[Federal Register Volume 87, Number 216 (Wednesday, November 9, 2022)]
[Proposed Rules]
[Pages 67634-67660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24114]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 162

[CMS-0056-P]
RIN 0938-AT38


Administrative Simplification: Modifications of Health Insurance 
Portability and Accountability Act of 1996 (HIPAA) National Council for 
Prescription Drug Programs (NCPDP) Retail Pharmacy Standards; and 
Adoption of Pharmacy Subrogation Standard

AGENCY: Office of the Secretary, Department of Health and Human 
Services (HHS).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would adopt updated versions of the retail 
pharmacy standards for electronic transactions adopted under the 
Administrative Simplification subtitle of the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA). These updated 
versions would be modifications to the currently adopted standards for 
the following retail pharmacy transactions: health care claims or 
equivalent encounter information; eligibility for a health plan; 
referral certification and authorization; and coordination of benefits. 
The proposed rule would also broaden the applicability of the Medicaid 
pharmacy subrogation transaction to all health plans. To that end, the 
rule would rename and revise the definition of the transaction and 
adopt an updated standard, which would be a modification for state 
Medicaid agencies and an initial standard for all other health plans.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, January 9, 2023.

ADDRESSES: In commenting, please refer to file code CMS-0056-P.
    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 https://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-0056-P, P.O. Box 8013, 
Baltimore, MD 21244-1850.
    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-0056-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.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.

FOR FURTHER INFORMATION CONTACT: Geanelle G. Herring, (410) 786-4466, 
Beth A. Karpiak, (312) 353-1351, or Christopher S. Wilson, (410) 786-
3178.

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: https://www.regulations.gov. Follow the search instructions on that website to 
view public comments. The Centers for Medicare & Medicaid Services 
(CMS) will not post on Regulations.gov public comments that make 
threats to individuals or institutions or suggest that the individual 
will take actions to harm the individual. CMS continues to encourage 
individuals not to submit duplicative comments. We will post acceptable 
comments from multiple unique commenters even if the content is 
identical or nearly identical to other comments.

I. Executive Summary

A. Purpose

    This rule proposes to adopt modifications to standards for 
electronic retail pharmacy transactions and a subrogation standard 
adopted under the Administrative Simplification subtitle of the Health 
Insurance Portability and Accountability Act of 1996 (HIPAA), and to 
broaden the applicability of the HIPAA subrogation transaction.

[[Page 67635]]

a. Need for the Regulatory Action
    The rule proposes to modify the currently adopted retail pharmacy 
standards and adopt a new standard. These proposals would provide 
improvements such as more robust data exchange, improved coordination 
of benefits, and expanded financial fields that would avoid the need to 
manually enter free text, split claims, or prepare and submit a paper 
Universal Claim Form.
    But for a small modification to the requirement for the use of a 
particular data field, adopted in 2020, the presently adopted pharmacy 
standards were finalized in 2009. Since then, the National Committee on 
Vital and Health Statistics (NCVHS) has recommended that HHS publish a 
proposed rule adopting more recent standards to address evolving 
industry changing business needs. Consistent with NCVHS recommendations 
and collaborative industry and stakeholder input, we believe the 
updated retail pharmacy standards we propose here are sufficiently 
mature for adoption and that covered entities are ready to implement 
them.
b. Legal Authority for the Regulatory Action
    Sections 1171 et seq. of the Social Security Act (the Act) are the 
legal authority for this regulatory action.

B. Summary of the Major Provisions

    The provisions in this proposed ruled would adopt the NCPDP 
Telecommunication Standard Implementation Guide, Version F6 (Version 
F6) and equivalent NCPDP Batch Standard Implementation Guide, Version 
15 (Version 15); and NCPDP Batch Standard Pharmacy Subrogation 
Implementation Guide, Version 10, for non-Medicaid health plans. These 
updated standards would replace the currently adopted NCPDP 
Telecommunication Standard Implementation Guide, Version D, Release 0 
(Version D.0) and the equivalent NCPDP Batch Standard Implementation 
Guide, Version 1, Release 2 (Version 1.2); and NCPDP Batch Standard 
Medicaid Subrogation Implementation Guide, Version 3.0, Release 0.
    Industry stakeholders report that Version F6 would bring much 
needed upgrades over Version D.0, such as improvements to the 
information attached to controlled substance claims, including 
refinement to the quantity prescribed field. This change would enable 
refills to be distinguished from multiple dispensing events for a 
single fill, which would increase patient safety. Version F6 provides 
more specific fields to differentiate various types of fees, including 
taxes, regulatory fees, and medication administration fees. Finally, 
Version F6 increases the dollar amount field length and would simplify 
coverage under prescription benefits of new innovative drug therapies 
priced at, or in excess of, $1 million. The current adopted Version D.0 
does not support this business need.
    The current Medicaid Subrogation Implementation Guide Version 3.0 
(Version 3.0) was adopted to support federal and state requirements for 
state Medicaid agencies to seek reimbursement from the correct 
responsible health plan. However, industry stakeholders reported that 
there is a need to expand the use of the subrogation transaction beyond 
Medicaid agencies, and noted that the use of a subrogation standard 
that would apply to other payers would be a positive step for the 
industry. Whereas HIPAA regulations currently require only Medicaid 
agencies to use Version 3.0 in conducting the Medicaid pharmacy 
subrogation transaction, all health plans would be required to use the 
Pharmacy Subrogation Implementation Guide for Batch Standard, Version 
10, to transmit pharmacy subrogation transactions, which would allow 
better tracking of subrogation efforts and results across all health 
plans, and support cost containment efforts.
    Should these proposals be adopted as proposed, it would require 
covered entities to comply 24 months after the effective date of the 
final rule. Small health plans would have 36 months after the effective 
date of the final rule to comply.

C. Summary of Costs and Benefits

    We estimate that the overall cost for pharmacies, pharmacy benefit 
plans, and chain drug stores to move to the updated versions of the 
pharmacy standards and the initial adoption of the pharmacy subrogation 
transaction standard would be approximately $386.3 million. The cost 
estimate is based on the need for technical development, 
implementation, testing, initial training, and a 24-month compliance 
timeframe. We believe that HIPAA covered entities or their contracted 
vendors have already largely invested in the hardware, software, and 
connectivity necessary to conduct the transactions with the updated 
versions of the pharmacy standards.

II. Background

A. Legislative Authority for Administrative Simplification

    This background discussion presents a history of statutory 
provisions and regulations that are relevant for purposes of this 
proposed rule.
    Congress addressed the need for a consistent framework for 
electronic transactions and other administrative simplification issues 
in HIPAA (Pub. L. 104-191, enacted on August 21, 1996). Through 
subtitle F of title II of HIPAA, Congress added to title XI of the Act 
a new Part C, titled ``Administrative Simplification,'' which required 
the Secretary of the Department of Health and Human Services (the 
Secretary) to adopt standards for certain transactions to enable health 
information to be exchanged more efficiently and to achieve greater 
uniformity in the transmission of health information. For purposes of 
this and later discussion in this proposed rule, we sometimes refer to 
this statute as the ``original'' HIPAA.
    Section 1172(a) of the Act states that ``[a]ny standard adopted 
under [HIPAA] shall apply, in whole or in part, to . . . (1) A health 
plan. (2) A health care clearinghouse. (3) A health care provider who 
transmits any health information in electronic form in connection with 
a [HIPAA transaction],'' which are collectively referred to as 
``covered entities.'' Generally, section 1172 of the Act requires any 
standard adopted under HIPAA to be developed, adopted, or modified by a 
standard setting organization (SSO). In adopting a standard, the 
Secretary must rely upon recommendations of the NCVHS, in consultation 
with the organizations referred to in section 1172(c)(3)(B) of the Act, 
and appropriate federal and state agencies and private organizations.
    Section 1172(b) of the Act requires that a standard adopted under 
HIPAA be consistent with the objective of reducing the administrative 
costs of providing and paying for health care. The transaction 
standards adopted under HIPAA enable financial and administrative 
electronic data interchange (EDI) using a common structure, as opposed 
to the many varied, often proprietary, transaction formats on which 
industry had previously relied and that, due to lack of uniformity, 
engendered administrative burden. Section 1173(g)(1) of the Act, which 
was added by section 1104(b) of the Patient Protection and Affordable 
Care Act, further addresses the goal of uniformity by requiring the 
Secretary to adopt a single set of operating rules for each

[[Page 67636]]

HIPAA transaction. These operating rules are required to be consensus-
based and reflect the necessary business rules that affect health plans 
and health care providers and the manner in which they operate pursuant 
to HIPAA standards.
    Section 1173(a) of the Act requires that the Secretary adopt 
standards for financial and administrative transactions, and data 
elements for those transactions, to enable health information to be 
exchanged electronically. The original HIPAA provisions require the 
Secretary to adopt standards for the following transactions: health 
claims or equivalent encounter information; health claims attachments; 
enrollment and disenrollment in a health plan; eligibility for a health 
plan; health care payment and remittance advice; health plan premium 
payments; first report of injury; health claim status; and referral 
certification and authorization. The Patient Protection and Affordable 
Care Act (Pub. L. 111-148) additionally required the Secretary to 
develop standards for electronic funds transfers transactions. Section 
1173(a)(1)(B) of the Act requires the Secretary to adopt standards for 
any other financial and administrative transactions the Secretary 
determines appropriate. Section 1173(a)(4) of the Act requires that the 
standards and operating rules, to the extent feasible and appropriate: 
enable determination of an individual's eligibility and financial 
responsibility for specific services prior to or at the point of care; 
be comprehensive, requiring minimal augmentation by paper or other 
communications; provide for timely acknowledgment, response, and status 
reporting that supports a transparent claims and denial management 
process; describe all data elements in unambiguous terms, require that 
such data elements be required or conditioned upon set terms in other 
fields, and generally prohibit additional conditions; and reduce 
clerical burden on patients and providers.
    Section 1174 of the Act requires the Secretary to review the 
adopted standards and adopt modifications to them, including additions 
to the standards, as appropriate, but not more frequently than once 
every 12 months, unless the Secretary determines that the modification 
is necessary in order to permit compliance with the standard.
    Section 1175(a) of the Act prohibits health plans from refusing to 
conduct a transaction as a standard transaction. Section 1175(a)(3) of 
the Act also prohibits health plans from delaying the transaction or 
adversely affecting or attempting to adversely affect a person or the 
transaction itself on the grounds that the transaction is in standard 
format. Section 1175(b) of the Act provides for a compliance date not 
later than 24 months after the date on which an initial standard or 
implementation specification is adopted for all covered entities except 
small health plans, which must comply not later than 36 months after 
such adoption. If the Secretary adopts a modification to a HIPAA 
standard or implementation specification, the compliance date for the 
modification may not be earlier than 180 days following the date of the 
adoption of the modification. The Secretary must consider the time 
needed to comply due to the nature and extent of the modification when 
determining compliance dates, and may extend the time for compliance 
for small health plans if he deems it appropriate.
    Sections 1176 and 1177 of the Act establish civil money penalties 
(CMPs) and criminal penalties to which covered entities may be subject 
for violations of HIPAA Administrative Simplification rules. HHS 
administers the CMPs under section 1176 of the Act and the U.S. 
Department of Justice administers the criminal penalties under section 
1177 of the Act. Section 1176(b) sets out limitations on the 
Secretary's authority and provides the Secretary certain discretion 
with respect to imposing CMPs. This section provides that no CMPs may 
be imposed with respect to an act if a penalty has been imposed under 
section 1177 with respect to such act. This section also generally 
precludes the Secretary from imposing a CMP for a violation corrected 
during the 30-day period beginning when an individual knew or, by 
exercising reasonable diligence, would have known that the failure to 
comply occurred.

B. Prior Rulemaking

    In the August 17, 2000 Federal Register, we published a final rule 
entitled ``Health Insurance Reform: Standards for Electronic 
Transactions'' (65 FR 50312) (hereinafter referred to as the 
Transactions and Code Sets final rule). That rule implemented some of 
the HIPAA Administrative Simplification requirements by adopting 
standards for electronic health care transactions developed by SSOs, 
and medical code sets to be used in those transactions. We adopted X12 
Version 4010 standards for administrative transactions, and the 
National Council for Prescription Drug Programs (NCPDP) 
Telecommunication Version 5.1 standard for retail pharmacy transactions 
at 45 CFR part 162, subparts K through R.
    Since initially adopting the HIPAA standards in the Transactions 
and Code Sets final rule, we have adopted a number of modifications to 
them. The most extensive modifications were adopted in a final rule 
titled ``Health Insurance Reform; Modifications to the Health Insurance 
Portability and Accountability Act (HIPAA) Electronic Transaction 
Standards'' in the January 16, 2009 Federal Register (74 FR 3296) 
(hereinafter referred to as the 2009 Modifications final rule). Among 
other things, that rule adopted updated X12 and NCPDP standards, moving 
from X12 Version 4010 to X12 Version 5010, and NCPDP Version 5.1 and 
equivalent Batch Standard Implementation Guide Version 1, Release 1, to 
NCPDP Version D.0 and equivalent Batch Standard Implementation Guide 
Version 1, Release 2. In that rule, we also adopted the NCPDP Batch 
Standard Medicaid Subrogation Implementation Guide, Version 3.0 
standard for the Medicaid pharmacy subrogation transaction. Covered 
entities were required to comply with these standards beginning on and 
after January 1, 2012, with the exception of small health plans, which 
were required to comply on and after January 1, 2013.
    In the Transactions and Code Sets final rule, we defined the terms 
``modification'' and ``maintenance.'' We explained that when a change 
is substantial enough to justify publication of a new version of an 
implementation specification, such change is considered a modification 
and must be adopted by the Secretary through regulation (65 FR 50322). 
Conversely, maintenance describes the activities necessary to support 
the use of a standard, including technical corrections to an 
implementation specification. Maintenance changes are typically 
corrections that are obvious to readers of the implementation guides, 
not controversial, and essential to implementation (68 FR 8388, 
February 20, 2003). Maintenance changes to Version D.0 were identified 
by the industry, balloted and approved through the NCPDP, and are 
contained in the NCPDP Version D.0 Editorial. In an October 13, 2010 
Federal Register notification titled ``Health Insurance Reform; 
Announcement of Maintenance Changes to Electronic Data Transaction 
Standards Adopted Under the Health Insurance Portability and 
Accountability Act of 1996'' (75 FR 62684), the Secretary announced the 
maintenance changes and the availability of the NCPDP Version D.0 
Editorial and how it could be obtained. The NCPDP Version D.0 Editorial 
can

[[Page 67637]]

now be obtained free of charge in the HIPAA Information Section of the 
NCPDP website, at https://www.ncpdp.org/NCPDP/media/pdf/VersionD-Questions.pdf. This document is a consolidated reference point for 
questions that have been posed based on the review and implementation 
of the NCPDP Telecommunication Standard Implementation Guide for 
Version D.0.
    In a final rule titled ``Administrative Simplification: 
Modification of the Requirements for the Use of Health Insurance 
Portability and Accountability Act of 1996 (HIPAA) National Council for 
Prescription Drug Programs (NCPDP) D.0 Standard,'' published in the 
January 24, 2020 Federal Register (85 FR 4236) (hereafter, Modification 
of Version D.0 Requirements final rule), the Secretary adopted a 
modification of the requirements for the use of the Quantity Prescribed 
(460-ET) field of the August 2007 publication of Version D.0. The 
modification required covered entities to treat the Quantity Prescribed 
(460-ET) field as required where a transmission uses Version D.0, 
August 2007, for a Schedule II drug for these transactions: (1) health 
care claims or equivalent encounter information; (2) referral 
certification and authorization; and (3) coordination of benefits.
    In that rulemaking, the Secretary noted that the NCPDP had issued a 
subsequent publication, the October 2017 Telecommunication Standard 
Implementation Guide, Version F2 (Version F2), that, among many other 
unrelated changes, revised the situational circumstances to specify an 
even broader use of the Quantity Prescribed (460-ET) field. The change 
described the field as ``required only if the claim is for a controlled 
substance or for other products as required by law; otherwise, not 
available for use.'' We explained that we chose not to adopt Version F2 
at that time because, given the public health emergency caused by the 
opioid crisis and the urgent need to find ways to yield data and 
information to help combat it, we believed it was more appropriate to 
take a narrow, targeted approach while taking additional time to 
further evaluate the impact of a new version change on covered 
entities.

