 
independent agents or brokers or both will be paid.

PART 423--MEDICARE PROGRAM; MEDICARE PRESCRIPTION DRUG PROGRAM

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

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

Subpart B--Eligibility and Enrollment

    23. Section 423.56 is amended by revising paragraphs (a) and (f)(3) 
to read as follows:

[[Page 63085]]

Sec.  423.56  Procedures to determine and document creditable status of 
prescription drug coverage.

    (a) Definition. Creditable prescription drug coverage means any of 
the following types of coverage listed in paragraph (b) of this section 
only if the actuarial value of the coverage equals or exceeds the 
actuarial value of defined standard prescription drug coverage under 
Part D in effect at the start of such plan year, not taking into 
account the value of any discount or coverage provided during the 
coverage gap, and demonstrated through the use of generally accepted 
actuarial principles and in accordance with CMS guidelines.
* * * * *
    (f) * * *
    (3) Prior to the commencement of the Annual Coordinated Election 
Period as defined in Sec.  423.38(b); and
* * * * *

Subpart C--Benefits and Beneficiary Protections

    24. Section 423.100 is amended as follows:
    A. Adding the definition of ``Daily cost-sharing rate.''
    B. Revising paragraph (2)(iii) of the definition of ``Incurred 
costs.''
    C. In paragraph (2)(ii) of the definition of ``Part D drug,'' the 
phrase ``smoking cessation agents'' is removed and adding in its place 
the phrase ``smoking cessation agents, benzodiazepines, and 
barbiturates when used to treat epilepsy, cancer, or chronic mental 
health disorder.''
    D. Revising the definition of ``Supplemental benefits''.
    E. Adding the definition of ``Valid prescription''
    The additions and revision read as follows:


Sec.  423.100  Definitions.

* * * * *
    Daily cost-sharing rate means, as applicable, the established 
monthly--
    (1) Copayment under the enrollee's Part D plan divided by 30 or 31 
and rounded to the nearest lower dollar amount or to another amount but 
in no event to an amount which would require the enrollee to pay more 
for a month's supply of the prescription than the enrollee would have 
paid if a month's supply had been dispensed; or
    (2) Coinsurance rate under the enrollee's Part D plan applied to 
the ingredient cost of the prescription for a month's supply divided by 
30 or 31.
* * * * *
    Incurred costs
* * * * *
    (2) * * *
    (ii) Under State Pharmaceutical Assistance Program (as defined in 
Sec.  423.464); by the Indian Health Service, an Indian tribe or tribal 
organization, or urban Indian organization (as defined in section 4 of 
the Indian Health Care Improvement Act) or under an AIDS Drug 
Assistance Program (as defined in part B of title XXVI of the Public 
Health Service); or by a manufacturer as payment for an applicable 
discount (as defined in Sec.  423.2305) or under the Medicare Coverage 
Gap Discount Program (as defined in Sec.  423.2305); or
* * * * *
    Supplemental benefits means benefits offered by Part D plans, other 
than employer group health or waiver plans, that meet the requirements 
of Sec.  423.104(f)(1)(ii).
* * * * *
    Valid prescription means a prescription that complies with all 
applicable State law requirements constituting a valid prescription.
* * * * *
    25. Section 423.104 is amended by adding new paragraphs (h) and (i) 
to read as follows:


Sec.  423.104  Requirements related to qualified prescription drug 
coverage.

* * * * *
    (h) Valid prescription. A Part D sponsor may only provide benefits 
for Part D drugs that require a prescription if those drugs are 
dispensed upon a valid prescription.
    (i) Daily cost-sharing rate. A Part D sponsor is required provide 
its enrollees access to a daily cost-sharing rate in accordance with 
Sec.  423.153(b)(4).
    26. Section 423.120 is amended by adding a new paragraph (c)(5) to 
read as follows:


Sec.  423.120  Use of standardized technology.

* * * * *
    (c) * * *
    (5)(i) Part D sponsor must submit to CMS only a prescription drug 
event (PDE) record that contains an active and valid individual 
prescriber NPI.
    (ii) Notwithstanding paragraph (c)(5)(i) of this section, a Part D 
sponsor may not reject a claim from a network pharmacy solely on the 
basis that it does not contain an active and/or valid NPI unless the 
issue can be resolved at point-of-sale, there is an indication of 
fraud, the prescription was written by a provider excluded from the 
Medicare program or the claim involves a prescription written by a 
foreign prescriber (where permitted by State law).
    (iii) With respect to non-standard requests for reimbursement 
submitted by Medicare beneficiaries, a Part D sponsor may not make 
payment to a beneficiary dependent upon the sponsor's acquisition of 
the prescriber NPI. If the sponsor is unable to retrospectively acquire 
an active and valid individual prescriber NPI, the sponsor may not seek 
recovery of the payment from the beneficiary solely on the basis that 
the non-standard request did not include a valid individual prescriber 
NPI.
* * * * *

Subpart D--Cost Control and Quality Improvement Requirements

    27. Section 423.153 is amended as follows:
    A. In the introductory text for paragraph (b), the phrase ``that -
'' is removed and the phrase ``that address all of the following:'' is 
added in its place.
    B. In paragraph (b)(1) removing ``;'' and adding in its place 
``.''.
    C. In paragraph (b)(2) removing ``; and'' and adding in its place 
``.''.
    D. Adding a new paragraph (b)(4).
    E. Revising paragraphs (d)(1)(vii)(B), and (d)(2).
    The addition and revision read as follows:


Sec.  423.153  Drug utilization management, quality assurance, and 
medication therapy management programs (MTMPs).

