[Federal Register Volume 83, Number 231 (Friday, November 30, 2018)]
[Proposed Rules]
[Pages 62152-62201]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25945]



[[Page 62151]]

Vol. 83

Friday,

No. 231

November 30, 2018

Part IV





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 422 and 423





 Modernizing Part D and Medicare Advantage To Lower Drug Prices and 
Reduce Out of Pocket Expenses; Proposed Rule

  Federal Register / Vol. 83 , No. 231 / Friday, November 30, 2018 / 
Proposed Rules  

[[Page 62152]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 422 and 423

[CMS-4180-P]
RIN 0938-AT92


Modernizing Part D and Medicare Advantage To Lower Drug Prices 
and Reduce Out-of-Pocket Expenses

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend the Medicare Advantage (MA) 
program (Part C) regulations and Prescription Drug Benefit program 
(Part D) regulations to support health and drug plans' negotiation for 
lower drug prices and reduce out-of-pocket costs for Part C and D 
enrollees.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on January 25, 2019.

ADDRESSES: In commenting, please refer to file code CMS-4180-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    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-4180-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 to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-4180-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Christian Bauer, (410) 786-6043, Part 
D Issues. Marty Abeln, (410) 786-1032, Jelani Murrain, (410) 786-2274, 
or Brandy Alston, (410) 786-1218, Part C Issues.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following website as soon as possible after they have been 
received: http://www.regulations.gov. Follow the search instructions on 
that website 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 1-800-743-3951.

I. Executive Summary and Background

A. Purpose

    The primary purposes of this proposed rule are to: Make revisions 
to the Medicare Advantage (MA) program (Part C) and Prescription Drug 
Benefit Program (Part D) regulations to support health and drug plans' 
negotiation for lower drug prices; and reduce out-of-pocket costs for 
enrollees. This regulation would improve the regulatory framework to 
facilitate development of Part C and Part D products that better meet 
the individual beneficiary's healthcare needs and reduce out-of-pocket 
spending for beneficiaries at the pharmacy and other sites of care.

B. Summary of the Major Provisions

1. Providing Plan Flexibility To Manage Protected Classes (Sec.  
423.120(b)(2)(vi))
    Current Part D policy requires sponsors to include on their 
formularies all drugs in six categories or classes: (1) 
Antidepressants; (2) antipsychotics; (3) anticonvulsants; (4) 
immunosuppressants for treatment of transplant rejection; (5) 
antiretrovirals; and (6) antineoplastics; except in limited 
circumstances. This regulatory provision proposes three exceptions to 
this protected class policy that would allow Part D sponsors to: (1) 
Implement broader use of prior authorization (PA) and step therapy (ST) 
for protected class drugs, including to determine use for protected 
class indications; (2) exclude a protected class drug from a formulary 
if the drug represents only a new formulation of an existing single-
source drug or biological product, regardless of whether the older 
formulation remains on the market; and (3) exclude a protected class 
drug from a formulary if the price of the drug increased beyond a 
certain threshold over a specified look-back period.
    The first proposed exception would allow Part D sponsors to use PA 
and ST for protected class drugs, including to determine use for 
protected class indications, without distinguishing between new starts 
and existing therapies, as is currently allowed for all other drug 
categories and classes. We would also allow indication-based formulary 
design and utilization management for protected class drugs. This would 
be consistent with our July 25, 2018 Health Plan Management System 
(HPMS) memorandum titled, ``Indication-Based Utilization Management.'' 
It would also be consistent with our August 29, 2018 HPMS memorandum 
titled, ``Indication-Based Formulary Design Beginning in Contract Year 
(CY) 2020,'' and we are proposing to codify this policy for protected 
class drugs. This would also allow Part D sponsors to exclude the 
protected class drug from the formulary for non-protected class 
indications. As is required for all other drug categories and classes, 
these formulary design and utilization management edits would be 
subject to CMS review and approval as part of our annual formulary 
review and approval process, which includes reviews of prior 
authorization and step therapy edits that would restrict access, step 
therapy criteria, prior authorization outliers, and prior authorization 
criteria. (For an extensive description of our annual formulary checks 
see the January 2014 proposed rule (79 FR 1939).)
    The second proposed exception would permit Part D plans to exclude 
from the formulary protected class drugs that are a new formulation of 
a protected class Part D drug, even if the older formulation is removed 
from the market. That is, Part D plans would be permitted to exclude 
from their formularies a protected class drug that is a new formulation 
that does not provide a unique route of administration, regardless of 
whether the older formulation remains on the market.
    The third proposed exception is to permit Part D sponsors to 
exclude from the formulary any protected class drug whose price 
increases, relative to the price in a baseline month and year, beyond 
the rate of inflation. The rate of inflation would be calculated based 
on

[[Page 62153]]

the Consumer Price Index for all Urban Consumers (CPI-U).
2. E-Prescribing and the Part D Prescription Drug Program; Updating 
Part D E-Prescribing Standards (Sec.  423.160)
    This rule proposes to require that Part D plan sponsors implement 
an electronic real-time benefit tool (RTBT) capable of integrating with 
prescribers' e-Prescribing (eRx) and electronic medical record (EMR) 
systems under section 1860D-4(e)(2)(D) of the Act. We believe that 
requiring Part D plan sponsors' implementation of electronic access to 
real-time benefits (RTB) information would be appropriate given the 
timing requirements at section 1860D-4(e)(2)(D) of the Act, and would 
improve the cost-effectiveness of the Part D benefit. RTBTs have the 
ability to make beneficiary-specific drug coverage and cost information 
visible to prescribers who want to consider that information at the 
point-of-prescribing. Because we believe that there currently are no 
industry-wide electronic standards for RTBTs, we are proposing that 
each Part D plan implement at least one RTBT of its choosing that is 
capable of integrating with prescribers' e-Rx and EMR systems to 
provide prescribers who service its beneficiaries complete, accurate, 
timely and clinically appropriate patient-specific real-time formulary 
and benefit (F&B) information (including cost, formulary alternatives 
and utilization management requirements) by January 1, 2020.
3. Medicare Advantage and Step Therapy for Part B Drugs (Sec. Sec.  
422.136, 422.568, 422.570, 422.572, 422.584, 422.590, 422.618, and 
422.619)
    This rule proposes requirements under which MA plans may apply step 
therapy as a utilization management tool for Part B drugs. In this 
proposed rule, we reaffirm MA plans' existing authority to implement 
appropriate utilization management and prior authorization programs for 
managing Part B drugs to reduce costs for both beneficiaries and the 
Medicare program. The use of utilization management tools, such as step 
therapy, for Part B drugs would enhance the ability of MA plans to 
negotiate Part B drug costs and ensure that taxpayers and MA enrollees 
face lower per unit costs or pay less overall for Part B drugs while 
maintaining medically necessary access to Medicare-covered services and 
drugs. Additionally, and in order to make sure enrollees maintain 
access to all medically necessary Part B covered drugs, we propose to 
modify Part C adjudication time periods for organization determinations 
and appeals involving Part B drugs.
4. Pharmacy Price Concessions to Drug Prices at the Point of Sale 
(Sec.  423.100)
    The ``negotiated prices'' of drugs, as the term is currently 
defined in Sec.  423.100, must include all pharmacy payment adjustments 
except those contingent amounts that cannot ``reasonably be 
determined'' at the point-of-sale. As a result of this exception, 
negotiated prices typically do not reflect any performance-based 
pharmacy price concessions that lower the price a sponsor ultimately 
pays for a drug, based on the rationale that these amounts are 
contingent upon performance measured over a period that extends beyond 
the point of sale and thus cannot reasonably be determined at the point 
of sale.
    In this proposed rule, we are considering for a future year, which 
could be as soon as 2020, eliminating this exception for contingent 
pharmacy price concessions. We are considering deleting the existing 
definition of ``negotiated prices'' at Sec.  423.100 and adopting a new 
definition for the term ``negotiated price'' at Sec.  423.100, which 
would mean the lowest amount a pharmacy could receive as reimbursement 
for a covered Part D drug under its contract with the Part D plan 
sponsor or the sponsor's intermediary (that is, the amount the pharmacy 
would receive net of the maximum negative adjustment that could result 
from any contingent pharmacy payment arrangement and before any 
additional contingent payment amounts, such as incentive fees). To 
implement the change we are considering to the definition of negotiated 
price at the point of sale, Part D sponsors and their PBMs would load 
revised drug pricing tables reflecting the lowest possible 
reimbursement into their claims processing systems that interface with 
contracted pharmacies.
    We are also considering adding a definition of ``price concession'' 
at Sec.  423.100. While ``price concession'' is a term important to the 
adjudication of the Part D program, it has not yet been defined in the 
Part D statute, Part D regulations, or sub-regulatory guidance. We are 
considering defining price concession in a broad manner to include all 
forms of discounts and direct or indirect subsidies or rebates that 
serve to reduce the costs incurred under Part D plans by Part D 
sponsors.

C. Summary of Costs and Benefits

------------------------------------------------------------------------
          Provision                Description             Impact
------------------------------------------------------------------------
Providing Plan Flexibility    We propose to allow   The estimated
 to Manage Protected Classes   the following         savings to the
 (Sec.   423.120(b)(2)(vi)).   exceptions related    Trust Fund are $141-
                               to protected class    $180.5 million in
                               drugs: (1) Allow      2020-2024,
                               broader use of        increasing to $195-
                               prior authorization   $240 million in
                               and step therapy      2025-2029. The
                               for protected class   governments saves
                               drugs, including to   $1.85 billion.
                               determine use for     Enrollees save $692
                               protected class       million in cost
                               indications; (2)      sharing.
                               allow plans to
                               exclude a protected
                               class drug from the
                               formulary if the
                               drug is a new
                               formulation that
                               does not provide a
                               unique route of
                               administration; and
                               (3) allow plans to
                               exclude a protected
                               class drug from the
                               formulary if the
                               drug had a price
                               increase beyond a
                               certain threshold.
E-Prescribing and the Part D  We propose to         The scoring of this
 Prescription Drug Program;    require each Part D   provision is
 Updating Part D E-            plan Sponsors'        complex. While
 Prescribing Standards (Sec.   implementation of     there is potential
   423.160).                   one or more RTBT of   for savings to the
                               its choosing that     Trust Fund arising
                               are capable of        from substitution
                               integrating with      of lower cost-
                               providers' e-Rx and   sharing tier drugs,
                               EMR systems and       we have no way of
                               delivering            quantifying this.
                               complete, accurate,   Also, we are
                               timely and            uncertain at this
                               clinically            point of the cost
                               appropriate patient-  to industry to
                               specific real-time    implement this
                               F&B information       provision. The
                               beginning on or       implementation
                               before 01/01/2020.    would most likely
                                                     involve plans
                                                     building their own
                                                     software or use of
                                                     3rd party vendors.
                                                     Both these options
                                                     are very expensive
                                                     and might outweigh
                                                     the savings.
Part D Explanation of         We propose to         There is an
 Benefits (Sec.   423.128).    require the           estimated cost of
                               inclusion of          $0.2 million in the
                               negotiated drug       first year of
                               pricing information   implementation.
                               and lower cost
                               alternatives in the
                               Part D Explanation
                               of Benefits. The
                               intent of the
                               proposal is to
                               provide enrollees
                               with greater
                               transparency,
                               thereby encouraging
                               lower costs.

[[Page 62154]]

 
Medicare Advantage and Step   We propose certain    The estimated
 Therapy for Part B Drugs      new requirements      savings to
 (Sec.  Sec.   422.136,        for when MA plans     enrollees due to
 422.568, 422.570, 422.572,    may apply step        reduced out-of-
 422.584, 422.590, 422.618,    therapy as a          pocket costs are
 and 422.619).                 utilization           between $5 and $7
                               management tool for   million for 2020-
                               Part B drugs.         2024 and are
                                                     between $7 and $10
                                                     million for 2025-
                                                     2029. The savings
                                                     to the Trust Fund
                                                     are between $145
                                                     and $185 million
                                                     for 2020-2024 and
                                                     between $195 and
                                                     $240 million for
                                                     2025-2029. There is
                                                     a modest cost to
                                                     the government and
                                                     its contractors of
                                                     $1 to $1.3 million
                                                     in 2020-2029 due to
                                                     a projected
                                                     increased in
                                                     appeals. These
                                                     estimates reflect
                                                     use of step therapy
                                                     for which CMS
                                                     announced authority
                                                     for MA
                                                     organizations
                                                     beginning 2019;
                                                     that is, estimates
                                                     reflect impact on
                                                     the Medicare Trust
                                                     Fund if plans start
                                                     using step therapy
                                                     in 2020.
Pharmacy Price Concessions    We are considering    If this policy were
 in the Negotiated Price       for a future plan     adopted for 2020 or
 (Sec.   423.100).             year, which may be    a future year,
                               as early as 2020,     there would be an
                               to redefine           impact on
                               negotiated price as   beneficiaries, the
                               the baseline, or      government, and
                               lowest possible,      manufacturers.
                               payment to a          Beneficiaries would
                               pharmacy.             save $7.1 to $9.2
                                                     billion over 10
                                                     years (2020 to
                                                     2029), resulting
                                                     from reduced cost-
                                                     sharing, offset by
                                                     slightly higher
                                                     premiums. However,
                                                     the provision would
                                                     be estimated to
                                                     cost the government
                                                     $13.6 to $16.6
                                                     billion over that
                                                     span. Manufacturers
                                                     would also save,
                                                     about $4.9 to $5.8
                                                     billion from 2020
                                                     to 2029. Part D
                                                     sponsors would
                                                     incur a first year
                                                     cost of $0.1
                                                     million in
                                                     additional
                                                     administrative
                                                     activities related
                                                     to submission of
                                                     PDE data.
------------------------------------------------------------------------

D. 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 42 of the Act) entitled the Medicare 
Prescription Drug Benefit Program (PDP), and made significant changes 
to the existing Part C program, which it renamed the Medicare Advantage 
(MA) Program. The MMA directed that important aspects of the Part D 
program be similar to, and coordinated with, law 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 to improve the CMS customer experience through 
our knowledge obtained through experience with both programs. For 
instance, in the April 2018 final rule (83 FR 16440), we revised 
certain delivery and disclosure requirements to be consistent with 
changing technologies and beneficiary access to on-line information and 
to revise the marketing and communication standards applicable to MA 
organizations and Part D Sponsors to focus our mandatory review of 
marketing materials more effectively.
    Through our experience implementing the Part C and D programs and 
through the research conducted in developing the HHS Blueprint to Lower 
Drug Prices and Reduce Out-of-Pocket Costs (May 16, 2018, 83 FR 22692), 
we have identified several proposed regulatory changes that would lower 
the cost of medications and reduce out-of-pocket costs for enrollees in 
the Part D program. These changes would also streamline different 
aspects of the Part D program and reduce associated burden on the 
government and sponsoring organizations of MA plans and Part D plans.

II. Provisions of the Proposed Regulations

A. Providing Plan Flexibility To Manage Protected Classes (Sec.  
423.120(b)(2)(vi))

    Section 1860D-4(b)(3)(G) of the Act requires Part D sponsors to 
include in their formularies all Part D drugs in classes and categories 
of clinical concern identified by the Secretary using criteria 
established through rulemaking. The statute specifies that until such 
time as the Secretary establishes the criteria to identify drug 
categories or classes of clinical concern through rulemaking, the 
following categories or classes shall be identified as categories or 
classes of clinical concern: Anticonvulsants, antidepressants, 
antineoplastics, antipsychotics, antiretrovirals, and 
immunosuppressants for the treatment of transplant rejection. This 
policy is frequently called the ``protected class'' policy in the Part 
D program, with the drug categories and classes of clinical concern 
being the ``protected classes.'' Section 1860D-4(b)(3)(G) of the Act 
permits the Secretary to establish exceptions that permit a Part D 
sponsor to exclude from its formulary (or to otherwise limit access to 
such a drug, including through prior authorization or utilization 
management) a particular Part D drug that is otherwise required to be 
included in the formulary. The Secretary must engage in rulemaking to 
establish these exceptions. Section 423.120(b)(2)(vi) currently 
provides three regulatory exceptions to the protected class policy that 
permit Part D sponsors to exclude from their formulary therapeutically 
equivalent drugs, apply utilization management edits for safety, and 
exclude other drugs that CMS specifies through a medical and scientific 
process which also permits public notice and comment.
    We are not proposing to change or remove any of the protected 
classes identified in section 1860D-4(b)(3)(G)(iv) of the Act. Instead, 
we are proposing to use the authority under section 1860D-4(b)(3)(G) of 
the Act to establish additional exceptions to the requirement that all 
drugs in a protected class be included in the formulary and to permit 
additional use of prior authorization and utilization management. We 
propose to revise Sec.  [thinsp]423.120(b)(2)(vi) to permit Part D 
sponsors to implement prior authorization and step therapy requirements 
for protected class drugs for broader purposes than allowed currently. 
We also propose to permit Part D sponsors to exclude specific protected 
class drugs from their formularies if they are a singlesource

[[Page 62155]]

drug or biological product for which the manufacturer introduces a new 
formulation with the same active ingredient or moiety that does not 
provide a unique route of administration or to exclude single-source 
drugs or biological products that have certain price increases. We 
believe these exceptions would strengthen the Part D program by 
allowing Part D sponsors to better manage protected class drugs to help 
ensure their safe and appropriate use, limit the protected class 
requirement to the intended protected class indications, and provide 
Part D sponsors with additional tools to negotiate as competitive a 
price as possible in order to provide drug pricing relief for Medicare 
Part D enrollees, while maintaining beneficiary access to protected 
class drugs when used for protected class indications. Specifically, we 
are proposing three exceptions that would allow Part D sponsors to: (1) 
Implement broader use of prior authorization and step therapy for 
protected class drugs, including to determine use for protected class 
indications; (2) exclude a protected class drug from a formulary if the 
drug is a new formulation of an existing single-source drug or 
biological product, regardless of whether the older formulation remains 
on the market; and (3) exclude a protected class drug from a formulary 
if the price of the drug increased beyond a certain threshold over a 
specified look back period. However, we note that these exceptions 
would apply only to the requirement that the drug be included on the 
formulary because it is a protected class drug. In other words, an 
exception from the protected class policy would not supersede our other 
formulary requirements in Sec.  423.120(b)(2).
1. Background
a. History of the Protected Class Policy
    Section 1860D-11(e)(2)(D)(i) of the Act requires that in order to 
approve a plan, we must not find that the design of the plan and its 
benefits (including any formulary and tiered formulary structure) are 
likely to substantially discourage enrollment by certain Part D-
eligible individuals. We refer to this as our ``non-discrimination'' 
policy. Under this authority, in 2005 before the start of the Part D 
program, we directed Part D sponsors through guidance to include on 
their formularies all or substantially all drugs in six categories or 
classes: (1) Antidepressants; (2) antipsychotics; (3) anticonvulsants; 
(4) immunosuppressants for treatment of transplant rejection; (5) 
antiretrovirals; and (6) antineoplastics.
    This guidance helped to ensure a smooth transition of the 
approximately 6 million Medicare-Medicaid dually-eligible enrollees who 
were converting from Medicaid drug coverage to Medicare drug coverage 
at the start of the Part D program (79 FR 1937). Under the 
circumstances existing at the time of implementation of the Part D 
benefit, any formularies that did not have all or substantially all 
drugs in these categories or classes potentially would have been 
discriminatory for the dually-eligible population, because state 
Medicaid program formularies were generally open at the time compared 
to the Part D formularies that we were anticipating Part D sponsors to 
adopt prior to the beginning of the Part D program. Thus, it stood to 
reason that dually-eligible enrollees and many of their providers were 
largely unaccustomed to drug utilization management techniques. That 
is, for the most part they had little experience dealing with the 
rejection of a drug claim at the point-of-sale because the drug was 
either not on formulary, or another drug needed to be tried first, or 
because more information was required to determine whether the drug 
could be covered under the plan. Moreover, because the majority of the 
dually-eligible enrollees did not make a decision to elect their new 
plan but were instead auto-enrolled into a Part D plan, these 
individuals may not have understood or known whether their current 
medications would continue to be covered under their new Medicare Part 
D plan. Because the Part D program would be administered by private 
plans with extensive experience managing prescription drug costs 
through tighter formularies and a variety of utilization management 
techniques, we anticipated the need for a learning curve to avoid 
delays associated with navigating new plan prescription drug benefit 
processes beginning January 1, 2006 that might put at risk the 
enrollees who needed access to drugs in these particular categories or 
classes. Therefore, we established our policy for coverage of the six 
drug classes of clinical concern.
    However, the circumstances that existed when this policy was 
originally implemented have changed dramatically in the nearly 12 years 
the program has been in operation. In addition to advances in e-
prescribing, which can also provide streamlined e-prior authorization 
processes, CMS, Part D sponsors, providers, our partners that assist 
enrollees with making enrollment choices, and particularly dually-
eligible enrollees and their advocates have had a great deal of 
experience working with Part D plans since 2005. Additionally, under 
Sec.  423.120(b)(3), each Part D sponsor must provide for an 
appropriate transition process for Part D drugs that are not on its 
formulary. (For a detailed explanation of our transition requirements, 
see section 30.4 of Chapter 6 of the Medicare Prescription Drug Benefit 
Manual, available at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/Part-D-Benefits-Manual-Chapter-6.pdf. We also finalized changes to the days' supply required 
by the Part D transition process in our April 2018 final rule (83 FR 
16601). Other enrollee protections include our formulary requirements, 
formulary transparency, reassignment formulary coverage notices, and 
the expedited exception, coverage determination, and appeal processes.
    After the Part D provisions of the Medicare Prescription Drug, 
Improvement, and Modernization Act (MMA) were enacted in 2003, the 
Medicare Improvements for Patients and Providers Act (MIPPA) was 
enacted in 2008 and established specific criteria that should be used 
to identify drug categories or classes of Part D drugs of clinical 
concern for which all Part D drugs therein shall be included on Part D 
sponsor formularies. While we worked to identify them, the Patient 
Protection and Affordable Care Act was enacted in 2010 and superseded 
the MIPPA provisions. Section 3307 of the Patient Protection and 
Affordable Care Act amended section 1860D-4(b)(3)(G) of the Act to 
specify that the existing drug categories or classes of clinical 
concern would remain so until such time as the Secretary established 
new criteria to identify drug categories or classes of clinical concern 
under section 1860D-4(b)(3)(G) of the Act through notice and comment 
rulemaking.
    Our next applicable notice and comment rulemaking was the January 
2014 proposed rule titled ``Medicare Program; Contract year 2015 Policy 
and Technical Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs'' (79 FR 1917) (hereinafter referred 
to as the January 2014 proposed rule). For purposes of the remainder of 
this Background section, we are summarizing the January 2014 proposed 
rule but are including detail when it is directly relevant to our 
current proposal.
    In the January 2014 proposed rule (79 FR 1936), we proposed to 
interpret the Patient Protection and Affordable Care Act authority at 
section 1860D-4(b)(3)(G)(i) of the Act to limit protected classes to 
those for which access to all

[[Page 62156]]

drugs in the drug category or class is necessary: (1) In less time than 
the timeline for expedited exception, coverage determination, and 
appeals processes provide; and (2) when more specific formulary 
requirements would not suffice. This proposal would have specified that 
antidepressants, antipsychotics, and immunosuppressants for the 
treatment of transplant rejection were no longer protected classes. In 
response to comments, we did not finalize this proposal.
b. CMS Concerns With the Protected Class Policy and Proposals
    The protected class policy, inclusive of its current limitations on 
prior authorization, is unique to the Medicare Part D program and does 
not appear elsewhere in other Federal programs, such as the Veteran's 
Health Administration (VA), TRICARE, the Federal Employees Health 
Benefits Program (FEHBP), the Affordable Care Act Essential Health 
Benefits (EHB) Benchmark Plans, or in commercial private health plans. 
We are concerned that requiring essentially open coverage of certain 
drug categories and classes presents both enrollee cost and welfare 
concerns, as well as increased costs for the Part D program as a result 
of overutilization (for example, antipsychotics used for sedation or 
lack of safety edits) and increased drug prices due to lack of 
competition between manufacturers to achieve inclusion on plan 
formularies. We have previously detailed concerns that the policy 
potentially facilitates the overutilization of drugs within the 
protected classes. By limiting the ability of Part D sponsors to 
implement utilization management tools (for example, prior 
authorization or step therapy requirements) for an entire category or 
class, we also limit their ability to prevent the misuse or abuse of 
drugs that are not medically necessary. Not only can this increase Part 
D costs, but inappropriate use can also lead to adverse effects that 
can harm the beneficiary and require medical treatment that would 
otherwise not have been necessary. We believe the profitability of 
products not subject to normal price negotiations as the result of 
protected class status is a strong incentive for the promotion of 
overutilization, particularly off-label overutilization, of some of 
these drugs.
    Additionally, an open coverage policy substantially limits Part D 
sponsors' ability to negotiate price concessions in exchange for 
formulary placement of drugs in these categories or classes. Since the 
beginning of the Part D program we have heard from stakeholders that 
this policy--frequently referred to as the ``protected classes'' 
policy--significantly reduces any leverage the sponsor has in price 
negotiations and results in higher Part D costs. A report by the OIG in 
March 2011 documented similar assertions from selected Part D sponsors, 
including assertions that ``they received either no or minimal rebates 
for the drugs in these six classes,'' that ``there is little incentive 
for drug manufacturers to offer rebates for these six classes of drugs 
because they do not need to compete for formulary placement,'' and that 
`` `if [a rebate] is provided, it's probably at a lower percentage than 
[the rebate for the drugs] that had some competition.' '' (HHS Office 
of Inspector General, ``Concerns with Rebates in the Medicare Part D 
Program'', March 2011, OEI-02-08-00050) (For a detailed explanation of 
these concerns, see the January 2014 proposed rule, 79 FR 1937.) We 
solicit comments on these concerns. Specifically, we ask commenters to 
provide evidence and research indicating that these concerns are 
warranted given real world experience.
    Second, as a means to negotiate additional rebates, Part D sponsors 
can, in theory, subject enrollees to higher cost sharing by placing 
protected class drugs on non-preferred tiers (for example, non-
preferred brand or non-preferred generic) or the ``specialty tier.'' 
However, Part D sponsors can only utilize the ``specialty tier'' if the 
cost of the drug exceeds the specialty tier threshold of $670 per 
month. Moreover, the 11.7 million dually-eligible enrollees whom the 
policy was originally intended to protect are shielded from the cost 
sharing usually applied to drugs on the non-preferred and specialty 
tiers because they receive a low-income cost-sharing subsidy. Thus, 
while a 2013 Avalere study found that Part D sponsors place 
anticonvulsants on higher tiers than do commercial plans, the data do 
not support the same conclusion for the five remaining protected 
classes. (Brantley, Kelly, Wingfield, Jacqueline, and Washington, 
Bonnie, Avalere, ``An Analysis of Access to Anticonvulsants in Medicare 
Part D and Commercial Health Insurance Plans,'' June 2013, http://avalere.com/research/docs/Anticonvulsants_in_Part_D_and_Commercial_Health_Insurance.pdf.) 
Finally, this option is not ideal because Part D sponsors typically 
apply rebates to reduce premiums, and therefore higher manufacturer 
rebates are not applied to reduce enrollee cost-sharing.
    Indeed, many expert studies continue to demonstrate the role that 
the protected class policy plays in higher drug prices for protected 
class drugs in general. A 2008 study conducted by the actuarial and 
consulting firm Milliman found that the six protected drug classes 
disproportionately accounted for between 16.8 percent and 33.2 percent 
of total drug spend among sponsors surveyed (Kipp RA, Ko C). (See 
``Potential cost impacts resulting from CMS guidance on `Special 
Protections for Six Protected Drug Classifications' and Section 176 of 
the Medicare Improvements for Patients and Providers Act of 2008 
(MIPPA) (Pub. L. 110-275)'' available at: http://amcp.org/WorkArea/DownloadAsset.aspx?id=9279). Milliman reported that the Part D program 
administrators (Part D sponsors and PBMs) commented that the protected 
status of these drug classes limited Part D sponsors' ability to 
effectively negotiate lower costs with manufacturers since it is known 
that these drugs must be included on the formulary. The Milliman report 
estimated that affected drug costs were on average 10 percent higher 
than they would be in the absence of the protected class policy and 
that this represented $511 million per year in excess costs to 
beneficiaries and the Part D program. We note that numerous brand drug 
patents expired since this report was published, which might reduce 
cost projections. Another 2008 study from the National Bureau of 
Economic Research (NBER) suggested that while Medicare Part D led to a 
substantial decline in average pharmaceutical prices, Medicare-
intensive drugs in protected classes did not experience price declines 
as did their counterparts not in protected classes and may have 
actually experienced price increases (Duggan M, Morton FS. 2010. ``The 
Effect of Medicare Part D on Pharmaceutical Prices and Utilization,'' 
American Economic Review, American Economic Association, volume 100(1), 
pages 590-607). Part D sponsors can still negotiate with manufacturers 
for preferred or non-preferred tier placement of protected class drugs, 
but CMS does not have any information on the justification for the 
relative magnitude of these rebates. However, it can reasonably be 
anticipated that such rebates would vary widely for individual 
manufacturers and sponsors, and anecdotal evidence would suggest the 
leverage these options provide sponsors may be minimal when compared to 
leverage available in connection with an initial decision regarding 
formulary inclusion, especially since tier placement has no impact on 
statutory LIS cost sharing

[[Page 62157]]

levels. Consequently, we would predict future savings for both 
beneficiaries and the Part D program from both increased price 
competition as newly approved drugs come onto the market and more 
immediate savings if plans were able to remove some currently covered 
agents from their formularies. Another recent study by Milliman, 
prepared on behalf of America's Health Insurance Plans (AHIP), found 
that brand drugs in the protected classes had the lowest proportion of 
drugs with rebates and the lowest rebates as a percentage of gross drug 
cost for those drugs receiving rebates. Out of 124 protected class 
brand drugs, 16 drugs (13 percent) received rebates, compared to 36 
percent of brand drugs overall. Protected class brand drugs without 
rebates accounted for $16.3 billion in gross drug spending compared to 
$6.0 billion for protected class drugs with rebates. Of protected class 
brand drugs that received rebates, the average rebate as a percentage 
of gross drug cost was 14 percent, whereas non-protected brand drugs 
with direct competition had average rebates of 39 percent. (Milliman, 
``Prescription Drug Rebates and Part D Drug Costs: Analysis of 
historical Medicare Part D drug prices and manufacturer rebates.'' July 
2018. https://www.ahip.org/wp-content/uploads/2018/07/AHIP-Part-D-Rebates-20180716.pdf.) Additionally, although we are not able to speak 
to the actual rebate values provided by Milliman, CMS internal analyses 
of rebate data reported by Part D sponsors generally support Milliman's 
conclusion that Part D sponsors obtain substantially smaller rebates 
for protected class drugs than they do for non-protected class drugs.
    In contrast to the numerous studies we reviewed that support the 
assertion that the limited negotiation ability Part D sponsors have for 
protected class drugs results in higher prices for such drugs, we 
identified at least one report, published by The Pew Charitable Trusts, 
that suggested that given the current high rates of generic use within 
the protected classes, there may be limited potential for savings from 
changes to the protected class policy, and that rebates on protected-
class drugs are consistent with other brand-name drugs. (The Pew 
Charitable Trusts. ``Policy Proposal: Revising Medicare's Protected 
Classes Policy.'' March 7, 2018. https://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2018/03/policy-proposal-revising-medicares-protected-classes-policy.) We disagree with these suggestions. First, 
as mentioned earlier in the preamble, CMS's internal analyses of rebate 
data reported by Part D sponsors generally support the assertion that 
Part D sponsors obtain substantially smaller rebates for protected 
class drugs than they do for non-protected class drugs. Second, the Pew 
study itself notes ``the possibility that plans could obtain higher-
than-average rebates for these products if they had a greater ability 
to exclude them from coverage.''
    We conclude that despite some formulary flexibility and ability to 
use drug utilization techniques for protected class drugs, Part D 
sponsors are not able to negotiate rebates across the protected classes 
at levels commensurate with other Part D drugs or prescription drugs 
covered in the commercial market. Consequently, although we are not 
proposing to eliminate any of the protected classes, we now propose to 
use the authority under section 1860D-4(b)(3)(G) of the Act to propose 
revisions to Sec.  423.120(b)(2)(vi). Specifically, we propose to 
permit Part D sponsors to implement prior authorization and step 
therapy requirements on protected class drugs for broader purposes than 
allowed currently and to exclude specific protected class drugs from 
their formularies based upon price increases or if they are a new 
formulation of a single-source drug or biological product with the same 
active ingredient or moiety that does not provide a unique route of 
administration, regardless of whether the older formulation is removed 
from the market. By ``single-source drug or biological product,'' we 
mean a covered Part D drug that is either produced or distributed under 
a new drug application (NDA) under section 505(b) of the Federal Food, 
Drug, and Cosmetic Act (FDCA) or is an authorized generic as defined in 
section 505(t)(3) of the FDCA, or a biological product licensed under 
section 351 of the Public Health Service Act. We believe these 
exceptions would strengthen the Part D program by allowing Part D 
sponsors to better manage the protected class drugs to help ensure 
their safe and appropriate use, limit the protected class requirements 
to the intended protected class indications, and provide Part D 
sponsors with additional tools to negotiate as competitive a price as 
possible in order to provide drug pricing relief to Medicare Part D 
enrollees. Specifically, we are proposing three exceptions that would 
allow Part D sponsors to: (1) Implement broader use of prior 
authorization and step therapy for protected class drugs, including to 
determine use for protected class indications; (2) exclude a protected 
class drug from a formulary if the drug is a new formulation of an 
existing single-source drug or biological product, regardless of 
whether the older formulation remains on the market; and (3) exclude a 
protected class drug from a formulary if the price of the drug 
increased beyond a certain threshold over a specified look back period. 
However, we note that these exceptions would apply only to the 
requirement that the drug be included on the formulary because it is a 
protected class drug. In other words, an exception from the protected 
class policy would not supersede our other formulary requirements in 
Sec.  423.120(b)(2).
2. Broader Use of Prior Authorization for Protected Class Drugs
    Under section 1860D-4(b)(3)(G)(i)(II) of the Act, the Secretary can 
establish exceptions to permit a Part D sponsor to exclude from its 
formulary, or otherwise limit access through prior authorization or 
utilization management, a particular Part D drug that is otherwise 
required to be on the formulary because it is in a protected class. 
Moreover, this authority applies without regard to whether an enrollee 
is initiating therapy (new starts) or is currently taking a drug 
(existing therapy).
    As explained earlier, although Part D sponsors can employ some drug 
utilization management techniques within the protected classes, their 
ability to do so is not comparable with the commercial market. We find 
this concerning because prior authorization, as a standard feature of 
larger, industry-wide utilization management programs, is an important 
tool to identify clinically inappropriate therapy and control costs 
within the Part D program. For example, coverage under Part D is not 
available for drugs that are not medically necessary or used for a 
medically-accepted indication, or for drugs covered under Medicare 
Parts A or B as prescribed and dispensed or administered. Therefore, 
existing limits on Part D coverage permit prior authorization as a tool 
to determine whether a drug is a Part D drug being used for a 
medically-accepted indication, as defined in section 1860D-2(e)(4) of 
the Act, or to verify a drug is medically necessary or is not covered 
under Medicare Parts A or B as prescribed and dispensed or 
administered, as specified under sections 1860D-2(e)(3)(A) and 1860D-
2(e)(2)(B) of the Act. As another example, as previously discussed in 
this preamble, we have concerns regarding the overutilization of 
protected class drugs, and in particular, antipsychotic drugs, among 
Medicare Part D enrollees. (For a detailed explanation of these

[[Page 62158]]

concerns, see the January 2014 proposed rule, 79 FR 1938). 
Additionally, a number of protected class drugs have medically-accepted 
indications for non-protected class uses. CMS considers a medically-
accepted indication consistent with the description of the drug 
category or class of the protected class to be a ``protected class 
indication.'' The protected class indications for anticonvulsants, 
antidepressants and antipsychotics, antiretrovirals, and 
antineoplastics in the Part D program would be seizure disorders, 
mental disorders, HIV/AIDS, and cancer, respectively. Because the 
statute at section 1860D-4(b)(3)(G)(iv) of the Act specifies 
``immunosuppressants for treatment of transplant rejection,'' the 
protected class indication for immunosuppressants in the Part D program 
would be treatment of transplant rejection only.
    For example, antineoplastic and immunosuppressant drugs are also 
used for medically-accepted indications (that is, a use that is 
approved by the Food and Drug Administration (FDA) or is supported by 
one or more citations included or approved for inclusion in specified 
compendia) that are not protected class indications, such as 
rheumatological disorders. Thus, unless a Part D sponsor can use prior 
authorization to determine the indication for which the drug has been 
prescribed, there is the potential to increase Part D program costs 
when there may be a less expensive alternative available to treat 
rheumatological disorders that would be clinically appropriate. Under 
this proposed policy, prior authorization requirements would be allowed 
for any protected class drug with more than one medically-accepted 
indication to determine that it is being used for a protected class 
indication, regardless of its status as a new start or existing 
therapy. This would strengthen an important tool Part D sponsors use to 
ensure clinically appropriate therapy (for example, to ensure use for a 
medically appropriate indication or medical necessity, or to implement 
step therapy or quantity limits), differentiate between protected and 
non-protected indications, and appropriate management of costs.
    This proposal would expand the use of prior authorization within 
the protected classes to be consistent with what is currently permitted 
for non-protected classes given that (1) section 1860D-
4(b)(3)(G)(i)(II) of the Act authorizes us to allow Part D sponsors to 
limit access to protected class drugs through prior authorization and 
utilization management for both new starts and existing therapy; (2) 
our expedited exception, coverage determination, and appeals processes 
are mature and have proven workable; and (3) Part D sponsors need 
additional tools to control costs of protected class drugs. Unlike our 
proposal in the January 2014 proposed rule, this expansion would 
preserve the six protected classes. Specifically, we propose to allow 
Part D sponsors to use prior authorization as is currently allowed for 
all other drug categories and classes, including to implement step 
therapy for protected class drugs or to determine use for protected 
class indications or both, without distinguishing between new starts or 
existing therapies, consistent with section 30.2.2 of Chapter 6 of the 
Medicare Prescription Drug Benefit Manual. We would also allow 
indication-based formulary design and utilization management for 
protected class drugs. This would be consistent with our July 25, 2018 
Health Plan Management System (HPMS) memorandum titled, ``Indication-
Based Utilization Management,'' in which we clarified that Part D 
sponsors can use indication-based utilization management for non-
protected class drugs. (While the HPMS memo allows indication-based 
utilization management for non-protected class drugs starting in 2019, 
indication-based utilization management for protected class drugs would 
not be permitted until 2020, if this proposal is finalized.) It would 
also be consistent with our August 29, 2018 HPMS memorandum titled, 
``Indication-Based Formulary Design Beginning in Contract Year 2020,'' 
which we are proposing to codify for protected class drugs later in 
this rule. While we are proposing to permit prior authorization for 
protected class drugs for both new starts and existing therapy, we 
would not approve onerous prior authorization criteria that are not 
clinically supported. As is required for all other drug categories and 
classes, these utilization management edits would be subject to our 
review and approval, as part of our annual formulary review and 
approval process, which includes formulary tier review, and relative to 
prior authorization and step therapy, restricted access, step therapy 
criteria, prior authorization outlier, and prior authorization criteria 
reviews. (For an extensive description of our annual formulary checks 
see the January 2014 proposed rule (79 FR 1939)). Also, we seek comment 
on whether this exception should be limited to new starts only.
    We propose to codify this proposal by redesignating current Sec.  
423.120(b)(2)(vi)(C) as Sec.  423.120(b)(2)(vi)(F), and adding an 
exception at new Sec.  423.120(b)(2)(vi)(C) for prior authorization and 
step therapy requirements that are implemented to confirm that the 
intended use is for a protected class indication, ensure clinically 
appropriate use, promote utilization of preferred formulary 
alternatives, or a combination thereof, subject to CMS review and 
approval.
    It has been brought to our attention that some Part D sponsors have 
assumed that, because all protected class drugs have to be on the 
formulary, that there is no need for retrospective drug utilization 
review, as described in section 10.6.1 of Chapter 6 of the Medicare 
Prescription Drug Benefit Manual (available at https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/Part-D-Benefits-Manual-Chapter-6.pdf). We would like to 
clarify that this is not, and has never been, the case, nor does this 
proposal obviate the requirement that Part D sponsors conduct 
retrospective drug utilization review on protected class drugs. 
Further, this exception does not preclude a Part D sponsor from taking 
appropriate action should they determine that, upon retrospective drug 
utilization review, protected class drugs were not prescribed for a 
particular individual for a medically-accepted indication or may have 
been fraudulent.
    Additionally, we note that the August 2018 HPMS memorandum 
entitled, ``Prior Authorization and Step Therapy for Part B Drugs in 
Medicare Advantage'' and section II.F. of this proposed rule, entitled 
``Medicare Advantage and Step Therapy for Part B Drugs'' would allow 
MA-PD plans to require step therapy of a Part B drug before a Part D 
drug. If both proposals in section II.A.2. of this proposed rule (this 
proposal, Broader Use of Prior Authorization for Protected Class Drugs) 
and section II.F. of this proposed rule are finalized, the result would 
be to allow MA-PD plans, starting in 2020, to require step therapy of 
Part B drugs before Part D drugs for the protected classes as well. 
Again, as is required for all other drug categories and classes, these 
step therapy requirements would be subject to our review and approval 
as part of our annual formulary review and approval process, which 
includes formulary tier review, and relative to prior authorization and 
step therapy, restricted access, step therapy criteria, prior 
authorization outlier, and prior authorization criteria reviews.