C. Standards Adoption and Modification

    The law generally requires at section 1172(c) that any standard 
adopted under HIPAA be developed, adopted, or modified by an SSO. 
Section 1171 of the Act defines an SSO as an SSO accredited by the 
American National Standards Institute (ANSI), including the NCPDP (the 
SSO applicable to this proposed rule) that develops standards for 
information transactions, data, or any standard that is necessary to, 
or will facilitate the implementation of, Administrative 
Simplification. Information about the NCPDP's balloting process, the 
process by which it vets and approves the standards it develops and any 
changes thereto, is available on its website, https://www.ncpdp.org.
a. Designated Standards Maintenance Organizations (DSMO)
    In the Transactions and Code Sets final rule, the Secretary adopted 
procedures to maintain and modify existing, and adopt new, HIPAA 
standards and established a new organization type called the 
``Designated Standard Maintenance Organization'' (DSMO). Regulations at 
45 CFR 162.910 provide that the Secretary may designate as a DSMO an 
organization that agrees to conduct, to the satisfaction of the 
Secretary, the functions of maintaining the adopted standard, and 
receiving and processing requests for adopting a new standard or 
modifying an adopted standard. In an August 17, 2000 notice titled 
``Health Insurance Reform: Announcement of Designated Standard 
Maintenance Organizations'' (65 FR 50373), the Secretary designated the 
following six DSMOs: X12, NCPDP, Health Level Seven, the National 
Uniform Billing Committee (NUBC), the National Uniform Claim Committee 
(NUCC), and the Dental Content Committee (DCC) of the American Dental 
Association.
b. Process for Adopting Initial Standards, Maintenance to Standards, 
and Modifications to Standards
    In general, HIPAA requires the Secretary to adopt standards that 
have been developed by an SSO. The process for adopting a new standard 
or a modification to an existing standard is described in the 
Transactions and Code Sets final rule (65 FR 50344) and implemented at 
Sec.  162.910. Under Sec.  162.910, the Secretary considers 
recommendations for proposed modifications to existing standards or a 
proposed new standard if the recommendations are developed through a 
process that provides for: open public access; coordination with other 
DSMOs; an appeals process for the requestor of the proposal or the DSMO 
that participated in the review and analysis if either of the preceding 
were dissatisfied with the decision on the request; an expedited 
process to address HIPAA content needs identified within the industry; 
and submission of the recommendation to the NCVHS.
    Any entity may submit change requests with a documented business 
case to support its recommendation to the DSMO. The DSMO receives and 
manages those change requests, including reviewing them and notifying 
the SSO of its recommendation for approval or rejection. If the changes 
are recommended for approval, the DSMO also notifies the NCVHS and 
suggests that a recommendation for adoption be made to the Secretary.
    The foregoing processes were followed with respect to the 
modifications and new standard proposed in this rule, and stemmed from 
the following change requests the NCPDP submitted to the DSMO: (1) DSMO 
request 1201 requested replacing the adopted NCPDP Telecommunication 
Standard Implementation Guide, Version D.0 and the equivalent Batch 
Standard Implementation Guide Version 1.2 with updated versions, the 
NCPDP Telecommunication Standard Implementation Guide, Version F2 and 
the equivalent Batch Standard Implementation Guide, Version 15; (2) 
DSMO request 1202 requested replacing the adopted NCPDP Batch Standard 
Medicaid Subrogation Implementation Guide, Version 3.0, for use by 
Medicaid agencies, with the NCPDP Batch Standard Subrogation 
Implementation Guide, Version 10, for use by all health plans; and (3) 
DSMO request 1208 updated DSMO request 1201 requested adopting an 
updated version of the NCPDP Telecommunication Standard Implementation 
Guide, Version F6 instead of Version F2.
c. NCVHS Recommendations
    The NCVHS was established by statute in 1949; it serves as an 
advisory committee to the Secretary and is statutorily conferred a 
significant role in the Secretary's adoption and modification of HIPAA 
standards. In 2018, the NCVHS conducted two days of hearings seeking 
the input of health care providers, health plans, clearinghouses, 
vendors, and interested stakeholders regarding the NCPDP 
Telecommunication Standard, Version F2, as a potential replacement for 
NCPDP Version D.0, and the equivalent Batch Standard Implementation 
Guide, Version 15, as a potential replacement for Version 1.2. 
Testimony was also presented in support of replacing the NCPDP Batch 
Standard Medicaid Subrogation Implementation Guide, Version 3.0, with 
the Batch Standard Subrogation Implementation Guide, Version 10. In 
addition to the NCPDP, organizations submitting testimony

[[Page 67638]]

included the Centers for Medicare & Medicaid Services' Medicare Part D 
program, the National Association of Chain Drug Stores (NACDS), Ohio 
Medicaid, Pharmerica, CVS Health, and an independent pharmacy, Sam's 
Health Mart.\1\
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    \1\ https://ncvhs.hhs.gov/meetings/agenda-of-the-march-26-2018-hearing-on-ncpdp-standards-updates/.
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    In a letter \2\ dated May 17, 2018, the NCVHS recommended that the 
Secretary adopt the updated versions of the standards, including the 
pharmacy subrogation standard. As discussed, in part, in section III.B. 
of this rule, we believed that proposing a modification to the retail 
pharmacy standard required further evaluation, including an assessment 
of the impact of implementing the modification, given the many 
significant changes a version change would require covered entities to 
undertake. Therefore, we did not propose to adopt Version F2 based on 
that NCVHS recommendation in our 2019 proposed rule entitled 
``Administrative Simplification: Modification of the Requirements for 
the Use of Health Insurance Portability and Accountability Act of 1996 
(HIPAA) National Council for Prescription Drug Programs (NCPDP) D.0 
Standard,'' published in the January 31, 2019 Federal Register (84 FR 
633), which led to the January 24, 2020 Modification of Version D.0 
Requirements final rule.
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    \2\ https://ncvhs.hhs.gov/wp-content/uploads/2018/08/Letter-to-Secretary-NCVHS-Recommendations-on-NCPDP-Pharmacy-Standards-Update.pdf.
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    During the March 24, 2020 NCVHS full committee meeting, there was a 
hearing to discuss Change Request 1208 regarding the NCPDP 
Telecommunication Standard, Version F6, as a potential update to the 
NCVHS 2018 recommendation to the Secretary to adopt Version F2. During 
the hearing, the NCPDP noted that several key Version F2 limitations 
had been resolved by Telecommunication Standard Implementation Guide, 
Version F6. Significantly, with respect to the number of digits in the 
dollar field, Version F2 would not support dollar fields of $1 million 
or more. To that point, since receipt of the NCVHS's May 17, 2018 
recommendation, several new drugs priced at, or in excess of, $1 
million have entered the market and researchers and analysts anticipate 
that over the next several years dozens of new drugs priced similarly 
or higher may enter the market, while hundreds more likely high-priced 
therapies, including for gene therapies that target certain cancers and 
rare diseases, are under development. To meet emerging business needs, 
the NCPDP updated the Telecommunication Standard to support dollar 
fields equal to, or in excess of, $1 million and made other updates, 
including enhancements to improve coordination of benefits processes, 
prescriber validation fields, plan benefit transparency, codification 
of clinical and patient data, harmonization with related standards, and 
controlled substance reporting, that necessitated the new version, F6. 
The transcript and testimony from the March 24, 2020 full committee 
meeting is available at https://ncvhs.hhs.gov/meetings/full-committee-meeting-4/.
    In a letter dated April 22, 2020,\3\ the NCVHS recommended that the 
Secretary adopt Version F6 to replace Version D.0. and provide a 3-year 
pre-implementation window following publication of the final rule. The 
recommendation letter stated that allowing the industry to use either 
Version D.0 or Version F6 would enable an effective live-testing and 
transition period. The NCVHS advised that the Secretary should require 
full compliance with Version F6 beginning May 1, 2025, and also urged 
that HHS act on its May 2018 recommendations to adopt the NCPDP Batch 
Standard Implementation Guide Version 15 and the NCPDP Batch Standard 
Subrogation Implementation Guide Version 10.
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    \3\ https://ncvhs.hhs.gov/wp-content/uploads/2020/04/Recommendation-Letter-Adoption-of-New-Pharmacy-Standard-Under-HIPAA-April-22-2020-508.pdf.
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III. Provisions of the Proposed Rule

A. Proposed Modifications to NCPDP Telecommunication Standard 
Implementation Guide Version F6 (Version F6) and Equivalent Batch 
Standard, Version 15 (Version 15) for Retail Pharmacy Transactions

1. Overview
    Should they be finalized as proposed herein, the NCPDP 
Telecommunication Standard Implementation Guide, Version F6 (Version 
F6) and equivalent NCPDP Batch Standard Implementation Guide, Version 
15 (Version 15) would replace the currently adopted NCPDP 
Telecommunication Standard Implementation Guide, Version D, Release 0 
(Version D.0) and the equivalent NCPDP Batch Standard Implementation 
Guide, Version 1, Release 2 (Version 1.2). Version F6 includes a number 
of changes from Version D.0 that alter the use or structure of data 
fields, insert new data segments, and add new functionality. Adopting 
Version F6 to replace Version D.0 would constitute a HIPAA 
modification.
    We are proposing to adopt modifications to the current HIPAA retail 
pharmacy standards for the following transactions: health care claims 
or equivalent encounter information; eligibility for a health plan; 
referral certification and authorization; and coordination of benefits. 
Covered entities conducting the following HIPAA transactions would be 
required to use Version F6:
     Health care claims or equivalent encounter information 
(Sec.  162.1101).
    ++ Retail pharmacy drug claims.
    ++ Retail pharmacy supplies and professional claims.
     Eligibility for a health plan (Sec.  162.1201).
    ++ Retail pharmacy drugs.
     Referral certification and authorization (Sec.  162.1301).
    ++ Retail pharmacy drugs.
     Coordination of benefits (Sec.  162.1801).
    In its April 22, 2020 letter to the Secretary, the NCVHS considered 
industry testimony and recommended that HHS propose to replace Version 
D.0 with Version F6 as the HIPAA standard for retail pharmacy 
transactions. Testifiers at the March 2020 NCVHS full committee meeting 
advocated for HHS to adopt updated versions of the retail pharmacy 
standards to better accommodate business requirements that have changed 
significantly for covered entities since 2009 when Version D.0 was 
adopted, and also since Version F2 was approved. The NCVHS 
recommendation, and industry testimony from both the May 2018 hearing 
and the March 2020 full committee meeting, highlighted the benefits 
Version F6 would provide over Version D.0, to include benefits 
introduced in Version F2 that are incorporated into Version F6:
     Accommodation of very expensive drug therapies--Version F6 
accommodates the expansion of financial fields needed for drug products 
priced at, or in excess of, $1 million that are now available in the 
market. While such products are still rare, their numbers are expected 
to increase, and without this functionality pharmacies must employ 
disparate and burdensome payor-specific methods for split claims or 
manual billing, which increases the risk of billing errors.
     More robust data exchange between long-term care providers 
and payers--Version F6 includes information needed for prior 
authorizations and enhancements to the drug utilization review (DUR) 
fields in the claim response transaction. This change can

[[Page 67639]]

improve communication from the payer to the pharmacy, thus enabling the 
pharmacy to act more quickly to the benefit of the patient.\4\
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    \4\ https://ncvhs.hhs.gov/wp-content/uploads/2018/05/Session-A-Schoettmer-Written-508.pdf.
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     Coordination of benefits (COB)--Version F6 includes new 
COB segment fields that would improve the identification of the 
previous payer and its program type, such as Medicare, Medicaid, 
workers compensation, or self-pay program, eliminating the need to use 
manual processes to identify this information. Pharmacy providers and 
payers that engage in COB must identify the previous payer and its 
program type in order to process the claim in accordance with 
applicable requirements, including requirements related to primary 
payment responsibility and payer order. For example, the new data 
segment fields would support compliance with the payer processing order 
with Medicaid as the payer of last resort, as well as prevent 
inappropriate access to pharmaceutical manufacturer copay coupons for 
drugs paid under federal programs, including Medicare Part D.
     Prescriber Validation--Medicare Part D program 
requirements to improve the validity of prescriber identifiers and 
improve program integrity controls have driven the need for new 
prescriber segment fields in Version F6 to enhance prescriber 
validation, such as the ability to capture a Drug Enforcement 
Administration (DEA) number, in addition to the National Provider 
Identifier (NPI), and a Prescriber Place of Service to identify 
telehealth. Enhancements also include new reject codes and related 
messaging fields to provide additional information on limitations in 
prescriptive authority, such as to confirm assignment as the patient's 
designated prescriber for opioids.
     Controlled Substances Reporting--Version F6 makes a number 
of updates to controlled substances reporting that would permit the 
exchange of more information for better monitoring and documentation of 
compliance with state and federal requirements. Changes to the Claim 
Billing and Response Claim segments provide additional information to 
enhance patient safety controls for controlled substance prescriptions. 
For instance, Version F6 would enable claims processors, including, for 
example, pharmacy benefit managers (PBMs) and health plans that process 
their pharmacy claims in-house, to be informed of the exact 
prescription quantity and fill information, improve edits from the 
processor, and reduce confusion that can occur today and that sometimes 
requires patients to obtain a new prescription. Other specific 
enhancements include adding a Do Not Dispense Before Date field to 
support providers writing multiple, 1-month prescriptions for 
controlled substances. This field also supports compliance with 
requirements certain states have on the number of days a patient has to 
fill a controlled substance from the date written.
     Harmonization with Related Standards--Version F6 
accommodates business needs to comply with other industry standard 
requirements, such as the ability to comply with ANSI expanded field-
length requirements for the Issuer Identification Number (IIN), 
formerly known as the Bank Identification Number. The IIN is used to 
identify and route the transaction to the appropriate PBM. ANSI 
expanded the IIN field length to accommodate more unique numbers. 
Version F6 also accommodates FDA-required Unique Device Identifiers 
(UDI) that are now up to 40 characters in length, whereas Version D.0 
only allows for 11 characters.
     Codification of Clinical and Patient Data--Pharmacy and 
payer workflows are enhanced in Version F6 by replacing many clinical 
and non-clinical free-text fields in Pharmacy Claim and Payer Claim 
Response segments with discrete codified fields. The computable data in 
discrete fields can then be utilized to automatically trigger 
workflows, such as those to help combat opioid misuse or to communicate 
relevant information to enhance patient safety.
     Plan Benefit Transparency--Interoperability between the 
payer and pharmacy is improved in Version F6 with the ability to 
exchange more actionable plan-specific information. New Payer Response 
fields enhance the ability to target plan benefit package detail 
associated with the specific patient. The availability of this 
information may avoid prior authorization interruptions, as well as 
allow pharmacists to have more informative discussions with patients 
and provide valuable information about alternative drug or therapy 
solutions, which can reduce delays in therapy and improve patient 
adherence.
2. Partial Fill of Controlled Substances--Quantity Prescribed (460-ET) 
Field
    As discussed in section I. of this proposed rule, in the 
Modification of Version D.0 Requirements final rule (85 FR 4236), we 
adopted the requirements that the Quantity Prescribed (460-ET) field in 
Version D.0 must be treated as a required field where the transmission 
is for a Schedule II drug in any of the following three HIPAA 
transactions: (1) health care claims or equivalent encounter 
information; (2) referral certification and authorization; and (3) 
coordination of benefits. Version F6 requires the use of the 460-ET 
field for all controlled substances. Therefore, we would no longer need 
to explicitly require its situational use, and we would revise the 
regulation text at Sec. Sec.  162.1102(d), 162.1302(d), and 162.1802(d) 
accordingly.
3. Batch Standard, Version 15 (Version 15) for Retail Pharmacy 
Transactions
    Batch mode can be used for processing large volumes of 
transactions. For example, a retail pharmacy that has several locations 
can send one batch mode transaction, containing multiple claims 
collected over time from the various locations, to an entity with which 
it has contracted, or otherwise to a centralized entity, that will 
route each claim in the transaction to the appropriate payer. The NCPDP 
Batch Standard, Version 15, better supports retail pharmacy batch mode 
transactions than the currently adopted Version 1.2 because it was 
developed in coordination with F6 and includes the same benefits as 
Version F6, but in batch mode, including the updates that improve 
coordination of benefits processes, prescriber validation fields, plan 
benefit transparency, codification of clinical and patient data, 
harmonization with related standards, and controlled substance 
reporting.
    In sum, we believe adopting Version F6 and its equivalent Batch 
Standard, Version 15 to replace Version D.0 and Version 1.2 would 
result in greater interoperability for entities exchanging prescription 
information, improve patient care, provide better data for drug 
utilization monitoring, and reduce provider burden. Because Version F6 
and Version 15 would better support the business needs of the industry 
than Version D.0 and Version 1.2, we propose to adopt them as the 
standards for the following retail pharmacy transactions: health care 
claims or equivalent encounter information; eligibility for a health 
plan; referral certification and authorization; and coordination of 
benefits. We would revise Sec. Sec.  162.1102, 162.1202, 162.1302, and 
162.1802 accordingly.
    We solicit comments regarding our proposal to adopt Version F6 to 
replace Version D.0 and Version 15 to replace Version 1.2.