* * * * *
    (b) * * *
    (4)(i) Establishes and applies a daily cost-sharing rate to a 
prescription dispensed by a network pharmacy for a covered Part D 
generic or brand drug that is dispensed for a supply less than 30 days, 
multiplied by the days supply actually dispensed, plus any dispensing 
fee in the case of coinsurance--
    (A) If the drug is in the form of a solid oral dose, subject to 
paragraph (b)(4)(ii) of this section; and
    (B) The prescription is--
    (1) For an initial fill of a new medication;
    (2) Intended to allow the enrollee to synchronize refill dates of 
multiple drugs; or
    (3) Dispensed in accordance with Sec.  423.154.
    (ii) The requirements of paragraph (b)(4)(i) of this section do not 
apply to either of the following:
    (A) Solid oral doses of antibiotics.
    (B) Solid oral doses that are dispensed in their original container 
as indicated in the Food and Drug Administration Prescribing 
Information or are customarily dispensed in their original packaging to 
assist patients with compliance.
* * * * *

[[Page 63086]]

    (d) * * *
    (1) * * *
    (vii) * * *
    (B) Annual comprehensive medication review with written summaries. 
(1) The beneficiary's comprehensive medication review--
    (i) Must include an interactive, person-to-person, or telehealth 
consultation performed by a pharmacist or other qualified provider; and
    (ii) May result in a recommended medication action plan.
    (2) If a beneficiary residing in an LTC setting is offered the 
annual comprehensive medication review and cannot accept the offer to 
participate, the pharmacist or other qualified provider must perform 
the medication review without the beneficiary's participation.
* * * * *

Subpart J--Coordination of Part D Plans with Other Prescriptions 
Drug Coverage

    28. Section 423.458 is amended by adding a new paragraph (c)(3) to 
read as follows:


Sec.  423.458  Application of Part D rules to certain Part D plans on 
or after January 1, 2006.

* * * * *
    (c) * * *
    (3) Employer-sponsored group prescription drug plans must comply 
with all applicable requirements under this part that are not 
specifically waived or modified in accordance with in paragraph (c)(2) 
of this section.
* * * * *

Subpart K--Application Procedures and Contracts with Part D Plan 
Sponsors

    29. Section 423.501 is amended by adding the definition of ``Bona 
fide service fees'' to read as follows:


Sec.  423.501  Definitions.

* * * * *
    Bona fide service fees means fees paid by a manufacturer to an 
entity that represent fair market value for a bona fide, itemized 
service actually performed on behalf of the manufacturer that the 
manufacturer would otherwise perform (or contract for) in the absence 
of the service arrangement, and that are not passed on in whole or in 
part to a client or customer of an entity, whether or not the entity 
takes title to the drugs. Bona fide service fees include, but are not 
limited to distribution service fees, inventory management fees, 
product stocking allowances, and fees associated with administrative 
services agreements and patient care programs (such as medication 
compliance programs and patient education programs).
* * * * *
    30. Section 423.503 is amended as follows:
    A. In paragraph (b)(1), removing the phrase ``If a Part D'' and 
adding in its place '' Except as provided in paragraphs (b)(2), (b)(3), 
and (b)(4) of this section, if a Part D''.
    B. Adding new paragraphs (b)(3) and (b)(4).
    The additions read as follows:


Sec.  423.503  Evaluation and determination procedures for applications 
to be determined qualified to act as a sponsor.

* * * * *
    (b) * * *
    (3) If CMS has terminated, under Sec.  423.509, or non-renewed, 
under Sec.  423.507(b), a Part D plan sponsor's contract, effective 
within the 38 months preceding the deadline established by CMS for the 
submission of contract qualification applications, CMS may deny an 
application based on the applicant's substantial failure to comply with 
the requirements of the Part D program even if the applicant currently 
meets all of the requirements of this part.
    (4) During the same 38-month period as specified in (b)(3) of this 
section, CMS may deny an application where the applicant's covered 
persons also served as covered persons for the terminated or non-
renewed contract. A ``covered person'' as used in this paragraph means 
one of the following:
    (i) All owners of terminated organizations who are natural persons, 
other than shareholders who have an ownership interest of less than 5 
percent.
    (ii) An owner in whole or part interest in any mortgage, deed of 
trust, note or other obligation secured (in whole or in part) by the 
organization, or any of the property or assets thereof, which whole or 
part interest is equal to or exceeds 5 percent of the total property, 
and assets of the organization.
    (iii) A member of the board of directors or board of trustees of 
the entity, if the organization is organized as a corporation.
* * * * *
    31. Section 423.505 is amended to read as follows:
    A. Adding new paragraphs (b)(24) through (b)(26).
    B. Revising paragraphs (i)(3) introductory text, (i)(3)(iii), 
(i)(3)(v), and (i)(4)(i) through (iv).