[[Page 62159]]

3. New Formulations
    Before the start of the Part D program, we directed Part D sponsors 
to include on their formularies all or substantially all drugs in the 
six protected classes. ``Substantially all'' in this context meant that 
all drugs and unique dosage forms in these categories were expected to 
be included on Part D sponsor formularies, with the following 
exceptions:
     Multiple-source drugs of the identical molecular 
structure.
     Extended-release products when the immediate-release 
product is included.
     Products that have the same active ingredient or 
moiety.\1\
---------------------------------------------------------------------------

    \1\ The FDA, at 21 CFR 314.3 defines an active moiety to be 
``the molecule or ion, excluding those appended portions of the 
molecule that cause the drug to be an ester, salt (including a salt 
with hydrogen or coordination bonds), or other noncovalent 
derivative (such as a complex, chelate, or clathrate) of the 
molecule, responsible for the physiological or pharmacological 
action of the drug substance.'' Such term could be used to describe 
different salts of the same drug, for example, metoprolol tartrate 
versus metoprolol succinate. Additionally, such term could be used 
to describe a given drug with two versions of itself that are 
identical in chemical structure, but are mirror images of each 
other, having left and right-handed versions, like a pair of gloves, 
and where one of those images (or ``gloves''), exerts stronger 
pharmacological activity than the other and could be isolated to 
achieve a greater clinical effect, for example, citalopram versus 
escitalopram, or omeprazole versus esomeprazole. In these two 
examples, citalopram and omeprazole contain equal mixtures of both 
the right and left-handed versions of the drug, whereas escitalopram 
and esomeprazole represent isolates of only the left-handed 
versions.
---------------------------------------------------------------------------

     Dosage forms that do not provide a unique route of 
administration (for example, tablets and capsules versus tablets and 
transdermals).
    However, we codified in our June 2010 final rule (75 FR 32858) an 
exception at Sec.  423.120(b)(2)(vi)(A) for drug products that are 
rated as therapeutically equivalent (under the FDA's most recent 
publication of ``Approved Drug Products with Therapeutic Equivalence 
Evaluations,'' also known as the Orange Book).
    Since that time, one manufacturer introduced a more expensive 
extended-release version of a drug to the market while also withdrawing 
from the market the predecessor immediate-release version when no 
generic was available. We are concerned that such a scenario could 
arise with a protected class drug that might leave Part D sponsors with 
no option but to add the new, more expensive product to their 
formularies and could result in increased costs for Part D enrollees 
and the Part D program. To prevent such behavior from occurring within 
the protected classes, we propose to permit Part D sponsors to exclude 
from their formularies a protected class single-source drug or 
biological product for which the manufacturer introduces a new 
formulation with the same active ingredient or moiety that does not 
provide a unique route of administration.
    First, we would revise Sec.  423.120(b)(2)(vi)(A) to reflect the 
forthcoming introduction of interchangeable biological products to the 
market. Specifically, we propose to amend Sec.  423.120(b)(2)(vi)(A) to 
specify drug or biological products that are rated as--(1) 
therapeutically equivalent (under the Food and Drug Administration's 
most recent publication of ``Approved Drug Products with Therapeutic 
Equivalence Evaluations,'' also known as the Orange Book); or (2) 
interchangeable (under the FDA's most recent publication of the Purple 
Book: Lists of Licensed Biological Products with Reference Product 
Exclusivity and Biosimilarity or Interchangeability Evaluations).''
    Second, we propose to add a new exception at new paragraph Sec.  
423.120(b)(2)(vi)(D) that would specify that, in the case of a single-
source drug or biological product for which the manufacturer introduces 
a new formulation with the same active ingredient or moiety that does 
not provide a unique route of administration, the new formulation may 
be excluded from a Part D sponsors' formulary.
    Part D plans are not required to include a new formulation of a 
drug on their formularies when the older formulation is still 
available. This policy would still apply. In other words, the purpose 
of this proposed exception is to specify that even if a new formulation 
of a single-source drug or biological product in the protected class 
becomes the only formulation available, Part D sponsors could exclude 
it from their formularies, except as required by our other formulary 
requirements in Sec.  423.120(b)(2) and subject to our review and 
approval, as part of our annual formulary review and approval process.
4. Pricing Threshold for Protected Class Drug Formulary Exclusions
    As noted earlier, over the course of the Part D benefit, a number 
of Part D sponsors and pharmacy benefit managers (PBMs) have asked CMS 
to address their limited ability to negotiate manufacturer rebates and 
achieve appreciable savings relative to drugs within the protected 
classes. In addition to Part D sponsors' limited ability to negotiate 
rebates for protected class drugs, internal CMS analysis has also shown 
price trends for brand drugs are consistently higher for drugs in 
protected classes than such drugs in non-protected classes. On the 
whole, protected class drug prices have increased more than other, non-
protected drug classes between 2012 and 2017. More recently, the 
allowed cost per days' supply increased by 24 percent for protected 
class brand drugs between 2015 and 2016 and by 14 percent between 2016 
and 2017. In contrast, the allowed cost per days' supply increased by 
16 percent for non-protected class brand drugs from 2015 to 2016, and 
showed no growth at all for such drugs from 2016 to 2017. Accordingly, 
in developing exceptions to the protected class policy to obtain better 
pricing for drugs in these classes, CMS considered whether protected 
class drugs with price increases over a certain threshold during a 
particular look-back period should be required to be on all Part D 
formularies.
    We propose, effective for plan years starting on or after January 
1, 2020, to permit Part D sponsors to exclude from their formularies 
any single-source drug or biological product that is a protected class 
drug whose price increases, relative to the price in a baseline month 
and year, beyond the rate of inflation. The rate of inflation would be 
calculated using the Consumer Price Index for all Urban Consumers (CPI-
U). Specifically, we propose to add an exception at Sec.  
423.120(b)(2)(vi)(E) to specify that a part D sponsor can exclude from 
its formulary protected class single-source drug or biological products 
subject to our other formulary requirements in Sec.  423.120(b)(2), 
that the Part D sponsor identifies, for which wholesale acquisition 
cost between the baseline date and any point in the applicable period 
has increased more than the cumulative increase in the CPI-U over the 
same period. The baseline date would be--(1) September 1, 2018 for 
drugs on the market as of September 1, 2018; or (2) the first day of 
the first full quarter after the launch date for drugs that enter the 
market after September 1, 2018. We also propose to add to Sec.  423.100 
a definition for the ``applicable period'' that would mean with respect 
to exceptions in accordance with Sec.  423.120(b)(2)(vi)(E)--
     For contract year 2020, September 1, 2018 through February 
28, 2019; or
     For contract year 2021 and subsequent years, September 1 
of the third year prior to the contract year in which the exception 
would apply, through August 31 of the second year prior to the contract 
year in which the exception would apply.

[[Page 62160]]

    First, we seek comment on whether an alternative pricing threshold 
to the CPI-U should be considered for this exception. The CPI-U is a 
measure of the average change over time in the prices paid by urban 
consumers for a market basket of consumer goods and services. We 
proposed this pricing threshold for a variety of reasons. First, 
provided by the U.S. Department of Labor, Bureau of Labor Statistics, 
the CPI-U is a widely used and publicly available indicator of price 
inflation. There are also several examples of the CPI-U being used as 
an indicator of inflation in the administration of the Medicare and 
Medicaid programs. For example, the CPI-U is used as an integral part 
of the computation of the unit rebate amounts for innovator drugs in 
the Medicaid Drug Rebate Program. (The amount of rebate due for each 
unit of an innovator drug is based on statutory formulas of the greater 
of 23.1 percent of the Average Manufacturer Price (AMP) per unit or the 
difference between the AMP and the best price per unit and adjusted by 
the CPI-U based on launch date and current quarter AMP.) Moreover, 
several income and asset limits used to determine some aspects of 
Medicare eligibility are currently indexed to the CPI-U. Eligibility 
for Part D Low-Income Subsidies (LIS) depends on an applicant's assets 
falling below certain thresholds that are updated annually by the 
change in the CPI-U, and cost-sharing amounts paid by Part D LIS 
beneficiaries for Part D drugs are indexed to the CPI-U. The annual 
adjustment to the Part D catastrophic coverage threshold is also 
partially linked to the CPI-U. However, there are price indices that 
are more specific to health care inflation; there is a CPI specific to 
prescription drugs (CPI-PD), as well as a CPI specific to medical care 
more broadly (CPI-M). CMS would be open to considering one of these 
alternative measures for inflation, although these indices are not, to 
our knowledge, currently used in CMS programs as an indicator of 
inflation. While the fact that prices increase more quickly for 
protected class drugs may or may not have a greater impact on the CPI-
PD, we note that one concern CMS considered with using the CPI-PD for 
this policy is that it would be ``self-fulfilling''--that is, the CPI-
PD would just measure the existing increase in drug prices, which we 
believe is unsustainable and would defeat the purpose of this proposed 
exception. We solicit comment as to whether one of these more specific 
indices should serve as the pricing threshold for this policy as 
opposed to the more general CPI-U. For more information on the price 
indices referenced here, see the website for the Bureau of Labor 
Statistics at https://www.bls.gov/cpi/.
    Next, we are soliciting comment on whether an increase in a price 
other than the drug's WAC, such as the negotiated price, or some other 
pricing standard (for example, the Average Wholesale Price (AWP) or the 
National Average Drug Acquisition Cost (NADAC)), should be used to 
determine whether the protected class drug could be excluded from a 
Part D formulary. We are proposing to use WAC as the pricing standard 
because it is a widely available, published list price, and thus 
verifiable by CMS. WAC is also widely used across the pharmacy supply 
chain, and commonly forms the basis of acquisition costs and pharmacy 
reimbursement (negotiated price). For more information on historical 
drug pricing trends, see National Health Expenditures information at 
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html.
    We also recognize that using the WAC (or any other public pricing 
standard) is mostly applicable to single-source drugs and biological 
products, given that payers typically use proprietary maximum allowable 
cost (MAC)--based pricing methodologies to pay for multisource generic 
drugs. Because MAC-based pricing methodologies are not generally public 
and transparent, we do not have a publicly available, reliable way to 
validate increases in MAC prices for generic drugs. Also, payers 
already pay a ``maximum'' cost for generic drugs, which makes changes 
in public list prices less relevant. Moreover, MAC price is the same 
for all generics related to the reference product, regardless of the 
list price. Per our discussion earlier in this preamble, we consider 
``single-source drugs and biological products'' to be Part D drugs that 
are--(1) approved under a new drug application under section 505(b) of 
the FDCA; (2) an authorized generic drug as defined in section 
505(t)(3) of the FDCA; or (3) in the case of a biological product, 
licensed under section 351 of the Public Health Service Act. We believe 
that limiting this exception policy to single-source drug and 
biological products is appropriate given the current lack of incentive 
to reduce prices as a result of the generally limited competition for 
such drugs. We also solicit comment on whether this exception policy 
should apply only to single-source drug and biological products, or 
whether a broader mix of drugs should be eligible for formulary 
exclusion in accordance with this proposed exception policy.
    Further, because different medical conditions can warrant different 
routes of administration, multiple dosage forms may exist for a 
particular drug or biological product. Since drugs are available in 
multiple strengths and dosage forms, with each strength and form having 
its own, or even multiple, national drug code(s) (NDC), we propose to 
identify a protected class drug for purposes of this policy as all the 
NDCs assigned to the single-source drug or biological product name, 
including NDCs for all strengths, dosage forms, and routes of 
administration associated with a particular drug. Further, we propose 
that if the WAC for any NDC assigned to the drug increases faster than 
inflation (as described previously), that the Part D sponsor can 
exclude from its formulary all NDCs assigned to that drug. We solicit 
comment as to whether an increase in WAC beyond CPI-U for any NDC 
assigned to a particular brand drug or single-source generic drug 
should be grounds for allowing a sponsor to exclude all NDCs assigned 
to that drug from the formulary.
    Moving into the operational components of the proposal, when 
determining the proposed baseline for drugs currently on the market, we 
wanted to select a date prior to the publication of this proposed rule 
and before the usual price increases that generally take place the 
first day of the last quarter of the year. That way, opportunities for 
price gaming would be decreased, and any price increases planned prior 
to the release of this proposed rule would not be incorporated and 
result in a higher baseline. For drugs not currently on the market, we 
believed choosing the WAC as of the beginning of a quarter would aid in 
operational ease and consistency. We therefore propose that the 
baseline WAC, which Part D sponsors would use to determine whether a 
protected class drug's price has increased faster than inflation, would 
be determined as follows: (1) For a single-source drug or biological 
product that was first marketed in the United States on or before 
September 1, 2018, the baseline WAC would be the WAC as of September 1, 
2018; (2) for a single-source drug or biological product that is first 
marketed in the United States after September 1, 2018, the baseline WAC 
would be the WAC as of the date that is the first day of the first full 
quarter after the date the single-source drug or biological product was 
first marketed in the United States. For example, if a protected class 
drug is first marketed on

[[Page 62161]]

July 15, 2019, baseline WAC would be the WAC as of October 1, 2019. We 
propose that the increase in a drug's WAC would be determined by 
comparing the baseline WAC to the WAC at any point during the relevant 
applicable period (which we describe later in this section) for a 
contract year. We solicit comment on whether the WAC as of some date 
other than September 1, 2018 should be used as the baseline WAC for 
drugs that are on the market on or before September 1, 2018.
    As previously noted, we propose that the increase in protected 
class drug's WAC would be compared to the corresponding cumulative 
increase in the CPI-U for the same period. To make this comparison, we 
propose that the baseline CPI-U for a protected class drug would be 
determined as follows: (1) For a single-source protected class drug or 
biological product that was first marketed in the United States on or 
before September 1, 2018, the baseline CPI-U would be the September 
2018 CPI-U (which will be released in October 2018, but which we refer 
to as the September 2018 CPI-U in this proposed rule); and (2) for a 
single-source protected class drug or biological product that is first 
marketed in the United States after September 1, 2018, the baseline 
CPI-U would be the CPI-U for month in which the baseline WAC is 
established for the drug or biological product. To use our previous 
example, if a protected class drug is first marketed on July 15, 2019, 
the baseline CPI-U would be the CPI-U for October 2019.
    We further propose that in making the comparison of the increase in 
a protected class drug's WAC to the corresponding increase in the CPI-
U, the rate of change of CPI-U must be calculated on a cumulative basis 
for the same months for which the change in WAC is observed. For 
example, the change in WAC for a drug between September 1, 2018 and 
February 19, 2019 would be compared to the corresponding cumulative 
change in the CPI-U between September 2018 and February 2019. We also 
want to highlight that in the rare case that a CPI-U may be negative 
during the applicable period, note if the CPI-U goes down in a year 
that could lower the cumulative CPI-U for the applicable period.
    We propose that in order for a protected class drug to be excluded 
from the formulary for a given plan year, the comparison of the WAC 
increase to the cumulative CPI-U increase would need to be measured for 
an ``applicable period,'' which we propose to define as described in 
this proposed rule. For contract year 2020, we propose that the 
applicable period is September 1, 2018 through February 28, 2019. The 
applicable period for contract years 2021 and thereafter would begin on 
September 1st, 3 years before the contract year in which the exception 
would apply, and end August 31st of the second year prior to the 
contract year in which the exception would apply (see Table 1). We note 
that the proposed applicable period for contract year 2020 is shorter 
given that the bids for contract year 2020 are due in June 2020, and in 
order for this policy to take effect in contract year 2020, a shorter 
applicable period is necessary to align with the Part D bid cycle, and 
for beneficiaries to start to benefit from this policy change, if 
finalized, as quickly as possible.
    If a Part D sponsor determines that a protected class drug's WAC 
has increased faster than the corresponding cumulative increase in the 
CPI-U within the applicable period, we propose that the Part D sponsor 
could exclude the protected class drug from its formulary for the 
contract year associated with that applicable period. To effectuate 
such an exclusion, the Part D sponsor would be required to submit, 
along with its formulary submission, information sufficient to 
demonstrate that the drug or biological product meets the criteria for 
exclusion that we are proposing. CMS would review the information as 
part of its formulary review and approval process.
    Please see Table 1 for an illustration of how we project the 
timeline for the implementation of this proposal.
    We believe this timeline would allow Part D sponsors to take this 
policy into account as they negotiate pricing and rebates with 
manufacturers for the applicable contract year (that is, the contract 
year in which the exception from protected class status would apply). 
We understand that Part D sponsors begin negotiations with 
manufacturers for formulary status in early fall (October/November) of 
the year preceding the year in which bids are due for the upcoming plan 
year (that is, for contract year 2021, we believe that plans will begin 
negotiation with manufacturers in the fall of 2019, in advance of bids 
for contract year 2021 being due in June 2020). Ending the applicable 
period at the end of the third quarter annually allows the Part D 
sponsor to determine which protected class drugs (if any) could be 
excluded from the formulary in time to negotiate for their formulary 
inclusion and placement if desired.
    We understand that the proposed applicable periods for contract 
year 2020 and contract year 2021 overlap from September 1, 2018 through 
February 28, 2019, such that if a manufacturer increases the WAC for a 
protected class drug during that time at a rate faster than the growth 
in CPI-U during that time, a Part D sponsor could exclude the drug from 
its formulary for both contract years 2020 and 2021. Part D sponsors 
should note that even if the exclusion policy is triggered for both 
plan years 2020 and 2021, our approval of formularies for each plan 
year would have to be obtained separately for the applicable formulary 
submission.
    For additional clarity, we provide another example of how the 
proposed applicable periods would work. For contract year 2022, the 
applicable period would be September 1, 2019 through August 31, 2020. 
If during any month in the applicable period, the WAC for a protected 
class drug increases more than the cumulative change from the baseline 
CPI-U to the CPI-U at any time during the relevant applicable period, a 
Part D sponsor could exclude the drug from its formulary for contract 
year 2022.

 Table 1--Proposed Pricing Threshold Policy Timeline for Calendar Years
                            2020 Through 2023
------------------------------------------------------------------------
             Date                             Activity(ies)
------------------------------------------------------------------------
September 1, 2018.............  Baseline WAC established for drugs on
                                 the market as of 9/1/2018. Applicable
                                 period for Contract Year 2020 and
                                 Contract Year 2021 begins.
October 2018..................  Baseline September 2018 CPI-U released.
February 28, 2019.............  Applicable period for Contract Year 2020
                                 ends.
June 3, 2019..................  Deadline for submission of Contract Year
                                 2020 Bids, Formularies, Transition
                                 Attestations, Prior Authorization/Step
                                 Therapy (PA/ST) Attestations, and P&T
                                 Attestations due from all sponsors
                                 offering Part D including Medicare-
                                 Medicaid Plans (11:59 p.m. PDT).
August 31, 2019...............  Applicable period for Contract Year 2021
                                 ends.
September 1, 2019.............  Applicable period for Contract Year 2022
                                 begins.

[[Page 62162]]

 
December 31, 2019.............  Contract Year 2019 ends.
January 1, 2020...............  Contract Year 2020 Begins. Approved
                                 formulary exclusions begin for drugs
                                 with increased price past the CPI-U in
                                 the applicable period for Contract Year
                                 2020.
June 1, 2020..................  Deadline for submission of Contract Year
                                 2021 Bids, Formularies, Transition
                                 Attestations, Prior Authorization/Step
                                 Therapy (PA/ST) Attestations, and P&T
                                 Attestations due from all sponsors
                                 offering Part D including Medicare-
                                 Medicaid Plans (11:59 p.m. PDT).
August 31, 2020...............  Applicable period for Contract Year 2022
                                 ends.
September 1, 2020.............  Applicable period for Contract Year 2023
                                 begins.
December 31, 2020.............  Contract Year 2020 ends. Approved
                                 formulary exclusions end for drugs who
                                 increased price past the CPI-U in the
                                 applicable period for Contract Year
                                 2020.
January 1, 2021...............  Contract Year 2021 begins. Approved
                                 formulary exclusions begin for drugs
                                 who increased price past the CPI-U in
                                 the applicable period for Contract Year
                                 2021.
June 7, 2021..................  Deadline for submission of Contract Year
                                 2022 Bids, Formularies, Transition
                                 Attestations, Prior Authorization/Step
                                 Therapy (PA/ST) Attestations, and P&T
                                 Attestations due from all sponsors
                                 offering Part D including Medicare-
                                 Medicaid Plans (11:59 p.m. PDT).
August 31, 2021...............  Applicable period for Contract Year 2023
                                 ends.
September 1, 2021.............  Applicable period for Contract Year 2024
                                 begins.
December 31, 2021.............  Contract Year 2021 ends. Approved
                                 formulary exclusions end for drugs who
                                 increased price past the CPI-U in the
                                 applicable period for Contract Year
                                 2021.
January 1, 2022...............  Contract Year 2022 begins. Approved
                                 formulary exclusions begin for drugs
                                 who increased price past the CPI-U in
                                 the applicable period for Contract Year
                                 2022.
June 6, 2022..................  Deadline for submission of Contract Year
                                 2023 Bids, Formularies, Transition
                                 Attestations, Prior Authorization/Step
                                 Therapy (PA/ST) Attestations, and P&T
                                 Attestations due from all sponsors
                                 offering Part D including Medicare-
                                 Medicaid Plans (11:59 p.m. PDT).
August 31, 2022...............  Applicable period for Contract Year 2024
                                 ends.
September 1, 2022.............  Applicable period for Contract Year 2025
                                 begins.
December 31, 2022.............  Contract Year 2022 ends. Approved
                                 formulary exclusions end for drugs who
                                 increased price past the CPI-U in the
                                 applicable period for Contract Year
                                 2022.
January 1, 2023...............  Contract Year 2023 Begins. Approved
                                 formulary exclusions begin for drugs
                                 who increased price past the CPI-U in
                                 the applicable period for Contract Year
                                 2023.
June 5, 2023..................  Deadline for submission of Contract Year
                                 2024 Bids, Formularies, Transition
                                 Attestations, Prior Authorization/Step
                                 Therapy (PA/ST) Attestations, and P&T
                                 Attestations due from all sponsors
                                 offering Part D including Medicare-
                                 Medicaid Plans (11:59 p.m. PDT).
August 31, 2023...............  Applicable period for Contract Year 2025
                                 ends.
September 1, 2023.............  Applicable period for Contract Year 2026
                                 begins.
December 31, 2023.............  Contract Year 2023 ends. Approved
                                 formulary exclusions end for drugs who
                                 increased price past the CPI-U in the
                                 applicable period for Contract Year
                                 2023.
------------------------------------------------------------------------

    For further clarity on this proposal, we provide an example of how 
we foresee calculations would take place to monitor changes in price to 
determine which protected class drugs could be excluded from the 
formulary on the basis of price increases.

Baseline WAC for Drug Y (as of September 1, 2018) = $100
Baseline CPI-U (for September 2018) = 100.0
February 15, 2019 WAC for Drug Y = $110
February 2019 CPI-U (released in March 2019) = 105.0
The rate of change of the WAC for Drug Y = (February 2019 WAC-Baseline 
WAC) / 100 = ($110 - $100) / 100 = 0.1 or 10 percent growth
The rate of change of the CPI-U = (February 2019 CPI-U-Baseline CPI-U) 
/ 100 = (105 - 100) / 100 = 0.05 or 5 percent growth)

    The WAC for Drug Y grew by 10 percent between September 2018 and 
February of 2019, whereas the CPI-U only grew by 5 percent cumulatively 
over the same time period. Therefore, the WAC for Drug Y grew faster 
than inflation in February 2019, which falls in the proposed applicable 
periods for both contract year 2020 and 2021. Thus, in this example, a 
Part D sponsor could exclude Drug Y from its formulary for both 
contract years 2020 and 2021.
    Under our proposal, Part D sponsors would be responsible for 
monitoring price increases, determining the cumulative CPI-U increases 
for the corresponding applicable periods, and deciding whether they 
wish to submit for our approval a formulary that excludes protected 
class drugs with price increases that exceed the rate of inflation. As 
an alternative to this approach, we also considered an approach where 
each year, CMS would produce a list of protected class drugs a Part D 
sponsor could exclude from its formulary for a specified contract year 
as a result of the drug's WAC increasing, such that it exceeds the rate 
of inflation (that is, the CPI-U) as compared to the drug's baseline 
WAC. However, we declined to propose this approach, because we believe 
Part D sponsors will be better able to make these determinations more 
quickly, and we see merit and benefit in providing Part D sponsors with 
the flexibility to determine whether they would exclude the drug or 
negotiate with the manufacturer for formulary inclusion and placement. 
Having sponsors monitor price increases allows them immediate access to 
the information needed to inform bid submissions, particularly for 
contract year 2020. We solicit comment on the merits of our proposal to 
have Part D sponsors operationalize this exception policy by monitoring 
changes in WAC and CPI-U, or if a more effective approach would be for 
CMS to monitor these price changes and produce a list of drugs that 
could be excluded from Part D formularies for a given contract year. If 
commenters believe that CMS should be providing such a list, we solicit 
comment as to when that list should be released each year.
    As noted previously, we propose that once a drug can be excluded 
from formularies as a result of a price increase described previously 
(that is, during any month of the applicable period), that the drug can 
be excluded

[[Page 62163]]

from formulary only for the contract year for which the applicable 
period applies (that is, a drug is excepted from protected class status 
in contract year 2020 if the price increases more than the CPI-U for 
any month in the contract year 2020 applicable period). Therefore, to 
exclude a protected class drug from its formulary for the next contract 
year, the Part D sponsor would need to monitor whether the WAC of the 
drug has increased faster than inflation for the next contract year's 
applicable period. If the WAC has increased beyond the applicable 
period CPI-U for the next contract year's applicable period, then it 
could be excluded from the formulary, but if the WAC has not increased 
beyond the applicable period CPI-U for the next contract year's 
applicable period, it could not be excluded from the formulary for that 
contract year. This would also mean that, for example, if the WAC for a 
protected class drug in February 2020 exceeded the rate of inflation, 
as of February 2020, the drug could be excluded from a Part D formulary 
for contract year 2022 even if the WAC were lowered below the rate of 
inflation in March 2020.
    However, we note that just because a protected class drug can be 
excluded from formulary under this proposed policy, it does not mean 
that a Part D sponsor must exclude the drug from formulary. Rather, we 
believe that instead, manufacturers and Part D sponsors could negotiate 
rebate arrangements for formulary placement of these protected class 
drugs as they do for non-protected-class drugs, and in such an event 
Part D sponsors could continue to include drugs on formulary even if 
their WACs exceeded the rate of inflation in the applicable period. We 
also considered whether to propose that a Part D sponsor could exclude 
a protected class drug could from its formulary for any future contract 
year once its WAC increased more rapidly than the cumulative increase 
in inflation. We solicit comment on such a policy approach.
    In order to maximize the impact this policy would have on 
addressing high-cost drugs in protected classes, we also considered 
whether we should apply this price threshold exception to all drugs in 
the protected classes of a given manufacturer if any one of those 
drugs' WAC, when compared to the baseline WAC, increases beyond the 
cumulative rate of inflation. For example, if a manufacturer makes 
three protected class drugs, but the WAC for only one of those drugs 
increases beyond the CPI-U from its baseline WAC, we contemplated 
proposing that all three of those drugs could be excluded from the 
formulary. We solicit comment on this iteration of the proposed 
exception policy.
    To assuage any concerns that the proposed regulatory change would 
reduce access to protected class drugs, we again note that even if a 
protected class drug could be excluded from a Part D formulary under 
this proposed policy, Part D sponsors are not required to do so. 
Nothing in this proposal would prohibit the Part D sponsor from 
including the drug on its formulary. Moreover, it is our expectation 
that this exception policy would benefit the program and beneficiaries 
by encouraging manufacturers to work with Part D sponsors to ensure 
formulary inclusion and favorable access (for instance, better cost 
sharing, more competitive negotiated prices, etc.) for Part D 
enrollees, rather than a loss of formulary inclusion for drugs in the 
protected classes. Finally, we note that existing enrollee protections, 
namely the coverage determination and appeal process, and the Part D 
formulary requirements as discussed elsewhere in this preamble, provide 
safeguards to access to all prescription drugs. These safeguards would 
continue to be available to protect enrollees' access to their 
medically necessary medications. For instance, our annual formulary 
review and approval process includes extensive checks to ensure 
adequate representation of all necessary Part D drug categories or 
classes for the Medicare population. We remind stakeholders, in 
particular Part D sponsors, that even if a protected class drug could 
be excluded from the formulary for a contract year, on the basis of 
this proposed exception to the protected class requirements, the drug 
may be required to be included on the formulary for other reasons, for 
example, if the drug is needed to fulfill other applicable formulary 
requirements, such as the protected class drug in question is required 
to be on formulary because it is the only drug available in its 
category or class. CMS solicits comment on the impact of this policy 
proposal on Part D enrollees.
5. Solicitation of Comment for Special Considerations
    In considering whether exceptions to the added protections afforded 
by the protected class policy are appropriate, we take other enrollee 
protections in the Part D program into account. There are five such 
enrollee protections, and these are formulary transparency, formulary 
requirements, reassignment formulary coverage notices, transition 
supplies and notices, and the expedited exception, coverage 
determination, and appeals processes. (For a detailed discussion of 
these protections, see the January 2014 proposed rule, 79 FR 1938.) Our 
formulary review and approval process includes a formulary tier review, 
and for prior authorization and step therapy, we also conduct 
restricted access, step therapy criteria, prior authorization outlier, 
and prior authorization criteria reviews. Additionally, our formulary 
review and approval process takes into consideration the applicable 
indication, proposed applicability to new or continuing therapy, and 
likelihood of comorbidities when reviewing PA/ST criteria submitted to 
CMS by Part D plans. We note that best practice utilization management 
practices would not require an enrollee who has been stabilized on an 
existing therapy of a protected class drug for a protected class 
indication to change to a different drug in order to progress through 
step therapy requirements, and we would not expect Part D sponsors to 
require, nor would CMS be likely to approve, this if our proposed 
exceptions to the protected class policy were finalized. Moreover, we 
believe our current approach that ensures at least one drug within the 
class is offered on a preferred tier and free of prior authorization 
and step therapy requirements are working well and should be 
maintained. Currently, Part D formularies frequently have more than one 
protected class drug at a preferred cost sharing level, especially in 
classes with significant generic availability, without any prior 
authorization or step therapy requirement, and we would not expect that 
this proposal would prompt Part D sponsors to stop including protected 
class drugs on tiers with preferred cost sharing. (For a detailed 
discussion of our formulary review processes, see the January 2014 
proposed rule, 79 FR 1939.) Finally, our transition policy will 
continue to require Part D sponsors to provide all new enrollees that 
are currently taking a protected class drug with an approved month's 
supply if the Part D sponsor will be utilizing prior authorization to 
confirm if an enrollee is a taking a protected class drug for a 
protected class indication. (For a detailed discussion of our 
transition requirements, see the January 2014 proposed rule, 79 FR 
1940, and regulations at Sec.  423.120(b)(3).)
    Nonetheless, we wish to make certain that our three proposed 
exceptions (that is, broader use of prior authorization, new 
formulations, and pricing thresholds) to the protected class policy 
would not introduce interruptions for

[[Page 62164]]

enrollees on existing therapy of protected class drugs for protected 
class indications.
    We seek comment on whether there are additional considerations that 
would be necessary to minimize: (1) Interruptions in existing therapy 
of protected class drugs for protected class indications during prior 
authorization processes; and (2) increases in overall Medicare spending 
from increased utilization of services secondary to adverse events from 
interruptions in therapy. These could include, but are not limited to, 
for example, special transition considerations for on-formulary 
protected class drugs for which the Part D sponsor has established 
prior authorization requirements, or as another example, for 
transitioning some enrollees taking protected class drugs for protected 
class indications to alternative Part D drugs. If so, we seek comment 
on why our current requirements and protections are inadequate, or 
could be improved. In addition, we seek comment on what specific 
patient population(s), individual patient characteristic(s), specific 
protected class drugs or individual protected drug classes would 
require such additional special transition or other protections and how 
such population(s) can be consistently identified. Finally, we seek 
comment on other tools that could be used to minimize interruptions in 
existing therapy of protected class drugs for protected class 
indications during prior authorization processes, for example, wider 
use of diagnosis codes on prescriptions, e-PA during e-prescribing, 
targeting protected class drugs in Medication Therapy Management (MTM) 
programs, or, as another example, expanded use of a data-sharing tool 
to exchange information for enrollees transitioning from one plan to 
another.