[[Page 67640]]

B. Proposed Modification of the Pharmacy Subrogation Transaction 
Standard for State Medicaid Agencies and Initial Adoption of the 
Pharmacy Subrogation Standard for Non-Medicaid Health Plans

    In the 2009 Modifications final rule, we adopted the Batch Standard 
Medicaid Subrogation Implementation Guide, Version 3.0, Release 0 
(Version 3.0) as the standard for the Medicaid pharmacy subrogation 
transaction. In that rule, we discussed that state Medicaid agencies 
sometimes pay claims for which a third party may be legally 
responsible, and where the state is required to seek recovery. This can 
occur when the Medicaid agency is not aware of the existence of other 
coverage, though there are also specific circumstances in which states 
are required by federal law to pay claims and then seek reimbursement 
afterward. For the full discussion, refer to 74 FR 3296.
1. Proposed Modification to the Definition of Medicaid Subrogation 
Transaction
    Because we are proposing to broaden the scope of the subrogation 
transaction to apply to all health plans, not just state Medicaid 
agencies, we are proposing to revise the definition of the transaction. 
The Medicaid pharmacy subrogation transaction is defined at Sec.  
162.1901 as the transmission of a claim from a Medicaid agency to a 
payer for the purpose of seeking reimbursement from the responsible 
health plan for a pharmacy claim the state has paid on behalf of a 
Medicaid recipient. We are proposing to change the name of the 
transaction at Sec.  162.1901 to the ``Pharmacy subrogation 
transaction'' and define the transaction as the transmission of a 
request for reimbursement of a pharmacy claim from a health plan that 
paid the claim, for which it did not have payment responsibility, to 
the health plan responsible for the claim.
    There are a few notable differences between the current and 
proposed transaction definitions. First, the current definition defines 
the transaction such that it only applies to state Medicaid agencies, 
in their role as health plans, as the sender of the transaction. 
Because we are proposing to broaden the scope of the transaction to 
apply to all health plans, not just state Medicaid agencies, the 
Pharmacy subrogation transaction definition would specify that the 
sender of the transaction is ``a health plan that paid the claim'' 
instead of a ``Medicaid agency.'' In addition, the current definition 
identifies that the sender of the transaction is requesting 
``reimbursement for a pharmacy claim the state has paid on behalf of a 
Medicaid recipient.'' To align this aspect of the current definition 
with the broadened scope that would apply to all health plans, the 
proposed definition identifies that the sender health plan has paid a 
claim ``for which it did not have payment responsibility.''
    Second, the current definition identifies a pharmacy subrogation 
transaction as the ``transmission of a claim.'' The proposed definition 
would specify that a pharmacy subrogation transaction is the 
transmission of a ``request for reimbursement of a pharmacy claim.'' We 
use the term ``claim'' in a specific way with regard to the HIPAA 
transaction defined at 45 CFR 162.1101 to describe a provider's request 
to obtain payment from a health plan. We never intended that the 
subrogation transaction be defined as a ``claim'' in the strict sense 
of the word. We believe replacing ``claim'' with ``request for 
reimbursement'' would clarify that the purpose of a pharmacy 
subrogation transaction is to transmit request to be reimbursed for a 
claim rather than to transmit a claim.
    We are proposing that the current definition of the Medicaid 
pharmacy subrogation transaction would remain in the regulatory text at 
Sec.  162.1901(a) and the proposed definition of the Pharmacy 
subrogation transaction would be added at Sec.  162.1901(b). The 
Medicaid pharmacy subrogation transaction would continue to apply until 
the compliance date of the Pharmacy subrogation transaction, in 
accordance with the proposed compliance dates discussed in section 
III.C.2. of this proposed rule. Then, beginning on the compliance date 
for the Pharmacy subrogation transaction, the Medicaid pharmacy 
subrogation transaction would no longer be in effect and all covered 
entities would be required to comply with the proposed standard for the 
Pharmacy subrogation transaction.
2. Proposed Initial Adoption of the NCPDP Batch Standard Pharmacy 
Subrogation Implementation Guide, Version 10, for Non-Medicaid Health 
Plans
    As discussed previously, the current HIPAA standard, Version 3.0, 
for the Medicaid pharmacy subrogation transaction, only applies to 
state Medicaid agencies seeking reimbursement from health plans 
responsible for paying pharmacy claims. The standard does not address 
business needs for other payers, such as Medicare Part D, state 
assistance programs, or private health plans that would seek similar 
reimbursement. Section 1173(a)(2) of the Act lists financial and 
administrative transactions for which the Secretary is required to 
adopt standards. The Pharmacy subrogation transaction is not a named 
transaction in section 1173(a)(2) of the Act, but section 1172(a)(1)(B) 
of the Act authorizes the Secretary to adopt standards for other 
financial and administrative transactions as the Secretary determines 
appropriate, consistent with the goals of improving the operation of 
the health care system and reducing administrative costs. Adopting a 
standard for a broader subrogation transaction that would apply to all 
health plans, not just Medicaid agencies, would facilitate the 
efficiency and effectiveness of data exchange and transaction processes 
for all payers involved in post-payment of pharmacy claims and would 
support greater payment accuracy across the industry.
    At the NCVHS March 2018 hearing,\5\ industry stakeholders cited in 
their testimony the benefits and potential burden reduction that could 
be achieved by adoption of the NCPDP Batch Standard Pharmacy 
Subrogation Implementation Guide, Version 10 (hereinafter referred to 
as Version 10). Testimony to the NCVHS by the NCPDP and other 
stakeholders explained that the health care system could benefit from 
greater uniformity in pharmacy subrogation transactions for both 
Medicaid and non-Medicaid health plans. One testifier reported that an 
updated pharmacy subrogation transaction would reduce administrative 
costs and increase interoperability by requiring a standard that could 
be used by Medicaid and non-Medicaid plans, which would support a 
uniform approach across all health plans to efficiently process post-
payment subrogation claims and eliminate the need for numerous custom 
formats that industry currently uses. Further testimony supported that 
an updated standard would aid in reducing the manual processes non-
Medicaid payers must perform to pay these types of claims. For example, 
one testifier explained that, presently, Medicare Part D commercial 
payer subrogation transactions are submitted for payment to responsible 
health plans as a spreadsheet or a paper-based universal claim form 
that requires manual processing by parties on both sides of the 
transaction. We believe our proposal

[[Page 67641]]

would automate, and hence ease, much of that effort.
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    \5\ https://ncvhs.hhs.gov/meetings/agenda-of-the-march-26-2018-hearing-on-ncpdp-standards-updates/.
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3. Proposed Modification of the Pharmacy Subrogation Transaction 
Standard for State Medicaid Agencies
    We are proposing to replace the NCPDP Batch Standard Medicaid 
Subrogation Implementation Guide, Version 3.0, Release 0, with the 
NCPDP Batch Standard Pharmacy Subrogation Implementation Guide, Version 
10 as the standard for Pharmacy subrogation transactions at Sec.  
162.1902(b). For state Medicaid agencies, this proposal would be a 
modification from Version 3.0. While Version 10 is called the 
``Pharmacy Subrogation Implementation Guide'' rather than the 
``Medicaid Subrogation Implementation Guide,'' Version 10 still applies 
to subrogation transactions originating from Medicaid agencies and 
preserves the data elements in Version 3.0 except in the following 
instances, the purpose of which is to accommodate non-Medicaid plans' 
use of the modified standard:
     The Medicaid Agency Number definition is changed to 
accommodate use of the field by Medicaid and non-Medicaid health plans.
     The Medicaid Subrogation Internal Control Number/
Transaction Control Number field, which is designated as ``not used'' 
in Version 3.0. is replaced with the required use of the Reconciliation 
ID field.
     The Medicaid Paid Amount field, which is designated as 
``not used'' in Version 3.0, is replaced with the required use of the 
Subrogation Amount Requested field.
     The Medicaid ID Number field, which is a required field in 
Version 3.0, is changed to a situational field that is only required 
when one of the health plans involved in the transaction is a Medicaid 
agency.
    While state Medicaid agencies would be required to implement these 
changes in order to comply with Version 10, the changes would be de 
minimis and state Medicaid agencies' use of the modified standard would 
essentially be the same as their use of the current standard.
    We solicit comments on our proposal related to the adoption of 
Version 10.

C. Proposed Compliance and Effective Dates

1. Proposed Compliance Date for Version F6 and Version 15
    Section 1175(b)(2) of the Act addresses the timeframe for 
compliance with modified standards. The section provides that the 
Secretary must set the compliance date for a modification at such time 
as the Secretary determines appropriate, taking into account the time 
needed to comply due to the nature and extent of the modification. 
However, the compliance date may not be sooner than 180 days after the 
effective date of the final rule. In the discussion later in this rule, 
we explain why we are proposing that all covered entities would need to 
be in compliance with Version F6 and its equivalent Batch Standard 
Version 15 for retail pharmacy transactions 24 months after the 
effective date of the final rule, which we would reflect in Sec. Sec.  
162.1102, 162.1202, 162.1302, and 162.1802.
    In its April 22, 2020 recommendation letter to the Secretary, 
discussed in section I.C.3. of this proposed rule, the NCVHS, upon 
consideration of industry feedback, recommended the following 
implementation timelines and dates for Version F6 and Version 15: \6\
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    \6\ https://ncvhs.hhs.gov/wp-content/uploads/20s20/04/Recommendation-Letter-Adoption-of-New-Pharmacy-Standard-Under-HIPAA-April-22-2020-508.pdf. NCVHS April 22, 2020 Recommendation letter.
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     Provide a 3-year pre-implementation window following 
publication of the final rule, allowing (but not requiring) industry 
use beginning at the end of the three years.
     Allow both Versions D.0 and F6 to be used for an 8-month 
period after the 3-year pre-implementation window, which the NCVHS 
suggested would enable an effective live-testing and transition period.
     Require full compliance by the end of the third year, that 
is, exclusive use of Version F6, after the 8-month period.
    After carefully considering the NCVHS's recommended implementation 
timelines and dates, for the following reasons we are not proposing a 
3-year pre-implementation compliance window or an 8-month transition 
period. While industry feedback on which the NCVHS relied to make its 
recommendations did include some discussion on specific changes 
necessary to implement Version F6 (for example, the expansion of the 
financial fields), the majority of feedback was not specific to Version 
F6, but, rather, concerned general challenges that would be associated 
with implementing any standard modification. For example, feedback 
related to concerns about general budget constraints, as well as 
compliance dates that conflict with other pharmacy industry priorities 
such as the immunization season or times of year where prescription 
benefits plans typically experience heavy new member enrollment. In 
addition, several industry stakeholders, including the NCPDP, stated 
that they were not aware of any significant implementation barriers 
specific to Version F6. In its May 17, 2018 letter industry testimony 
asserted, and the NCVHS agreed, that the process to implement Version 
F6 would be similar to the process necessary to implement Version 
F2.\7\ Therefore, we are proposing a 24-month compliance timeframe that 
aligns with the recommendation that the NCVHS made in its May 17, 2018 
letter to implement Version F2.\8\
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    \7\ https://ncvhs.hhs.gov/wp-content/uploads/2020/03/Public-Comments-NCPDP-Change-Request-March-2020.pdf.
    \8\ https://ncvhs.hhs.gov/wp-content/uploads/2018/08/Letter-to-Secretary-NCVHS-Recommendations-on-NCPDP-Pharmacy-Standards-Update.pdf.
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    Additionally, the proposed modification, to move from Version D.0 
to Version F6, pertains only to retail pharmacy transactions. That is 
different in scope, for example, from the modifications finalized in 
the 2009 Modifications final rule (74 FR 3296), which affected all of 
the then-current HIPAA transactions. There, we implemented an extended 
compliance date for the modified standards in response to the numerous 
comments advocating for it given the extensive changes in Versions 5010 
and D.0 from Versions 4010 and 5.1, which commenters asserted 
necessitated a coordinated implementation and testing schedule. Given 
that the scope of the modification in this proposed rule is limited to 
just retail pharmacy transactions, we believe the industry has the 
capability of implementing the modification within a 24-month period 
after the effective date of the final rule.
    Further, we believe the benefits that would be derived from 
implementing Version F6 and Version 15 (discussed in section III.A.1. 
of this proposed rule) as soon as possible are significant. Those 
benefits include mitigating existing inefficient work-arounds, allowing 
for more robust data exchanges between long-term care providers and 
payers, improving coordination of benefits information, improving 
controlled substances reporting, codifying clinical and patient data, 
harmonizing with related standards, and improving plan benefit 
transparency. We solicit industry comment on the proposed 24-month 
compliance date for F6 and Version 15, including any barriers specific 
to compliance with Version F6 and Version 15 that would require 
additional time for compliance.

[[Page 67642]]

2. Proposed Compliance Dates for the Batch Standard Subrogation 
Implementation Guide, Version 10 (Version 10), September 2019, National 
Council for Prescription Drug Programs
    As discussed previously, we are proposing to adopt a Pharmacy 
subrogation transaction standard that would apply to all health plans, 
not just state Medicaid agencies. As we discuss in section III.B. of 
this proposed rule, Version 10 would be a modification for state 
Medicaid agencies, which would be moving to Version 10 from Version 
3.0. For all other health plans, Version 10 would be an initial 
standard. As previously noted, section 1175(b)(2) of the Act addresses 
the timeframe for compliance with modified standards. That section 
requires the Secretary to set the compliance date for a modification at 
such time as the Secretary determines appropriate, taking into account 
the time needed to comply due to the nature and extent of the 
modification, but no sooner than 180 days after the effective date of 
the final rule in which we adopt that modification. Section 1175(b)(1) 
of the Act requires that the compliance date for initial standards--
which Version 10 would be for covered entities that are not state 
Medicaid agencies--is no later than 24 months after the date of 
adoption for all covered entities, except small health plans, which 
must comply no later than 36 months after adoption.
    We are proposing to align the compliance dates for state Medicaid 
agencies and all other health plans (except small health plans) to 
comply with Version 10. Should we not to do this, some health plans 
would need to use Version 10 at the same time as state Medicaid 
agencies in order to conduct Pharmacy subrogation transactions with 
those state Medicaid agencies, while other health plans could use 
different standards. Aligning the compliance timeframes would reduce 
confusion and administrative burden that would arise were there 
concurrent standards in effect. Thus, we propose to require all health 
plans (except small health plans) to comply at the same time. The 
alignment of compliance dates also makes it more feasible for state 
Medicaid agencies and non-Medicaid health plans to invest in system 
upgrades to accommodate one specific standard rather than divide 
resources to maintain two concurrent transaction standards. Therefore, 
we propose to revise Sec.  162.1902(b) to reflect that all health 
plans, except small health plans, would be required to comply with 
Version 10 for Pharmacy subrogation transactions 24 months after the 
effective date of the final rule. We would also revise Sec.  
162.1902(a) to reflect that state Medicaid agencies would be required 
to comply with the current standard, Version 3.0, until the compliance 
date of Version 10.
    Small health plans, as defined in 45 CFR 160.103, are those health 
plans with annual receipts of $5 million or less. In accordance with 
section 1175(b)(1) of the Act, we are proposing that small health 
plans, other than small health plans that are state Medicaid agencies, 
would be required to comply with the new standard 36 months after the 
effective date of the final rule.
    We solicit industry and other stakeholder comments on our proposed 
compliance dates.

D. Proposed Incorporation by Reference

    This proposed rule proposes to incorporate by reference: (1) the 
Telecommunication Standard Implementation Guide Version F6 (Version 
F6), January 2020; (2) equivalent Batch Standard Implementation Guide, 
Version 15 (Version 15) October 2017; and (3) the Batch Standard 
Subrogation Implementation Guide, Version 10 (Version 10), September 
2019 National Council for Prescription Drug Programs.
    The Telecommunication Standard Implementation Guide, Version 6 
contains the formats, billing units, and operating rules used for real-
time pharmacy claims submission. The equivalent Batch Standard 
Implementation Guide, Version 15, provides instructions on the batch 
file submission standard that is to be used between pharmacies and 
processors or among pharmacies and processors. Both implementation 
guides contain the data dictionary, which provides a full reference to 
fields and values used in telecommunication and its equivalent batch 
standard.
    The Batch Subrogation Implementation Guide, Version 10, is intended 
to meet business needs when a health plan has paid a claim that is 
subsequently determined to be the responsibility of another health plan 
within the pharmacy services sector. This guide provides practical 
guidelines for software developers throughout the industry as they 
begin to implement the subrogation transaction, and to ensure a 
consistent implementation throughout the pharmacy industry.
    The materials we propose to incorporate by reference are available 
to interested parties and can be inspected at the CMS Information 
Resource Center, 7500 Security Boulevard, Baltimore, MD 21244-1850. 
Copies may be obtained from the National Council for Prescription Drug 
Programs, 9240 East Raintree Drive, Scottsdale, AZ 85260. Telephone 
(480) 477-1000; FAX (480) 767-1042. They are also available through the 
internet at https://www.ncpdp.org. A fee is charged for all NCPDP 
Implementation Guides. Charging for such publications is consistent 
with the policies of other publishers of standards. If we wish to adopt 
any changes in this edition of the Code, we would submit the revised 
document to notice and comment rulemaking.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.

A. Submission of Paperwork Reduction Act (PRA)-Related Comments

    In this proposed rule we are soliciting public comment on each of 
these issues for the following sections of the rule that contain 
proposed ``collection of information'' requirements as defined under 5 
CFR 1320.3(c) of the PRA's implementing regulations. 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. We estimate there are currently 104 
affected entities (which also includes PBMs and vendors), (416 
reviewers total). We assume each entity will have four designated staff 
members who will review the entire proposed rule. The particular staff 
members involved in this review will vary from entity to entity, but 
will generally consist of lawyers responsible for compliance activities 
and individuals familiar with the NCPDP standards at the level of a

[[Page 67643]]

computer and information systems manager.
    In this proposed rule we are soliciting public comment on each of 
these issues for the following sections of the rule that contain 
proposed ``collection of information'' requirements as defined under 5 
CFR 1320.3(c) of the PRA's implementing regulations. If regulations 
impose administrative costs on reviewers, such as the time needed to 
read and interpret this proposed, then we should estimate the cost 
associated with regulatory review. We estimate there are 104 affected 
entities (which also includes PBMs and vendors). We assume each entity 
will have four designated staff member who would review the entire 
rule, for a total of 416 reviewers. The particular staff involved in 
this review will vary from entity to entity, but will generally consist 
individuals familiar with the NCPDP standards at the level of a 
computer and information systems manager and lawyers responsible for 
compliance activities.
    Using the wage information from the Bureau of Labor Statistics 
(BLS) for computer and information systems managers (code 11-3021), we 
estimate that the labor cost of having two computer and information 
systems managers reviewing this proposed rule is $95.56 per hour, 
including fringe benefits and overhead costs (https://www.bls.gov/oes/current/oes_nat.htm). Assuming an average reading speed, we estimate 
that it will take approximately 4 hours for the two computer and 
information systems managers to review this proposed rule. For each 
entity that has two computer and information systems managers reviewing 
this proposed rule, the estimated cost is, therefore, $764.48 (4 hours 
x $95.56 x 2 staff). Therefore, we estimate that the total cost of when 
two computer and information systems manager review this proposed rule 
is $78,742 ($764.48 x 104 entities).
    We are also assuming that an entity would have two lawyers 
reviewing this proposed rule. Using the wage information from the BLS 
for lawyers (code 23-1011), we estimate that their cost of reviewing 
this proposed rule is $113.12 per hour per lawyer, including fringe 
benefits and overhead costs (https://www.bls.gov/oes/current/oes_nat.htm). Assuming an average reading speed, we estimate that it 
will take approximately 4 hours for two lawyers to review this proposed 
rule. For each entity that has two lawyers reviewing this proposed 
rule, the estimated cost is, therefore, $904.96 (4 hours x $113.12 x 2 
staff). Therefore, we estimate that the total cost of when two lawyers 
reviews this proposed rule is $93,211 ($904.96 x 104 entities).
    We solicit comments on our assumptions and calculations.