Sec.  423.505  Contract provisions.

* * * * *
    (b) * * *
    (24) Provide applicable beneficiaries with applicable discounts on 
applicable drugs in accordance with the requirements in subpart W of 
Part 423.
    (25) Maintains administrative and management capabilities 
sufficient for the organization to organize, implement, and control the 
financial, marketing, benefit administration, and quality assurance 
activities related to the delivery of Part D services.
    (26) Maintains a Part D summary plan rating score of at least 3 
stars. A Part D summary plan rating is calculated by taking an average 
of a contract's Part C performance measure scores.
* * * * *
    (i) * * *
    (3) Each and every contract governing Part D sponsors and first 
tier, downstream, and related entities, must contain the following:
* * * * *
    (iii) A provision requiring that any services or other activity 
performed by a first tier, downstream, and related entity in accordance 
with a contract are consistent and comply with the Part D sponsor's 
contractual obligations.
* * * * *
    (v) Each and every contract must specify that first tier, 
downstream, and related entities must comply with all applicable 
Federal laws, regulations, and CMS instructions.
* * * * *
    (4) * * *
    (i) Each and every contract must specify delegated activities and 
reporting responsibilities.
    (ii) Each and every contract must either provide for revocation of 
the delegation activities and reporting responsibilities described in 
paragraph (i)(4)(i) of this section or specify other remedies in 
instances when CMS or the Part D plan sponsor determine that the 
parties have not performed satisfactorily.
    (iii) Each and every contract must specify that the Part D plan 
sponsor on an ongoing basis monitors the performance of the parties.
    (iv) Each and every contract must specify that the related entity, 
contractor, or subcontractor must comply with all applicable Federal 
laws, regulations, and CMS instructions.
* * * * *
    32. Section 423.509 is amended by adding a new paragraph (a)(13) to 
read as follows:


Sec.  423.509  Termination of Contract by CMS.

* * * * *
    (a) * * *
    (13) Achieves a Part D summary plan rating of less than 3 stars for 
3

[[Page 63087]]

consecutive contract years. Plan ratings issued by CMS before September 
1, 2012 are not included in the calculation of the 3-year period.
* * * * *
    33. Section 423.514 is amended as follows:
    A. Redesignating paragraphs (d) through (g) as paragraphs (g) 
through (j), respectively.
    B. Adding new paragraphs (d), (e), and (f).
    The additions read as follows:


Sec.  423.514  Validation of Part D reporting requirements.

* * * * *
    (d) Reporting requirements for pharmacy benefits manager data. Each 
entity that provides pharmacy benefits management services must provide 
to the Part D sponsor, and each Part D sponsor must provide to CMS, in 
a manner specified by CMS, the following:
    (1) The total number of prescriptions that were dispensed.
    (2) The percentage of all prescriptions that were provided through 
retail pharmacies compared to mail order pharmacies.
    (3) The percentage of prescriptions for which a generic drug was 
available and dispensed (generic dispensing rate), by pharmacy type 
(which includes an independent pharmacy, chain pharmacy, supermarket 
pharmacy, or mass merchandiser pharmacy that is licensed as a pharmacy 
by the State and that dispenses medication to the general public), that 
is paid by the Part D sponsor or PBM under the contract.
    (4) The aggregate amount and type of rebates, discounts, or price 
concessions (excluding bona fide service fees as defined in Sec.  
423.501) that the PBM negotiates that are attributable to patient 
utilization under the plan.
    (5) The aggregate amount of the rebates, discounts, or price 
concessions that are passed through to the plan sponsor, and the total 
number of prescriptions that were dispensed.
    (6) The aggregate amount of the difference between the amount the 
Part D sponsor pays the PBM and the amount that the PBM pays retail 
pharmacies, and mail order pharmacies.
    (e) Confidentiality of pharmacy benefits manager data. Information 
disclosed by a Part D sponsor or PBM as specified in paragraph (d) of 
this section is confidential must not be disclosed by the Secretary or 
by a plan receiving the information, except that the Secretary may 
disclose the information in a form which does not disclose the identity 
of a specific PBM, plan, or prices charged for drugs, for the following 
purposes:
    (1) As the Secretary determines necessary to carry out section 
1150A of the Act or Part D of Title XVIII.
    (2) To permit the Comptroller General to review the information 
provided.
    (3) To permit the Director of the Congressional Budget Office to 
review the information provided.
    (f) Penalties for failure to provide pharmacy benefits manager 
data. The provisions of section 1927(b)(3)(C) of the Act are applicable 
to a Part D sponsor or PBM that fails to provide the required 
information on a timely basis or knowingly provides false information 
in the same manner as such provisions apply to a manufacturer with an 
agreement under section 1927 of the Act.
* * * * *

Subpart M--Grievances, Coverage Determinations, Redeterminations, 
and Reconsiderations

    34. Section 423.600 is amended by revising paragraphs (a) through 
(c) to read as follows:


Sec.  423.600  Reconsideration by an independent review entity (IRE).