B. Prohibition Against Gag Clauses in Pharmacy Contracts (Sec.  
423.120(a)(8)(iii))

    In October 2018, Congress enacted the ``Know the Lowest Price Act 
of 2018'' (Pub. L. 115-262). The measure, which amends section 1860D-4 
of the Act by adding a paragraph (m), prohibits Medicare Part D plan 
sponsors from restricting their network pharmacies from informing their 
Part D plan enrollees of the availability of prescription drugs at a 
cash price that is below what that the enrollee would be charged 
(either the cost sharing amount or the negotiated price when it is less 
than the enrollee's cost sharing amount) for the same drug under the 
enrollee's Part D plan. In effect, the legislation prohibits Part D 
sponsors from including in their contracts with their network 
pharmacies ``gag clauses'', a term used within the prescription drug 
benefit industry that refers to provisions of drug plan pharmacy 
contracts that restrict the ability of pharmacies to discuss with plan 
enrollees the availability of prescriptions at a cash price that is 
less than the amount the enrollee would be charged when obtaining the 
prescription through their insurance. The measure becomes effective 
with the plan year starting January 1, 2020.
    To make the Part D regulations consistent with the statute 
governing the Part D program, we propose to incorporate the new 
requirement into the Part D regulations. Specifically, we propose to 
amend the set of pharmacy contracting requirements at Sec.  
423.120(a)(8) by adding a paragraph (iii) that provides that a Part D 
sponsor may not prohibit a pharmacy from, nor penalize a pharmacy for, 
informing a Part D plan enrollee of the availability at that pharmacy 
of a prescribed medication at a cash price that is below the amount 
that the enrollee would be charged to obtain the same medication 
through the enrollee's Part D plan.

C. E-Prescribing and the Part D Prescription Drug Program; Updating 
Part D E-Prescribing Standards (Sec.  423.160)

1. Legislative Background
    Section 101 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) requires the adoption 
of Part D eRx standards. Prescription Drug Plan (PDP) sponsors and 
Medicare Advantage (MA) organizations offering Medicare Advantage 
Prescription Drug Plans (MA-PD) are required to establish electronic 
prescription drug programs that comply with the e-prescribing standards 
that are adopted under this authority. There is no requirement that 
prescribers or dispensers implement eRx. However, prescribers and 
dispensers who electronically transmit and receive prescription and 
certain other information for covered drugs prescribed for Medicare 
Part D eligible beneficiaries, directly or through an intermediary, are 
required to comply with any applicable standards that are in effect. 
For a further discussion of the statutory basis for this proposed rule 
and the statutory requirements at section 1860D-4(e) of the Act, please 
refer to section I. of the eRx and the Prescription Drug Program 
February 2005 proposed rule (70 FR 6256).
2. Regulatory History
    Part D eRx standards are periodically updated to take new 
knowledge, technology, and other considerations into account. CMS 
currently requires providers and dispensers to utilize the National 
Council for Prescription Drug Programs (NCPDP) SCRIPT standard, 
Implementation Guide Version 10.6, which was approved November 12, 
2008, to provide for the communication of a prescription or 
prescription-related information for certain named transactions. As of 
January 1, 2020, however, prescribers and dispensers will be required 
to use the NCPDP SCRIPT standard, Implementation Guide Version 2017071, 
which was approved July 28, 2017 to provide for the communication of 
prescription or prescription-related information between prescribers 
and dispensers for the old named transactions and a handful of new 
transactions named at Sec.  423.160(b)(2)(iv). We also currently 
require (under Sec.  [thinsp]423.160(b)(5)) Medicare Part D plan 
sponsors and prescribers to convey electronic formulary and benefits 
information amongst themselves using either Version 1, Release 1 
(Version 1.0), from October 2005, or Version 3 Release 0 (Version 3.0), 
from April 2012 of the National Council for Prescription Drug Programs 
(NCPDP) Formulary and Benefits Standard Implementation Guides. (For a 
detailed discussion of the regulatory history of eRx standards see the 
November 2017 proposed rule (82 FR 56437 and 56438).
    The NCPDP SCRIPT eRx standards (SCRIPT) and the NCPDP Formulary and 
Benefits standards (F&B) have become critical components of the Part D 
program. Thus far in 2018, 66 percent of Part D prescriptions were 
written electronically using the applicable SCRIPT standard, and all 
Part D plans implement electronic F&B using one of the adopted 
standards. However, based on industry feedback, we understand that 
while some prescribers rely on electronic F&B transactions to support 
prescribers during the eRx process, others do not. For example, vendors 
of electronic medical records (EMR) systems have stated that some of 
their clients find F&B data useful, but approximately half of their 
clients chose not to access F&B data at all. F&B is a batch mode 
transaction standard by definition, and therefore does not provide 
real-time information. A batch transaction allows plans to send the 
information nightly, weekly or even monthly. As plans make routine 
changes in their formularies, they may/may not be captured on the batch

[[Page 62165]]

formulary files. In addition, F&B provides information on a contract 
level, rather than a patient level, and consequently could not provide 
out-of-pocket costs for a given patient at a given point in time.
    We are proposing to require a real-time benefit tool (RTBT) 
requirement on Part D sponsors to serve as a critical adjunct to the 
existing SCRIPT and F&B electronic standards. There is no requirement 
that prescribers or dispensers implement electronic prescribing but the 
existing SCRIPT standard allows prescribers means of conducting 
electronic prescribing, while the F&B standard allows a prescriber to 
see what is on the plan's formulary, but neither of those standards can 
convey patient-specific real-time cost or coverage information that 
includes formulary alternatives or utilization management data to the 
prescriber at the point of prescribing. If finalized, RTBT data would 
be layered on top of F&B data to gain a complete view of the 
beneficiary's prescription benefit information. It will augment the 
information available in F&B because, though F&B is useful, it is a 
batch mode transaction standard by definition and therefore does not 
provide real-time information. Further F&B provides information on a 
contract level, rather than a patient level, and consequently could not 
provide information about out-of-pocket costs for a given patient at a 
given point in time.
    As described in more detail in the next section, we believe 
requiring plans to make one or more RTBT available to prescribers will 
lead to higher prescriber use of F&B information during the eRx 
process. To be eligible for selection by a Part D sponsor, we propose 
to require that the RTBT be capable of integrating with prescribers' 
eRx and EMR systems and providing patient-specific coverage information 
at the point of prescribing to enable the prescriber and patient to 
collaborate in selecting a medication based on clinical appropriateness 
and cost. We believe that furthering prescription price transparency is 
critical to lowering overall drug costs, and patients' out-of-pocket 
costs, and anticipate improved medication adherence, and supports for 
the MMA objectives of patient safety, quality of care, and efficiencies 
and cost savings in the delivery of care if our proposals are 
finalized.
3. Proposed Adoption of a Real-Time Benefit Tool
    The Medicare Part D program allows contracted entities that offer 
coverage through the program latitude to design plan benefits, provided 
these benefits comply with all relevant program requirements. This 
flexibility results in variation in Part D plans' benefit design, cost-
sharing amounts, utilization management tools (that is, prior 
authorization, quantity limits, and step therapy), and formularies 
(that is, covered drugs). We are aware of several Part D prescription 
drug plans that have begun to offer RTBT inquiry and response 
capabilities to some physicians to make beneficiary-specific drug 
coverage and cost data visible to prescribers who wish to use such data 
at the point-of-prescribing. We have reviewed multiple RTBT software 
solutions and have found that they are generally designed to provide 
patient-specific clinically appropriate information on lower-cost 
alternative therapies through the prescribers' eRx or EMR systems, if 
available, under the beneficiary's prescription drug benefit plan. 
However, for those software solutions that are capable of providing 
such decision support, based on our current experience, we understand 
that the prescribers will only embrace the technology if the prescriber 
finds the information to be readily useful. Thus, to ensure success, we 
believe that the Part D sponsor must present prescribers with formulary 
options that are all clinically appropriate and accurately reflect the 
costs of their patient's specific formulary and benefit options under 
their drug benefit plan. In addition, those who use plans' current RTBT 
technology report that prescribers are most likely to use the 
information available through RTBT transactions if the information is 
integrated into the eRx workflow and electronic medical record (EMR) 
system. This would allow the prescriber and patient, when appropriate, 
to choose among clinically acceptable alternatives while weighing 
costs. Since eRx can generally be performed within the provider's EMR 
system, integration of the RTBT function within the EMR generally, and 
the eRx workflow specifically appears to be critical for the successful 
implementation of the technology. However, we recognize that without a 
standard for RTBT, prescribers may be offered multiple technologies, 
which may overwhelm and create burden for EMR vendors. We also 
recognize that without a standard, the RTBT tool provided may not be 
integrated with a prescribers' EMR, thus limiting its utility.
    We are interested in fostering the use of these real-time solutions 
in the Part D program, given their potential to lower prescription drug 
spending and minimize beneficiary out-of-pocket costs. Not only can 
program spending and beneficiary out-of-pocket costs be reduced, but 
evidence suggests that reducing medication cost also yields benefits in 
patients' medication adherence. In a 2012 review of studies 
investigating how patient out-of-pocket costs affects medication 
adherence and outcomes, researchers found that 85 percent of studies 
demonstrated that increasing patient cost-share for a medication was 
associated with a significant decrease in medication adherence.\2\ This 
review also revealed that 86 percent of these studies demonstrated that 
increased medication adherence was associated with improved clinical 
outcomes. With respect to studies that directly measured the impact of 
out-of-pocket costs on outcomes, 76 percent found that increased 
medication out-of-pocket costs was associated with adverse non-
medication related outcomes such as additional medical costs, office 
visits, hospitalizations, and other adverse events. Subsequently 
published studies continue to reflect similar findings.\3\ \4\
---------------------------------------------------------------------------

    \2\ Eaddy, M.T., Cook, C.L., O'Day, K., Burch, S.P., & Cantrell, 
C.R. (2012). How Patient Cost-Sharing Trends Affect Adherence and 
Outcomes: A Literature Review. Pharmacy and Therapeutics, 37(1), 45-
55.
    \3\ Hershman, D.L., Tsui, J., Meyer, J., et al. (2014). The 
change from brand-name to generic aromatase inhibitors and hormone 
therapy adherence for early-stage breast cancer. Journal of the 
National Cancer Institute. 106(11), dju319.
    \4\ Chen SY, Shah SN, Lee YC, et al. (2014). Moving branded 
statins to lowest copay tier improves patient adherence. American 
Journal of Managed Care. 20, 34-42.
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    Therefore, we are proposing that each Part D sponsor be required to 
implement a RTBT capable of integrating with prescribers' eRx and EMR 
systems to provide complete, accurate, timely, clinically appropriate 
and patient-specific real-time formulary and benefit information to the 
prescriber. While we recognize that there currently is no industry-
established transaction standard for RTBTs for CMS to propose adopting, 
we believe it is appropriate to require implementation of solutions 
based on available technologies. There appear to be multiple existing 
technologies capable of interfacing with multiple EMR systems and 
providing to prescribers the patient-specific real-time coverage 
information we have described in this preamble, and, given that, that 
it would be inappropriate to wait any longer for an industry-wide 
standard to be developed given current concerns about drug prices. 
Under this proposed rule Part D plan sponsors would be required to 
select or develop an RTBT capable of integration with at least one 
prescriber's EMR and eRx systems; we

[[Page 62166]]

encourage EMR and eRx vendors to work with Part D plans to ensure that 
the information can be requested and viewed in real time by a user of 
their product at the point of prescribing. In order to meet this 
proposed requirement, each Part D plan sponsor will be required to 
implement an RTBT that is capable of integrating with at least one of 
prescribers' eRx and EMR systems to provide the prescriber with 
complete, accurate, timely, and clinically appropriate patient-specific 
real-time formulary and benefit information at the point of eRx. Each 
system response value would need to show an accurate reflection of how 
the prescription claim would be adjudicated given the information 
submitted and the claims history of the patient with that plan, 
including relevant indications that could impact coverage, at the time 
the prescriber query is made. Further, the system would be required to 
present real-time values for the patient's cost-sharing information and 
additional formulary alternatives. This requirement would include the 
formulary status of clinically appropriate formulary alternatives, 
including any utilization management requirements, such as step 
therapy, quantity limits and prior authorization, and indications-based 
restrictions, for each specific alternative presented.
    We are interested in bringing RTBT's benefits to the Part D program 
as soon as feasible. In evaluating how quickly plans could choose and 
implement an RTBT functionality, we note that a number of firms have 
already developed the technology required to provide the information we 
describe through some eRx/EMR systems. Pharmacy benefit managers (PBMs) 
that service the majority of Part D plans, and a few plans themselves, 
have successfully implemented RTBTs for a small subsection of the 
plans' enrollment, which were capable of conveying the information 
described and interfacing with most EMR and eRx products. We believe 
that should RTBT systems continue to result in reduced drug costs, 
plans will expand the number of prescribers who have access to RTBT 
technologies over the next several years, ultimately paving the way for 
universal RTBT deployment within Part D in contract year 2020. As plans 
develop their formularies and benefit packages for 2020, we believe 
that they will be able to include RTBT implementation in the 2020 
planning process. Because section 1860D-12(f)(2) of the Act prohibits 
the implementation of ``significant'' regulatory requirements on a 
prescription drug plan other than at the beginning of the calendar 
year, if finalized, we are proposing to implement the RTBT requirement 
on January 1, 2020.
    We also encourage plans to use RTBTs to promote full drug cost 
transparency by showing each drug's full negotiated price (as defined 
in 42 CFR 423.100), in addition to the beneficiary's out-of-pocket cost 
information. Displaying both values would provide prescribers with 
additional decision support by providing visibility into both their 
patients' cost-sharing amounts as well as total cost to the Medicare 
program. Viewing negotiated price at the point of prescribing would be 
of particular interest when alternative drugs in a plan's formulary 
have comparable out-of-pocket costs and clinical value; in those cases 
a prescriber may consider negotiated prices as well, which would be of 
value to the Medicare program. For this reason we encourage plans to 
include negotiated price with their RTBT solution, although we are not 
proposing to make it a requirement at this time.
    We believe that beneficiaries will benefit from their prescribers' 
use of RTBT. However, we would caution that RTBT should not be used by 
providers to evaluate alternatives for drugs prior to discussing 
whether the patient intends to self-pay for the prescribed drug. Such 
practices will preserve the patient's ability to exercise their right 
under the privacy regulations promulgated pursuant to the Health 
Insurance Portability and Accountability Act of 1996 (HIPAA) \5\ and 
modified pursuant to, among other laws, the Health Information 
Technology for Economic and Clinical Health (HITECH) Act of 2009.\6\ If 
requested by the individual, the HIPAA Privacy Rule at 45 CFR 164.522 
requires covered entities to agree to a restriction of the disclosure 
of PHI to a health plan for payment and health care operations when an 
individual pays for the item or service out-of-pocket in full.
---------------------------------------------------------------------------

    \5\ See the Administrative Simplification provisions of title 
II, subtitle F, of the HIPAA (Pub. L. 104-191), which added a new 
part C to title XI of the Social Security Act (sections 1171-1179 of 
the Social Security Act, 42 U.S.C. 1320d-1320d-8).
    \6\ The HITECH Act was enacted as title XIII of division A and 
title IV of division B of the American Recovery and Reinvestment Act 
of 2009 (ARRA) (Pub. L. 111-5).
---------------------------------------------------------------------------

    Therefore covered health care providers using the RTBT should 
ensure that individuals are aware that information about services or 
treatment, such as a future prescription, may be disclosed to the plan 
by the tool and effectuate the individual's disclosure restriction 
request by refraining to use the tool in instances in which the patient 
intends to self-pay in full. Covered health care providers should 
discuss with the individual whether the individual desires the 
prescriber to use the RTBT as doing so would generally eliminate the 
beneficiary's ability to request disclosure restrictions as the plan 
would already be in possession of the query data regarding the desire 
to prescribe something for a specified condition.
    We considered building upon the existing F&B standard to provide 
prescribers with decision support. Under this scenario, we would 
require that plans use the existing NCDP Formulary and Benefit (F&B) 
Standard (version 1.0 or 3.0) but modify our requirement for Part D so 
that plans would be required to populate certain optional fields such 
as copay tier, dollar copay value, and utilization management criteria 
for each drug. We considered this option as a solution because it would 
be built upon an existing transaction standard and allow interface with 
all EMR systems to deliver the information to the prescriber within the 
normal workflow. However, we believe that a prescriber tool that relied 
on the F&B would fail to provide the real-time information currently 
used by many plans. Many prescribers have chosen not to include F&B 
information in their EMRs because they view the information presented 
as unreliable as the data is not specific to the patient's benefit 
plan. Given the inherent complexities associated with Part D 
formularies and benefits, we concluded that under this option, the 
patient information available to the practitioner at the time of 
prescribing would often lack sufficient and current detail necessary 
for clinical decision-making, which could lead to confusion for 
prescribers and patients. For example, we understand that a plan that 
had a prior authorization in place for a targeted portion of its 
population conveyed the prior authorization requirement for all 
patients. The plan's rationale was that they would not know which 
patient was accessing the F&B data, so the plan chose to include the 
requirement for all enrollees rather than the reverse which would be to 
omit the requirement for some of their enrollees. Similarly the F&B 
standard could convey a step therapy requirement for the population at 
large, but could not discern whether or not an individual patient had 
fulfilled the requirement.
    However, in spite of these shortcomings, including the inherent 
lack of beneficiary-specific formulary information or its batch-only

[[Page 62167]]

functionality, we continue to believe that the NCPDP F&B 1.0 and 3.0 
continue to provide value to the Part D program, and, as a result, we 
are not proposing to retire those standards. This value is evidenced by 
the fact that, as previously noted, many EMRs convey F&B data to their 
prescribers. Even strong proponents of adopting RTBT state that the 
standards work best when used with F&B. They state that F&B can provide 
a general view of the plan's formulary while RTBT aids the prescriber 
in choosing between the formulary alternatives offered.\7\ We also note 
that where a prescriber has limited formulary choices due to the 
patient's specific clinical condition, F&B may provide all the 
information needed. Finally many EMRs use the F&B and RTBT transactions 
in different places within in the eRx work-flow. Therefore, we believe 
that both the F&B and RTBT transactions add value to the eRx process 
and are not interchangeable and should be used in tandem.
---------------------------------------------------------------------------

    \7\ https://www.pocp.com/hit-drug-price-transparency-opportunities.
---------------------------------------------------------------------------

    Prior to proposing that each Part D plan choose an RTBT tool to 
support, we sought to identify an industry standard that could be used 
throughout the Part D program. We prefer industry-wide standards when 
they are available due to their significance in promoting collaboration 
and interoperability across industry partners. Unfortunately, we were 
unable to identify a suitable RTBT standard that has been balloted and 
approved by an accredited standard setting body to ensure 
interoperability. However, we are aware that efforts are underway to 
develop RTBT standards, and are hopeful that they will come to fruition 
in the near future. We are interested in, and solicit comments on, 
assessments from knowledgeable parties about whether any of the 
standards that are currently under development may be suitable to meet 
our intended purposes described herein. Based on these considerations, 
we are proposing to amend Sec.  423.160(b) by adding the requirement 
that all Part D plan sponsors implement one or more RTBT by January 1, 
2020 to be used with the patient's consent. This would require that 
each Part D plan carefully review the drugs that exist on the formulary 
and determine which, if any, formulary alternatives exist. The plan's 
RTBT system would integrate with automated prescriber systems (eRx or 
EMR) to present a list of the formulary alternatives to the prescriber 
along with any applicable utilization management requirements and 
patient's cost sharing for each one. This would allow, with the 
patient's consent, a prescriber to consider both the clinical 
appropriateness and patient copayment of a drug during the prescribing 
process. If finalized, this tool could provide complete, accurate, 
timely and clinically appropriate patient-specific real-time formulary 
and benefit information that could be capable of integrating with 
prescriber's eRx and EMR systems. Formulary and Benefits information 
delivered through the RTBT would be required to include patient-
specific adjudication and out-of-pocket cost information, and would be 
required to provide decision support reflecting clinically appropriate 
formulary alternatives and utilization management requirements such as 
step therapy, quantity limits and prior authorization requirements.
    We welcome comments on this proposal, including the feasibility for 
plans to meet the proposed January 1, 2020 deadline. We understand that 
should this proposal be finalized some Part D plans may need to invest 
considerable resources in order to execute effective RTBT solutions. At 
a minimum, each plan will need to scrutinize individual formulary drugs 
to see whether lower cost alternatives exist, and evaluate how these 
alternatives can be presented in such a way that will be helpful to 
clinicians who make prescribing decisions for patients who may have 
multiple co-morbidities and conditions. We also realize that RTBT can 
only achieve the desired cost savings if plans can partner with medical 
records and eRx vendors to support these efforts by transmitting 
accurate the information to the prescriber in an easily actionable 
format. We welcome comments on how this proposal may or may not, 
expedite our goal of giving each Part D enrollee and the clinicians who 
serve them, access to meaningful decision support through RTBT. We also 
seek relevant feedback about RTBT standardization efforts; this 
includes the planned fulfillment of any milestones that standardization 
bodies have already met, or are likely to meet in advance of the 
proposed January 1, 2020 deadline. We would consider retraction of this 
proposed rule if we receive feedback indicating that the rule would be 
contrary to advancing RTBT within Part D, or if a standard has been 
voted upon by an accredited Standard Setting Organization or there are 
other indications that a standard will be available before the 2020 
effective date of this proposed provision. In such case, we would 
review such standard, and if we find it suitable for our program 
consider proposal of that standard as a requirement for implementation 
in our 2021 rulemaking, effective January 1, 2021. We are also 
soliciting comments regarding the impact of this proposal on plans and 
providers, including overall interoperability and the impact on medical 
record systems. Finally, we are soliciting comments regarding the 
impact of the proposed effective date on the industry and other 
interested stakeholders.

D. Part D Explanation of Benefits (Sec.  423.128)

    Section 1860D-4(a)(1)(A)(4) of the Act requires Part D sponsors to 
furnish to each of their enrollees a written explanation of benefits 
(EOB) and, when the prescription drug benefits are provided, a notice 
of the benefits in relation to the initial coverage limit and the out-
of-pocket threshold for the current year. We codified this EOB and 
notice requirement at Sec.  423.128(e) by requiring the Part D EOB to 
include all of the following information written in a form easily 
understandable to enrollees:
     The item or service for which payment was made and the 
amount of said payment.
     Notice of an individual's right to an itemized statement.
     Cumulative, year-to-date total amount of benefits provided 
(including the deductible, initial coverage limit, and the annual out-
of-pocket threshold for the current benefit year).
     The cumulative, year-to-date total of incurred costs.
     Any applicable formulary changes.
    Part D sponsors must provide enrollees with EOB no later than the 
end of the month following any month in which the enrollee utilized 
their prescription drug benefit.
    Lowering prescription drug costs is of critical and immediate 
concern to beneficiaries, CMS and the Administration. ``The Trump 
Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket 
Costs,'' released in May 2018 \8\ specifically solicited comment on 
improving the usefulness of the Part D Explanation of Benefits 
statement by including information about drug price changes and lower 
cost alternatives. As expected, many beneficiary advocacy groups 
submitted supportive comments regarding amending the Part D EOB. Many 
groups commended the Administration's desire to further

[[Page 62168]]

transparency efforts through improvements in beneficiary education 
materials, such as the Part D EOB. Requiring sponsors to include 
additional information about negotiated drug price changes and lower 
cost therapeutic alternatives in the EOB would help improve cost 
transparency of Part D prescriptions and mitigate drug price increases 
in the Part D program.
---------------------------------------------------------------------------

    \8\ ``The Trump Administration Blueprint to Lower Drug Prices 
and Reduce Out-of-Pocket Costs,'' HHS (May 2018). Please see: 
https://www.hhs.gov/sites/default/files/AmericanPatientsFirst.pdf.
---------------------------------------------------------------------------

    The items required to be included in the EOB under the current 
regulation do not include information about negotiated price changes 
for each of the prescription drugs covered for a beneficiary, nor do 
they specify including information about lower cost therapeutic 
alternatives. Because we do not require this information under the 
regulation as currently written, for contract year 2019 as specified in 
the July 24, 2018, HPMS Memorandum, ``Model Notice and Policy 
Updates,'' we added an option for sponsors to use the existing notes 
field in the EOB for information on drug price increases and more 
affordable formulary alternatives.\9\
---------------------------------------------------------------------------

    \9\ See Part D Model Materials at: https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Part-D-Model-Marketing-Materials.html.
---------------------------------------------------------------------------

    We propose to redesignate paragraphs (e)(5) and (e)(6) of Sec.  
423.128(e) as paragraphs (e)(6) and (e)(7) to add a new paragraph 
(e)(5) to require sponsors to include information about negotiated 
price changes and lower-cost therapeutic alternatives in the Part D 
EOBs. First, as to information about negotiated drug price increases, 
we propose to require that Part D sponsors include the cumulative 
percentage change in the negotiated price since the 1st day of the 
current benefit year for each prescription drug claim in the EOB. For 
example, when a beneficiary fills a prescription under his or her Part 
D plan in April of the current benefit year that begins on January 1, 
the cumulative percentage by which the negotiated price has changed 
since January 1 of that year would display in the EOB. To illustrate, 
if the negotiated price of the beneficiary's medication was $100 in 
January, $102 in February, $103.50 in March, and $104 in April, the 
April EOB would display a 4 percent increase in the drug's negotiated 
price. Thus, this information would provide drug price trend 
information for the beneficiary for all their covered Part D drugs. We 
specifically request stakeholder feedback on operationalizing this in 
the EOB to best serve beneficiaries which could include, for instance, 
including information in the EOB on the percent change in negotiated 
price since the close of open enrollment in addition to the percent 
change in price since the 1st day of the benefit year.
    Second, as to information about lower-cost therapeutic 
alternatives, CMS proposes to require that Part D sponsors provide 
information about drugs that are therapeutic alternatives with lower 
cost-sharing, when available as determined by the plan, from the 
applicable approved plan formulary for each prescription drug claim. 
Also, the plan may include therapeutic alternatives with the same 
copayments if the negotiated price is lower.
    Lower-cost therapeutic alternatives (meaning drugs with lower cost-
sharing or lower negotiated prices) would not be limited to 
therapeutically equivalent generics if the original prescription fill 
is for a brand drug. It could also include a different drug, not within 
the same category or class, but one that has a medically-accepted 
indication to treat the same condition. Additionally, we would not 
require information about formulary therapeutic alternatives available 
at lower cost sharing to be beneficiary-specific, and we acknowledge 
that alternatives may not always be available. However, Part D sponsors 
would be permitted and encouraged by CMS to include relevant 
beneficiary-specific information, such as diagnosis, the indication for 
the prescription and complete step therapy or exception requests, when 
providing formulary therapeutic alternatives in the EOB that have lower 
cost-sharing. As with including the negotiated price changes on EOBs, 
this mechanism would provide even greater transparency for 
beneficiaries when reviewing their annual out-of-pocket costs for 
prescriptions.
    These two proposed requirements would help improve cost 
transparency of Part D prescriptions. Updating the Part D EOB 
requirements as we propose would provide greater information to 
beneficiaries by displaying the fluctuations in their prescription drug 
prices, so that they can become more educated concerning their drug 
costs and about potential lower cost alternative drugs. This in turn 
should spark dialogue between the Part D beneficiaries and their 
providers about possible lower cost therapeutic alternatives, and 
empower them to make more informed decisions when choosing a 
prescription.
    The Part D EOB is one of the principal documents that beneficiaries 
can rely on to understand where they are in the benefit phases and 
their changing out-of-pocket costs throughout the year. This document 
is provided to beneficiaries every month for the immediately preceding 
month that the Part D benefit is used. As a retroactive monthly report, 
the EOB is the means by which beneficiaries can monitor their benefit 
utilization and prescription costs on a regular and frequent basis.
    Given the frequency of EOB issuance, the proposed policy would help 
call beneficiaries' attention to drug prices and more affordable 
options on an ongoing, regular basis. The current structure of the 
model EOB is well-suited to include additional information on 
individual prescription drug claims. Other beneficiary materials are 
delivered on an annual basis. These documents are geared toward 
assisting Part D beneficiaries make enrollment decisions whether to 
remain with their current prescription drug plan or switch to another. 
By viewing these costs on a monthly basis in EOBs, beneficiaries would 
be much more up-to-date with regard the impact of drug prices and 
whether there are less expensive options available. We solicit comment 
on these proposed changes to the Part D explanation of benefits, 
including impact on the beneficiary.

F. Medicare Advantage and Step Therapy for Part B Drugs (Sec. Sec.  
422.136, 422.568, 422.570, 422.572, 422.584, 422.590, 422.618, 422.619)

    In a HPMS memo released August 7, 2018,\10\ CMS announced that 
under certain conditions beginning in contract year 2019, MA plans may 
use utilization management tools such as step therapy for Part B drugs; 
such utilization management tools, including prior authorization, can 
be used by MA organizations to both prevent overutilization of 
medically unnecessary health services and control costs. This rule 
proposes requirements under which MA plans may apply step therapy as a 
utilization management tool for Part B drugs. In this proposal, we 
confirm MA plans' existing authority to implement appropriate 
utilization management tools, including prior authorization, for 
managing Part B drugs in a manner to reduce costs for both enrollees 
and the Medicare program. Under Part B, traditional Medicare generally 
pays based on a statutory formula--average sales price plus a 6-percent 
add-on--for drugs and biological products that are not usually self-
administered, such as injections and infusions. We believe there is 
minimal negotiation between MA plans

[[Page 62169]]

and drug manufacturers to reduce the price of these drugs. Prior to the 
August 7, 2018 HPMS memo and subsequent FAQs,\11\ CMS guidance \12\ 
interpreted existing law to prohibit MA plans from using step therapy 
for Part B drugs because such a utilization management tool would 
create an unreasonable barrier to coverage of and access to Part B 
benefits that MA plans must provide under the law. However, CMS 
recognizes that utilization management tools, such as step therapy, can 
provide the means for MA plans to better manage and negotiate the costs 
of providing Part B drugs. As a result, we are proposing to allow MA 
plans to use step therapy, which we believe would considerably assist 
MA plans in negotiating on behalf of enrollees to get better value for 
Part B drug therapies, which constitute around $12 billion in CY 2016 
\13\ in spending by MA plans.
---------------------------------------------------------------------------

    \10\ Prior Authorization and Step Therapy for Part B Drugs in 
Medicare Advantage (August 2018). Retrieved from https://www.cms.gov/Medicare/Health-Plans/HealthPlansGenInfo/Downloads/MA_Step_Therapy_HPMS_Memo_8_7_2018.pdf.
    \11\ https://dpapportal.lmi.org/DPAPMailbox/Documents/Part%20B%20Step%20Therapy%20Questions%20FAQs_8-29-18.pdf.
    \12\ Prohibition on Imposing Mandatory Step Therapy for Access 
to Part B Drugs and Services. (September 2012). Retrieved from 
https://www.asrs.org/content/documents/cms_step_therapy_memo_091712-2.pdf.
    \13\ Medicare Part B Drug. CMS Enterprise Portal. Retrieved at 
https://portal.cms.gov/wps/portal/unauthportal/unauthmicrostrategyreportslink?evt=2048001&src=mstrWeb.2048001&documentID=AEC7511A11E817EF2FBA0080EFC5E3D8&visMode=0&currentViewMedia=1&Server=E48V126P&Project=OIPDA-BI_Prod&Port=0&connmode=8&ru=1&share=1&hiddensections=header,path,dockTop,dockLeft,footer.
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    We believe that these tools will better enable MA organizations to 
take steps to ensure that MA plans and MA enrollees pay less overall or 
per unit for Part B drugs which could result in lower MA capitation 
payments by the government to MA organizations and lower average sales 
prices for Part B drugs, on which Medicare FFS payments for such drugs 
are based, while also maintaining access to medically necessary 
Medicare-covered drugs and services. These goals--reducing costs across 
the Medicare program while ensuring access to medically-necessary 
Medicare-covered benefits--underlie this proposal. In the regulatory 
text, we propose adding a new regulation, at Sec.  422.136, entitled 
``Medicare Advantage and Step Therapy for Part B Drugs.''
    Sections 1852(c)(1)(G) and (c)(2)(B) of the Act, and the MA 
regulations at Sec.  422.4(a)(1)(ii) expressly, reference a MA plan's 
application of utilization management tools, like prior authorization 
and other ``procedures used by the organization to control utilization 
of services and expenditures;'' this indicates that MA plans are not 
prohibited by the statute from implementing utilization management 
tools such as step therapy. Therefore, we are proposing requirements 
under which MA plans may apply step therapy as a utilization management 
tool for Part B drugs. We are also proposing to define step therapy in 
Sec.  422.2. We solicit comments concerning the impact that allowing 
step therapy for Part B drugs would have on MA plans and enrollees. For 
contract year 2020 and subsequent years, coupling drug management 
coordination with rewards and incentives remains an option for MA plans 
to pass back savings to beneficiaries. Anticipated savings not passed 
on to beneficiaries through rewards and incentives must be reflected in 
the plan's bid. Additional Part C rebate dollars associated with the 
lower bid, as with all Part C rebate dollars, must be used to provide 
supplemental benefits and/or lower premiums for the plans' enrollees.
    We acknowledge the potential for utilization management tools like 
step therapy to create administrative burden and process challenges for 
network providers. In light of that, we expect MA plans to work closely 
with the provider community and to adopt best practices that streamline 
requirements and minimize burden. We also encourage continued 
development and advancement of electronic prior authorization processes 
to more efficiently administer this process. We note that existing 
requirements in Sec. Sec.  422.112(b) and 422.152 already require care 
coordination activities that are sufficient to promote positive health 
outcomes for both drugs and services, so we are not proposing text at 
Sec.  422.136 that an MA plan must offer a drug management program. We 
solicit comment whether our proposed regulation text imposing education 
and information responsibilities in combination with existing 
regulations on care coordination are sufficient to ensure that MA 
organizations specifically address step therapy programs for Part B 
drugs as part of those care coordination responsibilities and if we 
should finalize a provision in Sec.  422.136 that addresses the 
administrative burden imposed on network providers by MA plans.
    This proposed rule would impose a number of safeguards that ensure 
enrollees have timely access to all medically necessary Medicare Part B 
medications. MA plans would be required to administer the existing 
organization determination and appeals processes under new proposed 
time frames that are similar to the timeframes applicable in Part D for 
coverage determinations; enrollees can request an organization 
determination if they believe that they need direct access to a Part B 
drug that would otherwise only be available after trying an alternative 
drug. MA plans would adjudicate these organization determinations based 
on medical necessity criteria. If an enrollee is dissatisfied with the 
plan's organization determination, the enrollee has the right to 
appeal. CMS monitors organization determination and appeals activity 
through the audit process to ensure enrollee requests are appropriately 
evaluated and processed within applicable timeframes.
    Consistent with our existing disclosure requirements at Sec.  
422.111, when applying step therapy to Part B drugs, MA plans must 
disclose that Part B drugs may be subject to step therapy requirements 
in the plan's Annual Notice of Change (ANOC) (when initially adopted or 
subsequently changed) and Evidence of Coverage (EOC) documents. In the 
ANOC, this information must be included under the Changes to Benefits 
and Costs for Medical Services. In the EOC, this information must be 
included in the Medical Benefits Chart under ``Medicare Part B 
prescription drugs.'' Under existing requirements at Sec.  422.202(b), 
MA plans must establish policies and procedures to educate and fully 
inform contracted health care providers concerning plan policies on 
utilization management, which would include the plan's step therapy 
policies. We propose to also include a requirement at Sec.  
422.136(a)(2) for plans to establish policies and procedures to educate 
and inform health care providers and enrollees specifically concerning 
its step therapy policies. We note that preferred provider organization 
plans (PPOs) are required, as part of the definition of PPO at section 
1852(e)(3)(iv)(II) of the Act and under the MA regulation at Sec.  
422.4(a)(1)(v)(B) to reimburse or cover benefits provided out of 
network; while higher cost sharing is permitted, PPOs are prohibited 
from using prior authorization or preferred items restrictions in 
connection with out of network coverage. As such, preferred provider 
organization plans (PPOs) must provide reimbursement for all plan-
covered medically necessary services received from non-contracted 
providers without prior authorization or step therapy requirements. We 
solicit comment whether the final rule should include a specific 
regulatory provision clarifying this issue.
    Under proposed paragraph (a)(3), MA plans would be required to use 
a Pharmacy and Therapeutics (P&T) committee to review and approve step