B. Modification to Retail Pharmacy Standards (Information Collection 
Requirement (ICR))

    The following requirements and burden associated with the 
information collection requirements contained in Sec. Sec.  162.1102, 
162.1202, 162.1302, 162.1802, and 162.1902 of this document are subject 
to the PRA; however, this one-time burden was previously approved and 
accounted for in the information collection request previously approved 
under OMB control number 0938-0866 and titled ``CMS-R-218: HIPAA 
Standards for Coding Electronic Transactions.''
    OMB has determined that the establishment of standards for 
electronic transactions under HIPAA (which mandate that the private 
sector disclose information and do so in a particular format) 
constitutes an agency-sponsored third-party disclosure as defined under 
the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.). 
(See 65 FR 50350 (August 17, 2000)) With respect to the scope of its 
review under the PRA, however, OMB has concluded that its review would 
be limited to the review and approval of initial standards, and to 
changes in industry standards that would substantially reduce 
administrative costs. (See 65 FR 50350 (August 17, 2000)) This 
document, which proposes to update adopted electronic transaction 
standards that are being used, would usually constitute an information 
collection requirement because it would require third-party 
disclosures. However, because of OMB's determination, as previously 
noted, there is no need for OMB review under the PRA. But see 5 CFR 
1320.3(b)(2) (time, effort, and financial resources necessary to comply 
with an information collection that would otherwise be incurred in the 
normal course of business can be excluded from PRA ``burden'' if the 
agency demonstrates that such activities needed to comply with the 
information collection are usual and customary).
    Should our assumptions be incorrect, this information collection 
request will be revised and reinstated to incorporate any proposed 
additional transaction standards and proposed modifications to 
transaction standards that were previously covered in the PRA package 
associated with OMB approval number 0938-0866.

V. Regulatory Impact Analysis

A. Statement of Need

    This rule proposes modifications and an initial adoption to 
standards for electronic retail pharmacy transactions adopted under the 
Administrative Simplification subtitle of the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA). Under HIPAA, the 
National Committee on Vital and Health Statistics (NCVHS) recommends 
standards and operating rules to the Secretary of the Department of 
Health and Human Services (HHS) following review and approval of 
standards or updates to standards from the applicable SSO--in this 
case, the National Council for Prescription Drug Programs (NCPDP). The 
HHS Secretary must generally promulgate notice and comment rulemaking 
to adopt new or updated standards before they can be utilized to 
improve industry processes.
    On May 17, 2018, the NCVHS recommended that the Secretary adopt the 
NCPDP Telecommunications Implementation Guide Version F2 (Version F2) 
and two related batch standards: Batch Standard Implementation Guide, 
Version 15, and the Batch Standard Subrogation Implementation Guide, 
Version 10 (Version 10). On April 22, 2020, the NCVHS recommended that 
the Secretary adopt NCPDP Telecommunications Implementation Guide 
Version F6 (Version F6) in lieu of Version F2, as well as the two batch 
standard recommendations set forth in the May 2018 letter. (For 
purposes of this analysis, Version F6 and its equivalent Batch Standard 
Version 15 are collectively referred to as Version F6.) These standards 
have been developed through consensus-based processes and subjected to 
public comment which indicated, without opposition, that the updates 
are required for current and future business processes. Based on 
informal communication with industry, should the updates to the 
standards not be adopted, industry will need to continue using NCPDP 
Version D.0 and the associated work arounds, including manual claims 
processing and claims splitting for drugs priced at or in excess of $1 
million.

B. Overall Impact

    We have examined the proposed impacts of this rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), the Regulatory Flexibility Act (September

[[Page 67644]]

19, 1980; Pub. L. 96-35496354), Executive Order 13272 on Proper 
Consideration of Small Entities in Agency Rulemaking (August 13, 2002), 
section 1102(b) of the Act, section 202 of the Unfunded Mandates Reform 
Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 
804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as economically significant); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive order.
    A Regulatory Impact Analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year). This proposed rule is anticipated to have an annual effect on 
the economy in costs, benefits, or transfers of $100 million or more. 
Based on our estimates, OMB's Office of Information and Regulatory 
Affairs has determined this rulemaking is ``economically significant'' 
as measured by the $100 million threshold, and hence also a major rule 
under Subtitle E of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (also known as the Congressional Review Act).
    We have prepared an RIA that, to the best of our ability, presents 
the costs and benefits of this proposed rulemaking. We anticipate that 
the adoption of these new versions of the retail pharmacy standard 
would result in costs that would be outweighed by the benefits.

C. Limitations of the Analysis

1. Data Sources
    This portion of the analysis is based in part on industry research 
conducted in 2019 and 2020 by the CMS Alliance to Modernize Healthcare 
(CAMH), a Federally Funded Research and Development Center, to assess 
the costs and benefits associated with the potential adoption of 
Versions F2 and F6. As part of this effort, CAMH did the following: 
identified the relevant stakeholders that would be affected by the 
adoption of a new HIPAA standard for retail pharmacy drug transactions; 
obtained expert opinion, expressed qualitatively and quantitatively, on 
impacts on affected stakeholders of moving from the current version to 
the updated standards; and developed a high-level aggregate estimate of 
stakeholder impacts, based on available information from public sources 
and interviews. References to conversations with industry stakeholders 
in this section of the proposed rule are based on the interviews 
conducted by CAMH unless otherwise noted.
    In conversations with industry stakeholders, we have been informed 
that entity-specific financial impact analyses of modifications to 
HIPAA transaction standards are not initiated until formal HHS 
rulemaking has been initiated, since proposed timing is a critical 
variable in cost development. For instance, in public comments 
submitted to the NCVHS,\9\ the NCPDP urged that a timeline be 
communicated as soon as possible to allow stakeholders to begin 
budgeting, planning, development work, and coordinating the necessary 
trading partner agreements. Another commenter noted that corporate 
information technology (IT) budgets and timelines are dependent on the 
rulemaking process. We further understand that stakeholders likely 
would choose to implement only components of standards relevant to 
their business use cases, such that irrelevant components (and any 
additional expense they might require) may simply be disregarded.
---------------------------------------------------------------------------

    \9\ NCVHS Subcommittee on Standards Comments Received in 
Response to Request for Comment Federal Register Notice 85 FR 11375. 
https://ncvhs.hhs.gov/wp-content/uploads/2020/03/Public-Comments-NCPDP-Change-Request-March-2020.pdf.
---------------------------------------------------------------------------

    In lieu of financial cost estimates, industry stakeholders have 
provided preliminary assessments that the conversion to Version F6 
would entail between two to four times the level of effort as the 
previous HIPAA pharmacy standard conversion from Version 5.1 to Version 
D.0. But, we do not have reliable baseline data on the actual costs of 
that previous conversion to which to apply the multipliers because we: 
(1) are not aware of any available information on the final costs of 
the conversion to Version D.0; (2) have been told that stakeholders do 
not track expenditures in this way; and (3) our previous regulatory 
estimates combined the Version D.0 implementation with the concurrent 
X12 Version 5010 conversion, and so would be ambiguous at best. 
Moreover, as discussed in connection with comments received on the 2009 
Modifications proposed rule generally, many commenters mentioned 
underestimated costs or overestimated benefits of transitioning to the 
new versions, but few provided substantive data to improve the 
regulatory estimates.\10\ Therefore, we use certain estimates provided 
in public comments reported in the 2009 Modifications final rule as the 
starting point for our cost estimates. Our general approach is to 
develop estimates of the true baseline D.0 conversion costs and then 
apply a Version F6 multiplier.
---------------------------------------------------------------------------

    \10\ 74 FR 3314 (January 16, 2009); see also ``Modifications to 
the Health Insurance Portability and Accountability Act (HIPAA) 
Electronic Transaction Standards'' proposed rule (73 FR 49796 
(August 22, 2008)) (hereinafter referred to as the 2009 
Modifications proposed rule).
---------------------------------------------------------------------------

    With respect to benefits, we are not aware of any available 
information or testimony specifically quantifying cost savings or other 
benefits, although there is ample testimony supporting the business 
need and benefits of the proposed changes.
2. Interpreting Cost
    Standard economics recognizes cost in several different ways. 
Marginal cost describes the resources needed to produce one additional 
unit of a good. Rule-induced costs may include new inputs of labor, 
materials, capital, etc.; but exclude sunk costs (already invested). 
The recommended methodology for a RIA considers government intervention 
to impose costs.\11\ It assumes that stakeholders must make new 
expenditures to change their business systems. Under this 
interpretation, pharmacies and vendors would hire coders and other 
software development and testing specialists or consultants to modify 
their production code to accommodate Version F6. This one-time, out-of-
pocket expenditure would constitute a cost attributable to the proposed 
rule. Costs to transmit transactions using the F6 standard after 
business systems have been modified to implement the proposed standard, 
as

[[Page 67645]]

well as costs to maintain those systems for compliance with the 
standard, were not factored into this RIA. These ongoing costs are 
currently incurred by affected entities that are required to use the 
current standard and are attributable to conducting electronic 
transactions in general. Therefore, in this RIA, we do not anticipate 
any costs attributable to the proposed rule after completion of the 
proposed 2-year compliance timeframe. We solicit comment, including 
industry comment, on our cost interpretations.
---------------------------------------------------------------------------

    \11\ aspe.hhs.gov/pdf-report/guidelines-regulatory-impact-analysis.
---------------------------------------------------------------------------

    Opportunity cost refers to the benefits forgone by choosing one 
course of action instead of an alternative. A business that invests in 
venture X loses the opportunity to use those same funds for venture Y. 
Based on oral and written NCVHS testimony by the retail pharmacy 
industry and pharmacy management system vendors, it was suggested that 
their software development process for a HIPAA standard conversion 
would represent an opportunity cost. For instance, some large pharmacy 
chains maintain permanent technical staff to make day-to-day changes in 
their pharmacy management systems and management adjusts staff 
assignments according to the organization's needs. HIPAA standard 
transaction version changes like the proposed Version F6 
implementation, would, we believe, shift priorities for these staff, 
potentially delaying other improvements or projects. In this scenario, 
the opportunity cost consists of the time-value of delayed projects. 
Other pharmacy firms have an ongoing relationship with their pharmacy 
management software vendors. The purchaser generally obtains a hardware 
and software package with an ongoing agreement that includes periodic 
payments for maintenance, updates, upgrades, training, installation, 
financing, etc. Thus, the software is expected to evolve, rather than 
being just a one-time installation. The balance between upfront charges 
and monthly maintenance fees more closely resembles a multiyear lease 
than the one-time sale of an off-the-shelf application to a consumer. 
Thus, the parties often contemplate an ongoing supplier relationship in 
which maintenance and upgrades represent an opportunity cost.
    Average cost equals total cost divided by the total units of 
production. Average costs for goods and labor come from industry 
surveys and public reports. Researchers can determine average cost 
relatively easily, whereas marginal cost would require complex analyses 
of a particular industry, firm, or production volume. This RIA uses 
average costs because of their availability and verifiability.
    However, the proposed changes to adopt Version F6 and Version 10 
generally do not require new out-of-pocket expenditures, so average 
cost may not describe the realities of actual budget impacts to firms. 
We seek comment on these assumptions.

D. Anticipated Effects

    The objective of this RIA is to summarize the costs and benefits of 
the following proposals:
     Adopting modified real time and batch standards for retail 
pharmacy transactions for health care claims or equivalent encounter 
information; eligibility for a health plan; referral certification and 
authorization; and coordination of benefits, transitioning from 
Telecommunications Standard Version D.0 to Version F6.
     Adopting a new pharmacy subrogation transaction standard, 
replacing the Batch Standard Medicaid Subrogation Implementation Guide, 
Version 3, with the Batch Standard Subrogation Implementation Guide, 
Version 10, applicable to all prescription drug payers.
    Consistent with statutory and regulatory requirements, the NCVHS 
recommends HIPAA standards, which are developed by Standard Setting 
Organizations (SSOs), in this case the NCPDP, through an extensive 
consensus-driven process that is open to all interested stakeholders. 
The standards development process involves direct participatory input 
from representatives of the industry stakeholders required to utilize 
the transactions, including pharmacies (chain and independent), health 
plans and other payers, PBMs, and other vendors that support related 
services. We are not aware of any opposition to moving forward with 
these updates.
    We are proposing a 2-year compliance date following the effective 
date of the final rule. For purposes of this analysis, we assume a 2-
year implementation period. The remainder of this section provides 
details supporting the cost-benefit analysis for each of the proposals 
referenced previously.
    Table 1 is the compilation of the estimated costs for all of the 
standards being proposed in this rule. To allocate costs over the 
proposed 2-year implementation period, we assumed a 50-50 percent 
allocation of IT expenses across the 2-year implementation period and 
all training expenses in the second year. However, this is just an 
informed guess, as we did not locate any source information on this 
assumption. We note again that we are not aware of any data or 
testimony describing quantifiable benefits or cost savings attributable 
to these proposals, and have solicited comments on whether there are 
significant quantifiable benefits or cost savings that should be 
included in our analysis.
[GRAPHIC] [TIFF OMITTED] TP09NO22.008


[[Page 67646]]


1. Adoption of Version F6 (Including Equivalent Batch Standard Version 
15)
    The objective of this portion of the RIA is to summarize the costs 
and benefits of implementing Version F6. We invite the industry or 
other interested entities or individuals to comment on all of our 
assumptions and projected cost estimates, and to provide current data 
to support alternative theories or viewpoints throughout.
a. Affected Entities
    Almost all pharmacies and all intermediaries that transfer and 
process pharmacy claim-related information already use Version D.0 for 
eligibility verification, claim and service billing, prior 
authorization, predetermination of benefits, and information reporting 
transaction exchanges (the latter two categories are not HIPAA-adopted 
pharmacy standards). Pharmacies utilize technology referred to as 
pharmacy management systems that encode Version D.0 to submit these 
transactions for reimbursement on behalf of patients who have 
prescription drug benefits through health and/or drug plan insurance 
coverage (health plans). These submissions are generally routed through 
two intermediaries: a telecommunication switching vendor (switch) and a 
specialized third-party administrator for the health plan, generally a 
PBM. Billing transactions may occur in one of two modes: real time or 
batch. Pharmacy claims are generally transacted in real time as a 
prerequisite to dispensing prescription medications. For instance, 
Medicare Part D rules generally require each claim to be submitted 
online in real time to permit accumulator balances to be updated after 
every claim so cost sharing on each subsequent claim will accurately 
reflect changes in benefit phases. The equivalent batch standard 
enables transmission of non-real-time transactions. For instance, a 
batch submission could be sent following a period when real-time 
response systems were unavailable or following a retrospective change 
in coverage. Technically, the batch standard uses the same syntax, 
formatting, data set, and rules as the telecommunications standard, 
``wraps'' the telecommunication standard around a detail record, and 
then adds a batch header and trailer to form a batch file. The claims 
processor may then process the batch file either within a real-time 
system or in a batch-scheduling environment.
    Based on the 2017 Census business data, pharmacies have a bimodal 
size distribution. About 99 percent of firms have a single location, 
predominantly the traditional independent, owner-operated storefront 
and the remainder of fewer than 200 large firms operate an average of 
approximately 150 establishments (locations) each. According to other 
industry data, the largest five chain pharmacy firms represent over 
28,000 locations, and the two largest chains each exceed 9,000 
locations.\12\ However, the Census business data's Pharmacy and Drug 
Store segment (North American Industry Classification System (NAICS) 
code 446110) does not capture all pharmacy firms affected by this 
proposed rule. While we believe this source is enough to capture most 
small pharmacies, we need another data source to capture the additional 
larger firms.
---------------------------------------------------------------------------

    \12\ 2019 ``U.S. National Pharmacy Market Summary.'' IQVIA. 
https://www.onekeydata.com/downloads/reports/IQVIA_Report_US_Pharmacy_Market_Report_2019.pdf.
---------------------------------------------------------------------------

    Pharmacies are typically classified by ownership as either chain or 
independents. Health data analytics company IQVIA estimated \13\ in 
2019 that there were 88,181 pharmacies, of which 55 percent (48,196) 
were part of chains and 45 percent (39,985) were independents. Open-
door retail pharmacies, which provide access to the general public, 
comprised the clear majority of pharmacy facility types at 91 percent 
(80,057). The five largest pharmacy chains owned about 35 percent 
(close to 28,000) of retail locations. The remaining 8 percent of 
facility types included closed-door pharmacies, which provide 
pharmaceutical care to a defined or exclusive group of patients because 
they are treated or have an affiliation with a special entity such as a 
long-term-care facility, as well as central fill, compounding, 
internet, mail service, and hospital-based nuclear and outpatient 
pharmacies. Most of these pharmacy types may be included in Medicare 
Part D sponsor networks. We are aware that the largest pharmacy chains 
are increasingly likely to operate multiple pharmacy business segments 
(channels), such as retail, mail, specialty, and long-term care. 
However, we are not aware of information that would allow us to treat 
these non-open-door retail pharmacy firm types any more granularly than 
our usual chain and independent categories. We welcome comments on 
whether there are meaningful distinctions in cost structures that 
should be considered, as well as on any publicly available data sources 
to assist in quantifying entities in these segments and any potential 
differential impacts.
---------------------------------------------------------------------------