    (a) An enrollee who is dissatisfied with the redetermination of a 
Part D plan sponsor has a right to a reconsideration by an independent 
review entity that contracts with CMS. The prescribing physician or 
other prescriber (acting on behalf of an enrollee), upon providing 
notice to the enrollee, may request an IRE reconsideration. The 
enrollee, or the enrollee's prescribing physician or other prescriber 
(acting on behalf of the enrollee) must file a written request for 
reconsideration with the IRE within 60 calendar days of the date of the 
redetermination by the Part D plan sponsor.
    (b) When an enrollee, or an enrollee's prescribing physician or 
other prescriber (acting on behalf of the enrollee) files an appeal, 
the IRE is required to solicit the views of the prescribing physician 
or other prescriber. The IRE may solicit the views of the prescribing 
physician or other prescriber orally or in writing. A written account 
of the prescribing physician's or other prescriber's views (prepared by 
either the prescribing physician, other prescriber, or IRE, as 
appropriate) must be contained in the IRE record.
    (c) In order for an enrollee or a prescribing physician or other 
prescriber (acting on behalf of an enrollee) to request an IRE 
reconsideration of a determination by a Part D plan sponsor not to 
provide for a Part D drug that is not on the formulary, the prescribing 
physician or other prescriber must determine that all covered Part D 
drugs on any tier of the formulary for treatment of the same condition 
would not be as effective for the individual as the non-formulary drug, 
would have adverse effects for the individual, or both.
* * * * *
    35. Section 423.602 is amended by revising paragraph (a) to read as 
follows:


Sec.  423.602  Notice of reconsideration determination by the 
independent review entity.

    (a) Responsibility for the notice. When the IRE makes its 
reconsideration determination, it is responsible for mailing a notice 
of its determination to the enrollee and the Part D plan sponsor, and 
for sending a copy to CMS. When the prescribing physician or other 
prescriber requests the reconsideration on behalf of the enrollee, the 
IRE is also responsible for notifying the prescribing physician or 
other prescriber of its decision.
* * * * *

Subpart T--Appeal Procedures for Civil Money Penalties

    36. Section 423.1000 is amended by adding paragraph (a)(3) to read 
as follows:


Sec.  423.1000  Basis and scope.

* * * * *
    (a) * * *
    (3) Section 1860D-14A(e)(2) of the Act specifies that the Secretary 
must impose a civil money penalty on a manufacturer that fails to 
provide applicable beneficiaries discounts for applicable drugs of the 
manufacturer in accordance with its Discount Program Agreement. Section 
1860D-14A(e)(2)(B) of the Act makes certain provisions of section 1128A 
of the Act applicable to such civil money penalties imposed on 
manufacturers.
    37. Section 423.1002 is amended by revising the definition of 
``Affected party'' to read as follows:


Sec.  423.1002  Definitions.

    Affected party means any Part D sponsor or manufacturer (as defined 
in Sec.  423.2305) impacted by an initial determination or if 
applicable, by a subsequent determination or decision issued under this 
part, and ``party'' means the affected party or CMS, as appropriate.

[[Page 63088]]

Subpart V--Part D Marketing Requirements

    38. Section Sec.  423.2274 is amended to read as follows:
    A. Revising paragraph (a)(1)(i).
    B. Removing and reserving paragraph (a)(1)(ii).
    C. Revising paragraph (a)(1)(iii).
    D. Adding a new paragraph (f).
    The revisions and addition read as follows:


Sec.  423.2274  Broker and agent requirements.

* * * * *
    (a) * * *
    (1) * * *
    (i) The compensation amount paid by plan sponsors to an independent 
broker or agent--
    (A) For an initial enrollment of a Medicare beneficiary into a PDP 
must be at or below the fair market value (FMV) cut-off amounts 
published annually by CMS; or
    (B) For renewals, must be an amount equal to 50 percent of the 
initial compensation in paragraph (a)(1)(i)(A) of this section.
    (ii) [Reserved].
    (iii) The independent broker or agent is paid a renewal 
compensation for each of the next 5 years that the enrollee remains in 
the plan in an amount equal to 50 percent of the initial year 
compensation paid (creating a 6-year compensation cycle).
* * * * *
    (f) Plan sponsor must report annually, as directed by CMS the 
following:
    (1) Whether it intends to use independent agents or brokers or both 
in the upcoming plan year.
    (2) If applicable, the specific amount or range of amounts 
independent agents or brokers or both will be paid.
* * * * *
    39. Part 423 is amended by adding a new subpart W to read as 
follows:
Subpart W--Medicare Coverage Gap Discount Program
Sec.
423.2300 Scope.
423.2305 Definitions.
423.2310 Condition for coverage of drugs under Part D.
423.2315 Medicare Coverage Gap Discount Program Agreement.
423.2320 Payment processes for Part D sponsors.
423.2325 Provision of applicable discounts on applicable drugs for 
applicable beneficiaries.
423.2330 Manufacturer discount payment audit and dispute resolution.
423.2335 Beneficiary dispute resolution.
423.2340 Compliance monitoring and civil money penalties.
423.2345 Termination of Discount Program Agreement.