[[Page 62170]]

therapy programs (meaning policies and procedures); we believe that 
this is necessary to ensure medically appropriate implementation of 
step therapy for Part B drugs. We believe the burden of this 
requirement would be limited because we are proposing to allow MA-PD 
plans to utilize any existing Part D P&T committees established by the 
MA-PD plan to comply with part 423 requirements for the Part D benefit 
and to allow MA-only plans to use existing P&T committees when there is 
a Part D or MA-PD plan under the same contract. The Paperwork Reduction 
Act listing for P&T committee record keeping is OMB Control Number 
0938-0964. We note that P&T committee decisions are not public 
information. The introductory text of proposed paragraph (b) provides 
that a MA organization must establish or utilize an existing P&T 
committee prior to implementation of a step therapy program. The P&T 
committee would review step therapy programs under our proposal. We are 
actively considering expanding the role of MA P&T committees and are 
therefore soliciting comments on our proposal that MA plans with step 
therapy programs would be required to have P&T committees, and in 
addition whether the requirement for this MA P&T committee should be 
expanded to all MA plans that have any utilization management policy 
(such as prior authorization or dosage limits) applicable to Part B 
drugs, and whether there are other options that would meet the policy 
goal of ensuring that step therapy programs are medically appropriate 
underlying the P&T committee proposal. We propose to codify P&T 
committee requirements for MA plans in Sec.  422.136(b).
    Our proposal for the P&T committee mirrors the Part D requirements 
for such committees currently codified at Sec.  423.120(b) with regard 
to membership, scope, and responsibilities. We believe existing Part D 
P&T requirements at Sec.  [thinsp]423.120(b) are adequate to ensure MA 
plans implement step therapy for Part B drugs that is medically 
appropriate. We note that if necessary we may release subregulatory 
guidance concerning application of the P&T committee requirements in 
the context of Part B drugs.
    The proposed requirements in Sec.  422.136(b) are consistent with 
Part D requirements for a P&T committee. Specifically, we propose that 
the majority of members comprising the P&T committee would be required 
to be practicing physicians and/or practicing pharmacists. The 
committee would be required to include at least one practicing 
physician member and at least one practicing pharmacist; these specific 
individuals would be required to be independent and free of conflict 
with the MA organization, the MA organization's plans, and the 
pharmaceutical manufacturers. In addition, the plan would be required 
to include at least one practicing physician member and one practicing 
pharmacist who are experts in the care of elderly and disabled persons. 
We also encourage MA plans to select P&T committee members representing 
various clinical specialties (for example, geriatrics, behavioral 
health) to ensure that all conditions are adequately considered in the 
development of step therapy programs. We are proposing to include 
provisions for the responsibilities and scope of the P&T Committee at 
proposed Sec.  422.136(b)(4) through (11) that mirror the current 
regulation text applicable to Part D P&T Committees under Sec.  
423.120(b)(1)(iv) through (xi), with minor revisions to tailor proposed 
Sec.  422.136(b) to the Part B drug step therapy programs offered by MA 
plans. These proposed provisions include requirements applicable to P&T 
committee membership, to the standards and considerations used in 
reviewing step therapy programs and to documenting its reviews. We 
reiterate here that we are proposing to substantially align the 
requirements of a P&T committee reviewing Part B drugs with Part D 
requirements because CMS has found that Part D requirements for 
administrative efficiency between the Part C and Part D programs and 
because the Part D requirements have proved sufficient in ensuring that 
plans implement medically appropriate step therapy and utilization 
management protocols in Part D.
    Under Sec.  422.136(a)(1) of the proposed rule, step therapy would 
not be permitted to disrupt enrollees' ongoing Part B drug therapies. 
We are proposing that step therapy only be applied to new prescriptions 
or administrations of Part B drugs for enrollees who are not actively 
receiving the affected medication. MA plans would be required to have a 
look-back period of 108 days, consistent with Part D policy with 
respect to transition requirements for new prescriptions, to determine 
if the enrollee is actively taking a Part B medication. The Part D look 
back period was created with clinical and pharmaceutical input and CMS 
believes the same criteria is appropriate for Part B drugs. Further, 
when an enrollee elects a new MA plan (regardless of whether previously 
enrolled in a MA plan, traditional Medicare, or new to Medicare), our 
proposal would require the MA plan to determine whether the enrollee 
has taken the Part B drug (that would otherwise be subject to step 
therapy) within the past 108 days. We propose this time period to align 
with applicable Part D subregulatory guidance on this topic. If the 
enrollee is actively taking the Part B drug, such enrollee would be 
exempted from the plan's step therapy requirement concerning that drug. 
Under our proposal, we would allow MA plans flexibility in implementing 
step therapy for Part B drugs within specific parameters. Specifically, 
MA plans would be able to ensure that an enrollee who is newly 
diagnosed with a particular condition would begin treatment with a 
cost-effective biological product approved under section 351(k) of the 
Public Health Service Act or generic medication before progressing to a 
more costly drug therapy if the initial treatment is ineffective or if 
there are adverse effects. While proposed Sec.  422.136 does not 
specifically address the standard for exemptions or movement within a 
step therapy program, we rely on the MA plan's responsibility to 
provide all medically necessary covered services and items under the 
original Medicare program as meaning that cases raising ineffectiveness 
or adverse effects of treatment as being sufficient basis to grant an 
exemption or move an enrollee to a higher step in the protocol. 
However, we propose limits on flexibility in paragraphs (c) and (d).
    Consistent with existing Part D guidelines, at Sec.  422.136(c) we 
are proposing to permit MA plans to require an enrollee to try and fail 
an off-label medically-accepted indication (that is, an indication 
supported by one or more citations in the statutory compendia) before 
providing access to a drug for an FDA-approved indication (on-label 
indication). Using off-label drugs in step therapy would only be 
permitted in cases where the off-label indication is supported by 
widely used treatment guidelines or clinical literature that CMS 
considers best practices. We are soliciting comments on our proposal to 
permit MA plans to use off-label drugs only when such drugs are 
supported by widely used treatment guidelines or clinical literature 
that CMS considers to represent best practices in a step therapy 
program.
    Additionally, we propose to prohibit an MA organization from using 
a non-covered drug as a step in the step therapy program (that is, as a 
condition to coverage). Each step in a step therapy program should be 
another drug covered under Part B by the MA plan or Part D

[[Page 62171]]

by the MA-PD plan to ensure that step therapy programs are not, 
intentionally or unintentionally, barriers to services that must be 
covered by the MA plan pursuant to section 1852 of the Act. Therefore, 
at Sec.  422.136(d) we clarify that only Medicare covered Part B (and 
for MA-PD plans, Part D drugs) may be used in a step therapy program. 
In addition to requiring one Part B drug be used before a different 
Part B drug, MA plans that also offer prescription drug coverage (also 
known as ``MA-PD plans'') may use step therapy to require a Part D drug 
therapy prior to allowing a Part B drug therapy because the Part D drug 
would be covered by the plan. MA-PD plans may also apply step therapy 
to require a Part B drug therapy prior to allowing a Part D drug 
therapy as part of a Part D step therapy program or utilization 
management program; however, MA-PD plans must ensure that these 
requirements are clearly outlined in the Part D prior authorization 
criteria for the affected Part D drugs and are otherwise consistent 
with Part D requirements. Additionally, as noted section II.A.2 of this 
proposed rule (Broader Use of Prior Authorization for Protected Class 
Drugs), the August 2018 HPMS memorandum entitled, ``Prior Authorization 
and Step Therapy for Part B Drugs in Medicare Advantage'' and section 
II.F (this proposal, Medicare Advantage and Step Therapy for Part B 
Drugs) would allow MA-PD plans to require step therapy of a Part B drug 
before a Part D drug. If both proposals II.A.2 and II.F are finalized, 
the result would be to allow MA-PD plans, starting in 2020, to require 
step therapy of Part B drugs before Part D drugs for the protected 
classes as well. Again, as is required for all other drug categories 
and classes, these particular step therapy requirements would be 
subject to CMS review and approval, as part of our annual formulary 
review and approval process, which includes formulary tier review, and 
relative to prior authorization and step therapy, restricted access, 
step therapy criteria, prior authorization outlier, and prior 
authorization criteria reviews.
    Section 1852(g)(1) of the Act prescribes that MA organizations must 
have a procedure for making determinations regarding whether an 
enrollee is entitled to receive a health service under the MA program 
and the amount (if any) that the enrollee is required to pay with 
respect to such service. Such procedures must provide for organization 
determinations to be made on a timely basis, as required by section 
1852(g)(3) of the Act, which prescribes what constitutes timely notice 
to an enrollee of an expedited organization determination and 
reconsideration. With respect to expedited organization determinations 
and reconsiderations, the MA organization must notify the enrollee (and 
the physician involved, as appropriate) of the decision under time 
limitations established by the Secretary, but no later than 72 hours 
from the receipt of the request for the organization determination or 
reconsideration (or receipt of the information necessary to make the 
decision) or such longer period as the Secretary may permit in 
specified cases. For standard reconsiderations, section 1852(g)(2) of 
the Act states that a reconsideration shall be within a time period 
specified by the Secretary but shall be made (subject to the expedited 
provision in section 1852(g)(3)) no later than 60 days after the date 
the reconsideration request is received.
    We are proposing that requests for Part B drugs, including Part B 
drugs subject to step therapy, be processed under the same adjudication 
timeframes as used in the Part D drug program, such as in Sec.  
423.568(b). While the proposed timeframes for processing organization 
determinations and appeals for Part B drugs are a departure from the 
current adjudication timeframes that apply to organization 
determinations and appeals for medical items and services under the MA 
program, we believe the clinical circumstances that typically accompany 
requests for Part B drugs warrant application of the shorter 
adjudication timeframes that apply in Part D. In keeping with this 
rationale, we are not proposing that the adjudication timeframes for 
Part B drugs could be extended, as is allowed for other Part B 
organization determinations and appeals. This proposed approach not 
only creates greater consistency in how requests for drugs are handled 
throughout the initial coverage decision and appeals processes under 
Part B and Part D, but we believe that adopting the Part D adjudication 
timeframes for Part B drugs would allow MA-PD plans to better 
coordinate their drug benefits, specifically in cases where there is 
uncertainty about coverage under Part B or Part D. These proposed 
changes would affect the adjudication timeframes through the Part C IRE 
level of review. We are not proposing to change how Part C appeals, 
whether for Part A, Part B or supplemental benefits, are processed by 
the Office of Medicare Hearings and Appeals (OMHA) and the Medicare 
Appeals Council (Council) which is housed within the Departmental 
Appeals Board (DAB).
    The rules related to organization determinations and appeals under 
Part 422, subpart M apply to all benefits an enrollee is entitled to 
receive under an MA plan, including basic benefits as described under 
Sec.  422.100(c)(1) and mandatory and optional supplemental benefits as 
described under Sec.  422.102, and the amount, if any, that the 
enrollee is required to pay for covered benefits. A request for covered 
medical items or services (including Part B drugs) is currently 
adjudicated under the timeframes set forth at Sec. Sec.  422.568, 
422.572, and 422.590, with specific requirements related to expediting 
determinations at Sec. Sec.  422.570 and 422.584. Requirements for 
effectuating standard and expedited reconsidered determinations (that 
is, reversals by the MA organization itself, the independent review 
entity, or other adjudicator on appeal of an initial denial of 
coverage), are identified in Sec. Sec.  422.618 and 422.619.
    We are proposing to do all of the following:
     Add adjudication timeframes at Sec. Sec.  422.568, 
422.572(a), and 422.590(c) and (e)(2) for, respectively, standard 
organization determinations, expedited organization determinations, 
standard reconsiderations, and expedited reconsiderations related to 
coverage of Part B drugs that are the same as the timeframes for these 
appeal stages for Part D drugs under Sec. Sec.  423.568, 423.572, and 
423.590.
     Add references to determinations regarding Part B drugs to 
Sec. Sec.  422.568(d) and (e)(4), 422.584(d), 422. 618(a) and (b), and 
422.619(a), (b) and (c).
     Specify in Sec. Sec.  422.568(b)(2), 422.572(a), and 
422.590(c) and (e)(2) that the rules related to extending the 
adjudication timeframe related to requests for medical services and 
items (at Sec. Sec.  422.568(b)(1)(i), 422.572(b) and redesignated 
Sec.  422.590(f)) do not apply to the timeframes for resolving standard 
organization determinations, expedited organization determinations, 
standard reconsiderations, and expedited reconsiderations for Part B 
drugs.
     Make conforming changes that reference the applicable 
proposed timeframes and deadlines for determinations regarding Part B 
drugs and update cross-references in Sec. Sec.  422.570(d)(1), 
422.584(d)(1), and 422.618(a).
     Add a reference to an ``item'' to regulation text to 
clarify that the scope covers services and items at Sec. Sec.  
422.568(b), (d), and (e); 422.572(a) and (b), 422.590(a), (e), and (f); 
and 422.619(a) and (b).

[[Page 62172]]

     Redesignate existing regulatory paragraphs at Sec.  
422.568(b)(1) and (2) to Sec.  422.568(b)(1)(i) and (ii), at Sec.  
422.590(c)-(f) to Sec.  422.590(d)-(f), and at Sec.  422.619(c)(2) to 
Sec.  422.619(c)(3), without substantive change.
    We discuss our proposal in more detail later in this section.
    Under the regulations at Sec.  422.572(a), an MA organization must 
notify an enrollee (and the physician involved, as appropriate) of an 
expedited organization determination as expeditiously as the enrollee's 
health requires, but no later than 72 hours after receiving the 
request. For expedited organization determination requests for a Part B 
drug, we are proposing at new paragraph (a)(2) of Sec.  422.572 that an 
MA organization must make its determination and notify the enrollee 
(and the physician or prescriber involved, as appropriate) of its 
decision no later than 24 hours after receipt of the request. This 
proposed 24-hour timeframe for expedited organization determinations 
involving a Part B drug is permissible by statute, as section 1852 
(g)(3)(B)(iii) of the Act requires that the enrollee be notified of an 
expedited decision under time limitations established by the Secretary, 
but not later than 72 hours from the time the request is received. With 
respect to pre-service standard organization determinations, the 
regulations at Sec.  422.568(b) state that the MA organization must 
notify the enrollee of its decision as expeditiously as the enrollee's 
health condition requires, but no later than 14 calendar days after the 
MA organization receives the request for a standard determination. For 
consistency with the timeframe for standard Part D coverage 
determinations, we are proposing at Sec.  422.568(b)(2) that, for a 
request for a Part B drug, an MA organization must notify the enrollee 
(and the prescribing physician or other prescriber involved, as 
appropriate) of its determination no later than 72 hours after receipt 
of the request. Section 422.568(b)(1) relates to standard requests for 
services and sets forth the existing timeframe of 14 calendar days, 
while proposed new paragraph (b)(2) would establish the 72-hour 
timeframe for standard organization determination requests for Part B 
drugs. We are proposing to redesignate existing paragraphs (b)(1) and 
(b)(2) with respect to extensions and notice of extensions for requests 
for service to Sec.  422.568(b)(1)(i) and (ii), respectively. We are 
also proposing corresponding changes to Sec.  422.568(d) and (e)(4) 
related to notice requirements to specifically reference Part B drug 
requests, to distinguish these requests from requests for medical 
services.
    In all circumstances, the MA organization must notify the enrollee, 
and the physician or other prescriber involved, as appropriate of its 
decision as expeditiously as the enrollee's health condition requires, 
but no later than the proposed timeframes of 24 hours for expedited 
organization determination requests and 72 hours for standard 
organization determination requests for a Part B drug. As noted 
previously, we believe the nature of drug benefits supports shorter 
adjudication timeframes so enrollees have timely access to necessary 
prescription drugs. To that end, we are not proposing to permit MA 
organizations to extend the proposed timeframes for requests for Part B 
drugs under current rules at Sec. Sec.  422.568(b)(1) and 422.572(b), 
and are proposing specific prohibitions on such extensions for Part B 
drugs in new text at Sec. Sec.  422.568(b)(1), 422.572(b), and 
422.590(c) and (e). Extending adjudication timeframes is not permitted 
under the Part D program and we do not believe extensions are warranted 
in the case of a request for a Part B drug due to the clinical 
circumstances typically involved in a request for a drug. The overall 
goal of these proposals is to ensure that MA enrollees have timely 
access to Part B drugs and to establish more consistency in the 
adjudication timeframes applicable to requests for Medicare drug 
benefits. At proposed Sec. Sec.  422.568(b)(1)(i), 422.572(b), and 
redesignated Sec.  422.590(f), we are specifying that the rules related 
to extending the adjudication timeframe relate to requests for medical 
services and items, but not requests for Part B drugs.
    We recognize that there may be circumstances under which an 
enrollee would not be able to satisfy a Part B drug step therapy 
requirement due to the enrollee's medical condition and believe these 
issues can be resolved under the organization determination process. 
Further, under current regulation at Sec.  422.111, MA organizations 
must disclose to enrollees the benefits under a plan, including 
applicable conditions and limitations, premiums and cost-sharing (such 
as copayments, deductibles, and coinsurance) and any other conditions 
associated with receipt or use of benefits. Therefore, MA organizations 
must disclose prior authorization rules and other review requirements 
(for example, step therapy) that condition or limit coverage and must 
be met in order to ensure payment for services. In addition, the rules 
at Sec.  422.112 require MA organizations to have policies and 
procedures (coverage rules, practice guidelines, payment policies, and 
utilization management) that allow for individual medical necessity 
determinations. We believe the rules on disclosure of utilization 
management requirements and individualized medical necessity 
determinations, coupled with the right to request an organization 
determination, ensure that an enrollee is informed about applicable 
step therapy requirements and has an opportunity for an individualized 
medical necessity determination related to a Part B drug step therapy 
requirement. An MA plan can determine through the organization 
determination process that a particular enrollee should be exempted 
from step therapy requirements for reasons of medical necessity; as 
with other organization determinations under existing regulations, the 
enrollee would be notified that he/she has been determined eligible for 
such exemption. Although not required under our proposal, an MA 
organization may establish an evaluation process for the 
appropriateness of enforcing its step therapy protocols on an enrollee 
when the enrollee's healthcare provider's assessment of medical 
necessity for the Part B drug indicates that the lower or earlier steps 
in the step therapy protocol are not clinically appropriate for that 
enrollee (such as in cases of allergy or a prior unsuccessful use of 
the preferred drug). MA organizations may work with their network 
providers to develop processes that eliminate the necessity for an 
enrollee to file a request for an organization determination in such 
cases. We are not proposing to require such additional policies or 
processes but we are similarly not prohibiting them.
    At Sec.  422.590, we are proposing at redesignated paragraph (e)(2) 
that if an MA organization approves a request for an expedited 
reconsideration, it must complete its reconsideration and give the 
enrollee and the physician or other prescriber involved, as appropriate 
notice of its decision as expeditiously as the enrollee's health 
condition requires but no later than 72 hours after receiving the 
request. At redesignated paragraph (e)(3), we are proposing to add the 
term ``orally'' to existing regulation text to clarify that if the MA 
organization first notifies an enrollee of a completely favorable 
expedited reconsideration orally, it must also mail written 
confirmation to the enrollee within 3 calendar days.
    With respect to the independent review entity (IRE) level of 
review, the current contract with the Part C IRE

[[Page 62173]]

requires enrollees to be notified of an expedited reconsideration 
decision no later than 72 hours from the IRE's receipt of the case. 
This 72-hour timeframe is consistent with the current adjudication 
timeframe for expedited Part D IRE reconsiderations. If this proposal 
is finalized, we would modify our contract with the Part C IRE to 
require that enrollees be notified of a standard reconsideration 
related to a Part B drug no later than 7 calendar days from receipt of 
the case.
    We are proposing a conforming change to Sec.  422.584(d)(1) to 
reference the proposed 7-day timeframe for standard Part B drug 
requests at Sec.  422.590(c). If a MA organization denies a request for 
expedited reconsideration of a Part B drug, it must automatically 
transfer the request to the standard timeframe and make the 
determination within the 7 calendar day timeframe in proposed Sec.  
422.590(c). The timeframe begins the day the MA organization receives 
the request for expedited reconsideration.
    We are also proposing conforming changes at Sec.  422.570(d). At 
paragraph (d), with respect to actions following a denial of a request 
for an expedited determination, we are proposing to add a reference to 
the proposed 72-hour timeframe for standard Part B drug requests to 
existing text that specifies automatic transfer to the 14-calendar day 
timeframe for standard determinations regarding services. So, if an MA 
organization denies a request for an expedited determination, it must 
automatically transfer a request to the standard timeframe and make the 
determination within the proposed 72-hour timeframe at Sec.  
422.568(b)(2) for standard determinations regarding Part B drugs. The 
timeframe begins when the MA organization receives the request for 
expedited determination.
    As a corollary to the proposed changes to the adjudication 
timeframes, we are proposing changes to the effectuation timeframes at 
Sec. Sec.  422.618 and 422.619. As with the proposals related to the 
adjudication timeframes, the proposed changes to the effectuation 
timeframes are intended to ensure that MA organization enrollees 
receive necessary Part B drugs in a timely manner and are consistent 
with the Part D timeframes. Specifically, we are proposing a new Sec.  
422.618(a)(3) to state that if, on a standard reconsideration of a 
request for a Part B drug, the MA organization reverses its 
organization determination, the MA organization must authorize or 
provide the Part B drug under dispute as expeditiously as the 
enrollee's health condition requires, but no later than 7 calendar days 
after the date the MA organization receives the request for 
reconsideration. We are also proposing a new Sec.  422.618(b)(3) to 
state that if, on a standard reconsideration of a request for a Part B 
drug, the MA organization's determination is reversed in whole or in 
part by the independent outside entity, the MA organization must 
authorize or provide the Part B drug under dispute within 72 hours from 
the date it receives notice reversing the determination and, further, 
that the MA organization must inform the independent outside entity 
that the organization has effectuated the decision.
    We are proposing to add Sec.  422.619(a)(1) and (2) whereby 
paragraph (a)(1) would include the existing regulation text at Sec.  
422.619(a) related to reversals by the MA organization for expedited 
requests for a service. Proposed paragraph (a)(2) of Sec.  422.619 
would account for reversals by the MA organization for expedited 
reconsideration requests for a Part B drug. We are proposing that 
paragraph (a)(2) state that if the MA organization reverses its 
organization determination on an expedited reconsideration request for 
a Part B drug, the MA organization must authorize or provide the Part B 
drug under dispute as expeditiously as the enrollee's health condition 
requires, but no later than 72 hours after the date the MA organization 
receives the request for reconsideration. At Sec.  422.619, we are 
proposing to add paragraphs (b)(1) and (2). Proposed Sec.  
422.619(b)(1) would include the existing regulation text at Sec.  
422.619(b) related to reversals by the independent outside entity for 
expedited reconsideration requests for a service and proposed Sec.  
422.619(b)(2) would account for reversals by the independent outside 
entity for expedited reconsideration requests for a Part B drug. We are 
proposing that paragraph (b)(2) state that if, on expedited 
reconsideration, the MA organization's determination is reversed in 
whole or in part by the independent outside entity, the MA organization 
must authorize or provide the Part B drug under dispute as 
expeditiously as the enrollee's health condition requires but no later 
than 24 hours from the date it receives notice reversing the 
determination. The MA organization must inform the outside entity that 
the organization has effectuated the decision. At Sec.  422.619(c)(2) 
we are proposing to redesignate paragraph (c)(2) as new paragraph 
(c)(3) and propose that new paragraph (c)(2) address reversals of 
decisions related to Part B drugs by other than the MA organization or 
the independent outside entity. Specifically, we are proposing that 
paragraph (c)(2) state that if the independent outside entity's 
expedited determination is reversed in whole or in part by an ALJ/
attorney adjudicator or at a higher level of appeal, the MA 
organization must authorize or provide the Part B drug under dispute as 
expeditiously as the enrollee's health condition requires but no later 
than 24 hours from the date it receives notice reversing the 
determination. The MA organization must inform the outside entity that 
the organization has effectuated the decision. Finally, we are 
proposing a change to Sec.  422.619(a) to update a cross-reference to 
Sec.  422.590 affected by these proposed changes.
    Finally, we are also proposing to add a reference to an ``item'' as 
it relates to regulatory requirements applicable to medical items and 
services, rather than just a reference to ``services'' as some of the 
regulatory text currently reads. At Sec. Sec.  422.568(b), (d) and (e), 
422.572(a) and (b), 422.590(a), (e), and (f), and 422.619(a) and (b) we 
have revised the language to include a reference to ``items'' to more 
clearly distinguish requests for medical services and items from 
requests for Part B drugs and requests for payment, to clarify the 
regulation text and have it conform to how items and services may be 
covered benefits.
    We solicit comments on these proposals for various requirements, 
described in this preamble, under which MA plans could apply step 
therapy as a utilization management tool for Part B drugs in 2020 and 
subsequent years. Through these proposals to permit use of step therapy 
for Part B drugs and the application of shorter adjudication timeframes 
for Part B drug requests, we are seeking to balance the goals of cost 
savings and efficiencies with enrollee access, enhanced quality of care 
and due process protections. We are expressly soliciting comment on the 
following aspects of our proposal and whether there are additional 
considerations that would further these goals:
     The restriction to new starts.
     The new requirement for a P&T committee for MA plans that 
implement step therapy and the use of that P&T committee.
     The prohibition on using non-covered drugs, and in certain 
circumstances, off-label drugs, in the step therapy programs.
     The organization determination and appeals timelines and 
processes that would be applicable to Part B drugs, particularly our 
proposal to not permit MA organizations to extend the

[[Page 62174]]

proposed timeframes for requests for Part B drugs and whether we have 
overlooked an appeal procedure or timeframe that should also be 
addressed in order to meet our goal of aligning organization 
determinations and appeals related to Part B drugs with the procedures 
and timeframes currently applicable to coverage determinations and 
appeals for Part D drugs under part 423.
    Finally, we note that in a recent proposed rule, CMS-4185-P, 
entitled ``Medicare and Medicaid Programs; Policy and Technical Changes 
to the Medicare Advantage, Medicare Prescription Drug Benefit, Program 
of All-inclusive Care for the Elderly (PACE), Medicaid Fee-For-Service, 
and Medicaid Managed Care Programs for Years 2020 and 2021'' and 
published in the Federal Register on November 1, 2018 (83 FR 54982), we 
proposed integrated grievance and appeal provisions for certain D-SNPs 
with aligned enrollment with Medicaid managed care plans. We are 
actively considering whether, if those proposed revisions to part 422, 
subpart M are finalized, these proposed changes in the timeframes 
applicable to organization determinations and appeals of coverage of 
Part B drugs should be incorporated into the integrated appeals 
processes. We solicit comment on that and whether including these 
specific, shorter timeframes for determinations related to Part B drugs 
are consistent with the goals and rationale of our proposal for 
integrated appeals procedures for certain D-SNPs in that proposed rule.

E. Pharmacy Price Concessions in the Negotiated Price (Sec.  423.100)

1. Introduction
    Part D sponsors and their contracted PBMs have been increasingly 
successful in recent years at negotiating price concessions from 
network pharmacies. The data Part D sponsors submit to CMS as part of 
the annual required reporting of direct or indirect remuneration (DIR) 
show that pharmacy price concessions, net of all pharmacy incentive 
payments, have grown faster than any other category of DIR received by 
sponsors and PBMs. This means that pharmacy price concessions now 
account for a larger share than ever before of reported DIR and thus a 
larger share of total gross drug costs in the Part D program.
    The data show that pharmacy price concessions, net of all pharmacy 
incentive payments, grew more than 45,000 percent between 2010 and 
2017. The data also show that much of this growth occurred after 2012, 
when the use by Part D sponsors of performance-based payment 
arrangements with pharmacies became increasingly prevalent. 
Performance-based pharmacy price concessions, net of all pharmacy 
incentive payments, increased, on average, nearly 225 percent per year 
between 2012 and 2017 and now comprise the second largest category of 
DIR received by sponsors and PBMs, behind only manufacturer rebates.
    Such price concessions are negotiated between pharmacies and 
sponsors or their PBMs, independent of CMS, and are often tied to the 
pharmacy's performance on various measures defined by the sponsor or 
its PBM. Under the current definition of ``negotiated prices'' at Sec.  
423.100, negotiated prices must include all price concessions from 
network pharmacies except those that cannot reasonably be determined at 
the point of sale. However, because these performance adjustments 
typically occur after the point of sale, they are not included in the 
price of a drug at the point of sale. We further understand, through 
comments received from the pharmacy industry in response to our Request 
for Information on pharmacy price concessions (included in the November 
2017 proposed rule (82 FR 56419 through 56428)), that the share of 
pharmacies' reimbursements that are contingent upon their performance 
under such arrangements has grown steadily each year. (We discuss the 
comments received in response to this Request for Information in more 
detail later in this section.) As a result, sponsors and PBMs have been 
recouping increasing sums from network pharmacies after the point of 
sale (pharmacy price concessions) for ``poor performance,'' sums that 
are far greater than those paid to network pharmacies after the point 
of sale (pharmacy incentive payments) for ``high performance.''
    When pharmacy price concessions are not reflected in the price of a 
drug at the point of sale, beneficiaries might see lower premiums, but 
they do not benefit through a reduction in the amount they must pay in 
cost-sharing, and thus, end up paying a larger share of the actual cost 
of a drug. Moreover, given the increase in pharmacy price concessions 
in recent years, when the point-of-sale price of a drug that a Part D 
sponsor reports on a PDE record as the negotiated price does not 
include such discount, the negotiated price is rendered less 
transparent at the individual prescription level and less 
representative of the actual cost of the drug for the sponsor. Finally, 
variation in the treatment of these price concessions by Part D 
sponsors may have a negative effect on the competitive balance under 
the Medicare Part D program. These issues are discussed in more detail 
later in this section.
    At the time the Part D program was established, we believed, as 
discussed in the January 2005 final rule (70 FR 4244), that market 
competition would encourage Part D sponsors to pass through to 
beneficiaries at the point of sale a high percentage of the price 
concessions they received, and that establishing a minimum threshold 
for the price concessions to be applied at the point of sale would only 
serve to undercut these market forces. However, actual Part D program 
experience has not matched expectations in this regard. In recent 
years, less than 1 percent of plans have passed through any price 
concessions to beneficiaries at the point of sale, and the amount that 
is passed through is less than 1 percent of the total price concessions 
those plans receive. Instead, because of the advantages that accrue to 
sponsors in terms of lower premiums (also an advantage for 
beneficiaries), the shifting of costs, and increases in plan revenues 
(given the treatment of price concessions under the Part D payment 
methodology), sponsors may face distorted incentives as compared to 
what we anticipated in 2005.
    For this reason, as part of the November 2017 proposed rule, we 
published a ``Request for Information Regarding the Application of 
Manufacturer Rebates and Pharmacy Price Concessions to Drug Prices at 
the Point of Sale,'' (82 FR 56419 through 56428). We solicited comment 
on whether CMS should require that the point-of-sale price for a 
covered Part D drug must include all price concessions that the Part D 
sponsor could potentially collect from a network pharmacy for any 
individual claim for that drug. Of the many timely comments received, 
the majority were from pharmacies, pharmacy associations, and 
beneficiary advocacy groups that supported the adoption of such a 
requirement because it would: (1) Lower beneficiary out-of-pocket costs 
(especially critical for beneficiaries who utilize high cost drugs); 
(2) stabilize the operating environment for pharmacies (because of 
greater transparency and predictability of the minimum reimbursement on 
a per-claim level, thus allowing more accurate budgeting and improved 
ability to evaluate proposed contracts from PBMs); and (3) standardize 
the way in which plan sponsors and their PBMs treat pharmacy price 
concessions. Some commenters--mostly Part D sponsors

[[Page 62175]]

and PBMs--were against such a policy, in particular because it would 
limit their ability to incentivize quality improvement from pharmacies. 
We address the issue of incentivizing quality improvement by pharmacies 
in the discussion of lowest possible reimbursement later in this 
section.
    In this rule we are considering for a future year, which could be 
as soon as 2020, adopting a new definition of ``negotiated price'' to 
include all pharmacy price concessions received by the plan sponsor for 
a covered Part D drug, and to reflect the lowest possible reimbursement 
a network pharmacy will receive, in total, for a particular drug. As 
part of the policy being considered, we would first delete the current 
definition of ``negotiated prices'' (in the plural) and add a 
definition of ``negotiated price'' (in the singular) to make clear that 
a negotiated price can be set for each covered Part D drug, and the 
amount of the pharmacy price concessions may differ on a drug by drug 
basis. Then, we would implement a definition of ``negotiated price'' 
that is intended to ensure that the prices available to Part D 
enrollees at the point of sale are inclusive of all pharmacy price 
concessions. We believe such an approach would be more reflective of 
current pharmacy payment arrangements.
2. Background
    Section 1860D-2(d)(1) of the Act requires that a Part D sponsor 
provide beneficiaries with access to negotiated prices for covered Part 
D drugs. Under the definition of ``negotiated prices'' at Sec.  
423.100, the negotiated price is the price paid to the network pharmacy 
or other network dispensing provider for a covered Part D drug 
dispensed to a plan enrollee that is reported to CMS at the point of 
sale by the Part D sponsor. This point-of-sale price is used to 
calculate beneficiary cost-sharing. More broadly, the negotiated price 
is the primary basis by which the Part D benefit is adjudicated, as it 
is used to determine plan, beneficiary, manufacturer (in the coverage 
gap), and government liability during the course of the payment year, 
subject to final reconciliation following the end of the coverage year.
    Under current law, Part D sponsors can generally choose whether to 
reflect in the negotiated price the various price concessions they or 
their intermediaries receive. Specifically, section 1860D-2(d)(1)(B) of 
the Act requires that negotiated prices ``shall take into account 
negotiated price concessions, such as discounts, direct or indirect 
subsidies, rebates, and direct or indirect remunerations, for covered 
part D drugs. . . .'' Currently, Part D sponsors are allowed, but 
generally not required, to apply rebates and other price concessions at 
the point of sale to lower the price upon which beneficiary cost-
sharing is calculated. The only exception is the requirement under the 
existing definition of negotiated prices at Sec.  423.100 that 
negotiated prices must include all price concessions from network 
pharmacies that can reasonably be determined at the point of sale.
    To date, very few pharmacy price concessions have been included in 
the negotiated price at the point of sale. All pharmacy and other price 
concessions that are not included in the negotiated price must be 
reported to CMS as DIR at the end of the coverage year using the form 
required by CMS for reporting Summary and Detailed DIR (OMB control 
number 0938-0964). These data on price concessions are used in our 
calculation of final plan payments, which, under the statute, are 
required to be based on costs actually incurred by Part D sponsors, net 
of all applicable DIR.
    When price concessions are applied to reduce the negotiated price 
at the point of sale, some of the concession amount is apportioned to 
reduce beneficiary cost-sharing. In contrast, when price concessions 
are applied after the point of sale, as DIR, the majority of the 
concession amount accrues to the plan, and the remainder accrues to the 
government. For further discussion on this matter, please see the CMS 
Fact Sheet from January 19, 2017 ``Medicare Part D Direct and Indirect 
Remuneration,'' found on the CMS website at https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect-remuneration-dir. As described later in this section of this proposed rule, pharmacy 
price concessions applied as DIR can lower plan premiums and increase 
plan revenues, result in cost-shifting to beneficiaries and the 
government, and reduce consumer and government knowledge about the true 
costs of prescription drugs.
a. Premiums and Plan Revenues
    The main benefit to a Part D beneficiary of price concessions 
applied as DIR at the end of the coverage year (and not to the 
negotiated price at the point of sale) is a lower plan premium. A 
sponsor must factor into its plan bid an estimate of the expected DIR 
for the upcoming payment year. That is, in the bid the sponsor must 
lower its estimate of plan liability by a share of the projected DIR, 
which has the effect of reducing the price of coverage under the plan. 
Under the current Part D benefit design, applying price concessions 
after the point of sale as DIR reduces plan liability (and thus 
premiums), more than applying price concessions at the point of sale.
    Therefore, to the extent that plan bids reflect accurate DIR 
estimates, the pharmacy and other price concessions that Part D 
sponsors and their PBMs negotiate, but do not include in the negotiated 
price at the point of sale, put downward pressure on plan premiums, as 
well as the government's subsidies of those premiums. The average Part 
D basic beneficiary premium grew at an average rate of only about 1 
percent per year between 2010 and 2017, and the average premium has 
declined each year since 2017 due in part to sponsors' projecting in 
their bids that DIR growth would outpace the growth in projected gross 
drug costs each year. The average Medicare direct subsidy paid by the 
government to cover a share of the cost of coverage under a Part D plan 
has also declined, by an average of 9.4 percent per year between 2010 
and 2017, partly for the same reason.
    However, any DIR a sponsor receives that is above the projected 
amount factored into its plan bids contributes primarily to plan 
profits, not lower premiums. The risk-sharing construct established 
under the Part D statute at section 1860D-15(e) of the Act allows 
sponsors to retain as plan profit the majority of all plan revenues 
above the bid-projected amount. Given that plan bids, and, thus, plan 
revenues, are based on cost projections, the plan's actual experience 
may yield unexpected losses (when bid-based payments to plans--plan 
revenues-- fall short of actual plan costs) or unexpected savings (when 
plan revenues exceed actual plan costs) for Part D plan sponsors. In 
order to limit Part D sponsors' exposure to unexpected drug expenses 
and the government's exposure to overpayments, Medicare shares risk 
with sponsors on the drug costs covered by their plan bids, using 
symmetrical risk corridors to cover or recoup a share of unexpected 
losses or savings.
    Under the Part D risk corridors, if a plan's actual drug costs are 
within +/-5 percent of the drug costs estimated in its bid, the plan 
assumes all of the losses or savings. If its costs are more than 5 
percent above or below its bid, the government assumes a growing share 
of the losses or savings, and the plan assumes the remainder. Any 
unexpected losses or savings that a plan assumes affect its final 
profit margin. Thus, when a plan underestimates the amount of DIR that 
it will receive, any additional amount of DIR constitutes additional 
plan revenues. In the event that overall