    \13\ 2019 ``U.S. National Pharmacy Market Summary.'' IQVIA. 
https://www.onekeydata.com/downloads/reports/IQVIA_Report_US_Pharmacy_Market_Report_2019.pdf.
---------------------------------------------------------------------------

    As noted, pharmacies utilize pharmacy management systems to encode 
Version D.0 for claim-related data exchanges via telecommunication 
switches. Pharmacies that do not internally develop and maintain their 
pharmacy management systems will contract with technology vendors for 
these services. Based in part on communications with industry 
representatives, such as the American Society for Automation in 
Pharmacy, we believe there are approximately 30 technology firms 
providing computer system design, hosting, and maintenance services in 
this market. Based on testimony provided to the NCVHS, in 2018 this 
market represented approximately 180 different software products.\14\ 
Some pharmacies may also utilize other vendors, generally 
clearinghouses, for mapping Version D.0 claims to the X12 837 claim 
format (for instance, to bill certain Medicare Part B claims). However, 
since mapping between the X12 and NCPDP standards is not an element of 
Version F6, we do not consider this practice in scope for this proposed 
rule and do not account for it in this RIA.
---------------------------------------------------------------------------

    \14\ NCVHS Hearing on NCPDP Standards and Updates--March 26, 
2018 Virtual Meeting. https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/.
---------------------------------------------------------------------------

    Pharmacies also contract with telecommunication switches for 
transaction routing. In addition to routing, switches validate the 
format of pharmacy transactions prior to transmission to the payer and 
then check the payer response to make sure it is formatted correctly 
for the pharmacy to interpret. Based on conversations with industry 
representatives, we believe there are three telecommunication switches 
in this segment of the market.
    Some healthcare providers that dispense medications directly to 
their patients, known as dispensing physicians, may use Version D.0 to 
submit these outpatient prescription drug claims on behalf of their 
patients to health plans via health plans' PBMs. However, we do not 
believe this practice to be widespread and therefore do not account for 
it in this RIA.
    Health plans generally provide some coverage for outpatient 
prescription drugs, but do not generally contract and transact with 
pharmacies directly. Instead, health plans typically contract with PBM 
firms to receive and process pharmacy claim transactions for their 
enrollees. We assume even the relatively

[[Page 67647]]

few health plans that directly purchase prescription drugs for their 
own pharmacies utilize PBMs, either owned or contracted, to manage 
billing for drugs and pharmacy supplies. Likewise, the Department of 
Veterans Affairs (VA) Pharmacy Benefits Management Services (VA PBM) 
runs its own PBM unit for VA prescription drug operations.
    As previously noted, in 2017 there were 745 Direct Health and 
Medical Insurance Carriers and 27 Health Maintenance Organization (HMO) 
Medical Centers--a total of 772 health plan firms. Comparable data 
limited specifically to PBMs is not available, but based on Part D 
experience, we estimate that approximately 40 firms conduct some PBM 
functions involved with processing some pharmacy claim transactions. 
Based on testimony provided to the NCVHS, in 2018 these 40 firms 
represented approximately 700 different payer sheets,\15\ or payer-
specific endpoints and requirements for submitting pharmacy claims. 
Industry analysis by Drug Channels Institute's website based on 2018 
data \16\ indicated that the top six PBMs controlled approximately 95 
percent of total U.S. equivalent prescription claims, and the top three 
PBMs controlled 75 percent. We assume that the VA PBM is in addition to 
these numbers, but that Medicaid claim processing PBMs are included in 
the 40 firms. Industry trends include significant consolidation of 
firms in these sectors and vertical integration among health plans, 
PBMs, and pharmacies.
---------------------------------------------------------------------------

    \15\ NCVHS Hearing on NCPDP Standards and Updates--March 26, 
2018 Virtual Meeting. https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/.
    \16\ CVS, Express Scripts, and the Evolution of the PBM Business 
Model. Drug Channels. May 29, 2019. https://www.drugchannels.net/2019/05/cvs-express-scripts-and-evolution-of.html.
---------------------------------------------------------------------------

b. Costs
(1) Chain Pharmacies
    Pharmacies either internally develop or externally purchase 
pharmacy management information systems to bill and communicate with 
PBMs. Based on public comments related to Version F6 submitted to the 
NCHVS, available at https://ncvhs.hhs.gov/wp-content/uploads/2020/03/Public-Comments-NCPDP-Change-Request-March-2020.pdf, we are aware that 
some chain pharmacy firms (with as many as 1,800 pharmacies) utilize 
systems managed by third-party technology vendors. For purposes of this 
RIA, we assume that, generally, the largest chain pharmacy firms 
internally develop and manage their own pharmacy management system 
upgrades and transaction standard conversion development, 
implementation, testing, and training. We further assume that these 
costs are generally incurred at the firm level. Based on the 2019 IQVIA 
data, the top 25 pharmacy firms accounted for 38,464 stores. If these 
top 25 firms represented chain-owned entities, they represented almost 
80 percent (38,464/48,196) of total chain pharmacy stores in 2019. We 
assume these 25 firms, as well as the VA and the Indian Health Service 
(IHS), would finance and manage their pharmacy system conversion 
requirements internally, and the remainder of chain pharmacy firms 
would rely on their technology vendor for technical development, 
implementation, testing, and initial training.
    To determine whether our assumptions were reasonable, we met with 
representatives from IHS. Based on those conversations, we understand 
that IHS, tribal, and urban (I/T/U) facilities with pharmacies would 
have multiple Version F6 implementation scenarios. Although these 
facilities are not legally chain pharmacies, we believe their 
implementation costs may be roughly similar and, thus, we treat I/T/U 
facilities with pharmacies under this category for this analysis. IHS 
manages a significant federal health information technology (HIT) 
system with a suite of modules, including pharmacy dispensing and 
billing, that supports IHS pharmacies, as well at least 16 urban 
entities and 114 tribal entities; however not all of these entities 
include pharmacies. In contrast to other pharmacy entities treated as 
chain pharmacies, we understand that additional budget funding may be 
required for IHS to implement Version F6 within the proposed 
implementation timeframe. We estimate that IHS would incur 
implementation costs at a level roughly equivalent to the VA system, 
and that this expense would be a marginal cost for the IHS. We also 
understand that approximately another 60 tribal entities and another 25 
urban entities do not utilize the federal system, but, rather, contract 
with commercial vendors for HIT; although again, not all of these 
entities operate their own pharmacies. As a result, we estimate that 
about 60 percent of these smaller I/T/U entities (51) would rely on 
existing maintenance agreements with commercial vendors for 
implementation and, like smaller chain pharmacies, would incur direct 
implementation costs to support user training costs. We solicit 
comments on our assumptions.
    In the 2017 Census business data there were 190 firms classified as 
Pharmacies and Drug Stores with more than 500 employees, representing 
27,123 establishments. This classification does not include grocery 
store pharmacies, which were elsewhere reported to number 9,026 in 
2017, and to be decreasingly offered by smaller grocery chains in 
2020.\17\ The 2017 Census business data includes 72 firms classified as 
Supermarkets and Other Grocery (except Convenience) Stores with more 
than 5,000 employees, which we assume is a proxy for the number of such 
firms still offering grocery store pharmacies in 2020. (The Census 
Bureau and Bureau of Labor Statistics [BLS] include ``big box'' 
department stores in this category.) Thus, we assume a total of 262 
(190+72) chain pharmacy firms based on this data. Since we assume 25 
firms would manage their Version F6 conversion costs internally, we 
estimate the remainder of 237 (262-25) would rely upon their technology 
vendor. As an alternative data point, Drug Channels Institute estimated 
that the top 15 pharmacy organizations in 2019 represented over 76 
percent market share in revenues.\18\ Although there is not complete 
consistency between the top organizations listed in the two analyses, 
both tend to support a view of the set of market participants as 
heavily skewed toward smaller firms, with the very largest firms likely 
to have multiple pharmacy channel segments.
---------------------------------------------------------------------------

    \17\ The Pharmacist Is Out: Supermarkets Close Pharmacy 
Counters: Regional grocery chains get squeezed by consolidation, 
shrinking profits in prescription drugs. By Sharon Terlep and Jaewon 
Kang. Wall Street Journal. Updated Jan. 27, 2020 6:18 p.m. ET. 
Accessed 10/13/2020 at: https://www.wsj.com/articles/the-pharmacist-is-out-supermarkets-close-pharmacy-counters-11580034600?mod=business_lead_pos3&utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top.
    \18\ The Top 15 U.S. Pharmacies of 2019: Specialty Drugs Drive 
the Industry's Evolution. Drug Channels Institute. Published March 
3, 2020. https://www.drugchannels.net/2020/03/the-top-15-us-pharmacies-of-2019.html.
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    Based on conversations with a variety of industry representatives, 
we understand that these larger firms retain the technical staff and/or 
contractors that would undertake the Version F6 conversion efforts as 
an ongoing business expense. Consequently, in practice the cost 
estimates developed in this section do not represent new additional 
expenditures for these firms, but rather opportunity costs for these 
resources that would otherwise be deployed on other maintenance or 
enhancement projects.
    As previously noted, industry estimates of the costs of a 
conversion

[[Page 67648]]

from current Version D.0 to Version F6 have been in the form of 
multiples of the costs for the Version 5.1 to Version D.0 conversion. 
As a technical matter, we assume these informal multiples account for 
inflation. In a presentation to the NCVHS,\19\ the NCPDP indicated that 
stakeholders' input indicated the level of effort and cost for Version 
F6 to be at least double that of implementing NCPDP D.0. In public 
comments to the NCVHS, a chain pharmacy association stated that 
implementation costs would vary significantly among different pharmacy 
chains based on size, scope of services provided, and business models, 
and that hardware, software, and maintenance costs allocated 
specifically to Version F6 are estimated to be in the tens of millions 
of dollars. One of the largest pharmacy chains estimated costs 
associated with Version F6 implementation to be three to four times 
higher than the implementation of Version D.0, also in the tens of 
millions of dollars. This commenter explained that much of these higher 
costs is related to the expanded dollar fields, the structure of new 
fields that require database expansion, and updates to many integrated 
systems. Another of the largest pharmacy chains with integrated PBM 
functions offered preliminary estimates in the range of two to three 
times greater than the Version D.0 conversion, and noted that the 
expanded dollar fields would impact all of the following systems: point 
of service claim adjudication, all associated financial systems, 
internal and external reporting programs, help desk programs, member/
client portals, and integrated data feeds. This same stakeholder stated 
that the size of the transactions has also increased considerably due 
to the inclusion of new segments and repeating fields and would require 
new database storage hardware.
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    \19\ NCVHS Full Committee Hearing, March 24-25, 2020. https://ncvhs.hhs.gov/meetings/full-committee-meeting-4/.
---------------------------------------------------------------------------

    The 2009 Modifications final rule discussed receiving estimates of 
$1.5 million and $2 million from two large national pharmacy chains and 
elected to use an estimate of $1 million for large pharmacy chains and 
$100,000 for small pharmacy chains in the first implementation year. 
That rule also discussed a few public comments disputing these large 
chain estimates,\20\ suggesting in one case an alternative $2 million 
estimate inclusive of Version 5010 costs, and, in another, a 2-year 
cost of $4.9 million without specification of which costs were 
included. Another retail pharmacy commenter that self-identified as 
neither a chain nor an independent estimated a cost of implementation 
of both standards of $250,000, with 90 percent of the cost attributable 
to Version 5010 and, thus, $25,000 attributable to Version D.0. Using 
these estimates, we develop a rough estimate of the true baseline D.0 
conversion costs and then apply a Version F6 multiplier. We solicit 
comments on the appropriateness of this approach.
---------------------------------------------------------------------------

    \20\ 74 FR 3319 (January 16, 2009).
---------------------------------------------------------------------------

    We believe that Version F6 conversion costs for chain pharmacies 
would be differentiated in three general categories: (1) the largest 
firms operating in multiple pharmacy channels; (2) other midsize retail 
pharmacy chain firms operating primarily in either the open-door retail 
and/or another single pharmacy channel; and (3) smaller chain pharmacy 
firms. Starting with the point estimates discussed in the Version D.0 
rulemaking and making some upward adjustments to address potential 
underestimation, we estimate that--
     The two largest chain pharmacy firms incurred a baseline 
(D.0) cost of $2 million;
     The 23 midsize chain pharmacy firms, the VA and IHS 
pharmacy operations incurred a baseline cost of $1 million; and
     The 237 smaller chain pharmacy firms incurred a baseline 
cost of $25,000.
    Based on the 2x-4x multiplier estimates described previously, we 
assume a midpoint 3x multiplier for the estimated 25 larger chain 
pharmacies and the VA that would finance and manage their system 
conversion requirements internally; consequently, we estimate that over 
the 2-year implementation period:
     Two chain pharmacy firms would incur all internal Version 
F6 conversion costs of (3*2 million), or $6 million each.
     The 25 chain pharmacy-sized firms (23 midsized chains, the 
VA and IHS) would incur all internal Version F6 conversion costs of 
(3*1 mil), or $3 million each.
    Based on a CAMH environmental scan conducted with industry 
representatives, we understand that most pharmacy firms rely on their 
pharmacy management system vendor for conversion planning, development, 
implementation, testing, and initial (primary) training. CAMH suggested 
that pharmacies would likely need to make some investments in staff 
training, but would likely not have an increase in direct upfront 
software costs because system software updates are usually factored 
into the ongoing contractual fees for operating and maintenance costs 
of their pharmacy systems. Thus, we understand that HIPAA modification 
efforts are generally already priced into vendor maintenance agreements 
and fee structures, and we assume there would be no increases 
specifically due to the Version F6 conversion in these ongoing costs to 
pharmacies. We assume that primary training is developed or purchased 
at the firm level and may deploy at the establishment level in 
secondary employee in-service training slots. We assume that this 
training does not scale along with the conversion costs, but rather 
with the size of the organization in terms of locations and employees. 
As summarized in Table 2, using the generally uncontested estimates 
from the Version D.0 rulemaking adjusted for inflation,\21\ we estimate 
that: 237 smaller chain pharmacy firms and 51 urban and tribal entity 
pharmacies (a total of 288 pharmacies) would incur Version F6 
conversion training costs of ($25,000 x 1.20) or $30,000 each on 
average, generally in the second year of the 2-year implementation 
period.
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    \21\ Based on inflation from January 2010 to September 2020: 
https://www.bls.gov/data/inflation_calculator.htm.
---------------------------------------------------------------------------

    We invite public comments on our general assumptions and request 
any additional data that would help us determine more accurately the 
impact on the pricing structures of entities affected by this proposed 
rule.

[[Page 67649]]

[GRAPHIC] [TIFF OMITTED] TP09NO22.009

(2) Independent Pharmacies
    As noted previously, the 2019 IQVIA data included 88,181 
pharmacies, of which 45 percent (39,985) were independently owned. We 
recognize that this classification is not identical to the use of the 
term independent community pharmacy; however, we are not aware of 
publicly available data to help us segment this market further. We know 
from Census business data that in 2017 there were 19,044 pharmacy firms 
with fewer than 500 employees, representing 20,901 establishments. Just 
as we assume that the firms with more than 500 employees represent 
chains, we assume that those with fewer than 500 employees represent 
independently owned open- or closed-door pharmacies.
    We understand that these smaller pharmacies predominantly rely on 
their pharmacy system vendors for upgrades, including HIPAA standard 
version conversion planning, development, implementation, testing, and 
primary training. In return, they pay ongoing maintenance and 
transaction fees. As discussed previously with respect to some chain 
pharmacies, we understand that Version F6 conversion efforts would 
already be priced into existing maintenance agreements and fee 
structures. Therefore, we do not assume increases in these ongoing 
costs to independent pharmacies as the result of the Version F6 
conversion, and we estimate pharmacy direct costs would generally be 
comprised of training and other miscellaneous expenses. As with chain 
pharmacies, we assume that primary training is developed or purchased 
at the firm level and deployed at the establishment level in secondary 
employee in-service training slots. We further assume that this 
training does not scale along with the conversion costs, but, rather, 
with the size of the organization in terms of locations and employees. 
For this reason, we assume that the few system users in very small 
pharmacies would be trained directly by the pharmacy management system 
vendor, and no secondary training costs would be required for such 
small firms.
---------------------------------------------------------------------------

    \22\ 74 FR 3317 (January 16, 2009).
    \23\ Based on inflation from January 2010 to September 2020: 
https://www.bls.gov/data/inflation_calculator.htm.
---------------------------------------------------------------------------

    As noted previously, a commenter on the 2009 Modification proposed 
rule \22\ that self-identified as neither a chain nor an independent 
pharmacy estimated implementation costs of both Version 5010 and 
Version D.0 standards of $250,000, with 90 percent of the costs 
attributable to Version 5010. Thus, one non-chain pharmacy estimated 
conversion costs for Version D.0 of about $25,000. Although we do not 
know the size or complexity of this organization, this level would not 
be inconsistent with our understanding that the costs of an NCPDP 
Telecommunication Standard conversion would be borne by the pharmacy 
management system vendors and that smaller pharmacy conversion costs 
would consist primarily of user training expense. Referring to the 2017 
Census business data, almost 90 percent (17,016 out of 19,044) of these 
pharmacy firms had fewer than 20 employees, while the remainder (2,028) 
had between 20 and 499. Therefore, we assume that 17,016 small pharmacy 
firms would incur opportunity costs for employee time spent in training 
and 2,028 pharmacy firms would incur secondary training expenses. As 
summarized in Table 3, assuming baseline training costs per independent 
pharmacy with 20 or more employees of $25,000, and a cumulative 
inflation adjustment of 20 percent,\23\ we estimate that 2,028 
independently owned pharmacies would incur Version F6 conversion 
training costs of ($25,000 x 1.20) or $30,000 each on average, in the 
second year of the 2-year implementation period
[GRAPHIC] [TIFF OMITTED] TP09NO22.010