Subpart W--Medicare Coverage Gap Discount Program


Sec.  423.2300  Scope.

    This subpart implements provisions included in sections 1860D-14A 
and 1860D-43 of the Act. This subpart sets forth requirements regarding 
the following:
    (a) Condition for coverage of applicable drugs under Part D.
    (b) The Medicare Coverage Gap Discount Program Agreement.
    (c) Coverage gap discount payment processes for Part D sponsors.
    (d) Provision of applicable discounts on applicable drugs for 
applicable beneficiaries.
    (e) Manufacturer audit and dispute resolution processes.
    (f) Resolution of beneficiary disputes involving coverage gap 
discounts.
    (g) Compliance monitoring and civil money penalties.
    (h) The termination of the Discount Program Agreement.


Sec.  423.2305  Definitions.

    As used in this subpart, unless otherwise specified--
    Applicable discount means 50 percent of the portion of the 
negotiated price (as defined in Sec.  423.2305) of the applicable drug 
of a manufacturer that falls within the coverage gap and that remains 
after such negotiated price is reduced by any supplemental benefits 
that are available.
    Applicable number of calendar days means, with respect to claims 
for reimbursement submitted electronically, 14 days, and otherwise, 30 
days.
    Date of dispensing means the date of service.
    Labeler code means the first segment of the Food and Drug 
Administration national drug code (NDC) that identifies a particular 
manufacturer.
    Manufacturer means any entity which is engaged in the production, 
preparation, propagation, compounding, conversion or processing of 
prescription drug products, either directly or indirectly, by 
extraction from substances of natural origin, or independently by means 
of chemical synthesis, or by a combination of extraction and chemical 
synthesis. For purposes of the Discount Program, such term does not 
include a wholesale distributor of drugs or a retail pharmacy licensed 
under State law, but includes entities otherwise engaged in repackaging 
or changing the container, wrapper, or labeling of any applicable drug 
product in furtherance of the distribution of the applicable drug from 
the original place of manufacture to the person who makes the final 
delivery or sale to the ultimate consumer or use.
    Medicare Coverage Gap Discount Program (or Discount Program) means 
the Medicare coverage gap discount program established under 
section1860D-14A of the Act.
    Medicare Coverage Gap Discount Program Agreement (or Discount 
Program Agreement) means the agreement described in section 1860D-
14A(b) of the Act.
    Medicare Part D discount information means the information sent 
from CMS or the TPA to the manufacturer along with each quarterly 
invoice that is derived from applicable data elements available on 
prescription drug events as determined by CMS.
    National Drug Code (NDC) means the unique identifying prescription 
drug product number that is listed with the Food and Drug 
Administration (FDA) identifying the product and package size.
    Negotiated price for purposes of the Discount Program, means the 
price for a covered Part D drug that--
    (1) The Part D sponsor (or other intermediary contracting 
organization) and the network dispensing pharmacy or other network 
dispensing provider have negotiated as the amount such network entity 
will receive, in total, for a particular drug;
    (2) Is reduced by those discounts, direct or indirect subsidies, 
rebates, other price concessions, and direct or indirect remuneration 
that the Part D sponsor has elected to pass through to Part D enrollees 
at the point-of-sale; and
    (3) Excludes any dispensing fee or vaccine administration fee for 
the applicable drug. In connection with applicable drugs dispensed by 
an out-of-network provider in accordance with the applicable 
beneficiary's Part D plan out-of-network policies, the negotiated price 
means the plan allowance as set forth in Sec.  423.124, less any 
dispensing fee or vaccine administration fee.
    Other health or prescription drug coverage means any coverage or 
financial assistance under other health benefit plans or programs that 
provide coverage or financial assistance for the purchase or provision 
of prescription drug coverage on behalf of applicable beneficiaries, 
including, in the case of employer group health or waiver plans, other 
than basic prescription drug coverage as defined in Sec.  423.100.
    Third Party Administrator (TPA) means the CMS contractor 
responsible for administering the requirements established by the CMS 
to carry out section 1860D-14A of the Act.

[[Page 63089]]

Sec.  423.2310  Condition for coverage of drugs under Part D.

    (a) Covered Part D drug coverage requirement. Except as specified 
in paragraph (b) of this section, in order for coverage to be available 
under Medicare Part D for applicable drugs of a manufacturer, the 
manufacturer must do all of the following:
    (1) Participate in the Discount Program.
    (2) Have entered into and have in effect an agreement described in 
Sec.  423.2315(b).
    (3) Have entered into and have in effect, under terms and 
conditions specified by CMS, a contract with the TPA.
    (b) Exception to covered drug coverage requirement. Paragraph (a) 
of this section does not apply to an applicable drug if CMS has made a 
determination that the availability of the applicable drug is essential 
to the health of beneficiaries enrolled in Medicare Part D.


Sec.  423.2315  Medicare Coverage Gap Discount Program Agreement.