[[Page 62176]]

plan revenues exceed the amount projected in the plan sponsor's bid, 
the sponsor is permitted to retain most, if not all, of the excess 
amount. Our analysis of Part D plan payment and cost data indicates 
that in recent years, DIR amounts that Part D sponsors and their PBMs 
actually received have consistently exceeded bid-projected amounts, by 
as much as three percent as a share of gross drug costs.
    To capture the relative premium and other advantages that price 
concessions, including pharmacy price concessions, applied as DIR offer 
sponsors over lower point-of-sale prices, sponsors sometimes opt for 
higher negotiated prices in exchange for higher DIR and, in some cases, 
even prefer a higher net cost drug over a cheaper alternative. This may 
put upward pressure on Part D program costs and, as explained in this 
proposed rule, shift costs from the Part D sponsor to beneficiaries who 
utilize drugs in the form of higher cost-sharing and to the government 
through higher reinsurance and low-income cost-sharing subsidies.
b. Cost-Shifting
    Beneficiary cost-sharing is generally calculated as a percentage of 
the negotiated price. When pharmacy price concessions and other price 
concessions are not reflected in the negotiated price at the point of 
sale (that is, are applied instead as DIR at the end of the coverage 
year), beneficiary cost-sharing increases, covering a larger share of 
the actual cost of a drug. Although this is especially true when a Part 
D drug is subject to coinsurance, it is also true when a drug is 
subject to a copayment because Part D rules require that the copayment 
amount be at least actuarially equivalent to the coinsurance required 
under the defined standard benefit design. For many Part D 
beneficiaries who utilize drugs and thus incur cost-sharing expenses, 
this means, on average, higher overall out-of-pocket costs. Higher 
costs to beneficiaries have occurred even after accounting for the 
premium savings tied to higher DIR. For the millions of low-income 
beneficiaries whose out-of-pocket costs are subsidized by Medicare 
through the low-income cost-sharing subsidy, those higher costs are 
borne by the government. See the lowest possible reimbursement example 
later in this section of the rule for a specific example of the effect 
the change to the definition of negotiated price being considered would 
have on the determination of beneficiary cost-sharing.
    This potential for cost shifting to beneficiaries grows 
increasingly pronounced as pharmacy price concessions increase as a 
percentage of gross drug costs and continue to be applied outside of 
the negotiated price. Numerous research studies suggest that higher 
cost-sharing can impede beneficiary access to necessary medications, 
which leads to poorer health outcomes and higher medical care costs for 
beneficiaries and Medicare. 14 15 16 Based upon this 
research, we believe it is important to weigh the effects of current 
Part D policies on beneficiaries' access to affordable prescription 
drugs--higher cost-sharing per prescription versus lower plan premiums.
---------------------------------------------------------------------------

    \14\ Michele Heisler et al., ``The Health Effects of Restricting 
Prescription Medication Use Because of Cost,'' Medical Care, 626-634 
(2004) available at https://www.ncbi.nlm.nih.gov/pubmed/15213486.
    \15\ Peter Bach, ``Limits on Medicare's Ability to Control 
Rising Spending on Cancer Drugs,'' The New England Journal of 
Medicine, 360, 626-633 (2009) available at https://www.nejm.org/doi/full/10.1056/NEJMhpr0807774.
    \16\ Sonya Blesser Streeter et al., ``Patient and Plan 
Characteristics Affecting Abandonment of Oral Oncolytic 
Prescriptions,'' Journal of Oncology Practice, 7, no. 3S, 46S-51S 
(2011) available at http://ascopubs.org/doi/full/10.1200/jop.2011.000316.
---------------------------------------------------------------------------

    Finally, beneficiaries progress through the four phases of the Part 
D benefit as their total gross drug costs and cost-sharing obligations 
increase. Because both of these values are calculated based on the 
negotiated prices reported at the point of sale, when pharmacy price 
concessions are not applied at the point of sale, the higher negotiated 
prices result in more rapid movement of Part D beneficiaries through 
the Part D benefit phases. This, in turn, shifts more of the total drug 
spend into the catastrophic phase, where Medicare liability is highest 
(80 percent, paid as reinsurance) and plan liability is at its lowest 
(except with respect to applicable drugs in coverage gap) (15 percent). 
With such cost-shifting to the government under current rules, Part D 
sponsors may have weak incentives, and, in some cases no incentive, to 
lower prices at the point of sale. See the Regulatory Impact Statement 
in this proposed rule for a discussion of cost impacts to 
beneficiaries, the government, and plan sponsors.
c. Transparency and Competition
    Given the significant growth in pharmacy price concessions in 
recent years, when such amounts are not reflected in the negotiated 
price, it has become increasingly difficult for consumers to know at 
the point of sale what share, or approximate share, they are paying of 
the costs of their prescription drugs to the plan; nor are negotiated 
costs reflected on the Medicare Prescription Drug Plan Finder (Plan 
Finder) tool. Consequently, consumers cannot efficiently minimize both 
their costs and costs to the taxpayers by seeking and finding the 
lowest-cost drug or a plan that offers them the lowest-cost drug and 
pharmacy combinations.
    The quality of information available to consumers is even less 
conducive to producing efficient choices when pharmacy price 
concessions are treated differently by different Part D sponsors; that 
is, when they are applied to the point-of-sale price to differing 
degrees and/or estimated and factored into plan bids with varying 
degrees of accuracy. First, when some sponsors include pharmacy price 
concessions in negotiated prices while others treat them as DIR, the 
concept of negotiated price no longer has a consistent meaning across 
the Part D program, undermining meaningful price comparisons and 
efficient choices by consumers. Second, if a sponsor's bid is based on 
an estimate of net plan liability that is understated because the 
sponsor has been applying pharmacy price concessions as DIR at the end 
of the coverage year rather than using them to reduce the negotiated 
price at the point of sale, it follows that the sponsor may be able to 
submit a lower bid than a competitor that applies pharmacy price 
concessions at the point of sale. This lower bid results in a lower 
plan premium, which could allow the sponsor to capture additional 
market share. The resulting competitive advantage accruing to one 
sponsor over another in this scenario stems only from a technical 
difference in how plan costs are reported to CMS. Therefore, the 
opportunity for differential treatment of pharmacy price concessions 
could result in bids that are not comparable and in premiums that are 
not valid indicators of relative plan efficiency.
    Finally, the one-sided nature of the pharmacy payment arrangements 
that currently exist also creates competition concerns by discouraging 
independent pharmacies from participating in a plan's network and 
thereby increasing market share for the sponsors' or PBMs' own 
pharmacies. Part D is a market-based approach to delivery of 
prescription drug benefits, and relies on healthy market competition. 
Thus, adopting policies that promote competition is an important and 
relevant consideration in protecting Medicare beneficiaries and the 
Medicare trust fund from unwarranted costs. Market competition is best 
achieved when a wide variety of pharmacies are able to compete in the 
market for selective contracting with plan sponsors and PBMs.

[[Page 62177]]

3. Considered Regulatory Changes to the Definition of Negotiated Price 
(Sec.  423.100)
    As previously discussed, Part D sponsors and PBMs have been 
recouping increasing sums from network pharmacies after the point of 
sale in the form of pharmacy price concessions. We addressed concerns 
about these pharmacy payment adjustments when we established the 
existing requirements for negotiated price reporting in the May 2014 
final rule (79 FR 29844). In that rule, we amended the definition of 
``negotiated prices'' at Sec.  423.100 to require Part D sponsors to 
include in the negotiated price at the point of sale all pharmacy price 
concessions and incentive payments to pharmacies--with an exception, 
intended to be narrow, that allowed the exclusion of contingent 
pharmacy payment adjustments that cannot reasonably be determined at 
the point of sale (the reasonably determined exception). However, when 
we formulated these requirements in 2014, the most recent year for 
which DIR data was available was 2012, and we did not anticipate the 
growth of performance-based pharmacy payment arrangements that we have 
observed in subsequent years.
    We now understand that the reasonably determined exception we 
currently allow applies more broadly than we had initially envisioned 
because of the shift by Part D sponsors and their PBMs towards 
contingent pharmacy payment arrangements. As suggested by numerous 
stakeholders in response to CMS's November 2017 Request for Information 
(82 FR 56419 through 56428), nearly all performance-based pharmacy 
payment adjustments may be excluded from the negotiated price on the 
grounds that they cannot reasonably be determined at the point of sale. 
Specifically, several stakeholders have suggested to us that sponsors 
apply the reasonably determined exception to all performance-based 
pharmacy payment adjustments. These stakeholders assert that the amount 
of these adjustments, by definition, is contingent upon performance 
measured over a period of time that extends beyond the point of sale 
and, thus, cannot be known in full at the point of sale. Therefore, 
performance-based pharmacy payment adjustments cannot ``reasonably be 
determined'' at the point of sale as they cannot be known in full at 
the point of sale. These assertions are supported by the information 
plan sponsors report to CMS as part of the annual DIR reports. As a 
result, the reasonably determined exception prevents the current policy 
from having the intended effect on price transparency, consistency (by 
reducing differential reporting of pharmacy payment adjustments by 
sponsors), and beneficiary costs.
    Given the predominance of the use of performance-contingent 
pharmacy payment arrangements by plan sponsors, we do not believe that 
the existing requirement that pharmacy price concessions be included in 
the negotiated price can be implemented in a manner that achieves the 
goals previously discussed: Meaningful price transparency, consistent 
application of all pharmacy payment concessions by all Part D sponsors, 
and prevention of cost-shifting to beneficiaries and taxpayers. 
Therefore, to establish a requirement that accomplishes these goals 
while better reflecting current pharmacy payment arrangements, we are 
considering adding a definition of the term ``Negotiated price'' at 
Sec.  423.100 to mean the lowest amount a pharmacy could receive as 
reimbursement for a covered Part D drug under its contract with the 
Part D sponsor or the sponsor's intermediary (that is, the amount the 
pharmacy would receive net of the maximum possible negative adjustment 
that could result from any contingent pharmacy payment arrangement). 
First, we are considering deleting the current definition of 
``Negotiated prices'' (in the plural) and adding a new definition of 
``Negotiated price'' (in the singular) in order to make clear that a 
negotiated price can be set for each covered Part D drug, and the 
amount of pharmacy price concessions may differ on a drug-by-drug 
basis. Next, we are considering the policy that the negotiated price 
for a covered Part D drug must include all pharmacy price concessions 
and any dispensing fees, and exclude additional contingent amounts, 
such as incentive fees, if these amounts increase prices. Finally, we 
are considering continuing to permit Part D sponsors to elect whether 
to pass-through non-pharmacy price concessions and other direct or 
indirect remuneration amounts (for example, manufacturer rebates, legal 
settlement amounts, and risk-sharing adjustments) to enrollees at the 
point of sale. These considered provisions are discussed in the 
following sections.
    Requiring that all pharmacy price concessions be included in the 
negotiated price, as we have described, would lead to more accurate 
comparability of drug prices, Part D bid pricing, and plan premiums. 
When negotiated prices reflect relative plan efficiencies, there would 
not be unfair competitive advantages accruing to one sponsor over 
another based on a technical difference in how costs are reported. In 
short, because Part D is a market-based approach to delivering 
prescription drug benefits, and relies on healthy market competition, 
we believe the policy being considered could make the Part D market 
more competitive and efficient.
a. All Pharmacy Price Concessions
    We are considering the policy that the new definition of 
``Negotiated price'' omit the reasonably determined exception. That is, 
we would require that all price concessions from network pharmacies, 
negotiated by Part D sponsors and their contracted PBMs, be reflected 
in the negotiated price that is made available at the point of sale and 
reported to CMS on a PDE record, even when such price concessions are 
contingent upon performance by the pharmacy.
    Section 1860D-2(d)(1)(B) of the Act requires that negotiated prices 
``shall take into account negotiated price concessions, such as 
discounts, direct or indirect subsidies, rebates, and direct or 
indirect remunerations, for covered part D drugs . . .'' We have 
previously interpreted this language to mean that some, but not all, 
price concessions must be applied to the negotiated price (see, for 
example, 70 FR 4244 and 74 FR 1511). However, we now believe that our 
initial interpretation may have been overly definitive with respect to 
the intended meaning of ``take into account.'' Requiring that all 
pharmacy price concessions be applied at the point of sale would ensure 
that negotiated prices ``take into account'' at least some price 
concessions and, therefore, would be consistent with the plain language 
of section 1860D-2(d)(1)(B) of the Act.
b. Lowest Possible Reimbursement
    To effectively capture all pharmacy price concessions at the point 
of sale consistently across sponsors, we are considering requiring the 
negotiated price to reflect the lowest possible reimbursement that a 
network pharmacy could receive from a particular Part D sponsor for a 
covered Part D drug. Under this approach, the price reported at the 
point of sale would need to include all price concessions that could 
potentially flow from network pharmacies, as well as any dispensing 
fees, but exclude any additional contingent amounts that could flow to 
network pharmacies and thus increase prices over the lowest 
reimbursement level, such as incentive fees. That is, if a performance-
based payment arrangement exists between a sponsor and a network 
pharmacy, the point-of-

[[Page 62178]]

sale price of a drug reported to CMS would need to equal the final 
reimbursement that the network pharmacy would receive for that 
prescription under the arrangement if the pharmacy's performance score 
were the lowest possible. If a pharmacy is ultimately paid an amount 
above the lowest possible contingent incentive reimbursement (such as 
in situations where a pharmacy's performance under a performance-based 
arrangement triggers a bonus payment or a smaller penalty than that 
assessed for the lowest level of performance), the difference between 
the negotiated price reported to CMS on the PDE record and the final 
payment to the pharmacy would need to be reported as negative DIR as 
part of the annual report on DIR following the end of the year. For an 
illustration of how negotiated prices would be reported under such an 
approach, see the example provided later in this section.
    By requiring that sponsors assume the lowest possible pharmacy 
performance when reporting the negotiated price, we would be 
prescribing a standardized way for Part D sponsors to treat the unknown 
(final pharmacy performance) at the point of sale under a performance-
based payment arrangement, which many Part D sponsors and PBMs have 
identified as the most substantial operational barrier to including 
such concessions at the point of sale. We believe, based on the 
overwhelming support received from commenters on our November 2017 
Request for Information, that this is the best approach to achieve our 
goals, as noted previously, of--(1) consistency (standardized reporting 
of negotiated prices and DIR); (2) preventing cost-shifting to 
beneficiaries; and (3) price transparency for beneficiaries, the 
government, and other stakeholders.
    Regarding consistency in reporting, we believe that the approach we 
are considering would be clearer for Part D sponsors to follow than the 
requirements in place today, which require Part D sponsors to assess 
which types of pharmacy payment adjustments fall under the reasonably 
determined exception. We expect this increased clarity would reduce 
sponsor burden in terms of the resources necessary to ensure compliance 
in the absence of a clear standard. Finally, we believe that the change 
we are considering would improve the quality of drug pricing 
information available across Part D plans and thus improve market 
competition and cost efficiency under Part D.
    Requiring the negotiated price to reflect the lowest possible 
pharmacy reimbursement, would move the negotiated price closer to the 
final reimbursement for most network pharmacies under current pharmacy 
payment arrangements, and thus closer to the actual cost of the drug 
for the Part D sponsor. We have learned from the DIR data reported to 
CMS and feedback from numerous stakeholders that pharmacies rarely 
receive an incentive payment above the original reimbursement rate for 
a covered claim. We gather that performance under most arrangements 
dictates only the magnitude of the amount by which the original 
reimbursement is reduced, and most pharmacies do not achieve 
performance scores high enough to qualify for a substantial, if any, 
reduction in penalties.
    Finally, we are considering requiring that all contingent incentive 
payments be excluded from the negotiated price. As noted previously, we 
understand that such incentive payments are quite rare. Furthermore, 
even in those instances in which a pharmacy may qualify for such a 
payment, including the amount of any contingent incentive payments to 
pharmacies in the negotiated price would make drug prices appear higher 
at a ``high performing'' pharmacy, which receives an incentive payment, 
than at a ``poor performing'' pharmacy, which is assessed a penalty, 
and would also reduce price transparency. This pricing differential 
could also potentially create a perverse incentive for beneficiaries to 
choose a lower performing pharmacy for the advantage of a lower price. 
We believe the approach we are considering would prevent these 
unintended consequences and thus avoid reducing the competitiveness of 
high performing pharmacies by increasing the negotiated price charged 
to the beneficiary at those pharmacies. Additionally, Part D sponsors 
and their intermediaries have argued in the past that network 
pharmacies lose motivation to improve performance when all performance-
based adjustments are required to be reported up-front. Revising the 
negotiated price definition as we are considering doing would mitigate 
this concern by allowing sponsors and their intermediaries to motivate 
network pharmacies to improve their performance with the promise of 
future incentive payments that would increase pharmacy reimbursement 
from the level of the lowest possible reimbursement per claim. Further, 
we emphasize that the policy being considered would not require 
pharmacies to be paid in a certain way; rather we would be requiring 
standardized reporting to CMS of drug prices at the point of sale.
c. Lowest Possible Reimbursement Example
    To illustrate how Part D sponsors and their intermediaries would 
report costs under the approach we are considering, we provide the 
following example. Suppose that under a performance-based payment 
arrangement between a Part D sponsor and its network pharmacy, the 
sponsor will implement one of three scenarios: (1) Recoup 5 percent of 
its total Part D-related payments to the pharmacy at the end of the 
contract year for the pharmacy's failure to meet performance standards; 
(2) recoup no payments for average performance; or (3) provide a bonus 
equal to 1 percent of total payments to the pharmacy for high 
performance. For a drug that the sponsor has agreed to pay the pharmacy 
$100 at the point of sale, the pharmacy's final reimbursement under 
this arrangement would be: (1) $95 for poor performance; (2) $100 for 
average performance; or (3) $101 for high performance. Under the 
current definition of negotiated prices, the reported negotiated price 
is likely to be $100, given the reasonably determined exception for 
contingent pharmacy payment adjustments. However, under the approach we 
are considering here, for all three performance scenarios the 
negotiated price reported to CMS on the PDE record at the point of sale 
for this drug would be $95, or the lowest reimbursement possible under 
the arrangement. Thus, if a plan enrollee were required to pay 25 
percent coinsurance for this drug, then the enrollee's costs under all 
scenarios would be 25 percent of $95, or $23.75, which is less than the 
$25 the enrollee would pay today (when the negotiated price is likely 
to be reported as $100). Finally, any difference between the reported 
negotiated price and the pharmacy's final reimbursement for this drug 
would be reported as DIR at the end of the coverage year. Under this 
requirement, the sponsor would report $0 as DIR under the poor 
performance scenario ($95 minus $95), -$5 as DIR under the average 
performance scenario ($95 minus $100), and -$6 as DIR under the high 
performance scenario ($95 minus $101), for every covered claim for this 
drug purchased at this pharmacy.
d. Additional Considerations
    In order to implement the change being considered, we would 
leverage existing reporting mechanisms to confirm that sponsors are 
appropriately applying pharmacy price concessions at

[[Page 62179]]

the point of sale, as we do with other cost data required to be 
reported. Specifically, we would likely use the estimated rebates at 
point of sale field on the PDE record to also collect the amount of 
point-of-sale pharmacy price concessions. We also would likely use 
fields on the Summary and Detailed DIR Reports to collect final 
pharmacy price concession data at the plan and NDC levels. Differences 
between the amounts applied at the point of sale and amounts actually 
received, therefore, would become apparent when comparing the data 
collected through those means at the end of the coverage year. To 
implement the change being considered to the definition of negotiated 
price at the point of sale, Part D sponsors and their PBMs would load 
revised drug pricing tables that reflect the lowest possible 
reimbursement into their claims processing systems that interface with 
contracted pharmacies.
    Additionally, we note that the negotiated price is also the basis 
by which manufacturer liability for discounts in the coverage gap is 
determined. We are considering whether to require sponsors to include 
pharmacy price concessions in the negotiated price in the coverage gap, 
for purposes of determining manufacturer coverage gap discounts, as 
would be required of sponsors in all other phases of the Part D benefit 
under approach being considered. We request comment on the alternate 
approaches.
    Under section 1860D-14A(g)(6) of the Act, the term ``negotiated 
price'' has the meaning it was given in Sec.  423.100 as in effect as 
of the enactment of the Patient Protection and Affordable Care Act, 
except that it excludes any dispensing fee. This definition is codified 
in the coverage gap discount program regulations at Sec.  423.2305. 
Because the statutory definition of negotiated price for purposes of 
the coverage gap discount program references price concessions that the 
Part D sponsor has elected to pass through at the point of sale, we do 
not believe it would appropriate to require sponsors to include all 
price concessions in the negotiated price for purposes of the coverage 
gap discount program. However, we believe there would be authority 
under the statute to require sponsors to include all pharmacy price 
concessions in the negotiated price for purposes of the coverage gap 
discount program because such concessions necessarily affect the amount 
that the pharmacy receives in total for a particular drug. We also note 
that pharmacy price concessions account for only a share of all price 
concessions a sponsor might receive. Thus, even if a plan sponsor is 
required to include all pharmacy price concessions in the negotiated 
price at the point of sale, the plan sponsor must still make an 
election as to how much of the overall price concessions (including 
manufacturer rebates and other non-pharmacy price concessions) it 
receives will be passed through at the point of sale. Under this 
approach, Part D sponsors would be required to include all pharmacy 
price concessions in the negotiated price during the coverage gap, and 
the same negotiated price could be used to adjudicate claims during all 
phases of the Part D benefit.
    If we do not require sponsors to include pharmacy price concessions 
in the negotiated price in the coverage gap, we would need to 
operationalize different definitions of ``negotiated price'' for the 
coverage gap versus the non-coverage gap phases of the Part D benefit. 
Under this alternative approach, during the non-coverage gap phases, 
claims would be adjudicated using the negotiated price determined as 
described in the lowest possible reimbursement example above. In 
contrast, during the coverage gap, plans would have the flexibility to 
determine how much of the pharmacy price concessions to pass through at 
the point of sale, and beneficiary, plan, and manufacturer liability in 
the coverage gap would be calculated using this alternate negotiated 
price.
    We also request comment on a considered alternative to the lowest 
possible reimbursement approach that would require Part D sponsors to 
apply less than 100 percent, e.g., 95 percent or more, of pharmacy 
price concessions at the point of sale. This alternative might grant 
sponsors additional flexibilities in regards to the application of 
price concessions, thus potentially limiting the beneficiary premium 
impact, while still improving price transparency in a meaningful way. 
We believe that requiring less than 100 percent of pharmacy price 
concessions be applied at the point of sale would have a 
proportionately smaller impact on beneficiary, government, and 
manufacturer costs than the impacts we outline in the Regulatory Impact 
Statement in this proposed rule for requiring the point-of-sale 
application of 100 percent of pharmacy price concessions.
    In addition, we are considering an option to develop a standard set 
of metrics from which plans and pharmacies would base their contractual 
agreements. We request commenter feedback on whether these metrics 
could be designed to provide pharmacies with more predictability in 
their reimbursements while maintaining plan's ability to negotiate 
terms. Additionally, we seek comment on the most appropriate agency or 
organization to develop these standards, or whether this a matter 
better left to private negotiations.
    Finally, given the many considerations outlined above, we have not 
concluded, at this time and without the benefit of public comment, that 
we should move forward with changing the definition of negotiated price 
for contract year 2020 or otherwise. However, we seek comment on 
whether we should do so, including whether to adopt in the final rule 
the approach considered above or a logical outgrowth of it, whether to 
make such a change for the contract year 2020, and on the contours and 
contentment of the policy considered and outlined above. If such a 
change is adopted, we anticipate the regulation text at Sec.  423.100 
would read as follows:
    Negotiated price 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 lowest possible 
reimbursement such network entity will receive, in total, for a 
particular drug and
    (2) Meets all of the following:
    (i) Includes all price concessions (as defined at Sec.  423.100) 
from network pharmacies or other network providers;
    (ii) Includes any dispensing fees; and
    (iii) Excludes additional contingent amounts, such as incentive 
fees, if these amounts increase prices.
    (3) Is reduced by non-pharmacy price concessions and other direct 
or indirect remuneration that the Part D sponsor has elected to pass 
through to Part D enrollees at the point of sale.
4. Pharmacy Administrative Service Fees
    We are aware that some sponsors and their intermediaries believe 
certain fees charged to network pharmacies--such as ``network access 
fees,'' ``administrative fees,'' ``technical fees,'' or ``service 
fees''--represent valid administrative costs and, thus, do not believe 
such fees should be treated as price concessions. However, pharmacies 
and pharmacy organizations report that they do not receive anything of 
value for such administrative service fees other than the ability to 
participate in the Part D plan's pharmacy network.
    Thus, we are restating the conclusion we provided in the May 2014 
final rule (79 FR 29877): When pharmacy administrative service fees 
take the form

[[Page 62180]]

of deductions from payments to pharmacies for Part D drugs dispensed to 
Part D beneficiaries, they clearly represent charges that offset the 
sponsor's or its intermediary's operating costs under Part D. We 
believe that if the sponsor or its intermediary contracting 
organization wishes to be compensated for these services and have those 
costs treated as administrative costs, such costs should be accounted 
for in the administrative costs of the Part D bid. If instead these 
costs are deducted from payments made to pharmacies for purchases of 
Part D drugs, such costs are price concessions and must be treated as 
such in Part D cost reporting. This is the case regardless of whether 
the deductions are calculated on a per-claim basis or not.
    The regulations governing the Part D program require that price 
concessions be fully disclosed. If not reported at all, these amounts 
would result in another form of so-called PBM spread in which inflated 
prices contain a portion of costs that should be treated as 
administrative costs. That is, even if these costs did represent 
services rendered by an intermediary organization for the sponsor, then 
these costs would be administrative service costs, not drug costs, and 
should be treated as such. Failure to report these costs as 
administrative costs in the bid would allow a sponsor to misrepresent 
the actual costs necessary to provide the benefit and thus to submit a 
lower bid than necessary to reflect its revenue requirements (as 
required at section 1860D-11(e)(2)(C) of the Act and at Sec.  
423.272(b)(1) of the regulations) relative to another sponsor that 
accurately reports administrative costs consistent with CMS 
instructions.
5. Defining Price Concession (Sec.  423.100)
    Section 1860D-2(d)(1)(B) of the Act stipulates that the negotiated 
price shall take into account negotiated price concessions, such as 
discounts, direct or indirect subsidies, rebates, and direct or 
indirect remunerations, for covered Part D drugs. Section 1860D-2(d)(2) 
of the Act further requires that Part D sponsors disclose to CMS the 
aggregate negotiated price concessions by manufacturers that are passed 
through in the form of lower subsidies, lower monthly beneficiary 
premiums, and lower prices through pharmacies and other dispensers. 
While ``price concession'' is a term important to the adjudication of 
the Part D program, it has not yet been defined in the Part D statute 
or in Part D regulations and subregulatory guidance. Therefore, to 
avoid confusion among Part D sponsors and other stakeholders of the 
Part D program resulting from inconsistent terminology, we are 
considering providing a definition for the term ``price concession'' at 
Sec.  423.100. We would consider implementing, for 2020 or another 
future year, a provision that defines price concession in a broad 
manner, to include all forms of discounts, direct or indirect 
subsidies, or rebates that serve to reduce the costs incurred under 
Part D plans by Part D sponsors.
    In considering how to define price concession, we believe it is 
important to define the term in a broadly applicable manner, while 
maintaining clarity. We believe the approach we are considering would 
be consistent with the statute, would support consistent accounting by 
plan sponsors of amounts that are price concessions, and would ensure 
that certain forms of discounts are not inappropriately excluded from 
being considered price concessions.
    An alternative would be not to define price concession at all. 
However, this option would not support consistent accounting of amounts 
that are price concessions among Part D sponsors, which is particularly 
important in light of the change being considered for the definition of 
negotiated price.
    If such a change is adopted, we anticipate the regulation text at 
Sec.  423.100 would read as follows:
    Price concession means any form of discount, direct or indirect 
subsidy, or rebate received by the Part D sponsor or its intermediary 
contracting organization from any source, that serves to decrease the 
costs incurred under the Part D plan by the Part D sponsor. Examples of 
price concessions include but are not limited to: Discounts, 
chargebacks, rebates, cash discounts, free goods contingent on a 
purchase agreement, coupons, free or reduced-price services, and goods 
in kind.
    We note that the change we are considering for the definition of 
price concession would not affect the way in which price concessions 
must be accounted for by Part D sponsors in calculating costs under a 
Part D plan. Defining price concessions as we are considering doing 
also would not require the renegotiation of any contractual 
arrangements between a sponsor and its contracted entities. Therefore, 
this definition we are considering for price concession has no impact 
under the federal requirements for Regulatory Impact Analyses.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et 
seq.), 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 PRA 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.
    In this proposed rule, we are soliciting public comment on each of 
these issues for the following sections of this rule that contain 
proposed ``collection of information'' requirements as defined under 5 
CFR 1320.3 of the PRA's implementing regulations.

A. Wage Data

    To derive average costs for the private sector, we used data from 
the U.S. Bureau of Labor Statistics' (BLS's) May 2017 National 
Occupational Employment and Wage Estimates for all salary estimates 
(http://www.bls.gov/oes/current/oes_nat.htm). In this regard, Table 2 
presents the mean hourly wage, the cost of fringe benefits and overhead 
(calculated at 100 percent of salary), and the adjusted hourly wage.

                          Table 2--National Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                    Occupation      Mean hourly    benefits and      Adjusted
                Occupation title                       code         wage ($/hr)    overhead ($/   hourly wage ($/
                                                                                        hr)             hr)
----------------------------------------------------------------------------------------------------------------
Business Operation Specialist...................         13-1000           34.54           34.54           69.08

[[Page 62181]]

 
Pharmacist......................................         29-1051           58.52           58.52          117.04
Software Developers and Programmers.............         15-1130           49.27           49.27           98.54
----------------------------------------------------------------------------------------------------------------

    As indicated, we are adjusting our employee hourly wage estimates 
by a factor of 100 percent. This is necessarily a rough adjustment, 
both because fringe benefits and overhead costs vary significantly from 
employer to employer, and because methods of estimating these costs 
vary widely from study to study. We believe that doubling the hourly 
wage to estimate total cost is a reasonably accurate estimation method.

B. Proposed Information Collection Requirements (ICRs)

1. ICRs Regarding the Provision of Plan Flexibility To Manage Protected 
Classes (Sec.  423.120(b)(2)(vi))
    The requirements and burden related to the proposed justification 
under Sec.  423.120(b)(2)(vi)(E) will be submitted to OMB for approval 
under control number 0938-0763 (CMS-R-262).
    As described in section III.B. of this rule, the proposed new 
paragraph at Sec.  423.120(b)(2)(vi) would implement the authority 
granted to CMS by section 1860D-4(b)(3)(G) of the Act to establish 
exceptions that would permit a Part D sponsor to exclude from its 
formulary (or to otherwise limit access to such a drug, including 
through prior authorization or utilization management) a particular 
Part D drug that is otherwise required to be included in the formulary. 
For the proposed exceptions that expand the use of prior authorization 
and step therapy for protected class drugs at Sec.  
423.120(b)(2)(vi)(C) and the exceptions for protected class drugs that 
are new formulations at Sec.  423.120(b)(2)(vi)(D), the burden would 
consist of the time and effort for Part D sponsors to submit their 
formularies to CMS under the existing annual submission process. The 
annual submission requirements and burden are currently approved by OMB 
under control number 0938-0763 (CMS-R-262). The proposed provisions 
would not impose any new or revised information collection requirements 
or burden. Consequently, the provisions are not subject to the PRA.
    For the proposed exceptions related to Sec.  423.120(b)(2)(vi)(E), 
for protected class drugs for which a Part D sponsor chooses to exclude 
from their formulary due to a price increase beyond a certain 
threshold, Part D sponsors would be required to submit an additional 
justification to CMS during the annual formulary submission process. 
The justification must explain why the Part D sponsor is excluding such 
drug from their formulary. The burden associated with this exception 
would consist of the time and effort put forth by Part D sponsors to 
prepare and submit their formularies to CMS along with the 
justification.
    While the annual formulary preparation and submission process and 
burden are currently approved by OMB without the need for change, we 
estimate that it would take an average of 10 minutes (0.167 hours) at 
$117.04/hr for a pharmacist to prepare and submit each justification. 
Because Part D sponsors already research list prices to inform the 
existing formulary negotiation process, we only consider the time 
necessary to prepare and submit the justification to CMS. We estimate 
that all 218 Part D plan sponsors (32 PDP parent organizations and 186 
MA-PD parent organizations, based on plan year 2018 plan participation) 
would be subject to this requirement. In aggregate, we estimate an 
annual burden of 36 hours (0.167 hr x 218 sponsors) at a cost of $4,213 
(36 hr x $117.04/hr).
2. ICRs Regarding the Prohibition Against Gag Clauses in Pharmacy 
Contracts (Sec.  423.120(a)(8)(iii))
    This proposed change would codify in Part D regulation a ban on 
contract provisions that prohibit network pharmacies from informing 
Part D enrollees about instances where the pharmacy has a cash price 
for a prescribed drug that is lower than the out-of-pocket cost that 
would be charged to the enrollee. Since this would not change any 
existing practice and the provisions do not have any information 
collection implications, the provisions are not subject to the PRA.
3. ICRs Regarding E-Prescribing and the Part D Prescription Drug 
Program; Updating Part D E-Prescribing Standards (Sec.  423.160)
    This provision proposes that each Part D plan sponsor adopt one or 
more Real Time Benefit Tool (RTBT) tools that are capable of 
integrating with e-prescribing (eRx) and electronic medical record 
(EMR) systems for use in part D E-Prescribing (eRx) transactions 
beginning on or before January 1, 2020. We are advancing a provision 
with unclear costs and impacts to reflect the direction that the 
industry is moving in, and we want to ensure that protections and 
guidance are given before it becomes too widespread. Because of a 
desire to address the high costs of drugs and the potential savings 
that could be realized through RTBT we do not wish to delay such a 
proposal. This provision also supports the MMA objectives of patient 
safety, quality of care, and efficiencies and cost savings in the 
delivery of care if our proposals are finalized.
    Because of our inability to quantitatively score this provision, we 
are soliciting comments on potential information collection 
implications.
4. ICRs Regarding Part D Explanation of Benefits (Sec.  423.128)
    Section 1860D-4(a)(1)(A)(4) of the Act requires that Part D 
sponsors furnish to each of their enrollees a written explanation of 
benefits (EOB) and, when the prescription drug benefits are provided, a 
notice of the benefits in relation to the initial coverage limit and 
the out-of-pocket threshold for the current year.
    In this rule we are proposing to require that sponsors include the 
cumulative percentage change in the negotiated price since the first 
day of the current benefit year for each prescription drug claim in the 
EOB. Sponsors would also be required to include information about drugs 
that are therapeutic alternatives with lower cost-sharing. The intent 
is to provide enrollees with greater transparency, thereby encouraging 
lower costs. Since plans use formularies we believe it is reasonable to 
assume that all plans already have the negotiated drug price

[[Page 62182]]

and the lower cost alternatives in an existing system. Nonetheless, we 
seek comment on the availability and feasibility of this information. 
If our assumption is correct, the sole cost of this proposal to plans 
would be placing this information in the Part D EOB model, a model 
which all impacted plans have and use for their enrollees.
    We assume that half a day of programming work (4 hours) per 
contract at $98.54 an hour is needed to link alternative prices to EOB 
Model. Therefore, the aggregate first year impact is 2,240 hours (560 
Part D contracts * 4 hours per contract) at an aggregate cost of $0.2 
million (560 Part D Sponsors and PDPs * 4 hours * $98.54/hr). Since 
this is a first time impact only, the annualized impact over 3 years is 
747 hours (2,240/3) at a cost of $73,609 (747 hours * $98.54/hr).
5. ICRs Regarding Medicare Advantage and Step Therapy for Part B Drugs 
(Sec. Sec.  422.136, 422.568, 422.570, 422.572, 422.584, 422.590, 
422.618, and 422.619)
    This rule proposes protections that ensure beneficiaries maintain 
access to medically necessary Part B drugs while permitting MA plans to 
implement step therapy protocols that support stronger price 
negotiation and cost and utilization controls. In order to implement a 
step therapy program for one or more Part B drugs, we are proposing 
that an MA plan must establish and use a P&T Committee to review and 
approve step therapy programs used in connection with Part B drugs. The 
proposed P&T Committee requirements are the same as the requirements 
applicable to Part D plans under Sec.  423.120(b). We propose to allow 
MA-PD plans to use the Part D P&T Committee to satisfy the new 
requirements proposed in this rule related to MA plans and Part B 
drugs. For MA plans that do not cover Part D benefits already, they may 
use the Part D P&T committee of another plan under the same contract. 
Under Sec.  422.4(c), every MA contract must have at least one plan 
offering Part D. Because of the small amount of work needed annually 
(and estimated in this rule) we believe it is reasonable to assume that 
no new committees will be formed and that the added work will be 
performed by the existing P&T Committees. We estimate it would take 1 
hour at $69.08/hr for a P&T Committee business specialist to perform 
certain tasks and review and retain documentation and information as 
described in Sec.  422.136(b)(4) and (9). The one hour estimate 
reflects half the Part D P&T Committee burden (or two hours) that is 
currently approved by OMB under control number 0938-0964 (CMS-10141). 
We believe that the added hour is reasonable since the P&T Committee 
requires significantly less work for Part B than for Part D. In 
aggregate we estimate an annual burden of 634 hours (1 hour x [697 
plans--63 Prescription Drug plans which don't offer Part B]) at a cost 
of $43,797 (634 hr x $69.08/hr).
    Another proposed beneficiary protection measure is related to 
organization determinations and reconsiderations for Part B drugs. The 
proposal only changes the adjudication timeframes for an MA plan 
(including an MA-PD plan). We are not proposing to change any other 
requirements (for example, notice requirements, content, standards for 
decision making, etc.). Consequently, the provision is not subject to 
the PRA.
6. ICRs Regarding Pharmacy Price Concessions in the Negotiated Price 
(Sec.  423.100)
    We are considering redefining ``negotiated price'' as the baseline, 
or lowest possible, payment to a pharmacy and adding a definition of 
``price concession.'' The definitions being considered would not impose 
any new or revised information collection requirements or burden on 
sponsors, pharmacies, or any other stakeholders. Consequently, the 
provisions would not be subject to the PRA.