(3) Health Plans and PBMs
    We anticipate that health plans should see minimal changes in their 
operations and workflows between Version D.0 and Version F6. Health 
plans contract with processors/PBMs for conducting online eligibility 
verification, claim and service billing, predetermination of benefits, 
prior authorization, and information reporting transaction exchange 
types and transaction record storage. While health plans (or their 
other vendors) supply PBMs with eligibility records and receive data 
from PBMs containing data derived from claims, they are not typically 
parties to the exchange of the HIPAA pharmacy transactions. Based on 
NCVHS testimony with stakeholders and in development of an 
environmental scan on the impact of this update to the pharmacy 
standards, we understand that HIPAA standard conversion costs are 
already priced into

[[Page 67650]]

ongoing contractual payment arrangements between health plans and PBMs 
and would not be increased specifically in response to the Version F6 
conversion.
    All PBMs would experience some impacts from the Version F6 
conversion, involving IT systems planning and analysis, development, 
and external testing with switches and trading partners. One PBM 
commented to the NCVHS that the most significant impact would be the 
expansion of the financial fields to accommodate very expensive drug 
products with charges greater than $999,999.99. Another PBM processor 
representative indicated in a conversation that the impact on payer/
processors would depend on the lines of business they support--that 
entities supporting Medicare Part D processing would have the most work 
to do, but would also get the most value from the transition. The 
extent to which these activities would be handled by in-house resources 
or contracted out may vary by organization. Based on other 
conversations, we understand that from the PBM perspective, the Version 
F6 conversion adds fields that increase precision and machine 
readability; rearranges some things to make processing more efficient 
and flexible in the long run; implements more efficient ways to 
accomplish work-arounds that payers already have in place (so the 
changes in the transactions would map to back-end system fields and 
logic already in place); and involves relatively few structural 
changes.
    PBMs may manage prescription drug coverage for a variety of lines 
of business, including commercial health plans, self-insured employer 
plans, union plans, Medicare Part D plans, the Federal Employees Health 
Benefits Program, state government employee plans, managed Medicaid 
plans, and others,\24\ such as state Medicaid programs. While details 
on internal operating systems are proprietary, we assume that the three 
largest PBMs that controlled 75 percent of 2018 market share \25\ (not 
including the VA) have contractual agreements supporting all or most 
drug coverage lines of business and host the most variants in legacy 
operating platforms, customer-specific processing requirements, and 
scope of customer service requirements--involving all the information 
exchange types supported by the NCPDP Telecommunications Standard. We 
assume that the remaining three of the top six PBMs, responsible for 
another 20 percent of market share, have lesser operating system 
complexity but also provide services for multiple lines of business and 
a full scope of information exchange types. We assume that the VA PBM 
is comparable to these midsize PBMs. We assume that the remainder of 
the PBM market is comprised of approximately 33 (40-7) smaller PBMs 
supporting one or more lines of business and information exchange 
types.
---------------------------------------------------------------------------

    \24\ Pharmacy Benefit Managers (PBMs): Generating Savings for 
Plan Sponsors and Consumers. Prepared for the Pharmaceutical Care 
Management Association (PCMA). February 2020. https://www.pcmanet.org/wp-content/uploads/2020/02/Pharmacy-Benefit-Managers-Generating-Savings-for-Plan-Sponsors-and-Consumers-2020-1.pdf.
    \25\ CVS, Express Scripts, and the Evolution of the PBM Business 
Model. Drug Channels. May 29, 2019. https://www.drugchannels.net/2019/05/cvs-express-scripts-and-evolution-of.html.
---------------------------------------------------------------------------

    Public commenters to the 2009 Modifications proposed rule regarding 
the D.0 conversion, self-identifying as large PBMs, estimated that 
costs for their upgrades would be more than $10 million and $11 
million, respectively. As a result of these comments, we revised our 
estimates up to $10.5 million for each large PBM company and maintained 
the original assumption of $100,000 in conversion costs for smaller 
specialty PBMs,\26\ as we received no comments critical of that 
estimate. Based on updated data on market share, we now assume more 
segments in the PBM industry to account for the consolidation and 
growth of midsize entities that comprise the second tier of market 
share and assume their costs to be less than half those of the largest 
PBMs due to lesser complexity of structure and operations. Therefore, 
using the Version D.0 revised estimates as anchors, we estimate the 
following:
---------------------------------------------------------------------------

    \26\ 74 FR 3320 (January 16, 2009).
---------------------------------------------------------------------------

     The largest three PBMs incurred baseline (Version D.0) 
conversion costs of $10.5 million.
     The 3 next-largest PBMs and the VA PBM incurred baseline 
conversion costs of $4 million.
     The remaining 33 PBMs incurred baseline costs of $500,000.
    As previously noted, industry estimates of the costs of a 
conversion from Version D.0 to Version F6 have been expressed as 
multiples of two to four times the costs for the Version 5.1 to Version 
D.0 conversion. However, several PBM commenters to the NCVHS suggested 
the lower end of this range. This would be consistent with our 
understanding that many of the changes involve mapping current back-end 
work-around systems to newly codified data, as opposed to building 
substantial new functionality from scratch. However, expansion of all 
existing financial fields to accommodate larger numbers would involve 
changes to many interrelated systems. As summarized in Table 4, using a 
2x multiplier, we estimate that over the 2-year implementation period:
     The largest 3 PBMs would incur Version F6 conversion costs 
of (2*10.5 mil), or $21 million each.
     The next 3 midsize PBMs and the VA PBM or four firms, 
would incur Version F6 conversion costs of (2*4 mil), or $8 million 
each.
     The remaining 33 PBMs would incur Version F6 conversion 
costs of (2*500,000), or $1 million each.
[GRAPHIC] [TIFF OMITTED] TP09NO22.011


[[Page 67651]]


(4) Vendors
    As previously discussed, pharmacies that do not internally develop 
and maintain their pharmacy management systems contract with technology 
vendors for these services. We believe there are approximately 30 
technology firms providing computer system design, hosting, and 
maintenance services in this market, with different companies serving 
one or more market segments, such as retail, mail, long-term care, or 
specialty pharmacy. Software vendors often have commitments to their 
clients to maintain compliance with the latest adopted pharmacy 
transaction standards. They must incorporate these standards into their 
software systems; otherwise, they would not be able to sell their 
products competitively in the marketplace. These systems cannot 
properly support their users using outdated standards or missing key 
functionalities which the industry has identified as essential to 
business operations. We understand that vendors anticipate upgrades to 
these standards, and the cost of updating the software is incorporated 
into the vendor's routine cost of doing business and product support 
pricing. As discussed in the context of independent pharmacies, based 
on conversations with a variety of industry representatives, we 
understand that future HIPAA standard conversion efforts are often 
already priced into existing maintenance agreements and fee structures 
for their customers. However, the marginal costs of the conversion 
would be borne by these vendor entities.
    We understand from conversations with industry representatives that 
system update costs are usually embedded into operating costs, where 
they represent opportunity costs for vendors that offset the resources 
to add new features (system enhancements) that their clients may 
request. Updating systems would take some, but not all, resources 
currently doing system enhancements and improvements and move them over 
to ensuring compliance with the new standards. In the 2009 
Modifications final rule,\27\ we explained that we received no comments 
from pharmacy software vendors in response to the solicitation of 
comments on expected Version D.0 conversion costs, actual costs for 
vendor software upgrades, and any downstream impact on covered 
entities. We believe it is likely that firms would continue to decline 
to share this type of proprietary and market-sensitive data. Thus, we 
do not have comparable anchors from prior impact analyses for cost 
estimates. However, in the public comments submitted to the NCVHS, one 
pharmacy software vendor with multiple product lines provided a 
preliminary estimate of approximately 50,000 man-hours to make the 
Version F6 changes. We are not aware of publicly available data 
segmenting this industry, so we assume this one estimate is 
representative of the industry on average. Using this estimate and a 
mean hourly wage rate of $54 from BLS data \28\ and rounding to the 
nearest million, we estimate that over the 2-year implementation 
period: 30 pharmacy management system firms would incur Version F6 
conversion costs of approximately $3 million each for software 
planning, development, and testing.
---------------------------------------------------------------------------

    \27\ 74 FR 3320 (January 16, 2009).
    \28\ Bureau of Labor Statistics. May 2019 National Occupational 
Employment and Wage Estimates United States. Mean hourly rates for 
Computer Network Architects, Software Developers and Software 
Quality Assurance Analysts and Testers, and Computer Support 
Specialists. https://www.bls.gov/oes/current/oes_nat.htm#15-0000.
---------------------------------------------------------------------------

    We further estimate that these pharmacy system vendor firms would 
incur 80 hours of training costs for each pharmacy client firm at a 
mean hourly wage rate of $28.51 (also from the BLS data), the product 
rounded to $2,300. Thus, we estimate that in the third year of the 2-
year implementation period: 30 pharmacy management system firms would 
incur Version F6 training costs of $2,300 for 2,265 clients (237 small 
chain pharmacy and 2,028 independent pharmacy firms), or $5,210,000 in 
total for this industry segment.
    In addition, both pharmacies and PBMs contract with 
telecommunication switches for transaction validation and routing. 
Based on conversations with industry representatives, we believe there 
are three switches in this segment of the market. We are not aware of 
any data to help us estimate their costs of system upgrades, but 
believe their costs are less than those of chain pharmacies and PBMs. 
We estimate that over the 2-year implementation period three 
telecommunication switching vendors would incur Version F6 conversion 
costs of $1.5 million each. These other vendor costs are summarized in 
Table 5.
[GRAPHIC] [TIFF OMITTED] TP09NO22.012

    In summary, total estimated Version F6 conversion costs are 
summarized in Table 6.

[[Page 67652]]

[GRAPHIC] [TIFF OMITTED] TP09NO22.013

c. Benefits
    Industry commentary on benefits related to the Version F6 
conversion is available in two segments: first, the 2018 NCVHS 
testimony and industry representative interviews related to the 
proposed intermediate Version D.0 to Version F2 conversion, and second, 
the 2020 NCVHS testimony and public comments related to the revised 
Version F6 proposal. Both sets of evidence portray industry consensus 
that updating the HIPAA pharmacy standards is necessary for current and 
future business needs at a significant, but unavoidable, cost. 
Commentaries describe numerous non-quantifiable benefits, such as to 
enable compliance with regulatory requirements, to facilitate the 
transmittal of additional codified and interoperable information 
between stakeholders that would benefit patient care and care 
coordination, and to power advanced data analytics and transparency. 
Some changes would result in operational efficiencies over manual 
processes, but would also entail greater manual effort to collect 
information and input data at an offsetting cost. We are not aware of 
any assertions or estimates of industry cost savings attributable to 
the Version F6 conversion, and we solicit comment on whether there are 
significant savings that should be accounted for in our analysis. For 
pharmacy management system vendors and switches, we assume upgrading 
existing systems for the Version F6 conversion is a cost of doing 
business and retaining customers and does not involve cost savings.
(1) Pharmacies
    Initial automation of pharmacy coordination of benefits 
transactions was a large part of the previous Version 5.1 to D.0 
conversion. Further refinement of this type of information is included 
in the Version F6 conversion. Additional fields are expected to improve 
the flow of information between pharmacies and payers and allow for 
more accurate billing to the correct entity. However, better 
information does not translate into savings as directly as the initial 
transition from manual to fully electronic processes. Moreover, 
commenters to the 2009 Modifications proposed rule suggested that even 
those minor levels of savings (1.1 percent of pharmacist time) may have 
been overestimated.\29\ Some of the less quantifiable benefits include 
enabling more integration with back-office systems, more informative 
data analytics, better forecasting, and stronger internal controls over 
both proper payments and compliance with contractual requirements. For 
instance, better information on adjudicated payer types allows 
pharmacies to identify and apply insurance program-specific coverage 
requirements more accurately.
---------------------------------------------------------------------------

    \29\ 74 FR 3320 (January 16, 2009).
---------------------------------------------------------------------------

    Other changes, such as more structured communication between 
pharmacies and payers to resolve prescriber-identifier validation 
activities at the point of sale, or to better enable compliance with 
federal and state limitations on filling and refilling controlled 
substance prescriptions, would enable better compliance with Drug 
Enforcement Administration and CMS rules without PBMs having to resort 
to claim rejections. In general, many of these changes are expected to 
support pharmacy efficiency improvements, reduce some manual workflow 
processes related to Food and Drug Administration mandated Risk 
Evaluation and Mitigation Strategy (REMS) data collection and use, 
reduce the time required to resolve claim rejections and transaction 
attempts, and reduce recoupment risk on audits.\30\ However, these 
efficiencies may not necessarily translate directly to cost savings for 
pharmacies, as other changes require more data collection, greater 
pharmacy staff communication with prescribers, and inputting more 
coding than required previously. We are not aware of any estimates of 
quantifiable savings related to these efficiencies. Improvements like 
the expanded financial fields would avoid future manual processes 
needed to enter free text, split claims, or prepare and submit a paper 
Universal Claim Form; however, million-dollar claims are quite rare 
today, and, thus, it seems this change may not represent significant 
cost savings over current processes. But, as noted earlier, their 
numbers are expected to increase, and, without this functionality, the 
risk of billing errors could potentially increase. Moreover, these 
types of drugs would likely be dispensed by a small percentage of 
pharmacies, so the benefits would likely not be generally applicable to 
all pharmacies.
---------------------------------------------------------------------------

    \30\ S. Gruttadauria. (March 26, 2018). ``NCPDP 
Telecommunications Standard vF2 Written Testimony.'' Available: 
https://ncvhs.hhs.gov/wp-content/uploads/2018/05/Session-A-Gruttadauria-Written.pdf.
---------------------------------------------------------------------------

    Pharmacy and pharmacy vendor commenters to the NCVHS noted that 
other types of changes would benefit patients by enhancing pharmacy and 
payer patient care workflows through the replacement of many clinical 
free text fields with discrete codified fields. This would enable 
automation that can trigger real-time workflows that could aid in goals 
such as combatting the opioid crisis or communicating relevant therapy-
related information for at-risk patients. Improvements would support 
better patient care and safety through more accurate patient 
identification and enhanced availability and routing of benefit and 
drug utilization review information. For instance, new response fields 
for drug utilization review messaging and Formulary Benefit Detail help 
to convey clinical information such as disease, medical condition, and 
formulary information on covered drugs. This would enable the 
pharmacist to have more informative discussions with patients and 
provide valuable information about alternative drug or therapy 
solutions. We assume that some of this data exchange would eliminate 
manual processes and

[[Page 67653]]

interruptions, and would also enable additional required pharmacist 
interventions to be added contractually which could not occur 
previously. Thus, we conclude that the changes available through the 
Version F6 conversion would allow pharmacies to improve the accuracy 
and quality of services they provide but may not generate significant 
cost savings from a budgeting perspective.
(2) Health Plans and PBMs
    The benefits that could accrue to health plans and PBMs mirror the 
improvements that could accrue to pharmacy efficiencies discussed 
previously. Better information flows and interoperability could enable 
more efficient benefit adjudication, enhanced communications with 
trading partners and patients, and better data. Better data could 
improve payment accuracy, regulatory compliance, and advanced analytics 
for forecasting, coordination of care, and patient safety. For 
instance, better information on adjudicated payer types could support 
more accurately identifying other payers involved in the transaction. 
Improved information on other payers could result in cost avoidance by 
avoiding duplication of payment and/or by preventing Medicare from 
paying primary when it is the secondary payer. However, improved 
patient and alternative payer identification could also increase the 
transparency of the identification of payers secondary to Medicare and 
increase costs from other payers' subrogation in some circumstances. 
The ability to automate the processing of very expensive drug claims 
would avoid more cumbersome processes, but the absolute volume of such 
claims may not be enough to generate significant savings. We are not 
aware of any studies or estimates of cost savings for health plans or 
PBMs attributable to the Version F6 conversion, nor are we aware of 
public comments describing any such cost savings. Furthermore, in 
testimony to the NCVHS, the NCPDP noted the importance of Version F6 
for achieving broader (but difficult-to-quantify) healthcare 
transformation goals: it improves the structure to support the clinical 
evaluation of prescription products and planned benefit transparency, 
which are key components for achieving expected healthcare outcomes 
related to value-based care, digital therapeutics, social determinants 
of health, and other areas of health innovation.\31\ Thus, we conclude 
that while the benefits of adopting Version F6 are necessary for 
meeting current and future business needs and policy goals, we are 
unable to monetize these benefits in the form of cost savings. We 
solicit comments on whether there are significant quantifiable benefits 
or cost savings that should be included in our analysis.
---------------------------------------------------------------------------

    \31\ National Committee on Vital and Health Statistics 
Transcript March 24, 2020, 10:00 a.m.--5:30 p.m. ET. https://ncvhs.hhs.gov/wp-content/uploads/2020/05/Transcript-Full-Committee-Meeting-March-24-2020.pdf.
---------------------------------------------------------------------------