    (a) General rule. The Medicare Coverage Gap Discount Program 
Agreement (or Discount Program Agreement) between the manufacturer and 
CMS must contain, the provisions specified in paragraph (b) of this 
section, and may contain such other provisions as are established in a 
model agreement consistent with section 1860D-14A (a)(1) of the Act.
    (b) Agreement requirements. The manufacturer agrees to the 
following:
    (1) All the applicable requirements and conditions set forth in 
this part and general instructions.
    (2) Reimburse all applicable discounts provided by Part D sponsors 
on behalf of the manufacturer for all applicable drugs having NDCs with 
the manufacturer's FDA-assigned labeler code(s) invoiced to the 
manufacturer within a maximum of 3 years of the date of dispensing 
based upon information reported to CMS by Part D sponsors.
    (3) Pay each Part D sponsor in the manner specified by CMS within 
38 calendar days of receipt of the invoice and Medicare Part D Discount 
Information for the applicable discounts included on the invoice, 
except as specified in Sec.  423.2330(c)(3).
    (4) Provide CMS with all labeler codes for all the manufacturer's 
applicable drugs and to promptly update such list with any additional 
labeler codes for applicable drugs no later than 3 business days after 
having received written notification of the codes from the FDA.
    (5) Collect, have available, and maintain appropriate data, 
including data related to manufacturer's labeler codes, NDC expiration 
dates, utilization and pricing information relied on by the 
manufacturer to dispute quarterly invoices and any other data CMS 
determines are necessary to carry out the Discount Program for a period 
of not less than 10 years from the date of payment of the invoice.
    (6) Comply with the audit and dispute resolution requirements in 
Sec.  423.2330.
    (7) Electronically list and maintain up-to-date electronic FDA 
listings of all NDCs of the manufacturer, including the timely removal 
of discontinued NDCs in the FDA NDC Directory.
    (8) Maintain up-to-date NDC listings with the electronic database 
vendors for which the manufacturer provides NDCs for pharmacy claims 
processing.
    (9) Enter into and have in effect, under terms and conditions 
specified by CMS, an agreement with the TPA that has a contract with 
CMS under section 1860D-14(A)(d)(3) of the Act.
    (10) Pay quarterly invoices directly to accounts established by 
Part D sponsors via electronic funds transfer, or other manner if 
specified by CMS, within the time period specified in paragraph (b)(3) 
and within 5 business days of the transfer to provide the TPA with 
electronic documentation of such payment in a manner specified by CMS.
    (11) Use information disclosed to the manufacturer on the invoice, 
as part of the Medicare Part D Discount Information, or upon audit or 
dispute only for purposes of paying the discount under the Discount 
Program.
    (c) Timing and length of agreement. (1) For 2011, a manufacturer 
must enter into a Discount Program Agreement not later than 30 days 
after the date of establishment of the model Discount Program 
Agreement.
    (2) For 2012 and subsequent years, for a Discount Program Agreement 
to be effective for a year, a manufacturer must enter into a Discount 
Program Agreement not later than January 30th of the preceding year.
    (3) Unless terminated in accordance with Sec.  423.2345, the 
initial period of a Discount Program Agreement is 24 months and the 
agreement is automatically renewed for a one year period on January 
first each year for a period of 1 year thereafter.
    (d) Compliance with requirements for administration of the Program. 
Each manufacturer with an agreement in effect under this subpart must 
comply with the requirements imposed by CMS or the third party 
administrator (as defined in Sec.  423.2305) for purposes of 
administering the program.


Sec.  423.2320  Payment processes for Part D sponsors.

    (a) Interim payments. CMS provides monthly interim coverage gap 
discount program payments as necessary for Part D sponsors to advance 
coverage gap discounts to beneficiaries.
    (b) Coverage Gap Discount Reconciliation. CMS reconciles interim 
payments with invoiced manufacturer discount amounts made available to 
each Part D plan's enrollee under the Discount Program.


Sec.  423.2325  Provision of applicable discounts on applicable drugs 
for applicable beneficiaries.

    (a) General rule. On behalf of the manufacturers, Part D sponsors 
must provide applicable beneficiaries with applicable discounts on 
applicable drugs at the point-of-sale.
    (b) Discount determination. (1) Part D sponsors must determine the 
following:
    (i) Whether an enrollee is an applicable beneficiary (as defined in 
Sec.  423.100).
    (ii) Whether a Part D drug is an applicable drug (as defined in 
Sec.  423.100).
    (iii) The amount of the applicable discount (as defined in Sec.  
423.2305) to be provided at the point-of-sale.
    (2) Part D sponsors must make retroactive adjustments to the 
applicable discount as necessary to reflect changes to the claim or 
beneficiary eligibility determined after the date of dispensing.
    (3) In determining whether an enrollee is entitled to an applicable 
discount and the amount of the applicable discount, the Part D sponsor 
must apply any dispensing fee or vaccine administration fee for a claim 
that straddles the coverage gap and either the initial coverage limit 
or annual out-of-pocket threshold (or both) such that the dispensing 
fee or vaccine administration fee is within the initial coverage limit 
or the catastrophic phase of coverage to the maximum extent possible, 
and then determines the amount of the applicable discount based on the 
negotiated price (as defined in Sec.  423.2305).
    (4) Part D sponsors must determine whether any affected 
beneficiaries need to be notified by the Part D sponsor that an 
applicable drug is eligible for Part D coverage whenever CMS specifies 
a retroactive effective date for a labeler code and notify such 
beneficiaries.
    (c) Exception to point-of-sale requirement. Part D sponsors must 
provide an applicable discount for applicable drugs submitted by 
applicable beneficiaries via paper claims, including out-of-network and 
in-network paper claims, if such claims are payable under Part D.