C. Summary of Proposed Information Collection Requirements and Burden

                                                Table 3--Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                      Labor      Total
    Regulatory reference      Provision brief    OMB and CMS          Item        Respondents     Total      Hours per     Total     cost ($/    annual
                                   title         control Nos.                                   responses    respondent    hours       hr)      cost ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.  Sec.   423.120(b) and   Step Therapy     0938-0964 (CMS   Documentation             634          634            1        634      69.08     43,797
 422.136(b).                   Part B.          10141).          Requirements.
Sec.   423.120(b)(2)(vi)....  Plan             0938-0763 (CMS   Additional                218          218        0.167         36     117.04      4,213
                               Flexibility to   R 262).          Justification.
                               Manage
                               Protected
                               Classes.
Sec.   423.128..............  Part D           N/A............  Part D                    560          560            4    \1\ 747      98.54     73,609
                               Explanation of                    Explanation of
                               Benefits.                         Benefits.
                                                                                ------------------------------------------------------------------------
    Subtotal (Private         ...............  ...............  ...............         1,412  ...........       Varies      1,417     Varies    121,619
     Sector).
                                                                                ------------------------------------------------------------------------
        Total...............  ...............  ...............  ...............         1,412  ...........       Varies      1,417     Varies    121,619
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The 747 reflects an annualization of a first year cost over 3 years: 560 * 4/3-747.

D. Submission of PRA-Related Comments

    We have submitted a copy of this proposed rule to the Office of 
Management and Budget (OMB) for its review of the rule's information 
collection and recordkeeping requirements. These requirements are not 
effective until they have been approved by OMB.
    To obtain copies of the supporting statement and any related forms 
for the proposed collections previously discussed, please visit CMS's 
website at: https://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRAListing.html, or call the Reports 
Clearance Office at (410) 786-1326.
    We invite public comments on these proposed information collection 
requirements. If you wish to comment, please submit your comments 
electronically as specified in the ADDRESSES section of this proposed 
rule and identify the rule (CMS-4180-P) and where applicable: the ICR's 
CFR citation, CMS ID number, and OMB control number.
    See the DATES and ADDRESSES sections of this proposed rule for 
further information.

IV. Regulatory Impact Analysis

A. Statement of Need

    This rule proposes to support Medicare health and drug plans' 
negotiation for lower drug prices and reduce out-of-pocket costs for 
Part C and D enrollees. Although satisfaction with the MA and Part D 
programs remains high, these proposals are responsive to input we 
received from stakeholders while administering the programs, as well as 
through our requests for comment.
    HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs 
(May

[[Page 62183]]

16, 2018, 83 FR 22692) sought to find out more information about 
lowering drug pricing using these four strategies: Improved 
competition, better negotiation, incentives for lower list prices, and 
lowering out-of-pocket costs. We are proposing a number of provisions 
that implement these four strategies in an attempt to lower out-of-
pocket costs. There is also a particular focus in this proposed rule on 
strengthening negotiation for Part D plans and increasing competition 
in the market for prescription drugs. We propose to offer more tools to 
MA and Part D plans that negotiate with drug companies on behalf of 
beneficiaries, so these plans are equipped with similar negotiation 
capabilities as group health plans and issuers have in the commercial 
market. We seek to drive robust competition among health plans and 
pharmacies, so consumers can shop based on quality and value. These 
proposed provisions align with the Administration's focus on the 
interests and needs of beneficiaries, providers, MA plans, and Part D 
sponsors.

B. Overall Impact

    We examined the impact of this proposed 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 (the Act), section 202 of the Unfunded Mandates Reform Act 
of 1995 (UMRA) (March 22, 1995; Pub. L. 104-4), Executive Order 13132 
on Federalism (August 4, 1999), the Congressional Review Act (5 U.S.C. 
804(2)), and Executive Order 13771 on Reducing Regulation and 
Controlling Regulatory Costs (January 30, 2017).
    The RFA, as amended, requires agencies to analyze options for 
regulatory relief of small businesses, if a rule has a significant 
impact on a substantial number of small entities. For purposes of the 
RFA, small entities include small businesses, nonprofit organizations, 
and small governmental jurisdictions.
    This proposed rule affects MA plans and Part D sponsors (NAICS 
category 524114) with a minimum threshold for small business size of 
$38.5 million (http://www.sba.gov/content/small-business-size-standards). This proposed rule additionally affects hospitals (NAICS 
subsector 622) and a variety of provider categories, including 
physicians, specialists, and laboratories (subsector 621).
    To clarify the flow of payments between these entities and the 
federal government, note that MA organizations submit bids (that is, 
proposed plan designs and projections of the revenue needed to provide 
those benefits, divided into three categories--basic benefits, 
supplemental benefits, and Part D drug benefits) in June 2019 for 
operation in contract year 2020. These bids project payments to 
hospitals, providers, and staff as well as the cost of administration 
and profits. These bids in turn determine the payments from the 
Medicare Trust Fund to the MA organizations that pay providers and 
other stakeholders for their provision of covered benefits to 
enrollees. Consequently, our analysis will focus on MA organizations.
    There are various types of Medicare health plans, including MA 
plans, Part D sponsors, demonstrations, section 1876 cost plans, 
prescription drug plans (PDPs), and Program of All-Inclusive Care for 
the Elderly (PACE) plans. Forty-three percent of all Medicare health 
plan organizations are not-for-profit, and 31 percent of all MA plans 
and Part D sponsors are not-for-profit. (These figures were determined 
by examining records from the most recent year for which we have 
complete data, 2016.)
    There are varieties of ways to assess whether MA organizations meet 
the $38.5 million threshold for small businesses. The assessment can be 
done by examining net worth, net income, cash flow from operations, and 
projected claims as indicated in their bids. Using projected monetary 
requirements and projected enrollment for 2018 from submitted bids, 32 
percent of the MA organizations fell below the $38.5 million threshold 
for small businesses. Additionally, an analysis of 2016 data--the most 
recent year for which we have actual data on MA organization net 
worth--shows that 32 percent of all MA organizations fall below the 
minimum threshold for small businesses.
    If a proposed rule may have a significant impact on a substantial 
number of small entities, the proposed rule must discuss steps taken, 
including alternatives, to minimize burden on small entities. While a 
significant number (more than 5 percent) of not-for-profit 
organizations and small businesses are affected by this proposed rule, 
the impact is not significant. To assess impact, we use the data in 
Table 14, which show that the raw (not discounted) net effect of this 
proposed rule over 5 years is $1.2 billion. Comparing this number to 
the total monetary amounts projected to be needed just for 2020, based 
on plan submitted bids, we find that the impact of this proposed rule 
is significantly below the 3 to 5 percent threshold for significant 
impact. Had we compared the 2020 impact of the proposed rule to 
projected 2020 monetary need, the impact would be still less.
    Consequently, the Secretary has determined that this proposed rule 
will not have a significant economic impact on a substantial number of 
small entities, and we have met the requirements of the RFA. In 
addition, section 1102(b) of the Act requires us to prepare a 
regulatory analysis for any final rule under title XVIII, title XIX, or 
Part B of Title XI of the Act that may have significant impact on the 
operations of a substantial number of small rural hospitals. We are not 
preparing an analysis for section 1102(b) of the Act because the 
Secretary certifies that this proposed rule will not have a significant 
impact on the operations of a substantial number of small rural 
hospitals.
    Section 202 of UMRA also requires that agencies assess anticipated 
costs and benefits before issuing any rule whose mandates require 
spending in any 1 year of $100 million in 1995 dollars, updated 
annually for inflation. In 2018, that threshold is approximately $150 
million. This proposed rule is not anticipated to have an effect on 
state, local, or tribal governments, in the aggregate, or on the 
private sector of $150 million or more.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule that imposes 
substantial direct requirement costs on state and local governments, 
preempts state law, or otherwise has federalism implications. Since 
this proposed rule does not impose any substantial costs on state or 
local governments, the requirements of Executive Order 13132 are not 
applicable.
    If regulations impose administrative costs on reviewers, such as 
the time needed to read and interpret this proposed rule, then we 
should estimate the cost associated with regulatory review. There are 
currently 750 MA contracts (which also includes PDPs), 50 State 
Medicaid Agencies, and 200 Medicaid Managed Care Organizations (1,000 
reviewers total). We assume each entity will have one designated staff 
member who will review the entire rule. Other assumptions are possible 
and will be reviewed after the calculations.
    Using the wage information from the Bureau of Labor Statistics 
(BLS) for medical and health service managers (code 11-9111), we 
estimate that the cost of reviewing this rule is $107.38 per

[[Page 62184]]

hour, including fringe benefits and overhead costs (http://www.bls.gov/oes/current/oes_nat.htm). Assuming an average reading speed, we 
estimate that it will take approximately 7.6 hours for each person to 
review this proposed rule. For each entity that reviews the rule, the 
estimated cost is therefore, $816 (7.6 hours * $107.38). Therefore, we 
estimate that the total cost of reviewing this regulation is $816,000 
($816 * 1,000 reviewers).
    Note that this analysis assumed one reader per contract. Some 
alternatives include assuming one reader per parent entity or assuming 
(major) pharmacy benefit managers (PBMs) will read this rule. Using 
parent organizations instead of contracts would reduce the number of 
reviewers to approximately 500 (assuming approximately 250 parent 
organizations), and this would cut the total cost of reviewing in half. 
However, we believe it is likely that reviewing will be performed by 
contract. The argument for this is that a parent organization might 
have local reviewers; even if that parent organization has several 
contracts that might have a reader for each distinct geographic region, 
to be on the lookout for effects of provisions specific to that region.
    As for PBMs, it is reasonable that only the major PBMs would review 
this rule. There are 30-50 major PBMs, and this would increase the 
estimate by 0.3 to 0.5 percent. Using these alternate estimates, we can 
safely say that the cost of reviewing is between half a million (50 
percent * $816,000) and a million (1.005 percent * $816,000). Thus, we 
consider the $816,000 a reasonable midpoint figure to estimate review 
cost.
    In accordance with the provisions of Executive Order 12866, this 
rule was reviewed by the Office of Management and Budget (OMB).

C. Anticipated Effects

1. Providing Plan Flexibility To Manage Protected Classes (Sec.  
423.120(b)(2)(vi))
    CMS is proposing three exceptions to the protected class policy 
that would allow Part D sponsors to: (1) Implement broader use of prior 
authorization and step therapy for protected class drugs, including to 
determine use for protected class indications; (2) exclude a protected 
class drug from a formulary if the drug represents only a new 
formulation of an existing single-source drug or biological product, 
regardless of whether the older formulation remains on the market; and 
(3) exclude a protected class single-source drug or biological product 
from a formulary if the price of the drug increased beyond a certain 
threshold over a specified look-back period.
    Under this proposal, we reviewed the total expenditure, the rebate 
amounts, expected patent expirations, and the generic availability for 
all drugs in the six protected classes and determined that the proposal 
will have meaningful impact on three classes, which are the 
anticonvulsants, antidepressants, and antipsychotics. For the remaining 
three classes, antineoplastics, antiretrovirals, and 
immunosuppressants, the narrower indications and complicating clinical 
criteria would limit Part D sponsors' ability to do significant 
management. Due to restrictions on disclosure of rebate data, CMS is 
not able to release this analysis to the public.
    Granting Part D sponsors additional management flexibility provides 
them with greater negotiating power in determining manufacturer rebate 
levels. Additionally, utilization management will promote generic 
substitution when appropriate and reduce wasteful or inappropriate 
prescriptions. For example, if an antipsychotic drug is prescribed to a 
beneficiary and the beneficiary does not have a diagnosis for a 
condition that requires such a drug, these additional tools will allow 
Part D sponsors to better manage utilization of that drug. We did not 
assume any interactions with Part D sponsors' ability to use 
indication-based coverage, as no experience on that coverage is 
currently available.
    Since manufacturers have been paying relatively high rebates for 
some drugs, we assume that the rebates would not increase for those 
drugs whose manufacturers pay for 25 percent or more of their costs. 
However, there are different market forces behind those drugs whose 
manufacturers pay lower rebates. Therefore, we assume the rebates will 
increase by a modest 5 percent for most of those drugs currently with 
rebates less than 25 percent of their costs. Further, for those drugs 
with generic versions available, we assume that 5 percent of the brand-
name prescriptions will be shifted to generic versions. Since there 
were no data readily available, we relied upon pharmacy benefit 
management experience and actuarial judgment to arrive at these 5 
percent estimates. Lastly, in the absence of data, and using actuarial 
judgment, we estimate an overall 0.5 percent of cost reduction due to a 
reduction in wasteful or inappropriate prescriptions when Part D 
sponsors implement broader use of prior authorization (for the reasons 
discussed previously and in section III.B.2. of this proposed rule). We 
considered studies such as the 2014 NIH study \17\ on prior 
authorization, but based on the focus on a more limited set of drugs, 
the fact that participants were Medicaid beneficiaries, and the 
inconclusive nature of the results, we determined it would not be 
applicable to this provision.
---------------------------------------------------------------------------

    \17\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3980661.
---------------------------------------------------------------------------

    Because the current rebates concentrate on a handful of drugs for 
which manufacturers already pay relatively high rebates, the further 
rebate increases are projected to be only about $11 million in 2020. 
The projected increase in generic substitution affects more than the 
highly rebated drugs in those three classes (antidepressants, 
anticonvulsants, and antipsychotics) because most of them have generic 
competition. Estimated savings to the Medicare Trust Fund for these 
generic substitutions are $104 million in 2020. The projected savings 
to the Medicare Trust Fund from reduced overall prescriptions are $77 
million in 2020 with 0.5 percent being applied to the total cost 
adjusted for the projected impact from the generic substitution. Table 
4 presents the projected yearly total savings to the Medicare Trust 
Fund for 2020-2029, carving out the effects of ordinary inflation. The 
annual savings to the Medicare Trust Fund for 2020-2029 is projected to 
be $192 to $320 million. The annual savings for Part D enrollees, 
comprising both lower premiums and lower cost sharing, for 2020-2029 is 
projected to be $51 to $88 million.
    Factors entering into the trend considerations were based on 
internal CMS data and assumptions on Part D expenditures. We also 
carved out ordinary inflation of 2.6 percent.
    At this time, we do not anticipate any adverse effects upon 
enrollee access to drugs in the protected classes. The reasons for this 
are two-fold. First, we are not proposing to change or remove any of 
the protected classes identified in section 1860D-4(3)(G)(iv) of the 
Act. Second, in considering whether exceptions to the added protections 
afforded by the protected class policy are appropriate, we took into 
account the many other enrollee protections in the Part D program, 
which are mature and have proven workable. These protections include: 
Formulary transparency, formulary requirements, reassignment formulary 
coverage notices, transition supplies and notices, and the expedited 
exception, coverage determination, and appeals processes.
    Out of an abundance of caution to make certain that our three 
proposed

[[Page 62185]]

exceptions to the protected class policy would not introduce 
interruptions for enrollees on existing therapy of protected class 
drugs for protected class indications, we seek comment on whether there 
are additional considerations that would be necessary to consider 
before we would effectuate these exceptions.

             Table 4--Projected Medicare Trust Fund and Part D Enrollee Savings for Providing Plans Flexibility To Manage Protected Classes
                                                                [In millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                             Year                                 2020     2021     2022     2023     2024     2025     2026     2027     2028     2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Medicare Trust Fund Savings...................................      141      151      161      170      180      188      199      209      220      232
Part D Enrollee Share of Savings..............................       51       56       59       63       67       70       75       79       84       88
--------------------------------------------------------------------------------------------------------------------------------------------------------

    These projected dollar savings to the Medicare Trust Fund are 
classified as transfers because the money on brand drugs would instead 
be spent on generic drugs. While brand drugs are more expensive, the 
primary driver of this expense is the research and development (R&D) 
that went into them,\18\ and for drugs that are already on the market, 
R&D has already been done and would not change. In other words, 
although this proposed regulatory provision would reduce the return on 
drug development because enrollees who are expected to purchase the 
brand and thus pay for the initial R&D would instead purchase generics, 
this reduced return would be experienced after the initial R&D has been 
completed; consequently, any immediate reduction in R&D services would 
not impact the availability of new drugs until later. There would be 
also no immediate reduction in production of drugs, since generic 
manufacturers would produce the drugs consumed by enrollees rather than 
brand manufacturers. However, the cost to the enrollee and the Medicare 
Trust Fund would be significantly less because the enrollee and Trust 
Fund would no longer pay for the initial R&D. In conclusion, this 
provision would not reduce activities of production but rather 
transfers the performance of those services from brand manufacturers to 
generic manufacturers; however, as a consequence, the enrollees and 
Trust Fund would experience reduced dollars spent.
---------------------------------------------------------------------------

    \18\ ``Why do generic medicines cost less than brand name 
medicines,'' https://www.fda.gov/drugs/resourcesforyou/consumers/questionsanswers/ucm100100.htm.
---------------------------------------------------------------------------

    We solicit comment on these estimates.
2. Prohibition Against Gag Clauses in Pharmacy Contracts (Sec.  
423.120(a)(8)(iii))
    This provision proposes to codify existing practice and therefore 
is expected to produce neither savings nor cost.
3. E-Prescribing and the Part D Prescription Drug Program; Updating 
Part D E-Prescribing Standards (Sec.  423.160)
    This provision proposes that each Part D plan sponsor adopt one or 
more Real Time Benefit Tool (RTBT) tools that are capable of 
integrating with e-prescribing (eRx) and electronic medical record 
(EMR) systems for use in part D E-Prescribing (eRx) transactions 
beginning on or before January 1, 2020. CMS believes that requiring 
Part D sponsors to implement real-time benefits (RTB) information may 
improve the cost effectiveness of the Part D benefit, as required by 
section 1860D-4(e)(2)(D) of the Act. As discussed earlier in this 
preamble, we understand that some PBMs and a few prescription drug 
plans have already begun to use RTBT tools capable of meeting the 
specifications listed in our preamble discussion, which includes 
providing beneficiary-specific drug coverage and out-of-pocket cost 
information at the point-of-prescribing. CMS seeks to accelerate the 
use of such real time solutions in the Part D program so as to realize 
their potential to improve adherence, lower prescription drug costs, 
and minimize beneficiary out-of-pocket cost sharing. These tools have 
the capability to inform prescribers when lower-cost alternative 
therapies are available under the beneficiary's prescription drug 
benefit. We are interested in fostering the use of these real-time 
solutions in the Part D program, given their potential to lower 
prescription drug spending and minimize beneficiary out-of-pocket 
costs. Not only can program spending and beneficiary out-of-pocket 
costs be reduced, but (as discussed above) evidence suggests that 
reducing medication cost also yields benefits in patients' medication 
adherence.
    We first give a high-level description of impact. The major savings 
of this provision would be use of RTBT to encourage prescribing of 
lower tier cost sharing drugs. This would result in a dollar savings to 
the Medicare Trust Fund. However, we are unable to fully quantify the 
impact of this provision due to lack of adequate data. Because of lack 
of data we are not scoring this provision. We however, provide below a 
list of data items needed and solicit comments on any of these factors.
    To illustrate the potential both for costs and savings we present 
below some estimates on costs below. We hope commenters can help 
provide us with information so we can have a more concrete estimate at 
the time of the final rule.
    The list of items for which we do not have adequate data are the 
following:
     Current usage: Some plans are already using some form of 
RTBT. We do not know how many plans are using RTBT nor do we know to 
what extent the plans that are using the RTBT are meeting the 
specifications listed in our preamble discussion.
     Use of intermediaries for software: There is a wide range 
of charges from intermediaries for RTBT. Cost is reduced for large 
volume which might help large plans but hurt small plans. There is 
industry concern that if a requirement of RTBT is finalized, 
intermediaries might raise rates because of increased demand. There is 
also concern that if a requirement is finalized, Part D plans may 
struggle to use PBM information with another intermediary, therefore 
further raising costs for software.
     Software costs: Although we are not fully cognizant of all 
requirements for a plan to program its own software for RTBT, several 
scenarios discussed in more detail below show a high cost, in fact a 
cost that could offset the savings.
     Lower tier cost sharing substitution: CMS believes the 
primary source of RTBT savings to arise from the ability of providers 
to prescribe lower tier cost sharing drugs. While there are also 
savings from substitutions of generics for brands, these substitutions 
already are done by pharmacies and providers. We solicit comment on 
this perspective. We are particularly interested in those stakeholders 
already using some form of RTBT to ascertain where savings comes

[[Page 62186]]

from. We have not found a unique definitive answer to this.
     Cost after implementation: If any cost would be incurred 
from some plans having to make changes once NCPDP develops a universal 
standard.
     Cost to providers: We also believe there could be a cost 
to providers as they may need training on multiple RTBT tools and time 
would be taken away from clinical work to consult this tool.
     Number of impacted beneficiaries: Due to the limited scope 
of the current implementation efforts, we are unsure of the number of 
beneficiaries that would be impacted by this change. The number of 
impacted beneficiaries could be informed by how aggressively the plans 
trained prescribers, how many EHRs each RTBT integrated with, and 
knowledge from the beneficiary to ask for such information.
    Prior to stating estimates we outline how they are used. We 
estimate cost at the parent organization level since software available 
from a parent organization would suffice for all its contracts. Thus 
each per parent-organization estimate is multiplied by 240 (the number 
of parent organizations). This figure is based on all parent 
organizations creating software is used as a factor in scenarios. For 
example--
     If we assume 50 percent of parent organizations have 
adequate software (or cheap intermediaries) then our estimate for cost 
would be 50 percent * 240 (parent organizations) * Cost per parent 
organization.
     If we assume 25 percent of parent organizations have 
adequate software or cheap intermediaries) then our estimate for cost 
would 25 percent * 240 * Cost per parent organization.
    In other words the calculation of cost per parent organization is 
simply a factor that is to be used in computations of impact by 
scenario.
    Rather than include an assumption about how many parent 
organizations need to program software, we did not calculate the 
cumulative impact of the potential costs for software implementation 
across parent organizations. As discussed below, we are seeking comment 
on how many plans are already doing RTBT (and conversely, how many 
would incur costs for software implementation).
    We now estimate separately the following:
     Savings from RTBT.
     Cost for software implementation per parent organization.
    Cost for intermediaries is not estimated since we have no basis and 
there is concern that rates might go up.
    Savings from RTBT: CMS believes that the primary source of savings 
of RTBT is the prescription of lower-tier cost sharing drugs. There may 
also be some savings from substitutions of generics for brands but we 
currently believe that substitutions of generics for brands is 
adequately addressed by providers themselves and pharmacies. We solicit 
stakeholder comment on this perspective of savings as well as 
stakeholder experience.
    Any such savings would be classified as a transfer since there is 
no reduction in consumption of goods (prescription drugs) but rather a 
transfer of expense from one drug to another. However, this transfer 
(between manufacturers of drugs) would result in reduced dollar 
spending by Part D Sponsors and enrollees and would result in reduced 
spending by the Medicare Truest Fund.
    Cost of plans writing their own software: We are not aware of all 
software requirements. Therefore, we estimate a minimum requirement and 
show that even that is prohibitive. We obtain hourly wages from the BLS 
website. Minimum daily costs are summarized in Table 5.

                                                   Table 5--Cost To Produce Software Implementing RTBT
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Fringe
          Occupation code             Occupation title     Mean wages     benefits  and    Wage per    Number of     Wage per    Hours  per   Wage  per
                                                            per hour        overtime        person       people     occupation      day          day
--------------------------------------------------------------------------------------------------------------------------------------------------------
29-1051...........................  Pharmacists........          $58.52          $58.52      $117.04            2      $234.08            8       $1,873
29-1060...........................  Physicians.........          101.63          101.63       203.26            2       406.52            8        3,252
15-1133...........................  Software developers           53.74           53.74       107.48            2       214.96            8        1,720
                                     system software.
15-1131...........................  Programmers........           42.08           42.08        84.16            2       168.32            8        1,347
                                                        ------------------------------------------------------------------------------------------------
    Total cost per day............  ...................  ..............  ..............  ...........  ...........  ...........  ...........        8,192
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We assume that minimally a plan would need a unit of two software 
developers, two programmers, two physicians and two pharmacists. The 
total cost per day for this minimal unit is $8,192. The needs for each 
of these occupations should be clear: Programmers to write the code and 
software developers for business requirements. Both physicians and 
pharmacists would be needed to identify clinically equivalent drugs. 
The use of ``two'' is simply a minimum number. We again emphasize that 
this minimal unit is a factor not a statement of actual need. The 
following examples of impacts of scenarios are illustrative:
     If we assume a year of work we would need $2.1 million (52 
weeks * 5 days a week * $8,192 cost per day = $2.1 million).
     If we further assume that four of each occupation is 
needed we would double this (2 (twice as many staff) * 52 weeks * 5 
days a week * $8,192 cost per day) = 2 * $2.1 million = $4.2 million).
     If we assume only 6 months are needed then half would be 
needed ($1.05 million or $2.1 million/2).
    Similarly, maintenance costs could be obtained by multiplying 
number of days needed for maintenance by daily costs. For example if a 
week each month is needed, maintenance costs would be $0.7 million 
($8192 * 12 months * 5 days). If more or less are needed then the 
maintenance numbers would go up or down.
     Transaction costs: We obtained information from only one 
stakeholder who advised us of a three cent cost per transaction if the 
volume of requests exceeds 100,000 per month. Since CMS internal data 
shows 1.5 billion prescription drug events per year, we estimate a $45 
million maximum cost (0.03 cost per transaction * 1.5 billion PDE). It 
follows that transaction cost can be prohibitive. We solicit comments, 
particularly from stakeholders already using some form of RTBT on the 
number of PDE involved as well as their experience with cost per 
transaction.
    We are soliciting input from stakeholders on the following 
questions in order to inform the impact analysis and to help us develop 
an estimate of the impacts of this proposal across plans:
     How many plans are already doing RTBT?
     What were the costs?
     Are there further costs in going from a trial run to a 
full run if that is applicable?

[[Page 62187]]

     Are the cost estimates for creating software realistic and 
consistent with plan experience?
     Are plans using intermediaries to provide this service?
     What are the costs for high volume usage?
     What training is provided to prescribers when RTBT is 
implemented, and how much does that training cost?
     Are providers actively using the RTBT software? What 
specific provider patterns of usage of RTBT are relevant to this 
proposal.
     What will the extra cost be to imposing this requirement 
and then implementing the NCPDP standard?
     Was there a change in prescribing patterns once RTBT was 
implemented? Did it lead to reduce spending on drugs?
    We are also interested in comments that would help us to understand 
whether the potential benefits or cost savings associated with this 
proposal outweigh the potential costs of this proposal.
4. Part D Explanation of Benefits (Sec.  423.128)
    In the Collection of Information portion of this document we have 
detailed the $0.2 million cost to Part D sponsors to update their EOB 
templates. Additionally, CMS Central Office staff will have to develop 
the model language to be used by the Part D sponsors.
    Significant effort goes into developing a model, including 
developing instructions and obtaining clearance. We therefore estimate 
that it would take two GS-13-Step 5 employees a month, each working a 
half a day, or 160 hours (2 employees * 4 hours a day * 5 days a week * 
4 weeks) to develop the templates. It would additionally take a 
supervisory GS-15 staff, five hours to give approval.
    Wages for 2018 for CMS staff may be obtained from the OPM website 
at https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2018/DCB_h.pdf. We estimate a total burden of $17,583 
(160 hours * $52.66/hr for GS-13, Step 5 staff * 2 (for overtime and 
fringe benefits) + 5 hours * $73.20/hr for GS-15, Step 5 staff * 2 (for 
overtime and fringe benefits)).
5. Medicare Advantage and Step Therapy for Part B Drugs (Sec. Sec.  
422.136, 422.568, 422.570, 422.572, 422.584, 422.590, 422.618, and 
422.619)
    Step therapy is a type of utilization management (for example, 
prior authorization) for drugs that begin medication for a medical 
condition with the most preferred drug therapy and progress to other 
therapies only if necessary, promoting more cost effective therapies, 
potentially better clinical decisions, and lower costs for treatment. 
The lower costs of treatment primarily benefit MA enrollees and plans 
and are transferred to the government as savings.
    A further source of savings is negotiations. If a plan offers all 
drugs, then it typically will purchase drugs at market price. There 
could be a pair of drugs that have the same effect on a medical 
condition but differ significantly in price and the plan is allowed to 
use step therapy. This creates an incentive for drug manufacturers to 
lower further the cost of the less expensive drug of the drug pair and 
then incentivize drug manufacturers to negotiate with MA plans so that 
their drugs become the drug selected by the plan as the first step in a 
therapy.
    However, it is difficult to numerically estimate the savings from 
increased negotiations because, unlike other impact events, 
negotiations vary. Furthermore, we do not have access to negotiation 
data as this is proprietary information between MA plans and 
manufacturers and is not submitted in the MA bid. For these two reasons 
(lack of data and volatility) we are leaving the negotiation of 
increased savings as a qualitative, rather than a quantitative event. 
We believe that the potential savings from negotiations is significant, 
but have no way of quantifying the effect.
    We note that although we are not estimating the savings from front-
end negotiations, we do estimate the savings from back-end 
negotiations, more specifically, from the rebates manufacturers give 
plans with favorable drug management practices. Such rebates also occur 
on the Part D side and we have the data to estimate their effect. This 
is done in this section of this proposed rule when discussing the 
impact on the Medicare Trust Fund and beneficiary cost sharing due to 
step therapy.
    Despite the rationale just stated, there are various studies 
suggesting that step therapy may be costly either economically or 
health-wise. There are two primary reasons for this.\19\
---------------------------------------------------------------------------

    \19\ Article 1: Patrick P Gleason, PharmD, FCCP, BCPS, 
``Assessing Step Therapy Programs: A step in the right direction,'' 
Journal of Managed Care Pharmacy,13(3), 2007. Article 2: Adams AS, 
Zhang F, LeCates RF, et al. Prior authorization for antidepressants 
in Medicaid: Effects among disabled dual enrollees. Arch Intern Med. 
2009; 169(8):750-756. Article 3: Zhang Y, Adams AS, Ross-Degnan D, 
Zhang F, Soumerai SB. Effects of prior authorization on medication 
discontinuation among Medicaid beneficiaries with bipolar disorder. 
Psychiatr Serv. 2009;60(4):520-527.
---------------------------------------------------------------------------

     Discontinuation: Several studies show that enrollees 
become discouraged when step therapy is used. This is called 
discontinuation. Discontinuation means a portion of members with a 
claim rejection at the point of service go on to not have claims in 
that class of medications. In other words, an unwanted effect of step 
therapy is ``giving up'' and not seeking medical treatment. One article 
cites eight studies, four with data, each showing a discontinuation 
rate of about 10 percent. There are several studies of 
discontinuation.\21\ While discontinuation produces savings, it does so 
at the expense of enrollee health, an undesirable consequence. On the 
other hand, higher drug costs might lead to a reduction in medication 
adherence. The studies cited do not account for this side-effect and 
other risk-risk tradeoffs.
     Effects of delay: The idea of step therapy is that if the 
initial drug ``fails first'' then a provider will prescribe the drug 
they may have originally wanted to prescribe. But then there is a delay 
in the patient receiving this drug. That delay may cause a worsening of 
conditions leading to increased medical costs. Several studies show 
this. For example, a study comparing spending in Georgia's Medicaid 
program found that while there were savings in the cost of medications 
when step therapy was used, the program spent more money on outpatient 
services because less-effective medications often led to higher health 
costs later.\20\ Similar studies have been done on--(1) Maine Medicaid 
residents; \21\ and (2) on people with cardiovascular disease.\22\ One 
state enacted legislation to protect people from certain harms of step 
therapy.\23\
---------------------------------------------------------------------------

    \20\ Retrospective assessment of Medicaid step therapy prior 
authorization antipsychotic medications. Clin Ther. 2008; 
30(8):1524-39; discussion 1506-7. doi: 10.1016/
j.clinthera.2008.08.009.
    \21\ Step therapy in Maine's Medicaid program was linked with 
higher risks of hospitalization. See Soumerai et al., ``Use of 
atypical antipsychotic drugs for schizophrenia in Maine Medicaid 
following a policy change''. Health Aff (Millwood). 2008; 27(3): 
W185-95. DOI: 10.1377/hlthaff.27.3.w185.
    \22\ The National Center for Biotechnology Information at NIH 
published a study showing that people with cardiovascular conditions 
who had restrictive prescription drug access had a statistically 
significant increase in hospital visits. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2496984/.
    \23\ Iowa passed a rule restricting the use of Step Therapy in 
Medicaid after patients encountered medical complications such as 
stomach ulcers and increased pain in cases where past efforts to 
find more cost-effective drugs or to try lower priced drugs were not 
considered by the plans. See https://www.thegazette.com/subject/news/health/iowa-bill-would-allow-exemptions-from-fail-first-insurance-drug-practices-20170318. In the absence of safeguards, 
such as requiring consideration of what works for patients, a 
grandfathering policy on existing therapies is advisable.

---------------------------------------------------------------------------

[[Page 62188]]

    Summary: Step therapy can result in both savings and costs. While 
at the time of initiation of the step therapy there is initial savings, 
this savings may end up costing more in the aggregate because of 
worsening conditions and increased medical costs. Furthermore, some of 
the savings arises from negotiations which are difficult to quantify. 
We can estimate the effect on the Medicare Trust Fund and on enrollee 
cost sharing.
    The estimate of the impact on the Medicare Trust Fund includes the 
effects of--(1) back-end negotiations, rebates from manufacturers to 
plans; (2) less expensive biological products approved under section 
351(k) of the Public Health Service Act (e.g., biosimilars); and (3) 
the choice of less expensive drugs with therapeutically equivalent 
effect. However, we do not discuss other quantitative effects of step 
therapy. The articles cited previously lay out many pros and cons of 
step therapy as well as the need for more studies to ascertain the true 
impact of step therapy.
    CMS acknowledges that step therapy is a widely accepted tool for 
utilization management. Sixty percent of commercial insurers were using 
step therapy in 2010; in 2014, 75 percent of large employers offered 
enrollees plans with step therapy. Furthermore, the concerns expressed 
in this RIA section are not unique to Federal insurance programs such 
as Medicare Parts C and D. Eighteen states have enacted laws on the use 
of step therapy.\24\ These laws vary widely and typically provide 
protections to beneficiaries against the misuse of step therapy.
---------------------------------------------------------------------------

    \24\ https://www.aad.org/advocacy/state-policy/step-therapy-legislation.

                                                      Table 6--Estimated Savings to Medicare Trust Fund and Beneficaries From Step Therapy
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                      Adjustment
                                                                           Part B  Rx                Adjustment                             Savings to                   for
                                                                            allowed     Number of    for  plans    Assumed    Backing out    Medicare       Cost      enrollees     Savings to
                            Year                              Enrollment   pmpm with    months per      for         rebate     of Part B      Trust       sharing        for       beneficiaries
                                                             (thousands)   growth by       year       proposed    percentage  premium (%)   Funds \1\    percentage    proposed       \2\ (in
                                                                            medical                     step                                   (in                       step        millions)
                                                                           inflation                therapy (%)                             millions)                therapy (%)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     (A)          (B)          (C)          (D)          (E)          (F)          (G)          (H)          (I)             (J)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2020.......................................................       23,181       $58.72           12          1.6           66           86         $145           13          0.2              $5
2021.......................................................       24,062        60.21           12          1.6           66           86          154           13          0.2               5
2022.......................................................       24,972        61.73           12          1.6           66           86          164           13          0.2               5
2023.......................................................       25,858        63.30           12          1.6           66           86          174           13          0.2               6
2024.......................................................       26,708        64.90           12          1.6           66           86          185           13          0.2               6
2025.......................................................       27,549        66.55           12          1.6           66           86          195           13          0.2               6
2026.......................................................       28,375        68.23           12          1.6           67           85          207           13          0.2               7
2027.......................................................       29,161        69.96           12          1.6           67           85          218           13          0.2               7
2028.......................................................       29,913        71.74           12          1.6           67           85          229           13          0.2               7
2029.......................................................       30,590        73.55           12          1.6           67           85          240           13          0.2               8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ (G) = (A) * (B) * (C) * (D) * (E) * (F).
\2\ (J) = (A) * (B) * (C) * (H) * (I).