2. Adoption of Version 10
a. Introduction
    Subrogation occurs when one payer has paid a claim that is 
subsequently determined to be the responsibility of another payer, and 
the first payer seeks to recover the overpayment directly from the 
proper payer. Such erroneous payments may occur as the result of 
retroactive changes in patient coverage or because of the lack of 
information on other payers or correct payer order at the point of 
sale. Subrogation avoids putting the pharmacy in the middle of the 
corrective action by avoiding the alternative burdensome process of the 
first payer recovering the overpayment from the pharmacy and, thus, 
forcing the pharmacy to attempt reversing the claim and rebilling the 
proper payer.
    The current HIPAA subrogation transaction standard addresses 
federal and state requirements for state Medicaid agencies to recover 
reimbursement from responsible health plans but does not address 
similar requirements for other payers, such as Medicare Part D, State 
Pharmaceutical Assistance Programs (SPAPs), state AIDS Drug Assistance 
Programs (ADAPs), or other private insurers. Replacing this standard 
with initial adoption of Version 10 would extend the standard to all 
third-party payers. Insurers, employers, and managed care entities are 
generally referred to as health and/or drug plan sponsors, or, more 
generally, as third-party payers. Their health plans generally provide 
some coverage for outpatient prescription drugs, but do not generally 
directly manage coordination of pharmacy benefits and subrogation (also 
known as third-party liability services). Instead, health plans and 
other third-party payers generally contract with PBMs or with 
specialized payment integrity/financial recovery vendors for these 
services. The subrogation technical standard is based on the batch 
telecommunications standard and may utilize any field in an approved 
standard.
b. Affected Entities
    Medicare Part D requires real-time coordination of benefits, and we 
understand that these processes, as well as responsibility for managing 
subrogation (primarily for Medicaid retroactivity), are generally 
contracted through PBMs. Other payers, such as state Medicaid agencies 
and commercial insurers, are more likely to contract with payment 
integrity/financial recovery vendors. As of March 2018, there was 
evidence that some states managed this activity directly,\32\ but we 
are not aware of publicly available information on whether this is, or 
would still be, the case for the Version 10 implementation timeframe. 
Likewise, we understand the VA PBM does not coordinate benefits in real 
time but contracts with a payment integrity/financial recovery firm for 
retrospective subrogation in some circumstances. We believe there are 
four firms in the specialized pharmacy benefit payment integrity/
financial recovery industry, with the majority of business volume 
concentrated in one firm.
---------------------------------------------------------------------------

    \32\ NCVHS Hearing on NCPDP Standards and Updates--March 26, 
2018 Virtual Meeting. https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/.
---------------------------------------------------------------------------

    Based on a CAMH environmental scan conducted with industry 
representatives, we understand that the demand for subrogation today 
differs by third-party line of business. Third-party payers for 
governmental programs (Medicaid, Medicare Part D, and SPAPs/ADAPs) 
drive most of the subrogation demand. This is in large part due to 
their retroactive eligibility rules and potential overlaps in 
enrollment. Third-party commercial payer contracts are less likely to 
have a comparable retroactivity-of-coverage issue and, due to the 
rising cost of health insurance, are increasingly less likely to have 
enrollees covered under more than one insurance program or policy. For 
these reasons, we understand that third-party commercial payers are 
more likely to subrogate with workers' compensation, auto insurance, or 
other non-healthcare insurance-related parties, rather than with other 
healthcare payers.
    While pharmacies are not users of the subrogation standard, they 
are potentially affected by any further expansion of the standard from 
Medicaid to all third-party payers. This is because one alternative to 
subrogation involves the payer that paid in error recouping funds from 
pharmacies and transferring the effort and risk of rebilling the 
appropriate payer to the pharmacy.

[[Page 67654]]

c. Costs
(1) Third-Party Payers (Includes Plan Sponsors and PBMs)
    The bulk of the work to implement Version 10 for many third-party 
payers has been previously addressed in costs associated with 
implementing Version F6, specifically its equivalent batch standard. 
Based on conversations with industry representatives familiar with the 
subrogation standards, we understand that the changes in Version 10 
have been undertaken to preserve the integrity of the standard for 
Medicaid purposes while allowing for the collection of a limited number 
of new data elements to assist with other payer subrogation, 
particularly for Part D payers. We understand that the changes between 
Version 3.0 and Version 10 are not extensive, so we believe this change 
would not have significant effects on state Medicaid agencies or their 
vendors. However, we are not aware of data or public comments to help 
us confirm this assumption.
    We also assume that payers that desire to pursue prescription drug 
claim subrogation have already contracted with PBMs or other 
contractors that have implemented the Batch Standard Medicaid 
Subrogation Implementation Guide, Version 3.0, or some variation on 
this standard, on a voluntary basis. However, testimony provided in the 
March 2018 NCVHS hearing indicated that some payers had not yet 
implemented the batch processing software, and would have additional IT 
system, administrative, and training costs to convert to Version 10. We 
are not aware of the specific payers to which this remark referred, 
and, thus, several years later, we have no basis on which to estimate 
the number of additional payers or state Medicaid agencies that could 
potentially adopt the standard for the first time with Version 10. Nor 
do we know if any such payers might instead contract with a vendor to 
manage this function on their behalf during the course of the Version 
10 implementation. As with PBM and vendor contractual arrangements 
discussed previously, we assume that HIPAA standard conversions have 
been priced into ongoing contractual payment arrangements and would not 
increase costs to third-party payers as the result of converting to 
Version 10. We solicit comments to help us understand the impacts of 
converting to Version 10 on any payers or state Medicaid agencies that 
have not previously implemented NCPDP batch standards and/or 
Subrogation Version 3.0. We also solicit comments on our assumptions on 
the impacts on state Medicaid agency vendors in general, as well as 
data with which to quantify any additional impacts beyond the Version 
F6 conversion estimates provided previously.
    Based on conversations with industry representatives, we further 
understand that payers already engaged in subrogation, particularly 
Part D PBMs, have already, albeit inconsistently, implemented Version 
3.0 for other payers. Version 10 provides more requirements for use of 
the standard and how to populate the fields to increase 
standardization. Thus, we assume that the incremental effort required 
to transition to Version 10 largely consists of a mapping exercise from 
current PBM or vendor operating systems, rather than an initial build 
and migration from manual to automated processes. We are not aware of 
any studies or public comments to help us quantify these incremental 
costs.
(2) Vendors
    As noted previously, state Medicaid agencies, commercial third-
party payers, and the VA generally contract with four payment 
integrity/financial recovery firms for subrogation. We believe, based 
on conversations with industry representatives, that these firms 
generally utilize Subrogation Version 3.0 today, and would have to 
invest in Version F6 batch standard upgrades to implement Version 10 
and prepare to potentially accept subrogation from other third-party 
payers. These firms were not included in the previous vendor estimates. 
We are not aware of studies or public comments that describe costs 
related to their activities and requirements. We assume these vendors 
would incur a minority of the costs associated with the Version F6 
conversion and some internal data remapping expense. Therefore, as 
summarized in Table 7, we estimate that that over the 2-year 
implementation period:
    Four payment integrity/financial recovery vendors would incur 
Version F6, equivalent Batch Standard, Version 15 and other Version 10 
conversion costs of $500,000 each.
[GRAPHIC] [TIFF OMITTED] TP09NO22.014

d. Benefits
(1) Third-Party Payers
    The primary benefits for third-party payers are the opportunity to 
reduce claims costs when another party is also responsible for the 
claims and the avoidance of cumbersome manual processes. However, we 
are not aware of studies or public comments that help us estimate the 
frequency and size of this benefit. Prescription drug claims tend, on 
average, to be for much smaller amounts than medical claims, such as 
those for hospital admissions, and we believe many payers may pursue 
subrogation only on the more expensive claims. Discussion at the March 
2018 NCVHS hearing indicated that about 5 percent of patients had 
multiple insurances. It is estimated that national drug expenditures, 
the volume of claim reconciliation, and that the savings opportunity 
could easily exceed a billion dollars (as the subrogation transaction 
standard proposal was not revised in 2020, we do not have more recent 
testimony updating this estimate). However, additional testimony at 
that same hearing \33\ suggested there is not a huge cost savings 
opportunity left for commercial subrogation, but, instead, an 
occasional need that would be facilitated by a standardized approach. 
It seems that we do not have enough information to quantify the 
incremental benefits of extending Version 10 to non-Medicaid

[[Page 67655]]

third-party payers. We seek comment on our assumptions.
---------------------------------------------------------------------------

    \33\ Transcript-Standards Subcommittee Hearing--NCPDP Standards 
Updates--March 26, 2018. Accessed 05/14/2021 at: https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/.
---------------------------------------------------------------------------

(2) Pharmacies
    As noted previously, while pharmacies are not users of the 
subrogation transactions standard, they could potentially benefit from 
further expansion of the standard from state Medicaid agencies to all 
third-party payers if additional payers that are currently recouping 
overpayments from pharmacies instead were to transition to a 
subrogation approach. However, we are not aware of any studies or 
public comments that would help us estimate the likelihood or size of a 
potential change of this nature. We solicit comments to help us 
understand the extent to which the adoption of Version 10 may have an 
effect on pharmacies.

E. Alternatives Considered

    We considered a number of alternatives to adopting Version F6 and 
Version 10, but chose to proceed with the proposals in this in this 
rule after identifying significant shortcomings with each of the 
alternatives.
    One alternative we considered was to not propose to adopt Version 
F6 and continue to require the use of Version D.0. We also considered 
waiting to adopt Version F6 at a later date since we recently published 
a final rule in 2020 modifying the requirements for the use of Version 
D.0 by requiring covered entities to use the 460-ET field for retail 
pharmacy transactions denoting partial fill of Schedule II drugs. We 
did not proceed with either alternative because we believe that, were 
we to do so, the industry would continue to use a number of work 
arounds that increase burden and are contrary to standardization. We 
also believe that the number of these work arounds, as well as use of 
the work arounds, would continue to increase if we were not to propose 
adoption of Version F6 at this time. For example, NCPDP has advised 
that several new drugs priced at, or in excess of, $1 million are 
already on the market, and researchers and analysts anticipate that 
over the next several years, dozens of new drugs and therapies priced 
similarly or higher may enter the market. As the number of drugs and 
therapies in the market priced at, or in excess of, $1 million 
increases, the total burden associated with manual work arounds would 
also increase.
    We invite public comments on these assumptions and request any 
additional data that would help us to more accurately quantify the time 
and resource burdens associated with the existing, and, potentially, 
future work arounds should Version F6 not be adopted. We also chose not 
to proceed with these alternatives because, as discussed in section 
III.A. of this proposed rule, we believe adoption of Version F6 would 
support interoperability and improve patient outcomes.
    We considered proposing a compliance date longer than 24 months for 
covered entities to comply with Version F6. However, as discussed in 
section III.C. of this proposed rule, we chose to propose a 24-month 
compliance date because we believe the benefits to be derived from 
implementing Version F6 as soon as possible are significant. We also 
considered proposing staggered implementation dates for Version F6, 
whereby covered entities using the retail pharmacy transactions would 
have different compliance dates. We believe this alternative would not 
support standardization since pharmacies, PBMs, and health plans all 
rely on the information transmitted in the retail pharmacy 
transactions, and if any one of these three entities would not be using 
the same standard version at the same time, the information needed to 
process claims and check eligibility would be deficient. Pharmacies 
need the most current eligibility data from the plans to determine 
correct coverage and payment information, and health plans and PBMs 
need the most current information to be reflected in the claims data to 
maintain the beneficiaries' most current benefits.
    Concerning the proposed adoption of Version 10, we considered not 
adopting that updated version and continuing to require the use of 
Version 3.0. Such alternative would continue to permit non-Medicaid 
health plans that engage in pharmacy subrogation transactions to 
continue using the proprietary electronic and paper formats currently 
in use. We chose not to proceed with this alternative because we 
believe it is important to adopt standards that move the industry 
toward uniformity among all payers.

F. Regulatory Review Cost Estimate

    One of the costs of compliance with a final rule is the necessity 
for affected entities to review the rule in order to understand what it 
requires and what changes the entity will have to make to come into 
compliance. We assume that 104 affected entities will incur these 
costs, as they are the entities that will have to implement the 
proposed changes, that is, those entities that are pharmacy 
organizations that manage their own systems (27), pharmacy management 
system vendors (30), PBMs (40), telecommunication switch vendors (3), 
and payment integrity/financial recovery vendors (4). The particular 
staff involved in such a review will vary from entity to entity, but 
will generally consist of lawyers responsible for compliance activities 
and individuals familiar with the NCPDP standards at the level of a 
computer and information systems manager. Using the Occupational 
Employment and Wages for May 2020 from the BLS for lawyers (Code 23-
1011) and computer and information system managers (Code 11-3021),\34\ 
we estimate that the national average labor costs of reviewing this 
rule are $95.56 and $113.12 per hour, respectively, including other 
indirect costs and fringe benefits. We estimate that it will take 
approximately 4 hours for each staff person involved to review this 
final rule and its relevant sections and that on average two lawyers 
and two computer and information manager-level staff persons will 
engage in this review. For each entity that reviews the rule, the 
estimated costs are therefore $1,669.44 (4 hours each x 2 staff x 
$95.56 plus 4 hours x 2 staff x $113.12). Therefore, we estimate that 
the total cost of reviewing this rule is $171,953 ($1,669.44 x 103 
affected entities).
---------------------------------------------------------------------------

    \34\ Bureau of Labor Statistics. May 2020 National Occupational 
Employment and Wage Estimates United States. Mean hourly rates for 
Computer Network Architects, Software Developers and Software 
Quality Assurance Analysts and Testers, and Computer Support 
Specialists. Accessed 5/14/2021 at: https://www.bls.gov/oes/current/oes113021.htm#top.
---------------------------------------------------------------------------

G. Accounting Statement and Tables

    As required by OMB Circular A-4 (available at https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf), in Table 8 we present an accounting statement 
showing the classification of the annualized costs associated with the 
provisions of this final rule. Whenever a rule is considered a 
significant rule under Executive Order 12866, we are required to 
develop an Accounting Statement. This statement must state that we have 
prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this proposed rule. 
Monetary annualized benefits and non-budgetary costs are presented as 
discounted flows using 3 percent and 7 percent factors.

[[Page 67656]]

[GRAPHIC] [TIFF OMITTED] TP09NO22.015

H. Regulatory Flexibility Analysis (RFA)

    The RFA requires agencies to prepare an initial regulatory 
flexibility analysis that describes the impact of a proposed change on 
small entities, unless the head of the agency can certify that the rule 
will not have a significant economic impact on a substantial number of 
small entities. The RFA generally defines a small entity as (1) a 
proprietary firm meeting the size standards of the Small Business 
Administration (SBA); (2) a not-for-profit organization that is not 
dominant in its field; or (3) a small government jurisdiction with a 
population of less than 50,000. States and individuals are not included 
in the definition of a small entity. For the purpose of the proposed 
rule, we estimate that a change in revenues of more than 3 to 5 percent 
would constitute the measure of significant economic impact on a 
substantial number of small entities.
    SBA size standards have been established for types of economic 
activity or industry, generally under the North American Industry 
Classification System (NAICS). Using the 2019 SBA small business size 
regulations and Small Business Size Standards by NAICS Industry tables 
at 13 CFR 121.201, we have determined that the covered entities and 
their vendors affected by this proposed rule fall primarily in the 
following industry standards:

[[Page 67657]]

[GRAPHIC] [TIFF OMITTED] TP09NO22.016

    This change in retail pharmacy transaction standards would apply to 
many small covered entities in the Pharmacy and Drug Store segment 
(NAICS code 446110). However, based on information obtained by CAMH 
during its conversations with industry experts, we understand that 
small pharmacies generally rely on ongoing arrangements with certain 
specialized computer system design services vendors (a subset of NAICS 
code 541512) to integrate the standards into their pharmacy management 
software and systems as a routine cost of doing business. Therefore, 
these covered entities may not bear the bulk of the costs attributable 
to the proposed changes. Instead, as detailed later in this RIA, 
generally, the costs applicable to small pharmacies are expected to be 
a portion of the costs for user training for some firms. The pharmacy 
management system vendors are not covered entities, and we are not 
aware of publicly available data to comprehensively identify these 
entities and, where applicable, parent firm size. Other types of 
covered entities providing pharmacy services, such as the subset of 
grocery stores with pharmacies, cannot be clearly identified within 
NAICS data, as such data are not collected in this detail, but are 
included in our estimates for larger entities. Conversely, institutions 
with outpatient pharmacies (for example, hospitals) also cannot be 
clearly identified by NAICS data but are not included in our analysis, 
since we believe such institutions are generally part of larger 
organizations that do not meet the SBA definition. One exception to 
this assumption are the IHS urban and tribal facilities with pharmacies 
that bill prescription drug plans, which we address later in this 
analysis.
    For purposes of this RIA, the definition of an entity most closely 
resembles the federal statistical agencies' concept of a firm.\35\ A 
firm consists of one or more establishments under common ownership. An 
establishment consists of a single physical location or permanent 
structure.\36\ Thus, a chain drug store or chain grocery store 
constitutes a single firm operating multiple establishments. Using the 
2017 Census Bureau Annual Business Survey estimates of firms, sales, 
and receipts by NAICS sector (available at https://www.census.gov/programs-surveys/abs.html, and hereafter referred to as Census business 
data), we have attempted to estimate the number of small pharmacy 
entity firms and provide a general discussion of the effects of the 
proposed regulation. We solicit industry comment on these assumptions.
---------------------------------------------------------------------------

    \35\ www.bls.gov/opub/mlr/2016/article/establishment-firm-or-enterprise.htm.
    \36\ www.census.gov/programs-surveys/susb/technical-documentation/methodology.html.
---------------------------------------------------------------------------