[[Page 63090]]

    (d) Collection of data. Part D sponsors must provide CMS with 
appropriate data on the applicable discounts provided by the Part D 
sponsors in a manner specified by CMS.
    (e) Supplemental benefits. (1) An applicable discount must be 
applied to beneficiary cost-sharing after supplemental benefits (as 
defined in Sec.  423.100) have been applied to the claim for an 
applicable drug.
    (2) No applicable discount is available if supplemental benefits 
(as defined in Sec.  423.100) eliminate the coverage gap so that a 
beneficiary has zero cost-sharing.
    (3) In determining whether an enrollee is entitled to an applicable 
discount and the amount of the applicable discount, the Part D sponsor 
applies any dispensing fee or vaccine administration fee for a claim 
such that the dispensing fee or vaccine administration fee is within 
the supplemental benefits to the maximum extent possible, and then 
determines the amount of the applicable discount based on the 
negotiated price (as defined in Sec.  423.2305).
    (f) Other health or prescription drug coverage. An applicable 
discount must be applied to beneficiary cost-sharing when Part D is the 
primary payer before any other health or prescription drug coverage is 
applied.
    (g) Pharmacy prompt payment. Part D sponsors must reimburse a 
network pharmacy (as defined in Sec.  423.100) the amount of the 
applicable discount no later than the applicable number of calendar 
days after the date of dispensing of an applicable drug.


Sec.  423.2330  Manufacturer discount payment audit and dispute 
resolution.

    (a) Third-party Administration (TPA) audits. (1) Manufacturers 
participating in the Discount Program may conduct periodic audits, no 
more often than annually, directly or through third parties as 
specified in this section.
    (2) The manufacturer must provide the TPA with 60 days notice of 
the reasonable basis for the audit and a description of the information 
required for the audit.
    (3) The manufacturer must have the right to audit a statistically 
significant sample of data and information held by the TPA that were 
used to determine applicable discounts for applicable drugs having NDCs 
with the manufacturer's FDA-assigned labeler code(s). Such data and 
information will be made available on-site, and with the exception of 
work papers, such information cannot be removed from the audit site.
    (4) The auditor for the manufacturer may release only an opinion of 
the audit results and is prohibited from releasing other information 
obtained from the audit, including work papers, to its client, 
employer, or any other party.
    (b) Manufacturer audits. (1) A manufacturer is subject to periodic 
audit by CMS no more often than annually, directly or through third 
parties, as specified in this section.
    (2) CMS provides the manufacturer with 60 days notice of the audit 
and a description of the information required for the audit.
    (3) CMS has the right to audit appropriate data, including data 
related to a manufacturer's FDA-assigned labeler codes, expiration date 
of NDCs, utilization, and pricing information relied on by the 
manufacturer to dispute quarterly invoices, and any other data CMS 
determines are necessary to carry out the Discount Program.
    (c) Dispute resolution. (1) Manufacturers may dispute applicable 
discounts invoiced to the manufacturer on quarterly invoices by 
providing notice of the dispute to the TPA in a manner specified by CMS 
within 60 days of receipt of the information that is the subject of the 
dispute.
    (2) Such notice must be accompanied by supporting evidence that is 
material, specific, and related to the dispute in a manner specified by 
CMS.
    (3) The manufacturer must not withhold any invoiced discount 
payments pending dispute resolution with the sole exception of invoiced 
amounts for applicable drugs that do not have labeler codes provided by 
the manufacturer to CMS in accordance with Sec.  423.2306(b)(4) of this 
subpart. If payment is withheld in accordance with this paragraph, the 
manufacturer must notify the TPA and applicable Part D sponsors within 
38 days of receipt of the applicable invoice that payment is being 
withheld for this reason.
    (4) If the manufacturer receives an unfavorable determination from 
the TPA, or the dispute is not resolved within 60 calendar days of the 
TPA's receipt of the notice of dispute, the manufacturer may request 
review by the independent review entity contracted by CMS within--
    (i) Thirty calendar days of the unfavorable determination; or
    (ii) Ninety calendar days after the TPA's receipt of the notice of 
dispute if dispute is not resolved within 60 days, whichever is 
earlier.
    (5) The independent review entity must make a determination within 
90 calendar days of receipt of the manufacturer's request for review.
    (6)(i) CMS or a manufacturer that receives an unfavorable 
determination from the independent review entity may request review by 
the CMS Administrator within 30 calendar days of receipt of the 
notification of such determination.
    (ii) The decision of the CMS Administrator is final and binding.
    (7) CMS adjusts future invoices (or implements an alternative 
reimbursement process if determined necessary by CMS) if the dispute is 
resolved in favor of the manufacturer.