    This provision will allow MA plans to use this utilization 
management tool for Part B drugs and examine the most effective ways to 
use step therapy to achieve savings while also ensuring access to 
medically necessary treatment options.
    In the remainder of this section we estimate the impact on the 
Medicare Trust Fund and enrollee cost sharing. We now explain the 
calculations which are summarized in Table 6.
    We obtain projected MA enrollment from the 2018 Medicare Trust Fund 
report. This is presented in Column (A) of Table 6.
     2016 is the most recent year for which we have Part B drug 
spending and utilization from the CMS data systems. Column (B) presents 
the average amount that MA enrollees pay per month on Part B drugs. 
This amount is trended (from 2016) to reflect medical inflation (5.2 
percent a year) with ordinary inflation (2.6 percent) carved out. The 
inflation factors are obtained from the Medicare Trust Fund report. The 
product of MA enrollment and average Part B spending per month provides 
the aggregate MA Part B spending per month.
     The Part B spending per month is multiplied by 12 (Column 
(C)) to obtain the aggregate spending on Part B drugs annually.
     We estimate that, because of this step therapy provision, 
plans will save 1.6 percent (Column (D)) on the aggregate annual cost 
of Part B drugs. There are several points about this 1.6 percent. 
First, it represents the effect of the proposed provision (proposed 
Sec.  422.136) in this proposed rule. An HPMS memo was issued by CMS 
rescinding an earlier memo prohibiting step therapy. This proposal 
surpasses this memo and it is the effects of this provision that the 
1.6 percent captures. The 1.6 percent represents three factors 
contributing to savings from Step Therapy:
     Drugs for which there will be a less expensive biological 
product approved under section 351(k) of the Public Health Service Act 
in 2020.
     Pairs of drugs which are clinically comparable but differ 
significantly in price. For example, Avastin[supreg], Eylea[supreg], 
and Lucentis[supreg] for the treatment of macular degeneration.
     Drugs for which the manufacturer gives a rebate to MA 
plans with favorable management patterns. This happens in drugs with 
sufficient competition, particularly in the treatment of rheumatoid 
arthritis. Using our experience on manufacturers providing rebates on 
Part D drugs, we are able to estimate the savings effects of similar 
rebates on Part B drugs. As mentioned previously, this corresponds to a 
savings in step-therapy from back-end negotiations.
     The multiplication of enrollment, average Part B cost per 
member per month, number of months per year and 1.6 percent represents 
the total dollar savings from this provision.
     We use this total dollar savings to estimate separately 
savings to the Medicare Trust Fund and savings to enrollees in cost 
sharing.
     To obtain savings to the Medicare Trust Fund we multiply 
the aggregate savings from step therapy by the average rebate 
percentage and the average backing out of part B premium

[[Page 62189]]

representing the expected percentage reduction to Part B premium 
arising from savings. These percentages are found in columns (E) and 
(F). The numbers in these columns are obtained by trending our 
experience with plan submitted bids over the next ten years. Column 
(G), the product of all previous columns, represents the dollar savings 
to the Medicare Trust Fund.
     To obtain savings to beneficiaries, we used the 2019 
projected bid data submitted by MA plans to CMS in June 2018. These 
data show that on average 13 cents of every dollar paying for Part B 
drugs goes to cost sharing. We obtained this number by dividing the 
cost sharing for Part B drugs by the total cost of Part B drugs. This 
percentage is found in Column (H).
     We next have to adjust the savings due to step therapy. 
Recall that column (D) indicates that step therapy will save 1.6 
percent, the 1.6 percent arising from three factors listed previously. 
Of those three factors, enrollees do not benefit from manufacturer 
rebates. To illustrate this, consider a $20 drug for which the 
beneficiary pays a 20 percent copay ($4). At the end of the year, 
manufacturers and pharmacists give a rebate to plans that have used 
their products. Let us suppose (for purposes of illustration) that the 
rebate is $3. Theoretically the enrollee should get 60 cents of this $3 
(20 percent copay * $3). However, the enrollee does not get a portion 
of the rebate. We estimate that 1.6 percent savings has a 1.4 percent 
component from manufacturer rebates and a 0.2 percent rebate from the 
other factors listed previously. It follows that for the enrollee, the 
savings from step therapy are 0.2 percent, not 1.6 percent. This is 
listed in column (I).
     To obtain aggregate annual beneficiary savings we multiply 
MA enrollment (column (A)), average cost of prescription drugs per 
month (column (B)), number of months per year (column (C)) and the 0.2 
percent, the savings to enrollees from this step therapy provision 
(Column (I)). This gives the total dollar savings, of which enrollees 
pay 13 percent (column (H)). The result is presented in column (J).
    The results of our calculations are summarized for 2020-2029 in 
Columns (G) and (J) of Table 6. The savings to enrollees are between $5 
and $8 million; the savings to the Medicare Trust Fund are between $145 
and $240 million.
    These projected dollar savings to the Medicare Trust Fund are 
classified as transfers because the money on brand drugs would instead 
be spent on generic drugs. While brand drugs are more expensive, the 
primary driver of this expense is the research and development (R&D) 
that went into them, and for drugs that are already on the market R&D 
has already been done and would not change. In other words, although 
this proposed regulatory provision would reduce the return on drug 
development because enrollees who are expected to purchase the brand 
and thus pay for the initial R&D would instead purchase generics, this 
reduced return would be experienced after the initial R&D has been 
completed; consequently, any immediate reduction in R&D services would 
not impact the availability of new drugs until later. There would be 
also no reduction in production of drugs, since generic manufacturers 
would produce the drugs consumed by enrollees rather than brand 
manufacturers. However, the cost to the enrollee and the Medicare Trust 
Fund would be significantly less because the enrollee and Trust Fund 
would no longer pay for the initial R&D. In conclusion, this provision 
would not reduce activities of production but rather transfers the 
performance of those services from brand manufacturers to generic 
manufacturers; however, as a consequence, the enrollees and Trust Fund 
would experience reduced dollars spent.
    The allowance of step therapy could result in a higher appeal rate. 
We estimate the aggregate increase in cost in 2016 due to expected 
increased appeals as $0.8 million. Details are presented in Table 7. 
The following narrative explains this table.

                      Table 7--Estimated Increase in Appeals All Levels Due to Step Therapy
----------------------------------------------------------------------------------------------------------------
                                                    Estimated
                                  Total number      number of
                                  of appeals in      appeals        Hours per     Hourly wages      Total Cost
                                      2016       involving Step      appeal       of physicians
                                                     Therapy
                                 ..............             (1)             (2)             (3)  (1) x (2) x (3)
----------------------------------------------------------------------------------------------------------------
Reconsiderations...............         328,857            3913             0.8         $203.26         $636,350
IRE............................          58,023             690             0.8          203.26          112,277
Administrative Law Judge (ALJ).           3,481              41             0.8          203.26            6,737
                                --------------------------------------------------------------------------------
    Estimated Cost for 2016....  ..............  ..............  ..............  ..............          755,363
----------------------------------------------------------------------------------------------------------------

    Data for appeals are plan reported. It typically takes 2 years for 
CMS to validate these data. Hence the latest year for which we have 
complete data is 2016. Appeals can happen at various levels. The first 
level is reconsiderations where an appeal is made for a plan to 
reconsider a decision. If this is denied it goes on to the IRE (a CMS 
contractor) to be reviewed. If this is also denied it can be appealed 
to an administrative law judge (ALJ) if the amount in controversy is 
met.
    For 2016, we have 328,857 and 58,023 reconsiderations and IRE cases 
respectively in the MA program. We estimate that in general 6 percent 
of cases reaching the IRE go on to an ALJ.
    Based on data pulled from the Medicare Appeals System for part D 
appeals, 1.19 percent of plan level appeals involving step therapy were 
denied. We use this as a proxy for the percent of cases involving part 
B drugs subject to step therapy that we expect to be appealed since we 
have no other basis. We believe it is reasonable to consider Part D 
appeals data related to cases that involve drugs subject to step 
therapy in developing these estimates. We also use the 1.19 percent as 
a proxy for the percent of reconsiderations and ALJ cases that involve 
step therapy. We acknowledge that percentages might be different at 
different appeal levels but the 1.19 percent is the only proportion we 
have.
    Having derived the expected number of appeals involving step 
therapy we note that section 1852(g)(2) requires a reconsideration by a 
MA plan to deny coverage on the basis of medical necessity to be 
reviewed by a physician with the appropriate expertise; CMS has adopted 
a MA regulation (Sec.  422.566(d)) that implements this requirement for 
denials based on medical necessity determinations. We believe it is

[[Page 62190]]

reasonable to assume that a decision to deny coverage for a drug 
subject to step therapy will typically involve a medical determination 
regarding the enrollee's ability to take the drug required in the step 
therapy criteria and whether the drug would be ineffective or cause 
adverse effects for the enrollee. A decision on a drug subject to step 
therapy is also likely to involve evaluation of a healthcare provider's 
assessment of medical necessity for the Part B drug; for example, the 
health care provider may indicate that the lower or earlier steps in 
the step therapy protocol are not clinically appropriate for that 
enrollee (such as in cases of allergy or a prior unsuccessful use of 
the preferred drug). Therefore, this estimate accounts for physician 
review of reconsiderations. Based on the BLS website at https://www.bls.gov/oes/current/oes_nat.htm, the mean hourly wage of physicians 
is $203.26. Our contractor experience with appeals suggests that the 
average time to process an appeal is 48 minutes, or, 0.8 hour.
    Multiplying the number of appeals * 0.8 hour per appeal * $203.26 
cost per hour we arrive at total cost for each appeal level. Adding 
these together we obtain the $0.8 million estimate, based on 2016 data.
    Factors that enter into appeal rates include enrollment rates and 
changes in plan benefit packages. Appeal rates change from year to 
year. One major factor in appeal rates is enrollment. If enrollment 
increases by 10 or 20 percent then it is very reasonable that the 
number of appeals will approximately increase by that amount.
    Thus to obtain estimates of cost for 2018 we would multiply the 
$0.8 million by the ratio of enrollment in 2018 to 2016. Similarly to 
obtain estimates for 2020-2024 we multiply by ratios of enrollment.
    The ratio of 2018 to 2016 is 1.1585 based on enrollment figures 
from the CMS website. Projected enrollment for 2020-2029 may be 
obtained from Table IV.C1 in the 2018 Trustee report. Using these 
numbers we obtain the estimated cost of increased appeals for 2020-
2029, presented in Table 8, as $1.0-$1.3 million.

                                             Table 8--Expected Increase in Appeal Costs Due to Step Therapy
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        Year                            2020      2021      2022      2023      2024      2025      2026      2027      2028      2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cost of appeals (in millions).......................      1.0       1.0       1.0       1.1       1.1       1.1       1.2       1.2       1.2       1.3
--------------------------------------------------------------------------------------------------------------------------------------------------------

6. Pharmacy Price Concessions in the Negotiated Price (Sec.  423.100)
    In this rule, we include an extensive discussion of the 
consideration of a new definition of ``negotiated price'' that includes 
all pharmacy price concessions received by the plan sponsor for a 
covered Part D drug, and reflects the lowest possible reimbursement a 
network pharmacy will receive, in total, for a particular drug. As we 
are not proposing to move forward with such a policy for 2020, there is 
no impact in this regard. As moving forward with the policy is an 
alternative that is under consideration, we provide and seek comment on 
the following regulatory impact analysis.
    As part of the approach being considered, we would first delete the 
current definition of ``negotiated prices'' (in the plural) and add a 
definition of ``negotiated price'' (in the singular) to make clear that 
a negotiated price can be set for each covered Part D drug, and the 
amount of the pharmacy price concessions may differ on a drug by drug 
basis. Then, we would implement a definition of ``negotiated price'' 
that is intended to ensure that the prices available to Part D 
enrollees at the point of sale are inclusive of all pharmacy price 
concessions. We believe such an approach would be more reflective of 
current pharmacy payment arrangements.
    We note Part D sponsors and their contracted PBMs have been 
increasingly successful in recent years at negotiating price 
concessions from network pharmacies. Performance-based pharmacy price 
concessions, net of all pharmacy incentive payments, increased, on 
average, nearly 225 percent per year between 2012 and 2017 and now 
comprise the second largest category of DIR received by sponsors and 
PBMs, behind only manufacturer rebates.
    Pharmacy price concessions are negotiated between pharmacies and 
sponsors or their PBMs, independent of CMS, and are often tied to the 
pharmacy's performance on various measures defined by the sponsor or 
its PBM. Under the current definition of ``negotiated prices'' at Sec.  
423.100, negotiated prices must include all price concessions from 
network pharmacies except those that cannot reasonably be determined at 
the point of sale. However, because these performance adjustments 
typically occur after the point of sale, they are not included in the 
price of a drug at the point of sale.
    We further understand, through comments received from the pharmacy 
industry in response to our Request for Information on pharmacy price 
concessions (included in the November 2017 proposed rule (82 FR 56419 
through 56428) and evaluation of the DIR data submitted by Part D 
sponsors, that the share of pharmacies' reimbursements that are 
contingent upon their performance under such arrangements has grown 
steadily each year. As a result, sponsors and PBMs have been recouping 
increasing sums from network pharmacies after the point of sale 
(pharmacy price concessions) for ``poor performance,'' sums that, in 
some instances, are far greater than those paid to network pharmacies 
after the point of sale (pharmacy incentive payments) for ``high 
performance.''
    When pharmacy price concessions are not reflected in the price of a 
drug at the point of sale, beneficiaries might see lower premiums, but 
the following negative effects occur:
     Beneficiary Cost-Sharing: Beneficiaries do not benefit 
from pharmacy price concessions through a reduction in the amount they 
must pay in cost-sharing, and thus, end up paying a larger share of the 
actual cost of a drug.
     Transparency: When the point-of-sale price of a drug that 
a Part D sponsor reports on a PDE record as the negotiated price does 
not include pharmacy price concessions, the negotiated price is 
rendered less transparent at the individual prescription level and less 
representative of the actual cost of the drug for the sponsor.
     Competition: Variation in the treatment of these price 
concessions by Part D sponsors may have a negative effect on the 
competitive balance under the Medicare Part D program.
    For this reason, as part of the November 2017 proposed rule, we 
published a ``Request for Information Regarding the Application of 
Manufacturer Rebates and Pharmacy Price Concessions to Drug Prices at 
the Point of Sale,'' (82 FR 56419 through 56428). The majority of 
commenters, representing pharmacies, pharmacy associations, and 
beneficiary advocacy groups, supported the adoption of a requirement 
that pharmacy price

[[Page 62191]]

concessions be applied at the point of sale because it would--
     Lower beneficiary out-of-pocket costs (especially critical 
for beneficiaries who utilize high cost drugs);
     Stabilize the operating environment for pharmacies 
(because of greater transparency and predictability of the minimum 
reimbursement on a per-claim level, thus allowing more accurate 
budgeting and improved ability to evaluate proposed contracts from 
PBMs); and
     Standardize the way in which plan sponsors and their PBMs 
treat pharmacy price concessions.
    The proposal would have several impacts on a variety of 
stakeholders:
    I. Impacts on prescription drug costs for beneficiaries and 
manufacturers.
    II. One time administrative costs for Part D sponsors.
    These impacts are summarized in the following tables and further 
discussed in narratives. These tables reflect two possible approaches 
to this concession provision:
     All-Phase Assumption: Assume the application of pharmacy 
price concessions to the point-of-sale occurs at all phases of the Part 
D Benefit including the gap.
     Gap-Excluded Assumption: Assume the application of 
pharmacy price concessions to the point-of-sale occurs at all phases of 
the Part D benefit except the when the purchasing enrollee is in the 
gap.
     Tables 9 and 10 summarize impacts on prescription drug 
costs for beneficiaries, Part D sponsors and manufacturers, under the 
all-phase assumption.
     Table 11 summarizes one-time administrative costs for Part 
D sponsors. This is independent of which approach is taken.
    Table 10 summarizes the ten-year impacts we have modeled for 
requiring that sponsors move all pharmacy price concessions to the 
point of sale in all phases of the Part D benefit, including the 
coverage gap. Table 10 reflects ten year raw sums of the figures in 
Table 9. For example, the second row of Table 10 lists a $14.8 billion 
savings to beneficiaries. The row header references row (I) in Table 9. 
The sum of the numbers in row (I) of Table 9, is in fact $14.8 (0.8 + 
0. 9 + . . . + 2.3 = 14.8). Throughout this narrative, the quantitative 
aspects of the discussion may be found in the corresponding labeled 
rows of Table 10. There are several key assumptions involved in the 
development of these estimates, particularly the expected growth of 
pharmacy price concessions in future years. Actual pharmacy price 
concessions have increased from $229 million in 2013 to $4 billion in 
2017. The use of preferred pharmacy networks is now widespread, with 
over 85% of standalone prescription drug plans using a preferred 
network in 2017. Because the rate of growth has been volatile in recent 
years, and because so many plan sponsors have incorporated preferred 
networks into their plan design, we estimate that the growth rate for 
pharmacy price concessions will slow in future years. Our best estimate 
is that the average growth of pharmacy price concessions will be 
approximately 10% per year going forward. This still represents a 
significant increase in the price concessions as a percentage of gross 
drug cost, from 2.6% in 2017 to 3.5% in 2029, and is a reasonable 
estimate in our judgment. We note that this assumption has a high 
degree of uncertainty given the changes in price concessions over the 
past five years. If the actual growth rate emerges differently, it 
could materially change the results in tables 9, 10, 12, 13, and 14.
    Under the policy to require the negotiated price reflect the lowest 
possible amount the pharmacy could receive for a covered Part D drug, 
beneficiaries would see lower prices at the point of sale at the 
pharmacy and on Plan Finder, beginning immediately in the year the 
policy takes effect. (This is summarized in Table 10 in the row 
``beneficiary costs'' which reflects the sum of the rows ``cost 
sharing'' and ``premiums''; these three rows correspond, as indicated 
in Table 10, to sums of rows K, I, and J, respectively in Table 9.) 
Lower point-of-sale prices would result directly in lower cost-sharing 
for non-low income beneficiaries. For low income beneficiaries, whose 
out-of-pocket costs are subsidized through Medicare's low-income cost-
sharing subsidy, cost-sharing savings resulting from lower point-of-
sale prices would accrue to the government. Plan premiums would likely 
increase as a result of the change to the definition of negotiated 
prices being considered--if all pharmacy price concessions are required 
to be passed through to beneficiaries at the point of sale, fewer such 
concessions could be apportioned to reduce plan liability in the bid, 
which would have the effect of increasing the cost of coverage under 
the plan. At the same time, the reduction in cost-sharing obligations 
for the average beneficiary would be large enough to lower their 
overall out-of-pocket costs. The increasing cost of coverage under Part 
D plans as a result of requiring pharmacy price concessions to be 
applied at the point of sale would likely have a more significant 
impact on government costs, which would increase overall due to the 
significant growth in Medicare's direct subsidies of plan premiums and 
low income premium subsidies.
    The increase in direct subsidy and low-income premium subsidy costs 
for the government are partially offset by decreases in Medicare's 
reinsurance and low income cost-sharing subsidies. Decreases in 
Medicare's reinsurance subsidy result when lower negotiated prices slow 
down the progression of beneficiaries through the Part D benefit and 
into the catastrophic phase, and when the government's reinsurance 
payments, which reflect 80 percent of allowable drug costs incurred in 
the catastrophic phase less a share of the overall price concessions 
received by the plan sponsor, are based on lower negotiated prices. 
Similarly, low income cost-sharing subsidies would decrease as 
beneficiary cost-sharing obligations decline due to the reduction in 
prices at the point of sale. Finally, the slower progression of 
beneficiaries through the Part D benefit would also have the effect of 
reducing manufacturer coverage gap discount payments as fewer 
beneficiaries would enter the coverage gap phase or progress entirely 
through it.

         Table 9--Impact (Billions) of Requiring Application of Pharmacy Price Concessions at Point of Sale Includes Application to Coverage Gap
--------------------------------------------------------------------------------------------------------------------------------------------------------
           Label                    Item/year           2020      2021      2022      2023      2024      2025      2026      2027      2028      2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
(A).......................  Gross Drug Cost (GDCC)..     (5.7)     (6.4)     (7.1)     (7.8)     (8.6)     (9.3)    (10.2)    (11.1)    (12.2)    (13.2)
(B).......................  Drug cost covered by         (4.1)     (4.5)     (4.9)     (5.4)     (5.8)     (6.2)     (6.8)     (7.4)     (8.0)     (8.6)
                             plan (Supplemental and
                             non-Part D) CCP.
(C).......................  OOP including GAP            (1.6)     (1.9)     (2.1)     (2.4)     (2.7)     (3.0)     (3.4)     (3.8)     (4.2)     (4.6)
                             Discount.
(D).......................  General Premium Subsidy.       1.9       2.2       2.4       2.7       3.0       3.2       3.6       3.9       4.3       4.6
(E).......................  Reinsurance.............     (0.6)     (0.6)     (0.7)     (0.7)     (0.7)     (0.8)     (0.8)     (0.8)     (0.9)     (0.9)
(F).......................  LIS Cost-Sharing Subsidy     (0.5)     (0.6)     (0.6)     (0.7)     (0.8)     (0.9)     (1.1)     (1.2)     (1.3)     (1.4)

[[Page 62192]]

 
(G).......................  LIS Premium Subsidy.....       0.1       0.1       0.1       0.1       0.1       0.2       0.2       0.2       0.2       0.2
(H).......................  Total Government........       0.9       1.1       1.2       1.4       1.5       1.7       1.9       2.1       2.3       2.5
(I).......................  Cost sharing enrollees..     (0.8)     (0.9)     (1.1)     (1.2)     (1.4)     (1.5)     (1.7)     (1.9)     (2.1)     (2.3)
(J).......................  Premiums from Enrollees.       0.3       0.4       0.4       0.5       0.5       0.6       0.6       0.7       0.8       0.9
(K).......................  Total Enrollee Costs....     (0.5)     (0.6)     (0.7)     (0.7)     (0.8)     (0.9)     (1.0)     (1.2)     (1.3)     (1.4)
(L).......................  Total Benefits..........       1.2       1.4       1.6       1.8       2.1       2.3       2.5       2.8       3.1       3.3
(M).......................  Gap Discount............     (0.4)     (0.4)     (0.4)     (0.5)     (0.5)     (0.6)     (0.6)     (0.7)     (0.8)     (0.8)
--------------------------------------------------------------------------------------------------------------------------------------------------------


                 Table 10--Total Impacts for 2020 Through 2029 With Application in Coverage Gap
----------------------------------------------------------------------------------------------------------------
                                                                                    Average per
                                                                       Total       member-- per   Percent change
                                                                    (billions)         year
----------------------------------------------------------------------------------------------------------------
Beneficiary Costs (G6: (K)).....................................          ($9.2)        ($16.52)             (1)
    Cost Sharing (G6: (I))......................................          (14.8)         (26.69)             (3)
    Premium (G6: (J))...........................................             5.6           10.16               2
Government Costs................................................            16.6           29.95               1
    Direct Subsidy (G6: (D))....................................            31.8           57.71              14
    Reinsurance (G6: (E)).......................................           (7.6)         (13.94)             (1)
    LI Cost-Sharing Subsidy (G6: (F))...........................           (9.2)         (16.54)             (2)
    LI Premium Subsidy (G6: (G))................................             1.5            2.73               2
Manufacturer Gap Discount (G6: (M)).............................           (5.8)         (10.50)             (3)
----------------------------------------------------------------------------------------------------------------

    One primary purpose or effect of performance-based pharmacy payment 
arrangements, according to Part D sponsors responding to our Request 
for Information, is to encourage generic substitutions for brand drugs. 
For example, a pharmacy may claim that its staff informs patients when 
a generic alternative is available for their prescription, and that 
they may have lower costs for the generic version. The pharmacy is 
willing to structure its payments contingent on meeting a generic 
dispensing rate through these interventions. Such substitutions, 
although saving money to enrollees and plan sponsors, are a transfer 
primarily between the manufacturers of brand drugs and the 
manufacturers of generic drugs.
    These projected dollar savings to the Medicare Trust Fund are 
classified as transfers because the money on brand drugs would instead 
be spent on generic drugs. While brand drugs are more expensive, the 
primary driver of this expense is the research and development (R&D) 
that went into them, and for drugs that are already on the market R&D 
has already been done and would not change. In other words, although 
this proposed regulatory provision would reduce the return on drug 
development because enrollees who are expected to purchase the brand 
and thus pay for the initial R&D would instead purchase generics, this 
reduced return would be experienced after the initial R&D has been 
completed; consequently, any immediate reduction in R&D services would 
not impact the availability of new drugs until later. There would be 
also no reduction in production of drugs, since generic manufacturers 
would produce the drugs consumed by enrollees rather than brand 
manufacturers. However, the cost to the enrollee and the Medicare Trust 
Fund would be significantly less because the enrollee and Trust Fund 
would no longer pay for the initial R&D. In conclusion, this provision 
would not reduce activities of production but rather transfers the 
performance of those services from brand manufacturers to generic 
manufacturers; however, as a consequence, the enrollees and Trust Fund 
would experience reduced dollars spent.

II. One-Time Administrative Costs for Part D Sponsors

    We anticipate that this potential policy change would require Part 
D sponsors to make certain system changes related to the calculation of 
the amounts they report in one or two fields in the PDE data collection 
form. We anticipate that this would cause sponsors to incur one-time 
administrative costs.
    Please note that the impact amounts for this policy are consistent 
with the feedback received through the Request for Information 
Regarding the Application of Manufacturer Rebates and Pharmacy Price 
Concessions to Drug Prices at the Point of Sale in the Medicare Program 
that was included in the proposed rule, entitled ``Contract Year 2019 
Policy and Technical Changes to the Medicare Advantage, Medicare Cost 
Plan, Medicare Fee-for-Service, the Medicare Prescription Drug Benefit 
Programs, and the Pace Program'' (82 FR 56419).
    To estimate the administrative costs associated with submission of 
PDE data, we consider the following factors: (1) The amount of data 
that must be submitted; (2) the number of plan sponsors (or sponsors' 
intermediaries) submitting data; and (3) the time required to complete 
the data processing and transmission transactions.
    PDE Data Submission: The amount of data that must be submitted is a 
function of the number of prescription drug events per beneficiary and 
the number of data elements per event (57). Based on 3 years of 
enrollment data (2014, 2015, and 2016), CMS estimates that an annual 
average of 38,009,579 Medicare beneficiaries are enrolled in Part D 
prescription drug plans. The average number of PDEs per year is 
1,409,828,464 (based on 2013, 2014, and 2015). To compute the average 
number of PDEs per beneficiary, we divide the average number of PDEs 
per year by the average number of beneficiaries enrolled per year. This 
computation leads to an average of 37 PDEs per beneficiary per year.
    Number of Part D Contracts (Respondents): The average number of 
Part D contracts per year is 779 (based on 2014, 2015, and 2016 data).
    Time Required to Process Data: The third factor that contributes to 
the burden estimate for submitting PDE data depends upon the time and 
effort necessary to complete data transaction

[[Page 62193]]

activities. Since our regulations require Part D sponsors to submit PDE 
data to CMS that can be linked at the individual level to Part A and 
Part B data in a form and manner similar to the process provided under 
Sec.  422.310 (Part C), the data transaction timeframes will be based 
on risk adjustment (Part C) and prescription drug industry experiences. 
Moreover, our PDE data submission format will only support electronic 
formats. The drug industry's estimated average processing time for 
electronic data submission is 1 hour for 500,000 records. The average 
number of PDE records per year is 1,409,828,464. Therefore, the 
estimated total annual processing time for all PDE records is 2,820 
hours. The estimated average annual electronic processing time cost per 
hour is $17.75. The estimated total cost related to PDE processing is 
therefore $50,055 (2,820 * $17.75). There are on average 38,009,579 
beneficiaries enrolled in Part D, which means that the average cost of 
PDE processing per beneficiary is $0.0013 (that is, $50,055/
38,009,579). The average number of Part D beneficiaries enrolled in a 
Part D contract is 48,793. The average annual cost to respondents for 
each Part D contract is therefore $63.43 (that is, $0.0013 * 48,793). 
We believe the additional effort needed to make the system changes 
necessitated by the amendment to the definition of negotiated prices 
being considered will cause a one-time increase in the administrative 
costs related to submission of PDE data. Therefore, we have doubled the 
cost per hour to $35.50 for contract year 2020. The estimated average 
cost related to PDE processing for contract year 2020 only is $126.86, 
which represents a one-time increase of $63.43 per sponsor. We estimate 
that the amendment to the definition of negotiated prices being 
considered will cause the administrative costs related to submission of 
PDE data for all Part D sponsors to be $100,110 for contract year 2020 
only, which is an increase of $50,055 over the estimated administrative 
costs related to submission of PDE data reporting in the absence of the 
amendment being considered.
    The estimated annual administrative costs related to submission of 
PDE data are shown in Table 11, along with the 1-year cost estimate for 
contract year 2020.

    Table 11--Estimated Administrative Costs Related to Submission of
                   Prescription Drug Event (PDE) Data
------------------------------------------------------------------------
                                                            Notes
------------------------------------------------------------------------
A. Number of Respondents....  779.................  779 is the annual
                                                     average number of
                                                     Part D contracts
                                                     from 2013, 2014,
                                                     and 2015.
B. Number of Medicare         38,009,579..........  Average number of
 Beneficiaries Enrolled in                           Medicare
 Part D per Year.                                    beneficiaries
                                                     enrolled in Part D.
C. Average Number of Part D   48,793..............  (B) divided by (A).
 Beneficiaries per Contract.
D. Average Number of PDEs     1,409,828,464.......  The average is based
 per Year.                                           on annual average
                                                     PDEs from 2013 to
                                                     2015.
E. Frequency of Response....  37 PDEs/per           Average PDEs per
                               beneficiary per       beneficiary per
                               year.                 year.
F. Number of Transactions     500,000.............  Drug industry's
 per Hour.                                           estimated average
                                                     processing volume
                                                     per hour.
G. Total Annual Transaction   2,820...............  (D) divided by (F).
 Hours.
H. Average Electronic Cost    Annual: $17.75......  Based on $17.75 per
 per Hour.                    ....................   hour, the risk
                              ....................   adjustment
                              Contract Year 2020:    estimated average
                               $35.50.               annual electronic
                                                     processing cost per
                                                     hour.
                                                    Doubled in 2020 to
                                                     reflect increased
                                                     effort associated
                                                     with implementing
                                                     system changes.
I. Cost of Annual             Annual: $50,055.....  (H) multiplied by
 Transaction Hours.                                  (G).
                              Contract Year 2020:
                               $100,110.
J. Average Cost per Part D    Annual: $0.0013.....  (I) Divided by (B).
 Beneficiary.
                              Contract Year 2020:
                               $0.0026.
K. Annual Cost to             Annual: $63.43......  (J) multiplied by
 Respondents.                                        (C).
                              Contract Year 2019:
                               $126.86.
------------------------------------------------------------------------

    The discussion earlier in section C.6 of this regulatory impact 
analysis assumes cost based on the application of the new definition of 
``negotiated price'' being considered to determine the price at the 
point of sale both outside the coverage gap and in it (that is, during 
all phases of the Part D benefit). For purposes of comparison, to allow 
for equal consideration of both options, we also provide a cost 
analysis of the provision based on the application of the new 
definition of ``negotiated price'' being considered to determine the 
price at the point of sale only outside the coverage gap. The 10-year 
impact is summarized in Table 12, which reflects raw sums of the 
figures in the corresponding rows in Table 13. The construction of and 
labels in Tables 12 and 13 are identical to those in Tables 9 and 10; 
therefore the explanatory narrative provided for Tables 9 and 10 in 
Section C.6 of this proposed rule, applies to Tables 12 and 13 and need 
not be repeated here.

                Table 12--Total Impacts for 2020 Through 2029 Without Application in Coverage Gap
----------------------------------------------------------------------------------------------------------------
                                                                                    Average per
                                                                       Total       member-- per   Percent change
                                                                    (billions)         year             (%)
----------------------------------------------------------------------------------------------------------------
Beneficiary Costs (G8: (K)).....................................          ($7.1)        ($12.80)             (1)
    Cost Sharing (G8: (I))......................................          (11.8)         (21.22)             (2)
    Premium (G8: (J))...........................................             4.7            8.42               2
Government Costs................................................            13.6           24.58               1

[[Page 62194]]

 
    Direct Subsidy (G8: (D))....................................            25.8           46.72              12
    Reinsurance (G8: (E)).......................................           (5.7)         (10.55)             (1)
    LI Cost-Sharing Subsidy (G8: (F))...........................           (7.7)         (13.85)             (2)
    LI Premium Subsidy (G8: (G))................................             1.3            2.26               2
Manufacturer Gap Discount (G8: (M)).............................           (4.9)          (8.80)             (2)
----------------------------------------------------------------------------------------------------------------


                                                      Table 13--Impact (Billions) From Concessions
                                                        [Assumes no application in coverage gap]
--------------------------------------------------------------------------------------------------------------------------------------------------------
           Label                    Item/year           2020      2021      2022      2023      2024      2025      2026      2027      2028      2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
(A).......................  Gross Drug Cost (GDCC)..     (4.7)     (5.3)     (5.9)     (6.5)     (7.2)     (7.8)     (8.6)     (9.4)    (10.3)    (11.1)
(B).......................  Drug cost covered by         (3.5)     (3.8)     (4.2)     (4.5)     (4.9)     (5.3)     (5.8)     (6.2)     (6.8)     (7.3)
                             plan (Supplemental and
                             non-Part D) CCP.
(C).......................  OOP including GAP            (1.2)     (1.5)     (1.7)     (2.0)     (2.2)     (2.5)     (2.8)     (3.1)     (3.5)     (3.8)
                             Discount.
(D).......................  General Premium Subsidy.       1.5       1.8       2.0       2.2       2.4       2.6       2.9       3.2       3.5       3.8
(E).......................  Reinsurance.............     (0.5)     (0.5)     (0.5)     (0.5)     (0.6)     (0.6)     (0.6)     (0.6)     (0.6)     (0.7)
(F).......................  LIS Cost-Sharing Subsidy     (0.4)     (0.4)     (0.5)     (0.6)     (0.7)     (0.8)     (0.9)     (1.0)     (1.1)     (1.2)
(G).......................  LIS Premium Subsidy.....       0.1       0.1       0.1       0.1       0.1       0.1       0.1       0.2       0.2       0.2
(H).......................  Total Government........       0.7       0.9       1.0       1.1       1.3       1.4       1.5       1.7       1.9       2.1
(I).......................  Cost sharing enrollees..     (0.6)     (0.7)     (0.8)     (0.9)     (1.1)     (1.2)     (1.4)     (1.5)     (1.7)     (1.9)
(J).......................  Premiums from Enrollees.       0.2       0.3       0.3       0.4       0.4       0.5       0.5       0.6       0.7       0.7
(K).......................  Total Enrollee Costs....     (0.3)     (0.4)     (0.5)     (0.6)     (0.6)     (0.7)     (0.8)     (0.9)     (1.0)     (1.1)
(L).......................  Total Benefits..........       1.0       1.2       1.3       1.5       1.7       1.9       2.1       2.3       2.6       2.8
(M).......................  Gap Discount............     (0.3)     (0.3)     (0.4)     (0.4)     (0.5)     (0.5)     (0.5)     (0.6)     (0.7)     (0.7)
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Moreover, while not accounted for when modeling the impacts in 
Section C, we believe that requiring pharmacy price concessions to be 
included in the negotiated price, as we consider, would also lead to 
prices and Part D bids and premiums being more accurately comparable 
and reflective of relative plan efficiencies, with no unfair 
competitive advantage accruing to one sponsor over another based on a 
technical difference in how costs are reported. We believe this outcome 
could make the Part D market more competitive and efficient.

D. Expected Benefits

    Any relevant expected benefits for enrollees, stakeholders, and the 
government have been fully discussed in section IV.C. of this proposed 
rule.