1. Initial Regulatory Flexibility Analysis (IRFA)
a. Number of Small Entities
    Based on Census business data records indicating that in 2017 there 
were a total of 19,234 total pharmacy firms, we estimate that just over 
19,000 pharmacy firms qualify as small entities, though communications 
with industry representatives suggest that figure may overestimate the 
current industry small entity landscape. Available data does not permit 
us to clearly distinguish small pharmacy firms from firms that are part 
of larger parent organizations, but we use employee size as a proxy for 
the firm size subject to the SBA size standard. For purposes of this 
analysis, we assume the firms with more than 500 employees (190) 
represent chain pharmacies and those with fewer than 500 (19,044) 
employees represent independently owned open- or closed-door 
pharmacies. The 19,044 firms with fewer than 500 employees represented 
20,901 establishments and accounted for total annual receipts of $70.9 
billion and average annual receipts of $3.7 million--well below the SBA 
standard of $30 million. By contrast, the 190 firms with 500 or more 
employees represented 27,123 establishments and accounted for over $211 
billion in annual receipts, and thus, average annual receipts of $1.1 
billion. Therefore, we assume 19,044 pharmacy firms qualify as small 
entities for this analysis.
    For 2017, the Census Bureau counts 745 entities designated as 
Direct Health and Medical Insurance Carriers and 27 as Health 
Maintenance Organization (HMO) Medical Centers. We assume that these 
772 firms represent health plans that sponsor prescription drug 
benefits. Of the 745 Carriers, those with fewer than 500 employees 
(564) accounted for $35 billion in total and over $62 million in 
average annual receipts, exceeding the SBA size standard of $41.5 
million. Comparable data on the eight smaller HMO Medical Centers is 
not available due to small cell size suppression. Although health plan 
firms may not qualify as small entities under the SBA receipts size 
standard, they may under non-profit status. However, we are not aware 
of data that would help us understand the relationship between health 
plan firm and ownership tax status to quantify the number of such 
firms. In any case, as explained in more detail later in this RIA, we 
do not estimate that health plans would generally bear costs associated 
with the changes in this proposed rule, as their contracted transaction 
processing vendors (generally PBMs) would be responsible for 
implementing the changes, and, generally, based on conversations with 
the industry we do not believe their contractual terms would change as 
the result. Therefore, although we cannot estimate the number of health 
plan firms that may meet the small entity definition using non-profit 
status, generally we do not believe such entities would bear costs 
attributable to the proposed changes.
    In addition to the covered entities, we estimate 30 pharmacy 
management system vendors, 40 PBM vendors, three telecommunications 
switching vendors, and four payment integrity/financial recovery firms 
would be affected by the proposed changes to their clients. We

[[Page 67658]]

are not aware of comprehensive publicly available data detailed enough 
to quantify the size of these remaining entities, but we believe that 
the affected firms are, generally, part of larger organizations. We 
solicit comments with respect to our assumptions.
b. Cost to Small Entities
    To determine the impact on small pharmacies, we used Census 
business data on the number of firms with fewer than 500 employees and 
user training cost estimates developed using public comments on prior 
rulemaking and updated for inflation. As discussed earlier in this RIA, 
we assume that the clear majority of pharmacy firms are small entities 
that rely on their contracted pharmacy management system vendors to 
absorb HIPAA standard version conversion costs in return for ongoing 
maintenance and transaction fees. We assume that pharmacy firms would 
have direct costs related to Version F6 user training that would vary 
in relation to employee size; that the vast majority (90 percent) of 
small pharmacy firms with fewer than 20 employees would receive all 
necessary user training from vendors; and that the remaining 10 percent 
of small pharmacy firms (2,028) with 20 or more employees would have 
additional staff user training expense totaling $30,000 on average in 
the second year of the implementation period. As displayed in Table 10, 
the resulting total impact of approximately $61 million represents 
approximately 0.1 percent of small pharmacy annual revenues. Therefore, 
we conclude that the financial burden would be less than the 3 percent 
to 5 percent of revenue threshold for significant economic impact on 
small entities.
[GRAPHIC] [TIFF OMITTED] TP09NO22.017

    As stated in section V.F. of this proposed rule, we considered 
various policy alternatives to adopting Version F6. Specific to 
reducing costs to small entities, we considered staggering the 
implementation dates for Version F6 among the affected entities that 
utilize the NCPDP transaction standard. But we chose not to propose 
this alternative because pharmacies, PBMs, and health plans all rely on 
the information transmitted though the retail pharmacy transactions, 
and if any one of these three entities would not be using the same 
standard version at the same time, the information needed to process 
claims and check eligibility would be deficient. Pharmacies need the 
most current eligibility data from the plans to determine correct 
coverage and payment information. Plans and PBMs would suffer because 
they would not have the most current information reflected though the 
claims data to maintain the beneficiaries' most current benefits.
2. Conclusion
    As referenced earlier in this section, we use a baseline threshold 
of 3 percent to 5 percent of revenues to determine if a rule would have 
a significant economic impact on affected small entities. The small 
pharmacy entities do not come close to this threshold. Therefore, the 
Secretary has certified that this proposed will not have a significant 
economic impact on a substantial number of small entities. Based on the 
foregoing analysis, we invite public comments on the analysis and 
request any additional data that would help us determine more 
accurately the impact on the various categories of entities affected by 
the proposed rule.
    In addition, section 1102(b) of the Act requires us to prepare a 
RIA if a rule would have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must conform 
to the provisions of section 603 of the RFA. For purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital that 
is located outside of a metropolitan statistical area and has fewer 
than 100 beds. This proposed rule would not affect the operations of a 
substantial number of small rural hospitals because these entities are 
not involved in the exchange of retail pharmacy transactions. 
Therefore, the Secretary has certified that this proposed rule would 
not have a significant impact on the operations of a substantial number 
of small rural hospitals.

I. Unfunded Mandates Reform Act of 1995 (UMRA)

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates would require spending more in any 1 
year than threshold amounts in 1995 dollars, updated annually for 
inflation. In 2022, that threshold is approximately $165 million. This 
proposed rule does not contain mandates that would impose spending 
costs on state, local, or tribal governments in the aggregate, or by 
the private sector, in excess of more than $165 million in any 1 year. 
In general, each state Medicaid agency and other government entity that 
is considered a covered entity would be required to ensure that its 
contracted claim processors and payment integrity/financial recovery 
contractors update software and conduct testing and training to 
implement the adoption of the modified versions of the previously 
adopted standards. However, information obtained by CAMH during its 
conversations with industry experts supports that the costs for these 
services would not increase as a result of the proposed changes. Our 
understanding is that HIPAA standard conversion costs are already 
priced into ongoing contractual payment arrangements between health 
plans, contracted claim processors, and payment integrity/financial 
recovery contractors.

J. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on state 
and local governments, preempts state law, or

[[Page 67659]]

otherwise has federalism implications. This proposed rule would not 
have a substantial direct effect on state or local governments, preempt 
state law, or otherwise have a federalism implication because, even 
though state Medicaid agency contractors would be converting to a 
modified version of an existing standard with which they are already 
familiar, we believe that any conversion costs, would, generally, be 
priced into the current level of ongoing contractual payments. State 
Medicaid agencies, in accordance with this proposed rule, would have to 
ensure that their contracted claim processors or PBMs successfully 
convert to Version F6 and that their payment integrity/financial 
recovery contractors make relatively minor updates to subrogation 
systems to collect and convey some new fields to conduct subrogation 
initiated by other payers using Version 10. With respect to subrogation 
for pharmacy claims, this proposed rule would not add a new business 
requirement for states, but rather would replace a standard to use for 
this purpose that would be used consistently by all health plans.
    In accordance with the provisions of Executive Order 12866, this 
proposed rule was reviewed by the Office of Management and Budget.

VI. Response to Comments

    Because of the large number of public comments, we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

List of Subjects in 45 CFR Part 162

    Administrative practice and procedures, Electronic transactions, 
Health facilities, Health insurance, Hospitals, Incorporation by 
reference, Medicaid, Medicare, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services proposes to amend 45 CFR part 162 as set forth 
below:

PART 162--ADMINISTRATIVE REQUIREMENTS

0
1. The authority citation for part 162 continues to read as follows:

    Authority:  42 U.S.C. 1320d-1320d-9 and secs. 1104 and 10109 of 
Public Law 111-148, 124 Stat. 146-154 and 915-917.

0
2. Section 162.920 is amended by--
0
a. Revising the introductory text of the section and the introductory 
text of paragraph (b).
0
b. Adding paragraphs (b)(7) through (9).
    The revisions and additions read as follows:


Sec.  162.920  Availability of implementation specifications and 
operating rules.

    Certain material is incorporated by reference into this subpart 
with the approval of the Director of the Federal Register under 5 
U.S.C. 552(a) and 1 CFR part 51. To enforce any edition other than that 
specified in this section, the Centers for Medicare & Medicaid Services 
(CMS) must publish a document in the Federal Register and the material 
must be available to the public. All approved incorporation by 
reference (IBR) material is available for inspection at CMS and the 
National Archives and Records Administration (NARA). Contact CMS at: 
Centers for Medicare & Medicaid Services (CMS), 7500 Security 
Boulevard, Baltimore, Maryland 21244; email: 
[email protected]. For information on the 
availability of this material at NARA, visit www.archives.gov/federal-register/cfr/ibr-locations.html or email [email protected]. The 
material may be obtained from the sources in the following paragraphs 
of this section.
* * * * *
    (b) National Council for Prescription Drug Programs (NCPDP), 9240 
East Raintree Drive, Scottsdale, AZ 85260; phone: (480) 477-1000; fax: 
(480) 767-1042; website: www.ncpdp.org.
* * * * *
    (7) The Telecommunication Standard Implementation Guide Version F6 
(Version F6), January 2020; as referenced in Sec.  162.1102; Sec.  
162.1202; Sec.  162.1302; Sec.  162.1802.
    (8) The Batch Standard Implementation Guide, Version 15 (Version 
15), October 2017; as referenced in Sec.  162.1102; Sec.  162.1202; 
Sec.  162.1302; Sec.  162.1802.
    (9) The Batch Standard Subrogation Implementation Guide, Version 10 
(Version 10), September 2019, as referenced in Sec.  162.1902.
* * * * *
0
3. Section 162.1102 is amended by--
0
a. In paragraph (c), removing the phrase ``For the period on and after 
the January 1, 2012,'' and adding in its place the phrase ``For the 
period from January 1, 2012, through [date TBD],''.
0
b. In paragraph (d) introductory text, removing the phrase ``For the 
period on and after September 21, 2020,'' and adding in its place the 
phrase ``For the period on and after September 21, 2020, through [date 
TBD],''.
0
c. Adding paragraph (e).
    The addition reads as follows:


Sec.  162.1102   Standards for health care claims or equivalent 
encounter information transaction.

* * * * *
    (e) For the period on and after [date TBD], the following 
standards:
    (1) Retail pharmacy drug claims. The Telecommunication Standard 
Implementation Guide Version F6 (Version F6), January 2020 and 
equivalent Batch Standard Implementation Guide, Version 15 (Version 15) 
October 2017 (incorporated by reference, see Sec.  162.920).
    (2) Dental health care claims. The ASC X12 Standards for Electronic 
Data Interchange Technical Report Type 3--Health Care Claim: Dental 
(837), May 2006, ASC X12N/005010X224, and Type 1 Errata to Health Care 
Claim: Dental (837) ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3, October 2007, ASC X12N/005010X224A1 
(incorporated by reference, see Sec.  162.920).
    (3) Professional health care claims. The ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Health Care Claim: 
Professional (837), May 2006, ASC X12N/005010X222 (incorporated by 
reference, see Sec.  162.920).
    (4) Institutional health care claims. The ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Health Care Claim: 
Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata 
to Health Care Claim: Institutional (837) ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3, October 2007, ASC 
X12N/005010X223A1 (incorporated by reference, see Sec.  162.920).
    (5) Retail pharmacy supplies and professional services claims. (i) 
The Telecommunication Standard Implementation Guide Version F6 (Version 
F6), January 2020 and equivalent Batch Standard Implementation Guide, 
Version 15 (Version 15) October 2017 (incorporated by reference, see 
Sec.  162.920).
    (ii) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3-Health Care Claim: Professional (837), May 
2006, ASC X12N/005010X222 (incorporated by reference, see Sec.  
162.920).
0
4. Section 162.1202 is amended by--
0
a. In paragraph (c), removing the phrase ``For the period on and after 
January 1, 2012,'' and adding in its place the phrase ``For the period 
from January 1, 2012, through [date TBD],''.

[[Page 67660]]

0
b. Adding paragraph (d).
    The addition reads as follows:


Sec.  162.1202  Standards for eligibility for a health plan 
transaction.

* * * * *
    (d) For the period on and after [date TBD], the following 
standards:
    (1) Retail pharmacy drugs. The Telecommunication Standard 
Implementation Guide Version F6 (Version F6), January 2020, and 
equivalent Batch Standard Implementation Guide, Version 15 (Version 
15), October 2017 (incorporated by reference, see Sec.  162.920).
    (2) Dental, professional, and institutional health care eligibility 
benefit inquiry and response. The ASC X12 Standards for Electronic Data 
Interchange Technical Report Type 3--Health Care Eligibility Benefit 
Inquiry and Response (270/271), April 2008, ASC X12N/005010X279 
(incorporated by reference, see Sec.  162.920).
0
5. Section 162.1302 is amended by--
0
a. In paragraph (c), removing the phrase ``For the period on and after 
January 1, 2012,'' and adding in its place the phrase ``For the period 
from January 1, 2012, through [date TBD],''.
0
b. In paragraph (d) introductory text, removing the phrase ``For the 
period on and after September 21, 2020,'' and adding in its place the 
phrase, ``For the period on and after September 21, 2020, through [date 
TBD],''.
0
c. Adding paragraph (e).
    The addition reads as follows:


Sec.  162.1302   Standards for referral certification and authorization 
transaction.

* * * * *
    (e) For the period on and after [date TBD], the following 
standards:
    (1) Retail pharmacy drugs. The Telecommunication Standard 
Implementation Guide Version F6 (Version F6), January 2020, and 
equivalent Batch Standard Implementation Guide, Version 15 (Version 
15), October 2017 (incorporated by reference, see Sec.  162.920).
    (2) Dental, professional, and institutional request for review and 
response. The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Services Review--Request for 
Review and Response (278), May 2006, ASC X12N/005010X217, and Errata to 
Health Care Services Review--Request for Review and Response (278), ASC 
X12 Standards for Electronic Data Interchange Technical Report Type 3, 
April 2008, ASC X12N/005010X217E1 (incorporated by reference, see Sec.  
162.920).
0
6. Section 162.1802 is amended by--
0
a. In paragraph (c), removing the phrase ``For the period on and after 
January 1, 2012,'' and adding in its place the phrase ``For the period 
from January 1, 2012, through [date TBD],''.
0
b. In paragraph (d) introductory text, removing the phrase ``For the 
period on and after September 21, 2020,'' and adding in its place the 
phrase ``For the period on and after September 21, 2020, through [date 
TBD],''.
0
c. Adding paragraph (e).
    The addition reads as follows:


Sec.  162.1802  Standards for coordination of benefits information 
transaction.

* * * * *
    (e) For the period on and after [date TBD], the following 
standards:
    (1) Retail pharmacy drug claims. The Telecommunication Standard 
Implementation Guide Version F6 (Version F6), January 2020 and 
equivalent Batch Standard Implementation Guide, Version 15 (Version 15) 
October 2017 (incorporated by reference, see Sec.  162.920).
    (2) Dental health care claims. The ASC X12 Standards for Electronic 
Data Interchange Technical Report Type 3--Health Care Claim: Dental 
(837), May 2006, ASC X12N/005010X224, and Type 1 Errata to Health Care 
Claim: Dental (837) ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3, October 2007, ASC X12N/005010X224A1 
(incorporated by reference, see Sec.  162.920).
    (3) Professional health care claims. The ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Health Care Claim: 
Professional (837), May 2006, ASC X12N/005010X222 (incorporated by 
reference, see Sec.  162.920).
    (4) Institutional health care claims. The ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Health Care Claim: 
Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata 
to Health Care Claim: Institutional (837) ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3, October 2007, ASC 
X12N/005010X223A1 (incorporated by reference, see Sec.  162.920).
0
7. Revise the heading of subpart S to read as follows:

Subpart S--Pharmacy Subrogation

0
8. Section 162.1901 is amended by--
0
a. Revising the section heading.
0
b. Designating the text of the section as paragraph (a) and adding 
paragraph (b).
    The revision and addition read as follows:


Sec.  162.1901  Pharmacy subrogation transaction.

* * * * *
    (b) The pharmacy subrogation transaction is the transmission of a 
request for reimbursement of a pharmacy claim from a health plan that 
paid the claim, for which it did not have payment responsibility, to 
the health plan responsible for the claim.
0
9. Section 162.1902 is revised to read as follows:


Sec.  162.1902   Standards for pharmacy subrogation transaction.

    (a) The Secretary adopts the following standards for the Medicaid 
pharmacy subrogation transaction, described in Sec.  162.1901(a), for 
the period from January 1, 2012, through [date TBD], The Batch Standard 
Medicaid Subrogation Implementation Guide, Version 3, Release 0 
(Version 3.0), July 2007, as referenced in Sec.  162.1902 (incorporated 
by reference, see Sec.  162.920).
    (b) The Secretary adopts the following standard for the pharmacy 
subrogation transaction, described in Sec.  162.1901(b), The Batch 
Standard Subrogation Implementation Guide, Version 10 (Version 10), 
September 2019, as referenced in Sec.  162.1902 (incorporated by 
reference, see Sec.  162.920).
    (1) For the period on and after [date TBD], for covered entities 
that are not small health plans.
    (2) For the period on and after [date TBD], for small health plans.

    Dated: November 1, 2022.
Xavier Becerra
Secretary, Department of Health and Human Services.
[FR Doc. 2022-24114 Filed 11-7-22; 4:15 pm]
BILLING CODE 4150-28-P