Sec.  423.2335  Beneficiary dispute resolution.

    The Part D coverage determination and appeals process as described 
in Sec.  423.558 through Sec.  423.638 applies to beneficiary disputes 
involving the availability and amount of applicable discounts under the 
Discount Program.


Sec.  423.2340  Compliance monitoring and civil money penalties.

    (a) General rule. CMS monitors compliance by a manufacturer with 
the terms of the Discount Program Agreement.
    (b) Basis for imposing civil money penalties. CMS imposes a civil 
money penalty (CMP) on a manufacturer that fails to provide applicable 
beneficiaries applicable discounts for applicable drugs of the 
manufacturer in accordance with the Discount Program Agreement.
    (c) Determination of the civil money penalty amounts. CMS imposes a 
CMP for each failure by a manufacturer to provide an applicable 
discount in accordance with the Discount Program Agreement equal to the 
sum of the following:
    (1) The amount of applicable discount the manufacturer would have 
paid under the Discount Program Agreement, which will then be used to 
pay the applicable discount that the manufacturer had failed to 
provide.
    (2) Twenty-five percent of such amount.
    (d) Procedures for imposing civil money penalties. (1) If CMS makes 
a determination to impose a CMP described in paragraph (c) of this 
section, CMS sends a written notice of its decision to impose a CMP to 
include the following:
    (i) A description of the basis for the determination.
    (ii) The basis for the penalty.
    (iii) The amount of the penalty.
    (iv) The date the penalty is due.
    (v) The manufacturer's right to a hearing (as specified in Sec.  
423.1006).
    (vi) Information about where to file the request for hearing.
    (e) Collection of civil money penalties imposed by CMS. (1) When a 
manufacturer does not request a hearing, CMS initiates the collection 
of the CMP following the expiration of the

[[Page 63091]]

timeframe for requesting an ALJ hearing as specified in Sec.  423.1020.
    (2) If a manufacturer requests a hearing and the Administrator 
upholds CMS' decision to impose a CMP, CMS may initiate collection of 
the CMP once the Administrator's decision is final.
    (f) Other applicable provisions. The provisions of section 1128A of 
the Act (except subsections (a) and (b)) apply to CMPs under this 
subpart to the same extent that they apply to a CMP or procedure under 
section 1128A(a) of the Act.


Sec.  423.2345  Termination of Discount Program Agreement.

    (a)(1) CMS may terminate the Discount Program Agreement for a 
knowing and willful violation of the requirements of the agreement or 
other good cause shown in relation to the manufacturer's participation 
in the Discount Program.
    (2) The termination must not be effective earlier than 30 days 
after the date of notice to the manufacturer of such termination and 
must not be effective prior to resolution of timely appeal requests 
received in accordance with paragraphs (a)(4) and (a)(5) of this 
section.
    (3)(i) CMS provides the manufacturer with an opportunity to cure 
any ground for termination for cause or to show the manufacturer is in 
compliance with the Discount Program Agreement within 30 calendar days 
of receipt of the written termination notice.
    (ii) If the manufacturer cures the violation, or establishes that 
it was in compliance within the cure period, CMS repeals the 
termination notice by written notice.
    (4) CMS provides upon request a manufacturer with a hearing with 
the hearing officer concerning such termination if requested in writing 
within 15 calendar days of receiving notice of the termination. The 
hearing takes place prior to the effective date of the termination with 
sufficient time for such effective date to be repealed if CMS 
determines appropriate.
    (5)(i) CMS or a manufacturer that has received an unfavorable 
determination from the hearing officer may request review by the CMS 
Administrator within 30 calendar days of receipt of the notification of 
such determination.
    (ii) The decision of the CMS Administrator is final and binding.
    (b)(1) The manufacturer may terminate the Discount Program 
Agreement for any reason.
    (2) Such termination is effective as of the day after the end of 
the calendar year if the termination occurs before January 30 of a 
calendar year, or as of the day after the end of the succeeding 
calendar year if the termination occurs on or after January 30 of a 
calendar year.
    (c) Any termination does not affect the manufacturer's 
responsibility to reimburse Part D sponsors for applicable discounts 
incurred before the effective date of the termination.
    (d) Upon the effective date of termination of the Discount Program 
Agreement, CMS ceases releasing data to the manufacturer except as 
necessary to ensure that the manufacturer reimburses applicable 
discounts for previous time periods in which the Discount Program 
Agreement was in effect, and notifies the manufacturer to destroy data 
files provided by CMS under the Discount Program Agreement.
    (e) Manufacturer reinstatement is available only upon payment of 
any and all outstanding applicable discounts incurred during any 
previous period under the Discount Program Agreement. The timing of any 
such reinstatement is consistent with the requirements for entering 
into a Discount Program Agreement under Sec.  423.2315(c) of this 
subpart.

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

    Dated: August 25, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: September 16, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2011-25844 Filed 10-3-11; 4:15 pm]
BILLING CODE 4120-01-P