E. Alternatives Considered

1. Providing Plan Flexibility To Manage Protected Classes (Sec.  
423.120(b)(2)(vi))
    Previous proposals to address the protected classes were aimed at 
changing both the protected classes and exceptions to the requirement 
that formularies include all drugs in the protected class. However, we 
remain concerned that previous criteria, as established either by 
statute under the MIPPA authority, or by CMS under the Patient 
Protection and Affordable Care Act authority, did not strike the 
appropriate balance among enrollee access, quality assurance, cost-
containment, and patient welfare that we were striving to achieve. 
Consequently, we elected not to propose any changes to the drug 
categories or classes that are the protected classes. As a result, the 
critical policy decision was how broadly or narrowly to establish 
exceptions to the requirement that all protected class drugs be 
included on the formulary. Overly broad exceptions might 
inappropriately limit the products within the protected classes, 
thereby creating access issues for Part D enrollees. Only narrow 
exceptions afford enrollee protections such as adequate access and 
improved quality assurance while also providing an incentive for 
manufacturers to aggressively rebate their products for formulary 
placement in an operationally feasible manner for Part D sponsors.
6. E-Prescribing and the Part D Prescription Drug Program; Updating 
Part D E-Prescribing Standards (Sec.  423.160)
    We propose to require that each Part D plan select a real time 
benefit tool (RTBT) of its choosing by January 1, 2020. We had 
considered delaying regulatory action around real time requirements 
until the industry has developed a real time standard that could be 
used by all Part D plans. However, we believe that the benefits that 
would come with a real time standard in the form of cost transparency 
are substantial and should not be further delayed. We also considered 
requiring that plans use the optional fields in the NCPDP Formulary and 
Benefit standards (F&B) to provide much of the cost data that we 
believe would be important for prescribers to know. However, by 
definition, the F&B standards are batch standards so that the 
information provided is, by definition, not contemporaneous and are not 
specific to each beneficiary. For these reasons we opted in favor of 
proposing RTBT rather than proposing to require that plans use enhanced 
F&B standards.
4. Medicare Advantage and Step Therapy for Part B Drugs (Sec. Sec.  
422.136, 422.568, 422.570, 422.572, 422.584, 422.590, 422.618, and 
422.619)
    This rule proposes requirements under which MA plans may apply step 
therapy as a utilization management tool for Part B drugs. In this 
proposal, we confirm authority for MA plans to implement appropriate 
utilization management and prior authorization tools for managing Part 
B drugs and propose parameters on using step therapy to ensure it is 
implemented in a manner to reduce costs for both enrollees and the 
Medicare program. Our proposal includes specific parameters for how 
step therapy may be implemented for Part B drugs, including requiring 
approval from P&T Committee that meets specific standards and 
permitting step therapy only for new administrations of the drug 
(subject to a 108 look-back period). We also proposed new appeal 
timeframes and deadlines for MA plans to adjudicate

[[Page 62195]]

and respond to requests concerning Part B drug coverage. An additional 
alternative considered during development of the proposed regulation 
was allowing step therapy for ongoing prescriptions or administrations 
of Part B drugs for enrollees who are actively receiving the affected 
medication at the time the step therapy program is adopted. MA plans 
may be able to provide better oversight for step therapy programs that 
do not distinguish new prescriptions from enrollees who are actively 
receiving the affected medication and allowing plans to utilize step 
therapy for all Part B drugs might result in more cost savings for 
enrollees and Medicare. However, allowing MA plans to implement step 
therapy on ongoing prescriptions and administrations would require the 
development of a transition process for affected enrollees. The 
estimated costs of developing a transition process, including 
notification to enrollees with appropriate notice regarding their 
transition process and providing a temporary supply of affected drugs 
likely outweighs any savings. Moreover, CMS recognizes the significance 
of many Part B drug regimens (for example, cancer treatments) and is 
working to ensure enrollees will not encounter unnecessary barriers to 
medically necessary drugs or have disruptions in care. Therefore, under 
Sec.  422.136(a)(1) of the proposed rule, new step therapy programs 
would not be permitted to disrupt enrollees' ongoing Part B drug 
therapies. We are proposing that step therapy only be applied to new 
prescriptions or administrations of Part B drugs for enrollees who are 
not actively receiving the affected medication. MA plans would be 
required to have a look back period of 108 days, consistent with 
current policy in Part D, to determine if the enrollee is actively 
taking a Part B medication. Further, when an enrollee elects a new 
plan, the plan would still be required to determine whether the 
enrollee has taken the Part B drug (that would otherwise be subject to 
step therapy) within the past 108 days. If the enrollee is actively 
taking the Part B drug, such enrollee would be exempted from the plan's 
step therapy requirement concerning that drug.
5. Pharmacy Price Concessions in the Negotiated Price (Sec.  423.100)
    The critical policy decision was how to adapt the existing 
negotiated price reporting standards to best account for current 
pharmacy payment practices and achieve transparency and consistency in 
how pharmacy price concessions and drug costs are reported and treated. 
Several alternative approaches were considered.
     The current regulatory structure implements the statute 
accurately and could have been maintained, but does not account for the 
performance-contingent pharmacy payment adjustments that dominate 
today.
     Another option would be to require Part D sponsors to 
adjust negotiated prices in the current period using pharmacy payment 
adjustments determined for prior periods, which would not allow for 
price transparency in the current period and could drive beneficiaries 
away from high performing pharmacies, for which the negotiated prices 
would include incentive payments and, thus, be higher than for poor 
performing pharmacies.
     An additional option we considered was to require Part D 
sponsors to include in the negotiated price an approximation of the 
pharmacy payment adjustments that would apply. However, this approach 
would have no effect on differential reporting among Part D sponsors 
given that the accuracy of the approximations would likely vary by Part 
D sponsor, and it would not allow for greater price transparency if the 
approximations are inaccurate. This option would also drive 
beneficiaries away from high performing pharmacies for which the 
negotiated prices would be higher than for poor performing pharmacies.
     Finally, we considered an option to develop a standard set 
of metrics from which plans and pharmacies would base their contractual 
agreements. We request commenter feedback on whether these metrics 
could be designed to provide pharmacies with more predictability in 
their reimbursements while maintaining plan's ability to negotiate 
terms. Additionally, we seek comment on the most appropriate agency or 
organization to develop these standards, or whether this a matter 
better left to private negotiations.
    In summary, the revision to the definition of negotiated price we 
are considering would create uniform, easily interpreted standards for 
negotiated price reporting that would support consistent implementation 
by all Part D sponsors and, thus, impose the least amount of burden on 
Part D sponsors and their intermediaries.

F. Accounting Statement and Table

    The following table summarizes costs, savings, and transfers by 
provision.
    As required by OMB Circular A-4 (available at https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/), in Table 14, we 
have prepared an accounting statement showing the savings and transfers 
associated with the provisions of this proposed rule for contract years 
2020 through 2029. Table 14 is based on Table G15 which lists savings, 
costs, and transfers by provision.

                               Table 14--Accounting Statement--Classifications of Estimated Savings, Costs, and Transfers
                                                           [Negative numbers indicate savings]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Savings
                                         ---------------------------------------------------------------------
From calendar years  2020 to 2024  ($ in           Discount rate                                                    Whom is spending or transferring
                millions)                --------------------------------            Period covered
                                                7%              3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Annualized Monetized Savings........            1.13            1.13  CYs 2020-2029                        Federal government, MA organizations and
                                                                                                                Part D Sponsors, Pharmacy Benefit
                                                                                                                Managers, Pharmacies.
Annualized Monetized Savings............  ..............  ..............  CYs 2020-2029                        Pharmacies.
Annualized Monetized Cost...............            1.13            1.13  CYs 2020-2029                        MA Organizations, Part D Sponsors,
                                                                                                                Contractors for the Federal Government.
Transfers...............................        (437.83)        (445.55)  CYs 2020-2029                        Federal government, MA organizations and
                                                                                                                Part D Sponsors, Pharmacy Benefit
                                                                                                                Managers, Pharmacies, Beneficiaries.
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 62196]]

    The following Table 15 summarizes savings, costs, and transfers by 
provision and formed a basis for the accounting table. For reasons of 
space, Table 15 is broken into Table 15A (2020 through 2024) and Table 
15B (2025 through 2029), In these tables savings are indicated as 
negative numbers in columns marked savings while costs are indicated as 
positive numbers in columns marked costs. Transfers may be negative or 
positive with negative numbers indicating savings to the Medicare Trust 
Fund and positive numbers indicating costs to the Medicare Trust Fund. 
All numbers are in millions. The row ``aggregate total by year'' gives 
the total of costs and savings for that year but does not include 
transfers. Table 15 forms the basis for Table 14 and for the 
calculation to the infinite horizon discounted to 2016, mentioned in 
the conclusion.

                                                       Table 15A--Aggregate Savings, Costs, and Transfers in Million by Provision and Year
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        2020     2020     2020      2021     2021     2021      2022     2022     2022      2023     2023     2023      2024     2024     2024
                                                       Savings   Cost  Transfers   Savings   Cost  Transfers   Savings   Cost  Transfers   Savings   Cost  Transfers   Savings   Cost  Transfers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Savings.......................................  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........
Total Costs.........................................  ........   1.20  .........  ........   1.00  .........  ........   1.00  .........  ........   1.10  .........  ........   1.10  .........
Aggregate Total.....................................  ........   1.20  .........  ........   1.00  .........  ........   1.00  .........  ........   1.10  .........  ........   1.10  .........
Total Transfers.....................................  ........  .....   (342.00)  ........  .....   (366.07)  ........  .....   (388.54)  ........  .....   (413.36)  ........  .....   (438.48)
Protected Classes, Government.......................  ........  .....   (141.00)  ........  .....   (151.07)  ........  .....   (160.54)  ........  .....   (170.36)  ........  .....   (180.48)
Protected Classes, Enrollees........................  ........  .....    (51.00)  ........  .....    (56.00)  ........  .....    (59.00)  ........  .....    (63.00)  ........  .....    (67.00)
Gag Clauses.........................................  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........
E-Prescribing.......................................  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........
Part D EOB..........................................  ........   0.20  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........
Step Therapy, Government............................  ........  .....   (145.00)  ........  .....   (154.00)  ........  .....   (164.00)  ........  .....   (174.00)  ........  .....   (185.00)
Step Therapy Cost Sharing...........................  ........  .....     (5.00)  ........  .....     (5.00)  ........  .....     (5.00)  ........  .....     (6.00)  ........  .....     (6.00)
Step Therapy Appeals................................  ........   1.00  .........  ........   1.00  .........  ........   1.00  .........  ........   1.10  .........  ........   1.10  .........
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                       Table 15B--Aggregate Savings, Costs, and Transfers in Million by Provision and Year
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                        Raw 10
                                            2025     2025     2025      2026     2026     2026      2027     2027     2027      2028     2028     2028      2029     2029     2029       year
                                           Savings   Cost  Transfers   Savings   Cost  Transfers   Savings   Cost  Transfers   Savings   Cost  Transfers   Savings   Cost  Transfers    totals
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Savings...........................  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ..........
Total Costs.............................  ........   1.10  .........  ........   1.20  .........  ........   1.20  .........  ........   1.20  .........  ........   1.30  .........       10.20
Aggregate Total.........................  ........   1.10  .........  ........   1.20  .........  ........   1.20  .........  ........   1.20  .........  ........   1.30  .........       10.20
Total Transfers.........................  ........  .....   (459.22)  ........  .....   (487.89)  ........  .....   (512.89)  ........  .....   (539.88)  ........  .....   (567.77)  (4,516.11)
Protected Classes, Government...........  ........  .....   (188.22)  ........  .....   (198.89)  ........  .....   (208.89)  ........  .....   (219.88)  ........  .....   (231.77)  (1,851.11)
Protected Classes, Enrollees............  ........  .....    (70.00)  ........  .....    (75.00)  ........  .....    (79.00)  ........  .....    (84.00)  ........  .....    (88.00)    (692.00)
Gag Clauses.............................  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ..........
E-Prescribing...........................  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ..........
Part D EOB..............................  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........  ........  .....  .........        0.20
Step Therapy, Government................  ........  .....   (195.00)  ........  .....   (207.00)  ........  .....   (218.00)  ........  .....   (229.00)  ........  .....   (240.00)  (1,911.00)
Step Therapy Cost Sharing...............  ........  .....     (6.00)  ........  .....     (7.00)  ........  .....     (7.00)  ........  .....     (7.00)  ........  .....     (8.00)     (62.00)
Step Therapy Appeals....................  ........   1.10  .........  ........   1.20  .........  ........   1.20  .........  ........   1.20  .........  ........   1.30  .........       11.20
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

G. Conclusion

    As indicated in Table 14, we estimate that this proposed rule 
generates for each year in 2020-2029, net annualized costs of 
approximately $1.1 million primarily to entities involved with the Part 
D appeal process, such as Part D sponsors, the appeals contractor, and 
administrative law judges. The annualized $1.1 million cost primarily 
reflects increased appeals arising from the Step Therapy provision. 
There are additional (minor) first year costs in 2020 to (i) 
contractors for the Federal Government who will respond to requests for 
claims data, and (ii) to CMS staff for updating templates with the Part 
D EOB. The aggregate raw cost is $10.2 million from 2020-2029.
    Although other impacts in this rule are classified as transfers as 
discussed in each provision, the aggregate effect of these transfers 
reduce dollar spending by Medicare Advantage enrollees and the Medicare 
Trust Fund:
     Enrollees: Enrollees are estimated to reduce their 
spending on cost sharing by $754 million over 10 years ($62 million and 
$692 million arising from reduced cost sharing from Step Therapy and 
Protected Classes respectively).
     Government: The Medicare Trust Fund in aggregate reduces 
their dollar spending by $3.8 billion over 10 years (the Trust Fund 
reduces its dollar spending by $1.85 billion, and $1.91 billion arising 
from the Protected Class and Step Therapy provisions, respectively).

H. Reducing Regulation and Controlling Regulatory Costs

    The Department believes that this proposed rule, if finalized as 
proposed, is considered a regulatory action under Executive Order 
13771. The Department estimates that this rule generates $0.9 million 
in annualized cost at a 7-percent discount rate, discounted relative to 
2016, over a perpetual time horizon. Notably, however, this estimate 
does not include impacts related to the RTBT proposal. If this proposal 
were finalized, the related costs or cost savings (on which we seek 
comment below) would also be considered under Executive Order 13771.

List of Subjects

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, and Reporting and 
recordkeeping requirements.

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

PART 422--MEDICARE ADVANTAGE PROGRAM

0
1. The authority citation for part 422 is revised to read as follows:

    Authority: 42 U.S.C. 1302 and 1395hh.


[[Page 62197]]


0
2. Section 422.2 is amended by adding a definition for ``Step Therapy'' 
in alphabetical order to read as follows:


Sec.  422.2   Definitions.

* * * * *
    Step Therapy means a utilization management policy for coverage of 
drugs that begins medication for a medical condition with the most 
preferred or cost effective drug therapy and progresses to other drug 
therapies if medically necessary.
0
3. Section 422.136 is added to subpart C to read as follows:


Sec.  422.136  Medicare Advantage and Step Therapy for Part B drugs.

    (a) General. If an MA plan implements a step therapy program to 
control the utilization of Part B-covered drugs, the MA organization 
must--
    (1) Apply step therapy only to new administrations of Part B drugs, 
using at least a 108 day look-back period;
    (2) Establish policies and procedures to educate and inform health 
care providers and enrollees concerning its step therapy policies.
    (3) Prior to implementation of a step therapy program, ensure that 
the step therapy program has been reviewed and approved by the MA 
organization's pharmacy and therapeutic (P&T) committee.
    (b) Step therapy and pharmacy and therapeutic committee 
requirements. An MA plan must establish a P&T committee prior to 
implementing any step therapy program. An MA plan must use a P&T 
committee to review and approve step therapy programs used in 
connection with Part B drugs. To meet this requirement, a MA-PD plan 
may utilize an existing Part D P&T committees established for purposes 
of administration of the Part D benefit under part 423 of this chapter 
and an MA plan may utilize an existing Part D P&T committee established 
by an MA-PD plan operated under the same contract as the MA plan. The 
P&T committee must--
    (1) Include a majority of members who are practicing physicians or 
practicing pharmacists.
    (2) Include at least one practicing physician and at least one 
practicing pharmacist who are independent and free of conflict relative 
to--
    (i) The MA organization and MA plan; and
    (ii) Pharmaceutical manufacturers.
    (3) Include at least one practicing physician and one practicing 
pharmacist who are experts regarding care of elderly or disabled 
individuals.
    (4) Clearly articulate and document processes to determine that the 
requirements under paragraphs (b)(1) through (3) of this section have 
been met, including the determination by an objective party of whether 
disclosed financial interests are conflicts of interest and the 
management of any recusals due to such conflicts.
    (5) Base clinical decisions on the strength of scientific evidence 
and standards of practice, including assessing peer-reviewed medical 
literature, pharmacoeconomic studies, outcomes research data, and other 
such information as it determines appropriate.
    (6) Consider whether the inclusion of a particular Part B drug in a 
utilization management program, such as step therapy, has any 
therapeutic advantages in terms of safety and efficacy.
    (7) Review policies that guide exceptions and other utilization 
management processes, including drug utilization review, quantity 
limits, generic substitution, and therapeutic interchange.
    (8) Evaluate and analyze treatment protocols and procedures related 
to the plan's step therapy policies at least annually consistent with 
written policy guidelines and other CMS instructions.
    (9) Document in writing its decisions regarding the development and 
revision and utilization management activities and make this 
documentation available to CMS upon request.
    (10) Review and approve all clinical prior authorization criteria, 
step therapy protocols, and quantity limit restrictions applied to each 
covered Part B drug.
    (11) Meet other requirements consistent with written policy 
guidelines and other CMS instructions.
    (c) Off-label drug requirement. An MA plan may include a drug 
supported only by an off-label indication in step therapy protocols 
only if the off-label indication is supported by widely used treatment 
guidelines or clinical literature that CMS considers to represent best 
practices.
    (d) Non-covered drugs. A step therapy program must not include as a 
component of a step therapy protocol or other condition or requirement 
any drugs not a covered by the applicable MA plan as a Part B drug or, 
in the case of an MA-PD plan, a Part D drug.
0
4. Section 422.568 is amended by revising paragraphs (b), (d), (e) 
introductory text, and (e)(4)(i) to read as follows:


Sec.  422.568   Standard timeframes and notice requirements for 
organization determinations.

* * * * *
    (b) Timeframes--(1) Requests for service or item. Except as 
provided in paragraph (b)(1)(i) of this section, when a party has made 
a request for a service or an item, the MA organization must notify the 
enrollee of its determination as expeditiously as the enrollee's health 
condition requires, but no later than 14 calendar days after the date 
the organization receives the request for a standard organization 
determination.
    (i) Extensions; requests for service or item. The MA organization 
may extend the timeframe by up to 14 calendar days if--
    (A) The enrollee requests the extension;
    (B) The extension is justified and in the enrollee's interest due 
to the need for additional medical evidence from a noncontract provider 
that may change an MA organization's decision to deny an item or 
service; or
    (C) The extension is justified due to extraordinary, exigent, or 
other non-routine circumstances and is in the enrollee's interest.
    (ii) Notice of extension. When the MA organization extends the 
timeframe, it must notify the enrollee in writing of the reasons for 
the delay, and inform the enrollee of the right to file an expedited 
grievance if he or she disagrees with the MA organization's decision to 
grant an extension. The MA organization must notify the enrollee of its 
determination as expeditiously as the enrollee's health condition 
requires, but no later than upon expiration of the extension.
    (2) Requests for a Part B drug. An MA organization must notify the 
enrollee (and the prescribing physician or other prescriber involved, 
as appropriate) of its determination as expeditiously as the enrollee's 
health condition requires, but no later than 72 hours after receipt of 
the request. This 72 hour period may not be extended under the 
provisions in paragraph (b)(1)(i) of this section.
* * * * *
    (d) Written notice for MA organization denials. The MA organization 
must give the enrollee a written notice if--
    (1) An MA organization decides to deny a service or an item, Part B 
drug, or payment in whole or in part, or reduce or prematurely 
discontinue the level of care for a previously authorized ongoing 
course of treatment.
    (2) An enrollee requests an MA organization to provide an 
explanation of a practitioner's denial of an item, service or Part B 
drug, in whole or in part.
    (e) Form and content of the MA organization notice. The notice of 
any denial under paragraph (d) of this section must--
* * * * *
    (4)(i) For service, item, and Part B drug denials, describe both 
the standard

[[Page 62198]]

and expedited reconsideration processes, including the enrollee's right 
to, and conditions for, obtaining an expedited reconsideration and the 
rest of the appeal process; and
* * * * *
0
5. Section 422.570 is amended by revising paragraph (d)(1) to read as 
follows:


Sec.  422.570  Expediting certain organization determinations.

* * * * *
    (d) * * *
    (1) Automatically transfer a request to the standard timeframe and 
make the determination within the 72 hour or 14-day timeframe, as 
applicable, established in Sec.  422.568 for a standard determination. 
The timeframe begins when the MA organization receives the request for 
expedited determination.
* * * * *
0
6. Section 422.572 is amended by revising paragraph (a), the paragraph 
(b) subject heading, and paragraph (b)(1) to read as follows:


Sec.  422.572  Timeframes and notice requirements for expedited 
organization determinations.

    (a) Timeframes--(1) Requests for service or item. Except as 
provided in paragraph (b) of this section, an MA organization that 
approves a request for expedited determination must make its 
determination and notify the enrollee (and the physician involved, as 
appropriate) of its decision, whether adverse or favorable, as 
expeditiously as the enrollee's health condition requires, but no later 
than 72 hours after receiving the request.
    (2) Requests for a Part B drug. An MA organization that approves a 
request for expedited determination must make its determination and 
notify the enrollee (and the physician or prescriber involved, as 
appropriate) of its decision as expeditiously as the enrollee's health 
condition requires, but no later than 24 hours after receiving the 
request. This 24 hour period may not be extended under the provisions 
in paragraph (b) of this section.
    (b) Extensions; requests for service or item. (1) The MA 
organization may extend the 72-hour deadline for expedited organization 
determinations for requests for services or items by up to 14 calendar 
days if--
    (i) The enrollee requests the extension;
    (ii) The extension is justified and in the enrollee's interest due 
to the need for additional medical evidence from a noncontract provider 
that may change an MA organization's decision to deny an item or 
service; or
    (iii) The extension is justified due to extraordinary, exigent, or 
other nonroutine circumstances and is in the enrollee's interest.
* * * * *
0
7. Section 422.584 is amended by revising paragraph (d)(1) to read as 
follows:


Sec.  422.584   Expediting certain reconsiderations.

* * * * *
    (d) * * *
    (1) Automatically transfer a request to the standard timeframe and 
make the determination within the 30 calendar day or 7 calendar day, as 
applicable, timeframe established in Sec.  422.590(a) and (c). The 
timeframe begins the day the MA organization receives the request for 
expedited reconsideration.
* * * * *
0
8. Section 422.590 is revised to read as follows:


Sec.  422.590   Timeframes and responsibility for reconsiderations.

    (a) Standard reconsideration: Requests for service or item. (1) 
Except as provided in paragraph (f) of this section, if the MA 
organization makes a reconsidered determination that is completely 
favorable to the enrollee, the MA organization must issue the 
determination (and effectuate it in accordance with Sec.  422.618(a)) 
as expeditiously as the enrollee's health condition requires, but no 
later than 30 calendar days from the date it receives the request for a 
standard reconsideration.
    (2) If the MA organization makes a reconsidered determination that 
affirms, in whole or in part, its adverse organization determination, 
it must prepare a written explanation and send the case file to the 
independent entity contracted by CMS as expeditiously as the enrollee's 
health condition requires, but no later than 30 calendar days from the 
date it receives the request for a standard reconsideration (or no 
later than the expiration of an extension described in paragraph (a)(1) 
of this section). The organization must make reasonable and diligent 
efforts to assist in gathering and forwarding information to the 
independent entity.
    (b) Standard reconsideration: Requests for payment. (1) If the MA 
organization makes a reconsidered determination that is completely 
favorable to the enrollee, the MA organization must issue its 
reconsidered determination to the enrollee (and effectuate it in 
accordance with Sec.  422.618(a)(1)) no later than 60 calendar days 
from the date it receives the request for a standard reconsideration.
    (2) If the MA organization affirms, in whole or in part, its 
adverse organization determination, it must prepare a written 
explanation and send the case file to the independent entity contracted 
by CMS no later than 60 calendar days from the date it receives the 
request for a standard reconsideration. The organization must make 
reasonable and diligent efforts to assist in gathering and forwarding 
information to the independent entity.
    (c) Standard reconsideration: Requests for a Part B drug. (1) If 
the MA organization makes a reconsidered determination that is 
completely favorable to the enrollee, the MA organization must issue 
the determination (and effectuate it in accordance with Sec.  
422.618(a)(3)) as expeditiously as the enrollee's health condition 
requires, but no later than 7 calendar days from the date it receives 
the request for a standard reconsideration. This 7 calendar day period 
may not be extended under the provisions in paragraph (f) of this 
section.
    (2) If the MA organization makes a reconsidered determination that 
affirms, in whole or in part, its adverse organization determination, 
it must prepare a written explanation and send the case file to the 
independent entity contracted with CMS no later than 7 calendar days 
from the date it receives the request for a standard reconsideration. 
The organization must make reasonable and diligent efforts to assist in 
gathering and forwarding the information to the independent entity.
    (d) Effect of failure to meet timeframe for standard 
reconsideration. If the MA organization fails to provide the enrollee 
with a reconsidered determination within the timeframes specified in 
paragraph (a), (b), or (c) of this section, this failure constitutes an 
affirmation of its adverse organization determination, and the MA 
organization must submit the file to the independent entity in the same 
manner as described under paragraphs (a)(2), (b)(2), and (c)(2) of this 
section.
    (e) Expedited reconsideration--(1) Timeframe for services or items. 
Except as provided in paragraph (f) of this section, an MA organization 
that approves a request for expedited reconsideration must complete its 
reconsideration and give the enrollee (and the physician involved, as 
appropriate) notice of its decision as expeditiously as the enrollee's 
health condition requires but no later than 72 hours after receiving 
the request.

[[Page 62199]]

    (2) Timeframe for Part B drugs. An MA organization that approves a 
request for expedited reconsideration must complete its reconsideration 
and give the enrollee (and the physician or other prescriber involved, 
as appropriate) notice of its decision as expeditiously as the 
enrollee's health condition requires but no later than 72 hours after 
receiving the request. This 72 hour period may not be extended under 
the provisions in paragraph (f) of this section.
    (3) Confirmation of oral notice. If the MA organization first 
notifies an enrollee of a completely favorable expedited 
reconsideration orally, it must mail written confirmation to the 
enrollee within 3 calendar days.
    (4) How the MA organization must request information from 
noncontract providers. If the MA organization must receive medical 
information from noncontract providers, the MA organization must 
request the necessary information from the noncontract provider within 
24 hours of the initial request for an expedited reconsideration. 
Noncontract providers must make reasonable and diligent efforts to 
expeditiously gather and forward all necessary information to assist 
the MA organization in meeting the required timeframe. Regardless of 
whether the MA organization must request information from noncontract 
providers, the MA organization is responsible for meeting the timeframe 
and notice requirements.
    (5) Affirmation of an adverse expedited organization determination. 
If, as a result of its reconsideration, the MA organization affirms, in 
whole or in part, its adverse expedited organization determination, the 
MA organization must submit a written explanation and the case file to 
the independent entity contracted by CMS as expeditiously as the 
enrollee's health condition requires, but not later than within 24 
hours of its affirmation. The organization must make reasonable and 
diligent efforts to assist in gathering and forwarding information to 
the independent entity.
    (f) Extensions; requests for service or item. (1) As described in 
paragraphs (f)(1)(i) through (iii) of this section, the MA organization 
may extend the standard or expedited reconsideration deadline for 
services by up to 14 calendar days if--
    (i) The enrollee requests the extension; or
    (ii) The extension is justified and in the enrollee's interest due 
to the need for additional medical evidence from a noncontract provider 
that may change an MA organization's decision to deny an item or 
service; or
    (iii) The extension is justified due to extraordinary, exigent or 
other non-routine circumstances and is in the enrollee's interest.
    (2) When the MA organization extends the deadline, it must notify 
the enrollee in writing of the reasons for the delay and inform the 
enrollee of the right to file an expedited grievance if he or she 
disagrees with the MA organization's decision to grant an extension. 
The MA organization must notify the enrollee of its determination as 
expeditiously as the enrollee's health condition requires, but no later 
than upon expiration of the extension.
    (g) Failure to meet timeframe for expedited reconsideration. 
Failure to meet timeframe for expedited reconsideration. If the MA 
organization fails to provide the enrollee with the results of its 
reconsideration within the timeframe described in paragraph (e)(1) or 
(2) of this section, as applicable, of this section, this failure 
constitutes an adverse reconsidered determination, and the MA 
organization must submit the file to the independent entity within 24 
hours of expiration of the timeframe set forth in paragraph (e)(1) or 
(2) of this section.
    (h) Who must reconsider an adverse organization determination. (1) 
A person or persons who were not involved in making the organization 
determination must conduct the reconsideration.
    (2) When the issue is the MA organization's denial of coverage 
based on a lack of medical necessity (or any substantively equivalent 
term used to describe the concept of medical necessity), the 
reconsidered determination must be made by a physician with expertise 
in the field of medicine that is appropriate for the services at issue. 
The physician making the reconsidered determination need not, in all 
cases, be of the same specialty or subspecialty as the treating 
physician.
0
9. Section 422.618 is amended by revising paragraph (a) and adding 
paragraph (b)(3) to read as follows:


Sec.  422.618   How an MA organization must effectuate standard 
reconsidered determinations or decisions.

    (a) Reversals by the MA organization--(1) Requests for service. If, 
on reconsideration of a request for service, the MA organization 
completely reverses its organization determination, the organization 
must authorize or provide the service under dispute as expeditiously as 
the enrollee's health condition requires, but no later than 30 calendar 
days after the date the MA organization receives the request for 
reconsideration (or no later than upon expiration of an extension 
described in Sec.  422.590(f)).
    (2) Requests for payment. If, on reconsideration of a request for 
payment, the MA organization completely reverses its organization 
determination, the organization must pay for the service no later than 
60 calendar days after the date the MA organization receives the 
request for reconsideration.
    (3) Requests for a Part B drug. If, on reconsideration of a request 
for a Part B drug, the MA organization completely reverses its 
organization determination, the MA organization must authorize or 
provide the Part B drug under dispute as expeditiously as the 
enrollee's health condition requires, but no later than 7 calendar days 
after the date the MA organization receives the request for 
reconsideration.
    (b) * * *
    (3) Requests for a Part B drug. If, on reconsideration of a request 
for a Part B drug, the MA organization's determination is reversed in 
whole or in part by the independent outside entity, the MA organization 
must authorize or provide the Part B drug under dispute within 72 hours 
from the date it receives notice reversing the determination. The MA 
organization must inform the independent outside entity that the 
organization has effectuated the decision.
* * * * *
0
10. Section 422.619 is amended by--
0
a. Revising paragraphs (a) and (b);
0
b. Redesignating paragraph (c)(2) as paragraph (c)(3); and
0
c. Adding a new paragraph (c)(2).
    The revisions and addition read as follows:


Sec.  422.619   How an MA organization must effectuate expedited 
reconsidered determinations.

    (a) Reversals by the MA organization--(1) Requests for service or 
item. If, on reconsideration of an expedited request for service, the 
MA organization completely reverses its organization determination, the 
MA organization must authorize or provide the service or item under 
dispute as expeditiously as the enrollee's health condition requires, 
but no later than 72 hours after the date the MA organization receives 
the request for reconsideration (or no later than upon expiration of an 
extension described in Sec.  422.590(f)).
    (2) Requests for a Part B drug. If, on reconsideration of a request 
for a Part B drug, the MA organization completely reverses its 
organization determination, the MA organization must authorize or 
provide the Part B drug under dispute

[[Page 62200]]

as expeditiously as the enrollee's health condition requires, but no 
later than 72 hours after the date the MA organization receives the 
request for reconsideration.
    (b) Reversals by the independent outside entity--(1) Requests for 
service or item. If the MA organization's determination is reversed in 
whole or in part by the independent outside entity, the MA organization 
must authorize or provide the service under dispute as expeditiously as 
the enrollee's health condition requires but no later than 72 hours 
from the date it receives notice reversing the determination. The MA 
organization must inform the independent outside entity that the 
organization has effectuated the decision.
    (2) Requests for a Part B drug. If, on reconsideration of a request 
for a Part B drug, the MA organization's determination is reversed in 
whole or in part by the independent outside entity, the MA organization 
must authorize or provide the Part B drug under dispute as 
expeditiously as the enrollee's health condition requires but no later 
than 24 hours from the date it receives notice reversing the 
determination. The MA organization must inform the outside entity that 
the organization has effectuated the decision.
    (c) * * *
    (2) Reversals of decisions related to Part B drugs. If the 
independent outside entity's determination is reversed in whole or in 
part by an ALJ/attorney adjudicator or at a higher level of appeal, the 
MA organization must authorize or provide the Part B drug under dispute 
as expeditiously as the enrollee's health condition requires but no 
later than 24 hours from the date it receives notice reversing the 
determination. The MA organization must inform the outside entity that 
the organization has effectuated the decision.
* * * * *

PART 423--MEDICARE PROGRAM; MEDICARE PRESCRIPTION DRUG PROGRAM

0
11. The authority citation for part 423 is revised to read as follows:

    Authority:  42 U.S.C. 1302, 1395w-101 through 1395w-152, and 
1395hh.

0
12. Section 423.100 is amended by adding a definition for ``Applicable 
period'' in alphabetical order to read as follows:


Sec.  423.100  Definitions.

* * * * *
    Applicable period means--
    (1) With respect to exceptions in accordance with Sec.  
423.120(b)(2)(vi)(E) for contract year 2020, September 1, 2018 through 
February 28, 2019; or
    (2) With respect to exceptions in accordance with Sec.  
423.120(b)(2)(vi)(E) for contract year 2021 and subsequent years, 
September 1 of the third year prior to the contract year in which the 
exception would apply, through August 31 of the second year prior to 
the contract year in which the exception would apply.
* * * * *
0
13. Section 423.120 is amended--
0
a. In paragraph (a)(8)(i) by removing ``and'' from the end;
0
b. In paragraph (a)(8)(ii) by removing the period and adding in its 
place ``; and'';
0
c. Adding paragraph (a)(8)(iii);
0
d. Revising paragraph (b)(2)(vi)(A);
0
e. Reassigning paragraph (b)(2)(vi)(C) as (b)(2)(vi)(F); and
0
f. Adding new paragraph (b)(2)(vi)(C) and paragraphs (b)(2)(vi)(D) and 
(E).
    The revision and additions read as follows:


Sec.  423.120  Access to covered Part D drugs.

    (a) * * *
    (8) * * *
    (iii) May not prohibit a pharmacy from, nor penalize a pharmacy 
for, informing a Part D plan enrollee of the availability at that 
pharmacy of a prescribed medication at a cash price that is below the 
amount that the enrollee would be charged to obtain the same medication 
through the enrollee's Part D plan.
* * * * *
    (b) * * *
    (2) * * *
    (vi) * * *
    (A) Drug or biological products that are rated as either of the 
following:
    (1) Therapeutically equivalent (under the Food and Drug 
Administration's most recent publication of ``Approved Drug Products 
with Therapeutic Equivalence Evaluations,'' also known as the Orange 
Book).
    (2) Interchangeable (under the Food and Drug Administration's most 
recent publication of the Purple Book: Lists of Licensed Biological 
Products with Reference Product Exclusivity and Biosimilarity or 
Interchangeability Evaluations).
* * * * *
    (C) Prior authorization and step therapy requirements that are 
implemented to confirm use is intended for a protected class 
indication, ensure clinically appropriate use, promote utilization of 
preferred formulary alternatives, or a combination thereof, subject to 
CMS review and approval.
    (D) In the case of a single-source drug or biological product for 
which the manufacturer introduces a new formulation with the same 
active ingredient or moiety that does not provide a unique route of 
administration.
    (E) A single-source drug or biological product, meaning a Part D 
drug that is approved under a new drug application submitted under 
section 505(b) of the Federal Food Drug and Cosmetic Act (FDCA); an 
authorized generic as defined under section 505(t)(3) of the FDCA; or 
in the case of a biological product, licensed under section 351 of the 
Public Health Service Act, that a Part D sponsor identifies, for which 
the wholesale acquisition cost between the baseline date and any point 
in the applicable period, increased more than the cumulative increase 
in the consumer price index for all urban consumers over the same 
period. The baseline date is the following:
    (1) September 1, 2018 for a drug or biological product that is 
first marketed in the United States on or before September 1, 2018.
    (2) The first day of the first full quarter after the date a drug 
or biological product is first marketed in the United States after 
September 1, 2018.
* * * * *
0
14. Section 423.128 is amended by redesignating paragraphs (e)(5) and 
(6) as paragraphs (e)(6) and (7) and adding a new paragraph (e)(5) to 
read as follows:


Sec.  423.128   Dissemination of Part D plan information.

* * * * *
    (e) * * *
    (5) For each prescription drug claim, include the cumulative 
percentage change (if any) in the negotiated price since the first day 
of the current benefit year and therapeutic alternatives with lower 
cost-sharing, when available as determined by the plan, from the 
applicable approved plan formulary.
* * * * *
0
15. Section 423.160 is amended by adding paragraph (b)(7) to read as 
follows:


Sec.  423.160   Standards for electronic prescribing.

* * * * *
    (b) * * *
    (7) Real time benefit tools. No later than January 1, 2020, 
implement one or more electronic real-time benefit tools (RTBT) that 
are capable of integrating prescribers' e-Prescribing (eRx) and 
electronic medical record (EMR) systems to provide complete, accurate, 
timely, clinically appropriate, patient-specific formulary and benefit

[[Page 62201]]

information to the prescriber in real time for assessing coverage under 
the Part D plan. Such information must include enrollee cost-sharing 
information, clinically appropriate formulary alternatives, when 
available, and the formulary status of each drug presented including 
any utilization management requirements applicable to each alternative 
drug. Patients must specifically consent to use of their protected 
health information for RTBT.
* * * * *

    Dated: November 16, 2018.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: November 19, 2018.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2018-25945 Filed 11-26-18; 4:15 pm]
 BILLING CODE 4120-01-P